As filed with the Securities and Exchange Commission on September 17, 2002
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UNITED COMMUNITY BANCORP
(Exact Name of Registrant as Specified in its Charter)
NORTH CAROLINA 6712 56-2137427
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
1039 SECOND STREET, NE
HICKORY, NORTH CAROLINA 28601-3843
(888) 894-2483
(Address,including ZIP Code, and telephone number, including area code,
of registrant's principal executive offices)
R. STEVE AARON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNITED COMMUNITY BANCORP
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601-3843
(888) 894-2483
(Name, address, including zip code, and telephone number, including
area code of agent for service)
WITH COPIES TO:
---------------
ANTHONY GAETA, JR., ESQ. ROBERT C. SCHWARTZ, ESQ.
TODD H. EVESON, ESQ. SMITH, GAMBRELL & RUSSELL, LLP
GAETA & ASSOCIATES, P.A. PROMENADE II, SUITE 3100
808 SALEM WOODS DRIVE, SUITE 201 1230 PEACHTREE STREET, N.E.
RALEIGH, NORTH CAROLINA 27615 ATLANTA, GEORGIA 30309
(919) 845-2558 (404) 815-3500
Approximate date of commencement of the proposed sale to the public: The date of
mailing of the enclosed Joint Proxy Statement-Prospectus to the shareholders of
United Community Bancorp and Community Bancshares, Inc.
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 464(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
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Title of Each Class of Proposed Maximum Proposed
Securities to be Amount to be Offering Price Maximum Aggregate Amount of
Registered Registered(1) Per Share Offering Price(2) Registration Fee
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Common Stock 2,121,000 shares N/A $7,676,807 $707
$1.00 Par Value
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
(1) Represents the maximum estimated number of shares to be issued by the
Registrant in connection with its acquisition of Community Bancshares,
Inc.
(2) In accordance with Rule 457(f), represents the book value per share of
Community Bancshares, Inc. as of September 16, 2002 ($10.37),
multiplied by the maximum estimated number of shares of Community
common stock to be cancelled in connection with the merger (1,731,402
shares) less the minimum estimated amount of cash to be paid by the
Registrant to the shareholders of Community ($10,277,832).
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a)
may determine.
JOINT PROXY STATEMENT-PROSPECTUS
UNITED COMMUNITY BANCORP COMMUNITY BANCSHARES, INC.
ACQUISITION PROPOSED
YOUR VOTE IS VERY IMPORTANT
---------------------------
The Boards of Directors of United Community Bancorp and Community
Bancshares, Inc. have agreed that Community Bancshares, Inc. will be merged into
United Community Bancorp and immediately thereafter Northwestern National Bank,
the subsidiary bank of Community, will be merged with Catawba Valley Bank, a
subsidiary bank of United.
If the merger is completed, each share of common stock of Community will be
exchanged for either (i) a number of shares of common stock of United having a
value of $21.00 (based on the closing price of United's common stock over the 20
trading days ending on the third trading day prior to the merger), (ii) $21.00
in cash; or (iii) a combination of cash and United common stock. Each Community
shareholder may elect to have his or her shares of Community common stock
converted into cash, United common stock or a combination of 70% United stock
and 30% cash. Shareholder elections will be adjusted pro rata, if necessary, so
that 70% of the total number of outstanding shares of common stock of Community
will be exchanged for shares of United and 30% will be exchanged for cash.
Before this transaction can be completed, United's and Community's
shareholders must vote to approve it. This Joint Proxy Statement-Prospectus
provides you with detailed information about the merger of United and Community.
We encourage you to read this entire document carefully.
The Boards of Directors of United and Community recommend a vote "FOR"
approval of the merger agreement.
The United shareholders' meeting will be held on _____________, 2002 at
_____ p.m. at ___________, Hickory, North Carolina. The Community shareholders'
meeting will be held on _____________, 2002 at _____ p.m. at ___________,
Wilkesboro, North Carolina. Whether or not you plan to attend your shareholders'
meeting, please take the time to vote by completing and mailing the enclosed
proxy card.
On _____, 2002, United's stock closed at $____ per share. You may obtain
current market quotations for United's common stock from the Nasdaq SmallCap
Market under the trading symbol "UCBB". There is no established public market
for shares of Community's common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this Joint Proxy Statement-Prospectus. Any representation to the
contrary is a criminal offense. These securities are not savings or deposit
accounts, and are not insured by the Federal Deposit Insurance Corporation or
any other governmental agency.
An investment in United common stock will involve certain risks, including
a possible loss of investment. See "Risk Factors" on page ___.
This Joint Proxy Statement-Prospectus is dated _____________, 2002 and is
being first mailed to shareholders of United and Community on or about
_______________, 2002.
UNITED COMMUNITY BANCORP
1039 SECOND STREET, NE
HICKORY, NORTH CAROLINA 28601-3843
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 2002
To the Shareholders of United Community Bancorp:
United Community Bancorp will hold a special meeting of shareholders at
____________, Hickory, North Carolina, at ______ p.m. on _________, 2002 to vote
on the following proposals:
1. To approve the Agreement and Plan of Merger dated August 2, 2002
between United Community Bancorp and Community Bancshares, Inc., as
described in and attached to the accompanying Joint Proxy
Statement-Prospectus.
2. Any other matters that properly come before the special meeting or any
adjournments or postponements thereof.
Your Board of Directors unanimously recommends that you vote "FOR" approval
of the merger agreement.
Record holders of United's common stock at the close of business on
__________, 2002 will receive notice of and may vote at the special meeting,
including any adjournments or postponements of the meeting. The merger cannot be
completed unless the merger agreement is approved by holders of a majority of
the shares of United's common stock outstanding on ____, 2002. Holders of
United's common stock may exercise dissenters' rights under Article 13 of the
North Carolina Business Corporation Act. We have attached a copy of that law as
an appendix to the accompanying Joint Proxy Statement-Prospectus. Your Board of
Directors cordially invites you to attend the special meeting.
Please mark, sign, date, and return your proxy promptly whether or not you
plan to attend the special meeting.
By Order of the Board of Directors
G. Marvin Lowder
Secretary
Hickory, North Carolina
__________, 2002
COMMUNITY BANCSHARES, INC.
1301 WESTWOOD LANE
WESTFIELD VILLAGE
WILKESBORO, NORTH CAROLINA 28697-2628
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 2002
To the Shareholders of Community Bancshares, Inc.:
Community Bancshares, Inc. will hold a special meeting of shareholders at
____________, Wilkesboro, North Carolina, at ______ p.m. on _________, 2002 to
vote on the following proposals:
1. To approve the Agreement and Plan of Merger dated August 2, 2002
between United Community Bancorp and Community Bancshares, Inc., as
described in and attached to the accompanying Joint Proxy
Statement-Prospectus.
2. Any other matters that properly come before the special meeting or any
adjournments or postponements thereof.
Your Board of Directors recommends that you vote "FOR" approval of the
merger agreement.
Record holders of Community's common stock at the close of business on
__________, 2002 will receive notice of and may vote at the special meeting,
including any adjournments or postponements of the meeting. For the merger to be
completed, the merger agreement must be approved by holders of a majority of the
shares of Community's common stock outstanding on ________, 2002. Holders of
Community's common stock may exercise dissenters' rights under Article 13 of the
North Carolina Business Corporation Act. We have attached a copy of that law as
an appendix to the accompanying Joint Proxy Statement-Prospectus. Your Board of
Directors cordially invites you to attend the special meeting.
Please mark, sign, date, and return your proxy promptly whether or not you
plan to attend the special meeting.
By Order of the Board of Directors
Ronald S. Shoemaker
President and Chief Executive Officer
Wilkesboro, North Carolina
__________, 2002
TABLE OF CONTENTS
QUESTIONS AND ANSWERS FOR ALL SHAREHOLDERS ABOUT VOTING PROCEDURES
FOR THE SPECIAL MEETINGS .................................................... 1
QUESTIONS AND ANSWERS FOR COMMUNITY SHAREHOLDERS ABOUT ELECTING THE FORM
OF MERGER CONSIDERATION ..................................................... 2
SUMMARY ..................................................................... 3
RISK FACTORS ................................................................ 8
FORWARD-LOOKING STATEMENTS .................................................. 10
MARKET PRICES AND DIVIDEND POLICIES ......................................... 11
UNITED AND COMMUNITY UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION ....................................................... 12
THE SPECIAL MEETINGS OF SHAREHOLDERS ........................................ 18
THE MERGER PROPOSAL ......................................................... 21
General ..................................................................... 21
Background of the Merger .................................................... 21
Community's Reasons for the Merger .......................................... 24
United's Reasons for the Merger ............................................. 25
Recommendation of Community's Board ......................................... 25
Recommendation of United's Board ............................................ 26
Opinion of Community's Financial Advisor .................................... 26
Material and Information Considered with Respect to the Proposed Merger ..... 26
Analysis of Selected Publicly Traded Reference Companies .................... 28
Analysis of Selected Merger and Acquisition Transactions .................... 31
Dividend Discount Analysis .................................................. 33
Information Concerning Community's Financial Advisor ........................ 33
Opinion of United's Financial Advisor ....................................... 33
Contribution Analysis ....................................................... 35
Shareholders' Claims Analysis ............................................... 35
Discount Dividend Analysis .................................................. 35
Comparable Transaction Analysis ............................................. 35
Effective Time of the Merger ................................................ 36
Cash or Stock Election ...................................................... 36
Election Procedures; Surrender of Stock Certificates ........................ 37
Conditions to Consummation of the Merger .................................... 39
Regulatory Approval ......................................................... 39
Waiver, Amendment, and Termination .......................................... 40
Management and Operations After the Merger .................................. 41
Effect on Certain Benefit Plans ............................................. 42
Federal Income Tax Consequences of the Merger ............................... 42
Accounting Treatment ........................................................ 44
Expenses and Fees ........................................................... 44
Resales of United Common Stock .............................................. 45
DISSENTERS' RIGHTS .......................................................... 46
DESCRIPTION OF UNITED'S CAPITAL STOCK ....................................... 49
COMPARISON OF THE RIGHTS OF SHAREHOLDERS .................................... 52
INFORMATION ABOUT UNITED .................................................... 56
INFORMATION ABOUT COMMUNITY ................................................. 59
REGULATION AND SUPERVISION ................................................... 60
LEGAL MATTERS ................................................................ 68
EXPERTS ...................................................................... 68
OTHER MATTERS ................................................................ 68
WHERE YOU CAN GET MORE INFORMATION ........................................... 68
INFORMATION INCORPORATED BY REFERENCE ........................................ 69
Appendix I: Agreement and Plan of Merger
Appendix II: Opinion of Suntrust Robinson Humphrey
Appendix III: Opinion of The Orr Group
Appendix IV: Article 13 of the North Carolina Business Corporation Act
regarding Dissenters' Rights
A separately bound addendum accompanies this Joint Proxy
Statement-Prospectus that includes the following documents:
. Community's 2001 Annual Report to Shareholders
. Community's Quarterly Report on Form 10-QSB for the quarter ended June
30, 2002
. United's 2001 Annual Report to Shareholders
. United's Quarterly Report on Form 10-QSB for the quarter ended June
30, 2002
(ii)
QUESTIONS AND ANSWERS FOR ALL SHAREHOLDERS
ABOUT VOTING PROCEDURES FOR THE SPECIAL MEETINGS
Q: What should I do?
A: After you have carefully read this document, mail your signed and dated
proxy card in the enclosed envelope. The instructions on the accompanying
proxy card will give you more information on how to vote by mail. This will
enable your shares to be represented at the United special meeting or the
Community special meeting, as applicable.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares following the
directions your broker provides. Your failure to instruct your broker to
vote your shares will result in your shares not being voted. If you fail to
return a proxy card or abstain from voting, the effect will be the same as
a vote against the merger.
Q: Can I change my vote after I have submitted my proxy with voting
instructions?
A: Yes. There are three ways you can change your vote. First, you may send a
written notice to the person to whom you submitted your proxy stating that
you would like to revoke your proxy. Second, you may complete and submit a
later dated proxy with new voting instructions. The latest vote actually
received by United or Community prior to the shareholders' meetings will be
your vote, and any earlier votes will be revoked. Third, you may attend the
United special meeting or the Community special meeting, as applicable, and
vote in person. Any earlier votes will be revoked. Simply attending the
meeting without voting, however, will not revoke your proxy. If you have
instructed a broker to vote your shares, you must follow directions you
will receive from your broker to change or revoke your proxy.
Q: Whom should I call with questions?
A: Community shareholders should call Ronald S. Shoemaker, President of
Community, at (336) 903-0600 with any questions about the transaction and
related issues.
United shareholders should call R. Steve Aaron, President of United, at
(828) 431-2300.
1
QUESTIONS AND ANSWERS FOR COMMUNITY SHAREHOLDERS
ABOUT ELECTING THE FORM OF MERGER CONSIDERATION
Q: How do I elect the form of payment I prefer in the merger?
A: A green election form and letter of transmittal, together with a green
return envelope, is being mailed to you at the same time as the mailing of
this Joint Proxy Statement-Prospectus. To elect the form of payment you
prefer, you must complete and return the election form. If you do not make
an election, you will be allocated United common stock or cash or both
depending on the elections made by the other shareholders. Please remember
that unless you elect to receive the combination of cash and stock that is
based on the ratio of cash and stock to be exchanged in the merger, you
might not receive the exact amount of cash or stock that you elect. The
fully completed green election form, together with your certificates
representing outstanding Community shares, must be returned to
First-Citizens Bank & Trust Company, Raleigh, North Carolina, before the
election deadline on ____, 2002.
Q: How do I exchange my Community stock certificates?
A: If you make an election, you must return your Community stock certificates
with your election form. Shortly after the merger, the exchange agent will
allocate cash and United common stock among Community's shareholders,
consistent with their elections and the allocation and proration procedures
in the merger agreement. If you do not submit an election form, you will
receive instructions on where to surrender your Community stock
certificates from the exchange agent after the merger is completed.
Q: Whom should I call with questions?
A: Community shareholders should call Ronald S. Shoemaker, President of
Community, at (336) 903-0600 with any questions about the transaction and
related issues.
2
SUMMARY
This summary highlights the material terms of the proposed merger between
United and Community. For a more complete description of the terms of this
transaction, and the parties to it, you should carefully read this entire Joint
Proxy Statement-Prospectus, the documents that accompany this Joint Proxy
Statement-Prospectus, and the documents to which we refer you. See "Where You
Can Get More Information" at page ___.
The Companies (Pages __, __)
United Community Bancorp
1039 Second Street, N.E.
Hickory, North Carolina 28601-3843
(828) 431-2300
United is a corporation organized under the laws of the State of North
Carolina and is registered as a financial holding company with the Federal
Reserve Board. United was formed in 1999 to become the owner of all outstanding
shares of Catawba Valley Bank. On December 31, 2001, United acquired First
Gaston Bank of North Carolina, Gastonia, North Carolina. It also has a
subsidiary corporation, Valley Financial Services, Inc. that provides various
insurance and other financial products through third party affiliations.
Catawba Valley Bank is a state-chartered commercial bank organized under
the laws of the State of North Carolina in 1995. Its main office is in Hickory,
North Carolina at the address above. In addition to its main office, Catawba
Valley Bank has three branch offices, a mortgage center, and an operations
center.
First Gaston Bank of North Carolina is a state-chartered commercial bank
organized under the laws of the State of North Carolina. Its main office and
operations center is in Gastonia, North Carolina and it has branch offices in
Belmont and Mt. Holly, North Carolina. Regulatory authority to acquire a branch
office in Dallas, North Carolina from RBC Centura is currently pending.
Community Bancshares, Inc.
1301 Westwood Lane
Westfield Village
Wilkesboro, North Carolina 28697
(336) 903-0600
Community was organized under the laws of the State of North Carolina in
June 1990 and is a bank holding company under the Bank Holding Company Act of
1956, owning 100% of the stock of its two subsidiaries, Northwestern National
Bank and Community Mortgage Corporation.
Northwestern National Bank commenced operations in January 1992.
Northwestern is a full-service commercial bank without trust powers.
Northwestern's main office is located in Wilkesboro, North Carolina.
Northwestern also operates branch offices in North Wilkesboro, Millers Creek,
Taylorsville, West Jefferson and Boone, North Carolina and has an additional
loan production office in Lenoir, North Carolina.
Community Mortgage Corporation, incorporated in 1994, was originally a
joint venture between Community and four other unrelated financial institutions.
During 1996 and 1997, Community acquired 100% of Community Mortgage, which
provides mortgage services, including the origination and sale of mortgage loans
to investors, including other financial institutions.
3
The Merger
Community and United have entered into a merger agreement under which
Community will be merged into United and, immediately thereafter, Community's
subsidiary bank, Northwestern National Bank, will be merged into Catawba Valley
Bank, a subsidiary of United. Catawba Valley Bank will operate the current and
any future branch offices of Northwestern National Bank located in its market
area under the name "Northwestern Bank". If the merger is completed,
shareholders of Community will receive either shares of United common stock
valued (based on the average closing price of United's common stock over the 20
trading days ending three trading days prior to the merger) at $21.00 for each
share of Community common stock that they own, cash in the amount of $21.00 for
each share of Community common stock that they own, or a combination of United
common stock and cash.
Each Community shareholder may elect to receive all of his or her merger
consideration in shares of United common stock, in cash, or in a combination of
70% United common stock and 30% cash. Shareholder elections will be adjusted pro
rata, if necessary, so that 70% of the shares of common stock of Community will
be exchanged for shares of United common stock and 30% will be exchanged for
cash. An election form is being mailed to Community shareholders on about the
date of the mailing of this Joint Proxy Statement-Prospecuts to allow each
Community shareholder to elect the form of merger consideration he or she would
like to receive.
We have attached the merger agreement as Appendix I of this Joint Proxy
Statement-Prospectus. We encourage you to read the agreement as it is the legal
document that governs the transaction.
Recommendations of the Boards of Directors (Page __)
The Boards of Directors of both United and Community believe that the
merger is in the best interests of their respective shareholders and recommend
that shareholders vote "FOR" approval of the merger.
The Community Board believes that shareholders of both companies will have
a stake in a larger, better capitalized community bank holding company with the
ability to serve depositors in a wider area of western North Carolina. This
transaction should allow the resulting company to increase market share and
geographic reach.
The Boards of Directors of United and Community believe that the merger
will help fulfill their long-term goals of (i) enhancing shareholder value; (ii)
adding financial products and services; (iii) diversifying credit risk; (iv)
generating growth in assets and deposits; and (v) reducing operating costs
through consolidating some administrative and management functions such as back
room operations, accounting, and human resource services.
Opinions of Financial Advisors (Pages __, __)
In deciding to approve the merger between United and Community, our Boards
considered opinions from our respective financial advisors as to the fairness of
the merger consideration from a financial point of view. Community has received
an opinion from Suntrust Robinson-Humphrey, Atlanta, Georgia that the merger
consideration is fair, from a financial point of view, to Community's
shareholders, and United has received an opinion from The Orr Group,
Winston-Salem, North Carolina that the merger consideration is fair, from a
financial point of view, to United's shareholders. These opinions are attached
as Appendices II and III to this Joint Proxy Statement-Prospectus.
4
In connection with delivering these opinions, our financial advisors
performed a variety of analyses. The analyses included:
. comparing Community's and United's historical stock prices and other
financial information to each other and to those of other selected
companies;
. comparing the financial terms of the merger to those of other publicly
announced transactions; and
. estimating the relative values and contributions of Community and
United based on past and estimated future performances and anticipated
benefits of the merger.
United Special Meeting (Page __)
United will hold a special meeting of shareholders to vote on approval of
the merger agreement at ___ p.m. on ________, 2002 at ______________, Hickory,
North Carolina. If you owned shares of United at the close of business on the
record date of _______, 2002, you may vote on the merger agreement at the United
shareholders' meeting.
On the record date for the United special meeting, there were ________
shares of United common stock outstanding. Each United shareholder will have one
vote at United's meeting for each share of stock he or she owned on the record
date.
Community Special Meeting (Page __)
Community will hold a special meeting of shareholders to vote on approval
of the merger agreement at ____ p.m. on _________, 2002 at __________, North
Wilkesboro, North Carolina. If you owned shares of Community at the close of
business on the record date of _______, 2002, you may vote on the merger
agreement at the Community shareholders' meeting.
On the record date for the Community special meeting, there were __________
shares of Community common stock outstanding. Each Community shareholder will
have one vote at Community's meeting for each share of stock he or she owned on
the record date.
Majority Vote Required to Approve the Merger Agreement (Pages __, __)
Approval of the merger agreement requires the affirmative vote of the
holders of a majority of both United's and Community's outstanding shares of
common stock. Because an absolute majority vote is required to approve the
merger, if you fail to vote, it will have the same effect as a vote against
approval of the merger.
Directors and executive officers of United own 12% of the shares that may
be voted at United's meeting, and we expect them to vote in favor of the merger.
Directors and executive officers of Community own 46% of the shares that may be
voted at Community's meeting, and we also expect them to vote in favor of the
merger.
Brokers who hold shares as nominees, or in "street name," will not have the
authority to vote such shares at the special meetings unless they receive
instructions from the shareholder whose account they hold.
If we receive shareholder approvals, we currently expect to complete the
merger on December 31, 2002, although we cannot be sure of when, or whether, the
merger will be completed.
5
We Must Obtain Regulatory Approvals to Complete the Merger (Page __)
We have filed applications under the Bank Merger Act with the Federal
Deposit Insurance Corporation and the North Carolina Commissioner of Banks for
permission to merge Catawba Valley Bank and Northwestern National Bank. We
cannot complete the merger unless the FDIC, the North Carolina Banking
Commission and the North Carolina Commissioner of Banks approve it. We have also
filed notice of the merger with the Federal Reserve Board and the Office of the
Comptroller of the Currency. Once the merger is approved, we will have to wait
from 15 to 30 days before we can complete it. During that time, the U.S.
Department of Justice can challenge the merger.
As of the date of this document, we have not yet received the required
approval. Although we do not know of any reason why we would not be able to
obtain the necessary approvals in a timely manner, we cannot be certain when or
if we will get them.
Federal Income Tax Consequences (Page __)
Subject to the limitations and qualifications summarized in the "Federal
Income Tax Consequences" section of this document, neither United shareholders
nor Community shareholders will recognize gain or loss for U.S. federal income
tax purposes as a result of the merger, except to the extent of cash received
from United for shares of Community common stock. The cash received by Community
shareholders pursuant to the merger should be treated as proceeds of a
redemption for federal income tax purposes and should qualify for "sale or
exchange" treatment. However, because of uncertainty resulting from the fact
that more than one provision of the tax law could apply to this transaction, it
is possible that the receipt of any cash by Community shareholders would not
qualify for "sale or exchange" treatment and would therefore be subject to
ordinary income tax rates.
The accounting firm of Dixon Odom PLLC has rendered its opinion that
Community shareholders who exchange their Community common stock for United's
common stock generally will not recognize any gain or loss for federal income
tax purposes as a result of the merger.
Since tax matters can be complicated, and tax results may vary among
shareholders, we urge you to contact your own tax advisor to understand fully
how this transaction will affect you.
Purchase Accounting Treatment to be Used (Page __)
The merger will be treated as a "purchase" under generally accepted
accounting principles. Under the purchase method of accounting, the assets and
liabilities of Community, as the company not surviving a merger are, as of the
closing date of the merger, recorded at their respective fair values and added
to those of United. United's financial statements issued after consummation of
the merger will reflect such values and are not restated retroactively to
reflect the historical financial position or results of operations of Community.
Dissenters' Rights (Page __)
Shareholders of Community and United common stock who vote against or
abstain from voting and properly exercise their dissenters' rights prior to
their respective special shareholders' meeting have the right to receive a cash
payment for the fair value of their shares of common stock. In order to exercise
these rights, shareholders must comply with Article 13 of the North Carolina
Business Corporation Act, which is attached as Appendix IV to this Joint Proxy
Statement-Prospectus. If you wish to dissent, please read this information
carefully as you must take affirmative steps to preserve your rights.
6
Comparative Per Share Market Price Information (Pages __)
Shares of United's common stock are listed on the Nasdaq SmallCap Market
under the symbol "UCBB". On August 2, 2002, the last full trading day prior to
the public announcement of the proposed merger, United's stock closed at $15.75
per share. On September ___, 2002, the most recent date prior to the printing of
this document, United's stock closed at $____ per share.
There is no established public trading market for shares of Community's
common stock.
Operations After the Merger (Page __)
Following the completion of the merger, Community will cease to exist and
Northwestern National Bank, its subsidiary, will be merged into Catawba Valley
Bank and will operate its current branches, and any future branch offices in its
market area, under the name "Northwestern Bank".
United Dividend Policy Following the Merger (Page __)
Although United has paid dividends in prior years, it may not pay any in
the future. The Board of United will decide from time to time whether to pay
dividends after evaluating business and financial results and other factors,
such as legal restrictions.
7
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Joint Proxy Statement-Prospectus, you should consider the following
material risk factors carefully before deciding how to vote at the United and
Community special meetings. Please see page ___ under "Forward-Looking
Statements" for additional information to bear in mind before casting your vote.
Risks Related to the Merger
---------------------------
United may encounter integration difficulties or may fail to realize the
anticipated benefits of the merger.
United and Community may not be able to integrate their operations without
encountering difficulties including, without limitation, the loss of key
employees and customers, the disruption of their respective ongoing businesses
or possible inconsistencies in standards, controls, procedures and policies.
Additionally, in determining that the merger is in the best interests of
United and Community, as the case may be, the Board of Directors of each of
United and Community considered that enhanced earnings may result from the
consummation of the merger, including from reduction of duplicate costs,
improved efficiency and cross-marketing opportunities. However, there can be no
assurance that significantly enhanced earnings will result from the merger.
Future results of the combined companies may materially differ from the pro
forma financial information presented in this document.
Future results of the combined company may be materially different from
those shown in the pro forma financial statements that only show a combination
of our historical results. We have estimated that the combined company will
record approximately $_____________ of merger-related charges. The charges may
be higher or lower than we have estimated, depending upon how costly or
difficult it is to integrate our two companies. Furthermore, these charges may
decrease capital of the combined company that could be used for profitable,
income-earning investments in the future.
The interests of certain management officials of Community may be different from
those of other shareholders.
Community's directors and executive officers have interests in the merger
other than their interests as Community shareholders. These interests may cause
them to view the merger proposal differently than you may view it. Under his
current employment contract with Community, Ronald S. Shoemaker, President and
Chief Executive Officer of Community, will receive a change in control payment
equal to 2.99 times the average amount of his salary and bonus over the past
five years (approximately $390,000) upon the successful completion of the
merger. Mr. Shoemaker will also receive approximately $60,000 in consideration
of entering into an agreement not to compete with United for a period of two
years and will enter into a two-year employment agreement with United. In
addition, four members of the Board of Directors of Community, including Mr.
Shoemaker, will be appointed to serve as members of the Board of Directors of
United upon successful completion of the merger. See "The Merger - Management
and Operations after the Merger."
8
Risks Related to Holding United Stock
-------------------------------------
United depends heavily on its President and Chief Executive Officer, R. Steve
Aaron.
United currently depends heavily on the services of its President and Chief
Executive Officer, R. Steve Aaron, and a number of other key management
personnel. The loss of his services or of other key personnel could affect
United in a material and adverse way. United's success will also depend in part
on its ability to attract and retain additional qualified management personnel
who have experience both in sophisticated banking matters and in operating a
small to mid-size bank and bank holding company. Competition for such personnel
is strong in the banking industry and United may not be successful in attracting
or retaining the personnel it requires. United attempts to effectively compete
in this area by offering financial packages that include incentive-based
compensation and the opportunity to join in the rewarding work of building a
community based financial institution.
Government regulations may prevent or impair our ability to pay dividends,
engage in acquisitions, or operate in other ways.
Current and future legislation and the policies established by federal and
state regulatory authorities will affect United's operations. United is subject
to supervision and periodic examination by the Federal Reserve Board and the
North Carolina Commissioner of Banks. First Gaston Bank and Catawba Valley Bank,
as state chartered commercial banks, also receive regulatory scrutiny from the
North Carolina Commissioner of Banks and the FDIC. Banking regulations, designed
primarily for the protection of depositors, may limit our growth and the return
to you, our investors, by restricting our activities, such as:
. the payment of dividends to our shareholders;
. possible mergers with or acquisitions by other institutions;
. our desired investments;
. loans and interest rates;
. interest rates paid on our deposits;
. the possible expansion of our branch offices; and
. our ability to provide securities or trust services.
United may be able to overcome some of these regulatory hurdles as a
financial holding company, but will have to comply with other federal laws and
regulations and could face enforcement actions by regulatory agencies. United
cannot predict what changes, if any, will be made to existing federal and state
legislation and regulations or the effect that such changes may have on its
business. The cost of compliance with regulatory requirements may adversely
affect United's ability to operate profitably. (See "Regulation and
Supervision").
Interest rate volatility could significantly harm United's business.
United's results of operations are affected by the monetary and fiscal
policies of the federal government and the regulatory policies of governmental
authorities. A significant component of United's earnings is its net interest
income, which is the difference between income from interest-earning assets,
such as loans, and the expense of interest-bearing liabilities, such as
deposits. A change in market interest rates will adversely affect United's
earnings if market interest rates change such that the interest United pays on
deposits and borrowings increases faster than the interest it collects on loans
and
9
investments. Consequently, United, along with other financial institutions
generally, is sensitive to interest rate fluctuations.
Our trading volume has been low compared with larger bank holding companies.
The trading volume in United's common stock on the Nasdaq SmallCap Market
has been comparable to other similarly sized bank holding companies since
trading began in January 2001. Nevertheless, this trading volume does not
compare with more seasoned companies listed on the Nasdaq SmallCap Market or
other stock exchanges. Thus, the market in United's common stock is somewhat
limited in scope relative to other companies. In addition, we cannot say with
any certainty that a more active and liquid trading market for our stock will
develop after the merger.
We compete with much larger companies for some of the same business.
The banking and financial services business in United's and Community's
market areas is highly competitive and is becoming more competitive as a result
primarily of:
. changes in regulation;
. changes in technology and product delivery systems; and
. the accelerating pace of consolidation among financial services
providers.
United's combined results of operations could be adversely affected by the
nature or pace of change in competition. Catawba Valley Bank and First Gaston
Bank will compete for loans, deposits and customers with various bank and
nonbank financial services providers, many of which are much larger in total
assets and capitalization, have greater access to capital markets and offer a
broader array of financial services.
FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this Joint Proxy
Statement-Prospectus about the financial condition, results of operations, and
business of United following the consummation of the merger that are subject to
risks and uncertainties. Factors that may cause actual results to differ
materially from those contemplated by such forward-looking statements include,
among other things, the following possibilities:
. deposit attrition, customer loss, or revenue loss following the merger
is greater than expected;
. competitive pressure in the banking industry increases significantly;
. changes in the interest rate environment reduce our margins;
. general economic conditions, either nationally or regionally, are less
favorable than expected, resulting in, among other things, a
deterioration in credit quality;
. changes occur in the regulatory environment; and
. changes occur in business conditions and the rate of inflation.
When used in this Joint Proxy Statement-Prospectus, the words "believes,"
"estimates," "plans," "expects," "should," "may," "might," "outlook," and
"anticipates," and similar expressions as they relate to United, Community, or
their management are intended to identify forward-looking statements.
10
MARKET PRICES AND DIVIDEND POLICIES
United
United's common stock traded publicly on the OTC Bulletin Board from July
1999, shortly after it became the holding company for Catawba Valley Bank, until
it became listed on the Nasdaq SmallCap Market on January 1, 2002, after it
acquired First Gaston Bank. The prices shown below do not include commissions or
other expenses charged by brokers. The following table sets forth the high and
low sale price information of United's common stock for the periods indicated:
High Low Dividend
Year Ended December 31, 2000
----------------------------
First Quarter $14.63 $12.60 $ -
Second Quarter 15.30 12.60 .06
Third Quarter 14.40 12.72 -
Fourth Quarter 13.50 8.33 .06
Year Ended December 31, 2001
----------------------------
First Quarter $15.00 $ 9.08 $ -
Second Quarter 15.50 12.25 .06
Third Quarter 15.50 13.25 -
Fourth Quarter 12.30 11.71 .06
Year Ended December 31, 2002
----------------------------
First Quarter $15.90 $12.25 $ -
Second Quarter 16.30 14.40 .07
Third Quarter (through Sept. 10, 2002) 16.30 15.20 -
The above prices have been adjusted to reflect a 10% stock dividend paid in
February 2001.
After the merger, the only funds available to United for use in paying
dividends would be dividends received from Catawba Valley Bank and First Gaston
Bank.
In addition, North Carolina corporate law precludes any distribution to
shareholders, including the payment of a dividend, if, after giving effect to
the distribution, United:
. would not be able to pay its debts as they become due in the usual
course of business; or
. its total assets would be less than the sum of its total liabilities.
Future dividends will be determined by United's Board of Directors in light
of circumstances existing from time to time, including United's:
. growth;
. financial condition and results of operations;
. the continued existence of the restrictions described above; and
. other factors that the Board of Directors considers relevant.
11
Community
There is no established public trading market for Community's common stock.
Community paid a cash dividend of $.025 per share on February 15, 2002, May 15,
2002 and August 1, 2002. Community's future dividend policy will depend on its
earnings, capital requirements, financial condition and other factors considered
relevant by the Community Board of Directors.
UNITED AND COMMUNITY UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of
June 30, 2002 and the unaudited pro forma condensed combined statements of
income for the six months ended June 30, 2002 and for the year ended December
31, 2001 give effect to the merger, accounted for under the purchase method of
accounting.
The unaudited pro forma condensed combined financial information as of and
for the six months ended June 30, 2002 has been derived from the unaudited
interim financial statements for both United and Community, which are included
in this Joint Proxy Statement-Prospectus (See "Information Incorporated by
Reference"). The unaudited pro forma condensed combined financial information as
of and for the year ended December 31, 2001 is based on the historical financial
statements of United and Community under the assumptions and adjustments set
forth in the accompanying notes to the unaudited pro forma condensed combined
financial statements. It gives effect to the merger as if it had been
consummated at the beginning of the earliest period presented. The unaudited pro
forma condensed combined financial statements do not give effect to the
anticipated cost savings or revenue enhancements in connection with the merger.
The unaudited pro forma condensed combined financial statements should be
read together with the historical financial statements of United and Community,
including the respective notes to those statements. The pro forma information
does not necessarily indicate the combined financial position or the results of
operations in the future or the combined financial position or the results of
operations that would have been realized had the merger been consummated during
the periods or as of the dates for which the pro forma information is presented.
Pro forma per share amounts for the combined entity are based on an assumed
exchange ratio of 1.3419 shares of United stock for 70% of the shares of
Community. The assumed exchange ratio represents the ratio of (i) the amount to
be paid by United for Community stock valued at $21.00 per share to (ii) the
fair value of United's common stock at June 30, 2002 of $15.65 per share.
12
United Community Bancorp
Community Bancshares, Inc.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2002
Pro Forma Pro
Acquisition Forma
United Community Adjustments Combined
--------- --------- ----------- ---------
(In thousands, except share data)
Assets
Cash and cash equivalents $ 6,859 $ 5,940 $ (10,680) B $ 2,119
Investment securities available for sale 65,911 23,995 -- 89,906
Investment securities held to maturity -- 1,394 41 C 1,435
Loans 267,277 102,272 475 C 370,024
Allowance for loan losses (3,694) (1,218) -- (4,912)
Factored accounts receivable 3,382 -- -- 3,382
Stock in FHLB of Atlanta 1,775 533 -- 2,308
Premises and equipment, net 8,120 3,789 750 C 12,659
Core deposit intangible -- -- 2,289 C 2,289
Goodwill -- -- 17,848 D 17,848
Deferred tax asset 329 -- (329) C --
Other assets 3,675 1,259 -- 4,934
--------- --------- --------- ---------
Total Assets $ 353,634 $ 137,964 $ 10,394 $ 501,992
========= ========= ========= =========
Liabilities
Deposits $ 282,720 $ 114,441 $ 671 C $ 397,832
Borrowings 36,788 5,640 -- 42,428
Deferred tax liability -- 176 437 C 613
Accrued expenses and other liabilities 1,089 823 450 B 2,362
--------- --------- --------- ---------
Total Liabilities 320,597 121,080 1,558 443,235
--------- --------- --------- ---------
Stockholders' Equity
United Community Bancorp
Preferred stock, no par value, 1,000,000
shares authorized, no shares issued -- -- -- --
Common stock, $1 par value, 9,000,000
shares authorized, 2,778,673 shares issued,
4,311,326 shares issued pro forma 2,779 -- 1,533 A 4,312
Additional paid-in capital 26,762 -- 24,187 A 50,949
Less cost of 31,792 shares held in treasury (488) -- -- (488)
Retained earnings 2,860 -- -- 2,860
Accumulated other comprehensive income 1,124 -- -- 1,124
Community Bancshares, Inc.
Common stock, $3 par value, 10,000,000
shares authorized, 1,631,702 shares issued
and outstanding -- 4,895 (4,895) C --
Additional paid-in capital -- 5,220 (5,220) C --
Retained earnings -- 6,381 (6,381) C --
Accumulated other comprehensive income -- 388 (388) C --
--------- --------- --------- ---------
Total Stockholders' Equity 33,037 16,884 8,836 58,757
--------- --------- --------- ---------
Total Liabilities and Stockholders' Equity $ 353,634 $ 137,964 $ 10,394 $ 501,992
========= ========= ========= =========
Total book value per common share $ 12.03 $ 10.35 $ 13.73
Tangible book value per common share 12.03 10.35 9.02
13
United Community Bancorp
Community Bancshares, Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Six Months Ended June 30, 2002
Pro Forma Pro
Acquisition Forma
United Community Adjustments Combined
--------- --------- ----------- ---------
(In thousands, except share data)
Interest income $ 10,171 $ 4,164 $ (154) F $ 14,181
Interest expense 4,524 1,737 (336) G 5,925
--------- --------- ------ ---------
Net interest income 5,647 2,427 182 8,256
Provision for loan losses 435 130 -- 565
--------- --------- ------ ---------
Net interest income after provision for loan losses 5,212 2,297 182 7,691
--------- --------- ------ ---------
Non-interest income 2,154 396 -- 2,550
--------- --------- ------ ---------
Non-interest expenses 4,689 2,044 13 H 6,746
Amortization of intangible assets -- -- 114 E 114
--------- --------- ------ ---------
Total non-interest expenses 4,689 2,044 127 6,860
--------- --------- ------ ---------
Income before income taxes 2,677 649 55 3,381
Provision for income taxes 924 226 21 I 1,171
--------- --------- ------ ---------
Net income $ 1,753 $ 423 $ 34 $ 2,210
========= ========= ====== =========
Net Income Per Common Share
Basic $ 0.63 $ 0.26 $ 0.52
Diluted 0.61 0.25 0.49
Weighted Average Common Shares Outstanding
Basic 2,755,130 1,615,163 4,272,301
Diluted 2,871,199 1,674,780 4,468,370
Equivalent Net Income Per Common Share For
Community Common Shares Exchanged
for United Common Shares
Basic $ 0.69
Diluted 0.66
Cash Dividends Declared per Common Share $ 0.07 $ 0.05 0.07
Equivalent cash dividends per common share
for Community common shares exchanged for United
common shares $ 0.09
14
United Community Bancorp
Community Bancshares, Inc.
Unaudited Pro Forma Condensed Combined Statement of Income
For the Year Ended December 31, 2001
Pro Forma Pro
Acquisition Forma
United Community Adjustments Combined
--------- --------- ----------- ---------
(In thousands, except share data)
Interest income $ 21,851 $ 9,087 $ (309) F $ 30,629
Interest expense 11,547 4,619 (671) G 15,495
--------- --------- ------ ---------
Net interest income 10,304 4,468 362 15,134
Provision for loan losses 927 200 - 1,127
--------- --------- ------ ---------
Net interest income after provision for loan losses 9,377 4,268 362 14,007
--------- --------- ------ ---------
Non-interest income 3,606 1,005 - 4,611
--------- --------- ------ ---------
Non-interest expenses 9,075 3,475 25 H 12,575
Amortization of intangible assets - - 229 E 229
--------- --------- ------ ---------
Total non-interest expenses 9,075 3,475 254 12,804
--------- --------- ------ ---------
Income before income taxes 3,908 1,798 108 5,814
Provision for income taxes 1,278 439 41 I 1,758
--------- --------- ------ ---------
Net income $ 2,630 $ 1,359 $ 67 $ 4,056
========= ========= ====== =========
Net Income Per Common Share
Basic $ 0.95 $ 0.92 $ 0.98
Diluted 0.93 0.88 0.94
Weighted Average Common Shares Outstanding
Basic 2,772,513 1,472,485 4,155,662
Diluted 2,842,276 1,549,471 4,328,733
Equivalent Net Income Per Common Share For
Community Common Shares Exchanged
for United Common Shares
Basic $ 1.31
Diluted 1.26
Cash Dividends Declared per Common Share $ 0.12 $ 0.075 $ 0.12
Equivalent cash dividends per common share
for Community common shares exchanged for
United common shares $ 0.16
15
Notes To Unaudited Pro Forma Condensed Combined Financial Statements
The pro forma information presented is not necessarily indicative of the
results of operations or the combined financial position that would have
resulted had the merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined company. It is
anticipated that the merger will be completed on December 31, 2002.
NOTE 1 - BASIS OF PRESENTATION AND COMMUNITY ACQUISITION
Basis of Presentation
The unaudited pro forma condensed combined financial statements give effect
to the merger of United and Community in a business combination accounted for as
a purchase. As a result of the merger, Community will be merged into United.
Community Acquisition
Upon completion of the Merger, each share of Community common stock is
assumed to be converted into either 1.3419 shares of United common stock or
$21.00 in cash. The Merger Agreement requires that 70% of the total
consideration received by Community shareholders in exchange for their Community
common stock will be paid in United common stock. Community shareholders will
have the opportunity to elect the form of consideration they would like to
receive for their shares of Community common stock. However, should Community
shareholders elect United common stock in an amount less than or more than the
percentage set forth above, then United common stock will be allocated to
achieve that ratio and the additional shares of United common stock or cash will
be allocated pro rata among Community shareholders.
The pro forma balance sheet reflects the proposed exchange as if it had
occurred on June 30, 2002, based on an estimated market value of United common
stock on that date of $15.65 per share. This estimate will be refined and
updated as of the effective date of the merger and may be more or less than the
value indicated in these Pro Forma Condensed Combined Financial Statements,
depending upon operating results from June 30, 2002 to the effective date of the
merger, changes in market conditions and other factors. For purposes of these
Pro Forma Condensed Combined Financial Statements, it is assumed that purchase
price for the Community common stock is paid as follows:
(i) 70%, or 1,142,191, of the outstanding shares of Community common stock
on June 30, 2002 are exchanged for United common stock at an exchange
ratio of 1.3419 shares of United common stock for each share of
Community common stock, resulting in the issuance of 1,532,653 shares
of United common stock.
(ii) 30%, or 489,511, shares of Community common stock outstanding on June
30, 2002 are exchanged for cash at $21.00 per share.
Described below is the pro forma estimate of the total purchase price of
the transaction as well as the adjustment to allocate the purchase price based
on preliminary estimates of the fair values of the assets and liabilities of
Community: (in thousands)
16
Estimated fair value of the United common shares
to be issued to $ 23,986
Cash paid for shares 10,280
Fair value of vested United options granted to Community option holders 1,735
Merger related costs of United 250
--------
Total 36,251
Less adjusted net assets of Community (18,403)
--------
Goodwill recorded in the merger $ 17,848
========
The adjusted net assets of Community are determined as follows:
Community stockholders' equity at June 30, 2002 $ 16,884
Merger related expenses of Community (600)
Adjustments for fair values of assets acquired and liabilities assumed 2,119
--------
$ 18,403
NOTE 2 - DESCRIPTION OF PRO FORMA ACQUISITION ADJUSTMENTS
The purchase accounting and pro forma adjustment related to the
unaudited pro forma condensed combined balance sheet and income statement are
described below:
A. Issuance of 1,532,653 shares (1,632,702 x 70% x 1.3419) of United's
$1.00 par value common stock with an effective date value of $15.65
per share, combined with the value of vested United options issued to
Community option holders.
