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As filed with the Securities and Exchange Commission on December 17, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
SOUTHBANC SHARES, INC.
---------------------------------------------
(Exact name of registrant in its charter)
Delaware 6035 applied for
- ------------------------------- --------------------- --------------------
(State or other jurisdiction of (Primary SIC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
907 N. MAIN STREET
ANDERSON, SOUTH CAROLINA 29621
(864) 225-0241
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(Address and telephone number of principal executive offices and place of
business)
Paul M. Aguggia, Esquire
Victor L. Cangelosi, Esquire
BREYER & AGUGGIA
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
(202) 737-7900
--------------------------------------------
(Name, address and telephone number 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 this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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, 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
=======================================================================================================================
Title of Each Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of
Being Registered Amount Being Price(1) Aggregate Offering Registration Fee
Registered(1) Price(1)
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<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 4,302,763 $20.00 $86,055,260 $26,078
Participation interests 59,883 -- -- (2)
=======================================================================================================================
</TABLE>
(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
are subject to adjustment based upon the estimated pro forma market value of
the registrant and market and financial conditions.
(2) The securities of the Registrant to be purchased by the Perpetual Bank, A
Federal Savings Bank 401(k) Plan are included in the amount shown for Common
Stock. Accordingly, pursuant to Rule 457(h) of the Securities Act of 1933, as
amended, no separate fee is required for the participation interests. Pursuant
to such rule, the amount being registered has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such 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.
<PAGE>
Cross Reference Sheet showing the location in the Prospectus
of the Items of Form S-1
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<S> <C> <C>
1. Front of Registration Front of 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 and Risk Factors Prospectus Summary; Risk Factors
4. Use of Proceeds Use of Proceeds; Capitalization
5. Determination of Offering Price Market for Common Stock; The
Conversion and Reorganization --
Stock Pricing, Exchange Ratio and
Number of Shares to be Issued
6. Dilution *
7. Selling Security-Holders *
8. Plan of Distribution The Conversion and Reorganization
9. Legal Proceedings Business of the Savings Bank --
Legal Proceedings
10. Directors, Executive Officers, Management of the Holding Company;
Promoters and Control Persons Management of the Savings Bank
11. Security Ownership of Certain *
Beneficial Owners and Management
12. Description of Securities Description of Capital Stock of the
Holding Company
13. Interest of Named Experts and Legal and Tax Opinions; Experts
Counsel
14. Disclosure of Commission Position Part II -- Item 17
on Indemnification for Securities
Act Liabilities
15. Organization Within Last Business of the Savings Bank
Five Years
16. Description of Business Business of the Holding Company;
Business of the Savings Bank
17. Management's Discussion and Management's Discussion and
Analysis or Plan of Operation Analysis of Financial Condition and
Results of Operations
18. Description of Property Business of the Savings Bank --
Properties
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<S> <C> <C>
19. Certain Relationships and Management of the Savings Bank --
Related Transactions Transactions with the Savings Bank
20. Market Price for Common Equity Outside Front Cover Page; Market for
and Related Stockholder Matters Common Stock; Dividend Policy
21. Executive Compensation Management of the Savings Bank --
Executive Compensation; and --
Benefits
22. Financial Statements Financial Statements; Pro Forma Data
23. Changes in and Disagreements *
with Accountants on Accounting
and Financial Disclosure
</TABLE>
____________________
*Item is omitted because answer is negative or item inapplicable.
<PAGE>
PROSPECTUS SUPPLEMENT
SOUTHBANC SHARES, INC.
PERPETUAL BANK, A FEDERAL SAVINGS BANK
401(K) PLAN
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the Perpetual Bank, A Federal Savings Bank 401(k) Plan
("Plan" or "401(k) Plan") of participation interests and shares of SouthBanc
Shares, Inc. common stock, par value $.01 per share ("Common Stock"), as set
forth herein.
In connection with the proposed reorganization of Perpetual Bank, A Federal
Savings Bank ("Savings Bank" or "Employer") from the mutual holding company form
of organization to a wholly owned subsidiary of a stock savings and loan holding
company, SouthBanc Shares, Inc. (the "Holding Company") has been formed. The
reorganization of the Savings Bank as a wholly-owned subsidiary of the Holding
Company, the exchange of shares of Savings Bank common stock ("Savings Bank
Common Stock") by public stockholders of the Savings Bank (the "Public
Stockholders") for Common Stock and the sale of Common Stock to the public (the
"Conversion Offerings") are herein referred to as the "Conversion and
Reorganization." Applicable provisions of the 401(k) Plan permit the investment
of the Plan assets in Common Stock 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 and Reorganization.
The Prospectus, dated _________, 1998, of the Holding Company
("Prospectus"), which is attached to this Prospectus Supplement includes
detailed information with respect to the Conversion and Reorganization, the
Conversion Offerings, the Common Stock and the financial condition, results of
operation and business of the Savings Bank 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 AND
REORGANIZATION THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION OFFERINGS AND
THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN OF CONVERSION. SEE
"THE CONVERSION AND REORGANIZATION" 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.
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 _________, 1998.
<PAGE>
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 Savings Bank 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 Savings Bank 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
<S> <C>
The Offering
Securities Offered.......................................................... S-1
Election to Purchase Common Stock in the Conversion and Reorganization...... S-1
Value of Participation Interests............................................ S-1
Method of Directing Transfer................................................ S-1
Time for Directing Transfer................................................. S-2
Irrevocability of Transfer Direction........................................ S-2
Treatment of Savings Bank Common Stock Held in the Plan..................... S-2
Direction to Purchase Common Stock After the Conversion and Reorganization.. S-2
Purchase Price of Common Stock.............................................. S-3
Nature of a Participant's Interest in the Common Stock...................... S-3
Voting and Tender Rights of Common Stock.................................... S-3
Description of the Plan
Introduction................................................................ S-3
Eligibility and Participation............................................... S-4
Contributions Under the Plan................................................ S-4
Limitations on Contributions................................................ S-5
Investment of Contributions................................................. S-7
The Employer Stock Fund..................................................... S-9
Benefits Under the Plan..................................................... S-9
Withdrawals and Distributions from the Plan................................. S-9
Administration of the Plan.................................................. S-10
Reports to Plan Participants................................................ S-11
Plan Administrator.......................................................... S-11
Amendment and Termination................................................... S-11
Merger, Consolidation or Transfer........................................... S-12
Federal Income Tax Consequences............................................. S-12
Restrictions on Resale...................................................... S-15
Legal Opinions................................................................... S-15
Investment Form.................................................................. S-16
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i
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THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to ______ 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 Savings Bank 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 Reorganization and the financial condition, results of operation
and business of the Savings Bank and the Holding Company is contained in the
attached Prospectus. The address of the principal executive office of the
Savings Bank is 907 N. Main Street, Anderson, South Carolina 29621-5526. The
Savings Bank's telephone number is (864) 225-0241.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION AND REORGANIZATION
In connection with the Savings Bank's Conversion and Reorganization, each
Participant in the 401(k) Plan may direct the trustees of the Plan (the
"Trustees") to transfer up to 100% of a Participant's beneficial interest in the
assets of the Plan to the Employer Stock Fund and to use such funds to purchase
Common Stock issued in connection with the Conversion and Reorganization.
Amounts transferred may include salary deferral, Employer matching and profit
sharing contributions. The Employer Stock Fund consists of investments in the
Common Stock. Funds not transferred to the Employer Stock Fund may be invested
at the Participant's discretion in the other investment options available under
the Plan. See "DESCRIPTION OF THE PLAN -- INVESTMENT OF CONTRIBUTIONS" below.
A PARTICIPANT'S ABILITY TO TRANSFER FUNDS TO THE EMPLOYER STOCK FUND IN THE
CONVERSION OFFERINGS IS SUBJECT TO THE PARTICIPANT'S GENERAL ELIGIBILITY TO
PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION OFFERINGS. FOR GENERAL
INFORMATION AS TO THE ABILITY OF THE PARTICIPANTS TO PURCHASE SHARES IN THE
CONVERSION OFFERINGS, SEE "THE CONVERSION AND REORGANIZATION-- 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 a
periodic basis. This value represents the market value of past contributions to
the Plan by the Savings Bank and by the Participants and earnings thereon, less
previous withdrawals, and transfers from other Plans.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form"). If a Participant
wishes to transfer funds to the Employer Stock Fund to purchase Common Stock
issued in connection with the Conversion
S-1
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Offerings, 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 OFFERINGS IS ___________, 1998. The Investment Form should be
returned to ___________ at the Savings Bank 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 Offerings
shall be irrevocable. Participants, however, will be able to direct the sale of
Common Stock, as explained below.
TREATMENT OF SAVINGS BANK COMMON STOCK HELD IN THE PLAN
Shares of Savings Bank Common Stock held in the Employer Stock Fund prior
to the consummation of the Conversion and Reorganization will treated in the
same manner as shares held by other Public Stockholders. Such shares will be
exchanged for shares of Common Stock pursuant to the Exchange Ratio.
Application of the Exchange Ratio will result in the holders of the outstanding
Savings Bank Common Stock owning, in the aggregate, approximately the same
percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization as the percentage of Savings Bank Common Stock
owned by them, in the aggregate, immediately prior to the consummation of the
Conversion. FOR ADDITIONAL INFORMATION REGARDING THE TREATMENT OF SAVINGS BANK
COMMON STOCK, SEE "THE CONVERSION AND REORGANIZATION" IN THE PROSPECTUS.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION AND REORGANIZATION
After the Conversion and Reorganization, 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 a Participant's interest in the Employer Stock Fund
may be changed by the Participant on a periodic basis in accordance with rules
established by the Employer. Special restrictions may apply to transfers
directed by those Participants who are executive officers, directors and
principal stockholders of the Holding Company who are
S-2
<PAGE>
subject to the provisions of Section 16(b) of the Securities and Exchange Act of
1934, as amended ("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 Trustees 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 Offerings.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Holding Company Stock purchased for an account of a Participant will be
held in the Employer Stock Fund. Any earnings, losses or expenses with respect
to the Common 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 Trustees 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 Savings Bank adopted the Plan effective _____________ as an amendment
and restatement of the Savings Bank's prior retirement plan. 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 ("Code").
The Savings Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Savings
Bank 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 Savings Bank 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.
S-3
<PAGE>
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 (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 SAVINGS BANK. 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 SAVINGS BANK OR AFTER
TERMINATION OF EMPLOYMENT.
REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF
THE MATERIAL 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 Savings Bank is eligible to participate and will become
a Participant in the Plan following completion of 1,000 hours of service with
the Savings Bank within a consecutive 12 month period of employment and the
attainment of age 21. The Plan fiscal year is the period October 1 to September
30 ("Plan Year"). Directors who are not employees of the Savings Bank are not
eligible to participate in the Plan.
During 1997, approximately __ 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"
S-4
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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 under applicable Code provisions). A Participant may elect to modify
the amount contributed to the Plan under the participant's salary reduction
agreement during the Plan Year. Deferral contributions are generally transferred
by the Savings Bank to the Trustees of the Plan on a periodic basis.
EMPLOYER CONTRIBUTIONS. The Savings Bank currently matches __% of a
Participant's monthly deferral contributions to a maximum of __% of
Compensation. However, the rate of matching contributions is discretionary and
subject to change on an annual basis. In addition, the Employer may make a
discretionary contribution in proportion to a Participant's Compensation.
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 under applicable Code provisions). 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 Savings Bank 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 $10,000 (as adjusted periodically
under applicable Code provisions). 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 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
S-5
<PAGE>
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 under applicable
Code provisions) and, if elected by the Savings Bank, 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 Savings Bank 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 Savings
Bank with respect to any excess aggregate 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 Savings Bank may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain
S-6
<PAGE>
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 Savings Bank.
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 Savings Bank
having annual compensation in excess of $60,000 who is in an 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 Trustees. The Trustees are appointed by
the Savings Bank's Board of Directors. The Plan provides that a Participant may
direct the Trustees to invest all or a portion of his or her Accounts in various
managed investment portfolios, as described below. A Participant may
periodically elect to change his or her 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, the Accounts of Participant held in the Trust will be
invested by the Trustees at the direction of the Participant in the following
investment funds:
Investment Fund A -
Investment Fund B -
Investment Fund C -
Investment Fund D -
Investment Fund E -
Investment Fund F -
Investment Fund G -
Investment Fund H -
S-7
<PAGE>
Investment Fund I -
A Participant may also invest all or a portion of his or her Accounts in
the portfolios described above and in Fund J, described below:
Investment Fund J -
A Participant may elect to have both prior contributions and additions to
the Participant's Account invested either in the Employer Stock Fund or in any
of the other investment funds listed above. Any amounts credited to a
Participant's Accounts for which investment directions are not given will be
invested in _________________.
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 consists of investments in Common Stock. In
connection with the Conversion Offerings, 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. To the extent practicable,
all amounts held in the Employer Stock Fund (except the amounts credited to cash
dividend subaccounts) will be used to purchase shares of Common Stock. It is
expected that all purchases will be made at prevailing market prices. 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.
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" IN THE PROSPECTUS.
S-8
<PAGE>
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 at all times 100% vested in his or her
matching contributions account. Employer discretionary contribuions are fully
vested after five years 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, DEATH, DISABILITY OR TERMINATION OF
EMPLOYMENT. The distribution of benefits under the 401(k) Plan to a Participant
who retires may be made in the form of a lump-sum payment, installment payments
or an annuity payable over a specified period. Distributions generally commence
as soon as practicable following the Participant's termination of employment. 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. Benefits payments ordinarily must begin 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
will be made from the Plan prior to the Participant's attaining age 65 unless
the Participant consents to an earlier distribution. Special rules may apply to
the distribution 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.
S-9
<PAGE>
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 Trustees with respect to Plan assets are currently
__________________________________.
Pursuant to the terms of the Plan, the Trustees receive and hold
contributions to the Plan in trust and have 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 Trustees
have 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 Trustees have authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustees have full power to vote any corporate securities in the Trust
in person or by proxy; provided, however, that the Participants will direct the
Trustees as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustees receive no compensation for their services. The expenses of
the Trustees are paid out of the Trust except to the extent such expenses and
compensation are paid by the Association.
The Trustees must render at least annual reports to the Association and to
the Participants in such form and containing such information that the Trustees
deem 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
The Savings Bank currently serves as the Plan Administrator. The Plan
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
S-10
<PAGE>
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 Savings Bank 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. The Savings Bank 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 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
S-11
<PAGE>
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 Savings Bank 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 Savings Bank. 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 ("total taxable amount") consists of the
entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Savings Bank which is included in such distribution.
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution ("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
S-12
<PAGE>
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 Trustees
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,
S-13
<PAGE>
to the extent the distribution is rolled over into 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 Savings Bank 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 Savings Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Savings Bank 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 Savings Bank or the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him or her. 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 or sold under the Plan or otherwise.
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 Savings Bank's Conversion and
Reorganization from the mutual holding company form of organization to a wholly-
owned subsidiary of the Holding Company.
S-14
<PAGE>
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 Savings Bank 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 Savings Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Savings Bank 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 Savings Bank or the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him or her. 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 or sold under the Plan or otherwise.
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 Savings Bank's Conversion and
Reorganization from the mutual holding company form of organization to a wholly-
owned subsidiary of the Holding Company.
S-15
<PAGE>
Investment Form
(Employer Stock Fund)
PERPETUAL BANK, A FEDERAL SAVINGS BANK
401(K) PLAN
Name of Participant:_____________________
Social Security Number:__________________
1. Instructions. In connection with the proposed reorganization of
Perpetual Bank, A Federal Savings Bank ("Savings Bank") from the mutual holding
form of organization to a wholly-owned subsidiary of a savings and loan holding
company ("Conversion and Reorganization"), participants in the Perpetual Bank, A
Federal Savings Bank Employees' Savings and Profit Sharing Plan ("Plan") may
elect to direct the investment of up to 100% of their account balances into the
Employer Stock Fund ("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 SouthBanc Shares, Inc. ("Common Stock"), the
proposed holding company for the Savings Bank. 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 OFFERINGS AND
THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN OF 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
Offerings. To direct such a transfer to the Employer Stock Fund, you should
complete this form and return it to ________________ at the Savings Bank, NO
LATER THAN THE CLOSE OF BUSINESS ON _________________, 1998. The Savings Bank
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 $10) to the Employer Stock Fund to be applied to
the purchase of Common Stock in the Conversion Offerings. Please transfer this
amount from the following investments as indicated:
________________________________________________________________________________
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 and Reorganization. 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-16
<PAGE>
[LOGO]
PROSPECTUS SOUTHBANC SHARES, INC.
(PROPOSED HOLDING COMPANY FOR PERPETUAL BANK, A FEDERAL SAVINGS BANK)
UP TO 3,741,533 SHARES OF COMMON STOCK
$20.00 PURCHASE PRICE PER SHARE
SouthBanc Shares, Inc. ("Holding Company"), a Delaware corporation, is
offering up to 3,740,640 shares (which may be increased to 4,301,736 shares
under circumstances described in footnote 4 of the table below) of its common
stock, par value $.01 per share ("Common Stock"), in connection with (i) the
Exchange Offering, described below, to effect the reorganization of Perpetual
Bank, A Federal Savings Bank ("Savings Bank") as a wholly-owned subsidiary of
the Holding Company and (ii) the Conversion Offerings, described below, to
effect the conversion of SouthBanc Shares, M.H.C. ("MHC") from a mutual holding
company to a stock holding company. The Holding Company, Savings Bank and MHC
are collectively referred to herein as the "Primary Parties." The transactions
contemplated by the Exchange Offering and the Conversion Offerings, which are
collectively referred to herein as the "Conversion and Reorganization," are
undertaken pursuant to an Amended Plan of Conversion and Agreement and Plan of
Reorganization ("Plan of Conversion") adopted by the Boards of Directors of the
Primary Parties.
THE EXCHANGE OFFERING. Pursuant to the Plan of Conversion, each share of
common stock, par value $1.00 per share, of the Savings Bank ("Savings Bank
Common Stock") held by the MHC (800,000 shares, or 53.02% of the outstanding
shares, as of the date of this Prospectus) will be canceled and each share of
Savings Bank Common Stock held by the Savings Bank's public stockholders
("Public Savings Bank Shares" and "Public Stockholders," respectively) (708,873
shares, or 46.98% of the outstanding shares, as of the date of this Prospectus)
will be exchanged for shares of Common Stock ("Exchange Shares") pursuant to a
ratio ("Exchange Ratio") that will result in the Public Stockholders' aggregate
ownership of approximately 46.98% of the outstanding shares of Common Stock
before giving effect to any (i) payment of cash in lieu of issuing fractional
Exchange Shares and (ii) Conversion Shares (as defined below) purchased by the
Public Stockholders in the Conversion Offerings, described below. As discussed
under "Independent Valuation" below, the final Exchange Ratio will be based on
the Public Stockholders' ownership interest and not on the market value of the
Public Savings Bank Shares.
FOR INFORMATION ON HOW TO SUBSCRIBE FOR SHARES OF COMMON STOCK,
CALL THE STOCK INFORMATION CENTER AT (864) ___-____.
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 OFFICE OF THRIFT SUPERVISION ("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)
SANDLER, O'NEILL & PARTNERS, L.P.
The date of this Prospectus is _____________, 1998.
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Estimated Underwriting
Purchase Commissions and Estimated Net
Price(1) Other Fees and Expenses(2) Proceeds
-------------- -------------------------- -------------
<S> <C> <C> <C>
Minimum Price Per Share................... $20.00 $0.68 $19.32
- --------------------------------------------------------------------------------------------------------
Midpoint Price Per Share.................. $20.00 $0.62 $19.38
- --------------------------------------------------------------------------------------------------------
Maximum Price Per Share................... $20.00 $0.58 $19.42
- --------------------------------------------------------------------------------------------------------
Maximum Price Per Share, as adjusted(3)... $20.00 $0.54 $19.46
- --------------------------------------------------------------------------------------------------------
Minimum Total(4).......................... $29,325,000 $ 990,000 $28,335,000
- --------------------------------------------------------------------------------------------------------
Midpoint Total(5)......................... $34,500,000 $1,070,000 $33,430,000
- --------------------------------------------------------------------------------------------------------
Maximum Total(6).......................... $39,675,000 $1,150,000 $38,525,000
- --------------------------------------------------------------------------------------------------------
Maximum Total, as adjusted(3)(7).......... $45,626,250 $1,240,000 $44,386,250
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by RP
Financial, LC., Arlington, Virginia ("RP Financial"). See "Independent
Valuation" on the cover page of this Prospectus and "THE CONVERSION
AND REORGANIZATION --Stock Pricing, Exchange Ratio and Number of
Shares to be Issued."
(2) Consists of estimated expenses of the Primary Parties arising from the
Conversion and Reorganization, including fees payable to Sandler,
O'Neill & Partners, L.P. ("Sandler O'Neill") in connection with the
Conversion Offerings. Such fees may be deemed underwriting fees and
Sandler O'Neill may be deemed an underwriter. The Primary Parties have
agreed to indemnify Sandler O'Neill 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 AND REORGANIZATION --Plan of Distribution and Selling
Commissions."
(3) Gives effect to an increase in the number of shares that could be sold
in the Conversion Offerings resulting from an increase in the pro
forma market value of the MHC and the Savings Bank, as converted, up
to 15% above the maximum of the Estimated Valuation Range, without the
resolicitation of subscribers or any right of cancellation. See "THE
CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange Ratio and
Number of Shares to be Issued."
(4) Assumes the issuance of 1,466,250 Conversion Shares at $20.00 per
share.
(5) Assumes the issuance of 1,725,000 Conversion Shares at $20.00 per
share.
(6) Assumes the issuance of 1,983,750 Conversion Shares at $20.00 per
share.
(7) Assumes the issuance of 2,281,312 Conversion Shares at $20.00 per
share.
THE CONVERSION OFFERINGS. Pursuant to the Plan of Conversion,
nontransferable rights to subscribe ("Subscription Rights") for up to 1,983,750
shares (which may be increased to 2,281,312 shares under circumstances described
in footnote 4 of the table appearing on the cover page of this Prospectus) of
Common Stock ("Conversion Shares") have been granted, in order of priority, to
(i) depositors with $50.00 or more on deposit at the Savings Bank as of the
close of business on June 30, 1996 ("Eligible Account Holders"), (ii) depositors
with $50.00 or more on deposit at the Savings Bank as of the close of business
on December 31, 1997 ("Supplemental Eligible Account Holders"), and (iii)
depositors of the Savings Bank (other than Eligible Account Holders and
Supplemental Eligible Account Holders) as of the close of business on
____________, 1998 ("Voting Record Date"), and borrowers of the Savings Bank
with loans outstanding as of the close of business on October 26, 1993 which
continue to be outstanding as of the close of business on 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 OTS OR OTHER
AGENCY OF THE U.S. GOVERNMENT. Concurrently, but subject to the prior rights of
Subscription Rights holders, the Holding Company is offering the Conversion
Shares for sale to members of the general public through a direct community
offering ("Direct Community Offering") with preference given first to Public
Stockholders as of the close of business on the Voting Record Date (who are not
Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members) and then to natural persons and trusts of natural persons who are
permanent residents of Anderson or Oconee Counties of South Carolina ("Local
Community"). It is anticipated that any Conversion Shares not
<PAGE>
subscribed for in the Subscription Offering or purchased in 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 Sandler O'Neill in
a syndicated community offering ("Syndicated Community Offering"). The
Subscription Offering, Direct Community Offering and the Syndicated Community
Offering are referred to collectively as the "Conversion Offerings."
THE SUBSCRIPTION OFFERING WILL EXPIRE AT NOON, EASTERN TIME, ON
____________, 1998 ("EXPIRATION DATE"), UNLESS EXTENDED BY THE PRIMARY PARTIES
FOR UP TO ___ DAYS TO _________, 1998. SUCH EXTENSION MAY BE GRANTED WITHOUT
ADDITIONAL NOTICE TO SUBSCRIBERS. The Direct Community Offering is also
expected to terminate at Noon, Eastern Time, on ____________, 1998 or at a date
thereafter, however, in no event later than ________ __, 1998. The Holding
Company must receive a properly completed and signed stock order form ("Order
Form") and certification, along with full payment (or appropriate instructions
authorizing a withdrawal from a deposit account at the Savings Bank) of $20.00
per share ("Purchase Price") for all Conversion Shares subscribed for or
ordered. Funds so received will be placed in a segregated account created for
this purpose at the Savings Bank, and interest will be paid at the Savings
Bank's passbook rate from the date payment is received until the Conversion and
Reorganization 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 their
contractual rate until the Conversion and Reorganization is consummated or
terminated. ONCE TENDERED, ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT THE
CONSENT OF THE PRIMARY PARTIES. The Primary Parties are not obligated to accept
orders submitted on photocopied or telecopied Order Forms. If the Conversion
and Reorganization is not consummated within 45 days after the last day of the
Subscription Offering and Direct Community Offering (which date will be no later
than ___________, 1998) and the OTS consents to an extension of time to
consummate the Conversion and Reorganization, subscribers will be notified in
writing of the time period within which the subscriber must notify the Primary
Parties of their intention to increase, decrease or rescind their orders. Such
extensions may not go beyond ____________, 2000.
The Primary Parties have engaged Sandler O'Neill to consult with and advise
them in the sale of the Conversion Shares in the Conversion Offerings. In
addition, in the event the Conversion Shares are not fully subscribed for in the
Subscription Offering and Direct Community Offering, Sandler O'Neill will manage
the Syndicated Community Offering. Neither Sandler O'Neill nor any other
registered broker-dealer is obligated to take or purchase any Conversion Shares
in the Conversion Offerings. The Primary Parties reserve the right, in their
absolute discretion, to accept or reject, in whole or in part, any or all orders
in the Direct Community Offering or Syndicated Community Offerings either at the
time of receipt of an order or as soon as practicable following the termination
of the Conversion Offering. If an order is rejected in part, the purchaser does
not have the right to cancel the remainder of the order. See "THE CONVERSION
AND REORGANIZATION -- Plan of Distribution and Selling Commissions."
INDEPENDENT VALUATION. OTS regulations require that the offering of
Conversion Shares in the Conversion Offerings be based on an independent
valuation of the pro forma market value of the Savings Bank and the MHC, as
converted. OTS policy requires that the independent valuation be multiplied by
approximately 46.98%, which represents the MHC's percentage ownership interest
in the Savings Bank. Accordingly, RP Financial's independent appraisal as of
December 5, 1997 states that the aggregate pro forma market value of the Savings
Bank and the MHC, as converted, ranged from $55.3 million to $74.8 million, with
a midpoint of $65.1 million ("Estimated Valuation Range").
The Primary Parties' Boards of Directors determined that the Conversion
Shares would be sold at the Purchase Price ($20.00 per share), resulting in a
range of 1,466,250 to 1,983,750 shares of Conversion Shares, with a midpoint of
1,725,000 Conversion Shares. Upon consummation of the Conversion and
Reorganization, the Conversion Shares and the Exchange Shares will represent
approximately 53.02% and 46.98%, respectively, of the total outstanding shares
of Common Stock. Based upon the Estimated Valuation Range, the Exchange Ratio
is expected to range from 1.83281 to 2.47969, resulting in a range of 1,299,231
Exchange Shares to 1,757,783 Exchange Shares to be issued in the Exchange
Offering. The 3,741,533 shares of Common Stock offered hereby include up to
1,983,750 Conversion Shares (subject to adjustment up to 2,281,312 shares as
described herein) and up to 1,757,783 Exchange Shares (subject to adjustment up
to 2,021,451 shares as described herein). The Estimated
<PAGE>
Valuation Range may be increased or decreased to reflect changes in the
financial condition or results of operations of the Savings Bank or changes in
market conditions or general financial, economic or regulatory conditions prior
to completion of the Conversion and Reorganization, and under certain
circumstances specified herein subscribers will be resolicited and given the
right to modify or cancel their orders. See "THE CONVERSION AND REORGANIZATION
- -- Stock Pricing, Exchange Ratio and Number of Shares to be Issued."
PURCHASE LIMITATIONS ON CONVERSION SHARES. The Plan of Conversion provides
for the following purchase limitations: (i) no person may purchase in either the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering more than 50,000 Conversion Shares, (ii) no person, together with
associates of or persons acting in concert with such person, may purchase in
either the Subscription Offering, Direct Community Offering or Syndicated
Community Offering more than 50,000 Conversion Shares, (iii) the maximum number
of Conversion Shares which may be subscribed for or purchased in all categories
in the Conversion Offerings by any person, when combined with any Exchange
Shares received, shall not exceed 50,000 shares of Common Stock to be issued in
the Conversion and Reorganization, and (iv) the maximum number of Conversion
Shares which may be subscribed for or purchased in all categories in the
Conversion Offerings by any person, together with any associate or any group of
persons acting in concert, when combined with any Exchange Shares received,
shall not exceed 50,000 shares of Common Stock to be issued in the Conversion
and Reorganization. The minimum order is 25 Conversion Shares. BECAUSE OTS
POLICY REQUIRES THAT THE MAXIMUM PURCHASE LIMITATION INCLUDES EXCHANGE SHARES TO
BE ISSUED TO PUBLIC STOCKHOLDERS IN EXCHANGE FOR THEIR PUBLIC SAVINGS BANK
SHARES, CERTAIN PUBLIC STOCKHOLDERS MAY BE LIMITED IN THEIR ABILITY TO PURCHASE
CONVERSION SHARES, OR EVEN PREVENTED FROM PURCHASING CONVERSION SHARES. See
"THE CONVERSION AND REORGANIZATION -- The Subscription, Direct Community and
Syndicated Community Offerings," "-- Procedure for Purchasing Conversion Shares
in the Subscription and Direct Community Offerings" and "-- Limitations on
Purchases of Conversion Shares."
MARKET FOR THE COMMON STOCK. The Holding Company has received preliminary
approval to list the Common Stock on the Nasdaq National Market under the symbol
"PERT." Prior to the Conversion and Reorganization, the Public Savings Bank
Shares have been listed on the Nasdaq SmallCap Market under the same trading
symbol. There can be no assurance that an active and liquid trading market for
the Common Stock will develop or, if developed, will be maintained. See "RISK
FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON
STOCK."
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK
ANDERSON, SOUTH CAROLINA
[Map]
THE CONVERSION AND REORGANIZATION IS CONTINGENT UPON APPROVAL OF THE PLAN OF
CONVERSION BY AT LEAST A MAJORITY OF THE MHC'S ELIGIBLE VOTING MEMBERS, BY THE
HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF SAVINGS BANK COMMON STOCK AND
BY THE HOLDERS OF A MAJORITY OF THE PUBLIC SAVINGS BANK SHARES PRESENT IN PERSON
OR BY PROXY, THE SALE OF AT LEAST 1,466,250 CONVERSION SHARES PURSUANT TO THE
PLAN OF CONVERSION, AND THE RECEIPT OF ALL APPLICABLE 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."
SOUTHBANC SHARES, INC.
The Holding Company was organized on November 6, 1997 under Delaware law at
the direction of the Savings Bank to acquire the Savings Bank as a wholly-owned
subsidiary upon consummation of the Conversion and Reorganization. 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 issued and outstanding
capital stock of the Savings Bank, which, along with 50% of the net proceeds of
the Conversion Offerings (see table under "PRO FORMA DATA") as permitted by the
OTS to be retained by it, and a note receivable evidencing a loan to the Savings
Bank's Employee Stock Ownership Plan ("ESOP"), will be the only significant
assets of the Holding Company. Funds retained by the Holding Company will be
used for general business activities. See "USE OF PROCEEDS." Upon consummation
of the Conversion and Reorganization, 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 907 N. Main Street, Anderson, South
Carolina 29621, and its telephone number is (864) 225-0241.
SOUTHBANC SHARES, M.H.C.
The MHC is the federally-chartered mutual holding company of the Savings
Bank. The MHC was formed in October 1993 as a result of the reorganization of
the Savings Bank into a federally chartered mutual holding company ("MHC
Reorganization"). The members of the MHC consist of depositors of the Savings
Bank and those current borrowers of the Savings Bank who had loans outstanding
as of the consummation date of the MHC Reorganization (October 26, 1993). The
MHC's sole business activity is holding the 800,000 shares of Savings Bank
Common Stock, which represents 53.02% of the outstanding shares as of the date
of this Prospectus. The MHC's main office is located at 907 N. Main Street,
Anderson, South Carolina 29621, and its telephone number is (864) 225-0241. As
part of the Conversion and Reorganization, the MHC will convert to a federally-
chartered interim stock savings bank and simultaneously merge with and into the
Savings Bank, with the Savings Bank as the surviving entity.
PERPETUAL BANK, A FEDERAL SAVINGS BANK
The Savings Bank is a federally chartered stock savings bank headquartered
in Anderson, South Carolina. The Savings Bank was originally chartered in 1906
and operated as a mutual institution without stockholders until October 1993, at
which time it reorganized into the mutual holding company structure. The
Savings Bank's deposits are insured by the FDIC up to applicable legal limits
under the SAIF. The Savings Bank, a member of the Federal Home Loan Bank
("FHLB") system, is regulated by the OTS and the FDIC. At September 30, 1997,
the Savings Bank had total assets of $257.0 million, total deposits of $201.0
million, and total stockholders' equity of $30.8 million, on a consolidated
basis.
On October 26, 1993, the MHC Reorganization was consummated and the Savings
Bank completed its initial stock offering by issuing 1,500,000 shares of Savings
Bank Common Stock at $10.00 per share, 1,385,000 shares
<PAGE>
(92.3%) of which were sold to the MHC. The remaining 115,000 shares (7.7%) were
issued to members of the MHC, including officers, directors and employees of the
Savings Bank.
In September 1996, the Savings Bank completed an additional offering of
Savings Bank Common Stock through the issuance of 585,000 shares at a price of
$19.25 to then existing members of the MHC ("Additional Offering"). In
connection with the closing of the Additional Offering, 585,000 shares of
Savings Bank Common Stock held by the MHC were canceled. Accordingly, upon
consummation of the Additional Offering on September 30, 1996, there were
1,504,601 shares of Savings Bank Common Stock issued and outstanding, of which
800,000 (53.2%) were held by the MHC and 704,601 shares (46.8%) were held by the
Public Stockholders.
The Savings Bank considers Anderson and Oconee Counties in the northwestern
corner of South Carolina as its primary market area because a substantial
portion of its loan portfolio is secured by properties located in those
counties. See "RISK FACTORS -- Certain Lending Risks -- Geographic
Concentration of Credit and Investment Risk." The Savings Bank faces strong
competition within its primary market area. See "RISK FACTORS --Competition."
The Savings Bank also invests in loans secured by properties located outside of
its primary market area (predominately in Hilton Head Island, South Carolina,
and in the greater Greenville, South Carolina, area) as a result of loan
purchases from other lenders, including a mortgage banking company in which a
service corporation subsidiary of the Savings Bank has a one-third equity
interest. See "BUSINESS OF THE SAVINGS BANK --Lending Activities" and "--
Subsidiary Activities."
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public and using those funds, along with FHLB
advances, to originate and purchase one- to- four family mortgage loans. The
Savings Bank originates and purchases commercial real estate and construction
loans, as well as consumer loans and, to a lesser extent, commercial business
loans and multi-family real estate loans. See "BUSINESS OF THE SAVINGS BANK --
Lending Activities." Such latter type loans, which totalled $71.7 million, or
40.1%, of net loans receivable at September 30, 1997, are inherently riskier
than one- to- four-family mortgage loans. See "RISK FACTORS -- Certain Lending
Risks." As a complement to its lending activities, the Savings Bank services
mortgage loans and invests in mortgage servicing rights. See "BUSINESS OF THE
SAVINGS BANK -- Lending Activities -- Loan Purchases and, Sales and Servicing."
In addition to its lending activities, the Savings Bank, through a service
corporation subsidiary, develops residential and commercial properties located
in its primary market area. See "BUSINESS OF THE SAVINGS BANK -- Subsidiary
Activities." The Savings Bank also invests in short- and intermediate-term
mortgage-backed securities, including collateralized mortgage obligations
("CMOs"). See "BUSINESS OF THE SAVINGS BANK -- Investment Activities."
The Savings Bank's principal office is located at 907 North Main Street,
Anderson, South Carolina 29621, and the telephone number at that office is (864)
225-0241. The Savings Bank also operates five branch offices. See "BUSINESS OF
THE SAVINGS BANK -- Properties."
THE CONVERSION AND REORGANIZATION
PURPOSES OF THE CONVERSION AND REORGANIZATION. The Boards of Directors of
the Primary Parties believe that the Conversion and Reorganization is in the
best interests of the MHC and its members, the Savings Bank and its
stockholders, and the communities served by the MHC and the Savings Bank. In
their decision to pursue the Conversion and Reorganization, the Boards of
Directors considered the various regulatory uncertainties associated with the
mutual holding company structure, including the MHC's future ability to waive
any dividends from the Savings Bank and the uncertain future of the federal
thrift charter. In addition, the Boards of Directors considered the various
advantages of the stock holding company form of organization, including: (i) the
Holding Company's ability to repurchase shares of its common stock without
adverse tax consequences, unlike the Savings Bank; (ii) the Holding Company's
greater flexibility under current law and regulations relative to the MHC to
acquire other financial institutions and diversify its operations; (iii) the
larger capital base of the Holding Company relative to the
(ii)
<PAGE>
Savings Bank that will result from the Conversion Offering; and (iv) the
potential increased liquidity in the Common Stock relative to the Public Savings
Bank Shares because of the larger number of shares of Common Stock to be
outstanding upon consummation of the Conversion and Reorganization. Currently,
the Boards of Directors of the Primary Parties have no specific plans,
arrangements or understandings, written or oral, regarding any stock
repurchases, acquisitions or diversification of operations. See "THE CONVERSION
AND REORGANIZATION -- Purposes of Conversion and Reorganization."
DESCRIPTION OF THE CONVERSION AND REORGANIZATION. The Conversion and
Reorganization are being undertaken pursuant to the Plan of Conversion that was
adopted by the Boards of Directors of the Savings Bank and the MHC on September
22, 1997, and subsequently amended on December 22, 1997. Under the Plan of
Conversion, (i) the MHC will convert to an interim federal stock savings bank
("Interim A") and simultaneously merge with and into the Savings Bank, pursuant
to which the MHC will cease to exist and the outstanding shares of Savings Bank
Common Stock held by the MHC (800,000 shares, or 53.02% of the outstanding
Savings Bank Common Stock as of the date of this Prospectus) will be canceled,
and (ii) an interim federal stock savings bank ("Interim B") will be formed as a
wholly-owned subsidiary of the Holding Company and will merge with and into the
Savings Bank, resulting in the Savings Bank becoming a wholly-owned subsidiary
of the Holding Company and the outstanding Public Savings Bank Shares (708,873
shares, or 46.98% of the outstanding Savings Bank Common Stock as of the date of
this Prospectus) will be converted into the Exchange Shares pursuant to the
Exchange Ratio. The Exchange Ratio will result in the holders of the
outstanding Public Savings Bank Shares owning in the aggregate approximately the
same percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization (i.e., the Conversion Shares and the Exchange
----
Shares) as the percentage of Savings Bank Common Stock owned by them in the
aggregate immediately before the consummation of the Conversion and
Reorganization, before giving effect to any (i) payment of cash in lieu of
issuing fractional Exchange Shares and (ii) Conversion Shares purchased by the
Stockholders in the Conversion Offerings.
The following diagram outlines the pre-Conversion and Reorganization
organizational structure of the Primary Parties' and their ownership interests:
------------------- -------------------
MHC Public
Stockholders
------------------- --------------------
53.02% 46.98%
-------------------
Savings Bank
-------------------
100%
--------------------
Holding Company
--------------------
100%
--------------------
Interim B
(in formation)
--------------------
(iii)
<PAGE>
The following diagram reflects the post-Conversion and Reorganization
organizational structure of the Holding Company and the Savings Bank and their
ownership interests. The ownership interests presented assumes no fractional
Exchange Shares are issued, and does not give effect to purchases of any
Conversion Shares by the Public Stockholders or the exercise of outstanding
stock options.
------------------- -------------------
Purchasers of Former Public
Conversion Shares Stockholders
------------------- -------------------
53.02% 46.98%
-------------------
Holding Company
-------------------
100%
-------------------
Savings Bank
-------------------
REQUIRED APPROVALS. The OTS has approved the Plan of Conversion subject to
(i) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the MHC as of the close of business
on the Voting Record Date (___________, 1998) at a special meeting of members
called for the purpose of submitting the Plan of Conversion for approval
("Members' Special Meeting"), (ii) the approval of the holders of at least two-
thirds of the outstanding shares of Savings Bank Common Stock (including those
shares held by the MHC) as of the close of business on the Voting Record Date at
a meeting of stockholders called for the purpose of considering the Plan
("Stockholders' Meeting"), and (iii) the approval of the holders of at least a
majority of the Public Savings Bank Shares as of the close of business on the
Voting Record Date present in person or by proxy at the Stockholders' Meeting.
The MHC intends to vote its shares of Savings Bank Common Stock, which amounts
to 53.02% of the outstanding shares, in favor of the Plan of Conversion at the
Stockholders' Meeting. In addition, as of September 30, 1997, directors and
executive officers of the Primary Parties as a group (13 persons) beneficially
owned 90,711, or 6.01%, of the outstanding shares of Savings Bank Common Stock,
which they intend to vote in favor of the Plan of Conversion at the
Stockholders' Meeting.
THE CONVERSION OFFERINGS
The Conversion Offerings, which consist of the Subscription Offering, the
Direct Community Offering and the Syndicated Community Offering (if any), are
being undertaken pursuant to the Plan of Conversion. The Holding Company is
offering up to 1,983,750 Conversion Shares in the Conversion Offerings.
Conversion Shares are first being offered in the Subscription Offering through
the exercise of Subscription Rights issued, in order of priority, to (i)
Eligible Account Holders; (ii) Supplemental Eligible Account Holders; and (iii)
Other Members. In light of the anticipated additional compensation expense to
the Savings Bank that would result with the purchase of Conversion Shares, the
ESOP will not subscribe for Conversion Shares. The Subscription Offering will
expire at Noon, Eastern Time, on ____________, 1998, unless extended.
Subject to the prior rights of holders of Subscription Rights, Conversion
Shares not subscribed for in the Subscription Offering are being offered in the
Direct Community Offering to members of the general public with preference given
first to Public Stockholders as of the close of business on the Voting Record
Date (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons who are permanent residents of the Local Community. It is anticipated
that shares not subscribed for in the Subscription Offering and Direct Community
Offering may be offered to certain members of
(iv)
<PAGE>
the general public in the Syndicated Community Offering. The Primary Parties
reserve the absolute right to reject or accept any orders in the Direct
Community Offering or the Syndicated Community Offering (if any), in whole or in
part, either at the time of receipt of an order or as soon as practicable
following the Expiration Date. The closing with respect to all shares sold in
the Conversion Offerings will occur simultaneously, and all Conversion Shares
will be sold at a uniform price of $20.00 per share.
The Primary Parties have retained Sandler O'Neill as their consultant and
advisor and to assist in soliciting subscriptions in the Conversion Offerings on
a best efforts basis. See "THE CONVERSION AND REORGANIZATION -- The
Subscription, Direct Community and Syndicated Community Offerings."
BENEFITS OF THE CONVERSION AND REORGANIZATION TO MANAGEMENT
GENERAL. The Savings Bank has existing stock benefit plans that were
implemented in connection with the MHC Reorganization and the Additional
Offering. The Savings Bank's 1993 Stock Option Plan ("1993 Stock Option Plan")
and the ESOP were implemented in connection with the MHC Reorganization. The
Savings Bank's 1996 Management Development and Recognition Plan ("1996 MRP") and
the Savings Bank's 1996 Stock Option Plan ("1996 Stock Option Plan") were
implemented in connection with the MHC Reorganization. These plans will be
assumed by the Holding Company upon consummation of the Conversion and
Reorganization. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits" for a
discussion of these existing plans. The following discussion relates to new
stock benefit plans that are expected to be implemented in connection with the
Conversion and Reorganization, as well as to employment agreements that will be
entered into with certain executive officers of the Holding Company and the
Savings Bank.
MRP. The Holding Company expects to seek stockholder approval of the
SouthBanc Shares, Inc. 1998 Management Recognition Plan ("1998 MRP"). The 1998
MRP will reserve a number of shares equal to 4% of the number of Conversion
Shares issued in the Conversion Offerings. 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 1998 MRP within one
year of the consummation of the Conversion and Reorganization. If stockholder
approval of the 1998 MRP is obtained, it is expected that awards of restricted
stock of up to 79,350 shares of Common Stock (based on the issuance of
Conversion Shares at the maximum of the Estimated Valuation Range) will be made
to key employees of the Holding Company and the Savings Bank at no cost to the
recipient. Although no specific award determinations have been made at this
time, the Holding Company and the Savings Bank anticipate that, if stockholder
approval is obtained it would provide awards to key employees. Under current
OTS regulations, if the 1998 MRP is implemented within one year of the
consummation of the Conversion and Reorganization, (i) no officer or employee
may receive an award covering in excess of 25% of the number of shares reserved
for issuance under the 1998 MRP, (ii) no nonemployee director may receive in
excess of 5% of the number of shares reserved for issuance under the 1998 MRP,
(iii) nonemployee directors, as a group, may not receive in excess of 30% of the
number of shares reserved for issuance under the 1998 MRP, and (iv) all awards
would be subject to vesting at a minimum rate of 20% per year. See "PRO FORMA
DATA" and "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Management Recognition
Plan."
STOCK OPTION PLAN. The Holding Company expects to seek stockholder
approval of the SouthBanc Shares, Inc. 1998 Stock Option Plan ("1998 Stock
Option Plan"). The 1998 Stock Option Plan will reserve a number of shares equal
to 10% of the number of Conversion Shares issued in the Conversion Offerings.
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 1998 Stock Option Plan within one year of the consummation
of the Conversion and Reorganization. If stockholder approval of the 1998 Stock
Option Plan is obtained, it is expected that options to acquire up to 198,375
shares of Common Stock of the Holding Company (based on the issuance of
Conversion Shares at the maximum of the Estimated Valuation Range) will be
awarded to key employees and directors of the Holding Company and the Savings
Bank. 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
Savings Bank anticipate that if stockholder approval is
(v)
<PAGE>
obtained it would provide awards to its directors, officers and employees to the
extent permitted by applicable regulations. Under current OTS regulations, if
the 1998 Stock Option Plan is implemented within one year of the consummation of
the Conversion and Reorganization, (i) no officer or employees may receive an
award of options covering in excess of 25% of the number of shares reserved for
issuance under the 1998 Stock Option Plan, (ii) no nonemployee director may
receive in excess of 5% of the number of shares reserved for issuance under the
1998 Stock Option plan, (iii) nonemployee directors, as a group, may not receive
in excess of 30% of the number of shares reserved for issuance under the 1998
Stock Option Plan, and (iv) all awards would be subject to vesting at a minimum
rate of 20% per year. 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 securities 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 SAVINGS BANK -- Benefits --
1998 Stock Option Plan."
EMPLOYMENT AGREEMENTS. The MHC and the Savings Bank maintain employment
agreements with Robert W. Orr (President and Managing Officer of the Savings
Bank and President and Chief Executive Officer of the Holding Company), Thomas
C. Hall (Senior Vice President and Treasurer of the Savings Bank and Treasurer
and Chief Financial Officer of the Holding Company) and Barry C. Visioli (Senior
Vice President of the Savings Bank and Secretary of the Holding Company) that
were entered into in connection with the MHC Reorganization. In connection with
the Conversion and Reorganization, the Holding Company and the Savings Bank will
enter into three-year employment agreements with Messrs. Orr, Hall and Visioli,
which have substantially the same terms as and will replace the existing
agreements. The agreements will provide certain benefits in the event of the
officers' termination of employment following a change in control of the Holding
Company or the Savings Bank. In the event of a change in control of the Holding
Company or the Savings Bank, as defined in the agreement, each executive officer
will be entitled to a package of cash and/or benefits with a maximum value 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
September 30, 1997, the aggregate value of the severance benefits payable to
Messrs. Orr, Hall and Visioli under the agreements would have been approximately
$583,000. See "MANAGEMENT OF THE SAVINGS BANK -- Executive Compensation --
Employment Agreements."
For information concerning the possible voting control of officers,
directors and employees following the Conversion and Reorganization, see "RISK
FACTORS -- Anti-takeover Considerations -- Voting Control by Insiders."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING CONVERSION SHARES
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), no prospectus will be mailed any later
than five days prior to the Expiration Date or hand delivered later than two
days prior to such date. Execution of the Order Form will confirm receipt of
the Prospectus in accordance with Rule 15c2-8. Order Forms will be distributed
only with a prospectus. The Primary Parties are not obligated to accept for
processing orders not submitted on original Order Forms. Order Forms
unaccompanied by an executed certification form will not be accepted. Payment
by check, money order, bank draft, cash or debit authorization to an existing
account at the Savings Bank must accompany the order and certification forms.
No wire transfers will be accepted. The Savings Bank is prohibited from lending
funds to any person or entity for the purpose of purchasing shares of Common
Stock in the Conversion. See "THE CONVERSION AND REORGANIZATION -- Procedure
for Purchasing Shares in the Subscription and Direct Community Offerings."
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 close of business on June 30, 1996
("Eligibility Record Date"), December 31, 1997 ("Supplemental Eligibility Record
Date") or the Voting Record Date (_________, 1998) and borrowers with loans
outstanding on October 26, 1993 which continue to be
(vi)
<PAGE>
outstanding as of the Voting Record Date must list all deposit and/or loan
accounts on the Order Form, giving all names on each account and the account
numbers. Failure to list all account numbers may result in the inability of the
Holding Company or the Savings Bank to fill all or part of a subscription order.
In addition, registration of shares in a name or title different from the names
or titles listed on the account may adversely affect such subscriber's purchase
priority. See "THE CONVERSION AND REORGANIZATION -- Procedure for Purchasing
Shares in the Subscription and Direct Community Offerings."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS
No person may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the Subscription Rights issued
under the Plan of Conversion or the Conversion Shares to be issued upon their
exercise. Each person exercising Subscription Rights will be required to
certify that a purchase of Conversion Shares is solely for the purchaser's own
account and that there is no agreement or understanding regarding the sale or
transfer of such shares. THE PRIMARY PARTIES WILL PURSUE ANY AND ALL LEGAL AND
EQUITABLE REMEDIES IN THE EVENT THEY BECOME AWARE OF THE TRANSFER OF
SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
PURCHASE LIMITATIONS
The Plan of Conversion provides for the following purchase limitations: (i)
no person may purchase in either the Subscription Offering, Direct Community
Offering or Syndicated Community Offering more than 50,000 Conversion Shares;
(ii) no person, together with associates of or persons acting in concert with
such person, may purchase in either the Subscription Offering, Direct Community
Offering or Syndicated Community Offering more than 50,000 Conversion Shares;
(iii) the maximum number of Conversion Shares which may be subscribed for or
purchased in all categories in the Conversion Offerings by any person, when
combined with any Exchange Shares received, shall not exceed 50,000 shares of
Common Stock to be issued in the Conversion and Reorganization; and (iv) the
maximum number of Conversion Shares which may be subscribed for or purchased in
all categories in the Conversion Offerings by any person, together with any
associate or any group of persons acting in concert, when combined with any
Exchange Shares received, shall not exceed 50,000 shares of Common Stock to be
issued in the Conversion and Reorganization. The minimum order is 25 Conversion
Shares. At any time during the Conversion Offerings, and without further
approval by the MHC members or the Public Stockholders, the Primary Parties, in
their sole discretion, may increase any of the purchase limitations to up to 5%
of the Conversion Shares issued in the Conversion and Reorganization. Under
certain circumstances, subscribers may be resolicited in the event of such an
increase and given the opportunity to increase, decrease or rescind their
orders. If there is an oversubscription in the Conversion Offerings, Conversion
Shares will be allocated as set forth in the Plan of Conversion. See "THE
CONVERSION AND REORGANIZATION -- The Subscription, Direct Community and
Syndicated Community Offerings," "-- Procedure for Purchasing Shares in the
Subscription and Direct Community Offerings" and "--Limitations on Purchases of
Conversion Shares." BECAUSE OTS POLICY REQUIRES THAT THE MAXIMUM PURCHASE
LIMITATION SET FORTH IN THE PLAN OF CONVERSION TAKE INTO ACCOUNT THE EXCHANGE
SHARES TO BE ISSUED TO THE PUBLIC STOCKHOLDERS FOR THEIR PUBLIC SAVINGS BANK
SHARES, CERTAIN PUBLIC STOCKHOLDERS MAY BE LIMITED IN THEIR ABILITY TO PURCHASE
CONVERSION SHARES, OR EVEN PREVENTED FROM PURCHASING CONVERSION SHARES.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION AND
REORGANIZATION
OTS regulations require the aggregate purchase price of the Conversion
Shares be consistent with the independent appraisal of the estimated pro forma
market value of the MHC and the Savings Bank, as converted, which was estimated
by RP Financial to range from $55.3 million to $74.8 million as of December 5,
1997, or from 2,765,481 shares to 3,741,533 shares based on the Purchase Price.
Because the Public Stockholders will continue to hold approximately the same
aggregate percentage ownership interest in the Holding Company as they held in
the Savings Bank before the Conversion and Reorganization, before giving effect
to the payment of cash in lieu of issuing fractional Exchange Shares and any
Conversion Shares purchased by the Public Stockholders in the Conversion
Offerings, the independent appraisal valuation was multiplied by 46.98% (which
represents the MHC's
(vii)
<PAGE>
percentage interest in the Savings Bank to determine the midpoint of the
Estimated Valuation Range, which is $65.1 million, or 3,253,507 shares based on
the Purchase Price). The full text of the independent appraisal describes the
procedures followed, the assumptions made, limitations on the review undertaken
and matters considered, which included but did not depend on the trading market
for the Savings Bank Common Stock (see "MARKET FOR COMMON STOCK"). The
appraisal will be updated or confirmed at the completion of the Conversion
Offerings. The maximum of the Estimated Valuation Range may be increased by up
to 15% and the number of Conversion Shares may be increased to 4,302,763 shares
due to material changes in the financial condition or results of operations of
the Savings Bank 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 Conversion Shares are less than the
minimum or more than 15% above the maximum of the current Estimated Valuation
Range. All Conversion Shares will be sold at the uniform Purchase Price ($20.00
per share), which was established by the Boards of Directors of the Primary
Parties. Any increase or decrease in the number of shares of Conversion Stock
will result in a corresponding change in the number of Exchange Shares, so that
upon consummation of the Conversion and Reorganization, the Conversion Shares
and the Exchange Shares will represent approximately 53.02% and 46.98%,
respectively, of the total outstanding shares of Common Stock. See "PRO FORMA
DATA" and "THE CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange Ratio
and Number of Shares to be Issued." 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 CONVERSION OFFERINGS NOR CAN ASSURANCE BE
GIVEN THAT PURCHASERS OF THE COMMON STOCK IN THE CONVERSION OFFERINGS WILL BE
ABLE TO SELL SUCH SHARES AFTER CONSUMMATION OF THE CONVERSION AND REORGANIZATION
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. A complete copy of
the appraisal is available in the manner set forth under "ADDITIONAL
INFORMATION."
Based on the 708,873 Public Savings Bank Shares outstanding at the date of
this Prospectus, and assuming a minimum of 1,466,250 and a maximum of 1,983,750
Conversion Shares are issued in the Conversion Offerings, the Exchange Ratio is
expected to range from approximately 1.83281 Exchange Shares to 2.47969 Exchange
Shares for each Public Savings Bank Share issued and outstanding immediately
prior to the consummation of the Conversion and Reorganization. The final
Exchange Ratio will be affected if any stock options to purchase shares of
Savings Bank Common Stock are exercised after the date of this Prospectus and
before the consummation of the Conversion and Reorganization. If any stock
options are outstanding immediately before the consummation of the Conversion
and Reorganization, they will be converted into options to purchase shares of
Common Stock, with the number of shares subject to the option and the exercise
price per share to be adjusted based upon the Exchange Ratio so that the
aggregate exercise price remains unchanged. The duration of the options will
also be unchanged. As of the date of this Prospectus, there were outstanding
options to purchase 63,100 shares of Savings Bank Common Stock at a weighted-
average exercise price of $24.14 per share. The Savings Bank has no plans to
grant additional stock options before the consummation of the Conversion and
Reorganization.
<TABLE>
<CAPTION>
Shares
Conversion Shares to Exchange Stock to of Common
Be Issued(1) Be Issued(1) Stock to be Exchange
--------------------- --------------------
Amount Percent Amount Percent Outstanding(1) Ratio(1)
---------- -------- --------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Minimum..... 1,466,250 53.02% 1,299,321 46.98% 2,765,481 1.83281
Midpoint.... 1,725,000 53.02 1,528,507 46.98 3,253,507 2.15625
Maximum..... 1,983,750 53.02 1,757,783 46.98 3,741,533 2.47969
15% above
Maximum.... 2,281,312 53.02 2,021,451 46.98 4,302,763 2.85164
</TABLE>
(viii)
<PAGE>
- -----------------
(1) Assumes that outstanding options to purchase 63,100 shares of Savings Bank
Common Stock at September 30, 1997 are not exercised before consummation of
the Conversion and Reorganization. However, assuming exercise, the
percentages represented by the Conversion Shares and the Exchange Shares
would be 50.89% and 49.11%, respectively, and the Exchange Ratio would be
1.75924, 2.06970, 2.38015, and 2.73717, at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range, respectively.
THE VALUE OF THE EXCHANGE SHARES TO BE RECEIVED FOR EACH PUBLIC SAVINGS BANK
SHARE MAY BE LESS THAN THE MARKET VALUE OF THE PUBLIC SAVINGS BANK SHARES AT THE
TIME OF EXCHANGE BASED ON THE FINAL EXCHANGE RATIO AND THE MARKET PRICE AT THE
TIME OF THE EXCHANGE.
DIFFERENCES IN STOCKHOLDER RIGHTS
The Holding Company is a Delaware corporation subject to the provisions of
the Delaware General Corporation Law ("DGCL"), and the Savings Bank is a
federally-chartered savings bank subject to federal laws and regulations. Upon
consummation of the Conversion and Reorganization, the Public Stockholders will
become stockholders of the Holding Company and their rights will be governed by
the Holding Company's Certificate of Incorporation and Bylaws and Delaware law,
rather than the Savings Bank's Federal Stock Charter and Bylaws, federal law and
OTS regulations. The rights of stockholders of the Savings Bank are materially
different in certain respects from the rights of stockholders of the Holding
Company. See "COMPARISON OF STOCKHOLDERS' RIGHTS" and "DESCRIPTION OF CAPITAL
STOCK OF THE HOLDING COMPANY."
USE OF PROCEEDS
The net proceeds from the sale of the Conversion Shares are estimated to
range from $29.3 million to $39.7 million, or to $45.6 million if the Estimated
Valuation Range is increased by 15%, depending upon the number of shares sold
and the expenses of the Conversion and Reorganization. The Holding Company has
received conditional OTS approval to purchase all of the capital stock of the
Savings Bank to be issued in the Conversion and Reorganization in exchange for
50% of the net proceeds of the Conversion Offerings. This will result in the
Holding Company retaining approximately $14.2 million to $19.3 million of the
net proceeds, or up to $22.2 million if the Estimated Valuation Range is
increased by 15%, and the Savings Bank receiving an equal amount. See "PRO
FORMA DATA."
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including, initially,
lending and investment in short-term U.S. Government and agency obligations and
mortgage-backed securities.
The proceeds retained by the Holding Company initially will be invested
primarily in short-term U.S. Government and agency obligations and mortgage-
backed securities. Such proceeds will be available for additional contributions
to the Savings Bank in the form of debt or equity, to support future growth and
diversification of 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 1998 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 also intends to use a portion of the net
proceeds retained by it to refinance the ESOP's third party loan, which had an
outstanding balance of $804,000 at September 30, 1997. See "PRO FORMA DATA."
The Holding Company may also consider exploring opportunities to use such
funds to expand operations through acquiring or establishing additional branch
offices and the acquisition of other financial institutions. In addition, the
Holding Company may consider exploring opportunities to expand into non-
traditional lines of business, such as securities brokerage, insurance agency
and real estate development activities, to the extent permitted by
(ix)
<PAGE>
applicable law. 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 "PERT" (the current symbol for
the Public Savings Bank Shares, which are listed on the Nasdaq SmallCap Market).
Sandler O'Neill has agreed to act as a market maker for the Common Stock
following consummation of the Conversion and Reorganization. No assurance can
be given that an active and liquid trading market for the Common Stock will
develop or, if developed, will be maintained. Further, no assurance can be
given that purchasers will be able to sell their shares at or above the Purchase
Price after the Conversion and Reorganization. See "RISK FACTORS -- Absence of
Prior Market for the Common Stock" and "MARKET FOR COMMON STOCK."
DIVIDEND POLICY
The Savings Bank's Board of Directors has adopted a policy of paying regular
cash dividends on the Public Savings Bank Shares. The MHC has waived receipt of
all cash dividends paid by the Savings Bank to date. See "MARKET FOR COMMON
STOCK" for additional information. The Board of Directors intends to declare
and pay a regular cash dividend for the first calendar quarter of 1998 to
holders of Savings Bank Common Stock. The MHC does not intend to waive receipt
of this dividend, in order to avoid the expense of obtaining regulatory approval
to waive the dividend. The record date for determining the holders of Savings
Bank Common Stock entitled to receive the dividend is expected to pre-date the
consummation of the Conversion and Reorganization. Consequently, dividends, if
any, would not be paid on the Common Stock until after the consummation of the
Conversion and Reorganization, and may not occur before the first full quarter
following the consummation of the Conversion and Reorganization.
Following consummation of the Conversion and Reorganization, the Holding
Company's Board of Directors intends to declare cash dividends on the Common
Stock at an initial quarterly rate equal to $0.35 per share divided by the final
Exchange Ratio, resulting in intended economic parity with the dividends
currently paid on the Public Savings Bank Shares. The first dividend on the
Common Stock is expected during the month following the end of the quarter in
which the Conversion and Reorganization is consummated. Based upon the
Estimated Valuation Range, the Exchange Ratio is expected to be 1.83281,
2.15625, 2.47969 and 2.85164 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, resulting in an initial
quarterly dividend rate of $0.19, $0.16, $0.14 and $0.12 per share,
respectively, following consummation of the Conversion and Reorganization.
Declarations of dividends by the Holding Company's Board of Directors will
depend upon a number of factors, including the amount of the net proceeds from
the Conversion Offerings retained by the Holding Company, investment
opportunities available to the Holding Company or the Savings Bank, capital
requirements, regulatory limitations, the Holding Company's and the Savings
Bank's financial condition and results of operations, tax considerations and
general economic conditions. Consequently, there can be no assurance that any
dividends will be paid on the Common Stock or that, if paid, such dividends will
not be reduced or eliminated in future periods. The Savings Bank intends to
continue to pay regular quarterly dividends through either the date of
consummation of the Conversion and Reorganization (on a pro rata basis) or the
end of the fiscal quarter during which the Conversion and Reorganization is
consummated. See "DIVIDEND POLICY."
OFFICERS' AND DIRECTORS' COMMON STOCK PURCHASES AND BENEFICIAL OWNERSHIP
At September 30, 1997, officers and directors of the Savings Bank (21
persons) beneficially owned 104,052 shares of Savings Bank Common Stock. See
"MANAGEMENT OF THE SAVINGS BANK -- Beneficial Ownership of Savings Bank Common
Stock by Directors and Executive Officers." Such shares of Savings Bank Common
Stock will be exchanged for Exchange Shares based on the final Exchange Ratio.
In addition to receipt of such Exchange
(x)
<PAGE>
Shares, officers and directors as a group (21 persons) are expected to subscribe
for an aggregate of approximately 51,925 Conversion Shares, or approximately
3.5% and 2.6% of the shares based on the minimum and the maximum of the
Estimated Valuation Range, respectively. See "CONVERSION SHARES TO BE PURCHASED
BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS" for a discussion of the
anticipated number Exchange Shares to be received by directors and officers and
the anticipated number of Conversion Shares to be subscribed for by such
persons.
Upon consummation of the Conversion and Reorganization, directors, officers
and employees of the Holding Company and the Savings Bank would have voting
control, on a fully diluted basis, of 22.6% and 22.1% of the Common Stock, based
on the issuance of the minimum and maximum of the Estimated Valuation Range,
respectively. These percentages include the anticipated number of Exchange
Shares to be received and the anticipated number of Conversion Shares to be
purchased by such individuals, as well as allocation to participants' accounts
of all shares of Common Stock that will be held by the ESOP, the exercise of all
options under the 1993, 1996 and 1998 Stock Option Plans, and the funding of the
1996 and 1998 MRPs with Common Stock purchased in the open market. See "RISK
FACTORS -- Anti-takeover Considerations -- Voting Control by Insiders."
RISK FACTORS
See "RISK FACTORS" beginning on page 1 for a discussion of certain risks
related to the Conversion and Reorganization that should be considered by all
prospective investors.
(xi)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Savings
Bank and its subsidiaries at the dates and for the periods indicated. 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.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------
1997 1996 1995 1994 1993
--- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.......................................... $256,993 $209,827 $178,304 $171,533 $168,308
Cash and interest-bearing deposits.................... 13,499 13,585 6,630 8,700 5,797
Investment in limited partnership(1).................. 5,004 -- -- -- --
Investment securities available for sale.............. 11,326 2,494 800 299 --
Mortgage-backed securities available for sale......... 35,863 43,125 46,344 50,064 12,742
Mortgage-backed securities held for investment........ -- -- -- -- 45,935
Loans receivable, net................................. 178,772 140,758 116,539 104,852 97,004
Deposits.............................................. 201,002 160,244 148,709 143,380 143,871
Borrowings............................................ 15,000 16,000 8,000 10,500 8,500
Stockholders' equity.................................. 30,602 29,091 18,232 14,637 13,921
At September 30,
--------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
SELECTED OPERATING DATA:
Interest income....................................... $ 18,396 $ 14,921 $ 13,543 $ 12,075 $ 12,034
Interest expense...................................... 9,496 7,425 8,761 5,624 6,184
-------- -------- -------- -------- --------
Net interest income................................... 8,900 7,496 4,782 6,451 5,850
Provision for loan losses............................. 655 349 362 120 364
-------- -------- -------- -------- --------
Net interest income after provision for loan losses... 8,245 7,147 4,420 6,331 5,486
Other income.......................................... 1,855 1,927 3,231 1,565 1,613
General and administrative expenses................... 7,446 6,894 5,540 4,749 4,414
-------- -------- -------- -------- --------
Income before income taxes, change in accounting
method, and extraordinary item....................... 2,654 2,180 2,111 3,147 2,685
Income taxes.......................................... 926 756 194 1,064 947
-------- -------- -------- -------- --------
Income before change in method of
accounting for income taxes.......................... 1,728 1,424 1,917 2,083 1,738
Cumulative effect of change in method of
accounting for income taxes.......................... -- -- -- 350 --
-------- -------- -------- -------- --------
Net income............................................ $ 1,728 $ 1,424 $ 1,917 $ 2,433 $ 1,738
======== ======== ======== ======== ========
</TABLE>
(footnotes on second following page)
(xii)
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Earnings per share(2):
Before cumulative effect of change in
accounting for income taxes............ $ 1.15 $ 0.95 $ 1.27 $ 1.39 N/A
Cumulative effect of change in
accounting for income taxes............ $ -- $ -- $ -- $ .23 N/A
---------- ---------- ---------- ----------
Net income.............................. $ 1.15 $ 0.95 $ 1.27 $ 1.62 N/A
========== ========== ========== ==========
Dividends per share(3).................... $ 1.35 $ 1.20 $ 1.05 $ 0.76 N/A
========== ========== ========== ==========
Weighted average shares outstanding....... 1,505,432 1,504,601 1,504,059 1,502,418 N/A
Year Ended September 30,
-----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
SELECTED OTHER DATA:
Number of:
Real estate loans outstanding............ 3,446 2,653 2,846 2,889 3,423
Deposit accounts......................... 32,361 26,135 21,490 16,676 16,735
Full-service offices..................... 6 5 5 4 3
</TABLE>
(footnotes on following page)
(xiii)
<PAGE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS:
At or For the
Year Ended September 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income divided by
average assets)................................... 0.72% 0.75% 0.92% 1.20%(4) 1.03%
Return on average equity (net income divided by
average equity)................................... 5.78 7.40 11.88 13.84(4) 13.36
Average equity to average assets................... 12.54 10.16 7.77 8.61 7.75
Interest rate spread (difference between yield
on interest-earning assets and average cost of
interest-bearing liabilities for the period)(5)... 3.57 3.85 3.61 3.54 3.26
Net interest margin (net interest income as a
percentage of average interest-earning assets
for the period)(5)................................ 3.96 4.16 2.90 3.86 3.59
Dividend payout ratio(3)........................... 117.39 126.32 82.68 46.91 N/A
Non-interest expense to average assets............. 3.20 3.72 2.74 2.74 2.63
Average interest-earning assets to average
interest-bearing liabilities...................... 109.36 107.69 86.56 109.36 108.66
Asset Quality Ratios:
Allowance for loan losses to total loans
at end of period................................. 1.04 1.08 1.08 0.92 0.91
Net charge-offs to average outstanding loans
during the period................................. 0.18 0.07 0.04 0.04 0.06
Ratio of non-performing assets to total assets..... 0.20 0.38 0.33 0.73 0.82
Capital Ratios:
Average equity to average assets................... 12.54 10.16 7.77 8.61 7.75
- ----------------------------
</TABLE>
(1) Represents a 20.625% equity investment in a limited partnership that
invests in mortgage servicing rights. See "BUSINESS OF THE SAVINGS BANK --
Lending Activities -- Loan Purchases and, Sales and Servicing" and Note 3
of Notes to Consolidated Financial Statements.
(2) The Savings Bank was not a public company before fiscal 1994.
(3) Takes into account dividends waived by the MHC. All dividends to the MHC
have been waived since the first quarter of fiscal 1994. See Note 18 of
Notes to Consolidated Financial Statements. The dividend payout ratio
based only on dividends actually paid to Public Stockholders was 55.19%,
22.40%, 6.53% and 3.71% for the years ended September 30, 1997, 1996, 1995
and 1994, respectively.
(4) Excludes the effect of the one-time change in method of accounting for
income taxes in fiscal 1994. Return on assets and return on average equity
were 1.40% and 16.16%, respectively.
(5) Excludes income on mutual funds totalling approximately $1.7 million in
fiscal 1995, which was reported as gains on sale and included in other
income.
(xiv)
<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.
CERTAIN LENDING RISKS
PURCHASED LOAN RISKS. The Savings Bank actively purchases loans, other
than consumer and commercial business loans. At September 30, 1997, purchased
loans totalled $25.2 million and consisted of one- to four-family mortgage loans
($19.6 million), construction loans ($4.1 million) and commercial real estate
loans ($1.5 million). Such loans have been purchased primarily from a mortgage
company located in Hilton Head Island, South Carolina ($7.2 million), and a
mortgage banking company located in Greenville, South Carolina ($17.5 million),
in which a service corporation subsidiary of the Savings Bank has an equity
investment. See "BUSINESS OF THE SAVINGS BANK -- Subsidiary Activities." For
the year ended September 30, 1997, the Savings Bank's purchases of one- to four-
family mortgage loans exceeded originations by approximately 25.5%. See
"BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Loan Purchases and Sales
and Servicing." The Savings Bank expects that future loans will be purchased
primarily from the Greenville-based mortgage banking company because of
increasing competition in the Hilton Head Island market.
In addition to the lending risks discussed below, purchased loans have
added risk because they are originated by a third party to borrowers residing,
and secured by properties located, outside of the Savings Bank's primary market
area. Purchased loans are also more difficult to underwrite and monitor because
of the Savings Bank's unfamiliarity with the economy in which the properties are
located relative to the economy of its primary market area, the higher
probability of lack of personal contact with the borrower, and the distant
location of the collateral, among other things. Furthermore, loans secured by
properties located in an area whose economy is heavily dependent on tourism,
such as Hilton Head Island, South Carolina, are subject to greater risk because
economic downturns often have a greater adverse impact on tourism. See
"BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Commercial Real Estate
Lending."
COMMERCIAL REAL ESTATE LENDING RISKS. At September 30, 1997, the Savings
Bank's commercial real estate loan portfolio amounted to $27.0 million, or 15.1%
of net loans receivable, compared to $2.6 million, or 2.7% of net loans
receivable, at September 30, 1993. Commercial real estate lending is inherently
riskier than one- to four-family mortgage lending. Because payments on loans
secured by commercial properties often depend upon 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, among other things. See
"BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Commercial Real Estate
Loans."
CONSUMER LENDING RISKS. At September 30, 1997, the Savings Bank's consumer
loan portfolio amounted to $19.2 million, or 10.7% of net loans receivable.
Consumer lending is also inherently riskier than one- to four-family mortgage
lending. Collateral such as automobiles, boats and other personal property
depreciate rapidly and are often an inadequate repayment source if a borrower
defaults. In addition, consumer loan repayments depend on the borrower's
continuing financial stability and are more likely to be adversely affected by
job loss, divorce, illness, personal bankruptcy and other financial hardship.
See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Consumer Loans."
CONSTRUCTION LENDING RISKS. At September 30, 1997, the Savings Bank's
construction loan portfolio amounted to $17.1 million, or 9.6% of net loans
receivable, of which $6.4 million consisted of speculative construction loans.
Speculative construction loans are so named because there is not a commitment
for permanent financing in place at the time the construction loan is
originated.
Construction lending is inherently riskier than one- to four-family
mortgage lending. Construction loans generally have higher loan balances than
one- to four-family mortgage loans. In addition, the potential for cost
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overruns because of the inherent difficulties in estimating construction costs
and, therefore, collateral values and the difficulties and costs associated with
monitoring construction progress, among other things, are major contributing
factors to this greater credit risk. Speculative construction loans have the
added risk that there is not an identified buyer for the completed home when the
loan is originated, with the risk that the builder will have to service the
construction loan debt and finance the other carrying costs of the completed
home for an extended time period until a buyer is identified. Furthermore, the
demand for construction loans and the ability of construction loan borrowers to
service their debt depends highly on the state of the general economy, including
market interest rate levels, and the state of the economy of the Savings Bank's
primary market area. A material downturn in economic conditions would be
expected to have a material adverse effect on the credit quality of the
construction loan portfolio. See "BUSINESS OF THE SAVINGS BANK -- Lending
Activities -- Construction Loans."
COMMERCIAL BUSINESS LENDING RISKS. At September 30, 1997, the Savings
Bank's commercial business loan portfolio amounted to $7.2 million, or 4.0% of
net loans receivable. Subject to market conditions and other factors, the
Savings Bank intends to expand its commercial business lending activities within
its primary market area. Commercial business lending is inherently riskier than
one- to four-family mortgage lending. Although commercial business loans are
often collateralized by equipment, inventory, accounts receivable or other
business assets, the liquidation value of these assets 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. See "BUSINESS OF THE SAVINGS BANK --
Lending Activities -- Commercial Business Loans."
GEOGRAPHIC CONCENTRATION OF CREDIT AND INVESTMENT RISK. The Savings Bank
has no significant concentration of credit and investment risk other than that a
substantial portion of its loan portfolio is secured by real estate, either as
primary or secondary collateral, located in its primary market area. In
addition to its lending activities, the Savings Bank, through its investment in
a service corporation subsidiary, engages in commercial and residential property
development in its primary market area. See "BUSINESS OF THE SAVINGS BANK --
Subsidiary Activities." This geographic concentration of credit and investment
risk could have a material adverse effect on the Savings Bank's financial
condition and results of operations to the extent there is a material
deterioration in that area's economy and real estate values. See "BUSINESS OF
THE SAVINGS BANK -- Lending Activities."
INTEREST RATE RISK
GENERAL. The financial condition and operations of the Savings Bank, and
of savings institutions in general, are influenced significantly by general
economic conditions, by the related monetary and fiscal policies of the federal
government and by the regulations of the OTS and the FDIC. 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 Savings Bank'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 Savings Bank 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,
commercial business and consumer loans.
POTENTIAL ADVERSE IMPACT ON RESULTS OF OPERATIONS. The Savings Bank's
operations would be adversely affected by a material prolonged increase in
market interest rates. At September 30, 1997, assuming an instantaneous 200
basis point increase in market interest rates, the Savings Bank's net portfolio
value ("NPV") would decrease by approximately $6.7 million or 17%. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Interest Rate Sensitivity Analysis of Net Portfolio Value."
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POTENTIAL ADVERSE IMPACT ON FINANCIAL CONDITION. Changes in the level of
interest rates also affect the volume of loans originated or purchased by the
Savings Bank and, thus, the amount of loan and commitment fees, as well as the
market value of the Savings Bank'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 Savings Bank 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 September 30, 1997, out of total one-to four-family mortgage loans of
$110.6 million, the Savings Bank had $45.6 million of ARM loans in its
portfolio, the majority of which reprice every year. Furthermore, the Savings
Bank'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 Savings Bank 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 Savings Bank'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.
Changes in the level of interest rates also affect the Savings Bank's
portfolio of mortgage-backed securities and CMOs. Payments in the Savings
Bank's mortgage-backed securities and CMO portfolios may be affected by
declining and rising interest rate environments. In a low and falling interest
rate environment, prepayments could be expected to increase in future periods.
The Savings Bank's adjustable-rate instruments would be expected to generate
lower yields as a result of the effect of falling interest rates on the indices
for determining payment of interest. Additionally, the increased principal
payments received may be subject to reinvestment at lower rates. Conversely, in
a period of rising interest rates, prepayments would be expected to decrease,
which would make less principal available for reinvestment at higher rates. In
a rising interest rate environment, adjustable-rate instruments generally would
generate higher yields to the extent that the indices for determining payment of
interest did not exceed the lifetime interest rate caps. Such changing interest
rate environment may subject the Savings Bank's mortgage-backed securities and
CMO portfolios to yield and price volatility.
The Savings Bank has an equity investment in a limited partnership that
invests in mortgage servicing rights. The value of that investment was $5.0
million at September 30, 1997. See "BUSINESS OF THE SAVINGS BANK -- Lending
Activities -- Equity Investment in Limited Partnership" for additional
information. The value of this investment would be adversely affected if the
mortgage servicing rights were prematurely extinguished by the prepayment of the
underlying loans. A decrease in market interest rates could be expected to
increase the rate of prepayments as borrowers refinance at lower interest rates.
In that event, the Savings Bank may be required to accelerate its amortization
of this investment, or even write-off the full value of the investment in a
given period, which would have a material adverse effect on the Savings Bank.
COMPETITION
The Savings Bank faces significant competition in its primary market area
(Anderson and Oconee Counties, South Carolina) both in making loans and
attracting deposits. Both counties have a high density of financial
institutions, many of which are branches of Southeastern region bank holding
companies which have greater financial resources than the Savings Bank, all of
which compete with the Savings Bank in varying degrees. The Savings Bank
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competes for loans principally with commercial banks, thrift institutions,
credit unions, mortgage banking companies and insurance companies.
Historically, commercial banks, thrift institutions and credit unions have been
the Savings Bank's most direct competition for deposits. The Savings Bank also
competes with short-term money market funds and with other financial
institutions, such as brokerage firms and insurance companies, for deposits.
See "BUSINESS OF THE SAVINGS BANK -- Competition."
ESTIMATED VALUATION RANGE BELOW MARKET VALUE
OTS policy requires that the final Exchange Ratio be determined based on
the number of shares issued in the Conversion Offering in order to maintain the
Public Stockholders' approximate 46.98% ownership interest in the Savings Bank.
THE FINAL EXCHANGE RATIO WILL NOT BE BASED ON THE MARKET VALUE OF THE PUBLIC
SAVINGS BANK SHARES. Based on the Purchase Price ($20.00 per share) and the
Exchange Ratio, an Exchange Share has an equivalent value of $36.66, $43.13,
$49.59 and $57.03 at the minimum, midpoint, maximum, and maximum, as adjusted,
of the Estimated Valuation Range, respectively. As of _________ ____, 1998, the
last trade in the Public Savings Bank Shares as reported by the Nasdaq Stock
Market was at $____ per share. There can be no assurance as to the market price
of a Public Savings Bank Shares at the consummation of the Conversion and
Reorganization. See "THE CONVERSION AND REORGANIZATION -- Stock Pricing,
Exchange ratio and Number of Shares to be Issued."
RETURN ON EQUITY AFTER CONVERSION AND REORGANIZATION
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 Savings Bank's return
on equity for the year ended September 30, 1997 was, and the Holding Company's
post-Conversion and Reorganization 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 Savings Bank'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 and
Reorganization. In order for the Holding Company to achieve a return on equity
comparable to the historical levels of the Savings Bank, the Holding Company
either would have to increase net income or reduce stockholders' equity, or
both, commensurate with the increase in equity resulting from the Conversion and
Reorganization. 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 Savings Bank 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 1996 and 1998 MRPs
(see "-- Expenses Associated with MRP"), along with other post-Conversion and
Reorganization expenses are expected to contribute initially to reduced earnings
levels. Subject to market conditions, initially the Savings Bank intends to
deploy the net proceeds of the Conversion Offerings to support its lending
activities to increase earnings per share and book value per share, 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, many of which are not newly converted
institutions and have had time to deploy their conversion capital.
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EXPENSES ASSOCIATED WITH MRP
In addition to the expense that the Savings Bank will recognize in
connection with the 1996 MRP as shares awarded to recipients vest, the Savings
Bank will recognize material employee compensation and benefit expenses assuming
the 1998 MRP is implemented. The actual aggregate amount of these new expenses
cannot be currently predicted because applicable accounting practices require
that they be based on the fair market value of the shares of Common Stock when
the expenses are recognized, which would occur at a future date on which the
shares are acquired. These expenses have been reflected in the pro forma
financial information under "PRO FORMA DATA" assuming the Purchase Price ($20.00
per share) as fair market value. Actual expenses, however, will be based on the
fair market value of the Common Stock at the time of recognition, which may be
higher or lower than the Purchase Price. See "MANAGEMENT OF THE SAVINGS BANK --
Benefits -- Management Recognition Plan."
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 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 may
preclude takeover attempts that certain stockholders may deem to be in their
best interest and may 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 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 and Reorganization the ownership of more than 10% of the Savings Bank
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. 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 may deem to be in
their best interest and might tend to perpetuate existing management. Upon
consummation of the Conversion and Reorganization, directors, officers and
employees of the Holding Company and the Savings Bank would have voting control,
on a fully diluted basis, of 22.6% and 22.1% of the Common Stock, based on the
issuance of the minimum and maximum of the Estimated Valuation Range,
respectively. These percentages include the anticipated number of Exchange
Shares to be received and the anticipated number of Conversion Shares to be
purchased by such individuals (see "CONVERSION SHARES TO BE PURCHASED BY
MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS"), as well as allocation to
participants' accounts of all shares of Common Stock that will be held by the
ESOP, the exercise of all options under the 1993, 1996 and 1998 Stock Option
Plans, and the funding of the 1996 and 1998 MRPs with Common Stock purchased in
the open market. See "MANAGEMENT OF THE SAVINGS BANK -- Benefits" for a
discussion of the ESOP, 1993, 1996 and 1998 Stock Option Plans, and the 1996 and
1998 MRPs.
PROVISIONS OF EMPLOYMENT AGREEMENTS. The employment agreements of Messrs.
Orr, Hall and Visioli provide for cash severance payments and/or the
continuation of health, life and disability benefits in the event of their
termination of employment following a change in control of the Holding Company
or the Savings Bank. Assuming a change of control occurred as of September 30,
1997, the aggregate value of the severance benefits available to
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these executive officers under the agreements would have been approximately
$583,000. These employment agreements may have the effect of increasing the
costs of acquiring the Holding Company, thereby discouraging future attempts to
take over the Holding Company or the Savings Bank.
See "MANAGEMENT OF THE SAVINGS BANK -- Benefits," "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY" and "DESCRIPTION OF CAPITAL STOCK OF THE
HOLDING COMPANY."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
The exercise of options under the 1993 and 1996 Stock Option Plans and the
1998 Stock Option Plan (assuming its implementation) will be dilutive to
stockholders. Furthermore, the implementation of the 1998 MRP will also be
dilutive to stockholders to the extent its is funded with authorized but
unissued shares of Common Stock of the Holding Company. Assuming the exercise
of all outstanding options under the 1993, 1996 and 1998 Stock Option Plans and
the funding of the 1998 MRP with authorized but unissued shares of Common Stock
of the Holding Company, the voting control of stockholders of the Holding
Company would be diluted by 10.4% at each of the minimum, midpoint, maximum, and
maximum, as adjusted, of the Estimated Valuation Range. See "MANAGEMENT OF THE
SAVINGS BANK -- Benefits" for a discussion of these stock benefit plans.
