SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 1, 1996
UNITED COMMUNITY BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 333-3296 54-1801876
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of Incorporation)
100 East 4th Street, Franklin, Virginia 23851.
(Address of principal executive offices)
Registrant's telephone number, including area code
(804) 562-5184
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Item 2. Acquisition or Disposition of Assets.
In accordance with the terms and conditions of the Agreement
and Plan of Reorganization dated as of January 25, 1996 (the "Agreement"), the
Registrant acquired all of the outstanding shares of The Bank of Franklin
headquartered in Franklin, Virginia ("BOF") and The Bank of Sussex and Surry
headquartered in Wakefield, Virginia ("BSS") on August 1, 1996. This transaction
involved consummation of two statutory share exchanges between the Registrant
and each of BOF and BSS to effect the affiliation and simultaneous
reorganization of the banks into a bank holding company structure. Pursuant to
the Agreement, each outstanding share of common stock of BOF was converted, in a
tax-free transaction, into 4.806 shares of common stock of the Registrant and
each outstanding share of common stock of BSS was converted, in a tax free
transaction, into 3.0 shares of common stock of the Registrant.
The Registrant did not engage in any business activity prior
to the August 1, 1996, effective date of the reorganization, and its only
significant assets at the present time are its 100% stock ownership of BOF and
BSS. On the effective date, BOF and BSS continued to operate their businesses
without interruption and in substantially the same manner as conducted
immediately prior to the reorganization. Five directors from each of BOF and BSS
will serve as directors of the Registrant. Each of the subsidiary bank's
directors will continue to serve in their respective capacity on the board of
the two subsidiary banks.
The Registrant filed with the Securities and Exchange
Commission under the Securities Act of 1933 a Registration Statement on Form
S-4, No. 333-3296, covering the 1,829,584 shares of its common stock issued to
the shareholders of BOF and BSS in connection with this transaction. The
Registrant has not incurred any debt in connection with this transaction.
Item 4. Changes in Registrant's Certifying Accountant.
(a)(1) Pursuant to the consummation of the Agreement,
referenced in Item 2 above, which became effective August 1, 1996 (the
"Reorganization"), the Registrant became the holding company for BOF and BSS.
Prior to August 1, 1996, the Registrant had been a bank holding company in
formation. Prior to the effective date, the firm of Goodman & Company, L.L.P.
("Goodman") served as BOF's independent certified public accountants for the
fiscal year ended December 31, 1995. The firm of Frank Edward Sheffer & Co.
served as BOF's independent certified public accountant for the fiscal year
ended December 31, 1994, and a Current Report under Section 13 of the Securities
Exchange Act of 1934 on Form F-3 was previously filed with BOF's primary
securities regulator, the FDIC, related to dismissal of Frank Edward Sheffer &
Co. The firm of Deloitte & Touche LLP ("Deloitte") served as BSS's independent
certified public accountants for the fiscal years ended December 31, 1995 and
1994.
On August 7, 1996, the Registrant engaged Goodman to serve as
the Registrant's independent certified public accountants for the year ended
December 31, 1996 and consequently dismissed Deloitte. The engagement of Goodman
and the dismissal of Deloitte was recommended by the Audit Committee of the
Registrant and approved by its Board of Directors at its regular meeting.
Neither of Deloitte's reports on the financial statements for
BSS for the fiscal years 1995 and 1994 contained any adverse opinion or
disclaimer of opinion, or was qualified as to uncertainty, audit scope or
accounting principles. In connection with its audits of BSS's financial
statements for 1995 and 1994, there were no disagreements with Deloitte on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures that, if not resolved to their satisfaction, would
have caused them to make reference in connection with their opinion to the
subject matter of the disagreement(s). The Registrant requested that Deloitte
furnish it with a letter, addressed to the Securities and Exchange Commission,
stating whether it agrees with the statements made by the Registrant in response
to this Item 4 and, if not, stating the respects in which it does not agree. The
letter of Deloitte is attached as Exhibit 16 hereto.
