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As filed with the Securities and Exchange Commission on April 9, 1998
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Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
UNITED BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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OHIO 6710 34-1405357
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(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
of Incorporation or Organization) Classification Code Number) Identification No.)
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201 SOUTH FOURTH STREET
MARTINS FERRY, OHIO 43935
(740) 633-0445
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
RANDALL M. GREENWOOD COPIES OF COMMUNICATIONS TO:
CHIEF FINANCIAL OFFICER MARTIN D. WERNER, ESQ.
UNITED BANCORP, INC. WERNER & BLANK CO., L.P.A.
201 SOUTH FOURTH STREET 7205 W. CENTRAL AVENUE
MARTINS FERRY, OHIO 43935 TOLEDO, OHIO, 43617
(740) 633-0445 (419) 841-8051
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Approximate date of commencement of proposed sale of the securities to the
public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Class of Securities Amount to Offering Price Aggregate Offering Amount of
to be Registered be Registered Per Share(1) Price(1) Registration Fee(1)
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Common Stock,
$1 par value 429,000 $9.0515011655 $3,883,094 $1,145.51
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(1) The registration fee has been computed pursuant to Rule 457(f)(2) and (3)
based on the aggregate book value of all the outstanding shares of Common
Stock, $5 par value, of Southern Ohio Community Bancshares, Inc.. as of
March 31, 1998. The proposed maximum offering price per share is
determined by dividing the proposed maximum aggregate offering price by
the number of shares to be registered.
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.
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SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
88 High Street
Glouster, Ohio 45732
(614) 767-3121
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be Held on _________________, 1998
Notice is hereby given that the Special Meeting of Shareholders (the
"Meeting") of Southern Ohio Community Bancorporation, Inc. ("Southern" or the
"Company") will be held at the main office of the Company, 88 High Street,
Glouster, Ohio 45732 on _________________, 1998 at ________________.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. A proposal to adopt, pursuant to Sections 1701.78 and 1701.831 of
the Ohio Revised Code, a Merger Agreement (the "Merger Agreement"), dated
February 9, 1998, by and between Southern and United Bancorp, Inc.
("UBCP"), a copy of which is included in the accompanying Proxy
Statement-Prospectus as Appendix A. As more fully described in the Proxy
Statement-Prospectus, the Merger Agreement provides for the Merger of
Southern with and into UBCP, with UBCP surviving the transaction. Pursuant
to the Merger Agreement, all of the outstanding common shares of Southern
will be converted into common shares of UBCP in accordance with the
Exchange Ratio (as defined in the Merger Agreement).
2. Such other matters as may properly come before the Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other
business to come before the Meeting.
Notice is also given that Southern shareholders have the right to dissent
and demand an appraisal of the value of their common shares in the event the
Merger Agreement is adopted and the merger consummated. The right of any
dissenting shareholder to receive the value of his common shares through the
statutory appraisal process is contingent upon strict compliance with the
procedures set forth in Section 1701.85 of the Ohio General Corporation Law,
the relevant portions of which are attached as Appendix C to the accompanying
Proxy Statement-Prospectus.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned. Shareholders of record at the close of business on _____________
will be entitled to vote at the Meeting, and any adjournments thereof. A
complete list of shareholders entitled to vote at the Meeting will be available
at the Meeting.
You are requested to complete and sign the enclosed Form of Proxy which is
solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The Proxy will not be used if you attend and vote at the
Meeting in person. Attendance at the Meeting will not, in and of itself,
constitute a revocation of a proxy.
By Order of the Board of Directors
L.E. Richardson Jr., Chairman, President, and Chief
Executive Officer and Director
Glouster, Ohio
___________________
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A
SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS
REQUIRED IF MAILED WITHIN THE UNITED STATES.
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PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
88 HIGH STREET
GLOUSTER, OHIO 45732
PROSPECTUS
UNITED BANCORP, INC.
COMMON STOCK
This Prospectus of United Bancorp, Inc. ("UBCP") relates to the common
shares of UBCP ("UBCP Common Stock") issuable to the shareholders of Southern
Ohio Community Bancorporation, Inc. ("Southern") upon consummation of the
proposed merger of UBCP and Southern (the "Merger"). UBCP and Southern have
entered into a Merger Agreement dated February 9, 1998, (the "Agreement"). The
Agreement is attached as Appendix A and incorporated herein by reference.
THIS PROSPECTUS ALSO SERVES AS THE PROXY STATEMENT OF SOUTHERN ("PROXY
STATEMENT-PROSPECTUS") FOR ITS SPECIAL MEETING OF SHAREHOLDERS (THE "SPECIAL
MEETING") TO BE HELD ON _________________, 1998. SEE "MEETING INFORMATION."
If the proposed Merger is consummated, the shareholders of Southern will
receive shares of UBCP Common Stock in exchange for their common shares of
Southern (the "Southern Common Stock") held by them on the effective date of
the Merger as set forth in the Agreement. Pursuant to the terms of the
Agreement, shareholders of Southern will exchange each share of Southern Common
Stock held by them on the effective date of the Merger for eleven (11) shares
of UBCP Common.
The Merger is intended to be tax-deferred to Southern shareholders for
federal income tax purposes. For a more complete description of the Agreement
and terms of the Merger see "The PROPOSED MERGER."
This Proxy Statement-Prospectus and form of Proxy are first being mailed
to shareholders of Southern on or about ____________, 1998.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
ANY SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
The date of this Proxy Statement-Prospectus is ________________,1998.
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TABLE OF CONTENTS
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Page
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AVAILABLE INFORMATION 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 5
COMPLIANCE WITH THE OHIO CONTROL SHARE ACQUISITION STATUTE 5
SUMMARY 6
The Companies 7
Proposed Merger 7
Special Meeting Information 7
Vote Required 7
Reasons for the Merger; Recommendations of the Boards of Directors 8
Opinion of Financial Advisor 8
Effect on Southern Shareholders 8
Dissenters' Rights 8
Certain Federal Income Tax Consequences 8
Accounting Treatment 9
Effective Time of the Merger 9
Conditions to the Merger; Regulatory Approval 9
Dividends 9
Termination, Amendment and Waiver 9
Interests of Certain Persons in the Merger 10
Resales of UBCP Common Stock by Affiliates 10
Markets and Market Prices 10
Selected Financial Data 11
Comparative Per Share Data 14
MEETING INFORMATION 16
General 16
Date, Place and Time 16
Record Date 16
Votes Required 16
Voting and Revocation of Proxies 16
Solicitation of Proxies 17
PROPOSED MERGER 17
Background and Reasons for the Merger 17
Recommendation of the Southern Board of Directors 18
Opinion of Southern's Financial Advisor 18
Terms of the Merger 21
Effective Time of the Merger 22
Surrender of Southern Certificates 22
Conditions to the Merger 23
Regulatory Approval 23
Conduct of Business Pending the Merger 24
Dividends 24
Termination, Amendment and Waiver 24
Termination Fee 25
Management and Operations After the Merger 25
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TABLE OF CONTENTS (CONTINUED)
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Interests of Certain Persons in the Merger 25
Effect on Employee Benefit Plans 25
Certain Federal Income Tax Consequences 25
Accounting Treatment 26
Expenses 27
Resale of UBCP Common Stock 27
Dissenters' Rights 27
PRO FORMA FINANCIAL DATA 28
DESCRIPTION AND COMPARISON OF UBCP COMMON STOCK
AND SOUTHERN COMMON STOCK 32
General 32
Dividends 32
Preemptive Rights 32
Voting 33
Cumulative Voting 33
Liquidation 33
Liability of Directors; Indemnification 33
Antitakeover Provisions 33
INFORMATION ABOUT UBCP 35
General 35
Competition 35
Certain Regulatory Considerations 35
Principal Shareholders and Management Ownership Information 39
Legal Proceedings 39
INFORMATION ABOUT SOUTHERN 40
General 40
Memorandum of Understanding 40
Properties 40
Litigation 40
Voting, Principal Shareholders and Management Information 41
Current Relationships and Related Transactions 42
Competition 42
Employees 42
Southern's Financial Statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations 42
LEGAL OPINIONS 53
EXPERTS 53
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TABLE OF CONTENTS (CONTINUED)
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SOUTHERN FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997, AND 1996
AND FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1997
Independent Auditor's Report F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6
APPENDIX A A-1
Merger Agreement dated February 9, 1998
APPENDIX B B-1
Opinion of Southern's Financial Advisor
APPENDIX C
Ohio Law on Dissenters' Rights C-1
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION TO OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, THE INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE THE SECURITIES OFFERED
HEREBY, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTIONS OR TO OR FROM ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR
PROXY IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROXY
STATEMENT-PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF SOUTHERN OR UBCP
SINCE THE DATE OF THIS PROXY STATEMENT-PROSPECTUS.
AVAILABLE INFORMATION
UBCP is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Room 1400, 75 Park Place, New York, New York 10007, and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials can also be obtained from the public reference section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
UBCP has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
UBCP Common Stock to be issued pursuant to the Merger described herein. This
Proxy Statement-Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C. Statements contained in this Proxy Statement-Prospectus or
in any document incorporated herein by reference as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete, and in each instance where reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
other document, each such statement is qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO UBCP,
EXCLUDING EXHIBITS UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST TO RANDALL M. GREENWOOD, VICE PRESIDENT & CHIEF
FINANCIAL OFFICER, UNITED BANCORP, INC., 201 SOUTH FOURTH AT HICKORY STREET,
MARTINS FERRY, OHIO 43935 (TELEPHONE (740) 633-0445). TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE PRIOR TO _________________.
The following documents previously filed with the Commission by UBCP
(Commission File No. 0-13655) are incorporated herein by reference:
(i) UBCP's Annual Report on Form 10-K for the year ended December 31,
1997;
(ii) UBCP's Current Report on Form 8-K dated February 19, 1998;
(iii) UBCP's 1998 Proxy Statement.
COMPLIANCE WITH THE OHIO CONTROL SHARE ACQUISITION STATUTE
Consummation of the proposed merger of Southern with and into UBCP in
accordance with the terms of the Merger Agreement requires compliance with the
Ohio Control Share Acquisition Act (the "Acquisition Act") The Acquisition Act
requires the advance approval of the shareholders of an Issuing Public
Corporation prior to the purchase of a controlling interest in such
corporation. Southern is an Issuing Public Corporation within the meaning of
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the Acquisition Act and therefore the transactions contemplated by the Merger
Agreement must be approved under the Acquisition Act. A vote For the Merger will
also constitute an affirmative vote to approve the acquisition of 100% of the
outstanding shares of Southern Common Stock by UBCP as required by the
Acquisition Act. Presented below is UBCP's Acquiring Person Statement as
required by the Acquisition Act. UBCP submitted its Acquiring Person Statement
to Southern on the date this Proxy Statement was first mailed to Southern
shareholders. Approval under the Acquisition Act requires the favorable vote of
a majority of the shares entitled to vote in the election of directors as well
as a majority vote of such shares excluding any shares held by interested
shareholders, which are defined to include UBCP, any corporate officer of
Southern and any employee of Southern who is also a director of Southern. In
addition "interested shares" are defined to include those acquired by any person
after the first date of public disclosure (January 13, 1998) of the Merger and
prior to the date of the Special Meeting, provided such person paid over
$250,000 for such purchased shares or such purchased shares represents greater
than .05% of the outstanding shares of the Issuing Public Corporation. As of the
Record Date, UBCP owns no shares of Southern. Officers and employees of Southern
who are interested shareholders within the meaning of the Acquisition Act owned
10,040 shares of Southern. Neither Southern nor UBCP are aware of any other
shares of Southern Common Stock which could be considered as held by an
interested shareholder as defined by the Acquisition Act. Therefore approval of
the proposed acquisition of a controlling interest in Southern by UBCP under the
provisions of the Acquisition Act requires the affirmative vote of 19,501
shares which represents a majority of the shares entitled to vote in the
election of directors and 14,480 shares in connection with the vote which
excludes interested shares, as defined by the Acquisition Act.
UBCP's Acquiring Person Statement under the Ohio Control Share Acquisition
Act.
1. The identity of the Acquiring Person is United Bancorp, Inc.,
Martins Ferry, Ohio.
2. This Statement is given pursuant to ORC Section 1701.831(B).
3. UBCP owns no shares of Southern Common Stock.
4. If the proposed Merger is consummated, UBCP will acquire 100% of
the voting power of Southern Common Stock.
5. UBCP proposes to acquire Southern in a merger transaction
pursuant to and in accordance with the provisions of ORC Section
1701.78 and the Merger Agreement. The Merger Agreement is
incorporated into this Acquiring Person Statement as if fully
restated herein.
6. The proposed control share acquisition, if consummated, will not
be contrary to law. The Proxy Statement-Prospectus in which this
Acquiring Person Statement appears sets forth the facts upon which
the forgoing statement is based and is incorporated by reference
into this Acquiring Person Statement as if fully restated herein.
SUMMARY
The following summary is not intended to be a complete description of the
proposed Merger and is qualified in all respects by the more detailed
information contained in this Proxy Statement-Prospectus, the Exhibits hereto
and the documents incorporated by reference. As used in this Proxy
Statement-Prospectus, the terms UBCP and Southern refer to such corporations,
respectively, and where the context requires, such corporations and their
respective subsidiaries on a consolidated basis. All information concerning
UBCP included in this Proxy Statement-Prospectus has been provided by UBCP; all
information concerning Southern included in this Proxy Statement-Prospectus has
been provided by Southern.
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THE COMPANIES
United Bancorp, Inc. UBCP, an Ohio corporation, is a bank holding company
organized under Ohio law in 1983. The principal asset of UBCP is its investment
in The Citizens Savings Bank of Martins Ferry, Ohio, sometimes referred to
herein as "Citizens Savings" and The Citizens State Bank, Strasburg Ohio,
sometimes referred to as "Citizens - State." UBCP's principal offices are
located at 201 S. Fourth at Hickory Street, Martins Ferry, Ohio (telephone
(740) 633-0445. For additional information concerning UBCP see "INFORMATION
ABOUT UBCP." Additional information concerning UBCP is included in the UBCP
documents incorporated herein by reference. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
Based on financial information as of December 31, 1997, upon completion of
the Merger UBCP will have approximately $264 million in consolidated assets and
approximately $25.7 million in consolidated equity capital on a pro forma
basis. See the pro forma financial information for the combined company under
"Pro Forma Financial Data."
Southern Ohio Community Bancorporation, Inc. Southern, is a bank holding
company organized under Ohio law which owns all of the outstanding capital
stock of The Glouster Community Bank ("Glouster Bank"). Glouster Bank is a
state banking corporation. Southern's main office is located at 88 High Street,
Glouster, Ohio 45732 (telephone (740) 767-3121).
Based upon financial information as of December 31, 1997, Southern had
total consolidated assets of approximately $51.9 million and total consolidated
equity of approximately $3.8 million.
PROPOSED MERGER
Southern and UBCP have entered into a Merger Agreement (the "Agreement"),
dated as of February 9, 1998, providing, among other things, for the merger of
Southern with and into UBCP (the "Merger"). See "The Proposed Merger." Upon
consummation of the Merger, all of the outstanding shares of Southern Common
Stock will be converted into eleven (11) shares of UBCP Common Stock in
accordance with the Exchange Ratio as defined in the Agreement. The aggregate
number of shares of UBCP Common Stock issuable in the Merger is 429,000.
No fractional shares of UBCP Common Stock will be issued in the Merger,
and UBCP will pay cash, without interest, for any fractional share interests
resulting from the respective exchange ratios in accordance with the terms of
the Agreement. See "PROPOSED MERGER--Terms of the Merger." Each outstanding
share of UBCP Common Stock will not change by reason of the Merger.
SPECIAL MEETING INFORMATION
Southern Special Meeting. The Special Meeting of Southern's shareholders
to consider and vote on the Agreement (the "Special Meeting") will be held on
_________________, 1998 at ________, local time, at the main office of the
Company, 88 High Street, Glouster, Ohio 45732. Only holders of record of
Southern Common Stock at the close of business on ____________ (the "Record
Date") will be entitled to vote at the Special Meeting. At the Record Date,
there were outstanding and entitled to vote 39,000 shares of Southern Common
Stock.
For additional information relating to the Southern Special Meeting, see
"SPECIAL MEETING INFORMATION."
VOTE REQUIRED
Southern. Approval of the Agreement by the Southern shareholders requires
the affirmative vote, in person or by proxy, of the holders of record of at
least a majority of the outstanding shares of Southern Common Stock. As of the
Record Date there were 39,000 shares of Southern Common Stock outstanding and
therefore a vote of at least 19,501 shares is required to adopt the Agreement.
In addition, approval of the proposed acquisition of a controlling interest in
Southern by UBCP under the provisions of the Acquisition Act requires the
affirmative vote of 19,501 shares which represents a majority of the shares
entitled to vote in the election of directors and 14,450 shares in connection
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with the vote which excludes interested shares, as defined by the Acquisition
Act. Each share of Southern Common Stock is entitled to one vote.
As of the Record Date, directors and executive officers of Southern and
their affiliates owned beneficially approximately 25.74% of the shares of
Southern Common Stock outstanding on such date.
As of the Record Date, directors and executive officers of UBCP and their
affiliates did not own, beneficially, any shares of Southern Common Stock.
UBCP. Adoption of the Agreement and approval of the issuance of UBCP
Common Stock in the Merger by UBCP shareholders is not required.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The respective Boards of Directors of Southern and UBCP have each
unanimously approved the Agreement. The Board of Directors of UBCP has also
authorized the issuance of a sufficient number of shares of UBCP Common Stock
in the Merger. Each Board believes that the Merger is in the best interests of
the shareholders and optionholders of its respective company. THE BOARD OF
DIRECTORS OF SOUTHERN UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT. See
"PROPOSED MERGER--Reasons for the Merger; Recommendations of the Southern Board
of Directors," for a discussion of the factors considered by the respective
Boards in reaching their decisions to approve the Merger Agreement and the
transactions contemplated thereby.
OPINION OF FINANCIAL ADVISOR
Southern's financial advisor, Young & Associates, Inc. ("Young"), has
rendered its opinion to the Board of Directors of Southern to the effect that
the consideration to be received by the shareholders of Southern upon
consummation of the Southern Merger is fair and equitable, from a financial
perspective, to the holders of Southern Common Stock. The opinion of Young,
which is attached as Appendix B to this Proxy Statement-Prospectus, sets forth
the assumptions made, the information analyzed, and the limitations on the
review undertaken in rendering such opinion. See "PROPOSED MERGER--Opinion of
Southern's Financial Advisor."
EFFECT ON SOUTHERN SHAREHOLDERS
Each outstanding share of Southern Common Stock on the effective date of
the Merger will be converted in the Merger into shares of UBCP Common Stock as
provided for in the Agreement, see "PROPOSED MERGER -- Terms of the Merger."
Thereafter, the rights of Southern shareholders will be governed by Ohio law
and the Articles of Incorporation, as amended, and Code of Regulations of UBCP.
See "COMPARISON OF SHAREHOLDER RIGHTS."
DISSENTERS' RIGHTS
Pursuant to Ohio Law, shareholders of Southern have appraisal rights and
can demand to be paid the fair cash value of their shares of Southern Common
Stock if they comply with the procedures of Section 1701.85 of the Ohio General
Corporation Law (OGCL). The full text of Section 1701.85 of the OGCL is
attached to this Proxy Statement as Appendix C. See "PROPOSED
MERGER--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to qualify for federal income tax purposes as a
tax-free or tax-deferred reorganization. It is a condition to consummation of
the Merger that UBCP and Southern each receive an opinion of counsel that the
Merger will qualify as a tax-free or tax-deferred reorganization. Werner &
Blank Co., L.P.A. special counsel to UBCP has issued such opinion for the
benefit of UBCP, Southern and their respective shareholders. Such opinion will
not be binding on the Internal Revenue Service.
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Shareholders of Southern will generally recognize no gain or loss for
federal income tax purposes on the exchange of their Southern Common Stock for
UBCP Common Stock except to the extent they receive cash as a result of the
exercise of their statutory rights to dissent to the Merger and cash received
in exchange for any fractional share interest resulting from the Exchange
Ratio. See "PROPOSED MERGER - Certain Federal Income Tax Consequences."
SOUTHERN SHAREHOLDERS SHOULD READ CAREFULLY THE DISCUSSION SET FORTH UNDER
"PROPOSED MERGER - CERTAIN FEDERAL INCOME TAX CONSEQUENCES" AND ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE
MERGER UNDER FEDERAL, STATE, AND LOCAL AND ANY OTHER APPLICABLE TAX LAWS.
ACCOUNTING TREATMENT
UBCP anticipates that the Merger will be accounted for as a pooling of
interests. See "PROPOSED MERGER - Accounting Treatment."
EFFECTIVE TIME OF THE MERGER
The Agreement provides that the Merger will take place on a date
designated by UBCP which shall be not later than the last business day of the
calendar month after receipt of the following approvals relating to the Merger:
(i) by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") and the expiration of any required waiting periods following
regulatory approval, (ii) by the shareholders of Southern, and (iii) all other
regulatory approvals have been obtained and the regulatory waiting periods have
expired, unless another time is agreed upon in writing by the parties. Although
there can be no assurance, the Merger is expected to be consummated during the
third quarter of 1998.
CONDITIONS TO THE MERGER; REGULATORY APPROVAL
The Merger is conditioned upon approval by the shareholders of Southern,
the receipt of all required regulatory approvals and upon satisfaction of other
terms and conditions, including receipt of assurance that the Merger will
constitute tax-free or tax-deferred reorganization and qualify as a pooling of
interests for accounting purposes. See "PROPOSED MERGER-Conditions to the
Merger."
UBCP prepared applications and submitted them for filing with the Federal
Reserve Board under the provisions of the Federal Bank Holding Company Act on
March 31, 1998. The application was accepted for filing on ______________. On
______________, the Federal Reserve Board approved the application. See
"PROPOSED MERGER - Regulatory Approval."
DIVIDENDS
Under the Agreement, Southern is allowed, prior to the effective time of
the Merger, to pay a cash dividend prorated to the effective time of the
Merger, at the rate of $1.20 per year. See "PROPOSED MERGER -Dividends."
TERMINATION, AMENDMENT AND WAIVER
The Merger may be terminated, among other reasons, (i) by mutual consent
of the Boards of Directors of UBCP and Southern at any time before the Merger
takes place, or (ii) by either UBCP or Southern if (a) the Merger has not taken
place by December 31, 1998, (b) UBCP does not receive all required regulatory
approvals relating to the Merger, (c) any suit, action or proceeding is pending
or overtly threatened seeking to prevent or inhibit the Merger, (d) if any
warranty or representation made by the other party is discovered to have been
untrue in any material respect, or (e) the other party commits one or more
material breaches of the Agreement. See "PROPOSED MERGER - Termination,
Amendment and Waiver."
9
<PAGE> 12
UBCP and Southern may amend, modify or waive certain terms and conditions
of the Agreement. See "PROPOSED MERGER - Termination, Amendment and Waiver."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In the Agreement, UBCP has agreed to cause Mr. L.E. Richardson Jr., Chief
Executive Officer and a Director of Southern, to be appointed as a Director of
UBCP as soon as practicable following the effective time of the Merger.
RESALES OF UBCP COMMON STOCK BY AFFILIATES
No restrictions on the sale or transfer of the shares of UBCP Common Stock
issued pursuant to the Merger will be imposed solely as a result of the Merger,
other than restrictions on the transfer of such shares issued to any Southern
shareholder who may be deemed to be an "affiliate" of Southern for purposes of
Rule 145 under the Securities Act. Directors, executive officers and 10%
shareholders are generally deemed to be affiliates for purposes of Rule 145.
Resales of UBCP Common Stock issued to "affiliates" of Southern have not
been registered under applicable securities laws in connection with the Merger.
Such shares may only be sold (a) under a separate registration by the
affiliates for distribution (which UBCP has not agreed to provide), (b)
pursuant to Rule 145 under the Securities Act, or (c) pursuant to another
exemption from registration requirements under the Securities Act. For UBCP to
be able to account for the Merger as a pooling of interests, pursuant to
Commission requirements, certain additional restrictions will be placed on
affiliates of Southern with respect to dispositions of UBCP Common Stock and
Southern Common Stock during the period beginning 30 days before the Merger and
ending when the results for 30 days of post-merger combined operations have been
published.
MARKETS AND MARKET PRICES
Southern
Southern's Common Stock is not traded on any exchange nor in the over the
counter market. There are infrequent and sporadic transactions in Southern
Common Stock. The last trade of which management of Southern is aware took
place on October 21, 1997 involving 312 shares at a transaction price of $98.00
per share.
UBCP Markets and Market Prices and Equivalent Per Share Data
Shares of UBCP Common Stock are traded on the NASDAQ Small Cap Market. The
following table sets forth the last reported Bid and Ask prices per share of
UBCP Common Stock on the dates indicated.
The equivalent per share price of Southern Common Stock at each specified
date represents the last reported sale price per share of UBCP Common Stock on
such date multiplied by the Exchange Ratio of eleven (11) shares of UBCP for
each share of Southern.
10
<PAGE> 13
<TABLE>
<CAPTION>
EQUIVALENT PER SHARE INFORMATION
--------------------------------
UBCP SOUTHERN
MARKET VALUE PER SHARE AT: COMMON STOCK COMMON STOCK
- -------------------------- ------------- ------------------------
Per Share ($) Equivalent Per share ($)
------------- ------------------------
<S> <C> <C>
March 31, 1998 $27.75 $305.25
December 31, 1997 $27.00 $297.00
September 30, 1997 $21.50 $236.50
June 30, 1997 $18.00 $198.00
March, 31, 1997 $20.50 $225.50
December 31, 1996 $21.75 $239.25
September 30, 1996 $18.25 $200.75
June 30, 1996 $15.50 $170.50
March 31, 1996 $13.75 $151.25
December 31, 1995 $12.73 $140.00
September 30, 1995 $15.00 $165.00
June 30, 1995 $16.36 $180.00
March 31, 1995 $16.38 $180.00
</TABLE>
On January 12, 1998, the date immediately preceding the public
announcement of the Merger, the reported last Bid price of UBCP Common Stock
was $28.00 per share. There were no reported sales of Southern Common Stock on
that date. No assurance can be given as to the market price of UBCP Common
Stock or Southern Common Stock at or, in the case of UBCP Common Stock, after
the Effective Time of the Merger.
On December 31, 1997, there were approximately 800 holders of record of
UBCP Common Stock and 184 holders of record of Southern Common Stock.
SELECTED FINANCIAL DATA
The following unaudited tables present selected historical financial
information and selected pro forma combined financial information for UBCP and
Southern. This information should be read in conjunction with the historical
and pro forma financial statements and notes thereto included elsewhere in or
incorporated by reference to this Prospectus-Proxy Statement. The pro forma
combined financial information gives effect to the Merger. The pro forma
combined financial information may not be indicative of the results that
actually would have occurred if the Merger had been in effect on the dates
indicated or which may be attained in the future. The pro forma combined
financial information has been prepared on the assumption that the Merger will
be accounted for under the pooling of interests method of accounting.
11
<PAGE> 14
SELECTED FINANCIAL DATA
HISTORICAL
UNITED BANCORP, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Interest Income $ 8,859 $ 8,259 $ 7,776 $ 6,844 $ 6,397
Provision for Loan Losses 444 455 465 281 271
Noninterest Income 1,027 894 865 755 593
Investment Securities Gain 0 27 11 104 286
Noninterest Expense 5,655 5,290 5,174 4,921 4,800
Provision for Income Taxes 940 851 769 546 504
Cumulative effect of change in
accounting 27
Net Income 2,847 2,584 2,244 1,955 1,728
Balance Sheet Data (period end):
Assets $211,742 $202,365 $191,200 $ 185,634 $171,682
Deposits 175,791 171,512 166,604 163,312 152,334
Loans, Net 137,309 130,638 120,907 106,952 86,897
Long-term debt 1,345 211 0 0 0
Shareholders' Equity 21,924 20.016 18,452 16,518 15,375
Capital Ratios:
Equity to Assets Ratio 10.20% 9.80% 9.00% 9.23% 8.98%
Tier 1 Risk-based Capital Ratio 15.10% 15.30% 14.40% 14.48% 16.23%
Total Risk-based Capital Ratio 16.40% 16.60% 15.70% 15.74% 17.46%
Other Ratio:
Allowance for Loan Losses to
Nonperforming Loans* 381.35% 603.88% 905.81% 1,597.48% 647.59%
</TABLE>
*Loans past due 90 days plus loans on nonaccrual.
12
<PAGE> 15
SELECTED FINANCIAL DATA
HISTORICAL
SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Interest Income $ 2,533 $ 2,468 $ 2,380 $ 2,259 $ 2,175
Provision for Loan Losses 488 710 739 130 90
Noninterest Income 255 236 228 226 176
Investment Securities Gain 25 0 0 1 93
Noninterest Expense 2,291 1,983 1,967 2,008 1,803
Provision for Income Taxes 33 (35) (109) 88 143
------- ------- ------- ------- -------
Net Income 1 46 11 260 408
Balance Sheet Data (period end):
Assets $51,865 $50,601 $49,293 $47,567 $47,080
Deposits 47,697 46,588 44,931 41,306 40,719
Loans, Net 31,131 33,122 34,199 32,397 30,217
Short-term Borrowed Funds 0 0 97 2,633 2,455
Shareholders' Equity 3,788 3,759 4,026 3,472 3,651
Capital Ratios:
Equity to Assets Ratio 7.30% 7.43% 8.17% 7.30% 7.75%
Tier 1 Risk-based Capital Ratio 14.90% 12.47% 12.06% 12.85% 13.33%
Total Risk-based Capital Ratio 16.17% 13.73% 13.33% 13.71% 14.31%
Other Ratio:
Allowance for Loan Losses to
Nonperforming Loans*
Nonperforming Loans* 377.4% 124.7% 84.3% 57.56% 124.53%
</TABLE>
*Loans past due 90 days plus loans on nonaccrual and troubled debt
restructurings.
13
<PAGE> 16
SELECTED FINANCIAL DATA
PRO FORMA COMBINED
UNITED BANCORP, INC. AND SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Interest Income $ 11,392 $ 10,727 $ 10,156 $ 9,103 $ 8,572
Provision for Loan Losses 932 1,166 1,204 411 361
Noninterest Income 1,282 1,130 1,093 981 769
Invest Sec Gains 25 27 11 105 379
Noninterest Expense 7,946 7,272 7,141 6,929 6,603
Provision for Income Taxes 973 816 660 634 647
Cumulative effect of change in
accounting 27
Net Income 2,848 2,630 2,255 2,215 2,136
Balance Sheet Data (period end):
Assets $263,607 $252,966 $240,493 $233,201 $218,762
Deposits 223,488 218,100 211,535 204,618 193,053
Loans, Net 168,440 163,760 155,106 139,349 117,114
Long-term Debt 1,345 211 97 2,633 2,455
Shareholders' Equity 25,712 23,775 22,478 19,990 19,027
Capital Ratios:
Equity to Assets Ratio 7.82 9.06 8.83 8.97 8.68
Tier 1 Risk-based Capital Ratio 12.29 13.25 13.45 14.15 15.56
Total Risk-based Capital Ratio 13.54 14.51 14.67 15.32 16.77
Other Ratio:
Allowance for Loan Losses to
Nonperforming Loans* 380.35% 298.59% 222.38% 317.64% 374.38%
</TABLE>
*Loans past due 90 days plus loans on nonaccrual.
COMPARATIVE PER SHARE DATA
The following unaudited table sets forth certain unaudited historical and
pro forma combined per common share information for United Bancorp, Inc. and
certain historical and equivalent pro forma combined per common share
information for Southern. The data is derived from financial statements of
United Bancorp, Inc. and Southern incorporated by reference or included
elsewhere in this Proxy Statement-Prospectus. The pro forma combined per share
information for United Bancorp, Inc. and the equivalent pro forma combined per
share information for Southern are stated as if Southern has always been
affiliated with United Bancorp, Inc. giving effect to the proposed transaction
under the pooling of interest method of accounting, assuming the issuance of
429,000 shares. The information presented below has been restated to reflect
stock dividends and stock splits.
14
<PAGE> 17
SELECTED FINANCIAL DATA
PER SHARE DATA
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
HISTORICAL PER SHARE DATA
United Bancorp, Inc.
- --------------------
Earnings per common share - BASIC $ 1.27 $ 1.16 $ 1.00 $ 0.87 $ 0.77
Earnings per common share - DILUTED $ 1.26 $ 1.15 $ 1.00 $ 0.87 $ 0.77
Dividends per share $ 0.44 $ 0.39 $ 0.35 $ 0.25 $ 0.23
Book value (end of period) $ 9.80 $ 8.95 $ 8.25 $ 7.39 $ 6.97
Southern
- --------
Earnings per common share - BASIC $ 0.03 $ 1.18 $ 0.28 $ 6.70 $10.47
Earnings per common share - DILUTED $ 0.03 $ 1.18 $ 0.28 $ 6.70 $10.47
Dividends per share $ 1.20 $ 1.20 $ 1.20 $ 1.20 $ 1.20
Book value (end of period) $97.13 $96.93 $97.01 $89.53 $93.61
</TABLE>
SELECTED FINANCIAL DATA
PER SHARE DATA
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pro Forma Combined, United Bancorp, Inc.
and Southern
- ------------
Earnings per common share - BASIC $1.07 $0.99 $0.85 $0.83 $0.80
Earnings per common share - DILUTED $1.06 $0.98 $0.85 $0.83 $0.80
Dividends per share $0.44 $0.39 $0.35 $0.25 $0.23
Book value (end of period) $9.64 $8.92 $8.43 $7.50 $7.14
</TABLE>
15
<PAGE> 18
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of Southern
Common Stock in connection with the solicitation of proxies by the Board of
Directors of Southern for use at the Special Meeting to consider and vote upon
the adoption of the Agreement and to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement-Prospectus mailed to the holders of
Southern Common Stock is accompanied by a form of Proxy for use at the Special
Meeting.
