As filed with the Securities and Exchange Commission on March 7, 1997
Registration No. 333-____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRSTSPARTAN FINANCIAL CORP.
(Exact name of registrant as specified in charter)
Delaware 6035 (to be applied for)
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
380 E. Main Street
Spartanburg, South Carolina 29302
(864) 582-2391
(Address and telephone number of principal executive offices)
Paul M. Aguggia, Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
Suite 470 East
1300 I Street, N.W.
Washington, D.C. 20005
(Name and address of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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Calculation of Registration Fee
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Title of Each Class of Proposed Maximum Amount Proposed Offering Proposed Maximum Aggregate Amount of
Securities Being Being Registered(1) Price(1) Offering Price(1) Registration Fee
Registered
=========================== =========================== ====================== ============================= ===================
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Common Stock, $0.01 Par 3,852,500 $20.00 $88,607,500 $26,851
=========================== =========================== ====================== ============================= ===================
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(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and sold
is subject to adjustment based upon the estimated pro forma market value of the
registrant and market and financial conditions. Pursuant to Rule 416(c), the
Registration Statement also includes an indeterminate number of participation
interests in the First Federal Savings and Loan Association of Spartanburg
401(k) Plan.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Cross Reference Sheet showing the location in the Prospectus
of the Items of Form S-1
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1. Forepart of the Registration Forepart of the Registration Statement;
Statement and Outside Front Outside Front Cover Page
Cover of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back
Cover Pages of Prospectus Cover Page
3. Summary Information, Risk Factors Prospectus Summary; Risk Factors
and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Use of Proceeds; Capitalization
5. Determination of Offering Price Market for Common Stock
6. Dilution *
7. Selling Security Holders *
8. Plan of Distribution The Conversion
9. Description of Securities to be Description of Capital Stock
Registered
10. Interests of Named Experts and Legal and Tax Opinions; Experts
Counsel
11. Information with Respect to the
Registrant
(a) Description of Business Business of the Holding Company;
Business of the Association
(b) Description of Property Business of the Association -- Properties
(c) Legal Proceedings Business of the Association -- Legal
Proceedings
(d) Market Price of and Dividends Outside Front Cover Page; Market for
on the Registrant's Common Equity Common Stock; Dividend Policy
and Related Stockholder Matters
(e) Financial Statements Financial Statements; Pro Forma Data
(f) Selected Financial Data Selected Financial and Other Data
(g) Supplementary Financial *
Information
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(h) Management's Discussion and Management's Discussion and Analysis of
Analysis of Financial Condition Financial Condition and Results of Operations
and Results of Operations
(i) Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
(j) Directors and Executive Management of the Holding Company; Management of
Officers the Association
(k) Executive Compensation Management of the Holding Company; Management of
the Association--Benefits--Executive Compensation
(l) Security Ownership of Certain *
Beneficial Owners and Management
(m) Certain Relationships and Management of the Association -- Transactions with
Related Transactions the Association
12. Disclosure of Commission Position Part II - Item 17
on Indemnification for Securities
Act Liabilities
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*Item is omitted because answer is negative or item inapplicable.
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PROSPECTUS SUPPLEMENT
FIRSTSPARTAN FINANCIAL CORP.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
401(k) PLAN
This Prospectus Supplement relates to the offer and sale to
participants (the "Participants") in the First Federal Savings and Loan
Association of Spartanburg 401(k) Plan (the "Plan" or the "401(k) Plan") of
participation interests and shares of FirstSpartan Financial Corp. common stock,
par value $.01 per share (the "Common Stock"), as set forth herein.
In connection with the proposed conversion of First Federal Savings and
Loan Association of Spartanburg (the "Association" or "Employer") from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association, a holding company, FirstSpartan Financial
Corp. (the "Holding Company"), has been formed. The simultaneous conversion of
the Association to stock form, the issuance of the Association's common stock to
the Holding Company and the offer and sale of the Holding Company's Common Stock
to the public are herein referred to as the "Conversion." Applicable provisions
of the 401(k) Plan to permit the investment of the Plan assets in Common Stock
of the Holding Company at the direction of a Plan Participant. This Prospectus
Supplement relates to the election of a Participant to direct the purchase of
Common Stock in connection with the Conversion.
The Prospectus dated ___________, 1997 of the Holding Company (the
"Prospectus") which is attached to this Prospectus Supplement includes detailed
information with respect to the Conversion, the Common Stock and the financial
condition, results of operation and business of the Association and the Holding
Company. This Prospectus Supplement, which provides detailed information with
respect to the Plan, should be read only in conjunction with the Prospectus.
Terms not otherwise defined in this Prospectus Supplement are defined in the
Plan or the Prospectus.
A Participant's eligibility to purchase Common Stock in the Conversion
through the Plan is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion and the maximum and minimum limitations
set forth in the Plan of Conversion. See "THE CONVERSION" and "-- Limitations on
Purchases of Shares" in the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "RISK FACTORS" in the Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT
SUPERVISION ("OTS"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ___________, 1997.
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No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Association or the Plan. This Prospectus
Supplement does not constitute an offer to sell or solicitation of an offer to
buy any securities in any jurisdiction to any person to whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstances create any implication that there has been no change in
the affairs of the Association or the Plan since the date hereof, or that the
information herein contained or incorporated by reference is correct as of any
time subsequent to the date hereof. This Prospectus Supplement should be read
only in conjunction with the Prospectus that is attached herein and should be
retained for future reference.
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TABLE OF CONTENTS
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PAGE
The Offering
Securities Offered.....................................................................................S-5
Election to Purchase Common Stock in the Conversion....................................................S-5
Value of Participation Interests.......................................................................S-5
Method of Directing Transfer...........................................................................S-6
Time for Directing Transfer............................................................................S-6
Irrevocability of Transfer Direction...................................................................S-6
Direction to Purchase Common Stock After the Conversion................................................S-6
Purchase Price of Common Stock.........................................................................S-6
Nature of a Participant's Interest in the Holding Company Common Stock.................................S-7
Voting and Tender Rights of Common Stock...............................................................S-7
Description of the Plan
Introduction...........................................................................................S-7
Eligibility and Participation..........................................................................S-8
Contributions Under the Plan...........................................................................S-8
Limitations on Contributions...........................................................................S-9
Investment of Contributions...........................................................................S-11
The Employer Stock Fund...............................................................................S-12
Benefits Under the Plan...............................................................................S-13
Withdrawals and Distributions from the Plan...........................................................S-13
Administration of the Plan............................................................................S-14
Reports to Plan Participants..........................................................................S-15
Plan Administrator....................................................................................S-15
Amendment and Termination.............................................................................S-15
Merger, Consolidation or Transfer.....................................................................S-15
Federal Income Tax Consequences.......................................................................S-15
Restrictions on Resale................................................................................S-18
Legal Opinions.................................................................................................S-19
Investment Form................................................................................................S-20
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THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the Plan
and up to 3,852,500 shares, at the actual purchase price of $20.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Association and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation and business of the
Association and the Holding Company is contained in the attached Prospectus. The
address of the principal executive office of the Association is 380 E. Main
Street, Spartanburg, South Carolina 29302-1944. The Association's telephone
number is (864) 582-2391.
Election to Purchase Common Stock in the Conversion
In connection with the Association's Conversion, each Participant in
the 401(k) plan may direct the trustee of the Plan ("Trustee") to transfer up to
100% of a Participant's beneficial interest in the assets of the Plan at
___________, 1997 to a newly created Employer Stock Fund and to use such funds
to purchase Common Stock issued in connection with the Conversion. Amounts
transferred will include salary deferral, Employer Matching, profit sharing
contributions and account balances transferred from the First Federal Savings
and Loan Association of Spartanburg Employee Retirement and Savings Fund (the
"Savings Fund"), which was merged with the Plan on _______, 1997. The Employer
Stock Fund will consist of investments in the Common Stock made on or after the
effective date of the Conversion. Funds not transferred to the Employer Stock
Fund will be invested at the Participant's discretion in the other investment
options available under the Plan. See "Investment of Contributions" below. A
Participant's ability to transfer funds to the Employer Stock Fund in the
Conversion is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion. For general information as to the
ability of the Participants to purchase shares in the Conversion, see "THE
CONVERSION -- The Subscription, Direct Community and Syndicated Community
Offerings" in the attached Prospectus.
Value of Participation Interests
The assets of the Plan are valued on an ongoing basis and each
Participant is informed of the value of his or her beneficial interest in the
Plan on an quarterly basis. This value represents the market value of past
contributions to the Plan by the Association and by the Participants and
earnings thereon, less previous withdrawals, and transfers from the Savings
Fund.
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Method of Directing Transfer
The last page of this Prospectus Supplement is an investment form to
direct a transfer to the Employer Stock Fund (the "Investment Form"). If a
Participant wishes to transfer funds to the Employer Stock Fund to purchase
Common Stock issued in connection with the Conversion, the Participant should
indicate that decision in Part 2 of the Investment Form. If a Participant does
not wish to make such an election, he or she does not need to take any action.
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Common Stock issued in connection with
the Conversion is ____________, 1997. The Investment Form should be returned to
the Stock Information Center at the Association no later than the close of
business on such date.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the sale of Common
Stock, as explained below.
Direction to Purchase Common Stock After the Conversion
After the Conversion, a Participant will be able to direct that a
certain percentage of such Participant's interests in the trust assets ("Trust")
be transferred to the Employer Stock Fund and invested in Common Stock, or to
the other investment funds available under the Plan. Alternatively, a
Participant may direct that a certain percentage of such Participant's interest
in the Employer Stock Fund be transferred from the Employer Stock Fund to other
investment funds available under the Plan. Participants will be permitted to
direct that future contributions made to the Plan by or on their behalf be
invested in Common Stock. Following the initial election, the allocation of
Participant's interest in the Employer Stock Fund may be changed by the
Participant on a quarterly basis. Special restrictions may apply to transfers
directed by those Participants who are executive officers, directors and
principal stockholders of the Holding Company who are subject to the provisions
of Section 16(b) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of Common Stock. The price paid for such shares of Common Stock
will be the same price as is paid by all other persons who purchase shares of
Common Stock in the Conversion.
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Nature of a Participant's Interest in the Holding Company Stock
The Holding Company Stock purchased for an account of a Participant
will be held in the name of the Trustee of the Plan in the Employer Stock Fund.
Any earnings, losses or expenses with respect to the Holding Company Stock,
including dividends and appreciation or depreciation in value, will be credited
or debited to the account and will not be credited to or borne by any other
accounts.
Voting and Tender Rights of Common Stock
The Trustee generally will exercise voting and tender rights
attributable to all Common Stock held by the Trust as directed by Participants
with an interest in the Employer Stock Fund. With respect to each matter as to
which holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
Introduction
The Association adopted the Plan on _____________, 1995. The Savings
Fund was merged with and into the Plan, effective _______, 1997. The Plan is a
cash or deferred arrangement established in accordance with the requirement
under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code").
The Association intends that the Plan, in operation, will comply with
the requirements under Section 401(a) and Section 401(k) of the Code. The
Association will adopt any amendments to the Plan that may be necessary to
ensure the qualified status of the Plan under the Code and applicable Treasury
Regulations. The Association has received a determination from the Internal
Revenue Service ("IRS") that the Plan is qualified under Section 401(a) of the
Code and that it satisfies the requirements for a qualified cash or deferred
arrangement under Section 401(k) of the Code.
Employee Retirement Income Security Act. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As
such, the Plan is subject to all of the provisions of Title I (Protection of
Employee Benefit Rights) and Title II (Amendments to the Internal Revenue Code
Relating to Retirement Plans) of ERISA, except the funding requirements
contained in Part 3 of Title I of ERISA, which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). The Plan is
not subject to Title IV
S-7
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(Plan Termination Insurance) of ERISA. Neither the funding requirements
contained in Title IV of ERISA nor the plan termination insurance provisions
contained in Title IV will be extended to Participants or beneficiaries under
the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF
EMPLOYMENT WITH THE ASSOCIATION. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE
IMPOSED ON WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2,
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION OR
AFTER TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries
of certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan, which is filed as an exhibit to the
registration statement filed with the SEC. Copies of the Plan are available to
all employees by filing a request with the Plan Administrator. Each employee is
urged to read carefully the full text of the Plan.
Eligibility and Participation
Any employee of the Association is eligible to participate and will
become a Participant in the Plan following completion of a minimum of 1,000
hours of service with the Association within a consecutive 12 month period of
employment and the attainment of age 21. The Plan fiscal year is the calendar
year ("Plan Year"). Directors who are not employees of the Association are not
eligible to participate in the Plan.
During 1996, approximately 77 employees participated in the Plan.
Contributions Under the Plan
Participant Contributions. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the Participant's deferral
contributions account. For purposes of the Plan, "Compensation" means a
Participant's total amount of earnings reportable W-2 wages for federal income
tax withholding purposes plus a Participant's elective deferrals pursuant to a
salary reduction agreement under the Plan or any elective deferrals to a Section
125 plan. Due to recent statutory changes, the annual Compensation of each
Participant taken into account under the Plan is limited to $160,000 as adjusted
periodically (adjusted as permitted by the Code). A Participant may elect to
modify the amount contributed to the Plan under the participant's salary
reduction agreement
S-8
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during the Plan Year. Deferral contributions are transferred by the Association
to the Trustee on a periodic basis.
Employer Contributions. The Association currently makes a discretionary
matching contribution to the Plan in an amount equal to a percentage of each
Participant's annual salary reduction contributions, in an amount not in excess
of 5% of the Participant's Compensation.
Discretionary Contributions. The Association may also make
discretionary nonmatching contributions to the Plan for each Plan Year.
Participants who are in service on the last day of the Plan Year and have
completed 1,000 hours of service during the Plan Year are eligible to share in
the allocation of the discretionary contributions (if any) for the Plan Year.
The Association's discretionary contributions are allocated among Participants
eligible to share in the allocation according to the relationship of each such
Participant's Compensation for the Plan Year to the total Compensation of all
such Participants for such Plan Year. In addition, the Association may make
discretionary contributions on behalf of certain non-highly compensated
employees to the extent necessary to satisfy the Code's nondiscrimination
requirements (see below).
Limitations on Contributions
Limitations on Annual Additions and Benefits. Pursuant to the
requirements of the Code, the Plan provides that the amount of contributions
allocated to each Participant's Account during any Plan Year may not exceed the
lesser of 25% of the Participant's "Section 415 Compensation" for the Plan Year
or $30,000 (as adjusted periodically as permitted by the Code). A Participant's
"Section 415 Compensation" is a Participant's Compensation, excluding any amount
contributed to the Plan under a salary reduction agreement or any employer
contribution to the Plan or to any other plan or deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions are limited to the extent necessary to prevent the limitations for the
combined plans of the Association from being exceeded. To the extent that these
limitations would be exceeded by reason of excess annual additions to the Plan
with respect to a Participant, the excess must be reallocated to the remaining
Participants who are eligible for an allocation of Employer contributions for
the Plan Year.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $9,500 (as adjusted periodically
as permitted by the Code). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross federal income tax
purposes in the year they are made. In addition, any such excess deferral will
again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for
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federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
Sections 401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of deferred compensation
contributed by or on behalf of all other employees eligible to participate in
the Plan. Specifically, the actual deferral percentage for a Plan Year (i.e.,
the average of the ratios, calculated separately for each eligible employee in
each group, by dividing the amount of salary reduction contributions credited to
the salary reduction contribution account of such eligible employee by such
employee's compensation for the Plan Year) of the Highly Compensated Employees
may not exceed the greater of (a) 125% of the actual deferred percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual deferred
percentage of all other eligible employees, or (ii) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for a Plan Year (i.e., the average
of the ratios calculated separately for each eligible employee in each group, by
dividing the amount of employer contributions credited to the Matching
contributions account of such eligible employee by each eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (a) 125% of the actual contribution percentage of all
other eligible employees, or (b) the lesser of (i) 200% of the actual
contributions percentage of all other eligible employees, or (ii) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who,
during the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner
(i.e., owns directly or indirectly more than 5% of the stock of the Employer, or
stock possessing more than 5% of the total combines voting power of all stock of
the Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted periodically as permitted by the
Code) and, if elected by the Association, was in the top paid group of employees
for such Plan Year.
In order to prevent disqualification of the Plan, any amounts
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Association will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate. In addition,
in order to avoid disqualification of the Plan, any contributions by Highly
Compensated Employees that exceed the average contribution limitation in any
Plan Year ("excess aggregate contributions") together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the 10% excise tax will be imposed on
the Association with respect to any excess aggregate
S-10
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contributions, unless such amounts, plus any income allocable thereto, are
distributed within 2 1/2 months following the close of the Plan Year in which
they arose.
Top-Heavy Plan Requirements. If, for any Plan Year, the Plan is a
Top-Heavy Plan (as defined below), then (i) the Association may be required to
make certain minimum contributions to the Plan on behalf of non-key employees
(as defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined plan maintained by the Association.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any
Plan Year, if as of the last day of the preceding Plan Year, the aggregate
balance of the accounts of all Participants who are key Employees exceeds 60% of
the aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Association having
annual compensation in excess of $60,000 who is in administrative or
policy-making capacity, (2) one of the ten employees having annual compensation
in excess of $30,000 and owing, directly or indirectly, the largest interest in
the employer, (3) a 5% owner of the employer (i.e., owns directly or indirectly
more than 5% of the stock of the employer, or stock possessing more than 5% of
the total combined voting power of all stock of the employer), or (4) a 1% of
owner of the employer having compensation in excess of $150,000.
Investment of Contributions
All amounts credited to Participant's Accounts under the Plan are held
in the Trust which is administered by the Trustee. The Trustee is appointed by
the Association's Board of Directors. The Plan provides that a Participant may
direct the Trustee to invest all or a portion of his Accounts in various managed
investment portfolios, as described below, A Participant may periodically elect
to change his investment directions with respect to both past contributions and
for more additions to the Participant's accounts invested in these investment
alternatives.
Under the Plan, prior to the effective date of the Conversion, the
Accounts of Participant held in the Trust will be invested by the Trustee at the
direction of the Participant in the following managed portfolios:
Certificates of Deposit -
Money Market Fund -
Stock Fund -
Bond Fund -
Aggressive Growth Fund -
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Brokerage Account -
Effective upon the Conversion, a Participant may invest all or a
portion of his or her Accounts in the portfolios described above and in Fund __,
described below:
Employer Stock Fund - Invest in common stock of the Holding Company.
A Participant may elect (in increments of 1%), to have both past and
future contributions and additions to the Participant's Account invested either
in the Employer Stock Fund or in any of the other managed portfolios listed
above. Any amounts credited to a Participant's Accounts for which investment
directions are not given will be invested in _____________. Because investment
allocations only are required to be made in increments of 1%, Participants can
invest their Accounts in each of the seven available investment funds.
The net gain (or loss) in the Accounts from investments (including
interest payments, dividends, realized and unrealized gains and losses on
securities, and expenses paid from the Trust) are determined monthly on a
quarterly basis. For purposes of such allocation, all assets of the Trust are
valued at their fair market value.
The Employer Stock Fund
The Employer Stock Fund will consist of investments in Common Stock
made on and after the effective date of the Conversion. In connection with the
Conversion, pursuant to the attached Investment Form, Participants will be able
to change their investments at a time other than the normal election intervals.
Any cash dividends paid on Common Stock held in the Employer Stock Fund will be
credited to a cash dividend subaccount for each Participant investing in the
Employer Stock Fund. The Trustee will, to the extent practicable, use all
amounts held by it in the Employer Stock Fund (except the amounts credited to
cash dividend subaccounts) to purchase shares of Common Stock. It is expected
that all purchases will be made at prevailing market prices. Under certain
circumstances, the Trustee may be required to limit the daily volume of shares
purchased. Pending investment in Common Stock, assets held in the Employer Stock
Fund will be placed in bank deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. A Participant's Account will be adjusted to reflect changes in the value
of shares of Common Stock resulting from stock dividends, stock splits and
similar changes.
To the extent dividends are not paid on Common Stock held in the
Employer Stock Fund, the return on any investment in the Employer Stock Fund
will consist only of the market value appreciation of the Common Stock
subsequent to its purchase. Following the conversion, the Board of the Holding
Company may consider a policy of paying dividends on the Common
S-12
<PAGE>
Stock, however, no decision has been made by the Board of the Holding Company
regarding the amount or timing of dividends, if any.
As of the date of this Prospectus Supplement, none of the shares of
Common Stock have been issued or are outstanding and there is no established
market for the Common Stock. Accordingly, there is no record of the historical
performance of the Employer Stock Fund.
Investments in the Employer Stock Fund may involve certain risk factors
associated with investments in Common Stock of the Holding Company. For a
discussion of these risk factors, see "RISK FACTORS" on pages 1 through 6 in the
Prospectus.
Benefits Under the Plan
Vesting. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her Deferred Contributions and the earnings thereon
under the Plan. A Participant is 100% vested in his or her Matching
Contributions Account and employer discretionary contributions after the
completion of five years of service under the Plan's five-year, graded vesting
schedule (20% per year beginning upon completion of one year of service).
Withdrawals and Distributions from the Plan
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59
1/2 UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF
WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE
ASSOCIATION.
Distribution Upon Retirement, Disability or Termination of Employment.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an
in-kind distribution of Common Stock of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $3,500 at the time of termination, may elect, in lieu of a lump sum
payments, to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the Plan;
but in no event later than April 1 following the calendar year in which the
Participant attains age 70 1/2 (if the Participant is retired). However, if the
vested portion of the Participant's Account balances exceeds $3,500, no
distribution shall be made from the Plan prior to the Participant's attaining
age 65 unless the Participant consents to an earlier distribution. Special
restrictions may apply to the distribution
S-13
<PAGE>
of Common Stock of the Holding Company to those Participants who are executive
officers, directors and principal shareholders of the Holding Company who are
subject to the provisions of Section 16(b) of the Exchange Act.
Distribution upon Death. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the surviving
spouse in a lump sum, or if the payment of his or her benefits had commenced
before his or her death, in accordance with the distribution method in effect at
his or her death. With respect to an unmarried Participant, and in the case of a
married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary, payments of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump sum
payment in cash or in Common Stock, or if the payment of his or her benefit had
commenced before his or her death, in accordance with the distribution method if
effect at death.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
Administration of the Plan
Trustees. The Trustee with respect to the Plan is currently
Southeastern Trust Company.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust and income therefrom. The Trustee has
the authority to invest and reinvest the Trust and may sell or otherwise dispose
of Trust investments at any time and may hold trust funds uninvested. The
Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the
Trust in person or by proxy; provided, however, that the Participants will
direct the Trustee as to voting and tendering of all Common Stock held in the
Employer Stock Fund.
The Trustee is entitled to reasonable compensation for its services and
is also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Association.
S-14
<PAGE>
The Trustee must render at least annual reports to the Association and
to the Participants in such form and containing information that the Trustee
deems necessary.
Reports to Plan Participants
The administrator will furnish to each Participant a statement at least
semiannually showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
Plan Administrator
A committee of the Association has been designated by the Board of
Directors of the Association to act on the Association's behalf as the Plan
Administrator. The Administrator is responsible for the administration of the
Plan, interpretation of the provisions of the Plan, prescribing procedures for
filing applications for benefits, preparation and distribution of information
explaining the Plan, maintenance of plan records, books of account and all other
data necessary for the proper administration of the Plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the IRS, and for all disclosures
required to be made to Participants, beneficiaries and others under Sections 104
and 105 of ERISA.
Amendment and Termination
The Association may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant shall have a fully vested interest
in his or her Account. Participant accounts are also fully vested upon a Change
in Control of the Association or the Holding Company. The Association reserves
the right to make, from time to time, any amendment or amendments to the Plan
which do not cause any part of the Trust to be used for, or diverted to, any
purpose other than the exclusive benefit of the Participants or their
beneficiaries.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
Federal Income Tax Consequences
The following is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income
tax consequences of participating in or
S-15
<PAGE>
receiving distributions from the Plan. The summary is necessarily general
in nature and does not purport to be complete. Moreover, statutory provisions
are subject to change, as are their interpretations, and their application may
vary in individual circumstances. Finally, the consequences under applicable
state and local income tax laws may not be the same as under the federal
income tax laws.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT
TO ANY DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE
PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Association expects to timely adopt
any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Plan will be
submitted to the IRS for a determination that the Plan, as amended, continues to
qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
Assuming that the Plan is administered in accordance with the
requirements of the Code, participation in the Plan under existing federal
income tax laws will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan. Special
tax treatment may apply to the taxable portion of any distribution that includes
Common Stock or qualified as a "Lump Sum Distribution" (as described below).
(b) Income earned on assets held by the Trust will not be taxable to
the Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it
is made: (i) within a single taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death or separation from service, or after
the Participant attains age 59 1/2; and (iii) consists of the balance to the
credits of the Participant under the Plan and all other profit sharing plans, if
any, maintained by the Association. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less
S-16
<PAGE>
the amount of after-tax contributions, if any, made by the Participant to any
other profit sharing plans maintained by the Association which is included in
such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution (the "ordinary income portion") will be taxable generally as
ordinary income for federal income tax purposes. However, for distributions
occurring prior to January 1, 2000, a Participant who has completed at least
five years of participation in the Plan before the taxable year in which the
distribution is made, or a beneficiary who receives a Lump Sum Distribution on
account of the Participant's death (regardless of the period of the
Participant's participation in the Plan or any other profit sharing plan
maintained by the Employer), may elect to have the ordinary income portion of
such Lump Sum Distribution taxed according to a special averaging rule
("five-year averaging"). The election of the special averaging rules may apply
only to one Lump Sum Distribution received by the Participant or beneficiary,
provided such amount is received on or after the Participant turns 59 1/2 and
the recipient elects to have any other Lump Sum Distribution from a qualified
plan received in the same taxable year taxed under the special averaging rule.
The special five-year averaging rule has been repealed for distributions
occurring after December 31, 1999. Under a special grandfather rule, individuals
who turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule (if available) or the prior law ten-year
averaging rule. Such individuals also may elect to have that portion of the Lump
Sum Distribution attributable to the Participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum
Distribution includes Common Stock, the distribution generally will be taxed in
the manner described above, except that the total taxable amount will be reduced
by the amount of any net unrealized appreciation with respect to such Common
Stock, i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee
S-17
<PAGE>
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
Participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan of to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a series
of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
nonrecognition of net unrealized appreciation, discussed earlier.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled or onto an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified domestic relations order, or (vii) made
to effect the distribution of excess contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT
INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
Restrictions on Resale
Any person receiving shares of the Common Stock under the Plan who is
an "affiliate" of the Association or the Holding Company as the term "affiliate"
is used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Association) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Association
S-18
<PAGE>
having no obligation to file such registration statement) or, assuming the
availability thereof, pursuant to Rule 144 or some other exemption from the
registration requirements of the Securities Act. Any person who may be an
"affiliate" of the Association of the Holding Company may wish to consult with
counsel before transferring any Common Stock owned by him. In addition,
Participants are advised to consult with counsel as to the applicability of the
reporting and short-swing profit liability rules of Section 16 of the Exchange
Act which may affect the purchase and sale of the Common Stock where acquired
under the Plan, or other sales of the Common Stock.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia, Washington, D.C., which firm is acting as special counsel for
the Holding Company in connection with the Association's Conversion from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association and the concurrent formation of the Holding
Company.
S-19
<PAGE>
Investment Form
(Employer Stock Fund)
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
401(k) PLAN
Name of Participant:
Social Security Number:
1. Instructions. In connection with the proposed conversion of First
Federal Savings and Loan Association of Spartanburg (the "Association") to a
stock savings and loan association and the simultaneous formation of a holding
company (the "Conversion"), participants in the First Federal Savings and Loan
Association of Spartanburg 401(k) Plan (the "Plan") may make a one-time election
to direct the investment of up to 100% of their ___________, 1997 account
balances into the Employer Stock Fund (the "Employer Stock Fund"). Amounts
transferred at the direction of Participants into the Employer Stock Fund will
be used to purchase shares of the common stock of FirstSpartan Financial Corp.
(the "Common Stock"), the proposed holding company for the Association. A
Participant's eligibility to purchase shares of Common Stock is subject to the
Participant's general eligibility to purchase shares of Common Stock in the
Conversion and the maximum and minimum limitations set forth in the Plan
Conversion. See the Prospectus for additional information.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion.
To direct such a transfer to the Employer Stock Fund, you should complete this
form and return it to ______ _____ at the Association, no later than the close
of business on ____________, 1997. The Association will keep a copy of this form
and return a copy to you. (If you need assistance in completing this form,
please contact ____________.
2. Transfer Direction. I hereby direct the Plan Administrator to
transfer $__________ (in increments of $20) from my Plan account to the Employer
Stock Fund.
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion. I acknowledge that I have received a copy of
the Prospectus and the Prospectus Supplement.
Signature
- -------------------------------- Date ---------------------------------
* * * * *
4. Acknowledgement of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
Plan
- -------------------------------- --------------------------------
Administrator Date
S-20
<PAGE>
<PAGE>
PROSPECTUS FIRSTSPARTAN FINANCIAL CORP.
(Proposed Holding Company for First Federal Savings and
Loan Association of Spartanburg)
Up to 3,852,500 Shares of Common Stock
$20.00 Purchase Price Per Share
FirstSpartan Financial Corp. ("Holding Company"), a Delaware
corporation, is offering between 2,847,500 and 3,852,500 shares of its common
stock, $.01 par value per share ("Common Stock"), in connection with the
conversion of First Federal Savings and Loan Association of Spartanburg
("Association") from a federally chartered mutual savings and loan association
to a federally chartered capital stock savings and loan association and the
simultaneous issuance of all of the Association's outstanding capital stock to
the Holding Company. The simultaneous conversion of the Association to stock
form, the issuance of all of its outstanding capital stock to the Holding
Company, and the offer and sale of the Common Stock by the Holding Company
hereby are undertaken pursuant to a plan of conversion ("Plan of Conversion")
and are referred to herein as the "Conversion."
Pursuant to the Plan of Conversion, nontransferable rights to subscribe
for the Common Stock ("Subscription Rights") have been granted, in order of
priority, to (i) depositors with $50.00 or more on deposit at the Association as
of December 31, 1995 ("Eligible Account Holders"), (ii) the Association's
employee stock ownership plan ("ESOP"), a tax-qualified employee benefit plan,
(iii) depositors with $50.00 or more on deposit at the Association as of March
31, 1997 ("Supplemental Eligible Account Holders"), and (iv) depositors of the
Association as of __________, 1997 ("Voting Record Date") and borrowers of the
Association with loans outstanding as of __________, 1997 which continue to be
outstanding as of the Voting Record Date ("Other Members"), subject to the
priorities and purchase limitations set forth in the Plan of Conversion
("Subscription Offering"). Subscription Rights are nontransferable. Persons
selling or otherwise transferring their rights to subscribe for Common Stock in
the Subscription Offering or subscribing for Common Stock on behalf of another
person will be subject to forfeiture of such rights and possible further
sanctions and penalties imposed by the Office of Thrift Supervision ("OTS") or
another agency of the U.S. Government. The Subscription Offering will expire at
____ _.m., Eastern Time, on ______, 1997 ("Expiration Date"), unless extended by
the Association and the Holding Company for up to __ days to ___________,
1997. Such extension may be granted without additional notice to
subscribers. See "THE CONVERSION -- The Subscription, Direct Community and
Syndicated Community Offerings" and "-- Limitations on Purchases of Shares."
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK,
CALL THE STOCK INFORMATION CENTER AT __________.
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" BEGINNING ON PAGE 1.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE SAVINGS
ASSOCIATION INSURANCE FUND ("SAIF") OR ANY OTHER GOVERNMENT AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OTS, THE FDIC OR ANY OTHER FEDERAL AGENCY
OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR
ANY OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
(cover continued on following page)
TRIDENT SECURITIES, INC.
The date of this Prospectus is May __, 1997.
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
Estimated Underwriting
Purchase Commissions and Estimated Net
Price(1) Other Fees and Expenses(2) Proceeds(3)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Minimum Price Per Share.................................. $20.00 $0.45 $19.55
- -------------------------------------------------------------------------------------------------------------------------------
Midpoint Price Per Share................................. $20.00 $0.42 $19.58
- -------------------------------------------------------------------------------------------------------------------------------
Maximum Price Per Share.................................. $20.00 $0.42 $19.58
- -------------------------------------------------------------------------------------------------------------------------------
Maximum Price Per Share, as adjusted(4).................. $20.00 $0.42 $19.58
- -------------------------------------------------------------------------------------------------------------------------------
Minimum Total(5)......................................... $56,950,000 $1,275,000 $55,675,000
- -------------------------------------------------------------------------------------------------------------------------------
Midpoint Total(6)........................................ $67,000,000 $1,400,000 $65,600,000
- -------------------------------------------------------------------------------------------------------------------------------
Maximum Total(7)......................................... $77,050,000 $1,400,000 $75,650,000
- -------------------------------------------------------------------------------------------------------------------------------
Maximum Total, as adjusted(4)(8)......................... $88,607,500 $1,400,000 $87,207,500
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared
by RP Financial, LC. ("RP Financial") as of February 21,
1997, which states that the estimated aggregate pro forma
market value of the Holding Company and the Association as
converted ranged from $56,950,000 to $77,050,000, with a midpoint
of $67,000,000 ("Estimated Valuation Range"). See "THE CONVERSION
-- Stock Pricing and Number of Shares to be Issued."
(2) Includes estimated expenses to the Holding Company and the
Association arising from the Conversion, including fees to be paid
to Trident Securities, Inc. ("Trident Securities") in connection
with the Offerings. Trident Securities fees amount to $672,000,
$797,000, $797,000 and $797,000 at the minimum, midpoint, maximum
and 15% above the Estimated Valuation Range, respectively. Such
fees may be deemed to be underwriting fees and Trident Securities
may be deemed to be an underwriter. Expenses, other than fees to be
paid to Trident Securities, are estimated to total approximately
$603,000 at each of the minimum, midpoint, maximum and maximum,
as adjusted, of the Estimated Valuation Range. Actual expenses
may be more or less than estimated amounts. The Holding Company
and the Association have agreed to indemnify Trident Securities
against certain liabilities, including liabilities that might arise
under the Securities Act of 1933, as amended ("Securities Act").
See "USE OF PROCEEDS" and "THE CONVERSION -- Plan of Distribution
for the Subscription, Direct Community and Syndicated Community
Offerings."
(3) Actual net proceeds can vary substantially from the estimated
amounts depending upon actual expenses and the relative number of
shares sold in the Offerings. See "USE OF PROCEEDS" and "PRO FORMA
DATA."
(4) Gives effect to an increase in the number of shares that could be
sold in the Offerings due to an increase in the pro forma
market value of the Holding Company and the Association as
converted up to 15% above the maximum of the Estimated Valuation
Range, without the resolicitation of subscribers or any right of
cancellation. The ESOP shall have a first priority right to
subscribe for such additional shares up to an aggregate of 8%
of the Common Stock issued in the Conversion. The issuance of
such additional shares will be conditioned on a determination of RP
Financial that such issuance is compatible with its
determination of the estimated pro forma market value of the
Holding Company and the Association as converted. See "THE
CONVERSION -- Stock Pricing and Number of Shares to be Issued."
(5) Assumes the issuance of 2,847,500 shares at $20.00 per share.
(6) Assumes the issuance of 3,350,000 shares at $20.00 per share.
(7) Assumes the issuance of 3,852,500 shares at $20.00 per share.
(8) Assumes the issuance of 4,430,375 shares at $20.00 per share.
Any shares of Common Stock not subscribed for in the
Subscription Offering may be offered for sale to members of the general
public through a direct community offering ("Direct Community
Offering") with preference being given to natural persons and trusts of
natural persons who are permanent residents of Spartanburg County,
South Carolina ("Local Community"), subject to the right of the Holding
Company to accept or reject orders in the Direct Community Offering in whole
or in part. The Direct Community Offering, if one is held, is expected to
begin immediately after the Expiration Date, but may begin at any
time during the Subscription Offering. The Direct Community Offering may
terminate on or after the Expiration Date, but not later than ____________,
1997 (or ____________, 1997 if the Subscription Offering is fully
extended), unless further extended with the consent of the
<PAGE>
OTS. It is anticipated that shares of Common Stock not subscribed for or
purchased in the Subscription Offering and the Direct Community Offering
will be offered to eligible members of the general public on a best efforts
basis by a selling group of broker-dealers managed by Trident Securities in
a syndicated offering ("Syndicated Community Offering"). The Subscription
Offering, Direct Community Offering and Syndicated Community Offering are
referred to collectively as the "Offerings." If the Conversion is not
consummated within 45 days after the last day of the Subscription Offering
(which date will be no later than ________ __, 1997) and the OTS consents
to an extension of time to complete the Conversion, subscribers will be
given the right to increase, decrease or rescind their orders. Such
extensions may not go beyond _____________, 1999.
With the exception of the ESOP, which is expected to subscribe
for 8% of the shares of Common Stock issued in the Conversion, the Plan
of Conversion provides for the following purchase limitations: (i) No
Eligible Account Holder, Supplemental Account Holder or Other Member,
including, in each case, all persons on a joint account, may purchase
shares of Common Stock with an aggregate purchase price of more than $325,000,
(ii) no person, either alone or together with associates of or persons
acting in concert with such person, may purchase in the Direct Community
Offering, if any, or in the Syndicated Community Offering, if any, shares
of Common Stock with an aggregate purchase price of more than $325,000, and
(iii) no person (including all persons on a joint account), either alone
or together with associates of or persons acting in concert with such person,
may purchase in the aggregate more than the overall maximum purchase
limitation of 1% of the total number of shares of Common Stock issued in
the Conversion (exclusive of any shares issued pursuant to an increase in the
Estimated Valuation Range of up to 15%). Under certain circumstances, the
maximum purchase limitation may be increased or decreased at the sole
discretion of the Association and the Holding Company subject to any
required regulatory approval. See "THE CONVERSION -- The Subscription, Direct
Community and Syndicated Community Offerings," "-- Limitations on Purchases of
Shares" and "-- Procedure for Purchasing Shares in the Subscription and
Direct Community Offerings" for other purchase and sale limitations. The minimum
order is 25 shares.
The Holding Company must receive a properly completed and signed
stock order form and certification ("Order Form") along with full payment (or
appropriate instructions authorizing a withdrawal of the full payment from a
deposit account at the Association) of $20.00 per share for all shares
subscribed for or ordered. Funds so received will be placed in segregated
accounts created for this purpose at the Association and will earn
interest at the Association's passbook rate from the date payment is received
until the Conversion is consummated or terminated; these funds will be
otherwise unavailable to the depositor until such time. Payments authorized
by withdrawals from deposit accounts will continue to earn interest at the
contractual rate until the Conversion is consummated or terminated, although
such funds will be unavailable for withdrawal until the Conversion is
consummated or terminated. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE
REVOKED WITHOUT THE CONSENT OF THE ASSOCIATION AND THE HOLDING COMPANY. The
Holding Company is not obligated to accept orders submitted on photocopied or
telecopied Order Forms.
The Association and the Holding Company have engaged Trident Securities
as their financial advisor and to assist the Holding Company in the sale of the
Common Stock in the Offerings. Trident Securities is a registered broker-dealer
and a member of the National Association of Securities Dealers, Inc. ("NASD").
Neither Trident Securities nor any other registered broker-dealer is obligated
to take or purchase any shares of Common Stock in the Offerings. The Holding
Company and the Association reserve the right, in their absolute discretion, to
accept or reject, in whole or in part, any or all orders in the Direct Community
or Syndicated Community Offerings either at the time of receipt of an order or
as soon as practicable following the termination of the Offerings. See "THE
CONVERSION -- Plan of Distribution for the Subscription, Direct Community and
Syndicated Community Offerings."
Offering materials for the Subscription Offering initially will be
distributed to certain persons by mail, with copies also available by request or
at the Stock Information Center. The Association has established the Stock
Information Center for purposes of coordinating the Offerings, including
tabulating orders and answering questions about the Offerings by telephone. All
subscribers for or purchasers of the shares to be offered in the Subscription
Offering will be instructed to send payment directly to the Association, where
such funds will be held in a segregated account and not released until all
shares are sold or the Offerings are terminated. See "THE CONVERSION."
<PAGE>
Prior to the Offerings, the Holding Company has not issued any capital
stock and accordingly there has been no market for the shares offered hereby.
There can be no assurance that an active and liquid trading market for the
Common Stock will develop or, if developed, will be maintained. The Holding
Company has received conditional approval to list the Common Stock the Nasdaq
National Market under the symbol "FSPT." Trident Securities has agreed to act as
a market maker for the Common Stock following consummation of the Conversion.
See "RISK FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET
FOR COMMON STOCK."
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
SPARTANBURG, SOUTH CAROLINA
[MAP APPEARS HERE]
[Map of South Carolina with enlarged map of Greenville and Spartanburg Counties
depicting existing and under construction office locations for First Federal
Savings and Loan Association of Spartanburg, in the cities of Boiling Springs,
Spartanburg, Greenville, Inman and Duncan, South Carolina.]
THE CONVERSION IS CONTINGENT UPON APPROVAL OF THE ASSOCIATION'S PLAN OF
CONVERSION BY AT LEAST A MAJORITY OF THE ELIGIBLE VOTING MEMBERS, THE SALE
OF AT LEAST 2,847,500 SHARES OF COMMON STOCK PURSUANT TO THE PLAN OF
CONVERSION, AND RECEIPT OF ALL REGULATORY APPROVALS.
<PAGE>
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND WILL NOT BE
INSURED OR GUARANTEED BY THE FDIC, THE SAIF OR ANY OTHER GOVERNMENT
AGENCY.
- --------------------------------------------------------------------------------
PROSPECTUS SUMMARY
The information set forth below should be read in conjunction with and
is qualified in its entirety by the more detailed information and Consolidated
Financial Statements (including the Notes thereto) presented elsewhere in this
Prospectus. The purchase of Common Stock is subject to certain risks. See
"RISK FACTORS."
FirstSpartan Financial Corp.
The Holding Company was organized on February 4, 1997 under Delaware
law at the direction of the Association to acquire all of the capital stock that
the Association will issue upon its conversion from the mutual to stock form of
ownership. The Holding Company has only engaged in organizational activities to
date. The Holding Company has received conditional OTS approval to become a
savings and loan holding company through the acquisition of 100% of the capital
stock of the Association. Immediately following the Conversion, the only
significant assets of the Holding Company will be the outstanding capital stock
of the Association, 50% of the net proceeds of the Offerings as permitted by the
OTS to be retained by it and a note receivable from the ESOP evidencing a loan
to enable the ESOP to purchase 8% of the Common Stock issued in the Conversion.
Funds retained by the Holding Company will be used for general business
activities. See "USE OF PROCEEDS." Upon Conversion, the Holding Company will be
classified as a unitary savings and loan holding company subject to OTS
regulation. See "REGULATION -- Savings and Loan Holding Company Regulations."
The main office of the Holding Company is located at 380 E. Main Street,
Spartanburg, South Carolina 29302 and its telephone number is (864) 582-2391.
First Federal Savings and Loan Association of Spartanburg
Chartered in 1935, the Association is a federal mutual savings and loan
association headquartered in Spartanburg, South Carolina. As a result of the
Conversion, the Association will convert to a federal capital stock savings and
loan association and will become a wholly-owned subsidiary of the Holding
Company. The Association is regulated by the OTS, its primary regulator, and by
the FDIC, the insurer of its deposits. The Association's deposits have been
federally-insured since 1935 and are currently insured by the FDIC under the
SAIF. The Association has been a member of the Federal Home Loan Bank ("FHLB")
System since 1935. At December 31, 1996, the Association had total assets of
$375.5 million, total deposits of $324.0 million and total equity of $44.8
million on a consolidated basis.
The Association is a community oriented financial institution whose
primary business is attracting retail deposits from the general public and using
these funds to originate primarily one- to- four family residential mortgage
loans within its primary market area. The Association is an approved Federal
Housing Administration ("FHA") and Veterans Administration ("VA") lender and
participates in the Spartanburg Residential Development Program, an affordable
housing program. The Association also actively originates construction loans and
consumer loans. To a lesser extent, the Association originates land loans,
commercial real estate loans and commercial business loans. The Association
expects to hire an experienced commercial loan officer familiar with the
Association's primary market area in an attempt to augment its commercial real
estate and commercial business lending. At December 31, 1996, one- to- four
family residential mortgage loans, consumer loans (including commercial business
loans), construction loans, commercial real estate loans and land loans amounted
to 77.3%, 11.5%, 9.2%, 1.3% and 0.7% of its total loan portfolio, respectively.
Loans receivable, net, constituted 88.3% of total assets at December 31, 1996.
See "RISK FACTORS -- Certain Lending Considerations" and "BUSINESS OF THE
ASSOCIATION -- Lending Activities."
(i)
<PAGE>
The Association considers Spartanburg County and adjacent counties in
Northwest South Carolina to be its primary market area because a large number of
its depositors reside, and a substantial portion of its loan portfolio is
secured by properties located, in that geographic area. See "RISK FACTORS --
Concentration of Credit Risk." Since August 1996, the Association has purchased
a limited number of one- to- four family residential mortgage loans and
residential construction loans from a regional start-up mortgage banking company
in which the Association's service corporation subsidiary has an equity
investment. At December 31, 1996, a substantial portion of these purchased loans
were secured by properties located in the Association's primary market area.
Such loan purchases are expected to continue and increase in volume as that
company's mortgage banking operations expand, and are likely to include
purchases of loans, including commercial loans and home equity loans, secured by
properties inside and outside of the Association's primary market area. See
"FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG," "BUSINESS OF THE
ASSOCIATION -- Lending Activities -- Loan Originations, Sales and Purchases" and
"-- Subsidiary Activities."
In addition to its lending activities, the Association invests excess
liquidity in short term U.S. Government and agency securities, a mutual fund
that invests in adjustable rate mortgage loans and, to a substantially lesser
extent, short term mortgage-backed securities issued by U.S. Government
agencies. Investment securities and mortgage-backed securities, which
constituted 3.6% of total assets at December 31, 1996, had an amortized cost and
a fair value of $13.6 million at December 31, 1996. See "BUSINESS OF THE
ASSOCIATION -- Investment Activities."
The Association conducts its operations from its main office and three
branch offices located in Spartanburg, South Carolina, a branch office in
Boiling Springs, South Carolina (Spartanburg County) and a loan production
office in Greenville, South Carolina, in adjacent Greenville County. Two
additional branch offices are under construction in Inman, South Carolina
(Spartanburg County), and in Duncan, South Carolina (Spartanburg County). Both
offices are scheduled to open by the end of the first half of calendar 1997. See
"BUSINESS OF THE ASSOCIATION -- Properties." The main office is located at 380
E. Main Street, Spartanburg, South Carolina 29302, and its telephone number is
(864) 582-2391.
The Conversion
The Association proposes to convert from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings and
loan association and become a wholly-owned subsidiary of the Holding Company by
issuing all of its capital stock to the Holding Company in exchange for 50% of
the net proceeds of the Offerings. Simultaneously, the Holding Company will sell
its Common Stock in the Offerings. The Conversion has been approved by the OTS,
subject to approval by the Association's members at a special meeting to be held
on June ___, 1997. After consummation of the Conversion, depositors and
borrowers of the Association will have no voting rights in the Holding Company
unless they become stockholders.
The Plan of Conversion requires that the aggregate purchase price of
the Common Stock to be issued in the Conversion be based upon an independent
appraisal of the estimated pro forma market value of the Holding Company and the
Association, as converted. RP Financial has advised the Association that in its
opinion, at February 21, 1997, the aggregate estimated pro forma market value of
the Holding Company and the Association, as converted, ranged from $56,950,000
to $77,050,000 or from 2,847,500 shares to 3,852,500 shares, assuming a $20.00
per share Purchase Price. The appraisal of the pro forma market value of the
Holding Company and the Association as converted is based on a number of factors
and should not be considered a recommendation to buy shares of the Common Stock
or any assurance that after the Conversion shares of Common Stock will be able
to be resold at or above the Purchase Price. The appraisal will be updated or
confirmed prior to consummation of the Conversion.
The Board of Directors and management believe that the Conversion is in
the best interests of the Association's members and its communities. The
Conversion is intended: (i) to improve the competitive position of the
Association in its market area and support possible future expansion and
diversification of operations (currently, there are no specific plans,
arrangements or understandings, written or oral, regarding any such activities);
(ii) to afford members of the Association and others the opportunity to become
stockholders of the Holding Company and thereby participate more directly in,
and contribute to, any future growth of the Holding Company and the
(ii)
<PAGE>
Association; and (iii) to provide future access to capital markets. See "THE
CONVERSION -- Purposes of Conversion."
The Subscription, Direct Community and Syndicated Community Offerings
The Holding Company is offering up to 3,852,500 shares of Common Stock
at $20.00 per share to holders of Subscription Rights in the following order of
priority: (i) Eligible Account Holders; (ii) the Association's ESOP; (iii)
Supplemental Eligible Account Holders; and (iv) Other Members. In the event the
number of shares offered in the Conversion is increased above the maximum of the
Estimated Valuation Range, the Association's ESOP shall have a priority right to
purchase any such shares exceeding the maximum of the Estimated Valuation Range
up to an aggregate of 8% of the Common Stock. Once tendered, orders are
irrevocable without the consent of the Association and the Holding Company. Any
shares of Common Stock not subscribed for in the Subscription Offering may be
offered in the Direct Community Offering to the general public with preference
being given to natural persons and trusts of natural persons who are permanent
residents of the Local Community. The Association has engaged Trident Securities
to consult with and advise the Holding Company and the Association in the
Offerings, and Trident Securities has agreed to use its best efforts to assist
the Holding Company with the solicitation of subscriptions and purchase orders
for shares of Common Stock in the Offerings. Trident Securities is not obligated
to take or purchase any shares of Common Stock in the Offerings. If all shares
of Common Stock to be issued in the Conversion are not sold through the
Subscription Offering and the Direct Community Offering, then the Holding
Company expects to offer the remaining shares in a Syndicated Community Offering
managed by Trident Securities, which would occur as soon as practicable
following the close of the Subscription and Direct Community Offerings. All
shares of Common Stock will be sold at the same price per share in the
Syndicated Community Offering as in the Subscription Offering and the Direct
Community Offering. See "USE OF PROCEEDS," "PRO FORMA DATA" and "THE CONVERSION
- -- Stock Pricing and Number of Shares to be Issued." The Subscription Offering
will expire at ____ _.m., Eastern Time, on the Expiration Date, unless extended
by the Association and the Holding Company for up to __ days. The Direct
Community Offering and Syndicated Community Offering, if any, may terminate on
the Expiration Date or on any date thereafter, however, in no event later than
________, 1997, unless further extended with the consent of the OTS.
Benefits of the Conversion to Management
ESOP. In connection with the Conversion, the Association will adopt the
ESOP, a tax-qualified employee benefit plan for officers and employees of the
Holding Company and the Association, which intends to purchase 8% of the shares
of Common Stock issued in the Offerings (308,200 shares of Common Stock, based
on the issuance of the maximum of the Estimated Valuation Range). In the event
the number of shares offered in the Conversion is increased above the maximum of
the Estimated Valuation Range, the Association's ESOP shall have a priority
right to purchase any such shares exceeding the maximum of the Estimated
Valuation Range up to an aggregate of 8% of the Common Stock. In the event that
the ESOP's subscription is not filled in its entirety, the ESOP may purchase
additional shares in the open market or may purchase additional authorized but
unissued shares with cash contributed to it by the Association. For additional
information concerning the ESOP, see "MANAGEMENT OF THE ASSOCIATION -- Benefits
- -- Employee Stock Ownership Plan." As a result of the adoption of the ESOP, the
Holding Company will recognize compensation expense in an amount equal to the
fair market value of the ESOP shares when such shares are committed to be
released to participants' accounts. See "PRO FORMA DATA."
MRP. The Holding Company expects to seek stockholder approval of the
FirstSpartan Financial Corp. 1997 Management Recognition Plan and Trust ("MRP"),
which will reserve a number of shares equal to 4% of the number of shares issued
in the Conversion. Under current OTS regulations, the approval of a majority
vote of the Holding Company's outstanding shares of Common Stock is required
prior to the implementation of the MRP within one year of the consummation of
the Conversion. If stockholder approval of the MRP is obtained, it is expected
that awards of up to 154,100 shares of Common Stock of the Holding Company will
be made to key employees and directors of the Holding Company and the
Association (based on the issuance of the maximum of the Estimated Valuation
Range). Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent permitted by applicable regulations. Under current OTS regulations,
if the MRP is implemented within one year of the consummation of the Conversion,
(i) no officer or employees could receive an
(iii)
<PAGE>
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive
in excess of 30%, of the number of shares reserved for issuance under the
MRP. In addition, all awards would be subject to vesting at a minimum rate of
20% per year. The size of individual awards will be determined prior to
submitting the MRP for stockholder approval, and disclosure of anticipated
awards will be included in the proxy materials for such meeting. See "PRO
FORMA DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management
Recognition Plan."
Stock Option Plan. The Holding Company expects to seek stockholder
approval of the FirstSpartan Financial Corp. 1997 Stock Option Plan ("Stock
Option Plan"), which will reserve a number of shares equal to 10% of the number
of shares issued in the Conversion. Under current OTS regulations, the approval
of a majority vote of the Holding Company's outstanding shares of Common Stock
is required prior to the implementation of the Stock Option Plan within one year
of the consummation of the Conversion. If stockholder approval of the Stock
Option Plan is obtained, it is expected that options to acquire up to 385,250
shares of Common Stock of the Holding Company will be awarded to key employees
and directors of the Holding Company and the Association (based on the issuance
of the maximum of the Estimated Valuation Range). The exercise price of such
options will be 100% of the fair market value of the Common Stock on the date
the option is granted. Although no specific award determinations have been made
at this time, the Holding Company and the Association anticipate that if
stockholder approval is obtained it would provide awards to its directors,
officers and employees to the extent permitted by applicable regulations. Under
current OTS regulations, if the Stock Option Plan is implemented within one year
of the consummation of the Conversion, (i) no officer or employees could receive
an award of options covering in excess of 25%, (ii) no nonemployee director
could receive in excess of 5% and (iii) nonemployee directors, as a group, could
not receive in excess of 30%, of the number of shares reserved for issuance
under the Stock Option Plan. In addition, all awards would be subject to vesting
at a minimum rate of 20% per year. The size of individual awards will be
determined prior to submitting the Stock Option Plan for stockholder approval,
and disclosure of anticipated awards will be included in the proxy materials for
such meeting. Options are valuable only to the extent that they are exercisable
and the market price for the underlying share of Common Stock is in excess of
the exercise price. An option effectively eliminates the market risk of holding
the underlying security since no consideration is paid for the option until it
is exercised. Therefore, the recipient may, within the limits of the term of the
option, wait to exercise the option until the market price exceeds the exercise
price. See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- 1997 Stock Option
Plan."
Employment and Severance Agreements. The Holding Company and the
Association have agreed to enter into employment agreements with three of the
Association's executive officers, which provides certain benefits in the event
of their termination following a change in control of the Holding Company or the
Association. In the event of a change in control of the Holding Company or the
Association, as defined in the agreement, each executive officer will be
entitled to a cash severance payment equal to 2.99 times their average annual
compensation during the five-year period preceding the change in control.
Assuming a change of control occurred as of December 31, 1996, the aggregate
amount payable to these executive officers under the agreements would have been
approximately $960,000. See "MANAGEMENT OF THE ASSOCIATION -- Executive
Compensation -- Employment Agreements."
The Holding Company and the Association have agreed to enter into
severance agreements with three of the Association's senior officers, none of
whom will be covered by an employment agreement. The severance agreements
provide for certain benefits in the event of their termination following a
change in control of the Holding Company or the Association. In the event of a
change in control of the Holding Company or the Association, as defined in the
agreements, such officers will each be entitled to a cash severance payment.
Assuming a change of control occurred as of December 31, 1996, the aggregate
amount payable to these officers under the agreements would have been
approximately $461,000. See "MANAGEMENT OF THE ASSOCIATION -- Executive
Compensation -- Severance Agreements."
Employee Severance Compensation Plan. In connection with the
Conversion, the Board of Directors of the Association intends to adopt an
Employee Severance Compensation Plan ("Severance Plan") to provide benefits to
eligible employees in the event of a change in control of the Holding Company or
the Association. Officers who enter into separate employment or severance
agreements with the Holding Company and the Association will not be eligible to
participate in the Severance Plan. The Severance Plan provides that, in the
event of a change in control
(iv)
<PAGE>
of the Holding Company or the Association, eligible employees who are
terminated or who terminate employment (but only upon the occurrence of
events specified in the Severance Plan) within 12 months of the effective
date of a change in control will be entitled to a payment based on years of
service and/or position with the Association, subject to certain limits.
Assuming that a change in control had occurred at December 31, 1996 and the
termination of all eligible employees, the maximum aggregate payment due
under the Severance Plan would be approximately $______________. See "MANAGEMENT
OF THE ASSOCIATION -- Executive Compensation -- Employee Severance Compensation
Plan."
For information concerning the possible voting control of officers,
directors and employees following the Conversion, see "RISK FACTORS --
Anti-takeover Considerations -- Voting Control by Insiders."
Prospectus Delivery and Procedure for Purchasing Common Stock
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the Expiration Date, in accordance with Rule 15c2-8 under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), no Prospectus will
be mailed later than five days or hand delivered any later than two days prior
to the Expiration Date. Execution of the Stock Order Form will confirm receipt
or delivery of a Prospectus in accordance with Rule 15c2-8. Stock Order Forms
will be distributed only with a Prospectus. Neither the Holding Company, the
Association nor Trident Securities is obligated to deliver a Prospectus and a
Stock Order Form by any means other than the U.S. Postal Service.
To ensure that Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members are properly identified as to their stock purchase
priorities, such parties must list all deposit accounts, or in the case of Other
Members who are only borrowers, loans held at the Association, on the Stock
Order Form giving all names on each deposit account and/or loan and the account
and/or loan numbers at the applicable eligibility date.
Full payment by check, cash (except by mail), money order, bank draft
or withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Stock Order Form (facsimile copies and photocopies will
not be accepted). Orders cannot and will not be accepted without the execution
of the Certification appearing on the reverse side of the Stock Order Form. See
"THE CONVERSION -- Procedure for Purchasing Shares in the Subscription and
Direct Community Offering."
Purchase Limitations
With the exception of the ESOP, which is expected to subscribe for 8%
of the shares of Common Stock issued in the Conversion, the Plan of Conversion
provides for the following purchase limitations: (i) No Eligible Account Holder,
Supplemental Account Holder or Other Member, including, in each case, all
persons on a joint account, may purchase shares of Common Stock with an
aggregate purchase price of more than $325,000, (ii) no person, either alone or
together with associates of or persons acting in concert with such person, may
purchase in the Direct Community Offering, if any, or in the Syndicated
Community Offering, if any, shares of Common Stock with an aggregate purchase
price of more than $325,000, and (iii) no person (including all persons on a
joint account), either alone or together with associates of or persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1% of the total number of shares of Common Stock
issued in the Conversion (exclusive of any shares issued pursuant to an increase
in the Estimated Valuation Range of up to 15%). This maximum purchase limitation
may be increased consistent with OTS regulations in the sole discretion of the
Holding Company and the Association subject to any required regulatory approval.
The minimum purchase is 25 shares.
The term "acting in concert" is defined in the Plan of Conversion to
mean: (i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. The Holding Company and the Association may presume that certain
persons are acting in concert based upon, among other things, joint account
relationships and the fact that such persons have filed joint Schedules 13D with
the Securities and Exchange Commission ("SEC") with respect to other companies.
The term
(v)
<PAGE>
"associate" of a person is defined in the Plan of Conversion to mean: (i) any
corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries.
Stock orders received either through the Direct Community Offering or
the Syndicated Community Offering, if held, may be accepted or rejected, in
whole or in part, at the discretion of the Holding Company and the Association.
See "THE CONVERSION -- Limitations on Purchases of Shares." If an order is
rejected in part, the purchaser does not have the right to cancel the remainder
of the order. In the event of an oversubscription, shares will be allocated in
accordance with the Plan of Conversion. See "THE CONVERSION -- The Subscription,
Direct Community and Syndicated Community Offerings."
Stock Pricing and Number of Shares to be Issued in the Conversion
The Purchase Price in the Subscription Offering is a uniform price
established by the Board of Directors for all subscribers, including members of
the Holding Company's and the Association's Boards of Directors, their
management and tax-qualified employee plans. The number of shares to be offered
at the Purchase Price is based upon an independent appraisal of the aggregate
pro forma market value of the Holding Company and the Association, as converted.
The aggregate pro forma market value was estimated by RP Financial to range from
$56,950,000 to $77,050,000 as of February 21, 1997, or from 2,847,500 to
3,852,500 shares based on the Purchase Price. See "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued." The appraisal of the pro forma value
of the Holding Company and the Association, as converted, will be updated or
confirmed at the completion of the Offerings. The maximum of the Estimated
Valuation Range may be increased by up to 15% and the number of shares of Common
Stock to be issued in the Conversion may be increased to 4,430,375 shares due to
material changes in the financial condition or results of operations of the
Association or changes in market conditions or general financial, economic or
regulatory conditions. No resolicitation of subscribers will be made and
subscribers will not be permitted to modify or cancel their subscriptions unless
the gross proceeds from the sale of the Common Stock are less than the minimum
or more than 15% above the maximum of the current Estimated Valuation Range. The
appraisal is not intended to be and should not be construed as a recommendation
of any kind as to the advisability of purchasing Common Stock in the Offerings
nor can assurance be given that purchasers of the Common Stock in the Offerings
will be able to sell such shares after consummation of the Conversion at a price
that is equal to or above the Purchase Price. Furthermore, the pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be greater than amounts that would be available for
distribution to stockholders in the event of liquidation.
Use of Proceeds
The net proceeds from the sale of the Common Stock are estimated to
range from $55.7 million to $75.7 million, or to $87.2 million if the Estimated
Valuation Range is increased by 15%, depending upon the number of shares sold
and the expenses of the Conversion. The Holding Company has received conditional
OTS approval to purchase all of the capital stock of the Association to be
issued in the Conversion in exchange for 50% of the net proceeds of the
Offerings. This will result in the Holding Company retaining approximately $27.9
million to $37.9 million of the net proceeds, or up to $43.6 million if the
Estimated Valuation Range is increased by 15%, and the Association receiving an
equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, local
lending and investment in short-term U.S. Government and agency obligations. The
Association also intends to use a portion of the funds (up to approximately $1.5
million) to contribute to the ongoing construction of two branch offices and the
renovation of an existing branch office.
(vi)
<PAGE>
A portion of the net proceeds retained by the Holding Company will be
used for a loan by the Holding Company to the ESOP to enable it to purchase 8%
of the shares of Common Stock issued in the Conversion. Such loan would fund the
entire purchase price of the ESOP shares ($6,164,000 at the maximum of the
Estimated Valuation Range) and would be repaid principally from the
Association's contributions to the ESOP and from dividends payable on the Common
Stock held by the ESOP. The remaining proceeds retained by the Holding Company
initially will be invested primarily in short-term U.S. Government and agency
obligations. Such proceeds will be available for additional contributions to the
Association in the form of debt or equity, to support future growth and
diversification activities, as a source of dividends to the stockholders of the
Holding Company and for future repurchases of Common Stock (including possible
repurchases to fund the MRP or to provide shares to be issued upon exercise of
stock options) to the extent permitted under Delaware law and OTS regulations.
The Holding Company will consider exploring opportunities to use such funds to
expand operations through acquiring or establishing additional branch offices
and the acquisition of other financial institutions. Currently, there are no
specific plans, arrangements, agreements or understandings, written or oral,
regarding any such activities.
Market for Common Stock
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. The Holding
Company has received conditional approval to have the Common Stock listed on the
Nasdaq National Market System under the symbol "FSPT." Trident Securities has
agreed to act as a market maker for the Holding Company's Common Stock following
consummation of the Conversion. No assurance can be given that an active and
liquid trading market for the Common Stock will develop. Further, no assurance
can be given that purchasers will be able to sell their shares at or above the
Purchase Price after the Conversion. See "RISK FACTORS -- Absence of Prior
Market for the Common Stock" and "MARKET FOR COMMON STOCK."
Dividend Policy
The Holding Company's Board of Directors anticipates declaring and
paying quarterly cash dividends on the Common Stock at an annual rate of 3%
($0.60 per share per year based on the Purchase Price). The first quarterly cash
dividend is expected to be declared and paid during the first full quarter
following the consummation of the Conversion. In addition, the Board of
Directors may determine to pay periodic special cash dividends in addition to,
or in lieu of, regular cash dividends. Declarations and payments of any
dividends (regular and special) by the Board of Directors will depend upon a
number of factors, including the amount of the net proceeds retained by the
Holding Company, capital requirements, regulatory limitations, the Association's
and the Holding Company's financial condition and results of operations, tax
considerations and general economic conditions. In order to pay such cash
dividends, however, the Holding Company must have available cash either from the
net proceeds raised in the Offerings and retained by the Holding Company,
dividends received from the Association or earnings on Holding Company assets.
There are certain limitations on the payment of dividends from the Association
to the Holding Company. See "REGULATION -- Federal Regulation of Savings
Associations -- Limitations on Capital Distributions." No assurances can be
given that any dividends will be declared or, if declared, what the amount of
dividends will be or whether such dividends, if commenced, will continue. See
"DIVIDEND POLICY."
Officers' and Directors' Common Stock Purchases and Beneficial Ownership
Officers and directors of the Association (15 persons) are expected to
subscribe for an aggregate of approximately 129,750 shares of Common Stock, or
4.6% and 3.4% of the shares based on the minimum and the maximum of the
Estimated Valuation Range, respectively. See "SHARES TO BE PURCHASED BY
MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS." In addition, purchases by the ESOP,
allocations under the MRP, and the exercise of stock options issued under the
Stock Option Plan, will increase the number of shares beneficially owned by
directors, officers and employees. Assuming (i) the receipt of stockholder
approval for the MRP and the Stock Option Plan, (ii) the open market purchase of
shares on behalf of the MRP, (iii) the purchase by the ESOP of 8% of the Common
Stock sold in the Offerings, and (iv) the exercise of stock options equal to 10%
of the number of shares of Common Stock issued in the Conversion, directors,
officers and employees of the Holding Company and the Association would have
voting control, on a fully diluted basis, of 24.14% and 23.06% of the Common
Stock, based on the issuance of the minimum and maximum of the Estimated
Valuation Range, respectively. See "RISK FACTORS -- Anti-takeover Considerations
- -- Voting Control by Insiders." The
(vii)
<PAGE>
MRP and Stock Option Plan are subject to approval by the stockholders of the
Holding Company at a meeting to be held no earlier than six months following
consummation of the Conversion.
Risk Factors
See "RISK FACTORS" beginning on page 1 for a discussion of certain
risks related to the Offerings that should be considered by all prospective
investors.
(viii)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Association and
its subsidiaries at the dates and for the periods indicated. Information at
December 31, 1996 and for the six months ended December 31, 1996 and 1995 are
unaudited, but, in the opinion of the management, reflect all adjustments (none
of which are other than normal recurring entries) necessary for a fair
presentation. The results of operations for the six months ended December 31,
1996 are not necessarily indicative of the results of operations that may be
expected for the entire fiscal year. This information is qualified in its
entirety by reference to the detailed information contained in the Consolidated
Financial Statements and Notes thereto presented elsewhere in this Prospectus.
<PAGE>
<TABLE>
<CAPTION>
At December 31, At June 30,
1996 -------------------------------------------------------------
------------------- 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets................................. $375,526 $356,966 $322,735 $309,879 $302,516 $283,332
Loans receivable, net........................ 331,654 314,936 267,393 247,195 231,168 227,722
Loans held-for-sale.......................... 1,444 1,911 15,324 16,892 23,837 20,394
Investment securities held-to-maturity....... -- -- 5,502 22,854 20,327 12,152
Investment securities available-for sale..... 13,492 18,155 8,228 -- -- --
Mortgage-backed securities held-to-maturity.. 128 195 383 470 930 1,444
Cash, federal funds sold and overnight
interest-bearing deposits .................. 17,104 10,784 15,967 11,728 17,236 12,912
Deposit accounts............................. 323,951 305,831 275,915 270,182 267,461 253,616
Total equity, substantially restricted....... 44,833 44,154 40,660 36,455 32,088 26,689
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------ -----------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C>
SELECTED OPERATING DATA:
Investment income............................ $14,157 $13,037 $26,481 $23,835 $23,153 $24,167 $24,825
Interest expense............................. 7,568 7,332 14,669 11,302 10,387 11,623 14,816
-------- -------- --------------- -------- -------- --------
Net interest income.......................... 6,589 5,705 11,812 12,533 12,766 12,544 10,009
Provision for loan losses.................... 675 4 419 9 -- 208 503
-------- -------- ------------------------ -------- --------
Net interest income
after provision for loan losses............. 5,914 5,701 11,393 12,524 12,766 12,336 9,506
-------- -------- --------------- -------- -------- --------
Gains (losses) from sale of mortgage
loans and investments....................... 21 -- -- (1,474) (335) 405 581
Other income................................. 681 599 1,325 1,808 419 1,160 1,318
Other expenses............................... 5,644 3,326 7,070 6,222 5,671 5,061 5,345
-------- -------- --------------- -------- -------- --------
Income before income taxes................... 972 2,974 5,648 6,636 7,179 8,840 6,060
Provision for income taxes................... 365 1,115 2,111 2,495 2,707 3,446 1,963
-------- -------- --------------- -------- -------- --------
Net income................................... $ 607 $ 1,859 $ 3,537 $ 4,141 $ 4,472 $ 5,394 $ 4,097
======= ======= ======= ======= ======= ======= =======
</TABLE>
(ix)
<PAGE>
<TABLE>
<CAPTION>
At December 31, At June 30,
-----------------------------------------
1996 1996 1995 1994 1993 1992
--------------- ---- ---- ---- ---- ----
<S> <C>
SELECTED OTHER DATA:
Number of:
Mortgage loans outstanding.......... 4,684 4,425 4,319 4,340 4,332 4,454
Deposit accounts.................... 37,739 35,687 30,258 27,267 26,454 25,907
Full-service offices................ 5 5 5 4 4 4
</TABLE>
<TABLE>
<CAPTION>
At or For Six
Months Ended At or For
December 31, Year Ended June 30,
----------------- ----------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C>
SELECTED FINANCIAL RATIOS(1):
Performance Ratios:
Return on average assets(2) ........... 0.33% 1.10% 1.03% 1.32% 1.45% 1.83% 1.49%
Return on average equity(3)............ 2.68 8.86 8.23 10.74 12.88 18.17 16.73
Interest rate spread(4)................ 3.21 3.08 3.01 3.71 3.94 4.14 3.42
Net interest margin(5)................. 3.75 3.66 3.55 4.15 4.30 4.46 3.81
Average interest-earning assets
to average interest-bearing liabilities 1.12 1.13 1.12 1.12 1.10 1.08 1.07
Noninterest expense as a
percent of average total assets....... 3.08 1.96 2.05 1.98 1.84 1.71 1.94
Efficiency ratio(6).................... 0.53 0.53 0.54 0.48 0.44 0.36 0.45
Asset Quality Ratios:
Nonperforming loans as a percent
of loans receivable, net(7)........... 1.32 0.66 1.87 1.79 0.96 0.93 1.22
Nonperforming assets as a
percent of total assets(8)............ 1.20 0.54 1.66 1.50 0.77 0.84 1.19
Allowance for losses as a percent
of gross loans receivable............. 0.48 0.20 0.30 0.21 0.23 0.25 0.17
Allowance for losses as a
percent of nonperforming loans........ 37.55 31.70 17.02 12.52 25.20 27.91 14.42
Net charge-offs to average
outstanding loans..................... 0.01 -- 0.01 -- -- -- 0.21
Capital Ratios:
Total equity to total assets........... 11.94 12.22 12.37 12.60 11.76 10.61 9.40
Average equity to average assets....... 12.37 12.38 12.47 12.28 11.24 10.04 8.91
</TABLE>
- ----------
(1) Annualized, where appropriate, for the six months ended December 31, 1996
and 1995.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Other expenses (excluding the one-time SAIF assessment with respect to
the six months ended December 31, 1996) divided by the sum of net interest
income and other income.
(7) Nonperforming loans consist of loans accounted for on a nonaccrual basis
and accruing loans contractually past due 90 days or more.
(8) Nonperforming assets consist of nonperforming loans and real estate
acquired in settlement of loans, but excludes restructured loans. See
"BUSINESS OF THE ASSOCIATION -- Lending Activities -- Nonperforming Assets
and Delinquencies."
(x)
<PAGE>
RISK FACTORS
Before investing in shares of the Common Stock offered hereby,
prospective investors should carefully consider the matters presented below, in
addition to matters discussed elsewhere in this Prospectus.
Interest Rate Risk
General. Like all financial institutions, the Association's financial
condition and operations are influenced significantly by general economic
conditions, the related monetary and fiscal policies of the federal
government and government regulations. Deposit flows and the cost of funds are
influenced by interest rates of competing investments and general market
interest rates. Lending activities are affected by the demand for mortgage
financing and for consumer and other types of loans, which in turn is affected
by the interest rates at which such financing may be offered and by other
factors affecting the supply of housing and the availability of funds. The
Association's profitability, like that of most financial institutions, depends
largely on its net interest income, which is the difference between the
interest income received from its interest-earning assets and the interest
expense incurred in connection with its interest-bearing liabilities. To
better control the impact of changes in interest rates, the Association
has sought to improve the match between asset and liability maturities or
repricing periods and rates by emphasizing the origination and purchase of
adjustable-rate mortgage ("ARM") loans and shorter term construction,
commercial real estate, and consumer loans.
Potential Adverse Impact on Results of Operations. The Association's
results of operations would be adversely affected by a material prolonged
increase in market interest rates. At December 31, 1996, assuming, for
example, an instantaneous 200 basis point increase in market interest
rates, the Association's net portfolio value ("NPV") (the present value of
expected cash flows from assets, liabilities and off-balance sheet contracts)
would decrease by approximately $12.9 million, or 22.5%. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset and Liability Management."
Potential Adverse Impact on Financial Condition. Changes in the
level of interest rates also affect the volume of loans originated or
purchased by the Association and, thus, the amount of loan and commitment
fees, as well as the market value of the Association's investment
securities and other interest-earning assets. Changes in interest rates
also can affect the average life of loans. Decreases in interest rates may
result in increased prepayments of loans, as borrowers refinance to reduce
borrowing costs. Under these circumstances, the Association is subject to
reinvestment risk to the extent that it is not able to reinvest such
prepayments at rates which are comparable to the rates on the maturing loans
or securities. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings institutions into
direct investments, such as U.S. Government and corporate securities and other
investment vehicles which, because of the absence of federal insurance
premiums and reserve requirements, generally pay higher rates of return than
savings institutions.
At December 31, 1996, out of total gross loans of $346.3 million
in the Association's portfolio, $96.3 million were ARM loans, the majority
of which reprice every year. Furthermore, the Association's ARM loans contain
periodic and lifetime interest rate adjustment limits which, in a rising
interest rate environment, may prevent such loans from repricing to market
interest rates. While management anticipates that ARM loans will better
offset the adverse effects of an increase in interest rates as compared to
fixed-rate mortgages, the increased mortgage payments required of ARM
borrowers in a rising interest rate environment could potentially cause an
increase in delinquencies and defaults. The Association has not
historically had an increase in such delinquencies and defaults on ARM
loans, but no assurance can be given that such delinquencies or defaults would
not occur in the future. The marketability of the underlying property also
may be adversely affected in a high interest rate environment. Moreover, the
Association's ability to originate or purchase ARM loans may be affected by
changes in the level of interest rates and by market acceptance of the terms
of such loans. In a relatively low interest rate environment, as
currently exists, borrowers generally tend to favor fixed-rate loans over ARM
loans to hedge against future increases in interest rates.
1
<PAGE>
Certain Lending Risks
While the Association's loan portfolio at December 31, 1996 consisted
primarily of one- to- four family mortgage loans, the portfolio also included
construction loans (both custom and speculative), consumer loans and, to a
lesser extent, commercial real estate loans, land loans for the purpose
of developing residential sub-divisions and commercial business loans. At
December 31, 1996, construction loans, consumer loans (including commercial
business loans), commercial real estate loans and land loans totalled
$31.9 million, $39.8 million, $4.6 million and $2.4 million, or 9.2%, 11.5%,
1.3%and 0.7%, of total loans, respectively. These forms of lending are
generally viewed to involve greater risk of loss than one- to- four family
mortgage lending. This risk is exacerbated in the case of construction
loans, land loans and commercial real estate loans because they generally have
higher individual loan balances than one- to- four family mortgage loans.
Subject to market conditions, the Association intends to continue
originating these types of loans and, with respect to consumer lending,
continue to actively seek to expand it through advertising campaigns and
other promotions. A significant increase in the volume of such originations
would be a material factor in management's ongoing evaluation of the
adequacy of the Association's allowance for loan losses and may, in
management's judgment in future periods, warrant additional provisions for
loan losses, which could have a material adverse effect on net income. See
"BUSINESS OF THE ASSOCIATION -- Lending Activities."
Construction loan delinquencies, particularly speculative loan
delinquencies, have increased in recent periods. At December 31, 1996,
construction loans accounted for on a nonaccrual basis totaled $847,000,
all of which were speculative loans, and accruing construction loans
contractually past due 90 days or more totalled $2.9 million, all of which were
speculative loans. The Association attributes this increase principally to
slower home sales in certain price ranges of homes as national home builders
have become increasingly active in the Association's primary market area. In
addition, competition from national home builders may have a further adverse
impact on local home builders by, among other things, lengthening the
marketing for completed homes in certain price ranges and in certain
segments of the Association's primary market area. Consequently, the risk
of materially increased delinquencies and, although not expected, the risk of
material loss exist. The Association, however, has implemented procedures
to mitigate these risks. See "BUSINESS OF THE ASSOCIATION -- Lending Activities
- -- Construction Lending" and " -- Nonperforming Assets and Delinquencies."
Competition
The Association has faced, and will continue to face, intense
competition both in making loans and attracting deposits. The Association's
primary market area of Spartanburg County has a high density of financial
institutions, many of which are branches of large Southeastern bank holding
companies which have greater financial resources than the Association and all
of which compete with the Association in varying degrees. Competition for loans
is principally comes from commercial banks, thrift institutions, credit
unions, mortgage banking companies and insurance companies. Historically,
commercial banks, thrift institutions and credit unions have been the
Association's most direct competition for deposits. The Association also
competes with short-term money market funds and with other financial
institutions, such as brokerage firms and insurance companies, for deposits.
In competing for loans, the Association may be forced to offer lower loan
interest rates. Conversely, in competing for deposits, the Association may
be forced to offer higher deposit interest rates. Either case or both cases
could adversely effect net interest income. See "BUSINESS OF THE
ASSOCIATION -- Competition."
Concentration of Credit Risk
The Association has no significant concentration of credit risk other
than that a substantial portion of its loan portfolio is secured by real estate,
either as primary or secondary collateral, located in Spartanburg
County. This concentration of credit risk could have a material adverse
effect on the Association's financial condition and results of operations to
the extent there is a material deterioration in that county's economy and real
estate values. See "BUSINESS OF THE ASSOCIATION -- Lending Activities."
2
<PAGE>
Return on Equity After Conversion
Return on equity (net income for a given period divided by average
equity during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The
Association's return on equity for the year ended June 30, 1996 was, and
the Holding Company's post-Conversion return on equity will be, less than the
average return on equity for publicly traded thrift institutions and their
holding companies. See "SELECTED CONSOLIDATED FINANCIAL INFORMATION"
for numerical information regarding the Association's historical return on
equity and "CAPITALIZATION" for a discussion of the Holding Company's
estimated pro forma consolidated capitalization as a result of the
Conversion. In order for the Company to achieve a return on equity
comparable to the historical levels of the Association, the Company
would have to either increase net income or reduce stockholders' equity, or
both, commensurate with the increase in equity resulting from the
Conversion. Reductions in equity could be achieved by, among other things,
the payment of regular or special cash dividends (although no assurances can
be given as to their payment or, if paid, their amount and frequency),
the repurchase of shares of Common Stock subject to applicable regulatory
restrictions, or the acquisition of branch offices, other financial
institutions or related businesses (neither the Holding Company nor the
Association has any present plans, arrangements, or understandings, written or
oral, regarding any repurchase or acquisitions). See "DIVIDEND POLICY" and "USE
OF PROCEEDS." Achievement of increased net income levels will depend on several
important factors outside management's control, such as general economic
conditions, including the level of market interest rates, competition and
related factors, among others. In addition, the expenses associated with the
ESOP and the MRP (see "PRO FORMA DATA"), along with other post-Conversion
expenses, as well as operating expenses associated with the new branch offices,
are expected to contribute initially to reduced earnings levels. The Association
intends to deploy the net proceeds of the Offerings to increase earnings per
share and book value per share, without assuming undue risk, with the goal of
achieving a return on equity comparable to the average for publicly traded
thrift institutions and their holding companies. This goal will likely take a
number of years to achieve and no assurances can be given that this goal can be
attained. Consequently, for the foreseeable future, investors should not expect
a return on equity which will meet or exceed the average return on equity for
publicly traded thrift institutions.
Anti-takeover Considerations
Provisions in the Holding Company's Governing Instruments and
Delaware and Federal Law. Certain provisions included in the Holding Company's
Certificate of Incorporation and in the Delaware General Corporation Law
("DGCL") might discourage potential proxy contests and other potential
takeover attempts, particularly those that have not been negotiated with the
Board of Directors. As a result, these provisions might preclude takeover
attempts that certain stockholders may deem to be in their best interest and
might tend to perpetuate existing management. These provisions include, among
other things, a provision limiting voting rights of beneficial owners of more
than 10% of the Common Stock and supermajority voting requirements for
certain business combinations. In addition, the Certificate of
Incorporation provides for the election of directors to staggered terms of
three years, eliminates cumulative voting for directors, and permits the
removal of directors without cause only upon the vote of holders of 80% of the
outstanding voting shares. Certain provisions of the Certificate of
Incorporation of the Holding Company cannot be amended by stockholders
unless an 80% stockholder vote is obtained. The Certificate of Incorporation
of the Holding Company also contains provisions regarding the timing and
content of stockholder proposals and nominations and limiting the calling of
special meetings. The existence of these anti-takeover provisions could
result in the Holding Company being less attractive to a potential
acquiror and in stockholders receiving less for their shares than otherwise
might be available in the event of a takeover attempt. Furthermore, federal
regulations prohibit for three years after consummation of the Conversion the
ownership of more than 10% of the Association or the Holding Company without
prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
Voting Control by Insiders. Directors and officers of the Association
and the Holding Company (and their associates) expect to purchase 129,750
shares of Common Stock, or 4.6% and 3.4% of the shares issued in the
3
<PAGE>
Offerings at the minimum and the maximum of the Estimated Valuation
Range, respectively. Directors and officers are also expected to control
indirectly the voting of approximately 8% of the shares of Common Stock issued
in the Conversion through the ESOP (assuming shares have been allocated under
the ESOP). Under the terms of the ESOP, the unallocated shares will be voted
by the ESOP trustees in the same proportion as the votes cast by participants
with respect to the allocated shares.
At a meeting of stockholders to be held no earlier than six months
following the consummation of the Conversion, the Holding Company expects to
seek approval of the Holding Company's MRP, which is a non-tax-qualified
restricted stock plan for the benefit of key employees and directors of the
Holding Company and the Association. Assuming the receipt of stockholder
approval, the Holding Company expects to acquire common stock of the Holding
Company on behalf of the MRP in an amount equal to 4% of the Common Stock issued
in the Conversion, or 113,900 and 154,100 shares at the minimum and the
maximum of the Estimated Valuation Range, respectively. These shares will be
acquired either through open market purchases or from authorized but unissued
shares of Common Stock. Under the terms of the MRP, the MRP committee or the
MRP trustees will have the power to vote unallocated and unvested shares. In
addition, the Holding Company intends to reserve for future issuance pursuant
to the Stock Option Plan a number of authorized shares of Common Stock equal to
10% of the Common Stock issued in the Conversion (284,750 and 385,250 shares
at the minimum and the maximum of the Estimated Valuation Range,
respectively). The Holding Company also intends to seek approval of the Stock
Option Plan at a meeting of stockholders to be held no earlier than six months
following the consummation of the Conversion.
