<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1998
REGISTRATION NO. 333-47963
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
--------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
______________________________________________
ANSON BANCORP, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 6036 56-2073894
(State or other jurisdiction (Primary Standard Industrial I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
211 SOUTH GREENE STREET/POST OFFICE BOX 249
WADESBORO, NORTH CAROLINA 28170
(704) 694-2122
(Address and telephone number of principal executive offices and principal place
of business)
_____________________
EUGENE M. WARD, PRESIDENT
Anson Bancorp, Inc.
211 South Greene Street
Wadesboro, North Carolina 28170
(704) 694-2122
(Name, address, and telephone number of agent of service)
COPIES TO:
EDWARD C. WINSLOW III
JEAN C. BROOKS
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
Post Office Box 26000
Greensboro, North Carolina 27420
____________________
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ X ]
_____________________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED BE REGISTERED PER SHARE OFFERING PRICE FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value.... 872,850/(1)/ $10.00 $8,728,500 $2,574.91
========================================================================================================
</TABLE>
(1) The estimated maximum number of shares to be registered is based upon the
maximum of the valuation range of Anson Savings Bank, SSB and the
Registrant, as established by an independent appraisal, divided by the
proposed offering price per share.
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>
PROSPECTUS
UP TO 872,850 SHARES OF COMMON STOCK
ANSON BANCORP, INC.
211 SOUTH GREENE STREET
WADESBORO, NORTH CAROLINA 28170
(704) 694-2122
================================================================================
Anson Savings Bank, SSB (the "Bank") is converting from a North Carolina
chartered mutual savings bank to a North Carolina chartered stock savings bank.
As part of the Conversion, the Bank will become a wholly owned subsidiary of
Anson Bancorp, Inc. (the "Company"). The Company was formed in March 2, 1998 and
upon completion of the Conversion will own all of the shares of the Bank. The
Common Stock of the Company is being offered to the public in accordance with a
Plan of Conversion. The Plan of Conversion must be approved by the Administrator
of the Savings Institutions Division of the North Carolina Department of
Commerce (the "Administrator") and the Federal Deposit Insurance Corporation
(the "FDIC") and by a majority of the votes eligible to be cast by members of
the Bank. The offering will not go forward if the Bank does not receive these
approvals and the Company does not sell at least the minimum number of shares.
The shares of Common Stock are first being offered pursuant to
nontransferable subscription rights in a Subscription Offering. Depositor and
borrower members as of certain eligibility dates will receive subscription
rights. Shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Community Offering with preference given to certain
residents of Anson County, North Carolina.
================================================================================
TERMS OF OFFERING
An independent appraiser has estimated the market value of the converted Bank to
be between $5,610,000 and $7,590,000, which establishes the number of shares to
be offered at a price of $10.00 per share. Subject to the approval of the
Administrator, up to 872,850 shares, an additional 15% above the maximum number
of shares, may be offered. Based on these estimates, we are making the following
offering of shares of Common Stock:
<TABLE>
<CAPTION>
Adjusted
--------
Minimum Midpoint Maximum Maximum
------- -------- ------- -------
<S> <C> <C> <C> <C>
Price per share $ 10.00 $ 10.00 $ 10.00 $ 10.00
Number of shares 561,000 660,000 759,000 872,850
Offering expenses $ 488,000 $ 513,000 $ 537,000 $ 566,000
Net Proceeds $ 5,122,000 $ 6,087,000 $ 7,053,000 $ 8,163,000
Net Proceeds per share $ 9.13 $ 9.22 $ 9.29 $ 9.35
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE 1 OF THIS DOCUMENT.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FDIC, ANY OTHER GOVERNMENT AGENCY, THE COMPANY OR THE BANK. AN INVESTMENT
IN THE COMMON STOCK MAY LOSE VALUE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE ADMINISTRATOR, THE FDIC, NOR
ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT (704)
694-6481.
TRIDENT SECURITIES, INC.
The date of this Prospectus is May 15, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Questions and Answers About the Stock Offering................................................................ 4
Summary....................................................................................................... 6
Selected Financial and Other Data of the Bank................................................................. 9
Recent Developments........................................................................................... 10
Risk Factors.................................................................................................. 12
Anson Bancorp, Inc............................................................................................ 13
Anson Savings Bank, SSB....................................................................................... 18
Use of Proceeds............................................................................................... 19
Dividend Policy............................................................................................... 21
Market for Common Stock....................................................................................... 22
Capitalization................................................................................................ 23
Pro Forma Data................................................................................................ 26
Historical and Pro Forma Capital Compliance................................................................... 31
Stock Purchases by Directors and Executive Officers........................................................... 33
Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 35
Business of the Company....................................................................................... 47
Business of the Bank.......................................................................................... 47
Taxation...................................................................................................... 66
Supervision and Regulation.................................................................................... 68
Management of the Company..................................................................................... 79
Management of the Bank........................................................................................ 80
Description of Capital Stock.................................................................................. 88
Anti-Takeover Provisions Affecting the Company and the Bank................................................... 90
Certain Provisions of the Charters and Bylaws of the Company and the Bank..................................... 95
The Conversion................................................................................................ 96
Legal Opinions................................................................................................ 113
Experts....................................................................................................... 113
Registration Requirements..................................................................................... 113
Additional Information........................................................................................ 113
Glossary...................................................................................................... A-1
</TABLE>
This document contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors" beginning on page 1 of this document.
Please see the Glossary beginning on page A-1 for the meaning of
capitalized terms that are not defined in this document.
2
<PAGE>
ANSON SAVINGS BANK, SSB
WADESBORO, NORTH CAROLINA
[INSERT MAP FROM TRIDENT]
3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q. What is a mutual to stock conversion?
A. The Conversion is a change in the Bank's form of organization.
Currently, the Bank operates as a North Carolina chartered mutual
savings bank with no stockholders. As a result of the Conversion, it
will become a North Carolina chartered stock savings bank. As part of
the Conversion, a holding company called Anson Bancorp, Inc. will be
organized under the laws of the State of North Carolina to acquire all
the Bank's stock issued in the Conversion. The Company will offer for
sale shares of its Common Stock and will use a portion of the proceeds
from the offering to purchase the Bank's stock.
Q. WHAT IS THE PURPOSE OF THE CONVERSION AND THE OFFERING?
A. As a stock savings bank operating through a holding company structure,
the Bank will have the ability to plan and develop long-term growth and
improve its future access to the capital markets. The stock offering
will increase the Bank's capital and the amount of funds available for
lending and investment activities. This provides greater flexibility to
diversify operations and expand into other geographic markets if the
Bank chooses to do so. If the Company's earnings are sufficient in the
future, stockholders might also receive dividends and benefit from the
possible long-term appreciation of the Company's stock price.
Q. HOW MANY SHARES OF STOCK WILL BE SOLD?
A. Between 561,000 and 759,000 shares of Common Stock will be sold, all at
a price of $10.00 per share. The number of shares to be sold may be
increased to 872,850 shares without further notice to you, subject to
receipt of approval of the Administrator, if market or financial
conditions change prior to completion of the Conversion.
Q. HOW DO I PURCHASE THE STOCK?
A. You must complete and return the original Order Form to the Company and
the Bank together with your payment or your authorization for
withdrawal of the payment amount from an account you have with the
Bank, on or before 12:00 noon, Eastern Time, June 9, 1998. See pages
99-106.
Q. HOW MUCH STOCK MAY I PURCHASE?
A. The minimum purchase is 50 shares (or $500). The maximum purchase per
eligible depositor in the Subscription Offering is 10,000 shares (or
$100,000). In certain instances, your purchase might be grouped
together with purchases by persons with other accounts with whom you
are affiliated or related and in that event the aggregate purchases may
not exceed 15,000 shares (or $150,000). The Bank may decrease or
increase the maximum purchase limitation without notifying you.
If shares are sold in a Community Offering, the maximum number of
shares that may be purchased by any party in the Community Offering is
10,000 shares (or $100,000). As with the Subscription Offering, in
certain circumstances your purchase may be combined with the number of
shares
4
<PAGE>
purchased by other parties with whom such party is affiliated or
related and in that event the aggregate purchases may not exceed 15,000
shares (or $150,000). See pages 109-110.
Q. WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A. You might not receive any or all of the shares you want to purchase. If
there is an over subscription, the Common Stock will be offered on a
priority basis to the following persons:
. Eligible Accounts Holders - Persons who had a deposit account
with a balance of at least $50.00 with the Bank on September
30, 1996. Any remaining shares will be offered to:
. Supplemental Eligible Account Holders - Persons who had a
deposit account with a balance of at least $50.00 with the
Bank on March 31, 1998. Any remaining shares will be offered
to:
. Other Members - Other depositors and certain borrowers of the
Bank, as of April 30, 1998.
If the above persons do not subscribe for all of the shares, the
remaining shares will be offered to directors, officers and employees
of the Bank who are not Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members and to certain members of the general
public with preference given to people who live in Anson County, North
Carolina. In the event there is an oversubscription in any category,
the shares will be allocated among all subscribers in that category in
accordance with a formula set out in the Plan and described in "THE
CONVERSION". See pages 100-101.
Q. WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT
TO BUY THE STOCK?
A. In order to make an informed investment decision, you should read this
entire Prospectus, particularly the section entitled "Risk Factors."
Q. AS A DEPOSITOR OR BORROWER MEMBER OF THE BANK, WHAT WILL HAPPEN IF I DO
NOT PURCHASE ANY STOCK?
A. You presently have voting rights while the Bank is in the mutual form;
however, once the Bank converts to the stock form you will lose your
voting rights unless you purchase stock. You are not required to
purchase stock. Your deposit account, certificate accounts and any
loans you may have with the Bank will not be affected. See pages 97-99.
Q. WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE STOCK
OFFERING?
A. In order to make an informed investment decision, you should read this
entire document. In addition, you should contact:
STOCK INFORMATION CENTER
ANSON BANCORP, INC.
211 SOUTH GREENE STREET
WADESBORO, NORTH CAROLINA 28170
(704) 694-6481
5
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read carefully this entire document, including
the financial statements and the notes to the financial statements of the Bank.
ANSON BANCORP, INC.
Anson Bancorp, Inc. was formed on March 2, 1998 as a North Carolina
corporation to be the holding company for the Bank. The Company is not an
operating company and has not engaged in any significant business to date. The
holding company structure will provide greater flexibility in terms of
operations, expansion and diversification. See page 18.
ANSON SAVINGS BANK, SSB
The Bank is a community and customer oriented North Carolina chartered
mutual savings bank that has been in operation since December 4, 1889 with one
office located in Wadesboro, North Carolina. The Bank has been a member of the
Federal Home Loan Bank ("FHLB") system since 1939 and its deposits have been
federally insured since 1959. The Bank emphasizes residential mortgage lending,
primarily originating one-to-four-family mortgage loans in its primary market
area, Anson County, North Carolina. To a lesser extent, the Bank also makes
nonresidential real estate loans, construction loans and loans secured by
deposit accounts. The Bank is a portfolio lender, meaning that it does not
originate loans for sale in the secondary market. At December 31, 1997, the Bank
had total assets of $20.7 million, deposits of $16.7 million, and equity of $3.9
million. See page 19.
THE STOCK OFFERING
The Company is offering between 561,000 and 759,000 shares of Common
Stock at $10.00 per share. Subject to approval by the Administrator, the number
of shares to be sold may be increased to 872,850 shares without future notice if
market or financial conditions change prior to completion of the Conversion.
STOCK PURCHASES
The Company is first offering its shares of Common Stock in a
Subscription Offering. Depositor and borrower members as of certain eligibility
dates will receive subscription rights. The shares of Common Stock will be
offered on a priority basis as follows: Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members and directors, officers and employees of
the Bank who do not qualify in the above-listed categories. Any remaining shares
may be offered in a Community Offering or in a Syndicated Community Offering.
See pages 99 - 108.
SUBSCRIPTION RIGHTS
You may not sell or assign your subscription rights. Any transfer of
subscription rights is prohibited by law. All persons exercising their
subscription rights will be required to certify that they are purchasing shares
solely for their own account and that they have no agreement or understanding
regarding the sale or transfer of shares. The Bank intends to pursue any and all
legal and equitable remedies in the event the Bank
6
<PAGE>
becomes aware of the transfer of subscription rights. The Bank will reject
orders that are determined to involve the transfer of such rights.
THE OFFERING RANGE AND DETERMINATION OF THE PRICE PER SHARE
The offering range is based on an independent appraisal of the pro
forma market value of the Common Stock by Ferguson & Company ("Ferguson"), an
appraisal firm experienced in appraisals of savings institutions. The pro forma
market value of the shares is the Bank's market value after giving effect to the
sale of shares in this offering. Ferguson has estimated that in its opinion as
of February 27, 1998, such value ranged between $5,610,000 and $7,590,000 (with
a midpoint of $6,600,000) (the "Estimated Valuation Range"). The appraisal was
based in part upon the Bank's financial condition and operations and the effect
of the additional capital raised by the sale of Common Stock in this offering.
The $10.00 price per share was determined by our board of directors and is the
price most commonly used in stock offerings involving conversions of mutual
savings institutions. The appraisal will be updated prior to the consummation of
the Conversion. If the updated pro forma market value of the Common Stock is
either below $5,610,000 or above $8,728,500, the Company will notify you and you
will have the opportunity to modify or cancel your order. See pages 103 - 106.
TERMINATION OF THE OFFERING
The Subscription Offering will terminate at 12:00 noon, Eastern Time,
on June 9, 1998. The Community Offering, if any, may terminate at any time
without notice but no later than July 24, 1998, without approval by the
Administrator.
BENEFITS TO MANAGEMENT FROM THE OFFERING
As a part of the Conversion, the Bank will enter a three-year
employment agreement with Eugene M. Ward, President and Chief Executive Officer
of the Bank. Also, the Bank will adopt a Severance Plan for the benefit of all
of its employees. Following the Conversion, the Bank intends to implement a
management recognition plan ("MRP") under which directors and employees of the
Bank will be entitled to receive awards of restricted stock at no cost to them
and a stock option and incentive plan (the "Option Plan"), which will benefit
the Bank's employees and directors. However, the MRP and Option Plan may not be
adopted until at least six months after the Conversion and are subject to
stockholder approval and compliance with FDIC regulations if adopted within the
first year following the Bank's Conversion. See pages 84 - 88.
STOCK OWNERSHIP BY MANAGEMENT
The directors and executive officers of the Company and of the Bank and
their associates currently anticipate subscribing for Common Stock in the
aggregate amount of $537,000, or 53,700 shares. As a result, such persons
anticipate subscribing for 9.57% to 7.01% of the shares of Common Stock issued
in the Conversion based upon the minimum and maximum of the Estimated Valuation
Range, respectively. It is expected that directors and certain employees of the
Company and the Bank will also receive restricted stock grants under the MRP for
a number of shares of Common Stock equal to 4% of the number of shares issued in
the Conversion and will receive options under the Option Plan to purchase a
number of
7
<PAGE>
shares of Common Stock equal to 10% of the number of shares issued in the
Conversion, if such plans are approved by the stockholders of the Company at a
meeting of stockholders to be held no sooner than six months following the
Conversion. When the shares of Common Stock that the directors and executive
officers and their associates are expected to purchase are aggregated with the
shares of Common Stock the directors and executive officers expect to acquire
through the Option Plan and the MRP, the directors and executive officers of the
Company and the Bank could have voting control over as much as 23.6% or 21.1%,
at the minimum and maximum of the Estimated Valuation Range, respectively, of
the Common Stock issued and outstanding (assuming Option Plan shares and MRP
shares are purchased in the open market). See pages 15-16 and 33-34.
USE OF THE PROCEEDS FROM THE SALE OF COMMON STOCK
The Company will retain up to 50% of the net proceeds from the offering
and will use the balance to purchase all the capital stock to be issued by the
Bank in the Conversion. The amount retained by the Company will serve as a
possible source of funds for the payment of dividends to stockholders or to
repurchase shares of Common Stock in the future and for general corporate
purposes. Net proceeds paid to the Bank will become part of the Bank's general
funds and will be initially invested in mortgage and other loans and investments
consistent with the Bank's investment policy. See pages 19 - 21.
DIVIDENDS
After the Conversion, the Board of Directors of the Company will have
the authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Company expects to pay annual dividends on the
Common Stock at a rate of $0.30 per share. In addition, the Board of Directors
may determine from time to time to pay special, nonrecurring cash dividends. No
assurances can be given that any dividends will in fact be paid on the Common
Stock. See pages 21-22.
MARKET FOR THE COMMON STOCK
The Company, as a newly organized company, has never issued capital
stock; consequently, there is no market for its Common Stock at this time. The
Bank and the Company have engaged Trident Securities, Inc. ("Trident
Securities") as a financial advisor and to assist in the marketing of the shares
of Common Stock, on a best efforts basis, in the stock offering. The Company
intends to list the Common Stock over-the-counter through the OTC "Electronic
Bulletin Board". Since the size of the offering is small, it is unlikely that an
active and liquid trading market for the shares will develop and be maintained.
Investors should have a long-term investment intent. Purchasers may not be able
to sell their shares when they desire or to sell the shares at a price equal to
or above $10.00. See page 22.
IMPORTANT RISKS IN OWNING THE COMPANY'S COMMON STOCK
Before you decide to purchase stock in the offering, you should read
carefully the "Risk Factors" section beginning on page 12 of this document.
8
<PAGE>
SELECTED FINANCIAL
AND OTHER DATA OF THE BANK
Set forth below are summaries of historical financial and other data of the
Bank. This information is derived in part from, and should be read in
conjunction with, the Financial Statements and Notes to Financial Statements of
the Bank presented elsewhere herein and with the section of this Prospectus
entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS." The selected financial and other data of the Bank at and
for the six months ended December 31, 1997 and 1996 were derived from unaudited
financial statements and reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of such periods. The results at and for the six-
month period ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending June 30, 1998.
<TABLE>
<CAPTION>
At or for the Six Months
Ended December 31, At or for the Year Ended June 30,
------------------------ -----------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets $ 20,723 $ 20,695 $ 20,720 $ 21,456
Investments/(1)/ 8,794 8,346 8,700 9,122
Loans receivable, net 11,323 11,730 11,423 11,572
Deposits 16,656 16,889 16,791 17,623
Equity/(2)/ 3,859 3,624 3,756 3,621
OPERATING DATA:
Interest income 718 743 1,442 1,559
Interest expense 412 419 819 894
--- --- --- ---
Net interest income 306 324 623 665
---
Provision for loan losses - 1 5 7
--- --- --- ---
Net interest income after
provision for loan losses 306 323 618 658
Noninterest income 4 1 6 2
Noninterest expense/(3)/ 232 348 555 481
--- --- --- ---
Income (loss) before income taxes 78 (24) 69 179
Income tax expense (benefit) 17 (4) 19 52
-- ------- -- --
Net income (loss) $ 62 $ (20) $ 50 $ 127
======= ======= ========= =========
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
SELECTED OTHER DATA:
Number of outstanding loans 383 404 397 408
Number of deposit accounts 1,702 1,811 1,754 1,876
Number of full-service offices open 1 1 1 1
Return on average assets/(3)/ .60% (.14) % .24% .58%
Return on average equity/(3)/ 3.24% (.82) % 1.34% 3.57%
Average equity to average assets 18.50% 17.16% 17.81% 16.37%
Interest rate spread 2.25% 2.37% 2.29% 2.39%
Net yield on average interest-
earning assets 3.09% 3.15% 3.15% 3.16%
Average interest-earning assets
to average interest-bearing liabilities 120% 119% 119% 118%
Ratio of noninterest expense to
average total assets /(3)/ 2.24% 3.29% 2.65% 2.23%
Nonperforming assets to total assets 1.51% 1.29% 1.16% .92%
Loan loss reserves to nonperforming
loans at period end 32.05% 35.63% 41.67% 47.98%
Retained earnings to total assets 17.44% 16.76% 17.14% 16.32%
------ ------ ------ ------
</TABLE>
__________________________________
(1) Includes interest-earning deposits, federal funds sold, FHLB stock and
investment securities.
(2) Includes unrealized gains on investments amounting to $244,000, $155,000,
$204,000 and $119,000 at December 31, 1997 and 1996, and June 30, 1997 and 1996,
respectively.
(3) Includes a non-recurring expense of $114,000 for the six months ended
December 31, 1996 and the year ended December 31, 1997 for a one-time premium to
recapitalize the SAIF.
(4) Annualized for the six months ended December 31, 1997 and 1996.
RECENT DEVELOPMENTS
The following table sets forth certain selected financial data of the Bank
at and for the period indicated. This information is derived in part from, and
should be read in conjunction with, the Financial Statements and Notes to
Financial Statements of the Bank presented elsewhere herein and with the section
of this Prospectus entitled "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION." The selected financial and other data of
the Bank at March 31, 1998 and for the three months ended March 31, 1998 and
1997 are unaudited. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation have been
included. The results of operations and other data for the three months ended
March 31, 1998 are not necessarily indicative of the results of operations for
the fiscal year ending June 30, 1998.
<TABLE>
<CAPTION>
At At
March 31, June 30,
1998 1997
------ -----
(Dollars in Thousands)
<S> <C> <C>
Financial Condition Data:
Total assets 21,241 20,720
Investments/(1)/ 9,261 8,700
Loans receivable, net 11,186 11,423
Deposits 17,055 16,791
Equity/(2)/ 3,922 3,956
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
For the Three Months
--------------------
Ended March 31,
--------------
1998 1997
---- ----
(Dollars in Thousands)
--------------------
<S> <C> <C>
Operating Data:
Interest income $ 360 $ 356
Interest expense 204 198
----- -----
Net interest income 156 158
Provision for loan losses 1 2
----- -----
Net interest income after provision for loan losses 155 156
Non-interest income -- --
Non-interest expense/ 119 114
----- -----
Income (loss) before income taxes (credits) 36 42
Income tax expense 7 8
----- -----
Net income (loss) $ 29 $ 34
===== =====
</TABLE>
<TABLE>
<CAPTION>
For the Three Months
--------------------
Ended March 31,
--------------
1998 1997
---- ----
<S> <C> <C>
Other Selected Data:
Number of outstanding loans 372 402
Number of deposit accounts 1,688 1,782
Number of full-service offices open 1 1
Return on average assets/(3)/ .55% .66%
Return on average equity/(3)/ 2.98% 3.72%
Average equity to average assets 18.54% 17.74%
Interest rate spread 2.25% 2.42%
Net yield on average interest-earning assets 3.07% 3.18%
Average interest-earning assets to average
interest-bearing liabilities 121.00% 119.00%
Ratio of non-interest expense to average total assets/(3)/ 2.27% 2.21%
Non-performing assets to total assets 1.25% 1.28%
Loan loss reserves to nonperforming loans at period end 37.27% 37.89%
Retained earnings to total assets 17.16% 17.08%
</TABLE>
______________________________
(1) Includes interest-earning deposits, federal funds sold, FHLB stock, and
investment securities.
(2) Includes unrealized gains on investments amounting to $278,000 and $204,000
at March 31, 1998 and June 30, 1997, respectively.
(3) Annualized for the three months ended March 31, 1997 and 1998.
Management's Discussion and Analysis of Recent Developments
Total assets of the Bank have increased 2.5% since June 30, 1997, and
totaled $21.24 million at March 31, 1998. Net loans receivable decreased by
$230,000 to $11.19 million at March 31, 1998 from $11.42 million at June 30,
1997. Deposits increased by $270,000 to $17.06 million at March 31, 1998 from
$16.79 million at June 30, 1997. Total investments increased by $560,000 to
$9.26 million at March 31, 1998 from $8.70 million at June 30, 1997. Equity
increased by $166,000 to $3.92 million at March 31, 1998, which is attributable
to the Bank's earnings of $91,000 and unrealized gains on securities available
for sale, net of tax, of $75,000 during the nine month period ended March 31,
1998.
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At March 31, 1998, the Bank's capital, including the equity component of
unrealized gain on available for sale securities, net of tax, totaled $3.92
million. The Bank's capital as a percentage of assets was 17.16% at March 31,
1998, and was in excess of the regulatory capital requirements at such
date.
The Bank had $271,000 of nonperforming loans at March 31, 1998, compared to
$240,000 at June 30, 1997. A loan loss provision amounting to $1,000 was charged
to expense for the three months ended March 31, 1998. The allowance for loan
losses totalled $101,000 at March 31, 1998.
Net income for the three months ended March 31, 1998 was $29,000, compared
to $34,000 during the same period of 1997. Net interest income totalled $156,000
for the three months ended March 31, 1998, as compared to $158,000 for the same
period in 1997. There were no significant variations in net interest income or
non-interest income between the three months ended March 31, 1998 and 1997.
Non-interest expense increased $5,000 to $119,000 for the three months
ended March 31, 1998, compared to $114,000 for the same period ended March 31,
1997. There were no significant variations in the non-interest expense
categories between the three months ended March 31, 1998 and 1997.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION PRESENTED IN THIS PROSPECTUS,
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE DECIDING
WHETHER TO INVEST IN THE COMMON STOCK.
POTENTIAL IMPACT OF CHANGES IN INTEREST RATES
The results of operations of the Bank, as with savings institutions
generally, are dependent to a large degree on its net interest income, which is
generally the difference between interest income from loans and investments and
interest expense on deposits and borrowings. Approximately 99.5% of the Bank's
mortgage loans have rates of interest which are fixed for the term of the loan
and are originated generally with terms of up to 15 years, while deposit
accounts have significantly shorter terms to maturity. Because the Bank's
interest-earning assets generally have fixed rates of interest and have longer
effective maturities than the Bank's interest-bearing liabilities, the yield on
the Bank's interest earning assets generally will adjust more slowly to changes
in interest rates than the cost of the Bank's interest-bearing liabilities. The
slower adjustment of interest earning assets as compared to interest-bearing
liabilities results in the Bank having a "negative gap." At December 31, 1997,
the Bank's cumulative one year interest rate gap as a percentage of total
interest-earning assets was negative 41.01% and its cumulative three year
interest rate gap as a percentage of total interest-earning assets was a
negative 39.00%. As a result, the Bank's net interest income will be adversely
affected by material and prolonged increases in interest rates. In addition,
rising interest rates may adversely affect the Bank's earnings because there
might be a lack of customer demand for loans. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset/Liability
Management".
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. The relatively lower interest rates in recent
periods have resulted in increased prepayments of loans and mortgage-backed
securities, as borrowers refinanced their mortgages in order to reduce their
borrowing cost.
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Under these circumstances, the 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 prepaid loans or securities. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Asset/Liability Management."
RISK ASSOCIATED WITH NONCONFORMING LOANS
The Bank does not originate its one-to-four-family loans with the intention
that they will be sold in the secondary market. It generally originates loans
satisfying its underwriting requirements which are tailored for its local
community but which may not satisfy various requirements imposed by FHLMC or
FNMA. For example, the Bank may not require title insurance and may not obtain
all of the loan documentation normally required by FHLMC and FNMA. As a result,
to the extent such loans are sold in the secondary market, they may not be sold
on terms as favorable as those originated in conformity with secondary market
requirements. In addition, loans which are not originated in conformity with the
purchase requirements of FHLMC and FNMA, or nonconforming loans, are generally
thought to have greater risks of default and nonperformance; however, the Bank
has not experienced a greater level of nonperformance with its nonconforming
loans. See "BUSINESS OF THE BANK --Origination and Sale of Loans." These loans
satisfy a need in the Bank's local community and generally produce a higher
yield than would be produced by conforming loans. At December 31, 1997, all of
the loans in the Bank's portfolio were nonconforming.
ANTICIPATED LOW RETURN ON EQUITY FOLLOWING CONVERSION
The Bank's return on equity was below industry standards for the six months
ended December 31, 1997. At December 31, 1997, the Bank's ratio of average
equity to average assets was 18.50%. On a pro forma basis at December 31, 1997,
assuming the sale of 759,000 shares of Common Stock in the Conversion, the
Bank's ratio of equity to assets would have been 38.24%. With its higher capital
position as a result of the Conversion, it is doubtful that the Bank will be
able to quickly deploy the capital raised in the Conversion in loans and other
assets in a manner consistent with its underwriting standards and operating
philosophies and in a manner which will generate earnings to support its high
capital position. The cost of the implementation of the MRP following the
Conversion is also expected to reduce the Company's return on equity. As a
result, it is expected that the Company's return on equity initially will be
below industry norms. Also, the Company's return on equity initially could be
below the Bank's historical return on equity. Consequently, investors expecting
a return on equity which will meet or exceed industry norms for the foreseeable
future should carefully evaluate and consider the risk that such returns will
not be achieved.
Following the Conversion, the Company may consider plans to reduce capital
if the opportunities to deploy it prudently are not found. Such plans may
include payment of cash dividends and repurchasing shares. Any such steps would
be taken based on conditions as they exist following the Conversion and in
compliance with applicable regulations which limit the Company's ability to pay
dividends and repurchase its stock. See "USE OF PROCEEDS," "DIVIDEND POLICY" and
"SUPERVISION AND REGULATION -- Regulation of the Company -- General" and "--
Dividend Limitations" and "SUPERVISION AND REGULATION -- Regulation of the
Bank-- Restrictions on Dividends and Other Capital Distributions."
LIMITED MARKET FOR THE COMMON STOCK
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The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for the Common Stock at this
time. Following the completion of the offering, it is anticipated that the
Common Stock will be traded on the over-the-counter market with quotations
available through the OTC Electronic Bulletin Board. Trident Securities is
expected to make a market in the Common Stock, by developing and maintaining
historical stock trading records, soliciting potential buyers and sellers of
shares and attempting to match buy and sell orders. In connection with its
market making activities, Trident may buy or sell shares from time to time for
its own account. However, Trident Securities will not be subject to any
obligation with respect to such efforts.
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Due to the size of the Company's offering (660,000 shares at the midpoint of the
Estimated Valuation Range), it is unlikely that a stockholder base large enough
to create an active trading market will develop and be maintained. Further, even
if a market develops, there can be no assurance that the shares of Common Stock
offered in the Conversion can be resold at or above the purchase price after
completion of the Conversion. Purchasers should consider the potentially
illiquid and long-term nature of their investment in the shares of the Common
Stock. The aggregate price of the Common Stock is based upon an independent
appraisal of the pro forma market value of the Common Stock. However, there can
be no assurance that an investor will be able to sell the Common Stock purchased
in the Conversion at or above the $10.00 purchase price.
RISKS ASSOCIATED WITH ANSON'S PRIMARY MARKET AREA; LIMITED LENDING
OPPORTUNITIES; COMPETITION
The Bank's office is located in Anson County, North Carolina, where the
Bank originates a substantial majority of its loans. Anson County is rural with
an approximate population of 24,309. Population growth and per capital income
levels for Anson County are lower than comparable levels for North Carolina and
the nation, while unemployment rates are higher. Management regards the Anson
County market as a low growth area in which there is significant competition
among financial services providers for market share. See "BUSINESS OF THE BANK--
Competition". As a direct result of these market conditions, the Bank has
experienced a decline in deposits. The lower income levels and lower rates of
growth in Anson County has limited residential mortgage lending opportunities in
its primary market area, and management does not anticipate that residential
mortgage lending opportunities will increase in the future because of the lack
of growth in the local economy. Primarily as a result of these market
conditions, loans receivable, the principal category of earning assets of the
Bank decreased from $11.57 million at the year ended June 30, 1996 to $11.42
million at the year ended June 30, 1997 and to $11.32 million for six-months
ended December 31, 1997. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Comparison of Financial Condition". In
addition, lower income levels and low rates of growth in Anson County could
result in an increase in the number of delinquent or nonperforming loans and
reduce the value of the collateral securing such loans, adversely affecting the
Bank's financial condition and results of operations. See "BUSINESS OF THE
BANK -- Market Area."
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COST AND POSSIBLE DILUTIVE EFFECT OF THE MRP AND OPTION PLAN
It is expected that the stockholders of the Company will be asked to
approve the Option Plan and the MRP at a meeting of stockholders after the
Conversion. Under the MRP, directors and employees of the Bank are expected to
be awarded an aggregate amount of Common Stock equal to 4% of the shares issued
in the Conversion. Under the Option Plan, directors and employees of the Bank
are expected to be granted options to purchase an aggregate amount of Common
Stock equal to 10% of the shares issued in the Conversion at exercise prices
equal to the market price of the Common Stock on the date of grants. Shares
issued to directors and certain employees under the MRP and the Option Plan may
be from authorized but unissued shares of Common Stock or they may be purchased
in the open market. In the event the shares issued under the MRP and the Option
Plan consist of newly issued shares of Common Stock, the interests of existing
stockholders would be diluted. If 759,000 shares (872,850 shares at the maximum,
as adjusted) of the Common Stock are issued in the Conversion, it is expected
that options to acquire 75,900 shares (87,285 shares at the maximum, as
adjusted) of the Common Stock could be granted under the Option Plan, and awards
of an additional 30,360 (34,914 shares at the maximum, as adjusted) shares could
be made under the MRP. At the maximum of the Estimated Valuation Range, if all
shares under the MRP and the Option Plan were newly issued, the exercise price
was $10.00 for the shares issued pursuant to the options, and all of the options
were exercised, the number of outstanding shares of Common Stock would increase
from 759,000 to 865,260 (872,850 to 995,049 shares at the maximum, as adjusted)
, the pro forma book value per share of the outstanding Common Stock at December
31, 1997 would have been $13.49 ($12.96 at the maximum, as adjusted) compared
with $13.98 ($13.37 at the maximum, as adjusted) if such plans did not exist,
and the unannualized pro forma net income per share of the outstanding Common
Stock for the six months ended December 31, 1997 would have been $0.21 ($0.21 at
the maximum, as adjusted) compared with $0.22 ($0.21 at the maximum, as
adjusted) if such plans did not exist. The cost of the shares acquired by the
MRP will be expensed over any vesting period set forth in the MRP. If 759,000
(872,850 shares at the maximum, as adjusted) shares of Common Stock are issued
in the Conversion and the MRP acquired 30,360 (34,914 shares at the maximum, as
adjusted) shares at a cost of $10.00 per share, the total annual pre-tax expense
of the MRP would be $60,720 ($69,828 at the maximum, as adjusted) per year
assuming a straight line amortization method over a five-year life. See "PRO
FORMA DATA" and "MANAGEMENT OF THE BANK -- Proposed Management Recognition Plan"
and "-- Proposed Option Plan."
ANTI-TAKEOVER CONSIDERATIONS
PROVISIONS IN THE ARTICLES OF INCORPORATION AND BYLAWS. The Company's
Articles of Incorporation and Bylaws contain certain provisions that may
discourage attempts to acquire control of the Company that are not negotiated
with the Company's Board of Directors. These provisions may result in the
Company being less attractive to a potential acquiror and may result in
stockholders receiving less for their shares than otherwise might be available
in the event of a takeover attempt. In addition, these provisions may have the
effect of discouraging takeover attempts that some stockholders might deem to be
in their best interests, including takeover proposals in which stockholders
might receive a premium for their shares over the then-current market price, as
well as making it more difficult for individual stockholders or a group of
stockholders to elect directors or to remove incumbent management. The Company's
Board of Directors believes, however, that these provisions are in the best
interests of the Company and its stockholders because such provisions encourage
potential acquirors to negotiate directly with the Board of Directors, which the
Board of Directors believes is in the best position to act on behalf of all
stockholders.
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These provisions include, among other things, (1) supermajority voting
requirements on certain matters, (2) a staggered board of directors, (3) non-
cumulative voting for any purpose, (4) limits on the calling of special
meetings, (5) the ability of the Board of Directors to issue preferred stock
without stockholder action, (6) the removal of directors before the end of their
term only for cause and (7) the ability of the Board of Directors to change the
number of directors within a range without stockholder action.
The amended Certificate of Incorporation and Bylaws of the Bank upon its
Conversion to stock form also contain certain provisions that might discourage
potential takeover attempts of the Bank. See "ANTITAKEOVER PROVISIONS AFFECTING
THE COMPANY AND THE BANK."
Possible Voting Control of Directors, Officers and Employees. The directors
and executive officers of the Company and of the Bank and their associates
currently anticipate subscribing for Common Stock in the aggregate amount of
$537,000, or 53,700 shares. As a result, such persons anticipate subscribing for
9.57% to 7.01% of the shares of Common Stock issued in the Conversion based upon
the minimum and maximum of the Estimated Valuation Range, respectively. See
"ANTICIPATED STOCK PURCHASES BY MANAGEMENT." It is expected that directors and
certain employees of the Company and the Bank will also receive restricted stock
grants under the MRP for a number of shares of Common Stock equal to 4% of the
number of shares issued in the Conversion and will receive options under the
Option Plan to purchase a number of shares of Common Stock equal to 10% of the
number of shares issued in the Conversion, if such plans are approved by the
stockholders of the Company at a meeting of stockholders to be held no sooner
than six months following the Conversion. See "MANAGEMENT OF THE BANK --
Proposed Management Recognition Plan" and "--Proposed Option Plan." When the
shares of Common Stock that the directors and executive officers and their
associates are expected to purchase are aggregated with the shares of Common
Stock the directors and executive officers expect to acquire through the Option
Plan and the MRP, the directors and executive officers of the Company and the
Bank could have voting control over as much as 23.6% or 21.1%, at the minimum
and maximum of the Estimated Valuation Range, respectively, of the Common Stock
issued and outstanding (assuming Option Plan shares and MRP shares are purchased
in the open market). Because the Company's Articles of Incorporation require the
affirmative vote of 75% of the outstanding shares entitled to vote in order to
approve certain mergers, consolidations or other business combinations, the
directors, officers and employees, as a group, could potentially block such
transactions. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK
- -- THe Company -- Supermajority Voting Provisions."
REGULATORY PROVISIONS. Regulations of the Administrator contain provisions
that, for a period of three years after the Conversion, prohibit any person from
directly or indirectly acquiring or offering to acquire beneficial ownership of
more than 10% of any class of equity security of the Company or the Bank, with
certain exceptions, without the prior approval of the Administrator. If any
person should acquire beneficial ownership of more than 10% of any class of
equity security without prior approval, any shares beneficially owned in excess
of 10% would not be counted as shares entitled to vote and would not be voted in
connection with any matter submitted to the stockholders for a vote. See "ANTI-
TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK."
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve be obtained
prior to any person or company acquiring "control" of a savings bank or a bank
holding company. Restrictions applicable to the operations of bank holding
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companies and conditions imposed by the Federal Reserve in connection with its
approval of such acquisitions may deter potential acquirors from seeking to
obtain control of the Company. See "SUPERVISION AND REGULATION --Regulation of
the Company."
AGREEMENTS WITH EMPLOYEES. In connection with the Conversion, the Bank will
enter into an employment agreement with Eugene M. Ward, President and Chief
Executive Officer. See "MANAGEMENT OF THE BANK -- Employment Agreement." In
addition, the Bank intends to adopt a Severance Plan which would benefit its
employees in the event there is a change in control of the Company or the Bank.
See "MANAGEMENT OF THE BANK -- Severance Plan." Pursuant to the terms of the
proposed employment agreement and Severance Plan a total of $439,934.45 would
have been paid to the Bank's employees, as of December 31, 1997, if a change of
control had occurred and all the employees, including Mr. Ward were terminated.
The existence of the employment agreement and severance plan may tend to
discourage mergers, consolidations, acquisitions or other transactions that
would result in a change in control of the Company or the Bank. See "ANTI-
TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK -- The Company --Anti-
Takeover Effect of Employment Agreement and Benefit Plans."
DEPENDENCE ON MANAGEMENT
The success of the Bank's operations depends to a considerable degree on
its management and, in particular, its President and Chief Executive Officer,
Eugene M. Ward, and the loss of his services could adversely affect the Bank.
The Bank has attempted to provide for his continued employment by entering into
a three-year employment agreement with Mr. Ward. Mr. Ward could terminate his
employment at any time, however. See "MANAGEMENT OF THE BANK -- Employment
Agreement."
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The U.S. Congress is expected to consider legislation that may eliminate
the thrift industry as a separate industry. The Deposit Insurance Funds Act of
1996 ("DIF Act") provides that the Savings Association Insurance Fund ("SAIF")
will be merged with the Bank Insurance Fund ("BIF") on January 1, 1999, but only
if there are no thrift institutions in existence. The DIF Act requires the
Treasury Department to study the development of a common charter for banks and
thrifts and to submit a report of its finding to Congress, which the Treasury
Department has done. The Company cannot predict whether any legislation will
result from this process or what any such legislation may provide. If Congress
does not act to end the separate existence of the thrift industry, the merger of
the SAIF and BIF contemplated by the DIF Act will not occur, without some
amendment of the DIF Act. Although the SAIF currently meets its statutory
reserve ratios, there can be no assurance that it will continue to do so. The
financial burden of any future recapitalization of the SAIF, if imposed solely
on insured savings associations, would fall on a smaller assessment base than in
the past. This could increase the burden on individual institutions, including
the Bank. See SUPERVISION AND REGULATION."
Because the Bank is a North Carolina-chartered state savings bank, any
federal legislation providing for a common charter for banks and thrifts is not
expected to apply directly to the Bank. However, in addition to eliminating a
separate thrift industry, Congress is expected to consider legislation that will
restructure the banking and financial services industries generally. While such
legislation may not affect the Bank or the Company directly, it may restructure
the regulatory and competitive environments in which they operate. The Company
cannot predict the effects of such restructuring.
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The Bank is subject to extensive regulation and supervision as a North
Carolina chartered savings bank. In addition, the Company, as a bank holding
company, is subject to extensive regulation and supervision. Any change in the
regulatory structure or the applicable statutes or regulations, whether by the
Administrator, the Federal Reserve, the FDIC, the North Carolina General
Assembly or the U.S. Congress, could have a material impact on the Company, the
Bank, or the Conversion.
POSSIBLE YEAR 2000 COMPUTER PROGRAM PROBLEMS; IMPACT OF TECHNOLOGICAL ADVANCES
As is the case with substantially all financial institutions, rapid and
accurate data processing is essential to the operation of the Bank. There is
concern that in the year 2000 many computers will "read" entries for the year
2000 as the year 1900 and compute payment, interest or delinquency based on the
wrong date or be unable to compute payment, interest or delinquency.
All of the material data processing of the Bank that could be affected by
this problem is provided by a third party service bureau. The service bureau of
the Bank has advised the Bank that it expects to resolve this potential problem
before the year 2000. However, if the service bureau is unable to resolve this
potential problem in time, the Bank would likely experience significant data
processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on the financial condition and results
of operations of the Bank.
In addition, the financial services industry frequently introduces new
technology-driven products and services which improve customer services and, if
used effectively, may enable financial institutions to reduce costs. The Bank's
future success will depend, in part, on its ability to address its customers
needs by using technology to provide products and services that will satisfy
customer demands for convenience, as well as increase the Bank's efficiencies in
its operations. There can be no assurances that the Bank will be able to
effectively implement new technology-driven products and services or be
successful in marketing such products and services in its market area.
BEST EFFORTS OFFERING
The Bank has engaged Trident Securities to consult with and advise the Bank
with respect to the Conversion and to assist, on a best-efforts basis, in
connection with the solicitation of subscriptions and purchase orders for shares
of Common Stock in the Offerings. Trident Securities is under no obligation to
purchase any shares of Common Stock in any of the Offerings. Trident Securities
has not prepared or delivered any opinion or recommendation with respect to the
appropriateness of the amount of Common Stock to be issued in the Conversion.
Trident Securities has not prepared any fairness opinion with respect to the
terms of the Offerings or any opinion with respect to the price at which shares
of Common Stock may trade.
ANSON BANCORP, INC.
The Company was incorporated under North Carolina law on March 2, 1998 at
the direction of the Bank for the purpose of acquiring and holding all of the
outstanding capital stock of the Bank to be issued in connection with the
Conversion. The Company has received conditional approval from the Federal
Reserve and the Administrator to become a bank holding company and as such will
be subject to regulation by the Federal Reserve and the Administrator. This
structure will give the Company greater flexibility than
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the Bank currently has to expand and diversify its business activities, although
there are no current plans regarding expansion or diversification. See
"SUPERVISION AND REGULATION --Regulation of the Company."
Prior to completion of the Conversion, the Company will not own any
material assets or transact any material business. Upon completion of the
Conversion, on an unconsolidated basis, the Company will have no significant
assets other than the stock of the Bank acquired in the Conversion, and the
portion of the net proceeds from the sale of Common Stock in the Conversion
which are retained by it. The Company will have no significant liabilities upon
completion of the Conversion. The management of the Company is described in
"MANAGEMENT OF THE COMPANY." The executive office of the Company is located at
the headquarters office of the Bank at 211 South Greene Street, Wadesboro, North
Carolina, and its telephone number is (704) 694-2122.
The existing management of the Company believes that it will be in the best
interests of the Company, the Bank and the Company's stockholders for the
Company to remain an independent company.
ANSON SAVINGS BANK, SSB
The Bank is a North Carolina-chartered mutual savings bank. The Bank was
organized in 1889 and has been a member of the FHLB system since 1939. The
deposits of the Bank are insured by the SAIF of the FDIC to the maximum amount
permitted by law.
The Bank is a member of the FHLB of Atlanta, which is one of the twelve
regional banks for federally insured savings institutions and other eligible
members comprising the FHLB system. As a North Carolina chartered savings bank,
the Bank is regulated by the Administrator. The Bank is also subject to
regulations of the FDIC with respect to certain other matters and, as a
subsidiary of the Company, will be indirectly subject to regulation by the
Federal Reserve. See "SUPERVISION AND REGULATION -- Regulation of the Company"
and "-- Regulation of the Bank."
The Bank conducts business through its one full service office in
Wadesboro, North Carolina. The Bank's primary market area is Anson County, North
Carolina. At December 31, 1997, the Bank had total assets of $20.7 million, net
loans of $11.3 million, deposits of $16.7 million and retained earnings of $3.6
million.
The Bank is a community-oriented financial institution which offers a
variety of financial services to meet the needs of the communities it serves.
The Bank is principally engaged in the business of attracting deposits from the
general public and using such deposits to make one-to-four-family residential
real estate loans, non-residential real estate loans, construction loans and
loans secured by deposit accounts.
Revenues of the Bank are derived primarily from interest on loans. The Bank
also receives interest income from its investments and interest-earning deposit
balances. The Bank also receives non-interest income from transaction and
service fees and other sources. The major expenses of the Bank are interest on
deposits and general and administrative expenses such as compensation and
employee benefits, federal deposit insurance premiums, data processing expenses
and occupancy and related expenses.
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USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently estimated that
such net proceeds will be between $5.12 million and $7.05 million, based on the
current Estimated Valuation Range. If the gross proceeds of the shares sold are
increased to 15% above the maximum of the Estimated Valuation Range, it is
estimated that net proceeds will equal $8.16 million. See "PRO FORMA DATA" for
the assumptions used to arrive at these amounts. The actual net proceeds may
vary materially from the estimated amounts described herein. The Company expects
to retain 50% of the proceeds of the Offering and will use the balance to
purchase the capital stock of the Bank to be issued in the Conversion.
The Company expects to use the portion of the net proceeds it retains for
working capital and investment purposes. The Company does not expect to have
significant operating expenses and anticipates that initially it will invest the
net proceeds it retains primarily in interest-earning deposits, U.S. government,
federal agency and other marketable securities and mortgage-backed securities.
The types and amounts of such investments will vary from time to time based upon
the interest rate environment, asset/liability mix considerations and other
factors.
Net proceeds paid to the Bank initially will become part of the Bank's
general funds and will be invested primarily in mortgage and other loans, and
investments consisting primarily of interest-earning deposit balances, U.S.
government and federal agency obligations and other marketable securities in
accordance with the Bank's lending and investment policies. The relative amounts
to be invested in each of these types of investments will depend upon loan
demand, rates of return and asset/liability matching considerations at the time
the investments are to be made. Management is not able to predict the yields
which will be produced by the investment of the proceeds of the Offering because
such yields will be significantly influenced by general economic conditions and
the interest rate environment existing at the time the investments are made.
Remaining net proceeds paid to the Bank will be used for general corporate
purposes.
The proceeds of the Offering will result in an increase in the Bank's net
worth and regulatory capital and may enhance the potential for growth through
increased lending and investment activities, branch expansion, ATMs or
otherwise. The net proceeds retained by the Company could be used to support the
future expansion of operations of the Company through the opening of a branch
office in or adjacent to the Bank's primary market area. The Company has no
current plans to open any additional office. Payments for shares of Common Stock
of the Company made through the withdrawal of existing deposit accounts at the
Bank will not result in the receipt of new funds for investment by the Bank.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but are not limited to (i)
market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, (ii) the ability to increase the book value and earnings per share
of the remaining outstanding shares, and improve the Company's return on equity;
(iii) the reduction of dilution to stockholders caused by having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iv) any other circumstances in which repurchases would
be in the best interests of the Company and its stockholders.
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Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and the Bank will be capitalized in excess of
applicable regulatory requirements after any such repurchases and that capital
will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. Federal regulations
require that, subject to certain exceptions, the Company must obtain approval of
the Federal Reserve prior to repurchasing Common Stock in excess of 10% of its
net worth during any twelve-month period. See "SUPERVISION AND REGULATION --
Regulation of the Company -- Dividend and Repurchase Limitations."
The Company and the Bank have entered into a tax allocation agreement which
contemplates the filing of consolidated tax returns at a yet undetermined future
time when most advantageous to the Company, the Bank and the Company's
shareholders. However, the Company and the Bank have no present intention to
file consolidated tax returns, thus preserving for the Company the ability to
use a portion of the proceeds to make a return of capital in the future.
However, the Company has not made any decision to pay such a return of capital.
The Company and the Bank have agreed to notify the FDIC before making a return
of capital during the first three years following the Conversion. See "DIVIDEND
POLICY."
At any time following approval of the MRP by the Company's stockholders, it
is expected that the MRP may acquire a number of shares of Common Stock equal to
4% of the number of shares issued in the Conversion. See "MANAGEMENT OF THE
BANK -- Proposed Management Recognition Plan." Such shares may be acquired in
the open market or acquired through the Company's issuance of authorized but
unissued shares. In the event shares are acquired in the open market, the funds
for such purchase may be provided by the Bank from the proceeds of the
Conversion. It is estimated that between 22,440 and 30,360 shares (34,914 shares
at the maximum, as adjusted) may be acquired by the MRP, assuming the issuance
of between 561,000 and 759,000 shares (872,850 shares at the maximum, as
adjusted), respectively, in the Conversion. If the Common Stock is acquired in
the open market it will be purchased at a price equal to the fair market value
of the Common Stock at the time of purchase, which price may be greater or lower
than the offering price of $10.00 per share of Common Stock. If all such shares
were acquired by the MRP in the open market, and if such shares were acquired at
a price of $10.00 per share, the Bank would contribute between $224,400 and
$303,600 ($349,914 at the maximum, as adjusted), respectively, to the MRP for
this purpose.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare semiannual dividends on the Common Stock, subject to
statutory and regulatory requirements. The Company expects to pay annual
dividends on the Common Stock at a rate of $0.30 per share which is equal to 3%
of the offering price for the Common Stock in the Conversion. The payment of
dividends is expected to begin as soon as practicable after completion of the
Conversion. In addition, the Board of Directors may determine from time to time
that it is prudent to pay special nonrecurring cash dividends, which may or may
not constitute a return of capital. Special cash dividends, if paid, may be in
addition to, or in lieu of, regular cash dividends. The Company's Board of
Directors will periodically review its policy concerning dividends. Declarations
of dividends, if any, by the Board of Directors will depend upon a number of
factors, including investment opportunities available to the Company and the
Bank, capital requirements,
21
<PAGE>
regulatory limitations, the Company's and the Bank's results of operations and
financial condition, tax considerations and general economic conditions. Upon
review of such considerations, the Board of Directors of the Company may
authorize dividends to be paid in the future if it deems such payment
appropriate and in compliance with applicable law and regulation. No assurances
can be given that any dividends will in fact be paid on the Common Stock or, if
dividends are paid, that they will not be reduced or discontinued in the
future.
In connection with the Conversion, the Bank has agreed with the FDIC that,
within the first three years after completion of the Conversion, neither the
Company nor the Bank will pay any taxable dividend or make any taxable
distribution in excess of their current and retained earnings. The Company and
the Bank have agreed to notify the FDIC before making a return of capital during
the first three years following the Conversion.
The sources of income to the Company initially will consist of earnings on
the capital retained by the Company and dividends paid by the Bank to the
Company, if any. Consequently, future declarations of cash dividends by the
Company may depend upon dividend payments by the Bank to the Company, which
payments are subject to various restrictions. Under current North Carolina
regulations, the Bank could not declare or pay a cash dividend if the effect
thereof would be to reduce its net worth to an amount which is less than the
minimum required by the FDIC and the Administrator. In addition, for a period of
five years after the consummation of the Conversion, the Bank will be required,
under existing regulations, to obtain the prior written approval of the
Administrator before it can declare and pay a cash dividend on its capital stock
in an amount in excess of one-half of the greater of (i) its net income for the
most recent fiscal year, or (ii) the average of its net income after dividends
for the most recent fiscal year and not more than two of the immediately
preceding fiscal years, if applicable. See "SUPERVISION AND REGULATION --
Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions." As a result of this limitation, if the Bank had been a stock
institution at the end of fiscal 1997 and for the two preceding fiscal years, it
could not have paid a dividend in excess of $61,244.33 without the approval of
the Administrator.
As a converted institution, the Bank also will be subject to the regulatory
restriction that it will not be permitted to declare or pay a dividend on or
repurchase any of its capital stock if the effect thereof would be to cause its
regulatory capital to be reduced below the amount required for the liquidation
account established in connection with the Conversion. See "THE CONVERSION --
Effects of Conversion -- Liquidation Rights." Also, see "TAXATION-- Federal
Income Taxation" for a discussion of federal income tax provisions that may
limit the ability of the Bank to pay dividends to the Company without incurring
a recapture tax.
MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for the Common Stock at this
time. Following the completion of the Offering, it is anticipated that the
Common Stock will be traded on the over-the-counter market with quotations
available through the OTC Electronic Bulletin Board. Trident Securities is
expected to make a market in the Common Stock, by developing and maintaining
historical stock trading records, soliciting potential buyers and sellers of
shares and attempting to match buy and sell orders. In connection with its
market making activities, Trident may buy or sell shares from time to time for
its own account. However, Trident Securities will not be subject to any
obligation with respect to such efforts.
22
<PAGE>
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Due to the size of the Company's offering (660,000 shares at the midpoint of the
Estimated Valuation Range), it is unlikely that a stockholder base large enough
to create an active trading market will develop and be maintained. Further, even
if a market develops, there can be no assurance that the shares of Common Stock
offered in the Conversion can be resold at or above the purchase price after
completion of the Conversion. Purchasers of Common Stock should consider the
potentially illiquid and long-term nature of their investment in the shares
being offered hereby. The aggregate price of the Common Stock is based upon an
independent appraisal of the pro forma market value of the Common Stock.
However, there can be no assurance that an investor will be able to sell the
Common Stock purchased in the Conversion at or above the $10.00 purchase price.
CAPITALIZATION
The following tables present the historical capitalization of the Bank
at December 31, 1997 and the pro forma capitalization of the Company at such
date after giving effect to the sale of the Common Stock and application of the
assumptions set forth under "PRO FORMA DATA," assuming that 561,000, 660,000,
759,000 and 872,850 shares of Common Stock are sold at $10.00 per share (the
minimum, midpoint, maximum and 15% above the maximum of the current Estimated
Valuation Range). A change in the number of shares issued in the Conversion may
materially affect such pro forma capitalization. See "USE OF PROCEEDS" and "THE
CONVERSION -- Purchase Price of Common Stock and Number of Shares Offered."
23
<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma Capitalization at December 31, 1997
Based Upon Sale of
-------------------------------------------------------
561,000 660,000 759,000 872,850
shares at a shares at a shares at a shares at a
Capitalization price of price of price of price of
of Bank at $10.00 per $10.00 per $10.00 per $10.00 per
---------- ---------- ---------- ----------
12/31/97 share share share share(1)
-------- ----- ----- ----- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) $16,656 $16,656 $16,656 $16,656 $16,656
Borrowings -- -- -- -- --
------- ------- ------- -------
Total deposits and borrowings $16,656 $16,656 $16,656 $16,656 $16,656
======= ======= ======= ======= =======
Capital Stock:
Preferred stock, no par value per share:
authorized - 5,000,000 shares; assumed outstanding
- none
$ -- $ -- $ -- $ -- $ --
Common Stock, no par value per share;
authorized - 20,000,000 shares; shares to be
outstanding -
as shown -- -- -- -- --
Paid-in capital -- 5,122 6,087 7,053 8,163
Less:
Common Stock acquired by MRP(3) -- (224) (264) (304) (349)
Retained earnings -- substantially restricted 3,614 3,614 3,614 3,614 3,614
Unrealized gains on available-for-sale securities,
net of tax 244 245 245 245 245
------- ------- ------- ------- -------
Total stockholders' equity $ 3,859 $ 8,757 $ 9,682 $10,608 $11,672
======= ======= ======= ======= =======
</TABLE>
24
<PAGE>
_________________________
(1) Represents the number of shares of Common Stock that would be issued in
the Conversion after giving effect to a 15% increase in maximum
valuation in the Estimated Valuation Range.
(2) Withdrawals from deposit accounts for the purchase of Common Stock are
not reflected. Any such withdrawals would reduce pro forma deposits by
the amount of such withdrawals.
(3) Additionally, assumes no stock option grants under the proposed Option
Plan, and assumes that, after the Conversion, a number of shares equal
to 4% of the shares of Common Stock offered hereby will be purchased by
the MRP. The Common Stock acquired by the MRP is reflected as a
reduction of stockholders' equity. See "RISK FACTORS -- Cost and
Possible Dilutive Effect of the MRP and Option Plan, footnote 1 to the
tables under "PRO FORMA DATA" and "MANAGEMENT OF THE BANK -- Proposed
Management Recognition Plan".
25
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $5.12 million and $8.16 million, based upon
the following assumptions: (i) 52,000 shares of the Common Stock sold in the
Conversion will be sold to the directors and executive officers and their
associates (and that Trident Securities will not receive certain compensation
with respect to such sales), and none of the shares of Common Stock will be sold
in any Syndicated Community Offering pursuant to selected dealer agreements;
(ii) fees will be payable to Trident Securities with respect to the Subscription
and Community Offering as described in "THE CONVERSION -- Marketing
Arrangements;" and (iii) Conversion expenses, excluding the fees and commissions
to Trident Securities, will be approximately $366,000. Actual net proceeds may
vary depending upon the number of shares sold to directors, executive officers
and their associates, the number of shares, if any, sold in the Syndicated
Community Offering pursuant to selected dealer arrangements and the actual
expenses of the Conversion. Payments for shares made through withdrawals from
the existing Bank deposit accounts will not result in the receipt of new funds
for investment by the Bank. However, capital will increase and interest-bearing
liabilities will decrease by the amount of such withdrawals. See "THE
CONVERSION--Purchase Price of Common Stock and Number of Shares Offered."
Under the Plan, the Common Stock must be sold at an aggregate price
equal to not less than the minimum nor more than the maximum of the Estimated
Valuation Range based upon an independent appraisal. The Estimated Valuation
Range as of February 27, 1998 is from a minimum of $5,610,000 to a maximum of
$7,590,000 with a midpoint of $6,600,000. However, with the consent of the
Administrator and the FDIC, the aggregate dollar amount of the Common Stock sold
may be increased to up to 15% above the maximum of the Estimated Valuation
Range, or to $8,728,500, without a resolicitation and without any right to
cancel, rescind or change subscription orders, to reflect changes in market and
financial conditions following commencement of the Subscription Offering. See
"THE CONVERSION -- Purchase Price of Common Stock and Number of Shares
Offered."
Pro forma consolidated net earnings and book value of the Company at or
for the six months ended December 31, 1997 and the year ended June 30, 1997 have
been based upon the following assumptions: (i) the sale of shares of Common
Stock in connection with the Conversion occurred at the beginning of the
periods, and yielded net proceeds available for investment of approximately
$4.90 million, $5.82 million, $6.75 million and $7.81 million (based upon the
issuance of 561,000, 660,000, 759,000 and 872,850 shares, respectively, at
$10.00 per share) on such dates; (ii) such net proceeds were invested on a
consolidated basis at the beginning of the period at a yield of 5.55%, which
represents the average one-year treasury rate for the last week of December
1997; and (iii) the MRP is adopted by the Board of Directors and receives the
requisite shareholder approval. The Company did not use the arithmetic average
of the Bank's weighted-average yield on interest-earning assets and weighted-
average interest rate paid on deposits during the six months ended December 31,
1997 or the year ended June 30, 1997. Management believes that the one-year
Treasury rate is a more appropriate rate for purposes of preparing the pro forma
data because proceeds from the Conversion are expected to be initially invested
in instruments with similar yields and maturities. The effect of withdrawals
from deposit accounts for the purchase of Common Stock has not been reflected.