B. To record cash paid for Community shares and for transaction costs,
and to record liabilities incurred for transaction costs.
C. To eliminate Community equity accounts and record fair value
adjustments to Community assets acquired and liabilities assumed.
D. To record goodwill.
E. To record amortization of the core deposit intangible using the
straight-line method over a ten-year life.
F. To reduce interest income for (1) the effects of cash used in the
acquisition based upon a 2% rate earned on overnight funds and (2)
amortization of the fair value adjustment to loans over a five-year
period.
G. To reduce interest expense for the effects of accretion of the fair
value adjustment to deposits over a one-year period.
H. To record depreciation of the fair market adjustment to real property
using the straight-line method over a thirty year life.
I. To adjust income tax expense at a rate of 38% applied to the foregoing
adjustments to income before income taxes.
17
THE SPECIAL MEETINGS OF SHAREHOLDERS
United's Special Meeting
General. This Joint Proxy Statement-Prospectus is being furnished to the
shareholders of United in connection with the solicitation by the Board of
Directors of United of proxies for use at the United special meeting of
shareholders. The purpose of the United special meeting is to vote on approval
of the merger agreement dated August 2, 2002 between United and Community.
Record Date; Voting Rights. United's shareholders of record at the close of
business on _____, 2002 are entitled to vote at the United special meeting, or
following any adjournment or postponement of the United special meeting. On
____________, 2002, there were ____ shares of United's common stock outstanding
and entitled to vote held by approximately ____ holders of record. Each share of
United's common stock outstanding on _____, 2002 entitles the holder to one vote
on each matter submitted to a vote at the meeting. Pursuant to the Bylaws of
United, a majority of the votes entitled to be cast by holders of United's
common stock, represented in person or by proxy, will constitute a quorum for
the transaction of business at the meeting.
For the merger to be completed, the merger agreement must be approved by
the affirmative vote of holders of a majority of the shares of United entitled
to vote at the special meeting.
As of the record date for the United special meeting, the executive
officers and directors of United and their affiliates owned an aggregate of
332,562 shares, or 12.2% of United's issued and outstanding common stock as of
that date, all of which are expected to be voted in favor of approval of the
merger agreement.
Solicitation, Revocation, and Use of Proxies. A proxy card is enclosed for
your use. You are solicited on behalf of the Board of Directors of United to
complete, date, sign, and return the proxy card in the accompanying envelope,
which is postage-paid if mailed in the United States.
You have three choices with regard to the proposal to approve the merger
agreement. By checking the appropriate box on the proxy card you may:
. vote "FOR" approval of the merger agreement;
. vote "AGAINST" approval of the merger agreement; or
. "ABSTAIN" from voting altogether.
The merger cannot be completed unless holders of a majority of all
outstanding shares, voting either in person or by proxy, vote "FOR" the
proposal. If a quorum is present at the meeting, in person or by proxy, your
failure to vote would have the same effect as a vote "AGAINST" the merger
proposal. Broker non-votes will also have the same effect as a vote "AGAINST"
the merger proposal.
You may revoke your proxy at any time before it is actually voted at the
United special meeting by (a) delivering written notice of revocation to the
Secretary of United, G. Marvin Lowder, 1039 Second Street, N.E., Hickory, North
Carolina 28601-3843, (b) submitting a subsequently dated proxy, or (c) attending
the special meeting and voting in person. Each unrevoked proxy card properly
executed and received prior to the close of the special meeting will be voted as
indicated. Where specific instructions are not indicated, the proxy will be
voted "FOR" the merger proposal. Your death or incapacity will not revoke your
proxy unless, before the shares are voted, notice of death or incapacity is
filed with the
18
Secretary of United or other person authorized to tabulate votes. Whether or not
you plan to attend United's special meeting, you are requested to complete,
date, and sign the accompanying proxy and return it promptly in the enclosed,
postage-prepaid envelope.
Community's Special Meeting
General. This Joint Proxy Statement-Prospectus is being furnished to
shareholders of Community as of _______, 2002, and is accompanied by a form of
proxy which is solicited by the Board of Directors of Community for use at
Community's special meeting to be held on _____, 2002 and at any adjournment or
postponement thereof. At Community's special meeting, Community's shareholders
will be asked to vote to approve the merger agreement dated August 2, 2002
between United and Community.
Record Date; Voting Rights. Shareholders of record at the close of business
on _____, 2002 are entitled to vote at Community's special meeting or at any
adjournment or postponement thereof. On September 10, 2002, there were ____
shares of Community's common stock outstanding which were held by approximately
695 holders of record. Each share of Community's common stock outstanding on
_________, 2002 is entitled to one vote on each matter submitted to a vote at
the meeting.
Approval of the merger will require the affirmative vote of holders of a
majority of the shares of Community's common stock entitled to vote at the
special meeting.
As of the record date for the Community special meeting, the directors and
executive officers of Community and their affiliates owned a total of 758,199
shares, or 46% of Community's common stock issued and oustanding on that date,
all of which are expected to be voted in favor of the merger.
Solicitation, Revocation, and Use of Proxies. A proxy card is enclosed for
your use. You are solicited on behalf of the Board of Directors of Community to
complete, date, sign, and return the proxy card in the accompanying envelope,
which is postage-paid if mailed in the United States.
You have three choices with regard to the proposal to approve the merger
agreement. By checking the appropriate box on the proxy card you may:
. vote "FOR" the merger;
. vote "AGAINST" the merger; or
. "ABSTAIN" from voting altogether.
The merger cannot be completed unless holders of a majority of all
outstanding shares, voting either in person or by proxy, vote "FOR" the
proposal. If a quorum is present at the meeting, in person or by proxy, your
failure to vote would have the same effect as a vote "AGAINST" the merger
proposal. Broker non-votes will also have the same effect as a vote "AGAINST"
the merger proposal.
You may revoke a proxy at any time prior to its exercise by (a) filing a
written notice of revocation with or by delivering a duly executed proxy bearing
a later date to Rebecca Ann Sebastian, the Secretary of Community, at 1301
Westwood Lane, Westfield Village, North Wilkesboro, North Carolina 28697 prior
to Community's special meeting, (b) submitting a subsequently dated proxy, or
(c) attending Community's special meeting and voting in person. Your death or
incapacity will not revoke your proxy unless, before the shares are voted,
notice of death or incapacity is filed with the Secretary of Community or other
person authorized to tabulate votes. Whether or not you plan to attend
Community's special
19
meeting, you are requested to complete, date, and sign the accompanying proxy
and return it promptly in the enclosed, postage-paid envelope.
Authorization to Vote on Adjournment and Other Matters
By signing a proxy, you authorize the proxyholder to vote in his discretion
regarding any procedural motions which may come before the special meetings. For
example, this authority could be used to adjourn the special meetings if United
or Community believes it is desirable to do so. Adjournment or other procedural
matters could be used to obtain more time before a vote is taken in order to
solicit additional proxies or to provide additional information to shareholders.
However, proxies voted against the merger proposal will not be used to adjourn
the special meetings. Neither corporation has any plans to adjourn the meetings
at this time, but each intends to do so, if needed, to promote shareholder
interests.
Expenses
The expense of preparing, printing, and mailing this Joint Proxy
Statement-Prospectus will be shared equally by United and Community. In addition
to the use of the mails, proxies may be solicited personally or by telephone by
regular employees of United and Community without additional compensation.
United and Community will each reimburse banks, brokers and other custodians,
nominees and fiduciaries for their costs in sending the proxy materials to the
respective beneficial owners of United's and Community's common stock.
20
THE MERGER PROPOSAL
The following information describes material aspects of the proposed
transaction by which Community would be merged into United under the merger
agreement. The merger agreement is attached as Appendix I and incorporated by
reference into this Joint Proxy Statement-Prospectus.
General
At the effective time of the merger, Community will be merged with and into
United and will cease to exist as a separate legal entity, and each share of
Community common stock issued and outstanding immediately prior to the merger
(excluding shares as to which Community shareholders have exercised dissenters'
rights) will be converted into the right to receive either:
. a number of shares of United common stock with a value of $21.00
(based on the closing price of United common stock over the twenty
trading days ending three trading days prior to the merger);
. $21.00 in cash; or
. a combination of United common stock and cash.
On or about the date that this Joint Proxy Statement-Prospectus was mailed
to shareholders of record of United and Community, an election form was mailed
to the shareholders of Community. The election form allows shareholders of
Community to elect to receive, in the event the merger is completed, in exchange
for their shares of Community common stock:
. shares of United common stock;
. cash; or
. a combination of 70% United common stock and 30% cash.
Shareholders of Community may also indicate that they have no preference with
regard to the foregoing and choose not to make an election. To be effective, a
properly completed election form must be received by 5:00 p.m., North Carolina
time on the last business day prior to the date of the Community special
meeting, or such other date as United and Community mutually agree.
Shareholder elections will be adjusted pro rata, if necessary, so that 70%
of the shares of common stock of Community will be exchanged for shares of
United common stock and 30% will be exchanged for cash.
Background of the Merger
Community was organized in 1992 by businessmen and investors primarily
located in Wilkes County, North Carolina, with the intent of bringing
community-style banking back to northwestern North Carolina. From its opening in
January 1992, Community's subsidiary, Wilkes National Bank, grew rapidly in
Wilkes County and eventually expanded into adjoining Alexander County, North
Carolina. During the period from 1996 through 1999 Community was approached by
several other financial institutions which inquired whether Community would be
interested in a merger transaction. The Board of Directors of Community reviewed
each unsolicited offer, but ultimately determined in each case that it was in
the best interests of Community and its shareholders to remain independent.
Community's Board believed that remaining independent was the best way to
achieve the company's long-term goal of
21
becoming the premier community bank in northwestern North Carolina while
enhancing the value of the shareholders' investment in Community.
Between 1999 and 2001 Community continued to grow and expanded by opening
branches and loan production offices in Ashe, Caldwell and Watauga Counties,
North Carolina. To reflect the growing regional nature of its bank, Community
changed the name of its bank subsidiary to Northwestern National Bank in May of
2001. While Community continued to receive informal inquiries regarding a
possible merger or other acquisition transaction, the Board of Directors
believed that the growth shown by Community was evidence that remaining
independent was the best way for Community to reach its long-term objectives.
By midyear 2002, the downturn in both the national and regional economy had
seriously impacted the furniture and textile manufacturing industries that
predominated Community's primary market area. In addition, Lowe's Companies,
Inc., one of the largest employers in Community's market area, announced its
intention to relocate its corporate headquarters from Wilkesboro to Mooresville,
North Carolina. As a result of the economic changes in Community's primary
market area, the Board of Directors reexamined its growth strategy. The Board
believed that the shrinking economy in the Wilkes County area would no longer
support the growth objectives for Community established by the Board of
Directors and could eventually require Community to reduce its operations.
Community's Board of Directors began evaluating possibilities for expanding
the bank's operations into the growing markets of Iredell, Catawba, Gaston and
Mecklenburg Counties North Carolina. The Board determined that there were
several obstacles in expanding into these new markets. First, management of
Community had limited contacts and experience in the new market areas which
would make efficient expansion into the new markets more difficult. In addition,
expansion into these markets, where Community previously had no operations,
would require significant capital expenditures. The Board believed that
Community's capital levels would be insufficient to provide the facilities and
personnel needed to bring Community's tradition of strong community banking into
the new market areas. As a result, the Board began to look at the possibility of
raising additional capital for expansion and other alternatives for gaining
access into these growing markets.
In early April 2002, Steve Aaron, President and Chief Executive Officer of
United Community Bancorp, and Ronald S. Shoemaker, President and Chief Executive
Officer of Community, met to discuss their banks' current performance and their
future plans. Given that Community's and United's market areas bordered one
another with no overlapping branches, and that both companies used the same data
processing service and accounting systems, Messrs. Aaron and Shoemaker believed
that both companies could experience significant cost savings, with little
expense involved, by consolidating the two companies. Messrs. Aaron and
Shoemaker met again to discuss the possibility of a merger on April 17, 2002. At
that time Mr. Aaron presented a merger proposal pursuant to which United would
offer Community shareholders $15.00 per share. Mr. Shoemaker presented United's
initial proposal to the Executive Committee of the Community Board of Directors.
The Executive Committee concluded that United's initial offer was inadequate and
instructed Mr. Shoemaker to decline the offer.
On April 30, 2002, Mr. Aaron provided a revised proposal to Mr. Shoemaker
pursuant to which United would offer $18.00 per share for a merger with
Community. On May 3, 2002, the Executive Committee reviewed the revised
proposal, but once again concluded that the proposal did not adequately reflect
the value of Community. However, the Executive Committee felt that further
negotiations with United were warranted and directed Mr. Shoemaker to continue
discussions with Mr. Aaron. The Executive Committee also asked Mr. Shoemaker to
contact Community's outside legal counsel, Smith, Gambrell & Russell, LLP, to
discuss the Board of Directors' fiduciary responsibilities in negotiating a
22
possible merger transaction, including obtaining a fairness opinion with respect
to any offer, and conducting due diligence.
At the Annual Meeting of the Community Board of Directors, on May 31, 2002,
Mr. Shoemaker and members of the Executive Committee presented the terms of
United's revised offer to the full Board of Directors. Representatives from
Smith, Gambrell & Russell were present at the meeting to answer questions from
the Board of Directors. After lengthy discussion, the Board authorized Mr.
Shoemaker to continue negotiations with United, specifically to increase the
amount of the merger consideration United would pay to the shareholders of
Community and to increase the number of directors of Community that would serve
on United's Board of Directors following a merger.
On June 3, 2002, Messrs. Shoemaker and Aaron met to continue negotiations.
At that meeting, Mr. Aaron informed Mr. Shoemaker that he believed United's
Board of Directors would agree to increase the value of merger consideration to
$21.00 per share, with 70% of the aggregate consideration paid in common stock
of United and the remaining 30% paid in cash. Both Messrs. Aaron and Shoemaker
agreed to present the offer, as revised, to their respective Boards of Directors
or committees thereof.
On June 12, 2002, United's Board of Directors met and approved the proposed
merger consideration of $21.00 per share. Mr. Aaron contacted Mr. Shoemaker and
informed him of United's decision.
Community's Executive Committee met on June 14, 2002 to discuss the revised
proposal. The Executive Committee believed that the revised proposal was
sufficient to commence due diligence and to seek a fairness opinion. As a
result, the Executive Committee authorized Mr. Shoemaker to hire Calvert
Consulting and Credit Risk Management to conduct a due diligence review of
United. In addition, the Executive Committee authorized Mr. Shoemaker to retain
the investment banking firm of SunTrust Robinson Humphrey, a division of
SunTrust Capital Markets, Inc., to provide a fairness opinion to the Board of
Directors with respect to the proposed merger consideration.
On July 23, 2002, the Executive Committee met to discuss the reports
received from Calvert Consulting and from Credit Risk Management. After
reviewing and discussing the due diligence reports, the Executive Committee
authorized management of Community, with the assistance of Smith, Gambrell &
Russell, to begin negotiation of a definitive merger agreement with United.
Members of Community's Executive Committee presented the due diligence
reports to the full Board of Directors of Community at a meeting held on July
25, 2002. The Board instructed Mr. Shoemaker to continue negotiation of the
merger agreement and to allow representatives of United to complete a due
diligence review of Community.
On July 29, 2002, representatives of United, including Mr. Aaron, conducted
their due diligence review. Following the review, Mr. Aaron reported on its
results to the Board of Directors of United.
Between July 24 and August 1, 2002, the parties negotiated the terms of a
definitive agreement and plan of merger.
United's Board of Directors met on August 2, 2002 and received the due
diligence findings, received a copy of the merger agreement as well as an
executive summary of the merger agreement and received the advice of The Orr
Group that it would deliver its opinion that the merger was fair, from a
financial point of view, to the shareholders of United.
23
Community's Board of Directors met on August 2, 2002 to discuss the terms
of the proposed merger agreement. Also present at the meeting were
representatives of Smith, Gambrell & Russell and SunTrust Robinson Humphrey.
Representatives of Smith, Gambrell & Russell reviewed and discussed with the
Board the terms of the proposed merger agreement, and representatives of
SunTrust Robinson Humphrey delivered and described that firm's opinion that, as
of the date of the meeting, the merger consideration was fair, from a financial
point of view, to the shareholders of Community. After full consideration and
discussion of the structure, terms and conditions of the proposed merger, the
Community Board of Directors approved the proposed merger with United as in the
best interests of the Community shareholders and authorized Ronald S. Shoemaker
to execute the merger agreement and take such further action as necessary to
consummate the merger, subject to regulatory and shareholder approval.
Immediately following the meeting of the Community Board of Directors,
Messrs. Shoemaker and Aaron executed the merger agreement. The parties announced
the signing of the merger agreement on August 3, 2002.
Community's Reasons for the Merger
Community's Board of Directors believes that the merger will enable
Community's shareholders to realize significant value when compared to the value
of Community common stock if the merger does not occur.
In reaching its determination that the merger agreement is fair to, and in
the best interests of, Community and its shareholders, the Community Board
considered a number of factors, both from a short-term and long-term
perspective, including, without limitation, the following:
. the Community Board's familiarity with and review of United's
business, financial condition, results of operations, and prospects,
including, but not limited to, its potential growth, development,
productivity and profitability;
. the United offer including four Board seats for Community's directors
and five Advisory Board seats on the Catawba Valley Bank Board of
Directors;
. the anticipated tax-free exchange of Community's common stock for
United common stock in the merger (see the subheading "-Federal Income
Tax Consequences");
. the current and prospective environment in which Community operates,
including national, state and local economic conditions, Community's
competitive environment, the trend toward consolidation in the
financial services industry in general and among financial
institutions in North Carolina and the likely effect of the foregoing
factors on Community's potential growth, development, productivity and
profitability;
. the business, financial condition, results of operations and market
valuations of United and the opportunity for Community shareholders to
participate in any further growth of United by obtaining United common
stock in the merger;
. an in-depth due diligence review of United's operations, financial
records, capital position and legal matters conducted by
representatives of Community;
. a comparison of products and services provided by Community and
United, as well as the costs associated with and relative level of
resources available to Community and United, respectively, to maintain
and provide future enhancements to, and develop new products and
services within their markets;
. United's intention to retain most of Community's employees; and
24
. the presentation by SunTrust Robinson Humphrey to the Community Board
of Directors on August 2, 2002, including the written opinion of
SunTrust Robinson Humphrey that, as of August 2, 2002, the merger
consideration was fair to the shareholders of Community from a
financial point of view.
In addition, the Community Board of Directors is of the opinion that the
merger will result in a combined entity which has increased financial,
managerial, technological and other resources and will be better able to meet
increased competition and to profit from the opportunities resulting from
changing legal and regulatory environment facing banks and bank holding
companies.
United's Reasons for the Merger
The United Board of Directors believes that the merger is in the best
interests of United and its shareholders because it presents an important
opportunity for United to increase shareholder value through growth by acquiring
a profitable, well-managed financial institution in a market that is a logical
expansion for United's subsidiary bank, Catawba Valley Bank.
In reaching its decision to approve the merger agreement, the United Board
consulted with management of United, as well as its financial and legal
advisors, and considered the following factors:
. The United Board's familiarity with and review of Community's
business, operations, financial condition, earnings and prospects;
. The pro forma and prospective financial impact of the acquisition upon
United;
. The business, operations, financial condition, earnings and prospects
of each of United and Community. In making its determination, the
United Board took into account the results of United's due diligence
review of Community's business.
. The complimentary nature of the businesses of United and Community;
. The current and prospective economic and competitive environment
facing financial institutions, including United;
. The United Board's belief that a combination of United and Community
will enhance the combined company's ability to grow and to compete
effectively with other, and larger, bank holding companies in the
Piedmont and western portion of North Carolina;
. The structure of the merger, the terms of the merger agreement and
that the merger is intended to qualify as a transaction of a type that
is generally tax-free for federal income tax purposes;
. The opinion of The Orr Group to the United Board that the merger
consideration is fair to the United shareholders from a financial
point of view;
. The liklihood of the merger being approved by the appropriate
regulatory authorities;
. Consideration of the effect of the merger on United's other
constituencies, including the customers and communities served by
United and its employees.
This discussion of the information and factors considered by the United
Board includes all material factors considered by the United Board. In reaching
its determination to approve and recommend the merger, the United Board did not
assign any relative or specific weights to those factors, and individual
directors may have given differing weights to different factors.
Recommendation of Community's Board
25
The Board of Directors of Community has approved the merger agreement and
believes that the merger is fair to, and in the best interests of, Community and
its shareholders. Community's Board of Directors, therefore, recommends that the
holders of Community's common stock vote "FOR" approval of the merger agreement.
In making its recommendation, the Board of Directors of Community has
considered, among other things, the opinion of Suntrust Robinson Humphrey that
United's proposal is fair to Community's shareholders from a financial point of
view. See "Opinion of Community's Financial Advisor" below.
Recommendation of United's Board
The Board of Directors of United has unanimously approved the merger
agreement and believes that the merger is fair to, and in the best interests of,
United and its shareholders. United's Board of Directors, therefore, unanimously
recommends that the holders of United stock vote "FOR" approval of the merger
agreement. In making its recommendation, the Board of Directors of United has
considered, among other things, the opinion of The Orr Group that the merger is
fair to United's shareholders from a financial point of view. See "Opinion of
United's Financial Advisor" below.
Opinion of Community's Financial Advisor
Community has engaged SunTrust Robinson Humphrey to act as its financial
advisor in connection with the proposed merger. At the August 2, 2002 meeting of
the Community Board of Directors, SunTrust Robinson Humphrey reviewed with the
Board its financial analysis of the proposed merger and delivered its written
opinion to the effect that, as of that date and based upon and subject to the
matters described in the opinion, the consideration to be offered in the
proposed merger was fair, from a financial point of view, to the shareholders of
Community. No limitations were imposed by the Community Board upon SunTrust
Robinson Humphrey with respect to the investigation made or the procedures
followed by SunTrust Robinson Humphrey in rendering its opinion.
The full text of SunTrust Robinson Humphrey's written opinion dated August
2, 2002, which describes the assumptions made, procedures followed, matters
considered and limitations on the review undertaken in connection with the
opinion, is attached as Appendix II and is incorporated herein by reference. You
are urged to read this opinion in its entirety.
SunTrust Robinson Humphrey's opinion is addressed to the Board of Directors
of Community and relates only to the fairness, from a financial point of view,
of the consideration to be offered in the proposed merger to the shareholders of
Community, and does not constitute a recommendation to any shareholder as to how
to vote with respect to matters relating to the proposed merger. The summary of
SunTrust Robinson Humphrey's opinion described below is qualified in its
entirety by reference to the full text of its opinion which is attached as
Appendix II.
Material and Information Considered with Respect to the Proposed Merger
In arriving at its opinion, SunTrust Robinson Humphrey:
. reviewed the merger agreement and exhibits thereto;
. reviewed and analyzed certain publicly available information
concerning Community and United which it believed to be relevant to
its inquiry;
26
. reviewed and analyzed financial and operating information with respect
to the business, operations and prospects of each of Community and
United furnished to it by Community and United, respectively;
. reviewed and analyzed a trading history of United's common stock from
August 1, 1997 to the present and compared that trading history with
those of other publicly traded companies which it deemed relevant;
. reviewed and analyzed a comparison of the historical financial results
and present financial condition of each of Community and United with
those of publicly traded companies which it deemed relevant;
. reviewed and analyzed a comparison of the financial terms of the
proposed merger with the publicly available financial terms of other
recent transactions which it deemed relevant;
. conducted discussions with the senior management of each of Community
and United concerning their respective businesses, operations, assets,
present condition and future prospects and the potential strategic
benefits expected by the respective senior management of each of
Community and United to result from a combination of the businesses of
Community and United; and
. undertook such other studies, analyses and investigations as it deemed
appropriate.
In rendering its opinion, SunTrust Robinson Humphrey assumed and relied
upon, without independent verification, the accuracy and completeness of the
financial and other information discussed with or reviewed by SunTrust Robinson
Humphrey in arriving at its opinion. With respect to the financial forecasts
provided to or discussed with SunTrust Robinson Humphrey, SunTrust Robinson
Humphrey assumed, at the direction of the management of Community and without
independent verification or investigation, that such forecasts had been
reasonably prepared on bases reflecting the best currently available
information, estimates and judgments of the management of each of Community and
United as to the future financial performance of Community and United,
respectively. In arriving at its opinion, SunTrust Robinson Humphrey did not
conduct a physical inspection of the properties and facilities of Community and
did not make nor obtain any evaluations or appraisals of the assets or
liabilities (including, without limitation, any potential environmental
liabilities), contingent or otherwise, of Community. Community did not authorize
SunTrust Robinson Humphrey to solicit, and SunTrust Robinson Humphrey did not
solicit, any indications of interest from any third party with respect to the
purchase of all or a part of Community's business. SunTrust Robinson Humphrey
also assumed the following:
. that the proposed merger would be consummated in accordance with the
terms of the merger agreement;
. that the proposed merger will be treated as a tax-free reorganization
for federal income tax purposes; and
. that all material governmental, regulatory or other consents and
approvals necessary for the consummation of the proposed merger will
be obtained without any adverse effect on Community or United, or on
the expected benefits of the proposed merger.
SunTrust Robinson Humphrey's opinion is necessarily based upon market,
economic and other conditions as they may have existed and could be evaluated as
of August 2, 2002. SunTrust Robinson Humphrey expressed no opinion as to the
underlying valuation, future performance or long-term viability of Community or
United. SunTrust Robinson Humphrey does not have any obligation to update or
revise its opinion.
27
In connection with the preparation of its fairness opinion, SunTrust
Robinson Humphrey performed financial and comparative analyses, the material
portions of which are summarized below. The summary set forth below includes the
financial analyses used by SunTrust Robinson Humphrey and deemed to be material,
but does not purport to be a complete description of the analyses performed by
SunTrust Robinson Humphrey in arriving at its opinion. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and, therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In addition, SunTrust
Robinson Humphrey believes that its analyses must be considered as an integrated
whole, and that selecting portions of such analyses and the factors considered
by it, without considering all of such analyses and factors, could create a
misleading or incomplete view of the process underlying its analyses set forth
in the opinion.
In performing its analyses, SunTrust Robinson Humphrey made numerous
assumptions with respect to industry and economic conditions, many of which are
beyond the control of Community or United. Any estimates contained in such
analyses are not necessarily indicative of actual past or future results or
values, which may be significantly more or less favorable than as set forth
therein. Estimates of values of companies do not purport to be appraisals or
necessarily to reflect the price at which such companies may actually be sold,
and such estimates are inherently subject to substantial uncertainty. No
company, business or transaction used in such analyses as a comparison is
identical to Community, United, their respective businesses or the proposed
merger, and an evaluation of the results of those analyses is not entirely
mathematical. Rather, the analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
businesses or transactions analyzed.
SunTrust Robinson Humphrey's opinion and financial analyses were only one
of many factors considered by Community's Board of Directors in its evaluation
of the proposed merger and should not be viewed as determinative of the views of
Community's Board of Directors or management with respect to the proposed merger
or the consideration offered in the proposed merger. The type of consideration
offered in the proposed merger was determined through direct negotiation between
Community and United. Community's decision to enter into the merger agreement
was solely that of the its Board of Directors.
The following is a summary of the material financial analyses presented by
SunTrust Robinson Humphrey to the Community Board of Directors in connection
with its opinion.
Analysis of Selected Publicly Traded Reference Companies
Reference company analysis analyzes a company's operating performance
relative to a reference group of publicly traded companies. Based on relative
performance and outlook for a company, this analysis enables an implied
unaffected market trading value to be determined. SunTrust Robinson Humphrey
analyzed the financial and stock market information for the following selected
publicly traded bank holding companies with less than $500 million in assets
located in North Carolina (the "North Carolina Reference Companies"):
. 1st State Bancorp
. Bank of North Carolina
. Bank of the Carolinas
. Community Bank
. ECB Bancorp, Inc.
28
. First Trust Bank
. Four Oaks Fincorp, Inc.
. Yadkin Valley Bank and Trust Company
SunTrust Robinson Humphrey also analyzed the financial and stock market
information for the following selected publicly traded bank holding companies
with less than $500 million in assets located in Alabama, Georgia, North
Carolina, South Carolina, Virginia or Tennessee (the "Southeastern Reference
Companies"):
Alabama
-------
. Auburn National Bancorporation, Inc.
. CommerceSouth, Inc.
. Frontier National Corporation
. Pinnacle Bancshares, Inc.
Georgia
-------
. Appalachian Bancshares, Inc.
. Crescent Banking Company
. Georgia-Carolina Bancshares, Inc.
. Savannah Bancorp, Inc.
. SNB Bancshares, Inc.
. Southeastern Banking Corporation
. Southwest Georgia Financial Corporation
. Summit Bank Corporation
. Thomasville Bancshares, Inc.
. WGNB Corporation
North Carolina
--------------
. 1st State Bancorp
. Bank of North Carolina
. Bank of the Carolinas
. Community Bank
. ECB Bancorp, Inc.
. First Trust Bank
. Four Oaks Fincorp, Inc.
. Yadkin Valley Bank and Trust Company
South Carolina
--------------
. Bank of South Carolina Corporation
. Community Bankshares, Inc.
. Community Capital Corp
. First Community Corporation
. Greer Bancshares Incorporated
. Peoples Bancorporation, Inc.
29
. RHBT Financial Corporation
. Southcoast Financial Corporation
. Summit Financial Corporation
Tennessee
---------
. Community Financial Group, Inc.
Virginia
--------
. Bay Banks of Virginia, Inc.
. Benchmark Bankshares, Inc.
. BOE Financial Services of VA
. C&F Financial Corporation
. Cardinal Bankshares Corporation
. Cavalry Bancorp, Inc.
. Central Virginia Bankshares, Inc.
. Chesapeake Financial Shares, Inc.
. Eastern Virginia Bankshares, Inc.
. F&M Bank Corp.
. Fauquier Bankshares, Inc.
. First National Corporation
. Hampton Roads Bankshares, Inc.
. Heritage Bankshares, Inc.
. Middleburg Financial Corporation
. Pinnacle Bankshares Corporation
. Pioneer Bankshares, Inc.
. Premier Community Bankshares Incorporated
. Shore Financial Corporation
. Valley Financial Corporation
SunTrust Robinson Humphrey reviewed and analyzed, among other things,
market price as a multiple of:
. latest twelve months earnings per share ("EPS")
. book value per share
. assets per share
All multiples were based on closing stock prices as of August 1, 2002.
30
The following table sets forth the multiples indicated by this analysis for
the North Carolina Reference Companies as of August 1, 2002:
Average Median
--------- --------
North Carolina Reference Companies' Market Price to:
Latest twelve months EPS 18.47x 15.55x
Book value per share 1.48x 1.49x
Assets per share 0.15x 0.14x
SunTrust Robinson Humphrey then applied the average multiples resulting
from the analysis above to the values for Community for the latest twelve months
EPS, book value per share and assets per share as of June 30, 2002. This
analysis yielded implied equity values per share for Community of approximately
$11.56, $13.85 and $20.65, respectively. These implied equity values per share
were compared to the proposed merger consideration of $21.00 per share.
The following table sets forth the multiples indicated by this analysis for
the Southeastern Reference Companies as of August 1, 2002:
Average Median
--------- --------
Southeastern Reference Companies' Market Price to:
Latest twelve months EPS 15.27x 14.20x
Book value per share 1.53x 1.46x
Assets per share 0.14x 0.14x
SunTrust Robinson Humphrey then applied the average multiples resulting
from the analysis above to the values for Community for the latest twelve months
EPS, book value per share and assets per share as of June 30, 2002. This
analysis yielded implied equity values per share for Community of approximately
$9.56, $14.32 and $19.96, respectively. These implied equity values per share
were compared to the proposed merger consideration of $21.00 per share.
Analysis of Selected Merger and Acquisition Transactions
Reference merger and acquisition transaction analysis provides a valuation
range based upon consideration paid for selected bank holding companies in
recent transactions. SunTrust Robinson Humphrey reviewed the financial terms, to
the extent publicly available, of eight proposed, pending or completed merger
and acquisition transactions from January 1, 2000 to August 1, 2002, involving
selected bank holding companies located in North Carolina with assets between
$100 million and $1 billion (the "North Carolina Reference Transactions").
SunTrust Robinson Humphrey also reviewed the financial terms, to the extent
publicly available, of 28 proposed, pending or completed merger and acquisition
transactions from January 1, 2000 to August 1, 2002, involving selected bank
holding companies with assets between $100 million and $500 million located in
Alabama, Georgia, North Carolina, South Carolina, Tennessee or Virginia (the
"Southeastern Reference Transactions"). For each of the North Carolina Reference
Transactions and the Southeastern Reference Transactions, SunTrust Robinson
Humphrey calculated various financial multiples based on publicly available
information for
31
each of the selected acquisition transactions and compared them to corresponding
financial multiples for the proposed merger, based on the proposed merger
consideration of $21.00 per share of Community.
SunTrust Robinson Humphrey reviewed and analyzed, among other things,
market price as a multiple of:
. latest twelve months EPS
. book value per share
. assets per share
. deposits per share
All multiples for the selected transactions were based on publicly available
information at the time of announcement of the relevant transaction.
For the North Carolina Reference Transactions, the average and median
multiples indicated by these analyses are as follows:
Average Median
--------- --------
Market Price to:
Latest twelve months EPS 32.00x 29.42x
Book value per share 1.54x 1.38x
Assets per share 0.18x 0.18x
Deposits per share 0.22x 0.23x
SunTrust Robinson Humphrey then applied the average multiple resulting from
the analysis above to the latest twelve months EPS, book value per share, assets
per share and deposits per share for Community as of June 30, 2002. This
analysis yielded implied equity values per share for Community of approximately
$20.03, $14.35, $24.43 and $24.98, respectively. These implied equity values per
share were compared to the proposed merger consideration of $21.00 per share.
For the Southeastern Reference Transactions, the average and median
multiples indicated by these analyses are as follows:
Average Median
--------- --------
Market Price to:
Latest twelve months EPS 22.96x 20.29x
Book value per share 2.10x 2.01x
Assets per share 0.19x 0.18x
Deposits per share 0.15x 0.17x
SunTrust Robinson Humphrey then applied the average multiple resulting from
the analysis above to the latest twelve months EPS, book value per share, assets
per share and deposits per share for Community as of June 30, 2002. This
analysis yielded implied equity values per share for Community of
32
approximately $14.37, $19.63, $26.82 and $17.39, respectively. These implied
equity values per share were compared to the proposed merger consideration of
$21.00 per share.
Dividend Discount Analysis
SunTrust Robinson Humphrey performed a dividend discount analysis to
estimate a range of present values per share of Community common stock, assuming
Community continued to operate as a stand-alone entity. SunTrust Robinson
Humphrey discounted five years of estimated cash flows for Community, assuming a
dividend rate sufficient to maintain an equity capital ratio (defined as common
equity divided by total assets) of 7.00% and using a range of discount rates
from 9% to 11%. SunTrust Robinson Humphrey derived an estimate of a range of
terminal values by applying multiples ranging from 11 times to 13 times
estimated year-end 2006 net income. This analysis yielded a range of
stand-alone, fully diluted values for Community of approximately $16.46 to
$20.35 per share, with an average value of $18.33 per share. These implied
equity values per share were compared to the proposed merger consideration of
$21.00 per share. Estimated financial data for Community was based on internal
estimates of the management of Community.
Information Concerning Community's Financial Advisor
SunTrust Robinson Humphrey is a nationally recognized investment banking
firm and, as a customary part of its investment banking activities, is regularly
engaged in the valuation of businesses and securities in connection with mergers
and acquisitions, negotiated underwritings, private placements, and valuations
for corporate and other purposes. Community retained SunTrust Robinson Humphrey
because of its experience, expertise and reputation in the financial services
industry and its familiarity with Community and transactions similar to the
proposed merger. In the ordinary course of business, SunTrust Robinson Humphrey
and its affiliates may actively trade or hold the securities and other
instruments and obligations of United for their own account and for the accounts
of customers and, accordingly, may at any time hold long or short positions in
such securities, instruments or obligations.
SunTrust Robinson Humphrey is acting as financial advisor to Community in
connection with the proposed merger. Pursuant to an engagement letter dated June
25, 2002, Community agreed to pay SunTrust Robinson Humphrey a fee of $50,000
upon delivery of its opinion. Community has also agreed to reimburse SunTrust
Robinson Humphrey for its out-of-pocket expenses incurred in connection with its
engagement, and to indemnify SunTrust Robinson Humphrey against specified
liabilities, including liabilities under federal securities laws incurred in
connection with its engagement.
Opinion of United's Financial Advisor
United retained The Orr Group to render to the Board of Directors of United
a written opinion as to the fairness, from a financial point of view, to the
shareholders of United of the consideration to be issued in the merger as set
forth in the merger agreement.
The Orr Group is an investment banking firm that specializes in providing
investment banking advisory services to financial institutions. The Orr Group's
principals have over 75 years of combined banking experience and have been
involved in numerous bank related mergers and acquisitions. No limitations were
imposed by United upon The Orr Group with respect to rendering its opinion.
On August 23, 2002 The Orr Group presented its written opinion to the Board
of United. The full text of The Orr Group's opinion, dated as of August 23,
2002, is attached as Appendix III hereto and should be read in its entirety with
respect to the procedures followed, assumptions made, matters
33
considered and qualification and limitation on the review undertaken by The Orr
Group in connection with its opinion. United's shareholders are urged to read
the opinion in its entirety.
The Orr Group's opinion to United's Board of Directors is directed only to
the consideration as defined in the merger agreement dated August 2, 2002 (the
"Merger Consideration") as of this date and does not address the fairness, from
a financial point of view, of the Merger Consideration that may be agreed upon
by Community and United pursuant to the provisions of the merger agreement that
provides for possible adjustment of the Merger Consideration. The Orr Group's
opinion does not constitute a recommendation to any shareholder of United as to
how such shareholder should vote at the United special meeting.
In arriving at its opinion, The Orr Group has, among other things:
. reviewed the merger agreement and certain related documents;
. reviewed the historical and current financial position and results of
operations of United and Community;
. reviewed certain publicly available information concerning Community
including Annual Reports on Form 10-KSB for each of the years in the
three-year period ended December 31, 2001;
. reviewed certain available financial forecasts concerning the business
and operations of United and Community that were prepared by
management of United and Community, respectively;
. participated in discussions with certain officers and employees of
United to discuss the past and current business operations, financial
condition and prospects of United and Community, as well as matters
The Orr Group believed relevant to its inquiry.
. reviewed certain publicly available operating and financial
information with respect to other companies that The Orr Group
believed to be comparable in certain respects to United and Community.
. reviewed the current and historical relationships between the trading
levels of United's common stock and Community's common and the
historical and current market for the common stock of United,
Community and other companies that The Orr Group believed to be
comparable in certain respects to United or Community;
. reviewed the nature and terms of certain other acquisition
transactions that it believed to be relevant; and
. performed such other reviews and analysis it deemed appropriate.
In conducting its review and analysis, The Orr Group assumed and relied
upon the accuracy and completeness of all of the financial and other information
provided The Orr Group or that was publicly available, and has not attempted
independently to verify nor assumed responsibility for verifying any such
information. With respect to the financial projections, The Orr Group assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of United or Community, as the case may be,
and The Orr Group expresses no opinion with respect to such forecasts or the
assumptions on which they are based. The Orr Group has not made or obtained or
assumed any responsibility for making or obtaining any independent evaluations
or appraisals of any of the assets (including properties and facilities) or
liabilities of United or Community.
The Orr Group employed a variety of methodologies in its analyses, of which
some are briefly summarized below. The methodologies outlined below do not
represent a complete description of the analyses performed by The Orr Group. The
Orr Group believes that it is necessary to consider all
34
analyses as a whole and that relying on a select number of the analyses, without
considering the whole, could create a misunderstanding of the opinion derived
from them.
Contribution Analysis
The pro forma contribution analysis looked at the financial impact of the
merger on certain balance sheet and income statement items. This analysis
illustrated that the average percentage contributions, across all categories of
balance sheet and income items used of United and Community would be 70.6% and
29.4% respectively compared to pro forma ownership of 65.0% and 35.0%,
respectively.
Shareholders' Claims Analysis
In its shareholders' claims analysis, The Orr Group calculated earnings per
share claims analysis and concluded that the merger would decrease earnings per
share by 1.5% in 2003 and increase earnings per share by 1.0% in 2004 for
United.
Discount Dividend Analysis
The Orr Group's discounted divided analysis estimated the value of
Community on a stand-alone basis, but including potential cost savings in the
merger. The analysis utilized financial projections supplied by management of
Community and United as well as dividend discount rates of 12%, 14%, and 16%. In
addition, terminal multiples were assumed based on year five multiples to
earnings of 11, 13, and 15. The discounted values ranged from a low of $17.30
per share to a high of $27.10 per share.
Comparable Transaction Analysis
The Orr Group reviewed 37 comparable bank transactions involving sellers
with assets between $90 million and $250 million announced since January 1,
2000. The Orr Group noted the prices paid in these mergers as a multiple of
tangible book values and earnings, and The Orr Group reviewed other data in
connection with these mergers, including the amount of total assets, the return
on average assets and the return on average equity of the acquired institutions.
The Orr Group then compared this data to the proposed merger. The comparable
bank transactions generated the following multiples:
Multiple to Tangible Book Value Multiple to Earnings (Latest Twelve Months)
- ------------------------------- -------------------------------------------
High Value 3.85 High Value 51.0
Upper Quartile Value 2.45 Upper Quartile Value 30.4
Median Value 2.01 Median Value 23.6
Average Value 2.11 Average Value 25.7
Lower Quartile Value 1.74 Lower Quartile Value 18.4
Low Value 0.97 Low Value 10.9
The Community acquisition multiple of tangible book value was 2.0 and the
multiple of latest twelve months earnings per share was 29.2 times.
No company or transaction used in the above analyses as a comparison is
identical to Community, United or the proposed merger. Accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial growth and operating
characteristics of the companies and other factors that could affect the public
trading value
35
of the companies to which they are being compared. Mathematical analysis in and
of itself does not necessarily provide meaningful intercompany comparisons.
The Orr Group will be paid a fee in connection with the proposed merger.
The payment of a portion of that fee is contingent upon consummation of the
merger. Further, United has agreed to reimburse legal and other reasonable
expenses and to indemnify The Orr Group and its affiliates, directors, agents,
employees and controlling persons in connection with certain matters related to
rendering its opinion, including liabilities under securities laws.
The written opinion of The Orr Group to United is attached as Appendix III
to this Joint Proxy Statement-Prospectus and is incorporated herein by
reference. The description of the United fairness opinion is qualified in its
entirety by reference to Appendix III. United shareholders are urged to read the
opinion in its entirety for a description of the procedures followed,
assumptions made, matters considered, and qualificiations and limitations on the
review undertaken by The Orr Group in connection with rendering its opinion.
Effective Time of the Merger
Subject to the conditions to the obligations of the parties to effect the
merger (including, without limitation, the receipt of all required approvals of
governmental and regulatory authorities), the merger will become effective when
Articles of Merger are filed with the North Carolina Secretary of State.
Although we anticipate that all conditions to consummation of the merger
will be satisfied so that the merger can be consummated on December 31, 2002, we
cannot give any assurance that the necessary shareholder and regulatory
approvals can be obtained or that other conditions precedent to the merger can
or will be satisfied.