This Proxy Statement-Prospectus is also furnished by UBCP to Southern
shareholders as a Prospectus in connection with the issuance by UBCP of shares
of UBCP Common Stock upon consummation of the Merger in accordance with the
Agreement. This Proxy Statement-Prospectus, the attached Notice, and the form
of Proxy enclosed herewith are first being mailed to shareholders of Southern
on or about ______________.
DATE, PLACE AND TIME
The Southern Special Meeting: The Special Meeting will be held at the main
office of the Company, 88 High Street, Glouster, Ohio, at ________ on
_________________, 1998.
RECORD DATE
Southern. The Board of Directors of Southern has fixed the close of
business on ____________, as the Record Date for the determination of the
holders of Southern Common Stock entitled to receive notice of and to vote at
the Special Meeting.
VOTES REQUIRED
Southern. As of the Record Date, there were 39,000 shares of Southern
Common Stock outstanding. Holders of Southern Common Stock are entitled to one
vote per share. Under applicable provisions of Ohio Law and the Amended and
Restated Articles of Incorporation of Southern, the affirmative vote of at
least a majority of the outstanding shares of Southern Common Stock, or 19,501
shares is required to approve the Agreement. In addition, approval of the
proposed acquisition of a controlling interest in Southern by UBCP under the
provisions of the Acquisition Act requires the affirmative vote of 19,501
shares which represents a majority of the shares entitled to vote in the
election of directors and 14,480 shares cast in connection with the vote which
excludes interested shares, as defined by the Acquisition Act. Each share of
Southern Common Stock is entitled to one vote.
As of the Record Date, directors and executive officers of Southern and
their affiliates owned beneficially an aggregate of 10,040 shares of
Southern Common Stock or approximately 25.74% of the shares of Southern
Common Stock outstanding on such date. As of the Record Date, directors and
executive officers of Southern beneficially owned less than 1% of UBCP Common
Stock.
VOTING AND REVOCATION OF PROXIES
Shares of Southern Common Stock represented by a proxy properly signed and
received on or prior to the Special Meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF SOUTHERN COMMON
STOCK REPRESENTED BY SUCH A PROXY WILL BE VOTED FOR THE AGREEMENT. Any proxy
given pursuant to this solicitation may be revoked by the person giving it at
any time before the proxy is voted by the filing of an instrument revoking it
or of a duly executed proxy bearing a later date with the Secretary for
Southern prior to or at the Special Meeting, or by voting in person at the
Special Meeting. Attendance at the Special Meetings will not in and of itself
constitute a revocation of a proxy.
The Board of Directors of Southern is not aware of any business to be
acted upon at the Special Meeting other than as described herein. If, however,
other matters properly come before the Special Meeting, or any adjournments or
16
<PAGE> 19
postponements thereof, the person(s) appointed as proxies will have discretion
to vote or act thereon according to their best judgment.
Ohio law affords dissenters' rights to holders of Southern Common Stock in
connection with the Merger. For additional information regarding dissenters'
rights see "PROPOSED MERGER -- Dissenters' Rights".
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Southern who will not be specifically compensated for such services, may
solicit proxies from the shareholders of Southern personally or by telephone or
telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries, and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for the reasonable
expenses incurred in doing so.
It is not anticipated that anyone will be specially engaged to solicit
proxies or that special compensation will be paid for that purpose. Southern
reserves the right to do so should it conclude that such efforts are needed.
Southern will bear its own expenses in connection with the solicitation of
proxies for its Special Meeting. See "PROPOSED MERGER -- Expenses."
HOLDERS OF SOUTHERN COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO SOUTHERN IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
PROPOSED MERGER
This section of the Proxy Statement-Prospectus describes certain aspects
of the proposed Merger. The following description does not purport to be
complete and is qualified in its entirety by reference to the Agreement which
is attached as Exhibit A to this Proxy Statement-Prospectus and is incorporated
herein by reference.
BACKGROUND AND REASONS FOR THE MERGER
Southern. On December 22, 1997, the management of Southern met to discuss
an indication of interest received from UBCP with respect to a possible merger
transaction (the "Merger"). At that time the Board of Directors authorized
Southern's management to pursue preliminary discussions with UBCP with a view
to obtaining information regarding the Merger.
In December of 1997, the Board of Directors of Southern engaged Young &
Associates, Inc., Kent, Ohio, ("Young") as their financial advisor to provide
an opinion to Southern as to the fairness of the transaction to the
shareholders of Southern from a financial standpoint, and also to conduct a due
diligence review of UBCP. During the following weeks, Southern and UBCP and
their respective financial and legal advisors engaged intermittently in
negotiations concerning the terms of the Merger and each of UBCP and Southern
performed due diligence reviews of the other.
On January 12, 1998, Southern's Board of Directors met to consider the
proposed terms of the Merger. This Meeting included a presentation by Young and
Southern's legal advisor, which included summaries of financial and valuation
analyses, the terms of the proposed acquisition, regulatory and accounting
matters, the due diligence findings of Southern's management and advisors, and
Young's oral opinion relating to the fairness of the Merger to the shareholders
of Southern from a financial perspective. At the conclusion of this meeting,
the Board of Directors of Southern authorized Southern's management to continue
to negotiate the terms of a definitive agreement with UBCP.
On February 4, 1998, Southern's Board of Directors unanimously approved
the Merger in an Action in writing without a Meeting based upon the following
factors. (1) Young's opinion that the terms of the Merger are fair to the
shareholders of Southern from a financial perspective; (2) the overall
financial terms of the Merger; (3) UBCP's representations with respect to the
operation of Southern and Glouster Bank after the Merger; (4) the short-term
and
17
<PAGE> 20
long-term prospects of Southern; (5) current long-term industry developments and
trends; (6) competitive factors and (7) considerations concerning the Southern
Employees and Employees of Glouster Bank.
UBCP. The Board of Directors of UBCP has concluded that the Merger would
be in the best interests of UBCP and its shareholders. Numerous factors were
considered by the Board of Directors of UBCP in approving and recommending the
terms of the Merger. These factors included information concerning the
financial condition, results of operations, and prospects of UBCP and Southern;
the capital adequacy of the resulting entity; the composition of the businesses
of the two organizations in the rapidly changing banking and financial services
industry; the historical and current market prices of each company's stock and
of certain other bank holding companies whose securities are publicly traded;
the relationship of the consideration to be paid in the Merger to such market
prices and to the book value and earnings per share of Southern and the
financial terms of certain other recent business combinations in the banking
industry. In addition the Board of Directors considered the advice of its
financial advisor, Austin Associates, Inc.
The Board of Directors of UBCP believes that combining with Southern which
has established banking operations in Glouster, Ohio is a natural and desirable
extension of UBCP's market area. The Board of Directors of UBCP also believes
that the consolidation of resources by reason of the Merger will enable the
resulting organization to provide a wider and improved array of financial
services to customers and to achieve added flexibility in dealing with the
changing competitive environment in the financial services industry.
RECOMMENDATION OF THE SOUTHERN BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF SOUTHERN UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF SOUTHERN VOTE FOR APPROVAL OF THE AGREEMENT.
OPINION OF SOUTHERN'S FINANCIAL ADVISOR
Southern retained Young & Associates, Inc., a financial institution
consulting firm of Kent, Ohio, to issue a fairness opinion in connection with
the Merger. Young & Associates issued its written opinion to the Board of
Directors on March 11, 1998, stating that the terms of the Merger Agreement
were fair and equitable to Southern and its shareholders from a financial point
of view. Young & Associates updated its opinion to ___________, 1998 and
reaffirmed that the terms of the Merger Agreement were fair and equitable to
Southern and its shareholders from a financial point of view. A copy of the
opinion of Young & Associates is set forth as Appendix B to this Proxy
Statement/Prospectus and should be read in its entirety.
Young & Associates, Inc. regularly evaluates financial institutions and
their securities for a wide range of purposes, including, but not limited to,
mergers and acquisitions. Southern selected Young & Associates to issue a
fairness opinion on the basis of its experience, reputation, and
qualifications.
Young & Associates advised Southern and its legal advisors during the
initial negotiations between Southern and UBCP. The terms of the Agreement,
including the exchange ratio, were negotiated by the parties and their legal
representatives at arms-length.
Young & Associates analyzed various public and non-public sources of
information in developing our opinion, included but not limited to, (i)
financial data of Southern from December 31, 1995 through December 31, 1997
from published annual reports, internal bank reports, and interviews with bank
management; (ii) financial data regarding UBCP from publicly available
regulatory reports; (iii) comparative financial data of peers for each
institution from public sources; (iv) published reports from various sources
regarding transactions similar in nature to that proposed in the Merger; and
(v) the Merger Agreement itself.
18
<PAGE> 21
Young & Associates performed several analyses which are common within the
banking industry and made certain assumptions, which it believes to be
reasonable, about future performance. As with any projection of future
outcomes, actual performance may vary. The focus of the analysis was on the
value of Southern as an independent entity, and whether the Merger fairly
compensated the shareholders of Southern for that value; whether the price/book
to Southern at various prices of UBCP shares was relative to similar and recent
merger transactions; and how the earnings performance of UBCP compared with
banks sharing similar characteristics.
Financial Analysis of Southern and Forecast. Young & Associates analyzed
the past and present earnings performance of Southern, primarily that of its
subsidiary, Glouster Community Bank, compared it to peers, and projected
earnings ten years into the future. Various assumptions were developed through
interviews with management and are believed to be reasonable and attainable.
The earnings of Glouster Community Bank measured by return on average
assets ("ROA") have tended to trail peer banks from December 31, 1993 through
December 31, 1997. As of December 31, 1996, the last full year for which
comparisons are available at the time of this writing, for example, Glouster's
ROA was -.41 percent compared with 1.23. A comparison of Glouster versus peer
banks for 1994 and 1995 reflects ROA of .56 and .56 respectively compared with
peer banks at 1.10 and 1.23 for those same years. The return on average equity
("ROE") for Glouster also trailed peer banks during those same periods,
reflecting -5.53 percent as of December 31, 1996 versus average peers ratios of
12.95 percent. Glouster's ROE for 1994 and 1995 was 7.57 percent and 7.41
percent versus peer bank ratios of 11.88 percent and 13.03 percent for those
same years. Earnings for 1997 reflect .34 percent ROA and 4.68 percent ROE.
Earnings have been negatively affected by recent losses in the loan
portfolio and higher than average noninterest expenses. Non-interest income to
average assets has also trailed peer banks. The bank has made substantial
provisions for loan losses in both 1996 and 1997. In 1996 the provision
charged to expenses was 2.15 percent of average assets versus .14 percent for
peer banks in that year. The provision in 1997 was .93 percent of average
assets. The bank's noninterest expense as a percent of average assets was 3.87
percent in 1996 versus 3.02 percent for peer banks.
The bank's reserve for loan and lease losses was 2.16 percent of loans as
of December 31, 1996, well in excess of the 1.35 percent in peer banks. The
reserve was 2.25 percent of loans as of year end 1997. Management believes it
has made significant progress in the loan portfolio and that it has provided an
adequate reserve for future losses.
Net interest income, however, as a percent of average assets has been
historically higher than peer banks. In all of the periods observed Glouster's
net interest income on a fully taxable basis divided by average assets, was
approximately .50 percent in excess of similar banks. The cause of that
favorable comparison is Glouster's higher percent of interest income, through
higher yielding loans, while its interest expense is actually higher than peer
banks.
Young & Associates forecasted earnings of The Glouster Community Bank ten
years into the future based on certain assumptions which it believes to be
reasonable. It was assumed that the provision for loan and lease losses could
be reduced to peer bank levels beginning in 1998. Noninterest expense as a
percent of average assets was anticipated to decline gradually over the ten
years, approaching the peer bank level in year ten. Noninterest income as a
percent of average assets was expected to remain at the same level throughout
the forecast. It was also expected that net interest income to average assets
would experience a gradual decline, but continue to be in excess of peer banks.
Based on these assumptions, Young & Associates believes that Glouster, as an
independent financial institution, would reach peer level ROA of 1.26 percent
in the tenth year of the forecast and ROE of 12.91 percent, approximately equal
to peers, in that same year.
The ten year forecast of earnings along with compound interest earnings to
shareholders from dividends paid was discounted to a present value to develop a
probable trading range of the shares of Southern as an independent entity,
assuming that Glouster Community Bank remained the only significant holding of
Southern. Based on that present value computation, and considering average
price/earnings ratios of Midwest community banks and average price/book
multiples, Young & Associates believes the shares of Southern would be valued
at from $120 to $130 per share.
19
<PAGE> 22
Terms of Agreement - Exchange Ratio. The Agreement provides that the
39,000 shares of Southern will be exchanged for 429,000 shares of UBCP, or 11
shares of UBCP for each share of Southern. Based on this rate of exchange,
shareholders of Southern would own 16.1 percent and the existing shareholders
of UBCP would own 83.9 percent respectively of the merged institution. At the
time of the Agreement, the exchange was estimated to be worth approximately 3
times book value to the shareholders of Southern. At the time of signing, the
shares of UBCP were valued, based on the most recent trade at $28.00 per share.
The parties elected not to adjust the exchange ratio for any price
fluctuations of UBCP.
Value of Exchange to Shareholders of Southern and Comparison. Young &
Associates constructed a computer model which showed the change in the multiple
of book value to the shareholders of Southern at various price of UBCP and
compared those results with other recent mergers. The value per share of UBCP
on the February 9, 1998 agreement date was $28.00. On December 31, 1997, the
book value per share of Southern was $97.13. At the exchange rate of 11:1, the
shareholders of Southern would receive approximately $308 in value for each
share of Southern held, or approximately 317 percent of year end book value.
At a price of $28.00 per share, the shares of UBCP are trading at 22 times
twelve month trailing earnings. An average PE of 23 Midwest community banks,
published by The American Banker on February 9, 1998, the Agreement date,
excluding all with ratios greater than 30 times earnings, was 19.2. UBCP is
included in that published list. To determine a range of possible values to
the current Southern shareholders, Young & Associates constructed a table of
values at share prices $5.00 above and below the UBCP price on the Agreement.
At $23.00, a decline of nearly 18 percent, per share of UBCP, the shareholders
of Southern would still receive 250 percent of book value. At $33.00 the
Southern shareholders would receive 360 percent of book value. At a PE of
19.2, from the Midwest sample above, the value of UBCP is approximately $24.50
per share or 260 percent of book value to Southern.
In the October 3, 1997 American Banker an article, "Time to Sell?..."
referring to a study by Sheshunoff Information Services, Inc. reported that for
the third quarter of 1997, the average price/book for merger/acquisitions for
banks under three billion dollars in assets was 202 percent of book value. At
all ranges considered above, Young & Associates believes that the value of the
exchange to Southern shareholders, therefor, compares favorably with those
transactions.
Financial Performance of UBCP. Through December 31, 1996, UBCP achieved
an ROA of 1.32 percent, placing it in the top 36 percent of the 662 bank
holding companies in the Uniform Bank Performance Report. The ROE of UBCP was
13.61 percent, somewhat above that of peers at 12.92 percent. The latter
comparison should be understood in light of UBCP's higher than peer
equity/total assets ratio of 9.89 percent versus 9.39 percent for peers. The
strong capital position would cause ROE to be somewhat lower. The earnings of
UBCP, however, have been sufficiently strong to maintain higher capital and
still produce higher ROE. Another measure of capital adequacy is risk-based
capital to risk-weighted assets, which simply requires greater levels of
capital for greater levels of risk. UBCP's risk-based capital to risk-weighted
assets ratio was 18.38 percent as of December 31, 1996, above the 16.76 percent
for peer banks. UBCP's results through September 30, 1997, the last period for
which peer data is available, were also analyzed and reflected the same
relationships.
UBCP's earnings are characterized by average net interest income/average
assets, lower noninterest expense, adequate control of loan losses. Net
interest income through December 31, 1996 was 4.46 percent of average assets
compared with 4.38 percent for peer banks. Better than average control of
operating expenses is evidenced by noninterest income to average assets of 2.71
versus 3.28 percent for peers. Noninterest income to average assets trails
peers at .46 percent of average assets compared with peer banks at .92 percent.
These patterns have also been consistent through September 30, 1997.
UBCP's control of loan losses is another source of strength for the bank.
While the bank has provided for future losses through its loan loss provision
at levels equal to or greater than peer group banks as a percent of average
assets, it has consistently charged-off fewer total dollars of loans as a
percent of total loans. This is indicative of both control of lending and
collection functions, and conservative accounting for future potential
20
<PAGE> 23
losses.
Forecast of UBCP and Merged Institution. Young & Associates produced a
ten year forecast of future earnings for UBCP based on a continuation of recent
trends in the bank holding company's performance. This forecast was merged
with the forecast of Southern to develop the combined income results for the
merged institution before any consideration was given to the income improvement
opportunities available through economics of scale or expanded capabilities of
the larger organization. Young & Associates then compared the income to be
received by the shareholders of Southern both as an independent institution and
under the merger. In the first year under the merged scenario, the
shareholders of Southern as a group will receive $167,735 more than they would
receive under the independent scenario, or an increase of over 48 percent.
That advantage continues for the ten years on various, declining to a dollar
advantage of $105,000 or a 9 percent increase in year ten under the merged
scenario.
The shareholders of Southern will own 16.1 percent of the merged
institution and, under the merged scenario described above, will contribute
approximately 11 percent of earnings in year one of the merger and 15 percent
by year ten to the merged institution. Young & Associates believes further
that the above analysis is conservative and that the merged institution will
benefit the shareholders of Southern to an even greater degree. The management
of UBCP has consistently demonstrated its ability to control both loan losses
and operating expenses. Both of those are present areas of weakness in the
earnings stream of Southern.
Other Issues. Young & Associates examined the Agreement for other issues
which might affect the shareholders of Southern from a financial point of view
and found no issues which it felt worked to the disadvantage of the
shareholders of Southern.
The analysis by Young & Associates was performed independently and without
limitations imposed by any of the parties involved in the Merger. In
conducting the analysis, information from publicly available financial data
resources, financial data from internal bank records of Southern, and
representations of the parties in the Merger Agreement and/or the Joint Proxy
Statement/Prospectus. That information was assumed to be reliable and no
attempt was made to verify the information independently. It was further
assumed that the Merger will be completed as planned and that no other
conditions will be imposed which might work to the detriment of the
shareholders of Southern.
For Young & Associates' services as financial advisor in the proposed
transaction, Southern will pay the firm a fee of $75,000, including $10,000 for
the issuance of the fairness opinion, plus reasonable out-of-pocket expenses,
and indemnify Young & Associates against certain liabilities, including
liabilities under the securities laws.
TERMS OF THE MERGER
At the Effective Time (as defined below), Southern will merge with UBCP
with the result that Glouster Bank will become a wholly owned subsidiary bank
of UBCP. At the Effective Time, the outside directors of Glouster Bank serving
in such capacity immediately prior to the Effective Time shall continue to be
the directors of Glouster Bank with the addition of two persons to be named by
UBCP. In addition, Mr. Harold Price, presently President and CEO of The
Citizens Bank of Strasburg, a subsidiary of UBCP will become President and CEO
of Glouster Bank. In addition, at the Effective Time, the Agreement provides
that Mr. L.E. Richardson, Chairman, President & CEO of Southern will become a
member of the Board of Directors of UBCP. The Agreement provides an
understanding by UBCP to cause the name of Glouster Bank, namely "The Glouster
Community Bank," to remain unchanged for a period of at least two years
following the date of the Merger.
At the Effective Time, all of the outstanding shares of Southern Common
Stock will be converted into shares of UBCP Common Stock in accordance with the
terms of the Agreement and the Exchange Ratio as defined by the Agreement. The
Exchange Ratio provides that each outstanding share of Southern Common Stock
shall be exchanged for and converted into the right to receive eleven (11)
shares of UBCP Common Stock. In the transaction, UBCP expects to issue 429,000
shares of UBCP Common Stock in the Merger.
21
<PAGE> 24
No fractional shares of UBCP Common Stock will be issued in the Merger.
Rather, each holder of Southern Common Stock who otherwise would have been
entitled to a fraction of a share of UBCP Common Stock shall receive in lieu
thereof cash, without interest, in an amount determined by multiplying the
fractional share interest to which such holder would otherwise be entitled by
the average of the bid and asked closing price on the effective date of the
Merger.
EFFECTIVE TIME OF THE MERGER
Subject to satisfaction or waiver of all other conditions contained in the
Agreement, the Merger, will become effective at a date to be specified by UBCP
which shall not be later than the last day of the month following the month in
which the last of the following occurs: (i) approval of the Agreement by the
Federal Reserve Board, (ii) approval of the Merger by the shareholders of
Southern, and (iii) all other regulatory approvals have been obtained and the
regulatory waiting periods have expired. Upon filing an executed Certificate of
Merger with the Secretary of State in Ohio, the Merger will become effective at
such time as is specified in the Articles of Merger (the "Effective Time").
Subject to the conditions contained in the Agreement, the Effective Time is
currently expected to occur during the third quarter of 1998.
SURRENDER OF SOUTHERN CERTIFICATES
As soon as practicable after the Effective Time of the Merger UBCP is
required by the Agreement to mail to each holder of record of Southern Common
Stock a letter of transmittal and instructions for use in surrendering such
holder's Southern Common Stock certificates.
SOUTHERN SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM UBCP.
Upon surrender to UBCP of one or more certificates of Southern Common
Stock together with a properly completed letter of transmittal, UBCP will issue
and deliver to the holder of record of Southern Common Stock, a certificate
representing the number of shares of UBCP Common Stock to which the holder is
entitled and, where applicable, a check for the amount representing any
fractional share interest.
All UBCP Common Stock issued pursuant to the Agreement will be issued as
of the Effective Time. No dividends or other distributions declared with
respect to UBCP Common Stock payable to former holders of Southern Common
Stock, pursuant to the Merger and payable to the holders thereof after the
Effective Time shall be paid until such holder surrenders such holder's
Southern Common Stock certificates. Subject to the effect of applicable laws,
after the surrender and exchange of such certificates, the holder of
certificates for shares of UBCP Common Stock into which the shares of Southern
Common Stock shall have been converted shall be entitled to receive any
dividends or other distributions, but without any interest, which previously
became payable by UBCP with respect to the shares of Southern Common Stock
represented by such certificate or certificates.
In the case of any lost, stolen or destroyed Southern Common Stock
certificate, UBCP will issue a new certificate representing shares of UBCP
Common Stock and a check for the cash into which a fractional share of Southern
Common Stock shall have been converted only if UBCP receives: (i) evidence to
the reasonable satisfaction of UBCP that such certificate has been lost,
wrongfully taken or destroyed, (ii) such indemnity agreement as reasonably may
be requested by UBCP to save it harmless, and (iii) evidence satisfactory to it
of ownership of Southern Common Stock for which the certificate has been lost,
wrongfully taken or destroyed.
After the Effective Time, there will be no further registration of
transfers on the stock transfer books of UBCP of shares of Southern Common
Stock. Shares of Southern Common Stock presented to UBCP for transfer after the
Effective Time will be canceled and exchanged for certificates representing
shares of UBCP Common Stock and cash in lieu of any fractional share interest
as provided in the Agreement.
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<PAGE> 25
CONDITIONS TO THE MERGER
The Merger will occur only if the Agreement is adopted by the requisite
vote of the shareholders of Southern and the acquisition of a controlling
interest in Southern is approved by the shareholders of Southern as required by
the Acquisition Act. Consummation of the Merger is subject to the satisfaction
of certain other conditions, unless waived to the extent waiver is permitted by
applicable law. Such conditions include, but are not limited to, the following:
(i) the receipt of all necessary regulatory approvals, including the approval
of the Federal Reserve Board; (ii) the effectiveness of the Registration
Statement registering the shares of UBCP to be issued in the Merger, and the
absence of a stop order suspending such effectiveness or proceedings seeking a
stop order; (iii) the absence of a temporary restraining order, injunction or
other order of any court of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Merger; (iv) the continued
accuracy of representations and warranties by Southern and UBCP regarding,
among other things, the organization of the parties, financial statements,
capitalization, pending and threatened litigation, enforceability of the
Agreement and compliance with law and tax matters; (v) the performance by
Southern and UBCP in all material respects of each of the obligations required
to be performed by them under the Agreement; (vi) the receipt by Southern and
UBCP and the continuing effectiveness of opinion of counsel as to certain
federal income tax consequences of the respective Merger; (vii) that no event
shall have occurred, which, in the reasonable opinion of UBCP and its auditors,
would prevent the Merger from being accounted for as a pooling of interests;
(viii) the absence of any material adverse change since December 31, 1997, in
the financial condition, results of operation or business of Southern and UBCP
in each case, together with their respective subsidiaries taken as a whole;
(ix) the absence of any material action, suit or proceeding commenced against
Southern and UBCP with respect to the Merger seeking to restrain, enjoin,
prevent, change or rescind the transaction contemplated by the Agreements or
questioning the validity or legality of any such transaction; (x) the receipt
by Southern and UBCP of opinions of counsel as provided in the Agreement; (xi)
the receipt by Southern of an opinion, from its financial advisor, dated the
date of the mailing of the Proxy Statement-Prospectus, that the Merger is fair
to the holders of Southern Common Stock from a financial point of view; and
(xii) that not more than ten percent of the voting power of the issued and
outstanding shares of Southern Common Stock shall have taken steps, at the time
the Merger shall become effective, to perfect their rights as dissenting
shareholders under Ohio law.
The consummation of the Merger is conditioned upon the determination that
the Merger will be accounted for under the pooling of interests method of
accounting. In the event the Merger did not qualify for pooling accounting
treatment, but the parties determined to consummate the Merger and to waive the
condition, the Merger would not be consummated without a resolicitation of the
vote of shareholders of Southern. In such an event, the revised pro forma
financial information would be materially different than those presented
elsewhere herein.
In addition, unless waived, each party's obligation to consummate the
Merger is subject to performance by the other party of its obligations under
the respective Agreement and the receipt of certain certificates from the other
party.
REGULATORY APPROVAL
The Merger is subject to prior approval by the Federal Reserve Board under
the Bank Holding Company Act of 1956, as amended ("BHC Act"), which requires
that the Federal Reserve Board take into consideration the financial and
managerial resources and future prospects of the respective institutions and
the convenience and needs of the communities to be served. The BHC Act
prohibits 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 to attempt to monopolize the business of banking in any part of
the United States, or if its effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the Federal Reserve
Board finds that the anti-competitive effects of the Merger are clearly
outweighed in the public interest by the probable effect of the transaction in
meeting the convenience and needs of the communities to be served. The Federal
Reserve Board has the authority to deny an application if it concludes that the
combined organization would have an inadequate capital position.
Under the BHC Act, the Merger may not be consummated until the 30th day
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness
of the Federal Reserve Board's
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<PAGE> 26
approval unless a court specifically orders otherwise. The BHC Act provides for
the publication of notice and public comment on the application and authorizes
the regulatory agency to permit interested parties to intervene in the
proceedings.
UBCP filed an application with the Federal Reserve Bank of Cleveland (the
"Federal Reserve Bank") on March 31, 1998, seeking approval of the Merger. On
______________, such application was approved.
The approvals of the Federal Reserve Board is not to be interpreted as the
opinion of such regulatory authority that the Merger is fair to the
shareholders of Southern from a financial point of view or that such regulatory
authority has considered the adequacy of the terms of the Merger. An approval
by such regulatory authority in no way constitutes an endorsement or a
recommendation of the Merger by the Federal Reserve Board.
There can be no assurance that the Department of Justice will not
challenge the Merger or if such a challenge is made, as to the result thereof.
Other than the regulatory approvals described herein and required
compliance with certain federal and state securities laws by UBCP in connection
with its issuance of shares of UBCP Common Stock in connection with the Merger
with which UBCP will comply, UBCP and Southern are not aware of any other
governmental approvals or actions that are required for consummation of the
Merger except as described above. Should any other approval or action be
required, it is presently contemplated that such approval or action would be
sought. There can be no assurance that any such approval or action, if needed,
could be obtained and, if such approvals or actions are obtained, there can be
no assurance as to the timing thereof.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the Agreement Southern and UBCP are generally obligated to (and to
cause their respective subsidiaries to) operate their respective businesses
only in the usual and ordinary course consistent with past practices; use
reasonable efforts to keep in force current insurance coverage; refrain from
any change in their methods of accounting or certain other policies and refrain
from taking any action that would adversely affect or delay regulatory approval
of the Agreement; give the other party and its representatives access to
information concerning its affairs as may be reasonably requested; and with
respect to Southern refrain from paying cash dividends except as permitted
under the Agreement, see "Dividends."
DIVIDENDS
Under the Agreement, Southern may not pay cash dividends prior to the
Effective Time of the Merger except subject to any regulatory guidelines or
restrictions, a cash dividend, prorated to the effective time of the Merger, at
the rate of $1.20 per share annually.
TERMINATION, AMENDMENT AND WAIVER
The Agreement may be terminated at any time prior to the Effective Time
whether before or after approval of the matters presented by the shareholders
of Southern: (i) by mutual consent of the Boards of Directors of Southern and
UBCP; (ii) by either party to the Merger if all required regulatory approvals
are not received; (iii) by the Board of Directors of either party if there has
been a willful breach of any representation, warranty, covenant or agreement by
the other party which is not cured after 15 days' written notice; (iv) by
either party if the required vote of Southern shareholders is not received; or
(v) by the Board of Directors of either party if the Merger is not consummated
by December 31, 1998.
The Agreement may not be amended except in writing signed on behalf of
both parties, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of Southern. At any time prior
to the Effective Time, either party to the Agreement may, to the extent legally
allowed, extend the time for performance of any of the obligations of the other
party, waive any inaccuracies in representations and warranties of the other
and waive compliance with any of the agreements or conditions of the Agreement.
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<PAGE> 27
TERMINATION FEE
The Agreement requires that Southern pay to UBCP $500,000 if Southern
shareholders fail to approve the Agreement and Southern or its shareholders
receive an offer from and negotiate with any party other than UBCP at anytime
within one year of the date of the Agreement concerning a merger,
consolidation, purchase of substantially all of the Southern Common Stock, or
similar transaction.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
As a result of the Merger, Glouster Bank will become a wholly owned
subsidiary of UBCP. UBCP expects to continue to operate Glouster Bank at its
present locations. Immediately after the Effective Time of Merger, the Board of
Directors of Glouster Bank shall be comprised of all those persons serving as
an outside director of Glouster Bank immediately prior to the Effective Time of
the Merger plus two additional persons to be named by UBCP. The Board of
Directors of UBCP after the Effective Time of the Merger shall be comprised of
all those persons serving as a director of UBCP immediately prior to the
Effective Time plus Mr. L.E. Richardson, Chairman, President and Chief
Executive Officer of Southern.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, executive officers and directors of Southern are or
may be deemed to be the beneficial owners of less than 1% of the outstanding
shares of UBCP Common Stock and executive officers and directors of UBCP
beneficially own no shares of Southern Common Stock.
EFFECT ON EMPLOYEE BENEFIT PLANS
Southern. Employees of Glouster Bank will be eligible to participate in
the employee benefit plans of UBCP immediately upon the consummation of the
Merger, subject to the requirements of such plans.
UBCP. Employee benefits of UBCP will not be changed as a result of the
Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the anticipated federal income
tax consequences of the Merger to holders of UBCP Common Stock and Southern
Common Stock and to UBCP and Southern. The summary is not a complete
description of the federal income tax consequences of the Merger. Each
shareholder's individual circumstances may affect the tax consequences of the
Merger to such shareholder.
Neither UBCP nor Southern has requested or will receive an advance ruling
from the Internal Revenue Service (the "Service") as to the tax consequences of
the Merger. With respect to the Merger, UBCP and Southern have received an
opinion from special counsel to UBCP, Werner & Blank Co., L.P.A. This tax
opinion is based upon certain representations made by UBCP and Southern and
upon the current law and the current judicial and administrative
interpretations thereof. This opinion will not be binding on the Service or any
court. Consequently, there can be no assurance that the tax consequences set
forth below will continue as described herein, nor can any assurance be given
that the issues discussed below will not be challenged by the Service, or, if
so challenged, will be decided favorably to the parties to the Merger or their
shareholders.