Assuming (i) the receipt of stockholder approval for the MRP and
the Stock Option Plan, (ii) the open market purchase of shares on behalf of the
MRP, (iii) the purchase by the ESOP of 8% of the Common Stock sold in the
Offerings, and (iv) the exercise of stock options equal to 10% of the
number of shares of Common Stock issued in the Conversion, directors, officers
and employees of the Holding Company and the Association would have voting
control, on a fully diluted basis, of an additional 24.14% and 23.06% of the
Common Stock, based on the issuance of the minimum and maximum of the
Estimated Valuation Range, respectively. Management's potential voting
control alone, as well as together with additional stockholder support,
might preclude or make more difficult takeover attempts that certain
stockholders deem to be in their best interest and might tend to perpetuate
existing management.
Provisions of Employment and Severance Agreements. The employment and
severance agreements with Mr. Painter and other senior officers of the
Association provide for a cash severance payment in the event of a change in
control of the Holding Company or the Association. Such agreement also provides
for the continuation of certain employee benefits for a three-year period
following the change in control. These provisions may have the effect of
increasing the cost of acquiring the Holding Company, thereby discouraging
future attempts to take over the Holding Company or the Association.
See "MANAGEMENT OF THE ASSOCIATION -- Benefits," "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY" and "DESCRIPTION OF CAPITAL STOCK OF THE
HOLDING COMPANY."
Possible Dilutive Effect of Benefit Programs
If approved by the Holding Company's stockholders after the
consummation of the Conversion, the MRP intends to acquire an amount of Common
Stock of the Holding Company equal to 4% of the shares issued in the
Conversion. Such shares of Common Stock of the Holding Company may be
acquired by the Holding Company in the open market or from authorized but
unissued shares of Common Stock of the Holding Company. In the event that the
MRP acquires authorized but unissued shares of Common Stock from the
Holding Company, the voting interests of existing stockholders will be
diluted and net income per share and stockholders' equity per share will be
decreased. See "PRO FORMA DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits
- -- Management Recognition Plan."
4
<PAGE>
If approved by the Holding Company's stockholders after the
consummation of the Conversion, the Stock Option Plan will provide for options
for up to a number of shares of Common Stock of the Holding Company equal to
10% of the shares issued in the Conversion. Such shares may be authorized but
unissued shares of Common Stock of the Holding Company and, upon exercise of
the options, will result in the dilution of the voting interests of existing
stockholders and may decrease net income per share and stockholders' equity per
share. See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- 1997 Stock Option
Plan."
If the ESOP is not able to purchase 8% of the shares of Common Stock
issued in the Offerings, the ESOP may purchase newly issued shares from
the Holding Company. In such event, the voting interests of existing
stockholders will be diluted and net income per share and stockholders'
equity per share will be decreased. See "MANAGEMENT OF THE ASSOCIATION --
Benefits -- Employee Stock Ownership Plan."
Absence of Prior Market for the Common Stock
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding
Company has received conditional approval to list the Common Stock on the
Nasdaq National Market under the symbol "FSPT," there can be no assurance
that an active and liquid trading market for the Common Stock will develop, or
once developed, will continue. Furthermore, there can be no assurance that
purchasers will be able to sell their shares at or above the Purchase Price. See
"MARKET FOR COMMON STOCK."
Possible Increase in Estimated Price Range and Number of Shares Issued
The number of shares to be sold in the Conversion may be increased as
a result of an increase in the Estimated Price Range of up to 15% to reflect
material changes in the financial condition or results of operations of the
Association or changes in market conditions or general financial, economic
or regulatory conditions following the commencement of the Offerings. If the
Estimated Price Range is increased, it is expected that the Holding Company
will issue up to 4,430,375 shares of Common Stock at the Purchase Price for an
aggregate price of up to $88,607,500. This increase in the number of shares
would decrease a subscriber's pro forma net earnings per share and
stockholders' equity per share, increase the Holding Company's pro forma
consolidated stockholders' equity and net earnings, and increase the Purchase
Price as a percentage of pro forma stockholders' equity per share and net
earnings per share. See "PRO FORMA DATA."
Potential Delay in Consummating the Conversion
Once tendered, subscription orders cannot be revoked during the
Offerings without the consent of the Holding Company and the Association,
unless the Conversion is terminated or there is a resolicitation
offering. If the Conversion is not completed by ___________, 1997 as a
result of changes in market conditions or general financial, economic or
regulatory changes that lead to a material revision in the Estimated Valuation
Range, among other things, and the OTS consents to a extension of time to
complete the Conversion, there would be a resolicitation offering, which
could last for as long as ___ days. In the resolicitation offering, all
subscribers would be mailed a supplement to this Prospectus and given the
opportunity to confirm, modify or cancel their subscriptions. Failure to
affirmatively confirm or modify would be deemed a cancellation and all
subscription funds, together with accrued interest, would be returned to the
subscriber, or if the subscriber authorized payment by withdrawal of funds
on deposit at the Association, that authorization would terminate. If a
subscriber affirmatively confirms his subscription order during the
resolicitation offering, the Holding Company and the Association would
continue to hold all subscription orders and all subscription funds until the
expiration of the resolicitation offering. All subscriptions held by the Holding
Company and the Association when the resolicitation offering expires would be
irrevocable without the consent of the Holding Company and the Association until
the completion or termination of the Conversion.
5
<PAGE>
Recent Legislation and the Future of the Thrift Industry
The Association is, and the Holding Company upon consummation of the
Conversion will be, subject to extensive government regulation designed
primarily to protect the federal deposit insurance fund and depositors. Such
regulation often has a material impact on the Association's financial
condition and results of operations. For example, recent legislation required
the Association to pay a one-time assessment of $1.1 million, after-tax, to the
FDIC to recapitalize the SAIF. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of Operating
Results for the Six Months Ended December 31, 1996 and 1995."
The U.S. Congress is expected to consider legislation that may
eliminate the thrift industry as a separate industry. The Deposit Insurance
Funds Act of 1996 ("DIF Act") provides that the SAIF will be merged with the
Bank Insurance Fund ("BIF") on January 1, 1999, but only if there are no
thrift institutions in existence. The DIF Act requires the Treasury Department
to study the development of a common charter for banks and thrifts and to
submit a report of its finding to Congress by March 31, 1997. The
Association cannot predict what the attributes of such common charter
would be or whether any legislation will result from this study. If
developed, the common charter may not offer all the advantages that the
Association now enjoys (e.g., unrestricted nationwide branching) or that
the Holding Company, as a unitary savings and loan holding company, will
enjoy upon consummation of the Conversion (e.g., the absence of non-banking
activities restrictions). If Congress fails to create a common charter, or
does not act otherwise to end the thrift industry's separate existence,
the merger of the SAIF and BIF contemplated by the DIF Act would not likely
occur. Although the SAIF currently meets its statutory reserve ratios, there
can be no assurance that it will continue to do so. The financial burden of
any future recapitalization would likely fall on a smaller assessment base,
potentially increasing the burden on individual institutions, including the
Association. See "REGULATION."
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
If the Subscription Rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members of the Association are
deemed to have an ascertainable value, receipt of such rights may be a taxable
event (either as capital gain or ordinary income), to those Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members
who receive and/or exercise the Subscription Rights in an amount equal to such
value. Additionally, the Association could be required to recognize a gain for
tax purposes on such distribution. Whether Subscription Rights are considered
to have ascertainable value is an inherently factual determination. The
Association has been advised by RP Financial that such rights have no
value; however, RP Financial's conclusion is not binding on the Internal
Revenue Service ("IRS"). See "THE CONVERSION -- Effects of Conversion to
Stock Form on Depositors and Borrowers of the Association -- Tax Effects."
FIRSTSPARTAN FINANCIAL CORP.
The Holding Company was organized on February 4, 1997 under Delaware
law at the direction of the Association to acquire all of the capital stock that
the Association will issue upon its conversion from the mutual to stock form of
ownership. The Holding Company has received conditional OTS approval to become a
savings and loan holding company through the acquisition of 100% of the capital
stock of the Association. Prior to the Conversion, the Holding Company will not
engage in any material operations. After the Conversion, the Holding Company
will be classified as a unitary savings and loan holding company subject to
regulation by the OTS, and its principal business will be the ownership of the
Association. Immediately following the Conversion, the only significant assets
of the Holding Company will be the capital stock of the Association, 50% of the
net proceeds of the Offerings as permitted by the OTS to be retained by it and a
note receivable from the ESOP evidencing a loan to enable the ESOP to purchase
8% of the Common Stock issued in the Conversion. See "BUSINESS OF THE HOLDING
COMPANY." The Holding Company's main office is located at 380 E. Main Street,
Spartanburg, South Carolina 29302, and its telephone number is (864) 582-2391.
The holding company structure will permit the Holding Company to expand
the financial services currently offered through the Association. Management
believes that the holding company structure and retention of a portion of the
proceeds of the Offerings will, should it decide to do so, facilitate the
expansion and diversification of its
6
<PAGE>
operations. The holding company structure will also enable the Holding Company
to repurchase its stock without adverse tax consequences, subject to applicable
regulatory restrictions, including waiting periods. There are no present
plans, arrangements, agreements, or understandings, written or oral,
regarding any such activities or repurchases. See "REGULATION -- Savings and
Loan Holding Company Regulations."
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
Chartered in 1935, the Association is a federal mutual savings and loan
association located in Spartanburg, South Carolina. As a result of the
Conversion, the Association will convert to a federal capital stock savings and
loan association and will become a wholly-owned subsidiary of the Holding
Company. The Association is regulated by the OTS, its primary regulator, and by
the FDIC, the insurer of its deposits. The Association's deposits have been
federally-insured since 1935 and are currently insured by the FDIC under the
SAIF. The Association has been a member of the Federal Home Loan Bank ("FHLB")
System since 1935. At December 31, 1996, the Association had total assets of
$375.5 million, total deposits of $324.0 million and total equity of $44.8
million on a consolidated basis.
The Association is a community oriented financial institution whose
primary business is attracting retail deposits from the general public and using
these funds to originate one- to- four family residential mortgage loans within
its primary market area. The Association is an approved Federal Housing
Administration ("FHA") and Veterans Administration ("VA") lender and
participates in the Spartanburg Residential Development Program, an affordable
housing program. The Association also actively originates construction loans and
consumer loans. To a lesser extent, the Association originates land loans and
commercial real estate loans. The Association expects to hire an experienced
commercial loan officer familiar with the Association's primary market area in
an attempt to augment its commercial real estate and commercial business
lending. At December 31, 1996, one- to- four family residential mortgage loans,
consumer loans (including commercial business loans), construction loans,
commercial real estate loans and land loans amounted to 77.3%, 11.5%, 9.2%, 1.3%
and 0.7% of its total loan portfolio, respectively. Loans receivable, net,
constituted 88.3% of total assets at December 31, 1996. See "RISK FACTORS --
Certain Lending Considerations" and "BUSINESS OF THE ASSOCIATION -- Lending
Activities."
The Association considers Spartanburg County and adjacent counties in
Northwest South Carolina to be its primary market area because a large number of
its depositors reside, and a substantial portion of its loan portfolio is
secured by properties located, in that geographic area. See "RISK FACTORS --
Concentration of Credit Risk." Since August 1996, the Association has also
purchased a limited number of one- to- four family residential mortgage loans
and residential construction loans from a regional start-up mortgage banking
company in which the Association's service corporation subsidiary has an equity
investment. At December 31, 1996, a substantial portion of these purchased loans
were secured by properties located in the Association's primary market area.
Such loan purchases are expected to continue and increase in volume as that
company's mortgage banking operations expand, and are likely to include
purchases of loans, including commercial loans and home equity loans, secured by
properties inside and outside of the Association's primary market area. See
"BUSINESS OF THE ASSOCIATION -- Lending Activities -- Loan Originations, Sales
and Purchases" and "-- Subsidiary Activities."
The Association's business strategy is to operate as an independent
community-based financial institution. In light of recent consolidations of
thrift institutions with large regional commercial banks in the Association's
primary market area, the Board of Directors believes than an independent
community-based financial institutions such as the Association enjoys a
competitive advantage. The Association's goal is to position itself to preserve
and enhance this current competitive advantage. As discussed above, the
Association has made an equity investment in a regional mortgage banking
company. The Association also is expanding its branch office network, as
discussed below. Furthermore, the Association offers various loan products to
meet the varied financial needs of its customers, in addition to residential
mortgage financing. Although constituting a small portion of the Association's
loan portfolio, and expected to remain so for the foreseeable future, the
Association offers automobile loans and, more recently, VISA credit cards, to
its local community residents. Finally, the Association has introduced various
deposit products to supplement its traditional savings accounts and certificate
accounts, including commercial deposits to
7
<PAGE>
complement its commercial real estate and commercial business lending
activities, as well as check imaging services. As of June 30, 1996, the latest
date for which published data are available, the Association had a 15.6% share
of all deposits in Spartanburg County. See "BUSINESS OF THE ASSOCIATION --
Deposit Activities and Other Sources of Funds." The Association believes that
the capital raised in the Offerings will enhance its ability to continue
implementing this business strategy.
In addition to its lending activities, the Association invests excess
liquidity in short term U.S. Government and agency securities, a mutual fund
that invests in adjustable rate mortgage loans and, to a substantially lesser
extent, short term mortgage-backed securities issued by U.S. Government
agencies. Investment securities and mortgage-backed securities, which
constituted 3.6% of total assets at December 31, 1996, had an amortized cost and
a fair value of $13.6 million at December 31, 1996. See "BUSINESS OF THE
ASSOCIATION -- Investment Activities."
The Association conducts its operations from its main office and three
branch offices located in Spartanburg, South Carolina, a branch office in
Boiling Springs, South Carolina (Spartanburg County) and a loan production
office in Greenville, South Carolina, in adjacent Greenville County. Two
additional branch offices are under construction in Inman, South Carolina
(Spartanburg County), and in Duncan, South Carolina (Spartanburg County). Both
offices are scheduled to open by the end of the first half of calendar 1997. See
"BUSINESS OF THE ASSOCIATION -- Properties." The main office is located at 380
E. Main Street, Spartanburg, South Carolina 29302, and its telephone number is
(864) 582-2391.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $55.7 million to $75.7 million, or up to $87.2 million
if the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for
the assumptions used to arrive at such amounts. The Holding Company has received
conditional OTS approval to purchase all of the capital stock of the Association
to be issued in the Conversion in exchange for 50% of the net proceeds of the
Offerings. This will result in the Holding Company retaining approximately $27.9
million to $37.9 million of net proceeds, or up to $43.6 million if the
Estimated Valuation Range is increased by 15%, and the Association receiving an
equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, local
lending and investment in short-term U.S. Government and agency obligations. The
Association also intends to use a portion of the funds (up to approximately $1.5
million) to contribute to the ongoing construction of two branch offices and the
renovation of an existing branch office.
In connection with the Conversion and the establishment of the ESOP,
the Holding Company intends to loan the ESOP the amount necessary to purchase 8%
of the shares of Common Stock sold in the Conversion. The Holding Company's loan
to fund the ESOP may range from $4,556,000 to $6,164,000 based on the sale of
227,800 shares to the ESOP (at the minimum of the Estimated Valuation Range) and
308,200 shares (at the maximum of the Estimated Valuation Range), respectively,
at $20.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 4,430,375 shares, are sold in the Conversion, the Holding Company's loan to
the ESOP would be approximately $7,088,600. It is anticipated that the ESOP loan
will have a 12-year term with interest payable at the prime rate as published in
The Wall Street Journal on the closing date of the Conversion. The loan will be
repaid principally from the Association's contributions to the ESOP and from any
dividends paid on shares of Common Stock held by the ESOP.
The remaining net proceeds retained by the Holding Company initially
will be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the
8
<PAGE>
Association in the form of debt or equity, to support future diversification or
acquisition activities, as a source of dividends to the stockholders of the
Holding Company and for future repurchases of Common Stock to the extent
permitted under Delaware law and federal regulations. The Holding
Company will consider exploring opportunities to use such funds to expand
operations through acquiring or establishing additional branch offices and the
acquisition of other financial institutions. Currently, there are no specific
plans, arrangements, agreements or understandings, written or oral, regarding
any diversification activities.
Following consummation of the Conversion, the Board of Directors will
have the authority to adopt plans for repurchases of Common Stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares, and the
ability to improve the Holding Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases will be subject to a
determination by the Board of Directors that both the Holding Company and the
Association will be capitalized in excess of all applicable regulatory
requirements after any such repurchases and that capital will be adequate,
taking into account, among other things, the level of nonperforming and
classified assets, the Holding Company's and the Association's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. For a discussion of the
regulatory limitations applicable to stock repurchases and current OTS policy
respect thereto, see "THE CONVERSION -- Restrictions on Repurchase of Stock."
DIVIDEND POLICY
General
The Holding Company's Board of Directors anticipates declaring and
paying a quarterly cash dividends on the Common Stock at an annual rate of 3%
($0.60 per share per year based on the Purchase Price). The first quarterly cash
dividend is expected to be declared and paid during the first full quarter
following the consummation of the Conversion. In addition, the Board of
Directors may determine to pay periodic special cash dividends in addition to,
or in lieu of, regular cash dividends. Declarations or payments of any dividends
(regular and special) will be subject to determination by the Holding Company's
Board of Directors, which will take into account the amount of the net proceeds
retained by the Holding Company, the Holding Company's financial condition,
results of operations, tax considerations, capital requirements, industry
standards, economic conditions and other factors, including the regulatory
restrictions that affect the payment of dividends by the Association to the
Holding Company discussed below. Under Delaware law, the Holding Company will be
permitted to pay cash dividends after the Conversion either out of surplus or,
if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. In order to pay such cash
dividends, however, the Holding Company must have available cash either from the
net proceeds raised in the Offerings and retained by the Holding Company,
dividends received from the Association or earnings on Holding Company assets.
No assurances can be given that any dividends, either regular or special, will
be declared or, if declared, what the amount of dividends will be or whether
such dividends, if commenced, will continue.
Current Restrictions
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Association because the Holding Company initially will have
no source of income other than dividends from the Association and earnings from
the investment of the net proceeds from the Offerings retained by the Holding
Company. OTS regulations require the Association to give the OTS 30 days'
advance notice of any proposed declaration of dividends
9
<PAGE>
to the Holding Company, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends to the Holding Company. The OTS
imposes certain limitations on the payment of dividends from the Association
to the Holding Company which utilize a three-tiered approach that permits
various levels of distributions based primarily upon a savings association's
capital level. The Association currently meets the criteria to be
designated a Tier 1 association, as hereinafter defined, and consequently
could at its option (after prior notice to and no objection made by the OTS)
distribute up to 100% of its net income during the calendar year plus 50% of its
surplus capital ratio at the beginning of the calendar year less any
distributions previously paid during the year. In addition, the
Association may not declare or pay a cash dividend on its capital stock if the
effect thereof would be to reduce the regulatory capital of the Association
below the amount required for the liquidation account to be established
pursuant to the Association's Plan of Conversion. See "REGULATION -- Limitations
on Capital Distributions," "THE CONVERSION -- Effects of Conversion to Stock
Form on Depositors and Borrowers of the Association -- Liquidation Account"
and Note 6 of Notes to the Consolidated Financial Statements included
elsewhere herein.
Under Delaware law, the Holding Company is generally limited to paying
dividends in an amount equal to the excess of its net assets (total assets minus
total liabilities) over its statutory capital or, if no such excess exists, to
its net profits for the current and/or immediately preceding fiscal year.
Tax Considerations
In addition to the foregoing, retained earnings of the Association
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by the Association to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Association at the then
current income tax rate on the amount deemed distributed, which would include
the amount of any federal income taxes attributable to the distribution. See
"TAXATION -- Federal Taxation" and Note 6 of Notes to the Consolidated Financial
Statements included elsewhere herein. The Holding Company does not contemplate
any distribution by the Association that would result in a recapture of the
Association's bad debt reserve or create the above-mentioned federal tax
liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently,
there is no existing market for the Common Stock. Although the Holding Company
has received conditional approval to list the Common Stock on the Nasdaq
National Market System under the symbol "FSPT," there can be no assurance that
the Holding Company will meet Nasdaq National Market System listing
requirements, which include a minimum market capitalization, at least two market
makers and a minimum number of record holders. Trident Securities has agreed to
make a market for the Holding Company's Common Stock following consummation of
the Conversion and will assist the Holding Company in seeking to encourage at
least one additional market maker to establish and maintain a market in the
Common Stock. Making a market involves maintaining bid and ask quotations and
being able, as principal, to effect transactions in reasonable quantities at
those quoted prices, subject to various securities laws and other regulatory
requirements. The Holding Company anticipates that prior to the completion of
the Conversion it will be able to obtain the commitment from at least one
additional broker-dealer to act as market maker for the Common Stock.
Additionally, the development of a liquid public market depends on the existence
of willing buyers and sellers, the presence of which is not within the control
of the Holding Company, the Association or any market maker. There can be no
assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, it will continue. The number of active buyers and
sellers of the Common Stock at any particular time may be limited. Under such
circumstances, investors in the Common Stock could have difficulty disposing of
their shares on short notice and should not view the Common Stock as a
short-term investment. Furthermore, there can be no assurance that purchasers
will be able to sell their shares at or above the Purchase Price or that
quotations will be available on the Nasdaq National Market System as
contemplated.
10
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the
Association at December 31, 1996, and the pro forma consolidated capitalization
of the Holding Company after giving effect to the assumptions set forth under
"PRO FORMA DATA," based on the sale of the number of shares of Common Stock at
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated
Valuation Range. The shares that would be issued at the maximum, as adjusted, of
the Estimated Valuation Range would be subject to receipt and OTS approval of an
updated appraisal confirming such valuation. A change in the number of shares to
be issued in the Conversion may materially affect pro forma consolidated
capitalization.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
-----------------------------------------------------------------
2,847,500 3,350,000 3,852,500 4,430,375
Capitalization Shares at Shares at Shares at Shares at
as of $20.00 $20.00 $20.00 $20.00
December 31, 1996 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
----------------- ------------ ------------ ------------ ------------
(In Thousands)
<S> <C>
Deposits(3)................. $323,951 $323,951 $323,951 $323,951 $323,951
FHLB advances............... -- -- -- -- --
-------- -------- -------- -------- --------
Total deposits and
borrowed funds............. $323,951 $323,951 $323,951 $323,951 $323,951
======== ======== ======== ======== ========
Stockholders' equity:
Preferred stock:
250,000 shares, $.01
par value per share,
authorized; none issued
or outstanding......... -- -- -- -- --
Common Stock:
12,000,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(4)......... -- 28 34 39 44
Additional paid-in capital -- 55,647 65,566 75,611 87,164
Retained earnings(5)..... 44,833 44,833 44,833 44,833 44,833
Less:
Common Stock acquired
by ESOP(6)........... -- (4,556) (5,360) (6,164) (7,089)
Common Stock to be acquired
by MRP(7)............ -- (2,278) (2,680) (3,082) (3,544)
------- ------- -------- -------- --------
Total stockholders' equity.. $44,833 $93,674 $102,393 $111,237 $121,408
======= ======= ======== ======== ========
</TABLE>
(footnotes on following page)
11
<PAGE>
- ---------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or performance of the
Association or changes in market conditions or general financial, economic
and regulatory conditions, or the issuance of additional shares under the
Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding
Company in the event the aggregate number of shares of Common Stock issued
in the Conversion is 15% above the maximum of the Estimated Valuation
Range. See "PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of Common Stock are
not reflected. Such withdrawals will reduce pro forma deposits by
the amounts thereof.
(4) The Association's authorized capital will consist solely of 1,000 shares
of common stock, par value $1.00 per share, 1,000 shares of which will be
issued to the Holding Company, and 9,000 shares of preferred stock, no par
value per share, none of which will be issued in connection with the
Conversion.
(5) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Association will be prohibited
from paying any dividend that would reduce its regulatory capital below
the amount in the liquidation account, which will be established for the
benefit of the Association's Eligible Account Holders and Supplemental
Eligible Account Holders at the time of the Conversion and adjusted
downward thereafter as such account holders reduce their balances or cease
to be depositors. See "THE CONVERSION -- Effects of Conversion to Stock
Form on Depositors and Borrowers of the Association -- Liquidation
Account."
(6) Assumes that 8% of the Common Stock sold in the Conversion will be
acquired by the ESOP in the Conversion with funds borrowed from the
Holding Company. Under generally accepted accounting principles ("GAAP"),
the amount of Common Stock to be purchased by the ESOP represents unearned
compensation and is, accordingly, reflected as a reduction of capital. As
shares are released to ESOP participants' accounts, a corresponding
reduction in the charge against capital will occur. Since the funds are
borrowed from the Holding Company, the borrowing will be eliminated in
consolidation and no liability will be reflected in the consolidated
financial statements of the Holding Company. See "MANAGEMENT OF THE
ASSOCIATION -- Benefits -- Employee Stock Ownership Plan."
(7) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed MRP, of a number of shares equal to 4% of the shares of
Common Stock issued in the Conversion at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range. The issuance
of an additional 4% of the shares of Common Stock for the MRP from
authorized but unissued shares of Holding Company Common Stock would
dilute the ownership interest of stockholders by 3.85%. The shares are
reflected as a reduction of stockholders' equity. See "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs," "PRO FORMA DATA" and
"MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management Recognition
Plan." The MRP is subject to stockholder approval, which is expected to be
sought at a meeting to be held no earlier than six months following
consummation of the Conversion.
12
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Association's historical and pro forma
capital position relative to its capital requirements at December 31, 1996. The
amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds of the Offerings. For purpose of the table
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the MRP are deducted from pro forma regulatory
capital. For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO
FORMA DATA." The definitions of the terms used in the table are those provided
in the capital regulations issued by the OTS. For a discussion of the capital
standards applicable to the Association, see "REGULATION -- Federal Regulation
of Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1996
-----------------------------------------------------------
Minimum of Estimated Midpoint of Estimated
Valuation Range Valuation Range
--------------------------- ----------------------------
2,847,500 Shares 3,350,000 Shares
December 31, 1996 at $20.00 Per Share at $20.00 Per Share
--------------------------- --------------------------- ----------------------------
Percent of Percent of Percent of
Adjusted Adjusted Adjusted
Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ----------- ------ ----------- ------ -----------
(Dollars in Thousands)
<S> <C>
GAAP capital............. $44,833 11.94% $65,837 16.41% $69,593 17.16%
======= ====== ======= ====== ======= ======
Tangible capital......... $44,845 11.94% $65,849 16.42% $69,605 17.16%
Tangible capital requirement 5,633 1.50 6,016 1.50 6,085 1.50
------- ------ ------- ------ ------- -------
Excess................... $39,212 10.44% $59,833 14.92% $63,520 15.66%
======= ====== ======= ====== ======= ======
Core capital............. $44,845 11.94% $65,849 16.42% $69,605 17.16%
Core capital requirement(2) 11,266 3.00 12,033 3.00 12,169 3.00
------- ------ ------- ------ ------- ------
Excess................... $33,579 8.94% $53,816 13.42% $57,436 14.16%
======= ====== ======= ====== ======= ======
Total capital(3)......... $46,495 20.78% $67,499 29.50% $71,255 31.02%
Risk-based
capital requirement..... 17,897 8.00 18,306 8.00 18,379 8.00
------- ------ ------- ------ ------- ------
Excess................... $28,598 12.78% $49,193 21.50% $52,876 23.02%
======= ====== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA AT DECEMBER 31, 1996
-------------------------------------------------------------
15% above
Maximum of Estimated Maximum of Estimated
Valuation Range Valuation Range
--------------------------- --------------------------
3,852,500 Shares 4,430,375 Shares
at $20.00 Per Share at $20.00 Per Share
--------------------------- --------------------------
Percent of Percent of
Adjusted Adjusted
Total Total
Amount Assets (1) Amount Assets (1)
------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C>
GAAP capital............. $73,412 17.89% $77,804 18.72%
======= ====== ======= =====
Tangible capital......... $73,424 17.90% $77,816 18.72%
Tangible capital requirement 6,154 1.50 6,234 1.50
------- ------ ------- ------
Excess................... $67,270 16.40% $71,582 17.22%
======= ====== ======= ======
Core capital............. $73,424 17.90% $77,816 18.72%
Core capital requirement(2) 12,308 3.00 12,468 3.00
------- ------ ------- ------
Excess................... $61,116 14.90% $65,348 15.72%
======= ====== ======= ======
Total capital(3)......... $75,074 32.55% $79,466 34.29%
Risk-based
capital requirement..... 18,453 8.00 18,538 8.00
------- ------ ------- ------
Excess................... $56,621 24.55% $60,928 26.29%
======= ====== ======= ======
</TABLE>
- -------------------
(1) Based upon adjusted total assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirement.
(2) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a core capital ratio of 4% to 5% for all other thrifts.
(3) Percentage represents total core and supplementary capital divided by
total risk-weighted assets. Assumes net proceeds are invested in
assets that carry a 20% risk-weighting.
13
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Common Stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Association as converted, based upon an independent valuation. The Estimated
Valuation Range as of February 21, 1997 is from a minimum of $56,950,000 to a
maximum of $77,050,000 with a midpoint of $67,000,000 or, at a price per share
of $20.00, a minimum number of shares of 2,847,500, a maximum number of shares
of 3,852,500 and a midpoint number of shares of 3,350,000. The actual net
proceeds from the sale of the Common Stock cannot be determined until the
Conversion is completed. However, net proceeds set forth on the following table
are based upon the following assumptions: (i) Trident Securities will receive
fees of $672,000, $797,000, $797,000 and $797,000 at the minimum, midpoint,
maximum and 15% above the Estimated Valuation Range, respectively, assuming all
shares are sold to investors residing in South Carolina (see "THE CONVERSION --
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings); (ii) all of the Common Stock will be sold in the
Subscription and Direct Community Offerings; and (iii) Conversion expenses,
excluding the fees paid to Trident Securities, will total approximately $603,000
at each of the minimum, midpoint, maximum and 15% above the Estimated Valuation
Range. Actual expenses may vary from this estimate, and the fees paid will
depend upon the percentages and total number of shares sold in the Subscription,
Direct Community and Syndicated Community Offerings and other factors.
The pro forma consolidated net income of the Association for the six
months ended December 31, 1996 and the year ended June 30, 1996 have been
calculated as if the Conversion had been consummated at the beginning of the
respective periods and the estimated net proceeds received by the Holding
Company and the Association had been invested at 6.44% and 6.48% at the
beginning of the respective periods, which represent the arithmetic average of
the Association's yield on interest-earning assets and interest-bearing deposits
as of December 31, 1996 and June 30, 1996, respectively. As discussed under "USE
OF PROCEEDS," the Holding Company expects to retain 50% of the net proceeds of
the Offerings from which it will fund the ESOP loan. For purposes of calculating
pro forma income on net proceeds, it is assumed that there will be no return on
approximately $1.5 million of net proceeds that will be used to contribute to
the construction of the Inman and Duncan branch offices and the renovation of an
existing branch office. See "USE OF PROCEEDS." A pro forma after-tax return of
3.99% and 4.02% are used for both the Holding Company and the Association for
the periods, after giving effect to an incremental combined federal and state
tax rate of 38.0% for both periods. Historical and pro forma per share amounts
have been calculated by dividing historical and pro forma amounts by the number
of shares of Common Stock indicated in the footnotes to the table. Per share
amounts have been computed as if the Common Stock had been outstanding at the
beginning of the respective periods or at December 31, 1996 or June 30, 1996,
but without any adjustment of per share historical or pro forma stockholders'
equity to reflect the earnings on the estimated net proceeds.
The following tables summarize the historical net income and retained
earnings of the Association and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the dates
indicated, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's Stock Option Plan, which is expected to be voted
upon by stockholders at a meeting to be held no earlier than six months
following consummation of the Conversion; (ii) withdrawals from deposit accounts
for the purpose of purchasing Common Stock in the Conversion; (iii) the issuance
of shares from authorized but unissued shares to the MRP, which is expected to
be voted upon by stockholders at a meeting to be held no earlier than six months
following consummation of the Conversion; or (iv) the establishment of a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- 1997
Stock Option Plan" and "THE CONVERSION -- Stock Pricing and Number of Shares
Issued." Shares of Common Stock may be purchased with funds on deposit at the
Association, which will reduce deposits by the amounts of such purchases.
Accordingly, the net amount of funds available for investment will be reduced by
the amount of deposit withdrawals used to fund stock purchases.
The following pro forma information may not be representative of the
financial effects of the Conversion at the date on which the Conversion actually
occurs and should not be taken as indicative of future results of operations.
Stockholders' equity represents the difference between the stated amounts of
consolidated assets and liabilities of the Holding Company computed in
accordance with GAAP. Stockholders' equity has not been increased or decreased
to reflect the difference between the carrying value of loans and other assets
and market value. Stockholders' equity is not intended to represent fair market
value nor does it represent amounts that would be available for distribution to
stockholders in the event of liquidation.
14
<PAGE>
<TABLE>
<CAPTION>
At or For the Six Months Ended December 31, 1996
--------------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
--------- --------- --------- ---------------
2,847,500 3,350,000 3,852,500 4,430,375(1)
Shares Shares Shares Shares
at $20.00 at $20.00 at $20.00 at $20.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C>
Gross proceeds.............................. $56,950 $67,000 $77,050 $88,608
Less: estimated expenses.................... 1,275 1,400 1,400 1,400
----- ----- ----- -----
Estimated net proceeds...................... $55,675 $65,600 $75,650 $87,208
Less: Common Stock acquired by ESOP ........ (4,556) (5,360) (6,164) (7,089)
Less: Common Stock to be acquired by MRP ... (2,278) (2,680) (3,082) (3,544)
------ ------ ------ ------
Net investable proceeds................ $48,841 $57,560 $66,404 $76,575
======= ======= ======= =======
Consolidated net income:
Historical................................. $607 $607 $607 $607
Pro forma income on net proceeds(2)........ 945 1,119 1,296 1,499
Pro forma ESOP adjustments(3).............. (118) (138) (159) (183)
Pro forma MRP adjustments(4)............... (141) (166) (191) (220)
------- ------- ------- -------
Pro forma net income..................... $1,293 $1,422 $1,553 $1,703
====== ====== ====== ======
Consolidated net income per share (5)(6):
Historical................................. $0.23 $0.20 $0.17 $0.15
Pro forma income on net proceeds........... 0.36 0.36 0.36 0.37
Pro forma ESOP adjustments(3).............. (0.04) (0.04) (0.04) (0.04)
Pro forma MRP adjustments(4)............... (0.05) (0.05) (0.05) (0.05)
----- ----- ----- -----
Pro forma net income per share........... $0.50 $0.47 $0.44 $0.43
===== ===== ===== =====
Consolidated stockholders' equity (book value):
Historical................................. $44,833 $44,833 $44,833 $44,833
Estimated net proceeds..................... 55,675 65,600 75,650 87,208
Less: Common Stock acquired by ESOP........ (4,556) (5,360) (6,164) (7,089)
Less: Common Stock to be acquired by MRP(4) (2,278) (2,680) (3,082) (3,544)
------- -------- -------- --------
Pro forma stockholders' equity(7)........ $93,674 $102,393 $111,237 $121,408
======= ======== ======== ========
Consolidated stockholders' equity per share(6)(8):
Historical(6).............................. $15.74 $13.38 $11.64 $10.12
Estimated net proceeds..................... 19.55 19.58 19.64 19.68
Less: Common Stock acquired by ESOP........ (1.60) (1.60) (1.60) (1.60)
Less: Common Stock to be acquired by MRP(4) (0.80) (0.80) (0.80) (0.80)
------ ------ ------ ------
Pro forma stockholders' equity per share(9) $32.89 $30.56 $28.88 $27.40
====== ====== ====== ======
Purchase Price as a percentage of pro forma
stockholders' equity per share............. 60.81% 65.45% 69.25% 72.99%
===== ===== ===== =====
Purchase Price as a multiple of pro forma
net income per share....................... 20.00x 21.28x 22.73x 23.26x
===== ===== ===== =====
</TABLE>
(footnotes on second following page)
15
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1996
-------------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
--------- --------- --------- ---------------
2,847,500 3,350,000 3,852,500 4,430,375(1)
Shares Shares Shares Shares
at $20.00 at $20.00 at $20.00 at $20.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C>
Gross proceeds.............................. $56,950 $67,000 $77,050 $88,608
Less: estimated expenses.................... 1,275 1,400 1,400 1,400
----- ----- ----- -----
Estimated net proceeds...................... $55,675 $65,600 $75,650 $87,208
Less: Common Stock acquired by ESOP......... (4,556) (5,360) (6,164) (7,089)
Less: Common Stock to be acquired by MRP.... (2,278) (2,680) (3,082) (3,544)
------ ------ ------ ------
Net investable proceeds................ $48,841 $57,560 $66,404 $76,575
======= ======= ======= =======
Consolidated net income:
Historical................................. $3,537 $3,537 $3,537 $3,537
Pro forma income on net proceeds(2)........ 1,902 2,252 2,608 3,016
Pro forma ESOP adjustments(3).............. (235) (277) (318) (366)
Pro forma MRP adjustments(4)............... (282) (332) (382) (439)
------ ------ ------ ------
Pro forma net income..................... $4,922 $5,180 $5,445 $5,748
====== ====== ====== ======
Consolidated net income per share (5)(6):
Historical................................. $1.34 $1.14 $0.99 $0.86
Pro forma income on net proceeds........... 0.72 0.73 0.73 0.74
Pro forma ESOP adjustments(3).............. (0.09) (0.09) (0.09) (0.09)
Pro forma MRP adjustments(4)............... (0.11) (0.11) (0.11) (0.11)
----- ----- ----- -----
Pro forma net income per share........... $1.86 $1.67 $1.52 $1.40
===== ===== ===== =====
Consolidated stockholders' equity (book value):
Historical................................. $44,154 $44,154 $44,154 $44,154
Estimated net proceeds..................... 55,675 65,600 75,650 87,208
Less: Common Stock acquired by ESOP........ (4,556) (5,360) (6,164) (7,089)
Less: Common Stock to be acquired by MRP(4) (2,278) (2,680) (3,082) (3,544)
-------- -------- -------- --------
Pro forma stockholders' equity(7)........ $92,995 $101,714 $110,558 $120,729
======= ======== ======== ========
Consolidated stockholders' equity per share(6)(8):
Historical(6).............................. $15.51 $13.18 $11.46 $9.97
Estimated net proceeds..................... 19.55 19.58 19.64 19.68
Less: Common Stock acquired by ESOP........ (1.60) (1.60) (1.60) (1.60)
Less: Common Stock to be acquired by MRP(4) (0.80) (0.80) (0.80) (0.80)
------ ------ ------ ------
Pro forma stockholders' equity per share(9) $32.66 $30.36 $28.70 $27.25
====== ====== ====== ======
Purchase Price as a percentage of pro forma
stockholders' equity per share............. 61.24% 65.88% 69.69% 73.39%
===== ===== ===== =====
Purchase Price as a multiple of pro forma
net income per share....................... 10.75x 11.98x 13.16x 14.29x
===== ===== ===== =====
</TABLE>
(footnotes on following page)
16
<PAGE>
- -------------------
(1) Gives effect to the sale of an additional 577,875 shares in the
Conversion, which may be issued to cover an increase in the pro forma
market value of the Holding Company and the Association as converted,
without the resolicitation of subscribers or any right of cancellation.
The issuance of such additional shares will be conditioned on a
determination by RP Financial that such issuance is compatible with its
determination of the estimated pro forma market value of the Holding
Company and the Association as converted. See "THE CONVERSION -- Stock
Pricing and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. Since funds on
deposit at the Association may be withdrawn to purchase shares of Common
Stock (which will reduce deposits by the amount of such purchases), the
net amount of funds available to the Association for investment following
receipt of the net proceeds of the Offerings will be reduced by the amount
of such withdrawals.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the
prime rate as published in The Wall Street Journal on the closing date of
the Conversion, which rate is currently 8.25%) from the net proceeds from
the Offerings retained by the Holding Company. The amount of this
borrowing has been reflected as a reduction from gross proceeds to
determine estimated net investable proceeds. The Association intends to
make contributions to the ESOP in amounts at least equal to the principal
and interest requirement of the debt. As the debt is paid down,
stockholders' equity will be increased. The Association's payment of the
ESOP debt is based upon equal installments of principal over a 12-year
period, assuming a combined federal and state tax rate of 38%. Interest
income earned by the Holding Company on the ESOP debt offsets the interest
paid by the Association on the ESOP loan. No reinvestment is assumed on
proceeds contributed to fund the ESOP. The ESOP expense reflects adoption
of Statement of Position ("SOP") 93-6, which will require recognition of
expense based upon shares committed to be released and the exclusion of
unallocated shares from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $20.00 per share Purchase
Price. See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan."
(4) In calculating the pro forma effect of the MRP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the MRP at the beginning of the period presented in open
market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Common Stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.85% and pro forma net income per share would be $0.49,
$0.46, $0.44 and $0.42 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the six months ended December
31, 1996, respectively, and $1.83, $1.64, $1.80 and $1.38 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range for the year ended June 30, 1996, respectively, and pro forma
stockholders' equity per share would be $32.40, $30.16, $28.53 and $27.12
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range at December 31, 1996, respectively, and $32.17,
$29.96 $28.36 and $26.97 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range at June 30, 1996,
respectively. Shares issued under the MRP vest 20% per year and, for
purposes of this table, compensation expense is recognized on a
straight-line basis over each vesting period. In the event the fair market
value per share is greater than $20.00 per share on the date of
stockholder approval of the MRP, total MRP expense would increase. The
total estimated MRP expense was multiplied by 20% (the total percent of
shares for which expense is recognized in the first year) resulting in
pre-tax MRP expense of $227,000, $268,000, $308,000 and $355,000 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the six months ended December 31, 1996, respectively,
and $455,000, $535,000, $616,000 and $708,000 at the minimum, midpoint
maximum and 15% above the maximum of the Estimated Valuation Range for the
year ended June 30, 1996, respectively. No effect has been given to the
shares reserved for issuance under the proposed Stock Option Plan. If
stockholders approve the Stock Option Plan following the Conversion, the
Holding Company will have reserved for issuance under the Stock Option
Plan
17
<PAGE>
authorized but unissued shares of Common Stock representing an amount of
shares equal to 10% of the shares sold in the Conversion. If all of the
options were to be exercised utilizing these authorized but unissued
shares rather than treasury shares which could be acquired, the voting and
ownership interests of existing stockholders would be diluted by
approximately 9.1%. Assuming stockholder approval of the Stock Option Plan
and that all options were exercised at the end of the six months ended
December 31, 1996 and the year ended June 30, 1996, respectively, at an
exercise price of $20.00 per share, pro forma net earnings per share would
be $0.48, $0.46, $0.43 and $0.41, respectively, for the six months ended
December 31, 1996, and $1.76, $1.58, $1.46 and $1.34, respectively, for
the year ended June 30, 1996, and pro forma stockholders' equity per share
would be $31.72, $29.61, $28.07 and $26.73, respectively, for the six
months ended December 31, 1996, and $31.51, $29.42, $27.91 and $26.59,
respectively for the year ended June 30, 1996 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. See
"MANAGEMENT OF THE ASSOCIATION -- Benefits -- 1997 Stock Option Plan" and
"-- Benefits -- Management Recognition Plan" and "RISK FACTORS -- Possible
Dilutive Effect of Benefit Programs."
(5) Per share amounts are based upon shares outstanding of 2,625,395,
3,088,700, 3,552,005 and 4,084,806 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range for the six months
ended December 31, 1996, respectively and 2,631,090, 3,095,400, 3,559,710
and 4,093,667 for the year ended June 30, 1996, respectively, which
includes the shares of Common Stock sold in the Conversion less the number
of shares assumed to be held by the ESOP not committed to be released
within the first year following the Conversion.
(6) Historical per share amounts have been computed as if the shares of Common
Stock expected to be issued in the Conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment
of historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
Conversion, the additional ESOP expense or the proposed MRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Association's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the
Conversion, or the federal income tax consequences of the restoration to
income of the Association's special bad debt reserves for income tax
purposes which would be required in the unlikely event of liquidation. See
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association" and "TAXATION." The amounts shown for book
value do not represent fair market values or amounts distributable to
stockholders in the unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 2,847,500,
3,350,000, 3,852,500 and 4,430,375 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of
the Common Stock.
18
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the
approximate purchases of Common Stock by each director and executive officer of
the Association, including their associates, as defined by applicable
regulations. No individual has entered into a binding agreement with respect to
such intended purchases. Directors and officers of the Association and their
associates may not purchase in excess of 28% of the shares sold in the
Conversion and, therefore, actual purchases could be more or less than indicated
below. For purposes of the following table, it has been assumed that sufficient
shares will be available to satisfy subscriptions in all categories. Directors,
officers and employees will pay the same price for the shares for which they
subscribe as the price that will be paid by all other subscribers.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares Purchased (1) Amount Purchased Valuation Range Valuation Range
-------- ------------------------- ---------------- --------------- ---------------
<S> <C>
Robert R. Odom 6,250 $125,000 0.22% 0.16%
Chairman of the Board
Billy L. Painter 16,250 325,000 0.57 0.42
President and Director
Robert L. Handell 5,000 100,000 0.18 0.13
Secretary and Director
R. Wesley Hammond 5,000 100,000 0.18 0.13
Director
E. Lea Salter 7,500 150,000 0.26 0.19
Director
E.L. Sanders 15,000 300,000 0.53 0.39
Director
David E. Tate 5,000 100,000 0.18 0.13
Director
J. Stephen Sinclair 16,250 325,000 0.57 0.42
Executive Vice President
Hugh H. Brantley 16,250 325,000 0.57 0.42
Executive Vice President
R. Lamar Simpson 2,500 50,000 0.09 0.06
Chief Financial Officer
Other officers (5 persons) 34,750 695,000 1.22 0.90
------- ---------- ---- ----
Total 129,750 $2,595,000 4.56% 3.37%
======= ========== ==== ====
</TABLE>
- ----------
(1) Excludes any shares awarded pursuant to the ESOP and MRP and options to
acquire shares pursuant to the Stock Option Plan. For a description of
the number of shares to be purchased by the ESOP and intended awards under
the MRP and Stock Option Plan, see "MANAGEMENT OF THE ASSOCIATION --
Benefits -- Employee Stock Ownership Plan," "-- Benefits -- 1997 Stock
Option Plan" and "-- Benefits -- Management Recognition Plan."
19
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of First Federal Savings
and Loan Association of Spartanburg and Subsidiary for the fiscal years ended
June 30, 1996, 1995 and 1994 have been audited by Deloitte & Touche LLP,
Greenville, South Carolina, independent auditors, whose report thereon appears
elsewhere in this Prospectus. The Consolidated Statements of Income for the six
months ended December 31, 1996 and 1995 were not audited by Deloitte & Touche
LLP, but, in the opinion of the management, reflect all adjustments (none of
which are other than normal recurring entries) necessary for a fair
presentation. The results of operations for the six months ended December 31,
1996 are not necessarily indicative of the results of operations that may be
expected for the entire fiscal year. These statements should be read in
conjunction with the Consolidated Financial Statements and related Notes
included elsewhere herein.
<TABLE>
<CAPTION>
Six Months
Ended December 31, Years Ended June 30,
--------------------- -----------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Unaudited)
<S> <C> (In thousands)
INVESTMENT INCOME:
Interest on loans............................. $13,305 $11,946 $ 24,421 $ 22,086 $ 21,414
Interest and dividends on investment
securities, mortgage-backed securities
and other................................... 852 1,091 2,024 1,749 1,739
-------- -------- -------- -------- --------
Total investment income...................... 14,157 13,037 26,445 23,835 23,153
INTEREST EXPENSE:
Deposit accounts.............................. 7,568 7,332 14,669 11,302 10,387
-------- -------- -------- -------- --------
NET INTEREST INCOME............................ 6,589 5,705 11,776 12,533 12,766
PROVISION FOR LOAN LOSSES (Note 3)............. 675 4 419 9 --
-------- --------- --------- --------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.................... 5,914 5,701 11,357 12,524 12,766
-------- --------- -------- -------- --------
OTHER INCOME (EXPENSE):
Service charges and fees...................... 596 413 924 674 654
Gain (loss) of sale of mortgage loans......... 37 -- -- (1,078) (226)
Unrealized gain (loss) on loans held for sale. -- -- -- 668 (668)
Loss on sale of investments................... (16) -- -- (396) (109)
Other income, net............................. 85 186 395 466 433
-------- -------- --------- --------- ---------
Total other income, net...................... 702 599 1,319 334 84
-------- -------- --------- --------- ---------
OTHER OPERATING EXPENSES:
Employee compensation and benefits............ 1,733 1,516 3,131 3,020 2,728
Federal deposit insurance premium............. 2,131 354 737 701 690
Occupancy and equipment expense............... 497 366 731 631 553
Computer services............................. 250 192 449 388 365
Advertising and promotions.................... 235 204 418 286 197
Office supplies, postage, printing, etc....... 246 219 502 334 311
Other......................................... 552 475 1,060 862 827
-------- -------- --------- --------- ---------
Total other operating expenses............... 5,644 3,326 7,028 6,222 5,671
-------- -------- --------- --------- ---------
INCOME BEFORE INCOME TAXES..................... 972 2,974 5,648 6,636 7,179
PROVISION FOR INCOME TAXES
(Note 6)...................................... 365 1,115 2,111 2,495 2,707
-------- -------- --------- --------- ---------
NET INCOME..................................... $ 607 $ 1,859 $ 3,537 $ 4,141 $ 4,472
======== ======== ========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Association. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto and the other sections contained in this
Prospectus.
Operating Strategy
The Association's business consists primarily of attracting retail deposits
from the general public and using these funds to originate mortgage loans
secured primarily by one- to- four family residences located in its primary
market area. To a lesser extent, the Association also originates, in order of
magnitude, construction loans, consumer loans (including commercial business
loans), commercial real estate loans and land loans. In addition, the
Association invests in U.S. Government and federal agency obligations, mutual
funds and, and to a substantially lesser extent, mortgage-backed securities. The
Association intends to continue to fund its assets primarily with retail
deposits, although FHLB-Atlanta advances may be used as a supplemental source of
funds.
The Association's profitability depends primarily on its net interest
income, which is the difference between the income it receives on its loan and
investment portfolio and its cost of funds, which consists of interest paid on
deposits. Net interest income is also affected by the relative amounts of
interest-earning assets and interest-bearing liabilities. When interest-earning
assets equal or exceed interest-bearing liabilities, any positive interest rate
spread will generate net interest income. The Association's profitability is
also affected by the level of other income and expenses. Other income, net,
includes loan origination and commitment fees, loan servicing fees, income from
real estate owned and net gains and losses on sales of interest-earning assets.
Other expenses include compensation and benefits, occupancy and equipment
expenses, deposit insurance premiums, data servicing expenses and other
operating costs. The Association's results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
market interest rates, government legislation and regulation and monetary and
fiscal policies.
The Association's goal is to operate as a well-capitalized, and profitable,
community-oriented institution dedicated to providing quality customer service.
The Association believes that it has successfully implemented its strategy by:
(i) maintaining a strong capital base; (ii) seeking to reduce its exposure to
fluctuations in market interest rates; (iii) promoting local loan originations;
(iv) emphasizing high quality customer service with a competitive fee structure
and (v) expanding its branch office network. See "HISTORICAL AND PRO FORMA
CAPITAL COMPLIANCE," "-- Asset and Liability Management" and "BUSINESS OF THE
ASSOCIATION -- Lending Activities" and "-- Properties."
The Association's business strategy is to operate as an independent
community-based financial institution. In light of recent consolidations of
thrift institutions with large regional commercial banks in the Association's
primary market area, the Board of Directors believes that an independent
community-based financial institutions such as the Association enjoys a
competitive advantage. The Association's goal is to position itself to preserve
and enhance this current competitive advantage. The Association has made an
equity investment in a regional mortgage banking company. See "BUSINESS OF THE
ASSOCIATION -- Subsidiary Activities." The Association also is expanding its
branch office network, as discussed above. Furthermore, the Association offers
various loan products to meet the varied financial needs of its customers, in
addition to residential mortgage financing. Although constituting a small
portion of the Association's loan portfolio, and expected to remain so for the
foreseeable future, the Association offers automobile loans and, more recently,
VISA credit cards, to its local community residents. Finally, the Association
has introduced various deposit products to supplement its traditional savings
accounts and certificate accounts, including commercial deposits to complement
its commercial real estate and commercial business
21
<PAGE>
lending activities, as well as check imaging services. As of June 30,
1996, the latest date for which published data is available, the
Association had a 15.6% share of all deposits in Spartanburg County. See
"BUSINESS OF THE ASSOCIATION -- Deposit Activities and Other Sources of Funds."
The Association believes that the capital raised in the Offerings will enhance
its ability to continue implementing this business strategy.
Comparison of Financial Condition at December 31, 1996, June 30, 1996 and June
30, 1995
Total assets were $375.5 million, $357.0 million and $322.7 million at
December 31, 1996, June 30, 1996 and June 30, 1995, respectively. This increase
resulted primarily from growth in the loan portfolio, which was funded primarily
by deposit growth.
Loans receivable, net, amounted to $331.7 million, $314.9 million and
$267.4 million at December 31, 1996, June 30, 1996 and June 30, 1995,
respectively. A substantial portion of the Association's loan portfolio is
secured by real estate, either as primary or secondary collateral, located in
its primary market area of Spartanburg County, South Carolina. There are certain
risks associated with this credit concentration. See "RISK FACTORS --
Concentration of Credit Risk." In addition, the period between June 30, 1995 and
December 31, 1996 saw a continuing trend in the growth of the construction loan
and consumer loan portfolios. Construction and consumer loans are generally
riskier than one- to- four family mortgage loans. See "RISK FACTORS -- Certain
Lending Risks" and "BUSINESS OF THE ASSOCIATION -- Lending Activities."
Loans held-for-sale were $1.4 million, $1.9 million and $15.3 million at
December 31, 1996, June 30, 1996 and June 30, 1995, respectively. The
Association sold $13.3 million of loans classified as held-for-sale whose
aggregate market value was less than their aggregate principal balances during
the year ended June 30, 1995 after determining that the prospects of their
carrying value equalling or exceeding market value in the foreseeable future was
remote. During the year ended June 30, 1996, the Association reclassified loans
with a carrying value of $20.9 million from held-for-sale to held-for-investment
after management reevaluated its intent with respect to their disposition. See
"-- Results of Operations -- Comparison of Operating Results for the Years Ended
June 30, 1995 and 1994 -- Other Income (Expense)."
Cash and cash equivalents amounted to $17.1 million, $10.8 million and
$16.0 million at December 31, 1996, June 30, 1996 and June 30, 1995,
respectively. The decrease between June 30, 1996 and 1995 reflects the purchase
of marketable equity securities (mutual fund shares). The increase between
December 31, 1996 and June 30, 1996 reflects proceeds from the sale of such
marketable equity securities, which were sold to increase regulatory liquidity,
and, to a lesser extent, deposit growth. See "-- Liquidity and Capital
Resources."
Held-to-maturity investment securities were $5.5 million at June 30, 1995,
with no similar holdings at either December 31, 1996 or June 30, 1996. In
December 1995, the Association adopted the implementation guidance allowed by
the Financial Accounting Standards Board ("FASB") under its Special Report "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities, and reclassified investment securities classified
as held-to-maturity to available-for-sale classification without tainting the
remainder of the held-to-maturity investment securities portfolio. See Note 1 of
Notes to Consolidated Financial Statements.
Available-for-sale investment securities were $13.5 million, $18.2 million
and $8.2 million at December 31, 1996, June 30, 1996 and June 30, 1995,
respectively. The increase between June 30, 1996 and 1995 reflects the
reclassification of held-to-maturity securities and the purchase of additional
securities, both described above. The decrease between December 31, 1996 and
June 30, 1996 resulted primarily from the sale of marketable equity securities
to increase regulatory liquidity, also described above.
Office properties and equipment, net, were $5.5 million, $5.1 million and
$4.4 million at December 31, 1996, June 30, 1996 and June 30, 1995,
respectively. The increase between June 30, 1996 and 1995 resulted primarily
from the acquisition of land for the construction of the Inman branch office and
property adjacent to the
22
<PAGE>
Association's main office for possible future expansion needs (see "BUSINESS OF
THE ASSOCIATION -- Properties") and the purchase of check imaging equipment
and other computer technology upgrades. The increase between December 31,
1996 and June 30, 1996 resulted primarily from the acquisition of land
adjacent to the Boiling Springs branch office for possible future expansion
needs.
Deposit accounts totaled $324.0 million, $305.8 million and $275.9 million
at December 31, 1996, June 30, 1996 and June 30, 1995, respectively. The
increases between December 31, 1996, June 30, 1996 and June 30, 1995 were the
result of aggressive marketing and promotion. See "-- Results of Operations --
Comparison of Operating Results for the Years Ended June 30, 1996 and 1995 --
Other Operating Expenses, "-- Results of Operations -- Comparison of Operating
Results for the Years Ended June 30, 1995 and 1994 -- Other Operating Expenses"
and "BUSINESS OF THE ASSOCIATION -- Deposit Activities and Other Sources of
Funds."
Total equity was $44.8 million, $44.2 million and $40.7 million at
December 31, 1996, June 30, 1996 and June 30, 1995, respectively. These
increases were primarily the result of retained earnings.
Results of Operations
The earnings of the Association depend primarily on its level of net
interest income, which is the difference between interest earned on the
Association's interest-earning assets and the interest paid on interest-bearing
liabilities. Net interest income is a function of the Association's interest
rate spread, which is the difference between the yield earned on
interest-earning assets and the rate paid on interest-bearing liabilities, as
well as a function of the average balance of interest-earning assets as compared
to the average balance of interest-bearing liabilities.
Comparison of Operating Results for the Six Months Ended December 31, 1996 and
1995
Net Income. Net income was $607,000 for the six months ended December 31,
1996 compared to $1.9 million for the six months ended December 31, 1995, a
68.1% decline, primarily as a result of increases in the provision for loan
losses and in other operating expenses, offset by an increase in other income.
The increase in other operating expenses was primarily the result of the
legislatively-mandated, one-time assessment levied by the FDIC on all
SAIF-insured institutions to recapitalize the SAIF. Without this assessment,
which amounted to $1.1 million after tax, net income would have been $1.7
million for the six months ended December 31, 1996.
Net Interest Income. Net interest income increased 15.8% from $5.7 million
for the six months ended December 31, 1995 to $6.6 million for the six months
ended December 31, 1996. Total investment income increased 9.2% from $13.0
million for the six months ended December 31, 1995 to $14.2 million for the six
months ended December 31, 1996 as a result of an increase in the average balance
of interest-earning assets from $326.8 million to $352.4 million. The increase
in the average balance of interest-earning assets was partially offset by a
decrease in the average yield on interest earning-assets from 8.15% for the six
months ended December 31, 1995 to 8.04% for the same period in 1996. Interest
expense increased 4.1% from $7.3 million for the six months ended December 31,
1995 to $7.6 million for the six months ended December 31, 1996 as a result of
an increase in the average balance of deposits from $289.8 million to $313.7
million. The increase in the average balance of deposits more than offset a
decrease in the average cost of deposits from 5.07% for the six months ended
December 31, 1995 to 4.83% for the six months ended December 31, 1996. Interest
rate spread increased to 3.21% for the six months ended December 31, 1996 from
3.08% for the six months ended December 31, 1995.
Provision for Loan Losses. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered by
management as adequate to provide for estimated loan losses based on
management's evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical loss
experience, specific impaired loans and economic conditions. The provision for
loan losses was $675,000 for the six months ended December 31, 1996 compared to
$4,000 for the same period in 1995. Management deemed the increase in the
provision for loan losses necessary in light of the growth of the loan portfolio
and a continuing increase in classified assets between June 30, 1996 and
December 31, 1996. See
23
<PAGE>
"RISK FACTORS -- Certain Lending Risks" and "BUSINESS OF THE ASSOCIATION --
Lending Activities -- Asset Classification." Management deemed the allowance
for loan losses adequate at December 31, 1996.
Other Income (Expense). Other income increased from $599,000 for the six
months ended December 31, 1995 to $702,000 for the six months ended December 31,
1996, primarily as a result of the increase in service charges and fees offset
by a decrease in other income. Service charges and fees increased from $413,000
for the six months ended December 31, 1995 to $596,000 for the same period in
1996 primarily as a result of increased FHA and VA mortgage loan origination
fees and increased deposit account fees, particularly on the increased number of
negotiable order of withdrawal ("NOW") accounts. Other income, net, decreased
from $186,000 for the six months ended December 31, 1995 to $85,000 for the six
months ended December 31, 1996 primarily as a result of a $100,000 loss
representing the Association's share of the losses incurred by the mortgage
banking company in which the Association's service corporation subsidiary has an
equity investment. See "BUSINESS OF THE ASSOCIATION -- Subsidiary Activities"
and Note 1 to Notes to Consolidated Financial Statements.
Other Operating Expenses. Other operating expenses were $5.6 million for
the six months ended December 31, 1996 compared to $3.3 million for the same
period in 1995. This increase resulted primarily from the FDIC special
assessment on all SAIF-insured institutions to recapitalize the SAIF. The
Association's assessment amounted to $1.8 million and was accrued during the
quarter ended September 30, 1996. The Association will pay reduced insurance
assessments in future periods as a result of the SAIF recapitalization. See
"REGULATION -- Federal Regulation of Savings Associations -- Federal Deposit
Insurance Corporation" and Note 10 to Notes to Consolidated Financial
Statements. Additionally, employee compensation and benefits increased from $1.5
million for the six months ended December 31, 1995 to $1.7 million for the same
period in 1996 as a result of the hiring of additional operations personnel to
service the increased number of NOW accounts and the hiring of the Association's
current Chief Financial Officer in June 1996. The increases in other categories
of other operating expenses generally is attributable the general growth of the
Association and to inflation. The Association anticipates that other operating
expenses will increase in subsequent periods following the consummation of the
Conversion as a result of increased costs associated with operating as a public
company and increased compensation expense as a result of the adoption of the
ESOP and, if approved by the Holding Company's stockholders, the MRP. See "PRO
FORMA DATA." The opening of the new branch offices also will contribute to
increased operating expenses in future periods. See "RISK FACTORS -- Return on
Equity After Conversion" and "BUSINESS OF THE ASSOCIATION -- Properties."
Income Taxes. The provision for income taxes was $365,000 for the six
months ended December 31, 1996 compared to $1.1 million for the six months
ended December 31, 1995 as a result of lower income before taxes.
Comparison of Operating Results for the Years Ended June 30, 1996 and 1995
Net Income. Net income was $3.5 million for the year ended June 30, 1996
compared to $4.1 million a year earlier, a 14.6% decline, primarily as a result
of a decrease in net interest income and increases in the provision for loan
losses and in other operating expenses, offset by an increase in other income.
Net Interest Income. Net interest income was $11.8 million for the year
ended June 30, 1996 compared to $12.5 million for the year ended June 30, 1995,
a 5.6% decline. A 10.9% increase in investment income, from $23.8 million in
1995 to $26.4 million in 1996, was more than offset by a 30.1% increase in
interest expense, from $11.3 million in 1995 to $14.7 million in 1996. The
increase in investment income resulted primarily from an increase in the average
balance of interest-earning assets from $302.2 million in 1995 to $331.4 million
in 1996 and an increase in the average yield on interest-earning assets from
7.89% in 1995 to 7.98% in 1996. The increase in interest expense was primarily
the result of an increase in the average cost of deposits from 4.18% for 1995 to
4.97% for 1996, coupled with an increase in the average balance of deposits from
$270.1 million for 1995 to $295.0 million for 1996, which resulted in a decline
in interest rate spread from 3.71% in 1995 to 3.01% in 1996.
24
<PAGE>
Provision for Loan Losses. The provision for loan losses was $419,000 for
the year ended June 30, 1996 compared to $9,000 for the year ended June 30,
1995. Management deemed the increase in the provision for loan losses necessary
in light of the growth of the loan portfolio, particularly in the areas of
construction and consumer lending, which are generally considered to have a
greater risk of loss than one- to- four family residential mortgage loans, and
an increase in non-performing assets.
Other Income (Expense). Other income was $1.3 million for the year ended
June 30, 1996 compared to $334,000 for the year ended June 30, 1995. In 1995,
there was a $1.1 million loss on the sale of mortgage loans held for sale and a
$396,000 loss on the sale of investments, both of which were absent in 1996. See
"-- Comparison of Financial Condition at December 31, 1996, June 30, 1996 and
June 30, 1995" and "-- Comparison of Operating Results for the Year Ended June
30, 1996 and 1995 -- Other Income (Expense)."
Other Operating Expenses. Other operating expenses were $7.0 million for
the year ended June 30, 1996 compared to $6.2 million in 1995, an increase of
12.9%, primarily as a result of increases in occupancy and equipment expense,
advertising and promotions expense, and office supplies, postage and printing
expenses. Occupancy and equipment expense increased to $731,000 for the year
ended June 30, 1996 from $631,000 for the year ended June 30, 1995, primarily as
a result of increased depreciation expense of computer and other equipment and,
to a lesser extent, general maintenance and repairs on the Association's
properties. Advertising and promotions expense increased to $418,000 for the
year ended June 30, 1996 from $286,000 for the year ended June 30, 1995 as a
result of increased advertising and promotions developed with the assistance of
a consultant retained to develop and implement strategies to increase the
Association's deposit base. Office supplies, postage and printing expenses
increased to $502,000 for the year ended June 30, 1996 from $334,000 for the
year ended June 30, 1995 as a result of expenses associated with the development
of product marketing materials and increased expenses associated with the
increase in NOW accounts.
Income Taxes. The provision for income taxes was $2.1 million for the
year ended June 30, 1996 compared to $2.5 million for the year ended June 30,
1995 as a result of lower income before taxes.
Comparison of Operating Results for the Years Ended June 30, 1995 and 1994
Net Income. Net income was $4.1 million for the year ended June 30, 1995
compared to $4.5 million for the year ended June 30, 1994, a 8.9% decline,
primarily as a result of a decrease in net interest income and an increase in
other operating expenses, offset by an increase in other income (expense).
Net Interest Income. Net interest income remained relatively stable between
1994 and 1995. Net interest income was $12.5 million for the year ended June 30,
1995 compared to $12.8 million for the year ended June 30, 1994, a 2.3% decline.
Interest rate spread decreased to 3.71% in 1995 from 3.94% in 1994 primarily as
a result of an increase in the average cost of interest-bearing liabilities to
4.18% in 1995 from 3.86% in 1994, which more than offset increases in the
average balance of interest earning assets to $302.2 million in 1995 from $296.7
million in 1994 and in the average yield on interest-earning assets to 7.89% in
1995 from 7.80% in 1994.
Provision for Loan Losses. The provision for loan losses was $9,000 for
1995. There was no provision for loan losses in 1994.
Other Income (Expense). Other income was $334,000 for the year ended June
30, 1995 compared to $84,000 for the year ended June 30, 1994. Income from
service charges and fees increased in 1995 primarily as a result of deposit
growth. The sale of mortgage loans held-for-sale during 1995 contributed to a
$1.1 million loss. At June 30, 1994, the aggregate principal balance of loans
held-for-sale exceeded their market value by $668,000. As a result, a valuation
allowance of $668,000 was established and an unrealized loss of $668,000 was
recorded as an other expense in 1994. At June 30, 1995, the aggregate market
value of such loans exceeded their aggregate principal balance. Consequently, no
valuation allowance was established and an unrealized gain of $668,000 was
25
<PAGE>
recorded as other income in 1995. See "-- Comparison of Financial Condition at
December 31, 1996, June 30, 1996 and June 30, 1995."
Other Operating Expenses. Other operating expenses were $6.2 million
in 1995 compared to $5.7 million in 1994, an increase of 8.8% primarily as
a result of general increases in all expense categories as a result of the
growth of the Association during the year.
Income Taxes. The provision for income taxes was $2.5 million for the
year ended June 30, 1995 compared to $2.7 million for the year ended June 30,
1994 as a result of lower income before income taxes.
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. Average balances are derived from daily
balances for the six months ended December 31, 1996 and 1995 and for the year
ended June 30, 1996. Average balance for the years ended June 30, 1995 and 1994
were derived from month-end balances. Management does not believe that the use
of month-end balances instead of daily balances has caused any material
inconsistencies in the information presented.
26
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended December 31, Years Ended June 30,
------------------------------------------------------- --------------------------
1996 1995 1996
-------------------------- -------------------------- --------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C>
Interest-earning assets:
Loans receivable, net (1).......... $325,969 $13,323 8.17% $290,257 $12,223 8.42% $298,865 $24,421 8.17%
Mortgage-backed securities......... 148 5 6.76 366 16 8.74 333 29 8.71
Investment securities.............. 15,235 504 6.62 16,158 451 5.58 17,035 997 5.85
FHLB stock......................... 2,807 102 7.27 2,649 97 7.32 2,693 196 7.28
Federal funds sold and overnight
interest-bearing deposits......... 8,287 240 5.79 17,385 527 6.06 12,517 802 6.41
-------- ------- -------- ------- -------- -------
Total interest-earning assets.... 352,446 14,174 8.04 326,815 13,314 8.15 331,443 26,445 7.98
------- ------ ------- ------- ------- -------
Non-interest-earning assets......... 13,777 11,846 12,947
-------- -------- --------
Total assets..................... $366,223 $338,661 $344,390
======== ======== ========
Interest-bearing liabilities(2):
Passbook accounts.................. $54,310 1,043 3.84 $36,072 636 3.53 $39,289 1,364 3.47
Money market accounts.............. 14,521 235 3.24 17,583 327 3.72 17,196 626 3.64
NOW accounts....................... 28,346 233 1.64 25,894 261 2.02 27,351 542 1.98
Certificate accounts............... 216,528 6,060 5.60 210,261 6,116 5.82 211,179 12,137 5.75
-------- ------ -------- ------ -------- -------
Total interest-bearing liabilities 313,705 7,571 4.83 289,810 7,340 5.07 295,015 14,669 4.97
-------- ------ ----- -------- ------ -------- -------
Non-interest-bearing liabilities.... 7,209 6,908 6,422
-------- -------- --------
Total liabilities................ 320,914 296,718 301,437
-------- -------- --------
Retained earnings................... 45,309 41,943 42,953
-------- -------- --------
Total liabilities and retained
earnings $366,223 $338,661 $344,390
======== ======== ========
Net interest income................. $6,603 $5,974 $11,776
====== ====== =======
Interest rate spread................ 3.21% 3.08% 3.01%
Net interest margin................. 3.75% 3.66% 3.55%
Ratio of average interest-earning
assets to average interest-
bearing liabilities................ 1.12% 1.13% 1.12%
</TABLE>
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------------------------
1995 1994
--------------------------------- -----------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ----
(Dollars in thousands)
<S> <C>
Interest-earning assets:
Loans receivable, net (1).......... $273,778 $22,086 8.07% $260,135 $21,414 8.23%
Mortgage-backed securities......... 416 35 8.41 710 59 8.31
Investment securities.............. 17,357 994 5.73 22,866 1,101 4.82
FHLB stock......................... 2,649 185 6.98 2,625 140 5.33
Federal funds sold and overnight
interest-bearing deposits......... 8,020 535 6.67 10,322 439 4.25
-------- ------- -------- -------
Total interest-earning assets.... 302,220 23,835 7.89 296,658 23,153 7.80
------- ------- ------- -------
Non-interest-earning assets......... 11,734 12,250
-------- --------
Total assets..................... $313,954 $308,908
======== ========
Interest-bearing liabilities(2):
Passbook accounts.................. $33,306 979 2.94 $34,469 1,003 2.91
Money market accounts.............. 22,376 718 3.21 22,998 765 3.33
NOW accounts....................... 26,244 545 2.08 27,454 517 1.88
Certificate accounts............... 188,140 9,060 4.82 184,393 8,102 4.39
-------- ------- -------- ------
Total interest-bearing liabilities 270,066 11,302 4.18 269,314 10,387 3.86
-------- ------- ------
Non-interest-bearing liabilities.... 5,341 4,884
-------- --------
Total liabilities................ 275,407 274,198
-------- --------
Retained earnings................... 38,547 34,710
-------- --------
Total liabilities and retained
earnings $313,954 $308,908
======== ========
Net interest income................. $12,533 $12,766
======= =======
Interest rate spread................ 3.71% 3.94%
Net interest margin................. 4.15% 4.30%
Ratio of average interest-earning
assets to average interest-
bearing liabilities................ 1.12% 1.10%
</TABLE>
- ----------
(1) Includes loans held-for-sale. Does not include interest on non-accrual
loans.
(2) Does not include escrow balances.
27
<PAGE>
Yields Earned and Rates Paid
The following table sets forth for the periods and at the dates
indicated the weighted average yields earned on the Association's assets and the
weighted average interest rates paid on the Association's liabilities, together
with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
Six Months Ended
At December 31, Years Ended June 30,
December 31, -------------------- --------------------------------------
1996 1996 1995 1996 1995 1994
-------------- ---- ---- ---- ---- ----
<S> <C>
Weighted average yield on:
Loans receivable, net.................... 8.12% 8.17% 8.42% 8.17% 8.07% 8.23%
Mortgage-backed securities............... 8.40 6.76 8.74 8.71 8.41 8.31
Investment securities.................... 6.34 6.62 5.58 5.85 5.73 4.82
FHLB stock............................... 7.25 7.27 7.32 7.28 6.98 5.33
Federal funds sold and overnight
interest-bearing deposits............... 5.14 5.79 6.06 6.41 6.67 4.25
All interest-earning assets.............. 7.96 8.04 8.15 7.98 7.89 7.80
Weighted average rate paid on:
Passbook accounts........................ 3.72 3.84 3.53 3.47 2.94 2.91
Money market accounts.................... 3.17 3.24 3.72 3.64 3.21 3.33
NOW accounts............................. 1.83 1.64 2.02 1.98 2.08 1.88
Certificate accounts..................... 5.59 5.60 5.82 5.75 4.82 4.39
All interest-bearing liabilities......... 4.81 4.83 5.07 4.97 4.18 3.86
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities)..................... 3.18 3.21 3.08 3.01 3.71 3.94
Net interest margin (net interest
income as a percentage of average
interest-earning assets).................. N/A 3.75 3.66 3.55 4.15 4.30
</TABLE>
28
<PAGE>
The following table sets forth the effects of changing rates and
volumes on the interest income and interest expense of the Association.
Information is provided with respect: (i) to effects attributable to changes
in volume (changes in volume multiplied by prior rate); and (ii) to effects
attributable to changes in rate (changes in rate multiplied by prior volume).
The net change attributable to the combined impact of volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Six Months Ended December 31, 1996
Compared to Six Months Ended Year Ended June 30, 1996
December 31, 1995 Compared to Year Ended June 30, 1995
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------- -------------------------------------
Rate Volume Total Rate Volume Total
---- ------ ----- ---- ------ -----
(Dollars in thousands)
<S> <C>
Interest-earning assets:
Loans receivable, net (1)............$(350) $1,450 $1,100 $278 $2,057 $2,335
Mortgage-backed securities........... (3) (8) (11) 1 (7) (6)
Investment securities................ 77 (24) 53 21 (18) 3
FHLB stock........................... -- 5 5 8 3 11
Federal funds sold and overnight
interest-bearing deposits........... (23) (264) (287) (20) 287 267
------ ------- ------- ------ ------- -------
Total net change in income
on interest-earning assets........... (299) 1,159 860 288 2,322 2,610
------ ------ ------ ----- ------- -------
Interest-bearing liabilities:
Passbook accounts.................... 60 347 407 193 192 385
Money market accounts................ (39) (53) (92) 126 (218) (92)
NOW accounts......................... (57) 29 (28) (26) 23 (3)
Certificate accounts................. (265) 209 (56) 1,883 1,194 3,077
------ ------ ------- ----- ------- -------
Total net change in expense
on interest-bearing liabilities...... (301) 532 231 2,176 1,191 3,367
------ ------ ------ ------- ------- -------
Net change in net interest income.....$ 2 $ 627 $ 629 $(1,888) $1,131 $ (757)
===== ====== ====== ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1995
Compared to Year Ended June 30, 1994
Increase (Decrease)
Due to
------------------------------------
Rate Volume Total
---- ------ -----
<S> <C>
Interest-earning assets:
Loans receivable, net (1)............ $(395) $1,067 $ 672
Mortgage-backed securities........... 1 (25) (24)
Investment securities................ 384 (491) (107)
FHLB stock........................... 44 1 45
Federal funds sold and overnight
interest-bearing deposits........... 158 (62) 96
------ ------ ------
Total net change in income
on interest-earning assets........... 192 490 682
------ ------ ------
Interest-bearing liabilities:
Passbook accounts.................... 10 (34) (24)
Money market accounts................ (27) (20) (47)
NOW accounts......................... 48 (20) 28
Certificate accounts................. 794 164 958
------ ------ ------
Total net change in expense
on interest-bearing liabilities...... 825 90 915
------ ------ ------
Net change in net interest income..... $(633) $ 400 $(233)
====== ====== ======
</TABLE>
- ----------
(1) Does not include interest on nonaccrual loans.
29
<PAGE>
Asset and Liability Management
The Association's principal financial objective is to achieve
long-term profitability while reducing its exposure to fluctuating market
interest rates. The Association has sought to reduce the exposure of its
earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest rates. The
principal element in achieving this objective is to increase the interest-rate
sensitivity of the Association's interest-earning assets by retaining for its
portfolio loans with interest rates subject to periodic adjustment to market
conditions and periodically selling fixed-rate one- to- four family mortgage
loans. In addition, the Association maintains an investment portfolio of U.S.
Government and agency securities with contractual maturities of between one and
five years. The Association relies on retail deposits as its primary source
of funds. Management believes retail deposits, compared to brokered
deposits, reduce the effects of interest rate fluctuations because they
generally represent a more stable source of funds. As part of its interest rate
risk management strategy, the Association promotes transaction accounts and
certificates of deposit with terms up to four years.
In order to encourage institutions to reduce their interest rate risk,
the OTS adopted a rule incorporating an interest rate risk component into the
risk-based capital rules. Using data compiled by the FHLB-Atlanta, the
Association receives a report which measures interest rate risk by modeling the
change in NPV over a variety of interest rate scenarios. This procedure for
measuring interest rate risk was developed by the OTS to replace the "gap"
analysis (the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period). NPV is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The calculation is intended to illustrate the
change in NPV that will occur in the event of an immediate change in interest
rates of at least 200 basis points with no effect given to any steps that
management might take to counter the effect of that interest rate movement.
Under proposed OTS regulations, an institution with a greater than "normal"
level of interest rate risk will be subject to a deduction from total
capital for purposes of calculating its risk-based capital. An institution
with a "normal" level of interest rate risk is defined as one whose "measured
interest rate risk" is less than 2.0%. Institutions with assets of less than
$300 million and a risk-based capital ratio of more than 12.0% are exempt,
however, the Association is not exempt because of its asset size. Based on the
Association's regulatory capital levels at December 31, 1996, the
Association believes that, if the proposed regulation was implemented at that
date, it would not have had a material adverse effect on the Association's
regulatory capital compliance.
The following table is provided by the FHLB-Atlanta and sets forth
the change in the Association's NPV at December 31, 1996, based on
FHLB-Atlanta assumptions, that would occur in the event of an immediate
change in interest rates, with no effect given to any steps that
management might take to counteract that change.
Basis Point ("bp") Estimated Change in
Change in Rates Net Portfolio Value
------------------ -------------------------
(Dollars in Thousands)
+400 $(28,191) (49.2)%
+300 (20,537) (35.8)
+200 (12,882) (22.5)
+100 (6,441) (11.2)
0 0 0
-100 3,862 6.7
-200 7,724 13.5
-300 8,514 14.9
-400 9,304 16.2
The above table illustrates, for example, that an instantaneous 200
basis point increase in market interest rates at December 31, 1996 would reduce
the Association's NPV by approximately $12.9 million, or 22.5%, at that date.
30
<PAGE>
Certain assumptions utilized by the FHLB-Atlanta in assessing the
interest rate risk of savings associations within its region were utilized in
preparing the preceding table. These assumptions relate to interest rates, loan
prepayment rates, deposit decay rates, and the market values of certain assets
under differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain
shortcomings are inherent in the method of analysis presented in the foregoing
table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as ARM loans, have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. Further, in the event of a change in interest rates, expected rates
of prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
Liquidity and Capital Resources
The Association's primary sources of funds are customer deposits,
proceeds from principal and interest payments on and the sale of loans, maturing
securities and FHLB advances. While maturities and scheduled amortization of
loans are a predictable source of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions and
competition.
The Association must maintain an adequate level of liquidity to ensure
the availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Association generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At December 31,
1996, cash and cash equivalents totalled $17.1 million, or 4.6% of total assets,
and investment securities classified as available-for-sale with maturities of
one year or less totalled $502,000. At December 31, 1996, the Association also
maintained, but did not draw upon, an uncommitted credit facility with the
FHLB-Atlanta, which provided for immediately available advances up to an
aggregate amount of $40.0 million.
OTS regulations require savings institutions to maintain an average
daily balance of liquid assets (cash and eligible investments) equal to at least
5.0% of the average daily balance of its net withdrawable deposits and
short-term borrowings. In addition, short-term liquid assets currently must
constitute 1.0% of the sum of net withdrawable deposit accounts plus short-term
borrowings. The Association's actual short- and long-term liquidity ratios at
December 31, 1996 were 7.2% and 6.1%, respectively. In addition, although not
includable in calculating regulatory liquidity, at December 31, 1996, the
Association had an investment in marketable equity securities with a market
value of $5.0 million that is readily saleable to meet liquidity needs. See "--
Comparison of Financial Condition at December 31, 1996, June 30, 1996 and June
30, 1995" and "BUSINESS OF THE ASSOCIATION -- Investment Activities."
The Association's primary investing activity is the origination of one-
to- four family mortgage loans. During the six months ended December 31, 1996
and the years ended June 30, 1996, 1995 and 1994, the Association originated
$25.1 million, $59.3 million, $32.8 million and $91.2 million of such loans,
respectively. At December 31, 1996, the Association had loan commitments
totalling $4.4 million and undisbursed loans in process totalling $12.0 million.
The Association anticipates that it will have sufficient funds available to meet
current loan commitments. Certificates of deposit that are scheduled to mature
in less than one year from December 31, 1996 totalled $175.3 million.
Historically, the Association has been able to retain a significant amount of
its deposits as they mature.
OTS regulations require the Association to maintain specific amounts of
regulatory capital. As of December 31, 1996, the Association complied with all
regulatory capital requirements as of that date with tangible, core and
risk-based capital ratios of 11.9%, 11.9% and 20.8%, respectively. For a
detailed discussion of regulatory capital
31
<PAGE>
requirements, see "REGULATION -- Federal Regulation of Savings Associations
- -- Capital Requirements." See also "HISTORICAL AND PRO FORMA CAPITAL
COMPLIANCE."
Impact of Accounting Pronouncements and Regulatory Policies
Accounting by Creditors for Impairment of a Loan. See Note 1 to Notes
to Consolidated Financial Statements for a discussion of Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures." The Association adopted SFAS
No. 114 and SFAS No. 118 effective July 1, 1995, and their adoption did not have
a material effect on the Association's financial condition or results of
operations.
Accounting for Employee Stock Ownership Plans. In November 1993, the
American Institute of Certified Public Accountants issued Statement of Position
("SOP") 93-6, which requires an employer to record compensation expense in an
amount equal to the fair value of shares committed to be released to employees
from an employee stock ownership plan and to exclude unallocated shares from
earnings per share computations. The effect of SOP 93-6 on net income and book
value per share in future periods cannot be predicted due to the uncertainty of
the fair value of the shares at the time they will be committed to be released.
See "PRO FORMA DATA."
Disclosure of Certain Significant Risks and Uncertainties. In December
1994, the Accounting Standards Executive Committee issued SOP 94-6, "Disclosure
of Certain Significant Risks and Uncertainties." This SOP applies to financial
statements prepared in conformity with GAAP by all nongovernmental entities. The
disclosure requirements in SOP 94-6 focus primarily on risks and uncertainties
that could significantly affect the amounts reported in the financial statements
in the near-term functioning of the reporting entity. The risks and
uncertainties discussed in SOP 94-6 stem from the nature of the entity's
operations, from the necessary use of estimates in the preparation of the
entity's financial statements and from significant concentrations in certain
aspects of the entity's operations. SOP 94-6 is effective for financial
statements issued for fiscal years ending after December 15, 1995 and did not
have a material impact on the financial condition or results of operations of
the Association.