Cash or Stock Election
Under the terms of the merger agreement, Community shareholders may elect
to convert their shares into cash, United common stock or a combination of cash
and United common stock. All elections of Community shareholders are subject to
the provisions of the merger agreement. The merger agreement provides that the
number of shares of Community common stock to be converted into United common
stock in the merger must be 70% of the total number of shares of Community
common stock issued and outstanding on the date of the merger and contains
allocation and proration procedures to accomplish this result. We are not making
any recommendation as to whether Community shareholders should elect to receive
cash or United common stock in the merger. Each Community shareholder must make
his or her own decision with respect to the election.
It is unlikely that elections will be made in the exact proportions
provided for in the merger agreement. Therefore, the merger agreement describes
the procedures to be followed if Community shareholders in the aggregate elect
to receive more or less of the United common stock than United has agreed to
issue. A summary of these procedures follows:
. Combination Elections: Community shareholders who elect to receive
shares of United common stock for 70% and $21.00 per share in cash for
30% of the total number of shares of Community owned by them will have
their elections filled.
. When Stock Is Oversubscribed: If Community shareholders elect to
receive more United common stock than United has agreed to issue in
the merger, then all Community
36
shareholders who have elected to receive only cash or who have made no
election will receive cash for their Community shares and all
shareholders who elected to receive only United common stock will
receive a pro rata portion of the available United shares plus cash
for those shares not converted into United common stock.
. When Stock Is Undersubscribed: If Community shareholders elect to
receive fewer shares of United common stock than United has agreed to
issue in the merger, then all Community shareholders who have elected
to receive only United common stock will receive United common stock
and those shareholders who have elected only cash or have made no
election will be treated in the following manner:
. If the number of shares held by Community shareholders who
have made no election is sufficient to make up the shortfall
in the number of United shares that United has agreed to
issue, then all Community shareholders who elected only cash
will receive cash and those shareholders who made no
election will receive both cash and United common stock in
whatever proportion is necessary to make up the shortfall.
. If the number of shares held by Community shareholders who
have made no election is insufficient to make up the
shortfall, then all of those shares will be converted into
United common stock and those Community shareholders who
elected to receive only cash will receive cash and United
common stock in whatever proportion is necessary to make up
the shortfall.
No guarantee can be made that if you elect to receive only United common
stock or only cash that you will receive precisely what you requested. As a
result of the allocation procedures and other limitations described in this
Joint Proxy Statement-Prospectus and in the merger agreement, if you elect
to receive all cash, you may receive some stock and if you elect to receive
all stock, you may receive some cash.
Election Procedures; Surrender of Stock Certificates
A green election form and Letter of Transmittal is being sent to Community
shareholders in a separate mailing. Each election form entitles Community
shareholders to elect to receive cash, United common stock, or the combination
of cash and stock described above.
To make an effective election, you must submit a properly completed green
election form in the green return envelope mailed therewith to First-Citizens
Bank & Trust Company, which will be acting as the exchange agent, on or before
the election deadline of 5:00 p.m., North Carolina time, on ____, 2002. An
election form will be deemed properly completed only if signed and accompanied
by stock certificates representing all shares of Community common stock covered
by the election form or an appropriate guarantee of delivery of the
certificates. You may change your election at any time prior to the election
deadline by written notice accompanied by a properly completed and signed,
revised election form received by the exchange agent prior to the election
deadline or by withdrawal of your stock certificates prior to the election
deadline. All elections will be revoked automatically and stock certificates
returned if the merger agreement is terminated.
If certificates for Community common stock are not immediately available or
time will not permit the election form and other required documents to reach the
exchange agent prior to the election deadline, Community shares may be properly
exchanged provided that:
37
. the exchanges are made by or through a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., or by a commercial bank or trust company
having an office, branch or agency in the United States,
. the exchange agent receives, prior to the election deadline, a
properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form provided with the election form and letter
of transmittal (delivered by hand, mail or facsimile transmission),
and
. the exchange agent receives within three business days after the
election deadline the certificates for all exchanged Community shares,
together with a properly completed and duly executed form and any
other documents required by the election form.
Community shareholders who do not submit a properly completed election form
or revoke their election form prior to the election deadline will have their
shares of Community stock designated as non-election shares. Community stock
certificates represented by elections that have been revoked will be promptly
returned without charge to the Community shareholder submitting the election
form upon written request. After the completion of the merger, the exchange
agent will allocate cash and United common stock among the Community
shareholders according to the allocation procedures described above.
After the completion of the merger, the exchange agent will mail to each
Community shareholder who did not submit an election form a letter of
transmittal, together with instructions for the exchange of their Community
common stock certificates for the merger consideration. Until you surrender your
Community stock certificates for exchange after completion of the merger, you
will not be paid dividends or other distributions declared after the merger with
respect to any United common stock into which your Community shares have been
converted. When you surrender your Community stock certificates, United will pay
any unpaid dividends or other distributions, without interest. After the
completion of the merger, there will be no further transfers of Community common
stock. Community stock certificates presented for transfer after the completion
of the merger will be canceled and exchanged for the merger consideration.
No fractional shares of United common stock will be issued to any holder of
Community common stock upon consummation of the merger. For each fractional
share that would otherwise be issued, United will pay cash in an amount equal to
the holder's fractional interest multiplied by the last sale price of United
common stock on the Nasdaq SmallCap Market for the last trading day immediately
preceding the date of the effective time of the merger. No interest will be paid
or accrued on cash payable to holders of Community common stock in lieu of
fractional shares. No shareholder of Community will be entitled to dividends,
voting rights or any other rights as a shareholder of United in respect of any
fractional shares.
None of United, Community or any other person will be liable to any former
holder of Community common stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
If a certificate for Community common stock has been lost, stolen or
destroyed, the exchange agent will issue the consideration properly payable
under the merger agreement upon compliance by the holder of Community common
stock with the conditions reasonably imposed by the exchange agent of United.
These conditions will include a requirement that the shareholder provide a lost
instruments indemnity bond in form, substance and amount reasonably satisfactory
to the exchange agent and United.
38
Conditions to Consummation of the Merger
Consummation of the merger is subject to various conditions, including:
. receipt of the approval of the respective shareholders of Community
and United of the merger agreement and receipt of regulatory approvals
required for consummation of the merger;
. receipt by Community of a written legal opinion from Gaeta &
Associates, P.A. and by United of a written legal opinion from Smith,
Gambrell & Russell, LLP;
. approval of the shares of United common stock issuable pursuant to the
merger for listing on the Nasdaq SmallCap Market;
. the accuracy, as of the date of the merger agreement and as of the
merger effective time, of the representations and warranties of
Community and United as set forth in merger agreement;
. the performance of all agreements and the compliance with all
covenants of Community and United as set forth in the merger
agreement;
. the absence of any law or order or any action taken by any court,
governmental, or regulatory authority of competent jurisdiction
prohibiting, restricting, or making illegal the consummation of the
transactions contemplated by the merger agreement;
. the execution of an employment agreement by and between Ronald S.
Shoemaker and United and Catawba Valley Bank in form satisfactory to
United; and
. satisfaction of certain other conditions, including the receipt of
various certificates from the officers of Community and United.
We are unable to provide assurance as to when or if all of the conditions
precedent to the merger can or will be satisfied or waived by the party
permitted to do so.
Regulatory Approval
The merger may not proceed in the absence of receipt of the requisite
regulatory approval. Applications for the approval described below have been
submitted to the appropriate regulatory authorities.
Community and United are not aware of any material governmental approvals
or actions that are required for consummation of the merger, except as described
in this Joint Proxy Statement-Prospectus. Should any other approval or action be
required, it presently is contemplated that such approval or action would be
sought.
The merger is subject to the prior approval of the Federal Deposit
Insurance Corporation, pursuant to the Bank Merger Act. In evaluating the
merger, the FDIC is required to consider, among other factors, the financial and
managerial resources and future prospects of the institutions and the
convenience and needs of the communities to be served. The relevant statutes
prohibit the Federal Reserve Board from approving the merger if-
. it would result in a monopoly or be in furtherance of any combination
or conspiracy to monopolize or attempt to monopolize the business of
banking in any part of the United States; or
. its effect in any section of the country could be to substantially
lessen competition or to tend to create a monopoly, or if it would
result in a restraint of trade in any other manner, unless
39
the FDIC should find that any anti-competitive effects are outweighed
clearly by the public interest and the probable effect of the
transaction in meeting the convenience and needs of the communities to
be served.
The merger may not be consummated until the 15th day following the date of
the FDIC approval, during which time the United States Department of Justice is
afforded the opportunity to challenge the transaction on antitrust grounds. The
commencement of any antitrust action would stay the effectiveness of the
approval of the FDIC, unless a court of competent jurisdiction should
specifically order otherwise.
The merger is also subject to the prior approval of the North Carolina
Banking Commission and the North Carolina Commissioner of Banks. United and
Community have filed an application with the North Carolina Commissioner of
Banks for authority to merge Catawba Valley Bank and Northwestern National Bank,
and for permission to operate the former offices of Northwestern National Bank
under the name "Northwestern Bank, a division of Catawba Valley Bank."
United and Community have also filed notice of the proposed transaction
with the Federal Reserve Board and the Office of the Comptroller of the
Currency.
Any regulatory approval that imposes material changes to the merger
agreement or other material conditions could necessitate a resolicitation of
shareholder approval.
Waiver, Amendment, and Termination
To the extent permitted by law, the merger agreement may be amended by a
subsequent writing signed by each of the parties upon the approval of the Board
of Directors of each of the parties before or after shareholder approval of the
merger agreement. However, no amendment may be made which modifies the
consideration to e received by Community without the further approval of the
Community shareholders. In addition, prior to or at the filing of the Articles
of Merger with the North Carolina Secretary of State either Community or United,
or both, acting through their respective Boards of Directors, may:
. waive any default in the performance of any term of the merger
agreement by the other party;
. waive or extend the time for the compliance or fulfillment by the
other party of any and all of its obligations under the merger
agreement; and
. waive any of the conditions precedent to the obligations of such party
under the merger agreement,
except any condition that, if not satisfied, would result in the violation of
any applicable law or governmental regulation and provided that such waiver
would not adversely affect the interests of the waiving party or its
shareholders. No such waiver will be effective unless written and unless
executed by a duly authorized officer of Community or United as the case may be.
The merger agreement may be terminated and the merger abandoned at any time
prior to the merger effective time, notwithstanding its approval by the
shareholders of United and Community:
. by the mutual agreement of United and Community;
. by United if:
- the conditions to United's obligations have not been satisfied or
waived by February 28, 2003;
40
- Community violates or does not fulfill, in any material respect,
it obligations, covenants or agreements contained in the merger
agreement;
- Community is in breach, in any material respect, of the
representations and warranties provided to United in the merger
agreement and certificates or other documents delivered to United
by Community pursuant to the merger agreement;
- either the United shareholders or the Community shareholders do
not approve the merger;
- the average daily last sales price of United common stock for the
twenty day trading period ending on the fifth business day prior
to the Special Meeting of Community's shareholders called to
approve the merger is less than $12.80; or
- any environmental survey undertaken by United on the real
property of Community indicates that (i) there likely has been a
discharge, disposal or release of certain hazardous substances on
the property, (ii) following the merger United could become
responsible for the remediation or removal of such hazardous
substance and liable for monetary damages, and (iii) the amount
of expenses or liability which could occur as the result of such
hazardous substance would equal or exceed $250,000.
. by Community if:
- the conditions of Community's obligations have not been satisfied
or waived by February 28, 2003;
- United violates or does not fulfill, in any material respect, it
obligations, covenants or agreements contained in the merger
agreement;
- United is in breach, in any material respect, of the
representations and warranties provided to Community in the
merger agreement and certificates or other documents delivered to
Community by United pursuant to the merger agreement;
- either the United shareholders or the Community shareholders do
not approve the merger agreement; or
- prior to the effective time of the merger, Community receives an
acquisition proposal that the Community Board of Directors
determines is more favorable to the Community shareholders.
If the merger is terminated as described above, the merger agreement will
become void and have no effect, except that certain of its provisions including
those relating to the obligations to maintain the confidentiality of certain
information and the return of all documents obtained from the other party, will
survive.
In the event Community terminates the merger agreement because its has
received a more favorable acquisition proposal and within 18 months of
termination of the merger agreement it consummates a transaction with the party
that made the more favorable proposal, Community is required to make a $1
million cash payment to United.
In the event Community terminates the merger agreement because United
violated or failed to perform its obligation under the merger agreement, United
is required to make a cash payment to Community in the amount of $1 million.
Management and Operations After the Merger
As soon as practicable following the merger and subject to any necessary
regulatory and shareholder approval, the United Board will take steps to have
the Board of United be comprised of twelve individuals, eight of whom shall be
current members of the Board of Directors of United and four of whom shall be
current members of the Board of Directors of Community. Ronald S. Shoemaker,
41
President of Community, shall be one of the four Community directors
elected to the United Board of Directors.
In order to assure itself of Mr. Shoemaker's continued assistance and
employment following the merger, United has agreed that it will enter into a new
employment agreement with Mr. Shoemaker. The proposed new agreement would
provide for Mr. Shoemaker to be employed by United, as an Executive Vice
President,and by its subsidiary, Catawba Valley Bank, as Regional President, for
a two-year term at an initial base salary of $150,000. In addition, will be
entitled to receive normal and customary employee benefits associated with his
position, and on the first anniversary of the completion of the merger, United
will become obligated to provide Mr. Shoemaker and his spouse health and dental
insurance until each attains age 70 and to pay the premiums on a $500,000 term
life insurance policy owned by Mr. Shoemaker's spouse until he attains age 70.
Further, Mr. Shoemaker has agreed to enter into a two year non-compete agreement
under which he will agree not to compete with United during the term of his
employment with United and for a period of two years thereafter should he
terminate his employment. In consideration for entering into the non-compete
agreement, Mr. Shoemaker will be paid an aggregate of approximately $60,000.
Effect on Certain Benefit Plans
At the merger effective time, each Community stock option granted by
Community under its 1993 Incentive Stock Option Plan that is outstanding at the
effective time of the merger, whether or not exercisable, will be converted into
and become a right with respect to United common stock, and United will assume
each Community stock option, in accordance with the terms of the 1993 Incentive
Stock Option Plan and stock option agreement by which it is evidenced. However,
from and after the merger effective time:
. United and its Executive Committee will be substituted for Community
and the committee of the Community Board (including, if applicable,
the entire Board of Directors of Community) administering such
Community stock plan;
. each Community stock option assumed by United may be exercised solely
for shares of United common stock;
. the number of shares of United common stock subject to such Community
stock option will be equal to the number of shares of Community common
stock subject to such Community stock option immediately prior to the
merger effective time multiplied by the exchange ratio for the
exchange of United common stock for Community common stock in the
merger, rounded to the nearest whole share; and
. the per share exercise price under each such Community stock option
will be adjusted by dividing the per share exercise price under each
such Community stock option by the exchange ratio referenced above,
rounded to the nearest cent.
Federal Income Tax Consequences of the Merger
The merger is intended to qualify as a reorganization for federal income
tax purposes under Section 368(a) of the Internal Revenue Code. Dixon Odom PLLC,
United's independent public accountants, has rendered its opinion to United and
Community that the merger will constitute such a reorganization. In delivering
its opinion, Dixon Odom received and relied upon certain representations
contained in certificates of officers of Community and United and certain other
information, data, documentation and other materials as it deemed necessary.
42
Neither United nor Community intends to seek a ruling from the IRS as to
the federal income tax consequences of the merger. Community's shareholders
should be aware that the opinion of Dixon Odom PLLC will not be binding on the
IRS or the courts. Community's shareholders also should be aware that some of
the tax consequences of the merger are governed by provisions of the Internal
Revenue Code as to which there are no final regulations and little or no
judicial or administrative guidance. There can be no assurance that future
legislation, administrative rulings, or court decisions will not adversely
affect the accuracy of the statements contained herein.
The tax opinion states that, provided the assumptions stated therein are
satisfied, the merger of Community into United and the immediately following
merger of Northwestern into Catawba will constitute one or more reorganizations
as defined in Section 368(a) of the Code, and the following federal income tax
consequences will result:
. no gain or loss will be recognized by the Community shareholders
solely upon receipt of United common stock. Receipt of both United
common stock and cash by Community shareholders could result in gain
being recognized but no loss being recognized by those shareholders;
. the aggregate federal income tax basis of United common stock received
by each Community shareholder will be the same as the aggregate
federal income tax basis of the Community common stock;
. the holding period of the shares of the United common stock received
by each Community shareholder will include the period for which the
exchanged Community common stock was held as a capital asset by each
Community shareholder on the date of the merger; and
. neither United nor Community will recognize gain solely as a result of
the merger, except that gain or loss may be recognized on the
recapture of tax attributes, including but not limited to the
recapture of bad debt reserves.
In general, cash received by Community's shareholders who elect or are
required to receive cash in exchange for their shares of Community common stock,
who exercise dissenters' rights under North Carolina law, or who receive cash in
lieu of fractional shares, will be treated as amounts distributed in redemption
of their shares, the federal income tax consequences of which will be governed
by Section 302 of the Code. However, it is possible that Section 302 of the Code
will not apply, in which case those distributions could be treated as dividends
pursuant to Section 301 of the Code. The tax consequences of those
distributions, whether they are treated as dividends or as received in exchange
for stock, will vary depending on the circumstances of the individual
shareholder.
Community's shareholders are urged to consult their own tax advisors
regarding specific tax consequences to them of the merger and the exchange of
their Community stock for United stock or cash.
Section 1.368-3 of the Treasury Regulations requires that each shareholder
that receives United common stock pursuant to the merger attach to such
shareholder's federal income tax return for the taxable year in which the merger
occurs, a complete statement of all the facts pertinent to the non-recognition
of gain or loss upon the Merger. Shareholders should consult their own tax
advisors regarding the disclosure requirements.
The foregoing discussion is intended only as a summary of material federal
income tax consequences of the merger to the shareholders of Community and does
not purport to be a complete description of all potential tax effects of the
merger. The discussion does not address the tax
43
consequences that may be relevant to a particular shareholder subject to special
treatment under certain federal income tax laws, such as:
. dealers in securities;
. banks;
. insurance companies;
. tax-exempt organizations;
. non-United States persons;
. shareholders who do not hold their shares of Community common stock as
capital assets within the meaning of Section 1221 of the Internal
Revenue Code; and
. shareholders who acquired their shares of Community common stock
pursuant to the exercise of options or otherwise as compensation.
In addition, the discussion does not address any consequences arising under
the laws of any state, locality or foreign jurisdiction. Moreover, the tax
consequences to holders of Community options, if any, are not discussed. The
discussion is based upon the Internal Revenue Code, treasury regulations
thereunder and administrative rulings and court decisions as of the date hereof.
All of the foregoing is subject to change and any such change could affect the
continuing validity of this discussion. Community shareholders are urged to
consult their own tax advisors concerning the particular federal, state, local
and foreign tax consequences of the merger to them.
Accounting Treatment
The merger will be treated as a "purchase" under generally accepted
accounting principles. Under the purchase method of accounting, at the effective
time of the merger, Community's assets and liabilities will be recorded at their
respective fair values and added to those of United. The excess of the cost over
the fair value of the assets acquired will be recorded as good will on United's
books. United financial statements after the effective time of the merger will
reflect the assets and liabilities of Community, but United's financial
statements will not be restated retroactively to reflect Community's historical
financial position or results of operations.
All unaudited pro forma condensed combined financial information contained
in this Joint Proxy Statement-Prospectus has been prepared using the purchase
method to account for the merger. The final allocation of the purchase price
will be determined after the merger is completed and after completion of an
analysis to determine the fair values of Community's tangible and identifiable
intangible assets and liabilities. In a addition, estimates related to
restructuring and merger-related charges are subject to final decisions related
to combining Community and United. Accordingly, the final purchase accounting
adjustments, restructuring and merger-related charges may be materially
different from the unaudited pro forma adjustments presented in this document.
Any decrease in the net fair value of the assets and liabilities of Community as
compared to the information shown in this document will have the effect of
increasing the amount of the purchase price allocable to goodwill.
Expenses and Fees
The merger agreement provides that each of the parties will bear and pay
its own expenses in connection with the transactions contemplated by the merger
agreement, including legal, accounting and financial advisory fees. All expenses
associated with the printing and mailing of this Joint Proxy
Statement-Prospectus will be shared by United and Community equally.
44
Resales of United Common Stock
United common stock to be issued to shareholders of Community in connection
with the merger will be registered under the Securities Act of 1933, as amended.
All shares of United common stock received by Community shareholders will be
freely transferable upon consummation of the merger by those shareholders who
were not "affiliates" of Community. "Affiliates" generally are defined as
persons or entities who control, are controlled by, or are under common control
with Community (generally, this will include executive officers, directors, and
10% or greater shareholders).
45
DISSENTERS' RIGHTS
Article 13 (entitled "Dissenters' Rights") of the North Carolina Business
Corporation Act sets forth the rights of the shareholders of United and
Community who object to the merger. The following summarizes the material terms
of the statutory procedures to be followed by a shareholder in order to dissent
from the merger and perfect dissenters' rights under the North Carolina Business
Corporation Act. A copy of Article 13 of the North Carolina Business Corporation
Act is attached as Appendix IV hereto.
If you elect to exercise such a right to dissent and demand appraisal, you
must satisfy each of the following conditions:
(a) you must give to your company and your company must actually
receive, before the vote at your special shareholders' meeting on approval or
disapproval of the merger is taken, written notice of your intent to demand
payment for your shares if the merger is effectuated (this notice must be in
addition to and separate from any proxy or vote against the merger; neither
voting against, abstaining from voting, nor failing to vote on the merger will
constitute a notice within the meaning of the North Carolina Business
Corporation Act); and
(b) you must not vote in favor of the merger (a failure to vote will
satisfy this requirement, but a vote in favor of the merger, by proxy or in
person, or the return of a signed proxy which does not specify a vote against
approval of the merger or direction to abstain, will constitute a waiver of your
dissenters' rights).
If the requirements of (a) and (b) above are not satisfied and the merger
becomes effective, you will not be entitled to payment for your shares under the
provisions of Article 13 of the North Carolina Business Corporation Act.
If you are a Community shareholder, any notices should be addressed to
Community Bancshares, Inc., 1301 Westwood Lane, Westwood Village, North
Wilkesboro, North Carolina 28697, attention: Ronald S. Shoemaker. If you are a
United shareholder, any notices should be addressed to United Community Bancorp,
1039 Second Street, NE, Hickory, North Carolina 28601-3843, attention: R. Steve
Aaron. The notice must be executed by the holder of record of shares of common
stock as to which dissenters' rights are to be exercised. A beneficial owner may
assert dissenters' rights only if he dissents with respect to all Community or
United common stock of which he is the beneficial owner. With respect to shares
of Community or United common stock which are owned of record by a voting trust
or by a nominee, the beneficial owner of such shares may exercise dissenters'
rights if such beneficial holder also submits to Community or United the record
holder's written consent to such exercise not later than the time such
beneficial holder asserts the dissenters' rights. A record owner, such as a
broker, who holds shares of Community common stock as a nominee for others, may
exercise dissenters' rights with respect to the shares held for all or less than
all beneficial owners of shares as to which such person is the record owner,
provided such record owner dissents with respect to all Community or United
common stock beneficially owned by any one person. In such case, the notice
submitted by such broker as record owner must set forth the name and address of
the shareholder who is objecting to the merger and demanding payment for such
person's shares.
If you properly dissent and the merger is approved, Community or United
must mail by registered or certified mail, return receipt requested, a written
dissenters' notice to you. This notice must be sent no later than ten days after
the shareholder approval of the merger. The dissenters' notice will state where
your payment demand must be sent, and where and when certificates for shares of
Community or United
46
common stock must be deposited; supply a form for demanding payment; set a date
by which Community or United must receive your payment demand (not fewer than 30
days nor more than 60 days after the dissenters' notice is mailed); and include
a copy of Article 13 of the North Carolina Business Corporation Act.
If you receive a dissenters' notice, you must demand payment and deposit
your share certificates in accordance with the terms of the dissenters' notice.
If you demand payment and deposit your share certificates, you retain all other
rights of a shareholder until these rights are canceled or modified by the
merger. If you do not demand payment or deposit your share certificates where
required, each by the date set in the dissenters' notice, you are not entitled
to payment for your shares under the North Carolina Business Corporation Act.
Within 30 days after receipt of your demand for payment, United is required
to pay you the amount it estimates to be the fair value of your shares, plus
interest accrued from the effective date of the merger to the date of payment.
The payment must be accompanied by:
. Community's or United's most recent available balance sheet, income
statement and statement of cash flows as of the end of or for the
fiscal year ending not more than 16 months before the date of payment,
and the latest available interim financial statements, if any;
. an explanation of how United estimated the fair value of the shares;
. an explanation of the interest calculation;
. a statement of the dissenters' right to demand payment (as described
below); and
. a copy of Article 13 of the North Carolina Business Corporation Act.
If the merger is not consummated within 60 days after the date set for
demanding payment and depositing share certificates, Community or United must
return your deposited certificates. If after returning your deposited
certificates the merger is consummated, Community or United must send you a new
dissenters' notice and repeat the payment demand procedure.
Demand for Payment. You may, however, notify United in writing of your own
estimate of the fair value of your shares and amount of interest due, and demand
payment of the excess of your estimate of the fair value of your shares over the
amount previously paid by United if (a) you believe that the amount paid is less
than the fair value of Community or United common stock or that the interest is
incorrectly calculated; (b) United fails to make payment of its estimate of fair
value to you within 30 days after receipt of a demand for payment; or (c) the
merger not having been consummated, Community or United does not return your
deposited certificates within 60 days after the date set for demanding payment.
You waive the right to demand payment unless you notify United of your demand in
writing within 30 days of United's payment of its estimate of fair value (with
respect to clause (a) above) or Community's or United's failure to perform (with
respect to clauses (b) and (c) above). If you fail to notify Community or United
of your demand within such 30-day period, you shall be deemed to have withdrawn
your shareholder's dissent and demand for payment.
Appraisal Proceeding. If your demand for payment remains unsettled, you may
commence a proceeding within 60 days after the earlier of (a) the date of your
payment demand or (b) the date payment is made, by filing a complaint with the
Superior Court Division of the North Carolina General Court of Justice to
determine the fair value of the shares and accrued interest. If you do not
commence the proceeding within such 60-day period, you shall be deemed to have
withdrawn the dissent and demand for payment.
47
The court in such an appraisal proceeding will determine all costs of the
proceeding and assess the costs as it finds equitable. The proceeding is to be
tried as in other civil actions; however, you will not have the right to a trial
by jury. The court may also assess the fees and expenses of counsel and expenses
for the respective parties, in the amounts the court finds equitable: (a)
against Community or United if the court finds that either did not comply with
the statutes; or (b) against Community, United or you, if the court finds that
the party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith. If the court finds that the services of
counsel for you were of substantial benefit to other dissenting shareholders,
and that the fees for those services should not be assessed against Community or
United, the court may award to these counsel reasonable fees to be paid out of
the amounts awarded the dissenting shareholders who were benefited.
The summary set forth above does not purport to be a complete statement of
the provisions of the North Carolina Business Corporation Act relating to the
rights of dissenting shareholders and is qualified in its entirety by reference
to the applicable sections of the North Carolina Business Corporation Act, which
are included as Appendix IV to this Joint Proxy Statement-Prospectus. If you
intend to exercise your dissenters' rights, you are urged to review carefully
Appendix IV and to consult with legal counsel so as to be in strict compliance
therewith.
48
Description of United'S Capital Stock
The following is a summary of the material provisions of United's Articles
of Incorporation and Bylaws relating to the rights of holders of capital stock
of United.
General
The Articles of Incorporation of United authorize the issuance of capital
stock consisting of 9,000,000 shares of common stock, $1.00 par value per share,
and 1,000,000 shares of no par value preferred stock. As of September 10, 2002,
2,725,631 shares of United common stock issued and outstanding and no shares of
United preferred stock issued and outstanding.
After consummation of the merger, pursuant to which 70% of the shares of
Community's common stock will be exchanged for ___ shares of United common
stock, and assuming the price of United's common stock used to calculate the
exchange ratio is $___ per share, United would have ____ shares outstanding,
subject to the exercise of dissenters' rights.
In the future, the authorized but unissued and unreserved shares of United
common stock will be available for issuance for general purposes, including, but
not limited to, possible issuance as stock dividends or stock splits, future
mergers or acquisitions, or future private placements or public offerings.
Except as may be required to approve a merger or other transaction in which the
additional authorized shares of United common stock would be issued, no
shareholder approval will be required for the issuance of those shares. See page
__ for a discussion of the rights of the holders of United common stock as
compared to the holders of Community common stock.
Common Stock
General. Each share of United common stock has the same relative rights as,
and is identical in all respects to, each other share of United common stock.
Dividend Rights. As a North Carolina corporation, United is not directly
subject to the restrictions on the payment of dividends applicable to Catawba
Valley Bank or First Gaston Bank. Holders of shares of United common stock will
be entitled to receive such cash dividends as the Board of Directors of United
may declare out of funds legally available therefor. However, the payment of
dividends by United will be subject to the restrictions of North Carolina law
applicable to the declaration of dividends by a business corporation. Under such
provisions, cash dividends may not be paid if a corporation will not be able to
pay its debts as they become due in the usual course of business after making
such cash dividend distribution or the corporation's total assets would be less
than the sum of its total liabilities plus the amount that would be needed to
satisfy certain liquidation preferential rights. After the merger is
consummated, the ability of United to pay dividends to the holders of shares of
United common stock will, at least initially, be completely dependent upon the
amount of dividends Catawba Valley Bank and First Gaston Bank pays to United.
See "Comparison of the Rights of Shareholders - Payment of Dividends."
Voting Rights. Each share of United common stock will entitle the holder
thereof to one vote on all matters upon which shareholders have the right to
vote. Currently, the Board of Directors of United is comprised of eight
directors, all of whom are elected annually. However, upon the effective time of
the merger, four Community directors will be added to United's Board of
Directors. At the first annual meeting of shareholders of United following the
effective time of the merger, United's Board of
49
Directors will be classified into terms of one, two and three years so that
approximately one-third of the directors will be elected each year. Shareholders
of United are not entitled to cumulate their votes for the election of
directors. See "Comparison of the Rights of Shareholders - Voting Rights."
Liquidation Rights. In the event of any liquidation, dissolution, or
winding up of United, the holders of shares of United common stock will be
entitled to receive, after payment of all debts and liabilities of United, all
remaining assets of United available for distribution in cash or in kind. In the
event of any liquidation, dissolution, or winding up of Catawba Valley Bank or
First Gaston Bank, United, as the holder of all shares of Catawba Valley Bank
common stock and all shares of First Gaston Bank common stock, would be entitled
to receive payment of all debts and liabilities of Catawba Valley Bank or First
Gaston Bank (including all deposits and accrued interest thereon) and all
remaining assets of Catawba Valley Bank or First Gaston Bank available for
distribution in cash or in kind.
Preemptive Rights; Redemption. Holders of shares of United common stock
will not be entitled to preemptive rights with respect to any shares that may be
issued. United common stock is not subject to call or redemption.
Certain Articles and Bylaw Provisions Having Potential Anti-Takeover Effects
General. The following is a summary of the material provisions of United's
Articles of Incorporation and bylaws which address matters of corporate
governance and the rights of shareholders. Certain of these provisions may delay
or prevent takeover attempts not first approved by the Board of Directors of
United (including takeovers which certain shareholders may deem to be in their
best interests). These provisions also could delay or frustrate the removal of
incumbent directors or the assumption of control by shareholders. All references
to the Articles of Incorporation and bylaws are to the United Articles of
Incorporation and bylaws in effect as of the date of this Joint Proxy
Statement-Prospectus.
Classification of the Board of Directors. Currently, the bylaws provide
that the Board of Directors of United shall be divided provided there are nine
or more directors, into three classes, Class I, Class II and Class III, which
shall be as nearly equal in number as possible. In such case, each director
shall serve for a term ending on the date of the third annual meeting of
shareholders following the annual meeting at which the director was elected. A
director elected to fill a vacancy shall serve for the remainder of the term of
the present term of office of the class to which he or she was elected. At the
current time, there are eight members of the Board of Directors, each serving a
one year term. Upon the effective time of the merger, four directors from
Community will be added to United's Board of Directors. At the first annual
meeting of shareholders following the effective time of the merger, the
classification of directors elected to one, two and three year terms will take
effect. As a result, approximately one-third of the members of the Board of
Directors of United will be elected each year, and two annual meetings will be
required for United's shareholders to change a majority of the members
constituting the Board of Directors of United.
Removal of Directors, Filling Vacancies. United's Bylaws provide that (a)
shareholders may remove one or more of the directors with or without cause; (b)
a director may be removed by the shareholders only if the number of votes cast
for the removal exceeds the number of votes cast against the removal; and (c) a
director may not be removed by the shareholders at a meeting unless the notice
of the meeting states that the purpose, or one of the purposes, of the meeting
is removal of the director. Vacancies occurring in the Board of Directors of
United may be filled by the shareholders or a majority of the remaining
directors, even though less than a quorum, or by the sole remaining director.
50
Amendment of Bylaws. Subject to certain restrictions described below,
either a majority of the Board of Directors or the shareholders of United may
amend or repeal the bylaws. A bylaw adopted, amended, or repealed by the
shareholders may not be readopted, amended or repealed by the Board of Directors
of United. Generally, the shareholders of United may adopt, amend, or repeal the
bylaws in accordance with the North Carolina Business Corporation Act.
Special Meetings of Shareholders. United's bylaws provide that special
meetings of shareholders may be called only by the Chairman of the Board,
President, or a majority vote of the Board of Directors of United.
Transfer Agent and Registrar
The transfer agent and registrar for the United common stock is
First-Citizens Bank & Trust Company.
51
Comparison of the Rights of Shareholders
General. Upon consummation of the merger, shareholders of Community who
elect or are required to receive shares of common stock of United, (other than
those shareholders who properly exercise dissenters' rights), will become
shareholders of United. Certain legal distinctions exist between owning United
common stock and Community common stock. The shareholders of United will be
governed by and subject to the Articles of Incorporation and bylaws of United
rather than the Articles of Incorporation and bylaws of Community. While both
United and Community are corporations governed by the laws of the State of North
Carolina applicable to business corporations, there are certain distinctions and
differences in the documents governing both corporations. Neither the Community
common stock nor the United common stock are insured by the FDIC or guaranteed
by the issuer and are both subject to investment risk, including the possible
loss of value.
The following is only a general summary of certain differences in the
rights of holders of United common stock and those of Community common stock.
Shareholders should consult with their own legal counsel with respect to
specific differences and changes in their rights as shareholders which will
result from the merger.
Capital Structure. Community's Articles of Incorporation authorize the
issuance of up to 10,000,000 shares of common stock, par value $3.00 per share,
and up to 1,000,000 shares of preferred stock, $6.00 dollars per share, and
there are currently 1,631,402 shares of Community common stock and no shares of
Community preferred stock issued and outstanding. United's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares of capital stock
consisting of 9,000,000 shares of $1.00 par value common stock and 1,000,000
shares of no par value preferred stock. As of ___________, 2002, _____ shares of
United common stock were issued and outstanding. No shares of preferred stock
are issued and outstanding.
Voting Rights. In general, each holder of Community common stock and United
common stock is entitled to one vote per share on all matters submitted to a
vote of shareholders.
In the election of directors, each holder of Community common stock and of
United common stock has the right to vote the number of shares owned by him or
her on the record date for as many persons as there are directors to be elected.
Cumulative voting is not available with respect to the election of directors of
Community or United.
Directors. The Articles of Incorporation and bylaws of Community provide
that the Board of Directors of Community shall have from nine to twelve members,
and the Board of Directors of Community currently has nine members. The bylaws
of United provide that the Board of Directors of United shall have from eight to
eighteen members, and the Board of Directors of United currently has eight
members. United's bylaws provide that if there are less than nine directors, the
members shall be elected for one-year terms and if there are nine or more
directors, the Board shall be divided into three classes, approximately equal in
number, and elected to staggered three year terms. Upon consummation of the
merger, at the first annual meeting of shareholders after the effective time of
the merger, four directors from Community will be added to the Board of
Directors of United and at that meeting the Board of Directors will be staggered
into terms of one, two and three years, and each year, one class of the
directors will come up for election resulting in director terms of three years.
Rights to Repurchase Stock. Under the Bank Holding Company Act, United and
Community each may purchase its own stock in the open market subject to certain
capital adequacy considerations
52
and the availability of funds therefor. See page __ for a description of the
restrictions on the repurchase by United of its stock. United may consider
repurchases of its stock in the future, but there can be no assurance that
United will conduct such repurchases.
Payment of Dividends. United and Community are limited by certain
restrictions imposed generally on North Carolina corporations. Subject to
certain limitations and exceptions, cash dividends may not be paid if a
corporation will not be able to pay its debts as they become due in the usual
course of business after making such cash dividend distribution or the
corporation's total assets would be less than the sum of its total liabilities
plus the amount that would be needed to satisfy certain liquidation preferential
rights. After the merger effective time, United will have its primary source of
funds for the payment of dividends from dividends of Catawba Valley Bank and
First Gaston Bank. Both Catawba Valley Bank and First Gaston Bank are North
Carolina chartered banks and the ability of both banks to pay dividends on their
common stock to United is restricted by North Carolina banking laws and tax
considerations related to state-chartered banks. North Carolina law imposes
restrictions on the ability of all banks chartered under North Carolina law to
pay dividends. Catawba Valley Bank and First Gaston Bank may only pay dividends
out of undivided profits as determined pursuant to North Carolina General
Statutes Section 53-87. In addition, banking regulatory authorities may limit
payment of dividends by any bank when it is determined that such a limitation is
in the public interest and is necessary to insure the financial soundness of the
bank.
Limitation of Liability and Indemnification of Directors, Officers and
Employees. The Articles of Incorporation of both Community and United eliminate
a director's personal liability for breach of duty as a director to the fullest
extent permitted by law.
The bylaws of both Community and United provide for indemnification to the
fullest extent permitted by law. Under the Federal Deposit Insurance Act, both
Community and United would be prohibited from paying any indemnification with
respect to any liability or legal expense incurred by a director, officer, or
employee as result of an action or proceeding by a federal banking agency
resulting in a civil money penalty or certain other remedies against such
person. Currently, there is no pending or threatened litigation involving United
or Community for which indemnification might be sought.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling United
pursuant to the foregoing provisions, United has been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable.
Limitation of liability and indemnification provisions may discourage or
deter shareholders or management from bringing a lawsuit against former
directors for breach of duty, even though such action, if successful, might
otherwise have benefited the corporation and its shareholders.
Change in Control Regulation. United and Community are subject to the
protection of the North Carolina Control Share Acquisition Act. United is also
subject to the North Carolina Shareholder Protection Act. Community's Articles
of Incorporation, however, exempt it from the provisions of the North Carolina
Shareholder Protection Act.
Pursuant to the North Carolina Shareholder Protection Act, no business
combination (defined to include any merger, consolidation, merger or sale of all
or any substantial part of the corporation's assets) involving a corporation
which has a class of securities registered under the Securities Exchange Act of
1934, as amended, and any entity that is the beneficial owner, directly or
indirectly, of more than
53
20% of the corporation's voting shares may be consummated unless the holders of
95% of the outstanding voting shares approve the business combination. This
provision does not apply if the parties comply with certain requirements
relating to the value of the consideration paid in the business combination, the
composition of the corporation's board of directors, the disclosure to
shareholders regarding the business combination and other procedural matters.
Neither Community nor United has opted out of the Shareholder Protection Act.
The North Carolina Control Share Acquisition Act applies to a corporation
that is incorporated in North Carolina and that has substantial assets in North
Carolina, its principal place of business or a principal office within North
Carolina, a class of securities registered under the Exchange Act and more than
10% of its shareholders reside in North Carolina or more than 10% of its shares
held by North Carolina residents. The North Carolina Control Share Acquisition
Act restricts the voting rights of a person who acquires "control shares" in a
subject corporation. Control shares are shares that, when added to all other
shares of the subject corporation beneficially owned by a person, would entitle
that person to voting power equal to or greater than a stated percentage of all
voting power. Without shareholder approval by "disinterested shareholders," the
shares acquired by the acquiror have no voting rights. Disinterested
shareholders are shareholders other than the acquiror and the employee-directors
of the subject corporation. If the shares held by the acquiror are accorded
voting rights pursuant to the procedure described above and the acquiror
beneficially holds more than 50% of the voting power for the election of
directors, each of the corporation's other shareholders have the right to
require that the corporation redeem their shares at a price not less than the
highest price per share paid by the acquiror for any of its shares. Neither
Community nor United has opted out of the Control Share Acquisition Act.
The acquisition of more than ten percent of either the outstanding United
common stock or the outstanding Community common stock may, in certain
circumstances, be subject to the provisions of the Change in Bank Control Act.
The Federal Reserve Board has also adopted a regulation pursuant to the Change
in Bank Control Act which generally requires persons who at any time intend to
acquire control, either directly or indirectly, of a bank holding company, to
provide 60 days' prior written notice and certain financial and other
information to the Federal Reserve Board. Control for the purpose of this Act
exists in situations in which the acquiring party has voting control of at least
25% of any class of voting stock or the power to direct the management or
policies of the bank or the holding company. However, under Federal Reserve
Board regulations, control is presumed to exist where the acquiring party has
voting control of at least ten percent (10%) of any class of voting securities
if (a) the bank or holding company has a class of voting securities which is
registered under Section 12 of the Securities Exchange Act of 1934, as amended,
or (b) the acquiring party would be the largest holder of a class of voting
shares of the bank or the holding company. The statute and underlying
regulations authorize the FDIC to disapprove a proposed acquisition on certain
specified grounds.
Prior approval of the Federal Reserve would be required for any acquisition
of control of Community or United by any bank holding company under the Bank
Holding Company Act. Control for purposes of the Bank Holding Company Act would
be based on, among other things, a twenty-five percent (25%) voting stock test
or on the ability of the holding company otherwise to control the election of a
majority of the Board of Directors of Community or United. As part of such
acquisition, the acquiring company (unless already so registered) would be
required to register as a bank holding company under the Bank Holding Company
Act.
The Securities Exchange Act of 1934, as amended, requires that a purchaser
of any class of a corporation's securities registered under the Exchange Act
notify the SEC and such corporation within ten days after its purchases exceed
5% of the outstanding shares of that class of securities. This notice must
disclose the background and identity of the purchaser, the source and amount of
funds used for the
54
purchase, the number of shares owned and, if the purpose of the transaction is
to acquire control of the corporation, any plans to alter materially the
corporation's business or corporate structure. In addition, any tender offer to
acquire a corporation's securities is subject to the limitations and disclosure
requirements of the Exchange Act.
Constituency Clause. United's Articles of Incorporation provide that in
determining what is in the best interests of United, the Board of Directors of
United may consider, among other things, the social and economic effects of the
matter to be considered (including a change of control) on United and its
employees, customers, creditors and the community in which United operates.
Community's Articles of Incorporation contain a similar provision, which gives
Community's Board of Directors the authority to weigh the social and economic
effects of a proposed transaction on the employees, customers, suppliers and
other constituents of Community and on the communities in which Community
operates or is located.
Bylaws. Certain differences exist between the bylaws of Community and the
bylaws of United. Upon request, Community will provide its shareholders with
copies of the bylaws of both Community and United free of charge. Requests
should be made to Ronald S. Shoemaker, at (336) 903-0600 or mailed to
Community's main office, located at 1301 Westwood Lane, Westfield Village,
Wilkesboro, North Carolina 28697-2628, Attention Ronald S. Shoemaker.