Subject to the foregoing, the opinions of Werner & Blank Co., L.P.A., are
substantially as follows:
(i) Since the merger of Southern with and into UBCP qualifies as a
statutory merger under applicable federal law, the Merger will qualify as
a "reorganization" within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code");
(ii) No gain or loss will be recognized by Southern or UBCP upon
merger of Southern with and into
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<PAGE> 28
UBCP;
(iii) No gain or loss will be recognized by the Southern shareholders
who exchange, pursuant to the Merger, their shares of Southern Common
Stock solely for shares of UBCP Common Stock;
(iv) The federal income tax basis of the UBCP Common Stock to be
received by the Southern shareholders in Merger, including fractional
share interests, will be the same as the federal income tax basis of such
Southern Common Stock surrendered therefor;
(v) The holding period of the UBCP Common Stock to be received by the
Southern shareholders in the Merger will include the period during which
the Southern Common Stock surrendered was held as a capital asset on the
Effective Date of the Merger;
(vi) The payment of cash in lieu of fractional share interests of
UBCP Common Stock will be treated as if the fractional shares were
distributed as part of the Merger and then were redeemed by UBCP. These
cash payments will be treated as having been received as distributions in
full payment in exchange for the stock redeemed as provided in Section
302(a) of the Code; and
(vii) Where a Southern shareholder dissents to the Merger, and such
shareholder receives solely cash in exchange for his or her Southern
Common Stock, such cash will be treated as having been received by such
shareholder as a distribution in redemption of his or her shares subject
to the provisions and limitations of Section 302 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE HAS NOT BEEN VERIFIED
WITH THE INTERNAL REVENUE SERVICE AND IS BASED UPON THE FEDERAL INTERNAL
REVENUE CODE AS IN EFFECT ON THE DATE OF THIS PROXY STATEMENT-PROSPECTUS
WITHOUT CONSIDERATION OF ANY STATE LAWS OR THE PARTICULAR FACTS OR
CIRCUMSTANCES OF ANY SOUTHERN SHAREHOLDER.
BECAUSE OF THE COMPLEXITY OF THE FEDERAL, STATE AND LOCAL TAX LAWS, IT IS
RECOMMENDED THAT SHAREHOLDERS OF SOUTHERN CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES RESULTING FROM THE MERGER.
ACCOUNTING TREATMENT
The Agreement provides that consummation of the Merger is conditioned upon
the receipt by UBCP of assurances, satisfactory to it, that the Merger
qualifies for accounting treatment as a pooling of interests if consummated in
accordance with the Agreement. Under the pooling of interests method of
accounting, the historical basis of the assets and liabilities of UBCP and
Southern will be combined at the Effective Time and carried forward at their
previously recorded amounts, and the shareholders' equity accounts of Southern
and UBCP will be consolidated on UBCP's balance sheet. Income and other
financial statements of UBCP issued after consummation of the Merger will be
restated retroactively to reflect the consolidated operations of UBCP and
Southern as if the Merger had taken place prior to the periods covered by such
financial statements.
For the Merger to qualify as a pooling of interests for accounting
purposes, substantially all (90% or more) of the outstanding Southern Common
Stock must be exchanged for UBCP Common Stock. All parties have agreed not to
take any action which would disqualify the Merger from pooling of interests
treatment by UBCP.
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<PAGE> 29
EXPENSES
The Agreement provides that whether or not the Merger is consummated, all
costs and expenses incurred in connection with the Agreement and the
transactions contemplated therein shall be paid by the party incurring such
expense.
RESALE OF UBCP COMMON STOCK
The shares of UBCP Common Stock to be issued in the Merger to holders of
Southern Common Stock have been registered under the Securities Act and may be
freely traded by holders of Southern Common Stock who, at the Effective Time,
are not "affiliates" of Southern (and who are not affiliates of UBCP at the
time of the proposed resale). Directors, executive officers, and 10%
shareholders of Southern are generally deemed to be affiliates under the
Securities Act. Pursuant to the Agreement, UBCP must have received from each
affiliate of Southern a written undertaking to the effect that (a) he or she
will not sell or dispose of UBCP Common Stock acquired in the Merger other than
in accordance with the Securities Act, except under (i) a separate registration
statement for distribution (which UBCP has not agreed to provide), or (ii) Rule
145 promulgated thereunder by the SEC, or (iii) some other exemption from
registration; and (b) he or she will not otherwise dispose of the UBCP Common
Stock or otherwise reduce his or her market risk relative to the UBCP Common
Stock within 30 days prior to the Effective Time of the Merger or prior to the
publication by UBCP of an earnings statement covering at least 30 days of
combined operations after the Effective Time.
DISSENTERS' RIGHTS
Under the provisions of Ohio Revised Code, Section 1701.85, any
shareholder of Southern who does not vote in favor of the Agreement is entitled
to receive the fair cash value of his shares, upon perfecting his right of
appraisal. Not later than ten (10) days after the date upon which the
shareholders voted upon the Merger, any shareholder seeking to perfect his
appraisal right must make a written demand upon Southern for the fair cash
value of those shares so held by him. A negative vote alone is not sufficient
to perfect rights as a dissenter. No notice of the results of the meeting will
be given to shareholders. If Southern and the shareholder have not come to an
agreement within three (3) months of the shareholder's written demand, the
shareholder or Southern may file a petition in court for a formal judicial
appraisal. Failure to follow the procedures enumerated in the Ohio Revised
Code, Section 1701.85, Qualifications of and Procedures for Dissenting
Shareholders, which is Appendix C of this Proxy Statement (the Dissenters
Statute), will waive the shareholder's right of appraisal.
THE FOREGOING SUMMARY OF THE DISSENTERS' STATUTE DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO DISSENTERS' STATUTE
AND THE OTHER PROVISIONS OF THE OHIO LAW. THE FAILURE OF A SHAREHOLDER OF
SOUTHERN TO FOLLOW THE PROCEDURES SET FORTH IN DISSENTERS' STATUTE WILL
TERMINATE SUCH SHAREHOLDER'S APPRAISAL RIGHTS. AS A CONSEQUENCE, EACH
SHAREHOLDER OF SOUTHERN WHO DESIRES TO EXERCISE SUCH RIGHTS SHOULD REVIEW
DISSENTERS' STATUTE AND FOLLOW ITS PROVISIONS. THE COMPLETE TEXT OF THE
RELEVANT PROVISIONS OF DISSENTERS' STATUTE IS ANNEXED TO THIS PROXY STATEMENT
AS APPENDIX C.
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<PAGE> 30
PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Combined Condensed Balance Sheets as of
December 31, 1997 and the Pro Forma Combined Condensed Statements of Income for
each of the three-year periods ended December 31, 1997, gives effect to the
Merger based on the historical consolidated financial statements of UBCP and
Southern under the assumptions and adjustments set forth in the accompanying
notes to the pro forma financial statements.
The Pro Forma Condensed Balance Sheet assumes the Merger was consummated
on the dates indicated, and the Pro Forma Condensed Statements of Income assume
that the Merger was consummated on January 1 of each period presented. The pro
forma statements may not be indicative of the results that actually would have
occurred if the Merger had been in effect on the dates indicated or which may
be obtained in the future. The pro forma financial statements should be read in
conjunction with UBCP's historical financial statements and the related notes
thereto incorporated by reference herein and Southern's historical financial
statements and the related notes thereto included elsewhere in this Proxy
Statement-Prospectus.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
UBCP
and Southern
Pro Forma Pro Forma
UBCP Southern Adjustments Combined
---- -------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 7,536 $ 2,309 $ 9,845
Federal funds sold 300 442 742
-------- ------- --------
Total cash and cash equivalents 7,836 2,751 10,587
Securities 59,193 15,869 75,062
Total loans receivable 139,547 31,931 171,478
Allowance for loan losses (2,238) (800) (3,038)
-------- ------- --------
Net loans receivable 137,309 31,131 168,440
Premises and equipment, net 5,169 1,361 6,530
Accrued interest receivable and other assets 2,235 753 2,988
-------- ------- --------
Total assets $211,742 $51,865 $263,607
======== ======= ========
LIABILITIES
Noninterest bearing deposits $ 12,839 $ 3,824 $ 16,663
Interest-bearing deposits 162,952 43,873 206,825
-------- ------- --------
Total deposits 175,791 47,697 223,488
Securities sold under agreements to repurchase 8,391 0 8,391
Other borrowed funds 4,278 0 4,278
Accrued expenses and other liabilities 1,357 380 1,737
-------- ------- --------
Total liabilities 189,817 48,077 237,894
SHAREHOLDERS' EQUITY
Common stock 2,238 195 234 2,667
Additional paid-in capital 15,459 326 (234) 15,551
Retained earnings 4,060 3,263 7,823
Unrealized gain on securities available for
sale, net of applicable income taxes 168 4 172
-------- ------- --------
Total shareholders' equity 21,925 3,788 25,713
-------- ------- --------
Total liabilities and shareholders' equity $211,742 $51,865 $263,607
======== ======= ========
</TABLE>
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<PAGE> 31
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA )
<TABLE>
<CAPTION>
UBCP
and Southern
Pro Forma Pro Forma
UBCP Southern Adjustments Combined
---- -------- ----------- --------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 12,558 $ 3,586 $ 16,144
Interest and dividends on securities 3,541 902 4,443
Federal funds sold 106 108 214
--------- ------- ---------
Total interest and dividend income 16,205 4,596 20,801
INTEREST EXPENSE
Interest on deposits 6,834 2,063 8,897
Other borrowings 512 0 512
--------- ------- ---------
Total interest expense 7,346 2,063 9,409
--------- ------- ---------
NET INTEREST INCOME 8,859 2,533 11,392
Provision for loan losses 444 488 932
--------- ------- ---------
Net interest income after provision for
loan losses 8,415 2,045 10,460
Noninterest income 1,027 280 1,307
Noninterest expense 5,655 2,291 7,946
--------- ------- ---------
Income before income taxes 3,787 34 3,821
Income tax expense 940 33 973
--------- ------- ---------
NET INCOME $ 2,847 $ 1 $ 2,848
========= ======= =========
Earnings per common share - Basic $ 1.27 $ 0.03
========= =======
Pro forma earnings per common share - Basic $ 1.07
=========
Earnings per common share - Diluted $ 1.26 $ 0.03
========= =======
Pro forma earnings per common share - Diluted $ 1.06
=========
Weighted average shares outstanding - Basic 2,237,746 39,000 2,666,746
========= ======= =========
Weighted average shares outstanding - Diluted 2,254,937 39,000 2,683,937
========= ======= =========
Conversion ratio 1.1 to 1
=========
</TABLE>
29
<PAGE> 32
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UBCP
and Southern
Pro Forma Pro Forma
UBCP Southern Adjustments Combined
---- -------- ----------- --------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 11,476 $ 3,799 $ 15,275
Interest and dividends on securities 3,400 698 4,098
Federal funds sold 130 64 194
--------- ------- ---------
Total interest and dividend income 15,006 4,561 19,567
INTEREST EXPENSE
Interest on deposits 6,409 2,093 8,502
Other borrowings 338 0 338
--------- ------- ---------
Total interest expense 6,747 2,093 8,840
--------- ------- ---------
NET INTEREST INCOME 8,259 2,468 10,727
Provision for loan losses 456 710 1,166
--------- ------- ---------
Net interest income after provision for
loan losses 7,803 1,758 9,561
Noninterest income 921 236 1,157
Noninterest expense 5,289 1,983 7,272
--------- ------- ---------
Income (loss) before income taxes 3,435 11 3,446
Income tax expense (benefit) 851 (35) 816
--------- ------- ---------
NET INCOME $ 2,584 $ 46 $ 2,630
========= ======= =========
Earnings per common share - Basic $ 1.16 $ 1.18
========= =======
Pro forma earnings per common share - Basic $ 0.99
=========
Earnings per common share - Diluted $ 1.15 $ 1.18
========= =======
Pro forma earnings per common share - Diluted $ 0.98
=========
Weighted average shares outstanding - Basic 2,236,091 39,000 2,665,091
========= ======= =========
Weighted average shares outstanding - Diluted 2,244,058 39,000 2,673,058
========= ======= =========
Conversion ratio 11 to 1
=========
</TABLE>
30
<PAGE> 33
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION> UBCP
Southern
Pro Forma Pro Forma
UBCP Southern Adjustments Combined
--------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME
Loans, including fees $ 10,497 $ 3,665 $ 14,162
Interest and dividends on securities 3,766 632 4,398
Federal funds sold 89 19 108
--------- ------- ---------
Total interest and dividend income 14,352 4,316 18,668
INTEREST EXPENSE
Interest on deposits 6,266 1,936 8,202
Other borrowings 310 0 310
--------- ------- ---------
Total interest expense 6,576 1,936 8,512
--------- ------- ---------
NET INTEREST INCOME 7,776 2,380 10,156
Provision for loan losses 465 739 1,204
--------- ------- ---------
Net interest income after provision for
loan losses 7,311 1,641 8,952
Noninterest income 876 228 1,104
Noninterest expense 5,174 1,967 7,141
--------- ------- ---------
Income before income taxes 3,013 (98) 2,915
Income tax expense 769 (109) 660
--------- ------- ---------
NET INCOME $ 2,244 $ 11 $ 2,255
========= ======= =========
Earnings per common share - Basic $ 1.00 $ 0.28
========= =======
Pro forma earnings per common share - Basic $ 0.85
=========
Earnings per common share - Diluted $ 1.00 $ 0.28
========= =======
Pro forma earnings per common share - Diluted $ 0.85
=========
Weighted average shares outstanding - Basic 2,236,010 39,000 2,665,010
========= ======= =========
Weighted average shares outstanding - Diluted 2,236,658 39,000 2,665,658
========= ======= =========
Conversion ratio 11 to 1
=========
</TABLE>
31
<PAGE> 34
DESCRIPTION AND COMPARISON OF UBCP COMMON STOCK
AND SOUTHERN COMMON STOCK
GENERAL
UBCP is an Ohio corporation governed by and subject to the Ohio General
Corporation Law ("OGCL"). Southern is an Ohio corporation organized under and
governed by the provisions of the OGCL. If the proposed Merger is consummated,
shareholders of Southern who receive UBCP Common Stock will become shareholders
of UBCP and, as such, their rights as shareholders will be governed by the OGCL
and by UBCP's Articles, Code of Regulations and other corporate documents. The
rights of holders of shares of Southern Common Stock differ in certain respects
from the rights of holders of UBCP Common Stock. A summary of the material
differences between the respective rights of Southern from that of UBCP
shareholders is set forth below.
As of the date of the Agreement UBCP was authorized to issue 10,000,000
shares of $1.00 par value common stock ("UBCP Common Stock"). As of the date of
the Agreement, UBCP had 2,238,314 shares of UBCP Common Stock issued and
outstanding, which left 7,761,686 shares available for future issuance.
Pursuant to the terms of the Merger UBCP will issue an aggregate of 429,000
shares of UBCP Common Stock to shareholders of Southern.
The authorized Common Stock of Southern consists of 39,000 shares of
Common Stock, $5.00 par value per share, of which 39,000 are issued and
outstanding as of the Record Date.
UBCP Common Stock is traded on the NASDAQ Small Cap market any exchange.
Certain broker/dealers make a market in UBCP Common Stock and handle purchase
and sale transactions under the symbol "UBCP". Trading volume in UBCP Common
Stock for the twelve months ended December 31, 1997, was 313,591 shares.
Southern Common Stock is not traded on any exchange nor in the
over-the-counter market. Management is unaware of trades involving 3,154 shares
of Southern Common Stock during the twelve months ended December 31, 1997.
While there are a substantial number of similarities between the UBCP
Common Stock and the Southern Common Stock, the rights of shareholders of
Southern will be different after the Effective Date of the Merger. Shareholders
will be affected by differences in the Articles of Incorporation and Code of
Regulations of UBCP and Southern. Listed below are the more important
attributes of the UBCP Common Stock and the differences, if any, from the
Southern Common Stock.
DIVIDENDS
Holders of UBCP Common Stock are entitled to dividends out of funds
legally available therefor, as governed by the OGCL, and if declared by the
Board of Directors. The amount and timing of dividends on UBCP Common Stock is
subject to the earnings of its subsidiaries and the amounts available for
payment of dividends by such subsidiaries under federal banking laws and
regulations. Generally, dividends from UBCP's banking subsidiaries are
restricted to net profits of the current year plus the preceding two years less
dividends paid.
PREEMPTIVE RIGHTS
Pursuant to the Articles of Incorporation, shareholders of UBCP do not
have the preemptive right to subscribe to additional shares of common stock
when issued by UBCP. Shareholders of Southern currently have preemptive rights
pursuant to the provisions of the OGCL. Preemptive rights permit a shareholder
to purchase their pro rata share of any offering by the company, subject to
certain exceptions and limitations as provided by law.
32
<PAGE> 35
VOTING
On all matters to properly come before shareholders, each share of stock
of UBCP and Southern entitles the holder thereof to one vote, except, with
respect to the right to vote cumulatively in the election of Directors, and for
the effect of certain "supermajority vote" requirements regarding business
combinations contained in the Articles of Incorporation of UBCP (see
"Cumulative Voting" and "Antitakeover Provisions"). The affirmative vote of the
holders of a majority of the outstanding UBCP Common Stock and Southern Common
Stock, respectively, is required to amend the Articles of Incorporation of UBCP
and Southern, except the amendment of the provision contained in UBCP's
Articles of Incorporation requiring a supermajority vote in certain business
combination transactions, which amendment requires the affirmative vote of the
holders of eighty percent (80%) of the UBCP Common Stock.
CUMULATIVE VOTING
Shareholders of Southern have the right to vote cumulatively in the
election of Directors. Shareholders of UBCP do not have the right to vote
cumulatively in the election of directors pursuant to UBCP's Articles of
Incorporation. In cumulative voting, a shareholder may cumulate a number of
votes equal to the number of directors to be elected times the number of shares
held by the shareholder and cast all of such votes for one nominee for
director, or allocate such votes among the nominees as the shareholder sees
fit. Cumulative voting rights afford shareholders controlling a minority stock
position the opportunity to have representation on the Board of Directors.
LIQUIDATION
Holders of UBCP and Southern stock are entitled to a pro rata distribution
of the corporation's assets upon liquidation.
LIABILITY OF DIRECTORS; INDEMNIFICATION
Under their respective Articles of Incorporation UBCP and Southern may
indemnify present or past directors, officers, employees or agents to the full
extent permitted by law.
The Articles of Incorporation of UBCP provides as follows:
The Corporation shall indemnify its present and past Directors, officers,
employees and agents, and such other persons as it shall have powers to
indemnify to the full extent permitted under, and subject to the
limitations of, Title 17 of the Ohio Revised Code. Additionally, and
subject to the limitations set forth below, the Corporation shall
indemnify its present and past Directors for personal liability for
monetary damages resulting from breach of their fiduciary duty as
Directors. Notwithstanding the above, no indemnification for personal
liability shall be provided for: (i) any breach of the Directors' duty of
loyalty to the Corporation or its shareholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law; and (iii) any transaction from which the Director
derived an improper personal benefit.
ANTITAKEOVER PROVISIONS
Ohio Law applicable to UBCP and Southern
Both Southern and UBCP are Ohio-chartered corporations and are "issuing
public corporations" under the laws of Ohio, and subject to the provisions of
the Ohio Control Share Acquisition Statute (ORC Section 1701.831) and the
Merger Moratorium Act (ORC Section 1704). Pursuant to the Ohio Control Share
Acquisition Statute, the purchase of certain levels of voting power of a
company (one-fifth or more, one-third or more, or a majority) can be made only
with the prior authorization of at least a majority of the total voting power
of such company and a separate prior authorization of the holders of at least a
majority of the voting power held by shareholders other than the proposed
purchaser, officers of the company and Directors of the company who are also
employees. This law has the potential effect of deterring certain potential
acquisitions of the company which might be beneficial to shareholders. The
Merger Moratorium Act, enacted in 1990, prohibits certain Ohio corporations
from engaging in specified types of transactions with an "interested
33
<PAGE> 36
shareholder" for a period of three years after the shareholder becomes an
"interested shareholder" unless the shareholder receives the approval of the
corporation's board of directors prior to the acquisition of shares or the
consummation of the specified type of transaction. The anticipated effect of
the Merger Moratorium Act is to encourage a potential acquiror to negotiate
with a target corporation's board of directors prior to obtaining a 10 percent
or greater block of shares in the corporation.
UBCP's and Southern's Articles of Incorporation
UBCP's Articles of Incorporation contain provisions which can be
characterized as antitakeover in nature. These applicable provisions of UBCP's
Articles of Incorporation are summarized below:
Supermajority Vote and Fair Price Provision
UBCP has a provision in its Articles of Incorporation which provide that
in certain business combination transactions, which are not approved by the
incumbent board of directors, a supervote is required by shareholders in order
to approve such a business combination. In the case of UBCP the vote of
shareholders required under such circumstances is 80%. In addition the
Articles of Incorporation of UBCP contains a "fair price" provision which
requires an acquiror to pay the same level of consideration for all shares of
the company acquired during the preceding two years. The supermajority and fair
price provisions do not apply to transactions which are approved by the
incumbent board of directors of the company nor to a transaction approved by a
vote of at least 66 2/3% of the shares excluding those owned by the acquiror.
Classified Board Provision
UBCP currently has in operation, a classified election system for electing
their Board of Directors. Directors are elected to a designated class and shall
serve until the expiration of the term for which they are elected, and until
their successors have been duly elected and qualified. UBCP has three (3)
classes and each director is elected to a three (3) year term such that
one-third of the Board is elected each year
Authorized Shares
The availability of authorized and unissued shares for future issuance by
UBCP may be deemed to have an antitakeover effect. As of the date of the
Agreement, UBCP had 7,761,686 authorized shares available for future issuance.
The authorized and unissued shares are available for issuance, and thereby
could be issued into "friendly hands" to dilute the ownership of an individual
or corporation that has acquired shares of UBCP and intends to conduct an
acquisition of UBCP that is deemed to be undesirable by the Board of Directors
of UBCP.
These provisions are not the result of management's knowledge of any
effort to obtain control of UBCP by any means. UBCP's Articles of Incorporation
and Code of Regulations currently contain no other provisions that were
intended to be or could fairly be considered as antitakeover in nature or
effect. Further, the Board of Directors has no intention to amend the Articles
of Incorporation or Code of Regulations to add any additional antitakeover
provisions.
Southern's Articles of Incorporation has a provision similar to that of
UBCP's "Supermajority Vote and Fair Price Provision" and "Classified Board
Provision." Southern does not have any authorized shares available for future
issuance.
34
<PAGE> 37
INFORMATION ABOUT UBCP
GENERAL
UBCP, through its affiliates, the Citizens Savings and Citizens-State Bank,
conducts the business of a commercial banking organization. At December 31,
1997, UBCP and its subsidiaries had consolidated total assets of approximately
$212 million, consolidated total deposits of approximately $176 million and
consolidated total equity of approximately $22 million.
UBCP, through its banking affiliates, offers a broad range of banking
services to the commercial, industrial and consumer market segments which it
serves. Services include commercial, real estate and personal loans; checking,
savings and time deposits and other customer services such as safe deposit
facilities. UBCP does not have any foreign operations, assets or investments.
Both affiliates are Ohio State chartered commercial banks. Both are
regulated by the Ohio Division of Financial Institutions ("ODFI") and its
deposits are insured by the Federal Deposit Insurance Corporation to the extent
permitted by law and, as a subsidiary of UBCP, is regulated by the Federal
Reserve Board.
THIS PROXY STATEMENT-PROSPECTUS, AS MAILED TO SHAREHOLDERS OF SOUTHERN IS
ACCOMPANIED BY UBCP'S ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR ENDED DECEMBER
31, 1997 (THE "UBCP 1997 ANNUAL REPORT"). ADDITIONAL INFORMATION CONCERNING UBCP
IS CONTAINED IN DOCUMENTS INCORPORATED IN THIS PROXY STATEMENT BY REFERENCE.
THESE DOCUMENTS, INCLUDING THE UBCP 1997 ANNUAL REPORT, ARE AVAILABLE WITHOUT
CHARGE UPON WRITTEN REQUEST TO RANDALL M. GREENWOOD, VICE PRESIDENT & CHIEF
FINANCIAL OFFICER AT UNITED BANCORP, INC., P.O. BOX 10, MARTINS FERRY, OHIO
43935. IN ORDER TO ASSURE TIMELY DELIVERY OF THESE DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY _______________, 1998.
COMPETITION
The commercial banking and trust business in the market areas served by
both affiliates is very competitive. UBCP and its banking affiliates are all in
competition with commercial banks located in their own service areas. Some
competitors of UBCP and its banking affiliates are substantially larger than the
affiliates. In addition to local bank competition, both affiliates compete with
larger commercial banks located in metropolitan areas, savings banks, savings
and loan associations, credit unions, finance companies and other financial
institutions for loans and deposits.
CERTAIN REGULATORY CONSIDERATIONS
The following is a summary of certain statutes and regulations affecting
UBCP and its subsidiaries. This summary is qualified in its entirety by such
statutes and regulations.
UBCP
UBCP is a registered bank holding company under the Bank Holding Company
Act as amended, ("BHC Act") and as such is subject to regulation by the Federal
Reserve Board. A bank holding company is required to file with the Federal
Reserve Board quarterly reports and other information regarding its business
operations and those of its subsidiaries. A bank holding company and its
subsidiary banks are also subject to examination by the Federal Reserve Board.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve Board before acquiring substantially all the
assets of any bank or bank holding company or ownership or control of any voting
shares of any bank or bank holding company, if, after such acquisition, it would
own or control, directly or indirectly, more than five percent (5%) of the
voting shares of such bank or bank holding company.
35
<PAGE> 38
In approving acquisitions by bank holding companies of companies engaged in
banking-related activities, the Federal Reserve Board considers whether the
performance of any such activity by a subsidiary of the holding company
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, which outweigh
possible adverse effects, such as over concentration of resources, decrease of
competition, conflicts of interest, or unsound banking practices.
Bank holding companies are restricted in, and subject to, limitations
regarding transactions with subsidiaries and other affiliates.
In addition, bank holding companies and their subsidiaries are prohibited
from engaging in certain "tie in" arrangements in connection with any extensions
of credit, leases, sales of property, or furnishing of services.
UBCP Subsidiaries
UBCP operates two Ohio State chartered commercial banks, namely, "The
Citizens Savings Bank" located in Martins Ferry, Ohio and "The Citizens State
Bank of Strasburg," Strasburg, Ohio. Both banking subsidiaries are regulated by
the ODFI and the FDIC.
Capital
The Federal Reserve Board, Office of the Comptroller of the Currency
("OCC"), and FDIC require banks and holding companies to maintain minimum
capital ratios.
The Federal Reserve Board has adopted final "risk-adjusted" capital
guidelines for bank holding companies. The new guidelines became fully
implemented as of December 31, 1992. The OCC and FDIC have adopted substantially
similar risk-based capital guidelines. These ratios involve a mathematical
process of assigning various risk weights to different classes of assets, then
evaluating the sum of the risk-weighted balance sheet structure against UBCP's
capital base. The rules set the minimum guidelines for the ratio of capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) at 8%. At least half of the total capital is to be
composed of common equity, retained earnings, and a limited amount of perpetual
preferred stock less certain goodwill items ("Tier 1 Capital"). The remainder
may consist of a limited amount of subordinated debt, other preferred stock, or
a limited amount of loan loss reserves. At December 31, 1997 UBCP's consolidated
risk-adjusted Tier 1 Capital and total capital, as defined by the regulatory
agencies based on the fully phased in 1992 guidelines, were 15.1% and 16.4% of
risk-weighted assets, respectively, well above the 4% and 8% minimum standards
mandated by the regulatory agencies.
In addition, the federal banking regulatory agencies have adopted leverage
capital guidelines for banks and bank holding companies. Under these guidelines,
banks and bank holding companies must maintain a minimum ratio of three percent
(3%) Tier 1 Capital (as defined for purposes of the year-end 1992 risk-based
capital guidelines) to total assets. The Federal Reserve Board has indicated,
however, that banking organizations that are experiencing or anticipating
significant growth, are expected to maintain capital ratios well in excess of
the minimum levels. As of December 31, 1997, UBCP's core leverage ratio was
10.2%, well above the regulatory minimum.
Regulatory authorities may increase such minimum requirements for all banks
and bank holding companies or for specified banks or bank holding companies.
Increases in the minimum required ratios could adversely affect UBCP and United
Banks, including their ability to pay dividends.
36
<PAGE> 39
Additional Regulation
UBCP's subsidiaries are also subject to federal regulation as to such
matters as required reserves, limitation as to the nature and amount of its
loans and investments, regulatory approval of any merger or consolidation,
issuance or retirement of their own securities, limitations upon the payment of
dividends and other aspects of banking operations. In addition, the activities
and operations of UBCP's subsidiaries are subject to a number of additional
detailed, complex and sometimes overlapping laws and regulations. These
include state usury and consumer credit laws, state laws relating to
fiduciaries, the Federal Truth-in-Lending Act and Regulation Z, the Federal
Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting Act,
the Truth in Savings Act, the Community Reinvestment Act, anti-redlining
legislation and antitrust laws.
Dividend Regulation
The ability of UBCP to obtain funds for the payment of dividends and for
other cash requirements is largely dependent on the amount of dividends which
may be declared by UBCP's subsidiaries. Generally, UBCP's subsidiaries may not
declare a dividend, without regulatory approval, if the total of dividends
declared in a calendar year exceeds the total of its net profits for that year
combined with its retained profits of the preceding two years.
Government Policies and Legislation
The policies of regulatory authorities, including the OCC, Federal Reserve
Board, FDIC and the Depository Institutions Deregulation Committee, have had a
significant effect on the operating results of commercial banks in the past and
are expected to do so in the future. An important function of the Federal
Reserve System is to regulate aggregate national credit and money supply through
such means as open market dealings in securities, establishment of the discount
rate on member bank borrowings, and changes in reserve requirements against
member bank deposits. Policies of these agencies may be influenced by many
factors, including inflation, unemployment, short-term and long-term changes in
the international trade balance and fiscal policies of the United States
government.
The United States Congress has periodically considered and adopted
legislation which has resulted in further deregulation of both banks and other
financial institutions, including mutual funds, securities brokerage firms and
investment banking firms. No assurance can be given as to whether any additional
legislation will be adopted or as to the effect such legislation would have on
the business of UBCP.
In addition to the relaxation or elimination of geographic restrictions on
banks and bank holding companies, a number of regulatory and legislative
initiatives have the potential for eliminating many of the product line barriers
presently separating the services offered by commercial banks from those offered
by nonbanking institutions. For example, Congress recently has considered
legislation which would expand the scope of permissible business activities for
bank holding companies (and in some cases banks) to include securities
underwriting, insurance services and various real estate related activities as
well as allowing interstate branching.
Deposit Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") was enacted in 1991. Among other things, FDICIA, requires federal
bank regulatory authorities to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. For these purposes, FDICIA
establishes five capital tiers: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized.
The Federal Reserve Board, the OCC and the FDIC have adopted regulations to
implement the prompt corrective action provisions of FDICIA, effective December
19, 1992. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio (total capital to
risk-weighted assets) of 10% or greater, a Tier 1 risk-based capital ratio (Tier
1 Capital to risk-weighted assets) of 6% or greater, and a Tier 1 leverage
capital ratio (Tier 1 Capital to total assets) of 5% or greater, and is not
subject to a regulatory order, agreement or directive to meet and maintain a
specific capital level
37
<PAGE> 40
for any capital measure. An institution is deemed to be "adequately capitalized"
if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based
capital of 4% or greater, and (generally) a Tier 1 leverage capital ratio of 4%
or greater, and the institution does not meet the definition of a "well
capitalized" institution. An institution is deemed to be "critically
undercapitalized" if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth limitations and are required to
submit a capital restoration plan. If an "undercapitalized" bank fails to submit
an acceptable plan, it is treated as if it is significantly undercapitalized.
"Significantly undercapitalized" banks may be subject to a number of
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets, and
cessation of receipt of deposits from correspondent banks. "Critically
undercapitalized" institutions may not, beginning 60 days after becoming
"critically undercapitalized," make any payment of principal or interest on
their subordinated debt.
UBCP and each of its subsidiaries currently exceed the regulatory
definition of a "well capitalized" financial institution.
On June 17, 1993, the FDIC issued regulations establishing a permanent
risk-based assessment system. These regulations took effect October 1, 1993. At
the present time, each of UBCP's subsidiaries is "well capitalized" and therefor
pays the minimum insurance rate for deposit insurance to the FDIC.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC. The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital. Management of UBCP is not aware of any activity or
condition that could result in termination of the deposit insurance of its
subsidiary insured depository institutions.
Recent Legislation
On September 29, 1994, the Reigle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") was signed into law. This
Interstate Act effectively permits nationwide banking. The Interstate Act
provides that one year after enactment, adequately capitalized and adequately
managed bank holding companies may acquire banks in any state, even in those
jurisdictions that currently bar acquisitions by out-of-state institutions,
subject to deposit concentration limits. The deposit concentration limits
provide that regulatory approval by the Federal Reserve Board may not be granted
for a proposed interstate acquisition if after the acquisition, the acquiror on
a consolidated basis would control more than 10% of the total deposits
nationwide or would control more than 30% of deposits in the state where the
acquiring institution is located. The deposit concentration state limit does not
apply for initial acquisitions in a state and may be waived by the state
regulatory authority. Interstate acquisitions are subject to compliance with the
Community Reinvestment Act ("CRA"). States are permitted to impose age
requirements not to exceed five years on target banks for interstate
acquisitions. States are not allowed to opt-out of interstate banking. Ohio
adopted legislation to opt-into the Interstate Act in May of 1997. Recently
adopted legislation applies state law equally to all banks, state or national
and in- or out-of-state, regarding acquisitions, as required by the Interstate
Act.
Branching between states may be accomplished either by merging separate
banks located in different states into one legal entity, or by establishing de
novo branches in another state. Consolidation of banks was not permitted until
June 1, 1997 provided that the state had not passed legislation "opting-out" of
interstate branching. The laws of the host state regarding community
reinvestment, fair lending, consumer protection (including usury limits) and
establishment of branches shall apply to the interstate branches.