Accounting for the Impairment of Long-Lived Assets. See Note 1 to Notes
to Consolidated Financial Statements for a discussion of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Association adopted SFAS No. 121 on July 1, 1996 and it did
not have a material impact on its financial condition or results of operations.
Accounting for Mortgage Servicing Rights. See Note 1 to Notes to
Consolidated Financial Statements for a discussion of SFAS No. 122,
"Accounting for Mortgage Servicing Rights." The Association implemented SFAS
No. 122, prospectively, effective July 1, 1996 and its implementation did
not have a material impact on the Association's financial condition or
results of operations. Effective January 1, 1997, SFAS No. 122 was superseded
by SFAS No. 125 discussed below.
Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting for
Stock-Based Compensation," establishes financial accounting and reporting
standards for stock-based employee compensation plans. This statement encourages
all entities to adopt a new method of accounting to measure compensation cost of
all employee stock compensation plans based on the estimated fair value of the
award at the date it is granted. Companies are, however, allowed to continue to
measure compensation cost for those plans using the intrinsic value based method
of accounting, which generally does not result in compensation expense
recognition for most plans. Companies that elect to remain with the existing
accounting method are required to disclose in a footnote to the financial
statements pro forma net income and, if presented, earnings per share, as if
this statement had been adopted. The accounting requirements of this statement
are effective for transactions entered into in fiscal years that begin after
December 15, 1995; however, companies are required to disclose information for
awards granted in their first fiscal year beginning after December 15, 1994.
Management of the Association has not completed an analysis of the potential
32
<PAGE>
effects of SFAS No. 123 on its financial condition or results of operations, but
expects to use the intrinsic value method upon consummation of the Conversion.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities. See Note 1 to Notes to Consolidated Financial
Statements for a discussion of SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, and of
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 127 defers the effective date of the application
of certain portions of SFAS No. 125 until January 1, 1998. The adoption of the
provisions of SFAS No. 125 and SFAS No. 127 did not have a material impact on
the Association's financial condition or results of operations.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Association's operations. Unlike most industrial
companies, virtually all the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
BUSINESS OF THE HOLDING COMPANY
General
The Holding Company was organized as a Delaware business corporation
at the direction of the Association on February 4, 1997 for the purpose of
becoming a holding company for the Association upon completion of the
Conversion. As a result of the Conversion, the Association will be a
wholly-owned subsidiary of the Holding Company and all of the issued and
outstanding capital stock of the Association will be owned by the Holding
Company.
Business
Prior to the Conversion, the Holding Company has not and will not
engage in any significant activities other than of an organizational nature.
Upon completion of the Conversion, the Holding Company's sole business activity
will be the ownership of the outstanding capital stock of the Association. In
the future, the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property
but will instead use the premises, equipment and furniture of the Association
with the payment of appropriate rental fees, as required by applicable law.
Since the Holding Company will only hold the outstanding capital stock
of the Association upon consummation of the Conversion, the competitive
conditions applicable to the Holding Company will be the same as those
confronting the Association. See "BUSINESS OF THE ASSOCIATION -- Competition."
33
<PAGE>
BUSINESS OF THE ASSOCIATION
General
The Association operates, and intends to continue to operate, as a
community oriented financial institution and is devoted to serving the needs of
its customers. The Association's business consists primarily of attracting
retail deposits from the general public and using those funds to originate real
estate loans. See "-- Lending Activities."
Market Area
The Association considers Spartanburg County and adjacent counties in
Northwest South Carolina to be its primary market area because a large number of
its depositors reside in, and a substantial portion of its loan portfolio is
secured by properties located in, Spartanburg County. See "RISK FACTORS --
Concentration of Credit Risk." The City of Spartanburg, the county seat of
Spartanburg County, is located on Interstate 85 approximately 75 miles southwest
of Charlotte, North Carolina, and 35 miles northeast of Greenville, South
Carolina.
Spartanburg County and the City of Spartanburg had a 1990 population
of approximately 227,000 and 43,000, respectively, according the Spartanburg
Area Chamber of Commerce. The Spartanburg County economy is diverse and
generally stable. According to the U.S. Bureau of Labor Statistics, the
Spartanburg County unemployment rate was 4.0% for December 1996. According to
the Spartanburg Area Chamber of Commerce, major employers include Milliken &
Company, Michelin Tire Corp., Spartan Mills, Hoechst Celanese Corp., Spartanburg
Regional Medical Center and Bavarian Motor Works (BMW), among others.
The Association faces intense competition from many financial
institutions for deposits and loan originations. See "-- Competition" and "RISK
FACTORS -- Competition."
Lending Activities
General. At December 31, 1996, the Association's total loans
receivable portfolio amounted to $346.3 million, or 92.2% of total assets at
that date. The Association has traditionally concentrated its lending activities
on conventional first mortgage loans secured by one- to- four family properties,
with such loans amounting to $267.6 million, or 77.3% of the total loans
receivable portfolio at December 31, 1996. In addition, the Association
originates construction loans, commercial real estate loans, land loans,
consumer loans (including commercial business loans). A substantial portion of
the Association's loan portfolio is secured by real estate, either as primary or
secondary collateral, located in its primary market area. See "RISK FACTORS --
Concentration of Credit Risk."
34
<PAGE>
Loan Portfolio Analysis. The following table sets forth the
composition of the Association's loan portfolio (excluding loans-held-for sale)
at the dates indicated. The Association had no concentration of loans exceeding
10% of total gross loans other than as disclosed below.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------
At December 31, 1996 1996 1995
--------------------- ------------------------ ----------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C>
Mortgage Loans:
One- to- four family.......... $267,593 77.3% $258,302 77.6% $217,702 77.3%
Construction.................. 31,949 9.2 32,954 9.9 30,483 10.8
Land.......................... 2,409 0.7 3,285 1.0 1,762 0.6
Commercial and other.......... 4,571 1.3 3,546 1.1 6,203 2.2
-------- ---- -------- ---- -------- ----
Total mortgage loans......... $306,522 88.5 298,087 89.6 256,150 90.9
-------- ---- -------- ---- -------- ----
Consumer and Other Loans:
Home equity................... 32,555 9.4 28,430 8.5 20,859 7.4
Loans secured by
deposit accounts............. 1,979 0.6 1,605 0.5 1,345 0.5
Other......................... 5,235 1.5 4,681 1.4 3,482 1.2
-------- ---- -------- ---- -------- ----
Total consumer and other loans 39,769 11.5 34,716 10.4 25,686 9.1
-------- ---- -------- ---- -------- ----
Total loans receivable....... 346,291 100.00% 332,803 100.00% 281,836 100.00%
====== ====== ======
Less:
Undisbursed portion of loans
in process................... 12,008 15,839 12,761
Net deferred loan fees........ 979 1,028 1,082
Allowance for loan losses..... 1,650 1,000 600
-------- ------ --------
Total loans receivable, net.. $331,654 $314,936 $267,393
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------------------
1994 1993 1992
------------------------- -------------------------- ----------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C>
Mortgage Loans:
One- to- four family.......... $210,613 79.9% $202,348 83.2% $196,168 83.1%
Construction.................. 27,469 10.4 19,746 8.1 18,084 7.6
Land.......................... 1,484 0.6 -- -- -- --
Commercial and other.......... 5,648 2.1 3,989 1.7 4,916 2.1
-------- ---- -------- ----- -------- ----
Total mortgage loans......... 245,214 93.0 226,083 93.0 219,168 92.8
------- ---- ------- ----- -------- ----
Consumer and Other Loans:
Home equity................... 15,104 5.7 14,048 5.8 13,944 5.9
Loans secured by
deposit accounts............. 1,030 0.4 1,286 0.5 1,352 0.6
Other......................... 2,266 0.9 1,693 0.7 1,651 0.7
-------- ---- -------- ----- -------- -----
Total consumer and other loans 18,400 7.0 17,027 7.0 16,947 7.2
--------
Total loans receivable....... 263,614 100.00% 243,110 100.00% 236,115 100.00%
====== ====== ======
Less:
Undisbursed portion of loans
in process................... 14,587 10,311 7,227
Net deferred loan fees........ 1,232 1,031 766
Allowance for loan losses..... 600 600 400
-------- -------- --------
Total loans receivable, net.. $247,195 $231,168 $227,722
======== ======== ========
</TABLE>
35
<PAGE>
One- to- Four Family Real Estate Lending. Historically, the
Association has concentrated its lending activities on the origination of loans
secured by first mortgage loans on existing one- to- four family residences
located in its primary market area. At December 31, 1996, $267.6 million,
or 77.3% of the Association's total loan portfolio consisted of such loans.
The Association originated $25.1 million, $59.3 million, $32.8 million and
$91.2 million of one- to- four family residential mortgage loans during the six
months ended December 31, 1996 and the years ended June 30, 1996, 1995 and 1994,
respectively.
The Association participates in the FHA Direct Endorsement
Program, which allows the Association's in-house, FHA-approved, direct
endorsement underwriters to approve or reject FHA-insured one- to- four
family mortgage loans up to maximum amounts established by the FHA. The
Association is also a VA "automatic approved lender," which enables designated
Association personnel to approve or reject VA-insured, one- to- four family
mortgage loans on behalf of the Association. The Association generally
sells all FHA and VA loan originations, servicing released.
Generally, the Association's fixed-rate one- to- four family
mortgage loans have maturities ranging from ten to 30 years and are fully
amortizing with monthly payments sufficient to repay the total amount of the
loan with interest by the end of the loan term. Generally, they are
originated under terms, conditions and documentation which permit them to
be sold to U.S. Government sponsored agencies such as Federal National Mortgage
Association ("FNMA"). The Association's fixed-rate loans customarily include
"due on sale" clauses, which give the Association the right to declare a loan
immediately due and payable in the event the borrower sells or otherwise
disposes of the real property subject to the mortgage and the loan is not paid.
The Association offers ARM loans at rates and terms competitive
with market conditions. At December 31, 1996, $96.3 million, or 27.8%, of the
Association's total gross loan portfolio were subject to periodic interest rate
adjustments. Substantially all of the Association's ARM loan
originations meet the underwriting standards of FNMA even though the
Association originates ARM loans primarily for its own portfolio. The
Association originates for its portfolios ARM loans which provide for an
interest rate which adjusts every year or which is fixed for five or ten years
and then adjusts every year after the initial period. Most of the
Association's one-year and ten-year ARMs adjust every year based on the one
year Treasury constant maturity index while the interest rate adjustment for
its five-year ARMs after the initial fixed period is based on the ten year U.S.
Treasury securities rate. The Association's ARMs are typically based on a
30-year amortization schedule. The Association qualifies the borrowers on
its ARM loans based on the initial rate. The one-year ARM loan may generally be
converted to a fixed-rate loan within five years of origination. The ten year
ARM provides a conversion option after seven years have elapsed. The
Association does not offer deep discount or "teaser" rates. The
Association's current ARM loans do not provide for negative amortization. At
December 31, 1996, however, 24 loans aggregating $1.1 million provide for
negative amortization at the borrowers' option. These loans were originated more
than ten years ago. The Association's ARM loans generally provide for annual and
lifetime interest rate adjustment limits of 1% to 2% and 4% to 6%, respectively.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in
the level of interest rates and the difference between the initial interest
rates and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The retention of ARM loans in the Association's loan portfolio helps
reduce the Association's exposure to changes in interest rates. There
are, however, unquantifiable credit risks resulting from the potential of
increased costs due to changed rates to be paid by the customer. It is possible
that during periods of rising interest rates the risk of default on ARM loans
may increase as a result of repricing and the increased payments required
by the borrower. See "RISK FACTORS -- Interest Rate Risk." In addition,
although ARM loans allow the Association to increase the sensitivity of its
asset base to changes in the interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations, the Association has no assurance
that yields on ARM loans will be sufficient to offset increases in the
Association's cost of funds. The Association believes these risks, which have
not had a material adverse effect on the Association to date,
36
<PAGE>
generally are less than the risks associated with holding fixed-rate loans in
portfolio during an increasing interest rate environment.
The Association generally requires title insurance insuring the
status of its lien or an acceptable attorney's opinion on all loans where real
estate is the primary source of security. The Association also requires that
fire and casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the outstanding loan balance.
The Association's one- to- four family residential mortgage loans
typically do not exceed 80% of the appraised value of the security property.
Pursuant to underwriting guidelines adopted by the Association's Board of
Directors, the Association can lend up to 95% of the appraised value of the
property securing a one- to- four family residential loan; however, the
Association generally obtains private mortgage insurance on the portion of
the principal amount that exceeds 65% to 70% of the appraised value of the
security property. At December 31, 1996, the Association had 11 one-to-four
family mortgage loans totalling $350,000 with principal balances in excess of
80% of the appraised value of the real estate collateral and with no private
mortgage insurance. These loans are part of the Spartanburg Residential
Development Program, an affordable housing program.
Construction Lending. The Association originates residential
construction loans to local home builders, generally with whom it has an
established relationship. To a lesser extent, the Association originates
such loans to individuals who have a contract with a builder for the
construction of their residence. The Association's construction loans are
secured by property located in the Association's primary market area. At
December 31, 1996, construction loans amounted to $32.0 million, or 9.2% of
the Association's total loan portfolio.
The Association's construction loans generally have fixed interest
rates and are for a term of nine months. Construction loans to builders are
typically made with a maximum loan to value ratio of 80%. Construction loans to
individuals are typically made in connection with the granting of the permanent
financing on the property. Such loans convert to a fully amortizing
adjustable- or fixed-rate loan at the end of the construction term. The
Association typically requires that permanent financing with the Association
or some other lender be in place prior to closing any construction loan to an
individual.
The Association's construction loans to builders are made on either a
pre-sold or speculative (unsold) basis. However, the Association generally
limits the number of outstanding loans on unsold homes under construction to
individual builders, with the amount dependent on the financial strength of
the builder, the present exposure of the builder, the location of the
property and prior sales of homes in the development. At December 31,
1996, speculative construction loans amounted to $21.1 million. At December
31, 1996, the largest amount of construction loans outstanding to one builder
was $1.5 million, all of which was for speculative construction.
Prior to making a commitment to fund a construction loan, the
Association requires an appraisal of the property by an independent
state-licensed and qualified appraiser approved by the Board of Directors. The
Association's staff also reviews and inspects each project prior to disbursement
of funds during the term of the construction loan. Loan proceeds are disbursed
after inspection of the project based on a percentage of completion. With
respect to construction loans originated since September 1996, the
Association has enforced the contractual requirement that monthly
interest payments be made during the construction term. With respect to
loans originated prior to that time, monthly payment of accrued interest was
at the borrower's option, with all accrued interest collected at
maturity. In recent periods, this former practice contributed, in part,
to the high level of accruing construction loans contractually past due
90 day or more. See "-- Nonperforming Assets and Delinquencies."
Construction lending affords the Association the opportunity to
charge higher interest rates with shorter terms to maturity relative to
single-family permanent mortgage lending. Construction lending, however,
is generally considered to involve a higher degree of risk than
single-family permanent mortgage lending because of the inherent
difficulty in estimating both a property's value at completion of the
project and the estimated cost of the project. The nature of these loans
is such that they are generally more difficult to evaluate and monitor. If
the estimate of
37
<PAGE>
construction cost proves to be inaccurate, the Association may be required to
advance funds beyond the amount originally committed to permit completion of the
project. If the estimate of value upon completion proves to be inaccurate,
the Association may be confronted at or prior to the maturity of the loan
with a project the value of which is insufficient to assure full repayment.
Projects may also be jeopardized by disagreements between borrowers and
builders and by the failure of builders to pay subcontractors. Loans to
builders to construct homes for which no purchaser has been identified
carry more risk because the payoff for the loan is dependent on the builder's
ability to sell the property prior to the time that the construction loan is
due.
The Association has attempted to minimize the foregoing risks by,
among other things, limiting its construction lending to primarily residential
properties. It is also the Association's general policy to obtain personal
guarantees from the principals of its corporate borrowers. In the case
of speculative construction loans, the Association has begun limiting the
number of unsold homes to larger borrowers and, on loans originated since
September 1996, enforcing contractual clauses requiring the payment of
interest monthly (rather than at the earlier of loan maturity or sale of home)
and assessing monetary penalties on delinquent balances. The monthly
interest payment requirement provides an earlier indication of potential
delinquency.
Commercial Real Estate Lending. The Association originates mortgage
loans for the acquisition and refinancing of commercial real estate
properties. The Association generally offers such loans to accommodate its
present customers. Management expects to hire a commercial loan officer with
experience in the Association's primary market area in an effort to augment its
commercial lending capabilities. However, management does not anticipate
that commercial real estate loans will comprise a substantial portion of the
loan portfolio in the immediate future. At December 31, 1996, $4.6
million, or 1.3% of the Association's total loan portfolio consisted of
loans secured by existing commercial real estate properties. The majority of
the Association's commercial real estate properties are secured by office
buildings, retail shops and manufacturing facilities, all of which are
secured by property located in the Association's primary market area.
The Association requires appraisals of all properties securing
commercial real estate loans. Appraisals are performed by an independent
appraiser designated by the Association, all of which are reviewed by
management. The Association considers the quality and location of the
real estate, the credit of the borrower, the cash flow of the project and
the quality of management involved with the property.
Loan to value ratios on the Association's commercial real estate
loans are generally limited to 75%. As part of the criteria for underwriting
commercial real estate loans, the Association generally imposes a debt coverage
ratio (the ratio of net cash from operations before payment of debt
service to debt service) of not less than 1.2. It is also the Association's
policy to obtain personal guarantees from the principals of its corporate
borrowers on its commercial real estate loans.
Commercial real estate lending affords the Association an
opportunity to receive interest at rates higher than those generally
available from one- to- four family residential lending. However, loans
secured by such properties usually are greater in amount, more difficult to
evaluate and monitor and, therefore, involve a greater degree of risk
than one- to- four family residential mortgage loans. Because payments on
loans secured by multi-family and commercial properties are often dependent on
the successful operation and management of the properties, repayment of such
loans may be affected by adverse conditions in the real estate market or the
economy. The Association seeks to minimize these risks by limiting the
maximum loan-to-value ratio to 75% and strictly scrutinizing the financial
condition of the borrower, the quality of the collateral and the management
of the property securing the loan. The Association also obtains loan
guarantees from financially capable parties based on a review of personal
financial statements.
Land Lending. The Association originates land loans to local developers
for the purpose of developing the land (i.e., installing roads, sewers, water
and other utilities) for sale. At December 31, 1996, land loans amounted to
$2.4 million, or 0.7% of the Association's total loan portfolio. Land loans
are secured by a lien on the property, are limited to 75% of the developed
value of the secured property and made for a period of three years with an
38
<PAGE>
interest rate that adjusts with the prime rate. The Association requires
monthly interest payments during the term of the land loan. The Association's
land loans are structured so that the Association is repaid in full upon the
sale by the borrower of approximately 75% of the available lots. All of the
Association's land loans are secured by property located in its primary
market area. In addition, the Association obtains personal guarantees from
the principals of its corporate borrowers and originates such loans to
developers with whom its has established relationships. At December 31, 1996,
the Association had no nonaccruing land loans.
Loans secured by undeveloped land or improved lots involve greater
risks than one- to- four family residential mortgage loans because such
loans are more difficult to evaluate. If the estimate of value proves to be
inaccurate, in the event of default and foreclosure the Association may be
confronted with a property the value of which is insufficient to assure
full repayment. The Association attempts to minimize this risk by limiting the
maximum loan-to-value ratio on land loans to 75%.
Consumer and Other Lending. The Association originates a variety of
consumer loans primarily on a secured basis. Consumer loans include second
mortgage loans, home equity lines of credit, savings account loans,
automobile loans, boat loans, loans secured by marketable equity
securities, VISA credit card loans and unsecured loans. Consumer loans are
made with both fixed and variable interest rates and with varying terms. At
December 31, 1996, consumer loans amounted to $39.8 million, or 11.5% of the
total loan portfolio.
The Association views consumer lending as an important part of its
business because consumer loans generally have shorter terms and higher
yields, thus reducing exposure to changes in interest rates. In addition,
the Association believes that offering consumer loans helps to expand and
create stronger ties to its customer base. Subject to market conditions, the
Association intends to continue emphasizing consumer lending, particularly
home equity lines of credit and automobile loans.
At December 31, 1996, the largest component of the consumer loan
portfolio consisted of second mortgage loans and home equity lines of
credit, which totalled $32.6 million, or 9.4% of the total loan portfolio.
At December 31, 1996, unused commitments to extend credit under home equity
lines of credit totalled $25.3 million. Home equity lines of credit and second
mortgage loans are made for purposes such as the improvement of residential
properties, debt consolidation and education expenses, among others. The
majority of these loans are made to existing customers and are secured by a
first or second mortgage on residential property. The Association actively
solicits these loans by contacting its customers directly. The
loan-to-value ratio is typically 90% or less, when taking into account both the
first and second mortgage loans. Second mortgage loans typically carry fixed
interest rates with a fixed payment over a term between five and 15 years. Home
equity lines of credit are generally for 15 year terms and the interest rate
is tied to The Wall Street Journal prime lending rate.
At December 31, 1996, automobile loans amounted to $2.5 million. The
Association originates automobile loans for both new and used automobiles for
terms generally not exceeding 60 months. The Association does not engage in
indirect automobile lending.
On June 1, 1995, the Association began issuing VISA credit cards to
customers within its primary market area. At December 31, 1996, there were 316
credit card accounts outstanding with outstanding balances of $335,000. At
December 31, 1996, total approved lines of credit were $878,000. The
Association does not engage in direct mailings of pre-approved credit cards.
Consumer loans entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans that are unsecured or
secured by rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of the
greater likelihood of damage, loss or depreciation. The remaining deficiency
often does not warrant further substantial collection efforts against the
borrower beyond obtaining a deficiency judgment. In addition, consumer loan
collections are dependent on the borrower's continuing financial
39
<PAGE>
stability, and are more likely to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Furthermore, the application of various
federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount that can be recovered on such loans. The
Association believes that these risks are not prevalent in the case of the
Association's consumer loan portfolio because such a large percentage of
the portfolio consists of second mortgage loans and home equity lines of
credit that are underwritten in a manner such that they result in credit
risk that is substantially similar to one- to- four family residential
mortgage loans. At December 31, 1996, $42,000 of consumer loans were delinquent
in excess of 90 days.
The Association employs strict underwriting procedures for consumer
loans. These procedures include an assessment of the applicant's credit history
and the ability to meet existing and proposed debt obligations. Although the
applicant's creditworthiness is the primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, to the
proposed loan amount. The Association generally underwrites and originates its
consumer loans internally, which the Association believes limits its exposure
to credit risks associated with loans underwritten or purchased from brokers
and other external sources.
The Association also engages in limited amounts of commercial business
lending. At December 31, 1996, the Association had $1.2 million of commercial
business loans which represented 0.3% of the total loan portfolio. Commercial
business loans are generally made to customers who are well known to the
Association and are generally secured by business equipment. Unsecured
loans amounted to $260,000 at December 31, 1996. The Association
generally requires annual financial statements from its corporate borrowers
and personal guarantees from the corporate principals.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential and commercial real estate lending. Real estate
lending is generally considered to be collateral based lending with loan
amounts based on predetermined loan to collateral values and liquidation of
the underlying real estate collateral is viewed as the primary source of
repayment in the event of borrower default. Although commercial business loans
are often collateralized by equipment, inventory, accounts receivable or
other business assets, the liquidation of collateral in the event of a
borrower default is often an insufficient source of repayment because
accounts receivable may be uncollectible and inventories and equipment
may be obsolete or of limited use, among other things. Accordingly, the
repayment of a commercial business loan depends primarily on the
creditworthiness of the borrower (and any guarantors), while liquidation of
collateral is a secondary and often insufficient source of repayment.
40
<PAGE>
Maturity of Loan Portfolio. The following table sets forth certain
information at December 31, 1996 regarding the dollar amount of loans
maturing in the Association's portfolio based on their contractual terms to
maturity, but does not include scheduled payments or potential prepayments.
Demand loans, loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as becoming due within one year.
Loan balances do not include undisbursed loan proceeds, unearned discounts,
unearned income and allowance for loans losses.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- ------- ------- -------- -------- -----
(In Thousands)
<S> <C>
Mortgage loans:
One- to- four family........ $ 86 $ 978 $ 4,156 $27,290 $235,083 $267,593
Construction................ 30,149 -- 750 -- 1,050 31,949
Land........................ 495 1,622 292 -- -- 2,409
Commercial and other........ -- 170 1,392 1,066 1,943 4,571
Consumer and other loans...... 3,905 2,996 5,868 7,658 19,342 39,769
-------- ------- ------- ------- -------- --------
Total..................... $34,635 $5,766 $12,458 $36,014 $257,418 $346,291
======= ====== ======= ======= ======== ========
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1997, which have fixed interest rates and have floating or
adjustable interest rates.
Fixed- Floating- or
Rates Adjustable-Rates Total
-------- ---------------- --------
(In Thousands)
Mortgage loans:
One- to- four family.........$191,743 $75,764 $267,507
Construction................. 1,800 -- 1,800
Land......................... 1,914 -- 1,914
Commercial and other......... 3,877 694 4,571
Consumer and other loans....... 17,495 18,369 35,864
-------- -------- --------
Total......................$216,829 $94,827 $311,656
======== ======= ========
41
<PAGE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual terms because of prepayments. In addition, due-on-sale
clauses on loans generally give the Association the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of mortgage loans tends to increase, however, when current mortgage
loan market rates are substantially higher than rates on existing mortgage loans
and, conversely, decrease when rates on existing mortgage loans are
substantially higher than current mortgage loan market rates. Furthermore,
management believes that a significant number of the Association's residential
mortgage loans are outstanding for a period less than their contractual terms
because of the transitory nature of many of the borrowers who reside in its
primary market area.
Loan Solicitation and Processing. The Association's lending activities
are subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Association's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, walk-in customers, referrals and
existing customers. A business development program has been implemented where
loan officers and sales personnel make sales calls on building contractors and
realtors. The Association also advertises its loan products by radio and
newspaper.
In its marketing, the Association emphasizes its community ties,
customized personal service and an efficient underwriting and approval process.
The Association uses professional fee appraisers for most residential real
estate loans and construction loans and all commercial real estate and land
loans. The Association requires hazard, title and, to the extent applicable,
flood insurance on all security property.
Mortgage loan applications are initiated by loan officers and are
required to be approved by the Association's Loan Committee, a management
committee consisting of the Association's President, Executive Vice President,
Senior Vice President, and two Vice Presidents. All loans in excess of $250,000
but below $300,000 (or below $275,000 in the case of commercial real estate
loans) must be approved by the Executive Board Loan Committee consisting of
Directors Painter, Salter and Sanders. Commercial real estate loans in excess of
$275,000 and all other loans in excess of $300,000 must be approved by the
Association's Board of Directors.
Loan Originations, Sales and Purchases. While the Association
originates both adjustable-rate and fixed-rate loans, its ability to generate
each type of loan depends upon relative customer demand for loans in its primary
market area.
The Association periodically sells conventional one- to- four family
loans (i.e., non-FHA/VA loans) with servicing retained and without recourse.
However, several pools of loans were sold with recourse in 1983 and had an
aggregate outstanding balance of $3.5 million at December 31, 1996. The
Association does not expect any material losses on these loans due to their
seasoned nature. Recent loan sales have been to the FNMA and primarily consisted
of 30 year, fixed-rate residential real estate loans. These sales reduce the
Association's interest rate risk and the proceeds of sale are used to fund
continuing operations. The Association did not sell any conventional loans
during fiscal 1996 primarily due to the success of several deposit programs
which enabled the Association to grow assets. However, management intends to
sell loans in the future as necessary to manage interest rate risk and fund
continuing operations.
When conventional loans are sold, the Association retains the
responsibility for servicing the loans, including collection and remitting
mortgage loans payments, accounting for principal and interest and holding and
disbursing escrow or impound funds for real estate taxes and insurance premiums.
The Association receives a servicing fee for performing these services for
others. The Association's servicing portfolio amounted to $58.7 million at
December 31, 1996. The Association is generally paid a fee equal to 0.25% of the
outstanding principal balance for servicing sold loans. Loan servicing income
totalled $101,000, $226,000, $245,000 and $233,000 for the six months ended
December 31, 1996 and the years ended June 30, 1996, 1995 and 1994,
respectively. The Association earns late charges collected from delinquent
customers whose loans are serviced by the Association. The Association is
allowed to invest escrow impounds (funds collected from mortgage customers for
the payment of property taxes
42
<PAGE>
and insurance premiums on mortgaged real estate) until they are disbursed on
behalf of mortgage customers, but is not required to pay interest on these
funds. At December 31, 1996, borrowers' escrow funds amounted to $288,000.
The Association sells all loans originated under FHA and VA programs,
servicing released, to private investors and the South Carolina State Housing
Authority.
Historically, the Association has not been an active purchaser of loans
or participation interests in loans. However, in September 1996, the Association
began purchasing one-to-four family mortgage loans and residential construction
loans from a start-up mortgage banking company located in Greenville, South
Carolina, in which the Association made an equity investment through its service
corporation subsidiary. See "-- Subsidiary Activities." As of December 31, 1996,
the Association had purchased 23 loans with aggregate principal balances of $2.6
million, $258,000 of which are residential construction loans. In addition, at
December 31, 1996, the Association has committed to fund $569,000 of undisbursed
construction loan proceeds. Currently, substantially all of the loans purchased
through this mortgage company are secured by properties located in the
Association's primary market area. Such purchases are expected to continue and
increase in volume as that company's operations expand, and are likely to
include purchases of loans, including commercial real estate loans and home
equity loans, secured by properties inside and outside of the Association's
primary market area.
The following table sets forth total loans originated, purchased, sold
and repaid during the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
----------------- --------------------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C>
Loans originated:
Mortgage loans:
One- to- four family.............. $25,109 $24,544 $59,296 $32,820 $91,205
Construction...................... 16,333 17,737 42,212 37,334 42,735
Land.............................. 118 1,190 2,950 100 --
Commercial and other.............. 1,025 316 316 237 1,191
Consumer and other................. 15,070 13,121 28,045 21,050 12,248
------- ------- -------- ------- --------
Total loans originated........... 57,655 56,908 132,819 91,541 147,379
Loans purchased:
One- to- four family............... 3,204 -- -- -- --
Whole loans sold.................... (6,498) (2,863) (7,704) (17,966) (27,840)
Mortgage loan principal repayments.. (41,238) (40,204) (87,446) (57,514) (105,182)
Net increase (decrease)
in other items..................... 3,128 3,733 (3,539) 2,569 (5,276)
-------- -------- -------- -------- --------
Net increase (decrease)
in loans receivable, net........... $16,251 $17,574 $34,130 $18,630 $9,081
======= ======= ======= ======= ======
</TABLE>
Loan Commitments. The Association issues commitments for mortgage
loans conditioned upon the occurrence of certain events. Such commitments are
made in writing on specified terms and conditions and are honored for up to
20 days from approval, depending on the type of transaction. At December
31, 1996, the Association had loan commitments (excluding undisbursed
portions of interim construction loans of $12.0 million)
43
<PAGE>
of $4.4 million and unused lines of credit of $25.3 million. See Note 9 of Notes
to Consolidated Financial Statements.
Loan Fees. In addition to interest earned on loans, the Association
receives income from fees in connection with loan originations, loan
modification, late payments and for miscellaneous service related to its
loan. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
The Association charges loan origination fees which are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, loan origination fees and discount points in excess of loan
origination costs are deferred and recognized over the contractual remaining
lives of the related loans on a level yield basis. Discounts and premiums on
loans purchased are accreted and amortized in the same manner. The Association
recognized $83,000, $202,000, $254,000 and $506,000 of deferred loan fees
during the six months ended December 31, 1996 and the years ended June 30,
1996, 1995 and 1994, respectively, in connection with loan refinancings,
payoffs, sales and ongoing amortization of outstanding loans.
Nonperforming Assets and Delinquencies. When a borrowers fails to
make a required payment on a loan, the Association attempts to cure the
deficiency by contacting the borrower and seeking the payment. Contacts
are generally made 15 days after a payment is due. In most cases,
deficiencies are cured promptly. If a delinquency continues, additional
contact is made either through a notice or other means and the Association will
attempt to work out a payment schedule. While the Association generally
prefers to work with borrowers to resolve such problems, the Association will
institute foreclosure or other proceedings, as necessary, to minimize any
potential loss.
Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely in accordance with the
terms of the loan agreement, or when principal or interest is past due 90 days
or more (except in the case of construction loans originated before September
1996 as discussed under "--Construction Lending"). Interest accrued but not
collected at the date the loan is placed on nonaccrual status is reversed
against income in the current period. Loans may be reinstated to accrual status
when payments are under 90 days past due and, in the opinion of management,
collection of the remaining past due balances can be reasonably expected.
The Association's Board of Directors is informed monthly of the
status of all loans delinquent more than 60 days, all loans in foreclosure
and all foreclosed and repossessed property owned by the Association.
44
<PAGE>
The following table sets forth information with respect to the
Association's nonperforming assets and restructured loans within the meaning
of SFAS No. 15 at the dates indicated.
<PAGE>
<TABLE>
<CAPTION>
At June 30,
At December 31, --------------------------------------------------------------
1996 1996 1995 1994 1993 1992
------------------- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C>
Loans accounted for on
a nonaccrual basis:
Mortgage loans:
One- to- four family..................... $ 623 $ 719 $ 348 $ 754 $1,035 $ 936
Construction............................. 847 1,130 471 457 256 409
Land..................................... -- -- -- -- -- --
Commercial and other..................... -- -- 48 -- -- --
Consumer and other loans.................. 42 60 20 53 154 163
Other loans............................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total nonaccrual loans............... 1,512 1,909 887 1,264 1,445 1,508
Accruing loans contractually past due 90 days or more:
Mortgage loans:
One- to- four family..................... -- -- -- -- -- --
Construction............................. 2,882 3,965 3,906 1,117 705 1,265
Land..................................... -- -- -- -- -- --
Commercial and other..................... -- -- -- -- -- --
Consumer and other loans.................. -- -- -- -- -- --
-- -- -- -- -- --
Total loans 90 days past due........ 2,882 3,965 3,906 1,117 705 1,265
-------- -------- -------- -------- -------- -------
Total of nonaccrual loans and
loans 90 days past due.................... 4,394 5,874 4,793 2,381 2,150 2,773
Real estate acquired in settlement of loans 102 58 34 18 391 612
------- -------- -------- -------- -------- -------
Total nonperforming assets............ $4,496 $5,932 $4,827 $2,399 $2,541 $3,385
====== ====== ====== ====== ====== ======
Restructured loans......................... $1,033 $1,247 $1,049 $1,029 $1,097 $ 994
====== ====== ====== ====== ====== ======
Nonaccrual loans and loans 90 days or more
past due as a percentage of loans receivable, net 1.32% 1.87% 1.79% 0.96% 0.93% 1.22%
Nonaccrual loans and 90 loans days or more
past due as a percentage of total assets.. 1.17 1.65 1.49 0.77 0.71 0.98
Nonperforming assets as a percentage
of total assets........................... 1.20 1.66 1.50 0.77 0.84 1.19
</TABLE>
Interest income that would have been recorded for the six months ended
December 31, 1996 and the year ended June 30, 1996 had nonaccruing loans been
current in accordance with their original terms amounted to $63,000 and
$143,000, respectively. The amount of interest included in interest income on
such loans for such periods amounted to $5,000 and $65,000, respectively.
Interest income that would have been recorded for the six months ended December
31, 1996 and the year ended June 30, 1996 had restructured loans been current in
accordance with their original terms, and the amount of interest included in
interest income on such loans for such periods, were, in both cases, immaterial.
Real Estate Acquired in Settlement of Loans. Real estate acquired by
the Association as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate acquired in settlement of loans until sold. Pursuant
to SOP 92-3, which provides guidance on determining the balance sheet treatment
of foreclosed assets in annual financial statements for periods ended on or
after December 15, 1992, there is a rebuttable presumption that foreclosed
assets are held for sale and such assets are recommended to be carried at fair
value minus estimated costs
45
<PAGE>
to sell the property. After the date of acquisition, all costs incurred in
maintaining the property are expensed and costs incurred for the improvement
or development of such property are capitalized up to the extent of their net
realizable value. The Association's accounting for its real estate acquired in
settlement of loans complies with SOP 92-3. At December 31, 1996, the
Association had $102,000 of real estate acquired in settlement of loans,
which consisted of two one-to-four family residences.
Restructured Loans. Under GAAP, the Association is required to account
for certain loan modifications or restructuring as "troubled debt
restructuring." In general, the modification or restructuring of a debt
constitutes a troubled debt restructuring if the Association for economic or
legal reasons related to the borrower's financial difficulties grants a
concession to the borrowers that the Association would not otherwise consider.
Debt restructurings or loan modifications for a borrower do not necessarily
always constitute troubled debt restructurings, however, and troubled debt
restructurings do not necessarily result in non-accrual loans. The Association
had $1.0 million of restructured loans as of December 31, 1996, which consisted
of 25 one-to-four family mortgage loans.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. Assets that do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" and monitored by the Association.
The aggregate amounts of the Association's classified assets, and of
the Association's general and specific loss allowances at the dates indicated,
were as follows:
At June 30
At December 31, ------------------
1996 1996 1995
----------------- ---- ----
(In thousands)
Classified assets:
Loss...................... $ 1 $ 1 $ 13
Doubtful.................. 11 -- --
Substandard assets........ 2,907 2,586 1,247
Special mention........... 2,111 998 859
Loan loss allowances:
General loss allowances... 1,638 999 587
Specific loss allowances.. 12 1 13
At December 31, 1996, substandard assets consisted of 23 one-to-four
family mortgage loans totaling $1.1 million, eight construction loans
totaling $1.4 million, 28 other loans totaling $301,000, and two one-to-four
family properties acquired through foreclosure totaling $108,000.
46
<PAGE>
At December 31, 1996, special mention assets consisted of 16
one-to-four family mortgage loans totaling $592,000 and nine construction loans
totaling $1.5 million.
Allowance for Loan Losses. The Association has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.
In originating loans, the Association recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Association increases its allowance
for loan losses by charging provisions for loan losses against the Association's
income.
The general valuation allowance is maintained to cover losses inherent
in the loan portfolio. Management's periodic evaluation of the adequacy of the
allowance is based on the Association's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay, the estimated value of any underlying collateral,
and current economic conditions. Specific valuation allowances are established
to absorb losses on loans for which full collectibility cannot be reasonably
assured. The amount of the allowance is based on the estimated value of the
collateral securing the loan and other analyses pertinent to each situation.
Generally, a provision for losses is charged against income quarterly to
maintain the allowances.
At December 31, 1996, the Association had an allowance for loan losses
of $1.7 million. Management believes that the amount maintained in the
allowances at December 31, 1996 will be adequate to absorb losses inherent in
the portfolio. Although management believes that it uses the best information
available to make such determinations, future adjustments to the allowance for
loan losses may be necessary and results of operations could be significantly
and adversely affected if circumstances differ substantially from the
assumptions used in making the determinations. Furthermore, while the
Association believes it has established its existing allowance for loan losses
in accordance with GAAP, there can be no assurance that regulators, in reviewing
the Association's loan portfolio, will not request the Association to increase
significantly its allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Association's financial
condition and results of operations.
47
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------- -----------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C>
Total loans outstanding at end of period.......... $346,291 $294,289 $332,803 $281,836 $263,614 $243,110 $236,115
======== ======== ======== ======== ======== ======== ========
Average loans outstanding during period........... $325,969 $290,257 $298,865 $273,778 $260,135 $251,453 $237,877
======== ======== ======== ======== ======== ======== ========
Allowance balance at beginning of period.......... $ 1,000 $ 600 $ 600 $ 600 $ 600 $ 400 $ 400
Provision for loan losses........................ 675 4 419 9 -- 208 503
Charge-offs (recoveries), net.................... 25 4 19 9 -- 8 503
-------- -------- -------- -------- -------- -------- --------
Balance at end of period.......................... $ 1,650 $ 600 $ 1,000 $ 600 $ 600 $ 600 $ 400
======== ======== ======== ======== ======== ======== ========
Allowance for loan losses as a percent of total loans
receivable at end of period...................... 0.48% 0.20% 0.30% 0.21% 0.23% 0.25% 0.17%
======== ======== ======== ======== ======== ======= ========
Net charge-offs as a percentage of average loans
outstanding during the period................... 0.01% --% 0.01% --% --% --% 0.21%
========= ========= ======== ======== ======== ======= ========
Ratio of allowance for loan losses to total
nonperforming loans at end of period............. 37.55% 31.70% 17.02% 12.52% 25.20% 27.91% 14.42%
========= ========= ======== ======== ======== ======= ========
</TABLE>
48
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any other category.
<TABLE>
<CAPTION>
At At June 30,
December 31, ------------------------------------------------
1996 1996 1995
--------------------- --------------------- ----------------------
Percent Percent Percent
of Loans of Loans of Loans
in Category in Category in Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C>
Mortgage loans:
Residential..................... $1,334 86.5% $ 675 87.5% $400 88.1%
Nonresidential.................. 173 2.0 28 2.1 17 2.8
Consumer and other loans......... 143 11.5 297 10.4 183 9.1
------ ----- ------ ----- ---- -----
Total allowance for loan losses $1,650 100.0% $1,000 100.0% $600 100.0%
====== ===== ====== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------
1994 1993 1992
---------------------- ---------------------- -----------------------
Percent Percent Percent
of Loans of Loans of Loans
in Category in Category in Category
to Total to Total to total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C>
Mortgage loans:
Residential..................... $436 90.3% $422 91.3% $300 90.7%
Nonresidential.................. 46 2.7 64 1.7 28 2.1
Consumer and other loans......... 118 7.0 114 7.0 72 7.2
---- ----- ---- ----- ---- -----
Total allowance for loan losses $600 100.0% $600 100.0% $400 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
49
<PAGE>
Investment Activities
The Association is permitted under federal law to invest in various
types of liquid assets, including U.S. Treasury obligations, securities of
various federal agencies and of state and municipal governments, deposits at the
FHLB-Atlanta, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Association may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Association are also
required to maintain an investment in FHLB stock. The Association is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
The Association purchases investment securities with excess liquidity
arising when investable funds exceed loan demand. The Association's investment
securities purchases have been limited to U.S. Government and agency securities
with contractual maturities of between one and five years. At December 31, 1996,
the Association also had an investment in a mutual fund that invests in
adjustable rate mortgage-backed securities.
At December 31, 1996, the Association's management classified all
securities in the Association's investment portfolio as available for sale under
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." During the year ended June 30, 1996, pursuant to special
implementation guidance allowed by the FASB under SFAS No. 115, the Association
reclassified securities held to maturity with a fair value and amortized cost of
approximately $4.0 million as securities available for sale. Such
reclassification is disclosed as a noncash transaction in the Consolidated
Statements of Cash Flows included elsewhere herein. See Note 1 to Notes to
Consolidated Financial Statements.
The Association's investment policies generally limit investments to
U.S. Government and agency securities, municipal bonds, certificates of
deposits, marketable corporate debt obligations, mortgage-backed securities and
certain types of mutual funds. The Association's investment policy does not
permit engaging directly in hedging activities or purchasing high risk mortgage
derivative products or non-investment grade corporate bonds. Mutual funds held
by the Association may periodically engage in hedging activities and invest in
derivative securities. Investments are made based on certain considerations,
which include the interest rate, yield, settlement date and maturity of the
investment, the Association's liquidity position, and anticipated cash needs and
sources (which in turn include outstanding commitments, upcoming maturities,
estimated deposits and anticipated loan amortization and repayments).
The effect that the proposed investment would have on the Association's credit
and interest rate risk and risk-based capital is also considered.
The following table sets forth certain information with respect to
each security (other than U.S. Government and agency securities and mutual
funds which invest exclusively in such securities) which had an aggregate
book value in excess of 10% of the Association's retained earnings at the dates
indicated.
<TABLE>
<CAPTION>
At June 30,
At December 31, ----------------------------------------------------------------
1996 1996 1995 1994
------------------ ------------------ ------------------- ------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
(In thousands)
<S> <C>
Asset Management
Fund Inc. Adjustable
Rate Mortgage-Backed
Securities .............. $5,028 $5,024 $9,819 $9,780 $5,295 $5,272 $10,027 $9,857
</TABLE>
50
<PAGE>
The following table sets forth the amortized cost and fair value of the
Association's securities, by accounting classification and by type of security,
at the dates indicated.
<TABLE>
<CAPTION> At June 30,
----------------------------------------------------------------
At December 31, 1996 1996 1995 1994
-------------------- ----------------- ---------------- ------------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---------- ----- ---------- ----- ---------- ----- ---------- -----
(In thousands)
<S><C>
Held to Maturity:
Debt securities:
U.S. Treasury obligations $ -- $ -- $ -- $ -- $ 2,001 $1,999 $ 3,004 $ 2,949
U.S. Government
agency obligations...... -- -- -- -- 3,501 3,450 9,992 9,592
------ ------- --------- ------- -------- ------ --------- --------
Total.................. -- -- -- -- 5,502 5,449 12,996 12,541
Mortgage-backed securities 128 142 195 209 383 397 470 489
Marketable equity securities(1) -- -- -- -- -- -- 10,027 9,857
------ ------- --------- ------- -------- ------- --------- --------
Total held to maturity . 128 142 195 209 5,885 5,846 23,493 22,887
------ ------- --------- ------- -------- ------- --------- --------
Available for Sale:
Debt securities:
U.S. Treasury obligations 1,989 1,985 1,986 1,975 500 493 -- --
U.S. Government
agency obligations..... 6,493 6,483 6,486 6,400 2,499 2,463 -- --
------- ------- -------- ------ -------- ------- --------- --------
Total.................. 8,482 8,468 8,472 8,375 2,999 2,956 -- --
Marketable equity securities(1) 5,028 5,024 9,819 9,780 5,295 5,272 -- --
------- ------- -------- ------ -------- ------- --------- --------
Total available for sale 13,510 13,492 18,291 18,155 8,294 8,228 -- --
------- ------- -------- ------ -------- ------- --------- --------
Total...................... $13,638 $13,634 $18,486 $18,364 $14,179 $14,074 $23,493 $22,887
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ----------
(1) Marketable equity securities at December 31, 1996 and June 30, 1996,
1995 and 1994 consist of a mutual fund that invests in adjustable rate
mortgage-backed securities. At December 31, 1996, the mutual fund
yielded 6.38%.
The following table sets forth certain information regarding the
carrying value, weighted average yields and maturities or periods to repricing
of the Association's debt securities and mortgage-backed securities at
December 31, 1996.
<TABLE>
<CAPTION>
Less Than One to
One Year Five Years
-------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Yield Cost Value Yield
---- ----- ----- ---- ----- -----
(Dollars in thousands)
<S> <C>
Debt securities:
U.S. Treasury obligations....... $500 $502 6.65% $1,489 $1,483 5.64%
U.S. Government agency
obligations.................... -- -- -- 6,493 6,483 6.44
Mortgage-backed securities...... -- -- -- 128 142 8.40
------ ------ ---- ------ ------
Total............................ $500 $502 6.65% $8,110 $8,108 6.32
==== ==== ====== ======
</TABLE>
51
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for the
Association's lending and other investment activities. In addition, the
Association also generates funds internally from loan principal repayments
and prepayments and maturing investment securities. Scheduled loan
repayments are a relatively stable source of funds, while deposit inflows and
outflows and loan prepayments are influenced significantly by general
interest rates and money market conditions. Borrowings from the
FHLB-Atlanta may be used on a short-term basis to compensate for reductions in
the availability of funds from other sources. Presently, the Association has
no other borrowing arrangements.
Deposit Accounts. A substantial number of the Association's depositors
reside in South Carolina. The Association's deposit products include a broad
selection of deposit instruments, including NOW accounts, demand deposit
accounts, money market accounts, regular passbook savings, statement savings
accounts and term certificate accounts. Deposit account terms vary with the
principal difference being the minimum balance deposit, early withdrawal
penalties and the interest rate. The Association reviews its deposit mix
and pricing weekly. The Association does not utilize brokered deposits, nor
has it aggressively sought jumbo certificates of deposit.
The Association believes it is competitive in the type of
accounts and interest rates it has offered on its deposit products. The
Association does not seek to pay the highest deposit rates but a competitive
rate. The Association determines the rates paid based on a number of
conditions, including rates paid by competitors, rates on U.S. Treasury
securities, rates offered on various FHLB-Atlanta lending programs, and the
deposit growth rate the Association is seeking to achieve.
The Association intends to continue to use premiums to attract new
checking accounts, particularly in conjunction with new branch openings.
These premium offers are reflected in the growth in the Association's
advertising and promotion expense, as well as its cost of funds, in
recent periods. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS -- Results of Operations." The Association
has introduced a number of new savings products. These include VIP Checking,
VIP Passbook Savings and an 18-month "Bump Rate CD", which allows for a one-time
rate change during the term of the CD. The Association also plans to seek
business checking accounts and to promote individual retirement accounts
("IRAs") and Self Employment Plan retirement accounts to businesses.
In the unlikely event the Association is liquidated after the
Conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to the Holding Company as the sole
stockholder of the Association.
52
<PAGE>
The following table sets forth information concerning the
Association's time deposits and other interest-bearing deposits at December 31,
1996.
<TABLE>
<CAPTION>
Weighted Percentage
Average Minimum of Total
Interest Rate Term Checking and Savings Deposits Amount Balance Deposits
- ------------- ---- ----------------------------- -------- ------- ----------
(In Thousands)
<S> <C>
1.83% None NOW accounts $ 100 $ 30,009 9.3%
3.17 None Money market accounts 2,500 13,967 4.3
3.72 None Passbook savings accounts 100 55,869 17.2
Certificate Accounts
--------------------
5.38 Within 6 months Fixed term, fixed rate 25 - 500 110,590 34.1
5.75 7 - 12 months Fixed term, fixed rate 25 - 500 62,644 19.3
5.71 13 - 36 months Fixed term, fixed rate 25 - 500 28,862 8.9
6.13 37 - 60 months Fixed term, fixed rate 25 - 500 19,007 5.9
6.20 61 - 120 months Fixed term, fixed rate 25 - 500 376 0.1
5.36 7 - 12 months Fixed term, adjustable rate 25 2,096 0.7
5.36 13 - 36 months Fixed term, adjustable rate 25 531 0.2
-------- -----
$323,951 100.0%
======== =====
</TABLE>
The following table indicates the amount of the Association's jumbo
certificate accounts by time remaining until maturity as of December 31, 1996.
Jumbo certificate accounts have principal balances of $100,000 or more.
Certificate
Maturity Period Accounts
(In Thousands)
Three months or less............... $ 9,285
Over three through six months...... 5,598
Over six through 12 months......... 5,767
Over 12 months..................... 1,542
--------
Total......................... $22,192
=======
53
<PAGE>
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Association between the dates indicated.
<TABLE>
<CAPTION>
At June 30,
At December 31, ----------------------------------
1996 1996
----------------------------------- ----------------------------------
Percent Percent
of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease)
--------- -------- ---------- --------- --------- ----------
(Dollars in thousands)
<S><C>
NOW checking.................................... $ 30,009 9.3% $ (36) $ 30,045 9.8% $ 4,298
Passbook savings accounts....................... 55,869 17.3 12,925 42,944 14.0 11,051
Money market deposit............................ 13,967 4.3 (2,727) 16,694 5.5 (2,749)
Fixed-rate certificate accounts which
mature in the year ending:
Within 1 year................................. 175,330 54.1 11,029 164,301 53.7 7,455
After 1 year, but within 2 years.............. 22,469 6.9 (1,521) 23,990 7.9 6,605
After 2 years, but within 3 years............. 6,925 2.1 (969) 7,894 2.6 1,742
Certificate accounts maturing thereafter...... 19,382 6.0 (581) 19,963 6.5 1,514
---------- ----- -------- -------- ---- -------
Total...................................... $323,951 100.0% $18,120 $305,831 100.0% $29,916
======== ===== ======= ======== ===== =======
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------
1995 1994
---------------------------------- ---------------------
Percent Percent
of Increase of
Amount Total (Decrease) Amount Total
--------- --------- ---------- -------- ---------
(Dollars in thousands)
<S><C>
NOW checking.................................... $ 25,747 9.3% $ 1,665 $ 24,082 8.9%
Passbook savings accounts....................... 31,893 11.7 (6,042) 37,935 14.0
Money market deposit............................ 19,443 7.0 (7,321) 26,764 9.9
Fixed-rate certificate accounts which
mature in the year ending:
Within 1 year................................. 156,846 56.8 28,037 128,809 47.7
After 1 year, but within 2 years.............. 17,385 6.3 (14,032) 31,417 11.6
After 2 years, but within 3 years............. 6,152 2.2 256 5,896 2.2
Certificate accounts maturing thereafter...... 18,449 6.7 3,170 15,279 5.7
-------- ---- -------- -------- -----
Total...................................... $275,915 100.0% $ 5,733 $270,182 100.0%
======== ===== ======== ======== =====
</TABLE>
54
<PAGE>
Time Deposits by Rates. The following table sets forth the amount of
time deposits in the Association categorized by rates at the dates indicated.
<TABLE>
<CAPTION>
At At June 30,
December 31, -----------------------------------------------
1996 1996 1995 1994
---------------- ---- ---- ----
(Dollars in thousands)
<S> <C>
Less than 3.00%..... $ 758 $ 3,329 $ 549 $ 480
3.01% - 5.00%....... 5,755 7,656 44,027 149,669
5.01% - 7.00%....... 217,186 204,734 153,350 29,648
7.01% - 9.00%....... 407 429 906 1,604
---------- ---------- ---------- ----------
Total............... $224,106 $216,148 $198,832 $181,401
======== ======== ======== ========
</TABLE>
Time Deposits by Maturities. The following table sets forth the amount
of time deposits in the Association categorized by maturities at December 31,
1996.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years Total
-------- ----- ----- ----- ------- -----
(Dollars in thousands)
<S> <C>
Less than 3.00%.... $ 758 $ -- $ -- $ -- $ -- $ 758
3.01% - 5.00%...... 3,479 1,717 559 -- -- 5,755
5.01% - 7.00%...... 170,851 20,688 6,356 15,514 3,777 217,186
7.01% - 9.00%...... 242 64 10 60 31 407
---------- --------- -------- --------- -------- ----------
Total.............. $175,330 $22,469 $6,925 $15,574 $3,808 $224,106
======== ======= ====== ======= ====== ========
</TABLE>
Deposit Activity. The following table set forth the deposit activities
of the Association for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
------------------ -----------------------------------
1996 1995 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C>
Beginning balance.................. $305,831 $275,915 $275,915 $270,182 $267,461
-------- -------- -------- -------- --------
Net deposits (withdrawals)
before interest credited......... 11,654 17,906 17,240 (3,363) (5,979)
Interest credited.................. 6,466 6,001 12,676 9,096 8,700
--------- --------- --------- --------- ---------
Net increase in deposits........... 18,120 23,907 29,916 5,733 2,721
--------- --------- --------- --------- ---------
Ending balance..................... $323,951 $299,822 $305,831 $275,915 $270,182
======== ======== ======== ======== ========
</TABLE>
55
<PAGE>
Borrowings. Savings deposits are the primary source of funds for the
Association's lending and investment activities and for its general business
purposes. The Association has the ability to use advances from the FHLB-Atlanta
to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Atlanta functions as a central reserve bank providing
credit for savings associations and certain other member financial institutions.
As a member of the FHLB-Atlanta, the Association is required to own capital
stock in the FHLB-Atlanta and is authorized to apply for advances on the
security of such stock and certain of its mortgage loans and other assets
(principally securities that are obligations of, or guaranteed by, the U.S.
Government) provided certain creditworthiness standards have been met. Advances
are made pursuant to several different credit programs. Each credit program has
its own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based on the financial condition of
the member institution and the adequacy of collateral pledged to secure the
credit.
In recent periods, the Association has been able to fund its lending
and other investment activities through internally generated funds and deposits.
Consequently, at December 31, 1996 and 1995 and during each of the six months
then ended, and at June 30, 1996, 1995 and 1994, and during each of the years
then ended, the Association had no borrowings from the FHLB-Atlanta outstanding.
The Association, however, may use advances from the FHLB-Atlanta should the need
for additional funds arise.
Competition
The Association faces intense competition in its primary market area
for the attraction of savings deposits (its primary source of lendable funds)
and in the origination of loans. Its most direct competition for savings
deposits has historically come from commercial banks, credit unions, other
thrifts operating in its market area, and other financial institutions such as
brokerage firms and insurance companies. As of December 31, 1996, there were 14
commercial banks and three other thrifts operating in Spartanburg County, South
Carolina. Particularly in times of high interest rates, the Association has
faced additional significant competition for investors' funds from short-term
money market securities and other corporate and government securities. The
Association's competition for loans comes from commercial banks, thrift
institutions, credit unions and mortgage bankers. Such competition for deposits
and the origination of loans may limit the Association's growth in the future.
See "RISK FACTORS -- Competition."
Subsidiary Activities
Under OTS regulations, the Association generally may invest up to 3%
of its assets in service corporations, provided that at least one-half of
investment in excess of 1% is used primarily for community, inner-city and
community development projects. The Association's investment in its wholly-owned
service corporation, First Spartan Service Corporation ("First Spartan"), which
was $369,000 at December 31, 1996, did not exceed these limits.
First Spartan sells alternative investment products such as mutual
funds, deferred annuities and insurance. In addition, in August 1996 it
purchased for $400,000 a one-third equity interest in First Trust Mortgage
Corporation, Greenville, South Carolina ("First Trust"), a start-up mortgage
banking company. The Association has purchased loans from it in recent periods.
See "-- Lending Activities -- Loan Originations, Sales and Purchases." All loans
are purchased from First Trust subject to the Association's underwriting
standards. The Association intends to purchase at least $1.5 million of loans
from First Trust monthly. At December 31, 1996, the Association's financial
commitment to First Trust was limited solely to its equity investment through
First Spartan. The Association, either directly or through First Spartan, may
undertake additional financial commitments in the future; however, there are no
such agreements, plans or understandings at present. The Association recorded a
loss of approximately $100,000 related to First Trust's operations for the six
months ended December 31, 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of Operating Results
for the Six Months Ended December 31, 1996 and 1995 -- Other Income (Expense)."
Billy
56
<PAGE>
L. Painter, the Associations' President and Chief Executive Officer, and
J. Stephen Sinclair, the Association's Executive Vice President of Lending,
are directors of First Trust.
Properties
The following table sets forth certain information regarding the
Association's offices at December 31, 1996, all of which are owned except for
the Loan Production Office which is leased from month-to-month. The branch
office located at 1488 W.O. Ezzell Boulevard, Spartanburg, South Carolina, is
situated on leased land. The current lease expires in _______ with an option to
renew for ____ years.
<TABLE>
<CAPTION>
Approximate
Location Year Opened Square Footage Deposits
- -------- ----------- -------------- --------
(in thousands)
<S> <C>
Main Office:
380 E. Main Street 1974 32,820 $204,512
Spartanburg, South Carolina
Branch Offices:
280 N. Church Street 1986 1,080 32,903
Spartanburg, South Carolina
1488 W.O. Ezzell Boulevard 1980 2,453 48,110
Spartanburg, South Carolina
1585 E. Main Street 1991 2,166 19,868
Spartanburg, South Carolina
2701 Boiling Springs Road 1994 3,300 18,558
Boiling Springs, South Carolina
Loan Production Office:
Merovan Center 1995 180 N/A
120 Woodruff Road
Building 3-A
Greenville, South Carolina
</TABLE>
A new branch office in Inman, South Carolina, and one in Duncan, South
Carolina, are under construction and are scheduled to open by the end of the
first half of calendar 1997. The Association owns the land and building at both
of these locations.
The Association uses the services of an outside service bureau for its
significant data processing applications. At December 31, 1996, the Association
had three proprietary automated teller machines. At December 31, 1996, the net
book value of the Association's office properties and the Association's
fixtures, furniture and equipment was $5.5 million.
Personnel
As of December 31, 1996, the Association had 100 full-time and 26
part-time employees, none of which is represented by a collective bargaining
unit. The Association believes its relationship with its employees is good.
57
<PAGE>
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Association, such as claims to enforce liens, condemnation proceedings on
properties in which the Association holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Association's business. The Association is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Association.
58
<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
Directors shall be elected by the stockholders of the Holding Company
for staggered three-year terms, or until their successors are elected and
qualified. The Holding Company's Board of Directors consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. One class, consisting of Messrs. Hammond and Salter, has a term of
office expiring at the first annual meeting of stockholders, a second class,
consisting of Messrs. Sanders and Tate, has a term of office expiring at the
second annual meeting of stockholders, and a third class, consisting of Messrs.
Painter, Handell and Odom, has a term of office expiring at the third annual
meeting of stockholders.
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The executive
officers of the Holding Company are:
Name Position
---- --------
Robert R. Odom Chairman of the Board
Billy L. Painter President and Chief Executive Officer
R. Lamar Simpson Treasurer, Secretary and Chief Financial Officer
Since the formation of the Holding Company, none of the executive
officers, directors or other personnel has received remuneration from the
Holding Company. For information concerning the principal occupations,
employment and compensation of the directors and executive officers of the
Holding Company during the past five years, see "MANAGEMENT OF THE ASSOCIATION
- -- Biographical Information."
MANAGEMENT OF THE ASSOCIATION
Directors and Executive Officers
The Board of Directors of the Association is presently composed of
seven members who are elected for terms of three years, approximately one third
of whom are elected annually in accordance with the Bylaws of the Association.
The executive officers of the Association are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the Directors and executive officers of the
Association.
59
<PAGE>
Directors
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position with Association Since Expires
- ---- ------- ------------------------- ------- -------
<S> <C>
E. Lea Salter 61 Director 1988 1997
David E. Tate 56 Director 1993 1997
Robert L. Handell 79 Director and Secretary 1950 1998
Robert R. Odom 75 Chairman of the Board 1953 1998
E.L. Sanders 62 Director 1987 1999
Billy L. Painter 51 Director, President and
Chief Executive 1984 1999
Officer
R. Wesley Hammond 47 Director 1990 1999
</TABLE>
<TABLE>
<CAPTION>
Executive Officers Who Are Not Directors
Name Age (1) Position with Association
- ---- ------- -------------------------
<S> <C>
Hugh H. Brantley 53 Executive Vice President -- --
and Chief Operating Officer
J. Stephen Sinclair 55 Executive Vice President -- Lending -- --
R. Lamar Simpson 38 Chief Financial Officer -- --
</TABLE>
(1) As of December 31, 1996.
Biographical Information
Set forth below is certain information regarding the Directors and
executive officers of the Association. Unless otherwise stated, each Director
and executive officer has held his current occupation for the last five years.
There are no family relationships among or between the Directors or executive
officers.
E. Lea Salter is President of Christman & Parson, Inc., general
contractors. Mr. Salter is a member of the Association's Personnel and Audit
Committees. He is active in the Lions Club of Spartanburg and is the past
Chairman of the Board of Visitors of Columbia College.
David E. Tate has been President and sole owner of Tate Metal Works,
Inc., a tank fabrication and erection company, since 1972. Mr. Tate is an
Elder at First Presbyterian Church in Spartanburg, South Carolina.
Robert L. Handell is retired from the Association after 51 years of
service. He is the Secretary of the Civitan Rehabilitation Workshop and a
Director of the Civitan Club of Spartanburg, South Carolina. Mr. Handell is an
active member of the Bethel United Methodist Church.
Robert R. Odom is a senior partner in the law firm of Odom, Terry,
Cantrell & Hammett, Spartanburg, South Carolina, with which he has been
associated with for 45 years.
E.L. Sanders is a retired insurance executive. He is past Chairman of
the Board of Directors for Mobile Meals of Spartanburg, South Carolina, Vice
Chairman of the Board of Directors of the Foundation for the Multi-Handicapped,
Blind and Deaf of South Carolina, and on the Board of Directors of the Civitan
Club of Spartanburg, South Carolina.
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Billy L. Painter has served as the Association's President and Chief
Executive Officer since 1984. Mr. Painter is a former Chairman of the
Spartanburg Area Chamber of Commerce. He serves on the Advisory Board for the
Piedmont Interstate Fair, the Advisory Board of Salvation Army, and on the Board
of the Spartanburg Development Council.
R. Wesley Hammond is the President and Chief Operating Officer of
Hammond-Brown-Jennings, a furniture company. He is President-elect from
South Carolina and a member of the Executive Committee of Southern Home
Furnishings Association. He is an active member of the Church of the Advent in
Spartanburg, South Carolina.
Hugh H. Brantley is the Association's Executive Vice President and
Chief Operating Officer. Mr. Brantley serves on the Boards of Directors of the
Downtown Rescue Mission, the Impact Ministries, the Upward Basketball and the
YMCA, in Spartanburg, South Carolina.
J. Stephen Sinclair is the Association's Executive Vice President
of Lending. Mr. Sinclair is Senior Vice President of First Spartan. He is a
Director and Treasurer of Safe Homes - Rape Crisis Coalition, a Director of
Communities and Schools through the Chamber of Commerce and a member of the Home
Builder Association of Greater Spartanburg.
R. Lamar Simpson has served as the Association's Chief Financial
Officer since June 1996. Prior to his employment with the Association, he was a
senior manager with Deloitte & Touche LLP, where he was employed for nine years.
He is a member of the Board of Directors and Treasurer of the Boys Home of the
South, a member of the American Institute of Certified Public Accountants, a
member of the South Carolina Association of Certified Public Accountants and a
member of the Financial Managers Society.
Meetings and Committees of the Board of Directors
The business of the Association is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended June 30, 1996, the Board of Directors held 12 regular meetings and nine
special meetings. No director attended fewer than 75% of the total meetings of
the Board of Directors and of committees on which such director served.
The Executive Committee, consisting of Directors Odom (Chairman),
Handell and Salter, has the authority to act on behalf of the Board of Directors
between regular meetings. All actions of the Executive Committee are presented
for ratification by the Board of Directors at its next regularly scheduled
meeting. The Executive Committee did not meet during the year ended June 30,
1996.
The Personnel Committee, consisting of Directors Odom (Chairman),
Sanders and Salter, is responsible for all personnel issues, including
recommending compensation levels for all employees and senior management to the
Board of Directors. The Personnel Committee met four times during the year ended
June 30, 1996.
The Audit Committee, consisting of Directors Salter (Chairman), Hammond
and Handell, receives and reviews all reports prepared by the Association's
external and internal auditor. The Internal Auditor reports monthly to the Audit
Committee. The Audit Committee met three times during the year ended June 30,
1996.
The full Board of Directors acts as a Nominating Committee for the
annual selection of management's nominees for election as directors. The full
Board of Directors met once in its capacity as Nominating Committee during the
year ended June 30, 1996.
The Association also maintains standing Asset/Liability, Loan, Asset
Classification, CRA, Compliance, and Conflict of Interest Committees.
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Directors' Compensation
Currently, directors receive a fee of $1,500 per month. Directors' fees
totalled $84,000 for the year ended June 30, 1996. Following consummation of the
Conversion, directors' fees will continue to be paid by the Association and,
initially, no separate fees are expected to be paid for service on the Holdings
Company's Board of Directors.
Executive Compensation
Summary Compensation Table. The following information is furnished for
Messrs. Painter, Brantley and Sinclair for the year ended June 30, 1996.
<TABLE>
<CAPTION>
Annual Compensation(1)
----------------------------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation(2) Compensation
- -------- ---- ------ ----- --------------- -------------
<S> <C>
Billy L. Painter 1996 $132,993 $30,000 $-- $36,661(3)
President and Chief
Executive Officer
Hugh H. Brantley 1996 83,444 11,000 -- 16,966(4)
Executive Vice
President and Chief
Operating Officer
J. Stephen Sinclair 1996 83,432 11,000 -- 16,966(5)
Executive Vice
President of Lending
</TABLE>
(1) Compensation information for the years ended June 30, 1995 and 1994 has been
omitted as the Association was not a public company nor a subsidiary
thereof at such time.
(2) The aggregate amount of perquisites and other personal benefits was less
than 10% of the total annual salary and bonus reported.
(3) Consists of directors' fees ($12,000), employer retirement plan
contributions ($19,946), employer 401(k) Plan matching contributions
($4,035) and term life insurance premiums ($680).
(4) Consists of employer retirement plan contributions ($12,502), employer
401(k) Plan matching contributions ($4,035) and term life insurance premiums
($428).
(5) Consists of employer retirement plan contributions ($12,502), employer
401(k) Plan matching contributions ($4,035) and term life insurance premiums
($428).
Employment Agreements. In connection with the Conversion, the Holding
Company and the Association (collectively, the "Employers") will enter into
three-year employment agreements ("Employment Agreements") with Messrs. Painter,
Sinclair and Brantley (individually, the "Executive"). Under the Employment
Agreements, the initial salary levels for Messrs. Painter, Sinclair and Brantley
will be $140,000, $90,000 and $90,000, respectively, which amounts will be paid
by the Association and may be increased at the discretion of the Board of
Directors or an authorized committee of the Board. On each anniversary of the
commencement date of the Employment Agreements, the term of each agreement may
be extended for an additional year at the discretion of the Board. The agreement
is terminable by the Employers at any time, by the Executive if the Executive is
assigned duties inconsistent with his initial position, duties, responsibilities
and status, or upon the occurrence of certain events specified by federal
regulations. In the event that an Executive's employment is terminated without
cause or upon the Executive's voluntary termination following the occurrence of
an event described in the preceding sentence, the
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Association would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits.
The Employment Agreements also provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, an Executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of Common Stock pursuant
to a tender or exchange offer for such shares, (b) any person (as such term is
used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended ("Exchange Act")) is or becomes the beneficial owner, directly or
indirectly, of securities of the Holding Company representing 25% or more of the
combined voting power of the Holding Company's then outstanding securities, (c)
the membership of the Board of Directors changes as the result of a contested
election, or (d) shareholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
The severance payment from the Employers will equal 2.99 times each
Executive's average annual compensation during the five-year period preceding
the change in control. Such amount will be paid in a lump sum within ten
business days following the termination of employment. In addition, the
Association would be obligated to continue each Executive's employee benefits
for a 36-month period following termination of employment. Assuming that a
change in control had occurred at December 31, 1996, Messrs. Painter, Sinclair
and Brantley would be entitled to cash severance payments of approximately
$420,000, $270,000 and $270,000, respectively. Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"), states that severance payments that
equal or exceed three times the base compensation of the individual are deemed
to be "excess parachute payments" if they are contingent upon a change in
control. Individuals receiving excess parachute payments are subject to a 20%
excise tax on the amount of such excess payments, and the Employers would not be
entitled to deduct the amount of such excess payments.
The Employment Agreements restrict each Executive's right to compete
against the Employers for a period of one year from the date of termination of
the agreement if an Executive voluntarily terminates employment, except in the
event of a change in control.
Severance Agreements. In connection with the Conversion, the Holding
Company and the Association will enter into severance agreements with three of
the Association's senior officers, none of whom will be covered by an employment
agreement. On each anniversary of the commencement date of the severance
agreements, the term of each agreement may be extended for an additional year at
the discretion of the Board. It is anticipated that the three severance
agreements will have an initial term of two years.
The severance agreements will provide for severance payments and
continuation of other benefits in the event of involuntary termination of
employment in connection with any change in control of the Employers. Severance
payments and benefits also will be provided on a similar basis in connection
with a voluntary termination of employment where, subsequent to a change in
control, an officer is assigned duties inconsistent with his position, duties,
responsibilities and status immediately prior to such change in control. The
term "change in control" is defined in the agreement as having occurred when,
among other things, (a) a person other than the Holding Company purchases shares
of Common Stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) shareholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.
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Assuming that a change in control had occurred at December 31, 1996,
and excluding any other benefits due under the severance agreements, the
aggregate amount payable to the three officers would be approximately $461,000.
Employee Severance Compensation Plan. In connection with the
Conversion, the Board of Directors of the Association intends to adopt an
Employee Severance Compensation Plan ("Severance Plan") to provide benefits to
eligible employees in the event of a change in control of the Holding Company or
the Association. Officers who enter into separate employment or severance
agreements with the Holding Company and the Association will not be eligible to
participate in the Severance Plan. In general, employees of the Association will
be eligible to participate in the Severance Plan upon the completion of _____
years of service. Under the Severance Plan, in the event of a change in control
of the Holding Company or the Association, eligible employees, other than vice
presidents of the Association, who are terminated or who terminate employment
(but only upon the occurrence of events specified in the Severance Plan)
within 12 months of the effective date of a change in control will be
entitled to a payment based on years of service and/or position with the
Association. However, the maximum payment for any eligible employee would be
equal to ____ weeks of their current compensation. In addition, vice
presidents of the Association would be eligible to receive a severance payment
equal to 18 months of the current compensation. The Severance Plan also provides
that employees who have not met the ___ year service requirement for
participation would receive a payment equal to ___ weeks' compensation.
Assuming that a change in control had occurred at December 31, 1996 and the
termination of all eligible employees, the maximum aggregate payment due under
the Severance Plan would be approximately $______________.
Benefits
General. The Association currently pays 75% of the premiums for
medical, life and disability insurance benefits for full-time employees, subject
to certain deductibles.
401(k) Plan. The Association maintains the First Federal Savings and
Loan Association of Spartanburg 401(k) Plan ("401(k) Plan") for the benefit of
eligible employees of the Association. The 401(k) Plan is intended to be a
tax-qualified plan under Sections 401(a) and 401(k) of the Code. Employees of
the Association who have completed 1,000 hours of service during 12 consecutive
months and who have attained age 21 are eligible to participate in the 401(k)
Plan. Participants may contribute from 2%-10% of their annual compensation to
the 401(k) Plan through a salary reduction election. The Association matches
participant contributions on a discretionary basis to a maximum of 5% of
compensation contributed by the participant. In addition to employer matching
contributions, the Association may contribute a discretionary amount to the
401(k) Plan in any plan year which is allocated to individual participants in
the proportion that their annual compensation bears to the total compensation of
all participants during the plan year. To be eligible to receive a discretionary
employer contribution, the participant must complete 1,000 hours of service
during the plan year and remain employed by the Association on the last day of
the plan year. Participants are at all times 100% vested in salary reduction
contributions. With respect to employer matching and discretionary employer
contributions, participants vest in such contributions at the rate of 20% per
year beginning with the completion of one year of participation with full
vesting occurring after five years of participation. For the year ended June 30,
1996, the Association incurred total contribution-related expenses of $72,000 in
connection with the 401(k) Plan.
The Association previously maintained a tax-qualified money purchase
pension plan for the benefit of eligible employees. The money purchase pension
plan was merged with and into the 401(k) Plan, effective ______________, 1997.
Participant account balances under the money purchase plan were fully vested in
connection with the merger and the accounts of former money purchase pension
plan participants have been maintained as separate accounts under the 401(k)
Plan, subject to certain rights of the participants under the terms of the money
purchase pension plan.
Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the Conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the
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investment of up to 100% of their 401(k) Plan account balance to purchase
shares of the Common Stock. A participant in the 401(k) Plan who elects to
purchase Common Stock in the Conversion through the 401(k) Plan will receive
the same subscription priority and be subject to the same individual purchase
limitations as if the participant had elected to make such purchase using
other funds. See "THE CONVERSION -- Limitations on Purchases of Shares."
Employee Stock Ownership Plan. The Board of Directors has authorized
the adoption by the Association of an ESOP for employees of the Association to
become effective upon the completion of the Conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Code and
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Full-time employees of the Holding Company and the Association who have been
credited with at least 1,000 hours of service during a 12-month period and who
have attained age 21 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the Common Stock to be
issued in the Conversion, it is anticipated that the ESOP will borrow funds from
the Holding Company. Such loan will equal 100% of the aggregate purchase price
of the Common Stock. The loan to the ESOP will be repaid principally from the
Association's contributions to the ESOP and dividends payable on Common Stock
held by the ESOP over the anticipated 12-year term of the loan. The interest
rate for the ESOP loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the Conversion. See "PRO FORMA DATA." To
the extent that the ESOP is unable to acquire 8% of the Common Stock issued in
the Conversion, such additional shares will be acquired following the Conversion
through open market purchases.
In any plan year, the Association may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash or
shares of Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by Holding
Company. The timing, amount, and manner of such discretionary contributions will
be affected by several factors, including applicable regulatory policies, the
requirements of applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held
in a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the
rate of 20% per year, beginning upon the completion of one year of
participation. A participant is fully vested at retirement, in the event of
disability or upon termination of the ESOP. Benefits are distributable upon a
participant's retirement, early retirement, death, disability, or termination of
employment. The Association's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
It is anticipated that Messrs. _________, ________ and _________ will
be appointed by the Board of Directors of the Association to serve as trustees
of the ESOP. Under the ESOP, the trustees must vote all allocated shares held in
the ESOP in accordance with the instructions of plan participants and
unallocated shares and allocated shares for which no instructions are received
must be voted in the same ratio on any matter as those shares for which
instructions are given.
Pursuant to SOP 93-6, compensation expense for a leveraged ESOP is
recorded at the fair market value of the ESOP shares when committed to be
released to participants' accounts. See "PRO FORMA DATA" and "MANAGEMENT'S
DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of
Operating Results for the Six Months Ended December 31, 1996 and 1995."
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If the ESOP purchases newly issued shares from the Holding Company,
total stockholders' equity would neither increase nor decrease. However, on a
per share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP will be subject to the requirements of ERISA and the
regulations of the IRS and the Department of Labor issued thereunder. The
Association intends to request a determination letter from the IRS regarding the
tax-qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Association expects that a
favorable determination letter will be received by the ESOP.
1997 Stock Option Plan. The Board of Directors of the Holding Company
intends to adopt the Stock Option Plan and to submit the Stock Option Plan to
the stockholders for approval at a meeting held no earlier than six months
following consummation of the Conversion. Under current OTS regulations, the
approval of a majority vote of the Holding Company's outstanding shares is
required prior to the implementation of the Stock Option Plan within one year of
the consummation of the Conversion. The Stock Option Plan will comply with all
applicable regulatory requirements. However, the Stock Option Plan will not be
approved or endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive stock
options ("ISOs") intended to comply with the requirements of Section 422 of the
Code and for nonqualified stock options ("NQOs"). Upon receipt of stockholder
approval of the Stock Option Plan, stock options may be granted to key employees
of the Holding Company and its subsidiaries, including the Association. Unless
sooner terminated, the Stock Option Plan will continue in effect for a period of
ten years from the date the Stock Option Plan is approved by stockholders.
A number of authorized shares of Common Stock equal to 10% of the
number of shares of Common Stock issued in connection with the Conversion will
be reserved for future issuance under the Stock Option Plan (385,250 shares
based on the issuance of 3,852,500 shares at the maximum of the Estimated
Valuation Range). Shares acquired upon exercise of options will be authorized
but unissued shares or treasury shares. In the event of a stock split, reverse
stock split, stock dividend, or similar event, the number of shares of Common
Stock under the Stock Option Plan, the number of shares to which any award
relates and the exercise price per share under any option may be adjusted by the
Committee (as defined below) to reflect the increase or decrease in the total
number of shares of Common Stock outstanding.
The Stock Option Plan will be administered and interpreted by a
committee of the Board of Directors ("Committee"). Subject to applicable OTS
regulations, the Committee will determine which nonemployee directors, officers
and key employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of Common Stock on
the date the option is granted.
Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the Conversion, (i) no officer or
employees could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the Stock Option Plan.
It is anticipated that all options granted under the Stock Option Plan
will be granted subject to a vesting schedule whereby the options become
exercisable over a specified period following the date of grant. Under OTS
regulations, if the Stock Option plan is implemented within the first year
following consummation of the Conversion the minimum vesting period will be five
years. All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as
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defined in the Stock Option Plan) of the Holding Company or the Association to
the extent authorized or not prohibited by applicable law or regulations. OTS
regulations currently provide that if the Stock Option Plan is implemented
prior to the first anniversary of the Conversion, vesting may not be accelerated
upon a change in control of the Holding Company or the Association.
Each stock option that is awarded to an officer or key employee will
remain exercisable at any time on or after the date it vests through the earlier
to occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.
Under current provisions of the Code, the federal tax treatment of ISOs
and NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of Common Stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the Common Stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the Common Stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
The size of individual awards will be determined prior to submitting the Stock
Option Plan for stockholder approval, and disclosure of anticipated awards will
be included in the proxy materials for such meeting.
Management Recognition Plan. Following the Conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Association,
subject to shareholder approval. The MRP will enable the Holding Company and the
Association to provide participants with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association. The MRP will comply with all applicable regulatory
requirements. However, the MRP will not be approved or endorsed by the OTS.
Under current OTS regulations, the approval of a majority vote of the
Holding Company's outstanding shares is required prior to the implementation of
the MRP within one year of the consummation of the Conversion.
The MRP expects to acquire a number of shares of Common Stock equal to
4% of the Common Stock issued in connection with the Conversion (154,100 shares
based on the issuance of 3,852,500 shares in the Conversion at the maximum of
the Estimated Valuation Range). Such shares will be acquired on the open market,
if available, with funds contributed by the Holding Company or the Association
to a trust which the Holding Company may establish in conjunction with the MRP
("MRP Trust") or from authorized but unissued shares or treasury shares of the
Holding Company.
A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment
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of all funds contributed by the Holding Company or the Association to the MRP
Trust. The Board of Directors of the Holding Company may terminate the MRP at
any time and, upon termination, all unallocated shares of Common Stock will
revert to the Holding Company.
Shares of Common Stock granted pursuant to the MRP will be in the form
of restricted stock payable ratably over a specified vesting period following
the date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRP Trust. Under OTS regulations, if the
MRP is implemented within the first year following consummation of the
Conversion, the minimum vesting period will be five years. All unvested MRP
awards will vest in the event of the recipient's death or disability. Unvested
MRP awards will also vest following a change in control (as defined in the MRP)
of the Holding Company or the Association to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRP is implemented prior to the first anniversary of the
Conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.
A recipient of an MRP award in the form of restricted stock generally
will not recognize income upon an award of shares of Common Stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
Common Stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time,
the Holding Company and the Association anticipate that if stockholder approval
is obtained it would provide awards to its directors, officers and employees to
the extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the MRP is implemented within one year of the
consummation of the Conversion, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30%, of the number of shares reserved for issuance under the MRP. The
size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting.
Transactions with the Association
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and must not involve more
than the normal risk of repayment or present other unfavorable features. The
Association is therefore prohibited from making any new loans or extensions of
credit to the Association's executive officers and directors at different rates
or terms than those offered to the general public and has adopted a policy to
this effect. In addition, loans made to a director or executive officer in an
amount that, when aggregated with the amount of all other loans to such person
and his related interests, are in excess of the greater of $25,000, or 5% of the
Association's capital and surplus (up to a maximum of $500,000) must be approved
in advance by a majority of the disinterested members of the Board of Directors.
See "REGULATION -- Federal Regulation of Savings Associations -- Transactions
with Affiliates." The aggregate amount of loans by the Association to its
executive officers and directors was $957,000 at December 31, 1996, or
approximately 0.9% of pro forma stockholders' equity (based on the issuance of
the maximum of the Estimated Valuation Range).
Robert R. Odom, Chairman of the Board of the Holding Company and the
Association, is a senior partner with the law firm of Odom, Terry, Cantrell &
Hammett, Spartanburg, South Carolina, which serves as general
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counsel to the Association. The Association paid a retainer of $18,000 and
legal fees of $10,200 to the firm during the year ended June 30, 1996 for
services rendered to the Association.
E. Lea Salter, a Director of the Holding Company and the Association,
is the President of Christman & Parson, Inc., a general contractor. In recent
years, it has submitted sealed bids for and has been awarded contracts to
perform work for the Association. The Association did not award any contract or
pay any material amount of monies to Christman & Parson, Inc. during the year
ended June 30, 1996.
REGULATION
General
The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by the
Home Owners' Loan Act, as amended (the "HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents. The Association must
file reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other financial
institutions. There are periodic examinations by the OTS and the FDIC to review
the Association's compliance with various regulatory requirements. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or Congress, could have a
material adverse impact on the Holding Company, the Association and their
operations. The Holding Company, as a savings and loan holding company, will
also be required to file certain reports with, and otherwise comply with the
rules and regulations of, the OTS.
Federal Regulation of Savings Associations
Office of Thrift Supervision. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
Federal Home Loan Bank System. The FHLB System, consisting of 12 FHLBs,
is under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to: supervise the FHLBs; ensure that the FHLBs
carry out their housing finance mission; ensure that the FHLBs remain adequately
capitalized and able to raise funds in the capital markets; and ensure that the
FHLBs operate in a safe and sound manner.
