As filed with the Securities and Exchange Commission on October 12, 2007.

Registration No.       

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

UNITED COMMUNITY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

 

 

 

 

Copies to:

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this Registration Statement and the conditions to the consummation of the merger described herein have been satisfied or waived.

 

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.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

The boards of directors of United Community Financial Corp. (“United Community”) and PVF Capital Corp. (“PVFC”) have agreed to a merger of our companies. If the merger is completed, each PVFC shareholder will have the right to elect to receive either: (a) 1.852 United Community common shares, (b) $18.50 in cash, or (c) a combination of $9.25 in cash and 0.926 shares of United Community common shares in exchange for each of his or her PVFC shares, subject to proration so that 50% of the outstanding PVFC shares are converted into United Community common shares and 50% are converted into the cash consideration. United Community’s shareholders will continue to own their existing shares. After completion of the merger, we expect that current United Community shareholders will own approximately     % of United Community and PVFC shareholders will own approximately     % of United Community. United Community common shares are listed on the NASDAQ Global Select Market under the symbol “UCFC.” On July 23, 2007, the trading day immediately preceding the public announcement of the merger, and          , 2007, the last practicable trading day before the printing of this document, the closing prices of United Community common shares were $8.21 and $          , respectively. United Community is offering approximately           common shares to PVFC shareholders (           shares assuming all          ,           outstanding stock options of PVFC as of September 30, 2007 are exercised before the closing of the merger).

 

We expect the merger to generally be tax-free to holders of PVFC common shares for federal income tax purposes except to the extent that they receive cash.

 

We cannot complete the merger unless we obtain the necessary government approvals and unless the shareholders of both companies approve the merger agreement. Each of us is asking our shareholders to consider and vote on this merger proposal at our respective meetings of shareholders. Whether or not you plan to attend your company’s meeting, please take the time to vote by completing and mailing the enclosed proxy card to the appropriate company. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote “FOR” the merger agreement. If you do not return your proxy card, or if you do not instruct your broker how to vote any shares held for you in “street name,” the effect will be a vote against the merger agreement.

 

The places, dates and times of the shareholders meetings are as follows:

 

 

This document contains a more complete description of the shareholders’ meetings and the terms of the merger. We urge you to review this entire document carefully including the section entitled “Risk Factors” beginning on page   . You may also obtain information about United Community and PVFC from documents they have each filed with the Securities and Exchange Commission.

 

We enthusiastically support the merger and recommend that you vote in favor of the merger agreement.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense. The securities we are offering through this document are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either of our companies, and they are not insured by the Federal Deposit Insurance Corporation, the Deposit Insurance Fund, or any other governmental agency.

 

Joint Proxy Statement/Prospectus dated          , 2007, and first mailed to shareholders on or about          , 2007.

 

UNITED COMMUNITY FINANCIAL CORP.

275 West Federal Street

Youngstown, Ohio 44503

 

Notice of Special Meeting of Shareholders

To Be Held          , 2007

 

A special meeting of shareholders of United Community Financial Corp. will be held at          :00 a.m., local time, on          , 2007 at          ,          . Any adjournments or postponements of the special meeting will be held at the same location.

 

At the special meeting, you will be asked to:

 

1. Consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of July 24, 2007, as amended on September 25, 2007, by and among United Community Financial Corp., The Home Savings and Loan Company of Youngstown, Ohio, PVF Capital Corp., and Park View Federal Savings Bank. A copy of the merger agreement is included as Annex A to the accompanying joint proxy statement/prospectus;

 

2. Consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement; and

 

3. Transact such other business as may be properly presented at the special meeting and any adjournments or postponements of the special meeting.

 

The enclosed joint proxy statement/prospectus describes the merger agreement and the proposed merger in detail. We urge you to read these materials carefully. The enclosed joint proxy statement/prospectus forms a part of this notice.

 

The board of directors of United Community unanimously recommends that United Community shareholders vote “FOR” the proposal to approve the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies to vote in favor of the merger agreement.

 

The board of directors of United Community has fixed the close of business on          , 2007 as the record date for determining the shareholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

 

If the merger is completed, United Community shareholders of record who do not vote to approve the merger agreement and otherwise comply with the applicable provisions of Ohio law will be entitled to exercise dissenters’ rights and obtain payment in cash of the fair value of their United Community common shares by following the procedures set forth in detail in the enclosed joint proxy statement/prospectus. A copy of the section of the Ohio General Corporation Law pertaining to dissenters’ rights is included as Annex D to the accompanying joint proxy statement/prospectus.

 

By Order of the Board of Directors

 

Secretary

 

Youngstown, Ohio

          , 2007

 

 

 

 

PVF CAPITAL CORP.

30000 Aurora Road

Solon, Ohio 44139

 

Notice of Special Meeting of Shareholders

To Be Held          , 2007

 

A special meeting of shareholders of PVF Capital Corp. will be held at  :00 p.m., local time, on          , 2007 at          . Any adjournments or postponements of the special meeting will be held at the same location.

 

At the special meeting, you will be asked to:

 

1. Consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of July 24, 2007, as amended on September 25, 2007, by and among United Community Financial Corp., The Home Savings and Loan Company of Youngstown, Ohio, PVF Capital Corp., and Park View Federal Savings Bank. A copy of the merger agreement is included as Annex A to the accompanying joint proxy statement/prospectus;

 

2. Consider and vote upon a proposal to approve amendments to the First Amended and Restated Code of Regulations of PVF Capital Corp.;

 

3. Consider and vote upon a proposal to adjourn the special meeting to a later date or dates, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting to approve the merger agreement; and

 

4. Transact such other business as may be properly presented at the special meeting and any adjournments or postponements of the special meeting.

 

The enclosed joint proxy statement/prospectus describes the merger agreement and the proposed merger in detail. We urge you to read these materials carefully. The enclosed joint proxy statement/prospectus forms a part of this notice.

 

The board of directors of PVFC unanimously recommends that PVFC shareholders vote “FOR” the proposal to approve the merger agreement, “FOR” the proposal to approve the amendments to PVFC’s Code of Regulations and “FOR” the proposal to adjourn the special meeting, if necessary, to solicit additional proxies to vote in favor of the merger agreement.

 

The board of directors of PVFC has fixed the close of business on          , 2007 as the record date for determining the shareholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements of the special meeting.

 

If the merger is completed, PVFC shareholders of record who do not vote to approve the merger agreement and otherwise comply with the applicable provisions of Ohio law will be entitled to exercise dissenters’ rights and obtain payment in cash of the fair value of their PVFC common shares by following the procedures set forth in detail in the enclosed joint proxy statement/prospectus. A copy of the section of the Ohio General Corporation Law pertaining to dissenters’ rights is included as Annex D to the accompanying joint proxy statement/prospectus.

 

By Order of the Board of Directors

 

Secretary

 

Solon, Ohio

          , 2007

 

 

 

 

TABLE OF CONTENTS

 

 

 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

 

 

 

 

United Community shareholders should contact:

 

  
275 West Federal Street
Youngstown, Ohio 44503
(330) 742-0500

 

 

PVFC Shareholders should contact:

 

Georgeson, Inc.

 

 

	•	approval of the merger agreement at the special meetings by the shareholders of both PVFC and United Community;
	•	performance in all material respects by United Community and PVFC of their respective obligations under the merger agreement;
	•	approval of the merger by the appropriate regulatory authorities;
	•	receipt of an opinion from United Community’s legal counsel to the effect that the merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code; and
	•	the accuracy of United Community’s and PVFC’s respective representations and warranties under the merger agreement as of the date of the merger agreement and on the closing date of the merger.

	•	the merger has not been consummated by March 31, 2008;
	•	PVFC shareholders do not approve the merger agreement at the PVFC special meeting;

	•	United Community shareholders do not approve the merger agreement at the United Community special meeting;
	•	a required regulatory approval is not received; or
	•	there is an uncured breach by another party of any representation, warranty, covenant or agreement contained in the merger agreement.

	•	payments that certain officers will receive under existing severance agreements;
	•	the acceleration of stock options and vesting under certain benefit plans;
	•	provisions in the merger agreement relating to indemnification of directors and officers and insurance for directors and officers of PVFC for events occurring before the merger; and
	•	the appointment of two directors of PVFC to the board of directors of United Community and three PVFC directors to the board of Home Savings.

				Equivalent Price per
		United Community		Share of PVFC
		Common Shares		Common Shares
July 23, 2007		$8.21		$15.20
, 2007

 

RISK FACTORS

 

The merger and the acquisition of United Community shares involve significant risks. In addition to the other information included in this joint proxy statement/prospectus, you should consider carefully the risk factors described below in deciding how to vote and whether to elect to receive cash, stock or a mixture of cash and stock in exchange for PVFC shares. In addition, please refer to the section of this joint proxy statement/prospectus titled “Caution About Forward-Looking Statements” beginning on page   .

 

PVFC shareholders may receive some of the merger consideration in a form different from what they elect, and PVFC shareholders may receive different federal income tax treatment than they expect or desire.

 

The amount of cash and the number of United Community shares to be received by PVFC shareholders in the merger is subject to the requirement that 50% of the PVFC shares be exchanged for United Community common shares and 50% be exchanged for cash. The merger agreement contains proration and allocation methods to achieve this result. If you elect all cash and the available cash is oversubscribed, then you will receive a portion of the merger consideration in United Community common shares. If you elect all stock and the available stock is oversubscribed, then you will receive a portion of the merger consideration in cash. The type of consideration you receive may also be affected by adjustments to the consideration that may be made so that the value of the stock portion of the merger consideration is equal to at least 40% of the total value of the merger consideration.

 

At the time of the special meeting and when they elect their consideration, PVFC shareholders will not know the actual mix of consideration that they will eventually receive. Assuming the merger qualifies as a “reorganization” for U.S. federal income tax purposes, a PVFC shareholder who has elected to receive only stock with the expectation of having tax-free treatment and instead receives a combination of cash and stock as a result of the application of the pro-ration procedures may be required to recognize gain on the exchange, but will not be permitted to recognize any loss on the exchange. On the other hand, a PVFC shareholder who elects to receive only cash with the expectation that he or she will recognize a loss as a result of the merger may receive United Community shares, in which case the loss would not be recognized. For a more detailed discussion of the federal income tax consequences of the proposed transaction, see the discussion under the caption “Description of the Merger — Tax Consequences of the Merger.”

 

If the average closing price of United Community common shares during a five-day period prior to closing is less than $7.99, United Community shares underperform the SNL Bank and Thrift Index by more than 20%, and United Community does not elect to increase the exchange ratio, PVFC has the right to terminate the merger agreement.

 

The merger agreement provides that if (1) the average closing price of United Community common shares during a 20-day period ending seven calendar days before the closing is less than $7.99, and (2) United Community common shares underperform the SNL Bank and Thrift Index between July 23, 2007, the last day prior to the public announcement of the merger, and the date that is seven days prior to closing by more than 20%, PVFC will be entitled to terminate the merger agreement unless United Community agrees to increase the exchange ratio so that the average closing price of United Community shares over the 20-day period multiplied by the exchange ratio equals $14.80. If the closing of the merger would have occurred on          , 2007 and the calculations described above would have been made as of such date, each of the conditions described in clauses (1) and (2) above would have been satisfied and PVFC would have been entitled to terminate the merger agreement, subject to United Community’s right to increase the exchange ratio as described above and close the merger using such increased exchange ratio. While PVFC has not determined whether or not it will exercise its termination right if the conditions described above are met as of the closing date of the merger, United Community does not currently intend to increase the exchange ratio by any material amount in such event. See “Description of the Merger — What PVFC Shareholders will Receive in the Merger” beginning on page   . As a result, even if the merger is approved by PVFC and United Community shareholders, the merger may ultimately not be completed.

Because the market price of United Community shares may fluctuate, you cannot be certain of the market value of the United Community shares that will be issued in the merger.