55
Information About United
United
General. United is a business corporation incorporated under the laws of
the State of North Carolina on March 8, 1999. The only office of United, and its
principal place of business, is located at 1039 Second Street, NE, Hickory,
North Carolina 28601. United's telephone number is (828) 431-2300.
United was organized for the purpose of becoming the holding company of
Catawba Valley Bank which was effected at the close of business on June 30,
1999. On December 31, 2001, United acquired First Gaston Bank and elected to be
designated as a financial holding company with the Federal Reserve Board.
Property. United neither owns nor leases any real or personal property but
utilizes the premises and property of Catawba Valley Bank without the payment of
any rental fees to Catawba Valley Bank.
Competition. The primary business of United is the ongoing business of
Catawba Valley Bank and First Gaston Bank. Therefore, the competitive conditions
faced by United are the same as those faced by Catawba Valley Bank and First
Gaston Bank. In addition, many banks and financial institutions have formed, or
are in the process of forming holding companies. It is likely that these holding
companies will attempt to acquire banks, thrift institutions or companies
engaged in bank-related activities. Thus, United faces competition in
undertaking any such acquisitions and in operating subsequent to any such
acquisitions.
Employees. United does not have any employees other than its management. It
utilizes the support staff of Catawba Valley Bank and First Gaston Bank from
time to time without the payment of any fees to either bank.
Catawba Valley Bank
Catawba Valley Bank engages in general banking business in the City of
Hickory and portions of the four counties called the Unifour area (Catawba,
Burke, Caldwell and Alexander counties, North Carolina). Its operations are
primarily retail-oriented and aimed at individuals and small- to medium-sized
businesses located in its market area. Catawba Valley Bank provides most
traditional commercial and consumer banking services, including personal and
commercial checking and savings accounts, money market accounts, certificates of
deposit, individual retirement accounts and related business and individual
banking services. Catawba Valley Bank's lending activities include making
commercial loans to individuals and small- to medium-sized businesses located
primarily in its market area for various business purposes and various
consumer-type loans to individuals, including installment loans, equity lines of
credit, overdraft checking credit and credit cards. Also, Catawba Valley Bank
makes residential mortgage loans to its customers, which Catawba Valley Bank
then sells to another mortgage lender. Catawba Valley Bank issues ATM cards
which allow its customers to access their deposit accounts at the automated
teller machines of other banks who are linked to the STAR system. Catawba Valley
Bank also issues debit cards which allows its customer to have point of sale.
transactions at various merchants. Catawba Valley Bank does provide Internet and
electronic banking services for its customers. Catawba Valley Bank does not
provide trust services and leasing services, except through a correspondent
bank.
Catawba Valley Bank operates four offices, each of which are full-service
offices. Catawba Valley Bank's main office is located at 1039 Second Street
N.E., in Hickory and Catawba Valley Bank's
56
West Hickory branch is located at 1445 Second Avenue, NW. Catawba Valley Bank
also has a Newton branch office located at 2675 Northwest Boulevard, Newton,
North Carolina. Catawba Valley Bank's fourth full service office opened in March
of 2001 and is located at 2444 Springs Road in Hickory. Catawba Valley Bank also
operates a mortgage loan office located at 1125 Second Street NE, Hickory.
Catawba Valley Bank has a subsidiary called Valley Financial Services, Inc. that
provides for various insurance and other financial products through third party
affiliations.
Commercial banking in Catawba County, and in North Carolina as a whole is
extremely competitive with state laws permitting statewide branching. Catawba
Valley Bank competes directly for deposits in its market area with other
commercial banks, credit unions, brokerage firms and all other organizations and
institutions engaged in money market transactions. In its lending activities,
Catawba Valley Bank competes with all other financial institutions, as well as
consumer finance companies, mortgage companies and other lenders engaged in the
business of extending credit. In Catawba Valley Bank's market are, eleven
commercial banks operate with multiple offices. Catawba Valley Bank's
predominant competitors are Branch Banking and Trust Company, Bank of Granite
and People's Bank. These three institutions control approximately 61% of the
market's deposits.
Interest rates, both on loans and deposits, and prices of services are
significant competitive factors among financial institutions. Office locations,
office hours, customer service, community reputation and continuity of personnel
are also important competitive factors. Catawba Valley Bank's predominant
competitors have greater resources, broader geographic markets and higher
lending limits. They can offer more products, and can better afford and make
more effective use of media advertising, support services and electronic
technology than Catawba Valley Bank. Catawba Valley Bank depends on its
reputation as a community bank in its local market, direct customer contact, its
ability to make credit and other business decisions locally, and personalized
service to counter these competitive disadvantages.
First Gaston Bank
At June 30, 2002, First Gaston Bank had total assets of approximately $151
million, total deposits of approximately $123 million and total shareholders'
equity of approximately $13 million.
The principal office of First Gaston Bank is located at 804 South New Hope
Road, Gastonia, North Carolina 28054. Its telephone number is (704) 865-4202.
First Gaston Bank was incorporated on March 16, 1995, as a North
Carolina-chartered bank holding company, and opened for business on June 11,
1995. Its deposits are insured by the Bank Insurance Fund of the FDIC.
First Gaston Bank operates for the primary purpose of serving the banking
needs of its customers in its market area, while developing a personal,
home-town association with its customers. The Bank offers a wide range of
banking services, including checking and savings accounts; certificates of
deposit; individual retirement accounts; commercial, installment, mortgage and
personal loans; safe-deposit boxes, and other associated services. Specifically,
First Gaston Bank makes mortgage loans collateralized by residential real
estate; home equity loans, which predominately are second mortgage loans
collateralized by the equity in a home; consumer loans, which are collateralized
by consumer products, such as automobiles, or are unsecured; commercial business
loans; commercial real estate loans; and other loans.
57
First Gaston Bank's primary sources of revenue are interest income from
general lending activities, primarily consisting of commercial loans and first
mortgage loans for residential real property located in North Carolina, and
interest income from its consumer lending activities, including home equity
loans. First Gaston Bank also earns revenues from interest on other loans,
interest and dividend income from investments, and fees from lending and deposit
activities. The major expenses of First Gaston Bank are interest on deposits and
borrowings and general administrative expenses such as salaries and employee
benefits, data processing expense, office occupancy and equipment expenses.
First Gaston Bank's market area consists of the city of Gastonia, North
Carolina and the cities of Belmont and Mount Holly and parts of Gaston County,
North Carolina. The total population of Gaston is approximately 62,000 people
and the total population of Gaston County is approximately 182,000 people.
First Gaston Bank opened a branch office in Belmont, North Carolina in
October 1995 and a branch office in Mount Holly, North Carolina in March 1996.
First Gaston Bank operates all locations as full-service offices. First Gaston
Bank has entered into a definitive agreement with RBC Centura Bank to acquire
the Centura branch office located at 120 West Wilkins Street in Dallas, North
Carolina.
First Gaston Bank constructed a new office building at its main location at
804 South New Hope Road in Gastonia during 1996. The new building was occupied
on August 12, 1996.
Commercial banking in Gaston County, and in North Carolina as a whole, is
extremely competitive with state laws permitting statewide branching. First
Gaston Bank competes directly for deposits in its market area with other
commercial banks, credit unions, brokerage firms and all other organizations and
institutions engaged in money market transactions. In its lending activities,
First Gaston Bank competes with all other financial institutions, as well as
consumer finance companies, mortgage companies and other lenders engaged in the
business of extending credit. In First Gaston Bank's market area, nine
commercial banks operate with multiple offices. First Gaston Bank's predominate
competitors are Branch Banking and Trust Company and First Union National Bank.
These two institutions control approximately 42.5% of the market.
Interest rates, both on loans and deposits, and prices of services are
significant competitive factors among financial institutions. Office locations,
office hours, customer service, community reputation and continuity of personnel
are also important competitive factors. Community's predominant competitors have
greater resources, broader geographic markets and higher lending limits. They
can offer more products, and can better afford and make more effective use of
media advertising, support services and electronic technology than First Gaston
Bank. First Gaston Bank depends on its reputation as a community bank in its
local market, direct customer contact, its ability to make credit and other
business decisions locally, personalized service, and Saturday banking to
counter these competitive disadvantages.
58
INFORMATION ABOUT COMMUNITY
General
Community is a registered bank holding company under the federal Bank
Holding Company Act of 1956, as amended, and owns 100% of the outstanding
capital stock of Northwestern National Bank, Wilkesboro, North Carolina.
Community was incorporated under the laws of the State of North Carolina on June
11, 1990 as a mechanism to enhance Northwestern National's ability to serve its
future customers' requirements for financial services. The holding company
structure provides flexibility for expansion of Community's banking business
through acquisition of other financial institutions and the provision of
additional banking-related services which the traditional commercial bank may
not provide under present laws.
Northwestern National commenced operations on January 17, 1992 in a
permanent facility located at 1600 Curtis Bridge Road in Wilkesboro, North
Carolina. It opened full-service branches in North Wilkesboro in 1994, in
Millers Creek in 1996, and in Taylorsville in 1997. During 2001, Northwestern
National opened two loan production offices located in West Jefferson, North
Carolina, and Boone, North Carolina, both of which have been converted into
full-service branches. In addition, Community also operates a loan production
office in Lenoir, North Carolina, which began operations in December 2001.
Northwestern National is a full-service commercial bank, without trust
powers. It offers a full range of interest bearing and non-interest bearing
accounts, including commercial and retail checking accounts, money market
accounts, individual retirement accounts, regular interest bearing statement
savings accounts, certificates of deposit, commercial loans, real estate loans,
home equity loans and consumer/installment loans. In addition, Northwestern
National provides such consumer services as U.S. Savings Bonds, travelers
checks, cashier's checks, safe deposit boxes, bank by mail services, direct
deposit and automatic teller services.
Community's operations include two primary business segments - banking and
mortgage activities. Community, through Northwestern National, provides
traditional banking services, including a full range of commercial and consumer
banking services. Through its Community Mortgage Corporation subsidiary,
Community provides mortgage services, including the origination and sale of
mortgage loans to various investors, including other financial institutions.
59
Regulation and Supervision
Regulation of United and Community
Federal Regulation. United and Community are subject to examination,
regulation and periodic reporting under the Bank Holding Company Act of 1956, as
amended, as administered by the Federal Reserve Board. The Federal Reserve Board
has adopted capital adequacy guidelines for bank holding companies on a
consolidated basis.
United and Community are required to obtain the prior approval of the
Federal Reserve Board to acquire all, or substantially all, of the assets of any
bank or bank holding company or to merge with another bank holding company.
Prior Federal Reserve Board approval is required for United and Community to
acquire direct or indirect ownership or control of any voting securities of any
bank or bank holding company if, after giving effect to such acquisition, either
would, directly or indirectly, own or control more than five percent of any
class of voting shares of such bank or bank holding company.
The merger or consolidation of United or Community with another bank
holding company, or the acquisition by United or Community of the stock or
assets of a bank, or the assumption of liability by United or Community to pay
any deposits in a bank, will require the prior written approval of the primary
federal bank regulatory agency of the banks under the federal Bank Merger Act.
The decision to approve such a transaction is based upon a consideration of
statutory factors similar to those outlined above with respect to the Bank
Holding Company Act. In addition, in certain such cases an application to, and
the prior approval of, the Federal Reserve Board under the Bank Holding Company
Act and/or the North Carolina Banking Commission may be required.
United and Community are required to give the Federal Reserve Board prior
written notice of any purchase or redemption of their outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of either company's
consolidated net worth. The Federal Reserve Board may disapprove such a purchase
or redemption if it determines that the proposal would constitute an unsafe and
unsound practice, or would violate any law, regulation, Federal Reserve Board
order or directive, or any condition imposed by, or written agreement with, the
Federal Reserve Board. Such notice and approval is not required for a bank
holding company that would be treated as "well capitalized" under applicable
regulations of the Federal Reserve Board, that has received a composite "1" or
"2" rating at its most recent bank holding company inspection by the Federal
Reserve Board, and that is not the subject of any unresolved supervisory issues.
The status of United or Community as a registered bank holding company
under the Bank Holding Company Act does not exempt them from certain federal and
state laws and regulations applicable to corporations generally, including,
without limitation, certain provisions of the federal securities laws.
In addition, a bank holding company is prohibited generally from engaging
in, or acquiring five percent or more of any class of voting securities of any
company engaged in, non-banking activities. One of the principal exceptions to
this prohibition is for activities found by the Federal Reserve Board to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the principal activities that the Federal Reserve
Board has determined by regulation to be so closely related to banking as to be
a proper incident thereto are:
60
. making or servicing loans;
. performing certain data processing services;
. providing discount brokerage services;
. acting as fiduciary, investment or financial advisor;
. leasing personal or real property;
. making investments in corporations or projects designed primarily to
promote community welfare; and
. acquiring a savings and loan association.
In evaluating a written notice of such an acquisition, the Federal Reserve
Board will consider various factors, including among others the financial and
managerial resources of the notifying bank holding company and the relative
public benefits and adverse effects which may be expected to result from the
performance of the activity by an affiliate of such company. The Federal Reserve
Board may apply different standards to activities proposed to be commenced de
novo and activities commenced by acquisition, in whole or in part, of a going
concern. The required notice period may be extended by the Federal Reserve Board
under certain circumstances, including a notice for acquisition of a company
engaged in activities not previously approved by regulation of the Federal
Reserve Board. If such a proposed acquisition is not disapproved or subjected to
conditions by the Federal Reserve Board within the applicable notice period, it
is deemed approved by the Federal Reserve Board.
Capital Requirements. The Federal Reserve Board uses capital adequacy
guidelines in its examination and regulation of bank holding companies. If
capital falls below minimum guidelines, a bank holding company may, among other
things, be denied approval to acquire or establish additional banks or non-bank
businesses.
The Federal Reserve Board's capital guidelines establish the following
minimum regulatory capital requirements for bank holding companies:
. a leverage capital requirement expressed as a percentage of total
assets;
. a risk-based requirement expressed as a percentage of total
risk-weighted assets; and
. a Tier 1 leverage requirement expressed as a percentage of total
assets.
The leverage capital requirement consists of a minimum ratio of total
capital to total assets of 6%, with an expressed expectation that banking
organizations generally should operate above such minimum level. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1 capital (which consists
principally of shareholders' equity). The Tier 1 leverage requirement consists
of a minimum ratio of Tier 1 capital to total assets of 3% for the most
highly-rated companies, with minimum requirements of 4% to 5% for all others.
The risk-based and leverage standards presently used by the Federal Reserve
Board are minimum requirements, and higher capital levels will be required if
warranted by the particular circumstances or risk profiles of individual banking
organizations. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
The Federal Deposit Insurance Corporation Improvement Act of 1991 requires
the federal bank regulatory agencies biennially to review risk-based capital
standards to ensure that they adequately address interest rate risk,
concentration of credit risk and risks from non-traditional activities and,
since
61
adoption of the Riegle Community Development and Regulatory Improvement Act of
1994, to do so taking into account the size and activities of depository
institutions and the avoidance of undue reporting burdens. In 1995, the agencies
adopted regulations requiring as part of the assessment of an institution's
capital adequacy the consideration of (a) identified concentrations of credit
risks, (b) the exposure of the institution to a decline in the value of its
capital due to changes in interest rates and (c) the application of revised
conversion factors and netting rules on the institution's potential future
exposure from derivative transactions.
In addition, the agencies in September 1996 adopted amendments to their
respective risk-based capital standards to require banks and bank holding
companies having significant exposure to market risk arising from, among other
things, trading of debt instruments, (1) to measure that risk using an internal
value-at-risk model conforming to the parameters established in the agencies'
standards and (2) to maintain a commensurate amount of additional capital to
reflect such risk. The new rules were adopted effective January 1, 1997, with
compliance mandatory from and after January 1, 1998.
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989, depository institutions are liable to the FDIC for losses suffered or
anticipated by the FDIC in connection with the default of a commonly controlled
depository institution or any assistance provided by the FDIC to such an
institution in danger of default. This law is applicable to the extent that
United maintains as a separate subsidiary a depository institution in addition
to Catawba Valley Bank.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions imposed by the Federal Reserve Act on
any extension of credit to, or purchase of assets from, or letter of credit on
behalf of, the bank holding company or its subsidiaries, and on the investment
in or acceptance of stocks or securities of such holding company or its
subsidiaries as collateral for loans. In addition, provisions of the Federal
Reserve Act and Federal Reserve Board regulations limit the amounts of, and
establish required procedures and credit standards with respect to, loans and
other extensions of credit to officers, directors and principal shareholders and
their related interests of a bank holding company and any of its subsidiary
banks or non-bank corporations. Moreover, subsidiaries of bank holding companies
are prohibited from engaging in certain tie-in arrangements (with the holding
company or any of its subsidiaries) in connection with any extension of credit,
lease or sale of property or furnishing of services.
Any loans by a bank holding company to a subsidiary bank are subordinate in
right of payment to deposits and to certain other indebtedness of the subsidiary
bank. In the event of a bank holding company's bankruptcy, any commitment by the
bank holding company to a federal bank regulatory agency to maintain the capital
of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to
a priority of payment. This priority would also apply to guarantees of capital
plans under the Federal Deposit Insurance Corporation Improvement Act of 1991.
Branching. Under the Riegle Act, the Federal Reserve Board may approve bank
holding company acquisitions of banks in other states, subject to certain aging
and deposit concentration limits. As of June 1, 1997, banks in one state may
merge with banks in another state, unless the other state has chosen not to
implement this section of the Riegle Act. These mergers are also subject to
similar aging and deposit concentration limits.
North Carolina "opted-in" to the provisions of the Riegle Act. Since July
1, 1995, an out-of-state bank that did not already maintain a branch in North
Carolina was permitted to establish and maintain a de novo branch in North
Carolina, or acquire a branch in North Carolina, if the laws of the home state
of
62
the out-of-state bank permit North Carolina banks to engage in the same
activities in that state under substantially the same terms as permitted by
North Carolina. Also, North Carolina banks may merge with out-of-state banks,
and an out-of-state bank resulting from such an interstate merger transaction
may maintain and operate the branches in North Carolina of a merged North
Carolina bank, if the laws of the home state of the out-of-state bank involved
in the interstate merger transaction permit interstate merger.
Regulation of Catawba Valley Bank and First Gaston Bank
Catawba Valley Bank and First Gaston Bank are extensively regulated under
both federal and state law. Generally, these laws and regulations are intended
to protect depositors and borrowers, not shareholders. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. Any change in applicable law or regulation may have a
material effect on the business of the United, Catawba Valley Bank, or First
Gaston Bank.
State Law. Catawba Valley Bank and First Gaston Bank are subject to
extensive supervision and regulation by the North Carolina Commissioner of
Banks. The Commissioner oversees state laws that set specific requirements for
bank capital and regulate deposits in, and loans and investments by, banks,
including the amounts, types, and in some cases, rates. The Commissioner
supervises and performs periodic examinations of North Carolina-chartered banks
to assure compliance with state banking statutes and regulations, and Catawba
Valley Bank and First Gaston Bank are required to make regular reports to the
Commissioner describing in detail the resources, assets, liabilities and
financial condition of their respective bank. Among other things, the
Commissioner regulates mergers and consolidations of state-chartered banks, the
payment of dividends, loans to officers and directors, record keeping, types and
amounts of loans and investments, and the establishment of branches.
Deposit Insurance. As a member institution of the FDIC, Catawba Valley
Bank's and First Gaston Bank's deposits are insured up to a maximum of $100,000
per depositor through the Bank Insurance Fund, administered by the FDIC, and
each member institution is required to pay semi-annual deposit insurance premium
assessments to the FDIC. The BIF assessment rates have a range of 0 cents to 27
cents for every $100 in assessable deposits. Banks with no premium are subject
to an annual statutory minimum assessment.
Capital Requirements. The federal banking regulators have adopted certain
risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse arrangements, which are recorded as off balance sheet items. Under
these guidelines, nominal dollar amounts of assets and credit equivalent amounts
of off balance sheet items are multiplied by one of several risk adjustment
percentages which range from 0% for assets with low credit risk, such as certain
U.S. Treasury securities, to 100% for assets with relatively high credit risk,
such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
qualifying noncumulative perpetual preferred stock and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and other
intangibles, subject to certain exceptions. "Tier 2," or supplementary capital,
includes among other things, limited-life preferred stock, hybrid capital
instruments, mandatory convertible securities, qualifying subordinated debt, and
the allowance for loan and lease losses, subject to certain
63
limitations and less required deductions. The inclusion of elements of Tier 2
capital is subject to certain other requirements and limitations of the federal
banking agencies. Banks and bank holding companies subject to the risk-based
capital guidelines are required to maintain a ratio of Tier 1 capital to
risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
June 30, 2002, Catawba Valley Bank was classified as "well-capitalized" with
Tier 1 of 12.3% and Total Risk - Based Capital of 13.5% and Northwestern
National Bank was classified as "well capitalized" with Tier 1 of 11.62% and
Total Risk - Based Capital of 12.73%.
The federal banking agencies have adopted regulations specifying that they
will include, in their evaluations of a bank's capital adequacy, an assessment
of the bank's interest rate risk exposure. The standards for measuring the
adequacy and effectiveness of a banking organization's interest rate risk
management include a measurement of board of director and senior management
oversight, and a determination of whether a banking organization's procedures
for comprehensive risk management are appropriate for the circumstances of the
specific banking organization.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as the
measures described under the Federal Deposit Insurance Corporation Improvement
Act of 1991 described below, as applicable to undercapitalized institutions. In
addition, future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of Catawba Valley Bank and First Gaston Bank to grow
and could restrict the amount of profits, if any, available for the payment of
dividends to the shareholders.
Federal Deposit Insurance Corporation Improvement Act of 1991. In December
1991, Congress enacted Federal Deposit Insurance Corporation Improvement Act of
1991, which substantially revised the bank regulatory and funding provisions of
the Federal Deposit Insurance Act and made significant revisions to several
other federal banking statutes. The act provides for, among other things:
. publicly available annual financial condition and management reports
for certain financial institutions, including audits by independent
accountants;
. the establishment of uniform accounting standards by federal banking
agencies;
. the establishment of a "prompt corrective action" system of regulatory
supervision and intervention, based on capitalization levels, with
greater scrutiny and restrictions placed on depository institutions
with lower levels of capital;
. additional grounds for the appointment of a conservator or receiver;
and
. restrictions or prohibitions on accepting brokered deposits, except
for institutions which significantly exceed minimum capital
requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991 also
provides for increased funding of the FDIC insurance funds and the
implementation of risk-based premiums.
A central feature of the Act is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to the Act, the federal
bank regulatory authorities have adopted regulations setting forth a five tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well
64
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." An institution may be
deemed by the regulators to be in a capitalization category that is lower than
is indicated by its actual capital position if, among other things, it receives
an unsatisfactory examination rating with respect to asset quality, management,
earnings or liquidity.
Federal Deposit Insurance Corporation Improvement Act of 1991 provides the
federal banking agencies with significantly expanded powers to take enforcement
action against institutions which fail to comply with capital or other
standards. Such action may include the termination of deposit insurance by the
FDIC or the appointment of a receiver or conservator for the institution. The
Act also limits the circumstances under which the FDIC is permitted to provide
financial assistance to an insured institution before appointment of a
conservator or receiver.
Miscellaneous. The dividends that may be paid by Catawba Valley Bank and
First Gaston Bank are subject to legal limitations. In accordance with North
Carolina banking law, dividends may not be paid unless Catawba Valley Bank's or
First Gaston Bank's capital surplus is at least 50% of its paid-in capital.
The earnings of Catawba Valley Bank and First Gaston Bank will be affected
significantly by the policies of the Federal Reserve Board, which is responsible
for regulating the United States money supply in order to mitigate recessionary
and inflationary pressures. Among the techniques used to implement these
objectives are open market transactions in United States government securities,
changes in the rate paid by banks on bank borrowings, and changes in reserve
requirements against bank deposits. These techniques are used in varying
combinations to influence overall growth and distribution of bank loans,
investments, and deposits, and their use may also affect interest rates charged
on loans or paid for deposits.
The monetary policies of the Federal Reserve Board have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. In view of changing conditions in the
national economy and money markets, as well as the effect of actions by monetary
and fiscal authorities, no prediction can be made as to possible future changes
in interest rates, deposit levels, loan demand or the business and earnings of
Catawba Valley Bank or Community.
Catawba Valley Bank and First Gaston Bank cannot predict what legislation
might be enacted or what regulations might be adopted, or if enacted or adopted,
the effect thereof on Catawba Valley Bank's and First Gaston Bank's operations.
Community Reinvestment Act. Catawba Valley Bank and First Gaston Bank are
subject to the provisions of the Community Reinvestment Act of 1977, as amended
(CRA). Under the terms of the CRA, the appropriate federal bank regulatory
agency is required, in connection with the examination of a bank, to assess such
bank's record in meeting the credit needs of the community served by that bank,
including low and moderate-income neighborhoods. The regulatory agency's
assessment of Catawba Valley Bank's and First Gaston Bank's record is made
available to the public. Such an assessment is required of any bank which has
applied for any application for a domestic deposit-taking branch, relocation of
a main office, branch or ATM, merger or consolidation with or acquisition of
assets or assumption of liabilities of a federally insured depository
institution.
Under CRA regulations, banks with assets of less than $250,000,000 that are
independent or affiliated with a holding company with total banking assets of
less than $1 billion, are subject to streamlined small bank performance
standards and much less stringent data collection and reporting
65
requirements than larger banks. The agencies emphasize that small banks are not
exempt from CRA requirements. The streamlined performance method for small banks
focuses on the bank's loan-to-deposit ratio, adjusted for seasonal variations
and as appropriate, other lending-related activities, such as loan originations
for sale to secondary markets or community development lending or qualified
investments; the percentage of loans and, as appropriate, other lending-related
activities located in Catawba Valley Bank's and First Gaston Bank's assessment
areas; Catawba Valley Bank's and First Gaston Bank's record of lending to and,
as appropriate, other lending-related activities for borrowers of different
income levels and businesses and farms of different sizes; the geographic
distribution of Catawba Valley Bank's and First Gaston Bank's loans given its
assessment areas, capacity to lend, local economic conditions, and lending
opportunities; and Catawba Valley Bank's and First Gaston Bank's record of
taking action, if warranted, in response to written complaints about its
performance in meeting the credit needs of its assessment areas.
Regulatory agencies will assign a composite rating of "outstanding,"
"satisfactory," "needs to improve," or "substantial noncompliance" to the
institution using the foregoing ground rules. A bank's performance need not fit
each aspect of a particular rating profile in order for the bank to receive that
rating; exceptionally strong performance with respect to some aspects may
compensate for weak performance in others, and the bank's overall performance
must be consistent with safe and sound banking practices and generally with the
appropriate rating profile. To earn an outstanding rating, the bank first must
exceed some or all of the standards mentioned above. The agencies may assign a
"needs to improve" or "substantial noncompliance" rating depending on the degree
to which the bank has failed to meet the standards mentioned above.
The regulation further states that the agencies will take into
consideration these CRA ratings when considering any application and that a
bank's record of performance may be the basis for denying or conditioning the
approval of an application.
Change of Control
State and federal law restricts the amount of voting stock of a bank
holding company or a bank that a person may acquire without the prior approval
of banking regulators. The overall effect of such laws is to make it more
difficult to acquire a bank holding company or bank by tender offer or similar
means than it might be to acquire control of another type of corporation.
Pursuant to North Carolina law, no person may, directly or indirectly,
purchase or acquire voting stock of any bank holding company or bank which would
result in the change of control of that entity unless the North Carolina
Commissioner of Banks first shall have approved such proposed acquisition. A
person will be deemed to have acquired "control" of the bank holding company or
the bank if he, she or it, directly or indirectly, (i) owns, controls or has the
power to vote 10% or more of the voting stock of the bank holding company or
bank, or (ii) possesses the power to direct or cause the direction of its
management and policy.
Federal law imposes additional restrictions on acquisitions of stock in
bank holding companies and FDIC-insured banks. Under the federal Change in Bank
Control Act and the regulations thereunder, a person or group acting in concert
must give advance notice to the Federal Reserve or the FDIC before directly or
indirectly acquiring the power to direct the management or policies of, or to
vote 25% or more of any class of voting securities of, any bank holding company
or federally-insured bank. Upon receipt of such notice, the federal regulator
either may approve or disapprove the acquisition. The Change in Bank Control Act
generally creates a rebuttable presumption of a change in control if a person or
group acquires ownership or control of or the power to vote 10% or more of any
class of a bank holding
66
company or bank's voting securities; the bank holding company has a class of
securities that are subject to registration under the Securities Exchange Act of
1934, as amended; and, following such transaction, no other person owns a
greater percentage of that class of securities.
Government Monetary Policy and Economic Controls
As a bank holding company whose primary asset is the ownership of the
capital stock of a commercial bank, the United is directly affected by the
government monetary policy and the economy in general. The actions and policies
of the Federal Reserve Board which acts as the nation's central bank can
directly affect money supply and, in general, affect bank's lending activities
by increasing or decreasing their costs and availability of funds. An important
function of the Federal Reserve Board is to regulate the national supply of bank
credit in order to combat recession and curb inflation pressures. Among the
instruments of monetary policy used by the Federal Reserve Board to implement
these objectives are open market operations in U.S. Government securities,
changes in the discount rate and surcharge, if any, on member bank borrowings,
and changes in reserve requirements against bank deposits. These methods are
used in varying combinations to influence overall growth of bank loans,
investments and deposits, and interest rates charged on loans or paid for
deposits. Neither Catawba Valley Bank nor First Gaston Bank is a member of the
Federal Reserve System but they are subject to reserve requirements imposed by
the Federal Reserve Board on non-member banks. The monetary policies of the
Federal Reserve Board have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
Recent Legislative Developments
Effective March 11, 2000, the Gramm-Leach-Bliley Act of 1999, which was
signed into law on November 12, 1999, allows a bank holding company to qualify
as a "financial holding company" and, as a result, be permitted to engage in a
broader range of activities that are "financial in nature" and in activities
that are determined to be incidental or complementary to activities that are
financial in nature. The Gramm-Leach-Bliley Act amends the Bank Holding Company
Act to include a list of activities that are financial in nature, and the list
includes activities such as underwriting, dealing in and making a market in
securities, insurance underwriting and agency activities and merchant banking.
The Federal Reserve Board is authorized to determine other activities that are
financial in nature or incidental or complementary to such activities. The
Gramm-Leach-Bliley Act also authorizes banks to engage through financial
subsidiaries in certain of the activities permitted for financial holding
companies.
On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996, was enacted which contained a comprehensive approach to
recapitalize the FDIC's Savings Association Insurance Fund and to assure payment
of the Financing Corporation obligations. All of the Bank's deposits are insured
by the FDIC's Bank Insurance Fund. Under the Growth Act, banks with deposits
that are insured under the Bank Insurance Fund are required to pay a portion of
the interest due on bonds that were issued by the Financing Corporation to help
shore up the ailing Federal Savings and Loan Insurance Corporation in 1987. The
Growth Act stipulates that the Bank Insurance Fund assessment rate to contribute
toward the Financing Corporation obligations must be equal to one-fifth the
Savings Association Insurance Fund assessment rate through year-end 2000, or
until the insurance funds are merged, whichever occurs first. The amount of
Financing Corporation debt service to be paid by all Bank Insurance Fund-insured
institutions is approximately $0.0126 per $100 of Bank Insurance Fund-insured
deposits for each year from 1997 through 2000 when the obligation of BIF-insured
institutions increases to approximately $0.0240 per $100 of Bank Insurance
Fund-insured deposits per year through the year 2019, subject in all cases to
adjustments by the FDIC on a quarterly basis. The Growth Act also contained
provisions protecting banks from liability for environmental clean-up costs;
prohibiting credit
67
unions sponsored by Farm Credit System banks; easing application requirements
for most bank holding companies when they acquire a thrift or a permissible
non-bank operation; easing Fair Credit Reporting Act restrictions between bank
holding company affiliates; and reducing the regulatory burden under the Real
Estate Settlement Procedures Act, the Truth-in-Savings Act, the Truth-in-Lending
Act and the Home Savings Mortgage Disclosure Act.
Various legislation, including proposals to substantially change the
financial institution regulatory system, expand the powers of banking
institutions and bank holding companies, and limit the investments that a
depository institution may make with insured funds, is from time to time
introduced in the U. S. Congress. This legislation may change banking statutes
and the operating environment of the combined company and its subsidiaries in
substantial and unpredictable ways. We cannot accurately predict whether this
potential legislation will ultimately be enacted, and, if enacted, the ultimate
effect that it, or implementing regulations, would have upon the financial
condition or results of operations of the combined company or any of its
subsidiaries.
LEGAL MATTERS
The validity of the shares of United common stock offered hereby has been
passed upon for United by Gaeta & Associates, P.A., Raleigh, North Carolina.
Certain legal matters related to the merger have been passed upon for Community
by Smith, Gambrell & Russell, LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of United as of December 31, 2001 and
2000 and for each of the years in the three-year period ended December 31, 2001
have been included herein and in the registration statement of which this
document forms a part in reliance on the report of Dixon Odom PLLC, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Community as of December 31, 2001 and for the
year ended December 31, 2001 have been included herein and in the registration
statement of which this document forms a part in reliance on the report of
Cherry, Bekaert & Holland, L.L.P. independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The financial statements of Community as of December 31, 2000 and for each
of the years in the two year period ended December 31, 2000 have been included
herein and in the registration statement of which this document forms a part in
reliance upon the report of Francis & Co. independent accountants, given on the
authority of that firm as experts in accounting and auditing.
OTHER MATTERS
The Boards of Directors know of no other business that will be brought
before the special meetings. Should other matters properly come before the
special meetings, the proxies will be authorized to vote shares represented by
each appointment of proxy in accordance with their best judgment on such
matters.
WHERE YOU CAN GET MORE INFORMATION
United and Community file reports, proxy statements and other information
with the Securities and Exchange Commission. Copies of their reports, proxy
statements and other information may be
68
inspected and copied at the public reference facility maintained by the
Securities and Exchange Commission at:
Judiciary Plaza
Room 1024
450 Fifth Street, N.W.
Washington, D.C. 20549
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Room of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at l-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding companies that are required to file reports with it. The
address of the Securities and Exchange Commission website is www.sec.gov.
United filed a Registration Statement on Form S-4 to register with the
Securities and Exchange Commission the issuance of United common stock to
Community shareholders in the merger. This Joint Proxy Statement-Prospectus is a
part of that Registration Statement and constitutes a prospectus of United and a
proxy statement of each of United and Community for its respective special
meeting. As allowed by the SEC rules, this Joint Proxy Statement-Prospectus does
not contain all the information contained in the Registration Statement.
This Joint Proxy Statement-Prospectus does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this Joint
Proxy Statement-Prospectus, or the solicitation of a proxy, in any jurisdiction
to or from any person to whom or from whom it is unlawful to make such offer,
solicitation of an offer or proxy solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement-Prospectus nor any distribution of
securities pursuant to this Joint Proxy Statement-Prospectus, under any
circumstances, create any implication that there has been no change in the
information set forth or incorporated into this Joint Proxy Statement-Prospectus
by reference or in our affairs since the date of this Joint Proxy
Statement-Prospectus. The information contained in this Joint Proxy
Statement-Prospectus with respect to United was provided by United and the
information contained in this Joint Proxy Statement-Prospectus with respect to
Community was provided by Community.
Prior to United's formation as the holding company for Catawba Valley Bank
in 1999, and its acquisition of First Gaston Bank of North Carolina on December
31, 2001, Catawba Valley Bank and First Gaston Bank were subject to the
informational requirements of the Exchange Act and filed reports, proxy
statements and other information with the FDIC. Catawba Valley Bank's and First
Gaston Bank's filings with the FDIC may be inspected and copied, after paying a
prescribed fee, at the FDIC's public reference facilities at the Registration,
Disclosure and Securities Operations Unit, 550 17th Street, N.W., Room 6043,
Washington, DC 20429.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to incorporate by reference information into this Joint
Proxy Statement-Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement-Prospectus, except for any information superseded by
information in this Joint Proxy Statement-Prospectus. This Joint Proxy
Statement-Prospectus incorporates by reference:
69
. United's and Community's Annual Reports on Form 10-KSB for the year
ended December 31, 2001;
. Information included in United's 2001 Annual Report to Shareholders, a
copy of which accompanies this Joint Proxy Statement-Prospectus,
relating to (i) market price of and dividends and related shareholder
matters and (ii) management's discussion and analysis of financial
condition and results of operations;
. Information included in Community's 2001 Annual Report to
Shareholders, a copy of which accompanies this Joint Proxy
Statement-Prospectus, relating to (i) management's discussion and
analysis of financial condition and results of operations and (ii)
changes in and disagreements with accountants on accounting and
financial disclosures;
. United's and Community's Quarterly Reports on Form 10-QSB for the
quarter ended March 31, 2002;
. United's and Community's Quarterly Reports on Form 10-QSB for the
quarter ended June 30, 2002, copies of which accompany this Joint
Proxy Statement-Prospectus; and
. United's and Community's Current Reports on Form 8-K, each filed on
August 8, 2002.
When deciding how to cast your vote, you should rely only on the
information contained or incorporated by reference in this Joint Proxy
Statement-Prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this Joint Proxy
Statement-Prospectus. This Joint Proxy Statement-Prospectus is dated ______,
2002. You should not assume that the information contained in this Joint Proxy
Statement-Prospectus is accurate as of any date other than such date, and
neither the mailing of the Joint Proxy Statement-Prospectus to shareholders nor
the issuance of United common stock shall create any implication to the
contrary.
70
APPENDIX I
----------
AGREEMENT AND PLAN OF MERGER
by and between
UNITED COMMUNITY BANCORP
and
COMMUNITY BANCSHARES, INC.
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of
the 2nd day of August, 2002 by and between COMMUNITY BANCSHARES, INC.
("Community"), a North Carolina corporation and registered bank holding company
under the Federal Bank Holding Company Act of 1956, as amended (the "BHC Act"),
and UNITED COMMUNITY BANCORP, a North Carolina corporation and registered bank
holding company under the BHC Act ("UCB").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto have agreed that it is in their mutual best
interests and in the best interests of their respective shareholders for
Community to be merged with and into UCB pursuant to the terms of this Agreement
(the "Merger"), which Merger shall be immediately followed by the merger of
Northwestern National Bank ("Northwestern"), a national banking association
chartered under the laws of the United States, and a wholly owned subsidiary of
Community, with and into Catawba Valley Bank ("Catawba"), a North Carolina
chartered commercial bank and wholly owned subsidiary of UCB, and the parties
desire to provide for certain undertakings, conditions, representations,
warranties and covenants in connection with the Merger and transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the premises, the mutual benefits to be
derived from this Agreement, and of the representations, warranties, conditions,
covenants and promises herein contained, and subject to the terms and conditions
hereof, the parties hereto mutually agree as follows:
ARTICLE I. THE MERGER
1.1 Merger. Subject to the provisions of this Agreement, as of the
Effective Time (as defined in Section 1.12 hereof), Community shall be merged
with and into UCB, the separate corporate existence of Community shall cease and
the corporate existence of UCB, as the surviving corporation in the Merger,
shall continue under the laws of the State of North Carolina. UCB, as the
surviving corporation in the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 Effect of the Merger. At the Effective Time and by reason of the
Merger, and in accordance with applicable law, all of the property, assets and
rights of every kind and character of UCB and of Community including, without
limitation, their stock in their wholly owned
subsidiaries, First Gaston Bank of North Carolina ("First Gaston"), a North
Carolina chartered commercial bank and wholly owned subsidiary of UCB, Valley
Financial Services, Inc. ("Valley"), a North Carolina corporation and wholly
owned subsidiary of UCB, Catawba, Northwestern and Community Mortgage
Corporation ("CMC"), a North Carolina corporation and a wholly owned subsidiary
of Community, and all real, personal or mixed property, all debts due on
whatever account, all other choses in action and every other interest of or
belonging to or due to UCB or Community, whether tangible or intangible, shall
vest in the Surviving Corporation, and the Surviving Corporation shall succeed
to all the rights, privileges, immunities, powers, purposes and franchises of a
public or private nature of UCB and Community, all without any conveyance,
assignment or further act or deed; and the Surviving Corporation shall become
responsible for all of the liabilities, duties and obligations of every kind,
nature and description of UCB and Community as of the Effective Time.
1.3 Articles of Incorporation, Bylaws and Management. The Articles of
Incorporation and bylaws of UCB in effect at the Effective Time shall be the
Articles of Incorporation and bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable laws. The officers and, subject
to Section 5.4(a) hereof, directors of UCB at the Effective Time shall continue
to hold such offices and positions of the Surviving Corporation until removed as
provided by law or until the election or appointment of their respective
successors.
1.4 Conversion of Shares.
--------------------
(a) Community Stock. Except as otherwise provided herein, at the
Effective Time, all rights of Community's shareholders with respect to all then
outstanding shares of the common stock of Community, $3.00 par value ("Community
Stock"), shall cease to exist, and the holders of shares of Community Stock
shall cease to be and shall have no further rights as shareholders of Community.
At the Effective Time, each such outstanding share of Community Stock (except
for shares held, other than in a fiduciary capacity or as a result of debts
previously contracted, by Community, UCB or any of their subsidiaries, which
shall be canceled in the Merger, and for Dissenting Shares (as defined in
Section 1.9)) shall be converted, without any action on the part of the holder
of such shares, into the right to receive the Merger Consideration (as defined
in Section 1.5) in accordance with this Article I. Following the Effective Time,
certificates representing shares of Community Stock outstanding at the Effective
Time shall evidence only the right of the registered holder thereof to receive,
and may be exchanged for, the Merger Consideration.
(b) Outstanding UCB Stock. Each share of common stock of UCB, par
value $1.00 ("UCB Stock"), issued and outstanding immediately prior to the
Effective Time shall continue to be issued and outstanding and shall not be
affected by the Merger except to the extent that UCB shareholders exercise
Dissenters' Rights.
1.5 Merger Consideration.
--------------------
(a) Per Share Consideration. Subject to the provisions of this
Article I, at the Effective Time each outstanding share of Community Stock
(except for shares held, other than in a fiduciary capacity or as a result of
debts previously contracted, by Community, UCB or
2
any of their subsidiaries and for Dissenting Shares) shall cease to represent
any interest (equity, shareholder or otherwise) in Community and shall
automatically be converted exclusively into the right to receive, at the
election of the holder thereof, either: (A) $21.00 in cash, without interest;
(B) a number (the "Exchange Ratio") of shares of UCB Stock as determined
pursuant to Section 1.5(b) below; or (C) 30% of the cash amount set forth in
clause (A) above and a number of shares of UCB Stock equal to 70% of the
Exchange Ratio; provided however, that a holder of Community Stock may, pursuant
to Section 1.6, make no election, in which case such share of Community Stock
held by such holder shall be converted exclusively into the right to receive the
consideration set forth in Section 1.6(e) below with respect to Non-Election
Shares (as defined in Section 1.6(b)). The amount of cash into which shares of
Community Stock shall be converted pursuant to this Agreement is sometimes
hereinafter referred to as "Cash Consideration," and the number of shares of UCB
Stock into which shares of Community Stock shall be converted pursuant to this
Agreement is sometimes hereinafter referred to as "Stock Consideration." The
Cash Consideration and Stock Consideration are sometimes referred to herein
collectively as the "Merger Consideration." No share of Community Stock, other
than Dissenting Shares (as defined in Section 1.9), shall be deemed to be
outstanding or have any rights other than those set forth in this Section 1.5(a)
after the Effective Time.
(b) Stock Consideration Exchange Ratio. The Exchange Ratio shall
be equal to the quotient obtained by dividing $21.00 by the Measurement Price.
As used herein, the term "Measurement Price" shall mean the average
closing price of UCB Stock over the twenty trading days ending on the third
trading day prior to the closing of the Merger.