The Association, as a member of the FHLB-Atlanta, is required to
acquire and hold shares of capital stock in the FHLB-Atlanta in an amount equal
to the greater of (i) 1.0% of the aggregate outstanding principal amount of
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or (ii) 1/20 of its advances (borrowings) from the
FHLB-Atlanta. The Association is in compliance with this requirement with an
investment in FHLB-Atlanta stock of $2.8 million at December 31, 1996.
Among other benefits, the FHLB-Atlanta provides a central credit
facility primarily for member institutions. It is funded primarily from proceeds
derived from the sale of consolidated obligations of the FHLB System. It
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makes advances to members in accordance with policies and procedures
established by the FHFB and the Board of Directors of the FHLB-Atlanta.
Federal Deposit Insurance Corporation. The FDIC is an independent
federal agency established originally to insure the deposits, up to prescribed
statutory limits, of federally insured banks and to preserve the safety and
soundness of the banking industry. In 1989 the FDIC also became the insurer, up
to the prescribed limits, of the deposit accounts held at federally insured
savings associations and established two separate insurance funds: the BIF and
the SAIF. As insurer of the Association's deposits, the FDIC has examination,
supervisory and enforcement authority over all savings associations.
The Association's deposit accounts are insured by the FDIC under the
SAIF to the maximum extent permitted by law. The Association currently pays
deposit insurance premiums to the FDIC based on a risk-based assessment system
established by the FDIC for all SAIF-member institutions. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action system
under Section 38 of the FDIA, as discussed below. These three groups are then
divided into three subgroups which reflect varying levels of supervisory
concern, from those which are considered to be healthy to those which are
considered to be of substantial supervisory concern. The Association's
assessments expensed for the year ended June 30, 1996 equaled $737,000.
The FDIC's current assessment schedule for SAIF deposit insurance
provides that the assessment rate for well-capitalized institutions with the
highest supervisory ratings would be reduced to zero and institutions in the
lowest risk assessment classification will be assessed at the rate of 0.27% of
insured deposits. Until December 31, 1999, however, SAIF-insured institutions,
will be required to add to their assessments to the FDIC at the rate of 6.5
basis points to help fund interest payments on certain bonds issued by the
Financing Corporation ("FICO"), an agency of the federal government established
to finance takeovers of insolvent thrifts. During this period, BIF members will
be assessed for FICO obligations at the rate of 1.3 basis points. After December
31, 1999, both BIF and SAIF members will be assessed at the same rate for FICO
payments.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend deposit
insurance temporarily during the hearing process for the permanent termination
of insurance, if the institution has no tangible capital. If insurance of
accounts is terminated, the accounts at the institution at the time of
termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Association.
Liquidity Requirements. Under OTS regulations, each savings institution
is required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
5.0%) of its net withdrawable accounts plus short-term borrowings. OTS
regulations also require each savings institution to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently 1.0%)
of the total of its net withdrawable savings accounts and borrowings payable in
one year or less. Monetary penalties may be imposed for failure to meet
liquidity requirements. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
Prompt Corrective Action. Under Section 38 of the FDIA, as added by the
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each
federal banking agency is required to implement a system of prompt corrective
action for institutions that it regulates. The federal banking agencies have
promulgated substantially similar regulations to implement this system of prompt
corrective action. Under the regulations, an
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institution shall be deemed to be (i) "well capitalized" if it has a total
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital
ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is not subject
to specified requirements to meet and maintain a specific capital level for
any capital measure; (ii) "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, a Tier I risk-based capital ratio of 4.0% or
more and a leverage ratio of 4.0% or more (3.0% under certain circumstances)
and does not meet the definition of "well capitalized;" (iii) "undercapitalized"
if it has a total risk-based capital ratio that is less than 8.0%, a Tier I
risk-based capital ratio that is less than 4.0% or a leverage ratio that is
less than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less
than 6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a
leverage ratio that is less than 3.0%; and (v) "critically undercapitalized"
if it has a ratio of tangible equity to total assets that is equal to or less
than 2.0%.
Section 38 of the FDIA and the implementing regulations also provide
that a federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan
that meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with the appropriate federal banking
agency within 45 days of the date that the institution receives notice or is
deemed to have notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. Immediately upon becoming
undercapitalized, an institution shall become subject to the provisions of
Section 38 of the FDIA, which sets forth various mandatory and discretionary
restrictions on its operations.
At December 31, 1996, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.
Standards for Safety and Soundness. The FDIA requires the federal
banking regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions relating to: (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) interest rate risk exposure; (v) asset growth; and (vi)
compensation, fees and benefits. The federal banking agencies recently adopted
final regulations and Interagency Guidelines Prescribing Standards for Safety
and Soundness ("Guidelines") to implement safety and soundness standards
required by the FDIA. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The agencies
also proposed asset quality and earnings standards which, if adopted in final,
would be added to the Guidelines. Under the final regulations, if the OTS
determines that the Association fails to meet any standard prescribed by the
Guidelines, the agency may require the Association to submit to the agency an
acceptable plan to achieve compliance with the standard, as required by the
FDIA. The final regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
Qualified Thrift Lender Test. All savings associations are required to
meet a qualified thrift lender ("QTL") test set forth in Section 10(m) of the
HOLA and regulations of the OTS thereunder to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either become a national bank or be subject to the following restrictions
on its operations: (i) the association may not make any new investment or engage
in activities that would not be permissible for national banks; (ii) the
association may not establish any new branch office where a national bank
located in the savings institution's home state would not be able to establish a
branch office; (iii) the association shall be ineligible to obtain new advances
from any FHLB; and (iv) the payment of dividends by the association shall be
subject to the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
institution ceases to be a QTL, the savings institution would be prohibited from
retaining any investment or engaging in any activity not
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permissible for a national bank and would be required to repay any outstanding
advances to any FHLB. In addition, within one year of the date on which a
savings association controlled by a company ceases to be a QTL, the company
must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as
a domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by FHLMC or FMNA. Portfolio assets consist of
total assets minus the sum of (i) goodwill and other intangible assets, (ii)
property used by the savings institution to conduct its business, and (iii)
liquid assets up to 20% of the institution's total assets. At December 31, 1996,
the qualified thrift investments of the Association were approximately 93.6% of
its portfolio assets.
Capital Requirements. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in order
to comply with the capital requirements. The Holding Company is not subject to
any minimum capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital is
defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and nonincludable subsidiaries. Institutions that
fail to meet the core capital requirement would be required to file with the OTS
a capital plan that details the steps they will take to reach compliance. In
addition, the OTS's prompt corrective action regulation provides that a savings
institution that has a leverage ratio of less than 4% (3% for institutions
receiving the highest CAMEL examination rating) will be deemed to be
"undercapitalized" and may be subject to certain restrictions. See "-- Federal
Regulation of Savings Associations -- Prompt Corrective Action."
As required by federal law, the OTS has proposed a rule revising its
minimum core capital requirement to be no less stringent than that imposed on
national banks. The OTS has proposed that only those savings associations rated
a composite one (the highest rating) under the CAMEL rating system for savings
associations will be permitted to operate at or near the regulatory minimum
leverage ratio of 3%. All other savings associations will be required to
maintain a minimum leverage ratio of 4% to 5%. The OTS will assess each
individual savings association through the supervisory process on a case-by-case
basis to determine the applicable requirement. No assurance can be given as to
the final form of any such regulation, the date of its effectiveness or the
requirement applicable to the Association.
Savings associations also must maintain "tangible capital" not less
than 1.5% of the Association's adjusted total assets. "Tangible capital" is
defined, generally, as core capital minus any "intangible assets" other than
purchased mortgage servicing rights.
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Each savings institution must maintain total risk-based capital equal
to at least 8% of risk-weighted assets. Total risk-based capital consists of the
sum of core and supplementary capital, provided that supplementary capital
cannot exceed core capital, as previously defined. Supplementary capital
includes (i) permanent capital instruments such as cumulative perpetual
preferred stock, perpetual subordinated debt and mandatory convertible
subordinated debt, (ii) maturing capital instruments such as subordinated debt,
intermediate-term preferred stock and mandatory convertible subordinated debt,
subject to an amortization schedule, and (iii) general valuation loan and lease
loss allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not included
for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans are
assigned a 100% risk weight, as are nonqualifying residential mortgage loans and
that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totalled to arrive at total risk-weighted assets.
Off-balance sheet items are included in risk-weighted assets by converting them
to an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
association's assets, as calculated in accordance with guidelines set forth by
the OTS. A savings association whose measured interest rate risk exposure
exceeds 2% must deduct an interest rate risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
association's assets. That dollar amount is deducted from an association's total
capital in calculating compliance with its risk-based capital requirement. Under
the rule, there is a two quarter lag between the reporting date of an
institution's financial data and the effective date for the new capital
requirement based on that data. A savings association with assets of less than
$300 million and risk-based capital ratios in excess of 12% is not subject to
the interest rate risk component, unless the OTS determines otherwise. The rule
also provides that the Director of the OTS may waive or defer an association's
interest rate risk component on a case-by-case basis. Under certain
circumstances, a savings association may request an adjustment to its interest
rate risk component if it believes that the OTS-calculated interest rate risk
component overstates its interest rate risk exposure. In addition, certain
"well-capitalized" institutions may obtain authorization to use their own
interest rate risk model to calculate their interest rate risk component in lieu
of the OTS-calculated amount. The OTS has postponed the date that the component
will first be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" for a table that sets
forth in terms of dollars and percentages the OTS tangible, core and risk-based
capital requirements, the Association's historical amounts and percentages at
December 31, 1996 and pro forma amounts and percentages based upon the
assumptions stated therein.
Limitations on Capital Distributions. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Association to give the OTS 30
days' advance notice of any
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proposed declaration of dividends, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends. The regulation utilizes
a three-tiered approach which permits various levels of distributions based
primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its fully
phased-in capital requirement (both before and after the proposed capital
distribution). Tier 1 savings association may make (without application but upon
prior notice to, and no objection made by, the OTS) capital distributions during
a calendar year up to 100% of its net income to date during the calendar year
plus one-half its surplus capital ratio (i.e., the amount of capital in excess
of its fully phased-in requirement) at the beginning of the calendar year or the
amount authorized for a Tier 2 association. Capital distributions in excess of
such amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limit on loans to one borrower.
Generally, this limit is 15% of the Association's unimpaired capital and
surplus, plus an additional 10% of unimpaired capital and surplus, if such loan
is secured by readily-marketable collateral, which is defined to include certain
financial instruments and bullion. The OTS by regulation has amended the loans
to one borrower rule to permit savings associations meeting certain
requirements, including capital requirements, to extend loans to one borrower in
additional amounts under circumstances limited essentially to loans to develop
or complete residential housing units. At December 31, 1996, the Association's
limit on loans to one borrower was $7.0 million. At December 31, 1996, the
Association's largest aggregate amount of loans to one borrower was $2.8
million.
Activities of Associations and Their Subsidiaries. When a savings
association establishes or acquires a subsidiary or elects to conduct any new
activity through a subsidiary that the association controls, the savings
association must notify the FDIC and the OTS 30 days in advance and provide the
information each agency may, by regulation, require. Savings associations also
must conduct the activities of subsidiaries in accordance with existing
regulations and orders.
The OTS may determine that the continuation by a savings association of
its ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
Transactions with Affiliates. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act ("Sections 23A and 23B")
relative to transactions with affiliates in the same manner and to the same
extent as if the savings association were a Federal Reserve member bank. A
savings and loan holding company, its subsidiaries and any other company under
common control are considered affiliates of the subsidiary savings association
under the HOLA. Generally, Sections 23A and 23B: (i) limit the extent to which
the insured association or its subsidiaries may engage in certain covered
transactions with an affiliate to an amount equal to 10% of such institution's
capital and surplus and place an aggregate limit on all such transactions with
affiliates to an amount
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equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to
the institution or subsidiary, as those provided to a non-affiliate. The
term "covered transaction" includes the making of loans, the purchase of
assets, the issuance of a guarantee and similar types of transactions.
Any loan or extension of credit by the Association to an affiliate must be
secured by collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve Board, as is currently the case with respect to all
FDIC-insured banks. The Association has not been significantly affected by the
rules regarding transactions with affiliates.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and
Regulation O thereunder. Among other things, these regulations generally require
that such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Generally, Regulation O also places individual and aggregate limits
on the amount of loans the Association may make to such persons based, in part,
on the Association's capital position, and requires certain board approval
procedures to be followed. The OTS regulations, with certain minor variances,
apply Regulation O to savings institutions.
Community Reinvestment Act. Under the Community Reinvestment Act
("CRA"), a federal statute, all federally-insured financial institutions have a
continuing and affirmative obligation consistent with safe and sound operations
to help meet all the credit needs of its delineated community. The CRA does not
establish specific lending requirements or programs nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to meet all the credit needs of its delineated
community. The CRA requires the federal banking agencies, in connection with
regulatory examinations, to assess an institution's record of meeting the credit
needs of its delineated community and to take such record into account in
evaluating certain regulatory applications filed by an institution. The CRA
requires public disclosure of an institution's CRA rating. The Association
received an "outstanding" rating as a result of its latest evaluation.
Regulatory and Criminal Enforcement Provisions. Under the FDIA, the OTS
has primary enforcement responsibility over savings institutions and has the
authority to bring action against all "institution-affiliated parties,"
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution. Formal enforcement action may range from the
issuance of a capital directive or cease and desist order to removal of officers
or directors, receivership, conservatorship or termination of deposit insurance.
Civil penalties cover a wide range of violations and can amount to $27,500 per
day, or $1.1 million per day in especially egregious cases. Under the FDIA, the
FDIC has the authority to recommend to the Director of the OTS that enforcement
action be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Savings and Loan Holding Company Regulations
Holding Company Acquisitions. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any
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savings association not a subsidiary of such savings and loan holding company,
unless the acquisition is approved by the OTS.
Holding Company Activities. As a unitary savings and loan holding
company, the Holding Company generally is not subject to activity restrictions
under the HOLA. If the Holding Company acquires control of another savings
association as a separate subsidiary other than in a supervisory acquisition, it
would become a multiple savings and loan holding company. There generally are
more restrictions on the activities of a multiple savings and loan holding
company than on those of a unitary savings and loan holding company. The HOLA
provides that, among other things, no multiple savings and loan holding company
or subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than: (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.
Qualified Thrift Lender Test. The HOLA requires any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
TAXATION
Federal Taxation
General. The Holding Company and the Association will report their
income on a fiscal year basis using the accrual method of accounting and will be
subject to federal income taxation in the same manner as other corporations with
some exceptions, including particularly the Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Holding Company.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The Association's
deductions with respect to "qualifying real property loans," which are generally
loans secured by certain interest in real property, were computed using an
amount based on the Association's actual loss experience, or a percentage equal
to 8% of the Association's taxable income, computed with certain modifications
and reduced by the amount of any permitted additions to the non-qualifying
reserve. Due to the Association's loss experience, the Association generally
recognized a bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the current thrift bad debt
rules were passed by Congress as part of "The Small Business Job Protection Act
of 1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Association has
previously recorded a deferred tax liability equal to the bad debt recapture and
as such, the new rules will have no effect on the net income or federal income
tax expense. For taxable years beginning after December 31, 1995, the
Association's bad debt deduction
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will be determined under the experience method using a formula based on actual
bad debt experience over a period of years or, if the Association is a "large"
association (assets in excess of $500 million) on the basis of net charge-offs
during the taxable year. The new rules allow an institution to suspend bad debt
reserve recapture for the 1996 and 1997 tax years if the institution's lending
activity for those years is equal to or greater than the institutions average
mortgage lending activity for the six taxable years preceding 1996 adjusted for
inflation. For this purpose, only home purchase or home improvement loans are
included and the institution can elect to have the tax years with the highest
and lowest lending activity removed from the average calculation. If an
institution is permitted to postpone the reserve recapture, it must begin its
six year recapture no later than the 1998 tax year. The unrecaptured base year
reserves will not be subject to recapture as long as the institution continues
to carry on the business of banking. In addition, the balance of the pre-1988
bad debt reserves continue to be subject to provision of present law referred
to below that require recapture in the case of certain excess distributions
to shareholders.
Distributions. To the extent that the Association makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a letter amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend distributions
include distributions in excess of the Association's current and accumulated
earnings and profits, distributions in redemption of stock and distributions in
partial or complete liquidation. However, dividends paid out of the
Association's current or accumulated earnings and profits, as calculated for
federal income tax purposes, will not be considered to result in a distribution
from the Association's bad debt reserve. The amount of additional taxable income
created from an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus,
if, after the Conversion, the Association makes a "nondividend distribution,"
then approximately one and one-half times the Excess Distribution would be
includable in gross income for federal income tax purposes, assuming a 34%
corporate income tax rate (exclusive of state and local taxes). See "REGULATION"
and "DIVIDEND POLICY" for limits on the payment of dividends by the Association.
The Association does not intend to pay dividends that would result in a
recapture of any portion of its tax bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of the
tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carryovers. AMTI is
increased by an amount equal to 75% of the amount by which the Association's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of .12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax ("AMT") is paid.
Dividends-Received Deduction. The Holding Company may exclude from its
income 100% of dividends received from the Association as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Association will not file a consolidated
tax return, except that if the Holding Company or the Association owns more than
20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be deducted.
Audits. The Association's federal income tax returns have not been
audited within the past five years.
State Taxation
South Carolina Taxation. The provisions of South Carolina tax law
mirror the Code, with certain modifications, as it relates to savings and loan
associations. The Association is subject to South Carolina income
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tax at the rate of 6%. This rate of tax is imposed on savings and loan
associations in lieu of the general state business corporation income tax. The
Association's state income tax returns have not been audited within the last
five years.
Delaware. As a Delaware holding company not earning income in Delaware,
the Holding Company is exempt from Delaware corporate income tax, but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
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THE CONVERSION
The OTS has approved the Plan of Conversion subject to its approval by
the members of the Association entitled to vote thereon and to the satisfaction
of certain other conditions imposed by the OTS in its approval. OTS approval
does not constitute a recommendation or endorsement of the Plan of Conversion.
General
On February 3, 1997, the Board of Directors of the Association
unanimously adopted the Plan of Conversion, pursuant to which the Association
will be converted from a federally chartered mutual savings and loan association
to a federally chartered stock savings and loan association to be held as a
wholly-owned subsidiary of the Holding Company, a newly formed Delaware
corporation. The following discussion of the Plan of Conversion is qualified in
its entirety by reference to the Plan of Conversion, which is attached as
Exhibit A to the Association's Proxy Statement and is available to members of
the Association upon request. The Plan of Conversion is also filed as an exhibit
to the Registration Statement. See "ADDITIONAL INFORMATION." The OTS has
approved the Plan of Conversion subject to its approval by the members of the
Association entitled to vote on the matter at a Special Meeting called for that
purpose to be held on June ___, 1997, and subject to the satisfaction of certain
other conditions imposed by the OTS in its approval.
If the Board of Directors of the Association decides for any reason,
such as possible delays resulting from overlapping regulatory processing or
policies or conditions that could adversely affect the Association's or the
Holding Company's ability to consummate the Conversion and transact its business
as contemplated herein and in accordance with the Association's operating
policies, at any time prior to the issuance of the Common Stock, not to use the
holding company form of organization in implementing the Conversion, the Plan of
Conversion will be amended to not use the holding company form of organization
in the Conversion. In the event that such a decision is made, the Association
will promptly refund all subscriptions or orders received together with accrued
interest, will withdraw the Holding Company's registration statement from the
SEC and will take all steps necessary to complete the Conversion and proceed
with a new offering without the Holding Company, including filing any necessary
documents with the OTS. In such event, and provided there is no regulatory
action, directive or other consideration upon which basis the Association
determines not to complete the Conversion, the Association will issue and sell
the common stock of the Association. There can be no assurance that the OTS
would approve the Conversion if the Association decided to proceed without the
Holding Company. The following description of the Plan of Conversion assumes
that a holding company form of organization will be utilized in the Conversion.
In the event that a holding company form of organization is not utilized, all
other pertinent terms of the Plan of Conversion as described below will apply to
the Conversion of the Association from mutual to stock form of organization and
the sale of the Association's common stock.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association. Pursuant to the Plan of Conversion, 2,847,500 to 3,852,500 shares
of Common Stock are being offered for sale by the Holding Company at the
Purchase Price of $20.00 per share. As part of the Conversion, the Association
will issue all of its newly issued common stock (1,000 shares) to the Holding
Company in exchange for 50% of the net proceeds from the sale of Common Stock by
the Holding Company.
The Plan of Conversion provides generally that: (i) the Association
will convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association; (ii) the Common Stock
will be offered by the Holding Company in the Subscription Offering to persons
having Subscription Rights; (iii) if necessary, shares of Common Stock not
subscribed for in the Subscription Offering will be offered in a Direct
Community Offering to certain members of the general public, with preference
given to natural persons and trusts of natural persons residing in the Local
Community, and then to certain members of the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers pursuant to
selected dealers agreements; and (iv) the Holding Company will purchase all of
the capital stock of the Association to be issued in
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connection with the Conversion. The Conversion will be effected only upon
completion of the sale of at least $56,950,000 of Common Stock to be issued
pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1995); (ii) the Association's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of March 31, 1997); and (iv) Other Members (depositors of the Association as
of ________, 1997 and borrowers of the Association with loans outstanding as of
__________, 1997 which continue to be outstanding as of _________, 1997).
Shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in the Direct Community Offering to members of the
general public, with priority being given to natural persons and trusts of
natural persons residing in the Local Community. The Direct Community Offering,
if one is held, is expected to begin immediately after the Expiration Date, but
may begin at any time during the Subscription Offering. Shares of Common Stock
not sold in the Subscription and Direct Community Offerings may be offered in
the Syndicated Community Offering. Regulations require that the Direct Community
and Syndicated Community Offerings be completed within 45 days after completion
of the Subscription Offering unless extended by the Association or the Holding
Company with the approval of the regulatory authorities. If the Syndicated
Community Offering is determined not to be feasible, the Board of Directors of
the Association will consult with the regulatory authorities to determine an
appropriate alternative method for selling the unsubscribed shares of Common
Stock. The Plan of Conversion provides that the Conversion must be completed
within 24 months after the date of the approval of the Plan of Conversion by the
members of the Association.
No sales of Common Stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offerings unless the
Plan of Conversion is approved by the members of the Association.
The completion of the Offerings, however, is subject to market
conditions and other factors beyond the Association's control. No assurance can
be given as to the length of time after approval of the Plan of Conversion at
the Special Meeting that will be required to complete the Direct Community or
Syndicated Community Offerings or other sale of the Common Stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Association as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the Common Stock. In the event the Conversion is terminated, the
Association would be required to charge all Conversion expenses against current
income.
Orders for shares of Common Stock will not be filled until at least
2,847,500 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
Conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Association's
passbook rate from the date payment is received until the funds are returned to
the subscriber. If such period is not extended, or, in any event, if the
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Association's passbook rate from the date payment is received until the
Conversion is terminated.
Purposes of Conversion
The Association's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the
Association as its subsidiary. The Association, as a mutual savings and loan
association, does not have stockholders and has no authority to issue capital
stock. By converting to the
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stock form of organization, the Holding Company and the Association will be
structured in the form used by holding companies of commercial banks and by a
growing number of savings institutions. Management of the Association believes
that the Conversion offers a number of advantages which will be important to the
future growth and performance of the Association in that it is intended:
(i) to improve the overall competitive position of the Association in its
market area and to support possible future expansion and diversification of
operations (currently there are no specific plans, arrangements or
understandings, written or oral, regarding any such activities); (ii) to afford
members of the Association and others the opportunity to become stockholders
of the Holding Company and thereby participate more directly in, and
contribute to, any future growth of the Holding Company and the Association;
and (iii) to provide future access to capital markets.
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association
Voting Rights. Savings members and borrowers will have no voting rights
in the converted Association or the Holding Company and therefore will not be
able to elect directors of the Association or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings members of the
Association. Subsequent to the Conversion, voting rights will be vested
exclusively in the Holding Company with respect to the Association and the
holders of the Common Stock as to matters pertaining to the Holding Company.
Each holder of Common Stock shall be entitled to vote on any matter to be
considered by the stockholders of the Holding Company. A stockholder will be
entitled to one vote for each share of Common Stock owned.
Savings Accounts and Loans. The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.
Tax Effects. The Association has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that: (i) no gain or loss will be recognized to the Association
in its mutual or stock form by reason of the Conversion; (ii) no gain or loss
will be recognized to its account holders upon the issuance to them of accounts
in the Association immediately after the Conversion, in the same dollar amounts
and on the same terms and conditions as their accounts at the Association in its
mutual form plus interest in the liquidation account; (iii) the tax basis of
account holders' accounts in the Association immediately after the Conversion
will be the same as the tax basis of their accounts immediately prior to
Conversion; (iv) the tax basis of each account holder's interest in the
liquidation account will be zero; (v) the tax basis of the Common Stock
purchased in the Conversion will be the amount paid and the holding period for
such stock will commence at the date of purchase; and (vi) no gain or loss will
be recognized to account holders upon the receipt or exercise of Subscription
Rights in the Conversion, except to the extent Subscription Rights are deemed to
have value as discussed below. Unlike a private letter ruling issued by the IRS,
an opinion of counsel is not binding on the IRS and the IRS could disagree with
the conclusions reached therein. In the event of such disagreement, no assurance
can be given that the conclusions reached in an opinion of counsel would be
sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that
the receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the Subscription Rights are deemed to have a
fair market value. RP Financial, a financial consulting firm retained by the
Association, whose findings are not binding on the IRS, has indicated that the
Subscription Rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration and afford the recipients the right only to purchase shares of the
Common Stock at a price equal to its estimated fair market value, which will be
the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their Subscription Rights. The Association could also
recognize a gain on the distribution of such Subscription Rights. Eligible
Account
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Holders, Supplemental Eligible Account Holders and Other Members are encouraged
to consult with their own tax advisors as to the tax consequences in the event
the Subscription Rights are deemed to have a fair market value.
The Association has also received an opinion from Deloitte & Touche
LLP, Greenville, South Carolina, that, assuming the Conversion does not result
in any federal income tax liability to the Association, its account holders, or
the Holding Company, implementation of the Plan of Conversion will not result in
any South Carolina income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Deloitte & Touche LLP and the
letter from RP Financial are filed as exhibits to the Registration Statement.
See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account to the total value of all deposit accounts in the Association at the
time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association. However, pursuant to OTS regulations, the Association shall, at the
time of the Conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained herein.
The liquidation account shall be maintained by the Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Association. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the Savings Account and the denominator is the total amount of the
"qualifying deposits" of all such holders. Such initial subaccount balance shall
not be increased, and it shall be subject to downward adjustment as provided
below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing day of the Association subsequent to December 31, 1995 or March
31, 1997 is less than the lesser of (i) the deposit balance in such Savings
Account at the close of business on any other annual closing date subsequent to
December 31, 1995 or March 31, 1997 or (ii) the amount of the "qualifying
deposit" in such Savings Account on December 31, 1995 or March 31, 1997, then
the subaccount balance for such Savings Account shall be adjusted by reducing
such subaccount balance in an amount proportionate to the reduction in such
deposit balance. In the event of a downward adjustment, such subaccount balance
shall not be subsequently increased, notwithstanding any increase in the deposit
balance of the related Savings Account. If any such Savings Account is closed,
the related subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Association (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another
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federally insured institution in which the Association is not the surviving
institution shall be considered to be a complete liquidation. In any such
transaction the liquidation account shall be assumed by the surviving
institution.
In the unlikely event the Association is liquidated after the
Conversion, depositors will be entitled to full payment of their deposit
accounts before any payment is made to the Holding Company as the sole
stockholder of the Association.
The Subscription, Direct Community and Syndicated Community Offerings
Subscription Offering. In accordance with the Plan of Conversion,
nontransferable Subscription Rights to purchase the Common Stock have been
issued to all persons and entities entitled to purchase the Common Stock in the
Subscription Offering. The amount of the Common Stock which these parties may
purchase will be subject to the availability of the Common Stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the Common Stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at the Association as of December 31, 1995 will receive
nontransferable Subscription Rights to subscribe for up to the greater of
$325,000 of Common Stock, one-tenth of one percent of the total offering of
Common Stock or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be issued
by a fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of Subscription Rights
in this category results in an oversubscription, shares of Common Stock will be
allocated among subscribing Eligible Account Holders so as to permit each
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make such person's total allocation equal 100 shares or the number
of shares actually subscribed for, whichever is less. Thereafter, unallocated
shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Eligible Account Holders.
Subscription Rights received by officers and directors in this category based on
their increased deposits in the Association in the one year period preceding
December 31, 1995 are subordinated to the Subscription Rights of other Eligible
Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable Subscription Rights to purchase up to 10% of the shares
of Common Stock issued in the Conversion. The ESOP intends to purchase 8% of the
shares of Common Stock issued in the Conversion. In the event the number of
shares offered in the Conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the Common Stock.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of March 31, 1997 will receive nontransferable
Subscription Rights to subscribe for up to the greater of $325,000 of Common
Stock, one-tenth of one percent of the total offering of Common Stock or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of Common Stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his total
allocation equal 100 shares or the number of shares actually subscribed for,
whichever is less. Thereafter, unallocated shares will be allocated among
subscribing Supplemental Eligible Account Holders proportionately, based on the
amount of their respective qualifying deposits as compared to total qualifying
deposits of all Supplemental Eligible Account Holders.
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Category 4: Other Members. Each depositor of the Association as of the
Voting Record Date and each borrower with a loan outstanding on ________, 1997
which continues to be outstanding as of the Voting Record Date will receive
nontransferable Subscription Rights to purchase up to $325,000 of Common Stock
in the Conversion to the extent shares are available following subscriptions by
Eligible Account Holders, the Association's ESOP and Supplemental Eligible
Account Holders. In the event of an oversubscription in this category, the
available shares will be allocated proportionately based on the amount of the
respective subscriptions.
Subscription Rights are nontransferable. Persons selling or otherwise
transferring their rights to subscribe for Common Stock in the Subscription
Offering or subscribing for Common Stock on behalf of another person will be
subject to forfeiture of such rights and possible further sanctions and
penalties imposed by the OTS or another agency of the U.S. Government. Each
person exercising Subscription Rights will be required to certify that he or she
is purchasing such shares solely for his or her own account and that he or she
has no agreement or understanding with any other person for the sale or transfer
of such shares. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT THE
CONSENT OF THE ASSOCIATION AND THE HOLDING COMPANY.
The Holding Company and the Association will make reasonable attempts
to provide a Prospectus and related offering materials to holders of
Subscription Rights. However, the Subscription Offering and all Subscription
Rights under the Plan of Conversion will expire at ______ ___.m., Eastern Time,
on the Expiration Date, whether or not the Association has been able to locate
each person entitled to such Subscription Rights. Orders for Common Stock in the
Subscription Offering received in hand by the Association after the Expiration
Date will not be accepted. The Subscription Offering may be extended by the
Holding Company and the Association up to _________, 1997 without the OTS's
approval. OTS regulations require that the Holding Company complete the sale of
Common Stock within 45 days after the close of the Subscription Offering. If the
Direct Community Offering and the Syndicated Community Offerings are not
completed by _______, 1997 (or ________, 1997, if the Subscription Offering is
fully extended), all funds received will be promptly returned with interest at
the Association's passbook rate and all withdrawal authorizations will be
canceled or, if regulatory approval of an extension of the time period has been
granted, all subscribers and purchasers will be given the right to increase,
decrease or rescind their orders. If an extension of time is obtained, all
subscribers will be notified of such extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
Direct Community Offering. Any shares of Common Stock which remain
unsubscribed for in the Subscription Offering will be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in the Local Community. Purchasers in the Direct Community Offering are eligible
to purchase up to $325,000 of Common Stock in the Conversion. In the event an
insufficient number of shares are available to fill orders in the Direct
Community Offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders. The Direct Community
Offering, if held, is expected to commence immediately subsequent to the
Expiration Date, but may begin at anytime during the Subscription Offering. The
Direct Community Offering may terminate on or at any time subsequent to the
Expiration Date, but no later than 45 days after the close of the Subscription
Offering, unless extended by the Holding Company and the Association, with
approval of the OTS. Any extensions beyond 45 days after the close of the
Subscription Offering would require a resolicitation of orders, wherein
subscribers for the maximum numbers of shares of Common Stock would be, and
certain other large Subscribers in the discretion of the Holding Company and the
Association may be, given the opportunity to continue their orders, in which
case they will need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their subscription funds will be
promptly refunded with interest at the Association's passbook rate, or be
permitted to modify or cancel their orders. The right of any person to purchase
shares in the Direct Community Offering is subject to the absolute right of the
Holding Company and the Association
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to accept or reject such purchases in whole or in part. If an order is rejected
in part, the purchaser does not have the right to cancel the remainder of
the order. The Holding Company presently intends to terminate the Direct
Community Offering as soon as it has received orders for all shares available
for purchase in the Conversion.
If all of the Common Stock offered in the Subscription Offering is
subscribed for, no Common Stock will be available for purchase in the Direct
Community Offering.
Syndicated Community Offering. The Plan of Conversion provides that, if
necessary, all shares of Common Stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be managed by Trident Securities
acting as agent of the Holding Company. The Holding Company and the Association
have the right to reject orders, in whole or part, in their sole discretion in
the Syndicated Community Offering. Neither Trident Securities nor any registered
broker-dealer shall have any obligation to take or purchase any shares of the
Common Stock in the Syndicated Community Offering; however, Trident Securities
has agreed to use its best efforts in the sale of shares in the Syndicated
Community Offering.
Stock sold in the Syndicated Community Offering also will be sold at
the $20.00 Purchase Price. See "-- Stock Pricing and Number of Shares to be
Issued." No person will be permitted to subscribe in the Syndicated Community
Offering for shares of Common Stock with an aggregate purchase price of more
than $325,000. See "-- Plan of Distribution for the Subscription, Community and
Syndicated Community Offerings" for a description of the commission to be paid
to the selected dealers and to Trident Securities.
Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community Offering. During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock. When
and if Trident Securities and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the Conversion, Trident Securities will request, as of the Order
Date, selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected dealers will
send confirmations to such customers on the next business day after the Order
Date. Selected dealers may debit the accounts of their customers on a date which
will be three business days from the Order Date ("Settlement Date"). Customers
who authorize selected dealers to debit their brokerage accounts are required to
have the funds for payment in their account on but not before the Settlement
Date. On the Settlement Date, selected dealers will remit funds to the account
that the Holding Company established for each selected dealer. Each customer's
funds so forwarded to the Holding Company, along with all other accounts held in
the same title, will be insured by the FDIC up to the applicable $100,000 legal
limit. After payment has been received by the Holding Company from selected
dealers, funds will earn interest at the Association's passbook rate until the
completion of the Offerings. At the completion of the Conversion, the funds
received in the Offerings will be used to purchase the shares of Common Stock
ordered. The shares issued in the Conversion cannot and will not be insured by
the FDIC or any other government agency. In the event the Conversion is not
consummated as described above, funds with interest will be returned promptly to
the selected dealers, who, in turn, will promptly credit their customers'
brokerage accounts.
The Syndicated Community Offering may terminate no more than 45 days
following the Expiration Date, unless extended by the Holding Company with the
approval of the OTS.
In the event the Association is unable to find purchasers from the
general public for all unsubscribed shares, other purchase arrangements will be
made by the Board of Directors of the Association, if feasible. Such other
arrangements will be subject to the approval of the OTS. The OTS may grant one
or more extensions of the offering period, provided that (i) no single extension
exceeds 90 days, (ii) subscribers are given the right to increase, decrease or
rescind their subscriptions during the extension period, and (iii) the
extensions do not go more than two years
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beyond the date on which the members approved the Plan of Conversion. If the
Conversion is not completed within 45 days after the close of the Subscription
Offering, either all funds received will be returned with interest (and
withdrawal authorizations canceled) or, if the OTS has granted an extension
of time, all subscribers will be given the right to increase, decrease or
rescind their subscriptions at any time prior to 20 days before the end of the
extension period. If an extension of time is obtained, all subscribers will
be notified of such extension and of their rights to modify their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled).
Persons in Non-Qualified States. The Holding Company and the
Association will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan of Conversion reside. However, the Holding Company and the
Association are not required to offer stock in the Subscription Offering to any
person who resides in a foreign country or resides in a state of the United
States with respect to which (i) a small number of persons otherwise eligible to
subscribe for shares of Common Stock reside in such state or (ii) the Holding
Company or the Association determines that compliance with the securities laws
of such state would be impracticable for reasons of cost or otherwise, including
but not limited to a request or requirement that the Holding Company and the
Association or their officers, directors or trustees register as a broker,
dealer, salesman or selling agent, under the securities laws of such state, or a
request or requirement to register or otherwise qualify the Subscription Rights
or Common Stock for sale or submit any filing with respect thereto in such
state. Where the number of persons eligible to subscribe for shares in one state
is small, the Holding Company and the Association will base their decision as to
whether or not to offer the Common Stock in such state on a number of factors,
including the size of accounts held by account holders in the state, the cost of
reviewing the registration and qualification requirements of the state (and of
actually registering or qualifying the shares) or the need to register the
Holding Company, its officers, directors or employees as brokers, dealers or
salesmen.
Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings
The Association and the Holding Company have retained Trident
Securities to consult with and advise the Association and to assist the
Association and the Holding Company, on a best efforts basis, in the
distribution of shares in the Offerings. Trident Securities is a broker-dealer
registered with the SEC and a member of the NASD. Trident Securities will assist
the Association in the Conversion as follows: (i) it will act as marketing
advisor with respect to the Subscription Offering and will represent the
Association as placement agent on a best efforts basis in the sale of the Common
Stock in the Direct Community Offering if one is held; (ii) it will conduct
training sessions with directors, officers and employees of the Association
regarding the Conversion process; and (iii) it will assist in the establishment
and supervision of the Stock Information Center and, with management's input,
will train the Association's staff to record properly and tabulate orders for
the purchase of Common Stock and to respond appropriately to customer inquiries.
Based upon negotiations between Trident Securities on the one hand and
the Holding Company and the Association on the other hand concerning fee
structure, Trident Securities will receive a commission equal to 1.35% of the
aggregate amount of Common Stock sold to investors who reside in South Carolina
and a commission equal to 1.15% of the aggregate amount of Common Stock sold to
investors who reside outside of South Carolina; provided, however, that such
commissions shall be capped at the midpoint of the Estimated Valuation Range as
set forth on the cover page of this Prospectus. In the event that the number of
shares of Common Stock issued in the Offerings exceeds the midpoint of the
Estimated Valuation Range as set forth on the cover page of this Prospectus,
such commissions will be applied pro rata as if the Offerings had closed at such
point. Trident and selected dealers participating in the Syndicated Community
Offering may receive a commission in the Syndicated Community Offering in an
amount to be agreed upon by the Holding Company and the Association. Fees and
commissions paid to Trident Securities and to any selected dealers may be deemed
to be underwriting fees, and Trident Securities and such selected dealers may be
deemed to be underwriters. Trident Securities will also be reimbursed for its
reasonable out-of-pocket expenses not to exceed $10,000 and its legal fees not
to exceed $35,000. Trident Securities has
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received an advance of $10,000 towards its reimbursable expenses. For additional
information, see "-- Stock Pricing and Number of Shares to be Issued" and "USE
OF PROCEEDS."
Subject to certain limitations, the Holding Company and the Association
have also agreed to indemnify Trident Securities against liabilities and
expenses (including legal fees) incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions contained
in the offering material for the Common Stock or with regard to allocations of
shares (in the event of oversubscription) or determinations of eligibility to
purchase shares.
Description of Sales Activities
The Common Stock will be offered in the Subscription Offering and
Direct Community Offering principally by the distribution of this Prospectus and
through activities conducted at the Association's Stock Information Center at
its main office facility. The Stock Information Center is expected to operate
during normal business hours throughout the Subscription Offering and Direct
Community Offering. It is expected that at any particular time, one or more
Trident Securities employees will be working at the Stock Information Center.
Such employees of Trident Securities will be responsible for mailing materials
relating to the Offerings, responding to questions regarding the Conversion and
the Offerings and processing stock orders.
Sales of Common Stock will be made by registered representatives
affiliated with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of the Association may participate in
the Offerings in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the Order Form. Management of the Association may answer questions regarding the
business of the Association when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives. The
management and employees of the Holding Company and the Association have been
instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock.
No officer, director or employee of the Association or the Holding
Company will be compensated, directly or indirectly, for any activities in
connection with the offer or sale of securities issued in the Conversion.
None of the Association's personnel participating in the Offerings is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
The Association's personnel will assist in the above-described sales activities
pursuant to an exemption from registration as a broker or dealer provided by
Rule 3a4-1 ("Rule 3a4-1") promulgated under the Exchange Act. Rule 3a4-1
generally provides that an "associated person of an issuer" of securities shall
not be deemed a broker solely by reason of participation in the sale of
securities of such issuer if the associated person meets certain conditions.
Such conditions include, but are not limited to, that the associated person
participating in the sale of an issuer's securities not be compensated in
connection therewith at the time of participation, that such person not be
associated with a broker or dealer and that such person observe certain
limitations on his participation in the sale of securities. For purposes of this
exemption, "associated person of an issuer" is defined to include any person who
is a director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no Prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
Order Form will confirm receipt or delivery in accordance with Rule 15c2-8.
Stock Order Forms will only be distributed with a Prospectus. The Association
will accept for processing only orders submitted on original Stock Order Forms.
The Association is not obligated to accept orders submitted on photocopied or
telecopied Stock Order Forms. Orders cannot and
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will not be accepted without the execution of the Certification appearing on
the reverse side of the Stock Order Form.
To purchase shares in the Subscription Offering, an executed Order Form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Association (which may be given by completing the
appropriate blanks in the Order Form), must be received by the Association by
__:__ a.m., Eastern Time, on the Expiration Date. Order Forms which are not
received by such time or are executed defectively or are received without full
payment (or without appropriate withdrawal instructions) are not required to be
accepted. The Holding Company and the Association have the right to waive or
permit the correction of incomplete or improperly executed Order Forms, but do
not represent that they will do so. Pursuant to the Plan of Conversion, the
interpretation by the Holding Company and the Association of the terms and
conditions of the Plan of Conversion and of the Order Form will be final. In
order to purchase shares in the Direct Community Offering, the Stock Order Form,
accompanied by the required payment for each share subscribed for, must be
received by the Association prior to the time the Direct Community Offering
terminates, which may be at any time subsequent to the Expiration Date. Once
received, an executed Order Form may not be modified, amended or rescinded
without the consent of the Association unless the Conversion has not been
completed within 45 days after the end of the Subscription Offering, unless such
period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1995) and/or the Supplemental Eligibility Record Date (March 31, 1997) and/or
the Voting Record Date (_________, 1997) must list all accounts on the Order
Form giving all names in each account, the account number and the approximate
account balance as of such date.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Association, (ii) by check, bank draft, or money order, or (iii)
by authorization of withdrawal from deposit accounts maintained with the
Association. Appropriate means by which such withdrawals may be authorized are
provided on the Order Form. No wire transfers will be accepted. Interest will be
paid on payments made by cash, check, bank draft or money order at the
Association's passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by authorization
of withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion (unless the certificate matures
after the date of receipt of the Order Form but prior to closing, in which case
funds will earn interest at the passbook rate from the date of maturity until
consummation of the Conversion), but a hold will be placed on such funds,
thereby making them unavailable to the depositor until completion or termination
of the Conversion. At the completion of the Conversion, the funds received in
the Offerings will be used to purchase the shares of Common Stock ordered. The
shares of Common Stock issued in the Conversion cannot and will not be insured
by the FDIC or any other government agency. In the event that the Conversion is
not consummated for any reason, all funds submitted will be promptly refunded
with interest as described above.
If a subscriber authorizes the Association to withdraw the amount of
the aggregate Purchase Price from his deposit account, the Association will do
so as of the effective date of Conversion, though the account must contain the
full amount necessary for payment at the time the subscription order is
received. The Association will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Association's passbook rate.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but rather may pay for such shares of Common Stock
subscribed for at the Purchase Price upon consummation of the Conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated
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financial institution or the Holding Company to lend to the ESOP, at such time,
the aggregate Purchase Price of the shares for which it subscribed.
IRAs maintained in the Association do not permit investment in the
Common Stock. A depositor interested in using his IRA funds to purchase Common
Stock must do so through a self-directed IRA. Since the Association does not
offer such accounts, it will allow such a depositor to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will be used to purchase the Holding Company's
Common Stock in the Offerings. There will be no early withdrawal or IRS interest
penalties for such transfers. The new trustee would hold the Common Stock in a
self-directed account in the same manner as the Association now holds the
depositor's IRA funds. An annual administrative fee may be payable to the new
trustee. Depositors interested in using funds in an Association IRA to purchase
Common Stock should contact the Stock Information Center so that the necessary
forms may be forwarded for execution and returned prior to the Expiration Date.
In addition, the provisions of ERISA and IRS regulations require that officers,
directors and 10% shareholders who use self-directed IRA funds to purchase
shares of Common Stock in the Subscription Offering, make such purchases for the
exclusive benefit of IRAs.
Certificates representing shares of Common Stock purchased, and any
refund due, will be mailed to purchasers at such address as may be specified in
properly completed Order Forms or to the last address of such persons appearing
on the records of the Association as soon as practicable following consummation
of the sale of all shares of Common Stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law. Until
certificates for the Common Stock are available and delivered to purchasers,
purchasers may not be able to sell the shares of Common Stock which they
purchased, even though trading of the Common Stock may have commenced.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the Conversion be based upon an estimated pro
forma value of the Holding Company and the Association as converted (i.e.,
taking into account the expected receipt of proceeds from the sale of securities
in the Conversion), as determined by an independent appraisal. The Association
and the Holding Company have retained RP Financial to prepare an appraisal of
the pro forma market value of the Holding Company and the Association as
converted, as well as a business plan. RP Financial will receive a fee expected
to total approximately $42,500 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. The Association has agreed to indemnify RP
Financial under certain circumstances against liabilities and expenses
(including legal fees) arising out of, related to, or based upon the Conversion.
RP Financial has prepared an appraisal of the estimated pro forma
market value of the Holding Company and the Association as converted taking into
account the formation of the Holding Company as the holding company for the
Association. For its analysis, RP Financial undertook substantial investigations
to learn about the Association's business and operations. Management supplied
financial information, including annual financial statements, information on the
composition of assets and liabilities, and other financial schedules. In
addition to this information, RP Financial reviewed the Association's Form AC
Application for Approval of Conversion and the Holding Company's Form S-1
Registration Statement. Furthermore, RP Financial visited the Association's
facilities and had discussions with the Association's management and its special
conversion legal counsel, Breyer & Aguggia. No detailed individual analysis of
the separate components of the Holding Company's or the Association's assets and
liabilities was performed in connection with the evaluation.
In estimating the pro forma market value of the Holding Company and the
Association as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report. RP Financial placed
the greatest emphasis on the P/E and P/B methods in estimating pro forma market
value. In applying these procedures, RP Financial reviewed, among other factors,
the economic make-
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up of the Association's primary market area, the Association's financial
performance and condition in relation to publicly-traded institutions that RP
Financial deemed comparable to the Association, the specific terms of the
offering of the Holding Company's Common Stock, the pro forma impact of the
additional capital raised in the Conversion, conditions of securities markets in
general, and the market for thrift institution common stock in particular. RP
Financial's analysis provides an approximation of the pro forma market value of
the Holding Company and the Association as converted based on the valuation
methods applied and the assumptions outlined in its report. Included in its
report were certain assumptions as to the pro forma earnings of the Holding
Company after the Conversion that were utilized in determining the appraised
value. These assumptions included expenses of $1,400,000 at the midpoint of the
Estimated Valuation Range, an assumed after-tax rate of return on the net
Conversion proceeds of 4.02%, purchases by the ESOP of 8% of the stock sold in
the Conversion and purchases in the open market by the MRP of a number of shares
equal to 4% of the stock sold in the Conversion at the Purchase Price. See "PRO
FORMA DATA" for additional information concerning these assumptions. The use of
different assumptions may yield somewhat different results.
On the basis of the foregoing, RP Financial has advised the Holding
Company and the Association that, in its opinion, as of February 21, 1997, the
aggregate estimated pro forma market value of the Holding Company and the
Association as converted and, therefore, the Common Stock was within the
valuation range of $56,950,000 to $77,050,000 with a midpoint of $67,000,000.
After reviewing the methodology and the assumptions used by RP Financial in the
preparation of the appraisal, the Board of Directors established the Estimated
Valuation Range which is equal to the valuation range of $56,950,000 to
$77,050,000 with a midpoint of $67,000,000. Assuming that the shares are sold at
$20.00 per share in the Conversion, the estimated number of shares would be
between 2,847,500 and 3,852,500 with a midpoint of 3,350,000. The Purchase Price
of $20.00 was determined by discussion among the Boards of Directors of the
Association and the Holding Company and Trident Securities, taking into account,
among other factors (i) the requirement under OTS regulations that the Common
Stock be offered in a manner that will achieve the widest distribution of the
stock, (ii) desired liquidity in the Common Stock subsequent to the Conversion,
and (iii) the expense of issuing shares for purposes of Delaware franchise
taxes. Since the outcome of the Offerings relate in large measure to market
conditions at the time of sale, it is not possible to determine the exact number
of shares that will be issued by the Holding Company at this time. The Estimated
Valuation Range may be amended, with the approval of the OTS, if necessitated by
developments following the date of such appraisal in, among other things, market
conditions, the financial condition or operating results of the Association,
regulatory guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the
Registration Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of the Holding Company and the
Association as converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the
Association as converted at the time of the sale. If, however, the facts do not
justify such a statement, the Offerings or other sale may be canceled, a new
Estimated Valuation Range and price per share set and new Subscription, Direct
Community and Syndicated Community Offerings held. Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares
issued may be more or less than the range in number of shares shown above. In
the event the total amount of shares issued is less than 2,847,500 or
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more than 4,430,375 (15% above the maximum of the Estimated Valuation Range),
for aggregate gross proceeds of less than $56,950,000 or more than $88,607,500,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is established
by RP Financial, such new range will be subject to approval by the OTS.
If purchasers cannot be found for an insignificant residue of
unsubscribed shares from the general public, other purchase arrangements will be
made by the Boards of Directors of the Association and the Holding Company, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS and may provide for purchases for investment purposes by directors,
officers, their associates and other persons in excess of the limitations
provided in the Plan of Conversion and in excess of the proposed director
purchases set forth herein, although no such purchases are currently intended.
If such other purchase arrangements cannot be made, the Plan of Conversion will
terminate.
In formulating its appraisal, RP Financial relied upon the
truthfulness, accuracy and completeness of all documents the Association
furnished it. RP Financial also considered financial and other information from
regulatory agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of such information
and did not independently verify the financial statements and other data
provided by the Association and the Holding Company or independently value the
assets or liabilities of the Holding Company and the Association. The appraisal
by RP Financial is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of voting to approve the Plan
of Conversion or of purchasing shares of Common Stock. Moreover, because the
appraisal is necessarily based on many factors which change from time to time,
there is no assurance that persons who purchase such shares in the Conversion
will later be able to sell shares thereafter at prices at or above the Purchase
Price.
Limitations on Purchases of Shares
The Plan of Conversion provides for certain limitations to be placed
upon the purchase of Common Stock by eligible subscribers and others in the
Conversion. Each subscriber must subscribe for a minimum of 25 shares. With the
exception of the ESOP, which is expected to subscribe for 8% of the shares of
Common Stock issued in the Conversion, the Plan of Conversion provides for the
following purchase limitations: (i) No Eligible Account Holder, Supplemental
Account Holder or Other Member, including, in each case, all persons on a joint
account, may purchase shares of Common Stock with an aggregate purchase price of
more than $325,000, (ii) no person (including all persons on a joint account),
either alone or together with associates of or persons acting in concert with
such person, may purchase in the Direct Community Offering, if any, or in the
Syndicated Community Offering, if any, shares of Common Stock with an aggregate
purchase price of more than $325,000, and (iii) no person, either alone or
together with associates of or persons acting in concert with such person, may
purchase in the aggregate more than the overall maximum purchase limitation of
1% of the total number of shares of Common Stock issued in the Conversion
(exclusive of any shares issued pursuant to an increase in the Estimated
Valuation Range of up to 15%). For purposes of the Plan of Conversion, the
directors are not deemed to be acting in concert solely by reason of their Board
membership. Pro rata reductions within each Subscription Rights category will be
made in allocating shares to the extent that the maximum purchase limitations
are exceeded.
The Association's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of Common Stock sold in the Conversion, provided that
orders for shares which exceed 5% of the shares of Common Stock sold in the
Conversion may not exceed, in the aggregate, 10% of the shares sold in the
Conversion. The Association and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of Common Stock will be, and other
large subscribers in the
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discretion of the Holding Company and the Association may be, given the
opportunity to increase their subscriptions accordingly, subject to the rights
and preferences of any person who has priority Subscription Rights.
The term "acting in concert" is defined in the Plan of Conversion to
mean (i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. In general, a person who acts in concert with another other party
shall also be deemed to be acting in concert with any person who is also acting
in concert with that other party.
The term "associate" of a person is defined in the Plan of Conversion
to mean (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries. For example, a
corporation of which a person serves as an officer would be an associate of such
person and, therefore, all shares purchased by such corporation would be
included with the number of shares which such person could purchase individually
under the above limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Association, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.
Common Stock purchased pursuant to the Conversion will be freely
transferable, except for shares purchased by directors and officers of the
Association and the Holding Company and by NASD members. See "-- Restrictions on
Transferability by Directors and Officers and NASD Members."
Restrictions on Repurchase of Stock
Pursuant to OTS regulations, OTS-regulated savings associations (and
their holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and appropriate to fund the plan. Furthermore,
repurchases any of its common stock are prohibited if the effect thereof would
cause the association's regulatory capital to be reduced below (a) the amount
required for the liquidation account or (b) the regulatory capital requirements
imposed by the OTS. Repurchases are generally prohibited during the first year
following conversion. However, recent OTS policy has relaxed this restriction,
particularly during the second six months after conversion, and the OTS has
approved requests by institutions to repurchase 5% or more of an institution's
outstanding common stock. While an applicant needs to demonstrate the existence
of "exceptional circumstances" during the first six months after conversion, the
OTS has indicated that it would analyze repurchases during months six through 12
after conversion on a case-by-case basis. Upon ten days' written notice to the
OTS, and if the OTS does not object, an institution may make open market
repurchases of its outstanding common stock during years two and three following
the conversion, provided that certain regulatory conditions are met and that the
repurchase would not adversely affect the financial condition of the
association. No assurances, however, can be given that the OTS will approve a
repurchase program under current policy or that such policy will not change or
become more restrictive.
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Restrictions on Transferability by Directors and Officers and NASD Members
Shares of Common Stock purchased in the Offerings by directors and
officers of the Holding Company may not be sold for a period of one year
following consummation of the Conversion, except in the event of the death of
the stockholder or in any exchange of the Common Stock in connection with a
merger or acquisition of the Holding Company. Shares of Common Stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
Conversion are not subject to this restriction. Accordingly, shares of Common
Stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction, and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's Common Stock with respect to the restriction on transfers. Any
shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted Common Stock shall be subject to the same
restrictions.
Purchases of outstanding shares of Common Stock of the Holding Company
by directors, executive officers (or any person who was an executive officer or
director of the Association after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement
under the Securities Act of 1933, as amended ("Securities Act") for the
registration of the Common Stock to be issued pursuant to the Conversion. The
registration under the Securities Act of shares of the Common Stock to be issued
in the Conversion does not cover the resale of such shares. Shares of Common
Stock purchased by persons who are not affiliates of the Holding Company may be
resold without registration. Shares purchased by an affiliate of the Holding
Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Holding Company meets the current public information
requirements of Rule 144 under the Securities Act, each affiliate of the Holding
Company who complies with the other conditions of Rule 144 (including those that
require the affiliate's sale to be aggregated with those of certain other
persons) would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of (i) 1%
of the outstanding shares of the Holding Company or (ii) the average weekly
volume of trading in such shares during the preceding four calendar weeks.
Provision may be made in the future by the Holding Company to permit affiliates
to have their shares registered for sale under the Securities Act under certain
circumstances.
Under guidelines of the NASD, members of the NASD and their associates
are subject to certain restrictions on the transfer of securities purchased in
accordance with Subscription Rights and to certain reporting requirements upon
purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal
law and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.
Conversion Regulations
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting
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institution (or its holding company) from another person prior to completion of
its conversion. Further, without the prior written approval of the OTS, no
person may make such an offer or announcement of an offer to purchase shares
or actually acquire shares in the converting institution (or its holding
company) for a period of three years from the date of the completion of the
conversion if, upon the completion of such offer, announcement or acquisition,
that person would become the beneficial owner of more than 10% of the
outstanding stock of the institution (or its holding company). The OTS has
defined "person" to include any individual, group acting in concert,
corporation, partnership, association, joint stock company, trust,
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of securities of
an insured institution. However, offers made exclusively to an association
(or its holding company) or an underwriter or member of a selling group acting
on the converting institution's (or its holding company's) behalf for resale to
the general public are excepted. The regulation also provides civil penalties
for willful violation or assistance in any such violation of the regulation by
any person connected with the management of the converting institution (or its
holding company) or who controls more than 10% of the outstanding shares or
voting rights of a converting or converted institution (or its holding company).
As permitted by OTS regulations, the Association's Federal Stock
Charter will contain a provision whereby the acquisition or offer to acquire
ownership of more than 10% of the issued and outstanding shares of any class of
equity securities of the Association by any person, either directly or through
an affiliate of such person, will be prohibited for a period of five years
following the date of consummation of the Conversion. Any stock in excess of 10%
acquired in violation of the Federal Stock Charter provision will not be counted
as outstanding for voting purposes. Furthermore, for five years, stockholders of
the Association will not be permitted to call a special meeting of stockholders
relating to a change of control of the Association or a charter amendment and
will not be permitted to cumulate their votes in the election of directors.
Change of Control Regulations
Under the Change in Bank Control Act, no person may acquire control of
an insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquiror has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquiror also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include the
acquiror being one of the two largest stockholders. The determination of control
may be rebutted by submission to the OTS, prior to the acquisition of stock or
the occurrence of any other circumstances giving rise to such determination, of
a statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock must file
with the OTS a certification form that the holder is not in control of such
institution, is not subject to a rebuttable determination of control and will
take no action which would result in a determination or rebuttable determination
of control without prior notice to or approval of the OTS, as applicable. There
are also rebuttable presumptions in the regulations concerning whether a group
"acting in concert" exists, including presumed action in concert among members
of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
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jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
Anti-takeover Provisions in the Holding Company's Certificate of Incorporation
and Bylaws and Delaware Law
A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of certain
provisions of the Holding Company's Certificate of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Certificate of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Certificate of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to where to
obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of common stock (the "Limit") be entitled or permitted to any vote in respect of
the shares held in excess of the Limit, unless permitted by a resolution adopted
by a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of his affiliates
(as defined in the Certificate of Incorporation), shares which such person or
his affiliates have the right to acquire upon the exercise of conversion rights
or options and shares as to which such person and his affiliates have or share
investment or voting power, but shall not include shares beneficially owned by
the ESOP or directors, officers and employees of the Association or Holding
Company or shares that are subject to a revocable proxy and that are not
otherwise beneficially, or deemed by the Holding Company to be beneficially,
owned by such person and his affiliates.
Board of Directors. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class shall
be elected for a term of three years, with the terms of office of all members of
one class expiring each year so that approximately one-third of the total number
of directors are elected each year. The Holding Company's Certificate of
Incorporation provides that the size of the Board shall be as set forth in the
Bylaws. The Bylaws currently set the number of directors at seven. The
Certificate of Incorporation provides that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors, shall be
filled by a vote of two-thirds of the directors then in office and any director
so chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the class to which the director has been
chosen expires. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company. The Certificate of Incorporation of the Holding Company provides that a
director may be removed from the Board of Directors prior to the expiration of
his term only for cause and only upon the vote of 80% of the outstanding shares
of voting stock. In the absence of this provision, the vote of the holders of a
majority of the shares could remove the entire Board, but only with cause, and
replace it with persons of such holders' choice.
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Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 12,000,000 shares of Common Stock and 250,000 shares of preferred
stock. The shares of Common Stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to determine
the terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a tender offer,
merger or other transaction by which a third party seeks control of the Holding
Company, and thereby assist members of management to retain their positions. The
Holding Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares of Common Stock upon exercise of stock
options and in connection with the MRP.
Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Holding Company's outstanding shares of
voting stock to approve certain "Business Combinations" (as defined therein)
involving a "Related Person" (as defined therein) except in cases where the
proposed transaction has been approved in advance by a majority of those members
of the Holding Company's Board of Directors who are unaffiliated with the
Related Person and were directors prior to the time when the Related Person
became a Related Person. The term "Related Person" is defined to include any
individual, corporation, partnership or other entity (other than the Holding
Company or its subsidiary) which owns beneficially or controls, directly or
indirectly, 10% or more of the outstanding shares of voting stock of the Holding
Company or an affiliate of such person or entity. This provision of the
Certificate of Incorporation applies to any "Business Combination," which is
defined to include: (i) any merger or consolidation of the Holding Company with
or into any Related Person; (ii) any sale, lease, exchange, mortgage, transfer,
or other disposition of 25% or more of the assets of the Holding Company or
combined assets of the Holding Company and its subsidiaries to a Related Person;
(iii) any merger or consolidation of a Related Person with or into the Holding
Company or a subsidiary of the Holding Company; (iv) any sale, lease, exchange,
transfer, or other disposition of 25% or more of the assets of a Related Person
to the Holding Company or a subsidiary of the Holding Company; (v) the issuance
of any securities of the Holding Company or a subsidiary of the Holding Company
to a Related Person; (vi) the acquisition by the Holding Company or a subsidiary
of the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Delaware law, absent this provision, business combinations,
including mergers, consolidations and sales of substantially all of the assets
of a corporation must, subject to certain exceptions, be approved by the vote of
the holders of a majority of the outstanding shares of common stock of the
Holding Company and any other affected class of stock. One exception under
Delaware law to the majority approval requirement applies to stockholders owning
15% or more of the common stock of a corporation for a period of less than three
years. Such 15% stockholder, in order to obtain approval of a business
combination, must obtain the approval of two-thirds of the outstanding stock,
excluding the stock owned by such 15% stockholder, or satisfy other requirements
under Delaware law relating to board of director approval of his or her
acquisition of the shares of the Holding Company. The increased stockholder vote
required to approve a business combination may have the effect of foreclosing
mergers and other business combinations which a majority of stockholders deem
desirable and place the power to prevent such a merger or combination in the
hands of a minority of stockholders.
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Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Stockholder Nominations and Proposals. The Certificate of Incorporation
of the Holding Company requires a stockholder who intends to nominate a
candidate for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the
Association believes that the provisions described above are prudent and will
reduce the Holding Company's vulnerability to takeover attempts and certain
other transactions that have not been negotiated with and approved by its Board
of Directors. These provisions will also assist the Association in the orderly
deployment of the Conversion proceeds into productive assets during the initial
period after the Conversion. The Board of Directors believes these provisions
are in the best interest of the Association and Holding Company and its
stockholders. In the judgment of the Board of Directors, the Holding Company's
Board will be in the best position to determine the true value of the Holding
Company and to negotiate more effectively for what may be in the best interests
of its stockholders. Accordingly, the Board of Directors believes that it is in
the best interest of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of the
Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.
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Despite the belief of the Association and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's
Certificate of Incorporation and Bylaws, these provisions may also have the
effect of discouraging a future takeover attempt that would not be approved by
the Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board of Directors of the Association and the Holding Company, however, have
concluded that the potential benefits outweigh the possible disadvantages.
Following the Conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for a Delaware business
corporation.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue 12,000,000 shares of Common
Stock having a par value of $.01 per share and 250,000 shares of preferred stock
having a par value of $.01 per share. The Holding Company currently expects to
issue up to 3,852,500 shares of Common Stock and no shares of preferred stock in
the Conversion. Each share of the Holding Company's Common Stock will have the
same relative rights as, and will be identical in all respects with, each other
share of Common Stock. Upon payment of the Purchase Price for the Common Stock,
in accordance with the Plan of Conversion, all such stock will be duly
authorized, fully paid and nonassessable.
The Common Stock of the Holding Company will represent nonwithdrawable
capital, will not be an account of any type, and will not be insured by the
FDIC or any other government agency.
Common Stock
Dividends. The Holding Company can pay dividends out of statutory
surplus or from certain net profits if, as and when declared by its Board of
Directors. The payment of dividends by the Holding Company is subject to
limitations which are imposed by law and applicable regulation. See "DIVIDEND
POLICY" and "REGULATION." The holders of Common Stock of the Holding Company
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of the Holding Company out of funds legally
available therefor. If the Holding Company issues preferred stock, the holders
thereof may have a priority over the holders of the Common Stock with respect to
dividends.
Stock Repurchases. The Plan of Conversion and OTS regulations place
certain limitations on the repurchase of the Holding Company's capital stock.
See "THE CONVERSION--Restrictions on Repurchase of Stock" and "USE OF PROCEEDS."
Voting Rights. Upon Conversion, the holders of Common Stock of the
Holding Company will possess exclusive voting rights in the Holding Company.
They will elect the Holding Company's Board of Directors and act on such other
matters as are required to be presented to them under Delaware law or as are
otherwise presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE
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HOLDING COMPANY," each holder of Common Stock will be entitled to one vote
per share and will not have any right to cumulate votes in the election of
directors. If the Holding Company issues preferred stock, holders of the Holding
Company preferred stock may also possess voting rights. Certain matters require
a vote of 80% of the outstanding shares entitled to vote thereon. See
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
As a federal mutual savings and loan association, corporate powers and
control of the Association are vested in its Board of Directors, who elect the
officers of the Association and who fill any vacancies on the Board of Directors
as it exists upon Conversion. Subsequent to Conversion, voting rights will be
vested exclusively in the owners of the shares of capital stock of the
Association, all of which will be owned by the Holding Company, and voted at the
direction of the Holding Company's Board of Directors. Consequently, the holders
of the Common Stock will not have direct control of the Association.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Association, the Holding Company, as holder of the Association's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "THE CONVERSION"), all assets of the Association available
for distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. If Holding Company
preferred stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Holding Company
will not be entitled to preemptive rights with respect to any shares that may
be issued. The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the authorized Holding Company preferred stock
will be issued in the Conversion and there are no plans to issue the preferred
stock. Such stock may be issued with such designations, powers, preferences and
rights as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Restrictions on Acquisition
Acquisitions of the Holding Company are restricted by provisions in
its Certificate of Incorporation and Bylaws and by the rules and regulations
of various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company will register the Common Stock with the SEC
pursuant to Section 12(g) of the Exchange Act upon the completion of the
Conversion and will not deregister its Common Stock for a period of at least
three years following the completion of the Conversion. Upon such registration,
the proxy and tender offer rules, insider trading reporting and restrictions,
annual and periodic reporting and other requirements of the Exchange Act will be
applicable.
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LEGAL AND TAX OPINIONS
The legality of the Common Stock has been passed upon for the Holding
Company by Breyer & Aguggia, Washington, D.C. The federal tax consequences of
the Offerings have been opined upon by Breyer & Aguggia and the South Carolina
tax consequences of the Offerings have been opined upon by Deloitte & Touche
LLP, Greenville, South Carolina. Breyer & Aguggia and Deloitte & Touche LLP have
consented to the references herein to their opinions. Certain legal matters will
be passed upon for Trident Securities by Housley Kantarian & Bronstein, P.C.,
Washington, D.C.
EXPERTS
The consolidated financial statements of the Association as of June 30,
1996 and 1995 and for the years ended June 30, 1996, 1995 and 1994 included in
this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
RP Financial has consented to the publication herein of the summary of
its report to the Association setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Association as converted and
its letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form S-1 (File No. 333-_____) under the Securities Act with respect to the
Common Stock offered in the Conversion. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Section of the SEC
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement
also is available through the SEC's World Wide Web site on the Internet
(http://www.sec.gov).
The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information. This Prospectus omits certain information
contained in such Application. The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Southeast Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30309.
100
<PAGE>
Index To Consolidated Financial Statements
First Federal Savings and Loan Association of Spartanburg and Subsidiary
Pages
Independent Auditors' Report ......................................... F-1
Consolidated Balance Sheets as of December 31, 1996 (unaudited)
and June 30, 1996 and 1995 .......................................... F-2
Consolidated Statements of Income for the
Six Months Ended December 31, 1996 and 1995 (unaudited)
and the Years Ended June 30, 1996, 1995 and 1994 .................... 20
Consolidated Statements of Equity for the Six Months Ended
December 31, 1996 and 1995 (unaudited) and for the Years
Ended June 30, 1996, 1995 and 1994 .................................. F-3
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1996 and 1995 (unaudited)
and the Years Ended June 30, 1996, 1995 and 1994 .................... F-4
Notes to Consolidated Financial Statements............................ F-6
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged only in
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
101
<PAGE>
Deloitte &
Touche LLP
- ------------------ ------------------------------------------------------
[Logo] 1200 NationsBank Plaza Telephone: (864) 240-5700
7 North Laurens Street Facsimile: (864) 235-8563
Greenville, South Carolina 29601
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Federal Savings and Loan Association of Spartanburg
Spartanburg, South Carolina
We have audited the accompanying consolidated balance sheets of First Federal
Savings and Loan Association of Spartanburg and its subsidiary (the
"Association") as of June 30, 1996 and 1995, and the related consolidated
statements of income, equity, and cash flows for each of the three years in the
period ended June 30, 1996. These consolidated financial statements are the
responsibility of the Association's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Association at June 30, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the financial statements, effective July 1, 1994, the
Association changed its method of accounting for investments in debt and equity
securities to conform with the provisions of Statement of Financial Accounting
Standards No. 115.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
August 23, 1996 (October 1, 1996 as to
the 4th paragraph of Note 1)
- ---------------
Deloitte Touche
Tohmatsu
International
- ---------------
F-1
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996, JUNE 30, 1996 AND 1995
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) June 30,
December 31, ------------------------------
ASSETS 1996 1996 1995
<S> <C>
Cash $ 5,918 $ 6,798 $ 6,362
Federal funds sold and overnight interest bearing deposits 11,186 3,986 9,605
---------- ---------- ----------
Total cash and cash equivalents 17,104 10,784 15,967
Investment securities (Note 2):
Held-to-maturity - at amortized cost (fair value: $5,449) - - 5,502
Available-for-sale - at fair value (amortized cost: $13,510,
$18,291 and $8,294 at December 31, 1996 and June 30, 1996
and 1995, respectively) 13,492 18,155 8,228
Mortgage-backed securities held-to-maturity - at amortized cost
(fair value: $142, $209, and $397 at December 31, 1996 and
June 30, 1996 and 1995, respectively) 128 195 383
Loans receivable, net (Note 3) 331,654 314,936 267,393
Loans held-for-sale - at lower of cost or market (market value:
$1,444, $1,911 and $15,580 at December 31, 1996 and June 30,
1996 and 1995, respectively) 1,444 1,911 15,324
Office properties and equipment, net (Note 4) 5,481 5,112 4,379
Federal Home Loan Bank Stock - at cost 2,806 2,806 2,649
Accrued interest receivable 2,439 2,427 2,127
Real estate acquired in settlement of loans 102 58 34
Other assets 876 582 749
---------- ---------- ----------
TOTAL $ 375,526 $ 356,966 $ 322,735
========== ========== ==========
LIABILITIES AND EQUITY
LIABILITIES:
Deposit accounts (Note 5) $ 323,951 $ 305,831 $ 275,915
Advances from borrowers for taxes and insurance 894 1,247 1,439
Other liabilities 5,848 5,734 4,721
---------- ---------- ----------
Total liabilities 330,693 312,812 282,075
---------- ---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 9)
EQUITY (Notes 6 and 10):
Retained earnings 44,845 44,238 40,701
Unrealized loss on securities available-for-sale (net of
deferred taxes of $6, $52 and $25, respectively) (12) (84) (41)
---------- ---------- ----------
Total equity 44,833 44,154 40,660
---------- ---------- ----------
TOTAL $ 375,526 $ 356,966 $ 322,735
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EQUITY
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 AND
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Marketable Equity
Securities and
Securities Available- Retained
for-Sale (1) Earnings Total
<S> <C>
BALANCE, JUNE 30, 1993 $ - $32,088 $ 32,088
Net income for the year ended June 30, 1994 - 4,472 4,472
Net unrealized loss on marketable equity
securities (105) - (105)
------ ------- --------
BALANCE, JUNE 30, 1994 (105) 36,560 36,455
Net income for the year ended June 30, 1995 - 4,141 4,141
Net unrealized loss on securities available-for-sale
upon adoption of SFAS No. 115 (194) - (194)
Change in net unrealized loss on securities
available-for-sale for the year ended June 30,
1995 258 - 258
------ ------- --------
BALANCE JUNE 30, 1995 (41) 40,701 40,660
Net income for the year ended June 30, 1996 - 3,537 3,537
Change in net unrealized loss on securities
available-for-sale for the year ended June 30,
1996 (43) - (43)
------ ------- --------
BALANCE, JUNE 30, 1996 (84) 44,238 44,154
Net income for the six month period ended
December 31, 1996 (unaudited) - 607 607
Change in net unrealized loss on securities
available-for-sale for the six months ended
December 31, 1996 (unaudited) 72 - 72
------ ------- --------
BALANCE, DECEMBER 31, 1996 (UNAUDITED) $ (12) $44,845 $ 44,833
====== ======= ========
</TABLE>
(1) Net of deferred income taxes.
See notes to consolidated financial statements.
F-3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 AND
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
December 31, Year Ended June 30,
-------------------------- ------------------------------------
1996 1995 1996 1995 1994
<S> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 607 $ 1,859 $ 3,537 $ 4,141 $ 4,472
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 675 4 419 9 -
Deferred income tax provision (benefit) (325) 90 175 476 366
Amortization of deferred income (83) (113) (202) (254) (506)
Amortization (accretion) of premiums
and discounts on investments and
mortgage-backed securities (11) 1 (3) (3) (26)
Depreciation 300 145 311 277 247
(Increase) decrease in other assets (306) 121 (133) 1,441 (1,541)
Additions to loans held-for-sale (6,031) (4,210) (15,198) (16,009) (19,276)
Proceeds from sale of loans 6,535 2,863 7,704 16,888 26,946
(Gain) loss on sale of mortgage loans (37) - - 1,078 894
Unrealized (gain) loss on loans held-
for-sale - - - (668) 668
(Gain) loss on disposal of property and
equipment 16 - (3) - -
Loss (gain) on sale of real estate acquired
in settlement of loans - 8 10 (1) (76)
Loss on sale of investments available-
for-sale 16 - - 396 -
Loss on sale of investment securities - - - - 109
Increase (decrease) in other liabilities 41 (339) 672 1,188 (1,001)
FHLB stock dividend - - - - (103)
-------- -------- -------- -------- --------
Net cash provided by (used in)
in operating activities 1,397 429 (2,711) 8,959 11,173
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net increase in loans (17,412) (16,141) (26,968) (19,749) (17,937)
Purchase of investment securities (1,226) (6,231) (9,992) (395) (11,628)
Proceeds from sale of investments
available-for-sale 5,000 - - 7,727 -
Proceeds from maturities of investments
available-for-sale 1,000 2,000 5,500 1,500 -
Proceeds from sale and maturities of
investments - - - - 8,847
Principal repayments and proceeds from
maturities of mortgage-backed securities 68 35 189 88 460
Proceeds from sale of real estate
acquired in settlement of loans 58 49 81 60 570
</TABLE>
F-4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 AND
YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
December 31, Year Ended June 30,
-------------------------- --------------------------------------
1996 1995 1996 1995 1994
<S> <C>
CASH FLOWS FROM INVESTING
ACTIVITIES (Continued):
Purchase of Federal Home Loan Bank stock $ - $ - $ (157) $ - $ -
Purchase of property and equipment (685) (321) (1,168) (899) (689)
Proceeds from sale of property and
equipment - - 127 - -
-------- -------- -------- -------- --------
Net cash used in investing activities (13,197) (20,609) (32,388) (11,668) (20,377)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES - Net increase in deposits 18,120 23,924 29,916 5,783 2,721
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 6,320 3,744 (5,183) 3,074 (6,483)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 10,784 15,967 15,967 12,893 19,376
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 17,104 $ 19,711 $ 10,784 $ 15,967 $ 12,893
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,279 $ 6,933 $ 14,461 $ 10,962 $ 10,478
======== ======== ======== ======== ========
Income taxes $ 469 $ 1,185 $ 2,274 $ 2,130 $ 2,700
======== ======== ======== ======== ========
Transfers from loans to real estate
acquired in settlement of loans $ 102 $ 23 $ 115 $ 75 $ 130
======== ======== ======== ======== ========
Increase (decrease) in net unrealized
losses on available-for-sale investments
and marketable equity securities $ (118) $ (99) $ 70 $ (103) $ 170
======== ======== ======== ======== ========
Increase (decrease) in deferred tax asset
related to unrealized losses on
investments $ (46) $ (38) $ 27 $ (40) $ 65
======== ======== ======== ======== ========
Investment securities transferred from
held-to-maturity to available-for-sale,
at fair value $ - $ 4,002 $ 4,002 $ - $ -
======== ======== ======== ======== ========
Loans held-for-sale transferred to loans
held-for-investments, at lower of
cost or market $ - $ - $ 20,907 $ - $ -
======== ======== ======== ======== ========
Investment securities transferred from
held-for-investments to available-
for-sale, at fair value $ - $ - $ - $ 5,211 $ -
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. ORGANIZATION SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Customer Concentration - First Federal Savings
and Loan Association of Spartanburg and Subsidiary (the "Association") is
a federally chartered, mutual savings and loan association engaged in the
business of accepting savings and demand deposits and providing mortgage,
consumer and commercial loans to its members and others. The Association's
business is primarily limited to the Spartanburg and adjacent county areas
of South Carolina.
Basis of Accounting - The accounting and reporting policies of the
Association conform to generally accepted accounting principles and to
general practices within the savings and loan industry.
Principles of Consolidation - The consolidated financial statements
include the accounts of the Association and its wholly-owned subsidiary,
First Spartan Service Corporation ("First Spartan"). Significant
intercompany balances and transactions have been eliminated in
consolidation.
Equity Method of Accounting for Investment - On August 22, 1996, First
Spartan purchased approximately a one-third ownership interest in a
mortgage banking company (the "Company") located in Greenville, South
Carolina, for $400,000. The investment is accounted for under the equity
method of accounting whereby the Association's investment will be
increased by any additional investment in the Company and the
Association's share of the Company's earnings and decreased by dividends
received and the Association's share of the Company's losses.
The investment is included in Other Assets in the December 31, 1996
balance sheet. The Association's share of the Company's losses in the six
month period ended December 31, 1996 totaled approximately $100,000 and
the amount is included in Other Income in the Statement of Income.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash
includes cash on hand and amounts due from depository institutions,
federal funds sold and overnight interest-bearing deposits.
Investment Securities - The Association adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards
("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities, effective July 1, 1994. SFAS No. 115 requires investments to
be classified in three categories. Debt securities that the enterprise has
the positive intent and ability to hold to maturity
F-6
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
are to be classified as "held-to-maturity" securities and reported at
amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are to be
classified as "trading" securities and reported at fair value with
unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as "available-for-sale" securities and reported
at fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of equity net of taxes. No securities
have been classified as trading securities.
Prior to the adoption of SFAS No. 115, all investments were classified as
held-for-investment. Under this classification, investments in debt
securities and mortgage-backed securities were stated at amortized cost.
Investments in marketable equity securities (mutual funds) were stated at
the lower of cost or market with any unrealized losses being reported as a
separate component of equity. Concurrent with the adoption of SFAS No.
115, management reevaluated its intent with respect to its portfolio and,
accordingly, reclassified securities with a fair value of approximately
$5.2 million (amortized cost approximately $5.4 million) previously
classified as held-for-investment to available-for-sale securities.
In November 1995, the FASB issued a Special Report, A Guide to
Implementation of Statement 115 on Accounting for Certain Debt and Equity
Securities, which included a transition provision allowing entities that
adopted SFAS No. 115 to reassess the appropriateness of the
classifications of securities held and account for any resulting
reclassifications at fair value. Reclassifications from the
held-to-maturity category resulting from this one-time reassessment will
not call into question, or "taint," the intent of the entity to hold other
debt securities to maturity in the future. In accordance with this Special
Report, the Association transferred securities with a fair value and
amortized cost of approximately $4.0 million from held-to-maturity to
available-for-sale. This transfer is disclosed as a noncash transaction in
the statement of cash flows.
Gains and losses on sales of securities are determined on the specific
identification method. Premiums and discounts are amortized to maturity on
a method which approximates the level yield method.
Loans - Loans held for investment are recorded at cost.
Nonaccrual loans are those loans on which the accrual of interest has
ceased. Loans are placed on nonaccrual status if, generally, in the
opinion of management, principal or interest is not likely to be paid in
accordance with the terms of the loan agreement, or when principal or
interest is past due 90 days or more. Interest accrued but not collected
at the date a loan is placed on nonaccrual status is reversed against
interest income in the current period.
F-7
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Restructured loans are those for which concessions, such as the reduction
of interest rates or deferral of interest or principal payments, have been
granted due to a deterioration in the borrowers' financial condition.
Interest on restructured loans is accrued at the restructed rates. The
difference between interest that would have been recognized under the
original terms of nonaccrual and restructed loans and interest actually
recognized on such loans was not a material amount for the six months
ended December 31, 1996 and 1995 and for the years ended June 30, 1996,
1995 and 1994.
Effective July 1, 1995, the Association adopted SFAS No. 114, Accounting
by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures.
SFAS No. 114 requires that the carrying value of an impaired loan be based
on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral, if the loan
is collateral-dependent. Under SFAS No. 114, a loan is considered impaired
when, based on current information, it is probable that the borrower will
be unable to pay contractual interest or principal payments as scheduled
in the loan agreement. SFAS No. 114 applies to all loans except
smaller-balance homogenous mortgage and consumer loans, loans carried at
fair value or the lower of cost or fair value, debt securities, and
leases. Generally, the Association applies SFAS No. 114 to nonaccrual
commercial loans and renegotiated loans. The adoption of the statements
did not affect operating results, the level of the overall allowance or
the comparability of credit related data. Income recognition or charge-off
policies were not changed as a result of SFAS No. 114 and SFAS No. 118.
The total principal balances of impaired loans at December 31, 1996 and
June 30, 1996 was not material.
Allowance for Loan Losses - The Association provides for loan losses on
the allowance method. Accordingly, all loan losses are charged to the
related allowance, and all recoveries are credited to the allowance.
Additions to the allowance for loan losses are provided by charges to
operations based on various factors which, in management's judgment,
deserve current recognition in estimating losses. Because of the
uncertainty inherent in the estimation process, management's estimate of
the allowance for loan losses may change in the near term. However, the
amount of the change that is reasonably possible cannot be estimated.
Loan Sales - The Association periodically sells and retains servicing on
certain whole and participating interests in real estate loans. The
Association does not recognize gains or losses on loan sales if the loans
sold have the same approximate average interest rate, adjusted for normal
servicing fees, as the contractual yield to the purchaser. However, gains
or losses are recognized if, at the time of sale, the average interest
rate on the loans sold, adjusted for normal servicing costs, differs from
the contractual yield to the purchaser. Gains or losses on such loan sales
are determined based on the present value of the difference between
estimated future receipts and normal servicing costs. The stated value of
the resulting asset (in the case of a gain) is reviewed periodically and,
if necessary, adjustments are charged to income to reflect changes in the
repayments of the serviced loans. Such adjustments, if any, are determined
on a disaggregated basis using the discount rate inherent in the original
present value calculation. Such assets are amortized over the estimated
lives of the serviced loans using a method approximating a level yield.
F-8
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Loans Held-for-Sale - Loans originated and intended for sale in the
secondary market are stated at the lower of cost or estimated market
value. Net unrealized losses are recognized in a valuation allowance by
charges to income. During the year ended June 30, 1996, the Association
reclassified approximately $20.9 million of loans from held-for-sale to
held-for-investment at the lower of cost or market at the time the loans
were reclassified.
Office Properties and Equipment - Office properties and equipment are
stated at cost less accumulated depreciation. Depreciation is computed
over the estimated useful lives of the related assets using the
straight-line method.