(a)(2) As referenced above, Goodman was engaged as the
Registrant's principal accountant effective August 7, 1996, for the fiscal year
ending December 31, 1996. The Registrant engaged the services of Goodman
previously to render accounting services with respect to the Reorganization,
including the furnishing of an opinion (attached hereto as Exhibit 99) regarding
the appropriate application of APB 16 with respect to the transactions
contemplated by the Agreement. Goodman concluded that the Reorganization should
be accounted for as a pooling of interests in accordance with APB 16. In
addition, Goodman had served as the principal independent certified public
accountant for BOF for the fiscal year ended December 31, 1995, and rendered an
audit opinion with respect to BOF's financial statements for the year then
ended.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) The financial statements of BOF and BSS were included in
the Prospectus/Proxy Statement forming a part of the Registration Statement
which was distributed to the shareholders of each bank. Copies of the audited
financial statements of BOF and BSS for the two years ended December 31, 1995
are attached thereto.
(b) Pro forma financial information is incorporated by
reference from pages 106-110 in the Registrant's Form S-4 Registration
Statement.
(c) (1) Letter of Deloitte agreeing with the statements in
Form 8-K is attached as Exhibit 16 hereto.
(2) Opinion regarding pooling of interests accounting
treatment from Goodman is attached as Exhibit 99.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
United Community Bankshares, Inc.
Date: August 13, 1996 By: /s/ Wenifred O. Pearce
-----------------------------
Wenifred O. Pearce
President and
Chief Executive Officer
EXHIBIT 16
August 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read and agree with the comments in Item 4 of Form 8-K of United
Community Bankshares, Inc. dated August 1, 1996.
Yours truly,
DELOITTE & TOUCHE LLP
Richmond, Virginia
EXHIBIT 99
August 1, 1996
The Board of Directors
United Community Bankshares, Inc.
Franklin, Virginia
Dear Board Members:
We have been engaged to report on the appropriate application of Accounting
Principles Board Opinion No. 16, Business Combinations (APB 16), to the specific
transaction described below. This report is being issued to United Community
Bankshares, Inc. (the "Holding Company") for assistance in evaluating accounting
principles for the described specific transaction. Our engagement has been
conducted in accordance with standards established by the American Institute of
Certified Public Accountants.
Description of Transaction
The facts, circumstances and assumptions relevant to the specific transaction as
provided to us by management of The Bank of Franklin ("BOF") and The Bank of
Sussex and Surrey ("BSS") are as follows:
BOF and BSS (the "Banks") have entered into an Agreement and Plan of
Reorganization (the "Agreement") dated January 25, 1996. The Agreement provides
that each shareholder of BOF and BSS shall be entitled to exchange each share of
common stock outstanding ("Bank Common Stock"), except for any dissenting
shares, into 4.806 and 3.00 shares, respectively, of common stock in the Holding
Company (the "Exchange Ratio"). The exchange of shares of Bank Common Stock for
shares of common stock in the Holding Company (the "Share Exchange") shall
become effective on the date shown on the Certificates of Share Exchange issued
by the State Corporation Commission of Virginia to the respective Banks (the
"Effective Date").
No fractional shares of common stock in the Holding Company (the " Holding
Company Common Stock) will be issued as a result of the Share Exchange. In lieu
thereof, each holder of common stock in the BOF ("BOF Common Stock"), who
otherwise would have been entitled to a fractional share of Holding Company
Common Stock, will receive cash in an amount equal to such fractional part of a
share of Holding Company Common Stock multiplied by the market value of BOF
Common Stock, after giving effect to the Exchange Ratio, as of the Effective
Date.
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The Board of Directors
August 1, 1996
Page 2
Consummation of the Share Exchange is subject to various conditions, including
the approval of the respective Banks' shareholders; the effectiveness of the
applicable registration statement to be filed with the Securities and Exchange
Commission; approval by certain federal and Virginia regulatory authorities;
receipt of an opinion of counsel as to the tax-free nature of the Share Exchange
for federal income tax purposes (except for cash received in lieu of fractional
shares); receipt of a letter from Goodman & Company, L.L.P. to the effect that
the combination of BOF and BSS qualifies to be accounted for as
pooling-of-interests; and receipt of a letter by BOF and BSS from Scott &
Stringfellow, Inc. and Davenport & Company, respectively, dated no later than
the date the contemplated joint proxy statement is sent to shareholders, to the
effect that in the opinion of such firm the Exchange Ratio is fair to the
shareholders of BOF and BSS from a financial point of view.
