As filed with the Securities and Exchange Commission on September 14, 2001
Registration No. 33-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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UNITED BANKSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
West Virginia 6711 55-0641179
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
500 Virginia Street, East
Charleston, West Virginia 25301
(304) 348-8400
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Richard M. Adams
United Bankshares, Inc.
P. O. Box 393
500 Virginia Street, East
Charleston, West Virginia 25301
(304) 348-8400
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(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
with copies to:
Sandra M. Murphy, Esq. John R. Brantley, Esq.
Bowles Rice McDavid Graff & Love PLLC Bracewell & Patterson, L.L.P.
600 Quarrier Street 711 Louisiana Street, Suite 2900
P. O. Box 1386 Houston, Texas 77002
Charleston, West Virginia 25325-1386 (713) 221-1301
(304) 347-1131
Approximate date of commencement of proposed sale 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. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
==================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Be Offering Price Per Aggregate Offering Amount of
Securities to Be Registered Registered/(1)/ Unit Price/(2)/ Registration Fee
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Common Stock, par value 2,207,228 shares Not applicable $42,506,305.37 $10,626.58
$2.50 per share
==================================================================================================================
(1) The number of shares of common stock, par value $2.50 per share of United
Bankshares, Inc. to be registered pursuant to this Registration Statement is
based upon the sum of (a) the number of shares of common stock, par value
$1.00 per share, of Century Bancshares, Inc. presently outstanding and (b)
the number of shares of Century common stock issuable upon exercise of
presently exercisable options multiplied by the exchange ratio of 0.4500 of
a share of United Bankshares, Inc. common stock.
(2) Estimated solely for the purposes of determining the registration fee in
accordance with Rule 457(f)(1), based upon the average of the high and low
prices as of September 10, 2001 of the maximum number of shares of Century
stock to be acquired by United in the merger, less the amount of cash to be
paid by United in connection with the transaction.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
[CENTURY LOGO]
Prospectus of United Bankshares, Inc. Proxy Statement of Century
Bancshares, Inc.
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The boards of directors of United Bankshares, Inc. and Century Bancshares,
Inc. have unanimously approved an Agreement and Plan of Reorganization that
provides for the combination of Century and United. The combined company will
continue under the name United Bankshares, Inc., with its headquarters in
Charleston, West Virginia. We believe the combined company will be able to
create substantially more stockholder value than could be achieved by the
companies individually.
In the merger, each holder of a share of Century common stock will receive
consideration consisting of (i) 0.4500 share of United stock and (ii) $3.43 in
cash. Cash will be paid instead of issuing fractional shares of United common
stock.
United will issue approximately 2,207,228 shares of United common stock to
Century stockholders in the merger, based on Century's outstanding shares on
October __, 2001. These shares will represent approximately 4.5% of the
outstanding United common stock after the merger. United shares held by
stockholders of United prior to the merger will represent approximately 95.50%
of the outstanding United shares after the merger.
United's common stock is traded on The Nasdaq National Market System under
the symbol "UBSI." On September 10, 2001, the last reported price per share was
$26.70.
Your vote is important. We are asking the stockholders of Century to
approve the merger agreement. We cannot complete the merger unless we receive
the approval of the stockholders of Century.
Century's stockholders' meeting will be held on December 7, 2001, 9:00
a.m., at the offices of Bracewell & Patterson, L.L.P., 2000 K Street N.W., Suite
500, Washington, D.C. 20006-1872.
/s/ JOSEPH S. BRACEWELL
Joseph S. Bracewell
Chairman of the Board, President,
and Chief Executive Officer
Century Bancshares, Inc.
An investment in the United common stock in connection with the merger involves
risks. See "Risk Factors" beginning on page 16.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
regulators have approved of the merger or the shares of United common stock to
be issued in connection with the merger or determined if this proxy
statement/prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
- --------------------------------------------------------------------------------
The date of this proxy statement/prospectus is __________, 2001, and it is first
being mailed to Century stockholders on or about October __, 2001.
ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates documents by reference which
are not presented herein or delivered herewith. These documents are available
upon request from:
United Bankshares, Inc. Century Bancshares, Inc.
514 Market Street 1275 Pennsylvania Avenue, N.W.
Parkersburg, West Virginia 26102 Washington, D.C. 20004
(304) 424-8800 (202) 496-4100
Attention: Corporate Secretary Attention: Corporate Secretary
In order to ensure timely delivery of the documents, any request should be
made by November 30, 2001.
See "Where You Can Find More Information" on page 105.
[CENTURY LOGO]
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS TO BE
HELD ON DECEMBER 7, 2001
To the Stockholders of Century Bancshares, Inc.:
A special meeting of stockholders of Century will be held on December 7, 2001,
at 9:00 a.m. at the offices of Bracewell & Patterson, L.L.P., 2000 K Street,
N.W., Suite 500, Washington, D.C. 20006-1872, for the following purposes:
1. to consider and vote upon a proposal to approve the Agreement and Plan
of Reorganization (merger agreement) dated as of June 14, 2001,
pursuant to which Century will become a wholly-owned subsidiary of
United and Century National Bank will merge with and into United Bank.
In the merger, among other things, each share of Century common stock
will be converted into and become the right to receive 0.4500 share of
United common stock and $3.43 in cash. Cash will be paid instead of
issuing fractional shares of United common stock; and
2. to transact any other business that may properly come before the
meeting or any adjournment or postponement.
Century's board has unanimously approved the merger agreement and recommends
that you vote "FOR" approval and adoption of the merger agreement. Holders of
record of Century common stock at the close of business on October __, 2001,
will be entitled to vote at the Century meeting or any adjournment or
postponement. A list of stockholders entitled to vote will be kept by Century
at 1275 Pennsylvania Avenue, N.W., Washington, D.C., 20004, for ten days before
the meeting.
Please do not send any certificates for your stock at this time.
/s/ WILLIAM C. OLDAKER
William C. Oldaker
Secretary
October __, 2001
You are cordially invited to attend the special meeting in person. Even if you
plan to be present, you are urged to mark, date, sign and return the enclosed
proxy at your earliest convenience in the envelope provided, which requires no
postage if mailed in the United States. If you attend the special meeting, you
may vote either in person or by proxy. If your shares are not registered in
your name, you will need additional documentation from your recordholder in
order to vote personally at the meeting.
TABLE OF CONTENTS
Page No.
QUESTIONS AND ANSWERS ABOUT THE MERGER................................ 1
SUMMARY............................................................... 2
The Companies....................................................... 2
The Merger.......................................................... 2
What Century Stockholders Will Receive in the Merger................ 2
Stock Options....................................................... 3
The Special Meeting and Required Vote............................... 3
Reasons for Merger.................................................. 3
Recommendation to Stockholders...................................... 4
Summary of Risk Factors............................................. 4
Opinion of Century's Financial Advisor.............................. 4
Board of Directors of United and United Bank After the Merger....... 4
Conditions to Completion of the Merger.............................. 4
Termination of Merger Agreement..................................... 5
Option Agreement.................................................... 5
Interests of Executive Officers and Directors in the Merger......... 5
Material Federal Income Tax Consequences of the Merger.............. 6
Resale of United Shares Received in the Merger...................... 6
Appraisal Rights.................................................... 6
Comparative Stockholder Rights...................................... 6
Regulatory Approvals................................................ 7
SELECTED HISTORICAL FINANCIAL DATA.................................... 8
Selected Historical Financial Data of United........................ 8
Selected Historical Financial Data of Century....................... 10
Summary of Historical and Pro Forma Per Share Selected Financial
Data............................................................... 12
Comparative Per Share Data.......................................... 14
Comparative Merger Consideration and Dividend Data.................. 15
RISK FACTORS.......................................................... 16
FORWARD-LOOKING INFORMATION........................................... 19
INFORMATION ABOUT THE MEETING AND VOTING.............................. 21
Matters Relating to the Special Meeting of Century Stockholders..... 21
Voting and Revocation of Proxies.................................... 22
Solicitation of Proxies; Expenses................................... 23
Appraisal Rights for Century Stockholders........................... 23
-i-
THE MERGER.............................................................. 24
General............................................................... 24
United's Reasons for the Merger....................................... 24
Century's Reasons for the Merger; Recommendation of Century's Board... 24
Opinion of Century's Financial Advisor................................ 27
Quorum and Vote Required.............................................. 32
Interest of Certain Persons in the Merger............................. 32
Board of Directors of United After the Merger......................... 34
Federal Income Tax Consequences of the Merger......................... 34
Accounting Treatment.................................................. 36
Regulatory Approvals.................................................. 36
Resales of United Common Stock Issued in the Merger................... 36
Appraisal Rights of Century Stockholders.............................. 37
THE MERGER AGREEMENT.................................................... 41
Structure of the Merger............................................... 41
Merger Consideration.................................................. 41
Timing of Closing..................................................... 41
Treatment of Century Stock Options.................................... 41
Exchange of Shares.................................................... 42
Designation of Directors.............................................. 42
Forbearances Regarding Interim Operations of Century and United....... 42
Additional Covenants of United and Century............................ 45
Representations and Warranties........................................ 46
Conditions of Merger.................................................. 46
Termination, Amendment and Waiver..................................... 47
The Option Agreement.................................................. 48
INFORMATION ABOUT UNITED................................................ 54
Regulation............................................................ 54
Competition and Economic Characteristics of Primary Market Area....... 55
Employees............................................................. 56
Properties............................................................ 56
Legal Proceedings..................................................... 56
Interests of Certain Persons.......................................... 56
DESCRIPTION OF CAPITAL STOCK OF UNITED.................................. 57
Common Stock.......................................................... 57
Market and Stock Prices of United..................................... 58
-ii-
INFORMATION ABOUT CENTURY............................................. 59
General............................................................. 59
Management of Century and Additional Information.................... 59
Voting Securities and Principal Holders Thereof..................... 59
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CENTURY.................................... 62
General.......................................................... 62
For the Three and Six Month Periods Ended June 30, 2001 and 2000.... 63
Results of Operations............................................ 63
Financial Condition.............................................. 69
For the Years Ended December 31, 2000, 1999 and 1998................ 77
General.......................................................... 77
Results of Operations............................................ 77
Financial Condition.............................................. 84
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF
CENTURY STOCKHOLDERS AND RIGHTS THOSE PERSONS WILL HAVE
AS STOCKHOLDERS OF UNITED........................................... 98
LEGAL MATTERS......................................................... 105
EXPERTS............................................................... 105
WHERE YOU CAN FIND MORE INFORMATION................................... 105
INDEX TO FINANCIAL STATEMENTS......................................... F-1
ANNEX A: AGREEMENT AND PLAN OF REORGANIZATION (INCLUDING
EXHIBIT A THERETO - THE STOCK OPTION AGREEMENT)............. A-1
ANNEX B: FRIEDMAN, BILLINGS, RAMSEY & CO., INC. FAIRNESS OPINION..... B-1
ANNEX C: SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW.......... C-1
-iii-
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: When and where is the stockholders' meeting?
A: Century's meeting will take place on December 7, 2001, at 9:00 a.m. at the
offices of Bracewell & Patterson, L.L.P., 2000 K Street N.W., Suite 500,
Washington, D.C. 20006-1872.
Q: What do I need to do now?
A: Just mail your signed proxy card in the enclosed return envelope, so that
your shares may be represented at the meeting. In order to assure that your
shares are voted, please mail your proxy as instructed on your proxy card
even if you currently plan to attend the meeting in person. The board of
directors of Century recommends that its stockholders vote in favor of the
merger.
Q: What do I do if I want to change my vote?
A: Just send in a later-dated, signed proxy card to Century's Corporate
Secretary before the meeting, or you can attend the meeting in person and
vote. If your shares are not registered in your name, you will need
additional documentation from your recordholder in order to vote in person
at the meeting. You may also revoke your proxy by sending a notice of
revocation to Century's Corporate Secretary at the address under "The
Companies" on page 2.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: No. If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker will not be permitted to vote them on the
merger. You should therefore be sure to provide your broker with
instructions on how to vote your shares.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, United will send Century stockholders
written instructions for exchanging their stock certificates.
Q: When do you expect the merger to be completed?
A: We are attempting to complete the merger as quickly as possible. In
addition to stockholder approval, we must also obtain regulatory approvals.
We expect to complete the merger during the fourth quarter of 2001.
Q: Whom do I call if I have questions about the meeting or the merger?
A: Please contact Joseph S. Bracewell, Dale G. Phelps or F. Kathryn Roberts of
Century at (202) 496-4100 with any questions about the meeting or the
merger.
1
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully and for a more complete
description of the legal terms of the merger, you should read this document and
the documents we have referred you to carefully. See "Where You Can Find More
Information" on page 105.
The Companies
United Bankshares, Inc.
500 Virginia Street, East
Charleston, West Virginia 25301
(304) 348-8400
United Bankshares, Inc. (United) is a West Virginia corporation registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended. United was incorporated and organized in 1982 and began conducting
business in 1984 with the acquisition of three wholly-owned subsidiaries. Since
its formation in 1982, United has acquired 24 banking institutions. United has
two banking subsidiaries, United National Bank (UNB) and United Bank. United
also owns nonbank subsidiaries that engage in mortgage banking, asset
management, investment banking and financial planning.
The headquarters of United is located in United Center at 500 Virginia
Street, East, Charleston, West Virginia. United's executive offices are located
in Parkersburg, West Virginia at Fifth and Avery Streets. United operates 77
branches C52 in West Virginia, 22 in Northern Virginia, Maryland and Washington,
DC areas and three in Ohio. As of June 30, 2001, United had total assets of
$5.09 billion, total deposits of $3.45 billion, and stockholders' equity of
$444.97 million.
Century Bancshares, Inc.
1275 Pennsylvania Avenue, N.W.,
Washington, DC 20004
(202) 496-4100
Century Bancshares, Inc. (Century) is the parent company of Century
National Bank (CNB), a community bank providing a full range of loans and
financial services to individuals, small businesses, and non-profit
organizations in the Washington, DC metropolitan area. Century operates 11 full-
service banking offices--two in downtown Washington, DC, five in Northern
Virginia and four in Montgomery County, Maryland--and an insurance agency. As of
June 30, 2001, Century had total assets of $415.03 million, total deposits of
$322.26 million, and stockholders' equity of $25.06 million.
The Merger
If Century stockholders approve the merger at the special meeting and
regulatory approvals are received, Century will merge into a subsidiary of
United and will become a wholly-owned subsidiary of United, and CNB will be
merged into United Bank. We expect completion of the merger in the fourth
quarter of 2001.
The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read the merger agreement as it is the
legal document that governs the merger.
What Century Stockholders Will Receive in The Merger (See Page 41)
If the merger is completed, Century stockholders will receive, for each
share of Century common stock, 0.4500 share of United common stock and $3.43 in
cash.
On September 10, 2001, the last reported per share price of United common
stock was $26.70. Applying the 0.4500 exchange ratio to that price, each holder
of Century common stock
2
would be entitled to receive United common stock with a market value of
approximately $12.02 for each share of Century common stock, plus cash in the
amount of $3.43, representing a total estimated value of $15.45 per Century
share. A chart summarizing the total estimated consideration that would be
received by Century stockholders assuming certain market values of United may be
found on page 15. However, the market prices for Century and United common stock
are likely to change between now and the merger. You are urged to obtain current
price quotes for United and Century common stock.
Stock Options
If the merger is completed, all issued and outstanding options to purchase
Century common stock will be converted into options to purchase the number of
shares of United common stock equal to the number of shares of Century common
stock subject to the option multiplied by 0.5894, and no cash will be paid to
option holders.
The Special Meeting and Required Vote
Century is holding a special stockholders' meeting at 9:00 a.m., local
time, on December 7, 2001, at the offices of Bracewell & Patterson, L.L.P., 2000
K Street N.W., Suite 500, Washington, DC 20006-1872. The purpose of the meeting
is for Century stockholders to consider and vote on the merger agreement. The
record date for the meeting is the close of business on October __, 2001. Only
stockholders of record at the close of business on the record date will be
entitled to vote at the meeting and any adjournment.
Two-thirds of the shares entitled to vote on the merger must be voted in
favor of the merger. As of August 31, 2001, directors, executive officers and
affiliates of Century own or control the right to vote 1,183,040 shares of
Century common stock, which represents approximately 27.3% of the total shares
of Century stock issued and outstanding as of the record date.
Reasons for Merger
The terms of the merger agreement were the results of arm's length
negotiations between representatives of Century and United. In deciding to enter
into the merger agreement, Century's board of directors considered a number of
factors including:
. the recent results of operations and financial condition, and future
business prospects, of Century and United;
. the challenges faced by Century in implementing its strategic plan;
. the value of the total consideration to be received by Century
stockholders in relation to recent trading prices of Century common
stock and in comparison to prices received in mergers by other financial
institutions in similar circumstances;
. the financial presentations of Century's financial advisor and the
advisor's opinion that the consideration to be received by the Century
stockholders was fair, from a financial point of view, to Century
stockholders;
. the expectation that the receipt of the United common stock would be
tax-free to Century stockholders; and
. the increased liquidity the merger will provide to Century stockholders.
To review Century's reasons for the merger in greater detail, see page 24.
In deciding to enter into the merger agreement, United's board of directors
considered a number of factors, including the opportunity the merger presented
to enter the Washington, D. C. market and to expand its presence in attractive
markets in Virginia. United believes the acquisition of Century's operations is
consistent with its plan to have
3
operations, offices and distinct capabilities in every market of its choice
within its region.
To review United's reasons for the merger in greater detail, see page 24.
Recommendation to Stockholders
Century's board believes that the merger is fair to you and in your best
interest and recommends that you vote FOR the approval and adoption of the
merger agreement.
Summary of Risk Factors (See Page 16)
The merger is subject to risks some of which are:
. United may be unable to manage effectively the new assets it acquires;
. changes in interest rates may adversely affect United's business;
. United's officers and directors will own a significant number of shares
after the merger and could exert significant influence on stockholder
votes;
. loss of United's Chairman and CEO or other executive officers could
adversely affect its business;
. United and its subsidiaries operate in highly competitive markets;
. dividend payments by United's subsidiaries to United and by United to
its stockholders could be restricted;
. United's business is concentrated in the West Virginia and Northern
Virginia areas, and a downturn in the local economies may adversely
affect its business; and
. determination of the adequacy of the allowance for loan losses is based
upon estimates that are inherently subjective and dependent on the
outcome of future events. Ultimate losses may differ from current
estimates. As a result, such losses may increase significantly.
Opinion of Century's Financial Advisor
In approving the merger, Century's board considered the opinion of its
financial advisor, Friedman, Billings, Ramsey & Co. Inc., as to the fairness
from a financial point of view of the consideration to be paid by United in the
merger as of June 13, 2001, as updated on August 28, 2001. This opinion is
attached as Annex B. We encourage you to read this opinion.
Board of Directors of United and United Bank after the Merger (See Page 34)
Immediately following the merger, the board of directors of United will
have 18 members, including Mr. Joseph S. Bracewell, the current Chairman of the
Board, President and Chief Executive Officer of Century. Mr. Bracewell will also
serve as Vice Chairman of United Bank, United's Virginia subsidiary.
In addition to Mr. Bracewell, Marvin Fabrikant, a current member of both
the Century and CNB boards, and Roger C. Johnson, a current member of the CNB
board, will be elected or appointed to serve on United Bank's board.
Conditions to Completion of the Merger (See Page 46).
The completion of the merger depends upon meeting a number of conditions,
including the following:
. approval of the stockholders of Century;
. receipt by United of all regulatory approvals;
. authorization for the listing on The Nasdaq National Market System of
the
4
shares of United common stock to be issued in the merger;
. absence of any law or court order prohibiting the merger; and
. receipt of opinions from Century's and United's counsel that the merger
will qualify as a reorganization under Section 368 of the Internal
Revenue Code.
Termination of Merger Agreement (See Page 47)
Century and United may jointly agree to terminate the merger at any time.
Additionally:
(a) Either Century or United may terminate the merger agreement if any of
the following occurs:
. the approval of any governmental entity required for consummation of the
merger is denied;
. the merger is not complete by March 31, 2002, unless the failure of the
merger to be consummated arises out of or results from the knowing
action or inaction of the party seeking to terminate;
. either party breaches any of its obligations under the merger agreement,
and does not cure the breach within 30 days; or
. the merger agreement is not approved by the stockholders of Century.
(b) United may terminate the merger agreement if Century's board fails to
recommend, modifies or withdraws its recommendation of the merger.
(c) Century may terminate the merger agreement if United's stock declines to
an average closing price of less than $18.45 during the five-day period
commencing on the date on which the last required regulatory approval is
obtained. However, if Century elects to terminate under this
circumstance, United has the option of increasing the share portion of
the merger consideration from 0.4500 share of United stock to a number
obtained by dividing $8.303 by the average closing price of United
common stock during the period of 20 trading days ending on the trading
day before the date on which the last required regulatory approval is
obtained. This would cause the exchange ratio for option shares to
increase from 0.5894 to a number obtained by dividing $11.733 by the
average closing price of United common stock during the period of 20
trading days ending on the trading day before the date on which the last
required regulatory approval is obtained.
Option Agreement (See Page 48)
As a condition to its offer to acquire Century, and to discourage other
companies from acquiring Century, United required Century to grant United a
stock option that allows United to buy up to 644,143 shares of Century's common
stock. The exercise price of the option is $12.00 per share. Generally, United
can exercise the option only if another party attempts to acquire control of
Century. As of the date of this proxy statement/prospectus, we do not believe
this has occurred.
Interests of Executive Officers and Directors in the Merger (See Page 32)
When you consider Century's board's recommendation that Century
stockholders vote in favor of the merger, you should be aware that a number of
Century's executive officers and directors may have interests in the merger that
may be different from, or in addition to, yours. Joseph S. Bracewell, Chairman
of the Board,
5
President and Chief Executive Officer of Century will become a director of
United and Vice Chairman of United Bank. Marvin Fabrikant, Chief Lending Officer
of CNB and a director of Century, will become a director of United Bank. In
their capacities as directors of United or United Bank, Messrs. Bracewell and
Fabrikant will receive directors' fees. Mr. Bracewell, Mr. Fabrikant and two
other officers of Century whose employment is expected to be terminated shortly
after the effectiveness of the merger will receive certain severance benefits
upon termination. All board members of Century and CNB are parties to deferred
compensation agreements that United will assume in the merger. Furthermore, all
directors and certain employees of Century and CNB will benefit from accelerated
vesting of stock options.
Material Federal Income Tax Consequences of the Merger (See Page 34)
The merger has been structured as a reorganization for federal income tax
purposes. Accordingly, holders of Century common stock generally will not
recognize any gain or loss for federal income tax purposes on the exchange of
their Century stock for United stock in the merger, except for a gain or loss
recognized in connection with the receipt of cash instead of a fractional share
of United common stock and the $3.43 per share in cash received as part of the
merger consideration. The companies themselves, as well as holders of United
common stock, will not recognize gain or loss as a result of the merger. It is
a condition to the obligations of Century and United to complete the merger that
each receive a legal opinion from its outside counsel that the merger will be a
reorganization for federal income tax purposes.
The federal income tax consequences described above may not apply to some
holders of Century common stock. Your tax consequences will depend on your
personal situation. You should consult your tax advisor for a full
understanding of the tax consequences of the merger to you.
Resale of United Shares Received in the Merger (See Page 36)
United has registered under the federal securities laws the shares of its
common stock to be issued in the merger. Therefore, you may sell shares that
you receive in the merger without restriction unless you are considered an
affiliate of Century or you become an affiliate of United. A director,
executive officer or stockholder who beneficially owns 10% or more of the
outstanding shares of a company is generally deemed to be an affiliate of that
company.
If you are considered an affiliate of Century or become an affiliate of
United, you may resell the shares of United common stock you receive pursuant to
an effective registration statement under the securities laws, or pursuant to
Rule 145 of the SEC's rules, or in transactions otherwise exempt from
registration under the securities laws. United is not obligated and does not
intend to register for resale the shares issued to affiliates of Century.
Appraisal Rights (See Page 37)
Under Delaware law, Century stockholders may object to the merger and
demand to be paid the fair value of their shares. Under Delaware law, you should
know that in determining the fair value of your shares, any appreciation or
depreciation resulting from the accomplishment or expectation of the merger will
not be considered. To properly exercise your appraisal rights and avoid a waiver
of such rights, you must not vote your shares in favor of the merger and you
must follow the exact procedures required by Delaware law (see Annex C).
Comparative Stockholder Rights (See Page 98)
Once the merger occurs, Century stockholders will become stockholders of
6
United. Century is a Delaware corporation governed by Delaware law and United is
a West Virginia corporation governed by West Virginia law. As a result of the
merger, Century stockholders' rights as United stockholders will be governed by
West Virginia law and the provisions of the certificate of incorporation, as
amended, and bylaws of United. Because of the differences between the laws of
the states of Delaware and West Virginia and the respective certificates of
incorporation and the bylaws of Century and United, Century stockholders' rights
as stockholders will change as a result of the merger.
Regulatory Approvals (See Page 36)
The merger of United with Century must be approved by the Federal Reserve
Bank of Richmond and the Virginia Department of Financial Institutions. United
filed an application with the Federal Reserve Bank of Richmond to obtain
approval of the merger on ____________, 2001. On ____________, 2001, United
filed an application for approval of the merger with the Virginia Department of
Financial Institutions. United will also file notices of closing with the
Federal Reserve Bank of Richmond, the Office of the Comptroller of the Currency,
and the Department of Financial Institutions of Virginia and the Board of
Banking and Financial Institutions of West Virginia.
7
SELECTED HISTORICAL FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This information is only a
summary and you should read it in conjunction with the consolidated financial
statements and related notes, "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Century" included in and/or incorporated
by reference into this proxy statement/prospectus.
Selected Historical Financial Data of United
The following selected historical financial data for each of the years
ended December 31, 1996 through 2000 are derived from United's audited
consolidated financial statements. The following selected historical financial
data for the six months ended June 30, 2001 and June 30, 2000 are derived from
the unaudited consolidated financial statements of United and include, in the
opinion of United's management, all adjustments (consisting only of normal
accruals) necessary to present fairly the data of such periods. You should not
rely on the six-month information as being indicative of results that may be
expected for the entire year or for any future interim period.
8
UNITED BANKSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands, Except Per Share Information)
At or For the At or For the
Six Months Ended Year Ended
June 30, December 31,
-------------------------- --------------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------------------------- --------------------------------------------------------------------
INCOME STATEMENT DATA:
Interest income $ 183,693 $ 187,331 $ 377,847 $ 354,665 $ 325,647 $ 280,452 $ 250,641
Interest expense 93,244 95,174 197,766 174,402 155,354 131,122 112,256
------------------------- --------------------------------------------------------------------
Net interest income 90,449 92,157 180,081 180,263 170,293 149,330 138,385
Provision for credit losses 4,642 6,398 15,745 8,800 12,156 3,280 2,881
------------------------- --------------------------------------------------------------------
Net interest income after
provision for credit losses 85,807 85,759 164,336 171,463 158,137 146,050 135,504
Noninterest income 28,841 23,265 33,786 51,078 41,752 37,068 29,654
Noninterest expense 56,449 55,249 110,422 117,519 137,964 103,852 104,385
------------------------- --------------------------------------------------------------------
Income before income taxes 58,199 53,775 87,700 105,022 61,925 79,266 60,773
Income taxes 19,063 17,664 28,724 34,774 17,523 27,005 21,054
------------------------- --------------------------------------------------------------------
Net income $ 39,136 $ 36,111 $ 58,976 $ 70,248 $ 44,402 $ 52,261 $ 39,719
------------------------- --------------------------------------------------------------------
COMMON SHARE DATA:
Net income--basic $ 0.94 $ 0.86 $ 1.41 $ 1.63 $ 1.04 $ 1.24 $ 0.94
Net income--diluted 0.93 0.85 1.40 1.61 1.02 1.22 0.93
Book value per share 10.77 9.60 10.32 9.32 9.74 9.35 8.59
Common shares outstanding -
end of period 41,308,168 41,910,723 41,765,271 42,474,084 43,256,477 42,474,084 42,067,610
Weighted average common shares
outstanding 41,584,502 42,110,730 41,958,956 43,100,977 42,757,638 42,032,566 42,351,562
Diluted weighted average shares
outstanding 41,914,814 42,449,089 42,260,270 43,722,081 43,461,222 42,768,461 42,813,415
Cash dividends per share(1) 0.45 0.42 0.84 0.82 0.75 0.68 0.62
Total cash dividends(1) 18,704 17,691 35,286 35,367 28,317 20,344 17,847
BALANCE SHEET DATA:
Total assets $ 5,094,607 $ 4,991,051 $ 4,904,547 $ 5,069,160 $ 4,567,899 $ 4,094,836 $ 3,541,244
Investment securities 1,450,917 1,353,317 1,245,334 1,472,553 927,316 1,006,735 865,020
Loans held for sale 198,591 153,701 203,831 117,825 720,607 97,619 74,465
Total loans 3,204,163 3,221,646 3,192,494 3,170,096 2,652,391 2,689,839 2,354,571
Allowance for credit losses 41,197 39,324 40,532 39,599 39,189 31,936 29,376
Total deposits 3,450,939 3,270,925 3,391,449 3,260,985 3,493,058 3,185,963 2,770,833
Long-term borrowings 714,740 633,445 698,204 343,847 240,867 46,674 44,877
Total borrowings and other
liabilities 1,198,701 1,317,991 1,082,228 1,412,245 653,310 512,817 407,579
Stockholders' equity 444,967 402,135 430,870 395,930 421,531 396,056 362,832
Average assets $ 4,906,315 $ 4,958,994 $ 4,936,605 $ 4,867,521 $ 4,238,808 $ 3,682,302 $ 3,352,594
PERFORMANCE DATA:
Return on average assets 1.61% 1.46% 1.19% 1.44% 1.05% 1.42% 1.18%
Return on average stockholders'
equity 17.70 18.12 14.41 16.73 10.77 13.92 11.17
Net interest margin 4.14 4.18 4.11 4.12 4.37 4.40 4.52
Loans to deposits 92.85 98.49 94.13 97.21 75.93 84.43 84.98
Dividend payout ratio (1) 47.79 48.99 59.83 50.35 63.77 49.69 58.49
ASSET QUALITY RATIOS:
Nonperforming assets to total
asets 0.26% 0.40% 0.30% 0.48% 0.49% 0.52% 0.43%
Nonperforming loans to total
loans 0.35 0.53 0.40 0.65 0.70 0.69 0.54
Net loan charge-offs to average
loans 0.24 0.40 0.45 0.28 0.18 0.14 0.14
Allowance for credit losses to
total loans 1.29 1.22 1.27 1.25 1.48 1.19 1.25
Allowance for credit losses to
nonperforming loans 367.67 229.82 315.47 190.91 209.94 170.85 229.77
REGULATORY CAPITAL RATIOS:
Tier 1 risk-based capital 10.69% 10.43% 10.68% 10.64% 11.43% 12.91% 15.32%
Total risk-based capital 11.77 11.48 11.77 11.75 12.63 14.08 16.51
Tier 1 leverage 8.27 8.01 8.17 7.71 8.52 9.04 10.05
-----------------------
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
9
Selected Historical Financial Data of Century
The following selected historical financial data for each of the years
ended December 31, 1996 through 2000 are derived from Century's consolidated
financial statements. The consolidated financial statements include the accounts
of Century and all of its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The following selected
historical financial data for the six months ended June 30, 2001 and June 30,
2000 are derived from the unaudited consolidated financial statements of Century
and include, in the opinion of Century's management, all adjustments (consisting
only of normal accruals) necessary to present fairly the data of such periods.
You should not rely on the six-month information as being indicative of results
that may be expected for the entire year or for any future interim period.
Century's historical data has been restated to reflect the acquisition
by Century of GrandBanc, Inc. on March 15, 2001, which was accounted for under
the pooling of interests method of accounting. See Note 16 of Notes to
Consolidated Financial Statements of Century.
10
CENTURY BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in Thousands, Except Per Share Information)
At or For the At or For the
Six Months Ended Year Ended
June 30, December 31,
---------------------- ----------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
---------------------- ----------------------------------------------------------
INCOME STATEMENT DATA:
Interest income $ 15,414 $ 12,412 $ 27,804 $ 21,833 $ 19,564 $ 17,316 $ 12,493
Interest expense 8,094 5,530 13,587 9,563 8,555 7,896 4,836
---------------------- ----------------------------------------------------------
Net interest income 7,320 6,882 14,217 12,270 11,009 9,420 7,657
Provision for credit losses 820 440 1,450 909 630 1,545 125
---------------------- ----------------------------------------------------------
Net interest income after provision
for credit losses 6,500 6,442 12,767 11,361 10,379 7,875 7,532
Noninterest income 2,998 950 2,287 1,456 1,270 1,271 1,044
Noninterest expense 8,253 5,935 13,239 11,335 10,405 9,783 7,809
---------------------- ----------------------------------------------------------
Income before income taxes 1,245 1,457 1,815 1,482 1,244 (637) 767
Income taxes 831 564 771 563 508 (1,823) 280
---------------------- ----------------------------------------------------------
Net income $ 414 $ 893 $ 1,044 $ 919 $ 736 $ 1,186 $ 487
---------------------- ----------------------------------------------------------
COMMON SHARE DATA(1):
Net income--basic $ 0.10 $ 0.21 $ 0.24 $ 0.21 $ 0.18 $ 0.37 $ 0.18
Net income--diluted 0.09 0.20 0.24 0.21 0.17 0.35 0.18
Book value per share (2) 5.80 5.23 5.61 5.03 5.24 5.14 4.51
Common shares outstanding--end of
period 4,322,511 4,077,342 4,305,692 4,065,556 3,917,873 3,550,005 2,448,509
Weighted average common shares
outstanding 4,310,170 4,303,706 4,281,346 4,356,080 4,174,998 3,198,552 2,641,424
Diluted weighted average shares
outstanding 4,413,989 4,379,057 4,311,297 4,385,154 4,244,465 3,359,135 2,743,128
BALANCE SHEET DATA:
Total assets $ 415,028 $ 341,843 $ 409,657 $ 322,076 $ 261,023 $ 256,512 $ 208,311
Investment securities (3) 88,447 103,246 119,499 98,120 62,597 63,834 46,033
Total loans (4) 292,929 213,883 259,368 197,069 176,531 171,617 144,440
Allowance for credit losses 2,955 2,412 2,958 2,209 2,055 2,589 1,842
Total deposits 322,258 266,332 329,178 255,156 222,936 218,303 182,268
Long-term borrowings 28,732 31,645 29,367 11,494 5,501 8,011 8,350
Stockholders' equity 25,063 22,384 24,166 21,480 23,004 21,021 12,771
Average assets $ 410,230 $ 320,169 $ 352,179 $ 288,383 $ 247,324 $ 216,019 $ 154,557
PERFORMANCE DATA:
Return on average assets (5) 0.20% 0.56% 0.30% 0.32% 0.30% 0.55% 0.32%
Return on average stockholders'
equity (5) 3.33 8.16 4.60 4.09 3.36 8.16 4.27
Net interest margin (5) 3.96 4.63 4.37 4.58 4.83 4.71 5.39
Loans to deposits 90.90 80.31 78.79 77.23 79.18 78.61 79.25
ASSET QUALITY RATIOS:
Nonperforming assets to total
assets 0.38% 0.51% 0.31% 0.75% 0.99% 1.94% 1.24%
Nonperforming loans to total loans 0.46 0.76 0.49 1.16 1.25 2.03 1.11
Net loan charge-offs to average
loans (5) 0.60 0.24 0.32 0.40 0.67 0.53 -0.01
Allowance for credit losses to
total loans 1.01 1.13 1.14 1.12 1.16 1.51 1.28
Allowance for credit losses to
nonperforming loans 220.00 148.00 232.00 96.00 93.00 74.00 114.00
REGULATORY CAPITAL RATIOS (CNB):
Tier 1 risk-based capital 7.33% 10.15% 7.57% 9.44% 10.26% 9.06% 9.68%
Total risk-based capital 9.91 11.15 10.46 10.45 11.34 10.13 10.96
Tier 1 leverage 5.90 7.46 5.56 6.96 7.92 6.79 6.62
_____________________________
(1) Per share data has been adjusted to reflect the five percent common stock
dividend paid on June 29, 2001 and five percent common stock dividends in
2000, 1999, 1998 and 1997, and a seven percent common stock dividend in
1996.
(2) Book value per common share is based on stockholders' equity divided by
the number of common shares outstanding, adjusted for stock dividends.
(3) Investments include federal funds sold and interest-bearing deposits in
other financial institutions.
(4) Total loans are reported net of unearned income.
(5) Annualized for interim periods.
11
Summary of Historical and Pro Forma Per Share Selected Financial Data
Set forth below are the basic earnings, diluted earnings, cash dividends
and book value per common share data for Century and United on a historical
basis, on a pro forma combined basis, and on a pro forma equivalent per common
share of Century. Century financial data has been restated to reflect the
acquisition of GrandBanc, Inc. under the pooling of interests method of
accounting. Also included are weighted average shares outstanding (basic),
weighted average shares outstanding (diluted) and shares outstanding at end of
period for Century and United on a historical basis and on a pro forma basis.
The exchange ratio for the merger is 0.4500 share of United common stock for
each share of Century common stock and an amount of cash equal to $3.43.
The pro forma data was derived by combining the historical consolidated
financial information of Century and United using the purchase method of
accounting for business combinations. In July 2001, the Financial Accounting
Standards Board issued Statement No. 142, "Goodwill and Other Intangible
Assets", which eliminates the requirement to amortize goodwill and requires
goodwill to be evaluated annually, or more frequently if impairment indicators
arise, for impairment. Accordingly, the pro forma data does not include the
impact of amortizing goodwill since it is no longer required. Per share data for
Century has been adjusted to reflect five percent common stock dividends in
2001, 2000, 1999, 1998 and 1997.
The Century pro forma equivalent share information shows the effect of the
merger from the perspective of an owner of Century stock. The information was
computed by multiplying the pro forma information by an exchange ratio of
0.4500.
You should read the information below together with historical financial
statements and related notes and other information included and incorporated by
reference in this proxy statement/prospectus. The unaudited pro forma combined
data below is for illustrative purposes only. The companies may have performed
differently had they always been combined. You should not rely on this
information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger, nor should you rely on the
six-month information as being indicative of results expected for the entire
year or for any future interim period.
12
At or for the At or for the
Six Months Year Ended
Ended June 30, December 31,
2001 2000
-------------- ---------------
Basic Earnings Per Common Share
Century historical $ 0.10 $ 0.24
United historical 0.94 1.41
Pro forma combined 0.94 1.41
Pro forma equivalent per common share of 0.42 0.64
Century
Diluted Earnings Per Common Share
Century historical $ 0.09 $ 0.24
United historical 0.93 1.40
Pro forma combined 0.93 1.40
Pro forma equivalent per common share of 0.42 0.63
Century
Cash Dividends Per Common Share
Century historical N/A N/A
United historical $ 0.45 $ 0.84
Pro forma combined 0.45 0.84
Pro forma equivalent per common share of 0.20 0.38
Century
Book Value Per Common Share
Century historical $ 5.80 $ 5.61
United historical 10.77 10.32
Pro forma combined 11.49 11.02
Pro forma equivalent per common share of Century 5.17 4.96
Weighted Average Common Shares Outstanding - Basic
Century historical 4,310,170 4,281,346
United historical 41,584,502 41,958,956
Pro forma combined 43,524,079 43,885,562
Weighted Average Common Shares Outstanding - Diluted
Century historical 4,413,989 4,311,297
United historical 41,914,814 42,260,270
Pro forma combined 43,901,109 44,200,354
Common Shares Outstanding - at End of Period
Century historical 4,322,511 4,305,692
United historical 41,308,168 41,765,271
Pro forma combined 43,253,298 43,702,832
13
Comparative Per Share Data
The following table summarizes the comparative per share data of Century
common stock and United common stock on June 13, 2001, the business day prior to
the announcement of the merger. Because the market price of United common stock
is subject to fluctuation, the market value of the shares of United common stock
that holders of Century common stock would receive upon consummation of the
merger may increase or decrease prior to the receipt of such shares following
the effectiveness of the merger. You should obtain current market quotations for
United common stock.
Equivalent
Pro Forma Value
Historical Per Share of
------------------------------------------------ ------------------------
United Century Century
----------------------- ------------------------ ------------------------
Market value per share $ 24.60/(1)/ $ 8.00/(1)/ $14.50/(2)/
(1) Represents the closing price on June 13, 2001.
(2) Represents the sum of (a) the product obtained by multiplying United's
per share closing price by the exchange ratio of 0.4500, and (b) cash
in the amount of $3.43.
14
Comparative Merger Consideration and Dividend Data
Set forth below is the value of the total merger consideration that would
be paid by United to Century stockholders assuming the market values of United
stock indicated.
Value of Cash
Market Value Stock Portion of Portion of
of Merger Merger Total
United Stock Consideration/(2)/ Consideration Consideration
---------------- --------------------- ---------------- --------------
$18.45/(1)/ $ 8.30 $3.43 $11.73
$19.00 $ 8.55 $3.43 $11.98
$19.50 $ 8.78 $3.43 $12.21
$20.00 $ 9.00 $3.43 $12.43
$22.00 $ 9.90 $3.43 $13.33
$24.00 $10.80 $3.43 $14.23
$26.00 $11.70 $3.43 $15.13
$28.00 $12.60 $3.43 $16.03
$30.00 $13.50 $3.43 $16.93
(1) This is the lowest price at which Century is obligated under the terms
of the merger agreement to consummate the merger. See "The Merger
Agreement--Termination, Amendment and Waiver."
(2) The exchange ratio for the stock portion of the merger consideration
is 0.4500 share of United stock for each share of Century stock owned.
In 2000, United paid total dividends of $.84 per share. Based on the
exchange ratio of 0.4500 share of United stock for each share of Century stock
owned, holders of Century stock would have received $.38 per share had they been
stockholders of United during all four quarters in which United paid dividends.
15
RISK FACTORS
An investment in United's common stock in connection with the merger
involves certain risks. In considering the proposal to approve the merger you
should carefully consider the following risk factors in addition to the other
information contained in this proxy statement/prospectus:
United may be unable to manage effectively the new assets it acquires.
As a result of the merger, United's total assets will increase by
approximately 8% or $415 million (based on June 30, 2001, balance sheet data).
United's ability to integrate Century into United's operations successfully
depends on its ability to
. control costs;
. increase revenue;
. maintain positive customer relations;
. maintain regulatory compliance; and
. attract, assimilate and retain qualified personnel.
If United fails to successfully integrate Century's operations with its own
operations, United may experience interruptions in its business which may have
an adverse impact on its business, financial condition or results of operations.
The significant integration issues that United must address include
. Successful integration of these operations could be more expensive than
anticipated and take longer than anticipated;
. During the integration process, other parts of United's operations
could be adversely affected as a result of the diversion of
management's attention;
and
. The failure to integrate Century's operations satisfactorily may also
affect United's ability to operate United Bank in a manner consistent
with safe and sound banking practices.
Changes in interest rates may adversely affect United's business.
United's earnings, like most financial institutions, are significantly
dependent on its net interest income. Net interest income is the difference
between the interest income United earns on loans and other assets which earn
interest and the interest expense incurred to fund those assets, such as on
savings deposits and borrowed money. Therefore, changes in general market
interest rates, such as a change in the monetary policy of the Board of
Governors of the Federal Reserve System or otherwise beyond those which are
contemplated by United's interest rate risk model and policy could have an
effect on net interest income. For more information concerning United interest
rate risk model and policy, see the discussion under the heading "Market Risk"
in United's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001,
which is incorporated herein by reference.
United's officers and directors will own a substantial number of shares after
the merger and could exert significant influence on matters submitted to its
stockholders.
After completion of the merger, one of Century's directors and
principal stockholders will become a director of United. Together with United's
current executive officers, directors and principal stockholders, they will
beneficially own approximately 15.75% of the outstanding shares of United common
stock. As a result, these stockholders, if they act together, could
significantly influence the outcome of matters submitted to the stockholders for
a vote,
16
including the election of directors, the approval of mergers and other business.
Loss of United's Chief Executive Officer or other executive officers could
adversely affect its business.
United's success is dependent upon the continued service and skills of its
executive officers and senior management. If United loses the services of these
key personnel, it could have a negative impact on United's business because of
their skills, years of industry experience and the difficulty of promptly
finding qualified replacement personnel. The services of Richard M. Adams,
United's Chief Executive Officer, would be particularly difficult to replace.
United and Mr. Adams are parties to an Employment Agreement providing for his
continued employment by United through March 31, 2006.
United operates in a highly competitive market.
United faces a high degree of competition in all of the markets it serves.
United considers all of West Virginia to be included in its market area. This
area includes the five largest West Virginia Metropolitan Statistical Areas
(MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Wheeling
MSA and the Weirton MSA. United serves the Ohio counties of Lawrence, Belmont,
Jefferson and Washington primarily because of their close proximity to the Ohio
border and United banking offices nearby in West Virginia. In Virginia, United
competes in the Northern Virginia counties of Arlington, Loudoun, Prince William
and Fairfax. In addition, United has offices in the Washington, DC MSA and
considers this part of its market. In Maryland, United has offices in Montgomery
county. United considers all of the above locations to be the primary market
area for the business of its banking subsidiaries.
There is a risk that aggressive competition could result in United
controlling a smaller share of these markets. A decline in market share could
lead to a decline net income which would have a negative impact on stockholder
value.
Dividend payments by United's subsidiaries to United and by United to its
stockholders can be restricted.
The declaration and payment of future cash dividends will depend on, among
other things, United's earnings, the general economic and regulatory climate,
United's liquidity and capital requirements, and other factors deemed relevant
by United's board of directors. Federal Reserve Board policy limits the payment
of cash dividends by bank holding companies and requires that a holding company
serve as a source of strength to its banking subsidiaries.
United's principal source of funds to pay dividends on its common stock is
cash dividends from its subsidiaries. The payment of these dividends by its
subsidiaries is also restricted by federal and state banking laws and
regulations. As of June 30, 2001, an aggregate of approximately $32.00 million
was available for dividend payments from UNB to United without regulatory
approval and $8.42 million for payment of dividends from United Bank to United
without regulatory approval.
United's business is concentrated in the West Virginia and Northern Virginia
market areas and a downturn in the local economies may adversely affect its
business.
United's business is concentrated in the West Virginia and Northern
Virginia market areas. As a result, its financial condition, results of
operations and cash flows are subject to changes if there are changes in the
economic conditions in these areas. A prolonged period of economic recession or
other adverse economic conditions in one or both of these areas could have a
negative impact on United. United can provide no assurance that conditions in
its market area economies will not deteriorate in the future and that such a
deterioration would not have a material adverse effect on United.
17
There are no assurances as to adequacy of the allowance for credit losses.
United believes that its allowance for credit losses is maintained at a
level adequate to absorb any probable losses in its loan portfolio. Management
establishes the allowance based upon many factors, including:
. historical loan loss experience;
. industry diversification of the commercial loan portfolio;
. the effect of changes in the local real estate market on collateral
values;
. the amount of nonperforming loans and related collateral security;
. current economic conditions that may affect the borrower's ability to
pay and value of collateral;
. sources and cost of funds;
. volume, growth and composition of the loan portfolio; and
. other factors management believes are relevant.
These determinations are based upon estimates that are inherently subjective,
and their accuracy depends on the outcome of future events, so ultimate losses
may differ from current estimates. Depending on changes in economic, operating
and other conditions, including changes in interest rates, that are generally
beyond its control, United's actual loan losses could increase significantly. As
a result, such losses could exceed United's current allowance estimates. United
can provide no assurance that its allowance is sufficient to cover actual loan
losses should such losses differ substantially from our current estimates.
In addition, federal and state regulators, as an integral part of their
respective supervisory functions, periodically review United's allowance for
credit losses. United's independent auditors also review the allowance as a part
of their audit. Any increase in its allowance required by either the regulatory
agencies or independent auditors would reduce United's pre-tax earnings.
18
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by United contained in
this proxy statement/prospectus that are not historical facts are forward-
looking statements made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve a
number of risks and uncertainties. The important factors that could cause
actual results to differ materially from the forward-looking statements include,
without limitation:
The Merger
. The ability to fully realize cost savings from the merger in the
expected time frame;
. Greater than expected costs of integrating Century into United; and
. Unexpected levels of losses of customers, deposits, or revenues.
Interest Rates and Economy
. Changes in interest rates and economic conditions;
. Changes in the levels of loan prepayments and the resulting effects on
the value of United's loan portfolio;
. Changes in local economic and business conditions adversely affecting
United's borrowers and their ability to repay their loans according to
their terms or the value of the related collateral; and
. Changes in local economic and business conditions adversely affecting
United's customers other than borrowers and their ability to transact
profitable business with United.
Competition and Product Availability
. Increased competition for deposits and loans adversely affecting rates
and terms; and
. Various strategic alternatives that United considers from time to time,
including acquisitions of other depository institutions, their assets
or their liabilities on favorable terms, and United's successful
integration of any such acquisitions.
Asset Management
. Increased credit risk in United's assets and increased operating risk
caused by a material change in commercial, consumer and/or real estate
loans as a percentage of the total loan portfolio;
. The failure of assumptions underlying the establishment of and
provisions made to the allowance for loan losses; and
. Incurrence of higher-than-anticipated loan losses at Century after the
merger.
19
Liquidity and Capital
. Changes in the availability of funds resulting in increased costs or
reduced liquidity;
. Changes in United's ability to pay dividends on its common stock; and
. Increased asset levels and changes in the composition of assets and the
resulting impact on United's capital levels and regulatory capital
ratios.
Systems
. United's ability to acquire, operate and maintain cost effective and
efficient systems; and
. Unexpectedly difficult or expensive, but necessary technological
changes.
Personnel
. The loss of senior management or operating personnel and the potential
inability to hire qualified personnel at reasonable compensation
levels.
Tax, Regulatory, Compliance and Legal
. Changes in applicable statutes and government regulations or their
interpretations;
. Claims of United's noncompliance with statutory and regulatory
requirements; and
. Changes in the status of litigation to which United is a party.
20
INFORMATION ABOUT THE MEETING AND VOTING
Century's board is using this proxy statement/prospectus to solicit proxies
from the stockholders of record as of October __, 2001 of Century common stock
for use at the Century meeting. We are first mailing this proxy
statement/prospectus and accompanying form of proxy to Century stockholders on
or about October __, 2001.
In this proxy statement/prospectus, we refer to the Agreement and Plan of
Reorganization dated as of June 14, 2001, among United, its wholly-owned
subsidiary formed for the merger, and Century as the merger agreement. Proxies
may be voted on other matters that may properly come before the Century meeting,
if any, at the discretion of the proxy holders. Century's board knows of no
such other matters except those incidental to the conduct of the meeting. A
copy of the merger agreement is attached as Annex A.
Matters Relating to the Special Meeting of Century Stockholders
Time and Place: December 7, 2001
9:00 a.m., Eastern Time
Bracewell & Patterson, L.L.P.
2000 K Street N.W., Suite 500
Washington, D.C. 20006-1872
Purpose of Meeting: To vote on the proposed merger of
Century and United pursuant to which
Century will merge with a wholly-
owned subsidiary of United formed for
the merger.
Required Vote: Approval of the merger requires the
affirmative vote of two-thirds of the
outstanding shares of common stock.
Record Date: The record date for shares entitled
to vote is the close of business on
October __, 2001.
Outstanding Shares Held On October __, 2001, _________ shares of Century common
on Record Date: stock were outstanding.
Shares Entitled to Vote: Shares entitled to vote are Century common stock held at
the close of business on the record date, October __,
2001. Each share of Century common stock that you own
entitles you to one vote. Shares held by Century as
treasury stock are not voted.
21
Quorum Requirements: A quorum of stockholders is necessary to hold a valid
meeting. The presence in person or by proxy at the
meeting of holders of shares representing a majority of
the shares of the Century common stock outstanding and
entitled to vote at the meeting is a quorum. Abstentions
and broker "non-votes" count as present for establishing a
quorum. Shares held by Century as treasury stock do not
count toward a quorum.
Broker Non-Votes and Abstentions: The proposal to approve the merger is a "nondiscretionary"
item, meaning that brokerage firms cannot vote shares in
their discretion on behalf of a client if the client has
not given voting instructions. Accordingly, broker
non-vote shares will not be counted as votes cast on that
proposal. Shares with respect to which proxies have been
marked as abstentions also will not be counted as votes
cast on that proposal.
Beneficial Ownership of Directors and As of August 31, 2001, directors and executive officers
Executive Officers: beneficially owned 1,183,040 shares of Century common stock,
excluding exercisable options. These shares represent in
total approximately 27.3% of the voting power of Century's
voting securities, voting together as a single class.
Voting and Revocation of Proxies
The shares of Century common stock represented by properly completed
proxies received at or before the time for the meeting (or any adjournment) will
be voted as directed by the respective stockholders unless the proxies are
revoked as described below. If no instructions are given, executed proxies will
be voted "FOR" the approval of the merger agreement, and executed but unmarked
proxies will be voted "FOR" the approval of the merger agreement. If any other
matters are properly presented at the meeting and voted upon, the proxies
solicited hereby will be voted on those matters at the discretion of the proxy
holders named therein. If your shares are held in "street" name by a broker or
other nominee, you must provide your broker or other holder instructions on how
to vote your shares. If you do not provide these instructions, you will not be
permitted to vote your shares on the merger.
You may revoke any proxy given pursuant to this solicitation at any time
before it is voted. Proxies may be revoked by:
. filing with the Secretary of Century, at or before the taking of the
vote at the special meeting, a written notice of revocation bearing a
later date than the revoked proxy;
. properly executing and completing a later-dated proxy relating to the
same shares and delivering it to the Secretary before the taking of the
vote at the special meeting; or
. attending the special meeting and voting in person, although attendance
at the special meeting will not by itself constitute a revocation of a
proxy. If your shares are not registered in your
22
name, you will need additional documentation from your record holder to
vote the shares in person.
You should send any written notice of revocation or subsequent proxy to the
address below, or hand deliver it to the Corporate Secretary at or before the
taking of the vote at the special meeting.
Century Bancshares, Inc.
1275 Pennsylvania Ave, NW
Washington, DC 20004
Attention: Corporate Secretary
If your shares are held by a broker in street name and you wish to change
the instructions you have given your broker about how to vote your shares, you
must follow the instructions provided by the broker in order to change your
vote.
Solicitation of Proxies; Expenses
In connection with Century's special meeting, proxies are being solicited
by, and on behalf of, Century's board. Century will bear the cost of
soliciting proxies from its stockholders. In addition to solicitation by mail,
proxies may be solicited from stockholders by directors, officers and employees
of Century and CNB in person or by telephone, facsimile or other means of
communication. These directors, officers and employees will not receive
additional compensation for soliciting proxies, but may be reimbursed for
reasonable out-of-pocket expenses in connection with the solicitation.
Arrangements will be made with brokerage houses, custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares and Century will reimburse them for their reasonable expenses
incurred in forwarding the materials.
Appraisal Rights for Century Stockholders
If the merger agreement is approved and adopted by the Century
stockholders, holders of Century common stock who delivered a written demand for
appraisal to Century prior to the vote on the merger agreement at Century's
special meeting and did not vote in favor of approval and adoption of the merger
agreement will be entitled to receive the fair value of their shares under
Section 262 of the Delaware General Corporation Law. The text of this law is
attached to this proxy statement/prospectus as Annex C.
23
THE MERGER
General
Century's board is using this proxy statement/prospectus to solicit proxies
from the holders of Century common stock for use at the special meeting. At the
special meeting, holders of Century common stock will be asked to vote upon the
approval and adoption of the merger agreement.
In the merger, Century will be merged into a wholly-owned subsidiary of
United formed to complete the merger and will become a wholly-owned subsidiary
of United and Century National Bank, Century's subsidiary bank, will be merged
into United Bank, United's Virginia subsidiary bank. If the merger is
completed, stockholders of Century will receive, for each share of Century
common stock owned, 0.4500 share of United common stock and $3.43 in cash. No
fractional shares of United common stock will be issued, but an additional cash
payment will be made instead. Options to purchase Century common stock will be
converted into options to purchase the number of shares of United common stock
equal to the number of shares of Century common stock subject to the option
multiplied by 0.5894, and no cash will be paid to option holders.
United's Reasons for the Merger
The merger is consistent with United's plan to have operations, offices and
distinct capabilities in every market of its choice within its region. The
merger should enhance the banking platform for future growth and expansion in
the Washington, D.C. metropolitan area. United believes that, in addition to
expanding United's presence in very attractive Virginia markets, the merger
provides an opportunity to enhance United's stockholder value with the prospects
of positive long-term performance of United's common stock. United believes
that the merger is a strategic fit between United and Century given the
compatibility of the management and business philosophy of each company.
Enhanced opportunities should result from the merger by eliminating redundant or
unnecessary costs and enhancing revenue growth prospects.
Century's Reasons for the Merger; Recommendation of Century's Board
Century was founded in 1982 and by June 30, 1994 had increased its total
assets to $82 million. In 1994 Century's board adopted a strategic plan calling
for more rapid growth through branch expansion, the development of additional
products and services and more aggressive marketing programs. Pursuant to this
plan, Century augmented its capital through securities offerings in 1995, 1997
and 2000, acquired branch offices in 1994, 1997, 1999 and 2000 and established
new branch offices in 1997 and 1998. In March of 2001, Century completed its
first merger when it acquired GrandBanc, Inc. As a result of this strategic
plan, Century's total assets had grown to $415 million as of June 30, 2001.
During this period of growth, Century began to monitor trends in bank
acquisitions in the nation generally and in the Washington, DC area
specifically.
After completion of the GrandBanc merger, Century's management and board
began the process of revising Century's strategic plan. The revised strategic
plan under consideration called for increasing the total assets of Century to $1
billion during a three to five year period. The preparation of the revised
strategic plan revealed a number of challenges to be overcome by Century in
implementing it. These challenges included:
24
. declining interest margins caused by more intensive competition based on
interest rates;
. increasing capital requirements associated with adapting to rapidly
changing technology;
. a perceived scarcity of attractive acquisition opportunities in Century's
market area;
. the difficulty of completing acquisitions using Century's securities at the
market price then in effect; and
. the need to raise additional capital to support continuing growth and
expansion.
In April 2001, while Century was refining its revised strategic plan, a
regional financial institution approached Century about a possible business
combination. Although Century was not at that time considering being acquired,
preliminary pricing discussions indicated that the transaction being proposed
might provide a superior return to Century's stockholders than remaining
independent and continuing to pursue Century's revised strategic plan.
Additional discussions by management suggested that this institution was willing
to consider an increase in its initial proposal. Consequently, at a special
meeting of Century's board in May 2001, management was authorized to continue
negotiations with this institution and to seek an increase in its offer, but
without jeopardizing the possible transaction. Shortly thereafter, Century
engaged Friedman, Billings, Ramsey & Co., Inc. (FBR) to assist with the
negotiations, and to identify other financial institutions that might propose an
alternative transaction.