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. Prior to the Conversion and
Reorganization, the Public Savings Bank Shares have been listed on the Nasdaq
Smallcap Market under the symbol "PERT." Although the Holding Company has
received conditional approval to list the Common Stock on the Nasdaq National
Market also under the same symbol, there can be no assurance that an active and
liquid trading market for the Common Stock will develop or, if 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 VALUATION RANGE AND NUMBER OF SHARES ISSUED
The Estimated Valuation Range may be increased up to 15% to reflect
material changes in the financial condition or results of operations of the
Savings Bank or changes in market conditions or general financial, economic or
regulatory conditions following the commencement of the Conversion Offerings.
If the Estimated Valuation Range is increased, it is expected that the Holding
Company would increase the Estimated Price Range so that up to 2,281,312
Conversion Shares at the Purchase Price would be issued for an aggregate price
of up to $45.6 million. This increase in the number of shares would decrease a
subscriber's pro forma net income 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 income per share. See "PRO FORMA DATA."
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 Savings Bank 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 Savings Bank 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 Savings
Bank 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 AND REORGANIZATION --Effects of Conversion and
Reorganization on Depositors and Borrowers of the Savings Bank -- Tax Effects."
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USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $29.3 million to $39.7 million, or up to $45.6 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
Savings Bank to be issued in the Conversion and Reorganization in exchange for
50% of the net proceeds of the Conversion Offerings. This will result in the
Holding Company retaining approximately $14.2 million to $19.3 million of net
proceeds, or up to $22.2 million if the Estimated Valuation Range is increased
by 15%, and the Savings Bank receiving an equal amount. See "PRO FORMA DATA."
Receipt of 50% of the net proceeds of the sale of the Common Stock will
increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including, initially,
lending and investment in short-term U.S. Government and agency obligations and
mortgage-backed securities.
The net proceeds retained by the Holding Company initially will be invested
primarily in short-term U.S. Government and agency obligations and mortgage-
backed securities or in a deposit account either at the Savings Bank or another
financial institution. Such proceeds will be available for additional
contributions to the Savings Bank 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 also use a portion of the net proceeds retained by it to
refinance the ESOP's third party loan, which had an outstanding balance of
$804,000 at September 30, 1997. See "PRO FORMA DATA."
The Holding Company will consider exploring opportunities to use such funds
to expand operations through acquiring or establishing additional branch offices
or acquiring other financial institutions. In addition, the Holding Company may
consider exploring opportunities to expand into non-traditional lines of
business, such as securities brokerage, insurance agency and real estate
development activities, to the extent permitted by applicable law. Currently,
there are no specific plans, arrangements, agreements or understandings, written
or oral, regarding any diversification activities.
Following consummation of the Conversion and Reorganization, the
Holding Company's 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 Savings Bank 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 Savings Bank'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 with respect thereto, see "THE
CONVERSION AND REORGANIZATION -- Restrictions on Repurchase of Stock."
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DIVIDEND POLICY
GENERAL
The Savings Bank's Board of Directors has adopted a policy of paying
regular cash dividends on the Public Savings Bank Shares. The MHC has waived
receipt of all cash dividends paid by the Savings Bank to date. See "MARKET FOR
COMMON STOCK" for additional information. The Board of Directors intends to
declare and pay a regular cash dividend for the first calendar quarter of 1998
to holders of Savings Bank Common Stock. The MHC does not intend to waive
receipt of this dividend in order to avoid the expense obtaining regulatory
approval to waive the dividend. The record date for determining the holders of
Savings Bank Common Stock entitled to receipt of the dividend is expected to
pre-date the consummation of the Conversion and Reorganization. Consequently,
dividends, if any, would not be paid on the Common Stock until after the
consummation of the Conversion and Reorganization, and may not occur before the
first full quarter following the consummation of the Conversion and
Reorganization.
Upon completion of the Conversion and Reorganization, the Holding Company's
Board of Directors will have the authority to declare dividends on the Common
Stock, subject to statutory and regulatory requirements. The Board of Directors
of the Holding Company intends to pay cash dividends on the Common Stock at an
initial quarterly rate equal to $0.35 per share divided by the final Exchange
Ratio, resulting in intended economic parity with the dividends currently paid
on the Public Savings Bank Shares. The first dividend payment on the Common
Stock is expected during the month following the end of the quarter in which the
Conversion and Reorganization is consummated. Based upon the Estimated
Valuation Range, the Exchange Ratio is expected to be 1.83281, 2.15625, 2.47969
and 2.85164 at the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range, respectively, resulting in an initial quarterly dividend
rate of $0.19, $0.16, $0.14 and $0.12 per share, respectively, commencing with
the first full quarter following consummation of the Conversion and
Reorganization. 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 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 Savings Bank to the Holding Company discussed below. 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 Savings Bank because the Holding Company initially will have
no source of income other than dividends from the Savings Bank and earnings from
the investment of the net proceeds from the Conversion Offerings retained by the
Holding Company. OTS regulations require the Savings Bank to give the OTS 30
days' advance notice of any proposed declaration of dividends 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 Savings Bank 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
Savings Bank 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 Savings Bank 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
Savings Bank below the amount required for the liquidation account to be
established pursuant to the Savings Bank's Plan of Conversion. See "REGULATION
- -- Federal Regulation of the Savings Bank -- Limitations on Capital
Distributions," "THE CONVERSION AND
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REORGANIZATION -- Effects of Conversion and Reorganization on Depositors and
Borrowers of the Savings Bank -- Liquidation Account" and Note 12 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.
The Holding Company has committed to the OTS not to make any tax-free
distributions to stockholders in the form of a return of capital, or take any
preliminary action in contemplation of any such distributions, within the first
year following the consummation of the Conversion.
TAX CONSIDERATIONS
In addition to the foregoing, retained earnings of the Savings Bank
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by the Savings Bank to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Savings Bank 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 11 of Notes to the Consolidated
Financial Statements included elsewhere herein. The Holding Company does not
contemplate any distribution by the Savings Bank that would result in a
recapture of the Savings Bank'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 preliminary approval to list the Common Stock on the Nasdaq National
Market System under the symbol "PERT," 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 three market makers and
a minimum number of record holders. Sandler O'Neill has agreed to make a market
for the Common Stock following consummation of the Conversion and Reorganization
and will assist the Holding Company in seeking to encourage at least two
additional market makers 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.
Based on the level of market making in the Public Savings Bank Shares, the
Holding Company anticipates that prior to the completion of the Conversion and
Reorganization it will be able to obtain the commitment from at least two
additional broker-dealers 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 Savings Bank 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.
Since September 30, 1996 (the consummation date of the Additional
Offering), the Public Savings Bank Shares have been listed on the Nasdaq
SmallCap Market under the symbol "PERT." Before that date, the Public Savings
Bank Shares were unlisted and traded in privately negotiated transactions. At
September 30, 1997, there were 294 record holders of the Public Savings Bank
Shares (not including holders in nominee or "street name") and four market
makers in the Public Savings Bank Shares as reported by the Nasdaq Stock Market.
The following table sets forth the high and low trading prices, as reported by
Nasdaq, and cash dividends paid for each quarter during the fiscal 1997. Market
price data for fiscal 1996 is not presented because the Public Savings Bank
Shares traded
9
<PAGE>
in private transactions for which comparable data is unavailable. The Savings
Bank paid a quarterly cash dividend of $0.30 on the outstanding Public Savings
Bank Shares during fiscal 1996.
<TABLE>
<CAPTION>
Cash Dividend
Fiscal 1997 High Low Declared
- ----------- ------ ------ -------------
<S> <C> <C> <C>
Quarter Ended December 31, 1996.... $24.25 $20.25 $0.30
Quarter Ended March 31, 1997....... 26.50 22.50 0.35
Quarter Ended June 30, 1997........ 29.75 24.00 0.35
Quarter Ended September 30, 1997... 57.00 30.25 0.35
</TABLE>
10
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Savings
Bank at September 30, 1997, 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 Conversion Shares at the
minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation
Range. The Conversion Shares that would be issued at the maximum, as adjusted,
of the Estimated Valuation Range would be subject to receipt of OTS approval of
an updated appraisal confirming such valuation. A CHANGE IN THE NUMBER OF
CONVERSION SHARES TO BE ISSUED IN THE CONVERSION AND REORGANIZATION WOULD
MATERIALLY AFFECT PRO FORMA CONSOLIDATED CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company Pro Forma Consolidated Capitalization
Based Upon the Sale of
Savings --------------------------------------------------------------
Bank 1,466,250 1,725,000 1,983,750 2,281,312
Capitalization Shares at Shares at Shares at Shares at
at $20.00 $20.00 $20.00 $20.00
September 30, 1997 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
------------------ ------------ ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3).......................... $201,002 $ 201,002 $ 201,002 $ 201,002 $ 201,002
FHLB advances........................ 15,000 15,000 15,000 15,000 15,000
ESOP debt(4)......................... 804 804 804 804 804
-------- ---------- ---------- ---------- ----------
Total deposits and borrowed funds.... $216,806 $ 216,806 $ 216,806 $ 216,806 $ 216,806
======== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock:
250,000 shares, $.01 par
value per share, authorized;
none issued or outstanding...... -- -- -- -- --
Common Stock:
7,500,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(5).................. 1,509 14 17 20 23
Additional paid-in capital........ 11,652 41,482 46,574 51,665 57,525
Retained earnings(6).............. 18,382 18,382 18,382 18,382 18,382
Unrealized loss on securities
available-for-sale, net of tax... 188 188 188 188 188
Less:
Savings Bank Common Stock
acquired by ESOP in MHC
Reorganization and
Additional Offering............ (804) (804) (804) (804) (804)
Common Stock to be acquired
by 1996 MRP(7)................. (325) (938) (938) (938) (938)
Common Stock to be acquired
by 1998 MRP(8)................. -- (1,173) (1,380) (1,587) (1,825)
-------- ---------- ---------- ---------- ----------
Total stockholders' equity........... $ 30,602 $ 57,151 $ 62,039 $ 66,927 $ 72,551
======== ========== ========== ========== ==========
</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 results of
operations of the Savings Bank or changes in market conditions or
general financial, economic and regulatory conditions, or the issuance
of additional shares under the 1998 Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding
Company if the aggregate number of Conversion Shares issued in the
Conversion and Reorganization 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 Conversion Shares
are not reflected. Such withdrawals will reduce pro forma deposits by
the amounts thereof.
(4) Represents outstanding balance on third party loan used by ESOP to
acquire shares of Savings Bank Common Stock in the MHC Reorganization
and the Additional Offering.
(5) The Savings Bank'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 and Reorganization.
(6) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Savings Bank 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 Eligible Account Holders and Supplemental Eligible Account
Holders at the consummation of the Conversion and Reorganization and
adjusted downward thereafter as such account holders reduce their
balances or cease to be depositors. See "THE CONVERSION AND
REORGANIZATION -- Effects of Conversion and Reorganization on Depositors
and Borrowers of the Savings Bank -- Liquidation Account."
(7) Pro forma consolidated capitalization reflects funding of remaining
shares authorized for awards under the 1996 MRP through open market
purchases of Common Stock.
(8) Assumes the purchase in the open market at the Purchase Price, pursuant
to the proposed 1998 MRP, of a number of shares equal to 4% of the
shares of Conversion Shares issued in the Conversion and Reorganization
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range. The issuance of such additional Conversion
Shares from authorized but unissued shares of Common Stock would dilute
the ownership interest of stockholders by 2.08%. 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 SAVINGS BANK -- Benefits -- Management Recognition
Plan." The 1998 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 and Reorganization.
12
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Savings Bank's historical and pro forma
capital position relative to its capital requirements at September 30, 1997. The
amount of capital infused into the Savings Bank for purposes of the following
table is 50% of the net proceeds of the Conversion Offering. For purposes of the
table below, the cost of the shares acquired by the 1996 MRP (completed
subsequent to September 30, 1997), and expected to be acquired by the 1998 MRP
is 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 OTS capital regulations as
discussed under "REGULATION -- Federal Regulation of the Savings Bank -- Capital
Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1997
------------------------------------------------------------------------------
15% above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
----------------- ----------------- ----------------- ------------------
1,466,250 1,725,000 1,983,750 2,281,312
Conversion Shares Conversion Shares Conversion Shares Conversion Shares
at $20.00 Per at $20.00 Per at $20.00 Per at $20.00 Per
September 30, 1997 Share Share Share Share
------------------ ---------------- ----------------- ------------------ -------------------
Percent Percent Percent Percent Percent
of of of of of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(2).............. $30,602 11.91% $41,811 15.59% $43,945 16.26% $46,078 16.91% $48,533 17.65%
Tangible capital(2).......... 27,321 10.71 38,530 14.47 40,664 15.15 42,797 15.82 45,252 16.58
Tangible capital requirement. 3,825 1.50 3,994 1.50 4,026 1.50 4,058 1.50 4,094 1.50
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess....................... $23,496 9.21% $34,536 12.97% $36,638 13.65% $38,739 14.32% $41,158 15.08%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital(2).............. $27,321 10.71% $38,530 14.47% $40,664 15.15% $42,797 15.82% $45,252 16.58%
Core capital requirement(3).. 7,651 3.00 7,987 3.00 8,051 3.00 8,115 3.00 8,189 3.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess....................... $19,670 7.71% $30,543 11.47% $32,613 12.15% $34,682 12.82% $37,063 13.58%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Total capital(4)............. $29,067 18.35% $40,276 25.08% $42,410 26.33% $44,543 27.59% $46,998 29.02%
Risk-based
capital requirement.......... 12,670 8.00 12,849 8.00 12,883 8.00 12,918 8.00 12,957 8.00
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess....................... $16,397 10.35% $27,426 17.08% $29,527 18.33% $31,625 19.59% $34,041 21.02%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
- ---------------------------
</TABLE>
(1) Based upon total tangible assets of $255.0 million at September 30, 1997
and $266.2 million, $268.4 million, $270.5 million and $273.0 million at
the minimum, midpoint, maximum, and maximum, as adjusted, of the
Estimated Valuation Range, respectively, for purposes of the tangible
capital requirement, upon total adjusted assets of $255.0 million at
September 30, 1997 and $266.2 million, $268.2 million, $270.5 million and
$273.0 million at the minimum, midpoint, maximum, and maximum, as
adjusted, of the Estimated Valuation Range, respectively, and upon risk-
weighted assets of $158.4 million at September 30, 1997 and $160.6
million, $161.0 million, $161.5 million and $162.0 million at the
minimum, midpoint, maximum, and maximum, as adjusted, of the Estimated
Valuation Range, respectively, for purposes of the risk-based capital
requirement.
(2) A $2.1 million investment in non-includable subsidiaries, a $1.0 million
deduction associated with the limited partnership interest discussed
under "BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Equity
Investment in Limited Partnership" and an unrealized gain on securities
available-for-sale, net of taxes, of $188,000 account for the difference
between generally accepted accounting principals ("GAAP") capital and
both tangible capital and core capital.
(3) 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.
(4) 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 Conversion Shares must be sold at a price
equal to the estimated pro forma market value of the MHC and the Savings Bank,
as converted, based upon an independent valuation. The Estimated Valuation
Range as of December 5, 1997 is from a minimum of $29.3 million to a maximum of
$39.7 million with a midpoint of $34.5 million or, at a price per share of
$20.00, a minimum number of shares of 1,466,250, a maximum number of shares of
1,983,750 and a midpoint number of shares of 1,725,000. The actual net proceeds
from the sale of the Conversion Shares cannot be determined until the Conversion
and Reorganization is completed. However, net proceeds set forth on the
following table are based upon the following assumptions: (i) Sandler O'Neill
will receive fees of $428,625, $506,250, $583,875 and $673,145 at the minimum,
midpoint, maximum and 15% above the Estimated Valuation Range, respectively (see
"THE CONVERSION AND REORGANIZATION -- Plan of Distribution and Selling
Commissions); (ii) all of the Conversion Shares will be sold in the Subscription
and Direct Community Offerings; and (iii) Conversion and Reorganization
expenses, excluding the fees paid to Sandler O'Neill, will total approximately
$560,000 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 Savings Bank for the year ended
September 30, 1997 has been calculated as if the Conversion and Reorganization
had been consummated at the beginning of the period and the estimated net
proceeds received by the Holding Company and the Savings Bank had been invested
at 5.68% at the beginning of the period, which represents the yield on the one-
year U.S. Treasury Bill at September 30, 1997. Although OTS regulations require
the use of the arithmetic average of the average yield on all interest-earning
assets and the average rate paid on all deposits in computing investment returns
on net proceeds, the yield on the one-year U.S. Treasury Bill is used because
management believes it more appropriately reflects a market rate of return. As
discussed under "USE OF PROCEEDS," the Holding Company expects to retain 50% of
the net proceeds of the Conversion Offerings from which it will refinance the
existing third-party ESOP loan, with an outstanding balance of $804,000 at
September 30, 1997. The new loan is expected to have a 10-year term and an
interest rate equal to the prime rate as published in The Wall Street Journal on
the closing date of the Conversion and Reorganization (currently 8.50%). A pro
forma after-tax return of 3.69% is used for both the Holding Company and the
Savings Bank for the period, after giving effect to an incremental combined
federal and state income tax rate of 35.0% for the year ended September 30,
1997. 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
period or at September 30, 1997, but without any adjustment of per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.
The following table summarizes the historical net income and stockholders'
equity of the Savings Bank and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the date
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 1998 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 and Reorganization; (ii) withdrawals from deposit
accounts for the purpose of purchasing Conversion Shares in the Conversion
Offerings; (iii) the issuance of shares from authorized but unissued shares to
the 1998 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 and
Reorganization; or (iv) the establishment of a liquidation account for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders.
See "MANAGEMENT OF THE SAVINGS BANK -- Benefits -- 1998 Stock Option Plan" and
"THE CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange Ratio and Number
of Shares Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE FINANCIAL
EFFECTS OF THE CONVERSION AND REORGANIZATION AT THE DATE ON WHICH THE CONVERSION
AND REORGANIZATION 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 ACCORDING TO 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 Year Ended September 30, 1997
---------------------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range(1)
--------- --------- --------- -----------------
1,466,250 1,725,000 1,983,750 2,281,312
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> <C> <C> <C>
Gross proceeds....................................... $ 29,325 $ 34,500 $ 39,675 $ 45,626
Less: estimated expenses............................. 990 1,070 1,150 1,240
---------- ---------- ---------- ----------
Estimated net proceeds............................... 28,335 33,430 38,525 44,386
Less: Common Stock to be acquired by
1998 MRP.................................... (1,173) (1,380) (1,587) (1,825)
Add: Assets consolidated from MHC(10).............. -- -- -- --
---------- ---------- ---------- ----------
Net investable proceeds......................... $ 27,162 $ 32,050 $ 36,938 $ 42,561
========== ========== ========== ==========
Consolidated net income:
Historical.......................................... 1,728 1,728 1,728 1,728
Pro forma income on net proceeds(2)................. 1,003 1,183 1,364 1,571
Pro forma 1996 MRP adjustments(3)................... (84) (84) (84) (84)
Pro forma 1998 MRP adjustments(4)................... (152) (179) (206) (237)
---------- ---------- ---------- ----------
Pro forma net income.............................. $ 2,496 $ 2,649 $ 2,803 $ 2,979
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical.......................................... $ 0.64 $ 0.55 $ 0.47 $ 0.41
Pro forma income on net proceeds.................... 0.38 0.38 0.37 0.38
Pro forma 1996 MRP adjustments(3)................... (0.03) (0.03) (0.02) (0.02)
Pro forma 1998 MRP adjustments(4)................... (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net income per share.................... $ 0.93 $ 0.84 $ 0.76 $ 0.71
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical(10)...................................... $ 31,731 $ 31,731 $ 31,731 $ 31,731
Estimated net proceeds.............................. 28,335 33,430 38,525 44,386
Less: Common Stock to be acquired by
ESOP...................................... (804) (804) (804) (804)
Common Stock acquired by
1996 MRP.................................. (938) (938) (938) (938)
Common Stock to be acquired by
1998 MRP(4)................................ (1,173) (1,380) (1,587) (1,825)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................. $ 57,151 $ 62,039 $ 67,927 $ 72,550
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(4)(10)................................... $ 11.48 $ 9.76 $ 8.48 $ 7.38
Estimated net proceeds.............................. 10.24 10.27 10.29 10.32
Less: Common Stock acquired by
ESOP...................................... (0.29) (0.25) (0.21) (0.19)
Common Stock acquired by
1996 MRP(3)............................... (0.34) (0.29) (0.25) (0.22)
Common Stock to be acquired by
1998 MRP(3)................................ (0.42) (0.42) (0.42) (0.42)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(9)....... $ 20.67 $ 19.07 $ 17.89 $ 16.87
========== ========== ========== ==========
Purchase Price as a percentage of pro forma
stockholders' equity per share...................... 96.76% 104.88% 111.79% 118.55%
========== ========== ========== ==========
Purchase Price as a multiple of pro forma
net income per share................................ 21.51x 23.81x 26.18x 28.17x
========== ========== ========== ==========
</TABLE>
(footnotes on following page)
15
<PAGE>
- ------------------------------
(1) Gives effect to the sale of an additional 297,562 Conversion Shares in
the Conversion and Reorganization, which may be issued to cover an
increase in the pro forma market value of the MHC and the Savings Bank,
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 MHC and the Savings Bank, as converted. See "THE
CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange Ratio and
Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Conversion Shares. Since funds on deposit at the
Savings Bank 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 Savings Bank for investment following receipt of
the net proceeds of the Conversion Offerings will be reduced by the
amount of such withdrawals.
(3) In calculating the pro forma effect of the 1996 MRP, the table reflects
the effect of completed open market purchases of all remaining 1996 MRP
shares subsequent to September 30, 1997. Pro forma net income
adjustments reflect additional expenses required for a full-year
amortization above the actual expense (equal to $79,000 on a pre-tax
basis) recorded for the year ended September 30, 1997. Pro forma
stockholders' equity adjustments take into account 1996 MRP stock
purchases as of September 30, 1997 and open market purchases of all
remaining shares completed subsequent to September 30, 1997. As all
shares for the 1996 MRP have, subsequent to September 30, 1997, have
been purchased in open market transactions, no assumptions have been
made for the effects of issuing authorized but unissued shares. The
total additional estimated pre-tax 1996 MRP expenses not already
reflected in net income was equal to $129,000 at each of the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range for the year ended September 30, 1997. No effect has been given
to the shares reserved for issuance under the 1996 Stock Option Plan.
See footnote 4 for an analysis of the combined effects of the 1996 and
1998 Stock Option Plans.
(4) In calculating the pro forma effect of the 1998 MRP, it is assumed that
the required stockholder approval has been received, that the shares
were acquired by the 1998 MRP at the beginning of the period presented
in open market purchases at the Purchase Price, that 20% of the amount
contributed was an amortized expense during such period, and that the
combined federal and state income tax rate is 35.0%. 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 2.08% and pro forma net income per share
would be $0.92, $0.83, $0.77 and $0.71 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range for the year
ended September 30, 1997, respectively, and pro forma stockholders'
equity per share would be $20.66, $19.09, $17.94 and $16.93 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range at September 30, 1997, respectively. Shares issued
under the 1998 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 shares are awarded under the 1998 MRP,
total 1998 MRP expense would increase. See "RISK FACTORS -- Expenses
Associated with MRP." The total estimated 1998 MRP expense was
multiplied by 20% (the total percent of shares for which expense is
recognized in the first year) resulting in pre-tax 1998 MRP expense of
$235,000, $276,000, $317,000 and $365,000 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range for
the year ended September 30, 1997, respectively. No effect has been
given to the shares reserved for issuance under the 1996 Stock Option
Plan (previously approved by stockholders) or the proposed 1998 Stock
Option Plan. Under the 1996 Stock Option Plan, 58,500 shares were
reserved for issuance and options have been granted thereunder at an
exercise price of $25.25 per share. If stockholders approve the 1998
Stock Option Plan following the Conversion and Reorganization, the
Holding Company will have reserved for issuance under the 1998 Stock
Option Plan authorized but unissued shares of Common Stock representing
an amount of shares equal to 10% of the Conversion Shares sold in the
Conversion Offerings. If all of the options were to be exercised
utilizing these authorized but unissued shares rather than treasury
shares which could be acquired (for both the 1996 and 1998 Stock Option
Plans), the voting interests of existing stockholders would be diluted
by approximately 8.25%. Assuming stockholder approval of the 1998 Stock
Option Plan, and that all options under the 1996 and 1998 Stock Option
Plans were exercised at
16
<PAGE>
September 30, 1997 at an exercise price of $25.25 (to be adjusted
pursuant to the final Exchange Ratio) and $20.00 per share,
respectively, pro forma net earnings per share would be $0.90, $0.81,
$0.75 and $0.70, respectively, for the year ended September 30, 1997,
and pro forma stockholders' equity per share would be $20.38, $18.87,
$17.76 and $16.79, respectively, for the year ended September 30, 1997
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range. See "MANAGEMENT OF THE SAVINGS BANK --
Benefits -- 1998 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 2,695,343,
3,170,992, 3,646,640 and 4,193,637 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range for the year
ended September 30, 1997, respectively, which includes the Conversion
Shares sold in the Conversion and Reorganization, less the number of
shares assumed to be held by the ESOP not committed to be released
within the first year following the Conversion and Reorganization.
(6) Historical per share amounts have been computed as if the Conversion
Shares expected to be issued in the Conversion and Reorganization 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 and Reorganization, the
ongoing ESOP expense, or the proposed 1998 MRP expense described above.
(7) "Book value" represents the difference between the stated amounts of the
Savings Bank'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 and Reorganization, or the federal income tax
consequences of the restoration to income of the Savings Bank's special
bad debt reserves for income tax purposes which would be required in the
unlikely event of liquidation. See "THE CONVERSION AND REORGANIZATION -
- Effects of Conversion and Reorganization to Stock Form on Depositors
and Borrowers of the Savings Bank" 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 2,764,821,
3,252,731, 3,740,640 and 4,301,736 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.
(10) Assets of the MHC (other than investment in the Savings Bank) consist
solely of $47,000 of cash on deposit at the Savings Bank, which amount
is eliminated in consolidation.
17
<PAGE>
CONVERSION SHARES TO BE PURCHASED
BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth, for each director and executive officer of the
Savings Bank (and their associates) and for all of the directors and executive
officers as a group, (i) Exchange Shares to be held upon consummation of the
Conversion and Reorganization based upon their beneficial ownership of Public
Savings Bank Shares as of September 30, 1997, (ii) proposed purchases of
Conversion Shares, assuming shares available to satisfy their subscriptions, and
(iii) total shares of Common Stock to be held upon consummation of the
Conversion and Reorganization, in each case assuming that 1,725,000 Conversion
Shares are sold at the midpoint of the Estimated Valuation Range. No individual
has entered into a binding agreement with respect to such intended purchases,
and, therefore, actual purchases could be more or less than indicated below.
Directors and executive officers and their associates may not purchase in excess
of 31% of the shares sold in the Conversion and Reorganization. Directors,
officers and employees will pay the Purchase Price ($20.00 per share) for each
share for which they subscribe.
<TABLE>
<CAPTION>
Number of Proposed Purchase of Total Common Stock
Exchange Conversion Shares to be Held
Shares to ---------------------- -----------------------
be Held Number Number Percentage
(1)(2) Amount of Shares of Shares of Total
------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Harold A. Pickens, Jr. 22,657 $ 100,000 5,000 27,657 *
Chairman of the Board
Robert W. Orr 31,533 40,000 2,000 33,533 1.0%
President and Managing Officer
Martha S. Clamp 13,485 100,000 5,000 18,485 *
Director
Jack F. McIntosh 12,253 100,000 5,000 17,253 *
Director
Charles W. Fant, Jr. -- -- -- -- --
Director
Cordes G. Seabrook, Jr. 19,082 100,000 5,000 24,082 *
Director
Jim Gray Watson 6,891 100,000 5,000 11,891 *
Director
Richard R. Ballenger 4,801 20,000 1,000 5,801 *
Director
F. Stevon Kay 15,419 100,000 5,000 20,419 *
Director
Thomas C. Hall 25,167 10,000 500 25,667 *
Treasurer and Chief Financial Officer
Barry C. Visioli 22,442 27,500 1,375 23,817 *
Senior Vice President
All officers and directors 214,443 1,038,500 51,925 266,368 8.2
as a group (21 persons)
</TABLE>
- ----------------------
(1) Excludes shares which may be received upon the exercise of outstanding
stock options granted under the 1993 Stock Option Plan (which are
immediately exercisable) and the 1996 Stock Option Plan (which are
subject to pro rata vesting over a five year period beginning April 8,
1998). Based upon the Exchange Ratio of 2.15625 Exchange Shares for
each Public Savings Bank Share at the midpoint of the Estimated
Valuation Range, the following persons named in the table would have
options to purchase Common Stock as follows: Mr. Pickens, 4,730
shares; Mr. Orr, 22,101 shares; Ms. Clamp, 4,730 shares; Mr. McIntosh,
4,730 shares; Mr. Fant, 4,730 shares; Mr. Seabrook, 4,730 shares; Mr.
Watson, 4,730 shares; Mr. Ballenger, 4,728 shares; Mr. Kay, 4,728
shares; Mr. Hall, 27,060; Mr. Visioli, 27,060 and all directors and
executive officers as a group, 133,859 shares.
(2) Excludes stock options that may be granted under the 1998 Stock Option
Plan and awards that may be granted under 1998 MRP if such plans are
approved by stockholders at an annual or special meeting at least six
months following the Conversion and Reorganization. See "MANAGEMENT
OF THE SAVINGS BANK -- Benefits."
(*) Less than 1%.
18
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
The following Consolidated Statements of Operations of Perpetual Bank, A
Federal Savings Bank and Subsidiary for the fiscal years ended September 30,
1997, 1996 and 1995 have been audited by KPMG Peat Marwick LLP, Greenville,
South Carolina, independent auditors, whose report thereon appears elsewhere in
this Prospectus. These statements should be read in conjunction with the
Consolidated Financial Statements and related Notes included elsewhere herein.
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Interest income:
Loans................................................ $14,406,160 $11,510,222 $ 9,828,507
Mortgage-backed securities........................... 3,302,541 3,071,524 3,418,355
Other investment..................................... 687,736 339,222 296,164
----------- ----------- -----------
Total interest income.............................. 18,396,437 14,920,968 13,543,026
----------- ----------- -----------
Interest expense:
Interest on deposits:
Transaction accounts............................... 547,795 467,395 361,486
Passbook accounts.................................. 590,738 622,008 742,786
Certificate accounts............................... 6,979,888 5,679,186 4,904,477
----------- ----------- -----------
Total interest on deposits......................... 8,118,421 6,768,589 6,008,749
Interest on borrowings............................... 1,377,960 656,203 2,752,221
----------- ----------- -----------
Total interest expense............................. 9,496,381 7,424,792 8,760,970
----------- ----------- -----------
Net interest income................................... 8,900,056 7,496,176 4,782,056
Provision for loan losses............................. 655,000 349,250 362,000
----------- ----------- -----------
Net interest income after provision for loan losses... 8,245,056 7,146,926 4,420,056
----------- ----------- -----------
Other income:
Loan and deposit account service charges............. 1,526,208 1,268,722 770,212
Gain (loss) on sale of securities, net............... (307,534) 53,963 1,777,471
Gain on sale of real estate, net..................... 19,894 79,034 47,544
Gain on sale of loans, net........................... 12,509 (23,328) 66,785
Gain (loss) on sale of fixed assets, net............. (191,894) 23,724 150
Other................................................ 795,773 548,945 568,607
----------- ----------- -----------
Total other income................................. 1,854,956 1,927,336 3,230,769
----------- ----------- -----------
General and administrative expenses:
Salaries and employee benefits....................... 3,926,888 3,056,726 2,801,915
Occupancy............................................ 486,776 386,796 343,762
Furniture and equipment expense...................... 746,182 542,481 464,250
FDIC insurance premiums.............................. 151,903 1,292,262 330,444
Advertising.......................................... 351,694 390,721 475,007
Data processing...................................... 299,951 237,980 204,463
Office supplies...................................... 386,525 332,794 269,302
Other................................................ 1,095,927 654,304 650,902
----------- ----------- -----------
Total general and administrative................... 7,445,846 6,894,064 5,540,045
----------- ----------- -----------
Income before income taxes............................ 2,654,166 2,180,198 2,110,780
Income taxes.......................................... 925,803 755,811 193,742
----------- ----------- -----------
Net income............................................ $ 1,728,363 $ 1,424,387 $ 1,917,038
=========== =========== ===========
Earnings per share:
Net income............................................ $1.15 $0.95 $1.27
Weighted average shares outstanding................... 1,505,432 1,504,601 1,504,059
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
For much of its existence, the Savings Bank's investment powers were
limited primarily to fixed-rate mortgage loans, share loans and investment
securities funded by a limited range of deposit products. Since 1989, however,
when applicable law and regulations permitted savings associations to expand the
scope of their operations, the Savings Bank has gradually refocused operations
to become a retail, community-oriented institution by, among other things, (i)
diversifying its balance sheet by placing increasing emphasis on construction,
commercial real estate, commercial business and consumer lending and (ii)
increasing core deposits through the marketing of checking accounts. The goal
of these strategies is to diversify and maximize the Savings Bank's earnings
stream, while attempting to minimize interest rate risk. See "RISK FACTORS --
Certain lending Risks" and "-- Interest Rate Risk."
The Savings Bank's current business plan is focused on a continuation
of its retail community banking strategy. Key aspects of the business plan
include: (i) continued balance sheet diversification by pursuing commercial real
estate lending, consumer lending and commercial business lending in its primary
market area; (ii) building its retail customer base by increasing consumer
checking accounts and expanding its retail branch network in Anderson, South
Carolina, and surrounding communities; (iii) preserving asset quality by
emphasizing residential mortgage lending in its primary market area, as well as
purchasing loans from selected South Carolina lenders; (iv) maintaining a
substantial portfolio of mortgage-backed securities and investment grade CMOs to
limit credit risk exposure and to earn a spread on excess investable funds; and
(v) offering non-deposit investment products though a wholly-owned service
corporation (see "BUSINESS OF THE SAVINGS BANK -- Subsidiary Activities").
The Savings Bank has taken traditional steps to implement its retail
community banking strategy. The Savings Bank opened a branch office in Seneca,
South Carolina, in December 1996 and a new branch office in Anderson, South
Carolina, in October 1997. Also, during 1996, the Savings Bank established a
customer call center at the main office as a vehicle to cross-sell the Savings
Bank's products and services to its customers. The opening of the Seneca branch
office and the establishment of the customer call center resulted in increased
general and administrative expenses in recent periods. The opening of the new
Anderson branch office is expected to increase general and administrative
expenses in future periods; however, management is unable to quantify accurately
the magnitude of such increases. Furthermore, the Savings Bank has actively
marketed checking accounts through a free checking program, which has led to an
increase in checking account balances and an increase in service charges and fee
income, but has also led to an increase in general and administrative expenses
relating to marketing and promotion of such accounts. See "BUSINESS OF THE
SAVINGS BANK -- Deposit Activities and Other Sources of Funds."
The Savings Bank has also used non-traditional vehicles to implement
its retail community banking strategy. The Savings Bank has an equity
investment, through a service corporation, in a regional mortgage company, from
which the Savings Bank currently purchases one- to four-family mortgage loans
and commercial real estate loans secured by properties located in South
Carolina. See "BUSINESS OF THE SAVINGS BANK -- Subsidiary Activities." In
addition, the Savings Bank has an equity investment in a limited partnership
that invests in mortgage servicing rights. See "BUSINESS OF THE SAVINGS BANK --
Lending Activities -- Equity Investment in Limited Partnership" and "RISK
FACTORS -- Certain Lending Risks -- Purchased Loans and Interest Rate Risk."
Upon consummation of the Conversion and Reorganization, the Holding Company
will be a unitary savings and loan holding company. Under current law, a
unitary saving and loan holding company is not subject to any activity
restrictions. See "REGULATION -- Savings and Loan Holding Company Regulations."
The Holding Company may consider exploring opportunities to expand into non-
traditional lines of business, such as securities brokerage, insurance agency
and real estate development activities, to the extent permitted by applicable
law.
20
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth, for the periods indicated, information
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, resultant yields, interest rate
spread, ratio of interest-earning assets to interest-bearing liabilities and net
interest margin. Average balances for a period have been calculated using the
monthly average balances during such period.
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------
1997 1996
------------------------------ ----------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
-------- --------- ------- -------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Mortgage loans.................. $118,030 $ 9,790 8.29% $ 91,535 $ 7,984 8.72%
Commercial real estate loans.... 23,098 2,102 9.10 14,045 1,338 9.52
Commercial other................ 6,114 592 9.68 4,468 395 8.84
Consumer loans.................. 17,755 1,922 10.82 18,563 1,793 9.66
-------- ------- -------- -------
Total loans.................... 164,997 14,406 8.73 128,611 11,510 8.95
Mortgage-backed securities and
CMOs............................ 48,638 3,303 6.79 44,793 3,072 6.86
Investment securities............ 5,271 339 6.43 896 65 7.25
Interest-bearing deposits........ 4,485 251 5.60 4,593 193 4.20
Other earning assets............. 1,311 97 7.40 1,102 81 7.35
-------- ------- -------- -------
Total interest-earning assets. 224,702 18,396 8.19 179,995 14,921 8.29
Non-interest-earning assets:
Mutual funds(3)................. -- --
Office properties and
equipment, net................. 5,645 4,048
Real estate, net................ 56 20
Other non-interest-earning
assets......................... 8,072 5,339
-------- --------
Total assets.................. $238,475 $189,402
======== ========
Interest-bearing liabilities:
Savings......................... 22,923 590 2.57 23,482 622 2.65
Negotiable order of withdrawal
("NOW") accounts............... 35,196 548 1.56 28,412 468 1.65
Certificates of deposit......... 123,407 6,980 5.56 102,721 5,679 5.53
-------- ------- ------- -----
Total deposits................ 181,526 8,118 4.47 154,615 6,769 4.38
Other interest-bearing
liabilities.................... 23,951 1,378 5.75 12,531 656 5.24
-------- ------- -------- -------
Total interest-bearing
liabilities.................. 205,477 9,496 4.62 167,146 7,425 4.44
</TABLE>
<TABLE>
Years Ended September 30,
------------------------------------------------------------------------------------------------
1995
------------------------------------
Interest
Average and Yield/
Balance Dividends Cost
-------- --------- -------
<S> <C> <C> <C>
Interest-earning assets(1):
Mortgage loans.................. $ 88,153 $ 7,292 8.28%
Commercial real estate loans.... 5,583 524 9.39
Commercial other................ 2,061 219 10.63
Consumer loans.................. 16,697 1,794 10.74
-------- -------
Total loans.................... 112,494 9,829 8.74
-------- -------
Mortgage-backed securities and
CMOs............................ 48,263 3,418 7.08
Investment securities............ 246 9 3.66
Interest-bearing deposits........ 1,682 127 7.55
Other earning assets............. 2,205 160 7.26
-------- -------
Total interest-earning assets. 164,890 13,543 8.21
Non-interest-earning assets:
Mutual funds(3)................. 33,578
Office properties and
equipment, net................. 3,887
Real estate, net................ 382
Other non-interest-earning
assets......................... 4,801
--------
Total assets.................. $207,538
========
Interest-bearing liabilities:
Savings......................... 26,885 743 2.76
Negotiable order of withdrawal
("NOW") accounts............... 20,923 362 1.73
Certificates of deposit......... 99,653 4,904 4.92
-------- -------
Total deposits................ 147,461 6,009 4.07
Other interest-bearing
liabilities.................... 43,036 2,752 6.39
-------- -------
Total interest-bearing
liabilities.................. 190,497 8,761 4.60
</TABLE>
(table continued on next page)
21
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------------
1997 1996
--------------------------- --------------------------------------
Interest Interest
Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost
--------------------------- --------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing liabilities:
Non-interest-bearing deposits.............. 397 1,186
Other liabilities.......................... 2,693 1,827
-------- --------
Total liabilities........................ 3,090 170,159
Stockholders' equity........................ 29,908 19,243
-------- --------
Total liabilities and stockholders'
equity................................. $238,475 $189,402
======== ========
Net interest income......................... $ 8,900 $7,496
======== =========
Interest rate spread........................ 3.57% 3.85%
==== ======
Net interest margin......................... 3.96% 4.16%
==== ======
Ratio of average interest-earning assets to
average interest-bearing liabilities...... 109.36% 107.69%
====== =======
</TABLE>
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------------
1995
----------------------------------
Interest
Average and Yield/
Balance Dividends Cost
-------- --------- -------
<S> <C> <C> <C>
Non-interest-bearing liabilities:
Non-interest-bearing deposits..............
Other liabilities..........................
909
Total liabilities........................ --
Stockholders' equity........................ --------
191,406
16,132
Total liabilities and stockholders' --------
equity.................................
$207,538
Net interest income......................... ========
$4,782
Interest rate spread........................ =========
3.61%
Net interest margin......................... ======
2.90%
Ratio of average interest-earning assets to ======
average interest-bearing liabilities......
86.56%
=====
</TABLE>
- ------------------------
(1) Excludes interest on loans 90 days or more past due.
(2) Represents mutual funds which do not pay interest or dividends.
22
<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 Savings Bank's assets, the weighted
average interest rates paid on the Savings Bank's liabilities, together with the
net yield on interest-earning assets.
<TABLE>
<CAPTION>
At Year Ended
September 30, September 30,
---------------------------
1997 1997 1996 1995
-------------- ----- ---- ----
<S> <C> <C> <C> <C>
Weighted average yield earned on:
Loan portfolio........................................ 8.49% 8.73% 8.95% 8.74%
Mortgage-backed securities, CMOs and
adjustable-rate mortgage ("ARM") mutual fund......... 7.25 6.79 6.86 7.08
Investment securities and interest-earning deposits... 7.03 6.21 4.70 7.05
All interest-earning assets........................... 8.20 8.19 8.29 8.21
Weighted average rate paid on:
Deposits.............................................. 4.64 4.47 4.38 4.07
FHLB advances and other borrowings.................... 6.24 5.53 5.24 6.39
All interest-bearing liabilities...................... 4.75 4.60 4.44 4.60
Interest rate spread (spread between weighted
average rate on all interest-earning assets
and all interest-bearing liabilities)............... 3.45 3.57 3.85 3.61
Interest rate margin (net interest income as a
percentage of average interest-earning assets)...... N/A 3.96 4.16 2.90
</TABLE>
23
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Savings Bank. Information is provided with respect
to (i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate); (ii) effects on interest income attributable
to changes in rate (changes in rate multiplied by prior volume); (iii) changes
in rate/volume (change in rate multiplied by change in volume); and (iv) the net
change (the sum of the prior columns).
<TABLE>
<CAPTION>
Years Ended September 30, Years Ended September 30,
1997 Compared to September 30, 1996 Compared to September 30,
1996 Increase (Decrease) Due to 1995 Increase (Decrease) Due to
------------------------------------ -------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------- ------ ------- ------- ------- ------ ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans.............. 2,311 (392) (113) 1,806 280 397 15 692
Commercial real estate...... 862 (60) (39) 763 794 8 12 814
Commercial other............ 146 38 14 198 756 (37) (43) 176
Consumer loans.............. (78) 216 (9) 129 200 (180) (20) --
------ ----- ----- ------ ------- ----- ----- -------
Total loans................ 3,241 (198) (147) 2,896 1,530 188 (36) 1,682
Mortgage-backed securities
and
CMOs....................... 263 (30) (2) 231 (246) (109) 8 (347)
Investment securities....... 320 (8) (38) 274 23 9 25 57
Mutual funds................ -- -- -- -- -- -- -- --
Interest-earning deposits... (5) 65 (2) 58 220 (57) (98) 65
Other interest-earning
assets..................... 16 -- -- 16 (80) 2 (1) (79)
------ ----- ----- ------ ------- ----- ----- -------
Total net change in income on
interest-earning assets.... 3,800 (143) (182) 3,475 1,312 89 (23) 1,378
------ ----- ----- ------ ------- ----- ----- -------
Interest-bearing liabilities:
Savings accounts............ (15) (18) -- (33) (94) (31) 4 (121)
NOW accounts................ 112 (25) (6) 81 129 (17) (6) 106
Certificates of deposit..... 1,144 131 26 1,301 151 605 19 775
------ ----- ----- ------ ------- ----- ----- -------
Total deposits............... 1,241 88 20 1,349 186 557 17 760
------ ----- ----- ------ ------- ----- ----- -------
Other interest-bearing
liabilities................. 648 37 37 722 (1,951) (498) 353 (2,096)
------ ----- ----- ------ ------- ----- ----- -------
Total net change in expense
on
interest-bearing
liabilities............... 1,889 125 57 2,071 (1,765) 59 370 (1,336)
------ ----- ----- ------ ------- ----- ----- -------
Net change in net interest
income...................... $1,911 $(268) $(239) $1,404 $ 3,077 $ 30 $(393) $ 2,714
====== ===== ===== ====== ======= ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
Years Ended September 30,
1995 Compared to September 30,
1994 Increase (Decrease) Due to
---------------------------------------
Rate/
Volume Rate Volume Net
------- ------ -------- --------
<S> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans.............. 882 97 14 993
Commercial real estate...... 313 19 39 371
Commercial other............ 134 8 19 161
Consumer loans.............. (375) 330 (65) (110)
------- ------ -------- --------
Total loans................ 954 457 7 1,415
Mortgage-backed securities
and
CMOs....................... (615) 725 (130) (20)
Investment securities....... 7 (7) (4) (4)
Mutual funds................ 229 (15) (229) (15)
Interest-earning deposits... (83) 198 (122) (7)
Other interest-earning
assets..................... 50 27 22 99
------- ------ -------- --------
Total net change in income on
interest-earning assets.... 520 1,439 (491) 1,468
Interest-bearing liabilities:
Savings accounts............ (173) (11) 2 (182)
NOW accounts................ 189 (24) (21) 144
Certificates of deposit..... 178 784 36 998
------- ------ -------- --------
Total deposits............... 194 749 17 960
------- ------ -------- --------
Other interest-bearing
liabilities................. 1,290 274 613 2,177
------- ------ -------- --------
Total net change in expense
on
interest-bearing
liabilities............... 1,484 1,023 630 3,137
------- ------ -------- --------
Net change in net interest
income...................... $ (964) $ 416 $(1,121) $(1,669)
======= ====== ======== ========
</TABLE>
- ----------------------
(1) Excludes interest on loans 90 days or more past due.
24
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND 1996
Total assets increased 22.5% from $209.8 million at September 30, 1996 to
$257.0 million at September 30, 1997 primarily as a result of an increase in
loans receivable and an increase in investment securities available-for-sale.
These increases were funded primarily by deposit growth, FHLB advances and
repayment of mortgage-backed securities.
Loans receivable increased 27.0% from $140.8 million at September 30, 1996
to $178.8 million at September 30, 1997. The increase in loans receivable
resulted from growth in all loan categories, except construction loans which
declined slightly from $19.5 million at September 30, 1997 to $17.1 million at
September 30, 1997.
In December 1996, the Savings Bank invested in a limited partnership that
invests in mortgage loan servicing rights. At September 30, 1997, the value of
the limited partnership investment was $5.0 million. See "BUSINESS OF THE
SAVINGS BANK -- Lending Activities -- Equity Investment in Limited Partnership"
for further information. The value of this investment would be adversely
impacted in the event of a decrease in market interest rates. See "RISK FACTORS
- -- Interest Rate Risk."
Investment securities available-for-sale increased from $2.5 million at
September 30, 1996 to $11.3 million at September 30, 1997. In an effort to
increase the average portfolio yield, the Savings Bank purchased additional
investment securities during the year ended September 30, 1997, including a $4.0
million FHLB bond with a yield of 6.30% at September 30, 1997 and a final
maturity of October 2001. The Savings Bank also invested $3.1 million to
purchase a $15.0 million FHLB zero coupon bond with a coupon rate of 8.00%,
callable in July 2000, and with a final maturity of July 2017, and $3.0 million
to purchase a second $15.0 million FHLB zero coupon bond with a coupon rate of
8.20%, callable in September 1998, and with a final maturity of July 2017.
Although these long-term zero coupon bonds offer higher yields, an increase in
market interest rates would have a material adverse effect on their value. The
Savings Bank restructured its mortgage-backed securities portfolio by selling
(i) $19.8 million of fixed-rate CMOs yielding 6.25% and with final maturities
ranging from 2001 through 2005, incurring a loss on sale of $280,000 and (ii)
$3.1 million of fixed-rate mortgage-backed securities yielding 6.32%, incurring
a loss on sale of $28,000. The Savings Bank purchased $8.0 million of
adjustable rate CMOs with a yield of 7.03% at September 30, 1997 and $10.7
million of fixed-rate mortgage-backed securities with a yield of 7.33% at
September 30, 1997. See "RISK FACTORS -- Interest Rate Risk."
Real estate held for development increased from $1.4 million at September
30, 1996 to $2.3 million at September 30, 1997 primarily as a result of the
acquisition of the Meadows Development project. See "BUSINESS OF THE SAVINGS
BANK -- Subsidiary Activities" for further information regarding the Meadows
Development project.
Premises and equipment, net, increased from $4.9 million at September 30,
1996 to $6.3 million at September 30, 1997 primarily as a result of the
construction of the Perpetual Square branch office in Anderson, South Carolina
($606,000), and the purchase of new hardware and software for the in-house
computer system ($1.1 million).
Deposits increased 25.5% from $160.2 million at September 30, 1996 to
$201.0 million at September 30, 1997 primarily as a result of an increase in
one-year certificate of deposits. The Savings Bank aggressively marketed
special seven-month and 13-month certificates of deposit to attract operating
funds. Although no assurances can be given, based on management's experience
and familiarity with the customers involved and the Savings Bank's pricing
policy relative to that of its competitors, management believes that a
significant portion of such deposits will remain with the Savings Bank.
Stockholders' equity increased from $29.1 million at September 30, 1996 to
$30.8 million at September 30, 1997 as a result of retained net income, less
dividends paid on the Public Savings Bank Shares.
25
<PAGE>
COMPARISON OF THE YEAR ENDED SEPTEMBER 30, 1997 TO THE YEAR ENDED SEPTEMBER 30,
1996
NET INCOME. Net income increased 21.4% from $1.4 million, or $0.95 per
share, in 1996 to $1.7 million, or $1.15 per share, in 1997. Net income for
1996 was adversely affected by the one-time SAIF recapitalization assessment.
See "-- General and Administrative Expenses" below. Without this one-time
assessment, 1996 net income would have been $2.0 million, or $1.36 per share.
NET INTEREST INCOME. Net interest income increased 18.7% from $7.5 million
in 1996 to $8.9 million in 1997. Interest income on loans increased 25.2% from
$11.5 million to $14.4 million as the average balance of loans receivable
increased 28.3% from $128.6 million in 1996 to $165.0 in 1997 primarily as a
result of growth in loan originations and purchases. Interest income on
mortgage-backed securities increased 6.5% from $3.1 million in 1966 to $3.3
million in 1997 as the average balance of mortgage-backed securities increased
8.5% from $44.8 million in 1996 to $48.6 million in 1997. Interest income on
other investments increased 102.9% from $339,000 in 1996 to $688,000 in 1997 as
the average balance of other interest earning assets increased 68.2% from $6.6
million in 1996 to $11.1 million in 1997 primarily as a result of investment
securities purchases.
INTEREST EXPENSE. Interest expense on deposits increased 19.1% from $6.8
million in 1996 to $8.1 million in 1997 as the average balance of deposits
increased 17.4% from $154.6 million in 1996 to $181.5 million in 1997 and the
weighted average cost of deposits increased from 4.38% for 1996 to 4.47% for
1997. The increase in the average balance of deposits and the increase in the
weighted average cost of deposits resulted primarily from the promotion of
short-term certificates of deposit. See "-- Comparison of Financial Condition
at September 30, 1997 and 1996" for further discussion.
Interest expense on borrowings increased 110.1% from $656,000 for fiscal
1996 to $1.4 million for fiscal 1997 as the average borrowings increased from
$12.5 million in 1996 to $24.9 million in 1997 in order to fund loan
originations and purchases.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charges to
earnings to bring the total allowance for loan losses to a level considered
adequate by management to provide for management's best estimate of inherent
loan losses. In determining the adequacy of the allowance for loan losses,
management evaluates various factors, including the market value of the
underlying collateral, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans, loss
experience, delinquency trends and economic conditions. Management evaluates
the carrying value of loans periodically and the allowance for loan losses is
adjusted accordingly. See "BUSINESS OF THE SAVINGS BANK -- Lending Activities -
- - Allowance for Loan Losses" and Note 4 to Notes to Consolidated Financial
Statements.
The provision for loan losses increased 87.7% from $349,000 in 1996 to
$655,000 in 1997. Management deemed the increase necessary in light of net
charge-offs of $304,000 and the growth in the loan portfolio during 1997. At
September 30, 1997, the allowance for loan losses was 1.04% of total loans and
was deemed adequate by management at that date.
OTHER INCOME. Total other income decreased $72,000 from 1996 to 1997.
Loan and deposit account service charges increased $257,000 from $1.3 million in
1996 to $1.5 million in 1997 as a result of an increase in the number of
checking accounts. Other income increased $271,000 from $525,000 in 1996 to
$796,000 in 1997 primarily as a result of income of $185,000 from the investment
in a limited partnership that invests in mortgage servicing rights (see
"BUSINESS OF THE SAVINGS BANK -- Lending Activities -- Loan Purchases and, Sales
and Servicing") and gains from sale of real estate held for development (see
"BUSINESS OF THE SAVINGS BANK -- Subsidiary Activities"). These increases were
offset by losses on sale of investments of $308,000 in connection with the
restructuring of the investment securities portfolio and the write-off of
$192,000 of computer hardware and software as a result of the upgrading of the
computer system. See "-- Comparison of Financial
26
<PAGE>
Condition at September 30, 1997 and 1996" for information regarding the
restructuring of the investment securities portfolio.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $552,000 from $6.9 million in 1996 to $7.4 million in 1997. Salaries
and employee benefits increased 28.5% from $3.1 million in 1996 to $3.9 million
in 1997 as a result of the opening of the Seneca branch office, staffing a call
center at the main office, and expenses associated with the ESOP and the 1996
MRP. Occupancy expense increased $100,000, or 25.8%, primarily as a result of
the opening of the Seneca branch office. Furniture and equipment expense
increased 37.6% from $542,000 in 1996 to $746,000 in 1997 as a result of the
purchase of additional computer equipment and equipping the Seneca branch office
and the call center. The FDIC insurance premiums decreased $1.1 million from
$1.3 million in 1996 to $152,000 in 1997, due to the one-time SAIF
recapitalization assessment of $946,000 incurred in September 1996. Prior to
the SAIF recapitalization, the Savings Bank's total annual deposit insurance
premiums amounted to 0.23% of assessable deposits. Effective January 1, 1997,
the rate decreased to 0.065% of assessable deposits. See "REGULATION -- Federal
Regulation of Savings Associations -- Federal Deposit Insurance Corporation."
Advertising expense decreased 10.0% from $391,000 in 1996 to $352,000 in 1997 as
a result of the winding down of the free checking advertising campaign that
began in October 1994. Data processing expense increased 26.1% from $238,000 in
1996 to $300,000 in 1997 primarily as a result of the new Seneca branch office
and the new call center. Office supplies increased 16.2% from $333,000 in 1996
to $387,000 in 1997 primarily as a result of the opening of the Seneca branch
office.
Other operating expenses increased 68.2% from $654,000 in 1996 to $1.1
million in 1997 as a result of the opening of the Seneca branch office, sales
training for the call center, increased postage expense and professional fees,
and supplies for the free checking program.
INCOME TAXES. Income taxes increased 22.5% from $756,000 in 1996 to
$926,000 in 1997 due to an increase in income before taxes. The effective tax
rate was 35% for both 1996 and 1997.
COMPARISON OF THE YEAR ENDED SEPTEMBER 30, 1996 TO THE YEAR ENDED SEPTEMBER 30,
1995
NET INCOME. Net income decreased from $1.9 million, or $1.27 per share, in
1995 to $1.4 million, or $0.95 per share, in 1996 primarily as a result of the
one-time SAIF recapitalization assessment of $946,000 ($625,000 after tax).
Without this one-time assessment, 1996 net income would have been $2.0 million,
or $1.36 per share. Net income for 1995 benefitted from a one-time gain of $1.8
million on the sale of mutual funds.
NET INTEREST INCOME. Net interest income increased 56.3% from $4.8 million
in 1996 to $7.5 million in 1996 primarily as a result of decreased interest
expense on borrowings used to purchase mutual fund shares in 1995. The mutual
funds were sold in 1995 at a gain of $1.8 million. These funds were selected
for their capital appreciation characteristics; no interest income was
recognized on the mutual fund investments in 1995. Interest income on loans
increased 17.3% from $9.8 million in 1995 to $11.5 in 1996 as the average
balance of loans receivable increased 14.3% from $112.5 million in 1995 to
$128.6 million in 1996. Interest income on mortgage-backed securities decreased
9.7% from $3.4 million in 1995 to $3.1 million in 1996 as the average balance of
mortgage-backed securities decreased 7.8% from $48.3 million in 1995 to $44.8
million in 1996.
INTEREST EXPENSE. Interest expense on deposits increased 13.3% from $6.0
million in 1995 to $6.8 million in 1996 as the average balance of deposits
increased from $147.5 million in 1995 to $154.6 million in 1996 and the weighted
average cost of deposits increased from 4.07% in 1995 to 4.38% in 1996 as a
result of an increase in market interest rates. Management attributes the
increase in average deposits to normal deposit growth.
Interest expense on borrowings decreased $2.1 million from $2.8 million in
1995 to $656,000 in 1996 as the average borrowings decreased from $43.0 million
in 1995 to $12.5 million in 1996. The FHLB advances were used to fund the
mutual fund investment in 1995.
27
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased from
$362,000 in 1995 to $349,000 in 1996. At September 30, 1996, the allowance for
loan losses was 1.08% of total loans and was deemed adequate by management at
that date.
OTHER INCOME. Other income decreased $1.3 million from $3.2 million in
1995 to $1.9 million in 1996, primarily as a result of capital gains on the sale
of mutual funds of $1.8 million in 1995 and a 68.8% increase in loan and deposit
account service charges from $770,000 in 1995 to $1.3 million in 1996 as a
result of an increase in the number of deposit accounts.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 25.5% from $5.5 million in 1995 to $6.9 million in 1996. Salaries and
employee benefits increased 9.1% primarily as a result of increases in staff
needed to service the increased number of checking accounts. Office occupancy
increased 12.5% primarily as a result of general building maintenance costs.
Furniture and equipment expense increased 16.8% from $464,000 in 1995 to
$542,000 in 1996 as a result of an increase in depreciation expense related to
the purchase of check imaging equipment. FDIC insurance premiums increased
293.9% from $330,000 in 1995 to $1.3 million in 1996 as a result of the one-time
SAIF recapitalization assessment of $946,000. Advertising expense decreased
17.7% from $475,000 in 1995 to $391,000 in 1996 primarily as a result of the
opening of the Northtowne office in 1995. Office supplies increased 23.4% from
$269,000 in 1995 to $332,000 in 1996 primarily as a result of the increase in
the number of checking accounts.
INCOME TAXES. Income taxes increased from $194,000 (effective tax rate of
9.2%) in 1995 to $756,000 (effective tax rate of 35%) in 1996 due to an increase
in income before taxes. The lower effective tax rate in 1995 resulted from the
use of capital loss carryforwards to offset $1.8 million in capital gains income
generated by the sale of mutual funds in 1995.
ASSET AND LIABILITY MANAGEMENT
QUANTITATIVE ASPECTS OF MARKET RISK. The Savings Bank does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase purchase high-risk derivative instruments.
Furthermore, the Savings Bank is not subject to foreign currency exchange rate
risk or commodity price risk. For information regarding the sensitivity to
interest rate risk of the Savings Bank's interest-earning assets and interest-
bearing liabilities, see the tables under "BUSINESS OF THE SAVINGS BANK --
Lending Activities -- Loan Maturity," "-- Investment Activities" and "-- Deposit
Activities and Other Sources of Funds -- Time Deposits by Rates and Maturities."
QUALITATIVE ASPECTS OF MARKET RISK. The OTS uses a net market value
methodology to measure the interest rate risk exposure of thrift institutions.
This exposure is a measure of the potential decline in the net portfolio value
("NPV") of the institution based upon the effect of an assumed 200 basis point
increase or decrease in interest rates. NPV is the present value of the
expected net cash flows from the institution's assets, liabilities and off-
balance sheet contracts. Under OTS regulations, an institution's "normal" level
of interest rate risk in the event of this assumed change in interest rates is a
decrease in the institution's NPV in an amount not exceeding 2% of the present
value of its assets. 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).
28
<PAGE>
The following table is provided to the Savings Bank by the OTS and
illustrates the percent change in NPV as of September 30, 1997, based on OTS
assumptions. No effect has been given to any steps that the Savings Bank may
take to counteract the effect of the interest rate movements presented in the
table.
<TABLE>
<CAPTION>
Basis NPV as Percent of
Point ("bp") Net Portfolio Value Present Value of Assets
Change ------------------------------ ------------------------
In Rates Amount $ Change % Change NPV Ratio Change
- ------------ ------ --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
400 bp 24,217 $(14,457) (37)% 9.84% (479)bp
300 bp 28,092 (10,581) (27) 11.19 (343)
200 bp 31,972 (6,702) (17) 12.50 (213)
100 bp 35,469 (3,204) (8) 13.63 (100)
0 bp 38,673 14.62
(100 bp) 41,265 2,591 7 15.39 77
(200 bp) 43,761 5,087 13 16.10 148
(300 bp) 46,961 8,287 21 17.01 239
(400 bp) 51,467 12,793 33 18.26 364
</TABLE>
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.
Furthermore, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates likely could
deviate significantly from those assumed in calculating the table. Therefore,
the data presented in the table should not be relied upon as necessarily
indicative of actual results.
LIQUIDITY AND CAPITAL RESOURCES
The Savings Bank's primary sources of funds are deposits, repayment of loan
principal (including mortgage-backed securities ("MBSs" and CMOs) and, to a
lesser extent, sales of mortgage-backed securities available for sale,
maturities of investment securities, and short-term investments and operations.
While scheduled loan repayments and maturing investments are relatively
predictable, deposit flows and early loan repayments are more influenced by
interest rates, general economic conditions, and competition. The Savings Bank
attempts to price its deposits to meet its asset/liability objectives discussed
above, consistent with local market conditions. Excess balances are generally
invested in overnight funds. In addition, the Savings Bank is eligible to
borrow funds from the FHLB of Atlanta.
Under OTS regulations, a member thrift 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 of its net withdrawable accounts
plus short-term borrowings. The current liquidity requirement is 4.0%.
Monetary penalties may be imposed for failure to meet liquidity requirements.
The Savings Bank's liquidity ratio at September 30, 1997 was 5.64%.
The primary investing activity of the Savings Bank is lending. During the
years ended September 30, 1997 and 1996, the Savings Bank originated $77.3
million and $68.3 million, respectively, of loans, of which $5.7 million in 1997
and $9.6 million in 1996 were sold to the Federal Home Loan Mortgage Corporation
("FHLMC"). The retained originations were funded by $59.5 million and $27.0
million, respectively, in principal repayments on loans and mortgage-backed
securities.
29
<PAGE>
Liquidity management is both a short-and long-term responsibility of the
Savings Bank's management. The Savings Bank adjusts its investments in liquid
assets based upon management's assessment of (i) expected loan demand, (ii)
projected loan sales, (iii) expected deposit flows, (iv) yields available on
interest-bearing deposits, and (v) liquidity of its asset/liability management
program. Excess liquidity is invested generally in interest-bearing overnight
deposits and other short-term government and agency obligations. If the Savings
Bank requires funds beyond its ability to generate them internally, it has
additional borrowing capacity with the FHLB and collateral eligible for
repurchase agreements.
The Savings Bank anticipates that it will have sufficient funds available
to meet current loan commitments. At September 30, 1997, the Savings Bank had
outstanding commitments to originate loans (including commitments to fund
letters of credit) of $27.9 million. The Savings Bank expects to fund these
commitments with funds received from normal operations. See Note 17 to
Consolidated Financial Statements.
Certificates of deposit scheduled to mature in one year or less at
September 30, 1997 totaled $115.7 million. Although no assurances can be given,
based upon management's experience and familiarity with the customers involved
and the Savings Bank's pricing policy relative to that of its perceived
competitors, management believes that a significant portion of such deposits
will remain with the Savings Bank.
Since 1980, the Savings Bank has diversified its lending to include home
equity, second mortgage and consumer loans. This diversification has been
designed to increase earnings and reduce interest rate risk. The Savings Bank
has also increased the origination of home equity and second mortgage loans
secured by one- to four-family dwellings and intends to reduce the balance of
its MBSs by deploying funds into more profitable whole loans and becoming more
commercial bank-like in lending philosophy and direction. The Savings Bank will
continue to divest itself of mortgage-backed securities, when opportunities
arise to invest such funds in higher yielding whole loans. These changes in
lending and investment strategy will reduce the Savings Bank's liquidity in the
future as lower-yielding, more liquid assets are redeployed into higher-yielding
assets.
The Savings Bank must maintain minimum capital standards as promulgated by
the FDIC and the OTS which are: (1) a leverage limit requiring all thrift
institutions to maintain core capital in an amount not less than 3% of the
institution's total assets; (2) a tangible capital requirement of not less than
1.5% of total assets; and (3) a risk-based capital requirement of not less than
8% of the institution's total assets, substantially the same as the risk-based
capital requirements for national banks. The Savings Bank met all regulatory
capital requirements at September 30, 1997 and 1996. See "HISTORICAL AND PRO
FORMA REGULATORY CAPITAL COMPLIANCE."
30
<PAGE>
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement of Financial Accounting
Standards ("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 Savings Bank uses the
intrinsic value method.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. This statement applies prospectively
to transactions occurring after December 31, 1996, and establishes new standards
that focus on control whereas, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. The adoption of SFAS No. 125
did not have a material impact on the Savings Bank's results of operations or
financial position.
DEFERRAL OF THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF SFAS NO. 125. In
December 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No.
127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." SFAS No. 127 defers for one year the effective date of portions of SFAS
No. 125 that address secured borrowings and collateral for all transactions.
Additionally, SFAS No. 127 defers for one year the effective date of transfers
of financial assets that are part of repurchase agreements, securities lending
and similar transactions.
EARNINGS PER SHARE. In February 1997, the FASB issued SFAS No. 128,
"Earnings Per Share." SFAS 128 applies to entities with publicly traded common
stock or potential common stock and is effective for financial statements for
periods ending after December 15, 1997, including interim periods. SFAS 128
simplifies the standards for computing earnings per share ("EPS") previously
found in Accounting Principles Board ("APB") Opinion 15, "Earnings Per Share."
It replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of the
income statement for all companies with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. The Savings
Bank's present computation of diluted EPS under APB Opinion 15 is applied
against a materiality test of 3%. For financial statements issued by the
Savings Bank after December 15, 1997, the materiality test will no longer apply
and the Savings Bank will report basic and diluted EPS for each period presented
as well as the further reconciliations required by SFAS 128. Although earlier
application is not permitted, SFAS 128 will require restatement of all prior-
period EPS data presented.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. In February 1997, the
FASB also issued SFAS No. 129, "Disclosure of Information about Capital
Structure." The purpose of SFAS 129 is to consolidate existing disclosure
requirements for ease of retrieval. SFAS 129 contains no change in disclosure
requirements for companies, such as the Savings Bank that were subject to the
previously existing requirements. It applies to all entities and is effective
for financial statement issued for periods ending after December 15, 1997.
31
<PAGE>
REPORTING COMPREHENSIVE INCOME. In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income." The purpose of SFAS 130 is to address
concerns over the practice of reporting elements of comprehensive income
directly in equity. This SFAS requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed in equal prominence with the
other financial statements. This statement is effective for periods beginning
after December 15, 1997. Comparative financial statements are required to be
reclassified to reflect the provisions of this statement. The Savings Bank will
adopt the provisions of this SFAS for fiscal year 1998.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement applies to all public
entities. The provisions of SFAS 131 require certain disclosures regarding
material industry segments within an entity. SFAS 131 is not expected to have a
material impact on the Savings Bank.
YEAR 2000 CONSIDERATIONS
Many existing computer programs use only two digits to identify a year in
the date datum field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If uncorrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
The Savings Bank has an in-house computer system to process customer
records and monetary transactions, post deposit and general ledger entries and
record activity in installment lending, loan servicing and loan originations.
Based on internal testing procedures and conversations with the software
provider, the Savings Bank does not expect that the cost of addressing any Year
2000 issue will be a material event or uncertainty that would cause its reported
financial information not to be necessarily indicative of future operating
results or future financial condition, or that the costs or consequences of
incomplete or untimely resolution of any Year 2000 issue represent a known
material event or uncertainty that is reasonably likely to affect its future
financial results, or cause its reported financial information not to be
necessarily indicative of future operating results or future financial
condition.
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 changes in relative purchasing power of money over time
due to inflation. The primary impact of inflation on operations of the Savings
Bank is reflected in increased operating costs. 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 Savings Bank on November 5, 1997 for the purpose of becoming a
holding company for the Savings Bank upon completion of the Conversion and
Reorganization. As a result of the Conversion and Reorganization, the Savings
Bank will be a wholly-owned subsidiary of the Holding Company and all of the
issued and outstanding capital stock of the Savings Bank will be owned by the
Holding Company.
32
<PAGE>
BUSINESS
Prior to the Conversion and Reorganization, the Holding Company has not
engaged and will not engage in any significant activities other than of an
organizational nature. Upon completion of the Conversion and Reorganization,
the Holding Company's primary business activity will be the ownership of the
outstanding capital stock of the Savings Bank. 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 Savings Bank with
the payment of appropriate rental fees, as required by applicable law and
regulations.
Since the Holding Company will only hold the outstanding capital stock of
the Savings Bank upon consummation of the Conversion and Reorganization, the
competitive conditions applicable to the Holding Company will be the same as
those confronting the Savings Bank. See "BUSINESS OF THE SAVINGS BANK --
Competition."
BUSINESS OF THE SAVINGS BANK
GENERAL
The Savings Bank operates, and intends to continue to operate, as a
community oriented financial institution and is devoted to serving the needs of
its customers. The Savings Bank'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 Savings Bank considers Anderson and Oconee Counties, South Carolina, as
its primary market area. Additional loan origination demand is generated from
customers living in contiguous counties. The Savings Bank also purchases loans
secured by properties in South Carolina located outside its primary market area.
The Savings Bank's main office and four branch offices are located in the
City of Anderson, the county seat and largest city in Anderson County, South
Carolina. Anderson County is included in the Greenville/Spartanburg
metropolitan statistical area. The Cities of Greenville and Spartanburg are
located 30 and 60 miles northeast of Anderson, respectively, and Atlanta,the
closest major city, is 120 miles to the southwest.
Much of Anderson County is rural and roughly half of the land area is used
for agricultural purposes. Anderson County has benefitted from the growth of
the Greenville metropolitan area and is experiencing significant residential and
commercial development along Interstate 85, a major transportation route that
crosses through Anderson County. Major area employers include BMW Manufacturing
Corp., Hoechst Celenese Corporation, Owens Corning and Michelin Tire. Oconee is
a smaller but rapidly growing county located west of Anderson County. According
to recent government statistics, the September 1997 unemployment rates for
Anderson and Oconee Counties were both less than the South Carolina and national
averages.
LENDING ACTIVITIES
GENERAL. Historically, the Savings Bank's principal lending activity has
been the origination of residential real estate loans for the purpose of
constructing or financing one- to four-family residential properties. At
September 30, 1997, the Savings Bank's loan portfolio consisted of $118.3
million of one- to four-family residential
33
<PAGE>
loans, $17.1 million of construction loans, $19.2 million of consumer loans,
$27.0 million of commercial real estate loans, and $7.2 million of commercial
business loans. In recent periods, the Savings Bank has increased its
investment in commercial real estate loans, commercial business loans and
construction loans.
34
<PAGE>
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Savings Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------------------------
1997 1996 1995 1994
-------------------- ------------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family(1)....... $118,279 66.16% $ 91,186 64.78% $ 81,226 69.70% $ 77,624 74.03%
Multi-family................. 1,245 0.70 1,010 0.72 630 0.54 -- --
Commercial real estate....... 26,976 15.09 17,009 12.08 7,355 6.31 5,158 4.92
Construction................. 17,145 9.59 19,509 13.86 11,523 9.89 7,159 6.83
-------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans.... 163,645 91.54 128,714 91.44 100,734 86.44 89,941 85.78
-------- ------ -------- ------ -------- ------ -------- ------
Commercial business loans.... 7,182 4.02 5,529 3.93 3,657 3.13 1,222 1.17
Consumer loans:
Home equity and second
mortgage................... 3,405 1.90 5,036 3.58 7,535 6.47 10,071 9.60
Lines of credit............. 9,156 5.12 6,713 4.77 6,279 5.39 6,045 5.77
Automobile loans............ 3,540 1.98 2,677 1.90 1,438 1.23 735 0.70
Other....................... 3,072 1.72 2,490 1.77 2,293 1.97 1,837 1.75
-------- ------ -------- ------ -------- ------ -------- ------
Total consumer loans.... 19,173 10.72 16,916 12.02 17,545 15.06 18,688 17.82
-------- ------ -------- ------ -------- ------ -------- ------
Total loans............. 190,000 106.28 151,159 107.39 121,936 104.63 109,851 104.77
Less:
Undisbursed proceeds for
loans in process............ 8,985 (5.03) 8,866 (6.30) 4,119 (3.53) 4,037 (3.85)
Unearned discounts........... 357 -- -- -- -- -- -- --
Allowance for loan losses.... 1,886 (1.05) 1,535 (1.09) 1,278 (1.10) 962 (0.92)
-------- ------ -------- ------ -------- ------ -------- ------
Net loans receivable.... $178,772 100.00% $140,758 100.00% $116,539 100.00% $104,852 100.00%
======== ====== ======== ====== ======== ====== ======== ======
At September 30,
- --------------------------------------------------------------------------------------------------
1993
-------------------
Amount Percent
-------- --------
<S> <C> <C>
Mortgage loans:
One- to four-family(1)....... $ 68,461 70.58%
Multi-family................. -- --
Commercial real estate....... 2,584 2.66
Construction................. 5,112 5.27
-------- ------
Total mortgage loans.... 76,157 78.51
-------- ------
Commercial business loans.... 222 0.23
Consumer loans:
Home equity and second
mortgage................... 14,956 15.42
Lines of credit............. 5,915 6.10
Automobile loans............ 942 0.97
Other....................... 2,168 2.23
-------- ------
Total consumer loans.... 23,981 24.72
-------- ------
Total loans............. 100,360 103.46
Less:
Undisbursed proceeds for
loans in process............ 2,471 (2.55)
Unearned discounts........... -- --
Allowance for loan losses.... 884 (0.91)
-------- ------
Net loans receivable.... $ 97,005 100.00%
======== ======
- -------------------------
</TABLE>
(1) Includes construction loans converted to permanent loans and
participation loans.
35
<PAGE>
ONE- TO FOUR-FAMILY AND MULTI-FAMILY MORTGAGE LOANS. The Savings Bank
originates permanent conventional mortgage loans secured by one- to four-family
residential properties with original loan-to-value ratios up to 90% of the
appraised value or the purchase price of the property, whichever is less. At
September 30, 1997, the Savings Bank had $118.3 million, or 66% of total loans,
in one- to four-family mortgage loans. The Savings Bank requires hazard
insurance on the property securing the loan. All one- to four-family mortgage
loans require a title examination or abstract of title. Title insurance is
required on all fixed-rate mortgage loans so that they may be sold in the
secondary market. One- to four-family mortgage loans are generally underwritten
to conform to FHLMC guidelines. Loan to value ratios are limited to 80% but may
be increased to 95%, provided that private mortgage insurance coverage is
obtained for amounts over 80%.
The Savings Bank offers both fixed-rate mortgages and ARM loans with terms
of 15 to 30 years. At September 30, 1997, ARM loans totalled $45.6 million, or
38.5% of the one- to four-family loan portfolio. The Savings Bank offers four
conventional ARM loans: a one year ARM loan with annual adjustment periods
indexed to the One Year Treasury Bill; a three year ARM loan with annual
adjustment periods indexed to the Three Year Treasury Bill; a five year ARM loan
with annual adjustment periods indexed to the One Year Treasury Bill; and a ten
year ARM loan with annual adjustment periods indexed to the One Year Treasury
Bill. The one year ARM loan and the three year ARM loan provide that the amount
of any increase or decrease in the interest rate is limited to two percentage
points (upward or downward) per adjustment period and generally contain a 6%
maximum adjustment over the life of the loan. The five year ARM loan and the
ten year ARM loan provide that the amount of any increase or decrease in the
interest rate is limited to two percentage points (upward or downward) per
adjustment period and generally contain a 5% maximum adjustment over the life of
the loan. At September 30, 1997, the majority of the ARM loans in the Savings
Bank's portfolio, that were originated by the Savings Bank, were the three year
and five year varieties. If market interest rates increase, these rate
adjustment limitations may prevent such ARM loans from repricing to market
interest rates, which would have an adverse effect on net interest income.
Borrower demand for ARMs 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 interest rates and loan fees for fixed-rate
mortgage loans and interest rates and loan fees for ARMs. Fixed-rate loans are
originated for sale in the secondary market, though loans with terms of 15 years
occasionally are retained in the Savings Bank's portfolio. The relative amount
of fixed-rate and ARM loans that can be originated at any time is largely
determined by the demand for each in the prevailing competitive environment.
In recent periods, the Savings Bank has purchased one- to four-family
mortgage loans from a mortgage banking company located in Hilton Head Island,
South Carolina, and a mortgage banking company located in Greenville, South
Carolina. These purchases account for a substantial portion of the growth in
the one- to four-family loan portfolio in recent periods. During the year ended
September 30, 1997, the Savings Bank purchased $23.6 million of one- to four-
family mortgage loans. Substantially all of these purchases were from the
Greenville mortgage company. In future periods, the Savings Bank expects that a
substantial portion of purchased loan volume will come from that company, rather
than the Hilton Head Island mortgage company, because of the increasing
competition in the Hilton Head Island market.
At September 30, 1997, the Savings Bank had $4.1 million of purchased loans
secured by residential properties on Hilton Head Island, South Carolina, all of
which were one year ARM loans. These loans were all purchased from the same
mortgage company, located on Hilton Head Island. Prior to purchase, the Savings
Bank reviews each loan for conformance to the Savings Bank's underwriting
criteria. At September 30, 1997, the average size of such loans was
approximately $238,000 and the largest loan had an outstanding balance of $1.3
million. Although all such loans were performing according to their terms at
September 30, 1997, they do possess certain risks due to the average size of
such loans and the location of the properties outside the Savings Bank's primary
market area. Subject to market conditions, the Savings Bank expects to purchase
additional such loans.
At September 30, 1997, the Savings Bank had $23.7 million of purchased one-
to four-family mortgage loans secured by residential properties located
primarily in Greenville, South Carolina. These loans were all
36
<PAGE>
purchased from the mortgage company in which a service corporation subsidiary of
the Savings Bank has an equity investment. See "-- Subsidiary Activities."
Prior to purchase, the Savings Bank reviewes each loan for conformity with the
Savings Bank's underwriting criteria. At September 30, 1997, the average size
of such loans was approximately $126,000. Subject to market conditions, the
Savings Bank expects to purchase additional such loans.
The Savings Bank does not actively solicit multi-family loans but extends
them as an accommodation to existing customers. At September 30, 1997, multi-
family loans totalled $416,000, or 0.01% of net loans receivable, and consisted
of two loans, the largest of which had an outstanding balance of $240,000. All
such loans are secured by properties located in the Savings Bank's primary
market area. At September 30, 1997, all multi-family loans were performing
according to their terms.
CONSTRUCTION LOANS. The construction loan portfolio was $17.1 million, or
9.0% of the total loan portfolio at September 30, 1997. The Savings Bank
intends to continue emphasizing and expanding this type of lending. Such loans
are primarily combined construction and permanent mortgage loans. The
construction portion of the loan is for a period of up to 12 months on an
interest only basis and at a maximum loan to value ratio of 95%. The permanent
mortgage is made for up to 30 years. Construction-permanent loans are made at
the same fixed- or adjustable-rates of interest that are offered for permanent
residential mortgage loans made by the Savings Bank. The majority of
construction loans are made against binding sales contracts for the home being
built. The Savings Bank also originates speculative construction loans to a
small number of residential builders in its primary market area well known to
the Savings Bank. At September 30, 1997, the Savings Bank had $17.1 million, or
9.59% of total loans, in construction loans, of which $6.4 million were
speculative constructive loans. During the year ended September 30, 1997, the
Savings Bank purchased speculative construction loans secured by one- to four-
family properties located on Hilton Head Island, South Carolina, in the
aggregate amount of $2.5 million, of which $343,000 was outstanding as of
September 30, 1997. All of these purchased construction loans were performing
according to their terms at September 30, 1997.
Construction lending generally is considered to involve a higher degree of
credit risk than long-term financing of residential properties. The risk of
loss on a construction loan is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development and the estimated cost (including interest) of construction. If the
estimate of construction cost and the marketability of the property upon
completion of the project prove to be inaccurate, the Savings Bank may be
compelled to advance additional funds to complete the development. If the
borrower is unable to sell the completed project in a timely manner or obtain
adequate proceeds to repay the loan, the loan may become non-performing.
Furthermore, if the estimate of value proves to be inaccurate, the Savings Bank
may be confronted with, at or prior to the maturity of the loan, a project with
a value which is insufficient to assure full repayment. The ability of the
developer or builder to sell developed lots or completed dwelling units will
depend on, among other things, demand, pricing and availability of comparable
properties, and economic conditions.
The Savings Bank's underwriting criteria are designed to evaluate and
minimize the risks of each construction loan. Among other things, the Savings
Bank considers evidence of the availability of permanent financing for the
borrower, the reputation of the borrower, the amount of the borrower's equity in
the project, the independent appraisal and review of cost estimates, the pre-
construction sale and leasing information, and the cash flow projections of the
borrower. In addition, except for the purchased construction loans on Hilton
Head Island, South Carolina, the majority of the construction loans granted by
the Savings Bank are secured by property in the Savings Bank's primary market
area. The Savings Bank reviews such purchased construction loans for conformity
with the Savings Bank's underwriting criteria before purchase.
COMMERCIAL REAL ESTATE LOANS. The Savings Bank originates and purchases
commercial real estate loans. Commercial real estate loans totalled $27.0
million, or 15% of the total loan portfolio, at September 30, 1997. Currently,
the Savings Bank originates commercial real estate loans only to select
borrowers known to the Savings Bank and secured by properties in its primary
market area and generally in amounts between $100,000 and
37
<PAGE>
$500,000. The commercial real estate loan portfolio has increased in recent
periods from $17.0 million, or 12% of the total loan portfolio at September 30,
1996, to $27.0 million, or 15%, at September 30, 1997. The Savings Bank intends
to continue emphasizing and expanding this type of lending. At September 30,
1997, the largest commercial real estate loan originated by the Savings Bank had
an outstanding balance of $2.0 million and was secured by multiple units of one-
to- four family dwellings and land located in Anderson. The loan was performing
according to its terms at that date. At September 30, 1997, the largest
purchased commercial real estate loan had an outstanding balance of $1.5 million
and was secured by a sub-division development located in Greenville, South
Carolina. The loan was performing according to its terms at that date.
Of primary concern in commercial real estate lending is the borrower's
creditworthiness and the feasibility and cash flow potential of the project.
The Savings Bank's income property collateral is not concentrated in any one
industry or area. Examples of the types of collateral securing the income
property loans include office buildings and residential rental properties.
Loans secured by income properties are generally larger and involve greater
risks than residential mortgage loans because payments on loans secured by
income properties are often dependent on successful operation or management of
the properties. As a result, repayment of such loans may be subject, to a
greater extent than residential real estate loans, to supply and demand in the
market in the type of property securing the loan and, therefore, may be subject
to adverse conditions in the real estate market or the economy. If the cash
flow from the project is reduced, the borrowers ability to repay the loan may be
impaired.
COMMERCIAL BUSINESS LOANS. At September 30, 1997, the Savings Bank had
$7.2 million of commercial business loans, which represented 4% of total loans.