Such withdrawals have no effect on pro forma stockholders' equity, and
management does not believe that such withdrawals will have a material impact on
pro forma net earnings or pro forma net earnings per share. In calculating pro
forma net earnings for the six months ended December 31, 1997 and
26
<PAGE>
year ended June 30, 1997, an effective combined federal and state income tax
rate of 34.00% has been assumed, resulting in a yield after taxes of 3.66%.
Historical and pro forma per share amounts have been calculated by dividing the
Bank's historical amounts and the Company's pro forma amounts by the indicated
number of shares of Common Stock, assuming that such number of shares had been
outstanding during the entire period.
The following pro forma information is not intended to represent the
market value of the Common Stock, the value of net assets and liabilities or of
future results of operations. The assumption regarding investment yields should
not be considered indicative of actual yields for future periods. The following
information is not intended to be used as a basis for projection of results of
operations for future periods.
<TABLE>
<CAPTION>
At or for the Six Months Ended December 31, 1997
--------------------------------------------------------------------------
561,000 660,000 759,000 872,850
shares at $10.00 shares at $10.00 shares at $10.00 shares at $10.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (Supermaximum)
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 5,610 $ 6,600 $ 7,590 $ 8,729
Less offering expenses and commissions (488) (513) (537) (566)
------- -------- -------- --------
Estimated net Conversion proceeds 5,122 6,087 7,053 8,163
Less Common Stock to be acquired by MRP/(1)/ (224) (264) (304) (349)
------- -------- -------- --------
Estimated proceeds available for investment $ 4,898 $ 5,823 $ 6,749 $ 7,813
======= ======== ======== ========
Pro forma net income:
Historical net income $ 62 $ 62 $ 62 $ 62
Pro forma adjustments:
Pro forma income on net proceeds 90 107 124 143
Pro forma MRP adjustments/(1)/ (16) (17) (20) (23)
------- -------- -------- --------
Pro forma net income $ 137 $ 151 $ 166 $ 182
======= ======== ======== ========
Pro forma net income per share
Historical net income per share $ 0.11 $ 0.09 $ 0.08 $ 0.08
Pro forma adjustments:
Pro forma income on net proceeds 0.16 0.16 0.16 0.16
Pro forma MRP adjustments/(1)/ (0.03) (0.03) (0.03) (0.03)
------- -------- -------- --------
Pro forma net income per share/(1)/ $ 0.24 $ 0.23 $ 0.22 $ 0.21
/(2)(4)/
======= ======== ======== ========
Number of shares used in calculating income per
share/(4)/ 561,000 660,000 759,000 872,850
======= ======== ======== ========
Stockholders' equity (book value)/(3)/
Historical retained earnings $ 3,859 $ 3,859 $ 3,859 $ 3,859
Estimated net conversion proceeds 5,122 6,087 7,053 8,163
Less common stock acquired by:
MRP/(1)/ (224) (264) (304) (349)
------- -------- -------- --------
Pro forma stockholders' equity/(3)/ $ 8,757 $ 9,682 $ 10,608 $ 11,672
======= ======== ======== ========
Pro forma stockholders' equity per share
Historical retained earnings $ 6.88 $ 5.85 $ 5.09 $ 4.42
Estimated net conversion proceeds 9.13 9.22 9.29 9.35
Less common stock acquired by:
MRP/(1)/ (0.40) (0.40) (0.40) (0.40)
------- -------- -------- --------
Pro forma stockholders' equity per
share/(1)(2)/ $ 15.61 $ 14.67 $ 13.98 $ 13.37
======= ======== ======== ========
Pro forma price to book value 64.1% 68.2% 71.5% 74.8%
======= ======== ======== ========
Pro forma price to earnings (P/E ratio)/(5)/ 20.8x 21.7x 22.7x 23.8x
======= ======== ======== ========
Number of shares used in calculating equity
per share 561,000 660,000 759,000 872,850
======= ======== ======== ========
</TABLE>
27
<PAGE>
_________________________________
(1) It is assumed that the MRP will purchase a number of shares equal to 4%
of the shares of Common Stock issued in the Conversion for issuance to
directors, officers and employees, subject to approval by the Company's
stockholders. If the MRP is approved by the stockholders, the MRP
intends to acquire the Common Stock either through open market
purchases or from authorized but unissued shares of Common Stock of the
Company. Funds used by the MRP to purchase the shares will be
contributed to the MRP by the Bank. In calculating the pro forma effect
of the MRP, it is assumed that the required stockholder approval has
been received, that the shares were acquired by the MRP at the
beginning of the period presented in open market purchases at the
Conversion purchase price of $10.00 per share, and that 20% of the
amount contributed was amortized to expense annually during the period
(the MRP will be amortized over a five-year period), net of income tax
at an assumed combined federal and state rate of 34%. The issuance of
authorized but unissued shares of the Company's Common Stock to the MRP
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.9%; pro forma net earnings per
share would be $0.24, $0.23, $0.22 and $0.21 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively, for the six-month period ended December 31, 1997; pro
forma price to earnings ratio would be 20.8, 21.7, 22.7 and 23.8; and
pro forma stockholders' equity per share would be $15.39, $14.49,
$13.82 and $13.24 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, at December 31,
1997. There can be no assurance that stockholder approval of the MRP
will be obtained, or that the actual purchase price of the shares will
be equal to the Conversion purchase price. See "MANAGEMENT OF THE
BANK --Proposed Management Recognition Plan."
(2) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Option Plan. See "MANAGEMENT OF THE BANK --
Proposed Option Plan." If the Option Plan is approved by the
stockholders, an amount equal to 10% of the Common Stock issued in the
Conversion, or 56,100, 66,000, 75,900 and 87,285 shares at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
will be reserved for future issuance upon the exercise of the options
to be granted under the Option Plan. The issuance of Common Stock
pursuant to exercise of options under the Option Plan will result in
the dilution of existing stockholders' interests. Assuming stockholder
approval of the Option Plan and exercise of all options at the
beginning of the period at an exercise price of $10.00 per share, and
the issuance of authorized but unissued shares upon exercise of such
options, the pro forma net earnings per share would be $0.24, $0.22,
$0.21 and $0.21, respectively, and pro forma stockholders' equity per
share would be $15.10, $14.25, $13.62, and $13.07, respectively, at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range.
(3) The retained earnings of the Bank will be substantially restricted
after the Conversion. See "DIVIDEND POLICY," "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and
Other Capital Distributions."
(4) Earnings per share is calculated based on the number of shares
outstanding indicated in the previous tables which include shares to be
acquired by the MRP. The FASB has issued Statement #128, Earnings per
Share (EPS), which requires presentation of EPS for basic and diluted
per-share amounts. Diluted per-share amounts assume the Conversion,
exercise or issuance of all potential common stock instruments.
Application is required for annual and interim periods ending after
December 15, 1997 with earlier application not permitted.
(5) Pro forma net earnings per share have been annualized for purposes of
this ratio.
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1997
---------------------------------------
561,000 660,000 759,000 872,850
shares at $10.00 shares at $10.00 shares at $10.00 shares at $10.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (Supermaximum)
---------------- ---------------- ---------------- ----------------
(Dollars in Thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds $5,610 $6,600 $7,590 $8,729
Less offering expenses and commissions (488) (513) (537) (566)
------- ------- ------- --------
Estimated net Conversion proceeds 5,122 6,087 7,053 8,163
Less Common Stock to be acquired by MRP(1) (224) (264) (304) (349)
------- ------- ------- --------
Estimated proceeds available for investment $4,898 $5,823 $6,749 $7,813
======= ======= ======= ========
Pro forma net income:
Historical net income $50 $50 $50 $50
Pro forma adjustments:
Pro forma income on net proceeds 179 213 247 286
Pro forma MRP adjustments(1) (30) (35) (41) (46)
------- ------- ------- --------
Pro forma net income $200 $228 $257 $290
======= ======= ======= ========
Pro forma net income per share
Historical net income per share $0.09 $0.08 $0.07 $0.06
Pro forma adjustments:
Pro forma income on net proceeds(2) 0.32 0.32 0.33 0.33
Pro forma MRP adjustments(1) (0.05) (0.05) (0.05) (0.05)
------- ------- ------- --------
Pro forma net income per share(1) (2) (4) $0.36 $0.35 $0.34 $0.33
======= ======= ======= ========
Number of shares used in calculating income per share(4) 561,000 660,000 759,000 872,850
======= ======= ======= ========
Stockholders' equity (book value)(3)
Historical retained earnings $3,756 $3,756 $3,756 $3,756
Estimated net conversion proceeds 5,122 6,087 7,053 8,163
Less common stock acquired by:
MRP(1) (224) (264) (304) (349)
------- ------- ------- --------
Pro forma stockholders' equity(3) $8,654 $9,579 $10,505 $11,569
======= ======= ======= ========
Pro forma stockholders' equity per share
Historical retained earnings $6.71 $5.69 $4.96 $4.30
Estimated net conversion proceeds 9.13 9.22 9.29 9.35
Less common stock acquired by:
MRP(1) (0.40) (0.40) (0.40) (0.40)
------- ------- ------- --------
Pro forma stockholders' equity per share(1) (2) $15.43 $14.51 $13.84 $13.25
======= ======= ======= ========
Pro forma price to book value 64.8% 68.9% 72.2% 75.4%
======= ======= ======= ========
Pro forma price to earnings (P/E ratio) 27.8x 28.6x 29.4x 30.3x
======= ======= ======= ========
Number of shares used in calculating equity per share 561,000 660,000 759,000 872,850
======= ======= ======= ========
</TABLE>
29
<PAGE>
- ------------------------------------------
(1) It is assumed that the MRP will purchase a number of shares equal to 4% of
the shares of Common Stock issued in the Conversion for issuance to
directors, officers and employees, subject to approval by the Company's
stockholders. If the MRP is approved by the stockholders, the MRP intends
to acquire the Common Stock either through open market purchases or from
authorized but unissued shares of Common Stock of the Company. Funds used
by the MRP to purchase the shares will be contributed to the MRP by the
Bank. In calculating the pro forma effect of the MRP, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the MRP at the beginning of the period presented in open market
purchases at the Conversion purchase price of $10.00 per share, and that
20% of the amount contributed was amortized to expense annually during the
period (the MRP will be amortized over a five-year period), net of income
tax at an assumed combined federal and state rate of 34%. The issuance of
authorized but unissued shares of the Company's Common Stock to the MRP
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.9%; pro forma net earnings per
share would be $0.36, $0.35, $0.34 and $0.33 and pro forma equity per share
would be $15.22, $14.34, $13.69 and $13.13 at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range,
respectively, for the year ended June 30, 1997; pro forma price to earnings
ratio would be 27.8, 28.6, 29.4 and 30.3 at the minimum, midpoint, maximum
and 15% above the maximum of Estimated Valuation Range, respectively, at
June 30, 1997. There can be no assurance that stockholder approval of the
MRP will be obtained, or that the actual purchase price of the shares will
be equal to the Conversion purchase price. See "MANAGEMENT OF THE BANK --
Proposed Management Recognition Plan."
(2) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Option Plan. See "MANAGEMENT OF THE BANK -- Proposed
Option Plan." If the Option Plan is approved by the stockholders, an amount
equal to 10% of the Common Stock issued in the Conversion, or 56,100,
66,000, 75,900 and 87,285 shares at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively, will be reserved for future
issuance upon the exercise of the options to be granted under the Option
Plan. The issuance of Common Stock pursuant to exercise of options under
the Option Plan will result in the dilution of existing stockholders'
interests. Assuming stockholder approval of the Option Plan and exercise of
all options at the beginning of the period at an exercise price of $10.00
per share, and the issuance of authorized but unissued shares upon exercise
of such options, the pro forma net earnings per share would be $0.36,
$0.35, $0.34 and $0.34, respectively, at the minimum, midpoint, maximum and
15% above the maximum of Estimated Valuation Range, respectively, at June
30, 1997.
(3) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "DIVIDEND POLICY," "SUPERVISION AND REGULATION --
Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions."
(4) Earnings per share is calculated based on the number of shares outstanding
indicated in the previous tables which include shares to be acquired by the
MRP. The FASB has issued Statement #128, Earnings per Share (EPS), which
requires presentation of EPS for basic and diluted per-share amounts.
Diluted per-share amounts assume the conversion, exercise or issuance of
all potential common stock instruments. Application is required for annual
and interim periods ending after December 15, 1997 with earlier application
not permitted.
30
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The Bank is subject to the North Carolina savings bank requirement that net
worth, computed in accordance with the requirements of the Administrator, equal
or exceed 5% of total assets. As of December 31, 1997, the Bank's net worth,
computed in accordance with such requirements, was 17.9% of total assets. In
addition, the Bank is subject to the capital requirements of the FDIC. The FDIC
requires that institutions which receive the highest rating during their
examination process and are not experiencing or anticipating significant growth
must maintain a leverage ratio of Tier I capital to total assets (as defined in
FDIC regulations) of at least 3%. All other institutions are required to
maintain a ratio of 1% or 2% above the 3% minimum with an absolute minimum
leverage ratio of not less than 4%. The FDIC also imposes requirements that (i)
the ratio of Tier I capital to risk-weighted assets equal at least 4% and (ii)
the ratio of total capital to risk-weighted assets equal at least 8%. As
demonstrated in the table below, the Bank exceeds the FDIC Tier I and risk-based
capital requirements and North Carolina capital requirements on a historical and
pro forma basis.
The following table presents (i) the Bank's historical regulatory capital
position on December 31, 1997 and June 30, 1997 and (ii) the Bank's pro forma
regulatory capital position on such dates after giving effect to the assumptions
set forth under "PRO FORMA DATA" and "CAPITALIZATION" and further assuming that
the Company will retain 50% of the net proceeds of the Common Stock sold in the
Conversion.
The Company, because it is expected to have consolidated assets of less
than $150 million, will not be subject to the Federal Reserve's capital adequacy
guidelines. Those guidelines, however, will be applied to the Bank. Bank holding
companies are required to comply with the Federal Reserve's risk-based capital
guidelines. Under these regulations, the minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities, such as standby
letters of credit) is 8%. At least half of the total capital is required to be
"Tier I capital," principally consisting of common stockholders' equity,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and a
limited amount of the general loan loss allowance. In addition to the risk-based
capital guidelines, the Federal Reserve has adopted a minimum Tier I capital
(leverage) ratio, under which a bank holding company must maintain a minimum
level of Tier I capital to average total consolidated assets of at least 3% in
the case of a bank holding company which has the highest regulatory examination
rating and is not contemplating significant growth or expansion. All other bank
holding companies are expected to maintain a Tier I capital (leverage) ratio of
at least 1% to 2% above the stated minimum. See "SUPERVISION AND REGULATION --
Regulation of the Company -- Capital Adequacy Guidelines for Holding
Companies".
31
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Regulatory Capital Position at December 31, 1997(1)
-------------------------------------------------------------
Historical
at Minimum of 561,000 Midpoint of 660,000
December 31, 1997 Shares at Shares at
-----------------
$10.00 per share $10.00 per share
---------------- ----------------
Percent of Percent of Percent of
---------- ---------- ----------
Regulatory Regulatory Regulatory
---------- ---------- ----------
Amount Assets/(2)/ Amount Assets/(2)/ Amount Assets/(2)/
------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital under generally accepted accounting
principles $3,859 18.6% $6,420 27.6% $6,903 29.0%
====== ===== ====== ===== ====== =====
Tier 1 (leverage) capital $3,615 17.4% $6,176 26.5% $6,659 28.0%
Tier 1 (leverage) capital requirement /(3)/ 829 4.0% 931 4.0% 951 4.0%
--- ---- --- ---- --- ----
Excess $2,786 13.4% $5,245 22.5% $5,708 24.0%
====== ===== ====== ===== ====== -----
Tier 1 risk based capital $3,615 46.5% $6,176 74.6% $6,659 79.5%
Tier 1 risk based capital requirement 311 4.0% 331 4.0% 335 4.0%
--- ---- --- ---- --- ----
Excess $3,304 42.5% $5,845 70.6% $6,324 75.5%
====== ===== ====== ===== ====== -----
Total risk based capital $3,712 47.8% $6,273 75.8% $6,756 80.7%
Total risk based capital requirement 621 8.0% 662 8.0% 670 8.0%
--- ---- --- ---- --- ----
Excess $3,091 39.8% $5,611 67.8% $6,086 72.7%
====== ===== ====== ===== ====== -----
NC regulatory capital $3,712 17.9% $6,273 26.9% $6,756 28.4%
NC regulatory capital requirement 1,036 5.0% 1,164 5.0% 1,188 5.0%
----- ---- ----- ---- ----- ----
Excess $2,676 12.9% $5,109 21.9% $5,568 23.4%
====== ===== ====== ===== ====== =====
<CAPTION>
Pro Forma Regulatory Capital Position at December 31, 1997/(1)/
------------------------------------------------------------------
Maximum, as Adjusted,
Maximum of 759,000 of 872,850
Shares at Shares at
$10.00 per share $10.00 per share
---------------- ----------------
Percent of Percent of
---------- ----------
Regulatory Regulatory
---------- ----------
Amount Assets/(2)/ Amount Assets/(2)/
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Capital under generally accepted accounting
principles $7,386 30.5% $8,440 33.4%
====== ===== ====== =====
Tier 1 (leverage) capital $7,142 29.5% $8,196 32.4%
Tier 1 (leverage) capital requirement /(3)/ 970 4.0% 1,012 4.0%
--- ---- ----- ----
Excess $6,172 25.5% $7,184 28.4%
====== ===== ====== =====
Tier 1 risk based capital $7,142 84.3% $8,196 94.4%
Tier 1 risk based capital requirement 339 4.0% 347 4.0%
--- ---- --- ----
Excess $6,803 80.3% $7,849 90.4%
====== ===== ====== =====
Total risk based capital $7,239 85.4% $8,293 95.5%
Total risk based capital requirement 678 8.0% 695 8.0%
--- ---- --- ----
Excess $6,561 77.4% $7,598 87.5%
====== ===== ====== =====
NC regulatory capital $7,239 29.9% $8,293 32.8%
NC regulatory capital requirement 1,213 5.0% 1,265 5.0%
---- ---- ---- ----
Excess $6,027 24.9% $7,028 27.8%
====== ===== ====== =====
</TABLE>
32
<PAGE>
______________________
(1) Assumes a bank-only calculation for regulatory requirements.
(2) For the Tier 1 (leverage) capital and North Carolina regulatory capital
calculations, percent is of total average assets. Average assets after
investment of net proceeds from the offering at the minimum, midpoint,
maximum and 15% above the maximum total $23.3 million, $23.8 million,
$24.3 million and $25.3 million, respectively. For the Tier 1 risk-
based capital and total risk-based capital calculations, percent is of
total risk-weighted assets. Net proceeds were assumed to be invested in
short-term treasury securities (0% risk-weight) and one-to-four- family
residential mortgage loans (50% risk-weight) with a weighted average
risk-weight of 20%. Total risk-weighted assets after investment of net
proceeds from the offering at the minimum, midpoint, maximum and 15%
above the maximum total $8.3 million, $8.4 million, $8.5 million and
$8.7 million, respectively.
(3) As a North Carolina-chartered savings bank, the Bank is subject to the
capital requirements of the FDIC and the Administrator. The FDIC
requires state-chartered savings banks, including the Bank, to have a
minimum leverage ratio of Tier 1 capital to total assets of at least
3%; provided, however, that all institutions, other than those (i)
receiving the highest rating during the examination process and (ii)
not anticipating any significant growth, are required to maintain a
ratio of 1% to 2% above the stated minimum, with an absolute minimum
leverage ratio of at least 4%. For the purposes of this table, the Bank
has assumed that its leverage capital requirement is 4% of total
average assets.
STOCK PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
Directors, officers and employees of the Bank will be entitled to
subscribe for shares of Common Stock in the Subscription Offering in their
capacities as such and to the extent they qualify as Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. Shares purchased by
such persons will be purchased at the same price per share--$10.00--that will be
paid by other purchasers in the Offering. They may also purchase Common Stock in
the Community Offering or in the Syndicated Community Offering, if any, subject
to the maximum purchase limitations applicable to all purchasers of shares in
the Conversion.
The following table sets forth for the named executive officer and each
of the directors of the Bank who intends to purchase Common Stock, and for all
executive officers and directors as a group (including in each case, except as
otherwise noted, all associates of such persons) the aggregate dollar amount of
Common Stock for which such director or executive officer has informed the Bank
he intends to subscribe. The amounts reflected in the table are estimates only
and the actual shares of Common Stock actually subscribed for by the listed
individuals may differ from the amounts reflected in the table. The following
table assumes that sufficient shares will be available to satisfy the
subscriptions of the Bank's executive officers and directors.
<TABLE>
<CAPTION>
ANTICIPATED
ANTICIPATED NUMBER
AMOUNT OF SHARES AS A PERCENT
TO BE PAID TO BE OF SHARES
NAME FOR SHARES PURCHASED(1) ISSUED(2)
- ---- ---------- --------- ------
<S> <C> <C> <C>
Preston A. Burns, Chairman $100,000 10,000 1.52%
John J. Crawford, Director 100,000 10,000 1.52%
W. Kenneth Huntley, Director 50,000 5,000 0.76%
Emmett S. Patterson, Director 10,000 1,000 0.15%
John R. Potter, Director 25,000 2,500 0.38%
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
H. Patrick Taylor, Jr., Director 150,000/(3)/ 15,000 2.27%
Eugene M. Ward, Director, President and Chief 100,000 10,000 1.52%
Executive Officer
Other Executive Officers /(2)/ 2,000 200 0.03%
All executive officers and directors as a group (9 persons) $537,000 53,700 8.14%
-------- ------ -----
</TABLE>
______________________
(1) Grants under the proposed MRP and shares subject to option under the
Option Plan, if approved by the stockholders of the Company at a
meeting of stockholders following the Conversion, are not aggregated
with shares of Common Stock purchased by the executive officers and
directors listed above. Under the proposed MRP, if approved by the
stockholders of the Company, a number of shares equal to 4% of the
shares issued in the Conversion are expected to be issued to directors
and certain employees of the Bank. Such shares could be purchased in
the open market at any time following approval of the MRP by the
Company's stockholders or could be issued out of authorized but
unissued shares. Recipients of shares under the MRP will have voting
control over such shares regardless of whether such shares have vested.
See "MANAGEMENT OF THE BANK -- Proposed Management Recognition Plan."
(2) Based upon the issuance of 660,000 shares of Common Stock which is the
number of shares to be issued at the midpoint of the Estimated
Valuation Range. The same individuals would subscribe for 9.57% of the
shares issued based upon the issuance of 561,000 shares of Common Stock
which is the number of shares to be issued at the minimum of the
Estimated Valuation Range.
(3) This amount includes 50,000 shares which Mr. Taylor anticipates will be
purchased by his affiliate, as allowed under the Plan of Conversion.
See "PLAN OF CONVERSION -- Minimum and Maximum Purchase
Limitations".
Without the prior written consent of the Administrator, shares of
Common Stock purchased by directors or executive officers of the Bank in the
Conversion cannot be sold during a period of one year following the Conversion,
except upon death of the director or executive officer. Such restriction also
applies to any shares issued to such person as a stock dividend, stock split or
otherwise with respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to purchases of stock made by or held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Bank or the
Company which may be attributable to individual executive
34
<PAGE>
officers or directors. Purchases and sales of Common Stock by officers and
directors will also be subject to the short-swing trading prohibitions contained
in Section 16(b) of the Exchange Act, and the short-swing trading and other
rules promulgated pursuant to the Exchange Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the Financial Statements, the accompanying
Notes to Financial Statements, and the other sections contained in this
Prospectus.
The Company was incorporated under North Carolina law on March 2, 1998 at
the direction of the Bank for the purpose of acquiring and holding all of the
outstanding stock of the Bank to be issued in the Conversion. The Company's
principal business activities after the Conversion are expected to be conducted
solely through the Bank.
The Bank's results of operations depend primarily on net interest income,
which is the difference between interest income from interest-earning assets and
interest expense on interest-bearing liabilities. The Bank's principal operating
expenses, aside from interest expense, consist of compensation and employee
benefits, office occupancy costs, data processing expenses and federal deposit
insurance premiums.
CAPITAL RESOURCES AND LIQUIDITY
The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The Bank's primary sources of internally generated funds are principal and
interest payments on loans receivable, cash flows generated from operations, and
cash flows generated by investment, including mortgage-backed securities.
External sources of funds include increases in deposits and advances from the
Federal Home Loan Bank of Atlanta (FHLB). In recent years, advances from the
FHLB have not been a primary source of liquidity for the Bank.
North Carolina-chartered savings banks must maintain liquid assets equal
to at least 10% of total assets. The computation of liquidity under North
Carolina regulation allows the inclusion of mortgage-backed securities and
investments with readily marketable value, including investments with maturities
in excess of five years. The Bank believes that it will have sufficient funds
available to meet its anticipated future loan commitments as well as other
liquidity needs.
Following the Conversion, the Company will initially conduct no business
other than holding the capital stock of the Bank. In order to provide sufficient
funds for its operations, the Company expects to retain at the Company level and
invest 50% of the net proceeds of the Conversion. In the future, the
35
<PAGE>
Company's primary source of funds, other than income from its investments is
expected to be dividends from the Bank. As a North Carolina-chartered stock
savings bank, the Bank may not declare or pay a cash dividend on or repurchase
any of its capital stock if the effect of such transaction would be to reduce
the net worth of the institution to an amount which is less than the minimum
amount required by applicable federal and state regulations. In addition, for a
period of five years after the Conversion, the Bank must obtain written approval
from the State of North Carolina Administrator before declaring or paying a cash
dividend on its capital stock in an amount in excess of one-half of the greater
of (i) its net income for the most recent fiscal year end, or (ii) the average
of its net income after dividends for the most recent fiscal year end and not
more than two of the immediately preceding fiscal year ends. As a result of this
limitation, if the Bank had been a stock institution at the end of fiscal 1997
and for the two preceding years, it could not have paid a cash dividend in
excess of $61,000 without approval of the Administrator. In connection with the
Conversion, the Company and the Bank have agreed with the FDIC that, within the
first year after completion of the Conversion, they will not pay any dividend or
make any distribution that represents, or is characterized as, or is treated for
tax purposes as a return of capital. In addition, after the Conversion, the Bank
will be subject to the restriction that it will not be permitted to declare or
pay a cash dividend on or repurchase any of its capital stock if the effect
thereof would be to cause its net worth to be reduced below the amount required
for the liquidation account to be established in connection with the Conversion.
(See "THE CONVERSION -- Effects of Conversion" and "-- Liquidation Rights."
OPERATING STRATEGY
The primary goals of management are to increase the Bank's profitability,
monitor its capital position and enhance its banking franchise. The Bank's
results of operations are dependent primarily on net interest income, which is
the difference between the income earned on its interest-earning assets, such as
loans and investments, and the cost of its interest-bearing liabilities,
consisting of deposits. The Bank's operations are affected to a much lesser
degree by non-interest income, such as transaction and other service fee income,
and other sources of income. The Bank's net income is also affected by, among
other things, provisions for loan losses and operating expenses. The Bank's
principal operating expenses, aside from interest expense, consists of
compensation and employee benefits, office occupancy costs, data processing
expenses and federal deposit insurance premiums. The Bank's results of
operations are also significantly affected by general economic and competitive
conditions, particularly changes in market interest rates, government
legislation and policies concerning monetary and fiscal affairs, housing and
financial institutions and the attendant actions of regulatory authorities.
In guiding the operations of the Bank, management has implemented various
strategies designed to continue the institution's profitability while
maintaining its safety and soundness. These strategies include: (i) emphasizing
one-to-four family residential lending; (ii) maintaining asset quality; (iii)
controlling operating expenses; and (iv) monitoring interest-rate risk. It is
anticipated, subject to market conditions, that the strategies presently in
place will be continued following completion of the Conversion.
EMPHASIS ON ONE-TO-FOUR-FAMILY RESIDENTIAL HOUSING. The Bank has been
predominantly a one-to-four family residential lender. As of December 31, 1997,
approximately 92.1% of its loan portfolio, before net items, was composed of
permanent one-to-four-family residential loans. As of such date, an additional
4.1% of its loan portfolio, before net items, was composed of nonresidential
real estate loans and 3.1% of its loan portfolio, before net items, was composed
of construction loans. As a result, the Bank has developed expertise in mortgage
loan underwriting and origination. The Bank has established methods to generate
loan origination through contacts with realtors, homebuilders and past and
36
<PAGE>
present customers. The institution also uses advertising and community
involvement to gain exposure within the communities is operates.
MAINTENANCE OF ASSET QUALITY. At December 31, 1997, the Bank's ratio of
nonperforming assets to total assets was 1.51%. Since 1991, no net loan charge-
offs have been necessary. The Bank has attempted to maintain asset quality
through its underwriting and collection procedures.
CONTROL OF NONINTEREST EXPENSES. The Bank closely monitors its noninterest
expenses and seeks to control them while maintaining the necessary personnel to
properly serve its customers. Since June 30, 1996, the Bank's ratio of
noninterest expenses to average assets has averaged 2.4%. Exclusive of a one-
time charge for federal deposit insurance premiums amount of $114,000 in
September 1996, the Bank's ratio of noninterest expenses to average assets
averaged 2.18%.
INTEREST RATE RISK
The Bank's asset/liability management, or interest rate risk management,
program is focused primarily on evaluating and managing the composition of its
assets and liabilities in view of various interest rate scenarios. Factors
beyond the Bank's control, such as market interest rates and competition, may
also have an impact on the Bank's interest income and interest expense.
In the absence of other factors, the yield or return associated with the
Bank's earning assets generally will increase from existing levels when interest
rates rise over an extended period of time, and conversely interest income will
decrease when interest rates decrease. In general, interest expense will
increase when interest rates rise over an extended period of time, and
conversely interest expense will decrease when interest rates decrease.
Therefore, by controlling the increases and decreases in its interest income and
interest expense which are brought about by changes in market and interest
rates, the Bank can significantly influence its net interest income.
NET PORTFOLIO VALUE ANALYSIS. In addition to the interest rate gap
analysis as discussed below, management monitors the Bank's interest rate
sensitivity through the use of a model which estimates the change in net
portfolio value ("NPV") in response to a range of assumed changes in market
interest rates. NPV is the present value of expected cash flows from assets,
liabilities, and off-balance sheet items. The model estimates the effect on the
Bank's NPV of instantaneous and permanent 100 to 400 basis point increases and
decreases in market interest rates.
The following table presents information regarding possible changes in the
Bank's NPV as of September 30, 1997, based on information provided by the FHLB
of Atlanta's interest rate risk model.
37
<PAGE>
<TABLE>
<CAPTION>
CHANGE
IN INTEREST NET PORTFOLIO VALUE
RATES IN BASIS
POINTS
(RATE SHOCK) AMOUNT $CHANGE %CHANGE
----------- ------ ------- -------
<S> <C> <C> <C>
($000'S)
Up 400 $2,479 $(1,139) (31%)
Up 300 2,780 (838) (23%)
Up 200 3,081 (537) (15%)
Up 100 3,349 (269) (7%)
Static 3,618 -- --
Down 100 3,750 132 4%
Down 200 3,881 263 7%
Down 300 3,991 373 10%
Down 400 4,101 483 13%
</TABLE>
The table set forth above indicates that, in the event of a 200 basis point
decrease in interest rates, the Bank could experience a 7.0% increase in NPV. In
the event of a 200 basis point increase in interest rates, the Bank could
experience a 15.0% decrease in NPV.
INTEREST RATE GAP ANALYSIS. As a part of the Bank's interest rate risk
management policy, the Bank calculates an interest rate "gap". Interest rate
"gap" analysis is a common, though imperfect, measure of interest rate risk,
which measures the relative dollar amounts of interest-earning assets and
interest-bearing liabilities which reprice within a specific time period, either
through maturity or rate adjustment. The "gap" is the different between the
amounts of such liabilities maturing or otherwise repricing within that period
which exceeds the amount of interest-earning assets maturity or otherwise
repricing within the same period. Accordingly, in a declining interest rate
environment, an institution with a negative gap would generally be expected,
absent the effects of other factors, to experience a lower decease in the yield
of its assets relative to the cost of its liabilities and its income should be
positively affected. Conversely, the cost of funds for an institution with a
negative gap would generally be expected to increase more quickly than the yield
on its assets in a rising interest rate environment, and such institution's net
interest income generally would be expected to be adversely affected by rising
interest rates. Changes in interest rates generally have the opposite effect on
an institution with a "positive gap."
The Bank's one year interest sensitivity gap as a percentage of total
interest-earning assets at December 31, 1997 was a negative 41.01%. At December
31, 1997 the Bank's three year and five-year cumulative interest sensitivity
gaps as a percentage of total interest-earning assets were negative 39.00% and
negative 32.49%, respectively.
38
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997 which are
projected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown which reprice or
mature within a particular period were determined in accordance with the
contractual terms of the assets or liability. Loans with adjustable rates are
shown as being due at the end of the next upcoming adjustment period. Passbook
accounts, money market deposit accounts or other transaction accounts are
assumed to be subject to immediate repricing and depositor availability and have
been placed in the shortest period. In making the gap computations, none of the
assumptions sometimes made regarding prepayments rates and deposit decay rates
have been used for any other interest-earning assets or interest-bearing
liabilities. In addition, the table does not reflect scheduled principal
payments which will be received throughout the lives of the loans. The interest
rate sensitivity of the Bank's assets and liabilities illustrated in the
following table would vary substantially if different assumptions were used or
if actual experience differed from that indicated by such assumptions.
<TABLE>
<CAPTION>
Terms to Repricing at December 31, 1997
-------------------------------------------------------------------------------
Six Six More Than More Than
Months Months to 1 Years to 3 Years to More than
or Less 1 Year 3 Years 5 Years 5 Years Total
------- ------ --------- --------- ------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable:
Adjustable rate residential 1-4 family $ 60 $ -- $ -- $ --- $ -- $ 60
Fixed rate residential 1-4 family 194 68 345 1,197 8,727 10,531
Other secured real estate - fixed -- 44 -- 78 633 755
Other loans 77 -- -- -- -- 77
Interest-bearing deposits 5,290 -- -- - -- 5,290
Investments 1,630 -- 1,000 41 692 3,363
FHLB common stock -- -- -- -- 143 143
-------- --------- ----------- ----- ---- ----
Total interest-earning assets $ 7,251 $ 112 $ 1,345 $ 1,316 $ 10,195 $ 20,219
====== ========= ========= ====== ======= =======
INTEREST-BEARING LIABILITIES:
Deposits:
Passbook and statement accounts 3,585 -- -- -- -- 3,585
Money market deposit accounts 101 -- -- -- -- 101
Certificates of deposit 5,833 6,135 940 -- -- 12,908
----- ----- ---- ----- ----- ------
Total interest-bearing liabilities $9,519 $6,135 $ 940 $ -- $ -- $16,594
===== ===== ==== ======= ======= ======
INTEREST SENSITIVITY GAP PER PERIOD (2,268) (6,023) 405 1,316 10,195 3,625
CUMULATIVE INTEREST SENSITIVITY GAP (2,268) (8,291) (7,886) (6,570) 3,625 3,625
CUMULATIVE GAP AS A PERCENTAGE OF
TOTAL INTEREST-EARNING ASSETS (11.21)% (41.01)% (39.00)% (32.49)% 17.93% 17.93%
CUMULATIVE INTEREST-EARNING ASSETS
AS A PERCENTAGE OF INTEREST-BEARING 76.17% 47.03% 52.48% 60.41% 121.85% 121.85%
LIABILITIES
</TABLE>
39
<PAGE>
Computations of prospective effects of hypothetical interest rate changes
are based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit decay, and should not be relied upon as
indicative of actual results. Further, the computations do not reflect any
actions management may undertake in response to changes in interest rates.
Certain shortcomings are inherent in the method of analysis presented in
both the NPV and net interest income computations and in the gap computations
presented in the tables above. Although certain assets and liabilities may have
similar maturities or periods within which they will reprice, they may react
differently to changes in market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, adjustable-rate mortgages have interest rate caps
which restrict changes in interest rates on a short-term basis and over the life
of the assets. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in the tables. Finally, the ability of many borrowers to service their
adjustable-rate debt may decrease in the event of a sustained interest rate
increase.
The Bank's net income during recent periods has been positively impacted by
decreasing interest rates, and its net income in the near future is likely to be
reduced if interest rates increase. However, management did not view the Bank's
interest rate sensitivity position at December 31, 1997 to be unacceptable in
view of the Bank's historical results of operations and highly capitalized
position.
The Bank does not originate its loans for sale, or sell its loans, in the
secondary market. This tends to increase its exposure to interest rate risk.
NET INTEREST INCOME
Net interest income represents the difference between income derived from
interest-earning assets and interest expense incurred on interest-bearing
liabilities. Net interest income is affected by both (i) the difference between
the rates of interest earned on interest-earning assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (ii) the relative
amounts of interest-earning assets and interest-bearing liabilities ("net
earning balance"). The following table sets forth information relating to
average balances of the Bank's assets and liabilities for the six months ended
December 31, 1997 and 1996 and for the years ended June 30, 1997 and 1996. For
the periods indicated, the table reflects the average yield on interest-earning
assets and the average cost of interest-bearing liabilities (derived by dividing
income or expense by the monthly average balance of interest-earning assets or
interest-bearing liabilities, respectively) as well as the net yield on
interest-earning assets (which reflects the impact of the net earning balance).
40
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended December 31,
------------------------------------
At
December 31,
1997/(1)/ 1997 1996
--------- -------------------------------------- --------------------------
Average Average
Yield/ Average Yield/ Average
Balance Rate Balance Interest Rate/(2)/ Balance Interest
------- ---- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-earning deposits $5,290 5.48% $5,335 $150 5.62% $5,032 $137
Investments/(3)/ 3,504 6.19% 3,059 93 6.08% 3,686 111
-----
Loans/(4)/ 11,323 7.84% 11,558 475 8.24% 11,842 495
----- ------ ------ --- ------ ---
Total interest-earning assets 20,117 6.94% 19,952 718 7.21% 20,560 743
--- ---
Other Assets 606 744 633
--- --- ---
Total Assets $20,723 $20,696 $21,193
====== ====== ======
Interest-bearing liabilities:
Deposits $16,655 4.92% $16,567 411 4.96% $17,243 419
Other Liabilities 209 301 313
Retained Earnings 3,859 3,828 3,637
----- ----- -----
Total liabilities and retained $20,723 $20,696 $21,193
====== ====== ======
Net interest income and interest
rate spread/(5)/ 2.02% $307 2.25% $324
=== ===
Net yield on interest-earning 3.09%
assets/(6)/
Ratio of interest-earning assets
to interest-bearing liabilities 120.00%
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------------------------------------------------
1997 1996
---------------------------------------------------- ---------------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Rate/(2)/ Balance Interest Rate Balance Interest Rate
------- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest-earning deposits 5.45% $4,783 $263 5.50% $4,218 $242 5.74%
Investments/(3)/ 6.02% 3,635 215 5.91% 4,675 285 6.10%
----
Loans/(4)/ 8.36% 11,771 963 8.18% 12,145 1,032 8.50%
----- ------ --- ------ -----
Total interest-earning assets 7.23% 20,189 1,441 7.14% 21,038 1,559 7.41%
----- -----
Other Assets 731 539
--- ---
Total Assets $20,920 $21,577
====== ======
Interest-bearing liabilities:
Deposits 4.86% $16,899 819 4.85% $17,796 894 5.02%
Other Liabilities 296 249
Retained Earnings 3,725 3,532
----- -----
Total liabilities and retained $20,920 $21,577
====== ======
Net interest income and interest
rate spread/(5)/ 2.37% $622 2.29% $665 2.39%
=== ===
Net yield on interest-earning
assets/(6)/ 3.15% 3.15% 3.16%
Ratio of interest-earning assets
to interest-bearing liabilities 119.00% 119.00% 118.00%
</TABLE>
________________
(1) The weighted average rate represents the coupon associated with each asset
and liability, weighted by the principle balance associated with each asset
and liability.
(2) Average yield/rate for the six months ended December 31, 1997 and 1996.
(3) Includes investment securities and FHLB of Atlanta common stock.
(4) Loans placed on nonperforming status have been included in the computation
of average balances.
(5) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(6) Net yield on interest-earning assets represents net interest income divided
by average interest-earning assets.
41
<PAGE>
RATE/VOLUME ANALYSIS
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume), and (iii) net change (the sum of the previous columns).
The change attributable to both rate and volume (changes in rate multiplied by
changes in volume) has been allocated equally to both the changes attributable
to volume and the changes attributable to rate.
<TABLE>
<CAPTION>
Six Months Ended Year Ended June 30,
December 31, 1997 vs. 1996
---------------------------------
1997 vs. 1996
------------------------------
Increase (Decrease) Increase (Decrease)
------------------- -------------------
Attributable to Attributable to
--------------- ---------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest-earning balances 9 4 13 32 (10) 22
Investments (19) 1 (18) (62) (8) (70)
Loans (12) (7) (19) (32) (38) (70)
---- ---- ------ ---- ---- ----
Total interest income (22) (2) (24) (62) (56) (118)
Interest expense:
Deposits (16) 8 (8) (45) (30) (75)
----- --- ----- ------ ------ ------
Net interest income (6) (10) (16) (17) (26) (43)
----- ----- ----- ------ ------ ------
</TABLE>
COMPARISON OF FINANCIAL CONDITION
Total assets of the Bank amounted to $20.73 million at December 31, 1997,
compared to $20.72 million at June 31, 1997 and $21.45 million at June 30, 1996.
The decline from June 30, 1996 to December 31, 1997 is primarily attributed to
the decrease in investments and loans receivable.
The principal category of earnings assets is loans receivable which
amounted to $11.32 million, $11.42 million and $11.57 million at December 31,
1997, June 30, 1997 and 1996, respectively. Loan originations for the six months
ended December 31, 1997 total $1.03 million and were funded by loan principal
repayments of $1.14 million as the loan portfolio decreased by $100,000. Loan
originations for the year ended June 30, 1997 totaled $1.90 million and
principal repayments for 1997 totaled $2.05 million. The Bank experienced a net
decrease in the loan portfolio of $149,000 over 1996. Management
42
<PAGE>
believes competitive rates within its community contributed to the decreased
loan demand in 1997. The Bank maintains underwriting and credit standards
designed to maintain the quality of the loan portfolio. Nonperforming loans at
December 31, 1997, June 30, 1997 and 1996 totaled $312,000, $240,000 and
$198,000, respectively and were 2.76%, 2.10% and 1.71% of total loans,
respectively.
In addition to loans, the Bank invests in U.S. Treasury and Government
agency securities. Management does not engage in the practice of trading
securities, rather, Anson's investment portfolio consists primarily of
investments designated as held-to-maturity. Investment securities, including
interest-bearing deposits and FHLB stock, at December 31, 1997, June 30, 1997
and 1996 totaled $8.79 million, $8.70 million and $9.12 million, respectively.
The decline in investments and loans is primarily attributed to the decline in
deposits.
The Bank has experienced some decline in savings deposits. At December 31,
1997 and June 30, 1997, the Bank's deposits decreased $135,000 and $832,000 to
$16.66 million and $16.79 million, respectively. The Bank has priced its
deposits in a fashion to be at or near the top of the market because of its
dependence on the local market for funds availability.
The Bank's equity, which consists entirely of retained earnings and
unrealized gains on securities available for sale, net of tax, amounted to $3.86
million, $3.76 million and $3.62 million at December 31, 1997, June 30, 1997 and
1996, respectively. The Bank has classified a portion if its investments as
available for sale which requires reporting such investments at market with
unrealized gains or losses, net of tax, shown as a separate component of equity.
The equity component for net unrealized gains (losses) at December 31, 1997,
June 30, 1997 and 1996 amounted to $244,000, $204,000 and $119,000,
respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
AND 1996
NET INCOME. The Bank's net income for the six months ended December 31,
1997 and 1996 was $62,000 and $(20,000) loss, respectively. Net income was
positively affected in 1997 by an overall sustained downward trend in interest
rates. Net income was negatively affected for the six months ended December 31,
1996 by a one-time charge of $114,000 related to a one-time assessment of
deposit insurance premiums by the United States Government. See "Insurance
Premium Surcharge". Exclusive of the one-time assessment for insurance premiums,
net income for the six months ended December 31, 1997 and 1996 would have been
approximately $62,000 and $71,000, respectively. Net interest income has
declined in conjunction with the decrease in interest earning assets and
liabilities.
NET INTEREST INCOME. Net interest income has decreased 5% to $306,000 for
the six months ended December 31, 1997 from $324,000 for the six months ended
December 31, 1996. This general decline in net interest income reflects the
decrease in both loans receivable and deposits and the downward trend in
interest rate spread.
PROVISIONS FOR LOAN LOSSES. The provision for loan losses was $0 and $500
for the six months ended December 31, 1997 and 1996, respectively. The
provisions and the resulting loan loss allowances are amounts management
believes will be adequate to absorb possible losses on existing loans. At
December 31, 1997 and 1996, the Bank's loan loss allowances totaled $100,000 and
$95,500, respectively, representing 32% and 36%, respectively, of nonperforming
loans at such dates. Loans are charged off against the allowance when management
believes collectibility is unlikely, although management continues to actively
pursue collection of loans which have been charged off. Management decisions
regarding the provisions
43
<PAGE>
and resulting allowance are based both on prior loan loss experience and other
factors, such as existing loan levels and types of loans outstanding,
nonperforming loans, industry standards and general economic conditions. The
Bank experienced no loan charge-offs during the six months ended December 31,
1997 and 1996.
NONINTEREST INCOME. Noninterest income consists primarily of fees related
to safe deposit boxes and other miscellaneous items and amounted to $4,000 and
$1,000 for the six months ended December 31, 1997 and 1996, respectively.
NONINTEREST EXPENSE. Noninterest expense consisted primarily of operating
expenses for compensation and employee benefits, occupancy, federal deposit
insurance premiums, data processing charges and other operating expenses.
Noninterest expense decreased to $232,000 from $349,000 for the six months ended
December 31, 1997 and 1996. Exclusive of the impact of a one-time insurance
premium surcharge in December, 1996, see "Insurance Premium Surcharge",
noninterest expense decreased from $235,000 to $232,000 for the six months ended
December 31, 1996 to the six months ended December 31, 1997. The Bank
anticipates that its noninterest expense may increase in the future because of
costs associated with funding the MRP with operating as a publicly held company
and with purchasing the computer equipment necessary for year 2000 compliance.
See "MANAGEMENT OF THE BANK -- Proposed Management Recognition Plan" and "RISK
FACTORS -- Possible Year 2000 Computer Problems; Impact of Technological
Advances".
INCOME TAXES. Income tax expense (benefit) was $17,000 and $(4,000) for the
six month periods ended December 31, 1997 and 1996, respectively. The
fluctuations were primarily attributable to corresponding fluctuations in income
before income taxes.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
NET INCOME. The Bank's net income for the years ended June 30, 1997 and
1996 was $50,000 and $127,000, respectively. Net income was positively affected
in 1997 by an overall sustained downward trend in interest rates. Net income was
negatively affected for the year ended June 30, 1997 by a one-time charge of
$114,000 related to a one-time assessment of deposit insurance premiums by the
United States Government, see "Insurance Premium Surcharge". Exclusive of the
one-time assessment for insurance premiums, net income for years ended June 30,
1997 and 1996 would have been approximately $127,000 and $128,000, respectively.
NET INTEREST INCOME. Net interest income for the fiscal year ended June 30,
1997 decreased 6% from the fiscal year ended June 30, 1996 from $655,000 to
$623,000. This general decline in net interest income reflects the decrease in
both loans receivable and deposits and the downward trend in interest rate
spread.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $5,000 and
$7,000 for the years ended June 30, 1997 and 1996, respectively. For the years
ended June 30, 1997 and 1996, the Bank's loan loss allowances totaled $100,000
and $95,000, respectively, representing 42% and 48%, respectively, of
nonperforming loans at such dates. The Bank experienced no loan charge-offs
during the years ended June 30, 1997 and 1996.
44
<PAGE>
NONINTEREST INCOME. Noninterest income consists primarily of fees related
to safe deposit boxes and other miscellaneous items and amounted to $6,000 and
$2,000 for the years ended June 30, 1997 and 1996, respectively.
NONINTEREST EXPENSE. Noninterest expense for the years ended June 30, 1997
and 1996 were $555,000 and $481,000, respectively. Exclusive of the impact of a
one-time insurance premium surcharge discussed above, general and administrative
expenses decreased from $481,000 to $441,000 for fiscal years ended June 30,
1997 and June 30, 1996, respectively. This reduction is largely due to a
reduction in payroll and the related tax and fringe benefits.
INCOME TAXES. Income tax expense decreased to $19,000 in the fiscal year
ended June 30, 1997 from $52,000 in the fiscal year ended June 30, 1996. The
fluctuations were primarily attributable to corresponding fluctuations in income
before income taxes.
INSURANCE PREMIUM SURCHARGE
A comprehensive continuing appropriations bill which was passed by the
United States Congress and signed by the President on September 30, 1996,
provided for a one-time assessment to recapitalized the Savings Association
Insurance Fund (SAIF). The assessment equaled 65.7 cents per each $100 of
insured domestic deposits and was payable in 1996. This assessment had the
effect of reducing the capital of the Bank by the amount of the assessment, net
of the income tax benefit. The assessment was $114,000 before income taxes and
was accrued as an expense during the quarter ended September 30, 1996. As a
result of this expense, the Bank experienced a net loss for that fiscal quarter
and the six months ended December 31, 1996. (See "SUPERVISION AND REGULATION --
Regulation of the Bank -- Insurance Deposit.")
RECAPTURE OF BAD DEBTS
Recently enacted federal legislation has repealed the reserve method of
accounting for thrift loan debt reserves and would require thrifts to recapture
into income over a six-year period their post-1987 additions to their excess bad
debt tax reserves, thereby generating additional tax liability. At December 31,
1997, the Bank had no material post-1987 excess reserves.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with generally accepting accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Bank's operations. Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are monetary in
nature. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the price
of goods and services.
Year 2000 Compliance
At this time, the Bank has not determined the cost of making any
modifications to correct any Year 2000 problems; however, equipment and software
expenses are not expected to materially differ
45
<PAGE>
from past results. The Bank routinely upgrades and purchases technologically
advanced software and hardware on a continual basis and expects to specifically
evaluate and test such purchases for Year 2000 compliance.
IMPACT OF NEW ACCOUNTING STANDARDS
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation,
which the Bank has not been required to adopt as of December 31, 1997.
The Statement, which will be in effect for the Bank's fiscal year ending
June 30, 1998, will require that an entity account for stock based compensation
plans using a fair value based method which measures compensation cost at the
grant date based upon the value of the award, which is then recognized over the
service period, usually the vesting period. The accounting requirements of the
Statement apply to grants of awards entered into in fiscal years that begin
after December 15, 1995. The Statement allows entities to continue to use APB
Opinion No. 25 to measure compensation cost, but requires that the pro forma
effects on net income and earnings per share be disclosed to reflect the
difference between the compensation cost, if any, from applying APB Opinion No.
25 and the related cost measured by the fair value method defined in the
Statement. The Statement is not expected to have a material effect on the Bank's
financial statements, should the Bank elect to adopt a restricted stock plan
subsequent to conversion to the stock form, because management is expected to
elect to continue to use the accounting and reporting permitted by APB Opinion
No. 25 and will disclose the differences, if any, in notes to the financial
statements as pro forma effects of not utilizing the fair value method
prescribed in SFAS No. 123.
In February, 1997 the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for financial statements for
periods ending after December 31, 1997. This statement applies to both public
and nonpublic entities. The Bank anticipates that adoption of this statement
will not have a material effect on the Bank.
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in a full set for general financial statements. Under
this statement, enterprises are required to classify items of "other
comprehensive income" by their nature in the financial statements and display
the balance of other comprehensive income separate in the equity section of a
statement of financial position. Statement 130 is effective for both interim and
annual periods beginning after December 15, 1997. Comparative financial
statements provided for earlier periods are required to be reclassified to
reflect the provisions of the statement. It is not anticipated the adoption of
this statement will materially effect the Bank's current method of financial
reporting.
Also in June, 1997 the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". This statement establishes standards
for the way public enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to shareholders. Statement 131 is effective for financial statements for
period beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated unless it is
impractical to do so. It is not anticipated that the adoption of this statement
will materially effect the Bank's current method of financial reporting.
46
<PAGE>
BUSINESS OF THE COMPANY
Prior to the Conversion, the Company will not transact any material
business. Following the Conversion, in addition to directing, planning and
coordinating the business activities of the Bank, the Company will invest the
proceeds of the Conversion which are retained by it. See "USE OF PROCEEDS." Upon
consummation of the Conversion, the Company will have no significant assets
other than the shares of the Bank's capital stock acquired in the Conversion and
that portion of the net proceeds of the Conversion retained by it, and it will
have no significant liabilities. Cash flow to the Company will be dependent upon
investment earnings from the net proceeds retained by it and any dividends
received from the Bank. Initially, the Company will neither own nor lease any
property, but will instead use the premises, equipment and furniture of the
Bank. At the present time, the Company does not intend to employ any persons
other than its officers (who are not anticipated to be separately compensated by
the Company), but will utilize the support staff of the Bank from time to time.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future. In the future, the Company may consider
using some of the proceeds of the Conversion retained by it to expand its
operations in its existing primary market and other nearby areas by acquiring
other financial institutions or their branches. The Company has no current plans
with respect to any such acquisitions, however. Existing management of the
Company believes that it is in the best interest of the Company and its
shareholders for the Company to remain an independent company.
BUSINESS OF THE BANK
GENERAL
The Bank is engaged primarily in the business of attracting deposits from
the general public and using such deposits to make mortgage loans secured by
real estate. The Bank makes one-to-four-family residential real estate loans,
loans secured by nonresidential real property, and construction loans. The Bank
also makes loans which are not secured by real property, such as loans secured
by pledged deposit accounts. The Bank's primary source of revenue is interest
income from its lending activities. The Bank's other major sources of revenue
are interest and dividend income from investments, interest income from its
interest-earning deposit balances in other depository institutions, and
transaction and fee income from its lending and deposit activities. The major
expenses of the Bank are interest on deposits and general and administrative
expenses such as employee compensation and benefits, federal deposit insurance
premiums, data processing expenses and occupancy expenses.
As a North Carolina chartered savings bank, the Bank is subject to
examination and regulation by the FDIC and the Administrator. Upon consummation
of the Conversion, the Bank, as a subsidiary of the Company, will be subject to
indirect regulation by the Federal Reserve. The business and regulation of the
Bank are subject to legislative and regulatory changes from time to time. See
"SUPERVISION AND REGULATION -- Regulation of the Bank."
MARKET AREA
The Bank's primary market area is Anson County, North Carolina. The Bank
also makes loans to residents of Union, Stanley and Mecklenburg counties in
North Carolina from time to time. Anson County is rural with a population of
24,309 located on the North Carolina/South Carolina border and Wadesboro is
located 50 miles east of Charlotte, North Carolina.
47
<PAGE>
Employment in the Bank's primary market area is diversified among
manufacturing, mining, agriculture, retail and wholesale trade, government and
service. Other non-manufacturing employers include the county government, school
systems and the county hospital.
In recent years unemployment rates in Anson County have been high,
averaging 9.2% in 1995. But a steady increase in employment over the last year
resulted in an average yearly unemployment of 7.5% through September 1996.
However, this rate is still above that of North Carolina and national averages.
Comparative data indicates that income levels in Anson County are below the
North Carolina and the national average for 1997. From 1990-1994, population in
Anson County increased by 1.6% which was below the national and North Carolina
averages. Management regards Anson County as a low-growth area in which there is
significant competition among financial service providers for market shares. Due
primarily to the economic factors discussed above, the Bank has limited
residential mortgage lending opportunities in its local market area and does not
anticipate that residential mortgage lending opportunities will increase in the
future because of lack of growth in the local economy. See "BUSINESS OF THE
BANK--Competition." Management believes that opportunities for future earnings
growth in the Bank's primary market area are limited in light of these factors.
In addition, lower income levels and low rates of growth in Anson County could
result in an increase in the number of delinquent or nonperforming loans and
reduce the value of the collateral securing such loans, adversely affecting the
Bank's financial condition and results of operations. See "RISK FACTORS -- Risks
Associated with Anson's Primary Market Area; Limited Lending Opportunities;
Competition".
LENDING ACTIVITIES
GENERAL. The Bank's primary source of revenue is interest and fee income
from its lending activities, consisting primarily of mortgage loans for the
purchase or refinancing of one-to-four-family residential real property located
in its primary market area. The Bank also makes loans secured by multi-family
and nonresidential properties, construction loans, and loans secured by pledged
deposit accounts. Less than 1.0% of the Bank's loan portfolio, before net items,
is not secured by real estate. On December 31, 1997, the Bank's largest single
outstanding loan had a balance of approximately $265,000. In addition to
interest earned on loans, the Bank receives fees in connection with loan
originations, loan modifications, late payments, loan assumptions and other
miscellaneous services. The Bank generally does not sell its loans; loans are
originated with the intention that they will be held in the Bank's loan
portfolio. The Bank also originates mortgage loans with a call feature that
varies from five to 15 years, enabling the Bank to call the loan and increase
the interest rate from the original fixed contractual rate. Interest on such
loans is amortized over the contractual life of the loan. For purposes of the
discussion and in the tables that follow, such loans with call provisions are
shown as fixed rate loans maturing at the date of the call provisions.
LOAN PORTFOLIO COMPOSITION. The Bank's net loan portfolio totaled
approximately $11.3 million at December 31, 1997 representing 54.6% of the
Bank's total assets at such date. At December 31, 1997, 92.1% of the Bank's loan
portfolio, before net items, was composed of one-to-four-family residential
mortgage loans. Nonresidential real estate loans represented 4.1% of the Bank's
loan portfolio, before net items, on such date. Construction loans represented
3.1% of the Bank's loan portfolio, before net items, on such date. As of
December 31, 1997, less than 1% of the loans in the Bank's loan portfolio,
before net items, had adjustable interest rates.
The following table sets forth the composition of the Bank's loan
portfolio by type of loan at the dates indicated.
48
<PAGE>
<TABLE>
<CAPTION>
At December 31, At June 30,
------------------------------------------------ ----------------------
1997 1996 1997
-------------------- -------------------- ----------------------
% of % of % of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to-four-family residential $10,857 95.88% $11,295 96.29% $10,888 95.32%
Nonresidential 483 4.27 375 3.20 543 4.75
Construction 366 3.23 319 2.72 349 3.06
--- --- --- ---- --- -------
Total real estate loans 11,706 103.38 11,989 102.21 11,780 103.13
Other loans:
Loans secured by deposits 77 .68 45 .38 75 .66
-- --- -- --- -- ---
Total other loans 77 .68 45 .38 75 .66
-- --- -- --- -- ---
Total loans 11,783 104.06 12,034 102.59 11,855 103.79
Less:
Allowance for loan losses 100 .88 95 .81 100 .88
Undisbursed portion of construction loans 319 2.82 164 1.40 288 2.52
Net deferred loan origination fees 41 .36 45 .38 44 .39
-- --- -- --- -- ---
Total reductions 460 4.06 304 2.59 432 3.79
--- ---- --- ---- --- ----
Total loans receivable, net $11,323 100.00% $11,730 100.00% $11,423 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
At June 30,
---------------------
1996
-----
% of
Amount Total
------ -----
<S> <C> <C>
Real estate loans:
One-to-four-family residential $11,241 97.14%
Nonresidential 400 3.46
Construction 199 1.72
--- ---
Total real estate loans 11,840 102.32
Other loans:
Loans secured by deposits 46 .40
-- ---
Total other loans 46 .40
-- ---
Total loans 11,886 102.72
Less:
Allowance for loan losses 95 .82
Undisbursed portion of construction loans 174 1.50
Net deferred loan origination fees 46 .40
-- ---
Total reductions 315 2.72
--- ---
Total loans receivable, net $11,571 100.00%
====== ======
</TABLE>
49
<PAGE>
The following table sets forth the time to contractual maturity of the
Bank's loan portfolio at December 31, 1997. Loans which have adjustable rates
are shown as being due in the period during which rates are next subject to
change, while fixed rate and other loans are shown as due in the period of
contractual maturity. Demand loans, loans having no stated maturity and
overdrafts are reported as due in one year or less. The table does not include
prepayments or scheduled principal repayments. Amounts in the table are net of
loans in process and are net of unamortized loan fees.