As of the Effective Date and until the next annual shareholders meeting of the
Holding Company, the Board of Directors of the Holding Company will consist of
ten persons, with five nominees designated by the Board of BOF and five nominees
designated by the Board of BSS, including the president of BSS and the Chief
Executive Officer ("CEO") of BOF. Upon consummation of the Share Exchange, BOF
and BSS will continue to operate as separate banking subsidiaries of the Holding
Company. The current CEO of BOF and the current president of BSS will be the
President/Chief Executive Officer and the Executive Vice President/Chief
Operating Officer, respectively, of the Holding Company.
Appropriate Accounting Principles
APB 16 requires that a business combination be accounted for as a pooling of
interests if all of the following conditions are met:
Combining Companies
1. Each of the combining enterprises is autonomous and has not been a
subsidiary or division of another corporation within two years before
the plan of combination is initiated (January 25, 1996).
The BOF and BSS financial statements for each of the two years in the
period ended December 31 1995, included in the registration statement
on Form S-4 applicable to the Share Exchange, indicate that neither BOF
nor BSS has been a subsidiary or division of another corporation within
the specified two-year period.
2. Each of the combining companies is independent of the other combining
companies. This condition means that at the date the plan of
combination is initiated and consummated, the combining companies hold
as intercorporate investments no more than 10% in total of the
outstanding voting common stock of any combining company.
You have represented to us that neither BOF nor BSS holds voting common
stock of the other combining company.
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The Board of Directors
August 1, 1996
Page 3
Combining of Interests
3. The combination is effected in a single transaction or is completed in
accordance with a specific plan within one year after the plan of
combination is initiated (January 25, 1996).
The Agreement provides for the combination to be effected in a single
transaction. You have represented to us that the combination will be
effective August 1, 1996.
4. A corporation offers and issues only common stock with rights identical
to those of the majority of its outstanding voting common stock in
exchange for substantially all (90% or more) of the voting common stock
interest of another company at the date the plan of combination is
consummated. The plan to issue voting common stock in exchange for
common stock may include, within limits, provisions to distribute cash
or other consideration for fractional shares or for shares held by
dissenting stockholders.
The Agreement provides for the issuance of Holding Company Common Stock
with rights identical to those of the outstanding voting common stock
of the respective Banks. You have represented to us that there are no
known BOF or BSS stockholders giving notice of their intention to
exercise their dissenters' rights.
5. None of the combining companies changes the equity interest of the
voting common stock in contemplation of effecting the combination
either within two years before the plan of combination is initiated or
between the dates the combination is initiated and consummated; changes
in contemplation of effecting the combination may include distributions
to stockholders and additional issuances, exchanges and retirements of
securities. Distributions to stockholders which are no greater than
normal dividends are not changes for this condition. Normality of
dividends is determined in relation to earnings during the period and
to the previous dividend policy and record. Dividend distributions on
stock of a combining company that are equivalent to normal dividends on
the stock to be issued in exchange in the combination are considered
normal for this condition.
The BOF and BSS Statements of Stockholders' Equity for each of the two
years in the period ended December 31, 1995, included in the
registration statement on Form S-4 applicable to the Share Exchange,
and their respective Board of Directors' minutes, disclose a consistent
pattern of cash dividends declared on an annual basis. Pursuant to the
terms of the Agreement, the BOF and BSS agreed to equalize the timing
of their respective dividend payments, by allowing the BOF to make its
normal dividend payment in 1996 of approximately $ 209,000, and by
allowing the BSS to make its normal dividend payment on a semiannual
basis in 1996 of approximately $107,000. In effect, the respective
Banks will have made normal dividends payments in 1996 either equal to,
or in substance equivalent with, an annual dividend rate of
approximately $.23 per share, after giving effect to the Exchange
Ratio.
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The Board of Directors
August 1, 1996
Page 4
6. Each of the combining companies reacquires shares of voting common
stock only for purposes other than business combinations, and no
company reacquires more than a normal number of shares between the
dates the plan of combination is initiated and consummated.