Commercial business loans generally include equipment loans with terms of up to
five years and lines of credit secured by savings accounts and unsecured line of
credit. Such loans are generally made in amounts up to $100,000 and carry
adjustable rates of interest. The Savings Bank generally requires annual
financial statements from its commercial business borrowers and personal
guarantees if the borrower is a corporation. At September 30, 1997, the largest
outstanding commercial business loan was a $500,000 line of credit with an
outstanding balance of $237,000 that was secured by an assignment of residential
mortgages. The loan was performing according to its terms at that date.
Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those
associated with residential, commercial and multi-family 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 not a sufficient 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.
CONSUMER LOANS. The Savings Bank originates a wide variety of consumer
loans, which are made primarily on a secured basis to existing customers.
Consumer loans include savings account loans, direct automobile loans, direct
boat loans, renewable lines of credit and unsecured loans. These loans are made
at both fixed- and variable-rates of interest, adjustable annually, and with
varying terms depending on the type of loan. In addition, the Savings Bank
offers unsecured consumer loans. Consumer loans totalled $19.2 million at
September 30, 1997, or 11% of the Savings Bank's total loan portfolio.
At September 30, 1997, the largest components of the consumer loan
portfolio were home equity and second mortgage loans and lines of credit. At
September 30, 1997, such loans totalled $12.6 million, or 7.0% of the total loan
portfolio. At September 30, 1997, commitments to extend credit under lines of
credit totalled $10.3 million.
38
<PAGE>
Home equity and second mortgage loans are generally for the improvement of
residential properties. The majority of these loans are made to existing loan
customers and are secured by a first or second mortgage on residential property.
The Savings Bank actively solicits these types of loans by contacting their
borrowing customers directly. The loan-to-value ratio on these properties is
typically below 80%, including the first mortgage and home equity or second
mortgage loan. Home equity and second mortgage loans are typically variable
rate loans with a fixed payment that matures over 15 years. Rates adjust
monthly; however, the payment remains constant over the loan term and any rate
adjustment is reflected in an increase in the loan term. The interest rate is
tied to the prime lending rate.
Lines of credit are generally secured by a second mortgage on residential
property and are generally made to existing customers. Credit lines are
generally 80% of the appraised value of the collateral property. Terms range
from five to 15 years and the interest rate is generally tied to the prime
lending rate.
The Savings Bank views consumer lending as an important component of its
business operations because consumer loans generally have shorter-terms and
higher yields, thus reducing exposure to changes in interest rates. In
addition, the Savings Bank believes that offering consumer loans helps to expand
and create stronger ties to its customer base. The Savings Bank intends to
continue emphasizing this type of lending.
The Savings Bank employs strict underwriting standards for consumer loans.
These procedures include an assessment of the applicant's payment history on
other debts and ability to meet existing obligations and payments on the
proposed loans. Although the applicant's creditworthiness is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, to the proposed loan amount. The Savings Bank
underwrites and originates all of its consumer loans internally, which
management believes limits exposure to credit risks relating to loans
underwritten or purchased from brokers or other outside sources.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
assets that depreciate rapidly, such as automobiles. In the latter case,
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment for the outstanding loan and the remaining deficiency often
does not warrant further substantial collection efforts against the borrower.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus 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 which can be recovered on
such loans. Such loans may also give rise to claims and defenses by the
borrower against the Savings Bank as the holder of the loan, and a borrower may
be able to assert claims and defenses which it has against the seller of the
underlying collateral.
LOAN MATURITY
The following table sets forth certain information at September 30, 1997
regarding the dollar amount of loans maturing in the Savings Bank's portfolio
based on their contractual terms to maturity. Demand loans, loans having no
stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Loan balances do not include undisbursed
loan proceeds, unearned discounts, unearned income and allowance for loan
losses.
39
<PAGE>
<TABLE>
<CAPTION>
Within One Year After 3 Years After 5 Years
One Year Through 3 Years Through 5 Years Through 10 Years Beyond 10 Years Total
-------- --------------- --------------- ---------------- --------------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage(1)... $27,466 $35,284 $20,606 $18,913 $8,314 $110,583
Commercial real estate.... 13,365 7,884 5,024 568 91 26,932
Commercial business....... 5,148 1,174 732 128 -- 7,182
Construction.............. 16,698 447 -- -- -- 17,145
Automobile................ 203 1,350 1,939 48 -- 3,540
Savings account loans..... 1,089 144 88 12 12 1,345
Other..................... 11,519 2,083 12 674 -- 14,288
------- ------- ------- ------- ------ --------
Total loans.......... $75,488 $48,366 $28,401 $20,343 $8,417 $181,015
======= ======= ======= ======= ====== ========
- ------------------------
</TABLE>
(1) Includes one- to four-family and multi-family loans.
The following table sets forth the dollar amount of all loans due after
September 30, 1998, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable Rates
------- ----------------
(In Thousands)
<S> <C> <C>
Residential mortgage(1)... $48,357 $34,760
Commercial real estate.... 12,101 1,466
Commercial business....... 1,220 814
Construction.............. 447 --
Automobile................ 3,337 --
Savings account loans..... 256 --
Other..................... 748 2,021
------- -------
Total................ $66,466 $39,061
======= =======
- ----------------------
</TABLE>
(1) Includes one- to four-family and multi-family loans.
LOAN SOLICITING AND PROCESSING. Loan originations come from a number of
sources. The Savings Bank's customary sources of loans are from realtors, walk-
in customers, referrals and existing customers. A formal business development
program has been implemented where loan officers and sales personnel make
regular sales calls on building contractors and realtors.
The Savings Banks' Loan Committee approves loan applications up to and
including $500,000. The Loan Committee is composed of Robert W. Orr, President,
Managing Officer and Director, Barry C. Visioli, Senior Vice President, John
Dawkins, Vice President, and David Peters, Vice President. Loan applications in
excess of $500,000 must be approved by the full Board of Directors.
LOAN PURCHASES AND SALES AND SERVICING. The Savings Bank is an active
purchaser of loans. In recent periods, the Savings Bank has purchased ARM
loans, construction loans and lot loans secured by properties on Hilton Head
Island, South Carolina. See "-- Lending Activities -- One- to Four-Family and
Multi-Family Mortgage Loans" and "-- Lending Activities -- Construction Loans."
In addition, the Savings Bank purchases one- to four-family, commercial real
estate and construction loans from a mortgage company in which a service
corporation subsidiary of the Savings Bank has an equity investment.
Furthermore, the Savings Bank purchases periodically participation interests in
permanent real estate loans and construction loans. Any participation interest
purchased must meet the Savings Bank's own underwriting standards. The Savings
Bank purchases loans from institutions in the State of South Carolina.
40
<PAGE>
The Savings Bank periodically sells one- to four-family mortgage loans to
the FHLMC in order to comply with the regulations limiting the amount of loans
to one borrower or to reduce the amount of fixed-rate loans in the Savings
Bank's portfolio. The Savings Bank generally sells all fixed-rate, 30-year
residential mortgage loans.
The Savings Bank participates in loan servicing activities both directly
and indirectly. Direct servicing activities arise in connection with loans that
the Savings Bank originates but sells with servicing rights retained. The
Savings Bank generally receives a fee payable monthly of 1/4% to 3/8% per annum
of the unpaid balance of each loan for which it retains servicing rights. At
September 30, 1997, the Savings Bank was servicing loans for others aggregating
$62.1 million. During the year ended September 30, 1997, the Savings Bank
earned servicing fee income of $198,000.
The Savings Bank participates indirectly in loan servicing activities
through its equity investment, through a service corporation subsidiary, in a
mortgage banking company (see "-- Subsidiary Activities") and through an
investment in a limited partnership. At September 30, 1997, the mortgage
banking company was servicing 226 loans for others aggregating $28.0 million.
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------
1997 1996 1995
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Total loans at beginning of
period........................ $151,159 $121,936 $109,851
-------- -------- --------
Loans originated:
One- to four-family........... 18,783 30,065 16,167
Multi-family.................. 240 1,312 526
Commercial real estate........ 11,912 7,113 5,804
Construction loans............ 10,934 12,816 12,169
Commercial business........... 10,731 6,302 4,735
Consumer...................... 24,739 10,696 14,984
-------- -------- --------
Total loans originated...... $ 77,339 $ 68,304 54,385
-------- -------- --------
Loans purchased:
One- to four-family........... 23,581 18,242 6,543
Commercial real estate(1)..... 3,146 -- 813
-------- -------- --------
Total loans purchased....... 26,727 18,242 7,356
-------- -------- --------
Loans sold:
Total whole loans sold........ (5,747) (9,556) (9,614)
-------- -------- --------
Total loans sold........... (5,747) (9,556) (9,614)
Mortgage loan principal
repayments.................... (59,478) (47,767) (40,042)
Net loan activity.............. 38,841 29,223 12,085
-------- -------- --------
Total loans at end of period... $190,000 $151,159 $121,936
======== ======== ========
- ----------------------
</TABLE>
(1) In 1997, includes a $2.3 million purchased loan secured by single-family
lots located in Greenville, South Carolina.
41
<PAGE>
EQUITY INVESTMENT IN LIMITED PARTNERSHIP. In December 1996, the Savings
Bank purchased a 20.625% interest in a limited partnership that invests in
mortgage servicing rights. Through this limited partnership, the Savings Bank
invests in servicing rights tied to a national portfolio of residential mortgage
loans. For the year ended September 30, 1997, the Savings Bank's return on
investment was approximately 5.89%. For the year ended September 30, 1997, the
Savings Bank recorded other income of $185,000 on its investment based on the
net income of the limited partnership as audited by independent certified public
accountants. See Note 3 of Notes to Consolidated Financial Statements. The
value of the Savings Bank's investment in the limited partnership would be
adversely affected by credit quality deterioration of the underlying mortgage
loans. The value of the investment would also be adversely affected by an
increase in market interest rates. See "RISK FACTORS -- Interest Rate Risk."
LOAN COMMITMENTS. The Savings Bank issues commitments for fixed- and
adjustable-rate single-family residential 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 30 days from approval, depending
on the type of transaction. The Savings Bank had outstanding loan commitments
(including commitments to fund letters of credit) of approximately $27.9 million
at September 30, 1997. See Note 17 of Notes to Consolidated Financial
Statements.
LOAN ORIGINATION AND OTHER FEES. The Savings Bank, in most instances,
receives loan origination fees and discount "points." Loan fees and points are
a percentage of the principal amount of the mortgage loan that are charged to
the borrower for funding the loan. The Savings Bank usually charges origination
fees of 0.5% to 1.0% on one- to four-family residential real estate loans and
1.0% to 2.0% on long-term commercial real estate loans. Current accounting
standards require fees received for originating loans to be deferred and
amortized into interest income over the contractual life of the loan. Deferred
fees associated with loans that are sold are recognized as income at the time of
sale.
The Savings Bank offsets all loan origination fees and certain related
direct loan origination costs against all fees and costs associated with loan
origination. The resulting net amount is deferred and amortized over the
contractual life of the related loans as an adjustment to the yield on such
loans, unless prepayments of a large group of similar loans are probable and the
timing and amount of prepayments can be reasonably estimated. The Savings Bank
offsets commitment fees against related direct costs and the resulting net
amount is recognized over the contractual life of the related loans as an
adjustment of yield if the commitment is exercised. If the commitment expires
unexercised, the fees collected are recognized as non-interest income upon
expiration of the commitment.
DELINQUENCIES. The Savings Bank's collection procedures provide for a
series of contacts with delinquent borrowers. After a delinquency of 15 days, a
late charge is assessed. If the delinquency continues, subsequent efforts will
be made to contact the delinquent borrower. The Savings Bank's collection
procedures provide that when a loan is 30 days overdue, and again on the 45th
day, the borrower will be contacted by mail and payment will be requested. If a
loan continues in a delinquent status for 90 days or more, the Savings Bank
generally initiates foreclosure proceedings. In certain instances, however, the
Board may decide to modify the loan or grant a limited moratorium on loan
payments to enable the borrower to reorganize his financial affairs.
42
<PAGE>
The following table sets forth information with respect to the Savings
Bank's non-performing assets for the periods indicated. During the periods
shown, the Savings Bank had no restructured loans within the meaning of SFAS No.
15.
<TABLE>
<CAPTION>
At September 30,
---------------------------------------------
1997 1996 1995 1994 1993
------- ------ ------ ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-
accrual basis:
Mortgage................................. $ 220 $ 190 $ 348 $ 435 $ --
Consumer................................. -- -- 124 163 448
Commercial............................... 183 126 -- -- --
------ ----- ----- ------ ------
403 316 472 598 448
------ ----- ----- ------ ------
Accruing loans which are contractually
past due 90 days or more:
Real estate:
Residential............................. 6 467 82 60 826
Consumer................................. 8 2 9 17 17
Commercial............................... 465 10 -- -- --
------ ----- ----- ------ ------
479 479 91 77 843
------ ------ ----- ----- ------
Total of non-accrual and
past due 90 days or more................ 882 795 563 675 1,291
------ ----- ----- ------ ------
Real estate owned, net................... 163 3 32 575 87
------ ----- ----- ------ ------
Total non-performing assets.............. $1,045 $ 798 $ 595 $1,250 $1,378
====== ===== ===== ====== ======
Total loans delinquent 90 days
or more to net loans................... 0.49% 0.56% 0.48% 0.64% 1.33%
Total loans delinquent 90 days
or more to total assets................ 0.34% 0.38% 0.32% 0.39% 0.77%
Total non-performing assets to
total assets............................ 0.41% 0.38% 0.33% 0.73% 0.82%
</TABLE>
The increase in non-performing assets at September 30, 1997 resulted
primarily from an increase in accruing commercial real estate loans
contractually past due 90 days or more. At September 30, 1997, accruing
commercial real estate loans contractually past due 90 days or more consisted
primarily of one loan with an outstanding balance of $330,000, which was secured
by a commercial property located in the Savings Bank's primary market area.
The Savings Bank does not accrue interest loans, including impaired loans
under SFAS No. 114, for which management deems the collection of additional
interest to be doubtful. If interest on these non-accrual loans had been
accrued, interest income of approximately $19,000 would have been recorded for
the year ended September 30, 1997.
ASSET CLASSIFICATION. OTS 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 must have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies
43
<PAGE>
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 "loss" is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. The regulations
have also created a "special mention" category, described as assets which do not
currently expose an insured institution to a sufficient degree of risk to
warrant classification but do possess credit deficiencies or potential
weaknesses deserving management's close attention. Assets classified as
substandard or doubtful require the institution to establish general allowances
for loan losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss or charge-off such
amount. A portion of general loss allowances established to cover possible
losses related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
The aggregate amounts of the Savings Bank's classified assets and of the
Savings Bank's general and specific loss allowances and charge-offs for the
period then ended, were as follows:
<TABLE>
<CAPTION>
At or For the Years
Ended September 30,
-------------------------------------
1997 1996 1995
------ ---- ----
(In Thousands)
<S> <C> <C> <C>
Loss....................... $ 140 $ 125 $ 86
Doubtful................... 8 32 --
Substandard assets......... 1,227 598 575
Special mention............ 58 -- --
------ ------ ------
$1,433 $ 755 $ 661
====== ====== ======
General loss allowances.... 1,746 1,410 1,192
Specific loss allowances... 140 125 86
Net charge-offs............ 304 92 46
</TABLE>
At September 30, 1997, loss assets consisted of one commercial real estate
loan ($10,000), five one- to four-family mortgage loans ($34,000), one secured
commercial business loan ($9,000), and one unsecured commercial business loan
($87,000); doubtful assets consisted of an unsecured consumer loan; substandard
assets consisted of 18 one- to four-family mortgage loans ($662,000), two
commercial real estate loans ($370,000), two secured commercial business loan
($168,000), four secured consumer loans ($16,000) and seven unsecured consumer
loan ($11,000); and special mention assets consisted of one commercial real
estate loan ($3,000) and a one- to four-family mortgage loan ($55,000).
REAL ESTATE OWNED. Real estate acquired by the Savings Bank as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until it is sold. When property is acquired it is recorded at the fair value of
the property received. Subsequently, it is carried at the lower of its new cost
basis or fair value, less estimated selling costs. The Savings Bank had
$163,000 of real estate owned at September 30, 1997.
ALLOWANCE FOR LOAN LOSSES. The Savings Bank's management evaluates the
need to establish allowances against losses on loans each year based on
estimated losses on specific loans when a decline in value has occurred. Such
evaluation includes a review of all loans for which full collectibility may not
be reasonably assured and considers, among other matters, the estimated market
value of the underlying collateral of problem loans, prior loss experience,
economic conditions and overall portfolio quality. The provision for loan
losses is charged against earnings in the year it is established. In recent
periods, the Savings Bank has increased the provision for loan losses in
recognition of the changing composition of the loan portfolio toward an
increased emphasis on commercial real estate loans, construction loans, and
other types of lending that carry a greater degree of credit risk than one- to
44
<PAGE>
four-family mortgage lending. At September 30, 1997, the Savings Bank had an
allowance for loan losses of $1.9 million, or 1.04% of total loans. Based on
past experience and future expectations, management believes that the allowance
for loan losses is adequate at September 30, 1997.
While the Savings Bank believes it has established its existing allowance
for loan losses in accordance with GAAP, the allowance is based on estimates
which are subject to change based upon changes in the loan portfolio and
economic conditions, among other things. Furthermore, there can be no assurance
that the Savings Bank's regulators, in reviewing the Savings Bank's loan
portfolio, will not request that the Savings Bank increase its allowance for
loan losses, thereby negatively affecting the Savings Bank's financial condition
and earnings based upon information available to the regulators at the time of
their examination.
The following table sets forth an analysis of the Savings Bank's gross
allowance for possible loan losses for the periods indicated. Where specific
loan loss reserves have been established, any difference between the loss
reserve and the amount of loss realized has been charged or credited to current
income.
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance at beginning of
period...................... $ 1,535 $1,278 $ 962 $884 $624
-------- ------ ------- ---- ----
Provision for loan losses.... 655 349 362 120 364
Transfers to real estate
owned valuation allowance... -- -- -- -- 50
Recoveries:
Residential mortgage....... 4 6 -- -- --
Consumer................... 24 17 6 6 7
Total recoveries.......... 28 23 6 6 7
-------- ------ ------- ---- ----
Charge-offs:
Residential mortgage....... 4 18 -- 13 4
Consumer................... 100 97 52 35 57
Commercial................. 228 -- -- -- --
-------- ------ ------- ---- ----
Total charge-offs......... 332 115 52 48 61
-------- ------ ------- ---- ----
Net charge-offs........... 304 92 46 42 54
-------- ------ ------- ---- ----
Allowance at end of period... $ 1,886 $1,535 $ 1,278 $962 $884
======== ====== ======= ==== ====
Ratio of allowance to total
loans outstanding at the end
of the period............... 1.04% 1.08% 1.08% 0.92% 0.91%
Ratio of net charge-offs to
average loans outstanding
during the period........... 0.18% 0.07% 0.04% 0.84% 0.06%
</TABLE>
45
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the dates indicated.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ------------------------------ ---------------------------------
As a % % of As a % % of As a % % of
of Out- Loans in of Out- Loans in of Out- Loans in
standing Category standing Category standing Category
Loans in to Total Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans Amount Category Loans
------ -------- -------- ------ -------- -------- ------ -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate -
mortgage..................... $ 766 0.60% 70 $ 726 0.71% 72% $ 573 0.57% 83%
Commercial real estate
and commercial
business..................... 737 2.16 19 465 2.06 16 297 8.12 3
Consumer..................... 383 2.00 11 344 2.03 12 408 2.32 14
------ --- ------ --- ------ ---
Total allowance for loan
losses....................... $1,886 1.04% 100% $1,535 1.08% 100% $1,278 1.08% 100%
====== === ====== === ====== ===
</TABLE>
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------
1994 1993
----------------------------- ------------------------------
As a % % of As a % % of
of Out- Loans in of Out- Loans in
standing Category standing Category
Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans
------ -------- -------- ------ -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate -
mortgage.................... $493 0.48% 51% $506 0.67% 76%
Commercial real estate
and commercial
business.................... 100 1.94 10 -- -- --
Consumer..................... 369 1.70 39 378 1.56 24
---- --- ---- ---
Total allowance for loan
losses...................... $962 0.92% 100% $884 0.91% 100%
==== === ==== ===
</TABLE>
46
<PAGE>
INVESTMENT ACTIVITIES
The Savings Bank has made significant investments in mortgage-backed
securities, including CMOs. The Savings Bank had mortgage-backed securities
with an amortized cost of $35.7 million and a market value of $35.9 million at
September 30, 1997, all of which were invested in U.S. Government agency
securities, investment grade securities, and securities guaranteed by the
funding arm of the Resolution Trust Corporation ("RTC").
In an effort to increase the average portfolio yield, the Savings Bank
restructured its investment securities portfolio during the year ended September
30, 1997 by, in part, investing in callable, U.S. Government agency zero coupon
bonds with maturities exceeding ten years. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Comparison of
Financial Condition at September 30, 1997 and 1996" for further discussion.
Although these bonds offer higher yields, an increase in market interest rates
would have a material adverse effect on their value. See "RISK FACTORS --
Interest Rate Risk."
At September 30, 1997, the Savings Bank had invested $22.0 million in CMOs
($10.3 million in U.S. Government agency issues and $11.7 million in investment
grade private issues) with an average estimated life varying from six months to
five years and ranging in original principal amount from $2.0 million to $6.0
million. The weighted average yield to expected maturity on the CMOs at
September 30, 1997 was 7.30%. At September 30, 1997, CMOs consisted of Federal
National Mortgage Association ("FNMA"), as well as investment grade private
issues. CMOs may be used as collateral for borrowings and, through repayments,
as a source of liquidity. Management considers CMOs to be advantageous since
they offer yields above those available for investments of comparable credit
quality and duration and qualify as thrift investments under the qualified
thrift lender ("QTL") test. See "REGULATION -- Federal Regulation of Savings
Associations -- Qualified Thrift Lender Test." At September 30, 1997, the CMO
portfolio consisted of various tranches but no residuals. In recent years, the
Savings Bank has used the proceeds from the paydown of CMOs to invest in one- to
four-family and other types of lending, and expects to continue to do so in the
future, subject to market conditions.
CMOs are subject to repayment by the mortgagors of the underlying
collateral at any time. Such prepayment may subject the Savings Bank's CMOs to
yield and price volatility. To assess this volatility, the OTS requires the
Savings Bank to test annually its CMOs to determine whether they are high-risk
or non-high-risk securities. The policy established a three-part risk
measurement test for fixed-rate and a one-part test for floating-rate CMOs and
other mortgage derivative securities. Securities failing any one of the tests
are deemed to be high-risk securities. The OTS may require an institution to
dispose of one or all of the CMOs failing such tests. At September 30, 1997,
all of the Savings Bank's CMOs met the criteria established by the policy
designated as non-high-risk securities for continuing classification as suitable
investments. However, changes in interest rates may cause one or more of the
Savings Bank's CMOs to fail a stress test. The OTS may then require the Bank to
dispose of the CMOs failing the test. This may affect the classification of
such securities under SFAS No. 115.
Changes in the level of interest rates can have an adverse effect on the
mortgage-backed securities and CMO portfolio, thereby exposing the Savings Bank
to repayment risk and reinvestment risk. See "RISK FACTORS -- Interest Rate
Risk."
Investment decisions are made by the Savings Bank's Asset/Liability
Committee which consists of Senior Vice President Thomas C. Hall (Chairman),
President Robert W. Orr, Senior Vice President Barry C. Visioli, Vice President
David L. Peters, Vice President Teresa Hix, Vice President Quinnette Morrison
and Assistant Treasurer Brad Jones. The Savings Bank's investment objectives
are: (i) to provide and maintain liquidity within regulatory guidelines; (ii) to
maintain a balance of high quality, diversified investments to minimize risk;
(iii) to serve as a balance to earnings; and (iv) to maximize returns.
47
<PAGE>
The following table sets forth the composition of the Savings Bank's
investment portfolio at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- ----------- --------------------------
Amortized Percent of Amortized Percent of Amortized Percent of
Cost(1) Portfolio Cost(1) Portfolio Cost(1) Portfolio
------------ ----------- ------------ ----------- ------------ -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. agency securities....... $10,191 22% $ -- --% $ -- --%
Certificates of deposit...... -- -- 100 -- -- --
U.S. Treasury securities..... 998 2 2,395 5 798 2
Mortgage-backed securities
and CMOs................... 35,714 76 44,362 95 47,269 98
------- --- ------- ---- ------- ---
Total........................ $46,903 100% $46,857 100% $48,067 100%
======= === ======= ==== ======= ===
- ------------------
</TABLE>
(1) The market value of the Savings Bank's investment portfolio amounted to
$47.2 million, $45.6 million and $47.1 million at September 30, 1997, 1996,
and 1995, respectively.
The following table sets forth the maturities and weighted average yields
of the debt securities in the Savings Bank's investment securities portfolio at
September 30, 1997.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
--------------- --------------- ---------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ------ ------ ------ ------- ------ ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency securities....... $ -- --% $4,003 6.26% $ -- --% $ 6,188 8.10%
U.S. Treasury securities..... 998 5.64 -- -- -- -- -- --
Mortgage-backed securities
and CMOs................... 395 6.65 1,455 7.56 11,666 7.55 22,198 7.08
------ ------ ------- -------
Total........................ $1,393 5.93 $5,458 6.61 $11,666 7.55 $28,386 7.30
====== ====== ======= =======
</TABLE>
The following table sets forth certain information with respect to each
security (other than U.S. Government and agency securities) which had an
aggregate amortized cost in excess of 10% of the Savings Bank's stockholders'
equity at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
Carrying Market Carrying Market Carrying Market
Value Value Value Value Value Value
-------- ------- -------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
RTC mortgage-backed
securities...................................... $ 889 $ 888 $ 1,447 $ 1,414 $ 1,479 $ 1,430
CMOs............................................. 21,138 21,211 34,836 33,804 36,743 35,900
------- ------- ------- ------- ------- -------
Total......................................... $22,027 $22,099 $36,283 $35,218 $38,222 $37,330
======= ======= ======= ======= ======= =======
</TABLE>
48
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the major source of the Savings Bank's funds for
lending and other investment purposes. In addition to deposits, the Savings
Bank derives funds from loan principal repayments. Loan repayments are a
relatively stable source of funds while deposit inflows and outflows may be
significantly influenced by general interest rates and money market conditions.
The Savings Bank also has access to advances from the FHLB-Atlanta. These
advances can be used on a short-term basis to compensate for reductions in the
availability of funds from other sources or they may be used on a longer-term
basis for general business purposes. The Savings Bank has also on occasion
utilized repurchase agreements.
DEPOSIT ACCOUNTS. Local deposits are and traditionally have been the
primary source of the Savings Bank's funds for use in lending and other general
business purposes. The Savings Bank offers a number of deposit accounts,
including passbook, individual retirement accounts ("IRAs"), money market
deposits and certificate accounts currently ranging in maturity from three
months to five years. Deposit accounts vary as to terms, with the principal
differences being the minimum balance required, the time period the funds must
remain on deposit and the interest rate. From time to time, the Savings Bank
offers premiums to attract deposits. The Savings Bank is a member of an
automated teller machine network, which is available to the Savings Bank's
checking account depositors.
In recent years, the Savings Bank has offered newly authorized types of
short-term accounts and other savings alternatives that are more responsive to
changes in market rates of interest than passbook accounts and longer maturity
fixed-rate, fixed-term certificates that were the Savings Bank's primary source
of deposits prior to 1978. There has been some shifting of deposit mix which
has primarily resulted from the progressive elimination of federally imposed
rate ceilings on various types of deposits offered by federally insured
financial institutions such as the Savings Bank. The deregulation of various
federal controls on insured deposits has allowed the Savings Bank to be more
competitive in obtaining funds and has given it more flexibility to meet the
threat of net deposit outflows. The Savings Bank reviews the interest rates
offered on various savings accounts periodically so as to remain competitive
with other financial institutions in its market area.
Since early 1995, the Savings Bank has increased its core deposit base by
aggressively promoting checking accounts. At September 30, 1997, checking
account balances totalled $37.8 million.
At September 30, 1997, certificate of deposits scheduled to mature within
one year totalled $115.7 million. Although no assurances can be given, based on
past experience, the Savings Bank believes that a substantial portion of these
certificates of deposit will be renewed.
At September 30, 1997, the Savings Bank had no brokered deposits.
49
<PAGE>
The following table sets forth information concerning the Savings Bank's
deposits at September 30, 1997.
<TABLE>
<CAPTION>
Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- ---- ---- -------- ------ ------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.28% None NOW accounts $ 100 $ 25,996 12.93%
-- None Non-interest-bearing accounts 100 11,812 5.88
2.67 None Savings accounts 100 24,360 12.12
Certificates of Deposit
-----------------------
5.71 Within 6 months Fixed-term, fixed-rate 1,000 75,002 37.31
5.89 7 - 12 months Fixed-term, fixed-rate 1,000 40,649 20.22
6.00 13 - 36 months Fixed-term, fixed-rate 1,000 22,347 11.12
6.06 37 - 120 months Fixed-term, fixed-rate 1,000 836 0.42
-------- ------
$201,002 100.00%
======== ======
</TABLE>
The following table indicates the amount of jumbo certificates of deposit
by time remaining until maturity at September 30, 1997. Jumbo certificates of
deposit require minimum deposits of $100,000 and have negotiable interest rates.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposits
- --------------------------------- --------------
(In Thousands)
<S> <C>
Three months or less............. $ 4,677
Over three through six months.... 5,721
Over six through twelve months... 5,061
Over twelve months............... 3,081
-------
Total....................... $18,540
=======
</TABLE>
50
<PAGE>
DEPOSIT FLOW
The following table sets forth the balances of deposits in the various
types of accounts offered by the Savings Bank at the dates indicated.
<TABLE>
<CAPTION>
At September 30,
-----------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ -------------------------------- -------------------
Percent Percent Percent
of Increase of Increase of
Amount Total (Decrease) Amount Total (Decrease) Amount Total
-------- -------- ---------- -------- -------- ---------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing.................. $ 11,812 5.88% $ 3,464 $ 8,957 5.59% $ 4,885 $ 4,072 2.74%
NOW checking.......................... 25,996 12.93 1,703 24,293 15.16 4,401 19,892 13.37
Regular savings accounts.............. 24,360 12.12 1,249 23,111 14.42 80 23,031 15.49
Fixed-rate certificates which
mature in the year ending(1)(2):
Within 1 year....................... 115,651 57.53 31,881 83,770 52.28 2,148 81,622 54.89
After 1 year, but within 2 years.... 16,999 8.46 1,148 15,851 9.89 3,311 12,540 8.43
After 2 years, but within 5 years... 6,184 3.08 1,922 4,262 2.66 (3,290) 7,552 5.08
-------- ------ ------- -------- ------ ------- -------- ------
Total............................ $201,002 100.00% $41,367 $160,244 100.00% $11,535 $148,709 100.00%
======== ====== ======= ======== ====== ======= ======== ======
- -----------------------
</TABLE>
(1) At September 30, 1997, 1996 and 1995, jumbo certificates amounted to $18.5
million, $13.7 million and $11.8 million, respectively.
(2) IRA accounts included in certificate balances are $18.8 million, $15.7
million and $14.8 million at September 30, 1997, 1996 and 1995,
respectively.
TIME DEPOSITS BY RATES AND MATURITIES
The following table sets forth the time deposits in the Savings Bank
classified by rates at the dates indicated.
<TABLE>
At September 30,
---------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Below 3.00%.................. $ 194 $ -- $ 503
3.00 - 5.00%................ 2,012 4,119 18,623
5.01 - 7.00%................ 136,400 99,182 81,903
7.01 - 9.00%................ 228 582 685
-------- -------- --------
Total.................... $138,834 $103,883 $101,714
======== ======== ========
</TABLE>
51
<PAGE>
The following table sets forth the amount and maturities of time deposits
at September 30, 1997.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------------------
Percent
One to Over Two Over Three Over Five of Total
Less Than Two to Three to Five to Ten Certificate
One Year Years Years Years Years Total Accounts
--------- --------- -------- ----------- --------- --------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
2.50 - 5.00%................................ $ 2,206 $ -- $ -- $ -- $ -- $ 2,206 1.58%
5.01 - 7.00%................................ 113,445 17,017 5,330 506 102 136,400 98.26
7.01 - 9.00%................................ -- -- -- 159 69 228 0.16
-------- ------- ------ ---- ---- -------- -------
Total....................................... $115,651 $17,017 $5,330 $665 $171 $138,834 100.00%
======== ======= ====== ==== ==== ======== =======
</TABLE>
DEPOSIT ACTIVITY
The following table sets forth the savings activities of the Savings Bank for
the periods indicated.
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Beginning balance........................... $160,244 $148,709 $143,380
-------- -------- --------
Net increase (decrease) before
interest credited.......................... 32,599 4,724 (496)
Interest credited........................... 8,159 6,811 5,825
Net increase in savings deposits............ 40,758 11,535 5,329
------- -------- --------
Ending balance.............................. $201,002 $160,244 $148,709
======== ======== ========
</TABLE>
BORROWINGS. Historically, the Savings Bank has relied on repurchase
agreements as a source of borrowings to finance the purchase of investment
securities. Funding for lending activities has been provided from deposits and
borrowings from the FHLB-Atlanta. Under repurchase agreements, the Savings Bank
"sells" securities (generally U.S. Treasury securities and federal agency
obligations and mortgage-backed securities) under an agreement to buy them back
at a specified price at a later date. Repurchase agreements are subject to
renewal, and are deemed to be borrowings collateralized by the securities sold.
The Savings Bank had no repurchase agreements outstanding at September 30, 1997.
The Savings Bank has issued retail and commercial repurchase agreements and
would consider issuing them again in the future in an appropriate interest rate
environment. Under commercial repurchase agreements, the Savings Bank sells the
investment security to broker dealers who may then loan the security to other
parties in the normal course of operations. Commercial repurchase agreements
generally mature within 90 days from the date of the transaction.
Advances from the FHLB are typically secured by the Savings Bank's first
mortgage loans. At September 30, 1997, the Savings Bank was eligible to borrow
up to $55.0 million from the FHLB-Atlanta. The Savings Bank had FHLB advances
of $15.0 million outstanding at September 30, 1997. See Note 9 of Notes to
Consolidated Financial Statements.
52
<PAGE>
The FHLB functions as a central reserve bank providing credit for savings
and loan associations and certain other member financial institutions. As a
member, the Savings Bank is required to own capital stock in the FHLB and is
authorized to apply for advances on the security of such stock and certain of
its mortgage loans and other assets (principally securities which are
obligations of, or guaranteed by, the U.S. Government) provided certain
standards related to creditworthiness have been met. Advances are made pursuant
to several different 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 either on a fixed percentage of an institution's net worth or
on the FHLB's assessment of the institution's creditworthiness. Under its
current credit policies, the FHLB generally limits advances to 20% of a member's
assets, and short-term borrowings of less than one year may not exceed 10% of
the institution's assets. The FHLB determines specific lines of credit for each
member institution.
The following table sets forth certain information regarding borrowings by
the Savings Bank at the end of and during the periods indicated:
<TABLE>
<CAPTION>
At September 30,
--------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average rate paid on:
FHLB-Atlanta advances....................................... 6.24% 5.30% 5.77%
</TABLE>
<TABLE>
Years Ended September 30,
-------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum amount of borrowings outstanding at any month end:
Securities sold under agreements to repurchase............... $ -- $ -- $ 5,907
FHLB-Atlanta advances........................................ 15,000 19,000 57,500
Approximate average borrowings outstanding with respect to:
Securities sold under agreements to repurchase............... -- -- 1,338
FHLB-Atlanta advances........................................ 23,951 12,531 39,222
Approximate weighted average rate paid on:
Securities sold under agreements to repurchase............... -- -- 5.73%
FHLB-Atlanta advances........................................ 5.75% 5.24% 6.22
</TABLE>
COMPETITION
Anderson and Oconee Counties have a relatively large number of financial
institutions, many of which are branches of large southeast regional financial
institutions, and thus the Savings Bank faces strong competition in the
attraction of savings deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for savings deposits and
loans has historically come from other thrift institutions, credit unions and
commercial banks located in its market area. Particularly in times of high
interest rates, the Savings Bank has faced additional significant competition
for investors' funds from short-term money market securities and other corporate
and government securities and mutual funds. The Savings Bank's competition for
loans comes principally from other thrift institutions, credit unions,
commercial banks, finance companies, mortgage banking companies and mortgage
brokers.
SUBSIDIARY ACTIVITIES
The Savings Bank had an ownership interest in three service corporations at
September 30, 1997. Under OTS regulations, the Savings Bank is authorized to
invest up to 3% of its assets in service corporations, with
53
<PAGE>
amounts in excess of 2% only if used primarily for community purposes. At
September 30, 1997, the Savings Bank's net investment of approximately $2.1
million in its service corporations did not exceed this investment authority.
The Savings Bank has three service corporations: United Service Corporation
of Anderson, Inc. ("United Service"), United Investments Services, Inc. ("United
Investments") and Mortgage First Service Corporation ("Mortgage First").
United Service is a wholly-owned subsidiary of the Savings Bank. At
September 30, 1997, United Service had assets of $2.4 million. United Service is
involved in the following residential and commercial real estate development
projects:
Perpetual Square. A 33-acre commercial development in Anderson County
purchased in January 1996 for a purchase price of $850,000. The purchase price
and infrastructure improvement costs (i.e., installation of roads, utilities,
----
etc.) were financed by a loan from the Savings Bank that had an outstanding
balance of $375,000 at September 30, 1997. As of September 30, 1997,
approximately eight acres have been sold and the Savings Bank did not have loans
outstanding to any of the purchasers. In October 1997, the Savings Bank
established a branch office at this location. See "-- Properties." At
September 30, 1997, the Savings Bank's net investment in this project was
approximately $566,000.
The Meadows Development. A 99-acre residential subdivision consisting of
approximately 108 lots located in Anderson County purchased in October 1996 for
a purchase price of $225,000. The purchase price and infrastructure improvement
costs were financed by a loan from the Savings Bank that had an outstanding
balance of $1.0 million at September 30, 1997. The Savings Bank has entered
into a contractual agreement with the local office of a national realtor to
market the subdivision lots, and marketing began in September 1997. The realtor
has no investment in the project. As of September 30, 1997, three lots were
sold and the Savings Bank had outstanding loans to purchasers totaling $21,000.
At September 30, 1997, the Savings Bank's net investment in this project was
approximately $1.1 million.
Ashton Place Subdivision. A 24-acre multi-family housing development
consisting of 44 lots located in Anderson County purchased in January 1996 for a
purchase price of $164,000. The purchase price and infrastructure improvement
costs were financed by a loan from the Savings Bank that had an outstanding
balance of $82,000 as of September 30, 1997. The lots are being developed in
four phases of 11 lots each. As of September 30, 1997, 29 lots have been sold,
four lots remain unsold in phase III and all 11 lots remain unsold in phase IV.
At September 30, 1997, the Savings Bank had loans outstanding to purchasers
totaling $397,000. At September 30, 1997, the Savings Bank's net investment in
this project was approximately $271,000.
North Park. A 57-acre industrial park located in Anderson County purchased
in June 1996 at a purchase price of $248,000. The purchase price and
infrastructure improvement costs were financed by a loan from the Savings Bank
that had an outstanding balance of $203,000 as of September 30, 1997. As of
September 30, 1997, 12 acres had been sold and the Savings Bank had outstanding
loans to purchasers totaling $573,000, all of which were permanent mortgage
loans. At September 30, 1997, the Savings Bank's net investment in this project
was approximately $389,000.
United Investments, a wholly-owned subsidiary of United Service, offers
full service brokerage services. On a consolidated basis United Service and
United Investments had net income of $114,000 for the year ended September 30,
1997.
Mortgage First is a wholly-owned subsidiary of the Savings Bank. In August
1996, Mortgage First made a $400,000 equity investment in a start-up regional
mortgage banking company known as "First Trust Mortgage
54
<PAGE>
Corporation of the South" ("First Trust"), with offices in Rock Hill, Columbia,
Clemson and Greenville, South Carolina. During the year ended September 30,
1997, First Trust closed 810 loans totalling $100.6 million.
The Savings Bank has purchased loans from First Trust in recent periods.
See "-- Lending Activities --Loan Purchases and Sales and Servicing." All loans
are purchased from First Trust subject to the Savings Bank's underwriting
standards. The Savings Bank intends to purchase at least $18.0 million of loans
from First Trust monthly. At September 30, 1997, the Savings Bank's financial
commitment to First Trust and its maximum exposure to share in any losses
incurred by First Trust were limited solely to the amount of its equity
investment through Mortgage First. The Savings Bank, either directly or through
Mortgage First, may undertake future additional financial commitments that would
increase its loss exposure to First Trust's operations; however, there are no
such agreements, plans or understandings at present. The Savings Bank recorded
a loss of approximately $100,000 related to First Trust's operations for the
year ended September 30, 1997. Robert W. Orr and Barry C. Visioli are directors
of First Trust. See "MANAGEMENT OF THE SAVINGS BANK -- Directors and Executive
Officers and Directors."
PROPERTIES
The following table sets forth certain information relating to the Savings
Bank's offices as of March 31, 1997. All offices are owned by the Savings Bank
except as noted in the table.
<TABLE>
<CAPTION>
Lease
Year Owned or Square Expiration
Location Opened Leased Footage Date
- -------- ------ ------ ------- ----
<S> <C> <C> <C> <C>
Main Office:
907 N. Main Street 1979 Owned 50,000 --
Anderson, South Carolina
Branch Offices:
104 Whitehall Road 1975 Building owned 2,000 December 31, 2004, with
Anderson, South Carolina Land leased two renewal options for ten
years each
2821 South Main Street 1976 Building owned 2,500 April 30, 2000, with five
Anderson, South Carolina Land leased renewal options for five years
each
Windsor Place Winn Dixie(1) 1993 Leased 450 March 1, 1998, with two
SC Highway 81 renewal options for five
Anderson, South Carolina years each
Northtowne 1994 Owned 2,800 --
3898 Liberty Highway
Anderson, South Carolina
1007 By-Pass 123 1996 Owned 2,900 --
Seneca, South Carolina
</TABLE>
_________________
(1) In October 1997, this branch office was closed in conjunction with the
opening of a new 2,700 square foot branch office on SC Highway 81,
Anderson, South Carolina in the Perpetual Square complex. The Savings
55
<PAGE>
Bank owns the building and real estate of this new branch office. See
"-- Subsidiary Activities" for additional information regarding Perpetual
Square.
The Savings Bank has an in-house computer system to process customer
records and monetary transactions, post deposit and general ledger entries and
record activity in installment lending, loan servicing and loan originations.
See "MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Year 2000 Considerations."
PERSONNEL
As of September 30, 1997, the Savings Bank had 96 full-time employees and
33 part-time employees. The employees are not represented by a collective
bargaining unit. The Savings Bank believes its relationship with its employees
are good.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the
Savings Bank, such as claims to enforce liens, condemnation proceedings on
properties in which the Savings Bank holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Savings Bank's business. The Savings Bank 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 Savings Bank.
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,
at the first annual meeting of stockholders following the consummation of the
Conversion and Reorganization. The Holding Company's Board of Directors
consists of seven persons, divided into three classes, each of which will
contain approximately one third of the Board. One class will have a term of
office expiring at the first annual meeting of stockholders; a second class will
have a term of office expiring at the second annual meeting of stockholders; and
a third class will have 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
---- --------
Cordes G. Seabrook, Jr. Chairman of the Board
Robert W. Orr President and Chief Executive Officer
Thomas C. Hall Treasurer and Chief Financial Officer
Barry C. Visioli Senior Vice President
Sylvia B. Reed Corporate Secretary
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 SAVINGS BANK -- Biographical
Information."
56
<PAGE>
MANAGEMENT OF THE SAVINGS BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Savings Bank is presently composed of nine
members who are elected for terms of three years, approximately one-third of
whom are elected annually in accordance with the Bylaws of the Savings Bank.
The Savings Bank also has two non-voting Directors Emeriti. The executive
officers of the Savings Bank 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 Savings Bank, all of
whom will continue to serve as directors and executive officers of the Savings
Bank and the Holding Company.
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position Since Expires
- ---- ------ -------- ----- -------
<S> <C> <C> <C> <C>
Harold A. "Drew" Pickens, 64 Chairman of Board 1977 1998
Jr.
Robert W. "Lujack" Orr 49 President, Managing Officer 1989 1998
and a Director
Jack F. McIntosh 69 Director 1988 1999
Charles W. Fant, Jr. 71 Director 1977 1999
Cordes G. Seabrook, Jr. 70 Director 1976 1999
Richard C. Ballenger 49 Director 1996 1999
F. Stevon Kay 46 Director 1996 1999
Jim Gray Watson 68 Director 1976 1998
Martha S. Clamp 55 Director 1988 1997
J. Roy Martin, Jr. 79 Director Emeritus 1988 --
Wade A. Watson, Jr. 79 Director Emeritus 1989 --
</TABLE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Thomas C. Hall 50 Senior Vice President -- --
and Treasurer
Barry C. Visioli 49 Senior Vice President -- --
Sylvia B. Reed 57 Corporate Secretary -- --
- ----------------------
</TABLE>
(1) As of September 30, 1997.
57
<PAGE>
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the Directors and
executive officers of the Savings Bank. Unless otherwise stated, each Director
and executive officer has held his or her current occupation for the last five
years. There are no family relationships among or between the Directors or
executive officers.
Harold A. "Drew" Pickens, Jr. is the owner of Harold A. Pickens and Sons,
Inc., with which he has been affiliated since 1956. Mr. Pickens serves as an
Elder at First Presbyterian Church.
Robert W. "Lujack" Orr has been employed by the Savings Bank since 1974 and
has held a variety of positions, such as Senior Vice President/Funds Acquisition
and Executive Vice President, prior to assuming his current position as
President and Managing Officer on January 1, 1991. Mr. Orr is a member of the
Board of the Community Financial Institutions of South Carolina and he is
Secretary of the America's Community Bankers Association. He is active in
numerous civic organizations, serving as President of the YMCA, on the Board of
Directors of the Chamber of Commerce, on the Board of Visitors of Anderson
College, and as an Elder of Central Presbyterian Church. Mr. Orr is a director
of First Trust, the mortgage banking company in which a service corporation
subsidiary of the Savings Bank has an equity investment.
Jack F. McIntosh is a partner in the law firm of McIntosh and Sherard,
Anderson, South Carolina, with which he has been affiliated for 35 years.
McIntosh and Sherard serves as General Counsel for the Savings Bank's wholly-
owned subsidiary, United Service, since 1984. Mr. McIntosh is also a member of
the Board of the Alzheimer's Association and of Medical University for South
Carolina.
Charles W. Fant, Jr. is a partner in the architectural firm of Fant & Fant
Architects, Anderson, South Carolina, with which he has been affiliated since
1956. Mr. Fant is also active in the community, serving as a Trustee of Connie
Maxwell Children's Home and on the Board of Adjustment and Appeals for both the
City of Anderson and Anderson County, South Carolina.
Cordes G. Seabrook, Jr. is a partner in Value Systems, Gastonia, North
Carolina, an association management company. In this capacity, Mr. Seabrook is
the organizer and manager of the Textile Purchasing Association. Mr. Seabrook
is active in several community organizations, serving as a member of the Board
of Anderson Memorial Hospital, Anderson Area Arts Council, SCETV Endowment and
the Tri-County Tech Endowment. Mr. Seabrook is a minority stockholder and also
serves as a member of the Board of Directors of DS1, Greer, South Carolina, a
company that designs and manufactures security information systems.
Richard C. Ballenger is the President of City Glass Company and D&B Glass
Company, Inc., with which he has been affiliated since 1972. He serves as an
Elder at First Presbyterian Church, is a member of the Board of Directors of the
Anderson Rotary Club and is on the Advisory Board of the Salvation Army.
F. Stevon Kay is the President of Hill Electric Company, Inc., with which
he has been affiliated since 1969. He is a Board member of the Salvation Army
Boys and Girls Club and the President of the Anderson Youth Association. He
attends Concord Baptist Church.
Jim Gray Watson, the Savings Bank's former President and Chief Executive
Officer, was employed by the Savings Bank for 31 years prior to his retirement
in December 1990. Mr. Watson is also involved in numerous charitable and
community organizations.
Martha C. Clamp, a certified public accountant, was employed for six years
as a staff accountant for the accounting firm of Cole, Hook & Cleary, CPAs,
Anderson, South Carolina, and has been self-employed as an accountant since
1988. Ms. Clamp also serves as the Treasurer of the Foothills Sertoma Club, a
member of the
58
<PAGE>
Board of the Anderson County Easter Seals and the Anderson College Alumni Board
and as a Panel Allocation member of the United Way.
J. Roy Martin, Jr. served as a member of the Savings Bank's Board of
Directors from 1970 until 1988. Since 1988, Mr. Martin has served as a Director
Emeritus of the Savings Bank.
Wade A. Watson, Jr. served as a member of the Savings Bank's Board of
Directors from 1960 until 1989. Mr. Watson has served as a Director Emeritus of
the Savings Bank since 1989. Mr. Watson is the brother of the Savings Bank's
former President and Chief Executive Officer, Jim Gray Watson.
Thomas C. Hall has been employed by the Savings Bank since 1975 and
currently serves as Senior Vice President, Treasurer and Chief Financial Officer
responsible for areas of accounting, investments, data processing and deposits.
Mr. Hall is a member of the Financial Managers Society, a Board member of the
Foothills United Way, a member of the Institute of Management Accountants, and a
Board member of the University of South Carolina Alumni Association, Anderson
Chapter.
Barry C. Visioli has been affiliated with the Savings Bank since 1973. Mr.
Visioli serves as Senior Vice President and is responsible for Lending
Operations. He is a Council Member of the Salvation Army Boys and Girls Club, a
Board Member of the Family Counseling Agency and serves on the Anderson County
Board of Assessment Appeals. Mr. Visioli is a director of First Trust, the
mortgage banking company in which a service corporation subsidiary of the
Savings Bank has an equity investment.
Sylvia B. Reed joined the Savings Bank in 1986 and currently serves as
Corporate Secretary. Ms. Reed is a member and Treasurer of the Anderson Chapter
of the American Business Women's Association, which furnishes college
scholarships for students. She is a member of the choir at Taylor Memorial
Church.
BENEFICIAL OWNERSHIP OF SAVINGS BANK COMMON STOCK BY DIRECTORS AND EXECUTIVE
OFFICERS
The following table sets forth, as of September 30, 1997, certain
information as to the beneficial ownership of Savings Bank Common Stock by: (i)
persons known by the Savings Bank to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) the directors of the Savings Bank,
(iii) the executive officers of the Savings Bank, and (iv) by all officers and
directors as a group. For purposes of this table, an individual is considered
to beneficially own shares of Savings Bank Common Stock if he or she has or
shares voting power (which includes the power to vote or direct the voting of
the shares) or investment power (which includes the power to dispose of or
direct the disposition of the shares). Unless otherwise indicated, all shares
are owned directly by the officers and directors or by the officers and
directors indirectly through a trust, corporation or association, or by the
officers and directors or their spouses as custodians or trustees for the shares
of minor children. The officers and directors effectively exercise sole voting
and investment power over such shares. Shares which are subject to stock
options that are exercisable within 60 days of September 30, 1997 are deemed to
be beneficially owned. For information regarding proposed purchases of
Conversion Shares by the directors and officers and their anticipated ownership
of Common Stock upon consummation of the Conversion and Reorganization, see
"CONVERSION SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION
RIGHTS."
59
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially
Owned at March
Name September 30, 1997
- ---- ---------------------------------
Number(1) Percent
--------- --------
<S> <C> <C>
SouthBanc Shares, M.H.C. 800,000 53.02%
Harold A. Pickens, Jr. 10,508 0.70
Martha S. Clamp 6,254 0.41
Jack F. McIntosh 5,683 0.38
Charles W. Fant, Jr. -- --
Cordes G. Seabrook, Jr. 8,850 0.59
Jim Gray Watson 3,196 0.21
Richard C. Ballenger 2,227 0.15
F. Stevon Kay 7,151 0.47
J. Roy Martin, Jr. -- --
Wade A. Watson, Jr. 5,538 0.23
Robert W. Orr 14,624 0.97
Thomas C. Hall 13,972(2) 0.93
Barry C. Visioli 12,708(3) 0.84
All Officers and
Directors as a
Group (21 persons) 104,052(4) 6.90%
- --------------------------
</TABLE>
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of
Common Stock if he or she has voting and/or investment power with respect
to such security. The table includes shares owned by spouses, other
immediate family members in trust, shares held in retirement accounts or
funds for the benefit of the named individuals, and other forms of
ownership, over which shares the persons named in the table may possess
voting and/or investment power. Shares which are subject to stock options
that are exercisable within 60 days of September 30, 1997 are deemed to be
beneficially owned.
(2) Includes 2,300 shares of Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of September
30, 1997.
(3) Includes 2,300 shares of Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of September
30, 1997.
(4) Includes 4,600 shares of Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of September
30, 1997.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Savings Bank is conducted through meetings and
activities of its Board of Directors and its committees. During the fiscal year
ended September 30, 1997, the Board of Directors held 12 regular meetings and no
director attended fewer than 75% of the total meetings of the Board of Directors
of the Savings Bank and committees on which such director served.
The Executive Committee of the Board of Directors, which consists of
Directors Fant (Chairman), Pickens, Seabrook, Watson and Orr, meets as necessary
in between meetings of the full Board of Directors. All actions of the
Executive Committee must be ratified by the full Board of Directors. The
Executive Committee reviews directors' and officers' compensation and makes
recommendations to the full Board of Directors in this regard. The Executive
Committee also recommends prospective new Board members to the full Board of
Directors and insures
60
<PAGE>
that all directors, directors emeriti and officers are acting in compliance with
the Savings Bank's Charter and Bylaws. The Executive Committee met once during
the fiscal year ended September 30, 1997.
The Audit Committee of the Savings Bank consists of Directors Pickens
(Chairman), Clamp, Orr and Watson and Thomas C. Hall, Senior Vice President,
and Doris Hoover, a Savings Bank staff member. This committee is responsible
for developing and monitoring the Savings Bank's audit program. The committee
selects the Savings Bank's outside auditor and meets with them to discuss the
results of the annual audit and any related matters. The members of the
committee also receive and review all the reports and findings and other
information presented to them by the Savings Bank's officers regarding financial
reporting policies and practices. In addition, the Savings Bank's Internal
Auditor and Compliance Coordinator operate under the direction of the Audit
Committee and report quarterly to the committee. The committee meets quarterly.
The Audit Committee met four times during the fiscal year ended September 30,
1997.
The Savings Bank's full Board of Directors serves as a Nominating
Committee. The Board of Directors met once in its capacity as the nominating
committee during the 1997 fiscal year.
The Savings Bank also has standing Loan, Pension Plan, Strategic Planning
and Asset/Liability Management Committees.
DIRECTORS' COMPENSATION
Directors (including Directors Emeriti, but excluding directors who are
full-time employees) receive annual compensation of $10,800, payable $900
monthly, and $100 for each committee meeting attended. No fees are paid for
attending special meetings of the Board. The Savings Bank's Chairman of the
Board receives compensation of $12,000 per year. The Savings Bank paid a total
of $109,000 in directors' and committee fees for the fiscal year ended September
30, 1997. Director compensation is deducted by $100 for each meeting absence.
Directors also participate in the Savings Bank's stock option programs.
61
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following information is furnished for the
--------------------------
named executive officers.
<TABLE>
<CAPTION>
==================================================================================================================================
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
-----------------------------------------------------------------
Annual Compensation Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Other
Principal Annual Restricted All Other
Position Compen- Stock LTIP Compensa-
with the Salary Bonus sation Awards Options Payouts tion
Savings Bank Year ($)(1) ($) ($) ($)(2) (#) ($) ($)(3)
---------------------------------------------------------------------------------------------------------------------------------
Robert W. Orr, 1997 $95,000 $59,299 $ -- 330,525 10,250 -- $14,658
President and 5,750
Managing Officer 1996 71,350 61,017 -- -- -- 13,085
5,750
1995 69,077 58,889 -- -- -- 12,185
Thomas C. Hall, 1997 80,000 50,616 -- 330,525 10,250 -- 12,409
Senior Vice
President 1996 60,902 52,082 2,880 -- -- -- 10,904
1995 58,962 50,265 2,870 -- -- -- 10,218
Barry C. Visioli 1997 70,000 48,552 -- 330,525 10,250 -- 11,263
Senior Vice
President 1996 58,418 49,958 2,880 -- -- -- 10,483
1995 56,557 48,216 2,870 -- -- -- 9,844
==================================================================================================================================
- ---------------------------
</TABLE>
(1) Includes salary and directors' fees.
(2) Represents the value of shares of Savings Bank Common Stock awarded under
the 1996 MRP that vested in equal installment over a five-year period
beginning on April 7, 1998. Dividends are paid on such awards if and when
dividends are declared and paid by the Savings Bank. At September 30,
1997, the value of the awards were $330,525 for each of Mr. Orr, Mr. Hall
and Mr. Visioli (5,850 shares at $56.50 per share).
(3) Represents employer 401(k) Plan contributions.
62
<PAGE>
EMPLOYMENT AGREEMENTS
The MHC and the Savings Bank currently maintain employment agreements with
Messrs. Orr, Hall and Visioli that were entered into in connection with the MHC
Reorganization. In connection with the Conversion and Reorganization, the
Holding Company and the Savings Bank (collectively, the "Employers") will enter
into three-year employment agreements ("Employment Agreements") with these same
individuals (individually, the "Executive"), which have substantially the same
terms as and will replace the existing agreements.
Under the Employment Agreements, the initial salary levels for Messrs. Orr,
Hall and Visioli will be $98,800, $83,200 and $72,800, respectively, which
amounts will be paid by the Savings Bank and may be increased at the discretion
of the Board of Directors. 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 in certain circumstances, the Savings Bank
would be required to honor the terms of the agreement through the expiration of
the then 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 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 maximum value of the severance benefits under the Employment Agreements
is 2.99 times the Executive's average annual compensation during the five-year
period preceding the effective date of the change in control (the "base
amount"). The Employment Agreements provide that the value of the maximum
benefit may be distributed, at the Executive's election, (i) in the form of a
lump sum cash payment equal to 2.99 times the Executive's base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total present value of which does not exceed 2.99 times the
Executive's base amount. Assuming that a change in control had occurred at
September 30, 1997 and that each Executive elected to receive a lump sum cash
payment, Messrs. Orr, Hall and Visioli would be entitled to payments of
approximately $220,000, $187,000 and $176,000, respectively. Section 280G of
the Internal Revenue Code of 1986, as amended ("Code"), provides that severance
payments that equal or exceed three times the individual's base amount 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 the 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's employment is terminated without cause, except if
such termination occurs after a change in control.
63
<PAGE>
OPTION GRANTS TABLE. The following table sets forth all grants of options
to the named executive officers for the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
============================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------------------------
Percent of
Total Options
Number of Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Orr 10,250 26% $25.25 April 2007
--------------------------------------------------------------------------------------------
Thomas C. Hall 10,250 26% $25.25 April 2007
- --------------------------------------------------------------------------------------------
Barry C. Visioli 10,250 26% $25.25 April 2007
============================================================================================
</TABLE>
OPTION EXERCISE/VALUE TABLE. The following table sets forth all exercises
of options by the named executive officers for the fiscal year ended September
30, 1997.
<TABLE>
<CAPTION>
=============================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
- --------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Number of Unexercised In-the-Money
Shares Options at Options at
Acquired Dollar Fiscal Year End Fiscal Year End
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Robert W. Orr 2,956 $57,642 --/-- $--/$--
- --------------------------------------------------------------------------------------------------------------
Thomas C. Hall -- -- 2,300/-- $106,950/$--
- --------------------------------------------------------------------------------------------------------------
Barry C. Visioli -- -- 2,300/-- $106,950/$--
==============================================================================================================
</TABLE>
BENEFITS
INSURANCE. Full-time employees are provided, with minimal contribution or
expense to them, with group plan insurance that covers hospitalization,
dependent coverage, long-term disability and life insurance. This insurance is
available generally and on the same basis to all full-time employees. Long-term
disability insurance is available after completion of a minimum of one year of
service, while the other benefits are available immediately.
CAFETERIA PLAN. The Savings Bank offers full-time employees the ability to
enroll in a cafeteria or flexible benefit plan which allows employees to set
aside a portion of their pre-tax salary to be used for, among other things,
64
<PAGE>
medical expenses not covered by insurance and child care expenses. The decision
to enroll in the Cafeteria Plan and the benefits selected is at each employee's
discretion.
PROFIT SHARING AND 401(K) PLAN. The Savings Bank sponsors a tax-qualified
cash or deferred profit sharing plan ("401(k) Plan") for the benefit of its
employees. Employees become eligible to participate under the 401(k) Plan on
the first day of October following their date of employment. Benefits under the
401(k) Plan are determined based upon annual employee salary reduction and
employer discretionary contributions to the 401(k) Plan. Employer discretionary
contributions are allocated to participant accounts as a percentage of total
compensation of such participant to the compensation of all participants. At
the end of each year the Board of Directors determines whether to make a
discretionary contribution and the amount of the contribution to the 401(k)
Plan, based upon a number of factors, such as the Savings Bank's retained
earnings, profits, regulatory capital and employee performance. In addition,
the Board of Directors may authorize a discretionary matching contribution not
to exceed 4.5% of each participants compensation for the 401(k) Plan year. Each
year participants are permitted to contribute voluntarily up to $10,000 (as
indexed for inflation). However, each participant's salary deferrals and
employee and employer contributions when added to other defined contribution
plan contributions each year cannot exceed the lessor of 25% of compensation or
$30,000 for each 401(k) Plan year.
Benefits are payable upon termination of employment, retirement, death,
disability or 401(k) Plan termination. Additionally, under certain financial
hardship circumstances, early withdrawal of salary deferrals may be authorized
by the Savings Bank. Benefits are normally paid in a lump-sum payment or under
various installment payment or annuity alternatives. Normal retirement age
under the 401(k) Plan is age 65. Early retirement age under the 401(k) Plan is
age 55 with at least ten years of service.
Employer discretionary contributions under the 401(k) Plan are fully vested
upon the completion of five years of service. Employees are always 100% vested
in their salary deferrals and in the employer matching contributions. The
Savings Bank's total contribution to the 401(k) Plan for all employees for the
fiscal year ended September 30, 1997 was $219,000.
Participants in the 401(k) Plan self-direct the investment of plan assets
credited to their account. The available investment options include mutual
funds and Common Stock. In connection with the Conversion and Reorganization,
eligible Participants will have the opportunity to direct the investment 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 and Reorganization 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 AND REORGANIZATION -- Limitations on Purchases of Conversion
Shares."
EMPLOYEE STOCK OWNERSHIP PLAN. In connection with the MHC Reorganization,
the Savings Bank established an ESOP for the exclusive benefit of participating
employees. In order to participate under the ESOP, employees must be 21 years
old and complete one year of service with the Savings Bank. The ESOP acquired
8,050 shares of Savings Bank Common Stock in the MHC Reorganization with the
proceeds of a loan obtained from a third party lender. The ESOP debt was
retired on January 24, 1996 and all shares were allocated to the accounts of
participating employees. In connection with the Additional Offering, the ESOP
acquired 46,800 shares of Savings Bank Common Stock with the proceeds of a loan
obtained from an unrelated third party lender. The loan is repaid principally
from the Savings Bank's contributions to the ESOP and dividends payable on
Savings Bank Common Stock held by the ESOP over the term of the loan. In
connection with the Conversion and Reorganization, it is anticipated that the
Holding Company will lend sufficient funds to the ESOP to enable the ESOP to
repay the outstanding principal balance of the loan ($804,000 at September 30,
1997) and accrued interest thereon through the closing date of the Conversion
and Reorganization. Shares of Common Stock acquired by the ESOP in the
Additional Offering will, to the extent not yet allocated to ESOP participants,
serve as collateral for the Holding Company loan and be held in a suspense
account pending repayment of the loan. It is anticipated that the interest
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rate on the Holding Company loan will be equal to the prime rate reported in The
Wall Street Journal on the closing date of the Conversion and Reorganization.
In connection with the Conversion and Reorganization, the shares of Savings
Bank Common Stock held by the ESOP will be converted into Exchange Shares based
on the final Exchange Ratio. In light of management's evaluation of the
anticipated compensation expense associated with the ESOP, the ESOP does not
intend to purchase any Conversion Shares in the Conversion Offerings.
Contributions to the ESOP and shares released from the suspense account
will be allocated among participants based on compensation. Except for
participants who retire, become disabled or die during the Plan year, all other
participants will be required to have completed at least 1,000 hours of service
and be employed on the last day of the Plan year in order to receive an
allocation. Participant benefits vest over a seven-year period with 20% vested
after three years of service and 100% vested after seven years of service. All
years of service are counted toward vesting. Vesting will be accelerated upon
retirement, death, disability or termination of the ESOP. Forfeitures are
applied to reduce future contributions by the Savings Bank or reallocated to
other participants to reduce future funding costs. Benefits may be payable upon
retirement, death, disability or separation from service. Contributions to the
ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.
Under the ESOP, participating employees may vote shares of Common Stock
allocated to their account. Shares for which employees do not give instructions
and unallocated shares will be voted by the ESOP Trustee in the same proportion
as determined by the vote of participants with respect to allocated shares.
The Board of Directors has appointed Directors Fant, Jim Gray Watson, Orr
and McIntosh and Director Emeritus Wade Watson as the committee ("ESOP
Committee") to administer the ESOP and the serve as ESOP trustees. The Board of
Directors may amend the ESOP in any manner which it deems desirable, except that
the ESOP may not be amended in any way to deprive any participant or beneficiary
of any benefits to which he is entitled with respect to contributions previously
made.
Although the ESOP will not purchase any Conversion Shares in the Conversion
Offerings, the ESOP may purchase Common Stock in the open market at then
prevailing prices from time to time following the Conversion and Reorganization.
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, market conditions.
STOCK OPTION PLANS. In connection with the MHC Reorganization, the Savings
Bank adopted the 1993 Option Plan for the benefit of key employees and
nonemployee directors, pursuant to which 11,504 shares of Savings Bank Common
Stock were reserved for issuance upon the exercise of stock options awarded
thereunder. In connection with the Additional Offering, the Savings Bank
adopted the 1996 Option Plan for the benefit of key employees and nonemployee
directors, pursuant to which 58,500 shares of Savings Bank Common Stock were
reserved for issuance upon the exercise of stock options awarded thereunder. As
of September 30, 1997, stock options have been awarded with respect to all
shares reserved under the 1993 Option Plan, and with respect to 58,500 shares
reserved under the 1996 Stock Option Plan, including 10,250 options to each of
Mr. Orr, Mr. Hall and Mr. Visioli. The Holding Company will assume the 1993
and 1996 Stock Option Plans in connection with the Conversion and
Reorganization, and appropriate adjustments to the exercise price and the number
of shares subject to stock options outstanding under each plan will be made in
accordance with the final Exchange Ratio.
The 1998 Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such 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 Savings
Bank, and to reward officers and key employees for outstanding performance. The
1998 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
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nonqualified stock options ("NQOs"). Upon receipt of stockholder approval of
the 1998 Option Plan, stock options may be granted to nonemployee directors and
key employees of the Holding Company and its subsidiaries. Unless sooner
terminated, the 1998 Option Plan will continue in effect for a period of ten
years from the date the 1998 Option Plan is approved by stockholders. 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 1998
Option Plan within one year of the consummation of the Conversion and
Reorganization.
A number of authorized shares of Common Stock equal to 10% of the number of
Conversion Shares issued in connection with the Conversion and Reorganization
will be reserved for future issuance under the 1998 Option Plan (198,375 shares
based on the issuance of 1,983,750 Conversion 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 1998 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 1998 Option Plan will be administered and interpreted by the Board of
Directors. Subject to applicable OTS regulations, the Board will determine
which nonemployee directors 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.
It is anticipated that all options granted under the 1998 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 and Reorganization 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 defined in the 1998 Option Plan)
of the Holding Company or the Savings Bank to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the 1998 Option Plan is implemented prior to the first anniversary of
the Conversion and Reorganization, vesting may not be accelerated upon a change
in control of the Holding Company or the Savings Bank.
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 Board. 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. Except as authorized by 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
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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 Savings Bank anticipate that if stockholder approval is
obtained it would provide awards to its directors and key employees to the
extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the 1998 Option Plan is implemented within one
year of the consummation of the Conversion and Reorganization, (i) no officer or
employee may 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, may not receive in excess of 30% of the number of shares
reserved for issuance under the 1998 Option Plan.
MANAGEMENT RECOGNITION PLANs. In connection with the MHC Reorganization,
the Savings Bank adopted the 1993 MRP for the benefit of key employees, pursuant
to which 3,450 shares of Savings Bank Common Stock were reserved for issuance in
the form of restricted stock. In connection with the Additional Offering, the
Savings Bank adopted the 1996 MRP for the benefit of key employees, pursuant to
which 23,400 shares of Savings Bank Common Stock were reserved for issuance in
the form of restricted stock. As of September 30, 1997, all shares under the
1993 MRP have been awarded and are fully vested, and such shares will be
converted into Exchange Shares based on the final Exchange Ratio in the same
manner as shares held by other Public Stockholders. As of September 30, 1997,
awards for 23,400 shares of Savings Bank Common Stock have been awarded under
the 1996 MRP, including 5,850 shares to Mr. Orr, 5,850 shares to Mr. Hall and
5,850 shares to Mr. Visioli, subject to a five-year vesting period. Such shares
will be converted into Exchange Shares based on the final Exchange Ratio in the
same manner as shares held by other Public Stockholders. The Holding Company
will assume and continue the 1996 MRP in connection with the Conversion and
Reorganization.
The Board of Directors believes that continuation of the MRP is important
to the Savings Bank's overall compensation strategy, which emphasizes providing
appropriate incentives to attract and retain capable employees. Specifically,
the continuation of the MRP will enable the Holding Company to provide
participants with a proprietary interest in the Holding Company as an incentive
to contribute to the success of the Holding Company. Accordingly, the Holding
Company's Board of Directors intends to adopt the 1998 MRP for officers and
employees of the Holding Company.
The 1998 MRP will be submitted to stockholders for approval at a meeting to
be held no earlier than six months following consummation of the Conversion and
Reorganization. The approval of a majority vote of the Holding Company's
stockholders is required prior to implementation of the 1998 MRP within one year
of the consummation of the Conversion and Reorganization. The 1998 MRP expects
to acquire a number of shares of Common Stock equal to 4% of the Conversion
Shares issued in the Conversion Offerings (79,350 shares based on the issuance
of 1,983,750 Conversion Shares at the maximum of the Estimated Valuation Range).
Such shares will be acquired on the open market, if available, with funds
contributed by the Savings Bank to a trust which the Holding Company may
establish in conjunction with the 1998 MRP ("1998 MRP Trust") or from authorized
but unissued shares or treasury shares of the Holding Company.
The Board of Directors will administer the 1998 MRP, members of which will
also serve as trustees of the 1998 MRP Trust, if formed. The trustees will be
responsible for the investment of all funds contributed by the Savings Bank to
the 1998 MRP Trust.
It is anticipated that shares of Common Stock granted pursuant to the 1998
MRP will be in the form of restricted stock payable ratably over a five-year
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 1998 MRP Trust.
If a recipient terminates employment for reasons other than death or disability,
the recipient will forfeit all rights to allocated shares that are then subject
to restriction. In the event of the recipient's death or disability, all
restrictions will expire and all allocated shares will become unrestricted. In
addition, all allocated shares will become unrestricted in the event of
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a change in control (as defined in the 1998 MRP) of the Holding Company to the
extent authorized or not prohibited by applicable law or regulations. Current
OTS regulations, however, do not permit accelerated vesting of 1998 MRP awards
in the event of a change in control. Compensation expense in the amount of the
fair market value of the Common Stock at the date of the grant to the recipient
will be recognized during the years in which the shares vest.
The Board of Directors may terminate the 1998 MRP at any time and, upon
termination, all unallocated shares of Common Stock will revert to the Savings
Bank.
A recipient of a 1998 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, the Savings Bank
anticipates that if stockholder approval is obtained it would provide awards to
its directors, officers and employees to the extent permitted by applicable
regulations. OTS regulations currently provide that no individual officer or
employee may receive more than 25% of the shares reserved for issuance under any
stock compensation plan and that non-employee directors may not receive more
than 5% of such shares individually or 30% in the aggregate for all non employee
directors.
TRANSACTIONS WITH THE SAVINGS BANK
Federal regulations require that all loans or extensions of credit by the
Savings Bank 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 (unless
the loan or extension of credit is made under a benefit program generally
available to all other employees and does not give preference to any insider
over any other employee) and must not involve more than the normal risk of
repayment or present other unfavorable features. The Savings Bank's policy is
not to make any new loans or extensions of credit to the Savings Bank's
executive officers and directors at different rates or terms than those offered
to the general public. 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 or her related interests, are in excess of the greater of
$25,000, or 5% of the Savings Bank'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 the Savings
Bank -- Transactions with Affiliates." The aggregate amount of loans by the
Savings Bank to its executive officers and directors and their associates was
$926,000 at September 30, 1997, or approximately 1.4% of the Holding Company's
pro forma stockholders' equity (based on the issuance of Conversion Shares at
the maximum of the Estimated Valuation Range).
REGULATION
GENERAL
The Savings Bank 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 ("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 Savings Bank's
relationship with its depositors and borrowers is also regulated to a
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great extent, especially in such matters as the ownership of deposit accounts
and the form and content of the Savings Bank's mortgage documents. The Savings
Bank 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 Savings Bank'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 Savings Bank 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 and the SEC.
FEDERAL REGULATION OF THE SAVINGS BANK
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 Savings Bank, 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. At September 30,
1997, the Savings Bank complied with this requirement with an investment in
FHLB-Atlanta stock of $1.7 million. 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 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. The FDIC maintains two separate insurance funds: the Bank
Insurance Fund ("BIF") and the SAIF. As insurer of the Savings Bank's deposits,
the FDIC has examination, supervisory and enforcement authority over all savings
associations.
The Savings Bank's deposit accounts are insured by the FDIC under the SAIF
to the maximum extent permitted by law. The Savings Bank 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" or "undercapitalized"), which are defined in the same manner as the
regulations establishing the prompt corrective action system under the FDIA as
discussed below. The Savings Bank's assessments expensed for the year ended
September 30, 1997 equaled $152,000.
Pursuant to the Deposit Insurance Fund ("DIF") Act, which was enacted on
September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Savings Bank, paying 0%.
This assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in
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1995. In addition, since January 1, 1997, SAIF members are charged an
assessment of 0.065% of SAIF-assessable deposits for the purpose of paying
interest on the obligations issued by the Financing Corporation ("FICO") in the
1980s to help fund the thrift industry cleanup. BIF-assessable deposits will be
charged an assessment to help pay interest on the FICO bonds at a rate of
approximately .013% until the earlier of December 31, 1999 or the date upon
which the last savings association ceases to exist, after which time the
assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
elimination of federal savings association charter, and would require all
federal savings associations to become national banks or state-chartered
institutions. It is not known what effect, if any, the adoption of such
legislation would have on the operation of the Savings Bank.
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 Savings Bank.
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
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imposed for failure to meet liquidity requirements. At
September 30, 1997, the Savings Bank's liquidity ratio was 5.64%.
PROMPT CORRECTIVE ACTION. 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 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%.
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
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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 various mandatory and discretionary
restrictions on its operations.
At September 30, 1997, the Savings Bank 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"). 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. If the OTS
determines that the Savings Bank fails to meet any standard prescribed by the
Guidelines, the agency may require the Savings Bank to submit to the agency an
acceptable plan to achieve compliance with the standard. OTS 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 QTL test 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 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 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 FNMA. 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 September 30,
1997, the qualified thrift investments of the Savings Bank were approximately
88.8% 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.
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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. An institution
that fails 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 the Savings Bank -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Savings Bank's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights. The prompt corrective action standards also
establish, in effect, a 2% tangible capital standard.
Each savings institution must maintain Tier 1 (core) capital to risk-
weighted assets of at least 4% and 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
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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. Presently, the OTS has postponed the date that the component will first
be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Savings Bank's historical amounts and
percentages at September 30, 1997 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 Savings Bank to give the OTS
30 days' advance notice of any 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).
A 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. A Tier 3 savings association has capital below the
minimum capital requirement (either before or after the proposed capital
distribution). A Tier 3 savings association may not make any capital
distributions without prior approval from the OTS.
The Savings Bank 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 Savings Bank'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 September 30, 1997, the Savings Bank's largest
aggregate amount of loans to one borrower was $2.0 million, which represented
6.5% of the Savings Bank's unimpaired capital and surplus at September 30, 1997.
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ACTIVITIES OF SAVINGS BANKS 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 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 Savings Bank 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 Savings Bank has not been significantly affected by the
rules regarding transactions with affiliates.
The Savings Bank'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 Savings Bank may make to such
persons based, in part, on the Savings Bank'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 federal Community Reinvestment Act
("CRA"), 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
regulatory applications to establish a new branch office that will accept
deposits, relocate an existing office, or merge or consolidate with, or
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acquire the assets or assume the liabilities of, a federally regulated financial
institution, among others. The CRA requires public disclosure of an
institution's CRA rating. The Savings Bank received an "outstanding" rating as
a result of its latest evaluation.
REGULATORY AND CRIMINAL ENFORCEMENT PROVISIONS. 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 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 provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of the Savings Bank -- 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.
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TAXATION
FEDERAL TAXATION
GENERAL. Upon consummation of the Conversion and Reorganization, the
Holding Company and the Savings Bank 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 Savings Bank'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
Savings Bank or the Holding Company. For additional information regarding
income taxes, see Note 11 of Notes to Consolidated Financial Statements.
BAD DEBT RESERVE. Historically, savings institutions such as the Savings
Bank 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 Savings Bank'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 Savings Bank's actual loss experience, or a percentage equal to 8%
of the Savings Bank's taxable income, computed with certain modifications and
reduced by the amount of any permitted additions to the non-qualifying reserve.
Due to the Savings Bank's loss experience, the Savings Bank generally recognized
a bad debt deduction equal to 8% of taxable income.
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 Savings Bank 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 Savings Bank's bad debt
deduction will be determined under the experience method using a formula based
on actual bad debt experience over a period of years or, if the Savings Bank 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 provisions
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
DISTRIBUTIONS. To the extent that the Savings Bank 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 lesser amount if the Savings Bank'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 Savings Bank's taxable income. Nondividend
distributions include distributions in excess of the Savings Bank'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 Savings Bank'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 Savings Bank'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 Savings Bank makes a
"nondividend
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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
Savings Bank. The Savings Bank 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 Savings Bank'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 0.12% of
the excess of AMTI (with certain modification) over $2.0 million is imposed on
corporations, including the Savings Bank, whether or not an Alternative Minimum
Tax is paid.
DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its
income 100% of dividends received from the Savings Bank 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 Savings Bank will not file a consolidated
tax return, except that if the Holding Company or the Savings Bank owns more
than 20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be deducted.
AUDITS. The Savings Bank's federal income tax returns have not been
audited within the last five years.
STATE TAXATION
SOUTH CAROLINA TAXATION. South Carolina has adopted the Code, with certain
modifications, as it relates to savings and loan associations, effective for
taxable years beginning after December 31, 1984. The Savings Bank is subject to
South Carolina income tax at the rate of 6%. This rate of tax is imposed on
savings and loan associations and savings banks in lieu of the general state
business corporation income tax.
At September 30, 1997, the Savings Bank had net operating loss
carryforwards for state tax purposes of approximately $62.0 million, which
expire in varying amounts between fiscal years 1998 and 2006.
The Savings Bank'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 AND REORGANIZATION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE SAVINGS BANK AND THE STOCKHOLDERS OF THE SAVINGS BANK 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 September 22, 1997, the Boards of Directors of the MHC and the Savings
Bank unanimously adopted, and on December 22, 1997, unanimously amended, the
Plan of Conversion, pursuant to which the MHC will convert from a mutual holding
company to a stock holding company and the Savings Bank simultaneously
reorganize as a wholly-owned subsidiary of the Holding Company, a newly formed
Delaware corporation. THE FOLLOWING DISCUSSION OF ALL MATERIAL ASPECTS OF THE
PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF
CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO BOTH THE MHC'S PROXY STATEMENT AND
THE SAVINGS BANK'S PROXY STATEMENT, AND IS AVAILABLE TO BOTH MEMBERS OF THE MHC
AND STOCKHOLDERS OF THE SAVINGS BANK 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 MHC entitled to vote on the matter at the Special
Meeting of Members called for that purpose to be held on ____________, 1998, its
approval by the stockholders of the Savings Bank entitled to vote on the matter
at the Stockholders' Meeting called for that purpose to be held on ____________,
1998, and its approval by the stockholders of the Savings Bank (excluding the
MHC) entitled to vote on the matter at the Stockholders' Meeting, and subject to
the satisfaction of certain other conditions imposed by the OTS in its approval.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (i.e. Interim A) and simultaneously merge with and into the
----
Savings Bank, pursuant to which the MHC will cease to exist and the shares of
Savings Bank Common Stock held by the MHC will be canceled, and (ii) Interim A
will then merge with and into the Savings Bank. As a result of the merger of
Interim A with and into the Savings Bank, the Savings Bank will become a wholly
owned subsidiary of the Holding Company and the Public Savings Bank Shares will
be converted into the Exchange Shares pursuant to the Exchange Ratio, which will
result in the holders of such shares owning in the aggregate approximately the
same percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization (i.e., the Conversion Shares and the Exchange
----
Shares) as the percentage of Savings Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, but before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares and (b) any shares of Conversion Stock
purchased by the Savings Bank's stockholders in the Conversion Offerings.
As part of the Conversion and Reorganization, the Holding Company is
offering Conversion Shares in the Subscription Offering to holders of
Subscription Rights in the following order of priority: (i) Eligible Account
Holders (depositors of the Savings Bank with $50.00 or more on deposit as of the
close of business on June 30, 1996); (ii) Supplemental Eligible Account Holders
(depositors of the Savings Bank with $50.00 or more on deposit as of the close
of business on December 31, 1997); and (iii) Other Members (depositors of the
Savings Bank as of the close of business on ___________, 1998 and borrowers of
the Savings Bank with loans outstanding as of the close of business on October
26, 1993, which continue to be outstanding as of the close of business on
__________, 1997).
Concurrently with the Subscription Offering, any Conversion Shares 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 first to Public Stockholders as of the close of business on the Voting
Record Date (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons residing in the Local Community. Conversion Shares not sold in the
Subscription and Direct Community Offerings may be offered in the Syndicated
Community Offering. Regulations require that the Direct
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Community and Syndicated Community Offerings be completed within 45 days after
completion of the fully extended Subscription Offering unless extended by the
Savings Bank 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 Savings Bank will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed Conversion Shares. The Plan of Conversion provides
that the Conversion and Reorganization must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of the MHC.
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 MHC and the stockholders of
the Savings Bank.
The completion of the Conversion Offerings, however, is subject to market
conditions and other factors beyond the Savings Bank's control. No assurance
can be given as to the length of time after approval of the Plan of Conversion
at the Special Members Meeting and the Stockholders Meeting that will be
required to complete the Direct Community or Syndicated Community Offerings or
other sale of the Conversion Shares. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Savings Bank, as converted, together with corresponding changes in the net
proceeds realized by the Holding Company from the sale of the Conversion Shares.
If the Conversion and Reorganization is terminated, the Savings Bank would be
required to charge all Conversion and Reorganization expenses against current
income.
Orders for Conversion Shares will not be filled until at least 1,466,250
Conversion Shares have been subscribed for or sold and the OTS approves the
final valuation and the Conversion and Reorganization closes. If the Conversion
and Reorganization 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 and Reorganization, 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 Savings Bank'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 and Reorganization is not
completed, all withdrawal authorizations will be terminated and all funds held
will be promptly returned together with accrued interest at the Savings Bank's
passbook rate from the date payment is received until the Conversion and
Reorganization is terminated.
PURPOSES OF CONVERSION AND REORGANIZATION
The MHC, as a federally chartered mutual holding company, does not have
stockholders and has no authority to issue capital stock. As a result of the
Conversion and Reorganization, the Holding Company will be structured in the
form used by holding companies of commercial banks, most business entities and a
growing number of savings institutions. The holding company form of
organization will provide the Holding Company with the ability to diversify the
Holding Company's and the Savings Bank's business activities through acquisition
of or mergers with both stock savings institutions and commercial banks, as well
as other companies. Although there are no current arrangements, understandings
or agreements regarding any such opportunities, the Holding Company will be in a
position after the Conversion and Reorganization, subject to regulatory
limitations and the Holding Company's financial position, to take advantage of
any such opportunities that may arise.