Real Estate Acquired in Settlement of Loans - Real estate acquired in
settlement of loans is initially recorded at fair value less estimated
cost of disposal at the date of foreclosure, establishing a new cost
basis. Any accrued interest on the related loan at the date of acquisition
is charged to operations. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of
cost or fair value minus estimated costs to sell. Revenues, expenses and
additions to the valuation allowance related to real estate acquired in
settlement of loans are charged to operations. Such amounts were not
material in the six months ended December 31, 1996 and 1995 and in the
years ended June 30, 1996, 1995 and 1994 and are included in other
operating expenses.
Deferred Loan Origination Fees and Costs - Nonrefundable loan fees and
certain direct loan origination costs are deferred and recognized over the
lives of the loans using the level yield method. Amortization of these
deferrals is recognized as interest income.
Advertising - The Association expenses the production cost of advertising
as incurred.
Income Taxes - Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled.
As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
Recently Adopted Accounting Standards - In March 1995, the FASB issued
SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for
Long-lived Assets to be Disposed of. SFAS No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used
and for long-lived assets to be held and certain intangible assets to be
disposed of. This standard was adopted July 1, 1996 and the adoption did
not have a significant impact on financial conditions or results of
operations.
The FASB has issued SFAS No. 122, Accounting for Mortgage Servicing
Rights, which amends SFAS No. 65 and the principal effect for the
Association is the elimination of the accounting distinction between
rights to service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions.
When a mortgage banking enterprise purchases or
F-9
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
originates mortgage loans and sells or securitizes those loans with
servicing rights retained, it should allocate the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values if it is
practicable to estimate those fair values. Any cost allocated to mortgage
servicing rights should be recognized as a separate asset and amortized in
proportion to and over the period of the estimated net servicing income.
SFAS No. 122 was implemented, prospectively, effective July 1, 1996 and
implementation of its provisions did not have a material impact on the
Association's financial condition or results of operations.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This
Statement amends SFAS Nos. 65 and 115 and supersedes SFAS Nos. 76, 77 and
122 and provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. It
requires that liabilities and derivatives incurred or obtained by
transferors as part of financial assets be initially measured at fair
value, if practicable. It also requires that servicing assets and other
retained interests in the transferred assets be measured by allocating the
previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of the
transfer. Servicing assets and liabilities must be subsequently measured
by amortization in proportion to and over the period of estimated net
servicing income or loss and assessment for asset impairment or increased
obligation based on their fair values. This Statement is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. In December 1996, the FASB
issued SFAS No. 127, Deferral of the Effective Date of Certain Provisions
of FASB Statement No. 125. This Statement defers the effective date of
application of certain transfer and collateral provisions of SFAS No. 125
until January 1, 1998.
The adoption of the provisions of SFAS Nos. 125 and 127 did not have a
significant impact on financial position or results of operations.
Unaudited Financial Information - Information as of December 31, 1996 and
for the six month periods ended December 31, 1996 and 1995 is unaudited.
The unaudited information furnished reflects all adjustments, which
consist solely of normal recurring accruals, which are, in the opinion of
management, necessary for a fair presentation of the financial position at
December 31, 1996 and the results of operations and cash flows for the
six-month periods ended December 31, 1996 and 1995. The results of the
six-month periods are not necessarily indicative of the results of the
Association which may be expected for the entire year.
Reclassifications - Certain June 30, 1996, 1995 and 1994 amounts have been
reclassified to conform to the December 31, 1996 presentation.
F-10
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
2. INVESTMENT AND MORTGAGE-BACKED SECURITIES
Investment securities at December 31, 1996 and June 30, 1996 and 1995 are
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
December 31, 1996 Cost Gains Losses Value
<S> <C>
Available for sale:
Debt securities:
U.S. Treasury obligations $ 1,989 $ 2 $ (6) $ 1,985
U.S. Government Agency
obligations 6,493 11 (21) 6,483
------- --- ----- -------
Total 8,482 13 (27) 8,468
Marketable equity securities 5,028 - (4) 5,024
------- --- ----- -------
Total $13,510 $13 $ (31) $13,492
======= === ===== =======
June 30, 1996
Available for sale:
Debt securities:
U.S. Treasury obligations $ 1,986 $ 4 $ (15) $ 1,975
U.S. Government Agency
obligations 6,486 - (86) 6,400
------- --- ----- -------
Total 8,472 4 (101) 8,375
Marketable equity securities 9,819 - (39) 9,780
------- --- ----- -------
Total $18,291 $ 4 $(140) $18,155
======= === ===== =======
June 30, 1995
Held to maturity:
U.S. Treasury obligations $ 2,001 $ 7 $ (9) $ 1,999
U.S. Government Agency
obligations 3,501 1 (52) 3,450
------- --- ----- -------
Total $ 5,502 $ 8 $ (61) $ 5,449
======= === ===== =======
</TABLE>
F-11
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
June 30, 1995 Cost Gains Losses Value
<S> <C>
Available for sale:
Debt securities:
U.S. Treasury obligations $ 500 $ - $ (7) $ 493
U.S. Government Agency
obligations 2,499 1 (37) 2,463
------- --- ----- -------
Total 2,999 1 (44) 2,956
Marketable equity securities 5,295 - (23) 5,272
------- --- ----- -------
Total $ 8,294 $ 1 $ (67) $ 8,228
======= === ===== =======
</TABLE>
Marketable equity securities at December 31, 1996, June 30, 1996 and 1995
consist principally of a mutual fund that invests in adjustable rate
mortgages.
Investment securities totaling approximately $2.0 million at December 31,
1996 were pledged as collateral for public deposits.
The contractual maturities of debt securities (at amortized cost and
estimated fair value) are summarized as follows at December 31, 1996 (in
thousands of dollars):
Available for Sale
--------------------
Amortized Fair
Cost Value
Due within one year $ 500 $ 502
Due after one through five years 7,982 7,966
Mortgage-backed securities at December 31, 1996, June 30, 1996 and 1995
consist of U.S. Government Agency obligations. Gross unrealized gains were
approximately $14,000 and gross unrealized losses were $0 at December 31,
1996 and June 30, 1996 and 1995. The contractual maturity of the entire
balance of mortgage-backed securities at June 30, 1996 is due within five
to ten years.
F-12
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
3. LOANS RECEIVABLE
Loans receivable at December 31, 1996 and June 30, 1996 and 1995 consisted
of the following (in thousands of dollars):
<TABLE>
<CAPTION>
June 30,
December 31, ------------------------
1996 1996 1995
<S> <C>
Real estate mortgage loans:
Residential (1-4 family) $267,593 $258,302 $217,702
Construction 31,949 32,954 30,483
Land 2,409 3,285 1,762
Commercial and other 4,571 3,546 6,203
-------- -------- --------
Total real estate mortgage loans 306,522 298,087 256,150
-------- -------- --------
Consumer and commercial loans:
Home equity 32,555 28,430 20,859
Loans secured by deposit accounts 1,979 1,605 1,345
Other 5,235 4,681 3,482
-------- -------- --------
Total consumer and commercial loans 39,769 34,716 25,686
-------- -------- --------
Total 346,291 332,803 281,836
Less:
Undisbursed portion of loans in process (12,008) (15,839) (12,761)
Net deferred loan fees (979) (1,028) (1,082)
Allowance for loan losses (1,650) (1,000) (600)
-------- -------- --------
Total, net $331,654 $314,936 $267,393
======== ======== ========
</TABLE>
The changes in the allowance for loan losses consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
December 31, June 30,
---------------- ------------------------
1996 1995 1996 1995 1994
<S> <C>
Allowance, beginning of year $1,000 $600 $ 600 $600 $600
Provision 675 4 419 9 -
Write-offs, net of recoveries (25) (4) (19) (9) -
------ ---- ------ ---- ----
Total $1,650 $600 $1,000 $600 $600
====== ==== ====== ==== ====
</TABLE>
Residential real estate loans are presented net of loans serviced for
others totaling approximately $58.7 million, $64.7 million, $59.2 million,
$69.1 million and $62.5 million at December 31, 1996 and 1995 and June 30,
1996, 1995 and 1994, respectively. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. In connection
with these loans serviced for others, the Association held borrower's
escrow balances of $288,000, $502,000, $390,000, $560,000 and $588,000 at
December 31, 1996 and 1995 and June 30, 1996, 1995 and 1994, respectively.
F-13
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
The Association originates loans to officers and directors at terms
substantially identical to other borrowers. Mortgage and consumer loans to
officers and directors at December 31, 1996, June 30, 1996 and 1995 were
approximately $957,000, $975,000 and $1,091,000, respectively.
4. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment at December 31, 1996 and June 30, 1996 and
1995 are summarized as follows (in thousands of dollars):
June 30,
December 31, --------------------
Major Classification 1996 1996 1995
Land $ 1,658 $ 1,389 $ 1,004
Office buildings and improvements 4,914 4,791 4,659
Furniture, fixtures and equipment 2,090 2,119 1,619
Automobiles 37 37 57
------- ------- -------
Total 8,699 8,336 7,339
Less accumulated depreciation (3,218) (3,224) (2,960)
------- ------- -------
Office properties and equipment, net $ 5,481 $ 5,112 $ 4,379
======= ======= =======
5. DEPOSIT ACCOUNTS
Deposit accounts at December 31, 1996 and June 30, 1996 and 1995 are
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996 June 30, 1995
---------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
<S> <C>
Demand accounts:
Passbook $ 55,869 3.72% $ 42,944 3.40% $ 31,893 3.04%
NOW 30,009 1.83 30,045 1.84 25,747 2.01
Money market 13,967 3.17 16,694 3.36 19,443 3.60
Certificate accounts 224,106 5.59 216,148 5.54 198,832 5.56
-------- ---- -------- ---- -------- ----
Total $323,951 4.81 $305,831 4.76 $275,915 4.80
======== ==== ======== ==== ======== ====
</TABLE>
F-14
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Scheduled maturities of certificate accounts at December 31, 1996 are as
follows (in thousands of dollars):
Within 1 year $175,330
After 1 but within 2 years 22,469
After 2 but within 3 years 6,925
Thereafter 19,382
--------
Total certificate accounts $224,106
========
The aggregate amount of certificate accounts in excess of $100,000 was
$22.2 million, $24.5 million and $26.7 million at December 31, 1996 and
June 30, 1996 and 1995, respectively.
6. INCOME TAXES
The tax effects of significant items comprising the Association's net
deferred tax liability (included in other liabilities on the balance
sheet) as of December 31, 1996 and June 30, 1996 and 1995 are as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
June 30,
December 31, ------------------
1996 1996 1995
<S> <C>
Deferred tax liabilities:
Tax basis bad debt reserves arising after
December 31, 1987 in excess of book reserves $ 390 $ 649 $ 662
Differences between book and tax basis of
Federal Home Loan Bank stock 431 431 431
Unamortized premiums on loans sold 93 106 142
Differences between book and tax basis of property 110 133 107
Deferred loan fees 157 85 26
Other 85 187 48
------ ------ ------
Total 1,266 1,591 1,416
------ ------ ------
Deferred tax asset-Unrealized loss on securities available
for sale 6 52 25
------ ------ ------
Net deferred tax liability $1,260 $1,539 $1,391
====== ====== ======
</TABLE>
The Association has been permitted under the Internal Revenue Code to
deduct an annual addition to a reserve for bad debts in determining
taxable income, subject to certain limitations. The deduction was based on
either specified experience formulas or a percentage of taxable income
before such deduction. The Association used the percentage of taxable
income method for the years ended June 30, 1996, 1995
F-15
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
and 1994. This deduction was historically greater than the loan loss
provisions recorded for financial accounting purposes. Deferred income
taxes are provided on differences between the bad debt reserve for tax and
financial reporting purposes only to the extent of the tax reserves
arising subsequent to December 31, 1987. Retained earnings as of December
31, 1996, includes approximately $4,092,000 representing such bad debt
deductions prior to December 31, 1987 for which no deferred income taxes
have been provided.
Legislation enacted in August 1996 repealed the reserve method for
determining income tax deductions described above. Under the legislation,
the Association will be required to recapture the post-1987 additions to
its bad debt reserve as taxable income over a six to eight year period. As
a tax deferred liability has been recorded, this legislation will have no
impact on equity or results of operations.
The legislation also eliminated certain conditions under which recapture
of the pre-1987 additions to the tax bad debt reserve would be required.
Such conditions are principally conversion to a commercial bank charter or
merger with a commercial bank. The pre-1987 reserves would be required to
be recaptured under certain other conditions such as payment of dividends
in excess of accumulated earnings and profits or other distributions made
in connection with the dissolution or liquidation of the Association.
The provision for income taxes is summarized as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
----------------- --------------------------------
1996 1995 1996 1995 1994
<S> <C>
Current provision:
Federal $ 600 $ 888 $1,679 $1,792 $2,022
State 90 137 257 227 319
----- ------ ------ ------ ------
Total current 690 1,025 1,936 2,019 2,341
----- ------ ------ ------ ------
Deferred provision:
Federal (275) 77 148 400 278
State (50) 13 27 76 88
----- ------ ------ ------ ------
Total deferred (325) 90 175 476 366
----- ------ ------ ------ ------
Total provision for income
taxes $ 365 $1,115 $2,111 $2,495 $2,707
===== ====== ====== ====== ======
</TABLE>
For the six months ended December 31, 1996 and 1995 and for the years
ended June 30, 1996, 1995 and 1994, a tax provision (benefit) of $46,000,
$38,000, $(27,000), $40,000 and $(65,000), respectively, was allocated to
equity for the tax effects of unrealized losses on securities
available-for-sale and marketable equity securities.
F-16
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
The Association's effective tax rate is greater than the statutory Federal
income tax rate for the following reasons (in thousands of dollars):
<TABLE>
<CAPTION>
Six Months Ended
December 31, Years Ended June 30,
----------------- --------------------------------
1996 1995 1996 1995 1994
<S> <C>
Tax at statutory Federal income
tax rate $ 330 $1,011 $1,920 $2,256 $2,440
Increase (decrease) resulting from:
State income taxes 26 99 187 200 269
Other-net 9 5 4 39 (2)
----- ------ ------ ------ ------
Total $ 365 $1,115 $2,111 $2,495 $2,707
===== ====== ====== ====== ======
Effective rate 37.6% 37.5% 37.4% 37.6% 37.7%
===== ====== ====== ====== ======
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Association has a noncontributory defined-contribution retirement plan
("retirement plan") to which the Association contributes fifteen percent
of eligible employee salaries. Expense under the plan amounted to
approximately $182,000, $163,000, $331,000, $283,000 and $272,000 in the
six months ended December 31, 1996 and 1995 and in the years ended June
30, 1996, 1995 and 1994, respectively.
During the year ended June 30, 1995, the Association adopted a 401(k) plan
to which eligible employees may elect to contribute 2% - 10% of their
compensation, with limitations. The Association makes discretionary
matching contributions, with certain limitations. Expense under the Plan
amounted to approximately $42,000, $42,000, $72,000 and $17,000 in the six
months ended December 31, 1996 and 1995 and in the years ended June 30,
1996 and 1995, respectively.
All employees with 1,000 hours or greater who have completed twelve months
of continuous employment as of each Plan's entry dates are eligible to
participate in the Plans.
On February 3, 1997 the Board of Directors adopted a resolution to merge
the retirement plan with the 401(k) plan. All balances in the retirement
plan will be vested and contributions discontinued effective with the
merger. The balances related to the retirement plan will be maintained as
a separate account in the 401(k) plan.
F-17
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
8. BORROWING ARRANGEMENTS WITH FEDERAL HOME LOAN BANK OF ATLANTA
The Association has executed an advance and collateral agreement with the
Federal Home Loan Bank of Atlanta ("FHLB"). This agreement allows the
Association to borrow funds under various credit programs offered by the
FHLB. Terms, credit availability and collateral requirements vary by
program.
9. COMMITMENTS AND CONTINGENT LIABILITIES
Loan Commitments - The Association, in the normal course of business, is a
party to financial instruments and commitments which involve, to varying
degrees, elements of risk in excess of the amounts recognized in the
consolidated financial statements. These financial instruments and
commitments include unused consumer lines of credit and commitments to
extend credit. The Association had loan commitments, excluding undisbursed
portions of interim construction loans, of approximately $4.4 million
($3.9 million at fixed rates ranging from 7.000% - 8.875%) at December 31,
1996. Commitments, which are disbursed subject to certain limitations,
extend over periods of time with the majority of such commitments
disbursed within a 30-day period. Additionally, at December 31, 1996,
customers of the Association had unused lines of credit extended by the
Association (principally variable-rate consumer lines secured by real
estate) of approximately $25.3 million.
Loans Sold with Recourse - At December 31, 1996, approximately $3.5
million of loans serviced for others had been sold by the Association with
recourse. Loans sold with recourse generally are older or seasoned loans
with low loan-to-value ratios which do not present a significant risk to
the Association.
Financial Instruments with Off-Balance Sheet Risk - The Association has no
other additional financial instruments with off-balance sheet risk.
Concentration of Credit Risk - The Association's business activity is
principally with customers located in South Carolina. Except for loans in
the Association's market area, the Association has no other significant
concentration of credit risk. The majority of the Association's loans are
residential mortgage loans, construction loans, home equity loans and
other mortgage loans. The Association's policy will generally allow first
mortgage loans up to 80% of the value of the real estate pledged as
collateral or up to 95% with private mortgage insurance. Home equity loans
are generally allowed up to 90% of the value of the real estate pledged as
collateral.
Potential Impact of Changes in Interest Rates - The Association's
profitability depends to a large extent on its net interest income, which
is the difference between interest income on loans and investments and
interest expense on deposits. Like most financial institutions, the
Association's interest income and interest expense are significantly
affected by changes in market interest rates and other economic factors
beyond its control. The Association's interest earning assets consist
primarily of mortgage loans and investments which adjust more slowly to
changes in interest rates than its interest-bearing savings deposits.
Accordingly, the Association's earnings would be adversely affected during
periods of rising interest rates.
F-18
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Litigation - The Association is involved in legal actions in the normal
course of business. Management, based on advice of counsel, does not
expect any significant losses from any current litigation.
10. REGULATORY CAPITAL REQUIREMENTS
The Association is subject to various regulatory capital requirements
administered by the federal financial institution regulatory agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the
Association's financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Association
must meet specific capital guidelines that involve quantitative measures
of the Association's assets, liabilities and certain off-balance-sheet
items as calculated under regulatory accounting practices. The
Association's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios. Under
regulations of the Office of Thrift Supervision ("OTS"), the Association
must have: (i) core capital equal to 3.0% of adjusted total assets, (ii)
tangible capital equal to 1.5% of adjusted total assets and (iii) total
capital equal to 8.0% of risk-weighted assets. In measuring compliance
with all three capital standards, institutions must deduct from their
capital (with several exceptions primarily for mortgage banking
subsidiaries and insured depository institution subsidiaries) their
investments in, and advances to, subsidiaries engaged (as principal) in
activities not permissible for national banks, and certain other
adjustments. Management believes, as of December 31, 1996, that the
Association meets all capital adequacy requirements to which it is
subject.
The Association's actual and required capital amounts and ratios are
summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Minimum
Actual Requirement
------------------ ------------------
Amount Ratio Amount Ratio
<S> <C>
December 31, 1996
Tangible capital (to total assets) $44,845 11.9% $ 5,633 1.5%
Core capital (to adjusted total assets) $44,845 11.9% $11,266 3.0%
Risk-based capital (to risk-based assets) $46,495 20.8% $17,897 8.0%
June 30, 1996
Tangible capital (to total assets) $44,238 12.4% $ 5,356 1.5%
Core capital (to adjusted total assets) $44,238 12.4% $10,712 3.0%
Risk-based capital (to risk-based assets) $45,236 21.5% $16,806 8.0%
June 30, 1995
Tangible capital (to total assets) $40,687 12.6% $ 4,841 1.5%
Core capital (to adjusted total assets) $40,687 12.6% $ 9,682 3.0%
Risk-based capital (to risk-based assets) $41,270 22.1% $14,918 8.0%
</TABLE>
F-19
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
As of December 31, 1996, June 30, 1996 and June 30, 1995, the most recent
respective notifications from the OTS classified the Association as well
capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since the most recent notification that
management believes have changed the Association's category. To be
categorized as well capitalized, the Association must maintain minimum
ratios of total capital to risk-based assets, core capital to risk-based
assets and core capital to adjusted total assets. The Association's actual
and minimum capital requirements to be well capitalized under prompt
corrective action provisions are as follows:
<TABLE>
<CAPTION>
Minimum
Actual Requirement
------------------ ------------------
Amount Ratio Amount Ratio
<S> <C>
December 31, 1996
Tier I Capital (to adjusted total assets) $44,845 11.9% $18,776 5.0%
Tier I Capital (to risk weighted assets) $44,845 20.0% $13,422 6.0%
Total Capital (to risk weighted assets) $46,495 20.8% $22,371 10.0%
June 30, 1996
Tier I Capital (to adjusted total assets) $44,238 12.4% $17,848 5.0%
Tier I Capital (to risk weighted assets) $44,238 21.1% $12,605 6.0%
Total Capital (to risk weighted assets) $45,236 21.5% $21,008 10.0%
June 30, 1995
Tier I Capital (to adjusted total assets) $40,687 12.6% $16,137 5.0%
Tier I Capital (to risk weighted assets) $40,687 21.8% $11,189 6.0%
Total Capital (to risk weighted assets) $41,270 22.1% $18,648 10.0%
</TABLE>
On September 30, 1996, legislation was enacted to recapitalize the Savings
Association Insurance Fund. The effect of this legislation is to require a
one-time assessment on all federally insured savings associations'
deposits, payable by November 29, 1996. The assessment was levied by the
Federal Depository Insurance Corporation ("FDIC") at .657% of insured
deposits at March 31, 1995. The amount of the Association's assessment was
approximately $1.78 million. The assessment was accrued as a charge to
earnings in the quarter ended September 30, 1996.
F-20
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS
The stated and fair value amounts of financial instruments as of December
31, 1996 and June 30, 1996 and 1995, are summarized below (in thousands of
dollars):
<TABLE>
<CAPTION>
December 31, 1996 June 30, 1996 June 30, 1995
---------------------- ------------------------- -----------------------
Stated Fair Stated Fair Stated Fair
Amount Value Amount Value Amount Value
<S> <C>
Financial Assets:
Cash and cash
equivalents $ 17,104 $ 17,104 $ 10,784 $ 10,784 $ 15,967 $ 15,967
Investment securities 13,492 13,492 18,155 18,155 13,730 13,677
Mortgage-backed
securities 128 142 195 209 383 397
Loans receivable, net 331,654 333,585 314,936 313,727 267,393 269,486
Loans held for sale 1,444 1,444 1,911 1,911 15,324 15,580
Federal Home Loan
Bank Stock 2,806 2,806 2,806 2,806 2,649 2,649
Other assets 2,439 2,439 2,427 2,427 2,127 2,127
Retained servicing
on mortgage
loans - 614 - 640 - 143
-------- -------- -------- -------- -------- --------
Total $369,067 $371,626 $351,214 $350,659 $317,573 $320,026
======== ======== ======== ======== ======== ========
Financial liabilities:
Deposits:
Demand accounts $ 99,845 $ 99,845 $ 89,683 $ 89,683 $ 77,083 $ 77,083
Certificate accounts 224,106 224,224 216,148 215,660 198,832 197,298
Other liabilities 4,561 4,561 4,781 4,781 4,015 4,015
-------- -------- -------- -------- -------- --------
Total $328,512 $328,630 $310,612 $310,124 $279,930 $278,396
======== ======== ======== ======== ======== ========
</TABLE>
The Association had off-balance sheet financial commitments, which include
$29.7 million, $27.4 million and $21.6 million at December 31, 1996, June
30, 1996 and 1995, respectively, of commitments to originate loans and
unused consumer lines of credit. Since these commitments are based on
current rates, the commitment amount is considered to be a reasonable
estimate of fair market value.
The following methods and assumptions were used by the Association in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents - Both cash and cash equivalents have maturities
of three months or less, and, accordingly, the stated amount of such
instruments is deemed to be a reasonable estimate of fair value.
F-21
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Investments and Mortgage-Backed Securities - Fair values for investments
and mortgage-backed securities are based on quoted market prices. If a
quoted market price is not available, fair value is estimated using market
prices of similar securities.
Loans - Fair values of loans held for investment are estimated by
segregating the portfolio by type of loan and discounting scheduled cash
flows using interest rates currently being offered for loans with similar
terms, reduced by an estimate of credit losses inherent in the portfolio.
A prepayment assumption is used as an estimate of the portion of loans
that will be repaid prior to their scheduled maturity. Loans held for sale
are valued at the lower of cost or market as determined by outstanding
commitments from investors or current investor yield requirements
calculated on the aggregate loan basis.
Federal Home Loan Bank Stock - No ready market exists for this stock, and
it has no quoted market value. However, redemption of this stock has
historically been at par value. Accordingly, the stated amount is deemed
to be a reasonable estimate of fair value.
Retained Servicing on Mortgage Loans - The fair value of retained
servicing is calculated by discounting the expected future cash flows
using current rates.
Deposits - The fair values disclosed for demand deposits are equal to the
amounts payable on demand at the reporting date (i.e., their stated
amounts). The fair value of certificates of deposit are estimated by
discounting the amounts payable at the certificate rate using the rates
currently offered for deposits of similar remaining maturities.
Other Assets and Other Liabilities - Other assets represent principally
accrued interest receivable; other liabilities represent advances from
borrowers for taxes and insurance, outstanding checks and accrued interest
payable. Since these financial instruments will typically be received or
paid within three months, the stated amounts of such instruments are
deemed to be a reasonable estimate of fair value.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale the Association's entire holdings of a
particular financial instrument. Because no active market exists for a
significant portion of the Association's financial instruments, fair value
estimates are based on judgments regarding future expected loss
experience, current economic conditions, current interest rates and
prepayment trends, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in any of these assumptions used in
calculating fair value also would significantly effect the estimates.
Further, the fair value estimates were calculated as of December 31, 1996
and June 30, 1996 and 1995. Changes in market interest rates and
prepayment assumptions could change significantly the fair value.
F-22
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. For example, the Association has
significant assets and liabilities that are not considered financial
assets or liabilities including loan servicing portfolio, real estate,
deferred tax liabilities and premises and equipment. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have not
been considered in any of these estimates.
12. CONVERSION TO CAPITAL STOCK FORM OF OWNERSHIP
On February 3, 1997, the Board of Directors of the Association adopted a
Plan of Conversion to convert from a federally chartered mutual savings
and loan association to a federally chartered capital stock savings and
loan association with the concurrent formation of a holding company,
subject to approval by regulatory authorities and depositors of the
Association. The conversion is expected to be accomplished through the
adoption of a federal stock charter for the Association, the sale of all
of the Association's stock to the holding company and the sale of the
holding company's common stock to the public. A subscription offering of
the shares of common stock will be offered initially to eligible account
holders, employee benefit plans of the Association, supplemental eligible
account holders and other members of the Association. Shares of common
stock remaining unsold after the subscription offering, if any, will be
offered for sale in a community offering.
The plan of conversion provides for the establishment, upon the completion
of the conversion, of a liquidation account in an amount equal to its
retained income as of the date of the latest statement of financial
condition appearing in the final prospectus used in connection with the
conversion. The liquidation account will be maintained for the benefit of
eligible account holders and supplemental eligible account holders who
continue to maintain their accounts at the Association after the
conversion. The liquidation account will be reduced annually to the extent
that eligible account holders and supplemental eligible account holders
have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible or supplemental eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation (and only in such event) of the Association, each
eligible account holder and supplemental eligible account holder will be
entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for
accounts then held.
Subsequent to the conversion, the Association may not declare or pay cash
dividends on or repurchase any of its shares of common stock if the effect
thereof would cause equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
F-23
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF SPARTANBURG AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED JUNE 30, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense. As of December 31, 1996, no significant
conversion costs have been incurred.
**********
F-24
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by FirstSpartan Financial Corp. or First Federal Savings and Loan
Association of Spartanburg. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the securities offered hereby to any
person or in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction. Neither the delivery of this Prospectus
nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of FirstSpartan Financial Corp. or First
Federal Savings and Loan Association of Spartanburg since any of the dates as of
which information is furnished herein or since the date hereof.
Table of Contents Page
Prospectus Summary............................................
Selected Consolidated Financial Information...................
Risk Factors..................................................
FirstSpartan Financial Corp...................................
First Federal Savings and Loan Association of Spartanburg.....
Use of Proceeds...............................................
Dividend Policy...............................................
Market for Common Stock.......................................
Capitalization................................................
Historical and Pro Forma Regulatory Capital Compliance........
Pro Forma Data................................................
Shares to be Purchased by Management Pursuant
to Subscription Rights......................................
First Federal Savings and Loan Association of Spartanburg
and Subsidiary Consolidated Statements of Income.............
Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................
Business of the Holding Company...............................
Business of the Association...................................
Management of the Holding Company.............................
Management of the Association.................................
Regulation....................................................
Taxation......................................................
The Conversion................................................
Restrictions on Acquisition of the Holding Company............
Description of Capital Stock of the Holding Company ..........
Registration Requirements.....................................
Legal and Tax Opinions........................................
Experts.......................................................
Additional Information........................................
Index to Consolidated Financial Statements....................
Until the later of ___________, 1997, or 25 days after commencement of the
Syndicated Community Offering of Common Stock, if any, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
FIRSTSPARTAN FINANCIAL CORP.
[Logo]
(Proposed Holding Company for
First Federal Savings and Loan)
Association of Spartanburg)
2,847,500 to 3,852,500 Shares of
Common Stock
Prospectus
TRIDENT SECURITIES, INC.
May ____, 1997
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution(1)
Legal fees and expenses................................ $ 200,000
Securities marketing legal fees........................ 35,000
Printing, postage and mailing.......................... 90,000
Appraisal and business plan preparation................ 47,000
Accounting fees........................................ 100,000
Securities marketing fees and expenses................. 797,000
Data processing fees................................... 17,500
SEC registration fee................................... 27,000
Blue Sky filing fees and expenses...................... 10,000
OTS filing fees........................................ 8,400
Other expenses......................................... 68,100
-----------
Total............................................ $1,400,000
(1) Assumes all of the Common Stock will be sold in the Subscription
Offering to residents of the State of South Carolina for which Trident
Securities, Inc. will receive a fee of 1.35% of the aggregate dollar amount of
stock sold (excluding shares purchased by officers and directors of the
Registrant and its affiliates, including the ESOP), not to exceed $797,000.
Item 14. Indemnification of Officers and Directors
Article XVII of the Certificate of Incorporation of FirstSpartan
Financial Corp. requires indemnification of directors, officers and
employees to the fullest extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may
incur in their capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
II-1
<PAGE>
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
II-2
<PAGE>
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
(a) List of Exhibits
INDEX TO EXHIBITS
1.1 -- Form of proposed Agency Agreement among FirstSpartan Financial
Corp., First Federal Savings and Loan Association of Spartanburg
and Trident Securities, Inc. (a)
1.2 -- Engagement Letter between First Federal Savings and Loan
Association of Spartanburg and Trident Securities, Inc. (a)
2 -- Plan of Conversion of First Federal Savings and Loan Association of
Spartanburg (attached as an exhibit to the Proxy Statement included
herein as Exhibit 99.5)
3.1 -- Certificate of Incorporation of FirstSpartan Financial Corp.
3.2 -- Bylaws of FirstSpartan Financial Corp.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 -- Form of Federal Tax Opinion of Breyer & Aguggia
8.2 -- Form of State Tax Opinion of Deloitte & Touche LLP (a)
8.3 -- Opinion of RP Financial, LC. as to the value of subscription rights
10.1 -- Proposed Form of Employment Agreement with Certain Executive
Officers
10.2 -- Proposed Form of Severance Agreement with Certain Senior Officers
10.3 -- Proposed Form of Employee Stock Ownership Plan
10.4 -- First Federal Savings and Loan Association of Spartanburg 401(k)
Plan (a)
10.5 -- Form of First Federal Savings and Loan Association of Spartanburg
Employee Severance Compensation Plan
II-3
<PAGE>
10.6 -- Form of Director Emeritus Plan (a)
21 -- Subsidiaries of FirstSpartan Financial Corp.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5)
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of RP Financial, LC.
24 -- Power of Attorney (contained in signature page to the Registration
Statement)
99.1 -- Order and Acknowledgement Form
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with RP Financial, LC.
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of First Federal
Savings and Loan Association of Spartanburg
- ---------------------
(a) To be filed by amendment.
Financial Statements and Schedules
First Federal Savings and Loan Association of Spartanburg and
Subsidiary
Pages
Independent Auditors' Report.......................................... F-1
Consolidated Balance Sheets as of
December 31, 1996 (unaudited) and June 30, 1996 and 1995 ............ F-2
Consolidated Statements of Income for the Six Months Ended
December 31, 1996 and 1995 (unaudited) and for the Years Ended
June 30, 1996, 1995 and 1994 ........................................ 20
Consolidated Statements of Equity for the Six Months Ended
December 31, 1996 (unaudited) and for the Years Ended
June 30, 1996, 1995 and 1994......................................... F-3
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1996 (unaudited) and for
the Years Ended June 30, 1996, 1995 and 1994 ........................ F-4
Notes to Consolidated Financial Statements............................ F-6
II-4
<PAGE>
All schedules are omitted because the required information is either
not applicable or is included in the financial statements or related notes.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") (and, where
applicable, each filing of any employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Spartanburg,
South Carolina on the 7th day of March 1997.
FIRSTSPARTAN FINANCIAL CORP.
/s/ Billy L. Painter
By:________________________________________
Billy L. Painter
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of FirstSpartan Financial
Corp., do hereby severally constitute and appoint Billy L. Painter, our true and
lawful attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Billy L. Painter may deem
necessary or advisable to enable FirstSpartan Financial Corp. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the Registration
Statement on Form S-1 relating to the offering of FirstSpartan Financial Corp.'s
Common Stock, including specifically but not limited to, power and authority to
sign for us or any of us in our names in the capacities indicated below the
Registration Statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Billy L. Painter
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ----------- ----- ----
<S> <C>
/s/ Billy L. Painter President, Chief Executive Officer March 7, 1997
- ----------------------
Billy L. Painter and Director (Principal Executive Officer)
/s/ R. Lamar Simpson Treasurer, Secretary and Chief March 7, 1997
- ----------------------
R. Lamar Simpson Financial Officer (Principal
Financial and Accounting
Officer)
/s/ Robert R. Odom Chairman of the Board March 7, 1997
- ----------------------
Robert R. Odom
<PAGE>
/s/ E. Lea Salter Director March 7, 1997
- ----------------------
E. Lea Salter
/s/ David E. Tate Director March 7, 1997
- ----------------------
David E. Tate
/s/ Robert L. Handell Director March 7, 1997
- ----------------------
Robert L. Handell
/s/ E.L. Sanders Director March 7, 1997
- ----------------------
E.L. Sanders
/s/ R. Wesley Hammond Director March 7, 1997
- ----------------------
R. Wesley Hammond
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on March 7, 1997
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRSTSPARTAN FINANCIAL CORP.
(Exact name of registrant as specified in charter)
Delaware 6035 [to be applied for]
- ------------------------------- ------------------ -------------------
(State or other jurisdiction of (Primary SICC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
380 E. Main Street
Spartanburg, South Carolina 29302
(864) 582-2391
(Address and telephone number of principal executive offices)
Paul M. Aguggia, Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
Suite 470 East 1300 I Street,
N.W.
Washington, D.C. 20005
(Name and address of agent for service)
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS PAGE NO.
<S><C>
1.1 -- Form of proposed Agency Agreement among FirstSpartan Financial Corp.,
First Federal Savings and Loan Association of Spartanburg and Trident
Securities, Inc. (a)
1.2 -- Engagement Letter between First Federal Savings and Loan Association
of Spartanburg and Trident Securities, Inc. (a)
2 -- Plan of Conversion of First Federal Savings and Loan Association of
Spartanburg (attached as an exhibit to the Proxy Statement included
herein as Exhibit 99.5)
3.1 -- Certificate of Incorporation of FirstSpartan Financial Corp.
3.2 -- Bylaws of FirstSpartan Financial Corp.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia regarding legality of securities
registered
8.1 -- Form of Federal Tax Opinion of Breyer & Aguggia
8.2 -- Form of State Tax Opinion of Deloitte & Touche LLP (a)
8.3 -- Opinion of RP Financial, LC. as to the value of subscription
rights
10.1 -- Proposed Form of Employment Agreement for Certain Executive
Officers
10.2 -- Proposed Form of Severance Agreement for Certain Senior Officers
10.3 -- Proposed Form of Employee Stock Ownership Plan
10.4 -- First Federal Savings and Loan Association of Spartanburg 401(k)
Plan (a)
10.5 -- Form of First Federal Savings and Loan Association of Spartanburg
Employee Severance Compensation Plan (a)
10.6 -- Form of Director Emeritus Plan (a)
21 -- Subsidiaries of FirstSpartan Financial Corp.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Breyer & Aguggia (contained in opinion included as
Exhibit 5)
23.3 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion
23.4 -- Consent of RP Financial, LC.
24 -- Power of Attorney (contained in signature page to the Registration
Statement)
99.1 -- Order and Acknowledgement Form
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
<S><C>
99.2 -- Solicitation and Marketing Materials
99.3 -- Agreement with RP Financial, LC.
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of First Federal
Savings and Loan Association of Spartanburg
</TABLE>
- ---------------------
(a) To be filed by amendment.
EXHIBIT 3.1
Certificate of Incorporation of FirstSpartan Financial Corp.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
FIRSTSPARTAN FINANCIAL CORP.
ARTICLE I
Name
The name of the corporation is FirstSpartan Financial Corp. (herein the
"Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Corporation Trust Center, in the City of
Wilmington, County of New Castle. The name of the Corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE III
Powers
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware. The Corporation shall have all the
powers of a corporation organized under the General Corporation Law of the State
of Delaware.
ARTICLE IV
Term
The Corporation is to have perpetual existence.
ARTICLE V
Incorporators
The name and mailing address of the incorporator are:
Name Mailing Address
Billy L. Painter P.O. Box 1806
Spartanburg, South Carolina 29304
<PAGE>
ARTICLE VI
Initial Directors
The number of directors constituting the initial board of directors of
the Corporation is seven, and the names and addresses of the persons who are to
serve as the initial directors until their successors are elected and qualified,
together with the classes of directorships to which such persons have been
assigned, are:
Name Address Class
Wesley Hammond 380 E. Main Street I
Spartanburg, SC 29302
E. Lea Salter 380 E. Main Street I
Spartanburg, SC 29302
E. L. Sanders 380 E. Main Street II
Spartanburg, SC 29302
David E. Tate 380 E. Main Street II
Spartanburg, SC 29302
Billy L. Painter 380 E. Main Street III
Spartanburg, SC 29302
Robert L. Handell 380 E. Main Street III
Spartanburg, SC 29302
Robert R. Odom 380 E. Main Street III
Spartanburg, SC 29302
ARTICLE VII
Capital Stock
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 12,250,000 consisting of:
1. 250,000 shares of Preferred Stock, par value one
cent ($.01) per share ("Preferred Stock"); and
2. 12,000,000 shares of Common Stock, par value
one cent ($.01) per share ("Common Stock").
B. The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without
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a vote of the holders of the Preferred Stock, or of any series thereof, unless
a vote of any such holders is required pursuant to the terms of any Preferred
Stock Designation.
C. 1. Notwithstanding any other provision of this
Certificate, in no event shall any record owner of any outstanding
common stock which is beneficially owned, directly or indirectly, by a
person who, as of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of 10% of the
then-outstanding shares of common stock (the "Limit"), be entitled, or
permitted to any vote in respect of the shares held in excess of the Limit,
unless a majority of the Whole Board (as hereinafter defined) shall have
by resolution granted in advance such entitlement or permission. The
number of votes which may be cast by any record owner by virtue of the
provisions hereof in respect of common stock beneficially owned by such person
owning shares in excess of the Limit shall be a number equal to the total
number of votes which a single record owner of all common stock owned by such
person would be entitled to cast, multiplied by a fraction, the numerator of
which is the number of shares of such class or series which are both
beneficially owned by such person and owned of record by such record owner and
the denominator of which is the total number of shares of common stock
beneficially owned by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section
C of this Article VII.
(a) "Affiliate" shall have the meaning ascribed
to it in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of this Certificate.
(b) "Beneficial ownership" shall be
determined pursuant to Rule 13d-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934 (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be rescinded and there shall be
no successor rule or provision thereto, pursuant to said Rule 13d-3 as in
effect on the date of filing of this Certificate; provided, however, that
a person shall, in any event, also be deemed the "beneficial owner" of any
common stock:
(i) which such person or any of
its affiliates beneficially owns, directly or indirectly; or
(ii) which such person or any of its
affiliates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding (but shall not be deemed to be the beneficial owner
of any voting shares solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction which is
described in any one or more of subparagraphs A(1)(a) through (h) of Article
XIV or upon the exercise of conversion rights, exchange rights, warrants, or
options or otherwise, or (B) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to be the beneficial
owner of any voting shares solely by reason of a revocable proxy granted
for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed the beneficial
owner); or
(iii) which are beneficially owned,
directly or indirectly, by any other person with which such first mentioned
person or any of its affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of
any shares of capital stock of this Corporation; and provided further,
however, that (i) no director or officer of this Corporation (or any Affiliate
of any such director or officer) shall, solely by reason of any or all of such
directors of officers acting in their capacities as such, be deemed, for any
purposes hereof, to beneficially own any common stock beneficially owned
by any other such director or officer (or any Affiliate thereof), and (ii)
neither any employee stock ownership or similar plan of this Corporation or any
subsidiary of this Corporation, nor any trustee with respect thereto or any
Affiliate of such trustee (solely by reason of such capacity of such trustee),
shall be deemed, for any purposes hereof, to beneficially own any common stock
held under any such plan. For purposes of computing the percentage beneficial
ownership of common stock of a person, the outstanding
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common stock shall include shares deemed owned by such person through
application of this subsection but shall not include any other common stock
which may be issuable by this Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise. For all
other purposes, the outstanding common stock shall include only common stock
then outstanding and shall not include any common stock which may be
issuable by this Corporation pursuant to any agreement, or upon the exercise
of conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm,
corporation, or other entity.
(d) "Whole Board" shall mean the total number
of directors which the Corporation would have if there were no vacancies on
the board of directors.
3. The board of directors shall have the power to
construe and apply the provisions of this Section and to make all determinations
necessary or desirable to implement such provisions, including but not
limited to matters with respect to (i) the number of shares of common stock
beneficially owned by any person, (ii) whether a person is an affiliate of
another, (iii) whether a person has an agreement, arrangement, or
understanding with another as to the matters referred to in the definition
of beneficial ownership, (iv) the application of any other definition or
operative provision of this Section to the given facts, or (v) any other matter
relating to the applicability or effect of this Section.
4. The board of directors shall have the right to
demand that any person who is reasonably believed to beneficially own common
stock in excess of the Limit (or holds of record common stock beneficially
owned by any person in excess of the Limit) supply the Corporation with
complete information as to (i) the record owner(s) of all shares beneficially
owned by such person who is reasonably believed to own shares in excess of the
Limit, and (ii) any other factual matter relating to the applicability or
effect of this section as may reasonably be required of such person.
5. Except as otherwise provided by law or expressly
provided in this Section C, the presence, in person or by proxy, of the holders
of record of shares of capital stock of the Corporation entitling the holders
thereof to cast a majority of the votes (after giving effect, if
required, to the provisions of this Section C) entitled to be cast by the
holders of shares of capital stock of the Corporation entitled to vote shall
constitute a quorum at all meetings of the stockholders, and every reference
in this Certificate to a majority or other proportion of capital stock (or
the holders thereof) for purposes of determining any quorum requirement
or any requirement for stockholder consent or approval shall be deemed to
refer to such majority or other proportion of the votes (or the holders
thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations
made by the board of directors pursuant to this Section in good faith and on
the basis of such information and assistance as was then reasonably
available for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
7. In the event any provision (or portion thereof)
of this Section C shall be found to be invalid, prohibited or unenforceable
for any reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be construed as if
such invalid, prohibited or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the intent of this
Corporation and its stockholders that each such remaining provision (or
portion thereof) of this Section C remain, to the fullest extent permitted
by law, applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit, notwithstanding any such
finding.
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ARTICLE VIII
Preemptive Rights
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to resolution of the board of directors of the Corporation to
such persons, firms, corporations or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the board of
directors in the exercise of its sole discretion.
ARTICLE IX
Repurchase of Shares
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE X
Meetings of Stockholders; Cumulative Voting
A. Notwithstanding any other provision of this Certificate or the
Bylaws of the Corporation, no action required to be taken or which may be taken
at any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the board of directors of the
Corporation, or by a committee of the board of directors which has been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the Bylaws of the
Corporation, include the power and authority to call such meetings, but such
special meetings may not be called by any other person or persons.
C. There shall be no cumulative voting by stockholders of any class
or series in the election of directors of the Corporation.
D. Meetings of stockholders may be held at such place as the Bylaws may
provide.
ARTICLE XI
Notice for Nominations and Proposals
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of
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the Corporation to make any such nominations and/or proposals, he or she
shall give notice thereof in writing, delivered or mailed by first class United
States mail, postage prepaid, to the Secretary of the Corporation not less
than thirty days nor more than sixty days prior to any such meeting; provided,
however, that if less than thirty-one days' notice of the meeting is given to
stockholders, such written notice shall be delivered or mailed, as
prescribed, to the Secretary of the Corporation not later than the close of
the tenth day following the day on which notice of the meeting was mailed
to stockholders. Each such notice given by a stockholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominees,
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee, (iv) such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
proposed nominee pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, including, without limitation, such person's written consent
to being named in the proxy statement as a nominee and to serving as a director,
if elected, and (v) as to the stockholder giving such notice (a) his name and
address as they appear on the Corporation's books and (b) the class and number
of shares of the Corporation which are beneficially owned by such stockholder.
In addition, the stockholder making such nomination shall promptly provide any
other information reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with
respect to business proposals to bring before a meeting shall set forth in
writing as to each matter: (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business; (iii) the class and number of shares
of the Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may,
if the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE XII
Directors
A. Number; Vacancies. The number of directors of the Corporation shall
be such number, not less than 5 nor more than 15 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws; provided, however, that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further, that no action shall be taken to decrease or
increase the number of directors from time to time unless at least two-thirds of
the directors then in office shall concur in said action. Vacancies in the board
of directors of the Corporation, however caused, and newly created directorships
may be filled only by a vote of two-thirds of the directors then in office,
whether or not a quorum, and any director so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which the director has been chosen expires and when the director's successor is
elected and qualified.
B. Classified Board. The board of directors of the Corporation shall be
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. Such classes shall
be as nearly equal in number as the then total number of directors constituting
the entire board of directors shall permit, with the terms of office of all
members of one class expiring each year. At the first annual meeting of
stockholders, directors in
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Class I shall be elected to hold office for a term expiring at the third
succeeding annual meeting thereafter. At the second annual meeting of
stockholders, directors of Class II shall be elected to hold office for a term
expiring at the third succeeding meeting thereafter. At the third annual
meeting of stockholders, directors of Class III shall be elected to hold office
for a term expiring at the third succeeding meeting thereafter.
Thereafter, at each succeeding annual meeting, directors of each class shall be
elected for three year terms. Notwithstanding the foregoing, the director whose
term shall expire at any annual meeting shall continue to serve until such time
as his successor shall have been duly elected and shall have qualified unless
his position on the board of directors shall have been abolished by action taken
to reduce the size of the board of directors prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as nearly as equal as possible.
The board of directors shall designate, by the name of the incumbent(s), the
position(s) to be abolished. Notwithstanding the foregoing, no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as nearly as equal
as possible.
Whenever the holders of any one or more series of preferred stock of
the Corporation shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the board of directors shall consist of
said directors so elected in addition to the number of directors fixed as
provided above in this Article XII. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.
ARTICLE XIII
Removal of Directors
Notwithstanding any other provision of this Certificate or the Bylaws
of the Corporation, any director or the entire board of directors of the
Corporation may be removed, at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose. Notwithstanding the foregoing, whenever
the holders of any one or more series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the preceding provisions of this Article XIII
shall not apply with respect to the director or directors elected by such
holders of preferred stock.
ARTICLE XIV
Approval of Certain Business Combinations
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. 1. Except as otherwise expressly provided in this
Article XIV, the affirmative vote of the holders of (i) at least 80% of the
outstanding shares entitled to vote thereon (and, if any class or series of
shares is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80% of the outstanding shares of each such class or
series), and (ii) at least a majority of the outstanding shares entitled to
vote thereon, not including shares deemed beneficially owned by a Related
Person (as hereinafter defined), shall be required in order to authorize any of
the following:
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(a) any merger or consolidation of the
Corporation with or into a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or
other disposition, including without limitation, a mortgage, or any other
security device, of all or any Substantial Part (as hereinafter defined) of
the assets of the Corporation (including without limitation any voting
securities of a subsidiary) or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related
Person with or into the Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or
other disposition of all or any Substantial Part of the assets of a Related
Person to the Corporation or a subsidiary of the Corporation;
(e) the issuance of any securities of the
Corporation or a subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a
subsidiary of the Corporation of any securities of a Related Person;
(g) any reclassification of the common
stock of the Corporation, or any recapitalization involving the common
stock of the Corporation; and
(h) any agreement, contract or other
arrangement providing for any of the transactions described in this
Article.
2. Such affirmative vote shall be required
notwithstanding any other provision of this Certificate, any provision of law,
or any agreement with any regulatory agency or national securities exchange
which might otherwise permit a lesser vote or no vote.
3. The term "Business Combination" as used in this
Article XIV shall mean any transaction which is referred to in any one
or more of subparagraphs A(1)(a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of this
Certificate, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Directors (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XIV the following definitions
apply:
1. The term "Related Person" shall mean and include
(a) any individual, corporation, partnership or other person or entity which
together with its "affiliates" (as that term is defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended), "beneficially owns" (as that term is defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended) in the aggregate 10% or more of the outstanding shares of the
common stock of the Corporation; and (b) any "affiliate" (as that term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended)
of any such individual, corporation, partnership or other person or entity.
Without limitation, any shares of the common stock of the Corporation which
any Related Person has the right to acquire pursuant to any agreement, or
upon exercise or conversion rights, warrants or options, or otherwise, shall
be deemed "beneficially owned" by such Related Person.
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2. The term "Substantial Part" shall mean more than 25%
of the total assets of the Corporation, as of the end of its most recent
fiscal year ending prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member
of the board of directors of the Corporation who is unaffiliated with the
Related Person and was a member of the board prior to the time that the Related
Person became a Related Person, and any successor of a Continuing Director
who is unaffiliated with the Related Person and is recommended to succeed a
Continuing Director by a majority of Continuing Directors then on the board.
4. The term "Continuing Director Quorum" shall
mean two-thirds of the Continuing Directors capable of exercising the powers
conferred on them.
ARTICLE XV
Evaluation of Business Combinations
In connection with the exercise of its judgment in determining what is
in the best interests of the Corporation and of the stockholders, when
evaluating a Business Combination (as defined in Article XIV) or a tender or
exchange offer, the board of directors of the Corporation shall, in addition to
considering the adequacy of the amount to be paid in connection with any such
transaction, consider all of the following factors and any other factors which
it deems relevant; (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
ARTICLE XVI
Indemnification
A. Persons. The Corporation shall indemnify, to the extent
provided in paragraphs B, D or F:
1. any person who is or was a director or officer of the
Corporation; and
2. any person who serves or served at the Corporation's
request as a director, officer, employee, agent, partner or trustee of
another corporation, partnership, joint venture, trust or other
enterprise.
B. Extent -- Derivative Suits. In case of a threatened,
pending or completed action or suit by or in the right of the Corporation
against a person named in paragraph A by reason of his holding a position
named in paragraph A, the Corporation shall indemnify such person if such
person satisfies the standard in paragraph C, for expenses (including
attorneys' fees but excluding amounts paid in settlement) actually and
reasonably incurred by such person in connection with the defense or settlement
of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened,
pending or completed action or suit by or in the right of the Corporation, a
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise;
or
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2. such person acted in good faith in the transaction
which is the subject of the suit or action, and in a manner such person
reasonably believed to be in, or not opposed to, the best interest of the
Corporation, including, but not limited to, the taking of any and all actions
in connection with the Corporation's response to any tender offer or any offer
or proposal of another party to engage in a Business Combination (as defined
in Article XIV) not approved by the board of directors. However, such
person shall not be indemnified in respect of any claim, issue or matter as to
which such person has been adjudged liable to the Corporation unless (and only
to the extent that) the court in which the suit was brought shall determine,
upon application, that despite the adjudication but in view of all the
circumstances, such person is fairly and reasonably entitled to indemnity for
such expenses as the court shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened,
pending or completed suit, action or proceeding (whether civil, criminal,
administrative or investigative), other than a suit by or in the right of
the Corporation, together hereafter referred to as a nonderivative suit,
against a person named in paragraph A by reason of his holding a position
named in paragraph A, the Corporation shall indemnify such person if such
person satisfies the standard in paragraph E, for amounts actually and
reasonably incurred by such person in connection with the defense or settlement
of the nonderivative suit, including, but not limited to (i) expenses
(including attorneys' fees), (ii) amounts paid in settlement, (iii) judgments,
and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative
suit, a person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise;
or
2. such person acted in good faith in the transaction
which is the subject of the nonderivative suit and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, including, but not limited to, the taking of any and all actions
in connection with the Corporation's response to any tender offer or any offer
or proposal of another party to engage in a Business Combination (as defined in
Article XIV of this Certificate) not approved by the board of directors and,
with respect to any criminal action or proceeding, such person had no
reasonable cause to believe his conduct was unlawful. The termination of a
nonderivative suit by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not, in itself, create a
presumption that the person failed to satisfy the standard of this paragraph
E.2.
F. Determination That Standard Has Been Met. A determination
that the standard of paragraph C or E has been satisfied may be made by a
court or, except as stated in paragraph C.2 (second sentence), the
determination may be made by:
1. a majority vote of the directors of the Corporation
who are not parties to the action, suit or proceeding, even though less than a
quorum; or
2. independent legal counsel (appointed by a majority
of the disinterested directors of the Corporation, whether or not a quorum) in
a written opinion; or
3. the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F
may determine that a person has met the standard as to some matters but not as
to others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation may pay in advance any
expenses (including attorneys' fees) which may become subject to
indemnification under paragraphs A through G if (i) the board of directors
authorizes the specific payment and (ii) the person receiving the payment
undertakes in writing to repay the same if it is ultimately determined that
such person is not entitled to indemnification by the Corporation under
paragraphs A through G.
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I. Nonexclusive. The indemnification and advance of expenses
provided by paragraphs A through H shall not be exclusive of any other rights
to which a person may be entitled by law, bylaw, agreement, vote of
stockholders or disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article XVI
shall be deemed to be a contract between the Corporation and the persons
entitled to indemnification thereunder, and any repeal or modification of this
Article XVI shall not affect any rights or obligations then existing with
respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts. The indemnification and advance payment
provided by paragraphs A through H shall continue as to a person who has
ceased to hold a position named in paragraph A and shall inure to such
person's heirs, executors and administrators.
K. Insurance. The Corporation may purchase and maintain
insurance on behalf of any director, officer, employee or agent of the
Corporation or subsidiary or affiliate or another corporation, partnership,
joint venture, trust or other enterprise, against any liability incurred by
such person in any such position, or arising out of such person's status as
such, whether or not the Corporation would have power to indemnify such
person against such liability under paragraphs A through H.
L. Savings Clause. If this Article XVI or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each director, officer,
employee, and agent of the Corporation as to costs, charges, and expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
with respect to any action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, including an action by or in the right of
the Corporation to the full extent permitted by any applicable portion of
this Article XVI that shall not have been invalidated and to the full extent
permitted by applicable law.
ARTICLE XVII
Elimination of Directors' Liability
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not made in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which a director derived an improper
personal benefit. If the General Corporation Law of the State of Delaware is
amended after the date of filing of this Certificate to further eliminate or
limit the personal liability of directors, then the liability of a director of
the Corporation shall be eliminated or limited to the fullest extent permitted
by the General Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE XVIII
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, repeal, alter, amend and rescind the Bylaws of the Corporation by a
two-thirds vote of the board. Notwithstanding any other provision of this
Certificate or the Bylaws of the Corporation (and notwithstanding the fact that
some lesser percentage may be specified by law), the Bylaws shall
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not be adopted, repealed, altered, amended or rescinded by the stockholders
of the Corporation except by the vote of the holders of not less than 80%
of the outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal,
alteration, amendment or rescission is included in the notice of such
meeting), or, as set forth above, by the board of directors.
ARTICLE XIX
Amendment of Certificate of Incorporation
The Corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles X, XI, XII, XIII, XIV, XV, XVI, XVII, XVIII and this Article
XIX may not be repealed, altered, amended or rescinded in any respect unless the
same is approved by the affirmative vote of the holders of not less than 80% of
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) cast at a meeting of the stockholders called for that purpose (provided
that notice of such proposed adoption, repeal, alteration, amendment or
rescission is included in the notice of such meeting).
* * *
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THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this Certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 3rd day of February 1997.
/s/ Billy L. Painter
--------------------
Billy L. Painter
Incorporator
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EXHIBIT 3.2
Bylaws of FirstSpartan Financial Corp.
<PAGE>
BYLAWS
OF
FIRSTSPARTAN FINANCIAL CORP.
ARTICLE I
Stockholders
SECTION 1. Place of Meetings. All annual and special meetings of
stockholders shall be held at such place as the board of directors may
determine and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as
the board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders
for any purpose or purposes may be called at any time by the majority of the
board of directors or by a committee of the board of directors in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the place, date
and time of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the meeting to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at the address of the stockholder as it appears on the records of
the Corporation. If a stockholder be present at a meeting, or in writing waives
notice thereof before or after the meeting, notice of the meeting to such
stockholder shall be unnecessary. When any stockholders' meeting, either annual
or special, is adjourned for more than thirty days, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
thirty days or less or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. Voting Lists. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 7. Quorum. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
<PAGE>
SECTION 8. Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of the management shall
be voted as directed by the stockholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
SECTION 9. Voting. Unless otherwise provided in the Corporation's
Certificate of Incorporation, each stockholder shall be entitled to one vote for
each share of stock having voting power held by such stockholder. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote at the meeting on the election of
directors. In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote and voting thereon shall be the act of the
stockholders, unless the question is one upon which, by express provision of the
applicable statute, the Corporation's Certificate of Incorporation or these
Bylaws, a different vote is required in which case such express provision shall
govern and control the decision of the question.
SECTION 10. Voting of Shares in the Name of Two or More Persons. When
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose name shares of stock stand, the vote or votes to
which these persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting, but
no votes shall be cast for such stock if a majority cannot agree.
SECTION 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Corporation, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
SECTION 12. Inspectors of Election. In advance of any meeting of
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the chairman of the board or the president may make such
appointment at the meeting. In case any person appointed as inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment by
the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
The inspectors shall: ascertain the number of shares outstanding and
the voting power of each; determine the shares represented at the meeting and
the validity of proxies and ballots; count all votes and ballots; determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the
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inspectors; and certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots.
SECTION 13. Director Nominations. No nominations for directors except
those made by the board of directors or an authorized committee thereof shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 14. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as provided in the
Corporation's Certificate of Incorporation.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business and affairs of the Corporation
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board from among its members who shall,
when present, preside at its meetings.
SECTION 2. Number, Term and Election. The board of directors shall
consist of seven members and shall be divided into three classes as nearly equal
in number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected or qualified. One class shall
be elected by ballot annually. The board of directors shall be classified in
accordance with the provisions of the Corporation's Certificate of
Incorporation.
SECTION 3. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the
Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, the annual meeting of stockholders. The board of
directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board or the
president, or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place in the State of
South Carolina as the place for holding any special meeting of the board of
directors called by such persons. Written notice of any special meeting shall be
given to each director at least two days previous thereto delivered personally
or by telecopier or telegram or at least five days previous thereto delivered by
mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the United States mail
so addressed, with postage thereon prepaid if mailed or when delivered by
telecopier. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
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SECTION 6. Participation in Meetings By Conference Telephone. Members
of the board of directors, or any committee thereof, may participate in a
meeting of such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at such meeting.
SECTION 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without notice other than announcement at
the meeting.
SECTION 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by these Bylaws, the
Certificate of Incorporation, or the General Corporation Law of the State of
Delaware.
SECTION 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
SECTION 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the administrative office of the
Corporation addressed to the chairman of the board or the president. Unless
otherwise specified herein, such resignation shall take effect upon receipt
thereof by the chairman of the board or the president.
SECTION 11. Vacancies. Any vacancy occurring in the board of
directors shall be filled in accordance with the provisions of the
Corporation's Certificate of Incorporation. The term of such director shall
be in accordance with the provisions of the Corporation's Certificate of
Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board of
directors may be removed only in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated fee
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Nothing herein shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation who is
present at a meeting of the board of directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Corporation immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who votes in favor of such action.
SECTION 15. Advisory Directors. The board of directors may by
resolution appoint advisory directors or directors emeriti to the board, and
shall have such authority and receive such compensation and reimbursement as the
board of directors shall provide. Advisory directors or directors emeriti shall
not have the authority to participate by vote in the transaction of business.
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ARTICLE III
Committees of the Board of Directors
SECTION 1. Appointment. The board of directors may, by resolution
adopted by a majority of the full board, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any such committee.
SECTION 2. Authority. Any such committee shall have all the authority
of the board of directors, except to the extent, if any, that such authority
shall be limited by the resolution appointing the committee; and except also
that no committee shall have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Corporation, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
Article III, each member of a committee shall hold office until the next regular
annual meeting of the board of directors following his or her designation and
until a successor is designated as a member of the committee.
SECTION 4. Meetings. Unless the board of directors shall otherwise
provide, regular meetings of any committee appointed pursuant to this Article
III shall be at such times and places as are determined by the board of
directors, or by any such committee. Special meetings of any such committee may
be held at the principal executive office of the Corporation, or at any place
which has been designated from time to time by resolution of such committee or
by written consent of all members thereof, and may be called by any member
thereof upon not less than one day's notice stating the place, date, and hour of
the meeting, which notice shall been given in the manner provided for the giving
of notice to members of the board of directors of the time and place of special
meetings of the board of directors.
SECTION 5. Quorum. A majority of the members of any committee shall
constitute a quorum for the transaction of business at any meeting thereof.
SECTION 6. Action Without a Meeting. Any action required or permitted
to be taken by any committee at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the members of any such committee.
SECTION 7. Resignations and Removal. Any member of any committee may be
removed at any time with or without cause by resolution adopted by a majority of
the full board of directors. Any member of any committee may resign from any
such committee at any time by giving written notice to the president or
secretary of the Corporation. Unless otherwise specified, such resignation shall
take effect upon its receipt; the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 8. Procedure. Unless the board of directors otherwise provides,
each committee shall elect a presiding officer from its members and may fix its
own rules of procedure which shall not be inconsistent with these bylaws. It
shall keep regular minutes of its proceedings and report the same to the board
of directors for its information at the meeting held next after the proceedings
shall have occurred.
5
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ARTICLE IV
Officers
SECTION 1. Positions. The officers of the Corporation shall be a
president, a secretary and a treasurer, each of whom shall be elected by the
board of directors. The board of directors may also designate the chairman of
the board as an officer. The president shall be the chief executive officer
unless the board of directors designates the chairman of the board as chief
executive officer. The president shall be a director of the Corporation. The
offices of the secretary and treasurer may be held by the same person and a vice
president may also be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors may also elect or authorize the
appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at the first meeting of the
board of directors held after each annual meeting of the shareholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as possible. Each officer shall hold office until his successor
shall have been duly elected and qualified or until his death or until he shall
resign or shall have been removed in the manner hereinafter provided. Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law; but
no such contract shall impair the right of the board of directors to remove any
officer at any time in accordance with Section 3 of this Article IV.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds of
the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE V
Contracts, Loans, Checks and Deposits
SECTION 1. Contracts. To the extent permitted by applicable law, and
except as otherwise prescribed by the Corporation's Certificate of Incorporation
or these Bylaws with respect to certificates for shares, the board of directors
may authorize any officer, employee, or agent of the Corporation to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation. Such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name
unless authorized by the board of directors. Such authority may be general or
confined to specific instances.
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SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in any of its duly authorized depositories as the board of
directors may select.
ARTICLE VI
Certificates for Shares and Their Transfer, Etc.
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 or by the 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 or 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.
SECTION 2. Form of Share Certificates. Stock certificates of the
Corporation shall be in such form as approved by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for
any shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
issuance of shares shall be paid in accordance with the provisions of the
Corporation's Certificate of Incorporation.
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 only on surrender for
cancellation of the certificate for such shares. 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 6. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of Article I or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Determination of Stockholders of Record.
(a) Meetings of Stockholders. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the board of directors, and which record
date shall not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the board of directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next
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proceeding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of the meeting unless the board of directors
fixes a new record date for the adjourned meeting.
(b) Dividends. In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
SECTION 8. Lost Certificates. The board of directors may direct a new
certificate 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,
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.
SECTION 9. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
Fiscal Year; Annual Audit
The fiscal year of the Corporation shall end on the 30th day of June of
each year. The Corporation shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the board of directors.
ARTICLE IX
Dividends
Subject to the provisions of the Certificate of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
Corporate Seal
The corporate seal of the Corporation shall be in such form as the
board of directors shall prescribe.
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ARTICLE XI
Amendments
In accordance with the Corporation's Certificate of Incorporation,
these Bylaws may be repealed, altered, amended or rescinded by the stockholders
of the Corporation only by vote of not less than 80% of the outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.
* * *
Adopted by the Board of Directors this 19th day of February 1997.
9
EXHIBIT 4
Form of Certificate for Common Stock
<PAGE>
FIRSTSPARTAN FINANCIAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$.01 PAR VALUE PER SHARE, OF
FirstSpartan Financial Corp., a stock corporation incorporated under the laws of
the State of Delaware. The shares represented by this Certificate are
transferable only on the stock transfer books of the Corporation by the holder
of record hereof or by his duly authorized attorney or legal representative upon
the surrender of this Certificate properly endorsed. Such shares are
non-withdrawable and not insurable. Such shares are not insured by the Federal
government. The Certificate and shares represented hereby are issued and shall
be held subject to all provisions of the Certificate of Incorporation and Bylaws
of the Corporation and any amendments thereto (copies of which are on file with
the Transfer Agent), to all of which provisions the holder by acceptance hereof,
assents.
IN WITNESS WHEREOF, FirstSpartan Financial Corp. has caused this
Certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
CORPORATE SECRETARY PRESIDENT
TRANSFER AGENT
[SEAL]
<PAGE>
FirstSpartan Financial Corp.
The shares represented by this Certificate are issued subject to all
the provisions of the Certificate of Incorporation and Bylaws of FirstSpartan
Financial Corp. ("Corporation") as from time to time amended (copies of which
are on file with the Transfer Agent and at the principal executive offices of
the Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to vote in respect of the shares held in excess of the Limit, unless a
majority of the whole Board of Directors, as defined, shall have by resolution
granted in advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of
preferred stock in series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof. The Corporation will furnish to any shareholder upon request and
without charge a full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively
voted on any matter. The affirmative vote of the holders of at least 80% of the
voting stock of the Corporation, voting together as a single class, shall be
required to approve certain business combinations and other transactions,
pursuant to the Certificate of Incorporation, or to amend certain provisions of
the Certificate of Incorporation.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as through they were written out in
full according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -_______Custodian_______ under Uniform Gifts
(Cust) (Minor)
to Minors Act _________
(State)
Additional abbreviations may also be used though not in the above list
For value received, ___________________________________________ hereby
sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address,
including postal zip code, of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_________________________________________________________________________ shares
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint ________________________________________________
Attorney, to transfer the said shares on the books of the within named
Corporation, with full power of substitution.
Dated _________________
------------------------------------
Signature
------------------------------------
Signature
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular,
without alteration or enlargement or any change
whatever.
EXHIBIT 5
Opinion of Breyer & Aguggia Regarding
Legality of Securities Registered
<PAGE>
March 6, 1997
Board of Directors
FirstSpartan Financial Corp.
380 E. Main Street
Spartanburg, South Carolina 29302
RE: FirstSpartan Financial Corp.
Registration Statement on Form S-1
To the Board of Directors:
You have requested our opinion as special counsel for FirstSpartan
Financial Corp., a Delaware corporation, in connection with the above-referenced
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended.
In rendering this opinion, we understand that the common stock of
FirstSpartan Financial Corp. will be offered and sold in the manner described in
the Prospectus, which is part of the Registration Statement. We have examined
such records and documents and made such examination as we have deemed relevant
in connection with this opinion.
Based upon the foregoing, it is our opinion that the shares of common
stock of FirstSpartan Financial Corp. will upon issuance be legally issued,
fully paid and nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "LEGAL AND
TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
--------------------
BREYER & AGUGGIA
Washington, D.C.
EXHIBIT 8.1
Form of Federal Tax Opinion of Breyer & Aguggia
<PAGE>
__________, 1997
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
380 E. Main Street
Spartanburg, South Carolina 29302
Re: Certain Federal Income Tax Consequences Relating to
Proposed Holding Company Conversion of First Federal
Savings and Loan Association of Spartanburg
Gentlemen and Ladies:
In accordance with your request, set forth herein is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of First Federal Savings and Loan Association of Spartanburg
(the "Association") from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings and loan association (the
"Converted Association") (the "Stock Conversion") and (ii) the concurrent
acquisition of 100% of the outstanding capital stock of the Converted
Association by a parent holding company formed at the direction of the Board of
Directors of the Association and to be known as FirstSpartan Financial Corp.
(the "Holding Company").
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to, the Plan of Conversion as adopted by the Association's Board of
Directors on _________, 1997 (the "Plan"); the federal mutual charter and bylaws
of the Association; the certificate of incorporation and bylaws of Holding
Company; the Affidavit of Representations dated __________, 1997 provided to us
by the Association and the Holding Company (the "Affidavit"), and the Prospectus
(the "Prospectus") included in the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission ("SEC") on ____________, 1997 (the
"Registration Statement"). In such examination, we have assumed, and have not
independently verified, the genuineness of all signatures on original documents
where due execution and delivery are requirements to the
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 2
effectiveness thereof. Terms used but not defined herein, whether
capitalized or not, shall have the same meaning as defined in the Plan.
BACKGROUND
Based solely upon our review of such documents, and upon such
information as the Association has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we set forth herein a general summary of the relevant facts and proposed
transactions, qualified in its entirety by reference to the documents cited
above.
The Association is a federally-chartered mutual savings and loan
association which is in the process of converting to a federally-chartered stock
savings and loan association. The Association was initially organized in 1935.
The Association is also a member of the Federal Home Loan Bank System and its
deposits are federally insured under the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation. The Association operates
out of its main office in Spartanburg, South Carolina and branch offices in
Spartanburg and neighboring communities.
The Association is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties. At December 31,
1996, the Association had total assets of $375.5 million, deposits of $324
million, and total equity of $44.8 million.
As a federally-chartered mutual savings and loan association, the
Association has no authorized capital stock. Instead, the Association, in mutual
form, has a unique equity structure. A savings depositor of the Association is
entitled to payment of interest on his account balance as declared and paid by
the Association, but has no right to a distribution of any earnings of the
Association except for interest paid on his deposit. Rather, such earnings
become retained earnings of the Association.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Association is ever liquidated. Savings
depositors and certain borrowers are members of the Association and thereby have
voting rights in the Association. Each savings depositor is entitled to cast
votes in proportion to the size of their account balances or fraction thereof
held in a withdrawable deposit account of the Association, and each borrower
member (hereinafter "borrower") is entitled to one vote in addition to the votes
(if any) to which such person is
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 3
entitled in such borrower's capacity as a savings depositor of the
Association. All of the interests held by a savings depositor in the
Association cease when such depositor closes his accounts with the Association.
The Holding Company was incorporated in February 1997 under the laws
of the State of Delaware as a general business corporation in order to act as a
savings institution holding company. The Holding Company has an authorized
capital structure of 12 million shares of common stock and 250,000 shares of
preferred stock.
PROPOSED TRANSACTION
Management of the Association believes that the Stock Conversion offers
a number of advantages which will be important to the future growth and
performance of the Converted Association in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Association; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Association and thereby participate more directly
in any future growth of the Converted Association.
Accordingly, pursuant to the Plan, the Association will undergo the
Stock Conversion whereby it will be converted from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings bank. As
part of the Stock Conversion, the Association will amend its existing mutual
savings bank charter and bylaws to read in the form of a Federal Stock Charter
and Bylaws. The Converted Association will then issue to the Holding Company
shares of the Converted Association's common stock, representing all of the
shares of capital stock to be issued by the Converted Association in the
Conversion, in exchange for payment by the Holding Company of 50% of the net
proceeds realized by the Holding Company from such sale of its Common Stock,
less amounts necessary to fund the Employee Stock Ownership Plan of the
Association, or such other percentage as the Office of Thrift Supervision
("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Association and the Holding Company on the basis of
the estimated pro forma market value of the Converted Association as a
subsidiary of
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 4
the Holding Company. The estimated pro forma market value will be determined by
an independent appraiser. Pursuant to the Plan, all such shares will be
issued and sold at a uniform price per share. The Stock Conversion,
including the sale of newly issued shares of the stock of the Converted
Association to the Holding Company, will be deemed effective concurrently with
the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to nontransferable subscription rights on the basis of preference
categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the
Association;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered in the Direct Community Offering in the following order
of priority:
(a) Natural persons and trusts of natural persons who are
permanent residents of Spartanburg County, South
Carolina; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account
by the Converted Association for the benefit of all Eligible Account Holders and
any Supplemental Eligible Account Holders in an amount equal to the net worth of
the Association as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Association. The
account holders will have an inchoate interest in a proportionate amount of the
Liquidation Account with respect to each savings account held and will be paid
by the Converted Association in event of liquidation prior to any liquidation
distribution being made with respect to capital stock.
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 5
Following the Stock Conversion, voting rights in the Converted
Association shall be vested in the sole holder of stock in the Converted
Association, which will be the Holding Company. Voting rights in the Holding
Company after the Stock Conversion will be vested in the holders of the Common
Stock.
The Stock Conversion will not interrupt the business of the
Association. The Converted Association will continue to engage in the same
business as the Association immediately prior to the Stock Conversion, and the
Converted Association will continue to have its savings accounts insured by the
SAIF. Each depositor will retain a withdrawable savings account or accounts
equal in dollar amount to, and on the same terms and conditions as, the
withdrawable account or accounts at the time of Stock Conversion except to the
extent funds on deposit are used to pay for Common Stock purchased in the Stock
Conversion. All loans of the Association will remain unchanged and retain their
same characteristics in the Converted Association.
The Plan must be approved by the OTS and by an affirmative vote of
at least a majority of the total votes eligible to be cast at a meeting of
the Association's members called to vote on the Plan.
Immediately prior to the Conversion, the Association will have a
positive net worth determined in accordance with generally accepted accounting
principles.
OPINION
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within
the meaning of Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended (the "Code"), and no gain or loss
will be recognized to either the Association or the
Converted Association as a result of the Stock Conversion
(see Rev. Rul. 80-105, 1980-1 C.B. 78).
2. The assets of the Association will have the same basis in
the hands of the Converted Association as in the hands of
the Association immediately prior to the Stock Conversion
(Section 362(b) of the Code).
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 6
3. The holding period of the assets of the Association to be
received by the Converted Association will include the
period during which the assets were held by the Association
prior to the Stock Conversion (Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted
Association on the receipt of money from the Holding
Company in exchange for shares of common stock of the
Converted Association (Section 1032(a) of the Code). The
Holding Company will be transferring solely cash to the
Converted Association in exchange for all the outstanding
capital stock of the Converted Association and therefore
will not recognize any gain or loss upon such transfer.
(Section 351(a) of the Code; see Rev. Rul. 69-357, 1969-1
C.B. 101).
5. No gain or loss will be recognized by the Holding Company
upon receipt of money from stockholders in exchange for
shares of Common Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders and Supplemental Eligible Account Holders of the
Association upon the issuance of them of deposit accounts
in the Converted Association in the same dollar amount and
on the same terms and conditions in exchange for their
deposit accounts in the Association held immediately prior
to the Stock Conversion (Section 1001(a) of the Code; Treas.
Reg. (section mark)1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and
Supplemental Eligible Account Holders' savings accounts in
the Converted Association received as part of the Stock
Conversion will equal the tax basis of such account holders'
corresponding deposit accounts in the Association
surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit
account holders of the Association upon the constructive
receipt of their interest in the liquidation account of the
Converted Association and on the nontransferable
subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in the
Association. Any such gain will be recognized by the
Association deposit account holders, but only in an amount
not in excess of the fair market value of the liquidation
account and subscription rights received. (Section 1001
of the Code; Paulsen v. Commissioner, 469 U.S. 131
(1985); Rev. Rul. 69-646, 1969-2 C.B. 54.)
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 7
9. The basis of each account holder's interest in the
Liquidation Account received in the Stock Conversion and to
be established by the Converted Association pursuant to the
Stock Conversion will be equal to the value, if any, of that
interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Stock Conversion. (Rev. Rul.
56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock
Conversion will be equal to the purchase price of such
stock, increased, in the case of such stock acquired
pursuant to the exercise of subscription rights, by the fair
market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights
will commence on the date on which the subscription rights
are exercised (Section 1223(6) of the Code). The holding
period of the Common Stock acquired in the Community
Offering will commence on the date following the date on
which such stock is purchased (Rev. Rul. 70-598, 1970-2 C.B.
168; Rev. Rul. 66-97, 1966-1 C.B. 190).
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
federal, state, local, foreign or other tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
Regarding the valuation of subscription rights, we understand that the
Association has received the opinion of RP Financial, LC. dated February 21,
1997 to the effect that the
<PAGE>
Boards of Directors
First Federal Savings and Loan
Association of Spartanburg
FirstSpartan Financial Corp.
- ----------------
Page 8
subscription rights have no ascertainable market value. We express no opinion
regarding the valuation of the subscription rights.
CONSENTS
We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and the Association's
Application for Conversion on Form AC ("Form AC"), respectively, and the
reference on our firm in the Prospectus, which is a part of both the
Registration Statement and the Form AC, under the headings "THE CONVERSION --
Effect of Conversion to Stock Form on Depositors and Borrowers of the
Association -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
BREYER & AGUGGIA
EXHIBIT 8.3
Opinion of RP Financial, LC.
as to the Value of Subscription Rights
<PAGE>
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
February 21, 1997
Board of Directors
First Federal Savings and Loan Association of Spartanburg
380 East Main Street
Spartanburg, South Carolina 29302-1944
Re: Plan of Conversion: Subscription Rights
First Federal Savings and Loan Association of Spartanburg
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of First Federal Savings and Loan Association of Spartanburg ("First
Federal" or the "Association") whereby the Association will convert from a
federally-chartered mutual savings and loan association to a federally-chartered
stock savings and loan association and issue all of the Association's
outstanding capital stock to FirstSpartan Financial Corp. (the "Holding
Company"). Simultaneously, the Holding Company will issue shares of common
stock.
We understand that in accordance with the Plan of Conversion,
Subscription Rights to purchase shares of Common Stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the ESOP; (3)
Supplemental Eligible Account Holders; and (4) Other Members of the Association.
Based solely upon our observation that the Subscription Rights will be available
to such parties without cost, will be legally non-transferable and of short
duration, and will afford such parties the right only to purchase shares of
Common Stock at the same price as will be paid by members of the general public
in the Community Offering, but without undertaking any independent investigation
of state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that, pursuant to our valuation of
the Subscription Rights:
(1) the Subscription Rights will have no ascertainable market
value; and,
(2) the price at which the Subscription Rights are exercisable
will not be more or less than the pro forma market value of
the shares upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
common stock in the conversion will thereafter be able to buy or sell such
shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ James P. Hennessey
----------------------
James P. Hennessey
Senior Vice President
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
EXHIBIT 10.1
Proposed Form of Employment Agreement with Certain Executive Officers
<PAGE>
FORM OF EMPLOYMENT AGREEMENT FOR CERTAIN EXECUTIVE OFFICERS
THIS AGREEMENT is made effective as of ________________, 1997, by and
between FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG (the
"Association"), FIRSTSPARTAN FINANCIAL CORP. (the "Company"), a Delaware
corporation; and ________________ (the "Executive").
WHEREAS, the Association wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the
Association on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as _________________________________________________. During said period,
Executive also agrees to serve, if elected, as an officer and director of the
Company or any subsidiary or affiliate of the Company or the Association.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of thirty-six (36)
full calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
Association (the "Board") may extend the Agreement for an additional year. Prior
to the extension of the Agreement as provided herein, the Board of Directors of
the Association will conduct a formal performance evaluation of the Executive
for purposes of determining whether to extend the Agreement, and the results
thereof shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Association; provided, however, that, with the
approval of the Board, as evidenced by a resolution of such Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or organizations, which,
in such Board's judgment, will not present any conflict of interest with the
Association, or materially affect the performance of Executive's duties pursuant
to this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Sections 1 and 2. The
Association shall pay Executive as compensation a salary of $____________ per
year ("Base Salary"). Such Base Salary shall be payable in accordance with the
customary payroll practices of the Association. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase Executive's Base Salary. In addition to the
Base Salary provided in this Section 3(a), the Association shall provide
Executive at no cost to Executive with all such other benefits as are provided
uniformly to permanent full-time employees of the Association.
<PAGE>
(b) The Association will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would adversely affect Executive's rights or
benefits thereunder. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans including, but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, health-and-accident plan, medical coverage or any other employee benefit
plan or arrangement made available by the Association in the future to its
senior executives and key management employees, subject to, and on a basis
consistent with, the terms, conditions and overall administration of such plans
and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan, or pursuant to any arrangement of the
Association, in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement,
except as provided under Section 5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Association shall pay or reimburse Executive for all
reasonable travel and other obligations under this Agreement and may provide
such additional compensation in such form and such amounts as the Board may from
time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Association of Executive's full-time employment hereunder for
any reason other than a Change in Control, as defined in Section 5(a) hereof;
disability, as defined in Section 6(a) hereof; death; retirement, as defined in
Section 7 hereof; or Termination for Cause, as defined in Section 8 hereof; (ii)
Executive's resignation from the Association's employ, upon (A) unless consented
to by the Executive, a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Sections 1 and 2, above (any such material change shall be
deemed a continuing breach of this Agreement), (B) a relocation of Executive's
principal place of employment by more than 35 miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites to Executive from those being provided as of the effective date of
this Agreement, (C) the liquidation or dissolution of the Association, or (D)
any breach of this Agreement by the Association. Upon the occurrence of any
event described in clauses (A), (B), (C) or (D), above, Executive shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within a
reasonable period of time not to exceed, except in case of a continuing breach,
four (4) calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the Association
shall pay Executive, or, in the event of his subsequent death, his beneficiary
or beneficiaries, or his estate, as the case may be, as severance pay or
liquidated damages, or both, a sum equal to the payments due to the Executive
for the remaining term of the Agreement, including Base Salary, bonuses, and any
other cash or deferred compensation paid or to be paid (including the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Association as of the Date of Termination), to the Executive
for the term of the Agreement provided, however, that if the Association is not
in compliance with its minimum capital requirements or if such payments would
cause the Association's capital to be reduced below its minimum capital
requirements, such payments shall be deferred until such time as the Association
is in capital compliance. All payments made pursuant to this Section 4(b) shall
be paid in substantially equal monthly installments over the remaining term of
this Agreement following the Executive's termination; provided, however, that if
the remaining term of the Agreement is less than one (1) year (determined as of
the
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<PAGE>
Executive's Date of Termination), such payments and benefits shall be paid to
the Executive in a lump sum within thirty (30) days of the Date of
Termination.