Legislation modifying the Ohio Banking laws was adopted in June of 1996 and
became effective on January 1, 1997. This legislation is the first significant
modification to the Ohio Banking Laws since 1968. The intent of the legislation
was to modernize the Ohio law to allow banks to remain competitive in the ever
changing financial services industry and a reduction in the regulatory burden of
operating the Bank, consistent with safety and
38
<PAGE> 41
soundness principles.
Proposed Legislation
In addition to the above, there have been proposed a number of legislative
and regulatory proposals designed to strengthen the federal deposit insurance
system and to improve the overall financial stability of the U.S. banking
system. It is impossible to predict whether or in what form these proposals may
be adopted in the future, and if adopted, what their effect would be on UBCP.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP INFORMATION
No shareholder is known to UBCP management to be the beneficial owners of
more than five percent of the outstanding shares of UBCP Common Stock as of the
Record Date:
The following table shows certain information concerning the number of
shares of UBCP Common Stock held as of December 31, 1997, by each director and
executive officer of UBCP and by all of UBCP's directors and executive officers
as a group:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Owned
Name 12/31/97 Percent
---------- -------- -------
<S> <C> <C>
DIRECTORS:
Michael J. Arciello 1,382 .06
John H. Clark 24,270 1.08
Dr. Leon F. Favede, O.D. 1,730 .07
James W. Everson 55,303 2.47
Errol C. Sambuco 720 .03
Matthew C. Thomas 7,261 .32
EXECUTIVE OFFICERS:
Charles E. Allensworth 399 .02
Norman F. Assenza 4,689 .21
Ronald S. Blake 71 Nil
Cleo S. Dull 558 .02
William S. Holbrook 4,579 .20
James A. Lodes 1,425 .06
Harold W. Price 1,269 .06
All Company Directors and Excective
Officers as a Group (16 individuals) 128,211 5.73
</TABLE>
LEGAL PROCEEDINGS
UBCP and its subsidiary are from time to time subject to various pending
and threatened lawsuits in which
39
<PAGE> 42
claims for monetary damages are asserted in the ordinary course of business.
While any litigation involves an element of uncertainty, management of the
Company does not anticipate that any currently pending or threatened litigation
has the potential to materially affect the financial condition or results of
operations of UBCP.
INFORMATION ABOUT SOUTHERN
GENERAL
Southern is an Ohio general business corporation and a registered bank
holding company with its main office located in Glouster, Ohio. The Glouster
Community Bank is an Ohio state chartered bank and a wholly owned subsidiary of
Southern. The Glouster Community Bank operates its main office at 88 High
Street, Glouster, Ohio 45732. The Glouster Community Bank operates 3 branches.
The principal business of The Glouster Community Bank consists of
attracting retail deposits from the general public and investing those funds in
one-to-four family residential mortgage loans, consumer loans, commercial real
estate, construction and commercial business loans primarily in its market area.
The Glouster Community Bank also purchased mortgage-backed securities, invests
in U.S. Agency obligations, state and municipal securities and other permissible
investments.
The Glouster Community Bank's revenues are derived primarily from interest
on loans, investments, income from service charges and loan originations.
MEMORANDUM OF UNDERSTANDING
Glouster Bank is subject to regulation by the ODFI and the FDIC. Pursuant
to a Memorandum of Understanding dated January 29, 1997 by and among Glouster
Bank, the ODFI and the FDIC (the "MOU"), Glouster Bank has agreed to comply
with certain directives which are intended to correct operational deficiencies
identified in the ODFI's April 28, 1997 examination report (the "Examination
Report") and improve Glouster Bank's overall financial condition. The MOU
specifies various deadlines (generally ranging from 10-90 days from the date of
the MOU) for the implementation of certain corrective measures and requires
that such measures be maintained until such time as the MOU is stayed,
modified, terminated or suspended by the ODFI and the FDIC.
The MOU requires Glouster Bank to, among other things:
(i) Engage an independent bank management consultant.
(ii) Develop a written business plan.
(iii) Maintain Tier 1 capital at a level equal to or exceeding 7% of the
Bank's total assets.
(iv) Give the ODFI and FDIC prior written notice of its intent to pay
cash dividends, and in the event Tier 1 capital to total assets should be
below 7%, seek the advance approval of the ODFI and FDIC with respect to
any cash dividends.
(v) Maintain an adequate allowance for loan and lease losses.
(vi) Develop plans to improve the Bank's position with respect to certain
loans which are past due as to principal or interest in excess of 90 days
or more.
(vii) Amend certain policies of Glouster Bank including its loan,
investment and liquidity policies.
(viii) Forebear from making loans or extensions of credit to any borrower
who has a loan which is classified in the Examination Report of Glouster
Bank, or any subsequent examination.
(ix) Refrain from the capitalization of any interest with respect to a
borrower without prior approval of Glouster Bank's Board of Directors.
(x) Take steps to eliminate and deficiencies noted in the Examination
Report.
(xi) Develop and prepare a written loan review procedures policy
designed to identify and categorize problem loans and assess the overall
quality of the Bank's loan portfolio.
(xii) Take steps necessary to eliminate and/or correct all violations
noted in the Examination Report and to adopt appropriate procedures to
prevent future violations.
(xiii) Develop written procedures for strengthening and maintaining
internal control procedures.
(xiv) Develop a written conflicts of interest policy.
(xv) Correct errors noted in the December 31, 1995 Report of Income and
Condition and refile it with the ODFI and FDIC and to amend Glouster Bank's
June 30, 1996 Report of Income and Condition to make appropriate additions
to the reserve for loan losses.
(xvi) Establish a committee of the Board of Directors of Glouster Bank to
monitor compliance with the terms of the MOU.
To date, management of Glouster Bank believes it is in substantial
compliance with the terms and provisions of the MOU. In addition, while
Glouster Bank intends to continue to fully comply with all the provisions of
the MOU, there can be no assurance that such compliance will improve Glouster
Bank's overall financial condition or result in a timely modification or
termination of the MOU. Moreover, compliance by Glouster Bank with the
provisions of the MOU will not bar, estop or otherwise prevent the ODFI and/or
the FDIC or any other regulatory agency or department from taking any other
action effecting Glouster Bank or any of its current or former affiliates.
PROPERTIES
Southern owns no real or personal of a material nature other than its
main office, branch locations, and the furniture, fixtures and equipment used in
its banking business. The main office of Southern is located at 88 High Street,
Glouster, Ohio and its branch offices are located at the following addresses:
SOUTHERN MAIN OFFICE AMESVILLE
88 High Street State Street
Glouster, Ohio 45732 Amesville, Ohio 45711
GLOUSTER NELSONVILLE
Toledo Street 873 Chesnut Street
Glouster, Ohio 45732 Nelsonville, Ohio 45764
Southern owns the land and buildings on which its main office and branch
offices are located free and clear of any major encumbrances.
LITIGATION
There is no pending litigation of a material nature in which Southern is a
party or to which any of its property is subject. Further, there is no material
legal proceeding in which any director, executive officer, principal shareholder
or affiliate of Southern, or any associate of any such director, executive
officer, principal shareholder or affiliate, is a party or has a material
interest adverse to Southern. None of the ordinary routine litigation in which
Southern is involved is expected to have a material adverse effect on the
financial condition, results of operations or business of Southern.
40
<PAGE> 43
VOTING, PRINCIPAL SHAREHOLDERS AND MANAGEMENT INFORMATION
Holders of record of Southern Common Stock at the close of business on the
Record Date will be entitled to vote at the Special Meeting of shareholders. On
the Record Date there were 39,000 shares of Southern Common Stock issued and
outstanding. Each share of Southern Common Stock is entitled to one vote on each
matter presented for shareholder action.
The following table sets forth information concerning the number of shares
of Southern Common Stock held as of December 31, 1997, by each shareholder who
is known to Southern management to have been the beneficial owner of more than
five percent of the outstanding shares of Southern Common Stock as of that date:
<TABLE>
<CAPTION>
Shares Beneficially
owned at Percent
Beneficial Owner 12/31/97 of Class
---------------- -------- --------
<S> <C> <C>
John B. Rice 2,418 6.20%
5706 Heather Hollow Drive
Dayton, Ohio 45415
L.E. Richardson, Jr. 5,113 13.11%
311 Granville Street
Newark, Ohio 43055
Cynthia R. Wentis 3,664 9.39%
127 Hillcrest Drive
Marietta, Ohio 45750
</TABLE>
The following table shows certain information concerning the number of
shares of Southern Common Stock held as of December 31, 1997, by each director
of Southern and by all of Southern's directors and executive officers as a
group:
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially owned at Percent
Name 12/31/97 of Class
---- -------- --------
<S> <C> <C>
Paul J. Gerig 500(1) 1.28%
Richard C. Guinther 1,600 4.10%
Samuel J. Jones 387 0.99%
Dean A. Kasler, Sr 660(2) 1.69%
Philip D. Kasler 600 1.54%
Joseph D. Kittle, Sr 600 1.54%
Nash 55 0.14%
L. E. Richardson, Jr 5,113 13.11%
Theodore R. Swallow 500 1.28%
Judith Williams 25 0.06%
------ -----
All executive officers and directors as a group 10,040 25.74
(10 persons)
</TABLE>
(1) Includes 100 shares owned by a spouse.
(2) Includes 60 shares owned by a spouse.
41
<PAGE> 44
CURRENT RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and executive officers of Southern and their associates are
customers of and have had transactions with Southern from time to time in the
ordinary course of business. Such transactions have been made on substantially
the same terms, including interest rates and collateral on loans, as those
prevailing at the time for comparable transactions with other persons and did
not and will not involve more than the normal risk of collectibility or present
other unfavorable features. Similar transactions may be expected to take place
in the ordinary course of business in the future.
COMPETITION
The principal market in which Southern competes is Athens County in
Southeastern Ohio. For deposits and loans, Southern competes with other banks,
savings institutions, credit unions, finance companies, insurance companies,
and governmental agencies.
EMPLOYEES
At December 31, 1997, Southern had 36 full-time equivalent employees.
Southern is not a party to any collective bargaining agreement and employee
relations are considered to be excellent by Southern management.
SOUTHERN'S FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
General. Total assets increased $1.3 million or 2.5% from $50.6 million at
December 31, 1996 to $51.9 million at December 31, 1997. This modest growth was
the result of internal growth, primarily as the result of the promotion of NOW
accounts. During this period there were increases of $3.5 million in investment
securities which were primarily funded by the overall increase in deposits of
$1.1 million and the decrease in net loans of $2.0 million.
Investment Portfolio. Total investment securities increased during the year by
approximately $3.5 million or 28.3% from $12.4 million at December 31, 1996 to
$15.9 million at December 31, 1997. This increase resulted from the funds
received from net loan reductions and from deposit increases. The securities
acquired with these funds typically have maturities from 5 years to 15 years
which will provide maximum yields to the company.
Historically, Southern has been a conservative investor, investing primarily in
U.S. Government agency obligations, mortgage-backed securities, and to a lesser
extent local obligations of states and political subdivisions. The
mortgage-backed securities are all with agencies of the U.S. Government and
provide for monthly repayment of interest and principal, thus providing for
greater liquidity. Management determined that with the current rate of negative
loan growth, greater yields in the investment portfolio were necessary.
42
<PAGE> 45
The following table sets forth the carrying amount of securities at the dates
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----
<S> <C> <C> <C> <C> <C>
Available-for-Sale
U.S. Government agency securities $10,773 $ 7,344 $ 5,934 $ 4,985 $
Mortgage-backed securities 3,785 784 971 1,369
Marketable equity securities 244 231 222 19 0
------- ------- ------- ------- -------
Total $14,802 $ 8,359 $ 7,127 $ 6,373 $
======= ======= ======= ======= =======
Held-to-Maturity
U.S. Government agency securities $ 0 2,000 $ 1,500 $ 1,500 $ 7,663
Mortgage-backed securities 0 0 0 0 2,270
Obligations of states and political subdivisions 1,067 2,013 2,322 2,873 3,071
Marketable equity securities 0 0 0 0 18
-------- ------- ------- ------- -------
Total $ 1,067 $ 4,013 $3,822 $ 4,373 $13,022
======== ======= ======= ======= =======
</TABLE>
At December 31, 1997, Southern had no securities of any issuer for which
the carrying value of such securities exceeded 35% of shareholders' equity.
The following table sets forth the maturities of securities at December 31,
1997, and the weighted average yields of such securities (calculated on the
basis of the cost and effective yields weighted for the scheduled maturity of
each security). Tax-equivalent adjustments (using a 34% federal income tax rate)
have been made in calculating yields on obligations of state and political
subdivisions.
<TABLE>
<CAPTION>
Maturing
-------------------- ------------------ ------------------- ------------------- ----------
Within After One But After Five But After No Fixed
One Year Within Five Years Within Ten Years Ten Years Maturity
Amount Yield Amount Yield Amount Yield Amount Yield Amount
----------- -------- ---------- ------- ---------- -------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale
U.S. Government agency
securities $2,495 5.29% $1,505 6.42% $5,773 7.00% $1,000 6.88% --
Mortgage-backed securities -- -- 57 9.25% 66 8.58% 3,662 7.25% --
Marketable equity securities -- -- -- -- -- -- -- -- $244
------ ------ ------ ------ ----
$2,495 $1,562 $5,839 $4,662 $244
====== ====== ====== ====== ====
Held-to-Maturity
Obligations of states and
political
subdivisions $140 9.34% $608 8.37% $319 7.80% -- -- --
==== ==== ====
</TABLE>
Note: Mortgage-backed securities are distributed on a contractual maturity.
Loans. The Bank's loan portfolio is comprised of commercial and agricultural
loans extended to businesses and farm operations and consumer loans consisting
primarily of residential mortgages, automobile loans, and personal credit card
lines. Total loans amounted to $31.9 million at December 31, 1997 compared to
$33.9 million at December 31, 1996, a decrease of $2.0 million or 5.9%. Total
real estate loans, consumer installment, commercial and agriculture, and credit
card loans amounted to $20.9 million, $8.6 million, $2.3 million and $162,000
which represents 65.5%, 27.0%, 7.2%, and .3% of total loans at December 31,
1997, respectively.
At December 31, 1997, Southern continues to focus its primary lending efforts in
residential mortgages, which comprise 54.1% of the total loan portfolio, and
consumer installment loans, comprised primarily of unsecured personal and
automobile loans, which comprise 27.1% of total loans. In recent years there has
been a somewhat strong loan demand in residential real estate as well as
somewhat less traditional commercial real estate and construction real estate
loans. The loan growth has been spurred by new housing developments in the local
market combined with the marketing efforts of Southern. Management believes that
the lending practices employed by Southern reduce, to an acceptable level, the
impact of declining values of real estate should a downturn in the local real
estate market occur.
43
<PAGE> 46
The slight reduction in the loan portfolio was due to the reduction in consumer
loans, which fell from $11.8 million at December 31, 1996 to $8.8 million at
December 31, 1997, which represents a decrease of $3.0 million or 150% of the
total loan reduction during this period. The remainder of loan portfolio is
comprised of real estate and commercial loans. Such loans grew $1.0 million from
December 31, 1996 to December 31, 1997. Since 1995, the Bank has had to
foreclose on $104,000 of its real estate loans. Real estate mortgage loans grew
from $19 million to $20 million during this same period. Real estate
construction loans grew from $136,000 to $631,000 during this same period. The
increase of $1,495,000 in real estate loans is a result of management's plan to
be more actively involved with local residential home builders. Such loan
originations have been concentrated primarily in the local market area.
Commercial, industrial and agriculture loans fell by $250,000 from December 31,
1996 to December 31, 1997, which represents 12.5% of the net loan reduction for
this period.
Management intends to continue to promote residential real estate lending in its
local market area. Management desires to maintain a diversified loan portfolio
in its local market area to support the communities it serves. Although the Bank
has a diversified loan portfolio, at December 31, 1997, 1996 and 1995 loans for
commercial, industrial and agricultural sectors approximate $2.3 million or
7.2%, $2.6 million or 7.8% and $2.8 million or 8.1% of the loan portfolio,
respectively. These loans are typically secured by residential and commercial
farm real estate and farm equipment, as well as other commercial and industrial
equipment.
The following table shows Southern's loan distribution at the end of each
reported period:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial, industrial,
agricultural and other $ 2,307 $ 2,650 $ 2,804 $ 1,633 $ 1,870
Real estate-construction 631 352 416 136 50
Real estate-mortgage 20,221 19,069 17,748 17,146 17,472
Consumer 8,772 11,784 13,719 13,770 11,167
------- ------- ------- ------- ------
Total Loans $31,931 $33,855 $34,687 $32,685 $30,559
======= ======= ======= ======= =======
</TABLE>
The following table shows the maturity of loans (excluding real estate mortgages
and installment loans) outstanding as of December 31, 1997. Also provided are
the amounts due after one year classified according to the sensitivity to
changes in interest rates.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
-----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial, industrial
and agricultural $1,887 $165 $255 $2,307
Real estate - construction 606 -- 25 631
------ ---- ------
Total $2,493 $165 $280 $2,938
====== ==== ==== ======
</TABLE>
Nonperforming Assets. Southern's nonperforming assets, which are comprised of
any nonaccrual loans, accruing loans past due 90 days or more and other real
estate owned, are stated below for the periods from December 31, 1993 through
December 31, 1997. Nonperforming assets amounted to .41% of total assets at
December 31, 1997. Nonperforming loans amounted to .67% of total loans for this
same period.
The Bank's general collection policy is to provide a late notice to commercial
and consumer installment accounts
44
<PAGE> 47
after 10 days past due, and after 15 days past due for residential mortgage
accounts. Delinquent accounts are contacted by telephone once the loan becomes
delinquent in excess of 10 days, with collection letters issued as warranted.
Notice of intent to foreclose is provided to consumer mortgage customers between
30 and 120 days past due. At 30 to 120 days past due, foreclosure proceedings
are initiated. In general, personal property securing loans are subject to
repossession at 60 days past due.
Management regularly reviews the loan portfolio in order to identify potential
problem loans, and classifies any potential problem loans as a special mention,
substandard, doubtful, or loss asset. An asset is considered substandard if it
is inadequately protected by the current equity and paying capacity of the
borrower or of the collateral pledged, if any. Substandard assets include those
characterized by the distinct possibility that the Bank will sustain some loss
if the deficiencies are not corrected. Assets classified as doubtful have all
the weakness of those classified as substandard with the additional
characteristic that the weakness makes collection or liquidation in full highly
questionable and improbable. Assets classified as loss are considered not
collectible and of such little value that their continuance as assets without
the establishment of a specific reserve is not warranted. Assets that do not
currently expose the Bank to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention are designated special mention. Special
mention assets have a potential weakness or pose an unwarranted financial risk
that, if not corrected, could weaken the asset and increase risk in the future.
A loan is considered impaired when, based on current information, it is probable
The Glouster Community Bank will be unable to collect all principal and interest
due in accordance with the contractual terms of the loan agreements. All
nonaccrual commercial and commercial real estate loans, including
agricultural-related business loans, if any, are considered to be impaired.
The accrual of interest on a loan is generally discontinued when management
believes, after considering economic and business conditions, the borrower's
financial condition is such that collection of interest is doubtful. Interest
payments received on nonaccrual loans are recorded as income or applied against
principal according to management's judgement as to the collectibility of such
principal. At December 31, 1997, the Bank had $214,000 in loans greater than 90
days past due and still accruing interest, loans on nonaccrual status, and other
real estate owned. In all instances, the overall credit relationship is
considered impaired. Management continues to work closely with these customers
in an effort to either restructure the loans to permit the contractual repayment
of amounts due, and further enhance The Glouster Community Bank's security
position regarding collateral, or to assist the customer in finding alternative
financing.
The following table summarizes The Glouster Community Bank's nonaccrual, past
due loans, restructured loans and other real estate owned:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans past due 90 days or more
and still accruing $ -- $ -- $ 453 $391 $165
Nonaccrual loans 212 588 517 52 47
Restructurings -- -- -- -- --
Other real estate owned 2 76 90 124 44
---- ------ ------ ---- ----
Total nonperforming assets $214 $664 $1,060 $567 $256
==== ==== ====== ==== ====
Nonperforming loans to total loans .67% 1.74% 2.80% 1.36% .69%
Allowance for loan losses to
nonperforming loans 377.36% 124.66% 84.33% 57.56% 124.53%
Nonperforming loans to total assets .41% 1.16% 1.98% .54% .56%
</TABLE>
45
<PAGE> 48
For the year ended December 31, 1997, interest income that would have been
recorded on loans accounted for on a nonaccrual basis under the original terms
of such loans was $45,000, of which $11,000 was recorded as interest income.
On the basis of management's review of its loan portfolio, at December 31, 1997,
Southern has classified $577,000 of its loans as doubtful, $835,000 of its loans
as substandard and $1.6 million as special mention. Southern has $26,000 in
loans classified as loss at December 31, 1997. Of the total classified loan
amounts, $2.8 million represent loans in addition to those disclosed previously
as either restructured or delinquent in excess of 90 days.
As a part of management's ongoing assessment of its loan portfolio, $477,000 of
the allowance for loan losses at December 31, 1997 has been allocated for these
classified credits, and for those loans noted as restructured and loans past due
90 days or more and still accruing interest.
Allowance for Loan Losses. The allowance for loan losses increased to $800,000
or 2.5% of total loans at December 31, 1997 from $733,000 or 2.2% of total loans
at December 31, 1996 and compared to $818,000 or 2.4% at December 31, 1995. The
increase is in the allowance for loan losses resulted primarily from increased
effort of internal loan review efforts of the loan portfolio. The adequacy of
the allowance for loan losses is determined by management's periodic evaluation
of individual loans, the overall risk characteristics of the various portfolio
segments, past experience with losses, the impact of economic conditions on
borrowers, and other relevant factors.
This table summarizes Southern's loan loss experience for each of the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 733 $ 818 $ 255 $ 264 $ 205
Charge-offs:
Commercial, industrial and
agricultural 125 438 16 34 16
Real estate-mortgage 6 40 8 27 10
Consumer 386 361 209 97 28
---------- --------- --------- --------- ---------
$ 517 $ 839 $ 233 $ 158 $ 54
---------- --------- --------- --------- ---------
Recoveries:
Commercial, industrial and
agricultural 23 7 1 3 1
Real estate-mortgage -- -- -- -- --
Consumer 73 37 56 16 22
---------- --------- --------- --------- ---------
$ 96 $ 44 $ 57 $ 19 $ 23
---------- --------- --------- --------- ---------
Net charge-offs 421 795 176 139 31
Provision for loan losses 488 710 739 130 90
---------- --------- --------- --------- ---------
Balance, end of period $ 800 $ 733 $ 818 $ 255 $ 264
========== ========= ========= ========= =========
Ratio of net charge-offs to
average loans outstanding 1.28% 2.32% .52% .44% .11%
Average loans outstanding $ 32,880 $ 34,307 $ 34,098 $ 31,622 $ 28,867
</TABLE>
Management uses the aforementioned review and analysis to determine the adequacy
of the allowance for loan losses on a quarterly basis. The provision for loan
losses represents an amount that is intended to be sufficient to maintain the
reserve at a level necessary to meet present and potential risk characteristics
of the loan portfolio.
46
<PAGE> 49
This table shows the allocation of the allowance for loan losses as of the end
of each reported period:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ----
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
industrial
and agricultural $318 7% $249 8% $442 8% $ 26 5% $ 61 6
Real estate-mortgage 126 66 96 57 41 52 13 33 50 57
Consumer 356 27 388 35 335 40 216 42 153 87
---- --- ---- --- --- --- --- --- --- ---
Total $800 100% $733 100% $818 100% $255 100% $264 100%
==== === ==== === ==== === ==== === ==== ===
</TABLE>
Deposits. Total deposits increased during the year by $1.1 million from $46.6
million at December 31, 1996 to $47.7 million at December 31, 1997.
Noninterest-bearing deposits increased by $223,000 while interest bearing
deposits increased by $886,000.
As mentioned earlier, Southern was actively promoting NOW accounts in 1997,
which led to a $1.4 million increase in interest-bearing demand deposits, from
$9.8 million at December 31, 1996 to $11.2 million at December 31, 1997.
The daily average amounts of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1997 1996 1995
Amount Rate Amount Rate Amount Rate
--------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 4,671 $ 4,401 $ 4,094
Interest-bearing
demand deposits 10,894 3.41% 9,584 3.61% 10,416 3.64%
Money market accounts 625 3.36% 733 3.55% 732 3.55%
Savings deposits 8,559 4.67% 8,055 4.75% 8,235 5.04%
Time deposits 24,260 5.24% 24,743 5.40% 21,034 5.09%
------- ------- ------
Total $49,009 $47,516 $44,511
======= ======= =======
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1997, are summarized as follows:
<TABLE>
<S> <C>
3 Months or less $ 442
Over 3 through 6 months 448
Over 6 though 12 months 1,299
Over 12 months 2,629
-------
Total $ 4,818
=======
</TABLE>
Impact of inflation and Changing Prices. The financial statements of Southern
and the notes thereto, presented elsewhere herein, have been prepared in
accordance with generally accepted accounting standards, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation . The impact of inflation is reflected in the
increased cost of Southern's operations. Unlike most companies, nearly all of
Southern's assets and liabilities
47
<PAGE> 50
are monetary. As a result, interest rates have a greater impact on Southern's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
Shareholders' Equity. Shareholders' equity was $3.8 million at December 31,
1997, an increase of $29,000 from $3.8 million at December 31, 1996. The
increase was comprised of net profits of $1,000, proceeds from the sale of
treasury stock of $21,000, an increase in unrealized gain (loss) on securities
available for-sale of $54,000, offset by dividends paid to shareholders of
$47,000.
Southern is subject to risk-based capital rules. These guidelines include a
common framework for defining elements of capital and a system for relating
capital to risk. The minimum risk-based capital requirements is 8%.
Additionally, the general regulatory guidelines establish a minimum ratio of
leverage capital to adjusted total assets of 3% for top rated financial
institutions, with less highly rated institutions or those with higher levels of
risk, required to maintain ratios of 100 to 200 basis points above the minimum
level. As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation has categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action. There have been no
conditions or events since that management believes have changed Southern's or
The Glouster Community Bank's category.
The following table reflects Southern's capital ratios for the periods
presented:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
CAPITAL COMPONENTS
Tier 1 3,920 3,773 3,769
Total risk-based 4,255 4,155 4,165
ASSETS
Risk-weighted assets 26,359 30,258 31,254
Average tangible assets 54,251 52,617 50,500
CAPITAL RATIOS
Tier 1 risk-based capital 14.90% 12.47% 12.06%
Total risk-based capital 16.17% 13.73% 13.33%
Leverage 7.24% 7.17% 7.46%
MINIMUM REGULATORY GUIDELINES
Tier 1 risk - based capital 4.00% 4.00% 4.00%
Total risk - based capital 8.00% 8.00% 8.00%
Leverage 4.00% 4.00% 4.00%
</TABLE>
Liquidity and Interest Rate Sensitivity. The liquidity of a banking institution
reflects its ability to provide funds to meet loan requests, to accommodate
possible outflows of deposits, and to take advantage of interest rate market
opportunity. Funding of loan requests, providing for liability outflows, and
management of interest rate fluctuations require continuous analysis in order to
match the maturities of specific categories of short-term loans and investments
with specific types of deposits. The Glouster Community Bank's liquidity is thus
normally considered in terms of the nature and mix of the institution's sources
and uses of funds.
Deposits are the primary source of The Glouster Community Bank's funds for
lending and investing activities. Secondary sources of funds are derived from
loan repayments and investment maturities. Loan repayments can be considered a
relatively stable funding source, while deposit activity is greatly influenced
by interest rates and general market conditions.
The Glouster Community Bank offers a wide variety of retail deposit account
products to both consumer and
48
<PAGE> 51
commercial deposit customers. Time deposits, consisting primarily of retail
fixed-rate certificates of deposit comprise 50.0% of the total deposit portfolio
at December 31, 1997. Core deposits considered to be noninterest bearing and
interest-bearing demand deposits accounts, savings deposits, and money market
accounts comprised 50.0% of the deposit portfolio at December 31, 1997. Southern
intends to continue to emphasize retail deposits as its primary source of funds.
Deposit products are promoted in periodic newspaper and radio advertisements,
along with notices provided in customer account statements. Southern does not
broker certificates of deposits and held no such deposits at December 31, 1997.
Southern pays interest rates on its interest-bearing deposit products that are
competitive with rates offered by other financial institutions in its market
area. Interest rates on deposits are reviewed weekly by management considering a
number of factors including (1) Southern's internal cost of funds; (2) rates
offered by competition; (3) investing and lending opportunities; and (4)
Southern's liquidity position.
Southern anticipates that it will have sufficient funds available to meet the
needs of its customers for deposit repayments and loan fundings. At December 31,
1997, loan commitments totaled $1.3 million. These commitments are in the form
of personal and commercial lines of credit, and undisbursed construction loans.
Certificates of deposit scheduled to mature in one year or less totaled $14.7
million at December 31, 1997; however, historically these deposits have
renewed with Southern, and management anticipates that this trend will continue
since Southern offers competitive rates of interest and instrument terms with
those offered by other financial institutions in its market area.
Closely related to the concept of liquidity is the management of
interest-earning assets and interest-bearing liabilities. Southern manages its
rate sensitivity position to minimize fluctuation in the net interest margin and
to minimize the risk due to changes in interest rates, thereby attempting to
achieve consistent growth of net interest income.
The difference between a financial institution's interest rate sensitive assets
and interest rate sensitive liabilities is commonly referred to as its "gap" or
"interest rate sensitivity gap." An institution having more interest rate
sensitive assets than interest rate sensitive liabilities within a given time
period is said to have a "positive gap"; and institution having more interest
rate sensitive liabilities than interest rate sensitive assets within a given
time period is said to have a "negative gap."
The table below is presented in conformity with industry practice and reflects
Southern's interest rate sensitivity position by selected periods.
<TABLE>
<CAPTION>
ASSET & LIABILITY INTEREST RATE SENSITIVITY
----------------------------------------------------------------------------
3 months to One to Over Five
0-3 Months One Year Five Years Years Total
----------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest Earnings Assets:
Time deposits $ 100 $ 200 $ -- $ -- $ 300
Federal funds sold 442 -- -- -- 442
Investment securities -- 2,635 2,170 11,064 15,869
Loans 4,298 17,995 5,720 3,918 31,931
--------- -------- --------- -------- --------
Total Interest Earnings Assets $ 4,840 $ 20,830 $ 7,890 $ 14,982 $ 48,542
========= ======== ========= ======== ========
Interest-Bearing Liabilities:
Deposits $ 24,799 $ 9,947 $ 9,127 -- $ 43,873
========= ======= ========= ======== ========
Period GAP $ (19,959) $10,883 $ (1,237) $ 14,982 $ 4,669
Cumulative GAP $ (19,959) $(9,076) $ (10,313) $ 4,669
Cumulative GAP as a Percent of
Total Assets -38.48% -17.50% -19.88% 9.00%
</TABLE>
49
<PAGE> 52
Note - Information was developed for the table using actual loan, investment,
and certificate of deposit maturity, repricing or payment amortization data as
generated internally by The Glouster Community Bank's core application systems.
Demand, savings and money market deposit accounts were considered immediately
repriceable, and were placed in the "0-3 month" category. There were no
prepayment or decay rates assumptions used in developing the table.
Results of Operations
Net interest income represents the difference between the interest and fees
earned on interest-bearing assets and the interest paid on interest-bearing
liabilities. Net interest income is affected by changes in the volume of
interest-earning assets and interest-bearing liabilities and changes in interest
yields and rates. Interest on certain loans and obligations of state and
political subdivisions' investment securities are not subject to federal income
tax. As such, the stated (pre-tax) yield on these securities is lower than the
yields on taxable securities of similar risk and maturity. In order to make the
pre-tax yields comparable to taxable investment securities, the yields on such
loans and securities have been shown in a tax equivalent manner in the following
tables. This adjustment has been calculated using the U.S. federal statutory
income tax rate of 34% for the twelve months ended December 31, 1997, 1996, and
1995.
50
<PAGE> 53
The average balance sheet and net interest income analysis for the twelve months
ended December 31, 1997, 1996 and 1995, is as follows.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------------
1997(2) 1996(2) 1995(2)
--------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
---------- ----------- ---------- ---------- ---------- ---------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1) $32,880 $ 3,594 10.93% $34,307 $ 3,809 11.10% $34,098 $ 3,675 10.78%
Taxable investment
securities 14,162 798 5.63% 10,834 568 5.24% 8,294 479 5.78%
Tax-exempt investment
securities 1,650 117 7.09% 2,156 153 7.10% 2,640 185 7.01%
Federal funds sold 2,016 108 5.36% 1,284 64 4.98% 313 19 6.07%
Time deposits 300 17 5.67% 300 16 5.33% 300 15 5.00%
------- ------- ------ ------- ------- --------
Total interest-earning assets 51,008 4,634 9.08% 48,881 4,610 9.43% 45,645 4,373 9.58%
Noninterest-earning assets
Cash and due from banks 561 1,270 1,770
Premises and equipment 1,232 1,087 969
Other assets 945 1,187 1,086
Less allowance for loan losses (704) (775) (401)
------- ------- -------
$53,042 $51,650 $49,069
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Demand deposits $10,894 $ 371 3.41% $ 9,584 $ 346 3.61% $10,416 $ 379 3.64%
Money market accounts 625 21 3.36% 733 26 3.55% 732 26 3.55%
Savings deposits 8,559 400 4.67% 8,055 383 4.75% 8,234 415 5.04%
Time deposits 24,260 1,271 5.24% 24,743 1,336 5.40% 21,034 1,017 5.09%
Short-term borrowings -- -- -- 19 2 10.53% 599 45 7.51%
------- ------- ------ ------- ------- ------- --------
Total interest-bearing
liabilities 44,338 2,063 4.65% 43,134 2,093 4.85% 41,015 1,936 4.72%
Noninterest-bearing
liabilities:
Demand deposits 4,671 4,401 4,094
Other 224 280 206
Shareholders' equity 3,809 3,835 3,754
------- ------- -------
$53,042 $51,650 $49,069
======= ======= =======
Net interest income $ 2,571 $ 2,517 $ 2,437
======= ======= ========
Net yield on
interest-earnings assets(3) 5.04% 5.15% 5.34%
Interest rate spread(4) 4.43% 4.58% 4.86%
Ratio of average
interest-earning assets
to average
interest-bearing liabilities 115.04% 113.32% 111.24%
</TABLE>
- --------------------------------
(1) Average balances include non-accrual loans.