In their decision to pursue the Conversion and Reorganization, the Board of
Directors of the MHC and the Savings Bank considered various regulatory
uncertainties associated with the mutual holding company structure including the
ability to waive dividends in the future as well as the general uncertainty
regarding a possible elimination of the federal savings association charter.
The Conversion and Reorganization will be important to the future growth
and performance of the holding company organization by providing a larger
capital base to support the operations of the Savings Bank and Holding
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Company and by enhancing their future access to capital markets, their ability
to diversify into other financial services related activities, and their ability
to provide services to the public. Since the MHC's ownership interest in the
Savings Bank is 53.03% as of the date of this Prospectus, the Savings Bank
currently does not have the ability to raise additional capital through the sale
of additional shares of Savings Bank Common Stock because OTS regulations
require that the MHC hold a majority of the outstanding shares of Savings Bank
Common Stock.
The Conversion and Reorganization also will result in an increase in the
number of shares of Common Stock to be outstanding as compared to the number of
outstanding shares of Public Savings Bank Shares which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. See "MARKET FOR COMMON STOCK." In addition, the Conversion and
Reorganization permit the Holding Company to engage in stock repurchases without
adverse federal income tax consequences, unlike the Savings Bank. Currently,
the Holding Company has no plans or intentions to engage in any stock
repurchases.
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Savings Bank for federal
income tax purposes. When the Savings Bank (as a mutual institution)
transferred substantially all of its assets and liabilities to its stock savings
bank successor in the MHC Reorganization, its accumulated earnings and profits
tax attribute was not able to be transferred to the Savings Bank because no tax-
free reorganization was involved. Accordingly, this tax attribute was retained
by the Savings Bank when it converted its charter to that of the MHC, even
though the underlying retained earnings were transferred to the Savings Bank.
The Conversion and Reorganization has been structured to re-unite the
accumulated earnings and profits tax attribute retained by the MHC in the MHC
Reorganization with the retained earnings of the Savings Bank by merging the MHC
with and into the Savings Bank in a tax-free reorganization. This transaction
will increase the Savings Bank's ability to pay dividends to the Holding Company
in the future. See "DIVIDEND POLICY."
If the Savings Bank had undertaken a standard conversion involving the
formation of a stock holding company in 1993, applicable OTS regulations would
have required a greater amount of common stock to be sold than the amount of net
proceeds raised in the MHC Reorganization. Management believed that it was
advisable to profitably invest the $946,000 of net proceeds raised in the MHC
Reorganization and the $10.7 million of net proceeds raised in the Additional
Offering prior to raising the larger amount of capital that would have been
raised in a standard conversion. A standard conversion in 1993 also would have
immediately eliminated all aspects of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the Primary Parties
believe that the Conversion and Reorganization is in the best interests of the
MHC and the Savings Bank, their respective members and stockholders, and the
communities served by the Savings Bank.
EFFECTS OF CONVERSION AND REORGANIZATION ON DEPOSITORS AND BORROWERS OF THE
SAVINGS BANK
GENERAL. Prior to the Conversion and Reorganization, each depositor in the
Savings Bank has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the MHC based upon the balance in his or
her account, which interest may only be realized in the event of a liquidation
of the MHC. However, this ownership interest is tied to the depositor's account
and has no tangible market value separate from such deposit account. A
depositor who reduces or closes his or her account receives a portion or all of
the balance in the account but nothing for his or her ownership interest in the
net worth of the MHC, which is lost to the extent that the balance in the
account is reduced.
Consequently, the depositors of the Savings Bank normally have no way to
realize the value of their ownership interest in the MHC, which has realizable
value only in the unlikely event that the MHC is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves of the MHC after other claims are paid.
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Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Holding Company. The Common Stock is separate and apart from
deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit and/or loan account(s) the seller may hold in the Savings Bank.
CONTINUITY. The Conversion and Reorganization will not interrupt the
Savings Bank's normal business of accepting deposits and making loans. The
Savings Bank will continue to be subject to regulation by the OTS and the FDIC.
After the Conversion and Reorganization, the Savings Bank will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.
The directors and officers of the Savings Bank at the time of the
Conversion and Reorganization will continue to serve as directors and officers
of the Savings Bank after the Conversion and Reorganization. The directors and
officers of the Holding Company consist of individuals currently serving as
directors and officers of the MHC and the Savings Bank, and they generally will
retain their positions in the Holding Company after the Conversion and
Reorganization.
EFFECT ON PUBLIC SAVINGS BANK SHARES. Under the Plan of Conversion, upon
consummation of the Conversion and Reorganization, the Public Savings Bank
Shares shall be converted into Exchange Shares based upon the Exchange Ratio
without any further action on the part of the holder thereof. Upon surrender of
the Public Savings Bank Shares, Common Stock will be issued in exchange for such
shares. See "-- Delivery and Exchange of Stock Certificates."
Upon consummation of the Conversion and Reorganization, the Public
Stockholders will become stockholders of the Holding Company. For a description
of certain changes in the rights of stockholders as a result of the Conversion
and Reorganization, see "COMPARISON OF STOCKHOLDERS' RIGHTS."
VOTING RIGHTS. Presently, depositors and borrowers of the Savings Bank are
members of, and have voting rights in, the MHC as to all matters requiring
membership action. Upon completion of the Conversion and Reorganization, the
MHC will cease to exist and all voting rights in the Savings Bank will be vested
in the Holding Company as the sole stockholder of the Savings Bank. Exclusive
voting rights with respect to the Holding Company will be vested in the holders
of Common Stock. Depositors and borrowers of the Savings Bank will not have
voting rights in the Holding Company after the Conversion and Reorganization,
except to the extent that they become stockholders of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Savings Bank's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the Conversion and Reorganization. Furthermore, the Conversion and
Reorganization will not affect the loan accounts, loan balances or obligations
of borrowers under their individual contractual arrangements with the Savings
Bank.
TAX EFFECTS. The Savings Bank has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion and Reorganization will
constitute a nontaxable reorganization under Section 368(a)(1)(A) of the Code.
Among other things, the opinion provides that: (i) the conversion of the MHC
from a mutual holding company to a federally-chartered interim stock savings
bank (i.e., Interim A) and its simultaneous merger with and into the Savings
----
Bank, with the Savings Bank as the surviving entity will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code, (ii) no
gain or loss will be recognized by the Savings Bank upon the receipt of the
assets of the MHC in such merger, (iii) the merger of Interim B with and into
the Savings Bank, with the Savings Bank as the surviving entity, will qualify as
a reorganization within the meaning of Section 368(a)(1)(A) of the Code, (iv) no
gain or loss will be recognized by Interim B upon the transfer of its assets to
the Savings Bank, (v) no gain or loss will be recognized by the Savings Bank
upon the receipt of the assets of Interim B, (vi) no gain or loss will be
recognized by the Holding Company upon the receipt of Savings Bank Common Stock
solely in
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exchange for Common Stock, (vii) no gain or loss will be recognized by the
Public Stockholders upon the receipt of Exchange Shares in exchange for their
Public Savings Bank Shares, (viii) the basis of the Exchange Shares to be
received by the Public Stockholders will be the same as the basis of the Public
Savings Bank Shares surrendered in exchange therefor, before giving effect to
any payment of cash in lieu of fractional Exchange Shares, (ix) the holding
period of the Exchange Shares to be received by the Public Stockholders will
include the holding period of the Public Savings Bank Shares, provided that the
Public Savings Bank Shares were held as a capital asset on the date of the
exchange, (x) no gain or loss will be recognized by the Holding Company upon the
sale of shares of Conversion Shares in the Conversion Offerings, (xi) the
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members will recognize gain, if any, upon the issuance to them of withdrawable
savings accounts in the Savings Bank following the Conversion and
Reorganization, interests in the liquidation account and nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights, and (xii) the tax basis to the
holders of Conversion Shares purchased in the Conversion Offerings will be the
amount paid therefor, and the holding period for the Conversion Shares will
begin on the date of consummation of the Conversion Offerings, if purchased
through the exercise of Subscription Rights, and on the day after the date of
purchase, if purchased in the Community Offering or the Syndicated Community
Offering. 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
Savings Bank, whose findings are not binding on the IRS, has issued a letter
indicating 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 Savings
Bank 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 Savings Bank has also received an opinion from Evans, Carter, Kunes &
Bennett, P.A., Charleston, South Carolina, that, assuming the Conversion and
Reorganization does not result in any federal income tax liability to the
Savings Bank, its account holders, or the Holding Company, implementation of the
Plan of Conversion will not result in any South Carolina tax liability to such
entities or persons.
The opinions of Breyer & Aguggia and Evans, Carter, Kunes & Bennett, P.A.
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 AND REORGANIZATION PARTICULAR
TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Savings Bank would receive his or her pro rata
share of any assets of the MHC remaining after payment of claims of all
creditors. Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his or her deposit account was to the total
value of all deposit accounts in the Savings Bank at the time of liquidation.
After the Conversion and Reorganization, each depositor, in the event of a
complete liquidation of the Savings Bank, would have a claim as a creditor of
the same general priority as the claims of all other general
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creditors of the Savings Bank. However, except as described below, his or her
claim would be solely in the amount of the balance in his or her deposit account
plus accrued interest. Each stockholder would not have an interest in the value
or assets of the Savings Bank or the Holding Company above that amount.
The Plan of Conversion provides for the establishment, upon the completion
of the Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders in
an amount equal to the amount of any dividends waived by the MHC plus the
greater of (i) the Savings Bank's retained earnings of $12.9 million at March
31, 1993, the date of the latest statement of financial condition contained in
the final offering circular utilized in the MHC Reorganization, or (ii) 53.02%
of the Savings Bank's total stockholders' equity as reflected in its latest
statement of financial condition contained in the final Prospectus utilized in
the Conversion Offerings. As of the date of this Prospectus, the initial
balance of the liquidation account would be $____ million. Each Eligible
Account Holder and Supplemental Eligible Account Holder, if he or she were to
continue to maintain his or her deposit account at the Savings Bank, would be
entitled, upon a complete liquidation of the Savings Bank after the Conversion
and Reorganization to an interest in the liquidation account prior to any
payment to the Holding Company as the sole stockholder of the Savings Bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder would have
an initial interest in such liquidation account for each deposit account,
including passbook accounts, transaction accounts such as checking accounts,
money market deposit accounts and certificates of deposit, held in the Savings
Bank at the close of business on June 30, 1996 or December 31, 1997, as the case
may be. Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a pro rata interest in the total liquidation account for each of his
or her deposit accounts based on the proportion that the balance of each such
deposit account on the Eligibility Record Date (June 30, 1996) or the
Supplemental Eligibility Record Date (December 31, 1997), as the case may be,
bore to the balance of all deposit accounts in the Savings Bank on such date.
If, however, on any September 30 annual closing date of the Savings Bank,
commencing September 30, 1998, the amount in any deposit account is less than
the amount in such deposit account on June 30, 1996 or December 31, 1997, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Holding Company as the sole stockholder of the Savings Bank.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable Subscription Rights to purchase the Conversion Shares have been
issued to persons and entities entitled to purchase the Conversion Shares in the
Subscription Offering. The amount of Conversion Shares which these parties may
purchase will be subject to the availability of the Conversion Shares 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 Conversion Shares are available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Savings Bank as of the close of business on June 30, 1996 will
receive nontransferable Subscription Rights to subscribe for up to 50,000
Conversion Shares, one-tenth of one percent of the total offering of Conversion
Shares or 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of Conversion Shares 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, Conversion Shares 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
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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 Savings Bank in the one year period preceding
June 30, 1996 are subordinated to the Subscription Rights of other Eligible
Account Holders.
Category 2: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of the close of business on December 31, 1997 will
receive nontransferable Subscription Rights to subscribe for up to the greater
of 50,000 Conversion Shares, 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 Conversion Shares 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,
Conversion Shares 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.
Category 3: Other Members. Each depositor of the Savings Bank as of the
close of business on the Voting Record Date (___________, 1998) and each
borrower with a loan outstanding as of the close of business on October 26,
1993, which continues to be outstanding as of the close of business on the
Voting Record Date, will receive nontransferable Subscription Rights to purchase
up 50,000 Conversion Shares to the extent shares are available following
subscriptions by Eligible Account Holders 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 SAVINGS BANK AND THE HOLDING COMPANY.
The Holding Company and the Savings Bank 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 Noon, Eastern Time, on the Expiration
Date, whether or not the Savings Bank 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 SAVINGS BANK AFTER THE EXPIRATION
DATE WILL NOT BE ACCEPTED. The Subscription Offering may be extended by the
Holding Company and the Savings Bank up to ______, 1998 without the OTS's
approval. OTS regulations require that the Holding Company complete the sale of
Conversion Shares within 45 days after the close of the Subscription Offering.
If the Direct Community Offering and the Syndicated Community Offerings are not
completed by __________, 1998 (or ___________, 1998, if the Subscription
Offering is fully extended), all funds received will be promptly returned with
interest at the Savings Bank'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
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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. Concurrently with the Subscription Offering,
Conversion Shares will be offered by the Holding Company to certain members of
the general public in a Direct Community Offering, with preference given first
to Public Stockholders as of the close of business on the Voting Record Date
(who are not eligible to subscribe for Conversion Shares in the Subscription
Offering) and then 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 50,000 Conversion Shares. 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 will terminate on the
Expiration Date, unless extended by the Holding Company and the Savings Bank,
with approval of the OTS. Any extensions beyond 45 days after the close of the
fully extended 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 Savings Bank may be, given the opportunity to continue their orders, in
which case they will need to reconfirm affirmatively their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest at the Savings Bank'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 SAVINGS BANK 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
AND REORGANIZATION.
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 and all funds submitted pursuant to the Direct Community
Offering will be promptly refunded with interest.
SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that all
shares of Common Stock not purchased in the Subscription Offering and Direct
Community Offering 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 Sandler O'Neill acting as agent of the Holding
Company. THE HOLDING COMPANY AND THE SAVINGS BANK HAVE THE RIGHT TO REJECT
ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED COMMUNITY
OFFERING. Neither Sandler O'Neill 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, Sandler O'Neill has agreed to use its
best efforts in the sale of shares in the Syndicated Community Offering.
Conversion Shares sold in the Syndicated Community Offering also will be
sold at the $20.00 Purchase Price. See "-- Stock Pricing, Exchange Ratio and
Number of Shares to be Issued." No person will be permitted to subscribe for
more than 50,000 Conversion Shares in the Syndicated Community Offering. See "-
- - Plan of Distribution and Selling Commissions" for a description of the
commission to be paid to the selected dealers and to Sandler O'Neill.
Sandler O'Neill 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 Sandler O'Neill 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 and Reorganization, Sandler O'Neill 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
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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 Savings Bank's passbook rate until the
completion of the Conversion Offerings. At the completion of the Conversion and
Reorganization, the funds received in the Conversion Offerings will be used to
purchase the shares of Common Stock ordered. The shares issued in the
Conversion and Reorganization cannot and will not be insured by the FDIC or any
other government agency. In the event the Conversion and Reorganization 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 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
Savings Bank, with approval of the OTS.
In the event the Savings Bank 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 Savings Bank, 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 beyond the date on which the members
approved the Plan of Conversion. If the Conversion and Reorganization 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 Savings Bank
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 Savings
Bank 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 Savings Bank 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 Savings
Bank 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 Savings Bank 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.
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PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
The Primary Parties have engaged Sandler O'Neill as a financial and
marketing advisor in connection with the Offering, and Sandler O'Neill has
agreed to use its best efforts to assist the Holding Company with the
solicitation of subscriptions and purchase orders for Conversion Shares in the
Conversion Offerings. The services to be rendered by Sandler O'Neill include
the following: (i) consulting as to the securities marketing implications of any
aspect of the Plan of Conversion or related corporate documents; (ii) reviewing
with the Board of Directors RP Financial's appraisal of the aggregate pro forma
market value of the MHC and the Savings Bank, as converted; (iii) reviewing all
offering documents, including this Prospectus, stock order forms and related
offering materials; (iv) assisting in the design and implementation of a
marketing strategy for the Conversion Offerings; (v) assisting in obtaining all
requisite regulatory approvals, (vi) assisting management in scheduling and
preparing for meetings with potential investors and broker-dealers; and (vii)
providing such other general advice and assistance as may be requested to
promote the successful completion of the Conversion Offerings. In addition,
Sandler O'Neill will manage the Syndicated Community Offering, if necessary.
The engagement of Sandler O'Neill and the services performed thereunder,
including any "due diligence" investigation of the operations of the Primary
Parties, should not be construed as an endorsement or recommendation of the
suitability of an investment in the Common Stock or a verification of the
accuracy or completeness of the information contained herein. Sandler O'Neill
has not prepared any report or opinion constituting a recommendation or advice
to the Primary Parties or to persons who may purchase Conversion Shares
regarding the suitability of an investment in the Common Stock or as to the
prices at which the Common Stock may trade after the consummation of the
Conversion and Reorganization.
Based upon negotiations between the Primary Parties and Sandler O'Neill,
Sandler O'Neill will receive a fee equal to 1.50% of the aggregate purchase
price of Conversion Shares sold in the Subscription and Community Offerings. No
fees will be paid to Sandler O'Neill on subscriptions by any director, officer
or employee of the Primary Parties or members of their immediate families. In
the event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Primary Parties will pay a fee to such
selected dealers, any sponsoring dealer's fees, and a management fee to Sandler
O'Neill of 1.75% for shares sold by a National Association of Securities
Dealers, Inc. ("NASD") member firm, other than Sandler O'Neill, pursuant to a
selected dealers agreement; provided, however, that any fees payable to Sandler
O'Neill for any Conversion Shares sold by them pursuant to such a selected
dealers agreement shall not exceed 1.75% of the aggregate purchase price of such
shares and that the aggregate fees payable to Sandler O'Neill and selected
dealers shall not exceed 7.0% of the aggregate purchase price of such shares.
Sandler O'Neill will also be reimbursed for its reasonable out-of-pocket
expenses, including legal fees, for these services, in an amount not to exceed
$75,000. Notwithstanding the foregoing, in the event the Conversion Offerings
are not consummated or Sandler O'Neill ceases, under certain circumstances after
the subscription solicitation activities are commenced, to provide assistance to
the Primary Parties, Sandler O'Neill will be entitled to be reimbursed for its
reasonable out-of-pocket expenses as described above. The Primary Parties have
agreed to indemnify Sandler O'Neill in connection with certain claims or
liabilities, including certain liabilities under the Securities Act. Sandler
O'Neill has received advances towards its fees totalling $25,000. Total
marketing fees to Sandler O'Neill are expected to be $428,625, $506,250,
$583,875 and $673,145 at the minimum, midpoint, maximum, and 15% above the
maximum of the Estimated Valuation Range, respectively. See "PRO FORMA DATA"
for the assumptions used to arrive at these estimates.
The management and employees of the Primary Parties may participate in the
Conversion Offerings in clerical capacities, providing administrative support in
effecting sales transactions or answering questions of a mechanical nature
relating to the proper execution of the order form. Management of the Primary
Parties may answer questions regarding the respective businesses of the Primary
Parties. 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 Primary Parties have been
instructed not to solicit offers to purchase Conversion Shares or to provide
advice regarding the purchase of Conversion Shares. None of the Primary
parties' employees or directors who participate in the Conversion Offerings will
receive any special compensation or other remuneration for such activities.
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None of the Primary Parties' personnel participating in the Subscription
and Community Offering are registered or licensed as a broker or dealer or an
agent of a broker or dealer. The Primary Parties' 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. Order
Forms will only be distributed with a Prospectus. The Savings Bank will accept
for processing only orders submitted on original Order Forms. The Savings Bank
is not obligated to accept orders submitted on photocopied or telecopied Order
Forms. ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE
CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE 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 Savings Bank (which may be given by completing the
appropriate blanks in the Order Form), must be received by the Savings Bank by
Noon, 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 Savings Bank 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 Savings Bank 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 Order Form,
accompanied by the required payment for each share subscribed for, must be
received by the Savings Bank prior to the time the Direct Community Offering
terminates, which may be on or 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 Savings Bank unless the Conversion and Reorganization
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 close of business on the Eligibility
Record Date (June 30, 1996) and/or the Supplemental Eligibility Record Date
(December 31, 1997) and/or the Voting Record Date (___________, 1998) 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 Stock Information Center, (ii) by check, bank draft, or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Savings Bank. 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 Savings Bank's passbook rate from the date payment is received until the
completion or termination of the Conversion and Reorganization. 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 and
Reorganization (unless the certificate
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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 and Reorganization), but a hold
will be placed on such funds, thereby making them unavailable to the depositor
until completion or termination of the Conversion and Reorganization. At the
completion of the Conversion and Reorganization, the funds received in the
Conversion Offerings will be used to purchase the shares of Common Stock
ordered. THE SHARES OF COMMON STOCK ISSUED IN THE CONVERSION AND REORGANIZATION
CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY. If
the Conversion and Reorganization is not consummated for any reason, all funds
submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Savings Bank to withdraw the amount of the
aggregate Purchase Price from his or her deposit account, the Savings Bank will
do so as of the effective date of Conversion and Reorganization, though the
account must contain the full amount necessary for payment at the time the
subscription order is received. The Savings Bank 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 Savings
Bank's passbook rate.
IRAs maintained in the Savings Bank do not permit investment in the Common
Stock. A depositor interested in using his or her IRA funds to purchase Common
Stock must do so through a self-directed IRA. Since the Savings Bank 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 Conversion Shares. There
will be no early withdrawal or IRS interest penalties for such transfers. The
new trustee would hold the Conversion Shares in a self-directed account in the
same manner as the Savings Bank now holds the depositor's IRA funds. An annual
administrative fee may be payable to the new trustee. Depositors interested in
using funds in a Savings Bank 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.
STOCK PRICING, EXCHANGE RATIO AND NUMBER OF SHARES TO BE ISSUED
The Plan of Conversion requires that the purchase price of the Conversion
Shares must be based on the appraised pro forma market value of the Conversion
Shares, as determined on the basis of an independent valuation. The Primary
Parties have retained RP Financial to make such valuation. For its services in
making such appraisal and any expenses incurred in connection therewith, RP
Financial will receive a maximum fee of $30,000 plus out-of-pocket expenses,
together with a fee of no greater than $7,500 plus out-of-pocket expenses for
the preparation of a business plan and other services performed in connection
with the Holding Company's holding company application to the OTS. The Primary
Parties have agreed to indemnify RP Financial and its employees and affiliates
against certain losses (including any losses in connection with claims under the
federal securities laws) arising out of its services as appraiser, except where
RP Financial's liability results from its negligence or bad faith.
The appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the
Primary Parties and the economic and demographic conditions in the Savings
Bank's existing market area; certain historical, financial and other information
relating to the Savings Bank; a comparative evaluation of the operating and
financial statistics of the Savings Bank with those of other similarly situated
publicly-traded companies located in South Carolina and other regions of the
United States; the aggregate size of the offering of the Conversion Shares; the
impact of the Conversion and Reorganization on the Savings Bank's capital and
earnings potential; the proposed dividend policy of the Holding Company and the
Savings Bank; and the trading market for the Savings Bank Common Stock and
securities of comparable companies and general conditions in the market for such
securities.
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On the basis of the foregoing, RP Financial has advised the Primary Parties
in its opinion that the estimated pro forma market value of the MHC and the
Savings Bank, as converted, was $65.1 million as of December 5, 1997. Because
the holders of the Public Savings Bank Shares will continue to hold the same
aggregate percentage ownership interest in the Holding Company as they currently
hold in the Savings Bank (before giving effect to the payment of cash in lieu of
issuing fractional Exchange Shares and any Conversion Shares purchased by the
Savings Bank's stockholder in the Conversion Offerings), the appraisal was
multiplied by 53.02%, which represents the MHC's percentage interest in the
Savings Bank. The resulting amount represents the midpoint of the valuation
($65.1 million), and the minimum and maximum of the valuation were set at 15%
below and above the midpoint, respectively, resulting in a range of $55.3
million to $74.8 million. The Boards of Directors of the Primary Parties
determined that the Conversion Shares would be sold at $20.00 per share,
resulting in a range of 1,466,250 to 1,983,750 Conversion Shares being offered.
Upon consummation of the Conversion and Reorganization, the Conversion Shares
and the Exchange Shares will represent approximately 53.02% and 46.98%,
respectively, of the Holding Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed RP Financial's appraisal report,
including the methodology and the assumptions used by RP Financial, and
determined that the Estimated Valuation Range was reasonable and adequate. The
Boards of Directors of the Primary Parties also established the formula for
determining the Exchange Ratio. Based upon such formula and the Estimated
Valuation Range, the Exchange Ratio ranged from a minimum of 1.83281 to a
maximum of 2.47969 Exchange Shares for each Public Savings Bank Shares, with a
midpoint of 2.15625. Based upon these Exchange Ratios, the Holding Company
expects to issue between 1,299,231 and 1,757,783 shares of Exchange Shares to
the holders of Public Savings Bank Shares outstanding immediately prior to the
consummation of the Conversion and Reorganization. The Estimated Valuation
Range and the Exchange Ratio may be amended with the approval of the OTS, if
required, or if necessitated by subsequent developments in the financial
condition of any of the Primary Parties or market conditions generally. If the
appraisal is updated to below $55.3 million or above $86.1 million (the maximum
of the Estimated Valuation Range, as adjusted by 15%), such appraisal will be
filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent practices and
policies of the OTS, in the event the Holding Company receives orders for
Conversion Shares in excess of $39.7 million (the maximum of the Estimated
Valuation Range) and up to $45.6 million (the maximum of the Estimated Valuation
Range, as adjusted by 15%), the Holding Company may be required by the OTS to
accept all such orders. No assurances, however, can be made that the Holding
Company will receive orders for Conversion Shares in excess of the maximum of
the Estimated Valuation Range or that, if such orders are received, that all
such orders will be accepted because the Holding Company's final valuation and
number of shares to be issued are subject to the receipt of an updated appraisal
from RP Financial which reflects such an increase in the valuation and the
approval of such increase by the OTS. There is no obligation or understanding
on the part of management to take and/or pay for any shares of Conversion Shares
to complete the Conversion Offerings.
RP Financial's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing such shares. RP
Financial did not independently verify the Savings Bank's Consolidated Financial
Statements and other information provided by the Savings Bank and the MHC, nor
did RP Financial value independently the assets or liabilities of the Savings
Bank. The valuation considers the Savings Bank and the MHC as going concerns
and should not be considered as an indication of the liquidation value of the
Savings Bank and the MHC. Moreover, because such valuation is necessarily based
upon estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons purchasing
Conversion Shares or receiving Exchange Shares in the Conversion and
Reorganization will thereafter be able to sell such shares at prices at or above
the Purchase Price or in the range of the foregoing valuation of the pro forma
market value thereof.
No sale of Conversion Shares or issuance of Exchange Shares may be
consummated unless prior to such consummation RP Financial confirms that nothing
of a material nature has occurred which, taking into account all relevant
factors, would cause it to conclude that the Purchase Price is materially
incompatible with the estimate of the pro forma market value of a share of
Common Stock upon consummation of the Conversion and Reorganization.
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If such is not the case, a new Estimated Valuation Range may be set, a new
Exchange Ratio may be determined based upon the new Estimated Valuation Range, a
new Subscription and Community Offering and/or Syndicated Community Offering or
Public Offering may be held or such other action may be taken as the Primary
Parties shall determine and the OTS may permit or require.
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of Conversion Shares to be issued in
the Conversion Offerings may be increased or decreased without a resolicitation
of subscribers, provided that the product of the total number of shares times
the Purchase Price is not below the minimum or more than 15% above the maximum
of the Estimated Valuation Range. In the event market or financial conditions
change so as to cause the aggregate Purchase Price of the shares to be below the
minimum of the Estimated Valuation Range or more than 15% above the maximum of
such range, purchasers will be resolicited (i.e., permitted 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 Savings Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Any increase or decrease in the number of Conversion Shares
will result in a corresponding change in the number of Exchange Shares, so that
upon consummation of the Conversion and Reorganization, the Conversion Shares
and the Exchange Shares will represent approximately 53.03% and 46.97%,
respectively, of the Holding Company's total outstanding shares of Common Stock
(exclusive of the effects of the exercise of outstanding stock options).
An increase in the number of Conversion Shares as a result of an increase
in the appraisal of the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Holding Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of Conversion Shares would increase both a subscriber's ownership
interest and the Holding Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholders' equity on an aggregate basis. See "RISK FACTORS --Possible
Dilutive Effect of Benefit Programs" and "PRO FORMA DATA."
The appraisal report of RP Financial has been filed as an exhibit to this
Registration Statement and Application for Conversion of which this Prospectus
is a part and is available for inspection in the manner set forth under
"ADDITIONAL INFORMATION."
LIMITATIONS ON PURCHASES OF CONVERSION SHARES
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of Common Shares by eligible subscribers and others in the
Conversion and Reorganization. Each subscriber must subscribe for a minimum of
25 Conversion Shares. The Plan of Conversion provides for the following
purchase limitations: (i) no person may purchase in either the Subscription
Offering, Direct Community Offering or Syndicated Community Offering more 50,000
Conversion Shares, (ii) no person, together with associates of or persons acting
in concert with such person, may purchase in either the Subscription Offering,
Direct Community Offering or Syndicated Community Offering more than 50,000
Conversion Shares, (iii) the maximum number of shares of Conversion Shares which
may be subscribed for or purchased in all categories in the Conversion and
Reorganization by any person, when combined with any Exchange Shares received,
shall not exceed 50,000 shares of Common Stock to be issued in the Conversion
and Reorganization, and (iv) the maximum number of shares of Conversion Shares
which may be subscribed for or purchased in all categories in the Conversion and
Reorganization by any person, together with any associate or any group of
persons acting in concert, when combined with any Exchange Shares received,
shall not exceed 50,000 shares of Common Stock to be issued in the Conversion
and Reorganization. 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.
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BECAUSE OTS POLICY REQUIRES THAT THE MAXIMUM PURCHASE LIMITATION INCLUDES
EXCHANGE SHARES TO BE ISSUED TO PUBLIC STOCKHOLDERS IN EXCHANGE FOR THEIR PUBLIC
SAVINGS BANK SHARES, CERTAIN PUBLIC STOCKHOLDERS MAY BE LIMITED IN THEIR ABILITY
TO PURCHASE CONVERSION SHARES, OR EVEN PREVENTED FROM PURCHASING CONVERSION
SHARES.
The Boards of Directors of the Primary Parties may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the Conversion Shares sold in the Conversion and Reorganization, provided
that orders for shares which exceed 5% of the Conversion Shares sold in the
Conversion and Reorganization may not exceed, in the aggregate, 10% of the
shares sold in the Conversion and Reorganization. The Savings Bank 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
Conversion Shares will be, and other large subscribers in the discretion of the
Holding Company and the Savings Bank 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 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 Savings Bank or a
majority-owned subsidiary of the Savings Bank) 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 Savings Bank 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 Savings Bank, 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 Shares purchased pursuant to the Conversion and Reorganization will
be freely transferable, except for shares purchased by directors and officers of
the Savings Bank and the Holding Company and by NASD members. See "--
Restrictions on Transferability by Directors and Officers and NASD Members."
DELIVERY AND EXCHANGE OF STOCK CERTIFICATES
CONVERSION STOCK. Certificates representing Conversion Shares will be
mailed by the Holding Company's transfer agent to the persons entitled thereto
at the addresses of such persons appearing on the Order Form as soon as
practicable following the consummation of the Conversion and Reorganization.
Any undeliverable certificates will be held by the Holding Company until claimed
by persons legally entitled thereto or otherwise disposed according to
applicable law. Purchasers of Conversion Shares may be unable to sell such
shares until certificates are available and delivered to them.
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EXCHANGE SHARES. After the consummation of the Conversion and
Reorganization, each holder of a certificate(s) theretofore evidencing issued
and outstanding shares of Savings Bank Common Stock (other than the MHC), upon
surrender of the same to an agent, duly appointed by the Holding Company, which
is anticipated to be the transfer agent for the Common Stock ("Exchange Agent"),
shall be entitled to receive in exchange therefor a certificate(s) representing
the number of full Exchange Shares based on the Exchange Ratio. The Exchange
Agent shall mail a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to such certificate shall
pass, only upon delivery of such certificate to the Exchange Agent) advising
such holder of the terms of the Exchange Offering and the procedure for
surrendering to the Exchange Agent such certificates in exchange for a
certificate(s) evidencing Common Stock. THE SAVINGS BANK STOCKHOLDERS SHOULD
NOT FORWARD SAVINGS BANK COMMON STOCK CERTIFICATES TO THE SAVINGS BANK OR THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE TRANSMITTAL LETTER.
No holder of a certificate theretofore representing shares of Savings Bank
Common Stock shall be entitled to receive any dividends on the Common Stock
until the certificate representing such shares is surrendered in exchange for
certificates representing shares of Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Common Stock after
the consummation of the Conversion and Reorganization, but before surrender of
certificates representing shares of Savings Bank Common Stock, dividends payable
in respect of shares of Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest) upon surrender
of the certificates representing such shares of Savings Bank Common Stock.
After the consummation of the Conversion and Reorganization, the Holding Company
shall be entitled to treat certificates representing shares of Savings Bank
Common Stock as evidencing ownership of the number of full shares of Common
Stock into which the shares of Savings Bank Common Stock represented by such
certificates shall have been converted, notwithstanding the failure on the part
of the holder thereof to surrender such certificates.
The Holding Company shall not be obligated to deliver a certificate(s)
representing shares of Common Stock to which a holder of Savings Bank Common
Stock would otherwise be entitled as a result of the Conversion and
Reorganization until such holder surrenders the certificate(s) representing the
shares of Savings Bank Common Stock for exchange as provided above, or, in
default thereof, an appropriate affidavit of loss and indemnity agreement and/or
a bond as may be required in each case by the Holding Company. If any
certificate evidencing shares of Common Stock is to be issued in a name other
than that in which the certificate evidencing Savings Bank Common Stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange Agent any transfer or other tax required by reason
of the issuance of a certificate for shares of Common Stock in any name other
than that of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
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 of any 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. 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. Any
repurchases of common stock by the Holding Company would be subject to these
regulatory restrictions unless the OTS would provide otherwise.
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RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of Common Stock purchased in the Conversion Offerings by directors
and officers of the Holding Company may not be sold for a period of one year
following consummation of the Conversion and Reorganization, 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 and Reorganization 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 Savings Bank after adoption of the Plan of Conversion and
Reorganization) and their associates during the three-year period following
Conversion and Reorganization 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 for the registration of the Common Stock to be issued
pursuant to the Conversion and Reorganization. The registration under the
Securities Act of shares of the Common Stock to be issued in the Conversion and
Reorganization 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.
COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL. As a result of the Conversion and Reorganization, holders of the
Savings Bank Common Stock will become stockholders of the Holding Company, a
Delaware corporation. There are certain differences in stockholder rights
arising from distinctions between the Savings Bank's Federal Stock Charter and
Bylaws and the Holding Company's Certificate of Incorporation and Bylaws and
from distinctions between laws with respect to federally chartered savings
institutions and Delaware law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and similarities affecting the rights of stockholders. The
discussion herein is qualified in its entirety by reference to the Certificate
of Incorporation and Bylaws of the Holding Company and the DGCL. See
"ADDITIONAL INFORMATION" for procedures for obtaining a copy of the Holding
Company's Certificate of Incorporation and Bylaws.
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AUTHORIZED CAPITAL STOCK. The Holding Company's authorized capital stock
consists of 7,500,000 shares of Common Stock, par value $.01 per share and
250,000 shares of preferred stock, par value $.01 per share ("Preferred Stock").
The Savings Bank's authorized capital stock consists of 4,000,000 shares of
Savings Bank Common Stock and 1,000,000 shares of serial preferred stock, par
value $1.00 per share. The shares of Common Stock and Preferred Stock were
authorized in an amount greater than that to be issued in the Conversion and
Reorganization to provide the Holding Company's Board of Directors with
flexibility to effect, among other transactions, financings, acquisitions, stock
dividends, stock splits and employee stock options. However, these additional
authorized shares may also be used by the Board of Directors consistent with its
fiduciary duty 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 post tender offer
merger or other transaction by which a third party seeks control, and thereby
assist management to retain its position. The Holding Company's Board currently
has no plan for the issuance of additional shares, other than the issuance of
additional shares pursuant to stock benefit plans.
ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations,
the MHC is required to own not less than a majority of the outstanding Savings
Bank Common Stock. There will be no such restriction applicable to the Holding
Company following consummation of the Conversion and Reorganization.
The Holding Company's Certificate of Incorporation do not contain
restrictions on the issuance of shares of capital stock to directors, officers
or controlling persons of the Holding Company, whereas the Savings Bank's
Federal Stock Charter restricts such issuance to general public offerings, or if
qualifying shares, to directors, unless the share 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 stockholders meeting. Thus, stock-related
compensation plans such as stock option plans could be adopted by the Holding
Company without stockholder approval and shares of Holding Company capital stock
could be issued directly to directors or officers without stockholder approval.
The Bylaws of the NASD, however, generally require corporations with securities
which are quoted on the Nasdaq National Market System to obtain stockholder
approval of most stock compensation plans for directors, officers and key
employees of the corporation. Moreover, although generally not required,
stockholder approval of stock related compensation plans may be sought in
certain instances in order to qualify such plans for favorable federal income
tax and securities law treatment under current laws and regulations. The
Holding Company plans to submit the stock compensation plans discussed herein to
its stockholders for approval.
VOTING RIGHTS. Neither the Savings Bank's Federal Stock Charter or Bylaws
nor the Holding Company's Certificate of Incorporation or Bylaws currently
provide for cumulative voting in elections of directors. For additional
information regarding voting rights, see "-- Limitations on Acquisitions of
Voting Stock and Voting Rights" below.
PAYMENT OF DIVIDENDS. The ability of the Savings Bank to pay dividends on
its capital stock is restricted by OTS regulations and by federal income tax
considerations related to savings institutions such as the Savings Bank. See
"REGULATION -- Federal Regulation of the Savings Bank -- Capital Requirements"
and "TAXATION." Although the Holding Company is not subject to these
restrictions as a Delaware corporation, such restrictions will indirectly affect
the Holding Company because dividends from the Savings Bank will be a primary
source of funds of the Holding Company for the payment of dividends to
stockholders of the Holding Company.
Certain restrictions generally imposed on Delaware corporations may also
have an impact on the Holding Company's ability to pay dividends. The DGCL
generally provides that the Holding Company is 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, equal to
its net profits for the current year and/or the immediately preceding fiscal
year.
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BOARD OF DIRECTORS. The Savings Bank's Federal Stock Charter and Bylaws
and the Holding Company's Certificate of Incorporation and Bylaws each require
the Board of Directors of the Savings Bank and the Holding Company to be divided
into three classes as nearly equal in number as possible and that the members of
each class shall be elected for a term of three years and until their successors
are elected and qualified, with one class being elected annually.
Under the Savings Bank's Bylaws, any vacancies in the Board of Directors of
the Savings Bank may be filled by the affirmative vote of a majority of the
remaining directors although less than a quorum of the Board of Directors.
Persons elected by the directors of the Savings Bank to fill vacancies may only
serve until the next annual meeting of stockholders. Under the Holding
Company's Certificate of Incorporation, any vacancy occurring in the Board of
Directors of the Holding Company, including any vacancy created by reason of an
increase in the number of directors, may be filled by the remaining directors,
and any director so chosen shall hold office for the remainder of the term to
which the director has been elected and until his or her successor is elected
and qualified.
Under the Savings Bank's Bylaws, any director may be removed for cause by
the holders of a majority of the outstanding voting shares. The Holding
Company's Certificate of Incorporation provide that any director may be removed
for cause by a majority of the directors of the Holding Company or by the
holders of at least 80% of the outstanding voting shares of the Holding Company.
LIMITATIONS ON LIABILITY. The Holding Company's Certificate of
Incorporation provides that the directors of the Holding Company shall not be
personally liable for monetary damages to the Holding Company for certain
breaches of their fiduciary duty as directors, except for liabilities that
involve intentional misconduct or a knowing violation of law by the director,
the authorization or illegal distributions or receipt of an improper personal
benefit from their actions as directors. This provision might, in certain
instances, discourage or deter shareholders or management from bringing a
lawsuit against directors for a breach of their duties even though such an
action, if successful, might have benefitted the Holding Company.
Currently, federal law does not permit federally chartered savings
institutions such as the Savings Bank to limit the personal liability of
directors in the manner provided by the DGCL and the laws of many other states.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The Savings
Bank's Federal Stock Charter and Bylaws do not contain any provision relating to
indemnification of directors and officers of the Savings Bank. Under current
OTS regulations, however, the Savings Bank shall indemnify its directors,
officers and employees for any costs incurred in connection with any litigation
involving any such person's activities as a director, officer or employee if
such person obtains a final judgment on the merits in his or her favor. In
addition, indemnification is permitted in the case of a settlement, a final
judgment against such person or final judgment other than on the merits, if a
majority of disinterested directors determine that such person was acting in
good faith within the scope of his or her employment as he or she could
reasonably have perceived it under the circumstances and for a purpose he or she
could reasonably have believed under the circumstances was in the best interest
of the Savings Bank or its stockholders. The Savings Bank also is permitted to
pay ongoing expenses incurred by a director, officer or employee if a majority
of disinterested directors concludes that such person may ultimately be entitled
to indemnification. Before making any indemnification payment, the Savings Bank
is required to notify the OTS of its intention and such payment cannot be made
if the OTS objects thereto.
The officers, directors, agents and employees of the Holding Company are
indemnified with respect to certain actions pursuant to the Holding Company's
Certificate of Incorporation, which complies with the DGCL regarding
indemnification. The DGCL allows the Holding Company to indemnify the
aforementioned persons for expenses, settlements, judgments and fines in suits
in which such person has made a party by reason of the fact that he or she is or
was an agent of the Holding Company. No such indemnification may be given if
the acts or omissions of the person are adjudged to be in violation of law, if
such person is liable to the corporation for an unlawful distribution, or if
such person personally received a benefit to which he or she was not entitled.
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SPECIAL MEETINGS OF STOCKHOLDERS. The Holding Company's Certificate of
Incorporation provides that special meetings of the stockholders of the Holding
Company may be called only by the board of directors or an authorized committee
thereof. The Savings Bank's Federal Stock Charter provides that, until October
26, 1998 (i.e., five years after the consummation of the MHC Reorganization),
----
special meetings of the Savings Bank's stockholders may only be called by the
Board of Directors. Thereafter, special meetings may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
a majority of the outstanding capital stock of the Savings Bank entitled to vote
at the meeting.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Savings Bank's Bylaws generally
provide that stockholders may submit nominations for election as director at an
annual meeting of stockholders and any new business to be taken up at such a
meeting by filing such in writing with the Savings Bank at least thirty days
before the date of any such meeting.
The Holding Company's Bylaws generally provide that any stockholder
desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of stockholders must submit written notice to the
Holding Company at least 30 days and not more than 60 days in advance of the
meeting, together with certain information relating to the nomination or new
business. However, if less than 31 days notice of the meeting is given,
stockholders must submit such written notice no later than the tenth day
following the date on which notice of the meeting is mailed to stockholders.
Failure to comply with these advance notice requirements will preclude such
nominations or new business from being considered at the meeting. Management
believes that it is in the best interests of the Holding Company and its
stockholders to provide sufficient time to enable management to disclose to
stockholders information about a dissident slate of nominations for directors.
This advance notice requirement may also give management time to solicit its own
proxies in an attempt to defeat any dissident slate of nominations, should
management determine that doing so is in the best interest of stockholders
generally. Similarly, adequate advance notice of stockholder proposals will
give management time to study such proposals and to determine whether to
recommend to the stockholders that such proposals be adopted. In certain
instances, such provisions could make it more difficult to oppose management's
nominees or proposals, even if stockholders believe such nominees or proposals
are in their best interests.
STOCKHOLDER ACTION WITHOUT A MEETING. The Bylaws of the Savings Bank
provide that any action to be taken or which may be taken at any annual or
special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote. The Holding Company's Certificate of Incorporation
specifically denies the authority of stockholders to act without a meeting.
STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation
which is applicable to the Savings Bank provides that stockholders may inspect
and copy specified books and records of a federally chartered savings
institution after proper written notice for a proper purpose. The DGCL
similarly provides that a stockholder may inspect books and records upon written
demand stating the purpose of the inspection, if such purpose is reasonably
related to such person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. The Holding
Company's Certificate of Incorporation provide that no person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of (i) more than
10% of the issued and outstanding shares of any class of an equity security of
the Holding Company, or (ii) any securities convertible into, or exercisable
for, any equity securities of the Holding Company if, assuming conversion or
exercise by such person of all securities of which such person is the beneficial
owner which are convertible into, or exercisable for, such equity securities
(but of no securities convertible into, or exercisable for, such equity
securities of which such person is not the beneficial owner), such person would
be the beneficial owner of more than 10% of any class of an equity security of
the Holding Company. The term "person" is broadly defined in the Certificate of
Incorporation to prevent circumvention of this restriction.
The foregoing restrictions do not apply to (i) any offer with a view toward
public resale made exclusively to the Holding Company by underwriters or a
selling group acting on its behalf, (ii) any employee benefit plan
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established by the Holding Company or the Savings Bank, and (iii) any other
offer or acquisition approved in advance by the affirmative vote of two-thirds
of the Holding Company's Board of Directors. In the event that shares are
acquired in violation of this restriction, all shares beneficially owned by any
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 matters submitted to stockholders for a vote.
Neither the Charter nor the Bylaws of the Savings Bank contains a provision
which restricts voting rights of certain stockholders of the Savings Bank in the
manner set forth above.
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires
the approval of two-thirds of the Board of Directors of the Savings Bank and the
holders of two-thirds of the outstanding stock of the Savings Bank entitled to
vote thereon for mergers, consolidations and sales of all or substantially all
of the Savings Bank's assets. Such regulation permits the Savings Bank to merge
with another corporation without obtaining the approval of its stockholders if:
(i) it does not involve an interim savings institution; (ii) the Savings Bank's
Federal Stock Charter is not changed; (iii) each share of the Savings Bank's
stock outstanding immediately prior to the effective date of the transaction is
to be an identical outstanding share or a treasury share of the Savings Bank
after such effective date; and (iv) either: (A) no shares of voting stock of
the Savings Bank and no securities convertible into such stock are to be issued
or delivered under the plan of combination or (B) the authorized unissued shares
or the treasury shares of voting stock of the Savings Bank to be issued or
delivered under the plan of combination, plus those initially issuable upon
conversion of any securities to be issued or delivered under such plan, do not
exceed 15% of the total shares of voting stock of the Savings Bank outstanding
immediately prior to the effective date of the transaction.
The Holding Company's 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
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mergers and other business combinations which a majority of stockholders deem
desirable and placing the power to prevent such a merger or combination in the
hands of a minority of stockholders.
The Holding Company's Certificate of Incorporation requires the Holding
Company's Board of Directors to consider certain factors in addition to the
amount of consideration to be paid when evaluating certain business combinations
or a tender or exchange offer. These additional factors include: (i) the
social and economic effects of the transaction; (ii) the business and financial
condition and earnings prospects of the acquiring person or entity; and (iii)
the competence, experience, and integrity of the acquiring person or entity and
its management.
As holder of all of the outstanding Savings Bank Common Stock after
consummation of the Conversion and Reorganization, the Holding Company generally
will be able to authorize a merger, consolidation or other business combination
involving the Savings Bank without the approval of the stockholders of the
Holding Company.
DISSENTERS' RIGHTS OF APPRAISAL. OTS regulations generally provide that a
stockholder of a federally chartered savings institution that engages in a
merger, consolidation or sale of all or substantially all of its assets shall
have the right to demand from such institution payment of the fair or appraised
value of his or her stock in the institution, subject to specified procedural
requirements. This regulation also provides, however, that the stockholders of
a federally chartered savings institution with stock which is listed on a
national securities exchange or quoted on the Nasdaq Stock System are not
entitled to dissenters' rights in connection with a merger involving such
savings institution if the stockholder is required to accept only "qualified
consideration" for his or her stock, which is defined to include cash, shares of
stock of any institution or corporation which at the effective date of the
merger will be listed on a national securities exchange or quoted on the Nasdaq
National Market System or any combination of such shares of stock and cash.
Under the DGCL, shareholders of the Holding Company will generally have
dissenter's appraisal rights in connection with (i) a plan of merger to which
the Holding Company is a party; (ii) a plan of share exchange to which the
Holding Company is a party as the corporation whose shares will be acquired;
(iii) certain sales or exchanges of all, or substantially all, of the Holding
Company's property other than in the regular course of business; and (iv)
amendments to the Holding Company's Certificate of Incorporation effecting a
material reverse stock split.
AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of the Savings Bank's
Federal Stock Charter may be made unless it is first proposed by the Board of
Directors of the Savings Bank, then preliminarily approved by the OTS, and
thereafter approved by the holders of a majority of the total votes eligible to
be cast at a legal meeting. The Holding Company's Certificate of Incorporation
may be amended by the vote of the holders of a majority of the outstanding
shares of Holding Company Common Stock, except that the provisions of the
Certificate of Incorporation governing (i) the calling of meeting of
stockholders, (ii) stockholders' nominations and proposals, (iii) authorized
capital stock, (iv) denial of preemptive rights, (v) the number and staggered
terms of directors, (vi) removal of directors, (vii) approval of certain
business combinations, (viii) the evaluation of certain business combinations,
(ix) elimination of directors' liability, (x) indemnification of officers and
directors, and (xi) the manner of amending the Certificate of Incorporation and
Bylaws, each may not be repealed, altered, amended or rescinded except by the
vote of the holders of at least 80% of the outstanding shares of the Holding
Company. This provision is intended to prevent the holders of a lesser
percentage of the outstanding stock of the Holding Company from circumventing
any of the foregoing provisions by amending the Certificate of Incorporation to
delete or modify one of such provisions.
The Bylaws of the Savings Bank may be amended by a majority vote of the
full Board of Directors of the Savings Bank or by a majority vote of the votes
cast by the stockholders of the Savings Bank at any legal meeting. The Holding
Company's Bylaws may only be amended by a majority vote of the Board of
Directors of the Holding Company or by the holders of at least 80% of the
outstanding stock by the Holding Company.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CERTIFICATE
OF INCORPORATION AND BYLAWS. The Board of Directors of the Savings Bank
believes that the provisions described above are prudent and
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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 Savings Bank in the orderly
deployment of the Conversion and Reorganization proceeds into productive assets
during the initial period after the Conversion and Reorganization. The Board of
Directors believes these provisions are in the best interest of the Savings Bank
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.
Despite the belief of the Savings Bank 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 Savings Bank and the Holding Company, however,
have concluded that the potential benefits outweigh the possible disadvantages.
Following the Conversion and Reorganization, 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.
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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 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.
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 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 Savings Bank's Federal Stock Charter
contains 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 Savings Bank 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 and Reorganization. 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 from the consummation date of the MHC Reorganization,
stockholders of the Savings Bank will not be permitted to call a special meeting
of stockholders relating to a change of control of the Savings Bank 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
102
<PAGE>
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
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.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 7,500,000 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 3,741,533 shares of Common Stock (subject to adjustment up to
4,302,763 shares) and no shares of preferred stock in the Conversion and
Reorganization. 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 AND REORGANIZATION --Restrictions on Repurchase of Stock"
and "USE OF PROCEEDS."
VOTING RIGHTS. Upon Conversion and Reorganization, 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 Federal law or
as are otherwise presented to them by the Board of Directors. Except as
discussed in "RESTRICTIONS ON ACQUISITION OF THE 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
103
<PAGE>
require a vote of 80% of the outstanding shares entitled to vote thereon. See
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
As a federal stock savings bank, corporate powers and control of the
Savings Bank are vested in the Board of Directors, who elect the officers of the
Savings Bank and who fill any vacancies on the Board of Directors as it exists
upon Conversion and Reorganization. Subsequent to Conversion and
Reorganization, voting rights will be vested exclusively in the owners of the
shares of capital stock of the Savings Bank, 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 Savings Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Savings Bank, the Holding Company, as holder of the Savings Bank's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Savings Bank (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 AND REORGANIZATION"), all assets
of the Savings Bank 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 Reorganization 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."
EFFECT OF RECEIVERSHIP ON THE COMMON STOCK
In the event of the receivership of the Savings Bank, the FDIC, as
receiver, shall, by operation of law, succeed to, among other things, all the
rights, titles, powers and privileges of the Savings Bank and its stockholder,
the Holding Company. As provided by the procedures and priorities applicable to
receiverships of savings institutions, the holders of the Common Stock would be
entitled to receive any funds remaining after all depositors, creditors, other
claimants (other than holders of stock ranking junior to or on a parity with the
Common Stock) and administrative expenses are paid.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Securities is the transfer agent and registrar for shares of
the Common Stock.
104
<PAGE>
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
Reorganization and will not deregister its Common Stock for a period of at least
three years following the completion of the Conversion and Reorganization. Upon
such registration, the proxy solicitation and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will apply.
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 Conversion and Reorganization have been opined upon by Breyer & Aguggia and
the South Carolina tax consequences of the Conversion and Reorganization have
been opined upon by Evans, Carter, Kunes & Bennett, P.A., Charleston, South
Carolina. Breyer & Aguggia and Evans, Carter, Kunes & Bennett, P.A. have
consented to the references herein to their opinions. Certain legal matters
will be passed upon for Sandler O'Neill by Muldoon, Murphy & Faucette,
Washington, D.C.
EXPERTS
The consolidated financial statements of the Savings Bank as of September
30, 1997 and 1996 and for each of the years in the three-year period ended
September 30, 1997, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Savings Bank setting forth its opinion as to the estimated pro
forma market value of the MHC and the Savings Bank, 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 and Reorganization. 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 MHC has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the Special Members' Meeting and the
Stockholders' 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 OTS Southeast Regional Office, 1475 Peachtree Street, N.E.,
Atlanta, Georgia 30309.
105
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARY
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................. F-1
Consolidated Balance Sheets as of
September 30, 1997 and 1996............................. F-2
Consolidated Statements of Operation for the
Years Ended September 30, 1997, 1996 and 1995........... 19
Consolidated Statements of Stockholders' Equity
for the Years Ended September 30, 1997, 1996 and 1995... F-3
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1997, 1996 and 1995........... F-4
Notes to Consolidated Financial Statements............... F-6
</TABLE>
* * *
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 MHC have not been included herein
because the MHC has no material assets other than shares of Savings Bank Common
Stock (which will be canceled as part of the Conversion and Reorganization) and
no significant liabilities (contingent or otherwise), revenues or expenses, and
has not engaged in any significant activities to date.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
106
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
Independent Auditors' Report
----------------------------
The Board of Directors
Perpetual Bank, A Federal Savings Bank
and Subsidiaries
We have audited the consolidated balance sheets of Perpetual Bank, A Federal
Savings Bank and subsidiaries as of September 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended September 30, 1997. These
consolidated financial statements are the responsibility of the Company'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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Perpetual Bank, A
Federal Savings Bank and subsidiaries as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Greenville, South Carolina
November 7, 1997
F-1
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $13,499,332 13,584,568
Investment securities available for sale (amortized cost
of $11,188,937 in 1997 and $2,494,535 in 1996) 11,325,700 2,493,888
Federal Home Loan Bank stock, at cost 1,650,000 993,700
Mortgage-backed securities available for sale (amortized cost
of $35,713,975 in 1997 and $44,362,007 in 1996) 35,862,700 43,124,998
Loans receivable, (net of allowance for loan losses of
$1,886,243 in 1997 and $1,534,773 in 1996) 178,772,266 140,757,990
Investment in limited partnership 5,003,835 -
Real estate acquired in settlement of loans 162,776 2,750
Real estate held for development 2,284,038 1,406,144
Premises and equipment, net 6,294,465 4,852,366
Accrued interest receivable:
Loans receivable 1,330,255 1,113,386
Mortgage-backed and other securities 238,186 356,827
Other 569,787 1,140,556
------------ -----------
Total assets $256,993,340 209,827,173
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits 201,001,858 160,243,623
Advances from the Federal Home Loan Bank ("FHLB") 15,000,000 16,000,000
Advance payments by borrowers for property taxes and insurance 396,886 404,322
Accrued interest payable 1,362,483 747,059
Accrued expenses and other liabilities 8,630,370 3,341,375
------------ -----------
Total liabilities 226,391,597 180,736,379
------------ -----------
Stockholders' equity:
Common stock ($1.00 par value; authorized 20,000,000 shares;
issued and outstanding 1,508,873 shares in 1997 and
1,504,601 shares in 1996 1,508,873 1,504,601
Additional paid-in capital 11,651,917 11,696,679
Retained earnings, restricted 18,381,766 17,607,269
Unrealized gain (loss) on securities available for sale, net 188,423 (816,855)
Indirect guarantee of ESOP debt (804,024) (900,900)
Deferred compensation for Management Recognition
Plan ("MRP") (325,212) -
------------ -----------
Total stockholders' equity 30,601,743 29,090,794
------------ -----------
Commitments and contingencies
Total liabilities and stockholders' equity $256,993,340 209,827,173
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Indirect
on Securities Guarantee Deferred
Additional Available for of Compensation
Common Paid-in Retained Sale, Net ESOP for
Stock Capital Earnings of Taxes Debt MRP Total
----- ------- -------- -------- ---- --- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1994 $1,503,943 847,044 14,709,955 (2,320,660) (80,500) (23,010) 14,636,772
Change in unrealized loss on
securities available for
sale, net - - - 1,711,405 - - 1,711,405
Exercise of stock options
(658 shares) 658 5,922 - - - - 6,580
Reduction of ESOP debt - - - - 73,790 - 73,790
Earned portion of MRP - - - - - 11,490 11,490
Dividends on common stock - - (125,089) - - - (125,089)
Net income for 1995 - - 1,917,038 - - - 1,917,038
---------- ---------- ---------- ---------- -------- -------- ----------
Balance at September 30, 1995 1,504,601 852,966 16,501,904 (609,255) (6,710) (11,520) 18,231,986
Change in unrealized loss on
securities available for
sale, net - - - (207,600) - - (207,600)
Reduction on ESOP debt - - - - 6,710 6,710
Earned portion of MRP - - - - - 11,520 11,520
Dividends on common stock - - (319,022) - - - (319,022)
Sale of common stock (less
offering cost of $417,536) - 10,843,713 - - - - 10,843,713
Indirect guaranteed of ESOP
debt - - - - (900,900) - (900,900)
Net income for 1996 - - 1,424,387 - - 1,424,387
---------- ---------- ---------- ---------- -------- -------- ----------
Balance at September 30, 1996 1,504,601 11,696,679 17,607,269 (816,855) (900,900) - 29,090,794
Change in unrealized loss on
securities, net - - - 1,005,278 - - 1,005,278
Exercise of stock options 4,272 38,448 - - - - 42,720
Reduction of ESOP debt - - - - 96,876 - 96,876
ESOP expense - 32,152 - - - - 32,152
Purchase of common stock
for MRP - - - - - (404,093) (404,093)
Earned portion of MRP - - - - - 78,881 78,881
Dividends on common stock - - (953,866) - - - (953,866)
Offering costs for the sale
of common stock - (115,362) - - - - (115,362)
Net income for 1997 - - 1,728,363 - - - 1,728,363
---------- ---------- ---------- ---------- -------- -------- ----------
Balance at September 30, 1997 $1,508,873 11,651,917 18,381,766 188,423 (804,024) (325,212) 30,601,743
========== ========== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 1,728,363 1,424,387 1,917,038
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 703,213 597,306 583,281
Provision for loan losses 655,000 349,250 362,000
Earnings of investment in
limited partnership (184,960) - -
(Increase) decrease in deferred tax assets - - 27,000
Gain on sale of mutual funds, net - - (1,763,967)
Gain on sale of investments, net 307,534 (53,963) (13,504)
Gain on sale of real estate ( 19,894) (79,034) (47,544)
Deferred compensation 111,033 11,520 11,490
Loss (gain) on sale of loans, net (12,509) 23,328 (66,785)
Loss (gain) on sale of fixed assets, net 191,894 (26,096) -
Decrease (increase) in accrued interest
receivable and other assets (46,895) (789,076) (205,004)
Increase (decrease) in other liabilities 5,656,419 1,190,696 (131,300)
------------ ----------- ------------
Net cash provided by
operating activities 9,089,198 2,648,318 672,705
------------ ----------- ------------
Cash flows from investing activities:
Proceeds from sales of investment securities - - 7,625,359
Proceeds from maturities of investment securities 2,550,000 800,000 393,242
Purchase of investment securities (11,181,806) (2,488,144) (797,625)
Purchase of investments in limited partnership (4,818,875) - -
Purchase of mutual funds - - (144,640,000)
Proceeds from sales of mutual funds - - 146,403,967
Proceeds from the sales of fixed assets - 91,096 -
Principal repayments on mortgage-backed
securities 4,412,449 2,967,619 3,501,516
Proceeds from sales of mortgage-backed
securities 22,570,776 2,922,009 -
Purchase of mortgage-backed securities (18,760,688) - (5,055,120)
Proceeds from redemption of FHLB stock 650,000 1,804,600 1,110,000
Purchases of FHLB stock (1,306,300) (398,300) (2,424,700)
Increase in loans receivable, net (12,676,474) (18,966,369) (21,874,020)
Purchases of loans receivable (31,960,810) (18,242,510) -
Sales of loans receivable 5,746,769 9,555,720 9,614,274
Proceeds from sale of real estate owned 95,186 120,959 869,086
Proceeds from sale of real estate held for
development 1,149,353 - -
Purchase of premises and equipment (2,281,841) (1,558,569) (731,153)
Purchase of real estate held for development (2,027,247) (1,406,144) -
------------ ----------- ------------
Net cash used in investing activities (47,821,198) (24,798,033) (6,005,174)
------------ ----------- ------------
</TABLE>
F-4
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in deposit accounts 40,758,235 10,926,744 5,774,086
Proceeds from FHLB advances 68,000,000 61,000,000 216,150,000
Repayment of FHLB advances (69,000,000) (53,000,000) (218,650,000)
Proceeds from sale of common stock, less
expenses (72,642) 10,843,714 6,580
Purchase of stock for MRP (404,093) - -
Repayments of ESOP Loan 96,876 - -
Dividends paid on common stock (705,866) (319,022) (125,089)
(Decrease) increase in advance payments by
borrowers for property taxes and insurance (7,436) (346,858) 106,605
------------ ----------- ------------
Net cash provided by
financing activities 38,665,074 29,104,578 3,262,182
------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents (85,236) 6,954,863 (2,070,287)
Cash and cash equivalents, beginning of year 13,584,568 6,629,705 8,699,992
------------ ----------- ------------
Cash and cash equivalents, end of year $ 13,499,332 13,584,568 6,629,705
============ =========== ============
Supplemental disclosures:
Cash paid during the year for
Interest $ 9,537,349 7,434,366 8,535,117
============ =========== ============
Taxes $ 641,000 745,840 415,500
============ =========== ============
Noncash investing activity:
Additions to real estate acquired in
settlement of loans $ 233,748 50,859 277,511
============ =========== ============
Loans receivable exchanged for
mortgage-backed securities $ - 3,061,294 -
============ =========== ============
Change in unrealized net loss on securities
available for sale, net of tax $ 1,005,278 (207,600) (1,711,405)
============ =========== ============
Change in Employee Stock Ownership Plan
debt guaranteed by the Bank $ (96,876) 894,190 (73,790)
============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies
-----------------------------------------------------------
On May 15, 1992, the Bank's Board of Directors adopted a plan of
reorganization pursuant to which Perpetual Bank, a Federal Savings Bank
("Perpetual" or "Bank") proposed to reorganize from a federally chartered
mutual savings and loan association into a mutual holding company ("MHC").
To implement the reorganization, Perpetual incorporated a federally
chartered capital stock savings bank (New Federal Savings Bank). In
exchange for the common shares of the New Federal Savings Bank to be issued
to the MHC, Perpetual transferred substantially all of its assets and all
of its liabilities to the New Federal Savings Bank. The New Federal
Savings Bank was renamed Perpetual Bank, a Federal Savings Bank and became
a majority-owned subsidiary of the MHC.
Perpetual has the power to issue shares of capital stock (including common
and preferred stock) to persons other than the MHC. So long as the MHC is
in existence, the aggregate amount of voting stock that may be issued to
persons other than the MHC must be less than 50% of the issued and
outstanding voting stock of Perpetual. The New Federal Savings Bank may
issue any amount of non-voting stock to persons other than the MHC.
On October 26, 1993, Perpetual completed the reorganization and sold
116,969 shares of common stock at $10 per share. The remaining 1,385,000
shares of common stock were transferred to the MHC.
The costs related to the reorganization and offering were charged against
the proceeds of the sale of stock. Capitalized costs related to this
transaction were approximately $223,443. These costs were treated as a
reduction of paid-in capital.
In September 1996, Perpetual sold 585,000 shares of common stock from its
authorized but unissued shares. SouthBanc Shares, MHC presently owns
53.02% of Perpetual, and the minority ownership is 46.98%. The 585,000
shares were sold at a price of $19.25 per share generating proceeds of
$11,261,249, less offering cost of $532,898, for a net proceed of
$10,728,351.
In September 1997, the Board of Directors of Perpetual Bank and the MHC
adopted a proposed Plan of Conversion to convert the MHC to stock form and
to reorganize the MHC and Perpetual by forming a new Stock Holding Company
("SHC") to become the parent company of Perpetual. The SHC will exchange
certain shares of its common stock for the outstanding common stock of
Perpetual and will issue and offer for sale certain additional shares of
its common stock. The additional shares of common stock of the SHC will be
offered to eligible account holders of Perpetual as of June 30, 1996, who
will receive nontransferable subscription rights to purchase these shares,
as well as certain other persons as provided for in the Plan. The
F-6
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
amount and pricing of the proposed stock offering will be based on an
independent appraisal of Perpetual.
In connection with the proposed transaction, the MHC will file an
application with the Office of Thrift Supervision and a registration
statement with the U.S. Securities and Exchange Commission with respect to
the reorganization and common stock offering. After receipt of the
required regulatory approvals, the Plan of Conversion will be submitted to
the members of the MHC for approval by at least a majority of the votes
eligible to be cast at a special meeting and will also be submitted by
Perpetual's stockholders for approval at a special meeting. The
transaction is expected to be completed during the second calendar quarter
of 1998.
At the time of the conversion, Perpetual will establish a liquidation
account in an amount equal to its equity as reflected in the consolidated
balance sheet used in the final conversion prospectus. 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 Perpetual 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 account holder's or supplemental eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation of Perpetual, 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, Perpetual 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 requirement.
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.
Consolidation
-------------
The accompanying consolidated financial statements include the accounts of
Perpetual and its wholly owned subsidiaries, United Service Corporation
("USC"), which has a wholly owned subsidiary, United Investment Service
Corporation and primarily engages in real estate development and Mortgage
First Service Corporation, which holds an equity investment in a mortgage
banking company (collectively the "Bank"). All significant intercompany
items and transactions have been eliminated in consolidation.
F-7
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
Loans Receivable, Net
---------------------
Loans receivable are stated at their unpaid principle balances less the
allowance for loan losses, and net of deferred loan origination fees and
discounts.
The Bank 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 possible
losses. Such factors considered by management include the market value of
the underlying collateral, growth and composition of the loan portfolios,
the relationship of the allowance for loan losses to outstanding loans, loss
experience, delinquency trends and economic conditions. Management evaluates
the carrying value of loans periodically and the allowance is adjusted
accordingly. While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if
economic conditions differ substantially from the assumptions used in making
evaluations. Allowances for loan losses are subject to periodic evaluation
by various regulatory authorities and may be subject to adjustment upon
their examination.
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan", ("SFAS No. 114") requires that
creditors value all specifically reviewed loans for which it is probable
that the creditors will be unable to collect all amounts due according to
the terms of the loan agreement at either the present value of expected cash
flows discounted at the loan's effective interest rate, or if more
practical, the market price or value of the collateral. If the resulting
value of the impaired loan is less than the recorded balance, the impairment
must be recognized by creating a valuation allowance for the difference and
recognizing a corresponding bad debt expense. SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures",
amends SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan and requires additional
disclosures about how a creditor recognizes interest income related to
impaired loans. The Savings Bank adopted the provisions of SFAS No. 114 and
No. 118 effective October 1, 1995. The adoption of these standards required
no increase to the reserve for loan losses and had no impact on net income.
Interest income on loans and lease financing is recorded on the accrual
basis. Accrual of interest on loans (including loans impaired under SFAS No.
114) is discontinued when management deems that collection of additional
interest is doubtful. Interest received on nonaccrual loans and impaired
loans is generally applied against principal or may be reported as interest
income depending on management's judgment as to the collectibility of
principal. When borrowers with loans on a nonaccrual status demonstrate
their ability to repay their loans in accordance with the contractual terms
of the notes, the loans are returned to accrual status.
F-8
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
The Bank provides an allowance for uncollectible interest based on an
experience method of anticipated collections. This allowance is netted
against accrued interest receivable for financial statement reporting
purposes.
Loan fees and direct incremental costs of originating loans are deferred and
amortized over the contractual life of the related loan. The amortization of
the net fees or costs are recognized as a yield adjustment using the
interest method.
Loans Held For Sale
-------------------
Loans held for sale are accounted for at the lower of aggregate cost or
market value.
Investment and Mortgage-Backed Securities
------------------------------------------
The Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", on October 1, 1993. SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
These investments are classified in three categories and are accounting for
as follows: (a) debt securities that the Bank has the positive intent and
ability to hold to maturity are classified as held for investment and
reported at amortized cost; (b) debt and equity securities that are bought
and held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with unrealized
gains and losses included in earnings; and (c) debt and equity securities
not classified as either held for investment 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 as a separate component of stockholders' equity. The Bank has no
securities classified as held for investment or trading. Upon adoption of
SFAS No. 115, the net unrealized loss on securities available for sale, net
of taxes, was reported as a separate component of stockholders' equity. SFAS
No. 115 will cause fluctuations in stockholders' equity based on changes in
values of debt and equity securities classified as available for sale.
Securities classified as available for sale will be considered in the Bank's
asset/liability management strategies and may be sold in response to changes
in interest rates, liquidity needs and/or significant prepayment risk. The
cost of investment securities sold is determined by the "identified
certificate" method.
Declines in the fair value of individual securities below their cost that
are deemed by management to be other than temporary result in write-downs of
the individual securities to their fair value. The write-downs are included
in earnings as realized losses.
At September 30, 1997, the Bank had increased stockholders' equity by
approximately $188,000 for the unrealized gain, net of income taxes, on
securities available for sale, and, a
F-9
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
September 30, 1996, the Bank had reduced stockholders' equity by
approximately $817,000 for the unrealized loss, net of income taxes, on
securities available for sale.
Investment In Limited Partnership
---------------------------------
Investment in limited partnership represents an equity investment in a
limited partnership in which Perpetual owned more than 20 per cent but not
in excess of 50 per cent of the limited partnership and is accounted for
under the equity method.
Real Estate Acquired in Settlement of Loans
-------------------------------------------
Real estate acquired in settlement of loans represents real estate acquired
through foreclosure and is initially recorded at estimated fair value.
Subsequent to acquisition, real estate acquired in settlement of loans is
stated at the lower of cost or fair value, less estimated selling costs.
Costs related to holding these properties are charged to operations. Market
values of real estate acquired in settlement of loans are reviewed regularly
and allowances for losses are established when the carrying values of real
estate acquired in settlement of loans exceeds fair value less costs to
sell.
Premises and Equipment
----------------------
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is calculated primarily on the straight-line method over the
estimated useful lives of the respective assets, five to forty years.
Securities Sold Under Agreements to Repurchase
----------------------------------------------
The Bank enters into sales of securities under agreements to repurchase.
Fixed-coupon reverse repurchase agreements are treated as financings, with
the obligation to repurchase securities sold being reflected as a liability
and the securities underlying the agreements remaining as an asset. The
securities are delivered by appropriate entry by the Bank's safekeeping
agent to the counterparties' accounts. The dealers may have sold, loaned or
otherwise disposed of such securities to other parties in the normal course
of their operations, and have agreed to resell to the Bank substantially
identical securities at the maturities of the agreements.
Income Taxes
------------
The provision for income taxes is based upon income and expense reported for
financial statement purposes after adjustment for permanent differences such
as tax-exempt interest income.
When income and expenses are recognized in different periods for financial
reporting purposes than for income tax purposes, deferred taxes are provided
in recognition of these temporary differences. The Bank computes its income
taxes in accordance with SFAS No. 109
F-10
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
"Accounting for Income Taxes" which requires the use of the liability method
to record income taxes. The liability method calculates the effect of tax
rates expected to be in place when the related temporary differences
reverse. Subsequent changes in tax rates will require adjustment to these
deferred tax assets and liabilities.
Stock Based Compensation
------------------------
In 1996, the Bank adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock Based Compensation". The statement permits the Bank to
continue accounting for stock based compensation as set forth in Accounting
Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to
Employees", provided the Bank discloses the pro forma effect on net income
and earnings per share of adopting the full provisions of SFAS No. 123.
Accordingly, the Bank continues to account for stock based compensation
under APB Opinion 25 and has provided the required pro forma disclosures.
Earnings Per Share
------------------
Earnings per share for the year ended September 30, 1997, 1996, and 1995
were computed based upon the weighted average shares outstanding.
Risks and Uncertainties
-----------------------
In the normal course of its business, the Bank encounters two significant
types of risk: economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The Bank is
subject to interest rate risk to the degree that its interest-bearing
liabilities mature or reprice at different speeds, or on different bases,
than its interest earning assets. Credit risk is the risk of default on the
Bank's loan portfolio that results from the borrowers' inability or
unwillingness to make contractually required payments. Market risk reflects
changes in the value of collateral underlying loans receivable, the
valuation of real estate held by the Bank, and the valuation of loans held
for sale.
The Bank is subject to the regulations of various government agencies. These
regulations can and do change significantly from period to period. The Bank
also undergoes periodic examinations by the regulatory agencies, which may
subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions resulting from the
regulators' judgments based on information available to them at the time of
their examination.
F-11
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Organization and Summary of Significant Accounting Policies, Continued
----------------------------------------------------------------------
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as of the
dates of the balance sheets and revenues and expenses for the periods
covered. Actual results could differ significantly from those estimates and
assumptions.
Reclassification
----------------
Certain reclassifications of accounts reported for previous periods have
been made in these consolidated financial statements. Such reclassifications
had no effect on stockholders' equity or the net income as previously
reported.
(2) Cash and Cash Equivalents
-------------------------
Cash and cash equivalents consisted of the following at September 30, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Working funds $ 2,229,557 1,789,074
Noninterest-earning demand deposits 1,805,522 2,352,194
Interest-earning overnight deposits 9,464,253 9,443,300
----------- ----------
$13,499,332 13,584,568
=========== ==========
</TABLE>
(3) Investment In Limited Partnership
---------------------------------
At September 30, 1997, the Bank's investment in Limited Partnership
consisted of a 20.625 percent interest in Dovenmuehle Mortgage Company
Limited Partnership which invests in mortgage servicing rights. The Bank
invested in Dovenmuehle in December 1996.
F-12
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Investment In Limited Partnership, Continued
--------------------------------------------
The table below contains the summarized financial information of
Dovenmuehle.
<TABLE>
<CAPTION>
Year Ended
Condensed Income Statement September 30, 1997
------------------
<S> <C>
Service Fees $ 6,626,798
Other Income 416,475
-----------
Total Income 7,043,273
-----------
Servicing Expense 1,558,802
PMSR Amortization 3,429,082
Other Expense 1,153,408
-----------
Total Expense 6,141,292
-----------
Net Income $ 901,981
===========
Condensed Balance Sheet At September 30, 1997
---------------------
Cash $ 2,049,912
Accounts Receivable 1,496,187
Purchased Mortgage Servicing Rights 48,412,490
Organizational Costs 472,827
-----------
Total Assets $52,431,416
===========
Accounts Payable 4,405,194
Long Term Debt 23,760,000
Shareholders' Equity 24,266,222
-----------
Total Liabilities and Shareholders'
Equity $52,431,416
===========
</TABLE>
F-13
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Investment and Mortgage-Backed Securities Available for Sale
------------------------------------------------------------
The Bank had securities available for sale as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1997
------------------
Investment securities:
Federal Home Loan Bank
Indexed Principal
Reduction Bond $ 4,002,933 - 7,773 3,995,160
FHLB Optional Principal
Redemption Bond 6,187,732 144,368 - 6,332,100
U.S. T-Note 998,272 168 - 998,440
----------- ------- ---------- ----------
$11,188,937 144,536 7,773 11,325,700
=========== ======= ========== ==========
Mortgage-backed securities:
FHLMC and FNMA
fixed rate 13,117,125 114,313 23,290 13,208,148
FHLMC five year balloons 131,893 - 315 131,578
Agency adjustable rate,
30 year original
maturity 438,330 - 14,271 424,059
Collateralized mortgage
obligations (CMOs) 22,026,627 73,179 891 22,098,915
----------- ------- ---------- ----------
$35,713,975 187,492 38,767 35,862,700
=========== ======= ========== ==========
</TABLE>
F-14
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Investment and Mortgage-Backed Securities Available for Sale (Continued)
------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C> <C> <C> <C>
Investment securities:
Federal Farm Credit Bond $1,999,533 - 1,033 1,998,500
Certificate of deposit 100,000 - - 100,000
FNMA discount note 395,002 386 - 395,388
----------- ------ --------- ----------
$2,494,535 386 1,033 2,493,888
=========== ====== ========= ==========
Mortgage-backed securities:
FHLMC and FNMA
fixed rate $6,411,100 31,646 197,050 6,245,696
FHLMC five year balloons 1,134,918 - 2,386 1,132,532
Agency adjustable rate,
generally 30 year
original maturities 532,971 - 3,928 529,043
Collateralized mortgage
obligations (CMOs) 36,283,018 12,764 1,078,055 35,217,727
----------- ------ --------- ----------
$44,362,007 44,410 1,281,419 43,124,998
=========== ====== ========= ==========
</TABLE>
Included in accrued expenses and other liabilities in the accompanying
consolidated balance sheet at September 30, 1997, was an amount payable for
the purchase of an investment security totaling $5,177,284 included in
FHLMC and FNMA Fixed Rate above, which had not settled as of September 30,
1997.
The amounts of scheduled maturities of investment and mortgage-backed
securities at September 30, 1997 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Less than one year $ 1,393,377 1,393,231
One year to five years 5,457,451 5,457,979
Five years to ten years 11,666,060 11,740,436
Ten and Over 28,386,024 28,596,754
----------- ----------
$46,902,912 47,188,400
=========== ==========
</TABLE>
F-15
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Investment and Mortgage-Backed Securities Available for Sale (Continued)
------------------------------------------------------------------------
Proceeds from sales of mutual funds and securities available for sale and
the related gross realized gains and losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Proceeds from sales of mutual funds $ - - 146,403,967
Proceeds from sales of securities $22,872,420 2,922,009 7,625,359
Gross realized gains $ 7,866 56,228 1,843,902
Gross realized losses $ 315,400 2,265 66,431
</TABLE>
(5) Loans Receivable, Net
---------------------
Loans receivable at September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
First mortgage loans, substantially all
one to four family $118,663,177 91,329,530
Construction 17,145,456 19,508,595
Commercial real estate 26,975,976 17,150,980
Loan participations purchased 859,952 979,951
Home improvement loans 3,405,621 5,035,871
Commercial loans 7,181,746 5,528,527
Consumer loans 14,422,484 10,931,490
Loans secured by deposits 1,345,137 948,337
------------ -----------
189,999,549 151,413,281
Less:
Deferred loan fees, net 356,780 254,434
Allowance for loan losses 1,886,243 1,534,773
Undisbursed loans in process 8,984,260 8,866,084
------------ -----------
Loans receivable, net $178,772,266 140,757,990
============ ===========
</TABLE>
Changes in the allowance for loan losses for the years ended September 30,
1997, 1996, and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $1,534,773 1,278,423 961,672
Provision for loan losses 655,000 349,250 362,000
Charge-offs (332,194) (115,558) (51,082)
Recoveries 28,664 22,658 5,833
---------- --------- ---------
Balance, end of year $1,886,243 1,534,773 1,278,423
========== ========= =========
</TABLE>
F-16
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Loans Receivable, Net, Continued
--------------------------------
Loans serviced for others amounted to approximately $62,148,000,
$73,303,000, and $73,195,000 at September 30, 1997, 1996 and 1995,
respectively.
At September 30, 1997 and 1996, the Bank had approximately $479,000 and
$368,000, respectively, in loans receivable, which were ninety days or more
delinquent and accruing interest.
As of September 30, 1997, the Bank had purchased loans in the state of
South Carolina as follows:
1 - 4 family residential $19,600,000
Real estate development 1,500,000
Construction 4,100,000
Loans Held for Sale at September 30, 1997 and September 30, 1996 were
$7,102,000 and $1,101,000, respectively.
At September 30, 1997 and 1996, the Bank had approximately $403,000 and
$316,000, respectively, in non-accrual loans. The amount of interest income
that would have been recognized had these loans performed according to
their contractual terms amounted to approximately $19,000 and $22,000
during the years ended September 30, 1997 and 1996, respectively.
At September 30, 1997 and 1996, the carrying value of loans that are
considered to be impaired under SFAS No. 114 totaled approximately $517,000
and $795,000, respectively. No impairment allowance has been recorded on
these impaired loans. The average balance of impaired loans and interest
income recognized on impaired loans for fiscal 1997 and 1996 were $512,000
and $68,414, and $687,400 and $28,176, respectively.
Activity in loans to officers, directors and other related parties for the
years ended September 30, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year $ 975,762 554,464
New loans 143,923 593,508
Repayments (194,182) (172,210)
--------- --------
Balance at end of year $ 925,503 975,762
========= ========
</TABLE>
F-17
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Loans Receivable, Net, Continued
--------------------------------
The Bank primarily grants residential loans to customers in Anderson
County, South Carolina, and the surrounding communities. The Bank's ability
to collect these balances depends substantially upon the economic
conditions and real estate market in the region. The Bank does not have any
concentrations of loans to any one borrower. The Bank has increased its
commercial and consumer loan portfolios which may entail greater risk than
residential mortgage loans.
(6) Real Estate
-----------
Real estate is summarized at September 30, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate held for development $ 2,284,038 1,406,144
Real estate acquired in settlement of loans 162,776 2,750
----------- ----------
$ 2,446,814 1,408,894
=========== ==========
</TABLE>
(7) Premises and Equipment
----------------------
Premises and equipment are summarized at September 30, 1997 and 1996 as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 871,242 707,876
Office and other buildings 3,643,431 3,289,002
Furniture, fixtures and equipment 4,543,952 4,003,594
----------- ----------
9,058,625 8,000,472
Less accumulated depreciation (2,764,160) (3,148,106)
----------- ----------
$ 6,294,465 4,852,366
=========== ==========
</TABLE>
Depreciation expense was $647,848, $472,343, and $430,029 for the years
ended September 30, 1997, 1996 and 1995, respectively.
F-18
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Deposits
--------
Deposits outstanding by type of account and range of interest rates at
September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Range of Range of
Interest Interest
Balance Rates Balance Rates
------- ----- ------- -----
<S> <C> <C> <C> <C>
Non-interest bearing checking accounts $ 11,811,694 - $ 8,956,602 -
Interest-bearing checking accounts 25,995,824 1.75% - 4.76% 24,292,692 1.75% - 3.63%
Passbook accounts 24,359,999 1.75% - 3.00% 23,111,051 1.75% - 3.00%
------------ ------------
62,167,517 56,360,345
------------ ------------
Certificate accounts 138,834,341 2.50% - 8.00% 103,883,278 3.35% - 5.55%
------------ ------------
$201,001,858 $160,243,623
============ ============
Weighted average interest rate 4.64% 4.25%
===== =====
</TABLE>
The amounts of scheduled maturities of certificate accounts at September
30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Maturing within one year $115,651,298 83,770,480
Maturing one through three years 22,328,414 19,334,013
Maturing after three years 854,629 778,785
------------ -----------
$138,834,341 103,883,278
============ ===========
</TABLE>
At September 30, 1997 and 1996, the aggregate amounts of time deposits of
$100,000 or more amounted to approximately $18,540,473 and $13,650,728,
respectively. Accrued interest payable on deposits was $1,362,480 and
$747,059 at September 30, 1997 and 1996, respectively, and included in
accrued expenses and other liabilities in the consolidated balance sheets.