(c) Upon the occurrence of an Event of Termination, the Association
will cause to be continued life, medical, dental and disability coverage
substantially identical to the coverage maintained by the Association for
Executive prior to his termination. Such coverage shall cease upon the
expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall
have occurred a Change in Control of the Company or the Association. For
purposes of this Agreement, a "Change in Control" of the Company or the
Association shall be deemed to occur if and when (a) an offeror other than the
Company purchases shares of the common stock of the Company or the Association
pursuant to a tender or exchange offer for such shares, (b) any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) is or becomes the beneficial owner, directly or indirectly, of securities
of the Company or the Association representing 25% or more of the combined
voting power of the Company's or the Association's then outstanding securities,
(c) the membership of the board of directors of the Company or the Association
changes as the result of a contested election, such that individuals who were
directors at the beginning of any twenty-four (24) month period (whether
commencing before or after the date of adoption of this Agreement) do not
constitute a majority of the Board at the end of such period, or (d)
shareholders of the Company or the Association approve a merger, consolidation,
sale or disposition of all or substantially all of the Company's or the
Association's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting
a Change in Control have occurred or the Board of the Association or the Company
has reasonably determined that a Change in Control has occurred, Executive shall
be entitled to the benefits provided in paragraphs (c), (d) and (e) of this
Section 5 upon his subsequent involuntary termination following the effective
date of a Change in Control (or voluntary termination following the effective
date of a Change in Control following any demotion, loss of title, office or
significant authority, reduction in his annual compensation or benefits (other
than a reduction affecting the Association's personnel generally), or relocation
of his principal place of employment by more than thirty-five (35) miles from
its location immediately prior to the Change in Control), unless such
termination is because of his death, retirement as provided in Section 7,
termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Association shall pay Executive, or
in the event of his subsequent death, his beneficiary or beneficiaries, or his
estate, as the case may be, as severance pay or liquidated damages, or both, a
sum equal to 2.99 times the Executive's "base amount," within the meaning of
(section mark)280G(b)(3) of the Internal Revenue Code of 1986 ("Code"), as
amended. Such payment shall be made in a lump sum paid within ten (10) days of
the Executive's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by the
Executive's termination of employment, the Association will cause to be
continued life, medical, dental and disability coverage substantially identical
to the coverage maintained by the Association for Executive prior to his
severance. In addition, Executive shall be entitled to receive the value of
employer contributions that would have been made on the Executive's behalf over
the remaining term of the agreement to any tax-qualified retirement plan
sponsored by the Association as of the Date of Termination. Such coverage and
payments shall cease upon the expiration of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, the Executive shall be
entitled to receive benefits due him under, or contributed by the Company or the
Association on his behalf, pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Association or the Company on the Executive's behalf to the
extent that such benefits are not otherwise paid to the Executive upon a Change
in Control.
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(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
Executive under this Section would be deemed to include an "excess parachute
payment" under (section mark)280G of the Code, then, at the election of
Executive, (i) such payments or benefits shall be payable or provided to
Executive over the minimum period necessary to reduce the present value of such
payments or benefits to an amount which is one dollar ($1.00) less than three
(3) times Executive's "base amount" under (section mark)280G(b)(3) of the
Code or (ii) Executive shall receive the amount payable under Section 5(c) as
the sole benefit payable under this Section 5.
6. TERMINATION FOR DISABILITY.
(a) If the Executive shall become disabled as defined in the
Association's then current disability plan (or, if no such plan is then in
effect, if the Executive is permanently and totally disabled within the meaning
of Section 22(e)(3) of the Code as determined by a physician designated by the
Board), the Association may terminate Executive's employment for "Disability."
(b) Upon the Executive's termination of employment for Disability, the
Association will pay Executive, as disability pay, a bi-weekly payment equal to
three-quarters (3/4) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination. These disability payments shall commence on
the effective date of Executive's termination and will end on the earlier of (i)
the date Executive returns to the full-time employment of the Association in the
same capacity as he was employed prior to his termination for Disability and
pursuant to an employment agreement between Executive and the Association; (ii)
Executive's full-time employment by another employer; (iii) Executive attaining
the age of sixty-five (65); or (iv) Executive's death; or (v) the expiration of
the term of this Agreement. The disability pay shall be reduced by the amount,
if any, paid to the Executive under any plan of the Association providing
disability benefits to the Executive.
(c) The Association will cause to be continued life, medical, dental
and disability coverage substantially identical to the coverage maintained by
the Association for Executive prior to his termination for Disability. This
coverage and payments shall cease upon the earlier of (i) the date Executive
returns to the full-time employment of the Association, in the same capacity as
he was employed prior to his termination for Disability and pursuant to an
employment agreement between Executive and the Association; (ii) Executive's
full-time employment by another employer; (iii) Executive's attaining the age of
sixty-five (65); (iv) the Executive's death; or (v) the expiration of the term
of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE.
Termination by the Association of Executive based on "Retirement" shall
mean retirement at or after attaining age sixty-five (65) or in accordance with
any retirement arrangement established with Executive's consent with respect to
him. Upon termination of Executive upon Retirement, Executive shall be entitled
to all benefits under any retirement plan of the Association or the Company and
other plans to which Executive is a party. Upon the death of the Executive
during the term of this Agreement, the Association shall pay to Executive's
estate the compensation due to the Executive through the last day of the
calendar month in which his death occurred.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, or regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
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For purposes of this Section, no act, or the failure to act, on Executive's part
shall be "willful" unless done, or omitted to be done, not in good faith and
without reasonable belief that the action or omission was in the best interest
of the Association or its affiliates. Notwithstanding the foregoing, Executive
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than three-fourths (3/4) of the members of the
Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying termination for Cause
and specifying the reasons thereof. The Executive shall not have the right to
receive compensation or other benefits for any period after termination for
Cause. Any stock options granted to Executive under any stock option plan or any
unvested awards granted under any other stock benefit plan of the Association,
the Company, or any subsidiary or affiliate thereof, shall become null and void
effective upon Executive's receipt of Notice of Termination for Cause pursuant
to Section 10 hereof, and shall not be exercisable by Executive at any time
subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time,
but any termination by the Association, other than Termination for Cause, shall
not prejudice Executive's right to compensation or other benefits under this
Agreement. Executive shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as defined in Section 8
herein.
(b) If Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may, in its discretion, (i) pay Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the Association under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(d) If the Association is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the Association): (i) by the Director of the Office of
Thrift Supervision (the "Director") or his designee at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the FDIA or (ii) by the Director, or his
designee at the time the Director or such designee approves a supervisory merger
to resolve problems related to operation of the Association or when the
Association is determined by the Director to be in an unsafe or unsound
condition. Any rights of the parties that have already vested, however, shall
not be affected by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12
U.S.C.(section mark)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the Association or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a
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written notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Association will continue
to pay Executive his full compensation in effect when the notice giving rise to
the dispute was given (including, but not limited to, Base Salary) and continue
him as a participant in all compensation, benefit and insurance plans in which
he was participating when the notice of dispute was given, until the dispute is
finally resolved in accordance with this Agreement. Amounts paid under this
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
11. NON-COMPETITION.
(a) Upon any termination of Executive's employment hereunder pursuant
to an Event of Termination as provided in Section 4 hereof, Executive agrees not
to compete with the Association and/or the Company for a period of one (1) year
following such termination in any city, town or county in which the Association
and/or the Company has an office or has filed an application for regulatory
approval to establish an office, determined as of the effective date of such
termination. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
Association and/or the Company. The parties hereto, recognizing that irreparable
injury will result to the Association and/or the Company, its business and
property in the event of Executive's breach of this Subsection 11(a) agree that
in the event of any such breach by Executive, the Association and/or the Company
will be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 8 hereof, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Association and/or the
Company, and that the enforcement of a remedy by way of injunction will not
prevent Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Association and/or the Company from pursuing any other remedies
available to the Association and/or the Company for such breach or threatened
breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas
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which are not solely and exclusively derived from the business plans and
activities of the Association. In the event of a breach or threatened breach by
the Executive of the provisions of this Section, the Association will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Association or affiliates thereof, or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Association from pursuing
any other remedies available to the Association for such breach or threatened
breach, including the recovery of damages from Executive.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Company, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to Executive and, if such payments are not timely paid or provided by
the Association, such amounts and benefits shall be paid or provided by the
Company.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Association or
any predecessor of the Association and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Association, the Company and their respective successors and
assigns.
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of South
Carolina, unless otherwise specified herein; provided, however, that in the
event of a conflict between the terms of this Agreement and any applicable
federal or state law or regulation, the provisions of such law or regulation
shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within one
hundred (100) miles from the location of the Association, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Association, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The Association shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
Association (whether or not he continues to be a directors or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE ASSOCIATION OR THE COMPANY.
The Association and the Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Association
or the Company, expressly and unconditionally to assume and agree to perform the
Association's or the Company's obligations under this Agreement, in the same
manner and to the same extent that the Association or the Company would be
required to perform if no such succession or assignment had taken place.
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IN WITNESS WHEREOF, the Association and the Company hereto have caused
this Agreement to be executed and their seal to be affixed hereunto by a duly
authorized officer or director, and Executive has signed this Agreement, all on
the ____ day of _____________, 1997.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SPARTANBURG
_______________________________ BY:___________________________
[SEAL]
ATTEST: FIRSTSPARTAN FINANCIAL CORP.
_______________________________ BY:___________________________
[SEAL]
WITNESS:
- ------------------------------- ------------------------------
Executive
9
EXHIBIT 10.2
Proposed Form of Severance Agreement with Certain Senior Officers
<PAGE>
FORM OF SEVERANCE AGREEMENT FOR CERTAIN SENIOR OFFICERS
This AGREEMENT is made effective as of ___________________, 1997 by and
between FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG (the
"Association"); FIRSTSPARTAN FINANCIAL CORP. ("Company"); and
___________________ (the "Executive").
WHEREAS, the Association recognizes the substantial contribution
Executive has made to the Association and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive serves in the position of ______________ of the
Association, a position of substantial responsibility;
NOW, THEREFORE, in consideration of the foregoing and upon the other
terms and conditions hereinafter provided, the parties hereto agree as follows:
1. Term Of Agreement
The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of __________ (__) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the Association ("Board") may extend the Agreement for an
additional year. The Board will conduct a performance evaluation of the
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting.
2. Payments To Executive Upon Change In Control.
(a) Upon the occurrence of a Change in Control (as herein defined) of
the Association followed within twelve (12) months of the effective date of a
Change in Control by the voluntary or involuntary termination of Executive's
employment, other than for Cause, as defined in Section 2(c) hereof, the
provisions of Section 3 shall apply. For purposes of this Agreement, "voluntary
termination" shall be limited to the circumstances in which the Executive elects
to voluntarily terminate his employment within twelve (12) months of the
effective date of a Change in Control following any demotion, loss of title,
office or significant authority, reduction in his annual compensation or
benefits (other than a reduction affecting the Bank's personnel generally), or
relocation of his principal place of employment by more than 35 miles from its
location immediately prior to the Change in Control.
(b) A "Change in Control" of the Company or the Association shall be
deemed to occur if and when (a) an offeror other than the Company purchases
shares of the common stock of the Company or the Association pursuant to a
tender or exchange offer for such shares, (b) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company or
<PAGE>
the Association representing 25% or more of the combined voting power of the
Company's or the Association's then outstanding securities, (c) the
membership of the board of directors of the Company or the Association changes
as the result of a contested election, such that individuals who were directors
at the beginning of any twenty-four month period (whether commencing before or
after the date of adoption of this Agreement) do not constitute a majority of
the Board at the end of such period, or (d) shareholders of the Company or the
Association approve a merger, consolidation, sale or disposition of all or
substantially all of the Company's or the Association's assets, or a plan of
partial or complete liquidation.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of the Executive's intentional failure
to perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institution
industry. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause.
3. Termination
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of the Executive's employment other than for Termination
for Cause, the Association shall be obligated to pay the Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay, a sum equal to ____ times the Executive's
"base amount," within the meaning of (section mark)280G(b)(3) of the Internal
Revenue Code of 1986 ("Code") Such amount shall be paid to the Executive in
a lump sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the Association
followed within twelve (12) months of the effective date of a Change in Control
by the Executive's voluntary or involuntary termination of employment, other
than for Termination for Cause, the Association shall cause to be continued
life, medical, dental and disability coverage substantially identical to the
coverage maintained by the Association for the Executive prior to his severance.
Such coverage and payments shall cease upon expiration of _______________ months
from the date of the Executive's termination.
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(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to
Executive under this Section would be deemed to include an "excess parachute
payment" under (section mark)280G of the Code, then, at the election of
Executive, (i) such payments or benefits shall be payable or provided to
Executive over the minimum period necessary to reduce the present value of such
payments or benefits to an amount which is one dollar ($1.00) less than three
(3) times Executive's "base amount" under ss.280G(b)(3) of the Code or (ii)
Executive shall receive the amount payable under Section 5(c) as the sole
benefit payable under this Section 3.
(d) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12
U.S.C.(section mark)1828(k) and any regulations promulgated thereunder.
4. Effect On Prior Agreements And Existing Benefit Plans
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Association and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
5. No Attachment
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Company, the Association and their respective successors and
assigns.
6. Modification And Waiver
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
3
<PAGE>
7. Required Provisions
(a) The Association may terminate the Executive's employment at any
time, but any termination by the Association, other than Termination for Cause,
shall not prejudice Executive's right to compensation or other benefits under
this Agreement. Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause as defined in Section
2(c) herein.
(b) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA")
(12 U.S.C. 1818(e)(3) and (g)(1)), the Association's obligations under the
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may, in its discretion, (i) pay the Executive all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)),
all obligations of the Association under the Agreement shall terminate as of the
effective date of the order, but vested rights of the contracting parties shall
not be affected.
(d) If the Association is in default (as defined in Section 3(x)(1) of
the FDIA), all obligations under this Agreement shall terminate as of the date
of default, but this paragraph shall not affect any vested rights of the
parties.
(e) All obligations under this Agreement may be terminated: (i) by the
Director of the Office of Thrift Supervision (the "Director") or his or her
designee at the time the Federal Deposit Insurance Corporation or the Resolution
Trust Corporation enters into an agreement to provide assistance to or on behalf
of the Association under the authority contained in Section 13(c) of the FDIA
and (ii) by the Director, or his or her designee at the time the Director or
such designee approves a supervisory merger to resolve problems related to
operation of the Association or when the Association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.
8. Severability
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
4
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9. Headings For Reference Only
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. Governing Law
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of South Carolina, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Association, in accordance with the rules of
the American Arbitration Association then in effect.
11. Source of Payments
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Company, however,
guarantees all payments and the provision of all amounts and benefits due
hereunder to Executive and, if such payments are not timely paid or provided by
the Association, such amounts and benefits shall be paid or provided by the
Company.
12. Payment Of Legal Fees
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
13. Successor To The Association or the Company
The Association and the Company shall require any successor or
assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Association
or the Company, expressly and unconditionally to assume and agree to perform the
Association's or the Company's obligations under this Agreement, in the same
manner and to the same extent that the Association or the Company would be
required to perform if no such succession or assignment had taken place.
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14. Signatures
IN WITNESS WHEREOF, the Company and the Association have caused this
Agreement to be executed by a duly authorized officer, and Executive has signed
this Agreement, all on the day and date first above written.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SPARTANBURG
_______________________________ BY:___________________________
ATTEST: FIRSTSPARTAN FINANCIAL CORP.
_______________________________ BY:___________________________
WITNESS:
- ------------------------------- ------------------------------
Executive
6
EXHIBIT 10.3
Proposed Form of Employee Stock Ownership Plan
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective _______________)
<PAGE>
<TABLE>
<S> <C>
Table of Contents
I. Purpose of the Plan.....................................................................................1
II. Definitions
2.1 "Adjusted Balance".............................................................................2
2.2 "Annual Additions".............................................................................2
2.3 "Beneficiary"..................................................................................2
2.4 "Board"........................................................................................2
2.5 "Break in Service".............................................................................2
2.6 "Code".........................................................................................3
2.7 "Committee"....................................................................................3
2.8 "Company"......................................................................................3
2.9 "Company Contribution Account".................................................................4
2.10 "Company Stock"................................................................................4
2.11 "Company Stock Account"........................................................................4
2.12 "Compensation".................................................................................4
2.13 "Debt".........................................................................................5
2.14 "Early Retirement Date"........................................................................5
2.15 "Employee".....................................................................................5
2.16 "Employment Year"..............................................................................5
2.17 "ERISA"........................................................................................5
2.18 "Highly Compensated Participant"...............................................................5
2.19 "Hour of Service"..............................................................................6
2.20 "Limitation Year"..............................................................................7
2.21 "Loan".........................................................................................7
2.22 "Maximum Permissible Amount"...................................................................7
2.23 "Normal Retirement Date".......................................................................7
2.24 "Other Investments Account"....................................................................7
2.25 "Participant"..................................................................................7
2.26 "Plan".........................................................................................7
2.27 "Plan Year"....................................................................................7
2.28 "Qualified Election Period"....................................................................7
2.29 "Qualified Participant"........................................................................8
2.30 "Related Employer".............................................................................8
<PAGE>
2.31 "Related Plan".................................................................................8
2.32 "Service"......................................................................................8
2.33 "Spouse".......................................................................................8
2.34 "Suspense Account".............................................................................8
2.35 "Trust" or "Trust Fund"........................................................................8
2.36 "Trust Agreement"..............................................................................9
2.37 "Trustee"......................................................................................9
2.38 "Valuation Date"...............................................................................9
III. Participation
3.1 Eligibility Requirement.......................................................................10
3.2 Reemployment of Participant...................................................................10
IV. Contributions
4.1 Company Contributions.........................................................................11
4.2 Exclusive Benefit of Employees................................................................12
4.3 Treatment of Veterans.........................................................................12
V. Investment of Trust Assets
5.1 Investments...................................................................................13
5.2 Valuation of Company Stock....................................................................13
5.3 Suspense Account..............................................................................13
5.4 Sales and Resales of Company Stock............................................................13
VI. Exempt Loans
6.1 Loans.........................................................................................14
6.2 Loan Payments.................................................................................15
6.3 Right of First Refusal........................................................................17
6.4 Put Option....................................................................................17
6.5 Continuation of Rights or Put Option..........................................................18
VII. Allocations to Participants' Accounts
7.1 Separate Accounts.............................................................................19
7.2 Company Stock.................................................................................19
7.3 Other Investments.............................................................................19
ii
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7.4 Allocations of Company Contributions and Forfeitures..........................................19
7.5 Maximum Allocation............................................................................20
7.6 Vesting.......................................................................................22
7.7 Net Income (or Loss) of the Trust.............................................................22
7.8 Accounting for Allocations....................................................................23
7.9 Special Allocation Provisions.................................................................23
7.10 Special Limitations on Allocations............................................................24
VIII. Retirement Payments, Disability Payments and Other Benefits
8.1 Payments on Retirement........................................................................24
8.2 Payments on Death.............................................................................25
8.3 Payments on Disability........................................................................26
8.4 Payments on Termination for Other Reasons.....................................................26
8.5 Property Distributed..........................................................................27
8.6 Methods of Payment............................................................................28
8.7 Administrative Powers Relating to Payments....................................................33
8.8 Dividends.....................................................................................33
8.9 Diversification of Investments................................................................34
IX. Voting of Company Stock
9.1 Company Common Stock - Voting and Consent.....................................................36
X. Plan Administration
10.1 Company Responsibility........................................................................37
10.2 Powers and Duties of Committee................................................................37
10.3 Organization and Operation of Committee.......................................................37
10.4 Records and Reports of Committee..............................................................38
10.5 Claims Procedure..............................................................................38
10.6 Compensation and Expenses of Committee........................................................39
10.7 Indemnity of Committee Members................................................................39
XI. Trust and Trustee
11.1 Trust Agreement...............................................................................40
11.2 Exclusive Benefit of Employees................................................................40
iii
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11.3 Trustee.......................................................................................40
XII. Amendment and Termination
12.1 Amendment of Plan.............................................................................41
12.2 Voluntary Termination of or Permanent Discontinuance of Contributions
to the Plan................................................................................41
12.3 Limitation on Amendment or Termination........................................................41
12.4 Involuntary Termination of Plan...............................................................41
12.5 Payments on Termination of or Permanent Discontinuance of Contributions
to the Plan................................................................................42
XIII. Miscellaneous
13.1 Duty To Furnish Information and Documents.....................................................43
13.2 Committee's Annual Statements and Available Information.......................................43
13.3 No Enlargement of Employment Rights...........................................................43
13.4 Applicable Law................................................................................43
13.5 No Guarantee..................................................................................43
13.6 Unclaimed Funds...............................................................................44
13.7 Merger or Consolidation of Plan...............................................................44
13.8 Interest Nontransferable......................................................................44
13.9 Prudent Man Rule..............................................................................44
13.10 Limitations on Liability......................................................................45
13.11 Federal and State Security Law Compliance.....................................................45
13.12 Headings......................................................................................45
13.13 Gender and Number.............................................................................45
13.14 ERISA and Approval Under Internal Revenue Code................................................45
13.15 Extension of Plan to Related Employers........................................................46
13.16 Administrative Changes Without Amendment......................................................46
XIV. Top-Heavy Provisions
14.1 Top-Heavy Status..............................................................................47
14.2 Definitions...................................................................................47
14.3 Determination of Top-Heavy Status.............................................................47
14.4 Vesting.......................................................................................48
14.5 Minimum Contribution..........................................................................49
iv
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14.6 Compensation..................................................................................49
14.7 Collective Bargaining Agreements..............................................................49
</TABLE>
v
<PAGE>
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this Plan is to enable participating Employees of First
Federal Savings and Loan Association of Spartanburg and Related Employers
to share in the growth and prosperity of the Company, to provide Employees
with an opportunity to accumulate capital for their future economic security,
to furnish additional security to Employees who become permanently disabled,
and to enable Employees to acquire stock ownership interests in the Company.
Consequently, Company contributions to the Plan will be invested primarily in
Company Stock. The Plan, effective as of _______________, shall constitute an
employee stock ownership plan under Section 4975(e)(7) of the Code and Section
407(d)(6) of ERISA and a stock bonus plan under Section 401(a) of the Code.
1
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ARTICLE II
DEFINITIONS
Whenever used herein the following words and phrases shall have the
meanings stated below unless a different meaning is plainly required by the
context:
2.1 "Adjusted Balance" means the balance in a Participant's account or
accounts, as adjusted in accordance with Sections 7.8 and 7.9 of the Plan as of
the applicable Valuation Date.
2.2 "Annual Additions" means the total of: (a) Company contributions
allocated to a Participant's Accounts under this Plan and any Related Plan
during any Limitation Year; (b) the amount of employee contributions made by the
Participant under any Related Plan; and (c) forfeitures allocated to a
Participant's Accounts under the Plan and any Related Plan.
2.3 "Beneficiary" means the person, persons, or entity designated or
determined pursuant to the provisions of Section 8.2 of the Plan.
2.4 "Board" means the Board of Directors of the Company.
2.5 "Break in Service" means the termination of employment of an
Employee followed by the expiration of an Employment Year in which the Employee
accumulated fewer than 501 Hours of Service. For purposes of this Section:
(a) A Break in Service shall not be deemed to have occurred if
(i) the employment of a terminated Employee is resumed prior to the expiration
of an Employment Year in which he accumulates fewer than 501 Hours of Service;
(ii) the Employee is absent with the prior consent of the Company for a period
not exceeding 12 months (which consent shall be granted under uniform rules
applied to all Employees on a nondiscriminatory basis) and he returns to active
employment with the Company upon the expiration of the period of authorized
absence; or (iii) he leaves the Company to serve in the armed forces of the
United States for a period during which his reemployment rights are guaranteed
by law and he returns or offers to return to work for the Company prior to the
expiration of his reemployment rights.
(b) An Employee who is absent from work with the Company
because of (i) the Employee's pregnancy, (ii) the birth of the Employee's child,
(iii) the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) caring for such child immediately
following such birth or placement shall receive credit, solely for purposes of
determining whether a Break in Service has occurred under this Section, for the
Hours of Service described in subsection (c) of this Section; provided that the
total number of hours credited as Hours of Service under this subsection shall
not exceed 501 Hours of Service.
2
<PAGE>
(c) In the event of an Employee's absence from work for any of
the reasons set forth in subsection (b) of this Section, the Hours of Service
that the Employee will be credited with under subsection (b) are (i) the Hours
of Service that otherwise would normally have been credited to the Employee but
for such absence, or (ii) eight Hours of Service per day of such absence if the
Committee is unable to determine the Hours of Service described in clause (i).
(d) An Employee who is absent from work for any of the reasons
set forth in subsection (b) of this Section shall be credited with Hours of
Service under subsection (b), (i) only in the Employment Year in which the
absence begins, if the Employee would be prevented from incurring a Break in
Service in that Year solely because the period of absence is treated as credited
Hours of Service, as provided in subsections (b) and (c), or (ii) in any other
case, in the immediately following Employment Year.
(e) No credit for Hours of Service will be given pursuant to
subsections (b), (c) and (d) of this Section unless the Employee furnished to
the Committee such timely information that the Committee may reasonably require
to establish (i) that the absence from work is for one of the reasons specified
in subsection (b) and (ii) the number of days for which there was such an
absence. No credit for Hours of Service will be given pursuant to subsections
(b), (c), and (d) for any purpose of the Plan other than the determination of
whether an Employee has incurred a Break in Service pursuant to this Section.
2.6 "Code" means the Internal Revenue Code of 1986 as amended.
Reference to a section of the Code shall include that section and any comparable
section or sections of any future legislation that amends, supplements or
supersedes said sections.
2.7 "Committee" means the Plan Administrative Committee described in
Section 10.1 of the Plan.
2.8 "Company" means, as appropriate, First Federal Savings and Loan
Association of Spartanburg, a federally-chartered savings and loan association,
and any successor corporation resulting from a merger or consolidation with the
Company or transfer of substantially all of the assets of the Company, if such
successor or transferee shall adopt and continue the Plan by appropriate
corporate action, pursuant to Section 12.4 of the Plan.
2.9 "Company Contribution Account" means the Company Stock and other
assets held by the Trustee for the Plan derived from Company contributions to
the Trust.
3
<PAGE>
2.10 "Company Stock" means any qualifying employer security within the
meaning of Section 4975(e)(8) of the Code and 407(d)(1) of ERISA and Regulations
thereunder.
2.11 "Company Stock Account" means an account of a Participant which is
credited with his allocable share of Company Stock purchased and paid for by the
Trust or contributed to the Trust.
2.12 "Compensation" means a Participant's total earnings from the
Company paid during a Plan year for service rendered including bonuses,
overtime, commissions, contributions or benefits under this Plan or any other
pension, profit sharing, insurance, hospitalization or other plan or policy
maintained by the Company for the benefit of such Participant, and all other
extraordinary and unusual payments. For purposes of Sections 2.18 and 2.22,
Compensation means wages, salaries, fees for professional services, and other
amounts received for personal services actually rendered in the course of
employment with the Company (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of percentage of profits, tips,
and bonuses); shall include all compensation actually paid or made available to
a Participant for an entire Limitation Year; and shall not include any other
items or amounts paid to or for the benefit of a Participant. The limit of
Compensation for any participant for a Plan Year or Limitation Year shall be the
dollar limitation in effect under Section 401(a)(17) of the Code and the
Regulations thereunder for such Year. In addition to other applicable
limitations set forth in the Plan, and notwithstanding any other provision of
the plan to the contrary, for plan years beginning on or after January 1, 1994,
the annual compensation of each employee taken into account under the plan shall
not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual
compensation limit is $150,000, as adjusted by the Commissioner for increased in
the cost of living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (determination
period) beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is the number of months in
the determination period, and the denominator of which is 12. For plan years
beginning on or after January 1, 1994, any reference in this Plan to the
limitation under section 401(a)(17) of the Code shall mean the OBRA '93 annual
compensation limit set forth in this provision. If Compensation for any prior
determination period is taken into account in determining an employee's benefits
accruing in the current plan year, the Compensation for that prior determination
period is subject to the OBRA '93 annual compensation limit in effect for that
prior determination period. For this purpose, for determination periods
beginning before the first date of the first plan year beginning on or after
January 1, 1994, the OBRA '93 annual compensation limit is $150,000.
2.13 "Debt" means any borrowing obligation incurred by the Trustee that
is not a Loan.
2.14 "Early Retirement Date" means the date a Participant attains age
55.
4
<PAGE>
2.15 "Employee" means an individual employed by the Company; provided,
however, that "Employee" does not include an hourly employee or any individual
covered by a collective bargaining agreement between employee representatives
and the Company if retirement benefits were the subject of good faith bargaining
between such employee representatives and the Company. A person who is not
employed by the Company but who performs services for the Company pursuant to an
agreement between the Company and a leasing organization shall be considered a
"leased employee" after such person performs such services for a 12-month period
and the services are of a type historically performed by employees. A person who
is considered a leased employee of the Company shall not be considered an
Employee for purposes of the Plan. If a leased employee subsequently becomes an
Employee, and thereafter participates in the Plan, he shall be given credit for
Hours of Service and Years of Service for his period of employment as a leased
employee, except to the extent that Section 414(n)(5) of the Code was satisfied
with respect to such Employee while he was a leased employee.
2.16 "Employment Year" means a 12 consecutive month period commencing
with an Employee's initial date of hire (or last date of rehire if he has
incurred a Break in Service) or with any anniversary thereof. For purposes
hereof, an Employee's date of hire shall be the first day on which he completes
an Hour of Service and his date of rehire shall be the first day on which he
completes an Hour of Service following a Break in Service.
2.17 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
2.18 "Highly Compensated Participant" means, for Plan Years beginning
prior to January 1, 1997, a Participant who, during the current Plan Year or the
preceding Plan Year, (a) was at any time a five percent (5%) owner of the
Company, (b) received Compensation from the Company in excess of $75,000 (or
such greater amount provided by the Secretary of the Treasury pursuant to
Section 414(q) of the Code), (c) received Compensation from the Company in
excess of $50,000 (or such greater amount provided by the Secretary of the
Treasury pursuant to Section 414(q) of the Code) and was in the top-paid group
of Employees for such Year, or (d) was at any time an officer of the Company and
received Compensation from the Company greater than 150% of the amount in effect
under Section 415(c)(1)(A) of the Code for such Plan Year. For Plan Years
beginning after December 31, 1996, "Highly Compensated Participant" means a
Participant who, during the current Plan Year or the preceding Plan Year, (a)
was at any time a five percent (5%) owner of the Company, or, (b) for the
preceding year, received Compensation from the Company in excess of $80,000 (or
such greater amount provided by the Secretary of the Treasury pursuant to
Section 414(q) of the Code) and, if elected by the Company, was in the top-paid
group of Participants for such preceding year. The provisions of Section 414(q)
of the Code and the regulations thereunder shall apply in determining whether a
Participant is a Highly Compensated Participant.
5
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2.19 "Hour of Service" means (i) each hour for which an Employee is
paid or entitled to payment for the performance of duties for the Company or a
Related Employer; and (ii) each hour for which an Employee is directly or
indirectly paid by the Company or a Related Employer during which no duties are
performed by reason of vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence (but not in
excess of 501 hours in any continuous period during which no duties are
performed). Each Hour of Service for which back pay, irrespective of mitigation
of damages, is either awarded or agreed to by the Company or a Related Employer
shall be included under either (i) or (ii) as may be appropriate. Hours of
Service shall be credited:
(a) in the case of Hours referred to in clause (i) of the
first sentence of this section, for the computation period in which the duties
are performed;
(b) in the case of Hours referred to in clause (ii) of the
first sentence of this section, for the computation period or periods in which
the period during which no duties are performed occurs; and
(c) in the case of Hours for which back pay is awarded or
agreed to by the Company or a Related Employer, for the computation period or
periods to which the award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
In determining Hours of Service an Employee who is employed by the
Company or a Related Employer on other than an hourly rated basis shall be
credited with ten Hours of Service per day for each day the Employee would, if
hourly rated, be credited with service pursuant to clause (i) of the first
sentence of this Section 2.19. If an Employee is paid for reasons other than the
performance of duties pursuant to clause (ii) of the first sentence of this
Section 2.19: (i) in the case of a payment made or due which is calculated on
the basis of units of time, an Employee shall be credited with the number of
regularly scheduled working hours included in the units of time on the basis of
which the payment is calculated; and (ii) an Employee without a regular work
schedule shall be credited with eight Hours of Service per day (to a maximum of
40 Hours of Service per week) for each day that the Employee is so paid. Hours
of Service shall be calculated in accordance with Department of Labor
Regulations Section 2530.200b-2 or any future legislation or Regulation that
amends, supplements or supersedes said section.
Solely for purposes of determining an Employee's
(i) eligibility to participate in the Plan under Section 3.1, and
(ii) vesting under Section 7.6,
6
<PAGE>
Hours of Service shall include Hours during an approved leave
of absence granted by an Employer to an Employee on or after
August 5, 1993 pursuant to the Family and Medical Leave Act,
if the Employee returns to work for an Employer at the end of
such leave of absence. Such Hours of Service shall be
calculated pursuant to the second sentence of this paragraph.
2.20 "Limitation Year" means the Plan Year.
2.21 "Loan" means any loan as described in Section 4975(d)(1) of the
Code to the Trustee made or guaranteed by a disqualified person (within the
meaning of Section 4975(e)(2) of the Code), including, but not limited to, a
direct loan of cash, a purchase money transaction, an assumption of an
obligation of the Trustee, an unsecured guarantee or the use of assets of a
disqualified person (within the meaning of Section 4975(e)(2) of the Code) as
collateral for a loan.
2.22 "Maximum Permissible Amount" means the lesser of: (a) $30,000 (or,
if greater, one-quarter of the dollar limitation in effect pursuant to Section
415(b)(1)(A) of the Code); or (b) 25% of a Participant's Compensation.
2.23 "Normal Retirement Date" means the date a Participant attains age
65.
2.24 "Other Investments Account" means an account of a Participant
which is credited with his share of the net income (or loss) or the Trust and
Company contributions and forfeitures in other than Company Stock, and which is
debited with payments made to pay for Company Stock
2.25 "Participant" means an Employee who becomes a Participant under
the provisions of Section 3.1 of the Plan.
2.26 "Plan" means this First Federal Savings and Loan Association of
Spartanburg Employee Stock Ownership Plan. It is hereby intended that this Plan
shall constitute a stock bonus plan.
2.27 "Plan Year" means the period beginning January 1 and ending
December 31 of each year.
2.28 "Qualified Election Period" means the six Plan Year period
beginning with the first Plan Year in which a Participant first becomes a
Qualified Participant.
2.29 "Qualified Participant" means any Participant who has attained age
55 and has been a Participant in the Plan for at least ten years.
7
<PAGE>
2.30 "Related Employer" means (i) any corporation that is a member of a
controlled group of corporations (as defined in Section 414(b) of the Code) that
includes the Company; (ii) any trade or business (whether incorporated or
unincorporated) that is under common control (as defined in Section 414(c) of
the Code) with the Company; and (iii) any member of an affiliated service group
(as defined in Section 414(m) of the Code) that includes the Company. For
purposes of Section 7.5, paragraphs (i) and (ii) shall be as amended by Section
415(h) of the Code.
2.31 "Related Plan" means any other defined contribution plan (as
defined in Section 415 of the Code) maintained by the Company or by any Related
Employer.
2.32 "Service" means a period of time, measured in whole Employment
Years, commencing with the Employment Year in which an Employee is initially
employed and ending with the Employment Year in which a Break in Service occurs;
provided, however, that Service shall not include any Employment Year in which
the Employee accrues less than 1,000 Hours of Service; provided, further that,
for purposes of Sections 7.6 and 14.4, Service shall be determined without
regard to a Participant's Hours of Service during an Employment Year. Service
shall include an approved leave of absence granted to an Employee on or after
August 3, 1993 pursuant to the Family and Medical Leave Act, if the Employee
returns to work for an Employer at the end of such leave of absence. Without
regard to the preceding provisions of this Section 2.28, a Participant's years
of Service after a period of five consecutive one-year Breaks in Service shall
be disregarded for purposes of determining his nonforfeitable interest in his
Accounts as of the Valuation Date coincident with or next preceding the date he
incurs such five consecutive one-year Breaks in Service.
2.33 "Spouse" means the person who is legally married to a Participant
immediately prior to the Participant's death.
2.34 "Suspense Account" means an account to which securities purchased
with any Loans are allocated pending their release and allocation to other
accounts as the Loan is repaid.
2.35 "Trust" or "Trust Fund" means all money, securities and other
property held under the Trust Agreement for the purposes of the Plan.
2.36 "Trust Agreement" means the agreement between the Company and the
Trustee (or any successor Trustee) governing the administration of the Trust, as
it may be amended.
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2.37 "Trustee" means the corporation or individuals appointed by the
Board of Directors of the Company to administer the Trust and which executes the
Trust Agreement.
2.38 "Valuation Date" means the last day of each Plan Year and such
other date, if any, as shall be selected by the Company.
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ARTICLE III
PARTICIPATION
3.1 Eligibility Requirement. Any Employee who was in the employ of the
Company on the effective date shall participate in the Plan as of the effective
date if he has completed an Employment Year as of such date and has attained the
age of 21. Each other Employee shall be eligible to participate upon: (i) the
completion of one Employment Year during which the Employee has completed 1,000
Hours of Service and (ii) attainment of the age of 21. An Employee who is
eligible to participate shall commence participation in the Plan on the January
1 or July 1 next following the date on which the Employee is first eligible to
participate in the Plan.
3.2 Reemployment of Participant. For purposes of Section 3.1 of the
Plan pertaining to eligibility and Section 7.7 of the Plan pertaining to
vesting, if a Participant shall incur a Break in Service and shall thereafter be
reemployed by the Company: (i) Years of Service completed before such Break
shall not be required to be taken into account until the Participant has
completed a Year of Service after his return to employment with the Company at
which time such Years of Service shall be restored and the Participant shall
participate in the Plan retroactively from the date of his return to employment
with the Company; and (ii) if no part of the Participant's Company stock and
Other Investments Accounts was nonforfeitable when he incurred such Break, Years
of Service with the Company completed prior to such Break shall not be required
to be taken into account in any event if the number of consecutive one-year
Breaks in Service equals or exceeds the greater of (a) five or (b) the aggregate
number of years of Service prior to such Break.
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ARTICLE IV
CONTRIBUTIONS
4.1 Company Contributions.
(a) For each Plan Year, Company contributions under the Plan
may be paid to the Trust in such amounts (or under such formula) and at such
times as may be determined by the Company's Board of Directors. Company
contributions under the Plan for a Plan Year may be paid during the Plan Year
and shall in any event be paid not later than the due date for filing the
Company's federal income tax return for that year, including any extensions of
such due date. Company contributions for any Plan Year shall not be paid to the
Trust in amounts that would exceed the limitations of Section 404 of the Code.
In no event shall Company contributions in any Limitation year exceed an amount
which would cause: (a) Annual Additions to the accounts of any Participant to
exceed the Maximum Permissible Amount for that Limitation Year (except as
provided in Section 7.5); or (b) the sum of the defined benefit plan fraction
(as defined in Section 7.5) and the defined contribution plan fraction (as
defined in Section 7.5) to exceed one for that Limitation Year.
(b) Company contributions may be paid to the Trust in cash or
in shares of Company Stock, as determined by the Company's Board of Directors;
provided that Company contributions shall be paid in cash in such amounts, and
at such times (subject to the limitations described in Section 7.5) as needed to
provide the Trust with funds sufficient to pay in full when due any principal
and interest payments required by a Loan incurred by the Trustee pursuant to
Article VI to finance the acquisition of Company Stock.
(c) All Company contributions for a Plan Year shall be
allocated to the Company Contribution Account when paid. The Company
Contribution Account shall be subdivided into a Company Stock Contribution
Account and a Company Other Investments Contribution Account. As of the last day
of each Plan Year amounts in the Company Contribution Account, including amounts
contributed after such last day under paragraph (a) above shall be allocated to
Participants' accounts as provided in Article VIII.
(d) No participants shall be required or permitted to make
contributions to the Plan or Trust.
(e) All Company contribution made under the Plan are
conditioned upon the qualification of the Plan under Section 401(a) of the Code
and upon the deductibility of the contribution under Section 404 of the Code.
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4.2 Exclusive Benefit of Employees. All contributions made pursuant to
the Plan shall be held by the Trustee in accordance with the terms of the Trust
Agreement for the exclusive benefit of those Employees who are Participants
under the Plan, including former Employees, and their Beneficiaries, and shall
be applied to provide benefits under the Plan and to pay expenses of
administration of the Plan and the Trust, to the extent that such expenses are
not otherwise paid. At no time prior to the satisfaction of all liabilities with
respect to such Employees and their Beneficiaries shall any part of the Trust
Fund (other than such part as may be required to pay administration expenses and
taxes) be used for, or diverted to, purposes other than for the exclusive
benefit of such Employees and their Beneficiaries. However, without regard to
the provisions of this Section 4.2:
(a) If a contribution under the Plan is conditioned on initial
qualification of the Plan under Section 401(a) of the Code, and the Plan
receives an adverse determination with respect to its initial qualification, the
Trustee shall, upon written request of the Company, return to the Company the
amount of such contribution (increased by earnings attributable thereto and
reduced by losses attributable thereto) within one calendar year after the date
that qualification of the Plan is denied, provided that the application for the
determination is made by the time prescribed by law for filing the Company's
return for the taxable year in which the Plan is adopted, or such later date as
the Secretary of the Treasury may prescribe;
(b) If a contribution is conditioned upon the deductibility of
the contribution under Section 404 of the Code, then, to the extent the
deduction is disallowed, the Trustee shall upon written request of the Company
return the contribution (to the extent disallowed) to the Company within one
year after the date the deduction is disallowed;
(c) If a contribution or any portion thereof is made by the
Company by a mistake of fact, the Trustee shall, upon written request of the
Company, return the contribution or such portion to the Company within one year
after the date of payment of the Trustee; and
(d) Earnings attributable to amount to be returned to the
Company pursuant to subsection (b) or (c) above shall not be returned, and
losses attributable to amounts to be returned pursuant to subsection (b) or (c)
shall reduce the amount to be so returned.
4.3 Treatment of Veterans. Notwithstanding any provision of this Plan
to the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414(u)(4)
of the Code.
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ARTICLE V
INVESTMENT OF TRUST ASSETS
5.1 Investments. The Trust Fund will be invested primarily in Company
Stock. The Committee may direct the Trustee to incur Debt from time to time to
finance the acquisition of Company Stock by the Trust or otherwise. The Trust
Fund may be used to acquire shares of Company Stock from Company shareholders
(including former Participants) or from the Company. The Trustee may also invest
the Trust Fund in savings accounts, certificates of deposit, high-grade
short-term securities, equity stock, bonds, or other investments desirable for
the Trust, or the Trust Fund may be held in cash. All investments will be made
by the Trustee only upon the direction of the Committee. The Committee may
direct that the entire Trust Fund assets be invested and held in Company Stock.
5.2 Valuation of Company Stock. All purchases of Company Stock will be
made at a price, or at prices, that do not exceed the fair market value of such
Company Stock. If Company Stock is traded on a national securities exchange,
fair market value shall be the average of the closing prices thereof on such
exchange for the ten trading days immediately preceding the purchase. If Company
Stock is not traded on such an exchange but is publicly traded, fair market
value shall be the average of the bid and asked price thereof for such ten
trading days. If Company Stock is not publicly traded, the determination of the
fair market value of Company Stock for all purposes of the Plan shall in all
cases be made by an independent appraiser appointed pursuant to this section
shall meet requirements similar to the requirements of Regulations promulgated
under Section 170(a)(1) of the Code.
5.3 Suspense Account. Company Stock purchased with the proceeds of a
Loan shall be held in the Suspense Account pending release and reallocation to
other Accounts as the Loan is paid. Company Stock purchased with amounts
allocated to Participants' Other Investment Accounts or Company Other
Investments Accounts shall immediately upon purchase be credited pro rata to the
corresponding Participants' Company Stock or Company Stock Contribution Accounts
as the case may be. Company Stock contributed to the Plan pursuant to Article IV
shall be allocated to the Company Stock Accounts of Participants pursuant to
Section 7.4.
5.4 Sales and Resales of Company Stock. The Committee may direct the
Trustee to sell or resell shares of Company Stock to any person, including the
Company, provided that any such sales to any disqualified person, including the
Company, will be made at no less than the fair market value as determined under
Section 5.2 and no commission is charged. Any such sale shall be made in
conformance with Section 408(e) of ERISA. All sales of Company Stock (except
Company Stock held in a Suspense Account or Company Stock Contribution Account)
by the Trustee will be charged pro rata to the Company Stock Accounts of the
Participants.
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ARTICLE VI
EXEMPT LOANS
6.1 Loans.
(a) The Committee may direct the Trustee to obtain Loans. Any
such Loan will meet all requirements necessary to constitute an "exempt loan"
within the meaning of Section 4975(d)(3) of the Code and Regulations
ss.54.4975-7(b)(1)(iii) and shall be used primarily for the benefit of the
Participants and Beneficiaries. The proceeds of any such Loan shall be used,
within a reasonable time after the Loan is obtained, only to purchase Company
Stock, repay the Loan, or repay any prior Loan. Any such Loan shall provide for
no more than a reasonable rate of interest (as determined under Regulations
ss.54.4975-7(b)(7)) and must be without recourse against the Plan. The number of
years to maturity under the Loan must be definitely ascertainable at all times.
The only assets of the Plan that may be given as collateral on a Loan are shares
of Company Stock acquired with the proceeds of the Loan and shares of Company
Stock that were used as collateral on a prior Loan repaid with the proceeds of
the current Loan. Such Company Stock so pledged shall be placed in a Suspense
Account. No person entitled to payment under a Loan shall have recourse against
Trust Assets other than such collateral, contributions (other than contributions
of Company Stock) that are available under the Plan to meet obligations under
the Loan and earnings attributable to such collateral and the investment of such
contributions. All Company contributions paid during the Plan Year in which a
Loan is made (whether before or after the date the proceeds of the Loan are
received), all Company contributions paid thereafter until the Loan has been
repaid in full, and all earnings from investment of such Company contributions,
without regard to whether any such Company contributions and earnings have been
allocated to Participants' Other Investment Accounts, shall be available to meet
obligations under the Loans as such obligations accrue, or prior to the time
such obligations accrue, unless otherwise provided by the Company at the time
any such contribution is made.
(b) Any pledge of Company Stock must provide for the release
of shares so pledged upon the payment of any portion of the Loan. The number of
shares to be released will be determined, at the discretion of the Committee,
under clause (1) or (2) of this section 6.1(b).
(1) If the Loan provides annual payments of
principal and interest at a cumulative rate
that is not less rapid at any time than
level annual payments of principal and
interest over ten years, then for each Plan
Year during the duration of the Loan, the
number of shares of Company Stock released
from such pledge shall equal the number of
encumbered securities held immediately
before release for the current Plan Year
multiplied by a fraction. The numerator of
the fraction is the principal paid in such
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<PAGE>
Plan Year. The denominator of the fraction
is the sum of the numerator plus the
principal to be paid for all future years.
Such years will be determined without taking
into account any possible extension or
renewal periods. To the extent that the net
proceeds received by the Plan in respect of
any Loan exceed the stated principal amount
of the Loan, that portion of any interest
payment that would be deemed to be a
repayment of principal under standard loan
amortization tables shall be treated as
principal paid or principal to be paid, as
the case may be, for purposes of the above
calculation.
(2) If the Loan does not satisfy the conditions
stated in subparagraph (1), then for each
Plan Year during the duration of the Loan,
the number of shares of Company Stock
released from such pledge shall equal the
number of encumbered securities held
immediately before release for the current
Plan year multiplied by a fraction. The
numerator of the fraction is the sum of the
principal and interest paid in such Plan
Year. The denominator of the fraction is the
sum of the numerator plus the principal and
interest to be paid for all future years.
Such years will be determined without taking
into account any possible extension of
renewal periods.
(c) If the collateral includes more than one class of Company
Stock, the number of shares of each class to be released for a Plan Year must be
determined by applying the same fraction to each class. If interest on any Loan
is variable, the interest to be paid in future years under the Loan shall be
computed by using the interest rate application as of the end of the Plan Year.
Should a Loan initially satisfying the conditions stated in subparagraph (b)(1)
at some subsequent date cease to satisfy the conditions of such subparagraph, by
reason of a renewal, extension, or refinancing of the Loan, then subparagraph
(b)(2) shall be applied in determining the shares released upon payment of any
principal or interest after such date.
6.2 Loan Payments.
(a) Payments of principal and interest on any Loan during a
Plan Year shall be made by the Trustee (as directed by the Committee) only from
(1) Company Contributions to the Trust made to meet the Plan's obligation under
a Loan (other than contributions of Company Stock) and from any earnings
attributable to Company Stock and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Loan made to repay a prior Loan; and (3) the proceeds of the sale of any Company
15
<PAGE>
Stock held as collateral for a Loan. Such contribution and earnings must be
accounted for separately by the Plan until the Loan is repaid.
(b) Company Stock released by reason of the payment of
principal or interest on a Loan from amounts allocated to Participants' Other
Investments Accounts or Company Other Investments Accounts shall immediately
upon payment be allocated as set forth in Sections 7.2 and 7.4 to the
corresponding Company Stock or Company Stock Contribution Accounts.
(c) The Company shall contribute to the Trust sufficient
amounts to enable the Trust to pay principal and interest on any such Loan as
they are due, provided however that no such contributions shall exceed the
limitations in Section 7.5. In the event that such contributions by reason of
the limitations in Section 7.5 are insufficient to enable the Trust to pay
principal and interest on such Loan as it is due, then upon the Trustee's
request the Company shall:
(1) Make a loan to the Trust as described in
Regulationsss.54.4975(b)(4)(iii), in sufficient amounts to meet such principal
and interest payment. Such new Loan shall also meet all requirements of an
"exempt loan" within the meaning of Regulations ss.54.4975-7(b)(1)(iii) and
shall be subordinated to the prior Loan. Company Stock released from the pledge
of the prior Loan shall be pledged as collateral to secure the new Loan. Such
Company Stock will be released from this new pledge and allocated to the
accounts of the Participants in accordance with applicable provisions of the
Plan;
(2) Purchase any Company Stock pledged as collateral
in an amount necessary to provide the Trustee with sufficient funds to meet the
principal and interest repayments. Any such sale by the Plan shall meet the
requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing.
(d) The Company shall not, pursuant to the provisions of this
subsection, do, fail to do or cause to be done any act or thing which would
result in a disqualification of the Plan as an employee stock ownership plan
under the Code.
(e) Except as provided in sections 6.3 and 6.4 below, and
notwithstanding any amendment to or termination of the Plan which causes it to
cease to qualify as an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code, or any repayment of a loan, no shares of Company
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Stock acquired with the proceeds of a Loan obtained by the Trust to purchase
Company Stock may be subject to a put, call or other option, or buy-sell or
similar arrangement while such shares are held by and when distributed from the
Plan.
6.3 Right of First Refusal. Shares of Company Stock purchased with the
proceeds of a Loan and distributed by the Trustee may be subject to a "right of
first refusal." Such a "right" shall provide that prior to any subsequent
transfer, the shares must first be offered in writing to the Company at a price
equal to the greater of (1) the then fair market value of such shares of Company
Stock as determined in accordance with Section 5.2, or (2) the purchase price
offered by a buyer, other than the Company or Trustee, making a good faith (as
determined by the Committee) offer to purchase such shares of Company Stock. The
Trust or the Company, as the case may be, may accept the offer as to part or all
of the Company Stock at any time during a period not exceeding 14 days after
receipt of such offer by the Trust, on terms and conditions no less favorable to
the shareholder than those offered by the independent third party buyer. Any
installment purchase shall be made pursuant to a note secured by the shares
purchased and shall bear a reasonable rate of interest as determined by the
Committee. If the offer is not accepted by the Trust, or the Company, or both,
then the proposed transfer may be completed within a reasonable prior following
the end of the 14 day period, but only upon terms and conditions of the third
party buyer's prior offer. Shares of Company Stock which are publicly traded
within the meaning of Code Section 409(h)(1)(B) at the time such right may
otherwise be exercised shall not be subject to this "right of first refusal."
6.4 Put Option.
(a) Shares of Company Stock acquired by the Trust shall be
subject to a "put" option at the time of distribution, provided that at such
time the shares are not readily tradable on an established market within the
meaning of Section 409(h)(1)(B) of the Code. The "put" option shall be
exercisable by the Participant or his Beneficiary, by the donees of either, or
by a person (including an estate or its distributee) to whom the Company Stock
passes by reason of the Participant's or Beneficiary's death. The "put" option
shall provide that for a period of at least 60 days following the date of
distribution of the Company Stock, the holder of the option shall have the right
to cause the Company, by notifying the Committee in writing, to purchase such
shares at their fair market value (as determined pursuant to Section 5.2). If
the "put" option is not exercised within such 60-day period, the option shall be
exercisable for an additional period of 60 days in the following Plan Year. The
Committee may give the Trustee the option to assume the rights and obligations
of the Company at the time the "put" option is exercised, insofar as the
repurchase of Company Stock is concerned.
(b) If the entire Adjusted Balance of a Participant's Accounts
is distributed to the Participant within one taxable year, payment of the price
of the Company Stock purchased pursuant to an exercised "put" option shall be
made in five substantially equal annual payments and the first installment shall
be paid not later than 30 days after the Participant exercises the "put" option.
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The Plan will provide adequate security and pay a reasonable rate of interest on
amounts not paid after 30 days. If the entire Adjusted Balance of a
Participant's Accounts is not distributed to him within one taxable year,
payment of the price of the Company Stock purchased pursuant to an exercised
"put" option shall be made in a single lump sum not later than 30 days after the
Participant exercises the "put" option.
6.5 Continuation of Rights or Put Option. The rights set forth in
Section 6.2(d) and the "put" option provided for by Section 6.4 are
nonterminable and shall continue to apply to shares of Company Stock purchased
by the Trustee with the proceeds of a Loan as described herein or to shares of
Company Stock distribute hereunder notwithstanding the repayment of the Loan or
any amendment to, or termination of, this Plan which causes the Plan to cease to
be an employee stock ownership plan within the meaning of Section 4975(e)(7) of
the Code.
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ARTICLE VII
ALLOCATIONS TO PARTICIPANTS' ACCOUNTS
7.1 Separate Accounts. Separate Company Stock Accounts and Other
Investments Accounts will be established to reflect Participants' interests
under the Plan. Records shall be kept by the Committee from which can be
determined the portion of each Other Investments Account which at any time is
available to meet obligations under a Loan in accordance with Section 6.1 and
the portion which is not so available.
7.2 Company Stock. The Company Stock Account maintained for each
Participant will be credited with his allocable share determined under Section
7.4 of Company Stock (including fractional shares) purchased and paid for by the
Trust or contributed in kind to the Trust, with the forfeitures of Company
Stock, and with any stock dividends on Company Stock allocated to his Company
Stock Account to the extent such dividends are not distributed pursuant to
Section 8.8. Company Stock acquired by the Trust with the proceeds of a Loan
obtained pursuant to Article VI shall be allocated to the Company Stock Accounts
of Participants according to the method set forth in Section 7.4, as the Company
Stock is released from Suspense Accounts as provided for in Section 6.1.
7.3 Other Investments. The Other Investments Account maintained for
each Participant will be credited (or debited) with its allocable shares as
determined under Section 7.8 of the net income (or loss) of the Trust, with any
cash dividends on Company Stock allocated to his Company Stock Accounts to the
extent such dividends are not distributed to the Participant or applied to the
repayment of principal or interest of a Loan pursuant to Section 8.8, with
Company Contributions which have not been used to make principal and interest
payments on a Loan or other Debt or to purchase Company Stock and with
forfeitures in other than Company Stock. Each Other Investments Account will be
debited for its share of any payments for the acquisition of Company Stock for
the benefit of the Participants' Company Stock Accounts and for any repayment of
principal or interest on any Loan or other Debt chargeable to Participants'
Company Stock Accounts; provided that only the portion of each Other Investments
Account which is available to meet obligations under Loans shall be used to pay
principal or interest on a Loan.
7.4 Allocations of Company Contributions and Forfeitures. The Company
Stock and other investments held in the Company Contribution Accounts under the
Plan, and forfeitures incurred under the Plan for each Plan Year, shall be
allocated as of the last day of such Plan Year (even though receipt of the
Company Contributions by the Trustee may take place after the close of such
Year) among the Company Stock and Other Investments Accounts of all Participants
who, during the course of such Plan Year; (i) completed at least 1,000 Hours of
Service and were employed by the Company on the last day of such Plan Year; (ii)
retired on or after their Normal Retirement Dates; (iii) died; or (iv) became
disabled as defined in Section 8.3. Such allocation shall be in the ratio that
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each Participant's Compensation (as defined in Section 2.12 of the Plan) during
the Plan Year bears to the total Compensation during such Plan Year of all
Participants entitled to share in such allocation. Notwithstanding the preceding
provisions of this Section, in no event shall an allocation be made to the
Account of any Participant, for any Limitation Year, which would cause: (a)
Annual Additions to the accounts of such Participant to exceed the Maximum
Permissible Amount for that Year (except as permitted in Section 7.5); or (b)
the sum of the defined benefit plan fraction (as defined in Section 7.5) and the
defined contribution plan fraction (as defined in Section 7.5) to exceed one for
such Participant for that Year.
7.5 Maximum Allocation.
(a) Except as provided in paragraphs (b) and (c) below, the
allocations to the accounts of any Participant in any Limitation Year shall be
limited so that the Participant's Annual Additions for such Year do not exceed
the Maximum Permissible Amount.
(b) If no more than one-third of the Company Contribution for
a Limitation Year that are deductible as principal or interest payments on a
Loan, pursuant to the provisions of Section 404(a)(9) of the Code, are allocated
to Highly Compensated Participants, then the limitations imposed by subsection
(a) or (b), whichever is applicable, shall not apply to:
(i) Forfeitures of Company Stock if the Company Stock
was acquired with the proceeds of a Loan, or
(ii) Company Contributions that are deductible as
interest payments on a Loan under Section 404(a)(9)(B) of the Code and charged
against a Participant's Account.
(c) If the foregoing limitation on allocations would be
exceeded in any Limitation Year for any Participant as a result of the
allocation of forfeitures under the Plan, reasonable error in estimating a
Participant's Compensation, or under such other limited facts and circumstances
that the Commissioner of the Internal Revenue Service, pursuant to Regulations
ss.1.415-6(b)(6), finds justify the availability of this Section 7.5, the amount
in excess of the limits of this Section 7.5 shall be placed, unallocated to any
Participant, in a Limitation Account. If a Limitation Account is in existence at
any time during a particular Limitation Year, other than the Limitation Year
described in the preceding sentence, all amounts in the Limitation Account must
be allocated to Participants' Accounts (subject to the limits of this Section
7.5) before any Company Contributions which would constitute Annual Additions
may be made to the Plan for that Limitation Year. The excess amount allocated
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pursuant to this Section 7.5(d) shall be used to reduce Company Contributions
for the next Limitation Year (and succeeding Limitation Years, as necessary) for
all of the Participants in the Plan. The Limitation Account will not share in
the valuation of Participants' Accounts and the allocation of earnings set forth
in Section 7.8 of the Plan, and the change in fair market value and allocation
of earnings attributable to the Limitation Account shall be allocated to the
remaining accounts hereunder as set forth in Section 7.5.
(d) Upon termination of the Plan, any amounts in a Limitation
Account at the time of such termination shall revert to the Company.
(e) In the event that any Participant under this Plan is also
a Participant in a defined benefit plan (as defined in Section 415(k) of the
Code) maintained by the Company or a Related Employer, the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any
Limitation Year with respect to such Participant shall not exceed one. The
"defined benefit plan fraction" for any Limitation Year for a Participant means
a fraction, the numerator of which is the projected annual benefit of the
Participant under all defined benefit plans maintained by the Company or a
Related Employer determined as of the close of the Limitation Year and the
denominator of which is the lesser of (a) the product of 1.25 and the dollar
limitation in effect under Section 415(b)(1)(A) of the Code for such Year, or
(b) the product of 1.4 and the amount taken into account under Section
415(b)(1)(B) of the Code for the Participant for such Year. The "defined
contribution plan fraction" for any Limitation Year for any Participant is a
fraction, the numerator of which is the sum of the annual additions to the
Participant's accounts under the Plan and to the accounts under all Related
Plans as of the close of the Year, and the denominator of which is the sum of
the lesser of the following amounts determined for such Year and for each prior
Year of Service with the Company or an Affiliate: (A) the product of 1.25 of the
dollar limitation in effect under Section 415(c)(1)(A) of the Code for such Year
(determined without regard to Section 415(c)(6) of the Code), and (B) the
product of 1.4 and the amount which may be taken into account under Section
415(c)(1)(B) of the Code with respect to such Participant for such Year.
(f) If a Participant shall be entitled to receive an
allocation under this Plan and any Related Plan and, in the absence of the
limitations contained in this and Section 7.6, the Company would have
contributed or allocated to the Account of any Participant an amount for a
Limitation Year that would have caused the Annual Additions to the Account of a
Participant to exceed the Maximum Permissible Amount for such Year, then the
contributions or allocations under such Related Plan shall be reduced prior to
any reduction in contributions or allocations made with respect to the
Participant under this Plan to the extent necessary so that the allocations of
such Annual Additions does not exceed the Maximum Permissible Amount.
(g) Any reduction in the contributions and allocations under
this Plan made with respect to a Participant's Accounts required pursuant to
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this Section 7.5 and Section 415 of the Code shall be effected, to the minimum
extent necessary, by reducing the Company Contributions that would have been
made by the Company for the applicable Plan Year with respect to such
Participant.
(h) The provisions of this Section shall be interpreted by the
Committee, in the administration of the Plan, to reduce contributions and
allocations (as required by this Section) only to the minimum extent necessary
to reflect the requirements of Section 415 of the Code, as amended and in force
from time to time, and Regulations promulgated pursuant to that Section, which
are incorporated by reference herein.
7.6 Vesting.
(a) Each Participant shall have a vested interest in the
Adjusted Balance of his Company Stock and Other Investments Accounts in
accordance with the following formula:
Years of Vested Forfeitable
Service Percentage Percentage
------- ---------- ----------
1 20% 80%
2 40% 60%
3 60% 40%
4 80% 20%
5 or more 100% 0%
(b) On reaching his Normal Retirement Date, a Participant
shall be one hundred percent (100%) vested in the Adjusted Balance of his
Company Stock and Other Investments Accounts.
(c) In the event a Participant dies or becomes disabled within
the meaning of Section 8.3 while an Employee, he shall be one hundred percent
(100%) vested in the Adjusted Balance of his Company Stock and Other Investments
Accounts as of the date of his death or disability.
(d) In the event the Plan is terminated or upon the complete
discontinuance of Company Contributions to the Plan, each Participant shall
become one hundred percent (100%) vested in the Adjusted Balance of his Company
Stock and Other Investments Accounts if such event occurs (1) in the case of a
Participant who does not have a vested interest in his Accounts, while the
Participant is an Employee, and (2) in the case of a Participant who has a
vested interest in his Accounts, prior to the time the Participant incurs a
one-year Break in Service.
7.7 Net Income (or Loss) of the Trust. Any dividends received in
respect of Company Stock allocated to Company Stock Accounts of Participants or
Company Stock Contribution Account shall be credited upon receipt (to the extent
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not distributed or applied to the repayment of principal or interest on a Loan
pursuant to Section 8.8) to the applicable Company Stock Account or Company
Stock Contribution Account in the case of stock dividends, or to the
corresponding Other Investments or Company Other Investments Contributions
Account in the case of cash dividends. The net income (or loss) of the Trust for
each Plan Year will be determined as of each Valuation Date. Each Participant's
share of the net income (or loss) will be allocated to his Other Investments
Account in the ratio which the balance of such Account on the preceding
Anniversary Date (reduced by the amount of any distribution from such Account)
bears to the sum of such balances for all Participants as of that date. The net
income (or loss) of the Trust includes the increase (or decrease) in the fair
market value of the Trust Fund (other than Company Stock, except as provided
below), interest income, dividends and other income (or loss) attributable to
the Trust Fund (other than allocated Company Stock) since the preceding
Valuation Date but net income (or loss) shall not include Company contributions
or forfeitures. Any dividends on unallocated Company Stock and any proceeds of
sales of unallocated Company Stock, to the extent such proceeds are not used to
pay principal or interest on a Loan, shall be considered net income for the
Trust for the Plan Year and allocated to the Company Other Investments
Contribution Account. Net income (or loss) attributable to any Limitation
Account established under Section 7.4 shall be allocated to the Other
Investments Accounts of Participants in the manner set forth in the third
sentence of this Section, and the Limitation Account shall not share in the
allocation of Net Income (or loss) of the Trust under this Section.
7.8 Accounting for Allocations. The Committee shall adopt accounting
procedures for the purposes of making the allocations, valuations and
adjustments to Participants' Accounts provided for in this Article. Except as
provided in Regulations ss. 54.4975-11(d), Company Stock acquired by the Plan
shall be accounted for as provided under Regulations ss. 1.402(a)-1(b)(2)(ii),
allocations of Company Stock shall be made separately for each class of stock,
and the Committee shall maintain adequate records of the cost basis of all
shares of Company Stock allocated to each Participant's Company Stock Account.
From time to time, the Committee may modify the accounting procedures for the
purpose of achieving equitable and nondiscriminatory allocations among the
Accounts of Participants in accordance with the general concepts of the Plan and
the provisions of this Section. Annual valuations of Trust Assets shall be made
at fair market value, as described in Section 5.2 above.
7.9 Special Allocation Provisions. Whenever an account balance is
distributable in installments, the undistributed balance of such account shall
participate in the valuation provided in Section 7.7 until fully distributed. In
lieu of such participation, however, upon the written request of the former
Participant or Beneficiary entitled to receive such installments, received by
the Committee prior to the payment of the first installment, the Adjusted
Balances of his accounts shall be deposited in the name of the Trustee in a
savings account or certificate of deposit in a national or state bank or in a
federal savings and loan association and earn and be credited with such earnings
(at not less than the current rate of earnings paid thereon by the depository).
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<PAGE>
Any amounts deposited pursuant to this Section 7.9 and any earnings thereon
shall be disregarded in computing the fair market value of trust assets to be
allocated under Section 7.7 of the Plan and the earnings shall be payable to
such former Participant or Beneficiary with payment of the aforementioned
installments. Any expenses incurred by the Trustee and the Committee as the
result of any deposit made pursuant to this Section shall be payable from the
accounts of the former Participant or Beneficiary from whom such deposit was
made.
7.10 Special Limitations on Allocations.
(a) Notwithstanding the foregoing provisions of this Article,
if more than one-third of Company Contributions for a Plan Year which
are deductible under Section 404(a)(9) of the Code would be allocated,
in the aggregate, to the Accounts of Highly Compensated Participants
then such allocations to the Accounts Highly Compensated Participants
shall be reduced, pro rata, in an amount sufficient to reduce the
amounts allocated to the Accounts of such Participants to an amount
not in excess of one-third of such deductible contributions with
respect to such Plan Year. Any contributions which are prevented from
being allocated due to the restriction contained in this Section 7.10
shall be allocated pursuant to Section 7.4 as though those Highly
Compensated Participants did not participate in the Plan.
(b) Notwithstanding the foregoing provisions of this Article,
in the event that the Trustee acquires shares of Company Stock
transaction to which Section 1042 of the Code applies, then, in
accordance with the Regulations, such Shares shall not be allocated,
directly or indirectly, to any Participant described in Section
409(n)(1) of the Code for the duration of the "nonallocation period"
(as defined in Section 409(n)(3)(C) of the Code). Where any shares of
Company Stock are prevented from being allocated due to the
prohibition contained in the allocation of contributions otherwise
provided under Section 7.4 shall be adjusted to reflect such result.
ARTICLE VIII
RETIREMENT PAYMENTS, DISABILITY PAYMENTS AND OTHER BENEFITS
8.1 Payments on Retirement. A Participant who attains his Normal
Retirement Date and continues to be an Employee shall continue to share in the
allocation of Company Contributions and of forfeitures under the Plan. Upon the
retirement of a Participant at or after his Normal Retirement Date the Committee
shall notify the Trustee in writing of the Participant's retirement and shall
direct the Trustee to make payment of the Adjusted Balance of the Participant's
Accounts as of the Valuation Date coinciding with or immediately preceding the
distribution commencement date pursuant to Section 8.6, in a method provided in
the Plan.
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<PAGE>
8.2 Payments on Death.
(a) Upon the death of a Participant, the Committee shall
promptly notify the Trustee in writing of the Participant's death and the name
of his Beneficiary and shall direct the Trustee to make payments of the Adjusted
Balance of the Participant's accounts as of the Valuation Date coinciding with
or immediately preceding the date of distribution to his Beneficiary pursuant to
Section 8.6, in a method provided in the Plan.
(b) Each unmarried Participant or each married Participant
whose surviving Spouse has consented to any alternate Beneficiary or an
alternate method of payment as provided in subsection (c), shall have the right
to designate, by giving a written designation to the Committee, (i) a person or
entity as Beneficiary to receive the death benefit provided under this Section
8.2 and (ii) the method of payment of such death benefit to his Beneficiary
pursuant to Section 8.6. Successive designations may be made, and the last
designation received by the Committee prior to the death of the Participant
shall be effective and shall revoke all prior designations. If a designated
Beneficiary shall die before the Participant, his interest shall terminate, and,
unless otherwise provided in the Participant's designation, if the designation
included more than one Beneficiary, such interest shall be paid in equal shares
to those Beneficiaries, if any, who survive the Participant. A Participant to
whom this subsection applies shall have the right to designate different
Beneficiaries to receive the Adjusted Balance in the Participant's various
accounts under the Plan.
(c) The Beneficiary of each Participant who is married shall
be the surviving Spouse of such Participant and the death benefits of any
Participant who is married shall be paid in full to his surviving Spouse in a
single lump sum. Notwithstanding the preceding sentence, the death benefits
provided pursuant to subsection (a) shall be distributed to any other
Beneficiary designated by a married Participant as provided in subsection (b),
if the Participant's surviving Spouse consented to such designation, prior to
the date of the Participant's death, in writing. Such a consent must acknowledge
the effect of the election and designation and the identity of any nonsurviving
Spouse Beneficiary, including any class of Beneficiaries or contingent
Beneficiaries, and must be witnessed by a representative of the Plan or a notary
public. Consent of a Participant's surviving Spouse shall not be required if the
Participant established to the satisfaction of the Committee that consent may
not be obtained because there is no surviving Spouse or the surviving Spouse
cannot be located, or because of such other circumstances as the Secretary of
the Treasury may prescribe by Regulations. The Participant may not subsequently
change the method of distribution elected by the Participant or the designation
of his Beneficiary unless his surviving Spouse consents to the new elections or
designation in accordance with the requirements set forth in the preceding
sentence, or unless the surviving Spouse's consent permits the Participant to
change the election of method of payment or the designation of his Beneficiary
25
<PAGE>
without the Spouse's further consent. A surviving Spouse's consent shall be
irrevocable. Any consent by a surviving Spouse, or establishment that the
consent of the surviving Spouse may not be obtained, shall be effective only
with respect to that surviving Spouse.
(d) The Committee may determine the identity of the
distributees and in so doing may act and rely upon any information it may deem
reliable upon reasonable inquiry, and upon any affidavit, certificate, or other
paper believed by it to be genuine, and upon any affidavit, certificate, or
other paper believed by it to be genuine, and upon any evidence believed by it
sufficient.
8.3 Payments on Disability. Upon the termination of a Participant's
employment with the Company by reason of a disability, the Committee shall
notify the Trustee in writing of said disability termination, and shall direct
the Trustee to make payment of the Adjusted Balance of the Participant's
accounts as of the Valuation Date coinciding with or immediately preceding the
distribution commencement date under Section 8.6 in a method provided in the
Plan. For purposes of this section "disability" means a physical or mental
condition which is expected to render the Participant permanently unable to
perform his usual duties or any comparable duties for the Company. The
determination of the existence of such disability shall be made by the Committee
and shall be final and binding upon the Participant and all other parties. The
Committee may require the submission of such medical evidence as it may deem
necessary in order to arrive at its determination. The Committee's determination
of the existence of a disability will be made with reference to the nature of
the injury without regard to the period the Participant is absent from work.
8.4 Payments on Termination for Other Reasons. Upon the termination of
a Participant's employment with the Company for any reason (whether before, on,
or after his Early Retirement Date) other than retirement on or after his Normal
Retirement Date, or permanent disability, the Committee shall notify the Trustee
to make payment of the vested portion of the Adjusted Balance of his Accounts,
if any, as of the Valuation Date coinciding with or next preceding the
distribution commencement date determined under Section 8.6, in a method
provided in the Plan. The vested portion of a Participant's Accounts shall be
determined in accordance with Section 7.7 of the Plan. The nonvested portion of
the Adjusted Balance of his Accounts shall be retained in his Accounts until a
period has elapsed sufficient to determine whether he will be reemployed or will
incur five consecutive one-year Breaks in Service. If he is reemployed before he
incurs five consecutive one-year Breaks in Service, his Accounts will continue
to vest; if he incurs five consecutive one-year Breaks in Service, the amount in
such Accounts shall be deemed a forfeiture as of the last day of the Plan Year
in which the Participant incurs the last of the five consecutive one-year Breaks
in Service. The amount of any such forfeiture shall be first deducted from the
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<PAGE>
Participant's Other Investments Account. If forfeitures of the Participants'
Other Investments Account are not sufficient to reduce the fair market value of
the vested portion of the Adjusted Balances of his Accounts to the percentage of
the total value of his Accounts determined under this Section, the remainder of
the forfeitures shall be deducted from the Participant's Company Stock Account.
If a Participant's Company Stock Account includes more than one class of Company
Stock, the forfeiture will consist of the same proportion of each class of
stock. All forfeitures will be applied in the same manner described in Section
7.4 as of the end of the Plan Year in which the last of five consecutive
one-year Breaks in Service resulting in forfeiture occurs. If a Participant
incurs a Break in Service, is rehired before incurring five consecutive one-year
Breaks in Service and subsequently incurs another Break in Service under
circumstances in which he is not fully vested in his Accounts, the portion of
his Accounts distributable upon the date of his later one-year Break in Service
shall be calculated as follows:
(i) the amount distributed to the Participant from his
Accounts upon his earlier Break in Service shall be
added to the Adjusted Balance of his Accounts;
(ii) the amount determined under paragraph (i) shall be
multiplied by the vested percentage as of the date of
his later termination of employment determined under
Section 7.7; and
(iii) the amount distributed to the Participant upon his
earlier Break in Service shall be deducted from the
product calculated under paragraph (ii) to determine
the amount distributable upon his later Break in
Service.
8.5 Property Distributed. Distribution of the vested portion of the
Adjusted Balance of a Participant's Accounts under the Plan will be made in
whole shares of Company Stock. To the extent a distribution is to be made in
Company Stock, any cash or other property in the Participant's Other Investments
Accounts will be used to acquire Company Stock for distribution. The right of a
Participant to receive a distribution in whole shares of Company Stock pursuant
to this Section 8.5 shall not apply to the extent the Participant is a Qualified
Participant who makes a valid and timely election for a distribution pursuant to
Section 8.9 below. Notwithstanding the foregoing, if applicable corporate
charter or bylaw provisions restrict ownership of substantially all outstanding
shares of Company Stock to Employees or to a plan or trust described in Section
401(a) of the Code, then any distribution shall be in cash. Notwithstanding
anything herein to the contrary, if any shares of Company Stock in a
Participant's Accounts are issued by a bank described in Section 409(h)(3) of
the Code, distribution shall be made, at the Participant's election, in cash or
Shares.
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<PAGE>
8.6 Methods of Payments.
(a) Whenever the Committee shall direct the Trustee to make
payment to a Participant or his Beneficiary upon termination of the
Participant's employment (whether by reason of retirement, death, disability or
for other reasons), the Committee shall direct the Trustee to pay the vested
portion of the Adjusted Balance of his Accounts, if any, to or for the benefit
of the Participant or his Beneficiary, in either of the following ways as the
Participant (or, if a deceased former Participant shall have failed to select a
method of payment, as his Benefit) shall determine;
(i) In a lump sum; provided that distribution of
Company Stock shall be valued at its fair
market value on the date of such
distribution as determined pursuant to
Section 5.2; or
(ii) Subject to Section 8.2, in installments
payable in substantially equal amounts,
continuing over a period that complies with
subsection (d) below, but in no event over a
period exceeding ten years in the case of a
Participant whose termination occurs prior
to age 65.
If the selection of a method of payment is not made within 90 days
prior to the distribution date determined under subsection (b), payment shall be
made in a lump sum.
(b) Payment under this Section shall be made or commence as
follows:
(i) In the case of a Participant whose
employment terminated due to death,
disability, retirement or termination of
employment, not more than 60 days after the
end of the Plan Year in which the employment
of the Participant terminates, unless the
Participant, or his Beneficiary in the event
of his death, agrees to a later date.
Notwithstanding the preceding sentence,
however, if the Participant's Account
balances at the time for any distribution
exceed $3,500, then neither such
distribution nor any subsequent distribution
shall be made to the Participant at any time
before his 65th birthday without his written
consent.
(ii) If a Participant terminates service and the
value of his Account balances does not
exceed (or at the time of any prior
distribution has not exceeded) $3,500, the
Participant shall receive a distribution of
28
<PAGE>
the entire value of his Account balances as
soon as administratively feasible. For
purposes of this Section 8.6(b)(ii), if the
value of the Participant's Account balances
is zero, the Participant shall be deemed to
have received a distribution of such Account
balances.
(c) Notwithstanding the provisions of paragraph (b) of this
Section, unless a Participant, or his Beneficiary in the event of his death,
otherwise elects, the payment of benefits under the Plan will begin not later
than 60 days after the last day of the Plan Year in which last of the following
events occur:
(i) the date on which the Participant
attains the age of 65;
(ii) the tenth anniversary of the date
on which the Participant commenced
participation in the Plan; or
(iii) the date on which the Participant's
employment with the Company
terminates.
(d) Notwithstanding the provisions of subsection (b) and (c)
other than those that require the consent of a Participant to a distribution of
the Adjusted Balance of his Accounts in excess of $3,500:
(i) A Participant may always elect to
have the payment of benefits begin
not later than one year after the
close of the Plan Year (x) in which
the Participant separates from
service by reason of the attainment
of his Normal Retirement Date,
disability, or death or (y) which
is the fifth Plan Year following
the Plan Year in which the
Participant otherwise separates
from service.
(ii) Unless the Participant otherwise
elects, the distribution of the
Adjusted Balance of his Accounts
will be in substantially equal
annual or more frequent payments
over a period not longer than the
greater of (1) five years, or (2)
in the case of a Participant the
Adjusted Balance of whose Accounts
exceeds $710,000, five years plus
one additional year (but not more
than five additional years) for
each $140,000 or fraction thereof
by which such Adjusted Balance
exceeds $710,000. The dollar
amounts contained in this paragraph
(ii) shall be adjusted by the
Secretary of the Treasury pursuant
to Section 409(o)(2) of the Code.
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<PAGE>
(e) Notwithstanding anything to the contrary contained
elsewhere in the Plan:
(i) A Participant's benefits under the
Plan will:
(1) be distributed to him not later
than the Required Distribution Date
(as defined in subsection (iii)),
or
(2) be distributed commencing not
later than the Required
Distribution Date in accordance
with regulations prescribed by the
Secretary of the Treasury over a
period not extending beyond the
life expectancy of the Participant
or the life expectancy of the
Participant and his Beneficiary.
(ii) (1) If the Participant dies after
distribution has commenced pursuant
to subsection (i)(2) but before his
entire interest in the Plan has
been distributed to him, then the
remaining portion of that interest
will be distributed at least as
rapidly as under the method of
distribution being used under
subsection (i)(2) at the date of
his death.
(2) If the Participant dies before
distribution has commenced pursuant
to subsection (i)(2), then, except
as provided in subsections (ii)(3)
and (ii)(4), his entire interest in
the Plan will be distributed within
five years after his death.
(3) Notwithstanding the provisions
of subsection (ii)(2), if the
Participant dies before
distribution has commenced pursuant
to subsection (i)(2) and if any
portion of his interest in the Plan
is payable (A) to or for the
benefit of a Beneficiary, (B) in
accordance with Regulations
prescribed by the Secretary of the
Treasury over a period not
extending beyond the life
expectancy of the Beneficiary, and
(C) beginning not later than one
year after the date as the
Secretary of the Treasury may
prescribe by Regulations, then the
portion referred to in this
subsection (ii)(3) shall be treated
as distributed on the date on which
such distribution begins.
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<PAGE>
(4) Notwithstanding the provisions
of subsections (ii)(2) and (ii)(3),
if the Beneficiary referred to in
subsection (ii)(3) is the spouse of
the Participant, then
(A) the date on which
the distributions
are required to
begin under
subsection
(ii)(3)(C) of
this Section
shall not be
earlier than the
date on which the
Participant would
have attained age
70 1/2, and
(B) if the spouse
dies before the
distributions to
that spouse
begin, then this
subsection
(ii)(4) shall be
applied as if the
surviving spouse
were the
Participant.
(iii) For purposes of paragraph
(h), the Required Distribution Date
means October 1 of the calendar
year following the calendar year in
which the Participant attains age
70 1/2.
(iv) For purposes of subsection
(e), the life expectancy of a
Participant and his spouse may be
redetermined, but not more
frequently than annually.
(v) A Participant may not elect a
form of distribution pursuant to
subsection (i) providing payments
to a Beneficiary who is other than
his spouse unless the actuarial
value of the payments expected to
be paid to the Participant is more
than 50% of the actuarial value of
the total payments expected to be
paid under such form of
distribution.
(vi) No Participant shall receive a
distribution under circumstances
that would impose an additional tax
on such distribution pursuant to
Section 72(t) of the Code unless
and until that individual is
notified in writing by the
Committee of the tax and the
individual, by writing delivered to
the Committee, acknowledges receipt
of the notification and requests
the distribution.
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<PAGE>
(f) (i) This subsection 8.6(f) applies
to distributions made on or after
January 1, 1993. Notwithstanding
any provision of the Plan to the
contrary that would otherwise limit
a Distributee's election under this
subsection, a Distributee may
elect, at the time and in the
manner prescribed by the Plan
Administrator, to have any portion
of an Eligible Rollover
Distribution paid directly to an
Eligible Retirement Plan specified
by the Distributee in a Direct
Rollover.
(ii) Definitions.
(A) "Eligible Rollover Distribution" is
any distribution of all or any
portion of the balance to the
credit of the Distributee, except
that an Eligible Rollover
Distribution does not include: Any
distribution that is one of a
series of substantially equal
periodic payments (not less
frequently than annually) made for
the life (or life expectancy) of
the Distributee or the joint lives
(or joint life expectancies) of the
Distributee and the Distributee's
designated Beneficiary, or for a
specified period of ten years or
more; any distribution to the
extent such distribution is
required under Section 401(a)(9) of
the Code; and the portion of any
distribution that is not includible
in gross income (determined without
regard to the exclusion for net
unrealized appreciation with
respect to employer securities).
(B) "Eligible Retirement Plan" is an
individual retirement account
described in Section 408(b) of the
Code, an individual retirement
annuity described in Section 403(a)
of the Code, or a qualified trust
described in Section 401(a) of the
Code, that accepts the
Distributee's eligible rollover
distribution. However, in the case
of an Eligible Rollover
Distribution to the Surviving
Spouse, an Eligible Retirement Plan
is an individual retirement account
or individual retirement annuity.
(C) "Distributee" includes an Employee
or former Employee. In addition,
the Employee's or former Employee's
Surviving Spouse and the Employee's
or former Employee's spouse or
former spouse who is the alternate
payee under a qualified domestic
relations order, as defined in
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<PAGE>
Section 414(p) of the Code, are
Distributees with regard to the
interest of the spouse or former
spouse.
(D) "Direct Rollover" is a payment
by the Plan to the Eligible
Retirement Plan specified by the
Distributee.
8.7 Administrative Powers Relating to Payments. If a Participant or
Beneficiary is under a legal disability or, by reason of illness or mental or
physical disability, is in the opinion of the Committee unable properly to
attend to his personal financial matters, the Trustee may make such payments in
such of the following ways as the Committee shall direct:
(i) directly to such Participant or Beneficiary;
(ii) to the legal representative of such Participant or
Beneficiary; or
(iii) to some relative by blood or marriage, or friend, for
the benefit of such Participant or Beneficiary.
Any payment made pursuant to this section shall be in complete
discharge of the obligation therefor under the Plan.