<TABLE>
<CAPTION>
At December 31, 1997
------------------------------------------------------------------------
More Than More Than
1 Year 1 Year to 3 Years to More Than
or Less 3 Years 5 Years 5 Years Total
------- --------- --------- ------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
TOTAL LOANS:
- -----------
Real estate loans:
Adjustable rate residential 1-4 family $60 $ -- $ -- $ -- $ 60
Fixed rate residential 1-4 family 262 345 1,197 8,727 10,531
Other real estate loans - fixed 44 -- 78 633 755
Other loans 77 -- -- -- 77
-------- -------- -------- ------- -------
Total 443 345 1,275 9,360 11,423
Less:
Allowance for loan losses (100) -- -- -- (100)
-------- -------- -------- ------- -------
Totals $343 $345 $1,275 $9,360 $11,323
======== ======== ======== ======= =======
</TABLE>
The following table sets forth the dollar amount at December 31, 1997 of
all loans maturing or repricing on or after December 31, 1998 which have fixed
or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
----- -----
(In Thousands)
<S> <C> <C>
Real estate loans $10,980 $ --
Other loans -- --
------- -------
$10,980 $ --
======= =======
</TABLE>
Origination and Sale of Loans. The Bank generally does not originate its
one-to-four-family residential mortgage or other loans with the intention that
they will be sold in the secondary market. Although the Bank believes that many
of its one-to-four-family residential loans could be sold to investors, some of
such loans could be sold only after the Bank incurred certain costs and/or
discounted the purchase price. As a result, with respect to potential private
sales of whole loans, the Bank's loan portfolio may be less valuable than would
be the case if it was composed entirely of loans originated in conformity with
secondary market requirements.
50
<PAGE>
The table below sets forth the Bank's loan origination, purchase and sale
activity and loan portfolio repayment experience during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, YEAR ENDED JUNE 30,
-------------------- -----------------------
1997 1996 1997 1996
(In Thousands)
<S> <C> <C> <C> <C>
Loans receivable, net, beginning of period $11,423 $11.572 $11,572 $11,910
Loan originations:
Residential 1-4 family 839 776 1,365 1,619
Nonresidential real estate -- -- -- 67
Residential construction 171 264 486 253
Loans secured by deposits 22 8 53 69
------- ------- -------- --------
Total loan originations 1,032 1,048 1,904 2,008
Loans purchased -- -- -- --
Principal repayments (1,135) (892) (2,051) (2,342)
Other changes, net (1) 3 2 (2) (4)
------- ------- -------- --------
Increase (decrease) in loans receivable (100) (149) (149) (338)
------- ------- -------- --------
Loans receivable, net, end of period $11,323 $11,423 $11,423 $11,572
======= ======= ======== ========
</TABLE>
- -----------------------------
(1) Includes changes in deferred loan fees and the allowance for loan losses.
ONE-TO-FOUR-FAMILY RESIDENTIAL REAL ESTATE LENDING. The Bank's primary
lending activity, which it intends to continue to emphasize, is the origination
of fixed and adjustable rate first mortgage loans to enable borrowers to
purchase or refinance one-to-four-family residential real property. Consistent
with the Bank's emphasis on being a community-oriented financial institution, it
is and has been the Bank's strategy to focus its lending efforts in its primary
market area. On December 31, 1997, approximately 92.1% of the Bank's real estate
loan portfolio, before net items, consisted of one-to-four-family residential
real estate loans. These include both loans secured by detached single-family
residences and condominiums and loans secured by housing containing not more
than four separate dwelling units. Of such loan amounts, less than one percent
had adjustable interest rates.
The Bank does not originate its one-to-four-family loans with the intention
that they will be sold in the secondary market. The Bank generally originates
loans satisfying its underwriting requirements which are tailored for its local
community but which may not satisfy various requirements imposed by FHLMC or
FNMA. For example, the Bank may not require title insurance and may not obtain
all the loan documentation normally required by FHLMC and FNMA. As a result, to
the extent such loans are sold in the secondary market, they may not be sold on
terms as favorable as those originated in conformity with
51
<PAGE>
secondary market requirements. In addition, loans which are not originated in
conformity with the purchase requirements of FHLMC and FNMA, or nonconforming
loans, are generally thought to have greater risks of default and
nonperformance; however, the Bank has not experienced a higher level of
nonperformance with its nonconforming loans. These loans satisfy a need in the
Bank's local community and generally produce a higher yield than would be
produced by conforming loans. The Bank plans to continue its practice of
originating primarily nonconforming loans.
The Bank originates conventional mortgage loans secured by owner occupied
property in amounts of up to 95% of the value of the property. Private mortgage
insurance is generally required if the loan amount exceeds 80% of the value of
the property. The loans have both fixed and adjustable rates. The maximum term
for fixed and adjustable rate loans is 30 years. The interest rates on
adjustable rate loans are generally adjustable every year and are tied to the
one-year United States treasury bill rate. The loans have rate caps which limit
the amount of changes at the time of each adjustment and over the lives of the
loans. The Bank offers loans which require monthly payments.
Adjustable rate loans are generally considered to involve a greater degree
of credit risk than fixed rate loans because borrowers may have difficulty
meeting their payment obligations if interest rates and required payment amounts
increase substantially. Substantially all of the fixed-rate loans in the Bank's
mortgage loan portfolio have due on sale provisions allowing the Bank to declare
the unpaid balance due and payable in full upon the sale or transfer of an
interest in the property securing the loan.
While one-to-four-family residential loans are normally originated for
between 15 to 25 year terms, such loans customarily remain outstanding for
shorter periods because borrowers often prepay their loans in full upon sale of
the property pledged as security or upon refinancing the original loan. Thus,
average loan maturity is a function of, among other factors, the level of
purchase and sale activity in the real estate market, prevailing interest rates,
and the interest rates payable on outstanding loans.
The Bank generally does not require title insurance for its one-to-four-
family residential loans but does require an attorney's opinion of title. The
Bank also generally requires that fire and extended coverage casualty insurance
(and, if appropriate, flood insurance) be maintained in an amount at least equal
to the loan amount or replacement cost of the improvements on the property
securing the loans, whichever is greater.
NONRESIDENTIAL REAL ESTATE LENDING. On December 31, 1997, the Bank had
$483,000 outstanding in loans secured by nonresidential properties, comprising
approximately 4.1% of its loan portfolio, before net items, as of that date.
These loans are secured by office, retail and church properties. These loans
generally do not exceed 80% of the appraised value of the real estate securing
the loans. Nonresidential real estate loans have terms of up to 15 years. See
"--One-to-Four-Family Residential Real Estate Lending."
The Bank requires title insurance or an attorney's opinion in connection
with its nonresidential real estate loans. The Bank also requires that fire and
extended coverage casualty insurance (and, if appropriate, flood insurance) be
maintained in an amount at least equal to the loan amount or the replacement
cost of the improvements on the property securing the loans, whichever is
greater.
Loans secured by nonresidential real estate generally are larger than one-
to-four-family residential loans and involve greater concentration of assets and
a greater degree of risk. Payments on these loans depend to a large degree on
results of operations and management of the properties and may be affected to a
greater extent by adverse conditions in the real estate market or the economy in
general. Since commercial
52
<PAGE>
lending is frequently secured by leased or operating commercial properties,
repayment frequently depends upon the results of operations of the tenant or
operating entity. Nonresidential loans also generally involve more specialized
and complicated underwriting decisions than one-to-four-family residential real
estate lending. The Bank intends to continue to make nonresidential real estate
loans.
CONSTRUCTION LENDING. The Bank makes construction loans for the
construction of single-family dwellings, and for the construction of multi-
family and commercial buildings. The aggregate outstanding balance of such loans
on December 31, 1997 was approximately $366,000, representing approximately 3.1%
of the Bank's loan portfolio, before net items, and included construction loans
in process of approximately $319,000. Some of these loans were made to persons
who are constructing properties for the purpose of occupying them; others were
made to build ers who were constructing properties for sale. Construction loans
are "construction- permanent" loans which generally provide for the payment of
interest only during a construction period, after which the loans convert to a
permanent loan at fixed or adjustable interest rates having terms similar to
one-to- four-family residential loans.
Construction loans for one-to-four-family real estate to be occupied by the
borrower may have a maximum loan-to-value ratio of 95% of the appraised value of
the property with private mortgage insurance. Other construction loans are made
at loan to value ratios of up to 80%. Title insurance or an attorney's opinion
is generally required for construction loans. In addition, the Bank generally
requires builders risk or casualty insurance (and, if appropriate, flood
insurance) on such loans.
LOANS SECURED BY DEPOSITS. The Bank also offers loans secured by deposit
accounts. At December 31, 1997, such loans totaled $77,000, representing 0.70%
of the Bank's loan portfolio, before net items. The interest rates on these
loans are variable and are generally 2% above the interest rate being paid on
the deposit account serving as collateral. The maximum amounts of these loans is
generally 90% of the related deposit account.
LOAN SOLICITATION, PROCESSING AND UNDERWRITING. Loan originations are
derived from a number of sources such as referrals from real estate brokers,
present depositors and borrowers, builders, attorneys, walk-in customers and in
some instances, other lenders.
During its loan approval process, the Bank assesses the applicant's ability
to make principal and interest payments on the loan and the value of the
property securing the loan. The Bank obtains detailed written loan applications
to determine the borrower's ability to repay and verifies responses on the loan
application through the use of credit reports, financial statements, and other
confirmations. Under current practice, the responsible officer or loan officer
of the Bank analyzes the loan application and the property involved, and an
appraiser inspects and appraises the property. The Bank generally requires
independent fee appraisals on all loans in excess originated primarily on the
basis of real estate collateral. The Bank also obtains information concerning
the income, financial condition, employment and the credit history of the
applicant.
All real estate loans must be approved by the Bank's loan committee which
is made up of any three members of the Bank's board of directors. Loans secured
by deposits are approved by any two employees of the Bank, at least one of which
must be an officer.
Normally, upon approval of a residential mortgage loan application, the
Bank gives a commitment to the applicant that it will make the approved loan at
a stipulated rate any time within a 15-day period. The
53
<PAGE>
loan is typically funded at such rate of interest and on other terms which are
based on market conditions existing as of the date of the commitment. As of
December 31, 1997, the Bank had $132,000 in such unfunded mortgage loan
commitments. In addition, on such date the Bank had $319,000 in undisbursed
construction loans.
INTEREST RATES, TERMS, POINTS AND FEES. Interest rates and fees charged on
the Bank's loans are affected primarily by the market demand for loans,
competition, the supply of money available for lending purposes and the Bank's
cost of funds. These factors are affected by, among other things, general
economic conditions and the policies of the federal government, including the
Federal Reserve, tax policies and governmental budgetary matters.
In addition to earning interest on loans, the Bank receives fees in
connection with originating loans. Fees for loan modifications, late payments,
loan assumptions and other miscellaneous services in connection with loans are
also charged by the Bank.
NONPERFORMING ASSETS AND ASSET CLASSIFICATION. When a borrower fails to
make a required payment on a loan and does not cure the delinquency promptly,
the loan is classified as delinquent. In this event, the normal procedure
followed by the Bank is to make contact with the borrower at prescribed
intervals in an effort to bring the loan to a current status, and late charges
are assessed as allowed by law. In most cases, delinquencies are cured. If a
delinquency is not cured, the Bank normally, subject to any required prior
notice to the borrower, commences foreclosure proceedings. If the loan is not
reinstated within the time permitted for reinstatement, or the property is not
redeemed prior to sale, the property may be sold at a foreclosure sale. In
foreclosure sales, the Bank may acquire title to the property through
foreclosure, in which case the property so acquired is offered for sale and may
be financed by a loan involving terms more favorable to the borrower than those
normally offered. Any property acquired as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until such time as it is
sold or otherwise disposed of by the Bank in an effort to recover its
investment. As of December 31, 1997, the Bank had no real estate acquired in
settlement of loans. Real estate acquired through, or in lieu of, loan
foreclosure is initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management, and the real estate is carried at the lower of cost or
fair value minus costs to sell. Costs relating to the development and
improvement of the property are capitalized, and costs relating to holding the
property are charged to expenses.
Interest on loans is recorded as borrowers' monthly payments become due.
Accrual of interest on loans continues so long as (i) the collateral for such
loans remains sufficient, (ii) the borrower continues to make a good faith
effort to make payments to the Bank and (iii) the Board of Directors does not
otherwise decide to institute foreclosure procedures. If the Bank ultimately
institutes foreclosure procedures, the interest accrued since the last loan
payment is generally charged off.
The following table sets forth information with respect to nonperforming
assets identified by the Bank, including real estate owned at the date
indicated. At such dates, the Bank had no loans which were "troubled debt
restructurings", as defined in SFAS No. 15, Accounting by Debtors and Creditors
for Troubled Debt Restructurings.
<TABLE>
<CAPTION>
At December 31, At June 30,
----------------------------------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Accruing loans past due 90 days $312 $268 $240 $198
--- --- --- ---
Total non-performing loans 312 268 240 198
</TABLE>
54
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Foreclosed real estate -- -- -- --
----- ----- ----- -----
Total nonperforming assets $312 $268 $240 $198
===== ===== ===== =====
Non-performing assets to total assets 1.51% 1.29% 1.16% 0.92%
===== ===== ===== =====
</TABLE>
55
<PAGE>
INVESTMENT SECURITIES
Interest and dividend income from investment securities generally provides
the second largest source of income to the Bank after interest on loans. In
addition, the Bank receives interest income from deposits in other financial
institutions. At December 31, 1997, the Bank's investment portfolio totaled
approximately $8.79 million and consisted of U.S. government and agency
securities, interest-earning deposits in other financial institutions,
certificates of deposit and stock of the FHLB of Atlanta.
The FASB has issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" which 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 to be classified
in three categories and accounted for as follows: (1) debt securities that the
entity has the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; (2) 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 net
unrealized gains and losses included in earnings; and (3) debt and equity
securities not classified as either held-to-maturity or trading securities are
classified as securities available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of equity. At December 31, 1997, the Bank had no trading securities.
The Bank adopted SFAS No. 115 as of July 1, 1994. The adoption affected only
the held-to-maturity and available-for-sale classifications. Net unrealized
securities gains on the securities available-for-sale of $244,000, net of
related deferred taxes of $127,000, are reported as a separate component of
equity in its financial statements at December 31, 1997. See Notes 2 and 6 of
"Notes to Financial Statements."
The amortized cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity. Such amortization is included in interest income from
investments. Interest and dividends are included in interest income from
investments. Realized gains and losses, and declines in value judged to be other
than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method. Prior to the
adoption of SFAS No. 115, the Bank stated its debt securities at amortized cost
and its marketable equity securities at the lower of cost or market. Accumulated
changes in net unrealized losses on marketable equity securities were included
in retained earnings.
As a member of the FHLB of Atlanta, the Bank is required to maintain an
investment in stock of the FHLB of Atlanta equal to the greater of 1% of the
Bank's outstanding home loans or 5% of its outstanding advances from the FHLB of
Atlanta. No ready market exists for such stock, which is carried at cost. As of
December 31, 1997, the Bank's investment in stock of the FHLB of Atlanta was
$143,000.
North Carolina regulations require the Bank to maintain a minimum amount of
liquid assets which may be invested in specified short-term securities. See
"SUPERVISION AND REGULATION --Regulation of the Bank -- Liquidity." The Bank is
also permitted to make certain other securities investments.
The Bank's current investment policy provides that investment decisions
will be made by Eugene M. Ward, President and Chief Executive Officer, and
reviewed monthly by the Board of Directors. The investment policy provides that
the objectives of the investment portfolio are to: (i) provide and maintain
liquidity within regulatory guidelines, (ii) maintain a balance of high quality,
diversified investments, (iii)
<PAGE>
provide collateral for pledging requirements, (iv) serve as a counter-cyclical
balance to earnings, and (v) maximum returns without sacrificing liquidity and
safety.
Permitted investments include U.S. Treasury obligations, FHLB daily and
time deposits, insured certificates of deposit, federal agency securities and
federal funds.
The following table sets forth the carrying value of the Bank's investment
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31, At June 30,
--------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Securities available for sale:
U.S. government and agency securities $ 380 $ 250 $ 318 $ 194
------ ------ ------ ------
Securities held to maturity:
U.S. government and agency securities 1,500 1,992 2,496 1,994
Mortgage-backed securities 732 898 800 940
------ ------ ------ ------
Total securities held to maturity 2,232 2,890 3,296 2,934
------ ------ ------ ------
Total investment securities 2,612 3,140 3,614 3,128
------ ------ ------ ------
Interest-earning balances in other banks 6,039 5,067 4,944 5,851
Federal Home Loan Bank stock 143 143 143 143
------ ------ ------ ------
6,182 5,210 5,087 5,994
------ ------ ------ ------
Total investments $8,794 $8,350 $8,701 $9,122
====== ====== ====== ======
</TABLE>
At December 31, 1997, the market value of the Bank's investment securities
available for sale and held to maturity were $380,000 and $2.23 million,
respectively.
<PAGE>
The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
investment portfolio as of December 31, 1997.
<TABLE>
<CAPTION>
More than Six More than Five
Less Than Six Months More than One Year Years
Months to One Year to Five Years to Ten Years
------------------- ------------------- ------------------- -------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Securities available for sale: $ 380 1.04% $ -- -- % $ -- --% $ -- --%
FHLMC Stock
Securities held to maturity:
U.S. government and agency securities -- -- 500 5.70 1,000 5.64 -- --
Mortgage-backed securities -- -- -- -- 43 7.76 259 7.00
Other:
Interest-earning balances in other banks 6,039 5.48 -- -- -- -- -- --
Federal Home Loan Bank stock -- -- -- -- -- -- -- --
------ ---- ---- ---- ------ ---- ---- ----
Total $6,419 5.22 $500 .95% $1,043 5.73% $259 7.00%
====== ==== ==== ==== ====== ==== ==== ====
<CAPTION>
After Ten Years Total
------------------- ------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Securities available for sale:
FHLMC Stock $ -- --% $ 380 1.04%
Securities held to maturity:
U.S. government and agency securities -- -- 1,500 5.66
Mortgage-backed securities 430 6.50 732 6.95
Other:
Interest-earning balances in other banks -- -- 6,039 5.48
Federal Home Loan Bank stock 143 7.25 143 7.25
------ ----- ------ -----
Total $573 6.69% $8,794 5.47%
====== ===== ====== =====
</TABLE>
<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits are the primary source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from loan principal repayments, interest payments, investment income and
principal repayments, interest from its own interest-earning deposits, interest
income and advances from the FHLB of Atlanta and otherwise from its operations.
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. Borrowings may be used on a short-term basis to compensate
for reductions in the availability of funds from other sources. They may also
be used on a longer term basis for general business purposes.
DEPOSITS. The Bank attracts both short-term and long-term deposits from
the general public by offering a variety of accounts and rates. The Bank offers
passbook savings accounts, statement savings accounts, negotiable order of
withdrawal accounts, money market deposit accounts, non-interest-bearing
accounts, and fixed interest rate certificates with varying maturities. At
December 31, 1997, 77.8% of the Bank's deposits consisted of certificate
accounts, 21.6% consisted of passbook savings accounts and 0.61% consisted of
money market deposit accounts. Deposit flows are greatly influenced by economic
conditions, the general level of interest rates, competition, and other factors,
including the restructuring of the thrift industry. The Bank's savings deposits
traditionally have been obtained primarily from its primary market area. The
Bank utilizes traditional marketing methods to attract new customers and savings
deposits, including print, television and radio media advertising and direct
mailings. The Bank does not advertise for deposits outside of its local market
area or utilize the services of deposit brokers.
The following table sets forth certain other information regarding the
Bank's savings deposits at the dates indicated.
59
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997 At June 30, 1997 At June 30, 1996
----------------------------- -------------------- --------------------
Weighted Weighted Weighted
Average % of Average % of Average % of
Amount Rate Deposits Amount Rate Deposits Amount Rate Deposits
------- --------- --------- ------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Demand accounts:
Passbook savings $ 3,585 3.25% 21.60% $ 3,673 3.25% 21.96% $ 4,149 3.25% 23.66%
Money market deposit accounts 101 3.05 0.61 105 3.10 0.63 181 3.10 1.02
------- ---- ------ ------- ---- ------ ------- ---- ------
3,686 3.24 22.21 3,778 3.24 22.59 4,330 3.24 24.68
Certificate of accounts with
original maturities of:
6 months 3,955 5.07 23.84 4,372 5.08 26.14 5,619 5.01 32.04
12 months 2,101 5.11 12.66 2,414 5.15 14.43 2,809 5.22 16.02
14, 18, 30 and 36 months 6,852 5.67 41.29 6,163 5.74 36.84 4,781 5.56 27.26
------- ---- ------ ------- ---- ------ ------- ---- ------
Total certificates 12,908 5.40 77.79 12,949 5.41 77.41 13,209 5.26 75.32
------- ---- ------ ------- ---- ------ ------- ---- ------
Total deposits $16,594 4.92% 100.00% $16,727 4.92% 100.00% $17,539 4.76% 100.00%
======= ==== ====== ======= ==== ====== ======= ==== ======
</TABLE>
60
<PAGE>
The following table presents the maturities and weighted average rates paid
on all certificates of deposit as of December 31, 1997.
<TABLE>
<CAPTION>
Amount Due During the Year Ending December 31,
----------------------------------------------------------------------------
1998 1999 2000 Thereafter Total
----------------- ---------------- ---------------- ---------------- ------------------
Weighted Weighted Weighted Weighted Weighted
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------- ------- ------- ------ ------ -------- ------ ------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificates of $100,000 or
more $ 1,251 5.95% $ -- -- % $ -- -- % $ -- -- % $ 1,251 5.95%
Certificates of less than
$100,000 8,948 5.28% 2,196 5.51% 513 5.77% -- -- 11,657 5.34
------- ---- ------ ---- ---- ---- ------ -------- ------- ----
Total $10,199 5.36% $2,196 5.1% $513 5.77% $ -- --- $12,908 5.40%
======= ==== ====== ==== ==== ==== ====== ======== ======= ====
</TABLE>
61
<PAGE>
As of December 31, 1997, the aggregate amount of time certificates of
deposit in amounts greater than or equal to $100,000 outstanding was
approximately $1.3 million. The following table presents the maturity of these
time certificates of deposit at such date.
<TABLE>
<CAPTION>
At
December 31, 1997
-----------------
(In Thousands)
<S> <C>
6 Months or less $ 539
Over 6 months through 12 months 712
Over 12 months ---
------
Total
$1,251
======
</TABLE>
BORROWINGS. The Bank's principal available source of long-term borrowings
are advances from the FHLB of Atlanta. The FHLB system functions in a reserve
credit capacity for savings institutions. As a member, the Bank is required to
own capital stock in the FHLB of Atlanta and is authorized to apply for advances
from the FHLB of Atlanta on the security of that stock and a floating lien on
certain of its real estate secured loans and other assets. 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 of Atlanta's assessment of the
institution's creditworthiness. The Bank has had no borrowings outstanding from
the FHLB of Atlanta since 1987 and has no immediate plans to seek any advances
from the FHLB of Atlanta.
SUBSIDIARIES
As a North Carolina-chartered savings bank, the Bank is able to invest up
to 10% of its total assets in subsidiary service corporations. The Bank has no
subsidiaries.
PROPERTIES
The Bank operates from one office located in Wadesboro, North Carolina.
Specific information related to this office as of December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
Net Book Value
--------------------------------
Furniture,
Fixtures and
Land Building Equipment
---- -------- ---------
<S> <C> <C> <C>
211 South Greene Street
======= ======== ======
Wadesboro, North Carolina $30,808 $180,392 $3,695
======= ======== ======
</TABLE>
The properties are considered by the Bank's management to be in good condition.
62
<PAGE>
LEGAL PROCEEDINGS
From time to time, the Bank is a party to legal proceedings which arise in
the ordinary course of its business. Most commonly, such proceedings are
commenced by the Bank to enforce obligations owed to it. From time to time,
claims are asserted against the Bank directly or as defenses and counterclaims
in actions filed by the Bank. At this time, the Bank is not a party to any
legal proceeding which is expected to have a material effect on its financial
condition or results of operations.
COMPETITION
The Bank is the only financial institution headquartered in Anson County
and has operated there for more than 100 years. It faces strong competition
both in attracting deposits and making real estate and other loans. Its most
direct competition for deposits has historically come from other savings
institutions, credit unions, brokerage firms and commercial banks located in its
primary market area, including large financial institutions which have greater
financial and marketing resources available to them. As of June 30, 1997, there
were four FDIC-insured depository institutions with nine offices in Anson
County, North Carolina. Based upon 1997 comparative data, the Bank had 10.9%
and 8.3% of the federally insured deposits in Wadesboro and Anson County,
respectively.
The Bank has also faced additional significant competition for investors'
funds from short-term money market securities and other corporate and government
securities. The ability of the Bank to attract and retain savings deposits
depends on its ability to generally provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities.
The Bank experiences strong competition for real estate loans from other
savings institutions, commercial banks, and mortgage banking companies. The
Bank competes for loans primarily through the interest rates and loan fees it
charges, the efficiency and quality of services it provides borrowers, and its
more flexible underwriting standards. Competition may increase as a result of
the continuing reduction of restrictions on the interstate operations of
financial institutions. See "RISK FACTORS -- Risks Associated with Anson's
Primary Market Area; Limited Lending Opportunities; Competition."
EMPLOYEES
As of December 31, 1997, the Bank had 5 full-time employees. The Bank
provides its employees with basic and major medical insurance, dental insurance,
disability insurance, life insurance, sick leave and vacation benefits. The
Bank also maintains a non-contributory defined benefit pension plan ("Pension
Plan") for its employees. All full-time employees of the Bank who have
completed one year of service and who are at least twenty-one (21) years of age
are covered under the Pension Plan. Participants are fully vested in amounts
contributed to the Pension Plan on their behalf after seven (7) years of
service, as follows: less than 3 years of service, 0%; 3 years, 20%; 4 years,
40%; 5 years, 60%; 6 years, 80%; 7 years, 100%. Benefits under the Pension Plan
are payable in the event of the participant's retirement, death, disability or
termination of employment.
The Boards of Directors of the Company and the Bank are expected to adopt,
and stockholders of the Company will be asked to approve, a MRP and a Option
Plan at a meeting of stockholders after the first anniversary following the
Conversion. See "MANAGEMENT OF THE BANK -- Proposed Option Plan" and "--
Proposed Management Recognition Plan."
63
<PAGE>
Employees are not represented by any union or collective bargaining group,
and the Bank considers its employee relations to be good.
TAXATION
FEDERAL INCOME TAXATION
Savings institutions such as the Bank are subject to the taxing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), for corporations,
as modified by certain provisions specifically applicable for financial or
thrift institutions. Income is reported using the accrual method of accounting.
The maximum corporate federal income tax rate is 35%.
For fiscal years beginning prior to December 31, 1995, thrift institutions
which qualified under certain definitional tests and other conditions of the
Code were permitted certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. A reserve could
be established for bad debts on qualifying real property loans (generally loans
secured by interests in real property improved or to be improved) under (i) a
method based on a percentage of the institution's taxable income, as adjusted
(the "percentage of taxable income method") or (ii) a method based on actual
loss experience (the "experience method"). The reserve for nonqualifying loans
was computed using the experience method.
The addition to the bad debt reserve under the percentage of taxable income
method was limited to 8% of taxable income. This method could not raise the
reserve to exceed 6% of qualifying real property loans at the end of the year.
Moreover, the current year addition for qualifying real property loans, when
added to the experience method deduction for nonqualifying loans, could not
exceed the amount by which 12% of total deposits or withdrawable accounts
exceeded the sum of surplus, undivided profits and reserves at the beginning of
the year. The experience method was the amount necessary to increase the
balance of the reserve at the close of the year to the greater of (i) the amount
which bore the same ratio to loans outstanding at the close of the year as the
total net bad debts sustained during the current and five preceding years bore
to the sum of the loans outstanding at the close of such six years or (ii) the
balance in the reserve account at the close of the last taxable year beginning
before 1988 (assuming that the loans outstanding have not declined since such
date).
In order to qualify for the percentage of taxable income method, an
institution had to have at least 60% of its assets as "qualifying assets," which
generally included, cash, obligations of the United States government or an
agency or instrumentality thereof or of a state or political subdivision,
residential real estate-related loans, or loans secured by savings accounts and
property used in the conduct of its business. In addition, it had to meet
certain other supervisory tests and operate principally for the purpose of
acquiring savings and investing in loans.
Institutions which became ineligible to use the percentage of taxable
income method had to change to either the reserve method or the specific charge-
off method that applied to banks. Large thrift institutions, those generally
exceeding $500 million in assets, had to convert to the specific charge-off
method. In computing its bad debt reserve for federal income taxes, the Bank
used the reserve method in fiscal years 1996 and 1997.
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Bad debt reserve balances in excess of the balance computed under the
experience method or amounts maintained in a supplemental reserve built up prior
to 1962 ("excess bad debt reserve") must be included in taxable income upon
certain distributions to shareholders. Distributions in redemption or
liquidation of stock or distributions with respect to its stock in excess of
earnings and profits accumulated in years beginning after December 31, 1951, are
treated as a distribution from the excess bad debt reserve. When such a
distribution takes place, the thrift is required to reduce its reserve by such
amount and simultaneously recognize the amount as an item of taxable income
increased by the amount of income tax imposed on the inclusion. Dividends not
in excess of earnings and profits accumulated since December 31, 1951 will not
require inclusion of part or all of the bad debt reserve in taxable income. The
Bank has accumulated earnings and profits since December 31, 1951 and has an
excess bad debt reserve. Distributions in excess of current and accumulated
earnings and profits will increase taxable income. Net retained earnings at
December 31, 1997 includes approximately $1.0 million for which no provision for
federal income tax has been made.
Legislation passed by the U.S. Congress and signed by the President in
August 1996 contains a provision that repeals the percentage of taxable income
method of accounting for thrift bad debt reserves for tax years beginning after
December 31, 1995. The legislation will trigger bad debt reserve recapture for
post-1987 excess reserves over a six-year period. At December 31, 1997, the
Bank's post-1987 excess reserves subject to recapture were not significant.
The Bank may also be subject to the corporate alternative minimum tax
("AMT"). This tax is applicable only to the extent it exceeds the regular
corporate income tax. The AMT is imposed at the rate of 20% of the
corporation's alternative minimum taxable income ("AMTI") subject to applicable
statutory exemptions. AMTI is calculated by adding certain tax preference items
and making certain adjustments to the corporation's regular taxable income.
Preference items and adjustments generally applicable to financial institutions
include, but are not limited to, the following: (i) the excess of the bad debt
deduction over the amount that would have been allowable on the basis of actual
experience; (ii) interest on certain tax-exempt bonds issued after August 7,
1986; and (iii) 75% of the excess, if any, of a corporation's adjusted earnings
and profits over its AMTI (as otherwise determined with certain adjustments).
Net operating loss carryovers, subject to certain adjustments, may be utilized
to offset up to 90% of the AMTI. Credit for AMT paid may be available in future
years to reduce future regular federal income tax liability to the extent it
exceeds the year's AMT. The Bank has not been subject to the AMT in recent
years.
The Bank's federal income tax returns have not been audited in the last ten
tax years.
STATE AND LOCAL TAXATION
Under North Carolina law, the corporate income tax is 7.5% of federal
taxable income as computed under the Code, subject to certain prescribed
adjustments. In addition, for tax years beginning in 1991, 1992, 1993 and 1994,
corporate taxpayers were required to pay a surtax equal to 4%, 3%, 2% and 1%,
respectively, of the state income tax otherwise, payable by it. An annual state
franchise tax is imposed at a rate of 0.15% applied to the greatest of the
institutions (i) capital stock, surplus and undivided profits, (ii) investment
in tangible property in North Carolina or (iii) appraised valuation of property
in North Carolina.
The North Carolina corporate tax rate will drop to 7.25% in 1998, 7% in
1999, and 6.9% thereafter.
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SUPERVISION AND REGULATION
REGULATION OF THE COMPANY
Bank holding companies and state savings banks are extensively regulated
under both federal and state law. The following is a brief summary of certain
statutes and rules and regulations that affect or will affect the Company and
the Bank. This summary is qualified in its entirety by reference to the
particular statute and regulatory provisions referred to below and is not
intended to be an exhaustive description of the statutes or regulations
applicable to the business of the Company and the Bank. Supervision, regulation
and examination of the Company and the Bank by the regulatory agencies are
intended primarily for the protection of depositors rather than shareholders of
the Company.
GENERAL. The Company was organized for the purpose of acquiring and
holding all of the capital stock of the Bank to be issued in the Conversion. As
a savings bank holding company subject to the Bank Holding Company Act of 1956,
as amended ("BHCA"), the Company is subject to certain regulations of the
Federal Reserve. Under the BHCA, the Company's activities and those of its
subsidiaries are limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or engaging in any other
activity which the Federal Reserve determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The BHCA prohibits the Company from acquiring direct or indirect control of more
than 5% of the outstanding voting stock or substantially all of the assets of
any bank or savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of the Federal
Reserve.
Additionally, the BHCA prohibits the Company from engaging in, or acquiring
ownership or control of, more than 5% of the outstanding voting stock of any
company engaged in a nonbanking business unless such business is determined by
the Federal Reserve to be so closely related to banking as to be properly
incident thereto.
Similarly, Federal Reserve approval (or, in certain cases, non-disapproval)
must be obtained prior to any person acquiring control of the Company. Control
is conclusively presumed to exist if, among other things, a person acquires more
than 25% of any class of voting stock of the holding company or controls in any
manner the election of a majority of the directors of the holding company.
Control is presumed to exist if a person acquires more than 10% of any class of
voting stock and the stock is registered under Section 12 of the Exchange Act or
the acquiror will be the largest shareholder after the acquisition.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by law and regulatory
policy that are designed to minimize potential loss to the depositors of such
depository institutions and the FDIC insurance funds in the event the depository
institution becomes in danger of default or in default. For example, to avoid
receivership of an insured depository institution subsidiary, a bank holding
company is required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all capital standards as of the time the
institution fails to comply with such capital restoration plan. Under a policy
of the Federal Reserve with respect to bank holding company operations, a bank
holding company is required to serve as a source of financial strength to its
subsidiary depository institutions and to
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commit resources to support such institutions in circumstances where it might
not do so absent such policy. The Federal Reserve under the BHCA also has the
authority to require a bank holding company to terminate any activity or to
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve's determination that such activity or control
constitutes a serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
In addition, insured depository institutions under common control are
required to reimburse the FDIC for any loss suffered by either the SAIF or the
BIF as a result of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a commonly controlled
insured depository institution in danger of default. The FDIC may decline to
enforce the cross-guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF or both. The FDIC's claim for damages is
superior to claims of stockholders of the insured depository institution or its
holding company but is subordinate to claims of depositors, secured creditors
and holders of subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
Federal regulations require that the Company must notify the Federal
Reserve Bank of Richmond prior to repurchasing Common Stock in excess of ten
percent of its net worth during a rolling twelve month period.
As a result of the Company's ownership of the Bank, the Company is
registered under the savings bank holding company laws of North Carolina.
Accordingly, the Company is also subject to regulation and supervision by the
Administrator.
CAPITAL ADEQUACY GUIDELINES FOR HOLDING COMPANIES. The Federal Reserve has
adopted capital adequacy guidelines for bank holding companies and banks that
are members of the Federal Reserve system and have consolidated assets of $150
million or more. For bank holding companies with less than $150 million in
consolidated assets, the guidelines are applied on a bank-only basis unless the
parent bank holding company (i) is engaged in nonbank activity involving
significant leverage or (ii) has a significant amount of outstanding debt that
is held by the general public.
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. Under these regulations, the minimum ratio of
total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the
total capital is required to be "Tier I capital," principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock, and a
limited amount of cumulative perpetual preferred stock, less certain goodwill
items. The remainder ("Tier II capital") may consist of a limited amount of
subordinated debt, certain hybrid capital instruments and other debt securities,
perpetual preferred stock, and a limited amount of the general loan loss
allowance. In addition to the risk-based capital guidelines, the Federal
Reserve has adopted a minimum Tier I capital (leverage) ratio, under which a
bank holding company must maintain a minimum level of Tier I capital to average
total consolidated assets of at least 3% in the case of a bank holding company
which has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a Tier I capital (leverage) ratio of at least 1% to 2% above the
stated minimum.
DIVIDEND AND REPURCHASE LIMITATIONS. In connection with the Conversion,
the Bank has agreed with the FDIC that, during the first three years after
consummation of the Conversion, neither the Company nor the Bank will pay any
taxable dividend or make any other taxable distribution to its stockholders in
excess of their current or retained earnings. Also, the Company and the Bank
have agreed to notify the FDIC
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before making a return of capital during the first three years following the
Conversion. The Company must obtain Federal Reserve approval prior to
repurchasing Common Stock for in excess of 10% of its net worth during any
twelve-month period unless the Company (i) both before and after the redemption
satisfies capital requirements for "well capitalized" state member banks; (ii)
received a one or two rating in its last examination; and (iii) is not the
subject of any unresolved supervisory issues.
Although the payment of dividends and repurchase of stock by the Company
are subject to the requirements and limitations of North Carolina corporate law,
except as set forth in this paragraph, neither the Administrator nor the FDIC
have promulgated any regulations specifically limiting the right of the Company
to pay dividends and repurchase shares. However, the ability of the Company to
pay dividends or repurchase shares may be dependent upon the Company's receipt
of dividends from the Bank. The Bank's ability to pay dividends is limited.
See "-- Regulation of the Bank -- Restrictions on Dividends and Other Capital
Distributions."
CAPITAL MAINTENANCE AGREEMENT. In connection with the Administrator's
approval of the Company's application to acquire control of the Bank, the
Company was required to execute a Capital Maintenance Agreement whereby it has
agreed to maintain the Bank's capital in an amount sufficient to enable the Bank
to satisfy all regulatory capital requirements.
FEDERAL SECURITIES LAW. The Company has registered its Common Stock with
the SEC pursuant to Section 12(g) of the Exchange Act and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion. As a result of such registration, the proxy and tender offer rules,
insider trading reporting requirements, annual and periodic reporting and other
requirements of the Exchange Act are applicable to the Company.
The registration under the Securities Act of the Offering of the Common
Stock does not cover the resale of such shares. Shares of the Common Stock
purchased by persons who are not affiliates of the Company may be resold without
registration. Shares purchased by an affiliate of the Company are subject to
the resale provisions of Rule 144 under the Securities Act. So long as the
Company meets the current public information requirements of Rule 144 under the
Securities Act, each affiliate of the 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) will 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
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
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances. There are currently no demand
registration rights outstanding. However, in the event the Company at some
future time determines to issue additional shares from its authorized but
unissued shares, the Company might offer registration rights to certain of its
affiliates who want to sell their shares.
REGULATION OF THE BANK
GENERAL. Federal and state legislation and regulation have significantly
affected the operations of federally insured savings institutions and other
federally regulated financial institutions in the past several years and have
increased competition among savings institutions, commercial banks and other
providers of financial services. In addition, federal legislation has imposed
new limitations on investment authority, and higher insurance and examination
assessments on savings institutions and has made other changes that may
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adversely affect the future operations and competitiveness of savings
institutions with other financial institutions, including commercial banks and
their holding companies. The operations of regulated depository institutions,
including the Bank, will continue to be subject to changes in applicable
statutes and regulations from time to time.
The Bank is a North Carolina chartered savings bank, is a member of the
FHLB system, and its deposits are insured by the FDIC through the SAIF. It is
subject to examination and regulation by the FDIC and the Administrator and to
regulations governing such matters as capital standards, mergers, establishment
of branch offices, subsidiary investments and activities, and general investment
authority. Generally, North Carolina state chartered savings banks whose
deposits are insured by the SAIF are subject to restrictions with respect to
activities and investments, transactions with affiliates and loans-to-one
borrower similar to those applicable to SAIF insured savings associations. Such
examination and regulation is intended primarily for the protection of
depositors and the federal deposit insurance funds.
The Bank is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit Opportunity),
Regulation D (Reserves), Regulation E (Electronic Fund Transfers), Regulation O
(Loans to Executive Officers, Directors and Principal Shareholders), Regulation
Z (Truth in Lending), Regulation CC (Availability of Funds) and Regulation DD
(Truth in Savings). As creditors of loans secured by real property and as
owners of real property, financial institutions, including the Bank, may be
subject to potential liability under various statutes and regulations applicable
to property owners generally, including statutes and regulations relating to the
environmental condition of real property.
The FDIC has extensive enforcement authority over North Carolina-chartered
savings banks, including the Bank. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and unsafe or unsound practices.
The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less than
its liabilities to depositors and others; (ii) substantial dissipation of assets
or earnings through violations of law or unsafe or unsound practices; (iii)
existence of an unsafe or unsound condition to transact business; (iv)
likelihood that the savings bank will be unable to meet the demands of its
depositors or to pay its obligations in the normal course of business; and (v)
insufficient capital or the incurring or likely incurring of losses that will
deplete substantially all of the institution's capital with no reasonable
prospect of replenishment of capital without federal assistance.
TRANSACTIONS WITH AFFILIATES. Under current federal law, transactions
between the Bank and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of the Bank is any company or entity that
controls, is controlled by or is under common control with the savings bank.
Generally, subsidiaries of a bank, other than a bank subsidiary, and certain
other types of companies are not considered to be affiliates. Generally,
Sections 23A and 23B (i) limit the extent to which the Bank or its subsidiaries
may engage in "covered transactions" with any one affiliate to an amount equal
to 10% of such the Bank's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20% of
such capital stock and surplus and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the Bank or the
subsidiary as those provided to a
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nonaffiliate. The term "covered transaction" includes the making of loans or
other extensions of credit to an affiliate, the purchase of assets from an
affiliate, the purchase of, or an investment in, the securities of an affiliate,
the acceptance of securities of an affiliate as collateral for a loan or
extension of credit to any person, or issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate.
Further, current federal law has extended to savings banks the restrictions
contained in Section 22(h) of the Federal Reserve Act and its implementing
regulations with respect to loans to directors, executive officers and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who own more than 10% of a savings bank, and certain affiliated
entities of any of the foregoing, may not exceed, together with all other
outstanding loans to such person and affiliated entities, the savings bank's
loans-to-one borrower limit as established by federal law and all loans to such
persons may not exceed the institution's unimpaired capital and unimpaired
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers and
stockholders who own more than 10% of a savings bank, and their respective
affiliates, unless such loan is approved in advance by a majority of the
disinterested directors of the board of directors of the savings bank and the
Company. Any "interested" director may not participate in the voting. The
Federal Reserve has prescribed the loan amount (which includes all other
outstanding loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of unimpaired
capital and unimpaired surplus (up to $500,000). Further, pursuant to Section
22(h) the Federal Reserve requires that loans to directors, executive officers,
and principal stockholders be made on terms substantially the same as offered in
comparable transactions to other persons and not involve more than the normal
risk of repayment or present other unfavorable features. Section 22(h) also
generally prohibits a depository institution from paying the overdrafts of any
of its executive officers or directors.
DEPOSIT INSURANCE. The Bank's deposit accounts are insured by the FDIC
under the SAIF to the maximum extent permitted by law. The 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
discussed below. The matrix so created results in nine assessment risk
classifications, with rates that, until September 30, 1996, ranged from 0.23%
for well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk to the SAIF unless effective corrective action is taken.
Pursuant to the 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
paying 0%. This assessment schedule is the same as that for the BIF, which
reached its designated reserve ratio in 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.
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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
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the 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 Bank.
COMMUNITY REINVESTMENT ACT. The Bank, like other financial institutions,
is subject to the Community Reinvestment Act, as amended ("CRA"). A purpose of
this Act is to encourage financial institutions to help meet the credit needs of
its entire community, including the needs of low- and moderate-income
neighborhoods. A savings bank is evaluated and rated under three categories: a
lending test, an investment test and a service test. For each of these three
tests, the savings bank is given a rating of either "outstanding," "high
satisfactory," "low satisfactory," "needs to improve" or "substantial non-
compliance." A set of criteria for each rating is included in the regulation.
If an institution disagrees with a particular rating, the institution has the
burden of rebutting the presumption by clearly establishing that the
quantitative measures do not accurately present its actual performance, or that
demographics, competitive conditions or economic or legal limitations peculiar
to the service area should be considered. The ratings received under the three
tests are used to determine the overall composite CRA rating or "outstanding,"
"satisfactory," "needs to improve" or "substantial non-compliance."
During the Bank's last compliance examination, which was performed by the
FDIC under the old CRA regulations in July 1996, the Bank received a
"satisfactory" rating with respect to CRA compliance. The Bank's rating with
respect to CRA compliance would be a factor to be considered by the Federal
Reserve and FDIC in considering applications submitted by the Bank to acquire
branches or to acquire or combine with other financial institutions and take
other actions and could result in the denial of such applications.
CAPITAL REQUIREMENTS APPLICABLE TO THE BANK. The FDIC requires the Bank to
have a minimum leverage ratio of Tier I capital (principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangible items,
goodwill items, identified losses and investments in securities subsidiaries) to
total assets of at least 3%; provided, however that all institutions, other than
those (i) receiving the highest rating during the examination process and (ii)
not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the stated minimum, with an absolute minimum
leverage ratio of not less than 4%. The FDIC also requires the Bank to have a
ratio of total capital to risk-weighted assets, including certain off-balance
sheet activities, such as standby letters of credit, of at least 8%. At least
half of the total capital is required to be Tier I capital. The remainder
("Tier II capital") may consist of a limited amount of
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subordinated debt, certain hybrid capital instruments, other debt securities,
certain types of preferred stock and a limited amount of loan loss allowance.
An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and to
the same extent as a final cease and desist order, and must submit a capital
plan within 60 days to the FDIC. If the leverage ratio falls to 2% or less, the
bank may be deemed to be operating in an unsafe or unsound condition, allowing
the FDIC to take various enforcement actions, including possible termination of
insurance or placement of the institution in receivership. At December 31, 1997,
the Bank had a leverage ratio of 17.4%.
The Administrator requires that net worth equal at least 5% of total
assets. Intangible assets must be deducted from net worth and assets when
computing compliance with this requirement.
At December 31, 1997, the Bank complied with each of the capital
requirements of the FDIC and the Administrator. For a description of the Bank's
required and actual capital levels on December 31, 1997, see "HISTORICAL AND PRO
FORMA CAPITAL COMPLIANCE."
Each federal banking agency was required by law to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk, and the risk of nontraditional
activities, as well as reflect the actual performance and expected risk of loss
on multi-family mortgages. On August 2, 1995, the federal banking agencies
issued a joint notice of adoption of final risk-based capital rules to take
account of interest rate risk. The final regulation required an assessment of
the need for additional capital on a case-by-case basis, considering both the
level of measured exposure and qualitative risk factors. The final rule also
stated an intent to, in the future, establish an explicit minimum capital charge
for interest rate risk based on the level of a bank's measured interest rate
risk exposure. The final regulation has not had a material impact on the Bank's
capital requirements.
Effective June 26, 1996, the federal banking agencies issued a joint policy
statement announcing the agencies' election not to adopt a standardized measure
and explicit capital charge for interest rate risk at that time. Rather, the
policy statement (i) identifies the main elements of sound interest rate risk
management, (ii) describes prudent principles and practices for each of those
elements, and (iii) describes the critical factors affecting the agencies'
evaluation of a bank's interest rate risk when making a determination of capital
adequacy. The joint policy statement is not expected to have a material impact
on the Bank's management of interest rate risk.
In December 1994, the FDIC adopted a final rule changing its risk-based
capital rules to recognize the effect of bilateral netting agreements in
reducing the credit risk of two types of financial derivatives -interest and
exchange rate contracts. Under the rule, savings banks are permitted to net
positive and negative mark-to-market values of rate contracts with the same
counterparty, subject to legally enforceable bilateral netting contracts that
meet certain criteria. This represents a change from the prior rules which
recognized only a very limited form of netting. The Bank does not anticipate
that this rule will have a material effect upon its financial condition or
results of operations.
LOANS-TO-ONE-BORROWER. The Bank is subject to the Administrator's loans-
to-one-borrower limits. Under these limits, no loans and extensions of credit
to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of net
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worth. These limits also authorize savings banks to make loans-to-one-borrower,
for any purpose, in an amount not to exceed $500,000. A savings bank also is
authorized to make loans-to-one-borrower to develop domestic residential housing
units, not to exceed the lesser of $30 million or 30% of the savings bank's net
worth, provided that the purchase price of each single-family dwelling in the
development does not exceed $500,000 and the aggregate amount of loans made
under this authority does not exceed 150% of net worth. These limits also
authorize a savings bank to make loans-to-one-borrower to finance the sale of
real property acquired in satisfaction of debts in an amount up to 50% of net
worth.
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As of December 31, 1997, the largest aggregate amount of loans which the
Bank had to any one borrower was $265,000. The Bank had no loans outstanding
which management believes violate the applicable loans-to-one-borrower limits.
The Bank does not believe that the loans-to-one-borrower limits will have a
significant impact on its business, operations and earnings.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB system provides a central credit
facility for member institutions. As a member of the FHLB of Atlanta, the Bank
is required to own capital stock in the FHLB of Atlanta in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. On December 31, 1997, the Bank was in compliance with
this requirement with an investment in FHLB of Atlanta stock of $143,000.
Each FHLB is required to contribute at least 10% of its reserves and
undivided profits to fund the principal and a portion of the interest on certain
bonds and certain other obligations which are used to fund the resolution of
troubled savings association cases, and to transfer a percentage of its annual
net earnings to the Affordable Housing Program. These contributions continue to
reduce the FHLB of Atlanta's earnings and the Bank's dividends on its FHLB of
Atlanta stock.
FEDERAL RESERVE SYSTEM. Federal Reserve regulations require savings banks,
not otherwise exempt from the regulations, to maintain reserves against their
transaction accounts (primarily negotiable order of withdrawal accounts) and
certain nonpersonal time deposits. The reserve requirements are subject to
adjustment by the Federal Reserve. As of December 31, 1997, the Bank was in
compliance with the applicable reserve requirements of the Federal Reserve.
RESTRICTIONS ON ACQUISITIONS. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of a state savings bank without giving at least 60 days' written
notice to the FDIC and providing the FDIC an opportunity to disapprove the
proposed acquisition. Pursuant to regulations governing acquisitions of
control, control of an insured institution is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock. In addition, control is presumed to have been acquired,
subject to rebuttal, upon the acquisition of more than 10% of any class of
voting stock. Such acquisitions of control may be disapproved if it is
determined, among other things, that (i) the acquisition would substantially
lessen competition; (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the savings bank or prejudice the
interests of its depositors; or (iii) the competency, experience or integrity of
the acquiring person or the proposed management personnel indicates that it
would not be in the interest of the depositors or the public to permit the
acquisitions of control by such person.
For three years following completion of the Conversion, North Carolina
conversion regulations require the prior written approval of the Administrator
before any person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
Bank. If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is
not required for (i) any offer with a view toward public resale made exclusively
to the Bank or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more than
10% of the common stock of the
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Bank by a corporation whose ownership is or will be substantially the same as
the ownership of the Bank, provided that the offer or acquisition is made more
than one year following the consummation of the Conversion. The regulation
provides that within one year following the Conversion, the Administrator would
approve the acquisition of more than 10% of beneficial ownership only to protect
the safety and soundness of the institution. During the second and third years
after the Conversion, the Administrator may approve such an acquisition upon a
finding that (i) the acquisition is necessary to protect the safety and
soundness of the Company and the Bank or the Boards of Directors of the Company
and the Bank support the acquisition and (iii) the acquiror is of good character
and integrity and possesses satisfactory managerial skills, the acquiror will be
a source of financial strength to the Company and the Bank and the public
interests will not be adversely affected.
LIQUIDITY. The Bank is subject to the Administrator's requirement that the
ratio of liquid assets to total assets equal at least 10%. The computation of
liquidity under North Carolina regulation allows the inclusion of mortgage-
backed securities and investments which, in the judgment of the Administrator,
have a readily marketable value, including investments with maturities in excess
of five years. On December 31, 1997, the Bank's liquidity ratio, calculated in
accordance with North Carolina regulations, was approximately 41%. At December
31, 1997, the Bank had stable, core-like time deposits of $100,000 or more of
approximately $1.3 million.
ADDITIONAL LIMITATIONS ON ACTIVITIES. FDIC law and regulations generally
provide that the Bank may not engage as principal in any type of activity, or in
any activity in an amount, not permitted for national banks, or directly acquire
or retain any equity investment of a type or in an amount not permitted for
national banks. National banks are generally not permitted to hold equity
investments other than shares of service corporations and certain federal agency
securities. Moreover, the activities in which service corporations are
permitted to engage are limited to those of service corporations for national
banks. The FDIC has authority to grant exceptions from these prohibitions
(other than with respect to non-service corporation equity investments) if it
determines no significant risk to the insurance fund is posed by the amount of
the investment or the activity to be engaged in and if the Bank is and continues
to be in compliance with fully phased-in capital standards.
PROMPT CORRECTIVE REGULATORY ACTION. Federal law provides the federal
banking agencies with broad powers to take corrective action to resolve problems
of insured depository institutions. The extent of these powers depends upon
whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," or
"critically undercapitalized." Under the FDIC regulations applicable to the
Bank, an institution is considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater, (ii) a Tier I risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is not
subject to any order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately capitalized" institution
is defined as one that has (i) a total risk-based capital ratio of 8% or
greater, (ii) a Tier I risk-based capital ratio of 4% or greater and (iii) a
leverage ratio of 4% or greater (or 3% or greater in the case of an institution
with the highest examination rating and which is not experiencing or
anticipating significant growth). An institution is considered (A)
"undercapitalized" if it has (i) a total risk-based capital ratio of less than
8%, (ii) a Tier I risk-based capital ratio of less than 4% or (iii) a leverage
ratio of less than 4% (or 3% in the case of an institution with the highest
examination
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<PAGE>
rating and which is not experiencing or anticipating significant growth); (B)
"significantly undercapitalized" if the institution has (i) a total risk-based
capital ratio of less than 6%, or (ii) a Tier I risk-based capital ratio of less
than 3% or (iii) a leverage ratio of less than 3% and (C) "critically
undercapitalized" if the institution has a ratio of tangible equity to total
assets equal to or less than 2%.
INTERSTATE BANKING. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act"), effective September 29,
1995, permits adequately capitalized bank and savings bank holding companies to
acquire control of banks and savings banks in any state. The states may
specifically permit interstate acquisitions prior to September 29, 1995, by
enacting legislation that provides for such transactions. North Carolina
adopted nationwide reciprocal interstate acquisition legislation in 1994.
Such interstate acquisitions are subject to certain restrictions. States
may require the bank or savings bank being acquired to have been in existence
for a certain length of time but not in excess of five years. In addition, no
bank or saving bank may acquire more than 10% of the insured deposits in the
United States or more than 30% of the insured deposits in any one state, unless
the state has specifically legislated a higher deposit cap. States are free to
legislate stricter deposit caps.
The Interstate Banking Act also provides for interstate branching,
effective June 1, 1997, allowing interstate branching in all states, provided
that a particular state has not specifically denied interstate branching by
legislation prior to such time. Unlike interstate acquisitions, a state may
deny interstate branching if it specifically elects to do so by June 1, 1997.
States may choose to allow interstate branching prior to June 1, 1997 by opting-
in to a group of states that permits these transactions. These states generally
allow interstate branching via a merger of an out-of-state bank with an in-state
bank, or on a de novo basis. North Carolina has enacted legislation permitting
branching transactions.
It is anticipated that the Interstate Banking Act will increase competition
within the markets in which the Bank now operates, although the extent to which
such competition will increase in such markets or the timing of such increase
cannot be predicted.
RESTRICTIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS. A North
Carolina chartered stock savings bank may not declare or pay a cash dividend on,
or repurchase any of, its capital stock if the effect of such transaction would
be to reduce the net worth of the institution to an amount which is less than
the minimum amount required by applicable federal and state regulations. In
addition, a North Carolina-chartered stock savings bank, for a period of five
years after its Conversion from mutual to stock form, must obtain the written
approval from the Administrator before declaring or paying a cash dividend on
its capital stock in an amount in excess of one-half of the greater of (i) the
institution's net income for the most recent fiscal year end, or (ii) the
average of the institution's net income after dividends for the most recent
fiscal year end and not more than two of the immediately preceding fiscal year
ends, if applicable. Under FDIC regulations, no stock repurchases may be made
by the savings bank during the first year following a Conversion from mutual to
stock, except that stock repurchases of no greater than 5% of the bank's
outstanding shares may be repurchased during the first year where compelling and
valid business reasons are established to the satisfaction of the FDIC.
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Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
Conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a showing
that the proposed repurchase will not adversely affect the safety and soundness
of the institution.
In addition, the Bank is not permitted to declare or pay a cash dividend on
or repurchase any of its capital stock if the effect thereof would be to cause
its net worth to be reduced below the amount required for the liquidation
account established in connection with the Bank's Conversion from mutual to
stock ownership.
In connection with the Conversion, the Bank has agreed with the FDIC that,
during the first three years after the Conversion, neither the Company nor the
Bank will pay any taxable dividend or make any other taxable distribution in
excess of their current and retained earnings. The Bank has also agreed to
notify the FDIC before making a return of capital during the first three years
following the Conversion.
RESTRICTIONS ON BENEFIT PLANS. FDIC regulations provide that for a period
of one year from the date of the Conversion, the Bank may not implement or adopt
a stock option plan or restricted stock plan, other than a tax-qualified plan or
an employee stock ownership plan, unless: (1) the plans are fully disclosed in
the Conversion proxy soliciting and stock offering material, (2) all such plans
are approved by a majority of the Company's stockholders prior to implementation
and no earlier than six months following the Conversion, (3) for stock option
plans, the exercise price must be at least equal to the market price of the
stock at the time of grant, and (4) for restricted stock plans, no stock issued
in connection with the Conversion may be used to fund the plan.
The FDIC regulations provide that, in reviewing plans submitted to the
stockholders within one year after the consummation of the Conversion, the FDIC
will presume that excessive compensation will result if stock based benefit
plans fail to satisfy percentage limitations on management stock-based benefit
plans set forth in the regulations of the Office of Thrift Supervision ("OTS").
Those regulations provide that (1) for stock option plans, the total number of
shares for which options may be granted may not exceed 10% of the shares
issued in the Conversion, (2) for restricted stock plans, the shares issued may
not exceed 3% of the shares issued in the Conversion (4% for institutions with
tangible capital of 10% or greater after the Conversion), (3) the aggregate
amount of stock purchased by an employee stock ownership plan shall not exceed
10% (8% for well-capitalized institutions utilizing a 4% restricted stock
plan), (4) no individual employee may receive more than 25% of the available
awards under any plan, and (5) directors who are not employees may not receive
more than 5% individually or 30% in the aggregate of the awards under any plan.
The awards and grants to be made under the MRP and Option Plan will conform to
these requirements if such plans are submitted for stockholder approval within
one year after the Conversion is consummated.
OTHER NORTH CAROLINA REGULATIONS. As a North Carolina chartered savings
bank, the Bank derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the Administrator
includes, but is not limited to, the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of stock repurchases, the
regulation of incorporators, stockholders, directors, officers and employees;
the establishment of permitted types of withdrawable accounts and types of
contracts for savings programs, loans and investments; and the regulation of the
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conduct and management of savings banks, chartering and branching of
institutions, mergers, conversions and conflicts of interest. North Carolina law
requires that the Bank maintain federal deposit insurance as a condition of
doing business.
The Administrator conducts regular examinations of North Carolina chartered
savings banks. The purpose of such examinations is to assure that institutions
are being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC. In addition, the Administrator is
required to conduct an examination of any institution when he has good reason to
believe that the standing and responsibility of the institution is of doubtful
character or when he otherwise deems it prudent. The Administrator is empowered
to order the revocation of the license of an institution if he finds that it has
violated or is in violation of any North Carolina law or regulation and that
revocation is necessary in order to preserve the assets of the institution and
protect the interests of its depositors. The Administrator has the power to
issue cease and desist orders if any person or institution is engaging in, or
has engaged in, any unsafe or unsound practice or unfair and discriminatory
practice in the conduct of its business or in violation of any other law, rule
or regulation.
A North Carolina chartered savings bank must maintain net worth, computed
in accordance with the Administrator's requirements, of 5% of total assets and
liquidity of 10% of total assets, as discussed above. Additionally, a North
Carolina-chartered savings bank is required to maintain general valuation
allowances and specific loss reserves in the same amounts as required by the
FDIC.
Subject to limitation by the Administrator, North Carolina chartered
savings banks may make any loan or investment or engage in any activity which is
permitted to federally chartered institutions. However, a North Carolina
chartered savings bank cannot invest more than 15% of its total assets in
business, commercial, corporate and agricultural loans. In addition to such
lending authority, North Carolina chartered savings banks are authorized to
invest funds, in excess of loan demand, in certain statutorily permitted
investments, including but not limited to (i) obligations of the United States,
or those guaranteed by it; (ii) obligations of the State of North Carolina;
(iii) bank demand or time deposits; (iv) stock or obligations of the federal
deposit insurance fund or a FHLB; (v) savings accounts of any savings
institution as approved by the board of directors; and (vi) stock or obligations
of any agency of the State of North Carolina or of the United States or of any
corporation doing business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings institutions may
consolidate or merge, subject to approval of the Administrator. The approval is
conditioned upon findings by the Administrator that, among other things, such
merger or consolidation will promote the best interests of the members or
stockholders of the merging institutions. North Carolina law also provides for
simultaneous mergers and conversions and for supervisory mergers conducted by
the Administrator.