From May 11 through May 16, 2001, FBR contacted United and 14 other
financial institutions on behalf of Century to ascertain their interest in a
transaction with Century at a price in excess of the price proposed by the first
institution. United expressed an interest in a possible transaction. On May
15, 2001 Century's board held its regular board meeting at which it reviewed a
summary and analysis of the proposal from the first institution prepared by FBR,
and authorized management to enter into a confidentiality agreement with such
institution in order to permit it to examine nonpublic information about
Century. On May 22, 2001, Mr. Bracewell met at FBR's offices with
representatives of United for a tentative and preliminary discussion of a
possible business combination. Also during May, discussions continued with the
first institution, which tendered a nonbinding indication of interest describing
the terms of a proposed transaction for consideration by Century and entered
into a confidentiality agreement with Century. The first institution commenced
its due diligence examination of Century during the last week of May 2001.
On May 24, 2001, United entered into a confidentiality agreement with FBR
on behalf of Century and commenced its due diligence examination during the
first week of June 2001. On May 31, 2001, United tendered a nonbinding
indication of interest describing the terms of a transaction with Century that
were financially superior to the terms of the transaction proposed by the first
institution. On June 7, 2001, Century's board met to consider the terms of the
two proposals. At that meeting, the board instructed management to seek
improvement in the price terms of both proposals, without jeopardizing them.
The discussions with United resulted in an improved proposal. Although
additional discussions with the first institution were unsuccessful in achieving
any price improvement, discussions continued with this institution and its
financial advisor through June 13, 2001.
On June 8, 2001, United tendered a form of merger agreement for
consideration by Century. During the period from June 9 through June 13, 2001,
Century, United and their respective counsel reviewed and negotiated the terms
of the definitive merger agreement. On June 13, 2001, the board met
25
to consider in detail, and with the advice of its legal counsel, financial
advisor and members of management, the terms of the definitive agreement with
United. At that meeting, the board received a presentation from FBR on the
financial aspects of the transaction. The report of FBR is summarized elsewhere
in this proxy statement/prospectus under the caption "- - Opinion of Century's
Financial Advisor." At that meeting, FBR delivered its opinion to the board that
the proposed merger with United was fair, from a financial point of view, to the
stockholders of Century. The board authorized management to enter into the
definitive merger agreement, which was signed on June 14, 2001.
In reaching its decision to approve the terms of the merger agreement with
United, the board considered a number of factors including, without limitation,
the following:
. The board's familiarity with Century's business, operations, financial
condition, earnings and prospects, and the results of its investigation of
similar matters regarding United, including United's capital position,
interest spread, efficiency ratio and other operating statistics;
. The current and prospective constraints faced by Century in implementing
its strategic plan, including the challenges listed above in this section;
. The value of the total consideration to be received by Century stockholders
in relation to recent trading prices of Century common stock, prices
recently received by other similarly situated financial institutions and
the relation of such value to the board's view of the value of possible
alternatives to the merger with United, including the nonbinding proposal
received from the first institution. In considering these matters, the
board considered the timing and likelihood of actually realizing such
values, as well as the risks associated with seeking to obtain those
values. In this regard, the board noted that the combined value of the
cash and stock to be paid by United as of June 12, 2001, in the merger
represented a premium of 81.25% to recent market prices of Century common
stock and was the highest value offered after FBR contacted 14 potential
bidders;
. The financial presentations of FBR, Century's financial advisor, at the
various board meetings and the opinion of FBR that, as of the date of such
opinion, the consideration to be received by the Century stockholders
pursuant to the merger agreement is fair, from a financial point of view,
to such stockholders. A copy of such opinion, updated [through the date of
this proxy statement/prospectus], is attached to this proxy
statement/prospectus as Annex B;
. The expectation that the receipt of the United common stock generally will
be tax-free to Century stockholders; and
. The increased liquidity that the merger will provide to current Century
stockholders.
In its deliberations, the board did not assign any specific weights to these or
the other factors it considered.
26
THE BOARD OF DIRECTORS OF CENTURY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE MERGER.
Opinion of Century's Financial Advisor
Pursuant to a letter agreement dated as of June 5, 2001 (FBR Agreement),
Friedman, Billings, Ramsey & Co., Inc. (FBR) was retained by Century to act as
its financial advisor in connection with the potential sale of all or
substantially all of the assets and/or liabilities or capital of Century. At the
meeting of Century's board held on June 13, 2001, FBR delivered its opinion to
Century's board to the effect that as of the date of such opinion, an exchange
ratio of 0.4500 share of United common stock for each share of Century common
stock (Exchange Ratio) plus $3.43 in cash per share of Century common stock
(collectively, the Consideration), pursuant to the merger agreement, was fair,
from a financial point of view, to the holders of Century common stock. FBR has
reconfirmed its June 13, 2001 opinion by delivery of its written opinion to
Century's board, dated as of August 28, 2001 (FBR Opinion), stating that, as of
such date and based on the matters set forth in such opinion, the proposed
Consideration to be received by the holders of shares of Century common stock
pursuant to the merger agreement is fair to such holders from a financial point
of view.
The full text of the FBR opinion, which sets forth the assumptions made,
procedures followed, matters considered and limits on the review undertaken, is
attached as Annex B to this proxy statement and is incorporated herein by
reference. The description of the FBR opinion set forth herein is qualified in
its entirety by reference to Annex B. Century's stockholders are urged to read
the FBR opinion in its entirety. FBR's opinion is addressed only to Century's
board of directors and directed only to the consideration to be received in the
merger by the holders of Century's common stock and does not constitute a
recommendation to any stockholder as to how such stockholder should vote at the
special meeting.
FBR is a nationally recognized investment banking firm and was selected by
Century based on the firm's reputation and experience in investment banking in
general, its recognized expertise in the valuation of banking businesses and
because of its familiarity with Century. FBR, as part of its investment banking
business, is frequently engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
In connection with rendering the opinions dated June 13, 2001 and as
updated on August 28, 2001, FBR, among other things: (i) reviewed the merger
agreement; (ii) reviewed the Century Annual Report to Stockholders for the
fiscal year ended December 31, 2000 and the Century Annual Report on Form 10-K
filed with the Securities and Exchange Commission (SEC) for the fiscal years
ended December 31, 2000 and 1999; reviewed the Century Annual Proxy Statement
dated April 25, 2001; reviewed the Century Quarterly Report on Form 10-Q filed
with the SEC for the quarter ended March 31, 2001; reviewed the Century earnings
release for the quarter ended June 30, 2001; (iii) reviewed the United Annual
Report on Form 10-K filed with the SEC for the fiscal years ended December 31,
2000 and 1999; reviewed the United Annual Proxy Statement dated April 10, 2001;
reviewed the United Quarterly Report on Form 10-Q filed with the SEC for the
fiscal quarters ended March 31, 2001, September 30, 2000 and June 30, 2000;
reviewed the United earnings release for the quarter ended June 30, 2001; (iv)
reviewed Century's unaudited financial results for the one and four months ended
April 30, 2001 in Century's Form 8-K/A filed with the SEC on May 17, 2001;
reviewed
27
and discussed the unaudited financial statements of Century for the one month
ended May 31, 2001 with the management of Century; (v) reviewed the reported
market prices and trading activity for United common stock for the period
December 18, 1987 through July 20, 2001; (vi) discussed the financial condition,
results of operations, earnings projections, business and prospects of Century
and United with the managements of Century and United; (vii) compared the
results of operations and financial condition of Century and United with those
of certain publicly-traded financial institutions (or their holding companies)
that FBR deemed to be reasonably comparable to Century or United, as the case
may be; (viii) participated in discussions and negotiations among
representatives of Century and representatives of United; (ix) reviewed the
financial terms, to the extent publicly available, of certain acquisition
transactions that FBR deemed to be reasonably comparable to the merger; (x)
reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions entered into by United; (xi) performed such other
analyses and reviewed and analyzed such other information as FBR deemed
appropriate.
In connection with rendering the FBR Opinion, as set forth herein, FBR
assumed and relied upon, without independent verification, the accuracy and
completeness of all the financial information, analyses and other information
reviewed by and discussed with it, and did not make an independent evaluation or
appraisal of the specific assets, the collateral securing assets or the
liabilities of United or Century or any of their subsidiaries, or the
collectibility of any such assets (relying, where relevant, on the analyses and
estimates of United and Century). With respect to the financial projections
reviewed with each company's management, FBR assumed that they reflect the best
currently available estimates and judgments of the respective managements of the
respective future financial performances of each of United and Century and of
the combined company, and that such performances will be achieved. FBR also
assumed that there has been no material change in United's or Century's assets,
financial condition, results of operations, business or prospects since the date
of the last financial statements noted above. FBR also assumed without
independent verification that the aggregate consolidated allowances for loan
losses for Century and United were adequate to cover such losses, and that the
conditions precedent in the merger agreement will not be waived.
The forecasts and projections furnished to FBR for Century were prepared by
the management of Century. As a matter of policy, Century does not publicly
disclose internal management forecasts, projections or estimates of the type
furnished to FBR in connection with its analysis of the merger, and such
forecasts, projections and estimates were not prepared with a view towards
public disclosure. These forecasts, projections and estimates were based on
numerous variables and assumptions which are inherently uncertain and which may
not be within the control of management including, without limitation, general
economic, regulatory and competitive conditions. Accordingly, actual results
could vary materially from those set forth in such forecasts, projections and
estimates.
No limitations were imposed on FBR by Century's board with respect to the
investigation made or procedures followed by FBR in rendering its fairness
opinion dated June 13, 2001. In connection with rendering such fairness opinion
to Century's board, FBR performed a variety of financial analyses. The
following is a summary of the material financial analyses performed by FBR, but
does not purport to be a complete description of FBR's analyses or presentation
at the June 13, 2001 meeting of Century's board. FBR believes that its analyses
must be considered as a whole and that selecting portions of such analyses and
the factors considered therein, without considering all factors and analyses,
could create an incomplete view of the analyses and the processes underlying the
fairness opinion of FBR dated June 13, 2001. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. In its
analyses, FBR made
28
numerous assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which are beyond the control of
Century and United. Any estimates contained in FBR's analyses are not
necessarily indicative of future results or values, which may be significantly
more or less favorable than such estimates. Estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which the
companies or their securities may actually be sold.
Summary of Terms of Proposed Transactions. FBR reviewed the terms of the
proposed merger, including the aggregate amount of Consideration, the form of
Consideration, and the percentage of premium to the current market price. Based
on the combination of $3.43 in cash per share of Century common stock, the
Exchange Ratio of 0.4500 and a price per share of $24.60 for United common stock
(the closing price for such stock on June 13, 2001), the Consideration on June
13, 2001 was $14.50 per share of Century common stock.
FBR stated that the Consideration as of June 13, 2001 represented a
multiple of (i) 22.66 times Century's earnings per share for the twelve months
ended March 31, 2001, adjusted for merger related expenses, (ii) 253% of
Century's book value per share as of March 31, 2001 and (iii) 328% of March 31,
2001 tangible book value per share. The Consideration also represented a
premium over tangible book value as a percentage of core deposits (Deposit
Premium) equal to 15.65% based on tangible book value per share at March 31,
2001.
Comparable Transaction Analysis. FBR has analyzed comparable transactions
involving the sale of banks from January 1, 2001 through July 20, 2001. The
following table shows the average and median statistics for price/book value,
price/tangible book value, price to latest twelve months earnings (price/LTM
earnings) and Deposit Premium for four comparable groups. The comparable groups
(collectively the Selected Transactions Groups) are as follows: (i) 92 bank
acquisitions nationwide (Nationwide Bank Group); (ii) 23 bank acquisitions
involving sellers with total assets between $250 million to $750 million (Asset
Group); (iii) 26 bank acquisitions involving sellers with return on average
assets between the range of 0.80% and 1.00% (ROAA Group); and (iv) six
acquisitions involving banks headquartered in Washington DC, Maryland or
Virginia (Regional Bank Group). FBR compared the median and average statistics
associated with the Selected Transactions Groups with the price/book,
price/tangible book, price/LTM earnings and Deposit Premium ratios in the merger
of 253%, 328%, 22.66x and 15.65%, respectively, and found that the ratios
associated with the merger were comparable or higher than the median and/or
average price/book, price/tangible book, price/LTM earnings and Deposit Premium
ratios for the Selected Transactions Groups. The Consideration to be received
by Century stockholders compares favorably to the pricing/multiples received by
the companies included in the Selected Transactions Group.
29
Announced Bank M&A Transactions January 1, 2001 to July 20, 2001
Announced:
---------------------------------------------------
Price/ Tangible
Number Price/ Tangible Price/ Book
of Book Book LTM Premium/
Transactions Value Value Earnings Deposits
------------- ----------- --------- -------- ---------
Nationwide Bank Group
Average 193% 201% 18.7 x 12.72%
Median 92 184% 187% 17.4 x 10.18%
Asset Group
Average 215% 222% 18.8 x 16.52%
Median 23 201% 207% 18.1 x 14.31%
ROAA Group
Average 198% 210% 22.9 x 12.17%
Median 26 188% 188% 20.3 x 10.96%
Regional Bank Group
Average 227% 249% 20.3 x 18.21%
Median 6 252% 280% 20.1 x 17.95%
- ----------------------------------------------------------------------------------------------------------
United / Century 253% 328% 22.7 x 15.65%
- ----------------------------------------------------------------------------------------------------------
No company or transaction used in the above analyses as a comparison is
identical to United, Century or the merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other facts that could affect the public
trading value of the companies to which they are being compared.
Discounted Earnings Stream and Terminal Value Analysis. Using a discounted
earnings stream and terminal value analysis, FBR estimated the future stream of
earnings flows that Century could be expected to produce through the year 2005,
under various circumstances, assuming Century performed in accordance with the
earnings forecasts of Century management. To approximate the terminal value of
the Century common stock at the end of a four-year period (December 31, 2005),
FBR applied price to earnings multiples ranging from 15.0 to 20.0, applied
multiples of tangible book value ranging from 125% to 250% and applied premiums
over tangible book value as a percentage of core deposits of 10.0% to 15.0%. The
net income streams and terminal values were then discounted to present values
using a discount rate of 12%. This analysis assumed that Century will continue
its policy of not paying cash dividends and indicated a total reference range of
between $6.80 and $17.27 per share of Century common stock. When a 12% discount
rate was applied to median merger multiples based on the price to tangible book
value multiples of 125% to 250%, the analysis indicated a reference range
between $6.80 and $13.61 per share of Century common stock. When the same
discount rate of 12% was applied to merger market multiples based on price to
earnings per share multiples of 15.0 times to 20.0 times, the analysis indicated
a reference range between $10.49 and $13.99 per share of Century common stock.
When the same discount rate of 12% was applied to merger market multiples based
on tangible book premium to core deposits of 10.0% and 15.0%, the analysis
indicated a reference range between $13.33
30
and $17.27 per share of Century common stock. The Consideration to be received
in the merger compares favorably with the results of the discounted earnings
stream terminal value analysis.
Pro Forma Merger Analyses. FBR performed pro forma merger analyses that
combined Century's and United's current and projected income statement and
balance sheets based on earnings forecasts of Century and United, respectively.
Assumptions and analyses of the accounting treatment, acquisition adjustments,
operating efficiencies and other adjustments were made to arrive at a base case
pro forma analysis to determine the effect of the transaction on both Century
and United. FBR noted that, based on the Consideration, the impact of the merger
on United's earnings per share and tangible book value per share based on such
earnings forecasts did not appear to be material. The actual results achieved by
the combined company will vary from the projected results and such variations
may be material.
Analysis of Selected Publicly Traded Companies. In preparing its
presentation, FBR used publicly available information to compare selected
financial and market trading information, including book value, tangible book
value, earnings, asset quality ratios, and profitability, for United and
selected other publicly traded commercial banks located in the United States.
This peer group consisted of commercial bank holding companies located in Ohio,
Maryland, Pennsylvania, Virginia and West Virginia with total assets between $1
billion and $10 billion. According to the analysis, United compared favorably to
the peer group when looking at asset quality, capital adequacy, earnings
performance, and operating efficiency.
In connection with rendering the FBR Opinion, FBR confirmed the
appropriateness of its reliance on the analyses used to render its June 13, 2001
opinion by performing procedures to update certain of such analyses and by
reviewing the assumptions upon which such analyses were based and the factors
considered in connection therewith. The FBR Opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of, the date of such opinion. Events occurring after the date
of the FBR Opinion could materially affect the assumptions used in preparing
such opinion.
Pursuant to the FBR Agreement, Century retained FBR to act as independent
financial advisor, to render general advisory services and also to specifically
advise Century in connection with its strategic planning and merger and
acquisition activities. The FBR Agreement provides that FBR shall receive an
incentive-based fee based upon the aggregate consideration to be paid to
Century's stockholders. For its services as financial advisor to Century in
connection with the merger, FBR will receive a transaction fee equal to 1.00% of
the aggregate consideration paid to Century's stockholders and option holders
(Transaction Fee). Twenty-five percent (25%), or $176,094 was paid upon the
signing of the merger agreement and the remaining portion is payable at the
closing of the merger. Based on the closing price of United common stock and the
outstanding shares of Century common stock and options as of July 20, 2001, the
remaining portion of the transaction fee payable to FBR at the effective time
would be $580,847. Century also has agreed to reimburse FBR for its reasonable
out-of-pocket expenses in connection with its engagement and to indemnify FBR
and its affiliates and their respective partners, directors, officers,
employees, agents and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
FBR has advised Century that, in the ordinary course of its business as a
full-service securities firm, FBR may, subject to certain restrictions, actively
trade the equity securities of Century and/or
31
United for its own account or for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Quorum and Vote Required
Delaware law and Century's certificate of incorporation require the
approval and adoption of the merger agreement by the affirmative vote of the
holders of at least two-thirds of all the shares of Century common stock
outstanding and entitled to vote on the record date. See "Information About the
Meeting and Voting-- Matters Related to the Meeting" on page 21 for a
description of quorum and voting requirements.
Interest of Certain Persons in the Merger
Certain directors and executive officers of Century have interests in the
merger that are in addition to their interests as stockholders and optionholders
of Century and their equity interests in United which will result from the
conversion of their shares and options in the merger. Century's board was aware
of these interests at the time they approved the merger agreement.
Termination Benefits
Shortly after the effectiveness of the merger, the employment of certain
employees of Century is expected to be terminated in a manner which will entitle
them to receive termination benefits provided under existing employment
agreements with Century. The terms of such termination benefits for each
employee are set forth below.
Joseph S. Bracewell, Chairman of the Board, President and Chief Executive
Officer of Century, will be entitled to receive, in addition to payment for
accrued but unpaid salary, bonuses, vacation, and other amounts earned or
otherwise due to him through the date of his termination, an amount equal to
three times his annual salary in effect immediately prior to termination of his
employment, or $750,000 based upon his annual salary as in effect as of the date
of this proxy statement/prospectus, payable in a lump sum. This severance
payment will be increased by an amount (the gross-up payment obligation) equal
to the sum of (a) any additional tax liability (other than ordinary personal
income tax) applicable to Mr. Bracewell as a result of the $750,000 severance
payment, plus (b) any additional tax liability (including ordinary personal
income tax) applicable to Mr. Bracewell as a result of such gross-up payment
obligation, to ensure that the net, pre-ordinary personal income tax severance
payment received by Mr. Bracewell will equal three times his annual salary. Mr.
Bracewell will also be entitled to continue to receive all insurance benefits in
place at the date of termination for a one-year period following his termination
and to have all stock options previously granted to him by Century become fully
vested as of his termination date.
Marvin Fabrikant, Chief Lending Officer of CNB and a director of Century,
will be entitled to receive, in addition to payment for accrued but unpaid
salary, bonuses, vacation, and other amounts earned or otherwise due to him
through the date of his termination, an amount equal to one and one half times
his annual base salary in effect immediately prior to termination of his
employment, which would equal $225,000 based upon his annual base salary as in
effect as of the date of this proxy statement/prospectus, payable in a lump sum.
Mr. Fabrikant will also be entitled to continue to receive all insurance
benefits in place at the date of termination for a one-year period following his
termination
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and to have all stock options previously granted to him by Century become fully
vested as of his termination date.
Shaza L. Andersen, Chief Operating Officer of CNB, will be entitled to
receive, in addition to payment for accrued but unpaid salary, bonuses,
vacation, and other amounts earned or otherwise due to her through the date of
her termination, an amount equal to two times her annual base salary in effect
immediately prior to termination of her employment, which would equal $235,000
based upon her annual salary as in effect as of the date of this proxy
statement/prospectus, payable in a lump sum. Ms. Andersen will also be entitled
to continue to receive all insurance benefits in place at the date of
termination for a one-year period following her termination and to have all
stock options previously granted to her by Century become fully vested as of her
termination date.
Dale G. Phelps, Chief Financial Officer of Century, will be entitled to
receive, in addition to payment for accrued but unpaid salary, bonuses,
vacation, and other amounts earned or otherwise due to him through the date of
his termination, an amount equal to his annual base salary in effect immediately
prior to termination of his employment, which would equal $110,000 based upon
his annual base salary as in effect as of the date of this proxy
statement/prospectus, payable in a lump sum. Mr. Phelps will also be entitled to
continue to receive all insurance benefits in place at the date of termination
for a one-year period following his termination and to have all stock options
previously granted to him by Century become fully vested as of his termination
date.
Indemnification Rights
Pursuant to the merger agreement with Century, United has agreed to
indemnify the directors, officers and employees of Century for a period of six
years from the effective time of the merger to the fullest extent permitted by
law against losses, claims and expenses resulting from the fact that such
individual was a director, officer or employee of Century prior to the merger
and those arising out of the merger agreement. United has agreed to advance
expenses before a final disposition of any proceeding, subject to the
indemnified person satisfying any requirements of law related to such advance.
United has agreed to use its reasonable best efforts to cause the individuals
serving as directors and officers of Century and its subsidiaries to be covered
for a period of six years from the effective time of the merger by the
directors' and officers' liability insurance policy maintained by United with
respect to acts or omissions occurring prior to the effective time of the merger
which were committed by such officers and directors in their capacity as such.
In the event United enters into a business combination with any other entity, it
is required to make provision that United's successor in such transaction
assumes these indemnification obligations.
Director Service and Compensation
Under the merger agreement, as of the effective time of the merger, Joseph
S. Bracewell, Chairman of the Board of Century, will be elected or appointed to
United's board of directors. Mr. Bracewell, Marvin Fabrikant, a current member
of both the Century and CNB boards and Roger C. Johnson, a current member of the
CNB board, will be appointed or elected to the board of directors of United
Bank. In addition, Mr. Bracewell will serve as Vice Chairman of United Bank.
As members of the boards of directors of United and/or United Bank, the
former Century directors will be entitled to receive compensation for their
service on the board of directors in accordance with United's policy on director
compensation. Currently, each non-employee director of United receives
33
$650 per month regardless of meeting attendance. Directors of United Bank
receive $500 per meeting attended.
Each director of Century and each director of CNB receives an annual
retainer of $6,300 for service on one of the two boards, or $9,000 for service
on both boards. All directors of Century and CNB have elected to enter into
deferred compensation agreements (Compensation Agreements) instead of receiving
the annual retainer in cash. The Compensation Agreements generally provide for
the payment of a fixed monthly retirement benefit for 180 months payable to the
director or his designated beneficiary commencing on the first day of the month
following the director's retirement on his 65th birthday. In the event of the
director's death prior to retirement, a reduced sum is payable to a beneficiary
designated by the director. The retirement benefit attributable to each annual
deferral vests ratably over a five year period, and in the event of a change of
control of Century, all benefits are fully vested. Accordingly, upon
consummation of the merger with United, the directors' benefits under the
Compensation Agreements will be fully vested and United will assume Century's
obligations under them.
Board of Directors of United After the Merger
Immediately following the merger, the board of directors of United will
have 18 members, including the 17 current United directors, plus Mr. Bracewell.
Federal Income Tax Consequences of the Merger
The following discussion describes the material United States federal
income tax consequences of the exchange of Century stock for United stock and
cash pursuant to the merger. This discussion is based upon the Internal Revenue
Code of 1986, as amended, the regulations promulgated under the Code, Internal
Revenue Service rulings, and judicial and administrative rulings in effect as of
the date hereof, all of which are subject to change, possibly with retroactive
effect. This discussion does not address all aspects of federal income taxation
that may be relevant to a stockholder in light of the stockholder's particular
circumstances or to those Century stockholders subject to special rules, such as
stockholders who are not citizens or residents of the United States, financial
institutions, tax-exempt organizations, insurance companies, dealers in
securities, regulated investment companies, pass-through entities, stockholders
who acquired their Century stock pursuant to the exercise of options or similar
derivative securities or otherwise as compensation, or stockholders who hold
their Century stock as part of a straddle, hedge or conversion transaction. This
discussion assumes that Century stockholders hold their respective shares of
Century stock as capital assets within the meaning of Section 1221 of the Code
(i.e., property held for investment).
It is a condition to the obligations of Century and United to complete the
merger that each receive a legal opinion from its counsel that the merger
constitutes a reorganization within the meaning of Section 368(a) of the Code.
These legal opinions will assume the absence of certain changes in the existing
facts and may rely on assumptions, representations and covenants made by
Century, United and others, including those contained in certificates of
officers of Century and United. If any of these factual assumptions is
inaccurate, the tax consequences of the merger could differ from those described
here. The opinions regarding the tax-free nature of the merger neither bind the
IRS nor preclude the IRS from adopting a contrary position. Neither Century nor
United intends to obtain a ruling from the IRS with respect to the tax
consequences of the merger.
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Federal Income Tax Consequences to United and the United Stockholders
Holders of United stock will not recognize any gain or loss for federal
income tax purposes as a result of the merger. Neither United nor the merger
subsidiary will recognize any gain or loss for federal income tax purposes as a
result of the merger.
Federal Income Tax Consequences to Century and the Century Stockholders
In the opinion of Bracewell & Patterson, L.L.P., subject to the assumptions
and limitations described herein:
. except as discussed below, you will recognize gain (but not loss) for
United States federal income tax purposes when you exchange your
Century stock for United stock and cash equal to the lesser of the
amount of gain realized and the amount of cash received;
. your gain realized will be the difference between your adjusted tax
basis in the Century stock exchanged and the value of the United stock
and cash received;
. your gain will be capital gain, and will be long-term capital gain if
your stock has been held for more than one year at the time the merger
is completed;
. the aggregate tax basis of the United stock you receive as a result of
the merger will be the same as your aggregate tax basis in the Century
stock you surrender in the exchange, reduced by the amount of cash
received (other than in lieu of fractional shares) and by the tax
basis of any Century stock for which you receive cash in lieu of
fractional shares, and increased by the amount of gain recognized;
. the holding period of the United stock that you receive as a result of
the merger will include the period during which you held the Century
stock that you exchange; and
. Century will not recognize any gain or loss for United States federal
income tax purposes as a result of the merger.
Fractional shares of United stock will not be issued in the merger. You
will recognize gain or loss for United States federal income tax purposes with
respect to the cash you receive instead of a fractional share interest in United
stock. Your gain or loss will equal the difference between the amount of cash
you receive and the tax basis of your Century stock surrendered in the merger
that is allocated to fractional shares. This gain or loss will be capital gain
or loss, and will be a long-term capital gain or loss if your stock has been
held for more than one year at the time the merger is completed.
If you exercise the right to dissent in connection with the merger and
receive only cash in exchange for your Century stock, you will be treated as
having received such cash as a distribution in redemption of such holder's
Century stock and will ordinarily recognize a capital gain or loss equal to the
difference between the amount of cash received and the adjusted basis of your
Century stock. However, different tax consequences could apply to such payment,
under your particular facts and circumstances, including whether you are deemed
under any applicable attribution rules to own United stock if the payment is
deemed to have the effect of a dividend distribution and not a redemption
treated as an exchange under the principles of Section 302 of the Code.
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We intend this discussion to provide only a summary of the material federal
income tax consequences of the merger. We do not intend that it be a complete
analysis or description of all potential federal income tax consequences of the
merger. In addition, we do not address tax consequences which may vary with, or
are contingent upon, individual circumstances. Moreover, we do not address any
non-income tax or any foreign state or local tax consequences of the merger.
Accordingly, we strongly urge you to consult your tax advisor to determine your
particular United States federal, state, local or foreign income or other tax
consequences resulting from the merger, with respect to your individual
circumstances.
Accounting Treatment
Under generally accepted accounting principles, it is anticipated that the
merger will be accounted for under the purchase method of accounting. The assets
and liabilities of Century will be reflected in the consolidated financial
statements of United based upon their estimated fair values as of the effective
date of the merger. Results of operations will be reflected in the consolidated
financial statements of United for all periods subsequent to the effective date
of the merger. The excess purchase price over the fair market value of assets is
recorded as goodwill and is not amortized. Instead, goodwill is evaluated
annually, or more frequently if impairment indicators arise, for impairment.
Regulatory Approvals
The merger of United with Century must be approved by the Federal Reserve
Bank of Richmond and Virginia Department of Financial Institutions. United filed
an application with the Federal Reserve Bank of Richmond to obtain approval of
the merger on ___________, 2001. On ___________, 2001, United filed an
application for approval of the merger with the Virginia Department of Financial
Institutions. United will also file notices of closing with the Federal Reserve
Bank of Richmond, the Office of the Comptroller of the Currency, and the
Department of Financial Institutions of Virginia and West Virginia.
Resales of United Common Stock Issued in the Merger
United has registered under the federal securities laws the issuance of its
shares of common stock in the merger. Therefore, you may sell shares without
restriction unless you are considered an affiliate of Century as of the date of
Century's special meeting or you become an affiliate of United. A director,
executive officer or stockholder who beneficially owns 10% or more of the
outstanding shares of a company is generally deemed to be an affiliate of that
company.
If you are considered an affiliate of Century or become an affiliate of
United, you may resell the shares of United common stock you receive only
pursuant to an effective registration statement under the securities laws, or
pursuant to Rule 145 of the SEC's rules, or in transactions otherwise exempt
from registration under the securities laws. United is not obligated and does
not intend to register for resale the shares issued to affiliates of Century.
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Appraisal Rights of Century Stockholders
Under the Delaware General Corporation Law (DGCL), Century stockholders may
object to the merger and demand in writing to be paid the fair value of their
shares. Determination of fair value is based on all relevant factors, but
excludes any appreciation or depreciation resulting from the accomplishment or
expectation of the merger. Stockholders who elect to exercise appraisal rights
must comply with all of the procedures of Section 262 of the DGCL to preserve
those rights. A copy of Section 262 is attached as Annex C to this proxy
statement/prospectus.
Section 262 sets forth the procedures to be followed by a stockholder
electing to demand appraisal of his or her shares. These procedures are
complicated and must be followed strictly. Failure to comply with these
procedures may cause you to lose your appraisal rights. The following
information is only a brief summary of the required procedures under Delaware
law and is qualified in its entirety by the provisions of Section 262.
Under Section 262, Century is required to notify stockholders not less than
20 days before the special meeting to vote on the merger that appraisal rights
will be available. A copy of Section 262 must be included with that notice. This
proxy statement/prospectus constitutes Century's notice to its stockholders of
the availability of appraisal rights in connection with the merger in compliance
with the requirements of Section 262. If you wish to consider exercising your
appraisal rights, you should carefully review the text of Section 262 contained
in Annex C. If you fail to timely and properly comply with the requirements of
Section 262, your appraisal rights under Delaware law may be lost.
Please review Section 262 for the complete procedures. Neither United nor
Century will give you any notice of your appraisal rights other than as
described in this proxy statement/prospectus and as required by the DGCL.
General Requirements
If you want to object to the merger and be paid the full value of your
shares in cash, Section 262 generally requires you to take the following
actions:
. You must deliver a written demand for appraisal to Century before the
vote is taken on the merger agreement at Century's special meeting.
This written demand for appraisal must be in addition to and separate
from any proxy or vote against the merger agreement. Merely voting
against, abstaining from voting or failing to vote in favor of
adoption of the merger agreement will not constitute a demand for
appraisal within the meaning of Section 262. See "Reqirements for
Written Demand for "Appraisal" below for more details on making a
demand for appraisal.
. You must not vote in favor of approval and adoption of the merger
agreement. A failure to vote will satisfy this requirement, but a vote
in favor of the merger agreement will constitute a waiver of your
right of appraisal. Accordingly, if you want to maintain your
appraisal rights you must either check the "Against" box or the
"Abstain" box on the proxy card or refrain from executing and
returning the enclosed proxy card.
. You must continuously hold your shares of Century stock from the date
you make the demand for appraisal through the effective date of the
merger.
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Requirements for Written Demand for Appraisal
A written demand for appraisal of Century stock is only effective if it is
signed by, or for, the stockholder of record who owns the shares at the time the
demand is made. The demand must be signed as the stockholder's name appears on
its Century stock certificate(s). If you are a beneficial owner of Century stock
but not a stockholder of record, you must have the stockholder of record for
your shares sign a demand for appraisal on your behalf.
If you own Century stock in a fiduciary capacity, such as a trustee,
guardian or custodian, you must disclose the fact that you are signing the
demand for appraisal in that capacity.
If you own Century stock with one or more other persons, such as in a joint
tenancy or tenancy in common, all of the owners must sign, or have signed for
them, the demand for appraisal. An authorized agent, which could include one or
more of the owners, may sign the demand for appraisal for a stockholder of
record; however, the agent must expressly disclose who the stockholder of record
is and that he or she is signing the demand as that stockholder's agent.
If you are a record owner, such as a broker, who holds Century stock as a
nominee for others, you may exercise a right of appraisal with respect to the
shares held for one or more beneficial owners, while not exercising that right
for other beneficial owners. In such a case, you should specify in the written
demand the number of shares as to which you wish to demand appraisal. If you do
not specify the number of shares, it will be assumed that your written demand
covers all the shares of Century stock that are in your name.
Century stockholders who wish to exercise their appraisal rights should
address written demands to:
Century Bancshares, Inc.,
1275 Pennsylvania Avenue, NW
Washington, DC 20004
Attention: Corporate Secretary
Century must receive all written demands for appraisal before the vote
concerning the merger agreement is taken. As explained above, this written
demand should be signed by, or on behalf of, the stockholder of record. The
written demand for appraisal should specify the stockholder's name and mailing
address, the number of shares of stock owned, and that the stockholder is
thereby demanding appraisal of such stockholder's shares.
Written Notice
Within 10 days after the effective date of the merger, United, as the
surviving corporation in the merger, must give written notice that the merger
has become effective to each Century stockholder who has properly sent a written
demand for appraisal and who did not vote in favor of the merger. Except as
required by law, United will not notify stockholders of any dates by which
appraisal rights must be exercised.
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Petition With Chancery Court
Within 120 days after the effective date of the merger, either United or
any stockholder who has complied with the requirements of Section 262(a) and (d)
may file a petition in the Delaware Court of Chancery demanding a determination
of the value of the shares of all stockholders entitled to appraisal. United
does not presently intend to file a petition, and if you seek to exercise
appraisal rights you should not assume that United will file a petition or that
United will initiate any negotiations with respect to the fair value of your
shares. If you are a Century stockholder and want to have your Century shares
appraised you should be prepared to initiate any petitions necessary for the
perfection of your appraisal rights within the time period and in the manner
prescribed in Section 262. Since United has no obligation to file a petition,
your failure to file a petition within the period specified could result in the
loss of your appraisal rights.
Withdrawal of Demand
If you change your mind and decide you no longer want an appraisal, you may
withdraw your demand for appraisal at any time within 60 days after the
effective date of the merger. If you withdraw your demand for appraisal, your
appraisal rights will be terminated and you will receive the merger
consideration provided in the merger agreement.
Request for Appraisal Rights Statement
If you have complied with the conditions of Section 262, you are entitled,
upon written request, to receive from United a statement setting forth the
aggregate number of shares for which appraisal rights have been properly
exercised and the aggregate number of holders of such shares. United must mail
this statement to you within 10 days after receiving your written request. In
order to receive this statement, you must send your request within 120 days
after the effective date of the merger to United at the following address:
United Bankshares, Inc.
514 Market Street
Parkersburg, West Virginia 26102
Attention: Richard M. Adams
Chancery Court Procedures
If you properly file a petition for appraisal in the Court and deliver a
copy of such petition to United, United will then have 20 days to provide the
Court with a list of the names and addresses of all the stockholders who have
demanded payment for their shares and have not reached an agreement with United
as to the value of their shares. If the Court decides it is appropriate, it has
the power to conduct a hearing to determine which stockholders have complied
with Section 262 and have become entitled to appraisal. The Register in
Chancery, if ordered to do so by the Court, will then send notice of the time
and place of the hearing on the petition to all the stockholders who have
demanded appraisal. The Court may also require you to submit your stock
certificates to the Register in Chancery so that it can note on the certificates
that an appraisal proceeding is pending. If you do not follow the Court's
directions, you may be dismissed from the proceeding.
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Chancery Court Appraisal of Century Shares
After the Court determines which stockholders are entitled to an appraisal,
the Court will appraise the shares, determining their fair value by considering
all relevant factors except for any appreciation or depreciation resulting from
the accomplishment or expectation of the merger, together with a fair rate of
interest, if the payment of interest is deemed appropriate by the Court. After
the Court determines the fair value of the shares, it will direct United to pay
that value to the stockholders who are entitled to such payment. In order to
receive the fair value for your shares, you must surrender your stock
certificates.
The Court could determine that the fair value of shares of Century stock is
more than, the same as, or less than the merger consideration. In other words,
if you demand appraisal rights, you could receive less consideration that you
would under the merger agreement.
Costs and Expenses of Appraisal Proceeding
The costs of the appraisal proceeding may be determined by the Court and
assessed against the parties as the Court deems equitable under the
circumstances. Upon application of a stockholder, the Court may also order that
all or a portion of the expenses incurred by any stockholder in connection with
the appraisal proceeding, including reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all the shares
entitled to an appraisal.
Loss of Stockholders' Rights
If you demand appraisal, after the effective date of the merger you will
not be entitled to:
. vote your shares of stock, for any purpose, for which you have
demanded appraisal;
. receive payment of dividends or other distributions with respect to
your shares, except for dividends or distributions, if any, that are
payable to the holders of record as of a record date before the
effective date of the merger; or
. receive the payment of the consideration provided for in the merger
agreement.
However, you can regain these rights if no petition for an appraisal is
filed within 120 days after the effective date of the merger, or if you deliver
to United a written withdrawal of your demand for an appraisal and your
acceptance of the merger, either within 60 days after the effective date of the
merger or with the written consent of United. As explained above, these actions
will also terminate your appraisal rights. However, an appraisal proceeding in
the Court cannot be dismissed without the Court's approval. The Court may
condition its approval upon any terms that it deems just.
If you fail to comply strictly with these procedures you will lose your
appraisal rights. Consequently, if you wish to exercise your appraisal rights,
you are strongly urged to consult a legal advisor before attempting to exercise
your appraisal rights.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement. A copy of the merger agreement is attached as Annex A and forms a
part of this proxy statement/prospectus. This summary is qualified in its
entirety by reference to the merger agreement. We urge all stockholders to read
the merger agreement in its entirety for a more complete description of the
terms and conditions of the merger.
Structure of the Merger
The merger agreement provides that Century will be merged with and into a
wholly-owned subsidiary of United (Merger Sub). Merger Sub will be the surviving
corporation in the merger, and shall continue its corporate existence under the
laws of the State of Delaware. The merger agreement also provides for the merger
of CNB, Century's subsidiary bank, into United Bank, United's Virginia
subsidiary bank. Upon consummation of the merger, the separate corporate
existence of both Century and CNB will terminate.
Merger Consideration
The merger agreement provides that each share of Century common stock
issued and outstanding immediately prior to the effective time will, at the
effective time, be converted into the right to receive (i) 0.4500 share of the
common stock of United, and (ii) $3.43 in cash. Cash will be paid instead of
issuing fractional shares. Any shares of Century common stock held as treasury
stock or owned, directly or indirectly, by United, Century or Merger Sub or any
of their respective wholly-owned subsidiaries (other than shares held in a
fiduciary capacity or held in respect of a debt previously contracted), and any
shares as to which the holders have perfected their rights as objecting
stockholders in accordance with the Delaware General Corporation Law, will be
canceled without any payment for those shares at the effective time.
Timing of Closing
The closing will occur on the fifth business day after the day on which the
last of the conditions set forth in the merger agreement has been satisfied or
waived (or at United's option, on the last business day of the month in which
such fifth business day occurs, or if such fifth business day occurs within the
last five business days of such month, on the last business day of the
succeeding month) or such other date as agreed to by Century and United. The
merger of Century into merger sub will take effect upon the filing of a
certificate of merger with the Secretary of State of the State of Delaware. The
merger of CNB into United Bank will take effect upon the filing of a certificate
of merger with the Secretary of State of Virginia.
Treatment of Century Stock Options
At the effective time, each outstanding and unexercised option granted by
Century to purchase shares of Century common stock will be converted
automatically into an option to purchase United common stock equal to the number
of shares of Century common stock subject to the option multiplied by 0.5894
(the Option Exchange Ratio). The replacement option exercise price shall equal
the exercise price per share of the Century stock option divided by the Option
Exchange Ratio.
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Exchange of Shares
We will appoint Mellon Investor Services LLC or another bank or trust
company reasonably acceptable to each of United and Century, as the exchange
agent to handle the exchange of Century stock certificates in the merger for
United stock and the payment of the cash portion of the merger consideration and
cash for fractional shares of United stock. No later than five business days
after the effective time, the exchange agent will send to each holder of Century
stock a letter of transmittal for use in the exchange and instructions
explaining how to surrender Century stock certificates to the exchange agent.
Holders of Century stock that surrender their certificates to the exchange
agent, together with a properly completed letter of transmittal, will receive
the appropriate merger consideration. Holders of unexchanged Century stock will
not be entitled to receive any dividends or other distributions payable by
United until their certificates are surrendered. United will not issue any
fractional shares in the merger. Holders of Century common stock will receive a
cash payment in lieu of fractional shares of United common stock. Payments for
fractional shares of United stock otherwise issuable upon exchange of the
Century shares will be based on the closing price of United common stock on the
effective date of the merger.
Designation of Directors
The merger agreement provides that, at the effective time, United will take
actions necessary to cause Joseph S. Bracewell to be elected or appointed to
fill a new seat on the United board.
United also has agreed to increase the number of positions on the United
Bank board by three seats, to cause those positions to be filled by Mr.
Bracewell, who will serve as Vice Chairman, Marvin Fabrikant, a current director
of both Century and CNB, and Roger C. Johnson, a current director of CNB.
Forebearances Regarding Interim Operations of Century and United
The merger agreement contains reciprocal forebearances made by Century and
United to each other. Century and United have agreed that, until the effective
time of the merger, each of them and each of their subsidiaries, without the
prior written consent of the other, will not:
. Conduct business other than in the ordinary and usual course or fail
to use reasonable efforts to preserve intact their business
organizations and assets, or take any action reasonably likely to have
an adverse effect upon its ability to perform any of its material
obligations under the merger agreement;
. Except as required by applicable law or regulation, implement or adopt
any material change in its interest rate or other risk management
policies, practices or procedures, fail to follow existing policies or
practices with respect to managing exposure to interest rate and other
risks, or fail to use commercially reasonable means to avoid any
material increase in its aggregate exposure to interest rate risk; or
. Take any action while knowing that such action would, or is reasonably
likely to, prevent or impede the merger from qualifying as a
reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended, or knowingly take any action that is
intended or is reasonably likely to result in any of its
representations and warranties set forth in the merger agreement being
or becoming untrue in any material respect at any time at or
42
prior to the effective time, any of the conditions to the merger not
being satisfied, or a material violation of any provision of the
merger agreement except, in each case, as may be required by
applicable law or regulation; provided, however, that this forbearance
does not limit the ability of United to exercise its rights under the
stock option agreement.
Century has also agreed that, prior to the effective time, without the
prior written consent of United it will not:
. Other than pursuant to rights previously disclosed and outstanding on
the date of the merger agreement, issue, sell or otherwise permit to
become outstanding, or authorize the creation of, any additional
shares of Century common stock or any rights to purchase common stock,
enter into any agreement with respect to the foregoing, or permit any
additional shares of Century common stock to become subject to new
grants of employee or director stock options, other rights or similar
stock-based employee rights;
. Make, declare, pay or set aside for payment any dividend (other than
dividends from wholly-owned subsidiaries to Century, or another
wholly-owned subsidiary of Century) on or in respect of, or declare or
make any distribution on, any shares of Century stock or directly or
indirectly adjust, split, combine, redeem, reclassify, purchase or
otherwise acquire, any shares of its capital stock;
. Enter into or amend or renew any employment, consulting, severance or
similar agreements or arrangements with any director, officer or
employee of Century or its subsidiaries, or grant any salary or wage
increase or increase any employee benefit (including incentive or
bonus payments), except for normal individual payments of incentives
and bonuses to employees in the ordinary course of business consistent
with past practice, not to exceed $400,000 in the aggregate, for
mutually agreeable amendments to the employment agreement, as amended,
between Century and its President, Joseph S. Bracewell, for normal
individual increases in compensation to employees in the ordinary
course of business consistent with past practice, for other changes
that are required by applicable law, to satisfy previously disclosed
contractual obligations existing as of the date of the merger
agreement, or for grants of awards to newly hired employees consistent
with past practice;
. Enter into, establish, adopt or amend (except as may be required by
applicable law or to satisfy previously disclosed contractual
obligations existing as of the date of the merger agreement) any
pension, retirement, stock option, stock purchase, savings, profit
sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan or
arrangement, or any trust agreement (or similar arrangement) related
thereto, in respect of any director, officer or employee of Century or
its subsidiaries, or take any action to accelerate the vesting or
exercisability of stock options, restricted stock or other
compensation or benefits payable thereunder;
. Except as previously disclosed, sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue any of its assets, deposits,
business or properties except in the ordinary course of business and
in a transaction that is not material to it and its subsidiaries taken
as a whole;
. Except as previously disclosed, acquire (other than by way of
foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in
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good faith, in each case in the ordinary and usual course of business
consistent with past practice) all or any portion of the assets,
business, deposits or properties of any other entity;
. Amend Century's certificate of incorporation, bylaws or certificate of
incorporation or bylaws (or similar governing documents) of any of
Century's subsidiaries;
. Implement or adopt any change in its accounting principles, practices
or methods, other than as may be required by generally accepted
accounting principles;
. Except in the ordinary course of business consistent with past
practice, enter into or terminate any material contract or amend or
modify in any material respect any of its existing material contracts;
. Except in the ordinary course of business consistent with past
practice, settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for other
material claims, actions or proceedings and which involve solely money
damages in an amount, individually or in the aggregate for all such
settlements, that is not material to Century and its subsidiaries,
taken as a whole;
. Incur any indebtedness for borrowed money other than in the ordinary
course of business; or
. Agree or commit to do any of the foregoing.
United has agreed that, prior to the effective time, without the prior
written consent of Century it will not:
. Make, declare, pay or set aside for payment any extraordinary
dividend, other than in connection with the United Stock Repurchase
Program;
. Prior to the effective time, enter into, nor permit any United
subsidiary to enter into, any agreement, arrangement or understanding
with respect to the merger, acquisition, consolidation, share exchange
or similar business combination involving United and/or a United
subsidiary, where the effect of such agreement, arrangement or
understanding, or the consummation or effectuation thereof, would be
reasonably likely to result in the termination of the merger
agreement, materially delay or jeopardize the receipt of the approval
of any regulatory authority or the filing of an application therefor,
or cause the anticipated tax treatment of the transactions
contemplated in the merger agreement to be unavailable; provided,
however, that nothing in such covenant shall prohibit any such
transaction that by its terms contemplates the consummation of the
merger in accordance with the provisions of the merger agreement and
which treats holders of Century common stock, upon completion of the
merger and their receipt of United stock, in the same manner as the
holders of United stock; or
. Agree or commit to do any of the foregoing.
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Additional Covenants of United and Century
The merger agreement contains substantially reciprocal additional
covenants, the most significant of which are set forth below.
Regulatory Matters
The parties have agreed to cooperate with each other and use their
reasonable best efforts to prepare and file promptly all necessary documentation
to obtain all approvals, authorizations and consents of all third parties and
governmental entities which are necessary or advisable to consummate the merger.
Access to Information
The parties have each agreed to afford the representatives of the other
access to all properties, books, personnel and records, and have each also
agreed to make available to the other party copies of documents filed by it
pursuant to the requirements of federal or state securities laws or banking
laws, and all other information concerning its business, properties and
personnel as such party may reasonably request. Both parties agreed to hold all
information furnished by or on behalf of the other party in confidence.
Century Board's Agreement to Recommend
Century's board has agreed to call a meeting of its stockholders as soon as
reasonably practicable and, in the proxy statement/prospectus mailed to the
Century stockholders, to unanimously recommend to Century's stockholders that
they approve the merger agreement. However, Century's board is permitted not to
make this recommendation, to withdraw or to modify it in a manner adverse to
United, if Century's board determines in good faith that it is necessary to do
so to comply with its fiduciary duty to stockholders under applicable law, after
receiving written advice of outside legal counsel.
Nasdaq Listing
United has agreed to cause the shares of United common stock to be issued
in the merger to be approved for trading on The Nasdaq National Market System,
subject to official notice of issuance, prior to effective time.
Employee Benefit Plans
Within a reasonable period after the effective time of the merger, United
intends to provide Century employees with benefit plans substantially similar to
those provided to similarly situated United employees. United will cause any and
all pre-existing condition limitations and eligibility waiting periods under
group health plans to be waived with respect to Century employees and their
eligible dependents. Century employees will receive credit for years of service
with Century and its predecessors for purposes of eligibility and vesting under
United's benefit plans. Century employees will not be entitled to accrual of
benefits or allocation of contributions under United's benefit plans based on
years of service with Century and its predecessors prior to the effective date
of the merger. United has agreed to honor the provisions of Century's severance
policy with respect to termination of employees within six
45
months of the effective time of the merger, and has agreed not to modify, amend
or rescind such policy until at least six months after the effective time of the
merger.
Indemnification and Insurance of Century Directors and Officers
United has agreed that:
. for six years from the effective time, it will use its reasonable best
efforts to cause the officers and directors of Century to be covered
by the directors' and officers' liability insurance policy maintained
by United with respect to acts or omissions occurring prior to the
effective time which were committed by such officers and directors in
their capacities as such; and
. for a period of six years from the effective time, United shall
indemnify former Century directors, officers and employees for
liabilities from their acts or omission in those capacities occurring
prior to the effective time to the full extent permitted by law.
Representations and Warranties
The merger agreement contains substantially reciprocal representations and
warranties made by Century and United to each other. The most significant of
these relate to: corporate authorization to enter into the contemplated
transaction; governmental and third-party approvals required in connection with
the contemplated transaction; absence of any breach of organizational documents,
law or certain material agreements as a result of the contemplated transaction;
capitalization; ownership of subsidiaries; insurance; filings with the SEC;
filing of required reports; financial statements; absence of certain changes or
events; absence of undisclosed material liabilities; certain contracts; legal
proceedings; tax matters; employee benefits matters; compliance with laws;
brokerage commissions or finders' fees; environmental matters; and absence of
circumstances inconsistent with the intended accounting treatment of the merger.
In addition, Century represents and warrants to United as to certain other
matters, including the inapplicability of the Delaware anti-takeover statute to
the merger agreement, and Century's receipt of the written opinion from
Friedman, Billings, Ramsey & Co., Inc. regarding the fairness of the merger
consideration to Century stockholders from a financial point of view.
Conditions of Merger
Closing Conditions
The obligations of Century and United to complete the merger are subject to
the satisfaction of the following conditions:
. approval of the merger agreement by the stockholders of Century;
. authorization for the listing on The Nasdaq National Market System of
the shares of United common stock to be issued in the merger;
46
. all regulatory approvals required for the merger being obtained and
remaining in full force and effect without unreasonable conditions;
. United's registration statement on Form S-4, which includes this proxy
statement/prospectus, being effective and not subject to any stop
order by the SEC;
. absence of any statute, rule, regulation, judgment, decree, injunction
or other order being enacted, issued, promulgated, enforced or entered
by a governmental authority effectively prohibiting consummation of
the merger; and
. all permits or other authorizations under state securities laws
necessary to consummate the merger and to issue the shares of United
common stock to be issued in the merger being obtained and remaining
in full force and effect.
Additional Closing Conditions for United's Benefit
United's obligation to complete the merger is also subject to the receipt
of an opinion from its counsel regarding the qualification of the merger as a
reorganization under the federal income tax laws, to the accuracy as of closing
of the representations and warranties made by Century in the merger agreement,
and to the performance by Century in all material respects of the obligations
required to be performed by it at or prior to the closing.
Additional Closing Conditions for Century's Benefit
Century's obligation to complete the merger is also subject to the receipt
of an opinion from its counsel regarding the qualification of the merger as a
reorganization under the federal income tax laws, to the accuracy as of closing
of the representations and warranties made by United in the merger agreement,
and to the performance by United in all material respects of the obligations
required to be performed by it at or prior to the closing.
Termination, Amendment And Waiver
Right to Terminate
The merger agreement may be terminated at any time prior to the closing in
any of the following ways:
(a) The merger agreement may be terminated by mutual written consent of
Century and United.
(b) The merger agreement may be terminated by either Century or United if:
. the approval of any governmental entity required for consummation
of the merger is denied by a final nonappealable action of such
governmental entity;
. the merger has not been completed on or before March 31, 2002,
unless the failure of the merger to be consummated arises out of
or results from the knowing action or inaction of the party
seeking to terminate;
47
. there has been a breach by the other party of any of its
obligations under the merger agreement which breach cannot be or
has not been cured within 30 days following written notice to the
breaching party of such breach; or
. the merger agreement is not approved by the stockholders of
Century.
(c) The merger agreement may be terminated by United if Century's board
fails to recommend the merger or withdraws, modifies or changes such
recommendation in a manner adverse to United.
(d) The merger agreement may be terminated by Century if at any time
during the five-day period commencing with the date on which the last
required governmental approval is obtained, if the average closing
price of United stock is less than $18.45. If Century elects to
terminate, United has the option to increase (i) the consideration to
be received by the holders of Century stock by increasing the exchange
ratio from 0.4500 to a number obtained by dividing $8.303 by the
average closing price, and (ii) the option exchange ratio from 0.5894
to a number obtained by dividing $11.733 by the average closing price.
If United so elects, the merger agreement will remain in effect in
accordance with its terms.
Effect of Termination
The provisions of the merger agreement relating to expenses and termination
fees, as well as the confidentiality agreement entered into between Century and
United, will continue in effect not withstanding termination of the merger
agreement. If the merger agreement is validly terminated, the agreement will
become void without any liability on the part of any party except termination
will not relieve a breaching party from liability for any willful breach of the
merger agreement.
Waiver; Amendment
Prior to the effective time, any provision of the merger agreement may be
(i) waived by the party benefitting from the provision, or (ii) amended or
modified by an agreement in writing between United and Century, except that
after the Century meeting, the merger agreement may not be amended if it would
violate the Delaware General Corporation Law.
The Option Agreement
General
As an inducement to United entering into the merger agreement, Century
agreed to grant United an option to purchase 644,143 shares of Century common
stock. The following description of the option agreement is qualified in its
entirety by reference to the text of the option agreement, which is an exhibit
to the merger agreement attached hereto as Annex A.
Under the option agreement, Century granted an option to United to purchase
from Century up to 644,143 shares of Century common stock. Although this number
is subject to adjustment in certain cases, it will never exceed 14.9% of the
number of Century shares outstanding immediately before the exercise of the
option. The exercise price of the option is $12.00 per share, but is subject to
adjustment upon the occurrence of stock dividends, recapitalizations and other
changes in capitalization of Century.
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If Century issues common stock at a price of less than $12.00 per share (except
for common stock issued pursuant to stock options granted pursuant to any
employee benefit plan prior to the date of the option agreement) the price per
share will be equal to such lesser price.
Arrangements such as the option agreement are customarily entered into in
connection with corporate mergers and acquisitions in an effort to increase the
likelihood that the transactions will be consummated in accordance with their
terms, and, if a transaction is not completed as a result of the occurrence of
the events specified in the option, to compensate the company granted the option
for the efforts undertaken and the expenses and losses incurred by it. The
option agreement may have the effect of discouraging offers by third parties to
acquire all of or a significant interest in Century prior to the merger, even if
such persons were prepared to offer to pay consideration to Century stockholders
that has a higher current market price than the shares of United common stock
and cash to be received for Century common stock pursuant to the merger
agreement.
References to United in this summary of the option agreement generally
include any third party holder of the option.
Exercise
Provided that United is not in material breach of its covenants or
agreements contained in the merger agreement, United may generally exercise the
option, in whole or in part, at any time and from time to time prior to its
termination, as described below, following the happening of both an "initial
triggering event" and a "subsequent triggering event" prior to termination of
the option as provided in the option agreement.
An "initial triggering event" is:
. Century or any of its subsidiaries, without having received United's
prior written consent, enters into an agreement to engage in an
"acquisition transaction" (as defined below) with any person other than
United or any of its subsidiaries or Century's board recommends that the
stockholders of Century approve or accept any acquisition transaction
other than as contemplated by the merger agreement;
. any person other than United or any of its subsidiaries acquires
beneficial ownership or the right to acquire beneficial ownership of 10%
or more of the outstanding shares of Century common stock;
. the stockholders of Century vote and fail to approve the merger
agreement at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting is not being held
in violation of the merger agreement or has been cancelled prior to
termination of the merger agreement if, in each such case prior to such
meeting (or if such meeting shall not have been held or shall have been
cancelled, prior to such termination), it has been publicly announced
that any person (other than United or any of its subsidiaries) has made,
or publicly disclosed an intention to make, a proposal to engage in an
acquisition transaction;
. Century's board withdraws or modifies (or publicly announces its
intention to withdraw or modify) in any manner adverse in any respect to
United its recommendation that the
49
stockholders of Century approve the transactions contemplated by the
merger agreement, or Century or any of its subsidiaries authorizes,
recommends, proposes (or publicly announces its intention to authorize,
recommend or propose) an agreement to engage in an acquisition
transaction with any person other than United or any of its
subsidiaries;
. any person other than United or any of its subsidiaries makes a proposal
to Century or its stockholders to engage in an acquisition transaction
and such proposal has been publicly announced;
. any person other than United or any of its subsidiaries files with the
SEC a registration statement or tender offer materials with respect to a
potential exchange or tender offer that would constitute an acquisition
transaction (or files a preliminary proxy statement with the SEC with
respect to a potential vote by its stockholders to approve the issuance
of shares to be offered in such an exchange offer);
. Century willfully breaches any covenant or obligation contained in the
merger agreement in anticipation of engaging in an acquisition
transaction, and following such breach United would be entitled to
terminate the merger agreement (whether immediately or after the giving
of notice or passage of time or both); or
. any person other than United or any of its subsidiaries files an
application or notice with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") or other federal or state bank
regulatory or antitrust authority, which application or notice has been
accepted for processing, for approval to engage in an acquisition
transaction.