F-19
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Advances from the FHLB
----------------------
Advances from the FHLB at September 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Maturity September 30, 1997 September 30, 1996
Date Interest Rate Balance Interest Rate Balance
---- ------------- ------- ------------- -------
<S> <C> <C> <C> <C>
1997 - % $ - 5.55% $ 2,000,000
1998 6.47 10,000,000 6.38 5,000,000
1999 5.78 5,000,000 4.64 9,000,000
----------- -----------
$15,000,000 $16,000,000
=========== ===========
</TABLE>
During fiscal 1996, the line of credit expired and was replaced by a
blanket floating lien on qualifying mortgage loan collateral for advances.
At September 30, 1997, the Bank had $15,000,000 in outstanding FHLB
advances and, based upon eligible collateral, available credit of
$40,000,000.
At September 30, 1997 and 1996, as collateral for its advances, the Bank
has pledged securities with a carrying value of approximately $3,761,000
and $18,804,000, respectively. All of the pledged securities are held in
safekeeping at the FHLB of Atlanta.
(10) Securities Sold Under Agreements to Repurchase
----------------------------------------------
The Bank had no outstanding securities sold under agreements to repurchase
at September 30, 1997, 1996 and 1995, and the Bank did not enter into
agreements during fiscal 1997 and 1996. The maximum amount outstanding at
any month end during fiscal 1995 was $5,907,000. The average amount of
outstanding agreements for fiscal 1995 was approximately $1,338,000. The
securities underlying the agreements were under the institution's control.
(11) Income Taxes
------------
Income taxes for the years ended September 30, 1997, 1996, and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current federal $544,803 1,008,811 292,313
Deferred federal 381,000 (253,000) (98,571)
-------- --------- -------
Total $925,803 755,811 193,742
======== ========= =======
</TABLE>
F-20
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Income Taxes, Continued
-----------------------
Income tax expense differs from the amount computed at the federal
statutory rates of 34% for the years ended September 30, 1997, 1996 and
1995, as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Income taxes at federal rate $902,416 741,267 717,665
Differences resulting from:
State taxes, net of
federal benefit 81,000 71,000 67,200
Change in amount of unrecognized
tax benefits relating to
future deductions - - 167,630
Decrease in beginning of year
valuation allowance (81,000) (71,000) (807,000)
Other 23,387 14,544 48,247
-------- ------- --------
$925,803 755,811 193,742
======== ======= ========
</TABLE>
At September 30, 1997, the Bank has state net operating loss carryforwards
of approximately $62 million. These carryforwards expire in various amounts
beginning in fiscal year 1998 through 2006.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Loan loss allowances deferred for tax purposes $ 716,000 583,000
Deferred fees recognized for tax purposes as received - 70,000
Expenses deducted under the economic
performance rules - 359,000
Unrealized losses on securities available for sale - 421,000
State loss carryforwards 2,465,000 2,502,000
Other 89,000 100,000
----------- ----------
Total gross deferred tax assets 3,270,000 4,035,000
Less valuation allowances, primarily for tax
loss carryforwards (2,480,000) (2,561,000)
----------- ----------
Net deferred tax assets 790,000 1,474,000
----------- ----------
</TABLE>
F-21
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Income Taxes, Continued
-----------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation for tax purposes in excess of such
amount for financial reporting purposes $172,000 99,000
Tax bad debt reserve in excess of base year 307,000 310,000
Unrealized gain on securities available for sale 97,000 -
Loan fee income adjustments for tax purposes 36,000 -
Other 148,000 136,000
-------- -------
Total gross deferred tax liabilities 760,000 545,000
-------- -------
Net deferred tax asset (included in other assets) $ 30,000 929,000
======== =======
</TABLE>
A portion of the change in the deferred tax asset relates to unrealized
losses on securities available for sale. In fiscal 1997, the related
deferred tax expense of $518,000 has been recorded directly to
stockholders' equity. The balance of the change in the net deferred tax
asset results from the current period deferred tax expense of $381,000. In
fiscal 1996, the deferred taxes related to the unrealized losses on
securities available for sale of $107,000 has been recorded directly to
stockholders' equity with the balance of the change in the net deferred tax
asset resulting from the current period deferred tax benefit of $253,000.
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income
in certain periods, and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the net
deferred tax assets can be supported based upon these criteria except for
the state loss carryforwards. A valuation allowance for the deferred tax
asset has been reflected to reduce the potential deferred tax assets,
primarily for state loss carryforwards, to an amount that more likely than
not can be realized at September 30, 1997 and 1996.
Prior to enactment of recent tax legislation (the Small Business Job
Protection Act of 1996 "SBJPA '96") effective with the year ending
September 30, 1997, savings and loan associations which met certain
definitional tests and operating requirements prescribed by the Internal
Revenue Code were allowed a special bad debt deduction and other special
tax provisions. If a savings and loan association did not continue to meet
the federal income tax requirements necessary to meet these definitions,
the savings and loan may have lost the benefits of these special
provisions. Taxable income of subsidiaries was generally computed without
the benefit of these special provisions.
The special bad debt deduction was based on either specified experience
formulas (the "Experience Method") or a specified percentage of taxable
income before such deduction (the "Percentage of Taxable Income Method").
For the two years ended September 30, 1996 and 1995, the percentage of
taxable income bad debt deduction was eight percent of adjusted taxable
income. The deduction was subject to certain limitations based on the
aggregate loans, saving account balances and retained earnings at year end.
Gains and losses on sales of repossessed property and provisions for losses
on loans and foreclosed real estate were generally
F-22
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Income Taxes, Continued
-----------------------
adjustments to the tax bad debt reserve and not includable in the
computation of taxable income before this deduction.
As a result of SBJPA '96, the Bank will be required to change its overall
method of accounting for tax bad debts to the Experience Method beginning
with the fiscal year ending September 30, 1997. The Bank will be required
to recapture approximately $808,000 over an eight-year period in connection
with the change.
Retained earnings at September 30, 1997 and 1996 includes tax bad debt
reserves of approximately $5.2 million for which no provision for federal
income tax has been made. If, in the future, these amounts are used for any
purpose other than to absorb bad debt losses, they may be subject to
federal income tax at the then prevailing corporate tax rate.
(12) Capital
-------
The Bank's actual capital and ratios, those required by the Bank's primary
regulator, the Office of Thrift Supervision (OTS), as well as those
required in order to be considered well capitalized according to the Prompt
Corrective Action Provisions are presented in the following table. As of
September 30, 1997, the most recent notification from the OTS categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risked-based, and Tier I core
("leverage") ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
As of September 30, 1997:
- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital (To Total Assets) $27,321 10.6% 3,825 1.5% - -
Core Capital (To Total Assets) 27,321 10.6 7,651 3.0 $12,811 5.00%
Tier I Capital (To Risk-Based Assets) 27,321 17.3 - - 9,503 6.00
Risk-Based Capital (To Risk-Based
Assets) 29,067 18.4 12,670 8.00 15,838 10.00
As of September 30, 1996:
- -------------------------
Tangible Capital (To Total Assets) 27,786 13.2 3,166 1.5 - -
Core Capital (To Total Assets) 27,786 13.2 6,332 3.0 10,495 5.00
Tier I Capital (To Risk-Based Assets) 27,786 23.3 - - 7,155 6.00
Risk-Based Capital (To Risk-Based
Assets) 29,196 24.5 9,548 8.0 11,925 10.00
</TABLE>
F-23
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Employee Benefit Plans
----------------------
The Bank has a profit sharing and deferred compensation plan for
substantially all full-time employees. The plan permits eligible
participants to contribute a percentage of their salary up to amounts
permitted by the Internal Revenue Code each year. At the discretion of the
Board of Directors, the Bank may match a percentage of each participant's
contribution during the plan year. In addition the Board of Directors may
from year to year make a discretionary contribution to the plan. The Bank's
contribution recorded as expense for the years ended September 30, 1997,
1996 and 1995, was $219,123, $160,525 and $141,879, respectively.
(14) Stock Option Plan
-----------------
In October 1993, the Bank's Board of Directors adopted a stock option and
incentive plan. Pursuant to the plan, an aggregate of 11,504 shares of
common stock were reserved for issuance by the Bank upon exercise of stock
options and awards to be granted to directors, officers, and other key
employees from time to time under the plan. The Bank's management was
granted incentive stock options, and the Bank's non-officer directors were
granted non-incentive stock options. These options expire on October 2003.
In April 1997, the stockholders approved a second stock option plan and
incentive plan. Pursuant to the plan, 58,500 shares of common stock have
been reserved for issuance by the Bank upon exercise of stock options and
awards to be granted to directors, officers, and other key employees from
time to time under the plan. The Bank's management was granted incentive
stock options, and the Bank's non-officer directors were granted non-
qualified stock options. These options are priced at $25.25 and expire in
April 2007.
The following table summarizes option activity during the years ended
September 30, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Number of Price Per
Shares Share
------ -----
<S> <C> <C>
Outstanding at September 30, 1994 9,530 $10.00
Granted - -
Exercised 658 10.00
------ ------
Outstanding at September 30, 1995 8,872 10.00
Granted - -
Exercised - -
------ ------
Outstanding at September 30, 1996 8,872 10.00
Granted 58,500 25.25
Exercised 4,272 10.00
------ ------
Outstanding at September 30, 1997 63,100 $24.14
====== ======
</TABLE>
F-24
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Stock Option Plan, Continued
----------------------------
The Bank applies APB Opinion 25 in accounting for the stock-based option
plans which are described in the preceding paragraph. Accordingly, no
compensation expense has been recognized for the stock-based option plans.
Had compensation cost been recognized for the stock-based option plans
applying the fair-value-based method as prescribed by SFAS 123, the Bank's
net income and earnings per share would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---- ----
Net Income
----------
<S> <C> <C>
As Reported $1,728,303 1,424,387
Proforma 1,702,803 1,424,387
Earnings Per Share
------------------
As Reported $ 1.15 .95
Proforma 1.13 .95
</TABLE>
The effects of applying SFAS 123 may not be representative of the effects
on reported net income in future years.
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997:
Dividend yield 3.25%
Expected volatility 38%
Risk-free interest rate 6.59%
Expected lives 7.5 years
There were no options granted in 1996.
(15) Management Recognition Plan
---------------------------
The Board of Directors initially adopted a Management Recognition Plan
("MRP") during fiscal 1994. Those eligible to receive benefits under the
MRP included certain officers of the Bank as determined by a committee
appointed by the Board of Directors of the Bank. During the year ended
September 30, 1994, 3,450 shares of common stock were granted to management
under the MRP, vesting over a three year period. Vested shares at September
30, 1997 and 1996 was 3,450 for both years. All shares are vested at
September 30, 1997 and 1996. Compensation
F-25
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Management Recognition Plan, Continued
--------------------------------------
related to vesting of the shares was $0, $11,520, and $11,490 for fiscal
1997, 1996 and 1995, respectively.
In April 1997, the stockholders approved a second Management Recognition
Plan ("1996 MRP") with 23,400 shares of common stock being granted to
management under the 1996 MRP, vesting over a five-year period. During the
fiscal year 1997, 11,985 shares were purchased by the Company with 11,415
shares remaining to be purchased. Compensation expense related to vesting
of shares was $78,881 for fiscal 1997.
(16) Employee Stock Ownership Plan
-----------------------------
The Bank has an Employee Stock Ownership Plan (ESOP) established by the
Board of Directors during fiscal 1994. The ESOP borrowed $80,500 from a
federal savings bank and acquired 8,050 shares of the Bank's common stock
in October 1993. All shares acquired in 1993 have been allocated to
participants. With the stock offering in September 1996, the ESOP borrowed
$900,900 from a federal savings bank and acquired 46,800 shares of the
Bank's common stock. The Bank has presented the outstanding loan amounts as
an other liability and as a reduction of stockholders' equity in the
accompanying consolidated balance sheets at September 30, 1997 and 1996.
Interest on the unpaid principal balance is due quarterly and is based on
the prime rate. During fiscal 1997 and 1996, the Bank paid interest of
$72,552 and $3,535, respectively. Compensation recorded under the ESOP was
$129,028, $10,245 and $74,490 for the fiscal years 1997, 1996 and 1995,
respectively.
(17) Commitments
-----------
In conjunction with its lending activities, the Bank enters into various
commitments to extend credit and issue letters of credit. Loan commitments
(unfunded loans and unused lines of credit) and letters of credit are
issued to accommodate the financing needs of the Bank's customers. Loan
commitments are agreements by the Bank to lend monies at a future date, so
long as there are no violations of any conditions established in the
agreement. Letters of credit commit the Bank to make payments on behalf of
customers when certain specified events occur.
Financial instruments where the contract amount represents the Bank's
credit risk at September 30, 1997 and 1996, include loan and letter of
credit commitments of $27,941,000 and $10,014,175, respectively.
F-26
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Commitments, Continued
----------------------
These loan and letter of credit commitments are subject to the same credit
policies and reviews as loans on the balance sheet. Collateral, both the
amount and nature, is obtained based upon management's assessment of the
credit risk. Since many of the extensions of credit are expected to expire
without being drawn, the total commitment amounts do not necessarily
represent future cash requirements.
Outstanding commitments on mortgage loans not yet closed amounted to
approximately $174,000 and $119,000 at September 30, 1997 and 1996,
respectively. Substantially, all of these commitments were at variable
interest rates. Such commitments, which are funded subject to certain
limitations, extend over varying periods of time with the majority being
funded within thirty days.
These commitments will be funded with the cash flow generated from normal
operations, as well as possible utilization of existing credit facilities
available to the Bank.
(18) Carrying Amounts and Fair Value of Financial Instruments
--------------------------------------------------------
The Bank's fair value methods, assumptions, carrying amounts and fair value
of financial instruments at September 30, 1997 and 1996 are summarized
below:
For cash and cash equivalents and FHLB stock, the carrying value is a
reasonable estimate of fair value.
For investment securities available for sale, mortgage-backed securities
and collateralized mortgage obligations, fair value is based on available
quoted market prices or quoted market prices for similar securities if a
quoted market price is not available.
The fair value of fixed and adjustable rate loans is estimated based upon
discounted future cash flows using discount rates comparable to rates
currently offered for such loans. The discounted future cash flows reflect
estimated maturity dates adjusted for expected prepayments.
The fair value of time deposits is estimated by discounting the amounts
payable at the certificate rates currently offered for deposits of similar
remaining maturities. The fair value of all other deposit account types is
the amount payable on demand at year-end.
For FHLB advances, fair value is estimated based on discounting amounts
payable at the current rates offered to the Bank for debt of the same
remaining maturities.
F-27
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Carrying Amounts and Fair Value of Financial Instruments, Continued
-------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ -----------
Carrying Calculated Carrying Calculated
Amount Fair Value Amount Fair Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 13,499,332 13,499,332 13,584,568 13,584,568
Investment in Limited Partnership 5,003,835 5,003,835 - -
Investment securities available
for sale 11,325,700 11,325,700 2,493,888 2,493,888
Federal Home Loan Bank stock 1,650,000 1,650,000 993,700 993,700
Mortgage-backed securities and
collateralized mortgage
obligations, net 35,862,700 35,862,700 43,124,998 43,124,998
Loans receivable, net 178,772,266 179,094,089 140,757,990 143,404,634
------------ ----------- ----------- -----------
$246,113,833 246,435,656 200,955,144 203,601,788
============ =========== =========== ===========
Financial liabilities:
Deposits
Demand deposits $ 62,167,517 62,301,280 55,752,124 55,752,124
Certificate accounts 138,834,341 139,272,816 103,883,278 103,732,129
Advances from the FHLB 15,000,000 15,069,702 16,000,000 15,954,810
------------ ----------- ----------- -----------
$216,001,858 216,643,798 175,635,402 175,439,063
============ =========== =========== ===========
</TABLE>
The Bank had $27.9 million of off-balance sheet financial commitments,
which are commitments to originate loans and unused consumer lines of
credit. Since these obligations are based on current market rates, the
carrying amount is considered 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 Bank's entire holdings of a particular financial
instrument. Because no active market exists for a significant portion of
the Bank'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 would
also significantly affect the estimates. Further, the fair value estimates
were calculated as of September 30, 1997 and 1996. Changes in market
interest rates and prepayment assumptions could significantly change the
fair value. Therefore, management believes that the foregoing information
is of limited value and has no basis for determining whether the fair value
presented would be indicative of the value which could be negotiated during
an actual sale.
F-28
<PAGE>
PERPETUAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(18) Carrying Amounts and Fair Value of Financial Instruments, Continued
-------------------------------------------------------------------
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 Bank has
significant assets and liabilities that are not considered financial assets
or liabilities including deposit franchise value, loan servicing portfolio,
real estate, deferred tax liabilities, premises and equipment, and
goodwill. 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.
(19) Dividends
---------
During fiscal 1997, the Board of Directors declared cash dividends of $.30
per share for the first quarter and $.35 per share for the second, third,
and fourth quarters. For all 1997 dividends, the Bank obtained permission
from the OTS to waive dividends payable to the MHC.
During fiscal 1996, the Board of Directors declared cash dividends of $.30
per share for all four quarters. For fiscal 1996 dividends, the Bank
obtained permission from the OTS to waive dividends payable to the MHC.
During fiscal 1995, the Board of Directors declared cash dividends of $.25
per share for the first three quarters and $.30 per share for the fourth
quarter. The dividends payable to the MHC were waived by the OTS.
F-29
<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 the Primary Parties or Sandler O'Neill. 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 the
Primary Parties 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.................................................
Use of Proceeds..............................................
Dividend Policy..............................................
Market for Common Stock......................................
Capitalization...............................................
Historical and Pro Forma Regulatory Capital Compliance.......
Pro Forma Data...............................................
Conversion Shares to be Purchased by Management..............
Pursuant to Subscription Rights..............................
Perpetual Bank, A Federal Savings Bank and Subsidiary........
Consolidated Statements of Operations........................
Management's Discussion and Analysis of Financial............
Condition and Results of Operations..........................
Business of the Holding Company..............................
Business of the Savings Bank.................................
Management of the Holding Company............................
Management of the Savings Bank...............................
Regulation...................................................
Taxation.....................................................
The Conversion and Reorganization............................
Comparison of Stockholders' Rights...........................
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 ____________, 1998, 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.
SOUTHBANC SHARES, INC.
[Logo]
(Proposed Holding Company for
Perpetual Bank, A Federal Savings Bank)
Up to 3,741,533 Shares of
Common Stock
----------------------
Prospectus
SANDLER O'NEILL & PARTNERS, L.P.
_______________, 1998
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors
Article XVI of the Certificate of Incorporation of SouthBanc Shares, Inc.
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, 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.
II-1
<PAGE>
(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
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.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution(1)
<TABLE>
<S> <C>
Legal fees and expenses..................... $ 180,000
Securities Marketing Firm legal fees........ 75,000
EDGAR, printing, copying, postage, mailing.. 150,000
Appraisal/business plan fees and expenses... 40,000
Accounting fees............................. 40,000
Securities marketing fees (1)............... 506,250
Data processing fees and expenses........... 18,000
SEC filing fee.............................. 21,500
OTS filing fee.............................. 8,400
Blue sky legal fees and expenses............ 7,500
Other....................................... 23,350
----------
Total................................... $1,070,000
==========
</TABLE>
___________________
(1) Assumes a total offering of Conversion Shares of $34.5 million
(midpoint of the Estimated Valuation Range), a fee of 1.50% of the aggregate
Purchase Price of the shares of Common Stock sold in the Subscription and Direct
Community Offering and the Syndicated Community Offering, excluding shares
purchased by officers and directors of the Savings Bank and their associates.
See "THE CONVERSION AND REORGANIZATION -- Plan of Distribution and Selling
Commissions."
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits
The exhibits filed as part of this Registration Statement are as
follows:
(a) List of Exhibits
1.1 -- Form of proposed Agency Agreement among SouthBanc Shares, Inc.,
Perpetual Bank, a Federal Savings Bank, SouthBanc Shares, M.H.C. and
Sandler O'Neill & Partners, L.P. (a)
1.2 -- Engagement Letter with Perpetual Bank, A Federal Savings Bank and
Sandler O'Neill & Partners, L.P.
2 -- Plan of Conversion and Agreement and Plan of Reorganization of
SouthBanc Shares, M.H.C. and Perpetual Bank, A Federal Savings Bank
(attached as an exhibit to the Special Meeting Proxy Statement and the
Annual Meeting Proxy Statement included herein as Exhibits 99.5 and
99.6, respectively)
3.1 -- Certificate of Incorporation of SouthBanc Shares, Inc.
3.2 -- Bylaws of SouthBanc Shares, Inc.
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
II-3
<PAGE>
8.2 -- State Tax Opinion of Evans, Carter, Kunes & Bennett, P.A. (a)
8.3 -- Opinion of RP Financial, LC. as to the value of subscription rights
10.1 -- Proposed Form of Employment Agreement for Executive Officers
10.2 -- Perpetual Bank, A Federal Savings Bank 401(k) Plan (a)
21 -- Subsidiaries of SouthBanc Shares, Inc.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained
in opinion included as Exhibit 8.1)
23.3 -- Consent of Evans, Carter, Kunes & Bennett, P.A. as to its State
Tax Opinion (contained in opinion included as Exhibit 8.2) (a)
23.4 -- Consent of RP Financial, LC.
24 -- Power of Attorney (included in signature page)
99.1 -- Order and Acknowledgement Form (contained in the marketing materials
included herein as Exhibit 99.2)
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 SouthBanc Shares,
M.H.C.
99.6 -- Proxy Statement for Annual Meeting of Stockholders of Perpetual
Bank, A Federal Savings Bank
_____________________
(a) To be filed by amendment.
Item 28. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected
II-4
<PAGE>
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 a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time shall be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer 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
small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-1 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Anderson, State of South Carolina, on this 17th day of December 1997.
SOUTHBANC SHARES, INC.
By: /s/ Robert W. Orr
---------------------------------------------
Robert W. Orr
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of SouthBanc Shares, Inc.,
do hereby severally constitute and appoint Robert W. Orr, 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 Robert W. Orr may deem
necessary or advisable to enable SouthBanc Shares, Inc. 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 SouthBanc Shares, Inc.'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 Robert W. Orr
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> <C>
/s/ Robert W. Orr President, Chief December 17, 1997
- -----------------------------------------
Executive Officer and Director
Robert W. Orr (Principal Executive Officer)
/s/ Thomas C. Hall Treasurer and Chief Financial December 17, 1997
- -----------------------------------------
Thomas C. Hall Officer (Principal Financial
and Accounting Officer)
/s/ Cordes G. Seabrook, Jr. Chairman of the Board December 17, 1997
- -----------------------------------------
Cordes G. Seabrook, Jr.
/s/ Harold A. Pickens, Jr. Director December 17, 1997
- -----------------------------------------
Harold A. Pickens, Jr.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Martha S. Clamp Director December 17, 1997
- -----------------------------------------
Martha S. Clamp
/s/ Jack F. McIntosh Director December 17, 1997
- -----------------------------------------
Jack F. McIntosh
/s/ Charles W. Fant, Jr. Director December 17, 1997
- -----------------------------------------
Charles W. Fant, Jr.
/s/ Jim Gray Watson Director December 17, 1997
- -----------------------------------------
Jim Gray Watson
/s/ Richard C. Ballenger Director December 17, 1997
- -----------------------------------------
Richard C. Ballenger
/s/ F. Stevon Kay Director December 17, 1997
- -----------------------------------------
F. Stevon Kay
</TABLE>
<PAGE>
INDEX TO EXHIBITS
1.1 -- Form of proposed Agency Agreement among SouthBanc Shares, Inc.,
Perpetual Bank, A Federal Savings Bank, SouthBanc Shares, M.H.C. and
Sandler O'Neill & Partners, L.P. (a)
1.2 -- Engagement Letter between Perpetual Bank, A Federal Savings Bank and
Sandler O'Neill & Partners, L.P.
2 -- Plan of Conversion and Agreement and Plan of Reorganization of
Perpetual Bank, A Federal Savings Bank and SouthBanc Shares, M.H.C.
(attached as an exhibit to the Special Meeting Proxy Statement and the
Annual Meeting Proxy Statement included herein as Exhibits 99.5 and
99.6, respectively)
3.1 -- Certificate of Incorporation of SouthBanc Shares, Inc.
3.2 -- Bylaws of SouthBanc Shares, Inc.
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 -- State Tax Opinion of Evans, Carter, Kunes & Bennett, P.A (a)
8.3 -- Opinion of RP Financial, LC. as to the value of subscription rights
10.1 -- Proposed Form of Employment Agreement For Executive Officers
10.2 -- Perpetual Bank, A Federal Savings Bank 401(k) Plan (a)
21 -- Subsidiaries of SouthBanc Shares, Inc.
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Breyer & Aguggia as to its Federal Tax Opinion (contained
in opinion included as Exhibit 8.1)
23.3 -- Consent of Evans, Carter, Kunes & Bennett, P.A as to its State Tax
Opinion (contained in opinion included as Exhibit 8.2) (a)
23.4 -- Consent of RP Financial, LC.
24 -- Power of Attorney (included in signature page)
99.1 -- Order and Acknowledgement Form (contained in the marketing materials
included herein as Exhibit 99.2)
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 SouthBanc Shares,
M.H.C.
99.6 -- Proxy Statement for Annual Meeting of Stockholders of Perpetual Bank,
A Federal Savings Bank
_____________________
(a) To be filed by amendment.
<PAGE>
EXHIBIT 1.2
Sandler O'Neill
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE]
September 9, 1997
Board of Directors
Perpetual Bank, A Federal Savings Bank
907 North Main Street
Anderson, South Carolina 29622-1247
Attention: Mr. Robert W. "Lujack" Orr
President
--------------------------
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
an independent financial advisor to Perpetual Bank, A Federal Savings Bank (the
"Bank") in connection with the Bank's proposed conversion from mutual holding
company status to full stock form (the "Conversion"), including the offer and
sale of certain shares of the common stock of the proposed new holding company
for the Bank (the "Holding Company") to the eligible account holders of
SouthBanc Shares, M.H.C. in a Subscription Offering, to members of the Bank's
community in a Direct Community Offering and, under certain circumstances, to
the general public in a Syndicated Community Offering (collectively, the
"Offerings"). For purposes of this letter, the term "Actual Purchase Price"
shall mean the price at which the shares of the Holding Company's common stock
are sold in the Conversion. This letter is to confirm the terms and conditions
of our engagement.
ADVISORY SERVICES
- -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
3. Reviewing all offering documents, including the Prospectus, stock
order forms and
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 2 Sandler O'Neill
related offering materials (it being understood that preparation and
filing of such documents will be the responsibility of the Bank and
the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion
SYNDICATED COMMUNITY OFFERING
- -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 3
Sandler O'Neill
FEES
- ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and one-half percent (1.5%) of the aggregate Actual
Purchase Price of the shares of common stock sold in the Subscription
Offering and in the Direct Community Offering, excluding in each case
shares purchased by (i) any employee benefit plan of the Holding
Company or the Bank established for the benefit of their respective
directors, officers and employees, and (ii) any director, officer or
employee of the Holding Company or the Bank or members of their
immediate families; and
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm (other than Sandler O'Neill) under any selected
dealers agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement, (b)
any sponsoring dealer's fees, and (c) a management fee to Sandler
O'Neill of one and three-quarters percent (1.75%). Any fees payable to
Sandler O'Neill for common stock sold by Sandler O'Neill under any
such agreement shall be limited to an aggregate of one and one-three-
quarters percent (1.75%) of the Actual Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred in connection with its engagement hereunder,
subject to the terms and maximum limitation set forth under the caption "Costs
and Expenses" below. Sandler O'Neill shall document such expenses to the
reasonable satisfaction of the Bank.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead times
involved in the conversion process, the Bank agrees to make advance payments to
Sandler O'Neill in the aggregate amount of $25,000, which shall be payable upon
execution of this letter and shall be credited against any fees or reimbursement
of expenses payable hereunder.
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 4 Sandler O'Neill
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses to a maximum of $75,000 incurred
in connection with its engagement hereunder, regardless of whether the
Conversion is consummated, including, without limitation, legal fees,
advertising, promotional, syndication, and travel expenses; provided, however,
-------- -------
that Sandler O'Neill shall document such expenses to the reasonable satisfaction
of the Bank. The provisions of this paragraph are not intended to apply to or
in any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including; without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
- -------
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
DUE DILIGENCE REVIEW
- --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 5 Sandler O'Neill
BLUE SKY MATTERS
- ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated), provided, however, that Sandler O'Neill may disclose such
-------- -------
information to its agents and advisors who are assisting or advising Sandler
O'Neill in connection with the Offering and who have agreed to be bound by the
terms and conditions of this paragraph. As used in this paragraph, the term
"Confidential Information" shall not include information which (i) is or becomes
generally available to the public other than as a result of a disclosure by
Sandler O'Neill, (ii) was available to Sandler O'Neill on a non-confidential
basis prior to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes
available to Sandler O'Neill on a non-confidential basis from a person other
than the Bank who is not otherwise known to Sandler O'Neill to be bound not to
disclose such information pursuant to a contractual, legal or fiduciary
obligation.
INDEMNIFICATION
- ---------------
Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses) as they are incurred, including
expenses incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 6 Sandler O'Neill
Indemnified Party is a party, provided, however, that the Bank and the Holding
-------- -------
Company will not be liable in any such case to the extent that any such loss,
claim, damage, liability or expense (i) arises out of or is based upon any
untrue statement of a material fact or the omission of a material fact required
to be stated therein or necessary to make not misleading any statements
contained in any proxy statement or prospectus (preliminary or final), or any
amendment or supplement thereto, or any of the applications, notices, filings or
documents related thereto made in reliance on and in conformity with written
information furnished to the Bank by Sandler O'Neill expressly for use therein,
or (ii) is primarily attributable to the gross negligence, willful misconduct or
bad faith of Sandler O'Neill. If the foregoing indemnification is unavailable
for any reason, the Bank and the Holding Company agree to contribute to such
losses, claims, damages, liabilities and expenses in the proportion that its
financial interest in the Conversion bears to that of Sandler O'Neill.
DEFINITIVE AGREEMENT
- --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement
shall be in form and content satisfactory to Sandler O'Neill, the Bank and the
Holding Company and their respective counsel and shall contain standard
indemnification provisions consistent herewith
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to June 30,
1998.
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 7 Sandler O'Neill
ELIMINATION OF HOLDING COMPANY
- ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to proceed
with the formation of the Holding Company but determines to proceed with the
Conversion and substitute the common stock of the Bank for the common stock of
the Holding Company, all of the provisions of this letter relating to the common
stock of the Holding Company will be deemed to pertain to the common stock of
the Bank on the same terms and conditions that such provisions pertain to the
common stock of the Holding Company and all of the references in this letter to
the Holding Company shall be deemed to refer to the Bank or shall have no
effect, as the context of the reference requires.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Catherine A. Lawton
-----------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of
the date first above written:
Perpetual Bank, A Federal Savings Bank
By: /s/ Robert W. "Lujack" Orr
---------------------------------------
Robert W. "Lujack" Orr
President
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE]
Sandler O'Neill
September 9, 1997
Board of Directors
Perpetual Bank, A Federal Savings Bank
907 North Main Street
Anderson, South Carolina 29622-1247
Attention: Mr Robert W. "Lujack" Orr
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act as
conversion agent to Perpetual Bank, A Federal Savings Bank (the "Bank") in
connection with the Bank's proposed conversion from mutual holding company to
stock form (the "Conversion"). This letter is to confirm the terms and
conditions of our engagement.
SERVICES AND FEES
- -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$ 18,000. This fee is based upon a total number of unconsolidated accounts of
approximately 36,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5% or is less than the
number specified above by more than 5%, the fee will be proportionately
increased
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 2 Sandler O'Neill
or decreased as appropriate.
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual or
additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows:(a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses; provided, however, that Sandler
-------- -------
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request
by Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
- --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 3
Sandler O'Neill
agreement without having independently verified the same, and (b) does not
assume responsibility for the accuracy or completeness of the information. The
Bank will also inform Sandler O'Neill within a reasonable period of time of any
changes in the Plan of Conversion which require changes in Sandler O'Neill's
services. If a substantial expense results from any such change, the parties
shall negotiate an equitable adjustment in the fee.
LIMITATIONS
- -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with this agreement and the performance
hereof unless caused by or arising out of its own bad faith or gross negligence;
(d) will not be obliged to take any legal action hereunder which might in its
judgment involve any expense or liability, unless it shall have been furnished
with reasonable indemnity satisfactory to it; and (e) may rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telex, telegram, or other document or security delivered to it
and in good faith believed by it to be genuine and to have been signed by the
proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
- ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 4 Sandler O'Neill
contemplated by this letter, and will reimburse any Indemnified Party for all
expenses (including reasonable counsel fees and expenses) as they are incurred,
including expenses incurred in connection with the investigation of, preparation
for or defense of any pending or threatened claim or any action or proceeding
arising therefrom, whether or not such Indemnified Party is a party. The Bank
will not be liable under the foregoing indemnification provision to the extent
that any loss, claim, damage, liability or expense is found in a final judgment
by a court of competent jurisdiction to have resulted primarily from Sandler
O'Neill's, willful misconduct, bad faith or gross negligence.
MISCELLANEOUS
- -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: Perpetual Bank, A Federal Savings Bank
907 North Main Street
Anderson, South Carolina 29622-1247
Attention: Mr. Robert W. "Lujack" Orr
If to us: Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Attention: Mr. Thomas P. Duke
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
<PAGE>
Perpetual Bank, A Federal Savings Bank
September 9, 1997
Page 5 Sandler O'Neill
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Catherine A. Lawton
----------------------------------
Catherine A. Lawton
Vice President
Accepted and agreed to as of
the date first above written:
Perpetual Bank, A Federal Savings Bank
By: /s/ Robert W. Orr
-----------------------------------------
Mr Robert W. "Lujack" Orr
President
<PAGE>
APPENDIX A Sandler O'Neill
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The
resulting central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms
for voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing
the conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during and after the
solicitation/offering period.
IV. Special Meeting Services*
1. Direct proxy solicitation if independent solicitor not used.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special
meeting.
5. Produce final report of vote.
* To the extent independent third parties are required by any
regulatory agency to perform such services, it is understood and
agreed that Sandler O'Neill will subcontract for such services
and that the Bank will reimburse Sandler O'Neill for such
reasonable fees and expenses incurred as a result of such
regulatory requirement. This reimbursement shall not exceed
$1,200 without approval from the Bank.
A-1
<PAGE>
Sandler O'Neill
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SOUTHBANC SHARES, INC.
ARTICLE I
NAME
The name of the corporation is SouthBanc Shares, Inc. (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
---- ---------------
Robert W. Orr 907 North Main Street
Anderson, South Carolina 29621
<PAGE>
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is nine, 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:
<TABLE>
<CAPTION>
Name Address Class
- ---- ------- -----
<S> <C> <C>
Harold A. Pickens 907 North Main Street I
Anderson, SC 29621
Martha S. Clamp 907 North Main Street I
Anderson, SC 29621
Charles W. Fant, Jr. 907 North Main Street I
Anderson, SC 29621
Richard C. Ballenger 907 North Main Street II
Anderson, SC 29621
Jim Gray Watson 907 North Main Street II
Anderson, SC 29621
Cordes G. Seabrook, Jr. 907 North Main Street II
Anderson, SC 29621
Robert W. Orr 907 North Main Street III
Anderson, SC 29621
Jack F. McIntosh 907 North Main Street III
Anderson, SC 29621
F. Stevon Kay 907 North Main Street III
Anderson, SC 29621
</TABLE>
ARTICLE VII
CAPITAL STOCK
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 7,750,000 consisting of:
1. 250,000 shares of Preferred Stock, par value one cent ($.01) per
share ("Preferred Stock"); and
2. 7,500,000 shares of Common Stock, par value one cent ($.01) per
share ("Common Stock").
2
<PAGE>
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 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
-------------------------
3
<PAGE>
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 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
4
<PAGE>
permitted by law, applicable and enforceable as to all stockholders, including
stockholders owning an amount of stock over the Limit, notwithstanding any such
finding.
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.
5
<PAGE>
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 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
6
<PAGE>
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 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.
7
<PAGE>
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:
(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
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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.
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
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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
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.
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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.
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.
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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 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 5th day of November 1997.
/s/Robert W. Orr
-------------------------------
Robert W. Orr
Incorporator
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<PAGE>
EXHIBIT 3.2
BYLAWS
OF
SOUTHBANC SHARES, INC.
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.
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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 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 nine 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,
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nor the purpose of, any meeting of the board of directors need be specified in
the notice or waiver of notice of such meeting.
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
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next 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 September
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.
8
<PAGE>
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 ____ day of November 1997.
9
<PAGE>
EXHIBIT 4
SOUTHBANC SHARES, INC
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP
See reverse For Certain
Definitions
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF
SouthBanc Shares, Inc., 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, SouthBanc Shares, Inc. 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>
SouthBanc Shares, Inc.
The shares represented by this Certificate are issued subject to all the
provisions of the Certificate of Incorporation and Bylaws of SouthBanc Shares,
Inc. ("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
Articles 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
(Cust) (Minor)
Gifts
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
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
share of the Common Stock evidence by this Certified, 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.
<PAGE>
[LETTERHEAD OF BREYER & AGUGGIA]
EXHIBIT 5
December 17, 1997
Board of Directors
SouthBanc Shares, Inc.
907 N. Main Street
Anderson, South Carolina 29621
RE: SouthBanc Shares, Inc.
Registration Statement on Form S-1
To the Board of Directors:
You have requested our opinion as special counsel for SouthBanc Shares,
Inc., 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 SouthBanc
Shares, Inc. 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 SouthBanc Shares, Inc. 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.
<PAGE>
EXHIBIT 8.1
_____________, 1997
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
907 N. Main Street
Anderson, South Carolina 29621-5526
Gentlemen:
In accordance with your request, set forth herein is our opinion relating
to the federal income tax consequences of the two integrated transactions
described herein. Capitalized terms used herein which are not expressly defined
herein shall have the meaning ascribed to them in the Plan of Conversion from
Mutual Holding Company to Stock Holding Company and Plan of Reorganization dated
__________ between Perpetual Bank, A Federal Savings Bank (the "Savings Bank")
and SouthBanc Shares, M.H.C. (the "MHC") (the "Plan").
The Proposed Transactions
- -------------------------
Based upon our review of the Plan, we understand that the relevant facts
are as follows.
In October 1993, Perpetual Bank, A Federal Savings Bank, a federally-
chartered mutual savings bank (the "Savings Bank"), reorganized into the mutual
holding company form of organization. In connection with the foregoing
transaction which resulted in the conversion of the Savings Bank to a stock
institution (the "Stock Savings Bank"), the Stock Savings Bank simultaneously
sold _______ shares of the common stock of the Stock Savings Bank (the "Stock
Savings Bank Common Stock") to depositors of the Stock Savings Bank, employee
stock benefit plans of the Stock Savings Bank, directors, officers and employees
of the Stock Savings Bank and members of the general public. In September 1996,
an additional ___ shares of Stock Savings Bank Common Stock were sold to the
same groups in an additional public offering. As of the date hereof, the MHC
and the other stockholders ("Public Stockholders") own an aggregate of _____%
and _____%, respectively, of the outstanding Stock Savings Bank Common Stock.
The reorganization of Savings Bank into the mutual holding company form of
organization, and the sale of Stock Savings Bank Common Stock are sometimes
hereinafter collectively referred to as the "MHC Transaction."
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 2
At the present time, two transactions are being undertaken. The first
transaction, which is sometimes referred to herein as "Merger 1," is the
conversion of the MHC from the mutual form of organization to a federal interim
stock savings bank ("Interim") and the simultaneous merger of Interim with and
into the Stock Savings Bank. The second transaction, which is sometimes
referred to herein as "Merger 2," is the acquisition of the Stock Savings Bank
by SouthBanc Shares, Inc. (the "Holding Company"), a newly organized Delaware
corporation, by means of the merger of the Stock Savings Bank with a federal
interim stock savings institution (the "Interim Stock Savings Bank"), which will
be organized as a wholly-owned subsidiary of the Holding Company. Merger 1 and
Merger 2 are sometimes collectively referred to herein as the "Conversion and
Reorganization."
Merger 1 and Merger 2 are being accomplished pursuant to the Plan. The Plan
complies in all material respects with the provisions of Subpart A of 12 C.F.R.
Part 563b, the Office of Thrift Supervision ("OTS") regulations governing the
conversion of mutual institutions to stock form. The Plan also complies in all
material respects with the provisions of 12 C.F.R. Section 575.12(a), governing
the conversion of mutual holding companies to stock form. Because the proposed
transaction involves two mergers, the Plan also includes two related plans of
merger with language that complies in all material respects with 12 C.F.R.
Section 552.13, governing mergers involving federal stock associations.
In Merger 1, a liquidation account is being established by the Stock
Savings Bank for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. Pursuant to Section XIV of the Plan, the initial
balance of the liquidation account will equal the amount of any dividends waived
by the MHC plus the greater of (1) $___ million, which is equal to 100% of the
retained earnings of Savings Bank as of _____________, the date of the latest
statement of financial condition contained in the final offering circular
utilized in the formation of the MHC, or (2) _____% of the Stock Savings Bank's
total stockholders' equity as reflected in its latest statement of financial
condition contained in the final Prospectus to be utilized in the Conversion and
Reorganization. The $___ million is the amount that the liquidation account
would have been if the MHC Transaction had been a standard conversion not
involving a mutual holding company.
Under the above formula, the initial balance of the liquidation account
will be at least $____ million. At September 30, 1997, the total stockholders'
equity of the Stock Savings Bank amounted to $__ million, of which _____%
equaled $____ million.
Upon consummation of Merger 1, the shares of Stock Savings Bank Common
Stock held by the MHC will be canceled.
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 3
Upon consummation of Merger 2 (the "Effective Date"), all of the then
outstanding shares of Stock Savings Bank Common Stock held by the Public
Stockholders will be converted into and become shares of common stock of the
Holding Company ("Holding Company Common Stock") at the Exchange Ratio (the
"Exchange Shares"). The common stock of the Interim Stock Savings Bank owned by
the Holding Company prior to Merger 2 will be converted into and become shares
of common stock of the Stock Savings Bank on the Effective Date. The Holding
Company Common Stock held by the Stock Savings Bank immediately prior to Merger
2 will be canceled on the Effective Date.
Immediately following Merger 2, Holding Company Common Stock will be sold
pursuant to the Conversion Offerings. The stockholders of the Holding Company
will be the Public Stockholders, plus those persons who purchase Holding Company
Common Stock in the Conversion Offerings. Nontransferable rights to subscribe
for Holding Company Common Stock will be granted to eligible depositors and
other persons in the priorities set forth in the Plan (the "Subscription
Rights").
Upon the Effective Date, Interim Stock Savings Bank will be merged with and
into the Stock Savings Bank and Interim Stock Savings Bank will cease to exist
as a legal entity. As a result, the Holding Company will be a publicly held
corporation, will register the Holding Company Common Stock under Section 12(g)
of the Securities Exchange Act of 1934, as amended, and will become subject to
the rules and regulations thereunder and file periodic reports and proxy
statements with the SEC. The Stock Savings Bank will become a wholly owned
subsidiary of the Holding Company and will continue to carry on its business and
activities as conducted immediately prior to Merger 2.
Analysis
- --------
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations such as Merger 1
and Merger 2. Section 368(a)(2)(E) of the Code provides that a transaction
otherwise qualifying as a merger under Section 368(a)(1)(A), such as Merger 2,
will not be disqualified by reason of the fact that common stock of a
corporation (referred to in the Code as the "controlling corporation") (i.e.,
the Holding Company) which before the merger was in control of the merged
corporation is used in the transaction if:
(i) after the transaction, the corporation surviving the merger (i.e.,
Stock Savings Bank) holds substantially all of its properties and the
properties of the merged corporation (i.e., Interim Stock Savings
Bank) (other than common stock of the
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 4
controlling corporation (i.e., the Holding Company) distributed in
the transaction; and
(ii) in the transaction, former stockholders of the surviving corporation
(i.e., the Public Stockholders) exchanged, for an amount of voting
common stock of the controlling corporation, an amount of common
stock in the surviving corporation which constitutes control of such
corporation.
Section 1.368-2(b)(1) of the Treasury Regulations provides that, in order
to qualify as a reorganization under Section 368(a)(1)(A), a transaction must be
a merger or consolidation effected pursuant to the corporate laws of the United
States or a state. The Plan provides that Mergers 1 and 2 will be accomplished
in accordance with applicable federal law.
Treasury Regulations and case law require that, in addition to the
existence of statutory authority for a merger, certain other conditions must be
satisfied in order to qualify a proposed transaction as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The "business purpose test,"
which requires a proposed merger to have a bona fide business purpose, must be
satisfied. See 26 C.F.R. Section 1.368-1(c). We believe that Merger 1 and
---
Merger 2 satisfy the business purpose test for the reasons set forth in the
Prospectus under the caption "THE CONVERSION AND REORGANIZATION -- Purposes of
the Conversion and Reorganization." The "continuity of business enterprise
test" requires an acquiring corporation either to continue an acquired
corporation's historic business or use a significant portion of its historic
assets in a business. See 26 C.F.R. Section 1.368-1(d). We believe that the
---
continuity of business enterprise test is satisfied since the Plan provides that
the business conducted by Stock Savings Bank prior to Merger 1 and Merger 2 will
be unaffected by the transactions.
The "continuity of interest doctrine" requires that the continuing
common stock interest of the former owners of an acquired corporation,
considered in the aggregate, represent a "substantial part" of the value of
their former interest, and provide them with a "definite and substantial
interest" in the affairs of the acquiring corporation or a corporation in
control of the acquiring corporation. Paulsen v. Comm'r., 469 U.S. 131 (1985);
------------------
Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); John A Nelson Co. v.
- ------------------------------ --------------------
Helvering, 296 U.S. 374 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d
- --------- ------------------------------------
332 (5th Cir. 1951), cert. denied, 342 U.S. 860 (1951). We believe that Merger 1
---- ------
satisfies the continuity of interest doctrine based upon a series of private
letter rulings issued by the IRS in substantially identical transactions as the
Conversion and Reorganization and based upon the information set forth in the
Registration Statement. See e.g., PLRs 9510044 and 9437020. Specifically, the
---
IRS has ruled in substantially identical transactions that:
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 5
(1) The exchange of the members' equity interests in the MHC for interests
in a liquidation account established at the Stock Savings Bank in
Merger 1 will not violate the continuity of interest requirement of
Section 1.368-1(b) of the Treasury Regulations.
(2) Interests in the liquidation account established at the Stock Savings
Bank, and the shares of Stock Savings Bank Common Stock held by the
MHC prior to consummation of Merger 1, will be disregarded for the
purpose of determining whether an amount of stock in the Stock Savings
Bank which constitutes "control" of such corporation was acquired by
the Holding Company in exchange for shares of Holding Company Common
Stock pursuant to Merger 2.
(3) The exchange of shares of Holding Company Common Stock for the shares
of the Stock Savings Bank Common Stock in Merger 2, following
consummation of Merger 1, will satisfy the continuity of interest
requirement of Section 1.368-1(b) of the Treasury Regulations in
Merger 2.
Accordingly, we also believe that Merger 2 satisfies the continuity of
interest doctrine because those persons who are the Stock Savings Bank's
stockholders following Merger 1 will receive only Exchange Shares for their
shares of Stock Savings Bank Common Stock. In addition, we believe other
applicable requirements of the Treasury Regulations and case law which are
preconditions to qualification of Merger 1 and Merger 2 as a reorganization,
within the meaning of Section 368(a)(1)(A) and 368(a)(2)(E) of the Code, are
satisfied on the basis of the information contained in the Plan and the
Prospectus.
Section 354 of the Code provides that no gain or loss shall be recognized
by stockholders who exchange common stock in a corporation, such as the Stock
Savings Bank, which is a party to a reorganization, solely for common stock in
another corporation which is a party to the reorganization, such as the Holding
Company. Section 356 of the Code provides that stockholders shall recognize
gain to the extent they receive money as part of a reorganization, such as cash
received in lieu of fractional shares. Section 358 of the Code provides that,
with certain adjustments for money received in reorganization, such as cash
received in lieu of fractional shares, a stockholders' basis in the common stock
he or she receives in a reorganization shall equal the basis of the common stock
which he or she surrendered, he or she shall be deemed to have held the property
received for the same period as the property exchange, provided that the
property exchanged had been held as a capital asset.
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 6
Section 361 of the Code provides that no gain or loss shall be recognized
to a corporation such as the Interim Stock Savings Bank which is a party to a
reorganization on any transfer of property pursuant to a plan of reorganization
such as the Plan. Section 362 of the Code provides that if property is acquired
by a corporation such as the Stock Savings Bank in connection with a
reorganization, then the basis of such property shall be the same as it would be
in the hands of the transferor immediately prior to the transfer. Section
1223(s) of the Code states that where a corporation such as the Stock Savings
Bank will have a carryover basis in property received from another corporation
which is a party to a reorganization, the holding period of such assets in the
hands of the acquiring corporation shall include the period for which such
assets were held by the transferor, provided that the property transferred had
been held as a capital asset. Section 1032 of the Code states that no gain or
loss shall be recognized to a corporation, such as the Holding Company of the
receipt of property in exchange for common stock.
Opinions
- --------
In connection with the opinions expressed herein below, we have relied upon
the assumption that the representations required for advance rulings outlined in
Rev. Proc. 86-42, 1986-2 C.B. 722, are true and correct as it applies to the
Conversion and Reorganization.
Based on the foregoing assumptions and the description of Merger 1 and
Merger 2, the representations which have been made to us by management of the
Stock Savings Bank and the Holding Company, and subject to the qualifications
and limitations set forth in this letter, we are of the opinion that, if Merger
1 were to be consummated as described above as of the date hereof, then:
1. Merger 1 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code.
2. No gain or loss will be recognized by the Stock Savings Bank upon the
receipt of the assets of the MHC in Merger 1.
In addition, we are of the opinion that, if Merger 2 were to be consummated
as described above as of the date hereof, then:
1. Merger 2 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Pursuant to Section 368(a)(2)(E) of the
Code, Merger 2 is not disqualified from qualifying as a reorganization
within the meaning of Section 368(a)(1)(A) because Holding Company
Common Stock will be conveyed to the
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 7
Stock Savings Bank's stockholders in exchange for their Stock Savings
Bank Common Stock.
2. No gain or loss will be recognized by the Interim Stock Savings Bank
upon the transfer of its assets to the Stock Savings Bank.
3. No gain or loss will be recognized by the Stock Savings Bank upon the
receipt of the assets of Interim Stock Savings Bank.
4. No gain or loss will be recognized by the Holding Company on Stock
Savings Bank upon the exchange of Exchange Shares for Stock Savings
Bank Common Stock.
5. No gain or loss will be recognized by the Public Stockholders upon the
receipt of the Exchange Shares solely in exchange for their shares of
Stock Savings Bank Common Stock.
6. The basis of the Exchange Shares to be received by the Public
Stockholders will be the same as the basis of the Stock Savings Bank
Common Stock surrendered in exchange therefor, before giving effect to
any payment of cash in lieu of fractional shares.
7. The holding period of the Exchange Shares to be received by the Public
Stockholders will include the holding period of the Stock Savings Bank
Common Stock, provided that the Stock Savings Bank Common Stock was
held as a capital asset on the date of the exchange.
8. No gain or loss will be recognized by the Holding Company upon the
sale of Holding Company Common Stock in the Conversion Offerings.
9. Eligible Account Holders and Supplemental Eligible Accounts Holders
will realize gain, if any, upon the constructive issuance to them of
Subscription Rights and/or interest in the liquidation account of
Stock Savings Bank. Any gain resulting therefrom will be recognized,
but only in an amount not in excess of the fair market value of the
liquidation accounts and/or Subscription Rights received. The
liquidation account will have normal, if any, fair market value.
Based solely on the accuracy of the conclusion reached by RP
Financial, LC. in its written opinion to Stock Savings Bank (the
"Appraiser's Opinion") that the Subscription Rights
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 8
have no value at the time of distribution or exercise and our reliance
thereon, no gain or loss will be required to be recognized by
depositors upon receipt or distribution of Subscription Rights.
(Section 1001 of the Code.) See Paulsen v. Commissioner, 469 U.S.
--- -----------------------
131,139 (1985).
Based solely on the accuracy of the conclusions reached in the
Appraiser's Opinion, and our reliance thereon, we are of the opinion
that: (a) no taxable income will be recognized by the borrowers,
directors, officers and employees of Stock Savings Bank upon the
distribution to them of Subscription Rights or upon the exercise or
lapse of the Subscription Rights to acquire Holding Company Common
Stock at fair market value; (b) no taxable income will be realized by
the depositors of Stock Savings Bank as result of the exercise of
lapse of the Subscription Rights to purchase Holding Company Common
Stock at fair market value. Rev. Rul. 56-572, 1956-2 C.B. 182; and
(c) no taxable income will be realized by Stock Savings Bank, or
Holding Company upon the issuance or distribution of Subscription
Rights to depositors of Stock Savings Bank to purchase shares of
Holding Company Common Stock at fair market value. (Section 311 of the
Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription Rights
are subsequently found to have a fair market value, income may be
recognized by various recipients of the Subscription Rights (in
certain cases, whether or not the rights are exercised) and Holding
Company and/or Stock Savings Bank may be taxable on the distribution
of the Subscription Rights. (Section 311 of the Code.) In this
regard, the Subscription Rights may be taxed partially or entirely at
ordinary income tax rates.
10. The tax basis to the holders of the Holding Company Common Stock
purchased in the Conversion Offerings will be the amount paid
therefor, and the holding period for such shares will begin on the
date of consummation of the Conversion Offerings if purchased through
the exercise of Subscription Rights. If purchased in the Community
Offering or Syndicated Community Offering, the holding period for such
stock will begin on the day after the date of purchase.
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.
<PAGE>
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 9
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.
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 Savings Bank'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 --AND REORGANIZATION -- Effects
of Conversion and Reorganization on Depositors and Borrowers of the Savings Bank
- -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
BREYER & AGUGGIA
<PAGE>
[LETTERHEAD OF RP FINANCIAL, LC.]
EXHIBIT 8.3
December 17, 1997
Boards of Directors
SouthBanc Shares, M.H.C.
Perpetual Bank, A Federal Savings Bank
907 North Main Street
Anderson, South Carolina 29261
Gentlemen:
Re: Plan of Conversion: Subscription Rights
SouthBanc Shares, M.H.C.
------------------------
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Amended Plan of Conversion and Agreement and
Plan of Reorganization (the "Plan") adopted by the Boards of Directors of
Perpetual Bank, A Federal Savings Bank (the "Bank") and SouthBanc Shares, M.H.C.
(the "Mutual Holding Company"). Pursuant to the Plan, SouthBanc Shares, Inc.
(the "Company") will offer and sell the Conversion Shares.
We understand that "Subscription Rights" to purchase shares of the
Conversion Shares are to be issued to (i) Eligible Account Holders; (ii)
Supplemental Eligible Account Holders; and (iii) Other Members, collectively
referred to as the "Recipients". Based solely upon our observation that the
Subscription Rights will be available to such Recipients without cost, will be
legally non-transferable and of short duration, and will afford the Recipients
the right only to purchase shares of Conversion Shares at the same price as will
be paid by members of the general public in the Direct 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:
(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 Company's value alone. Accordingly, no assurance can
be given that persons who subscribe to shares of Conversion Shares 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 J. Oren
James J. Oren
Vice President
<PAGE>
EXHIBIT 10.1
FORM OF EMPLOYMENT AGREEMENT
FOR EXECUTIVE OFFICERS
THIS AGREEMENT is made effective as of ________________, 1998, by and
between PERPETUAL BANK, A FEDERAL SAVINGS BANK (the "BANK"), SOUTHBANC SHARES,
INC. (the "COMPANY"), a Delaware corporation; and _______________ ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK 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
________________________ of the BANK. 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 BANK. Executive shall render
administrative and management duties to the BANK such as are customarily
performed by persons situated in a similar executive capacity.
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
BANK (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
BANK will conduct a formal performance evaluation of 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 BANK; 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
<PAGE>
present any conflict of interest with the BANK, 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 BANK
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 BANK. 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 BANK shall provide EXECUTIVE at no cost to EXECUTIVE with
all such other benefits as are provided uniformly to permanent full-time
employees of the BANK.
(b) The BANK 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 BANK 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 BANK 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 BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
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 BANK 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 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 BANK of EXECUTIVE's full-time
2
<PAGE>
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 BANK's employ, upon
(A) unless consented to by 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
BANK, or (D) any breach of this Agreement by the BANK. 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 BANK 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 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 EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK 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 EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
3
<PAGE>
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 BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (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 BANK representing twenty-five percent (25%) or
more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK 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 BANK approve a merger, consolidation,
sale or disposition of all or substantially all of the COMPANY's or the BANK'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 BANK 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 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), 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 EXECUTIVE's
termination of employment, the BANK 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 EXECUTIVE's "base amount," within the meaning of (S)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 EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK 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 EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK
4
<PAGE>
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, EXECUTIVE shall be
entitled to receive benefits due him under, or contributed by the COMPANY or the
BANK on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
BANK or the COMPANY on EXECUTIVE's behalf to the extent that such benefits are
not otherwise paid to EXECUTIVE upon a Change in Control.
(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, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)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 (S)280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 5
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if 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 BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
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 BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (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 EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK 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 BANK, in the same capacity as he was
5
<PAGE>
employed prior to his termination for Disability and pursuant to an employment
agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment
by another employer; (iii) EXECUTIVE's attaining the age of sixty-five (65);
(iv) 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; RESIGNATION
Termination by the BANK 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 BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the
term of this Agreement, the BANK shall pay to EXECUTIVE's estate the
compensation due to EXECUTIVE through the last day of the calendar month in
which his death occurred. Upon the voluntary resignation of EXECUTIVE during
the term of this Agreement, other than in connection with an Event of
Termination, the BANK shall pay to EXECUTIVE the compensation due to EXECUTIVE
through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of 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.
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.
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 BANK, 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.
6
<PAGE>
9. REQUIRED PROVISIONS.
(a) The BANK may terminate EXECUTIVE's employment at any time, but any
termination by the BANK, 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 BANK'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 BANK'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 BANK 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 BANK'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 BANK 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 BANK 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 BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK 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
BANK or when the BANK 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.
(S)1828(k) and any regulations promulgated thereunder.
7
<PAGE>
10. NOTICE.
(a) Any purported termination by the BANK 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 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, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
(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 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 BANK 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 BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK 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
8
<PAGE>
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the BANK and/or the COMPANY. The
parties hereto, recognizing that irreparable injury will result to the BANK
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 BANK 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 4 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 BANK 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 BANK and/or the
COMPANY from pursuing any other remedies available to the BANK 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 BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. 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 BANK 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 which are not solely and
exclusively derived from the business plans and activities of the BANK. In the
event of a breach or threatened breach by EXECUTIVE of the provisions of this
Section, the BANK 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 BANK 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 BANK from
pursuing any other remedies available to the BANK 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 BANK. 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 BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
9
<PAGE>
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 BANK or any
predecessor of the BANK 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.
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 BANK, 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.
10
<PAGE>
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 fifty
miles from the location of the BANK, 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 BANK, if successful pursuant to a legal judgment,
arbitration or settlement.
21. INDEMNIFICATION.
The BANK 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
BANK (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.
11
<PAGE>
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK 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 BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1998.
ATTEST: PERPETUAL BANK, A FEDERAL
SAVINGS BANK
_______________________________ BY:_________________________________
[SEAL]
ATTEST: SOUTHBANC SHARES, INC.
_______________________________ BY:________________________________
[SEAL]
WITNESS:
_______________________________ ____________________________________
Executive
12
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Parent
- ------
SouthBanc Shares, Inc.
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
<S> <C> <C>
Perpetual Bank, A Federal Savings Bank (1) 100% United States
United Service Corporation of Anderson, Inc. (2) 100% South Carolina
United Investments Services, Inc. (2) 100% South Carolina
Mortgage First Service Corporation (2) 100% South Carolina
</TABLE>
_______________________
(1) Upon consummation of the Conversion and Reorganization, Perpetual Bank, A
Federal Savings Bank will become a wholly-owned subsidiary of the
Registrant.
(2) This corporation is a wholly owned subsidiary of Perpetual Bank, A Federal
Savings Bank.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
SouthBanc Shares, Inc.
We consent to the use of our report dated November 7, 1997, related to the audit
of Perpetual Bank, A Federal Savings Bank as of September 30, 1997 and 1996 and
for each of the years in the three-year period ended September 30, 1997,
included herein and to the reference to our firm under the heading "Experts" in
the registration statement and related prospectus.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Greenville, South Carolina
December 15, 1997
<PAGE>
[LETTERHEAD OF RP FINANCIAL, LC.]
EXHIBIT 23.4
December 17, 1997
Boards of Directors
SouthBanc Shares, M.H.C.
Perpetual Bank, A Federal Savings Bank
907 North Main Street
Anderson, South Carolina 29261
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of SouthBanc Shares, M.H.C., the mutual holding company for Perpetual
Bank, A Federal Savings Bank, Anderson, South Carolina, and any amendments
thereto, in the Form S-1 Registration Statement and any amendments thereto and
in the Form H(e)1-s for SouthBanc Shares, Inc. 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 SouthBanc Shares, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ James J. Oren
James J. Oren
Vice President
<PAGE>
Exhibit 99.2
<TABLE>
<CAPTION>
LOGO: SOUTHBANC SHARES INC.
Subscription & Community Offering Order Form
------------------------------------------------
Perpetual Bank, A Federal
Savings Bank Expiration Date
Conversion Center for Stock Order Forms
XX Street Day, Month XX, 199X
Anderson, SC XXXXX 12:00 Noon, Eastern Time
(864) XXX-XXXX
- --------------------------------------------------------------------------------
<S> <C>
IMPORTANT PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for common stock. Copies of of this
form are not required to be accepted. Please read the
Stock Ownership Guide and Stock Order Form Instructions
as you complete this Form.
- --------------------------------------------------------------------------------
(1) Number of Shares (2) Total Payment Due The minimum purchase is 28 shares. The maximum purchase
- --------------------- Subscription Price --------------------- limitations are (i) in the Subscription Offering-for any eligible
X $20.00 = subscriber, $1,000,000 (50,000 shares); and (ii) in the Community
- --------------------- --------------------- Offering-for any person, together with Associates or persons
acting in concert, $1,000,000 (50,000 shares). In addition, no
person, together with associates of and persons acting in
concert with such person, may purchase in the aggregate more than
the number of shares of Conversion Stock than when combined with
Exchange Shares received by such person would exceed the overall
maximum purchase limitation of 50,000 shares.
- ------------------------------------------------------------------------------------------------------------------------------------
(3) Employee/Officer/Director Information
[_] Check here if you are a employee, officer or director of Perpetual Bank, A Federal
Savings Bank or a member of such person's immediate family.
- ------------------------------------------------------------------------------------------------------------------------------------
(4) Method of Payment/Check Check Amount
Enclosed is a check, bank draft or money order made ----------------------------------------
payable to Perpetual Bank, A Federal Savings Bank in
the amount of: ----------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(5) Method of Payment/Withdrawal
The undersigned authorizes withdrawal from the following account(s) at Perpetual
Bank, A Federal Savings Bank. Individual Retirement Accounts maintained at
Perpetual Bank, A Federal Savings Bank cannot be used. There is no penalty for
early withdrawal used for this payment.
- ---------------------------------------------------------------
Account Number(s) Withdrawal Amount(s)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Total Withdrawal Amount
- ------------------------------------------------------------------------------------------------------------------------------------
(6) Purchaser Information
a. [_] Check here if you are an Eligible Account Holder with a deposit account(s) totaling $50.00 or
more on June 30, 1996. LIST ACCOUNT(S) BELOW.
b. [_] Check here if you are a Supplemental Eligible Account Holder with a deposit account(s)
totaling $50.00 or more on December 31, 1997. LIST ACCOUNT(S) BELOW.
c. [_] Check here if you were a depositor as of ________________ or a borrower with a loan outstanding
as of ______________ which continued to be outstanding as of ____________________.
LIST ACCOUNT(S) OR LOAN(S) BELOW.
d. [_] Check here and indicate the number of Perpetual Bank, -------------------------------------------
A Federal Savings Bank shares CURRENTLY owned
by you, or by persons associated or acting in concert with you: -------------------------------------------
Complete 6(d) on reverse side for any persons associated or acting in concert with you.
- ----------------------------------------------------------------------------------------------
Account Type (Names on Accounts) Account Number(s)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Please Note: Failure to list all your accounts at the Bank may result in the loss
of part or all of your subscription rights. If additional space is needed, please
utilize the back of this stock order form.
- ------------------------------------------------------------------------------------------------------------------------------------
(7) Stock Registration/Form of Stock Ownership
[_] Individual [_] Joint Tenants [_] Tenants in Common
[_] Fiduciary (i.e. trust, estate, etc.) [_] Company/Corp/Partnership [_] Uniform Gifts to Minors Act
[_][_][_]-[_][_]-[_][_][_][_]
[_] IRA or other Qualified Plan - Beneficial Owners SS#
(8) Name(s) in which stock is to be registered (Please print clearly)
- ------------------------------------------------------------------------------------------------------------------------------------
Name(s) Social Security # or Tax ID#
- ------------------------------------------------------------------------------------------------------------------------------------
Name(s) continued Social Security # or Tax ID#
- ------------------------------------------------------------------------------------------------------------------------------------
Street Address County of Residence
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------------------------------
(9) Telephone - Daytime ( ) Evening ( )
- --------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[_] (10) NASD AFFLIATION - Check here if you are a member of the National
Association of Securities Dealers, Inc. ("NASD"), a person associated with an
NASD member, a member of the immediate family of any such person to whose
support such person contributes, directly or indirectly, or the holder of an
account in which an NASD member or person associated with an NASD member has a
beneficial interest. To comply with conditions under which an exemption from the
NASD's Interpretation With Respect to Free-Riding and withholding is available,
you agree, if you have checked the NASD Affiliation box (i) not to sell,
transfer or hypothecate the stock for a period of 90 days following issuance,
and (ii) to report this subscription in writing to the applicable NASD member
within one day of payment thereafter.
[_] (11) ASSOCIATES - Acting in Concert Check here, and complete the reverse
side of this Form, if you or any associates (as defined on the reverse side of
this Form) or persons acting in concert with you have submitted other orders for
shares in the Subscription and/or Community Offerings.
- -------------------------------------------------------------------------------
(12) ACKNOWLEDGEMENT - To be effective, this Stock Order Form and accompanying
Certification Form must be properly completed and actually received by Perpetual
Bank, A Federal Savings Bank no later than 12:00 noon, Eastern Time, on DAY,
MONTH DATE, 199X, unless extended; otherwise this Stock Order Form and all
subscription rights will be void. The undersigned agrees that after receipt by
Perpetual Bank, A Federal Savings Bank, this Stock Order Form may not be
modified, withdrawn or cancelled without the Bank's consent and if authorization
to withdraw from deposit accounts at the Bank has been given as payment for
shares, the amount authorized for withdrawal shall not otherwise be available
for withdrawal by the undersigned. Under penalty of perjury, I hereby certify
that the Social Security or Tax ID Number and the information provided on this
Stock Order Form is true, correct and complete, that I am not subject to back-up
withholding, and that I am purchasing solely for my own account and that there
is no agreement or understanding regarding the sale or transfer of such shares,
or my right to subscribe for shares herewith. It is understood that this Stock
Order Form will be accepted in accordance with, and subject to, the terms and
conditions of the Amended Plan of Conversion and Agreement and Plan of
Reorganization of the Bank described in the accompanying Prospectus. The
undersigned hereby acknowledges receipt of the Prospectus at least 48 hours
prior to delivery of this Stock Order Form to the Bank.
Federal regulations prohibit any person from transferring, or entering into any
agreement, directly or indirectly, to transfer the legal or beneficial ownership
of subscription rights or the underlying securities to the account of another.
Perpetual Bank, A Federal Savings Bank, SouthBanc Shares M.H.C. and SouthBanc
Shares, Inc. will pursue any and all legal and equitable remedies in the event
they become aware of the transfer of subscription rights and will not honor
orders known by them to involve such transfer.
- ------------------------------------ ----------------------------------------
Signature Date Signature Date
- ------------------------------------ ----------------------------------------
A SIGNED CERTIFICATION FORM MUST ACCOMPANY ALL STOCK ORDER FORMS
- -----------------------------
BANK USE ONLY
- -----------------------------
- -----------------------------
- -----------------------------
BANK USE ONLY
- -----------------------------
- -----------------------------
<PAGE>
ITEM (6)a, (6)b, (6)c,-CONTINUED
- --------------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM (6)d - CONTINUED
List below the number of Perpetual Bank, A Federal Savings
Bank shares currently owned by Associates (as defined) or by
persons acting in concert with you.
- --------------------------------------------------------------------------------
Registration (Name(s) on Stock Certificate) Number of Share(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM (11) - (CONTINUED)
List below all other orders submitted by you or Associates (as defined) or by
persons acting in concert with you.
- --------------------------------------------------------------------------------
Name(s) listed on other Stock Order Forms Number of Shares Ordered
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
"Associate" is defined as: (i) any corporation or organization (other than
Perpetual Bank, A Federal Savings Bank, SouthBanc Shares, M.H.C., SouthBanc
Shares, Inc. or a majority-owned subsidiary of the Bank) of which such person is
a director, 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 a trustee or in a similar fiduciary capacity; provided,
however, such term shall not include Perpetual Bank, A Federal Savings Bank,
SouthBanc Shares, M.H.C., SouthBanc Shares, Inc.'s employee stock benefit plans
in which such person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity; 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 Bank, Company, Mutual Holding
Company or any subsidiaries thereof. Directors of the Bank, Company or the
Mutual Holding Company are not treated as Associates solely because of their
Board memberships.
<PAGE>
YOU MUST SIGN THE FOLLOWING CERTIFICATION IN ORDER TO PURCHASE STOCK
CERTIFICATION FORM
I ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, AND IS NOT
GUARANTEED BY PERPETUAL BANK, A FEDERAL SAVINGS BANK, THE FEDERAL GOVERNMENT OR
BY ANY GOVERNMENT AGENCY. THE ENTIRE AMOUNT OF AN INVESTORS PRINCIPAL IS
SUBJECT TO LOSS.
If anyone assets that this security is federally insured or guaranteed, or is as
safe as an insured deposit, I should call ________________________, ____________
located at __________________ at (XXX) XXX-XXXX.
I further certify that, before purchasing the common stock, par value $.01 per
share, of SouthBanc Shares Inc. (the "Company"), the proposed holding company
for Perpetual Bank, A Federal Savings Bank, I received a Prospectus of the
Company dated __________, 199X relating to such offer of Common Stock.
The Prospectus that I received contains disclosure concerning the nature of the
Common Stock being offered by the Company and describes the risks involved in
the investment in this Common Stock, including but not limited to the:
1. Certain Lending Risks (page )
2. Interest Rate Risk (page )
3. Competition (page )
4. Return on Equity After Conversion and Reorganization (page )
5. Expenses Associated With MRP (page )
6. Anti-takeover Considerations (page )
7. Possible Dilutive Effect of Benefit Programs (page )
8. Absence of Prior Market for the Common Stock (page )
9. Possible Increase in Estimated Valuation Range and Number of
Shares Issued (page )
10. Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights (page )
Signature Date Signature Date
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
Name (Please Print) Name (Please Print)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
STOCK OWNERSHIP GUIDE
INDIVIDUAL
Include the first name, middle initial and last name of the shareholder. Avoid
the use of two initials. Please omit words that do not affect ownership rights,
such as "Mrs.", "Mr.", "Dr.", "special account", "single person", etc.
- --------------------------------------------------------------------------------
JOINT TENANTS
Joint tenants with right of survivorship may be specified to identify two or
more owners. When stock is held by joint tenants with right of survivorship,
ownership is intended to pass automatically to the surviving joint tenant(s)
upon the death of any joint tenant. All parties must agree to the transfer or
sale of shares held by joint tenants.
- --------------------------------------------------------------------------------
TENANTS IN COMMON
Tenants in common may also be specified to identify two or more owners. When
stock is held by tenants 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 by tenants in common.
- --------------------------------------------------------------------------------
UNIFORM GIFTS TO MINORS ACT ("UGMA")
Stock may be held in the name of a custodian for a minor under the Uniform Gifts
to Minors Act of each state. There may be only one custodian and one minor
designated on a stock certificate. The standard abbreviation for Custodian is
"CUST", while the Uniform Gifts to Minors Act is "UGMA". Standard U.S. Postal
Service state abbreviations should be used to describe the appropriate state.
For example, stock held by John Doe as custodian for Susan Doe under the South
Carolina Uniform Gifts to Minors Act will be abbreviated John Doe, CUST Susan
Doe UGMA, SC (use minor's social security number).
- --------------------------------------------------------------------------------
FIDUCIARIES
Information provided with respect to stock to be held in a fiduciary capacity
must contain the following:
. The name(s) of the fiduciary. If an individual, list the first name, middle
initial and last name. If a corporation, list the full corporate title
(name). If an individual and a corporation, list the corporation's title
before the individual.
. The fiduciary capacity, such as administrator, executor, personal
representative, conservator, trustee, committee, etc.
. A description of the document governing the fiduciary relationship, such as
a trust agreement or court order. Documentation establishing a fiduciary
relationship may be required to register your stock in a fiduciary
capacity.
. The date of the document governing the relationship, except that the date
of a trust created by a will need not be included in the description.
. The name of the maker, donor or testator and the name of the beneficiary.
An example of fiduciary ownership of stock in the case of a trust is: John Doe,
Trustee Under Agreement Dated 10-1-87 for Susan Doe.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STOCK ORDER FORM INSTRUCTIONS
ITEMS 1 AND 2.
Fill in the number of shares that you wish to purchase and the total payment
due. The amount due is determined by multiplying the number of shares by the
subscription price to $20.00 per share. The minimum purchase in the
Subscription and Community Offerings is 25 shares. In the Subscription
Offering, the maximum purchase by each Eligible Account Holder, Supplemental
Eligible Account Holder and Other Member is $1,000,000 (50,000 shares), and the
maximum purchase in the Community Offering by any person, together with
associates or persons acting in concert is $1,000,000 (50,000) shares. The
Primary Parties have reserved the right to reject the subscription of any order
received in the Community Offering, in whole or in part. In addition, no
person, together with associates of or persons acting in concert with such
person, may purchase in the aggregate more than the number of shares of
Conversion Stock that when combined with Exchange Shares received by such
person would exceed the overall maximum purchase limitation of 50,000 shares.
- --------------------------------------------------------------------------------
ITEM 3.
Please check this box to indicate whether you are an employee, officer or
director of Perpetual Bank, A Federal Savings Bank or a member of such person's
immediate family.
- --------------------------------------------------------------------------------
ITEM 4.
Payment for shares may be made in cash (only if delivered by you in person to a
branch office of Perpetual Bank, A Federal Savings Bank) or by check, bank draft
or money order payable to Perpetual Bank, A Federal Savings Bank). Your funds
will earn interest at the Bank's passbook rate of interest until the Conversion
is completed. DO NOT MAIL CASH TO PURCHASE STOCK! Please insert the total
check(s) amount in this box if your method of payment is by check, bank draft or
money order.
- --------------------------------------------------------------------------------
ITEM 5.
If you pay for your stock by a withdrawal from a deposit account at Perpetual
Bank, A Federal Savings Bank, insert the account number(s) and the amount of
your withdrawal authorization for each account. The total amount withdrawn
should equal the amount of your stock purchase. There will be no penalty
assessed for early withdrawals from certificate accounts used for stock
purchases. This form of payment may not be used if your account is an
Individual Retirement Account or Qualified Plan.
- --------------------------------------------------------------------------------
ITEM 6.
a. Please check this box if you are an Eligible Account Holder with a deposit
account(s) totalling $50.00 or more on June 30, 1996.
b. Please check this box if you are a Supplemental Eligible Account Holder with
a deposit account(s) totalling $50.00 or more on December 31, 1997.
c. Check here if you were a depositor as of MONTH, DATE 199X or a borrower with
a loan outstanding as of MONTH, DATE 199x which continued to be outstanding
as of MONTH, DATE 1998.
d. Please indicate the number of Perpetual Bank, A Federal Savings Bank, shares
CURRENTLY owned by you, or by persons associated (as defined on the reverse
side of the Stock Order Form) or acting in concert with you. Please list any
associates or persons acting in concert with you and share amounts on the
reverse side of this Stock Order Form.
Please list all names on the account(s) and all account number(s) of accounts
you had a these dates at the Bank in order to insure proper identification of
your purchase rights. Please note: Failure to list all your accounts at the
Bank may result in the loss of part or all of your subscription rights.
- --------------------------------------------------------------------------------
ITEMS 7, 8 AND 9.
The stock transfer industry has developed a uniform system of shareholder
registrations that will be used in the issuance of your SouthBanc Shares, Inc.
Common Stock. Please complete items 7,8 and 9 as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening telephone number(s). We will need to call you if
we cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Stock ownership
must be registered in one of the ways described above under "Stock Ownership
Guide".
- --------------------------------------------------------------------------------
ITEM 10.
Please check this box if you are a member of the NASD or if this item otherwise
applies to you.
- --------------------------------------------------------------------------------
ITEM 11.
Please check this box if you or any associate (as defined on the reverse side
of the Stock Order Form) or person acting in concert with you has submitted
another order for shares and complete the reverse side of the Stock Order Form.
- --------------------------------------------------------------------------------
ITEM 12.
Please sign and date this Stock Order Form and Certification Form where
indicated. Before you sign, review the Stock Order Form, including the
acknowledgement, and the Certification Form. Normally, one signature is
required. An additional signature is required only when payment is to be made by
withdrawal from a deposit account that requires multiple signatures to withdraw
funds.
- --------------------------------------------------------------------------------
You may mail your completed Stock Order Form and Certification Form in the
envelope that has been provided, or you may deliver your Stock Order Form and
Certification Form to any branch of Perpetual Bank, A Federal Savings Bank. Your
Stock Order Form and Certification Form, properly completed, and payment in full
(or withdrawal authorization) at the subscription price must be received by
Perpetual Bank, A federal Savings Bank no later than 12:00 noon, Eastern time,
on __________, _______ 1998 or it will become void. If you have any remaining
questions, or if you would like assistance in completing your Stock Order Form
and Certification Form, you may call our Stock Information Center Monday through
Friday from 10:00 a.m. to 4:00 p.m.
- --------------------------------------------------------------------------------
<PAGE>
[DRAFT 12/9/97]
SOUTHBANC SHARES, M.H.C.
PROPOSED LETTERS/QUESTION & ANSWER BROCHURES
INDEX
-----
1. Dear Member Letter including IRA or Qualified Plan
2. Dear Member Letter for Non Eligible States
3. Dear Friend Letter - Eligible Account Holders who are no longer Members
4. Dear Potential Investor Letter *
5. Dear Customer Letter - Used as a Cover Letter for States Requiring "Agent"
Mailing *
6. Proxy Request
7. Proxy Question and Answer Brochure
8. Stock Question and Answer Brochure*
9. Request Card
10. Mailing Insert/Lobby Poster
11. Invitation Letter - Informational Meetings
12. Dear Subscriber/Acknowledgment Letter - Initial Response to Stock Order
Received
13. Dear Shareholder - Confirmation Letter
14. Dear Interested Investor - No Shares Available Letter
15. Welcome Shareholder Letter - For Initial Certificate Mailing
16. Dear Interested Subscriber Letter - Subscription Rejection
17. Letter for Sandler O'Neill Mailing to Clients *
* Accompanied by a Prospectus
Note: Items 1 through 10 are produced by the Financial Printer and Items
11 through 17 are produced by the Stock Information Center.
<PAGE>
[SouthBanc Shares, M.H.C.]
Dear Member:
The Boards of Directors of Perpetual Bank, A Federal Savings Bank (the "Savings
Bank") and SouthBanc Shares, M.H.C. (the "MHC") have voted unanimously in favor
of an Amended Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan of Conversion"). As part of this plan, we have formed SouthBanc Shares,
Inc. (the "Company") which will own all of the Savings Bank's Common Stock.
Pursuant to the Plan of Conversion, the existing stockholders of the Savings
Bank (other than the MHC) will be issued shares of the Company Common Stock in
exchange for their shares of Savings Bank Common Stock ( the "Exchange Shares").
The Exchange Shares will result in those stockholders owning in the aggregate
approximately the same percentage of the Company as they had owned in the
Savings Bank. In addition to the shares of Company Common Stock to be issued in
the Exchange, the Company is offering up to X,XXX,XXX shares of Common Stock to
the MHC's members, the Savings Bank stockholders and members of the public. We
are converting so that the Savings Bank and the MHC will be structured in a form
used by most other holding companies of savings institutions, commercial banks
and most other business entities, and to allow our bank to become stronger.
TO ACCOMPLISH THE CONVERSION AND REORGANIZATION, YOUR PARTICIPATION IS EXTREMELY
IMPORTANT. On behalf of the Board, I ask that you help us meet our goal by
reading the enclosed Proxy Statement and Question and Answer Brochure and then
casting your vote in favor of the Plan of Conversion, and mailing your signed
proxy card immediately in the _______ postage-paid envelope provided. Should
you choose to attend the Special Meeting of Members and wish to vote in person,
you may do so by revoking any previously executed proxy. If you have an IRA or
other Qualified Plan account for which the Savings Bank acts as trustee and we
do not receive a proxy from you, the Savings Bank intends, as trustee for such
account, to vote for the Plan of Conversion on your behalf.
If the Plan of Conversion is approved let me assure you that:
.Deposit accounts will continue to be federally insured to the fullest extent
permitted by law.
.Existing deposit accounts and loans will not undergo any change as a result of
the Conversion and Reorganization.
.Voting for approval will not obligate you to buy any shares of Common Stock.
As a qualifying account holder, you may also take advantage of your
nontransferable rights to subscribe for shares of SouthBanc Shares, Inc. Common
Stock without commission or fee on a priority basis, before the stock is offered
to the general public. If you are interested in subscribing for shares of
Common Stock, please complete the enclosed request card and return it to us in
the ______ postage-paid envelope provided by DAY, MONTH DATE 199X, and we will
mail you a Prospectus, a stock order form and a certification form.
If you wish to use funds in your IRA or Qualified Plan maintained at the Savings
Bank to subscribe for Common Stock, please be aware that federal law requires
that such funds first be transferred to a self-directed retirement account with
a trustee other than the Savings Bank. The transfer of such funds to a new
trustee takes time, so please make arrangements as soon as possible.
If you have any questions after reading the enclosed material, please call our
Stock Information Center at (xxx) xxx-xxxx. The Stock Information Center is open
Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m. Please note
that the Stock Information Center will be closed from 12:00 noon DAY, MONTH
DATE, 199X, through 12 noon DAY, MONTH DATE, 199X, in observance of the
_________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed 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 Common Stock.
The offer is made only by the Prospectus.
#1
<PAGE>
[SouthBanc Shares, M.H.C.]
Dear Member:
The Boards of Directors of Perpetual Bank, A Federal Savings Bank (the "Savings
Bank") and SouthBanc Shares, M.H.C. (the "MHC") have voted unanimously in favor
of an Amended Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan of Conversion"). As part of this plan, we have formed SouthBanc Shares,
Inc. (the "Company") which will own all of the Savings Bank's Common Stock.
Pursuant to the Plan of Conversion, the existing stockholders of the Savings
Bank (other than the MHC) will be issued shares of the Company Common Stock in
exchange for their shares of Savings Bank Common Stock ( the "Exchange Shares").
The Exchange Shares will result in those stockholders owning in the aggregate
approximately the same percentage of the Company as they had owned in the
Savings Bank. In addition to the shares of Company Common Stock to be issued in
the Exchange, the Company is offering up to X,XXX,XXX shares of Common Stock to
the MHC's members, the Savings Bank stockholders and members of the public. We
are converting so that the Savings Bank and the MHC will be structured in a form
used by most other holding companies of savings institutions, commercial banks
and most other business entities, and to allow our bank to become stronger.
TO ACCOMPLISH THE CONVERSION AND REORGANIZATION, YOUR PARTICIPATION IS EXTREMELY
IMPORTANT. On behalf of the Board, I ask that you help us meet our goal by
reading the enclosed Proxy Statement and Question and Answer Brochure and then
casting your vote in favor of the Plan of Conversion, and mailing your signed
proxy card immediately in the ____ postage-paid envelope provided. Should you
choose to attend the Special Meeting of Members and wish to vote in person, you
may do so by revoking any previously executed proxy. If you have an IRA or
other Qualified Plan account for which the Savings Bank acts as trustee and we
do not receive a proxy from you, the Savings Bank intends, as trustee for such
account, to vote for the Plan of Conversion on your behalf.