FUTURE REQUIREMENTS. Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Bank may be affected by such
statute or regulation.
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MANAGEMENT OF THE COMPANY
The Board of Directors of the Company currently consists of seven
directors: Preston A. Burns, John J. Crawford, W. Kenneth Huntley, Emmett S.
Patterson, John R. Potter, H. Patrick Taylor, Jr. and Eugene M. Ward. Each of
these persons is also a director of the Bank, and biographical information with
respect to each is set forth under "MANAGEMENT OF THE BANK -- Directors" and " -
Executive Officers." Each director is elected for a one-year term. However, at
such time, if any, as the number of directors is at least nine, the Articles of
Incorporation and Bylaws of the Company provide for staggered elections so that
approximately one-third of the directors will each be initially elected to one,
two and three-year terms, respectively, and thereafter, all directors will be
elected to terms of three years each.
The executive officers of the Company, each of whom is also currently an
executive officer of the Bank, and each of whom serves at the discretion of the
Board of Directors of the Company, are as follows:
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<TABLE>
<CAPTION>
AGE AT POSITION HELD
NAME DECEMBER 31, 1997 WITH THE COMPANY
---- ----------------- ----------------
<S> <C> <C>
Eugene M. Ward 63 President and Chief
Executive Officer
Nancy H. Allen 52 Treasurer and Assistant
Secretary
Veda H. Edwards 57 Secretary
</TABLE>
Biographical information with respect to each of these officers is set
forth below under "MANAGEMENT OF THE BANK -- Executive Officers." There are no
other employees of the Company. No officer, director or employee of the Company
has received remuneration from the Company to date, and it is currently expected
that no compensation will be paid by the Company after the Conversion.
Information concerning the principal occupations and employment of, and
compensation paid by the Bank to, the directors and executive officers of the
Company is set forth under "MANAGEMENT OF THE BANK." See "MANAGEMENT OF THE
BANK -- Employment Agreement" for a description of the employment agreement
expected to be entered into with the Chief Executive Officer of the Company and
the Bank.
MANAGEMENT OF THE BANK
DIRECTORS
The direction and control of the Bank, as a mutual North Carolina chartered
savings bank, has been vested in its seven-member Board of Directors elected by
the depositor and borrower members of the Bank. Upon Conversion of the Bank to
capital stock form, each director of the Bank immediately prior to the
Conversion will continue to serve as a director of the Bank as a stock
institution. All directors currently serve for one-year terms. The Bank's
proposed Bylaws, which would become effective after the Conversion, provide for
staggered elections of its directors, if and when the number of directors equals
at least nine, so that approximately one-third of the directors would be elected
each year for three-year terms. Upon consummation of the Conversion, the
Company will own all of the issued and outstanding shares of capital stock of
the Bank, and the Company will elect the directors of the Bank. The Company now
plans to nominate and re-elect all members of the Bank's existing board of
directors when their existing terms expire. The following table sets forth
certain information with respect to the persons who currently serve as members
of the Board of Directors of the Bank.
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<TABLE>
<CAPTION>
AGE ON
DECEMBER 31, PRINCIPAL OCCUPATION DIRECTOR
NAME 1997 DURING LAST FIVE YEARS SINCE
- ---- ----------- ---------------------- --------
<S> <C> <C> <C>
Preston A. Burns, 83 Retired, former President of Wadesboro Auto 1958
Chairman Supply
John J. Crawford 77 Retired, former owner of Crawford Motor 1960
Company
W. Kenneth Huntley 48 President, Huntley Oil and Gas Company, Inc. 1989
Emmett S. Patterson 59 General Manager and Executive Vice President, 1988
PeeDee Electric Membership Corporation
John R. Potter 79 Retired, former Anson County Agricultural 1962
Extension Agent
H. Patrick Taylor, Jr. 73 Attorney 1961
Eugene M. Ward 63 President, Anson Savings Bank, SSB 1962
</TABLE>
BOARD MEETINGS AND COMMITTEES
The Bank's Board of Directors has regular monthly meetings, and held 12
regular and special meetings in the fiscal year ended June 30, 1997. The Board
has also established three committees to whom certain responsibilities have been
delegated - an Executive Committee, a Nominating/Compensation Committee and a
Proxy Committee. In addition, all of the directors serve on the Loan Committee
and the Audit Committee; however, only 3 directors are asked to attend any one
meeting of the Loan Committee. No director attended fewer than 75% of the
total number of Board meetings and meetings of Board committees (other than the
Loan Committee) on which he served during the year ended June 30, 1997. In
addition, no director attended fewer than 75% of the total number of Loan
Committee meetings he was requested to attend during the year ended June 30,
1997.
The Executive Committee is composed of directors Preston Burns, Eugene
Ward, John Potter and John Crawford. The Executive Committee makes
recommendations to the full Board and acts on policies adopted by the full Board
in the absence of a meeting of the entire Board. The Executive Committee meets
on an as needed basis and did not meet during the year ended June 30, 1997.
The Nominating/Compensation Committee is composed of directors John
Crawford, John Potter and Emmett Patterson. This committee recommends
individuals to be elected to serve as directors of the Bank and recommends to
the Board of Directors the compensation to be paid to the Bank's officers. The
Nominating/Compensation Committee generally meets on an annual basis and met one
time during the year ended June 30, 1997.
The Proxy Committee is composed of directors John Potter, Kenneth Huntley,
and John Crawford. The Proxy Committee meets on an as needed basis and met one
time during the year ended June 30, 1997.
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The full Board of Directors serves as a Loan Committee with any three
directors constituting a quorum for purposes of approving loans. The Loan
Committee meets on an as needed basis and met 35 times during the year ended
June 30, 1997.
The full Board of Directors also serves the function of an Audit Committee.
The Board meets with and retains independent auditors, oversees the adequacy of
internal controls, insuring compliance with the Bank's policies and procedures
and with generally accepted accounting principles.
DIRECTORS' FEES
For their service on the Bank's Board of Directors, all members of the
Bank's Board of Directors, including Mr. Ward, receive an annual retainer of
$600.00 and an additional $200.00 per meeting attended. Board fees are subject
to adjustment annually. The Executive Committee members, including Mr. Ward,
receive $50.00 per meeting attended; all of the directors, excluding Mr. Ward,
receive $50.00 per month for their services on the Loan Committee.
EXECUTIVE OFFICERS
The Bank has three executive officers. The following table sets forth
certain information with respect such executive officers:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL AGE ON POSITIONS AND OCCUPATIONS EMPLOYED BY
POSITION DECEMBER 31, 1997 DURING LAST FIVE YEARS THE BANK SINCE
- ------------------ ----------------- -------------------------- --------------
<S> <C> <C> <C>
Eugene M. Ward 63 President and Chief Executive 1962
Officer
Nancy H. Allen 52 Treasurer and Assistant 1964
Secretary
Veda H. Edwards 57 Secretary 1959
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal year ended June 30, 1997
certain information regarding compensation received by (i) the chief executive
officer of the Bank and (ii) all other executive officers whose cash
compensation exceeded $100,000 (there were none).
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL COMPENSATION ALL OTHER
POSITION SALARY BONUS ($) /2/ COMPENSATION
------------------ ------ ----- ------------ ------------
<S> <C> <C> <C> <C>
Eugene M. Ward, President and $64,000/1/ $7,320 --- $395/3/
Director
</TABLE>
____________________
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/1/ Includes directors' fees of $3,000 received by Mr. Ward.
/2/ Under the "Other Annual Compensation" category, perquisites for the fiscal
year ended June 30, 1997 did not exceed the lesser of $50,000 or 10% of
salary and bonus as reported for Mr. Ward.
/3/ Represents the amount of the insurance premium paid by the Bank for term
life insurance for the benefit of Mr. Ward.
The Bank's Nominating/Compensation Committee determines the compensation of
the executive officers. The salaries of each of the executive officers is
determined based upon the executive officer's contributions to the Bank's
overall profitability, maintenance of regulatory compliance standards,
professional leadership, and management effectiveness in meeting the needs of
day to day operations. The Board of Directors also compares the compensation of
the Bank's executive officers with compensation paid to executives of comparable
financial institutions in North Carolina and executives of other businesses in
the Bank's market area. Mr. Ward participates in the deliberations of the Board
of Directors regarding compensation of executive officers other than himself.
He does not participate in the discussion or decisions regarding his own
compensation.
BONUS COMPENSATION
The Board of Directors of the Bank has established a plan for awarding an
annual bonus to all employees of the Bank including Mr. Ward. Under the terms
of the annual bonus plan, if the profits of the Bank exceed a certain target
amount, which target amount is determined annually by the Bank's Board of
Directors, an aggregate amount equal to 10% of the profits of the Bank is
divided pro rata among the full-time employees based on each employee's base
salary. However, the annual bonus paid to each of the Bank's employees may not
exceed 20% of each such employee's annual base salary. However, as is the case
with the Bank's compensation arrangements in general, the Bank's bonus
compensation is subject to regulatory oversight and, therefore, could be changed
in the future in response to regulatory requirements or otherwise.
OTHER BENEFITS
The Bank maintains a Pension Plan for its employees. All full-time
employees of the Bank who have completed one year of service and who are at
least twenty-one (21) years of age are covered under the Pension Plan.
Participants are fully vested in amounts contributed to the Pension Plan on
their behalf after six (6) years of service, as follows: less than 2 years of
service, 0%; 2 years, 20%; 3 years, 40%; 4 years, 60%; 5 years, 80%; 6 years,
100%. Benefits under the Pension Plan are payable in the event of the
participant's retirement, death, disability or termination of employment.
Normal retirement age under the Pension Plan is the later of (a) age sixty-
five (65), or (b) the fifth anniversary of the participant's joining the plan
("Normal Retirement Age"). Subject to certain restrictions on maximum benefits
required by federal law, upon reaching Normal Retirement Age, each participant
will receive a retirement benefit in the form of a straight life annuity,
determined pursuant to a formula which takes into consideration a participant's
"average monthly compensation" and up to seven (7) years of service. For
purposes of the Pension Plan, a participant's "average monthly compensation" is
defined as a participant's compensation converted to a monthly amount and then
averaged over the five (5) consecutive plan years of the last ten (10) calendar
years immediately preceding his retirement.
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<PAGE>
As of June 30, 1997, Mr. Ward's expected benefit under the Pension Plan at
Normal Retirement Age was $33,444 per year.
The Bank also provides its employees with group medical, dental, life and
disability insurance benefits and provides vacation leave.
EMPLOYMENT AGREEMENT
In connection with the Conversion, the Bank will enter into an employment
agreement with Eugene M. Ward, President and Chief Executive Officer, in order
to establish his duties and compensation and to provide for his continued
employment with the Bank. The agreement will provide for an initial annual base
salary of $69,000 and an initial term of employment of three years. Commencing
on the first anniversary date and continuing on each anniversary date
thereafter, following a performance evaluation of the employee, each agreement
may be extended for an additional year so that the remaining term shall be three
years, unless written notice of non-renewal is given by the Board of Directors.
The agreements also provide that the base salary shall be reviewed by the Board
of Directors not less often than annually. In addition, the employment
agreement provides for possible profitability and discretionary bonuses, as
described in "Bonus Compensation" and participation in all other pension,
profit-sharing or retirement plans maintained by the Bank or the Company for
employees of the Bank, as well as fringe benefits normally associated with Mr.
Ward's office. The employment agreement provides that it may be terminated by
the Bank for cause, as defined in the agreement, and that they may otherwise be
terminated by the Bank (subject to vested rights) or by Mr. Ward. In the event
of a "change in control" (as defined below) in lieu of continuing to be entitled
to receive a profitability bonus, Mr. Ward's base salary shall be adjusted to
include an amount equal to the average of the two previous years' annual
profitability bonus and such adjusted base salary shall be increased by a
minimum of 6% annually. In addition, the agreement will automatically be
extended so that it will have a three-year term after the change in
control.
The employment agreement provides that the nature of Mr. Ward's
compensation, duties or benefits cannot be diminished following a change in
control of the Bank or the Company. For purposes of the employment agreement, a
change in control generally will occur if (i) after the effective date of the
employment agreement, any "person" (as such term is defined in Sections 3(a)(9)
and 13(d)(3) of the Exchange Act) directly or indirectly, acquires beneficial
ownership of voting stock, or acquires irrevocable proxies or any combination of
voting stock and irrevocable proxies, representing 25% or more of any class of
voting securities of either the Company or the Bank, or acquires in any manner
control of the election of a majority of the directors of either the Company or
the Bank, (ii) either the Company or the Bank consolidates or merges with or
into another corporation, association or entity, or is otherwise reorganized,
where neither the Company nor the Bank is the surviving corporation in such
transaction, or (iii) all or substantially all of the assets of either the
Company or the Bank are sold or otherwise transferred to, or are acquired by,
any other entity or group. The agreement also provides that, in the event of
the employee's death following a change in control, the remaining payments to be
made under the agreements will be made to the employee's beneficiary or the
beneficiary's estate.
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The employment agreement could have the effect of making it less likely
that the Bank or the Company will be acquired by another entity. See "ANTI-
TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK -- The Company -- Anti-
Takeover Effect of Employment Agreement and Benefit Plans."
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SEVERANCE PLAN
In connection with the Conversion, the Bank's Board of Directors plans to
adopt a Severance Plan for the benefit of its employees who are not employed by
the Bank pursuant to an employment agreement at the time of a "change in
control" (as defined in the Severance Plan). The Severance Plan provides that in
the event there is a change in control of the Bank or the Company and (i) the
Bank or any successor of the Bank terminates the employment of any full time
employee of the Bank in connection with, or within 24 months after the change in
control, other than for "cause" (as defined in the Severance Plan), or (ii) an
employee terminates his or her employment with the Bank or any successor
following a decrease in the level of such employee's annual base salary rate or
a transfer of such employee to a location more than 40 miles distant from the
employee's primary work station within 24 months after a change in control, the
employee shall be entitled to a severance benefit equal to the following: (a) if
the employee has been an employee for less than twenty (20) years, the employee
shall be entitled to a benefit equal to the greater of (1) an amount equal to
two weeks' salary at the employee's existing salary rate multiplied times the
employee's number of complete years of service as a Bank employee or (2) the
amount of one month's salary at the employee's salary rate at the time of
termination; or (b) if the employee has been an employee for twenty (20) or more
years, the employee shall be entitled to a benefit equal to the greater of (1)
an amount equal to two weeks' salary of the employee's existing salary rate
multiplied times the employee's number of complete years of service as a Bank
employee or (2) an amount equal to two years of the employee's annual salary at
the employee's existing salary rate.
PROPOSED MANAGEMENT RECOGNITION PLAN
The Boards of Directors of the Company and the Bank intend to adopt the
MRP, subject to approval of the stockholders of the Company at a meeting to be
held no sooner than six months following the Conversion. The MRP will serve as
a means of providing the directors and employees of the Bank with an ownership
interest in the Company in a manner designed to encourage such persons to
continue their service to the Bank. All directors and certain employees of the
Bank would receive benefits under the MRP.
The Company's directors are expected to act by majority as trustees of the
trust associated with the MRP (the "MRP Trust"). The trustees of the MRP Trust
(the "MRP Trustees") will have the responsibility to hold and invest all funds
contributed to the MRP Trust.
At any time following approval of the MRP by the Company's stockholders,
the Company and the Bank expect to contribute sufficient funds to the MRP Trust
so that the MRP Trust could purchase a number of shares of Common Stock equal to
4% of the shares issued in the Conversion. Such shares would be provided by the
issuance of authorized but unissued shares of Common Stock or shares purchased
by the MRP Trust in the open market. Whether such shares will be purchased in
the open market or newly issued by the Company, and the timing of such
purchases, will depend on market and other conditions and the alternative uses
of capital available to the Company. Shares issued to recipients under the MRP
will be restricted and subject to forfeiture as described below.
Recipients would not be required to pay for shares issued to them under the
MRP. To the extent that the MRP acquires authorized but unissued shares of
Common Stock after the Conversion, the interests of
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existing shareholders will be diluted. Assuming the issuance of 759,000 shares
(872,850 shares at the maximum, as adjusted) in the Conversion and receipt of
stockholder approval, 30,360 shares (34,914 shares at the maximum, as adjusted),
would be issued pursuant to the MRP. Under applicable regulations, if the
proposed MRP is submitted to and approved by the stockholders of the Company
within one year after consummation of the Conversion, (i) no employee of the
Bank (including Mr. Ward) could receive more than 25% of the shares issued under
the MRP, or 7,590 shares (8,728 shares at the maximum, as adjusted), assuming
the issuance of 759,000 shares (872,850 shares at the maximum, as adjusted) in
the Conversion, (ii) the six non-employee directors of the Bank could receive
restricted stock grants for an aggregate of not more than 30% of the shares
issued under the MRP, or 9,108 shares (10,474 shares at the maximum, as
adjusted), assuming the issuance of 759,000 shares (872,850 shares at the
maximum, as adjusted) in the Conversion and (iii) none of the six non-employee
directors of the Bank could receive individually more than 5% of the shares
issued under the MRP, or 1,518 shares (1,745 shares at the maximum, as
adjusted), assuming the issuance of 759,000 shares (872,850 shares at the
maximum, as adjusted) in the Conversion. If the MRP is submitted to and approved
by the Company's stockholders more than one year after consummation of the
Conversion, the regulatory percentage limitations set forth above would not
apply.
After the grant of shares of Common Stock under the MRP, recipients will be
entitled to vote all vested and unvested shares and receive all dividends and
other distributions with respect thereto. If the MRP is submitted for
stockholder approval within twelve months after consummation of the Conversion,
the MRP will provide that 20% of the shares granted will vest and become
nonforfeitable on the first anniversary of the date of the grant under the MRP,
and 20% will vest and become nonforfeitable on each subsequent anniversary date,
so that the shares would be completely vested at the end of five years after the
date of grant. Grants of Common Stock under the MRP will immediately vest upon
the disability or death of a recipient.
If the MRP is submitted to the Company's stockholders and approved by them
more than one year after the consummation of the Conversion, the MRP may provide
for a different or no vesting schedule and may provide that grants of Common
Stock under the MRP will become automatically vested upon retirement or upon a
change in control of the Company or the Bank. In such event, it is expected
that a "change in control" would have the same meaning as is set forth in the
employment agreement with Mr. Ward. See "--Employment Agreement."
Until shares become vested, the right to direct the voting of such shares
and the right to receive dividends thereon may not be sold, assigned,
transferred, exchanged, pledged or otherwise encumbered. If the recipient of
shares under the MRP terminates his service to the Bank prior to the time shares
become vested (and such shares are not automatically vested under the terms of
the MRP), unvested shares would be forfeited to the MRP and would be subject to
future allocations to others. In addition, the recipient would be required to
repay all dividends received with respect to shares that did not become vested.
It is expected that the MRP will provide that it cannot be terminated upon a
change in control of the Company or the Bank unless the acquiror provides for an
equivalent benefit.
If the MRP is approved by the stockholders, the Bank expects to recognize a
compensation expense for the MRP awards in the amount of the fair market value
of the Common Stock granted. The expense would be recognized pro rata over the
years during which shares vest. The recipients of stock grants would be
required to recognize ordinary income equal to the fair market value of the
stock.
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PROPOSED OPTION PLAN
The Boards of Directors of the Company and the Bank intend to adopt the
Option Plan, subject to approval of the stockholders of the Company at a meeting
to be held no sooner than six months following the Conversion. As soon as
practicable following stockholder approval of the Option Plan, Common Stock in
the aggregate amount equal to 10% of the shares issued in the Conversion would
be reserved for future issuance by the Company upon the exercise of the stock
options granted under the Option Plan. Assuming the issuance of between 561,000
and 759,000 shares in the Conversion (872,850 shares at the maximum, as
adjusted), an aggregate of between 56,100 and 75,900 shares of Common Stock
would be reserved for issuance (87,285 shares at the maximum, as adjusted).
However, some or all of the shares issued upon the exercise of options granted
under the Option Plan may be purchased in the open market at the time of
exercise.
Assuming the Option Plan is approved by the stockholders of the Company,
the Option Plan would be administered by a committee of the Company's Board of
Directors. Options granted under the Option Plan will have an option exercise
price of not less than the fair market value of the Common Stock on the date the
options are granted. Options granted under the Option Plan will have a term of
ten years, will not be transferable except upon death and will continue to be
exercisable upon retirement, death or disability. If the Option Plan is
submitted for stockholder approval within twelve months after consummation of
the Conversion, options granted under the Option Plan will have a vesting
schedule which will provide that 20% of the options granted would vest and
become nonforfeitable on the first anniversary of the date of the option grant
and 20% will vest and become nonforfeitable on each subsequent anniversary date,
so that the options would be completely vested at the end of five years after
the date of the option grant. Options would become 100% vested upon death or
disability.
If the Option Plan is submitted to and approved by the Company's
stockholders more than one year after consummation of the Conversion, the Option
Plan may provide for a different or no vesting schedule and may provide that
options will become automatically vested upon retirement or upon a change in
control of the Company or the Bank. In such event, it is expected that a
"change in control" would have the same meaning as is set forth in the
employment agreement with Mr. Ward. See "-- Employment Agreement." The Option
Plan is expected to provide that the Plan cannot be terminated upon a change in
control of the Company or the Bank unless the acquiror provides for an
equivalent benefit to holders of unvested options.
Under applicable regulations, if the proposed Option Plan is submitted to
and approved by the stockholders of the Company within one year after
consummation of the Conversion, (i) no employee of the Bank (including Mr. Ward)
could receive more than 25% of the options issued under the Option Plan, or
options to purchase 18,975 shares (21,821 shares at the maximum, as adjusted),
assuming the issuance of 759,000 shares (872,850 shares at the maximum, as
adjusted) in the Conversion, (ii) the six non-employee directors of the Bank
could receive not more than 30% of the options issued under the Option Plan, or
options to purchase not more than 22,770 shares (26,186 shares at the maximum,
as adjusted), assuming the issuance of 759,000 shares (872,850 shares at the
maximum, as adjusted) in the Conversion, and (iii) none of the six non-employee
directors of the Bank could receive individually more than 5% of the options
issued under the Option Plan, or options to purchase not more than 3,795 shares
(4,364 shares at the maximum, as adjusted), assuming the issuance of 759,000
shares (872,850 shares at the maximum, as adjusted) in the Conversion. If the
Option Plan is submitted to and approved by the Company's stockholders more than
one year after consummation of the Conversion, the regulatory percentage
limitations set forth above would not apply.
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Options granted to employees under the Option Plan may be "incentive stock
options" which are designed to result in beneficial tax treatment to the
employee but no tax deduction to the Company or the Bank. The holder of an
incentive stock option generally is not taxed for federal income tax purposes on
either the grant or the exercise of the option. However, the optionee must
include in his or her federal alternative minimum tax income any excess (the
"Bargain Element") of the acquired common stock's fair market value at the time
of exercise over the exercise price paid by the optionee. Furthermore, if the
optionee sells, exchanges, gives or otherwise disposes of such common stock
(other than in certain types of transactions) either within two years after the
option was granted or within one year after the option was exercised (an "Early
Disposition"), the optionee generally must recognize the Bargain Element as
compensation income for regular federal income tax purposes. Any gain realized
on the disposition in excess of the Bargain Element is subject to recognition
under the usual rules applying to dispositions of property. If a taxable sale
or exchange is made after such holding periods are satisfied, the difference
between the exercise price and the amount realized upon the disposition of the
common stock generally will constitute a capital gain or loss for tax purposes.
If an optionee exercises an incentive stock option and delivers shares of common
stock as payment for part or all of the exercise price of the stock purchased
("Payment Stock"), no gain or loss generally will be recognized with respect to
the Payment Stock; provided, however, if the Payment Stock was acquired pursuant
to the exercise of an incentive stock option, the optionee will be subject to
recognizing as compensation income the Bargain Element on the Payment Stock as
an Early Disposition if the exchange for the new shares occurs prior to the
expiration of the holding periods for the Payment Stock. The Company generally
would not recognize gain or loss or be entitled to a deduction upon either the
grant of an incentive stock option or the optionee's exercise of an incentive
stock option. However, if there is an Early Disposition, the Company generally
would be entitled to deduct the Bargain Element as compensation paid the
optionee.
Options granted to directors under the Option Plan would be "non-qualified
stock options." In general, the holder of a non-qualified stock option will
recognize compensation income equal to the amount by which the fair market value
of the common stock received on the date of exercise exceeds the sum of the
exercise price and any amount paid for the non-qualified stock option. If the
optionee elects to pay the exercise price in whole or in part with common stock,
the optionee generally will not recognize any gain or loss on the common stock
surrendered in payment of the exercise price. The Company would not recognize
any income or be entitled to claim any deduction upon the grant of a non-
qualified stock option. At the time the optionee is required to recognize
compensation income upon the exercise of the non-qualified stock option, the
Company would recognize a compensation expense and be entitled to claim a
deduction in the amount equal to such compensation income.
If the Option Plan is approved by the stockholders of the Company, the
options granted to employees and directors pursuant to the Option Plan would be
issued in recognition of the recipients' past service to the Bank and as an
incentive for their continued performance. No cash consideration will be paid
for the options.
CERTAIN INDEBTEDNESS AND TRANSACTIONS OF MANAGEMENT
The Bank makes loans to executive officers and directors of the Bank in the
ordinary course of its business. These loans are made on the same terms,
including interest rates and collateral, as those then prevailing for comparable
transactions with nonaffiliated persons, and do not involve more than the normal
risk of collectibility or present any other unfavorable features. The Bank does
not make loans to executive officers and directors of the Bank on terms more
favorable than could be obtained by persons not affiliated
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with the Bank. There were no loans outstanding at December 31, 1997 which were
made to directors and officers and their affiliates.
DESCRIPTION OF CAPITAL STOCK
THE COMPANY
The Company is authorized to issue 20,000,000 shares of Common Stock and
5,000,000 shares of preferred stock. Neither the authorized Common Stock nor
the authorized preferred stock has any par value.
COMMON STOCK. General. THE COMPANY'S COMMON STOCK WILL REPRESENT
NONWITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL
NOT BE INSURED BY THE FDIC, ANY OTHER GOVERNMENTAL ENTITY, THE COMPANY OR THE
BANK. Upon payment of the purchase price for the Common Stock, all such stock
will be duly authorized, validly issued, fully paid, and nonassessable.
Dividends. The holders of the Company's Common Stock will be entitled to
receive and share ratably in such dividends on Common Stock as may be declared
by the Board of Directors of the Company out of funds legally available
therefor, subject to applicable statutory and regulatory restrictions. See
"SUPERVISION AND REGULATION -- Regulation of the Company -- Restrictions on
Dividends." The ability of the Company to pay dividends may be dependent on the
receipt of dividends from the Bank. See "DIVIDEND POLICY," "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and Other
Capital Distributions," and "TAXATION."
Stock Repurchases. The shares of Common Stock do not have any redemption
provisions. Stock repurchases are subject to Federal Reserve rules and
regulations and North Carolina corporate laws regarding capital
distributions.
Voting Rights. Upon Conversion, the holders of Common Stock, as the only
class of capital stock of the Company then outstanding, will possess exclusive
voting rights with respect to the Company. Such holders will have the right to
elect the Company's Board of Directors and to act on such other matters as are
required to be presented to stockholders under North Carolina law or as are
otherwise presented to them. Each holder of Common Stock will be entitled to
one vote per share. The holders of Common Stock will have no right to vote
their shares cumulatively in the election of directors. As a result, the
holders of a majority of the shares of Common Stock will have the ability to
elect all of the directors on the Company's Board of Directors.
Liquidation Rights. In the event of a liquidation, dissolution or winding
up of the Company, the holders of Common Stock of the Company would be entitled
to ratably receive, after payment of or making of adequate provisions for, all
debts and liabilities of the Company and after the rights, if any, of preferred
stockholders of the Company, all remaining assets of the Company available for
distribution.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued by
the Company.
Shares Owned by Directors and Executive Officers. All shares of Common
Stock issued in the Conversion to directors and executive officers of the
Company and the Bank will contain a restriction
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providing that such shares may not be sold without the written permission of the
Administrator for a period of one year following the date of purchase, except in
the event of death of the director or the executive officer.
PREFERRED STOCK. None of the 5,000,000 shares of the Company's authorized
preferred stock have been issued and none will be issued in the Conversion.
Such stock may be issued in one or more series with such rights, preferences and
designations as the Board of Directors of the Company may from time to time
determine subject to applicable law and regulations. If and when such shares
are issued, holders of such shares may have certain preferences, powers and
rights (including voting rights) senior to the rights of the holders of the
Common Stock. The Board of Directors can (without stockholder approval) issue
preferred stock with voting and conversion rights which could, among other
things, adversely affect the voting power of the holders of the Common Stock and
assist management in impeding an unfriendly takeover or attempted change in
control of the Company that some stockholders may consider to be in their best
interests but to which management is opposed. See "ANTI-TAKEOVER PROVISIONS
AFFECTING THE COMPANY AND THE BANK --The Company -- Restrictions in Articles of
Incorporation and Bylaws." The Company has no current plans to issue preferred
stock.
RESTRICTIONS ON ACQUISITION. Acquisitions of the Company and acquisitions
of the capital stock of the Company are restricted by provisions in the Articles
of Incorporation and Bylaws of the Company and by various federal and state laws
and regulations. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE
BANK -- The Company -- Restrictions in Articles of Incorporation and Bylaws" and
"-- Regulatory Restrictions."
THE BANK
COMMON STOCK. After consummation of the Conversion, the Bank will be
authorized to issue 100,000 shares of common stock, no par value ("the Bank
Common Stock"). The Bank Common Stock will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the FDIC
or any other governmental entity.
DIVIDENDS. The payment of dividends by the Bank is subject to limitations
which are imposed by North Carolina law and regulations. See "DIVIDEND POLICY"
and "SUPERVISION AND REGULATION -- Regulation of the Bank -- Restrictions on
Dividends and Other Capital Distributions." In addition, federal income tax law
considerations may affect the ability of the Bank to pay dividends and make
other capital distributions. See "TAXATION." The holders of the Bank Common
Stock will be entitled to receive and share ratably in such dividends on the
Bank Common Stock as may be declared by the Board of Directors of the Bank out
of funds legally available therefor, subject to applicable statutory and
regulatory restrictions.
VOTING RIGHTS. As a mutual North Carolina chartered savings bank, the Bank
currently has no stockholders, and voting rights in the Bank are currently held
by the Bank's members (depositors and borrowers). Members elect the Bank's
Board of Directors and vote on such other matters as are required to be
presented to them under North Carolina law.
Upon Conversion, the Company, as sole stockholder of the Bank, will possess
the exclusive voting rights with respect to the Bank Common Stock, will elect
the Bank's Board of Directors and will act on such other matters as are required
to be presented to stockholders under North Carolina law or as are otherwise
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presented to stockholders by the Bank's Board of Directors. The holders of the
Bank Common Stock will have no right to vote their shares cumulatively in the
election of directors of the Bank.
LIQUIDATION RIGHTS. After the Conversion, in the event of any liquidation,
dissolution or winding up of the Bank, the Company, as holder of all of the
Bank's outstanding capital stock, would be entitled to receive all remaining
assets of the Bank available for distribution, after payment of or making of
adequate provisions for, all debts and liabilities of the Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the liquidation account established in connection with the Conversion
to Eligible Account Holders and Supplemental Eligible Account Holders. See "THE
CONVERSION -- Effects of Conversion -- Liquidation Rights."
PREEMPTIVE RIGHTS. Holders of the Bank Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued by the Bank.
RESTRICTIONS ON ACQUISITION. Acquisitions of the Bank and acquisitions of
its capital stock are restricted by various federal and state laws and
regulations. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK -
- - The Bank."
ANTI-TAKEOVER PROVISIONS AFFECTING THE COMPANY AND THE BANK
THE COMPANY
RESTRICTIONS IN ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation and Bylaws of the Company contain certain provisions that are
intended to encourage a potential acquiror to negotiate any proposed acquisition
of the Company directly with the Company's Board of Directors. An unsolicited
non-negotiated takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management. The Board of Directors believes that these provisions will
encourage such negotiations and discourage hostile takeover attempts. It is
also the Board of Directors' view that these provisions should not discourage
persons from proposing a merger or transaction at prices reflective of the true
value of the Company and that otherwise is in the best interests of all
stockholders. However, these provisions may have the effect of discouraging
offers to purchase the Company or its securities which are not approved by the
Board of Directors but which certain of the Company's stockholders may deem to
be in their best interests or pursuant to which stockholders would receive a
substantial premium for their shares over the current market prices. Therefore,
the existence of such anti-takeover provisions in fact may not always be in the
best interests of all shareholders. Stockholders who might desire to
participate in such a takeover not supported by management may not have an
opportunity to do so. Such provisions will also render the removal of the
current Board of Directors and management more difficult. Nevertheless, the
Boards of Directors of the Bank and the Company believe these provisions are in
the best interests of the stockholders because they will assist the Company's
Board of Directors in managing the affairs of the Company in the manner they
believe to be in the best interests of stockholders generally and because a
company's board of directors is often best able in terms of knowledge regarding
the company's business and prospects, as well as resources, to negotiate the
best transaction for its stockholders as a whole.
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The following description of certain of the provisions of the Articles of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each instance to such Articles of Incorporation and Bylaws.
See "ADDITIONAL INFORMATION" regarding how to obtain a copy of these documents.
Board of Directors. The Bylaws of the Company provide that the number of
directors shall not be less than five nor more than 15. The initial number of
directors is seven, but such number may be changed by resolution of the Board of
Directors. These provisions have the effect of enabling the Board of Directors
to elect directors friendly to management in the event of a non-negotiated
takeover attempt and may make it more difficult for a person seeking to acquire
control of the Company to gain majority representation on the Board of Directors
in a relatively short period of time. The Company believes these provisions to
be important to continuity in the composition and policies of the Board of
Directors.
The Articles of Incorporation provide that, if and when the number of
directors is at least nine, there will be staggered elections of directors so
that the directors will each be initially elected to one, two or three-year
terms, and thereafter (so long as the number of directors is nine or more) all
directors will be elected to terms of three years each. This provision also has
the effect of making it more difficult for a person seeking to acquire control
of the Company to gain majority representation on the Board of Directors.
The Articles of Incorporation and Bylaws of the Company provide that
directors may be removed prior to the end of their term only for cause.
Cumulative Voting. The Articles of Incorporation do not provide for
cumulative voting for any purpose. Cumulative voting in election of directors
entitles a stockholder to cast a total number of votes equal to the number of
directors to be elected multiplied by the number of his or her shares and to
distribute that number of votes among such number of nominees as the stockholder
chooses. The absence of cumulative voting for directors limits the ability of a
minority stockholder to elect directors. Because the holder of less than a
majority of the Company's shares cannot be assured representation on the Board
of Directors, the absence of cumulative voting may discourage accumulations of
the Company's shares or proxy contests that would result in changes in the
Company's management. The Board of Directors believes that (i) elimination of
cumulative voting will help to assure continuity and stability of management and
policies; (ii) directors should be elected by a majority of the stockholders to
represent the interests of the stockholders as a whole rather than be the
special representatives of particular minority interests; and (iii) efforts to
elect directors representing specific minority interests are potentially
divisive and could impair the operations of the Company.
Special Meetings. The Bylaws of the Company provide that special meetings
of stockholders of the Company may be called by the Chairman of the Board, the
Chief Executive Officer, the President, or by the Board of Directors. If a
special meeting is not called by such persons or entities, stockholder proposals
cannot be presented to the stockholders for action until the next annual
meeting.
Capital Stock. The Articles of Incorporation of the Company authorize the
issuance of 20,000,000 shares of common stock and 5,000,000 shares of preferred
stock. The shares of common stock and preferred stock authorized in addition to
the number of shares of Common Stock to be issued pursuant to the Conversion
were authorized to provide the Company's Board of Directors with flexibility to
issue additional shares, without further stockholder approval, for proper
corporate purposes, including financing, acquisitions, stock dividends, stock
splits, director and employee stock options, grants of restricted stock to
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directors and certain employees and other appropriate purposes. However,
issuance of additional authorized shares may also have the effect of impeding or
deterring future attempts to gain control of the 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, dividend rights, and liquidation preferences, which could adversely
affect the voting power of the holders of the Common Stock and discourage an
attempt to acquire control of the Company. The Board of Directors does not
intend to issue any preferred stock, except on terms which it deems to be in the
best interests of the Company and its stockholders. However, the Board of
Directors has the power, to the extent consistent with its fiduciary duties, to
issue preferred stock to persons friendly to management or otherwise in order to
impede attempts by third parties to acquire voting control of the Company and to
impede other transactions not favored by management. The Board of Directors
currently has no plans for the issuance of additional shares of Common Stock
(except for such shares as may be necessary to fund a MRP and a Option Plan) or
of shares of preferred stock.
Director Nominations. The Bylaws of the Company require a stockholder who
intends to nominate a candidate for election to the Board of Directors at a
stockholders' meeting to give written notice to the Secretary of the Company at
least 50 days (but not more than 90 days) in advance of the date of the meeting
at which such nominations will be made. The nomination notice is also required
to include specified information concerning the nominee and the proposing
stockholder. The Board of Directors of the Company believes that it is in the
best interests of the Company and its stockholders to provide sufficient time
for the Board of Directors to study all nominations and to determine whether to
recommend to the stockholders that such nominees be considered.
SUPERMAJORITY VOTING PROVISIONS. The Company's Articles of Incorporation
require the affirmative vote of 75% of the outstanding shares entitled to vote
to approve a merger, consolidation, or other business combination, unless the
transaction is approved, prior to consummation, by the vote of at least 75% of
the number of the Continuing Directors (as defined in the Articles of
Incorporation) on the Company's Board of Directors. "Continuing Directors"
generally includes all members of the Board of Directors who are not affiliated
with any individual, partnership, trust or other person or entity (or the
affiliates and associates of such person or entity) which is a beneficial owner
of 10% or more of the voting shares of the Company. This provision could tend
to make the acquisition of the Company more difficult to accomplish without the
cooperation or favorable recommendation of the Company's Board of Directors.
ANTI-TAKEOVER EFFECT OF EMPLOYMENT AGREEMENTS AND BENEFIT PLANS. If
approved by the stockholders of the Company at a meeting of stockholders
following the Conversion, the MRP and the Option Plan will provide for the
ownership of additional shares of Common Stock by the employees and the
directors of the Bank and for voting control by directors and certain employees
over shares held by the MRP and Option Plan which are attributable to grants
made to them under such plans even though the grants are not yet vested. See
"MANAGEMENT OF THE BANK -- Proposed Management Recognition Plan" and "--Proposed
Option Plan."
If (i) the Option Plan is approved by the stockholders of the Company
within one year after the Conversion and all of the stock options which could be
granted to directors and executive officers under the Option Plan are granted
and exercised or the shares for such options are acquired by the Option Plan and
all option shares are acquired in the open market, (ii) the MRP is approved by
the stockholders of the Company within one year after the Conversion, all of the
MRP shares which could be granted to directors and executive officers are
granted and issued and all such shares are acquired in the open market, (iii)
the
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Company did not issue any additional shares of its Common Stock, the shares
held by directors and executive officers and their associates as a group,
including (a) shares purchased outright in the Conversion, (b) shares purchased
pursuant to the Option Plan and (c) shares granted under the MRP, would give
such persons effective control over as much as 23.6% or 21.1%, at the minimum
and maximum of the Estimated Valuation Range, respectively, of the Common Stock
issued and outstanding.
The existence of the employment agreements with employees could make a
business combination with the Bank more costly and could discourage such
transactions. See "MANAGEMENT OF THE BANK -- Employment Agreements."
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REGULATORY RESTRICTIONS. Applicable North Carolina regulations provide
that for a period of three years following the Conversion, the prior written
approval of the Administrator will be required before any person may, directly
or indirectly, acquire beneficial ownership of or make any offer to acquire any
stock or other equity security of the Company if, after the acquisition or
consummation of such offer, such person would be the beneficial owner of more
than 10% of such class of stock or other class of equity security of the
Company. If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is
not required for (i) any offer with a view toward public resale made exclusively
to the Company or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more than
10% of the common stock of the Company by a corporation whose ownership is or
will be substantially the same as the ownership of the Company, provided that
the offer or acquisition is made more than one year following the consummation
of the Conversion. The regulation provides that within one year following the
Conversion, the Administrator would approve the acquisition of more than 10% of
beneficial ownership only to protect the safety and soundness of the
institution. During the second and third years after the Conversion, the
Administrator may approve such an acquisition upon a finding that (i) the
acquisition is necessary to protect the safety and soundness of the Company and
the Bank or the Board of Directors of the Company and the Bank support the
acquisition and (ii) the acquiror is of good character and integrity and
possesses satisfactory managerial skills, the acquiror will be a source of
financial strength to the Company and the Bank and the public interests will not
be adversely affected.
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator, and Federal Reserve, be obtained
prior to any person or company acquiring "control" of a North Carolina-chartered
savings bank or a North Carolina-chartered savings bank holding company. In
addition, except in limited circumstances, FDIC approval is required for a
change in control of a state savings bank. Upon acquiring control, such acquiror
will be deemed to be a bank Company. Control is conclusively presumed to exist
if, among other things, an individual or company acquires the power, directly or
indirectly, to direct the management or policies of the Company or the Bank or
to vote 25% or more of any class of voting stock. Control is rebuttably presumed
to exist under the Change in Bank Control Act if, among other things, a person
acquires more than 10% of any class of voting stock, and the issuer's securities
are registered under Section 12 of the Exchange Act or the person would be the
single largest stockholder. Restrictions applicable to the operations of bank
holding companies and conditions imposed by the Federal Reserve in connection
with its approval of such acquisitions may deter potential acquirors from
seeking to obtain control of the Company. See "SUPERVISION AND
REGULATION -- Regulation of the Company."
THE BANK
Upon consummation of the Conversion, the Bank will become a wholly-owned
subsidiary of the Company, and, consequently, restrictions on the acquisition of
the Bank would have a more limited effect than if the Bank's common stock were
held directly by the stockholders purchasing in the Conversion. However,
restrictions on the acquisition of the Bank may discourage takeover attempts of
the Company in order to gain immediate control of the Bank.
REGULATORY RESTRICTIONS. The Administrator and the Federal Reserve have
conditionally approved the Company's acquisition of all of the stock of the Bank
issued in the Conversion. For three years following
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completion of a conversion, North Carolina conversion regulations require the
prior written approval of the Administrator before any person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of a converting state savings bank such as
the Bank. If any person were to so acquire the beneficial ownership of more than
10% of any class of any equity security without prior written approval, the
securities beneficially owned in excess of 10% would not be counted as shares
entitled to vote and would not be voted or counted as voting shares in
connection with any matter submitted to stockholders for a vote. Approval is not
required for (i) any offer with view toward public resale made exclusively to
the Bank or its underwriters or the selling group acting on its behalf or (ii)
any offer to acquire or acquisition of beneficial ownership of more than 10% of
the common stock of the Bank by a corporation whose ownership is or will be
substantially the same as the ownership of the Bank, provided that the offer or
acquisition is made more than one year following the consummation of the
Conversion. Similarly, Federal Reserve approval is required before any person or
entity may acquire "control" of the Bank. See "-- The Company-- Regulatory
Restrictions."
BOARD OF DIRECTORS. The amended Articles of Incorporation of the Bank upon
consummation of the Conversion will provide that the number of directors may be
no less than five. The initial number of directors will be seven, but such
number may be changed by resolution of the Board of Directors. This provision
has the effect of enabling the Board of Directors to elect directors friendly to
management in the event of a non-negotiated takeover attempt. The Bank's Bylaws
also provide for staggered elections of directors if and when the total number
of directors is at least nine. These provisions are designed to make it more
difficult for a person seeking to acquire control of the Bank to gain majority
representation on the Board of Directors in a relatively short period of time.
The Bank believes these provisions to be important to continuity in the
composition and policies of its Board of Directors.
CERTAIN PROVISIONS OF THE CHARTERS AND BYLAWS OF
THE COMPANY AND THE BANK
LIMITATIONS OF LIABILITY
The Charters of both the Company and the Bank provide that the directors of
each shall not be personally liable to the corporation they serve or its
stockholders for money damages for breach of any duty as a director to the
fullest extent permitted by North Carolina law. The North Carolina Business
Corporation Act authorizes such provisions, but provides that they shall not be
effective with respect to (i) acts or omissions of directors that the director
knew or believed at the time were clearly in conflict with the best interests of
the corporation, (ii) transactions from which the director derived an improper
personal benefit, (iii) liability for certain unlawful distributions of
corporation assets, and (iv) with respect to acts or omissions that occurred
prior to the effectiveness of the provisions. The Bank's mutual charter
contains a similar provision.
INDEMNIFICATION
The Bylaws of both the Company and the Bank provide that any person who
serves as a director, officer, employee or agent of the corporation shall have a
right to be indemnified by the corporation they serve to the full extent allowed
by applicable law for liability or litigation expense arising out of activities
in such capacities. Both the Bylaws and the North Carolina Business Corporation
Act provide that there shall be no indemnification for liability or expense
arising out of activities which were known or believed
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by such persons at the time of such activities to be clearly in conflict with
the best interests of the corporation. The Bank's mutual bylaws contain a
similar provision.
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
and the Bank pursuant to the foregoing provisions, or otherwise, the Company and
the Bank have been advised that in the opinion of the SEC 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 such
liabilities (other than the payment by the Company and the Bank of expenses
incurred or paid by a director, officer or controlling person of the Company and
the Bank 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 Company and the Bank 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.
THE CONVERSION
THE BOARD OF DIRECTORS OF THE BANK HAS ADOPTED AND THE ADMINISTRATOR HAS
APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN SUBJECT TO
APPROVAL BY THE MEMBERS OF THE BANK AND TO THE SATISFACTION OF CERTAIN OTHER
CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE A RECOMMENDATION
OR ENDORSEMENT OF THE PLAN BY THE ADMINISTRATOR.
GENERAL
The Bank was organized and has operated as a traditional savings and loan
association. It recognizes that the banking and financial services industries
are in the process of fundamental changes, reflecting changes in the local,
national and international economies, technological changes and changes in state
and federal laws. As a result, for several years the Bank has been studying the
environment in which it operates and its strategic options.
As a result of its study of its strategic options, the Bank adopted the
Plan. The Bank believes that converting the bank from the mutual to stock form
and organizing the Company will provide increased flexibility for the Bank and
the Company to react to changes in their operating environment, regardless of
the strategies ultimately chosen.
The existing management of the Bank and the Company believes that at this
time it is in the best interests of the Bank, the Company and the stockholders
of the Company for the Company to remain an independent financial institution.
Assuming the consummation of the Conversion, the Company and the Bank intend to
pursue the business strategy described in this Prospectus with the goal of
enhancing shareholder value over the long term. Neither the Company nor the
Bank has any existing plan to consider any business combination, and neither
company has any agreement or understanding with respect to any possible business
combination.
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The Board of Director's adoption of the Plan is subject to approval by the
members of the Bank and receipt of required regulatory approvals. Pursuant to
the Plan, the Bank will be converted from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank and will become a
wholly-owned subsidiary of the Company. The Company will issue the Common Stock
to be sold in the Conversion and will use that portion of the net proceeds
thereof which it does not retain to purchase the capital stock of the Bank. By
letter dated May 12, 1998, the Administrator approved the Plan, subject to
approval by the members of the Bank and satisfaction of certain other
conditions. The Special Meeting will be held on June 15, 1998 for the purpose of
considering approval of the Plan.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Company to
acquire the Bank. Those approvals have been received. The Conversion cannot be
consummated until the expiration of the Bank Merger Act of 1956 waiting period
which began to run upon approval by the Federal Reserve of the Company's
application and expires May 28, 1998. Finally, consummation of the Conversion is
contingent upon receipt from the FDIC of a final non-objection letter with
respect to the transaction. The FDIC has issued a conditional notification that
it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan. It is
qualified in its entirety by the provisions of the Plan, which contains a more
detailed description of the terms of the Conversion. The Plan is attached as
Attachment I to the Bank's Proxy Statement for the Special Meeting which has
been delivered to all members of the Bank. The Plan can also be obtained by
written request from the Bank. See "ADDITIONAL INFORMATION."
PURPOSES OF CONVERSION
The Bank, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, the Bank will be structured in the form used by most commercial
banks, other business entities and a substantial number of savings institutions.
Conversion to a North Carolina-chartered capital stock savings bank and the
formation of a Company offers a number of advantages which may be important to
the future and performance of the Bank, including (i) a larger capital base for
the Bank's operations, (ii) an enhanced future access to capital markets and
(iii) an opportunity for depositors of the Bank to become stockholders of the
Company.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Articles of Incorporation will permit the Company,
subject to market conditions, to raise additional equity capital through further
sales of securities. Following the Conversion, the Company will also be able to
use stock-related incentive programs to attract, retain and provide incentives
for qualified directors and executive and other personnel of the Company and the
Bank. See "MANAGEMENT OF THE BANK -- Stock Based Benefits."
Formation of the Company will provide greater flexibility than the Bank
would otherwise have to expand and diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, both mutual and stock institutions, as well as other companies. However,
there are no current plans, arrangements, understandings or agreements regarding
any such business combinations.
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EFFECTS OF CONVERSION
GENERAL. Each person with a deposit account in the Bank has pro rata
rights, based upon the balance in his or her account, in the net worth of the
Bank upon liquidation. However, this right is tied to the depositor's account
and has no tangible market value separate from such deposit account. Further,
the Bank's depositors can realize value with respect to their interests only in
the unlikely event that the Bank is liquidated and has a positive net worth. In
such an event, the depositors of record at that time, as owners, would share pro
rata in any residual surplus after other claims, including those with respect to
the deposit accounts of depositors, are paid.
Upon the Bank's Conversion to stock form, its Certificate of Incorporation
will be amended to authorize the issuance of permanent nonwithdrawable capital
stock to represent the ownership of the Bank, including its net worth. THE
CAPITAL STOCK WILL BE SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND WILL NOT BE
INSURED BY THE FDIC, ANY OTHER GOVERNMENTAL ENTITY, THE COMPANY OR THE BANK.
Certificates will be issued to evidence ownership of the capital stock. All of
the outstanding capital stock of the Bank will be acquired by the Company, which
in turn will issue its Common Stock to purchasers in the Conversion. The stock
certificates issued by the Company will be transferable and, therefore, subject
to applicable law, the stock could be sold or traded if a purchaser is available
with no effect on any deposit account the seller may hold at the Bank.
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, the Bank will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at the Bank's passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be canceled.
In such an event, the Company would not acquire control of the Bank.
VOTING RIGHTS. Under the Bank's current Certificate of Incorporation and
Bylaws, deposit account holders and borrowers have voting rights with respect to
certain matters relating to the Bank, including the election of directors.
After the Conversion, (i) neither deposit account holders nor borrowers will
have voting rights with respect to the Bank and will therefore not be able to
elect directors of the Bank or control its affairs; (ii) voting rights with
respect to the Bank will be vested in the Company as the sole stockholder of the
Bank; and (iii) voting rights with respect to the Company will be vested in the
Company's stockholders. Each purchaser of Common Stock will be entitled to vote
on any matters to be considered by the Company's stockholders. For a
description of the voting rights of the holders of Common Stock, see
"DESCRIPTION OF CAPITAL STOCK."
DEPOSIT ACCOUNTS AND LOANS. The account balances, interest rates and other
terms of deposit accounts at the Bank and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to the
extent that a depositor directs the Bank to withdraw funds to pay for his or her
Common Stock). Furthermore, the Conversion will not affect any loan account,
the balances, interest rates, maturities or other terms of these accounts, or
the obligations of borrowers under their individual contractual arrangements
with the Bank.
CONTINUITY. The Bank will continue without interruption, during and after
completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its office operated by
the existing management and employees of the Bank.
LIQUIDATION RIGHTS. In the unlikely event of a complete liquidation of the
Bank, either before or after Conversion, account holders would have claims for
the amount of their deposit accounts, including accrued interest, and would
receive the protection of deposit insurance up to applicable limits. In
addition to deposit insurance coverage, depositor liquidation rights before and
after Conversion would be as follows:
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Liquidation Rights Prior to the Conversion. Prior to the Conversion, in
the event of a complete liquidation of the Bank, each holder of a deposit
account in the Bank would receive such holder's pro rata share of any assets of
the Bank remaining after payment of claims of all creditors (including the
claims of all depositors to the withdrawal value of their accounts, including
accrued interest). Such holder's pro rata share of such remaining assets, if
any, would be in the same proportion of such assets as the value of such
holder's deposit account was to the total value of all deposit accounts in the
Bank at the time of liquidation.
Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan provides that, upon completion of the
Conversion, a memorandum account called a "Liquidation Account" will be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. The amount of the Liquidation Account will be equal
to the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final prospectus relating to the sale of shares of
Common Stock in the Conversion. Under applicable regulations, the Bank will not
be permitted to pay dividends on, or repurchase any of, its capital stock if its
net worth would thereby be reduced below the aggregate amount then required for
the Liquidation Account. See "DIVIDEND POLICY" and SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and Other
Capital Distributions." After the Conversion, Eligible Account Holders and
Supplemental Eligible Account Holders will be entitled, in the event of a
complete liquidation of the Bank, to receive liquidating distributions of any
assets remaining after payment of all creditors' claims (including the claims of
all depositors to the withdrawal values of their deposit accounts, including
accrued interest), before any distributions are made on the Bank's capital
stock, equal to their proportionate interests at that time in the Liquidation
Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have an initial interest ("subaccount balance") in the Liquidation Account for
each deposit account held as of September 30, 1996 (the Eligibility Record Date)
or as of March 31, 1998 (the Supplemental Eligibility Record Date),
respectively. Each initial subaccount balance will be the amount determined by
multiplying the total opening balance in the Liquidation Account by the
Qualifying Deposit (a deposit of at least $50 as of the Eligibility Record Date
or Supplemental Eligibility Record Date, as applicable) of such deposit account
divided by the total of all Qualifying Deposits on that date. If the amount in
the deposit account on any subsequent annual closing date of the Bank is less
than the balance in such deposit account on any other annual closing date or the
balance in such an account on the Eligibility Record Date or Supplemental
Eligibility Record Date, as the case may be, this interest in the Liquidation
Account will be reduced by an amount proportionate to any such reduction, and
will not thereafter be increased despite any subsequent increase in the related
deposit account. An Eligible Account Holder's or Supplemental Eligible Account
Holder's interest in the Liquidation Account will cease to exist if the deposit
account is closed. The Liquidation Account will never increase and will be
correspondingly reduced as the interests in the Liquidation Account are reduced
or cease to exist. In the event of a liquidation, any assets remaining after
the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to the Company, as
sole stockholder of the Bank.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not the
Bank is the surviving institution, would not be viewed as a complete liquidation
for purposes of distribution of the Liquidation Account. In any such
transaction, the Liquidation Account would be assumed by the surviving
institution to the full extent authorized by regulations of the Administrator as
then in effect.
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OFFERING OF COMMON STOCK
As part of the Conversion, the Company is making the Subscription Offering
of Common Stock in the priorities and to the persons described below under "--
Subscription Offering." In addition, any shares which remain unsubscribed for
in the Subscription Offering will be offered in the Community Offering to
members of the general public, with priority being given to natural persons and
trusts of natural persons residing or located in the Local Community, including
IRAs, Keogh accounts and similar retirement accounts established for the benefit
of natural persons who are residents of the Local Community. See "-- Community
Offering." If necessary, all shares of Common Stock not purchased in the
Subscription Offering and Community Offering, if any, may be offered for sale to
the general public through a syndicate of registered broker-dealers as selected
dealers to be managed by Trident Securities. See "-- Syndicated Community
Offering." The Plan requires that the aggregate dollar amount of the Common
Stock sold equal not less than the minimum nor more than the maximum of the
Estimated Valuation Range which is established in connection with the
Conversion; provided, however, with the consent of the Administrator and the
FDIC the aggregate dollar amount of the Common Stock sold may be increased to as
much as 15% above the maximum of the Estimated Valuation Range, without a
resolicitation of subscribers or any right to cancel subscriptions, in order to
reflect changes in market and financial conditions following commencement of the
Subscription Offering. See "-- Purchase Price of Common Stock and Number of
Shares Offered." If the Syndicated Community Offering is not feasible or
successful and Common Stock having an aggregate value of at least the minimum of
the Estimated Valuation Range is not subscribed for in the Subscription and
Community Offering, the Company will consult with the Administrator to determine
an appropriate alternative method of selling all shares of Common Stock offered
in the Conversion and not subscribed for in the Offering. The same per share
price ($10.00) will be paid by purchasers in the Subscription, Community and
Syndicated Community Offering.
The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, Eastern Time, on June 9, 1998, unless, with the approval of the
Administrator, the offering period is extended by the Company and the Bank. The
Community Offering, if any, may begin at any time after the Subscription
Offering begins and will terminate at the Expiration Time or at any time
thereafter, but not later than July 24, 1998, unless extended with the approval
of the Administrator. The Syndicated Community Offering, if any, or other sale
of all shares not subscribed for in the Subscription and Community Offering,
will be made as soon as practicable following the Expiration Time. The sale of
the Common Stock must, under the North Carolina conversion regulations, be
completed within 45 days after the Expiration Time unless such period is
extended with the approval of the Administrator. In the event such an extension
is approved, subscribers would be resolicited and would be given the opportunity
to increase (subject to maximum purchase limitations), decrease (subject to
minimum purchase limitations) or rescind their subscriptions. If a subscriber
fails to respond to the resolicitation by the end of the resolicitation period,
the subscription of such subscriber will be canceled, funds submitted with the
subscription will be refunded promptly with interest at the Bank's passbook
savings rate, and holds on accounts from which withdrawals were designated will
be released. Any such solicitation will be by means of an amended prospectus
filed with the SEC. In such event, substantial additional printing, legal and
accounting expenses may be incurred in completing the Conversion.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors beyond
the Company's control. Accordingly, no assurance can be given that any required
Community or Syndicated Community Offering or other sale of Common Stock will be
commenced at any particular time or as to the length of time that will be
required to
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complete the sale of all shares of Common Stock offered, and significant changes
may occur in the estimated pro forma market value of the Common Stock, together
with corresponding changes in the offering price, the number of shares being
offered, and the net proceeds realized from the sale of the Common Stock. The
Plan requires that the Conversion be completed within 24 months after the date
of approval of the Plan by the Bank's members.
SUBSCRIPTION OFFERING
In accordance with North Carolina conversion regulations, non-transferable
Subscription Rights have been granted under the Plan to the following persons in
the following order of priority: (i) the Bank's Eligible Account Holders, who
are depositors as of September 30, 1996 who had aggregate deposits at the close
of business on such date of at least $50.00 ("Qualifying Deposits"); (ii) the
Bank's Supplemental Eligible Account Holders, who are depositors as of March 31,
1998 who had Qualifying Deposits on such date; (iii) the Bank's Other Members,
who are depositor and borrower members as of April 30, 1998, the voting record
date for the Special Meeting, who are not Eligible Account Holders or
Supplemental Eligible Account Holders; and (iv) directors, officers and
employees of the Bank who are not Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members, in the priorities and subject to the
limitations described herein. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of subscriptions of all persons
having prior rights in the Subscription Offering, and to the maximum purchase
limitations and other terms and conditions set forth in the Plan and described
below.
IN ORDER TO ENSURE PROPER IDENTIFICATION OF SUBSCRIPTION RIGHTS, IT IS THE
RESPONSIBILITY OF SUBSCRIBERS IN THE SUBSCRIPTION OFFERING TO PROVIDE CORRECT
ACCOUNT VERIFICATION INFORMATION ON THE ORDER FORMS.
ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder has been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "--Minimum and
Maximum Purchase Limitations." If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 100 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, each Supplemental Eligible Account Holder has been granted, without
payment therefor, non-transferable Subscription Rights to purchase Common Stock
up to the maximum purchase limitation described in "-- Minimum and Maximum
Purchase Limitations." If Supplemental Eligible Account Holders subscribe for
more shares of Common Stock than are available for purchase, the shares offered
will first be allocated among the subscribing Supplemental Eligible Account
Holders so as to enable each subscribing Supplemental Eligible Account Holder to
the extent possible, to purchase the number of shares necessary to make his or
her total allocation of Common Stock equal to the lesser of 100 shares of Common
Stock or the number of shares subscribed for by such
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Supplemental Eligible Account Holder. Any shares remaining after such allocation
will be allocated among the subscribing Supplemental Eligible Account Holders
whose subscriptions remain unsatisfied in the proportion that each such
Supplemental Eligible Account Holder's Qualifying Deposits bears to the total of
the Qualifying Deposits of all such Supplemental Eligible Account Holders.
OTHER MEMBERS. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders and Supplemental
Eligible Account Holders, members of the Bank as of April 30, 1998 (the voting
record date for the Special Meeting), other than Eligible Account Holders and
Supplemental Eligible Account Holders (Other Members) have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If Other Members subscribe for more shares of
Common Stock than remain available for purchase by Other Members, shares will be
allocated among the subscribing Other Members in the proportion that the number
of votes eligible to be cast by each Other Member bears to the total number of
votes eligible to be cast at the Special Meeting by all Other Members whose
subscriptions remain unsatisfied.