The Exchange Ratio is subject to possible adjustment in accordance
with Section 1.5(d) below.
(c) Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Community Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of UCB Stock (after taking into account all certificates delivered by such
holder under Sections 1.6(c) and 1.8(a) below and the elections made pursuant to
Section 1.6) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of UCB Stock multiplied by the
market value of one share of UCB Stock at the Effective Time. The market value
of one share of UCB Stock at the Effective Time shall be the last sale price of
UCB Stock on Nasdaq Market, Inc. SmallCap Market ("Nasdaq") as reported by The
Wall Street Journal or, if not reported thereby, any other authoritative source
selected by UCB, on the last trading day preceding the Effective Time. No such
holder will be entitled to dividends, voting rights, or any other rights as a
shareholder in respect of any fractional shares.
(d) Anti-Dilution Provisions. In the event UCB changes the number
of shares of UCB Stock issued and outstanding prior to the Effective Time as a
result of a stock split, stock dividend, recapitalization, reclassification,
combination, exchange of shares, or similar transaction with respect to such
stock and the record date therefor (in the case of a stock dividend) or the
effective date thereof (in the case of a stock split, recapitalization,
reclassification, combination, exchange of shares, or similar transaction for
which a record date
3
is not established) shall be prior to the Effective Time, the Exchange Ratio
shall be appropriately adjusted to reflect such change.
1.6 Election and Allocation Procedures.
----------------------------------
(a) An election form (an "Election Form") and other appropriate
and customary transmittal materials, which shall specify that delivery shall be
effected, and risk of loss and title to the certificates theretofore
representing Community Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent (as hereinafter defined) in such form as
Community and UCB shall mutually agree shall be mailed on the Mailing Date (as
defined below) to each shareholder of record of Community. The "Mailing Date"
shall be the date on which proxy materials relating to the Merger are mailed to
holders of shares of Community Stock.
(b) Each Election Form shall entitle the holder of shares of
Community Stock (or the beneficial owner through appropriate and customary
documentation and instructions) to (i) elect to receive the Cash Consideration
for all of such holder's shares (a "Cash Election"), (ii)elect to receive the
Stock Consideration for all of such holder's shares (a "Stock Election"),
(iii)elect to receive Merger Consideration in accordance with clause (C) of the
first sentence of Section 1.5(a) (a "Mixed Election"), or (iv) make no election
or to indicate that such holder has no preference as to the receipt of the Cash
Consideration or the Stock Consideration (a "Non-Election"). Shareholders of
record of Community who hold shares of Community Stock as nominees, trustees or
in other representative capacities may submit multiple Election Forms, provided
that such representative certifies that each such Election Form covers all the
shares of Community Stock held by that representative for a particular
beneficial owner. Shares of Community Stock in respect to which a Cash Election
shall have been made are referred to herein as "Cash Election Shares." Shares of
Community Stock in respect of which a Stock Election shall have been made are
referred to herein as "Stock Election Shares." Shares of Community Stock in
respect of which no election shall have been made are referred to herein as
"Non-Election Shares." The aggregate number of shares of Community Stock which
respect to which a Stock Election shall have been made is referred to herein as
the "Stock Election Number." Shares of Community Stock with respect to which a
Mixed Election shall have been made shall not be deemed either Stock Election
Shares or Cash Election Shares, but shall in all events be converted into the
right to receive the Merger Consideration as specified in subsection (e) of this
Section 1.6.
(c) To be effective, a properly completed Election Form shall be
submitted to the Exchange Agent on or before 5:00 p.m. North Carolina time on
the last business day prior to the date of the shareholders' meetings
contemplated by Sections 4.3(a) and 5.7(a) (or such other time and date as
Community and UCB may mutually agree) (the "Election Deadline"). An election
shall have been properly made only if the Exchange Agent shall have actually
received a properly completed Election Form by the Election Deadline. An
Election Form shall be deemed properly completed only if accompanied by one or
more certificates (or customary affidavits and, if required by UCB pursuant to
Section 1.8(b), indemnification regarding the loss or destruction of such
certificates or the guaranteed delivery of such certificates) representing all
shares of Community Stock covered by such Election Form, together with duly
executed transmittal materials included with the Election Form. Any Community
shareholder may at any time prior
4
to the Election Deadline change his or her election by written notice received
by the Exchange Agent prior to the Election Deadline accompanied by a properly
completed and signed revised Election Form. Any Community shareholder may, at
any time prior to the Election Deadline, revoke his or her election by written
notice received by the Exchange Agent prior to the Election Deadline or by
withdrawal prior to the Election Deadline of his or her certificates, or of the
guarantee of delivery of such certificates, previously deposited with the
Exchange Agent. All elections shall be revoked automatically if the Exchange
Agent is notified in writing by UCB and Community that this Agreement has been
terminated. If a Community shareholder either (i) does not submit a properly
completed Election Form by the Election Deadline, or (ii) revokes its Election
Form prior to the Election Deadline, the shares of Community Stock held by such
shareholder shall be designated Non-Election Shares. UCB shall cause the
certificates representing Community Stock described in clause (ii) above to be
promptly returned without charge to the person submitting the Election Form upon
written request to that effect from the person who submitted the Election Form.
Subject to the terms of this Agreement and of the Election Form, the Exchange
Agent shall have reasonable discretion to determine whether any election,
revocation or change has been properly or timely made and to disregard
immaterial defects in any Election Form, and any good faith decisions of the
Exchange Agent regarding such matters shall be binding and conclusive.
(d) Notwithstanding any other provision contained in this
Agreement, 70% (the "Stock Conversion Number") of the total number of shares of
Community Stock outstanding at the Effective Time to be converted into Merger
Consideration pursuant to Section 1.5(a), excluding such shares as may be
subject to an effective Mixed Election (the "Adjustable Conversion Shares"),
shall be converted into the Stock Consideration and the remaining Adjustable
Conversion Shares shall be converted into Cash Consideration (excluding shares
of Community Stock to be canceled as provided in Section 1.4(a) and Dissenting
Shares); provided, however, that for federal income tax purposes, it is intended
that the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and in
order that the Merger will not fail to satisfy continuity of interest
requirements under applicable federal income tax principles relating to
reorganizations under Section 368(a) of the Code, as reasonably determined by
counsel to UCB, UCB shall increase the number of Adjustable Conversion Shares
that will be converted into the Stock Consideration and reduce the number of
Adjustable Conversion Shares that will be converted into the right to receive
the Cash Consideration.
(e) Within five business days after the later to occur of the
Election Deadline or the Effective Time, UCB shall cause the Exchange Agent to
effect the allocation among holders of Community Stock of rights to receive the
Cash Consideration and Stock Consideration as follows:
(i) In any event, all shares of Community Stock with
respect to which a Mixed Election shall have been made shall be
converted into 30% of the amount of cash set forth in clause (A) of
the first sentence of Section 1.5(a) and a number of shares of UCB
Stock equal to 70% of the Exchange Ratio;
(ii) If the Stock Election Number exceeds the Stock
Conversion Number, then all Cash Election Shares and all Non-Election
Shares shall be
5
converted into the right to receive the Cash Consideration, and each
holder of Stock Election Shares will be entitled to receive the Stock
Consideration in respect of that number of Stock Election Shares
equal to the product obtained by multiplying (x) the number of Stock
Election Shares held by such holder by (y) a fraction, the numerator
of which is the Stock Conversion Number and the denominator of which
is the Stock Election Number, with the remaining number of such
holder's Stock Election Shares being converted into the right to
receive the Cash Consideration; and
(iii) If the Stock Election Number is less than the
Stock Conversion Number (the amount by which the Stock Conversion
Number exceeds the Stock Election Number being referred to herein as
the "Shortfall Number"), then all Stock Election Shares shall be
converted into the right to receive the Stock Consideration and the
Non-Election Shares and Cash Election Shares shall be treated in the
following manner:
(A) If the Shortfall Number is less than or equal to
the number of Non-Election Shares, then all Cash Election
Shares shall be converted into the right to receive the Cash
Consideration and each holder of Non-Election Shares shall
receive the Stock Consideration in respect of that number of
Non-Election Shares equal to the product obtained by
multiplying (x) the number of Non-Election Shares held by such
holder by (y) a fraction, the numerator of which is the
Shortfall Number and the denominator of which is the total
number of Non-Election Shares, with the remaining number of
such holder's Non-Election Shares being converted into the
right to receive the Cash Consideration; or
(B) If the Shortfall Number exceeds the number of
Non-Election Shares, then all Non-Election Shares shall be
converted into the right to receive the Stock Consideration,
and each holder of Cash Election Shares shall receive the
Stock Consideration in respect of that number of Cash Election
Shares equal to the product obtained by multiplying (x) the
number of Cash Election Shares held by such holder by (y) a
fraction, the numerator of which is the amount by which (1)
the Shortfall Number exceeds (2) the total number of
Non-Election Shares and the denominator of which is the total
number of Cash Election Shares, with the remaining number of
such holder's Cash Election Shares being converted into the
right to receive the Cash Consideration.
For purposes of this Section 1.6(e), if UCB is obligated to increase the number
of Adjustable Conversion Shares to be converted into shares of UCB Stock as a
result of the application of the last clause of Section 1.6(d) above, then the
higher number shall be the Stock Conversion Number in the calculations set forth
in this Section 1.6(e).
1.7 Closing Payment. As of the Effective Time, UCB shall deposit, or
shall cause to be deposited, with First-Citizens Bank and Trust Company,
transfer agent of UCB Stock (the "Exchange Agent"), for the benefit of each
holder of Community Stock for exchange in accordance with this Article I, (i)
certificates representing the aggregate number of whole shares
6
of UCB Stock to be issued as Stock Consideration, and (ii) an aggregate amount
of cash to be delivered to holders of Community Stock as Cash Consideration and
in lieu of any fractional shares, to be issued and paid pursuant to this Article
I for outstanding shares of Community Stock (such certificates for shares of UCB
Stock and such cash are referred to as the "Exchange Fund"). The Exchange Agent
shall, pursuant to irrevocable instructions in accordance with this Article I,
deliver the UCB Stock and cash contemplated to be issued with respect to
Community Stock out of the Exchange Fund. The Exchange Fund shall not be used
for any other purpose. The Exchange Agent shall invest any cash included in the
Exchange Fund in short-term obligations of or obligations guaranteed by the
United States government, or certificates of deposit of national or state banks
that have deposits insured by the Federal Deposit Insurance Corporation, as
directed by UCB, on a daily basis. Any interest and other income resulting from
such investments shall be paid to UCB.
1.8 Exchange of Shares.
------------------
(a) Exchange Procedures. Not later than five business days
following the Effective Time, UCB shall cause the Exchange Agent to mail to the
shareholders of Community of record at the Effective Time transmittal materials
and other appropriate written instructions (collectively, a "Transmittal
Letter") (which shall specify that delivery shall be effected, and risk of loss
and title to the certificate representing shares of Community Stock prior to
such Effective Time shall pass, only upon proper delivery of such certificates
to the Exchange Agent and which shall be in such form and have such other
provisions as UCB may reasonably specify). After the Effective Time and upon the
proper surrender of certificate(s) representing shares of Community Stock to the
Exchange Agent, together with a properly completed and duly executed Transmittal
Letter or, as applicable, Election Form, the holder of such certificate(s) shall
be entitled to receive in exchange therefor the number of shares of UCB Stock
and the cash to which such holder is entitled hereunder (including any cash
payments to which such holder is entitled hereunder in respect of rights to
receive fractional shares and any dividends or other distributions to which such
holder is entitled pursuant to Section 1.8(c)), subject to any required
withholding of applicable taxes. Neither UCB nor the Exchange Agent shall be
obligated to deliver any of such payments in cash or stock until such holder
surrenders the certificate(s) representing such holder's shares. The
certificate(s) so surrendered shall be duly endorsed as the Exchange Agent may
require. If there is a transfer of ownership of any shares of Community Stock
not registered in the transfer records of Community, the Merger Consideration
shall be issued to the transferee thereof if the certificates representing such
Community Stock are presented to the Exchange Agent, accompanied by all
documents required, in the reasonable judgment of UCB and the Exchange Agent, to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid. Any portion of the Exchange Fund which remains
undistributed to the holders of certificates representing Community Stock for
six months after the Effective Time shall be delivered to UCB, upon demand, and
any shareholders of Community who have not previously complied with the
provisions of this Article I shall thereafter look only to UCB for payment of
their claim for UCB Stock and/or cash and any dividends or distributions with
respect to UCB Stock. Any portion of the Exchange Fund remaining unclaimed by
holders of Community Stock five years after the Effective Time (or such earlier
date immediately prior to such time as such portion would otherwise escheat to
or become property of any government entity) shall, to the extent permitted by
applicable law, become the property of UCB free and clear of any claims or
interest of any person previously entitled therein. Any other provision of
7
this Agreement notwithstanding, neither UCB nor the Exchange Agent shall be
liable to any holder of shares of Community Stock for any amounts paid or
properly delivered in good faith to a public official pursuant to any applicable
abandoned property law.
(b) Lost Certificates. Any shareholder of Community whose
certificate representing shares of Community Stock has been lost, destroyed,
stolen or otherwise is missing shall be entitled to receive a certificate
representing the shares of UCB Stock and/or any cash, including cash in lieu of
fractional shares, to which he or she is entitled in accordance with and upon
compliance with conditions reasonably imposed by the Exchange Agent or UCB
(including, without limitation, a requirement that the shareholder provide a
lost instruments indemnity bond in form, substance and amount reasonably
satisfactory to the Exchange Agent and UCB).
(c) Rights of Former Community Shareholders. At the Effective
Time, the stock transfer books of Community shall be closed as to holders of
Community Stock immediately prior to the Effective Time and no transfer of
Community Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 1.8(a) of
this Agreement, each certificate theretofore representing shares of Community
Stock (other than shares to be canceled pursuant to Section 1.4(a) of this
Agreement and Dissenting Shares) shall from and after the Effective Time
represent for all purposes only the right to receive the Merger Consideration.
If, after the Effective Time, certificates representing Community Stock are
presented to Community, UCB or the Exchange Agent for any reason, they shall be
cancelled and exchanged as provided in this Article I. To the extent permitted
by North Carolina law, former shareholders of record of Community shall be
entitled to vote after the Effective Time at any meeting of shareholders of UCB
the number of whole shares of UCB Stock into which their respective shares of
Community Stock are converted, regardless of whether such holders have exchanged
their certificates representing Community Stock for certificates representing
UCB Stock in accordance with the provisions of this Agreement. Whenever a
dividend or other distribution is declared by UCB on the UCB Stock, the record
date for which is at or after the Effective Time, the declaration shall include
dividends or other distributions on all shares of UCB Stock to be issued
pursuant to the Merger, but beginning at the Effective Time no dividend or other
distribution payable to the holders of record of UCB Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Community Stock issued and outstanding at the
Effective Time until such holder surrenders such certificate for exchange as
provided in Section 1.8(a) of this Agreement; provided, however, that upon
surrender of such Community Stock certificate (or compliance with Section 1.8(b)
of this Agreement), the UCB Stock certificate, together with all undelivered
dividends or other distributions (without interest) and any cash payments to be
paid for fractional share interests (without interest), shall be delivered and
paid with respect to each share represented by such Community Stock certificate.
1.9 Dissenting Shares. Notwithstanding any other provision of this
Agreement to the contrary, shares of Community Stock that are outstanding
immediately prior to the Effective Time and that are held by shareholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who properly shall have demanded appraisal for such shares in accordance with
Article 13 of the North Carolina Business Corporation Act (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
receive the Merger
8
Consideration. Such shareholders instead shall be entitled to receive payment of
the appraised value of such shares held by them in accordance with the
provisions of Article 13 of the North Carolina Business Corporation Act, except
that all Dissenting Shares held by shareholders who shall have failed to perfect
or who effectively shall have withdrawn or otherwise lost their rights to
appraisal of such shares under Article 13 of the North Carolina Business
Corporation Act shall thereupon be deemed to have been converted into and to
have become exchangeable, as of the Effective Time, for the right to receive,
without any interest thereon, the Merger Consideration upon surrender in the
manner provided in Section 1.8 of the certificate or certificates that,
immediately prior to the Effective Time, evidenced such shares. Community shall
give UCB (i)prompt notice of any written demands for appraisal of any shares of
Community Stock, attempted withdrawals of such demands for appraisal or any
other instruments served pursuant to Article 13 of the North Carolina Business
Corporation Act and received by Community relating to shareholders' rights of
appraisal, and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands under Article 13 of the North Carolina
Business Corporation Act consistent with the obligations of Community
thereunder. Community shall not, except with the prior written consent of UCB,
(x) make any payment with respect to such demand, (y) offer to settle or settle
any demand for appraisal, or (z) waive any failure to timely deliver a written
demand for appraisal or to timely take any other action to perfect appraisal
rights in accordance with Article 13 of the North Carolina Business Corporation
Act.
1.10 Treatment of Community Stock Options.
------------------------------------
(a) At the Effective Time, UCB shall assume each option to
purchase Community Stock granted and outstanding under the Community Bancshares
1993 Incentive Stock Option Plan (the "Community Option Plan"), whether or not
then exercisable, in accordance with the terms of the Community Option Plan and
stock option agreement by which it is evidenced, except that from and after the
Effective Time with respect to each such plan or agreement: (i) UCB shall be
substituted for Community; (ii) the UCB stock option committee shall be
substituted for the compensation committee of the Community Board of Directors
administering the Community Option Plan; (iii) each stock option granted and
outstanding under the Community Option Plan may be exercised solely for shares
of UCB Stock; (iv) the number of shares of UCB Stock subject to each such stock
option shall be the number of whole shares of UCB Stock (omitting any fractional
share) determined by multiplying the number of shares of Community Stock subject
to such stock option immediately prior to the Effective Time by the Exchange
Ratio; and (v) the per share exercise price under each such stock option shall
be adjusted by dividing the per share exercise price under each such stock
option by the Exchange Ratio and rounding up to the nearest cent. In addition,
each stock option which is an "incentive stock option" under the Community
Option Plan shall be adjusted as required by Section 424 of the Code and the
regulations promulgated thereunder so as to continue as an incentive stock
option under Section 424(a) of the Code, and so as not to constitute a
modification, extension, or renewal of the option, within the meaning of Section
424(h) of the Code. UCB and Community shall take all necessary steps to
effectuate the foregoing provisions of this Section 1.10, including appropriate
amendments to the Community Option Plan if necessary.
(b) As soon as practicable after the Effective Time, UCB shall
deliver to each of the participants in the Community Option Plan an appropriate
notice setting forth such participant's rights pursuant thereto, and the grants
pursuant to the Community Option Plan shall
9
continue in effect on the same terms and conditions (subject to the adjustments
required by Section 1.10(a) after giving effect to the Merger). At or prior to
the Effective Time, UCB shall take all corporate action necessary to reserve for
issuance sufficient shares of UCB Stock for delivery upon exercise of the stock
options assumed by it in accordance with this Section 1.10. Community hereby
represents that the Community Option Plan in its current form complies with Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended, as in
effect as of the date hereof.
(c) As soon as practicable after the Effective Time, UCB will
use its best efforts to cause the shares subject to options granted under the
Community Option Plan prior to the Effective Time (or any substitute options) to
be registered under the Securities Act of 1933, as amended (the "1933 Act"), on
a Form S-8 (or equivalent successor form) registration statement.
1.11 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the main office of Catawba, or at
such other place as UCB shall designate, on a date mutually agreeable to
Community and UCB (the "Closing Date") after the expiration of any and all
required waiting periods following the effective date of all required approvals
of the Merger by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), the North Carolina Commissioner of Banks (the
"Commissioner") and any other governmental or regulatory authorities (as soon as
practicable, but in no event to be more than 60 days following the expiration of
all such required waiting periods). At the Closing, UCB and Community shall take
such actions (including, without limitation, the delivery of certain closing
documents and the execution of Articles of Merger under North Carolina law) as
are required herein and as otherwise shall be required by law to consummate the
Merger and cause it to become effective.
1.12 Effective Time. Subject to satisfaction or waiver of all conditions
precedent set forth in this Agreement, the Merger shall become effective (the
"Effective Time") on the date and at the time on which Articles of Merger
containing the provisions required by, and executed in accordance with
applicable North Carolina and applicable federal law shall have been accepted
for filing by the Secretary of State of the State of North Carolina (or such
later time as may be specified in the Articles of Merger); provided, however,
that unless otherwise mutually agreed upon, the parties hereto shall use their
reasonable best efforts to cause the Effective Time to occur on the Closing
Date.
1.13 Further Assurances. If at any time after the Effective Time UCB shall
consider or be advised that any further deeds, assignments or assurances in law
or any other actions are necessary, desirable or proper to vest, perfect or
confirm of record or otherwise, in the Surviving Corporation, the title to any
property or rights of Community acquired or to be acquired by reason of, or as a
result of, the Merger, Community, its subsidiaries and their officers and
directors shall execute and deliver all such proper deeds, assignments and
assurances in law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in UCB and otherwise to
carry out the purpose of this Agreement, and that the officers and directors of
UCB are fully authorized and directed in the name of Community or otherwise to
take any and all such actions.
10
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF COMMUNITY
Except as otherwise specifically provided herein or as "Previously
Disclosed" to UCB, Community hereby makes the following representations and
warranties to UCB. ("Previously Disclosed" shall mean, as to Community, the
disclosure of information in a letter delivered by Community to UCB specifically
referring to this Agreement and arranged in sections corresponding to the
sections, subsections and items of this Agreement applicable thereto, and which
letter has been delivered prior to the execution of this Agreement. Information
shall be deemed Previously Disclosed for the purpose of a given section,
subsection or item of this Agreement only to the extent that a specific
reference thereto is made in connection with disclosure of such information at
the time of such delivery.)
2.1 Corporate Organization, Capacity and Authority.
----------------------------------------------
(a) Organization. Community is a corporation duly organized and
validly existing under the laws of the State of North Carolina and is registered
with the Federal Reserve Board as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
(b) Subsidiaries. Community has two wholly owned subsidiaries,
Northwestern and CMC. Northwestern and CMC are sometimes referred to in this
Agreement as the subsidiaries of Community. Other than Northwestern and CMC,
Community has no subsidiaries, direct or indirect, and does not own, directly or
indirectly, any stock or other equity interest in any other corporation, service
corporation, joint venture, partnership or other entity, except for equity
issues reflected in Community's investment portfolio and securities held in a
fiduciary capacity.
(c) Organization of Subsidiaries. Northwestern is a national
banking association duly organized and validly existing under the laws of the
United States of America. CMC is a corporation duly organized and validly
existing under the laws of the state of North Carolina. All of the shares of
outstanding capital stock of Northwestern and CMC are owned of record and
beneficially, free and clear of all security interests and claims, by Community.
All of the outstanding shares of capital stock of Northwestern and CMC are duly
authorized, validly issued, fully paid and nonassessable, except that the shares
of stock of Northwestern are assessable to the extent set forth in 12 U.S.C.
[sec] 55.
(d) Power and Authority. Each of Community and its subsidiaries
has all requisite power and authority (corporate and other) to own, lease and
operate its properties and to carry on its business as it is now being
conducted, is duly qualified to do business and is in good standing in each
other jurisdiction in which the character of the properties owned, leased or
operated by it therein or in which the transaction of its business makes such
qualification necessary, except where failure so to qualify would not have a
Material Adverse Effect (as defined herein) on Community and its subsidiaries,
and, to the best knowledge and belief of the management of Community, is not
transacting business or operating any properties owned or leased by it in
violation of any provision of federal, state or local law or any rule or
regulation promulgated thereunder, which violation would have a Material Adverse
Effect on Community and its subsidiaries. For purposes of this Article II,
"Material Adverse Effect" shall mean: (a) with respect to references to
Community, any change in the business of Community that is or
11
could be materially adverse to the financial condition, results of operations,
prospects, business, assets, investments, properties or operations of Community,
or (b) with respect to references to Community and its subsidiaries, any change
in the business of Community or its subsidiaries that is or could be materially
adverse to the financial condition, results of operations, prospects, business,
assets, loan portfolio, investments, properties or operations of Community and
its subsidiaries considered as one enterprise.
(e) Constituent Documents. Community has previously delivered to
UCB true, accurate and complete copies of the currently effective charter and
bylaws or equivalent organizational documents of Community and its subsidiaries,
including all amendments and proposed amendments thereto.
2.2 Capital Stock. The authorized capital stock of Community consists of
10,000,000 shares of Community Stock, $3.00 par value, of which 1,631,402 shares
were issued and outstanding as of July 31, 2002, and 1,000,000 shares of
preferred stock, $6.00 par value, of which no shares are issued and outstanding.
Other than the Community Stock, Community has no outstanding class of capital
stock. Each outstanding share of Community Stock has been duly authorized and
validly issued, is fully paid and nonassessable, has been issued in compliance
with applicable federal and state securities laws and has not been issued in
violation of the preemptive rights of any shareholder.
2.3 Principal Shareholders. Except as Previously Disclosed, there are no
persons or entities known to Community that own beneficially, directly or
indirectly, more than 5% of the outstanding shares of Community Stock.
2.4 Convertible Securities, Options, Etc. Except for the Community Option
Plan and the stock options granted thereunder, Community does not have any
outstanding (i) securities or other obligations (including debentures or other
debt instruments) which are convertible into shares of Community Stock or any
other securities of Community, (ii) options, warrants, rights, calls or other
commitments of any nature which entitle any person to receive or acquire any
shares of Community Stock or any other securities of Community, or (iii) plan,
agreement or other arrangement pursuant to which shares of Community Stock or
any other securities of Community or options, warrants, rights, calls or other
commitments of any nature pertaining thereto, have been or may be issued.
2.5 Authorization and Validity of Agreement. This Agreement has been duly
and validly approved by Community's Board of Directors. Subject only to approval
of this Agreement by the shareholders of Community, (i) Community has the
corporate power and authority to execute and deliver this Agreement and to
perform its obligations and agreements and carry out the transactions described
herein, (ii) all corporate proceedings and approvals required to be taken to
authorize Community to enter into this Agreement and to perform its obligations
and agreements and to carry out the transactions described herein have been duly
and properly taken, and (iii) this Agreement constitutes the valid and binding
agreement of Community enforceable in accordance with its terms (except to the
extent enforceability may be limited by (A) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect which
affect creditors' rights generally, (B) legal and equitable limitations on the
availability of injunctive relief, specific performance and other equitable
12
remedies, and (C) general principles of equity and applicable laws or court
decisions limiting the enforceability of indemnification provisions).
2.6 Validity of Transactions; Absence of Required Consents or Waivers.
Provided the required approvals of Community's shareholders and of governmental
or regulatory authorities are obtained, neither the execution and delivery of
this Agreement, nor the consummation of the transactions described herein, nor
compliance by Community with any of its obligations or agreements contained
herein, will: (i) conflict with or result in a breach of the terms and
conditions of, or constitute a default or violation under any provision of, the
Articles of Incorporation or bylaws or the equivalent organizational documents
of Community or its subsidiaries, or any material contract, agreement, lease,
mortgage, note, bond, indenture, license, or obligation or understanding (oral
or written) to which Community or Northwestern is bound or by which it or its
business, capital stock or any of its properties or assets may be affected; (ii)
to the best knowledge and belief of management of Community, result in the
creation or imposition of any lien, claim, interest, charge, restriction or
encumbrance upon any of the properties or assets of Community or Northwestern;
(iii) violate any judgment, order, writ, injunction or decree of any court,
administrative or regulatory agency or governmental body; (iv) to the best
knowledge and belief of management of Community, result in the acceleration of
any material obligation or indebtedness of Community or its subsidiaries; or (v)
interfere with or otherwise adversely affect the ability of Community to carry
on its business as presently conducted, or interfere with or otherwise adversely
affect the ability of UCB to carry on such business after the Effective Time. No
consents, approvals or waivers are required to be obtained from any person or
entity in connection with Community's execution and delivery of this Agreement,
or the performance of its obligations or agreements or the consummation of the
transactions described herein, except for required approvals of Community's
shareholders as described in Section 7.1(a) below and of governmental or
regulatory authorities as described in Section 7.1(d) below and approvals
previously obtained.
2.7 Books and Records. The books of account of each of Community and its
subsidiaries have been maintained in material compliance with all applicable
legal and accounting requirements and in accordance with good business
practices, and such books of account are complete and reflect accurately in all
material respects Community's and its subsidiaries', respectively, items of
income and expense and all of its assets, liabilities and shareholders' equity.
The minute books of each of Community and its subsidiaries accurately reflect in
all material respects the corporate actions which its respective shareholders
and board of directors, and all committees thereof, have taken during the time
periods covered by such minute books. All such minute books have been or will be
made available to UCB and its representatives.
2.8 Regulatory Reports. Since January 1, 1999, each of Community and
Northwestern has filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that were required to
be filed with (i) the Office of the Comptroller of the Currency (the "OCC"),
(ii) the FDIC, (iii) the Federal Reserve Board, and (iv) any other governmental
or regulatory authorities having jurisdiction over Community or its subsidiaries
except to the extent that failure to file such reports, registrations and
statements would not have a Material Adverse Effect on Community or any of its
subsidiaries. All such reports, registrations and statements filed by Community
or Northwestern with the OCC, the
13
FDIC, the Federal Reserve Board or other such regulatory authority are
collectively referred to herein as the "Community Reports." As of their
respective dates, the Community Reports complied in all material respects with
all the statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and neither Community
nor its subsidiaries has been notified that any such Community Reports were
deficient as to form or content. Following the date of this Agreement, Community
shall deliver to UCB, simultaneous with the filing thereof, a copy of each
report, registration, statement or other regulatory filing made thereafter by
Community or any of its subsidiaries, with the OCC, the FDIC, the Federal
Reserve Board or any other such regulatory authority.
2.9 Shareholder Communications and SEC Filings; Financial Statements.
----------------------------------------------------------------
(a) SEC Filings. Community has filed and made available to UCB all
forms, reports, and documents required to be filed by Community with the SEC
since December 31, 1999 (collectively, the "Community SEC Reports"). The
Community SEC Reports (i) at the time filed, complied in all material respects
with the applicable requirements of the 1933 Act and the Securities Exchange Act
of 1934, as amended (the "1934 Act") and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Community SEC Reports or necessary in order to make the statements in such
Commuinty SEC Reports, in light of the circumstances under which they were made,
not misleading.
(b) Financial Statements. Community has filed with the SEC and
made available to UCB the following financial statements (collectively, the
"Community Financial Statements"): (i) its consolidated balance sheets as of
December 31, 2001 and its consolidated statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 2001,
together with notes thereto, all as audited by Cherry, Bekaert & Holland, PC,
independent certified public accountants; (ii) its consolidated balance sheet as
of December 31, 2000 and its consolidated statements of operations, changes in
shareholders' equity and cash flows for the years ended December 31, 2000 and
1999, together with notes thereto, all as audited by Francis & Company, CPAs,
independent certified public accountants, and (iii) its balance sheets as of
March 31, 2002 and 2001 and June 30, 2002 and 2001, and the related statements
of income for the three-month and six-month periods then ended. Following the
date of this Agreement, Community promptly will deliver to UCB all other annual
or interim financial statements prepared by or for Community. The Community
Financial Statements (including any related notes and schedules thereto) (x) are
in accordance with Community's books and records, and (y) except as stated
therein, were prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
indicated and present fairly Community's consolidated financial condition,
assets and liabilities, results of operations, changes in shareholders' equity
and changes in cash flows as of the dates indicated and for the periods
specified therein subject, in the case of unaudited interim financial
statements, to normal year-end adjustments and any other adjustments described
therein, which adjustments will not be material in amount or effect.
14
2.10 Tax Returns and Other Tax Matters. (i) Each of Community and its
subsidiaries has timely filed or caused to be filed, or obtained proper
extensions of time for filing, all federal, state and local income tax returns
and reports which are required by law to have been filed, and all such returns
and reports were true, correct and complete in all material respects and
contained all material information required to be contained therein; (ii) all
federal, state and local income, profits, franchise, sales, use, occupation,
property, excise, withholding, employment and other taxes (including interest
and penalties), charges and assessments which have become due from or been
assessed or levied against Community, its subsidiaries or their respective
properties have been fully paid or, if not yet due, a reserve or accrual which
is reasonably believed by the management of Community to be adequate in all
material respects for the payment of all such taxes to be paid and the
obligation for such unpaid taxes is reflected on the Community Financial
Statements; (iii) tax returns and reports of Community and its subsidiaries have
not been subject to audit by the Internal Revenue Service (the "IRS") or the
North Carolina Department of Revenue in the last seven years and neither
Community nor its subsidiaries has received any indication of the pendency of
any audit or examination in connection with any such tax return or report or has
any knowledge that any such return or report is subject to adjustment; and (iv)
neither Community nor its subsidiaries has executed any waiver or extended the
statute of limitations (or been asked to execute a waiver or extend a statute of
limitations) with respect to any tax.
2.11 Absence of Material Adverse Changes or Certain Other Events.
-----------------------------------------------------------
(a) Since December 31, 2001, each of Community and its
subsidiaries has conducted its respective business only in the ordinary course,
and there has been no Material Adverse Effect, and there has occurred no event
or development and there currently exists no condition or circumstance which,
with the lapse of time or otherwise, would be reasonably expected to have a
Material Adverse Effect, on Community and its subsidiaries.
(b) Since December 31, 2001, and other than in the ordinary course
of its business, neither Community nor its subsidiaries has incurred any
material liability or engaged in any material transaction or entered into any
material agreement, increased the salaries, compensation or general benefits
payable to its employees, suffered any loss, destruction or damage to any of its
respective properties or assets, or made a material acquisition or disposition
of any assets or entered into any material contract or lease. For purposes of
this Section 2.11(b), "material" means material to Community and its
subsidiaries considered as one enterprise.
2.12 Absence of Undisclosed Liabilities. Neither Community nor its
subsidiaries has any liabilities or obligations, whether known or unknown,
matured or unmatured, accrued, absolute, contingent or otherwise, whether due or
to become due (including, without limitation, tax liabilities or unfunded
liabilities under employee benefit plans or arrangements), other than (i) those
reflected in the Community Financial Statements, or (ii) obligations or
liabilities incurred in the ordinary course of its business since December 31,
2001 and which are not, individually or in the aggregate, material to Community
and its subsidiaries considered as one enterprise.
2.13 Litigation and Compliance with Law.
----------------------------------
15
(a) Except as Previously Disclosed, there are no actions, suits,
arbitrations, controversies or other proceedings or investigations (or, to the
best knowledge and belief of management of Community, any facts or circumstances
which could reasonably be expected to result in such), including, without
limitation, any such action by any governmental or regulatory authority, which
currently exist or are ongoing, pending or, to the best knowledge and belief of
management of Community, threatened, contemplated or probable of assertion,
against, relating to or otherwise affecting Community and its subsidiaries, or
any of their respective properties, assets or employees which, if determined
adversely, could result in liability on the part of Community or its
subsidiaries for, or subject Community or its subsidiaries to, material monetary
damages, fines or penalties or an injunction, or which could have a Material
Adverse Effect on Community and its subsidiaries or on Community's ability to
consummate the Merger.
(b) Except for such licenses, permits, orders, authorizations or
approvals ("Permits") the absence of which would not have a Material Adverse
Effect on Community or its subsidiaries, each of Community and Northwestern has
all Permits of any federal, state, local or foreign governmental or regulatory
body that are material to or necessary for the conduct of its respective
business or to own, lease and operate its respective properties. Except as would
not have a Material Adverse Effect on Community and its subsidiaries, all such
Permits are in full force and effect and no violations are or have been recorded
in respect of any such Permits. No proceeding is pending or, to the best
knowledge and belief of management of Community, threatened or probable of
assertion to suspend, cancel, revoke or limit any Permit.
(c) Neither Community nor its subsidiaries is subject to any
supervisory agreement, enforcement order, writ, injunction, capital directive,
supervisory directive, memorandum of understanding or other similar agreement,
order, directive, memorandum or consent of, with or issued by any regulatory or
other governmental authority (including, without limitation, the Federal Reserve
Board, the FDIC, or the OCC) relating to its financial condition, directors or
officers, employees, operations, capital, regulatory compliance or otherwise;
there are no judgments, orders, stipulations, injunctions, decrees or awards
against Community or its subsidiaries that in any manner limit, restrict,
regulate, enjoin or prohibit any present or past business or practice of
Community or its subsidiaries; and neither Community nor its subsidiaries has
been advised or has any reason to believe that any regulatory or other
governmental authority or any court is contemplating, threatening or requesting
the issuance of any such agreement, order, injunction, directive, memorandum,
judgment, stipulation, decree or award.
(d) To the best knowledge and belief of management of Community,
neither Community nor its subsidiaries is in violation or default under, and
each has complied with, all laws, statutes, ordinances, rules, regulations,
orders, writs, injunctions or decrees of any court or federal, state, municipal
or other governmental or regulatory authority having jurisdiction or authority
over it or its business operations, properties or assets (including, without
limitation, all provisions of North Carolina law relating to usury, the Consumer
Credit Protection Act, and all other laws and regulations applicable to
extensions of credit) except for any such violation, default or noncompliance as
does not or would not have a Material Adverse Effect on Community and its
subsidiaries, and, to the best knowledge and belief of management of Community,
there is no basis for any claim by any person or authority for compensation,
reimbursement or damages or otherwise for any violation of any of the foregoing.
16
2.14 Real Properties. Community has Previously Disclosed to UCB a listing
of all real property owned or leased by Community or its subsidiaries (the "Real
Property") and all leases pertaining to any such Real Property to which
Community or its subsidiaries is a party (the "Real Property Leases"). With
respect to all Real Property, Community or its subsidiaries has good and
marketable fee simple title to, or a valid and subsisting leasehold interest in,
such Real Property and owns the same free and clear of all mortgages, liens,
leases, encumbrances, title defects and exceptions to title other than (i) the
lien of current taxes not yet due and payable, and (ii) such imperfections of
title and restrictions, covenants and easements (including utility easements)
which do not materially affect the value of the Real Property and which do not
and will not materially detract from, interfere with or restrict the present or
future use of the properties subject thereto or affected thereby. With respect
to each Real Property Lease (i) such lease is valid and enforceable in
accordance with its terms, (ii) there currently exists no circumstance or
condition which constitutes an event of default by Community or its subsidiaries
(as lessor or lessee) or its respective lessor or which, with the passage of
time or the giving of required notices will or could constitute such an event of
default, and (iii) execution and delivery of this Agreement does not constitute
an event of default under any Real Property Lease. To the best knowledge and
belief of management of Community, the Real Property complies with all
applicable federal, state and local laws, regulations, ordinances or orders of
any governmental authority, including those relating to zoning, building and use
permits, except for such noncompliance as does not or would not have a Material
Adverse Effect on Community and its subsidiaries, and the Real Property may be
used under applicable zoning ordinances for commercial banking facilities as a
matter of right rather than as a conditional or nonconforming use. All
improvements and fixtures included in or on the Real Property are in good
condition and repair, ordinary wear and tear excepted, and there does not exist
any condition which materially adversely affects the economic value thereof or
materially adversely interferes (or will interfere after the Merger) with the
contemplated use thereof.
2.15 Loans, Accounts, Notes and Other Receivables.
--------------------------------------------
(a) All loans, accounts, notes and other receivables reflected as
assets on the books and records of Community and Northwestern (i) have resulted
from bona fide business transactions in the ordinary course of operations of
Community and Northwestern, (ii) were made in accordance with the standard loan
policies and procedures of Community and Northwestern, and (iii) are owned by
Community or Northwestern free and clear of all liens, encumbrances,
assignments, participation or repurchase agreements or other exceptions to title
or to the ownership or collection rights of any other person or entity.
(b) To the best knowledge and belief of management of Community,
all of the records of Community and Northwestern regarding all outstanding
loans, accounts, notes and other receivables, and all other real estate owned,
are accurate in all material respects, and, with respect to such loans the loan
documentation of which indicate are secured by any real or personal property or
property rights ("Loan Collateral"), to the best knowledge and belief of
management of Community, such loans are in all material respects secured by
valid, perfected and enforceable liens (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally) on all such Loan Collateral having the priority
described in the
17
records of such loan. Neither Community nor Northwestern has engaged in any form
of indirect lending and no such indirect loans are outstanding.
(c) To the best knowledge and belief of management of Community,
each loan reflected as an asset on the books of Community and Northwestern and
each guaranty therefor, is the legal, valid and binding obligation of the
obligor or guarantor thereon, and no defense, offset or counterclaim has been
asserted with respect to any such loan or guaranty.
(d) Community has previously delivered to UCB (i) a written
listing of each loan, extension of credit or other asset of Community or
Northwestern which, as of June 30, 2002, is classified by the FDIC or the OCC as
"Loss," "Doubtful," "Substandard" or "Special Mention" (or otherwise by words of
similar import), or which it has designated as a special asset or for special
handling or placed on any "watch list" because of concerns regarding the
ultimate collectibility or deteriorating condition of such asset or any obligor
or Loan Collateral therefor, and (ii) a written listing of each loan or
extension of credit that, as of June 30, 2002, was past due as to the payment of
principal or interest or both, or as to which any obligor thereon (including the
borrower or any guarantor) otherwise was in default, is the subject of a
proceeding in bankruptcy or otherwise has indicated any inability or intention
not to repay such loan or extension of credit. Each such listing is accurate and
complete in all material respects as of the date indicated.
(e) As of June 30, 2002, Community's or Northwestern's reserve for
possible loan losses (the "Loan Loss Reserve") has been established in
conformity with GAAP, sound banking practices and all applicable requirements,
rules and policies of the OCC and, in the best judgment of management of
Community, is reasonable in view of the size and character of its loan
portfolio, current economic conditions and other relevant factors, and to the
best knowledge and belief of management of Community, is adequate to provide for
losses relating to or the risk of loss inherent in its loan portfolio. At June
30, 2002, Community's Loan Loss Reserve was $1,218,765.
2.16 Securities Portfolio and Investments. All securities owned by
Community or its subsidiaries (whether owned of record or beneficially) are held
free and clear of all mortgages, liens, pledges, encumbrances or any other
restriction or rights of any other person or entity, whether contractual or
statutory, which would materially impair the ability of Community or its
subsidiaries to dispose freely of any such security or otherwise to realize the
benefits of ownership thereof at any time. There are no voting trusts or other
agreements or undertakings to which Community or its subsidiaries is a party
with respect to the voting of any such securities. With respect to all
"repurchase agreements" to which Community or its subsidiaries has "purchased"
securities under agreement to resell, Community or its subsidiaries has a valid,
perfected first lien or security interest in the government securities or other
collateral securing the repurchase agreement, and the value of the collateral
securing each such repurchase agreement equals or exceeds the amount of the debt
owed that is secured by such collateral. Except for fluctuations in the market
values of its investment securities, since June 30, 2002, there has been no
significant deterioration or material adverse change in the quality, or any
material decrease in the value, of Community's securities portfolio as a whole.
18
2.17 Personal Property and Other Assets. All tangible personal property of
Community or its subsidiaries material to the business operations of Community
and its subsidiaries (including, without limitation, all banking equipment, data
processing equipment, vehicles, and all other tangible personal property located
in any office of or used by Community or its subsidiaries in the operation of
its business) is owned or leased by Community or its subsidiaries free and clear
of all liens, encumbrances, leases, title defects or exceptions to title other
than such as are not material in character, amount or extent, and which do not
materially detract from the value of, or interfere with the present or future
use or ability to convey, the property subject thereto or affected thereby. All
of Community or its subsidiaries' tangible personal property material to its
business is in good operating condition and repair, ordinary wear and tear
excepted.
2.18 Patents and Trademarks. Community and its subsidiaries own, possess
or have the right to use any and all patents, licenses, trademarks, trade names,
copyrights, trade secrets and proprietary and other confidential information
necessary to conduct their business as now conducted; and to the best knowledge
and belief of management of Community, neither Community nor its subsidiaries
has violated, and currently is not in conflict with, any patent, license,
trademark, trade name, copyright or proprietary right of any other person or
entity.