An "acquisition transaction" is:
. a merger or consolidation, or any similar transaction, involving Century
or any of its subsidiaries, other than mergers, consolidations or
similar transactions (a) involving solely Century and/or one or more
wholly-owned (except for directors' qualifying shares and a de minimis
number of other shares) subsidiaries of Century, provided that any such
transaction is not entered into in violation of the terms of the merger
agreement or (b) in which the stockholders of Century immediately prior
to the completion of such transaction own at least 50% of the common
stock of Century (or the resulting or surviving entity in such
transaction) immediately after completion of such transaction, provided
any such transaction is not entered into in violation of the terms of
the merger agreement;
. a purchase, lease or other acquisition of all or any substantial part of
the assets or deposits of Century or any of its subsidiaries; or
. a purchase or other acquisition (including by way of merger,
consolidation, share exchange or otherwise) of securities representing
10% or more of the voting power of Century or any of its subsidiaries.
A "subsequent triggering" event is:
. the acquisition by any entity (other than United or any of its
subsidiaries) of beneficial ownership of 25% or more of the then
outstanding Century common stock; or
50
. the occurrence of the initial triggering event described in the first
bullet point of the definition of "initial triggering event" above,
except that the percentage referred to in the third bullet point of the
definition of "acquisition transaction" above shall be 25%.
To our knowledge, no initial triggering event or subsequent triggering
event has occurred as of the date of this proxy statement/prospectus.
Termination
The option will terminate upon the earliest to occur of the following
"exercise termination events":
. the effective time of the merger;
. the termination of the merger agreement prior to the occurrence of an
initial triggering event (defined above) other than a termination of the
merger agreement by United as described in the next bullet point;
. the passage of 6 months (subject to extension in order to obtain
required regulatory approvals, to comply with applicable statutory
waiting periods, or to avoid liability under Section 16(b) of the
Exchange Act) after termination of the merger agreement if such
termination follows the occurrence of an initial triggering event
(defined above) or is a termination by United resulting from Century's
willful breach of any representation, warranty, covenant or agreement
contained in the merger agreement or Century's board's failure to
recommend the merger agreement or withdrawal or modification of such
recommendation in a manner adverse to the interests of United; or
. termination of the merger agreement by United or Century based on the
disapproval by the stockholders of Century of the merger agreement at
Century's special meeting, by Century as a result of United's material
breach of its covenants or agreements in the merger agreement or by
United or Century if a necessary governmental approval is denied.
Adjustments
The time period for United's right to exercise the option and certain other
rights under the option agreement are subject to extension in order to obtain
required regulatory approvals, comply with applicable statutory waiting periods
and avoid liability under Section 16(b) of the Exchange Act. The number of
shares subject to the option and the purchase price will be adjusted
appropriately in the event of any change in Century common stock by reason of a
stock dividend, split-up, merger, recapitalization, combination, subdivision,
conversion, exchange of shares or similar transaction. In the event of the
issuance of any additional shares of Century common stock before termination of
the option, the number of shares subject to the option will be adjusted to equal
14.9% of the number of Century shares issued and outstanding.
Repurchase Rights
The option agreement provides that at any time after the occurrence of a
"repurchase event" (as defined below), upon request by United, Century shall
repurchase the option and all or any part of the
51
shares issued upon total or partial exercise of the option (the "option
shares"). A repurchase of the option shall be at a price per share equal to the
amount by which the "market/offer price" (as defined below) exceeds the option
price provided for in the option agreement (as adjusted) multiplied by the
number of shares for which the option may then be exercised. A repurchase of
option shares shall be at a price per share equal to the "market/offer price"
(as defined below) multiplied by the number of option shares to be repurchased
as designated by the owner of such option shares.
The term "market/offer price" means the highest of:
. the price per share at which a tender or exchange offer has been made for
Century common stock;
. the price per share of Century common stock that any third party is to
pay pursuant to an agreement with Century;
. the highest closing price per share of Century common stock within the
six month period immediately preceding the date that notice to repurchase
is given; or
. in the event of a sale of all or any substantial part of Century's assets
or deposits, the sum of the net price paid for such assets or deposits
and the current market value of the remaining net assets of Century (as
determined by a nationally recognized investment banking firm), divided
by the number of shares of Century common stock outstanding at the time
of such sale.
The term "repurchase event" means:
. the acquisition by any person, other than United or any of its
subsidiaries, of beneficial ownership of 50% or more of the outstanding
shares of Century common stock; or
. the consummation of any acquisition transaction, provided that for
purposes of this definition of "repurchase event," the percentage
referred to in the third bullet point of the definition of "acquisition
transaction" above shall be 50% rather than 10%.
Substitute Options
If, before an exercise termination event, Century enters into an agreement:
. to consolidate with or merge into any party, other than United or any of
its subsidiaries, or engage in a plan of exchange with such a party and
Century will not be the continuing or surviving corporation of such
consolidation or merger or the acquirer in such plan of exchange;
. to permit any party, other than United or any of its subsidiaries, to
merge into Century or be acquired by Century with Century as the
continuing, surviving or acquiring corporation, but, in connection
therewith, the then outstanding shares of Century common stock shall be
changed into or exchanged for stock or other securities of any other
entity or cash or any other property, or the then outstanding shares of
Century common stock shall after such
52
merger or plan of exchange represent less than 50% of the outstanding
shares and share equivalents of the merged company; or
. to sell or otherwise transfer all or a substantial part of the assets or
deposits of Century or any of its significant subsidiaries to any party,
other than United or any of its subsidiaries;
then the agreement governing such transaction must provide that upon the
consummation of any such transaction, the option will be converted into or
exchanged for a substitute option to purchase shares of common stock of, at
United's option, either (a) the continuing, surviving or acquiring entity in a
merger, consolidation or plan of exchange or the transferee of all or a
substantial part of the assets or deposits of Century or any of its significant
subsidiaries or (b) any person controlling the continuing, surviving or
acquiring entity or transferee. The number of shares subject to the substitute
option and the exercise price per share will be determined in accordance with a
formula in the option agreement. To the extent possible, the substitute option
will contain terms and conditions that are the same as those in the option
agreement.
Registration Rights
The option agreement grants to United and any permitted transferee of the
option certain rights to require Century to prepare and file a registration
statement under the Securities Act of 1933 if registration is necessary in order
to permit the sale or other disposition of any or all shares of Century common
stock or other securities that have been acquired by or are issuable upon
exercise of the option.
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INFORMATION ABOUT UNITED
United Bankshares, Inc. (United) is a West Virginia corporation registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended. United was incorporated on March 26, 1982, organized on September 9,
1982, and began conducting business on May 1, 1984 with the acquisition of three
wholly-owned subsidiaries. Since its formation in 1982, United has acquired 24
banking institutions. United has two banking subsidiaries, United National Bank
(UNB) and United Bank. United also owns nonbank subsidiaries that engage in
mortgage banking, asset management, investment banking and financial planning.
The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia. United's executive offices are located
in Parkersburg, West Virginia at Fifth and Avery Streets. United operates
seventy-seven offices, fifty-two offices located throughout West Virginia,
twenty-two offices throughout the Northern Virginia, Maryland and Washington, DC
areas and three in Ohio. United owns all its West Virginia facilities except
for two in the Parkersburg area, three in the Wheeling area, three in the
Charleston area, two in the Beckley area and one each in Summersville and
Clarksburg, all of which are leased under operating leases. United leases all
of its facilities under operating lease agreements in the Northern Virginia,
Maryland and Washington, DC areas except for two offices, one each in Fairfax
and Vienna, Virginia which are owned facilities.
As a bank holding company registered under the Bank Holding Company Act of
1956, as amended, United's present business is community and mortgage banking.
As of June 30, 2001, United's consolidated assets approximated $5.09 billion and
total stockholders' equity approximated $444.97 million.
Regulation
In addition to the state and federal laws applicable to business and
employers generally, United and its subsidiaries are further regulated by
special federal and state laws and regulations applicable only to financial
institutions and their parent companies. Virtually all aspects of the
operations of United, UNB and United Bank are subject to specific requirements
or restrictions and general regulatory oversight, from laws regulating consumer
finance transactions, such as the Truth in Lending Act, the Home Mortgage
Disclosure Act and the Equal Credit Opportunity Act, to laws regulating
collections and confidentiality, such as the Fair Debt Collections Practices
Act, the Fair Credit Reporting Act and the Right to Financial Privacy Act. With
few exceptions, state and federal banking laws have as their principal objective
either the maintenance of the safety and soundness of financial institutions and
the federal deposit insurance system or the protection of consumers or classes
of consumers, rather than the specific protection of stockholders of United.
New legislation, proposals to overhaul the bank regulatory system and
proposals to limit the investments that a depository institution may make with
insured funds are from time to time introduced in Congress. Such legislation
may change banking statutes and the operating environment of United and its
banking subsidiaries in substantial and unpredictable ways. United cannot
determine the effect that any new legislation and the related regulations may
have upon the financial condition or results of operations of United or its
subsidiaries.
54
Competition and Economic Characteristics of Primary Market Area
United faces a high degree of competition in all of the markets it serves.
These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson,
Cabell, Brooke, Hancock, Ohio, Marshall, Gilmer, Harrison, Lewis, Webster,
Boone, Logan, Nicholas, Fayette and Raleigh counties in West Virginia; Lawrence,
Belmont, Jefferson and Washington counties in Ohio; Montgomery county in
Maryland and Arlington, Loudoun, Prince William and Fairfax counties in
Virginia, located adjacent to the Washington DC area, which is in close
proximity to Jefferson and Berkeley counties in West Virginia's eastern
panhandle. United competes in Ohio markets because of the close proximity to
the Ohio border of certain subsidiary offices. Included in United's West
Virginia markets are the five largest West Virginia Metropolitan Statistical
Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the
Wheeling MSA and the Weirton MSA. United's Virginia markets include the
Washington, DC metropolitan area. United considers the above counties and MSAs
to be the primary market area for the business of its banking subsidiaries.
With prior regulatory approval, West Virginia and Virginia banks are
permitted unlimited branch banking throughout the state. In addition,
interstate acquisitions of and by West Virginia and Virginia banks and bank
holding companies are permissible on a reciprocal basis, as well as reciprocal
interstate acquisitions by thrift institutions. These conditions serve to
intensify competition within United's market.
As of December 31, 2000, there were 48 bank holding companies in the State
of West Virginia registered with the Federal Reserve System and the West
Virginia Board of Banking and Financial Institutions and 76 bank holding
companies in the Commonwealth of Virginia registered with the Federal Reserve
System and the Virginia Corporation Commission. These holding companies are
headquartered in various West Virginia and Virginia cities and control banks
throughout West Virginia and Virginia, which compete for business as well as for
the acquisition of additional banks.
Although the market area of the banking subsidiaries encompasses a portion
of the coal fields located in southern West Virginia, an area of the state which
has been economically depressed, the coal related loans in the loan portfolio of
the banking subsidiaries constitute less than 2% of United's total loans
outstanding. The state of West Virginia has a more diversified economy than it
had during the peak periods of coal production with the chemical manufacturing
industry accounting for 18% of the entire manufacturing workforce and 30% of the
manufacturing wages, according to West Virginia state records. This diversified
economy has contributed to the positive trends in the number of payroll jobs
created and unemployment rates in recent years as the number of payroll jobs
increased 4,000 during calendar year 2000 and the state's overall unemployment
rate has declined from 10.5% in 1991 to 5.5% in December 2000. West Virginia's
unemployment rate for all of 2000 averaged 5.5%, which was the lowest average
annual unemployment rate since the current statistical system began in 1976,
according to available information from the West Virginia Bureau of Employment
Programs.
United's northern Virginia subsidiary banking offices are located in
markets that reflect relatively low unemployment rate levels and increased wage
levels comparing December 2000 to the previous year. According to information
available from the Virginia Employment Commission, Virginia's unemployment rate
as of December 2000 was 1.9%. The 1.9% unemployment rate was the first time the
rate fell below 2.0% in 48 years. Additionally, the Virginia Employment
Commission reported that record levels were set with increased nonagricultural
employment and increased factory wages in
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December 2000. The Northern Virginia metropolitan area's unemployment rate was
at 1.1%, lowest among Virginia's eight metropolitan areas, as of December 2000.
Employees
As of December 31, 2000, United had 1,253 full-time equivalent employees,
eight of whom were executive officers. A collective bargaining unit represents
none of these employees, and management considers employee relations to be
excellent.
Properties
The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia. United's executive offices are located
in Parkersburg, West Virginia at Fifth and Avery Streets. United operates 77
offices--52 offices located throughout West Virginia, 22 offices throughout the
Northern Virginia, Maryland and Washington, D.C. areas and three in Ohio.
United owns all its West Virginia facilities except for two in the Parkersburg
area, three in the Wheeling area, three in the Charleston area, two in the
Beckley area and one each in Summersville and Clarksburg, all of which are
leased under operating leases. United leases all of its facilities under
operating lease agreements in the Northern Virginia, Maryland and Washington,
D.C. areas except for two offices, one each in Fairfax and Vienna, Virginia
which are owned facilities.
Legal Proceedings
The nature of the business of United causes it (and its subsidiaries) to be
involved in routine legal proceedings from time to time. Management of United
believes that there are no pending or threatened legal proceedings that upon
resolution would have a material adverse impact on United.
Interests of Certain Persons
No director or executive officer of United has any material direct or
indirect financial interest in Century or the merger except as a director,
executive officer or stockholder of United or its subsidiaries.
56
DESCRIPTION OF CAPITAL STOCK OF UNITED
The authorized capital stock of United consists of 100,000,000 shares of
common stock, par value $2.50 per share. As of June 30, 2001, there were
41,308,168 shares of common stock outstanding, net of treasury shares of
2,073,601, and no shares of preferred stock authorized or outstanding.
Common Stock
Each holder of common stock is entitled to one vote for each share held on
all matters with respect to which the holders of common stock are entitled to
vote. The common stock has no preemptive or conversion rights and is not
subject to redemption. Holders of common stock are entitled to cumulative
voting in the election of directors. In the event of dissolution or
liquidation, after payment of all creditors, the holders of the common stock
will be entitled to receive pro rata any assets distributable to stockholders in
respect of the number of shares held by them.
The holders of shares of common stock are entitled to such dividends as the
board of directors, in its discretion, may declare out of funds legally
available therefor. Under West Virginia law, dividends may not be paid if,
after the payment, United's total assets would be less than the sum of its total
liabilities and stated capital, or if United would be unable to pay its debts as
they become due in the usual course of its business. Payment of future
dividends on the common stock will be dependent upon, among other things, the
earnings and financial condition of United and its subsidiaries, United's other
cash flow requirements and the general economic and regulatory climate.
The transfer agent and registrar for the common stock is Mellon Investor
Services LLC.
As of June 30, 2001, 100,000,000 shares of common stock, par value $2.50
per share, were authorized for United, of which 43,381,769 were issued,
including 2,073,601 shares held as treasury shares. The outstanding shares are
held by approximately 12,006 stockholders of record as of June 30, 2001. The
unissued portion of United's authorized common stock (subject to registration
approval by the SEC) and the treasury shares are available for issuance as the
board of directors determines advisable. United offers its stockholders the
opportunity to invest dividends in shares of United stock through its dividend
reinvestment plan. United has also established stock option plans and a stock
bonus plan as incentive for certain eligible officers. In addition to the above
incentive plans, United is occasionally involved in certain mergers in which
additional shares could be issued and recognizes that additional shares could be
issued for other appropriate purposes.
The board of directors believes that the availability of authorized but
unissued common stock of United is of considerable value if opportunities should
arise for the acquisition of another business through the issuance of United's
stock. Stockholders do not have preemptive rights, which allows United to issue
additional authorized shares without first offering them to current
stockholders.
United has only one class of stock outstanding and all voting rights are
vested in the holders of United's stock. At the present time, no senior
securities of United are outstanding, nor does the board of directors presently
contemplate issuing senior securities. All of the issued and outstanding shares
of United's stock are fully paid and non-assessable.
The stockholders of United are entitled to receive dividends when and as
declared by its board of directors. Dividends are paid quarterly. Dividends
were $0.84 per share in 2000, $0.82 per share in 1999 and $0.75 per share in
1998. Dividends are paid from funds legally available; therefore, the payment
of
57
dividends is subject to the restrictions set forth in the West Virginia
Corporation Act. See "--Market and Stock Prices of United" for quarterly
dividend information.
Payment of dividends by United is dependent upon payment of dividends to it
by its subsidiary banks. The ability of national banks to pay dividends is
subject to certain limitations imposed by the national banking laws. Generally,
the most restrictive provision requires approval by the Office of the
Comptroller of the Currency (OCC) if dividends declared in any year exceed the
current year's net income, plus the retained net profits of the two preceding
years. Payment of dividends by United's state member bank is regulated by the
Federal Reserve System and generally, the prior approval of the Federal Reserve
Board is required if the total dividends declared by a state member bank in any
calendar year exceeds its net profits, as defined, for that year combined with
its retained net profits for the preceding two years. Additionally, prior
approval of both the OCC and the Federal Reserve Board is required when a
national bank or state member bank has deficit retained earnings but has
sufficient current year's net income, plus the retained net profits of the two
preceding years. The OCC and the Federal Reserve Board may prohibit dividends
if it deems the payment to be an unsafe or unsound banking practice. The OCC
has issued guidelines for dividend payments by national banks, emphasizing that
proper dividend size depends on the bank's earnings and capital while the
Federal Reserve Board has issued similar guidelines pertaining to state member
banks. See Note NBNotes to Consolidated Financial Statements of United's 2000
Annual Report on Form 10-K, which is incorporated herein by reference.
Market and Stock Prices of United
United stock is traded over the counter on The Nasdaq National Market
System under the trading symbol UBSI.
The high and low closing prices listed below are based upon information
available to United's management from Nasdaq listings. No attempt has been made
by United's management to ascertain the prices for every sale of its stock
during the periods indicated. However, based on the information available,
United's management believes that the prices fairly represent the amounts at
which United's stock was traded during the periods indicated. The following
table presents the dividends and high and low prices of United's common stock
during the periods set forth below:
2001 Dividends High Low
---- --------- ---- ---
Third Quarter (through August 29, 2001) $0.23 $28.33 $25.30
Second Quarter $0.23 $27.00 $21.55
First Quarter $0.22 $23.13 $20.19
2000
----
Fourth Quarter $0.21 $22.13 $17.25
Third Quarter $0.21 $20.88 $18.38
Second Quarter $0.21 $22.38 $16.38
First Quarter $0.21 $24.44 $17.00
1999
----
Fourth Quarter $0.21 $26.25 $22.63
Third Quarter $0.21 $27.25 $23.38
Second Quarter $0.20 $27.38 $22.88
First Quarter $0.20 $27.69 $22.75
58
INFORMATION ABOUT CENTURY
General
Century, a Delaware corporation and a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, was incorporated and organized
in 1985. Century began active operations in 1986 with the acquisition of its
subsidiary, Century National Bank (CNB), a full service bank that opened for
business in 1982. CNB provides a broad line of financial products and services
to small and middle market businesses and individuals in the greater Washington,
DC metropolitan area.
On March 15, 2001, Century consummated its merger with GrandBanc, Inc.
(GrandBanc) in a stock-for-stock exchange valued at $9.4 million. Stockholders
of GrandBanc received 0.3318 shares of Century's common stock for each of the
4,049,665 shares of GrandBanc common stock and cash in lieu of each fractional
share at the rate of $6.9375. The merger was accounted for as a pooling of
interests and all financial information has been restated to give effect to the
pooling of interests. GrandBanc, which had $118.0 million in total assets at
December 31, 2000, was the parent holding company of GrandBank, a Maryland
chartered commercial bank headquartered in Rockville, Maryland. Century merged
GrandBank into CNB on May 18, 2001.
After the completion of the merger with GrandBanc and the subsequent merger
of GrandBank into CNB, Century operates 11 full-service banking offices--two in
downtown Washington, five in Northern Virginia, four in Montgomery County--and
an insurance agency. Century's principal executive offices are located at 1275
Pennsylvania Avenue, NW, Washington, DC 20004, and the phone number at that
address is (202) 496-4100.
Century derives substantially all of its revenue and income from the
operation of CNB. As of June 30, 2001, Century had total assets of $415.0
million, total deposits of $322.3 million, and stockholders' equity of $25.1
million. At June 30, 2001, there were approximately 1,385 holders of Century's
common stock, par value $1.00 per share.
Management of Century and Additional Information
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and related
transactions, and other related matters concerning Century is included or
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 2000, which are incorporated in this proxystatement/prospectus by
reference. See "Where You Can Find More Information" on page 105.
Voting Securities and Principal Holders Thereof
The following table sets forth the name, address and number of shares of
common stock owned beneficially as of August 31, 2001 by (a) each person known
to Century to be the beneficial owner of more than five percent of the
outstanding shares of common stock; (b) each director of Century; (c) each of
Century's executive officers named in the Summary Compensation Table; and (d)
all executive officers and directors of Century as a group. No executive
officer or director of Century has any family relationship with any other
officer or director. Unless otherwise indicated, all shares are owned directly
and the owner has sole voting and investment power with respect thereto.
59
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
---------------------------- ------------------------ ----------------
Joseph S. Bracewell 221,265/(1)/ 5.0%
Abbey J. Butler 14,841/(2)/ Less than 1%
George Contis, M.D. 154,179/(3)/ 3.5%
John R. Cope 2,236/(4)/ Less than 1%
Bernard J. Cravath 97,152/(5)/ 2.2%
Melvyn J. Estrin 166,127/(6)/ 3.8%
Marvin Fabrikant 177,261/(7)/ 4.1%
Neal R. Gross 177,329/(8)/ 4.1%
William S. McKee 117,020/(9)/ 2.7%
William C. Oldaker 50,518/(10)/ 1.2%
Dale G. Phelps 5,062/(11)/ Less than 1%
All directors, and executive 1,183,040 27.3%
officers as a group (11 persons)
_________________________________
1) Principal address is 1275 Pennsylvania Avenue, N.W., Washington, D.C.
Includes 20,007 shares held in trust for minor children for which
Mr. Bracewell's wife is trustee, and 68,022 shares held for the benefit of
Mr. Bracewell in Century's 401(k) plan. Also includes 31,988 shares issuable
upon exercise of currently exercisable options.
2) Includes 14,841 shares issuable upon exercise of currently exercisable
options.
3) Includes 106,995 shares held by Medical Services Corporation International
Profit Sharing Plan and Trust of which Dr. Contis is trustee, and 20,787
shares issuable upon exercise of currently exercisable options.
4) Includes no shares issuable upon exercise of currently exercisable options.
5) Includes 1,576 shares held by Mr. Cravath's wife, and 18,964 shares issuable
upon exercise of currently exercisable options. Also includes 7,874 held in
trust for minor grandchildren whose mother serves as trustee and holds sole
voting power. Mr. Cravath disclaims beneficial ownership of shares in trust
for minor grandchildren.
6) Principal address is 7200 Wisconsin Avenue, Suite 600, Bethesda, Maryland.
Includes 96,193 shares held jointly with Mr. Estrin's wife, 2,107 shares held
by Mr. Estrin's wife, 9,908 shares held by the Sidney Goldstein Family Trust
of which Mr. Estrin is trustee, 16,940 shares held by the Estrin
Grandchildren Trust of which Mr. Estrin is co-trustee, 6,193 shares held by
the Lemer Grandchildren
60
Trust of which Mr. Estrin is co-trustee, 18,702 shares held by the Estrin
Family Limited Partnership which Mr. Estrin controls and 14,841 shares
issuable upon exercise of currently exercisable options.
7) Includes 14,151 shares held by Mr. Fabrikant's wife, 118,825 shares held
jointly with Mrs. Fabrikant, 26,862 shares held by MPF Investment Co. LP of
which Mrs. Fabrikant is the general partner and Mr. Fabrikant is a limited
partner, 5,041 shares held in Century's 401(k) plan and 12,382 shares
issuable upon exercise of currently exercisable options.
8) Principal address is 1323 Rhode Island Avenue, N.W., Washington, D.C. 20005.
Includes 22,701 shares issuable upon exercise of currently exercisable
options.
9) Includes 14,340 shares held in retirement plans and 18,964 shares issuable
upon exercise of currently exercisable options.
10) Includes 11,904 shares in Mr. Oldaker's IRA and 24,750 shares issuable upon
exercise of currently exercisable options. Also includes 2,816 shares held
by Mr. Oldaker's wife.
11) Shares held in Century's 401(k) plan. Also includes 4,594 shares issuable
upon exercise of currently exercisable options.
61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF CENTURY
This Management's Discussion and Analysis of Financial Condition and
Results of Operations of Century, which analyzes the major elements of our
consolidated statements of operations and financial condition, should be read in
conjunction with the detailed information and consolidated financial statements,
and the notes related thereto, included elsewhere herein. References to the
operations of Century include the operations of its wholly-owned subsidiary,
Century National Bank (CNB), unless the context otherwise requires.
General
On March 15, 2001, Century consummated its merger with GrandBanc, Inc.
(GrandBanc) in a stock-for-stock exchange valued at $9.4 million. Shareholders
of GrandBanc received 0.3318 shares of Century's common stock for each of the
4,049,665 shares of GrandBanc common stock and cash in lieu of each fractional
share at the rate of $6.9375. The merger was accounted for as a pooling of
interests and all financial information has been restated to give effect to the
pooling of interests. GrandBanc, which had $118.0 million in total assets at
December 31, 2000, was the parent holding company of GrandBank, a Maryland
chartered commercial bank headquartered in Rockville, Maryland. Century merged
GrandBank into CNB on May 18, 2001.
Century derives substantially all of its revenue and income from the
operation of CNB. As of June 30, 2001, Century had total assets of $415.0
million, total deposits of $322.3 million, and stockholders' equity of $25.1
million. At June 30, 2001, there were approximately 1,385 shareholders of
Century's common stock, par value $1.00 per share (Common Stock).
In the following presentations, all "per share" amounts have been adjusted
to reflect five percent common stock dividends in 2001, 2000, 1999, 1998 and
1997.
The following materials contain certain forward-looking statements
regarding future financial condition and results of operations and Century's
business operations. The words "may," "intend," "will," "believe," "expect,"
"estimate," "anticipate," "predict" and similar expressions, the negatives of
those words and other variations on those words or comparable terminology are
intended to identify forward-looking statements. Such statements involve risks,
uncertainties and assumptions and, although Century believes that such
assumptions are reasonable, it can give no assurance that its expectations
regarding these matters will be achieved. Our actual results may differ
materially from what we expect. The important factors that could cause actual
results to differ materially from the forward-looking statements include,
without limitation, the factors discussed in Century's Form 10-K for the year
ended December 31, 2000 under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" as well as the following
factors: integration of the operations of GrandBanc; general economic conditions
in the Washington, DC metropolitan area; changes in interest rates; changes in
asset quality; changes in liquidity and capital levels; the effect on Century of
the extensive scheme of regulation by several federal agencies; operation and
maintenance of efficient systems; the departure of certain key executives; and
competition from other providers of financial services. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, such actual outcomes may vary materially from those indicated.
62
For the Three and Six Month Periods Ended June 30, 2001 and 2000
Results of Operations
Net Income
For the three months ended June 30, 2001, Century's net income was $1.385
million, or $0.31 per diluted share, compared with $462,000 for the three months
ended June 30, 2000, or $0.11 per diluted share, an increase of 200%. In the
second quarter of 2001, Century incurred $263,000 in after-tax merger-related
expense associated with the GrandBanc merger and the pending merger with United.
During the same period, Century recognized $951,000 in after-tax gains from the
sale of investment securities in conjunction with an investment portfolio
repositioning strategy. Net income for the three months ended June 30, 2001,
exclusive of these after-tax merger-related expenses and securities gains, or
core earnings, was $697,000, or $0.16 per diluted common share, a 51% increase
compared with the same period last year. The increase in core earnings was
primarily attributable to a 61% increase in noninterest income, exclusive of the
investment portfolio repositioning gains, coupled with a 1% decline in
noninterest expense, exclusive of the merger-related expense. Return on average
assets was 1.35% in the second quarter of 2001 compared with 0.56% for the same
period in 2000. Return on average stockholders' equity was 22.34% for the three
months ended June 30, 2001, compared with 8.35% for the same period in 2000.
Return on average assets and return on average equity for the second quarter of
2001, exclusive of the after-tax merger-related expenses and securities gains,
were 0.68% and 11.24%, respectively, compared with 0.56% and 8.35%,
respectively, for the same period last year.
For the six months ended June 30, 2001, Century's net income was $414,000,
or $0.09 per diluted share, compared with $893,000 for the six months ended June
30, 2000, or $0.20 per diluted share, a decrease of 54%. In the first six
months of 2001, Century incurred $1.779 million in after-tax merger-related
expense associated with the GrandBanc merger and the pending merger with United.
During the same period, Century recognized $951,000 in after-tax gains from the
sale of investment securities in conjunction with an investment portfolio
repositioning strategy. Net income for the six months ended June 30, 2001,
exclusive of these after-tax merger-related expenses and securities gains, or
core earnings, was $1.242 million, or $0.28 per diluted common share, a 39%
increase compared with the same period last year. The increase in core earnings
was primarily attributable to a 6% increase in net interest income and a 51%
increase in noninterest income, exclusive of the investment portfolio
repositioning gains, which outpaced the 6% increase in noninterest expense,
exclusive of merger-related expense. Return on average assets was 0.20% for the
six months ended June 30, 2001 compared with 0.56% for the same period in 2000.
Return on average stockholders' equity was 3.33% for the six months ended June
30, 2001, compared with 8.16% for the same period in 2000. Return on average
assets and return on average equity for the six months ended June 2001,
exclusive of the after-tax merger-related expenses and securities gains, were
0.61% and 9.98%, respectively, compared with 0.56% and 8.16%, respectively, for
the same period last year.
A more comprehensive discussion of earnings performance follows.
Net Interest Income
For the quarter ended June 30, 2001, net interest income, on a fully
taxable-equivalent basis, was $3.665 million compared with $3.534 million for
the quarter ended June 30, 2000, an increase of $131,000, or 4%. Although
average earning assets increased 21% between the periods, a 66 basis point
decline in net interest margin to 3.88% for the first quarter of 2001 from 4.54%
for the same period in
63
2000 acted to reduce growth in net interest income. While the yield on average
earning assets declined 29 basis points reflecting the steady decline in market
rates in response to the continued easing of interest rates by the Federal
Reserve Board in 2001, the average rate paid on interest-bearing liabilities
increased 19 basis points. Century has been reducing the rates it pays on its
various deposit products to the extent possible. However, the timing and
magnitude of the decrease generally lags the decreases on earning asset
components that generally have greater elasticity. Furthermore, these reductions
in deposit rates were more than offset by the effects of the Reston Branch
deposit acquisition in August, 2000, which had a high-cost funding base, and an
increase in average securities sold under agreements to repurchase.
For the six month period ended June 30, 2001, net interest income, on a
fully taxable-equivalent basis, was $7.434 million compared with $6.896 million
for the six month period ended June 30, 2000, an increase of $538,000, or 8%.
Although average earning assets increased 27% between the periods, a 67 basis
point decline in net interest margin to 3.96% for the six months ended June 2001
from 4.63% for the same period in 2000 acted to reduce growth in net interest
income. While the yield on average earning assets declined only 8 basis points,
the average rate paid on interest-bearing liabilities increased 47 basis points.
Century has been reducing the rates it pays on its various deposit products to
the extent possible in response to the continued easing of interest rates by the
Federal Reserve Board in 2001. However, the timing and magnitude of the
decrease generally lags the decreases on earning asset components that generally
have greater elasticity. Furthermore, these reductions in deposit rates were
more than offset by the effects of the Reston Branch deposit acquisition in
August 2000 which had a high-cost funding base, an increase in average
securities sold under agreements to repurchase and the impact of the trust
preferred issuance in late March 2000 (See "--Preferred Securities of Subsidiary
Trust").
The following tables set forth the average yields and rates of interest
earned and paid for significant categories of interest-earning assets and
interest-bearing liabilities, and their average balances, for the three and six
month periods ended June 30, 2001 and 2000.
64
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(Dollars in Thousands)
Three Months Ended June 30,
----------------------------------------------------------------------
2001 2000
-------------------------------- ------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------- ------------------------------------
Interest-Earning Assets
Loans, net (1) $287,798 $6,154 8.58% $206,118 $4,823 9.41%
Investment securities (2)(3) 87,628 1,439 6.59 77,472 1,253 6.50
Federal funds sold 1,195 24 8.06 16,416 257 6.30
Interest bearing deposits
with other banks 1,914 23 4.82 12,797 194 6.10
------------------- --------------------
Total interest-earning assets (3) 378,536 7,640 8.10% 312,803 6,527 8.39%
Cash and due from banks 11,588 10,869
Other assets 22,530 10,381
-------- --------
Total assets $412,654 $334,053
-------- --------
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 43,514 $ 127 1.17% $ 34,094 $ 102 1.20%
Savings accounts 34,913 297 3.41 22,644 213 3.78
Money market accounts 41,031 361 3.53 46,727 425 3.66
Time deposits 149,506 2,322 6.23 112,868 1,487 5.30
Borrowings and
notes payable 62,366 868 5.58 44,451 766 6.93
------------------- --------------------
Total interest-bearing
liabilities 331,330 3,975 4.81% 260,784 2,993 4.62%
Non-interest bearing deposits 51,957 48,328
Other liabilities 4,495 2,740
----------- -----------
Total liabilities 387,782 311,852
Stockholders' equity 24,872 22,201
----------- -----------
Total liabilities and
stockholders' equity $412,654 $334,053
----------- -----------
------ ------
Net interest income and spread $3,665 3.29% $3,534 3.78%
------ ------
Net interest margin (3) 3.88% 4.54%
(1) Non-accrual loan balances are included in the calculation of Average
Balances - Loans, Net. Interest income on non-accrual loan balances is
included in interest income to the extent that it has been collected.
(2) Average balance and average rate for investment securities are computed
based on book value of securities held-to-maturity and amortized cost basis
of securities available-for-sale.
(3) Interest and yield on obligations of state and political subdivisions
included in investment securities are computed on a taxable-equivalent basis
using a federal tax rate of 34%.
65
AVERAGE BALANCES AND INTEREST YIELDS/RATES
(Dollars in Thousands)
Six Months Ended June 30,
-------------------------------------------------------------------------
2001 2000
-------------------------------------------------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
---------------------------------- -----------------------------------
Interest-Earning Assets
Loans, net (1) $276,478 $12,195 8.89% $202,587 $ 9,419 9.35%
Investment securities (2)(3) 96,712 3,181 6.63 72,889 2,299 6.34
Federal funds sold 3,874 114 5.93 13,439 406 6.08
Interest bearing deposits
with other banks 1,652 38 4.64 10,305 302 5.89
----------------------- ----------------------
Total interest-earning assets (3) 378,716 15,528 8.27% 299,220 12,426 8.35%
Cash and due from banks 11,341 10,705
Other assets 20,173 10,244
------------ --------
Total assets $410,230 $320,169
============ ========
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 42,070 $ 234 1.12% $ 33,208 $ 210 1.27%
Savings accounts 34,837 649 3.76 23,662 449 3.82
Money market accounts 41,772 753 3.64 40,858 734 3.61
Time deposits 152,543 4,752 6.28 113,392 2,955 5.24
Borrowings and
notes payable 57,436 1,706 5.99 36,260 1,182 6.56
----------------------- ---------------------
Total interest-bearing
liabilities 328,657 8,094 4.97% 247,380 5,530 4.50%
Non-interest bearing deposits 52,150 47,494
Other liabilities 4,339 3,277
------------ --------
Total liabilities 385,146 298,151
Stockholders' equity 25,084 22,018
------------ --------
Total liabilities and
stockholders' equity $410,230 $320,169
============ ========
---------- ---------
Net interest income and spread $ 7,434 3.30% $ 6,896 3.86%
========== =========
Net interest margin (3) 3.96% 4.63%
(1) Non-accrual loan balances are included in the calculation of Average
Balances - Loans, Net. Interest income on non-accrual loan balances is
included in interest income to the extent that it has been collected.
(2) Average balance and average rate for investment securities are computed
based on book value of securities held-to-maturity and amortized cost basis
of securities available-for-sale.
(3) Interest and yield on obligations of state and political subdivisions
included in investment securities are computed on a taxable-equivalent
basis using a federal tax rate of 34%.
66
Noninterest Income
Noninterest income was $2.4 million in the second quarter of 2001, a $1.9
million, or 362%, increase when compared with $518,000 in the same quarter of
2000 (see table below). Exclusive of $1.6 million in pre-tax gains from the
sale of investment securities related to Century's execution of an investment
portfolio repositioning strategy, the increase between the periods was $318,000,
or 61%. Other security gains recognized from early redemptions prior to stated
maturity (calls) and from sales initiated for liquidity purposes increased
$184,000. Mortgage loan origination fees increased $64,000, as volume increased
in the declining market rate climate. Other income also increased $82,000,
attributable to increases in net credit card and merchant fees and increases in
several other miscellaneous income categories as management continues to seek
other sources of noninterest income. Service charges on deposit accounts
registered a small decline primarily due to fee waivers afforded GrandBank
customers while they became accustomed to Century's products and fee schedules
after the system conversion.
Noninterest Income
Three Months Ended June 30,
------------------------------------------------------------
2001 2000 $ Change % Change
------------------------------------------------------------
Service charges on deposit accounts $ 381,565 $392,300 $ (10,735) (2.7)%
Mortgage loan origination fees 88,039 23,774 64,265 270.3
Commission and other fee income 65,802 68,189 (2,387) (3.5)
Gain on sales/calls of investment securities 1,743,490 - 1,743,490 -
Other income 116,560 34,068 82,492 242.1
------------------------------------------------------------
Total noninterest income $2,395,456 $518,331 $1,877,125 362.1 %
============================================================
Noninterest income was $3.0 million for the six months ended June 30, 2001,
a $2.0 million, or 215%, increase when compared with $950,000 in the same period
of 2000 (see table below). Exclusive of $1.6 million in pre-tax gains from the
sale of investment securities related to Century's execution of an investment
portfolio repositioning strategy, the increase between the periods was $488,000,
or 51%. Other security gains recognized from early redemptions prior to stated
maturity (calls) and from sales initiated for liquidity purposes increased
$228,000. Mortgage loan origination fees increased $73,000, as volume increased
in the current declining market rate climate. Deposit service charges increased
$38,000 resulting from higher volumes, coupled with effects of service charge
fee increases implemented early in the second quarter of 2000. Other income
also increased $144,000, attributable to volume driven increases in net credit
card and merchant fees and increases in several other miscellaneous income
categories as Century's management continues to seek other sources of
noninterest income.
Noninterest Income
Six Months Ended June 30,
------------------------------------------------------------
2001 2000 $ Change % Change
------------------------------------------------------------
Service charges on deposit accounts $ 772,551 $734,870 $ 37,681 5.1%
Mortgage loan origination fees 106,301 33,757 72,544 214.9
Commission and other fee income 140,157 134,422 5,735 4.3
Gain on sales/calls of investment securities 1,787,141 - 1,787,141 -
Other income 191,733 47,361 144,372 304.8
------------------------------------------------------------
Total noninterest income $2,997,883 $950,410 $2,047,473 215.4%
============================================================
67
Noninterest Expense
Noninterest expense was $3.3 million in the three-month period ended June
30, 2001, an increase of $250,000, or 8.1%, when compared with total noninterest
expense of $3.1 million for the same period in 2000. Exclusive of merger-
related expense of $282,000 associated with the GrandBanc merger and pending
merger with United, noninterest expense for the three months ended June 30, 2001
was $3.0 million, a decrease of $32,000 compared with the same period last year.
Although the current period expense reflects the full impact from the
acquisition of the Reston Branch, many components of noninterest expense
decreased in comparison to the prior year period as Century began to realize
expense savings from the GrandBanc merger. Salaries and benefits registered the
steepest decrease due in large measure to a $333,000 increase in capitalized
salary costs related to strong loan volume. Professional fees increased
$113,000 or 34% primarily due to higher legal fees associated with loan
purchases and loan collection activities. Occupancy and equipment expense and
amortization of intangibles increased $40,000 and $92,000, respectively, in
direct correlation with the Reston Branch acquisition.
The following table sets forth the various categories of, and changes in,
noninterest expense for the three months ended June 30, 2001 and 2000:
Noninterest Expense
Three Months Ended June 30,
--------------------------------------------------------------
2001 2000 $ Change % Change
--------------------------------------------------------------
Salaries and employee benefits $1,059,484 $1,307,171 $(247,687) (18.9)%
Occupancy and equipment expense 419,089 379,477 39,612 10.4
Professional fees 449,070 336,195 112,875 33.6
Data processing 236,107 254,757 (18,650) (7.3)
Depreciation and amortization 177,073 181,511 (4,438) (2.4)
Amortization of intangibles 190,329 97,967 92,362 94.3
Communications 176,078 157,644 18,434 11.7
Federal deposit insurance premiums 13,631 12,828 803 6.3
Other expenses 321,412 347,182 (25,770) (7.4)
--------------------------------------------------------------
Total noninterest expense exclusive
of merger-related expense 3,042,273 3,074,732 (32,459) (1.1)
Merger-related expense 282,361 - 282,361 -
--------------------------------------------------------------
Total noninterest expense $3,324,634 $3,074,732 $ 249,902 8.1 %
==============================================================
Noninterest expense was $8.3 million in the six months ended June 30, 2001,
an increase of $2.3 million, or 39.1%, when compared with total noninterest
expense of $5.9 million for the same period in 2000. Exclusive of merger-
related expense of $2.0 million primarily associated with the GrandBanc merger,
noninterest expense for the six months ended June 30, 2001 was $6.3 million, an
increase of $353,000, or 5.9% compared with the same period last year. Although
expense savings began to be realized from the consolidation of back office
operations in May 2001, most components of noninterest expense, as detailed
below, increased in the first six months of 2001 compared with the first six
months of 2000 which is reflective of the increase in infrastructure coincident
with the Reston Branch acquisition. Salaries and benefits decreased
significantly, due in large measure to a $484,000 increase in SFAS 91 salary
deferrals triggered by strong loan volume. Professional fees increased
$182,000, or 33%, primarily due to legal fees associated with loan purchases and
loan collection activities.
68
Occupancy and equipment expense and amortization of intangibles increased
$122,000 and $184,000, respectively, in direct correlation with the Reston
Branch acquisition.
The following table sets forth the various categories of, and changes in,
noninterest expense for the six months ended June 30, 2001 and 2000:
Noninterest Expense
Six Months Ended June 30,
--------------------------------------------------------------
2001 2000 $ Change % Change
--------------------------------------------------------------
Salaries and employee benefits $2,367,799 $2,641,018 $ (273,219) (10.3)%
Occupancy and equipment expense 892,399 770,201 122,198 15.9
Professional fees 732,036 550,400 181,636 33.0
Data processing 517,947 503,116 14,831 2.9
Depreciation and amortization 344,637 357,806 (13,169) (3.7)
Amortization of intangibles 380,317 195,935 184,382 94.1
Communications 343,777 300,733 43,044 14.3
Federal deposit insurance premiums 28,844 25,159 3,685 14.6
Other expenses 679,864 590,344 89,520 15.2
--------------------------------------------------------------
Total noninterest expense exclusive
of merger-related expense 6,287,620 5,934,712 352,908 5.9
Merger-related expense 1,965,214 - 1,965,214 -
--------------------------------------------------------------
Total noninterest expense $8,252,834 $5,934,712 $2,318,122 39.1%
==============================================================
Investments
Century's investment portfolio of $80.0 million as of June 30, 2001
consisted mostly of U.S. Government Agency obligations supplemented by
municipals, mortgage-backed securities and corporate bonds. This amount
represented a decrease of $32.1 million, or 29%, compared with the investment
portfolio total of $112.1 million at December 31, 2000. Cash flows from
repayments and redemptions prior to scheduled maturity, primarily in the U.S.
Government Agency portfolio, accelerated during the first six months of 2001 as
a result of the declining rate environment. These cash flows were primarily
utilized to fund loans. During June 2001, Century repositioned the investment
portfolio by selling $19.2 million in available-for-sale securities and
reinvesting the proceeds into held-to-maturity securities having similar risk
profiles. At June 30, 2001, full reinvestment of the proceeds had not occurred
with remaining reinvestment to be completed in the third quarter of 2001. Gains
from the sales provided an immediate increase to CNB's regulatory capital and
the categorization of the newly purchased securities as held-to-maturity is
expected to reduce future volatility in comprehensive income.
Financial Condition
Loans
Century presently is a middle market banking organization serving
individuals and businesses with interests in and around the Washington, DC
metropolitan area. Most of Century's loan portfolio is collateralized by first
mortgages on commercial or residential real estate or home equity lines of
credit on residential real estate. The loan portfolio at June 30, 2001
increased $33.6 million, or 13%, since December 31, 2000 and increased $79.0
million, or 37%, since June 30, 2000. The increase since year-end 2000 was
primarily reflected in the commercial real estate and commercial loan sectors.
69
Internal loan growth during this period was supplemented by a portfolio purchase
totaling approximately $20.5 million as Century reinvested investment portfolio
runoff into higher yielding loan assets. The increase in comparison to the same
period last year was primarily reflected in the home equity, construction and
commercial real estate sectors as strong loan demand in the last twelve months
was supplemented by selected portfolio purchases of $46.5 million, including
$15.4 million in variable-rate home equity loans. Century views such loan
portfolio purchases as an effective way to employ excess funds when deposit
growth exceeds loan generation capacity on a short-term basis, such as existed
immediately after the acquisition of the Reston Branch in August 2000. As of
June 30, 2001 and 2000, approximately $223.3 million, or 76%, and $147.7
million, or 69%, respectively, of Century's total loan portfolio consisted of
loans secured by real estate, of which 1-to-4 family residential mortgage loans
and home equity lines of credit represented $68.7 million, or 23%, and $47.4
million, or 22%, respectively. Given the localized nature of Century's lending
activities, the primary risk factor affecting the portfolio as a whole is the
health of the local economy and its effects on the value of local real estate.
Century mitigates this risk by maintaining strong underwriting guidelines.
The following table sets forth the composition of Century's loan portfolio
by type of loan on the dates indicated:
LOAN PORTFOLIO ANALYSIS
(Dollars in Thousands)
June 30, December 31,
---------------------------- ---------------
2001 2000 2000
---------------------------- ---------------
Aggregate Principal Amount
Type of loan:
1-4 family residential mortgage $ 38,402 $ 33,954 $ 38,560
Home equity loans 30,257 13,436 30,959
Multifamily residential 4,179 3,099 3,588
Construction 23,484 8,310 15,507
Commercial real estate 127,033 87,883 103,365
Commercial loans 53,770 52,407 52,035
Installment and credit card loans 14,791 14,047 15,493
Other loans 1,046 831 8
---------------------------- -------------
Gross loans 292,962 213,967 259,515
Unearned income and deferred costs (33) (84) (147)
---------------------------- -------------
Total loans, net of unearned income $292,929 $213,883 $259,368
============================ =============
Percentage of Loan Portfolio
Type of loan:
1-4 family residential mortgage 13.1% 15.9% 14.9%
Home equity loans 10.3 6.3 11.9
Multifamily residential 1.4 1.4 1.4
Construction 8.0 3.9 6.0
Commercial real estate 43.4 41.1 39.8
Commercial loans 18.4 24.4 20.1
Installment and credit card loans 5.0 6.6 5.9
Other loans 0.4 0.4 -
---------------------------- -------------
Gross loans 100.0% 100.0% 100.0%
============================ =============
70
Asset Quality
In originating loans, Century recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. Century maintains an allowance for
credit losses based upon, among other things, such factors as historical
experience, the volume and type of lending conducted by Century, the amount of
nonperforming assets, regulatory policies, generally accepted accounting
principles, general economic conditions, and other factors related to the
collectibility of loans in Century's portfolios. In addition to unallocated
allowances, specific allowances are provided for individual loans when ultimate
collection is considered questionable by management after reviewing the current
status of loans that are contractually past due and after considering the net
realizable value of the collateral for the loan.
Management actively monitors Century's asset quality in a continuing effort
to charge off loans against the allowance for credit losses when appropriate and
to provide specific loss allowances when necessary. Although management believes
it uses the best information available to make determinations with respect to
the allowance for credit losses, future adjustments may be necessary if actual
economic conditions and other assumptions differ from those used in making the
initial determinations. At June 30, 2001, the allowance for credit losses was
$2.9 million, or 1.01% of total loans, compared with $2.4 million, or 1.13% of
total loans as of June 30, 2000 and $3.0, or 1.14% of total loans at December
31, 2000. The combined effect of substantial loan growth and the utilization of
specific reserves associated with nonperfoming loan balances charged-off during
2001 resulted in an overall decline in the ratio of allowance for credit losses
to total loans. However, management believes the allowance at June 30, 2001 is
adequate to absorb estimated probable credit losses based on the evaluation
factors described above. The allowance for credit losses as a percentage of
nonperforming loans was 220% at June 30, 2001, compared to 148% at June 30,
2000.
Provisions for credit losses are charged to income to bring the total
allowance for credit losses to a level deemed appropriate by management, based
on the factors identified above. The provision for credit losses during the
three and six month periods ended June 30, 2001 was $330,000 and $820,000,
respectively, compared with $215,000 and $440,000, respectively, for the same
periods last year. The higher provisions in 2001 are reflective of the 37%
growth in loans outstanding in the past twelve months, coupled with an increase
in net charge-offs. Net charge-offs for the three and six month periods ended
June 30, 2001 were $136,000 and $823,000, respectively, compared with $37,000
and $238,000 for the same period last year. A one-time provision of $250,000 was
also recorded in 2001 to apply consistency in evaluation methodology concurrent
with the centralization of credit policy when the GrandBanc merger was
completed.
Nonperforming Assets
The following table sets forth certain information with respect to the
Century's non-accrual loans, other real estate owned and accruing loans which
are contractually past due 90 days or more as to principal or interest, for the
periods indicated:
71
Nonperforming Assets
(Dollars in Thousands)
June 30, December 31,
---------------------- -----------
2001 2000 2000
---------------------- -----------
Non-accrual loans $ 409 $1,437 $ 633
Accruing past due 90 days or more 937 194 641
---------------------- -----------
Total nonperforming loans 1,346 1,631 1,274
Other real estate owned 240 114 -
---------------------- -----------
Total nonperforming assets $1,586 $1,745 $1,274
====================== ===========
Nonperforming assets to total assets 0.38% 0.51% 0.31%
Nonperforming loans to total loans 0.46 0.76 0.49
Total nonperforming assets were $1.586 million at June 30, 2001, compared
with $1.745 million at June 30, 2000 and $1.274 million at December 31, 2000.
Century has accelerated collection efforts with regard to these assets and,
based on the current assessment of collateral values and other factors, expects
to resolve these credits without incurring any material losses. Century believes
the level of nonperforming loans is modest in relation to total loans.
Allowance for Credit Losses
Century maintains an allowance for credit losses based upon, among other
things, such factors as historical experience, the volume and type of lending
conducted by Century, the amount of nonperforming assets, regulatory policies,
generally accepted accounting principles, general economic conditions, and other
factors related to the collectibility of loans in Century's portfolio. Although
management believes it uses the best information available to make
determinations with respect to the allowance for credit losses, future
adjustments may be necessary if such factors and conditions differ from the
assumptions used in making the initial determinations. Based upon criteria
consistently applied during the periods, Century's allowance for credit losses
was $2.9 million or, 1.01% of total loans as of June 30, 2001.
The following table sets forth an analysis of Century's allowance for
credit losses for the periods indicated:
72
Allowance for Credit Losses
(Dollars in Thousands)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
2001 2000 2001 2000
----------------------------- ---------------------------
Average net loans outstanding $287,798 $206,118 $276,478 $202,587
Loans outstanding at period-end 292,929 213,883 292,929 213,883
Total nonperforming loans 1,346 1,631 1,346 1,631
----------------------------- ---------------------------
Beginning balance of allowance $ 2,761 $ 2,233 $ 2,958 $ 2,209
Loans charged-off:
Commercial loans 142 16 788 167
Installment and credit card loans 60 35 116 119
----------------------------- ---------------------------
Total loans charged-off 202 51 904 286
Recoveries of previous charge-offs:
1-4 family residential mortgage 19 - 20 2
Commercial loans 38 7 46 32
Installment and credit card loans 9 7 15 14
----------------------------- ---------------------------
Total recoveries 66 14 81 48
----------------------------- ---------------------------
Net loans charged-off 136 37 823 238
Provision for credit losses 330 215 820 440
----------------------------- ---------------------------
Balance at end of period $ 2,955 $ 2,411 $ 2,955 $ 2,411
============================= ===========================
Allowance as of total loans 1.01% 1.13% 1.01% 1.13%
Nonperforming loans as of total loans 0.46 0.76 0.46 0.76
Allowance as of nonperforming loans 220 148 220 148
Deposits
Century's total deposits at June 30, 2001, were $322.2 million, an increase
of $55.9 million, or 21.0%, over the balance at June 30, 2000, and a decrease of
$6.9 million, or 2.1%, compared with 2000's year-end balance. The increase at
June 30, 2001 compared with June 30, 2000 includes the effect of the Reston
Branch purchase in August 2000. Total average deposits were $323.3 million for
the six months ended June 30, 2001, an increase of $64.8 million, or 25%,
compared with the first six months of 2000. Century views deposit growth as a
significant challenge in its effort to increase its asset size as evidenced by
the 2.1% decline in deposit levels since year-end 2000. Thus, Century is
focusing on its branching program with increased emphasis on commercial
accounts, and the offering of more competitive interest rates and products to
stimulate deposit growth. This strategy has and will continue to result in a
relatively higher cost of funds in addition to lower fee income as many of these
commercial customers may utilize accounts with lower transaction costs and have
a lower number of transactions than retail customers.
73
The following table sets forth the average balances and weighted average
rates for Century's categories of deposits for the periods indicated:
Average Deposits
(Dollars in Thousands)
Six Months Ended June 30,
----------------------------------------------------------------------------
2001 2000
----------------------------------- ----------------------------------
Weighted Weighted
Average Average % of Average Average % of
Balance Rate Total Balance Rate Total
----------------------------------- ----------------------------------
Noninterest-Bearing Deposits $ 52,150 0.00% 16.1% $ 47,494 0.00% 18.4%
Interest-Bearing Deposits:
NOW accounts 42,070 1.12 13.0 33,208 1.27 12.8
Savings accounts 34,837 3.76 10.8 23,662 3.82 9.1
Money market accounts 41,772 3.64 12.9 40,858 3.61 15.8
Time deposits 152,543 6.28 47.2 113,392 5.24 43.8
----------------------------------- ----------------------------------
Total $323,372 100.0% $258,614 100.0%
=========== ========= ========== =========
Weighted Average Rate 3.98% 3.38%
======== ========
Preferred Securities of Subsidiary Trust
Transaction Structure. During the first quarter of 2000, Century formed a
new, wholly-owned statutory business trust, Century Capital Trust I (Trust),
which issued $8.8 million of capital securities (Capital Securities) to a third
party. The Trust invested the proceeds in an equivalent amount of junior
subordinated debt securities of Century bearing an interest rate equal to the
rate on the Capital Securities. These debt securities, which are the only
assets of the Trust, are subordinate and junior in right of payment to all
present and future senior indebtedness (as defined in the indenture) and certain
other financial obligations of Century. Century has fully and unconditionally
guaranteed the Trust's obligations under the Capital Securities.
For financial reporting purposes, the Trust is treated as a subsidiary of
Century and consolidated in the corporate financial statements. The Capital
Securities are presented as a separate category of long-term debt on the
Condensed Consolidated Statement of Financial Condition entitled "Preferred
Securities of Subsidiary Trust." The Capital Securities are not included as a
component of stockholders' equity in the Condensed Consolidated Statement of
Financial Condition. For regulatory purposes, however, the Federal Reserve
Board treats the Capital Securities as Tier 1 or Tier 2 capital.
The Capital Securities pay cash distributions semiannually at an annual
rate of 10.875% of the liquidation preference. Distributions to the holder of
the Capital Securities are included in interest expense, within the category
entitled "Interest on borrowings." Under the provisions of the subordinated
debt, Century has the right to defer payment of interest on the subordinated
debt at any time, or from time to time, for periods not exceeding five years.
If interest payments on the subordinated debt are deferred, the distributions on
the Capital Securities are also deferred. Interest on the subordinated debt is
cumulative.
74
Subject to the prior approval of the Federal Reserve Board, the Capital
Securities, the assets of the Trust, and the common securities issued by the
Trust are redeemable at the option of Century in whole or in part on or after
March 8, 2010, or at any time, in whole but not in part, from the date of
issuance, upon the occurrence of certain events.
Impact on Financial Condition and Results of Operations. The treatment of
the Capital Securities as Tier 1 or Tier 2 capital, in addition to the ability
to deduct the expense of the junior subordinated debt securities for federal
income tax purposes, provided Century with a cost-effective method of raising
capital.
Taking the underwriting discount into account, the Capital Securities have
an effective interest cost to Century of 11.1% per annum. Absent any beneficial
effects of the increased capital they provide, the Capital Securities have a
negative effect on Century's net interest income.
Capital Resources
Total stockholders' equity at June 30, 2001 was $25.1 million, an increase
of $897,000 compared with total stockholders' equity of $24.2 million at
December 31, 2000. Stockholders' equity was increased during the first six
months of 2001 as a result of net income of $414,000, $60,000 from the exercise
of stock options, and $424,000 representing unrealized gains on investment
securities available for sale, net of the tax effect.
The Office of the Comptroller of the Currency has established certain
minimum risk-based capital standards that apply to national banks, and Century
is subject to certain capital requirements imposed on bank holding companies by
the Federal Reserve Board. At June 30, 2001, CNB was "adequately capitalized"
within the applicable regulatory capital framework and Century satisfied all
applicable regulatory requirements imposed on it by the Federal Reserve Board.
At June 30, 2001, Century's risk based capital ratios for Tier 1 Capital to
risk weighted assets, Total Capital to risk weighted assets, and Tier 1 Capital
to average assets were 8.47%, 9.52% and 6.81%, respectively.
Liquidity
Century's Asset/Liability Management Policy is intended to maintain
adequate liquidity for Century and thereby enhance its ability to raise funds to
support asset growth, meet deposit withdrawals and lending needs, maintain
reserve requirements and otherwise sustain operations. Century accomplishes this
primarily through management of the maturities of its interest-earning assets
and interest-bearing liabilities. Century believes that its present liquidity
position is adequate to meet its current and future needs.
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
The asset liquidity of CNB is maintained in the form of vault cash, demand
deposits with commercial banks, federal funds sold, interest-bearing deposits
with other financial institutions, short-term investment securities, other
investment securities available-for-sale, and short-term loans. Century has
defined "cash and cash equivalents" as those amounts included in cash and due
from banks and federal funds sold. At June 30, 2001, Century had cash and cash
equivalents of $15.7 million, a $4.5 million increase when compared with the
$20.2 million at December 31, 2000. Interest-bearing deposits in banks, which
primarily represent overnight investments, increased to $8.0 million at June 30,
2001.