EMPLOYEES, OFFICERS AND DIRECTORS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members, the Bank's
employees, officers and directors who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations", so long as the aggregate of such purchases does
not exceed 25% of the shares of Common Stock issued in the Conversion. If more
shares are subscribed for by such employees, officers and directors than are
available for purchase by them, the available shares will be allocated among
subscribing employees, officers and directors pro rata on the basis of the
amount of their respective subscriptions.
COMMUNITY OFFERING
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering may be offered by the Company to members of the general
public in the Community Offering, which may commence at any time after
commencement of the Subscription Offering, with priority given to natural
persons and trusts of natural persons residing or located in Anson County in
North Carolina (the Local Community), including IRA accounts, Keogh accounts and
similar retirement accounts established for the benefit of natural persons who
are residents of, the Local Community. The Community Offering may terminate at
the Expiration Time or at any time thereafter, but no later than July 24, 1998,
unless further extended with the consent of the Administrator. THE OPPORTUNITY
TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING IS SUBJECT TO
THE RIGHT OF THE BANK AND THE COMPANY, IN THEIR SOLE DISCRETION, TO ACCEPT OR
REJECT ANY SUCH ORDERS, IN WHOLE OR IN PART, EITHER AT THE TIME OF RECEIPT OF AN
ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE TERMINATION OF THE COMMUNITY
OFFERING. In the event the Bank and the Company reject any such orders after
receipt, subscribers will be promptly notified and all funds submitted with
subscriptions will be returned with interest at the Bank's passbook savings
rate.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then subscriptions of natural persons and
trusts of natural persons residing in the Local Community, including
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IRAs, Keogh accounts and similar retirement accounts established for the benefit
of natural persons who are residents of the Local Community ("First Priority
Community Subscribers") will be filled in full up to applicable purchase
limitations (to the extent such subscriptions are not rejected by the Bank and
the Company) prior to any allocation to other subscribers in the Community
Offering.
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Common Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Bank and the Company in the entire amount of
such order up to a number of shares no greater than 7,500 shares, which number
shall be determined by the Board of Directors of the Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is accepted
in full or in part on an equal number of shares basis until all orders are
filled. Such allocation shall also be applied to subscriptions by other
subscribers in the Community Offering, in the event shares are available for
such subscribers but there is an oversubscription by them.
IN ORDER TO ENSURE PROPER ALLOCATION OF SHARES IN THE EVENT OF AN
OVERSUBSCRIPTION, IT IS THE RESPONSIBILITY OF SUBSCRIBERS IN THE COMMUNITY
OFFERING TO PROVIDE CORRECT ADDRESSES OF RESIDENCE ON THE ORDER FORMS.
SYNDICATED COMMUNITY OFFERING
The Plan provides that, if necessary, all shares of Common Stock not
purchased in the Subscription and Community Offering, if any, may be offered for
sale to the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers as selected dealers ("Selected Dealers")
to be formed and managed by Trident Securities acting as agent of the Company in
the sale of the Common Stock. THE COMPANY AND THE BANK HAVE THE RIGHT TO REJECT
ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED
COMMUNITY OFFERING. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Common Stock sold in the Syndicated Community Offering will be sold at the
purchase price of $10.00 per share which is the same price as all other shares
being offered in the Conversion.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Company. During the Syndicated Community Offering, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Company as of a certain date (the "Order Date") for the purchase
of shares of Common Stock. When and if Trident Securities and the Company
believe that enough indications and orders have been received in the Offering to
consummate the Conversion, Trident Securities will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on a date which will be three business days from the Order Date
("Debit 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 Debit Date. On the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Company
established for each Selected Dealer. After payment has been received by the
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Company from Selected Dealers, funds will earn interest at the Bank's passbook
savings rate until the consummation of the Conversion. In the event the
Conversion is not consummated as described above, funds with interest will be
returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of the Bank and the Company, but in no case
later than July 24, 1998.
PROSPECTUS DELIVERY
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 later than five days or hand delivered any later
than two days prior to the Expiration Time. Execution of the Order Form will
confirm receipt or delivery of a Prospectus in accordance with Rule 15c2-8.
Order Forms will be distributed only with a Prospectus. Neither the Company, the
Bank, nor Trident Securities is obligated to deliver a Prospectus and an Order
Form by any means other than the U.S. Postal Service.
FRACTIONAL SHARES
In making allocations in the event of oversubscriptions, all computations
will be rounded down to the nearest whole share; no fractional shares will be
issued. Excess and other amounts sent by subscribers which are not used to
satisfy subscriptions will be refunded with interest at the Bank's passbook
savings rate, and amounts designated for withdrawal from deposit accounts will
be released.
PURCHASE PRICE OF COMMON STOCK AND NUMBER OF SHARES OFFERED
The purchase price of shares of Common Stock sold in the Offering will be
$10.00 per share. The purchase price was determined by the Boards of Directors
of the Company and the Bank in consultation with the Bank's financial advisor
and sales agent, Trident Securities. The North Carolina regulations governing
conversions of North Carolina-chartered mutual savings banks to stock form
require that the aggregate purchase price of the shares of Common Stock of the
Company sold in connection with the Conversion be equal to not less than the
minimum, nor more than the maximum, of the Estimated Valuation Range which is
established by an independent appraisal in the Conversion and is described
below; provided, however, that with the consent of the Administrator and the
FDIC the aggregate purchase price of the Common Stock sold may be increased to
up to 15% above the maximum of the Estimated Valuation Range, without a
resolicitation of subscribers or any right to cancel, rescind or change
subscription orders, to reflect changes in market and financial conditions
following commencement of the Subscription Offering.
FDIC rules with respect to appraisals require that the independent
appraisal must include a complete and detailed description of the elements of
the appraisal report, justification for the methodology employed and sufficient
support for the conclusions reached. The appraisal report must include a full
discussion of each peer group member and documented analytical evidence
supporting variances from peer group statistics. The appraisal report must also
include a complete analysis of the converting institution's pro forma earnings,
which should include the institution's full potential once it fully deploys the
capital from the Conversion pursuant to its business plan.
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The Bank has retained Ferguson, an independent appraisal firm experienced
in the valuation and appraisal of savings institutions and their holding
companies, to prepare an appraisal of the pro forma market value of the Bank and
the Company and to assist the Bank in preparing a business plan. For its
services in determining such valuation and assisting with the business plan,
Ferguson will receive an aggregate fee of $25,000 and will be reimbursed for its
out-of-pocket expenses.
Ferguson has informed the Bank that its appraisal has been made in reliance
upon the information contained in this Prospectus, including the financial
statements of the Bank. Ferguson has further informed the Bank that it also
considered the following factors, among others, in making the appraisal: (i) the
present and projected operating results and financial condition of the Company
and the Bank; (ii) the economic and demographic conditions in the Bank's
existing market area; (iii) certain historical, financial and other information
relating to the Bank; (iv) the proposed dividend policy of the Company; (v) a
comparative evaluation of the operating and financial statistics of the Bank
with those of other savings institutions; (vi) the aggregate size of the
offering of the Common Stock; and (vii) the trading market for the securities of
institutions Ferguson believes to be comparable in relevant respects to the
Company and the Bank and general conditions in the markets for such securities.
In addition, Ferguson has advised the Bank that it has considered the effect of
the Conversion on the net worth and earnings potential of the Company and the
Bank.
On the basis of its consideration of the above factors, Ferguson has
advised the Bank that, in its opinion, at February 27, 1998, the Estimated
Valuation Range of the Bank and the Company was from a minimum of $5,610,000 to
a maximum of $7,590,000, with a midpoint of $6,600,000. Based upon such
valuation and a purchase price for shares offered in the Conversion of $10.00
per share, the number of shares to be offered ranges from a minimum of 561,000
shares to a maximum of 759,000 shares, with a midpoint of 660,000 shares.
The Board of Directors of the Bank has reviewed the methodology and
assumptions used by Ferguson in preparing the appraisal and has determined that
the Estimated Valuation Range, as well as the methodology and assumptions used,
were reasonable and appropriate.
Upon completion of the Offering, Ferguson will confirm or update its
valuation of the estimated aggregate pro forma market value of the Bank and the
Company. Based on the confirmed or updated appraisal, a determination will be
made of the total number of shares of Common Stock which shall be offered and
sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price of
the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Estimated Valuation Range, or to $8,728,500 (872,850 shares),
without a resolicitation of subscribers and without any right to cancel, rescind
or change subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, Ferguson confirms to the Bank, the Company,
the Administrator and the FDIC, that, to the best of its knowledge, nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause Ferguson to conclude that the aggregate purchase price of the Common
Stock sold in the Conversion is incompatible with its estimate of the aggregate
pro forma market value of the Bank and the Company as of February 27, 1998 (the
dated of Ferguson's initial valuation) and at the conclusion of the Offering. If
the aggregate pro forma market value of the Bank and the
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Company as of such date is within the Estimated Valuation Range (or, with the
consent of the Administrator and FDIC, not more than 15% above the maximum of
the Estimated Valuation Range), then such pro forma market value will determine
the number of shares of Common Stock to be sold in the Conversion. If there has
occurred a change in the aggregate pro forma market value of the Bank and the
Company so that the aggregate pro forma market value is below the minimum of the
Estimated Valuation Range or more than 15% above the maximum of the Estimated
Valuation Range, a resolicitation of subscribers may be made based upon a new
Estimated Valuation Range, the Plan may be terminated or such other actions as
the Administrator and the FDIC may permit may be taken.
In the event of a resolicitation, subscribers would be given a specified
time period within which to respond to the resolicitation. If a subscriber fails
to respond to the resolicitation by the end of such period, the subscription of
such subscriber will be canceled, funds submitted with the subscription will be
refunded promptly with interest at the Bank's passbook savings rate, and holds
on accounts from which withdrawals were designated will be released. Any such
resolicitation will be by means of an amended prospectus filed with the SEC. A
resolicitation may delay completion of the Conversion. If the Plan is
terminated, all funds will be returned promptly with interest at the Bank's
passbook savings rate from the date payment was deemed received, and holds on
funds authorized for withdrawal from deposit accounts will be released. See "--
Exercise of Subscription Rights and Purchases in the Community Offering."
THE VALUATION BY FERGUSON IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON STOCK.
FERGUSON DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE BANK, NOR DID FERGUSON VALUE INDEPENDENTLY THE
ASSETS OR LIABILITIES OF THE BANK. THE VALUATION CONSIDERS THE BANK AS A GOING
CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE
OF THE BANK OR THE COMPANY. 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 SUCH SHARES IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SHARES
AT PRICES IN THE RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE
THEREOF.
A copy of the complete appraisal by Ferguson is on file and available for
inspection at the office of the Savings Institutions Division of the North
Carolina Department of Commerce, Tower Building, Suite 301, 1110 Navaho Drive,
Raleigh, North Carolina 27609. A copy is also available for inspection at the
Stock Information Center, 211 South Greene Street, Wadesboro, North Carolina
28170. A copy of the appraisal has also been filed as an exhibit to the
Registration Statement filed with the SEC with respect to the Common Stock
offered hereby. See "ADDITIONAL INFORMATION."
EXERCISE OF SUBSCRIPTION RIGHTS AND PURCHASES IN COMMUNITY OFFERING
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, the
original signed Order Forms (including an original signed form of certification)
and the required payment for the aggregate dollar amount of Common Stock desired
or appropriate instructions authorizing withdrawal from one or more the Bank
deposit accounts (other than negotiable order of withdrawal accounts or other
demand deposit accounts), must be received by the Bank by the Expiration Time,
which is 12:00 noon, Eastern Time, on June 9, 1998. Subscription Rights (i) for
which the Bank does not receive original signed Order Forms by the Expiration
Time (unless such time is extended), or (ii) for which Order Forms are executed
defectively or are not accompanied by full payment (or appropriate withdrawal
instructions) for subscribed shares, will expire
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whether or not the Bank has been able to locate the persons entitled to such
rights. In order to purchase in the Community Offering, the Order Forms,
accompanied by the required payment for the aggregate dollar amount of Common
Stock desired or appropriate instructions authorizing withdrawal from one or
more of the Bank's deposit accounts (other than negotiable order of withdrawal
accounts or other demand deposit accounts), must be received by the Bank prior
to the time the Community Offering terminates, which could be at any time at or
subsequent to the Expiration Time. No orders will be accepted from persons who
do not have Subscription Rights in the Subscription Offering unless a Community
Offering is commenced.
In the event that an Order Form is not delivered and is returned to the
Bank by the United States Postal Service (or the Bank is unable to locate the
addressee), is not received or is received after the Expiration Time, is
defectively completed or executed, or is not accompanied by full payment for the
shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed Order Form within the time period specified. The Bank may,
but will not be required to, waive any irregularity on any Order Form or require
the submission of corrected Order Forms or the remittance of full payment for
subscribed shares by such date as the Bank specify. The waiver of an
irregularity on an order form in no way obligates the Bank to waive any other
irregularity on that, or any irregularity on any other Order Form. Waivers will
be considered on a case-by-case basis. Photocopies of Order Forms, including
copies sent by facsimile, payments from private third parties, payments made by
wire transfer or electronic transfers of funds will not be accepted. The Bank's
interpretation of the terms and conditions of the Plan and of the acceptability
of the Order Forms will be final. The Bank has the right to investigate any
irregularity on any Order Form.
EXECUTED ORDER FORMS ONCE RECEIVED BY THE BANK, MAY NOT BE MODIFIED,
AMENDED OR RESCINDED WITHOUT THE CONSENT OF THE BANK. The Bank has the right to
extend the subscription period subject to applicable regulations, unless
otherwise ordered by the Administrator, or to waive or permit correction of
incomplete or improperly executed Order Forms, but does not represent that it
will do so.
The amount to be remitted with the Order Forms shall be the aggregate
dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community Offering. Complete payment must accompany all
completed Order Forms submitted in the Subscription and Community Offering in
order for subscriptions to be valid. See "-- Purchase Price of Common Stock and
Number of Shares Offered."
Payment for shares will be permitted to be made by any of the following
means: (i) in cash, if delivered in person to either office of the Bank; (ii) by
check, bank draft, negotiable order of withdrawal or money order, provided that
the foregoing will only be accepted subject to collection and payment; or (iii)
by appropriate authorization of withdrawal from any deposit account in the Bank
(other than a negotiable order of withdrawal account or other demand deposit
account). Order Forms directing that payment for shares be made by authorization
of withdrawal will be accepted only if, at the time the Order Forms are
received, there exists sufficient funds in the account from which withdrawal is
authorized to pay the full purchase price for the number of shares ordered. IN
ORDER TO ENSURE PROPER IDENTIFICATION OF SUBSCRIPTION RIGHTS AND PROPER
ALLOCATIONS IN THE EVENT OF AN OVERSUBSCRIPTION, IT IS THE RESPONSIBILITY OF
SUBSCRIBERS TO PROVIDE CORRECT ACCOUNT VERIFICATION INFORMATION ON THE ORDER
FORMS. ORDER FORMS SUBMITTED BY UNAUTHORIZED PURCHASERS OR IN AMOUNTS EXCEEDING
PURCHASE LIMITATIONS WILL NOT BE HONORED.
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For purposes of determining the withdrawal balance of deposit accounts from
which withdrawals have been authorized, such withdrawals will be deemed to have
been made upon receipt of appropriate authorization therefor, but interest will
be paid by the Bank on the amount deemed to have been withdrawn at the
contractual rate of interest paid on such accounts until the date on which the
Conversion is completed or terminated.
Interest will be paid by the Bank on payments for Common Stock made in cash
or by check, bank draft, negotiable order of withdrawal or money order at the
Bank's passbook savings rate. Such interest shall be paid from the date the
order is accepted for processing and payment in good funds is received by the
Bank until consummation or termination of the Conversion. The Bank shall be
entitled to invest all amounts paid on subscriptions for Common Stock for its
own account until completion or termination of the Conversion. The Bank may not
knowingly lend funds or otherwise extend credit to any person to purchase Common
Stock. After amounts submitted for payment are applied to the purchase price for
shares sold, they will no longer earn interest, and they will not be insured by
the FDIC or any other government agency or other entity.
The Order Forms contain appropriate means by which authorization of
withdrawals from deposit accounts may be made to pay for subscribed shares. Once
such a withdrawal has been authorized, none of the designated withdrawal amount
may be withdrawn (except by the Bank as payment for Common Stock) until the
Conversion is completed or terminated. Savings accounts will be permitted to be
established for the purpose of making payment for subscribed shares of Common
Stock. Funds authorized for withdrawal will continue to earn interest at the
applicable contract interest rate until completion or termination of the
Conversion or, in the case of an order submitted in the Community Offering,
until it is determined that such order cannot or will not be accepted.
Notwithstanding any regulatory provision regarding penalties for early
withdrawal from certificate accounts, payment for subscribed shares of Common
Stock will be permitted through authorization of withdrawals from such accounts
without the assessment of such penalties. However, if after such withdrawal the
applicable minimum balance requirement ceases to be satisfied, such certificate
account will be canceled and the remaining balance thereof will earn interest at
the Bank's passbook savings rate.
Upon completion or termination of the Conversion, the Bank will return to
subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its passbook savings rate from the
date good funds are received until the consummation or termination of the
Conversion, and the Bank will release deposit account withdrawal orders given in
connection with the subscriptions to the extent funds are not withdrawn and
applied toward the purchase of shares.
DELIVERY OF STOCK CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to persons entitled thereto at the
address of such persons appearing on the Order Forms as soon as practicable
following consummation of the Conversion. Any certificates returned as
undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
Shares sold prior to receipt of a stock certificate are the responsibility of
the purchaser. Allocations of Common Stock will be deemed final only upon
stockholder receipt of the certificate representing the Common Stock.
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PERSONS IN NON-QUALIFIED OR FOREIGN JURISDICTIONS
The Company will make reasonable efforts to comply with the securities laws
of all states of the United States in which Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members entitled to subscribe
for shares of Common Stock reside. However, no shares of Common Stock or
Subscription Rights under the Plan will be offered or sold in a foreign country,
or in a state in the United States (i) where a small number of persons otherwise
eligible to subscribe for shares under the Plan reside or (ii) if the Company
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
requirement that the Company, the Bank or any employee or representative thereof
register as a broker, dealer, agent or salesperson or register or otherwise
qualify the Subscription Rights or Common Stock for sale in such state. No
payments will be made in lieu of the granting of Subscription Rights to persons
residing in such jurisdictions.
MARKETING ARRANGEMENTS
The Bank has retained Trident Securities to consult with and advise the
Bank and the Company and to assist the Company, on a best-efforts basis, in the
marketing of shares in the Offering. Trident Securities is a broker-dealer
registered with the SEC and a member of the NASD. Trident Securities is
headquartered in Raleigh, North Carolina, and its telephone number is (919) 781-
8900. Trident Securities will assist the Bank and the Company in the Conversion
as follows: (i) it will act as marketing advisor with respect to the
Subscription Offering and will assist the Company on a best-efforts basis in the
marketing of the Common Stock in the Community Offering and Syndicated Community
Offering; (ii) members of its staff will conduct training sessions to educate
directors, officers and employees of the Bank regarding the Conversion process;
and (iii) it will provide assistance in the establishment and supervision of the
Stock Information Center, including training staff to record and tabulate orders
for the purchase of Common Stock and to respond to customer inquiries.
For rendering its services, the Bank has agreed to pay Trident Securities a
commission equal to 2.5% of the aggregate dollar amount of Common Stock sold in
the Subscription and Community Offering, excluding shares purchased by
directors, executive officers and their "associates" (as defined in the Plan).
The Bank has also agreed to pay to Selected Dealers, if any, negotiated
commissions.
The Bank has agreed to reimburse Trident Securities for its reasonable out-
of-pocket expenses, including but not limited to travel, communications, legal
fees and postage, and to indemnify Trident Securities against certain claims or
liabilities, including certain liabilities under the Securities Act. Trident has
agreed that the Bank is not required to pay its legal fees to the extent they
exceed $27,500 or its other out of pocket expenses to the extent they exceed
$10,000. Total fees and commissions to Trident Securities are expected to be
between $126,855 and $204,788 at the minimum and 15% above the maximum,
respectively, of the Estimated Valuation Range. See "PRO FORMA DATA" for the
assumptions used to determine these estimates.
Sales of Common Stock will be made primarily through registered
representatives affiliated with Trident Securities or by the broker-dealers
managed by Trident Securities. In addition, subject to applicable law, executive
officers of the Company and the Bank may participate in the solicitation of
offers to purchase Common Stock. Other employees of the Bank may participate in
the Offering in clerical capacities, providing administrative support in
effecting sales transactions and answering questions of a mechanical nature
relating to the proper execution of the Order Forms. Other questions of
prospective purchasers,
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including questions as to the advisability or nature of the investment, will be
directed to registered representatives. Such other employees have been
instructed not to solicit offers to purchase Common Stock or provide advice
regarding the purchase of Common Stock. A Stock Information Center will be
established in the Bank's office, in an area separate from the Bank's banking
operations. Employees will inform prospective purchasers that their questions
should be directed to the Stock Information Center and will provide such persons
with the telephone number of the Stock Information Center. Stock orders will be
accepted at the Bank's office and will be promptly forwarded to the Stock
Information Center for processing. Sales of Common Stock by registered
representatives will be made from the Stock Information Center. In addition, the
Bank may hire one or more temporary clerical persons to assist in typing,
opening mail, answering the phone, and with other clerical duties. An employee
of the Bank will also be present at the Stock Information Center to process
funds and answer questions regarding payment for stock, including verification
of account numbers in the case of payment by withdrawal authorization and
similar matters. Subject to applicable state law, the Company will rely on Rule
3a4-1 under the Exchange Act, and sales of Common Stock will be conducted within
the requirements of Rule 3a4-1, so as to permit officers and current full and
part-time the Bank employees to participate in the sale of Common Stock. No
officer, director or employee of the Company or the Bank will be compensated in
connection with his or her participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement should not be construed by purchasers of
Common Stock as constituting an endorsement or recommendation relating to such
investment or a verification of the accuracy or completeness of information
contained in this Prospectus.
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MINIMUM AND MAXIMUM PURCHASE LIMITATIONS
Each person subscribing for Common Stock in the Conversion must subscribe
for at least fifty shares of the Common Stock to be offered in the Conversion.
In addition, the maximum number of shares of Common Stock which may be purchased
in the Conversion by (i) any person or entity, (ii) persons or entities
exercising Subscription Rights through a single account or (iii) group of
persons or entities otherwise acting in concert, is 10,000 shares. In addition,
no person or entity, or group of persons or entities acting in concert, together
with any associate (as defined in the Plan), may subscribe for more than 15,000
shares of Common Stock sold in the Conversion. The Board of Directors of the
Bank may in its absolute discretion (i) reduce the above-described 10,000 and
15,000 share maximum purchase limitations to an amount not less than 1% of the
number of shares offered and sold in the Conversion or (ii) increase such 10,000
and 15,000 share maximum purchase limitations to an amount of up to 5% of the
shares of Common Stock offered and sold. Any reduction or increase in the
maximum purchase limitation by the Bank's Board of Directors may occur at any
time prior to consummation of the Conversion, either before or after the Special
Meeting on June 15, 1998. In the event the 10,000 or 15,000 share maximum
purchase limitation is increased, any subscriber or group of subscribers in the
Subscription, Community or Syndicated Community Offering who has subscribed for
the maximum amount which is increased, and certain other large subscribers in
the discretion of the Company, shall be given the opportunity to increase their
subscriptions up to the then applicable maximum purchase limitation.
The Plan further provides that for purposes of the foregoing limitations
the term "associate" is used to indicate any of the following relationships with
a person:
(i) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or
officer of the Bank, the Company or any subsidiary of the Bank or of
the Company;
(ii) any corporation or organization (other than the Bank, the Company or
a majority-owned subsidiary of the Bank or the Company) of which the
person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity security; and
(iii) 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, except for any tax-qualified
employee stock benefit plan or any charitable trust which is exempt
from federal taxation pursuant to Section 501(c)(3) of the Code.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint activity
or interdependent conscious parallel action towards a common goal (whether or
not pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Company for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. The Company and the Bank will presume
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that certain persons are acting in concert based upon, among other things, joint
account relationships, accounts with the same address registration and the fact
that such persons have filed joint Schedules 13D with the SEC with respect to
other companies.
For purposes of the foregoing limitations, directors and officers of the
Bank or the Company shall not be deemed to be associates or a group of persons
acting in concert solely as a result of their serving in such capacities.
However, FDIC rules prohibit the directors and officers of the Bank and their
associates from purchasing, in the aggregate, 35% or more of the Common Stock to
be sold in the Conversion.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
Under the Plan, the Administrator's approval thereof, and applicable North
Carolina conversion regulations, consummation of the Conversion is subject to
satisfaction of certain conditions, including the following: (i) approval of the
Plan by the affirmative vote of a majority of the votes eligible to be cast by
members of the Bank at the Special Meeting; (ii) sale of shares of Common Stock
for an aggregate purchase price equal to not less than the minimum or more than
the maximum of the Estimated Valuation Range unless the aggregate purchase price
is increased to as much as 15% above the maximum with the consent of the
Administrator and FDIC, and (iii) receipt by the Company and the Bank of
favorable opinions of counsel or other tax advisor as to the federal and state
tax consequences of the Conversion. See "-- Income Tax Consequences."
Consummation of the Conversion is also subject to receipt by the Bank from the
FDIC of a letter of non-objection.
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, the Bank will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at the Bank's passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be canceled.
In such an event, the Company would not acquire control of the Bank.
All interpretations by the Bank and the Company of the Plan and of the
Order Forms and related materials for the Subscription and Community Offering
will be final, subject to the authority of the FDIC and the Administrator. The
Bank and the Company may reject Order Forms that are not properly completed.
However, the Company and the Bank retain the right, but will not be required, to
waive irregularities in submitted Order Forms or to require the submission of
corrected Order Forms or the remittance of full payment for all shares
subscribed for by such dates as they may specify. In addition, the Plan may be
substantively amended by a two-thirds vote of the Bank's Board of Directors at
any time prior to the Special Meeting, and at any time thereafter by a two-
thirds vote of the Bank's Board of Directors with the concurrence of the
Administrator and the FDIC. If the Bank determines upon the advice of counsel
and after consultation with the Administrator that any such amendment is
material, subscribers would be given the opportunity to increase, decrease or
cancel their subscriptions. Also, as required by the regulations of the
Administrator, the Plan provides that the transactions contemplated thereby may
be terminated by a two-thirds vote of the Bank's Board of Directors at any time
prior to the Special Meeting and may be terminated by a two-thirds vote of the
Bank's Board of Directors at any time thereafter but prior to the completion of
the Conversion with the concurrence of the Administrator, notwithstanding
approval of the Plan by the Members at the Special Meeting.
114
<PAGE>
CERTAIN RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS; FALSE OR MISLEADING
ORDER FORMS
THE SUBSCRIPTION RIGHTS GRANTED UNDER THE PLAN ARE NON-TRANSFERABLE.
SUBSCRIPTION RIGHTS MAY BE EXERCISED ONLY BY THE PERSON TO WHOM THEY ARE ISSUED
AND ONLY FOR HIS OR HER OWN ACCOUNT. Persons exercising Subscription Rights are
required to certify that they are purchasing shares for their own accounts
within the purchase limitations set forth in the Plan and that they have no
agreement or understanding for the sale or transfer of such shares.
The Bank reserves the right to make an independent investigation of any
facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Bank's sole discretion and the Bank may require a
holder of Subscription Rights to provide certified affidavits and other
documentation to satisfy the Bank that its Plan and North Carolina and federal
conversion regulations regarding nontransferability are not being subverted by
actions of holders of Subscription Rights. In extreme cases the Bank reserves
the right to seek legal advice from the General Counsel for the Administrator as
to compliance with all regulations governing the Conversion, including the
nontransferability of Subscription Rights.
The Plan provides that, if the Bank's Board of Directors determines that a
subscriber (i) has submitted a false or misleading information on his or her
Order Forms or otherwise in connection with the attempted purchase of shares,
(ii) has attempted to purchase shares of Common Stock in violation of provisions
of the Plan or (iii) fails to cooperate with attempts by the Bank or the Company
or their employees or agents to verify information with respect to purchase
rights, the Board of Directors may reject the order of such subscriber.
INCOME TAX CONSEQUENCES
The Bank has received an opinion from its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to the
effect that for federal income tax purposes: (i) the Conversion will constitute
a tax free reorganization with respect to the Bank and no gain or loss will be
recognized by the Bank either in its mutual or stock form; (ii) no gain or loss
will be recognized by the Bank upon the purchase of the Bank's stock by the
Company or upon the sale by the Company of its Common Stock; (iii) no gain or
loss will be recognized by the Bank's depositors with respect to their deposit
accounts at the Bank as a consequence of the Conversion; (iv) the tax basis of
depositors' deposit accounts at the Bank will not be changed as a result of the
Conversion; (v) assuming the Subscription Rights have no value, no gain or loss
will be recognized by Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, or directors, officers and employees of the Bank upon
either the issuance to them of the Subscription Rights or the exercise or lapse
thereof; (vi) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of interests
in the Liquidation Account; (vii) assuming the Subscription Rights have no
value, the tax basis for Common Stock purchased in the Conversion will be the
amount paid therefor; and (viii) the tax basis of interests in the Liquidation
Account will be zero. The Bank has been further advised by its special counsel,
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., that the tax effects of
the Conversion under North Carolina tax laws will be consistent with the federal
income tax consequences.
115
<PAGE>
Several of the foregoing legal opinions are premised on the assumption that
the Subscription Rights will have no value. The Bank has been advised by
Ferguson that, in its opinion, the Subscription Rights will not have any
ascertainable value, based on the fact that such rights are acquired by the
recipients without cost, are non-transferable, are of short duration and afford
the recipients the right only to purchase Common Stock at a price equal to its
estimated fair market value as of the date such rights are issued, which will be
the same price paid by all purchasers in the Conversion. The opinion of Ferguson
is not binding on the IRS and if the Subscription Rights were ultimately
determined to have ascertainable value, recipients of Subscription Rights would
have to include in gross income an amount equal to the value of the Subscription
Rights received by them. The basis of the Common Stock purchased pursuant to
Subscription Rights would be increased by the amount of income realized with
respect to the receipt or exercise of the Subscription Rights. Moreover,
recipients of Subscription Rights could then have to report the transaction to
the IRS. Each Eligible Account Holder, Supplemental Eligible Account Holder,
Other Member or other recipient of Subscription Rights is encouraged to consult
with his, her or its own tax advisor as to the tax consequences in the event the
Subscription Rights are deemed to have ascertainable value.
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including the
tax consequences to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, other recipients of Subscription Rights or purchasers of
Common Stock under the laws of any other state, local or foreign taxing
jurisdiction to which they may be subject. Special counsel expresses no opinion
regarding the value of the Subscription Rights.
LEGAL OPINIONS
The validity of the issuance of the Common Stock in the Conversion has been
passed upon for the Company by its special counsel, Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P., Greensboro, North Carolina, which firm has also
rendered its opinion to the Bank concerning certain federal and North Carolina
income tax aspects of the Conversion as described herein under "THE CONVERSION
- -- Income Tax Consequences." Certain legal matters will be passed upon for
Trident Securities by Thacher Proffitt & Wood, Washington, D.C.
EXPERTS
The Financial Statements of the Bank as of June 30, 1997 and 1996 and for
each of the years in the two-year period ended June 30, 1997 have been included
herein in reliance upon the report of Faulkner and Thompson, P.A., independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
Ferguson has consented to being named as an expert herein and to the
summary herein of its appraisal report as to the estimated pro forma market
value of the Bank and the Company and its opinion with respect to Subscription
Rights.
REGISTRATION REQUIREMENTS
The Company will register its Common Stock with the SEC pursuant to Section
12 of the Exchange Act in connection with the Conversion and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion. Upon such registration, the proxy and tender offer rules, insider
116
<PAGE>
trading reporting requirements and restrictions, annual and periodic reporting
and other requirements of the Exchange Act will be applicable to the Company.
117
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a registration statement with the SEC on Form SB-2
under the Securities Act, with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the SEC, this Prospectus does not
contain all of the information set forth in the registration statement. Such
information can be examined and copied at the public reference facilities of the
SEC located at Room 1024, 450 Fifth Street, N. W., Washington, D.C. 20549, and
at the regional offices of the SEC at 75 Park Place, Fourteenth Floor, New York,
New York 10007 and Room 3190, John C. Kluczynski Building, 230 South Dearborn
Street, Chicago, Illinois 60604. Copies of such material can be obtained by mail
from the SEC at prescribed rates from the Public Reference Section of the SEC at
450 Fifth Street, N. W., Washington, D.C. 20549. In addition, the SEC maintains
a World Wide Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC, including the Company; the address is (http://www.sec.gov.). The statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions of each material feature thereof and are not necessarily
complete; each such statement is qualified by reference to such contract or
document.
The Bank has filed an Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank with the Administrator. Pursuant to the North Carolina
conversion regulations, this Prospectus omits certain information contained in
such Application. The Application, which contains a copy of Ferguson's
appraisal, may be inspected at the office of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, Tower Building,
Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. Copies of the Plan,
which includes a copy of the Bank's proposed Amended Certificate of
Incorporation and Stock Bylaws, and copies of the Company's Articles of
Incorporation and Bylaws are available for inspection at each office of the Bank
and may be obtained by writing to the Bank at 211 South Greene Street,
Wadesboro, North Carolina 28170, Attention: Eugene M. Ward, President, or by
telephoning the Bank at (704) 694-2122. A copy of Ferguson's independent
appraisal is also available for inspection at the Stock Information Center, 211
South Greene Street, Wadesboro, North Carolina 28170.
118
<PAGE>
GLOSSARY
Administrator The Administrator of the Savings Institutions
Division of the North Carolina Department of
Commerce
Bank Anson Savings Bank, SSB
BIF Bank Insurance Fund of the FDIC
Common Stock The Common Stock, no par value per share, of Anson
Bancorp, Inc.
Community Offering Offering for sale to certain members of the
general public of any shares of Common Stock not
subscribed for in the Subscription Offering,
including the possible offering of Common Stock in
a Syndicated Community Offering
Company Anson Bancorp, Inc.
Conversion Simultaneous conversion of the Bank to stock form,
the issuance of the Bank's outstanding capital
stock to the Company and the Company's offer and
sale of Common Stock
Eligible Account Holders Savings account holders of Anson Savings Bank, SSB
with account balances of at least $50.00 as of the
close of business on September 30, 1996
ERISA Employee Retirement Income Security of 1974, as
amended
Estimated
Valuation Range Estimated pro forma market value of the common
stock ranging from $5,610,000 to $7,590,000. The
maximum of the Estimated Valuation Range may be
increased to $8,728,500 without a resolicitation
of subscribers.
Exchange Act Securities Exchange Act of 1934, as amended
Expiration Time 12:00 noon, local time, on June 9, 1998
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
Federal Reserve System The Board of Governors of the Federal Reserve
System
Ferguson Ferguson & Company
FHLB Federal Home Loan Bank
A-1
<PAGE>
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
IRS Internal Revenue Service
MRP Management Recognition Plan to be adopted no earlier
than six months after the Conversion
NASD National Association of Securities Dealers, Inc.
NPV Net Portfolio Value
Offering Subscription Offering, Community Offering and
Syndicated Community Offering, collectively
Option Plan Stock option plan to be adopted no earlier than six
months after the Conversion
Order Form Form for ordering stock accompanied by a certification
concerning certain matters
Other Members Savings account holders (other than Eligible Account
Holders and Supplemental Eligible Account Holders) and
certain borrowers (borrowers whose loans were
outstanding on April 30 and continue to be outstanding)
who are entitled to vote at the Special Meeting due to
the existence of a savings account or a borrowing
relationship, respectively, on the Voting Record Date
for the Special Meeting
OTC Bulletin Board An electronic stock data system operated by Nasdaq
Plan of Conversion Plan of the Bank to convert from a North Carolina
chartered mutual savings bank to a North Carolina
chartered stock savings bank and the issuance of all of
the Bank's outstanding capital stock to the Company and
the issuance of the Company's stock to the public
Purchase Price $10.00 per share price of the Common Stock
SAIF Savings Association Insurance Fund of the FDIC
SEC Securities and Exchange Commission
Securities Act Securities Act of 1933, as amended
SFAS Statement of Financial Accounting Standards adopted by
FASB
Special Meeting Special Meeting of members of the Bank called for the
purpose of approving the Plan
A-2
<PAGE>
Subscription Offering Offering of non-transferable rights to subscribe for
the Common Stock, in order of priority, to Eligible
Account Holders, Supplemental Eligible Account Holders
and Other Members
Supplemental Eligible
Account Holders Depositors, who are not Eligible Account Holders of the
Bank, with account balances of at least $50.00 on March
31, 1998
A-3
<PAGE>
Syndicated Community
Offering Offering of shares of Common Stock remaining after the
Subscription Offering and undertaken prior to the end
and as part of the Community Offering, and which may,
at the Company's and the Bank's discretion be made to
the general public on a best efforts basis by a selling
group of broker-dealers.
Trident Securities Trident Securities, Inc.
Voting Record Date The close of business on April 30, 1998, the date for
determining members entitled to vote at the Special
Meeting.
A-4
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT AUDITORS.......................... F-2
FINANCIAL STATEMENTS
Statements of Financial Condition..................... F-3
Statements of Operations.............................. F-4
Statements of Equity.................................. F-5
Statements of Cash Flows.............................. F-6
Notes to Financial Statements......................... F-8
</TABLE>
All schedules are omitted because of the absence of the conditions under which
they are required or because the required information is included in the
financial statements of Anson Savings Bank, S.S.B. or related notes. No
financial statements are provided for the Holding Company since it was not in
operation for any of the periods presented.
F-1
<PAGE>
[LETTERHEAD OF FAULKNER AND THOMPSON, P.A. APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
------------------------------
The Board of Directors
Anson Savings Bank, S.S.B.
Wadesboro, North Carolina
We have audited the accompanying statements of financial condition of Anson
Savings Bank, S.S.B. (the Bank) as of June 30, 1997 and 1996, and the related
statements of operations, equity and cash flows for the years then ended. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Anson Savings Bank, S.S.B.
as of June 30, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Faulkner and Thompson, P.A.
August 26, 1997
Charlotte, North Carolina
F-2
<PAGE>
ANSON SAVINGS BANK, S.S.B.
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, June 30,
------------ ------------------------
1997 1997 1996
------------ --------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents
Non-interest bearing
deposits and cash $ 171,850 $ 197,056 $ 252,484
Interest earning deposits 3,289,475 3,843,554 3,050,877
Federal funds sold 750,000 600,000 300,000
----------- ----------- -----------
4,211,325 4,640,610 3,603,361
Investment securities
Held to maturity (fair value
at December 31,
1997, June 30, 1997 and
1996 of $4,386,630,
$3,933,344 and $5,559,174,
respectively) 4,374,212 3,938,524 5,577,031
Available for sale 380,459 317,521 193,914
Loans receivable, net 11,323,178 11,422,892 11,571,502
Premises and equipment, net 214,895 222,125 233,083
Interest receivable 52,493 59,976 85,909
Other assets 109,457 61,719 133,714
Deferred income taxes 57,000 57,000 57,000
----------- ----------- -----------
$20,723,019 $20,720,367 $21,455,514
=========== =========== ===========
LIABILITIES AND EQUITY
LIABILITIES
Savings deposits, plus
accrued interest
thereon $16,655,697 $16,791,101 $17,623,069
Accounts payable and accrued
expenses 49,747 36,624 50,965
Accrued pension obligation - - 62,589
Deferred income taxes 158,701 136,200 98,000
----------- ----------- -----------
16,864,145 16,963,925 17,834,623
COMMITMENTS - Notes 4, 12 and 14
EQUITY
Retained earnings -
substantially restricted 3,614,437 3,552,442 3,502,297
Unrealized gains on
securities
available for sale, net of
tax 244,437 204,000 118,594
----------- ----------- -----------
3,858,874 3,756,442 3,620,891
----------- ----------- -----------
$20,723,019 $20,720,367 $21,455,514
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
ANSON SAVINGS BANK, S.S.B.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the six months ended For the years ended
December 31, June 30,
------------------------- -------------------
1997 1996 1997 1996
----------- ------------ -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $475,383 $ 493,791 $ 963,385 $1,032,084
Interest on investments and
deposits in other banks 242,747 249,482 478,076 526,444
-------- --------- ---------- ----------
Total interest income 718,130 743,273 1,441,461 1,558,528
INTEREST EXPENSE
Interest on savings deposits 411,866 419,310 818,740 893,945
-------- --------- ---------- ----------
Net interest income 306,264 323,963 622,721 664,583
PROVISION FOR LOAN LOSSES - 500 5,000 7,000
-------- --------- ---------- ----------
Net interest income after
provision for loan losses 306,264 323,463 617,721 657,583
NON-INTEREST INCOME 4,269 1,289 5,963 1,678
NON-INTEREST EXPENSE
Salaries and employee benefits 134,185 132,028 246,347 244,703
Federal insurance premiums 5,228 125,034 130,552 40,628
Data processing 15,846 15,643 31,946 31,139
Examinations and audit 16,640 12,360 26,268 34,581
Occupancy including depreciation 10,480 14,146 22,598 25,050
Other 49,175 49,523 97,128 104,860
-------- --------- ---------- ----------
Total non-interest expense 231,554 348,734 554,739 480,961
-------- --------- ---------- ----------
Income (loss) before income
taxes 78,979 (23,982) 68,945 178,300
INCOME TAXES
Current expense 16,984 8,800 18,800 54,000
Deferred expense (benefit) - (12,400) - (2,000)
-------- --------- ---------- ----------
16,984 (3,600) 18,800 52,000
-------- --------- ---------- ----------
Net income (loss) $ 61,995 ($20,382) $ 50,145 $ 126,300
======== ========= ========== ==========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
ANSON SAVINGS BANK, S.S.B.
STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
Unrealized gains
Retained Earnings on securities
substantially available Total
restricted for sale Equity
----------------- ---------------- ----------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1995 $3,375,997 $ 94,605 $3,470,602
Net income 126,300 - 126,300
Changes in unrealized gain on
securities available
for sale, net of tax - 23,989 23,989
---------- -------- ----------
BALANCE AT JUNE 30, 1996 3,502,297 118,594 3,620,891
Net income 50,145 - 50,145
Changes in unrealized gain on
securities available
for sale, net of tax - 85,406 85,406
---------- -------- ----------
BALANCE AT JUNE 30, 1997 3,552,442 204,000 3,756,442
Net income (unaudited) 61,995 - 61,995
Changes in unrealized gain on
securities available for
sale, net of tax (unaudited) - 40,437 40,437
---------- -------- ----------
BALANCE AT DECEMBER 31, 1997
(Unaudited) $3,614,437 $244,437 $3,858,874
========== ======== ==========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
ANSON SAVINGS BANK, S.S.B.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended For the years ended
December 31, June 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ------------ ----------
(Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 61,995 $(20,382) $ 50,145 $ 126,300
Adjustments to reconcile net
income (loss) to net cash provided
by (used for) operating activities
Provision for loan losses - 500 5,000 7,000
Provision for depreciation 7,230 12,600 14,419 17,212
Deferred income taxes - (12,400) - (2,000)
(Increase) decrease in assets
Interest receivable 7,483 (16,288) 25,933 (3,268)
Other assets (47,738) 6,426 71,995 28,507
Increase (decrease) in
liabilities
Accounts payable and
accrued expenses 13,123 (50,433) (76,931) (34,068)
----------- ----------- ------------ ----------
Net cash provided by
(used for) operating
activities 42,093 (79,977) 90,561 139,683
----------- ----------- ------------ ----------
INVESTING ACTIVITIES
Decrease (increase) in loans
receivable 99,714 (158,844) 143,610 336,853
Purchases of securities
held to maturity (2,499,922) (2,498,203) (2,501,384) (4,997,148)
Proceeds from maturities of
securities held to maturity 2,064,234 3,545,040 4,139,891 5,658,620
Purchases of premises and
equipment - (1,432) (3,461) (18,626)
----------- ----------- ------------ ----------
Net cash provided by
(used for) investing
activities (335,974) 886,561 1,778,656 979,699
----------- ----------- ------------ ----------
</TABLE>
(Continued)
F-6
<PAGE>
ANSON SAVINGS BANK, S.S.B.
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the six months ended For the years ended
December 31, June 30,
-------------------------- -------------------------
1997 1996 1997 1996
------------- ----------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES
Net decrease in savings deposits $ (135,404) $ (733,877) $ (831,968) $ (131,711)
---------- ---------- ---------- ----------
Increase (decrease) in cash
and cash equivalents $ (429,285) $ 72,707 $1,037,249 $ 987,671
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD $4,640,610 $3,603,361 $3,603,361 $2,615,690
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $4,211,325 $3,676,068 $4,640,610 $3,603,361
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE:
Total increase in unrealized
gain on securities available
for sale, net of tax $ 40,437 $ 36,248 $ 85,406 $ 23,989
========== ========== ========== ==========
Cash paid during the period
for interest $ 415,331 $ 431,623 $ 840,875 $ 888,560
========== ========== ========== ==========
Cash paid during the period
for income taxes $ 6,294 $ 25,382 $ 25,382 $ 35,525
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
ANSON SAVINGS BANK, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Anson Savings, S.S.B. (the Bank)
conform to generally accepted accounting principles and to general practice
within the savings bank industry. The following is a description of the more
significant accounting and reporting policies that the Bank follows in
preparing its financial statements.
ORGANIZATION AND OPERATIONS
Anson Savings Bank, S.S.B. (the Bank) is a state chartered savings bank
primarily engaged in the business of obtaining savings deposits and
providing loans to the general public in Anson County, North Carolina. The
Bank qualifies as a savings and loan for tax purposes.
UNAUDITED FINANCIAL STATEMENTS
The unaudited financial statements furnished reflect all adjustments,
consisting of normal recurring accruals which are, in the opinion of
management, necessary for a fair presentation of the financial position as
of December 31, 1997 and the results of operations, changes in equity and
cash flows for the six months ended December 31, 1997 and 1996. The results
for the six month periods are not necessarily indicative of the operating
results of the Bank for the entire year.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
INVESTMENT SECURITIES
The Bank accounts for investment securities in accordance with Statement of
Financial Accounting Standard (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Under SFAS No. 115, debt
securities are classified upon purchase as available for sale, held to
maturity or trading. Such assets classified as available for sale are
carried at market value. Unrealized holding gains or losses are reported as
a component of equity net of deferred income taxes. Securities classified
as held to maturity are carried at cost, adjusted for the amortization of
premiums and the accretion of discounts. In order to qualify as held to
maturity the Bank must have the intent and ability to hold the securities to
maturity. Trading securities are carried at market value. Gains or losses
on disposition of securities are based on the difference between the net
proceeds and the adjusted carrying amount of the securities sold, using the
specific identification method. The Bank held no trading securities at
December 31, 1997, June 30, 1997 or 1996.
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
LOANS
The Bank's loan portfolio consists principally of long-term conventional
mortgage loans secured by first deeds of trust. Loans are stated at the
principal balance outstanding and origination fees and certain direct
originating costs are capitalized and recognized as an adjustment of the
yield of the related loan. Interest income on loans is accrued and taken
into income based upon the interest method. The recognition of interest
income is discontinued when, in management's judgment, the interest is not
collectible in the normal course of business.
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan". This standard requires
that all creditors value loans at the loan's fair value if it is probable
that the creditor will be unable to collect all amounts due according to the
terms of the loan agreement. Fair value may be determined based upon the
present value of expected cash flows, market prices of the loan, if
available, or value of the underlying collateral. Expected cash flows are
required to be discounted at the loan's effective interest rate. SFAS No.
114 was amended by SFAS No. 118 to allow a creditor to use existing methods
for recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest income on an
impaired loan. When the ultimate collectibility of an impaired loan's
principal is in doubt, wholly or partially, all cash receipts are applied to
principal. When this doubt does not exist, cash receipts are applied under
the contractual terms of the loan agreement first to principal then to
interest income. Once the recorded principal balance has been reduced to
zero, future cash receipts are applied to interest income, to the extent
that any interest has been foregone. Further cash receipts are recorded as
recoveries of any amounts previously charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring. For these accruing impaired loans, cash receipts are
typically applied to principal and interest receivable in accordance with
the terms of the restructured loan agreement. Interest income is recognized
on these loans using the accrual method of accounting. As of December 31,
1997 and 1996 and June 30, 1997 and 1996, the Bank had no impaired loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's ongoing evaluation of
the loan portfolio and reflects an amount that, in management's opinion, is
adequate to absorb losses in the existing portfolio. In evaluating the
portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, adequacy of
collateral, the composition of the loan portfolio, and management's estimate
of anticipated
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
credit losses. Loans are charged against the allowance at such time as
they are determined to be losses. Subsequent recoveries are credited to the
allowance. Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio; however,
management's judgment is based upon a number of assumptions about future
events, which are believed to be reasonable, but which may or may not prove
valid. Thus, there can be no assurance that charge-offs in future periods
will not exceed the allowance for loan losses or that additional increases
in the allowance for loan losses will not be required.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. For financial reporting purposes, depreciation is computed by
use of the straight-line method over the estimated useful lives of the
various classes of assets.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect for the years in which the
differences are expected to reverse. The significant components of deferred
tax assets and liabilities arise principally from temporary differences
related to unrealized gains on investments, depreciation expense, loan loss
reserves, deferred loan fee income and prepaid pension.
CASH EQUIVALENTS
The Bank considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
RECLASSIFICATIONS
Certain 1996 balance sheet and income statement accounts have been
reclassified to conform to the 1997 presentation. This reclassification had
no effect on income or equity for any period.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
Investment securities are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------
(Unaudited)
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and other U.S.
Government Agency bonds:
Due within one year $ 499,922 $ 2,375 $ - $ 502,297
Due after one year through five years 1,000,000 7,657 - 1,007,656
---------- -------- ---------- ----------
1,499,922 10,032 - 1,509,954
---------- -------- ---------- ----------
Government National Mortgage
Association Securities:
Due after one year through five years 41,431 1,608 - 43,039
Due after five years through ten years 259,236 6,130 - 265,366
Due after ten years 431,023 - 5,352 425,671
---------- -------- ---------- ----------
731,690 7,738 5,352 734,076
---------- -------- ---------- ----------
Federal Home Loan Bank stock 142,600 - - 142,600
---------- -------- ---------- ----------
Fixed-rate, fixed-term deposits 2,000,000 - - 2,000,000
---------- -------- ---------- ----------
Total $4,374,212 $ 17,770 $5,352 $4,386,630
========== ======== ========== ==========
Securities available for sale:
Federal Home Loan Mortgage
Corporation stock $ 8,883 $371,576 $ - $ 380,459
========== ======== ========== ==========
</TABLE>
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and other U.S.
Government Agency bonds:
Due within one year $1,496,406 $ 3,594 $ - $1,500,000
Due after one year through five years 1,000,000 - - 1,000,000
---------- ---------- ---------- ----------
2,496,406 3,594 - 2,500,000
---------- ---------- ---------- ----------
Government National Mortgage
Association Securities:
Due after one year through five years 47,016 2,362 - 49,378
Due after five years through ten years 281,481 2,625 - 284,106
Due after ten years 471,021 - 13,761 457,260
---------- ---------- ---------- ----------
799,518 4,987 13,761 790,744
---------- ---------- ---------- ----------
Federal Home Loan Bank stock 142,600 - - 142,600
---------- ---------- ---------- ----------
Fixed-rate, fixed-term deposits 500,000 - - 500,000
---------- ---------- ---------- ----------
Total $3,938,524 $ 8,581 $13,761 $3,933,344
========== ========== ========== ==========
Securities available for sale:
Federal Home Loan Mortgage
Corporation stock $ 8,883 $308,638 $ - $ 317,521
========== ========== ========== ==========
</TABLE>
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES, CONTINUED
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and other U.S.
Government Agency bonds:
Due within one year $1,494,709 $ 4,119 $ 351 $1,498,477
Due after one year through five years 499,258 - 3,984 495,274
---------- -------- ------- ----------
1,993,967 4,119 4,335 1,993,751
---------- -------- ------- ----------
Government National Mortgage
Association Securities:
Due after one year through five years $ 82,323 $ 3,536 $ - $ 85,859
Due after five years through ten years 33,195 3,340 - 36,535
Due after ten years 824,896 - 24,517 800,379
---------- -------- ------- ----------
940,414 6,876 24,517 922,773
---------- -------- ------- ----------
Federal Home Loan Bank stock 142,600 - - 142,600
---------- -------- ------- ----------
Fixed-rate, fixed-term deposits 2,500,000 - - 2,500,000
---------- -------- ------- ----------
Total $5,577,031 $ 10,995 $28,852 $5,559,174
========== ======== ======= ==========
Securities available for sale:
Federal Home Loan Mortgage
Corporation stock $ 8,883 $185,031 $ - $ 193,914
========== ======== ======= ==========
</TABLE>
NOTE 3 - FEDERAL HOME LOAN BANK STOCK
Federal Home Loan Bank (FHLB) stock is a required deposit with the FHLB that
is classified as a restricted investment security, carried at cost and
evaluated for impairment. These shares can only be sold at their par value of
$100 per share and only to the FHLB or to another member institution.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- -------------------------
1997 1997 1996
-------------------------- ----------- -----------
Principal Balances: (Unaudited)
<S> <C> <C> <C>
Real estate loans
One-to-four family
residential $10,857,928 $10,887,058 $11,242,399
Nonresidential 482,713 543,015 400,040
Secured by deposits 76,599 75,131 45,787
Construction loans 365,858 349,794 198,942
----------- ----------- -----------
11,783,098 11,854,998 11,887,168
----------- ----------- -----------
Allowance for loan losses (100,000) (100,000) $ (95,000)
Undisbursed portion of construction
loans (318,714) (288,281) (174,194)
Net deferred loan origination fees (41,198) (43,825) (46,472)
----------- ----------- -----------
(459,912) (432,106) (315,666)
----------- ----------- -----------
$11,323,178 $11,422,892 $11,571,502
=========== =========== ===========
</TABLE>
Loan commitments outstanding were $132,000 at December 31, 1997 and $169,400
and $239,500 at June 30, 1997 and 1996, respectively. At December 31, 1997,
June 30, 1997 and 1996, there were no loans that were in a nonaccrual status.
Set forth below is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, June 30,
----------------- -----------------
1997 1996 1997 1996
-------- ------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C>
Balance, beginning of period $100,000 $95,000 $ 95,000 $88,000
Loans charged-off - - - -
Recoveries of loans charged-off - - - -
Provision for loan losses - 500 5,000 7,000
-------- ------- -------- -------
Balance, end of period $100,000 $95,500 $100,000 $95,000
======== ======= ======== =======
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------- ------------------
1997 1997 1996
------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Land $ 30,808 $ 30,808 $ 30,808
Land improvements 2,774 2,774 2,774
Building 562,545 562,545 559,277
Furniture and equipment 227,590 227,590 227,397
-------- -------- --------
823,717 823,717 820,256
Less allowances for depreciation 608,822 601,592 587,173
-------- -------- --------
$214,895 $222,125 $233,083
======== ======== ========
</TABLE>
NOTE 6 - INTEREST RECEIVABLE
Accrued interest receivable consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
------------- ----------------
1997 1997 1996
------------- -------- ------
(Unaudited)
<S> <C> <C> <C>
Accrued interest on interest bearing
deposits and investments $44,207 $42,497 $79,509
Accrued interest on loans receivable 8,286 7,479 6,400
------- ------- -------
$52,493 $59,976 $85,909
======= ======= =======
</TABLE>
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 7 - COMPOSITION OF SAVINGS DEPOSITS
The composition of savings deposits by interest rate is as follows:
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1997
--------------------- ---------------------------
Amount % Amount %
------------ ------- ------------- ------------
(Unaudited)
<S> <C> <C> <C> <C>
3.25 % passbook $ 3,645,425 21.88% $ 3,441,163 20.49%
Term certificates, 3.25% 31,002 .19 41,521 .25
Term certificates, 4.4% - 5.5% 8,613,564 51.71 8,872,711 52.84
Term certificates, 5.6% - 7.0% 3,460,166 20.78 3,345,034 19.92
Money market, 3.1% 100,895 .61 104,710 .62
Deposits greater than $100,000,
3.25% - 7.0% 743,138 4.46 920,991 5.49
----------- ------ ------------ -----------
16,594,190 16,726,130
Accrued interest payable on
deposits 61,507 .37 64,971 .39
----------- ------ ------------ -----------
$16,655,697 100.00% $ 16,791,101 100.00%
=========== ====== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------------
Amount %
---------- ------
<S> <C> <C>
3.25 % passbook $ 4,145,598 23.52%
Term certificates, 3.25% - 3.92% 50,935 .29
Term certificates, 4.1% - 5.5% 9,559,472 54.24
Term certificates, 5.6% - 7.0% 2,967,162 16.84
Money market, 3.3% 181,405 1.03
Deposits greater than $100,000,
3.25% - 7.0% 634,390 3.60
----------- ------
17,538,962
Accrued interest payable on
deposits 84,107 .48
----------- ------
$17,623,069 100.00%
=========== ======
</TABLE>
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
________________________________________________________________________________
NOTE 7 - COMPOSITION OF SAVINGS DEPOSITS, CONTINUED
Scheduled maturities of certificate accounts are as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------
(Unaudited)
<S> <C>
1998 $10,198,756
1999 2,195,991
2000 512,993
-----------
$12,907,740
===========
</TABLE>
Interest expense on savings deposits consists of the following components for
the six months ended December 31 and the years ended June 30:
<TABLE>
<CAPTION>
December 31, June 30,
------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Passbook accounts $ 61,750 $ 65,196 $ 128,355 $ 134,829
Money market accounts 1,580 2,369 3,994 4,942
Certificate accounts 348,536 351,745 686,391 754,174
--------- --------- --------- ---------
$ 411,866 $ 419,310 $ 818,740 $ 893,945
========= ========= ========= =========
</TABLE>
NOTE 8 - INCOME TAXES
The differences between income taxes at the U.S. statutory rate and the
effective income taxes as reflected in the financial statements are as
follows:
<TABLE>
<CAPTION>
Six months ended Year ended
December 31, June 30,
----------------------- --------------------
1997 1996 1997 1996
---------- ----------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Income tax expense at federal
statutory rate of 34% $ 27,000 $ (8,200) $ 23,400 $ 61,000
Effect of graduated income
tax rates ( 15,000) (4,600) (4,600) (8,000)
Other 4,984 - - (1,000)
-------- -------- -------- --------
$ 16,984 $ (3,600) $ 18,800 $ 52,000
======== ======== ======== ========
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
_______________________________________________________________________________
NOTE 8 - INCOME TAXES, CONTINUED
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Bank's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
------------- ------------------
1997 1997 1996
------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Deferred revenue $ 18,000 $ 18,000 $18,000
Loan loss reserve 39,000 39,000 37,000
Other - - 2,000
-------- -------- -------
Total deferred income
tax assets $ 57,000 $ 57,000 $57,000
======== ======== =======
Deferred tax liabilities:
Unrealized gain on investments $127,000 $103,200 $66,000
Book basis versus tax basis
for premises and equipment 8,000 8,000 8,000
Prepaid pension 22,000 21,000 18,000
Other 1,701 4,000 6,000
-------- -------- -------
Total deferred income tax
liabilities $158,701 $136,200 $98,000
======== ======== =======
</TABLE>
Legislation has been passed which repeals the "reserve" method of accounting
for thrift bad debt reserves for the first tax year beginning after December
31, 1995 (the fiscal year ending June 30, 1996 for the Bank). This
legislation requires all thrifts (including the Bank) to account for bad debts
using either the specific charge-off method (available to all thrifts) or the
experience method (available only to thrifts that qualify as "small banks",
i.e. under $500 million in assets). The Bank currently uses the experience
method of accounting for its tax bad debt reserves. The legislation also
suspends recapture of bad debt reserves taken through 1987 (i.e., the base
year reserve), but requires thrifts to recapture or repay bad debt deductions
taken after 1987 over six years. As of December 31, 1997, bad debt reserves
subject to recapture were not significant. As permitted under SFAS 109, no
deferred tax liability is provided for approximately $1,000,000 ($340,000
approximate tax effect) of such tax bad debt reserves that arose prior to
October 1, 1988.
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
NOTE 9 - PENSION PLAN
The Bank established a noncontributory defined benefit plan in 1990 which
covers substantially all employees. The plan benefits as of June 30, 1994
were frozen and the current plan benefits are based on plan years of service
and the employee's compensation during the last ten years of service. The
Bank's policy is to fund pension costs accrued. Pension expense for the six
months ended December 31, 1997 and 1996 and the years ended June 30, 1997 and
1996, was approximately $25,000, $19,000, $38,000 and $38,000, respectively.