 

The merger agreement requires that 50% of the outstanding shares of PVFC be exchanged for United Community shares. Any change in the price of United Community shares after the date of the merger agreement will affect the market value of the stock that PVFC shareholders will receive as a result of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in United Community’s earnings, operations and prospects, and regulatory considerations. Many of these factors are beyond United Community’s control. Because the date the merger is completed will be later than the date of the special meeting, PVFC shareholders will not know what the market value of United Community shares will be upon completion of the merger when they vote on the merger at the PVFC special meeting or when they make their elections to receive cash or stock.

 

Future results of the combined companies may materially differ from the pro forma financial information presented in this proxy statement/prospectus.

 

United Community may not be able to integrate PVFC’s operations into United Community’s operations without encountering difficulties including, without limitation, the loss of key employees and customers, the disruption of its ongoing business or possible inconsistencies in standards, controls, procedures and policies. Future results of the combined company may be materially different from those shown in the pro forma financial statements that only show a combination of the historical results of United Community and PVFC. Merger-related charges may be higher or lower than we have estimated, depending upon how costly or difficult it is to integrate the two companies. Furthermore, these charges may decrease the capital of the combined company that could be used for income-earning investments in the future.

 

Additionally, in determining that the merger is in the best interests of PVFC and United Community, as the case may be, the board of directors of each of PVFC and United Community considered the savings that may result from the consummation of the merger, including from reduction of duplicate costs, improved efficiency and cross marketing opportunities. However, there can be no assurance that any increase in earnings per share will result from the merger.

 

Certain of PVFC’s officers and directors have interests that are different from, or in addition to, interests of PVFC’s shareholders generally.

 

Some of the directors and officers of PVFC have interests in the merger that are different from, or in addition to, the interests of PVFC shareholders generally. These include: payments that certain officers will receive under existing severance agreements; the acceleration of stock options; the acceleration of vesting under certain benefit plans; provisions in the merger agreement relating to indemnification of directors and officers and insurance for directors and officers of PVFC for events occurring before the merger; and the appointment of two directors of PVFC to the board of directors of United Community and three directors of PVFC to the board of Home Savings. For a more detailed discussion of these interests, see “Description of the Merger — Interests of Certain Persons in the Merger” beginning on page   .

 

Changing economic conditions and the geographic concentration of our markets may unfavorably impact United Community’s financial condition and results of operations.

 

The operations of United Community and PVFC are primarily concentrated in northern and central Ohio, and their operating results largely depend upon economic conditions in these market areas. A deterioration in economic conditions in one or more of these markets could result in one or more of the following:

 

 

 

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this document that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (referred to as the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (referred to as the Securities Exchange Act), and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The sections of this document which contain forward-looking statements include, but are not limited to, “Questions and Answers About the Merger and the Special Meetings,” “Summary,” “Risk Factors,” “Description of the Merger — United Community’s Background and Reasons for the Merger,” and “Description of the Merger — PVFC’s Background of the Merger; Recommendation of the PVFC Board; and PVFC’s Reasons for the Merger.” You can identify these statements from the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

 

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including among other things, changes in general economic and business conditions and the risks and other factors set forth in the “Risk Factors” section beginning on page   .

 

Because of these and other uncertainties, United Community’s actual financial condition and operating results may be materially different from the results indicated by these forward-looking statements. In addition, United Community’s and PVFC’s past results of operations do not necessarily indicate United Community’s and PVFC’s combined future results. You should not place undue reliance on any forward-looking statements, which speak only as of the dates on which they were made. United Community is not undertaking an obligation to update these forward-looking statements, even though its situation may change in the future, except as required under federal securities law. United Community qualifies all of its forward-looking statements by these cautionary statements.

 

Further information on other factors which could affect the financial condition, results of operations, liquidity or capital resources of United Community before and after the merger is included in this joint proxy statement/prospectus under “Information About United Community — Management’s Discussion and Analysis of Financial Condition and Results of Operations”

 

SELECTED HISTORICAL FINANCIAL INFORMATION FOR UNITED COMMUNITY

 

The following tables summarize historical financial data for United Community. You should read this summary financial information in connection with United Community’s historical financial information, which appears elsewhere in this joint proxy statement/prospectus.

 

Unaudited interim financial statements at or for the six months ended June 30, 2007 and 2006 include normal, recurring adjustments necessary to fairly present the data for those periods. The unaudited data is not necessarily indicative of expected results of a full year of operations.

 

 

 

 

 

 

SELECTED HISTORICAL FINANCIAL INFORMATION FOR PVFC

 

The following tables summarize historical financial data for PVFC. You should read this summary financial information in connection with PVFC’s historical financial information, which is incorporated by reference into this joint proxy statement/prospectus.

 

 

 

 

 

 

SUMMARY SELECTED PRO FORMA DATA

 

The following table shows selected financial information on a pro forma basis giving effect to the merger as if the merger had become effective at the end of the periods presented in the case of balance sheet information, and at the beginning of each period presented in the case of income statement information. The pro forma information reflects the purchase method of accounting.

 

United Community anticipates that the merger will provide the combined company with financial benefits that include reduced operating expenses and the opportunity to earn additional revenue. The pro forma information, while helpful in illustrating the financial characteristics of United Community following the merger under one set of assumptions, does not reflect all of these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of United Community would have been had our companies been combined during these periods.

 

An exchange ratio of 1.852 was used in preparing this pro forma information. You should read this summary pro forma information in conjunction with the information under “Pro Forma Unaudited Consolidated Financial Information” beginning on page   , and with the historical information in this document on which it is based.

 

 

 

COMPARATIVE PER SHARE DATA

 

The following table shows United Community’s and PVFC’s diluted income per common share, dividends per share and book value per share, after giving effect to the merger (which we refer to as “pro forma” information). In presenting the comparative pro forma information for the time periods shown, we assumed that we had been merged on the dates or at the beginning of the periods indicated. See “Pro Forma Unaudited Consolidated Financial Information” beginning on page   .

 

The information listed as “per equivalent PVFC share” was obtained by multiplying the pro forma amounts by an exchange ratio of 1.852. We present this information to reflect the fact that some PVFC shareholders will receive United Community common shares for each share of PVFC exchanged in the merger. United Community anticipates that the combined company will derive financial benefits from the merger that include reduced operating expenses and the opportunity to earn more revenue. The pro forma information, while helpful in illustrating the financial characteristics of United Community following the merger under one set of assumptions, does not reflect these benefits and, accordingly, does not attempt to predict or suggest future results. The pro forma information also does not necessarily reflect what the historical results of United Community would have been had our companies been combined during these periods.

 

The information in the following table is based on, and should be read together with, the historical financial information that we have presented in this document.

 

 

 

 

MARKET PRICE AND DIVIDEND INFORMATION

 

United Community common shares are listed on the NASDAQ Global Select Market under the symbol “UCFC.” PVFC common shares are listed on the NASDAQ Capital Market under the symbol “PVFC.” The following table lists the high and low prices per share for United Community common shares and PVFC common shares and the cash dividends declared by each company for the periods indicated.

 

 

You should obtain current market quotations for United Community common shares, as the market price of United Community common shares will fluctuate between the date of this document and the date on which the merger is completed, and thereafter. You can get these quotations from a newspaper, on the Internet or by calling your broker.

 

Following the merger, the declaration of dividends will be at the discretion of United Community’s board of directors and will be determined after consideration of various factors, including earnings, cash requirements, the financial condition of United Community, applicable state law and government regulations and other factors deemed relevant by United Community’s board of directors.

 

On July 23, 2007, the trading day immediately preceding the public announcement of the merger, and on          , 2007, the last practicable trading day before the printing of this document, the closing price of UCFC common shares as reported on NASDAQ were $8.21 and $      per share, respectively, and the closing prices of PVFC as reported on NASDAQ were $12.58 and $      per share, respectively.

 

SPECIAL MEETING OF PVFC SHAREHOLDERS

 

Date, Place, Time and Purpose

 

PVFC’s board of directors is sending you this document to request that you allow your shares of PVFC to be voted at the special meeting by the persons named in the enclosed proxy card. At the special meeting, the PVFC board of directors will ask you to vote on a proposal to approve the merger agreement and on a proposal to approve amendments to PVFC’s code of regulations. You also will be asked to vote on a proposal to adjourn the special meeting if necessary to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the merger agreement. The special meeting will be held at  ,          ,                     at   a.m., local time, on          , 2007.

 

Who Can Vote at the Meeting; Quorum

 

You are entitled to vote if the records of PVFC show that you held PVFC common shares as of the close of business on          , 2007. As of the close of business on that date, a total of           PVFC common shares were outstanding. Each common share has one vote. If you are a beneficial owner of PVFC common

shares held by a broker, bank or other nominee (i.e., in “street name”) and you want to vote your shares in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

 

The special meeting will conduct business only if a majority of the outstanding PVFC common shares entitled to vote is represented in person or by proxy at the meeting. If you return a valid proxy or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting. Broker non-votes also will be counted for purposes of determining the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding PVFC common shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power for that item and has not received voting instructions from the beneficial owner.

 

Vote Required

 

Approval of the merger agreement and the amendments to PVFC’s code of regulations each requires the affirmative vote of two-thirds of the outstanding PVFC common shares entitled to vote at the meeting. Failure to submit a properly executed proxy card or to vote in person will have the same effect as a vote against the merger agreement and the amendments to PVFC’s code of regulations. Broker non-votes and abstentions from voting will have the same effect as voting against the merger agreement and the amendments to PVFC’s code of regulations.

 

The affirmative vote of the majority of votes cast is required to approve the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement.

 

Shares Held by PVFC Officers and Directors and by United Community

 

As of          , 2007, directors and executive officers of PVFC beneficially owned           PVFC common shares. This equals     % of the outstanding PVFC common shares. As of the same date, United Community and its directors and executive officers beneficially owned           PVFC common shares.

 

Voting and Revocability of Proxies

 

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, PVFC recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting.

 

PVFC shareholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker or bank may allow you to deliver your voting instructions by telephone or the Internet.

 

Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain regarding the approval of the merger agreement and the amendments to PVFC’s code of regulations and any proposal to adjourn the meeting. If you are the record holder of your PVFC common shares and submit your proxy without specifying a voting instruction, your PVFC common shares will be voted “FOR” the proposal to adopt the merger agreement, “FOR” the proposal to approve the amendments to PVFC’s code of regulations and “FOR” any proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement. PVFC’s board of directors recommends a vote “FOR” approval of the merger agreement, “FOR” the proposal to approve the amendments to PVFC’s code of regulations and “FOR” approval of any proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement.

 

You may revoke your proxy before it is voted by:

 

 

Attending the special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication regarding the revocation of proxies should be addressed to:

 

PVF Capital Corp.
Jeffrey N. Male, Secretary
30000 Aurora Road
Solon, Ohio 44139

 

If any matters not described in this document are properly presented at the special meeting, the persons named in the proxy card will use their own judgment to determine how to vote your shares. PVFC does not know of any other matters to be presented at the meeting.

 

Participants in Park View’s 401(k) Plan

 

If you participate in the Park View Federal Savings Bank 401(k) Plan and invest in the PVF Capital Corp. Stock Fund, you will receive a vote authorization card that reflects the PVFC shares credited to your account in the 401(k) Plan as of the special meeting record date. You may direct the 401(k) Plan Trustee how to vote the PVFC shares credited to your account. The Trustee will vote all shares for which it does not receive timely instructions from participants as directed by PVFC. The deadline for returning your voting instructions to the 401(k) Plan Trustee is          , 2007.

 

Solicitation of Proxies

 

PVFC has engaged Georgeson, Inc. to assist in the solicitation of proxies for the PVFC special meeting at a fee of $8,000, plus expenses. PVFC also agreed to indemnify Georgeson, Inc. for liabilities arising from its performance of proxy solicitation services. PVFC and United Community will share in the expenses of this proxy solicitation. PVFC will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Additionally, directors, officers and employees of PVFC may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies.