75
Liability liquidity is provided by access to core funding sources,
principally customers' deposit accounts in Century's market area. As a member of
the Federal Home Loan Bank of Atlanta (FHLBA), Century is able to borrow up to
30% of its assets, on a short-term or long-term basis, secured by a blanket
pledge of its 1-to-4-family residential mortgage loans, investment securities,
and other assets. Century also has lines of credit from larger correspondent
banks to borrow excess reserves on an overnight basis (federal funds purchased)
in the amount of $5.7 million, and to borrow on a secured basis (repurchase
agreements) in the amount of $5.0 million. At June 30, 2001, Century had no
outstanding federal funds purchased, and $28.5 million in customer repurchase
agreements. Also at June 30, 2001, Century was utilizing $19.9 million of
available FHLBA credit in the form of fixed-rate ($13.9 million) and variable-
rate ($6.0 million) advances with an average cost of 5.89%. Century utilizes
fixed rate term credit advances from the FHLBA to fund fixed-rate real estate
loans and investments of comparable terms and maturities.
Century had cash on hand of $798,000 at the holding company level at June
30, 2001. Century anticipates using these funds as working capital available to
support the future growth of the franchise as well as to pay normal operating
expenses and dividends on the Capital Securities (see --"Preferred Securities of
Subsidiary Trust"). Working capital is further augmented by dividends available
from CNB, subject to certain regulatory restrictions generally applicable to
national banks.
Quantitative and Qualitative Disclosures About Market Risk
Century's principal market risk exposure is to interest rates. Market risk
is the risk of loss from adverse changes in market prices and rates, arising
primarily from interest rate risk in Century's portfolios, which can
significantly impact Century's profitability.
Net interest income, which constitutes the principal source of income for
Century, represents the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities. The difference
between the Century's interest rate sensitive assets and interest rate sensitive
liabilities for a specified time frame is referred to as an interest sensitive
"gap." Interest rate sensitivity reflects the potential effect on net interest
income of a movement in interest rates. A financial institution is considered to
be asset sensitive, or having a positive gap, when the amount of its interest-
earning assets maturing or repricing exceeds the amount of its interest-bearing
liabilities also maturing or repricing within that time period. Conversely, a
financial institution is considered to be liability sensitive, or having a
negative gap, when the amount of its interest-bearing liabilities maturing or
repricing exceeds the amount of its interest-earning assets within the same time
period. During a period of rising (falling) interest rates, a positive gap would
tend to increase (decrease) net interest income, while a negative gap would tend
to decrease (increase) net interest income.
Management seeks to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. Toward this end,
Century has a Finance Committee which reviews, on a regular basis, the maturity
and repricing of the assets and liabilities of Century. The Finance Committee
has adopted the objective of achieving and maintaining a one-year cumulative
gap, as a percent of total assets, of between plus 10% and minus 10%. In
addition, potential changes in net interest income under various interest rate
scenarios are monitored. On a consolidated basis, Century's one-year cumulative
gap was a negative 2.7% of total assets at June 30, 2001.
In addition, potential changes in net interest income under various
interest rate scenarios are monitored. The Finance Committee has adopted the
objective that an immediate increase or decrease of 200 basis points in market
interest rates should not result in a change of more than 10% (plus or minus) in
76
Century's projected net interest income over the next twelve months, and not
more than 20% (plus or minus) in projected net income over such period. At June
30, 2001, the forecasted impact of an immediate increase (or decrease) of 200
basis points would have resulted in an increase (or decrease) in net interest
income over a twelve month period of 3.37% and (3.90%), respectively, and an
increase (or decrease) in net income over a twelve month period of 12.47% and
(14.41%), respectively. Some shift in the magnitude of forecasted net interest
income in the down 200 basis points scenario has been noted in comparison to the
forecasted results as of March 31, 2001; however, all forecasted simulations are
well within policy guidelines.
Since there are limitations inherent in any methodology used to estimate
the exposure to changes in market interest rates, the analysis included herein
is not intended to be a forecast of the actual effect of a change in market
interest rates on Century. The analysis is based on Century's assets and
liabilities as of June 30, 2001 and does not contemplate any actions Century
might undertake in response to changes in market interest rates, which could
change the anticipated results.
For The Years Ended December 31, 2000, 1999 And 1998
General
Century derives substantially all of its revenues and income from the
operation of CNB, which provides a full range of commercial and consumer banking
services to individuals, small and middle market businesses, and other
organizations in the Washington, DC metropolitan area. As of December 31, 2000,
Century had total assets of $409.7 million, total loans of $259.4 million, total
deposits of $329.2 million, and total stockholders' equity of $24.2 million.
Century had net income of $1.044 million for the year ended December 31, 2000,
resulting in a return on average total equity of 4.60% and a return on average
total assets of 0.30%.
Results of Operations
Net Income
Net income was $1.044 million ($0.24 per diluted common share) for 2000,
compared with net income of $919,000 ($0.21 per diluted common share) for 1999,
an increase of $126,000 or 14%. Net income, exclusive of after-tax merger-
related expenses of $333,000 associated with the GrandBanc, Inc. merger, was
$1.377 million, a 50% increase compared with 1999. The increase in net income
for 2000 compared with 1999 resulted principally from a $1.9 million, or 16%,
increase in net interest income and a $831,000, or 57% increase in noninterest
income, which were partially offset by a $1.9 million, or 17%, increase in
noninterest expense, and a $541,000, or 59%, increase in the provision for
credit losses.
Net income was $919,000 ($0.21 per diluted common share) for 1999, compared
with net income of $736,000 ($0.17 per diluted common share) for 1998, an
increase of $183,000 or 25%. The increase in net income for 1999 compared with
1998 resulted principally from a $1.3 million, or 11% increase in net interest
income and a $184,000, or 14% increase in noninterest income. These increases
were the result of a 17.5% increase in average earning assets and the expansion
of the deposit base with the addition of four new branch offices during the past
three years. Partially offsetting these increases during 1999 were a
corresponding increase in average interest-bearing liabilities of 18.6%, as well
as a $928,000, or 9% increase in noninterest expense resulting primarily from
the establishment of the four new branch office locations, and a $279,000, or
44% increase in the provision for credit losses. A more comprehensive discussion
of the earnings performance follows.
77
Net Interest Income
Net interest income, on a fully taxable equivalent basis, was $14.4 million
for 2000, an increase of $2.1 million or 17% compared with $12.3 million for
1999. Century's average total interest-earning assets increased to $328.6
million for 2000 from $267.8 million for 1999, representing a 22.7% increase
between the years. The net interest margin of 4.37% for 2000 declined 21 basis
points from 4.58% for 1999, as the increase in the cost of funds out-paced the
increase in earning asset yield. While the yield on average earning assets
increased 35 basis points, the average rate paid on interest-bearing liabilities
increased 63 basis points. The average cost of funds registered a steeper
increase, in part due to competitive pressures, a customer preference for
higher-rate money market accounts and time deposits, and to a greater degree, an
increase in the use of wholesale funding and the impact from the formation in
March 2000 of a wholly-owned statutory business trust which issued $8.8 million
in capital securities at 10.875%. See "--Preferred Securities of Subsidiary
Trust."
Net interest income was $12.3 million for 1999, an increase of $1.3 million
or 11.5% compared with net interest income of $11.0 million for 1998. Century's
average total interest-earning assets increased to $267.8 million for 1999 from
$228.0 million for 1998, representing a 17.5% increase between the years. The
net interest margin of 4.58% for 1999 decreased 25 basis points from 4.83% for
1998. Although the average cost of interest-bearing liabilities declined 26
basis points between the periods, average yield on earning assets declined by 43
basis points as growth in average earning assets was more heavily concentrated
in lower yielding investments.
Changes in interest income and interest expense can result from changes in
both volume and rate. Century has an asset and liability management policy
designed to provide a proper balance between rate sensitive assets and rate
sensitive liabilities, to attempt to maximize interest margins and to provide
adequate liquidity for anticipated needs. The table below sets forth for the
periods indicated a summary of the changes in interest income and interest
expense resulting from changes in volume and rate. The table on the following
page sets forth for each category of interest-earning assets and interest-
bearing liabilities, the average amounts outstanding, the interest income or
expense on such amounts, and the average rate for the years ended December 31,
2000, 1999 and 1998.
78
Rate/Volume Analysis of Net Interest Income/Expense (1)(2)
(Dollars in Thousands)
2000 Compared with 1999 1999 Compared with 1998
---------------------------------- ---------------------------------
Due to Due to Total Incr. Due to Due to Total Incr.
Volume Rate (Decr.) Volume Rate (Decr.)
---------------------------------- ---------------------------------
Interest Earned On:
Loans, including fees $ 3,010 $ 591 $ 3,601 $ 1,305 $ (580) $ 725
Investment securities 1,816 433 2,249 1,756 46 1,802
Federal funds sold 336 105 441 (167) (30) (197)
Interest bearing deposits with banks (271) 91 (180) (27) (35) (62)
---------------------------------- ---------------------------------
Total interest income 4,891 1,220 6,111 2,867 (599) 2,268
Interest Paid On:
NOW accounts 56 (49) 7 60 (126) (66)
Savings accounts 52 18 70 91 (15) 76
Money market accounts 355 231 586 (38) (82) (120)
Time deposits 655 723 1,378 1,107 (403) 704
Borrowings and notes payable 1,681 303 1,984 537 (124) 413
---------------------------------- ---------------------------------
Total interest expense 2,799 1,226 4,025 1,757 (750) 1,007
---------------------------------- ---------------------------------
Net interest income $ 2,092 $ (6) $ 2,086 $ 1,110 $ 151 $ 1,261
================================== =================================
(1) The dollar amount of changes in interest income and interest expense
attributable to changes in rate/volume (change in rate multiplied by change
in volume) has been allocated between rate and volume variances based on
the percentage relationship of such variances to each other.
(2) Computed on a fully taxable equivalent basis.
79
Average Balances and Interest Yields/Rates
(Dollars in Thousands)
Year Ended December 31,
--------------------------------------------------------------------------------------------
2000 1999 1998
------------------------------ ------------------------------ ----------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
--------------------------------------------------------------------------------------------
Interest-Earning Assets
Loans, net (1) $218,670 $20,757 9.49% $186,797 $17,156 9.18% $172,743 $16,431 9.51%
Investment securities (2)(3) 89,470 5,911 6.61 61,455 3,662 5.96 31,968 1,860 5.82
Federal funds sold 12,801 809 6.32 7,228 368 5.09 10,463 565 5.40
Interest bearing deposits
with other banks 7,699 467 6.07 12,362 647 5.23 12,855 709 5.52
------------------- -------------------- --------------------
Total interest-earning assets (3) 328,640 27,944 8.50% 267,842 21,833 8.15% 228,029 19,565 8.58%
Cash and due from banks 10,656 9,801 8,462
Other assets 12,883 10,740 10,833
---------- ---------- ----------
Total assets $352,179 $288,383 $247,324
========== ========== ==========
Interest-Bearing Liabilities
Interest-Bearing Deposits:
NOW accounts $ 34,307 $ 438 1.28% $ 30,139 $ 431 1.43% $ 26,646 $ 497 1.87%
Savings accounts 26,145 1,073 4.10 24,879 1,003 4.03 22,618 927 4.10
Money market accounts 41,666 1,597 3.83 31,742 1,011 3.19 32,881 1,131 3.44
Time deposits 126,717 7,278 5.74 114,643 5,900 5.15 93,538 5,196 5.55
Borrowings and
notes payable 47,158 3,202 6.79 21,719 1,218 5.61 12,375 805 6.51
------------------- -------------------- --------------------
Total interest-bearing
liabilities 275,993 13,588 4.92% 223,122 9,563 4.29% 188,058 8,556 4.55%
Non-interest bearing deposits 49,901 40,751 35,202
Other liabilities 3,566 2,064 2,136
---------- ---------- ----------
Total liabilities 329,462 265,937 225,396
Stockholders' equity 22,717 22,446 21,928
---------- ---------- ----------
Total liabilities and
stockholders' equity $352,179 $288,383 $247,324
========== ========== ==========
---------- ---------- ----------
Net interest income and spread $14,356 3.58% $12,270 3.87% $11,009 4.03%
========== ========== ==========
Net interest margin (3) 4.37% 4.58% 4.83%
(1) Non-accrual loan balances are included in the calculation of Average
Balances - Loans, Net. Interest income on non-accrual loan balances is
included in interest income to the extent that it has been collected.
(2) Average balance and average rate for investment securities are computed
based on book value of securities held-to-maturity and cost basis of
securities available-for-sale.
(3) Average rates are computed on a fully taxable equivalent basis.
80
Provision for Credit Losses
Provisions for credit losses are charged to income to bring the total
allowance for credit losses to a level deemed appropriate by management based on
such factors as historical experience, the volume and type of lending conducted
by Century, the amount of nonperforming assets, regulatory policies, generally
accepted accounting principles, general economic conditions, and other factors
related to the collectibility of loans in Century's portfolio.
The provision for credit losses was $1.5 million in 2000, compared with
$909,000 for 1999, increasing $541,000, or 59%. The increase was largely the
result of a 31.6% increase in loans, net of unearned income, to $259.4 million
at December 31, 2000 from $197.1 million at year-end 1999, coupled with the
establishment of a specific reserve of $375,000 related to one nonaccrual loan.
The provision for credit losses was $909,000 in 1999, compared with
$630,000 for 1998, increasing $279,000, or 44%. The increase was largely the
result of a 11.6% increase in loans, net of unearned income, to $197.1 million
at December 31, 1999 from $176.5 million at year-end 1998. Net charge-offs
decreased to $755,000 in 1999, from $1.2 million in 1998.
Management believes the allowance is adequate to absorb losses inherent in
the loan portfolio. In view of Century's plans to continue its loan growth with
increased emphasis on commercial loans (which are generally considered to be
more risky than loans secured by real estate), it is likely that Century may
need to increase the allowance for credit losses through future provisions
charged to income. Management will continue to closely monitor the performance
of the loan portfolio and make additional provisions as considered necessary. No
assurance can be given that such provisions will not have a material adverse
impact on Century's results of operations in future periods.
Noninterest Income
Noninterest income for 2000 was $2.3 million, an increase of $831,000 or
57.1% compared with noninterest income of $1.5 million in 1999. Excluding a
gain of $176,000 realized on the sale of investment securities in 2000, the
increase was 45%. This increase resulted largely from increases in service
charges on deposits, credit card and net merchant fees and ATM fees, which bear
a direct correlation to Century's growth in deposit balances, branch expansion
and customer acceptance of Century's competitive products and services. The
growth in service charges on deposit accounts was also influenced by fee
increases implemented in April 2000.
Noninterest income for 1999 was $1.5 million, an increase of $185,000 or
14.6% compared with noninterest income of $1.3 million in 1998. This increase
resulted largely from increases in service charges on deposit accounts and
commissions from a new mortgage loan origination program which was partially
offset by decreases in commission and other fee income driven principally by
lower net merchant fees.
The following table sets forth the various categories of, and changes in,
noninterest income for the years ended December 31, 2000, 1999 and 1998:
81
Noninterest Income
(Dollars in Thousands)
Year Ended December 31,
------------------------------------------------------------------
2000 % Change 1999 % Change 1998
------------------------------------------------------------------
Service charges on deposit accounts $1,517 42.8% $1,062 40.8% $ 754
Mortgage loan origination fees 103 6.2 97 - -
Commission and other fee income 491 68.7 291 (41.4) 497
Gain on sale of securities 176 2,833.3 6 (71.4) 21
------------------------------------------------------------------
Total noninterest income $2,287 57.1% $1,456 14.6% $1,271
==================================================================
Noninterest Expense
Noninterest expense was $13.2 million in 2000, compared with $11.3 million
in 1999, representing an increase of $1.9 million or 16.8%. Excluding merger-
related expenses of $333,000, noninterest expense was $12.9 million in 2000, an
increase of $1.6 million, or 13.9% compared with the same period last year.
Professional fees increased $558,000, or 57% in 2000 compared with 1999,
primarily due to $279,000 in merger-related expenses incurred in 2000 and higher
legal fees associated with loan purchases and the issuance of preferred
securities by a subsidiary trust coupled with higher consulting fees related to
information systems technology and profit improvement initiatives. The bulk of
the remaining increases in noninterest expense in 2000 were directly
attributable to Century's continued expansion activities. An increase in
infrastructure coinciding with the acquisition of the Reston Branch in August
2000, the Dumfries Branch in October 1999 and the establishment of the
Rockville, Maryland LPO in February 2000 was accompanied by increases in several
noninterest expense categories, the most significant of which were salaries and
benefits, data processing, occupancy and equipment and amortization of deposit
premium as detailed in the table below.
Noninterest expense was $11.3 million in 1999, compared with $10.4 million
in 1998, representing an increase of $928,000 or 8.9%. The increase in 1999 was
due largely to increases in salaries and employee benefits of $1.081 million and
data processing services of $188,000. These increases in salaries and employee
benefits reflect the opening of the Dumfries branch office in October 1999, a
full year of compensation expense for the employees at the branch opened in
1998, the addition of personnel to support growth in the loan portfolio, and a
reduction in the amount of loan origination costs deferred in the current year.
The increases in the cost of data processing services were primarily
attributable to additional transaction volume and efforts to prepare for and
comply with Year 2000 readiness issues.
Century's noninterest expense has been consistently higher in relation to
its asset size than the average for small community banks. Century's strategy
is to increase its asset size significantly so that its level of noninterest
expense in relation to its assets is more in line with those of comparable
institutions. No assurance may be given, however, that the anticipated asset
growth or branch expansions will occur.
The following table sets forth the various categories of, and changes in,
noninterest expense for the years ended December 31, 2000, 1999 and 1998:
82
Noninterest Expense
(Dollars in Thousands)
Year Ended December 31,
-----------------------------------------------------------------------------
2000 % Change 1999 % Change 1998
-----------------------------------------------------------------------------
Salaries and employee benefits $ 5,617 13.1 % $ 4,968 27.8 % $ 3,887
Professional fees 1,539 57.0 981 (18.1) 1,197
Occupancy and equipment expense 1,608 8.7 1,479 (7.2) 1,593
Depreciation and amortization 754 3.6 728 0.3 726
Amortization of intangibles 510 41.7 360 3.2 349
Data processing 1,055 20.6 875 27.4 687
Communications 635 12.0 567 18.1 480
Office and operations expenses 554 2.4 541 (17.4) 655
Marketing and public relations 300 25.0 240 - 240
Federal deposit insurance premiums 53 (41.8) 91 28.2 71
Other real estate owned expense 120 - - - 47
Other expenses 494 (2.2) 505 6.3 475
-----------------------------------------------------------------------------
Total noninterest expense $13,239 16.8 % $11,335 8.9 % $10,407
=============================================================================
Income Tax Expense
Century's income tax expense includes federal, state and local income
taxes. The provision for income taxes was $771,000 in 2000 compared to $563,000
in 1999 and $508,000 in 1998. This reflects effective tax rates of 42.5% in
2000, 38.0% in 1999, and 40.8% in 1998. Absent the $333,000 in merger-related
expenses incurred in 2000, none of which were deductible for tax purposes, the
effective tax rate was 35.9% in 2000. The effective tax rate was reduced in 2000
from the previous year due to the increase in interest income derived from U.S.
agency securities, municipal securities, and short term investments which are
not fully taxable, and a greater portion of earnings derived from Virginia and
Maryland where the local income tax rates are lower than in Washington, DC.
Quantitative and Qualitative Disclosures About Market Risk
Net interest income, which constitutes one of the principal sources of
income for Century, represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
The difference between Century's interest-rate sensitive assets and interest-
rate sensitive liabilities for a specified time-frame is referred to as an
interest sensitivity "gap." Interest rate sensitivity reflects the potential
effect on net interest income of a movement in interest rates. A financial
institution is considered to be asset sensitive, or having a positive gap, when
the amount of its interest-earning assets maturing or repricing exceeds the
amount of its interest-bearing liabilities also maturing or repricing within
that time period. Conversely, a financial institution is considered to be
liability sensitive, or having a negative gap, when the amount of its interest-
bearing liabilities maturing or repricing exceeds the amount of its interest-
earning assets. During a period of rising (falling) interest rates, a positive
gap would tend to increase (decrease) net interest income, while a negative gap
would tend to decrease (increase) net interest income.
Management seeks to maintain a balanced interest rate risk position to
protect its net interest margin from market fluctuations. Toward this end,
Century has a Finance Committee which reviews, on a regular basis, the maturity
and repricing of the assets and liabilities of Century. Century has adopted the
objective of achieving and maintaining a one-year cumulative gap, as a percent
of total assets, of between plus 10% and minus 10%. On a consolidated basis,
Century's one-year cumulative gap was a
83
negative 2.2% of total assets at December 31, 2000. This position indicated that
Century had the potential for increased earnings if interest rates were to
continue to decline in the next twelve months.
Due to inherent limitations in traditional gap analysis, Century also
employs more sophisticated modeling techniques to monitor potential changes in
net interest income, net income and the market value of portfolio equity under
various interest rate scenarios. Market risk is the risk of loss from adverse
changes in market prices and rates, arising primarily from interest rate risk in
Century's loan and investment portfolios, which can significantly impact
Century's profitability. Net interest income can be adversely impacted where
assets and liabilities do not react the same to changes in interest rates. At
year-end 2000, the impact of an immediate increase in interest rates of 200
basis points would have resulted in an increase in net interest income over a
12-month period of 2.39%, with a comparable decrease in interest rates resulting
in a decrease in net interest income of 4.72%. Management finds the above
methodologies meaningful for evaluating market risk sensitivity; however, other
factors can affect net interest income, such as levels of non-earning assets and
changes in portfolio composition.
The following table sets forth the interest-rate sensitive assets and
liabilities of Century at December 31, 2000, which are expected to mature or are
subject to repricing in each of the time periods indicated:
Interest Rate Sensitive Assets and Liabilities
(Dollars in Thousands)
90 Days 91 to 180 181 Days Over
Term To Repricing (At December 31, 2000) Or Less Days to 1 Year 1 Year Total
- --------------------------------------------------------------------------------------------------------------
Interest Earning Assets
Loans, net $113,280 $16,399 $ 25,522 $104,167 $259,368
Investment securities 25,072 10,341 19,219 57,480 112,112
Federal funds sold 7,078 - - - 7,078
Interest bearing deposits with banks 110 - - 200 310
---------------------------------------------------------
Total interest earning assets 145,540 26,740 44,741 161,847 378,868
Interest Bearing Liabilities
NOW accounts - - - 41,468 41,468
Savings accounts 29,780 - - - 29,780
Money market accounts 38,299 - - - 38,299
Time deposits 33,771 18,304 74,524 33,116 159,715
Other borrowings 26,834 255 3,417 21,971 52,477
---------------------------------------------------------
Total interest bearing liabilities 128,684 18,559 77,941 96,555 321,739
---------------------------------------------------------
Interest sensitivity gap per period $ 16,856 $ 8,181 $(33,200) $ 65,292 $ 57,129
Cumulative gap 16,856 25,037 (8,163) 57,129
Cumulative gap as a percentage of total assets 4.4% 6.6% (2.2)% 15.1%
Cumulative interest earning assets as a percent
of interest bearing liabilities 113.1% 117.0% 96.4% 117.8%
Financial Condition
Loans
Century presently is a middle market banking organization serving
individuals and businesses with interests in and around the Washington, DC
metropolitan area. The loan portfolio increased $62.3 million or 32% since
December 31, 1999 due to strong loan demand supplemented by selected portfolio
purchases of $26.0 million. Included in the portfolio purchases were $15.4
million in variable rate home equity loans that resulted in a higher weighting
of home equity loans as a percent of total loans at December 31, 2000 in
comparison to previous years. As of December 31, 2000 and 1999, approximately
$192.0 million (74%) and $131.2 million (67%) of Century's total loan portfolio,
respectively, consisted
84
of loans secured by real estate, of which one-to-four-family residential
mortgage loans and home equity lines of credit represented $69.5 million (27%)
and $47.4 million (24%), respectively, of Century's total loan portfolio.
Loan concentrations are defined as aggregate credits extended to a number
of borrowers engaged in similar activities or resident in the same geographic
region, which would cause them to be similarly affected by economic or other
conditions. Century, on a routine basis, evaluates these concentrations for
purposes of policing its concentrations and making necessary adjustments in its
lending practices to reflect current economic conditions, loan to deposit
ratios, and industry trends. As a result of Century's existing branch locations,
Century has significant concentrations of customers and assets in the
Washington, DC metropolitan area.
The primary types of loans in Century's portfolio are residential mortgages
and home equity loans, commercial real estate loans, commercial loans, and
consumer installment and credit card loans. Generally, Century underwrites loans
based upon the borrower's debt service capacity or cash flow, a consideration of
past performance on loans from other creditors as well as an evaluation of the
collateral securing the loan. With some exceptions, Century's general policy is
to require conservative underwriting policies, primarily in the analysis of
borrowers' debt service coverage capabilities for commercial and commercial real
estate loans, while emphasizing lower gross debt ratios for consumer loans and
lower loan-to-value ratios for all types of real estate loans. Most of Century's
commercial and commercial real estate loans are personally guaranteed by the
owners of the business, the primary exceptions to this requirement being loans
to non-profit and membership organizations. Given the localized nature of
Century's lending activities, the primary risk factor affecting the portfolio as
a whole is the health of the local economy in the Washington, DC metropolitan
area and its effects on the value of local real estate and the incomes of local
professionals and business firms. To mitigate this risk, Century's underwriting
policy provides that each loan should be supported by an economically
independent secondary source of repayment. Any exceptions to the general loan
policy must be approved by the Executive Loan Committee.
In each year since 1997, Century has supplemented its internal loan
generation capability with the purchase of loans from other financial
institutions. Century seeks to acquire only loans of the highest quality and
performs extensive due diligence on each acquired loan, including a legal
documentation review, a review of the borrower's credit and payment history, and
a physical inspection of the property securing the acquired loan. Century views
such loan portfolio purchases as an effective way to employ excess funds when
deposit growth exceeds loan generation capacity on a short-term basis, such as
existed immediately after the acquisition of the Reston Branch. Although no
assurance can be given that such opportunities will be available in the future,
Century intends to continue to acquire loan portfolios as and when it deems such
actions to be a profitable deployment of available funds into earning assets.
Loans to directors, executive officers and principal stockholders of
Century and to directors and officers of CNB are subject to limitations
contained in the Federal Reserve Act, the principal effect of which is to
require that extensions of credit by CNB to executive officers, directors, and
ten percent stockholders satisfy certain standards. CNB routinely makes loans in
the ordinary course of business to certain directors and executive officers of
Century and CNB, their associates, and members of their immediate families. In
accordance with Federal Reserve Act guidelines, these loans are made on
substantially the same terms, including interest rates and collateral, as those
prevailing for comparable transactions with others and do not involve more than
normal risk of collectibility or present other unfavorable features. As of
December 31, 2000, loans and commitments outstanding to directors and executive
officers of Century and CNB, their associates and members of their immediate
families totaled $4.1 million (net of participations sold to other banks on a
non-recourse basis), which represented
85
approximately 1.6% of total loans as of that date. As of December 31, 2000, none
of these loans outstanding from CNB to related parties were on non-accrual, past
due, restructured or considered by management to be a potential problem loan.
The following table sets forth the composition of Century's loan portfolio
by type of loan on the dates indicated:
Loan Portfolio Analysis
(Dollars in Thousands)
December 31,
---------------------------------------------------
2000 1999 1998
---------------------------------------------------
Aggregate Principal Amount
Type of loan:
1-4 family residential mortgage $ 38,560 $ 34,541 $ 39,675
Home equity loans 30,959 12,906 7,900
Multifamily residential 3,588 3,540 2,275
Construction 15,507 6,955 3,256
Commercial real estate 103,365 73,243 61,170
Commercial loans 52,043 51,158 44,908
Installment and credit card loans 15,493 14,853 17,502
---------------------------------------------------
Gross loans 259,515 197,196 176,686
Unearned income and deferred costs (147) (127) (154)
---------------------------------------------------
Total loans, net of unearned income $259,368 $197,069 $176,532
---------------------------------------------------
Percentage of Loan Portfolio
Type of loan:
1-4 family residential mortgage 14.9% 17.5% 22.5%
Home equity loans 11.9 6.5 4.5
Multifamily residential 1.4 1.8 1.3
Construction 6.0 3.5 1.8
Commercial real estate 39.8 37.2 34.6
Commercial loans 20.0 26.0 25.4
Installment and credit card loans 6.0 7.5 9.9
---------------------------------------------------
Gross loans 100.0% 100.0% 100.0%
---------------------------------------------------
The following table sets forth the maturities of loans (based upon
contractual dates) outstanding as of December 31, 2000. Loans, primarily as a
result of maturities, monthly payments and repayments, are an important source
of liquidity. Century's portfolio of adjustable rate home mortgages consists of
loans to customers in the local market area. Such loans generally have balloon
maturities within ten years or less, with two percent annual and six percent
lifetime "caps" on interest rate changes. Borrowers have the right to prepay
such loans without penalty.
86
Maturities and Rate Sensitivity of Loans
(Dollars in Thousands)
Over 1 Year Through 5 Years Over 5 Years
--------------------------- ---------------------
One Year Fixed Floating Fixed Floating
or Less (1) Rate Rate Rate Rate Total
- ----------------------------------------- --------------------------- --------------------- ---------
Commercial $19,996 $11,269 $13,498 $ 1,986 $ 5,294 $ 52,043
Commercial real estate 10,671 21,705 13,360 19,736 37,893 103,365
Residential mortgage/home 4,087 10,606 4,553 10,666 43,195 73,107
equity
Construction 4,930 1,993 1 887 7,696 15,507
Installment/credit card 4,315 4,258 1,992 531 4,397 15,493
------- ------- ------- ------- -------- --------
Total $43,999 $49,831 $33,404 $33,806 $ 98,475 $259,515
======= ======= ======= ======= ======== ========
(1) Includes demand loans, loans having no stated schedule of repayment or
maturity, and overdrafts.
Asset Quality
Nonperforming Assets
Generally, interest on loans is accrued and credited to income based upon
the principal balance outstanding. It is Century's policy to discontinue the
accrual of interest income and classify a loan as non-accrual when principal or
interest is past due 90 days or more and the loan is not well secured and in the
process of collection, or when, in the opinion of management, principal or
interest is not likely to be paid in accordance with the terms of the
obligation. Century will generally charge-off loans after 120 days of
delinquency unless adequately collateralized and in the process of collection. A
loan is considered in the process of collection if, based on a probable specific
event, management believes that the loan will be repaid or brought current
within a reasonable period of time. Loans will not be returned to accrual status
until the loan has been brought current and future payments of principal and
interest appear certain. Interest accrued and unpaid at the time a loan is
placed on non-accrual status is charged against interest income. Subsequent
payments received are applied to the outstanding principal balance until the
status of the loan has changed.
Real estate acquired by Century as a result of foreclosure is classified as
other real estate owned (OREO). Such loans are reclassified to OREO and recorded
at the lower of cost or fair market value less estimated selling costs, and the
estimated loss, if any, is charged to the allowance for credit losses at that
time. Further allowances for losses are recorded as charges to other expenses at
the time management believes additional deterioration in value has occurred.
The following table sets forth certain information with respect to
Century's non-accrual loans, OREO, and accruing loans which are contractually
past due 90 days or more as to principal or interest, for the periods indicated:
87
Nonperforming Assets
(Dollars in Thousands)
December 31,
----------------------------
2000 1999 1998
----------------------------
Non-accrual loans $ 633 $1,107 $1,698
Accruing past due 90 days or more 641 1,187 510
----------------------------
Total nonperforming loans 1,274 2,294 2,208
Other real estate owned - 114 374
----------------------------
Total nonperforming assets $1,274 $2,408 $2,582
----------------------------
Nonperforming loans to total loans 0.49% 1.16% 1.25%
Nonperforming assets to total assets 0.31% 0.75% 0.99%
As of December 31, 2000, most of the non-accrual loan balance consisted of
two borrowing relationships. Century has accelerated collection efforts with
regard to these borrowing relationships.
Interest lost on these nonaccrual loans was $161,000, $72,000, and $117,000
for 2000, 1999, and 1998, respectively. Century received interest payments on
these nonaccrual loans amounting to $34,000, $68,000, and $100,000 for 2000,
1999 and 1998, respectively.
Allowance for Credit Losses
Century maintains an allowance for credit losses based upon, among other
things, such factors as historical experience, the volume and type of lending
conducted by Century, the amount of nonperforming assets, regulatory policies,
generally accepted accounting principles, general economic conditions, and other
factors related to the collectibility of loans in Century's portfolio. Although
management believes it uses the best information available to make
determinations with respect to the allowance for credit losses, future
adjustments may be necessary if such factors and conditions differ from the
assumptions used in making the initial determinations. Based upon criteria
consistently applied during the periods, Century's allowance for credit losses
was $3.0 million (1.14% of total loans), $2.2 million (1.12% of total loans) and
$2.1 million (1.16% of total loans) as of December 31, 2000, 1999 and 1998,
respectively. The allowance for credit losses as a percentage of nonperforming
loans was 232%, 96% and 93% as of December 31, 2000, 1999 and 1998,
respectively.
The following table sets forth an analysis of Century's allowance for
credit losses for the periods indicated:
88
Allowance for Credit Losses
(Dollars in Thousands)
Year Ended December 31,
------------------------------------
2000 1999 1998
------------------------------------
Average net loans outstanding $218,670 $186,797 $172,743
Loans outstanding at period-end 259,368 197,069 176,532
Total nonperforming loans 1,274 2,294 2,208
------------------------------------
Beginning balance of allowance $ 2,209 $ 2,055 $ 2,589
Loans charged-off:
1-4 family residential mortgage 5 - 639
Home equity loans - - 26
Commercial loans 498 223 574
Installment and credit card loans 331 629 547
------------------------------------
Total loans charged-off 834 852 1,786
Recoveries of previous charge-offs:
1-4 family residential mortgage - 36 78
Home equity loans 43 8 43
Commercial loans 67 12 472
Installment and credit card loans 23 41 29
------------------------------------
Total recoveries 133 97 622
------------------------------------
Net loans charged-off 701 755 1,164
Provision for credit losses 1,450 909 630
------------------------------------
Balance at end of period $ 2,958 $ 2,209 $ 2,055
------------------------------------
Net charge-offs to average loans 0.32% 0.40% 0.67%
Allowance as % of total loans 1.14% 1.12% 1.16%
Nonperforming loans as % of total loans 0.49% 1.16% 1.25%
Allowance as % of nonperforming loans 232% 96% 93%
Century considers the composition of its loan portfolio and the loss
potential associated with different types of loans in determining the level of
the allowance for credit losses. In considering the loss potential associated
with different types of loans, Century considers its own historical loss
experience with each type of loan, together with any internal or external
changes which might suggest that future losses will be higher or lower than the
historical loss experience. Such additional factors include changes in national
or local economic conditions which affect the repayment capacity of borrowers
and/or the market value of collateral, trends in past due payments, changes in
underwriting standards, changes in loan originating and servicing personnel,
changes in the types of credit offered, and other factors. For a description of
Century's accounting policy for the allowance for credit losses, see Note 1 of
Notes to Consolidated Financial Statements.
The following table describes the allocation of the allowance for credit
losses among various categories of loans and certain other information at
December 31, 2000. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
89
Allocation of Allowance for Credit Losses
(Dollars in Thousands)
December 31, 2000 December 31, 1999
----------------------------- ------------------------------
Percent of Loans Percent of Loans
Amount to Total Loans Amount to Total Loans
------------------------------ ------------------------------
Balance of allowance for credit losses applicable to:
Commercial and industrial $1,015 20% $ 334 26%
Real estate 1,174 74 245 67
Consumer 410 6 526 7
Unallocated 359 - 1,104 -
------------------------------ ------------------------------
Total allowance for credit losses $2,958 100% $2,209 100%
------------------------------ ------------------------------
Investment Activities
Century's investment portfolio of $112.1 million as of December 31, 2000
consisted mostly of U.S. government agency obligations supplemented by mortgage-
backed securities, municipals and corporate bonds. This represented an increase
of $44.7 million, or 66%, compared with investment securities of $67.4 million
at December 31, 1999. The increase during the year was reflective of the
execution of $10.0 million in wholesale leveraging transactions, the investment
of the proceeds from the issuance of the capital securities and the investment
of a portion of the proceeds from the Reston Branch purchase.
Investment securities available-for-sale are stated at fair value. These
securities may be sold, retained until maturity, or pledged as collateral for
liquidity and borrowing in response to changing interest rates, changes in
prepayment risk, and other factors as a part of Century's overall asset
liability management strategy.
Investment securities held-to-maturity are stated at amortized cost.
Century has the intent and ability to hold these securities until maturity, and
they are also available to be pledged as collateral for liquidity and borrowing
needs if and when such needs may occur.
90
The following table sets forth the amortized cost of Century's investment
portfolio as of the dates indicated:
Investment Portfolio Composition
(Dollars in Thousands)
December 31,
-----------------------------------------
2000 1999 1998
-----------------------------------------
Available-for-sale (amortized cost)(1):
U.S. Treasuries and government agencies $ 69,998 $38,635 $19,600
Mortgage-backed securities 19,211 22,726 19,003
Equity securities 2,954 2,923 2,331
-----------------------------------------
Total available-for-sale 92,163 64,284 40,934
Held-to-maturity (amortized cost):
U.S. Treasuries and government agencies 5,999 3,999 -
Mortgage-backed securities 1,789 1,967 2,442
State, county and municipal 8,274 - -
Other 4,327 - -
-----------------------------------------
Total held-to-maturity 20,389 5,966 2,442
-----------------------------------------
Total investment securities $112,552 $70,250 $43,376
-----------------------------------------
(1) The fair value of investment securities available-for-sale was $91,722,
$61,462, and $40,891 at December 31, 2000, 1999, and 1998, respectively.
The following table sets forth the maturity distribution and weighted
average yield of the investment portfolio of Century as of December 31, 2000:
Investment Portfolio -- Maturities and Yields
(Dollars in Thousands)
Over 1 Year Over 5 Years
One Year Through 5 Through 10 After
or Less Years Years 10 Years Total
- -------------------------------- ---------- --------- --------- --------- ---------
Maturity Distribution:
U.S. Treasuries and government
agencies $14,345 $36,644 $25,008 $ - $ 75,997
Mortgage-backed securities - 3,520 17,253 227 21,000
State, county and municipal - - 1,091 7,183 8,274
Other - - - 4,327 4,327
Equity securities - - - 2,954 2,954
---------- --------- --------- --------- ---------
Total $14,345 $40,164 $43,352 $14,691 $112,552
---------- --------- --------- --------- ---------
Weighted Average Yield (1):
U.S. Treasuries and government
agencies 6.32% 6.49% 6.50% -% 6.46%
Mortgage-backed securities - 6.42 6.48 6.78 6.47
State, county and municipal - - 8.54 8.83 8.79
Other - - - 6.52 6.52
Equity securities - - - 9.00 9.00
---------- --------- --------- --------- ---------
Total 6.32% 6.49% 6.55% 8.15% 6.71%
---------- --------- --------- --------- ---------
(1) The calculation of the weighted average yields is based on fully taxable-
equivalent yield, weighted by the respective book value of the securities,
using cost basis in the case of securities available-for-sale.
91
Deposits
Century's total deposits at year-end 2000 were $329.2 million, an increase
of $74.0 million, or 29.0%, compared with the year-end 1999 balance. This
increase was due in large measure to the Reston Branch purchase in August 2000.
Total average deposits were $278.7 million for the year ended December 31, 2000,
an increase of $36.6 million, or 15% compared with average deposits of $242.2
million for the year ended December 31, 1999. Century's total deposits at year-
end 1999 were $255.2 million, an increase of $32.2 million, or 14.0%, compared
with the year-end 1998 balance. Total average deposits were $242.2 million for
the year ended December 31, 1999, an increase of $31.3 million, or 14.8%
compared with average deposits of $210.9 million for the year ended December 31,
1998. Century views deposit growth as a significant challenge in its effort to
increase its asset size. Thus, Century continues to focus on its branching
program with increased emphasis on commercial accounts, and the offering of
competitive interest rates and products to stimulate deposit growth.
The following table sets forth the average balances and weighted average
rates for Century's categories of deposits for the periods indicated:
Average Deposits
(Dollars in Thousands)
Year Ended December 31,
-----------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- ----------------------------------------------------------
Weighted Weighted Weighted
Average Average % of Average Average % of Average Average % of
Balance Rate Total Balance Rate Total Balance Rate Total
-------------------------- --------------------------- ----------------------------
Noninterest-Bearing Deposits $ 49,901 0.00% 17.9% $ 40,751 0.00% 16.8% $ 35,202 0.00% 16.7%
Interest-Bearing Deposits:
NOW accounts 34,307 1.28 12.3 30,139 1.43 12.4 26,646 1.87 12.6
Savings accounts 26,145 4.10 9.4 24,879 4.03 10.3 22,618 4.10 10.7
Money market accounts 41,666 3.83 14.9 31,742 3.19 13.1 32,881 3.44 15.6
Time deposits 126,717 5.74 45.5 114,643 5.15 47.3 93,538 5.55 44.4
-------------------------- --------------------------- ----------------------------
Total $278,736 100.0% $242,154 100.0% $210,885 100.0%
========= ====== ========= ====== ========== ======
Weighted Average Rate 3.73% 3.45% 3.68%
==== ==== ====
Century seeks to rely primarily on regular customer relationships to
provide a stable and cost effective source of funding to support asset growth.
Century's Asset/Liability Management Policy limits total brokered deposits to
ten percent (10%) of CNB's total liabilities. As of December 31, 2000, brokered
deposits represented $3.3 million, or 0.9% of Century's total liabilities.
As of December 31, 2000, total time deposits in excess of $100,000
accounted for $62.9 million, or 19.1% of Century's total deposits. Of this
amount, $9.9 million had a remaining term of three months or less. The following
table sets forth the amount of Century's certificates of deposit of $100,000 or
more, by time remaining until maturity, as of December 31, 2000 and 1999:
92
Time Deposits of $100,000 or More
(Dollars in Thousands)
December 31,
-------------------
2000 1999
-------------------
Maturity Period:
Three months or less $ 9,851 $ 5,353
Over three months through twelve months 41,343 30,522
Over twelve months 11,658 4,916
--------------------
Total $62,852 $40,791
====================
Borrowings
Borrowings consist of advances from the Federal Home Loan Bank of Atlanta
(FHLBA), deposits received in Century's U.S. Treasury Tax and Loan Account, and
securities sold under repurchase agreements. Balances outstanding and effective
rates of interest are shown in the tables below for the years ending December
31, 2000, 1999 and 1998:
Borrowings
(Dollars in Thousands)
Year Ended December 31,
-------------------------------------------------
2000 1999 1998
-------------------------------------------------
Federal Home Loan Bank of Atlanta:
Ending balance $20,389 $29,301 $6,513
Daily average balance for the period 19,752 12,534 6,911
Maximum outstanding balance at
a month-end during the period 25,644 41,854 7,222
Daily average interest rate for the period 6.40% 6.18% 6.81%
Average interest rate on period end balance 6.36 5.21 6.74
Treasury Tax and Loan Account:
Ending balance $ 343 $ 599 $ 589
Daily average balance for the period 403 357 361
Maximum outstanding balance at
a month-end during the period 630 599 2,101
Daily average interest rate for the period 5.72% 4.27% 4.79%
Average interest rate on period end balance 6.92 4.56 4.45
Securities sold under repurchase agreements:
Ending balance $20,288 $10,566 $4,023
Daily average balance for the period 17,444 6,879 2,555
Maximum outstanding balance at
a month-end during the period 29,464 11,595 5,061
Daily average interest rate for the period 5.27% 3.99% 3.74%
Average interest rate on period end balance 5.37 4.34 3.57
The following table shows the details of Century's fixed and variable rate
advances from the FHLBA, with original maturities in excess of one year, as of
December 31, 2000:
93
Borrowings
(Dollars in Thousands)
December 31, 2000
--------------------------------------------
Advance Amount Outstanding Current Long-Term Interest Maturity Repayment
Date Borrowed Balance Portion Portion Rate Date Terms
- ------- --------- ----------- ------- --------- -------- -------- ---------
2/08/96 $ 800 $ 800 $ - $ 800 6.30% 2/08/06 due at maturity
5/16/96 1,000 1,000 - 1,000 7.34 5/16/06 due at maturity
6/24/96 1,000 550 100 450 6.94 6/24/06 semi-annual
10/10/96 300 300 - 300 6.85 10/10/01 due at maturity
10/10/96 2,000 400 400 - 6.57 10/10/01 quarterly
10/10/96 2,400 800 400 400 6.66 10/10/02 quarterly
9/25/97 573 539 12 527 6.62 9/25/17 monthly
4/22/99 3,000 3,000 - 3,000 5.01 4/22/04 due at maturity
4/23/99 3,000 3,000 - 3,000 variable 4/23/04 due at maturity
3/22/00 5,000 5,000 - 5,000 6.18 3/22/10 due at maturity
5/24/00 5,000 5,000 - 5,000 6.69 5/24/10 due at maturity
--------- --------- ------- ----------
Total $ 24,073 $ 20,389 $ 912 $ 19,477
========= ========= ======= ==========
At December 31, 2000, Century is indebted to an unaffiliated bank in the
amount $1.9 million consisting of a short-term note maturing in June 2001 and a
long-term note maturing in September 2001. Both notes bear interest at the prime
rate (as defined) plus 25 basis points and are adjusted annually.
At December 31, 2000, Facility Holdings, a wholly-owned subsidiary of
Century, is indebted to an unaffiliated bank in the amount of $780,000. The note
bears interest at the prime rate (as defined) plus 25 basis points. The loan
matures in June 2001 and is secured by the real property operated as a bank
branch in Alexandria, Virginia.
Preferred Securities of Subsidiary Trust
Transaction Structure. During the first quarter of 2000, Century formed a
new, wholly-owned statutory business trust, Century Capital Trust I (the Trust),
which issued $8.8 million of capital securities (the Capital Securities) to a
third party. The Trust invested the proceeds in an equivalent amount of junior
subordinated debt securities of Century bearing an interest rate equal to the
rate on the Capital Securities. These debt securities, which are the only
assets of the Trust, are subordinate and junior in right of payment to all
present and future senior indebtedness (as defined in the indenture) and certain
other financial obligations of Century. Century has fully and unconditionally
guaranteed the Trust's obligations under the Capital Securities.
For financial reporting purposes, the Trust is treated as a subsidiary of
Century and consolidated in the corporate financial statements. The Capital
Securities are presented as a separate category of long-term debt on the
Consolidated Statements of Financial Condition entitled "Preferred Securities of
Subsidiary Trust." The Capital Securities are not included as a component of
stockholders' equity in the Consolidated Statements of Financial Condition. For
regulatory purposes, however, the Federal Reserve Board treats the Capital
Securities as Tier 1 or Tier 2 capital.
The Capital Securities pay cash distributions semiannually at an annual
rate of 10.875% of the liquidation preference. Distributions to the holders of
the Capital Securities are included in interest expense, within the category
entitled "Interest on borrowings." Under the provisions of the subordinated
debt, Century has the right to defer payment of interest on the subordinated
debt at any time, or from time to time, for periods
94
not exceeding five years. If interest payments on the subordinated debt are
deferred, the distributions on the Capital Securities are also deferred.
Interest on the subordinated debt is cumulative.
Subject to the prior approval of the Federal Reserve Board, the Capital
Securities, the assets of the Trust, and the common securities issued by the
Trust are redeemable at the option of Century in whole or in part on or after
March 8, 2010, or at any time, in whole but not in part, from the date of
issuance, upon the occurrence of certain events.
Impact on Financial Condition and Results of Operation. The treatment of
the Capital Securities as Tier 1 or Tier 2 capital, in addition to the ability
to deduct the expense of the junior subordinated debt securities for federal
income tax purposes, provided Century with a cost-effective method of raising
capital to support continued expansion activities in the Washington, DC
metropolitan area through the establishment and/or acquisition of additional
branch offices and possible corporate acquisitions.
Taking the underwriting discount into account, the Capital Securities have
an effective interest cost to Century of 11.1% per annum. To mitigate the
negative impact of this interest cost on Century's consolidated net income, CNB
invested $8.465 million of its liquid assets in a diversified portfolio of
investment-grade corporate and municipal obligations with a weighted-average
taxable-equivalent yield of 9.11%. Additionally, CNB entered into two wholesale
leveraging transactions in which it borrowed a total of $10 million at a
weighted-average cost of 6.44 % and invested the proceeds in federal agency and
municipal obligations with a weighted-average taxable-equivalent yield of 7.99%.
Return on Equity and Assets
Return on average assets (ROA) is determined by dividing annual net income
by average assets and generally indicates an institution's ability to use its
assets profitably. Return on average equity (ROE) is determined by dividing
annual net income by average stockholders' equity and indicates the
effectiveness of an institution in generating net income from the capital
invested by its stockholders. The following table sets forth Century's ROA and
ROE for the periods indicated:
Return on Equity and Assets
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
----------------------------------------------------
Return on average assets 0.30% 0.32% 0.30%
Return on average equity 4.60 4.09 3.36
Period-end equity to total assets 5.89 6.67 8.81
Exclusive of after-tax merger-related expenses of $333,000 incurred in
2000, ROA and ROE for 2000 were 0.40% and 6.06% respectively.
Liquidity
Century's Asset/Liability Management Policy is intended to maintain
adequate liquidity for Century and thereby enhance its ability to raise funds to
support asset growth, meet deposit withdrawals and lending needs, maintain
reserve requirements and otherwise sustain operations. Century accomplishes
this primarily through management of the maturities of its interest-earning
assets and interest-bearing liabilities. Century believes that its present
liquidity position is adequate to meet its current and future needs.
95
Asset liquidity is provided by cash and assets which are readily
marketable, or which can be pledged, or which will mature in the near future.
The asset liquidity of CNB is maintained in the form of vault cash, demand
deposits with commercial banks, federal funds sold, interest bearing deposits
with other financial institutions, short-term investment securities, other
investment securities available-for-sale, and short-term loans. Century has
defined "cash and cash equivalents" as those amounts included in cash and due
from banks and federal funds sold. As of December 31, 2000, CNB had cash and
cash equivalents of $20.2 million, a decrease of $4.3 million, when compared
with the $24.5 million at December 31, 1999.
Liability liquidity is provided by access to core funding sources,
principally various customers' deposit accounts in Century's market area. As a
member of the Federal Home Loan Bank of Atlanta (FHLBA), Century is authorized
to borrow up to 20% of its assets, on a short-term or long-term basis, secured
by a blanket pledge of its portfolio of 1-to-4-family residential mortgage
loans, investment securities and other collateral. At December 31, 2000,
Century had total credit availability from the FHLBA of $81.9 million. Century
also has approved lines of credit from larger correspondent banks to borrow
excess reserves on an overnight basis (federal funds purchased) in the amount of
$5.7 million and to borrow on a secured basis (repurchase agreements) in the
amount of $5.0 million. As of December 31, 2000, there were no federal funds
purchased, customer repurchase agreements amounted to $20.3 million, and Century
had outstanding borrowings of $20.4 million from the FHLBA in the form of fixed
and variable rate advances with an average interest rate of 6.36%. Century
utilizes fixed rate term credit advances from the FHLBA to manage interest rate
risk by match funding fixed rate real estate loans of comparable terms and
maturities.
Century's cash flows are composed of three classifications: cash flows from
operating activities, cash flows from investing activities, and cash flows from
financing activities. Net cash provided by operating activities was $3.3
million for the year ended December 31, 2000. Net cash used in investing
activities was $38.0 million for 2000, as a result of the $82.3 million net
increase in loans and investment securities which was partially offset by the
acquisition of deposits, net of assets acquired of $44.9 million. Net cash
provided by financing activities for 2000 of $30.4 million, which resulted from
a $21.0 million increase in deposits, an increase of $9.7 million from customer
repurchase accounts, and proceeds of $200,000 from the exercise of options for
common stock, partially offset by a decrease of $517,000 in borrowings and the
purchase of 6,500 shares of treasury stock for $39,000.
Net cash provided by operating activities was $3.1 million for the year
ended December 31, 1999. Net cash used in investing activities was $52.1
million for 1999, as a result of the $52.4 million net increase in loans and
investment securities which was partially offset by the acquisition of deposits,
net of assets acquired of $2.9 million. Net cash provided by financing
activities for 1999 was $52.0 million which resulted from a $22.8 million
increase in deposits, an increase of $23.2 million in borrowings, an increase of
$6.5 million from customer repurchase accounts, and proceeds of $60,000 from the
exercise of options for common stock, partially offset by the purchase of
136,500 shares of treasury stock for $790,000.
In the ordinary course of business, Century enters into commitments to make
loans and fund letters of credit, and Century is also a party to operating
leases with respect to its banking quarters. Details of these commitments may
be found in the accompanying Notes to Consolidated Financial Statements.
Century had cash on hand in the amount of $860,000 at the holding company
level at December 31, 2000. Century anticipates using these funds as working
capital available to support the future growth of the franchise as well as to
pay normal operating expenses. Additionally, working capital is further
supported by dividends available from CNB, subject to certain regulatory
restrictions generally applicable to national banks.
96
Capital Resources
Total stockholders' equity as of December 31, 2000 was $24.2 million, an
increase of $2.7 million in 2000 compared to stockholders' equity of $21.5 as
of December 31, 1999.
The OCC has established certain minimum risk-based capital standards that
apply to national banks, and Century is subject to certain capital requirements
imposed by the Federal Reserve Board. At December 31, 2000, CNB exceeded all
applicable regulatory capital requirements for classification as a "well
capitalized" bank, and Century satisfied all applicable regulatory requirements
imposed on it by the Federal Reserve Board. See Note 12 of the Notes to
Consolidated Financial Statements.
Impact of Inflation, Changing Prices and Monetary Policies
The primary effect of inflation on the operations of Century is reflected
in increased operating costs. Unlike industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As a
result, changes in interest rates have a more significant effect on the
performance of a financial institution than do the effects of changes in the
general rate of inflation and changes in prices. Interest rates do not
necessarily move in the same direction or in the same magnitude as the prices of
goods and services. Interest rates are highly sensitive to many factors which
are beyond the control of Century, including the influence of domestic and
foreign economic conditions and the monetary and fiscal policies of the United
States government and federal agencies, particularly the Federal Reserve Board.
The Federal Reserve Board implements national monetary policy such as seeking to
curb inflation and combat recession by its open market operations in United
States government securities, control of the discount rate applicable to
borrowing by banks, and establishment of reserve requirements against bank
deposits. The actions of the Federal Reserve Board in these areas influence the
growth of bank loans, investments and deposits, and affect the interest rates
charged on loans and paid on deposits. The nature, timing and impact of any
future changes in federal monetary and fiscal policies on Century and its
results of operations are not predictable.
New Financial Accounting Standards
In June 2001, SFAS No. 141, "Business Combinations," was issued. SFAS 141
requires that all business combinations be accounted for by a single methodCthe
purchase method. SFAS 141 further requires that intangible assets be recognized
apart from goodwill only if they meet one of two criteriaCthe contractual-legal
criterion or the separability criterion. The disclosure of the primary reasons
for a business combination and the allocation of the purchase price paid to the
assets acquired and liabilities assumed by major balance sheet caption is also
required. SFAS 141 applies to all business combinations initiated after June
30, 2001 and to all business combinations accounted for using the purchase
method for which the date of acquisition is July 1, 2001, or later.
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was
issued. SFAS 142 adopts a more aggregate view of goodwill and bases the
accounting for goodwill on the units of the combined entity into which an
acquired entity is integrated. Furthermore, goodwill and other intangible
assets that have indefinite useful lives will not be amortized but rather will
be tested at least annually for impairment using specific guidance. Additional
supplemental disclosures of information about goodwill and other intangibles in
the years subsequent to their acquisitions are also required. The provisions of
SFAS 142 are required to be applied starting with fiscal years beginning after
December 15, 2001, except that all goodwill and intangible assets acquired after
June 30, 2001, will be subject immediately to the nonamortization and
amortization provisions. Since goodwill and some intangible assets will no
longer be amortized, the reported amounts of goodwill and intangible assets will
not decrease at the same time and in the same manner as under previous standards
which could lead to more volatility in reported income because impairment losses
are likely to occur irregularly and in varying amounts.
97
SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF
CENTURY STOCKHOLDERS AND RIGHTS THOSE
PERSONS WILL HAVE AS STOCKHOLDERS OF UNITED
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Century United
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Corporate The rights of Century stockholders The rights of United stockholders
Governance: are governed by Delaware corporate are governed by West Virginia law
law and the certificate of and the articles of incorporation
incorporation and bylaws of Century. and bylaws of United.
- ------------------------------------------------------------------------------------------------
Board of Century's board currently consists The United board consists of 17
Directors: of 10 directors, all of whom are directors, and, immediately
elected annually. following the merger will consist of
18 directors, all of whom are
elected annually.
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Election of Under Delaware law and the United stockholders are allowed to
Directors: provisions of Century's certificate cumulate their votes in the election
of incorporation, stockholders are of directors. Each share of United
not entitled to cumulate votes in stock may be voted for as many
the election of directors. Each individuals as there are directors
share of Century has one vote for to be elected. Directors are
each nominee for director. The elected by a plurality of the votes
directors of Century are elected by cast by the holders entitled to vote
a plurality of the votes cast by the at the meeting.
holders entitled to vote at the
meeting, though they are not
required to be elected by written
ballot.
- ------------------------------------------------------------------------------------------------
Removal of Delaware law and the bylaws of Under West Virginia law any member
Directors: Century permit the removal, with or of the board may be removed, with or
without cause, of any director or without cause, by the affirmative
the entire board of directors by the vote of a majority of all the votes
holders of a majority of shares then entitled to be cast for the election
entitled to vote at an election of of directors.
directors.
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Merger: Under Delaware law, a merger may Under West Virginia law, a merger
become effective without the may become effective without the
approval of the surviving approval of the surviving
corporation's stockholders in corporation's stockholders in
certain circumstances. Where certain circumstances. Where
stockholder approval is required, stockholder approval is required,
the merger must be approved by the the merger must be approved by the
holders of a majority of the stockholders of the corporation by
outstanding shares entitled to vote the affirmative vote of at least a
unless the certificate of majority of all the votes entitled
incorporation provides for a higher to be cast on the matter unless a
number. The certificate of different number is specified in the
incorporation of Century articles of incorporation. The United
provides that in the event of a articles of incorporation do not
merger requiring stockholder provide for a different number.
approval, the affirmative vote or
consent of the holders of at least
two-thirds, rather
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98
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Century United
- ------------------------------------------------------------------------------------------------
than a majority, of the outstanding
shares of capital stock of the
corporation entitled to vote shall be
required to take such action.