The components of pension expense are as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
December 31, June 30,
---------------- ------------------
1997 1996 1997 1996
------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Service costs $22,000 $17,000 $34,000 $ 31,000
Interest cost on projected
benefit obligation 14,000 11,000 22,000 18,000
Expected return on plan
assets (9,000) (7,000) (14,000) (15,000)
Amortization (2,000) (2,000) (4,000) 4,000
------- ------- ------- --------
Net period pension cost $25,000 $19,000 $38,000 $ 38,000
======= ======= ======= ========
</TABLE>
A summary of the Plan's funded status and the pension liability recognized
in the Bank's financial statements at December 31, 1997, June 30, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
Six months ended For the years ended
December 31, June 30,
--------------------- -----------------------
1997 1997 1996
--------------------- -------- --------
(Unaudited)
<S> <C> <C> <C>
Accumulated benefit obligation $317,000 $ 294,700 $ 249,400
======== ========= =========
Plan assets at fair value $318,000 $ 295,500 $ 237,700
-------- --------- ---------
Projected benefit obligation
for service rendered to date:
Vested (254,000) (236,000) (249,400)
Additional benefits based on
estimated future salary levels (107,000) (99,500) (24,900)
-------- --------- ---------
(361,000) (335,500) (274,300)
-------- --------- ---------
</TABLE>
(continued)
F-19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - PENSION PLAN, CONTINUED
<TABLE>
<CAPTION>
Six months ended For the years ended
December 31, June 30,
---------------- --------------------
1997 1997 1996
---------------- --------- ---------
(Unaudited)
<S> <C> <C> <C>
Projected benefit obligation in
excess of plan assets $ (43,000) $ (40,000) $ (36,600)
Unrecognized net transition liability 57,000 53,000 56,600
Unrecognized net prior service cost gain (72,000) (67,600) (72,200)
Unrecognized net loss 113,000 105,100 103,200
Minimum liability - - (62,500)
--------- --------- -------
(Accrued) prepaid pension cost $ 55,000 $ 50,500 ($11,500)
========== ========= =======
</TABLE>
Assumptions used in the actuarial calculation at December 31, 1997, June 30,
1997 and 1996 were 8% for the weighted-average discount rate and expected
long-term rate of return on assets and 4% for the rate of increase in
compensation levels. At December 31, 1997, June 30, 1997 and 1996, 92% of the
plan assets were invested in a certificate of deposit at the Bank.
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information, whether or not recognized in the
statement of financial position, when it is practical to estimate the fair
value. SFAS 107 defines a financial instrument as cash, evidence of an
ownership interest in an entity or contractual obligations which require the
exchange of cash or other financial instruments. Certain items are
specifically excluded from the disclosure requirements, including the Bank's
common stock, premises and equipment and other assets and liabilities.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For cash and cash equivalents and short-term investments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES
Fair values for securities, excluding restricted equity securities, are
based on quoted market prices and dealer quotes. The carrying values of
restricted equity securities approximate fair values.
F-20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
LOANS RECEIVABLE
Fair values of real estate loans and savings deposit loans are estimated
using discounted cash flow analyses, with interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
ACCRUED INTEREST
The carrying amounts of accrued interest approximate fair values.
SAVINGS DEPOSITS
The fair value of savings accounts and certain money market deposits is the
amount payable on demand at the reporting date. The fair value of
certificates of deposit is based upon the discounted value of the
contractual cash flows. The discount rates used in these calculations
approximates the current rates offered for deposits of similar remaining
maturities.
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also considers
the difference between current levels of interest rates and the committed
rates.
The estimated fair value of the Bank 's financial instruments were as
follows at:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------
Carrying Fair
Amount Value
----------------- -----------
Financial Assets: (Unaudited)
<S> <C> <C>
Cash, interest bearing deposits,
and federal funds sold $ 4,211,325 $ 4,211,325
Investments
Securities available for sale 380,459 380,459
Securities held to maturity 4,374,212 4,386,630
Loans receivable 11,323,178 11,454,531
Interest receivable 52,493 52,493
Financial Liabilities:
Savings deposits 16,655,697 16,685,382
Unrecognized Financial Instruments:
Commitments to extend credit 132,000 132,000
</TABLE>
F-21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - RELATED PARTIES
The Bank has entered into transactions with its officers and directors. The
aggregate amount of loans to such related parties at December 31, 1997, June
30, 1997 and 1996, were $0, $890 and $2,621, respectively. During the six
months ended December 31, 1997 and the years ended June 30, 1997 and 1996, new
loans to such related parties amounted to $0, $0 and $2,621, and repayments
amounted to $890, $1,731 and $27,254, respectively. Such loans were made
substantially on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other borrowers
and do not involve more than the normal risks of collectibility. The Bank
also had related party deposits of $649,677, $531,244 and $518,834 at December
31, 1997, June 30, 1997 and 1996, respectively.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as commitments to extend credit, which are
not reflected in the accompanying financial statements. Although these
commitments do expose the Bank to certain types of risk, management does not
expect losses to result from these transactions.
Commitments to extend credit are legally binding agreements to lend to a
customer. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee.
Existing credit and commitments are reviewed continually to ensure there is no
deterioration in the credit worthiness of the borrower. Outstanding
commitments at December 31, 1997 are $132,000. Collateral held is obtained
based on management's credit evaluation of the customer and generally includes
either real property or savings deposits.
NOTE 13 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Federal Deposit Insurance Corporation
(FDIC) and the State of North Carolina. Failure to meet the minimum
regulatory capital requirements can initiate certain mandatory, and possible
additional discretionary actions by regulators, that if undertaken, could have
a direct material effect on the Bank and the financial statements. Under the
regulatory capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines involving
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification under the prompt corrective action
guidelines are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
F-22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - REGULATORY MATTERS, CONTINUED
The FDIC requires the Bank to have a minimum leverage ratio of Tier I Capital
(principally consisting of retained earnings and any future common
stockholders' equity, less any intangible assets) to total assets of at least
3%, provided the FDIC determines that the Bank is not anticipating or
experiencing significant growth and has well-diversified risk, including no
undue interest rate risk exposure, excellent asset quality, high liquidity,
good earnings and in general is considered a strong banking organization,
rated composite 1 under the Uniform Financial Institutions Rating System (the
CAMEL rating system) established by the Federal Financial Institutions
Examination Council. All other institutions which do not meet the
aforementioned standards are required to maintain a Tier I capital ratio of 3%
plus an additional cushion of at least 100 to 200 basis points and therefore
shall consist of a ratio of Tier 1 capital to total assets of not less than
4%. The FDIC also requires the Bank to have a ratio of total capital to risk-
weighted assets of 8%, of which at least 4% must be in the form of Tier I
capital. The state regulations require a net worth equal to at least 5% of
total assets.
As shown below, at December 31, 1997 the Bank complied with all the capital
requirements described above and also all of the requirements to be classified
as well-capitalized.
<TABLE>
<CAPTION>
Leverage Tier I N.C.
Ratio of Risk- Savings
GAAP Tier I Adjusted Risk-Based Bank
Equity Capital Capital Capital Capital
------- --------- --------- ----------- --------
(Dollars in Thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
GAAP Equity $3,860 $ 3,860 $ 3,860 $3,860 $3,860
======
Unrealized gains on
securities available for sale (245) (245) (245) (245)
General loan loss allowance - - 97 97
------ ------- ------- ------
Regulatory capital 3,615 3,615 3,712 3,712
Minimum capital requirement 829 311 621 1,036
------ ------- ------- ------
Excess regulatory capital $ 2,786 $ 3,304 $ 3,091 $ 2,676
====== ======= ======= =======
Total assets at December 31, 1997 $20,723 $20,723
======= =======
Risk-weighted assets at December 31,
1997 $ 7,767 $ 7,767
======= =======
Capital as a percentage of assets:
Actual 17.4% 46.5% 47.8% 17.9%
Required 4.0 4.0 8.0 5.0
------ ------- ------- ------
Excess 13.4% 42.5% 39.8% 12.9%
====== ======= ====== =======
</TABLE>
F-23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - SUBSEQUENT EVENTS - PLAN OF CONVERSION (UNAUDITED)
On December 11, 1997, the Board of Directors of the Bank unanimously adopted a
Plan of Holding Company Conversion whereby the Bank will convert from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank and will become a wholly-owned subsidiary of a holding company
formed in connection with the conversion. The holding company will issue
common stock to be sold in the conversion and will use that portion of the net
proceeds thereof which it does not retain to purchase the capital stock of the
Bank. The Plan is subject to approval by regulatory authorities and the
members of the Bank at a special meeting.
The stockholders of the holding company will be asked to approve a proposed
stock option plan and a proposed management recognition plan at a meeting of
the stockholders after the conversion. Shares issued to directors and
employees under these plans may be from authorized but unissued shares of
common stock or they may be purchased in the open market. In the event that
options or shares are issued under these plans, such issuances will be
included in the earnings per share calculation; thus, the interests of
existing stockholders would be diluted.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its net worth as reflected in its latest statement of
financial condition used in its final conversion prospectus. The liquidation
account will be maintained for the benefit of eligible deposit account holders
who continue to maintain their deposit accounts in the Bank after conversion.
Only in the event of a complete liquidation will each eligible deposit account
holder be entitled to receive a subaccount balance for deposit accounts then
held before any liquidation distribution may be made with respect to common
stock. Dividends paid by the Bank subsequent to the conversion cannot be paid
from this liquidation account.
The Bank may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
Conversion costs of approximately $17,500 have been incurred and are included
in prepaid expenses and other assets of December 31, 1997. If the conversion
is ultimately successful, conversion costs will be accounted for as a
reduction of the stock proceeds. If the conversion is unsuccessful,
conversion costs will be charged to the Bank's operations.
NOTE 15 - RECENTLY ISSUED ACCOUNTING STANDARDS
In February, 1997 the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which is effective for financial statements for
periods ending after December 31, 1997. This statement applies to both public
and nonpublic entities. The Bank anticipates that adoption of this standard
will not have a material effect on the Bank.
F-24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - RECENTLY ISSUED ACCOUNTING STANDARDS, CONTINUED
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial statements.
Under this statement, enterprises are required to classify items of "other
comprehensive income" by their nature in the financial statements and display
the balance of other comprehensive income separate in the equity section of a
statement of financial position. Statement 130 is effective for both interim
and annual periods beginning after December 15, 1997. Comparative financial
statements provided for earlier periods are required to be reclassified to
reflect the provisions of the statement. It is not anticipated that the
adoption of these statement will materially affect the Bank's current method
of financial reporting.
Also in June, 1997 the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information". This statement establishes standards
for the way public enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. Statement 131 is effective for financial
statements for periods beginning after December 15, 1997. In the initial year
of application, comparative information for earlier years is to be restated
unless it is impractical to do so. It is not anticipated that the adoption of
this statement will materially affect the Bank's current method of financial
reporting.
NOTE 16 - YEAR 2000
The Bank recognizes that there is a business risk in computerized systems as
the calendar rolls over into the next century. The Federal Financial
Institutions Examination Council (FFIEC) issued an interagency statement on
May 5, 1997 outlining five phases for institutions to effectively manage the
Year 2000 challenge. The phases were: Awareness; Assessment; Renovation;
Validation; and, Implementation. The FFIEC encouraged institutions to have
all critical applications identified and priorities set by September 30, 1997
and to have renovation work largely completed and testing well underway by
December 31, 1998. The Bank has an ongoing program designed to ensure that
its operational and financial systems will not be adversely affected by year
2000 software failures, due to processing errors arising from calculations
using the year 2000 date. The Board of Directors and management of the Bank
have established year 2000 compliance as a strategic initiative. While the
Bank believes that it has available resources to assure year 2000 compliance,
it is to some extent dependent on vendor cooperation. At the present time,
the Bank expects its most critical application software vendor to have all of
its system in compliance by December 31, 1998. The Bank expects to install
the necessary software releases in 1998 and have testing of such systems
substantially completed by December 31, 1998.
At this time, the Bank has not determined the cost of making any modifications
to correct any year 2000 problems; however, equipment and software expenses
are not expected to materially differ from past results. The Bank routinely
upgrades and purchases technologically advanced software and hardware on a
continual basis and expects to specifically evaluate and test such purchases
for year 2000 compliance.
F-25
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by Anson Bancorp, Inc. or Anson Savings
Bank, SSB. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any security other than the shares of Common
Stock offered hereby to any person 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. Neither the delivery of this Prospectus nor
any sale hereunder shall, under any circumstances, create any implication that
information herein is correct as of any time subsequent to the date hereof.
ANSON BANCORP, INC.
(Proposed Holding Company for
Anson Savings Bank, Inc.)
UP TO 872,850 SHARES
COMMON STOCK
($10.00 par value per share)
PROSPECTUS
TRIDENT SECURITIES, INC.
May 15, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT FEDERALLY INSURED OR
GUARANTEED
Until August 13, 1998, 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.
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers. The Registrant's
-----------------------------------------
Articles of Incorporation provide that, to the fullest extent permitted by the
North Carolina Business Corporation Act (the "NCBCA"), no person who serves as a
director shall be personally liable to the Registrant or any of its stockholders
or otherwise for monetary damages for breach of any duty as director. The
Registrant's Bylaws state that any person who at any time serves or has served
as a director or officer of the Registrant, or who, while serving as a director
or officer of the Registrant, serves or has served at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
as a trustee or administrator under an employee benefit plan, shall have a right
to be indemnified by the Registrant to the fullest extent permitted by law
against (a) reasonable expenses, including attorneys' fees, incurred by him in
connection with any threatened, pending or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding (and
any appeal therein), whether or not brought by or on behalf of the Registrant,
seeking to hold him liable by reason of the fact that he is or was acting in
such capacity, and (b) reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including an excise tax assessed with respect to
an employee benefit plan) or penalty for which he may have become liable in any
such action, suit or proceeding, or in connection with a settlement approved by
the Board of Directors of any such action, suit or proceeding.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers shall or may be
indemnified. Section 55-8-51 of the NCBCA permits a corporation, with certain
exceptions, to indemnify a present or former director against liability if (i)
the director conducted himself in good faith, (ii) the director reasonably
believed (x) that the director's conduct in the director's official capacity
with the corporation was in its best interests and (y) in all other cases the
director's conduct was at least not opposed to the corporation's best interests,
and (iii) in the case of any criminal proceeding, the director had no reasonable
cause to believe the director's conduct was unlawful. A corporation may not
indemnify a director in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation or in
connection with a proceeding charging improper personal benefit to the director.
The above standard of conduct is determined by the board of directors, or a
committee or special legal counsel or the shareholders as prescribed in Section
55-8-55.
Sections 55-8-52 and 55-8-26 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 55-8-54.
II-1
<PAGE>
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
The foregoing is only a general summary of certain aspects of North
Carolina law dealing with indemnification of directors and officers and does not
purport to be complete. It is qualified in its entirety by reference to the
relevant statutes, which contain detailed specific provisions regarding the
circumstances under which and the person for whose benefit indemnifications
shall or may be made.
Item 25. Other Expenses of Issuance and Distribution. Set forth below is an
-------------------------------------------
estimate of the amount of fees and expenses (other than the Underwriters
commissions) to be incurred in connection with the issuance and distribution of
the shares.
<TABLE>
<S> <C>
Registration and Filing Fees.................................. $ 25,000
Postage and Printing.......................................... $ 50,000
Accounting Fees and Expenses.................................. $ 40,000
Appraisal Fees and Expenses................................... $ 32,500
Legal Fees and Expenses....................................... $125,000
Sales Agent Expenses.......................................... $ 37,500
Data Processing Expenses...................................... $ 6,000
Transfer Agent................................................ $ 7,500
Sales Agent Fees and Commissions.............................. $171,000*
Other......................................................... $ 50,000
--------
$544,500
========
</TABLE>
*At the maximum of the Valuation Range.
Item 26. Recent Sales of Unregistered Securities. On March 10, 1998,
---------------------------------------
Registrant sold one share of common stock, no par value per share, to Eugene M.
Ward for an aggregate purchase price of $10.00. Such sale was exempt from
registration under Section 4(2) of Securities Act of 1933.
Item 27. Exhibits. The following exhibits and financial statement schedules
--------
are filed herewith or will, as noted, be filed by amendment.
II-2
<PAGE>
(a) Exhibits
--------
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-B) Description
--------------- -----------
*(1)(a) Engagement letter dated September 11, 1997 between
Anson Savings Bank, SSB and Trident Securities, Inc.
(1)(b) Form of Sales Agency Agreement among Anson Bancorp,
Inc., Anson Savings Bank, SSB and Trident Securities,
Inc.
*(2) Plan of Holding Company Conversion of Anson Savings
Bank, SSB
*(3)(i) Articles of Incorporation of Anson Bancorp, Inc.
*(3)(ii) Bylaws of Anson Bancorp, Inc.
(4) Form of Stock Certificate for Anson Bancorp, Inc. and
Anson Savings Bank, SSB
*(5) Opinion and consent of Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P. as to legality of
securities to be registered hereby
*(8)(a) Opinion and consent of Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P. as to federal and state
tax consequences
*(8)(b) Opinion of Ferguson & Company as to the value of
subscription rights
*(10)(a) Letter Agreement dated November 12, 1997 between
Anson Savings Bank, SSB and Ferguson & Company
(10)(b) Form of Employment Agreement between Anson Savings
Bank, SSB and Eugene M. Ward
II-3
<PAGE>
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-B) Description
--------------- -----------
*(10)(c) Form of the Management Recognition Plan of Anson
Savings Bank, SSB if the Plan is adopted and
approved by the stockholders of Anson Bancorp,
Inc. within one year after the conversion of Anson
Savings Bank, Inc., SSB to stock form
*(10)(d) Form of Stock Option Plan of Anson Bancorp, Inc.
if the Plan is adopted and approved by the
stockholders of Anson Bancorp, Inc. within one
year after the conversion of Anson Savings Bank,
Inc., SSB to stock form
*(10)(e) Form of Anson Savings Bank, Inc., SSB Severance
Plan
*(10)(f) Form of Capital Maintenance Agreement between
Anson Bancorp, Inc. and Anson Savings Bank, Inc.,
SSB
(23)(a) Consent of Faulkner & Thompson, P.A.
(23)(b) Consent of Ferguson & Company
*(27) Financial Data Schedule
*(99)(a) Appraisal Report of Ferguson & Company as of
February 28, 1998
(99)(b) Form of Stock Order Form
(99)(c) Form of Summary Proxy Statement
* Filed Previously
(b) Financial Statement Schedules
-----------------------------
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
II-4
<PAGE>
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:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933 ("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 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 such
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering thereof.
(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 to 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.
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 such 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
II-5
<PAGE>
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-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Wadesboro, State of North Carolina on March 12, 1998.
ANSON BANCORP, INC.
By: /s/ Eugene M. Ward
-----------------------------------
Eugene M. Ward, Director, President and
Chief Executive Officer
Signatures Title Date
---------- ----- ----
/s/ Eugene M. Ward Director, President and Chief May 8, 1998
- ----------------------------
Eugene M. Ward Executive Officer (Principal
Executive Officer)
/s/ Nancy H. Allen Treasurer (Principal Financial May 8, 1998
- ----------------------------
Nancy H. Allen and Accounting Officer)
/s/ Preston A. Burns Chairman of the Board May 8, 1998
Preston A. Burns
- ----------------------------
/s/ John J. Crawford Director May 8, 1998
- ----------------------------
John J. Crawford
/s/ W. Kenneth Huntley Director May 8, 1998
- ----------------------------
W. Kenneth Huntley
/s/ Emmett S. Patterson Director May 8, 1998
- ----------------------------
Emmett S. Patterson
/s/ John R. Potter Director May 8, 1998
- ----------------------------
John R. Potter
/s/ H. Patrick Taylor, Jr. Director May 8, 1998
- ----------------------------
H. Patrick Taylor, Jr.
II-7
<PAGE>
EXHIBIT (1).(b)
ANSON BANCORP, INC.
Up to 872,850 Shares
COMMON STOCK
(No Par Value Per Share)
Subscription Price $10.00 Per Share
SALES AGENCY AGREEMENT
----------------------
May __, 1998
Trident Securities, Inc.
4601 Six Forks Road
Suite 400
Raleigh, North Carolina 27609
Gentlemen:
Anson Bancorp, Inc., Wadesboro, North Carolina (the "Company"), a North
Carolina corporation, and Anson Savings Bank, SSB, Wadesboro, North Carolina
(the "Bank"), a North Carolina-chartered, federally-insured savings bank, hereby
confirm their respective agreements with Trident Securities, Inc., Raleigh,
North Carolina ("Trident") as follows:
1. Introduction. The Bank, in accordance with its plan of conversion
------------
(the "Plan"), pursuant to which the Bank intends to convert from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank (the "Conversion"), is offering to certain depositors and borrowers
and to directors, officers and employees of the Bank nontransferable rights to
subscribe for a minimum of 561,000 and a maximum of 759,000 shares, with the
possibility of increasing the number of such shares offered to 872,850 shares
without a resolicitation of subscribers, of the Company's common stock, no par
value per share (the "Shares" and the "Common Stock"), or such lesser amount of
Common Stock as the Administrator of the Savings Institutions Division of the
North Carolina Department of Commerce (the "Administrator") permits to be
offered, in a subscription offering (the "Subscription Offering"). Shares for
which subscriptions are not received in the Subscription Offering may be offered
to members of the general public in a community offering with priority being
given to natural persons or trusts of natural persons who are residents of Anson
County, North Carolina, subject to the priorities and limitations described in
the Plan (the "Community Offering") and Shares for which subscriptions are not
received in the Subscription Offering or purchased in the Community Offering may
be offered to the general public in a syndicated community offering (the
"Syndicated Community Offering"), subject to the priorities and limitations
described in the Plan. The Subscription Offering, the Community Offering, if
any, and the Syndicated Community Offering, if any, are referred to collectively
as the "Offerings."
<PAGE>
Trident Securities, Inc.
Page 2
The Company and the Bank have been advised by Trident that it desires to
utilize its best efforts in assisting the Company and the Bank with the sale of
the Common Stock in the Offerings. Prior to the execution of this Agreement, the
Company and the Bank have delivered to Trident the prospectus dated [_____],
1998 (the "Prospectus") and the proxy statement dated [_____], 1998 (the "Proxy
Statement"), and all supplements and amendments thereto, if any, to be used in
the Conversion and the Offerings. Such Prospectus and such Proxy Statement
contain information with respect to the Company, the Bank and the Common Stock.
2. Representations and Warranties. The Company and the Bank jointly and
------------------------------
severally represent and warrant to Trident that:
(a) The Company has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form SB-2 (No. [ ]), including
exhibits and all amendments and supplements thereto, including the Prospectus,
for the registration of the Offerings under the Securities Act of 1933, as
amended ("1933 Act"). Such registration statement has become effective under the
1933 Act and no stop order has been issued with respect thereto and no
proceedings therefor have been initiated or, to the best of its knowledge,
threatened by the Commission. Except as the context may otherwise require, such
registration statement, as amended or supplemented, if amended or supplemented,
on file with the Commission at the time the registration statement becomes
effective, including the Prospectus, financial statements, schedules, exhibits
and all other documents filed as part thereof, is herein called the
"Registration Statement," and the prospectus, as amended or supplemented, if
amended or supplemented, on file with the Commission at the time the
Registration Statement becomes effective is herein called the "Prospectus,"
except that if the prospectus filed by the Company with the Commission pursuant
to Rule 424(b) of the General Rules and Regulations of the Commission under the
1933 Act ("1933 Act Regulations") differs from the form of prospectus on file at
the time the Registration Statement becomes effective, the term "Prospectus"
shall refer to the Rule 424(b) prospectus from and after the time it is filed
with or mailed for filing with the Commission and shall include any amendments
or supplements thereto from and after their dates of effectiveness or use,
respectively. If any Shares remain unsubscribed following completion of the
Subscription Offering, the Company, if required under the 1933 Act, (i) will
promptly file with the Commission a post-effective amendment to the Registration
Statement relating to the results of the Offerings, any additional information
with respect to the proposed plan of distribution and any revised pricing
information or (ii) will file with, or mail for filing to, the Commission a
prospectus or prospectus supplement containing information relating to the
results of the Offerings and pricing information pursuant to Rule 424(c) of the
1933 Act Regulations.
(b) The Bank has filed an Application to Convert a Mutual Savings
Bank to a Stock Owned Savings Bank, including exhibits (as amended or
supplemented, the "Conversion Application") with the Administrator, which has
been conditionally approved by the Administrator; and the Prospectus and the
Proxy Statement included as part of the Conversion
<PAGE>
Trident Securities, Inc.
Page 3
Application has been conditionally approved for use by the Administrator. No
order has been issued by the Administrator preventing or suspending the use of
the Prospectus or the Proxy Statement; and no action by or before the
Administrator revoking such approvals is pending or, to the Bank's best
knowledge, threatened. The Bank also has filed a Notice of Intent to Convert to
Stock Form (as amended or supplemented, the "Notice") with the Federal Deposit
Insurance Corporation (the "FDIC"), and the FDIC has issued a conditional Notice
of Intent Not to Object to the Conversion. The Company has filed holding company
applications, including exhibits (as amended or supplemented, the "Holding
Company Applications"), with the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and the Administrator, which have been approved
by them. No action by or before the Federal Reserve or the Administrator
revoking such approvals is pending or, to the Bank's best knowledge, threatened.
(c) As of the date of the Prospectus, and at all times subsequent
thereto through and including the "Closing Date" (as defined in Section 3
hereof), (i) the Registration Statement and Prospectus (as amended and
supplemented, if amended and supplemented) complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations, (ii) the Prospectus and the Proxy Statement (as amended and
supplemented, if amended and supplemented) complied and will comply in all
material respects with Chapter 54C-33 of the North Carolina General Statutes, as
amended, and the rules and regulations of the Administrator and other applicable
North Carolina law (collectively the "Administrator's Regulations") and with the
Federal Deposit Insurance Act, as amended, and the rules and regulations of the
FDIC and other applicable federal law (collectively the "FDIC's Regulations"),
(iii) the Registration Statement (as amended and supplemented, if amended and
supplemented) did not and will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and (iv) the Prospectus and the Proxy
Statement (each as amended or supplemented, if amended or supplemented) did not
and will not contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Representations or
warranties in this subsection shall not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company or the Bank relating to Trident by or on behalf of Trident expressly for
use in the Registration Statement, the Prospectus or the Proxy Statement.
(d) The Company is duly organized as a business corporation under the
laws of the State of North Carolina and the Bank is duly organized as a mutual
savings bank under the laws of the State of North Carolina, and each of them is
validly existing and has a corporate existence under all applicable laws with
full power and authority to own its property and conduct its business as
described in the Prospectus and the Proxy Statement; the Bank is a member in
good standing of the Federal Home Loan Bank of Atlanta ("FHLB-Atlanta"); and the
deposit accounts of the Bank are insured by the Savings Association Insurance
Fund ("SAIF") administered by the
<PAGE>
Trident Securities, Inc.
Page 4
FDIC up to the applicable legal limits. Each of the Company and the Bank is
qualified to do business as a foreign corporation in any jurisdiction where non-
qualification has or would have a material adverse effect on the condition
(financial or otherwise), operations, business, assets, earnings or properties
("Material Adverse Effect") of the Company and the Bank, taken as a whole. The
Bank does not own equity securities of or any equity interest in any other
business enterprise. Upon amendment of the Bank's charter and bylaws as provided
in the Administrator's Regulations and completion of the sale by the Company of
the Shares as contemplated by the Prospectus, (i) the Bank will be converted
pursuant to the Plan to a North Carolina-chartered capital stock savings bank
with full power and authority to own its properties and conduct its business as
described in the Prospectus and the Proxy Statement, (ii) all of the outstanding
shares of capital stock of the Bank will be owned of record and beneficially by
the Company, and (iii) the Company will have no direct subsidiaries other than
the Bank.
(e) The Bank has good and marketable title to all assets material to
the business of the Bank and to those assets described in the Prospectus as
owned by the Bank, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Prospectus or are not expected
to have a Material Adverse Effect on the Bank and the Company, taken as a whole;
and all of the leases and subleases material to the operations and financial
condition of the Bank under which the Bank holds properties, including those
described in the Prospectus, are in full force and effect as described therein.
(f) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of each of the Company and the Bank, and this
Agreement is a valid and binding obligation of each of the Company and the Bank,
enforceable in accordance with its terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship or other laws affecting creditors' rights generally, except as
may be limited by the exercise of judicial discretion in applying principles of
equity and except to the extent that the provisions of Sections 8 and 9 hereof
may be unenforceable as against public policy or Section 23A of the Federal
Reserve Act, 12 U.S.C. (S) 371c ("Section 23A").
(g) There is no litigation or governmental proceeding pending or, to
the knowledge of the Company or the Bank, threatened against or involving the
Company, the Bank or any of their respective assets which individually or in the
aggregate reasonably would be expected to have a Material Adverse Effect on the
Company and the Bank, taken as a whole, except as referred to in the Prospectus
and the Proxy Statement.
(h) The Conversion of the Bank from mutual to stock form will
constitute a tax-free reorganization under the Internal Revenue Code of 1986, as
amended, and will not be a taxable transaction under the laws of the State of
North Carolina to the Company or the Bank; and the Bank has received the opinion
of Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.,
<PAGE>
Trident Securities, Inc.
Page 5
Greensboro, North Carolina, with respect to North Carolina and federal income
tax consequences of the Conversion, which opinion is filed as an exhibit to the
Registration Statement and the Conversion Application, and the facts relied upon
in such opinion are true, accurate and complete.
(i) The Company and Bank each has all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof (subject to the
limitations set forth herein and subject to post-Conversion conditions imposed
by the Administrator, the FDIC and/or the Federal Reserve in connection with
their respective approvals, or nonobjection, as the case may be, of the
Conversion Application, the Notice, and the Holding Company Applications) and,
in the case of the Company, as of the Closing Date to issue and sell the Shares
to be sold by it as provided herein, and, in the case of the Bank, as of the
Closing Date to issue and sell the shares of its capital stock to be sold to the
Company as provided in the Plan (subject to the issuance of an amended charter
in the form required for a North Carolina-chartered stock savings bank (the
"Stock Charter"), the form of which Stock Charter has been filed as an exhibit
to the Conversion Application).
(j) The Bank is not in violation of any rule or regulation of the
Administrator or the FDIC that would result in any enforcement action against
the Bank or its officers or directors that has or may have a Material Adverse
Effect on the Company and the Bank, taken as a whole.
(k) The financial statements of the Bank and any related notes or
schedules which are included in the Registration Statement and the Conversion
Application and are part of the Prospectus fairly present the financial
condition, results of operations, retained earnings and cash flows of the Bank
at the respective dates thereof and for the respective periods covered thereby
and comply as to form in all material respects with the applicable accounting
requirements of both the 1993 Act Regulations and the Administrator's
Regulations. Such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as set forth therein. The tables and other financial,
statistical and pro forma information and related notes in the Prospectus
accurately present the information purported to be shown thereby at the
respective dates thereof and for the respective periods covered thereby.
(l) There has been no material adverse change in the condition
(financial or otherwise), results of operations, business, assets, properties or
earnings of the Company or the Bank since the latest date as of which such
condition is set forth in the Prospectus except as referred to therein; and the
capitalization, assets, properties and businesses of the Company and the Bank
conform to the descriptions thereof contained in the Prospectus as of the date
specified and, since such date, there has been no Material Adverse Effect on the
Company and the Bank, taken as a whole. Neither the Company nor the Bank have
any material liabilities, contingent or otherwise, of any kind, except as
specifically set forth in the Prospectus.
<PAGE>
Trident Securities, Inc.
Page 6
(m) No material default exists, and no event has occurred which with
notice or lapse of time, or both, would constitute a material default, on the
part of the Company, the Bank or, to the best knowledge of the Company and the
Bank, on the part of any other party in the due performance and observance of
any term, obligation, covenant or condition of any agreement, contract,
indenture, bond, debenture, note, instrument or any other evidence of
indebtedness which would result in a Material Adverse Effect on the Company and
the Bank, taken as a whole; said agreements are in full force and effect; and no
other party to any such agreement has instituted or, to the best knowledge of
the Company or the Bank, threatened any action or proceeding wherein the Company
or the Bank would or might be alleged to be in default thereunder.
(n) Neither the Company nor the Bank is in violation of their
respective charters, articles of incorporation or bylaws. The execution and
delivery of this Agreement, the fulfillment of the terms set forth herein and
the consummation of the transactions contemplated hereby shall not violate or
conflict with the respective charter, articles of incorporation or bylaws of the
Company or the Bank, or, in any material respect, violate, conflict with or
constitute a breach of, or default (or an event which, with notice or lapse of
time, or both, would constitute a default) under, any agreement, indenture or
other instrument by which any of the Company or the Bank is bound and which is
material to the Company and the Bank, taken as a whole, or under any
governmental license or permit or any law, administrative regulation or
authorization, approval, court decree, injunction or order which is material to
the Company and the Bank, taken as whole, subject to the satisfaction of certain
conditions imposed by the Administrator, the FDIC and the Federal Reserve in
connection with their approvals of the Conversion Application, the Notice and
the Holding Company Applications, and except as may be required under the blue
sky laws and regulations (collectively the "Blue Sky Laws") of various
jurisdictions.
(o) Subsequent to the respective dates as of which information is
given in the Prospectus or the Proxy Statement and prior to the Closing Date,
except as otherwise may be indicated or contemplated therein, neither the
Company nor the Bank has issued any securities or incurred any liabilities or
obligations, direct or contingent, for borrowed money, except borrowings by the
Bank in the ordinary course of business, or entered into any transaction other
than in the ordinary course of business which is material in light of the
businesses and properties of the Company and the Bank.
(p) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company shall be as set forth in the
Prospectus under the caption "Capitalization," and no equity or debt securities
of the Company have been or shall be issued and outstanding prior to the Closing
Date; the issuance and the sale of the Shares have been, or as of the Closing
Date will be, duly authorized by all necessary action of the Company and
approved by the Administrator and received the order of non-objection from the
FDIC (subject to the satisfaction of post-Conversion conditions imposed by the
Administrator and the FDIC) and, when
<PAGE>
Trident Securities, Inc.
Page 7
issued in accordance with the terms of the Plan, shall be validly issued, fully
paid and nonassessable and shall conform to the description thereof contained in
the Prospectus; the issuance of the Shares is not subject to preemptive rights;
and good title to the Shares will be transferred to the purchasers thereof upon
issuance thereof against payment therefor, free and clear of all claims,
encumbrances, security interests and liens whatsoever, with respect to the
Company's interest in such shares. The certificates representing the Shares will
conform with the requirements of applicable laws and regulations. The issuance
and sale of the common stock of the Bank to the Company has been, or as of the
Closing Date will be, duly authorized by all necessary action of the Bank and
the Company and appropriate regulatory authorities (subject to the satisfaction
of post-Conversion conditions imposed by the Administrator, the FDIC and/or the
Federal Reserve) and such common stock, when issued in accordance with the terms
of the Plan, will be fully paid and nonassessable and will conform, in all
material respects, to the description thereof contained in the Prospectus.
(q) No further approval of any regulatory or supervisory or other
public authority is required in connection with the execution and delivery of
this Agreement or the issuance of the Shares, except for the declaration of
effectiveness of any required post-effective amendment by the Commission and
approval or non-objection thereof or thereto by the Administrator and the FDIC,
the issuance of the Stock Charter by the Administrator, the form of which has
been approved by the Administrator and except as may be required under the Blue
Sky Laws.
(r) All contracts and other documents required to be filed as
exhibits to the Registration Statement, the Conversion Application, the Notice
or the Holding Company Applications have been filed with the Administrator, the
FDIC, the Commission or the Federal Reserve, as the case may be.
(s) Faulkner & Thompson, P.A. ("Faulkner"), which audited the
financial statements of the Bank at June 30, 1997 and for the fiscal years ended
June 30, 1996 and 1997 included in the Prospectus are, and were during the
periods covered in its report in the Prospectus, independent public accountants
within the meaning of the 1933 Act, the 1933 Act Regulations, and the Code of
Professional Ethics of the American Institute of Certified Public Accountants.
(t) Ferguson & Company, which has prepared the Conversion appraisal
dated as of February 27, 1998, described in the Prospectus is independent of the
Company and the Bank within the meaning of the Administrator's Regulations and
the FDIC's Regulations, is believed by the Company and the Bank to be
experienced and expert in rendering corporate appraisals of thrift institutions,
and the Company and the Bank have no reason to believe that Ferguson & Company
has not prepared the pricing information set forth in the Prospectus in
accordance with the requirements of the Administrator's Regulations and the
FDIC's Regulations.
<PAGE>
Trident Securities, Inc.
Page 8
(u) The Company and the Bank have timely filed all required federal
and state tax returns and no deficiency has been asserted with respect to such
returns by any taxing authorities, have paid all taxes that have become due and,
to the best of their knowledge, have made adequate reserves for similar future
tax liabilities, except where any failure to make such filings, payments and
reserves, or the assertion of such a deficiency, would not have a Material
Adverse Effect on the Company and the Bank, taken as a whole.
(v) The records of account holders, depositors, borrowers and other
members of the Bank delivered to Trident by the Bank or its agent for use during
the Conversion are reliable, accurate and complete, and Trident shall have no
liability to any person relating to the reliability, accuracy or completeness of
such records or for any denial or allocation of a subscription to purchase
Shares to any person based upon such records.
(w) To the best knowledge of the Company and the Bank, all the loans
represented as assets on the most recent financial statements of the Bank
included in the Prospectus meet or are exempt from all requirements of any
federal, state or local law pertaining to lending including, without limitation,
truth-in-lending (including the requirements of Regulation Z, 12 C.F.R. Part
226, and 12 C.F.R. (S) 563.99), real estate settlement procedures, consumer
credit protection, equal credit opportunity and disclosure laws applicable to
such loans, except for violations which, if asserted, would not have a Material
Adverse Effect on the Bank and the Company, taken as a whole.
(x) To the best knowledge of the Company and the Bank, none of the
Company, the Bank nor employees of the Company or the Bank have made any payment
of funds of the Company or the Bank prohibited by law, and no funds of the
Company or the Bank have been set aside to be used for any payment prohibited by
law.
(y) To the best knowledge of the Company and the Bank, the Company
and the Bank are in compliance in all material respects with all Environmental
Law (as hereinafter defined), and neither the Company nor the Bank has been
notified or is otherwise aware that either of them is potentially liable, or is
considered potentially liable, under any Environmental Law, including the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S) 9601 et seq. or any similar state or local law. There are no actions, suits,
regulatory investigations or other proceedings pending or, to the best knowledge
of the Company or the Bank, threatened against the Company or the Bank relating
to Environmental Law matters, nor does the Company or the Bank have any reason
to believe any such proceedings may be brought against either of them. To the
best knowledge of the Company and the Bank, no disposal, release or discharge of
hazardous waste, hazardous substances, toxic substances, pollutants, irritants
or contaminants, including petroleum and gas products, as any of such terms may
be defined under any Environmental Law, has occurred on, in, at or about any of
the facilities or properties of the Company or the Bank in violation of
Environmental Law, or, to the best knowledge of the
<PAGE>
Trident Securities, Inc.
Page 9
Company or the Bank, has occurred on, in, at or about any of the facilities or
properties pledged to the Bank as collateral for any loan or extension of credit
by the Bank, except such disposal, release or discharge as reasonably could not
be deemed to have a Material Adverse Effect on the Company and the Bank, taken
as a whole.
"Environmental Law" means any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or agreement with any
agency (i.e., any federal, state or local agency responsible for regulating or
enforcing the matters identified herein) relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other natural resource),
and/or (ii) the usage, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of any substance presently listed, defined, designated or classified as
hazardous, toxic, radioactive or dangerous, or otherwise regulated, whether by
type or by quantity, including any material containing any such substance as a
component.
(z) At the Closing Date, the Company and the Bank will have completed
the conditions precedent to, and prior to the Closing Date, shall have conducted
the Conversion in all material respects in accordance with the Plan, the
Administrator's Regulations, the FDIC's Regulations and all other applicable
laws, regulations, decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed upon it by the
Administrator, the FDIC and the Federal Reserve.
(aa) Neither the Company nor the Bank is in violation of any directive
from the Administrator, the FDIC, the Federal Reserve, or any other agency to
make any material change in the method of conducting its business so as to
comply in all material respects with all applicable statutes and regulations
(including, without limitation, regulations, decisions, directives and orders of
the Administrator, the FDIC or the Federal Reserve), and except as set forth in
the Prospectus there is no suit, proceeding, charge, investigation or action
before or by any court, regulatory authority or governmental agency or body
pending or, to the best knowledge of the Company or the Bank, threatened, which
might materially and adversely affect the Conversion, the performance of this
Agreement or the consummation of the transactions contemplated in the Plan and
as described in the Prospectus, which might have a Material Adverse Effect on
the Company and the Bank, taken as a whole.
(bb) Prior to the Conversion, the Bank was not authorized to issue
shares of capital stock; the Company and the Bank have not: (i) placed any
securities within the last eighteen (18) months; (ii) had any material dealings
within the twelve (12) months prior to the date hereof with any member of the
National Association of Securities Dealers, Inc. ("NASD"), or any person related
to or associated with such member, other than discussions and meetings
<PAGE>
Trident Securities, Inc.
Page 10
relating to the Offerings and routine purchases and sales of U.S. government
securities; (iii) entered into a financial or management consulting agreement
except as contemplated hereunder; or (iv) engaged any intermediary between
Trident and the Company and the Bank in connection with the offering of the
Common Stock, and no person is being compensated in any manner for such service.
(cc) All documents delivered by the Bank or the Company or their
representatives in connection with the issuance and sale of the Common Stock,
including records of account holders, depositors, borrowers and other members of
the Bank, or in connection with Trident's exercise of due diligence, except for
those documents which were prepared by parties other than the Bank, the Company
or their representatives were on the dates on which they were delivered, true,
complete and correct.
2A. Representations and Warranties of Trident. Trident represents and
-----------------------------------------
warrants to the Company and the Bank that:
(a) Trident is registered as a broker-dealer with the Commission and
is in good standing with the NASD.
(b) Trident is validly existing as a corporation under the laws of
its jurisdiction of incorporation, with full corporate power and authority to
provide the services to be furnished to the Company and the Bank hereunder.
(c) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of Trident, and this Agreement is a legal,
valid and binding obligation of Trident, enforceable in accordance with its
terms (except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws relating to or affecting
the enforcement of creditors' rights generally or the rights of creditors of
registered broker-dealers the accounts of whom may be insured by the Securities
Investor Protection Corporation or by general equity principles, regardless of
whether such enforceability is considered in a proceeding in equity or at law,
and except to the extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or Section 23A).
(d) Each of Trident and, to Trident's knowledge, its employees,
agents and representatives who shall perform any of the services required
hereunder to be performed by Trident shall be duly authorized and shall have all
licenses, approvals and permits necessary to perform such services; and Trident
is a registered selling agent in such jurisdictions in which the Company is
relying on such registration for the sale of the Shares, and will remain
registered in such jurisdictions until the Conversion is consummated or
terminated.
<PAGE>
Trident Securities, Inc.
Page 11
(e) The execution and delivery of this Agreement by Trident, the
fulfillment of the terms set forth herein and the consummation of the
transactions contemplated hereby shall not conflict with the corporate charter
or bylaws of Trident or constitute a breach of, or default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, any
material agreement, indenture or other instrument by which Trident is bound or
under any governmental license or permit or any law, administrative regulation,
authorization, approval or order or court decree in injunction by which Trident
is bound.
(f) Any funds received by Trident to purchase Common Stock will be
handled in accordance with Rule 15c2-4 under the Securities Exchange Act of
1934, as amended ("1934 Act").
(g) There is not now pending or, to Trident's knowledge, threatened
against Trident any action or proceeding before the SEC, NASD, any state
securities commission or any state or federal court concerning Trident's
activities as a broker-dealer.
3. Employment of Trident; Sale and Delivery of the Shares. On the basis
------------------------------------------------------
of the representations and warranties herein contained, but subject to the terms
and conditions herein set forth, the Company and the Bank hereby employ Trident
as their agent to utilize its best efforts in assisting the Company with the
Company's sale of the Shares in the Offerings. The employment of Trident
hereunder shall terminate (a) forty-five (45) days after the Subscription
Offering closes, unless the Company and the Bank, with the approval of the
Administrator, are permitted to extend such period of time, or (b) upon
consummation of the Conversion, whichever date shall first occur.
In the event the Company is unable to sell a minimum of 561,000 Shares (or
such lesser amount as the Administrator and the FDIC may permit) within the
period herein provided, this Agreement shall terminate, and the Company and the
Bank shall refund promptly to any persons who have subscribed for any of the
Shares, the full amount which it may have received with interest from such
persons; and neither party to this Agreement shall have any obligation to the
other parties hereunder, except as set forth in Sections 6, 8 and 9 hereof.
Appropriate arrangements for placing the funds received from subscriptions for
Shares in special interest-bearing accounts with the Bank until all Shares are
sold and paid for were made prior to the commencement of the Subscription
Offering, with provision for prompt refund to the purchasers as set forth above,
or for delivery to the Company if all Shares are sold.
If all Shares are sold and all other conditions precedent to consummation
of the Conversion are satisfied, the Company agrees to issue or have issued such
Shares and to release for delivery certificates to subscribers thereof for such
Shares as soon as practicable after the Closing Date. Such release for delivery
shall be against payment to the Company by any means authorized pursuant to the
Prospectus, at the office of the Company at 211 South Greene Street, Wadesboro,
<PAGE>
Trident Securities, Inc.
Page 12
North Carolina 28170, or at such other place as shall be agreed upon among the
parties hereto. The date upon which Trident is paid the compensation due to it
hereunder is herein called the "Closing Date".
Trident shall receive the following compensation for its services
hereunder:
(a) A commission equal to two and one half percent (2.50%) of the
aggregate dollar amount of any Shares sold in the Subscription Offering and the
Community Offering, excluding any shares sold to the Bank's executive officers,
directors and their "Associates" (as such term is defined in the Plan) and
excluding shares sold by other NASD member firms under Selected Dealer (as such
term is defined in the Prospectus) arrangements. For stock sold by other NASD
member firms under Selected Dealer Agreements, the commission payable shall be
as agreed upon by the Company and Trident to reflect market requirements at the
time of the stock allocation in the Syndicated Community Offering. All such
fees payable to Trident are to be payable in next day funds to Trident in
Raleigh, North Carolina, on the Closing Date.
(b) Trident shall be reimbursed for all allocable expenses, including
legal fees, incurred by it whether or not the Offerings are successfully
completed; provided, however, that Trident's legal fees shall not exceed $27,500
-------- -------
and its other allocable expenses shall not exceed $10,000. Full payment of
Trident's allocable expenses, including legal fees, shall be made in next day
funds on the Closing Date or, if the Conversion is not completed and is
terminated for any reason, within ten (10) calendar days of receipt by the
Company of the detailed listing from Trident of its allocable expenses. Trident
acknowledges receipt of a $10,000 advance payment from the Bank which shall be
credited against the total reimbursement due Trident hereunder.
(c) Notwithstanding the limitations on reimbursement of Trident for
allocable expenses provided above, in the event that a resolicitation or other
event causes the Offerings to be extended beyond their original expiration
dates, Trident shall be reimbursed for its allocable expenses (including legal
expenses) incurred during such extended period provided that the applicable
allowance for allocable expenses provided above have been exhausted. Such
reimbursement shall be in an amount equal to the product obtained by dividing
$[7,500] (in the case of the reimbursement for legal fees) or $[2,500] (in the
case of the reimbursement of other allocable expenses) by the total number of
days of the unextended Subscription Offering (calculated from the date of the
Prospectus to the intended close of the Subscription Offering as stated in the
Prospectus) and then multiplying such product by the number of days of the
extension (that number of days from the date of the supplement to the Prospectus
to the closing of the extension of the Subscription Offering); provided,
--------
however, that the aggregate additional reimbursement for allocable expenses
- -------
(including legal fees) shall not exceed $[10,000].
(d) The Company shall pay any stock issue and transfer taxes which
may be payable with respect to the sale of the Shares. The Company and the Bank
also shall pay all
<PAGE>
Trident Securities, Inc.
Page 13
expenses of the Conversion including, but not limited to, their attorneys' fees,
NASD filing fees, filing and registration fees, and attorneys' fees relating to
any required state securities laws research and filings, transfer agent charges,
fees relating to auditing and accounting, telephone charges, air freight
expenses, courier service costs, rental equipment costs, costs of supplies and
costs of printing all necessary documents in connection with the Conversion.
4. Offerings. Subject to the provisions of Section 7 hereof, Trident is
---------
offering on behalf of the Company and on a best efforts basis a minimum of
561,000 Shares and a maximum of 759,000 Shares with the possibility of
increasing the number of Shares to 872,850, or such lesser amount of Common
Stock as the Administrator and the FDIC permit to be offered, in a Subscription
Offering and, if necessary, any Shares which remain unsubscribed at the
conclusion of the Subscription Offering, in a Community Offering and a
Syndicated Community Offering. The Shares are to be initially offered to the
public at the price set forth on the cover page of the Prospectus and the first
page of this Agreement.
(a) Subscriptions shall be offered in the Subscription Offering only
during the subscription period by means of Order Forms as described in the
Prospectus and may be offered in the Syndicated Community Offering by means of
solicitations of indications of interest from customers of Trident or Selected
Dealers (as defined in the Prospectus) residing in those states in which the
Shares may be qualified for offer and sale. The Bank and the Company shall
notify Trident promptly after the expiration of the Subscription Offering of the
number of Shares sold in the Subscription Offering and the aggregate number of
Shares remaining available to be sold in the Syndicated Community Offering. The
Bank and the Company shall provide Trident with any information (which shall be
accurate and reliable) necessary to assist Trident in allocating the Shares in
the event of an oversubscription. The Bank and the Company, jointly and
severally, shall indemnify and hold harmless each of Trident and the Selected
Dealers against any losses, claims, damages or liabilities resulting from
reliance under any records of depositors, borrowers and other members of the
Bank delivered to Trident by the Bank or its agents for use during the
Conversion.
(b) Trident agrees that any Selected Dealer Agreements between
Trident and Selected Dealers will provide that Selected Dealers will solicit
indications of interest from their customers to place orders for the purchase of
Shares as of a certain date (the "Order Date") and, upon request by Trident, (i)
submit orders to purchase Shares, for which they have previously received
indication1s of interest from their customers, (ii) mail confirmations of orders
to each subscriber on the business day following the Order Date, (iii) debit
accounts of such subscribers on the third business day from the Order Date
("Debit Date"), and (iv) forward completed Order Forms together with such funds
to the Company on the next business day following the Debit Date for deposit in
an account established by the Company for each Selected Dealer.
<PAGE>
Trident Securities, Inc.
Page 14
5. Further Agreements. The Company and the Bank jointly and severally
------------------
covenant and agree that:
(a) The Company shall deliver to Trident, from time to time, such
number of copies of the Prospectus as Trident reasonably may request. The
Company authorizes Trident to use the Prospectus in connection with the offer
and sale of the Shares.
(b) The Company shall notify Trident immediately upon discovery, and
confirm the notice in writing, if requested, (i) when any post-effective
amendment to the Registration Statement becomes effective or any supplement to
the Prospectus or the Proxy Statement has been filed, (ii) of the issuance by
the Commission, the Administrator, the FDIC or the Federal Reserve of any stop
order relating to the Registration Statement, the Conversion Application, the
Notice, the Holding Company Applications, the Prospectus or the Proxy Statement
or of the initiation or the threat of any proceedings for that purpose, (iii) of
the receipt of any notice with respect to the suspension of the qualification of
the Shares for offering or sale in any jurisdiction, and (iv) of the receipt of
any comments from the Commission, the Administrator, the FDIC or the Federal
Reserve relating to the Registration Statement, the Conversion Application, the
Notice, the Holding Company Applications, the Prospectus or the Proxy Statement.
If the Commission, the Administrator, the FDIC or the Federal Reserve enters a
stop order relating to the Registration Statement, the Conversion Application,
the Notice, the Holding Company Applications, the Prospectus or the Proxy
Statement at any time, the Company and the Bank will make any reasonable effort
to obtain the lifting of such order as soon as possible.
(c) During the time when a prospectus is required to be delivered
under the 1933 Act, the Administrator's Regulations and the FDIC's Regulations,
the Company will comply with all requirements imposed upon it by the 1933 Act,
the 1933 Act Regulations, the Administrator's Regulations and the FDIC's
Regulations, as from time to time in force, so far as necessary to permit the
continuance of offers and sales of or dealings in the Shares in accordance with
the provisions hereof and the Prospectus. If during the period when the
Prospectus is used in connection with the offer and sale of the Shares any event
relating to or affecting the Company or the Bank shall occur as a result of
which it is necessary, in the opinion of counsel for Trident, to amend or
supplement the Prospectus in order to make the Prospectus not false or
misleading in light of the circumstances existing at the time it is delivered to
a purchaser of the Shares, the Company forthwith shall prepare and furnish to
Trident a reasonable number of copies of an amendment or amendments or of a
supplement or supplements to the Prospectus (in form and substance satisfactory
to counsel for Trident) which shall amend or supplement the Prospectus so that,
as amended or supplemented, the Prospectus shall not contain an untrue statement
of a material f act or omit to state a material fact necessary in order to make
the statements therein, in light of the circumstances existing at the time the
Prospectus is delivered to a purchaser of the Shares, not misleading. The
Company will not file or use any amendment or supplement to the Registration
Statement or the Prospectus of which Trident has not first been furnished a copy
or
<PAGE>
Trident Securities, Inc
Page 15
to which Trident reasonably shall object after having been furnished such copy.
For the purposes of this subsection the Company and the Bank shall furnish such
information with respect to themselves as Trident, from time to time, reasonably
may request.
(d) The Company shall take all reasonably necessary action and
furnish to whomever Trident may direct, such information as may be required to
qualify or register the Shares for offer and sale by the Company under the Blue
Sky Laws of such jurisdictions as Trident and the Company or its counsel may
reasonably agree upon; provided, however, that the Company shall not be
-------- -------
obligated to qualify as a foreign corporation to do business under the laws of
any such jurisdiction. In each jurisdiction where such qualification or
registration shall be effected, the Company, unless Trident agrees that such
action is not necessary or advisable in connection with the distribution of the
Shares, shall file and make such statements or reports as are, or reasonably may
be, required by the laws of such jurisdiction.
(e) Appropriate entries will be made in the financial records of the
Bank to establish a liquidation account for the benefit of account holders
according to the Administrator's Regulations.
(f) The Company will file a registration statement for the Common
Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), prior to completion of the Offerings pursuant to the Plan and
shall request that such registration statement be effective upon or prior to
completion of the Conversion. The Company shall maintain the effectiveness of
such registration for not less than three (3) years following completion of the
Conversion.
(g) For a period of three (3) years from the date of this Agreement,
the Company will furnish to Trident, as soon as publicly available after the end
of each fiscal year, a copy of its annual report to shareholders for such year;
and the Company will furnish to Trident (i) as soon as publicly available, a
copy of each report or definitive proxy statement of the Company filed with the
Commission under the 1934 Act or mailed to shareholders, and (ii) from time to
time, such other public information concerning the Company as Trident may
reasonably request.
(h) The Company shall use the net proceeds from the sale of the
Shares in the manner set forth in the Prospectus under the caption "Use of
Proceeds."
(i) The Company shall not deliver the Shares until it has satisfied
or caused to be satisfied each and every condition set forth in Section 7
hereof, unless such condition is waived in writing by Trident.
<PAGE>
Trident Securities, Inc.
Page 16
(j) The Company and the Bank shall advise Trident, if necessary, as
to the allocation of the Shares in the event of an oversubscription and shall
provide Trident final instructions as to the allocations of the Shares in such
event and such instructions shall be accurate, reliable and complete. Trident
shall be entitled to rely completely and without independent investigation on
such instructions and shall have no liability to any person in respect of its
reliance thereon, including without limitation, no liability to any person for
or related to any denial or grant of a subscription for Shares. The Company
shall indemnify and hold Trident harmless for any liability arising out of such
instructions or any records of account holders, depositors, borrowers and other
members of the Bank delivered to Trident by the Company, the Bank or their
agents for use during the Offerings and the Conversion.
(k) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by Trident in order for Trident to
ensure compliance with the NASD's "Interpretation Relating to Free-Riding and
Withholding."
(l) The Company will not sell or issue, contract to sell or otherwise
dispose of, for a period of ninety (90) days after the Closing Date, without
Trident's prior written consent, any shares of the Company's common stock other
than the Common Stock.
(m) Upon consummation of the Conversion, the Company will list the
Common Stock over-the-counter through the OTC "Electronic Bulletin Board."
(n) The Company will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or orders to purchase
Common Stock in the Offerings on an interest-bearing basis at the rate described
in the Prospectus until the Closing Date and satisfaction of all conditions
precedent to the release of the Company's obligation to refund payments received
from persons subscribing for or ordering Common Stock in the Offerings in
accordance with the Plan as described in the Prospectus or until refunds of such
funds have been made to the persons entitled thereto in accordance with the Plan
and as described in the Prospectus.
6. Payment of Expenses. Whether or not the Conversion is completed or
-------------------
the sale of the Shares by the Company is consummated, the Company or the Bank
shall pay or reimburse Trident for (a) all filing fees paid or incurred by
Trident in connection with all filings with the NASD; and, (b) in addition, if
the Agreement does not become effective, the Company is unable to sell a minimum
of 561,000 Shares (or such lesser number as may be permitted by the
Administrator and FDIC), or the Offerings or Conversion are otherwise
terminated, the Company or the Bank shall reimburse Trident for all allocable
expenses incurred by Trident relating to the offering of the Shares, subject to
Section 3 hereof; provided, however, that the Company and the Bank shall not pay
-------- -------
or reimburse Trident for any of the foregoing expenses accrued after Trident
shall have notified the Company and the Bank of its election to terminate this
Agreement pursuant
<PAGE>
Trident Securities, Inc.
Page 17
to Section 11 hereof or after such time as the Company and the Bank shall have
given notice in accordance with Sections 11 and 12 hereof that Trident is in
breach of this Agreement.
7. Conditions of Trident's Obligations. Except as may be waived by
-----------------------------------
Trident, the obligations of Trident as provided herein shall be subject to the
accuracy of the representations and warranties contained in Section 2 hereof as
of the date hereof and as of the Closing Date, to the accuracy of the statements
of officers and directors of the Company and the Bank made pursuant to the
provisions hereof, to the performance by the Company and the Bank of their
obligations hereunder and to the following conditions:
(a) At the Closing Date, Trident shall receive the favorable opinion
of Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., special counsel for the
Company and the Bank, dated the Closing Date, addressed to Trident, in form and
substance satisfactory to counsel for Trident and to the effect that:
(i) the Company is incorporated and is validly existing as
a corporation under the laws of the State of North Carolina, and the
Bank is duly organized and validly existing as a mutual savings bank
with a corporate existence under the laws of the State of North
Carolina, each with full power and authority to own its property and
conduct its business as described in the Prospectus;
(ii) the Company and the Bank are each duly qualified to do
business and each are in good standing as a foreign corporation in
each jurisdiction where the ownership or leasing of its properties of
which such counsel has Actual Knowledge or the conduct of its business
of which such counsel has Actual Knowledge requires such qualification
unless the failure to be so qualified would not have a Material
Adverse Effect on the Company and the Bank, taken as a whole;
(iii) the Bank is a member of the FHLB-Atlanta and the
deposit accounts of the Bank are insured by the SAIF of the FDIC up to
the applicable limits;
(iv) to the Actual Knowledge of such counsel, (a) the Bank
has obtained all licenses, permits and other governmental
authorizations currently required for the conduct of its business
except where the failure to obtain such licenses, permits and
governmental authorizations would not have a Material Adverse Effect
on the Bank and the Company, taken as a whole, (b) all such licenses,
permits and other governmental authorizations are in full force and
effect and (c) the Bank is in all material respects complying
therewith;
<PAGE>
Trident Securities, Inc.
Page 18
(v) the Plan complies with, and, to the Actual Knowledge
of such counsel, the Conversion of the Bank from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock
savings bank and the creation of the Company as the holding company of
the Bank have been effected in all material respects in accordance
with all applicable laws, rules, regulations, decisions and orders
(with such modifications as were disclosed to and approved by the
Administrator and FDIC, as evidenced by their approval and conditional
notice of intent not to object and were in such counsel's opinion
appropriate for the transactions described in the Conversion
Application); to such counsel's Actual Knowledge, all of the terms,
conditions, requirements and provisions with respect to the Plan and
the Conversion imposed by the Administrator, the FDIC and the Federal
Reserve, except with respect to filing certain post-Conversion
reports, have been complied with in all material respects by the
Company and the Bank or appropriate waivers have been obtained; and to
the Actual Knowledge of such counsel, no person has sought to obtain
regulatory or judicial review of the final action of the Administrator
in approving the Plan or the FDIC order of non-objection to the Plan;
(vi) As of the Closing Date, the Company has authorized
Common Stock as set forth in the Registration Statement and the
Prospectus; the Bank has authorized capital stock as set forth in the
Conversion Application and the Prospectus and the description of such
capital stock in the Registration Statement, the Conversion
Application and the Prospectus is accurate and complete in all
material respects;
(vii) the issuance and sale of the Shares have been duly
and validly authorized by all necessary corporate action on the part
of the Company and have received requisite regulatory approvals or
non-objection; the Shares, upon receipt of payment and issuance in
accordance with the terms of the Plan and this Agreement, will be
validly issued, fully paid, nonassessable and the purchasers of the
Shares from the Company, upon issuance thereof against payment
therefor, will acquire such Shares free and clear of all claims,
encumbrances, security interests and liens whatsoever created or
suffered to be created by the Company;
(viii) the certificates for the Common Stock are in due and
proper form and comply with applicable requirements of federal and
North Carolina law and the rules and regulations of the Administrator;
(ix) the issuance and sale of the capital stock of the
Bank to the Company has been duly authorized by all necessary action
of the Bank, and the Company and has received the approval of the
Administrator, and such capital
<PAGE>
Trident Securities, Inc.