(2) Tax equivalent adjustments have been made to yields on loans and
securities that are exempt from federal income tax.
(3) Net yield on interest-earning assets represents net interest income
as a percentage of average interest-earning assets.
(4) Interest rate spread represents the difference between the average
yield on interest-earning assets and the cost of interest-bearing
liabilities.
The following tables set forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rate:
For each category of our interest-earnings assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
volume (changes in volume multiplied by old rate), (ii) changes in rate (changes
in rate
51
<PAGE> 54
multiplied by old volume), and (iii) the change in interest due to both volume
and rate, which has been allocated to volume and rate changes in proportion to
the relationship of the absolute dollar amounts of the change in each.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 vs 1996
Increase (Decrease) Due to
------------------------------------------------------
Volume Rate Net
----------------- ------------------ -----------------
(In thousands of dollars)
<S> <C> <C> <C>
Interest earned on:
Loans $ (158) $ (57) $ (215)
Taxable investment securities 174 56 230
Tax-exempt investment securities (36) -- (36)
Federal funds sold 36 8 44
Time deposits -- 1 1
------ ------ ------
Total interest-earning assets $ 16 $ 8 $ 24
Interest paid on:
Demand deposits $ 47 $ (22) $ 25
Money market accounts (4) (1) (5)
Savings deposits 24 (7) 17
Time deposits (26) (39) (65)
Short-term borrowings (2) -- (2)
------ ------ ------
Total interest-bearing liabilities $ 39 $ (69) $ (30)
------ ------ ------
Change in net interest income $ 54
------
</TABLE>
Comparison of the year ended December 31, 1997 and 1996
Net Income. Net income amounted to $1 thousand or $.03 per share in 1997,
representing an decrease of 98% from $46,000 or $1.18 per share in 1996. The
return on average assets was 0.00% for 1997 and .09% for 1996. The return on
average equity was .03% in 1997 compared to 1.12% in 1996.
Net Interest Income. Net interest income increased $65,000 or 2.6% in 1997 as
compared to 1996. The net yield on interest-earning assets decreased by 11 basis
points (1% equal 100 basis points) to 5.04%, while the average balance of
interest-earnings assets increased by $2.1 million or 4.4%.
Although the increase in average earning assets resulted in a decline in net
interest income of $23,000, the net yield on interest-earning assets declined,
accounting for an increase in net interest income of $77,000.
Funds not used immediately to fund loan demand are being invested in long-term
investment and mortgage-backed securities; average investment securities
increased by $2.8 million. These funds were invested in long-term investment
securities to provide an adequate rate of return.
Provision for Loan Losses. The provision for loan losses amounted to $488,000
for 1997 compared to $710,000 in 1996. The decline in the provision is primarily
the result of a decline in nonperforming loans. Historically, Southern has
experienced minimal net charge-offs relating to real estate loans, however
management recognizes that consumer and commercial lending inherently possesses
a greater degree of risk of loss. Net charge-offs were $421,000 in 1997 and
$795,000 in 1996.
52
<PAGE> 55
Noninterest Income. Noninterest income increased $44,000 or 18.6% in 1997
compared to 1996. Noninterest income is primarily made up of service charges on
deposit accounts, net gain from the sale of investment securities, and other
service charges and fees. Service charges on deposit accounts increased by
$37,000 as a result of increased fees charged on deposit accounts. Management
believes the level of service charges are competitive with other local community
financial institutions. Other service charges which are primarily made up of
credit card service fees and credit life insurance service fees, declined by
$18,000, due to a decline in credit life insurance policies being sold.
Noninterest Expense. Noninterest expense increased by $308,000 in 1997 compared
to 1996. The increase was primarily the result of increases in salaries and
employee benefits of $69,000; net occupancy expenses of $50,000; professional
services of $166,000; data processing of $18,000; and printing, stationery, and
supplies of $13,000.
The increase in salaries and employee benefits, data processing, and printing,
stationery, and supplies were normal annual increases. The increase in net
occupancy expenses is due to additional depreciation and maintenance costs for
equipment primarily purchased in 1997. The increase in professional services was
due to an increase in consulting fees related to marketing the company.
Federal Income Taxes. Federal income tax expense increased $68,000 to $33,000 in
1997, as a result of a higher level of pre-tax income and an increase in
permanent non-deductible expenses.
LEGAL OPINIONS
Certain legal matters in connection with the Merger will be passed upon
for UBCP by Werner & Blank Co., L.P.A., Toledo, Ohio and by Gerig and Gerig,
Athens, Ohio, for Southern.
EXPERTS
The consolidated financial statements of UBCP as of December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997
incorporated by reference into this Proxy Statement-Prospectus have been audited
by Crowe, Chizek and Company, LLP, independent auditors, as stated in their
report which are incorporated herein by reference, and have been so
incorporated in reliance upon report of such firm given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Southern as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997, included in this Proxy Statement-Prospectus have been audited by Robb,
Dixon, Francis, Davis, Oneson & Company, independent auditors, as stated in
their report which is contained herein in reliance upon the report of such firm
given upon their authority as experts in auditing.
53
<PAGE> 56
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Southern Ohio Community Bancorporation, Inc.
Glouster, Ohio
We have audited the consolidated balance sheets of Southern Ohio
Community Bancorporation, Inc. and subsidiary as of December 31, 1997, and 1996,
and the related statements of income, changes in shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Southern Ohio Community Bancorporation, Inc. and subsidiary as of December 31,
1997 and 1996, and the consolidated results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ROBB, DIXON,
FRANCIS, DAVIS, ONESON
& COMPANY
Granville, Ohio
February 20, 1998
F-1
<PAGE> 57
SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
GLOUSTER, OHIO
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions $ 2,008 $ 1,703
Interest-bearing deposits in other banks 1 1
Federal funds sold 442 902
-------- --------
Total cash and cash equivalents 2,451 2,606
Time deposits 300 300
Investment securities
Securities available-for-sale 14,802 8,359
Securities held-to-maturity 1,067 4,013
-------- --------
Total investment securities 15,869 12,372
Loans 31,931 33,855
Allowance for loan losses (800) (733)
-------- --------
Net loans 31,131 33,122
Premises and equipment, net 1,361 1,154
Accrued interest receivable 436 454
Other real estate owned 2 76
Deferred income taxes 121 159
Other assets 194 358
-------- --------
TOTAL ASSETS $ 51,865 $ 50,601
======== ========
LIABILITIES
Deposits
Noninterest-bearing $ 3,824 $ 3,601
Interest-bearing 43,873 42,987
-------- --------
Total deposits 47,697 46,588
Accrued interest payable 166 227
Other liabilities 214 27
-------- --------
TOTAL LIABILITIES 48,077 46,842
-------- --------
SHAREHOLDERS' EQUITY
Common stock of $5.00 par value; 39,000 shares
authorized, and issued 195 195
Additional paid-in capital 326 322
Retained earnings 3,263 3,309
Treasury stock, at cost, 0 and 220 shares 0 (17)
Unrealized gain (loss) on securities available-for-sale,
net of applicable deferred income taxes 4 (50)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 3,788 3,759
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,865 $ 50,601
======== ========
</TABLE>
See accompanying notes
F-2
<PAGE> 58
SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
GLOUSTER, OHIO
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 3,586 $ 3,799 $ 3,665
Interest and dividends on investment securities 885 682 617
Interest on federal funds sold 108 64 19
Other interest income 17 16 15
------- ------- -------
TOTAL INTEREST INCOME 4,596 4,561 4,316
INTEREST EXPENSE
Interest on deposits 2,063 2,091 1,891
Interest on borrowed funds 0 2 45
------- ------- -------
TOTAL INTEREST EXPENSE 2,063 2,093 1,936
------- ------- -------
NET INTEREST INCOME 2,533 2,468 2,380
Provision for loan losses 488 710 739
------- ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,045 1,758 1,641
OTHER INCOME
Service charges on deposits 151 114 108
Gain from sale of investment securities 25 0 0
Other income 104 122 120
------- ------- -------
TOTAL OTHER INCOME 280 236 228
------- ------- -------
OTHER EXPENSES
Salaries and employee benefits 1,122 1,053 1,079
Net occupancy expense 281 231 202
Professional services 278 112 64
Franchise taxes 57 63 53
Data processing 169 151 141
Printing, stationery, and supplies 70 57 65
Postage and freight 48 44 42
Other expenses 266 272 321
------- ------- -------
TOTAL OTHER EXPENSES 2,291 1,983 1,967
------- ------- -------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 34 11 (98)
Federal income tax expense (benefit) 33 (35) (109)
------- ------- -------
NET INCOME $ 1 $ 46 $ 11
======= ======= =======
PER SHARE DATA:
Earnings $ 0.03 $ 1.18 $ .28
</TABLE>
See accompanying notes
F-3
<PAGE> 59
SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
GLOUSTER, OHIO
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(Dollars in thousands)
Unrealized
gain (loss)
on securities
available-for-sale Total
Additional sale net of Share-
Common Stock paid-in Retained Treasury deferred Holders'
Shares Amount capital earnings stock income taxes Equity
------ ------ ------- -------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 39,000 $ 195 $ 322 $3,346 $ (17) $ (376) $3,470
Net income 11 11
Dividends declared
($1.20 per share) (47) (47)
Change in unrealized
gain (loss) on securities
available-for-sale, net of
applicable deferred income
taxes of $165 328 328
------- ------- ------ ------- -------- ------
Balances at December 31, 1995 39,000 195 322 3,310 (17) (48) 3,762
Net income 46 46
Dividends declared
($1.20 per share) (47) (47)
Change in unrealized
gain (loss) on securities
available-for-sale, net of
applicable deferred income
taxes of $1 (2) (2)
------- ------- ------ ------- -------- ------
Balance at December 31, 1996 39,000 195 322 3,309 (17) (50) 3,759
Net income 1 1
Dividends declared
($1.20 per share) (47) (47)
Sale of 220 shares of
treasury stock 4 17 21
Change in unrealized
gain (loss) on securities
available-for-sale, net of
applicable deferred income
taxes of $27 54 54
------- ------- ------ ------- -------- ------
Balances at December 31, 1997 $39,000 $ 195 $ 326 $3,263 $ 0 $ 4 $3,788
======= ======= ======= ====== ======= ======== ======
See accompanying notes.
</TABLE>
F-4
<PAGE> 60
SOUTHERN OHIO COMMUNITY BANCORPORATION, INC.
GLOUSTER, OHIO
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net income $ 1 $ 46 $ 11
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 488 710 739
Investment securities amortization (accretion), net 16 34 41
Depreciation 135 107 104
Deferred income taxes 12 16 (192)
Gain on sales of investment securities (25) 0 0
Gain on sale of property and equipment (7) 0 0
Gain on sale of other real estate owned (10) 0 (1)
Net change in:
Accrued interest receivable 18 50 (75)
Accrued interest payable (61) 46 48
Other assets 164 (141) 10
Other liabilities 187 (127) 128
-------- -------- --------
Net cash provided by operating activities 918 741 813
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities 0 (501) 0
Proceeds from maturities of held-to-maturity securities 2,935 290 530
Purchases of available-for-sale securities (12,995) (3,043) (702)
Proceeds from sales of available-for-sale securities 2,944 0 0
Proceeds from maturities of available-for-sale securities 3,708 1,794 421
Net (increase) decrease in loans 1,503 69 (2,194)
Purchases of premises and equipment (351) (140) (236)
Proceeds from sale of premises and equipment 15 0 0
Proceeds from sale of other real estate owned 84 59 118
-------- -------- --------
Net cash used in investing activities (2,157) (1,472) (2,063)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing demand, and savings deposits 2,322 136 (764)
Certificates of deposit (1,212) 1,562 4,392
Net decrease in short-term borrowed funds 0 0 (2,536)
Proceeds from sale of treasury stock 21 0 0
Dividends paid (47) (47) (47)
-------- -------- --------
Net cash provided by financing activities 1,084 1,651 1,045
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
EQUIVALENTS (155) 920 (205)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,606 1,686 1,891
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,451 $ 2,606 $ 1,686
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 2,124 $ 2,047 $ 1,888
Cash paid (received) during the year for income taxes (119) 112 56
See accompanying notes
</TABLE>
F-5
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
SOUTHERN OHIO COMMUNITY
BANCORPORATION, INC.
GLOUSTER, OHIO
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Southern Ohio Community Bancorporation, Inc. (The Bancorp) is a bank holding
company whose principal activity is the ownership and management of its
wholly-owned subsidiary, The Glouster Community Bank, (the Bank). The Bank
generates commercial (including agricultural), mortgage and consumer loans and
receives deposits from customers located primarily in Amesville, Nelsonville,
and Glouster, Ohio and the surrounding areas. The Bank operates under a state
bank charter and provides full banking services. As a state bank, the Bank is
subject to regulations by the State of Ohio Division of Financial Institutions
and the Federal Deposit Insurance Corporation.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Southern Ohio
Community Bancorporation, Inc. and its wholly-owned subsidiary, The Glouster
Community Bank, after elimination of all material intercompany transactions and
balances.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the determination
of the estimated losses on loans, management obtains independent appraisals for
significant collateral.
The Bank's loans are generally secured by specific items of collateral including
real property, consumer assets, and business assets. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on local economic conditions.
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Bank to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible that
the estimated losses on loans may change materially in the near term. However
the amount of change that is reasonably possible cannot be estimated.
F-6
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
INVESTMENT SECURITIES
Debt securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold the securities to maturity. Securities
held-to-maturity are carried at amortized cost. The amortization of premiums and
accretions of discounts are recognized using methods approximating the interest
method over the remaining period to maturity.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Securities available-for-sale are carried at fair value with
unrealized gains and losses reported separately net of tax, through a separate
component of shareholders' equity. Gains and losses on the sale of securities
are determined using the specific-identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
LOANS
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.
Loan origination fees, as well as certain direct origination costs, are deferred
and amortized as a yield adjustment over the lives of the related loans using
the interest method. Amortization of deferred loan fees is discontinued when a
loan is placed on nonaccrual status.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest income on such loans and
other nonaccrual loans is recognized only to the extent of interest payments
received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions and other risks inherent in the portfolio.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. Although management uses
available information to recognize losses on loans, because of uncertainties
associated with local economic conditions, collateral values, and future cash
flows on impaired loans, it is reasonably possible that a material change could
occur in the allowance for loan losses in the near term. However, the amount of
the change that is reasonably possible cannot be estimated. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries. Changes in the allowance related to
impaired loans are charged or credited to the provision for loan losses.
F-7
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
PREMISES AND EQUIPMENT
Land is carried at cost. Other premises and equipment are recorded at cost net
of accumulated depreciation. Depreciation is computed using the straight-line
method based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized.
OTHER REAL ESTATE OWNED
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value less
estimated selling costs at the date of foreclosure. Any write-downs based on the
asset's fair value at the date of acquisition are charged to the allowance for
loan losses. After foreclosure, these assets are carried at the lower of their
new cost basis or fair value less cost to sell. Costs of significant property
improvements are capitalized, whereas costs relating to holding property are
expensed. The portion of interest costs related to development of real estate is
capitalized. Valuations are periodically performed by management, and any
subsequent write-downs are recorded as a charge to operations, if necessary, to
reduce the carrying value of a property to the lower of its cost or fair value
less cost to sell.
INCOME TAXES
Income taxes are provided for the tax effects reported in the financial
statements and consist of taxes currently due plus deferred taxes related
primarily to differences between the basis of available-for-sale securities,
allowance for loan losses, accumulated depreciation, accrued income, deferred
loan fees and contributions. The deferred tax assets and liabilities represent
the future tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered or settled.
Deferred tax assets and liabilities are reflected at income tax rates applicable
to the period in which the deferred tax assets and liabilities are expected to
be realized or settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes.
The Bancorp files consolidated income tax returns with its subsidiary.
STATEMENTS OF CASH FLOWS
The Bancorp considers all cash and amounts due from depository institutions,
interest-bearing deposits in other banks, and federal funds sold to be cash
equivalents for purposes of the statements of cash flows.
RECLASSIFICATIONS
Certain amounts in 1996 and 1995 have been reclassified to conform with the 1997
presentation.
NOTE B - SUBSEQUENT EVENT
On February 9, 1998, the Corporation entered into a Definitive Agreement (the
"Agreement") with United Bancorp, Inc. The Agreement incorporates the terms of
the letter of intent entered into January 12, 1998. Upon completion of the
merger, each share of the Corporation's common stock outstanding will be
exchanged for 11 shares of United Bancorp, Inc. common shares in a tax-free
exchange. For financial reporting purposes the merger will be accounted for
under the pooling of interests method of accounting.
Pending regulatory and shareholder approval, the transaction is expected to be
completed during the third quarter of 1998.
F-8
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
United Bancorp, Inc. is headquartered in Martins Ferry, Ohio and is a multi-bank
holding company with total assets of $212 million and total shareholder equity
of approximately $21.9 million as of December 31, 1997. Affiliates of United
Bancorp, Inc. includes the Citizens Savings Bank with offices in Bridgeport,
Colerian, St. Clairsville and Martins Ferry, Ohio and the Citizens State Bank
with offices in Strasburg, Dellroy, Dover, Sherrodsville and New Philadelphia,
Ohio. The Company trades on The Nasdaq Stock Market under the symbol UBCP, Cusip
#90991109.
NOTE C - INVESTMENT SECURITIES
The amortized cost of securities and their approximate fair values are as
follows:
Available-for-sale
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 December 31, 1996
----------------------------- -----------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal
agencies $10,765 $34 $(26) $10,773 $7,409 $0 $(65) $7,344
Mortgage-
backed
securities 3,787 11 (13) 3,785 794 7 (17) 784
Equity
securities 244 0 0 244 231 0 0 231
------- --- ---- ------- ------ -- ---- ------
Total $14,796 $45 $(39) $14,802 $8,434 $7 $(82) $8,359
======= === ==== ======= ====== == ==== ======
</TABLE>
Held-to-maturity
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1997 December 31, 1996
------------------- ------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
---- ----- ------ ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal
agencies $ 0 $ 0 $0 $ 0 $2,000 $17 $0 $2,017
State &
municipal
securities 1,067 42 0 1,109 2,013 44 0 2,057
------ --- -- ------ ------ --- -- ------
Total $1,067 $42 $0 $1,109 $4,013 $61 $0 $4,074
====== === == ====== ====== === == ======
</TABLE>
F-9
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The amortized cost and estimated fair value of securities held-to-maturity and
available-for-sale at December 31, 1997, by contractual maturity, are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Available-for-sale Held-to-maturity
Amortized Fair Amortized Fair
AMOUNTS MATURING IN : Cost Value Cost Value
---- ----- ---- ------
<S> <C> <C> <C> <C>
One year or less $ 2,500 $ 2,495 $ 140 $ 141
After one year through five years 1,498 1,505 408 432
After five years through ten years 5,767 5,773 519 536
After ten years 1,000 1,000 0 0
Mortgage-backed securities 3,787 3,785 0 0
Equity securities 244 244 0 0
------- ------- ------ ------
Total $14,796 $14,802 $1,067 $1,109
======= ======= ====== ======
</TABLE>
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations without call or prepayment
penalties.
During 1997, the Bank sold securities available-for-sale for total proceeds of
approximately $2,944,000 resulting in gross realized gains of approximately
$25,000 and no gross realized losses. During 1996 and 1995, the Bank did not
sell any securities. Investment securities with a carrying value of
approximately $9,499,000 and $10,868,000 were pledged at December 31, 1997 and
1996 to secure certain deposits.
NOTE D - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Loans secured by real estate:
Construction $ 631 $ 352
Farmland 389 260
One-to-four family residential properties 17,255 17,168
Nonfarm nonresidential properties 2,577 1,641
Agricultural production 6 89
Commercial and industrial 1,923 2,243
Consumer 8,772 11,784
Municipal 323 274
Other 55 44
--------- ---------
Total $31,931 $ 33,855
========= =========
</TABLE>
F-10
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
<TABLE>
<CAPTION>
Allowance for loan losses:
1997 1996 1995
---- ---- ----
<S> <C> <C>
Balance beginning of year $733 $818 $255
Loans charged off (517) (839) (233)
Recoveries 96 44 57
Provision for losses 488 710 739
---- ---- ----
Balance, end of year $800 $733 $818
==== ==== ====
</TABLE>
At December 31, 1997 and 1996, the total recorded investment in impaired loans,
all of which had allowances determined in accordance with SFAS No. 114 and No.
118, amounted to approximately $603,000 and $513,000, respectively. The average
recorded investment in impaired loans amounted to approximately $398,000 and
$586,000 for the years ended December 31, 1997 and 1996, respectively. The
allowance for loan losses related to impaired loans amounted to approximately
$304,000 and $238,000 at December 31, 1997 and 1996, respectively. Interest
income on impaired loans of $59,000 and $87,000 was recognized for cash payments
received in 1997, and 1996, respectively. It was not feasible to obtain impaired
loan information for 1995. The bank has no commitments to loan additional funds
to borrowers whose loans have been modified.
The Bank has entered into transactions with certain directors, executive
officers, significant shareholders, and their affiliates. Such transactions were
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time of comparable transactions with other customers,
and did not, in the opinion of management, involve more than a normal credit
risk or present any other unfavorable features. The aggregate amount of loans to
such related parties at December 31, 1997 was $981,000. During 1997, new loans
made to such related parties amounted to $970,000 and payments amounted to
$1,108,000.
NOTE E - PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Land $ 181 $ 181
Buildings 1,081 1,081
Equipment 1,298 962
------- -------
2,560 2,224
Accumulated depreciation (1,199) (1,070)
------- -------
Total $1,361 $1,154
======= =======
</TABLE>
F-11
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE F - DEPOSITS
Deposit account balances at December 31, 1997 and 1996, are summarized as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Noninterest-bearing $ 3,824 $ 3,601
Interest-bearing demand 11,274 9,850
Savings account 8,737 8,063
Certificates of deposit 23,862 25,074
------- -------
Total $47,697 $46,588
======= =======
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $4,818,000 and $5,656,000 at
December 31, 1997 and 1996.
Certificates maturing in years ending December 31, as of December 31, 1997:
(Dollars in thousands)
1998 $14,735
1999 6,327
2000 2,754
2001 45
2002 and thereafter 1
-------
Total $23,862
=======
The Bank held related party deposits of approximately $903,000 and $802,000 at
December 31, 1997 and 1996, respectively.
Overdrawn demand deposits reclassified as loans totaled $16,000 and $26,000 at
December 31, 1997 and 1996, respectively.
NOTE G - FEDERAL INCOME TAXES
The consolidated provision for income taxes for 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax expense
Current tax expense $21 $(51) $ 83
Deferred tax expense 12 16 (192)
-- ---- -----
Total $33 $(35) $(109)
=== ==== =====
</TABLE>
F-12
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The consolidated provision for federal income taxes differs from that computed
by applying federal statutory rates to income before federal income tax expense,
as indicated in the following analysis:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax at 34% $10 $ 4 $ (33)
Tax exempt income (39) (39) (47)
Increase in deferred tax asset valuation allowance 5 18 0
Other 57 (18) (29)
--- ---- -----
Total $33 $(35) $(109)
=== ==== =====
</TABLE>
A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Differences in available-for-sale securities $ 2 $ 23
Differences in depreciation methods Current tax expense (7) 1
Differences in accounting for loan losses 158 151
Differences in accrued income, net of accrued expenses (80) (53)
Differences in loan fee income 28 25
Alternate minimum tax credit 43 30
Deferred tax assets valuation allowance (23) (18)
---- ----
Total $121 $159
==== ====
Deferred tax liabilities $(87) $(53)
Deferred tax assets 231 230
Deferred tax assets valuation allowance (23) (18)
---- ----
Net deferred tax assets $121 $159
==== ====
</TABLE>
NOTE H - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
In the normal course of business, the Bank has outstanding commitments and
contingent liabilities, such as commitments to extend credit , which are not
included in the accompanying consolidated financial statements. The Bank's
exposure to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to extend credit is represented by the
contractual or notional amount of those instruments. The Bank uses the same
credit policies in making such commitments as it does for instruments that are
included in the consolidated balance sheet.
F-13
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Financial instruments whose contract amount represents credit risk were as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Credit card lines $ 348 $505
Commitments to extend credit 939 326
------ ----
Total $1,287 $831
====== ====
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation. Collateral held varies but may include accounts
receivable, inventory, property and equipment, and income-producing commercial
properties.
The Bank has not been required to perform on any financial guarantees during the
past three years. The Bank has not incurred any losses on its commitments in
either 1997, 1996 or 1995.
The Bank had due from bank balances in excess of $100,000 with the following
banks as of December 31, 1997:
(Dollars in thousands)
Huntington National Bank $184
Independent State Bank of Ohio 547
Star Bank 189
Nelsonville Home & Savings Association 200
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES
The Bancorp and Bank periodically are subject to claims and lawsuits which arise
in the ordinary course of business. It is the opinion of management that the
disposition or ultimate resolution of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position of the Bancorp.
NOTE J - RESTRICTION ON DIVIDENDS
The Bank is subject to certain restrictions on the amount of dividends that it
may pay without prior regulatory approval. The Bank normally restricts dividends
to a lesser amount. At December 31, 1997, retained earnings of approximately
$670,000 was available for the payment of dividends without prior regulatory
approval.
F-14
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE K - PROFIT SHARING PLAN
On January 1, 1987, the Bank instituted a profit sharing plan covering
substantially all employees who have attained the age of 21. Employer
contributions are discretionary and may be made only out of the employer's net
profits. Contributions are allocated to employee accounts based on the level of
compensation of each employee. Employer contributions are fully vested after six
years. The Bank's discretionary contributions were $36,000, $-0-, and $36,000 in
1997, 1996 and 1995 respectively.
NOTE L - MEMO OF UNDERSTANDING
On January 1, 1997, a Memo of Understanding by and among the Glouster Community
Bank, Glouster, Ohio and the State of Ohio Division of Financial Institutions,
Columbus, Ohio, and the Federal Deposit Insurance Corporation, Chicago,
Illinois, was entered into and signed by the Bank's board of directors. The Memo
of Understanding contains provisions binding upon the Bank which shall remain
effective until stayed, modified, terminated or suspended by the Superintendent
(State of Ohio) and the Regional Director (Federal Deposit Insurance
Corporation).
NOTE M - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Federal Deposit Insurance Corporation (FDIC).
Failure to meet minimum capital requirements can initiate certain mandatory, and
possible additional discretionary actions by regulators that, if undertaken,
could have a direct material affect on the Bancorp and the consolidated
financial statements. Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification under the
prompt corrective action guidelines are also subject to qualitative judgements
by the regulators about components, risk weightings, and other factors.
Qualitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of: total risk-based
capital and Tier I capital to risk-weighted assets (as defined in the
regulations), and Tier I capital to average assets (as defined). Management
believes, as of December 31, 1997, that the Bank meets all of the capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC, the Bank
was categorized as well capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well capitalized, the Bank will have
to maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as disclosed in the table below. There are no conditions or events since
the most recent notification that management believes have changed the Bank's
prompt corrective action category.
F-15
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------- ----------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Risk-Based Capital
(to Risk Weighted Assets) $4,255 16.2% $2,109 8.0% $2,636 10.0%
Tier I Capital
(to Risk Weighted Assets) 3,920 14.9 1,054 4.0 1,582 6.0
Tier I Capital
(to Average Assets) 3,920 7.2 2,170 4.0 2,713 5.0
As of December 31, 1996:
Total Risk-Based Capital
(to Risk Weighted Assets) $4,155 13.7% $2,421 8.0% $3,026 10.0%
Tier I Capital
(to Risk Weighted Assets) 3,773 12.5 1,210 4.0 1,815 6.0
Tier I Capital
(to Average Assets) 3,773 7.6 1,992 4.0 2,490 5.0
</TABLE>
NOTE N - FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheets. In
cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Statement No. 107 excluded certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheets
for cash and cash equivalents approximate those assets' fair values.
Time deposits: Fair values for time deposits are estimated using a discounted
cash flow analysis that applies interest rates currently being offered on
certificates to a schedule of aggregated contractual maturities on such time
deposits.
F-16
<PAGE> 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair
values for other loans (for example, fixed rate commercial real estate and
rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. Fair values for impaired loans are
estimated using discounted cash flow analysis or underlying collateral values,
where applicable.
Deposits: The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate, fixed-term
money-market accounts and certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimates using a
discounted cash flow calculation that applies interest rates currently offered
on certificates to a schedule of aggregated contractual expected monthly
maturities on time deposits.
Accrued interest: The carrying amounts of accrued interest approximate the fair
values.
The estimated fair values of the Company's financial instruments are as follows
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
--------------- ---------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ ------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $2,451 $2,451 $2,606 $2,606
Time deposits 300 299 300 301
Total investment securities 15,869 15,911 12,372 12,433
Net loans 31,131 31,081 33,122 33,069
Accrued interest receivable 436 436 454 454
Financial liabilities:
Deposits 47,697 47,476 46,588 46,344
Accrued interest payable 166 166 227 227
</TABLE>
The carrying amounts in the preceding table are included in the balance sheets
under the applicable captions. The contract or notional amounts of the Bank's
financial instruments with off-balance-sheet risk are disclosed in NOTE H. No
derivatives were held by the Bank for trading purposes.
F-17
<PAGE> 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
NOTE O - PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The following are condensed parent company financial statements:
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
---- ----
<S> <C> <C>
Assets
Cash $ 14 $ 39
Investment in subsidiary 3,924 3,720
------ ------
Total assets $3,938 $3,759
====== ======
Liabilities and shareholders' equity
Other liabilities $ 150 $ 0
Shareholders' equity 3,788 3,759
------ ------
Total liabilities and shareholders' equity $3,938 $3,759
====== ======
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating income
Dividends from subsidiary $ 0 $47 $47
Operating expenses 150 2 3
------ --- ---
Income before equity in undistributed net income (150) 45 44
Equity in undistributed net income 151 1 (33)
------ --- ---
Net income $ 1 $46 $11
====== === ===
</TABLE>
F-18
<PAGE> 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
CONDENSED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1 $46 $11
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income (151) (1) 33
Net increase in other liabilities 151 0 0
---- --- ---
NET CASH PROVIDED BY OPERATING ACTIVITIES 1 45 44
---- --- ---
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of treasury stock 21 0 0
Dividends paid (47) (47) (47)
---- --- ---
NET CASH PROVIDED BY FINANCING ACTIVITIES (26) (47) (47)
---- --- ---
NET DECREASE IN CASH AND CASH EQUIVALENTS (25) (2) (3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR 39 41 44
---- --- ---
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14 $39 $41
==== === ===
</TABLE>
F-19
<PAGE> 75
APPENDIX A
MERGER AGREEMENT
This Merger Agreement ("Agreement") is entered into as of this 9th day
of February, 1998, by and between United Bancorp, Inc. (hereinafter called
"UBCP") and Southern Ohio Community Bancorporation, Inc. (hereinafter called
"Southern").
RECITALS
A. UBCP is a corporation duly organized under the laws of the State of
Ohio. Its principal office is located at 201 South Fourth Street, Martins Ferry,
Ohio 43935. As of the date hereof, UBCP had authorized capital stock consisting
of 10,000,000 shares of common stock, $1 par value ("UBCP Common Stock") of
which a total of 2,238,314 shares were issued and outstanding and no shares were
held as treasury shares. UBCP owns all of the outstanding capital stock of The
Citizens Savings Bank and the Citizens-State Bank each of which is a state
banking corporation organized under the laws of the State of Ohio, hereinafter
the Subsidiaries.
B. Southern is a corporation duly organized under the laws of the State
of Ohio. Its principal office is located at 88 High Street, Glouster, Ohio
45732. As of the date hereof, Southern had authorized capital stock consisting
of 39,000 shares of common stock, $5 par value ("Southern Common Stock"), of
which 39,000 shares were issued and outstanding and no shares were held as
treasury shares. Southern owns all of the outstanding capital stock of The
Glouster Community Bank (hereinafter referred to as the "Glouster Bank"), a
banking corporation organized under the laws of the State of Ohio.