 

PROPOSAL TO APPROVE AMENDMENTS TO PVFC’S FIRST AMENDED AND RESTATED CODE OF REGULATIONS TO AUTHORIZE THE ISSUANCE OF UNCERTIFICATED SHARES

 

PVFC’s board of directors unanimously approved, declared advisable, and recommends to PVFC’s shareholders amendments to PVFC’s First Amended and Restated Code of Regulations to authorize PVFC’s board of directors to provide for the issuance of uncertificated shares. PVFC’s board of directors believes that this proposal is in the best interest of PVFC and its shareholders and recommends a vote “FOR” the proposed amendments.

 

The proposed amendments would change Article V, Section 1 of the PVFC’s code of regulations to authorize PVFC’s board of directors to provide by resolution that some or all of any or all classes or series of PVFC’s stock may be uncertificated shares. The proposed amendments would also add references to uncertificated shares to Sections 5 and 7 of Article V. In accordance with PVFC’s articles of incorporation and code of regulations, the proposed amendments are subject to the approval of PVFC’s shareholders.

 

As amended, Article V, Sections 1, 5 and 7 would read as follows (proposed amendments appear as underlined text):

 

Section 1.  Certificates for Shares.  The shares of the Corporation shall be represented by certificates signed by the chairman of the board of directors or by the president or a vice president and by the treasurer, an assistant treasurer, the secretary, or an assistant secretary of the Corporation, and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent, or registered by a registrar, other than the Corporation itself of an employee of the Corporation. If any officer who has signed or whose facsimile signature has been

placed upon such certificate shall have ceased to be such officer before the certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of its issue.

 

Notwithstanding the foregoing, the board of directors may provide by resolution that some or all of any or all classes or series of the Corporation’s stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation.

 

Section 5.  Transfer of Shares.  Transfer of shares of capital stock of the Corporation shall be made only on its stock transfer books. Authority for such transfer shall be given only by the holder of record thereof or by his legal representative, who shall furnish proper evidence of such authority, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Corporation. Such transfer shall be made, in the case of certificated shares, only on surrender for cancellation of the certificate for such shares, or, in the case of uncertificated shares, on delivery of proper transfer instructions for the number of shares involved.  The person in whose name shares of capital stock stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.

 

Section 7.  Lost Certificates.  The board of directors may direct a new certificate, or uncertificated shares, to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.

 

Purpose of Amendments

 

Currently, PVFC’s governing documents do not authorize the issuance of uncertificated shares. The rules of the NASDAQ Stock Market require that by January 1, 2008, all listed companies must be eligible to participate in a Direct Registration Program regarding their listed securities. This Direct Registration Program requires that listed companies be authorized to issue uncertificated shares. Failure to comply with NASDAQ Stock Market listing requirements may result in adverse consequences the continued listing of its securities on the NASDAQ Capital Market.

 

Under PVFC’s articles of incorporation and code of regulations, the code of regulations may be amended only by a vote of the stockholders. As a result, the board of directors is submitting the proposed amendments to the code of regulations for a vote of the shareholders at the Special Meeting.

 

The board of directors desires to modernize PVFC’s code of regulations to authorize the issuance of uncertificated shares, as required for continued listing of PVFC’s common stock on the NASDAQ Capital Market and as is currently permitted or will be permitted by January 1, 2008 for the stock of substantially all publicly traded U.S. corporations. The board of directors desires to continue to have PVFC’s common stock listed on the NASDAQ Capital Market, which it believes provides the most active and liquid trading market available for PVFC’s common stock. Failure to approve the proposed amendments could result in the loss of PVFC’s ability to continue to list its shares on the NASDAQ Capital Market. Accordingly, PVFC’s board of directors believes approval of the proposed amendments to the code of regulations is in the best interests of PVFC and its shareholders.

 

The Board of Directors recommends a vote “FOR” the approval of the amendments to PVFC’s code of regulations.

 

SPECIAL MEETING OF UNITED COMMUNITY SHAREHOLDERS

 

Date, Place, Time and Purpose

 

United Community’s board of directors is sending you this document to request that you allow your shares of United Community to be represented at the special meeting by the persons named in the enclosed proxy card. At the special meeting, the United Community board of directors will ask you to vote on a proposal to approve the merger agreement. You also will be asked to vote on a proposal to adjourn the special meeting if necessary to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to approve the merger agreement. The special meeting will be held at          ,          ,                     at   a.m., local time, on          , 2007.

 

Who Can Vote at the Meeting; Quorum

 

You are entitled to vote if the records of United Community show that you held United Community common shares as of the close of business on          , 2007. As of the close of business on that date, a total of           United Community common shares were outstanding. Each common share has one vote. If you are a beneficial owner of United Community common shares held by a broker, bank or other nominee (i.e., in “street name”) and you want to vote your shares in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

 

The special meeting will conduct business only if a majority of the outstanding United Community common shares entitled to vote is represented in person or by proxy at the meeting. If you return a valid proxy or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting. Broker non-votes also will be counted for purposes of determining the existence of a quorum. A broker non-vote occurs when a broker, bank or other nominee holding United Community common shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power for that item and has not received voting instructions from the beneficial owner.

 

Vote Required

 

Approval of the merger agreement will require the affirmative vote of a majority of the outstanding United Community common shares entitled to vote at the meeting. Failure to submit a properly executed proxy card or to vote in person will have the same effect as a vote against the merger agreement. Broker non-votes and abstentions from voting will have the same effect as voting against the merger agreement.

 

The affirmative vote of the majority of votes cast is required to approve the proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement.

 

Shares Held by United Community Officers and Directors and by PVFC

 

As of          , 2007, directors and executive officers of United Community beneficially owned           United Community common shares. This equals     % of the outstanding United Community common shares. As of the same date, PVFC and its directors and executive officers did not beneficially own any United Community common shares.

 

Voting and Revocability of Proxies

 

You may vote in person at the special meeting or by proxy. To ensure your representation at the special meeting, United Community recommends that you vote by proxy even if you plan to attend the special meeting. You can always change your vote at the special meeting.

 

United Community shareholders whose shares are held in “street name” by their broker, bank or other nominee must follow the instructions provided by their broker, bank or other nominee to vote their shares. Your broker or bank may allow you to deliver your voting instructions by telephone or the Internet.

Voting instructions are included on your proxy form. If you properly complete and timely submit your proxy, your shares will be voted as you have directed. You may vote for, against, or abstain regarding the approval of the merger agreement and any proposal to adjourn the meeting. If you are the record holder of your United Community common shares and submit your proxy without specifying a voting instruction, your United Community common shares will be voted “FOR” the proposal to adopt the merger agreement and “FOR” any proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement. United Community’s board of directors recommends a vote “FOR” approval of the merger agreement and “FOR” approval of any proposal to adjourn the meeting if necessary to permit further solicitation of proxies on the proposal to approve the merger agreement.

 

You may revoke your proxy before it is voted by:

 

 

Attending the special meeting will not, in and of itself, constitute a revocation of a proxy. All written notices of revocation and other communication regarding the revocation of proxies should be addressed to:

 

United Community Financial Corp.

Jude J. Nohra, Secretary

275 West Federal Street

Youngstown, Ohio 44503-1203

 

If any matters not described in this document are properly presented at the special meeting, the persons named in the proxy card will use their own judgment to determine how to vote your shares. United Community does not know of any other matters to be presented at the meeting.

 

Solicitation of Proxies

 

United Community and PVFC will share in the expenses of this proxy solicitation. United Community will, upon request, reimburse brokers, banks and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Additionally, directors, officers and employees of United Community may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies.

 

DESCRIPTION OF THE MERGER

 

The following summary of the merger agreement is qualified by reference to the complete text of the merger agreement, a copy of which is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. You should read the merger agreement completely and carefully as it, rather than this description, is the legal document that governs the merger.

 

General

 

The merger agreement provides for the merger of PVFC into United Community, followed immediately by the merger of Home Savings into Park View.

 

What PVFC Shareholders will Receive in the Merger

 

If the merger is completed, each common share of PVFC issued and outstanding immediately before the completion of the merger will automatically be converted into the right to receive, at the holder’s election, either (a) $18.50 in cash, (b) 1.852 United Community common shares or (c) $9.25 in cash or 0.926 United

Community common shares, subject to the allocation and proration procedures as well as other provisions in the merger agreement. You may elect to:

 

 

PVFC shareholders will not receive fractional United Community common shares. Instead, PVFC shareholders will receive a cash payment for any fractional shares in an amount equal to the product of (i) the fraction of a share of United Community stock to which such shareholder is entitled multiplied by (ii) $18.50.

 

If United Community declares a stock dividend or distribution on its common shares or subdivides, splits, reclassifies or combines the United Community common shares prior to the effective time of the merger, then the exchange ratio will be adjusted to provide PVFC shareholders with the same economic effect as contemplated by the merger agreement prior to any of these events.

 

Treatment of PVFC Stock Options

 

Each option to acquire PVFC shares that is outstanding and unexercised at the effective time of the merger shall be terminated and each holder of such an option shall be entitled to receive an amount in cash equal to $18.50 less the exercise price of the stock option.

 

Stock or Cash Election

 

The merger agreement provides that 50% of the PVFC common shares will be converted into United Community common shares issued and outstanding on the date of the merger and that the consideration may be adjusted so that 40% of the total value of the United Community shares issued in the merger is equal to at least 40% of the total merger consideration. It is unlikely that elections will be made in the exact proportions provided for in the merger agreement. As a result, the merger agreement describes procedures to be followed if PVFC shareholders in the aggregate elect to receive more or less of the United Community common shares than United Community has agreed to issue. These procedures are summarized below.

 

If Shares Are Oversubscribed:  If PVFC shareholders elect to receive more United Community common shares than United Community has agreed to issue in the merger, then all PVFC shareholders who have elected to receive cash will receive cash for their PVFC shares, and those PVFC shareholders who have elected to receive common shares and those who made no election will be treated in the following manner:

 

 

If Shares Are Undersubscribed:  If PVFC shareholders elect to receive more cash than United Community has agreed to pay in the merger, then all PVFC shareholders who have elected to receive United Community common shares will receive United Community common shares, and those PVFC shareholders who elected to receive cash or who have made no election will be treated in the following manner:

 

 

 

If the total value of the United Community shares to be issued to the PVFC shareholders is less than 40% of the total merger consideration as of the trading day before the merger, United Community may reduce the number of PVFC common shares that will be converted into cash and correspondingly increase the number of PVFC common shares that will be converted into United Community common shares. If this adjustment is necessary, shareholders who elect to receive cash or a mixture of cash and stock may be required to receive on a pro rata basis a greater amount of United Community common shares than they otherwise would have received.

 

No guarantee can be made that PVFC shareholders will receive the amounts of cash and/or stock they elect. As a result of the allocation procedures and other limitations outlined in this document and in the merger agreement, PVFC shareholders may receive United Community common shares or cash in amounts that vary from the amounts they elect to receive.

 

Election Procedures; Surrender of Stock Certificates

 

After the completion of the merger, the exchange agent will mail to PVFC shareholders a letter of transmittal, together with an election form and instructions for the exchange of their PVFC common shares certificates for the merger consideration. Neither United Community nor PVFC is making any recommendation as to whether PVFC shareholders should elect to receive cash or United Community common shares in the merger. Holders of PVFC common shares must make their own decisions with respect to such election.

 

To make an effective election, PVFC shareholders must submit a properly completed election form, along with their PVFC stock certificates representing all PVFC common shares covered by the election form, to the designated exchange agent within 20 days of the date the election form is mailed to the shareholder. PVFC shareholders should not forward their PVFC stock certificates with their proxy cards. PVFC shareholders who do not submit a properly completed election form before the election deadline will have their PVFC common shares designated as non-election shares.