If the Plan of Conversion is approved let me assure you that:
.Deposit accounts will continue to be federally insured to the fullest extent
permitted by law.
.Existing deposit accounts and loans will not undergo any change as a result of
the Conversion.
We regret that we are unable to offer you Common Stock in the Subscription and
Direct Community Offerings, because the laws of your state or jurisdiction
require us to register either (1) the to-be-issued Common Stock of SouthBanc
Shares, Inc., or (2) an agent of the Savings Bank to solicit the sale of such
stock, and the number of eligible subscribers in your state or jurisdiction does
not justify the expense of such registration.
If you have any questions after reading the enclosed material, please call our
Stock Information Center at (xxx) xxx-xxxx. The Stock Information Center is open
Monday through Friday between the hours of 10:00 a.m. and 4:00 p.m. Please note
that the Stock Information Center will be closed from 12:00 noon DAY, MONTH
DATE, 199X, through 12 noon DAY, MONTH DATE, 199X, in observance of the
_________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
#2
<PAGE>
[SouthBanc Shares, M.H.C.]
Dear Friend:
The Boards of Directors of Perpetual Bank, A Federal Savings Bank (the "Savings
Bank") and SouthBanc Shares, M.H.C. (the "MHC") have voted unanimously in favor
of an Amended Plan of Conversion and Agreement and Plan of Reorganization (the
"Plan of Conversion"). As part of this plan, we have formed SouthBanc Shares,
Inc. (the "Company") which will own all of the Savings Bank's Common Stock.
Pursuant to the Plan of Conversion, the existing stockholders of the Savings
Bank (other than the MHC) will be issued shares of the Company Common Stock in
exchange for their shares of Savings Bank Common Stock ( the "Exchange Shares").
The Exchange Shares will result in those stockholders owning in the aggregate
approximately the same percentage of the Company as they had owned in the
Savings Bank. In addition to the shares of Company Common Stock to be issued in
the Exchange, the Company is offering up to X,XXX,XXX shares of Common Stock to
the MHC's members, the Savings Bank stockholders and members of the public. We
are converting so that the Savings Bank and the MHC will be structured in a form
used by most other holding companies of savings institutions, commercial banks
and most other business entities, and to allow our bank to become stronger. The
Conversion and Reorganization will in no way affect the insurance of deposit
accounts or the services offered by the Savings Bank.
As a former account holder, you may take advantage of your nontransferable
rights to subscribe for shares of SouthBanc Shares, Inc. Common Stock without
commission or fee on a priority basis, before the stock is offered to the
general public. If you are interested in subscribing for shares of Common
Stock, please complete the enclosed request card and return it to us in the
postage-paid envelope provided by Month Date, 199X, and we will mail you a
Prospectus, a stock order form and a certification form.
To ensure that each purchaser receives a Prospectus at least 48 hours prior to
the Expiration Date of Day, Month Date, 199X in accordance with Rule 15c2-8 of
the Securities Exchange Act of 1934, as amended, 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.
If you have any questions after reading the enclosed material, please call our
Stock Information Center at (xxx) xxx-xxxx. The Stock Information Center is open
Monday through Friday from 10:00 a.m. to 4:00 p.m. Please note that the Stock
Information Center will be closed from 12:00 noon DAY, MONTH DATE, 199X, through
12 noon DAY, MONTH DATE, 199X, in observance of the _________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed 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 Common Stock.
The offer is made only by the Prospectus.
#3
<PAGE>
[SouthBanc Shares, M.H.C.]
Dear Potential Investor:
We are pleased to provide you with the enclosed material in connection with the
Conversion and Reorganization of Perpetual Bank, A Federal Savings Bank (the
"Savings Bank") and SouthBanc Shares, M.H.C., the mutual holding company of
Perpetual, into the stock holding company structure.
This information packet includes the following:
PROSPECTUS: This document provides detailed information about the Savings
Bank's operations, the proposed stock offering by SouthBanc Shares, Inc., the
holding company formed by the Savings Bank to become the Savings Bank's parent
company upon completion of the Conversion and Reorganization. Please read it
carefully prior to making an investment decision.
STOCK QUESTION AND ANSWER BROCHURE: This answers commonly asked questions about
the stock offering.
STOCK ORDER AND CERTIFICATION FORMS: Use these forms to subscribe for stock and
return them together with your payment in the postage-paid envelope provided.
The deadline to subscribe for stock is 12:00 noon, Eastern Time on Day, Month
Date, 199X.
We are pleased to offer you this opportunity to become one of our stockholders.
If you have any questions regarding the Conversion and Reorganization or the
Prospectus, please call our Stock Information Center at (xxx) xxx-xxxx. The
Stock Information Center is open Monday through Friday between the hours of
10:00 a.m. and 4:00 p.m. Please note that the Stock Information Center will
be closed from 12:00 noon DAY, MONTH DATE, 199X, through 12 noon DAY, MONTH
DATE, 199X, in observance of the _________________ holiday.
Sincerely,
Signature
Title
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed 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 Common Stock.
The offer is made only by the Prospectus.
#4
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
Dear Customer:
At the request of Perpetual Bank, A Federal Savings Bank, (the "Savings Bank")
and SouthBanc Shares, M.H.C.("MHC"), we have enclosed material regarding the
offering of Common Stock by SouthBanc Shares, Inc. the holding company formed by
the Savings Bank and the MHC to become the Savings Bank's parent company. This
material is offered in connection with the Conversion and Reorganization of the
Savings Bank and the MHC. These materials include a Prospectus and stock order
and certification forms which offer you the opportunity to subscribe for shares
of Common Stock of SouthBanc Shares, Inc.
We recommend that you read this material carefully. If you decide to subscribe
for shares, you must return the properly completed stock order form and signed
certification form along with full payment for the shares (or appropriate
instructions authorizing withdrawal from a deposit account at Perpetual Bank, A
Federal Savings Bank) no later than 12:00 noon, Eastern time on Month Date, 199X
in the accompanying postage-paid envelope. If you have any questions after
reading the enclosed material, please call the Stock Information Center at (xxx)
xxx-xxxx and ask for a Sandler O'Neill representative. The Stock Information
Center is open Monday through Friday between the hours of 10:00 a.m. and 4:00
p.m. Please note that the Stock Information Center will be closed from 12:00
noon DAY, MONTH DATE, 199X, through 12 noon DAY, MONTH DATE, 199X, in observance
of the _________________ holiday.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your jurisdiction. We should not be
understood as recommending or soliciting in any way any action by you with
regard to the enclosed materials.
Sincerely,
Sandler O'Neill & Partners, L.P.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed 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 Common Stock.
The offer is made only by the Prospectus.
Enclosure
#5
<PAGE>
LOGO: [PERPETUAL BANK, A FEDERAL SAVINGS BANK]
A SUBSIDIARY OF
SOUTHBANC SHARES, M.H.C.
P R O X Y R E Q U E S T
WE NEED YOUR VOTE!
DEAR CUSTOMER:
YOUR VOTE ON OUR AMENDED PLAN OF CONVERSION AND AGREEMENT AND PLAN OF
REORGANIZATION HAS NOT YET BEEN RECEIVED. YOUR VOTE IS VERY IMPORTANT TO US.
PLEASE VOTE AND MAIL THE ENCLOSED PROXY TODAY.
REMEMBER: VOTING FOR THE PLAN OF CONVERSION DOES NOT OBLIGATE YOU TO BUY STOCK.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AMENDED PLAN OF
CONVERSION, AND URGES YOU TO VOTE IN FAVOR OF IT. YOUR DEPOSIT
ACCOUNTS OR LOANS WITH THE SAVINGS BANK WILL NOT BE AFFECTED IN ANY
WAY. DEPOSIT ACCOUNTS WILL CONTINUE TO BE FEDERALLY INSURED.
A POSTAGE-PAID ENVELOPE IS ENCLOSED WITH THE PROXY FORM. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL OUR STOCK INFORMATION CENTER AT (XXX) XXX-XXXX, MONDAY
THROUGH FRIDAY, BETWEEN THE HOURS OF 10:00 A.M. AND 4:00 P.M.
IF YOU HAVE MORE THAN ONE ACCOUNT YOU MAY RECEIVE MORE THAN ONE PROXY.
PLEASE VOTE TODAY BY RETURNING ALL PROXY CARDS RECEIVED.
---
SINCERELY,
SOUTHBANC SHARES, M.H.C.
#6
<PAGE>
7-1
PROXY QUESTIONS AND ANSWERS
BACKGROUND
On October 23, 1993, Perpetual Bank, A Federal Savings Bank ("Perpetual" or the
"Savings Bank") reorganized into a new form of organization, the mutual holding
company structure. As part of this Reorganization, the Savings Bank formed
SouthBanc Shares, M.H.C. (the "MHC") a mutual holding company and Perpetual
became a stockholder-owned company through the initial sale of Common Stock. In
September 1996, the Savings Bank completed an additional offering of Common
Stock.
The primary business of the MHC has been to hold shares of Perpetual's Common
Stock. As majority stockholder, it holds XX.X% of the shares of Common Stock
outstanding. The remaining shares are traded publicly and are owned by
Perpetual's management, benefit plans, customers and members of the public
(together, "Public Stockholders").
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Savings Bank and the MHC have unanimously adopted
a Plan, whereby the MHC will convert to a federal interim stock savings
institution and will merge with and into the Savings Bank. The Savings Bank has
formed SouthBanc Shares, Inc., a Delaware chartered corporation (the "Company"),
and, pursuant to a reorganization and merger, the Savings Bank will become the
wholly owned subsidiary of the Company. The Company will offer Common Stock to
the Savings Bank's Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members in a Subscription Offering, and then to certain
members of the general public in a Direct Community Offering. As a result of
the Conversion and Reorganization, each share of Savings Bank Common Stock held
by the MHC will be canceled and each share of Savings Bank Common Stock held by
the Savings Bank's Public Stockholders will be converted into shares of
SouthBanc Shares, Inc. Common Stock. The Public Stockholders will be mailed
instructions with regard to effecting the Exchange at a later date after the
consummation of the Conversion and Reorganization.
It is necessary for the MHC to receive a majority of the outstanding votes in
favor of the Conversion and Reorganization, so YOUR VOTE IS VERY IMPORTANT.
Please return your proxy in the enclosed _______ postage-paid envelope.
YOUR BOARDS OF DIRECTORS URGE YOU TO VOTE "FOR" THE CONVERSION AND
REORGANIZATION AND RETURN YOUR PROXY CARD TODAY.
<PAGE>
7-2
Q. WHAT IS THE REASON FOR THE CONVERSION AND REORGANIZATION?
A. The MHC does not have stockholders and has no authority to issue capital
stock. As a result of the Conversion and Reorganization, the MHC will be
restructured into the form used by holding companies of commercial banks,
other business entities and a growing number of savings institutions. The
Conversion and Reorganization will enhance the ability of the Company and
the Savings Bank to access capital markets, expand current operations,
acquire other financial institutions or branch offices and diversify into
other financial services to the extent allowable by applicable law and
regulation.
Q. WHAT WILL BE THE EFFECT OF THE CONVERSION AND REORGANIZATION?
A. . The Conversion and Reorganization will have no effect on the balance or
terms of any deposit account or loan. Your deposits will continue to
be federally insured to the fullest extent permissible.
. The officers and employees of Perpetual will continue in their current
capacities.
. The Company will replace the MHC, and Perpetual will become the wholly-
owned subsidiary of the Company.
. The Company will be a stock corporation and will sell its Common Stock.
. The Company's Common Stock will be publicly held and will be traded on
the Nasdaq National Market under the symbol "PERT".
. The Public Stockholders will exchange their Savings Bank stock for stock
of the Company pursuant to an exchange ratio.
Q. WHO IS ELIGIBLE TO VOTE ON THE CONVERSION?
A. Depositors and certain borrowers as of MONTH, DATE, 1998 (the "Voting
Record Date") who continue to be members of the MHC as of the Special
Meeting of Members to be held on MONTH DATE, 1998. The Stockholders of
Perpetual Bank as of a Voting Record Date also have the right to vote and
will be mailed a separate proxy card.
<PAGE>
7-3
Q. AM I REQUIRED TO VOTE?
A. No. Members are not required to vote. However, because the Conversion and
Reorganization will produce a fundamental change in the Savings Bank's
corporate structure, the Boards of Directors encourages all members to
vote.
Q. WHY DID I RECEIVE SEVERAL PROXIES?
A. If you have more than one account you may have received more than one proxy
depending upon the ownership structure of your accounts. Please vote and
sign all proxy cards that you received.
Q. HOW DO I VOTE?
A. You may vote by mailing your signed proxy card in the _______ postage-paid
envelope provided. Should you choose to attend the Special Meeting of
Members and decide to change your vote, you may do so by revoking any
previously executed proxy.
Q. DOES MY VOTE FOR THE CONVERSION AND REORGANIZATION MEAN THAT I MUST BUY
COMMON STOCK IN SOUTHBANC SHARES, INC.?
A. No. Voting for the Conversion and Reorganization does not obligate you to
buy shares of Common Stock of SouthBanc Shares, Inc.
Q. WILL ANY ACCOUNT I HOLD WITH THE SAVINGS BANK BE CONVERTED INTO STOCK?
A. No. All accounts remain as they were prior to the Conversion and
Reorganization. As an Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member, you receive priority over the general
public in exercising your right to subscribe for shares of Common Stock.
Q. I HAVE A JOINT SAVINGS ACCOUNT. MUST BOTH PARTIES SIGN THE PROXY CARD?
A. Only one signature is required, but both parties should sign if possible.
Q. WHO MUST SIGN TRUST OR CUSTODIAN ACCOUNTS?
A. The trustee or custodian must sign such accounts, not the beneficiary.
<PAGE>
7-4
Q. I AM THE EXECUTOR (ADMINISTRATOR) FOR A DECEASED DEPOSITOR. CAN I SIGN THE
PROXY CARD?
A. Yes. Please indicate on the card the capacity in which you are signing the
card.
Q. HOW CAN I RECEIVE ADDITIONAL INFORMATION ABOUT THE CONVERSION AND
REORGANIZATION?
A. The MHC's Proxy Statement describes the Conversion and Reorganization in
detail. Please read the Proxy Statement carefully before voting.
Additional information is available in the Prospectus, which you may obtain
by returning a completed request card, or by calling our Stock Information
Center at (XXX) XXX-XXXX, Monday through Friday, between the hours of 10:00
A.M. and 4:00 P.M. Please note that the Stock Information Center will be
closed from 12:00 noon DAY, MONTH DATE, 199X, through 12 noon DAY, MONTH
DATE, 199X, in observance of the _________________ holiday.
TO ENSURE THAT EACH PURCHASER RECEIVES A PROSPECTUS AT LEAST 48 HOURS PRIOR TO
THE EXPIRATION DATE OF [DAY, MONTH DATE] 199X IN ACCORDANCE WITH RULE 15C2-8 OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, 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.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency or the Savings
Bank.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
<PAGE>
8-1
STOCK OFFERING QUESTIONS & ANSWERS
BACKGROUND
On October 23, 1993, Perpetual Bank, A Federal Savings Bank ("Perpetual" or the
"Savings Bank") reorganized into a new form of organization, the mutual holding
company structure. As part of this Reorganization, the Savings Bank formed
SouthBanc Shares, M.H.C. (the "MHC") a mutual holding company and Perpetual
became a stockholder-owned company through the initial sale of Common Stock. In
September 1996, the Savings Bank completed an additional offering of Common
Stock.
The primary business of the MHC has been to hold shares of Perpetual's Common
Stock. As majority stockholder, it holds XX.X% of the shares of Common Stock
outstanding. The remaining shares are traded publicly and are owned by
Perpetual's management, benefit plans, customers and members of the public
(together, "Public Stockholders").
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Savings Bank and the MHC have unanimously adopted
a Plan, whereby the MHC will convert to a federal interim stock savings
institution and will merge with and into the Savings Bank. The Savings Bank has
formed SouthBanc Shares, Inc. a Delaware chartered corporation (the "Company")
and, pursuant to a reorganization and merger, the Savings Bank will become the
wholly owned subsidiary of the Company. The Company will offer Common Stock to
the Savings Bank's Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members in a Subscription Offering, and then to certain
members of the general public in a Direct Community Offering. As a result of
the Conversion and Reorganization, each share of Savings Bank Common Stock held
by the MHC will be canceled and each share of Savings Bank Common Stock held by
the Savings Bank's Public Stockholders will be converted into shares of
SouthBanc Shares, Inc. Common Stock. The Public Stockholders will be mailed
instructions with regard to effecting the Exchange at a later date after the
consummation of the Conversion and Reorganization.
Investment in Common Stock involves certain risks. For a discussion of these
risks and other factors, investors are urged to read the accompanying
Prospectus.
<PAGE>
8-2
Q. WHAT IS THE REASON FOR THE CONVERSION AND REORGANIZATION?
A. The MHC does not have stockholders and has no authority to issue capital
stock. As a result of the Conversion and Reorganization, the MHC will be
restructured into the form used by holding companies of commercial banks,
other business entities and a growing number of savings institutions. The
Conversion and Reorganization will enhance the ability of the Company and the
Savings Bank to access capital markets, expand current operations, acquire
other financial institutions or branch offices and diversify into other
financial services to the extent allowable by applicable law and regulation.
Q. WILL THE CONVERSION AND REORGANIZATION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR
LOANS?
A. No. The Conversion and Reorganization will not have any effect on the balance
or terms of any deposit account or loan. Your deposits will continue to be
federally insured to the fullest extent permissible.
Q. WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING?
A. Nontransferable rights to purchase stock in the Subscription Offering have
been granted, in the order of priority, to: (i) depositors of the Savings
Bank with account balances of $50 or more on June 30, 1996 ("Eligible Account
Holders"), (ii) depositors of the Savings Bank with account balances of $50
or more on December 31, 1997 ("Supplemental Eligible Account Holders"), and
(iii) depositors of the Savings Bank as of MONTH, DATE, 199X and borrowers of
the Savings Bank with loans outstanding on MONTH, DATE, 199X which continue
to be outstanding as of MONTH, DATE, 199X ("Other Members").
Q. WILL I RECEIVE A DISCOUNT ON THE PRICE OF THE STOCK?
A. No. Conversion regulations require that the offering price of the stock be
the same for everyone: customers, directors, officers and employees of the
Savings Bank, and the general public.
<PAGE>
8-3
Q. HOW MANY SHARES OF STOCK ARE BEING OFFERED, AND AT WHAT PRICE?
A. Excluding Exchange Shares, the Company is offering between 1,466,250 and
1,983,750 shares of Common Stock at a purchase price of $20 per share through
the Prospectus. Under certain circumstances, SouthBanc Shares, Inc. may
issue up to 2,281,312 shares.
Q. HOW MUCH STOCK CAN I PURCHASE?
A. The minimum purchase is 25 shares; the maximum purchase by any person in the
Subscription Offering is $1,000,000 (50,000 shares); the maximum purchase by
any person or entity, including purchases by associates of such person or
entity, in the Direct Community Offering and Syndicated Community Offering is
$1,000,000 (50,000 shares); and the maximum purchase by any person including
purchases by associates of such person, in the Subscription and Direct
Community Offerings is $1,000,000 (50,000 shares). In addition, no person,
together with associates of and persons acting in concert with such person,
may purchase in the aggregate more than the number of shares of Conversion
shares that when combined with Exchange Shares received by such person would
exceed the overall maximum purchase limitation of 50,000 shares.
Q. HOW DO I ORDER STOCK?
A. You may subscribe for shares of Common Stock by completing and returning the
stock order form and certification form, together with your payment, in the
postage-paid envelope that has been provided.
Q. HOW CAN I PAY FOR MY SHARES OF STOCK?
A. You can pay for Company Common Stock by check, cash, money order or
withdrawal from your deposit account at the Savings Bank; provided, that
payment or withdrawal instructions, together with a completed stock order
form and certification form, are received by the Savings Bank no later than
12:00 noon, Eastern time on DAY, MONTH DATE, 1998. If you choose to pay by
cash, you must deliver the stock order form and payment in person to a branch
office of the Savings Bank and it will be converted to a bank check or a
money order. PLEASE DO NOT SEND CASH IN THE MAIL.
<PAGE>
8-4
Q. CAN I SUBSCRIBE FOR SHARES USING FUNDS IN MY IRA/QUALIFIED PLAN MAINTAINED AT
THE SAVINGS BANK?
A. Federal regulations do not permit the purchase of Common Stock with your
existing IRA or Qualified Plan funds maintained at the Savings Bank. To use
such funds to subscribe for stock, you need to establish a "self-directed"
trust account with an outside trustee. Please call our Stock Information
Center if you require additional information. TRANSFER OF SUCH FUNDS TAKES
TIME, SO, PLEASE MAKE ARRANGEMENTS AS SOON AS POSSIBLE.
Q. CAN I SUBSCRIBE FOR SHARES AND ADD SOMEONE ELSE WHO IS NOT ON MY ACCOUNT TO
MY STOCK REGISTRATION?
A. No. Federal regulations prohibit the transfer of subscription rights.
Adding the names of other qualifying account holders who are not owners of
your qualifying account(s) will result in your order becoming null and void.
Q. WILL PAYMENTS FOR STOCK EARN INTEREST UNTIL THE CONVERSION AND REORGANIZATION
CLOSES?
A. Yes. Any payments made by cash, check or money order will earn interest at
the Savings Bank's passbook rate from the date of receipt to the completion
or termination of the Conversion and Reorganization. Withdrawals from a
deposit account or a certificate of deposit at the Savings Bank may be made
without penalty. Depositors who elect to pay for their Common Stock by
withdrawal will receive interest at the contract rate on the account until
the completion or termination of the Conversion and Reorganization.
Q. ARE DIVIDENDS CURRENTLY PAID ON THE STOCK?
A. The Savings Bank's Board of Directors has paid quarterly cash dividends to
its Public Stockholders commencing with the quarter ended December 31, 1995.
The Board of Directors intends to declare and pay a regular cash dividend for
the first calendar quarter of 1998 to holders of Savings Bank Common Stock.
The record date for determining the holders of Savings Bank Common Stock
entitled to receipt of the dividend is expected to pre-date the consummation
of the Conversion and Reorganization. Consequently, dividends, if any, would
not be paid on the Common Stock offered hereby until after the consummation
of the Conversion and Reorganization. Upon completion of the Conversion and
Reorganization, the Holding Company's Board of Directors will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The first dividend payment on the Common Stock is
expected during the month following the end of the quarter in which the
Conversion and Reorganization is consummated. No assurances, however, can be
given as to whether the dividend payments will continue or, if continued, the
amount of such dividends.
<PAGE>
8-5
Q. WILL MY STOCK BE COVERED BY DEPOSIT INSURANCE?
A. No. The Common Stock cannot be insured or guaranteed by the FDIC, the Bank
Insurance Fund, the Savings Association Insurance Fund or any other
government agency.
Q. WHERE WILL THE STOCK BE TRADED?
A. Upon completion of the Conversion and Reorganization, SouthBanc Shares, Inc.
expects the stock to be traded over-the-counter and to be quoted on the
Nasdaq National Market under the symbol "PERT". Prior to the Conversion and
Reorganization, the Savings Bank Common Stock has been listed on the Nasdaq
Smallcap Market under the same symbol.
Q. CAN I CHANGE MY MIND AFTER I PLACE AN ORDER TO SUBSCRIBE FOR STOCK?
A. No. After receipt, your order may not be modified or withdrawn.
Q. WHAT IF I HAVE ADDITIONAL QUESTIONS OR REQUIRE MORE INFORMATION?
A. If you have any questions regarding the Conversion or need additional
information, please call our Stock Information Center at (XXX) XXX-XXXX,
Monday through Friday, between the hours of 10:00 A.M. and 4:00 P.M.
Please note that the Stock Information Center will be closed from 12:00 noon
DAY, MONTH DATE, 1998, through 12 noon DAY, MONTH DATE, 1998, in observance
of the _________________ holiday.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency nor is the Common
Stock insured or guaranteed by Perpetual Bank, A Federal Savings Bank or
SouthBanc Shares, M.H.C. or SouthBanc Shares, Inc.
This is not an offer to sell or a solicitation of an offer to buy Common Stock.
The offer is made only by the Prospectus.
<PAGE>
<TABLE>
<CAPTION>
SOUTHBANC SHARES, M.H.C. REQUEST FOR INFORMATION
ABOUT THE CONVERSION AND REORGANIZATION
<S>
Please send : <C>
Mark Appropriate Box(es)[_]
[_] The Prospectus and Stock Order and Certification Forms Daytime
[_] The Amended Plan of Conversion and Agreement and Plan of Reorganization Phone: ( )
-----------------------
Evening
Phone: ( )
-----------------------
</TABLE>
I understand this request for information does not obligate us to purchase any
shares of SouthBanc Shares, Inc. Common Stock.
PLEASE RETURN THIS CARD IN THE ENCLOSED_____ POSTAGE-PAID ENVELOPE.
#9
<PAGE>
----------------------------
L O G O
----------------------------
PERPETUAL BANK, A FEDERAL SAVINGS BANK
Please Support Us
Vote Your
Proxy Card Today
- --------------------------------------------------------------------------------
IF YOU HAVE MORE THAN ONE ACCOUNT, YOU MAY HAVE RECEIVED MORE THAN ONE PROXY
CARD DEPENDING UPON THE OWNERSHIP STRUCTURE OF YOUR ACCOUNTS. PLEASE VOTE, SIGN
AND RETURN ALL PROXY CARDS THAT YOU RECEIVED.
- --------------------------------------------------------------------------------
#10
<PAGE>
[Perpetual Bank, A Federal Savings Bank]
____________________, 1998
Mr. John Smith
00-00 00 Drive
City, State 00000
Dear Mr. Smith:
We are pleased to announce that the Boards of Directors of Perpetual Bank, A
Federal Savings Bank (the "Savings Bank") and SouthBanc Shares, M.H.C. (the
"MHC") have adopted an Amended Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan of Conversion"). As part of this plan, we have formed
SouthBanc Shares, Inc. (the "Company") which will own all of the Savings Bank's
stock. We are converting so that the Savings Bank and the MHC will be
structured in a form used by most other holding companies of savings
institutions and commercial banks and most other business entities, and to allow
our bank to become stronger.
You are cordially invited to join members of our senior management team at an
informational meeting to be held on ___________ at 7:30 p.m. to learn more about
the conversion and the stock offering.
A member of our staff will be calling to confirm your interest in attending the
meeting.
If you would like additional information regarding the meeting or our
conversion, please call our Stock Information Center at (XXX) XXX-XXXX. The
Stock Information Center is open Monday through Friday between the hours of
10:00 a.m. and 4:00 p.m.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed 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 Common Stock.
The offer is made only by the Prospectus.
(Printed by Stock Information Center)
#11
<PAGE>
[SouthBanc Shares, Inc.]
____________________, 1998
Dear Subscriber:
We hereby acknowledge receipt of your order for shares of Common Stock of
SouthBanc Shares, Inc.
At this time, we cannot confirm the number of shares of SouthBanc Shares, Inc.
Common Stock that will be issued to you. Such allocation will be made in
accordance with the Plan of Conversion and Agreement and Plan of Reorganization
following completion of the stock offering.
If you have any questions, please call our Stock Information Center at (XXX)
XXX-XXXX.
Sincerely,
SouthBanc Shares, Inc.
Stock Information Center
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Stock Information Center)
#12
<PAGE>
[SouthBanc Shares, Inc.]
____________________, 1998
[NAME]
[ADDRESS]
Dear Shareholder:
Our Subscription and Direct Community Offerings have been completed and we are
pleased to confirm your subscription for _________ shares of SouthBanc Shares,
Inc. common stock at a price of $20 per share.
Trading in our stock has commenced on the Nasdaq National Market under the
symbol "PERT". Your stock certificate will be mailed to you as soon as
possible. In addition, if your subscription was paid for by check, interest
will be mailed to you shortly.
On behalf of the directors and employees, we thank you for your interest in
SouthBanc Shares, Inc., and welcome you as a shareholder.
Sincerely,
SouthBanc Shares, Inc.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Stock Information Center)
#13
<PAGE>
[SouthBanc Shares, Inc.]
____________________, 1998
Dear Interested Subscriber:
We recently completed our Subscription and Direct Community Offerings.
Unfortunately, due to the excellent response from our Eligible Account Holders,
stock was not available for our Supplemental Eligible Account Holders, Other
Members or community friends. If your subscription was paid for by check, a
refund of any balance due you with interest will be mailed to you promptly.
We appreciate your interest in SouthBanc Shares, Inc. and hope you become an
owner of our stock in the future. The stock trades on the Nasdaq National
Market under the symbol "PERT".
Sincerely,
SouthBanc Shares, Inc.
Stock Information Center
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Stock Information Center)
#14
<PAGE>
[SouthBanc Shares, Inc.]
____________________, 1998
Welcome Shareholder:
We are pleased to enclose the stock certificate that represents your share of
ownership in SouthBanc Shares, Inc., the holding company of Perpetual Bank, A
Federal Savings Bank.
Please examine your stock certificate to be certain that it is properly
registered. If you have any questions about your certificate, you should
contact the Transfer Agent immediately at the following address:
TRANSFER AGENT
Please also remember that your certificate is a negotiable instrument which
should be stored in a secure place, such as a safe deposit box or on deposit
with your stockbroker.
On behalf of the Board of Directors of SouthBanc Shares, Inc. and the employees
of Perpetual Bank, A Federal Savings Bank, I would like to thank you for
supporting our offering.
Sincerely,
SIGNATURE
TITLE
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.
(Printed by Stock Information Center)
#15
<PAGE>
[SouthBanc Shares, Inc.]
____________________, 1998
Dear Interested Subscriber:
We regret to inform you that Perpetual Bank, A Federal Savings Bank, SouthBanc
Shares, M.H.C., and SouthBanc Shares, Inc. the holding company for Perpetual
Bank, A Federal Savings Bank, have decided not to accept your order for shares
of SouthBanc Shares, Inc. Common Stock in our Direct Community Offering. This
action is in accordance with our Amended Plan of Conversion and Agreement and
Plan of Reorganization which gives the Savings Bank, the Mutual Holding Company
and the Company, the absolute right to reject the subscription of any Community
Member, in whole or in part, in the Direct Community Offering.
Enclosed, therefore, is a check representing your subscription and interest
earned thereon.
Sincerely,
SouthBanc Shares, Inc.
Stock Information Center
(Printed by Stock Information Center)
#16
<PAGE>
[SANDLER O'NEILL & PARTNERS, L.P. LETTERHEAD]
____________________, 1998
To Our Friends:
We are enclosing the offering material for SouthBanc Shares, Inc. in connection
with the reorganization of Perpetual Bank, A Federal Savings Bank and SouthBanc
Shares, M.H.C., the mutual holding company of the Savings Bank, into the stock
holding company structure.
Sandler O'Neill & Partners, L.P. is managing SouthBanc Shares, Inc.'s
Subscription and Direct Community Offerings, which will conclude at 12:00 noon,
Eastern time on _____________ ____, 1998. Sandler O'Neill is also providing
conversion agent and proxy solicitation services. In the event that all the
stock is not subscribed for in the Subscription and Direct Community Offerings,
Sandler O'Neill will form and manage a syndicate of broker/dealers to sell the
remaining stock.
Members of the general public, other than residents of ______, are eligible to
participate. If you have any questions about this transaction, please do not
hesitate to call or write.
Sincerely,
SANDLER O'NEILL & PARTNERS, L.P.
The shares of Common Stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured or guaranteed 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 Common Stock.
The offer is made only by the Prospectus.
(Printed by Sandler O'Neill)
#17
<PAGE>
[LETTERHEAD OF RP FINANCIAL, LC.]
EXHIBIT 99.3
August 28, 1997
Mr. Robert W. Orr
President and Chief Executive Officer
Perpetual Bank, a Federal Saving Bank
907 N. Main Street
Anderson, South Carolina 29621
Dear Mr. Orr:
This letter sets forth the agreement between Perpetual Bank, a Federal
Savings Bank, Anderson, South Carolina ("Perpetual" or the "Bank"), and RP
Financial, LC, ("RP Financial"), whereby the Bank has engaged RP Financial to
assist in the preparation of the regulatory business plan and financial
projections to be adopted by the Bank pursuant to the formation of a holding
company. These services are described in greater detail below.
Description of Proposed Services
- --------------------------------
RP Financial's business services will include, but are not limited to,
the following ares: (1) gaining an understanding of Perpetual's current
financial and operating condition, business strategies and anticipated
strategies in the future; (2) analyzing and quantifying the impact of business
strategies to enhance profitability, capitalization, competitiveness and
compliance with applicable regulations; (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 (4) preparing the
written business plan document which conform with any applicable regulatory
guidelines.
The business plan will clearly describe and demonstrate the business
and operating strategies and objectives of Perpetual and the holding company for
three fiscal years, with the objective of demonstrating the financial viability
and operating strength of the Bank and holding company cash flows. 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
The business plan will include detailed financial projections prepared
on a quarterly basis covering three fiscal years. The financial projections will
reflect the anticipated timing and financial impact of the Board-approved
strategies.
________________________________________________________________________________
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. Robert W. Orr
August 28, 1997
Page 2
Fee Structure and Payment Schedule
- ----------------------------------
The Bank agrees to compensate RP Financial for preparation of the business
plan on an hourly basis, with the professional fees not to exceed $7,500. the
Bank will reimburse RP Financial for our-of-pocket expenses incurred in the
preparation of the business plan. Such out-of-pocket expenses, which are not
expected to exceed $7,500 inclusive of expenses for the business plan and
appraisal, will include but not be limited to, travel, telephone, facsimile,
copying, shipping, computer and data. RP Financial will make all attempts to
keep out-of-pocket expenses to a minimum.
In the event the Bank shall, for any reason, discontinue this planning
engagement prior to delivery of the completed business plan and payment of the
business planning Fee, the Bank 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 fee cap described
above.
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 Bank and RP Financial. Such unforeseen events may
include changes in regulatory requirements as it specifically relates to
Perpetual or potential transactions which will dramatically impact the Bank 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/ William E. Pommerening
William E. Pommerening
Chief Executive Officer
and Managing Director
Agreed To and Accepted By: Mr.Robert W. Orr /s/ Robert W. Orr
------------------------
President and chief Executive Officer
For: Perpetual Bank, a Federal Savings Bank
Anderson, South Carolina
Date Executed: September 4, 1997
-------------------
<PAGE>
[LETTERHEAD OF RP FINANCIAL, LC.]
August 28, 1997
Mr. Robert W. Orr
President and Chief Executive Officer
Perpetual Bank, a Federal Savings Bank
907 N. Main Street
Anderson, South Carolina 29621
Dear Mr. Orr:
This letter sets forth the agreement between Perpetual Bank, a Federal
Savings Bank, Anderson, South Carolina ("Perpetual" or the "Bank") and RP
Financial, LC. ("RP Financial") for certain conversion appraisal services
pertaining to the mutual-to-stock conversion of SouthBanc Shares, M.H.C. (the
"MHC"), a federal mutual holding company and the majority shareholder of
Perpetual, and the Plan of Reorganization between the MHC and Perpetual. The
specific services to be rendered by RP Financial are described below. These
services will be rendered by a team of two senior consultants on staff.
Description of Conversion Appraisal Services
- --------------------------------------------
RP Financial will prepare a written detailed valuation report which will
be fully consistent with applicable regulatory guidelines and standard valuation
practices. The valuation report will conclude with an estimate of the pro forma
market value of the shares of stock to be offered and sold in the conversion. RP
Financial understands that as part of the conversion, the shares of Perpetual
which are held by public shareholders (i.e. stockholders other than the MHC)
will be exchanged for newly issued shares of common stock of a newly organized
stock holding company ("SHC") and that shares offered in the conversion will be
SHC shares. The valuation report will incorporate such key transaction
parameters as the financial strength and operations of Perpetual, the proposed
treatment in the conversion of the publicly-traded shares of Perpetual
(including the proposed exchange), and the financial strength and operations of
the MHC unconsolidated. The estimate of pro forma market value will be a
preliminary value, subject to confirmation by RP Financial at the closing of the
offering.
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
operations, financial condition, profitability, risks and external factors which
impact the Bank. The valuation will include an in-depth analysis of the Bank's
financial condition and operating results, as well as assess the Bank's interest
rate risk, credit risk and liquidity risk. The valuation report will describe
the Bank's business strategies and market area and prospects for the future. 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. The valuation report will conclude with a midpoint pro
forma valuation for the shares to be offered in the conversion, as well as a
range of value around the midpoint value. The valuation 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.
<PAGE>
RP Financial, LG,--
Mr. Robert W Orr
August 28, 1997
Page 2
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Perpetual 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.
Fee Structure and Payment Schedule
- ----------------------------------
Perpetual agrees to pay RP Financial a fixed fee of $30,000 for these
services, plus reimbursable expenses. Payment of these fees shall be made
according to the following schedule:
. $5,000 upon execution of the letter of agreement engaging RP
Financial's services as outlines herein;
. $20,000 upon delivery of the completed original appraisal report; and
. $5,000 upon completion of the convention to cover all subsequent
valuation updates that may be required.
The Bank will reimburse RP Financial for out-of-pocket expenses incurred in
the preparation of the appraisal report. Such out-of-pocket expenses, which are
not expected to exceed $5,000 inclusive of expenses for the business plan and
appraisal, will include travel, telephone, facsimile, copying, shipping,
computer and data. RP Financial will make all attempts to keep out-of-pocket
expenses to a minimum.
In the event Perpetual or the MHC 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, Perpetual 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 consultants.
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 Perpetual 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.
Representations and Warranties
- ------------------------------
Perpetual and RP Financial agree to the following:
1. The Bank 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:
<PAGE>
RP FINANCIAL, LC.
MR. ROBERT W. ORR
AUGUST 28, 1997
PAGE 5
annual financial statements, periodic regulatory filings and materials
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 Bank 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 Bank the original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to the best of the
Bank's knowledge, at the times it is provided to RP 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 Bank 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 Perpetual 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 Perpetual to RP Financial or (iii) any action or omission to act by
Perpetual, or Perpetual's respective officers, directors, employees or agents
which action or omission is willful or negligent. Perpetual 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 Perpetual at the normal hourly professional rate chargeable by such
employee.
(b) RP Financial shall give written notice to the Bank 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 Bank 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 Bank hereunder, together with interest on such costs from the
date incurred at the rate of fifteen percent (15%) per annum within five days
after the final determination of such contest either by written acknowledgement
of the Bank or a final judgment of a court of competent jurisdiction. If the
Bank does not so elect, RP Financial shall be paid promptly and in any event
within thirty days after receipt by the Bank of the notice of the claim.
(c) The Bank 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 Bank: (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 Bank 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 Bank in one or more
additional capacities, and that the terms of the original
<PAGE>
RP Financial, LC.
Mr. Robert W. Orr
August 28, 1997
Page 4
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 Bank 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.
Perpetual and RP Financial are not affiliated, and neither Perpetual 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.
The MHC and RP Financial are not affiliated, and neither the MHC 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/ William E. Pommerening
William E. Pommerening
Chief Executive Officer
and Managing Director
Agreed To and Accepted By: Mr. Robert W. Orr /s/ Robert W. Orr
---------------------
President and Chief Executive Officer
For: Perpetual Bank, a Federal Savings Bank
Anderson, South Carolina
September 4, 1997
Date Executed: ___________________________________
<PAGE>
EXHIBIT 99.5
SOUTHBANC SHARES, M.H.C.
907 N. MAIN STREET
ANDERSON, SOUTH CAROLINA 29621
(864) 225-0241
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON MARCH __, 1998
Notice is hereby given that a special meeting ("Special Meeting") of
members of SouthBanc Shares, M.H.C. ("MHC") will be held at the main office of
Perpetual Bank, A Federal Savings Bank, 907 N. Main Street, Anderson, South
Carolina, on _________, March __, 1998, at __:00 _.m., Eastern Time. Business
to be taken up at the Special Meeting shall be:
(1) To approve an Amended Plan of Conversion from Mutual Holding Company
to Stock Holding Company and Agreement and Plan of Reorganization
("Plan of Conversion") between the MHC and Perpetual Bank, A Federal
Savings Bank ("Savings Bank"), pursuant to which the Savings Bank
organized SouthBanc Shares, Inc. ("Holding Company") and, upon
consummation of the following transactions, the Savings Bank will
become a wholly owned subsidiary of the Holding Company: (i) the MHC,
which currently owns 53.03% of the outstanding shares of common stock
of the Savings Bank, will convert from mutual holding company to a
federal interim stock savings bank ("Interim A") and simultaneously
merge with and into the Savings Bank, with the Savings Bank as the
surviving entity; (ii) the Savings Bank will merge with and into an
interim stock savings bank ("Interim B") to be formed as a wholly
owned subsidiary of the Holding Company, with the Savings Bank being
the surviving entity; (iii) the outstanding shares of common stock of
the Savings Bank (other than those held by the MHC which will be
canceled) ("Public Savings Bank Shares") will be exchanged for shares
of common stock of the Holding Company ("Exchange Shares") pursuant to
a ratio that will result in the holders of such shares owning in the
aggregate the same percentage of the outstanding shares of common
stock of the Holding Company as they currently own in the Savings
Bank, before giving effect to such stockholders purchasing additional
shares of common stock of the Holding Company ("Conversion Shares") in
a concurrent stock offering by the Holding Company ("Conversion
Offerings") or by the Savings Bank's employee stock ownership plan
thereafter or receiving cash in lieu of fractional Exchange Shares;
and (iv) the offer and sale of Conversion Shares by the Holding
Company in the Conversion Offerings (collectively, "Conversion and
Reorganization"), all undertaken 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 MHC at the close of business on ____________, 1998, 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
SYLVIA B. REED
SECRETARY
Anderson, South Carolina
February __, 1998
<PAGE>
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 SYLVIA B. REED, SECRETARY, SOUTHBANC SHARES,
M.H.C., AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING.
<PAGE>
SOUTHBANC SHARES, M.H.C.
907 N. MAIN STREET
ANDERSON, SOUTH CAROLINA 29621
(864) 225-0241
PROXY STATEMENT
MARCH ___, 1998
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
SOUTHBANC SHARES, M.H.C. FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON
_________, MARCH __, 1998, 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 SouthBanc Shares,
M.H.C. ("MHC") will be held at the main office of Perpetual Bank, A Federal
Savings Bank, 907 N. Main Street, Anderson, South Carolina, on _________, March
__, 1998, at __:00 __.m., Eastern Time, for the purpose of considering and
voting upon an Amended Plan of Conversion and Agreement and Plan of
Reorganization ("Plan of Conversion"), which, if approved by a majority of the
total votes of the members eligible to be cast, will permit Perpetual Bank, A
Federal Savings Bank ("Savings Bank") to become a subsidiary of the Holding
Company, a newly organized Delaware corporation formed by the Savings Bank. The
reorganization of the Savings Bank and the acquisition of control of the Savings
Bank by the Holding Company are collectively referred to herein as the
"Conversion and Reorganization."
Pursuant to the MHC's Federal Mutual Holding Company Charter, depositors of
the Savings Bank, and borrowers of the Savings Bank with a loan outstanding as
of October 26, 1993 and for as long as such loan remains outstanding, are
members of the MHC. Members entitled to vote on the Plan of Conversion are
members of the MHC as of ____________, 1998 ("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 and Reorganization requires the approval of not less than a
majority of the total votes eligible to be cast at the Special Meeting.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (i.e. Interim A) and simultaneously merge with and into the
----
Savings Bank, pursuant to which the MHC will cease to exist and the shares of
common stock, par value $1.00 per share of the Savings Bank ("Savings Bank
Common Stock") held by the MHC will be canceled, and (ii) Interim A will then
merge with and into the Savings Bank. As a result of the merger of Interim A
with and into the Savings Bank, the Savings Bank will become a wholly owned
subsidiary of the Holding Company and the shares of Savings Bank Common Stock
held by persons other than the MHC ("Public Savings Bank Shares") will be
converted into shares of common stock of the Holding Company ("Exchange Shares")
pursuant to a ratio ("Exchange Ratio"), which will result in the holders of such
shares owning in the aggregate approximately the same percentage of the Common
Stock to be outstanding upon the completion of the Conversion and Reorganization
as the percentage of Savings Bank Common Stock owned by them in the aggregate
immediately prior to consummation of the Conversion and Reorganization, but
before giving effect to (a) the payment of cash in lieu of issuing fractional
Exchange Shares and (b) any Conversion Shares (defined below) purchased by the
Savings Bank's stockholders in the Conversion Offerings (defined below).
As part of the Plan of Conversion, nontransferable rights to subscribe
("Subscription Rights") for up to 1,983,750 shares (which may be increased to
2,281,312 shares under circumstances described in footnote 4 of the
1
<PAGE>
table appearing on the cover page of the Prospectus) of Common Stock
("Conversion Shares") have been granted, in order of priority, to (i) depositors
with $50.00 or more on deposit at the Savings Bank as of the close of business
on June 30, 1996 ("Eligible Account Holders"), (ii) depositors with $50.00 or
more on deposit at the Savings Bank as of the close of business on December 31,
1997 ("Supplemental Eligible Account Holders"), and (iii) depositors of the
Savings Bank (other than Eligible Account Holders and Supplemental Eligible
Account Holders) as of the Voting Record Date, and borrowers of the Savings Bank
with loans outstanding as of the close of business on October 26, 1993 which
continue to be outstanding as of the close of business on the Voting Record Date
("Other Members"), subject to the priorities and purchase limitations set forth
in the Plan of Conversion ("Subscription Offering"). Concurrently, but subject
to the prior rights of Subscription Rights holders, the Holding Company is
offering the Conversion Shares for sale to members of the general public through
a direct community offering ("Direct Community Offering") with preference given
first to Public Stockholders as of the close of business on the Voting Record
Date (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons who are permanent residents of Anderson or Oconee Counties of South
Carolina ("Local Community"). It is anticipated that any Conversion Shares not
subscribed for in the Subscription Offering or purchased in 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 Sandler O'Neill &
Partners, L.P. ("Sandler") in a syndicated community offering ("Syndicated
Community Offering"). The Subscription Offering, Direct Community Offering and
the Syndicated Community Offering are referred to collectively as the
"Conversion Offerings."
SOUTHBANC SHARES, M.H.C.
The MHC is the federally-chartered mutual holding company of the Savings
Bank. The MHC was formed in October 1993 as a result of the reorganization of
the Savings Bank into a federally chartered mutual holding company ("MHC
Reorganization"). The members of the MHC consist of depositors of the Savings
Bank and those current borrowers of the Savings Bank who had loans outstanding
as of the consummation date of the MHC Reorganization (October 26, 1993). The
MHC's sole business activity is holding the 800,000 shares of Savings Bank
Common Stock, which represents 53.02% of the outstanding shares as of the date
of this Prospectus. The MHC's main office is located at 907 N. Main Street,
Anderson, South Carolina 29621, and its telephone number is (864) 225-0241. As
part of the Conversion and Reorganization, the MHC will convert to a federally-
chartered interim stock savings bank and simultaneously merge with and into the
Savings Bank, with the Savings Bank as the surviving entity.
PERPETUAL BANK, A FEDERAL SAVINGS BANK
The Savings Bank is a federally chartered stock savings bank headquartered
in Anderson, South Carolina. The Savings Bank was originally chartered in 1906
and operated as a mutual institution without stockholders until October 1993, at
which time it reorganized into the mutual holding company structure. The
Savings Bank's deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to applicable legal limits under the Savings Association Insurance
Fund. The Savings Bank, a member of the Federal Home Loan Bank ("FHLB") system,
is regulated by the Office of Thrift Supervision ("OTS") and the FDIC. At
September 30, 1997, the Savings Bank had total assets of $257.0 million, total
deposits of $201.0 million, and total stockholders' equity of $30.8 million, on
a consolidated basis.
On October 26, 1993, the MHC Reorganization was consummated and the Savings
Bank completed its initial stock offering by issuing 1,500,000 shares of Savings
Bank Common Stock at $10.00 per share, 1,385,000 shares (92.3%) of which were
sold to the MHC. The remaining 115,000 shares (7.7%) were issued to members of
the MHC, including officers, directors and employees of the Savings Bank.
In September 1996, the Savings Bank completed an additional offering of
Savings Bank Common Stock through the issuance of 585,000 shares at a price of
$19.25 to then existing members of the MHC ("Additional Offering"). In
connection with the closing of the Additional Offering, 585,000 shares of
Savings Bank Common
2
<PAGE>
Stock held by the MHC were canceled. Accordingly, upon consummation of the
Additional Offering on September 30, 1996, there were 1,504,601 shares of
Savings Bank Common Stock issued and outstanding, of which 800,000 (53.2%) were
held by the MHC and 704,601 shares (46.8%) were held by the Public Stockholders.
The Savings Bank considers Anderson and Oconee Counties in the northwestern
corner of South Carolina as its primary market area because a substantial
portion of its loan portfolio is secured by properties located in those
counties. The Savings Bank faces strong competition within its primary market
area. The Savings Bank also invests in loans secured by properties located
outside of its primary market area (predominately in Hilton Head Island, South
Carolina, and in the greater Greenville, South Carolina, area) as a result of
loan purchases from other lenders, including a mortgage banking company in which
a service corporation subsidiary of the Savings Bank has a one-third equity
interest.
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public and using those funds, along with FHLB
advances, to originate and purchase one- to- four family mortgage loans. The
Savings Bank originates and purchases commercial real estate and construction
loans, as well as consumer loans and, to a lesser extent, commercial business
loans and multi-family real estate loans. Such latter type loans, which
totalled $71.7 million, or 40.1%, of net loans receivable at September 30, 1997,
are inherently riskier than one- to- four-family mortgage loans. As a
complement to its lending activities, the Savings Bank services mortgage loans
and invests in mortgage servicing rights.
In addition to its lending activities, the Savings Bank, through a service
corporation subsidiary, develops residential and commercial properties located
in its primary market area. The Savings Bank also invests in short-and
intermediate-term mortgage-backed securities, including collateralized mortgage
obligations ("CMOs").
The Savings Bank's principal office is located at 907 North Main Street,
Anderson, South Carolina 29621, and the telephone number at that office is (864)
225-0241. The Savings Bank also operates five branch offices.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The MHC's Board of Directors has fixed the close of business on
___________, 1998 as the record date for the determination of members entitled
to notice of and to vote at the Special Meeting. All holders of savings or
other authorized accounts of the Savings Bank, and borrowers of the Savings Bank
with loans outstanding as of October 26, 1993 and for as long as such loans
remain outstanding, are members of the Savings Bank 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 Savings Bank as of the
Voting Record Date. Borrowers with loans outstanding as of October 26, 1993,
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 MHC'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.
3
<PAGE>
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 Savings Bank, 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 trustees for individual retirement accounts at the Savings Bank,
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 officers, directors or regular employees of the MHC,
in person, by telephone or through other forms of communication. Such persons
will be reimbursed by the MHC for their reasonable out-of-pocket expenses
incurred in connection with such solicitation. If necessary, the Special
Meeting may be adjourned to an alternative date.
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 CONVERSION SHARES.
THE CONVERSION AND REORGANIZATION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY
THE MEMBERS OF THE SAVINGS BANK AND THE STOCKHOLDERS OF THE SAVINGS BANK
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 September 22, 1997, the Boards of Directors of the MHC and the
Savings Bank unanimously adopted, and on December 22, 1997, unanimously amended,
the Plan of Conversion, pursuant to which the MHC will convert from a mutual
holding company to a stock holding company and the Savings Bank simultaneously
reorganize as a wholly-owned subsidiary of the Holding Company, a newly formed
Delaware corporation. THE FOLLOWING DISCUSSION OF ALL MATERIAL ASPECTS OF THE
PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF
CONVERSION, WHICH IS ATTACHED HERETO AS EXHIBIT A. The OTS has approved the Plan
of Conversion subject to its approval by the members of the MHC entitled to vote
on the matter at the Special Meeting of Members called for that purpose to be
held on ____________, 1998, its approval by the stockholders of the Savings Bank
entitled to vote on the matter at the Stockholders' Meeting called for that
purpose to be held on ____________, 1998, and its approval by the stockholders
of the Savings Bank (excluding the MHC) entitled to vote on the matter at the
Stockholders' Meeting, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (i.e. Interim A) and simultaneously merge with and into the
----
Savings Bank, pursuant to which the MHC will cease to exist and the shares of
Savings Bank Common Stock held by the MHC will be canceled, and (ii) Interim A
will then merge with and into the Savings Bank. As a result
4
<PAGE>
of the merger of Interim A with and into the Savings Bank, the Savings Bank will
become a wholly owned subsidiary of the Holding Company and the Public Savings
Bank Shares will be converted into the Exchange Shares pursuant to the Exchange
Ratio, which will result in the holders of such shares owning in the aggregate
approximately the same percentage of the Common Stock to be outstanding upon the
completion of the Conversion and Reorganization (i.e., the Conversion Shares and
----
the Exchange Shares) as the percentage of Savings Bank Common Stock owned by
them in the aggregate immediately prior to consummation of the Conversion and
Reorganization, but before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares and (b) any shares of Conversion Stock
purchased by the Savings Bank's stockholders in the Conversion Offerings.
As part of the Conversion and Reorganization, the Holding Company is
offering Conversion Shares in the Subscription Offering to holders of
Subscription Rights in the following order of priority: (i) Eligible Account
Holders (depositors of the Savings Bank with $50.00 or more on deposit as of the
close of business on June 30, 1996); (ii) Supplemental Eligible Account Holders
(depositors of the Savings Bank with $50.00 or more on deposit as of the close
of business on December 31, 1997); and (iii) Other Members (depositors of the
Savings Bank as of the close of business on ___________, 1998 and borrowers of
the Savings Bank with loans outstanding as of the close of business on October
26, 1993, which continue to be outstanding as of the close of business on
__________, 1997).
Concurrently with the Subscription Offering, any Conversion Shares 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 first to Public Stockholders as of the close of business on the Voting
Record Date (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons residing in the Local Community. Conversion Shares 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 fully extended Subscription Offering unless extended by the Savings Bank 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 Savings Bank will consult with the regulatory authorities to
determine an appropriate alternative method for selling the unsubscribed
Conversion Shares. The Plan of Conversion provides that the Conversion and
Reorganization must be completed within 24 months after the date of the approval
of the Plan of Conversion by the members of the MHC.
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 MHC and the stockholders of
the Savings Bank.
The completion of the Conversion Offerings, however, is subject to
market conditions and other factors beyond the Savings Bank's control. No
assurance can be given as to the length of time after approval of the Plan of
Conversion at the Special Members Meeting and the Stockholders Meeting that will
be required to complete the Direct Community or Syndicated Community Offerings
or other sale of the Conversion Shares. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Savings Bank, as converted, together with corresponding changes in the net
proceeds realized by the Holding Company from the sale of the Conversion Shares.
If the Conversion and Reorganization is terminated, the Savings Bank would be
required to charge all Conversion and Reorganization expenses against current
income.
Orders for Conversion Shares will not be filled until at least
1,466,250 Conversion Shares have been subscribed for or sold and the OTS
approves the final valuation and the Conversion and Reorganization closes. If
the Conversion and Reorganization 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 and Reorganization, 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 Savings Bank's passbook rate from the date payment
is received until
5
<PAGE>
the funds are returned to the subscriber. If such period is not extended, or,
in any event, if the Conversion and Reorganization is not completed, all
withdrawal authorizations will be terminated and all funds held will be promptly
returned together with accrued interest at the Savings Bank's passbook rate from
the date payment is received until the Conversion and Reorganization is
terminated.
PURPOSES OF CONVERSION AND REORGANIZATION
The MHC, as a federally chartered mutual holding company, does not
have stockholders and has no authority to issue capital stock. As a result of
the Conversion and Reorganization, the Holding Company will be structured in the
form used by holding companies of commercial banks, most business entities and a
growing number of savings institutions. The holding company form of
organization will provide the Holding Company with the ability to diversify the
Holding Company's and the Savings Bank's business activities through acquisition
of or mergers with both stock savings institutions and commercial banks, as well
as other companies. Although there are no current arrangements, understandings
or agreements regarding any such opportunities, the Holding Company will be in a
position after the Conversion and Reorganization, subject to regulatory
limitations and the Holding Company's financial position, to take advantage of
any such opportunities that may arise.
In their decision to pursue the Conversion and Reorganization, the
Board of Directors of the MHC and the Savings Bank considered various regulatory
uncertainties associated with the mutual holding company structure including the
ability to waive dividends in the future as well as the general uncertainty
regarding a possible elimination of the federal savings association charter.
The Conversion and Reorganization will be important to the future
growth and performance of the holding company organization by providing a larger
capital base to support the operations of the Savings Bank and Holding Company
and by enhancing their future access to capital markets, their ability to
diversify into other financial services related activities, and their ability to
provide services to the public. Since the MHC's ownership interest in the
Savings Bank is 53.03% as of the date of the Prospectus, the Savings Bank
currently does not have the ability to raise additional capital through the sale
of additional shares of Savings Bank Common Stock because OTS regulations
require that the MHC hold a majority of the outstanding shares of Savings Bank
Common Stock.
The Conversion and Reorganization also will result in an increase in
the number of shares of Common Stock to be outstanding as compared to the number
of outstanding shares of Public Savings Bank Shares which will increase the
likelihood of the development of an active and liquid trading market for the
Common Stock. In addition, the Conversion and Reorganization permit the Holding
Company to engage in stock repurchases without adverse federal income tax
consequences, unlike the Savings Bank. Currently, the Holding Company has no
plans or intentions to engage in any stock repurchases.
An additional benefit of the Conversion and Reorganization will be an
increase in the accumulated earnings and profits of the Savings Bank for federal
income tax purposes. When the Savings Bank (as a mutual institution)
transferred substantially all of its assets and liabilities to its stock savings
bank successor in the MHC Reorganization, its accumulated earnings and profits
tax attribute was not able to be transferred to the Savings Bank because no tax-
free reorganization was involved. Accordingly, this tax attribute was retained
by the Savings Bank when it converted its charter to that of the MHC, even
though the underlying retained earnings were transferred to the Savings Bank.
The Conversion and Reorganization has been structured to re-unite the
accumulated earnings and profits tax attribute retained by the MHC in the MHC
Reorganization with the retained earnings of the Savings Bank by merging the MHC
with and into the Savings Bank in a tax-free reorganization. This transaction
will increase the Savings Bank's ability to pay dividends to the Holding Company
in the future.
If the Savings Bank had undertaken a standard conversion involving the
formation of a stock holding company in 1993, applicable OTS regulations would
have required a greater amount of common stock to be sold than the amount of net
proceeds raised in the MHC Reorganization. Management believed that it was
advisable to profitably invest the $946,000 of net proceeds raised in the MHC
Reorganization and the $10.7 million of net
6
<PAGE>
proceeds raised in the Additional Offering prior to raising the larger amount of
capital that would have been raised in a standard conversion. A standard
conversion in 1993 also would have immediately eliminated all aspects of the
mutual form of organization.
In light of the foregoing, the Boards of Directors of the Primary
Parties believe that the Conversion and Reorganization is in the best interests
of the MHC and the Savings Bank, their respective members and stockholders, and
the communities served by the Savings Bank.
EFFECTS OF CONVERSION AND REORGANIZATION ON DEPOSITORS AND BORROWERS OF THE
SAVINGS BANK
GENERAL. Prior to the Conversion and Reorganization, each depositor
in the Savings Bank has both a deposit account in the institution and a pro rata
ownership interest in the net worth of the MHC based upon the balance in his or
her account, which interest may only be realized in the event of a liquidation
of the MHC. However, this ownership interest is tied to the depositor's account
and has no tangible market value separate from such deposit account. A
depositor who reduces or closes his or her account receives a portion or all of
the balance in the account but nothing for his or her ownership interest in the
net worth of the MHC, which is lost to the extent that the balance in the
account is reduced.
Consequently, the depositors of the Savings Bank normally have no way
to realize the value of their ownership interest in the MHC, which has
realizable value only in the unlikely event that the MHC is liquidated. In such
event, the depositors of record at that time, as owners, would share pro rata in
any residual surplus and reserves of the MHC after other claims are paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of the
net worth of the Holding Company. The Common Stock is separate and apart from
deposit accounts and cannot be and is not insured by the FDIC or any other
governmental agency. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit and/or loan account(s) the seller may hold in the Savings Bank.
CONTINUITY. The Conversion and Reorganization will not interrupt the
Savings Bank's normal business of accepting deposits and making loans. The
Savings Bank will continue to be subject to regulation by the OTS and the FDIC.
After the Conversion and Reorganization, the Savings Bank will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.
The directors and officers of the Savings Bank at the time of the
Conversion and Reorganization will continue to serve as directors and officers
of the Savings Bank after the Conversion and Reorganization. The directors and
officers of the Holding Company consist of individuals currently serving as
directors and officers of the MHC and the Savings Bank, and they generally will
retain their positions in the Holding Company after the Conversion and
Reorganization.
EFFECT ON PUBLIC SAVINGS BANK SHARES. Under the Plan of Conversion,
upon consummation of the Conversion and Reorganization, the Public Savings Bank
Shares shall be converted into Exchange Shares based upon the Exchange Ratio
without any further action on the part of the holder thereof. Upon surrender of
the Public Savings Bank Shares, Common Stock will be issued in exchange for such
shares. See "-- Delivery and Exchange of Stock Certificates."
Upon consummation of the Conversion and Reorganization, the Public
Stockholders will become stockholders of the Holding Company. For a description
of certain changes in the rights of stockholders as a result of the Conversion
and Reorganization.
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VOTING RIGHTS. Presently, depositors and borrowers of the Savings
Bank are members of, and have voting rights in, the MHC as to all matters
requiring membership action. Upon completion of the Conversion and
Reorganization, the MHC will cease to exist and all voting rights in the Savings
Bank will be vested in the Holding Company as the sole stockholder of the
Savings Bank. Exclusive voting rights with respect to the Holding Company will
be vested in the holders of Common Stock. Depositors and borrowers of the
Savings Bank will not have voting rights in the Holding Company after the
Conversion and Reorganization, except to the extent that they become
stockholders of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Savings Bank's savings accounts,
account balances and existing FDIC insurance coverage of savings accounts will
not be affected by the Conversion and Reorganization. Furthermore, the
Conversion and Reorganization will not affect the loan accounts, loan balances
or obligations of borrowers under their individual contractual arrangements with
the Savings Bank.
TAX EFFECTS. The Savings Bank has received an opinion from Breyer &
Aguggia, Washington, D.C., that the Conversion and Reorganization will
constitute a nontaxable reorganization under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended ("Code"). Among other things, the
opinion provides that: (i) the conversion of the MHC from a mutual holding
company to a federally-chartered interim stock savings bank (i.e., Interim A)
----
and its simultaneous merger with and into the Savings Bank, with the Savings
Bank as the surviving entity will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Code, (ii) no gain or loss will be recognized by
the Savings Bank upon the receipt of the assets of the MHC in such merger, (iii)
the merger of Interim B with and into the Savings Bank, with the Savings Bank as
the surviving entity, will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, (iv) no gain or loss will be recognized by
Interim B upon the transfer of its assets to the Savings Bank, (v) no gain or
loss will be recognized by the Savings Bank upon the receipt of the assets of
Interim B, (vi) no gain or loss will be recognized by the Holding Company upon
the receipt of Savings Bank Common Stock solely in exchange for Common Stock,
(vii) no gain or loss will be recognized by the Public Stockholders upon the
receipt of Exchange Shares in exchange for their Public Savings Bank Shares,
(viii) the basis of the Exchange Shares to be received by the Public
Stockholders will be the same as the basis of the Public Savings Bank Shares
surrendered in exchange therefor, before giving effect to any payment of cash in
lieu of fractional Exchange Shares, (ix) the holding period of the Exchange
Shares to be received by the Public Stockholders will include the holding period
of the Public Savings Bank Shares, provided that the Public Savings Bank Shares
were held as a capital asset on the date of the exchange, (x) no gain or loss
will be recognized by the Holding Company upon the sale of shares of Conversion
Shares in the Conversion Offerings, (xi) the Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members will recognize gain, if
any, upon the issuance to them of withdrawable savings accounts in the Savings
Bank following the Conversion and Reorganization, interests in the liquidation
account and nontransferable subscription rights to purchase Conversion Stock,
but only to the extent of the value, if any, of the subscription rights, and
(xii) the tax basis to the holders of Conversion Shares purchased in the
Conversion Offerings will be the amount paid therefor, and the holding period
for the Conversion Shares will begin on the date of consummation of the
Conversion Offerings, if purchased through the exercise of Subscription Rights,
and on the day after the date of purchase, if purchased in the Community
Offering or the Syndicated Community Offering. 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. ("RP Financial") a financial consulting
firm retained by the Savings Bank, whose findings are not binding on the IRS,
has issued a letter indicating 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
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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 Savings Bank 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 Savings Bank has also received an opinion from Evans, Carter,
Kunes & Bennett, P.C., Charleston, South Carolina, that, assuming the Conversion
and Reorganization does not result in any federal income tax liability to the
Savings Bank, its account holders, or the Holding Company, implementation of the
Plan of Conversion will not result in any South Carolina tax liability to such
entities or persons.
The opinions of Breyer & Aguggia and Evans, Carter, Kunes & Bennett,
P.C. and the letter from RP Financial are filed as exhibits to the Registration
Statement.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION AND REORGANIZATION PARTICULAR
TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation
of the MHC, each depositor of the Savings Bank would receive his or her pro rata
share of any assets of the MHC remaining after payment of claims of all
creditors. Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his or her deposit account was to the total
value of all deposit accounts in the Savings Bank at the time of liquidation.
After the Conversion and Reorganization, each depositor, in the event of a
complete liquidation of the Savings Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Savings Bank. However, except as described below, his or her claim would be
solely in the amount of the balance in his or her deposit account plus accrued
interest. Each stockholder would not have an interest in the value or assets of
the Savings Bank or the Holding Company above that amount.
The Plan of Conversion provides for the establishment, upon the
completion of the Conversion and Reorganization, of a special "liquidation
account" for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in an amount equal to the amount of any dividends waived by the
MHC plus the greater of (i) the Savings Bank's retained earnings of $12.9
million at March 31, 1993, the date of the latest statement of financial
condition contained in the final offering circular utilized in the MHC
Reorganization, or (ii) 53.02% of the Savings Bank's total stockholders' equity
as reflected in its latest statement of financial condition contained in the
final Prospectus utilized in the Conversion Offerings. As of the date of the
Prospectus, the initial balance of the liquidation account would be $____
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he or she were to continue to maintain his or her deposit account at the
Savings Bank, would be entitled, upon a complete liquidation of the Savings Bank
after the Conversion and Reorganization to an interest in the liquidation
account prior to any payment to the Holding Company as the sole stockholder of
the Savings Bank. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including passbook accounts, transaction accounts such as
checking accounts, money market deposit accounts and certificates of deposit,
held in the Savings Bank at the close of business on June 30, 1996 or December
31, 1997, as the case may be. Each Eligible Account Holder and Supplemental
Eligible Account Holder will have a pro rata interest in the total liquidation
account for each of his or her deposit accounts based on the proportion that the
balance of each such deposit account on the Eligibility Record Date (June 30,
1996) or the Supplemental Eligibility Record Date (December 31, 1997), as the
case may be, bore to the balance of all deposit accounts in the Savings Bank on
such date.
If, however, on any September 30 annual closing date of the Savings
Bank, commencing September 30, 1998, the amount in any deposit account is less
than the amount in such deposit account on June 30, 1996 or December 31, 1997,
as the case may be, or any other annual closing date, then the interest in the
liquidation account
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relating to such deposit account would be reduced by the proportion of any such
reduction, and such interest will cease to exist if such deposit account is
closed. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related deposit account. Any
assets remaining after the above liquidation rights of Eligible Account Holders
and Supplemental Eligible Account Holders are satisfied would be distributed to
the Holding Company as the sole stockholder of the Savings Bank.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable Subscription Rights to purchase the Conversion Shares have been
issued to persons and entities entitled to purchase the Conversion Shares in the
Subscription Offering. The amount of Conversion Shares which these parties may
purchase will be subject to the availability of the Conversion Shares 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 Conversion Shares are available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or
more on deposit at the Savings Bank as of the close of business on June 30, 1996
will receive nontransferable Subscription Rights to subscribe for up to 50,000
Conversion Shares, one-tenth of one percent of the total offering of Conversion
Shares or 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of Conversion Shares 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, Conversion Shares 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 Savings Bank in the one year period preceding June 30, 1996 are
subordinated to the Subscription Rights of other Eligible Account Holders.
Category 2: Supplemental Eligible Account Holders. Each depositor
with $50.00 or more on deposit as of the close of business on December 31, 1997
will receive nontransferable Subscription Rights to subscribe for up to the
greater of 50,000 Conversion Shares, 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 Conversion Shares 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, Conversion Shares 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.
Category 3: Other Members. Each depositor of the Savings Bank as of
the close of business on the Voting Record Date (___________, 1998) and each
borrower with a loan outstanding as of the close of business on October 26,
1993, which continues to be outstanding as of the close of business on the
Voting Record Date, will receive nontransferable Subscription Rights to purchase
up 50,000 Conversion Shares to the extent shares are available following
subscriptions by Eligible Account Holders 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.
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<PAGE>
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 SAVINGS BANK AND THE HOLDING COMPANY.
The Holding Company and the Savings Bank 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 Noon, Eastern Time, on the
Expiration Date, whether or not the Savings Bank 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 SAVINGS BANK AFTER THE EXPIRATION
DATE WILL NOT BE ACCEPTED. The Subscription Offering may be extended by the
Holding Company and the Savings Bank up to ______, 1998 without the OTS's
approval. OTS regulations require that the Holding Company complete the sale of
Conversion Shares within 45 days after the close of the Subscription Offering.
If the Direct Community Offering and the Syndicated Community Offerings are not
completed by __________, 1998 (or ___________, 1998, if the Subscription
Offering is fully extended), all funds received will be promptly returned with
interest at the Savings Bank'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. Concurrently with the Subscription
Offering, Conversion Shares will be offered by the Holding Company to certain
members of the general public in a Direct Community Offering, with preference
given first to Public Stockholders as of the close of business on the Voting
Record Date (who are not eligible to subscribe for Conversion Shares in the
Subscription Offering) and then 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 50,000 Conversion Shares. 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 will terminate on the Expiration Date, unless extended by the Holding
Company and the Savings Bank, with approval of the OTS. Any extensions beyond
45 days after the close of the fully extended 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 Savings Bank may be, given the
opportunity to continue their orders, in which case they will need to reconfirm
affirmatively their subscriptions prior to the expiration of the resolicitation
offering or their subscription funds will be promptly refunded with interest at
the Savings Bank'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 SAVINGS
BANK 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 AND REORGANIZATION.
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 and all funds submitted pursuant to the Direct Community
Offering will be promptly refunded with interest.
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SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that
all shares of Common Stock not purchased in the Subscription Offering and Direct
Community Offering 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 Sandler O'Neill acting as agent of the Holding
Company. THE HOLDING COMPANY AND THE SAVINGS BANK HAVE THE RIGHT TO REJECT
ORDERS, IN WHOLE OR PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED COMMUNITY
OFFERING. Neither Sandler O'Neill 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, Sandler O'Neill has agreed to use its
best efforts in the sale of shares in the Syndicated Community Offering.
Conversion Shares sold in the Syndicated Community Offering also will
be sold at the $20.00 Purchase Price. See "-- Stock Pricing, Exchange Ratio and
Number of Shares to be Issued." No person will be permitted to subscribe for
more than 50,000 Conversion Shares in the Syndicated Community Offering. See "-
- - Plan of Distribution and Selling Commissions" for a description of the
commission to be paid to the selected dealers and to Sandler O'Neill.
Sandler O'Neill 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 Sandler O'Neill 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 and Reorganization, Sandler O'Neill 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 Savings Bank's
passbook rate until the completion of the Conversion Offerings. At the
completion of the Conversion and Reorganization, the funds received in the
Conversion Offerings will be used to purchase the shares of Common Stock
ordered. The shares issued in the Conversion and Reorganization cannot and will
not be insured by the FDIC or any other government agency. In the event the
Conversion and Reorganization 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 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
Savings Bank, with approval of the OTS.
In the event the Savings Bank 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 Savings Bank, 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 beyond the date on which the members
approved the Plan of Conversion. If the Conversion and Reorganization 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
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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 Savings
Bank 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
Savings Bank 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 Savings Bank 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
Savings Bank 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 Savings Bank 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 AND SELLING COMMISSIONS
The Primary Parties have engaged Sandler O'Neill as a financial and
marketing advisor in connection with the Offering, and Sandler O'Neill has
agreed to use its best efforts to assist the Holding Company with the
solicitation of subscriptions and purchase orders for Conversion Shares in the
Conversion Offerings. The services to be rendered by Sandler O'Neill include
the following: (i) consulting as to the securities marketing implications of any
aspect of the Plan of Conversion or related corporate documents; (ii) reviewing
with the Board of Directors RP Financial's appraisal of the aggregate pro forma
market value of the MHC and the Savings Bank, as converted; (iii) reviewing all
offering documents, including the Prospectus, stock order forms and related
offering materials; (iv) assisting in the design and implementation of a
marketing strategy for the Conversion Offerings; (v) assisting in obtaining all
requisite regulatory approvals, (vi) assisting management in scheduling and
preparing for meetings with potential investors and broker-dealers; and (vii)
providing such other general advice and assistance as may be requested to
promote the successful completion of the Conversion Offerings. In addition,
Sandler O'Neill will manage the Syndicated Community Offering, if necessary.
The engagement of Sandler O'Neill and the services performed thereunder,
including any "due diligence" investigation of the operations of the Primary
Parties, should not be construed as an endorsement or recommendation of the
suitability of an investment in the Common Stock or a verification of the
accuracy or completeness of the information contained herein. Sandler O'Neill
has not prepared any report or opinion constituting a recommendation or advice
to the Primary Parties or to persons who may purchase Conversion Shares
regarding the suitability of an investment in the Common Stock or as to the
prices at which the Common Stock may trade after the consummation of the
Conversion and Reorganization.
Based upon negotiations between the Primary Parties and Sandler
O'Neill, Sandler O'Neill will receive a fee equal to 1.50% of the aggregate
purchase price of Conversion Shares sold in the Subscription and Community
Offerings. No fees will be paid to Sandler O'Neill on subscriptions by any
director, officer or employee of the Primary Parties or members of their
immediate families. In the event that a selected dealers agreement is entered
into in connection with a Syndicated Community Offering, the Primary Parties
will pay a fee to such selected dealers, any sponsoring dealer's fees, and a
management fee to Sandler O'Neill of 1.75% for shares sold by a National
Association of Securities Dealers, Inc. ("NASD") member firm, other than Sandler
O'Neill, pursuant to a selected dealers agreement; provided, however, that any
fees payable to Sandler O'Neill for any Conversion Shares sold by them pursuant
to such a selected dealers agreement shall not exceed 1.75% of the aggregate
purchase price of such shares and that the aggregate fees payable to Sandler
O'Neill and selected dealers shall not exceed 7.0% of the aggregate purchase
price of such shares. Sandler O'Neill will also be reimbursed for its
reasonable out-of-pocket
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expenses, including legal fees, for these services, in an amount not to exceed
$75,000. Notwithstanding the foregoing, in the event the Conversion Offerings
are not consummated or Sandler O'Neill ceases, under certain circumstances after
the subscription solicitation activities are commenced, to provide assistance to
the Primary Parties, Sandler O'Neill will be entitled to be reimbursed for its
reasonable out-of-pocket expenses as described above. The Primary Parties have
agreed to indemnify Sandler O'Neill in connection with certain claims or
liabilities, including certain liabilities under the Securities Act. Sandler
O'Neill has received advances towards its fees totalling $25,000. Total
marketing fees to Sandler O'Neill are expected to be $428,625, $506,250,
$583,875 and $673,145 at the minimum, midpoint, maximum, and 15% above the
maximum of the Estimated Valuation Range, respectively.
The management and employees of the Primary Parties may participate in
the Conversion Offerings in clerical capacities, providing administrative
support in effecting sales transactions or answering questions of a mechanical
nature relating to the proper execution of the order form. Management of the
Primary Parties may answer questions regarding the respective businesses of the
Primary Parties. 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 Primary Parties
have been instructed not to solicit offers to purchase Conversion Shares or to
provide advice regarding the purchase of Conversion Shares. None of the Primary
parties' employees or directors who participate in the Conversion Offerings will
receive any special compensation or other remuneration for such activities.
None of the Primary Parties' personnel participating in the
Subscription and Community Offering are registered or licensed as a broker or
dealer or an agent of a broker or dealer. The Primary Parties' 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 Securities Exchange Act of 1934, as amended ("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.
Order Forms will only be distributed with a Prospectus. The Savings Bank will
accept for processing only orders submitted on original Order Forms. The
Savings Bank is not obligated to accept orders submitted on photocopied or
telecopied Order Forms. ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE
EXECUTION OF THE CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE 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 Savings Bank (which may be given by completing the
appropriate blanks in the Order Form), must be received by the Savings Bank by
Noon, 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 Savings Bank 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 Savings Bank 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 Order Form,
accompanied by the required payment
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for each share subscribed for, must be received by the Savings Bank prior to the
time the Direct Community Offering terminates, which may be on or 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 Savings Bank
unless the Conversion and Reorganization 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 close of business on the
Eligibility Record Date (June 30, 1996) and/or the Supplemental Eligibility
Record Date (December 31, 1997) and/or the Voting Record Date (___________,
1998) 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 Stock Information Center, (ii) by check, bank draft, or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Savings Bank. 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 Savings Bank's passbook rate from the date payment is received until the
completion or termination of the Conversion and Reorganization. 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 and
Reorganization (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 and
Reorganization), but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the Conversion
and Reorganization. At the completion of the Conversion and Reorganization, the
funds received in the Conversion Offerings will be used to purchase the shares
of Common Stock ordered. THE SHARES OF COMMON STOCK ISSUED IN THE CONVERSION
AND REORGANIZATION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY. If the Conversion and Reorganization is not consummated for
any reason, all funds submitted will be promptly refunded with interest as
described above.
If a subscriber authorizes the Savings Bank to withdraw the amount of
the aggregate Purchase Price from his or her deposit account, the Savings Bank
will do so as of the effective date of Conversion and Reorganization, though the
account must contain the full amount necessary for payment at the time the
subscription order is received. The Savings Bank 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 Savings
Bank's passbook rate.
Individual retirement accounts ("IRAs") maintained in the Savings Bank
do not permit investment in the Common Stock. A depositor interested in using
his or her IRA funds to purchase Common Stock must do so through a self-directed
IRA. Since the Savings Bank 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 Conversion Shares. There will be no early withdrawal or IRS
interest penalties for such transfers. The new trustee would hold the
Conversion Shares in a self-directed account in the same manner as the Savings
Bank now holds the depositor's IRA funds. An annual administrative fee may be
payable to the new trustee. Depositors interested in using funds in a Savings
Bank 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.
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STOCK PRICING, EXCHANGE RATIO AND NUMBER OF SHARES TO BE ISSUED
The Plan of Conversion requires that the purchase price of the
Conversion Shares must be based on the appraised pro forma market value of the
Conversion Shares, as determined on the basis of an independent valuation. The
Primary Parties have retained RP Financial to make such valuation. For its
services in making such appraisal and any expenses incurred in connection
therewith, RP Financial will receive a maximum fee of $30,000 plus out-of-pocket
expenses, together with a fee of no greater than $7,500 plus out-of-pocket
expenses for the preparation of a business plan and other services performed in
connection with the Holding Company's holding company application to the OTS.
The Primary Parties have agreed to indemnify RP Financial and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where RP Financial's liability results from its negligence or
bad faith.
The appraisal has been prepared by RP Financial in reliance upon the
information contained in this Prospectus, including the Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the
Primary Parties and the economic and demographic conditions in the Savings
Bank's existing market area; certain historical, financial and other information
relating to the Savings Bank; a comparative evaluation of the operating and
financial statistics of the Savings Bank with those of other similarly situated
publicly-traded companies located in South Carolina and other regions of the
United States; the aggregate size of the offering of the Conversion Shares; the
impact of the Conversion and Reorganization on the Savings Bank's capital and
earnings potential; the proposed dividend policy of the Holding Company and the
Savings Bank; and the trading market for the Savings Bank Common Stock and
securities of comparable companies and general conditions in the market for such
securities.
On the basis of the foregoing, RP Financial has advised the Primary
Parties in its opinion that the estimated pro forma market value of the MHC and
the Savings Bank, as converted, was $65.1 million as of December 5, 1997.
Because the holders of the Public Savings Bank Shares will continue to hold the
same aggregate percentage ownership interest in the Holding Company as they
currently hold in the Savings Bank (before giving effect to the payment of cash
in lieu of issuing fractional Exchange Shares and any Conversion Shares
purchased by the Savings Bank's stockholder in the Conversion Offerings), the
appraisal was multiplied by 53.02%, which represents the MHC's percentage
interest in the Savings Bank. The resulting amount represents the midpoint of
the valuation ($65.1 million), and the minimum and maximum of the valuation were
set at 15% below and above the midpoint, respectively, resulting in a range of
$55.3 million to $74.8 million. The Boards of Directors of the Primary Parties
determined that the Conversion Shares would be sold at $20.00 per share,
resulting in a range of 1,466,250 to 1,983,750 Conversion Shares being offered.
Upon consummation of the Conversion and Reorganization, the Conversion Shares
and the Exchange Shares will represent approximately 53.02% and 46.98%,
respectively, of the Holding Company's total outstanding shares. The Boards of
Directors of the Primary Parties reviewed RP Financial's appraisal report,
including the methodology and the assumptions used by RP Financial, and
determined that the Estimated Valuation Range was reasonable and adequate. The
Boards of Directors of the Primary Parties also established the formula for
determining the Exchange Ratio. Based upon such formula and the Estimated
Valuation Range, the Exchange Ratio ranged from a minimum of 1.83281 to a
maximum of 2.47969 Exchange Shares for each Public Savings Bank Shares, with a
midpoint of 2.15625. Based upon these Exchange Ratios, the Holding Company
expects to issue between 1,299,231 and 1,757,783 shares of Exchange Shares to
the holders of Public Savings Bank Shares outstanding immediately prior to the
consummation of the Conversion and Reorganization. The Estimated Valuation
Range and the Exchange Ratio may be amended with the approval of the OTS, if
required, or if necessitated by subsequent developments in the financial
condition of any of the Primary Parties or market conditions generally. If the
appraisal is updated to below $55.3 million or above $86.1 million (the maximum
of the Estimated Valuation Range, as adjusted by 15%), such appraisal will be
filed with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Holding Company receives
orders for Conversion Shares in excess of $39.7 million (the maximum of the
Estimated Valuation Range) and up to $45.6 million (the maximum of the Estimated
Valuation Range, as adjusted
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by 15%), the Holding Company may be required by the OTS to accept all such
orders. No assurances, however, can be made that the Holding Company will
receive orders for Conversion Shares in excess of the maximum of the Estimated
Valuation Range or that, if such orders are received, that all such orders will
be accepted because the Holding Company's final valuation and number of shares
to be issued are subject to the receipt of an updated appraisal from RP
Financial which reflects such an increase in the valuation and the approval of
such increase by the OTS. There is no obligation or understanding on the part
of management to take and/or pay for any shares of Conversion Shares to complete
the Conversion Offerings.
RP Financial's valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing such
shares. RP Financial did not independently verify the Savings Bank's
Consolidated Financial Statements and other information provided by the Savings
Bank and the MHC, nor did RP Financial value independently the assets or
liabilities of the Savings Bank. The valuation considers the Savings Bank and
the MHC as going concerns and should not be considered as an indication of the
liquidation value of the Savings Bank and the MHC. Moreover, because such
valuation is necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons purchasing Conversion Shares or receiving Exchange Shares
in the Conversion and Reorganization will thereafter be able to sell such shares
at prices at or above the Purchase Price or in the range of the foregoing
valuation of the pro forma market value thereof.