C. The Board of Directors of UBCP and the Board of Directors of
Southern, respectively, have each unanimously approved the entering into of this
Merger Agreement and have authorized the execution and delivery of this Merger
Agreement. From and after the time the merger of Southern into UBCP shall become
effective, the "Merger" as defined in Section 1 of this Merger Agreement, and as
and when required by this Merger Agreement, UBCP will issue shares of UBCP
Common Stock in exchange for all of the issued and outstanding shares of
Southern Common Stock in accordance with the provisions hereinafter set forth.
It is understood by each of the parties hereto that UBCP seeks to acquire
Southern and all of the operating assets of Southern including the Glouster Bank
and the entities and assets which Southern and the Glouster Bank may acquire
prior to the time the Merger shall become effective, through the Merger of
Southern with and into UBCP under the charter of UBCP and Glouster Bank will,
immediately after the effective date of the Merger, remain an independent
operating subsidiary of UBCP. The parties will exert their best efforts to
obtain such regulatory approvals and to complete such other actions as are
necessary or appropriate to effect the Merger.
AGREEMENT
In consideration of mutual covenants and premises herein contained, UBCP and
Southern hereby make this Merger Agreement and prescribe the terms and
conditions of the Merger and the mode
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of carrying the Merger into effect as follows:
1. Merger. Subject to the terms and conditions hereinafter set forth,
Southern shall be merged with and into UBCP under the Articles of
Incorporation of UBCP pursuant to and in accordance with the applicable
provisions of the laws of the State of Ohio ("Merger").
2. Name. The name of the surviving holding corporation (hereinafter called
the "Surviving Corporation" whenever reference is made to it as of the
time the Merger shall become effective, as hereinafter provided, or
thereafter) shall be "United Bancorp, Inc."
3. Business. The business of UBCP as the Surviving Corporation shall be
that of a bank holding company. The Surviving Corporation shall exist
by virtue of, and be governed by the laws of the State of Ohio and
shall have its principal office in Ohio at 4th at Hickory Street,
Martins Ferry, Ohio 43935.
4. Effective Time of Merger: Certificate of Merger. The Merger shall
become effective upon the date of the filing of the appropriate
Certificate of Merger with the Ohio Secretary of State (the "time the
Merger shall become effective") in accordance with applicable
provisions of the laws of the State of Ohio.
The Articles of Incorporation of UBCP in effect immediately prior to
the time the Merger shall become effective, shall be the Articles of
Incorporation of the Surviving Corporation, and the Code of Regulations
of UBCP in effect immediately prior to the time the Merger shall become
effective, shall be the Code of Regulations of the Surviving
Corporation.
5. Effect of Merger. At the time the Merger shall become effective, the
separate corporate existence of Southern shall, in accordance with
applicable provisions of the laws of the State of Ohio, be merged into
and continued in UBCP as the Surviving Corporation, with the effect as
provided by Section 1701.82 of the Ohio Revised Code.
6. Liabilities upon Merger. The Surviving Corporation shall be responsible
for all of the liabilities and obligations of each of the corporations
so merged in the same manner and to the same extent as if such single
corporation had itself incurred the same or contracted therefor, all in
the manner and as provided for by Sections 1701.82(A)(1),(2),(3),(4),
and (5) of the Ohio Revised Code.
7. Conversion of Shares.
(a) At the time the Merger shall become effective;
(i) All of the outstanding shares of Southern Common
Stock shall be converted by operation of law into
shares of UBCP Common Stock without any action by the
holder thereof and each such share shall be exchanged
for 11 shares of UBCP Common Stock hereinafter the
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"Exchange Ratio."
(ii) The shares of UBCP Common Stock issued and
outstanding immediately prior to the time the Merger
shall become effective shall continue to be issued
and outstanding shares of the Surviving Corporation.
(iii) If prior to the Merger, shares of UBCP Common Stock
shall be changed into a different number of shares or
a different class of shares by reason of any
reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or
there occurs a distribution of warrants or rights
with respect to the UBCP Common Stock or a stock
dividend, stock split or other general distribution
of UBCP Common Stock is declared with a record date
prior to the effective time of the Merger, then in
any event the Exchange Ratio shall be appropriately
adjusted.
(b) No fractional shares of UBCP Common Stock will be issued by
UBCP in connection with the Merger, but in lieu thereof,
holders of Southern Common Stock shall, upon surrender of the
certificate or certificates formerly representing such
Southern Common Stock be paid cash without interest by UBCP
for such fractional share(s). The cash paid for each
fractional share shall be the same fraction of the average bid
and asked closing price per share of UBCP Common Stock on the
Closing Date.
(c) As soon as practicable, but not later than thirty (30) days
after the time the Merger shall become effective, and subject
to the provisions set forth above relating to the fractional
shares, UBCP, or American Stock Transfer and Trust Company,
New York, as Exchange Agent, will distribute to the former
holders of Southern Common Stock in exchange for and upon
surrender for cancellation by such holders of a certificate or
certificates formerly representing shares of Southern Common
Stock the certificate(s) for shares of UBCP Common Stock in
accordance with the Exchange Ratio and any cash payment in
lieu of fractional shares. Each certificate formerly
representing Southern Common Stock (other than certificates
representing shares of Southern Common Stock subject to the
rights of dissenting shareholders) shall be deemed for all
purposes to evidence the ownership of the number of whole
shares of UBCP Common Stock and cash for fractional share
interests in UBCP Common Stock into which such shares have
been converted pursuant to the Exchange Ratio. Until surrender
of the certificate or certificates formerly representing
shares of Southern Common Stock, the holder thereof shall not
be entitled to receive any dividend or other payment or
distribution payable to holders of UBCP Common Stock. Upon
such surrender (or in lieu of surrender other provisions
reasonably satisfactory to UBCP as are made as set forth in
the next following paragraph), there shall be paid to the
person entitled thereto the aggregate amount of dividends or
other payments or distributions (in each case without
interest) which became payable after the time the Merger shall
become effective on the whole shares of UBCP Common Stock
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represented by the certificates issued upon such surrender and
exchange or in accordance with such other provisions, as the
case may be. After the time the Merger shall become effective,
the holders of certificates formerly representing shares of
Southern Common Stock shall cease to have rights with respect
to such shares (except such rights, if any, as a holder of
certificates formerly representing shares of Southern Common
Stock may have as dissenting shareholders pursuant to the Ohio
General Corporation Law) and except as aforesaid, their sole
rights shall be to exchange said certificates for certificates
for shares of UBCP Common Stock in accordance with this Merger
Agreement.
Certificates formerly representing shares of Southern Common
Stock surrendered for cancellation by each shareholder
entitled to exchange shares of Southern Common Stock for
shares of UBCP Common Stock by reason of the Merger shall be
accompanied by such appropriate instruments of transfer as
UBCP may reasonably require, provided, however, that if there
be delivered to UBCP by any person who is unable to produce
any such certificate formerly representing shares of Southern
Common Stock for transfer (i) evidence to the reasonable
satisfaction of UBCP that any such certificate has been lost,
wrongfully taken or destroyed, and (ii) such indemnity
agreement and, at the discretion of UBCP, an indemnity bond,
as reasonably may be requested by UBCP to save it harmless,
and (iii) evidence to the reasonable satisfaction of UBCP that
such person is the owner of the shares theretofore represented
by each certificate claimed by him to be lost, wrongfully
taken or destroyed and that he is the person who would be
entitled to present each such certificate and to receive
shares of UBCP Common Stock pursuant to this Merger Agreement,
then UBCP, in the absence of actual notice to it that any
shares theretofore represented by any such certificate have
been acquired by a bona fide purchaser, shall deliver to such
person the certificate(s) representing shares of UBCP Common
Stock which such person would have been entitled to receive
upon surrender of each such lost, wrongfully taken or
destroyed certificate representing shares of Southern Common
Stock.
8. Board of Directors. The Board of Directors of UBCP as constituted at
the time the Merger shall become effective shall serve as the Board of
Directors of UBCP as the Surviving Corporation, plus Mr. L. E.
Richardson, Jr. whom UBCP undertakes to appoint to the Board of
Directors of UBCP as soon as practicable following the effective date
of the Merger.
9. Discussions with Others. From and after the date hereof, Southern will
not, directly or indirectly, through any of its officers, directors,
employees, agents or advisors or other representatives or consultants,
solicit or initiate or knowingly encourage, including by means of
furnishing information, any proposals or offers from any person (other
than UBCP) relating to any acquisition or purchase of all or a material
amount of the assets of, or any securities of, or any merger, tender
offer, consolidation or business combination with, Southern (an
"Acquisition Proposal"); providing, however, that Southern may furnish
information and may consider, evaluate and engage in discussions or
negotiations
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with any person if outside counsel advises Southern's directors that
failure to furnish such information or engage in such discussions or
negotiations could involve Southern's directors in a breach of their
fiduciary duties. If the Board of Directors of Southern receives a
request for confidential information from a potential bidder for
Southern and the Board of Directors determines, after consultation with
outside counsel, that the Board of Directors has a fiduciary obligation
to provide such information to a potential bidder, then Southern may,
subject to a confidentiality agreement substantially similar to that
previously executed with UBCP, provide such potential bidder with
access to information regarding Southern. Southern shall promptly
notify UBCP, orally and in writing, if any such proposal or offer is
made and shall, in any such notice, indicate the identity and terms and
conditions of any proposal or offer, or any such inquiry or contact.
Southern shall keep UBCP advised of the progress and status of any such
proposals or offers. The obligation of the Board of Directors of
Southern to convene a meeting of its shareholders and to recommend the
adoption and approval of this Agreement to the shareholders of Southern
shall be subject to the fiduciary duties of the Directors, as
determined by the Directors after consultation with their outside
counsel, and nothing contained in this Agreement shall prevent the
Board of Directors of Southern from approving or recommending to the
shareholders of Southern any unsolicited offer or proposal by a third
party if required in the exercise of their fiduciary duties, as
determined by the Directors after consultation with outside counsel. In
order to induce UBCP to enter into this Agreement and incur the
substantial expenses involved in effectuating the transactions
contemplated herein, Southern agrees and does hereby promise to pay to
UBCP the sum of Five Hundred Thousand Dollars ($500,000), upon UBCP's
demand therefor, in the event that the Southern shareholders: (i) fail
to approve the proposed transaction with UBCP, and (ii) Southern or its
shareholders receive an offer from and negotiate with any party other
than UBCP at any time within one (1) year of the date hereof concerning
a merger, consolidation, purchase of substantially all of the Southern
Common Stock, or similar transaction involving either Southern or
Glouster Bank or the sale of all or substantially all of the assets of
Southern and/or Glouster Bank.
10. Undertakings of the Parties. UBCP and Southern further agree as
follows:
(a) This Merger Agreement shall be submitted to the shareholders
of Southern for approval and adoption at a meeting to be
called and held in accordance with law and the Articles of
Incorporation and Code of Regulations of Southern.
(b) UBCP and Southern will cooperate in the preparation by UBCP of
the application to the Board of Governors of the Federal
Reserve System (the "Board") under the appropriate provisions
of Section 3 of the Bank Holding Company Act of 1956, as
amended, and to any other state or federal regulatory agency
which may be required to facilitate the Merger. UBCP will file
such applications promptly after the date of this Merger
Agreement and shall forward a copy of such applications to
Southern and its counsel upon filing. UBCP and Southern will
cooperate in the preparation of proxy and registration
statements under federal and state securities laws so as to
facilitate the exchange of shares as contemplated by this
Merger
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Agreement.
(c) Each party will assume and pay all of its fees and expenses
incurred by it incident to the negotiation, preparation and
execution of this Agreement, obtaining of the requisite
regulatory and shareholder consents and approvals and all
other acts incidental to, contemplated by or in pursuance of
this Agreement. UBCP shall promptly prepare and file at no
expense to Southern: (i) any and all required regulatory
applications necessary in connection with the transactions
contemplated by this Agreement; and (ii) an S-4 Registration
Statement to be filed with the Securities and Exchange
Commission to register the shares of UBCP Common Stock to be
issued in connection with the transactions contemplated by
this Agreement. Such registration statement will not cover
resales by any persons who may be considered "underwriters"
under Rule 145(c) of the Securities Act of 1933, as amended
(the "1933 Act"). UBCP will also take any action required to
be taken under any applicable state securities or "Blue Sky"
laws in connection with the Merger. UBCP will provide Southern
and its counsel with a copy of the S-4 Registration Statement
for review and comment prior to filing with the Securities and
Exchange Commission.
(d) All information furnished by one party to another party in
connection with this Merger Agreement and the transactions
contemplated hereby will be kept confidential by such other
party and will be used only in connection with this Merger
Agreement and the transactions contemplated hereby, except to
the extent that such information: (i) is already known to such
other party when received; (ii) thereafter becomes lawfully
obtainable from other sources; or (iii) is required to be
disclosed in any document filed with the Securities and
Exchange Commission, the Board, or any other governmental
agency or authority (except under a claim of confidentiality).
In the event the Merger Agreement is terminated, all such
information shall be promptly returned by each party to the
other party or be destroyed.
(e) After: (i) receipt of the Federal Reserve Board's prior
approval of UBCP's acquisition of Southern; (ii) the approval
of the shareholders of Southern, as provided in Section 10(a)
has occurred; and (iii) all other regulatory approvals have
been obtained and the regulatory waiting period(s) have
expired, UBCP shall designate the date as of which UBCP
desires the Merger to become effective and shall file the
appropriate Certificate of Merger with the Ohio Secretary of
State in accordance herewith and the time the Merger shall
become effective shall occur at the time and on the date so
designated, consistent with the terms of Section 4 hereof.
However, any date so specified shall not be later than the
last day of the month following the month in which the last of
the above (i-iii) shall occur.
(f) Subject to the terms and conditions of this Merger Agreement,
UBCP and Southern each agree that, subject to applicable laws
and to the fiduciary duties of its Directors, each will
promptly take or cause to be taken all action, and promptly
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do or cause to be done all things necessary, proper or
advisable under applicable laws and regulations to consummate
and make effective the Merger and other transactions
contemplated by this Merger Agreement.
(g) UBCP undertakes to cause, immediately after the effective date
of the Merger, the election as Directors of Glouster Bank, all
those persons serving as outside-Directors immediately prior
to the effective time of the Merger together with two
additional persons to be selected by UBCP.
(h) UBCP and its Board of Directors undertake to cause,
immediately after the effective date of the Merger:(i) the
appointment of Harold A. Price, Interim-President and Chief
Executive of Glouster Bank, and (ii) to cause the election by
the Board of Directors of Glouster Bank, Mr. L. E. Richardson,
Jr. as Chairman of Glouster Bank, a non-executive officer and
non-employee position.
(i) Southern shall provide, immediately prior to the effective
time of the Merger, a certificate of its President who shall
identify each person who may reasonably be considered an
affiliate of Southern within the meaning of Rule 145 of the
Securities and Exchange Commission.
(j) Southern agrees to cause Glouster Bank to permit a UBCP
representative to attend all meetings of Glouster Bank's Board
of Director and all loan committee meetings of Glouster Bank
from and after the date of this Agreement and through the
effective time of the Merger. Nothing herein shall prohibit
Southern or Glouster Bank from making independent decisions,
including lending decisions, of its or their Boards of
Directors.
(k) UBCP undertakes to cause, for at least two (2) years following
the time the Merger shall become effective: (i) the name of
Glouster Bank to remain unchanged, and (ii) to refrain from
closing any offices of Glouster Bank.
(l) UBCP and Southern agree that Southern may purchase "tail
coverage" as provided for in the current insurance policies
maintained by Southern and/or Glouster Bank (or substitute
policies with substantially the same coverage and terms)
covering Southern and Glouster Bank's directors' and officers'
liability with respect to claims which arise from factors or
events which occurred before the effective time of the Merger,
provided, that the aggregate cost of such "tail insurance"
shall not exceed $5,000.
11. Dissenting Shareholders. Holders of Southern Common Stock shall have
the rights accorded to dissenting shareholders under Section 1701.85 of
the Ohio Code, as amended.
12. Representations and Warranties of UBCP. UBCP represents and warrants
to Southern as follows:
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(a) UBCP is a corporation duly organized and validly existing
under the laws of the State of Ohio, is a registered bank
holding company under the Bank Holding Company Act of 1956, as
amended, and is qualified to do business and is in good
standing in the State of Ohio, together with all other
jurisdictions where it is both required to so qualify and the
failure to so qualify would have material and adverse
consequences to UBCP. UBCP has full power and authority
(including all licenses, franchises, permits and other
governmental authorizations which are legally required) to
engage in the businesses and activities now conducted by it.
As of the date of this Agreement, the authorized capital stock
of UBCP consisted of 10,000,000 shares of common stock, $1 par
value, of which a total of 2,238,314 shares were issued and
outstanding and no shares were held as treasury shares. All of
said shares of capital stock are fully paid and nonassessable
and are not issued in violation of the preemptive rights of
any shareholder. UBCP owns all of the outstanding capital
stock of UBCP's Subsidiaries.
(b) UBCP has furnished to Southern and its counsel copies of the
following financial statements relating to UBCP and its
consolidated subsidiaries: (i) the audited Consolidated
Balance Sheet of UBCP as of December 31, 1996 and 1995 and the
Consolidated Statements of Income, Shareholders' Equity and
Statements of Cash Flows for the years then ended, together
with the notes and report of Crowe, Chizek & Company LLP
thereto and its quarterly financial reports on Form 10Q for
each of the three quarters ended September 30, 1997. Each of
the aforementioned financial statements is true and correct in
all material respects and together present fairly the
consolidated financial position and results of operations of
UBCP as of the dates and for the periods therein set forth in
conformity with generally accepted accounting principles
("GAAP"). Such financial statements do not, as of the dates
thereof, include any material asset or omit any material
liability, absolute or contingent, or other fact, the
inclusion or omission of which renders such financial
statements, in light of the circumstances under which they
were made, misleading in any material respect. Since September
30, 1997, there has not been any material adverse change in
the financial condition, results of operations, business or
prospects of UBCP and its subsidiaries on a consolidated
basis.
(c) The Board of Directors of UBCP has unanimously authorized
execution of this Merger Agreement and approved the merger of
Southern and UBCP as contemplated by said Merger Agreement.,
has all requisite power and authority to enter into this
Merger Agreement and UBCP has the authority to consummate the
transactions contemplated hereby. This Merger Agreement
constitutes the valid and legally binding obligation of UBCP
and this Merger Agreement and the consummation hereof has been
duly authorized and approved on behalf of UBCP by all
requisite corporate action. Provided the required approvals
are obtained from the Federal Reserve Board and any other
necessary regulatory agencies, neither the execution and
delivery of this Merger Agreement nor the consummation of the
Merger will conflict with, result in the breach of, constitute
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a default under or accelerate the performance provided by the
terms of any law, or any rule or regulation of any
governmental agency or authority or any judgment, order or
decree of any court or other governmental agency to which UBCP
may be subject, any contract, agreement or instrument to which
UBCP is a party or by which UBCP is bound or committed, or the
Articles of Incorporation or Code of Regulations of UBCP or
the Articles of Incorporation or Code of Regulations of UBCP's
Subsidiaries, or constitute an event which, including with the
lapse of time or action by a third party, could, to the best
of UBCP's knowledge, result in the default under any of the
foregoing or result in the creation of any lien, charge or
encumbrance upon any of the assets or properties of UBCP or
any of its subsidiaries or upon any of the stock of UBCP or
any of its subsidiaries, except, however, in the case of
contracts, agreements or instruments, such defaults, conflicts
or breaches which either (i) will be cured or waived prior to
the time the Merger becomes effective, or (ii) if not so cured
or waived would not, in the aggregate, have any material
adverse effect on the financial condition, results of
operations or business of UBCP on a consolidated basis.
(d) There is no litigation, action, suit, investigation or
proceeding pending or, to the best of the knowledge after due
inquiry of UBCP and its executive officers, threatened,
against UBCP or its subsidiaries or involving any of their
respective properties or assets, at law or in equity, before
any federal, state, municipal, local or other governmental
authority, involving a material amount which, if resolved
adversely to the interest of UBCP or its subsidiaries, would
materially affect the financial condition or operations of
UBCP or its subsidiaries on a consolidated basis and/or UBCP's
ability to perform under this Merger Agreement, and to the
best of the knowledge and belief after due inquiry of UBCP and
its executive officers, no one has asserted and no one has
reasonable or valid grounds on which it reasonably can be
expected that anyone will assert any such claims against UBCP
or its subsidiaries based upon the wrongful action or inaction
of UBCP or its subsidiaries or any of their respective
officers, directors or employees.
(e) At the time the Merger shall become effective and on such
subsequent date when the former shareholders of Southern
surrender their Southern share certificates for cancellation,
the shares of UBCP Common Stock to be received therefore will
have been duly authorized and validly issued by UBCP and will
be fully paid and nonassessable and be issued free of
preemptive rights.
(f) UBCP has timely filed all reports and registration statements
(collectively, "SEC Documents") required to be filed by it
pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and such SEC
Documents complied in all material respects with the
Securities Act of 1933 and the Securities Exchange Act of 1934
and all applicable rules and regulations promulgated
thereunder (the "SEC Laws"). UBCP has delivered to Southern
copies of the Annual Report on Form 10-K filed with the
Securities and Exchange Commission by UBCP for its fiscal year
ended December 31, 1996, including
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exhibits and all documents incorporated by reference therein,
and the proxy materials disseminated by UBCP to its
shareholders in connection with the 1997 Annual Meeting of
Shareholders of UBCP, together with its Quarterly Reports on
Form 10-Q filed with the Securities and Exchange Commission
for the quarters ended March 31, June 30, and September 30,
1997. Such Annual and Quarterly Reports and proxy materials
and the SEC Documents do not misstate a material fact or omit
to state a material fact necessary in order to make the
statements contained therein, in light of the circumstances
under which they are made, not misleading.
(g) Since September 30, 1997: (i) each of UBCP and its
subsidiaries has conducted business in the ordinary course,
and has preserved its corporate existence, business and
goodwill intact; (ii) there has been no material adverse
change in the assets, liabilities, business or operations of
UBCP or its subsidiaries; and (iii) there has been no damage,
destruction, loss, or which in the aggregate has had or might
reasonably be expected to have a material adverse effect on
the business or operations of UBCP or any of its subsidiaries.
(h) To the best of the knowledge after due inquiry of UBCP and its
executive officers, UBCP and UBCP's Subsidiaries have complied
with all laws, regulations and orders applicable to UBCP and
UBCP's Subsidiaries and to the conduct of their businesses,
including without limitation, all statutes, rules and
regulations pertaining to the conduct of banking activities
except for possible technical violations which together with
any penalty which results therefrom do not or will not have a
material adverse effect on the financial condition, results of
operations or business of UBCP and UBCP's Subsidiaries on a
consolidated basis. Neither UBCP nor UBCP's Subsidiaries are
in default under, and no event has occurred which, with the
lapse of time or action by a third party, could, to the best
of UBCP's knowledge after due inquiry, result in the default
under the terms of any judgment, decree, order, writ, rule or
regulation of any governmental authority or court, whether
federal, state or local and whether at law or in equity, where
the default(s) could reasonably be expected to have a material
adverse effect on the financial conditions, results of
operations or business of UBCP and UBCP's Subsidiaries on a
consolidated basis.
(i) UBCP has duly and timely filed all federal, state, county and
local income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and
use taxes) required to have been filed by UBCP up to the date
hereof. To the best of the knowledge and belief of UBCP all
such returns are true and correct in all material respects,
and UBCP has paid or, prior to the time the Merger shall
become effective, will pay all taxes, interest and penalties
shown on such return or reports or claimed (other than those
claims being contested in good faith) to be due to any
federal, state, county, local or other taxing authority, and
there is, and at the time the Merger shall become effective
will be, no basis for any additional
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claim or assessment which might materially and adversely
affect UBCP or UBCP's Subsidiaries, and for which an adequate
reserve has not been established. To the best of its knowledge
and belief, UBCP has paid or made adequate provision in its
financial statements or its books and records for all taxes
payable in respect of all periods ending as of the date
thereof. To the best of its knowledge and belief UBCP has, or
at the time the Merger shall become effective will have, no
material liability for any taxes, interest or penalties of any
nature whatsoever, except for those taxes which may have
arisen up to the time the Merger shall become effective in the
ordinary course of business and are properly accrued on the
books of UBCP as of the time the Merger shall become
effective.
(j) The deposits of UBCP's Subsidiaries are insured by the Federal
Deposit Insurance Corporation and UBCP's Subsidiaries has paid
all premiums and assessments with respect to such deposit
insurance.
(k) UBCP has no knowledge of any hazardous substances, hazardous
waste, pollutant or contaminant, including, but not limited
to, asbestos (except as previously disclosed to Southern in a
letter of even date herewith), PCB's or urea formaldehyde,
having been generated, released into, stored or deposited
over, upon or below (in storage tanks or otherwise) the
premises of UBCP or UBCP's Subsidiaries or any other real
property owned or leased by UBCP or UBCP's Subsidiaries, or
into any water systems on or below the surface of UBCP or
UBCP's Subsidiaries premises or any other real property owned
or leased by UBCP or UBCP's Subsidiaries in violation of any
law, regulation or requirement or in any manner which could
result in a material adverse impact on the value of the
premises or property or present a threat to human health or
the environment. As used in this Merger Agreement, the terms
"hazardous substance," "hazardous waste, "pollutant" and
"contaminant" mean any substance, waste, pollutant or
contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
(l) UBCP and UBCP's Subsidiaries have in effect insurance coverage
with reputable insurers, which in respect of amounts,
premiums, types and risks insured, constitutes reasonably
adequate coverage against all risks customarily insured
against by companies comparable in size and operation to UBCP
or UBCP's Subsidiaries.
13. Representations and Warranties of Southern. Southern represents and
warrants to UBCP as follows:
(a) Southern is a corporation duly organized and validly existing
under the laws of the State of Ohio, and is a registered bank
holding company under the Bank Holding Company Act of 1956, as
amended. Southern has full power and authority (including all
licenses, franchises, permits and other governmental
authorizations which are legally required which, if not
obtained or possessed, would have a materially adverse effect
on the business and operations of
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Southern) to engage in the businesses and activities now
conducted by it. As of the date of this Merger Agreement, the
authorized capital stock of Southern consists of 39,000 shares
of common stock, $5 par value, of which a total of 39,000
shares are issued and outstanding and no shares are held as
treasury shares. All of said shares of capital stock are fully
paid and nonassessable and were not issued in violation of the
preemptive rights of any shareholder. There are no outstanding
options, warrants or commitments of any kind relating to
Southern's authorized but Unicode capital stock except as
disclosed in the letter to UBCP of even date herewith.
(b) Southern has furnished to UBCP copies of the following
financial statements relating to Southern and its consolidated
subsidiaries: (i) the audited Consolidated Balance Sheets of
Southern as of December 31, 1996 and 1995 and the Consolidated
Statements of Income, Changes in Shareholders' Equity and
Statements of Cash Flows for the years then ended, together
with the notes and report of Robb, Dixon, (ii) copies of all
reports of Southern and Glouster Bank as filed with the
appropriate regulatory agencies, as of and for the years ended
December 31, 1997 and 1996 and through the date hereof. Each
of the aforementioned financial statements is true and correct
in all material respects and together present fairly in all
material respects the consolidated financial position and
results of operations of Southern as of the dates and for the
periods therein set forth in conformity with GAAP. Such
financial statements do not, as of the dates thereof, include
any material asset or omit any material liability, absolute or
contingent, or other fact, required to be included or omitted
as the case may be, by GAAP. Since December 31, 1996, there
has not been any material adverse change in the financial
condition, results of operations, or business of Southern and
Glouster Bank on a consolidated basis.
(c) The Board of Directors of Southern unanimously has authorized
execution of this Merger Agreement and agrees to unanimously
recommend the Agreement to its shareholders. Subject to the
approval by the shareholders of Southern, Southern has all
requisite power and authority to enter into this Merger
Agreement. Southern owns all of the shares of Glouster Bank
and Southern has the authority to consummate the transactions
contemplated hereby so that, provided all required corporate
and regulatory approvals are obtained and all conditions to
Southern's obligations as set forth in this Merger Agreement
are satisfied, neither the execution and delivery of this
Merger Agreement nor the consummation of the Merger will
conflict with, result in the breach of, constitute a default
under or accelerate the performance provided by the terms of
any law, or any rule or regulation of any governmental agency
or authority or any judgment, order or decree of any court or
other governmental agency to which Southern may be subject,
any contract, agreement or instrument to which Southern is a
party or by which Southern is bound or committed, or the
Articles of Incorporation or Code of Regulations of Southern
or Glouster Bank, or constitute an event which with the lapse
of time or action by a third party, could, to the best of
Southern's
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knowledge, result in the default under any of the foregoing or
result in the creation of any lien, charge, encumbrance upon
any of the assets, property or capital stock of Southern,
except, however, in the case of contracts, agreements or
instruments, such defaults, conflicts or breaches which either
(i) will be cured or waived prior to the time the Merger
becomes effective, or (ii) if not so cured or waived would
not, in the aggregate, have any material adverse effect on the
financial condition, results of operations or business of
Southern and Glouster Bank on a consolidated basis.
(d) Except as previously disclosed to UBCP, to the best of the
knowledge after due inquiry of Southern and its executive
officers there is no litigation, action, suit, investigation
or proceeding pending or, to the best of their knowledge after
due inquiry of Southern and its executive officers, overtly
threatened, against Southern or Glouster Bank or involving any
of their respective properties or assets, at law or in equity,
before any federal, state, municipal, local or other
governmental authority, involving a material amount which, if
resolved adversely to the interest of Southern or Glouster
Bank would materially affect the financial condition or
operations of Southern and Glouster Bank on a consolidated
basis and/or Southern's ability to perform under this Merger
Agreement. To the best knowledge after due inquiry of Southern
and its executive officers, no one has asserted and no one has
reasonable or valid ground on which it reasonably can be
expected that anyone will assert any such claims against
Southern or Glouster Bank or be based upon the wrongful action
or inaction of Southern or Glouster Bank or any of their
respective officers, directors or employees.
(e) To the best of the knowledge after due inquiry of Southern and
its executive officers, Southern and Glouster Bank have good
and marketable title to all assets and properties, whether
real or personal, tangible or intangible, including without
limitation the capital stock of Glouster Bank, reflected in
Southern's Balance Sheet of December 31, 1997 or acquired
subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the
ordinary course of business since December 31, 1997) subject
to no liens, mortgages, security interests, encumbrances,
pledges or charges of any kind, except: (i) those items that
secure liabilities that are reflected in said Balance Sheet;
(ii) statutory liens for taxes not yet delinquent; (iii) minor
defects and irregularities in title and encumbrances which do
not materially impair the use thereof for the purposes for
which they are held; (iv) pledges or liens required to be
granted in connection with the acceptance of government
deposits or granted in connection with repurchase agreements;
and (v) easements, encumbrances, liens, mortgages and security
interests of record which do not impair the use thereof for
the purposes intended and such liens, mortgages, security
interests, encumbrances and charges are not in the aggregate,
material to the assets and properties of Southern. Southern or
Glouster Bank have as lessee the contractual right under valid
leases to occupy, use, possess and control all material
property leased by Southern or Glouster Bank.
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(f) To the best of the knowledge after due inquiry of Southern and
its executive officers, Southern and Glouster Bank have
complied with all laws, regulations and orders applicable to
Southern and Glouster Bank and to the conduct of their
businesses, including without limitation, all statutes, rules
and regulations pertaining to the conduct of banking
activities except for possible technical violations which
together with any penalty which results therefrom do not or
will not have a material adverse effect on the financial
condition, results of operations or business of Southern and
Glouster Bank on a consolidated basis. Neither Southern nor
Glouster Bank are in default under, and no event has occurred
which, with the lapse of time or action by a third party,
could, to the best of Southern's knowledge after due inquiry,
result in the default under the terms of any judgment, decree,
order, writ, rule or regulation of any governmental authority
or court, whether federal, state or local and whether at law
or in equity, where the default(s) could reasonably be
expected to have a material adverse effect on the financial
conditions, results of operations or business of Southern and
Glouster Bank on a consolidated basis.
(g) Except as disclosed in Southern's letter to UBCP of even date
herewith, Southern and Glouster Bank have not, since December
31, 1997 to the date hereof: (i) issued or sold any of its
capital stock or any issued any corporate debt securities
other than in the ordinary course of its banking business;
(ii) granted any option for the purchase of capital stock;
(iii) declared or set aside or paid any dividend or other
distribution in respect of its capital stock except as
permitted pursuant to Section 14(a) hereof or, directly or
indirectly, purchased, redeemed or otherwise acquired any
shares of such stock; (iv) incurred any obligation or
liability (absolute or contingent), except for obligations
reflected in this Merger Agreement, and except for obligations
or liabilities incurred in the ordinary course of business, or
mortgaged, pledged or subjected to lien or encumbrance (other
than statutory liens for taxes not yet delinquent or other
than in the ordinary course of business) any of its assets or
properties; (v) discharged or satisfied any lien or
encumbrance or paid any obligation or liability (absolute or
contingent), other than the current portion of any long term
liabilities which become due after December 31, 1997,
business, liabilities incurred in carrying out the
transactions contemplated by this Merger Agreement and
obligations and liabilities paid in the ordinary course of
business; (vi) sold, exchanged or otherwise disposed of any of
its material capital assets outside the ordinary course of
business; (vii) made any officers' salary increase or wage
increase, entered into any employment contract with any
officer or salaried employee or, instituted any employee
welfare, bonus, stock option, profit-sharing, retirement or
similar plan or arrangement; (viii) suffered any damage,
destruction or loss, whether or not covered by insurance,
materially and adversely affecting its business, property or
assets or waived (except for fair consideration) any rights of
value which are material in the aggregate, considering
Southern's business taken as a whole; or (ix) entered or
agreed to enter into any agreement or arrangement granting any
preferential right
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to purchase any of its assets, properties or rights or
requiring the consent of any party to the transfer and
assignment of any such assets, properties or rights.