 

Until PVFC shareholders surrender their PVFC stock certificates for exchange after completion of the merger, PVFC shareholders will not be paid dividends or other distributions declared after the merger with respect to any United Community common shares into which their PVFC shares have been converted. When PVFC shareholders surrender their PVFC stock certificates, United Community will pay any unpaid dividends or other distributions, without interest. After the completion of the merger, there will be no further transfers of PVFC common shares. PVFC stock certificates presented for transfer after the completion of the merger will be canceled and exchanged for the merger consideration.

 

PVFC shareholders whose PVFC stock certificates have been either lost, stolen or destroyed, will have to prove ownership of these certificates and verify that they were lost, stolen or destroyed before receiving any consideration for their shares. The election form will include instructions on how to provide evidence of ownership.

 

United Community’s Background and Reasons for the Merger

 

Pursuing acquisition opportunities has been a part of United Community’s growth strategy since the company converted to stock form in 1998. Prior acquisitions of Potters Financial Corporation in 2002 and Industrial Bancorp, Inc. in 2001 helped United Community expand its Home Savings branch network south and west of its Mahoning County point of origin. De novo branching in selected areas has augmented the

acquisition strategy, but Home Savings has not made significant in-roads into the metropolitan and suburban Cleveland market area. When KBW, financial advisor to PVFC, contacted United Community in April 2007 to ascertain whether United Community would have an interest in pursuing the possibility of a merger with an institution located in northeastern Ohio, senior management recognized this as an important opportunity for United Community. A merger with PVFC presented United Community with the opportunity to add 17 branches, only two of which are within close proximity of any of the 38 existing Home Savings branches. With nearly half of its deposit base in Cuyahoga County, PVFC enables United Community to enter the competitive Cuyahoga County market with nine branches and approximately $400 million in deposits, a meaningful presence that would take years to achieve through de novo branching. In addition to Cuyahoga County, PVFC’s footprint includes three other counties situated between United Community’s historic northeastern Ohio market and the branches in northwestern Ohio acquired through the Industrial Savings merger.

 

After signing a confidentiality agreement on April 24, 2007, United Community received a Confidential Offering Memorandum containing substantial information about PVFC the business, operations and financial condition of PVFC. The Confidential Offering Memorandum also set forth a schedule for submitting a written, non-binding indication of interest to KBW to pursue a transaction with PVFC.

 

To assist the Board in analyzing the financial impact on United Community of a possible PVFC merger, United Community retained Stifel Nicolaus as its financial advisor. A number of possible pricing scenarios were developed to evaluate the impact on United Community’s future earnings per share, capital position and other items of significance to United Community and its shareholders.

 

At a meeting of the United Community Board on May 15, 2007, the directors discussed the transaction with management , including the general parameters of the indication. The Board authorized management to continue to pursue the possibility of the PVFC transaction.

 

On May 29, 2007, United Community presented to KBW a non-binding indication of interest in which the financial structure and other aspects of a possible business combination with PVFC were outlined. The indication provided for a transaction in which PVFC would be merged into United Community and each share of PVFC would be converted into the right to receive $18.45 in value in cash, United Community shares or a combination of cash and shares. The ultimate merger consideration would be determined after a due diligence review of the books and records of PVFC.

 

After the PVFC Board reviewed United Community’s indication of interest, KBW invited United Community to conduct a due diligence investigation of the books, records, loans, deposits and other aspects of PVFC’s business. A team of United Community senior management and outside advisors, including legal counsel and Stifel Nicolaus representatives, conducted the investigation in Solon, Ohio.

 

Senior management updated the United Community Board of Directors regarding its due diligence investigation at a meeting on June 20, 2007, and recommended a proposed transaction in which each PVFC share would be converted into the right to receive $18.50 in value, payable, at the election of each PVFC shareholder, in cash, United Community shares or a combination of cash and United Community’ shares, provided that 50% of the PVFC shares would be exchanged for cash and 50% would be exchanged for United Community shares. Stifel Nicolaus then provided a presentation to the Board preliminarily indicating that Stifel Nicolaus believed that it would be able to render a fairness opinion substantially in the form later provided. The directors then authorized management to present the proposed transaction to PVFC.

 

On July 3, 2007, senior management of United Community met with the PVFC Board to present the proposal, after which PVFC informed United Community that PVFC was prepared to commence the negotiation of a merger agreement with United Community. During the next several weeks, United Community and PVFC and their respective representatives negotiated the terms of the merger agreement and related documents. On July 24, 2007, the United Community Board approved the merger agreement and the transactions contemplated thereby after receiving the advice of counsel and the oral opinion of Stifel Nicolaus that based upon and subject to the factors and assumptions set forth in the opinion, the per share merger consideration to be paid by United Community to the holders of PVFC’s common stock (other than dissenting

shareholders and with respect to treasury shares) pursuant to the merger agreement was fair to United Community from a financial point of view as of that date. PVFC and United Community executed the merger agreement and United Community signed a voting agreement with each of the directors of PVFC.

 

The United Community Board has concluded that the merger is in the best interests of United Community’s shareholders. In reaching this determination, the United Community Board consulted with management, as well as its financial and legal advisors, and considered a number of factors, including, without limitation, the following:

 

(i) The merger will facilitate the natural and logical expansion of United Community’s business into the counties of Cuyahoga, Summit, Lorain and Medina;

 

(ii) The merger will increase United Community’s asset size to approximately $3.7 billion on a pro forma basis (as of June 30, 2007), creating additional opportunities to benefit from economies of scale and provide opportunities for asset growth and earnings growth in an extremely competitive environment; and

 

(iii) PVFC’s management philosophies and its long-standing reputation of excellent customer service and community involvement are consistent with United Community’ philosophies toward community banking, emphasis on customer service and strong ongoing commitment to each community served.

 

The United Community Board considered many different factors in its evaluation and did not believe it was practical to, and did not quantify or otherwise assign relative weights to, the individual factors considered in reaching its determination.

 

Recommendation of the United Community Board of Directors

 

In view of all the considerations described above, the Board of Directors of United Community unanimously concluded that the merger is fair to and in the best interests of the United Community shareholders and recommends that United Community shareholders vote “FOR” the adoption of the merger agreement and the approval of the transactions contemplated thereby, including the merger of PVFC with and into United Community and issuance of common shares of United Community to shareholders of PVFC in the merger.

 

Opinion of United Community’s Financial Advisor

 

Stifel Nicolaus is acting as financial advisor to United Community in connection with the merger. Stifel Nicolaus is a nationally recognized investment banking firm with substantial expertise in transactions similar to the merger. Stifel Nicolaus is an investment banking and securities firm with membership on all the principal United States securities exchanges. As part of its investment banking activities, Stifel Nicolaus is regularly engaged in the independent valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

 

On July 24, 2007, Stifel Nicolaus rendered its oral opinion, which was subsequently confirmed in writing, to the board of directors of United Community that, as of such date, the per share consideration to be paid by United Community to the holders of PVFC common shares (other than dissenting shareholders and with respect to treasury shares) in connection with the merger pursuant to the merger agreement was fair to United Community, from a financial point of view. As a condition to the closing of the merger, Stifel Nicolaus was required to update its opinion as of the date of this joint prospectus/proxy statement. The full text of Stifel Nicolaus’ written opinion dated          , which sets forth the assumptions made, matters considered and limitations of the review undertaken, is attached as Annex B to this joint proxy statement/prospectus and is incorporated herein by reference. Holders of United Community common shares are urged to, and should, read this opinion carefully and in its entirety in connection with this joint proxy statement/prospectus. The summary of the opinion of Stifel Nicolaus set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion. The opinion of Stifel Nicolaus will not reflect any developments that may occur or may have occurred after the date of its opinion and prior to the completion of the merger. Stifel

Nicolaus has no obligation to update, revise or reaffirm its opinion, and United Community does not currently expect that it will request an updated opinion from Stifel Nicolaus.

 

No limitations were imposed by United Community on the scope of Stifel Nicolaus’ investigation or the procedures to be followed by Stifel Nicolaus in rendering its opinion. Stifel Nicolaus was not requested to and did not make any recommendation to United Community’s board of directors as to the form or amount of the consideration to be paid to PVFC or its shareholders, which was determined through arm’s length negotiations between the parties. In arriving at its opinion, Stifel Nicolaus did not ascribe a specific range of values to PVFC. Its opinion is based on the financial and comparative analyses described below. Stifel Nicolaus’ opinion was directed solely to United Community’s board of directors for its use in connection with its consideration of the financial terms of the merger and is not to be relied upon by any shareholder of United Community or PVFC or any other person or entity. Stifel Nicolaus’ opinion did not constitute a recommendation to United Community’s board as to how United Community’s board should vote on the merger or to any shareholder of United Community or PVFC as to how such shareholder should vote with respect to the merger, or whether or not any shareholder of United Community or PVFC should enter into a voting or shareholders’ agreement with respect to the merger, elect to receive the per share stock consideration or the per share cash consideration (or any combination thereof), or exercise any dissenters’ or appraisal rights that may be available to such shareholder. In addition, Stifel Nicolaus’ opinion does not compare the relative merits of the merger with any alternative transaction or business strategy that may have been available to United Community or the United Community board and does not address the underlying business decision of United Community’s board to proceed with or effect the merger. Stifel Nicolaus was not requested to, and did not, explore alternatives to the merger or solicit the interest of any other parties in pursuing transactions with United Community.

 

In connection with its opinion, Stifel Nicolaus, among other things:

 

 

 

In rendering its opinion, Stifel Nicolaus relied upon and assumed, without independent verification, the accuracy and completeness of all of the financial and other information that was provided to Stifel Nicolaus, by or on behalf of United Community and PVFC, or that was otherwise reviewed by Stifel Nicolaus, and did not assume any responsibility for independently verifying any of such information. With respect to the financial forecasts supplied to Stifel Nicolaus by United Community and PVFC (including, without limitation, potential cost savings and operating synergies to be realized by United Community post-merger), Stifel Nicolaus assumed that they were reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of United Community and PVFC as to the future operating and financial performance of United Community and PVFC, that cost savings and operating synergies would be realized in the amounts and time periods estimated by United Community and that they provided a reasonable basis upon which Stifel Nicolaus could form its opinion. Such forecasts and projections were not prepared with the expectation of public disclosure. All such projected financial information is based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions. Accordingly, actual results could vary significantly from those set forth in such projected financial information. Stifel Nicolaus has relied on this projected information without independent verification or analyses and does not in any respect assume any responsibility for the accuracy or completeness thereof.

 

Stifel Nicolaus also assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either United Community or PVFC since the date of the last financial statements made available to it. Stifel Nicolaus has also assumed, without independent verification and with United Community’s consent that the aggregate allowances for loan losses set forth in the financial statements of United Community and PVFC, respectively, are in the aggregate adequate to cover all such losses. Stifel Nicolaus did not make or obtain any independent evaluation, appraisal or physical inspection of United Community’s or PVFC’s assets or liabilities, the collateral securing any of such assets or liabilities, or the collectibility of any such assets nor did it review loan or credit files of United Community or PVFC. Stifel Nicolaus relied on advice of United Community’s counsel as to certain legal and tax matters with respect to United Community, the merger agreement and the merger and the other transactions and matters contained or contemplated therein. Stifel Nicolaus has assumed, with United Community’s consent, that there are no factors that would delay or subject to any adverse conditions any necessary regulatory or governmental approval and that all conditions to the merger will be satisfied and not waived. In addition, Stifel Nicolaus assumed that the definitive merger agreement would not differ materially from the draft it reviewed. Stifel Nicolaus also assumed that the merger will be consummated substantially on the terms and conditions described in the merger agreement, without any waiver of material terms or conditions by United Community and PVFC and without United Community’s exercise of its rights pursuant to Section 1.05 of the merger agreement, and that obtaining any necessary regulatory approvals or satisfying any other conditions for consummation of the merger would not have an adverse effect on United Community or PVFC.