- ------------------------------------------------------------------------------------------------
Vote Required for Delaware law provides that in all West Virginia law provides that on
Certain matters other than the election of matters other than the election of
Stockholder directors, the affirmative vote of directors and certain extraordinary
Actions: the majority of the shares present corporate actions, if a quorum is
or represented by proxy at the present, the affirmative vote of a
meeting and entitled to vote on the majority of the shares represented
subject matter shall be the act of or stockholders present at the
the stockholders, unless the vote of meeting entitled to vote shall be
a greater number is required by law the act of the stockholders, unless
or the certificate of incorporation the vote of a greater number is
or bylaws. required by law or the articles of
incorporation or bylaws. The
The certificate of incorporation of articles of incorporation or bylaws
Century provides that an amendment of United do not require a greater
of the certificate of incorporation, number. An abstention is not
a merger or consolidation of the considered a "vote cast" for
corporation, a sale, lease or purposes of the voting requirements,
exchange of all or substantially all but a stockholder who abstains in
of the assets of the corporation, person or by proxy is considered
the adoption of a plan of present for purposes of the quorum
dissolution or liquidation or requirement.
revocation of a dissolution must be
approved by the affirmative vote or Under West Virginia law, a
consent of the holders of at least consolidation, merger, share
two-thirds, rather than a majority, exchange or transfer must be
of the outstanding shares of capital approved by the stockholders of the
stock of the corporation or such corporation by the affirmative vote
class or series thereof entitled to of a majority of all votes entitled
vote. to be cast on the matter. The
articles of incorporation of United
do not provide for a different
number.
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Amendment of Under Delaware law, the certificate Under West Virginia law, the United
Charter and of incorporation of Century may be articles of incorporation or bylaws
Bylaws: amended by the affirmative vote of a may be amended by the affirmative
majority of the outstanding stock vote of a majority of all votes of
entitled to vote on the amendment at stockholders entitled to be cast on
a stockholders' meeting and a the matter, unless a different
majority of each class entitled to number is specified in the articles
vote on the amendment as a class, of incorporation. The articles of
unless the vote of a greater incorporation of United do not
number is required. Century's specify a different number.
certificate of incorporation
provides that where Delaware law Under West Virginia law and United's
requires stockholder approval to bylaws, both the board of directors
amend the and stockholders have the power to
amend
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99
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Century United
- ------------------------------------------------------------------------------------------------
certificate of incorporation, the the bylaws.
affirmative vote of the holders of
at least two-thirds, rather than a
majority, of the outstanding shares
of capital stock of the corporation
or such class or series thereof
entitled to vote shall be required.
Under Delaware law, the power to
amend bylaws resides in the
stockholders entitled to vote,
provided that a corporation may, in
its certificate of incorporation,
confer the power to amend the bylaws
upon the directors. The fact that
such power has been conferred on the
directors does not divest nor limit
the power of the stockholders to
amend the bylaws. Century's
certificate of incorporation
provides that the board of directors
is authorized to amend the bylaws.
- ------------------------------------------------------------------------------------------------
Stockholder Under Delaware law, unless otherwise Under West Virginia law, common
Actions Without provided in a corporation's stockholders may act without a
a Meeting: certificate of incorporation, meeting if a written consent which
stockholders may act by written describes the action is signed by
consent signed by the holders of all the stockholders entitled to
outstanding shares having not less vote on the matter and is filed with
than the minimum number of votes the records of stockholder meetings.
necessary to take such action at a
meeting. Century's certificate of
incorporation provides that any
action required to be taken or that
may be taken at any annual or
special meeting of stockholders of
the corporation may not be taken by
written consent without a meeting,
prior notice and a vote.
- ------------------------------------------------------------------------------------------------
Special Meetings Stockholders of a Delaware A special meeting of stockholders of
of Stockholders: corporation do not have a right to a West Virginia corporation may be
call a special meeting of called by the board of directors, at
stockholders unless such a right is least 10% of the stockholders, or
provided for in the corporation's any person designated in the
certificate of incorporation or articles of incorporation or bylaws.
bylaws. Century's certificate of
incorporation and bylaws provide
that special meetings may be called
by (a) the president, (b) the board
of directors, or (c) the president
or secretary at the
- ------------------------------------------------------------------------------------------------
100
- ------------------------------------------------------------------------------------------------
Century United
- ------------------------------------------------------------------------------------------------
request in writing of (i) a
majority of the board of directors,
or (ii) stockholders owning a
majority in amount of the entire
capital stock of the corporation
issued and outstanding and entitled
to vote.
- ------------------------------------------------------------------------------------------------
Dividends: A Delaware corporation may pay A West Virginia corporation
dividends out of surplus. If there generally may pay dividends in cash,
is no surplus, dividends may be property or its own shares out of
declared out of net profits for the the unreserved and unrestricted
current or preceding fiscal year earned surplus except when the
unless the capital of the corporation is insolvent or the
corporation has been decreased to an payment of the dividend would cause
amount less than the aggregate the corporation to become insolvent.
amount of the capital represented
by the issued and outstanding stock
having a preference on the
distribution of assets.
- ------------------------------------------------------------------------------------------------
Appraisal Rights: Under Delaware law, the rights of Under West Virginia law,
stockholders to dissent and obtain stockholders are generally entitled
the fair value of their shares in an to object and receive payment of the
appraisal proceeding may be fair value of their stock in the
available in connection with a event that the corporation enters
statutory merger or consolidation in into a consolidation, merger,
certain specific situations. transfer of all or substantially all
Appraisal rights are not available of the corporation's assets, or
to a corporation's stockholders when participation in a share exchange as
the corporation will be the the corporation the stock of which
surviving corporation and no is to be acquired.
stockholder vote is required to
approve the merger.
A Delaware corporation's
certificate of incorporation may
provide that appraisal rights shall
be available to stockholders in the
event of an amendment to its
certificate of incorporation, any
merger or consolidation in which
the corporation is a constituent
corporation or the sale of all or
substantially all of the assets of
the corporation. Century's
certificate of incorporation does
not provide for such rights.
Stockholders of a Delaware
corporation also do not have
appraisal rights in
- ------------------------------------------------------------------------------------------------
101
- ------------------------------------------------------------------------------------------------
Century United
- ------------------------------------------------------------------------------------------------
connection with a merger where,
on the record date fixed to
determine the stockholders entitled
to vote on the merger, the
corporation's stock is listed on a
national securities exchange,
listed on The Nasdaq National
Market System or held of record by
more than 2,000 stockholders,
unless the stockholder is required
to accept (i) any consideration
other than shares of stock or
depository receipts of the
surviving corporation or any other
corporation, which at the effective
date of the merger, will be listed
on a national securities exchange
or The Nasdaq National Market
System or held of record by more
than 2,000 stockholders, (ii) cash
in lieu of fractional shares or
fractional depository receipts of a
corporation described above or
(iii) any combination of the above.
- ------------------------------------------------------------------------------------------------
Restrictions on Delaware General Corporation Law West Virginia corporate law does not
Business Section 203 prohibits transactions contain statutory provisions
Combinations: between a corporation and an concerning restrictions on business
interested stockholder for a combinations.
three-year period following the
time the interested stockholder
became such unless certain
conditions are met. Generally, an
interested stockholder is anyone
who owns 15% or more of a
corporation and the affiliates and
the associates of such person. If
the interested stockholder does not
get prior board approval of the
business combination or obtain 85%
of the voting stock of the
corporation in the transaction in
which it becomes interested, the
stockholder cannot engage in a
business combination for three
years unless the business
combination is approved both by the
directors and by the affirmative
vote of two thirds of the
outstanding voting stock not owned
by the interested stockholder.
- ------------------------------------------------------------------------------------------------
102
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Century United
- ------------------------------------------------------------------------------------------------
Discharge of Delaware law states that directors West Virginia law requires that a
Duties; owe fiduciary duties to the director of a West Virginia
Exculpation and corporation and its stockholders to corporation discharge duties as a
Indemnification: act in the best interests of the director in good faith, in a manner
corporation with undivided and reasonably believed to be in the
unselfish loyalty and with the care best interest of the corporation and
in the management of the with the care that an ordinary,
corporation's business that ordinary prudent person in a like position
and careful and prudent persons would use under similar
would use in similar circumstances circumstances. United's articles of
in the handling of their own affairs. incorporation provide that each
director or officer of United shall
Delaware law and Century's bylaws be indemnified for costs and
provide that Century may indemnify a expenses arising out of any criminal
director, officer, agent or employee or civil suit or proceeding against
if he acted in good faith an in a the director or officer by reason of
manner he reasonably believed to be being a director or officer of
in or not opposed to the best United. However, a director or
interests of Century, and, with officer shall not be indemnified if
respect to any criminal action or he or she is adjudged in such suit
proceeding, had no reasonable cause or proceeding to be liable for gross
to believe his conduct was unlawful. negligence or willful misconduct in
Additionally, Century may advance performance of a duty owed to the
expenses incurred by such person corporation.
in any proceeding upon receipt of
an undertaking by or on behalf of
the director, officer, employee or
agent to repay such amount if it is
ultimately determined that he is
not entitled to indemnification by
Century. Century's certificate of
incorporation also provides that no
director shall be personally liable
for breach of fiduciary duty as a
director, except for any liability
of a director (a) for any breach of
the director's duty of loyalty to
Century or its stockholders, (b)
for acts or omissions not in good
faith or which involve intentional
misconduct or a knowing violation
of the law, (c) under Section 174
of the Delaware General Corporation
Law, relating to unlawful payment
of dividends or unlawful stock
purchases or redemptions, or (d)
for any transaction from which the
director derived an improper
personal benefit. In accordance
with Delaware law and the
certificate of incorporation and
bylaws, Century may indemnify any
- ------------------------------------------------------------------------------------------------
103
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Century United
- ------------------------------------------------------------------------------------------------
director, officer, agent or
employee made a party to any
derivative proceeding if he acted
in good faith and in a manner he
reasonably believed to be in or not
opposed to the best interest of
Century, except that no
indemnification shall be made where
such person is adjudged liable for
negligence or misconduct in the
performance of his duty to Century
unless the court determines that
such person is fairly and
reasonably entitled to indemnity.
Under Delaware law, a director,
officer, employee or agent of
Century who is successful, on the
merits or otherwise, in any
proceeding shall be indemnified by
Century for reasonably incurred
expenses, including attorneys'
fees.
- ------------------------------------------------------------------------------------------------
Stockholder Century's bylaws provide that a United's bylaws provide that any
Business and stockholder who desires to bring up stockholder entitled to vote at a
Nominations: any new business (including meeting of stockholders who desires
nomination of any person for to nominate any person for election
election as director) at an annual as director, must give written
meeting must give notice of such new notice to United no later than ten
business to Century not less than (10) days from the date the notice
sixty days in advance of the date of of the meeting of stockholders was
Century's notice of annual meeting mailed; however, if the notice is
given in connection with the mailed less than thirteen (13) days
previous year's annual meeting. In prior to the meeting, such
the case of a special meeting, the nomination(s) must be received no
stockholder's notice must be later than three (3) days prior to
received by Century a reasonable the meeting. If nomination by the
time prior to the date of the stockholder is not given in proper
meeting to allow sufficient time for form, including all required or
the dissemination of information to requested information, and in a
stockholders; provided, however, timely manner, the nomination will
that if at least thirty calendar not be considered.
days notice of the meeting has been
given to stockholders, a
stockholders' notice must be
received by Century no later than
ten days prior to the date of the
meeting. Business timely submitted
by a stockholder in accordance with
the procedures set forth in
Century's bylaws and including all
required information will be
considered at the meeting of
stockholders, unless the board of
directors determines that the
proposed business should not be
conducted at such meeting.
- ------------------------------------------------------------------------------------------------
104
LEGAL MATTERS
Bowles Rice McDavid Graff & Love PLLC, counsel to United, will pass upon
the validity of the shares of United common stock to be issued in connection
with the merger, and has passed and will pass on the material federal income tax
consequences of the merger to the stockholders of United. F. T. Graff, Jr., a
member of the board of directors of United, is a partner in the law firm of
Bowles Rice McDavid Graff & Love PLLC in Charleston, West Virginia. Bowles Rice
McDavid Graff & Love PLLC rendered legal services to United and UNB during 2000
and it is expected that the firm will continue to render certain services to
both in the future. The fees paid to Bowles Rice McDavid Graff & Love PLLC
represent less than 5% of that firm's revenues for 2000.
Bracewell & Patterson, L.L.P., counsel to Century, has passed and will pass
on the material federal income tax consequences of the merger to the
stockholders of Century. Mr. John R. Cope, a director and officer of Century
and CNB, is a partner in the law firm of Bracewell & Patterson, L.L.P. Mr. Cope
and other partners of Bracewell & Patterson, L.L.P. own in the aggregate less
than one percent of the shares of Century's common stock outstanding.
EXPERTS
The consolidated financial statements of United incorporated by reference
in United's Annual Report on Form 10-K for the year ended December 31, 2000,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report incorporated by reference therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of Century and subsidiaries as of
December 31, 2000, and 1999, and for each of the years in the three-year period
ended December 31, 2000, have been included in this proxy statement/prospectus
in reliance upon the report, giving consideration to the explanatory paragraph
in such report, of KPMG LLP, independent certified public accountants, included
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of GrandBanc, Inc. and subsidiaries
as of December 31, 2000 and 1999 and for each of the years in the three-year
period ended December 31, 2000, which are incorporated by reference in this
proxy statement/prospectus of United Bankshares, Inc. from Century Bancshares,
Inc.'s Current Report on Form 8-K dated September 13, 2001 have been audited by
Stegman & Company, independent certified public accountants, as indicated in
their report with respect thereto, and have been incorporated herein upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
United has filed with the Securities and Exchange Commission (SEC) a
registration statement on Form S-4 to register the United common stock to be
issued in the merger. As allowed by SEC rules, this proxy statement/prospectus
does not contain all the information you can find in the registration statement
or the exhibits thereto. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about United
and the United common stock. This proxy statement/ prospectus is a part of the
registration statement and is a prospectus of United in addition to being
Century's proxy statement for the special meeting.
In addition to filing this registration statement with the SEC, Century and
United file reports, proxy statements and other information with the SEC under
the Securities Exchange Act of 1934. You may read and copy this information at
the following locations of the SEC:
105
Public Reference Room Chicago Regional Office
450 Fifth Street, N.W. 500 West Madison Street
Room 1024 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
You may also obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet
world wide web site that contains reports, proxy statements and other
information about issuers, like United and Century, who file electronically with
the SEC. The address of that site is http://www.sec.gov. You may access
additional information about Century at its web site at
http://www.centurybank.com.
The SEC allows United and Century to "incorporate by reference" information
into this proxy statement/prospectus, which means that the companies can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is
considered part of this proxy statement/prospectus, except for any information
superseded by information contained directly in this proxy statement/prospectus
or in later filed documents incorporated by reference in this proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that United and Century have previously filed with the SEC. These
documents contain important information about United and Century and their
businesses.
Century SEC Filings (SEC File No. 0-16234)
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and
June 30, 2001;
. Annual Report on Form 10-K for the year ended December 31, 2000;
. Current Reports on Form 8-K filed on January 19, March 16, May 17 (as
amended by Current Report on Form 8-K/A filed on May 17, 2001), June 14,
2001, and September 13, 2001.
United SEC Filings (SEC File No. 0-13322)
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2001 and
June 30, 2001;
. Annual Report on Form 10-K for the year ended December 31, 2000;
. Current Reports on Form 8-K dated January 22, 2001, April 20, 2001, June
14, 2001, and July 18, 2001.
United and Century also incorporate by reference additional documents that
may be filed under Sections 13(a) and 15(d) of the Securities Exchange Act with
the SEC between the date of this proxy statement/prospectus and the completion
of the merger or the termination of the merger agreement. These include
periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.
Upon your written or oral request, Century and United will provide you
without charge a copy of this proxy statement/prospectus and a copy of any or
all of the documents incorporated by reference herein, other than the exhibits
to those documents, unless the exhibits are specifically incorporated by
reference into the information that this proxy statement/prospectus
incorporates. Your written or oral requests for copies of this proxy
statement/prospectus and documents Century or United have incorporated by
reference should be directed to:
106
United Bankshares, Inc. Century Bancshares, Inc.
Attn: Investor Relations Attn: Investor Relations
514 Market Street 1275 Pennsylvania Avenue, NW
Parkersburg, WV 26102 Washington, DC 20004
(304) 424-8800 (202) 496-4100
To obtain timely delivery, you must make a written or oral request for a
copy of such information by November 30, 2001.
You should rely only on the information contained in this proxy
statement/prospectus. We have not authorized anyone to provide you with
information different from that contained in this proxy statement/prospectus.
This proxy statement/prospectus is not an offer to sell these securities, nor
solicitation of an offer to buy these securities in any state where the offer or
sale of these securities is not permitted. The information in this proxy
statement/prospectus is delivered to you after the proxy statement/prospectus
date.
107
INDEX TO FINANCIAL STATEMENTS
Century Bancshares, Inc. Page
----
Audited Annual Financial Statements:
Independent Auditors' Report................................................................................. F-2
Consolidated Statements of Financial Condition as of December 31, 2000 and 1999.............................. F-3
Consolidated Statements of Operations for Years Ended
December 31, 2000, 1999 and 1998.................................................................... F-4
Consolidated Statements of Stockholders' Equity for Years Ended
December 31, 2000, 1999 and 1998.................................................................... F-5
Consolidated Statements of Cash Flows for Years Ended
December 31, 2000, 1999 and 1998.................................................................... F-6
Notes to Consolidated Financial Statements................................................................... F-7
Unaudited Interim Financial Statements:
Consolidated Statements of Financial Condition as of June 30, 2001 and
December 31, 2000................................................................................... F-30
Consolidated Statements of Operations for Three and Six Months Ended
June 30, 2001 and 2000.............................................................................. F-31
Consolidated Statements of Stockholders' Equity for Six Months Ended
June 30, 2001 and 2000.............................................................................. F-32
Consolidated Statements of Cash Flows for Six Months Ended June 30, 2001 and 2000............................ F-33
Notes to Consolidated Financial Statements (Unaudited)....................................................... F-34
F-1
Independent Auditors' Report
The Board of Directors
Century Bancshares, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Century Bancshares, Inc. and subsidiaries as of December 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
2000. These consolidated financial statements are the responsibility of
Century's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
The consolidated financial statements of Century Bancshares, Inc. and
subsidiaries have been restated to reflect the 2001 pooling of interests
transaction with GrandBanc, Inc. and subsidiaries as described in Note 16 to the
consolidated financial statements. We did not audit the financial statements of
GrandBanc, Inc. and subsidiaries, prior to their restatement, which statements
reflect total assets constituting 29% in 2000 and 36% in 1999, and net interest
income constituting 28% in 2000, 33% in 1999 and 38% in 1998 of the related
consolidated totals. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to data
included for GrandBanc, Inc. and subsidiaries, prior to their restatement for
the pooling of interests as described in Note 16, is based solely on the report
of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Century Bancshares, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
McLean, VA
January 18, 2001, except for Note 16,
which is as of August 29, 2001
F-2
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
Years ended December 31, 2000 and 1999
2000 1999
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 13,133,004 $ 13,521,080
Federal funds sold 7,078,260 11,023,769
Interest bearing deposits in other banks 310,333 19,667,075
Investment securities available-for-sale, at fair value 91,722,426 61,462,060
Investment securities held-to-maturity, at cost,
fair value of $21,163,732 and $5,837,867
in 2000 and 1999, respectively 20,389,131 5,966,403
Loans, net of unearned income 259,368,250 197,069,472
Less: allowance for credit losses (2,958,213) (2,209,275)
-------------- --------------
Loans, net 256,410,037 194,860,197
Bank premises, leasehold improvements, furniture, and equipment, net 6,079,063 5,264,035
Accrued interest receivable 3,037,344 1,902,756
Loans held for sale 390,010 439,600
Intangibles, net 5,834,499 2,693,104
Net deferred taxes 3,642,736 3,868,009
Other real estate owned - 114,223
Other assets 1,630,500 1,293,545
-------------- --------------
Total Assets $ 409,657,343 $ 322,075,856
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing $ 60,159,668 $ 47,208,850
Interest-bearing 269,019,073 207,947,080
-------------- --------------
Total deposits 329,178,741 255,155,930
Federal funds purchased and securities sold under
agreements to repurchase 20,287,760 10,565,573
Long term debt:
FHLB advances 20,389,080 11,301,355
Preferred securities of subsidiary trust 8,800,000 -
Other 177,500 192,500
Other borrowings 2,822,842 20,948,868
Other liabilities 3,835,366 2,431,137
-------------- --------------
Total Liabilities 385,491,289 300,595,363
-------------- ---------------
Stockholders' Equity:
Common stock, $1 par value; 10,000,000 shares authorized;
4,448,692 and 4,201,904 shares issued at
December 31, 2000 and 1999, respectively 4,448,692 4,201,904
Additional paid in capital 25,117,038 23,724,788
Deficit (4,313,140) (3,918,210)
Treasury stock, at cost, 143,000 and 136,500 shares at
December 31, 2000 and 1999, respectively (828,806) (789,863)
Other comprehensive income (loss), net of tax effect (257,730) (1,738,126)
-------------- ----------------
Total Stockholders' Equity 24,166,054 21,480,493
Commitments and contingencies
-------------- ----------------
Total Liabilities and Stockholders' Equity $ 409,657,343 $ 322,075,856
-------------- ----------------
See accompanying notes to consolidated financial statements.
F-3
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 20,757,348 $ 17,155,994 $ 16,430,799
Interest on federal funds sold 809,623 368,172 565,049
Interest on deposits in other banks 466,718 646,800 708,431
Interest on securities available-for-sale 4,728,227 3,470,852 1,676,189
Interest on securities held-to-maturity 1,042,508 191,570 184,035
---------------------------------------------------
Total interest income 27,804,424 21,833,388 19,564,503
Interest expense:
Interest on deposits:
Savings accounts 1,072,424 1,003,045 926,747
NOW accounts 437,667 431,043 497,739
Money market accounts 1,597,282 1,010,974 1,131,706
Certificates under $100,000 4,566,077 3,907,316 3,381,497
Certificates $100,000 and over 2,711,784 1,992,017 1,813,192
---------------------------------------------------
Total interest on deposits 10,385,234 8,344,395 7,750,881
Interest on other borrowings 3,202,056 1,218,723 804,166
---------------------------------------------------
Total interest expense 13,587,290 9,563,118 8,555,047
---------------------------------------------------
Net interest income 14,217,134 12,270,270 11,009,456
Provision for credit losses 1,450,000 909,330 630,000
---------------------------------------------------
Net interest income after provision for credit losses 12,767,134 11,360,940 10,379,456
Noninterest income:
Service charges on deposit accounts 1,517,473 1,061,815 754,105
Other operating income 593,281 387,829 497,195
Gain on sale of securities 176,328 6,022 20,369
---------------------------------------------------
Total noninterest income 2,287,082 1,455,666 1,271,669
Noninterest expense:
Salaries and employee benefits 5,617,131 4,967,858 3,887,418
Occupancy and equipment expense 1,607,658 1,478,561 1,592,650
Professional fees 1,539,081 981,011 1,196,506
Depreciation and amortization 754,305 727,508 726,439
Amortization of intangibles 510,189 359,514 348,671
Data processing 1,055,326 875,197 686,666
Communications 634,814 567,445 480,254
Federal deposit insurance premiums 52,588 91,169 70,579
Other real estate owned expenses 120,247 423 46,661
Other operating expenses 1,348,132 1,286,372 1,371,326
---------------------------------------------------
Total noninterest expense 13,239,471 11,335,058 10,407,170
---------------------------------------------------
Income before income tax expense 1,814,745 1,481,548 1,243,955
Income tax expense 770,641 563,046 507,829
---------------------------------------------------
Net income $ 1,044,104 $ 918,502 $ 736,126
---------------------------------------------------
Basic income per common share $ .24 $ .21 $ .18
Diluted income per common share $ .24 $ .21 $ .17
Weighted average common shares outstanding 4,281,346 4,356,080 4,174,998
Diluted weighted average common shares outstanding 4,311,297 4,385,154 4,244,465
See accompanying notes to consolidated financial statements.
F-4
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
Other
comprehensive
Common Additional Treasury income (loss), Total
stock paid in stock, net of tax Stockholders'
$1.00 par capital Deficit at cost effect Equity
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $3,549,851 $20,687,409 $(3,095,686) $ (121,005) $ 21,020,569
Comprehensive income:
Net income 736,126 736,126
Unrealized gain on
investment securities,
net of tax effect 95,022 95,022
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 736,126 95,022 831,148
Common stock dividend
(5% of shares outstanding) -
112,665 shares 112,665 781,623 (894,288)
Payments for fractional shares (1,858) (1,858)
Exercise of common stock
options - 60,831 shares 60,831 146,546 207,377
Exercise of warrants -
191,494 shares 191,494 742,840 934,334
Other 2,880 9,549 12,429
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $3,917,721 $22,367,967 $(3,255,706) $ (25,983) $ 23,003,999
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income: 918,502
Net income 918,502
Unrealized gain (loss) on
investment securities
net of tax effect (1,712,143) (1,712,143)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 918,502 (1,712,143) (793,641)
Common stock dividends:
declared March 1999 (5%) 129,333 645,705 (775,038)
declared February 2000 (5%) 136,152 669,054 (805,206)
Payments for fractional shares (762) (762)
Purchase of treasury stock -
136,500 shares (789,863) (789,863)
Exercise of common stock
options- 18,698 shares 18,698 42,062 60,760
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $4,201,904 $23,724,788 $(3,918,210) $ (789,863) $ (1,738,126) $ 21,480,493
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 1,044,104 1,044,104
Unrealized gain (loss) on
investment securities,
net of tax effect 1,480,396 1,480,396
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 1,044,104 1,480,396 2,524,500
Common stock dividend:
declared May 2001 (5%) 205,439 1,232,634 (1,438,073)
Purchase of treasury stock -
6,500 shares (38,943) (38,943)
Exercise of common stock
options- 41,349 shares 41,349 159,616 (961) 200,004
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $4,448,692 $25,117,038 $(4,313,140) $ (828,806) $ (257,730) $ 24,166,054
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,044,104 $ 918,502 $ 736,126
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 754,305 727,508 726,439
Amortization of deposit premiums 510,189 359,514 348,671
Provision for credit losses 1,450,000 909,330 630,000
Provision (benefit) for net deferred taxes (691,616) (193,157) 178,653
Gain on sale of securities available-for-sale (176,328) (6,022) (20,369)
Gain on sale of other real estate owned - - (82,230)
Other real estate owned - valuation adjustment 114,223 - -
(Increase) decrease in accrued interest receivable (1,134,588) (491,083) 113,424
Decrease in other assets 9,072 304,414 102,448
Increase in other liabilities 1,404,229 574,424 93,849
--------------------------------------------------------
Total adjustments 2,239,486 2,184,928 2,090,885
--------------------------------------------------------
Net cash provided by operating activities 3,283,590 3,103,430 2,827,011
Cash flows from investing activities:
Net increase in loans (59,565,253) (15,792,005) (6,304,417)
Net decrease (increase) in interest bearing deposits
in other banks 19,356,742 (9,819,760) 12,375,722
Purchases of securities available-for-sale (53,013,000) (32,588,398) (37,838,302)
Purchases of securities held-to-maturity (14,578,971) (3,999,062) (2,005,882)
Repayments and maturities of securities available-for-sale 14,753,739 6,454,932 10,825,994
Repayments and maturities of securities held-to-maturity 156,243 474,196 12,574,926
Proceeds from sale of securities available-for-sale 10,557,115 2,788,977 7,013,349
Net purchase of leasehold improvements, furniture
and equipment (568,983) (2,794,407) (243,017)
Acquisition of deposits, net of assets acquired 44,924,051 2,901,744 -
Proceeds from sale of other real estate owned - 260,000 1,194,748
--------------------------------------------------------
Net cash used in investing activities (37,978,317) (52,113,783) (2,406,879)
Cash flows from financing activities:
Net increase in demand, savings, NOW and
money market deposit accounts 13,941,799 7,976,734 3,791,518
Net increase in certificates of deposit 7,053,396 14,857,809 842,030
Net increase in customer repurchase accounts 9,722,187 6,541,872 325,664
Net (decrease) increase in other borrowings (18,126,026) 18,259,426 (286,813)
Net proceeds from issuance of long-term debt 10,000,000 6,200,000 -
Net proceeds from issuance of preferred securities
of subsidiary trust 8,536,000 - -
Repayment of long-term debt (927,275) (1,218,646) (2,210,118)
Purchase of treasury stock (38,943) (789,863) -
Net proceeds from issuance of common stock 200,004 59,998 1,143,150
Other - 75,994 199,954
--------------------------------------------------------
Net cash provided by financing activities 30,361,142 51,963,324 3,805,385
--------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,333,585) 2,952,971 4,225,517
Cash and cash equivalents, beginning of year 24,544,849 21,591,878 17,366,361
--------------------------------------------------------
Cash and cash equivalents, end of year $ 20,211,264 $ 24,544,849 $ 21,591,878
--------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $ 12,789,117 $ 9,459,908 $ 8,754,663
Income taxes paid 1,143,366 625,000 300,000
Transfer of loans to other real estate owned - - -
See accompanying notes to consolidated financial statements.
F-6
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies
Description of Business
The primary business of Century Bancshares, Inc. (Century) and its wholly-owned
subsidiaries, Century National Bank ("Century National Bank" or the "Bank") and
Facility Holdings, Inc. is to attract deposits from individual and corporate
customers and to originate loans secured by residential and commercial real
estate, business assets, and other personal property. Century operates primarily
in the metropolitan Washington, DC area, and is managed as a single business
segment. Century targets individuals and businesses in professional services as
its clientele. Century is subject to competition from other financial
institutions in attracting and retaining deposits and in originating and
purchasing loans. Century and the Bank are subject to the regulations of certain
agencies of the federal government and undergo periodic examinations by those
agencies.
Basis of Financial Statement Presentation
The financial statements have been prepared on the accrual basis and in
conformity with accounting principles generally accepted in the United States of
America. In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
The consolidated financial statements include the accounts of Century,
the Bank and Facility Holdings, Inc. The accompanying consolidated financial
statements have been restated for the business combination accounted for as a
pooling of interests (see Note 16) as if such combined companies had operated as
one entity since inception. All significant intercompany accounts and
transactions have been eliminated in consolidation. For purposes of reporting
cash flows, Century has defined cash and cash equivalents as those amounts
included in cash and due from banks and federal funds sold.
Investment Securities
Century classifies its debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities that Century has the
ability and intent to hold until maturity. All other securities not classified
as trading or held-to-maturity are classified as available-for-sale. Century
does not engage in trading activities and, accordingly, has no trading
portfolio.
Available-for-sale and trading securities are recorded at fair value.
Held-to-maturity securities are recorded at amortized cost. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as other comprehensive
income which is a separate component of stockholders' equity.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary is
charged to earnings, resulting in the establishment of a new cost basis for the
security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity are
included in earnings and are derived using the specific identification method
for determining the cost of securities sold.
Prepayment of the mortgages securing the collateralized mortgage
obligations may affect the maturity date and yield to maturity. Century uses
actual principal prepayment experience and estimates of future principal
prepayments in calculating the yield necessary to apply the effective interest
method.
F-7
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies, Continued
Income Recognition on Loans
Interest on loans is credited to income as earned from the principal balance
outstanding. It is Century's policy to discontinue the accrual of interest
income and classify a loan as non-accrual when principal or interest is past due
90 days or more and the loan is not well secured and in the process of
collection, or when, in the opinion of management, principal or interest is not
likely to be paid in accordance with the terms of the obligation. Accrued but
uncollected interest on nonaccrual loans is charged against current income.
Interest accruals are resumed on such loans only when they are brought fully
current with respect to principal and interest and when, in the judgment of
management, the loans have demonstrated a new period of performance and are
estimated to be fully collectible as to both principal and interest. Subsequent
payments received are applied to the outstanding principal balance until the
status of the loan has changed. Loan origination fees and direct loan
origination costs are deferred and recognized either upon the sale of a loan or
amortized as an adjustment to yield over the life of the loan.
Allowance for Credit Losses
The allowance for credit losses is a valuation allowance available for losses
incurred on loans. It is established through charges to earnings in the form of
provisions for credit losses. Credit losses are charged to the allowance for
credit losses when a determination is made that collection is unlikely to occur.
Recoveries are credited to the allowance at the time of recovery. Century will
generally charge-off loans after 120 days of delinquency unless adequately
collateralized and in the process of collection.
Prior to the beginning of each year, and quarterly during the year,
management estimates whether the allowance for credit losses is adequate to
absorb losses that are inherent in the existing portfolio. Based on these
estimates, an amount is charged to the provision for credit losses to adjust the
allowance to a level determined to be adequate to absorb these inherent losses.
Management's judgment as to losses on existing loans involves
management's internal review of the loan portfolio, including an analysis of the
borrowers' current financial position, the consideration of current and
anticipated economic conditions and their potential effects on specific
borrowers; an evaluation of the existing relationships among loans, potential
credit losses, and the present level of the loan loss allowance; and in certain
circumstances, results of examinations by independent consultants. In
determining the collectibility of certain loans, management also considers the
fair value of any underlying collateral. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
Century's allowance for credit losses. Such agencies may require Century to
recognize additions to the allowances based on their judgments about information
available to them at the time of their examination.
Century measures impaired loans at the present value of expected
future cash flows discounted at the loan's effective interest rate, or at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. A loan is considered impaired when, based on current
information and events, Century determines that it is probable that it will be
unable to collect all amounts due according to the contractual terms of the
original loan agreement. Restructured loans are impaired loans in the year of
restructuring and thereafter, such loans are subject to management's evaluation
of impairment based on the restructured terms. Century's charge-off policy for
impaired loans is consistent with its policy for all loan charge-offs. Impaired
loans are charged-off when all or a portion thereof is considered uncollectible
or transferred to foreclosed properties. Consistent with Century's method for
nonaccrual loans, interest receipts on impaired loans are applied to principal.
F-8
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies, Continued
Leasehold Improvements, Furniture, and Equipment
Leasehold improvements, furniture, and equipment are stated at cost, less
accumulated depreciation and amortization. Amortization of leasehold
improvements is computed using the straight-line method over the estimated
useful lives of the improvements or the lease term, whichever is shorter.
Depreciation of furniture and equipment is computed using the straight-line
method over their estimated useful lives, ranging from 3 to 10 years.
Other Real Estate Owned
Real estate acquired through foreclosure is recorded at the lower of cost or
fair value less estimated selling costs. Management periodically evaluates the
recoverability of the carrying value of other real estate owned. Costs relating
to property improvements are capitalized, and costs relating to holding
properties are charged to expense. Gains or losses on the sale of other real
estate owned are recognized upon disposition of the property.
Income Taxes
Century accounts for income taxes based upon the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Income per Common Share
Basic income per share is calculated by dividing net income (after deduction of
preferred dividends), by the weighted average common shares outstanding. Diluted
income per share is calculated by dividing net income (after deduction of
preferred dividends), by the addition of weighted average common shares and
dilutive potential common stock.
On May 19, 1998, Century declared a 5 percent stock dividend to common
stock shareholders of record as of May 29, 1998, resulting in the issuance of
112,665 shares. On March 28, 1999, Century declared a 5 percent stock dividend
to common stock shareholders of record as of April 28, 1999, resulting in the
issuance of 129,333 shares. On February 18, 2000, Century declared a 5 percent
stock dividend to be distributed on April 17, 2000, to shareholders of record as
of the close of business on March 15, 2000 resulting in the issuance of 136,152
shares. On May 15, 2001, Century declared a 5 percent stock dividend to common
stock shareholders of record as of May 31, 2001, resulting in the issuance of
205,439 shares. Weighted average shares outstanding and all income per common
share amounts have been restated for the effect of the stock dividends.
Loans Held for Sale
Loans held for sale consist mainly of mortgage loans, which are carried at the
lower of cost or market, as determined in the aggregate. Market is determined by
commitment prices at the date of the financial statements.
Comprehensive Income
The reporting of comprehensive income requires that certain financial activity
normally disclosed in stockholders' equity be reported in the statement of
operations as an adjustment to net income in computing comprehensive income.
Items generally applicable to Century include unrealized gains and losses on
investment securities available for sale. Comprehensive income is reported in a
separate caption in the consolidated statements of stockholders' equity.
F-9
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(1) Summary of Significant Accounting Policies, Continued
Comprehensive Income, Continued
The reclassification entries for the three years ended December 31, 2000, 1999,
and 1998 are as follows:
2000 1999 1998
--------------------------------------------
Net unrealized holding gains (losses) during the year, net of income
taxes of $901,497, ($1,067,534), and $62,850, respectively $ 1,480,396 ($1,712,143) $ 104,056
Less: reclassification adjustment for gains included in net income,
net of income taxes of $5,536 in 1998 - - (9,034)
--------------------------------------------
Net unrealized gains (losses) on investment securities during the year,
net of income taxes $ 1,480,396 ($1,712,143) $ 95,022
--------------------------------------------
Stock Options
Century accounts for its stock option plans under the provisions of APB Opinion
No. 25 and related interpretations. Accordingly, no compensation expense has
been recognized for the plans under SFAS No. 123, "Accounting for Stock-Based
Compensation," and the pro forma impact to compensation expense is detailed in
Note 9--"Benefit and Incentive Plans."
(2) INVESTMENT SECURITIES
Investment securities available-for-sale, and their contractual maturities, at
December 31, 2000 and 1999 are summarized as follows:
Amortized Gross unrealized Gross unrealized
December 31, 2000 cost gains losses Fair value
- ----------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies:
Within one year $ 14,345,338 $ 3,287 $ 28,638 $ 14,319,987
After one, but within five years 30,643,439 153,825 77,093 30,720,171
After five but within ten years 25,008,810 236,346 460,120 24,785,036
- ----------------------------------------------------------------------------------------------------------------------------------
69,997,587 393,458 565,851 69,825,194
- ----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 19,211,323 4,514 375,206 18,840,631
- ----------------------------------------------------------------------------------------------------------------------------------
Total debt securities 89,208,910 397,972 941,057 88,665,825
Equity securities 2,954,215 102,386 - 3,056,601
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities available-for-sale $ 92,163,125 $ 500,358 $ 941,057 $ 91,722,426
- ----------------------------------------------------------------------------------------------------------------------------------
F-10
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- -------------------------------------------------------------------------------
(2) Investment Securities, Continued
Amortized Gross unrealized Gross unrealized
December 31, 1999 cost gains losses Fair value
- ------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies:
Within one year $ 2,499,974 $ - $ 11,687 $ 2,488,287
After one, but within five years 13,730,054 - 238,965 13,491,089
After five, but within ten years 22,405,379 - 1,538,061 20,867,318
- ------------------------------------------------------------------------------------------------------------------------------
38,635,407 - 1,788,713 36,846,694
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 22,725,934 1,764 1,093,644 21,634,054
- ------------------------------------------------------------------------------------------------------------------------------
Total debt securities 61,361,341 1,764 2,882,357 58,480,748
Equity securities 2,923,312 58,000 - 2,981,312
- ------------------------------------------------------------------------------------------------------------------------------
Total investment securities available-for-sale $ 64,284,653 $ 59,764 $ 2,882,357 $ 61,462,060
- ------------------------------------------------------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities of mortgage-backed
securities because borrowers have the right to prepay their obligations at any
time.
As a member of the Federal Reserve and Federal Home Loan Bank Systems,
the Bank is required to hold shares of stock in the Federal Reserve Bank of
Richmond and the Federal Home Loan Bank of Atlanta (FHLB). Those shares, which
have no stated maturity, are carried at cost since no active trading markets
exist.
Investment securities with a carrying value of $51,291,740 and
$25,358,479 at December 31, 2000 and 1999, respectively, were pledged to secure
FHLB borrowings, public deposits, customer repurchase accounts, and other
borrowings. Investment securities available for sale with an amortized cost of
$10,380,787 were sold for gross proceeds of $10,557,115 resulting in gross gains
of $208,850 and gross losses of $32,522 in 2000. Investment securities available
for sale with an amortized cost of $2,782,955 were sold for gross proceeds of
$2,788,977 resulting in gross gains of $6,022 in 1999. Investment securities
available for sale with an amortized cost of $6,992,980 were sold for gross
proceeds of $7,013,349 resulting in gross gains of $20,369 in 1998.
Investment securities held-to-maturity at December 31, 2000 and 1999
are summarized as follows:
Amortized Gross unrealized Gross unrealized
December 31, 2000 Cost Gains losses Fair value
- ----------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies:
After one, but within five years $ 5,999,326 $ 31,250 $ - $ 6,030,576
- ----------------------------------------------------------------------------------------------------------------------------------
State, County and Municipal:
After five, but within ten years 1,090,617 80,081 - 1,170,698
After ten years 7,183,792 509,139 9,790 7,683,141
- ----------------------------------------------------------------------------------------------------------------------------------
8,274,409 589,220 9,790 8,853,839
- ----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,788,917 286 22,117 1,767,086
- ----------------------------------------------------------------------------------------------------------------------------------
Other: After ten years 4,326,479 185,752 - 4,512,231
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities held-to-maturity $ 20,389,131 $ 806,508 $ 31,907 $ 21,163,732
- ----------------------------------------------------------------------------------------------------------------------------------
Amortized Gross unrealized Gross unrealized
December 31, 1999 Cost gains losses Fair value
- -----------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. Treasury, municipals, and
government agencies:
Within one year $ 3,999,138 $ - $ 37,572 $ 3,961,566
After ten years 1,967,265 260 91,224 1,876,301
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities held-to-maturity $ 5,966,403 $ 260 $ 128,796 $ 5,837,867
- -----------------------------------------------------------------------------------------------------------------------------------
F-11
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(3) Loans Receivable
The loan portfolio consists of the following:
December 31,
--------------------------------------
2000 1999
--------------------------------------
Commercial $ 52,043,238 $ 51,157,578
Real estate - residential 42,147,561 38,080,404
Real estate - commercial 103,365,327 73,242,452
Real estate - construction 15,506,748 6,955,278
Consumer 15,493,019 14,853,630
Home equity 30,959,325 12,906,453
--------------------------------------
259,515,218 197,195,795
Unearned income and deferred costs (146,968) (126,323)
--------------------------------------
259,368,250 197,069,472
Allowance for credit losses (2,958,213) (2,209,275)
--------------------------------------
Loans, net $ 256,410,037 $ 194,860,197
--------------------------------------
Loans on which the accrual of interest has been discontinued, and which
are considered impaired, amounted to approximately $1.012 million, $1.107
million, and $1.698 million at December 31, 2000, 1999, and 1998, respectively.
The average balance of impaired loans amounted to $1.005 million and $1.144
million for the years ended December 31, 2000 and 1999, respectively. Interest
lost on nonaccrual loans was $161,000, $72,000, and $117,000 for 2000, 1999, and
1998, respectively. Century received interest payments on nonaccrual loans
amounting to approximately $34,000, $68,000 and $100,000 for 2000, 1999 and
1998, respectively. Century received principal payments on nonaccrual loans
amounting to approximately $525,000, $109,000 and $88,000 for 2000, 1999 and
1998, respectively. The specific allowance for credit losses related to these
impaired loans was $439,000 and $262,000 at December 31, 2000 and 1999,
respectively.
Analysis of the activity in the allowance for credit losses is as
follows:
Year Ended December 31,
---------------------------------------------------------
2000 1999 1998
---------------------------------------------------------
Balance, beginning of year $ 2,209,275 $ 2,054,896 $ 2,588,748
Provision for credit losses 1,450,000 909,330 630,000
Loans charged off (833,986) (852,051) (1,786,166)
Recoveries 132,924 97,100 622,314
---------------------------------------------------------
Net charge-offs (701,062) (754,951) (1,163,852)
---------------------------------------------------------
Balance, end of year $ 2,958,213 $ 2,209,275 $ 2,054,896
---------------------------------------------------------
F-12
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(3) Loans Receivable, Continued
Century 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 and standby
letters of credit and financial guarantees. Commitments to extend credit are
agreements to lend to a customer so long as there is no violation of any
condition established in the contract. Commitments usually have fixed expiration
dates or other termination clauses and may require payment of a fee. Since many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by Century
to guarantee the performance of the contractual obligations by a customer to a
third party. The majority of these guarantees extend until satisfactory
completion of the customer's contractual obligations. All standby letters of
credit outstanding at December 31, 2000 are collateralized.
Those instruments may involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
statements of financial condition. Credit risk is defined as the possibility of
sustaining a loss because the other parties to a financial instrument failed to
perform in accordance with the terms of the contract. Century's maximum exposure
to credit loss under standby letters of credit and commitments to extend credit
is represented by the contractual amounts of those instruments.
Contractual or
notional amount
as of
December 31,
-------------------------------
2000 1999
--------------- -------------
Financial instruments whose contract
amounts represent potential credit risk:
Commitments to extend credit $55,345,000 $44,121,000
Standby letters of credit 2,473,000 3,052,000
At December 31, 2000, Century did not have any financial instruments whose
notional or contractual amounts exceed the amount of credit risk. Century uses
the same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. Century evaluates each customer's
creditworthiness on a case-by-case basis and requires collateral to support
financial instruments when deemed necessary. The amount of collateral obtained
upon extension of credit is based on management's evaluation of the
counterparty. Collateral held varies but may include deposits held by Century;
marketable securities; accounts receivable; inventory; property, plant and
equipment; and income-producing commercial properties.
Most of Century's business activity is with customers located in the
District of Columbia, Maryland, and Northern Virginia. Accordingly, the ultimate
collectibility of a substantial portion of Century's loan portfolio is
susceptible to changes in conditions in these markets. There were no industry
concentrations in excess of 10 percent of total loans at December 31, 2000 or
December 31, 1999.
F-13
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- -------------------------------------------------------------------------------
(4) Related Parties
An analysis of the activity of loans to directors, officers, and their
affiliates during the years ended December 31, 2000 and 1999, is as follows:
Year Ended December 31,
2000 1999
-------------------------------------
Balance, beginning of year $ 4,705,204 $ 5,649,254
Additions 760,411 771,564
Payments (1,344,878) (1,715,614)
-------------------------------------
Balance, end of year $ 4,120,737 $ 4,705,204
-------------------------------------
In the opinion of management, all transactions entered into between
Century and such related parties have been and are in the ordinary course of
business and made on the same terms and conditions as similar transactions with
unaffiliated persons. Unfunded commitments to related parties totaled
approximately $3,114,000 and $956,000 at December 31, 2000 and 1999,
respectively.
Also, included in professional fees are legal fees paid to law firms whose
partners are directors of Century or the Bank, totaling $368,000, $117,000, and
$270,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
(5) Bank Premises, Leasehold Improvements, Furniture, and Equipment
Bank premises, leasehold improvements, furniture, and equipment consist of the
following:
December 31,
2000 1999
--------------------------------------
Land $1,847,288 $1,847,288
Building 1,742,056 1,638,068
Leasehold improvements 3,289,332 2,262,595
Furniture and equipment 4,901,904 4,463,591
--------------------------------------
11,780,580 10,211,542
Less accumulated depreciation and amortization (5,701,517) (4,947,507)
--------------------------------------
Balance, end of year $6,079,063 $5,264,035
======================================
Depreciation and amortization expense for leasehold improvements, furniture
and equipment was $754,305, $727,508, and $726,439 for 2000, 1999, and 1998,
respectively.
F-14
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(6) Deposits
Major classifications of deposits consist of the following:
December 31,
2000 1999
--------------------------------------
Noninterest-bearing - demand deposits $ 60,159,668 $ 47,208,850
Interest-bearing:
NOW accounts 41,467,856 34,643,758
Savings accounts 29,902,556 24,992,306
Money market accounts 38,298,710 32,035,856
Certificates of deposit--less than $100,000 96,497,685 75,483,899
Certificates of deposit--$100,000 and over 62,852,266 40,791,261
--------------------------------------
Total interest-bearing 269,019,073 207,947,080
--------------------------------------
Total deposits $ 329,178,741 $ 255,155,930
======================================
Certificates of deposit of $122,487,789 have remaining maturities of one
year or less as of December 31, 2000. Certificates of deposit with a remaining
term of more than one year as of December 31, 2000, are as follows:
Maturing:
- ------------------------------------------------------------
After one year but within three years $ 35,383,710
After three years 1,478,452
--------------
Total $ 36,862,162
--------------
F-15
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(7) Other Borrowings
Other borrowings consist of advances from the Federal Home Loan Bank of Atlanta
(FHLB), deposits received in the Bank's U.S. Treasury Tax and Loan Account, and
securities sold under repurchase agreements. Balances outstanding are shown
below:
(Dollars in thousands) Year Ended December 31,
---------------------------------------------------------
2000 1999 1998
---------------------------------------------------------
Federal Home Loan Bank:
Ending balance $ 20,389 $ 29,301 $ 6,513
Daily average balance for the period 19,752 12,534 6,911
Maximum outstanding balance at a month-end 25,644 41,854 7,222
Daily average interest rate for the period 6.40% 6.18% 6.81%
Average interest rate on period end balance 6.36 5.21 6.74
Treasury Tax and Loan Account
Ending balance $ 343 $ 599 $ 589
Daily average balance for the period 403 357 361
Maximum outstanding balance at a month-end 630 599 2,101
Daily average interest rate for the period 5.72% 4.27% 4.79%
Average interest rate on period end balance 6.92 4.56 4.45
Securities sold under repurchase agreements
Ending balance $ 20,288 $ 10,566 $ 4,023
Daily average balance for the period 17,444 6,879 2,555
Maximum outstanding balance at a month-end 29,464 11,595 5,061
Daily average interest rate for the period 5.27% 3.99% 3.74%
Average interest rate on period end balance 5.37 4.34 3.57
The balance of FHLB advances with original maturities in excess of one
year are summarized as follows:
(in thousands) December 31,
-------------------------------------
2000 1999
-------------------------------------
6.85% fixed rate, due 2001 $ 300 $ 300
6.57% fixed rate, due 2001 400 800
6.66% fixed rate, due 2002 800 1,200
6.30% fixed rate, due 2006 800 800
7.34% fixed rate, due 2006 1,000 1,000
6.94% fixed rate, due 2006 550 650
6.62% fixed rate, due 2017 539 551
5.01% fixed rate, due 2004 3,000 3,000
Variable rate, due 2004 3,000 3,000
6.18% fixed rate, due 2010 5,000 -
6.69% fixed rate, due 2010 5,000 -
-------------------------------------
$ 20,389 $ 11,301
=====================================
As of December 31, 2000, the Bank has been advised by the FHLB that it has
a total credit availability of $81.9 million based on 20% of the Bank's
total assets of $409.7 million as of December 31, 2000. The Bank is authorized
to borrow funds secured by residential mortgage loans and other collateral. The
credit availability does not represent a firm commitment by the FHLB. Rather, it
is the FHLB's assessment of what the Bank could borrow given the Bank's current
financial condition. The credit availability is subject to change at any time
based upon the Bank's financial condition and that of the FHLB, as well as
changes in FHLB policies or Congressional mandates. At December 31, 2000, the
balance of advances payable to the FHLB was $20.4 million and the credit
available from the FHLB was $61.5 million.
F-16
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(7) Other Borrowings, Continued
In connection with its borrowings from the FHLB, the Bank is required to
own FHLB stock. At December 31, 2000, the Bank's investment in FHLB stock had a
par and carrying value of $1.378 million and was automatically pledged against
FHLB advances.
At December 31, 2000, Century is indebted to an unaffiliated bank in the
amount $1.9 million consisting of a short-term note maturing in June 2001 and a
long-term note maturing in September 2001. Both notes bear interest at the prime
rate (as defined) plus 25 basis points and are adjusted annually.
At December 31, 2000, Facility Holdings, a wholly owned subsidiary of
Century, is indebted to an unaffiliated bank in the amount of $780,000. The note
bears interest at the prime rate (as defined) plus 25 basis points. The loan
matures in June 2001 and is secured by the real property operated as a bank
branch in Alexandria, Virginia.
Preferred Securities of Subsidiary Trust
During the first quarter of 2000, Century formed a new, wholly owned
statutory business trust, Century Capital Trust I (the "Trust"), which issued
$8.8 million of capital securities (the "Capital Securities") to a third party
and received net cash proceeds of $8.536 million after considering the
underwriters discount. The Trust invested the proceeds in an equivalent amount
of junior subordinated debt securities of Century bearing an interest rate equal
to the rate on the Capital Securities. These debt securities, which are the only
assets of the Trust, are subordinate and junior in right of payment to all
present and future senior indebtedness (as defined in the indenture) and certain
other financial obligations of Century. Century has fully and unconditionally
guaranteed the Trust's obligations under the Capital Securities.
For financial reporting purposes, the Trust is treated as a subsidiary of
Century and consolidated in the corporate financial statements. The Capital
Securities are presented as a separate category of long-term debt on the
Consolidated Statements of Financial Condition entitled " Preferred Securities
of Subsidiary Trust." The Capital Securities are not included as a component of
stockholders' equity in the Consolidated Statements of Financial Condition. For
regulatory purposes, however, the Federal Reserve Board treats the Capital
Securities as Tier 1 or Tier 2 capital.
The Capital Securities pay cash dividends semiannually at an annual rate
of 10.875% of the liquidation preference. Dividends to the holders of the
Capital Securities are included in interest expense, within the category
entitled "Interest on borrowings." Under the provisions of the subordinated
debt, Century has the right to defer payment of interest on the subordinated
debt at any time, or from time to time, for periods not exceeding five years. If
interest payments on the subordinated debt are deferred, the dividends on the
Capital Securities are also deferred. Interest on the subordinated debt is
cumulative.
Subject to the prior approval of the Federal Reserve Board, the Capital
Securities, the assets of the Trust, and the common securities issued by the
Trust are redeemable at the option of Century in whole or in part on or after
March 8, 2010, or at any time, in whole but not in part, from the date of
issuance, upon the occurrence of certain events.
(8) Stockholders' Equity
Common Stock
Century is authorized to issue 10 million shares of Common Stock, par value
$1.00. At December 31, 2000, Century had 4,448,692 shares issued and 143,000
shares of treasury stock.
F-17
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(8) Stockholders' Equity, Continued
Income Per Common Share
The calculation of basic income per common share and diluted income per common
share is detailed below:
Years Ended December 31,
----------------------------------------------
2000 1999 1998
----------------------------------------------
Basic Income Per Common Share:
Net income $ 1,044,104 $ 918,502 $ 736,126
Weighted average common shares outstanding 4,281,346 4,356,080 4,174,998
----------------------------------------------
Basic income per common share $0.24 $0.21 $0.18
Diluted Income Per Common Share:
Net income $ 1,044,104 $ 918,502 $ 736,126
Weighted average common shares outstanding 4,281,346 4,356,080 4,174,998
Dilutive effect of stock options 29,951 29,074 69,467
----------------------------------------------
Diluted weighted average
common shares outstanding 4,311,297 4,385,154 4,244,465
----------------------------------------------
Diluted income per common share $ 0.24 $ 0.21 $ 0.17
(9) Benefit and Incentive Plans
Deferred Compensation Plan
Century has a deferred compensation plan for its board of directors and Century
Bank's board of directors, with certain limitations. Each director may elect to
enter into an agreement in lieu of receiving director's fees in cash. The
agreements generally provide for the purchase of life insurance for each
participating director and the payment of a retirement benefit for 15 years
after retirement, with certain death provisions. The retirement benefit granted
under the agreement vests pursuant to a schedule, with 20% of the benefit
vesting each year over a five-year period. As of December 31, 2000, the net
present value of the deferred compensation liability for all directors totaled
approximately $1.0 million, compared with $794,000 for 1999. Expenses related to
the deferred compensation program totaled $223,000 for 2000, $120,000 for 1999,
and $108,000 for 1998.
Stock Option Plans
Pursuant to the Century Bancshares, Inc. 2000 Stock Awards Plan ("2000 Plan")
Century reserved 525,000 shares of its common stock for the issuance of
incentive stock options and nonqualified stock options to directors and key
employees. As of December 31, 2000, 162,363 shares are reserved for outstanding
options and 362,637 shares are reserved for future option grants. These options
are granted for terms of up to 10 years, with directors having immediate vesting
and employees vesting 25 percent (of the original grant) after each six,
eighteen, thirty and forty-two month periods of continued service.
Pursuant to the Century Bancshares, Inc. 1994 Stock Option Plan ("1994
Plan") Century reserved 350,000 shares of its common stock for the issuance of
incentive stock options and nonqualified stock options to directors and key
employees. As of December 31, 2000, after adjusting for stock dividends and
stock option activity, there are 329,546 shares of stock reserved for issuance
pursuant to the 1994 Plan, of which 315,149 shares are reserved for outstanding
options and 14,397 shares are reserved for future option grants. These options
are granted for terms of up to 10 years, with directors having immediate vesting
and employees vesting 25 percent (of the original grant) after each six,
eighteen, thirty and forty-two month periods of continued service.
Century also maintained a stock option plan for outside directors and an
incentive stock option plan for employees, of which 56,440 were outstanding at
December 31, 2000. No new grants will be issued under these plans and the
options must be exercised within ten years from the date of grant.
F-18
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(9) Benefit and Incentive Plans, Continued
Stock Option Plans, Continued
The number of shares subject to any outstanding options, the exercise price per
share, and the number of shares reserved for the issuance of future options have
been appropriately and equitably adjusted for stock dividends issued, pursuant
to the stock option plans, so as to maintain the proportionate number of shares
without changing the aggregate option price. In the tables below, the shares and
prices per share have been adjusted to reflect the stock dividends.
Stock option transactions for the years ended December 31, 2000, 1999, and
1998, are summarized as follows:
2000 1999 1998
-------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average average
Exercise Exercise exercise
Fixed options Shares Price Shares Price Shares price
- ---------------------------------------------------------------- -------------------------- ---------------------------
Outstanding at beginning of year 436,986 $6.09 304,704 $6.14 255,215 $4.47
Granted 184,041 5.74 173,523 5.84 132,718 7.81
Exercised (43,416) 4.60 (20,615) 2.95 (70,420) 2.96
Forfeited (43,660) 7.51 (20,626) 8.04 (12,809) 8.12
- --------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 533,951 $5.86 436,986 $6.09 304,704 $6.14
- --------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year-end 331,313 $5.92 281,507 $6.19 194,968 $5.50
Weighted average fair value of
options granted $ 3.59 $ 2.96 $ 3.70
The following table summarizes information about stock options
outstanding at December 31, 2000:
Options outstanding Options exercisable
-------------------------------------------------------
Weighted
average Weighted Weighted
Number remaining average Average
of options contractual exercise Number Exercise
Range of exercise prices outstanding years price exercisable Price
- -----------------------------------------------------------------------------------------------------------
$2.51 to $3.00 3,484 9.5 $2.51 - $ -
$3.01 to $4.00 15,613 0.4 3.31 15,613 3.31
$4.01 to $5.00 36,408 3.7 4.49 36,408 4.49
$5.01 to $6.00 412,596 8.4 5.68 219,410 5.63
$7.01 to $8.00 11,609 7.1 7.67 11,031 7.67
$8.01 to $9.00 46,576 7.4 8.30 41,186 8.28
$9.01 to $9.39 7,665 6.5 11.16 7,665 11.16
- -----------------------------------------------------------------------------------------------------------
$3.48 to $9.39 533,951 7.7 $5.86 331,313 $5.92
- -----------------------------------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black Scholes option-pricing model with the following weighted average
assumptions used for grants in 2000, 1999 and 1998, respectively: no dividends
for any year, expected volatility of 50 percent for 2000, 39 percent for 1999,
and 28 percent for 1998, risk free interest rates of 6.0 percent for 2000, 5.9
percent for 1999, and 5.4 percent for 1998, along with expected lives of 7 years
for 2000, 1999 and 1998.