No sale of Conversion Shares or issuance of Exchange Shares may be
consummated unless prior to such consummation RP Financial confirms that nothing
of a material nature has occurred which, taking into account all relevant
factors, would cause it to conclude that the Purchase Price is materially
incompatible with the estimate of the pro forma market value of a share of
Common Stock upon consummation of the Conversion and Reorganization. If such is
not the case, a new Estimated Valuation Range may be set, a new Exchange Ratio
may be determined based upon the new Estimated Valuation Range, a new
Subscription and Community Offering and/or Syndicated Community Offering or
Public Offering may be held or such other action may be taken as the Primary
Parties shall determine and the OTS may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of Conversion Shares
to be issued in the Conversion Offerings may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the Purchase Price is not below the minimum or more than 15% above
the maximum of the Estimated Valuation Range. In the event market or financial
conditions change so as to cause the aggregate Purchase Price of the shares to
be below the minimum of the Estimated Valuation Range or more than 15% above the
maximum of such range, purchasers will be resolicited (i.e., permitted 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 Savings
Bank's passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Any increase or decrease in the number of Conversion Shares
will result in a corresponding change in the number of Exchange Shares, so that
upon consummation of the Conversion and Reorganization, the Conversion Shares
and the Exchange Shares will represent approximately 53.02% and 46.98%,
respectively, of the Holding Company's total outstanding shares of Common Stock
(exclusive of the effects of the exercise of outstanding stock options).
An increase in the number of Conversion Shares as a result of an
increase in the appraisal of the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Holding Company's pro forma net
earnings and stockholders' equity on a per share basis while increasing pro
forma net earnings and stockholders' equity on an aggregate basis. A decrease in
the number of Conversion Shares would increase both a subscriber's ownership
interest and the Holding Company's pro forma net earnings and stockholders'
equity on a per share basis while decreasing pro forma net earnings and
stockholders' equity on an aggregate basis. See "PRO FORMA DATA."
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The appraisal report of RP Financial has been filed as an exhibit to
this Registration Statement and Application for Conversion of which this
Prospectus is a part and is available for inspection in the manner set forth
under "ADDITIONAL INFORMATION."
LIMITATIONS ON PURCHASES OF CONVERSION SHARES
The Plan of Conversion provides for certain limitations to be placed
upon the purchase of Common Shares by eligible subscribers and others in the
Conversion and Reorganization. Each subscriber must subscribe for a minimum of
25 Conversion Shares. The Plan of Conversion provides for the following
purchase limitations: (i) no person may purchase in either the Subscription
Offering, Direct Community Offering or Syndicated Community Offering more 50,000
Conversion Shares, (ii) no person, together with associates of or persons acting
in concert with such person, may purchase in either the Subscription Offering,
Direct Community Offering or Syndicated Community Offering more than 50,000
Conversion Shares, (iii) the maximum number of shares of Conversion Shares which
may be subscribed for or purchased in all categories in the Conversion and
Reorganization by any person, when combined with any Exchange Shares received,
shall not exceed 50,000 shares of Common Stock to be issued in the Conversion
and Reorganization, and (iv) the maximum number of shares of Conversion Shares
which may be subscribed for or purchased in all categories in the Conversion and
Reorganization by any person, together with any associate or any group of
persons acting in concert, when combined with any Exchange Shares received,
shall not exceed 50,000 shares of Common Stock to be issued in the Conversion
and Reorganization. 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.
BECAUSE OTS POLICY REQUIRES THAT THE MAXIMUM PURCHASE LIMITATION
INCLUDES EXCHANGE SHARES TO BE ISSUED TO PUBLIC STOCKHOLDERS IN EXCHANGE FOR
THEIR PUBLIC SAVINGS BANK SHARES, CERTAIN PUBLIC STOCKHOLDERS MAY BE LIMITED IN
THEIR ABILITY TO PURCHASE CONVERSION SHARES, OR EVEN PREVENTED FROM PURCHASING
CONVERSION SHARES.
The Boards of Directors of the Primary Parties may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the Conversion Shares sold in the Conversion and Reorganization, provided
that orders for shares which exceed 5% of the Conversion Shares sold in the
Conversion and Reorganization may not exceed, in the aggregate, 10% of the
shares sold in the Conversion and Reorganization. The Savings Bank 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
Conversion Shares will be, and other large subscribers in the discretion of the
Holding Company and the Savings Bank 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 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 Savings Bank or a
majority-owned subsidiary of the Savings Bank) 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
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who is a director or officer of the Savings Bank 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 Savings Bank, 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 Shares purchased pursuant to the Conversion and Reorganization
will be freely transferable, except for shares purchased by directors and
officers of the Savings Bank and the Holding Company and by NASD members. See
"-- Restrictions on Transferability by Directors and Officers and NASD Members."
DELIVERY AND EXCHANGE OF STOCK CERTIFICATES
CONVERSION STOCK. Certificates representing Conversion Shares will be
mailed by the Holding Company's transfer agent to the persons entitled thereto
at the addresses of such persons appearing on the Order Form as soon as
practicable following the consummation of the Conversion and Reorganization.
Any undeliverable certificates will be held by the Holding Company until claimed
by persons legally entitled thereto or otherwise disposed according to
applicable law. Purchasers of Conversion Shares may be unable to sell such
shares until certificates are available and delivered to them.
EXCHANGE SHARES. After the consummation of the Conversion and
Reorganization, each holder of a certificate(s) theretofore evidencing issued
and outstanding shares of Savings Bank Common Stock (other than the MHC), upon
surrender of the same to an agent, duly appointed by the Holding Company, which
is anticipated to be the transfer agent for the Common Stock ("Exchange Agent"),
shall be entitled to receive in exchange therefor a certificate(s) representing
the number of full Exchange Shares based on the Exchange Ratio. The Exchange
Agent shall mail a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to such certificate shall
pass, only upon delivery of such certificate to the Exchange Agent) advising
such holder of the terms of the Exchange Offering and the procedure for
surrendering to the Exchange Agent such certificates in exchange for a
certificate(s) evidencing Common Stock. THE SAVINGS BANK STOCKHOLDERS SHOULD
NOT FORWARD SAVINGS BANK COMMON STOCK CERTIFICATES TO THE SAVINGS BANK OR THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED THE TRANSMITTAL LETTER.
No holder of a certificate theretofore representing shares of Savings
Bank Common Stock shall be entitled to receive any dividends on the Common
Stock until the certificate representing such shares is surrendered in exchange
for certificates representing shares of Common Stock. In the event that
dividends are declared and paid by the Holding Company in respect of Common
Stock after the consummation of the Conversion and Reorganization, but before
surrender of certificates representing shares of Savings Bank Common Stock,
dividends payable in respect of shares of Common Stock not then issued shall
accrue (without interest). Any such dividends shall be paid (without interest)
upon surrender of the certificates representing such shares of Savings Bank
Common Stock. After the consummation of the Conversion and Reorganization, the
Holding Company shall be entitled to treat certificates representing shares of
Savings Bank Common Stock as evidencing ownership of the number of full shares
of Common Stock into which the shares of Savings Bank Common Stock represented
by such certificates shall have been converted, notwithstanding the failure on
the part of the holder thereof to surrender such certificates.
The Holding Company shall not be obligated to deliver a certificate(s)
representing shares of Common Stock to which a holder of Savings Bank Common
Stock would otherwise be entitled as a result of the Conversion and
Reorganization until such holder surrenders the certificate(s) representing the
shares of Savings Bank Common Stock for exchange as provided above, or, in
default thereof, an appropriate affidavit of loss and indemnity agreement and/or
a bond as may be required in each case by the Holding Company. If any
certificate evidencing shares of Common Stock is to be issued in a name other
than that in which the certificate evidencing Savings Bank Common
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Stock surrendered in exchange therefor is registered, it shall be a condition of
the issuance thereof that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange pay to the Exchange Agent any transfer or other tax
required by reason of the issuance of a certificate for shares of Common Stock
in any name other than that of the registered holder of the certificate
surrendered or otherwise establish to the satisfaction of the Exchange Agent
that such tax has been paid or is not payable.
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 of any 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. 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. Any
repurchases of common stock by the Holding Company would be subject to these
regulatory restrictions unless the OTS would provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of Common Stock purchased in the Conversion Offerings by
directors and officers of the Holding Company may not be sold for a period of
one year following consummation of the Conversion and Reorganization, 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 Employee Stock
Ownership Plan ("ESOP") or the Management Recognition Plan ("MRP") or upon
exercise of options issued pursuant to the Stock Option Plan or purchased
subsequent to the Conversion and Reorganization 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 Savings Bank after adoption of the Plan of Conversion and
Reorganization) and their associates during the three-year period following
Conversion and Reorganization 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 for the registration of the Common Stock to be issued
pursuant to the Conversion and Reorganization. The registration under the
Securities Act of shares of the Common Stock to be issued in the Conversion and
Reorganization 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
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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.
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby are
estimated to range from $29.3 million to $39.7 million, or up to $45.6 million
if the Estimated Valuation Range is increased by 15%. The Holding Company has
received conditional OTS approval to purchase all of the capital stock of the
Savings Bank to be issued in the Conversion and Reorganization in exchange for
50% of the net proceeds of the Conversion Offerings. This will result in the
Holding Company retaining approximately $14.2 million to $19.3 million of net
proceeds, or up to $22.2 million if the Estimated Valuation Range is increased
by 15%, and the Savings Bank receiving an equal amount.
Receipt of 50% of the net proceeds of the sale of the Common Stock
will increase the Savings Bank's capital and will support the expansion of the
Savings Bank's existing business activities. The Savings Bank will use the
funds contributed to it for general corporate purposes, including, initially,
lending and investment in short-term U.S. Government and agency obligations and
mortgage-backed securities.
The net proceeds retained by the Holding Company initially will be
invested primarily in short-term U.S. Government and agency obligations and
mortgage-backed securities or in a deposit account either at the Savings Bank or
another financial institution. Such proceeds will be available for additional
contributions to the Savings Bank 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 also use a portion of the net proceeds retained by it to
refinance the ESOP's third party loan, which had an outstanding balance of
$804,000 at September 30, 1997.
The Holding Company will consider exploring opportunities to use such
funds to expand operations through acquiring or establishing additional branch
offices or acquiring other financial institutions. In addition, the Holding
Company may consider exploring opportunities to expand into non-traditional
lines of business, such as securities brokerage, insurance agency and real
estate development activities, to the extent permitted by applicable law.
Currently, there are no specific plans, arrangements, agreements or
understandings, written or oral, regarding any diversification activities.
Following consummation of the Conversion and Reorganization, the
Holding Company's 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
21
<PAGE>
and the Savings Bank 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 Savings Bank'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 with respect thereto.
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, at the first annual meeting of stockholders following the
consummation of the Conversion and Reorganization. The Holding Company's Board
of Directors consists of seven persons, divided into three classes, each of
which will contain approximately one third of the Board. One class will have a
term of office expiring at the first annual meeting of stockholders; a second
class will have a term of office expiring at the second annual meeting of
stockholders; and a third class will have 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
---- --------
Cordes G. Seabrook, Jr. Chairman of the Board
Robert W. Orr President and Chief Executive Officer
Thomas C. Hall Treasurer and Chief Financial Officer
Barry C. Visioli Senior Vice President
Sylvia B. Reed Corporate Secretary
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 SAVINGS BANK -- Biographical
Information."
MANAGEMENT OF THE SAVINGS BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Savings Bank is presently composed of nine
members who are elected for terms of three years, approximately one-third of
whom are elected annually in accordance with the Bylaws of the Savings Bank.
The Savings Bank also has two non-voting Directors Emeriti. The executive
officers of the Savings Bank 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 Savings Bank, all of
whom will continue to serve as directors and executive officers of the Savings
Bank and the Holding Company.
DIRECTORS
<TABLE>
<CAPTION>
Director Current Term
Name Age (1) Position Since Expires
- ---- ------- -------- ----- -------
<S> <C> <C> <C> <C>
Harold A. "Drew" Pickens, Jr. 64 Chairman of Board 1977 1998
Robert W. "Lujack" Orr 49 President, Managing Officer 1989 1998
and a Director
</TABLE>
(continued on following page)
22
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS
Director Current Term
Name Age (1) Position Since Expires
- ---- ------- -------- ----- -------
<S> <C> <C> <C> <C>
Jack F. McIntosh 69 Director 1988 1999
Charles W. Fant, Jr. 71 Director 1977 1999
Cordes G. Seabrook, Jr. 70 Director 1976 1999
Richard C. Ballenger 49 Director 1996 1999
F. Stevon Kay 46 Director 1996 1999
Jim Gray Watson 68 Director 1976 1998
Martha S. Clamp 55 Director 1988 1997
J. Roy Martin, Jr. 79 Director Emeritus 1988 --
Wade A. Watson, Jr. 79 Director Emeritus 1989 --
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Thomas C. Hall 50 Senior Vice President - -
and Treasurer
Barry C. Visioli 49 Senior Vice President - -
Sylvia B. Reed 57 Corporate Secretary - -
- ----------------------
</TABLE>
(1) As of September 30, 1997.
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the Directors and
executive officers of the Savings Bank. Unless otherwise stated, each Director
and executive officer has held his or her current occupation for the last five
years. There are no family relationships among or between the Directors or
executive officers.
Harold A. "Drew" Pickens, Jr. is the owner of Harold A. Pickens and Sons,
Inc., with which he has been affiliated since 1956. Mr. Pickens serves as an
Elder at First Presbyterian Church.
Robert W. "Lujack" Orr has been employed by the Savings Bank since 1974 and
has held a variety of positions, such as Senior Vice President/Funds Acquisition
and Executive Vice President, prior to assuming his current position as
President and Managing Officer on January 1, 1991. Mr. Orr is a member of the
Board of the Community Financial Institutions of South Carolina and he is
Secretary of the America's Community Bankers Association. He is active in
numerous civic organizations, serving as President of the YMCA, on the Board of
Directors of the Chamber of Commerce, on the Board of Visitors of Anderson
College, and as an Elder of Central Presbyterian Church. Mr. Orr is a director
of First Trust, the mortgage banking company in which a service corporation
subsidiary of the Savings Bank has an equity investment.
Jack F. McIntosh is a partner in the law firm of McIntosh and Sherard,
Anderson, South Carolina, with which he has been affiliated for 35 years.
McIntosh and Sherard serves as General Counsel for the Savings Bank's wholly-
owned subsidiary, United Service, since 1984. Mr. McIntosh is also a member of
the Board of the Alzheimer's Association and of Medical University for South
Carolina.
Charles W. Fant, Jr. is a partner in the architectural firm of Fant & Fant
Architects, Anderson, South Carolina, with which he has been affiliated since
1956. Mr. Fant is also active in the community, serving as a Trustee of Connie
Maxwell Children's Home and on the Board of Adjustment and Appeals for both the
City of Anderson and Anderson County, South Carolina.
23
<PAGE>
Cordes G. Seabrook, Jr. is a partner in Value Systems, Gastonia, North
Carolina, an association management company. In this capacity, Mr. Seabrook is
the organizer and manager of the Textile Purchasing Association. Mr. Seabrook
is active in several community organizations, serving as a member of the Board
of Anderson Memorial Hospital, Anderson Area Arts Council, SCETV Endowment and
the Tri-County Tech Endowment. Mr. Seabrook is a minority stockholder and also
serves as a member of the Board of Directors of DS1, Greer, South Carolina, a
company that designs and manufactures security information systems.
Richard C. Ballenger is the President of City Glass Company and D&B Glass
Company, Inc., with which he has been affiliated since 1972. He serves as an
Elder at First Presbyterian Church, is a member of the Board of Directors of the
Anderson Rotary Club and is on the Advisory Board of the Salvation Army.
F. Stevon Kay is the President of Hill Electric Company, Inc., with which
he has been affiliated since 1969. He is a Board member of the Salvation Army
Boys and Girls Club and the President of the Anderson Youth Association. He
attends Concord Baptist Church.
Jim Gray Watson, the Savings Bank's former President and Chief Executive
Officer, was employed by the Savings Bank for 31 years prior to his retirement
in December 1990. Mr. Watson is also involved in numerous charitable and
community organizations.
Martha C. Clamp, a certified public accountant, was employed for six years
as a staff accountant for the accounting firm of Cole, Hook & Cleary, CPAs,
Anderson, South Carolina, and has been self-employed as an accountant since
1988. Ms. Clamp also serves as the Treasurer of the Foothills Sertoma Club, a
member of the Board of the Anderson County Easter Seals and the Anderson College
Alumni Board and as a Panel Allocation member of the United Way.
J. Roy Martin, Jr. served as a member of the Savings Bank's Board of
Directors from 1970 until 1988. Since 1988, Mr. Martin has served as a Director
Emeritus of the Savings Bank.
Wade A. Watson, Jr. served as a member of the Savings Bank's Board of
Directors from 1960 until 1989. Mr. Watson has served as a Director Emeritus of
the Savings Bank since 1989. Mr. Watson is the brother of the Savings Bank's
former President and Chief Executive Officer, Jim Gray Watson.
Thomas C. Hall has been employed by the Savings Bank since 1975 and
currently serves as Senior Vice President, Treasurer and Chief Financial Officer
responsible for areas of accounting, investments, data processing and deposits.
Mr. Hall is a member of the Financial Managers Society, a Board member of the
Foothills United Way, a member of the Institute of Management Accountants, and a
Board member of the University of South Carolina Alumni Association, Anderson
Chapter.
Barry C. Visioli has been affiliated with the Savings Bank since 1973. Mr.
Visioli serves as Senior Vice President and is responsible for Lending
Operations. He is a Council Member of the Salvation Army Boys and Girls Club, a
Board Member of the Family Counseling Agency and serves on the Anderson County
Board of Assessment Appeals. Mr. Visioli is a director of First Trust, the
mortgage banking company in which a service corporation subsidiary of the
Savings Bank has an equity investment.
Sylvia B. Reed joined the Savings Bank in 1986 and currently serves as
Corporate Secretary. Ms. Reed is a member and Treasurer of the Anderson Chapter
of the American Business Women's Association, which furnishes college
scholarships for students. She is a member of the choir at Taylor Memorial
Church.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Savings Bank
and its subsidiaries at the dates and for the periods indicated. 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 the Prospectus.
<TABLE>
<CAPTION>
At September 30,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets.......................................... $256,993 $209,827 $178,304 $171,533 $168,308
Cash and interest-bearing deposits.................... 13,499 13,585 6,630 8,700 5,797
Investment in limited partnership(1).................. 5,004 -- -- -- --
Investment securities available for sale.............. 11,326 2,494 800 299 --
Mortgage-backed securities available for sale......... 35,863 43,125 46,344 50,064 12,742
Mortgage-backed securities held for investment........ -- -- -- -- 45,935
Loans receivable, net................................. 178,772 140,758 116,539 104,852 97,004
Deposits.............................................. 201,002 160,244 148,709 143,380 143,871
Borrowings............................................ 15,000 16,000 8,000 10,500 8,500
Stockholders' equity.................................. 30,850 29,091 18,232 14,637 13,921
<CAPTION>
At September 30,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income....................................... $ 18,396 $ 14,921 $ 13,543 $ 12,075 $ 12,034
Interest expense...................................... 9,496 7,425 8,761 5,624 6,184
-------- -------- -------- -------- --------
Net interest income................................... 8,900 7,496 4,782 6,451 5,850
Provision for loan losses............................. 655 349 362 120 364
-------- -------- -------- -------- --------
Net interest income after provision for loan losses... 8,245 7,147 4,420 6,331 5,486
Other income.......................................... 1,855 1,927 3,231 1,565 1,613
General and administrative expenses................... 7,446 6,894 5,540 4,749 4,414
-------- -------- -------- -------- --------
Income before income taxes, change in accounting
method, and extraordinary item....................... 2,654 2,180 2,111 3,147 2,685
Income taxes.......................................... 926 756 194 1,064 947
-------- -------- -------- -------- --------
Income before change in method of
accounting for income taxes.......................... 1,728 1,424 1,917 2,083 1,738
Cumulative effect of change in method of
accounting for income taxes.......................... -- -- -- 350 --
-------- -------- -------- -------- --------
Net income............................................ $ 1,728 $ 1,424 $ 1,917 $ 2,433 $ 1,738
======== ======== ======== ======== ========
</TABLE>
(footnotes on second following page)
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
PER SHARE DATA:
Earnings per share(2):
Before cumulative effect of change in
accounting for income taxes............ $ 1.15 $ 0.95 $ 1.27 $ 1.39 N/A
Cumulative effect of change in
accounting for income taxes............ $ -- $ -- $ -- $ .23 N/A
---------- ---------- ---------- ----------
Net income.............................. $ 1.15 $ 0.95 $ 1.27 $ 1.62 N/A
========== ========== ========== ==========
Dividends per share(3).................... $ 1.35 $ 1.20 $ 1.05 $ 0.76 N/A
========== ========== ========== ==========
Weighted average shares outstanding....... 1,505,432 1,504,601 1,504,059 1,502,418 N/A
<CAPTION>
Year Ended September 30,
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Real estate loans outstanding............ 3,446 2,653 2,846 2,889 3,423
Deposit accounts......................... 32,361 26,135 21,490 16,676 16,735
Full-service offices..................... 6 5 5 4 3
</TABLE>
(footnotes on following page)
26
<PAGE>
<TABLE>
<CAPTION>
KEY OPERATING RATIOS:
At or For the
Year Ended September 30,
---------------------------------------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income divided by
average assets)................................... 0.72% 0.75% 0.92% 1.20%(4) 1.03%
Return on average equity (net income divided by
average equity)................................... 5.78 7.40 11.88 13.84(4) 13.36
Average equity to average assets................... 12.54 10.16 7.77 8.61 7.75
Interest rate spread (difference between yield
on interest-earning assets and average cost of
interest-bearing liabilities for the period)(5)... 3.57 3.85 3.61 3.54 3.26
Net interest margin (net interest income as a
percentage of average interest-earning assets
for the period)(5)................................ 3.96 4.16 2.90 3.86 3.59
Dividend payout ratio(3)........................... 117.39 126.32 82.68 46.91 N/A
Non-interest expense to average assets............. 3.20 3.72 2.74 2.74 2.63
Average interest-earning assets to average
interest-bearing liabilities...................... 109.36 107.69 86.56 109.36 108.66
Asset Quality Ratios:
Allowance for loan losses to total loans
at end of period................................. 1.04 1.08 1.08 0.92 0.91
Net charge-offs to average outstanding loans
during the period................................. 0.18 0.07 0.04 0.04 0.06
Ratio of non-performing assets to total assets..... 0.20 0.38 0.33 0.73 0.82
Capital Ratios:
Average equity to average assets................... 12.54 10.16 7.77 8.61 7.75
- ----------------------------
</TABLE>
(1) Represents a 20.625% equity investment in a limited partnership that
invests in mortgage servicing rights.
(2) The Savings Bank was not a public company before fiscal 1994.
(3) Takes into account dividends waived by the MHC. All dividends to the MHC
have been waived since the first quarter of fiscal 1994. The dividend
payout ratio based only on dividends actually paid to Public Stockholders
was 55.19%, 22.40%, 6.53% and 3.71% for the years ended September 30, 1997,
1996, 1995 and 1994, respectively.
(4) Excludes the effect of the one-time change in method of accounting for
income taxes in fiscal 1994. Return on assets and return on average equity
were 1.40% and 16.16%, respectively.
(5) Excludes income on mutual funds totalling approximately $1.7 million in
fiscal 1995, which was reported as gains on sale and included in other
income.
27
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the Conversion Shares must be sold at a price
equal to the estimated pro forma market value of the MHC and the Savings Bank,
as converted, based upon an independent valuation. The Estimated Valuation
Range as of December 5, 1997 is from a minimum of $29.3 million to a maximum of
$39.7 million with a midpoint of $34.5 million or, at a price per share of
$20.00, a minimum number of shares of 1,466,250, a maximum number of shares of
1,983,750 and a midpoint number of shares of 1,725,000. The actual net proceeds
from the sale of the Conversion Shares cannot be determined until the Conversion
and Reorganization is completed. However, net proceeds set forth on the
following table are based upon the following assumptions: (i) Sandler O'Neill
will receive fees of $428,625, $506,250, $583,875 and $673,145 at the minimum,
midpoint, maximum and 15% above the Estimated Valuation Range, respectively (see
"THE CONVERSION AND REORGANIZATION -- Plan of Distribution and Selling
Commissions); (ii) all of the Conversion Shares will be sold in the Subscription
and Direct Community Offerings; and (iii) Conversion and Reorganization
expenses, excluding the fees paid to Sandler O'Neill, will total approximately
$560,000 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 Savings Bank for the year
ended September 30, 1997 has been calculated as if the Conversion and
Reorganization had been consummated at the beginning of the period and the
estimated net proceeds received by the Holding Company and the Savings Bank had
been invested at 5.68% at the beginning of the period, which represents the
yield on the one-year U.S. Treasury Bill at September 30, 1997. Although OTS
regulations require the use of the arithmetic average of the average yield on
all interest-earning assets and the average rate paid on all deposits in
computing investment returns on net proceeds, the yield on the one-year U.S.
Treasury Bill is used because management believes it more appropriately reflects
a market rate of return. As discussed under "USE OF PROCEEDS," the Holding
Company expects to retain 50% of the net proceeds of the Conversion Offerings
from which it will refinance the existing third-party ESOP loan, with an
outstanding balance of $804,000 at September 30, 1997. The new loan is expected
to have a 10-year term and an interest rate equal to the prime rate as published
in The Wall Street Journal on the closing date of the Conversion and
Reorganization (currently 8.50%). A pro forma after-tax return of 3.69% is used
for both the Holding Company and the Savings Bank for the period, after giving
effect to an incremental combined federal and state income tax rate of 35.0% for
the year ended September 30, 1997. 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 period or at September 30, 1997, but without any adjustment of
per share historical or pro forma stockholders' equity to reflect the earnings
on the estimated net proceeds.
The following table summarizes the historical net income and stockholders'
equity of the Savings Bank and the pro forma consolidated net income and
stockholders' equity of the Holding Company for the periods and at the date
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 1998 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 and Reorganization; (ii) withdrawals from deposit
accounts for the purpose of purchasing Conversion Shares in the Conversion
Offerings; (iii) the issuance of shares from authorized but unissued shares to
the 1998 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 and
Reorganization; or (iv) the establishment of a liquidation account for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders.
See "THE CONVERSION AND REORGANIZATION -- Stock Pricing, Exchange Ratio and
Number of Shares Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AND REORGANIZATION AT THE DATE ON WHICH THE
CONVERSION AND REORGANIZATION 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 ACCORDING TO 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.
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1997
-----------------------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range(1)
---------- ---------- ---------- ------------------
1,466,250 1,725,000 1,983,750 2,281,312
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> <C> <C> <C>
Gross proceeds....................................... $ 29,325 $ 34,500 $ 39,675 $ 45,626
Less: estimated expenses............................. 990 1,070 1,150 1,240
---------- ---------- ---------- ----------
Estimated net proceeds............................... 28,335 33,430 38,525 44,386
Less: Common Stock to be acquired by
1998 MRP.................................... (1,173) (1,380) (1,587) (1,825)
Add: Assets consolidated from MHC(10).............. -- -- -- --
---------- ---------- ---------- ----------
Net investable proceeds......................... $ 27,162 $ 32,050 $ 36,938 $ 42,561
========== ========== ========== ==========
Consolidated net income:
Historical.......................................... 1,728 1,728 1,728 1,728
Pro forma income on net proceeds(2)................. 1,003 1,183 1,364 1,571
Pro forma 1996 MRP adjustments(3)................... (84) (84) (84) (84)
Pro forma 1998 MRP adjustments(4)................... (152) (179) (206) (237)
---------- ---------- ---------- ----------
Pro forma net income.............................. $ 2,496 $ 2,649 $ 2,803 $ 2,979
========== ========== ========== ==========
Consolidated net income per share(5)(6):
Historical.......................................... $ 0.64 $ 0.55 $ 0.47 $ 0.41
Pro forma income on net proceeds.................... 0.38 0.38 0.37 0.38
Pro forma 1996 MRP adjustments(3)................... (0.03) (0.03) (0.02) (0.02)
Pro forma 1998 MRP adjustments(4)................... (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net income per share.................... $ 0.93 $ 0.84 $ 0.76 $ 0.71
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical(10)...................................... $ 31,731 $ 31,731 $ 31,731 $ 31,731
Estimated net proceeds.............................. 28,335 33,430 38,525 44,386
Less: Common Stock to be acquired by
ESOP...................................... (804) (804) (804) (804)
Common Stock acquired by
1996 MRP.................................. (938) (938) (938) (938)
Common Stock to be acquired by
1998 MRP(4)............................... (1,173) (1,380) (1,587) (1,825)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(7)................. $ 57,151 $ 62,039 $ 67,927 $ 72,550
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(8):
Historical(4)(10)................................... $ 11.48 $ 9.76 $ 8.48 $ 7.38
Estimated net proceeds.............................. 10.24 10.27 10.29 10.32
Less: Common Stock acquired by
ESOP...................................... (0.29) (0.25) (0.21) (0.19)
Common Stock acquired by
1996 MRP(3)............................... (0.34) (0.29) (0.25) (0.22)
Common Stock to be acquired by
1998 MRP(3)............................... (0.42) (0.42) (0.42) (0.42)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(9)....... $ 20.67 $ 19.07 $ 17.89 $ 16.87
========== ========== ========== ==========
Purchase Price as a percentage of pro forma
stockholders' equity per share...................... 96.76% 104.88% 111.79% 118.55%
========== ========== ========== ==========
Purchase Price as a multiple of pro forma
net income per share................................ 21.51x 23.81x 26.18x 28.17x
========== ========== ========== ==========
</TABLE>
(footnotes on following page)
29
<PAGE>
- ------------------------------
(1) Gives effect to the sale of an additional 297,562 Conversion Shares in the
Conversion and Reorganization, which may be issued to cover an increase in
the pro forma market value of the MHC and the Savings Bank, 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 MHC and the Savings Bank, as
converted. See "THE CONVERSION AND REORGANIZATION -- Stock Pricing,
Exchange Ratio and Number of Shares to be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Conversion Shares. Since funds on deposit at the
Savings Bank 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 Savings Bank for investment following receipt of the net
proceeds of the Conversion Offerings will be reduced by the amount of such
withdrawals.
(3) In calculating the pro forma effect of the 1996 MRP, the table reflects the
effect of completed open market purchases of all remaining 1996 MRP shares
subsequent to September 30, 1997. Pro forma net income adjustments reflect
additional expenses required for a full-year amortization above the actual
expense (equal to $79,000 on a pre-tax basis) recorded for the year ended
September 30, 1997. Pro forma stockholders' equity adjustments take into
account 1996 MRP stock purchases as of September 30, 1997 and open market
purchases of all remaining shares completed subsequent to September 30,
1997. As all shares for the 1996 MRP have, subsequent to September 30,
1997, have been purchased in open market transactions, no assumptions have
been made for the effects of issuing authorized but unissued shares. The
total additional estimated pre-tax 1996 MRP expenses not already reflected
in net income was equal to $129,000 at each of the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range for the
year ended September 30, 1997. No effect has been given to the shares
reserved for issuance under the 1996 Stock Option Plan. See footnote 4 for
an analysis of the combined effects of the 1996 and 1998 Stock Option Plans.
(4) In calculating the pro forma effect of the 1998 MRP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the 1998 MRP at the beginning of the period presented in open
market purchases at the Purchase Price, that 20% of the amount contributed
was an amortized expense during such period, and that the combined federal
and state income tax rate is 35.0%. 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 2.08% and pro
forma net income per share would be $0.92, $0.83, $0.77 and $0.71 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range for the year ended September 30, 1997, respectively, and pro
forma stockholders' equity per share would be $20.66, $19.09, $17.94 and
$16.93 at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range at September 30, 1997, respectively. Shares
issued under the 1998 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 shares are awarded under the 1998 MRP,
total 1998 MRP expense would increase. The total estimated 1998 MRP expense
was multiplied by 20% (the total percent of shares for which expense is
recognized in the first year) resulting in pre-tax 1998 MRP expense of
$235,000, $276,000, $317,000 and $365,000 at the minimum, midpoint, maximum
and 15% above the maximum of the Estimated Valuation Range for the year
ended September 30, 1997, respectively. No effect has been given to the
shares reserved for issuance under the 1996 Stock Option Plan (previously
approved by stockholders) or the proposed 1998 Stock Option Plan. Under the
1996 Stock Option Plan, 58,500 shares were reserved for issuance and options
have been granted thereunder at an exercise price of $25.25 per share. If
stockholders approve the 1998 Stock Option Plan following the Conversion and
Reorganization, the Holding Company will have reserved for issuance under
the 1998 Stock Option Plan authorized but unissued shares of Common Stock
representing an amount of shares equal to 10% of the Conversion Shares sold
in the Conversion Offerings. If all of the options were to be exercised
utilizing these authorized but unissued shares rather than treasury shares
which could be acquired (for both the 1996 and 1998 Stock Option Plans), the
voting interests of existing stockholders would be diluted by approximately
8.25%. Assuming stockholder approval of the 1998 Stock Option Plan, and
that all options under the 1996 and 1998 Stock Option Plans were exercised
at September 30, 1997 at an exercise price of $25.25 (to be
30
<PAGE>
adjusted pursuant to the final Exchange Ratio) and $20.00 per share,
respectively, pro forma net earnings per share would be $0.90, $0.81, $0.75
and $0.70, respectively, for the year ended September 30, 1997, and pro
forma stockholders' equity per share would be $20.38, $18.87, $17.76 and
$16.79, respectively, for the year ended September 30, 1997 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range.
(5) Per share amounts are based upon shares outstanding of 2,695,343, 3,170,992,
3,646,640 and 4,193,637 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended September 30,
1997, respectively, which includes the Conversion Shares sold in the
Conversion and Reorganization, less the number of shares assumed to be held
by the ESOP not committed to be released within the first year following the
Conversion and Reorganization.
(6) Historical per share amounts have been computed as if the Conversion Shares
expected to be issued in the Conversion and Reorganization 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 and Reorganization, the ongoing ESOP expense, or the
proposed 1998 MRP expense described above.
(7) "Book value" represents the difference between the stated amounts of the
Savings Bank'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
and Reorganization, or the federal income tax consequences of the
restoration to income of the Savings Bank's special bad debt reserves for
income tax purposes which would be required in the unlikely event of
liquidation. See "THE CONVERSION AND REORGANIZATION -- Effects of
Conversion and Reorganization on Depositors and Borrowers of the Savings
Bank." 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 2,764,821, 3,252,731,
3,740,640 and 4,301,736 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.
(10) Assets of the MHC (other than investment in the Savings Bank) consist
solely of $47,000 of cash on deposit at the Savings Bank, which amount is
eliminated in consolidation.
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<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Savings
Bank at September 30, 1997, 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 Conversion Shares at the
minimum, midpoint, maximum and maximum, as adjusted, of the Estimated Valuation
Range. The Conversion Shares that would be issued at the maximum, as adjusted,
of the Estimated Valuation Range would be subject to receipt of OTS approval of
an updated appraisal confirming such valuation. A CHANGE IN THE NUMBER OF
CONVERSION SHARES TO BE ISSUED IN THE CONVERSION AND REORGANIZATION WOULD
MATERIALLY AFFECT PRO FORMA CONSOLIDATED CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company Pro Forma Consolidated Capitalization
Based Upon the Sale of
Savings ----------------------------------------------------
Bank 1,466,250 1,725,000 1,983,750 2,281,312
Capitalization Shares at Shares at Shares at Shares at
at $20.00 $20.00 $20.00 $20.00
September 30, 1997 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
------------------ ------------ ------------- ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3).......................... $201,002 $ 201,002 $ 201,002 $ 201,002 $ 201,002
FHLB advances........................ 15,000 15,000 15,000 15,000 15,000
ESOP debt(4)......................... 804 804 804 804 804
-------- ---------- ---------- ---------- ----------
Total deposits and borrowed funds.... $216,806 $ 216,806 $ 216,806 $ 216,806 $ 216,806
======== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock:
250,000 shares, $.01 par
value per share, authorized;
none issued or outstanding...... -- -- -- -- --
Common Stock:
7,500,000 shares, $.01 par
value per share, authorized;
specified number of shares
assumed to be issued and
outstanding(5).................. 1,509 14 17 20 23
Additional paid-in capital........ 11,652 41,482 46,574 51,665 57,525
Retained earnings(6).............. 18,382 18,382 18,382 18,382 18,382
Unrealized loss on securities
available-for-sale, net of tax... 188 188 188 188 188
Less:
Savings Bank Common Stock
acquired by ESOP in MHC
Reorganization and
Additional Offering............ (804) (804) (804) (804) (804)
Common Stock to be acquired
by 1996 MRP(7)................. (325) (938) (938) (938) (938)
Common Stock to be acquired
by 1998 MRP(8)................. -- (1,173) (1,380) (1,587) (1,825)
-------- ---------- ---------- ---------- ----------
Total stockholders' equity........... $ 30,602 $ 57,151 $ 62,039 $ 66,927 $ 72,551
======== ========== ========== ========== ==========
</TABLE>
(footnotes on following page)
32
<PAGE>
- -----------------------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or results of operations
of the Savings Bank or changes in market conditions or general financial,
economic and regulatory conditions, or the issuance of additional shares
under the 1998 Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
if the aggregate number of Conversion Shares issued in the Conversion and
Reorganization 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 Conversion Shares are
not reflected. Such withdrawals will reduce pro forma deposits by the
amounts thereof.
(4) Represents outstanding balance on third party loan used by ESOP to acquire
shares of Savings Bank Common Stock in the MHC Reorganization and the
Additional Offering.
(5) The Savings Bank'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 and Reorganization.
(6) Retained earnings are substantially restricted by applicable regulatory
capital requirements. Additionally, the Savings Bank 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 Eligible Account Holders and Supplemental Eligible Account Holders at the
consummation of the Conversion and Reorganization and adjusted downward
thereafter as such account holders reduce their balances or cease to be
depositors. See "THE CONVERSION AND REORGANIZATION -- Effects of Conversion
and Reorganization on Depositors and Borrowers of the Savings Bank --
Liquidation Account."
(7) Pro forma consolidated capitalization reflects funding of remaining shares
authorized for awards under the 1996 MRP through open market purchases of
Common Stock.
(8) Assumes the purchase in the open market at the Purchase Price, pursuant to
the proposed 1998 MRP, of a number of shares equal to 4% of the shares of
Conversion Shares issued in the Conversion and Reorganization at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. The issuance of such additional Conversion Shares from
authorized but unissued shares of Common Stock would dilute the ownership
interest of stockholders by 2.08%. The shares are reflected as a reduction
of stockholders' equity. See "PRO FORMA DATA." The 1998 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 and
Reorganization.
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 preliminary approval to list the Common Stock on the Nasdaq National
Market System under the symbol "PERT," 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 three market makers and
a minimum number of record holders. Sandler O'Neill has agreed to make a market
for the Common Stock following consummation of the Conversion and Reorganization
and will assist the Holding Company in seeking to encourage at least two
additional market makers 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.
Based on the level of market making in the Public Savings Bank Shares, the
Holding Company anticipates that prior to the completion of the Conversion and
Reorganization it will be able to obtain the commitment from at least two
additional broker-dealers 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 Savings Bank 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.
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<PAGE>
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.
Since September 30, 1996 (the consummation date of the Additional Offering),
the Public Savings Bank Shares have been listed on the Nasdaq SmallCap Market
under the symbol "PERT." Before that date, the Public Savings Bank Shares were
unlisted and traded in privately negotiated transactions. At September 30,
1997, there were 294 record holders of the Public Savings Bank Shares (not
including holders in nominee or "street name") and four market makers in the
Public Savings Bank Shares as reported by the Nasdaq Stock Market. The
following table sets forth the high and low trading prices, as reported by
Nasdaq, and cash dividends paid for each quarter during the fiscal 1997. Market
price data for fiscal 1996 is not presented because the Public Savings Bank
Shares traded in private transactions for which comparable data is unavailable.
The Savings Bank paid a quarterly cash dividend of $0.30 on the outstanding
Public Savings Bank Shares during fiscal 1996.
<TABLE>
<CAPTION>
Cash Dividend
Fiscal 1997 High Low Declared
- ----------- ---- --- --------
<S> <C> <C> <C>
Quarter Ended December 31, 1996.... $24.25 $20.25 $0.30
Quarter Ended March 31, 1997....... 26.50 22.50 0.35
Quarter Ended June 30, 1997........ 29.75 24.00 0.35
Quarter Ended September 30, 1997... 57.00 30.25 0.35
</TABLE>
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 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.
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 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 Savings Bank's Federal Stock Charter
contains 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 Savings Bank by any person, either directly or through an
affiliate of such person, will be
34
<PAGE>
prohibited for a period of five years following the date of consummation of the
Conversion and Reorganization. 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 from the consummation date of the
MHC Reorganization, stockholders of the Savings Bank will not be permitted to
call a special meeting of stockholders relating to a change of control of the
Savings Bank 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
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.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 7,500,000 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 3,741,533 shares of Common Stock (subject to adjustment up to
4,301,736 shares) and no shares of preferred stock in the Conversion and
Reorganization. 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.
35
<PAGE>
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. 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 AND REORGANIZATION -- Restrictions on Repurchase of Stock."
VOTING RIGHTS. Upon Conversion and Reorganization, 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 Federal law or
as are otherwise presented to them by the Board of Directors. Except as
discussed in "RESTRICTIONS ON ACQUISITION OF THE 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 stock savings bank, corporate powers and control of the Savings
Bank are vested in the Board of Directors, who elect the officers of the Savings
Bank and who fill any vacancies on the Board of Directors as it exists upon
Conversion and Reorganization. Subsequent to Conversion and Reorganization,
voting rights will be vested exclusively in the owners of the shares of capital
stock of the Savings Bank, 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 Savings Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Savings Bank, the Holding Company, as holder of the Savings Bank's capital
stock would be entitled to receive, after payment or provision for payment of
all debts and liabilities of the Savings Bank (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 AND REORGANIZATION"), all assets
of the Savings Bank 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 Reorganization 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
36
<PAGE>
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 "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
EFFECT OF RECEIVERSHIP ON THE COMMON STOCK
In the event of the receivership of the Savings Bank, the FDIC, as receiver,
shall, by operation of law, succeed to, among other things, all the rights,
titles, powers and privileges of the Savings Bank and its stockholder, the
Holding Company. As provided by the procedures and priorities applicable to
receiverships of savings institutions, the holders of the Common Stock would be
entitled to receive any funds remaining after all depositors, creditors, other
claimants (other than holders of stock ranking junior to or on a parity with the
Common Stock) and administrative expenses are paid.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Securities is the transfer agent and registrar for shares of the
Common Stock.
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 12 C.F.R.
Part 563b 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. (S)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.
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
Reorganization and will not deregister its Common Stock for a period of at least
three years following the completion of the Conversion and Reorganization. Upon
such registration, the proxy solicitation and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will apply.
37
<PAGE>
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
Conversion and Reorganization have been opined upon by Breyer & Aguggia and the
South Carolina tax consequences of the Conversion and Reorganization have been
opined upon by Evans, Carter, Kunes & Bennett, P.A., Charleston, South Carolina.
Breyer & Aguggia and Evans, Carter, Kunes & Bennett, P.A. have consented to the
references herein to their opinions. Certain legal matters will be passed upon
for Sandler O'Neill by Muldoon, Murphy & Faucette, Washington, D.C.
EXPERTS
The consolidated financial statements of the Savings Bank as of September 30,
1997 and 1996 and for each of the years in the three-year period ended September
30, 1997, have been included herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Savings Bank setting forth its opinion as to the estimated pro
forma market value of the MHC and the Savings Bank, 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 and Reorganization. The 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 MHC has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the Special Members' Meeting and the
Stockholders' Meeting and certain other information. The 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 OTS Southeast Regional Office, 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 Savings Bank.
BY ORDER OF THE BOARD OF DIRECTORS
SYLVIA B. REED
SECRETARY
Anderson, South Carolina
February __, 1998
38
<PAGE>
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 SAVINGS BANK 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.
39
<PAGE>
EXHIBIT A
SOUTHBANC SHARES, M.H.C.
PERPETUAL BANK, A FEDERAL SAVINGS BANK
ANDERSON, SOUTH CAROLINA
AMENDED PLAN OF CONVERSION FROM MUTUAL HOLDING COMPANY TO STOCK
HOLDING COMPANY AND AGREEMENT AND PLAN OF REORGANIZATION
I. General
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For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section II unless otherwise defined herein.
SouthBanc Shares, M.H.C., Anderson, South Carolina ("MHC") was formed on
October 26, 1993 to act as the federally chartered mutual holding company for
Perpetual Bank, A Federal Savings Bank, Anderson, South Carolina ("Savings
Bank"), a federally chartered capital stock savings bank. As of the date
hereof, the MHC beneficially and of record owns 800,000 shares of common stock,
par value $1.00 per share, of the Savings Bank ("Savings Bank Common Stock"),
representing approximately 53.02% of the outstanding voting stock of the Savings
Bank and the remaining 708,873 shares of Savings Bank Common Stock, or 46.98%,
are owned by persons other than the MHC ("Public Stockholders").
This Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Agreement and Plan of Reorganization ("Plan") provides for the
conversion of the MHC to the stock form of organization and the reorganization
of the Savings Bank as a wholly owned subsidiary of a newly formed stock holding
company (collectively, "Conversion and Reorganization"). The Boards of
Directors of the MHC and the Savings Bank believe that the Conversion and
Reorganization is in the best interests of the MHC, the members of the MHC, the
Savings Bank and its stockholders. As a result of the Conversion and
Reorganization, the Savings Bank will be wholly owned by a stock holding
company, which is a more common structure and form of ownership than a mutual
holding company. The Board of Directors determined that the Plan equitably
provides for the interests of Members through the granting of subscription
rights and the establishment of a liquidation account and that consummation of
the Conversion and Reorganization would not adversely impact the stockholders'
equity of the Savings Bank.
The Conversion and Reorganization will provide the Savings Bank with a
larger capital base which will enhance its ability to pursue lending and
investment opportunities, as well as opportunities for growth and expansion. The
Conversion and Reorganization also will provide a more flexible operating
structure, which will enable the Savings Bank to compete more effectively with
other financial institutions. In addition, the Conversion and Reorganization
will raise additional equity capital for the Savings Bank. Finally, the
Conversion and Reorganization has been structured to reunite the accumulated
earnings and profits retained by the MHC with the retained earnings of the
Savings Bank through a tax-free reorganization.
Pursuant to the Plan, the Savings Bank will form a new first-tier
subsidiary which will be incorporated under state law as a stock corporation
("Holding Company"). The Holding Company will then form an interim federal
stock savings bank ("Interim B") as a wholly owned subsidiary. As described in
greater detail herein, simultaneously with the conversion of the MHC to an
interim federal stock savings bank ("Interim A"), the Savings Bank, MHC and
Holding Company will undergo a reorganization in which Interim A will merge with
and into the Savings Bank, Interim B will merge with and into the Savings Bank,
the Holding Company will become the parent company of the Savings Bank, and the
Holding Company will issue and sell its Conversion Stock pursuant to this Plan.
On September 22, 1997, after careful study and consideration, the Boards of
Directors of the MHC and the Savings Bank adopted, and on December 22, 1997,
subsequently amended, this Plan. The Plan must be approved by the affirmative
vote of a majority of the total number of votes eligible to be cast by Members
of the MHC at a special meeting to be called for that purpose and by the holders
of at least two-thirds of the shares of outstanding Savings Bank Common Stock
eligible to vote at an annual meeting of the Savings Bank Stockholders, or at a
special meeting
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of the Savings Bank Stockholders called for the purpose of submitting the Plan
for approval. Prior to the submission of the Plan to the Members and the Public
Stockholders for consideration, the Plan must be approved by the Office of
Thrift Supervision ("OTS").
II. Definitions
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For the purposes of this Plan, the following terms have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
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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,
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means (i) any corporation or organization (other than the Primary Parties or a
majority-owned subsidiary of either thereof) 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 any of the MHC, Savings Bank or
Holding Company or any of their subsidiaries.
C. Capital Stock: Any and all authorized capital stock of the Savings
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Bank.
D. Common Stock: Collectively, Conversion Stock and Exchange Stock.
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E. Conversion and Reorganization: Collectively, (i) the conversion of the
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MHC into an interim federal stock savings bank ("Interim A") and the
simultaneous merger of Interim A with and into the Savings Bank, with the
Savings Bank being the surviving institution; (ii) the merger of an interim
federal stock savings bank subsidiary of the Holding Company ("Interim B") with
and into the Savings Bank, with the Savings Bank being the surviving institution
and becoming a wholly owned subsidiary of the Holding Company; (iii) the
exchange of shares of Savings Bank Common Stock (other than those held by the
MHC which shall be canceled) for shares of Holding Company Common Stock; and
(iv) the issuance of Conversion Stock by the Holding Company as provided for in
this Plan.
F. Conversion Stock: Holding Company Common Stock offered and issued by
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the Holding Company in the Offerings pursuant to this Plan.
G. Direct Community Offering: The offering of Conversion Stock for sale
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to the public.
H. Eligibility Record Date: June 30, 1996.
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I. Eligible Account Holder: Holder of a Qualifying Deposit on the
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Eligibility Record Date.
J. Exchange Ratio: The ratio at which shares of Holding Company Common
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Stock will be exchanged for shares of Savings Bank Common Stock held by the
Public Stockholders upon consummation of the Conversion and Reorganization. The
exact rate shall be determined by the MHC and the Savings Bank at the time the
Purchase Price (as defined in Section XI.B.) is determined and shall equal the
rate that will result in the Public Stockholders
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owning in the aggregate approximately the same percentage of shares of common
stock of the Holding Company to be outstanding upon completion of the Conversion
and Reorganization as the percentage of Savings Bank Common Stock owned by them
in the aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (i) the payment of cash in lieu of
issuing fractional shares of Holding Company Common Stock, and (ii) any shares
of Conversion Stock purchased by Public Stockholders or any Tax-Qualified
Employee Stock Benefit Plans.
K. Exchange Stock: Holding Company Common Stock issued to the Public
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Stockholders in exchange for Savings Bank Common Stock.
L. FDIC: Federal Deposit Insurance Corporation.
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M. Form AC Application: The application submitted by the MHC to the OTS
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on OTS Form AC for approval of the Conversion and Reorganization.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
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H-(e)1 or, if applicable, OTS Form H-(e)1-S, for approval of the Holding Company
acquisition of all of the Capital Stock.
O. Holding Company: The corporation to be formed by the Savings Bank
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under state law initially as a first tier, wholly owned subsidiary of the
Savings Bank. Upon completion of the Conversion, the Holding Company shall hold
all of the outstanding capital stock of the Savings Bank.
P. Holding Company Common Stock: The common stock, $0.01 par value per
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share, of the Holding Company.
Q. Interim A: "Perpetual Interim "A" Bank, A Federal Savings Bank," which
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will be the interim federal stock savings bank resulting from the conversion of
the MHC to stock form immediately prior to the merger of Interim B into the
Savings Bank.
R. Interim B: "Perpetual Interim "B" Bank, A Federal Savings Bank," which
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will be formed as a wholly owned interim federal stock savings bank subsidiary
of the Holding Company, which will merge with and into the Savings Bank
immediately after the merger of Interim A into the Savings Bank.
S. Local Community: Anderson and Oconee Counties of the State of South
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Carolina.
T. Market Maker: A dealer (i.e., any Person who engages directly or
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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 its quoted prices with other brokers or dealers.
U. Member: Any Person qualifying as a member of the MHC pursuant to its
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charter and bylaws.
V. MHC: SouthBanc Shares, M.H.C., Anderson, South Carolina.
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W. Offerings: Collectively, the Subscription Offering, Direct Community
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Offering and Syndicated Community Offering.
X. Officer: An executive officer of any or all of the Primary Parties,
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which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal
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business functions, Secretary, Controller, and any Person performing functions
similar to those performed by the foregoing persons.
Y. Order Form(s): Form(s) to be used to purchase Conversion Stock sent to
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Eligible Account Holders and other parties eligible to purchase Conversion Stock
in the Subscription Offering.
Z. Other Member: A Member (other than an Eligible Account Holder or
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Supplemental Eligible Account Holder) at the close of business on the Voting
Record Date.
AA. Person: An individual, a corporation, a partnership, an association, a
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joint-stock company, a trust (including Individual Retirement Accounts and KEOGH
Accounts), any unincorporated organization, a government or political
subdivision thereof or any other entity.
BB. Plan: This Plan of Conversion from Mutual Holding Company to Stock
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Holding Company and Agreement and Plan of Reorganization, as originally adopted
by the Boards of Directors of the MHC and the Savings Bank, or as amended in
accordance with its terms.
CC. Primary Parties: Collectively, the MHC, the Savings Bank and the
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Holding Company.
DD. Public Stockholder: Any Person who owns Savings Bank Common Stock,
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other than the MHC, as of the Voting Record Date.
EE. Qualifying Deposit: The deposit balance in any Savings Account as of
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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.
FF. Registration Statement: The registration statement on SEC Form S-1,
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or similar 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.
GG. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
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including certificates of deposit, demand deposit accounts and non-interest-
bearing deposit accounts.
HH. Savings Bank: Perpetual Bank, A Federal Savings Bank, Anderson, South
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Carolina.
II. Savings Bank Common Stock: The common stock of the Savings Bank, par
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value $1.00 per share.
JJ. SEC: Securities and Exchange Commission.
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KK. Special Meeting of Members: The special meeting of the Members, and
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any adjournments thereof, held to consider and vote upon the Plan.
LL. Meeting of Stockholders: The meeting of the stockholders of the
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Savings Bank, and any adjournments thereof, to be called and held for the
purpose of submitting the Plan for their approval. Such meeting may either be
an annual or special meeting.
MM. Subscription Offering: The offering of Conversion Stock to Eligible
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Account Holders, Supplemental Eligible Account Holders and Other Members under
the Plan.
NN. Subscription Rights: Nontransferable, non-negotiable, personal rights
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of Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members to purchase Conversion Stock.
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OO. Supplemental Eligibility Record Date: The last day of the calendar
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quarter preceding the approval of the Plan by the OTS.
PP. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
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in the Savings Bank (other than an Officer or director of the Savings Bank or
their Associates) on the Supplemental Eligibility Record Date.
QQ. Syndicated Community Offering: The offering for sale by a syndicate
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of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
RR. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
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defined contribution plan of the Savings Bank 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.
SS. Voting Record Date(s): The date(s) fixed by the Boards of Directors
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of the MHC and the Savings Bank according to OTS regulations for determining
eligibility to vote at the Special Meeting of Members and at the Meeting of
Stockholders.
III. General Procedure for Conversion and Reorganization
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A. Conversion of MHC to an Interim Federal Stock Savings Bank and Merger
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of Such Interim Into the Savings Bank. The MHC will convert into Perpetual
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Interim "A" Bank, a Federal Savings Bank (i.e. "Interim A") and Interim A will
simultaneously merge with and into the Savings Bank, with the Savings Bank as
the surviving entity ("MHC Merger"). As a result of the MHC Merger, the Savings
Bank Common Stock held by the MHC will be canceled and Eligible Account Holders
and Supplemental Eligible Account Holders will be granted ratable interests in a
liquidation account, to be established in accordance with the procedures set
forth in Section XIV hereof.
B. Merger of a Second Interim Federal Stock Savings Bank into Savings
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Bank and Exchange of Shares. Immediately after the MHC Merger, Perpetual Interim
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"B" Bank, A Federal Savings Bank (i.e., Interim B) will merge with and into the
Savings Bank, and the separate existence of Interim B will cease ("Savings Bank
Merger"). The shares of the Holding Company Common Stock held by the Bank will
be canceled. The shares of common stock of Interim B held by the Holding Company
will be converted, on a one-to-one basis, into shares of Savings Bank Common
Stock, which will result in the Savings Bank becoming a wholly-owned subsidiary
of the Holding Company. The Public Stockholders will exchange their shares of
Savings Bank Common Stock for shares of Holding Company Common Stock based upon
the Exchange Ratio. In addition, all options to purchase shares of Savings Bank
Common Stock which are outstanding immediately prior to consummation of the
Conversion and Reorganization shall be converted to options to purchase shares
of Holding Company Common Stock, with the number of shares subject to the option
and the exercise price per share to be adjusted based upon the Exchange Ratio so
that the aggregate exercise price remains unchanged, and with the duration of
the option remaining unchanged. Upon consummation of the Conversion and
Reorganization, all of the Savings Bank Common Stock will be owned by the
Holding Company and the Public Stockholders will own the same percentage of the
Holding Company Common Stock as the percentage of the Savings Bank Common Stock
owned by them prior to the Conversion and Reorganization, before giving effect
to cash paid in lieu of any fractional interests of Savings Bank Common Stock
and any shares of Conversion Stock purchased by the Public Stockholders in the
Offering or by the Tax-Qualified Employee Stock Benefit Plans thereafter. The
Holding Company will then sell the Conversion Stock in the Offerings in
accordance with this Plan.
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Savings Bank shall be held and exercised exclusively by the
Holding Company as holder of the outstanding Savings Bank Common Stock. Voting
rights with respect to the Holding Company shall be held and exercised
exclusively by
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holders of the Holding Company Common Stock. As a result of the MHC Merger, the
separate existence of the MHC and the voting rights of Members will cease.
IV. Steps Prior to Submission of the Plan to the Members and the Savings Bank
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Stockholders for Approval
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Prior to submission of the Plan to the Members and to the stockholders of
the Savings Bank for approval, the Plan must be approved by the OTS. Prior to
such regulatory approval:
A. The Boards of Directors of the MHC and the Savings Bank each shall
adopt the Plan by a vote of not less than two-thirds of their entire membership.
B. The MHC shall publish legal notice of the adoption of the Plan in a
newspaper having a general circulation in each community in which the MHC and
the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion and Reorganization
may be submitted to the local media.
D. Copies of the Plan as adopted by the Boards of Directors of the MHC
and the Savings Bank shall be made available for inspection at each office of
the MHC and the Savings Bank.
E. The Savings Bank 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.
F. As soon as practicable following the adoption of this Plan, the MHC
shall file the Form AC Application, and the Holding Company shall file the
Registration Statement and the H-(e)1 Application. In addition, an application
to merge the MHC (following its conversion into an interim federal stock savings
bank) and the Savings Bank and an application to merge Interim B and the Savings
Bank shall both be filed with the OTS, either as exhibits to the H-(e)1
Application, or separately. Upon filing the Form AC Application, the MHC shall
publish legal notice thereof in a newspaper having a general circulation in each
community in which the MHC and the Savings Bank maintains an office and/or by
mailing a letter to each Member, and also shall publish such other notices of
the Conversion and Reorganization as may be required in connection with the H-
(e)1 Application and by the regulations and policies of the OTS.
G. The MHC and the Savings Bank shall obtain an opinion of their tax
advisors or a favorable ruling from the U.S. Internal Revenue Service which
shall state that the Conversion and Reorganization shall not result in any gain
or loss for federal income tax purposes to the Primary Parties or to 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 and Reorganization.
V. Special Meeting of Members
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Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the MHC's Bylaws. Promptly after receipt
of approval and at least 20 days but not more than 45 days prior to the Special
Meeting, the MHC 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 Voting Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation 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 Section VIII below. The MHC 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
Reorganization and the scheduled Special Meeting, and provide a postage prepaid
card on which to indicate whether he wishes to receive a Prospectus, if the
Subscription Offering is not held concurrently with the proxy solicitation.
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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 at the Special Meeting of
Members. The OTS shall be notified promptly of the actions of the Members at
the Special Meeting of Members.
VI. Meeting of Stockholders
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Subsequent to the approval of the Plan by the OTS, the Meeting of
Stockholders shall be scheduled in accordance with the Savings Bank's Bylaws at
which the Plan will be considered for approval. Promptly after receipt of
approval and at least 20 days but not more than 45 days prior to such meeting,
the Savings Bank shall distribute proxy solicitation materials to Savings Bank
stockholders and beneficial owners of Savings Bank Common Stock held in
fiduciary capacities where the beneficial owners possess voting rights, as of
the Voting Record Date. The proxy solicitation materials shall include a copy
of the proxy statement to be used in connection with such solicitation and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a Prospectus as provided in Paragraph VIII below. The
Savings Bank shall also advise each holder of Savings Bank Common Stock entitled
to vote at the meeting of the proposed Conversion and Reorganization and the
scheduled 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 two-
thirds of the total outstanding votes of the stockholders of the Savings Bank is
required for approval of the Plan. Furthermore, pursuant to OTS policy, the
affirmative vote of not less than a majority of the total outstanding votes of
the stockholders of the Savings Bank (except the MHC) present in person or by
proxy is required for approval of the Plan. Voting may be in person or by proxy
at the Meeting of Stockholders. The OTS shall be notified promptly of the
actions of the stockholders of the Savings Bank at the Meeting of Stockholders.
VII. Summary Proxy Statements
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The Proxy Statements furnished to Members and to stockholders of the
Savings Bank 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 and the meeting of the stockholders of the Savings
Bank shall not be held less than 20 days after the last day on which the
supplemental information statement is mailed to requesting Members or requesting
stockholder of the Savings Bank. 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 or of the stockholders of the Savings Bank for the Meeting of
Stockholders.
VIII. Offering Documents
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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 relating to the
Special Meeting of Members and the Meeting of Stockholders. The Holding Company
may close the Subscription Offering before such meetings, 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 and by the stockholders of the
Savings Bank at the Meeting of Stockholders. The MHC's and the Savings Bank's
proxy solicitation materials may require Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members and the Savings Bank Stockholder to
return to the Savings Bank 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
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 Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental
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Eligible Account Holder and other eligible subscribers who had been furnished
with proxy solicitation materials a notice which shall state that the Savings
Bank 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.
IX. Combined Subscription and Direct Community Offering
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Instead of a separate Subscription Offering, all Subscription Rights may be
exercised by delivery of properly completed and executed Order Forms to the
Savings Bank 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 XI.C. below.
X. Consummation of the Conversion and Reorganization
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The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the MHC Merger, (ii) the filing of
Articles of Combination with the OTS with respect to the Savings Bank Merger and
(iii) the closing of the issuance of the shares of Conversion Stock in the
Offerings. The filing of Articles of Combination relating to the MHC Merger and
the Savings Bank Merger and the closing of the issuance of shares of Conversion
Stock in the Offerings shall not occur until all requisite regulatory, Member
approval and approval of the stockholders of the Savings Bank have been
obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the MHC Merger, the Savings Bank Merger and the
sale of shares of Conversion Stock in the Offerings shall occur consecutively
and substantially simultaneously.
After the Conversion and Reorganization, the Savings Bank will succeed to
all the rights, interests, duties and obligations of the Savings Bank before the
Conversion and Reorganization, including but not limited to all rights and
interests of the Savings Bank in and to its assets and properties, whether real,
personal or mixed. The Savings Bank will continue to be a member of the Federal
Home Loan Bank System and all its insured savings deposits will continue to be
insured by the FDIC to the extent provided by applicable law.
XI. Conversion Stock Offering
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A. Number of Shares
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The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Boards of Directors of the Primary Parties
in conjunction with the determination of the Purchase Price (as defined in
Section XI.B. below). The number of shares to be offered may be subsequently
adjusted by the Board of Directors prior to completion of the Offerings.
B. Independent Evaluation and Purchase Price of Conversion Stock
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All shares of Conversion Stock sold in the Conversion and Reorganization,
including shares sold in any Direct Community Offering, shall be sold at a
uniform price per share, and referred to herein as the "Purchase Price." The
Purchase Price shall be determined by the Board of Directors of the Primary
Parties immediately prior to the simultaneous completion of all such sales
contemplated by this Plan on the basis of the estimated pro forma market
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value of the MHC, as converted, and the Savings Bank at such time. Such
estimated pro forma market value 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 (i.e., the per share amount to be
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remitted when subscribing for shares of Conversion Stock) shall then be
determined within the subscription price range by the Board of Directors of the
Primary Parties. 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
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Subscription Rights shall be issued at no cost to Eligible Account Holders,
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 and Reorganization, all shares of Conversion Stock proposed to be
issued in connection with the Conversion and Reorganization 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
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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 (round ed 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
Primary Parties and their Associates, as Eligible Account Holders,
based on their increased deposits in the Savings Bank 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: 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
A-9
<PAGE>
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.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category 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 or her 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 subscribing Supplemental Eligible Account Holders.
3. Category 3: 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 and Supplemental Eligible
Account Holders pursuant to Category Nos. l and 2 above, subject to
the following conditions:
(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 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 Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after
A-10
<PAGE>
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 may purchase in the Direct Community
Offering more than 50,000 shares of Conversion Stock issued in the
Conversion and Reorganization. The right to purchase shares of Conversion
Stock under this Category is subject to the right of the Savings Bank or
the Holding Company to accept or reject such orders 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 first to the Public Stockholders (who are not Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members) and then
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 Savings Bank 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 may purchase in the Syndicated Community Offering more 50,000
shares of Conversion Stock issued in the Conversion and Reorganization.
Each order for Conversion Stock in the Syndicated Community Offering shall
be subject to the absolute right of the Savings Bank 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 Savings Bank 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 Savings
Bank 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
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank 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 Savings Bank 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
Savings Bank 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:
A-11
<PAGE>
1. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion and
Reorganization by any Person, when combined with any Exchange Stock
received, shall not exceed 50,000 shares of Common Stock issued in the
Conversion and Reorganization.
2. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion and
Reorganization by any Person together with any Associate or any group or
Persons Acting in Concert, when combined with any Exchange Stock received,
shall not exceed 50,000 shares of Common Stock issued in the Conversion
and Reorganization.
3. Officers and directors of the Primary Parties and Associates
thereof may not purchase in the aggregate more than 31% of the shares
issued in the Conversion and Reorganization, including any Exchange Stock
received.
4. The Boards of Directors of the Primary Parties 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.
5. The Boards of Directors of the Primary Parties, with the approval
of the OTS and without further approval of Members or stockholders of the
Savings Bank, may, as a result of market conditions and other factors,
increase or decrease the purchase limitation described herein or the number
of shares of Conversion Stock to be sold in the Conversion and
Reorganization. If the Primary Parties increases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, the Primary Parties are only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Primary Parties, resolicit certain other
large subscribers. If the Primary Parties decrease the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, 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.
Notwithstanding anything to the contrary contained in this Plan, and except
as may be required by the OTS, Public Stockholders will not be required to sell
or divest any Holding Company Common Stock or be limited in receiving Exchange
Stock even if their percentage ownership of the Savings Bank Common Stock when
converted into Exchange Stock would exceed an applicable purchase limitation.
Each Person purchasing Conversion Stock in the Conversion and
Reorganization 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.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Primary Parties shall not be sold or otherwise disposed of
for value for a period of one year from the effective date of Conversion
and Reorganization, except for any disposition (i) following the death of
the original
A-12
<PAGE>
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 Common Stock with respect to
the foregoing restrictions. Any shares of Holding Company Common 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 Savings
Bank 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 and Reorganization from purchasing outstanding
shares of Holding Company Common 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 and Reorganization, 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 Savings Bank 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 Savings Bank below the amount required
for the liquidation account described in Paragraph XIV. 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 and Reorganization, holders
-------------
of Savings Accounts in and obligors on loans of the Savings Bank will not
have voting rights in the Savings Bank. 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
Savings Bank 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 Savings Bank's Capital Stock.
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.
A-13
<PAGE>
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
Savings Bank. 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 and Reorganization 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), such subscriber may
authorize the Savings Bank to charge the subscriber's Savings Account(s). The
Savings Bank 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 and Reorganization is completed or terminated. The Savings Bank 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 Savings Bank 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 and Reorganization 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 Reorganization and only to the extent necessary to satisfy the
subscription at a price equal to the aggregate Purchase Price. The Savings Bank
shall allow subscribers to purchase shares of Conversion Stock by withdrawing
funds from certificate accounts held with the Savings Bank without the
assessment of early withdrawal penalties. 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.
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 Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank 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 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
Savings Bank 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 Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
A-14
<PAGE>
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Primary Parties 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 Primary Parties
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 Primary Parties
determine 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 Primary Parties 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
Primary Parties 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.
XII. Post Conversion and Reorganization Filing and Market Making
-----------------------------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Common 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
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 on The
Nasdaq Stock Market or on a national or regional securities exchange.
XIII. Status of Savings Accounts and Loans Subsequent to Conversion and
-----------------------------------------------------------------
Reorganization
- --------------
All Savings Accounts shall retain the same status after Conversion and
Reorganization as these accounts had prior to Conversion and Reorganization.
Each Savings Account holder shall retain, without payment, a withdrawable
Savings Account(s) after the Conversion and Reorganization, equal in amount to
the withdrawable value of such holder's Savings Account(s) prior to Conversion
and Reorganization. All Savings Accounts will continue to be insured by the
Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans granted by the Savings Bank shall retain the same
status after the Conversion and Reorganization as they had prior to the
Conversion and Reorganization. See Paragraph III.B. with respect to the
termination of voting rights of Members.
XIV. Liquidation Account
-------------------
After the Conversion and Reorganization, holders of Savings Accounts shall
not be entitled to share in any residual assets in the event of liquidation of
the Savings Bank. However, the Savings Bank shall, at the time of the
Conversion and Reorganization, establish a liquidation account in an amount
equal to the amount of dividends with respect to the Savings Bank Common Stock
waived by the MHC plus the greater of (i) the Savings Bank's total retained
earnings as of the date of the latest statement of financial condition contained
in the final offering circular used in connection with the Savings Bank's
reorganization as a majority owned subsidiary of the MHC, or (ii) 53.02% of the
Savings Bank's total stockholders' equity as of the date of the latest statement
of financial condition contained in the final Prospectus used in connection with
the Conversion and Reorganization. The function of the liquidation account
shall be to establish a priority on liquidation and, except as provided in
Section XI.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 Savings Bank.
A-15
<PAGE>
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion and reorganization for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Savings Bank. 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 Savings Bank, 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 Savings Bank 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.
XV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion and Reorganization, 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 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.
A-16
<PAGE>
B. The Holding Company may provide in its articles 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 and Reorganization, 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 of
incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XVI. Directors and Officers of the Savings Bank
------------------------------------------
The Conversion and Reorganization is not intended to result in any change
in the directors or Officers of the Savings Bank. Each Person serving as a
director of the Savings Bank at the time of Conversion and Reorganization shall
continue to serve as a member of the Savings Bank's Board of Directors, subject
to the Savings Bank's Federal Stock Charter and Bylaws. The Persons serving as
Officers immediately prior to the Conversion and Reorganization will continue to
serve at the discretion of the Board of Directors in their respective capacities
as Officers of the Savings Bank. In connection with the Conversion and
Reorganization, the Savings Bank 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 Savings Bank and the Holding
Company.
XVII. Executive Compensation
----------------------
The Savings Bank 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.
XVIII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Savings Bank's Board of Directors or the MHC's Board of Directors, at any
time prior to the Special Meeting of Members and the Meeting of Stockholders.
At any time thereafter, the Plan may be amended by a two-thirds vote of the
respective Boards 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 of Members or the Meeting of Stockholders, and at
any time following such meetings with the concurrence of the OTS. In its
discretion, the Boards of Directors of the MHC and the Savings Bank may modify
or terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting of Members or Meeting of
Stockholders.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion and Reorganization,
the Plan shall be amended to conform to the new mandatory regulations without a
resolicitation of proxies or another Special Meeting of Members or another
Meeting of Stockholders. In the event that new conversion regulations adopted
by the OTS prior to completion of the Conversion and Reorganization 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 Special Meeting of Members or another Meeting of Stockholders.
By adoption of the Plan, the Members and the Savings Bank stockholders
authorize the Boards of Directors of the MHC and the Savings Bank to amend
and/or terminate the Plan under the circumstances set forth above.
XIX. Expenses of the Conversion and Reorganization
---------------------------------------------
The Primary Parties shall use their best efforts to assure that expenses
incurred in connection with the Conversion and Reorganization are reasonable.
A-17
<PAGE>
XX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
A-18
<PAGE>
ANNEX A
-------
PLAN OF MERGER
This Plan of Merger, dated as of __________ ___, 1998, is made by and
between SouthBanc Shares, M.H.C. ("MHC"), a federally chartered mutual holding
company, and Perpetual Bank, A Federal Savings Bank ("Savings Bank" or
"Surviving Corporation"), a federally chartered savings bank (collectively, the
"Constituent Corporations").
WITNESSETH:
WHEREAS, the MHC and the Savings Bank have adopted a Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Agreement and Plan of
Reorganization ("Plan of Conversion") pursuant to which (i) the MHC will convert
to a federally-chartered interim stock savings bank and simultaneously merge
with and into the Savings Bank, with the Savings Bank as the surviving entity
("MHC Merger"), (ii) the Savings Bank and a newly-formed interim federal savings
bank will merge, pursuant to which the Savings Bank will become a wholly-owned
subsidiary of a newly formed stock corporation ("Holding Company") ("Savings
Bank Merger"), and (iii) the Holding Company will offer shares of its common
stock in the manner set forth in the Plan of Conversion (collectively, the
"Conversion and Reorganization"); and
WHEREAS, the MHC and the Savings Bank desire to provide for the terms and
conditions of the MHC Merger;
NOW, THEREFORE, the MHC and the Savings Bank hereby agree as follows:
1. EFFECTIVE DATE. The MHC Merger shall become effective on the date
specified in the endorsement of the Articles of Combination relating to the MHC
Merger by the Secretary of the Office of Thrift Supervision ("OTS") pursuant to
12 C.F.R. 552.13(k), or any successor thereto ("Effective Date").
2. THE MHC MERGER AND EFFECT THEREOF. Subject to the terms and conditions
set forth herein and the prior approval of the OTS of the Conversion and
Reorganization, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, the MHC shall convert from the mutual form to a
federal interim stock savings bank and simultaneously merge with and into the
Savings Bank, which shall be the Surviving Corporation. Upon consummation of
the MHC Merger, the Surviving Corporation shall be considered the same business
and corporate entity as each of the Constituent Corporations and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the
property, rights, privileges, powers, franchises, debts, liabilities,
obligations, duties and relationships of each of the Constituent Corporations
and shall have succeeded to all of each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, obligations, duties and relationships had
been originally acquired, incurred or entered into by the Surviving Corporation.
In addition, any reference to either of the Constituent Corporations in any
contract or document, whether executed or taking effect before or after the
Effective Date, shall be considered a reference to the Surviving Corporation if
not inconsistent with the other provisions of the contract or document; and any
pending action or other judicial proceeding to which either of the Constituent
Corporations is a party shall not be deemed to have abated or to have been
discontinued by reason of the MHC Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the MHC Merger had not
occurred or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the MHC Merger had not occurred.
1
<PAGE>
3. CANCELLATION OF SAVINGS BANK COMMON STOCK HELD BY THE MUTUAL HOLDING
COMPANY AND MEMBER INTERESTS; LIQUIDATION ACCOUNT.
(a) On the Effective Date: (i) each share of common stock, $1.00 par value
per share, of the Savings Bank ("Savings Bank Common Stock") issued and
outstanding immediately prior to the Effective Date and held by the MHC shall,
by virtue of the MHC Merger and without any action on the part of the holder
thereof, be canceled, (ii) the interests in the MHC of any person, firm or
entity who or which qualified as a member of the MHC in accordance with its
mutual charter and bylaws and the laws of the United States prior to the MHC's
conversion from mutual to stock form ("Members") shall, by virtue of the MHC
Merger and without any action on the part of any Member, be canceled, and (iii)
the Savings Bank shall establish a liquidation account on behalf of each
depositor member of the MHC as provided for in the Plan of Conversion.
(b) At or after the Effective Date and prior to the Savings Bank Merger,
each certificate or certificates theretofore, evidencing issued and outstanding
shares of Savings Bank Common Stock, other than any such certificate or
certificates held by the MHC, which shall be canceled, shall continue to
represent issued and outstanding shares of Savings Bank Common Stock.
4. RIGHTS OF DISSENT AND APPRAISAL ABSENT. No holder of Savings Bank
Common Stock shall have any dissenter or appraisal rights in connection with the
MHC Merger.
5. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Perpetual Bank, A Federal Savings Bank."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be nine. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
Harold A. "Drew" Pickens 1998
Robert W. "Lujack" Orr 1997
Martha S. Clamp 1997
Jack F. McIntosh 1999
Charles W. Fant, Jr. 1999
Cordes G. Seabrook, Jr. 1999
Jim Gray Watson 1998
Richard C. Ballenger 1997
F. Stevon Kay 1998
</TABLE>
The address of each director is 907 N. Main Street, Anderson, South
Carolina 29621.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Federal Stock Charter and Bylaws of
the Surviving Corporation and applicable law, the officers of the Savings Bank
immediately prior to the Effective Date shall be the officers of the Surviving
Corporation.
8. OFFICES. Upon the Effective Date, all offices of the Savings Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 907 N. Main Street,
Anderson, South Carolina, and the locations of the branch offices of the
Surviving Corporation shall
2
<PAGE>
be 104 Whitehall Road, Anderson, South Carolina; 2821 South Main Street,
Anderson, South Carolina; Windsor Place Winn Dixie, S.C. Highway 81, Anderson,
South Carolina; 3898 Liberty Highway, Anderson, South Carolina; and 1007 Bypass
123, Seneca, South Carolina.
9. CHARTER AND BYLAWS. On and after the Effective Date, the Charter of
the Savings Bank as in effect immediately prior to the Effective Date shall be
the Federal Stock Charter of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law, except that the Federal
Stock Charter shall be amended to provide for the establishment of a liquidation
account in accordance with applicable the Plan of Conversion. On and after the
Effective Date, the Bylaws of the Savings Bank as in effect immediately prior to
the Effective Date shall be the Bylaws of the Surviving Corporation until
amended in accordance with the terms thereof and applicable law.
10. STOCKHOLDER AND MEMBER APPROVALS. The affirmative votes of the holders
of Savings Bank Common Stock and of the Members as set forth in the Plan of
Conversion shall be required to approve the Plan of Conversion, of which this
Plan of Merger is a part, on behalf of the Savings Bank and the MHC,
respectively.
11. ABANDONMENT OF PLAN. This Plan of Merger may be abandoned by either
the MHC or the Savings Bank at any time before the Effective Date in the manner
set forth in the Plan of Conversion.
12. AMENDMENTS. This Plan of Merger may be amended in the manner set
forth in the Plan of Conversion by a subsequent writing signed by the parties
hereto upon the approval of the Boards of Directors of the Constituent
Corporations.
13. SUCCESSORS. This Agreement shall be binding on the successors of the
Constituent Corporations.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the MHC and the Savings Bank have caused this Plan of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
Attest: SOUTHBANC SHARES, M.H.C.
By:
- ------------------------- ------------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President and Chief Executive Officer
Attest: PERPETUAL BANK, A FEDERAL SAVINGS BANK
By:
- ------------------------- ------------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President and Chief Executive Officer
3
<PAGE>
ANNEX B
-------
PLAN OF REORGANIZATION
This Plan of Reorganization, dated as of _____________ ___, 1998, is made
by and among Perpetual Bank, A Federal Savings Bank ("Savings Bank" or the
"Surviving Corporation"), a federally chartered savings bank and majority owned
subsidiary of SouthBanc Shares, M.H.C. ("MHC"), a federally chartered mutual
holding company; ________________ ("Holding Company"), a ____________
corporation organized by the Savings Bank; and Perpetual Interim "B" Bank, A
Federal Savings Bank ("Interim B"); a to-be formed interim federal stock savings
bank.
WITNESSETH:
WHEREAS, the Savings Bank has organized the Holding Company as a first-
tier, wholly owned subsidiary for the purpose of becoming the stock holding
company of the Savings Bank upon completion of the Conversion and Reorganization
as defined in the Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Agreement and Plan of Reorganization ("Plan of Conversion")
adopted by the Boards of Directors of the MHC and the Savings Bank; and
WHEREAS, the MHC owns as of the date hereof _____% of the outstanding
common stock of the Savings Bank, par value $1.00 per share ("Savings Bank
Common Stock), will convert to a federally-chartered interim stock savings bank
and simultaneously merge with and into the Savings Bank pursuant to the Plan of
Conversion and the Plan of Merger included as Annex A thereto ("MHC Merger"),
pursuant to which all shares of Savings Bank Common Stock held by the MHC will
be canceled; and
WHEREAS, the formation of a stock holding company by the Savings Bank will
be facilitated by causing the Holding Company to become the sole stockholder of
a newly-formed interim stock savings bank ("Interim B") and then merge Interim B
with and into the Savings Bank, pursuant to which the Savings Bank will
reorganize as a wholly-owned subsidiary of the Holding Company
("Reorganization") and, in connection therewith, all outstanding shares of
Savings Bank Common Stock will be converted automatically into and become shares
of common stock of the Holding Company, par value $____ per share ("Holding
Company Common Stock"); and
WHEREAS, Interim B is being organized by the officers of the Savings Bank
as an interim Federal stock savings bank with the Holding Company as its sole
stockholder in order to effect the Reorganization; and
WHEREAS, the Savings Bank and Interim B ("Constituent Corporations") and
the Holding Company desire to provide for the terms and conditions of the
Reorganization.
NOW, THEREFORE, the Savings Bank, Interim B and the Holding Company hereby
agree as follows:
1. EFFECTIVE DATE. The Reorganization shall become effective on the date
specified in the endorsement of the articles of combination relating to the
Reorganization by the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R.
(S)552.13(k), or any successor thereto ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the terms and conditions
set forth herein and the prior approval of the OTS of the Conversion and the
Reorganization, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, Interim B shall merge with and into the Savings
Bank, with the Savings Bank as the Surviving Corporation. Upon consummation of
the Reorganization, the Surviving Corporation shall be considered the same
business and corporate entity as each of the Constituent Corporations and
thereupon and thereafter all the property, rights, powers and franchises of each
of the Constituent Corporations shall vest in the Surviving Corporation and the
Surviving Corporation shall be subject to and be deemed to have assumed all of
the property, rights, privileges, powers, franchises, debts, liabilities,
obligations and duties of each of the Constituent
1
<PAGE>
Corporations and shall have succeeded to all of each of their relationships,
fiduciary or otherwise, fully and to the same extent as if such property,
rights, privileges, powers, franchises, debts, obligations, duties and
relationships had been (originally acquired, incurred or entered into by the
Surviving Corporation. In addition any reference to either of the Constituent
Corporations in any contract or document, whether executed or taking effect
before or after the Effective Date, shall be considered a reference to the
Savings Bank if not inconsistent with the other provisions of the contract or
document; and any pending action or other judicial proceeding of which either of
the Constituent Corporations is a party shall not be deemed to have abated or to
have been discontinued by reason of the Reorganization, but may be prosecuted to
final judgment, order or decree in the same manner as if the Reorganization had
not occurred or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the Reorganization had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of Savings Bank Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Reorganization and without any action on the part of the holder thereof,
be converted into the right to receive Holding Company Common Stock based on the
Exchange Ratio, as defined in the Plan of Conversion, plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $1.00 per share,
of Interim B ("Interim B Common Stock") issued and outstanding immediately prior
to the Effective Date shall, by virtue of the Reorganization and without any
action on the part of the holder thereof, be converted into one share of Savings
Bank Common Stock, and (ii) each share of Holding Company Common Stock issued
and outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled. By voting in favor of this Plan of Reorganization, the Holding
Company, as the sole stockholder of Interim B, shall have agreed (i) to issue
shares of Holding Company Common Stock in accordance with the terms hereof and
(ii) to cancel all previously issued and outstanding shares of Holding Company
Common Stock upon the effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim B or the Savings Bank of shares
of Interim B Common Stock or Savings Bank Common Stock which were outstanding
immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Savings Bank Common
Stock. In lieu thereof, the holder of shares of Savings Bank Common Stock
entitled to a fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing such holder
shares, receive an amount of cash equal to the product arrived at by multiplying
such fraction of a share of Holding Company Common Stock by the Purchase Price,
as defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Savings
Bank Common Stock, upon surrender of the same to an agent, duly appointed by the
Holding Company ("Exchange Agent"), shall be entitled to receive in exchange
therefor certificate(s) representing the number full shares of Holding Company
Common Stock for which the shares of Savings Bank Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted as provided in Section 3(a) hereof. The Exchange Agent shall mail to
each holder of record of an outstanding certificate which immediately prior to
the Effective Date evidenced shares of Savings Bank Common Stock, and which is
to be exchanged for Holding Company Common Stock as provided in Section 3(a)
hereof, a form of letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to such certificate shall pass, only
upon delivery of such certificate to the Exchange Agent advising such holder of
the terms of the exchange effected by the
2
<PAGE>
Reorganization and of the procedure for surrendering to the Exchange Agent such
certificate in exchange for certificate or certificates evidencing Holding
Company Common Stock.