2.19 Environmental Matters.
---------------------
(a) Community has Previously Disclosed to UCB copies of all
written reports, correspondence, notices or other materials, if any, in its or
any subsidiary's possession pertaining to environmental surveys or assessments
of the Real Property or any of its Loan Collateral and any improvements thereon,
or to any violation of "Environmental Laws" (as defined below) on, affecting or
otherwise involving the Real Property or any Loan Collateral.
(b) To the best knowledge and belief of management of Community,
there has been no presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, reporting,
testing, processing, emission, discharge, release, threatened release, control,
removal, clean-up or remediation of any "Hazardous Substances" (as defined
below) by any person prior to the date hereof on, from or relating to the Real
Property or, the Loan Collateral, which constitutes a violation of any
Environmental Laws.
(c) To the best knowledge and belief of management of Community,
neither Community nor its subsidiaries has violated any federal, state or local
law, rule, regulation, order, permit or other requirement relating to health,
safety or the environment or imposing liability, responsibility or standards of
conduct applicable to environmental conditions, and there has been no violation
of any Environmental Laws (as defined in Section 2.19(f) below) (including, any
violation with respect to or relating to any Loan Collateral) by any other
person or entity for whose liability or obligation with respect to any
particular matter or violation Community or its subsidiaries is or may be
responsible or liable, except to the extent any violations of which, when taken
as a whole, would not have a Material Adverse Effect on Community or its
subsidiaries.
(d) Neither Community nor its subsidiaries is subject to any
claims, demands, causes of action, suits, proceedings, losses, damages,
penalties, liabilities, obligations, costs or
19
expenses of any kind and nature which arise out of, under or in connection with,
or which result from or are based upon the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, emission, discharge,
release, threatened release, control, removal, clean-up or remediation of any
Hazardous Substances on, from or relating to the Real Property or, to the best
knowledge and belief of management of Community, any Loan Collateral by any
person or entity.
(e) To the best knowledge and belief of management of Community,
no facts, events or conditions relating to the Real Property or, any Loan
Collateral, or the operations of Community or its subsidiaries, will prevent,
hinder or limit continued compliance with Environmental Laws, or give rise to
any investigatory, emergency removal, remedial or corrective actions,
obligations or liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise) pursuant to Environmental Laws.
(f) For purposes of this Agreement, "Environmental Laws" shall
include:
(i) all federal, state and local statutes, regulations,
ordinances, orders, decrees, and similar provisions having the force
or effect of law,
(ii) all contractual agreements, and
(iii) all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all standards of
conduct and bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control, emergency removal, clean-up or remediation of any
Hazardous Substances (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Superfund Amendment
and Reauthorization Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, any "Superfund" or "Superlien" law, the Americans with Disabilities
Act, and the Occupational Safety and Health Act), as such may now or at any time
hereafter be defined or in effect.
(g) For purposes of this Agreement, "Hazardous Substances" shall
include hazardous, toxic or otherwise regulated materials, substances or wastes;
chemical substances or mixtures; pesticides; pollutants; contaminants; toxic
chemicals; oil or other petroleum products, byproducts, or constituents
(including but not limited to crude oil, diesel oil, fuel oil, gasoline,
lubrication oil, oil refuse, oil mixed with other waste, oil sludge, and all
other liquid hydrocarbons regardless of specific gravity); asbestos or asbestos
containing material; flammable explosives; polychlorinated biphenyls ("PCBs") or
any material containing PCBs; radioactive materials; biological micro organisms,
viruses, fungi, spores; environmental tobacco smoke; radon or radon gas;
formaldehyde or any material containing formaldehyde; fumigants; any material or
substance comprising or contributing to conditions known as "sick building
syndrome," "building-related illness" or similar conditions or exposures; and/or
any hazardous,
20
toxic, regulated or dangerous waste, substance or material defined as such by
the United States Environmental Protection Agency or any other federal, state or
local governmental agency or political subdivision thereof, or for the purpose
of or by any Environmental Laws, as now or at any time hereafter may be in
effect.
2.20 Brokerage or Finders' Commissions. Other than SunTrust Robinson
Humphrey Capital Markets, a division of SunTrust Capital Markets, Inc., no other
Person (as defined herein) has been retained by or has acted on behalf of,
pursuant to any agreement, arrangement or understanding with, or under the
authority of, Community or its Board of Directors, as a broker, finder or agent
or has performed similar functions or otherwise is or may be entitled to receive
or claim a brokerage fee or other commission in connection with or as a result
of the transactions described herein.
2.21 Material Contracts.
------------------
(a) Except as Previously Disclosed, neither Community nor its
subsidiaries is a party to or bound by any agreement, other than loans made in
the ordinary course of business, (i) involving money or other property in an
amount or with a value in excess of $50,000, (ii) which calls for the provision
of goods or services to Community and cannot be terminated without material
penalty upon written notice to the other party thereto, (iii) which is material
to Community or its subsidiaries and was not entered into in the ordinary course
of business, (iv) which involves hedging, options or any similar trading
activity, or interest rate exchanges or swaps, (v) which commits Community or
its subsidiaries to extend any loan or credit (with the exception of letters of
credit, lines of credit and loan commitments extended in the ordinary course of
a subsidiary's business), (vi) which involves the purchase or sale of any assets
of Community or Northwestern, or the purchase, sale, issuance, redemption or
transfer of any capital stock or other securities of Community or its
subsidiaries, or (vii) with any director, officer or principal shareholder of
Community or its subsidiaries (including, without limitation, any consulting
agreement, but not including any agreement relating to loans or other banking
services which were made in the ordinary course of its business and on
substantially the same terms and conditions as were prevailing at that time for
similar agreements with unrelated persons).
(b) Neither Community nor its subsidiaries is in default, and
there has not occurred any event which with the lapse of time or giving of
notice or both would constitute such a default, under any contract, lease,
insurance policy, commitment or arrangement to which it is a party or by which
it or its property is or may be bound or affected or under which it or its
property receives benefits, which default would be reasonably likely to have a
Material Adverse Effect.
2.22 Employment Matters; Employee Relations.
--------------------------------------
(a) Each of Community and its subsidiaries (i) has paid in full to
or accrued on behalf of all its respective directors, officers and employees all
wages, salaries, commissions, bonuses, fees and other direct compensation for
all labor or services rendered, including all wages, salaries, commissions,
bonuses, fees and other direct compensation for all labor or services performed
by them to the date of this Agreement and all vacation pay, sick pay,
21
severance pay and other amounts promised to the extent required by law or its
existing policies or practices, and (ii) to the best knowledge and belief of
management of Community, is in compliance in all material respects with all
applicable federal, state and local laws, statutes, rules and regulations with
regard to employment and employment practices, terms and conditions, and wages
and hours and other compensation matters; and no person has, to the best
knowledge and belief of management of Community, asserted that Community or its
subsidiaries is liable in any amount for any arrearages in wages or employment
taxes or for any penalties for failure to comply with any of the foregoing.
(b) There is no action, suit or proceeding by any person pending
or, to the best knowledge and belief of management of Community, threatened
against Community or its subsidiaries (or their employees), involving employment
discrimination, harassment, wrongful discharge or similar claims. Neither
Community nor its subsidiaries is a party to or bound by any collective
bargaining agreement with any of its employees, any labor union or any other
collective bargaining unit or organization. To the best knowledge and belief of
management of Community, there is no pending or threatened labor dispute, work
stoppage or strike involving Community, Northwestern, or any of their employees,
or any pending or threatened proceeding in which it is asserted that Community
or its subsidiaries has committed an unfair labor practice; and, neither
Community nor its subsidiaries is aware of any activity involving it or any of
its employees seeking to certify a collective bargaining unit or engaging in any
other labor organization activity.
22
2.23 Employment Agreements; Employee Benefit Plans.
---------------------------------------------
(a) Community has Previously Disclosed to UCB a true and
complete list of all bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock and stock option plans; all employment and severance
contracts; all medical, dental, health, and life insurance plans; all vacation,
sickness and other leave plans, disability and death benefit plans; and all
other employee benefit plans, contracts, or arrangements maintained or
contributed to by Community or its subsidiaries for the benefit of any
employees, former employees, directors, former directors or any of their
beneficiaries (collectively, the "Plans"). True and complete copies of all
Plans, including, but not limited to, any trust instruments or insurance
contracts, if any, forming a part thereof, and all amendments thereto,
previously have been supplied to UCB. Neither Community nor its subsidiaries
maintains, sponsors, contributes to or otherwise participates in any "Employee
Benefit Plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), any "Multiemployer Plan"
within the meaning of Section 3(37) of ERISA, or any "Multiple Employer Welfare
Arrangement" within the meaning of Section 3(40) of ERISA. Each Plan that is an
"employee pension benefit plan" within the meaning of Section 3(2) of ERISA and
which is intended to be qualified under Section 401(a) of the Code, has received
or applied for a favorable determination letter from the IRS and Community is
not aware of any circumstances reasonably likely to result in the revocation or
denial of any such favorable determination letter. All reports and returns with
respect to the Plans (and any Plans previously maintained by Community or its
subsidiaries) required to be filed with any governmental department, agency,
service or other authority, including, without limitation, Internal Revenue
Service Form 5500 (Annual Report), have been properly and timely filed.
(b) To the best knowledge and belief of management of
Community, all "Employee Benefit Plans" maintained by or otherwise covering
employees or former employees of Community or its subsidiaries currently are,
and at all times have been, in compliance with all provisions and requirements
of ERISA except those the noncompliance of which, when taken as a whole, would
not have a Material Adverse Effect on Community or its subsidiary. There is no
pending or, to the best knowledge and belief of management of Community,
threatened litigation relating to any Plan or any such Plan previously
maintained by Community. Neither Community nor its subsidiaries has engaged in a
transaction with respect to any Plan that has subjected it, or absent the
exemption under which the transaction was effected, would subject it to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(c) Community has delivered to UCB a true, correct and
complete copy (including copies of all amendments thereto) of each of its
retirement plans that is intended to be qualified under Section 401(a) of the
Code (collectively, the "Retirement Plans"), together with true, correct and
complete copies of the summary plan descriptions relating to the Retirement
Plans, the most recent determination letters received from the IRS regarding the
Retirement Plans, and the most recent Annual Reports (Form 5500 series) and
related schedules, if any, for the Retirement Plans. The Retirement Plans are
qualified under the provisions of Section 401(a) of the Code, the trusts under
the Retirement Plans are exempt trusts under Section 501(a) of the Code, and
determination letters have been issued or applied for with respect to the
Retirement Plans to said effect, including determination letters covering the
current terms and provisions of the Retirement Plans. There are no issues
relating to said qualification or exemption of the
23
Retirement Plans currently pending before the IRS, the United States Department
of Labor, the Pension Benefit Guaranty Corporation or any court. To the best
knowledge and belief of management of Community, the Retirement Plans and the
administration thereof meet (and have met since the establishment of the
Retirement Plans) the requirements of ERISA, the Code and all other laws, rules
and regulations applicable to the Retirement Plans and do not violate (and since
the establishment of the Retirement Plans have not violated) any of the
provisions of ERISA, the Code and such other laws, rules and regulations, except
to the extent such violation, when taken as a whole, would not have a Material
Adverse Effect on Community or Northwestern. Without limiting the generality of
the foregoing, all reports and returns with respect to the Retirement Plans
required to be filed with any governmental department, agency, service or other
authority have been properly and timely filed. There are no disputes or
unresolved disagreements with respect to the Retirement Plans or the
administration thereof currently existing between Community, its subsidiaries or
any trustee or other fiduciary thereunder, and any governmental agency, any
current or former employee of Community, its subsidiaries or beneficiary of any
such employee or any other person or entity. No "reportable event" within the
meaning of Section 4043(b) of ERISA has occurred at any time with respect to the
Retirement Plans, other than those, when taken as a whole, would not have a
Material Adverse Effect on Community or its subsidiaries.
(d) No liability under subtitle C or D of Title IV of ERISA
has been or, to the best knowledge and belief of management of Community, is
expected to be incurred by Community or its subsidiaries with respect to the
Retirement Plans or with respect to any other ongoing, frozen or terminated
defined benefit pension plan currently or formerly maintained by Community or
its subsidiaries. Neither Community nor its subsidiaries presently contributes
to a "Multiemployer Plan" or has ever contributed to such a plan. All
contributions required to be made pursuant to the terms of each of the Plans
(including without limitation the Retirement Plans and any other "pension plan"
(as defined in Section 3(2) of ERISA, provided such plan is intended to qualify
under the provisions of Section 401(a) of the Code) maintained by Community or
its subsidiaries have been timely made. Neither the Retirement Plans nor any
other "pension plan" maintained by Community or its subsidiaries have an
"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. Neither Community nor its
subsidiaries has provided, and is not required to provide, security to any
"pension plan" or to any "Single Employer Plan" pursuant to Section 401(a)(29)
of the Code. Under the Retirement Plans and any other "pension plan" maintained
by Community or its subsidiaries as of the last day of the most recent plan year
ended prior to the date hereof, the actuarially determined present value of all
"benefit liabilities," within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the plan's
most recent actuarial valuation) did not exceed the then current value of the
assets of such plan, and there has been no material change in the financial
condition of any such plan since the last day of the most recent plan year.
(e) There are no restrictions on the rights of Community or
its subsidiaries to amend or terminate any Plan. Except as Previously Disclosed,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (except as otherwise specifically provided
for or contemplated by the transactions described in this Agreement) (i) result
in any payment to any person (including, without limitation, any severance
compensation or payment, unemployment compensation, "golden parachute" or
"change in
24
control" payment, or otherwise) becoming due under any plan or agreement to any
director, officer, employee or consultant, (ii)increase any benefits otherwise
payable under any plan or agreement, or (iii) result in any acceleration of the
time of payment or vesting of any such benefit.
2.24 Insurance. Community has in effect a "financial institutions
bond" and such other policies of general liability, casualty, directors and
officers liability, employee fidelity, errors and omissions and other property
and liability insurance as have been Previously Disclosed to UCB (the
"Policies"). The Policies provide coverage in such amounts and against such
liabilities, casualties, losses or risks as is required by applicable law or
regulation; and, in the judgment of management of Community, the insurance
coverage provided under the Policies is reasonable and adequate in all respects
for Community and its subsidiaries. Each of the Policies is in full force and
effect and is valid and enforceable in accordance with its terms, and is
underwritten by an insurer of recognized financial responsibility that is
qualified to transact business in North Carolina; and Community and its
subsidiaries have taken all requisite actions (including the giving of required
notices) under each such Policy to preserve all rights thereunder with respect
to all matters. Neither Community nor its subsidiaries is in default under the
provisions of, has received notice of cancellation or nonrenewal of or any
premium increase on, or has any knowledge of any failure to pay any premium on
or any inaccuracy in any application for any Policy. There are no pending claims
under any Policy, and Community has no knowledge of any facts or of the
occurrence of any event that is reasonably likely to result in any such claim.
2.25 Insurance of Deposits. Northwestern is an "insured institution"
as defined in the Federal Deposit Insurance Act and applicable regulations
thereunder. The deposits of each depositor in Northwestern are insured by the
FDIC to the maximum amount provided by law, all deposit insurance premiums due
from Northwestern to the FDIC have been paid in full in a timely fashion, and,
to the best knowledge and belief of Community, no proceedings have been
commenced or are contemplated by the FDIC or otherwise to terminate such
insurance.
2.26 Compensation; Stock Ownership. Community has Previously
Disclosed (i) the name and current salary or wage rate for each present employee
of Community or its subsidiaries, (ii) the name of and number of shares of
Community Stock beneficially owned by each of the directors and officers of
Community and by any person or entity known to Community to own beneficially 5%
or more of Community Stock, and (iii) the name, number and vesting schedule of
outstanding options and restricted stock awards held by each person to whom a
stock option or restricted stock award has been granted and currently is
outstanding under any stock option or other plan of Community, including,
without limitation, the Community Option Plan.
2.27 Affiliates. Community will deliver to UCB within 15 days of the
date hereof a listing of those persons deemed by Community and its counsel as of
the date of this Agreement to be "Affiliates" of Community as that term is
defined in Rule 405 promulgated under the 1933 Act, including persons, trusts,
estates or other entities related to persons deemed to be Affiliates of
Community.
25
2.28 Obstacles to Regulatory Approval or Tax Treatment. To the best
knowledge and belief of management of Community, there exists no fact or
condition relating to Community or its subsidiaries that may reasonably be
expected to (i) prevent, impede or delay UCB or Community from obtaining the
regulatory approvals required to consummate transactions described herein, or
(ii) prevent the Merger from qualifying to be a tax-free reorganization under
Section 368(a)(1)(A) of the Code; and, if any such fact or condition becomes
known to Community, Community shall promptly (and in any event within three days
after obtaining such knowledge) communicate such fact or condition to the
President of UCB.
2.29 Fairness Opinion. Community has received from its financial
advisor, SunTrust Robinson Humphrey Capital Markets, a division of SunTrust
Capital Markets, Inc., an opinion to the effect that the consideration to be
received by Community's shareholders in the Merger is fair, from a financial
point of view, to Community and its shareholders.
2.30 Disclosure. To the best knowledge and belief of management of
Community, no written statement, certificate, schedule, list or other written
information furnished by or on behalf of Community at any time to UCB in
connection with this Agreement (including without limitation the statements
contained herein), when considered as a whole, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading. Each document
delivered or to be delivered by Community to UCB is or will be a true and
complete copy of such document, unmodified except by another document delivered
by Community.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF UCB
Except as otherwise specifically described herein or as "Previously
Disclosed" to Community, UCB hereby makes the following representations and
warranties to Community. ("Previously Disclosed" shall mean, as to UCB, the
disclosure of information in a letter delivered by UCB to Community specifically
referring to this Agreement and arranged in sections corresponding to the
sections, subsections and items of this Agreement applicable thereto, and which
letter has been delivered prior to the execution of this Agreement. Information
shall be deemed Previously Disclosed for the purpose of a given section,
subsection or item of this Agreement only to the extent a specific reference
thereto is made in connection with disclosure of such information at the time of
such delivery.)
3.1 Corporate Organization, Capacity and Authority.
----------------------------------------------
(a) Organization. UCB is a corporation duly organized and
validly existing under the laws of the State of North Carolina and is registered
with the Commissioner as a commercial bank holding company and with the Federal
Reserve Board as a bank holding company under the Bank Holding Company Act of
1956, as amended.
(b) Subsidiaries. UCB has three wholly owned subsidiaries,
Catawba, First Gaston, and Valley. Catawba, First Gaston and Valley are
sometimes referred to as the subsidiaries of UCB. Other than Catawba, First
Gaston, and Valley, UCB has no subsidiaries, direct or indirect, and does not
own, directly or indirectly, any stock or other equity interest in
26
any other corporation, service corporation, joint venture, partnership or other
entity, except for equity issues reflected in UCB's investment portfolio and
securities held in a fiduciary capacity.
(c) Organization of Subsidiaries. Catawba is duly organized and
validly existing under the laws of the State of North Carolina. First Gaston is
duly organized and validly existing under the laws of the State of North
Carolina. Valley is duly organized and validly existing under the laws of the
State of North Carolina. All of the outstanding capital stock of each such
subsidiary is owned of record and beneficially, free and clear of all security
interests and claims, by UCB. All of the outstanding shares of capital stock of
each of UCB's subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, except to the extent set forth in N.C.G.S. [sec] 53-42.
(d) Power and Authority. Each of UCB and its subsidiaries has
all requisite power and authority (corporate and other) to own, lease and
operate its properties and conduct its business as now being conducted, is duly
qualified to do business and is in good standing in each other jurisdiction in
which the character of the properties owned or leased by it therein or in which
the transaction of its business makes such qualification necessary, except where
failure so to qualify would not have a Material Adverse Effect (as defined
herein) on UCB and its subsidiaries, and is not transacting business, or
operating any properties owned or leased by it, in violation of any provision of
federal or state law or any rule or regulation promulgated thereunder, which
violation would have a Material Adverse Effect on UCB and its subsidiaries. For
purposes of this Article III, "Material Adverse Effect" shall mean: (a) with
respect to references to UCB, any change in the business of UCB that is or could
be materially adverse to the financial condition, results of operations,
prospects, business, assets, investments, properties or operations of UCB, or
(b) with respect to references to UCB and its subsidiaries, any change in the
business of UCB or its subsidiaries that is or could be materially adverse to
the financial condition, results of operations, prospects, business, assets,
loan portfolio, investments, properties or operations of UCB and its
subsidiaries considered as one enterprise.
(e) Constituent Documents. UCB has previously delivered to
Community true, accurate and complete copies of the currently effective charter
and bylaws or equivalent organizational documents of each of its subsidiaries,
including all amendments and proposed amendments thereto.
3.2 Capital Stock. The authorized capital stock of UCB consists of
9,000,000 shares of UCB Stock, of which 2,738,681 shares were issued and
outstanding as of July 31, 2002, and 1,000,000 shares of preferred stock, no par
value, of which no shares are issued and outstanding. Each outstanding share of
UCB Stock has been duly authorized and validly issued, is fully paid and
nonassessable, has been issued in compliance with applicable federal and state
securities laws and has not been issued in violation of the preemptive rights of
any shareholder. The shares of UCB Stock issued to Community's shareholders
pursuant to this Agreement, when issued as described herein, will be duly
authorized, validly issued, fully paid and nonassessable, and will be issued in
compliance with applicable federal and state securities laws.
3.3 Convertible Securities, Options, Etc. Except for the United
Community Bancorp 1996 Incentive Stock Option Plan and the stock options granted
thereunder, the United Community Bancorp 1997 Nonqualified Stock Option Plan for
Directors and the stock options
27
granted thereunder, the United Community Bancorp FGB Stock Option Plan and the
stock options granted thereunder, the United Community Bancorp FGB 1999
Nonstatutory Stock Option Plan and the stock options granted thereunder, and the
United Community Bancorp FGB 1999 Incentive Stock Option Plan and the stock
options granted thereunder, UCB does not have any outstanding (i) securities or
other obligations (including debentures or other debt instruments) which are
convertible into shares of UCB Stock or any other securities of UCB, (ii)
options, warrants, rights, calls or other commitments of any nature which
entitle any person to receive or acquire any shares of UCB Stock or any other
securities of UCB, or (iii) plan, agreement or other arrangement pursuant to
which shares of UCB Stock or any other securities of UCB, or options, warrants,
rights, calls or other commitments of any nature pertaining thereto, have been
or may be issued.
3.4 Authorization and Validity of Agreement. This Agreement has been
duly and validly approved by UCB's Board of Directors. Subject only to approval
of this Agreement by the Shareholders of UCB, (i)UCB has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
and agreements and carry out the transactions described herein, (ii) all
corporate proceedings and approvals required to be taken to authorize UCB to
enter into this Agreement and to perform its respective obligations and
agreements and to carry out the transactions described herein have been duly and
properly taken, and (iii) this Agreement constitutes the valid and binding
agreement of UCB enforceable in accordance with its terms (except to the extent
enforceability may be limited by (A) applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws from time to time in effect which
affect creditors' rights generally, (B) legal and equitable limitations on the
availability of injunctive relief, specific performance and other equitable
remedies, and (C) general principles of equity and applicable laws or court
decisions limiting the enforceability of indemnification provisions).
3.5 Validity of Transactions; Absence of Required Consents or
Waivers. Provided the required approvals of UCB's shareholders and of
governmental or regulatory authorities are obtained, neither the execution and
delivery of this Agreement, nor the consummation of the transactions described
herein, nor compliance by UCB with any of its obligations or agreements
contained herein, will: (i) conflict with or result in a breach of the terms and
conditions of, or constitute a default or violation under any provision of, the
Articles of Incorporation or bylaws or the equivalent organizational documents
of UCB or any subsidiary, or any material contract, agreement, lease, mortgage,
note, bond, indenture, license, or obligation or understanding (oral or written)
to which UCB or any subsidiary, is bound or by which it, its business, capital
stock or any of its properties or assets may be affected; (ii) to the best
knowledge and belief of management of UCB, result in the creation or imposition
of any lien, claim, interest, charge, restriction or encumbrance upon any of the
properties or assets of UCB or any subsidiary; (iii) violate any judgment,
order, writ, injunction or decree of any court, administrative or regulatory
agency or governmental body; (iv) to the best knowledge of management of UCB,
result in the acceleration of any material obligation or indebtedness of UCB or
any subsidiary; or (v) interfere with or otherwise adversely affect UCB's
ability to carry on its business as presently conducted. No consents, approvals
or waivers are required to be obtained from any person or entity (including any
governmental or regulatory authority) in connection with UCB's execution and
delivery of this Agreement, or the performance of its obligations or agreements
or the consummation of the transactions described herein, except for required
approvals of UCB's shareholders as described in Section 7.1(a) below and of
28
governmental or regulatory authorities described in Section 7.1(d) below and
approvals previously obtained.
3.6 Books and Records. The books of account of UCB and its
subsidiaries have been maintained in material compliance with all applicable
legal and accounting requirements and in accordance with good business
practices, and such books of account are complete and reflect accurately in all
material respects UCB's and its subsidiaries', respectively, items of income and
expense and all of its assets, liabilities and shareholders' equity. The minute
books of each of UCB and its subsidiaries accurately reflect in all material
respects the corporate actions which its respective shareholders and board of
directors, and all committees thereof, have taken during the time periods
covered by such minute books. All such minute books have been or will be made
available to Community and its representatives.
3.7 Regulatory Reports. Since January 1, 1999, UCB and its
subsidiaries have filed all reports, registrations and statements, together with
any amendments that were required to be made with respect thereto, that were
required to be filed with (i) the Federal Reserve Board, (ii) the FDIC, (iii)
the Commissioner, and (iv) any other governmental or regulatory authorities
having jurisdiction over UCB or its subsidiaries except to the extent that
failure to file such reports, registrations and statements would not have a
Material Adverse Effect on UCB and its subsidiaries. All such reports and
statements filed with the Federal Reserve Board, the FDIC, the Commissioner or
other such regulatory authority are collectively referred to herein as the "UCB
Reports." As of their respective dates, the UCB Reports complied in all material
respects with all the statutes, rules and regulations enforced or promulgated by
the regulatory authority with which they were filed and did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; and, UCB has
not been notified that any such UCB Reports were deficient in any material
respect as to form or content. Following the date of this Agreement, UCB shall
deliver to Community upon its request a copy of any report, registration,
statement or other regulatory filing made by UCB or its subsidiaries with the
Federal Reserve Board, the FDIC, the Commissioner or any other such regulatory
authority.
3.8 SEC Filings; Financial Statements.
---------------------------------
(a) SEC Filings. UCB has filed and made available to Community
all forms, reports, and documents required to be filed by UCB with the SEC since
December 31, 1999 (collectively, the "UCB SEC Reports"). The UCB SEC Reports (i)
at the time filed, complied in all material respects with the applicable
requirements of the 1933 Act and the Securities Exchange Act of 1934, as amended
(the "1934 Act") and (ii)did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such UCB SEC Reports or necessary in
order to make the statements in such UCB SEC Reports, in light of the
circumstances under which they were made, not misleading.
(b) Financial Statements. UCB has filed with the SEC and made
available to Community the following financial statements (collectively, the
"UCB Financial
29
Statements"): (i) its consolidated balance sheets as of December 31, 2001 and
2000 and its consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended December 31, 2001, 2000 and 1999,
together with notes thereto, all as audited by Dixon Odom PLLC, independent
certified public accountants, and (ii) its balance sheets as of March 31, 2002
and 2001 and June 30, 2002 and 2001, and the related statements of income for
the three-month and six-month periods then ended. Following the date of this
Agreement, UCB promptly will deliver to Community all other annual or interim
financial statements prepared by or for UCB. The UCB Financial Statements
(including any related notes and schedules thereto) (i) are in accordance with
UCB's books and records, and (ii) were prepared in accordance with GAAP applied
on a consistent basis throughout the periods indicated and present fairly UCB's
consolidated financial condition, assets and liabilities, results of operations,
changes in shareholders' equity and changes in cash flows as of the dates
indicated and for the periods specified therein subject, in the case of
unaudited interim financial statements, to normal year-end adjustments and any
other adjustments described therein, which adjustments will not be material in
amount or effect.
3.9 Tax Returns and Other Tax Matters. (i) Each of UCB and its
subsidiaries has timely filed or caused to be filed, or obtained proper
extensions of time for filing, all federal, state and local income tax returns
and reports which are required by law to have been filed, and all such returns
and reports were true, correct and complete in all material respects and
contained all material information required to be contained therein; (ii) all
federal, state and local income, profits, franchise, sales, use, occupation,
property, excise, withholding, employment and other taxes (including interest
and penalties), charges and assessments which have become due from or been
assessed or levied against UCB, its subsidiaries or their respective properties
have been fully paid or, if not yet due, a reserve or accrual which is
reasonably believed by the management of UCB to be adequate in all material
respects for the payment of all such taxes to be paid and the obligation for
such unpaid taxes is reflected on the UCB Financial Statements; (iii) tax
returns and reports of UCB and its subsidiaries have not been subject to audit
by the IRS or the North Carolina Department of Revenue in the last seven years
and neither UCB nor any of its subsidiaries has received any indication of the
pendency of any audit or examination in connection with any such tax return or
report or has any knowledge that any such return or report is subject to
adjustment; and (iv) neither UCB nor any of its subsidiaries has executed any
waiver or extended the statute of limitations (or been asked to execute a waiver
or extend a statute of limitations) with respect to any tax.
3.10 Absence of Material Adverse Changes. Since December 31, 2001,
there has been no material adverse change, and to the best knowledge and belief
of management of UCB, there has occurred no event or development and there
currently exists no condition or circumstance which, with the lapse of time or
otherwise, would be reasonably expected to have a Material Adverse Effect on UCB
and its subsidiaries.
3.11 Absence of Undisclosed Liabilities. Neither UCB nor its
subsidiaries have any liabilities or obligations, whether known or unknown,
matured or unmatured, accrued, absolute, contingent or otherwise, whether due or
to become due (including without limitation tax liabilities or unfunded
liabilities under employee benefit plans or arrangements), other than (i) those
reflected in the UCB Financial Statements, or (ii) obligations or liabilities
incurred in the
30
ordinary course of its business since December 31, 2001 and which are not,
individually or in the aggregate, material to UCB and its subsidiaries
considered as one enterprise.
3.12 Litigation and Compliance with Law.
----------------------------------
(a) There are no actions, suits, arbitrations, controversies or
other proceedings or investigations (or, to the best knowledge and belief of
management of UCB, any facts or circumstances which reasonably could result in
such), including, without limitation, any such action by any governmental or
regulatory authority, which currently exist or are ongoing, pending or, to the
best knowledge and belief of management of UCB, threatened, contemplated or
probable of assertion, against, relating to or otherwise affecting UCB, its
subsidiaries or any of their respective properties, assets or employees which,
if determined adversely, could result in liability on the part of UCB or its
subsidiaries for, or subject UCB or its subsidiary to, material monetary
damages, fines or penalties or an injunction, or which could have a Material
Adverse Effect on UCB and its subsidiaries or on UCB's ability to consummate the
Merger.
(b) Except for Permits, the absence of which would not have a
Material Adverse Effect on UCB or its subsidiaries, each of UCB and its
subsidiaries has all Permits of any federal, state, local or foreign
governmental or regulatory body that are material to or necessary for the
conduct of its respective business or to own, lease and operate its respective
properties. Except as would not have a Material Adverse Effect on UCB and its
subsidiaries, all such Permits are in full force and effect and no violations
are or have been recorded in respect of any such Permits. No proceeding is
pending or, to the best knowledge and belief of management of UCB, threatened or
probable of assertion to suspend, cancel, revoke or limit any Permit.
(c) Neither UCB nor any of its subsidiaries is subject to any
supervisory agreement, enforcement order, writ, injunction, capital directive,
supervisory directive, memorandum of understanding or other similar agreement,
order, directive, memorandum or consent of, with or issued by any regulatory or
other governmental authority (including, without limitation, the Federal Reserve
Board, the FDIC or the Commissioner) relating to its financial condition,
directors or officers, employees, operations, capital, regulatory compliance or
otherwise; there are no judgments, orders, stipulations, injunctions, decrees or
awards against UCB or its subsidiaries which in any manner limits, restricts,
regulates, enjoins or prohibits any present or past business or practice of UCB
or its subsidiaries; and neither UCB nor any of its subsidiaries has been
advised or has any reason to believe that any regulatory or other governmental
authority or any court is contemplating, threatening or requesting the issuance
of any such agreement, order, injunction, directive, memorandum, judgment,
stipulation, decree or award.
(d) Neither UCB nor any of its subsidiaries is in violation or
default under, and each has complied with, all laws, statutes, ordinances,
rules, regulations, orders, writs, injunctions or decrees of any court or
federal, state, municipal or other governmental or regulatory authority having
jurisdiction or authority over it or its business operations, properties or
assets (including without limitation all provisions of North Carolina law
relating to usury, the Consumer Credit Protection Act, and all other laws and
regulations applicable to extensions of credit) except for any such violation,
default or noncompliance as does not or would not have a Material Adverse Effect
on UCB and its subsidiaries, and, to the best knowledge and belief of
31
management of UCB, there is no basis for any claim by any person or authority
for compensation, reimbursement or damages or otherwise for any violation of any
of the foregoing.
3.13 Patents and Trademarks. Except as Previously Disclosed, UCB and
its subsidiaries own, possess or have the right to use any and all patents,
licenses, trademarks, trade names, copyrights, trade secrets and proprietary and
other confidential information necessary to conduct their business as now
conducted; and to the best knowledge and belief of management of UCB, neither
UCB nor its subsidiaries has violated, and currently is not in conflict with,
any patent, license, trademark, trade name, copyright or proprietary right of
any other person or entity.
3.14 Environmental Matters.
---------------------
(a) UCB has Previously Disclosed to Community the material
provisions of all written reports, correspondence, notices or other materials,
if any, in its or any subsidiary's possession pertaining to environmental
surveys or assessments of the Real Property or any of its Loan Collateral and
any improvements thereon, or to any violation of "Environmental Laws" (as
defined below) on, affecting or otherwise involving the Real Property or any
Loan Collateral.
(b) To the best knowledge and belief of management of UCB,
there has been no presence, use, production, generation, handling,
transportation, treatment, storage, disposal, distribution, labeling, reporting,
testing, processing, emission, discharge, release, threatened release, control,
removal, clean-up or remediation of any "Hazardous Substances" (as defined
below) by any person prior to the date hereof on, from or relating to the Real
Property or, the Loan Collateral, which constitutes a violation of any
Environmental Laws.
(c) To the best knowledge and belief of management of UCB,
neither UCB nor its subsidiaries has violated any federal, state or local law,
rule, regulation, order, permit or other requirement relating to health, safety
or the environment or imposing liability, responsibility or standards of conduct
applicable to environmental conditions, and there has been no violation of any
Environmental Laws (as defined in Section 2.19(f) below) (including, any
violation with respect to or relating to any Loan Collateral) by any other
person or entity for whose liability or obligation with respect to any
particular matter or violation UCB or its subsidiaries is or may be responsible
or liable, except to the extent any violations of which, when taken as a whole,
would not have a Material Adverse Effect on UCB or its subsidiaries.
(d) Neither UCB nor its subsidiaries is subject to any claims,
demands, causes of action, suits, proceedings, losses, damages, penalties,
liabilities, obligations, costs or expenses of any kind and nature which arise
out of, under or in connection with, or which result from or are based upon the
presence, use, production, generation, handling, transportation, treatment,
storage, disposal, distribution, labeling, reporting, testing, processing,
emission, discharge, release, threatened release, control, removal, clean-up or
remediation of any Hazardous Substances on, from or relating to the Real
Property or, to the best knowledge and belief of management of UCB, any Loan
Collateral by any person or entity.
(e) To the best knowledge and belief of management of UCB, no
facts, events or conditions relating to the Real Property or, any Loan
Collateral, or the operations of UCB or
32
its subsidiaries, will prevent, hinder or limit continued compliance with
Environmental Laws, or give rise to any investigatory, emergency removal,
remedial or corrective actions, obligations or liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental Laws.
(f) For purposes of this Agreement, "Environmental Laws" shall
include:
(i) all federal, state and local statutes, regulations,
ordinances, orders, decrees, and similar provisions having the
force or effect of law,
(ii) all contractual agreements, and
(iii) all common law
concerning public health and safety, worker health and safety, and pollution or
protection of the environment, including without limitation all standards of
conduct and bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, reporting, testing, processing, discharge, release,
threatened release, control, emergency removal, clean-up or remediation of any
Hazardous Substances (including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Superfund Amendment
and Reauthorization Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Hazardous Materials Transportation Act, the Resource Conservation and
Recovery Act, the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, any "Superfund" or "Superlien" law, the Americans with Disabilities
Act, and the Occupational Safety and Health Act), as such may now or at any time
hereafter be defined or in effect.
(g) For purposes of this Agreement, "Hazardous Substances"
shall include hazardous, toxic or otherwise regulated materials, substances or
wastes; chemical substances or mixtures; pesticides; pollutants; contaminants;
toxic chemicals; oil or other petroleum products, byproducts, or constituents
(including but not limited to crude oil, diesel oil, fuel oil, gasoline,
lubrication oil, oil refuse, oil mixed with other waste, oil sludge, and all
other liquid hydrocarbons regardless of specific gravity); asbestos or asbestos
containing material; flammable explosives; polychlorinated biphenyls ("PCBs") or
any material containing PCBs; radioactive materials; biological micro organisms,
viruses, fungi, spores; environmental tobacco smoke; radon or radon gas;
formaldehyde or any material containing formaldehyde; fumigants; any material or
substance comprising or contributing to conditions known as "sick building
syndrome," "building-related illness" or similar conditions or exposures; and/or
any hazardous, toxic, regulated or dangerous waste, substance or material
defined as such by the United States Environmental Protection Agency or any
other federal, state or local governmental agency or political subdivision
thereof, or for the purpose of or by any Environmental Laws, as now or at any
time hereafter may be in effect.
3.15 Brokerage or Finders' Commissions. Other than The Orr Group, no
other Person (as defined herein) has been retained by or has acted on behalf of,
pursuant to any agreement, arrangement or understanding with, or under the
authority of, UCB or its Board of Directors, as a broker, finder or agent or has
performed similar functions or otherwise is or may
33
be entitled to receive or claim a brokerage fee or other commission in
connection with or as a result of the transactions described herein.
3.16 Obstacles to Regulatory Approval or Tax Treatment. To the best
of the knowledge and belief of the management of UCB, no fact or condition
relating to UCB exists that may reasonably be expected to (i) prevent, impede or
delay Community or UCB from obtaining the regulatory approvals required in order
to consummate transactions described herein, or (ii) prevent the Merger from
qualifying to be a tax-free reorganization under Section 368(a)(1)(A) of the
Code; and, if any such fact or condition becomes known to the executive officers
of UCB, UCB promptly (and in any event within three days after obtaining such
knowledge) shall communicate such fact or condition to the President of
Community.
3.17 Loans, Accounts, Notes and Other Receivables.
--------------------------------------------
(a) All loans, accounts, notes and other receivables reflected
as assets on the books and records of UCB and its subsidiaries (i) have resulted
from bona fide business transactions in the ordinary course of operations of UCB
and its subsidiaries, (ii) were made in accordance with the standard loan
policies and procedures of UCB and its subsidiaries, and (iii) are owned by UCB
or a subsidiary free and clear of all liens, encumbrances, assignments,
participation or repurchase agreements or other exceptions to title or to the
ownership or collection rights of any other person or entity.
(b) All of the records of UCB and its subsidiaries regarding
all outstanding loans, accounts, notes and other receivables, and all other real
estate owned, are accurate in all material respects, and, with respect to such
loans the loan documentation of which indicate are secured by any Loan
Collateral, such loans are in all material respects secured by valid, perfected
and enforceable liens on all such Loan Collateral having the priority described
in the records of such loan.
(c) To the best knowledge and belief of management of UCB,
each loan reflected as an asset on the books of UCB and its subsidiaries and
each guaranty therefor, is the legal, valid and binding obligation of the
obligor or guarantor thereon, and no defense, offset or counterclaim has been
asserted with respect to any such loan or guaranty.
(d) As of June 30, 2002, UCB's, or its subsidiaries', reserve
for possible loan losses (the "Loan Loss Reserve") has been established in
conformity with GAAP, sound banking practices and all applicable requirements,
rules and policies of the FDIC or the Commissioner, as applicable, and, in the
best judgment of management of UCB, is reasonable in view of the size and
character of its loan portfolio, current economic conditions and other relevant
factors, and to the best knowledge and belief of management of UCB, is adequate
to provide for losses relating to or the risk of loss inherent in its loan
portfolio. At June 30, 2002, UCB's Loan Loss Reserve was $3,787,391.
3.18 Securities Portfolio and Investments. All securities owned by
UCB or any subsidiary (whether owned of record or beneficially) are held free
and clear of all mortgages, liens, pledges, encumbrances or any other
restriction or rights of any other person or entity, whether contractual or
statutory, which would materially impair the ability of UCB or any
34
subsidiary to dispose freely of any such security or otherwise to realize the
benefits of ownership thereof at any time. There are no voting trusts or other
agreements or undertakings to which UCB or any subsidiary is a party with
respect to the voting of any such securities. With respect to all "repurchase
agreements" to which UCB or anysubsidiary has "purchased" securities under
agreement to resell, UCB or any subsidiary has a valid, perfected first lien or
security interest in the government securities or other collateral securing the
repurchase agreement, and the value of the collateral securing each such
repurchase agreement equals or exceeds the amount of the debt owed that is
secured by such collateral. Except for fluctuations in the market values of its
investment securities, since June 30, 2002, there has been no significant
deterioration or material adverse change in the quality, or any material
decrease in the value, of UCB's securities portfolio as a whole.
3.19 Insurance of Deposits. Each of UCB's banking subsidiaries is an
"insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder. The deposits of each depositor in each of
UCB's subsidiaries are insured by the FDIC to the maximum amount provided by
law, all deposit insurance premiums due from each of UCB's subsidiaries to the
FDIC have been paid in full in a timely fashion, and, to the best knowledge and
belief of UCB, no proceedings have been commenced or are contemplated by the
FDIC or otherwise to terminate such insurance.
3.20 Disclosure. To the best of the knowledge and belief of UCB, no
written statement, certificate, schedule, list or written information furnished
by or on behalf of UCB at any time to Community in connection with this
Agreement (including, without limitation, the statements contained herein), when
considered as a whole, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading. Each document delivered or to be delivered
by UCB to Community is or will be a true and complete copy of such document,
unmodified except by another document delivered by UCB.
ARTICLE IV. COVENANTS OF COMMUNITY
4.1 Affirmative Covenants of Community. Community hereby covenants
and agrees as follows with UCB:
(a) "Affiliates" of Community. Community will use its best
efforts to cause each Affiliate disclosed to UCB (in addition to each additional
person who shall become an Affiliate of Community after the date of this
Agreement or who shall be deemed by UCB or its counsel, in their sole
discretion, to be an Affiliate of Community, and including persons, trusts,
estates, corporations or other entities related to persons deemed to be
Affiliates of Community) to execute and deliver to UCB prior to the Closing a
written agreement (the "Affiliates' Agreement") relating to restrictions on
shares of UCB Stock to be received by such Affiliates pursuant to this
Agreement, which Affiliates' Agreement shall be in form and content reasonably
satisfactory to UCB. Certificates for the shares of UCB Stock issued to
Affiliates of Community shall bear a restrictive legend (substantially in the
form as shall be set forth in the Affiliates' Agreement) with respect to the
restrictions applicable to such shares.