F-19
Century Bancshares, Inc. And Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(9) Benefit and Incentive Plans, Continued
Stock Option Plans, Continued
As Century continues to apply APB Opinion No. 25 in accounting for its
stock options, no compensation cost has been recognized for its stock options in
the financial statements. Had Century determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, Century's
net income would have been reduced to the pro forma amounts indicated below:
2000 1999 1998
-----------------------------------
Net income, as reported $1,044,104 $918,502 $736,126
Net income, pro forma 804,490 676,963 529,295
Diluted earnings per share, as reported .24 .21 .17
Diluted earnings per share, pro forma .19 .15 .12
Pro forma net income reflects only options granted in 2000, 1999 and 1998.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options vesting
period and compensation costs for options granted prior to January 1, 1998 are
not considered.
Employee Benefit Plan
Century maintains a 401(k) plan which covers substantially all employees.
Participants may contribute up to 15 percent of their compensation, subject to
certain limitations imposed by the Internal Revenue Service. Beginning in the
year 2000 Century changed its matching formula to allow up to 7% of the
participants compensation contributed to the Plan based on a specific formula.
Prior to 2000, Century made matching contributions of one-half of up to 6
percent of participants' compensation contributed to the Plan. Century's
matching contributions totaled approximately $135,000 for 2000, $123,000 for
1999 and $38,000 for 1998.
F-20
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(10) Income Taxes
The provision for taxes on income for the years ended December 31, 2000, 1999,
and 1998, consisted of the following:
2000 1999 1998
------------------------------
Current federal income tax 1,210,339 $617,898 $328,429
Current state income tax 251,918 138,305 747
--------------------- --------
Total current income tax 1,462,257 756,203 329,176
Deferred federal income tax expense (benefit) (570,614) (157,739) 109,302
Deferred state income tax expense (benefit) (121,002) (35,418) 69,351
------------------------------
Total deferred income tax expense (benefit) (691,616) (193,157) 178,653
------------------------------
Total income tax $770,641 $563,046 $507,829
------------------------------
The difference between the statutory federal income tax rates and the
effective income tax rates for 2000, 1999, and 1998, are as follows:
2000 1999 1998
- --------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 4.8 4.6 3.3
Nondeductible expenses 12.2 0.8 1.7
Tax-exempt interest income (5.4) - -
Other (3.1) (1.4) 1.9
- --------------------------------------------------------------------------
Effective income tax rate 42.5% 38.0% 40.8%
- --------------------------------------------------------------------------
The following is a summary of the tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2000 and 1999:
2000 1999
----------------- ----------------
Assets:
Net operating loss carryforward $1,713,838 $1,764,262
Other real estated owned valuation allowance 46,044 1,932
Fixed assets 197,314 149,911
Bad debts 809,271 376,164
Deferred rent expense 4,898 85,288
Deferred loan fees 43,930 28,850
Vacation pay accrual 9,690 15,200
Directors' deferred compensation 380,880 301,884
Intangibles 203,703 131,022
Unrealized losses on investments designated as
available-for-sale charged to stockholders' equity 182,970 1,084,467
Other 55,123 -
----------------- ----------------
Deferred tax assets 3,647,661 3,938,980
Liabilities:
Federal Home Loan Bank stock dividends (4,925) (11,484)
Other - (59,487)
----------------- ----------------
Deferred tax liabilities (4,925) (70,971)
----------------- ----------------
Net deferred tax asset $3,642,736 $3,868,009
----------------- ----------------
Century has not established a valuation allowance for deferred tax assets.
Century has recorded a net deferred tax asset of $3,642,736, which includes the
benefit of $4,437,694 in tax loss carryforwards, which expire in varying amounts
between 2007 and 2019. Realization depends on generating sufficient taxable
income before the expiration of the loss carryforwards. Although realization is
not assured, management believes it is more likely than not that Century will
realize the benefits of these deductible differences. The amount of the deferred
tax assets considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
F-21
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(11) Reserve Balances, Funds Restriction, Commitments and Contingencies
Reserve Balances
Under Federal Reserve Board regulations, banks are required to maintain cash
reserves against certain categories of deposit liabilities. Cash balances
qualified to meet these reserve requirements consist of vault cash and balances
on deposit with the Federal Reserve Bank. Such restricted cash balances are
included in "Cash and due from banks" in the consolidated statements of
financial condition and were approximately $2.1 million and $2.3 million at
year-end 2000 and 1999, respectively.
Funds Restrictions
Dividends paid to Century by the Bank are subject to restrictions by regulatory
agencies. As of December 31, 2000, approximately $3.4 million was available to
be paid to Century in dividends from the Bank, pursuant to such regulatory
restrictions. As described in Note 12--Capital and Liquidity, regulatory
agencies have established laws and guidelines with respect to the maintenance of
appropriate levels of bank capital that could further limit the amount available
for payment of dividends by Century Bank under regulatory restrictions if
applied in the future.
Commitments and Contingencies
Century leases its banking facilities under operating leases providing for
payment of fixed rentals and providing for pass-through of certain landlord
expenses, with options to renew. Rental expense was approximately $1.1 million,
$950,000, and $1.1 million for the years ended December 31, 2000, 1999, and
1998, respectively. Total future minimum rental payments at December 31, 2000,
are as follows:
Year Ending December 31,
- -----------------------------------------------------
2001 $ 1,186,867
2002 1,008,596
2003 875,475
2004 730,787
2005 641,883
Thereafter 3,165,816
--------------
Total $ 7,609,424
--------------
F-22
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(12) Capital And Liquidity
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) requires regulators to classify insured depository institutions into
one of five tiers based upon their relative capital strengths and to increase
progressively the degree of regulation over the weaker ones, limits the
pass-through deposit insurance treatment of certain types of accounts, adopts a
"Truth in Savings" program, calls for the adoption of risk-based premiums on
deposit insurance, and requires banks to observe insider credit underwriting
procedures no less strict than those applied to comparable non-insider
transactions.
The Financial Institutions Reform, Recovery and Enforcement Act
(FIRREA) of 1989 requires depository institutions to maintain minimum capital
levels. In addition to its capital requirements, FIRREA includes provisions for
changes in the federal regulatory structure for institutions, including a new
deposit insurance system, increased deposit insurance premiums, and restricted
investment activities with respect to noninvestment grade corporate debt and
certain other investments.
Failure to meet minimum capital requirements can initiate certain
mandatory--and possibly additional discretionary--actions by regulators that, if
undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require Century and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2000, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 2000, the most recent notification from the OCC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed Century's category.
The following tables present the actual and required capital
information for Century and the Bank:
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
--------------------------------------------------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------------
As of December 31, 2000
Total Capital (to Risk Weighted Assets):
Century Bancshares, Inc. $29,496 10.04% $23,494 8.00% n/a n/a
Century National Bank 30,624 10.46% 23,415 8.00% $29,269 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares, Inc. 23,510 8.01% 11,747 4.00% n/a n/a
Century National Bank 22,161 7.57% 11,708 4.00% 17,561 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares, Inc. 23,510 5.88% 15,982 4.00% n/a n/a
Century National Bank 22,161 5.56% 15,944 4.00% 19,930 5.00%
F-23
Century Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(12) Capital and Liquidity, Continued
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
---------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999
Total Capital (to Risk Weighted Assets):
Century Bancshares, Inc. $21,919 9.88% $17,745 8.00% n/a n/a
Century National Bank 23,124 10.45% 17,698 8.00% $22,123 10.00%
Tier 1 Capital (to Risk Weighted Assets):
Century Bancshares, Inc. 19,684 8.87% 8,872 4.00% n/a n/a
Century National Bank 20,889 9.44% 8,849 4.00% 13,274 6.00%
Tier 1 Capital (to Average Assets):
Century Bancshares, Inc. 19,684 6.54% 12,047 4.00% n/a n/a
Century National Bank 22,020 6.96% 12,659 4.00% 15,824 5.00%
F-24
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- -------------------------------------------------------------------------------
(13) Parent Company-Only Financial Statements
The Century Bancshares, Inc. (parent company-only) condensed financial
statements are as follows:
Statements of Financial Condition
December 31, 2000 and 1999
2000 1999
---------------------------------
Assets
Cash and cash equivalents $ 859,945 $ 739,944
Investment in subsidiaries 26,497,253 20,719,730
Investment in subordinated debentures of Century National Bank 5,500,000 -
Other assets 352,044 91,462
---------------------------------
Total Assets $ 33,209,242 $21,551,136
---------------------------------
Liabilities and Stockholders' Equity
Liabilities:
Preferred securities of subsidiary trust $ 8,800,000 $ -
Other liabilities 243,188 70,643
---------------------------------
Total Liabilities 9,043,188 70,643
Stockholders' Equity:
Common stock 4,448,692 4,201,904
Additional paid-in capital 25,117,038 23,724,788
Deficit (4,313,140) (3,918,210)
Treasury stock, at cost (828,806) (789,863)
Accumulated other comprehensive income (loss), net of tax effect (257,730) (1,738,126)
---------------------------------
Total Stockholders' Equity 24,166,054 21,480,493
---------------------------------
Total Liabilities and Stockholders' Equity $ 33,209,242 $21,551,136
---------------------------------
Statements of Operations
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
-------------------------------------------------
Income:
Interest income $ 326,730 $ 49,539 $ 96,846
Other income 37,250 129 -
------------------------------------------------
Total Income 363,980 49,668 96,846
Expense:
Interest expense 739,017 - -
Other expenses 8,333 41,487 26,657
------------------------------------------------
Total Expense 747,350 41,487 26,657
------------------------------------------------
Net income (loss) before income tax expense (benefit) and
equity in undistributed earnings of bank subsidiary (383,370) 8,181 70,189
Income tax expense (benefit) (130,346) 3,109 26,670
-----------------------------------------------
Net income (loss) before equity in undistributed
earnings of bank subsidiary (253,024) 5,072 43,519
Equity in undistributed earnings of Century National Bank 1,297,128 913,430 692,607
-------------------------------------------------
Net income $1,044,104 $918,502 $736,126
-------------------------------------------------
F-25
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(13) Parent Company-Only Financial Statements, Continued
Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,044,104 $ 918,502 $ 736,126
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Undistributed earnings of subsidiary (1,297,128) (913,430) (692,607)
Decrease in other assets 3,419 - -
Increase (decrease) in other liabilities 172,545 6,336 (255,955)
----------------------------------------------------------
Net cash provided by (used in) operating activities (77,060) 11,408 (212,436)
Cash flows from investing activities:
Capital contributions to subsidiary bank (3,000,000) (500,000) (2,000,000)
Purchase of subordinated debt (5,500,000) - -
----------------------------------------------------------
Net cash used in investing activities (8,500,000) (500,000) (2,000,000)
Cash flows from financing activities:
Net proceeds from issuance of common stock 200,004 59,998 1,152,282
Purchase of treasury stock (38,943) (789,863) -
Net proceeds from issuance of preferred securities
of subsidiary trust 8,536,000 - -
Other - - (22,858)
----------------------------------------------------------
Net cash provided (used) by financing activities 8,697,061 (729,865) 1,129,424
----------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 120,001 (1,218,457) (1,083,012)
Cash and cash equivalents, beginning of year 739,944 1,958,401 3,041,413
----------------------------------------------------------
Cash and cash equivalents, end of year $ 859,945 $ 739,944 $ 1,958,401
----------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 438,625 $ - $ -
Income taxes paid - - -
F-26
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(14) Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" (SFAS No. 107), requires the disclosure of
estimated fair values for financial instruments. Quoted market prices, if
available, are utilized as an estimate of the fair value of financial
instruments. Because no quoted market prices exist for a portion of Century's
financial instruments, the fair value of such instruments has been derived based
on management's assumptions with respect to future economic conditions, the
amount and timing of future cash flows and estimated discount rates. Different
assumptions could significantly affect these estimates. Accordingly, the net
realizable value could be materially different from the estimates presented
below. In addition, the estimates are only indicative of individual financial
instruments' values and should not be considered an indication of the fair value
of Century taken as a whole.
Cash, Interest Bearing Deposits with Other Banks, and Federal Funds Sold: For
cash and due from banks, interest-bearing deposits with other banks, and federal
funds sold; the carrying amount approximates fair value.
Investment Securities: For these instruments, fair values are based on published
market or dealer quotes.
Loans, Net of Unearned Income: For variable rate loans that reprice on a
scheduled basis, fair values are based on carrying values. The fair value of the
remaining loans are estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Noninterest-Bearing Deposits: The fair value of these deposits is the amount
payable on demand at the reporting date.
Interest-Bearing Deposits: The fair value of demand deposits, savings accounts,
and money market deposits with no defined maturity is the amount payable on
demand at the reporting date. The fair value of certificates of deposit is
estimated by discounting the future cash flows using the current rates at which
similar deposits would be accepted.
Borrowings: The carrying amount for variable rate borrowings approximate the
fair values at the reporting date. The fair values of the fixed rate borrowings
are estimated by discounting the future cash flows using interest rates
currently available for borrowings with similar terms and remaining maturities.
Off-Balance Sheet Items: The Bank has reviewed the unfunded portion of
commitments to extend credit, as well as standby and other letters of credit,
and has determined that the fair value of such instruments are not material.
The estimated fair values of Century's financial instruments at December 31,
2000 and 1999 are as follows:
2000 1999
---------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
---------------------------------------------------------------------
Financial Assets:
Cash and due from banks $ 13,133,004 $ 13,133,004 $ 13,521,080 $ 13,521,080
Federal funds sold 7,078,260 7,078,260 11,023,769 11,023,769
Interest bearing deposits with other banks 310,333 310,333 19,667,075 19,667,075
Investment securities 112,111,557 112,886,158 67,428,463 67,299,927
Loans, net of unearned income 259,368,250 263,539,244 197,069,472 196,839,603
Loans held for sale 390,010 390,010 439,600 439,600
Accrued interest receivable 3,037,344 3,037,344 1,902,756 1,902,756
Financial Liabilities:
Noninterest-bearing deposits $ 60,159,668 $ 60,159,668 $ 47,208,850 $ 47,208,850
Interest-bearing deposits 269,019,073 272,015,578 207,947,080 209,718,656
Borrowings (1) 52,477,182 52,093,961 43,008,296 43,032,966
Accrued interest payable 1,011,701 1,011,701 501,996 501,996
(1) Includes federal funds purchased and securities sold under agreements to
repurchase, long-term debt and other borrowings.
F-27
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(15) Acquisitions and Intangibles
In October 1997, Century completed the purchase and assumption of the deposits
and certain other liabilities of the branch of Eastern American Bank, FSB
("Eastern American") located at 6832 Old Dominion Drive, McLean Virginia (the
"McLean Branch"). As part of the transaction, Century's wholly-owned subsidiary,
the Bank, assumed approximately $28.0 million in deposits at the McLean Branch,
and also assumed the obligations under the related lease and acquired
approximately $9.0 million in mortgage loans from Eastern American's portfolio,
in addition to $0.2 million in equipment and other assets.
In consideration of the assumption of the deposits and liabilities,
Eastern American made a cash transfer to the Bank on the closing date of
approximately $17.3 million, representing the total amount of the liabilities
assumed, less the sum on the closing date of (i) the value of the vault cash at
the McLean Branch, (ii) the net book value of the leasehold improvements and the
personal property located at the McLean Branch, (iii) the amount of the security
deposit related to the lease of the McLean Branch, (iv) the unpaid balance of
the designated mortgage loans and certain overdraft protection loans, (v)
certain proration items, and (vi) a deposit premium of approximately $1.5
million, equal to 5.6% of the balance of the deposits assumed as of the closing
date, excluding deposits of affiliates of Eastern American and certain other
types of deposits. The acquisition premium of $1.5 million is being amortized
over the estimated 10 year life of the deposit account relationship on a
straight-line basis.
In October 1999, Century completed the purchase and assumption of the
deposits and certain other liabilities of the branch of One Valley Bancorp ("One
Valley") located at 18116 Triangle Shopping Plaza, Dumfries, Virginia (the
"Dumfries Branch"). As part of the transaction, the Bank assumed approximately
$9.4 million in deposits at the Dumfries Branch, and also assumed the
obligations under the related lease and acquired approximately $6.0 million in
mortgage loans from One Valley's portfolio, in addition to $0.3 million in
equipment and other assets.
In consideration of the assumption of the deposits and liabilities, One
Valley made a cash transfer to the Bank on the closing date of approximately
$2.9 million, representing the total amount of the liabilities assumed, less the
sum on the closing date of (i) the value of the vault cash at the Dumfries
Branch, (ii) the net book value of the leasehold improvements and the personal
property located at the Dumfries Branch, (iii) the unpaid balance of the
designated mortgage loans and certain overdraft protection loans, (iv) certain
proration items, and (v) a deposit premium of $127,633, based on certain
percentages of the deposit liabilities assumed and loans acquired as of the
closing date. The total acquisition premium intangible recorded amounted to
$327,633 (including $127,633 paid and $200,000 deemed to be a fair value
adjustment of the lease obligation assumed) and is being amortized over the
estimated 8 year life of the deposit account relationship on a straight-line
basis.
In August 2000, Century assumed $51.8 million of deposit liabilities,
purchased $3.4 million of mortgage loans and $1.0 million of fixed assets, and
recorded $3.4 million of intangible assets related to the purchase of the Reston
Branch of Resource Bank located in Fairfax County, Virginia. The intangible
assets are being amortized over the estimated 10 year life of the deposit
account relationship on a straight-line basis. In connection with the
transaction, Century also assumed the lease for the branch location at 1498
North Point Village Center in Reston, Virginia. The premises consist of
approximately 2,500 square feet, which is under lease through 2013, with
additional options to renew for two successive terms of five years each.
(16) SUBSEQUENT EVENTS
On March 15, 2001, Century consummated its merger with GrandBanc, Inc.
in a stock-for-stock exchange valued at $9.4 million. Shareholders of GrandBanc,
Inc. received .3318 shares of Century's common stock for each of the 4,049,665
shares of GrandBanc, Inc. common stock and cash in lieu of each fractional share
at the rate of $6.9375. The merger was accounted for as a pooling of interests
and the corresponding financial statements have been restated for this business
combination. GrandBanc, Inc., which had $118.0 million in total assets at
December 31, 2000, is the parent holding company of GrandBank, a Maryland
chartered commercial bank headquartered in Rockville, Maryland which operates
four banking offices in Montgomery County, Maryland and one banking office in
Alexandria, Virginia.
On May 15, 2001, Century declared a five percent stock dividend
distributed on June 29, 2001 to stockholders of record as of the close of
business on May 31, 2001. The effect of the stock dividend has been recognized
retroactively in the stockholders' equity accounts in the consolidated
statements of financial condition as of December 31, 2000 and in all share and
per share data.
F-28
Century Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
- --------------------------------------------------------------------------------
(17) Quarterly Financial Information (Unaudited - in thousands, except per
share data):
Quarter ended Quarter ended Quarter ended Quarter ended
Dec. 31, 2000 Sep. 30, 2000 Jun. 30, 2000 Mar. 31, 2000
- -----------------------------------------------------------------------------------------------------------------------
Interest income $ 8,189 $ 7,204 $ 6,512 $ 5,899
Net interest income 3,770 3,565 3,519 3,363
Provision for credit losses 735 275 215 225
Total other income 818 519 518 432
Total other expense 4,089 3,216 3,075 2,859
Income before income tax expense (236) 593 747 711
Net income (282) 433 461 432
Earnings per share:
Basic $ (0.07) $ 0.10 $ 0.11 $ 0.10
Diluted (0.06) 0.10 0.11 0.10
Weighted average shares outstanding:
Basic 4,295,850 4,285,427 4,274,526 4,269,376
Diluted 4,353,214 4,376,229 4,350,225 4,350,468
Quarter ended Quarter ended Quarter ended Quarter ended
Dec. 31, 1999 Sep. 30, 1999 Jun. 30, 1999 Mar. 31, 1999
- -----------------------------------------------------------------------------------------------------------------------
Interest income $ 5,844 $ 5,472 $ 5,395 $ 5,122
Net interest income 3,290 3,043 2,968 2,969
Provision for credit losses 285 110 212 302
Total other income 379 363 373 340
Total other expense 2,972 2,779 2,817 2,766
Income before income tax expense 412 517 312 241
Net income 256 319 194 149
Earnings per share:
Basic $ 0.06 $ 0.07 $ 0.04 $ 0.03
Diluted 0.06 0.07 0.04 0.03
Weighted average shares outstanding:
Basic 4,268,793 4,355,750 4,403,906 4,397,288
Diluted 4,297,865 4,440,934 4,490,341 4,481,971
F-29
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Financial Condition (Unaudited)
June 30, 2001 and December 31, 2000
June 30, December 31,
2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 15,486,717 $ 13,133,004
Federal funds sold 238,327 7,078,260
Interest bearing deposits in other banks 7,961,665 310,333
Investment securities available-for-sale, at fair value 67,823,343 91,722,426
Investment securities held-to-maturity, at amortized cost,
fair value of $12,423,807 and $21,163,732 at June
30, 2001 and December 31, 2000, respectively 12,423,688 20,389,131
Loans, net of unearned income 292,929,497 259,368,250
Less: allowance for credit losses (2,954,612) (2,958,213)
------------------ ------------------
Loans, net 289,974,885 256,410,037
Loans held for sale 1,612,281 390,010
Leasehold improvements, furniture, and equipment, net 6,161,798 6,079,063
Accrued interest receivable 2,478,895 3,037,344
Intangible assets, net 5,454,182 5,834,499
Net deferred taxes 3,739,678 3,642,736
Other real estate owned 240,297 -
Other assets 1,432,581 1,630,500
------------------ ------------------
Total Assets $ 415,028,337 $ 409,657,343
------------------ ------------------
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $ 53,658,542 $ 60,159,668
Interest-bearing 268,599,839 269,019,073
------------------ ------------------
Total deposits 322,258,381 329,178,741
Federal funds purchased and securities sold under
agreements to repurchase 28,527,067 20,287,760
Long term debt:
Federal Home Loan Bank advances 19,932,483 20,389,080
Preferred securities of subsidiary trust 8,800,000 8,800,000
Other borrowings 3,519,109 3,000,342
Other liabilities 6,928,727 3,835,366
------------------ ------------------
Total Liabilities 389,965,767 385,491,289
------------------ ------------------
Stockholders' Equity:
Common stock, $1.00 par value; 10,000,000 shares authorized; 4,465,511 and
4,448,692 shares issued at June
30, 2001 and December 31, 2000, respectively 4,465,511 4,448,692
Additional paid in capital 25,160,569 25,117,038
Deficit (3,900,909) (4,313,140)
Treasury stock, at cost, 143,000 shares at
June 30, 2001 and December 31, 2000 (828,806) (828,806)
Other comprehensive income (loss), net of tax effect 166,205 (257,730)
------------------ ------------------
Total Stockholders' Equity 25,062,570 24,166,054
Commitments and contingencies
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 415,028,337 $ 409,657,343
------------------ ------------------
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-30
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended June 30, 2001 and 2000
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 6,154,205 $ 4,823,135 $12,194,952 $ 9,418,499
Interest on federal funds sold 23,788 256,314 113,589 405,871
Interest on deposits in other banks 22,957 194,357 38,303 302,505
Interest on securities available-for-sale 1,380,992 1,038,908 3,062,416 1,958,434
Interest on securities held-to-maturity 4,776 199,538 4,776 326,748
------------------------------------------------------------------
Total interest income 7,586,718 6,512,252 15,414,036 12,412,057
Interest expense:
Interest on deposits:
Savings accounts 298,019 213,265 648,967 448,643
NOW accounts 127,007 102,421 233,562 210,216
Money market accounts 360,453 424,384 753,385 734,332
Certificates under $100,000 1,489,764 924,461 2,997,224 1,887,866
Certificates $100,000 and over 831,301 563,281 1,755,374 1,067,986
------------------------------------------------------------------
Total interest on deposits 3,106,544 2,227,812 6,388,512 4,349,043
Interest on borrowings 868,877 765,401 1,705,558 1,181,213
------------------------------------------------------------------
Total interest expense 3,975,421 2,993,213 8,094,070 5,530,256
------------------------------------------------------------------
Net interest income 3,611,297 3,519,039 7,319,966 6,881,801
Provision for credit losses 330,000 215,000 820,000 440,000
------------------------------------------------------------------
Net interest income after provision for credit losses 3,281,297 3,304,039 6,499,966 6,441,801
Noninterest income:
Service charges on deposit accounts 381,565 392,300 772,551 734,870
Other operating income 270,401 126,031 438,191 215,540
Gain on sales/calls of investment securities 1,743,490 - 1,787,141 -
------------------------------------------------------------------
Total noninterest income 2,395,456 518,331 2,997,883 950,410
------------------------------------------------------------------
Noninterest expense:
Salaries and employee benefits 1,059,484 1,307,171 2,367,799 2,641,018
Occupancy and equipment expense 419,089 379,477 892,399 770,201
Professional fees 449,070 336,195 732,036 550,400
Depreciation and amortization 177,073 181,511 344,637 357,806
Amortization of deposit premiums 190,329 97,967 380,317 195,935
Data processing 236,107 254,757 517,947 503,116
Communications 176,078 157,644 343,777 300,733
Federal deposit insurance premiums 13,631 12,828 28,844 25,159
Merger-related expense 282,361 - 1,965,214 -
Other operating expenses 321,412 347,182 679,864 590,344
------------------------------------------------------------------
Total noninterest expense 3,324,634 3,074,732 8,252,834 5,934,712
------------------------------------------------------------------
Income before income tax expense 2,352,119 747,638 1,245,015 1,457,499
Income tax expense 966,974 285,957 831,291 564,106
------------------------------------------------------------------
Net income $ 1,385,145 $ 461,681 $ 413,724 $ 893,393
------------------------------------------------------------------
Basic income per common share $ 0.32 $ 0.11 $ 0.10 $ 0.21
Diluted income per common share 0.31 0.11 0.09 0.20
Weighted average common shares outstanding 4,312,922 4,274,526 4,310,170 4,303,706
Diluted weighted average common shares outstanding 4,446,598 4,350,225 4,413,989 4,379,057
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-31
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Unaudited)
Six Months Ended June 30, 2001 and 2000
Other
Common Additional Treasury Comprehensive Total
Stock Paid in Stock, Income (Loss), Stockholders'
$1.00 par Capital Deficit at cost net of tax effect Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 $4,448,692 $25,117,038 $(4,313,140) $(828,806) $ (257,730) $ 24,166,054
Comprehensive income:
Net income 413,724 413,724
Unrealized gain on investment
securities transferred from
held-to-maturity on adoption
of SFAS 133, net of tax effect 503,491 503,491
Reclassification adjustment for
gains included in net income,
net of tax effect (636,561) (636,561)
Unrealized gain on investment
securities during the period,
net of tax effect 557,005 557,005
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 413,724 423,935 837,659
Cash paid in lieu of fractional
shares (1,493) (1,493)
Exercise of common stock
options - 16,819 shares 16,819 43,531 60,350
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2001 $4,465,511 $25,160,569 $(3,900,909) $(828,806) $ 166,205 $ 25,062,570
- -----------------------------------------------------------------------------------------------------------------------------------
Other
Common Additional Treasury Comprehensive Total
Stock Paid in Stock, Income (Loss), Stockholders'
$1.00 par Capital Deficit at cost net of tax effect Equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $4,201,904 $23,724,788 $(3,918,210) $(789,863) $(1,738,126) $21,480,493
Comprehensive income:
Net income 893,393 893,393
Unrealized loss on
investment securities,
net of tax effect (31,476) (31,476)
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 893,393 (31,476) 861,917
Purchase of treasury stock, at
cost, 5,000 shares (30,000) (30,000)
Exercise of common stock
options - 16,786 shares 16,786 55,846 (960) 71,672
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 $4,218,690 $23,780,634 $(3,025,777) $(819,863) $(1,769,602) $22,384,082
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-32
Century Bancshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2001 and 2000
(Dollars in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 414 $ 893
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of premises and equipment 345 358
Amortization of intangibles 380 196
Provision for credit losses 820 440
Provision (benefit) for deferred taxes (369) 44
Gain on sales/calls of securities available-for-sale (1,787) -
Decrease (increase) in accrued interest receivable 558 (318)
Decrease in other assets 198 29
Increase (decrease) in other liabilities 3,093 (96)
------------------------
Total adjustments 3,238 653
------------------------
Net cash provided by operating activities 3,652 1,546
------------------------
Cash flows from investing activities:
Net increase in loans (34,626) (17,045)
Net increase in loans held for sale (1,222) (210)
Net decrease (increase) in interest bearing deposits
in other banks (7,651) 14,416
Purchases of securities available-for-sale (2,365) (10,864)
Purchases of securities held-to-maturity (12,424) (14,579)
Repayments and maturities of securities available-for-sale 11,912 4,990
Repayments and maturities of securities held-to-maturity - 84
Proceeds from sales/calls of securities available-for-sale 37,225 -
Net purchase of leasehold improvements, furniture
and equipment (427) (295)
------------------------
Net cash used in investing activities (9,578) (23,503)
------------------------
Cash flows from financing activities:
Net increase (decrease) in demand, savings, NOW and
money market deposit accounts (47) 13,052
Net decrease in certificates of deposit (6,873) (1,875)
Net increase in customer repurchase accounts 8,239 4,509
Net increase (decrease) in other borrowings 519 (15,012)
Net proceeds from issuance of long-term debt - 10,000
Net proceeds from issuance of preferred securities of
subsidiary trust - 8,536
Repayment of long-term debt (457) (514)
Purchase of treasury stock - (30)
Net proceeds from issuance of common stock 59 72
------------------------
Net cash provided by financing activities 1,440 18,738
------------------------
Net decrease in cash and cash equivalents (4,486) (3,219)
Cash and cash equivalents, beginning of period 20,211 24,545
------------------------
Cash and cash equivalents, end of period $15,725 $ 21,326
------------------------
Supplemental disclosures of cash flow information:
Interest paid on deposits and borrowings $ 8,223 $ 5,263
Income taxes paid 450 780
Loans transferred to OREO 240 -
See accompanying condensed notes to consolidated financial statements
(unaudited).
F-33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Basis of Presentation
In the opinion of management the unaudited consolidated financial
statements as of June 30, 2001, and for the three and six month periods ended
June 30, 2001 and 2000 contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial position and
results of operations of Century Bancshares, Inc. (Century) as of such dates and
for such periods. The results of operations for the six months ended June 30,
2001 are not necessarily indicative of the results of operations that may be
expected for the year ending December 31, 2001 or any future periods. On March
15, 2001, Century completed its acquisition of GrandBanc, Inc. in a stock for
stock exchange valued at $9.4 million. In addition to the acquisition being
accounted for as a pooling of interests as described below, certain prior period
balances have been reclassified to conform to the current period.
(2) Acquisition Activities
On August 25, 2000, Century assumed $51.8 million of deposit liabilities,
purchased $3.4 million of mortgage loans and $1.0 million of fixed assets, and
recorded $3.5 million of intangible assets related to the purchase of the Reston
Branch of Resource Bank located in Fairfax County, Virginia (the Reston Branch).
In connection with the transaction, Century also assumed the lease for the
branch location at 1498 North Point Village Center in Reston, Virginia. The
Reston Branch premises consist of approximately 2,600 square feet, which are
under lease through 2013, with additional options to renew for two successive
terms of five years each.
On March 15, 2001, Century consummated its merger with GrandBanc, Inc.
(OTC: GDBC) in a stock-for-stock exchange valued at $9.4 million. Shareholders
of GrandBanc, Inc. received .3318 shares of Century's common stock for each of
the 4,049,665 shares of GrandBanc, Inc. common stock and cash in lieu of each
fractional share at the rate of $6.9375. The merger was accounted for as a
pooling of interests. GrandBanc, Inc., which had $118.0 million in total assets
at December 31, 2000 is the parent holding company of GrandBank, a Maryland
chartered commercial bank headquartered in Rockville, Maryland, which operated
four banking offices in Montgomery County, Maryland and one banking office in
Alexandria, Virginia. GrandBank was merged into the Bank on May 18, 2001. All
financial information has been restated to effect the pooling of interests.
On June 14, 2001, Century announced it had entered into a definitive
agreement to merge with United Bankshares, Inc. (NASDAQ:UBSI) in a transaction
valued at $62.5 million. Under the terms of the agreement, Century stockholders
will receive 0.45 shares of United Bankshares, Inc. common stock plus $3.43 in
cash for each share of Century common stock. The transaction is intended to be a
tax-free exchange of shares and accounted for under the purchase method of
accounting. (See note 5 for a discussion of new accounting standards which will
apply to this transaction). The transaction is subject to regulatory and
stockholder approvals and is projected to close in the fourth quarter of 2001.
(3) Investment Securities
Investment securities available-for-sale and their contractual maturities,
at June 30, 2001 and December 31, 2000, are summarized as follows:
Amortized Gross Unrealized Gross Unrealized
June 30, 2001 Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies:
Within one year $ 7,490,839 $ 54,578 $ 2,777 $ 7,542,640
After one, but within five years 17,941,016 315,445 - 18,256,461
After five, but within ten years 17,919,090 11,342 43,988 17,886,444
- ------------------------------------------------------------------------------------------------------------------------------
43,350,945 381,365 46,765 43,685,545
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 18,840,048 40,278 120,098 18,760,228
- ------------------------------------------------------------------------------------------------------------------------------
Other debt securities:
After ten years 1,000,000 - 30,000 970,000
- ------------------------------------------------------------------------------------------------------------------------------
Total debt securities 63,190,993 421,643 196,863 63,415,773
Equity securities 4,376,649 30,921 - 4,407,570
- ------------------------------------------------------------------------------------------------------------------------------
Total investment securities available-for-sale $67,567,642 $452,564 $196,863 $67,823,343
- ------------------------------------------------------------------------------------------------------------------------------
On January 1, 2001, Century adopted SFAS 133 and elected to reclassify its
entire held-to-maturity securities portfolio to available-for-sale.
F-34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(3) Investment Securities, Continued
Amortized Gross Unrealized Gross Unrealized
December 31, 2000 Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies:
Within one year $14,345,338 $ 3,287 $ 28,638 $14,319,987
After one, but within five years 30,643,605 153,825 77,093 30,720,337
After five, but within ten years 25,008,644 236,346 460,120 24,784,870
- ---------------------------------------------------------------------------------------------------------------------------------
69,997,587 393,458 565,851 69,825,194
- ---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 19,211,323 346 371,038 18,840,631
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt securities 89,208,910 393,804 936,889 88,665,825
Equity securities 2,954,215 102,386 - 3,056,601
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities available-for-sale $92,163,125 $496,190 $936,889 $91,722,426
- ---------------------------------------------------------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities of
mortgage-backed securities and collateralized mortgage obligations because
borrowers have the right to prepay their obligations at any time.
As a member of the Federal Home Loan Bank system, the Bank is required
to hold shares of stock in the Federal Home Loan Bank of Atlanta. The Bank, as a
member of the Federal Reserve System is required to hold shares in the Federal
Reserve Bank of Richmond.
Investment securities totaling $50.4 million and $51.3 million at June
30, 2001 and December 31, 2000, respectively, were pledged to secure FHLBA
borrowings, public deposits, customer repurchase accounts, and other borrowings.
Investment securities available-for-sale were sold/called for gross proceeds of
$37.2 million in 2001 resulting in a gross gain of $1.787 million. No investment
securities were sold during 2000. During June 2001, Century repositioned the
investment portfolio by selling $19.2 million in available-for-sale securities
and reinvesting the proceeds into held-to-maturity securities having similar
risk profiles. At June 30, 2001, full reinvestment of the proceeds had not
occurred with remaining reinvestment to be completed in the third quarter of
2001. Gains from the sales provided an immediate increase to the Bank's
regulatory capital and the categorization of the newly purchased securities as
held-to-maturity will reduce future volatility in comprehensive income.
Investment securities held-to-maturity, and their contractual
maturities, at June 30, 2001 and December 31, 2000, are summarized as follows:
Amortized Gross Unrealized Gross Unrealized
June 30, 2001 Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions:
After ten years $ 4,277,718 $ 3 $10 $ 4,277,711
- -----------------------------------------------------------------------------------------------------------------------------------
Other:
After ten years 8,145,970 126 - 8,146,096
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities held-to-maturity $12,423,688 $129 $10 $12,423,807
- -----------------------------------------------------------------------------------------------------------------------------------
Amortized Gross Unrealized Gross Unrealized
December 31, 2000 Cost Gains Losses Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Obligations of U.S. government agencies:
After one, but within five years $ 5,999,326 $ 31,250 $ - $ 6,030,576
- -----------------------------------------------------------------------------------------------------------------------------------
Obligations of states and political subdivisions:
After five but within ten years 1,090,617 80,081 - 1,170,698
After ten years 7,183,792 509,139 9,790 7,683,141
- -----------------------------------------------------------------------------------------------------------------------------------
8,274,409 589,220 9,790 8,853,839
- -----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,788,917 286 22,117 1,767,086
- -----------------------------------------------------------------------------------------------------------------------------------
Other:
After ten years 4,326,479 185,752 - 4,512,231
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities held-to-maturity $20,389,131 $806,508 $31,907 $21,163,732
- -----------------------------------------------------------------------------------------------------------------------------------
F-35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(4) Income Per Common Share
Basic income per common share is calculated by dividing net income by the
weighted-average common shares outstanding. Diluted income per common share is
calculated by dividing net income by the sum of weighted-average common shares
and potentially dilutive common shares. Century paid 5% stock dividends on April
17, 2000 and June 29, 2001, to common stock shareholders resulting in the
issuance of 136,152 shares and 205,439 shares, respectively, and a proportionate
increase in the number of shares of common stock issuable upon the exercise of
stock options outstanding. Weighted-average shares outstanding and all share and
per share data have been restated for the effect of these stock dividends.
In accordance with SFAS No. 128, the calculation of basic income per common
share and diluted income per common share is detailed below:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2001 2000 2001 2000
-------------------------------- --------------------------------
Basic Income Per Common Share:
Net income $ 1,385,145 $ 461,681 $ 413,724 $ 893,393
Weighted average common shares outstanding 4,312,922 4,274,526 4,310,170 4,303,706
-------------------------------- --------------------------------
Basic income per common share $ 0.32 $ 0.11 $ 0.10 $0.21
-------------------------------- --------------------------------
Diluted Income Per Common Share:
Net income $ 1,385,145 $ 461,681 $ 413,724 $ 893,393
Weighted average common shares outstanding 4,312,922 4,274,526 4,310,170 4,303,706
Dilutive effect of stock options 133,676 75,699 103,819 75,351
-------------------------------- --------------------------------
Diluted weighted average
common shares outstanding 4,446,598 4,350,225 4,413,989 4,379,057
-------------------------------- --------------------------------
Diluted income per common share $ 0.31 $ 0.11 $ 0.09 $ 0.20
-------------------------------- --------------------------------
(5) New Financial Accounting Standards
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure these instruments at fair value. In certain circumstances a
derivative may be specifically designed as a hedge of the exposure to changes in
the fair values of a recognized asset or liability or an unrecognized firm
commitment, the exposure to variable cash flows of a forecasted transaction, or
the exposure to fluctuations in foreign currency. Among a number of other
provisions, SFAS 133 allows entities to reclassify held-to-maturity securities
without calling into question management's intent for the remainder of its
securities portfolios. In June 2000, SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," was issued to amend SFAS
No. 133 to address a limited number of issues related to implementation of SFAS
133. Century adopted SFAS 133 on January 1, 2001 and elected to reclassify its
entire held-to-maturity securities portfolio into the available-for sale
securities portfolio, which resulted in a transition adjustment that increased
stockholders' equity by $503,491, net of income taxes.
In June 2001, SFAS No. 141, "Business Combinations," was issued. SFAS 141
requires that all business combinations be accounted for by a single method--the
purchase method. SFAS 141 further requires that intangible assets be recognized
apart from goodwill only if they meet one of two criteria--the contractual-legal
criterion or the separability criterion. The disclosure of the primary reasons
for a business combination and the allocation of the purchase price paid to the
assets acquired and liabilities assumed by major balance sheet caption is also
required. SFAS 141 applies to all business combinations initiated after June 30,
2001 and to all business combinations accounted for using the purchase method
for which the date of acquisition is July 1, 2001, or later.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(5) New Financial Accounting Standards, Continued
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets," was
issued. SFAS 142 adopts a more aggregate view of goodwill and bases the
accounting for goodwill on the units of the combined entity into which an
acquired entity is integrated. Furthermore, goodwill and other intangible assets
that have indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment using specific guidance. Additional
supplemental disclosures of information about goodwill and other intangibles in
the years subsequent to their acquisitions are also required. The provisions of
SFAS 142 are required to be applied starting with fiscal years beginning after
December 15, 2001, except that all goodwill and intangible assets acquired after
June 30, 2001, will be subject immediately to the nonamortization and
amortization provisions. Since goodwill and some intangible assets will no
longer be amortized, the reported amounts of goodwill and intangible assets will
not decrease at the same time and in the same manner as under previous standards
which could lead to more volatility in reported income because impairment losses
are likely to occur irregularly and in varying amounts.
F-37
ANNEX A
AGREEMENT AND PLAN OF REORGANIZATION
dated as of June 14, 2001
by and between
UNITED BANKSHARES, INC.
and
CENTURY BANCSHARES, INC.
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TABLE OF CONTENTS
Page
----
RECITALS:................................................................................ 4
ARTICLE I................................................................................ 4
Certain Definitions
1.01 Certain Definitions.................................................... 4
ARTICLE II............................................................................... 9
The Merger
2.01 The Merger............................................................. 9
2.02 Effective Date and Effective Time...................................... 9
ARTICLE III.............................................................................. 10
The Bank Merger
3.01 The Bank Merger........................................................ 10
3.02 Effective Date and Effective Time...................................... 10
ARTICLE IV............................................................................... 10
Consideration; Exchange Procedures
4.01 Merger Consideration................................................... 10
4.02 Rights as Stockholders; Stock Transfers................................ 11
4.03 Fractional Shares...................................................... 11
4.04 Exchange Procedures.................................................... 11
4.05 Anti-Dilution Provisions............................................... 12
4.06 Options................................................................ 12
ARTICLE V................................................................................ 13
Actions Pending the Effective Time
5.01 Forebearances of Century............................................... 13
5.02 Forebearances of United................................................ 15
ARTICLE VI............................................................................... 16
Representations and Warranties
6.01 Disclosure Schedules................................................... 16
6.02 Standard............................................................... 16
6.03 Representations and Warranties of Century.............................. 16
6.04 Representations and Warranties of United............................... 24
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ARTICLE VII............................................................................. 31
Covenants
7.01 Reasonable Best Efforts............................................... 31
7.02 Stockholder Approvals................................................. 31
7.03 Registration Statement................................................ 31
7.04 Press Releases........................................................ 32
7.05 Access; Information................................................... 32
7.06 Acquisition Proposals................................................. 33
7.07 Affiliate Agreements.................................................. 33
7.08 Takeover Laws......................................................... 33
7.09 Certain Policies...................................................... 33
7.10 Regulatory Applications............................................... 34
7.11 Indemnification....................................................... 34
7.12 Benefit Plans......................................................... 35
7.13 Notification of Certain Matters....................................... 35
7.14 Directors and Officers................................................ 35
7.15 Current Public Information............................................ 36
ARTICLE VIII............................................................................ 36
Conditions to Consummation of the Merger
8.01 Conditions to Each Party's Obligation to Effect the Merger............ 36
8.02 Conditions to Obligation of Century................................... 37
8.03 Conditions to Obligation of United.................................... 37
ARTICLE IX.............................................................................. 38
Termination
9.01 Termination........................................................... 38
9.02 Effect of Termination and Abandonment................................. 39
ARTICLE X............................................................................... 39
Miscellaneous
10.01 Survival.............................................................. 39
10.02 Waiver; Amendment..................................................... 40
10.03 Counterparts.......................................................... 40
10.04 Governing Law......................................................... 40
10.05 Expenses.............................................................. 40
10.06 Notices............................................................... 40
10.07 Entire Understanding; No Third Party Beneficiaries.................... 41
10.08 Interpretation; Effect................................................ 41
EXHIBIT A Form of Stock Option Agreement
EXHIBIT B Form of Century Affiliate Agreement
ANNEX A Form of Supplement for Merger Sub Accession to Acquisition Agreement
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AGREEMENT AND PLAN OF REORGANIZATION, dated as of June 14, 2001 (this
"Agreement"), by and between CENTURY BANCSHARES, INC. ("Century") and UNITED
BANKSHARES, INC. ("United").
RECITALS
A. Century. Century is a Delaware corporation, having its principal place
-------
of business in Washington, DC.
B. United. United is a West Virginia corporation, having its principal
------
place of business in Charleston, West Virginia.
C. Stock Option Agreement. As an inducement to the willingness of United
----------------------
to continue to pursue the transactions contemplated by this Agreement, Century
will grant to United an option to purchase 14.9% of the shares of the common
stock of Century pursuant to a Stock Option Agreement, in substantially the form
of Exhibit A to be executed simultaneously with this Agreement.
D. Intentions of the Parties. It is the intention of the parties to this
-------------------------
Agreement that the business combination contemplated hereby be treated as a
"reorganization" under Section 368 of the Internal Revenue Code of 1986 (the
"Code").
E. Board Action. The respective Boards of Directors of each of United and
------------
Century have determined that it is in the best interests of their respective
companies and their stockholders to consummate the strategic business
combination transaction provided for herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations, warranties and agreements contained herein the
parties agree as follows:
ARTICLE I
Certain Definitions
1.01 Certain Definitions. The following terms are used in this Agreement
with the meanings set forth below:
"Acquisition Proposal" means any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving Century or
any of its Subsidiaries or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets or
deposits of, Century or any of its Subsidiaries, other than the transactions
contemplated by this Agreement.
"Agreement" means this Agreement, as amended or modified from time to
time in accordance with Section 10.02.
"Average Closing Price" has the meaning set forth in Section 9.02(g).
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"Bank Merger" has the meaning set forth in Section 3.01.
"Bank Merger Effective Date" has the meaning set forth in Section
3.02.
"CNB" has the meaning set forth in Section 3.01.
"Century" has the meaning set forth in the preamble to this Agreement.
"Century Affiliate" has the meaning set forth in Section 7.07(a).
"Century Board" means the Board of Directors of Century.
"Century By-Laws" means the By-laws of Century.
"Century Certificate" means the Amended Certificate of Incorporation
of Century.
"Century Common Stock" means the common stock, par value $1.00 per
share, of Century.
"Century Meeting" has the meaning set forth in Section 7.02.
"Century Stock" means, collectively, Century Common Stock.
"Century Stock Options" has the meaning set forth in Section 4.06.
"Century Trust Preferred Stock" means preferred shares of stock issued
by Century Capital Trust I, a second tier business trust subsidiary of Century .
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation and Benefit Plans" has the meaning set forth in Section
6.03(m).
"Corporation Commission" means the Virginia State Corporation
Commission.
"Costs" has the meaning set forth in Section 7.11(a).
"DGCL" means the Delaware General Corporation Law.
"DOL" has the meaning set forth in Section 6.03(m)(iii).
"Determination Date" has the meaning set forth in Section 9.02(g).
"Disclosure Schedule" has the meaning set forth in Section 6.01.
"Effective Date" has the meaning set forth in Section 2.02(a).
"Effective Time" means the effective time of the Merger, as provided
for in Section 2.02.
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"Environmental Laws" means all applicable local, state and federal
environmental, health and safety laws and regulations, including, without
limitation, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, the Clean Water Act,
the Federal Clean Air Act, and the Occupational Safety and Health Act, each as
amended, regulations promulgated thereunder, and state counterparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" has the meaning set forth in Section 6.03(m)(iii).
"ERISA Affiliate Plan" has the meaning set forth in Section
6.03(m)(iii).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Exchange Agent" has the meaning set forth in Section 4.04(a).
"Exchange Ratio" has the meaning set forth in Section 4.01(a).
"Governmental Authority" means any court, administrative agency or
commission or other federal, state or local governmental authority or
instrumentality.
"IRS" has the meaning set forth in Section 6.03(m)(ii).
"Indemnified Party" has the meaning set forth in Section 7.11(a).
"Insurance Amount" has the meaning set forth in Section 7.11(b).
"Insurance Policy" has the meaning set forth in Section 7.11(b).
"Lien" means any charge, mortgage, pledge, security interest,
restriction, claim, lien, or encumbrance.
"Material Adverse Effect" means, with respect to United or Century,
any effect that (i) is material and adverse to the financial position, results
of operations or business of United and its Subsidiaries taken as a whole or
Century and its Subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either United or Century to perform its
obligations under this Agreement or otherwise materially threaten or materially
impede the consummation of the Merger and the other transactions contemplated by
this Agreement; provided, however, that Material Adverse Effect shall not be
deemed to include the impact of (a) changes in tax, banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and their holding
companies generally, or (c) changes in market interest rates or the projected
future interest rate environment, or (d) any modifications or changes to
valuation policies and practices in connection with the Merger or restructuring
charges taken in connection with the Merger, in each case in accordance with
generally accepted accounting principles.
"Merger" has the meaning set forth in Section 2.01(b).
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"Merger Consideration" has the meaning set forth in Section 4.01(a).
"Merger Sub" means a Delaware corporation, and/or one or more other
corporations or limited liability companies to be organized under the corporate
laws of the State of Delaware by United prior to the Effective Time.
"Multiemployer Plan" has the meaning set forth in Section 6.03(m).
"NASDAQ" means The NASDAQ Stock Market, Inc.'s National Market System.
"New Certificate" has the meaning set forth in Section 4.04(a).
"Old Certificate" has the meaning set forth in Section 4.04(a).
"Option Exchange Ratio" has the meaning set forth in Section 4.06(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 6.03(m).
"Person" means any individual, bank, corporation, limited liability
company, partnership, association, joint-stock company, business trust or
unincorporated organization.
"Previously Disclosed" by a party shall mean information set forth in
its Disclosure Schedule or in United or Century's SEC Documents..
"Proxy Statement" has the meaning set forth in Section 7.03.
"Registration Statement" has the meaning set forth in Section 7.03.
"Regulatory Authorities" has the meaning set forth in Section 6.03(i).
"Replacement Option" has the meaning set forth in Section 4.06(a).
"Representatives" means, with respect to any Person, such Person's
directors, officers, employees, legal or financial advisors or any
representatives of such legal or financial advisors.
"Rights" means, with respect to any Person, securities or obligations
convertible into or exercisable or exchangeable for, or giving any person any
right to subscribe for or acquire, or any options, calls or commitments relating
to, or any stock appreciation right or other instrument the value of which is
determined in whole or in part by reference to the market price or value of,
shares of capital stock of such person.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" has the meaning set forth in Section 6.03(g).
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"Secretary of State" means the Secretary of State of the State of
Delaware.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Stock Option Agreement" has the meaning set forth in Recital C.
"Subsidiary" and "Significant Subsidiary" have the meanings ascribed
to them in Rule 1-02 Section 210.1-(2)(w) of Regulation S-X of the SEC.
"Surviving Corporation" has the meaning set forth in Section 2.01(b).
"Takeover Laws" has the meaning set forth in Section 6.03 (o).
"Tax" and "Taxes" means all federal, state, local or foreign taxes,
charges, fees, levies or other assessments, however denominated, including,
without limitation, all net income, gross income, gains, gross receipts, sales,
use, ad valorem, goods and services, capital, production, transfer, franchise,
windfall profits, license, withholding, payroll, employment, disability,
employer health, excise, estimated, severance, stamp, occupation, property,
environmental, unemployment or other taxes, custom duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority whether
arising before, on or after the Effective Date.
"Tax Returns" means any return, amended return or other report
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with respect to any Tax.
"Treasury Stock" shall mean shares of Century Stock held by Century or
any of its Subsidiaries in each case other than in a fiduciary capacity or as a
result of debts previously contracted in good faith.
"United" has the meaning set forth in the preamble to this Agreement.
"United Board" means the Board of Directors of United.
"United Common Stock" means the common stock, par value $2.50 per
share, of United.
"United Compensation and Benefit Plans" has the meaning set forth in
Section 6.04(k).
"United Consultants" has the meaning set forth in Section 6.04(k).
"United Directors" has the meaning set forth in Section 6.04(k).
"United Employees" has the meaning set forth in Section 6.04(k).
"VSCA" means the Virginia Stock Corporation Act.
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ARTICLE II
The Merger
2.01 The Merger. (a) Prior to the Effective Time, United shall take any
and all action necessary (i) duly to organize the Merger Sub for the purpose of
consummating the Merger, (ii) to cause Merger Sub to become a party to this
Agreement, to be evidenced by the execution by the Merger Sub of a supplement to
this Agreement in substantially the form of Annex A , and delivery thereof to
Century; and (iii) to cause Merger Sub to take all actions necessary or proper
to comply with the obligations of United and such Merger Sub to consummate the
transactions contemplated hereby.
(b) At the Effective Time, Century shall merge with and into Merger
Sub (the "Merger"), the separate corporate existence of Century shall cease and
Merger Sub shall survive and continue to exist as a Virginia corporation (Merger
Sub, as the surviving corporation in the Merger, sometimes being referred to
herein as the "Surviving Corporation"). United may at any time prior to the
Effective Time change the method of effecting the combination with Century
(including, without limitation, the provisions of this Article II) if and to the
extent it deems such change to be necessary, appropriate or desirable; provided,
however, that no such change shall (i) cause the approval of the stockholders of
United to be required as a condition to the Merger, (ii) alter or change the
amount or kind of Merger Consideration (as hereinafter defined), or the relative
proportions of cash and United Common Stock included therein, (iii) adversely
affect the tax treatment of Century's stockholders as a result of receiving the
Merger Consideration or (iv) materially impede or delay consummation of the
transactions contemplated by this Agreement; and provided further, that United
shall provide Century prior written notice of such change and the reasons
therefor.
(c) Subject to the satisfaction or waiver of the conditions set forth
in Article VIII, the Merger shall become effective upon the occurrence of the
filing in the office of the Secretary of State of a certificate of merger in
accordance with Section 251 of the DGCL or such later date and time as may be
set forth in such articles and the issuance of a certificate of merger by the
Secretary of State under the DGCL. The Merger shall have the effects prescribed
in the DGCL.
(d) At the Effective Time, the Certificate of Incorporation of Merger
Sub shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law.
2.02 Effective Date and Effective Time. (a) Subject to the satisfaction or
waiver of the conditions set forth in Article VIII, the parties shall cause the
effective date of the Merger (the "Effective Date") to occur on (i) the fifth
business day to occur after the last of the conditions set forth in Article VII
shall have been satisfied or waived in accordance with the terms of this
Agreement (or, at the election of United, on the last business day of the month
in which such fifth business day occurs or, if such fifth business day occurs
within the last five business days of such month, on the last business day of
the succeeding month) or (ii) such other date to which the parties may agree in
writing. The time on the Effective Date when the Merger shall become effective
is referred to as the "Effective Time."
(b) Notwithstanding any other provision in this Agreement to the
contrary, if United shall exercise its right to delay the Effective Date
pursuant to this Section, and a record date for any dividend or other
distribution in respect of the United Common Stock is taken during the period of
such delay such that the Century Stockholders will not be entitled to
participate in such dividend, each stockholder of Century
A-9
shall be entitled to receive, upon surrender of the Old Certificates and
compliance with the other provisions of Article IV, a payment equal to the
amount and kind of dividend or other distribution that such holder would have
received had such holder been a holder of record of the shares of United Common
Stock issuable to such holder in the Merger on the record date for such dividend
or other distribution.
ARTICLE III
The Bank Merger
3.01 The Bank Merger. (a) At the Effective Time, Century National Bank
("CNB"), a wholly-owned subsidiary of Century, shall merge with and into United
Bank, a wholly-owned subsidiary of United (the "Bank Merger"), the separate
existence of CNB shall cease and United Bank shall survive and continue to exist
as a Virginia Banking Corporation. United may at any time prior to the Effective
Time, change the method of effecting the combination with CNB (including without
limitation the provisions of this Article III) if and to the extent it deems
such changes necessary, appropriate or desirable; provided, however that no such
change shall (i) alter or change the amount or kind of Merger Consideration, or
the relative proportions of cash and United Common Stock included therein, (ii)
adversely affect the tax treatment of Century's stockholders as a result of
receiving the Merger Consideration or (iii) materially impede or delay
consummation of the transactions contemplated by this Agreement, and provided
further, that United shall provide Century with prior written notice of such
change and the reasons therefor.
(b) Subject to the satisfaction or waiver of the conditions set
forth in Article VIII, the Bank Merger shall become effective upon the
occurrence of the filing in the office in the Corporation Commission of articles
of merger in accordance with the VSCA or such later date and time as may be set
forth in such articles and the issuance of a certificate of merger by the
Corporation Commission under the VSCA. The Bank Merger shall have the effects
prescribed in the VSCA.
3.02 Effective Date and Effective Time. Subject to the satisfaction or
waiver of the conditions set forth in Article VIII, the parties shall cause the
effective date of the Bank Merger (the "Bank Merger Effective Date") to occur on
(i) the fifth business day to occur after the last of the conditions set forth
in Article VIII shall have been satisfied or waived in accordance with the terms
of this Agreement (or, at the election of United, on the last business day of
the month in which such fifth business day occurs or, if such fifth business day
occurs within the last five business days of such month, on the last business
day of the succeeding month) or (ii) such other date to which the parties may
agree in writing. The time on the Bank Merger Effective Date when the Merger
shall become effective is referred to as the "Bank Merger Effective Time."
ARTICLE IV
Consideration; Exchange Procedures
4.01 Merger Consideration. Subject to the provisions of this Agreement, at
the Effective Time, automatically by virtue of the Merger and without any action
on the part of any Person:
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(a) Each holder of a share of Century Stock (other than Century
or its subsidiaries or United and its subsidiaries, except for shares held by
them in a fiduciary capacity) shall receive in respect thereof consideration
consisting of a combination of (i) 0.4500 share of United Stock (the "Exchange
Ratio") and (ii) an amount of cash equal to $3.43 (collectively, the "Merger
Consideration").
(b) Outstanding United Stock. Each share of United Common Stock
------------------------
issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and unaffected by the Merger.
(c) Treasury Shares. Each share of Century Common Stock held
---------------
as Treasury Stock immediately prior to the Effective Time shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
(d) Merger Sub. Each share of capital stock of Merger Sub
----------
issued and outstanding immediately prior to the Effective Time shall remain
outstanding and unaffected by the merger, and no consideration shall be issued
in exchange therefor.
4.02 Rights as Stockholders; Stock Transfers. At the Effective Time,
holders of Century Stock shall cease to be, and shall have no rights as,
stockholders of Century, other than to receive the Merger Consideration and any
dividend or other distribution with respect to such Century Stock with a record
date occurring prior to the Effective Time, the payment, if any, in lieu of
certain dividends on United Common Stock provided for in Section 2.02(b), and
the consideration provided under this Article IV. After the Effective Time,
there shall be no transfers on the stock transfer books of Century or the
Surviving Corporation of shares of Century Stock.