8.8 Dividends. Any cash dividends received by the Trustee on Company
Stock allocated to the Accounts of Participants (or former Participants or
Beneficiaries) may be applied to the repayment of principal or interest on a
Loan, retained in the Participants' applicable accounts or paid to such
Participants, former Participants or Beneficiaries (in a nondiscriminatory
manner) at the sole discretion of the Committee; provided that any current
payment in cash must be paid to Participants, Former Participant or
Beneficiaries within 90 days after the close of the Plan Year in which the
dividend is received by the Trustee. Any such payment of cash dividends on
shares of Company Stock shall be accounted for as if the Participant or former
Participant receiving such dividends was the direct owner of such shares of
Company Stock and such payment shall not be treated as a distribution under the
Plan. In the event that cash dividends paid with respect to shares allocated to
the Accounts of a Participant are applied to the repayment of principal or
interest on a Loan, shares of Company Stock released thereby from the Suspense
Account shall be allocated to the Accounts of each Participant in proportion to
the value of the dividends otherwise allocable to such Participant's Accounts.
Any cash dividends paid with respect to unallocated Company Stock shall be
applied to the repayment of principal or interest on a Loan.
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<PAGE>
8.9 Diversification of Investments.
(a) Notwithstanding any other provisions of the Plan or the
Trust, each Qualified Participant in the Plan may elect within 90 days after the
close of each Plan Year in the Qualified Election Period, by written instrument
delivered to the Committee, to direct the investment of not more than 25% (in
whole multiples of 1%) of the Participant's Adjusted Balance of his Accounts in
the Plan (to the extent that such portion exceeds the amount to which a prior
election under this Section applies). In the case of an election year in which
the Participant can make his last election, the preceding sentence shall be
applied by substituting "50%" for "25%." The Committee shall direct the Trustee
to invest the Accounts of Qualified Participants pursuant to their valid and
timely elections within 90 days after the last day of the period during which
the election can be made. Notwithstanding the foregoing, a Qualified Participant
shall not be entitled to make the election hereunder for a Plan Year within the
Qualified Election Period if the fair market value of his Accounts as of the
last day of such Plan Year is less than $500.
(b) A Qualified Participant's election pursuant to this
Section 8.9 shall direct the investment of the amount subject to the election
among one or more of the three investment options provided by the Trustee from
time to time. The Trustee will provide a written description of each such
investment option to the Qualified Participant within a reasonable time prior to
the Qualified Election Period. Such an investment election shall comply with
such rules and regulations as the Committee may prescribe.
(c) Distributions.
(1) At the election of a Qualified Participant,
the Plan shall distribute the portion of the
Participant's Accounts that is covered by
the election described in this Section 8.9
within 90 days after the last day of the
period during which the election can be
made. Such a distribution shall be subject
to right of first refusal and "put" option
provisions of Sections 6.3 and 6.4 of the
Plan. The provisions of this paragraph (1)
shall apply notwithstanding any other
provisions of the Plan other than those that
require the consent of the Participant to a
distribution of the Adjusted Balance of his
Accounts in excess of $3,500.
(2) In lieu of a distribution pursuant to
paragraph (1), a Qualified Participant who
has the right to receive a cash distribution
pursuant to paragraph (1) may direct the
Plan to transfer the portion of the Adjusted
34
<PAGE>
Balance of his Accounts that is covered by
the election to another qualified plan of
the Company that accepts such transfers,
provided that the transferee plan permits
participant-directed investments and does
not invest in Company Stock to a substantial
degree. Such a transfer shall be made no
later than 90 days after the last day of the
period during which the election can be
made.
(d) The portion of the Adjusted Balance of a Participant's
Accounts attributable to Company Stock acquired by the Plan after December 31,
1986, shall be determined by multiplying the number of shares of Stock held in
the Accounts by a fraction, the numerator of which is the number of shares
acquired by the Plan after December 31, 1986 and allocated to Participant's
Accounts (not to exceed the number of shares held by the Plan on the date the
Participant becomes a Qualified Participant) and the denominator of which is the
total number of shares held by the Plan at the date the Participant becomes a
Qualified Participant.
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<PAGE>
ARTICLE IX
VOTING OF COMPANY STOCK
9.1 Company Common Stock A Voting and Consents.
(a) Each Participant is entitled to direct the Trustee as to
the manner in which any Company Common Stock allocated to his Company
Contribution Account is to be voted. The Company shall furnish the Trustee with
notices and information statements when voting rights are to be exercised. The
Trustee will notify Participants of each occasion for the exercise of voting
rights and will forward copies of any proxy material within a reasonable time
after it is secured from the Company. A Participant shall elect to exercise such
right by filing written voting instructions with the Trustee at such time and in
such form as the Trustee may reasonably specify. Instructions received from
Participants by the Trustee shall be held in the strictest confidence and shall
not be divulged or released to any person including officers, director or
employees of the Company. To the extent not inconsistent with its fiduciary
obligations under ERISA, the Trustee shall vote shares of Company Stock for
which it does not receive timely instructions from Participants, or that have
not been allocated to Participants' Accounts, pro rata in accordance with the
timely instructions it has received from Participants.
(b) Participants will be allowed to direct the voting of
fractional shares or fractional rights to shares. This requirement will be
satisfied if the Trustee, or such other person or persons as the Trustee may
designate, votes the combined fractional shares or rights to shares to the
extent possible to reflect the instructions of the Participants holding
fractional shares or rights to shares.
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ARTICLE X
PLAN ADMINISTRATION
10.1 Company Responsibility. The Company shall be responsible for and
shall control and manage the operation and administration of the Plan. It shall
be the "Plan Administrator" and "Named Fiduciary" for purposes of ERISA and
shall be subject to service of process on behalf of the Plan. The Board may, in
its discretion, appoint a Committee of one or more persons, to be known as the
"Plan Administrative Committee" to act as the agent of the Company in performing
these duties. In the event that the Board chooses not to appoint such a
Committee, all references in the Plan to the "Committee" (except for such
references in this Section 10.1) shall mean the Board. The members of the
Committee shall serve at the pleasure of the Board; they may be officers,
directors, or Employees of the Company or any other individuals. Any member may
resign by delivering his written resignation to the Board and to the Committee.
Vacancies in the Committee arising by resignation, death, removal or otherwise,
shall be filled by the Board. The Company shall advise the Trustee in writing of
the names of the member of the Committee and of changes in membership from time
to time.
10.2 Powers and Duties of Committee. The Committee shall administer
the Plan in accordance with its terms and shall have all powers necessary to
carry out the provisions of the Plan. The Committee shall direct the Trustee
concerning all payments which shall be made out of the Trust pursuant to the
Plan. The Committee shall interpret the Plan and shall determine all questions
arising in the administration, interpretation, and application of the Plan,
including but not limited to questions of eligibility and the status and rights
of Participants, Beneficiaries and other persons. Any such determination by the
Committee shall presumptively be conclusive and binding on all persons. The
regularly kept records of the Company shall be conclusive and binding upon all
persons with respect to an Employee's Hours of Service, date and length of
employment, time and amount of Compensation and the manner of payment thereof,
type and length of any absence from work and all other matters contained therein
relating to Employees. All rules and determinations of the Committee shall be
uniformly and consistently applied to all persons in similar circumstances.
10.3 Organization and Operations of Committee.
(a) The Committee shall act by a majority vote of its members
at the time in office, and such action may be taken either by a vote at a
meeting or in writing without a meeting. The signatures of a majority of the
members will be sufficient to authorize Committee action. A Committee member
shall not participant in discussions of or vote upon matters pertaining to his
own participation in the Plan.
(b) The Committee may authorize any of its members or any
other person to execute any document or documents on behalf of the Committee, in
which event the Committee shall notify the Trustee in writing of such action and
the name or names of such member or person. The Trustee thereafter shall accept
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and rely upon any document executed by such members or persons as representing
action by the Committee, until the Committee shall file with the Trustee a
written revocation of such designation.
(c) The Committee may adopt such bylaws and regulations as it
deems desirable for the conduct of its affairs and with the consent of the
President of the Company, may appoint such accountants, counsel, specialists,
and other persons as it deems necessary or desirable in connection with the
administration of this Plan. The Committee shall be entitled to rely
conclusively upon, and shall be fully protected in any action taken by it in
good faith in relying upon, any opinions or reports which shall be furnished to
it by any such accountant, counsel, specialist or other person.
10.4 Records and Reports of Committee. The Committee shall keep a
record of all its proceedings and acts and shall keep all such books of account,
records, and other data as may be necessary for proper administration of the
Plan. The Committee shall notify the Trustee and the Company of any action taken
by the Committee and, when required, shall notify any other interested person or
persons.
10.5 Claims Procedure. Claims for benefits under the Plan shall be
made in writing to the Committee. In the event a claim for benefits is wholly or
partially denied by the Committee, the Committee shall, within a reasonable
period of time, but no later than 90 days after the receipt of the claim, notify
the claimant in writing of the denial of the claim. If the claimant shall not be
notified in writing of the denial of the claim within 90 days after it is
received by the Committee, the claim shall be deemed denied. A notice of denial
shall be written in a manner calculated to be understood by the claimant, and
shall contain (i) the specific reason or reasons for denial of the claim, (ii) a
specific reference to the pertinent Plan provisions upon which the denial is
based, (iii) a description of any additional material or information necessary
for the claimant to perfect the claim, together with an explanation of why such
material or information is necessary, and (iv) an explanation of the Plan's
review procedure. Within 60 days of the receipt by the claimant of the written
notice of denial of the claim, or within 60 days after the claim is deemed
denied as set forth above, if applicable, the claimant may file a written
request with the Committee that it conduct a full and fair review of the denial
of the claimant's claim for benefits, including the conducting of a hearing, if
deemed necessary by the Committee. In connection with the claimant's appeal of
the denial of his benefit, the claimant may review pertinent documents and may
submit issues and comments in writing. The Committee shall render a decision on
the claim appeal promptly, but not later than 60 days after the receipt of the
claimant's request for review, unless special circumstances (such as the need to
hold a hearing, if necessary) require an extension of time for processing, in
which case the 60 day period may be extended to 120 days. The Committee shall
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notify the claimant in writing of any such extension. The decision upon review
shall (i) include specific reasons for the decision, (ii) be written in a manner
calculated to be understood by the claimant and (iii) contain specific
references to the pertinent Plan provisions upon which the decision is based.
10.6 Compensation and Expenses of Committee. The members of the
Committee shall serve without compensation for services as such, but all
reasonable expenses incurred by the Committee incident to the administration of
the Plan (including reasonable expenses of litigation involving the Plan and
reasonable fees and expenses of its attorneys and agents) shall be borne by, and
paid out of the plan assets, except to the extent the Board elects to have such
expenses paid directly by the Company.
10.7 Indemnity of Committee Members. The Company shall indemnify and
defend each member of the Committee and each of its other employees against any
and all claims, loss, damages, expenses (including reasonable attorneys fees),
and liability arising in connection with the administration of the Plan, except
when the same is judicially determined to be due to the gross negligence or
willful misconduct of such member or other employee.
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ARTICLE XI
TRUST AND TRUSTEE
11.1 Trust Agreement. A Trust has been created and will be maintained
for the purposes of the Plan. All contributions under the Plan will be paid into
the Trust. The Trust Fund will be held, invested and disposed of by the Trustee
from time to time acting in accordance with the Trust Agreement. All benefits
payable under the Plan will be paid from the Trust Fund.
11.2 Exclusive Benefit of Employees. All contributions made pursuant
to the Plan shall be held by the Trustee in accordance with the terms of the
Trust Agreement and Section 4.2 of the Plan for the exclusive benefit of those
Employees who are Participants under the Plan, including former Employees and
their Beneficiaries, and shall be applied to provide benefits under the Plan and
to pay expenses of administration of the Plan and the Trust, to the extent that
such expenses are not otherwise paid by the Company.
11.3 Trustee. The Company shall appoint a bank or trust company or an
individual or individuals to act as Trustee or Trustees under the Trust
Agreement. The Trustee shall serve at the pleasure of the Company and its powers
and responsibilities shall be set forth in a Trust Agreement entered into
between the Company and the Trustee. No person who receives full-time pay from
the Company shall receive compensation paid by the Trust Fund except for
reimbursement of expenses properly incurred.
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ARTICLE XII
AMENDMENT AND TERMINATION
12.1 Amendment of Plan. The Company shall have the right to amend the
Plan at any time and from time to time by resolution of its Board of Directors,
and all Employees and persons claiming any interest hereunder shall be bound
thereby; provided, however, that no amendment shall have the effect of: (i)
directly or indirectly divesting the interest of any Participant in any amount
that he would have received had he terminated his employment with the Company
immediately prior to the effective date of such amendment, of the interest of
any Beneficiary as such interest existed immediately prior to the effective date
of such amendment; (ii) directly or indirectly affective the vesting schedule
set forth in Section 7.7 used to determine the vested interest of a Participant
on the effective date of the amendment unless the conditions of Section 203(c)
of ERISA are satisfied; (iii) vesting in the Company any right, title or
interest in or to any Plan assets, (iv) causing or effecting discrimination in
favor of officers, shareholders, or highly compensated Employees; or (v) causing
any part of the Plan assets to be used for any purpose other than for the
exclusive benefit of the Participants and their Beneficiaries.
12.2 Voluntary Termination of or Permanent Discontinuance of
Contributions to the Plan. The Company expects the Plan to be permanent, but
since future conditions affecting the Company cannot be anticipated, the Company
shall have the right to terminate the Plan in whole or in part, or to
permanently discontinue contributions to the Plan, at any time by resolution of
its Board and by giving written notice of such termination or permanent
discontinuance, which shall not be earlier than the first day of the Plan Year
which includes the date of the resolution.
12.3 Limitation on Amendment or Termination. Notwithstanding the
provisions of Sections 12.1 and 12.2, the Company shall not terminate the Plan
or discontinue contributions thereto while any Debt or Loan shall remain
outstanding and unpaid in whole or in part, without the prior written consent to
any such termination or amendment by all holders and guarantors, if any, of the
Plan's obligations under such Debt or Loan.
12.4 Involuntary Termination of Plan. The Plan shall automatically
terminate if the Company is legally adjudicated a bankrupt, makes a general
assignment for the benefit of creditors, or is dissolved. In the event of the
merger or consolidation of the Company with or into any other corporation, or in
the event substantially all of the assets of the Company shall be transferred to
another corporation, the successor corporation resulting from the consolidation
or merger, or transfer of such assets, as the case may be, shall have the right
to adopt and continue the Plan and succeed to the position of the Company
hereunder. If, however, the Plan is not so adopted within 90 days after the
effective date of such consolidation, merger or sale, the Plan shall
automatically be deemed terminated as of the effective date of such transaction.
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Nothing in this Plan shall prevent the dissolution, liquidation, consolidation
or merger of the Company, or the sale or transfer of all or substantially all of
its assets.
12.5 Payments on Termination of or Permanent Discontinuance of
Contribution to the Plan. If the Plan is terminated as herein provided, or if it
should be partially terminated, or upon the complete discontinuance of Company
contributions to the Plan, the following procedure shall be followed, except
that in the event of a partial termination, it shall be followed only in cases
of those Participants and Beneficiaries directly affected:
(i) The Committee may continue to function, but if it fails to
do so, its records, books of account and other necessary data shall be turned
over to the Trustee and the Trustee shall act on its own motion as hereinafter
provided.
(ii) Notwithstanding any other provisions of the Plan, all
interests of Participants shall become fully vested and nonforfeitable, provided
that, the Accounts of a former Participant who terminated employment prior to
the date of Plan termination, who had no vested interest at the date of his
termination of employment, and who has incurred a Break in Service of more than
one year but less than five years at the date of Plan termination, shall not be
vested.
(iii) The value of the Trust and the shares of all
Participants and Beneficiaries shall be determined as of the date of termination
or discontinuance.
(iv) Distribution to Participants and Beneficiaries shall be
made at such time after termination of or discontinuance of contributions to the
Plan and by such of the methods provided in Sections 8.5 and 8.6, as the
Committee (or the Trustee if no Committee is then acting) in its discretion
shall determine (except that distribution shall be made not later than the time
specified in Section 8.6(c)).
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ARTICLE XIII
MISCELLANEOUS
13.1 Duty To Furnish Information and Documents. Participants and their
Beneficiaries must furnish to the Committee and the Trustee such evidence, data
or information as the Committee considers necessary or desirable for the purpose
of administering the Plan, and the provisions of the Plan for each person are
upon the condition that he will furnish promptly full, true, and complete
evidence, data, and information requested by the Committee. All parties to, or
claiming any interest under, the Plan hereby agrees to perform any and all acts,
and to execute any and all document and papers, necessary or desirable for
carrying out the Plan and the Trust.
13.2 Committee's Annual Statements and Available Information. The
Company shall advise Employees of the eligibility requirements and benefits
under the Plan. As soon as practicable after making the annual valuations and
allocations provided for in the Plan, and at such other times as the Committee
may determine, the Committee shall provide each Participant, and each former
Participant and Beneficiary with respect to whom an account is maintained, with
a statement reflecting the current status of his accounts, including the
Adjusted Balance thereof. No Participant, except a member of the Committee,
shall have the right to inspect the records reflecting the account of any other
Participant. The Committee shall make available for inspection at reasonable
times by Participants and Beneficiaries copies of the Plan, any amendments
thereto, Plan summary, and all reports of Plan and Trust operations required by
law.
13.3 No Enlargement of Employment Rights. Nothing contained in the
Plan shall be construed as a contract of employment between the Company and any
person, nor shall the Plan be deemed to give any person the right to be retained
in the employ of the Company or limit the right of the Company to employ or
discharge any person with or without cause, or to discipline any Employee.
13.4 Applicable Law. All questions pertaining to the validity,
construction and administration of the Plan shall be determined in conformity
with the laws of South Carolina to the extent that such laws are not preempted
by ERISA and valid regulations published thereunder.
13.5 No Guarantee. Neither the Trustee, the Committee, nor the Company
in any way guarantees the Trust Fund from loss or depreciation nor the payment
of any money or other assets which may be or become due to any person from the
Trust Fund. No Participant or other person shall have any recourse against the
Trustee, the Company or the Committee if the Trust Fund is insufficient to
provide Plan benefits in full. Nothing herein contained shall be deemed to give
any Participant, former Participant, or Beneficiary an interest in any specific
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part of the Trust Fund or any other interest except the right to receive
benefits out of the Trust Fund in accordance with the provisions of the Plan and
Trust.
13.6 Unclaimed Funds. Each Participant shall keep the Committee
informed of his current address and the current address of his Beneficiary or
Beneficiaries. Neither the Company, the Committee nor the Trustee shall be
obligated to search for the whereabouts of any person. If the location of a
Participant is not made known to the Committee within three years after the date
on which distribution of the Participant's Accounts may first be made,
distribution may be made as though the Participant had died at the end of the
three-year period. If, within one additional year after such three-year period
has elapsed, or, within three years after the actual death of a Participant, the
Committee is unable to locate any individual who would receive a distribution
under the Plan upon the death of the Participant pursuant to Section 8.2 of the
Plan, the Adjusted Balance in the Participant's Accounts shall be deemed a
forfeiture and shall be used to reduce Company contributions to the Plan for the
Plan Year next following the year in which the forfeiture occurs; provided,
however, that in the event that the Participant or a Beneficiary makes a claim
for any amount which has been so forfeited, the benefits which have been
forfeited shall be reinstated.
13.7 Merger or Consolidation of Plan. Any merger or consolidation of
the Plan with another plan, or transfer of Plan assets or liabilities to any
other plan, shall be effected in accordance with such regulation, if any, as may
be issued pursuant to Section 208 of ERISA, in such a manner that each
Participant in the Plan would receive, if the merged, consolidated or transferee
plan were terminated immediately following such event, a benefit which is equal
to or greater than the benefit he would have been entitled to receive if the
Plan had terminated immediately before such event.
13.8 Interest Nontransferable. Except as provided in this Section, no
interest of any person or entity in, or right to receive distributions from, the
Trust Fund shall be subject in any manner to sale, transfer, assignment, pledge,
attachment, garnishment, or other alienation or encumbrance of any kind; nor may
such interest or right to receive distributions be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims in bankruptcy
proceedings. The Account of any Participant, however, shall be subject to and
payable in accordance with the applicable requirements of any qualified domestic
relations order, as that term is defined in Section 414(p) of the Code, and the
Committee shall direct the Trustees to provide for payment from a Participant's
Accounts in accordance with such order and with the provisions of Section 414(p)
of the Code and any regulations promulgated thereunder.
13.9 Prudent Man Rule. Notwithstanding any other provisions of this
Plan, and the Trust Agreement, the Trustee, the Committee and the Company shall
exercise their powers and discharge their duties under this Plan and the Trust
Agreement for the exclusive purpose of providing benefits to Employees and their
Beneficiaries, and shall act with the care, skill, prudence and diligence under
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the circumstances that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims.
13.10 Limitations on Liability. Notwithstanding any of the preceding
provisions of the Plan, none of the Trustee, the Company, the Committee and each
individual acting as an employee or agent of any of them shall be liable to any
Participant, former Participant or Beneficiary for any claim, loss, liability or
expense incurred in connection with the Plan, except when the same shall have
been judicially determined to be due to the gross negligence or willful
misconduct of such person.
13.11 Federal and State Security Law Compliance.
(a) Each Participant or Beneficiary shall, prior to the
transfer of Company Stock to such Participant and Beneficiary, execute and
deliver an agreement, in form and substance acceptable to the Committee,
certifying such person's intent to hold such Stock and containing such other
representations and agreements relating to the Stock as the Committee may
reasonably request.
(b) The Committee will take all necessary steps to comply with
any applicable registration or other requirements of federal or state securities
laws from which no exemption is available.
(c) Stock certificates distributed to Participants may bear
such legends concerning restrictions imposed by federal or state securities law,
and concerning other restrictions and rights under the Plan, as the Committee in
its discretion may determine.
13.12 Headings. The headings in this Plan are inserted for convenience
of reference only and are not to be considered in construction of the provisions
hereof.
13.13 Gender and Number. Except when otherwise required by the
context, any masculine terminology in this document shall include the feminine,
and any singular terminology shall include the plural.
13.14 ERISA and Approval Under Internal Revenue Code. This Plan is
intended to constitute an employee stock ownership plan and meet the
requirements of Sections 401(a), 409, 501(a) and 4975(d)(3) and (e)(7) of the
Code, and Sections 407(d)(6) and 408(b)(3) of ERISA, to the extent applicable,
as now in effect or hereafter amended. Any modification or amendment of the Plan
may be made retroactively, as necessary or appropriate, to establish and
maintain such qualification and to meet any requirements of the Code or ERISA.
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13.15 Extension of Plan to Related Employers.
(a) With the approval of the Company, any Related Employer may
adopt the Plan and qualify its Employees to become Participants thereunder by
taking proper corporate action to adopt the Plan and making such contributions
to the Trust Fund as the board of directors of the Related Employer may require.
(b) The Plan will terminate with respect to any Related
Employer that has adopted the Plan pursuant to this Section if the Related
Employer ceases to be a Related Employer, revokes its adoption of the Plan by
appropriate corporate action, permanently discontinues its contributions for its
Employees, is judicially declared bankrupt, makes a general assignment for the
benefit of creditors, or is dissolved. If the Plan is terminated or
contributions are discontinued with respect to any Related Employer, the
provisions of Section 12.5 shall apply to the interest in the Plan of the
Employees of such Related Employer, and their Beneficiaries.
(c) The terms "Company" and "Employee" in the Plan shall
include any Related Employer that has adopted the Plan pursuant to this Section
13.15 and such Related Employer's Employees; provided, however, that the term
"Company" shall not include any such Related Employer where used in Articles X
or XI of the Plan. The Company shall act as the agent for each Related Employer
that adopts the Plan for all purposes of administration thereof.
13.16 Administrative Changes Without Plan Amendment.
The Committee reserves authority to make administrative changes to
this Plan document that do not alter the minimum qualification requirements
without formal amendment to the Plan. The Committee will effect such changes by
substituting pages in the Plan document with corrected pages. Administrative
changes include, but are not limited to, corrections of typographical errors and
similar errors, conforming provisions for administrative procedures to actual
practice and changes in practice, and deleting or correcting language that fails
to accurately reflect the intended provision of the Plan.
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ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Top-Heavy Status. Except as provided in Sections 14.4(b) and (c),
the provisions of this Article shall not apply to the Plan with respect to any
Plan Year for which the Plan is not Top-Heavy. If the Plan is or becomes
Top-Heavy in any Plan Year, the provisions of this Article XIV will supersede
any conflicting provisions elsewhere in the Plan.
14.2 Definitions. For purposes of this Article XIV, the following
words and phrases shall have the meanings states below unless a different
meaning is plainly required by the context:
(a) "Determination Date" means, with respect to any
Plan Year: (i) the last day of the preceding Plan Year, or (ii) in the case of
the first Plan Year of the Plan, the last day of such Plan Year.
(b) "Key Employee" means in Employee meeting the definition of
"key employee" contained in Section 416(i)(1) of the Code and the Regulations
interpreting that section. For purposes of determining whether an Employee is a
Key Employee, the definition of Compensation set forth in Section 14.6 shall
apply.
(c) "Non-Key Employee" means any Employee who is not a
Key Employee.
(d) "Valuation Date" means with respect to a particular
Determination Date, the most recent Valuation Date (as defined in Section 2.34
occurring within a 12-month period ending on the applicable Determination Date.
14.3 Determination of Top-Heavy Status.
(a) The Plan will be "Top-Heavy" with respect to any Plan Year
if, as of the Determination Date applicable to such Year, the ratio of the
Adjusted Balances in the accounts of Key Employees (determined as of the
Valuation Date applicable to such Determination Date) to the Adjusted Balances
in the accounts of all Employees (determined as of such Valuation Date) exceeds
60%. For purposes of computing such ratio and for all other purposes of applying
and interpreting this paragraph (a): (i) the amount of the accounts of any
Employee shall be increased by the aggregate distributions made with respect to
such Employee under the Plan during the five-year period ending on any
Determination Date; (ii) benefits provided under all plans which are aggregated
pursuant to (b) of this Section must be considered; and (iii) the provisions of
Section 416 of the Code and all Regulations interpreting that section shall be
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applied. If any Employee has not performed services for the company or any
Related Employer at any time during the five-year period ending on any
Determination Date, the balances of the accounts of such Employee shall not be
taken into consideration for purposes of determining whether the Plan is
Top-Heavy with respect to the Plan Year to which such Determination Date
applies.
(b) For purposes of determining whether the Plan is Top-Heavy,
all qualified retirement plans maintained by the Company and each Related
Employer shall be aggregated to the extent that such aggregation is required
under the applicable provisions of Section 416 of the Code and the Regulations
interpreting that Section. All other qualified Related employer shall be
aggregated only to the extent permitted by Section 416 of the Code and such
Regulations and elected by the Company.
(c) For purposes of determining whether the Plan is Top-Heavy,
the Adjusted Balance of a Participant's accounts shall not include (i) the
amount of a rollover contribution (or similar transfer) accepted after December
31, 1983, initiated by the Participant and derived from a plan not maintained by
the Company or any Related Employer, or (ii) a distribution made with respect to
any Employee which is a tax-free rollover contribution (or similar transfer)
that is either not initiated by the Employee or that is made to a plan
maintained by the Company or any Related Employer.
(d) Solely for purposes of determining whether the Plan is
Top-Heavy, the accrued benefit of any Non-key Employee shall be determined (i)
under the method, if any, that uniformly applies for accrual purposes under all
plans of the Company or any Related Employer, or (ii) if there is no such
method, as if such benefit accrued not more rapidly than the slowest accrual
rate permitted under the fractional accrual rule of Section 411(b)(1)(C) of the
Code.
14.4 Vesting.
(a) If the Plan becomes Top-Heavy, the vested interest of a
Participant in the portion of his Company Stock and Other Investments Accounts
referred to in subsection (b) shall be determined in accordance with the
following formula in lieu of the formula set forth in Section 7.6:
Vested Forfeitable
Years of Service Percentage Percentage
---------------- ---------- ----------
Less than 3 0% 100%
3 or more 100% 0%
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For purposes of the above schedule, years of Service shall include all
years of Service required to be counted under Section 411(a) of the
Code, disregarding all years of Service permitted to be disregarded
under Section 411(a)(4) of the Code.
(b) The vesting schedule set forth in subsection (a) shall apply to all
amounts allocated to a Participant's Company Stock and Other Investments
Accounts while the Plan is Top-Heavy and during the period of time before the
Plan becomes Top Heavy. This vesting schedule shall not apply to the Company
Stock and Other Investments Accounts of any Employee who does not have an Hour
of Service after the Plan becomes Top-Heavy.
(c) If the Plan becomes Top-Heavy and subsequently ceases to be
Top-Heavy, the vesting schedule set forth in subsection (a) shall automatically
cease to apply, and the vesting schedule set forth in Section 7.6 above shall
automatically apply, with respect to all amounts allocated to a Participant's
Company Stock and Other Investments Accounts for all Plan Years after the Plan
Year with respect to which the Plan was las Top-Heavy. For purposes of this
subsection (c), this change in vesting schedules shall only be valid to the
extent that the conditions of Section 12.1 of the Plan and Section 411(a)(10) of
the Code are satisfied.
14.5 Minimum Contribution. For each Plan Year that the Plan is
Top-Heavy, the Company will contribute and allocate to the Company Stock and
Other Investments Accounts of each Participant who is a Non-key Employee and is
employed by the Company on the last day of such Plan Year an amount consisting
of contributions and forfeitures equal to the lesser of (i) 3% of such
Participant's Compensation (as defined in Section 14.6) for such Plan Year and
(ii) the largest percentage of Company contributions and forfeitures, as a
percentage of the Key Employee's compensation (as described in Section 14.6),
allocated to the Company Stock and Other Investments Accounts of any Key
Employee for such Year. The minimum contribution allocable pursuant to this
Section 14.5 will be determined without regard to any contributions by the
Company for any Employee under the Federal Social Security Act. A Non-key
Employee will not be excluded from an allocation pursuant to this Section merely
because his compensation is less than a stated amount. A Non-Key Employee who
has become a Participant but who fails to complete at least 1,000 Hours of
Service in a Plan Year in which the Plan is top Heavy shall not be excluded from
an allocation pursuant to this Section.
14.6 Compensation. For any Plan Year in which the Plan is Top-Heavy,
annual Compensation for the purposes of this Article shall have the meaning set
forth in Section 414(q)(7) of the Code.
14.7 Collective Bargaining Agreements. The requirements of Sections
14.4 and 14.5 shall not apply with respect to any employees included in a unit
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of employees covered by a collective bargaining agreement between employer
representatives and the Company or a Related Employer if retirements benefits
were the subject of good faith bargaining between such employer representatives
and the Company or Related Employer.
IN WITNESS WHEREOF, the Association has caused this Plan to be
executed by a duly authorized officer this _______ day of ____________, 1997.
Attest: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SPARTANBURG
By:
- ---------------------- -------------------------
Secretary President
50
EXHIBIT 10.5
Form of First Federal Savings and Loan
Association of Spartanburg Employee Severance Compensation Plan
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this First Federal Savings and Loan Association of
Spartanburg Employee Severance Compensation Plan is to assure the services of
Employees of the Association in the event of a Change in Control of the Company
or the Association. The benefits contemplated by the Plan recognize the value to
the Association of the services and contributions of the Employees of the
Association and the effect upon the Association resulting from the uncertainties
of continued employment, reduced employee benefits, management changes and
relocations that may arise in the event of a Change in Control of the Company or
the Association. The Board of Directors believes that the Plan will also aid the
Association in attracting and retaining highly qualified individuals who are
essential to its success and that the Plan's assurance of fair treatment of the
Association's Employees will reduce the distractions and other adverse effects
on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date of the Plan as defined herein, the Association
hereby establishes an employee severance compensation plan to be known as the
First Federal Savings and Loan Association of Spartanburg Employee Severance
Compensation Plan." The purposes of the Plan are as set forth above.
1.2 Application of Plan
The benefits provided by this Plan shall be available to all Employees
of the Association, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to, an
employment or change in control agreement with the Employer.
1.3 Contractual Right to Benefits
This plan establishes and vests in each Participant a contractual right
to the benefits to which each Participant is entitled hereunder, enforceable by
the Participant against the Employer, the Association, or both.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
"Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the twelve
(12) month period ending on the last day of the month preceding the date of a
Participant's termination pursuant to Section 4.2, which is or would be
includable in the gross income of the Participant receiving the same for federal
income tax purposes.
"Association" means First Federal Savings and Loan Association of
Spartanburg or any successor as provided for in Article VII hereof.
"Board" means the Board of Directors of the Association.
"Change in Control" shall mean an event deemed to occur if and when (a)
an offeror other than the Company purchases shares of the common stock of the
Company or the Association pursuant to a tender or exchange offer for such
shares, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company or the Association representing twenty-five percent
(25%) or more of the combined voting power of the Company's or the Association's
then outstanding securities, (c) the membership of the board of directors of the
Company or the Association changes as the result of a contested election, such
that individuals who were directors at the beginning of any twenty-four (24)
month period (whether commencing before or after the date of adoption of this
Plan) do not constitute a majority of the Board at the end of such period, or
(d) shareholders of the Company or the Association approve a merger,
consolidation, sale or disposition of all or substantially all of the Company's
or the Association's assets, or a plan of partial or complete liquidation. If
any of the events enumerated in clauses (a) - (d) occur, the Board shall
determine the effective date of the change in control resulting therefrom, for
purposes of the Plan.
"Company" means FirstSpartan Financial Corp., a Delaware corporation,
the holding company of the Association.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Board that it is either not possible
to determine if or when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
employees lifetime.
<PAGE>
"Effective Date" means the date the Plan is approved by the Board of
Directors of the Association, or such other date as the Board shall designate in
its resolution approving the Plan.
"Employee" means any employee of the Association or another Employer
who has completed at least one year of service with the Association, provided,
however, that any Employee who is covered or hereinafter becomes covered by an
employment contract or change in control agreement with an Employer shall not be
considered to be an Employee for purposes of this Plan.
"Employer" means (i) the Association or (ii) a subsidiary of the
Association or a parent of the Association which has adopted the plan pursuant
to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Just Cause" shall means termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or other
similar offenses) or any final cease-and desist order.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an Employee who meets the eligibility requirements
of Article III.
"Plan" means this First Federal Savings and Loan Association of
Spartanburg Employee Severance Compensation Plan.
2.2 Applicable Law
The laws of the State of South Carolina shall be controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Participation
The term "Participant" shall include all Employees of an Employer who
have completed at least one (1) year of service with the Employer at the time of
any termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an individual
employment contract, severance agreement or change in control agreement with an
Employer shall not be entitled to participate in this Plan.
3.2 Duration of Participation
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to receipt
of a Payment shall remain a Participant in this Plan until the full amount of
such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall not
be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for reasons specified in Section
4.2, Disability or for Just Cause.
4.2 Reasons for Termination
Following a Change in Control, a Participant shall be entitled to a
Payment in accordance with Section 4.3 if employment by an Employer is
terminated, voluntary or involuntary, for any one or more of the following
reasons:
(a) The Employer reduces the Participant's base salary or rate
of compensation as in effect immediately prior to the Change in Control, or as
the same may have been increased thereafter.
(b) The Employer materially changes Participant's function,
duties or responsibilities which would cause the Participant's position to be
one of lesser
<PAGE>
responsibility, importance or scope with the Employer than immediately prior to
the Change in Control.
(c) The Employer requires the Participant to change the
location of the Participant's job or office, so that such Participant will be
based at a location more than thirty-five (35) miles from the location of the
Participant's job or office immediately prior to the Change in Control provided
that such new location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and
perquisites available to the Participant immediately prior to the Change in
Control; provided, however, that a material reduction in benefits and
perquisites generally provided to all Employees of the Association on a
nondiscriminatory basis shall not trigger a Payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
(f) The Employer, or any successor to the Employer, breaches
any other provisions of this Plan.
(g) The Employer terminates the employment of a Participant at
or after a Change in Control other than for Just Cause.
4.3 Amount of Payment
(a) Each Participant who was a Vice President of the
Association immediately prior to the effective date of the Change in Control and
entitled to a Payment under this Plan shall receive from the Association a lump
sum cash payment equal to one and one-half (1/2) times the Vice President's
Annual Compensation.
(b) Each Participant with at least three (3) years of service
with the Employer entitled to a Payment under this Plan shall receive from the
Employer a lump sum cash payment equal to one twenty-sixth (1/26) of Annual
Compensation for each year of service up to a maximum of 100% of Annual
Compensation.
(c) Each Participant with less than three (3) years of service
shall receive from the Employer a lump sum cash payment equal to one
twenty-sixth (1/26) of Annual Compensation.
(c) The Participant shall not be required to mitigate damages
on the amount of the Payment by seeking other employment or otherwise, nor shall
the amount of such Payment be reduces by any compensation earned by the
Participant as a result of employment after termination of employment hereunder.
<PAGE>
4.4 Time of Payment
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than thirty (30) business days after the termination of the
Participant's employment. If any Participant should die after termination of the
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's named beneficiary, if living, otherwise to the
personal representative of behalf of or for the benefit of the Participant's
estate.
4.5 Suspension of Payment
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Association
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. ss.567.2 of the Office of Thrift Supervision Regulations. Any payments or
portions thereof not paid shall be suspended until such time as their payment
would not result in a failure to meet the Association's minimum regulatory
capital requirements. Any portion of benefit payments which have not been
suspended will be paid on an equitable basis, pro rata based upon amounts due
each Participant, among all eligible Participants.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose on the
Participant's Employer any obligation to retain the Participant, to maintain the
status of the Participant's employment, or to change the Employer's policies
regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Association, this
Plan may be adopted by any subsidiary of the Association or by the Company. Upon
such adoption, the subsidiary or the Company shall become an Employer hereunder
and the provisions of the Plan shall be fully applicable to the Employees of
that subsidiary or the Company. The
<PAGE>
term "subsidiary" means any corporation in which the Association, directly or
indirectly, holds a majority of the voting power of its outstanding shares of
capital stock.
ARTICLE VII
SUCCESSOR TO THE ASSOCIATION
7.1 The Association shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this plan, in the same manner and to the same extent that the Association
would be required to perform if no such succession or assignment had taken
place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change in Control has not occurred, this Plan shall expire as of
the Expiration Date, unless sooner terminated as provided in Section 8.2, or
unless extended for an additional period or periods by resolution adopted by the
Board of Directors of the Association.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Association, unless a
Change in Control has previously occurred. If a Change in Control occurs, the
Plan no longer shall be subject to amendment, change, substitution, deletion,
revocation or termination in any respect whatsoever.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Association, certifying that the amendment or termination has been approved by
the Board of Directors. A proper termination of the Plan automatically shall
effect a termination of all Participants' rights and benefits hereunder.
<PAGE>
8.4 No Attachment
(a) Except as required by law, no right to receive payments under this
Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of, each
Employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Association may terminate the Employee's employment at any
time, but any termination by the Association, other than Termination for Cause,
shall not prejudice Employee's right to compensation or other benefits under
this Agreement. Employee shall not have the right to receive compensation or
other benefits for any period after termination for Just Cause as defined in
Section 2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice served
under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(3) or (g)(1), the Association's obligations under this contract shall
be suspended as of the date of service, unless stated by appropriate
proceedings. If the charges in the notice are dismissed, the Association may in
its discretion (i) pay the Employee all or part of the compensation withheld
while their contract obligations were suspended and (ii) reinstate (in whole or
in part) any of the obligation which were suspended.
10.3 If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Association is in default as defined in Section 3(x)(1) of
the Federal Deposit Insurance Act, 12 U.S.C. ss.1818(x)(1), all obligations of
the Association under this contract shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
<PAGE>
10.5 All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his designee), the Federal Deposit Insurance Corporation ("FDIC") or
the Resolution Trust Corporation ("RTC"), at the time FDIC enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the Federal Deposits Insurance Act, 12
U.S.C. ss.1823(c); or (ii) by the Director of the OTS (or his designee) at the
time the Director (or his designee) approves a supervisory merger to resolve
problems related to the operations of the Association or when the Association is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by such
action.
10.6 Any payments made to an Employee pursuant to this Plan or
otherwise shall be conditioned upon compliance under 12 U.S.C. ss.1828(k) and
any regulations promulgated thereunder.
Having been adopted by its Board of Directors on ___________, 1997,
this Plan is executed by duly authorized officer of the Association this ______
day of __________________, 1997.
Attest
Secretary
EXHIBIT 21
Subsidiaries of FirstSpartan Financial Corp.
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Registrant
- ----------
FirstSpartan Financial Corp.
Percentage State of
Subsidiaries Owned Incorporation
- ------------ ----- -------------
First Federal Savings and Loan Association 100% United States
of Spartanburg (1)
(1) Upon consummation of the Conversion, First Federal Savings and Loan
Association of Spartanburg will become a wholly-owned subsidiary of the
Registrant.
<PAGE>
EXHIBIT 23.1
Consent of Deloitte & Touche LLP
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of First Federal Savings
and Loan Association of Spartanburg on Form S-1 of our report dated August 23,
1996 (October 1, 1996 as to the 4th paragraph of Note 1), appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings 'Experts" and "Legal
and Tax Opinions" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Greenville, South Carolina
March 5, 1997
<PAGE>
EXHIBIT 23.3
Consent of Breyer & Aguggia as to its Federal Tax Opinion
<PAGE>
March 6, 1997
Board of Directors
FirstSpartan Financial Corp.
380 E. Main Street
Spartanburg, South Carolina 29302
RE: FirstSpartan Financial Corp.
Registration Statement on Form S-1
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax opinion
as an exhibit to the Registration Statement and to the reference to us in the
Prospectus included therein under the headings "THE CONVERSION -- Effects of
Conversion to Stock Form on Depositors and Borrowers of the Association" and
"LEGAL AND TAX OPINIONS."
Sincerely,
/s/ Breyer & Aguggia
BREYER & AGUGGIA
Washington, D.C.
<PAGE>
EXHIBIT 23.4
Consent of RP Financial, LC.
<PAGE>
RP FINANCIAL, LC.
- --------------------------------------------
Financial Services Industry Consultants
March 3, 1997
Board of Directors
First Federal Savings and Loan Association of Spartanburg
380 East Main Street
Spartanburg, South Carolina 29302-1944
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of First Federal Savings and Loan Association of Spartanburg,
Spartanburg, South Carolina and any amendments thereto, in the Form S-1
Registration Statement and any amendments thereto and in the Form H(e)1 for
FirstSpartan Financial Corp. We also hereby consent to the inclusion of, summary
of and references to our Appraisal Report and our statement concerning
subscription rights in such filings including the Prospectus of FirstSpartan
Financial Corp.
Sincerely,
RP FINANCIAL, LC.
/s/ James P. Hennessey
James P. Hennessey
Senior Vice President
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
EXHIBIT 99.1
Order and Acknowledgement Form
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
FIRSTSPARTAN FINANCIAL CORP.
STOCK ORDER FORM
============================================================ ============================================================
NUMBER OF SHARES
Fill in the number of shares you wish to purchase and the
total amount due. No fractional shares will be issued. Number Purchase Total
The minimum purchase is 25 shares. No Eligible Account of Shares Price Amount
Holder, Supplemental Eligible Account Holder, or Other
Member (including all persons on a joint account) may ______________ X $20.00 = $___________
purchase in their capacity as such in the Subscription Offering
more than 16,250 shares (or $325,000) of the |_| Enclosed is check or money
order payable to FirstSpartan Financial Corp.
Common Stock offered in the Conversion; no person,
together with associates of an persons acting in concert
with such person may purchase in the Direct Community |_| I authorize withdrawal from the following
Offering and the Syndicated Community Offering, in the account(s):
aggregate, more than 16,250 shares (or $325,000) of Common
Stock issued in the Conversion, whichever is less; and no Account Number(s) Amount
person (including all persons on a joint account),
together with associates of or persons acting in concert _______________________________ $_________________
with such person, may purchase in the aggregate more than
1% of the shares of Common Stock issued in the Converison. _______________________________ $_________________
------------------------------- $-----------------
METHOD OF PAYMENT
Check the appropriate boxes that show how you wish to pay Total Withdrawn $_________________
for the stock. If paying by check or money order, make it
payable to FirstSpartan Financial Corp. Your funds will No penalty for early withdrawal
earn interest at First Federal's passbook rate until the
Offering is completed. If paying by withdrawal from a
First Federal deposit account, write in the account
number(s) and the amount(s) you wish to withdraw. If
payment is made from a CD account, it will continue to
earn interest at the same CD account rate. _____________________________________________________
Name(s) in which your stock is to be registered
STOCK REGISTRATION
Print the name(s) in which you want the stock registered. _____________________________________________________
If you are a depositor or member, to protect your rights Name(s) in which your stock is to be registered
over other purchasers as described in the Prospectus, you
---
must take ownership in at least one of the account _____________________________________________________
- -----------------------------------------------------------
holders' names. Subscription rights are nontransferable. Address
- --------------
Enter the Social Security Number (or Tax ID Number) of one
registered owner; only one number is required. See the _____________________________________________________
reverse side of this form for registration guidelines. City State Zip Code
NASD AFFILIATION |_| Individual |_| Joint Tenants
The NASD's Interpretation with respect to Free Riding and |_| Tenants in Common |_| Uniform Gifts to Minors
Withholding restricts the sale of certain initial public |_| Other __________________________________________
offerings to certain NASD members, affiliates and family
members. For an exemption from these restrictions, such
persons must comply with the following conditions: (i) to
not sell or transfer the shares for a period of 150 days Are you an officer, director, general partner, employee or
following issuance and (ii) to report this subscription in agent of a National Association of Securities Dealers,
writing to the applicable NASD member within one day of Inc. ("NASD") member firm or related to such person?
payment therefor. By signing this Stock Order Form, you
are certifying that you will comply with applicable NASD |_| Yes |_| No
regulations.
TELEPHONE INFORMATION
Please enter the daytime telephone number where you may
be contacted in the event we cannot execute your offer as
given. Daytime Phone ( )
ACCOUNT VERIFICATION
If you were a depositor on December 31, 1995, March 31, 1997
or ___________ __, 1997, you must list full title and
account numbers of all accounts you had at that date in
order to insure proper identification of your purchase Were you a member of First Federal as of
right or preference. December 31, 1995 March 31, 1997
|_| Yes |_| No |_| Yes |_| No
ACKNOWLEDGMENT
Please read the acknowledgement statement carefully I acknowledge receipt of the Prospectus and the
and sign on the signature line. When purchasing as a provisions therein and understand that after
custodian, corporate officer, etc., add your full delivery of this order form to FirstSpartan
title to your signature. Enter the Social Security Financial Corp., that this order is for the above
number (or Tax ID number) of the registered owner and account only and under penalities of perjury, I
date the form; only the number required. certify that the Social Security or Taxpayer
ID number given below is correct. I further
certify that this order does not violate
Purchase limitations set forth more fully in
the Prospectus.
Subscription priority rights for members as described in
the Prospectus will expire at _:00 p.m., Eastern Time, on
_________, __, 1997. The Direct Community Offering may
end as early as 12:00 p.m., Eastern Time, on _______ __,
1997, or any time thereafter when orders for all available
shares have been received, but in no event later than
________ __, 1997. This order form must be properly I acknowledge that the common stock offered is not a
completed and received with payment at the above address savings or deposit account and is not insured or
or at any First Federal office prior to the expiration guaranteed by the Savings Association Insurance Fund, the
date. FDIC or any other government agency.
Signature Date
Additional Signature (if required) Date
Social Security No. or Tax ID No.
============================================================ ============================================================
THE ADDITION TO AN ORDER OF A NAME WHICH DOES NOT APPEAR ON THE
QUALIFYING ACCOUNT WILL RESULT IN THE LOSS OF SUBSCRIPTION
RIGHTS. FOR ASSISTANCE PLEASE CALL THE FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
STOCK INFORMATION CENTER AT
(---) --------
<PAGE>
===============================================================================
===============================================================================
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry
has developed uniform stockholder registrations which we will utilize in the
issuance of your Stock Certificates(s). If you have any questions, please
consult your legal advisor.
Stock ownership must be registered in one of the following
manners:
INDIVIDUAL: Avoid the use of two initials. Include the first given
name, middle initial and last name of the stockholder. Omit
words of limitation that do not affect ownership rights such as
"special account", "single man", "personal property", etc.
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types
of joint ownership. Names should be joined by "and"; do not
connect with "or". Omit titles such as "Mrs.", "Dr.", etc.
JOINT TENANTS--Joint Tenancy with Right of
Survivorship and not as Tenants in Common may be specified to
identify two or more owners where ownership is intended to
pass automatically to the surviving tenant(s).
TENANTS IN COMMON--Tenants in Common may be specified
to identify two or more owners. When stock is held as tenancy
in common, upon the death of one co-tenant, ownership of the
stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the
transfer or sale of shares held in this form of ownership.
UNIFORM GIFT Stock may be held in the name of a custodian for a minor
TO MINORS: under the Uniform Gifts to Minors laws of the
individual states. There may be only one custodian and one
minor designated on a stock certificate. The standard
abbreviation of custodian is "CUST", while the description
"Uniform Gifts to Minors Act" is abbreviated "UNIF GIFT MIN
ACT." Standard U.S. Postal Service state abbreviations should
be used to describe the appropriate state. For example, stock
held by John P. Jones under the Delaware Uniform Gift to
Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF GIFT MIN ACT SC
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary--
. If an individual, list the first given name, middle initial, and last name
. If a corporation, list the corporate title.
. If an individual and a corporation, list the corporation's title before the individual.
2. The fiduciary capacity--
. Administrator . Conservator
. Committee . Executor
. Trustee . Personal Representative
. Custodian
3. The type of document governing the fiduciary
relationship. Generally, such relationships are
either under a form of living trust agreement or
pursuant to a court order. Without a document
establishing a fiduciary relationship, your stock may
not be registered in a fiduciary capacity.
4. The date of the document governing the relationship.
The date of the document need not be used in the description
of a trust created by a will.
5. Either of the following:
The name of the maker, donor or testator or
The name of the beneficiary
Example of Fiduciary Ownership
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED (Date)
</TABLE>
EXHIBIT 99.2
Solicitation and Marketing Materials
<PAGE>
FirstSpartan Financial Corp.
(Proposed Holding Company for
First Federal Savings and Loan Association of Spartanburg)
Spartanburg, South Carolina
Proposed Marketing Materials
<PAGE>
Marketing Materials for
First Federal Savings and Loan Association of Spartanburg
Table of Contents
I. Press Release
A. Explanation
B. Schedule
C. Distribution List
D. Examples
II. Question and Answer Brochure
A. Explanation
B. Method of Distribution
C. Example
III. Officer and Director Brochure
A. Explanation
B. Method of Distribution
C. Example
IV. Counter Cards, Lobby Posters and a Tombstone Announcement
A. Explanation
B. Quantity
C. Examples
V. Community Meeting Invitation and Prospect Letters
A. Explanation
B. Examples
VI. IRA Mailing
F. Explanation
G. Example
VII. Letters
G. Explanation
H. Example
VIII. Proxygram
A. Explanation
B. Example
<PAGE>
I. Press Releases
A. Explanation
In an effort to assure that all customers, community members, and other
interested investors receive prompt accurate information in a
simultaneous manner, Trident Securities, Inc. advises First Federal to
forward press releases to national and regional publications,
newspapers, radio stations, etc., at various points during the
conversion process.
Only press releases approved by Conversion Counsel will be forwarded
for publication in any manner.
B. Press Releases
1. Approval of Conversion by the Office of Thrift Supervision and
the Securities and Exchange Commission
2. Close of Stock Offering
C. Distribution Lists (see attached)
D. Examples (see attached)
<PAGE>
National Media Distribution List
American Banker
One State Street Plaza
New York, New York 10004
Michael Weinstein
Business Wire
212 South Tryon
Suite 1460
Charlotte, South Carolina 28281
Wall Street Journal
World Financial Center
200 Liberty
New York, New York 10004
SNL Securities
Post Office Box 2124
Charlottesville, Virginia 22902
Barrons
Dow Jones & Company
Barron's Statistical Information
200 Burnett Road
Chicopee, Massachusetts 01020
Investors Business Daily
12655 Beatrice Street
Post Office Box 661750
Los Angeles, California 90066
Local Media List
(Forthcoming)
<PAGE>
D. Press Release
FOR IMMEDIATE RELEASE
For More Information Contact:
Billy L. Painter, President
Telephone: (864) 582-2391
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
STOCK SALE APPROVED
Spartanburg, South Carolina, _________, 1997 - Mr. Billy L. Painter,
President of First Federal Savings and Loan Association of Spartanburg ("First
Federal"), Spartanburg, South Carolina, announced _________, 1997 that First
Federal has received approval from the Office of Thrift Supervision to convert
from a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association. In connection with the Conversion,
First Federal has formed a holding company, FirstSpartan Financial Corp.
("FirstSpartan Financial") to hold all of the outstanding capital stock of
First Federal.
A Prospectus and Proxy Statement describing the Plan of Conversion will
be mailed to certain members of First Federal on or about May ______, 1997.
Under the Plan of Conversion, FirstSpartan Financial is offering an estimated
3,852,500 shares of common stock at $20.00 per share. Certain of First Federal's
past and present depositors and borrowers will have the opportunity to purchase
stock through a subscription offering that closes on June _________, 1997.
Shares that are not subscribed for during the subscription offering, if any,
will be offered to the general public, with preference given to natural persons
and trusts of natural persons who are permanent residents of Spartanburg County,
South Carolina, in a community offering. The offerings are being managed by
Trident Securities, Inc., of Raleigh, North Carolina.
As a result of the Conversion, First Federal will be structured in the
stock form, just like all commercial banks and an increasing number of savings
institutions, and will become a subsidiary of
<PAGE>
FirstSpartan Financial.
According to Mr. Painter, "Our day to day operations will not change
as a result of the Conversion and deposits will continue to be insured by the
FDIC up to the applicable legal limits".
First Federal is headquartered in Spartanburg, South Carolina. The
Association was chartered in 1935. At December 31, 1996, First Federal had total
assets of $375.5 million and total equity of $44.8 million. Customers or
interested members of the community with questions concerning the stock offering
should call the institution at (864) _________ or visit First Federal's main
office.
<PAGE>
D. Press Release FOR IMMEDIATE RELEASE
Contact: Billy L. Painter, President
Telephone: (864) 582-2391
FIRSTSPARTAN FINANCIAL CORP., HOLDING COMPANY FOR
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG,
COMPLETES INITIAL STOCK OFFERING
Spartanburg, South Carolina _______, 1997 - Mr. Billy L. Painter,
President of First Federal Savings and Loan Association of Spartanburg ("First
Federal"), Spartanburg, South Carolina, announced ______, 1997 today that
FirstSpartan Financial Corp. ("FirstSpartan Financial"), the proposed holding
company for First Federal Savings and Loan Association of Spartanburg, has
completed its initial common stock offering. It is anticipated that the common
stock of FirstSpartan Financial will begin trading on the NASDAQ National Market
System on _____, 1997 under the symbol "FSPT". Trident Securities, Inc., the
manager of the offering, will be a market maker in the stock. FirstSpartan
Financial will issue __________ shares of its common stock.
The net proceeds contributed to First Federal upon conversion will
substantially increase its capital. First Federal will use the funds contributed
to it for general corporate purposes, including, initially, local lending and
investment in short-term U.S. Government and agency obligations. First Federal
also intends to use a portion of the funds to contribute to the ongoing
construction of two branch offices and the renovation of an existing branch
office.
On June _______, 1997, First Federal's Plan of Conversion was approved
by First Federal's depositor and borrower members at a Special Meeting that was
held at the main office of the institution.
Mr. Painter indicated that the Officers and Board of Directors of First
Federal want to express their thanks for the response by customers and the
community to the stock offering and that First Federal looks forward to serving
the needs of its customers as a stock institution.
<PAGE>
II. Question and Answer Brochure
A. Explanation
The Question and Answer brochure is an essential marketing piece in any
conversion. It serves to answer some of the most commonly asked
questions in "plain, everyday language." Although most of the answers
are taken verbatim from the Prospectus and Proxy Statement, it assists
the individual in finding answers to simple questions.
Conversion Counsel approves the language for each Question and
Answer. Trident Securities, Inc. and First Federal will be
responsible for any introductory or concluding remarks, design,
layout, color, and paper stock. This will be coordinated through
Trident Securities, Inc. in conjunction with the financial printer.
B. Method of Distribution
There are three primary methods of distribution of the Question and
Answer brochure. However, regardless of the method, the brochure is
always accompanied by a Prospectus.
1. A Question and Answer brochure is sent out in the initial
mailing to all members of First Federal.
2. Question and Answer brochures are available in First Federal's
offices.
3. Question and Answer brochures are sent out in a standard
information packet to all interested investors who phone
the Stock Information Center requesting information.
C. Example
<PAGE>
C. Example
First Federal Savings and Loan Association of Spartanburg ("First Federal")
Spartanburg, South Carolina
Questions and Answers Regarding the Subscription and Community Offering
MUTUAL TO STOCK CONVERSION
First Federal's Board of Directors has unanimously voted to convert First
Federal from its present mutual form to a stock institution, subject to approval
of the conversion by First Federal's members and regulatory authorities.
Complete details on the conversion, including reasons for conversion, are
contained in the Prospectus and Proxy Statement. We urge you to read them
carefully.
This brochure is provided to answer basic questions you might have about the
conversion. Remember, the conversion will not affect the rate on any of your
savings accounts, deposit certificates, or loans.
1. Q. What is a "Conversion"?
A. Conversion is a change in the legal form of organization.
First Federal currently operates as a federally-chartered
mutual savings and loan association with no shareholders.
Through the conversion, First Federal will form a holding
company, FirstSpartan Financial Corp. ("FirstSpartan
Financial"), which will ultimately own all of the outstanding
stock of the Association. FirstSpartan Financial will issue
common stock in the conversion, as described below, and will
be a publicly-owned company.
2. Q. Why is First Federal converting?
A. As a federally-chartered mutual savings and loan, First
Federal does not have stock holders and has no authority to
issue stock. By converting to the stock form of organization,
First Federal will be structured in the form used by all
commercial banks, most business entities and a growing number
of savings institutions. The Conversion will be important to
the future growth and performance of First Federal by
providing a larger capital base on which it may operate,
enhance future access to capital markets and, if desired,
enhance First Federal's ability to diversify into other
financial service-related activities. Currently, First Federal
has no specific plans, agreements, arrangements or
understandings regarding such diversification.
3. Q. Will the conversion have any effect on savings accounts,
certificates of deposit or loans with First Federal?
<PAGE>
A. No. The conversion will not change the amount, interest rate
or withdrawal rights of any savings and checking accounts or
certificates of deposit. The rights and obligations of
borrowers under their loan agreements will not be affected.
However, upon consummation of the conversion, First Federal's
deposit account holders and borrowers will no longer have
voting rights unless they purchase common stock in
FirstSpartan Financial.
4. Q. Will the conversion cause any changes in personnel or
management?
A. No. The conversion will not cause any changes in personnel or
management. The normal day-to-day operations will continue as
before.
5. Q. Did the Board of Directors of First Federal approve the
conversion?
A. Yes. The Board of Directors unanimously adopted the Plan of
Conversion on February 3, 1997.
THE SUBSCRIPTION AND COMMUNITY OFFERING
6. Q. Who is entitled to subscribe FirstSpartan Financial common
stock?
A. Rights to subscribe for common stock will be given in order of
priority to (i) depositors of First Federal as of December 31,
1995 with a $50.00 minimum deposit at that date (the "Eligible
Account Holders"); (ii) First Federal's employee stock
ownership plan (the "ESOP"), a tax qualified employee stock
benefit plan; (iii) depositors of First Federal, who are not
Eligible Account Holders, with $50.00 or more on deposit as of
March 31, 1997 (the "Supplemental Eligible Account Holders");
and (iv) certain depositors and borrowers of First Federal as
of _______________ ("Other Members"), subject to the purchase
limitations set forth in the Plan of Conversion.
Shares that are not subscribed for during the subscription
offering, if any, may be offered to the general public through
a community offering with preference given to natural persons
and trusts of natural persons who are permanent residents of
Spartanburg County, South Carolina (the "Local Community"). It
is anticipated that any shares not subscribed for in the
Subscription and Community Offerings will be offered to
certain members of the general public through a syndicate of
registered broker dealers pursuant to selected dealers
agreements in a Syndicated Community Offering.
7. Q. How do I subscribe for shares of stock?
A. Eligible customers wishing to exercise their subscription
rights must return the enclosed Stock Order Form to First
Federal. The Stock Order Form must be completed and returned
along with full payment or appropriate instructions
authorizing a withdrawal from a deposit account at First
Federal on or prior to the
<PAGE>
close of the Subscription Offering which is 12:00 noon,
Eastern time, on June __, 1997, unless extended.
8. Q. How can I pay for my subscription stock order?
A. First, you may pay for your stock in cash (if delivered in
person to First Federal) or by check or money order.
Subscription funds will earn interest at First Federal's
passbook rate from the day we receive them until the
completion or termination of the conversion.
Second, you may authorize us to withdraw funds from your First
Federal savings account or certificate of deposit without
early withdrawal penalty. These funds will continue to earn
interest at the rate in effect for your account until
completion of the offering at which time your funds will be
withdrawn for your purchase. Funds remaining in this account
(if any) will continue at the contractual rate unless the
withdrawal reduces the account balance below the applicable
minimum in which case you will receive interest at the
passbook rate. A hold will be placed on your account for the
amount you specify for stock payment. You will not have access
to these funds from the day we receive your order until the
completion or termination of the conversion.
If you want to use Individual Retirement Account deposits held
at First Federal to purchase stock, call our Stock Information
Center at (864) ____________ for assistance. There will be no
early withdrawal or IRS penalties incurred by these
transactions, but additional paperwork is necessary.
9. Q. When must I place my order for shares of stock?
A. To exercise subscription rights in the subscription offering,
a Stock Order Form must be received by First Federal with full
payment for all shares subscribed for not later than 12:00
noon, Eastern time, on June ______, 1997.
Non-customers desiring to order shares through the community
offering, if any, must order shares before the close of the
community offering, if any, which will be no sooner than 12:00
noon, Eastern time on June _______, 1997, unless extended.
10. Q. How many shares of stock are being offered?
A. FirstSpartan Financial is offering up to 3,852,500 shares of
common stock at a price of $20.00 per share. The number of
shares may be decreased to 2,847,500 or increased to 4,430,375
in response to the independent appraiser's final determination
of the consolidated pro forma market value of FirstSpartan
Financial and First Federal, as converted.
11. Q. What is the minimum and maximum number of shares that I can
purchase during the offering period?
<PAGE>
A. The minimum number of shares that may be purchased is 25
shares. No Stock Order Form will be accepted for less than
$500. The maximum number of shares may not exceed a total
aggregate purchase price of $325,000 for any individual or
individuals through a single account. Associates or groups
acting in concert as defined in First Federal's Plan of
Conversion may not exceed 1% of the total number of shares to
be issued.
12. Q. How was it determined that between 2,847,500 shares and
4,430,375 shares of stock would be issued at $20.00 per share?
A. The share range was determined through an appraisal of
FirstSpartan Financial and First Federal, as converted, by RP
Financial LC., an independent appraisal firm specializing in
the thrift industry.
13. Q. Must I pay a commission on the stock for which I subscribe?
A. No. You will not pay a commission on stock purchased in the
Subscription Offering, the Community Offering, if any, or
Syndicated Community Offering, if any.
14. Q. Will I receive interest on funds I submit for stock purchases?
A. Yes. First Federal will pay its current passbook rate
from the date funds are received (with a completed Stock
Order Form) during the subscription and community offerings
until completion of the conversion.
15. Q. If I have misplaced my Stock Order Form, what should I do?
A. First Federal will mail you another order form or you may
obtain one from First Federal's main office. If you need
assistance in obtaining or completing a Stock Order Form,
please call or visit the Stock Information Center.
16. Q. Will there be any dividends paid on the stock?
A. Subject to regulatory and other considerations, the Company
intends to establish a quarterly cash dividend following the
Conversion of $0.15 per share (or $0.60 per share annually)
commencing during the first full calendar quarter following
the Stock Conversion. In addition, the Board of Directors may
determine to pay periodic special cash dividends in addition
to, or in lieu of, regular cash dividends. No assurance can be
given that any dividends (regular or special) will be paid on
the Common Stock or that, if paid, such dividends will not be
reduced or eliminated in future periods.
17. Q. How much stock do the directors and officers of First Federal
intend to purchase through the Subscription Offering?
<PAGE>
A. Directors and executive officers intend to purchase
approximately $2.6 million (4% at the sale of 3,350,000 shares
in the offering) of the stock to be offered in the conversion.
The purchase price paid by directors and officers will be the
same as that paid by customers and the general public.
18. Q. Are the subscription rights transferable to another party?
A. No. Pursuant to federal regulations, subscription rights
granted to Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members may be exercised only by the
person(s) to whom they are granted. Any person found to be
transferring or selling subscription rights will be subject
to forfeiture of such rights and other penalties.
19. Q. I closed my account several months ago. Someone told me that
I am still eligible to buy stock. Is that true?
A. If you were an account holder on the Eligibility Record Date,
December 31, 1995, or the Supplemental Eligibility Record
Date, March 31, 1997, you are entitled to purchase stock
regardless of whether or not you continue to hold your First
Federal account.
20. Q. May I obtain a loan from First Federal using stock as
collateral to pay for my shares?
A. No. Federal regulations do not allow First Federal to make
loans for this purpose, but other financial institutions
may make a loan for this purpose.
21. Q. Will the FDIC (Federal Deposit Insurance Corporation) insure
the shares of stock?
A. No. The shares will not be insured by the FDIC. However,
the Savings Association Insurance Fund of the FDIC will
continue to insure savings accounts and certificates of
deposit up to the applicable limits allowed by law.
22. Q. Will there be a market for the stock following the conversion?
A. FirstSpartan Financial has never issued stock before, and
consequently there is no established market for its common
stock. FirstSpartan Financial has received conditional
approval to have the common stock listed on the NASDAQ
National Market System under the symbol "FSPT". Trident
Securities, Inc. intends to make a market in the common stock.
However, purchasers of common stock should recognize that no
assurance can be given than an active and liquid trading
market will develop or, if developed, will be maintained.
23. Q. Can I purchase stock using funds in a First Federal IRA
account?
<PAGE>
A. Yes. Contact the Stock Information Center for the
additional information. It takes several days to process the
necessary IRA forms and, therefore, it is necessary that you
make arrangements by June ______, 1997, to accommodate your
order.
ABOUT VOTING "FOR" THE PLAN OF CONVERSION
24. Q. Am I eligible to vote at the Special Meeting of Members to be
held to consider the Plan of Conversion?
A. At the Special Meeting of Members to be held on June ______,
1997, you are eligible to vote if you are one of the "Voting
Members," who are holders of First Federal's deposits or other
authorized accounts or loans as of ____________, 1997 (the
"Voting Record Date") for the Special Meeting. However,
members of record as of the close of business on the Voting
Record Date who cease to be depositors or borrowers prior to
the date of the Special Meeting are no longer members and will
not be entitled to vote at the Special Meeting. If you are a
Voting Member, you should have received a proxy statement and
proxy card with which to vote.
25. Q. How many votes do I have as a Voting Member?
A. Each account holder is entitled to one vote for each $100, or
fraction thereof, on deposit in such account. Each borrower
who holds eligible borrowings is entitled to cast one vote in
addition to the number of votes, if any, he or she is entitled
to cast as an account holder. No member may cast more than
1,000 votes.
26. Q. If I vote "against" the Plan of Conversion and it is approved,
will I be prohibited from buying stock during the subscription
offering?
A. No. Voting against the Plan of Conversion in no way
restricts you from purchasing stock in either the
subscription offering or the community offering.
27. Q. What happens if First Federal does not get enough votes to
approve the Plan of Conversion?
A. First Federal's Conversion would not take place and First
Federal would remain a mutual savings and loan association.
28. Q. As a qualifying depositor or borrower of First Federal, am I
required to vote?
A. No. However, failure to return your proxy card will have the
same effect as a vote "Against" the Plan of Conversion.
29. Q. What is a Proxy Card?
A. A Proxy Card gives you the ability to vote without attending
the Special Meeting in person. However, you may attend the
meeting and vote in person, even if you have
<PAGE>
returned your proxy card, if you choose to do so.
30. Q. How does the conversion affect me?
A. The conversion is intended, among other things, to assist
First Federal in maintaining and expanding its many services
to First Federal's customers and community. By purchasing
stock, you will also have the opportunity to invest in
FirstSpartan Financial, the proposed holding company for First
Federal. However, there is no obligation to purchase stock;
the purchase of stock is strictly optional.
31. Q. How can I get further information concerning the stock
offering?
A. You may call the Stock Information Center, at (864)
___________ for further information or a copy of the
Prospectus, Stock Order Form, Proxy Statement and Proxy Card.
This brochure is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. A Prospectus can be
obtained at a First Federal office or by calling the Stock Information Center.
There shall be no solicitation of an offer or sale of stock in any jurisdiction
in which any offer, solicitation of an offer or sale of stock would be unlawful.
The common stock is not a deposit or account and is not federally
insured or guaranteed.
FOR YOUR CONVENIENCE
In order to assist you during the stock offering period, we have
established a Stock Information Center to answer your questions. Please call:
(864) __________
<PAGE>
III. Officer and Director Brochure
A. Explanation
An Officer and Director Brochure merely highlights the intended stock
purchases shown in the Prospectus.
B. Method of Distribution
There are three primary methods of distribution of Officer and Director
Brochures. However, regardless of the method, they are always
accompanied by a Prospectus.
1. An Officer and Director Brochure is sent out in the initial
mailing to all members of the First Federal.
2. Officer and Director Brochures will be available in any of
First Federal's offices.
3. Officer and Director Brochures are sent out in a standard
information packet to all interested investors who
telephone the Stock Information Center requesting
information.
<PAGE>
OFFICER AND DIRECTOR STOCK PURCHASE COMMITMENTS
Name and Anticipated Number of Anticipated Dollar
Position Shares Purchased Amount Purchased
- -------- --------------------- ------------------
Robert R. Odom 6,250 $ 125,000
Chairman of the Board
Billy L. Painter 16,250 325,000
President and Director
Robert L. Handell 5,000 100,000
Secretary and Director
R. Wesley Hammond 5,000 100,000
Director
E. Lea Salter 7,500 150,000
Director
E. L. Sanders 15,000 300,000
Director
David E. Tate 5,000 100,000
Director
James Stephen Sinclair 16,250 325,000
Executive Vice President
Hugh H. Brantley 16,250 325,000
Executive Vice President
R. Lamar Simpson 2,500 50,000
Chief Financial Officer
Other Officers (5 persons) 34,750 695,000
------- ----------
TOTAL 129,750 $2,595,000
This brochure is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. There shall be no
solicitation of an offer or sale of stock in any jurisdiction in which any
offer, solicitation of an offer or sale of stock would be unlawful.
The common stock is not a deposit or account and is not federally insured or
guaranteed.
<PAGE>
IV. Counter Cards, Lobby Posters and the Tombstone Announcement
A. Explanation
Counter cards, lobby posters and the tombstone announcement serve three
purposes: (1) As a notice to First Federal's customers and members of
the local community that the stock sale is underway; (2) to remind the
customers of the end of the Subscription Offering; and (3) to invite
members of the community to an informational meeting, if applicable.
Trident has learned in the past that many people need reminding of the
deadline for subscribing and therefore we suggest the use of these
simple reminders.
B. Quantity
Approximately 3 - 4 counter cards may be used at First Federal's
offices, at teller windows and on customer service representatives'
desks. These counter cards will be exact duplicates of the lobby poster
and will be no larger than 8-1/2" x 11".
Approximately 1 - 2 lobby posters may be used at the offices of First
Federal. These posters will be approximately 2' x 3'.
Tombstone announcements may be used for placement in local newspapers.
The advertisements will run no more than twice each in the local
newspaper. The ads will be no larger than 8-1/2" x 11".
C. Examples enclosed
<PAGE>
POSTER
First Federal Savings and Loan Association of Spartanburg
STOCK OFFERING MATERIALS
AVAILABLE HERE
Customer and Community Priority Rights, if any, for the Stock Offering
by FirstSpartan Financial Corp.
Expire on June __, 1997
<PAGE>
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of
an offer to buy these securities. The offer is made
only by the Prospectus. These shares have not been approved or
disapproved by the Securities and Exchange
Commission, the Office of Thrift Supervision or the Federal Deposit Insurance
Corporation, nor has such Commission, Office or Corporation passed
upon the accuracy or adequacy of the Prospectus.
Any representation to the contrary is a criminal offense.
New Issue June __, 1997
- ---------
Up to 3,852,500 Shares
These shares are being offered pursuant
to a Plan of Conversion whereby
First Federal Savings and Loan
Association of Spartanburg
in Spartanburg, South Carolina will convert
from a federal mutual savings and loan association
to a federal stock savings and loan association
and become the wholly-owned subsidiary of
FirstSpartan Financial Corp.
Common Stock
---------------
Price $20.00 per share
---------------
Copies of the Prospectus may be obtained in any State in which this announcement
is circulated from such of the undersigned or other brokers and dealers
as may legally offer these securities in such state.
Trident Securities, Inc.
For a copy of the Prospectus call (864) ________.
- --------------------------------------------------------------------------------
<PAGE>
V. Community Meeting Materials
A. Explanation
In order to educate the public about the stock offering, Trident
suggests holding Community meetings in various locations. In an effort
to target a group of interested investors, Trident requests that each
Director of First Federal submit a list of acquaintances that he or she
would like to invite to a Community meeting.
B. Method of Distribution of Invitations and Prospect Letters
Each Director submits his list of prospects.
Invitations are sent to each Director's prospects through the mail. All
invitations are preceded by a Prospectus and all attendees are given a
Prospectus at the meeting.
Prospect Letters are sent to prospects when appropriate.
C. Examples enclosed
<PAGE>
The Directors and Officers
of
First Federal Savings and Loan Association of Spartanburg
cordially invite you to attend a brief
presentation regarding the stock offering of
FirstSpartan Financial Corp., our proposed holding company.
Please join us at the
Place
Address
Date
at 5:30 p.m.
for hors d'oeuvres.
R.S.V.P.
(864) (Collect)
<PAGE>
Example
(Introductory Letter)
(First Federal Letterhead)
_______, 1997
Name
Address
City, State, Zip
Dear ______________:
You have probably read recently in the newspaper that First Federal
Savings and Loan Association of Spartanburg is converting from mutual to stock
form. This conversion is the biggest step in the history of First Federal in
that it allows customers, community members, employees and directors the
opportunity to subscribe for common stock in our new holding company,
FirstSpartan Financial Corp.
I have enclosed a Prospectus and a stock order form which will allow
you to subscribe for shares and possibly become a charter stockholder of
FirstSpartan Financial Corp. In addition, we will be holding several
presentations for friends of First Federal in order to explain the Conversion
and review the merits of possibly becoming a charter stockholder of FirstSpartan
Financial Corp. You will receive an invitation shortly.
I hope that if you have any questions you will feel free to call First
Federal's Stock Information Center at (864) ___________. I look forward to
seeing you at our presentation.
Sincerely,
Director
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
Example
(Thank You Letter)
(First Federal Letterhead)
_______, 1997
Name
Address
City, State, Zip
Dear ______________:
On behalf of the Board of Directors and management of First Federal
Savings and Loan Association of Spartanburg, I would like to thank you for
attending our recent presentation regarding the stock offering of FirstSpartan
Financial Corp. We are enthusiastic about the stock offering and look forward to
completing the Subscription Offering on _______, 1997.
I hope that you will join me in being a charter stockholder, and once
again thank you for your interest.
Sincerely,
Billy L. Painter
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
Example
(Sorry You Were Unable to Attend)
(First Federal Letterhead)
_______, 1997
Name
Address
City, State, Zip
Dear ____________:
I am sorry you were unable to attend our recent presentation regarding
First Federal's mutual to stock conversion. The Board of Directors and
management as a group intend to invest $2,595,000 of our own funds in the common
stock of FirstSpartan Financial Corp. We are enthusiastic about the stock
offering and look forward to completing the Subscription Offering on _______,
1997.
We have established a Stock Information Center to answer any questions
regarding the stock offering. Should you require any assistance between now and
_______, I encourage you either to stop by or call our Stock Information Center
at (864) _______________.
I hope you will join me in becoming a charter stockholder of
FirstSpartan Financial Corp.
Sincerely,
Billy L. Painter
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
Example
(Final Reminder Letter)
(First Federal Letterhead)
________, 1996
Name
Address
City, State, Zip
Dear ________________:
Just a quick note to remind you that the deadline is quickly
approaching for purchasing stock in FirstSpartan Financial Corp., the proposed
holding company for First Federal Savings and Loan Association of Spartanburg. I
hope you will join me in becoming a charter stockholder in what will be South
Carolina's newest publicly owned financial institution holding company.
The deadline for subscribing for shares in the Subscription Offering is
_______, 1997. If you have any questions, I hope you will call our Stock
Information Center at (864) _______________.
Once again, I look forward to having you join me as a stockholder of
FirstSpartan Financial Corp.
Sincerely,
Billy L. Painter
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
VI. IRA Mailing
A. Explanation
A special IRA mailing is proposed to be sent to all IRA customers of
the Association in order to alert the customers that funds held in an
IRA can be used to purchase stock. Since this transaction is not as
simple as designating funds from a certificate of deposit like a normal
stock purchase, this letter informs the customer that this process is
slightly more detailed and involves contact with the Stock Information
Center.
B. Quantity
One IRA letter is proposed to be mailed to each IRA customer of First
Federal. These letters would be mailed following OTS approval for the
conversion and after each customer has received the initial mailing
containing a Proxy Statement and a Prospectus.
C. Example - Enclosed
<PAGE>
First Federal Letterhead
________, 1997
Dear Individual Retirement Account Participant:
As you know, First Federal Savings and Loan Association of Spartanburg
is in the process of converting from a federally chartered mutual savings and
loan association to a federally chartered stock savings and loan association and
has formed FirstSpartan Financial Corp. to hold all of the stock of First
Federal (the "Conversion"). Through the Conversion, certain current and former
depositors and borrowers of First Federal have the opportunity to purchase
shares of common stock of FirstSpartan Financial Corp. in a Subscription
Offering. FirstSpartan Financial Corp. currently is offering up to 3,852,500
shares of common stock, subject to adjustment, at a price of $20.00 per share.
As the holder of an individual retirement account ("IRA") at First
Federal, you may use your IRA funds to subscribe for stock. If you desire to
purchase shares of common stock of FirstSpartan Financial Corp. through your
IRA, First Federal can assist you in self-directing those funds. This process
can be done without an early withdrawal penalty and generally without a negative
tax consequence to your IRA.
If you are interested in receiving more information on self-directing
your IRA, please contact our Stock Information Center at (864) __________.
Because it takes several days to process the necessary IRA forms, a response
must be received by _______, 1997 to accommodate your interest.
Sincerely,
Billy L. Painter
President
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
VII. Letters
A. Explanation
Cover letters to accompany offering materials.
B. Method of Distribution
Enclosed with the initial mailing.
C. Examples
<PAGE>
(Trident Letterhead)
________, 1997
To Members and Friends of First Federal Savings and Loan Association of
Spartanburg:
Trident Securities, Inc., a member of the National Association of
Securities Dealers, Inc., is assisting First Federal Savings and Loan
Association of Spartanburg in its conversion to a capital stock savings and loan
association and the concurrent offering of shares of common stock by
FirstSpartan Financial Corp. (the "Company"), a Delaware corporation recently
formed for the purpose of acquiring all of the stock of First Federal Savings
and Loan Association of Spartanburg.
At the request of First Federal Savings and Loan Association of
Spartanburg, we are enclosing materials explaining the conversion process and
your right to subscribe for common shares of the Company. Please read the
enclosed offering materials carefully before subscribing for stock.
If you have any questions, please call the Stock Information Center at
(864) ___-____.
Sincerely,
TRIDENT SECURITIES, INC.
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
(First Federal Letterhead)
________, 1997
Dear Valued Customer:
First Federal Savings and Loan Association of Spartanburg is pleased to
announce that we have received regulatory approval to proceed with our plan to
convert to a federally chartered stock savings and loan association, conditioned
upon receipt of approval by First Federal's members, among other things. This
stock conversion is the most significant event in the history of First Federal
in that it allows customers, community members, directors and employees an
opportunity to subscribe for stock in FirstSpartan Financial Corp., the proposed
holding company for First Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at
First Federal, or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with First Federal. Let us also
assure you that the stock Conversion will not result in any changes in the
management, personnel or the Board of Directors of First Federal.
A special meeting of the members of First Federal will be held on
_______, 1997 at _______, Eastern Time, at First Federal's main office, 380 E.
Main Street, Spartanburg, South Carolina, to consider and vote upon First
Federal's Plan of Conversion. Enclosed is a proxy card. Your Board of Directors
solicits your vote "FOR" First Federal's Plan of Conversion. A vote in favor of
the Plan of Conversion does not obligate you to purchase stock. If you do not
plan to attend the special meeting, please sign and return your proxy card
promptly; your vote is important to us.
As one of our valued members, you have the opportunity to invest in
First Federal's future by purchasing stock in FirstSpartan Financial Corp.
during the Subscription Offering, without paying a sales commission.
If you decide to exercise your subscription rights to purchase shares,
you must return a properly completed stock order form together with full payment
for the subscribed shares so that it is received by First Federal not later than
12:00 Noon, Eastern Time on __________, 1997.
We also have enclosed a Prospectus and Proxy Statement which fully
describes the conversion and provides financial and other information about
FirstSpartan Financial Corp. and First Federal. Please review these materials
carefully before you vote or invest. For your convenience we have established a
Stock Information Center. If you have any questions, please call the Stock
Information Center at (864) _________.
<PAGE>
We look forward to continuing to provide quality financial services to
you in the future.
Sincerely,
Billy L. Painter
President
Enclosures
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
(First Federal Letterhead)
________, 1997
Dear Interested Investor:
First Federal Savings and Loan Association of Spartanburg is pleased to
announce that we have received regulatory approval to proceed with our plan to
convert to a federally chartered stock savings and loan association, conditioned
upon receipt of approval by First Federal's members, among other things. This
stock conversion is the most significant event in the history of First Federal
in that it allows customers, community members, directors and employees an
opportunity to subscribe stock in FirstSpartan Financial Corp., the proposed
holding company for First Federal.
We want to assure you that the Conversion will not result in any
changes in the management, personnel or the Board of Directors of First Federal.
Enclosed is a Prospectus which fully describes First Federal, its
management, board and financial condition. Please review it carefully before you
make an investment decision. If you decide to invest, please return to First
Federal a properly completed stock order form together with full payment for
shares at your earliest convenience. For your convenience we have established a
Stock Information Center. If you have any questions, please call the Stock
Information Center at (864) _________.
Sincerely,
Billy L. Painter
President
Enclosures
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
(First Federal Letterhead)
________, 1997
Dear Friend:
First Federal Savings and Loan Association of Spartanburg is pleased to
announce that we have received regulatory approval to proceed with our plan to
convert to a federally chartered stock savings and loan association, conditioned
upon receipt of approval by First Federal's members, among other things. This
stock conversion is the most significant event in the history of First Federal
in that it allows customers, community members, directors and employees an
opportunity to subscribe stock in FirstSpartan Financial Corp., the proposed
holding company for First Federal.
We want to assure you that the Conversion will not affect the terms,
balances, interest rates or existing FDIC insurance coverage on deposits at
First Federal, or the terms or conditions of any loans to existing borrowers
under their individual contract arrangements with First Federal. Let us also
assure you that the Conversion will not result in any changes in the management,
personnel or the Board of Directors of First Federal.
Our records indicate that you were a depositor of First Federal on
December 31, 1995. Therefore, under applicable law, you are entitled to
subscribe for Common Stock in First Federal's Subscription Offering. Orders
submitted by you and others in the Subscription Offering are contingent upon the
current members' approval of the Plan of Conversion at a special meeting of
members to be held on _________, 1997 and upon receipt of all required
regulatory approvals.
If you decide to exercise your subscription rights to purchase shares,
you must return a properly completed stock order form together with full payment
for the subscribed shares so that it is received at First Federal not later than
12:00 Noon, Eastern Time on _________, 1997.
Enclosed is a Prospectus which fully describes First Federal, its
management, board and financial condition. Please review it carefully before you
invest. For your convenience, we have established a Stock Information Center. If
you have any questions, please call the Stock Information Center at (864)
___________.
Sincerely,
Billy L. Painter
President
Enclosures
The shares of common stock offered in the conversion are not savings
accounts or deposits and will not be insured by the Federal Deposit Insurance
Corporation or any other government agency.
This is not an offer to sell or a solicitation of an offer to buy
stock. The offer will be made only by the Prospectus. There shall be no sale of
stock in any state in which any offer, solicitation of an offer or sale of stock
would be unlawful.