35
(b) Conduct of Business Prior to Effective Time. Between the
date of this Agreement and the Effective Time, except as otherwise agreed by UCB
in writing, Community will carry on its business in and only in the regular and
usual course in substantially the same manner as such business heretofore was
conducted, and will, and where applicable will cause each of its subsidiaries
to:
(i) make all reasonable efforts to preserve intact its
present business organization, keep available their present
officers and employees, and preserve its relationships with
customers, depositors, creditors, correspondents, suppliers, and
others having business relationships with them;
(ii) maintain all of its properties and equipment used
in its business in customary repair, order and condition,
ordinary wear and tear excepted;
(iii) maintain its books of account and records in the
usual, regular and ordinary manner in accordance with sound
business practices applied on a consistent basis except to the
extent otherwise reasonably required by applicable laws or
regulations or GAAP;
(iv) comply in all material respects with all laws,
rules and regulations applicable to it, its properties, assets or
employees and to the conduct of its business;
(v) not change its existing loan underwriting
guidelines, policies or procedures except as may be required by
law;
(vi) continue to maintain in force insurance such as is
described in Section 2.24 above; not modify any bonds or policies
of insurance in effect as of the date hereof unless the same, as
modified, provides substantially equivalent coverage; and, not
cancel, allow to be terminated or, to the extent available, fail
to renew, any such bond or policy of insurance unless the same is
replaced with a bond or policy providing substantially equivalent
coverage; and
(vii) promptly provide to UCB such information about its
financial condition, results of operations, prospects,
businesses, assets, loan portfolio, investments, properties or
operations as UCB reasonably shall request.
(c) Loans. Community will obtain UCB's prior approval for each
new extension of credit (including the issuance of unfunded commitments) that it
or Northwestern proposes to make within the following categories: (i) loan
participations, (ii) loans for acquisition and development purposes, and (iii)
non-residential construction loans exceeding $750,000 in principal amount.
Neither Community nor Northwestern will enter into any form of indirect lending.
Additionally, Community will make available and provide to UCB the following
information with respect to its and Northwestern's loans and other extensions of
credit (such assets herein referred to as "Loans") as of June 30, 2002 and as of
the end of each month thereafter until the Effective Time, such information for
each month to be in form and substance as is usual and customary in the conduct
of its business and to be furnished within 25 days of the end of each month
ending after the date hereof, except as otherwise provided:
36
(i) a list of Loans past due for 30 days or more as to
principal or interest;
(ii) an analysis of the Loan Loss Reserve and
management's assessment of the adequacy of the Loan Loss Reserve,
which analysis and assessment shall include a list of all
classified or "watch list" Loans, along with the outstanding
balance and amount specifically allocated to the Loan Loss
Reserve for each such classified or "watch list" Loan;
(iii) a list of Loans in nonaccrual status;
(iv) a list of all Loans over $50,000 without principal
reduction for a period of longer than one year;
(v) a list of all foreclosed real property or other
real estate owned and all repossessed personal property;
(vi) a list of reworked or restructured Loans over
$50,000 and still outstanding, including original terms,
restructured terms and status; and
(vii) a list of any actual or threatened litigation by or
against Community or Northwestern pertaining to any Loans or
credits, together with the pleadings and other filed documents
related thereto.
(d) Notice of Certain Changes or Events. Following the
execution of this Agreement and up to the Effective Time, Community promptly
will notify UCB in writing of and provide to it such information as it shall
request regarding (i) any material adverse change in its consolidated financial
condition, consolidated results of operations, prospects, business, assets, loan
portfolio, investments, properties or operations, or of the actual or
prospective occurrence of any condition or event which, with the lapse of time
or otherwise, may or could cause, create or result in any such material adverse
change, or of (ii) the actual or prospective existence or occurrence of any
condition or event which, with the lapse of time or otherwise, has caused or may
or could cause any statement, representation or warranty of Community herein to
be or become inaccurate, misleading or incomplete, or which has resulted or may
or could cause, create or result in the breach or violation of any of
Community's covenants or agreements contained herein or in the failure of any of
the conditions described in Sections 7.1 or 7.3 below.
(e) Consents to Assignment of Contracts and Leases. Community
will use its best efforts to obtain all required consents to the assignment to
UCB of Community's or its subsidiaries' rights and obligations under any
contracts or personal or real property leases, each of which consents shall be
in such form as shall be specified by UCB.
(f) Qualified Plans. Community shall take all appropriate
action as shall be necessary to maintain the Northwestern National Bank 401(k)
Plan (the "Community 401(k) Plan"), and the as a qualified plan for purposes of
ERISA. Community acknowledges that UCB intends (i) that the Community 40l(k)
Plan will be merged into UCB's Section 401(k) Savings Plan (the "UCB 401(k)
Plan") as soon as practicable after the Effective Time. Community shall take all
such actions with respect to such plans as shall be necessary to accomplish such
intent
37
and, until the Effective Time, will not take any other extraordinary actions
with respects to such plans without the written consent of UCB.
(g) Further Action; Instruments of Transfer. Community shall
(i) use its best efforts in good faith to take or cause to be taken all action
required of it hereunder as promptly as practicable so as to permit the
expeditious consummation of the transactions described herein, (ii) perform all
acts and execute and deliver to UCB all documents or instruments required herein
or as otherwise shall be reasonably necessary or useful to or requested of
Community in consummating such transactions and (iii) cooperate with UCB fully
in carrying out, and pursue diligently the expeditious completion of, such
transactions.
4.2 Negative Covenants of Community. Between the date hereof and the
Effective Time, neither Community nor, if applicable, its subsidiaries, will do
any of the following things or take any of the following actions without the
prior written consent and authorization of the President of UCB:
(a) Amendments to Articles of Incorporation or Bylaws. Amend
its Articles of Incorporation or bylaws.
(b) Change in Capital Stock. Make any change in its authorized
capital stock, or create any other or additional authorized capital stock or
other securities, or issue (except pursuant to the exercise of options
heretofore granted and outstanding under the Community Option Plan), sell,
purchase, redeem, retire, reclassify, combine or split any shares of its capital
stock or other securities (including securities convertible into capital stock),
or enter into any agreement or understanding with respect to any such action.
(c) Options, Warrants and Rights. Grant or issue any options,
warrants, calls, puts or other rights of any kind relating to the purchase,
redemption or conversion of shares of its capital stock or any other securities
(including securities convertible into capital stock) or enter into any
agreement or understanding with respect to any such action, other than the UCB
Option.
(d) Dividends. Declare or pay any dividends on the outstanding
shares of capital stock or make any other distributions on or in respect of any
shares of its capital stock or otherwise to its shareholders, other than normal
and customary cash dividends per quarter paid in such amounts and at such times
as Community historically has paid with respect to Community Stock and which
shall not exceed $0.025 per share, or be paid more frequently than once per
calendar quarter.
(e) Employment, Benefit or Retirement Agreements or Plans.
Except as required by law, contemplated by this Agreement or Previously
Disclosed, (i) enter into, become bound by, renew or extend any oral or written
contract, agreement or commitment for the employment or compensation of any
director, officer, employee or consultant which is not immediately terminable by
Community or its subsidiaries without cost or other liability on no more than 30
days' notice; (ii) amend any existing, or adopt, enter into or become bound by
any new or additional, profit-sharing, bonus, incentive, change in control or
"golden parachute," stock option, stock purchase, pension, retirement, insurance
(hospitalization, life or other), paid
38
leave (sick leave, vacation leave or other) or similar contract, agreement,
commitment, understanding, plan or arrangement (whether formal or informal) with
respect to or which provides for benefits for any of its current or former
directors, officers, employees or consultants; (iii) grant or amend any existing
options under the Community Option Plan; (iv) make contributions to the
Community 401(k) Plan other than basic and matching contributions in accordance
with the terms of the Community 401(k) Plan as Previously Disclosed; or (v)
enter into or become bound by any contract with or commitment to any labor or
trade union or association or any collective bargaining group.
(f) Increase in Compensation. With the exception of the
anticipated increases in annual salary and annual officer and employee bonuses
Previously Disclosed to UCB and such other raises as are in the ordinary course
of business and in accordance with historical practices, increase the
compensation or benefits of, or pay any bonus or other special or additional
compensation to, any of its directors, officers, employees or consultants.
(g) Accounting Practices. Make any changes in its accounting
methods, practices or procedures or in depreciation or amortization policies,
schedules or rates heretofore applied (except as required by GAAP or
governmental regulations).
(h) Acquisitions; Additional Branch Offices. Except as
Previously Disclosed, directly or indirectly (i) acquire or merge with, or
acquire any branch or all or any significant part of the assets of, any other
person or entity, (ii) open any new branch office, or (iii) enter into or become
bound by any contract, agreement, commitment or letter of intent relating to, or
otherwise take or agree to take any action in furtherance of, any such
transaction or the opening of a new branch office.
(i) Changes in Business Practices. Except as may be required by
the FDIC, the OCC or any other governmental or other regulatory agency or as
shall be required by applicable law, regulation or this Agreement, (i) change in
any material respect the nature of its business or the manner in which it
conducts its business, (ii) discontinue any material portion or line of its
business or (iii) change in any material respect its lending, investment,
asset-liability management or other material banking or business policies
(except to the extent required by Section 4.1(b) above and Section 6.9 below).
(j) Exclusive Merger Agreement. Except with respect to this
Agreement and the transactions contemplated hereby, from the date of this
Agreement until the Effective Time or termination pursuant to Article VIII,
neither Community nor any Affiliate thereof, or any representatives thereof
retained by Community, shall directly or indirectly solicit any Acquisition
Proposal by any Person. Except to the extent necessary to comply with the
fiduciary duties of Community's Board of Directors determined after consultation
with counsel, neither Community nor any affiliate or representative thereof
shall furnish any nonpublic information that it is not legally obligated to
furnish or negotiate with respect to, any Acquisition Proposal, but Community
may communicate information about such an Acquisition Proposal to its
shareholders if and to the extent that it is required to do so in order to
comply with its legal obligations as advised by counsel. Community shall
promptly notify UCB orally and in writing in the event that it receives any
inquiry or proposal relating to any such transaction. Community shall (i)
immediately cease and cause to be terminated any existing activities,
discussions, or
39
negotiations with any Persons conducted heretofore with respect to any of the
foregoing, and (ii) direct and use its reasonable best efforts to cause of all
its representatives not to engage in any of the foregoing.
As used herein, the term "Acquisition Proposal" shall mean any proposal
relating to an Acquisition Transaction, and the term "Acquisition Transaction"
shall mean (i) a merger, consolidation or similar transaction involving
Community or any of its subsidiaries; (ii) a sale, lease or other disposition,
directly or indirectly, involving Community or any of its subsidiaries
representing, in the aggregate, 25% or more of the assets of Community on a
consolidated basis; (iii) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase or securities convertible
into, such securities) representing 25% or more of the votes attached to the
outstanding securities of Community; (iv) a transaction with Community in which
any person shall acquire beneficial ownership (as such term is defined in Rule
13d-3 under the Exchange Act), or the right to acquire beneficial ownership, or
any "group" (as such term is defined under the Exchange Act) shall have been
formed which beneficially owns or has the right to acquire beneficial ownership
of, 25% or more of the outstanding shares of Community Common Stock; or (v) the
liquidation, dissolution, recapitalization or other similar type of transaction
with respect to Community; or (vi) any transaction which is similar in form,
substance or purpose to any of the foregoing transactions; provided, however,
that the term "Acquisition Transaction" shall not include the Merger and the
transactions contemplated hereby.
As used herein, the term "Person" shall mean a natural person or any
legal, commercial, or governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture, limited partnership, limited
liability company, trust, business association, group acting in concert, or any
person acting in a representative capacity.
(k) Acquisition or Disposition of Assets.
------------------------------------
(i) Except in the ordinary course of business consistent
with its past practices, sell or lease (as lessor), or enter into
or become bound by any contract, agreement, option or commitment
relating to the sale, lease (as lessor) or other disposition of
any real estate; or sell or lease (as lessor), or enter into or
become bound by any contract, agreement, option or commitment
relating to the sale, lease (as lessor) or other disposition of
any equipment or any other fixed or capital asset (other than
real estate) having a book value or a fair market value,
whichever is greater, of more than $25,000 for any individual
item or asset, or more than $50,000 in the aggregate for all such
items or assets;
(ii) Except in the ordinary course of business consistent
with past practices, purchase or lease (as lessee), or enter into
or become bound by any contract, agreement, option or commitment
relating to the purchase, lease (as lessee) or other acquisition
of any real property; or purchase or lease (as lessee), or enter
into or become bound by any contract, agreement, option or
commitment relating to the purchase, lease (as lessee) or other
acquisition of any equipment or any other fixed assets (other
than real estate) having a purchase price, or involving
40
aggregate lease payments, in excess of $25,000 for any individual
item or asset, or more than $50,000 in the aggregate for all such
items or assets;
(iii) Enter into any purchase commitment for supplies or
services which calls for prices of goods or fees for services
materially higher than current market prices or fees or which
obligates Community or its subsidiaries for a period longer than
six months;
(iv) Except in the ordinary course of its business
consistent with its past practices, sell, purchase or repurchase,
or enter into or become bound by any contract, agreement, option
or commitment to sell, purchase or repurchase, any loan or other
receivable or any participation in any loan or other receivable;
or
(v) Sell or dispose of, or enter into or become bound by
any contract, agreement, option or commitment relating to the
sale or other disposition of, any other asset (whether tangible
or intangible, and including without limitation any trade name,
trademark, copyright, service mark or intellectual property right
or license) other than assets that are obsolete or no longer used
in Community's business; or assign its right to or otherwise give
any other person its permission or consent to use or do business
under the corporate name of Community or any subsidiary or any
name similar thereto; or release, transfer or waive any license
or right granted to it by any other person to use any trademark,
trade name, copyright, service mark or intellectual property
right.
(l) Debt; Liabilities. Except in the ordinary course of its
business consistent with its past practices, (i) enter into or become bound by
any promissory note, loan agreement or other agreement or arrangement pertaining
to its borrowing of money, (ii) assume, guarantee, endorse or otherwise become
responsible or liable for any obligation of any other person or entity, or (iii)
incur any other material liability or obligation (absolute or contingent).
(m) Liens; Encumbrances. Mortgage, pledge or subject any of its
assets to, or permit any of its assets to become or (with the exception of those
liens and encumbrances Previously Disclosed to UCB with specificity) remain
subject to, any lien or any other encumbrance (other than in the ordinary course
of business consistent with its past practices in connection with borrowings
from the Federal Home Loan Bank of Atlanta, securing of public funds deposits,
repurchase agreements or other similar operating matters).
(n) Waiver of Rights. Waive, release or compromise any material
rights in its favor (except in the ordinary course of business) except in good
faith for fair value in money or money's worth, nor waive, release or compromise
any rights against or with respect to any of its officers, directors or
shareholders or members of families of officers, directors or shareholders.
(o) Other Contracts. Except as Previously Disclosed, enter into
or become bound by any contracts, agreements, commitments or understandings
(other than those described elsewhere in this Section 4.2) (i) for or with
respect to any charitable contributions in excess of $15,000; (ii) with any
governmental or regulatory agency or authority; (iii) pursuant to which
41
Community or any subsidiary would assume, guarantee, endorse or otherwise become
liable for the debt, liability or obligation of any other person or entity; (iv)
which is entered into other than in the ordinary course of its business; or (v)
which, in the case of any one contract, agreement, commitment or understanding
and whether or not in the ordinary course of its business, would obligate or
commit Community or any subsidiary to make expenditures of more than $25,000
(other than contracts, agreements, commitments or understandings entered into in
the ordinary course of Community's or any subsidiary's lending operations).
(p) Deposit Liabilities. Make any change in its current
deposit policies, including pricing and acceptance, and shall not take any
actions designed to materially decrease the aggregate level of deposits as of
the date of this Agreement.
4.3 Shareholder Approval.
--------------------
(a) Meeting of Shareholders. Community shall cause a meeting
of its shareholders to be duly called and held as soon as practicable following
the effectiveness of the Registration Statement for the purpose of voting on the
approval and adoption of this Agreement. In connection with the call and conduct
of and all other matters relating to its shareholders' meeting (including the
solicitation of proxies), Community shall fully comply with all provisions of
applicable federal and state law and regulations and with its Articles of
Incorporation and bylaws.
(b) Recommendation of Board of Directors. Subject to its
fiduciary obligations, the Board of Directors of Community shall recommend to
the shareholders of Community that they vote their shares at the shareholders'
meeting contemplated by Section 4.3(a) above to approve this Agreement and the
Proxy Statement/Prospectus (as defined in Section 6.1(b), will so indicate and
state that Community's Board of Directors considers the Merger to be advisable
and in the best interests of Community and its shareholders.
ARTICLE V. COVENANTS OF UCB
UCB hereby covenants and agrees as follows with Community:
5.1 NASDAQ Notification. Prior to the Effective Time, UCB shall file
with the National Association of Securities Dealers such notifications and other
materials (and shall pay such fees) as shall be required for the listing on
Nasdaq of the shares of UCB Stock to be issued to Community's shareholders
pursuant to the Merger.
5.2 Employment of Ronald S. Shoemaker. Provided he remains employed
as President and Chief Executive Officer of Community and Northwestern at the
Effective Time, UCB and Catawba shall enter into an employment agreement with
Ronald S. Shoemaker as of the Effective Time in a form satisfactory to UCB.
42
5.3 Employee Benefits.
-----------------
(a) Generally. Except as otherwise provided herein and to the
extent permitted by contribution and deduction limitations of ERISA and the Code
with respect to UCB's qualified plans, any employee of Community or its
subsidiaries who continues employment with UCB, Community or its subsidiaries at
the Effective Time (a "New Employee") shall become entitled to receive all
employee benefits and to participate in all benefit plans provided by UCB or
Catawba on the same basis and subject to the same eligibility and vesting
requirements, and to the same conditions, restrictions and limitations, as
generally are in effect and applicable to other newly hired employees of UCB or
Catawba. However, each New Employee shall be given credit for his or her prior
service with Community or its subsidiaries for purposes of (i) entitlement to
vacation and sick leave and for participation in all UCB or Catwaba welfare,
insurance and other fringe benefit plans, and (ii) eligibility for participation
and vesting in the UCB 401(k) Plan. Notwithstanding any provision herein to the
contrary, UCB will not be required to take any action that could adversely
affect the continuing qualification of the UCB 40l(k) Plan. UCB will grant to
each New Employee a pro rata amount of sick leave and vacation leave, in
accordance with UCB standard leave policies, for the period between the
Effective Time and the end of the calendar year during which the Effective Time
occurs. Each New Employee will be permitted to carry over accrued and unused
sick leave and vacation leave earned at Northwestern but shall thereafter be
subject to UCB's leave policies.
(b) Health Insurance. Each New Employee shall be entitled to
participate in Catawba's group health insurance plan at a cost equal to the cost
for any Catawba employee and such participation shall be without regard to
pre-existing condition requirements under Catawba's group health insurance plan,
to the extent any such condition at the Effective Time would have been covered
under the health insurance plans of Community.
(c) Option Plan. UCB shall assume each stock option granted
under the Community Option Plan as provided in Section 1.10(a) above.
5.4 Community Directors.
-------------------
(a) Representation on UCB Board. UCB shall appoint four
persons nominated by Community, one of whom shall be Ronald S. Shoemaker, at the
Effective Time to serve as directors of UCB until the next annual meeting of
shareholders at which directors of UCB are elected and shall take such actions
as shall be required to increase the number of members of its Board of Directors
as may be necessary to permit such nominees to serve as directors. UCB's Board
shall, if necessary, nominate such persons for election at annual meetings of
UCB shareholders such that two of such nominees of Community, if elected by
UCB's shareholders, would be able to serve as directors of UCB for no less than
three years after the Effective Time, one such nominee of Community, if elected
by UCB's shareholders, would be able to serve as a director of UCB for no less
than two years after the Effective Time and one such nominee of Community, if
elected by UCB's Shareholders, would be able to serve as a director of UCB for
no less than one year after the Effective Time.
(b) Bank Board. Except for those members appointed to the UCB
Board pursuant to subparagraph (a) above, each of the members of Northwestern's
Board of Directors
43
at the Effective Time shall continue to serve as an advisory member of Catawba's
Board of Directors after the Effective Time notwithstanding, for a period of
twelve months after the Effective Time, any mandatory retirement policy of UCB
for its directors generally. For their services as advisory board members each
person so appointed shall be paid director's fees of $2,000 for the twelve month
period and $100 for each board meeting attended and $50 for each committee
meeting attended. After the initial twelve month period, should such individuals
desire to continue to serve as advisory board members, they will be entitled to
receive such advisory board fees as are then established by Catawba.
(c) Deferred Compensation. UCB shall assume the obligations of
Community under Previously Disclosed deferred compensation arrangements
presently in effect for Community`s directors.
5.5 Indemnification of Directors and Officers.
-----------------------------------------
(a) After the Effective Time, without releasing any insurance
carrier and after exhaustion of all applicable director and liability insurance
coverage for Community and its directors and officers, UCB shall indemnify, hold
harmless and defend the directors and officers of Community in office on the
date hereof or the Effective Time, to the same extent as it indemnifies its own
directors and officers, from and against any and all claims, disputes, demands,
causes of action, suits, proceedings, losses, damages, liabilities, obligations,
costs and expenses of every kind and nature including, without limitation,
reasonable attorneys' fees and legal costs and expenses therewith whether known
or unknown and whether now existing or hereafter arising which may be threatened
against, incurred, undertaken, received or paid by such persons in connection
with or which arise out of or result from or are based upon any action or
failure to act by such person in the ordinary scope of his duties as a director
or officer of Community (including service as a director or officer of any
Community subsidiary or fiduciary of any of the Community Plans (as defined in
Section 2.23(a)) through the Effective Time; provided, however, that UCB shall
not be obligated to indemnify such person for (i) any act not available for
statutory or permissible indemnification under North Carolina law, (ii) any
penalty, decree, order, finding or other action imposed or taken by any
regulatory authority, (iii) any violation or alleged violation of federal or
state securities laws to the extent that indemnification is prohibited by law,
or, provided, however, that (A) UCB shall have the right to assume the defense
thereof and upon such assumption UCB shall not be liable to any director or
officer of Community for any legal expenses of other counsel or any other
expenses subsequently incurred by such director or officer in connection with
the defense thereof, except that if UCB elects not to assume such defense or
counsel for such director or officer reasonably advises such director or officer
that there are issues which raise conflicts of interest between UCB and such
director or officer, such director or officer may retain counsel reasonably
satisfactory to him, and UCB shall pay the reasonable fees and expenses of such
counsel, (B) UCB shall not be liable for any settlement effected without its
prior written consent, and (C) UCB shall have no obligation hereunder to any
director or officer of Community when and if a court of competent jurisdiction
shall determine that indemnification of such director or officer in the manner
contemplated hereby is prohibited by applicable law. The indemnification
provided herein shall be in addition to any indemnification rights an indemnitee
may have by law, pursuant to the charter or bylaws of Community or Northwestern
or pursuant to any Plan for which the indemnity serves as a fiduciary.
44
(b) From and after the Effective Time, UCB will directly or
indirectly cause the persons who served as directors or officers of Community at
the Effective Time to be covered by Community's existing directors' and
officers' liability insurance policy (provided that UCB may substitute therefor
policies of at least the same coverage in amounts contained and terms and
conditions which are not less advantageous than such policy). Such insurance
coverage shall commence at the Effective Time and will be provided for a period
of no less than six years after the Effective Time.
(c) The indemnification provided by this Section 5.5 is the
sole indemnification provided by UCB to the directors and officers of Community
for service in such positions up to and through the Effective Time. This Section
5.5 is intended to create personal rights in the directors and officers of
Community, who shall be deemed to be third-party beneficiaries hereof.
Notwithstanding any other provision of this Agreement, at the Effective Time,
the indemnification rights provided herein shall not be extinguished but shall
instead survive after the Effective Time.
5.6 Northwestern Name. After the Effective Time, UCB intends to
continue using Northwestern's name at Northwestern's existing branch offices and
any future branches in Northwestern's relevant market to conduct business as a
division of Catawba, provided Catawba's application to the Commissioner for
permission to conduct business using Northwestern's name is approved.
5.7 Shareholder Approval.
--------------------
(a) Meeting of Shareholders. UCB shall cause a meeting of its
shareholders to be duly called and held as soon as practicable following the
effectiveness of the Registration Statement for the purpose of voting on the
approval and adoption of this Agreement. In connection with the call and conduct
of and all other matters relating to its shareholders' meeting (including the
solicitation of proxies), UCB shall fully comply with all provisions of
applicable federal and state law and regulations and with its Articles of
Incorporation and bylaws.
(b) Recommendation of Board of Directors. Subject to its
fiduciary obligations, the Board of Directors of UCB shall recommend to the
shareholders of UCB that they vote their shares at the shareholders' meeting
contemplated by Section 5.7(a) above to approve this Agreement and the Proxy
Statement/Prospectus (as defined in Section 6.1(b) will so indicate and state
that UCB's Board of Directors considers the Merger to be advisable and in the
best interests of UCB and its shareholders.
5.8 Notice of Certain Changes or Events. Following the execution of
this Agreement and up to the Effective Time, UCB promptly will notify Community
in writing of and provide to it such information as it shall request regarding
(i) any material adverse change in its consolidated financial condition,
consolidated results of operations, prospects, business, assets, loan portfolio,
investments, properties or operations, or of the actual or prospective
occurrence of any condition or event which, with the lapse of time or otherwise,
could reasonably be expected to cause, create or result in any such material
adverse change, or (ii) the actual or prospective existence or occurrence of any
condition or event which, with the lapse of time or otherwise, has caused or
could reasonably be expected to cause any statement, representation or warranty
of UCB herein to be or become inaccurate, misleading or incomplete,
45
or which has resulted or could reasonably be expected to cause, create or result
in the breach or violation of any of UCB's covenants or agreements contained
herein or in the failure of any of the conditions described in Sections 7.1 or
7.2 below.
5.9 Material Acquisitions. Except as Previously Disclosed, UCB shall
not, without the prior written permission of Community, purchase any securities
or make any material investment, either by purchase of stock or securities,
contributions to capital, Asset transfers, or purchase of any Assets, in any
Person other than a wholly owned subsidiary of UCB, or otherwise acquire direct
or indirect control over any person, other than in connection with (i)
foreclosures in the ordinary course of business, (ii) acquisitions of control by
a subsidiary of UCB in its fiduciary capacity, or (iii) the creation of a new
wholly owned subsidiary of UCB organized to conduct or continue activities
otherwise permitted by this Agreement.
The term "Assets" shall mean all of the assets, property, business and
rights of a Person of every kind, nature, character and description, whether
real, personal or mixed, tangible or intangible, accrued or contingent, or
otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
5.10 Further Action; Instruments of Transfer. UCB shall (i) use its
best efforts in good faith to take or cause to be taken all action required of
it hereunder as promptly as practicable so as to permit the expeditious
consummation of the transactions described herein, (ii) perform all acts and
execute and deliver to Community all documents or instruments required herein or
as otherwise shall be reasonably necessary or useful to or requested of UCB in
consummating such transactions and (iii) cooperate with Community fully in
carrying out, and will pursue diligently the expeditious completion of, such
transactions.
ARTICLE VI. MUTUAL AGREEMENTS
6.1 Registration Statement; Proxy Statement/Prospectus.
--------------------------------------------------
(a) Registration Statement and "Blue Sky" Approvals. As soon
as practicable following the execution of this Agreement and after the
furnishing by Community of all information required to be contained therein, UCB
shall prepare and file with the SEC under the 1933 Act a registration statement
on Form S-4 (or on such other form as UCB shall determine to be appropriate)
(the "Registration Statement") covering the UCB Stock to be issued to
shareholders of Community pursuant to this Agreement. Additionally, UCB shall
take all such other actions, if any, as shall be required by applicable state
securities or "blue sky" laws (i) to cause the UCB Stock to be issued upon
consummation of the Merger, and at the time of the issuance thereof, to be duly
qualified or registered (unless exempt) under such laws, (ii) to cause all
conditions to any exemptions from qualification or registration under such laws
to have been satisfied, and (iii) to obtain any and all required approvals or
consents to the issuance of such stock. UCB shall deliver to Community and its
counsel a preliminary draft of the Registration Statement and the Proxy
Statement/Prospectus as soon as practicable after the date of this Agreement.
46
(b) Preparation and Distribution of Proxy Statement/Prospectus.
UCB and Community jointly shall prepare a "Proxy Statement/Prospectus" for
distribution to the shareholders of Community and UCB as the proxy statement
relating to solicitation of proxies for use at the shareholders' meetings
contemplated in Sections 4.3(a) and 5.7(a) above and as UCB's prospectus
relating to the offer and distribution of UCB Stock as described herein. The
Proxy Statement/Prospectus shall be in such form and shall contain or be
accompanied by such information regarding the shareholders' meeting, this
Agreement, the parties hereto, the Merger and other transactions described
herein as is required by applicable law and regulations and otherwise as shall
be agreed upon by UCB and Community. UCB shall include the Proxy
Statement/Prospectus as the prospectus in its "Registration Statement" described
above; and UCB and Community shall cooperate with each other in good faith and
shall use their best efforts to cause the Proxy Statement/Prospectus to comply
with any comments of the SEC. Community and UCB shall mail the Proxy
Statement/Prospectus to their respective shareholders prior to the scheduled
date of their shareholders' meetings; provided, however, that no such materials
shall be mailed to Community's shareholders unless and until UCB shall have
determined to its own satisfaction that the conditions specified in Sections
7.1(b) and (c) below have been satisfied and shall have approved such mailing.
(c) Information for Proxy Statement/Prospectus and Registration
Statement. Each of UCB and Community shall promptly respond, and use its best
efforts to cause its directors, officers, accountants and affiliates to promptly
respond, to requests by the other party and its counsel for information for
inclusion in the various applications for regulatory approvals and in the
Registration Statement. Each of UCB and Community hereby covenants with the
other that none of the information provided by it for inclusion in the Proxy
Statement/Prospectus will, at the time of its mailing, contain any untrue
statement of a material fact or omit any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading; and, at all
times following such mailing up to and including the Effective Time, none of
such information contained in the Proxy Statement/Prospectus, as it may be
amended or supplemented, will contain any untrue statement of a material fact or
omit any material fact required to be stated therein or necessary in order to
make the statements contained therein, in light of the circumstances under which
they were made, not misleading.
6.2 Regulatory Approvals. Within 75 days after the date of this
Agreement, UCB shall prepare and file, or cause to be prepared and filed, all
applications for regulatory approvals and actions as may be required, by
applicable law and regulations with respect to the transactions described herein
(including applications to the Federal Reserve Board, the Commissioner and to
any other applicable federal or state banking, securities or other regulatory
authority). Each party shall use its best efforts in good faith to obtain all
necessary regulatory approvals required for consummation of the transactions
described herein. Community shall cooperate with UCB in the preparation of all
applications to regulatory authorities and, upon request, promptly shall furnish
all documents, information, financial statements or other material that may be
required by UCB to complete any such application; and, before the filing
therefor, Community shall have the right to review and comment on the form and
content of any such application to be filed by UCB. Should the appearance of any
of the officers, directors, employees or counsel of any of the parties hereto be
requested by any other party or by any governmental agency at any hearing in
47
connection with any such application, such party shall promptly use its best
efforts to arrange for such appearance.
6.3 Access. Following the date of this Agreement and to and including
the Effective Time, Community and UCB shall each provide the other party and
such other party's employees, accountants, counsel or other representatives,
access to all its books, records, files and other information (whether
maintained electronically or otherwise), to all its properties and facilities,
and to all its employees, accountants, counsel and consultants as Community and
UCB, as the case may be, shall, in its sole discretion, consider to be necessary
or appropriate; provided, however, that any investigation or reviews conducted
by UCB or Community shall be performed in such a manner as will not interfere
unreasonably with the other party's normal operations or with relationship with
its customers or employees, and shall be conducted in accordance with procedures
established by the parties having due regard for the foregoing.
6.4 Costs. Subject to the provisions of Section 8.3 below, and whether
or not this Agreement shall be terminated or the Merger shall be consummated,
each of UCB and Community shall pay its own legal, accounting and financial
advisory fees and all its other costs and expenses incurred or to be incurred in
connection with the execution and performance of its obligations under this
Agreement or otherwise in connection with this Agreement and the transactions
described herein (including, without limitation, all accounting fees, legal
fees, filing fees, printing costs, mailing costs, travel expenses, and
investment banking fees).
6.5 Announcements. No person other than the parties to this Agreement
is authorized to make any public announcements or statements about this
Agreement or any of the transactions described herein, and, without the prior
review and consent of the others (which consent shall not unreasonably be denied
or delayed), no party hereto may make any public announcement, statement or
disclosure as to the terms and conditions of this Agreement or the transactions
described herein, except for such disclosures as may be required incidental to
obtaining the prior approval of any regulatory agency or official to the
consummation of the transactions described herein. However, notwithstanding
anything contained herein to the contrary, prior review and consent shall not be
required if in the good faith opinion of counsel to UCB or Community any such
disclosure by UCB or Community, as the case may be, is required by law or
otherwise is prudent.
6.6 Confidentiality. UCB and Community each shall treat as confidential
and not disclose to any unauthorized person any documents or other information
obtained from or learned about the other during the course of the negotiation of
this Agreement and the carrying out of the events and transactions described
herein (including any information obtained during the course of any due
diligence investigation or review provided for herein or otherwise) and which
documents or other information relates in any way to the business, operations,
personnel, customers or financial condition of such other party; and that it
will not use any such documents or other information for any purpose except for
the purposes for which such documents and information were provided to it and in
furtherance of the transactions described herein. However, the above obligations
of confidentiality shall not prohibit the disclosure of any such document or
information by any party to this Agreement to the extent (i) such document or
information is then available generally to the public or is already known to the
person or entity to whom disclosure is proposed to be made (other than through
the previous actions of such party in
48
violation of this Section 6.6), (ii) such document or information was available
to the disclosing party on a nonconfidential basis prior to the same being
obtained pursuant to this Agreement, (iii) disclosure is required by subpoena or
order of a court or regulatory authority of competent jurisdiction, or by the
SEC or other regulatory authorities in connection with the transactions
described herein, or (iv) to the extent that, in the reasonable opinion of legal
counsel to such party, disclosure otherwise is required by law. In the event
this Agreement is terminated for any reason, then each of the parties hereto
immediately shall return to the other party all copies of any and all documents
or other written materials or information (including computer generated and
stored data) of or relating to such other party which were obtained from them
during the course of the negotiation of this Agreement and the carrying out of
the events and transactions described herein (whether during the course of any
due diligence investigation or review provided for herein or otherwise) and
which documents or other information relates in any way to the business,
operations, personnel, customers or financial condition of such other party. The
parties' obligations of confidentiality under this Section 6.6 shall survive and
remain in effect following any termination of this Agreement.
6.7 Environmental Studies. At its option, UCB may cause to be conducted
Phase I environmental assessments of the Real Property, the real estate subject
to any Real Property Lease, or the Loan Collateral, or any portion thereof,
together with such other studies, testing and intrusive sampling and analyses as
UCB shall deem necessary or desirable (collectively, the "Environmental
Survey"); provided, however, that the Environmental Survey, as much as possible,
shall be performed in such a manner as will not interfere unreasonably with
Community's normal operations, and provided further, however, that Community
shall use its best efforts to obtain any required consents of third parties to
permit any Environmental Survey of any Loan Collateral. UCB shall attempt in
good faith to complete all such Phase I environmental assessments within 60 days
following the date of this Agreement and thereafter to conduct and complete any
such additional studies, testing, sampling and analyses as promptly as
practicable. Subject to the provisions of Section 8.3(c) below, the costs of the
Environmental Survey shall be paid by UCB. If (i) the final results of any
Environmental Survey (or any related analytical data) reflect that there likely
has been any discharge, disposal, release or emission by any person of any
Hazardous Substance on, from or relating to any of the Real Property, real
estate subject to a Real Property Lease or Loan Collateral at any time prior to
the Effective Time, or that any action has been taken or not taken, or a
condition or event likely has occurred or exists, with respect to any of the
Real Property, real estate subject to a Real Property Lease or Loan Collateral
which constitutes or would constitute a violation of any Environmental Laws, and
if, (ii) based on the advice of its legal counsel or other consultants, UCB
believes that Community or, following the Merger, UCB, could become responsible
for the remediation of such discharge, disposal, release or emission or for
other corrective action with respect to any such violation, or that Community
or, following the Merger, UCB, could become liable for monetary damages
(including without limitation any civil or criminal penalties or assessments)
resulting therefrom (or that, in the case of any of the Loan Collateral,
Community or, following the Merger, UCB, could incur any such liability if it
acquired title to such Loan Collateral), and if, (iii) based on the advice of
their legal counsel or other consultants, UCB reasonably believes the amount of
expenses or liability which either of them could incur or for which either of
them could become responsible or liable on account of any and all such
remediation, corrective action or monetary damages at any time or over any
period of time could equal or exceed an aggregate of $250,000 over any period of
time, then UCB shall give Community prompt written notice
49
thereof (together with all information in its possession relating thereto) and,
at UCB's sole option and discretion, at any time thereafter and up to the
Effective Time, it may terminate this Agreement without further obligation or
liability to Community or its shareholders.
6.8 Tax-Free Reorganization. UCB and Community shall each use its best
efforts to cause the Merger to qualify as a tax-free "reorganization" within the
meaning of Section 368(a)(1)(A) of the Code and that it shall not intentionally
take any action that would cause the Merger to fail to so qualify.
6.9 Certain Modifications. UCB and Community shall consult with each
other with respect to their loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) and
Community shall make such modifications or changes to its policies and
practices, if any, prior to the Effective Time, as may be mutually agreed upon.
UCB and Community also shall consult with each other with respect to the
character, amount and timing of restructuring and Merger-related expense charges
to be taken by each of them in connection with the transactions contemplated by
this Agreement and shall take such charges in accordance with GAAP as may be
mutually agreed upon by them. The representations, warranties and covenants of
each of UCB and Community contained in this Agreement shall not be deemed to be
inaccurate or breached in any respect as a consequence of any modifications or
charges undertaken by reason of this Section 6.9.
6.10 Transition Team. UCB and Community shall create a transition team
comprised of staff and representatives of Community and staff and
representatives of UCB (the "Transition Team"). The purpose of the Transition
Team shall be to provide detailed guidance to UCB in fulfilling and consummating
the Merger, to maintain open lines of communication between Community and UCB,
and to handle customer inquiries regarding the Merger. The Transition Team shall
meet as necessary until the Effective Time. Members of the Transition Team shall
receive no separate compensation for such service.
6.11 Exemption from Liability under Section 16(b). Provided that
Community delivers to UCB the Section 16 Information (as defined below) with
respect to Community prior to the Effective Time, the Board of Directors of UCB,
or a committee of Non-Employee Directors thereof (as such term is defined for
purposes of Rule 16b-3(d) under the Exchange Act), will adopt a resolution in
advance of the Effective Time providing that the receipt by Community Insiders
(as defined below) of UCB Stock in exchange for shares of Community Stock,
pursuant to the transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information, are intended to be exempt
from liability pursuant to Rule 16b-3 under the Exchange Act.
The term "Section 16 Information" shall mean information accurate in all
respects regarding Community Insiders, the number of shares of Community Stock
or other Community equity securities deemed to be beneficially owned by each
Community Insider and expected to be exchanged for UCB Stock in connection with
the Merger. The term "Community Insiders" shall mean those officers and
directors of Community who are subject to the reporting requirements of Section
16(a) of the Exchange Act who are listed in the Section 16 Information.
6.12 Coordination of Dividends. After the date of this Agreement, each
of UCB and
50
Community covenants and agrees to coordinate with the other the declaration of
any dividends in respect of UCB Stock and Community Stock and the record dates
and payment dates relating thereto, it being the intention of the parties that
holders of Community Stock or UCB Stock shall not receive two dividends, or fail
to receive one dividend, for any single calendar quarter with respect to their
shares of UCB Stock and/or Community Stock and any shares of UCB Stock any such
holder receives in exchange therefor in the Merger.
ARTICLE VII. CONDITIONS PRECEDENT TO MERGER
7.1 Conditions to all Parties' Obligations. Notwithstanding any other
provision of this Agreement to the contrary, the obligations of each of the
parties to this Agreement to consummate the transactions described herein shall
be conditioned upon the satisfaction of each of the following conditions
precedent on or prior to the Closing Date:
(a) Corporate Action. All corporate action necessary to
authorize the execution, delivery and performance of this Agreement in
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken, including, without limitation, the approval of the
shareholders of Community and UCB of this Agreement.
(b) Registration Statement Effective. The Registration
Statement (including any post-effective amendments thereto) shall be effective
under the 1933 Act, and no stop orders or proceedings shall be pending or, to
the knowledge of UCB, threatened by the SEC to suspend the effectiveness of such
Registration Statement.
(c) "Blue Sky" Approvals. UCB shall have received all state
securities or "Blue Sky" permits or other authorizations, or confirmations as to
the availability of exemptions from Blue Sky registration requirements as may be
necessary, and no stop orders or proceedings shall be pending or, to the
knowledge of UCB, threatened by any state Blue Sky administration to suspend the
effectiveness of any registration statement filed therewith with respect to the
issuance of UCB Stock in the Merger.
(d) Regulatory Approvals. (i) The Merger and other transactions
described herein shall have been approved, to the extent required by law, by the
Federal Reserve Board, the Commissioner, and by all other governmental or
regulatory agencies or authorities having jurisdiction over such transactions,
(ii) no governmental or regulatory agency or authority shall have withdrawn its
approval of such transactions or imposed any condition on such transactions or
conditioned its approval thereof, which condition is reasonably deemed by UCB or
Community to be materially disadvantageous or burdensome or to so adversely
affect the economic or business benefits of this Agreement to UCB or Community's
shareholders as to render it inadvisable for it to consummate the Merger; (iii)
all applicable waiting periods following regulatory approvals shall have expired
without objection to the Merger by the Federal Reserve Board or other applicable
regulatory authorities; and (iv) all other consents, approvals and permissions,
and the satisfaction of all of the requirements prescribed by law or regulation,
necessary to the carrying out of the transactions contemplated herein shall have
been procured.
(e) Adverse Proceedings, Injunction, Etc. There shall not be
(i) any order, decree or injunction of any court or agency of competent
jurisdiction which enjoins or prohibits
51
the Merger or any of the other transactions described herein or any of the
parties hereto from consummating any such transaction, (ii) any pending or
threatened investigation of the Merger or any of such other transactions by the
Federal Reserve Board, or any actual or threatened litigation under federal
antitrust laws relating to the Merger, (iii)any suit, action or proceeding by
any person (including any governmental, administrative or regulatory agency),
pending or threatened before any court or governmental agency in which it is
sought to restrain or prohibit Community or UCB from consummating the Merger or
carrying out any of the terms or provisions of this Agreement, or (iv) any other
suit, claim, action or proceeding pending or threatened against Community or UCB
or any of their respective officers or directors which shall reasonably be
considered by Community or UCB to be materially burdensome in relation to the
proposed Merger or materially adverse in relation to the financial condition,
results of operations, prospects, businesses, assets, loan portfolio,
investments, properties or operations of either such corporation, and which has
not been dismissed, terminated or resolved to the satisfaction of all parties
hereto within 90 days of the institution or threat thereof.
(f) Nasdaq Listing. UCB shall have satisfied all requirements
for the shares of UCB Stock to be issued to the shareholders of Community and
holders of options issued under the Community Option Plan in connection with the
Merger to be listed on Nasdaq as of the Effective Time.