4.03 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of United Common Stock and no certificates or scrip therefor,
or other evidence of ownership thereof, will be issued in the Merger; instead,
United shall pay to each holder of Century Common Stock who would otherwise be
entitled to a fractional share of United Common Stock (after taking into account
all Old Certificates registered in the name of such holder) an amount in cash
(without interest) determined by multiplying such fraction by the closing price
of United Common Stock as reported by NASDAQ reporting system (as reported in
the Wall Street Journal) on the Effective Date.
4.04 Exchange Procedures. (a) At or prior to the Effective Time,
United shall deposit, or shall cause to be deposited, with Mellon Investor
Services, LLC (in such capacity, the "Exchange Agent"), for the benefit of the
holders of certificates formerly representing shares of Century Common Stock
("Old Certificates"), for exchange in accordance with this Article IV, (i)
certificates representing the shares of United Common Stock ("New Certificates")
and (ii) an amount of cash necessary to pay the cash portion of the Merger
Consideration and any payments required by Section 2.02(b) (the "Exchange
Fund"). The Exchange Fund will be distributed in accordance with the Exchange
Agent's normal and customary procedures established in connection with merger
transactions.
(b) As soon as practicable after the Effective Time, and in no
event later than five business days thereafter, the Exchange Agent shall mail to
each holder of record of one or more Old Certificates a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Old Certificates shall pass, only upon delivery of the Old Certificates
to the Exchange Agent) and instructions for use in effecting the surrender of
the Old Certificates in exchange for New Certificates, the cash portion of the
Merger Consideration, any cash in lieu of fractional shares into which the
shares of Century Common
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Stock represented by the Old Certificates shall have been converted pursuant to
this Agreement and any payment required pursuant to Section 2.02(b) of this
Agreement. Upon proper surrender of an Old Certificate for exchange and
cancellation to the Exchange Agent, together with such properly completed letter
of transmittal, duly executed, the holder of such Old Certificates shall be
entitled to receive in exchange therefor (i) a New Certificate, a (ii) a check
representing the amount of the cash portion of the Merger Consideration, (iii) a
check representing the amount of any cash in lieu of fractional shares which
such holder has the right to receive in respect of the Old Certificates
surrendered pursuant to the provisions of this Article IV, and (iv) any payment
required by Section 2.02(b), and the Old Certificates so surrendered shall
forthwith be cancelled.
(c) Neither the Exchange Agent, if any, nor any party hereto
shall be liable to any former holder of Century Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(d) No dividends or other distributions with respect to United
Common Stock with a record date occurring after the Effective Time shall be paid
to the holder of any unsurrendered Old Certificate representing shares of
Century Common Stock converted in the Merger into the right to receive shares of
such United Common Stock until the holder thereof shall be entitled to receive
New Certificates in exchange therefor in accordance with the procedures set
forth in this Section 4.04. After becoming so entitled in accordance with this
Section 4.04, the record holder thereof also shall be entitled to receive any
such dividends or other distributions by the Exchange Agent , without any
interest thereon, which theretofore had become payable with respect to shares of
United Common Stock such holder had the right to receive upon surrender of the
Old Certificates.
(e) Any portion of the Exchange Fund that remains unclaimed by
the stockholders of Century for six months after the Effective Time shall be
paid to United. Any stockholders of Century who have not theretofore complied
with this Article III shall thereafter look only to United for payment of the
Merger Consideration , cash in lieu of any fractional shares and unpaid
dividends and distributions on United Common Stock deliverable in respect of
each share of Century Common Stock such stockholder holds as determined pursuant
to this Agreement, in each case, without any interest thereon.
4.05 Anti-Dilution Provisions. In the event United changes (or
establishes a record date for changing) the number of shares of United Common
Stock issued and outstanding prior to the Effective Date as a result of a stock
split, reverse stock split, stock dividend, reorganization, recapitalization or
similar transaction with respect to the outstanding United Common Stock and the
record date therefor shall be prior to the Effective Date, or shall establish a
record date prior to the Effective Date with respect to any dividend or other
distribution in respect of the United Common Stock other than a cash dividend
consistent with past practice, the stock portion of the Merger Consideration
shall be proportionately adjusted.
4.06 Options. (a) At the Effective Time, each outstanding option
(each, a "Century Option") to purchase shares of Century Common Stock under any
and all plans of Century under which stock options have been granted and are
outstanding (collectively, the "Century Stock Plans") shall vest pursuant to the
terms thereof and shall be converted into an option (each, a "Replacement
Option") to acquire, on the same terms and conditions as were applicable under
such Century Stock Option (other than any requirement that an option be
exercised within a specific time period after termination of employment or
cessation of service as a non-employee director, which requirement shall be
waived or deleted from each option by amendment thereto), the number of shares
of United Common Stock equal to (a) the number of
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shares of Century Common Stock subject to the Century Stock Option, multiplied
by (b) 0.5894 (the "Option Exchange Ratio"). Such product shall be rounded to
the nearest whole number. The exercise price per share (rounded to the nearest
whole cent) of each Replacement Option shall equal (y) the exercise price per
share for the shares of Century Common Stock which were purchasable pursuant to
such Century Stock Option divided by (z) the Option Exchange Ratio.
Notwithstanding the foregoing, each Century Stock Option which is intended to be
an "incentive stock option" (as defined in Section 422 of the Code) shall be
adjusted in accordance with the requirements of Section 424 of the Code. At or
prior to the Effective Time, Century shall use its reasonable best efforts,
including using its reasonable best efforts to obtain any necessary consents
from optionees, with respect to the Century Stock Plans to permit the
replacement of the outstanding Century Stock Options by United pursuant to this
Section and to permit United to assume the Century Stock Plans. Century shall
further take all action necessary to amend the Century Stock Plans to eliminate
automatic grants or awards thereunder following the Effective Time. At the
Effective Time, United shall assume the Century Stock Plans; provided, that such
assumption shall be only in respect of the Replacement Options and that United
shall have no obligation with respect to any awards under the Century Stock
Plans other than the Replacement Options and shall have no obligation to make
any additional grants or awards under such assumed Century Stock Plans.
(b) At all times after the Effective Time, United shall reserve
for issuance such number of shares of United Common Stock as necessary so as to
permit the exercise of options granted under the Century Stock Plans in the
manner contemplated by this Agreement and the instruments pursuant to which such
options were granted. United shall make all filings required under federal and
state securities laws no later than the Effective Time so as to permit the
exercise of such options and the sale of the shares received by the optionee
upon such exercise at and after the Effective Time and United shall continue to
make such filings thereafter as may be necessary to permit the continued
exercise of options and sale of such shares.
ARTICLE V
Actions Pending the Effective Time
5.01 Forebearances of Century. From the date hereof until the
Effective Time, except as expressly contemplated by this Agreement or disclosed
in the Disclosure Schedule, without the prior written consent of United, Century
will not, and will cause each of its Subsidiaries not to:
(a) Ordinary Course. Conduct the business of Century and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and assets
and maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or take any action reasonably
likely to have an adverse affect upon Century's ability to perform any of its
material obligations under this Agreement.
(b) Capital Stock. Other than pursuant to Rights Previously
Disclosed and outstanding on the date hereof, (i) issue, sell or otherwise
permit to become outstanding, or authorize the creation of, any additional
shares of Century Stock or any Rights, (ii) enter into any agreement with
respect to the foregoing, or (iii) permit any additional shares of Century Stock
to become subject to new grants of employee or director stock options, other
Rights or similar stock-based employee rights.
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(c) Dividends, Etc. (a) Make, declare, pay or set aside for
payment any dividend, other than dividends from wholly-owned Subsidiaries to
Century or another wholly-owned Subsidiary of Century) on or in respect of, or
declare or make any distribution on any shares of Century Stock or (b) directly
or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise
acquire, any shares of its capital stock.
(d) Compensation; Employment Agreements; Etc. Enter into or
amend or renew any employment, consulting, severance or similar agreements or
arrangements with any director, officer or employee of Century or its
Subsidiaries, or grant any salary or wage increase or increase any employee
benefit, (including incentive or bonus payments) except (i) for normal
individual payments of incentives and bonuses to employees in the ordinary
course of business consistent with past practice, not to exceed $400,000 in the
aggregate, (ii) mutually agreeable amendments to the Employment Agreement, as
amended, between Century and its President, (iii) for normal individual
increases in compensation to employees in the ordinary course of business
consistent with past practice, (iv) for other changes that are required by
applicable law, (v) to satisfy Previously Disclosed contractual obligations
existing as of the date hereof, (vi) for grants of awards to newly hired
employees consistent with past practice.
(e) Benefit Plans. Enter into, establish, adopt or amend (except
(i) as may be required by applicable law or (ii) to satisfy Previously Disclosed
contractual obligations existing as of the date hereof) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement (or similar
arrangement) related thereto, in respect of any director, officer or employee of
Century or its Subsidiaries, or take any action to accelerate the vesting or
exercisability of stock options, restricted stock or other compensation or
benefits payable thereunder.
(f) Dispositions. Except as Previously Disclosed, sell,
transfer, mortgage, encumber or otherwise dispose of or discontinue any of its
assets, deposits, business or properties except in the ordinary course of
business and in a transaction that is not material to it and its Subsidiaries
taken as a whole.
(g) Acquisitions. Except as Previously Disclosed, acquire (other
than by way of foreclosures or acquisitions of control in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in
each case in the ordinary and usual course of business consistent with past
practice) all or any portion of, the assets, business, deposits or properties of
any other entity.
(h) Governing Documents. Amend the Century Certificate, Century
By-laws or the certificate of incorporation or by-laws (or similar governing
documents) of any of Century's Subsidiaries.
(i) Accounting Methods. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles.
(j) Contracts. Except in the ordinary course of business
consistent with past practice, enter into or terminate any material contract (as
defined in Section 6.03(k)) or amend or modify in any material respect any of
its existing material contracts.
(k) Claims. Except in the ordinary course of business consistent
with past practice, settle any claim, action or proceeding, except for any
claim, action or proceeding which does not involve precedent for other material
claims, actions or proceedings and which involve solely money damages in an
amount,
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individually or in the aggregate for all such settlements, that is not material
to Century and its Subsidiaries, taken as a whole.
(l) Adverse Actions. (a) Take any action while knowing that
such action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code; or
(b) knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to the
Effective Time, (ii) any of the conditions to the Merger set forth in Article
VIII not being satisfied or (iii) a material violation of any provision of this
Agreement except, in each case, as may be required by applicable law or
regulation.
(m) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate and
other risk management policies, procedures or practices; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk.
(n) Indebtedness. Incur any indebtedness for borrowed money
other than in the ordinary course of business.
(o) Commitments. Agree or commit to do any of the foregoing.
5.02 Forebearances of United. From the date hereof until the Effective
Time, except as expressly contemplated by this Agreement, without the prior
written consent of Century, United will not, and will cause each of its
Subsidiaries not to:
(a) Ordinary Course. Conduct the business of United and its
Subsidiaries other than in the ordinary and usual course or fail to use
reasonable efforts to preserve intact their business organizations and assets
and maintain their rights, franchises and existing relations with customers,
suppliers, employees and business associates, or take any action reasonably
likely to have an adverse effect upon United's ability to perform any of its
material obligations under this Agreement.
(b) Risk Management. Except as required by applicable law or
regulation, (i) implement or adopt any material change in its interest rate and
other risk management policies, procedures or practices; (ii) fail to follow its
existing policies or practices with respect to managing its exposure to interest
rate and other risk; or (iii) fail to use commercially reasonable means to avoid
any material increase in its aggregate exposure to interest rate risk.
(c) Extraordinary Dividends. Make, declare, pay or set aside for
payment any extraordinary dividend, other than in connection with the United
Stock Repurchase Program.
(d) Adverse Actions. (a) Take any action while knowing that
such action would, or is reasonably likely to, prevent or impede the Merger from
qualifying as a reorganization within the meaning of Section 368 of the Code; or
(b) knowingly take any action that is intended or is reasonably likely to result
in (i) any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time at or prior to the
Effective Time, (ii) any of the conditions to the Merger set forth in Article
VIII not being satisfied or (iii) a material violation of any provision of this
Agreement except, in
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each case, as may be required by applicable law or regulation; provided,
however, that nothing contained herein shall limit the ability of United to
exercise its rights under the Stock Option Agreement.
(e) Transactions Involving United. United agrees that prior to
the Effective time it shall not, and shall not permit any United Subsidiary, to
enter into any agreement, arrangement or understanding with respect to the
merger, acquisition, consolidation, share exchange or similar business
combination involving United and/or a United Subsidiary, where the effect of
such agreement, arrangement or understanding, or the consummation or
effectuation thereof, would be reasonably likely to result in the termination of
this Agreement, materially delay or jeopardize the receipt of the approval of
any Regulatory Authority or the filing of an application therefor, or cause the
anticipated tax treatment of the transactions contemplated hereby to be
unavailable; provided, however, that nothing herein shall prohibit any such
transaction that by its terms contemplates the consummation of the Merger in
accordance with the provisions of this Agreement and which treats holders of
Century Common Stock, upon completion of the Merger and their receipt of United
Stock, in the same manner as the holders of United Stock.
(f) Commitments. Agree or commit to do any of the foregoing.
ARTICLE VI
Representations and Warranties
6.01 Disclosure Schedules. On or prior to the date hereof, United has
delivered to Century a schedule and Century has delivered to United a schedule
(respectively, its "Disclosure Schedule") setting forth, among other things,
items the disclosure of which is necessary or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more representations or warranties contained in Section 6.03
or 6.04 or to one or more of its covenants contained in Article IV; provided,
that (a) no such item is required to be set forth in a Disclosure Schedule as an
exception to a representation or warranty if its absence would not be reasonably
likely to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 6.02, and (b) the mere
inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that such
item represents a material exception or fact, event or circumstance or that such
item is reasonably likely to result in a Material Adverse Effect on the party
making the representation. All of Century's representations, warranties and
covenants contained in this Agreement are qualified by reference to the
Disclosure Schedule and none thereof shall be deemed to be untrue or breached as
a result of effects arising solely from actions taken in compliance with a
written request of United.
6.02 Standard. No representation or warranty of Century or United
contained in Section 6.03 or 6.04 shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, as a
consequence of the existence of any fact, event or circumstance unless such
fact, circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or warranty
contained in Section 6.03 or 6.04 has had or is reasonably likely to have a
Material Adverse Effect. For purposes of this Agreement, "knowledge" shall mean
(i) with respect to United, actual knowledge of Richard M. Adams, Richard M.
Adams, Jr., Kendal E. Carson, James J. Consagra, Jr., James B. Hayhurst, Jr.,
John Neuner, III, Joe L. Wilson and Steven E. Wilson, and (ii) with
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respect to Century, actual knowledge of Joseph S. Bracewell, Dale G. Phelps, F.
Kathryn Roberts, Marvin Fabrikant, Kathleen M. Curtis and Shaza L. Andersen.
6.03 Representations and Warranties of Century. Subject to Sections
6.01 and 6.02 and except as Previously Disclosed, Century hereby represents and
warrants to United:
(a) Organization and Standing. Century is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware. Century is duly qualified to do business and is in good standing in
the states of the United States and any foreign jurisdictions where its
ownership or leasing of property or assets or the conduct of its business
requires it to be so qualified.
(b) Capitalization. As of the date hereof, the authorized
--------------
capital stock of Century consists of (i) 10,000,000 shares of Century Common
Stock, of which as of May 31, 2001, 4,323,110 shares were outstanding and an
additional 150,150 shares were held in treasury, (ii) 1,000,000 shares of
preferred stock, $1.00 par value, none of which are issued and outstanding or
held in treasury as of the date hereof. As of the date hereof, except pursuant
to the terms of options and stock issued pursuant to employee and director stock
plans of Century in effect as of the date hereof (the "Century Stock Plans"),
Century does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Century Common Stock or any other
equity securities of Century or any of its Subsidiaries or any securities
representing the right to purchase or otherwise receive any shares of Century
Common Stock or other equity securities of Century or any of its Subsidiaries.
As of May 31, 2001, 1,039,422 shares of Century Common Stock were reserved for
issuance upon the exercise of stock options pursuant to the Century Stock Plans
of which options to purchase 950,996 shares of Century Common Stock have been
issued. The outstanding shares of Century Stock have been duly authorized and
are validly issued and outstanding, fully paid and nonassessable, and subject to
no preemptive rights (and were not issued in violation of any preemptive
rights).
(c) Subsidiaries. (i) Century has Previously Disclosed a list
-------------
of all of its Subsidiaries together with the jurisdiction of organization of
each such Subsidiary. (A) Century owns, directly or indirectly, all the issued
and outstanding equity securities of each of its Subsidiaries, (B) no equity
securities of any of its Subsidiaries are or may become required to be issued
(other than to it or its wholly-owned Subsidiaries) by reason of any Right or
otherwise, (C) there are no contracts, commitments, understandings or
arrangements by which any of such Subsidiaries is or may be bound to sell or
otherwise transfer any equity securities of any such Subsidiaries (other than to
it or its wholly-owned Subsidiaries), (D) there are no contracts, commitments,
understandings, or arrangements relating to its rights to vote or to dispose of
such securities and (E) all the equity securities of each Subsidiary held by
Century or its Subsidiaries are fully paid and nonassessable (except pursuant to
12 U.S.C. ss. 55) and are owned by Century or its Subsidiaries free and clear of
any Liens.
(ii) Century has Previously Disclosed a list of all
equity securities, or similar interests of any Person or any interest in a
partnership or joint venture of any kind, other than its Subsidiaries, that it
beneficially owns, directly or indirectly, as of May 31, 2001.
(iii) Each of Century's Subsidiaries has been duly
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization, and is duly qualified to do business and in
good standing in the jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified.
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(d) Corporate Power. Each of Century and its Subsidiaries has
---------------
the corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and Century has the
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and the Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby.
(e) Corporate Authority. Subject in the case of this Agreement
-------------------
to receipt of the requisite approval of this Agreement (including the agreement
of merger set forth herein) by the holders of more than two-thirds of the
outstanding shares of Century Common Stock entitled to vote thereon (which is
the only vote of Century stockholders required thereon), the execution and
delivery of this Agreement and the Stock Option Agreement and the transactions
contemplated hereby and thereby have been authorized by all necessary corporate
action of Century and the Century Board. Assuming due authorization, execution
and delivery by United, this Agreement is a valid and legally binding obligation
of Century, enforceable in accordance with its terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles). The Century Board
of Directors has received the written opinion of Friedman, Billings Ramsey &
Company, Inc. to the effect that as of the date hereof the consideration to be
received by the holders of Century Common Stock in the Merger is fair to the
holders of Century Common Stock from a financial point of view.
(f) Consents and Approvals; No Defaults. (i) No consents or
-----------------------------------
approvals of, or filings or registrations with, any Governmental Authority or
with any third party are required to be made or obtained by Century or any of
its Subsidiaries in connection with the execution, delivery or performance by
Century of this Agreement or the Stock Option Agreement or to consummate the
Merger except for (A) filings of applications or notices with federal and state
banking and insurance authorities, (B) filings with the SEC, the NASDAQ Stock
Market and state securities authorities, and (C) the filing of articles of
merger with the Secretary of State of Delaware pursuant to the DGCL and the
issuance of a certificate of merger in connection therewith. As of the date
hereof, Century is not aware of any reason why the approvals set forth in
Section 8.01(b) will not be received without the imposition of a condition,
restriction or requirement of the type described in Section 8.01(b).
(ii) Subject to receipt of the regulatory approvals
referred to in the preceding paragraph, and expiration of related waiting
periods, the execution, delivery and performance of this Agreement and the Stock
Option Agreement and the consummation of the transactions contemplated hereby
and thereby do not and will not (A) constitute a breach or violation of, or a
default under, or give rise to any Lien, any acceleration of remedies or any
right of termination under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or any agreement, indenture or instrument
of Century or of any of its Subsidiaries or to which Century or any of its
Subsidiaries or properties is subject or bound, (B) constitute a breach or
violation of, or a default under, the Century Certificate or the Century By-
Laws, or (C) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license or any
agreement, indenture or instrument.
(g) Financial Reports and SEC Documents; Absence of Certain
-------------------------------------------------------
Changes or Events. (i) Century's Annual Reports on Form 10-K for the fiscal
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years ended December 31, 1998, 1999 and 2000, and all other reports,
registration statements, definitive proxy statements or information statements
filed or to be filed by it or any of its Subsidiaries subsequent to December 31,
1998 under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, in the form filed or to be filed (collectively, Century's
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"SEC Documents") with the SEC, as of the date filed, (A) as to Form, complied or
will comply in all material respects with the applicable requirements under the
Securities Act or the Exchange Act, as the case may be, and (B) did not and will
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
each of the balance sheets or statements of condition of Century contained in or
incorporated by reference into any such SEC Document (including the related
notes and schedules thereto) fairly presents, or will fairly present, the
financial position of Century and its Subsidiaries as of its date, and each of
the statements of income and changes in stockholders' equity and cash flows or
equivalent statements of Century in such SEC Documents (including any related
notes and schedules thereto) fairly presents, or will fairly present, the
results of operations, changes in stockholders' equity and cash flows, as the
case may be, of Century and its Subsidiaries for the periods to which they
relate, in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except in each case as may be
noted therein, and subject to normal year-end audit adjustments and the absence
of footnotes in the case of unaudited statements.
(ii) Since March 31, 2001, Century and its
Subsidiaries have not incurred any liability other than in the ordinary course
of business consistent with past practice.
(iii) Since March 31, 2001, (A) Century and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course consistent with past practice (excluding matters related to this
Agreement and the transactions contemplated hereby) and (B) no event has
occurred or circumstance arisen that, individually or taken together with all
other facts, circumstances and events (described in any paragraph of Section
6.03 or otherwise), is reasonably likely to have a Material Adverse Effect with
respect to Century.
(h) Litigation. No litigation, claim or other proceeding before
----------
any court or governmental agency is pending against Century or any of its
Subsidiaries and, to Century's knowledge, no such litigation, claim or other
proceeding has been threatened.
(i) Regulatory Matters. (i) Neither Century nor any of its
------------------
Subsidiaries or properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory letter
from, any federal or state governmental agency or authority charged with the
supervision or regulation of financial institutions (or their holding companies)
or issuers of securities or engaged in the insurance of deposits (including,
without limitation, the Office of the Comptroller of the Currency, the Federal
Reserve Board and the Federal Deposit Insurance Corporation) or the supervision
or regulation of it or any of its Subsidiaries (collectively, the "Regulatory
Authorities").
(ii) Neither Century nor any of its Subsidiaries has
been advised by any Regulatory Authority that such Regulatory Authority is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter, supervisory letter or similar submission.
(iii) Century is not a financial holding company as
defined by the Gramm-Leach-Bliley Act of 1999.
(j) Compliance with Laws. Each of Century and its Subsidiaries:
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(i) is in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the employees conducting
such businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending laws and other laws
relating to discriminatory business practices;
(ii) has all permits, licenses, authorizations, orders
and approvals of, and has made all filings, applications and registrations with,
all Governmental Authorities that are required in order to permit them to own or
lease their properties and to conduct their businesses as presently conducted;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect and, to Century's knowledge, no suspension or
cancellation of any of them is threatened;
(iii) has received, since December 31, 1998, no
notification or communication from any Governmental Authority (A) asserting that
Century or any of its Subsidiaries is not in compliance with any of the
statutes, regulations, or ordinances which such Governmental Authority enforces
or (B) threatening to revoke any license, franchise, permit, or governmental
authorization (nor, to Century's knowledge, do any grounds for any of the
foregoing exist); and
(iv) as of July 1, 2001, will be in compliance with
the privacy provisions of the Gramm-Leach-Bailey Act, and all other applicable
laws relating to consumer privacy.
(k) Material Contracts; Defaults. Except for this Agreement,
----------------------------
the Stock Option Agreement and those agreements and other documents filed as
exhibits to Century's SEC Documents, neither Century nor any of its Subsidiaries
is a party to, bound by or subject to any agreement, contract, arrangement,
commitment or understanding (whether written or oral) (i) that is a "material
contract" within the meaning of Item 601(b)(10) of the SEC's Regulation S-K or
(ii) that restricts or limits in any way the conduct of business by it or any of
its Subsidiaries (including without limitation a non-compete or similar
provision). Neither Century nor any of its Subsidiaries is in default under any
contract, agreement, commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its respective assets, business, or
operations may be bound or affected, or under which it or its respective assets,
business, or operations receive benefits, and there has not occurred any event
that, with the lapse of time or the giving of notice or both, would constitute
such a default.
(l) No Brokers. No action has been taken by Century that would
----------
give rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated by this Agreement, excluding a Previously Disclosed fee to be paid
to Friedman, Billings, Ramsey & Co., Inc.
(m) Employee Benefit Plans. (i) Century has Previously Disclosed
----------------------
a complete and accurate list of all existing bonus, incentive, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
severance, welfare and fringe benefit plans, employment or severance agreements
and all similar practices, policies and arrangements in which any employee or
former employee (the "Employees"), consultant or former consultant (the
"Consultants") or director or former director (the "Directors") of Century or
any of its Subsidiaries participates or to which any such Employees, Consultants
or Directors are a party (the "Compensation and Benefit Plans"). Neither Century
nor any of its Subsidiaries has any commitment to create any additional
Compensation and Benefit Plan or to modify or change any existing Compensation
and Benefit Plan.
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(ii) Each Compensation and Benefit Plan has been operated
and administered in all material respects in accordance with its terms and with
applicable law, including, but not limited to, ERISA, the Code, the Securities
Act, the Exchange Act, the Age Discrimination in Employment Act, or any
regulations or rules promulgated thereunder, and all filings, disclosures and
notices required by ERISA, the Code, the Securities Act, the Exchange Act, the
Age Discrimination in Employment Act and any other applicable law have been
timely made. Each Compensation and Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and
which is intended to be qualified under Section 401(a) of the Code has received
a favorable determination letter or has applied for a favorable determination
letter in compliance with the Code (including a determination that the related
trust under such Compensation and Benefit Plan is exempt from tax under Section
501(a) of the Code) from the Internal Revenue Service ("IRS"), and Century is
not aware of any circumstances likely to result in the revocation of any
existing favorable determination letter or in not receiving a favorable
determination letter. There is no material pending or, to the knowledge of
Century, threatened legal action, suit or claim relating to the Compensation and
Benefit Plans other than routine claims for benefits. Neither Century nor any of
its Subsidiaries has engaged in a transaction, or omitted to take any action,
with respect to any Compensation and Benefit Plan that would reasonably be
expected to subject Century or any of its Subsidiaries to a tax or penalty
imposed by either Section 4975 of the Code or Section 502 of ERISA, assuming for
purposes of Section 4975 of the Code that the taxable period of any such
transaction expired as of the date hereof.
(iii) No Compensation and Benefit Plans currently
maintained, or maintained within the last six years, by Century or any of its
Subsidiaries or any entity (and "ERISA Affiliate") which is considered one
employer with Century under Section 4001(a)(14) of ERISA or Section 414(b) or
(c) of the Code is or was subject to Title IV of ERISA or is or was a
Multiemployer plan under Subtitle E of Title IV of ERISA. To the knowledge of
Century, there is no pending investigation or enforcement action by the PBGC,
the Department of Labor (the "DOL") or IRS or any other governmental agency with
respect to any Compensation and Benefit Plan.
(iv) All contributions required to be made under the terms
of any Compensation and Benefit Plan or any employee benefit arrangements under
any collective bargaining agreement to which Century or any of its Subsidiaries
is a party have been timely made or have been reflected on Century's financial
statements. None of Century, any of its Subsidiaries or any ERISA Affiliate (x)
has provided, or would reasonably be expected to be required to provide,
security to any Pension Plan pursuant to Section 401(a)(29) of the Code, and (y)
has taken any action, or omitted to take any action, that has resulted, or would
reasonably be expected to result, in the imposition of a lien under Section
412(n) of the Code or pursuant to ERISA.
(v) Neither Century nor any of its Subsidiaries has any
obligations to provide retiree health and life insurance or other retiree death
benefits under any Compensation and Benefit Plan, other than benefits mandated
by Section 4980B of the Code, and each such Compensation and Benefit Plan may be
amended or terminated without incurring liability thereunder. There has been no
communication to Employees by Century or any of its Subsidiaries that would
reasonably be expected to promise or guarantee such Employees retiree health or
life insurance or other retiree death benefits on a permanent basis.
(vi) Century and its Subsidiaries do not maintain any
Compensation and Benefit Plans covering foreign Employees.
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(vii) With respect to each Compensation and Benefit Plan, if
applicable, Century has provided or made available to United, true and complete
copies of existing: (A) Compensation and Benefit Plan documents and amendments
thereto; (B) trust instruments and insurance contracts; (C) two most recent
Forms 5500 filed with the IRS; (D) most recent actuarial report and financial
statement; (E) the most recent summary plan description; (F) most recent
determination letter issued by the IRS; (G) any Form 5310 or Form 5330 filed
with the IRS; and (H) most recent nondiscrimination tests performed under ERISA
and the Code (including 401(k) and 401(m) tests).
(viii) The consummation of the transactions contemplated by this
Agreement would not, directly or indirectly (including, without limitation, as a
result of any termination of employment prior to or following the Effective
Time) reasonably be expected to (A) entitle any Employee, Consultant or Director
to any payment (including severance pay or similar compensation) or any increase
in compensation, (B) result in the vesting or acceleration of any benefits under
any Compensation and Benefit Plan or (C) result in any material increase in
benefits payable under any Compensation and Benefit Plan.
(ix) Neither Century nor any of its Subsidiaries maintains any
compensation plans, programs or arrangements the payments under which would not
reasonably be expected to be deductible as a result of the limitations under
Section 162(m) of the Code and the regulations issued thereunder.
(x) As a result, directly or indirectly, of the transactions
contemplated by this Agreement (including, without limitation, as a result of
any termination of employment prior to or following the Effective Time), none of
United, Century or the Surviving Corporation, or any of their respective
Subsidiaries will be obligated to make a payment that would be characterized as
an "excess parachute payment" to an individual who is a "disqualified
individual" (as such terms are defined in Section 280G of the Code), without
regard to whether such payment is reasonable compensation for personal services
performed or to be performed in the future.
(n) Labor Matters. Neither Century nor any of its Subsidiaries is a party
-------------
to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
Century or any of its Subsidiaries the subject of a proceeding asserting that it
or any such Subsidiary has committed an unfair labor practice (within the
meaning of the National Labor Relations Act) or seeking to compel Century or any
such Subsidiary to bargain with any labor organization as to wages or conditions
of employment, nor is there any strike or other labor dispute involving it or
any of its Subsidiaries pending or, to Century's knowledge, threatened, nor is
Century aware of any activity involving its or any of its Subsidiaries'
employees seeking to certify a collective bargaining unit or engaging in other
organizational activity.
(o) Takeover Laws; Dissenters Rights. Century has taken all action required
--------------------------------
to be taken by it in order to exempt this Agreement, the Stock Option Agreement
and the transactions contemplated hereby and thereby from, and this Agreement,
the Stock Option Agreement and the transactions contemplated hereby and thereby
are exempt from, the requirements of any "moratorium", "control share", "fair
price", "affiliate transaction", "business combination" or other antitakeover
laws and regulations of any state applicable to Century (collectively, "Takeover
Laws"), including, without limitation, Section 2.03 of the DGCL.
(p) Environmental Matters. To Century's knowledge, neither the conduct nor
---------------------
operation of Century or its Subsidiaries nor any condition of any property
presently or previously owned, leased or operated by any of them (including,
without limitation, in a fiduciary or agency capacity), or on which any
A-22
of them holds a Lien, violates or violated Environmental Laws and to Century's
knowledge, no condition has existed or event has occurred with respect to any of
them or any such property that, with notice or the passage of time, or both, is
reasonably likely to result in liability under Environmental Laws. To Century's
knowledge, neither Century nor any of its Subsidiaries has received any notice
from any person or entity that Century or its Subsidiaries or the operation or
condition of any property ever owned, leased, operated, or held as collateral or
in a fiduciary capacity by any of them are or were in violation of or otherwise
are alleged to have liability under any Environmental Law, including, but not
limited to, responsibility (or potential responsibility) for the cleanup or
other remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such property.
(q) Tax Matters. (i) All Tax Returns that are required to be filed by or
-----------
with respect to Century and its Subsidiaries have been duly filed, (ii) all
Taxes shown to be due on the Tax Returns referred to in clause (i) have been
paid in full, (iii) the Tax Returns referred to in clause (i) have been examined
by the Internal Revenue Service or the appropriate state, local or foreign
taxing authority or the period for assessment of the Taxes in respect of which
such Tax Returns were required to be filed has expired, (iv) all deficiencies
asserted or assessments made as a result of such examinations have been paid in
full, (v) no issues that have been raised by the relevant taxing authority in
connection with the examination of any of the Tax Returns referred to in clause
(i) are currently pending, and (vi) no waivers of statutes of limitation have
been given by or requested with respect to any Taxes of Century or its
Subsidiaries. Century has made available to United true and correct copies of
the United States Federal Income Tax Returns filed by Century and its
Subsidiaries for each of the three most recent fiscal years ended on or before
December 31, 2000. Neither Century nor any of its Subsidiaries has any liability
with respect to income, franchise or similar Taxes that accrued on or before the
end of the most recent period covered by Century's SEC Documents filed prior to
the date hereof in excess of the amounts accrued with respect thereto that are
reflected in the financial statements included in Century's SEC Documents filed
on or prior to the date hereof. As of the date hereof, neither Century nor any
of its Subsidiaries has any reason to believe that any conditions exist that
might prevent or impede the Merger from qualifying as a reorganization within
the meaning of Section 368(a) of the Code.
(ii) No Tax is required to be withheld pursuant to Section 1445 of
the Code as a result of the transfer contemplated by this Agreement.
(r) Risk Management Instruments. Neither Century nor any of its
---------------------------
subsidiaries are parties to any interest rate swaps, caps, floors, option
agreements, futures and forward contracts and other similar risk management
arrangements, whether entered into for Century's own account, or for the account
of one or more of Century's Subsidiaries or their customers.
(s) Books and Records. The books and records of Century and its
-----------------
Subsidiaries have been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein and they fairly reflect the substance of events
and transactions included therein.
(t) Insurance. Century Previously Disclosed all of the insurance policies,
---------
binders, or bonds maintained by Century or its Subsidiaries. Century and its
Subsidiaries are insured with insurers believed to be reputable against such
risks and in such amounts as the management of Century reasonably has determined
to be prudent in accordance with industry practices. All such insurance policies
are in full force
A-23
and effect; Century and its Subsidiaries are not in material default thereunder;
and all claims thereunder have been filed in due and timely fashion.
(u) Disclosure. The representations and warranties contained in
----------
this Section 6.03 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 6.03, in light of the circumstances in
which they are made, not misleading.
6.04 Representations and Warranties of United. Subject to Sections
6.01 and 6.02 and except as Previously Disclosed. United hereby represents and
warrants to Century as follows:
(a) Organization and Standing. United is a corporation duly
-------------------------
organized, validly existing and in good standing under the laws of the State of
West Virginia. United is duly qualified to do business and is in good standing
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or assets or the conduct of its business requires it to
be so qualified.
(b) United Stock. (i) As of the date hereof, the authorized
------------
capital stock of United consists solely of 100,000,000 shares of United Common
Stock, of which as of May 31, 2001, 43,381,769 shares, including 1,992,509
shares held in treasury, were outstanding. As of the date hereof, except as set
forth in its Disclosure Schedule, United does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of United
Common Stock or any other equity securities of United or any of its Subsidiaries
or any securities representing the right to purchase or otherwise receive any
shares of United Common Stock or other equity securities of United or any of its
Subsidiaries. As of May 31, 2001, United has 1,450,974 shares of United Common
Stock which are issuable and reserved for issuance upon exercise of United Stock
Options. The outstanding shares of United Common Stock have been duly authorized
and are validly issued and outstanding, fully paid and nonassessable, and
subject to no preemptive rights (and were not issued in violation of any
preemptive rights).
(ii) The shares of United Common Stock to be issued in
exchange for shares of Century Common Stock in the Merger, when issued in
accordance with the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership thereof, subject to no preemptive rights and authorized for
trading on the NASDAQ National Market System.
(c) Subsidiaries. Each of United's Subsidiaries has been duly
------------
organized and is validly existing in good standing under the laws of the
jurisdiction of its organization, and is duly qualified to do business and is in
good standing in the jurisdictions where its ownership or leasing of property or
the conduct of its business requires it to be so qualified and it owns, directly
or indirectly, all the issued and outstanding equity securities of each of its
Significant Subsidiaries.
(d) Corporate Power. Each of United and its Subsidiaries has the
---------------
corporate power and authority to carry on its business as it is now being
conducted and to own all its properties and assets; and United has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the Stock Option Agreement and to consummate the transactions
contemplated hereby and thereby.
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(e) Corporate Authority. This Agreement, the Stock Option
-------------------
Agreement and the transactions contemplated hereby and thereby have been
authorized by all necessary corporate action of United and the United Board
prior to the date hereof. Shareholder approval of the transactions contemplated
hereby and thereby is not required. Assuming due authorization, execution and
delivery by Century, this Agreement is a valid and legally binding agreement of
United, enforceable in accordance with its terms (except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles).
(f) Consents and Approvals; No Defaults. (i) No consents or
-----------------------------------
approvals of, or filings or registrations with, any Governmental Authority or
with any third party are required to be made or obtained by United or any of its
Subsidiaries in connection with the execution, delivery or performance by United
of this Agreement or to consummate the Merger except for (A) filings of
applications and notices, with the federal and state banking and insurance
authorities; (B) filings with, and approval by, the NASDAQ National Market
System regarding the United Common Stock to be issued in the Merger; (C) the
filing and declaration of effectiveness of the Registration Statement; (D) the
filing of articles of merger with the Secretary of State pursuant to the DGCL
and the issuance of the related certificate of merger; (E) such filings as are
required to be made or approvals as are required to be obtained under the
securities or "Blue Sky" laws of various states in connection with the issuance
of United Stock in the Merger; and (F) receipt of the approvals set forth in
Section 8.01(b). As of the date hereof, United is not aware of any reason why
the approvals set forth in Section 8.01(b) will not be received without the
imposition of a condition, restriction or requirement of the type described in
Section 8.01(b).
(ii) Subject to the satisfaction of the requirements
referred to in the preceding paragraph and expiration of the related waiting
periods, the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby do not and will not (A)
constitute a breach or violation of, or a default under, or give rise to any
Lien, any acceleration of remedies or any right of termination under, any law,
rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of United or of any of its
Subsidiaries or to which United or any of its Subsidiaries or properties is
subject or bound, (B) constitute a breach or violation of, or a default under,
the certificate of incorporation or by-laws (or similar governing documents) of
United or any of its Subsidiaries, or (C) require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license, agreement, indenture or instrument.
(g) Financial Reports and SEC Documents; Absence of Certain
-------------------------------------------------------
Changes or Events. (i) United's Annual Report on Form 10-K for the fiscal years
- -----------------
ended December 31, 1998, 1999 and 2000 and all other reports, registration
statements, definitive proxy statements or information statements filed or to be
filed by it or any of its Subsidiaries subsequent to December 31, 1998, under
the Securities Act or under Section 13(a), 13(c), 14 or 15(d) of the Exchange in
the form filed or to be filed (collectively "United's SEC Documents"), as of the
date filed, (A) as to form complied or will comply in all material respects with
the applicable requirements under the Securities Act or the Exchange Act, as the
case may be, and (B) did not and will 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 each of the balance sheets or
statements of condition of United contained in or incorporated by reference into
any such SEC Document (including the related notes and schedules thereto) fairly
presents, or will fairly present, the financial position of United and its
Subsidiaries as of its
A-25
date, and each of the statements of income or results of operations and changes
in stockholders' equity and cash flows or equivalent statements of United in
such SEC Documents (including any related notes and schedules thereto) fairly
presents, or will fairly present, the results of operations, changes in
stockholders' equity and cash flows, as the case may be, of United and its
Subsidiaries for the periods to which they relate, in each case in accordance
with generally accepted accounting principles consistently applied during the
periods involved, except in each case as may be noted therein, and subject to
normal year-end audit adjustments in the case of unaudited statements.
(ii) Since March 31, 2001, United and its Subsidiaries
have not incurred any liability other than in the ordinary course of business
consistent with past practice.
(iii) Since March 31, 2001, (A) United and its
Subsidiaries have conducted their respective businesses in the ordinary and
usual course consistent with past practice (excluding matters related to this
Agreement and the transactions contemplated hereby) and (B) no event has
occurred or circumstance arisen that, individually or taken together with all
other facts, circumstances and events (described in any paragraph of Section
6.04 or otherwise), is reasonably likely to have a Material Adverse Effect with
respect to United.
(h) Litigation. No litigation, claim or other proceeding before
----------
any Governmental Authority is pending against United or any of its Subsidiaries
and, to the best of United's knowledge, no such litigation, claim or other
proceeding has been threatened.
(i) Regulatory Matters. (i) Neither United nor any of its
------------------
Subsidiaries or properties is a party to or is subject to any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, or extraordinary supervisory letter
from, any Regulatory Authority.
(ii) Neither United nor any of its Subsidiaries or
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, or extraordinary supervisory letter from a Regulatory
Authority, nor has United or any of its Subsidiaries been advised by a
Regulatory Authority that such agency is contemplating issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter, supervisory
letter or similar submission.
(iii) United is not a financial holding company as
defined by the Gramm-Leach-Bailey Act of 1999.
(j) Compliance with Laws. Each of United and its Subsidiaries:
--------------------
(i) is in compliance with all applicable federal,
state, local and foreign statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable thereto or to the employees conducting
such businesses, including, without limitation, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure Act and all other applicable fair lending laws and other laws
relating to discriminatory business practices;
A-26
(ii) has all permits, licenses, authorizations, orders and
approvals of, and has made all filings, applications and registrations with, all
Governmental Authorities that are required in order to permit them to conduct
their businesses substantially as presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect and, to the best of its knowledge, no suspension or cancellation of any
of them is threatened;
(iii) has received, since December 31, 1998, no notification
or communication from any Governmental Authority (A) asserting that United or
any of its Subsidiaries is not in compliance with any of the statutes,
regulations, or ordinances which such Governmental Authority enforces or (B)
threatening to revoke any license, franchise, permit, or governmental
authorization (nor, to United's knowledge, do any grounds for any of the
foregoing exist); and
(iv) as of July 1, 2001, will be in compliance with the
privacy provisions of the Gramm-Leach-Bailey Act, and all other applicable laws
relating to consumer privacy.
(k) Employee Benefit Plans. United has Previously Disclosed a
----------------------
complete and accurate list of all existing bonus, incentive, deferred
compensation, pension, retirement, profit-sharing, thrift, savings, employee
stock ownership, stock bonus, stock purchase, restricted stock, stock option,
severance, welfare and fringe benefit plans, employment or severance agreements
and all similar practices, policies and arrangements in which any employee or
former employee (the "United Employees"), consultant or former consultant (the
"United Consultants") or director or former director (the "United Directors") of
United or any of its Subsidiaries participates or to which any United Employees,
United Consultants or United Directors are a party (the "United Compensation and
Benefit Plans").
(ii) Each United Compensation and Benefit Plan has been
operated and administered in all material respects in accordance with its terms
and with applicable law, including, but not limited to, ERISA, the Code, the
Securities Act, the Exchange Act, the Age Discrimination in Employment Act, or
any regulations or rules promulgated thereunder, and all filings, disclosures
and notices required by ERISA, the Code, the Securities Act, the Exchange Act,
the Age Discrimination in Employment Act and any other applicable law have been
timely made. Each Compensation and Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (a "United Pension
Plan") and which is intended to be qualified under Section 401(a) of the Code
has received a favorable determination letter (including a determination that
the related trust under such United Compensation and Benefit Plan is exempt from
tax under Section 501(a) of the Code) from the Internal Revenue Service ("IRS"),
and United is not aware of any circumstances likely to result in revocation of
any such favorable determination letter. There is no material pending or, to the
knowledge of United, threatened legal action, suit or claim relating to the
United Compensation and Benefit Plans other than routine claims for benefits.
Neither United nor any of its Subsidiaries has engaged in a transaction, or
omitted to take any action, with respect to any United Compensation and Benefit
Plan that would reasonably be expected to subject United or any of its
Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code or
Section 502 of ERISA, assuming for purposes of Section 4975 of the Code that the
taxable period of any such transaction expired as of the date hereof.
(iii) No liability (other than for payment of premiums to
the PBGC which have been made or will be made on a timely basis) under Title IV
of ERISA has been or is expected to be incurred by United or any of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any of them, or
A-27
any single-employer plan of any entity (an " United ERISA Affiliate") which is
considered one employer with United under Section 4001(a)(14) of ERISA or
Section 414(b) or (c) of the Code (an "United ERISA Affiliate Plan"). None of
United, any of its Subsidiaries or any United ERISA Affiliate has contributed,
or has been obligated to contribute, to a multiemployer plan under Subtitle E of
Title IV of ERISA at any time since September 26, 1980. No notice of a
"reportable event", within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any United Compensation and Benefit Plan or by any United ERISA Affiliate
Plan within the 12-month period ending on the date hereof, and no such notice
will be required to be filed as a result of the transactions contemplated by
this Agreement. The PBGC has not instituted proceedings to terminate any Pension
Plan or United ERISA Affiliate Plan and, to United's knowledge, no condition
exists that presents a material risk that such proceedings will be instituted.
To the knowledge of United, there is no pending investigation or enforcement
action by the PBGC, the Department of Labor (the "DOL") or IRS or any other
governmental agency with respect to any United Compensation and Benefit Plan.
Under each United Pension Plan and United ERISA Affiliate Plan, as of the date
of the most recent actuarial valuation performed prior to the date of this
Agreement, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as determined
on the basis of the actuarial assumptions contained in such actuarial valuation
of such United Pension Plan or United ERISA Affiliate Plan), did not exceed the
then current value of the assets of such United Pension Plan or United ERISA
Affiliate Plan and since such date there has been neither an adverse change in
the financial condition of such United Pension Plan or United ERISA Affiliate
Plan nor any amendment or other change to such Pension Plan or ERISA Affiliate
Plan that would increase the amount of benefits thereunder which reasonably
could be expected to change such result.
(iv) All contributions required to be made under the terms
of any United Compensation and Benefit Plan or United ERISA Affiliate Plan or
any employee benefit arrangements under any collective bargaining agreement to
which United or any of its Subsidiaries is a party have been timely made or have
been reflected on United's financial statements. Neither any United Pension Plan
nor any United ERISA Affiliate Plan has an "accumulated funding deficiency"
(whether or not waived) within the meaning of Section 412 of the Code or Section
302 of ERISA and all required payments to the PBGC with respect to each United
Pension Plan or United ERISA Affiliate Plan have been made on or before their
due dates. None of United, any of its Subsidiaries or any United ERISA Affiliate
(x) has provided, or would reasonably be expected to be required to provide,
security to any United Pension Plan or to any United ERISA Affiliate Plan
pursuant to Section 401(a)(29) of the Code, and (y) has taken any action, or
omitted to take any action, that has resulted, or would reasonably be expected
to result, in the imposition of a lien under Section 412(n) of the Code or
pursuant to ERISA.
(v) Neither United nor any of its Subsidiaries has any
obligations to provide retiree health and life insurance or other retiree death
benefits under any United Compensation and Benefit Plan, other than benefits
mandated by Section 4980B of the Code, and each such United Compensation and
Benefit Plan may be amended or terminated without incurring liability
thereunder. There has been no communication to Employees by United or any of its
Subsidiaries that would reasonably be expected to promise or guarantee such
Employees retiree health or life insurance or other retiree death benefits on a
permanent basis.
(vi) United and its Subsidiaries do not maintain any United
Compensation and Benefit Plans covering foreign Employees.
A-28
(vii) With respect to each United Compensation and Benefit
Plan, if applicable, United has provided or made available to Century, true and
complete copies of existing: (A) United Compensation and Benefit Plan documents
and amendments thereto; (B) trust instruments and insurance contracts; (C) two
most recent Forms 5500 filed with the IRS; (D) most recent actuarial report and
financial statement; (E) the most recent summary plan description; (F) forms
filed with the PBGC (other than for premium payments); (G) most recent
determination letter issued by the IRS; (H) any Form 5310 or Form 5330 filed
with the IRS; and (I) most recent nondiscrimination tests performed under ERISA
and the Code (including 401(k) and 401(m) tests).
(viii) The consummation of the transactions contemplated by
this Agreement would not, directly or indirectly (including, without limitation,
as a result of any termination of employment prior to or following the Effective
Time) reasonably be expected to (A) entitle any United Employee, United
Consultant or United Director to any payment (including severance pay or similar
compensation) or any increase in compensation, (B) result in the vesting or
acceleration of any benefits under any United Compensation and Benefit Plan or
(C) result in any material increase in benefits payable under any United
Compensation and Benefit Plan.
(ix) Neither United nor any of its Subsidiaries maintains
any compensation plans, programs or arrangements the payments under which would
not reasonably be expected to be deductible as a result of the limitations under
Section 162(m) of the Code and the regulations issued thereunder.
(x) As a result, directly or indirectly, of the
transactions contemplated by this Agreement (including, without limitation, as a
result of any termination of employment prior to or following the Effective
Time), none of United, Century or the Surviving Corporation, or any of their
respective Subsidiaries will be obligated to make a payment that would be
characterized as an "excess parachute payment" to an individual who is a
"disqualified individual" (as such terms are defined in Section 280G of the
Code), without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(l) No Brokers. No action has been taken by United that would give
----------
rise to any valid claim against any party hereto for a brokerage commission,
finder's fee or other like payment with respect to the transactions contemplated
by this Agreement.
(m) Takeover Laws. United has taken all action required to be taken
-------------
by it in order to exempt this Agreement, the Stock Option Agreement and the
transactions contemplated hereby and thereby from, and this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby are exempt
from, the requirements of any Takeover Laws applicable to United.
(n) Environmental Matters. To United's knowledge, neither the conduct
---------------------
nor operation of United or its Subsidiaries nor any condition of any property
presently or previously owned, leased or operated by any of them (including,
without limitation, in a fiduciary or agency capacity), or on which any of them
holds a Lien, violates or violated Environmental Laws and to Century's knowledge
no condition has existed or event has occurred with respect to any of them or
any such property that, with notice or the passage of time, or both, is
reasonably likely to result in liability under Environmental Laws. To United's
knowledge, neither United nor any of its Subsidiaries has received any notice
from any person or entity that United or its Subsidiaries or the operation or
condition of any property ever owned, leased, operated, or held as collateral or
in a fiduciary capacity by any of them are or were in violation of or otherwise
are alleged to have
A-29
liability under any Environmental Law, including, but not limited to,
responsibility (or potential responsibility) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic wastes,
substances or materials at, on, beneath, or originating from any such property.
(o) Tax Matters. (i) All Tax Returns that are required to be
-----------
filed by or with respect to United and its Subsidiaries have been duly filed,
(ii) all Taxes shown to be due on the Tax Returns referred to in clause (i) have
been paid in full, (iii) the Tax Returns referred to in clause (i) have been
examined by the Internal Revenue Service or the appropriate state, local or
foreign taxing authority or the period for assessment of the Taxes in respect of
which such Tax Returns were required to be filed has expired, (iv) all
deficiencies asserted or assessments made as a result of such examinations have
been paid in full, (v) no issues that have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns referred
to in clause (i) are currently pending, and (vi) no waivers of statutes of
limitation have been given by or requested with respect to any Taxes of United
or its Subsidiaries. Neither United nor any of its Subsidiaries has any
liability with respect to income, franchise or similar Taxes that accrued on or
before the end of the most recent period covered by United's SEC Documents filed
prior to the date hereof in excess of the amounts accrued with respect thereto
that are reflected in the financial statements included in United's SEC
Documents filed on or prior to the date hereof. As of the date hereof, neither
United nor any of its Subsidiaries has any reason to believe that any conditions
exist that might prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(p) Books and Records. The books and records of United and its
-----------------
Subsidiaries have been fully, properly and accurately maintained in all material
respects, and there are no material inaccuracies or discrepancies of any kind
contained or reflected therein, and they fairly present the substance of events
and transactions included therein.
(q) Insurance. United's Disclosure Schedule sets forth all of
---------
the insurance policies, binders, or bonds maintained by United or its
Subsidiaries. United and its Subsidiaries are insured with insurers believed to
be reputable against such risks and in such amounts as the management of United
reasonably has determined to be prudent in accordance with industry practices.
All such insurance policies are in full force and effect; United and its
Subsidiaries are not in material default thereunder; and all claims thereunder
have been filed in due and timely fashion.
(r) Disclosure. The representations and warranties contained in
----------
this Section 6.04 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 6.04, in light of the circumstances under
which they are made, not misleading.
(s) Representations and Warranties of United with Respect to
--------------------------------------------------------
Merger Sub. (i) Organization, Standing and Authority. The Merger Sub is or will
- ----------
be duly organized and is validly existing in good standing under the laws of the
State of its organization, and is or will be duly qualified to do business and
in good standing in the jurisdictions where its ownership or leasing of property
or the conduct of its business requires it to be so qualified. The Merger Sub
will have been organized for the purpose of the transactions contemplated by
this Agreement, and no newly chartered Merger Sub will have previously conducted
any business or incurred any liabilities.
(ii) Power. The Merger Sub has the power and authority
to execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby.
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(iii) Authority. This Agreement and the transactions
contemplated hereby have been authorized by all requisite action on the part of
the Merger Sub and its respective subsidiaries or members. This Agreement is a
valid and legally binding agreement of the Merger Sub enforceable in accordance
with its terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles).
ARTICLE VII
Covenants
7.01 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of Century and United agrees to use its reasonable best efforts
in good faith to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or desirable, or advisable under
applicable laws, so as to permit consummation of the Merger as promptly as
practicable and otherwise to enable consummation of the transactions
contemplated hereby and shall cooperate fully with the other party hereto to
that end.
7.02 Stockholder Approvals. Century agrees to take, in accordance with
applicable law or NASDAQ rules and its articles of incorporation and by-laws,
all action necessary to convene an appropriate meeting of its stockholders to
consider and vote upon the approval of this Agreement and any other matters
required to be approved by Century's stockholders for consummation of the Merger
(including any adjournment or postponement, the "Century Meeting"), as promptly
as practicable after the Registration Statement is declared effective. The
Century Board will recommend that the Century stockholders approve and adopt the
Agreement and the transactions contemplated hereby, provided that the Century
Board may fail to make such recommendation, or withdraw, modify or change any
such recommendation, if the Century Board, after having consulted with and
considered the advice of outside counsel, has determined that the making of such
recommendation, or the failure to withdraw, modify or change such
recommendation, would constitute a breach of the fiduciary duties of the members
of the Century Board under applicable law.
7.03 Registration Statement. (a) United agrees to prepare a registration
statement on Form S-4 (the "Registration Statement") to be filed by United with
the SEC in connection with the issuance of United Common Stock in the Merger
(including the prospectus of United and proxy solicitation materials of Century
constituting a part thereof (the "Proxy Statement") and all related documents).
Century and United agree to cooperate, and to cause their respective
Subsidiaries to cooperate, with the other and, its counsel and its accountants,
in preparation of the Registration Statement and the Proxy Statement; and
provided that Century and its Subsidiaries have cooperated as required above,
United agrees to file the Registration Statement (including the Proxy Statement
in preliminary form) with the SEC as promptly as reasonably practicable and in
any event within seventy-five (75) days from the date of this Agreement. Each of
Century and United agrees to use all reasonable efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as reasonably practicable after filing thereof. United also agrees to
use all reasonable efforts to obtain, prior to the effective date of the
Registration Statement, all necessary state securities law or "Blue Sky" permits
and approvals required to carry out the transactions contemplated by this
Agreement. Century agrees to furnish to United all information concerning
Century, its Subsidiaries, officers, directors and stockholders as may be
reasonably requested in connection with the foregoing.
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(b) Each of Century and United agrees, as to itself and its
Subsidiaries, that none of the information supplied or to be supplied by it for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time the Registration Statement and each amendment or supplement thereto,
if any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Proxy Statement and any amendment or supplement thereto will, at the date of
mailing to stockholders and at the time of the Century Meeting, as the case may
be, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or any statement which, in the light of the circumstances
under which such statement is made, will be false or misleading with respect to
any material fact, or which will omit to state any material fact necessary in
order to make the statements therein not false or misleading or necessary to
correct any statement in any earlier statement in the Proxy Statement or any
amendment or supplement thereto. Each of Century and United further agrees that
if it shall become aware prior to the Effective Date of any information
furnished by it that would cause any of the statements in the Proxy Statement to
be false or misleading with respect to any material fact, or to omit to state
any material fact necessary to make the statements therein not false or
misleading, to promptly inform the other party thereof and to take the necessary
steps to correct the Proxy Statement.
(c) United agrees to advise Century, promptly after United
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order or the suspension of the qualification of United Stock for offering
or sale in any jurisdiction, of the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or supplement
of the Registration Statement or for additional information.
7.04 Press Releases. Each of Century and United agrees that it will
not, without the prior approval of the other party, file any material pursuant
to SEC Rules 165 or 425, or issue any press release or written statement for
general circulation relating to the transactions contemplated hereby, except as
otherwise required by applicable law or regulation or NASDAQ rules.
7.05 Access; Information. (a) Each of Century and United agrees that
upon reasonable notice and subject to applicable laws relating to the exchange
of information, it shall afford the other party and the other party's officers,
employees, counsel, accountants and other authorized representatives, such
access during normal business hours throughout the period prior to the Effective
Time to the books, records (including, without limitation, tax returns and work
papers of independent auditors), properties, personnel and to such other
information as any party may reasonably request and, during such period, it
shall furnish promptly to such other party (i) a copy of each material report,
schedule and other document filed by it pursuant to the requirements of federal
or state securities or banking laws, and (ii) all other information concerning
the business, properties and personnel of it as the other may reasonably
request.
(b) Each agrees that it will not, and will cause its
representatives not to, use any information obtained pursuant to this Section
7.05 (as well as any other information obtained prior to the date hereof in
connection with the entering into of this Agreement) for any purpose unrelated
to the consummation of the transactions contemplated by this Agreement. Subject
to the requirements of law, each party will keep confidential, and will cause
its representatives to keep confidential, all information and documents obtained
pursuant to this Section 7.05 (as well as any other information obtained prior
to the date hereof in connection with the entering into of this Agreement)
unless such information (i) was already known to such party, (ii) becomes
available to such party from other sources not known by such party to be bound
by a confidentiality
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obligation, (iii) is disclosed with the prior written approval of the party to
which such information pertains or (iv) is or becomes readily ascertainable from
published information or trade sources. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of documents
or extracts thereof containing information and data as to another party hereto
to be returned to the party which furnished the same. No investigation by either
party of the business and affairs of the other shall affect or be deemed to
modify or waive any representation, warranty, covenant or agreement in this
Agreement, or the conditions to either party's obligation to consummate the
transactions contemplated by this Agreement.