<PAGE>
VIII. Proxy Reminder
A. Explanation
A proxygram is used when the majority of votes needed to adopt the Plan
of Conversion is still outstanding. The proxygram is mailed to those
"target vote" depositors who have not previously returned their signed
proxy.
The target vote depositors are determined by the conversion agent.
B. Example enclosed
<PAGE>
B. Example
================================================================================
================================================================================
P R O X Y G R A M
(LOGO)
================================================================================
================================================================================
YOUR VOTE ON OUR PLAN OF CONVERSION HAS NOT BEEN RECEIVED.
YOUR VOTE IS VERY IMPORTANT, PARTICULARLY SINCE FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE PLAN.
VOTING FOR THE PLAN OF CONVERSION WILL NOT AFFECT THE INSURANCE COVERAGE OF YOUR
ACCOUNT. IT WILL CONTINUE TO BE INSURED UP TO THE LEGAL LIMIT ($100,000 PER
ACCOUNT AS DEFINED BY LAW) BY THE SAVINGS ASSOCIATION INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION, AN AGENCY OF THE U.S. GOVERNMENT.
REMEMBER, VOTING FOR CONVERSION DOES NOT OBLIGATE YOU TO BUY ANY STOCK.
PLEASE ACT PROMPTLY! SIGN THE ENCLOSED PROXY CARD AND MAIL OR DELIVER IT TO A
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG OFFICE.
WE RECOMMEND THAT YOU VOTE "FOR" THE PLAN OF CONVERSION.
THANK YOU!
THE BOARD OF DIRECTORS OF FIRST
FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SPARTANBURG
================================================================================
================================================================================
<PAGE>
================================================================================
================================================================================
<PAGE>
EXHIBIT 99.3
Agreement with RP Financial, LC.
<PAGE>
RP Financial, LC.
- ---------------------------------------
Financial Services Industry Consultants
January 6, 1997
Mr. Billy L. Painter
President and Chief Executive Officer
First Federal Savings & Loan Association of Spartanburg
380 East Main Street
Spartanburg, South Carolina 29302-1944
Dear Mr. Painter:
This letter sets forth the agreement between First Federal Savings
and Loan Association of Spartanburg, South Carolina ("First Federal"
or the "Association"), and RP Financial, LC. ("RP Financial") for certain
conversion appraisal services pertaining to the Association's mutual-to-stock
conversion and simultaneous holding company formation. The specific appraisal
services to be rendered by RP Financial are described below. These appraisal
services will be rendered by a team of one to two senior consultants on
staff and will be directed by the undersigned.
Description of Conversion Appraisal Services
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management
and reviews of financial and other documents and records, to gain
insight into the Association's operations, financial condition, profitability,
market area, risks and various internal and external factors which impact the
pro forma value of the Association. RP Financial will prepare a written
detailed valuation report of First Federal which will be fully consistent
with applicable regulatory guidelines and standard pro forma valuation
practices. The appraisal report will include an in-depth analysis of the
Association's financial condition and operating results, as well as an
assessment of the Association's interest rate risk, credit risk and liquidity
risk. The appraisal report will describe the Association's business
strategies, market area, prospects for the future and the intended use of
proceeds both in the short term and over the longer term. A peer group analysis
relative to publicly-traded savings institutions will be conducted for
the purpose of determining appropriate valuation adjustments relative to
the group. We will review pertinent sections of the prospectus to obtain
necessary data and information for the appraisal, including the impact of key
deal elements on the appraised value, such as dividend policy, use of
proceeds and reinvestment rate, tax rate, conversion expenses and
characteristics of stock plans. The appraisal report will establish a midpoint
pro forma value as well as the range of value. The appraisal report may be
periodically updated throughout the conversion process and there will be at
least one updated valuation prepared at the time of the closing of the stock
offering.
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to First Federal at the above address in conjunction with
the filing of the regulatory application. Subsequent updates will be filed
promptly as certain events occur which would warrant the preparation and filing
of such valuation updates. Further, RP Financial agrees to perform such other
services as are necessary or required in connection with the regulatory review
of the appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. Billy L. Painter
January 6, 1997
Page 2
Fee Structure and Payment Schedule
First Federal agrees to pay RP Financial a fixed fee of $35,000
for these services, plus reimbursable expenses. Payment of these fees
shall be made according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's appraisal services;
o $25,000 upon delivery of the completed original appraisal report;
and
o $5,000 upon completion of the conversion to cover all subsequent
valuation updates that may be required.
The Association will reimburse RP Financial for out-of-pocket expenses
incurred in preparation of the valuation. Such out-of-pocket expenses will
likely include travel, printing, telephone, facsimile, shipping, computer and
data services. RP Financial will agree to limit reimbursable expenses to a
reasonable cap, subject to written authorization from the Association to exceed
such level.
In the event First Federal shall, for any reason, discontinue the
proposed conversion prior to delivery of the completed documents set forth
above and payment of the respective progress payment fees, First Federal
agrees to compensate RP Financial according to RP Financial's standard
billing rates for consulting services based on accumulated and verifiable
time expenses, not to exceed the respective fee caps noted above, after
giving full credit to the initial retainer fee. RP Financial's standard
billing rates range from $75 per hour for research associates to $250 per hour
for managing directors.
If during the course of the proposed transaction, unforeseen events
occur so as to materially change the nature or the work content of the
services described in this contract, the terms of said contract shall be
subject to renegotiation by First Federal and RP Financial. Such unforeseen
events shall include, but not be limited to, major changes in the conversion
regulations, appraisal guidelines or processing procedures as they relate to
conversion appraisals, major changes in management or procedures, operating
policies or philosophies, and excessive delays or suspension of processing of
conversion applications by the regulators such that completion of the
conversion transaction requires the preparation by RP Financial of a new
appraisal or financial projections.
Representations and Warranties
First Federal and RP Financial agree to the following:
1. The Association agrees to make available or to supply to RP
Financial such information with respect to its business and financial condition
as RP Financial may reasonably request in order to provide the aforesaid
valuation. Such information heretofore or hereafter supplied or made available
to RP Financial shall include: annual financial statements, periodic regulatory
filings and material agreements, debt instruments, off balance sheet assets or
liabilities, commitments and contingencies, unrealized gains or losses and
corporate books and records. All information provided by the Association to RP
Financial shall remain strictly confidential (unless such information is
otherwise made available to the public), and if conversion is not consummated or
the services of RP Financial are terminated hereunder, RP Financial shall upon
request promptly return to the Association the original and any copies of such
information.
2. The Association hereby represents and warrants to RP Financial that
any information provided to RP Financial does not and will not, to the best of
the Association's knowledge, at the times it is provided to RP
<PAGE>
RP Financial, LC.
Mr. Billy L. Painter
January 6, 1997
Page 3
Financial, contain any untrue statement of a material fact or fail to state a
material fact necessary to make the statements therein not false or misleading
in light of the circumstances under which they were made.
3. (a) The Association agrees that it will indemnify and hold harmless
RP Financial, any affiliates of RP Financial, the respective directors,
officers, agents and employees of RP Financial or their successors and assigns
who act for or on behalf of RP Financial in connection with the services called
for under this agreement (hereinafter referred to as "RP Financial"), from and
against any and all losses, claims, damages and liabilities (including, but not
limited to, all losses and expenses in connection with claims under the federal
securities laws) attributable to (i) any untrue statement or alleged untrue
statement of a material fact contained in the financial statements or other
information furnished or otherwise provided by the Association to RP Financial,
either orally or in writing; (ii) the omission or alleged omission of a material
fact from the financial statements or other information furnished or otherwise
made available by the Association to RP Financial; or (iii) any action or
omission to act by the Association, or the Association's respective officers,
directors, employees or agents which action or omission is willful or negligent.
The Association will be under no obligation to indemnify RP Financial hereunder
if a court determines that RP Financial was negligent or acted in bad faith with
respect to any actions or omissions of RP Financial related to a matter for
which indemnification is sought hereunder. Any time devoted by employees of RP
Financial to situations for which indemnification is provided hereunder, shall
be an indemnifiable cost payable by the Association at the normal hourly
professional rate chargeable by such employee.
(b) RP Financial shall give written notice to the Association of
such claim or facts within thirty days of the assertion of any claim or
discovery of material facts upon which the RP Financial intends to base a claim
for indemnification hereunder. In the event the Association elects, within seven
days of the receipt of the original notice thereof, to contest such claim by
written notice to RP Financial, RP Financial will be entitled to be paid any
amounts payable by the Association hereunder, together with interest on such
costs from the date incurred at the annual rate of prime plus two percent within
five days after the final determination of such contest either by written
acknowledgement of the Association or a final judgment of a court of competent
jurisdiction. If the Association does not so elect, RP Financial shall be paid
promptly and in any event within thirty days after receipt by the Association of
the notice of the claim.
(c) The Association shall pay for or reimburse the reasonable
expenses, including attorneys' fees, incurred by RP Financial in advance of the
final disposition of any proceeding within thirty days of the receipt of such
request if RP Financial furnishes the Association: (1) a written statement of RP
Financial's good faith belief that it is entitled to indemnification hereunder;
and (2) a written undertaking to repay the advance if it ultimately is
determined in a final adjudication of such proceeding that it or he is not
entitled to such indemnification.
(d) In the event the Association does not pay any indemnified loss
or make advance reimbursements of expenses in accordance with the terms of
this agreement, RP Financial shall have all remedies available at law or in
equity to enforce such obligation.
It is understood that, in connection with RP Financial's
above-mentioned engagement, RP Financial may also be engaged to act for the
Association in one or more additional capacities, and that the terms of the
original engagement may be embodied in one or more separate agreements. The
provisions of Paragraph 3 herein shall apply to the original engagement, any
such additional engagement, any modification of the original engagement or such
additional engagement and shall remain in full force and effect
following the completion or termination of RP Financial's engagement(s). This
agreement constitutes the entire understanding of the Association and RP
Financial concerning the subject matter addressed herein, and such contract
shall be governed and construed in accordance with the laws of the Commonwealth
of Virginia. This agreement may not be modified, supplemented or amended except
by written agreement executed by both parties.
<PAGE>
RP Financial, LC.
Mr. Billy L. Painter
January 6, 1997
Page 4
First Federal and RP Financial are not affiliated, and neither First
Federal nor RP Financial has an economic interest in, or is held in common with,
the other and has not derived a significant portion of its gross revenues,
receipts or net income for any period from transactions with the other.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter,
together with the initial retainer fee of $5,000.
Sincerely,
/s/ Ronald S. Riggins
---------------------
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: Billy L. Painter /s/ Billy L. Painter
---------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: First Federal Savings and
Loan Association of
Spartanburg
Spartanburg, South Carolina
Date Executed: 2/4/97
--------------------------
<PAGE>
RP Financial, LC.
- ---------------------------------------
Financial Services Industry Consultants
January 6, 1997
Mr. Billy L. Painter
President and Chief Executive Officer
First Federal Savings & Loan Association of Spartanburg
380 East Main Street
Spartanburg, South Carolina 29302-1944
Dear Mr. Painter:
This letter sets forth the agreement between First Federal Savings
and Loan Association of Spartanburg, South Carolina ("First Federal"
or the "Association"), and RP Financial, LC. ("RP Financial"), whereby the
Association has engaged RP Financial to prepare the regulatory business plan
and financial projections to be adopted by the Association's Board of Directors
in conjunction with the concurrent formation of a holding company and the
Association's mutual-to-stock conversion. These services are described in
greater detail below.
Description of Proposed Services
RP Financial's business planning services will include the
following areas: (1) evaluating First Federal's current financial and
operating condition, business strategies and anticipated strategies in the
future; (2) analyzing and quantifying the impact of business strategies,
incorporating the use of net conversion proceeds both in the short and long
term; (3) preparing detailed financial projections on a quarterly basis for a
period of at least three fiscal years to reflect the impact of Board
approved business strategies and use of proceeds; (4) preparing the written
business plan document which conforms with applicable regulatory guidelines
including a description of the use of proceeds and how the convenience and needs
of the community will be addressed; and (5) preparing the detailed schedules of
the capitalization of the holding company and the cash flows between the holding
company and the Association.
Contents of the business plan will include: Philosophy/Goals;
Economic Environment and Background; Lending, Leasing and Investment
Activities; Deposit, Savings and Borrowing Activity; Asset and Liability
Management; Operations; Records, Systems and Controls; Growth,
Profitability and Capital; Responsibility for Monitoring this Plan.
RP Financial agrees to prepare the business plan and accompanying
financial projections in writing such that the business plan can be filed with
the appropriate regulatory agencies prior to filing the conversion application.
Fee Structure and Payment Schedule
The Association agrees to compensate RP Financial for preparation of
the business plan on a fixed fee basis of $7,500. Payment of the professional
fees shall be made upon delivery of the completed business plan.
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. Billy L. Painter
January 6, 1997
Page 2
The Association also agrees to reimburse RP Financial for
those direct out-of-pocket expenses necessary and incidental to providing the
business planning services. Reimbursable expenses will likely include shipping,
telephone/facsimile printing, computer and data services, and shall be paid to
RP Financial as incurred and billed. RP Financial will agree to limit
reimbursable expenses to a reasonable cap, subject to written authorization from
the Association to exceed such level.
In the event the Association shall, for any reason, discontinue this
planning engagement prior to delivery of the completed business plan and payment
of the progress payment fee, the Association agrees to compensate RP Financial
according to RP Financial's standard billing rates for consulting services based
on accumulated and verifiable time expenses, not to exceed the fixed fee
described above, plus reimbursable expenses incurred.
If during the course of the planning engagement, unforeseen events
occur so as to materially change the nature or the work content of the business
planning services described in this contract, the terms of said contract shall
be subject to renegotiation by the Association and RP Financial. Such
unforeseen events may include changes in regulatory requirements as it
specifically relates to First Federal or potential transactions which
will dramatically impact the Association such as a pending acquisition or
branch transaction.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as
indicated below and returning to RP Financial a signed copy of this letter.
Sincerely,
/s/ Ronald S. Riggins
---------------------
Ronald S. Riggins
President and Managing Director
Agreed To and Accepted By: Billy L. Painter /s/ Billy L. Painter
--------------------
President and Chief Executive Officer
Upon Authorization by the Board of Directors For: First Federal Savings and
Loan Association of
Spartanburg
Spartanburg, South Carolina
Date Executed: 2/4/97
--------------------------
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------------
Financial Services Industry Consultants
January 6, 1997
* VIA FEDEX*
Mr. Billy L. Painter
President and Chief Executive Officer
First Federal Savings & Loan Association of Spartanburg
380 East Main Street
Spartanburg, South Carolina 29302-1944
Dear Mr. Painter:
Pursuant to my conversation with Paul Aguggia of Breyer & Aguggia, we are
pleased to submit RP Financial's proposals for appraisal and planning services.
RP Financial is the leading firm in the nation with respect to preparation
of conversion appraisals and related business planning. In this regard, over the
last five years, RP Financial provided appraisals for more than 160 conversion
transactions with gross proceeds approximating nearly $6 billion. This includes
appraisal services for the majority of the offerings over $50 million in
proceeds. In addition, we have performed conversion appraisal services for a
number of recent southeast conversions, including the following offerings over
$50 million: Home Federal in North Carolina, Home Savings in Florida, Great
Financial in Kentucky, First Federal in Virginia and Iberia Savings in
Louisiana. In addition, we have performed appraisal and planning services for
several South Carolina institutions, most recently Perpetual Savings in
Anderson.
We will be able to conform with the proposed conversion timetable,
culminating in filing the application, appraisal and business plan in early
1997. With our automated in-house data bases of publicly-traded institutions,
all insured financial institutions, economic/demographic and competitive data
bases coupled with the proposed staffing of the project, we can accommodate the
schedule. Our strong working relationships with Breyer & Aguggia and Trident
Securities should be extremely beneficial in facilitating a smooth conversion
process. We will ensure the appraisal and business plan documents are prepared
in a form consistent with the appropriate federal regulations.
Should RP Financial be engaged for the appraisal and planning services, we
will coordinate our initial data and information needs with materials you have
already provided to Breyer & Aguggia--we will then request any additional
information directly from First Federal.
I look forward to speaking with you further about RP Financial's appraisal
and planning services.
Sincerely,
(Signature of Ronald S. Riggins)
Ronald S. Riggins
President and Managing Director
Enclosures
cc: Paul M. Aguggia, Esq.
- --------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Sutie 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
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EXHIBIT 99.5
Proxy Statement for Special Meeting of Members of
First Federal Savings and Loan Association of Spartanburg
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FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
380 East Main Street
Spartanburg, South Carolina 29302
(864) 582-2391
NOTICE OF SPECIAL MEETING OF MEMBERS
To be Held on June __, 1997
Notice is hereby given that a special meeting ("Special Meeting") of
members of First Federal Savings and Loan Association of Spartanburg
("Association") will be held at the Association's main office at 380 East Main
Street, Spartanburg, South Carolina, on __________, June __, 1997, at __:__
__.m., Eastern Time. Business to be taken up at the Special Meeting shall be:
(1) To approve a Plan of Conversion adopted by the Board of Directors
on February 3, 1997 to convert the Association from a federally chartered mutual
savings and loan association to a federally chartered capital stock savings and
loan association, to be held as a wholly-owned subsidiary of a new holding
company, FirstSpartan Financial Corp., including the adoption of a Federal Stock
Charter and Bylaws for the Association, pursuant to the laws of the United
States and the rules and regulations of the Office of Thrift Supervision; and
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors
is not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those
members of the Association at the close of business on _________, 1997, and who
continue as members until the Special Meeting, and should the Special Meeting
be, from time to time, adjourned to a later time, until the final adjournment
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT L. HANDELL
SECRETARY
Spartanburg, South Carolina
May __, 1997
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY
WRITTEN INSTRUMENT DELIVERED TO ROBERT L. HANDELL, SECRETARY, FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG, AT THE ABOVE ADDRESS AT ANY TIME
PRIOR TO OR AT THE SPECIAL MEETING.
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FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
380 East Main Street
Spartanburg, South Carolina 29302
(864) 582-2391
PROXY STATEMENT
May __, 1997
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF
DIRECTORS OF FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG FOR USE
AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON ___________, JUNE __, 1997, AND
ANY ADJOURNMENT OF THAT MEETING, FOR THE PURPOSES SET FORTH IN THE FOREGOING
NOTICE OF SPECIAL MEETING. YOUR BOARD OF DIRECTORS AND MANAGEMENT URGE YOU TO
VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of First Federal
savings and Loan Association of Spartanburg ("Association") will be held at the
Association's main office at 380 East Main Street, Spartanburg, South Carolina,
on ________, June __, 1997, at __:__ __.m., Eastern Time, for the purpose of
considering and voting upon a Plan of Conversion from Federal Mutual Savings and
Loan Association to Federal Stock Savings and Loan Association and Formation of
a Holding Company ("Plan of Conversion"), which, if approved by a majority of
the total votes of the members eligible to be cast, will permit the Association
to convert from a federally chartered mutual savings and loan association to a
federally chartered capital stock savings and loan association, to be held as a
subsidiary of FirstSpartan Financial Corp. ("Holding Company"), a newly
organized Delaware corporation formed by the Association. The conversion of the
Association and the acquisition of control of the Association by the Holding
Company are collectively referred to herein as the "Conversion."
Members entitled to vote on the Plan of Conversion are members of the
Association as of __________, 1997 ("Voting Record Date") who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof. The
Conversion requires the approval of not less than a majority of the total votes
eligible to be cast at the Special Meeting.
The Plan of Conversion provides, among other things, that, after
receiving final authorization from the Office of Thrift Supervision ("OTS"), the
Association will offer for sale shares of common stock of the Holding Company
("Common Stock"), through the issuance of nontransferable subscription rights
("Subscription Rights"), first to depositors of the Association with $50.00 or
more on deposit as of December 31, 1995 ("Eligible Account Holders"), then to
the Association's employee stock ownership plan ("ESOP"), then to depositors of
the Association with $50.00 or more on deposit as of March 31, 1997
("Supplemental Eligible Account Holders"), then to depositors of the Association
as of the Voting Record Date and borrowers with loans outstanding as of
__________, 1997, which continue to be outstanding as of the Voting Record Date
("Other Members"), in a subscription offering ("Subscription Offering"), and
then, if necessary, to certain members of the general public in a direct
community offering ("Direct Community Offering"). The Subscription and Direct
Community Offerings are referred to herein as the "Subscription and Direct
Community Offerings." It is anticipated that shares of Common Stock not
subscribed for in the Subscription and Direct Community Offerings will be
offered to the general public with the assistance of Trident Securities, Inc.
("Trident Securities") and, if necessary, a syndicate of registered
broker-dealers to be managed by Trident Securities pursuant to selected dealers'
agreements in a syndicated offering ("Syndicated Offering"). The Subscription,
Direct Community and Syndicated Offerings are referred to herein as the
"Offerings."
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Adoption of a Federal Stock Charter ("Federal Stock Charter") and
Bylaws ("Bylaws") of the Association is an integral part of the Plan of
Conversion. Copies of the Plan of Conversion and the proposed Federal Stock
Charter and Bylaws for the Association are attached to this Proxy Statement as
exhibits. They provide, among other things, for the termination of voting rights
of members and of their rights to receive any surplus remaining after
liquidation of the Association. These rights, except for the rights of Eligible
Account Holders and Supplemental Eligible Account Holders in the liquidation
account, will vest exclusively in the holders of the stock in the Holding
Company and the Association. For further information, see "THE CONVERSION --
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association."
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
Chartered in 1935, the Association is a federal mutual savings and loan
association headquartered in Spartanburg, South Carolina. As a result of the
Conversion, the Association will convert to a federal capital stock savings and
loan association and will become a wholly-owned subsidiary of the Holding
Company. The Association is regulated by the OTS, its primary regulator, and by
the FDIC, the insurer of its deposits. The Association's deposits have been
federally-insured since 1935 and are currently insured by the FDIC under the
SAIF. The Association has been a member of the Federal Home Loan Bank ("FHLB")
System since 1935. At December 31, 1996, the Association had total assets of
$375.5 million, total deposits of $324.0 million and total equity of $44.8
million on a consolidated basis.
The Association is a community oriented financial institution whose
primary business is attracting retail deposits from the general public and using
these funds to originate primarily one- to- four family residential mortgage
loans within its primary market area. The Association is an approved Federal
Housing Administration and Veterans Administration lender and participates in
the Spartanburg Residential Development Program, an affordable housing program.
The Association also actively originates construction loans and consumer loans.
To a lesser extent, the Association originates land loans, commercial real
estate loans and commercial business loans. The Association expects to hire an
experienced commercial loan officer familiar with the Association's primary
market area in an attempt to augment its commercial real estate and commercial
business lending. At December 31, 1996, one- to- four family residential
mortgage loans, consumer loans (including commercial business loans),
construction loans, commercial real estate loans and land loans amounted to
77.3%, 11.5%, 9.2%, 1.3% and 0.7% of its total loan portfolio, respectively.
Loans receivable, net, constituted 88.3% of total assets at December 31, 1996.
The Association considers Spartanburg County and adjacent counties in
Northwest South Carolina to be its primary market area because a large number of
its depositors reside, and a substantial portion of its loan portfolio is
secured by properties located, in that geographic area. Since August 1996, the
Association has purchased a limited number of one- to- four family residential
mortgage loans and residential construction loans from a regional start-up
mortgage banking company in which the Association's service corporation
subsidiary has an equity investment. At December 31, 1996, a substantial portion
of these purchased loans were secured by properties located in the Association's
primary market area. Such loan purchases are expected to continue and increase
in volume as that company's mortgage banking operations expand, and are likely
to include purchases of loans, including commercial loans and home equity loans,
secured by properties inside and outside of the Association's primary market
area.
In addition to its lending activities, the Association invests excess
liquidity in short term U.S. Government and agency securities, a mutual fund
that invests in adjustable rate mortgage loans and, to a substantially lesser
extent, short term mortgage-backed securities issued by U.S. Government
agencies. Investment securities and mortgage-backed securities, which
constituted 3.6% of total assets at December 31, 1996, had an amortized cost and
a fair value of $13.6 million at December 31, 1996.
The Association conducts its operations from its main office and three
branch offices located in Spartanburg, South Carolina, a branch office in
Boiling Springs, South Carolina (Spartanburg County) and a loan production
office in Greenville, South Carolina, in adjacent Greenville County. Two
additional branch offices are under construction in Inman, South Carolina
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(Spartanburg County), and in Duncan, South Carolina (Spartanburg County). Both
offices are scheduled to open by the end of the first half of calendar 1997. See
"BUSINESS OF THE ASSOCIATION -- Properties" in the Prospectus. The main office
is located at 380 E. Main Street, Spartanburg, South Carolina 29302, and its
telephone number is (864) 582-2391.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The Association's Board of Directors has fixed the close of business on
____________, 1997 as the record date for the determination of members entitled
to notice of and to vote at the Special Meeting. All holders of the
Association's savings or other authorized accounts are members of the
Association under its current charter. All members of record as of the close of
business on the Voting Record Date who continue to be members on the date of the
Special Meeting or any adjournment thereof will be entitled to vote at the
Special Meeting or such adjournment.
Each eligible depositor member will be entitled at the Special Meeting
to cast one vote for each $100, or fraction thereof, of the aggregate withdrawal
value of all of the depositor's savings accounts in the Association as of the
Voting Record Date. Borrowers with loans outstanding as of ___________, 1997
which continue to be outstanding as of the Voting Record Date will be entitled
to cast one vote for the period of time such borrowings remain in existence. No
member is entitled to cast more than 1,000 votes. Any number of members present
and voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of
a majority of the total outstanding votes of the Association's members eligible
to be cast at the Special Meeting. As of the Voting Record Date for the Special
Meeting, there were approximately ___________ votes eligible to be cast, of
which ________ votes may be cast by depositor members and ____________ votes may
be cast by borrower members.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible member
to vote on the Plan of Conversion. All properly executed proxies received by
management will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, all
proxies will be voted on such matters in accordance with the best judgment of
the proxy holders named therein. If the enclosed proxy is returned, it may be
revoked at any time before it is voted by written notice to the Secretary of the
Association, by submitting a later dated proxy, or by attending and voting in
person at the Special Meeting. The proxies being solicited are only for use at
the Special Meeting and at any and all adjournments thereof and will not be used
for any other meeting. Management is not aware of any other business to be
presented at the Special Meeting.
The Association, as trustee for individual retirement accounts at the
Association, will vote in favor of the Plan of Conversion, unless the beneficial
owner executes and returns the enclosed proxy for the Special Meeting or attends
the Special Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by representatives of Trident Securities and by
officers, directors or regular employees of the Association, in person, by
telephone or through other forms of communication and, if necessary, the Special
Meeting may be adjourned to an alternative date. Such persons will be reimbursed
by the Association for their reasonable out-of-pocket expenses incurred in
connection with such solicitation.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that you vote "FOR" the
Plan of Conversion. Voting in favor of the Plan of Conversion will not obligate
any voter to purchase any stock.
THE CONVERSION
The OTS has approved the Plan of Conversion subject to its approval by
the members of the Association entitled to vote on the matter at the Special
Meeting and to the satisfaction of certain other conditions imposed by the OTS
in its approval. OTS approval, however, does not constitute a recommendation or
endorsement of the Plan of Conversion.
General
On February 3, 1997, the Board of Directors of the Association
unanimously adopted the Plan of Conversion, pursuant to which the Association
will be converted from a federally chartered mutual savings and loan association
to a federally chartered stock savings and loan association to be held as a
wholly-owned subsidiary of the Holding Company, a newly formed Delaware
corporation. The following discussion of the Plan of Conversion is qualified in
its entirety by reference to the Plan of Conversion, which is attached as
Exhibit A hereto.
If the Board of Directors decides for any reason, such as possible
delays resulting from overlapping regulatory processing or policies or
conditions that could adversely affect the Association's or the Holding
Company's ability to consummate the Conversion and transact its business as
contemplated herein and in accordance with the Association's operating policies,
at any time prior to the issuance of the Common Stock, not to use the holding
company form of organization in implementing the Conversion, the Plan of
Conversion will be amended to not use the holding company form of organization
in the Conversion. In the event that such a decision is made, the Association
will promptly refund all subscriptions or orders received together with accrued
interest, withdraw the Holding Company's registration statement from the
Securities and Exchange Commission ("SEC") and will take all steps necessary to
complete the Conversion and proceed with a new offering without the Holding
Company, including filing any necessary documents with the OTS. In such event,
and provided there is no regulatory action, directive or other consideration
upon which basis the Association determines not to complete the Conversion, the
Association will issue and sell the common stock of the Association. There can
be no assurance that the OTS would approve the Conversion if the Association
decided to proceed without the Holding Company. The following description of the
Plan of Conversion assumes that a holding company form of organization will be
utilized in the Conversion. In the event that a holding company form of
organization is not utilized, all other pertinent terms of the Plan of
Conversion as described below will apply to the Conversion of the Association
from mutual to stock form of organization and the sale of the Association's
common stock.
The Conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association. Under the Plan of Conversion, 2,847,500 to 3,852,500 shares of
Common Stock are being offered for sale by the Holding Company at the Purchase
Price of $20.00 per share. As part of the Conversion, the Association will
issue all of its newly issued common stock (1,000 shares) to the Holding Company
in exchange for 50% of the net proceeds from the sale of Common Stock by the
Holding Company.
The Plan of Conversion provides generally that: (i) the Association
will convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association; (ii) the Common Stock
will be offered by the Holding Company in the Subscription Offering to persons
having Subscription Rights; (iii) if necessary, shares of Common Stock not
subscribed for in the Subscription Offering will be offered in a Direct
Community Offering to certain members of the general public, with preference
given to natural persons and trusts of natural persons residing in Spartanburg
County, South Carolina ("Local Community"), and then to certain members of the
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general public in a Syndicated Community Offering through a syndicate of
registered broker-dealers pursuant to selected dealers agreements; and (iv) the
Holding Company will purchase all of the capital stock of the Association to be
issued in connection with the Conversion. The Conversion will be effected only
upon completion of the sale of at least $56,950,000 of Common Stock to be
issued pursuant to the Plan of Conversion.
As part of the Conversion, the Holding Company is making a Subscription
Offering of its Common Stock to holders of Subscription Rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of December 31, 1995); (ii) the Association's ESOP; (iii)
Supplemental Eligible Account Holders (depositors with $50.00 or more on deposit
as of March 31, 1997); and (iv) Other Members (depositors of the Association as
of ________, 1997 and borrowers of the Association with loans outstanding as of
__________, 1997 which continue to be outstanding as of _________, 1997).
The Direct Community Offering, if one is held, is expected to begin
immediately after the Expiration Date, but may begin at anytime during the
Subscription Offering. Shares of Common Stock not sold in the Subscription
and Direct Community Offerings may be offered in the Syndicated Community
Offering. Regulations require that the Direct Community and Syndicated
Community Offerings be completed within 45 days after completion of the
Subscription Offering unless extended by the Association or the Holding Company
with the approval of the regulatory authorities. If the Syndicated
Community Offering is determined not to be feasible, the Board of Directors of
the Association will consult with the regulatory authorities to determine an
appropriate alternative method for selling the unsubscribed shares of Common
Stock. The Plan of Conversion provides that the Conversion must be completed
within 24 months after the date of the approval of the Plan of Conversion by the
members of the Association.
No sales of Common Stock may be completed, either in the Subscription,
Direct Community or Syndicated Community Offerings, unless the Plan of
Conversion is approved by the members of the Association.
The completion of the Offerings, however, is subject to market
conditions and other factors beyond the Association's control. No assurance can
be given as to the length of time after approval of the Plan of Conversion at
the Special Meeting that will be required to complete the Direct Community or
Syndicated Community Offerings or other sale of the Common Stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Association as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the Common Stock. In the event the Conversion is terminated, the
Association would be required to charge all Conversion expenses against current
income.
Orders for shares of Common Stock will not be filled until at least
2,847,500 shares of Common Stock have been subscribed for or sold and the OTS
approves the final valuation and the Conversion closes. If the Conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
Conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Association's
passbook rate from the date payment is received until the funds are returned to
the subscriber. If such period is not extended, or, in any event, if the
Conversion is not completed, all withdrawal authorizations will be terminated
and all funds held will be promptly returned together with accrued interest at
the Association's passbook rate from the date payment is received until the
Conversion is terminated.
Purposes of Conversion
The Association's Board of Directors has formed the Holding Company to
serve upon consummation of the Conversion as a holding company with the
Association as its subsidiary. The Association, as a mutual savings and loan
association, does not have stockholders and has no authority to issue capital
stock. By converting to the stock form of organization, the Holding Company and
the Association will be structured in the form used by holding companies of
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commercial banks and by a growing number of savings institutions. Management of
the Association believes that the Conversion offers a number of advantages which
will be important to the future growth and performance of the Association in
that it is intended: (i) to improve the overall competitive position of the
Association in its market area and to support possible future expansion and
diversification of operations (currently there are no specific plans,
arrangements or understandings, written or oral, regarding any such activities);
(ii) to afford members of the Association and others the opportunity to become
stockholders of the Holding Company and thereby participate more directly in,
and contribute to, any future growth of the Holding Company and the Association;
and (iii) to provide future access to capital markets.
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association
Voting Rights. Savings members and borrowers will have no voting rights
in the converted Association or the Holding Company and therefore will not be
able to elect directors of the Association or the Holding Company or to control
their affairs. Currently, these rights are accorded to savings members of the
Association. Subsequent to the Conversion, voting rights will be vested
exclusively in the Holding Company with respect to the Association and the
holders of the Common Stock as to matters pertaining to the Holding Company.
Each holder of Common Stock shall be entitled to vote on any matter to be
considered by the stockholders of the Holding Company. A stockholder will be
entitled to one vote for each share of Common Stock owned.
Savings Accounts and Loans. The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion. Furthermore, the Conversion will not affect the loan
accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.
Tax Effects. The Association has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended. Among other things, the opinion states that: (i) no gain or loss
will be recognized to the Association in its mutual or stock form by reason of
its Conversion; (ii) no gain or loss will be recognized to its account holders
upon the issuance to them of accounts in the Association immediately after the
Conversion, in the same dollar amounts and on the same terms and conditions as
their accounts at the Association in its mutual form plus interest in the
liquidation account; (iii) the tax basis of account holders' accounts in the
Association immediately after the Conversion will be the same as the tax basis
of their accounts immediately prior to Conversion; (iv) the tax basis of each
account holder's interest in the liquidation account will be zero; (v) the tax
basis of the Common Stock purchased in the Conversion will be the amount paid
and the holding period for such stock will commence at the date of purchase; and
(vi) no gain or loss will be recognized to account holders upon the receipt or
exercise of Subscription Rights in the Conversion, except to the extent
Subscription Rights are deemed to have value as discussed below. Unlike a
private letter ruling issued by the Internal Revenue Service ("IRS"), an opinion
of counsel is not binding on the IRS and the IRS could disagree with the
conclusions reached therein. In the event of such disagreement, no assurance can
be given that the conclusions reached in an opinion of counsel would be
sustained by a court if contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that
the receipt of Subscription Rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the Subscription Rights are deemed to have a
fair market value. RP Financial, LC., a financial consulting firm retained by
the Association, whose findings are not binding on the IRS, has indicated that
the Subscription Rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the Common Stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of Common Stock. If the Subscription Rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
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those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their Subscription Rights. The Association could also
recognize a gain on the distribution of such Subscription Rights. Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members are
encouraged to consult with their own tax advisors as to the tax consequences in
the event the Subscription Rights are deemed to have a fair market value.
The Association has also received an opinion from Deloitte & Touche
LLP, Greenville, South Carolina, that, assuming the Conversion does not result
in any federal income tax liability to the Association, its account holders, or
the Holding Company, implementation of the Plan of Conversion will not result in
any South Carolina income tax liability to such entities or persons.
The opinions of Breyer & Aguggia and Deloitte & Touche LLP and the
letter from RP Financial are filed as exhibits to the Registration Statement.
See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
Liquidation Account. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up to
the withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account to the total value of all deposit accounts in the Association at the
time of liquidation.
After the Conversion, holders of withdrawable deposit(s) in the
Association, including certificates of deposit ("Savings Account(s)"), shall not
be entitled to share in any residual assets in the event of liquidation of the
Association. However, pursuant to OTS regulations, the Association shall, at the
time of the Conversion, establish a liquidation account in an amount equal to
its total equity as of the date of the latest statement of financial condition
contained herein.
The liquidation account shall be maintained by the Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Association. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to each Savings Account held, have a related inchoate
interest in a portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's "qualifying
deposit" in the Savings Account and the denominator is the total amount of the
"qualifying deposits" of all such holders. Such initial subaccount balance shall
not be increased, and it shall be subject to downward adjustment as provided
below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing day of the Association subsequent to December 31, 1995 or March
31, 1997 is less than the lesser of (i) the deposit balance in such Savings
Account at the close of business on any other annual closing date subsequent to
December 31, 1995 or March 31, 1997 or (ii) the amount of the "qualifying
deposit" in such Savings Account on December 31, 1995 or March 31, 1997, then
the subaccount balance for such Savings Account shall be adjusted by reducing
such subaccount balance in an amount proportionate to the reduction in such
deposit balance. In the event of a downward adjustment, such subaccount balance
shall not be subsequently increased, notwithstanding any increase in the deposit
balance of the related Savings Account. If any such Savings Account is closed,
the related subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Association (and only in
such event) each Eligible Account Holder and Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance(s) for Savings Account(s) then held by such holder before any
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liquidation distribution may be made to stockholders. No merger, consolidation,
bulk purchase of assets with assumptions of Savings Accounts and other
liabilities or similar transactions with another federally insured institution
in which the Association is not the surviving institution shall be considered to
be a complete liquidation. In any such transaction the liquidation account shall
be assumed by the surviving institution.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with
or without conditions, or disapproves a plan of conversion pursuant to this part
may obtain review of such action by filing in the court of appeals of the United
States for the circuit in which the principal office or residence of such person
is located, or in the United States Court of Appeals for the District of
Columbia, a written petition praying that the final action of the OTS be
modified, terminated or set aside. Such petition must be filed within 30 days
after the publication of notice of such final action in the Federal Register, or
30 days after the mailing by the applicant of the notice to members as provided
for in 12 C.F.R. ss.563b.6(c), whichever is later. The further procedure for
review is as follows: A copy of the petition is forthwith transmitted to the OTS
by the clerk of the court and thereupon the OTS files in the court the record in
the proceeding, as provided in Section 2112 of Title 28 of the United States
Code. Upon the filing of the petition, the court has jurisdiction, which upon
the filing of the record is exclusive, to affirm, modify, terminate, or set
aside in whole or in part, the final action of the OTS. Review of such
proceedings is as provided in Chapter 7 of Title 5 of the United States Code.
The judgment and decree of the court is final, except that they are subject to
review by the United States Supreme Court upon certiorari as provided in Section
1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on
Form S-1 (File No. 333-_____) under the Securities Act of 1933, as amended, with
respect to the Common Stock offered in the Conversion. The accompanying
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. Such information may be inspected at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; 500 West Madison Street, Suite 1400, Room 1100, Chicago,
Illinois 60661; and 75 Park Place, New York, New York 10007. Copies may be
obtained at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549.
The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information. The accompanying Prospectus omits certain
information contained in such Application. The Application, including the proxy
materials, exhibits and certain other information that are a part thereof, may
be inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Midwest Regional Office of the OTS, 1475 Peachtree Street, N.E., Atlanta,
Georgia 30309.
Copies of the Holding Company's Certificate of Incorporation and Bylaws
may be obtained by written request to the Association.
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All persons eligible to vote at the Special Meeting should review both
this Proxy Statement and the accompanying Prospectus carefully. However, no
person is obligated to purchase any Common Stock. For additional information,
you may call the Stock Information Center at (864) ___-____.
BY ORDER OF THE BOARD OF DIRECTORS
ROBERT L. HANDELL
SECRETARY
Spartanburg, South Carolina
May __, 1997
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS AND, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT
YOUR VOTES WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON
IF YOU ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN
INSTRUMENT DELIVERED TO THE SECRETARY OF THE ASSOCIATION AT ANY TIME PRIOR
TO OR AT THE SPECIAL MEETING OR BY ATTENDING THE SPECIAL MEETING AND VOTING
IN PERSON.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
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EXHIBIT A
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
SPARTANBURG, SOUTH CAROLINA
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS AND LOAN ASSOCIATION
TO FEDERAL STOCK SAVINGS AND LOAN ASSOCIATION
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
I. General
The Board of Directors of First Federal Savings and Loan Association of
Spartanburg ("Association") desires to attract new capital to the Association to
increase its net worth, to support future savings growth, to increase the amount
of funds available for other lending and investment, to provide greater
resources for the expansion of customer services and to facilitate future
expansion by the Association. In addition, the Board of Directors intends to
implement stock option plans and other stock benefit plans as part of the
Conversion in order to attract and retain qualified directors and officers. It
is the further desire of the Board of Directors to reorganize the Association as
the wholly owned subsidiary of a holding company to enhance flexibility of
operations, diversification of business opportunities and financial capability
for business and regulatory purposes and to enable the Association to compete
more effectively with other financial service organizations. Accordingly, on
February 3, 1997, the Board of Directors, after careful study and consideration,
adopted by unanimous vote this Plan of Conversion ("Plan"), which provides for
the conversion of the Association from a federally chartered mutual savings and
loan association to a federally chartered stock savings and loan association and
the concurrent formation of a holding company for the Association ("Holding
Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to this Plan, shares of Conversion Stock will be offered as
part of the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the
Association's Eligible Account Holders, second to the Tax-Qualified Employee
Stock Benefit Plans, third to Supplemental Eligible Account Holders, and fourth
to Other Members of the Association. Shares not subscribed for in the
Subscription Offering will be offered as part of the Conversion to the general
public in a Direct Community Offering. Shares still remaining may then be
offered to the general public in a Syndicated Community Offering, an
underwritten public offering, or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Association
and will reflect the estimated pro forma market value of the Association as a
subsidiary of the Holding Company.
The Conversion is subject to the regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Associations)
as promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan
and the Conversion by the OTS and by the affirmative vote of Members of the
Association holding not less than a majority of the total votes eligible to be
cast at a special meeting of the Members to be called to consider the
Conversion.
No change will be made in the Board of Directors or management of the
Association as a result of the Conversion.
II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
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A. Acting in Concert: (i) Knowing participation in a joint activity or
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
means (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association, or the Holding Company) of which
such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that it does not include a Tax-Qualified Employee Stock Benefit
Plan and (iii) any relative or spouse of such Person, or any relative of such
spouse, who has the same home as such Person or who is a director or officer of
the Association, any of its subsidiaries, or the Holding Company.
C. Association: First Federal Savings and Loan Association of
Spartanburg, in its present form as a federally chartered mutual savings and
loan association.
D. Capital Stock: Any and all authorized capital stock in the Converted
Association.
E. Common Stock: Any and all authorized common stock in the Holding
Company subsequent to the Conversion.
F. Conversion: (i) Amendment of the Association's Charter and Bylaws to
authorize issuance of shares of Capital Stock by the Converted Association and
to conform to the requirements of a Federal stock savings and loan association
under the laws of the United States and rules and regulations of the OTS; (ii)
issuance and sale of Conversion Stock by the Holding Company in the Subscription
Offering and Direct Community Offering; and (iii) purchase by the Holding
Company of all of the issued and outstanding shares of Capital Stock of the
Converted Association to be issued in the Conversion immediately following or
concurrently with the close of the sale of all Conversion Stock.
G. Conversion Stock: Holding Company common stock to be issued and sold
by the Holding Company pursuant to the Plan.
H. Converted Association: First Federal Savings and Loan Association of
Spartanburg, in its converted form as a federally chartered stock savings and
loan association.
I. Direct Community Offering: The offering for sale of Conversion Stock
to the public.
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J. Eligibility Record Date: December 31, 1995.
K. Eligible Account Holder: Holder of a Qualifying Deposit in the
Association on the Eligibility Record Date.
L. FDIC: Federal Deposit Insurance Corporation.
M. Form AC Application: The application submitted to the OTS on OTS
Form AC for approval of the Conversion.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
H-(e)1 or, if applicable, Form H-(e)1-S for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Association.
O. Holding Company: A corporation to be formed by the Association under
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Converted Association to be issued pursuant to the Plan.
P. Holding Company Stock: Any and all authorized capital stock of the
Holding Company.
Q. Local Community: Spartanburg County, South Carolina.
R. Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
S. Members: All Persons or entities who qualify as members of the
Association pursuant to its Charter and Bylaws prior to the Conversion.
T. Officer: An executive officer of the Association, which includes the
Chairman of the Board, President, Vice President, Secretary, Treasurer or
Principal Financial Officer, Comptroller or Principal Accounting Officer, and
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, the Secretary and the Treasurer as well as any other person
performing similar functions.
U. Order Forms: Forms to be used for the purchase of Conversion Stock
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
V. Other Member: Holder of a Savings Account (other than Eligible
Account Holders and Supplemental Eligible Account Holders) as of the Record
Date, and borrowers from the Association as provided in the Association's
Federal Mutual Charter who continue as borrowers from the Association as of the
Record Date.
W. OTS: Office of Thrift Supervision of the United States Department of
the Treasury.
X. Person: An individual, corporation, partnership, association, joint
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
Y. Plan: This Plan of Conversion, which provides for the conversion of
the Association from a federally chartered mutual savings and loan association
to a federally chartered capital stock savings and loan association as a wholly
owned subsidiary of the Holding Company, as originally adopted by the Board of
Directors or as amended in accordance with the terms hereof.
Z. Qualifying Deposit: The deposit balance in any Savings Account as of
the close of business on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable; provided, however, that no Savings
Account with a deposit balance of less than $50.00 shall constitute a Qualifying
Deposit.
AA. Record Date: Date which determines which Members are entitled to
vote at the Special Meeting.
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BB. Registration Statement: The registration statement on SEC Form S-1
or other applicable form filed by the Holding Company with the SEC for the
purpose of registering the Conversion Stock under the Securities Act of 1933, as
amended.
CC. Savings Account(s): Withdrawable deposit(s) in the Association,
including certificates of deposit.
DD. SEC: Securities and Exchange Commission.
EE. Special Meeting: The special meeting of Members called for the
purpose of considering the Plan for approval.
FF. Subscription Offering: The offering of Conversion Stock to Eligible
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
GG. Subscription Rights: Nontransferable, non-negotiable, personal
rights of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
HH. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Plan by the OTS.
II. Supplemental Eligible Account Holder: Holder of a Qualifying
Deposit in the Association (other than an Officer or director of the Association
or their Associates) on the Supplemental Eligibility Record Date.
JJ. Syndicated Community Offering: The offering for sale by a syndicate
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
KK. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan
or defined contribution plan of the Association or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
Prior to submission of the Plan to the Members for approval, the
Association must receive approval from the OTS of the Form AC Application. Prior
to such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less
than two-thirds of its entire membership.
B. The Association shall notify the Members of the adoption of the Plan
by publishing legal notice in a newspaper having a general circulation in each
community in which the Association maintains an office.
C. A press release relating to the proposed Conversion may be submitted
to the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be
made available for inspection at each office of the Association.
E. The Association shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
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F. As soon as practicable following the adoption of this Plan, the
Association shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon filing the Form
AC Application, the Association shall publish legal notice of the filing of the
Form AC Application in a newspaper having a general circulation in each
community in which the Association maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Association shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Association or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Association's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Association shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Association shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
The Proxy Statement furnished to Members may be in summary form,
provided that a statement is made in bold-face type that a more detailed
description of the proposed transaction may be obtained by returning an enclosed
postage prepaid card or other written communication requesting supplemental
information. Without prior approval of the OTS, the Special Meeting shall not be
held less than 20 days after the last day on which the supplemental information
statement is mailed to requesting Members. The supplemental information
statement may be combined with the Prospectus if the Subscription Offering is
commenced concurrently with or during the proxy solicitation of Members for the
Special Meeting.
VI. Offering Documents
The Holding Company may commence the Subscription Offering and,
provided that the Subscription Offering has commenced, may commence the Direct
Community Offering concurrently with or during the proxy solicitation of
Members. The Holding Company may close the Subscription Offering before the
Special Meeting, provided that the offer and sale of the Conversion Stock shall
be conditioned upon approval of the Plan by the Members at the Special Meeting.
The Association's proxy solicitation materials may require Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members to return to
the Association by a reasonable certain date a postage prepaid card or other
written communication requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
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shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Association may transmit, not more
than 30 days prior to the commencement of the Subscription Offering, to each
Eligible Account Holder, Supplemental Eligible Account Holder and other eligible
subscribers who had been furnished with proxy solicitation materials a notice
which shall state that the Association is not required to furnish a Prospectus
to them unless they return by a reasonable date certain a postage prepaid card
or other written communication requesting the receipt of the Prospectus.
Prior to commencement of the Subscription Offering, the Direct
Community Offering and the Syndicated Community Offering, the Holding Company
shall file the Registration Statement. The Holding Company shall not distribute
the final Prospectus until the Registration Statement containing same has been
declared effective by the SEC and the Prospectus has been declared effective by
the OTS.
VII. Combined Subscription and Direct Community Offering
Instead of a separate Subscription Offering, all Subscription Rights
may be exercised by delivery of properly completed and executed Order Forms to
the Association or selling group utilized in connection with the Direct
Community Offering and the Syndicated Community Offering. If a separate
Subscription Offering is not held, orders for Conversion Stock in the Direct
Community Offering shall first be filled pursuant to the priorities and
limitations stated in Paragraph IX.C., below.
VIII. Consummation of the Conversion
After receipt of all orders for Conversion Stock, the amendment of the
Association's Federal Mutual Charter and Bylaws to authorize the issuance of
shares of Capital Stock and to conform to the requirements of a federal stock
savings and loan association, as approved by the Members at the Special Meeting
will be declared effective by the OTS. At such time, the Conversion Stock will
be issued and sold by the Holding Company, the Capital Stock to be issued in the
Conversion will be issued and sold to the Holding Company, and the Converted
Association will become a wholly owned subsidiary of the Holding Company. The
Converted Association will issue to the Holding Company 1,000 shares of its
common stock, representing all of the shares of Capital Stock to be issued by
the Converted Association, and the Holding Company will make payment to the
Converted Association of that portion of the aggregate net proceeds realized by
the Holding Company from the sale of the Conversion Stock under the Plan as may
be authorized or required by the OTS.
IX. Stock Offering
A. Number of Shares
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Association
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
B. Independent Evaluation and Purchase Price of Shares
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Association and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Association at such time. The
estimated pro forma market value of the Converted Association shall be
determined for such purpose by an independent appraiser on the basis of such
appropriate factors not inconsistent with the regulations of the OTS.
Immediately prior to the Subscription Offering, a subscription price range shall
be established which shall vary from 15% above to 15% below the average of the
minimum and maximum of the estimated price range. The maximum subscription price
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(i.e., the per share amount to be remitted when subscribing for shares of
Conversion Stock) shall then be determined within the subscription price range
by the Board of Directors of the Association. The subscription price range and
the number of shares to be offered may be revised after the completion of the
Subscription Offering with OTS approval without a resolicitation of proxies or
Order Forms or both.
C. Method of Offering Shares
Subscription Rights shall be issued at no cost to Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible
Account Holders and Other Members pursuant to priorities established by this
Plan and the regulations of the OTS. In order to effect the Conversion, all
shares of Conversion Stock proposed to be issued in connection with the
Conversion must be sold and, to the extent that shares are available, no
subscriber shall be allowed to purchase less than 25 shares; provided, however,
that if the purchase price is greater than $20.00 per share, the minimum number
of shares which must be subscribed for shall be adjusted so that the aggregate
actual purchase price required to be paid for such minimum number of shares does
not exceed $500.00. The priorities established for the purchase of shares are as
follows:
1. Category 1: Eligible Account Holders
a. Each Eligible Account Holder shall receive,
without payment, Subscription Rights entitling such Eligible
Account Holder to purchase that number of shares of Conversion
Stock which is equal to the greater of the maximum purchase
limitation established for the Direct Community Offering,
one-tenth of one percent of the total offering or 15 times the
product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to
be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Eligible Account Holder and
the denominator is the total amount of Qualifying Deposits of
all Eligible Account Holders. If the allocation made in this
paragraph results in an oversubscription, shares of Conversion
Stock shall be allocated among subscribing Eligible Account
Holders so as to permit each such account holder, to the
extent possible, to purchase a number of shares of Conversion
Stock sufficient to make his total allocation equal to 100
shares of Conversion Stock or the total amount of his
subscription, whichever is less. Any shares of Conversion
Stock not so allocated shall be allocated among the
subscribing Eligible Account Holders on an equitable basis,
related to the amounts of their respective Qualifying Deposits
as compared to the total Qualifying Deposits of all Eligible
Account Holders.
b. Subscription Rights received by Officers and
directors of the Association and their Associates, as Eligible
Account Holders, based on their increased deposits in the
Association in the one-year period preceding the Eligibility
Record Date shall be subordinated to all other subscriptions
involving the exercise of Subscription Rights pursuant to this
Category.
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
a. Tax-Qualified Employee Stock Benefit Plans shall
receive, without payment, nontransferable Subscription Rights
to purchase in the aggregate up to 8% of the Conversion Stock,
including shares of Conversion Stock to be issued in the
Conversion as result of an increase in the estimated price
range after commencement of the Subscription Offering and
prior to the completion of the Conversion. The Subscription
Rights granted to Tax-Qualified Stock Benefit Plans shall be
subject to the availability of shares of Conversion Stock
after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders; provided, however, that
in the event the number of shares offered in the Conversion is
increased to an amount greater than the maximum of the
estimated price range as set forth in the Prospectus ("Maximum
Shares"), the Tax-Qualified Employee Stock Benefit Plans shall
have a priority right to purchase any such shares exceeding
the Maximum Shares up to an aggregate of 8% of the Conversion
Stock. Tax-Qualified Employee Stock Benefit Plans may use
funds contributed or borrowed by the Holding Company or the
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Association and/or borrowed from an independent financial
institution to exercise such Subscription Rights, and the
Holding Company and the Association may make scheduled
discretionary contributions thereto, provided that such
contributions do not cause the Holding Company or the
Association to fail to meet any applicable capital
requirements.
3. Category 3: Supplemental Eligible Account Holders
a. In the event that the Eligibility Record Date is
more than 15 months prior to the date of the latest amendment
to the Form AC Application filed prior to OTS approval, then,
and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, Subscription Rights
entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is
equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of
one percent of the total offering or 15 times the product
(rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to
be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the
Qualifying Deposits of all Supplemental Eligible Account
Holders.
b. Subscription Rights received pursuant to this
category shall be subordinated to Subscription Rights granted
to Eligible Account Holders and Tax-Qualified Employee Stock
Benefit Plans.
c. Any Subscription Rights to purchase shares of
Conversion Stock received by an Eligible Account Holder in
accordance with Category Number 1 shall reduce to the extent
thereof the Subscription Rights to be distributed pursuant to
this Category.
d. In the event of an oversubscription for shares of
Conversion Stock pursuant to this Category, shares of
Conversion Stock shall be allocated among the subscribing
Supplemental Eligible Account Holders as follows:
(1) Shares of Conversion Stock shall be
allocated so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to
purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including
the number of shares of Conversion Stock, if any,
allocated in accordance with Category Number 1) equal
to 100 shares of Conversion Stock or the total amount
of his subscription, whichever is less.
(2) Any shares of Conversion Stock not
allocated in accordance with subparagraph (1) above
shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis,
related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits
of all Supplemental Eligible Account Holders.
4. Category 4: Other Members
a. Other Members shall receive, without payment,
Subscription Rights to purchase shares of Conversion Stock,
after satisfying the subscriptions of Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans and
Supplemental Eligible Account Holders pursuant to Category
Nos. l, 2 and 3 above, subject to the following conditions:
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(1) Each such Other Member shall be entitled
to subscribe for the greater of the maximum purchase
limitation established for the Direct Community
Offering or one-tenth of one percent of the total
offering.
(2) In the event of an oversubscription for
shares of Conversion Stock pursuant to Category No.
4, the shares of Conversion Stock available shall be
allocated among the subscribing Other Members pro
rata on the basis of the amounts of their respective
subscriptions.
D. Direct Community Offering and Syndicated Community Offering
1. Any shares of Conversion Stock not purchased through the
exercise of Subscription Rights set forth in Category Nos. 1 through 4
above may be sold by the Holding Company to Persons under such terms
and conditions as may be established by the Association's Board of
Directors with the concurrence of the OTS. The Direct Community
Offering may commence concurrently with or as soon as possible after
the completion of the Subscription Offering and must be completed
within 45 days after completion of the Subscription Offering, unless
extended with the approval of the OTS. No Person, either alone or
together with Associates of or Persons Acting in Concert with such
Person, may purchase shares of Conversion Stock in the Direct Community
Offering having an aggregate purchase price of more than $325,000. The
right to purchase shares of Conversion Stock under this Category is
subject to the right of the Association or the Holding Company to
accept or reject such subscriptions in whole or in part. In the event
of an oversubscription for shares in this Category, the shares
available shall be allocated among prospective purchasers pro rata on
the basis of the amounts of their respective orders. The offering price
for which such shares are sold to the general public in the Direct
Community Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first
shall be filled up to a maximum of 2% of the Conversion Stock and
thereafter remaining shares shall be allocated on an equal number of
shares basis per order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community
Offering shall be offered and sold in a manner that will achieve the
widest distribution thereof. Preference shall be given in the Direct
Community Offering to natural Persons and trusts of natural Persons
residing in the Local Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Association and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or
ordered in the Direct Community Offering may be sold by a syndicate of
broker-dealers to the general public in a Syndicated Community
Offering. No Person, either alone or together with Associates of or
Persons Acting in Concert with such Person, may purchase shares of
Conversion Stock in the Syndicated Community Offering having an
aggregate purchase price of more than $325,000. Each order for
Conversion Stock in the Syndicated Community Offering shall be subject
to the absolute right of the Association and the Holding Company to
accept or reject any such order in whole or in part either at the time
of receipt of an order or as soon as practicable after completion of
the Syndicated Community Offering. The Association and the Holding
Company may commence the Syndicated Community Offering concurrently
with, at any time during, or as soon as practicable after the end of
the Subscription Offering and/or Direct Community Offering, provided
that the Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless extended by
the Association and the Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares
of Conversion Stock not sold in the Subscription Offering and the
Direct Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
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Subscription Offering, Direct Community Offering or Syndicated
Community Offering, the Association and the Holding Company shall use
their best efforts to obtain other purchasers for such shares in such
manner and upon such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated
Community Offering do not appear feasible, the Association will
immediately consult with the OTS to determine the most viable
alternative available to effect the completion of the Conversion.
Should no viable alternative exist, the Association may terminate the
Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
The following additional limitations and exceptions shall be imposed
upon purchases of shares of Conversion Stock:
1. No Person, together with Associates of or Persons Acting in
Concert with such Person, may purchase in the aggregate more than the
overall maximum purchase limitation of 1% of the total number of shares
of Conversion Stock issued in the Conversion (exclusive of any shares
issued pursuant to an increase in the range of minimum and maximum
aggregate values within which the aggregate amount of Conversion Stock
issued in the Conversion will fall), except that Tax-Qualified Employee
Stock Benefit Plans may purchase up to 8% of the total Conversion Stock
issued and shares held or to be held by the Tax-Qualified Employee
Stock Benefit Plans and attributable to a Person shall not be
aggregated with other shares purchased directly by or otherwise
attributable to such Person.
2. Officers and directors of the Association and Associates
thereof may not purchase in the aggregate more than 28% of the shares
issued in the Conversion.
3. The Association's and Holding Company's Boards of Directors
will not be deemed to be Associates or a group of Persons Acting in
Concert with other directors or trustees solely as a result of
membership on the Board of Directors.
4. The Association's Board of Directors, with the approval of
the OTS and without further approval of Members, may, as a result of
market conditions and other factors, increase or decrease the purchase
limitation in paragraphs 1 and 4 above or the number of shares of
Conversion Stock to be sold in the Conversion. If the Association or
the Holding Company, as the case may be, increases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in
the Conversion, the Association or the Holding Company, as the case may
be, is only required to resolicit Persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the
Association or the Holding Company, as the case may be, resolicit
certain other large subscribers. If the Association or the Holding
Company, as the case may be, decreases the maximum purchase limitations
or the number of shares of Conversion Stock to be sold in the
Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased by the minimum amount necessary so
that such Person shall be in compliance with the then maximum number of
shares permitted to be subscribed for by such Person.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation. In
the event that such purchase limitations are violated by any Person (including
any Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
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F. Restrictions On and Other Characteristics of the Conversion Stock
1. Transferability. Conversion Stock purchased by Officers and
directors of the Association and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a
period of one year from the date of Conversion, except for any
disposition (i) following the death of the original purchaser or (ii)
resulting from an exchange of securities in a merger or acquisition
approved by the regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such
Officers and directors shall bear a legend giving appropriate notice of
the one-year holding period restriction. Said legend shall state as
follows:
"The shares evidenced by this certificate are restricted as to
transfer for a period of one year from the date of this
certificate pursuant to Part 563b of the Rules and Regulations
of the Office of Thrift Supervision. These shares may not be
transferred prior thereto without a legal opinion of counsel
that said transfer is permissible under the provisions of
applicable laws and regulations."
In addition, the Holding Company shall give appropriate
instructions to the transfer agent of the Holding Company Stock with
respect to the foregoing restrictions. Any shares of Holding Company
Stock subsequently issued as a stock dividend, stock split or
otherwise, with respect to any such restricted stock, shall be subject
to the same holding period restrictions for such Persons as may be then
applicable to such restricted stock.
2. Subsequent Purchases by Officers and Directors. Without
prior approval of the OTS, if applicable, Officers and directors of the
Association and officers and directors of the Holding Company, and
their Associates, shall be prohibited for a period of three years
following completion of the Conversion from purchasing outstanding
shares of Holding Company Stock, except from a broker or dealer
registered with the SEC. Notwithstanding this restriction, purchases
involving more than 1% of the total outstanding shares of Holding
Company Stock and purchases made and shares held by a Tax-Qualified or
non-Tax-Qualified Employee Stock Benefit Plan which may be attributable
to such directors and Officers may be made in negotiated transactions
without OTS permission or the use of a broker or dealer.
3. Repurchase and Dividend Rights. For a period of three years
following the consummation of the Conversion, any repurchases of
Holding Company Stock by the Holding Company from any Person shall be
subject to the then applicable rules and regulations and policies of
the OTS. The Converted Association may not declare or pay a cash
dividend on or repurchase any of its Capital Stock if the result
thereof would be to reduce the regulatory capital of the Converted
Association below the amount required for the liquidation account
described in Paragraph XIII. Further, any dividend declared or paid on
the Capital Stock shall comply with the then applicable rules and
regulations of the OTS.
4. Voting Rights. After the Conversion, holders of Savings
Accounts in and obligors on loans of the Converted Association will not
have voting rights in the Converted Association. Exclusive voting
rights with respect to the Holding Company shall be vested in the
holders of Holding Company Stock; holders of Savings Accounts in and
obligors on loans of the Converted Association will not have any voting
rights in the Holding Company except and to the extent that such
Persons become stockholders of the Holding Company, and the Holding
Company will have exclusive voting rights with respect to the Converted
Association's Capital Stock.
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G. Mailing of Offering Materials and Collation of Subscriptions
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days
nor more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Association. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
Payment for all shares of Conversion Stock may be made in cash, by
check or by money order, or if a subscriber has a Savings Account(s) in the
Association, such subscriber may authorize the Association to charge the
subscriber's Savings Account(s). The Association shall pay interest at not less
than the passbook rate on all amounts paid in cash or by check or money order to
purchase shares of Conversion Stock in the Subscription Offering from the date
payment is received until the Conversion is completed or terminated. The
Association is not permitted knowingly to loan funds or otherwise extend any
credit to any Person for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Association to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale of
all shares of Conversion Stock proposed to be sold in the Conversion and only to
the extent necessary to satisfy the subscription at a price equal to the
aggregate Purchase Price. The Association shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Association without the assessment of early withdrawal penalties,
subject to the approval, if necessary, of the applicable regulatory authorities.
In the case of early withdrawal of only a portion of such account, the
certificate evidencing such account shall be canceled if the remaining balance
of the account is less than the applicable minimum balance requirement. In that
event, the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Association by the United States Postal Service (or the Holding
Company or Association is unable to locate the addressee); (ii) is not returned
to the Holding Company or Association, or is returned to the Holding Company or
Association after expiration of the date specified thereon; (iii) is defectively
completed or executed; or (iv) is not accompanied by the total required payment
for the shares of Conversion Stock subscribed for (including cases in which the
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subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the Person to
whom such rights have been granted shall not be honored and shall be treated as
though such Person failed to return the completed Order Form within the time
period specified therein. Alternatively, the Holding Company or Association may,
but shall not be required to, waive any irregularity relating to any Order Form
or require the submission of a corrected Order Form or the remittance of full
payment for the shares of Conversion Stock subscribed for by such date as the
Holding Company or Association may specify. Subscription orders, once tendered,
shall not be revocable. The Holding Company's and Association's interpretation
of the terms and conditions of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
The Holding Company and the Association will make reasonable efforts to
comply with the securities laws of all states in the United States in which
persons entitled to subscribe for stock pursuant to the Plan reside. However,
the Holding Company and the Association are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Holding Company or the Association determines that
compliance with the securities laws of such state would be impracticable for
reasons of cost or otherwise, including but not limited to a request or
requirement that the Holding Company and the Association or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or Common Stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small relative to other states,
the Holding Company and the Association will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
X. Federal Stock Charter and Bylaws
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Association to operate as a federal stock
savings and loan association. By approving the Plan, the Members of the
Association will thereby approve the Federal Stock Charter and Bylaws. Prior to
completion of the Conversion, the Federal Stock Charter and Bylaws may be
amended in accordance with the provisions and limitations for amending the Plan
under Paragraph XVII below. The effective date of the adoption of the Federal
Stock Charter and Bylaws shall be the date of the issuance of the Conversion
Stock, which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
In connection with the Conversion, the Holding Company shall register
the Conversion Stock with the SEC pursuant to the Securities Exchange Act of
1934, as amended, and shall undertake not to deregister such Conversion Stock
for a period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account(s) after the Conversion,
equal in amount to the withdrawable value of such holder's Savings Account(s)
prior to Conversion. All Savings Accounts will continue to be insured by the
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Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans shall retain the same status after the Conversion
as they had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
After the Conversion, holders of Savings Accounts shall not be entitled
to share in any residual assets in the event of liquidation of the Converted
Association. However, the Association shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Association.
The liquidation account shall be maintained by the Converted
Association subsequent to the Conversion for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders who retain their Savings
Accounts in the Converted Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to each Savings Account
held, have a related inchoate interest in a portion of the liquidation account
balance ("subaccount").
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder and/or a Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of such holder's Qualifying
Deposit in the Savings Account and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders. Such initial subaccount balance shall not be increased, and it
shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Association,
each Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution in which the Converted Association is
not the surviving institution shall be considered to be a complete liquidation.
In any such transaction, the liquidation account shall be assumed by the
surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
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more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person, directly
or indirectly, acquires beneficial ownership of more than 10% of any class of
equity security of the Holding Company within such three-year period, without
the prior approval of the OTS, stock of the Holding Company beneficially owned
by such Person in excess of 10% shall not be counted as shares entitled to vote
and shall not be voted by any Person or counted as voting shares in connection
with any matter submitted to the stockholders for a vote. The provisions of this
regulation shall not apply to the acquisition of securities by Tax-Qualified
Employee Stock Benefit Plans provided that such plans do not have beneficial
ownership of more than 25% of any class of equity security of the Holding
Company.
B. The Holding Company may provide in its articles\certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities by
Tax-Qualified Employee Stock Benefit Plans provided that such plans do not have
beneficial ownership of more than 25% of any class of equity security of the
Holding Company. The Holding Company may provide in its articles\certificate of
incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Association
The Conversion is not intended to result in any change in the directors
or Officers. Each Person serving as a director of the Association at the time of
Conversion shall continue to serve as a member of the Converted Association's
Board of Directors, subject to the Converted Association's Federal Stock Charter
and Bylaws. The Persons serving as Officers immediately prior to the Conversion
will continue to serve at the discretion of the Board of Directors in their
respective capacities as Officers of the Converted Association. In connection
with the Conversion, the Association and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Association and the Holding
Company.
XVI. Executive Compensation
The Association and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
XVII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Association's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting, and at any time following such Special Meeting
with the concurrence of the OTS. In its discretion, the Board of Directors may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions
are adopted by the OTS prior to the completion of the Conversion, the Plan shall
be amended to conform to the new mandatory regulations without a resolicitation
of proxies or another meeting of Members. In the event that new conversion
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regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors
to amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
The Holding Company and/or the Association may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Association to fail to meet its regulatory
capital requirements.
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EXHIBIT B
FEDERAL STOCK CHARTER
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
Section 1. Corporate title. The full corporate title of the association
is First Federal Savings and Loan Association of Spartanburg ("Association").
Section 2. Office. The home office shall be located in Spartanburg,
South Carolina.
Section 3. Duration. The duration of the Association is perpetual.
Section 4. Purpose and powers. The purpose of the Association is to
pursue any or all of the lawful objectives of a Federal savings and loan
association chartered under section 5 of the Home Owners' Loan Act and to
exercise all of the express, implied, and incidental powers conferred thereby
and by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision ("Office").
Section 5. Capital stock. The total number of shares of all classes of
capital stock that the Association has the authority to issue is 10,000, of
which 1,000 shares shall be common stock of par value of $1.00 per share and of
which 9,000 shares shall be serial preferred stock, having no par value. The
shares may be issued from time to time as authorized by the board of directors
without further approval of shareholders, except as otherwise provided in this
Section 5 or to the extent that such approval is required by governing law,
rule, or regulation. The consideration for the issuance of the shares shall be
paid in full before their issuance and shall not be less than the par value.
Neither promissory notes nor future services shall constitute payment or part
payment for the issuance of shares of the Association. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor, or services actually
performed for the Association, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the board of directors of the Association, shall
be conclusive. In the case of a stock dividend, that part of the retained
earnings of the Association that is transferred to common stock or paid-in
capital accounts upon the issuance of shares as a stock dividend shall be deemed
to be the consideration for their issuance.
Except for shares issued in the initial organization of the Association
or in connection with the conversion of the Association from the mutual to stock
form of capitalization, no shares of capital stock (including shares issuable
upon conversion, exchange or exercise of other securities) shall be issued,
directly or indirectly, to officers, directors, or controlling persons of the
Association other than as part of a general public offering or as qualifying
shares to a director, unless their issuance or the plan under which they would
be issued has been approved by a majority of the total votes eligible to be cast
at a legal meeting.
Nothing contained in this section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors, unless the charter
otherwise provides that there shall be no such cumulative voting: Provided, that
this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some members of
the board of directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of preferred
stock;
(ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to approve the merger or
consolidation of the Association with another corporation or the sale,
lease, or conveyance (other than by mortgage or pledge) of properties
or business in exchange for securities of a corporation other than the
Association if the preferred stock is exchanged for securities of such
other corporation: Provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant to
the direction of the Office of the Federal Deposit Insurance
Corporation;
<PAGE>
(iii) To any amendment which would adversely change the
specific terms of any class or series of capital stock as set forth in
this Section 5 (or in any supplementary sections hereto), including any
amendment which would create or enlarge any class or series ranking
prior thereto in rights and preferences. An amendment which increases
the number of authorized shares of any class or series of capital
stock, or substitutes the surviving Association in a merger or
consolidation for the Association, shall not be considered to be such
an adverse change.
A description of the different classes and series (if any) of the
Association's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by each holder, except as to the
cumulation of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Association available for distribution remaining after: (i)
payment or provision for payment of the Association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Association. Each share of
common stock shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred stock. The Association may provide in supplementary
sections to its charter for one or more classes of preferred stock, which shall
be separately identified. The shares of any class may be divided into and issued
in series, with each series separately designated so as to distinguish the
shares thereof from the shares of all other series and classes. The terms of
each series shall be set forth in a supplementary section to the charter. All
shares of the same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so, from
which date(s) the payment date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
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(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which such shares may be
redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding up of the
Association;
(f) Whether the shares of such series shall be entitled to the benefit
of a sinking or retirement fund to be applied to the purchase or redemption of
such shares, and if so entitled, the amount of such fund and the manner of its
application, including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
Association and, if so, the conversion price(s) or the rate(s) of exchange, and
the adjustments thereof, if any, at which such conversion or exchange may be
made, and any other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial preferred
stock and whether such shares may be reissued as shares of the same or any other
series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the
Association shall file with the Secretary to the Office a dated copy of that
supplementary section of this charter establishing and designating the series
and fixing and determining the relative rights and preferences thereof.
Section 6. Preemptive rights. Holders of the capital stock of the
Association shall not be entitled to preemptive rights with respect to any
shares of the Association which may be issued.
Section 7. Liquidation account. Pursuant to the requirements of the
Office's Regulations (12 CFR Subchapter D), the Association shall establish and
maintain a liquidation account for the benefit of its savings account holders as
of December 31, 1995 and March 31, 1997. In the event of a complete liquidation
of the Association, it shall comply with such regulations with respect to the
amount and the priorities on liquidation of each of the Association's eligible
savers' inchoate interest in the liquidation account, to the extent it is still
in existence: Provided, that an eligible savers' inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the Association's stockholders.
Section 8. Directors. The Association shall be under the direction of a
Board of Directors. The authorized number of directors, as stated in the
Association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater or lesser number is approved by the Director of the Office, or
his or her delegate.
Section 9. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is proposed by the Board of Directors of the Association,
approved by the shareholders by a majority of the votes eligible to be cast at a
legal meeting, unless a higher vote is otherwise required, and approved or
preapproved by the Office.
* * *
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<TABLE>
<S> <C>
Attest: ___________________________ By: _____________________________________
Secretary of the Association President or Chief Executive Officer
of the Association
By: By: _____________________________________
Secretary of the Director of the
Office of Thrift Supervision Office of Thrift Supervision
</TABLE>
<PAGE>
EXHIBIT C
BYLAWS
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF SPARTANBURG
ARTICLE I - Home Office
The home office of First Federal Savings and Loan Association of
Spartanburg ("Association"), shall be located at 380 East Main Street, the
County of Spartanburg, in the State of South Carolina.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Association or at such
other place as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
Association for the election of directors and for the transaction of any other
business of the Association shall be held annually within 150 days after the end
of the Association's fiscal year on the fourth Wednesday of October, if not a
legal holiday, and if a legal holiday, then on the next day following which is
not a legal holiday, at 2:00 p.m., Eastern Time, or at such other date and time
within such 150-day period as the Board of Directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders
for any purpose or purposes, unless otherwise prescribed by the regulations of
the Office of Thrift Supervision ("Office"), may be called at any time by the
Chairman of the Board, the President, or a majority of the Board of Directors,
and shall be called by the Chairman of the Board, the President, or the
Secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Association addressed to the
Chairman of the Board, the President, or the Secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall
be conducted in accordance with the most current edition of Robert's Rules of
Order unless otherwise prescribed by regulations of the Office or these bylaws
or the Board of Directors adopts another written procedure for conduct of
meetings. The Board of Directors shall designate, when present, either the
Chairman of the Board or President to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place,
day, and hour of the meeting and the purpose(s) for which the meeting is called
shall be delivered not fewer than 20 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, or the Secretary, or the directors calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Association as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the Board of Directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action requiring such determination of
shareholders is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
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Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Association
and shall be subject to inspection by any shareholder of record or the
shareholder's agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or the shareholder's agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders. In lieu of making the shareholder list available
for inspection by shareholders as provided in the preceding paragraph, the Board
of Directors may elect to follow procedures prescribed in Section 552.6(d) of
the Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the
Association entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to constitute less than a quorum. If a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Board of Directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons.
When ownership stands in the name of two or more persons, in the absence of
written directions to the Association to the contrary, at any meeting of the
shareholders of the Association any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing
in the name of another corporation may be voted by any officer, agent, or proxy
as the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine. Shares
held by an administrator, executor, guardian, or conservator may be voted by him
or her, either in person or by proxy, without a transfer of such shares into his
or her name. Shares standing in the name of a trustee may be voted by him or
her, either in person or by proxy, but no trustee shall be entitled to vote
shares held by him or her without a transfer of such shares into his or her
name. Shares held in trust in an IRA or Keogh Account, however, may be voted by
the Association if no other instructions are received. Shares standing in the
name of a receiver may be voted by such receiver, and shares held by or under
the control of a receiver may be voted by such receiver without the transfer
into his or her name if authority to do so is contained in an appropriate order
of the court or other public authority by which such receiver was appointed.
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A shareholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Association
nor shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Association, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Every shareholder entitled to vote
at an election for directors shall have the right to vote, in person or by
proxy, the number of shares owned by the shareholder for as many persons as
there are directors to be elected and for whose election the shareholder has a
right to vote, or to cumulate the votes by giving one candidate as many votes as
the number of such directors to be elected multiplied by the number of shares
shall equal or by distributing such votes on the same principle among any number
of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the Chairman of the Board or the President may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the Chairman of the
Board or the President.
Unless otherwise prescribed by regulations of the Office, the
duties of such inspectors shall include: determining the number of shares and
the voting power of each share, the shares represented at the meeting, the
existence of a quorum, and the authenticity, validity and effect of proxies;
receiving votes, ballots, or consents; hearing and determining all challenges
and questions in any way arising in connection with the rights to vote; counting
and tabulating all votes or consents; determining the result; and such acts as
may be proper to conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The Board of Directors shall act
as a nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Association. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the Secretary of the Association at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the Association. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the
annual meeting shall be stated in writing and filed with the Secretary of the
Association at least five days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
Secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special, or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
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Section 16. Informal Action by Shareholders. Any action required
to be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the
Association shall be under the direction of its Board of Directors. The Board of
Directors shall annually elect a Chairman of the Board and a President from
among its members and shall designate, when present, either the Chairman of the
Board or the President to preside at its meetings.
Section 2. Number and Term. The Board of Directors shall consist
of seven members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw following the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution. Directors may participate in a
meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Association
unless the Association is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board, the
President, or one-third of the directors. The persons authorized to call special
meetings of the Board of Directors may fix any place, within the Association's
normal lending territory, as the place for holding any special meeting of the
Board of Directors called by such persons.
Members of the Board of Directors may participate in special
meetings by means of conference telephone or similar communications equipment by
which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be
given to each director at least 24 hours prior thereto when delivered personally
or by telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the Association receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the Secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
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business at any meeting of the Board of Directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless a greater number is prescribed by regulation of
the Office or by these bylaws.
Section 9. Action Without a Meeting. Any action required or
permitted to be taken by the Board of Directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the home office of the
Association addressed to the Chairman of the Board or the President. Unless
otherwise specified, such resignation shall take effect upon receipt by the
Chairman of the Board or the President. More than three consecutive absences
from regular meetings of the Board of Directors, unless excused by resolution of
the Board of Directors, shall automatically constitute a resignation, effective
when such resignation is accepted by the Board of Directors.
Section 11. Vacancies. Any vacancy occurring on the Board of
Directors may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected to serve only until the next election
of directors by the shareholders. Any directorship to be filled by reason of an
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the Board of Directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
attendance at each regular or special meeting of the Board of Directors. Members
of either standing or special committees may be allowed such compensation for
attendance at committee meetings as the Board of Directors may determine.
Section 13. Presumption of Assent. A director of the Association
who is present at a meeting of the Board of Directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his or her dissent or abstention shall be entered in the minutes of
the meeting or unless he or she shall file a written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the Secretary of the
Association within five days after the date a copy of the minutes of the meeting
is received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders
called expressly for that purpose, any director may be removed only for cause by
a vote of the holders of a majority of the shares then entitled to vote at an
election of directors. If less than the entire board is to be removed, no one of
the directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
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ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The Board of Directors, by resolution
adopted by a majority of the full board, may designate the chief executive
officer and two or more of the other directors to constitute an executive
committee. The designation of any committee pursuant to this Article IV and the
delegation of authority shall not operate to relieve the Board of Directors, or
any director, of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the Board of
Directors is not in session, shall have and may exercise all of the authority of
the Board of Directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the Board of
Directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Association, or recommending to the shareholders a plan
of merger, consolidation, or conversion; the sale, lease, or other disposition
of all or substantially all of the property and assets of the Association
otherwise than in the usual and regular course of its business; a voluntary
dissolution of the Association; a revocation of any of the foregoing; or the
approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the Board of Directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee
may be held without notice at such times and places as the executive committee
may fix from time to time by resolution. Special meetings of the executive
committee may be called by any member thereof upon not less than one day's
notice stating the place, date, and hour of the meeting, which notice may be
written or oral. Any member of the executive committee may waive notice of any
meeting and no notice of any meeting need be given to any member thereof who
attends in person. The notice of a meeting of the executive committee need not
state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may
be filled by a resolution adopted by a majority of the full Board of Directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full Board of Directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the President or Secretary of the Association. Unless otherwise
specified, such resignation shall take effect upon its receipt; the acceptance
of such resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a
presiding officer from its members and may fix its own rules of procedure which
shall not be inconsistent with these bylaws. It shall keep regular minutes of
its proceedings and report the same to the Board of Directors for its
information at the meeting held next after the proceedings shall have occurred.
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Section 10. Other Committees. The Board of Directors may by
resolution establish an audit, loan, or other committee composed of directors as
they may determine to be necessary or appropriate for the conduct of the
business of the Association and may prescribe the duties, constitution, and
procedures thereof.
ARTICLE V - Officers
Section 1. Positions. The officers of the Association shall be a
President, one or more Vice Presidents, a Secretary, and a Treasurer or
Comptroller, each of whom shall be elected by the Board of Directors. The Board
of Directors may also designate the Chairman of the Board as an officer. The
offices of the Secretary and Treasurer or Comptroller may be held by the same
person and a Vice President may also be either the Secretary or the Treasurer or
Comptroller. The Board of Directors may designate one or more vice presidents as
Executive Vice President or Senior Vice President. The Board of Directors may
also elect or authorize the appointment of such other officers as the business
of the Association may require. The officers shall have such authority and
perform such duties as the Board of Directors may from time to time authorize or
determine. In the absence of action by the Board of Directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the
Association shall be elected annually at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the election of
officers is not held at such meeting, such election shall be held as soon
thereafter as possible. Each officer shall hold office until a successor has
been duly elected and qualified or until the officer's death, resignation, or
removal in the manner hereinafter provided. Election or appointment of an
officer, employee, or agent shall not of itself create contractual rights. The
Board of Directors may authorize the Association to enter into an employment
contract with any officer in accordance with regulations of the Office; but no
such contract shall impair the right of the Board of Directors to remove any
officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Association will be
served thereby, but such removal, other than for cause, shall be without
prejudice to any contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the Board of Directors.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of
the Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the Board of Directors may authorize any officer,
employee, or agent of the Association to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Association. Such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Association and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other
orders for the payment of money, notes, or other evidences of indebtedness
issued in the name of the Association shall be signed by one or more officers,
employees, or agents of the Association in such manner as shall from time to
time be determined by the Board of Directors.
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Section 4. Deposits. All funds of the Association not otherwise
employed shall be deposited from time to time to the credit of the Association
in any duly authorized depositories as the Board of Directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing
shares of capital stock of the Association shall be in such form as shall be
determined by the Board of Directors and approved by the Office. Such
certificates shall be signed by the Chief Executive Officer or by any other
officer of the Association authorized by the Board of Directors, attested by the
Secretary or an Assistant Secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar other than the Association itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Association. All certificates surrendered to the
Association for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and canceled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Association as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock
of the Association shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Association. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII - Fiscal Year
The fiscal year of the Association shall end on the 30th day of
June of each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - Dividends
Subject to the terms of the Association's charter and the
regulations and orders of the Office, the Board of Directors may, from time to
time, declare, and the Association may pay, dividends on its outstanding shares
of capital stock.
ARTICLE X - Corporate Seal
The Board of Directors shall provide an Association seal, which
shall be two concentric circles between which shall be the name of the
Association. The year of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with
regulations of the Office and shall be effective after: (i) approval of the
amendment by a majority vote of the authorized Board of Directors, or by a
majority vote of the votes cast by the shareholders of the Association at any
legal meeting, and (ii) receipt of any applicable regulatory approval. When an
Association fails to meet its quorum requirements, solely due to vacancies on
the Board, then the affirmative vote of a majority of the sitting Board will be
required to amend the bylaws.