(g) Tax Opinion. Community and UCB shall have each received an
opinion, dated the Closing Date, of Dixon Odom P.L.L.C. in form and substance
satisfactory to UCB and Community, substantially to the effect that, for federal
income tax purposes: (i) consummation of the Merger will constitute a
"reorganization" as defined in Section 368(a) of the Code; (ii) no gain or loss
will be recognized by UCB or Community by reason of the Merger, (iii) the
exchange or cancellation of shares of Community Stock in the Merger will not
give rise to recognition of gain or loss for federal income tax purposes to the
shareholders of Community to the extent such shareholders receive UCB Stock in
exchange for their shares of Community Stock (except with respect to cash in
lieu of fractional shares); (iv) the basis of the UCB Stock to be received by a
shareholder of Community will be the same as the basis of the Community Stock
surrendered in exchange therefor, decreased by the amount of cash received, if
any, and increased by the amount of dividend income or gain recognized, if any,
as a result of the Merger; and (v) if Community Stock is a capital asset in the
hands of the shareholder at the Effective Time, the holding period of the UCB
Stock received by the shareholder in the Merger will include the holding period
of Community Stock surrendered in exchange therefor. In rendering its opinion,
Dixon Odom P.L.L.C. or such other tax advisor will require and rely on
representations by officers of UCB and Community, and will be entitled to make
reasonable assumptions.
7.2 Additional Conditions to Community's Obligations. Notwithstanding
any other provision of this Agreement to the contrary, Community's separate
obligation to consummate the transactions described herein shall be conditioned
upon the satisfaction of each of the following conditions precedent on or prior
to the Closing Date:
(a) Material Adverse Change. There shall not have been any
material adverse change in the consolidated financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of UCB and its
52
consolidated subsidiaries considered as one enterprise and there shall not have
occurred any event or development and there shall not exist any condition or
circumstance which, with the lapse of time or otherwise, may or could cause,
create or result in any such material adverse change.
(b) Compliance with Laws. UCB shall have complied in all
material respects with all federal and state laws and regulations applicable to
the transactions described herein and where the violation of or failure to
comply with any such law or regulation could or may have a material adverse
effect on the consolidated financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of UCB and its consolidated subsidiaries considered as one
enterprise.
(c) UCB's Representations and Warranties and Performance of
Agreements; Officers' Certificate. Unless waived in writing by Community as
provided in Section 10.2 below, (i) each of the representations and warranties
of UCB contained in this Agreement shall have been true and correct as of the
date hereof and shall be true and correct on and as of the Effective Time with
the same force and effect as though made on and as of such date, except (A) for
changes which are not, in the aggregate, material and adverse to the
consolidated financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of UCB and its
consolidated subsidiaries considered as one enterprise, and (B) for the effect
of any activities or transactions that may have taken place after the date of
this Agreement and are expressly contemplated by this Agreement; and (ii) UCB
shall have performed in all material respects all of its obligations, covenants
and agreements hereunder to be performed by it on or before the Closing Date.
Community shall have received a certificate dated as of the Closing Date and
executed by the chief executive officer and chief financial officer of UCB to
the foregoing effect and as to such other matters as may be reasonably requested
by Community.
(d) Legal Opinion of UCB's Counsel. Community shall have
received from Gaeta & Associates, P.A., counsel for UCB, a written opinion dated
as of the Closing Date in form and substance customary for transactions of this
nature and otherwise reasonably satisfactory to Community and its counsel.
(e) Other Documents and Information from UCB. UCB shall have
provided to Community correct and complete copies of its Articles of
Incorporation, bylaws and Board of Directors resolutions approving this
Agreement and the Merger (all certified by its Secretary), together with
certificates of the incumbency of its officers and such other closing documents
and information as may be reasonably requested by Community or its counsel.
7.3 Additional Conditions to UCB's Obligations. Notwithstanding any
other provision of this Agreement to the contrary, UCB's obligations to
consummate the transactions described herein shall be conditioned upon the
satisfaction of each of the following conditions precedent on or prior to the
Closing Date:
(a) Material Adverse Change. There shall not have occurred any
material adverse change in the consolidated financial condition, results of
operations, prospects, businesses, assets, loan portfolio, investments,
properties or operations of Community and its
53
subsidiaries considered as one enterprise and there shall not have occurred any
event or development and there shall not exist any condition or circumstance
which, with the lapse of time or otherwise, may or could cause, create or result
in any such material adverse change.
(b) Compliance with Laws. Community shall have complied in all
material respects with all federal and state laws and regulations applicable to
the transactions described herein and where the violation of or failure to
comply with any such law or regulation could or may have a material adverse
effect on the consolidated financial condition, results of operations,
prospects, businesses, assets, loan portfolio, investments, properties or
operations of UCB or Community.
(c) Community's Representations and Warranties and Performance
of Agreements; Officers' Certificate. Unless waived in writing by UCB as
provided in Section 10.2 below, (i) each of the representations and warranties
of Community contained in this Agreement shall have been true and correct as of
the date hereof and shall be true and correct at and as of the Effective Time
with the same force and effect as though made on and as of such date, except (A)
for changes which are not, in the aggregate, material and adverse to the
consolidated financial condition, results of operations, prospects, businesses,
assets, loan portfolio, investments, properties or operations of Community and
its subsidiaries considered as one enterprise, and (B) for the effect of any
activities or transactions that may have taken place after the date of this
Agreement and are expressly contemplated by this Agreement, and (ii) Community
shall have performed in all material respects all its obligations, covenants and
agreements hereunder to be performed by it on or before the Closing Date. UCB
shall have received a certificate dated as of the Closing Date and executed by
the chief executive officer and chief financial officer of Community to the
foregoing effect and as to such other matters as may be reasonably requested by
UCB.
(d) Legal Opinion of Community's Counsel. UCB shall have
received from Smith, Gambrell & Russell, LLP, counsel to Community, a written
opinion, dated as of the Closing Date in form and substance customary for
transactions of this nature and otherwise reasonably satisfactory to UCB and its
counsel.
(e) Fairness Opinion. UCB shall have received from its
financial advisor, The Orr Group, an opinion dated as of a date prior to the
mailing of the Proxy Statement/Prospectus to UCB's shareholders in connection
with its shareholders' meeting to the effect that the consideration to be paid
to Community's shareholders in the Merger is fair, from a financial point of
view, to UCB and its shareholders.
(f) Other Documents and Information from Community. Community
shall have provided to UCB correct and complete copies of Community's Articles
of Incorporation, bylaws and Board and shareholder resolutions (all certified by
Community's Secretary), together with certificates of the incumbency of
Community's officers and such other closing documents and information as may be
reasonably requested by UCB or its counsel.
(g) Amendments to Benefit Plans. The Board of Directors of
Community shall have adopted and implemented, effective as of the Effective
Time, such amendments to the Community Option Plan as may be necessary in
accordance with the provisions of this Agreement and otherwise satisfactory to
UCB.
54
(h) Ronald Shoemaker Employment Agreement. Ronald S. Shoemaker
shall have entered into an employment agreement with UCB and Catawba in a form
satisfactory to UCB.
ARTICLE VIII. TERMINATION; BREACH; REMEDIES
8.1 Mutual Termination. At any time prior to the Effective Time (and
whether before or after approval hereof by the shareholders of Community and
UCB), this Agreement may be terminated by the mutual agreement of UCB and
Community. Upon any such mutual termination, all obligations of Community and
UCB hereunder shall terminate and each party shall pay costs and expenses as
provided in Section 6.4 above.
8.2 Unilateral Termination. This Agreement may be terminated by either
UCB or Community (whether before or after approval hereof by Community's or
UCB's shareholders) upon written notice to the other party and under the
circumstances described below.
(a) Termination by UCB. This Agreement may be terminated by UCB
by action of its Board of Directors:
(i) if any of the conditions to the obligations of UCB
(as set forth in Section 7.1 and 7.3 above) shall not have been
satisfied or effectively waived in writing by UCB by February 28,
2003 (except to the extent that the failure of such condition to be
satisfied has been caused by the failure of UCB to satisfy any of
its obligations, covenants or agreements contained herein);
(ii) if Community shall have violated or failed to fully
perform any of its obligations, covenants or agreements contained
in Article IV or Article VI herein in any material respect;
(iii) if UCB determines at any time that any of
Community's representations or warranties contained in Article II
above or in any other certificate or writing delivered pursuant to
this Agreement shall have been false or misleading in any material
respect when made, or that there has occurred any event or
development or that there exists any condition or circumstance
which has caused or, with the lapse of time or otherwise, could
reasonably be expected to cause any such representations or
warranties to become false or misleading in any material respect;
(iv) if, notwithstanding UCB's satisfaction of its
obligations under Section 6.1 above, Community's or UCB's
shareholders do not approve this Agreement at its shareholders'
meeting held for such purpose;
(v) if the average of the daily last sales prices of
UCB Stock as reported on Nasdaq (as reported by The Wall Street
Journal or, if not reported thereby, another authoritative source
as chosen by UCB) for the twenty (20) consecutive full trading days
in which such shares are traded on Nasdaq ending at the closing of
trading on the Determination Date shall be less than $12.80.
"Determination Date" shall mean the fifth business day prior to the
date of the
55
meeting of the shareholders of Community contemplated by Section
4.3(a). If UCB desires to terminate this Agreement pursuant to this
Section 8.2(a)(vi), it shall give prompt written notice thereof to
Community, which notice shall be given no later than the close of
business on the second business day prior to the date of the
Community shareholders' meeting; or
(vi) under the circumstances described in Section 6.7
above.
However, before UCB may terminate this Agreement for any of the reasons
specified above in (i), (ii) or (iii) of this Section 8.2(a), it shall give
written notice to Community as provided herein stating its intent to terminate
and a description of the specific breach, default, violation or other condition
giving rise to its right to so terminate, and, such termination by UCB shall not
become effective if, within 30 days following the giving of such notice,
Community shall cure such breach, default or violation or satisfy such condition
to the reasonable satisfaction of UCB. In the event Community cannot or does not
cure such breach, default or violation or satisfy such condition to the
reasonable satisfaction of UCB within such 30-day period, UCB shall have 30 days
to notify Community of its termination of this Agreement. A failure to so notify
Community will be deemed to be a waiver by UCB of the breach, default or
violation pursuant to Section 10.2 below.
(b) Termination by Community. This Agreement may be terminated
by Community by action of its Board of Directors:
(i) if any of the conditions of the obligations of
Community (as set forth in Section 7.1 and 7.2 above) shall not
have been satisfied or effectively waived in writing by Community
by February 28, 2003 (except to the extent that the failure of such
condition to be satisfied has been caused by the failure of
Community to satisfy any of its obligations, covenants or
agreements contained herein);
(ii) if UCB shall have violated or failed to fully
perform any of its obligations, covenants or agreements contained
in Article V or Article VI herein in any material respect;
(iii) if Community determines that any of UCB's
representations and warranties contained in Article III herein or
in any other certificate or writing delivered pursuant to this
Agreement shall have been false or misleading in any material
respect when made, or that there has occurred any event or
development or that there exists any condition or circumstance
which has caused or, with the lapse of time or otherwise, could
reasonably be expected to cause any such representations or
warranties to become false or misleading in any material respect;
(iv) if, notwithstanding Community's satisfaction of its
obligations contained in Section 6.1 above, Community's or UCB's
shareholders do not approve this Agreement at its shareholders'
meeting called for such purpose; or
56
(v) if, prior to the Effective Time, a corporation,
partnership, person, or other entity or group shall have made a
bona fide Acquisition Proposal that the Community Board of
Directors determines, in its good faith judgment and in the
exercise of its fiduciary duties, with respect to legal matters on
the written opinion of legal counsel and as to financial matters on
the written opinion of an investment banking firm of national
reputation, is more favorable to the Community shareholders and
that the failure to terminate this Agreement and accept such
alternative Acquisition Proposal would be inconsistent with the
proper exercise of such fiduciary duties; provided, however, that
in the event this Agreement is terminated by Community pursuant to
this Section 8.2(b)(v), Community shall reimburse UCB for its
reasonable out-of-pocket expenses relating to the Merger in an
amount not to exceed $100,000.
However, before Community may terminate this Agreement for any of the
reasons specified above in clause (i), (ii) or (iii) of this Section 8.2(b), it
shall give written notice to UCB as provided herein stating its intent to
terminate and a description of the specific breach, default, violation or other
condition giving rise to its right to so terminate, and, such termination by
Community shall not become effective if, within 30 days following the giving of
such notice, UCB shall cure such breach, default or violation or satisfy such
condition to the reasonable satisfaction of Community. In the event UCB cannot
or does not cure such breach, default or violation or satisfy such condition to
the reasonable satisfaction of Community within such 30-day period, Community
shall have 30 days to notify UCB of its termination of this Agreement. A failure
to so notify UCB will be deemed to be a waiver by Community of the breach,
default or violation pursuant to Section 10.2 below.
8.3 Effect of Termination.
(a) In the event that (i) this Agreement is terminated by
Community pursuant to Section 8.2(b)(v) and (ii) within 18 months of such
termination, Community consummates an Acquisition Transaction, Community shall,
immediately upon the consummation of such Acquisition Transaction, make a cash
payment to UCB in the amount of $1,000,000.
(b) In the event this Agreement is terminated by Community
pursuant to Section 8.2(b)(ii), Community shall be entitled to receive a cash
payment from UCB in the amount of $1,000,000, which shall be the sole and
exclusive remedy of Community in connection with its termination of this
Agreement.
(c) Except as set forth in subsection (a) and (b) of this
Section 8.3 and Section 8.2(v), in the event of the termination of this
Agreement, this Agreement shall become void and have no effect except that the
provisions of this Section 10.2 and Section 6.6 of this Agreement shall survive
such termination, and neither party hereto shall have any liability to the other
party in connection with such termination.
57
ARTICLE IX. MISCELLANEOUS PROVISIONS
9.1 Reservation of Right to Revise Structure. Notwithstanding any
provision herein to the contrary, UCB shall have the unilateral right to revise
the structure of the Merger to achieve the tax consequences described in Section
6.8 or for any other reason UCB may deem advisable; provided, however, that no
such change will (i) alter or change the amount or kind of consideration to be
received by the shareholders of Community in the Merger or (ii) adversely affect
the tax treatment to the shareholders of Community as a result of receiving such
consideration. In the event of such election by UCB, the parties hereto shall
execute an appropriate amendment to this Agreement.
9.2 Survival of Representations, Warranties and Other Agreements. None
of the representations, warranties or agreements herein shall survive the
effectiveness of the Merger, and no party shall have any right after the
Effective Time to recover damages or any other relief from any other party to
this Agreement by reason of any breach of representation or warranty, any
nonfulfillment or nonperformance of any agreement contained herein, or
otherwise; provided, however, that the parties' agreements contained in Section
6.6 above, and UCB's covenants contained in Sections 5.1 through 5.5 above shall
survive the effectiveness of the Merger.
9.3 Waiver. Any term or condition of this Agreement may be waived
(except as to matters of regulatory approvals and approvals required by law),
either in whole or in part, at any time by the party which is, and whose
shareholders are, entitled to the benefits thereof, provided, however, that any
such waiver shall be effective only upon a determination by the waiving party
(through action of its Board of Directors) that such waiver is in the best
interests of the waiving party or its shareholders; and, provided further, that
no waiver of any term or condition of this Agreement by any party shall be
effective unless such waiver is in writing and signed by the waiving party or as
provided in Sections 8.2(a) and 8.2(b) above, or be construed to be a waiver of
any succeeding breach of the same term or condition. No failure or delay of any
party to exercise any power, or to insist upon a strict compliance by any other
party of any obligation, and no custom or practice at variance with any terms
hereof, shall constitute a waiver of the right of any party to demand full and
complete compliance with such terms.
9.4 Amendment. This Agreement may be amended, modified or supplemented
at any time or from time to time prior to the Effective Time, and either before
or after its approval by the shareholders of Community and UCB, by an agreement
in writing approved by the Boards of Directors of UCB and Community executed in
the same manner as this Agreement; provided however, that the provisions of this
Agreement relating to the manner or basis in which shares of Community Stock are
converted into UCB Stock shall not be amended after the approval of this
Agreement by the shareholders of Community without the requisite approval of
such shareholders of such amendment.
9.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally or
by courier, or mailed by certified mail, return receipt requested, postage
prepaid, and addressed as follows:
58
(a) If to Community, to:
Community Bancshares, Inc.
Attention: Mr. Ronald S. Shoemaker, President
Post Office Box 2368
North Wilkesboro, North Carolina 28659
With copy to:
Smith, Gambrell & Russell, LLP
Attention: Robert C. Schwartz, Esq.
1230 Peachtree Street, N.E.
Suite 3100, Promenade II
Atlanta, Georgia 30309
(b) If to UCB, to:
United Community Bancorp
Attention: Mr. R. Steve Aaron, President
Post Office Box 1907 (28603)
1039 Second Street, NE
Hickory, North Carolina 28601
With copy to:
Gaeta & Associates, P.A.
Attention: Anthony Gaeta, Jr., Esq.
808 Salem Woods Drive, Suite 201
Raleigh, North Carolina 27615
9.6 Further Assurance. Community and UCB shall each furnish to the
other such further assurances with respect to the matters contemplated herein
and their respective agreements, covenants, representations and warranties
contained herein, including the opinion of legal counsel, as such other party
may reasonably request.
9.7 Headings and Captions. Headings and captions of the sections and
Sections of this Agreement have been inserted for convenience of reference only
and do not constitute a part hereof.
9.8 Entire Agreement. This Agreement (including Exhibit A hereto)
contains the entire agreement of the parties with respect to the transactions
described herein and supersedes any and all other oral or written agreement(s)
heretofore made, and there are no representations or inducements by or to, or
any agreements between, any of the parties hereto other than those contained
herein in writing.
59
9.9 Severability of Provisions. The invalidity or unenforceability of
any term, phrase, clause, Section, restriction, covenant, agreement or other
provision hereof shall in no way affect the validity or enforceability of any
other provision or part hereof.
9.10 Assignment. This Agreement may not be assigned by either party
hereto except with the prior written consent of the other party hereto.
9.11 Counterparts. Any number of counterparts of this Agreement may be
signed and delivered, each of which shall be considered an original and all of
which together shall constitute one agreement.
9.12 Governing Law. This Agreement is made in and shall be construed and
enforced in accordance with the laws of North Carolina.
9.13 Inspection. Any right of UCB or Community hereunder to investigate
or inspect the assets, books, records, files and other information of the other
in no way shall establish any presumption that UCB or Community should have
conducted any investigation or that such right has been exercised by UCB or
Community or their agents, representatives or others. Any investigations or
inspections that have been made by UCB or Community or their agents,
representatives or others prior to the Closing Date shall not be deemed in any
way in derogation or limitation of the covenants, representations and warranties
made by or on behalf of Community or UCB in this Agreement.
[Signatures on Following Page]
60
IN WITNESS WHEREOF, Community and UCB each has caused this Agreement to
be executed in its name by its duly authorized officer and its corporate seal to
be affixed hereto as of the date first above written.
COMMUNITY BANCSHARES, INC.
By /s/ Ronald S. Shoemaker
-------------------------------------
Ronald S. Shoemaker
President and Chief Executive Officer
UNITED COMMUNITY BANCORP
By /s/ R. Steve Aaron
-------------------------------------
R. Steve Aaron
President and Chief Executive Officer
61
APPENDIX II
August 2, 2002
Board of Directors
Community Bancshares, Inc.
1301 Westwood Lane
Westfield Village
Wilkesboro, NC 28697
Ladies and Gentlemen:
We understand that Community Bancshares, Inc. (the "Company" or
"Community") is considering a merger of the Company with and into United
Community Bancorp ("United") (the "Proposed Transaction") pursuant to the
Agreement and Plan of Merger by and between United and the Company (the
"Agreement"). We understand that under the terms of the Proposed Transaction,
each share of common stock of the Company will be converted into the right to
receive either cash or common stock of United with a value equal to $21.00, or a
combination of such cash and stock consideration according to the election and
pro ration provisions in the Agreement.
We have been requested by the Company to render our opinion to the
Board of Directors of the Company with respect to the fairness, from a financial
point of view, to the Company's shareholders of the consideration to be offered
in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the
Agreement; (2) publicly available information concerning the Company and United
which we believe to be relevant to our inquiry; (3) financial and operating
information with respect to the business, operations and prospects of each of
the Company and United furnished to us by the Company and United, respectively;
(4) a trading history of United's common stock from August 1, 1997 to the
present and a comparison of that trading history with those of other publicly
traded companies which we deemed relevant; (5) a comparison of the historical
financial results and present financial condition of each of the Company and
United with those of publicly traded companies which we deemed relevant; (6) a
comparison of the financial terms of the Proposed Transaction with the publicly
available financial terms of certain other recent transactions which we deemed
relevant. In addition, we have had discussions with the senior management of
each of the Company and United concerning their respective businesses,
operations, assets, present condition and future prospects and the potential
strategic benefits expected by the respective senior management of each of the
Company and United to result from a combination of the businesses of the Company
and United and undertook such other studies, analyses and investigations as we
deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the financial and other information discussed with
or reviewed by us in arriving at our opinion. With respect to the financial
forecasts of each of the Company and United provided to or discussed with us, we
have assumed, at the direction of the management of the
Company and without independent verification or investigation, that such
forecasts have been reasonably prepared on bases reflecting the best currently
available information, estimates and judgments of the management of each of the
Company and United as to the future financial performance of the Company and
United, respectively. In arriving at our opinion, we have not conducted a
physical inspection of the properties and facilities of the Company and have not
made nor obtained any evaluations or appraisals of the assets or liabilities
(including, without limitation, any potential environmental liabilities),
contingent or otherwise, of the Company. We have also assumed that the Proposed
Transaction will be consummated in accordance with the terms of the Agreement
and that the Proposed Transaction will be treated as a tax-free reorganization
for federal income tax purposes. We have also assumed that all material
governmental, regulatory or other consents and approvals necessary for the
consummation of the Proposed Transaction will be obtained without any adverse
effect on the Company or United or on the expected benefits of the Proposed
Transaction. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist on, and can be
evaluated as of, the date of this letter. We express no opinion as to the
underlying valuation, future performance or long-term viability of the Company
or United. We do not have any obligation to update or revise the opinion.
We have been retained by the Board of Directors of the Company to act
as financial advisor to the Company in connection with the Proposed Transaction
and will receive a fee for our services. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of the rendering of this
opinion. We have also performed various investment banking services for the
Company in the past and have received customary fees for such services. In the
ordinary course of our business, we and our affiliates may actively trade in the
debt and equity securities of the Company for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities. In addition, we and our affiliates (including
SunTrust Banks, Inc.) may have other financing and business relationships with
the Company in the ordinary course of business.
Based upon and subject to the forgoing, and such other factors as we
deemed relevant, we are of the opinion as of the date hereof that, from a
financial point of view, the consideration to be offered in the Proposed
Transaction is fair to the shareholders of the Company. This opinion is being
rendered at the behest of the Board of Directors and is for the benefit of the
Board in its evaluation of the Proposed Transaction, and does not constitute a
recommendation as to how any shareholder should act or vote with respect to any
matters relating to the Proposed Transaction. In addition, this opinion does not
in any manner address the prices at which United will trade following the date
hereof or following the consummation of the Proposed Transaction. This opinion
may be referred to and may be reproduced in full in any filing made by the
Company with the Securities and Exchange Commission in connection with the
Proposed Transaction.
SUNTRUST CAPITAL MARKETS, INC.
APPENDIX III
August 8, 2002
Board of Directors
United Community Bancorp
Address
City
Members of the Board:
You have requested our opinion, as investment bankers, with respect to the
fairness, from a financial point of view, to the holders of the common stock
(the "Stockholders"), of Untied Community Bancorp (the "Company"), of the
consideration as defined in the Merger Agreement (the "Merger Consideration") in
the proposed merger (the "Merger") between the Company and Community Bancshares,
Inc. ("Community") as set forth in the Agreement and Plan of Merger dated as of
August 2, 2002 (the "Merger Agreement") between the Company and Community. Our
opinion is as of the date hereof.
In conducting our analysis and arriving at our opinion as expressed herein,
we have considered, reviewed and analyzed financial and other information and
materials that we have deemed appropriate under the circumstances, and among
other things:
(i) Reviewed the Merger Agreement and certain related documents;
(ii) Reviewed the historical and current financial position and results of
operations of the Company and Community;
(iii) Reviewed certain publicly available information concerning the Company
including Annual Reports on Form 10-K for each of the years in the three
year period ended December 31, 2001;
(iv) Reviewed certain publicly available information concerning Community
including Annual Reports on Form 10-K for each of the years in the three
year period ended December 31, 2001;
(v) Reviewed certain available financial forecasts concerning the business
and operations of the Company and Community that were prepared by
management of the Company and Community, respectively;
(vi) Participated in discussions with certain officers and employees of the
Company to discuss the past and current business operations, financial
condition and prospects of the Company and Community, as well as matters
we believe relevant to our inquiry;
(vii) Reviewed certain publicly available operating and financial information
with respect to other companies that we believe to be comparable in
certain respects to the Company and Community.
(viii) Reviewed the current and historical relationships between the trading
levels of the Company's common stock and Community's common stock and the
historical and
current market for the common stock of the Company, Community and other
companies that we believe to be comparable in certain respects to the
Company or Community;
(ix) Reviewed the nature and terms of certain other acquisition transactions
that we believe to be relevant; and
(x) Performed such other reviews and analysis we have deemed appropriate.
In our review and analysis, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided us, or that
is publicly available, and have not attempted independently to verify nor
assumed responsibility for verifying any such information. With respect to the
financial projections, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
Company or Community, as the case may be, and we express no opinion with respect
to such forecasts or the assumptions on which they are based. We have not made
or obtained or assumed any responsibility for making or obtaining any
independent evaluations or appraisals of any of the assets, including properties
and facilities, or liabilities of the Company or Community.
Our opinion is based upon conditions as they exist and can be evaluated on the
date hereof. Our opinion expressed below does not imply any conclusion as to the
likely trading range for any common stock following the consummation of the
Merger, which may vary depending upon, among other factors, changes in interest
rates, dividend rates, market conditions, general economic conditions and
factors that generally influence the price of securities. Our opinion does not
address the Company's underlying business decision to effect the Merger. Our
opinion is directed only to the fairness, from a financial point of view, of the
Merger Consideration and does not constitute a recommendation concerning how
holders of the Company's common stock should vote with respect to the Merger
Agreement. The Orr Group will receive a fee from the Company for delivery of
this fairness opinion.
In rendering our opinion we have assumed that in the course of obtaining the
necessary regulatory approvals for the Merger no restrictions will be imposed
that would have a material adverse affect on the contemplated benefits of the
Merger to the Company following the Merger.
Subject to the foregoing, it is our opinion that, as of the date hereof, the
Merger consideration is fair to Stockholders from a financial point of view.
Very truly yours,
The Orr Group
APPENDIX IV
APPENDIX IV
DISSENTERS' RIGHTS
N.C. GEN. STAT. CHAPTER 55, ARTICLE 13
GENERAL STATUTUES OF NORTH CAROLINA
CHAPTER 55. NORTH CAROLINA BUSINESS CORPORATION ACT
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
N.C. Gen. Stat. (S)55-13-01
(S)55-13-01. Definitions
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation
by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G. S. 55-13-02 and who exercises that right
when and in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporation
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion
would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate
currently paid by the corporation on its principal bank loans, if any,
but not less than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
N.C. Gen. Stat. (S)55-13-02
(S)55-13-02. Right to dissent
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his
shares in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger whose shares are not
affected under G.S. 55-11-04) is a party unless (i) approval by
the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received
in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired,
unless such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for
such shares;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by
G.S. 55-12-01, including a sale in dissolution, but not including
a sale pursuant to court order or a sale pursuant to a plan by
which all or substantially all of the net proceeds of the sale
will be distributed in cash to the shareholders within one year
after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares
because it (i) alters or abolishes a preferential right of the
shares; (ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase of the shares; (iii) alters or
abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (iv) excludes or limits the
right of the shares to vote on any matter, or to cumulate votes;
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired in cash under G.S. 55-6-04; or (vi) changes the
corporation into a nonprofit corporation or cooperative
organization; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of
the board of directors provides that voting or nonvoting
shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in
exchange for cash or other property, unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be no
right of dissent from, or obtain payment of the fair market value of
the shares in the event of, the corporate actions set forth in
subdivisions (1), (2), or (3) of subsection (a) of this section if the
affected shares are any class or series which, at the record date
fixed to determine the shareholders entitled to receive notice of and
to vote at the meeting at which the plan of merger or share exchange
or the sale or exchange of property is to be acted on, were (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 Security Dealers, Inc., or (ii) held by at least 2,000
record shareholders. This subsection does not apply in which either:
(1) The articles of incorporation, bylaws, or a resolution of the
board of directors of the corporation issuing the shares provide
otherwise; or
(2) In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or
share exchange to accept for the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of
the surviving or acquiring corporation, or of any other
corporation which, at the record or date fixed to determine
the shareholders entitled to receive notice of and vote at
the meeting at which the plan of merger or share exchange is
to be acted on, were either listed subject to notice of
issuance on a national securities exchange or designed as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers,
Inc., or held of record by at least 2,000 record
shareholders; or
c. A combination of cash and shares as set forth in
sub-subdivisions a. and b. of this subdivision.
N. C. Gen. Stat. (S)55-13-03
(S)55-13-03. Dissent by nominees and beneficial owners
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect
to all shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to
which he dissents and his other shares were registered in the names of
different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
N.C. Gen. Stat. (S)55-13-04
(S)55-13-04 through 55-13-19
Reserved for future codification purposes.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
N.C. Gen. Stat. (S)55-13-20
(S)55-13-20. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this Article and be accompanied by a
copy of this Article.
(b) If corporate action creating dissenters' rights under G. S. 55-13-02
is taken without a vote of shareholders, the corporation shall no
longer than 10 days thereafter notify in writing all
shareholders entitled to assert dissenters' rights that the action was
taken and send them the dissenters' notice described in G. S.
55-13-22.
(c) If a corporation fails to comply with the requirements of this
section, such failure shall not invalidate any corporate action taken;
but any shareholder may recover from the corporation any damage which
he suffered from such failure in a civil action brought in his own
name within three years after the taking of the corporate action
creating dissenters' rights under G. S. 55-13-02 unless he voted for
such corporate action.
N.C. Gen. Stat. (S)55-13-21
(S)55-13-21. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under G. S.
55-13-02 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to
demand payment for his shares if the proposed action is
effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
N.C. Gen. Stat. (S)55-13-22
(S)55-13-22 Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under G. S.
55-13-02 is authorized at a shareholders' meeting, the corporation
shall mail by registered or certified mail, return receipt requested,
a written dissenters' notice to all shareholders who satisfied the
requirements of G. S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after
the approval of the board of directors, of the corporate action
creating dissenters' rights under G. S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is
received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days
after the date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
N.C. Gen. Stat. (S)55-13-23
(S)55-13-23. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in G. S. 55-13-22
must demand payment and deposit his share certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a
shareholder until these rights are canceled or modified by the taking
of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates were required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this Article.
N.C. Gen. Stat. (S)55-13-24
(S)55-13-24. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under
G. S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action.
N.C. Gen. Stat. (S)55-13-25
(S)55-13-25. Payment
(a) As soon as the proposed corporate action is taken, or within 30 days
after receipt of a payment demand, the corporation shall pay each
dissenter who complied with G. S. 55-13-23 the amount the corporation
estimates to be the fair value of his shares, plus interest accrued to
the date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the
end of the fiscal year ending not more than 16 months before the
date of payment, an income statement for that year, a statement
of cash flows for that year, and the latest available interim
financial statements, if any;
(2) An explanation of how the corporation estimated the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenters' right to demand payment under G.
S. 55-13-28; and
(5) A copy of this Article.
N.C. Gen. Stat. (S)55-13-26
(S)55-13-26. Failure to take action
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on uncertificated
shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send
a new dissenters' notice under G.S. 55-13-22 and repeat the payment
demand procedure.
N.C. Gen. Stat. (S)55-13-27
(S)55-13-27. Reserved for future codification purposes
N.C. Gen. Stat. (S)55-13-28
(S)55-13-28. Procedure if shareholder dissatisfied with corporation's
payment or failure to perform
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand
payment of the amount in excess of the payment by the corporation
under G. S. 55-13-25 for the fair value of his shares and interest
due, if:
(1) The dissenter believes that the amount paid under G. S. 55-13-25
is less than the fair value of his shares or that the interest
due is incorrectly calculated;
(2) The corporation fails to make payment under G. S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment
for his shares or (ii) under subdivisions (a)(2) and (a)(3) within 30
days after the corporation has failed to perform timely. A dissenter
who fails to notify the corporation of his demand under subsection (a)
within such 30-day period shall be deemed to have withdrawn his
dissent and demand for payment.
N.C. Gen. Stat. (S)55-13-29
(S)55-13-29. Reserved for future codification purposes.
PART 3. JUDICIAL APPRAISAL OF SHARES
N.C. Gen. Stat. (S)55-13-30
(S)55-13-30. Court action
(a) If a demand for payment under G. S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier
of (i) the date payment is made under G. S. 55-13-25, or (ii) the date
of the dissenter's payment demand under G. S. 55-13-28 by filing a
complaint with the Superior Court Division of the General Court of
Justice to determine the fair value of the shares
and accrued interest. A dissenter who takes no action within the
60-day period shall be deemed to have withdrawn his dissent and demand
for payment.
(a1) Repealed by Session Laws 1997-202, s.4, effective October 1, 1997.
(b) [Reserved for future codification purposes.]
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to
the proceeding as in an action against their shares and all parties
must be served with a copy of the complaint. Nonresidents may be
served by registered or certified mail or by publication as provided
by law.
(d) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any amendment
to it. The parties are entitled to the same discovery rights as
parties in other civil proceedings. The proceedings shall be tied as
in other civil actions. However, in a proceeding by a dissenter in a
corporation that was a public corporation immediately prior to
consummation of the corporate action giving rise to the right of
dissent under G. S. 55-13-02, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of
this shares, plus interest, exceeds the amount paid by the
corporation.
N.C. Gen. Stat. (S)55-13-31
(S)55-13-31. Court action
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and
shall assess the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with
the requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexastiously, or not in good faith with respect to the rights
provided in this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and
that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to
be paid out of the amounts awarded the dissenters who were benefited.
Part II - Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers
Sections 55-8-50 through 55-8-58 of the North Carolina General Statutes
permit a corporation to indemnify its directors, officers, employees or agents
under either or both a statutory or nonstatutory scheme of indemnification.
Under the statutory scheme, a corporation may, with certain exceptions,
indemnify a director, officer, employee or agent of the corporation who was, is,
or is threatened to be made, a party to any threatened, pending or completed
legal action, suit or proceeding, whether civil, criminal, administrative, or
investigative, because of the fact that such person was a director, officer,
agent or employee of the corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. This indemnity may include the obligation to pay any
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) and reasonable expenses incurred in
connection with a proceeding (including counsel fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (a) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (b) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above its determined by the board of
directors, a committee of directors, special legal counsel or the shareholders
in accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
in connection with a proceeding in which a director was adjudged liable on the
basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification described
above under the statutory scheme, Section 55-8-57 of the North Carolina General
Statutes permits a corporation to indemnify or agree to indemnify any of its
directors, officers, employees or agents against liability and expenses
(including attorney's fees) in any proceeding (including proceedings brought by
or on behalf of the corporation) arising out of their status as such or their
activities in such capacities, except for any liabilities or expenses incurred
out of their status as such or their activities in such capacities, except for
any liabilities or expenses incurred on account of activities that were, at the
time taken, known or believed by the person to be clearly in conflict with the
best interests of the corporation. The Bylaws of United provide for
indemnification to the fullest extent permitted under North Carolina law for
persons who serve as directors or officers of United, or at the request of
United serve as an officer, director, agent, partner, trustee, administrator or
employee for any other foreign or domestic entity, except to the extent such
activities were at the time taken known or believed by the potential indemnities
to be clearly in conflict with the best interests of United. Accordingly, United
may indemnify its directors, officers, or employees in accordance with either
the statutory or non-statutory standards.
Sections 55-8-52 and 55-8-56 of the North Carolina General Statutes require
a corporation, unless its articles of incorporation provide otherwise, to
indemnify a director or officer who has been wholly successful, on the merits or
otherwise, in the defense of any proceeding to which such director or officer
was a party. Unless prohibited by the articles of incorporation, a director or
officer also may make application and obtain court-ordered indemnification if
the court determines that such director or officer is fairly and reasonably
entitled to such indemnification as provided in Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the North Carolina General Statutes provides
that a corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer,
II-1
employee or agent of the corporation against certain liabilities incurred by
such persons, whether or not the corporation is otherwise authorized by the
NCBCA to indemnify such party.
United has purchased a standard directors' and officers' liability policy
which will, subject to certain limitations, indemnify United and its officers
and directors for damages they become legally obligated to pay as a result of
any negligent act, error, or omission committed by directors or officers while
acting in their capacity as such.
As permitted by North Carolina law, Article 5 of United's Articles of
Incorporation limits the personal liability of directors for monetary damages
for breaches of duty as a director arising out of any legal action whether by or
in the right of United or otherwise, provided that such limitation will not
apply to (i) acts or omissions that the director at the time of such breach knew
or believed were clearly in conflict with the best interests of United, (ii) any
liability under Section 55-8-33 of the General Statutes of North Carolina, or
(iii) any transaction from which the director derived an improper personal
benefit (which does not include a director's reasonable compensation or other
reasonable incidental benefit for or on account of his service as a director,
officer, employee, independent contractor, attorney, or consultant of United).
Item 21. Exhibits and Financial Statement Schedules
The following documents are filed herewith and made a part of this
Registration Statement.
Exhibit Number Description of Exhibit
- -------------- ----------------------
2.1 Agreement and Plan of Merger By and Among United
Community Bancorp and Community Bancshares, Inc. dated
as of August 2, 2002 (included as Appendix I to the
Joint Proxy Statement-Prospectus)
5.1 Opinion of Gaeta & Associates, P.A. regarding the
legality of securities being registered
8.1 Tax Opinion of Dixon Odom PLLC [(to be filed by
amendment)]
10.1 Employment Agreement, dated January 1, 1999, between
Catawba Valley Bank and R. Steve Aaron (incorporated by
reference to Registrant's Form S-4 filed on March 25,
1999)
10.2 Employment Agreement, dated November 30, 1998, between
First Gaston Bank of North Carolina and W. Alex Hall
(incorporated by reference to Exhibit 10 (I) of First
Gaston's Form 10-KSB filed on March 29, 2000 with the
FDIC)
13.1 Registrant's 2001 Annual Report (incorporated hereby by
reference to Registrant's Schedule 14A filed March 19,
2002
13.2 Registrant's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2002 (incorporated herein by
reference)
13.3 Community Bancshares, Inc.'s 2001 Annual Report (filed
herewith)
II-2
13.4 Community Bancshares, Inc.'s Quarterly Report on Form
10-QSB for the quarter ended June 30, 2002 (incorporated
herein by reference)
23.1 Consent of Gaeta & Associates, P.A. (included with
Exhibit 5.1 hereto)
23.2 Consent of Dixon Odom PLLC (included with Exhibit 8.1
hereto)
23.3 Consent of Dixon Odom PLLC (filed herewith)
23.4 Consent of Cherry, Bekaert & Holland, L.L.P. (filed
herewith)
23.5 Consent of SunTrust Robinson Humphrey (included with
Exhibit 99.3 hereto)
23.6 Consent of The Orr Group (filed herewith)
23.7 Consent of Francis & Co. (filed herewith)
24.1 Power of Attorney (filed herewith)
99.1 Form of Proxy of United Community Bancorp (filed
herewith)
99.2 Form of Proxy of Community Bancshares, Inc. (filed
herewith)
99.3 Fairness opinion of SunTrust Robinson Humphrey (included
as Appendix II to the Joint Proxy Statement-Prospectus)
99.4 Fairness Opinion of The Orr Group (included as Appendix
III to the Joint Proxy Statement-Prospectus)
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(A)(1) To file, during any period in which offers and 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. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of the
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
II-3
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(B) 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 and 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.
(C) Insofar as indemnification for liabilities arising 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 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(D) 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), 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 and that every prospectus (i) that
is filed pursuant to the paragraph immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and is used
in connection with an offering of securities subject to Rule 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, 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. The undersigned registrant hereby
undertakes to respond to requests for information that are 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. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and Catawba
Valley Bancshares being acquired involved therein, that was not the subject of
and included in the Registration Statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hickory, State of North Carolina, on September __,
2002.
UNITED COMMUNITY BANCORP
By: /s/ R. Steve Aaron*
----------------------------------
R. Steve Aaron
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons on September __, 2002 in the
capacities indicated.
SIGNATURE CAPACITY
/s/ R. Steve Aaron* President and Chief Executive Officer
- -----------------------------------
R. Steve Aaron
/s/ Susan B. Mikels* Treasurer (Chief Financial Officer)
- -----------------------------------
Susan B. Mikels
/s/ Lorretta P. Dodgen* Director
- -----------------------------------
Lorretta P. Dodgen
/s/ W. Alex Hall, Jr.* Director
- -----------------------------------
W. Alex Hall, Jr.
/s/ Robert P. Huntley* Director
- -----------------------------------
Robert P. Huntley
/s/ W. Steve Ikerd* Director
- -----------------------------------
W. Steve Ikerd
/s/ H. Ray McKenney, Jr. Director
- -----------------------------------
H. Ray McKenney, Jr.
/s/ Howard L. Pruitt* Director
- -----------------------------------
Howard L. Pruitt
* By: /s/ R. Steve Aaron, Attorney-in-fact
II-5
Exhibit Index
Exhibit Number Description of Exhibit
- ------- -----------------------------
2.1 Agreement and Plan of Merger By and Among United Community
Bancorp and Community Bancshares, Inc. dated as of August 2,
2002 (included as Appendix I to the Joint Proxy
Statement-Prospectus)
5.1 Opinion of Gaeta & Associates, P.A. regarding the legality
of securities being registered
8.1 Tax Opinion of Dixon Odom PLLC [(to be filed by amendment)]
10.1 Employment Agreement, dated January 1, 1999, between Catawba
Valley Bank and R. Steve Aaron (incorporated by reference to
Registrant's Form S-4 filed on March 25, 1999)
10.2 Employment Agreement, dated November 30, 1998, between First
Gaston Bank of North Carolina and W. Alex Hall (incorporated
by reference to Exhibit 10 (I) of First Gaston's Form 10-KSB
filed on March 29, 2000 with the FDIC)
13.1 Registrant's 2001 Annual Report (incorporated hereby by
reference to Registrant's Schedule 14A filed March 19, 2002
13.2 Registrant's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 2002 (incorporated herein by reference)
13.3 Community Bancshares, Inc.'s 2001 Annual Report (filed
herewith)
13.4 Community Bancshares, Inc.'s Quarterly Report on Form 10-QSB
for the quarter ended June 30, 2002 (incorporated herein by
reference)
23.1 Consent of Gaeta & Associates, P.A. (included with Exhibit
5.1 hereto)
23.2 Consent of Dixon Odom PLLC (included with Exhibit 8.1
hereto)
23.3 Consent of Dixon Odom PLLC (filed herewith)
23.4 Consent of Cherry, Bekaert & Holland, L.L.P. (filed
herewith)
23.5 Consent of SunTrust Robinson Humphrey (included with Exhibit
99.3 hereto)
23.6 Consent of The Orr Group (filed herewith)
23.7 Consent of Francis & Co. (filed herewith)
24.1 Power of Attorney (filed herewith)
99.1 Form of Proxy of United Community Bancorp (filed herewith)
99.2 Form of Proxy of Community Bancshares, Inc. (filed herewith)
99.3 Fairness opinion of SunTrust Robinson Humphrey (included as
Appendix II to the Joint Proxy Statement-Prospectus)
99.4 Fairness Opinion of The Orr Group (included as Appendix III
to the Joint Proxy Statement-Prospectus)