(h) Except as set forth in Southern's letter to UBCP of even date
herewith, neither Southern nor Glouster Bank is a party to or
bound by any written or, to the best of its knowledge after
due inquiry, oral: (i) employment or consulting contract which
is not terminable by Southern or Glouster Bank on 60 days or
less notice, (ii) employee bonus, deferred compensation,
pension, stock bonus or purchase, profit-sharing, retirement
or stock option plan, (iii) other employee benefit or welfare
plan, or (iv) other executory material agreements which in any
case obligate Southern or Glouster Bank to make any payment(s)
which in the aggregate exceed $5,000 per year except for
contracts terminable on 60 days' notice. All such pension,
stock bonus or purchase, profit-sharing, defined benefit and
retirement plans set forth under the caption "Qualified Plans"
in the Southern letter (hereinafter referred to collectively
as the "plans") are qualified plans under Section 401(a) of
the Internal Revenue Code and in compliance in all material
respects with ERISA. All material notices, reports and other
filings required under applicable law to be given or made to
or with any governmental agency with respect to the plans have
been timely filed or delivered where failure to file could
result in a penalty or result in disqualification of the plan.
Southern has no knowledge either of any circumstances which
would adversely affect the qualification of the plans or their
compliance with ERISA, or of any unreported "reportable event"
(as such term is defined in Section 4043(b) of ERISA) or,
except as indicated in the Southern letter to UBCP of even
date herewith, any "prohibited transaction" (as such term is
defined in Section 406 of ERISA and Section 4975(c) of the
Internal Revenue Code) which has occurred since the date on
which said sections became applicable to the plans. No such
plan is subject to the minimum funding standards set forth in
the Code and ERISA.
(i) Southern has duly filed all federal, state, county and local
income, excise, real and personal property and other tax
returns and reports (including, but not limited to, social
security, withholding, unemployment insurance, and sales and
use taxes) required to have been filed by Southern up to the
date hereof. Except as set forth in Southern's letter to UBCP
of even date herewith, to the best of the knowledge and belief
of Southern all such returns are true and correct in all
material respects, and Southern has paid or, prior to the time
the Merger shall become effective, will pay all taxes,
interest and penalties shown on such return or reports or
claimed (other than those claims being contested in good faith
and which have been disclosed to UBCP) to be due to any
federal, state, county, local or other taxing authority, and
there is, and at the time the Merger shall become effective
will be, no basis for any additional claim or assessment which
might materially and adversely affect Southern or Glouster
Bank and for which an adequate reserve has not been
established. To the best of its knowledge and belief, Southern
has paid or made adequate provision in its financial
statements or its books and records for all taxes payable in
respect of all periods ending as of the date thereof. To the
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best of its knowledge and belief, Southern has, or at the time
the Merger shall become effective will have, no material
liability for any taxes, interest or penalties of any nature
whatsoever, except for those taxes which may have arisen up to
the time the Merger shall become effective in the ordinary
course of business and are properly accrued on the books of
Southern as of the time the Merger shall become effective.
(j) Southern has no knowledge of any hazardous substances,
hazardous waste, pollutant or contaminant, including, but not
limited to, asbestos except as disclosed to UBCP in the
Southern letter of even date herewith, PCB's or urea
formaldehyde, having been generated, released into, stored or
deposited over, upon or below (in storage tanks or otherwise)
the Glouster Bank premises or any other real property owned or
leased by Southern or Glouster Bank, or into any water systems
on or below the surface of the Glouster Bank premises or any
other real property owned or leased by Southern or the in
violation of any law, regulation or requirement or in any
manner which could result in a material adverse impact on the
value of the premises or property or present a threat to human
health or the environment. As used in this Merger Agreement,
the terms "hazardous substance," "hazardous waste, "pollutant"
and "contaminant" mean any substance, waste, pollutant or
contaminant included within such terms under any applicable
Federal, state or local statute or regulation.
(k) Southern or Glouster Bank has in effect insurance coverage
with reputable insurers, which in respect of amounts,
premiums, types and risks insured, constitutes reasonably
adequate coverage against all risks customarily insured
against by companies comparable in size and operation to
Southern or Glouster Bank.
(l) Other than as previously disclosed to UBCP, in writing, with
respect to fees owing to Young & Associates, Inc. and Robb
Dixon relating to the Merger and other than professional fees
and disbursements of its accountants and attorneys, Southern
has not incurred and will not incur any liability for
brokerage, finders', agents', or investment bankers' fees or
commissions in connection with this Merger Agreement or the
transactions contemplated hereby.
14. Action by Southern Pending Effective Time. Southern agrees that from
the date of this Merger Agreement until the time the Merger shall
become effective, or until this Merger Agreement is terminated as
provided for herein, except with prior written permission of UBCP:
(a) Beginning with the date hereof and until such time as the
Merger shall become effective, Southern will not declare or
pay any dividends (cash or stock) or make any distributions
other than its ordinary and normal quarterly cash dividend
payable on dates and in amounts consistent with past practice,
at the rate of $1.20 per share per year for the year ended
December 31, 1998.
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(b) Southern will not issue, sell, grant any option for, or
acquire for value any shares of its capital stock or otherwise
effect any change in connection with its capitalization.
(c) Except as set forth in or contemplated by this Merger
Agreement, Southern and Glouster Bank will carry on their
respective businesses in substantially the same manner as on
the date hereof, keep in full force and effect insurance
comparable in amount and scope of coverage to that now
maintained by it and use its best efforts to maintain and
preserve its business organization intact.
(d) Except as specifically set forth in Southern's letter to UBCP
of even date herewith, Southern and Glouster Bank will not:
(i) enter into any transaction other than in the ordinary
course of business or incur or agree to incur any obligation
or liability except liabilities incurred and obligations
entered into in the ordinary course of business; (ii) change
Glouster Bank's lending, investment, liability management and
other material banking policies in any material respect; (iii)
except as committed for adjustment as of the date hereof and
consistent with prior practice, grant any general or uniform
increase in the rates of pay of employees; (iv) incur or
commit to any capital expenditures other than in the ordinary
course of business (which in no event shall include the
establishment of new branches and such other facilities) or
any capital expenditures for any purpose which exceed $5,000
in the aggregate, (v) except as provided in Section 9 hereof,
merge into, consolidate with or sell its assets to any other
corporation or person, or permit any other corporation to be
merged or consolidated with it or acquire all of the assets of
any other corporation or person, of (vi) except with the
express written consent of UBCP sell, transfer or otherwise
dispose of any asset which has a book or market value,
whichever is greater, of $5,000.
(e) Southern will not change its or Glouster Bank's methods of
accounting in effect at December 31, 1997 except as required
by changes in generally accepted accounting principles and
concurred in by Southern's independent auditors, and except
for the adjustments required as of December 31, 1997 pursuant
to paragraph 7(a) hereof, or change any of its methods of
reporting income and deductions for Federal income tax
purposes from those employed in the preparation of Southern's
Federal income tax returns for the taxable year ending
December 31, 1996, except for changes required by law.
(f) Southern will afford UBCP, its officers and other authorized
representatives, subject to the confidentiality requirements
of Section 10(d) hereof, such access to all books, records,
tax returns, leases, contracts and documents of Southern or
Glouster Bank and will furnish to UBCP such information with
respect to the assets and business of Southern and Glouster
Bank as UBCP may from time to time reasonably request in
connection with this Merger Agreement and the transactions
contemplated hereby.
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(g) Southern will promptly furnish UBCP with copies of all monthly
interim financial statements of Southern as they become
available, and keep UBCP fully informed concerning all
developments which in the opinion of Southern may have a
material effect upon the business, properties or condition
(either financial or otherwise) of Southern.
(h) Southern will, and will cause Glouster Bank to, maintain
compliance with any and all regulatory agreements to which it
or they are a party with any federal or state banking
regulatory agencies.
(i) Southern shall use its best efforts to preserve intact the
current business organization of Southern and Glouster Bank,
keep available the services of the current officers,
employees, and agents of Southern and Glouster Bank, and
maintain the relations and good will with customers,
depositors, landlords, employees, agents, and others having
business relationships with each of them.
(j) Southern shall cause Glouster Bank to confer with UBCP or
UBCP's authorized representative concerning operational
matters of a material nature and will obtain UBCP prior
written consent, which shall not be unreasonably withheld,
before it: (i) engages in any lending activities other than in
the Ordinary Course of Business; (ii) makes any 1-4 family
unit residential real estate loans in excess of $100,000 to
any borrower; (iii) makes any consumer installment or
construction loans in excess of $30,000 to any borrower; (iv)
extends any equity lines of credit in excess of $50,000 to any
borrower; or (v) makes any commercial loans in excess of
$50,000 to any borrower (taking into account existing
borrowings).
15. Action by UBCP Pending Effective Time. UBCP agrees that from the date
of this Agreement until the time the Merger shall become effective or
until this Merger Agreement is terminated as provided for herein:
(a) UBCP will carry on its business in substantially the same
manner as heretofore except as otherwise set forth in or
contemplated by this Merger Agreement, and UBCP will keep in
full force and effect insurance comparable in amount and scope
of coverage to that now maintained by it and use its best
efforts to maintain and preserve its business organization
intact. Southern acknowledges that, in the ordinary course of
its business as a bank holding company, UBCP from
time-to-time, enters into an agreement(s) to acquire by
merger, stock purchase or like means, another financial
institution or its holding company.
(b) UBCP will not change its methods of accounting in effect at
December 31, 1997, except as required by changes in generally
accepted accounting principles as concurred in by UBCP's
independent auditors, or change any of its methods of
reporting income and deductions for Federal income tax
purposes from those employed in the preparation of the Federal
income tax returns of UBCP's
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Subsidiaries for the taxable year ending December 31, 1996,
except for changes required by law or take any action which
could jeopardize the tax free nature of the Merger or the
pooling of interests accounting treatment for the Merger.
(c) UBCP will promptly furnish Southern with copies of press
releases, interim financial statements of UBCP and all
reports, schedules and statements filed by or delivered to
UBCP pursuant to the Securities and Exchange Act of 1934 and
the rules and regulations promulgated thereunder, as they
become available.
(d) UBCP will afford Southern, its officers and other authorized
representatives, subject to the confidentiality requirements
of Section 10(d) hereof, such access to all books, records,
tax returns, leases, contracts and documents of UBCP and will
furnish to Southern such information with respect to the
assets and business of UBCP as Southern may from time to time
reasonably request in connection with this Merger Agreement
and the transactions contemplated hereby.
16. Conditions to Obligations of UBCP. The obligations of UBCP under this
Merger Agreement are subject, unless waived by UBCP, to the
satisfaction of the following conditions on or prior to the time the
Merger shall become effective:
(a) Prior to the time the Merger shall become effective, UBCP
shall not have been deprived of adequate opportunity to
conduct such review and examination of the business,
properties, and condition (financial or otherwise) of Southern
and Glouster Bank as UBCP shall have deemed prudent, and such
review and examination shall not have disclosed matters which
are inconsistent in any material respect with any of the
representations and warranties of Southern contained in this
Merger Agreement.
(b) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which
has or is likely to result in such a material adverse change,
in the financial condition, aggregate net assets,
shareholders' equity, business or operating results of
Southern on a consolidated basis from December 31, 1997 to the
time the Merger shall become effective.
(c) All representations by Southern contained in this Merger
Agreement shall be true in all material respects immediately
prior to the time the Merger shall become effective as though
such representations were made at and as of said date, except
for changes contemplated by the Merger Agreement and except
also for representations as of a specified time other than the
time the Merger shall become effective, which shall be true in
all material respects at such specified time.
(d) UBCP shall have received the opinion of legal counsel for
Southern, dated the time the Merger shall become effective,
substantially to the effect set forth in Exhibit A hereto.
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(e) Southern shall have performed or satisfied in all material
respects all agreements and conditions required by this Merger
Agreement to be performed or satisfied by it at or prior to
the time the Merger shall become effective.
(f) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain or prohibit the
consummation of the Merger, and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against Southern
or Glouster Bank which UBCP shall in good faith determine,
with advice of counsel: (i) has a reasonable likelihood of
being successfully prosecuted and (ii) if successfully
prosecuted, would materially and adversely affect the
financial condition, results of operations or shareholders'
equity of Southern on a consolidated basis.
(g) The number of shares as to which shareholders of Southern have
exercised their dissenters' rights of appraisal pursuant to
the provisions of Section 1701.85 of the Ohio Revised Code
does not exceed 10 percent (10%) of the outstanding shares of
Southern Common Stock.
(h) Southern shall have furnished UBCP certificates, signed on its
behalf by the Chairman or President and the Secretary or an
Assistant Secretary of Southern and dated the time the Merger
shall become effective, to the effect that to the best of
their knowledge, after due inquiry, the conditions described
in Paragraphs (b), (c), (e) and (f) of this Section 16 have
been fully satisfied.
(i) Austin Associates, Inc. ("AAI") shall have issued its written
fairness opinion stating that the terms of the Merger are fair
and equitable to the shareholders of UBCP from a financial
perspective. Such written fairness opinion shall be: (a) in
form and substance reasonably satisfactory to UBCP and (b)
confirmed by AAI as of the time the Merger shall become
effective that the terms of the Merger continue to be fair and
equitable to the shareholders of UBCP from a financial
perspective.
(j) UBCP shall have received assurances, satisfactory to it, that
the Merger will be accounted for as a pooling of interests
transaction.
(k) UBCP shall have been afforded the opportunity to conduct a
phase I environmental audit of any real property owned by
Southern or its subsidiaries. In the event a matter is
discovered which if known by Southern as of the date of this
Agreement would have violated the representation contained in
paragraph 13(j) hereof, involves an amount in excess of
$50,000, and Southern shall fail to remedy such matter to the
reasonable satisfaction of UBCP, then UBCP may terminate this
Agreement and neither party shall thereafter have any
liability resulting from this Agreement or the transactions
contemplated thereby. UBCP
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shall complete any phase I examination, immediately after the
date of this Agreement, but in any event shall complete such
within 90 days of this Agreement.
(l) The members of the Board of Directors of Southern shall have
executed this Agreement stating that they shall vote their
shares of Southern in favor of the Merger and shall recommend
approval of the Merger to the Southern shareholders.
(m) Certain loans (namely: commercial loan numbers 71471, and
72936, and 4101701810 shall be paid in full without loss to
Glouster Bank.
17. Conditions to Obligations of Southern. The obligations of Southern
under this Merger Agreement are subject, unless waived by Southern, to
the satisfaction on or prior to the time the Merger shall become
effective of the following conditions:
(a) There shall not have been any material adverse change or
discovery of a condition or the occurrence of an event which
has or is likely to result in such a material adverse change,
in the financial condition, aggregate net assets,
shareholders' equity, business, or operating results of UBCP
on a consolidated basis from December 31, 1997 to the time the
Merger shall become effective.
(b) All representations and warranties by UBCP contained in this
Merger Agreement shall be true in all material respects
immediately prior to the time the Merger shall become
effective as though such representations and warranties were
made at and as of said date, except for changes contemplated
by this Merger Agreement, and except also for representations
as of a specified time other than the time the Merger shall
become effective, which shall be true in all material respects
at such specified time.
(c) Southern shall have received the opinion of Counsel for UBCP
dated the time the Merger shall become effective substantially
to the effect set forth in Exhibit B hereto.
(d) UBCP shall have performed or satisfied in all material
respects all agreements and conditions required by this Merger
Agreement to be performed or satisfied by it at or prior to
the time the Merger shall become effective.
(e) At the time the Merger shall become effective, no suit, action
or proceeding shall be pending or overtly threatened before
any court or other governmental agency of the federal or state
government in which it is sought to restrain, prohibit or set
aside consummation of the Merger and no other suit, action or
proceeding shall be pending or overtly threatened and no
liability or claim shall have been asserted against UBCP or
UBCP's Subsidiaries which Southern shall in good faith
determine, with advice of counsel: (i) has a reasonable
likelihood of being
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successfully prosecuted and (ii) if successfully prosecuted,
would materially and adversely affect the financial condition,
results of operations or shareholders' equity of UBCP, on a
consolidated basis.
(f) UBCP shall have furnished Southern a certificate, signed by
the Chairman or President and by the Secretary or Assistant
Secretary of UBCP and dated the time the Merger shall become
effective to the effect that to the best of their knowledge
after due inquiry the conditions described in Paragraphs (a),
(b), (d) and (e) of this Section 17 have been fully satisfied.
(g) Prior to the time the Merger shall become effective, Southern
shall not have been deprived of adequate opportunity to
conduct such review and examination of the business,
properties and condition (financial or otherwise) of UBCP and
its subsidiaries as Southern shall have deemed prudent, and
such review and examination shall not have disclosed matters
which are inconsistent in any material respect with any of the
representations and warranties of UBCP contained in this
Merger Agreement.
(h) Young and Associates ("Young") or such other financial advisor
acceptable to Southern shall have issued its written fairness
opinion stating that the terms of the Merger are fair and
equitable to the shareholders of Southern from a financial
perspective. Such written fairness opinion shall be: (a) in
form and substance reasonably satisfactory to Southern; (b)
dated as of a date not later than the mailing date of the
Proxy Statement/Prospectus relating to the Merger to be mailed
to Southern shareholders; (c) included in the Proxy
Statement/Prospectus; and (d) confirmed by Young as of the
time the Merger shall become effective that the terms of the
Merger continue to be fair and equitable to the shareholders
of Southern from a financial perspective.
(i) The shares of UBCP to be issued under the terms of this
Agreement shall be approved for listing on the NASDAQ Small
Cap Market and no suspension or halt of any kind, (other than
such that may be applicable to the market generally) shall be
in effect or imposed on the shares of UBCP.
18. Conditions to Obligations of All Parties. In addition to the provisions
of Sections 16 and 17 hereof, the obligations of UBCP and Southern to
cause the transactions contemplated herein to be consummated shall be
subject to the satisfaction of the following conditions on or prior to
the time the Merger shall become effective:
(a) The parties hereto shall have received all necessary approvals
of governmental agencies and authorities of the transactions
contemplated by this Merger Agreement and each of such
approvals shall remain in full force and effect at the time
the Merger shall become effective and such approvals and the
transactions contemplated thereby shall not have been
contested by any federal or state governmental authority by
formal proceeding, or contested by any other third
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party by formal proceeding which the Board of Directors of the
party asserting a failure of a condition under this Section
18(a) shall in good faith determine, with the advice of
counsel: (i) has a reasonable likelihood of being successfully
prosecuted and (ii) if successfully prosecuted, would
materially and adversely affect the benefits hereunder
intended for such party. It is understood that, if any contest
as aforesaid is brought by formal proceedings, UBCP may, but
shall not be obligated to, answer and defend such contest.
UBCP shall notify Southern promptly upon receipt of all
necessary governmental approvals.
(b) The registration statement required to be filed by UBCP
pursuant to Section 10(c) of this Merger Agreement shall have
become effective by an order of the Securities and Exchange
Commission, the shares of UBCP Common Stock to be exchanged in
the Merger shall have been qualified or exempted under all
applicable state securities laws, and there shall have been no
stop order issued or threatened by the Securities and Exchange
Commission that suspends or would suspend the effectiveness of
the registration statement, and no proceeding shall have been
commenced, pending or overtly threatened for such purpose.
(c) This Merger Agreement shall have been duly adopted, ratified
and confirmed by the requisite affirmative votes of the
shareholders of Southern and UBCP.
(d) UBCP and Southern shall have received the opinion and there
shall exist as of, at or immediately prior to the time the
Merger shall become effective no facts or circumstances which
would render such opinion inapplicable in any respect to the
transactions to be consummated hereunder of Werner & Blank
Co., L.P.A. substantially to the effect that:
(i) The statutory merger of Southern with and into UBCP
will constitute a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) No taxable gain or loss will be recognized by
Southern or UBCP as a consequence of the transactions
herein contemplated;
(iii) No taxable gain or loss will be recognized by the
shareholders of Southern on the exchange of their
shares of Southern Common Stock for shares of UBCP
Common Stock (disregarding for this purpose any cash
received for fractional share interests to which they
may be entitled);
(iv) The federal income tax basis of the UBCP Common Stock
received by the shareholders of Southern Common Stock
for their shares of Southern Common Stock will be the
same as the federal income tax basis of the Southern
Common Stock surrendered in exchange therefor; and
(v) The holding period of the UBCP Common Stock received
by a shareholder of Southern for his shares of
Southern Common Stock will include the period for
which the Southern Common Stock exchanged therefor
was held, provided the exchanged Southern Common
Stock was held as a capital asset by such shareholder
on the date of the exchange.
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19. Nonsurvival of Representations and Warranties. The respective
representations and warranties of UBCP and Southern set forth in
Sections 12 and 13 shall not survive the time the Merger shall become
effective.
20. Governing Law. This Merger Agreement shall be construed and interpreted
according to the applicable laws of the State of Ohio.
21. Assignment. This Merger Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns, but neither this
Merger Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by either of the parties hereto without the
prior written consent of the other party.
22. Satisfaction of Conditions; Termination.
(a) UBCP agrees to use its best effort to obtain satisfaction of
the conditions insofar as they relate to UBCP, and Southern
agrees to use its best efforts to obtain the satisfaction of
the conditions insofar as they relate to Southern. If any
condition to the obligations of UBCP set forth in Section 16
or 18 is not substantially satisfied at the time or times
contemplated thereby and such condition is not waived by UBCP,
or if any condition to the obligations of Southern set forth
in Section 17 or 18 is not substantially satisfied at the time
or times contemplated thereby and such condition is not waived
by Southern, or if at any time prior to the time the Merger
shall become effective, it shall become reasonably certain
that such condition will not be substantially satisfied and
such condition is not waived by UBCP or Southern, as the case
may be, either UBCP or Southern may terminate this Merger
Agreement by written notice to the other party after the
expiration of fifteen (15) days written notice to the other
party during which time such other party shall have an
opportunity to cure such defect in said condition. This Merger
Agreement may be terminated and abandoned (either before or
after the meetings of shareholders contemplated hereby) by
mutual written consent of UBCP and Southern authorized by
their respective Boards of Directors. In the event of such
termination caused otherwise than by breach of this Merger
Agreement by any of the parties hereto, this Merger Agreement
shall cease and terminate, the acquisition of Southern as
provided herein shall not be consummated, and neither UBCP nor
Southern shall have any further liability under this Merger
Agreement of any nature whatever, including any liability for
damages. In the event this Merger Agreement is terminated, the
duties of both parties with respect to confidential
information set forth in Sections 10(d) shall survive any such
termination. In addition to the other grounds for termination
of this Merger Agreement set forth herein, this Merger
Agreement can be terminated by written notice by either party
to the other, in each case authorized by its Board of
Directors, if the Merger shall not have been consummated by
December 31, 1998 or the date of such notice, whichever is
later.
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(b) If termination of this Merger Agreement shall be judicially
determined to have been caused by breach of this Merger
Agreement, then, in addition to other remedies at law or
equity for breach of this Merger Agreement, the party so found
to have breached this Merger Agreement shall indemnify the
other parties for their respective costs, fees and expenses of
its counsel, accountants and other experts and advisors as
well as fees and expenses incident to negotiation, preparation
and execution of this Merger Agreement and related actions and
its shareholders' meetings and actions.
23. Waivers Amendments. Any of the provisions of this Merger Agreement may
be waived at any time by the party which is, or the shareholders of
which are, entitled to the benefit thereof, by such party. This Merger
Agreement may be amended or modified in whole or in part by an
agreement in writing executed in the same manner (but not necessarily
by the same person) as this Merger Agreement and which makes reference
to this Merger Agreement, pursuant to a resolution, adopted by the
Boards of Directors of the respective parties, provided, however, such
amendment or modification may be made in this manner by the respective
Boards of Directors of UBCP and Southern at any time prior to a
favorable vote of such party's shareholders, but may be made after a
favorable vote by the shareholders of such party, only if, in the
opinion of its Board of Directors, such amendment or modification will
not have any material adverse effect on the benefits intended under
this Merger Agreement for the shareholders of such party and will not
require resolicitation of any proxies from such shareholders or further
shareholder approval is obtained.
24. Entire Agreement. This Agreement supersedes any other agreement,
whether written or oral, that may have been made or entered into by
UBCP and Southern or by any officer or officers of such parties
relating to the acquisition of the business or the capital stock of
Southern by UBCP. Except for the letters specified in this Merger
Agreement and of even date herewith, this Agreement and the Exhibits
thereto constitute the entire agreement by the parties, and there are
no agreements or commitments except as set forth herein and therein.
25. Captions; Counterparts. The captions in this Merger Agreement are for
convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Merger
Agreement. This Merger Agreement may be executed in several
counterparts, each of which shall constitute one and the same
instrument.
26. Notices. All notices and other communications hereunder shall be deemed
to have been duly given if forwarded by a nationally recognized
overnight courier service. All notices and other communications
hereunder given to any party shall be communicated to the remaining
party to this Merger Agreement by mail in the same manner as herein
provided.
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(a) If to UBCP, to:
Mr. James W. Everson
Chairman, President and CEO
UBCP Bancorp, Inc.
P.O. Box 10
201 South Fourth Street,
Martins Ferry, OH 43935
With copies to:
Martin D. Werner, Esq.
Werner & Blank Co., L.P.A.
7205 W. Central Avenue
Toledo, Ohio 43617
(b) If to Southern, to:
Mr. L. E. Richardson, Jr.
Chairman, President and CEO
Southern Ohio Community Bancorporation, Inc.
88 High Street
Glouster, OH 45732-0127
With copies to:
Mr. Jeff Robb
Robb, Dixon
1205 Weaver Drive
Granville, OH 43023
And,
Mr. Gary Young
Young & Associates, Inc.
P.O. Box 711
121 E. Main Street
Kent, OH 44240
and,
Paul J. Gerig, Esq.
Gerig and Gerig
Attorneys At Law
P.O. Box 268
3 West Stimson Avenue
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Athens, OH 45701
27. Undertakings of Affiliates. Each of UBCP and Southern shall cause the
following:
(A) Southern shall cause to be received, an undertaking in
writing from each "affiliate" of Southern within the meaning
of Rule 145 of the Securities and Exchange Commission
pursuant to the Securities Act of 1933, in each case in form
and substance satisfactory to counsel for UBCP, to the
effect that: (i) so long as UBCP continues to file all
"current public information" concerning UBCP, any
disposition made by such person of any share of UBCP Common
Stock received by such person pursuant to this Merger
Agreement shall be made within the limits and in accordance
with the applicable provisions of said Rule 145, as such
Rule may be amended from time to time, and (ii) such person
will not sell, assign or transfer any of such UBCP Common
Stock until UBCP shall have published financial results
including the combined operations of UBCP and Southern for a
period of at least 30 days following the time the Merger
shall become effective. (B) UBCP shall cause each of its
affiliates, as defined in (A) above, to undertake that such
person will not sell, assign, or transfer any UBCP Common
Stock until UBCP shall have published financial results
including the combined operations of UBCP and Southern for a
period of at least 30 days following the time the Merger
shall become effective.
28. Publicity. The parities acknowledge that UBCP is subject
to the informational reporting requirements of the Securities and
Exchange Act of 1934 and the rules of the Securities and Exchange
Commission promulgated thereunder. UBCP and Southern agree to consult
with and obtain the consent of the other, prior to any media release
or other public disclosures as to the matters covered by this
Agreement, except as may be required by law.
{SIGNATURES ON FOLLOWING PAGE}
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IN WITNESS WHEREOF, this Merger Agreement has been executed the day and
year first above written.
ATTEST: United Bancorp, Inc.
By:_________________________________ By:___________________________
Randall M. Greenwood, James W. Everson
VICE PRESIDENT & CFO CHAIRMAN, PRESIDENT AND CEO
ATTEST: Southern Ohio
Community Bancorporation, Inc.
By:_________________________________ By:___________________________
Theodore R. Swallow, L.E. Richardson, Jr.
VICE PRESIDENT & TREASURER CHAIRMAN, PRESIDENT AND CEO
DIRECTORS UNDERTAKING
Pursuant to the provisions of Sections 16(l) and 27 hereof, each of the
undersigned, being a Director of Southern, hereby agrees to vote shares of
Southern owned by them or over which they exercise voting control in favor of
the Merger, to support the Merger and to make the undertakings set forth in
Section 27.
___________________________________ ___________________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
___________________________________ ___________________________________
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EXHIBIT A
__________, 1998
United Bancorp, Inc.
201 South Fourth Street
Martins Ferry, OH 43935
Ladies and Gentlemen:
We have acted as special counsel to Southern Ohio Community
Bancorporation, Inc. ("Southern"), an Ohio corporation and bank holding
company, solely in connection with certain transactions contemplated by the
Agreement of Merger (the "Agreement of Merger"), dated _______, 1998, by and
between Southern and United Bancorp, Inc. ("UBCP"), an Ohio corporation and
bank holding company.
This opinion is furnished to you pursuant to Section ____ of the Merger
Agreement.
You have requested our opinion regarding certain matters in connection with the
Agreement. In our capacity as special counsel for Southern and Glouster Bank,
we have examined the originals or copies of such certificates, documents and
corporate records upon which we have relied regarding our opinion expressed
below. We have assumed the genuineness of all signatures, the authenticity of
all items submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. We have further assumed the due
authorization of such documents by all parties other than Southern and Glouster
Bank and the taking of all requisite action respecting such documents, the due
execution and delivery of such documents by each party and have additionally
assumed that all agreements are the valid and binding agreement of all parties
to such agreements, other than Southern and Glouster Bank.
Wherever a statement herein is qualified by "to the best of our knowledge," or
a similar phrase, it is intended to indicate that, during the course of our
representation of Southern and Glouster Bank, no information has been provided
to those partners in this firm who have had substantive involvement in
rendering legal services in connection with the representation described in the
introductory paragraph of this opinion letter that would give us knowledge of
the inaccuracy of such statement.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States of
America.
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<PAGE> 104
The opinions hereinafter expressed are subject to the following qualifications,
notwithstanding anything herein to the contrary:
(a) Our opinions in paragraphs (1) and (4) below as to the valid existence
Southern and Glouster Bank are based solely upon certificates from public
officials as to valid existence, copies of which certificates are attached
hereto.
(b) Our opinions below are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matters expressly so stated. Without limiting the foregoing, we express no
opinion as to the antifraud provisions of federal and state securities laws.
(c) We disclaim any obligation to update this opinion letter for events
occurring after the date of this opinion letter.
(d) Our opinions below are limited to the effect of the laws of Ohio and
the federal laws of the United States of America. We express no opinion with
respect to the effect of the laws of any other jurisdiction on the transactions
contemplated by the Agreement.
(e) In rendering this opinion, we have relied as to all matters of fact on
certificates or responsible officers of Southern and Glouster Bank and of
public officials, copies of which are attached hereto.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that:
1. Southern is a corporation validly existing and in good standing under the
laws of the State of Ohio and has the requisite corporate power and
authority to own its properties and to carry on the business in which it
is now engaged. Southern owns all of the capital stock of Glouster Bank
free and clear of all liens and security interests.
2. All necessary corporate proceedings of Southern have been duly taken to
authorize the execution, delivery and performance of the Agreement by
Southern and the consummation of the transactions contemplated by the
Agreement, subject in all events to any conditions stated in said
Agreement. The Agreement constitutes the legal, valid and binding
obligation of Southern, enforceable in accordance with its terms, except:
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting
creditors' rights; and
b. that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses
and to the discretion of the court before which any proceedings may
be brought.
3. The execution, delivery and performance of the Agreement by Southern will
not violate
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or result in a breach of any term of Southern's Articles of Incorporation
or Code of Regulations, or violate, result in a breach of, or constitute a
default under any term of any material agreement known to us to which
Southern is a party.
4. Glouster Bank is a banking corporation validly existing under the laws of
the State of Ohio, and has the requisite corporate power and authority to
own its properties and carry on the business in which it is now engaged.
5. The authorized capital stock of Southern consists of _________, shares of
common stock $5 par value, 39,000 of which are outstanding. To our
knowledge, there are no outstanding options, warrants, or other rights to
acquire, or securities convertible into any capital stock of Southern.
The outstanding shares of common stock of Southern validly authorized and
issued, and non-assessable, and not, to the best of our knowledge, issued
in violation of the pre-emptive rights of any person.
6. To our knowledge, except as disclosed herein, there is no litigation,
action, suit, investigation or proceeding pending or, to the best of our
knowledge after due inquiry of Southern and its executive officers,
overtly threatened against or affecting Southern or involving any of its
respective properties or assets, at law or in equity, before any federal,
state, municipal, local or other governmental authority.
7. All consents or approvals of any regulatory authority having jurisdiction
over Southern or its subsidiaries that are required to be obtained in
connection with the Merger and the transactions contemplated by the
Agreement have been obtained.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
____________________
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EXHIBIT B
____________, 1998
Southern Ohio Community Bancorporation, Inc.
88 High Street
Glouster, OH 45732-0127
Re: United Bancorp, Inc.
Gentlemen:
We have acted as special counsel to United Bancorp, Inc. ("UBCP") an Ohio
corporation, in connection with the contemplated Merger Agreement dated ______,
1998 (the "Agreement") between Southern Ohio Community Bancorporation, Inc.