 

Stifel Nicolaus’ opinion is necessarily based on economic, market, financial and other conditions as they exist on, and on the information made available to it as of, the date of the opinion. It is understood that subsequent developments may affect the conclusions reached in this opinion and that Stifel Nicolaus does not have any obligation to update, revise or reaffirm the opinion.

 

Stifel Nicolaus’ opinion is limited to whether the merger consideration is fair to United Community, from a financial point of view as of the date of the opinion. Stifel Nicolaus’ opinion does not consider, include or address: (i) any other strategic alternatives currently (or which have been or may be) contemplated by United Community’s board or United Community; (ii) the legal, tax or accounting consequences of the merger on United Community, PVFC or their respective shareholders; (iii) any non-solicit, non-compete, employment,

severance or similar agreements to which United Community is subject or which are entered into in connection with the merger as contemplated by the merger agreement, or the fairness to United Community or United Community’s shareholders of any payments made in connection with such agreements; (iv) any advice or opinions provided by Keefe, Bruyette & Woods, Inc. or any other advisor to United Community or PVFC; (v) the election by holders of PVFC shares to receive the per share stock consideration or the per share cash consideration, or any combination thereof, or the actual allocation of the merger consideration between the per share stock consideration and the per share cash consideration among holders of PVFC shares (including, without limitation, any re-allocation of the merger consideration by the exchange agent for the merger pursuant to the merger agreement); or (vi) the merger between Home Savings and Park View contemplated by the merger agreement, or the separate merger agreement contemplated to be entered into by The Home Savings and Loan Company of Youngstown, Ohio and Park View Federal Savings Bank relating to such transaction. Furthermore, Stifel Nicolaus expressed no opinion as to the prices, trading range or volume at which United Community’s or PVFC’s securities would trade following public announcement or consummation of the merger.

 

The financial forecasts furnished to Stifel Nicolaus for United Community and PVFC and estimates of potential cost savings and operating synergies to be realized by United Community were prepared by the management of United Community and PVFC and constitute forward-looking statements. As a matter of policy, United Community and PVFC do not publicly disclose internal management forecasts, projections or estimates of the type furnished to Stifel Nicolaus in connection with its analysis of the financial terms of the merger, and such forecasts and estimates were not prepared with a view towards public disclosure. These forecasts and estimates were based on numerous variables and assumptions which are inherently uncertain and which may not be within the control of the management of United Community and PVFC, including, without limitation, factors related to the integration of PVFC and general economic, regulatory and competitive conditions. Accordingly, actual results could vary materially from those set forth in such forecasts and estimates.

 

In connection with rendering its opinion, Stifel Nicolaus performed a variety of financial analyses that are summarized below. Such summary does not purport to be a complete description of such analyses. Stifel Nicolaus believes that its analyses and the summary set forth herein must be considered as a whole and that selecting portions of such analyses and the factors considered therein, without considering all factors and analyses, could create an incomplete view of the analyses and processes underlying its opinion. The preparation of a fairness opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. In arriving at its opinion, Stifel Nicolaus considered the results of all of its analyses as a whole and did not attribute any particular weight to any analyses or factors considered by it. The range of valuations resulting from any particular analysis described below should not be taken to be Stifel Nicolaus’ view of the actual value of PVFC. In its analyses, Stifel Nicolaus made numerous assumptions with respect to industry performance, business and economic conditions, and other matters, many of which are beyond the control of United Community or PVFC. Any estimates contained in Stifel Nicolaus’ analyses are not necessarily indicative of actual future values or results, which may be significantly more or less favorable than suggested by such estimates. Estimates of values of companies do not purport to be appraisals or necessarily reflect the actual prices at which companies or their securities actually may be sold. No company or transaction utilized in Stifel Nicolaus’ analyses was identical to United Community or PVFC or the merger. Accordingly, an analysis of the results described below is not mathematical; rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other facts that could affect the public trading value of the companies to which they are being compared. None of the analyses performed by Stifel Nicolaus was assigned a greater significance by Stifel Nicolaus than any other, nor does the order of analyses described represent relative importance or weight given to those analyses by Stifel Nicolaus. The analyses described below do not purport to be indicative of actual future results, or to reflect the prices at which United Community common shares or PVFC common shares may trade in the public markets, which may vary depending upon various factors, including changes in interest rates, dividend rates, market conditions, economic conditions and other factors that influence the price of securities.

In accordance with customary investment banking practice, Stifel Nicolaus employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses that Stifel Nicolaus used in providing its opinion on July 24, 2007. Some of the summaries of financial analyses are presented in tabular format. In order to understand the financial analyses used by Stifel Nicolaus more fully, you should read the tables together with the text of each summary. The tables alone do not constitute a complete description of Stifel Nicolaus’ financial analyses, including the methodologies and assumptions underlying the analyses, and if viewed in isolation could create a misleading or incomplete view of the financial analyses performed by Stifel Nicolaus. The summary data set forth below do not represent and should not be viewed by anyone as constituting conclusions reached by Stifel Nicolaus with respect to any of the analyses performed by it in connection with its opinion. Rather, Stifel Nicolaus made its determination as to the fairness to the shareholders of United Community of the per share merger consideration, from a financial point of view, on the basis of its experience and professional judgment after considering the results of all of the analyses performed. Accordingly, the data included in the summary tables and the corresponding imputed ranges of value for PVFC should be considered as a whole and in the context of the full narrative description of all of the financial analyses set forth in the following pages, including the assumptions underlying these analyses. Considering the data included in the summary table without considering the full narrative description of all of the financial analyses, including the assumptions underlying these analyses, could create a misleading or incomplete view of the financial analyses performed by Stifel Nicolaus.

 

In connection with rendering its opinion and based upon the terms of the draft merger agreement reviewed by it, Stifel Nicolaus assumed the aggregate consideration to be $135.7 million, and at the time of the opinion, the per share consideration to be $16.85.

 

Pro Forma Effect of the Merger.  Stifel Nicolaus reviewed certain estimated future operating and financial information developed by United Community and certain estimated future operating and financial information for the pro forma combined entity resulting from the merger developed by United Community for the twelve month periods ended December 31, 2007, December 31, 2008 and December 31, 2009. Based on this analysis, Stifel Nicolaus compared certain of United Community’s estimated future per share results with such estimated figures for the pro forma combined entity. Based on this analysis on a pro forma basis, the merger is forecast to be accretive to United Community’s earnings per share for the twelve month period ended December 31, 2008. Stifel Nicolaus also reviewed certain financial information in order to determine the estimated effect of the merger on United Community’s book value, tangible book value and dividend. Based on this analysis on a pro forma basis, the merger is forecasted to be dilutive to both United Community’s book value per share and United Community’s tangible book value per share, but to have no impact on the United Community dividend levels.

 

Analysis of Thrift Merger Transactions.  Stifel Nicolaus analyzed certain information relating to recent transactions in the banking industry, consisting of (1) 77 U.S. thrift acquisitions announced since January 1, 2005, referred to below as Group A; (2) 27 selected Midwest thrift acquisitions announced since January 1, 2004, with deal values greater than $20 million, referred to below as Group B; and (3) 28 U.S. thrift acquisitions announced since January 1, 2005, involving sellers with total assets greater than $400 million, referred to below as Group C. Stifel Nicolaus calculated the following ratios with respect to the merger and the selected transactions:

 

This analysis resulted in a range of imputed values for PVFC common shares of between $15.04 and $18.52 per share based on the median multiples for Group A, between $14.98 and $19.71 per share based on the median multiples for Group B and between $13.31 and $21.85 per share based on the median multiples for Group C.

 

Present Value Analysis.  Applying present value analysis to the theoretical future earnings and dividends of United Community, Stifel Nicolaus compared the present value of one share of United Community’s common shares on a pro forma basis to the present value of one share of United Community’s common shares on a stand-alone basis. The analysis was based upon United Community’s management’s projected earnings growth, a range of assumed price/earnings ratios, and an 11.0%, 13.0% and 15.0% discount rate. Stifel Nicolaus selected the range of terminal price/earnings ratios on the basis of past and current trading multiples for other publicly-traded comparable banks. The stand-alone present value of United Community’s common shares calculated on a stand-alone basis ranged from $8.29 to $10.85 per share. In comparison, after taking into account the integration of PVFC into United Community, the pro forma present value analysis regarding the common shares for United Community ranged from $8.73 to $11.45.

 

Discounted Cash Flow Analysis.  Using a discounted cash flow analysis, Stifel Nicolaus estimated the net present value of the future streams of after-tax cash flow that PVFC could produce to benefit a potential acquiror, referred to below as dividendable net income. In this analysis, Stifel Nicolaus assumed that PVFC would perform in accordance with United Community management’s estimates and calculated assumed after-tax distributions to a potential acquiror such that PVFC’s tangible common equity ratio would be maintained at 6.5% of assets. Stifel Nicolaus calculated the sum of the assumed perpetual dividendable net income streams per share beginning in the year 2007 discounted to present values at assumed discount rates ranging from 11.0% to 15.0% to approximate PVFC’s weighted average cost of capital, as determined by calculations using the capital asset pricing model and based upon United Community’s estimated cost savings of 35% of PVFC’s non-interest expense. This discounted cash flow analysis indicated an implied equity value reference range of $9.61 to $15.99 per share of PVFC’s common shares. This analysis did not purport to be indicative of actual future results and did not purport to reflect the prices at which shares of PVFC’s common shares may trade in the public markets. A discounted cash flow analysis was included because it is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, including estimated cost savings and operating synergies, earnings growth rates, dividend payout rates and discount rates.

 

Comparison of Selected Companies.  Stifel Nicolaus reviewed and compared certain multiples and ratios for the merger with a peer group of 29 selected thrifts in the Midwest region and Pennsylvania with assets between $400 million and $5.0 billion and with tangible equity to assets of less than 12%. In order to calculate a range of imputed values for a share of PVFC common shares, Stifel Nicolaus applied a 32.5% control premium to the trading prices of the selected group of comparable companies and compared the resulting theoretical offer price to each of the following categories: book value, tangible book value, adjusted 6.5% equity, latest 12 months earnings, estimated 2007 earnings, estimated 2008 earnings, tangible book premium to core deposits and deposits. Stifel Nicolaus then applied the resulting range of multiples and ratios for the peer group specified above to the appropriate financial results of PVFC. This analysis resulted in a range of imputed values for PVFC common shares of between $10.47 and $16.00 per share based on the median multiples and ratios for the peer group. The 32.5% control premium selected by Stifel Nicolaus was based on a 10 year analysis of one month market premiums paid in bank and thrift merger transactions.

Additionally, Stifel Nicolaus calculated the following ratios with respect to the 29 selected comparable companies after application of the 32.5% control premium:

 

 

 

 

As described above, Stifel Nicolaus’ opinion was among the many factors taken into consideration by the United Community board of directors in making its determination to approve the merger.

 

Stifel Nicolaus acted as financial advisor to United Community in connection with the merger and will receive a fee for its services, a substantial portion of which is contingent upon the completion of the merger. Stifel Nicolaus has also acted as financial advisor to the United Community board and received a fee upon the delivery of its opinion that is not contingent upon consummation of the merger (the “Opinion Fee”), but the opinion fee will be credited against any advisory fee. In addition, United Community has agreed to indemnify Stifel Nicolaus for certain liabilities arising out of its engagement and reimburse Stifel Nicolaus for certain out-of-pocket expenses. In the past, Ryan Beck & Co., Inc., an affiliate of Stifel Nicolaus, has provided investment banking services to United Community from time to time for which Ryan Beck has received customary fees, and Stifel Nicolaus may provide investment banking services to United Community in the future. In the ordinary course of business, Stifel Nicolaus and its affiliates (including Ryan Beck) trade each of United Community’s and PVFC’s securities for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

The full text of Stifel Nicolaus’ opinion, which sets forth assumptions made, matters considered and limits on the review undertaken by Stifel Nicolaus, is attached to this document as Annex B. We urge United Community shareholders to read both the opinion in its entirety and this document in its entirety.