(c) During the period from the date of this Agreement to the
Effective Time, each party shall promptly furnish the other with copies of all
monthly and other interim financial statements produced in the ordinary course
of business as the same shall become available.
(d) The provisions of this Section 7.05 are in addition to, and
not in lieu of, that certain letter agreement dated May 24, 2001 between the
parties (the "Letter Agreement"), the terms of which are hereby specifically
confirmed.
7.06 Acquisition Proposals. Century agrees that it shall not, and
shall cause its Subsidiaries and its Subsidiaries' officers, directors, agents,
advisors and affiliates not to, solicit or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, any person relating to, any Acquisition Proposal.
It shall immediately cease and cause to be terminated any activities,
discussions or negotiations conducted prior to the date of this Agreement with
any parties other than United with respect to any of the foregoing and shall use
its reasonable best efforts to enforce any confidentiality or similar agreement
relating to an Acquisition Proposal.
7.07. Affiliate Agreements. (a) Not later than the 15th day prior to
the mailing of the Proxy Statement, Century shall deliver to United a schedule
of each person that, to the best of its knowledge, is or is reasonably likely to
be, as of the date of the Century Meeting, deemed to be an "affiliate" of
Century (each, a "Century Affiliate") as that term is used in Rule 145 under the
Securities Act.
(b) Century shall use its reasonable best efforts to cause each
person who may be deemed to be a Century Affiliate to execute and deliver to
United on or before the date of mailing of the Proxy Statement an agreement in
the form attached hereto as Exhibit B.
7.08 Takeover Laws. No party hereto shall take any action that would
cause the transactions contemplated by this Agreement or the Stock Option
Agreement to be subject to requirements imposed by any Takeover Law and each of
them shall take all necessary steps within its control to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement from any
applicable Takeover Law, as now or hereafter in effect.
7.09 Certain Policies. Immediately prior to the Effective Date,
Century shall, consistent with generally accepted accounting principles and on a
basis mutually satisfactory to it and United, modify and change its loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) so as to be applied on a basis that is
consistent with that of United; provided, however, that Century shall not be
obligated to take any such action pursuant to this Section 7.09 unless and until
United acknowledges that all conditions to its obligation to consummate the
Merger have been satisfied and certifies to Century that United's
representations and warranties, subject to Section 6.02, are true and correct
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as of such date and that United is otherwise material in compliance with this
Agreement. Century's representations, warranties and covenants contained in this
Agreement shall not be deemed to be untrue or breached in any respect for any
purpose as a consequence of any modifications or changes undertaken solely on
account of this Section 7.09.
7.10 Regulatory Applications. (a) United and Century and their
respective Subsidiaries shall cooperate and use their respective reasonable best
efforts to prepare all documentation, to effect all filings and to obtain all
permits, consents, approvals and authorizations of all third parties and
Governmental Authorities necessary to consummate the transactions contemplated
by this Agreement. Each of United and Century shall have the right to review in
advance, and to the extent practicable each will consult with the other, in each
case subject to applicable laws relating to the exchange of information, with
respect to, all material written information submitted to any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto agrees
to act reasonably and as promptly as practicable. Each party hereto agrees that
it will consult with the other party hereto with respect to the obtaining of all
material permits, consents, approvals and authorizations of all third parties
and Governmental Authorities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
party apprised of the status of material matters relating to completion of the
transactions contemplated hereby.
(b) Each party agrees, upon request, to furnish the other party
with all information concerning itself, its Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with any filing, notice or application made by or on
behalf of such other party or any of its Subsidiaries to any third party or
Governmental Authority.
7.11 Indemnification. (a) Following the Effective Date and for a
period of six years thereafter, United shall indemnify, defend and hold harmless
the present directors, officers and employees of Century and its Subsidiaries
(each, an "Indemnified Party") against all costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities (collectively, "Costs") incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the
transactions contemplated by this Agreement) to the fullest extent that Century
is permitted or required to indemnify (and advance expenses to) its directors
and officers under the laws of the State of Delaware, the Century Certificate,
the Century By-Laws and any agreement as in effect on the date hereof; provided
that any determination required to be made with respect to whether an officer's,
director's or employee's conduct complies with the standards set forth under
Delaware law, the Century Certificate, the Century By-Laws and any agreement
shall be made by independent counsel (which shall not be counsel that provides
material services to United) selected by United and reasonably acceptable to
such officer or director.
(b) For a period of six (6) years from the Effective Time,
United shall use its reasonable best efforts to provide that portion of
director's and officer's liability insurance that serves to reimburse the
present and former officers and directors of Century or any of its Subsidiaries
(determined as of the Effective Time) (as opposed to Century) with respect to
claims against such directors and officers arising from facts or events which
occurred before the Effective Time, which insurance shall contain at least the
same coverage and amounts, and contain terms and conditions no less
advantageous, as that coverage currently provided by Century; provided, however,
that in no event shall United be required to expend more than 200 percent of the
current amount expended by Century (the "Insurance Amount") to maintain or
procure such directors and
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officers insurance coverage; provided, further, that if United is unable to
maintain or obtain the insurance called for by this Section 7.11(b), United
shall use its reasonable best efforts to obtain as much comparable insurance as
is available for the Insurance Amount; provided, further, that officers and
directors of Century or any Subsidiary may be required to make application and
provide customary representations and warranties to United's insurance carrier
for the purpose of obtaining such insurance.
(c) Any Indemnified Party wishing to claim indemnification under
Section 7.11(a), upon learning of any claim, action, suit, proceeding or
investigation described above, shall promptly notify United thereof; provided
that the failure so to notify shall not affect the obligations of United under
Section 7.11(a) unless and to the extent that United is actually prejudiced as a
result of such failure.
(d) If United or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provision shall be made so that the successors and assigns of United shall
assume the obligations set forth in this Section 7.11.
(e) The provisions of this Section 7.11 shall survive the
Effective Time and are intended to be for the benefit of, and shall be
enforceable by, each Indemnified Party and his or her heirs and representatives.
7.12 Benefit Plans. It is the intention of United that within a
reasonable period of time following the Effective Time (a) it will provide
employees of Century with employee benefit plans substantially similar in the
aggregate to those provided to similarly situated employees of United, (b)
United shall cause any and all pre-existing condition limitations (to the extent
such limitations did not apply to a pre-existing condition under the
Compensation and Benefit Plans) and eligibility waiting periods under group
health plans to be waived with respect to such participants and their eligible
dependents, and (c) all Century employees will receive credit for years of
service with Century and its predecessors prior to the Effective Time for
purposes of eligibility and vesting under United's benefit plans. Century
employees shall not be entitled to accrual of benefits or allocation of
contributions under United's benefit plans based on years of service with
Century and its predecessors prior to the Effective Date. United hereby adopts,
confirms and agrees to honor, as of the Effective Time, the provisions of
Century's Severance Policy with respect to the termination of employees within
six months of the Effective Time, and agrees not to modify, amend or rescind
such policy until after the expiration of six months from the Effective Time.
7.13 Notification of Certain Matters. Each of Century and United shall
give prompt notice to the other of any fact, event or circumstance known to it
that (i) is reasonably likely, individually or taken together with all other
facts, events and circumstances known to it, to result in any Material Adverse
Effect with respect to it or (ii) would cause or constitute a material breach of
any of its representations, warranties, covenants or agreements contained
herein.
7.14 Directors and Officers. (a) United agrees to cause Joseph S.
Bracewell, if he is still a member of the Century Board immediately prior to the
Effective Time and willing and eligible to serve, to be elected or appointed as
a director of United at the Effective Time.
(b) United agrees to cause Joseph S. Bracewell and two (2) other
members of the Century Board on the date hereof (selected by United after
consultation with Century) who are members of the Century Board immediately
prior to the Effective Time and willing and eligible to serve to be elected or
A-35
appointed to serve on the board of directors of United Bank. United agrees to
appoint Mr. Bracewell to serve as Vice Chairman of United Bank.
(c) United acknowledges the unique and substantial contributions
of Joseph S. Bracewell to the past growth of Century and the future success of
the Merger, and confirms its intention to seek to obtain Mr. Bracewell's
continued participation in the combined enterprise on a mutually agreeable
basis. Century agrees to cooperate fully with United in seeking the continued
participation of Mr. Bracewell and to encourage Mr. Bracewell to accept such an
arrangement.
7.15 Current Public Information. United agrees that it shall, for a
period of three (3) years following the Effective Time, use its best efforts to
meet the current public information requirements as set forth in paragraph (c)
of Rule 144 promulgated under the Securities Act, and will provide those persons
providing affiliate letters pursuant to Section 7.07 with such other information
as they may reasonably require and to otherwise cooperate with such persons to
facilitate any sales of United Common Stock issued to such persons pursuant to
this Agreement in compliance with the provisions of Rule 144 and/or Rule 145
promulgated under the Securities Act. The provisions of this Section 7.15 shall
survive the Effective Time and are intended to be for the benefit of, and shall
be enforceable by, such affiliates of Century.
ARTICLE VIII
Conditions to Consummation of the Merger
8.01 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each of United and Century to consummate the Merger is
subject to the fulfillment or written waiver by United and Century prior to the
Effective Time of each of the following conditions:
(a) Stockholder Approval. This Agreement and Plan of
--------------------
Reorganization shall have been duly approved by the requisite vote of the
stockholders of Century.
(b) Regulatory Approvals. All regulatory approvals required to
--------------------
consummate the transactions contemplated hereby, shall have been obtained and
shall remain in full force and effect and all statutory waiting periods in
respect thereof shall have expired and no such approvals shall contain (i) any
conditions, restrictions or requirements which the United Board reasonably
determines in good faith would either before or after the Effective Time have a
Material Adverse Effect on the Surviving Corporation and its Subsidiaries taken
as a whole or (ii) any conditions, restrictions or requirements that are not
customary and usual for approvals of such type and which the United Board
reasonably determines in good faith would either before or after the Effective
Date be unduly burdensome.
(c) No Injunction. No Governmental Authority of competent
-------------
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the transactions contemplated by this Agreement.
(d) Registration Statement. The Registration Statement shall
----------------------
have become effective under the Securities 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.
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(e) Blue Sky Approvals. All permits and other authorizations
------------------
under state securities laws necessary to consummate the transactions
contemplated hereby and to issue the shares of United Common Stock to be issued
in the Merger shall have been received and be in full force and effect.
(f) Listing. To the extent required, the shares of United Common
-------
Stock to be issued in the Merger shall have been approved for listing on the
NASDAQ National Market System, subject to official notice of issuance.
8.02 Conditions to Obligation of Century. The obligation of Century to
consummate the Merger is also subject to the fulfillment or written waiver by
Century prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of United set forth in this Agreement shall be true and correct,
subject to Section 6.02, as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date), and
Century shall have received a certificate, dated the Effective Date, signed on
behalf of United by the Chief Executive Officer and the Chief Financial Officer
of United to such effect.
(b) Performance of Obligations of United. United shall have
------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time, and Century shall
have received a certificate, dated the Effective Date, signed on behalf of
United by the Chief Executive Officer and the Chief Financial Officer of United
to such effect.
(c) Opinion of Century's Counsel. Century shall have received an
----------------------------
opinion of Bracewell & Patterson, L.L.P., counsel to Century, dated the
Effective Date, to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion, (i) the Merger constitutes a
"reorganization" within the meaning of Section 368 of the Code and (ii) no gain
or loss will be recognized by stockholders of Century who receive shares of
United Common Stock in exchange for shares of Century Common Stock, except that
gain or loss may be recognized as to cash received as Merger Consideration and
cash received in lieu of fractional share interests. In rendering its opinion,
Bracewell & Patterson, L.L.P. may require and rely upon representations
contained in letters from Century and others.
8.03 Conditions to Obligation of United. The obligation of United to
consummate the Merger is also subject to the fulfillment or written waiver by
United prior to the Effective Time of each of the following conditions:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Century set forth in this Agreement shall be true and correct,
subject to Section 6.02, as of the date of this Agreement and as of the
Effective Date as though made on and as of the Effective Date (except that
representations and warranties that by their terms speak as of the date of this
Agreement or some other date shall be true and correct as of such date) and
United shall have received a certificate, dated the Effective Date, signed on
behalf of Century by the Chief Executive Officer and the Chief Financial Officer
of Century to such effect.
(b) Performance of Obligations of Century. Century shall have
-------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Effective Time,
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and United shall have received a certificate, dated the Effective Date, signed
on behalf of Century by the Chief Executive Officer and the Chief Financial
Officer of Century to such effect.
(c) Opinion of United's Counsel. United shall have received an
---------------------------
opinion of Bowles Rice McDavid Graff & Love PLLC, special counsel to United,
dated the Effective Date, to the effect that, on the basis of facts,
representations and assumptions set forth in such opinion, the Merger
constitutes a reorganization under Section 368 of the Code. In rendering its
opinion, Bowles Rice McDavid Graff & Love PLLC may require and rely upon
representations contained in letters from United and others.
ARTICLE IX
Termination
9.01 Termination. This Agreement may be terminated, and the
Acquisition may be abandoned:
(a) Mutual Consent. At any time prior to the Effective Time, by
--------------
the mutual consent of United and Century, if the Board of Directors of each so
determines by vote of a majority of the members of its entire Board.
(b) Breach. At any time prior to the Effective Time, by United
------
or Century, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event of either: (i) a breach by the other
party of any representation or warranty contained herein (subject to the
standard set forth in Section 6.02), which breach cannot be or has not been
cured within 30 days after the giving of written notice to the breaching party
of such breach; or (ii) a breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach, provided that such breach (whether under (i) or (ii)) would be
reasonably likely, individually or in the aggregate with other breaches, to
result in a Material Adverse Effect.
(c) Delay. At any time prior to the Effective Time, by United or
-----
Century, if its Board of Directors so determines by vote of a majority of the
members of its entire Board, in the event that the Acquisition is not
consummated by March 31, 2002, except to the extent that the failure of the
Acquisition then to be consummated arises out of or results from the knowing
action or inaction of the party seeking to terminate pursuant to this Section
8.01(c).
(d) No Approval. By Century or United, if its Board of Directors
-----------
so determines by a vote of a majority of the members of its entire Board, in the
event (i) the approval of any Governmental Authority required for consummation
of the Merger and the other transactions contemplated by this Agreement shall
have been denied by final nonappealable action of such Governmental Authority or
(ii) any stockholder approval required by Section 8.01(a) herein is not obtained
at the Century Meeting.
(e) Failure to Recommend, Etc. At any time prior to the Century
-------------------------
Meeting, by United if the Century Board shall have failed to make its
recommendation referred to in Section 7.02, withdrawn such recommendation or
modified or changed such recommendation in a manner adverse in any respect to
the interests of United.
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(f) Decline in United Common Stock Price. By Century, if the
------------------------------------
Century Board so determines by a vote of the majority of its entire board, at
any time during the five-day period commencing with the Determination Date (as
defined below) if the Average Closing Price is less than $18.45, subject,
however, to the following three sentences. If Century elects to exercise its
termination right pursuant to this Section 9.01(g), it shall give written notice
to United (provided that such notice of election to terminate may be withdrawn
at any time within the aforementioned five-day period). During the five-day
period commencing with its receipt of such notice, United shall have the option
to increase the consideration to be received by the holders of Century Common
Stock hereunder, by increasing the Exchange Ratio from 0.4500 to a number
(calculated to the nearest ten-thousandth) obtained by dividing $8.303 by the
Average Closing Price, and increasing the Option Exchange Ratio from 0.5894 to a
number (calculated to the nearest ten-thousandth) obtained by dividing $11.733
by the Average Closing Price. If United so elects within such five-day period,
it shall give prompt written notice to Century of such election and the revised
Exchange Ratio and Option Exchange Ratio, whereupon no termination shall have
occurred pursuant to this Section 9.01(g) and this Agreement shall remain in
effect in accordance with its terms (except as the Exchange Ratio and Option
Exchange Ratio shall have been so modified.)
For purposes of this Section 9.01(g), the following terms shall
have the meanings indicated:
"Average Closing Price" shall mean the average of the closing
prices of a share of United Common Stock on the NASDAQ reporting
system (as reported in The Wall Street JournaI, or if not
reported therein, in another authoritative source) during the
period of twenty (20) consecutive full trading days ending on the
trading day prior to the Determination Date, rounded to the
nearest whole cent.
"Determination Date" shall mean the date on which the last
required approval of a Governmental Entity is obtained with
respect to the Merger and the Bank Merger, without regard to any
requisite waiting period in respect thereof.
9.02 Effect of Termination and Abandonment. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article IX, no party to this Agreement shall have any liability or further
obligation to any other party hereunder except (i) as set forth in Section 9.01
and (ii) that termination will not relieve a breaching party from liability for
any willful breach of this Agreement giving rise to such termination.
ARTICLE X
Miscellaneous
10.01 Survival. No representations, warranties, agreements and
covenants contained in this Agreement shall survive the Effective Time (other
than Sections 2.02(b), 7.11, 7.12, 7.14, 7.15 and this Article X which shall
survive the Effective Time) or the termination of this Agreement if this
Agreement is terminated prior to the Effective Time (other than Sections
7.03(b), 7.05(b), 9.02, the Letter Agreement and this Article X which shall
survive such termination).
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10.02 Waiver; Amendment. Prior to the Effective Time, any provision of
this Agreement may be (i) waived by the party benefitted by the provision, or
(ii) amended or modified at any time, by an agreement in writing between the
parties hereto executed in the same manner as this Agreement, except that after
the Century Meeting, this Agreement may not be amended if it would violate the
DGCL.
10.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
10.04 Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Delaware applicable to
contracts made and to be performed entirely within such State (except to the
extent that mandatory provisions of Federal law are applicable).
10.05 Expenses. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby,
except that printing expenses shall be shared equally between Century and
United.
10.06 Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified
mail (return receipt requested) to such party at its address set forth below or
such other address as such party may specify by notice to the parties hereto.
If to Century, to:
Century Bancshares, Inc.
1275 Pennsylvania Avenue, N. W.
Washington, DC 20004
Facsimile: (202) 496-4006
Attn: Joseph S. Bracewell
With a copy to:
Bracewell & Patterson, L.L.P.
2900 South Tower Pennzoil Place
Houston, Texas 77002
Facsimile: (713) 221-2112
Attn: John R. Brantley, Esq.
If to United, to:
United Bankshares, Inc.
514 Market Street
Parkersburg, WV 26101
Attn: Richard M. Adams,
Chairman of the Board and Chief Executive Officer
Steven Wilson
Chief Financial Officer
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With a copy to:
Bowles Rice McDavid Graff & Love PLLC
600 Quarrier Street
P. O. Box 1386
Charleston, West Virginia 25325-1386
Facsimile: (305) 343-3058
Attn: Sandra M. Murphy, Esq.
10.07 Entire Understanding; No Third Party Beneficiaries. This
Agreement and any Stock Option Agreement entered into represent the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and thereby and this Agreement supersedes any and all other
oral or written agreements heretofore made (other than any such Stock Option
Agreement). Except for Section 7.12, nothing in this Agreement expressed or
implied, is intended to confer upon any person, other than the parties hereto or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
10.08 Interpretation; Effect. When a reference is made in this
Agreement to Sections, Exhibits or Schedules, such reference shall be to a
Section of, or Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and are not part of this Agreement. Whenever the
words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation." No provision
of this Agreement shall be construed to require Century, United or any of their
respective Subsidiaries, affiliates or directors to take any action which would
violate applicable law (whether statutory or common law), rule or regulation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in counterparts by their duly authorized officers, all as of the
day and year first above written.
CENTURY BANCSHARES, INC.
By: /s/ Joseph S. Bracewell
--------------------------------------
Joseph S. Bracewell
Title: President and Chief Executive Officer
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UNITED BANKSHARES, INC.
By: /s/ Richard M. Adams
------------------------------
Richard M. Adams
Title: Chairman of the Board and
Chief Executive Officer
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EXHIBIT A
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of June 14, 2001, between United
Bankshares, Inc., a West Virginia corporation ("Grantee"), and Century
Bancshares, Inc., a Delaware corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Reorganization (the "Merger Agreement");
WHEREAS, as a condition to the execution and delivery of the Merger
Agreement, Grantee has required that Issuer grant to Grantee the Option (as
hereinafter defined);
WHEREAS, as an inducement to the willingness of Grantee to continue to
pursue the transactions contemplated by the Merger Agreement, Issuer has
determined to grant Grantee the Option (as hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement on or prior to the date hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to an
aggregate of 644,143 fully paid and nonassessable shares of the common stock,
par value $1.00 per share, of Issuer ("Common Stock") at a price per share equal
to the $12.00; provided, however, that in the event Issuer issues or agrees to
issue any shares of Common Stock (other than shares of Common Stock issued
pursuant to stock options granted pursuant to any employee benefit plan prior to
the date hereof) at a price less than $12.00 per share (as adjusted pursuant to
subsection (b) of Section 5), such price shall be equal to such lesser price
(such price, as adjusted if applicable, the "Option Price"); provided, further,
that in no event shall the number of shares for which this Option is exercisable
exceed 14.9% of the issued and outstanding shares of Common Stock without giving
effect to any shares subject or issued pursuant to the Option. The number of
shares of Common Stock that may be received upon the exercise of the Option and
the Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 14.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing
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contained in this Section l(b) or elsewhere in this Agreement shall be deemed to
authorize Issuer to issue shares in breach any provision of the Merger
Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option,
in whole or part, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined); provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (e) of this Section 2) within
three (3) months following such Subsequent Triggering Event (or such later
period as provided in Section 10). Each of the following shall be an Exercise
Termination Event: (i) the Effective Time of the Merger; (ii) termination of the
Merger Agreement in accordance with the provisions thereof if such termination
occurs prior to the occurrence of an Initial Triggering Event except a
termination by Grantee pursuant to Section 9.01(b) (but only if the breach
giving rise to the termination was willful) or section 9.01(e) of the Merger
Agreement (each, a "Listed Termination"); or (iii) the passage of six (6) months
(or such longer period as provided in Section 10) after termination of the
Merger Agreement if such termination follows the occurrence of an Initial
Triggering Event or is a Listed Termination. The term "Holder" shall mean the
holder or holders of the Option. Notwithstanding anything to the contrary
contained herein, (i) the Option may not be exercised at any time when Grantee
shall be in material breach of any of its covenants or agreements contained in
the Merger Agreement such that Issuer shall be entitled to terminate the Merger
Agreement pursuant to Section 9.01(b) thereof as a result of a material breach
and (ii) this Agreement shall automatically terminate upon the proper
termination of the Merger Agreement (x) by Issuer pursuant to Section 9.01(b)
thereof as a result of the material breach by Grantee of its covenants or
agreements contained in the Merger Agreement, (y) by Issuer or Grantee pursuant
to Section 9.01(d)(ii) if Grantee's shareholders do not approve the Merger
Agreement at the meeting, or (z) by Issuer or Grantee pursuant to Section
9.01(d)(i).
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring on or after the date hereof:
(i) Issuer or any Significant Subsidiary (as defined in
Rule 1-02 of Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) (an "Issuer Subsidiary"), without having
received Grantee's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction (as hereinafter
defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the rules and regulations thereunder) other than Grantee or
any of its Subsidiaries (each a "Grantee Subsidiary") or the Board of
Directors of Issuer (the "Issuer Board") shall have recommended that
the shareholders of Issuer approve or accept any Acquisition
Transaction other than as contemplated by the Merger Agreement. For
purposes of this Agreement, (a) "Acquisition Transaction" shall mean
(x) a merger or consolidation, or any similar transaction, involving
Issuer or any Issuer Subsidiary (other than mergers, consolidations or
similar transactions (i) involving solely Issuer and/or one or more
wholly-owned (except for directors' qualifying shares and a de minimis
number of other shares) Subsidiaries of the Issuer, provided, any such
transaction is not entered into in violation of the terms of the Merger
Agreement or (ii) in which the shareholders of Issuer immediately prior
to the completion of such transaction own at least 50% of the Common
Stock
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of the Issuer (or the resulting or surviving entity in such
transaction) immediately after completion of such transaction,
provided any such transaction is not entered into in violation of the
terms of the Merger Agreement), (y) a purchase, lease or other
acquisition of all or any substantial part of the assets or deposits
of Issuer or any Issuer Subsidiary, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 10% or more of the voting
power of Issuer or any Issuer Subsidiary and (b) "Subsidiary" shall
have the meaning set forth in Rule 12b-2 under the 1934 Act;
(ii) Any person other than the Grantee or any Grantee
Subsidiary shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares
of Common Stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the
1934 Act, and the rules and regulations thereunder);
(iii) The shareholders of Issuer shall have voted and failed to
approve the Merger Agreement and the Merger at a meeting which has
been held for that purpose or any adjournment or postponement thereof,
or such meeting shall not have been held in violation of the Merger
Agreement or shall have been cancelled prior to termination of the
Merger Agreement if, in each such case prior to such meeting (or if
such meeting shall not have been held or shall have been cancelled,
prior to such termination), it shall have been publicly announced that
any person (other than Grantee or any of its Subsidiaries) shall have
made, or publicly disclosed an intention to make, a proposal to engage
in an Acquisition Transaction;
(iv) The Issuer Board shall have withdrawn or modified (or
publicly announced its intention to withdraw or modify) in any manner
adverse in any respect to Grantee its recommendation that the
shareholders of Issuer approve the transactions contemplated by the
Merger Agreement, or Issuer or any Issuer Subsidiary shall have
authorized, recommended, proposed (or publicly announced its intention
to authorize, recommend or propose) an agreement to engage in an
Acquisition Transaction with any person other than Grantee or a
Grantee Subsidiary;
(v) Any person other than Grantee or any Grantee Subsidiary
shall have made a proposal to Issuer or its shareholders to engage in
an Acquisition Transaction and such proposal shall have been publicly
announced;
(vi) Any person other than Grantee or any Grantee Subsidiary
shall have filed with the SEC a registration statement or tender offer
materials with respect to a potential exchange or tender offer that
would constitute an Acquisition Transaction (or filed a preliminary
proxy statement with the SEC with respect to a potential vote by its
shareholders to approve the issuance of shares to be offered in such
an exchange offer);
(vii) Issuer shall have willfully breached any covenant or
obligation contained in the Merger Agreement in anticipation of
engaging in an
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Acquisition Transaction, and following such breach Grantee would be
entitled to terminate the Merger Agreement (whether immediately or
after the giving of notice or passage of time or both); or
(viii) Any person other than Grantee or any Grantee
Subsidiary shall have filed an application or notice with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board")
or other federal or state bank regulatory or antitrust authority,
which application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person (other than Grantee or
any Grantee Subsidiary) of beneficial ownership of 25% or more of the
then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event
described in clause (i) of subsection (b) of this Section 2, except
that the percentage referred to in clause (z) of the second sentence
thereof shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event
(together, a "Triggering Event"), it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
(e) In the event the Holder is entitled to and wishes to exercise
the Option (or any portion thereof), it shall send to Issuer a written notice
(the date of which being herein referred to as the "Notice Date") specifying (i)
the total number of shares it will purchase pursuant to such exercise and (ii) a
place and date not earlier than three business days nor later than 60 business
days from the Notice Date for the closing of such purchase (the "Closing Date");
provided, that if prior notification to or approval of the Federal Reserve Board
or any other regulatory or antitrust agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application for
approval, shall promptly notify Issuer of such filing, and shall expeditiously
process the same and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section
2, the Holder shall (i) pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer and (ii) present and surrender this Agreement to Issuer at its principal
executive offices, provided that the failure or refusal of the Issuer to
designate such a bank account or accept surrender of this Agreement shall not
preclude the Holder from exercising the Option.
(g) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be
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exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement, dated as of June 14,
2001, between the registered holder hereof and Issuer and to resale
restrictions arising under the Securities Act of 1933, as amended. A
copy of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon receipt
by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act") in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act; (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of Counsel to the Holder; and (iii) the legend shall be removed in its entirety
if the conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(i) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (e) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed subject to the receipt of any
necessary regulatory approvals to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such shares of Common Stock shall not then be actually delivered to the Holder.
Issuer shall pay all expenses, and any and all United States federal, state and
local taxes and other charges that may be payable in connection with the
preparation, issue and delivery of stock certificates under this Section 2 in
the name of the Holder or its assignee, transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free
from preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Issuer;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all applicable pre-merger notification, reporting
and waiting period requirements specified in 15 U.S.C. Section 18a and
regulations promulgated thereunder and (y) in the event, under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), or the Change in Bank Control Act
of 1978, as amended, or any state or other federal banking law, prior approval
of or notice to the Federal Reserve Board or to any state or other federal
regulatory authority is necessary before the Option may be exercised,
cooperating fully with the Holder in preparing such applications or notices and
providing such
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information to the Federal Reserve Board or such state or other federal
regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Issuer duly and effectively to issue shares of Common
Stock pursuant hereto; and (iv) promptly to take all action provided herein to
protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Agreements and
related Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Agreement, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Agreement, if mutilated, Issuer will
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common
Stock that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect
of, the Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 14.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable
upon exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the numerator
of which shall be equal to the number of shares of Common Stock purchasable
prior to the adjustment and the denominator of which shall be equal to the
number of shares of Common Stock purchasable after the adjustment.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of Grantee
delivered within twelve (12) months (or such later period as provided in Section
10) of such Subsequent Triggering Event (whether on its own behalf or on behalf
of any subsequent holder of this Option (or part thereof) or any of the shares
of Common Stock issued pursuant hereto), promptly prepare, file and keep current
a registration statement under the 1933 Act covering any shares issued and
issuable pursuant to this Option and shall use its reasonable best efforts to
cause such registration statement to become effective and remain current in
order to permit the sale or other
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disposition of any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. Grantee shall have the
right to demand one such registration. The Issuer shall bear the costs of such
registration (including, but not limited to, Issuer's attorneys' fees, printing
costs and filing fees, but excluding underwriting discounts or commissions,
brokers' fees and the fees and disbursements of Grantee's counsel related
thereto). The foregoing notwithstanding, if, at the time of any request by
Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering by Issuer of shares
of Common Stock, and if in the good faith judgment of the managing underwriter
or managing underwriters, or, if none, the sole underwriter or underwriters, of
such offering the offer and sale of the Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced; provided, however, that after any such
required reduction the number of Option Shares to be included in such offering
for the account of the Holder shall constitute at least 25% of the total number
of shares to be sold by the Holder and Issuer in the aggregate; and provided
further, however, that if such reduction occurs, then Issuer shall file a
registration statement for the balance as promptly as practicable thereafter as
to which no reduction pursuant to this Section 6 shall be permitted or occur and
the Holder shall thereafter be entitled to one additional registration and the
twelve (12) month period referred to in the first sentence of this section shall
be increased to twenty-four (24) months. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in connection
with such registration, Issuer shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties, indemnities and
other agreements customarily included in such underwriting agreements for
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to Issuer to be entitled
to registration rights under this Section 6, in each case by promptly mailing
the same, postage prepaid, to the address of record of the persons entitled to
receive such copies. Notwithstanding anything to the contrary contained herein,
in no event shall the number of registrations that Issuer is obligated to effect
be increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. (a) At any time after the occurrence of a Repurchase Event (as
defined below) (i) at the request of the Holder, delivered prior to an Exercise
Termination Event (or such later period as provided in Section 10), Issuer (or
any successor thereto) shall repurchase the Option from the Holder at a price
(the "Option Repurchase Price") equal to the amount by which (A) the
market/offer price (as defined below) exceeds (B) the Option Price, multiplied
by the number of shares for which this Option may then be exercised and (ii) at
the request of the owner of Option Shares from time to time (the "Owner"),
delivered prior to an Exercise Termination Event (or such later period as
provided in Section 10), Issuer (or any successor thereto) shall repurchase such
number of the Option Shares from the Owner as the Owner shall designate at a
price (the "Option Share Repurchase Price") equal to the market/offer price
multiplied by the number of Option Shares so designated. The term "market/offer
price" shall mean the highest of (i) the price per share of Common Stock at
which a tender or exchange offer therefor has been made, (ii) the price per
share of Common Stock to be paid by any third party pursuant to an agreement
with Issuer, (iii) the highest closing price for shares of Common Stock within
the six-month period immediately preceding the date the Holder gives notice of
the required repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a sale
of all or any substantial part
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of Issuer's assets or deposits, the sum of the net price paid in such sale for
such assets or deposits and the current market value of the remaining net assets
of Issuer as determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Issuer, divided by the number of shares of Common Stock of Issuer
outstanding at the time of such sale. In determining the market/offer price, the
value of consideration other than cash shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as the case
may be, and reasonably acceptable to Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its reasonable best efforts to obtain all required regulatory
and legal approvals and to file any required notices as promptly as practicable
in order to accomplish such repurchase), the Holder or Owner may revoke its
notice of repurchase of the Option and/or the Option Shares whether in whole or
to the extent of the prohibition, whereupon, in the latter case, Issuer shall
promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price and/or the Option Share Repurchase Price
that Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Agreement was
exercisable at the time of delivery of the notice of repurchase by a fraction,
the numerator of which is the Option Repurchase Price less the portion thereof
theretofore delivered to the Holder and the denominator of which is the Option
Repurchase Price, and/or (B) to the Owner, a certificate for the Option Shares
it is then so prohibited from repurchasing. If an Exercise Termination Event
shall have occurred prior to the date of the notice by Issuer described in the
first sentence of this subsection (c), or shall be scheduled to occur at any
time before the expiration of a period ending on the thirtieth day after such
date, the Holder shall nonetheless have the right to exercise the Option until
the expiration of such 30-day period.
(d) For purposes of this Section 7, a "Repurchase Event" shall be
deemed to have occurred upon the occurrence of any of the following events or
transactions after the date hereof:
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(i) the acquisition by any person (other than Grantee or
any Grantee Subsidiary) of beneficial ownership of 50% or more of
the then outstanding Common Stock; or
(ii) the consummation of any Acquisition Transaction
described in Section 2(b) (i) hereof, except that the percentage
referred to in clause (z) shall be 50%.
8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or a Grantee Subsidiary, or engage in a plan of
exchange with any person, other than Grantee or a Grantee Subsidiary and Issuer
shall not be the continuing or surviving corporation of such consolidation or
merger or the acquirer in such plan of exchange, (ii) to permit any person,
other than Grantee or a Grantee Subsidiary, to merge into Issuer or be acquired
by Issuer in a plan of exchange and Issuer shall be the continuing or surviving
or acquiring corporation, but, in connection with such merger or plan of
exchange, the then outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other person or cash or any other
property or the then outstanding shares of Common Stock shall after such merger
or plan of exchange represent less than 50% of the outstanding shares and share
equivalents of the merged or acquiring company, or (iii) to sell or otherwise
transfer all or a substantial part of its or the Issuer Subsidiary's assets or
deposits to any person, other than Grantee or a Grantee Subsidiary, then, and in
each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (A) the Acquiring Corporation (as hereinafter defined) or
(B) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the
continuing or surviving person of a consolidation or merger with
Issuer (if other than Issuer), (ii) the acquiring person in a
plan of exchange in which Issuer is acquired, (iii) the Issuer in
a merger or plan of exchange in which Issuer is the continuing or
surviving or acquiring person, and (iv) the transferee of all or
a substantial part of Issuer's assets or deposits (or the assets
or deposits of the Issuer Subsidiary).
(ii) "Substitute Common Stock" shall mean the common
stock issued by the issuer of the Substitute Option upon exercise
of the Substitute Option.
(iii) "Assigned Value" shall mean the market/offer
price, as defined in Section 7.
(iv) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for one year
immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of the
shares of Substitute Common Stock on the day preceding such
consolidation, merger or sale; provided that if Issuer is the
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issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option, provided that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then Holder or Holders of the
Substitute Option in substantially the same form as this Agreement (after giving
effect for such purpose to the provisions of Section 9), which agreement shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a), divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option was exercisable immediately prior to
the event described in the first sentence of Section 8(a) and the denominator of
which shall be the number of shares of Substitute Common Stock for which the
Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 14.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 14.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be determined
by a nationally recognized investment banking firm selected by the Holder.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall repurchase the Substitute Option from the
Substitute Option Holder at a price (the "Substitute Option Repurchase Price")
equal to the amount by which (i) the Highest Closing Price (as hereinafter
defined) exceeds (ii) the exercise price of the Substitute Option, multiplied by
the number of shares of Substitute Common Stock for which the Substitute Option
may then be exercised, and at the request of the owner (the "Substitute Share
Owner") of shares of Substitute Common Stock (the "Substitute Shares"), the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "Highest
Closing Price" shall mean the highest closing price for shares of Substitute
Common Stock within the six-month period immediately preceding the date the
Substitute Option Holder gives notice of the required repurchase of the
Substitute
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Option or the Substitute Share Owner gives notice of the required repurchase of
the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner,
as the case may be, may exercise its respective rights to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the Substitute
Option Issuer, at its principal office, the agreement for such Substitute Option
(or, in the absence of such an agreement, a copy of this Agreement) and/or
certificates for Substitute Shares accompanied by a written notice or notices
stating that the Substitute Option Holder or the Substitute Share Owner, as the
case may be, elects to require the Substitute Option Issuer to repurchase the
Substitute Option and/or the Substitute Shares in accordance with the provisions
of this Section 9. As promptly as practicable and in any event within five
business days after the surrender of the Substitute Option and/or certificates
representing Substitute Shares and the receipt of such notice or notices
relating thereto, the Substitute Option Issuer shall deliver or cause to be
delivered to the Substitute Option Holder the Substitute Option Repurchase Price
and/or to the Substitute Share Owner the Substitute Share Repurchase Price
therefor or the portion thereof which the Substitute Option Issuer is not then
prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation, or as a consequence of
administrative policy, from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
Substitute Option Repurchase Price and the Substitute Share Repurchase Price,
respectively, in full (and the Substitute Option Issuer shall use its reasonable
best efforts to receive all required regulatory and legal approvals as promptly
as practicable in order to accomplish such repurchase), the Substitute Option
Holder and/or Substitute Share Owner may revoke its notice of repurchase of the
Substitute Option or the Substitute Shares either in whole or to the extent of
prohibition, whereupon, in the latter case, the Substitute Option Issuer shall
promptly (i) deliver to the Substitute Option Holder or Substitute Share Owner,
as appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, and/or (B) to the Substitute
Share Owner, a certificate for the Substitute Option Shares it is then so
prohibited from repurchasing. If an Exercise Termination Event shall have
occurred prior to the date of the notice by the Substitute Option Issuer
described in the first sentence of this subsection (c), or shall be scheduled to
occur at any time before the expiration of a period ending on the
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thirtieth day after such date, the Substitute Option Holder shall nevertheless
have the right to exercise the Substitute Option until the expiration of such
30-day period.
10. The periods for exercise of certain rights under Sections 2, 6,
7, 9 and 12 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights (for so long as the Holder,
Owner, Substitute Option Holder or Substitute Share Owner, as the case may be,
is using commercially reasonable efforts to obtain such regulatory approvals),
and for the expiration of all statutory waiting periods; and (ii) to the extent
necessary to avoid liability under Section 16(b) of the 1934 Act by reason of
such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Issuer Board prior to the date hereof and no other corporate proceedings on the
part of Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant thereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Neither of the parties hereto may assign any of its rights or
obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder; provided, however,
that until the date 15 days following the date on which the Federal Reserve
Board has approved an application by Grantee to acquire the shares of Common
Stock subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private placement
in which no one party acquires the right to purchase in excess of 2% of the
voting shares of Issuer, (iii) an assignment to a single party (e.g. CFO , a
broker or investment banker) for the purpose of conducting a widely dispersed
public distribution on Grantee's behalf or (iv) any other manner approved by the
Federal Reserve Board.
13. Each of Grantee and Issuer will use its reasonable best efforts
to make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including, without limitation, applying to the
Federal Reserve Board under the BHCA for approval to acquire the shares issuable
hereunder, but Grantee shall not be obligated to apply to state banking
authorities for approval to acquire the shares of Common Stock issuable
hereunder until such time, if ever, as it deems appropriate to do so.
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14. The parties hereto acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party hereto and that
the obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief. In connection therewith
both parties waive the posting of any bond or similar requirement.
15. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire, or Issuer is not permitted to
repurchase pursuant to Section 7, the full number of shares of Common Stock
provided in Section l(a) hereof (as adjusted pursuant to Section l(b) or Section
5 hereof), it is the express intention of Issuer to allow the Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible, without any amendment or modification hereof.
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
fax, telecopy, or by registered or certified mail (postage prepaid, return
receipt requested) at the respective addresses of the parties set forth in the
Merger Agreement.
17. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to the conflict of law
principles thereof (except to the extent that mandatory provisions of Federal
law or of the VSCA are applicable).
18. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
19. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
20. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assignees.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors except as
assignees, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.
21. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
CENTURY BANCSHARES, INC.
By: /s/ Joseph S. Bracewell
------------------------------------
Name: Joseph S. Bracewell
Title: President and Chief Executive Officer
UNITED BANKSHARES, INC.
By: /s/ Richard M. Adams
------------------------------------
Name: Richard M. Adams
Title: Chairman of the Board and
Chief Executive Officer
A-56
EXHIBIT B
FORM OF CENTURY AFFILIATE LETTER
____________, 2001
Century Bancshares, Inc.
1275 Pennsylvania Avenue, N.W.
Washington, DC 20004
Attention: Dale Phelps
Chief Financial Officer
United Bankshares, Inc.
514 Market Street
Parkersburg, WV 26101
Attention: Steven Wilson,
Chief Financial Officer
Ladies and Gentlemen:
I have been advised that I may be deemed to be, but do not admit
that I am, an "affiliate" of Century Bancshares, Inc. a Delaware corporation
("Century"), as that term is defined in Rule 145 promulgated by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Securities Act"). I understand that pursuant to the terms of the Agreement
and Plan of Reorganization, dated as of June 14, 2001 (the "Agreement"), by and
between United Bankshares, Inc., a West Virginia corporation ("United") and
Century, Century plans to merge with and into a wholly-owned subsidiary of
United (the "Merger").
I further understand that as a result of the Merger, I may
receive shares of common stock, par value $2.50 per share, of United ("United
Stock") (i) in exchange for shares of common stock, par value $1.00 per share,
of Century ("Century Stock") or (ii) as a result of the exercise of Rights (as
defined in the Agreement).
I have carefully read this letter and reviewed the Agreement and
discussed their requirements and other applicable limitations upon my ability to
sell, transfer, or otherwise dispose of United Stock and Century Stock, to the
extent I felt necessary, with my counsel or counsel for Century.
I represent, warrant and covenant with and to United that in
the event I receive any United Stock as a result of the Merger:
1. I shall not make any sale, transfer, or other disposition of
such United Stock unless (i) such sale, transfer or other disposition has been
registered under the Securities Act, (ii) such sale, transfer or other
disposition is made in conformity with the provisions of Rule 145 under the
Securities Act (as such rule may be amended from time to time), or (iii) in the
opinion of counsel in form and substance reasonably satisfactory to United, or
under a "no-action" letter obtained by me from the staff of the SEC, such sale,
transfer or other disposition will not violate or is otherwise exempt from
registration under the Securities Act.
A-57
2. I understand that United is under no obligation to register the
sale, transfer or other disposition of shares of United Stock by me or on my
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available.
3. I understand that stop transfer instructions will be given to
United's transfer agent with respect to shares of United Stock issued to me as a
result of the Merger and that there will be placed on the certificates for such
shares, or any substitutions therefor, a legend stating in substance:
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of
1933 applies. The shares represented by this certificate may be
transferred only in accordance with the terms of a letter agreement,
dated June 14, 2001, between the registered holder hereof and United
Bankshares, Inc., a copy of which agreement is on file at the
principal offices of United Bankshares, Inc."
4. I understand that, unless transfer by me of the United Stock
issued to me as a result of the Merger has been registered under the Securities
Act or such transfer is made in conformity with the provisions of Rule 145(d)
under the Securities Act, United reserves the right, in its sole discretion, to
place the following legend on the certificates issued to my transferee:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and were acquired from a
person who received such shares in a transaction to which Rule 145
under the Securities Act of 1933 applies. The shares have been
acquired by the holder not with a view to, or for resale in connection
with, any distribution thereof within the meaning of the Securities
Act of 1933 and may not be offered, sold, pledged or otherwise
transferred except in accordance with an exemption from the
registration requirements of the Securities Act of 1933."
It is understood and agreed that the legends set forth in
paragraphs (3) and (4) above shall be removed by delivery of substitute
certificates without such legends if I shall have delivered to United (i) a copy
of a "no action" letter from the staff of the SEC, or an opinion of counsel in
form and substance reasonably satisfactory to United, to the effect that such
legend is not required for purposes of the Act, or (ii) evidence or
representations satisfactory to United that the United Stock represented by such
certificates is being or has been sold in conformity with the provisions of Rule
145(d).
I further understand and agree that this letter agreement shall
apply to all shares of Century Stock and United Stock that I am deemed to
beneficially own pursuant to applicable federal securities law.
Very truly yours,
By _____________________________________
Name:
Title:
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Accepted this ____ day of
__________________, 2001.
CENTURY BANCSHARES, INC.
By ___________________________________
Name: Joseph S. Bracewell
Title: President and Chief Executive Officer
UNITED BANKSHARES, INC.
By ___________________________________
Name: Richard M. Adams
Title: Chairman of the Board and
Chief Executive Officer
A-59
ANNEX A
FORM OF
SUPPLEMENT MERGER SUB ACCESSION
TO MERGER AGREEMENT
This SUPPLEMENT FOR MERGER SUB ACCESSION TO MERGER AGREEMENT, dated as
of the ____ day of __________, 2001 (this "Supplement"), to the Agreement and
Plan of Reorganization, dated as of June 14, 2001 (as may be amended from time
to time in accordance with the terms thereof, the "Agreement"), by and between
United Bankshares, Inc., a West Virginia corporation ("United") and Century
Bancshares, Inc., a Delaware corporation ("Century").
WHEREAS, terms used but not otherwise defined herein have the meanings
specified in the Agreement; and
WHEREAS, pursuant to Section 2.01 of the Agreement, United has
determined to consummate the Merger in part through the merger of Century with
and into [_], a Delaware corporation (the "Merger Sub").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, representations and warranties contained in the Agreement, the
parties agree as follows:
1. Agreement. Merger Sub agrees (i) to be bound by and subject to the
---------
terms of the Agreement, (ii) to become a party to the Agreement, as provided by
Section 2.01 thereof, (iii) to perform all obligations and agreements set forth
therein, and (iv) to adopt the Agreement with the same force and effect as if
the undersigned were originally a party thereto.
2. Notice. Any notice required to be provided pursuant to Section 10.06
------
of the Agreement shall be given to the Merger Sub at the following address:
[Insert address and facsimile number]
IN WITNESS WHEREOF, this Supplement has been duly executed and
delivered by the undersigned, duly authorized thereunto as of the date first
hereinabove written.
[Insert name of Merger Sub]
By:________________________________
Name:
Title
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CENTURY BANCSHARES, INC.
By:
Name: Joseph S. Bracewell
Title: President and Chief Executive Officer
UNITED BANKSHARES, INC.
By:
Name: Richard M. Adams
Title: Chairman of the Board and
Chief Executive Officer
A-61
ANNEX B
August 28, 2001
Board of Directors
Century Bancshares, Inc.
1275 Pennsylvania Avenue
Washington, DC 20004
Board of Directors:
You have requested that Friedman, Billings, Ramsey & Co., Inc. ("FBR") provide
you with its opinion as to the fairness, from a financial point of view, to the
holders of common stock ("Stockholders") of Century Bancshares, Inc. ("Century"
or the "Company") of the Consideration (as hereinafter defined) to be received
by them pursuant to the Agreement and Plan of Reorganization between Century,
United Bankshares, Inc. ("United") and United Bank (the "Bank" and together with
United, collectively hereinafter referred to as "United"), dated June 13, 2001
(the "Merger Agreement"), pursuant to which Century will be merged with and into
the Bank (the "Merger"). The Merger Agreement provides, among other things, that
each issued and outstanding share of common stock of Century shall be converted
into the right to receive consideration consisting of (i) 0.4500 shares of
United common stock, and (ii) an amount of cash equal to $3.43 (the
"Consideration"), subject to certain terms and conditions. Additionally, certain
options to purchase shares of Century common stock shall be converted into
options to purchase United common stock, subject to certain terms and
conditions. The Merger Agreement will be considered at a special meeting of the
Stockholders of Century. The terms of the Merger are more fully set forth in the
Merger Agreement.
In delivering this opinion, FBR has completed the following tasks:
1. reviewed United Annual Reports on Form 10-K filed with the Securities and
Exchange Commission (the "SEC") for the fiscal years ended December 31,
2000 and 1999; reviewed the United Annual Proxy Statement dated April 9,
2001; reviewed United Quarterly Reports on Form 10-Q filed with the SEC for
the fiscal quarters ended June 30, 2001, March 31, 2001, September 30, 2000
and June 30, 2000;
2. reviewed Century Annual Report to Stockholders for the fiscal year ended
December 31, 2000 and Century Annual Report on Form 10-K filed with the SEC
for the fiscal years ended December 31, 2000 and 1999; reviewed the Century
Annual Proxy Statement dated April 27, 2001; reviewed Century Quarterly
Reports on Form 10-Q filed with the SEC for the quarters ended June 30,
2001 and March 31, 2001;
B-1
3. reviewed Century's unaudited financial results for the one and four months
ended April 30, 2001 in the Company's 8-K/A filed with the SEC on May 17,
2001; reviewed and discussed the unaudited financial statements of Century
for the one month ended May 31, 2001 with the management of Century;
4. reviewed the reported market prices and trading activity for United common
stock for the period December 18, 1987 through August 28, 2001;
5. discussed the financial condition, results of operations, earnings
projections, business and prospects of Century and United with the
managements of Century and United;
6. compared the results of operations and financial condition of Century and
United with those of certain publicly-traded financial institutions (or
their holding companies) that FBR deemed to be reasonably comparable to
Century or United, as the case may be;
7. reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions that FBR deemed to be reasonably comparable to the
Merger;
8. reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions entered into by United;
9. reviewed a copy of the Merger Agreement; and
10. performed such other analyses and reviewed and analyzed such other
information as FBR deemed appropriate.
In rendering this opinion, FBR did not assume responsibility for independently
verifying, and did not independently verify, any financial or other information
concerning Century and United furnished to it by Century or United, or the
publicly-available financial and other information regarding Century, United and
other financial institutions (or their holding companies). FBR has assumed that
all such information is accurate and complete and has no reason to believe
otherwise. FBR has further relied on the assurances of management of Century and
United that they are not aware of any facts that would make such financial or
other information relating to such entities inaccurate or misleading. With
respect to financial forecasts for Century provided to FBR by its management,
FBR has assumed, for purposes of this opinion, that the forecasts have been
reasonably prepared on bases reflecting the best available estimates and
judgments of such management at the time of preparation as to the future
financial performance of Century. FBR has assumed that there has been no
undisclosed material change in Century's assets, financial condition, results of
operations, business or prospects since June 30, 2001. FBR did not undertake an
independent appraisal of the assets or liabilities of Century nor was FBR
furnished
B-2
with any such appraisals. FBR is not an expert in the evaluation of allowances
for loan losses, was not requested to and did not review such allowances, and
was not requested to and did not review any individual credit files of Century.
FBR's conclusions and opinion are necessarily based upon economic, market and
other conditions and the information made available to FBR as of the date of
this opinion. FBR expresses no opinion on matters of a legal, regulatory, tax or
accounting nature related to the Merger.
FBR, as part of its institutional brokerage, research and investment banking
practice, is regularly engaged in the valuation of securities and the evaluation
of transactions in connection with mergers and acquisitions of commercial banks,
savings institutions and financial institution holding companies, initial and
secondary offerings and mutual-to-stock conversions of savings institutions, as
well as business valuations for other corporate purposes for financial
institutions and real estate related companies. FBR has experience in, and
knowledge of, the valuation of bank and thrift securities in Maryland, Virginia,
District of Columbia and the rest of the United States.
FBR has acted as a financial advisor to Century in connection with the Merger
and will receive a fee for services rendered which is contingent upon the
consummation of the Merger. FBR also acted as financial advisor to Century in
connection with an acquisition transaction that closed in the last three months.
In the ordinary course of FBR's business, it may effect transactions in the
securities of Century or United for its own account and/or for the accounts of
its customers and, accordingly, may at any time hold long or short positions in
such securities. From time to time, principals and/or employees of FBR may also
have positions in such securities.
Based upon and subject to the foregoing, as well as any such other matters as we
consider relevant, it is FBR's opinion, as of the date hereof, that the Merger
is fair, from a financial point of view, to the Stockholders of Century.
This letter is solely for the information of the Board of Directors and
Stockholders of Century and may not be relied upon by any other person or used
for any other purpose, reproduced, disseminated, quoted from or referred to
without FBR's prior written consent; provided, however, this letter may be
referred to and reproduced in its entirety in proxy materials sent to the
Stockholders in connection with the solicitation of approval for the Merger.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC
B-3
ANNEX C
Section 262 of the Delaware General Corporation Law
Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S). 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
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b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S) 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not
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voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228
or ss. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be
sent to each stockholder who is entitled to appraisal rights and who has
demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written
C-3
request, shall be entitled to receive from the corporation surviving the merger
or resulting from the consolidation a statement setting forth the aggregate
number of shares not voted in favor of the merger or consolidation and with
respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 31-1-9 of the West Virginia Code of 1931, as amended, permits
indemnification of present or former officers or directors who are named or
threatened to be named as parties to a legal action arising out of their
activities as officers or directors under certain circumstances.
The bylaws of United Bankshares, Inc., as amended, contain the
following provision with regard to the indemnification of its directors and
officers:
Each director and officer of this corporation, or former director or
officer of this corporation, or any person who may have served at its request as
a director or officer of another corporation, his heirs and personal
representative shall be indemnified by this corporation against costs and
expenses at any time reasonably incurred by him arising out of or in connection
with any claim, action, suite or proceeding, civil or criminal , against him or
which he made apart for reason of his being or having been such director or
officer except in relation to matters to which he shall be adjudged in such
action, suit or proceeding to be liable for gross negligence or willful
misconduct in the performance of a duty to the corporation. If in the judgment
of the board of directors of this corporation a settlement of any claim, action,
suit or proceeding so arising be deemed in the best interest of the corporation,
any such director or officers shall be reimbursed for any amounts paid by him in
connection therewith. The foregoing right of indemnification shall be in
addition to any and all other rights to which any director or officer may be
entitled as a matter of law.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits (see exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found).
Exhibit
Number Description of Exhibits
------ -----------------------
2.1 Agreement and Plan of Reorganization, dated as of June 14, 2001, by
and between United Bankshares, Inc., and Century Bancshares, Inc.
(included as Annex A to the proxy statement/prospectus*).
2.2 Option Agreement, dated as of June 14, 2001, by and between United
Bankshares, Inc. and Century Bancshares, Inc. (included as Exhibit A
to the Agreement and Plan of Reorganization, which is included as
Annex A to the proxy statement/prospectus).
5.1 Opinion of Bowles Rice McDavid Graff & Love, including consent.
8.1 Tax Opinion of Bowles Rice McDavid Graff & Love PLLC, including
consent.
8.2 Tax Opinion of Bracewell & Patterson, L.L.P., including consent.
21 Subsidiaries of Registrant (Incorporated herein by reference to
United Bankshares, Inc.'s Form 10-K for the year ended December 31,
2000.)
23.1 Consent of Bowles Rice McDavid Graff & Love (included in Legal
Opinion, Exhibit 5.1).
23.2 Consent of Bracewell & Patterson, L.L.P. (included in Legal Opinion,
Exhibit 8.1).
23.3 Consent of Ernst & Young LLP.
23.4 Consent of KPMG LLP.
23.5 Consent of Stegman & Company.
24 Powers of Attorney (included on pages II-4 and II-5).
99.1 Consent of Friedman, Billings, Ramsey & Co., Inc.
99.2 Consent of Joseph S. Bracewell.
99.3 Form of Proxy for Century Bancshares, Inc.
99.4 Form of Century Affiliate Letter Agreement
________________________________
* Incorporated herein by reference
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not
applicable, or the required information is shown in the financial statements or
notes thereto.
Item 22. Undertakings.
1. The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters in addition to the
information called for by the other items of the applicable form.
2. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415 (230.415), will
be filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes 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. Insofar as indemnification for liabilities under the Securities
Act of 1933 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
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore,
2
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 of 1933 and will be governed by the
final adjudication of such issue.
4. The undersigned 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.
5. The undersigned 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 when it became effective.
6. The undersigned registrant hereby undertakes:
a. 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;
(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;
b. 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.
c. To remove from registration by means of post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
7. 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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to 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 therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
3
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 Charleston,
State of West Virginia, on September 13, 2001.
UNITED BANKSHARES, INC.
By: /s/ Richard M. Adams
-------------------------
Chairman of the Board 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. Know all men by these presents, that
each person whose signature appears below constitutes and appoints Richard M.
Adams and Steven E. Wilson, and each of them, his true and lawful attorneys-in-
fact and agents with full power of substitution and resubstitution, for him or
her and in his name, place and stead, in any and all capacities, to sign any or
all amendments to this registration statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in the about the premises, as fully to all
intents and purposes as he or she might do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/ Richard M. Adams Chairman of the Board, Director September 13, 2001
- -------------------------
Richard M. Adams and Chief Executive Officer
/s/ Steven E. Wilson Chief Financial Officer and September 13, 2001
- -------------------------
Steven E. Wilson Chief Accounting Officer
/s/ Robert G. Astorg Director September 13, 2001
- -------------------------
Robert G. Astorg
/s/ Thomas J. Blair, III Director September 13, 2001
- -------------------------
Thomas J. Blair, III
/s/ Harry L. Buch Director September 13, 2001
- -------------------------
Harry L. Buch
4
_______________________________ Director __________________
W. Gaston Caperton, III
/s/ H. Smoot Fahlgren Director September 13, 2001
- -------------------------------
H. Smoot Fahlgren
/s/ Theodore J. Georgelas Director September 13, 2001
- -------------------------------
Theodore J. Georgelas
/s/ F. T. Graff, Jr. Director September 13, 2001
- -------------------------------
F. T. Graff, Jr.
/s/ Alan E. Groover Director September 13, 2001
- -------------------------------
Alan E. Groover
/s/ Russell L. Isaacs Director September 13, 2001
- -------------------------------
Russell L. Isaacs
/s/ John M. McMahon Director September 13, 2001
- -------------------------------
John M. McMahon
_______________________________ Director __________________
G. Ogden Nutting
/s/ William C. Pitt, III Director September 13, 2001
- -------------------------------
William C. Pitt, III
/s/ I. N. Smith, Jr. Director September 13, 2001
- -------------------------------
I. N. Smith, Jr.
/s/ Warren A. Thornhill, III Director September 13, 2001
- -------------------------------
Warren A. Thornhill, III
/s/ P. Clinton Winter, Jr. Director September 13, 2001
- -------------------------------
P. Clinton Winter, Jr.
_______________________________ Director __________________
James W. Word, Jr.
5