("Southern") and UBCP. This Opinion Letter is rendered to you pursuant to
Section _______ of the Agreement. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Agreement.
You have requested our opinion regarding certain matters in connection with the
Agreement. In our capacity as special counsel for UBCP and UBCP's
Subsidiaries, we have examined the originals or copies of such certificates,
documents and corporate records upon which we have relied regarding our opinion
expressed below. We have assumed the genuineness of all signatures, the
authenticity of all items submitted to us as certified or photostatic copies
and the authenticity of the originals of such copies. We have further assumed
the due authorization of such documents by all parties other than UBCP and
UBCP's Subsidiaries and the taking of all requisite action respecting such
documents, the due execution and delivery of such documents by each party and
have additionally assumed that all agreements are the valid and binding
agreement of all parties to such agreements, other than UBCP and UBCP's
Subsidiaries.
Wherever a statement herein is qualified by "to the best of our knowledge," or
a similar phrase, it is intended to indicate that, during the course of our
representation of UBCP and UBCP's Subsidiaries, no information has been
provided to those partners in this firm who have had substantive involvement in
rendering legal services in connection with the representation described in the
introductory paragraph of this opinion letter that would give us knowledge of
the inaccuracy of such statement.
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business
Law (1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The law addressed by this opinion is limited to
the law of the State of Ohio and the federal law of the United States of
America.
The opinions hereinafter expressed are subject to the following qualifications,
notwithstanding
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anything herein to the contrary:
(a) Our opinions in paragraphs (1) and (4) below as to the valid existence
of UBCP and UBCP's Subsidiaries are based solely upon certificates from public
officials as to valid existence, copies of which certificates are attached
hereto.
(b) Our opinions below are limited to the matters expressly set forth in
this opinion letter, and no opinion is to be implied or may be inferred beyond
the matters expressly so stated. Without limiting the foregoing, we express no
opinion as to the antifraud provisions of federal and state securities laws.
(c) We disclaim any obligation to update this opinion letter for events
occurring after the date of this opinion letter.
(d) Our opinions below are limited to the effect of the laws of Ohio, the
federal laws of the United States of America, and the state securities "blue
sky" laws of jurisdictions where shareholders of Southern reside. We express
no opinion with respect to the effect of the laws of any other jurisdiction on
the transactions contemplated by the Agreement.
(e) In rendering this opinion, we have relied as to all matters of fact on
certificates or responsible officers of UBCP and UBCP's Subsidiaries and of
public officials, copies of which are attached hereto.
Based upon and subject to the foregoing and in reliance thereon, and
subject to the assumptions, exceptions and qualifications set forth herein, it
is our opinion that:
1. UBCP is a corporation validly existing and in good standing under the
laws of the State of Ohio and has the requisite corporate power and
authority to own its properties and to carry on the business in which it
is now engaged. UBCP owns all of the capital stock of UBCP's Subsidiaries
free and clear of all liens and security interests.
2. All necessary corporate proceedings of UBCP have been duly taken to
authorize the execution, delivery and performance of the Agreement by UBCP
and the consummation of the transactions contemplated by the Agreement,
subject in all events to any conditions stated in said Agreement. The
Agreement constitutes the legal, valid and binding obligation of UBCP,
enforceable in accordance with its terms, except:
a. as such enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance or similar laws affecting
creditors' rights; and
b. that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses
and to the discretion of the court before which any proceedings may
be brought.
3. The execution, delivery and performance of the Agreement by UBCP will not
violate or
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result in a breach of any term of UBCP's Articles of Incorporation or Code
of Regulations, or violate, result in a breach of, or constitute a default
under any term of any material agreement known to us to which UBCP is a
party.
4. UBCP's Subsidiaries are state banking corporations validly existing under
the laws of the Ohio and each has the requisite corporate power and
authority to own its properties and carry on the business in which it is
now engaged.
5. The authorized capital stock of UBCP consists of 10,000,000, shares of
common of $1 par value per share of which ______________ are outstanding
as of the date of the Agreement. The outstanding shares of common stock
of UBCP are, and the shares to be issued in accordance with the Agreement
will be, validly authorized and issued, and non-assessable.
6. To our knowledge, except as disclosed herein, there is no litigation,
action, suit, investigation or proceeding pending or, to the best of our
knowledge after due inquiry of UBCP and its executive officers, overtly
threatened against or affecting UBCP or involving any of its respective
properties or assets, at law or in equity, before any federal, state,
municipal, local or other governmental authority.
7. All consents or approvals of any regulatory authority having jurisdiction
over UBCP or its subsidiaries that are required to be obtained in
connection with the Merger and the transactions contemplated by the
Agreement have been obtained.
8. The Registration Statement on Form S-4 filed by UBCP pursuant to the
Agreement has become effective and no stop order revoking such
effectiveness has been issued or has been threatened. UBCP has complied,
in all material respects, with the state securities "blue sky" laws of the
jurisdictions where Southern shareholders reside in connection with the
issuance of the UBCP Common Stock in connection with the Merger.
This opinion is solely for the benefit of the addressee hereof and may not be
relied upon by any other person or party or in any other context without our
prior written consent. This opinion is delivered as of the date hereof, and we
expressly disclaim any undertaking to update it.
Very truly yours,
Werner & Blank Co. L.P.A.
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Appendix B
Opinion of Southern's Financial Advisor
March 11, 1998
Board of Directors
Southern Ohio Community Bancorporation, Inc.
88 High Street
Glouster, Ohio 45732
Attention: L.E. Richardson, Jr., President
Members of the Board:
You have requested our opinion as to the fairness to Southern Ohio Community
Bancorporation, Inc., ("Southern") and its shareholders, from a financial point
of view, of the terms of the Merger Agreement ("Merger") dated February 9, 1998
between United Bancorp, Inc. ("UBCP") and Southern Ohio Community
Bancorporation, Inc. The Merger will be completed through a merger of Southern
with and into UBCP. Southern will become, as a result, a wholly-owned
subsidiary of UBCP.
Subject to dissenters' rights, all of the outstanding shares of Southern will
be converted into the right to receive shares of UBCP as set forth in the
Exchange Ratio provision of the Merger. Based on the Exchange Ratio,
shareholders of Southern will receive 11 shares of UBCP for each share of
Southern held at the time of the Merger.
We analyzed various public and non-public sources of information in developing
our opinion, included but not limited to, (i) financial data of Southern from
December 31, 1993 through December 31, 1997 from published annual reports,
internal bank reports, and interviews with bank management; (ii) financial data
regarding UBCP from publicly available regulatory reports; (iii) comparative
financial data of peers for each institution from public sources; (iv)
published reports from various sources regarding transactions similar in nature
to that proposed in the Merger; and (v) the Merger Agreement itself.
Our analysis forecasted the potential future flow of income likely to be
generated by Southern, over a ten-year horizon. This step required both a
study of historical trends of Southern from national peer group data to develop
a consensus on assumptions used to forecast potential future results. The
assumptions were considered to be reasonable and attainable should Southern
have continued to operate without the merger. We then calculated the present
value of that ten-year flow of income to arrive at both a multiple of book
value and a price-to-earnings ratio to suggest a probable trading range for the
shares of Southern.
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<PAGE> 110
We also analyzed the financial performance of UBCP compared with banks with
similar characteristics using nationally available peer group data.
We then tested various conversion scenarios, based on different share prices of
UBCP and the resulting number of shares to the shareholders of Southern
specified in the Merger, and compared the results obtained with similar merger
transactions in the third quarter of 1997. The comparison disclosed that the
transaction would be fair and equitable to the shareholders of Southern.
In conducting our analysis, we assumed the information provided to us or
publicly available was both accurate and complete. We assumed further that the
transaction was a tax-free reorganization without adverse tax implications to
the shareholders of either Southern or UBCP shareholders, and that the
transaction will be completed as planned without other conditions which wold
work to the detriment of the shareholders of Southern.
Based on our analysis as described and qualified above, we believe that the
terms of the Merger, from a financial viewpoint, are fair and equitable to the
shareholders of Southern Ohio Community Bancorporation, Inc.
Southern will pay Young & Associates, Inc. a fee for the issuance of the
fairness opinion plus reasonable out-of-pocket expenses, and will indemnify
Young & Associates against certain liabilities, including liabilities under the
securities laws.
Young & Associates, Inc.
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APPENDIX C
Ohio Revised Code Section 1701.85
Qualifications of and Procedures for Dissenting Shareholders
Section 1701.85 - Qualifications of and Procedures for Dissenting Shareholders.
(A) (1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals in Sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in
compliance with this section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record
holder of the shares of the corporation as to which he seeks relief
as of the date fixed for the determination of shareholders entitled
to notice of a meeting of the shareholders at which the proposal is
to be submitted, and such shares shall not have been voted in favor
of the proposal. Not later than 10 days after the date on which the
vote on such proposal was taken at the meeting of the shareholders,
the shareholder shall deliver to the corporation a written demand
for payment to him of the fair cash value of the shares as to which
he seeks relief, stating his address, the number and class of such
shares, and the amount claimed by him as the fair cash value of the
shares.
(3) The dissenting shareholder entitled to relief under division
(C) of Section 1701.84 of the Revised Code in the case of a merger
pursuant to Section 1701.80 of the Revised Code and a dissenting
shareholder entitled to relief under division (E) of Section
1701.801 of the Revised Code in the case of a merger pursuant to
Section 1701.801 of the Revised Code shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date
on which the agreement of merger was adopted by the directors of
that corporation. Within 20 days after he has been sent the notice
provided in Section 1701.80 or 1701.801 of the Revised Code, the
shareholder shall deliver to the corporation a written demand for
payment with the same information as that provided for in division
(A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on
the constituent corporation involved constitutes service on the
surviving or the new corporation, whether served before, on, or
after the effective date of the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the
address specified in his demand, a request for the certificates
representing the shares as to which he seeks relief, he, within 15
days from the date of the sending of such request, shall deliver to
the corporation the certificates requested, in order that the
corporation may forthwith endorse on them a legend to the effect
that demand for the fair cash value of such shares has been made.
The corporation promptly shall return such endorsed certificates to
the shareholder. Failure on the part of the shareholder to deliver
such certificates terminates his rights as a dissenting shareholder,
at the option of the corporation, exercised by written notice sent
to him within 20 days after the lapse of the 15 day period, unless a
court for good cause shown otherwise directs. If shares represented
by a certificate on which such a legend has been endorsed are
transferred, each new certificate issued for them shall bear a
similar legend, together with the name of the original dissenting
holder of such shares. Upon receiving a demand for payment from a
dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of
the demand for payment in its shareholder records. If uncertificated
shares for which payment has been demanded are to be transferred,
any new certificate issued for the shares shall bear the legend
required for certificate securities as provided in this paragraph. A
transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such
rights in the corporation as the original dissenting holder of such
shares had immediately after the service of a demand for payment of
the fair cash value of the shares. Such request by the corporation
is not an admission by the corporation that the shareholder is
entitled
C-1
<PAGE> 112
to relief under this section.
(B) Unless the corporation and the dissenting shareholder shall have come to
an agreement on the fair cash value per share of the shares as to which he
seeks relief, the shareholder or the corporation, which in case of a
merger or consolidation may be the surviving or the new corporation,
within three months after the service of the demand by the shareholder,
may file a complaint in the court of common pleas of the county in which
the principal office of the corporation which issued such shares is
located, or was located at the time when the proposal was adopted by the
shareholders of the corporation, or, if the proposal was not required to
be submitted to the shareholders, was approved by the directors. Other
dissenting shareholders, within the period of three months, may join as
plaintiffs, or may be joined as defendants in any such proceeding, and any
two or more such proceedings may be consolidated. The complaint shall
contain a brief statement of the facts, including the vote and the facts
entitling the dissenting shareholder to the relief demanded. No answer to
such complaint is required. Upon the filing of the complaint, the court,
on motion of the petitioner, shall enter an order fixing a date for a
hearing on the complaint, and requiring that a copy of the complaint and a
notice of the filing and of the date for hearing be given to the
respondent or defendant in the manner in which the summons is required to
be served or substituted service is required to be made in other cases. On
the day fixed for the hearing on the complaint or any adjournment of it,
the court shall determine from the complaint and from such evidence as is
submitted by either party whether the shareholder is entitled to be paid
the fair cash value of any shares and, if so, the number and class of such
shares. If the court finds that the shareholder is so entitled, the court
may appoint one or more persons as appraisers to receive evidence and to
recommend a decision on the amount of the fair cash value. The appraisers
have such power and authority as is specified in the order of their
appointment. The court thereupon shall make a finding as to the fair cash
value of a share, and shall render judgment against the corporation for
the payment of it, with interest at such rate and from such date as the
court considers equitable. The costs of the proceeding, including
reasonable compensation to the appraisers to be fixed by the court, shall
be assessed or apportioned as the court considers equitable. The
proceeding is a special proceeding, and final orders in it may be vacated,
modified, or reversed on appeal pursuant to the Rules of Appellate
Procedure and, to the extent not in conflict with those rules, Chapter
2505 of the Revised Code. If, during the pendency of any proceeding
instituted under this section, a suit or proceeding is or has been
instituted to enjoin or otherwise to prevent the carrying out of the
action as to which the shareholder has dissented, the proceeding
instituted under this section shall be stayed until the final
determination of the other suit or proceeding. Unless any provision in
Division (D) of this section is applicable, the fair cash value of the
shares as agreed upon by the parties or as fixed under this section shall
be paid within thirty days after the date of final determination of such
value under this division, the effective date of the amendment to the
articles, or the consummation of the other action involved, whichever
occurs last. Upon the occurrence of the last such event, payment shall be
made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates,
payment shall be made only upon and simultaneously with the surrender to
the corporation of the certificates representing the shares for which such
payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined
as of the day prior to that on which the vote by the shareholders was
taken and, in the case of a merger pursuant to Section 1701.80 or 1701.801
of the Revised Code, fair cash value as to shareholders of a constituent
subsidiary corporation shall be determined as of the day before the
adoption of the agreement of merger by the directors of the particular
subsidiary corporation. The fair cash value of a share for the purposes of
this section is the amount that a willing seller, under no compulsion to
sell, would be willing to accept, and that a willing buyer, under no
compulsion to purchase, would be willing to pay, but in no event shall the
fair cash value of it exceed the amount specified in the demand of the
particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D) The right and obligation of a dissenting shareholder to receive such fair
cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay
the fair cash value of them terminates if:
C-2
<PAGE> 113
(1) Such shareholder has not complied with this section, unless the
corporation by its directors waives such failure;
(2) The corporation abandons, or is finally enjoined or prevented from
carrying out, or the shareholders rescind their adoption, of the
action involved;
(3) The shareholder withdraws his demand, with the consent of the
corporation by its directors;
(4) The corporation and the dissenting shareholder shall not have come to
an agreement as to the fair cash value per share, and neither the
shareholder nor the corporation shall have filed or joined in a
complaint under Division (B) of this section within the period
provided.
(E) From the time of giving the demand, until either the termination of the
rights and obligations arising from it or the purchase of the shares by
the corporation, all other rights accruing from such shares, including
voting and dividend or distribution rights, are suspended. If during the
suspension, any dividend or distribution is paid in money upon shares of
such class, or any dividend, distribution, or interest is paid in money
upon any securities issued in extinguishment of or in substitution for
such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares
or securities, shall be paid to the holder of record as a credit upon the
fair cash value of the shares. If the right to receive fair cash value is
terminated otherwise than by the purchase of the shares by the
corporation, all rights of the holder shall be restored and all
distributions which, except for the suspension, would have been made shall
be made to the holder of record of the shares at the time of termination.
C-3
<PAGE> 114
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio General Corporation Law ("OGCL") provides that Ohio corporations may
indemnify an individual made a party to any threatened, pending, or completed
action, suit or proceeding whether civil, criminal, administrative or
investigative, because the individual is or was a director, officer, employee
or agent of the corporation, against liability incurred in the proceeding if
the person: (i) acted in good faith and (ii) the individual believes his
conduct was in the corporation's best interest or was not opposed to the
corporation's best interest.
The OGCL further provides that a corporation shall indemnify an individual
who was fully successful on the merits or otherwise in any proceeding to which
the director, officer, employee or agent was a party because the individual was
or is a director, officer, employee or agent of the corporation, for reasonable
expenses incurred by the director in connection with the proceeding. The OGCL
also provides that a corporation may purchase and maintain insurance on behalf
of the individual who is or was a director, officer, employee or agent of the
corporation or who, while a director, officer, employee or agent of the
corporation is or was serving at the request of the corporation as a director,
officer, partner, trustee, employer or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprises, against liability asserted against or incurred by the individual
in that capacity or arising from the individual status as a director, officer,
employee, or agent.
Registrant maintains a directors' and officers' liability insurance
policy, including bank reimbursement, for the purpose of providing
indemnification to its directors and officers in the event of such a
threatened, pending or completed action.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS
The exhibits filed pursuant to this Item 21 immediately follow the Exhibit
Index. The following is a description of the applicable exhibits required for
Form S-4 provided by Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
(1) Not Applicable.
(2) The Merger Agreement by and between United Bancorp, Inc. and
Southern Ohio Community Bancorporation, Inc. dated February
9, 1997, is attached as Exhibit A to the Proxy
Statement-Prospectus.
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
(3) Articles of Incorporation and Code of Regulations.
A. Registrant's Articles of Incorporation are incorporated
herein by reference from its S-4 Registration
Statement effective November 16, 1983.
B. Registrant's Code of Regulations are incorporated
herein by reference from its S-4 Registration
Statement effective November 16, 1983.
(4) Instruments defining the rights of United Bancorp, Inc.
shareholders, including indentures.
A. Instruments defining the rights of United Bancorp, Inc
shareholders are included in the Articles of
Incorporation and Code of Regulations.
(5) Opinion of Werner & Blank Co., L.P.A., regarding United
Bancorp, Inc. Common Stock, and Consent
(6) Not Applicable.
(7) Not Applicable.
(8) Opinion of Werner & Blank Co., L.P.A., regarding certain tax
matters, and Consent.
(9) Not Applicable.
(10) Not Applicable
(11) Not Applicable.
(12) Not Applicable.
(13) Registrant's Annual Report to United Bancorp, Inc.
shareholders for the year ended December 31, 1997, has
previously been filed with the Commission via EDGAR.
(14) Not Applicable.
(15) Not Applicable
(16) Not Applicable.
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
(21) List of the subsidiaries of the Registrant and their
jurisdictions of incorporation or organization as of
December 31, 1997 is presented in Registrant's Annual Report
on form 10-K incorporated herein by reference.
(22) None.
(23) Consents of Experts and Counsel.
A. Consent of Robb Dixon
B. Consent of Crowe Chizek and Company LLP
C. Consent of Werner & Blank Co., L.P.A. (the consent is
contained in that firm's opinions filed as Exhibits
(5) and (8)).
D. Consent of Young & Associates
(24) Power of Attorney.
(25) Not Applicable.
(26) Not Applicable.
(27) Financial Data Schedule-Not Applicable
(28) Not Applicable.
(29) Not Applicable.
(99) Additional Exhibits.
Form of Proxy to be delivered to Shareholders of
Southern Ohio Community Bancshares, Inc.
</TABLE>
<PAGE> 117
ITEM 22. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes as follows:
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the Effective Date of the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement;
(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 the
information set forth in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in this 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 officers, directors, and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been
<PAGE> 118
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 that matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
of 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.
B. The undersigned Registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the Prospectus/Proxy
Statement 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 the documents filed subsequent to the
Effective Date of this Registration Statement through the date of
responding to the request.
C. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
<PAGE> 119
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 Martins Ferry, State of Ohio, this 9th day of
April, 1998.
United Bancorp, Inc.
By: /s/ James W. Everson
-----------------------------------------------
James W. Everson
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Further, each signature shall designate
authorization of and pursuant to the power of attorney herein described.
/s/ James W. Everson April 9, 1998
- ----------------------------------------
James W. Everson, Chairman, President
Chief Executive Officer adn Director
/s/ Randall M. Greenwood April 9, 1998
- ----------------------------------------
Randall M. Greenwood, Vice President,
Controller, Chief Financial and
Chief Accounting Officer
Michael J. Arciello, Director*
Herman E. Borkoski, Director*
John H. Clark, Jr., Director*
Dr. Leon F. Favede, Director*
John M. Hoopingarner, Director*
Richard L. Riesbeck, Director*
Errol C. Sambuco, Director*
Matthew C. Thomas, Director*
*By:/s/ James W. Everson April 9, 1998
- ----------------------------------------
James W. Everson, Attorney-in-Fact
<PAGE> 120
Exhibit Index
Exhibit 5 Legal Opinion - Werner & Blank Co., LPA
Exhibit 8 Tax Opiinion - Werner & Blank Co., LPA
Exhibit 23 Consents
A-Robb Dixon
B-Consent of Crowe Chizek and Company LLP
C-Consent of Young & Associates
Exhibit 24 Power of Attorney
Exhibit 99 Form of Notices and Proxy Cards
Form of Proxy Card for Special Meeting of Southern
Ohio Community Bancshares, Inc.
<PAGE> 1
EXHIBIT 5 - LEGAL OPINION
{WERNER & BLANK CO. L.P.A. LETTERHEAD}
April 9, 1998
Board of Directors
Southern Ohio Community Bancshares, Inc.
88 High Street
Glouster, OH 45732
RE: S-4 Registration Statement for Shares of United Bancorp, Inc. Common Stock
Gentlemen:
We have acted as counsel to United Bancorp, Inc. (the "Company") in connection
with the preparation of its S-4 Registration Statement to be filed on or about
April 8, 1998, with the Securities and Exchange Commission, for the purpose of
registering shares of the Company to be issued to shareholders of Southern Ohio
Community Bancshares, Inc. ("Southern"), pursuant to the terms and conditions
of a Merger Agreement dated as of February 9, 1998, (the "Agreement"). In
connection with the filing of the Registration Statement, we are providing this
opinion as to the shares to be registered under the Securities Act of 1933 and
issued in connection with the Agreement.
We are of the opinion that the shares of common stock of the Company are duly
authorized, and when issued in accordance with the terms of the Agreement, will
be validly issued, fully paid and nonassessable.
This opinion is intended solely for your use and other than its inclusion in
the Registration Statement of the Company and reference to it in the Proxy
Statement-Prospectus issued in connection therewith, may not be quoted,
circulated or copied without our express prior written consent.
Very truly yours,
/s/ Werner & Blank Co., LPA
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT 8 - TAX OPINION
{WERNER & BLANK CO. L.P.A. LETTERHEAD}
April 2, 1998
Board of Directors
United Bancorp, Inc.
201 South Fourth Street
Martins Ferry, OH 43935
and
Board of Directors
Southern Ohio Community Bancshares, Inc.
88 High Street
Glouster, OH 45732
Ladies and Gentlemen:
You have requested our opinion as to the federal income tax consequences of the
transactions contemplated by a certain Merger Agreement dated as of February 9,
1998, by and between United Bancorp, Inc. ("UBCP") and Southern Ohio Community
Bancshares, Inc. ("Southern"), hereinafter referred to as the "Agreement." Our
opinion is made in reliance upon and is limited to the following facts and
circumstances:
FACTS
Southern is an Ohio corporation, is a registered bank holding company and is
located in Glouster, Ohio. UBCP is an Ohio corporation, is a registered bank
holding company and is located in Martins Ferry, Ohio.
UBCP and Southern have only common shares outstanding. Southern is to be
merged into UBCP, under the Articles of Incorporation of UBCP and in compliance
with applicable Ohio law.
Each share of Southern common stock outstanding on the effective date of the
transaction will be converted into shares of common stock of UBCP as provided
by the Agreement. The effect of the consummation of the transaction and the
exchange of shares will be that shareholders of Southern will become
shareholders of UBCP, and UBCP will own all of the outstanding common stock of
The Glouster Community Bank, a wholly owned subsidiary of Southern.
The business of Southern and UBCP (and affiliates) will continue substantially
unchanged after the effective date of the transaction.
<PAGE> 2
No fractional shares will be issued in the transaction. In lieu thereof,
holders otherwise entitled to receive such fractional shares will be issued
cash.
We are not aware, and have been advised by the management of Southern that they
have no knowledge, of any plan or intention on the part of shareholders of
Southern to sell or otherwise dispose of an amount of the UBCP shares to be
received in the transaction, which could reduce Southern's shareholders
ownership of UBCP shares after the merger of Southern and UBCP to shares having
an aggregate value as of the effective date of the transaction, of less than
fifty percent (50%) of the value of all the formerly outstanding shares of
Southern as of the same date.
The transaction will be carried out pursuant to and in accordance with all
applicable corporate and banking laws relating to the transaction. On the
effective date, UBCP will succeed to all assets of Southern and will be liable
for the liabilities of Southern then existing or arising as a result of the
transactions.
Following the consummation of the transaction resulting in the merger of
Southern with and into UBCP, UBCP will continue to operate the business of
Southern and its existing affiliates in substantially the same manner.
Arms-length negotiations were carried on between the management of UBCP and
management of Southern which led to the Agreement and fixed the terms of the
transaction. Consideration was given to both financial and nonfinancial
factors involved in the transaction and the business benefits from the
transaction were discussed and considered by the parties.
In the opinion of the management of UBCP and Southern, its employees and
customers will benefit from the affiliation. It is also expected that the
transaction will better enable the resulting corporation to compete with other
financial institutions.
OPINION
Based upon the above, it is our opinion that the Agreement will have the
following federal income tax consequences:
1. The merger of Southern with and into UBCP will constitute a "Statutory
Merger" within the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code of 1986, as amended, and Southern and UBCP will each be a "party to a
reorganization" within the meaning of Section 368(b).
2. No gain or loss will be recognized by Southern as a result of the
transfer of its assets to and the assumption of its liabilities by UBCP.
Section 361(a) and 357(a).
3. No gain or loss will be recognized by Southern's shareholders who
exchange their respective shares solely for UBCP shares. Section 354(a).
4. The basis of the UBCP shares received by Southern's shareholders in
exchange for their shares will be the same as the basis in the shares
exchanged therefor, respectively. Section 358(a).
<PAGE> 3
5. The holding period of the UBCP shares received by Southern's shareholders
will include the period during which shares exchanged therefor were held,
provided such shares were held as a capital asset. Section 1223(1).
6. The payment of cash in lieu of fractional shares for the purpose of
mechanically rounding off the fractions resulting from the exchange, will,
in each instance, constitute a distribution not essentially equivalent to
a dividend within the meaning of Section 302(b)(1) of the Internal Revenue
Code of 1986, as amended. The amount received will be treated as a
distribution in full payment in exchange for the shareholders' fractional
share of interest under Section 302(a) of the Code.
7. Gain or loss will be recognized by each Southern shareholder who dissents
and receives only cash in exchange for all of the shares owned by them.
This letter is solely for your information and use, and except: (i) for its
reliance upon by UBCP, Southern and their respective shareholders; and (ii) to
the extent that such may be referred to in the Proxy Statement-Prospectus to be
distrubuted to the shareholders of UBCP and Southern and in the related
Registration Statement to be filed with the Securities and Exchange Commission
as an exhibit to same, it is not to be used, circulated, quoted or otherwise
referred to for any other purpose, or relied upon by any other person, for
whatever reason without our prior written consent.
Very truly yours,
/s/ Werner & Blank Co., LPA
Werner & Blank Co., L.P.A.
<PAGE> 1
EXHIBIT 23 - A CONSENT OF ROBB, DIXON, FRANCIS, DAVIS, ONESON & COMPANY
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-4 of United Bancorp, Inc., of our report dated, February 20, 1998, on
our audits of the consolidated financial statements of Southern Ohio
Community Bancshares, Inc. as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996 and 1995, which report is incorporated by
reference in the registration statement. We also consent to the reference to us
under the heading "Experts" in the Prospectus, which is part of the
registration statement.
/s/ Robb Dixon
-----------------------------
Robb, Dixon, Francis, Davis,
Oneson & Company
<PAGE> 1
EXHIBIT 23 - B CONSENT OF CROWE CHIZEK AND COMPANY LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
WE CONSENT TO THE INCORPORATION IN THE REGISTRATION STATEMENT OF UNITED
BANCORP, INC. ON FORM S-4 OR OUR REPORT DATED JANUARY 16, 1998 ON THE
CONSOLIDATED FINANCIAL STATEMENTS OF UNITED BANCORP, INC. AS OF DECEMBER 31,
1997 AND 1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31,
1997. WE ALSO CONSENT TO THE REFERENCE TO OUR FIRM UNDER THE HEADING "EXPERTS"
IN THE PROSPECTUS WHICH IS A PART OF THE REGISTRATION STATEMENT.
/s/Crowe, Chizek and Company LLP
--------------------------------
Crowe, Chizek and Company LLP
Columbus, Ohio
April 9, 1998
<PAGE> 1
EXHIBIT 23-C CONSENT OF YOUNG & ASSOCIATES
CONSENT OF INVESTMENT BANKER
We hereby consent to the discussion relative to our opinion delivered to the
Board of Directors of Southern Ohio Community Bancshares, Inc. in connection
with its proposed merger with United Bancorp, Inc. in the Proxy
Statement-Prospectus included in United Bancorp, Inc.'s Registration Statement
on Form S-4 under the heading "Opinion of Southern's Financial Advisor," to the
references to our firm in such Proxy Statement-Prospectus and to the inclusion
of such opinion as an Appendix to the Proxy Statement and Prospectus.
/s/ Young & Associates
----------------------------
Young & Associates
Kent, Ohio
April 9, 1998
<PAGE> 1
EXHIBIT 24. POWER OF ATTORNEY
POWERS OF ATTORNEY
DIRECTORS OF UNITED BANCORP, INC.
Know all men by these presents that each person whose name is signed below
has made, constituted and appointed, and by this instrument does make,
constitute and appoint James W. Everson, or Randall C. Greenwood, or either one
of them acting alone, his true and lawful attorney with full power of
substitution and resubstitution to affix for him and in his name, place and
stead, as attorney-in-fact, his signature as director or officer, or both, of
United Bancorp, Inc., an Ohio corporation, (the "Company"), to a Registration
Statement on Form S-4 or other form registering common stock of the Company
under the Securities Act of 1933 in connection with the Company's acquisition
of Southern Ohio Community Bancshares, Inc., and to any and all amendments,
post effective amendments and exhibits to that Registration Statement, and to
any and all applications and other documents pertaining thereto, giving and
granting to such attorney-in-fact full power and authority to do and perform
every act and thing whatsoever necessary to be done in the premises, as fully
as he might or could do if personally present, and hereby ratifying and
confirming all that said attorney-in-fact or any such substitute shall lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed at Martins
Ferry, Ohio, this 9 day of April, 1998.
/s/ Michael J. Arciello
- ----------------------------------
Michael J. Arciello
/s/ Herman E. Borkoski
- ----------------------------------
Herman E. Borkoski
/s/ John H. Clark, Jr.
- -----------------------------------
John H. Clark, Jr.
/s/ James W. Everson
- -----------------------------------
James W. Everson
/s/ Dr. Leon F. Favede
- -----------------------------------
Dr. Leon F. Favede
/s/ John M. Hoopingarner
- -----------------------------------
John M. Hoopingarner
/s/ Richard L. Riesbeck
- -----------------------------------
Richard L. Riesbeck
/s/ Errol C. Sambuco
- -----------------------------------
Errol C. Sambuco
/s/ Matthew C. Thomas
- -----------------------------------
Matthew C. Thomas
<PAGE> 1
EXHIBIT 99 -FORM OF PROXY CARDS
PROXY FOR SPECIAL MEETING OF SOUTHERN OHIO COMMUNITY BANCSHARES, INC.
GLOUSTER, OHIO
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned shareholder of Southern
Ohio Community Bancshares, Inc. ("Southern"), do hereby nominate, constitute,
and appoint _____________, ___________, and __________, or any one of them,
(with full power of substitution for me and in my name, place and stead), to
vote all the common stock of said Corporation, standing in my name on its books
on _______, 1998, at the Special Meeting of its shareholders to be held at
__________________________________, on ________1998, at _____ __.M. local time,
or any adjournments thereof with all the powers the undersigned would possess
if personally present as follows: 1. To ratify, confirm, approve and adopt,
pursuant to Ohio Revised Code Sections 1701.78 and 1701.831 a Merger Agreement
dated as of February 9, 1998, (the "Agreement") by and between Southern and
United Bancorp, Inc., an Ohio corporation and bank holding company ("UBCP"),
with such Agreement providing for, among other things, the merger of Southern
with and into UBCP. Each outstanding share of Southern Common Stock will be
converted into UBCP Common Stock in accordance with the terms of the Agreement.
For [ ] Against [ ] Abstain [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSITION.
2. TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF.
This proxy confers authority to vote "FOR" the propositions listed above unless
"AGAINST" or "ABSTAIN" is indicated. If any other business is presented at
said meeting, this proxy shall be voted in accordance with the recommendations
of management. All shares represented by properly executed proxies will be
voted as directed. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE BY EITHER WRITTEN NOTICE OR PERSONALLY
AT THE MEETING OR BY A SUBSEQUENTLY DATED PROXY.
Date:_______________________, 1998 _______________________________
_______________________________ (L.S.)
(Signature(s) of Shareholder(s))
(When signing as Attorney, Executor, Administrator, Trustee, or Guardian,
please give full title. If more than one Trustee, all should sign. All joint
owners must sign.)