 

PVFC’s Background of the Merger

 

The board of directors of PVFC has for many years periodically discussed and reviewed with management the business, strategic direction, performance and prospects of PVFC in the context of its current and prospective business, economic and regulatory environment, and size and resources relative to its competitors. The board of directors has at times also discussed various potential strategic options, including strategies to increase and diversify PVFC’s business. As a result of the board of directors’ ongoing evaluation of the best use of PVFC’s capital, the board employed a variety of strategies to enhance PVFC’s franchise and create value for shareholders, including expansion of its branch office network to take advantage of growth opportunities within its market.

 

A challenge for the board of directors in recent years has been the deterioration of economic conditions in its market area. PVFC’s market area consists of Portage, Lake, Geauga, Cuyahoga, Summit, Stark, Medina and Lorain Counties in northeastern Ohio. The economy in PVFC’s market area to a large extent has been based on the manufacture of durable goods, and this sector of the economy has deteriorated in recent years.

This has contributed to a significant increase in foreclosures and loan delinquencies, which has adversely affected the financial institutions in PVFC’s market area, including PVFC.

 

As a result of the above concerns and in connection with its review of PVFC’s strategic plan, in March 2007, the board of directors of PVFC determined that it was in the best interests of PVFC and its shareholders that it retain a financial advisor to assist the board of directors in exploring PVFC’s strategic alternatives.

 

In April 2007, the board of directors of PVFC engaged KBW to assist it in exploring strategic alternatives and discussed with KBW the best techniques for securing a merger proposal that would be in the best interests of PVFC’s shareholders, customers, employees and the communities it serves. After review, the board of directors of PVFC concluded that it was in the best interests of PVFC to distribute to selected potential merger partners a confidential information memorandum containing detailed information regarding PVFC. The board of directors of PVFC then authorized KBW, upon completion of the confidential information memorandum, to contact potential merger partners to assess their interest in receiving a confidential information memorandum for an institution with financial and operational characteristics similar to PVFC and instructed KBW and management to prepare a draft confidential information memorandum.

 

In early May 2007, when the confidential information memorandum had been completed, KBW contacted 16 financial institutions that it, along with the board of directors of PVFC, believed were most likely to be interested in a business combination with PVFC. Of these institutions, 10 institutions entered into confidentiality agreements and received the confidential information memorandum.

 

While this process was pending, on May 2, the board of directors received an unsolicited proposal from a beneficial owner of approximately 6.0% of the outstanding PVFC common stock that PVFC issue between 1.5 and 2.0 million shares of common stock to the shareholder and other investors he approves at a price to be agreed upon and that PVFC use the new capital to be raised from this stock issuance to invest in new products and services and pursue strategic acquisitions.

 

On June 1, 2007, the board of directors of PVFC met with legal counsel and KBW to review the merger process to date. The board of directors of PVFC noted that, of the parties that were sent copies of the confidential information memorandum, six institutions (including United Community) had submitted detailed letters of interest in a possible merger transaction with PVFC.

 

The board of directors of PVFC reviewed each of the letters of interest, as well as the unsolicited proposal, at the June 1, 2007 meeting. Among the factors considered were the value of the proposed merger consideration, the potential synergies with each potential partner and each potential partner’s financial condition and operating results. PVFC’s board of directors also reviewed the impact of the proposed transaction on PVFC’s customers, community and employees. Finally, PVFC’s board of directors again reviewed its business plan and its ability to enhance shareholder value through alternate means. After discussion, the board of directors of PVFC voted to permit the two parties, one of which was United Community, with the strongest proposals and highest nominal price to perform due diligence on PVFC in the hopes that they might improve their proposals. The board of directors also determined that the unsolicited proposal to raise capital through the issuance of new shares was not likely to produce returns for shareholders superior to those to be obtained in a merger transaction.

 

During the next approximately three week period, the two potential merger partners conducted extensive due diligence on PVFC. On June 22, 2007, United Community submitted a revised letter of interest. The other potential merger partner advised KBW that it would not further pursue a business combination with PVFC. At a meeting on June 26, 2007, the board of directors determined to invite representatives of United Community to attend a meeting of PVFC’s board of directors to make a presentation to the board of United Community’s financial and operating characteristics, strategic plans and prospects.

 

At a July 3, 2007 board of directors meeting, representatives of United Community made their presentation. After the presentation, the board of directors of PVFC met with legal counsel and KBW to review the revised letter of interest. In its letter of interest, United Community offered to pay $18.50 per share for each share of PVFC’s common stock. United Community structured the merger consideration for the transaction as a combination of 50% cash and 50% United Community common stock. United Community’s

financial advisor advised KBW that it was United Community’s intent that the stock portion of the merger consideration be based on a fixed exchange ratio to be determined based on the average trading price of United Community common stock over a period of time preceding the date a definitive agreement was executed.

 

The board of directors of PVFC reviewed the letter of interest in detail, including the transaction structure, the current and pro forma financial strength of United Community, the relevant stock pricing ratios and the recommendations of KBW regarding the United Community common stock to be received, as well as PVFC’s prospects should it continue as an independent institution. After extensive review and discussion, PVFC’s board of directors unanimously agreed to open negotiations on a merger agreement with United Community. The board of directors also directed management, with the assistance of KBW and legal counsel, to conduct due diligence on United Community.

 

The merger agreement was drafted and negotiated during the first three weeks of July 2007. During such period there were numerous telephone calls and meetings among PVFC’s management and counsel, and United Community’s management and counsel.

 

On July 24, 2007, PVFC’s board of directors met to consider the proposed merger agreement. Prior to considering the agreement, the board reviewed again PVFC’s business plan, recent operating results, proposals and the merger market as a whole to determine whether pursing a merger was advisable. Among other things, the board of directors of PVFC concluded that it was unlikely that PVFC would be able to implement a strategy that would generate a more favorable return to shareholders and have a more favorable impact on PVFC’s customers, communities and employees that the proposed merger with United Community.

 

PVFC’s board of directors, legal counsel and KBW then reviewed all aspects of the merger agreement, including the termination fees. In addition, the board of directors of PVFC reviewed the advisability of entering into a merger transaction from a shareholder, customer, community and employee standpoint. Finally, the board of directors considered that the market price for United Community’s common stock had declined since the Board’s previous meeting on July 3, 2007 and particularly during the last few days preceding July 24, 2007 and that, as a result, the value of the consideration to be received by PVFC’s shareholders was below the $18.50 per share amount proposed in United Community’s June 22, 2006 letter of interest. The board of directors also considered, however, the fact that as a result in the United Community stock price decline, United Community would issue more shares in the merger to PVFC shareholders than it would have issued had the exchange ratio been set on July 3, 2007, thereby resulting in a higher percentage ownership by PVFC shareholders of the combined institution. The board of directors noted that even with the decline in the United Community stock price, the consideration offered by United Community exceeded the value of the proposed merger consideration offered by the other financial institutions that submitted letters of interest, excluding the financial institution that withdrew from further discussions.

 

KBW provided the board of directors of PVFC with its oral opinion that the proposed merger consideration was fair, from a financial point of view, to holders of PVFC’s common stock to be followed with a written opinion. After further discussion, the board of directors of PVFC unanimously agreed to approve the merger agreement, subject to shareholder and regulatory approval and other conditions contained in the merger agreement. Following the approval of PVFC’s board of directors on July 24, 2007, the parties executed the merger agreement and, after the close of business on that day, the parties publicly announced the transaction through a joint press release.

 

Recommendation of the PVFC Board; PVFC’s Reasons for the Merger

 

PVFC’s board of directors has approved the merger agreement and recommends that PVFC shareholders vote “FOR” the approval of the merger agreement.

 

PVFC’s board of directors has determined that the merger and the merger agreement are fair to, and in the best interests of, PVFC and its shareholders. In approving the merger agreement, PVFC’s board of directors consulted with legal counsel as to its legal duties and the terms of the merger agreement and with its financial advisor with respect to the financial aspects and fairness of the transaction from a financial point of

view. In arriving at its determination, PVFC’s board of directors also considered a number of factors, including the following:

 

 

The foregoing discussion of the information and factors considered by the PVFC board of directors is not exhaustive, but includes all material factors considered by the board of directors. In reaching its determination to approve and recommend the merger, the PVFC board of directors did not quantify or otherwise attempt to assign any specific or relative weights to any of the foregoing factors, and individual directors may have weighed factors differently.

 

Opinion of PVFC’s Financial Advisor

 

On April 2, 2007, KBW was retained by PVFC to evaluate PVFC’s strategic alternatives and to evaluate any specific proposals that might be received regarding an acquisition of PVFC. KBW, as part of its investment banking business, is regularly engaged in the evaluation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, and distributions of listed and unlisted securities. The PVFC Board of Directors selected KBW on the basis of the firm’s reputation and its experience and expertise in transactions similar to the merger (the “Merger.”)

 

Pursuant to its engagement, KBW was asked to render an opinion as to the fairness, from a financial point of view, of the Merger Consideration to shareholders of PVFC. KBW delivered its opinion to the PVFC Board that, as of July 24, 2007 the Merger Consideration is fair, from a financial point of view, to the shareholders of PVFC. It is a condition to PVFC’s obligation to consummate the merger that KBW issue an updated opinion letter as of the date of this joint proxy statement/prospectus as to the fairness, from a financial point of view, of the merger consideration to be paid by UCFC to the shareholders of PVFC as set forth in the merger agreement, as of that date. In satisfaction of this condition, KBW issued an updated opinion letter as of          . No limitations were imposed by the PVFC Board upon KBW with respect to the investigations made or procedures followed by it in rendering its opinion. KBW has consented to the inclusion herein of the summary of its updated opinion to the PVFC Board and to the reference to the entire opinion attached hereto as Annex C.

 

The full text of the opinion of KBW, which is attached as Annex C of this Proxy Statement, sets forth certain assumptions made, matters considered and limitations on the review undertaken by KBW, and should be read in its entirety. The summary of the opinion of KBW set forth in this proxy statement is qualified in its entirety by reference to the opinion.

 

In connection with its opinion KBW reviewed certain financial and other business data supplied to it by PVFC, including:

 

(i) the merger agreement,

 

(ii) certain publicly available information concerning PVFC including Annual Reports for the years ended June 30, 2006, 2005 and 2004, 10-Q reports for the quarters ended September 30, 2006, December 31, 2006 and March 31, 2007 and preliminary unaudited results for the quarter and year ended June 30, 2007,

 

(iii) Certain publicly available information concerning United Community including Annual Reports for the years ended December 31, 2006, 2005 and 2004, 10-Q reports for the quarters ended March 31, 2007 and preliminary unaudited results for the quarter ended June 30, 2007, and

 

(iv) Other information KBW deemed relevant.

 

KBW also discussed with senior management and directors of PVFC the current position and prospective outlook for PVFC. KBW reviewed financial and stock market data of other banks and the financial and structural terms of several other recent transactions involving mergers and acquisitions of banks or proposed changes of control of comparably situated companies.

 

Analysis of Recent Comparable Acquisition Transactions

 

In rendering its opinion, KBW analyzed two sets of comparable merger and acquisition transactions: Nationwide Thrift Transactions and Midwest Bank and Thrift Transactions.

 

Nationwide Thrift Transactions.  KBW analyzed certain comparable merger and acquisition transactions of both pending and completed thrift deals, comparing the acquisition price relative to tangible book value, last twelve months earnings, and premium to core deposits. All comparative metrics were as of each respective deal’s announcement date. The analysis included a comparison of the minimum, median and maximum of the

above ratios for pending and completed acquisitions where the seller was a thrift and pricing metrics were available, based on the following three criteria:

 

(i) Deal was announced on or after December 31, 2003,

 

(ii) Target had assets between $500 million and $2.0 billion at announcement and

 

(iii) Target had a return on average equity ratio between 2.50% and 10.00% at announcement.