(b) No holder of a certificate theretofore represent shares of Savings Bank
Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of
Savings Bank Common Stock is surrendered in exchange for certificates
representing shares of Holding Company Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Holding Company
Common Stock after the Effective Date but prior to surrender of certificates
representing shares of Savings Bank Common Stock, dividends payable in respect
of shares of Holding Company Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest) upon surrender of
the certificates representing such shares of Savings Bank Common Stock. The
Holding Company shall be entitled, after the Effective Date, to treat
certificates representing shares of Savings Bank Common Stock as evidencing
ownership of the number of full shares of Holding Company Common Stock into
which the shares of Savings Bank Common Stock represented by such certificates
shall have been converted, notwithstanding the failure on the part of the holder
thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Savings Bank Common Stock would otherwise be entitled as a result of
the Reorganization until such holder surrenders the certificate or certificates
representing the shares of Savings Bank Common Stock for exchange as provided in
this Section 4, or, in default thereof, an appropriate Affidavit of Loss and
Indemnification Agreement and/or an indemnity bond as may be required in each
case by the Holding Company. If any certificate evidencing shares of Holding
Company Common Stock is to be issued in a name other than that in which the
Certificate evidencing Savings Bank Common Stock surrendered in exchanged
therefor is registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of Holding Company Common Stock in any name other than
that of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of
Savings Bank Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment or a stock dividend thereon
shall be declared with a record date within said period, the Exchange Ratio
specified in Section 3(a) hereof shall be adjusted accordingly.
5. RIGHTS OF DISSENT AND APPRAISAL ABSENT. No holders of Savings Bank
Common Stock shall have any dissenter or appraisal rights in connection with the
Reorganization.
6. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Perpetual Bank, A Federal Savings Bank."
7. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be nine. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
3
<PAGE>
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
Harold A. "Drew" Pickens 1998
Robert W. "Lujack" Orr 1997
Martha S. Clamp 1997
Jack F. McIntosh 1999
Charles W. Fant, Jr. 1999
Cordes G. Seabrook, Jr. 1999
Jim Gray Watson 1998
Richard C. Ballenger 1997
F. Stevon Kay 1998
</TABLE>
The address of each director is 907 N. Main Street, Anderson, South
Carolina 29521.
8. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Savings Bank immediately
prior to the Effective Date shall be the officers of the Surviving Corporation.
9. OFFICES. Upon the Effective Date, all offices of the Savings Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 907 N. Main Street,
Anderson, South Carolina, and the locations of the branch offices of the
Surviving Corporation shall be 104 Whitehall Road, Anderson, South Carolina;
2821 South Main Street, Anderson, South Carolina; Windsor Place Winn Dixie, S.C.
Highway 81, Anderson, South Carolina; and 3898 Liberty Highway, Anderson, South
Carolina.
10. CHARTER AND BYLAWS. On and after the Effective Date, the Charter and
Bylaws of the Savings Bank as in effect immediately prior to the Effective Date
shall be the Charter and Bylaws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
11. SAVINGS ACCOUNTS. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Corporation without change in their respective terms, including, without
limitation, maturity minimum required balances or withdrawal value.
12. STOCK COMPENSATION PLANS. By voting in favor of this Agreement, the
Holding Company shall have approved adoption of the Savings Bank's 1993 Stock
Option Plan, 1996 Stock Option Plan, 1993 Management Development and Recognition
Plan and 1996 Management Development and Recognition Plan (collectively, the
"Plans") as plans of the Holding Company and shall have agreed to issue Holding
Company Common Stock in lieu of Savings Bank Common Stock pursuant to the terms
of such Plans. As of the Effective Date, rights outstanding under the Plans
shall be assumed by the Holding Company and thereafter shall be rights only for
shares of Holding Company Common Stock, with each such right being for a number
of shares of Holding Company Common Stock equal to the number of shares of
Savings Bank Common Stack that were available thereunder immediately prior to
the Effective Date times the Exchange Ratio, as defined in the plan of
conversion, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in any other term or condition of such right. The
Holding Company shall make appropriate amendments to the Plans to reflect the
adoption of the Plans by the Holding Company without adverse effect upon the
rights outstanding thereunder.
13. STOCKHOLDER APPROVAL. The affirmative votes of the holders of Savings
Bank Common Stock set forth in the Plan of Conversion shall be required to
approve the Plan of Conversion and Agreement and Plan of Reorganization, of
which this Plan of Reorganization is a part, on behalf of the Savings Bank. The
approval of the Holding Company, as the sole holder of the Interim B Common
Stock, shall be required to approve the Plan of Conversion, of which this Plan
of Reorganization is a part, on behalf of Interim B.
4
<PAGE>
14. REGISTRATION; OTHER APPROVALS. In addition to the approvals set forth
in Sections 1 and 13 hereof and in the Plan of Conversion, the obligations of
the parties hereto to consummate the Reorganization shall be subject to the
Holding Company Common Stock to be issued hereunder in exchange for Savings Bank
Common Stock being registered under the Securities Act of 1933, as amended, and
registered or qualified under applicable state securities laws, as well as the
receipt of all other approvals, consents or waivers as the parties may deem
necessary or advisable.
15. ABANDONMENT OF PLAN. This Plan of Reorganization may be abandoned by
either the Savings Bank or Interim B at any time before the Effective Date in
the manner set forth in the Plan of Conversion.
16. AMENDMENTS. This Plan of Reorganization may be amended in the manner
set forth in the Plan of Conversion by a subsequent writing signed by the
parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
17. SUCCESSORS. This Plan of Reorganization shall be binding on the
successors of the parties hereto.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the Parties hereto have cause this Plan of
Reorganization to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
Attest: SOUTHBANC SHARES, M.H.C.
By:
- ---------------------------- ---------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President
Attest: _________________
By:
- ---------------------------- ---------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President
Attest: PERPETUAL INTERIM "B" BANK, A FEDERAL
SAVINGS BANK
By:
- ---------------------------- ---------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President
5
<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
OF
SOUTHBANC SHARES, M.H.C.
FOR THE SPECIAL MEETING OF MEMBERS
TO BE HELD ON MARCH __, 1998
The undersigned member of SouthBanc Shares, M.H.C. ("MHC") hereby appoints
the Board of Directors, with full powers of substitution, as attorneys-in-fact
and agents for and in the name of the undersigned, to vote such shares as the
undersigned may be entitled to cast at the Special Meeting of Members
("Meeting") of the MHC, to be held at the main office of Perpetual Bank, A
Federal Savings Bank, 907 N. Main Street, Anderson, South Carolina, on the date
and time indicated on the Notice of Special Meeting of Members, and at any
adjournment thereof. They are authorized to cast all votes to which the
undersigned is entitled, as follows:
<TABLE>
<CAPTION>
FOR AGAINST
<S> <C> <C>
(1) To approve an Amended Plan of Conversion and Agreement and Plan of
Reorganization adopted by the Board of Directors on September 22, 1997, to
convert the MHC from a federally chartered mutual holding company to a stock
holding company, to be known as "SouthBanc Shares, Inc.," and the
reorganization of Perpetual Bank, A Federal Savings Bank as wholly-owned
subsidiary thereof, including the adoption of Certificate of Incorporation
and Bylaws for the stock holding company, pursuant to the laws of the United
States and the rules and regulations of the Office of Thrift Supervision.
[ ] [ ]
</TABLE>
NOTE: The Board of Directors is not aware of any other matter that may come
before the Meeting.
<PAGE>
THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS
STATED IF NO CHOICE IS MADE HEREIN
Should the undersigned be present and elect to vote at said Meeting or at
any adjournment thereof and, after notification to the Secretary of the MHC at
said Meeting of the member's decision to terminate this Proxy, then the power of
said attorney-in-fact or agents shall be deemed terminated and of no further
force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members of the MHC called on the date and time indicated on the Notice of
Special Meeting, and a Proxy Statement relating to said Meeting from the MHC,
prior to the execution of this Proxy.
- ------------------------------------------
Date
- ------------------------------------------
Signature
- ------------------------------------------
Signature
Note: Only one signature is required in the case of a joint account. If
signing as a trustee, executor, administrator or in some other fiduciary
capacity, so indicate.
<PAGE>
EXHIBIT 99.6
______________, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Perpetual Savings Bank, A Federal Savings Bank, which will be held at the main
office of the Savings Bank, 907 N. Main Street, Anderson, South Carolina, on
_________, March __, 1998, at __:00 __.m., Eastern Time.
The attached Notice of Annual Meeting of Stockholders and Proxy Statement
describe the formal business to be transacted at the meeting. In addition to
the routine matters of electing directors and ratifying the appointment of
independent auditors, you will be asked to approve an Amended Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Agreement and Plan of
Reorganization ("Plan of Conversion"). The Plan of Conversion provides for the
conversion of SouthBanc Shares, M.H.C. from a mutual holding company to a stock
holding company, to be known as SouthBanc Shares, Inc. ("Holding Company"), and
the reorganization of the Savings Bank as a wholly-owned subsidiary of the
Holding Company.
During the meeting, we will also report on the operations of the Savings
Bank. Directors and Officers of the Savings Bank, as well as a representative
of KPMG Peat Marwick LLP, the Savings Bank's independent auditors, will be
present to respond to appropriate questions from stockholders.
Detailed information regarding the Savings Bank's activities and operating
performance during the fiscal year ended September 30, 1997, is contained in the
Holding Company's Prospectus dated _____________, 1998, which also is enclosed.
The Prospectus is provided in lieu of the Savings Bank's Annual Report to
Stockholders.
Your vote is important, regardless of the number of shares you own. THE
BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. This
will not prevent you from voting in person at the Annual Meeting, but will
assure that your vote is counted if you are unable to attend.
Sincerely,
Robert W. Orr
President
<PAGE>
PERPETUAL SAVINGS BANK, A FEDERAL SAVINGS BANK
907 N. MAIN STREET
ANDERSON, SOUTH CAROLINA 29621
(864) 225-0241
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH , 1998
- --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Meeting")
of Perpetual Savings Bank, A Federal Savings Bank ("Savings Bank") will be held
at the main office of the Savings Bank, 907 N. Main Street, Anderson, South
Carolina, on _________, March __, 1998, at __:00 __.m., Eastern Time.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. To approve an Amended Plan of Conversion from Mutual Holding Company
to Stock Holding Company and Agreement and Plan of Reorganization
("Plan of Conversion") providing for the conversion of SouthBanc
Shares, M.H.C. ("MHC"), the mutual holding company of the Savings
Bank, to a stock holding company, with the concurrent issuance and
sale of all of the Savings Bank's outstanding common stock to
SouthBanc Shares, Inc. ("Holding Company"), a Delaware corporation,
and the issuance and sale of the Holding Company's common stock to the
public; and the other transactions provided for in the Plan of
Conversion;
2. The election of three directors of the Savings Bank;
3. The approval of the appointment of KPMG Peat Marwick LLP as
independent auditors for the Savings Bank for the fiscal year ending
September 30, 1998; and
4. Such other matters as may properly come before the Meeting or any
adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on any one of the foregoing proposals at the
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Meeting may be adjourned. Pursuant to the
Savings Bank's Bylaws, the Board of Directors has fixed the close of business on
_____________, 1998, as the record date for the determination of the
stockholders entitled to notice of and to vote at the Meeting and any
adjournments thereof.
You are requested to complete and sign the enclosed form of Proxy, which is
solicited by the Board of Directors, and to mail it promptly in the enclosed
envelope. The Proxy will not be used if you attend the Meeting and vote in
person.
BY ORDER OF THE BOARD OF DIRECTORS
SYLVIA B. REED
SECRETARY
Anderson, South Carolina
February __, 1998
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE SAVINGS BANK THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROXY STATEMENT
OF
PERPETUAL SAVINGS BANK, A FEDERAL SAVINGS BANK
907 N. MAIN STREET
ANDERSON, SOUTH CAROLINA 29621
(864) 225-0241
- --------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
MARCH , 1998
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Perpetual Savings Bank, A Federal Savings
Bank ("Savings Bank") to be used at the Annual Meeting of Stockholders (as may
be adjourned or postponed, the "Meeting") of the Savings Bank. The Meeting will
be held at the Savings Bank's main office, 907 N. Main Street, Anderson, South
Carolina, on _________, March __, 1998, at __:00 __.m., Eastern Time. The
accompanying Notice of Annual Meeting of Stockholders and this Proxy Statement
are being first mailed to stockholders on or about February ___, 1998.
- --------------------------------------------------------------------------------
REVOCATION OF PROXIES
- --------------------------------------------------------------------------------
Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted
at the Meeting. Proxies may be revoked by written notice delivered in person or
mailed to the Secretary of the Savings Bank at the above address, or the filing
of a later proxy prior to a vote being taken on a particular proposal at the
Meeting. A proxy will not be voted if a stockholder attends the Meeting and
votes in person. Proxies solicited by the Board of Directors of the Savings
Bank will be voted in accordance with the directions given therein. Where no
instructions are indicated, executed proxies will be voted for the nominees for
directors set forth below and in favor of the other proposals set forth herein.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND SECURITIES OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
Stockholders of record as of the close of business on _____________, 1998
("Voting Record Date"), are entitled to one vote for each share of common stock
of the Savings Bank ("Savings Bank Common Stock") then held. As of the Voting
Record Date, _________ shares of Savings Bank Common Stock were issued and
outstanding, _________ of which were owned by SouthBanc Shares, M.H.C. ("MHC"),
the Savings Bank's mutual holding company. All share data included herein has
been adjusted to reflect all stock dividends paid by the Savings Bank.
The presence, in person or by proxy, of at least a majority of the total
number of outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Meeting. SINCE THE MHC OWNS MORE THAN 50% OF THE
OUTSTANDING SHARES OF COMMON STOCK, THE VOTES CAST BY THE MHC WILL CONSTITUTE
THE PRESENCE OF A QUORUM AND WILL DETERMINE THE OUTCOME OF THE PROPOSAL II
(ELECTION OF DIRECTORS) AND PROPOSAL III (APPROVAL OF APPOINTMENT OF INDEPENDENT
AUDITORS) SET FORTH HEREIN. PROPOSAL I (APPROVAL OF PLAN OF CONVERSION FROM
MUTUAL HOLDING COMPANY TO STOCK HOLDING COMPANY AND AGREEMENT AND PLAN OF
REORGANIZATION) MUST BE APPROVED BY THE HOLDERS OF AT LEAST TWO-THIRDS OF THE
OUTSTANDING SHARES OF SAVINGS BANK COMMON STOCK AND BY THE HOLDERS OF AT LEAST A
MAJORITY OF THE OUTSTANDING SHARES OF SAVINGS BANK COMMON STOCK PRESENT IN
PERSON OR BY PROXY AT THE MEETING (OTHER THAN THOSE HELD BY THE MHC).
<PAGE>
The nominees for directors who receive a plurality of the votes cast by the
holders of the outstanding Common Stock entitled to vote at the Meeting will be
elected. Votes may be cast for or withheld from each nominee. Votes that are
withheld will have no effect on the outcome of the election because directors
will be elected by a plurality of votes cast. An affirmative majority of the
votes cast is required to ratify the appointment of independent auditors.
Abstentions and "broker non-votes" (i.e., shares held by brokers or
----
nominees as to which instructions have not been received and the broker or
nominee does not have discretionary voting power) will be treated as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. The vote of a stockholder who abstains will, however, have the same
effect as a vote "against" a proposal. "Broker non-votes" will have no effect
on whether or not a proposal passes.
Persons and groups beneficially owning in excess of 5% of the Common Stock
are required to file with the Office of Thrift Supervision ("OTS"), and provide
a copy to the Savings Bank, certain reports disclosing such ownership pursuant
to the Securities Exchange Act of 1934, as amended ("Exchange Act"). Based upon
such reports, the following table sets forth, as of the Voting Record Date,
certain information as to those persons who were beneficial owners of more than
5% of the outstanding shares of Common Stock and as to the shares of Common
Stock beneficially owned by the Savings Bank's named executive officers and by
all officers and directors of the Savings Bank as a group. See "PROPOSAL II --
ELECTION OF DIRECTORS" for information concerning the beneficial ownership of
shares of Common Stock by each of the Savings Bank's directors.
<TABLE>
<CAPTION>
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- --------------------- -----------
<S> <C> <C>
BENEFICIAL OWNERS OF MORE THAN 5%
SouthBanc Shares, M.H.C.
DIRECTORS
Harold A. Pickens, Jr.
Martha S. Clamp
Jack F. McIntosh
Charles W. Fant, Jr.
Cordes G. Seabrook, Jr.
Jim Gray Watson
Richard C. Ballenger
F. Stevon Kay
NAMED EXECUTIVE OFFICERS*
Robert W. Orr**
Thomas C. Hall (2)
Barry C. Visioli (3)
All Officers and
Directors as a
Group (21 persons) (4)
</TABLE>
(footnotes on following page)
2
<PAGE>
____________________
* Under OTS regulations, the term "named executive officer" is defined to
include the chief executive officer, regardless of compensation level, and
the four most highly compensated executive officers, other than the chief
executive officer, whose total annual salary and bonus for the last
completed fiscal year exceeded $100,000. Messrs. Orr, Hall and Visioli
were the Savings Bank's only "named executive officers" for the fiscal year
ended September 30, 1997.
** Mr. Orr is also a director of the Savings Bank.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of
Common Stock if he or she has voting and/or investment power with respect
to such security. The table includes shares owned by spouses, other
immediate family members in trust, shares held in retirement accounts or
funds for the benefit of the named individuals, and other forms of
ownership, over which shares the persons named in the table may possess
voting and/or investment power. Shares which are subject to stock options
that are exercisable within 60 days of the Voting Record Date are deemed to
be beneficially owned.
(2) Includes _____ shares of Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of the Voting
Record Date.
(3) Includes _____ shares of Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of the Voting
Record Date.
(4) Includes _____ shares of Common Stock which may be received upon the
exercise of stock options that are exercisable within 60 days of the Voting
Record Date.
- --------------------------------------------------------------------------------
PROPOSAL I -- APPROVAL OF PLAN OF CONVERSION FROM MUTUAL HOLDING COMPANY
TO STOCK HOLDING COMPANY AND AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------------------------------------------------
On September 22, 1997, the Boards of Directors of the MHC and the Savings
Bank unanimously adopted, and on December 22, 1997 unanimously amended, the Plan
of Conversion, pursuant to which the MHC will convert from a mutual holding
company to a stock holding company and the Savings Bank simultaneously
reorganize as a wholly-owned subsidiary of the Holding Company, a newly formed
Delaware corporation. THE FOLLOWING DISCUSSION OF ALL MATERIAL ASPECTS OF THE
PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF
CONVERSION, WHICH IS ATTACHED HERETO AS EXHIBIT A. The OTS has approved the
Plan of Conversion subject to its approval by the members of the MHC entitled to
vote on the matter at the Special Meeting of Members called for that purpose to
be held on ____________, 1998, its approval by the stockholders of the Savings
Bank entitled to vote on the matter at the Stockholders' Meeting called for that
purpose to be held on ____________, 1998, and its approval by the stockholders
of the Savings Bank (excluding the MHC) entitled to vote on the matter at the
Stockholders' Meeting, and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (i.e. Interim A) and simultaneously merge with and into the
----
Savings Bank, pursuant to which the MHC will cease to exist and the shares of
Savings Bank Common Stock held by the MHC will be canceled, and (ii) Interim A
will then merge with and into the Savings Bank. As a result of the merger of
Interim A with and into the Savings Bank, the Savings Bank will become a wholly
owned subsidiary of the Holding Company and the Public Savings Bank Shares will
be converted into the Exchange Shares pursuant to the Exchange Ratio, which will
result in the holders of such shares owning in the aggregate approximately the
same percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization (i.e., the Conversion Shares and the Exchange
----
Shares) as the percentage of Savings Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, but before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares and (b) any shares of Conversion Stock
purchased by the Savings Bank's stockholders in the Conversion Offerings.
3
<PAGE>
As part of the Conversion and Reorganization, the Holding Company is
offering Conversion Shares in the Subscription Offering to holders of
Subscription Rights in the following order of priority: (i) Eligible Account
Holders (depositors of the Savings Bank with $50.00 or more on deposit as of the
close of business on June 30, 1996); (ii) Supplemental Eligible Account Holders
(depositors of the Savings Bank with $50.00 or more on deposit as of the close
of business on December 31, 1997); and (iii) Other Members (depositors of the
Savings Bank as of the close of business on ___________, 1998 and borrowers of
the Savings Bank with loans outstanding as of the close of business on October
26, 1993, which continue to be outstanding as of the close of business on
__________, 1997).
Concurrently with the Subscription Offering, any Conversion Shares 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 first to Public Stockholders as of the close of business on the Voting
Record Date (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons residing in the Local Community. Conversion Shares 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 fully extended Subscription Offering unless extended by the Savings Bank 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 Savings Bank will consult with the regulatory authorities to
determine an appropriate alternative method for selling the unsubscribed
Conversion Shares. The Plan of Conversion provides that the Conversion and
Reorganization must be completed within 24 months after the date of the approval
of the Plan of Conversion by the members of the MHC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF PLAN OF
CONVERSION.
- --------------------------------------------------------------------------------
INCORPORATION BY REFERENCE
- --------------------------------------------------------------------------------
Each person receiving this Proxy Statement is also receiving the
accompanying Prospectus of SouthBanc Shares, Inc. dated ______________, 1998.
Although such Prospectus is incorporated herein by reference, this Proxy
Statement does not constitute an offer to buy or a solicitation of an offer to
buy the common stock of the Holding Company.
The Savings Bank urges each recipient of this Proxy Statement to read
carefully the sections of the Prospectus that describe (i) the Conversion and
Reorganization (see "THE CONVERSION AND REORGANIZATION") and the (ii) business
of the Holding Company and the Savings Bank (see "BUSINESS OF THE HOLDING
COMPANY" and "BUSINESS OF THE SAVINGS BANK" in the Prospectus), (iii) reasons
for the Conversion and Reorganization and management's belief that the
Conversion and Reorganization is in the best interests of the Savings Bank and
its stockholders, (iv) employment agreements, severance agreements, severance
plans and stock benefit plans that the Savings Bank and/or the Holding Company
intend to implement in connection with the Conversion and Reorganization (see
"MANAGEMENT OF THE SAVINGS BANK" in the Prospectus), (v) the common stock of the
Holding Company (see "DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY" in
the Prospectus), (vi) the historical capitalization of the Savings Bank and the
pro forma capitalization of the Holding Company (see "CAPITALIZATION" in the
Prospectus), (vii) the historical and pro forma capital compliance of the
Savings Bank (see "HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" in the
Prospectus), (viii) pro forma financial information with respect to the
Conversion and Reorganization (see "PRO FORMA DATA" in the Prospectus), (ix) the
Holding Company and the Savings Bank's respective intended use of proceeds of
the Conversion Offerings (see "USE OF PROCEEDS" in the Prospectus), (x) the
Holding Company's proposed dividend policy (See "DIVIDEND POLICY" in the
Prospectus), (xi) restrictions on the acquisition of the Holding Company,
including anti-takeover provisions in the Holding Company's Articles of
Incorporation and Bylaws (see "RESTRICTIONS ON THE ACQUISITION OF THE HOLDING
COMPANY" in
4
<PAGE>
the Prospectus), (xii) a comparison of the rights of the holders of Savings Bank
Common Stock and rights of the holders of the Holding Company's common stock,
and (xiii) the consolidated financial statements of the Savings Bank appearing
in the Prospectus.
- --------------------------------------------------------------------------------
PROPOSAL II -- ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Savings Bank's Board of Directors consists of seven members. The
Savings Bank's Bylaws provide that directors are elected for terms of three
years, one-third of whom are elected annually. The Nominating Committee has
nominated for election as directors Harold A. Pickens, Jr. and Robert W. Orr for
the terms set forth in the table on the following page. The nominees are
current members of the Board of Directors of the Savings Bank. Stockholders are
not permitted to cumulate their votes for the election of directors.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend or the Board of Directors may amend the Bylaws and
reduce the size of the Board. At this time, the Board knows of no reason why
any nominee might be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES NAMED
BELOW FOR DIRECTORS OF THE SAVINGS BANK.
The following table sets forth certain information as to each nominee and
director continuing in office.
<TABLE>
<CAPTION>
Year First
Appointed Year
Principal Occupation or Elected Term
Name Age(1) for Past Five Years Director Expires
---- ------ ------------------- -------- -------
<S> <C> <C> <C> <C>
BOARD NOMINEES
Richard C. Ballenger 49 President of City Glass Company and 1996 2000(2)
D&B Glass Company, Inc.
Robert W. "Lujack" Orr 49 President, Managing Officer and a Director 1989 2000(2)
of the Savings Bank and the Holding Company
Martha S. Clamp 55 Self-employed certified public accountant 1988 2000(2)
DIRECTORS CONTINUING IN OFFICE
Harold A. "Drew" Pickens, Jr. 64 Chairman of Board of the Savings Bank and 1977 1998
the Holding Company
Jim Gray Watson 68 Former President and Chief Executive Officer 1976 1998
of the Savings Bank prior to his retirement
in December 1990
F. Stevon Kay 46 President of Hill Electric Company, Inc. 1996 1998
Jack F. McIntosh 69 Partner in the law firm of McIntosh and 1988 1999
Sherard, Anderson, South Carolina
</TABLE>
(table continued on following page)
5
<PAGE>
<TABLE>
<CAPTION>
Year First
Appointed Year
Principal Occupation or Elected Term
Name Age(1) for Past Five Years Director Expires
---- ------ ------------------- -------- -------
<S> <C> <C> <C> <C>
DIRECTORS CONTINUING IN OFFICE (continued)
Charles W. Fant, Jr. 71 Partner in the architectural firm of 1977 1999
Fant & Fant Architects, Anderson,
South Carolina
Cordes G. Seabrook, Jr. 70 Partner in Value Systems, Gastonia, 1976 1999
North Carolina, an association management
company
</TABLE>
- -------------------------
(1) At September 30, 1997.
(2) Assuming election or re-election at the Meeting.
- --------------------------------------------------------------------------------
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The business of the Savings Bank is conducted through meetings and activities
of its Board of Directors and its committees. During the fiscal year ended
September 30, 1997, the Board of Directors held 12 regular meetings. No
director attended fewer than 75% of the total meetings of the Board of Directors
of the Savings Bank and committees on which such director served.
The Executive Committee of the Board of Directors, which consists of
Directors Fant (Chairman), Pickens, Seabrook, Watson and Orr, meets as necessary
in between meetings of the full Board of Directors. All actions of the
Executive Committee must be ratified by the full Board of Directors. The
Executive Committee reviews directors' and officers' compensation and makes
recommendations to the full Board of Directors in this regard. The Executive
Committee also recommends prospective new Board members to the full Board of
Directors and insures that all directors, directors emeriti and officers are
acting in compliance with the Savings Bank's Charter and Bylaws. The Executive
Committee met once during the fiscal year ended September 30, 1997.
The Audit Committee of the Savings Bank consists of Directors Pickens
(Chairman), Clamp, Orr and Watson and Thomas C. Hall, Senior Vice President,
and Doris Hoover, a Savings Bank staff member. This committee is responsible
for developing and monitoring the Savings Bank's audit program. The committee
selects the Savings Bank's outside auditor and meets with them to discuss the
results of the annual audit and any related matters. The members of the
committee also receive and review all the reports and findings and other
information presented to them by the Savings Bank's officers regarding financial
reporting policies and practices. In addition, the Savings Bank's Internal
Auditor and Compliance Coordinator operate under the direction of the Audit
Committee and report quarterly to the committee. The committee meets quarterly.
The Audit Committee met four times during the fiscal year ended September 30,
1997.
The Savings Bank's full Board of Directors serves as a Nominating Committee.
The Board of Directors met once in its capacity as the nominating committee
during the 1997 fiscal year.
The Savings Bank also has standing Loan, Pension Plan, Strategic Planning and
Asset/Liability Management Committees.
6
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
The following information is provided for the named executive officers.
<TABLE>
<CAPTION>
========================================================================================================================
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
-------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------
Name and
Principal Other Restricted
Position Annual Stock LTIP All Other
with the Salary Bonus Compensation Awards Options Payouts Compensation
Savings Bank Year ($)(1) ($) ($) ($)(2) (#) ($) ($)(3)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert W. Orr, 1997 $95,000 $59,299 $ -- 330,525 10,250 -- $14,658
President and
Managing Officer 1996 71,350 61,017 5,750 -- -- -- 13,085
1995 69,077 58,889 5,750 -- -- -- 12,185
Thomas C. Hall, 1997 80,000 50,616 -- 330,525 10,250 -- 12,409
Senior Vice
President 1996 60,902 52,082 2,880 -- -- -- 10,904
1995 58,962 50,265 2,870 -- -- -- 10,218
Barry C. Visioli 1997 70,000 48,552 -- 330,525 10,250 -- 11,263
Senior Vice
President 1996 58,418 49,958 2,880 -- -- -- 10,483
1995 56,557 48,216 2,870 -- -- -- 9,844
========================================================================================================================
</TABLE>
- -------------------------------
(1) Includes salary and directors' fees.
(2) Represents the value of shares of Savings Bank Common Stock awarded under
the 1996 MRP that vested in equal installment over a five-year period
beginning on April 7, 1998. Dividends are paid on such awards if and when
dividends are declared and paid by the Savings Bank. At September 30, 1997,
the value of the awards were $330,525 for each of Mr. Orr, Mr. Hall and Mr.
Visioli (5,850 shares at $56.50 per share).
(3) Represents employer 401(k) Plan contributions.
7
<PAGE>
EMPLOYMENT AGREEMENTS
The MHC and the Savings Bank currently maintain employment agreements with
Messrs. Orr, Hall and Visioli that were entered into in connection with the MHC
Reorganization. In connection with the Conversion and Reorganization, the
Holding Company and the Savings Bank (collectively, the "Employers") will enter
into three-year employment agreements ("Employment Agreements") with these same
individuals (individually, the "Executive"), which have substantially the same
terms as and will replace the existing agreements.
Under the Employment Agreements, the initial salary levels for Messrs. Orr,
Hall and Visioli will be $98,800, $83,200 and $72,800, respectively, which
amounts will be paid by the Savings Bank and may be increased at the discretion
of the Board of Directors. 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 in certain circumstances, the Savings Bank
would be required to honor the terms of the agreement through the expiration of
the then 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 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 maximum value of the severance benefits under the Employment Agreements
is 2.99 times the Executive's average annual compensation during the five-year
period preceding the effective date of the change in control (the "base
amount"). The Employment Agreements provide that the value of the maximum
benefit may be distributed, at the Executive's election, (i) in the form of a
lump sum cash payment equal to 2.99 times the Executive's base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total present value of which does not exceed 2.99 times the
Executive's base amount. Assuming that a change in control had occurred at
September 30, 1997 and that each Executive elected to receive a lump sum cash
payment, Messrs. Orr, Hall and Visioli would be entitled to payments of
approximately $220,000, $187,000 and $176,000, respectively. Section 280G of
the Internal Revenue Code of 1986, as amended ("Code"), provides that severance
payments that equal or exceed three times the individual's base amount 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 the 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's employment is terminated without cause, except if
such termination occurs after a change in control.
8
<PAGE>
OPTION GRANTS TABLE
The following table sets forth all grants of options to the named executive
officers for the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
==========================================================================
OPTION GRANTS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------
Individual Grants
- --------------------------------------------------------------------------
Percent of
Total Options
Number of Granted to Exercise
Options Employees in Price Expiration
Name Granted Fiscal Year Per Share Date
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Orr 10,250 26% $25.25 April 2007
- --------------------------------------------------------------------------
Thomas C. Hall 10,250 26% $25.25 April 2007
- --------------------------------------------------------------------------
Barry C. Visioli 10,250 26% $25.25 April 2007
==========================================================================
</TABLE>
OPTION EXERCISE/VALUE TABLE
The following table sets forth all exercises of options by the named
executive officers for the fiscal year ended September 30, 1997.
<TABLE>
<CAPTION>
==============================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
- ------------------------------------------------------------------------------
Value of
Number of Unexercised
Number of Unexercised In-the-Money
Shares Options at Options at
Acquired Dollar Fiscal Year End Fiscal Year End
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert W. Orr 2,956 $57,642 --/-- $--/$--
- ------------------------------------------------------------------------------
Thomas C. Hall -- -- 2,300/-- $106,950/$--
- ------------------------------------------------------------------------------
Barry C. Visioli -- -- 2,300/-- $106,950/$--
==============================================================================
</TABLE>
- ------------------------------------------------------------------------------
DIRECTORS' COMPENSATION
- ------------------------------------------------------------------------------
Directors (including Directors Emeriti, but excluding directors who are
full-time employees) receive annual compensation of $10,800, payable $900
monthly, and $100 for each committee meeting attended. No fees are paid
9
<PAGE>
for attending special meetings of the Board. The Savings Bank's Chairman of the
Board receives compensation of $12,000 per year. The Savings Bank paid a total
of $109,000 in directors' and committee fees for the fiscal year ended September
30, 1997. Director compensation is deducted by $100 for each meeting absence.
Directors also participate in the Savings Bank's stock option programs.
- --------------------------------------------------------------------------------
PROPOSAL III -- APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
KPMG Peat Marwick LLP was the Savings Bank's independent auditors for the
fiscal year ended September 30, 1997. The Board of Directors has appointed KPMG
Peat Marwick LLP as independent auditors for the fiscal year ending September
30, 1998, subject to approval by the Savings Bank's stockholders. A
representative of KPMG Peat Marwick LLP is expected to be present at the Meeting
to respond to stockholders' questions and will have the opportunity to make a
statement if he so desires.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL
OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS OF THE
SAVINGS BANK FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1998.
- --------------------------------------------------------------------------------
TRANSACTIONS WITH THE SAVINGS BANK
- --------------------------------------------------------------------------------
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 (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Savings Bank's policy is not to make any new
loans or extensions of credit to the Savings Bank's executive officers and
directors at different rates or terms than those offered to the general public.
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 Savings
Bank'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.
The aggregate amount of loans by the Savings Bank to its executive officers and
directors was $___ million at September 30, 1997.
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors of the Savings Bank is not aware of any business to
come before the Meeting other than those matters described above in this Proxy
Statement. However, if any other matters should properly come before the
Meeting, it is intended that proxies in the accompanying form will be voted in
respect thereof in accordance with the judgment of the person or persons voting
the proxies.
The cost of solicitation of proxies will be borne by the Savings Bank. In
addition to solicitations by mail, directors, officers and regular employees of
the Savings Bank may solicit proxies personally or by telegraph or telephone
without additional compensation.
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Holding Company's Prospectus dated ____________, 1998, which includes
consolidated financial statements of the Savings Bank, has been mailed to all
stockholders of record as of the close of business on the Voting Record Date.
Any stockholder who has not received a copy of such Prospectus may obtain a copy
by writing
10
<PAGE>
to the Secretary of the Savings Bank. The Prospectus is incorporated herein to
the extent set forth under the section, "Incorporation By Reference."
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
Upon consummation of the Conversion and Reorganization, the stockholders of
the Savings Bank will become stockholders of the Holding Company. In order to
be eligible for inclusion in the Holding Company's proxy materials for its
Annual Meeting of Stockholders next year, any stockholder proposal to take
action at such meeting must be received at the Holding Company's main office at
907 N. Main Street, Anderson, South Carolina, no later than ___________, 1998.
Any such proposals shall be subject to the requirements of the proxy
solicitation rules adopted under the Exchange Act.
BY ORDER OF THE BOARD OF DIRECTORS
SYLVIA B. REED
SECRETARY
Anderson, South Carolina
February ___, 1998
- --------------------------------------------------------------------------------
A COPY OF THE FORM 10-KSB AS FILED WITH THE OFFICE OF THRIFT SUPERVISION WILL BE
FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON WRITTEN
REQUEST TO SYLVIA B. REED, SECRETARY, PERPETUAL SAVINGS BANK, A FEDERAL SAVINGS
BANK, 907 N. MAIN STREET, ANDERSON, SOUTH CAROLINA 20621.
- --------------------------------------------------------------------------------
11
<PAGE>
EXHIBIT A
SOUTHBANC SHARES, M.H.C.
PERPETUAL BANK, A FEDERAL SAVINGS BANK
ANDERSON, SOUTH CAROLINA
AMENDED PLAN OF CONVERSION FROM MUTUAL HOLDING COMPANY TO STOCK
HOLDING COMPANY AND AGREEMENT AND PLAN OF REORGANIZATION
I. General
-------
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section II unless otherwise defined herein.
SouthBanc Shares, M.H.C., Anderson, South Carolina ("MHC") was formed on
October 26, 1993 to act as the federally chartered mutual holding company for
Perpetual Bank, A Federal Savings Bank, Anderson, South Carolina ("Savings
Bank"), a federally chartered capital stock savings bank. As of the date
hereof, the MHC beneficially and of record owns 800,000 shares of common stock,
par value $1.00 per share, of the Savings Bank ("Savings Bank Common Stock"),
representing approximately 53.02% of the outstanding voting stock of the Savings
Bank and the remaining 708,873 shares of Savings Bank Common Stock, or 46.98%,
are owned by persons other than the MHC ("Public Stockholders").
This Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Agreement and Plan of Reorganization ("Plan") provides for the
conversion of the MHC to the stock form of organization and the reorganization
of the Savings Bank as a wholly owned subsidiary of a newly formed stock holding
company (collectively, "Conversion and Reorganization"). The Boards of
Directors of the MHC and the Savings Bank believe that the Conversion and
Reorganization is in the best interests of the MHC, the members of the MHC, the
Savings Bank and its stockholders. As a result of the Conversion and
Reorganization, the Savings Bank will be wholly owned by a stock holding
company, which is a more common structure and form of ownership than a mutual
holding company. The Board of Directors determined that the Plan equitably
provides for the interests of Members through the granting of subscription
rights and the establishment of a liquidation account and that consummation of
the Conversion and Reorganization would not adversely impact the stockholders'
equity of the Savings Bank.
The Conversion and Reorganization will provide the Savings Bank with a
larger capital base which will enhance its ability to pursue lending and
investment opportunities, as well as opportunities for growth and expansion. The
Conversion and Reorganization also will provide a more flexible operating
structure, which will enable the Savings Bank to compete more effectively with
other financial institutions. In addition, the Conversion and Reorganization
will raise additional equity capital for the Savings Bank. Finally, the
Conversion and Reorganization has been structured to reunite the accumulated
earnings and profits retained by the MHC with the retained earnings of the
Savings Bank through a tax-free reorganization.
Pursuant to the Plan, the Savings Bank will form a new first-tier
subsidiary which will be incorporated under state law as a stock corporation
("Holding Company"). The Holding Company will then form an interim federal
stock savings bank ("Interim B") as a wholly owned subsidiary. As described in
greater detail herein, simultaneously with the conversion of the MHC to an
interim federal stock savings bank ("Interim A"), the Savings Bank, MHC and
Holding Company will undergo a reorganization in which Interim A will merge with
and into the Savings Bank, Interim B will merge with and into the Savings Bank,
the Holding Company will become the parent company of the Savings Bank, and the
Holding Company will issue and sell its Conversion Stock pursuant to this Plan.
On September 22, 1997, after careful study and consideration, the Boards of
Directors of the MHC and the Savings Bank adopted, and on December 22, 1997,
subsequently amended, this Plan. The Plan must be approved by the affirmative
vote of a majority of the total number of votes eligible to be cast by Members
of the MHC at a special meeting to be called for that purpose and by the holders
of at least two-thirds of the shares of outstanding Savings Bank Common Stock
eligible to vote at an annual meeting of the Savings Bank Stockholders, or at a
special
<PAGE>
meeting of the Savings Bank Stockholders called for the purpose of submitting
the Plan for approval. Prior to the submission of the Plan to the Members and
the Public Stockholders for consideration, the Plan must be approved by the
Office of Thrift Supervision ("OTS").
II. Definitions
-----------
For the purposes of this Plan, the following terms have the following
meanings:
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 Primary Parties or a
majority-owned subsidiary of either thereof) 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 any of the MHC, Savings Bank or
Holding Company or any of their subsidiaries.
C. Capital Stock: Any and all authorized capital stock of the Savings
-------------
Bank.
D. Common Stock: Collectively, Conversion Stock and Exchange Stock.
------------
E. Conversion and Reorganization: Collectively, (i) the conversion of the
-----------------------------
MHC into an interim federal stock savings bank ("Interim A") and the
simultaneous merger of Interim A with and into the Savings Bank, with the
Savings Bank being the surviving institution; (ii) the merger of an interim
federal stock savings bank subsidiary of the Holding Company ("Interim B") with
and into the Savings Bank, with the Savings Bank being the surviving institution
and becoming a wholly owned subsidiary of the Holding Company; (iii) the
exchange of shares of Savings Bank Common Stock (other than those held by the
MHC which shall be canceled) for shares of Holding Company Common Stock; and
(iv) the issuance of Conversion Stock by the Holding Company as provided for in
this Plan.
F. Conversion Stock: Holding Company Common Stock offered and issued by
----------------
the Holding Company in the Offerings pursuant to this Plan.
G. Direct Community Offering: The offering of Conversion Stock for sale
-------------------------
to the public.
H. Eligibility Record Date: June 30, 1996.
-----------------------
I. Eligible Account Holder: Holder of a Qualifying Deposit on the
-----------------------
Eligibility Record Date.
J. Exchange Ratio: The ratio at which shares of Holding Company Common
--------------
Stock will be exchanged for shares of Savings Bank Common Stock held by the
Public Stockholders upon consummation of the Conversion and Reorganization. The
exact rate shall be determined by the MHC and the Savings Bank at the time the
Purchase Price (as defined in Section XI.B.) is determined and shall equal the
rate that will result in the Public Stockholders
A-2
<PAGE>
owning in the aggregate approximately the same percentage of shares of common
stock of the Holding Company to be outstanding upon completion of the Conversion
and Reorganization as the percentage of Savings Bank Common Stock owned by them
in the aggregate immediately prior to consummation of the Conversion and
Reorganization, before giving effect to (i) the payment of cash in lieu of
issuing fractional shares of Holding Company Common Stock, and (ii) any shares
of Conversion Stock purchased by Public Stockholders or any Tax-Qualified
Employee Stock Benefit Plans.
K. Exchange Stock: Holding Company Common Stock issued to the Public
--------------
Stockholders in exchange for Savings Bank Common Stock.
L. FDIC: Federal Deposit Insurance Corporation.
----
M. Form AC Application: The application submitted by the MHC to the OTS
-------------------
on OTS Form AC for approval of the Conversion and Reorganization.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, OTS Form H-(e)1-S, for approval of the Holding Company
acquisition of all of the Capital Stock.
O. Holding Company: The corporation to be formed by the Savings Bank
---------------
under state law initially as a first tier, wholly owned subsidiary of the
Savings Bank. Upon completion of the Conversion, the Holding Company shall hold
all of the outstanding capital stock of the Savings Bank.
P. Holding Company Common Stock: The common stock, $0.01 par value per
----------------------------
share, of the Holding Company.
Q. Interim A: "Perpetual Interim "A" Bank, A Federal Savings Bank," which
---------
will be the interim federal stock savings bank resulting from the conversion of
the MHC to stock form immediately prior to the merger of Interim B into the
Savings Bank.
R. Interim B: "Perpetual Interim "B" Bank, A Federal Savings Bank," which
---------
will be formed as a wholly owned interim federal stock savings bank subsidiary
of the Holding Company, which will merge with and into the Savings Bank
immediately after the merger of Interim A into the Savings Bank.
S. Local Community: Anderson and Oconee Counties of the State of South
---------------
Carolina.
T. 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 its quoted prices with other brokers or dealers.
U. Member: Any Person qualifying as a member of the MHC pursuant to its
------
charter and bylaws.
V. MHC: SouthBanc Shares, M.H.C., Anderson, South Carolina.
---
W. Offerings: Collectively, the Subscription Offering, Direct Community
---------
Offering and Syndicated Community Offering.
X. Officer: An executive officer of any or all of the Primary Parties,
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal
A-3
<PAGE>
business functions, Secretary, Controller, and any Person performing functions
similar to those performed by the foregoing persons.
Y. Order Form(s): Form(s) to be used to purchase Conversion Stock sent to
-------------
Eligible Account Holders and other parties eligible to purchase Conversion Stock
in the Subscription Offering.
Z. Other Member: A Member (other than an Eligible Account Holder or
------------
Supplemental Eligible Account Holder) at the close of business on the Voting
Record Date.
AA. Person: An individual, a corporation, a partnership, an association, a
------
joint-stock company, a trust (including Individual Retirement Accounts and KEOGH
Accounts), any unincorporated organization, a government or political
subdivision thereof or any other entity.
BB. Plan: This Plan of Conversion from Mutual Holding Company to Stock
----
Holding Company and Agreement and Plan of Reorganization, as originally adopted
by the Boards of Directors of the MHC and the Savings Bank, or as amended in
accordance with its terms.
CC. Primary Parties: Collectively, the MHC, the Savings Bank and the
---------------
Holding Company.
DD. Public Stockholder: Any Person who owns Savings Bank Common Stock,
------------------
other than the MHC, as of the Voting Record Date.
EE. 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.
FF. Registration Statement: The registration statement on SEC Form S-1,
----------------------
or similar 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.
GG. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
------------------
including certificates of deposit, demand deposit accounts and non-interest-
bearing deposit accounts.
HH. Savings Bank: Perpetual Bank, A Federal Savings Bank, Anderson, South
------------
Carolina.
II. Savings Bank Common Stock: The common stock of the Savings Bank, par
-------------------------
value $1.00 per share.
JJ. SEC: Securities and Exchange Commission.
---
KK. Special Meeting of Members: The special meeting of the Members, and
--------------------------
any adjournments thereof, held to consider and vote upon the Plan.
LL. Meeting of Stockholders: The meeting of the stockholders of the
-----------------------
Savings Bank, and any adjournments thereof, to be called and held for the
purpose of submitting the Plan for their approval. Such meeting may either be
an annual or special meeting.
MM. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Supplemental Eligible Account Holders and Other Members under
the Plan.
NN. Subscription Rights: Nontransferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members to purchase Conversion Stock.
A-4
<PAGE>
OO. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
PP. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director of the Savings Bank or
their Associates) on the Supplemental Eligibility Record Date.
QQ. 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.
RR. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank 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.
SS. Voting Record Date(s): The date(s) fixed by the Boards of Directors
---------------------
of the MHC and the Savings Bank according to OTS regulations for determining
eligibility to vote at the Special Meeting of Members and at the Meeting of
Stockholders.
III. General Procedure for Conversion and Reorganization
---------------------------------------------------
A. Conversion of MHC to an Interim Federal Stock Savings Bank and Merger
---------------------------------------------------------------------
of Such Interim Into the Savings Bank. The MHC will convert into Perpetual
- -------------------------------------
Interim "A" Bank, a Federal Savings Bank (i.e. "Interim A") and Interim A will
simultaneously merge with and into the Savings Bank, with the Savings Bank as
the surviving entity ("MHC Merger"). As a result of the MHC Merger, the Savings
Bank Common Stock held by the MHC will be canceled and Eligible Account Holders
and Supplemental Eligible Account Holders will be granted ratable interests in a
liquidation account, to be established in accordance with the procedures set
forth in Section XIV hereof.
B. Merger of a Second Interim Federal Stock Savings Bank into Savings
------------------------------------------------------------------
Bank and Exchange of Shares. Immediately after the MHC Merger, Perpetual Interim
- ---------------------------
"B" Bank, A Federal Savings Bank (i.e., Interim B) will merge with and into the
Savings Bank, and the separate existence of Interim B will cease ("Savings Bank
Merger"). The shares of the Holding Company Common Stock held by the Bank will
be canceled. The shares of common stock of Interim B held by the Holding Company
will be converted, on a one-to-one basis, into shares of Savings Bank Common
Stock, which will result in the Savings Bank becoming a wholly-owned subsidiary
of the Holding Company. The Public Stockholders will exchange their shares of
Savings Bank Common Stock for shares of Holding Company Common Stock based upon
the Exchange Ratio. In addition, all options to purchase shares of Savings Bank
Common Stock which are outstanding immediately prior to consummation of the
Conversion and Reorganization shall be converted to options to purchase shares
of Holding Company Common Stock, with the number of shares subject to the option
and the exercise price per share to be adjusted based upon the Exchange Ratio so
that the aggregate exercise price remains unchanged, and with the duration of
the option remaining unchanged. Upon consummation of the Conversion and
Reorganization, all of the Savings Bank Common Stock will be owned by the
Holding Company and the Public Stockholders will own the same percentage of the
Holding Company Common Stock as the percentage of the Savings Bank Common Stock
owned by them prior to the Conversion and Reorganization, before giving effect
to cash paid in lieu of any fractional interests of Savings Bank Common Stock
and any shares of Conversion Stock purchased by the Public Stockholders in the
Offering or by the Tax-Qualified Employee Stock Benefit Plans thereafter. The
Holding Company will then sell the Conversion Stock in the Offerings in
accordance with this Plan.
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Savings Bank shall be held and exercised exclusively by the
Holding Company as holder of the outstanding Savings Bank Common Stock. Voting
rights with respect to the Holding Company shall be held and exercised
exclusively by
A-5
<PAGE>
holders of the Holding Company Common Stock. As a result of the MHC Merger, the
separate existence of the MHC and the voting rights of Members will cease.
IV. Steps Prior to Submission of the Plan to the Members and the Savings Bank
-------------------------------------------------------------------------
Stockholders for Approval
- -------------------------
Prior to submission of the Plan to the Members and to the stockholders of
the Savings Bank for approval, the Plan must be approved by the OTS. Prior to
such regulatory approval:
A. The Boards of Directors of the MHC and the Savings Bank each shall
adopt the Plan by a vote of not less than two-thirds of their entire membership.
B. The MHC shall publish legal notice of the adoption of the Plan in a
newspaper having a general circulation in each community in which the MHC and
the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion and Reorganization
may be submitted to the local media.
D. Copies of the Plan as adopted by the Boards of Directors of the MHC
and the Savings Bank shall be made available for inspection at each office of
the MHC and the Savings Bank.
E. The Savings Bank 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.
F. As soon as practicable following the adoption of this Plan, the MHC
shall file the Form AC Application, and the Holding Company shall file the
Registration Statement and the H-(e)1 Application. In addition, an application
to merge the MHC (following its conversion into an interim federal stock savings
bank) and the Savings Bank and an application to merge Interim B and the Savings
Bank shall both be filed with the OTS, either as exhibits to the H-(e)1
Application, or separately. Upon filing the Form AC Application, the MHC shall
publish legal notice thereof in a newspaper having a general circulation in each
community in which the MHC and the Savings Bank maintains an office and/or by
mailing a letter to each Member, and also shall publish such other notices of
the Conversion and Reorganization as may be required in connection with the H-
(e)1 Application and by the regulations and policies of the OTS.
G. The MHC and the Savings Bank shall obtain an opinion of their tax
advisors or a favorable ruling from the U.S. Internal Revenue Service which
shall state that the Conversion and Reorganization shall not result in any gain
or loss for federal income tax purposes to the Primary Parties or to 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 and Reorganization.
V. Special Meeting of Members
--------------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the MHC's Bylaws. Promptly after receipt
of approval and at least 20 days but not more than 45 days prior to the Special
Meeting, the MHC 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 Voting Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation 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 Section VIII below. The MHC 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
Reorganization and the scheduled Special Meeting, and provide a postage prepaid
card on which to indicate whether he wishes to receive a Prospectus, if the
Subscription Offering is not held concurrently with the proxy solicitation.
A-6
<PAGE>
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 at the Special Meeting of
Members. The OTS shall be notified promptly of the actions of the Members at
the Special Meeting of Members.
VI. Meeting of Stockholders
-----------------------
Subsequent to the approval of the Plan by the OTS, the Meeting of
Stockholders shall be scheduled in accordance with the Savings Bank's Bylaws at
which the Plan will be considered for approval. Promptly after receipt of
approval and at least 20 days but not more than 45 days prior to such meeting,
the Savings Bank shall distribute proxy solicitation materials to Savings Bank
stockholders and beneficial owners of Savings Bank Common Stock held in
fiduciary capacities where the beneficial owners possess voting rights, as of
the Voting Record Date. The proxy solicitation materials shall include a copy
of the proxy statement to be used in connection with such solicitation and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a Prospectus as provided in Paragraph VIII below. The
Savings Bank shall also advise each holder of Savings Bank Common Stock entitled
to vote at the meeting of the proposed Conversion and Reorganization and the
scheduled 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 two-
thirds of the total outstanding votes of the stockholders of the Savings Bank is
required for approval of the Plan. Furthermore, pursuant to OTS policy, the
affirmative vote of not less than a majority of the total outstanding votes of
the stockholders of the Savings Bank (except the MHC) present in person or by
proxy is required for approval of the Plan. Voting may be in person or by proxy
at the Meeting of Stockholders. The OTS shall be notified promptly of the
actions of the stockholders of the Savings Bank at the Meeting of Stockholders.
VII. Summary Proxy Statements
------------------------
The Proxy Statements furnished to Members and to stockholders of the
Savings Bank 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 and the meeting of the stockholders of the Savings
Bank shall not be held less than 20 days after the last day on which the
supplemental information statement is mailed to requesting Members or requesting
stockholder of the Savings Bank. 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 or of the stockholders of the Savings Bank for the Meeting of
Stockholders.
VIII. 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 relating to the
Special Meeting of Members and the Meeting of Stockholders. The Holding Company
may close the Subscription Offering before such meetings, 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 and by the stockholders of the
Savings Bank at the Meeting of Stockholders. The MHC's and the Savings Bank's
proxy solicitation materials may require Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members and the Savings Bank Stockholder to
return to the Savings Bank 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
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 Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental
A-7
<PAGE>
Eligible Account Holder and other eligible subscribers who had been furnished
with proxy solicitation materials a notice which shall state that the Savings
Bank 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.
IX. 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
Savings Bank 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 XI.C. below.
X. Consummation of the Conversion and Reorganization
-------------------------------------------------
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the MHC Merger, (ii) the filing of
Articles of Combination with the OTS with respect to the Savings Bank Merger and
(iii) the closing of the issuance of the shares of Conversion Stock in the
Offerings. The filing of Articles of Combination relating to the MHC Merger and
the Savings Bank Merger and the closing of the issuance of shares of Conversion
Stock in the Offerings shall not occur until all requisite regulatory, Member
approval and approval of the stockholders of the Savings Bank have been
obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the MHC Merger, the Savings Bank Merger and the
sale of shares of Conversion Stock in the Offerings shall occur consecutively
and substantially simultaneously.
After the Conversion and Reorganization, the Savings Bank will succeed to
all the rights, interests, duties and obligations of the Savings Bank before the
Conversion and Reorganization, including but not limited to all rights and
interests of the Savings Bank in and to its assets and properties, whether real,
personal or mixed. The Savings Bank will continue to be a member of the Federal
Home Loan Bank System and all its insured savings deposits will continue to be
insured by the FDIC to the extent provided by applicable law.
XI. Conversion 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 Boards of Directors of the Primary Parties
in conjunction with the determination of the Purchase Price (as defined in
Section XI.B. below). The number of shares to be offered may be subsequently
adjusted by the Board of Directors prior to completion of the Offerings.
B. Independent Evaluation and Purchase Price of Conversion Stock
-------------------------------------------------------------
All shares of Conversion Stock sold in the Conversion and Reorganization,
including shares sold in any Direct Community Offering, shall be sold at a
uniform price per share, and referred to herein as the "Purchase Price." The
Purchase Price shall be determined by the Board of Directors of the Primary
Parties immediately prior to the simultaneous completion of all such sales
contemplated by this Plan on the basis of the estimated pro forma market
A-8
<PAGE>
value of the MHC, as converted, and the Savings Bank at such time. Such
estimated pro forma market value 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 (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
Primary Parties. 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,
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 and Reorganization, all shares of Conversion Stock proposed to be
issued in connection with the Conversion and Reorganization 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 (round ed 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 Eli gible 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
Primary Parties and their Associates, as Eligible Account Holders,
based on their increased deposits in the Savings Bank 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: 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
A-9
<PAGE>
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.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category 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 or her 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 subscribing Supplemental Eligible Account Holders.
3. Category 3: 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 and Supplemental Eligible
Account Holders pursuant to Category Nos. l and 2 above, subject to
the following conditions:
(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 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 Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after
A-10
<PAGE>
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 may purchase in the Direct Community
Offering more than 50,000 shares of Conversion Stock issued in the
Conversion and Reorganization. The right to purchase shares of Conversion
Stock under this Category is subject to the right of the Savings Bank or
the Holding Company to accept or reject such orders 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 first to the Public Stockholders (who are not Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members) and then
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 Savings Bank 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 may purchase in the Syndicated Community Offering more than 50,000
shares of Conversion Stock issued in the Conversion and Reorganization.
Each order for Conversion Stock in the Syndicated Community Offering shall
be subject to the absolute right of the Savings Bank 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 Savings Bank 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 Savings
Bank 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
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank 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 Savings Bank 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
Savings Bank 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:
A-11
<PAGE>
1. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion and
Reorganization by any Person, when combined with any Exchange Stock
received, shall not exceed 50,000 shares of Common Stock issued in the
Conversion and Reorganization.
2. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion and
Reorganization by any Person together with any Associate or any group or
Persons Acting in Concert, when combined with any Exchange Stock received,
shall not exceed 50,000 shares of Common Stock issued in the Conversion
and Reorganization.
3. Officers and directors of the Primary Parties and Associates
thereof may not purchase in the aggregate more than 31% of the shares
issued in the Conversion and Reorganization, including any Exchange Stock
received.
4. The Boards of Directors of the Primary Parties 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.
5. The Boards of Directors of the Primary Parties, with the approval
of the OTS and without further approval of Members or stockholders of the
Savings Bank, may, as a result of market conditions and other factors,
increase or decrease the purchase limitation described herein or the number
of shares of Conversion Stock to be sold in the Conversion and
Reorganization. If the Primary Parties increases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, the Primary Parties are only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Primary Parties, resolicit certain other
large subscribers. If the Primary Parties decrease the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, 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.
Notwithstanding anything to the contrary contained in this Plan, and except
as may be required by the OTS, Public Stockholders will not be required to sell
or divest any Holding Company Common Stock or be limited in receiving Exchange
Stock even if their percentage ownership of the Savings Bank Common Stock when
converted into Exchange Stock would exceed an applicable purchase limitation.
Each Person purchasing Conversion Stock in the Conversion and
Reorganization 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.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Primary Parties shall not be sold or otherwise disposed of
for value for a period of one year from the effective date of Conversion
and Reorganization, except for any disposition (i) following the death of
the original
A-12
<PAGE>
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 Common Stock with respect to
the foregoing restrictions. Any shares of Holding Company Common 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 Savings
Bank 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 and Reorganization from purchasing outstanding
shares of Holding Company Common 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 and Reorganization, 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 Savings Bank 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 Savings Bank below the amount required
for the liquidation account described in Paragraph XIV. 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 and Reorganization, holders
-------------
of Savings Accounts in and obligors on loans of the Savings Bank will not
have voting rights in the Savings Bank. 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
Savings Bank 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 Savings Bank's Capital Stock.
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.
A-13
<PAGE>
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
Savings Bank. 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 and Reorganization 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), such subscriber may
authorize the Savings Bank to charge the subscriber's Savings Account(s). The
Savings Bank 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 and Reorganization is completed or terminated. The Savings Bank 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 Savings Bank 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 and Reorganization 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 Reorganization and only to the extent necessary to satisfy the
subscription at a price equal to the aggregate Purchase Price. The Savings Bank
shall allow subscribers to purchase shares of Conversion Stock by withdrawing
funds from certificate accounts held with the Savings Bank without the
assessment of early withdrawal penalties. 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.
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 Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank 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 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
Savings Bank 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 Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
A-14
<PAGE>
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Primary Parties 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 Primary Parties
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 Primary Parties
determine 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 Primary Parties 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
Primary Parties 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.
XII. Post Conversion and Reorganization Filing and Market Making
-----------------------------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Common 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
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 on The
Nasdaq Stock Market or on a national or regional securities exchange.
XIII. Status of Savings Accounts and Loans Subsequent to Conversion and
-----------------------------------------------------------------
Reorganization
- --------------
All Savings Accounts shall retain the same status after Conversion and
Reorganization as these accounts had prior to Conversion and Reorganization.
Each Savings Account holder shall retain, without payment, a withdrawable
Savings Account(s) after the Conversion and Reorganization, equal in amount to
the withdrawable value of such holder's Savings Account(s) prior to Conversion
and Reorganization. All Savings Accounts will continue to be insured by the
Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans granted by the Savings Bank shall retain the same
status after the Conversion and Reorganization as they had prior to the
Conversion and Reorganization. See Paragraph III.B. with respect to the
termination of voting rights of Members.
XIV. Liquidation Account
-------------------
After the Conversion and Reorganization, holders of Savings Accounts shall
not be entitled to share in any residual assets in the event of liquidation of
the Savings Bank. However, the Savings Bank shall, at the time of the
Conversion and Reorganization, establish a liquidation account in an amount
equal to the amount of dividends with respect to the Savings Bank Common Stock
waived by the MHC plus the greater of (i) the Savings Bank's total retained
earnings as of the date of the latest statement of financial condition contained
in the final offering circular used in connection with the Savings Bank's
reorganization as a majority owned subsidiary of the MHC, or (ii) 53.02% of the
Savings Bank's total stockholders' equity as of the date of the latest statement
of financial condition contained in the final Prospectus used in connection with
the Conversion and Reorganization. The function of the liquidation account
shall be to establish a priority on liquidation and, except as provided in
Section XI.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 Savings Bank.
A-15
<PAGE>
The liquidation account shall be maintained by the Savings Bank subsequent
to the Conversion and reorganization for the benefit of Eligible Account Holders
and Supplemental Eligible Account Holders who retain their Savings Accounts in
the Savings Bank. 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 Savings Bank, 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 Savings Bank 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.
XV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion and Reorganization, 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 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.
A-16
<PAGE>
B. The Holding Company may provide in its articles 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 and Reorganization, 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 of
incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XVI. Directors and Officers of the Savings Bank
------------------------------------------
The Conversion and Reorganization is not intended to result in any change
in the directors or Officers of the Savings Bank. Each Person serving as a
director of the Savings Bank at the time of Conversion and Reorganization shall
continue to serve as a member of the Savings Bank's Board of Directors, subject
to the Savings Bank's Federal Stock Charter and Bylaws. The Persons serving as
Officers immediately prior to the Conversion and Reorganization will continue to
serve at the discretion of the Board of Directors in their respective capacities
as Officers of the Savings Bank. In connection with the Conversion and
Reorganization, the Savings Bank 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 Savings Bank and the Holding
Company.
XVII. Executive Compensation
----------------------
The Savings Bank 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.
XVIII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Savings Bank's Board of Directors or the MHC's Board of Directors, at any
time prior to the Special Meeting of Members and the Meeting of Stockholders.
At any time thereafter, the Plan may be amended by a two-thirds vote of the
respective Boards 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 of Members or the Meeting of Stockholders, and at
any time following such meetings with the concurrence of the OTS. In its
discretion, the Boards of Directors of the MHC and the Savings Bank may modify
or terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting of Members or Meeting of
Stockholders.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion and Reorganization,
the Plan shall be amended to conform to the new mandatory regulations without a
resolicitation of proxies or another Special Meeting of Members or another
Meeting of Stockholders. In the event that new conversion regulations adopted
by the OTS prior to completion of the Conversion and Reorganization 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 Special Meeting of Members or another Meeting of Stockholders.
By adoption of the Plan, the Members and the Savings Bank stockholders
authorize the Boards of Directors of the MHC and the Savings Bank to amend
and/or terminate the Plan under the circumstances set forth above.
XIX. Expenses of the Conversion and Reorganization
---------------------------------------------
The Primary Parties shall use their best efforts to assure that expenses
incurred in connection with the Conversion and Reorganization are reasonable.
A-17
<PAGE>
XX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
A-18
<PAGE>
ANNEX A
-------
PLAN OF MERGER
This Plan of Merger, dated as of __________ ___, 1998, is made by and
between SouthBanc Shares, M.H.C. ("MHC"), a federally chartered mutual holding
company, and Perpetual Bank, A Federal Savings Bank ("Savings Bank" or
"Surviving Corporation"), a federally chartered savings bank (collectively, the
"Constituent Corporations").
WITNESSETH:
WHEREAS, the MHC and the Savings Bank have adopted a Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Agreement and Plan of
Reorganization ("Plan of Conversion") pursuant to which (i) the MHC will convert
to a federally-chartered interim stock savings bank and simultaneously merge
with and into the Savings Bank, with the Savings Bank as the surviving entity
("MHC Merger"), (ii) the Savings Bank and a newly-formed interim federal savings
bank will merge, pursuant to which the Savings Bank will become a wholly-owned
subsidiary of a newly formed stock corporation ("Holding Company") ("Savings
Bank Merger"), and (iii) the Holding Company will offer shares of its common
stock in the manner set forth in the Plan of Conversion (collectively, the
"Conversion and Reorganization"); and
WHEREAS, the MHC and the Savings Bank desire to provide for the terms and
conditions of the MHC Merger;
NOW, THEREFORE, the MHC and the Savings Bank hereby agree as follows:
1. EFFECTIVE DATE. The MHC Merger shall become effective on the date
specified in the endorsement of the Articles of Combination relating to the MHC
Merger by the Secretary of the Office of Thrift Supervision ("OTS") pursuant to
12 C.F.R. 552.13(k), or any successor thereto ("Effective Date").
2. THE MHC MERGER AND EFFECT THEREOF. Subject to the terms and conditions
set forth herein and the prior approval of the OTS of the Conversion and
Reorganization, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, the MHC shall convert from the mutual form to a
federal interim stock savings bank and simultaneously merge with and into the
Savings Bank, which shall be the Surviving Corporation. Upon consummation of
the MHC Merger, the Surviving Corporation shall be considered the same business
and corporate entity as each of the Constituent Corporations and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the
property, rights, privileges, powers, franchises, debts, liabilities,
obligations, duties and relationships of each of the Constituent Corporations
and shall have succeeded to all of each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, obligations, duties and relationships had
been originally acquired, incurred or entered into by the Surviving Corporation.
In addition, any reference to either of the Constituent Corporations in any
contract or document, whether executed or taking effect before or after the
Effective Date, shall be considered a reference to the Surviving Corporation if
not inconsistent with the other provisions of the contract or document; and any
pending action or other judicial proceeding to which either of the Constituent
Corporations is a party shall not be deemed to have abated or to have been
discontinued by reason of the MHC Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the MHC Merger had not
occurred or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the MHC Merger had not occurred.
1
<PAGE>
3. CANCELLATION OF SAVINGS BANK COMMON STOCK HELD BY THE MUTUAL HOLDING
COMPANY AND MEMBER INTERESTS; LIQUIDATION ACCOUNT.
(a) On the Effective Date: (i) each share of common stock, $1.00 par value
per share, of the Savings Bank ("Savings Bank Common Stock") issued and
outstanding immediately prior to the Effective Date and held by the MHC shall,
by virtue of the MHC Merger and without any action on the part of the holder
thereof, be canceled, (ii) the interests in the MHC of any person, firm or
entity who or which qualified as a member of the MHC in accordance with its
mutual charter and bylaws and the laws of the United States prior to the MHC's
conversion from mutual to stock form ("Members") shall, by virtue of the MHC
Merger and without any action on the part of any Member, be canceled, and (iii)
the Savings Bank shall establish a liquidation account on behalf of each
depositor member of the MHC as provided for in the Plan of Conversion.
(b) At or after the Effective Date and prior to the Savings Bank Merger,
each certificate or certificates theretofore, evidencing issued and outstanding
shares of Savings Bank Common Stock, other than any such certificate or
certificates held by the MHC, which shall be canceled, shall continue to
represent issued and outstanding shares of Savings Bank Common Stock.
4. RIGHTS OF DISSENT AND APPRAISAL ABSENT. No holder of Savings Bank
Common Stock shall have any dissenter or appraisal rights in connection with the
MHC Merger.
5. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Perpetual Bank, A Federal Savings Bank."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be nine. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
Harold A. "Drew" Pickens 1998
Robert W. "Lujack" Orr 1997
Martha S. Clamp 1997
Jack F. McIntosh 1999
Charles W. Fant, Jr. 1999
Cordes G. Seabrook, Jr. 1999
Jim Gray Watson 1998
Richard C. Ballenger 1997
F. Stevon Kay 1998
</TABLE>
The address of each director is 907 N. Main Street, Anderson, South
Carolina 29621.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Federal Stock Charter and Bylaws of
the Surviving Corporation and applicable law, the officers of the Savings Bank
immediately prior to the Effective Date shall be the officers of the Surviving
Corporation.
8. OFFICES. Upon the Effective Date, all offices of the Savings Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 907 N. Main Street,
Anderson, South Carolina, and the locations of the branch offices of the
Surviving Corporation shall
2
<PAGE>
be 104 Whitehall Road, Anderson, South Carolina; 2821 South Main Street,
Anderson, South Carolina; Windsor Place Winn Dixie, S.C. Highway 81, Anderson,
South Carolina; 3898 Liberty Highway, Anderson, South Carolina; and 1007 Bypass
123, Seneca, South Carolina.
9. CHARTER AND BYLAWS. On and after the Effective Date, the Charter of
the Savings Bank as in effect immediately prior to the Effective Date shall be
the Federal Stock Charter of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law, except that the Federal
Stock Charter shall be amended to provide for the establishment of a liquidation
account in accordance with applicable the Plan of Conversion. On and after the
Effective Date, the Bylaws of the Savings Bank as in effect immediately prior to
the Effective Date shall be the Bylaws of the Surviving Corporation until
amended in accordance with the terms thereof and applicable law.
10. STOCKHOLDER AND MEMBER APPROVALS. The affirmative votes of the holders
of Savings Bank Common Stock and of the Members as set forth in the Plan of
Conversion shall be required to approve the Plan of Conversion, of which this
Plan of Merger is a part, on behalf of the Savings Bank and the MHC,
respectively.
11. ABANDONMENT OF PLAN. This Plan of Merger may be abandoned by either
the MHC or the Savings Bank at any time before the Effective Date in the manner
set forth in the Plan of Conversion.
12. AMENDMENTS. This Plan of Merger may be amended in the manner set
forth in the Plan of Conversion by a subsequent writing signed by the parties
hereto upon the approval of the Boards of Directors of the Constituent
Corporations.
13. SUCCESSORS. This Agreement shall be binding on the successors of the
Constituent Corporations.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the MHC and the Savings Bank have caused this Plan of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
Attest: SOUTHBANC SHARES, M.H.C.
By:
- -------------------------------- --------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President and Chief Executive Officer
Attest: PERPETUAL BANK, A FEDERAL SAVINGS BANK
By:
- -------------------------------- --------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President and Chief Executive Officer
3
<PAGE>
ANNEX B
-------
PLAN OF REORGANIZATION
This Plan of Reorganization, dated as of _____________ ___, 1998, is made
by and among Perpetual Bank, A Federal Savings Bank ("Savings Bank" or the
"Surviving Corporation"), a federally chartered savings bank and majority owned
subsidiary of SouthBanc Shares, M.H.C. ("MHC"), a federally chartered mutual
holding company; ________________ ("Holding Company"), a ____________
corporation organized by the Savings Bank; and Perpetual Interim "B" Bank, A
Federal Savings Bank ("Interim B"); a to-be formed interim federal stock savings
bank.
WITNESSETH:
WHEREAS, the Savings Bank has organized the Holding Company as a first-
tier, wholly owned subsidiary for the purpose of becoming the stock holding
company of the Savings Bank upon completion of the Conversion and Reorganization
as defined in the Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Agreement and Plan of Reorganization ("Plan of Conversion")
adopted by the Boards of Directors of the MHC and the Savings Bank; and
WHEREAS, the MHC owns as of the date hereof _____% of the outstanding
common stock of the Savings Bank, par value $1.00 per share ("Savings Bank
Common Stock), will convert to a federally-chartered interim stock savings bank
and simultaneously merge with and into the Savings Bank pursuant to the Plan of
Conversion and the Plan of Merger included as Annex A thereto ("MHC Merger"),
pursuant to which all shares of Savings Bank Common Stock held by the MHC will
be canceled; and
WHEREAS, the formation of a stock holding company by the Savings Bank will
be facilitated by causing the Holding Company to become the sole stockholder of
a newly-formed interim stock savings bank ("Interim B") and then merge Interim B
with and into the Savings Bank, pursuant to which the Savings Bank will
reorganize as a wholly-owned subsidiary of the Holding Company
("Reorganization") and, in connection therewith, all outstanding shares of
Savings Bank Common Stock will be converted automatically into and become shares
of common stock of the Holding Company, par value $____ per share ("Holding
Company Common Stock"); and
WHEREAS, Interim B is being organized by the officers of the Savings Bank
as an interim Federal stock savings bank with the Holding Company as its sole
stockholder in order to effect the Reorganization; and
WHEREAS, the Savings Bank and Interim B ("Constituent Corporations") and
the Holding Company desire to provide for the terms and conditions of the
Reorganization.
NOW, THEREFORE, the Savings Bank, Interim B and the Holding Company hereby
agree as follows:
1. EFFECTIVE DATE. The Reorganization shall become effective on the date
specified in the endorsement of the articles of combination relating to the
Reorganization by the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R.
(S)552.13(k), or any successor thereto ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the terms and conditions
set forth herein and the prior approval of the OTS of the Conversion and the
Reorganization, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, Interim B shall merge with and into the Savings
Bank, with the Savings Bank as the Surviving Corporation. Upon consummation of
the Reorganization, the Surviving Corporation shall be considered the same
business and corporate entity as each of the Constituent Corporations and
thereupon and thereafter all the property, rights, powers and franchises of each
of the Constituent Corporations shall vest in the Surviving Corporation and the
Surviving Corporation shall be subject to and be deemed to have assumed all of
the property, rights, privileges, powers, franchises, debts, liabilities,
obligations and duties of each of the Constituent
1
<PAGE>
Corporations and shall have succeeded to all of each of their relationships,
fiduciary or otherwise, fully and to the same extent as if such property,
rights, privileges, powers, franchises, debts, obligations, duties and
relationships had been (originally acquired, incurred or entered into by the
Surviving Corporation. In addition any reference to either of the Constituent
Corporations in any contract or document, whether executed or taking effect
before or after the Effective Date, shall be considered a reference to the
Savings Bank if not inconsistent with the other provisions of the contract or
document; and any pending action or other judicial proceeding of which either of
the Constituent Corporations is a party shall not be deemed to have abated or to
have been discontinued by reason of the Reorganization, but may be prosecuted to
final judgment, order or decree in the same manner as if the Reorganization had
not occurred or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the Reorganization had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of Savings Bank Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Reorganization and without any action on the part of the holder thereof,
be converted into the right to receive Holding Company Common Stock based on the
Exchange Ratio, as defined in the Plan of Conversion, plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $1.00 per share,
of Interim B ("Interim B Common Stock") issued and outstanding immediately prior
to the Effective Date shall, by virtue of the Reorganization and without any
action on the part of the holder thereof, be converted into one share of Savings
Bank Common Stock, and (ii) each share of Holding Company Common Stock issued
and outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled. By voting in favor of this Plan of Reorganization, the Holding
Company, as the sole stockholder of Interim B, shall have agreed (i) to issue
shares of Holding Company Common Stock in accordance with the terms hereof and
(ii) to cancel all previously issued and outstanding shares of Holding Company
Common Stock upon the effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim B or the Savings Bank of shares
of Interim B Common Stock or Savings Bank Common Stock which were outstanding
immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Savings Bank Common
Stock. In lieu thereof, the holder of shares of Savings Bank Common Stock
entitled to a fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing such holder
shares, receive an amount of cash equal to the product arrived at by multiplying
such fraction of a share of Holding Company Common Stock by the Purchase Price,
as defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Savings
Bank Common Stock, upon surrender of the same to an agent, duly appointed by the
Holding Company ("Exchange Agent"), shall be entitled to receive in exchange
therefor certificate(s) representing the number full shares of Holding Company
Common Stock for which the shares of Savings Bank Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted as provided in Section 3(a) hereof. The Exchange Agent shall mail to
each holder of record of an outstanding certificate which immediately prior to
the Effective Date evidenced shares of Savings Bank Common Stock, and which is
to be exchanged for Holding Company Common Stock as provided in Section 3(a)
hereof, a form of letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to such certificate shall pass, only
upon delivery of such certificate to the Exchange Agent advising such holder of
the terms of the exchange effected by the
2
<PAGE>
Reorganization and of the procedure for surrendering to the Exchange Agent such
certificate in exchange for certificate or certificates evidencing Holding
Company Common Stock.
(b) No holder of a certificate theretofore represent shares of Savings Bank
Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of
Savings Bank Common Stock is surrendered in exchange for certificates
representing shares of Holding Company Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Holding Company
Common Stock after the Effective Date but prior to surrender of certificates
representing shares of Savings Bank Common Stock, dividends payable in respect
of shares of Holding Company Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest) upon surrender of
the certificates representing such shares of Savings Bank Common Stock. The
Holding Company shall be entitled, after the Effective Date, to treat
certificates representing shares of Savings Bank Common Stock as evidencing
ownership of the number of full shares of Holding Company Common Stock into
which the shares of Savings Bank Common Stock represented by such certificates
shall have been converted, notwithstanding the failure on the part of the holder
thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Savings Bank Common Stock would otherwise be entitled as a result of
the Reorganization until such holder surrenders the certificate or certificates
representing the shares of Savings Bank Common Stock for exchange as provided in
this Section 4, or, in default thereof, an appropriate Affidavit of Loss and
Indemnification Agreement and/or an indemnity bond as may be required in each
case by the Holding Company. If any certificate evidencing shares of Holding
Company Common Stock is to be issued in a name other than that in which the
Certificate evidencing Savings Bank Common Stock surrendered in exchanged
therefor is registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of Holding Company Common Stock in any name other than
that of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of
Savings Bank Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment or a stock dividend thereon
shall be declared with a record date within said period, the Exchange Ratio
specified in Section 3(a) hereof shall be adjusted accordingly.
5. RIGHTS OF DISSENT AND APPRAISAL ABSENT. No holders of Savings Bank
Common Stock shall have any dissenter or appraisal rights in connection with the
Reorganization.
6. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Perpetual Bank, A Federal Savings Bank."
7. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be nine. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
3
<PAGE>
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
Harold A. "Drew" Pickens 1998
Robert W. "Lujack" Orr 1997
Martha S. Clamp 1997
Jack F. McIntosh 1999
Charles W. Fant, Jr. 1999
Cordes G. Seabrook, Jr. 1999
Jim Gray Watson 1998
Richard C. Ballenger 1997
F. Stevon Kay 1998
</TABLE>
The address of each director is 907 N. Main Street, Anderson, South
Carolina 29521.
8. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Savings Bank immediately
prior to the Effective Date shall be the officers of the Surviving Corporation.
9. OFFICES. Upon the Effective Date, all offices of the Savings Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 907 N. Main Street,
Anderson, South Carolina, and the locations of the branch offices of the
Surviving Corporation shall be 104 Whitehall Road, Anderson, South Carolina;
2821 South Main Street, Anderson, South Carolina; Windsor Place Winn Dixie, S.C.
Highway 81, Anderson, South Carolina; and 3898 Liberty Highway, Anderson, South
Carolina.
10. CHARTER AND BYLAWS. On and after the Effective Date, the Charter and
Bylaws of the Savings Bank as in effect immediately prior to the Effective Date
shall be the Charter and Bylaws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
11. SAVINGS ACCOUNTS. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Corporation without change in their respective terms, including, without
limitation, maturity minimum required balances or withdrawal value.
12. STOCK COMPENSATION PLANS. By voting in favor of this Agreement, the
Holding Company shall have approved adoption of the Savings Bank's 1993 Stock
Option Plan, 1996 Stock Option Plan, 1993 Management Development and Recognition
Plan and 1996 Management Development and Recognition Plan (collectively, the
"Plans") as plans of the Holding Company and shall have agreed to issue Holding
Company Common Stock in lieu of Savings Bank Common Stock pursuant to the terms
of such Plans. As of the Effective Date, rights outstanding under the Plans
shall be assumed by the Holding Company and thereafter shall be rights only for
shares of Holding Company Common Stock, with each such right being for a number
of shares of Holding Company Common Stock equal to the number of shares of
Savings Bank Common Stack that were available thereunder immediately prior to
the Effective Date times the Exchange Ratio, as defined in the plan of
conversion, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in any other term or condition of such right. The
Holding Company shall make appropriate amendments to the Plans to reflect the
adoption of the Plans by the Holding Company without adverse effect upon the
rights outstanding thereunder.
13. STOCKHOLDER APPROVAL. The affirmative votes of the holders of Savings
Bank Common Stock set forth in the Plan of Conversion shall be required to
approve the Plan of Conversion and Agreement and Plan of Reorganization, of
which this Plan of Reorganization is a part, on behalf of the Savings Bank. The
approval of the Holding Company, as the sole holder of the Interim B Common
Stock, shall be required to approve the Plan of Conversion, of which this Plan
of Reorganization is a part, on behalf of Interim B.
4
<PAGE>
14. REGISTRATION; OTHER APPROVALS. In addition to the approvals set forth
in Sections 1 and 13 hereof and in the Plan of Conversion, the obligations of
the parties hereto to consummate the Reorganization shall be subject to the
Holding Company Common Stock to be issued hereunder in exchange for Savings Bank
Common Stock being registered under the Securities Act of 1933, as amended, and
registered or qualified under applicable state securities laws, as well as the
receipt of all other approvals, consents or waivers as the parties may deem
necessary or advisable.
15. ABANDONMENT OF PLAN. This Plan of Reorganization may be abandoned by
either the Savings Bank or Interim B at any time before the Effective Date in
the manner set forth in the Plan of Conversion.
16. AMENDMENTS. This Plan of Reorganization may be amended in the manner
set forth in the Plan of Conversion by a subsequent writing signed by the
parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
17. SUCCESSORS. This Plan of Reorganization shall be binding on the
successors of the parties hereto.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the Parties hereto have cause this Plan of
Reorganization to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
Attest: SOUTHBANC SHARES, M.H.C.
By:
- -------------------------------- --------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President
Attest: _________________
By:
- -------------------------------- --------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President
Attest: PERPETUAL INTERIM "B" BANK, A FEDERAL
SAVINGS BANK
By:
- -------------------------------- --------------------------------
Sylvia B. Reed Robert W. "Lujack" Orr
Corporate Secretary President
5
<PAGE>
REVOCABLE PROXY
PERPETUAL SAVINGS BANK, A FEDERAL SAVINGS BANK
ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
, 1998
- --------------------------------------------------------------------------------
The undersigned hereby appoints the full Board of Directors with full
powers of substitution, as attorneys and proxies for the undersigned, to vote
all shares of common stock of Perpetual Savings Bank, A Federal Savings Bank
which the undersigned is entitled to vote at the Annual Meeting of Stockholders,
to be held at the main office of the Savings Bank, 907 N. Main Street, Anderson,
South Carolina, on _________, ____________, 1998, at __:00 __.m., Eastern Time,
and at any and all adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR AGAINST
--- -------
<S> <C> <C>
1. To approve an Amended Plan of Conversion from Mutual [ ] [ ]
Holding Company to Stock Holding Company and Agreement
and Plan of Reorganization providing for the conversion
of SouthBanc Shares, M.H.C., the mutual holding company of
Perpetual Savings Bank, A Federal Savings Bank ("Savings
Bank"), to a stock holding company, with the concurrent
issuance and sale of all of the Savings Bank's outstanding
common stock to SouthBanc Shares, Inc. ("Holding Company"),
a Delaware corporation, and the issuance and sale of the
Holding Company's common stock to the public; and the
other transactions provided for in the Plan of Conversion.
VOTE
FOR WITHHELD
--- --------
2. The election as directors of all nominees [ ] [ ]
listed below (except as marked to the
contrary below).
Richard C. Ballenger
Robert W. Orr
Martha S. Clamp
INSTRUCTION: TO WITHHOLD YOUR VOTE
FOR ANY INDIVIDUAL NOMINEE, WRITE
THAT NOMINEE'S NAME ON THE LINE BELOW.
-----------------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
3. The approval of the appointment of KPMG Peat [ ] [ ] [ ]
Marwick LLP as independent auditors for the
Savings Bank for the fiscal year ending
September 30, 1998.
</TABLE>
4. Such other matters as may properly come before the Meeting or any
adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSALS.
- --------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY
IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Annual Meeting
or at any adjournment thereof and after notification to the Secretary of the
Savings Bank at the Meeting of the Stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt from the Savings Bank, prior to the
execution of this proxy, of the Notice of Annual Meeting of Stockholders, a
proxy statement for the Annual Meeting of Stockholders, and a Prospectus of
SouthBanc Shares, Inc. dated _____________, 1998.
Dated: __________________________, 1998
- ----------------------------- -------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ----------------------------- -------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, only one signature is required but each
holder should sign if possible.
- --------------------------------------------------------------------------------
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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