Page 19
stock, when paid for and issued in accordance with the terms of the
Plan, will be validly issued, fully paid and nonassessable and owned
of record and beneficially by the Company;
(x) subject to the satisfaction of the post-Conversion
conditions in the approvals of the Conversion Application, the Holding
Company Applications and the Notice, no further approval,
authorization, consent or other order of any public board or body is
required in connection with the execution and delivery of this
Agreement, the issuance of the Shares and consummation of the
Conversion except as may be required under the Blue Sky Laws (as to
which no opinion need be given);
(xi) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action, corporate or
otherwise, on the part of each of the Company and the Bank; and this
Agreement is a legal, valid and binding obligation of each of the
Company and the Bank, enforceable in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium, receivership, conservatorship or other laws affecting
creditors' rights generally and as may be limited by the exercise of
judicial discretion in applying principles of equity and except to the
extent that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy or Section 23A;
(xii) to the Actual Knowledge of such counsel, except as
set forth in the Prospectus, there are no legal or governmental
proceedings pending or threatened against or involving the assets of
the Company or the Bank required to be disclosed in the Prospectus
(provided, however, that no litigation or governmental proceeding is
-------- -------
considered to be threatened unless the potential litigant or
governmental authority has manifested to the management of the Bank,
or to such counsel, a present intention to initiate such litigation or
proceeding), nor are there any statutes or regulations, and, to the
Actual Knowledge of such counsel, any contracts or other documents
required to be described or disclosed in the Prospectus which are not
so described or disclosed; and the description in the Prospectus of
such statutes, regulations, contracts and other documents therein
described are in all material respects accurate summaries and in all
material respects fairly present the information required to be shown;
(xiii) the statements in the Prospectus under the captions
"Taxation," "Supervision and Regulation," "Dividend Policy," "Anti-
Takeover Provisions Affecting the Company and the Bank" and
"Description of Capital Stock," insofar as they are, or refer to,
statements of law or legal conclusions
<PAGE>
Trident Securities, Inc.
Page 20
thereon (excluding financial data included therein, as to which an
opinion need not be expressed), have been prepared or reviewed by them
and are correct in all material respects;
(xiv) the Conversion Application has been approved by the
Administrator, the FDIC has given its non-objection to the Conversion
Application, and the Prospectus and Proxy Statement have been approved
and authorized for distribution to members of the Bank and others
pursuant to the Plan by the Administrator; the Stock Charter when
issued to the Bank by the Administrator and filed with the North
Carolina Secretary of State's office will be in full force and effect;
the Registration Statement and any post-effective amendment thereto
have been declared effective by the Commission; the Administrator and
the Federal Reserve have issued their orders of approval for the
Company to acquire the Bank; and to such counsel's Actual Knowledge no
proceedings are pending, contemplated or threatened by or before the
Commission, the Administrator or the FDIC seeking to revoke or rescind
the orders declaring the Registration Statement, the Prospectus or the
Proxy Statement effective or, authorizing their use; provided,
--------
however, that no such action or proceeding is considered to be
-------
"threatened" unless the applicable governmental authority has
manifested to the management of the Company or the Bank, or to such
counsel, a present intention to initiate such proceeding;
(xv) the execution and delivery of this Agreement, the
incurring of the obligations herein set forth and the consummation of
the transactions contemplated hereby shall not conflict with nor
result in a material breach of the articles of incorporation, charter
or bylaws of the Company or the Bank (in either mutual or stock form),
nor to the Actual Knowledge of such counsel, constitute a material
breach of or default (or an event which, with notice or lapse of time
or both, would constitute a material default) under, or give rise to
any right of termination, cancellation or acceleration contained in,
or result in the creation or imposition of any lien, charge or other
encumbrance upon any of the properties or assets of the Company or the
Bank pursuant to any of the terms, provisions or conditions of any
material agreement, contract, indenture, bond, debenture, note,
instrument or obligation to which the Company or the Bank is a party
or by which it or its assets or properties may be bound or is subject,
or any governmental license or permit (subject to the satisfaction of
any post-Conversion conditions imposed by the Administrator, the FDIC
and/or the Federal Reserve), which in any such event would have a
Material Adverse Effect on the Company and the Bank, taken as a whole;
nor will any such actions violate any material law, administrative
regulation or order, court order, writ, injunction or decree, which
breach, default,
<PAGE>
Trident Securities, Inc.
Page 21
encumbrance or violation would have a Material Adverse Effect on the
Company and the Bank, taken as a whole;
(xvi) to the Actual Knowledge of such counsel, there has
been no material breach of the Company's or the Bank's articles of
incorporation or charter or bylaws or a breach or default (or the
occurrence of any event which, with the lapse of time or action, or
both, by a third party, would result in a breach or default) under any
agreement, contract, indenture, bond, debenture, note, instrument or
obligation to which the Company or the Bank is a party or by which any
of them or their respective assets or properties may be bound, or any
governmental license or permit, or a violation of any law,
administrative regulation or order, court order, writ, injunction or
decree which breach or default would have a Material Adverse Effect on
the Company and the Bank, taken as a whole;
(xvii) the Conversion Application, the Notice, the Holding
Company Applications, the Registration Statement, the Prospectus and
the Proxy Statement (in each case, as amended or supplemented, if so
amended or supplemented) comply as to form in all material respects
with the requirements of all applicable laws (including the 1933 Act)
and the rules, regulations, and all written and published decisions
and orders of the Administrator, the FDIC, the Federal Reserve or the
Commission, as the case may be (except as to financial statements,
notes to financial statements, financial tables and other financial
and statistical data, including the appraisal included therein, as to
which no opinion need be expressed); to the Actual Knowledge of such
counsel, all documents and exhibits required to be filed with the
Conversion Application and the Registration Statement (in each case,
as amended or supplemented, if so amended or supplemented) have been
so filed; the description in the Conversion Application, the Holding
Company Applications and the Registration Statement of such documents
and exhibits is in all material respects accurate and complete and
presents fairly the information required to be shown; to the Actual
Knowledge of such counsel, there are no contracts or other documents
of a character required to be described which are not described, and
there are no statutes or regulations applicable to, certificates,
permits or other authorizations from governmental regulatory officials
or bodies required to be obtained or maintained by, or legal or
governmental proceedings, past, pending or threatened, (provided,
--------
however, that no litigation or governmental proceeding is considered
-------
to be threatened unless the potential litigant or governmental
authority has manifested to the management of the Bank, or to such
counsel, a present intention to initiate such litigation or
proceeding), against the Company or the Bank of a character required
to be disclosed in the Conversion Application, the Holding Company
Applications, the
<PAGE>
Trident Securities, Inc.
Page 22
Registration Statement or the Prospectus which have not
been so disclosed and properly described therein;
(xviii) to the Actual Knowledge of such counsel, neither the
Company nor the Bank is in violation of any directive from the
Administrator, the FDIC or the Federal Reserve to make any change in
the method of conducting their respective businesses; and,
(xix) the Company is not required to be registered as an
investment company under the Investment Company Act of 1940 and will
not be required to be so registered as a result of the consummation of
the Conversion and the receipt and use of the proceeds from the sale
of the Shares, as such use of proceeds is described in the Prospectus
under the caption "Use of Proceeds."
In giving such opinion, such counsel may rely as to all matters of
fact on certificates of officers and directors of the Company and the Bank and
certificates of public officials delivered pursuant hereto.
As used in such counsel's opinion, the phrase "Actual Knowledge" shall mean
the conscious awareness of facts or other information by Edward C. Winslow III,
Howard L. Williams, Melissa H. Weaver, Jean C. Brooks, Ellen P. Hamrick, John M.
Cross, Jr., and Ginger S. Shields, who are the lawyers employed by such counsel
who have had active involvement with the Conversion, and except to the extent
stated in such opinion, such counsel will not be deemed to have undertaken any
independent investigation or inquiry to determine the existence or absence of
any facts.
(b) At the Closing Date, Trident shall receive the letter of Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., special counsel for the Company
and the Bank, addressed to Trident, dated the Closing Date and in form and
substance satisfactory to special counsel for Trident to the effect that, in
connection with the preparation of the Registration Statement, the Prospectus
and the Proxy Statement, such counsel participated in conferences with
directors, officers, employees and other representatives of the Company and the
Bank, representatives of the independent public accountants for the Company and
the Bank and with representatives of Trident and Trident's special counsel as
well as reviewed various documents and other information deemed relevant and,
based on such conferences and reviews, nothing has come to such counsel's
attention that would lead it to believe that, the Registration Statement, as
amended or supplemented, if amended or supplemented (except as to financial
statements, notes to financial statements, financial tables and other financial
and statistical data, including the appraisal contained therein, with respect to
which such counsel need make no statement), at the time it became effective and
at the time any post-effective amendment thereto became effective, or that the
Prospectus, as amended or supplemented, if amended or supplemented (except as to
<PAGE>
Trident Securities, Inc.
Page 23
financial statements, notes to financial statements, financial tables and other
financial and statistical data, including the appraisal contained therein, with
respect to which such counsel need make no statement), at the time it was
approved for final use by the Administrator and the FDIC, as of the date of such
document set forth thereon and as of the Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein in light of the
circumstances under which they were made not misleading (in making this
statement counsel may state that it has not undertaken to verify independently
the information set forth in the Registration Statement or Prospectus, and,
therefore, does not assume any responsibility for the accuracy or completeness
thereof).
(c) Counsel for Trident shall have been furnished such documents as
they reasonably may require for the purpose of enabling them to review or pass
upon the matters required by Trident, and for the purpose of evidencing the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions herein contained, including, but not limited to, resolutions of
the Boards of Directors of the Company and the Bank regarding the authorization
of this Agreement and the transactions contemplated hereby.
(d) Prior to and at the Closing Date, in the reasonable opinion of
Trident, (i) there shall have been no material adverse change in the condition
or affairs, financial or otherwise, of the Company or the Bank from that as of
the latest date as of which such condition is set forth in the Prospectus except
as referred to therein; (ii) there shall have been no material transactions
entered into by the Company or the Bank from the latest date as of which the
financial condition of the Company and the Bank is set forth in the Prospectus
other than transactions referred to or contemplated therein and transactions in
the ordinary course of business; (iii) neither the Company nor the Bank shall
have received from the Administrator, the FDIC or the Federal Reserve any
direction (oral or written) to make any material change in the method of
conducting their respective businesses with which they have not complied; (iv)
no action, suit or proceeding, at law or in equity or before or by any federal
or state commission, board or other administrative agency, shall be pending or
threatened against the Company or the Bank or affecting any of their respective
assets wherein an unfavorable decision, ruling or finding would result in a
Material Adverse Effect on the Company and the Bank, taken as a whole; and (v)
the Shares shall have been qualified or registered for offering and sale by the
Company under the Blue Sky Laws of such jurisdictions as Trident and the Company
shall have agreed upon.
<PAGE>
Trident Securities, Inc.
Page 24
(e) At the Closing Date, Trident shall receive a certificate of the
President and of the principal financial officer of each of the Company and the
Bank, dated the Closing Date, to the effect that: (i) each has carefully
examined the Prospectus and the Proxy Statement and in their opinion, at the
time the Prospectus and the Proxy Statement became authorized for final use,
neither the Prospectus nor the Proxy Statement contained an untrue statement of
a material fact or omitted to state a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; (ii) since the date the Prospectus or the Proxy Statement
became authorized for final use, no event has occurred which should have been
set forth in an amendment or supplement to the Prospectus or the Proxy Statement
which has not been so set forth, including specifically, but without limitation,
any event or change that has or may have a Material Adverse Effect on the
Company or the Bank and, the conditions set forth in clauses (ii) through (iv)
inclusive of subsection (d) of this Section 7 have been satisfied; (iii) no
order has been issued by the Administrator, the FDIC or the Commission to
suspend the Offerings or the effectiveness or the authorization for final use of
the Prospectus and the Proxy Statement and, to the best knowledge of such
officers, no action for such purposes has been instituted or threatened by the
Administrator, the FDIC or the Commission; (iv) to the best knowledge of such
officers, no person has sought to obtain review of the final action of the
Administrator or the FDIC approving the Plan; and, (v) all of the
representations and warranties contained in Section 2 of this Agreement are true
and correct, with the same force and effect as though expressly made on the
Closing Date.
(f) At the Closing Date, Trident shall receive, among other
documents, (i) a copy of the letter from the Administrator authorizing the use
of the Prospectus, the Proxy Statement and related materials, (ii) a copy of the
order of the Commission declaring the Registration Statement effective; (iii) a
copy of a letter from the Administrator evidencing the corporate existence of
the Bank; (iv) a copy of a letter from the North Carolina Secretary of State
evidencing the corporate existence of the Company; (v) a copy of the Company's
articles of incorporation certified by the North Carolina Secretary of State's
office; (vi) a copy of the letter from the Administrator approving the Bank's
Stock Charter; (vii) a copy of the order of the Federal Reserve approving the
Holding Company Application; and (viii) a copy of the order of the FDIC granting
its non-objection to the Conversion.
(g) As soon as available after the Closing Date, Trident shall
receive a certified copy of the Bank's Stock Charter executed by the
Administrator.
(h) Concurrently with the execution of this Agreement, Trident shall
have received a letter from Faulkner, independent certified public accountants,
dated the date hereof and addressed to Trident: (i) confirming that Faulkner is
a firm of independent public accountants within the meaning of the 1933 Act and
the 1933 Act Regulations and stating in effect that in Faulkner's opinion the
financial statements of the Bank as are included in the Prospectus comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act
<PAGE>
Trident Securities, Inc.
Page 25
Regulations and generally accepted accounting principles; (ii) stating in effect
that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards) consisting
of a reading of the latest available unaudited interim financial statements of
the Bank prepared by the Bank, a reading of the minutes of the meetings of the
Board of Directors of the Bank, meetings of members of the Bank and
consultations with officers of the Bank responsible for financial and accounting
matters, nothing came to their attention which caused them to believe that,
except as set forth in such letter: (A) such unaudited financial statements are
not in conformity with generally accepted accounting principles applied on a
basis substantially consistent with that of the audited financial statements
included in the Prospectus; or (B) during the period from the date of the latest
unaudited financial statements included in the Prospectus to a specified date
not more than three (3) business days prior to the date hereof, there was any
material increase in borrowings, defined as advances from the FHLB-Atlanta,
securities sold under agreements to repurchase and any other form of debt other
than deposits of the Bank (increases in borrowings will not be deemed to be
material if such increase in total borrowings outstanding does not exceed
$1,000,000); (C) there was any decrease in retained earnings of the Bank at the
date of such letter as compared with amounts shown in the latest unaudited
statement of condition included in the Prospectus; or (D) there was any decrease
in net income or net interest income of the Bank for the number of full months
commencing immediately after the period covered by the latest unaudited income
statement included in the Prospectus, and ended on the latest month end prior to
the date of the Prospectus or of such letter as compared to the corresponding
period in the preceding year; and (iii) stating that, in addition to the audit
examination of the Bank referred to in its opinion included in the Prospectus
and the performance of the procedures referred to in clause (ii) of this
subsection (h), they have compared with the general accounting records of the
Bank, which are subject to the internal controls of the Bank, accounting system
and other data prepared by the Bank, directly from such accounting records, to
the extent specified in such letter, such amounts and/or percentages set forth
in the Prospectus as Trident reasonably may request; and they have found such
amounts and percentages to be in agreement therewith (subject to rounding).
(i) At the Closing Date, Trident shall receive a letter in form and
substance satisfactory to counsel for Trident from Faulkner, independent
certified public accountants, dated the Closing Date and addressed to Trident,
confirming the statements made by them in the letter delivered by them pursuant
to the preceding subsection as of a specified date not more than five (5)
business days prior to the Closing Date.
<PAGE>
Trident Securities, Inc.
Page 26
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Trident and its counsel, satisfactory to Trident and its counsel. Any
certificates signed by an officer or director of the Company or the Bank and
delivered to Trident or to counsel for Trident shall be deemed a representation
and warranty by the Company or the Bank to Trident as to the statements made
therein. If any condition to Trident's obligations hereunder to be fulfilled
prior to or at the Closing Date is not so fulfilled, Trident may terminate this
Agreement or, if Trident so elects, may waive any such conditions which have not
been fulfilled or may extend the time of their fulfillment. If Trident
terminates this Agreement as aforesaid, the Company or the Bank shall reimburse
Trident for its allocable expenses as provided in Section 3 hereof.
8. Indemnification.
---------------
(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless Trident, its officers, directors and employees and each
person, if any, who controls Trident within the meaning of Section 15 of the
1933 Act or Section 20(a) of the 1934 Act, against any and all loss, liability,
claim, damage and expense whatsoever that such indemnified person(s) shall
suffer and shall further promptly reimburse such persons for any legal or other
expenses reasonably incurred by each or any of them in investigating, preparing
to defend or defending against any such action, proceeding or claim (whether
commenced or threatened) arising out of any misrepresentation by the Company or
the Bank in this Agreement or any breach of warranty by the Company or the Bank
with respect to this Agreement or arising out of or based upon any untrue or
alleged untrue statement of a material fact or the omission or alleged omission
of a material fact required to be stated or necessary to make not misleading any
statements contained in (i) the Registration Statement, the Prospectus or the
Proxy Statement (as from time to time amended and supplemented) or (ii) any
application (including the Conversion Application and the Holding Company
Applications) or other document or communication (in this Section 8 collectively
called "Application") executed by or on behalf of the Company or the Bank or
based upon written information furnished by or on behalf of the Company or the
Bank to effect the Conversion or qualify the Shares under the Blue Sky Laws
thereof or filed with the Administrator, the FDIC, the Federal Reserve or the
Commission unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company or the Bank with
respect to Trident by or on behalf of Trident expressly for use in the
Prospectus, the Proxy Statement or any amendment or supplement thereof or in any
Application, or (iii) any unwritten statement made with the Company's consent to
a purchaser of the Shares by any director or officer or any person employed by
or associated with the Company or the Bank other than Trident, its officers,
directors, employees or agents. This indemnity shall be in addition to any
liability the Company or the Bank may have to Trident otherwise.
(b) The Company and the Bank shall indemnify and hold Trident
harmless from any liability whatsoever arising out of the Company's or the
Bank's instructions with respect to
<PAGE>
Trident Securities, Inc.
Page 27
allocation of Shares in the event of an oversubscription as described in Section
5 hereof or any records of account holders, depositors, borrowers and other
members of the Bank delivered to Trident by the Bank or its agents for use in
the Conversion.
(c) Trident agrees to indemnify and hold harmless the Company and the
Bank and each person, if any, who control the Company and the Bank within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act, to the
same extent as the foregoing indemnity from the Company and the Bank to Trident,
but only with respect to statements or omissions, if any, made in the
Prospectus, the Proxy Statement or any amendment or supplement thereof or in any
Application in reliance upon, and in conformity with, written information
furnished to the Company or the Bank with respect to Trident by or on behalf of
Trident expressly for use in the Prospectus, the Proxy Statement or any
amendment or supplement thereof or in any Application.
(d) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party of the commencement thereof, but
the omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party, and
after notice from the indemnifying party or parties to such indemnified party of
its election so to assume the defense thereof, such indemnifying party or
parties shall not be liable to such indemnified party under this Section 8 for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than the reasonable cost of
investigation except as otherwise provided herein. In the event the indemnifying
party elects to assume the defense of any such action and retain counsel
acceptable to the indemnified party, the indemnified party may retain additional
counsel, but shall bear the fees and expenses of such counsel unless (i) the
indemnifying party shall have specifically authorized the indemnified party to
retain such counsel or (ii) the parties to such suit include such indemnifying
party and the indemnified party, and such indemnified party shall have been
advised by counsel that one or more material legal defenses may be available to
the indemnified party which may not be available to the indemnifying party, in
which case the indemnifying party shall not be entitled to assume the defense of
such suit notwithstanding the indemnifying party's obligation to bear the fees
and expenses of such counsel. An indemnifying party against whom indemnity may
be sought shall not be liable to indemnify an indemnified party under this
Section 8 if any settlement of any such action is effective without such
indemnifying party's consent.
9. Contribution. In order to provide for just and equitable contribution
------------
in circumstances in which the indemnity agreement provided for in Section 8
above is for any reason
<PAGE>
Trident Securities, Inc.
Page 28
held to be unavailable to the Company, the Bank or Trident other than in
accordance with its terms, the Company or the Bank and Trident shall contribute
to the aggregate losses, liabilities, claims, damages, and expenses of the
nature contemplated by said indemnity agreement incurred by the Company or the
Bank and Trident (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Bank, on the one hand, and
Trident, on the other hand, from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Bank, on the one hand, and Trident, on the other hand, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Bank, on
the one hand, and Trident, on the other hand, shall be deemed to be in the same
proportions as the total proceeds from the Conversion (before deducting
expenses) received by the Company and the Bank bear to the total fees received
by Trident under this Agreement. The relative fault of the Company and the Bank,
on the one hand, and Trident, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company and the Bank or by Trident and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company, the Bank and Trident agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 9, Trident shall not be required
to contribute any amount in excess of the amount by which fees owed Trident
pursuant to this Agreement exceed the amount of any damages which Trident has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission for which Trident would be provided
indemnification under the Section 8 hereof. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation.
10. Survival of Agreements, Representations and Indemnities. The
-------------------------------------------------------
respective indemnities of the Company, the Bank and Trident and the
representations and warranties of the Company, the Bank and Trident set forth in
or made pursuant to this Agreement shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement or any
investigation made by or on behalf of Trident or the Company and the Bank or any
controlling
<PAGE>
Trident Securities, Inc.
Page 29
person referred to in Section 8 hereof, and shall survive any termination or
consummation of this Agreement and/or the issuance of the Shares, and any legal
representative of Trident, the Company, the Bank and any such controlling
persons shall be entitled to the benefit of the respective agreements,
indemnities, warranties and representations.
11. Termination. The Company, the Bank or Trident may terminate this
-----------
Agreement by giving the notice indicated below in this Section 11 at any time
after this Agreement becomes effective as follows:
(a) If any domestic or international event or act or occurrence has
materially disrupted the United States securities markets such as to make it, in
Trident's opinion, impracticable to proceed with the Offerings; or if trading on
the New York Stock Exchange shall have been suspended; or if the United States
shall have become involved in a war or major hostilities; or if a general
banking moratorium has been declared by a state or federal authority; or if a
moratorium in foreign exchange trading by major international banks or persons
has been declared; or if there shall have been a material adverse change in the
capitalization, condition or business of the Company or the Bank; or if the Bank
shall have sustained a material or, in the reasonable opinion of Trident,
significant loss by fire, flood, accident, hurricane, earthquake, theft,
sabotage or other calamity or malicious act, whether or not said loss shall have
been insured.
(b) The Company and the Bank may terminate this Agreement with
respect to Trident upon a material breach of this Agreement by Trident.
(c) Trident may terminate this Agreement with respect to the Company
and the Bank upon a material breach of this Agreement by the Company or the
Bank.
(d) If any party elects to terminate this Agreement as provided in
this Section 11, such party shall notify the other parties hereto promptly by
telephone, telegram or telecopy, confirmed by letter sent as provided in Section
12.
(e) If this Agreement is terminated for any of the reasons set forth
in subsection (a) above, to fulfill its obligations pursuant to Sections 3(b),
3(c), 3(d), 6, 8(a) and 9 of this Agreement and upon demand, the Company or the
Bank shall pay Trident the full amount owed to Trident under such Sections.
(f) The Bank may terminate the Conversion in accordance with the
terms of the Plan. Such termination shall be without liability to any party,
except that the Company or the Bank shall be required to fulfill its obligations
pursuant to Sections 3(b), 3(c), 3(d), 6, 8(a) and 9 of this Agreement.
<PAGE>
Trident Securities, Inc.
Page 30
12. Notices. All communications hereunder, except as herein otherwise
-------
specifically provided, shall be in writing and, if sent to Trident, shall be
mailed, delivered or telegraphed and confirmed to Trident Securities, Inc., 4601
Six Forks Road, Suite 400, Raleigh, North Carolina 27609, Attention: Mr. Willis
Smith, II (with a copy to Thacher Proffitt & Wood, 1500 K Street, N.W., Suite
200, Washington, D.C. 20005, Attention: Richard A. Schaberg, Esq.), or, if sent
to the Company or the Bank, shall be mailed, delivered or telegraphed and
confirmed to the Company or the Bank, 211 South Greene Street, Wadesboro, North
Carolina 28170, Attention: Mr. Eugene M. Ward, President (with a copy to Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., 230 North Elm Street, 2000
Renaissance Plaza, Post Office Box 26000, Greensboro, North Carolina 27420,
Attention: Jean C. Brooks, Esq.).
13. Parties. This Agreement shall inure solely to the benefit of, and
-------
shall be binding upon, Trident, the Company and the Bank and the controlling and
other persons referred to in Section 8 hereof, and their respective successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
14. Severability. Any provision of this Agreement found to be invalid,
------------
unenforceable, or otherwise limited by law or regulation shall not effect the
validity or enforceability of the remaining terms of this Agreement.
15. Construction. Unless governed by preemptive federal law, this
------------
Agreement shall be governed by and construed in accordance with the substantive
laws of North Carolina.
16. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute but one and the same instrument.
<PAGE>
Trident Securities, Inc.
Page 31
If the foregoing correctly sets forth the understanding between you and the
Company and the Bank, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Yours very truly,
ANSON BANCORP, INC.
By: _____________________________
Eugene M. Ward
President
ANSON SAVINGS BANK, SSB
By: ______________________________
Eugene M. Ward
President
<PAGE>
Trident Securities, Inc.
Page 32
Agreed to and accepted this _____ day
of ___________, 1998.
TRIDENT SECURITIES, INC.
By: ______________________________________
Willis Smith, II
Senior Vice President
<PAGE>
Number 1
1,000 shares
Anson Savings Bank, Inc.
This certifies that Anson Bancorp, Inc. is the owner of One Thousand
(1,000) fully paid and nonassessable shares of common stock, no par value per
share, of Anson Savings Bank, Inc., transferable only on the books of the
Corporation by the holder hereof in person, or by Attorney upon surrender of
this Certificate properly endorsed.
The security evidenced by this Certificate is not a deposit account or
savings account and is not federally insured or guaranteed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duty authorized officers, and its Corporate Seal to be hereunto
affixed this day of A.D. 1998.
______________________ ________________________
Secretary President
<PAGE>
[CERTIFICATE APPEARS HERE]
For Value Received, hereby sell, assign, and transfer unto
Shares of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said Stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated 19
The presence of
Notice: The signature of this assignment must correspond with the name as
written upon the face of the certificate, in every particular instance without
alteration or enlargement, or any change whatever.
<PAGE>
Anson Bancorp, Inc.
Incorporated under the laws See reverse side for certain definitions
of the State of North Carolina CUSIP 036389104
This is to Certify That ___________________________
is the owner of ___________________________________
Fully paid and non-assessable shares of the common stock, no par value, of
Anson Bancorp, Inc. transferable only on the books of the Corporation in person
or by duly authorized Attorney upon surrender of this Certificate properly
endorsed. The security evidenced by this Certificate is not a deposit account or
savings account and is not federally insured or guaranteed. See reverse side for
certain definitions and information.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
Veda H. Edwards Gene Ward
--------------- ---------
Secretary President
<PAGE>
ANSON BANCORP, INC.
Keep this certificate in a safe place, if it is lost, stolen or destroyed,
the Corporation will require a Bond of Indemnity as a condition to the issuance
of a replacement certificate.
The Corporation will furnish to any stockholder upon request and without
charge a copy of the Articles of Incorporation and Bylaws of the Corporation,
which set forth certain other provisions with respect to acquisition of shares
of the Corporation, as well as a description of the Corporation's authorized
common and preferred stock and other provisions affecting stockholder rights and
corporate governance.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to appellable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT-(Customer)
--------
TEN ENT - as tenants by the entireties Custodian (Minor) under Uniform
-----
JT TEN - as joint tenants with right Gifts to Minors Act (State).
-----
of survivorship and not as
tenants in common.
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 assigner)
(please print or typewrite name and address including zip code or assignee)
shares of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated:
NOTICE: The signature to this assignment must correspond with the name
as written upon the face of the Certificate in every particular instance without
alteration or enlargement or any change whatever.
SIGNATURE(S) GUARANTEED:
The signature(s) should be guaranteed by an Eligable
Guardian Institution (Banks, Stockbrokers, Savings and Loan Associations and
Credit Unions with Membership in an Approved Signature Guarantee Medallion
Program), pursuant to S.E.C. Rule 17Ad.15
<TABLE>
<S> <C>
- --------------------------------------- -------------------------------------------------------
AMERICAN BANKNOTE COMPANY Production Coordinator - Christine Smith:- 216-830-2103
980 Blair Mill Road Proof of March 10, 1998
Horsham, Pa. 19044 Anson
210-087-3480 H-557606K
- --------------------------------------- -------------------------------------------------------
Sales Person A. Hobbs - 404-625-1455 Opr JW NEW
- --------------------------------------- -------------------------------------------------------
/Net/Banknote/Home 49/ANSON55760 /net/banknote/home49/A
- --------------------------------------- -------------------------------------------------------
</TABLE>
<PAGE>
Exhibit (10)(b)
---------------
ANSON SAVINGS BANK, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of _________________, 1998, by and between
ANSON SAVINGS BANK, INC. (hereinafter referred to as the "Savings Bank") and
EUGENE M. WARD (hereinafter referred to as the "Officer") and is joined in by
ANSON BANCORP, INC., the parent holding company of the Savings Bank (hereinafter
referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its President and Chief Executive Officer; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the President and Chief Executive Officer of the Savings Bank upon the terms and
conditions set forth herein; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry and
the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such well-qualified
executives and it is in the best interest of the Savings Bank and of the Officer
to secure the continued services of the Officer notwithstanding any change in
control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting
<PAGE>
and enhancing the best interests of the Holding Company, the Savings Bank and
their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President and Chief Executive Officer of the Savings Bank.
The Officer shall render such administrative and management services to the
Savings Bank as are customarily performed by persons situated in a similar
executive capacity. The Officer shall promote the business of the Savings Bank
and perform such other duties as shall, from time to time, be reasonably
prescribed by the Board of Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $69,000 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased, but not
decreased, from time to time in such amounts as the Board, in its discretion,
may decide. In determining salary increases, the Board shall compensate the
Officer for increases in the cost of living and may also provide for performance
or merit increases. Participation in incentive
2
<PAGE>
compensation, deferred compensation, discretionary bonus, profit-sharing,
retirement, stock option and other employee benefit plans that the Savings Bank
or the Holding Company have adopted or may from time to time adopt, and
participation in any fringe benefits, shall not reduce the salary payable to the
Officer under this Section. The Officer will be entitled to such customary
fringe benefits, vacation and sick leave as are consistent with the normal
practices and established policies of the Savings Bank.
3. Annual Bonus. The Board has established a program for awarding an
------------
annual bonus to all employees of the Savings Bank (the "Annual Bonus"). Under
the terms of the Annual Bonus plan, after the "Profits" of the Savings Bank
exceed a certain dollar figure which is determined annually by the Board, an
aggregate amount equal to ten percent of the Profits of the Savings Bank is
divided pro rata among the full-time employees of the Savings Bank based on each
employee's annual base salary, provided that each such Annual Bonus shall not
exceed twenty percent of each such employee's annual salary. The Savings Bank
agrees to pay the Officer his pro rata share of the Annual Bonus on or before
September 5 of each fiscal year provided that the Officer is still an employee
of the Savings Bank as of June 30 of each fiscal year. "Profit" for purposes of
determining the Annual Bonus shall be the profit of the Savings Bank before
income taxes as determined by the Savings Bank's certified public accountant
(the "CPA") and certified by the CPA to the Board of the Savings Bank in the
annual audit report prepared by said CPA and covering the subject fiscal year.
For example, if the Board set the profit goal at $50,000 and the profits of the
Savings Bank were determined to be $60,000, there would be a $6,000 Annual Bonus
to be distributed pro rata among all the employees of the Savings Bank.
3
<PAGE>
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock ownership plan, stock
purchases, pension, thrift, profit sharing, group life insurance, medical and
dental coverage, disability coverage, education, or other retirement or employee
benefits that the Savings Bank or the Holding Company have adopted, or may, from
time to time adopt, for benefit of their executive employees and for employees
generally, subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, and
any other benefits which are commensurate with the duties and responsibilities
to be performed by the Officer under this Agreement. The Savings Bank shall
reimburse the Officer for all out-of-pocket reasonable and necessary business
expenses which the Officer may incur in connection with his services on behalf
of the Savings Bank. Additionally, the Officer shall be entitled to such
vacation and sick leave as shall be established under uniform employee policies
promulgated by the Directors.
5. Term. The initial term of employment under this Agreement shall be
----
for the period commencing upon the effective date of this Agreement and ending
three (3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement, the term of this Agreement
shall automatically be extended for an additional one year period beyond the
then effective expiration date unless written notice from the Savings Bank or
the Officer is received 90 days prior to an anniversary date advising the other
party that
4
<PAGE>
this Agreement shall not be further extended; provided that the Directors shall
review the Officer's performance annually and make a specific determination
pursuant to such review to renew this Agreement prior to the 90 day notice
period.
6. Loyalty. The Officer shall devote his full efforts and entire
-------
business time to the performance of his duties and responsibilities under this
Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The Savings Bank will provide the
Officer with the working facilities and staff customary for similar executives
and necessary for him to perform his duties.
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter. Notwithstanding the
foregoing, in the event of the Officer's death following a change in control
5
<PAGE>
(as defined in Paragraph 10), the Officer's designated beneficiary or the
designated beneficiary's estate shall be entitled to receive the compensation
due the Officer through the last day of the remaining terms of this Agreement.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) In the event the Officer becomes disabled during the term of his
employment under this Agreement and it is determined by the Savings Bank that
the Officer is permanently unable to perform his duties hereunder, the Savings
Bank shall continue to compensate the Officer at the level of compensation
described in Paragraph 2 above, and shall continue to provide the Officer each
of the other benefits set forth or described in this Agreement, for the
remaining term of this Agreement, less any other payments provided under any
disability income plan of the Savings Bank which is applicable to the Officer.
In the event of any disagreement between the Officer and the Savings Bank as to
whether the Officer is physically or mentally incapacitated such as will result
in the termination of the Officer's employment pursuant to this Paragraph 8(c),
the question of such incapacity shall be submitted to an impartial and reputable
physician for determination, selected by mutual agreement of the Officer and the
Savings Bank or, failing such agreement, by two (2) physicians (one (1) of whom
shall be selected by the Savings Bank and the other by the Officer), and such
determination of the question of such incapacity by such physician or physicians
shall be final and binding on the Officer and the Savings Bank. The Savings
Bank shall pay the reasonable fees and expenses of such physician
6
<PAGE>
or physicians in making any determination required under this Paragraph 8(c).
(d) The Board may terminate the Officer's employment at any time, but any
termination by the Board, other than termination for cause, shall not prejudice
the Officer's right to compensation or other benefits under this Agreement for
the remaining period which would have been covered by this Agreement if such
termination had not occurred. The Officer shall have no right to receive
compensation or other benefits for any period after termination for "cause."
Termination for "cause" shall include termination because of the Officer'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, regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provisions
of this Agreement.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Bank's affairs by a notice served
under Section 8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Savings Bank shall (i) pay the Officer all of the compensation withheld while
its contract obligations were suspended and (ii) reinstate (in whole or in part)
any of its obligations which were suspended.
(b) If the Officer is removed and/or permanently prohibited from
participating in the conduct of the Savings Bank's affairs by an order issued
under Section 8(e)(4) or Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the
7
<PAGE>
Savings Bank under this Agreement shall terminate as of the effective date of
the order, but vested rights of the contracting parties shall not be affected.
(c) If the Savings Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act (12 U.S.C. (S) 1818(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) 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 Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "Corporation"), at the time the Corporation enters into an
agreement to provide assistance to or on behalf of the Savings Bank under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act (12
U.S.C. (S) 1818(c)); or (ii) by the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce (the "Administrator"), at
the time the Administrator approves a supervisory merger to resolve problems
related to operation of the Savings Bank or when the Savings Bank is determined
by the Administrator to be in an unsafe or unsound condition. Any rights of the
parties that have already vested, however, shall not be affected by such action.
10. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subparagraph (c)
below), the term of employment under this Agreement automatically shall be
extended for a period of three (3) years beginning on the date of the Change in
Control, and the acquiror shall be bound by the terms of this Agreement and
shall be prohibited, during the remainder of such term, from:
(i) Assigning Officer any duties and/or responsibilities that are
8
<PAGE>
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Subparagraph 10(b) of this
Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans, stock ownership plan or similar plans or benefits,
including, without limitation, the provision of the Officer's
automobile and payment of civic and social club dues, being provided
by the Savings Bank or the Holding Company to the Officer as of the
effective date of the Change in Control; or
(iv) Transferring Officer to a location outside of Anson County,
North Carolina, without the Officer's express written consent.
(b) In the event of a Change in Control, in lieu of continuing to receive
the Annual Bonus described in Paragraph 3, the Officer's base salary shall be
adjusted to include an amount equal to the average of the Officer's pro rata
share of the two previous years' Annual Bonus, and such adjusted base salary
shall be increased by not less than six percent (6%) annually beginning at the
date of the Change in Control and continuing each year for the three-year term
thereafter.
(c) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K, as
in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
9
<PAGE>
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
Holding Company's shareholders was approved by the Savings Bank's or
Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
(d) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by
10
<PAGE>
formal legal proceedings or otherwise, including any action taken by the Officer
to enforce the terms of this Section 10 or in defending against any action taken
by the Savings Bank, the Savings Bank shall reimburse the Officer for all costs
and expenses incurred in such proceedings or actions, including attorney's fees,
in the event the Officer prevails in any such action.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
12. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
11
<PAGE>
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
ANSON SAVINGS BANK, INC.
By:
----------------------------------
Chairman of the Board
----------------------------------
Eugene M. Ward
(SEAL)
The foregoing Agreement is consented and agreed to by Anson Bancorp, Inc.,
the parent holding company of Anson Savings Bank, Inc.
ANSON BANCORP, INC.
By:
----------------------------------
Chairman of the Board
13
<PAGE>
EXHIBIT 23 (A)
(Letterhead of Faulkner & Thompson, P.A.)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement/Prospectus
of Anson Bancorp, Inc. and any amendments thereto of our report dated August 26,
1997 relating to the statements of financial condition of Anson Savings Bank,
SSB, as of June 30, 1997 and 1996, and the related statements of operations,
equity and cash flows for the years then ended and to the reference to our firm
in the Registration Statement/Prospectus under the caption "Experts".
/s/ Faulkner and Thompson, P.A.
Charlotte, North Carolina
May 7, 1998
<PAGE>
EXHIBIT 23(B)
[FERGUSON & COMPANY LETTERHEAD]
MAY 8,1998
BOARD OF DIRECTORS
ANSON SAVINGS BANK, SSB
211 SOUTH GREENE STREET
WADESBORO, NORTH CAROLINA 28170
DIRECTORS:
We hereby consent to the use of our firm's name in the applications for
conversion of Anson Savings Bank, SSB, Wadesboro, North Carolina, and any
amendments thereto, filed with the Division of Savings Institutions, North
Carolina Department of Commerce (the "Division"), and the FDIC, in the Form SB-2
Registration Statement and any amendments thereto, and in the Acquisition
Application and the Holding Company Application for Anson Bancorp, Inc. as filed
with the Division and the Federal Reserve Board, respectively. We also hereby
consent to the inclusion of, a summary of, and references to our Appraisal
Report and our opinion concerning subscription rights in such filings including
the Prospectus of Anson Bancorp, Inc. and the Proxy Statement of Anson Saving
bank, SSB.
Sincerely,
/s/ Robin L. Fussell
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 99(b)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Anson Bancorp, Inc.
Stock Order Form
--------------------------------------------------
STOCK EXPIRATION DATE
INFORMATION for Stock Order Forms:
CENTER June 9, 1998
ANSON SAVINGS 12:00 Noon,
BANK, SSB North Carolina Time
211 S. GREENE STREET
P.O. BOX 249
WADESBORO, NC 28170-2645
(704) 694-6481
- --------------------------------------------------------------------------------
IMPORTANT--PLEASE NOTE: A properly completed original stock order form must be
used to subscribe for common stock. Faxes or copies of this form will not be
accepted. Please read the Stock Ownership Guide and Stock Order Form
Instructions as you complete this Form.
- --------------------------------------------------------------------------------
(1) NUMBER OF SHARES SUBSCRIPTION PRICE The minimum purchase is 50
-------------------- shares (or $500). The
X $10.00 = maximum purchase per
-------------------- eligible depositor in the
Subscription Offering is
(2) TOTAL PAYMENT DUE 10,000 shares. The maximum
--------------------- purchase for individuals
together with associates
--------------------- is 15,000 shares. The Bank
may decrease or increase
the maximum purchase
limitation without
notifying you.
- --------------------------------------------------------------------------------
[_] (3) EMPLOYEE/OFFICER/DIRECTOR INFORMATION
Check here if you are a director, officer or employee of Anson 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 Anson Bancorp, Inc. in
the amount of: ------------------------
- --------------------------------------------------------------------------------
[_] (5) METHOD OF PAYMENT/WITHDRAWAL
The undersigned authorizes withdrawal from the following account(s) at Anson
Savings Bank. There is no penalty for early withdrawal for purposes of this
payment.
--------------------------------------------------------------------------
Account Number(s) Withdrawal Amount(s)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Total Withdrawal Amount
-----------------------------------
- --------------------------------------------------------------------------------
(6) PURCHASER INFORMATION
A. [_] Eligible Account Holder -- Check here if you were a depositor of at least
$50 at Anson Savings Bank on September 30, 1996. Enter information below
for all deposit accounts that you had at Anson Savings Bank on September
30, 1996.
B. [_] Supplemental Eligible Account Holder--Check here if you were a depositor
of at least $50 at Anson Savings Bank on March 31, 1998 but are not an
Eligible Account Holder. Enter information below for all deposit accounts
that you had at Anson Savings Bank on March 31, 1998.
C. [_] Other Member--Check here if you were a depositor or loan customer at
Anson Savings Bank on April 30, 1998, but you were not an Eligible
Account Holder or Supplemental Eligible Account Holder. Enter information
below for all deposit accounts or loans that you had at Anson Savings
Bank on April 30, 1998.
D. [_] Check here if you are a permanent resident of Anson County, North
Carolina.
- --------------------------------------------------------------------------------
Account Title (Names on Accounts) Account Number(s)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLEASE NOTE: FAILURE TO LIST ALL YOUR ACCOUNTS 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 [_] Other _______
[_] Fiduciary (Under Agreement Dated _____, 199 )
[_] Corporation or Partnership [_] Uniform Transfer to Minors Act
(8) NAME(S) IN WHICH STOCK IS TO BE
REGISTERED (PLEASE PRINT CLEARLY) Social Security # or Tax ID
------------------------------------------- -----------------------------
------------------------------------------- -----------------------------
Name(s) continued County of Residence
------------------------------------------- -----------------------------
------------------------------------------- -----------------------------
Street Address City
------------------------------------------- -----------------------------
------------------------------------------- -----------------------------
(9) TELEPHONE INFORMATION
(Daytime) (Evening) State Zip Code
-------------------------- -------------- --------- -------------------
( ) ( )
-------------------------- -------------- -----------------------------
- --------------------------------------------------------------------------------
[_] (10) NASD AFFILIATION
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 therefor.
- --------------------------------------------------------------------------------
[_] (11) ASSOCIATE--ACTING IN CONCERT
Check here, and complete the reverse side of this Form, if you or any
associate (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) ACKNOWLEDGMENT
To be effective, this fully completed Stock Order Form must be actually
received by Anson Savings Bank, no later than 12:00 Noon, North Carolina
Time, on June 9, 1998, unless extended; otherwise this Stock Order Form and
all subscription rights will be void. Completed Stock Order Forms, together
with the required payment or withdrawal authorization, may be delivered to
Anson Savings Bank or may be mailed to the Post Office Box indicated on the
enclosed business reply envelope. All rights exercisable hereunder are not
transferable and shares purchased upon exercise of such rights must be
purchased for the account of the person exercising such rights.
It is understood that this Stock Order Form will be accepted in accordance
with, and subject to, the terms and conditions of the Plan of Holding
Company Conversion of Anson Savings Bank, SSB from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered stock savings
bank described in the accompanying Prospectus. If the Plan is not approved
by the depositors of Anson Savings Bank, SSB, at a Special Meeting to be
held on June 15, 1998, or any adjournment thereof, all orders will be
cancelled and funds received as payment, with accrued interest, will be
returned promptly.
The undersigned agrees that after receipt by Anson Savings Bank, this Stock
Order Form may not be modified, withdrawn or cancelled (unless the offering
is not completed within 45 days after the completion of the Subscription
Offering) without Anson Savings Bank's consent, and if authorization to
withdraw from deposit accounts at Anson Savings 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 certify that the Social Security or Tax ID
Number and the other information provided under number 8 of this Stock Order
Form are true, correct and complete, that I am not subject to back-up
withholding, that I am purchasing for my own account and that there is no
agreement or understanding regarding the transfer of my subscription rights
or the sale or transfer of these shares.
Applicable 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. Anson Savings Bank and Anson Bancorp, Inc. may
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. I acknowledge that the common stock
offered is not a savings or deposit account and is not insured by the
Savings Association Insurance Fund, the Bank Insurance Fund, the Federal
Deposit Insurance Corporation, or any other government agency, may lose
value and is not guaranteed by Anson Bancorp, Inc., Anson Savings Bank, or
any governmental agency.
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED TWICE: BELOW AND ON THE
FORM OF CERTIFICATION ON THE REVERSE HEREOF.
SIGNATURE DATE SIGNATURE DATE
------------------------------ -------------------------------
------------------------------ -------------------------------
---------------------------------------
DATE REC'D ____________________________
BATCH _________ ORDER # __________
CATEGORY ________ DEPOSIT ________
A SIGNED FORM OF CERTIFICATION MUST ACCOMPANY ALL STOCK ORDER FORMS (SEE
REVERSE SIDE)
- --------------------------------------------------------------------------------
<PAGE>
ITEM (6)A, B--(CONTINUED)
- -------------------------------------- --------------------------------------
Account Title (Names on Account Account Title (Names on Account
Accounts) Number(s) Accounts) Number(s)
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
- -------------------------------------- --------------------------------------
ITEM (11)--(CONTINUED)
List below all other orders "Associate" is defined as: (i) any relative
submitted by you or your or spouse of such person, or any relative of
Associates (as defined) or by such spouse, who has the same home as such
persons acting in concert with person or who is a director or officer of
you. Anson Savings Bank, Anson Bancorp, Inc. or
any subsidiaries thereof; (ii) any
- -------------------------------- corporation or organization (other than
Number of Anson Savings Bank, Anson Bancorp Inc., or
Name(s) listed on Shares any of their majority-owned subsidiaries) of
other Stock Order Ordered which such person is an officer or partner
Forms or is, directly or indirectly, the
- -------------------------------- beneficial owner of 10% or more of any class
of equity securities; and (iii) 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, except for any
- -------------------------------- tax-qualified employee stock benefit plan or
any charitable trust which is exempt from
- -------------------------------- federal taxation pursuant to Section
501(c)(3) of the Internal Revenue Code of
1986, as amended.
================================================================================
A VALID STOCK ORDER FORM MUST BE SIGNED AND DATED BELOW AND ON THE FRONT OF
THIS FORM.
FORM OF CERTIFICATION
I/WE ACKNOWLEDGE THAT THIS SECURITY IS NOT A DEPOSIT OR SAVINGS ACCOUNT AND
IS NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE AGENCY OR ANY
GOVERNMENTAL AGENCY, MAY LOSE VALUE, AND IS NOT GUARANTEED BY ANSON SAVINGS
BANK, ANSON BANCORP, INC. OR BY THE FEDERAL GOVERNMENT.
I/We further certify that, before purchasing the common stock, no par value
per share, of Anson Bancorp, Inc., the proposed holding company for Anson
Savings Bank, I/we received a Prospectus dated May , 1998 (the
"Prospectus").
The Prospectus that I/we received contains disclosure concerning the nature
of the security being offered and describes the risks involved in the
investment, including but not limited to:
<TABLE>
<S> <C>
1. Potential Impact of Changes in Interest Rates...................(page 12)
2. Risk Associated with Nonconforming Loans........................(page 12)
3. Anticipated Low Return on Equity Following Conversion...........(page 13)
4. Limited Market for the Common Stock.............................(page 13)
5. Risks Associated with Anson's Primary Market Area; Limited
Lending Opportunities; Competition..............................(page 14)
6. Cost and Possible Dilutive Effect of the MRP and Option Plan....(page 14)
7. Anti-Takeover Considerations....................................(page 15)
8. Dependence on Management........................................(page 17)
9. Financial Institution Regulation and Possible Legislation.......(page 17)
10. Possible Year 2000 Computer Program Problems; Impact of
Technological Advances..........................................(page 17)
</TABLE>
Signature Date Signature Date
------------------------------------- ------------------------------------
------------------------------------- ------------------------------------
Name (Please Print) Name (Please Print)
------------------------------------- ------------------------------------
------------------------------------- ------------------------------------
================================================================================
<PAGE>
ANSON BANCORP, INC.
- -------------------------------------------------------------------------------
SUBSCRIPTION OFFERING STOCKOWNERSHIP GUIDE AND STOCK
ORDER FORM INSTRUCTIONS
- -------------------------------------------------------------------------------
- ---------------------
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.
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 copy and description of the document governing the fiduciary
relationship, such as living trust agreement or court order. Without
documentation establishing a fiduciary relationship, your stock may not be
registered 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.
JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
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 TRANSFER TO MINORS
Stock may be held in the name of a custodian for a minor under the Uniform
Transfer to Minors Acts 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 Transfer to Minors Act is "Unif Tran
Min Act". 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 North Carolina Uniform Transfer to Minors
Act will be abbreviated John Doe, CUST Susan Doe Unif Tran Min Act, NC (use
minor's social security number).
You may mail your completed Stock Order Form in the envelope that has been
provided, or you may deliver your Stock Order Form to Anson Savings' office.
In order to purchase stock in the Subscription Offering, your original Stock
Order Form, properly completed, and payment in full (or withdrawal
authorization) at the Subscription Price of $10.00 per share must be received
by Anson Savings no later than 12:00 noon, North Carolina Time, on June 9,
1998, unless such date is extended, or your Stock Order Form will become void.
Stock Order Forms shall be deemed received only upon actual receipt at a Anson
Savings office.
If you need further assistance, please call the Stock Information Center at
(704) 694-6481. We will be pleased to help you with the completion of your
Stock Order Form or answer any questions you may have.
ITEM 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
purchased by the Subscription Price of $10.00 per share. The minimum purchase
is 50 shares. The maximum purchase by (i) any person or entity or (ii) persons
or entities exercising subscription rights through a single account or (iii)
group of persons otherwise acting in concert is 10,000 shares. In addition, no
person or entity, or group of persons acting in concert, together with any
Associate (as defined in the Plan), may subscribe for more than 15,000 shares.
Management has the right to increase or decrease these limits as permitted in
the Plan of Holding Company Conversion.
Anson Bancorp, Inc. and Anson Savings Bank has the right to reject the order
of any subscriber who (i) submits false or misleading information on a Stock
Order Form or otherwise, (ii) attempts to purchase shares in violation of the
Plan of Holding Company Conversion or applicable law or (iii) fails to
cooperate with attempts to verify information with respect to purchase rights.
ITEM 3--
Payment for shares may be made in cash (only if delivered by you in person) or
by check, bank draft or money order made payable to Anson Bancorp, Inc. Your
funds will earn interest at the Anson Savings Bank's current passbook savings
rate until the Conversion is completed or terminated. DO NOT MAIL CASH TO
PURCHASE STOCK! PAYMENT MAY NOT BE MADE BY WIRE TRANSFER. Please check this
box if your method of payment is by cash, check, bank draft or money order.
ITEM 4 AND 5--
If you pay for your stock by a withdrawal from a Anson Savings Bank deposit
account, 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. Your order will be rejected if, on the date
your order is received, the accounts designated by you do not contain
sufficient funds to complete your purchase. There will be no penalty assessed
for early withdrawals from certificate accounts used for stock purchases.
ITEM 6--
a. Please check this box if you were a depositor of at least $50 at Anson
Savings Bank on September 30, 1996 (the Eligibility Record Date). You must
list the full title and account numbers of all accounts you had on this date
in order to insure proper identification of your purchase rights and
preferences.
b. Please check this box if you were a depositor of at least $50 at Anson
Savings Bank on March 31, 1998 (the Supplemental Eligibility Record Date). You
must list the full title and account numbers of all accounts you had on this
date in order to insure proper identification of your purchase rights and
preferences.
c. Please check this box if you were a depositor or loan customer of Anson
Savings Bank on April 30, 1998, but were not an Eligible Account Holder or
Supplemental Eligible Account Holder.
d. Please check this box is you are a permanent resident of Anson County,
North Carolina.
ITEMS 7, 8 AND 9--
The stock transfer industry has developed a uniform system of shareholder
registrations that we will use in the issuance of your common stock. Please
complete items 7, 8 and 9 as fully and accurately as possible, and be certain
to supply your social security number or tax identification number 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 or concerns regarding
the registration of your stock, please consult your legal advisor. Stock
ownership must be registered in one of the ways described 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.
ITEMS 11 AND 12--
Please sign and date the Stock Order Form where indicated. Review the Stock
Order Form carefully before you sign, including the acknowledgement. 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. If you have any remaining questions, or
if you would like assistance in completing your Stock Order Form, you may call
the Stock Information Center. The Stock Information Center phone number is
(704) 694-6481.
<PAGE>
[ARROW APPEARS HERE]
THIS IS YOUR PROXY CARD.
YOU MAY RECEIVE MORE THAN ONE PACKET OF MATERIAL.
PLEASE VOTE ALL PROXY CARDS RECEIVED.
A POSTAGE PRE-PAID ENVELOPE IS INCLUDED IN THIS
PACKET FOR YOUR CONVENIENCE.
THANK YOU.
<PAGE>
ANSON SAVINGS BANK, SSB
POST OFFICE BOX 249
211 SOUTH GREENE STREET
WADESBORO, NORTH CAROLINA 28170
(704) 694-2122
--------------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON JUNE 15, 1998
--------------------------------------
NOTICE IS HEREBY GIVEN, that a special meeting (the "Special Meeting") of
the members of Anson Savings Bank, SSB (the "Bank") will be held at the Bank's
headquarters office at 211 South Greene Street, Wadesboro, North Carolina on
June 15, 1998 at 10:00 a.m., Eastern Time, to consider and vote upon:
1. The Plan of Holding Company Conversion (the "Plan of Conversion")
pursuant to which, among other things, (i) the Bank will convert from
a North Carolina-chartered savings bank organized in mutual form to a
North Carolina-chartered savings bank organized in stock form (the
"Conversion"), and in connection therewith will adopt an amended
Certificate of Incorporation and Bylaws, (ii) the Bank will sell its
capital stock to Anson Bancorp, Inc. (the "Company"), a North Carolina
corporation, and become the wholly-owned subsidiary of the Company,
and (iii) the Company will offer and sell shares of its common stock
in a Subscription Offering and, if necessary, in a Community Offering
and a Syndicated Community Offering, all as more specifically set
forth in the Plan of Conversion; and
2. Such other business as may relate to the purposes set forth in this
Notice of Special Meeting and properly come before the meeting and any
adjournment(s) thereof. Management is not aware of any such other
business.
The Board of Directors has fixed the close of April 30, 1998 as the record
date for the determination of members entitled to notice of and to vote at the
Special Meeting and at any adjournment(s) thereof. Members of the Bank of
record as of the close of business on that date who cease to be members prior to
the date of the Special Meeting will not be entitled to vote at the Special
Meeting. Approval of the Plan of Conversion requires the affirmative vote, cast
in person or by proxy, of a majority of the total outstanding votes entitled to
be cast by voting members at the Special Meeting. A copy of the Plan of
Conversion is attached to this Summary Proxy Statement as Attachment I.
BY ORDER OF THE BOARD OF DIRECTORS
VEDA H. EDWARDS
Secretary
Wadesboro, North Carolina
May 18, 1998
<PAGE>
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY CARD(S) IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING. THIS WILL ASSURE YOUR REPRESENTATION AT THE SPECIAL
MEETING AND MAY AVOID THE COST OF ADDITIONAL COMMUNICATIONS. THIS WILL NOT
PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU MAY
REVOKE YOUR WRITTEN PROXY BY DELIVERING A WRITTEN INSTRUMENT TO SUCH EFFECT TO
THE SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR BY
DELIVERING TO THE SECRETARY OF THE BANK PRIOR TO THE SPECIAL MEETING A DULY
EXECUTED PROXY BEARING A LATER DATE. PROPERLY COMPLETED PROXIES WILL BE VOTED
IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED THEREON, OR IF NO INSTRUCTIONS ARE
INDICATED, FOR APPROVAL OF THE PLAN OF CONVERSION.
---
YOUR PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE BANK. THE BANK
BOARD OF DIRECTORS RECOMMENDS THAT VOTING MEMBERS VOTE FOR APPROVAL OF THE PLAN
OF CONVERSION. FAILURE TO VOTE IN PERSON OR BY PROXY WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF
-------
CONVERSION WILL NOT OBLIGATE ANY PERSON TO PURCHASE COMMON STOCK, AND VOTING
AGAINST THE PLAN OF CONVERSION OR A FAILURE TO VOTE WILL NOT PRECLUDE ANY SUCH
PURCHASE.
THE ENCLOSED PROXY IS SOLICITED FOR THIS SPECIAL MEETING ONLY, AND ANY
ADJOURNMENT(S) THEREOF, AND WILL NOT BE USED FOR ANY OTHER MEETING. NO
PREVIOUSLY PROVIDED GENERAL PROXIES WILL BE VOTED AT THE SPECIAL MEETING FOR
APPROVAL OF THE PLAN OF CONVERSION.
ii
<PAGE>
ANSON SAVINGS BANK, SSB
------------------------------------
SUMMARY PROXY
STATEMENT
------------------------------------
SPECIAL MEETING OF MEMBERS TO BE HELD ON JUNE 15, 1998
PURPOSE OF THE SPECIAL MEETING
This Summary Proxy Statement (the "Proxy Statement") is being furnished to
you in connection with the solicitation by the Board of Directors of Anson
Savings Bank, SSB (the "Bank") of proxies to be voted at a special meeting of
members (the "Special Meeting") to be held at the Bank's headquarters office at
211 South Greene Street, Wadesboro, North Carolina on June 15, 1998 at 10:00
a.m., Eastern Time.
The Special Meeting will be held for the purpose of considering and voting
upon the proposed Plan of Holding Company Conversion approved by the Board of
Directors of the Bank on December 11, 1997 (the "Plan of Conversion"), which
provides for the adoption by the Bank of an amended Certificate of Incorporation
and Bylaws. If the Plan of Conversion is approved by a majority of the total
votes eligible to be cast and if certain other conditions are satisfied, the
Bank will convert from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank, and the Bank will become the wholly-owned
subsidiary of Anson Bancorp, Inc. (the "Company"), a North Carolina corporation
formed by the Bank to own all of the stock of the Bank issued pursuant to the
Plan of Conversion (the "Conversion"). The proposed Plan of Conversion,
including the proposed forms of the Bank's amended Certificate of Incorporation
and Bylaws, is attached to this Proxy Statement as Attachment I. For a
description of the Conversion, see "THE CONVERSION."
This Proxy Statement is dated May 18, 1998, and is first being mailed to
members of the Bank, together with the Prospectus dated May 18, 1998 (the
"Prospectus"), on or about May 18, 1998.
The following information is not complete and is qualified in its entirety
by the Plan of Conversion, which is attached to this Proxy Statement, the
information contained in this Proxy Statement and the information and financial
statements and accompanying notes contained in the Prospectus which accompanies
this Proxy Statement.
<PAGE>
ANSON BANCORP, INC.