 

The selected comparable transactions that the three criteria produced include the following:

 

 

KBW derived the minimum, median and maximum pricing metrics of the three aforementioned criteria as stated below:

 

 

 

 

KBW viewed the three aforementioned criteria as the most appropriate in deriving a comparable transaction value based on the transaction’s size and market area. KBW viewed the fact that the combined criteria produced a comparable group with fourteen transactions, as being significant for the purposes of comparison. KBW viewed the three resulting metrics (price to tangible book value, price to last twelve months earnings and core deposit premium) from the comparable group on a minimum, median and maximum basis, as the three key metrics used to evaluate the fairness, from a financial point of view, of the transaction.

 

Given that the value of the consideration to be paid in the merger, as of the date of the opinion, exceeds the median for one of the metrics, and is respectively close to the median on the remaining metrics, KBW believes that this analysis supports the fairness, from a financial point of view, to PVFC and its shareholders of the consideration to be paid in the merger.

 

Midwest Bank and Thrift Transactions.  KBW analyzed certain comparable merger and acquisition transactions of both pending and completed bank and thrift deals in the Midwest, comparing the acquisition price relative to tangible book value, last twelve months earnings, and premium to core deposits. All comparative metrics were as of each respective deal’s announcement date. The analysis included a comparison

of the minimum, median and maximum of the above ratios for pending and completed acquisitions where the seller was a bank or thrift and pricing metrics were available, based on the following three criteria:

 

(i) Deal was announced on or after December 31, 2003,

 

(ii) Target had assets between $500 million and $2.0 billion at announcement and

 

(iii) Target had a return on average equity ratio between 2.50% and 10.00% at announcement.

 

The selected comparable transactions that the three criteria produced include the following:

 

 

KBW derived the minimum, median and maximum pricing metrics of the three aforementioned criteria as stated below:

 

 

 

 

KBW viewed the three aforementioned criteria as the most appropriate in deriving a comparable transaction value based on the transaction’s size and market area. KBW viewed the fact that the combined criteria produced a comparable group with six transactions, as being significant for the purposes of comparison. KBW viewed the three resulting metrics (price to tangible book value, price to last twelve months earnings and core deposit premium) from the comparable group on a minimum, median and maximum basis, as the three key metrics used to evaluate the fairness, from a financial point of view, of the transaction.

 

Given that the value of the consideration to be paid in the merger, as of the date of the opinion, exceeds the median for one of the metrics, and is respectively close to the median on the remaining metrics, KBW believes that this analysis supports the fairness, from a financial point of view, to PVFC and its shareholders of the consideration to be paid in the merger.

 

Discounted Cash Flow Analysis

 

KBW performed a discounted cash flow analyses to estimate a range of intrinsic values per share of PVFC common stock. This range was determined by adding (1) the present value, which is a representation of the current value of a sum that is to be received some time in the future, of the estimated future cash flows that PVFC could generate over the next five years and (2) the present value of a terminal value, which is a representation of the current value of an entity at a specified time in the future. The terminal value was determined by applying a range of price to earnings multiples based on similar publicly traded institutions.

 

The Discounted Cash Flow Analysis based on a trading multiple applied a range of year five terminal value multiples of 15.1x to 19.1x based on a midpoint price to last twelve months earnings multiple of 17.1x. The midpoint terminal multiple was based on the median price to last twelve months earnings multiple for Midwest thrifts with assets between $750 million and $2.0 billion as of July 20, 2007. The discount rate applied to the projected cash flows and calculated terminal value ranged from 10.0% to 14.0%. Based on the

foregoing criteria and assumptions, KBW determined that the stand-alone present value of the PVFC common stock ranged from $12.62 to $17.56 per share, with a midpoint price of $14.85 per share.

 

Given that the value of the consideration on a per share basis to be paid in the merger, as of the date of the opinion, exceeds all but the highest point in the intrinsic value range derived from the discounted cash flow analysis, KBW believes that this analysis supports the fairness, from a financial point of view, to PVFC and its shareholders of the consideration to be paid in the Merger.

 

The intrinsic values of PVFC derived using discounted cash flow analysis do not necessarily indicate actual values or actual future results and do not purport to reflect the prices at which any securities may trade at the present or at any time in the future. Discounted cash flow analysis is a widely used valuation methodology, but the results of this methodology are highly dependent upon numerous assumptions that must be made, including earnings estimates, terminal values, and discount rates.

 

Based on the above analyses KBW concluded that the consideration paid in the merger, was fair, from a financial point of view, to shareholders of PVFC. This summary does not purport to be a complete description of the analysis performed by KBW and should not be construed independently of the other information considered by KBW in rendering its opinion. Selecting portions of KBW’s analysis or isolating certain aspects of the comparable transactions without considering all analyses and factors, could create an incomplete or potentially misleading view of the evaluation process.

 

In rendering its opinion, KBW assumed and relied upon the accuracy and completeness of the financial information provided to it by PVFC and United Community. In its review, with the consent of the PVFC board of directors, KBW did not undertake any independent verification of the information provided to it, nor did it make any independent appraisal or evaluation of the assets or liabilities and potential or contingent liabilities of PVFC or United Community.

 

The fairness opinion of KBW is limited to the fairness as of its date, from a financial point of view, of the consideration to be paid in the merger and does not address the underlying business decision to effect the merger (or alternatives thereto) nor does it constitute a recommendation to any shareholder of PVFC as to how such shareholder should vote with respect to the merger agreement.

 

Furthermore, KBW expresses no opinion as to the price or trading range at which shares of the pro forma entity will trade following the consummation of the merger.

 

KBW is a nationally recognized investment banking firm and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements.

 

In preparing its analysis, KBW made numerous assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond the control of KBW and PVFC. The analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses and do not purport to be appraisals or reflect the prices at which a business may be sold.

 

KBW will receive a fee of 1.00% of the closing deal value, as set forth in the Engagement Letter dated April 2, 2007, for services rendered in connection with advising and issuing a fairness opinion regarding the Merger. As of the date of this joint prospectus/proxy statement KBW has received $50,000 of such fee; the remainder of the fee is due upon the close of the transaction.

 

The full text of KBW’s opinion, which sets forth assumptions made, matters considered and limits on the review undertaken by KBW, is attached to this document as Annex C. We urge PVFC shareholders to read both the opinion in its entirety and this document in its entirety.

 

Accounting Treatment

 

United Community will account for the merger under the “purchase” method of accounting in accordance with U.S. generally accepted accounting principles. Using the purchase method of accounting, the assets and

liabilities of PVFC will be recorded by United Community at their respective fair values at the time of the completion of the merger. The excess of United Community’s purchase price over the net fair value of the assets acquired and liabilities assumed will then be allocated to identified intangible assets, with any remaining unallocated cost recorded as goodwill.

 

Tax Consequences of the Merger

 

General.  The obligation of United Community and PVFC to consummate the merger is conditioned on the receipt by United Community and PVFC of an opinion of United Community’s counsel, Vorys, Sater, Seymour and Pease LLP dated as of the effective date of the merger and substantially to the effect that the federal income tax consequences of the merger will be as described below. The opinion is based on the Internal Revenue Code, the applicable Treasury Department regulations (the “Treasury Regulations”), judicial authorities, and current administrative rulings and practices as in effect on the date of the opinion, all of which are subject to change, possibly with retroactive effect, and to differing interpretations. Opinions of counsel are not binding upon the Internal Revenue Service (“IRS”) or the courts, either of which could take a contrary position. No rulings have been, or will be, sought from the IRS in connection with the merger. The opinion of United Community’s counsel will rely on certain assumptions that customarily are made with respect to transactions of this kind, and on certain representations and covenants, including those contained in officers’ certificates of United Community and PVFC, which representations and covenants counsel to United Community will assume to be true, correct, and complete. If any such assumption, representation or covenant is inaccurate, the opinion could be adversely affected. In addition, the opinion will assume that any PVFC shareholder that dissents and is entitled to appraisal rights under Section 1701.85 of the Ohio General Corporation Law will receive, pursuant to statutory procedures, an amount per share of dissenting PVFC common shares that does not exceed $18.50 (which is the cash consideration per share payable pursuant to the merger). The opinion of Vorys, Sater, Seymour and Pease LLP set forth as an exhibit to the registration statement of which this joint prospectus/proxy statement is a part, as well as the assumptions, representations, and covenants described above, support the following discussion of the anticipated material federal income tax consequences of the merger to United Community, PVFC and the PVFC shareholders.

 

This description of anticipated material federal income tax consequences of the merger assumes that the merger will be consummated in accordance with the terms and provisions of the merger agreement. Notwithstanding the foregoing, we assume that, in the event that the value of the Aggregate Share Consideration (as defined below) would be less than 40% of the sum of the value of the Aggregate Cash Consideration (as defined below) and the value of the Aggregate Share Consideration, then either (i) United Community will elect to increase the number of United Community common shares to be exchanged for PVFC common shares in the merger, or (ii) PVFC will elect to terminate the merger agreement and abandon the merger. “Aggregate Share Consideration” means the aggregate value of the United Community common shares to be issued in connection with the merger (excluding (a) the value of fractional shares for which cash is to be paid, and (b) the value of all United Community common shares to be issued in exchange for PVFC common shares acquired through the exercise of options to acquire PVFC common shares on or after the date which is three days prior to the effective date) based upon the closing price of the United Community common shares as reported on the NASDAQ Global Select Market on the trading day immediately preceding the effective date. “Aggregate Cash Consideration” means the sum of the aggregate cash consideration to be paid in the merger in exchange for PVFC common shares (including cash consideration paid in lieu of fractional United Community common shares) and cash consideration to be paid to dissenters.

 

This description does not address, among other matters, the tax consequences to a PVFC shareholder who holds PVFC common shares other than as a capital asset for federal income tax purposes. The description also does not address all of the tax consequences that may be relevant to PVFC shareholders in light of their particular tax circumstances, including, without limitation, shareholders that are: (i) persons who hold PVFC common shares as part of a straddle, hedge, conversion, or other risk-reduction transaction; (ii) broker-dealers; (iii) persons who have a functional currency other than the U.S. dollar; (iv) tax-exempt entities; (v) foreign persons; (vi) insurance companies; (vii) financial institutions; (viii) persons that acquired PVFC common shares pursuant to the exercise of employee stock options or otherwise as compensation; (ix) persons who

receive United Community common shares other than in exchange for PVFC common shares; (x) retirement plans; or (xi) pass-through entities and investors in those entities. In addition, this description does not address the tax consequences to the holders of options to acquire PVFC common shares. Furthermore, the discussion does not address any alternative minimum tax or any foreign, state, or local tax consequences of the merger. PVFC shareholders with special particular tax circumstances or who are subject to special tax treatment are strongly urged to consult with their tax advisors regarding their individual tax consequences.

 

Reorganization treatment.  The merger will be a reorganization within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code, and United Community and PVFC each will be a “party to the reorganization” within the meaning of Section 368(b) of the Internal Revenue Code.

 

Tax consequences to United Community and PVFC.

 

 

Tax consequences to PVFC shareholders who receive only cash.  A PVFC shareholder who receives only cash in exchange for such shareholder’s PVFC common shares (as a result of such shareholder’s dissent to the merger or election to receive the cash consideration for all of such shareholder’s PVFC common shares) will recognize gain or loss as if such shareholder had received such cash as a distribution in redemption of such shareholder’s PVFC common shares, subject to the provisions and limitations of Section 302 of the Internal Revenue Code. The gain or loss will be long-term capital gain or loss if the PVFC common shares surrendered in the merger were held as capital assets for a period exceeding one year as of the time of the exchange.