The statements of stockholders' equity of BOF and BSS for each of the
two years in the period ended December 31, 1995, included in the
registration statement on Form S-4 applicable to the Share Exchange ,
disclose no reacquisitions of voting common stock. You have represented
to us that no such reacquisitions will be undertaken prior to
consummation of the Share Exchange.
7. The ratio of the interest of an individual common stockholder to those
of other common stockholders in a combining company remains the same as
a result of the exchange of stock to effect the combination.
The Agreement provides for the issuance of Holding Company Common Stock
based on the Exchange Ratio to all holders of Bank Common Stock.
8. The voting rights to which the common stock ownership interests in the
resulting combined corporation are entitled are exercisable by the
stockholders; the stockholders are neither deprived of nor restricted
in exercising those rights for a period.
The Agreement does not provide for the deprivation or restriction of
voting rights to which the common stock ownership interests in the
resulting combined enterprise are entitled.
9. The combination is resolved at the date the plan is consummated and no
provisions of the plan relating to the issue of securities or other
consideration are pending.
The Agreement does not provide for the issuance of securities or other
consideration to be pending after the date the Share Exchange is
consummated.
Absence of Planned Transactions
10. The combined enterprise does not agree directly or indirectly to retire
or reacquire all or part of the common stock issued to effect the
combination.
You have represented to us that the Holding Company has no plans to
directly or indirectly retire or reacquire all or a part of the common
stock issued to effect the Share Exchange. The Securities and Exchange
Commission recently ruled that acquisition of, or even announcements to
acquire, common stock within six months of the consummation date will
preclude pooling-of-interests accounting treatment.
11. The combined corporation does not enter into other financial
arrangements for the benefit of the former stockholders of a combining
company, such as a guaranty of loans secured by
<PAGE>
The Board of Directors
August 1, 1996
Page 5
stock issued in the combination, which in effect negates the exchange
of equity securities.
You have represented to us that neither the Holding Company nor the
Banks have entered into, and will not enter into, other financial
arrangements for the benefit of the former stockholders of the Banks.
12. The combined corporation does not intend or plan to dispose of a
significant part of the assets of the combining companies within two
years after the combination other than disposals in the ordinary course
of business of the formerly separate companies and to eliminate
duplicate facilities or excess capacity.
You have represented to us that neither the Holding Company nor the
respective Banks intend or plan to dispose of a significant part of the
assets of the combining enterprises within two years after the Share
Exchange, other than disposals in the ordinary course of business of
the formerly separate companies and to eliminate duplicate facilities
or excess capacity.
In connection with APB 16, the Securities and Exchange Commission has issued
Accounting Series Release 135 and Staff Accounting Bulletin Nos. 65 and 76
dealing with risk-sharing in business combinations. The Commission considers
that the risk sharing required for the applicability of pooling of interests
accounting will have occurred, if no affiliate of either company in the business
combination sells or in any other way reduces their risk relative to any common
shares received in the business combination within 30 days before consummation
of the business combination, or until such time as financial results covering at
least 30 days of post-merger combined operations have been published. This would
include all sales whether private or public other than de minimus sales, as
defined by the Securities and Exchange Commission. Publication of combined
financial results can take the form of a post-effective amendment, a Form 10-Q
or 8-K filing, the issuance of a quarterly earnings report, or any other public
issuance which includes combined sales and net income.
For purposes of this letter, you have asked us to assume that no such
dispositions of common stock by an affiliate will occur within the specified
periods prior or subsequent to the business combination.
Conclusion
Based on the facts, circumstances and assumptions relevant to the specific
transaction discussed above, we conclude that the transaction described above
should be accounted for as a pooIing of interests in accordance with APB 16.
<PAGE>
The Board of Directors
August 1, 1996
Page 6
The ultimate responsibility for the decision on the appropriate application of
generally accepted accounting principles for an actual transaction rests with
the preparers of financial statements. Our judgment on the appropriate
application of generally accepted accounting principles for the described
specific transaction is based solely on the facts, circumstances and assumptions
provided to us as described above; should these facts, circumstances and
assumptions differ, our conclusion may change. We have not been asked to address
and have not addressed any tax matters relating to this transaction.
Additionally, we have no responsibility to update this report for events or
circumstances occurring after the date of this report.
Very truly yours,
GOODMAN & COMPANY, L.L.P.
Norfolk, Virginia