 

Tax consequences to PVFC shareholders who receive only United Community common shares, except for cash in lieu of fractional shares.  A PVFC shareholder who receives only United Community common shares in exchange for such shareholder’s PVFC common shares (not including any cash received in lieu of fractional United Community common shares) will not recognize any gain or loss on the receipt of such United Community common shares.

 

Tax consequences to PVFC shareholders who receive a combination of cash (other than cash in lieu of fractional shares) and United Community common shares.  A PVFC shareholder who receives a combination of cash (other than cash in lieu of fractional United Community common shares) and United Community common shares in exchange for PVFC common shares will recognize gain, but not loss, in an amount not to exceed the amount of cash received (excluding cash received in lieu of fractional United Community common shares). For this purpose, a PVFC shareholder generally must calculate gain or loss separately for each identifiable block of PVFC common shares exchanged by the shareholder in the merger, and a loss realized on one block of PVFC common shares may not be used by the shareholder to offset a gain realized on another block of its PVFC common shares. Shareholders should consult their tax advisors regarding the manner in which cash and United Community common shares should be allocated among their PVFC common shares and the specific federal income tax consequences thereof.

 

For purposes of determining the character of the gain recognized on account of the cash received by a PVFC shareholder, such PVFC shareholder will be treated as having received only United Community common shares in exchange for such shareholder’s PVFC common shares, and as having immediately redeemed a portion of such United Community common shares for the cash received (excluding cash received in lieu of fractional United Community common shares). Unless the redemption is treated as a dividend under the principles of Section 302(d) of the Internal Revenue Code (to the extent of such shareholder’s ratable share of the undistributed earnings and profits of PVFC), the gain will be capital gain if the PVFC common shares are held by such shareholder as a capital asset at the time of the merger.

Cash in lieu of fractional shares.  A PVFC shareholder who receives cash in lieu of a fractional United Community common share will recognize gain or loss as if such fractional United Community common share were distributed as part of the merger and then redeemed by United Community, subject to the provisions and limitations of Section 302 of the Internal Revenue Code.

 

Tax basis.  The aggregate tax basis of the United Community common shares received by a PVFC shareholder in the merger (including fractional United Community common shares, if any, deemed to be issued and redeemed by United Community) generally will be equal to the aggregate tax basis of the PVFC common shares surrendered in the merger, reduced by the amount of cash received by the shareholder in the merger (other than cash in lieu of fractional United Community common shares), and increased by the amount of gain recognized by the shareholder in the merger (including any portion of the gain that is treated as a dividend, but excluding any gain or loss resulting from the deemed issuance and redemption of fractional United Community common shares).

 

Holding period.  The holding period of the United Community common shares received by a PVFC shareholder will include the holding period of the PVFC common shares surrendered in exchange for the United Community common shares in the merger, provided that the PVFC common shares were held as a capital asset at the time of the merger.

 

Reporting requirements.  A PVFC shareholder owning at least five percent (by vote or value) of the total outstanding PVFC common shares, immediately before the merger, is required to file a statement with the shareholder’s U.S. federal income tax return setting forth the tax basis in the shareholder’s PVFC common shares exchanged in the merger and the fair market value determined immediately before the merger of the PVFC common shares exchanged in the merger. In addition, all PVFC shareholders will be required to retain permanent records relating to the amount, basis, and fair market value of all property transferred in the merger, and relevant facts regarding any liabilities assumed or extinguished as part of the merger.

 

Backup withholding.  Under certain circumstances, cash payments made to a PVFC shareholder pursuant to the merger may be subject to backup withholding at a rate of 28%. There is no withholding for a shareholder who provides the exchange agent with such shareholder’s correct U.S. federal taxpayer identification number and who certifies that no loss of exemption from backup withholding has occurred on IRS Form W-9 or its substitute. Certain categories of PVFC shareholders, such as corporations and some foreign individuals, are not subject to backup withholding. In order for a foreign individual to qualify as an exempt recipient, such individual generally must provide the exchange agent with a completed IRS Form W-8BEN or its substitute. Any amounts withheld from a PVFC shareholder under the backup withholding rules are not an additional tax. Rather, any such amounts will be allowed as a credit or refund against such shareholder’s U.S. federal income tax liability provided that the shareholder furnishes to the IRS all required information.

 

The discussion of material federal income tax consequences of the merger is included in this prospectus/proxy statement for general information only. Each PVFC shareholder should consult his, her or its own tax advisor regarding the specific tax consequences to the shareholder of the merger, including the application and effect of state, local, and foreign income and other tax laws.

 

Regulatory Approvals Required for the Merger

 

Holding Company Merger.  United Community is required to obtain the approval of the Office of Thrift Supervision to complete the merger.

 

The Bank Merger.  The bank merger is subject to the approval by the Office of Thrift Supervision under the Bank Merger Act. In granting its approval under the Bank Merger Act, the Office of Thrift Supervision must consider the financial and managerial resources and future prospects of the existing and proposed institutions and the convenience and needs of the communities to be served.

 

The bank merger is also subject to approval by the Ohio Division of Financial Institutions. The regulatory standards for the bank merger are similar to those applicable to the merger. The parties filed the requisite applications for the bank merger with the Office of Thrift Supervision and with the Ohio Division of Financial Institutions on September 20, 2007.

A period of 15 to 30 days must expire following approval by the Office of Thrift Supervision before completion of the merger is allowed, within which period the United States Department of Justice may file objections to the merger under the federal antitrust laws. While United Community and PVFC believe that the likelihood of objection by the Department of Justice is remote in this case, there can be no assurance that the Department of Justice will not initiate proceedings to block the merger.

 

The merger cannot proceed in the absence of the requisite regulatory approvals. See “Description of the Merger — Conditions to Completion of the Merger” and “— Termination.” There can be no assurance that the requisite regulatory approvals will be obtained, and if obtained, there can be no assurance as to the date of any approval. There can also be no assurance that any regulatory approvals will not contain a condition or requirement that causes the approvals to fail to satisfy the condition set forth in the merger agreement and described under “Description of the Merger — Conditions to Completion of the Merger.”

 

The approval of any application merely implies the satisfaction of regulatory criteria for approval, which does not include review of the merger from the standpoint of the adequacy of the cash consideration or the exchange ratio for converting PVFC shares to United Community shares. Furthermore, regulatory approvals do not constitute an endorsement or recommendation of the merger.

 

Interests of Certain Persons in the Merger

 

As described below, certain of PVFC’s officers and directors have interests in the merger that are in addition to, or different from, the interests of PVFC’s shareholders generally. PVFC’s board of directors was aware of these conflicts of interest and took them into account in approving the merger.

 

Severance Agreements.  Each of John R. Male, Jeffrey N. Male and C. Keith Swaney has entered into a severance agreement with Park View and PVFC. Under the agreements, upon the executive’s termination of employment after a change in control, each executive will (i) receive a lump sum payment equal to three times the sum of his current base salary plus his annual incentive compensation for the previous calendar year, (ii) become fully vested in all qualified and nonqualified plans, (iii) receive a contribution to his 401(k) plan account an amount equal to the matching portion that would have been paid by Park View if the executive would have remained employed throughout the remainder of the 401(k) plan year, (iv) receive continued life, health and disability insurance coverage for 12 months following the date of the executive’s termination of employment. The agreements provide that if any payments to the executive are deemed to constitute “excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code and would cause the executive to incur an excise tax, the executive shall receive an amount such that after payment of all federal, state and local income tax and any additional excise tax, the executive will be fully reimbursed for the amount of such excise tax. “Excess parachute payments” generally are payments in excess of three times the recipient’s average annual compensation from the employer includable in the recipient’s gross income during the most recent five taxable years ending before the date of a change in control of the employer (the “base amount”). Recipients of excess parachute payments are subject to a 20% excise tax on the amount by which such payments exceed one times the base amount, in addition to regular income taxes, and payments in excess of the base amount are not deductible by the employer as compensation expense for federal income tax purposes.

 

In connection with the execution of the merger agreement, the executives entered into an amendment to their existing severance agreement to provide for a non-competition covenant in favor of United Community for a three-year period following the officer’s termination of employment. As amended, the agreement prevents the officers from being affiliated with a competing financial institution in United Community’s market area, other than as a passive investor during the restricted period.

 

Stock Options.  Under the terms of the merger agreement, each outstanding option to purchase PVFC common shares, whether or not it is exercisable, will be terminated and converted into the right to receive an amount of cash equal to the product of (1) the difference between $18.50, less the exercise price of each such option, multiplied by (2) the number of PVFC common shares subject to each such option. The nine directors and executive officers of PVFC, as a group, hold outstanding options to purchase           PVFC common

shares with a weighted average exercise price of $      per share. A total of           of these options are not presently vested or exercisable.

 

Supplemental Executive Retirement Plan.  Each of John R. Male, C. Keith Swaney and Jeffrey N. Male is a participant in the Park View Supplemental Executive Retirement Plan, which is designed to pay retirement benefits. Under this plan, each of these executive officers is entitled to receive a benefit equal to 60% of his highest year’s combined salary and target bonus during the last five years. As a result of the merger, each of the executives will become fully vested in the plan rather than having to wait until attaining age 65.

 

Appointment of Directors to the United Community and Home Savings Boards of Directors.  Upon the completion of the merger, two members of PVFC’s current Board of Directors will be appointed to serve on the Board of Directors of United Community and Home Savings. Following the execution of the merger agreement, United Community selected current PVFC directors Richard D. Holman, II and Stanley T. Jaros to serve on the United Community and Home Savings Boards following the completion of the merger. In addition, John R. Male will be appointed to the Board of Directors of Home Savings.

 

Indemnification.  For a period of six years following the effective time of the merger, United Community has agreed to indemnify and hold harmless the current and former officers and directors of PVFC and its subsidiaries against any costs or expenses incurred in connection with any claim, action, suit, proceeding or investigation that is a result of matters that existed or occurred at or before the effective time of the merger to the same extent as PVFC currently provides for indemnification of its officers and directors. For a period of six years following the effective time of the merger, United Community has also agreed to use reasonable efforts to provide coverage to the current and former officers and directors of PVFC and Park View to reimburse with respect to any claims against such directors and officers arising from events that occurred before the effective time of the merger.

 

Employee Matters

 

Each employee of PVFC or Park View who is actively employed by PVFC or Park View as of the effective time of the merger and who is offered employment by United Community or Home Savings will become an at-will employee of United Community or Home Savings. Continuing employees will be eligible for Home Savings’ benefit plans on the earliest date permitted by such plans, with credit for years of service to PVFC or Park View for eligibility and vesting purposes (but not for accrual of benefits except for vacation and sick leave).

 

United Community and Home Savings will review the PVFC and Park View compensation and benefits plans to determine whether to maintain, terminate or continue such plans. To the extent the plans are terminated, United Community and Home Savings shall provide continuing employees of PVFC or Park View with compensation and benefits that are substantially similar to those of similarly-situated United Community or Home Savings employees.

 

United Community will pay each employee of PVFC or Park View who is not otherwise covered by a written employment or change in control agreement whose employment is terminated (other than for cause) at the effective time of the merger, or within six months thereafter, a lump sum cash payment equal to one week of such employee’s then-current base salary for each full year of service with PVFC or Park View, up to a maximum of 26 weeks base pay.

 

Restrictions on Resale of United Community Common Shares by Affiliates of PVFC

 

United Community has registered the United Community common shares to be issued in the merger with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The United Community shares will be freely transferable, except for United Community shares received by persons who may be deemed to be affiliates of PVFC. The term “affiliate” is defined in Rule 144 under the Securities Act and generally includes executive officers, directors, and shareholders beneficially owning 10% or more of the outstanding PVFC common shares. PVFC affiliates may not sell their United Community common shares, except (a) in compliance with Rule 145 or another applicable exemption from the registration requirements of

the Securities Act or (b) pursuant to an effective registration statement under the Securities Act covering their United Community common shares.

 

Time of Completion