The Company is a North Carolina corporation recently organized by the Board
of Directors of the Bank to acquire all of the capital stock that the Bank will
issue upon its Conversion from the mutual to stock form of ownership. The
Company has not as yet engaged in any business. Upon completion of the
Conversion, its business will initially consist solely of owning the Bank and
investing the proceeds of the Conversion that are retained by the Company. The
Company has received the approval of the Administrator, Savings Institutions
Division, North Carolina Department of Commerce (the "Administrator"), and the
Board of Governors of the Federal Reserve System (the "Federal Reserve") to
acquire the Bank.
The executive office of the Company is located at 211 South Greene Street,
Wadesboro, North Carolina, and its telephone number is (704) 694-2122.
ANSON SAVINGS BANK, SSB
The Bank is a community and customer oriented North Carolina chartered
mutual savings bank that has been in operation since December 4, 1889 with one
office located in Wadesboro, North Carolina. The Bank has been a member of the
Federal Home Loan Bank ("FHLB") system since 1939 and its deposits have been
federally insured since 1959. The Bank emphasizes residential mortgage lending,
primarily originating one-to-four-family mortgage loans in its primary market
area, Anson County, North Carolina. To a lesser extent, the Bank also makes
nonresidential real estate loans, construction loans and loans secured by
deposit accounts. The Bank is a portfolio lender, meaning that it does not
originate loans for sale in the secondary market. At December 31, 1997, the
Bank had total assets of $20.7 million, deposits of $16.7 million, and equity of
$3.9 million.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed the close of business on April
30, 1998 (the "Voting Record Date") as the record date for determining the
members entitled to notice of and to vote at the Special Meeting. The Bank's
depositors (including beneficial owners of Individual Retirement Account ("IRA")
accounts) and borrowers are members of the Bank entitled to vote under its
current Certificate of Incorporation and Bylaws.
At the Special Meeting, each deposit account holder entitled to vote may
cast one vote for each $100 or fraction thereof of the aggregate withdrawal
value of any deposit account in the Bank as of the
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Voting Record Date. Each borrower member entitled to vote may cast one vote as a
borrower in addition to the number of votes to which such member may be entitled
as an owner of a deposit account. No member, however, may cast more than 1,000
votes. A deposit account or loan creates a single membership for voting
purposes, even though more than one person has an interest in such deposit
account or is obligated on such loan.
Beneficial owners of IRA accounts at the Bank will be considered voting
members entitled to vote on the Plan of Conversion. The legal owners of other
fiduciary accounts, rather than the beneficial owners, will be treated as the
member entitled to cast the votes for such account, unless the trust agreement
or any other agreement relating to the fiduciary's authority provides otherwise.
Twenty-five members present in person or by proxy at the Special Meeting
will constitute a quorum for the transaction of business. The affirmative vote
of at least a majority of the total outstanding votes of the Bank's' members
eligible to be cast at the Special Meeting is required for approval of the Plan
of Conversion. As of the Voting Record Date, the Bank's records disclose that
there were 161,680 votes entitled to be cast at the Special Meeting, of which
80,841 votes would represent a majority.
Members may vote at the Special Meeting in person or by proxy. Each proxy
solicited hereby, if properly executed, duly returned by the date of the Special
Meeting, and not revoked prior to or at the Special Meeting, will be voted at
the Special Meeting in accordance with the member's instructions indicated
thereon. IF NO VOTING INSTRUCTIONS ARE INDICATED ON THE PROXY CARD, THE PROXY
WILL BE VOTED FOR THE PLAN OF CONVERSION. If any other matters are properly
---
presented before the Special Meeting, the proxies solicited hereby will be voted
on such matters in accordance with the best judgment of the proxyholders named
therein. Management of the Bank is not aware of any other business to be
presented at the Special Meeting.
Any member giving a proxy may revoke it at any time before it is voted by
delivering to the Secretary of the Bank before or at the Special Meeting either
a written revocation of the proxy or by delivering to the Secretary of the Bank
prior to the Special Meeting a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. Proxies are being solicited
only for use at the Special Meeting and any and all adjournments thereof and
will not be used for any other meeting. No previously provided general proxies
will be voted at the Special Meeting for approval of the Plan of Conversion.
The Board of Directors' solicitation of proxies for the Special Meeting is
being made by means of this Proxy Statement. It may be followed by further
letters and personal calls to members by employees or agents of the Bank. All
costs of this proxy solicitation will be paid by the Bank.
The directors and executive officers of the Bank were entitled to cast
3,186 votes as of the Voting Record Date for the Special Meeting.
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS THAT YOU VOTE FOR THE PLAN OF
---
CONVERSION.
FAILURE TO VOTE IN FAVOR OF THE PLAN OF CONVERSION, IN PERSON OR BY PROXY,
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PLAN OF CONVERSION. VOTING IN
-------
FAVOR OF THE PLAN OF
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<PAGE>
CONVERSION WILL NOT OBLIGATE ANY PERSON TO SUBSCRIBE FOR THE PURCHASE OF ANY
STOCK, AND VOTING AGAINST THE PLAN OR FAILING TO VOTE WILL NOT PRECLUDE ANY SUCH
PURCHASE.
THE DIRECTORS AND CERTAIN OFFICERS OF THE BANK HAVE A PERSONAL INTEREST IN
THE APPROVAL OF THE CONVERSION TO THE EXTENT THAT THEY WILL RECEIVE CERTAIN
BENEFITS AS A RESULT OF THE CONVERSION. SEE "BENEFITS TO DIRECTORS AND
EMPLOYEES" IN THIS PROXY STATEMENT AND "MANAGEMENT OF THE BANK" IN THE
PROSPECTUS.
THE BOARD OF DIRECTORS OF THE BANK HAS ADOPTED AND THE ADMINISTRATOR HAS
APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN OF CONVERSION
SUBJECT TO APPROVAL BY THE MEMBERS OF THE BANK AND TO SATISFACTION OF CERTAIN
OTHER CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE
ADMINISTRATOR.
THE CONVERSION
GENERAL
The Bank was organized and has operated as a traditional savings and loan
association. It recognizes that the banking and financial services industries
are in the process of fundamental changes, reflecting changes in the local,
national and international economies, technological changes and changes in state
and federal laws. As a result, for several years the Bank has been studying the
environment in which it operates and its strategic options.
As a result of its study of its strategic options, the Bank adopted the
Plan. The Bank believes that converting the bank from the mutual to stock form
and organizing the Company will provide increased flexibility for the Bank and
the Company to react to changes in their operating environment, regardless of
the strategies ultimately chosen.
The existing management of the Bank and the Company believes that at this
time it is in the best interests of the Bank, the Company and the stockholders
of the Company for the Company to remain an independent financial institution.
Assuming the consummation of the Conversion, the Company and the Bank intend to
pursue the business strategy described in this Prospectus with the goal of
enhancing shareholder value over the long term. Neither the Company nor the
Bank has any existing plan to consider any business combination, and neither
company has any agreement or understanding with respect to any possible business
combination.
The Board of Director's adoption of the Plan is subject to approval by the
members of the Bank and receipt of required regulatory approvals. Pursuant to
the Plan, the Bank will be converted from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank and will become a
wholly-owned subsidiary of the Company. The Company will issue the Common Stock
to be sold in the Conversion and will use that portion of the net proceeds
thereof which it does not retain to purchase the capital stock of the Bank. By
letter dated May 12, 1998, the Administrator approved the Plan, subject to
approval by the members of the Bank and satisfaction of certain other
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conditions. The Special Meeting will be held on June 15, 1998 for the purpose
of considering approval of the Plan.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Company to
acquire the Bank. Those approvals have been received. The Conversion cannot be
consummated until the expiration of the Bank Merger Act of 1956 waiting period
which began to run upon approval by the Federal Reserve of the Company's
application and expires May 28, 1998. Finally, consummation of the Conversion is
contingent upon receipt from the FDIC of a final non-objection letter with
respect to the transaction. The FDIC has issued a conditional notification that
it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan. It is
qualified in its entirety by the provisions of the Plan, which contains a more
detailed description of the terms of the Conversion. The Plan is attached as
Attachment I to the Bank's Proxy Statement for the Special Meeting which has
been delivered to all members of the Bank. The Plan can also be obtained by
written request from the Bank. See "ADDITIONAL INFORMATION" in the Prospectus.
PURPOSES OF CONVERSION
The Bank, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, the Bank will be structured in the form used by most commercial
banks, other business entities and a substantial number of savings institutions.
Conversion to a North Carolina-chartered capital stock savings bank and the
formation of a Company offers a number of advantages which may be important to
the future and performance of the Bank, including (i) a larger capital base for
the Bank's operations, (ii) an enhanced future access to capital markets and
(iii) an opportunity for depositors of the Bank to become stockholders of the
Company.
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Articles of Incorporation will permit the Company,
subject to market conditions, to raise additional equity capital through further
sales of securities. Following the Conversion, the Company will also be able to
use stock-related incentive programs to attract, retain and provide incentives
for qualified directors and executive and other personnel of the Company and the
Bank. See "Benefits to Directors and Employees" in this Proxy Statement and
"MANAGEMENT OF THE BANK -- Proposed Management Recognition Plan" and "--
Proposed Option Plan" in the Prospectus.
Formation of the Company will provide greater flexibility than the Bank
would otherwise have to expand and diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, both mutual and stock institutions, as well as other companies. However,
there are no current plans, arrangements, understandings or agreements regarding
any such business combinations.
EFFECTS OF CONVERSION
GENERAL. Each person with a deposit account in the Bank has pro rata
rights, based upon the balance in his or her account, in the net worth of the
Bank upon liquidation. However, this right is tied to the depositor's account
and has no tangible market value separate from such deposit account. Further,
the Bank's depositors can realize value with respect to their interests only in
the unlikely event that the Bank is liquidated and has a positive net worth. In
such an event, the depositors of record at that time,
5
<PAGE>
as owners, would share pro rata in any residual surplus after other claims,
including those with respect to the deposit accounts of depositors, are paid.
Upon the Bank's Conversion to stock form, its Certificate of Incorporation
will be amended to authorize the issuance of permanent nonwithdrawable capital
stock to represent the ownership of the Bank, including its net worth. THE
CAPITAL STOCK WILL BE SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND WILL NOT BE
INSURED BY THE FDIC, ANY OTHER GOVERNMENTAL ENTITY, the Company or the Bank.
Certificates will be issued to evidence ownership of the capital stock. All of
the outstanding capital stock of the Bank will be acquired by the Company, which
in turn will issue its Common Stock to purchasers in the Conversion. The stock
certificates issued by the Company will be transferable and, therefore, subject
to applicable law, the stock could be sold or traded if a purchaser is available
with no effect on any deposit account the seller may hold at the Bank.
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, the Bank will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at the Bank's passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be canceled.
In such an event, the Company would not acquire control of the Bank.
VOTING RIGHTS. Under the Bank's current Certificate of Incorporation and
Bylaws, deposit account holders and borrowers have voting rights with respect to
certain matters relating to the Bank, including the election of directors.
After the Conversion, (i) neither deposit account holders nor borrowers will
have voting rights with respect to the Bank and will therefore not be able to
elect directors of the Bank or control its affairs; (ii) voting rights with
respect to the Bank will be vested in the Company as the sole stockholder of the
Bank; and (iii) voting rights with respect to the Company will be vested in the
Company's stockholders. Each purchaser of Common Stock will be entitled to vote
on any matters to be considered by the Company's stockholders. For a
description of the voting rights of the holders of Common Stock, see
"DESCRIPTION OF CAPITAL STOCK" in the Prospectus.
DEPOSIT ACCOUNTS AND LOANS. The account balances, interest rates and other
terms of deposit accounts at the Bank and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to the
extent that a depositor directs the Bank to withdraw funds to pay for his or her
Common Stock). Furthermore, the Conversion will not affect any loan account,
the balances, interest rates, maturities or other terms of these accounts, or
the obligations of borrowers under their individual contractual arrangements
with the Bank.
CONTINUITY. The Bank will continue without interruption, during and after
completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its office operated by
the existing management and employees of the Bank.
LIQUIDATION RIGHTS. In the unlikely event of a complete liquidation of the
Bank, either before or after Conversion, account holders would have claims for
the amount of their deposit accounts, including accrued interest, and would
receive the protection of deposit insurance up to applicable limits. In
addition to deposit insurance coverage, depositor liquidation rights before and
after Conversion would be as follows:
Liquidation Rights Prior to the Conversion. Prior to the Conversion, in
the event of a complete liquidation of the Bank, each holder of a deposit
account in the Bank would receive such holder's pro rata share of any assets of
the Bank remaining after payment of claims of all creditors (including the
claims of all depositors to the withdrawal value of their accounts, including
accrued interest). Such holder's pro
6
<PAGE>
rata share of such remaining assets, if any, would be in the same proportion of
such assets as the value of such holder's deposit account was to the total value
of all deposit accounts in the Bank at the time of liquidation.
Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan provides that, upon completion of the
Conversion, a memorandum account called a "Liquidation Account" will be
established for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. The amount of the Liquidation Account will be equal
to the net worth of the Bank as of the date of its latest statement of financial
condition contained in the final prospectus relating to the sale of shares of
Common Stock in the Conversion. Under applicable regulations, the Bank will not
be permitted to pay dividends on, or repurchase any of, its capital stock if its
net worth would thereby be reduced below the aggregate amount then required for
the Liquidation Account. See "DIVIDEND POLICY" in this Proxy Statement and
SUPERVISION AND REGULATION -- Regulation of the Bank --Restrictions on Dividends
and Other Capital Distributions" in the Prospectus. After the Conversion,
Eligible Account Holders and Supplemental Eligible Account Holders will be
entitled, in the event of a complete liquidation of the Bank, to receive
liquidating distributions of any assets remaining after payment of all
creditors' claims (including the claims of all depositors to the withdrawal
values of their deposit accounts, including accrued interest), before any
distributions are made on the Bank's capital stock, equal to their proportionate
interests at that time in the Liquidation Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have an initial interest ("subaccount balance") in the Liquidation Account for
each deposit account held as of September 30, 1996 (the Eligibility Record Date)
or as of March 31, 1998 (the Supplemental Eligibility Record Date),
respectively. Each initial subaccount balance will be the amount determined by
multiplying the total opening balance in the Liquidation Account by the
Qualifying Deposit (a deposit of at least $50 as of the Eligibility Record Date
or Supplemental Eligibility Record Date, as applicable) of such deposit account
divided by the total of all Qualifying Deposits on that date. If the amount in
the deposit account on any subsequent annual closing date of the Bank is less
than the balance in such deposit account on any other annual closing date or the
balance in such an account on the Eligibility Record Date or Supplemental
Eligibility Record Date, as the case may be, this interest in the Liquidation
Account will be reduced by an amount proportionate to any such reduction, and
will not thereafter be increased despite any subsequent increase in the related
deposit account. An Eligible Account Holder's or Supplemental Eligible Account
Holder's interest in the Liquidation Account will cease to exist if the deposit
account is closed. The Liquidation Account will never increase and will be
correspondingly reduced as the interests in the Liquidation Account are reduced
or cease to exist. In the event of a liquidation, any assets remaining after
the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to the Company, as
sole stockholder of the Bank.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not the
Bank is the surviving institution, would not be viewed as a complete liquidation
for purposes of distribution of the Liquidation Account. In any such
transaction, the Liquidation Account would be assumed by the surviving
institution to the full extent authorized by regulations of the Administrator as
then in effect.
OFFERING OF COMMON STOCK
As part of the Conversion, the Company is making the Subscription Offering
of Common Stock in the priorities and to the persons described below under "--
Subscription Offering." In addition, any shares which remain unsubscribed for
in the Subscription Offering will be offered in the Community Offering to
members of the general public, with priority being given to natural persons and
trusts of
7
<PAGE>
natural persons residing or located in the Local Community, including IRAs,
Keogh accounts and similar retirement accounts established for the benefit of
natural persons who are residents of the Local Community. See "-- Community
Offering." If necessary, all shares of Common Stock not purchased in the
Subscription Offering and Community Offering, if any, may be offered for sale to
the general public through a syndicate of registered broker-dealers as selected
dealers to be managed by Trident Securities. See "-- Syndicated Community
Offering." The Plan requires that the aggregate dollar amount of the Common
Stock sold equal not less than the minimum nor more than the maximum of the
Estimated Valuation Range which is established in connection with the
Conversion; provided, however, with the consent of the Administrator and the
FDIC the aggregate dollar amount of the Common Stock sold may be increased to as
much as 15% above the maximum of the Estimated Valuation Range, without a
resolicitation of subscribers or any right to cancel subscriptions, in order to
reflect changes in market and financial conditions following commencement of the
Subscription Offering. See "-- Purchase Price of Common Stock and Number of
Shares Offered." If the Syndicated Community Offering is not feasible or
successful and Common Stock having an aggregate value of at least the minimum of
the Estimated Valuation Range is not subscribed for in the Subscription and
Community Offering, the Company will consult with the Administrator to determine
an appropriate alternative method of selling all shares of Common Stock offered
in the Conversion and not subscribed for in the Offering. The same per share
price ($10.00) will be paid by purchasers in the Subscription, Community and
Syndicated Community Offering.
The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, Eastern Time, on June 9, 1998, unless, with the approval of the
Administrator, the offering period is extended by the Company and the Bank. The
Community Offering, if any, may begin at any time after the Subscription
Offering begins and will terminate at the Expiration Time or at any time
thereafter, but not later than July 24, 1998, unless extended with the approval
of the Administrator. The Syndicated Community Offering, if any, or other sale
of all shares not subscribed for in the Subscription and Community Offering,
will be made as soon as practicable following the Expiration Time. The sale of
the Common Stock must, under the North Carolina conversion regulations, be
completed within 45 days after the Expiration Time unless such period is
extended with the approval of the Administrator. In the event such an extension
is approved, subscribers would be resolicited and would be given the opportunity
to increase (subject to maximum purchase limitations), decrease (subject to
minimum purchase limitations) or rescind their subscriptions. If a subscriber
fails to respond to the resolicitation by the end of the resolicitation period,
the subscription of such subscriber will be canceled, funds submitted with the
subscription will be refunded promptly with interest at the Bank's passbook
savings rate, and holds on accounts from which withdrawals were designated will
be released. Any such solicitation will be by means of an amended prospectus
filed with the SEC. In such event, substantial additional printing, legal and
accounting expenses may be incurred in completing the Conversion.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors beyond
the Company's control. Accordingly, no assurance can be given that any required
Community or Syndicated Community Offering or other sale of Common Stock will be
commenced at any particular time or as to the length of time that will be
required to complete the sale of all shares of Common Stock offered, and
significant changes may occur in the estimated pro forma market value of the
Common Stock, together with corresponding changes in the offering price, the
number of shares being offered, and the net proceeds realized from the sale of
the Common Stock. The Plan requires that the Conversion be completed within 24
months after the date of approval of the Plan by the Bank's members.
SUBSCRIPTION OFFERING
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<PAGE>
In accordance with North Carolina conversion regulations, non-transferable
Subscription Rights have been granted under the Plan to the following persons in
the following order of priority: (i) the Bank's Eligible Account Holders, who
are depositors as of September 30, 1996 who had aggregate deposits at the close
of business on such date of at least $50.00 ("Qualifying Deposits"); (ii) the
Bank's Supplemental Eligible Account Holders, who are depositors as of March 31,
1998 who had Qualifying Deposits on such date; (iii) the Bank's Other Members,
who are depositor and borrower members as of April 30, 1998, the voting record
date for the Special Meeting, who are not Eligible Account Holders or
Supplemental Eligible Account Holders; and (iv) directors, officers and
employees of the Bank who are not Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members, in the priorities and subject to the
limitations described herein. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of subscriptions of all persons
having prior rights in the Subscription Offering, and to the maximum purchase
limitations and other terms and conditions set forth in the Plan and described
below.
IN ORDER TO ENSURE PROPER IDENTIFICATION OF SUBSCRIPTION RIGHTS, IT IS THE
RESPONSIBILITY OF SUBSCRIBERS IN THE SUBSCRIPTION OFFERING TO PROVIDE CORRECT
ACCOUNT VERIFICATION INFORMATION ON THE ORDER FORMS.
ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder has been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "--Minimum and
Maximum Purchase Limitations." If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 100 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, each Supplemental Eligible Account Holder has been granted, without
payment therefor, non-transferable Subscription Rights to purchase Common Stock
up to the maximum purchase limitation described in "-- Minimum and Maximum
Purchase Limitations." If Supplemental Eligible Account Holders subscribe for
more shares of Common Stock than are available for purchase, the shares offered
will first be allocated among the subscribing Supplemental Eligible Account
Holders so as to enable each subscribing Supplemental Eligible Account Holder to
the extent possible, to purchase the number of shares necessary to make his or
her total allocation of Common Stock equal to the lesser of 100 shares of Common
Stock or the number of shares subscribed for by such Supplemental Eligible
Account Holder. Any shares remaining after such allocation will be allocated
among the subscribing Supplemental Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that each such Supplemental Eligible
Account Holder's Qualifying Deposits bears to the total of the Qualifying
Deposits of all such Supplemental Eligible Account Holders.
OTHER MEMBERS. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders and Supplemental
Eligible Account Holders, members of the Bank as of April 30, 1998 (the voting
record date for the Special Meeting), other than Eligible Account Holders and
Supplemental Eligible Account Holders (Other Members) have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up
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to the maximum purchase limitation described in "-- Minimum and Maximum Purchase
Limitations." If Other Members subscribe for more shares of Common Stock than
remain available for purchase by Other Members, shares will be allocated among
the subscribing Other Members in the proportion that the number of votes
eligible to be cast by each Other Member bears to the total number of votes
eligible to be cast at the Special Meeting by all Other Members whose
subscriptions remain unsatisfied.
EMPLOYEES, OFFICERS, AND DIRECTORS. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members, the Bank's
employees, officers and directors who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations", so long as the aggregate of such purchases does
not exceed 25% of the shares of Common Stock issued in the Conversion. If more
shares are subscribed for by such employees, officers and directors than are
available for purchase by them, the available shares will be allocated among
subscribing employees, officers and directors pro rata on the basis of the
amount of their respective subscriptions.
COMMUNITY OFFERING
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering may be offered by the Company to members of the general
public in the Community Offering, which may commence at any time after
commencement of the Subscription Offering, with priority given to natural
persons and trusts of natural persons residing or located in Anson County in
North Carolina (the Local Community), including IRA accounts, Keogh accounts and
similar retirement accounts established for the benefit of natural persons who
are residents of, the Local Community. The Community Offering may terminate at
the Expiration Time or at any time thereafter, but no later than July 24, 1998,
unless further extended with the consent of the Administrator. THE OPPORTUNITY
TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING IS SUBJECT TO
THE RIGHT OF THE BANK AND THE COMPANY, IN THEIR SOLE DISCRETION, TO ACCEPT OR
REJECT ANY SUCH ORDERS, IN WHOLE OR IN PART, EITHER AT THE TIME OF RECEIPT OF AN
ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE TERMINATION OF THE COMMUNITY
OFFERING. In the event the Bank and the Company reject any such orders after
receipt, subscribers will be promptly notified and all funds submitted with
subscriptions will be returned with interest at the Bank's passbook savings
rate.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then subscriptions of natural persons and
trusts of natural persons residing in the Local Community, including IRAs, Keogh
accounts and similar retirement accounts established for the benefit of natural
persons who are residents of the Local Community ("First Priority Community
Subscribers") will be filled in full up to applicable purchase limitations (to
the extent such subscriptions are not rejected by the Bank and the Company)
prior to any allocation to other subscribers in the Community Offering.
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Common Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Bank and the Company in the entire amount of
such order up to a number of shares no greater than 7,500 shares, which number
shall be determined by the Board of Directors of the Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is accepted
in full or in part on an equal number of shares basis until all orders are
filled. Such allocation shall also be
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applied to subscriptions by other subscribers in the Community Offering, in the
event shares are available for such subscribers but there is an oversubscription
by them.
IN ORDER TO ENSURE PROPER ALLOCATION OF SHARES IN THE EVENT OF AN
OVERSUBSCRIPTION, IT IS THE RESPONSIBILITY OF SUBSCRIBERS IN THE COMMUNITY
OFFERING TO PROVIDE CORRECT ADDRESSES OF RESIDENCE ON THE ORDER FORMS.
SYNDICATED COMMUNITY OFFERING
The Plan provides that, if necessary, all shares of Common Stock not
purchased in the Subscription and Community Offering, if any, may be offered for
sale to the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers as selected dealers ("Selected Dealers")
to be formed and managed by Trident Securities acting as agent of the Company in
the sale of the Common Stock. THE COMPANY AND THE BANK HAVE THE RIGHT TO REJECT
ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION IN THE SYNDICATED
COMMUNITY OFFERING. Neither Trident Securities nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the Common Stock in
the Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Common Stock sold in the Syndicated Community Offering will be sold at the
purchase price of $10.00 per share which is the same price as all other shares
being offered in the Conversion.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Company. During the Syndicated Community Offering, Selected
Dealers may only solicit indications of interest from their customers to place
orders with the Company as of a certain date (the "Order Date") for the purchase
of shares of Common Stock. When and if Trident Securities and the Company
believe that enough indications and orders have been received in the Offering to
consummate the Conversion, Trident Securities will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on a date which will be three business days from the Order Date
("Debit 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 Debit Date. On the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Company
established for each Selected Dealer. After payment has been received by the
Company from Selected Dealers, funds will earn interest at the Bank's passbook
savings rate until the consummation of the Conversion. In the event the
Conversion is not consummated as described above, funds with interest will be
returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of the Bank and the Company, but in no case
later than July 24, 1998.
FRACTIONAL SHARES
In making allocations in the event of oversubscriptions, all computations
will be rounded down to the nearest whole share; no fractional shares will be
issued. Excess and other amounts sent by subscribers which are not used to
satisfy subscriptions will be refunded with interest at the Bank's passbook
savings rate, and amounts designated for withdrawal from deposit accounts will
be released.
PURCHASE PRICE OF COMMON STOCK AND NUMBER OF SHARES OFFERED
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The purchase price of shares of Common Stock sold in the Offering will be
$10.00 per share. The purchase price was determined by the Boards of Directors
of the Company and the Bank in consultation with the Bank's financial advisor
and sales agent, Trident Securities. The North Carolina regulations governing
conversions of North Carolina-chartered mutual savings banks to stock form
require that the aggregate purchase price of the shares of Common Stock of the
Company sold in connection with the Conversion be equal to not less than the
minimum, nor more than the maximum, of the Estimated Valuation Range which is
established by an independent appraisal in the Conversion and is described
below; provided, however, that with the consent of the Administrator and the
FDIC the aggregate purchase price of the Common Stock sold may be increased to
up to 15% above the maximum of the Estimated Valuation Range, without a
resolicitation of subscribers or any right to cancel, rescind or change
subscription orders, to reflect changes in market and financial conditions
following commencement of the Subscription Offering.
FDIC rules with respect to appraisals require that the independent
appraisal must include a complete and detailed description of the elements of
the appraisal report, justification for the methodology employed and sufficient
support for the conclusions reached. The appraisal report must include a full
discussion of each peer group member and documented analytical evidence
supporting variances from peer group statistics. The appraisal report must also
include a complete analysis of the converting institution's pro forma earnings,
which should include the institution's full potential once it fully deploys the
capital from the Conversion pursuant to its business plan.
The Bank has retained Ferguson, an independent appraisal firm experienced
in the valuation and appraisal of savings institutions and their holding
companies, to prepare an appraisal of the pro forma market value of the Bank and
the Company and to assist the Bank in preparing a business plan. For its
services in determining such valuation and assisting with the business plan,
Ferguson will receive an aggregate fee of $25,000 and will be reimbursed for its
out-of-pocket expenses.
Ferguson has informed the Bank that its appraisal has been made in reliance
upon the information contained in the Prospectus, including the financial
statements of the Bank. Ferguson has further informed the Bank that it also
considered the following factors, among others, in making the appraisal: (i) the
present and projected operating results and financial condition of the Company
and the Bank; (ii) the economic and demographic conditions in the Bank's
existing market area; (iii) certain historical, financial and other information
relating to the Bank; (iv) the proposed dividend policy of the Company; (v) a
comparative evaluation of the operating and financial statistics of the Bank
with those of other savings institutions; (vi) the aggregate size of the
offering of the Common Stock; and (vii) the trading market for the securities of
institutions Ferguson believes to be comparable in relevant respects to the
Company and the Bank and general conditions in the markets for such securities.
In addition, Ferguson has advised the Bank that it has considered the effect of
the Conversion on the net worth and earnings potential of the Company and the
Bank.
On the basis of its consideration of the above factors, Ferguson has
advised the Bank that, in its opinion, at February 27, 1998, the Estimated
Valuation Range of the Bank and the Company was from a minimum of $5,610,000 to
a maximum of $7,590,000, with a midpoint of $6,600,000. Based upon such
valuation and a purchase price for shares offered in the Conversion of $10.00
per share, the number of shares to be offered ranges from a minimum of 561,000
shares to a maximum of 759,000 shares, with a midpoint of 660,000 shares.
The Board of Directors of the Bank has reviewed the methodology and
assumptions used by Ferguson in preparing the appraisal and has determined that
the Estimated Valuation Range, as well as the methodology and assumptions used,
were reasonable and appropriate.
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Upon completion of the Offering, Ferguson will confirm or update its
valuation of the estimated aggregate pro forma market value of the Bank and the
Company. Based on the confirmed or updated appraisal, a determination will be
made of the total number of shares of Common Stock which shall be offered and
sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price of
the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Estimated Valuation Range, or to $8,728,500 (872,850 shares),
without a resolicitation of subscribers and without any right to cancel, rescind
or change subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, Ferguson confirms to the Bank, the Company,
the Administrator and the FDIC, that, to the best of its knowledge, nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause Ferguson to conclude that the aggregate purchase price of the Common
Stock sold in the Conversion is incompatible with its estimate of the aggregate
pro forma market value of the Bank and the Company as of February 27, 1998 (the
date of Ferguson's initial conversion) and at the conclusion of the Offering. If
the aggregate pro forma market value of the Bank and the Company as of such date
is within the Estimated Valuation Range (or, with the consent of the
Administrator and FDIC, not more than 15% above the maximum of the Estimated
Valuation Range), then such pro forma market value will determine the number of
shares of Common Stock to be sold in the Conversion. If there has occurred a
change in the aggregate pro forma market value of the Bank and the Company so
that the aggregate pro forma market value is below the minimum of the Estimated
Valuation Range or more than 15% above the maximum of the Estimated Valuation
Range, a resolicitation of subscribers may be made based upon a new Estimated
Valuation Range, the Plan may be terminated or such other actions as the
Administrator and the FDIC may permit may be taken.
In the event of a resolicitation, subscribers would be given a specified
time period within which to respond to the resolicitation. If a subscriber
fails to respond to the resolicitation by the end of such period, the
subscription of such subscriber will be canceled, funds submitted with the
subscription will be refunded promptly with interest at the Bank's passbook
savings rate, and holds on accounts from which withdrawals were designated will
be released. Any such resolicitation will be by means of an amended prospectus
filed with the SEC. A resolicitation may delay completion of the Conversion.
If the Plan is terminated, all funds will be returned promptly with interest at
the Bank's passbook savings rate from the date payment was deemed received, and
holds on funds authorized for withdrawal from deposit accounts will be released.
See "-- Exercise of Subscription Rights and Purchases in the Community
Offering."
THE VALUATION BY FERGUSON IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON STOCK.
FERGUSON DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE BANK, NOR DID FERGUSON VALUE INDEPENDENTLY THE
ASSETS OR LIABILITIES OF THE BANK. THE VALUATION CONSIDERS THE BANK AS A GOING
CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE
OF THE BANK OR THE COMPANY. 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 SUCH SHARES IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SHARES
AT PRICES IN THE RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA MARKET VALUE
THEREOF.
A copy of the complete appraisal by Ferguson is on file and available for
inspection at the office of the Savings Institutions Division of the North
Carolina Department of Commerce, Tower Building,
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Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. A copy is also
available for inspection at the Stock Information Center, 211 South Greene
Street, Wadesboro, North Carolina 28170. A copy of the appraisal has also been
filed as an exhibit to the Registration Statement filed with the SEC with
respect to the Common Stock offered hereby. See "ADDITIONAL INFORMATION" in the
Prospectus.
EXERCISE OF SUBSCRIPTION RIGHTS AND PURCHASES IN COMMUNITY OFFERING
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, the
original signed Order Forms (including an original signed form of certification)
and the required payment for the aggregate dollar amount of Common Stock desired
or appropriate instructions authorizing withdrawal from one or more the Bank
deposit accounts (other than negotiable order of withdrawal accounts or other
demand deposit accounts), must be received by the Bank by the Expiration Time,
which is 12:00 noon, Eastern Time, on June 9, 1998. Subscription Rights (i) for
which the Bank does not receive original signed Order Forms by the Expiration
Time (unless such time is extended), or (ii) for which Order Forms are executed
defectively or are not accompanied by full payment (or appropriate withdrawal
instructions) for subscribed shares, will expire whether or not the Bank has
been able to locate the persons entitled to such rights. In order to purchase
in the Community Offering, the Order Forms, accompanied by the required payment
for the aggregate dollar amount of Common Stock desired or appropriate
instructions authorizing withdrawal from one or more of the Bank's deposit
accounts (other than negotiable order of withdrawal accounts or other demand
deposit accounts), must be received by the Bank prior to the time the Community
Offering terminates, which could be at any time at or subsequent to the
Expiration Time. No orders will be accepted from persons who do not have
Subscription Rights in the Subscription Offering unless a Community Offering is
commenced.
In the event that an Order Form is not delivered and is returned to the
Bank by the United States Postal Service (or the Bank is unable to locate the
addressee), is not received or is received after the Expiration Time, is
defectively completed or executed, or is not accompanied by full payment for the
shares subscribed for (including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient to fund
the amount of such required payment), the subscription rights for the person to
whom such rights have been granted will lapse as though that person failed to
return the completed Order Form within the time period specified. The Bank may,
but will not be required to, waive any irregularity on any Order Form or require
the submission of corrected Order Forms or the remittance of full payment for
subscribed shares by such date as the Bank specify. The waiver of an
irregularity on an order form in no way obligates the Bank to waive any other
irregularity on that, or any irregularity on any other Order Form. Waivers will
be considered on a case-by-case basis. Photocopies of Order Forms, including
copies sent by facsimile, payments from private third parties, payments made by
wire transfer or electronic transfers of funds will not be accepted. The Bank's
interpretation of the terms and conditions of the Plan and of the acceptability
of the Order Forms will be final. The Bank has the right to investigate any
irregularity on any Order Form.
EXECUTED ORDER FORMS ONCE RECEIVED BY THE BANK, MAY NOT BE MODIFIED,
AMENDED OR RESCINDED WITHOUT THE CONSENT OF THE BANK. The Bank has the right to
extend the subscription period subject to applicable regulations, unless
otherwise ordered by the Administrator, or to waive or permit correction of
incomplete or improperly executed Order Forms, but does not represent that it
will do so.
The amount to be remitted with the Order Forms shall be the aggregate
dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community
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Offering. Complete payment must accompany all completed Order Forms submitted in
the Subscription and Community Offering in order for subscriptions to be valid.
See "-- Purchase Price of Common Stock and Number of Shares Offered."
Payment for shares will be permitted to be made by any of the following
means: (i) in cash, if delivered in person to either office of the Bank; (ii) by
check, bank draft, negotiable order of withdrawal or money order, provided that
the foregoing will only be accepted subject to collection and payment; or (iii)
by appropriate authorization of withdrawal from any deposit account in the Bank
(other than a negotiable order of withdrawal account or other demand deposit
account). Order Forms directing that payment for shares be made by
authorization of withdrawal will be accepted only if, at the time the Order
Forms are received, there exists sufficient funds in the account from which
withdrawal is authorized to pay the full purchase price for the number of shares
ordered. IN ORDER TO ENSURE PROPER IDENTIFICATION OF SUBSCRIPTION RIGHTS AND
PROPER ALLOCATIONS IN THE EVENT OF AN OVERSUBSCRIPTION, IT IS THE RESPONSIBILITY
OF SUBSCRIBERS TO PROVIDE CORRECT ACCOUNT VERIFICATION INFORMATION ON THE ORDER
FORMS. ORDER FORMS SUBMITTED BY UNAUTHORIZED PURCHASERS OR IN AMOUNTS EXCEEDING
PURCHASE LIMITATIONS WILL NOT BE HONORED.
For purposes of determining the withdrawal balance of deposit accounts from
which withdrawals have been authorized, such withdrawals will be deemed to have
been made upon receipt of appropriate authorization therefor, but interest will
be paid by the Bank on the amount deemed to have been withdrawn at the
contractual rate of interest paid on such accounts until the date on which the
Conversion is completed or terminated.
Interest will be paid by the Bank on payments for Common Stock made in cash
or by check, bank draft, negotiable order of withdrawal or money order at the
Bank's passbook savings rate. Such interest shall be paid from the date the
order is accepted for processing and payment in good funds is received by the
Bank until consummation or termination of the Conversion. The Bank shall be
entitled to invest all amounts paid on subscriptions for Common Stock for its
own account until completion or termination of the Conversion. The Bank may not
knowingly lend funds or otherwise extend credit to any person to purchase Common
Stock. After amounts submitted for payment are applied to the purchase price
for shares sold, they will no longer earn interest, and they will not be insured
by the FDIC or any other government agency or other entity.
The Order Forms contain appropriate means by which authorization of
withdrawals from deposit accounts may be made to pay for subscribed shares.
Once such a withdrawal has been authorized, none of the designated withdrawal
amount may be withdrawn (except by the Bank as payment for Common Stock) until
the Conversion is completed or terminated. Savings accounts will be permitted
to be established for the purpose of making payment for subscribed shares of
Common Stock. Funds authorized for withdrawal will continue to earn interest at
the applicable contract interest rate until completion or termination of the
Conversion or, in the case of an order submitted in the Community Offering,
until it is determined that such order cannot or will not be accepted.
Notwithstanding any regulatory provision regarding penalties for early
withdrawal from certificate accounts, payment for subscribed shares of Common
Stock will be permitted through authorization of withdrawals from such accounts
without the assessment of such penalties. However, if after such withdrawal the
applicable minimum balance requirement ceases to be satisfied, such certificate
account will be canceled and the remaining balance thereof will earn interest at
the Bank's passbook savings rate.
Upon completion or termination of the Conversion, the Bank will return to
subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its passbook savings rate from the
date good funds are received until the consummation or termination
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<PAGE>
of the Conversion, and the Bank will release deposit account withdrawal orders
given in connection with the subscriptions to the extent funds are not withdrawn
and applied toward the purchase of shares.
DELIVERY OF STOCK CERTIFICATES
Certificates representing Common Stock issued in the Conversion will be
mailed by the Company's transfer agent to persons entitled thereto at the
address of such persons appearing on the Order Forms as soon as practicable
following consummation of the Conversion. Any certificates returned as
undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable law.
Until certificates for Common Stock are available and delivered to subscribers,
subscribers may not be able to sell the shares of Common Stock for which they
have subscribed, even though trading of the Common Stock may have commenced.
Shares sold prior to receipt of a stock certificate are the responsibility of
the purchaser. Allocations of Common Stock will be deemed final only upon
stockholder receipt of the certificate representing the Common Stock.
PERSONS IN NON-QUALIFIED OR FOREIGN JURISDICTIONS
The Company will make reasonable efforts to comply with the securities laws
of all states of the United States in which Eligible Account Holders,
Supplemental Eligible Account Holders, or Other Members entitled to subscribe
for shares of Common Stock reside. However, no shares of Common Stock or
Subscription Rights under the Plan will be offered or sold in a foreign country,
or in a state in the United States (i) where a small number of persons otherwise
eligible to subscribe for shares under the Plan reside or (ii) if the Company
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
requirement that the Company, the Bank or any employee or representative thereof
register as a broker, dealer, agent or salesperson or register or otherwise
qualify the Subscription Rights or Common Stock for sale in such state. No
payments will be made in lieu of the granting of Subscription Rights to persons
residing in such jurisdictions.
MARKETING ARRANGEMENTS
The Bank has retained Trident Securities to consult with and advise the
Bank and the Company and to assist the Company, on a best-efforts basis, in the
marketing of shares in the Offering. Trident Securities is a broker-dealer
registered with the SEC and a member of the NASD. Trident Securities is
headquartered in Raleigh, North Carolina, and its telephone number is (919) 781-
8900. Trident Securities will assist the Bank and the Company in the Conversion
as follows: (i) it will act as marketing advisor with respect to the
Subscription Offering and will assist the Company on a best-efforts basis in the
marketing of the Common Stock in the Community Offering and Syndicated Community
Offering; (ii) members of its staff will conduct training sessions to educate
directors, officers and employees of the Bank regarding the Conversion process;
and (iii) it will provide assistance in the establishment and supervision of the
Stock Information Center, including training staff to record and tabulate orders
for the purchase of Common Stock and to respond to customer inquiries.
For rendering its services, the Bank has agreed to pay Trident Securities a
commission equal to 2.5% of the aggregate dollar amount of Common Stock sold in
the Subscription and Community Offering, excluding shares purchased by
directors, executive officers and their "associates" (as defined in the Plan).
The Bank has also agreed to pay to Selected Dealers, if any, negotiated
commissions.
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<PAGE>
The Bank has agreed to reimburse Trident Securities for its reasonable out-
of-pocket expenses, including but not limited to travel, communications, legal
fees and postage, and to indemnify Trident Securities against certain claims or
liabilities, including certain liabilities under the Securities Act. Trident
has agreed that the Bank is not required to pay its legal fees to the extent
they exceed $27,500 or its other out of pocket expenses to the extent they
exceed $10,000. Total fees and commissions to Trident Securities are expected
to be between $126,855 and $204,788 at the minimum and 15% above the maximum,
respectively, of the Estimated Valuation Range. See "PRO FORMA DATA" in the
Prospectus for the assumptions used to determine these estimates.
Sales of Common Stock will be made primarily through registered
representatives affiliated with Trident Securities or by the broker-dealers
managed by Trident Securities. In addition, subject to applicable law,
executive officers of the Company and the Bank may participate in the
solicitation of offers to purchase Common Stock. Other employees of the Bank
may participate in the Offering in clerical capacities, providing administrative
support in effecting sales transactions and answering questions of a mechanical
nature relating to the proper execution of the Order Forms. Other questions of
prospective purchasers, including questions as to the advisability or nature of
the investment, will be directed to registered representatives. Such other
employees have been instructed not to solicit offers to purchase Common Stock or
provide advice regarding the purchase of Common Stock. A Stock Information
Center will be established in the Bank's office, in an area separate from the
Bank's banking operations. Employees will inform prospective purchasers that
their questions should be directed to the Stock Information Center and will
provide such persons with the telephone number of the Stock Information Center.
Stock orders will be accepted at the Bank's office and will be promptly
forwarded to the Stock Information Center for processing. Sales of Common Stock
by registered representatives will be made from the Stock Information Center.
In addition, the Bank may hire one or more temporary clerical persons to assist
in typing, opening mail, answering the phone, and with other clerical duties.
An employee of the Bank will also be present at the Stock Information Center to
process funds and answer questions regarding payment for stock, including
verification of account numbers in the case of payment by withdrawal
authorization and similar matters. Subject to applicable state law, the Company
will rely on Rule 3a4-1 under the Exchange Act, and sales of Common Stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers and
current full and part-time the Bank employees to participate in the sale of
Common Stock. No officer, director or employee of the Company or the Bank will
be compensated in connection with his or her participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement should not be construed by purchasers of
Common Stock as constituting an endorsement or recommendation relating to such
investment or a verification of the accuracy or completeness of information
contained in this Prospectus.
MINIMUM AND MAXIMUM PURCHASE LIMITATIONS
Each person subscribing for Common Stock in the Conversion must subscribe
for at least fifty shares of the Common Stock to be offered in the Conversion.
In addition, the maximum number of shares of Common Stock which may be purchased
in the Conversion by (i) any person or entity, (ii) persons or entities
exercising Subscription Rights through a single account or (iii) group of
persons or entities otherwise acting in concert, is 10,000 shares. In addition,
no person or entity, or group of persons or entities acting in concert, together
with any associate (as defined in the Plan), may subscribe for more than 15,000
shares of Common Stock sold in the Conversion. The Board of Directors of the
Bank may in its absolute discretion (i) reduce the above-described 10,000 and
15,000 share maximum purchase limitations to an amount not less than 1% of the
number of shares offered and sold in the Conversion or
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<PAGE>
(ii) increase such 10,000 and 15,000 share maximum purchase limitations to an
amount of up to 5% of the shares of Common Stock offered and sold. Any reduction
or increase in the maximum purchase limitation by the Bank's Board of Directors
may occur at any time prior to consummation of the Conversion, either before or
after the Special Meeting on June 15, 1998. In the event the 10,000 or 15,000
share maximum purchase limitation is increased, any subscriber or group of
subscribers in the Subscription, Community or Syndicated Community Offering who
has subscribed for the maximum amount which is increased, and certain other
large subscribers in the discretion of the Company, shall be given the
opportunity to increase their subscriptions up to the then applicable maximum
purchase limitation.
The Plan further provides that for purposes of the foregoing limitations
the term "associate" is used to indicate any of the following relationships with
a person:
(i) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a director or
officer of the Bank, the Company or any subsidiary of the Bank or of
the Company;
(ii) any corporation or organization (other than the Bank, the Company or
a majority-owned subsidiary of the Bank or the Company) of which the
person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity security; and
(iii) 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, except for any tax-qualified
employee stock benefit plan or any charitable trust which is exempt
from federal taxation pursuant to Section 501(c)(3) of the Code.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint activity
or interdependent conscious parallel action towards a common goal (whether or
not pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Company for a common purpose
pursuant to any contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise. The Company and the Bank will
presume that certain persons are acting in concert based upon, among other
things, joint account relationships, accounts with the same address registration
and the fact that such persons have filed joint Schedules 13D with the SEC with
respect to other companies.
For purposes of the foregoing limitations, directors and officers of the
Bank or the Company shall not be deemed to be associates or a group of persons
acting in concert solely as a result of their serving in such capacities.
However, FDIC rules prohibit the directors and officers of the Bank and their
associates from purchasing, in the aggregate, 35% or more of the
Common Stock to be sold in the Conversion.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
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Under the Plan, the Administrator's approval thereof, and applicable North
Carolina conversion regulations, consummation of the Conversion is subject to
satisfaction of certain conditions, including the following: (i) approval of the
Plan by the affirmative vote of a majority of the votes eligible to be cast by
members of the Bank at the Special Meeting; (ii) sale of shares of Common Stock
for an aggregate purchase price equal to not less than the minimum or more than
the maximum of the Estimated Valuation Range unless the aggregate purchase price
is increased to as much as 15% above the maximum with the consent of the
Administrator and FDIC, and (iii) receipt by the Company and the Bank of
favorable opinions of counsel or other tax advisor as to the federal and state
tax consequences of the Conversion. See "-- Income Tax Consequences."
Consummation of the Conversion is also subject to receipt by the Bank from the
FDIC of a letter of non-objection.
If all conditions for consummation of the Conversion are not satisfied, no
Common Stock will be issued, the Bank will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be promptly
returned with interest at the Bank's passbook savings rate, and all deposit
withdrawal authorizations (and holds placed on such accounts) will be canceled.
In such an event, the Company would not acquire control of the Bank.
All interpretations by the Bank and the Company of the Plan and of the
Order Forms and related materials for the Subscription and Community Offering
will be final, subject to the authority of the FDIC and the Administrator. The
Bank and the Company may reject Order Forms that are not properly completed.
However, the Company and the Bank retain the right, but will not be required, to
waive irregularities in submitted Order Forms or to require the submission of
corrected Order Forms or the remittance of full payment for all shares
subscribed for by such dates as they may specify. In addition, the Plan may be
substantively amended by a two-thirds vote of the Bank's Board of Directors at
any time prior to the Special Meeting, and at any time thereafter by a two-
thirds vote of the Bank's Board of Directors with the concurrence of the
Administrator and the FDIC. If the Bank determines upon the advice of counsel
and after consultation with the Administrator that any such amendment is
material, subscribers would be given the opportunity to increase, decrease or
cancel their subscriptions. Also, as required by the regulations of the
Administrator, the Plan provides that the transactions contemplated thereby may
be terminated by a two-thirds vote of the Bank's Board of Directors at any time
prior to the Special Meeting and may be terminated by a two-thirds vote of the
Bank's Board of Directors at any time thereafter but prior to the completion of
the Conversion with the concurrence of the Administrator, notwithstanding
approval of the Plan by the Members at the Special Meeting.
In the event that mandatory new regulations pertaining to conversions are
adopted by the Administrator or FDIC prior to the completion of the Conversion,
the Plan will be amended as provided above to conform to the new mandatory
regulations without a re-solicitation of proxies or another Special Meeting. In
the event that new conversion regulations adopted by the Administrator or FDIC
prior to completion of the Conversion contain optional provisions, the Plan may
be amended as provided above to utilize such optional provisions without a re-
solicitation of proxies or another Special Meeting.
CERTAIN RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS; FALSE OR MISLEADING
ORDER FORMS
THE SUBSCRIPTION RIGHTS GRANTED UNDER THE PLAN ARE NON-TRANSFERABLE.
SUBSCRIPTION RIGHTS MAY BE EXERCISED ONLY BY THE PERSON TO WHOM THEY ARE ISSUED
AND ONLY FOR HIS OR HER OWN ACCOUNT. Persons exercising Subscription Rights are
required to certify that they are purchasing shares for their own accounts
within the purchase limitations set forth in the Plan and that they have no
agreement or understanding for the sale or transfer of such shares.
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<PAGE>
The Bank reserves the right to make an independent investigation of any
facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Bank's sole discretion and the Bank may require a
holder of Subscription Rights to provide certified affidavits and other
documentation to satisfy the Bank that its Plan and North Carolina and federal
conversion regulations regarding nontransferability are not being subverted by
actions of holders of Subscription Rights. In extreme cases the Bank reserves
the right to seek legal advice from the General Counsel for the Administrator as
to compliance with all regulations governing the Conversion, including the
nontransferability of Subscription Rights.
The Plan provides that, if the Bank's Board of Directors determines that a
subscriber (i) has submitted a false or misleading information on his or her
Order Forms or otherwise in connection with the attempted purchase of shares,
(ii) has attempted to purchase shares of Common Stock in violation of provisions
of the Plan or (iii) fails to cooperate with attempts by the Bank or the Company
or their employees or agents to verify information with respect to purchase
rights, the Board of Directors may reject the order of such subscriber.
INCOME TAX CONSEQUENCES
The Bank has received an opinion from its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to the
effect that for federal income tax purposes: (i) the Conversion will constitute
a tax free reorganization with respect to the Bank and no gain or loss will be
recognized by the Bank either in its mutual or stock form; (ii) no gain or loss
will be recognized by the Bank upon the purchase of the Bank's stock by the
Company or upon the sale by the Company of its Common Stock; (iii) no gain or
loss will be recognized by the Bank's depositors with respect to their deposit
accounts at the Bank as a consequence of the Conversion; (iv) the tax basis of
depositors' deposit accounts at the Bank will not be changed as a result of the
Conversion; (v) assuming the Subscription Rights have no value, no gain or loss
will be recognized by Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, or directors, officers and employees of the Bank upon
either the issuance to them of the Subscription Rights or the exercise or lapse
thereof; (vi) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of interests
in the Liquidation Account; (vii) assuming the Subscription Rights have no
value, the tax basis for Common Stock purchased in the Conversion will be the
amount paid therefor; and (viii) the tax basis of interests in the Liquidation
Account will be zero. The Bank has been further advised by its special counsel,
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., that the tax effects of
the Conversion under North Carolina tax laws will be consistent with the federal
income tax consequences.
Several of the foregoing legal opinions are premised on the assumption that
the Subscription Rights will have no value. The Bank has been advised by
Ferguson that, in its opinion, the Subscription Rights will not have any
ascertainable value, based on the fact that such rights are acquired by the
recipients without cost, are non-transferable, are of short duration and afford
the recipients the right only to purchase Common Stock at a price equal to its
estimated fair market value as of the date such rights are issued, which will be
the same price paid by all purchasers in the Conversion. The opinion of
Ferguson is not binding on the IRS and if the Subscription Rights were
ultimately determined to have ascertainable value, recipients of Subscription
Rights would have to include in gross income an amount equal to the value of the
Subscription Rights received by them. The basis of the Common Stock purchased
pursuant to Subscription Rights would be increased by the amount of income
realized with respect to the receipt or exercise of the Subscription Rights.
Moreover, recipients of Subscription Rights
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could then have to report the transaction to the IRS. Each Eligible Account
Holder, Supplemental Eligible Account Holder, Other Member or other recipient of
Subscription Rights is encouraged to consult with his, her or its own tax
advisor as to the tax consequences in the event the Subscription Rights are
deemed to have ascertainable value.
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including the
tax consequences to Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, other recipients of Subscription Rights or purchasers of
Common Stock under the laws of any other state, local or foreign taxing
jurisdiction to which they may be subject. Special counsel expresses no opinion
regarding the value of the Subscription Rights.
STOCK PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS
Directors, officers and employees of the Bank will be entitled to subscribe
for shares of Common Stock in the Subscription Offering in their capacities as
such and to the extent they qualify as Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Shares purchased by such persons
will be purchased at the same price per share--$10.00--that will be paid by
other purchasers in the Offering. They may also purchase Common Stock in the
Community Offering or in the Syndicated Community Offering, if any, subject to
the maximum purchase limitations applicable to all purchasers of shares in the
Conversion.
The following table sets forth for the named executive officer and each of
the directors of the Bank who intends to purchase Common Stock, and for all
executive officers and directors as a group (including in each case, except as
otherwise noted, all associates of such persons) the aggregate dollar amount of
Common Stock for which such director or executive officer has informed the Bank
he intends to subscribe. The amounts reflected in the table are estimates only
and the actual shares of Common Stock actually subscribed for by the listed
individuals may differ from the amounts reflected in the table. The following
table assumes that sufficient shares will be available to satisfy the
subscriptions of the Bank's executive officers and directors.
21
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<TABLE>
<CAPTION>
ANTICIPATED
ANTICIPATED NUMBER
AMOUNT OF SHARES AS A PERCENT
TO BE PAID TO BE OF SHARES
NAME FOR SHARES PURCHASED/(1)/ ISSUED/(2)/
- ---- ------------- -------------- -------------
<S> <C> <C> <C>
Preston A. Burns, Chairman $ 100,000 10,000 1.52%
John J. Crawford, Director 100,000 10,000 1.52%
W. Kenneth Huntley, Director 50,000 5,000 0.76%
Emmett S. Patterson, Director 10,000 1,000 0.15%
John R. Potter, Director 25,000 2,500 0.38%
H. Patrick Taylor, Jr., Director 150,000/(3)/ 15,000 2.27%
Eugene M. Ward, Director, President and Chief 100,000 10,000 1.52%
Executive Officer
Other Executive Officers /(2)/ 2,000 200 0.03%
All executive officers and directors as a group (9 $ 537,000 53,700 8.14%
persons) ------------- ------ ----
</TABLE>
_____________________
(1) Grants under the proposed MRP and shares subject to option under the Option
Plan, if approved by the stockholders of the Company at a meeting of
stockholders following the Conversion, are not aggregated with shares of
Common Stock purchased by the executive officers and directors listed
above. Under the proposed MRP, if approved by the stockholders of the
Company, a number of shares equal to 4% of the shares issued in the
Conversion are expected to be issued to directors and certain employees of
the Bank. Such shares could be purchased in the open market at any time
following approval of the MRP by the Company's stockholders or could be
issued out of authorized but unissued shares. Recipients of shares under
the MRP will have voting control over such shares regardless of whether
such shares have vested. See "MANAGEMENT OF THE BANK -- Proposed
Management Recognition Plan" in the Prospectus.
(2) Based upon the issuance of 660,000 shares of Common Stock which is the
number of shares to be issued at the midpoint of the Estimated Valuation
Range. The same individuals would subscribe for 9.57% of the shares issued
based upon the issuance of 561,000 shares of Common Stock which is the
number of shares to be issued at the minimum of the Estimated Valuation
Range.
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<PAGE>
(3) This amount includes 50,000 shares which Mr. Taylor anticipates will be
purchased by his affiliate, as allowed under the Plan of Conversion.
Without the prior written consent of the Administrator, shares of Common
Stock purchased by directors or executive officers of the Bank in the Conversion
cannot be sold during a period of one year following the Conversion, except upon
death of the director or executive officer. Such restriction also applies to
any shares issued to such person as a stock dividend, stock split or otherwise
with respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to purchases of stock made by or held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Bank or the
Company which may be attributable to individual executive officers or directors.
Purchases and sales of Common Stock by officers and directors will also be
subject to the short-swing trading prohibitions contained in Section 16(b) of
the Exchange Act, and the short-swing trading and other rules promulgated
pursuant to the Exchange Act.
BENEFITS TO DIRECTORS AND EMPLOYEES
In connection with the Conversion, certain benefits will be provided to
directors, officers and employees of the Bank.
Employment Agreement. In connection with the Conversion, the Bank expects
to enter into an employment agreement with Eugene M. Ward, President and Chief
Executive Officer. The employment agreement provides for an initial annual
salary of $69,000. See "MANAGEMENT OF THE BANK --Employment Agreement" in the
Prospectus. Mr. Ward, along with all other employees, is also eligible to
receive bonuses as declared by the Bank's Board of Directors. See "MANAGEMENT
OF THE BANK -- Bonus Compensation" in the Prospectus.
Severance Plan. In connection with the Conversion, the Bank plans to adopt
a Severance Plan for the benefit of its full-time employees, who at the time of
a "change in control" (as defined in the Severance Plan) have not entered into
an employment agreement with the Company or the Bank. The Severance Plan
provides that in the event there is a change in control and (i) the employment
of any eligible employee of the Bank is terminated in connection with, or within
24 months after the change in control, other than for cause, or (ii) an eligible
employee terminates his or her employment following a decrease in the level of
such employee's annual base salary rate or a transfer of such employee to a
location more than 40 miles distant from the employee's primary work station
within 24 months after a change in control, the employee shall be entitled to a
severance benefit equal to the following: (a) employee has been employed with
the Bank less than 20 years, the employee shall receive a severance benefit
equal to the greater of (1) an amount equal to two weeks' salary at the
employee's existing salary rate multiplied times the employee's years of service
or (2) the amount of one month's salary at the employee's salary rate at the
time of termination; or the employee has been employed by the Bank at least 20
years, the employee shall receive a severance benefit equal to the greater (1)
(1) an amount equal to two weeks' salary at the employee's existing salary rate
multiplied times the employee's years of service
23
<PAGE>
or (2) the amount of two years salary at the employee's salary rate at the time
of termination. See "MANAGEMENT OF THE BANK -- Severance Plan" in the
Prospectus.
24
<PAGE>
MRP. Pursuant to the MRP, which is expected to be adopted by the Boards of
Directors of the Company and the Bank, directors and certain employees of the
Bank could receive restricted stock grants of a number of shares of Common Stock
equal to 4% of the shares issued in the Conversion (between 22,440 and 30,360
shares (34,914 shares at the maximum, as adjusted), assuming the issuance of
between 561,000 and 759,000 shares) (872,850 shares at the maximum, as
adjusted). Assuming that the shares issued pursuant to the MRP had a value of
$10.00 per share, such shares would have a value of between $224,400 and
$303,600 ($349,140 at the maximum, as adjusted). Recipients of restricted stock
under the MRP will not have to pay for their restricted shares.
Under applicable regulations, if the proposed MRP is submitted to and
approved by the stockholders of the Company within one year after consummation
of the Conversion, (i) no employee of the Bank (including Mr. Ward) could
receive more than 25% of the shares issued under the MRP, or 7,590 shares
(8,728 shares at the maximum, as adjusted), assuming the issuance of 759,000
shares (872,850 shares at the maximum, as adjusted) in the Conversion, (ii) the
six non-employee directors of the Bank could receive restricted stock grants for
an aggregate of not more than 30% of the shares issued under the MRP, or 9,108
shares (10,474 shares at the maximum, as adjusted), assuming the issuance of
759,000 shares (872,850 shares at the maximum, as adjusted) in the Conversion
and (iii) none of the six non-employee directors of the Bank could receive
individually more than 5% of the shares issued under the MRP, or 1,518 shares
(1,745 shares at the maximum, as adjusted), assuming the issuance of 759,000
shares (872,850 shares at the maximum, as adjusted) in the Conversion. Assuming
the MRP shares had a value of $10.00 per share, 7,590 shares (8,728 shares at
the maximum, as adjusted) would have a value of $75,900 ($87,280 at the maximum,
as adjusted), 9,108 shares (10,474 shares at the maximum, as adjusted) would
have a value of $91,080 ($104,740 at the maximum, as adjusted), and 1,518 shares
(1,745 shares at the maximum, as adjusted) would have a value of $15,180
($17,450 at the maximum, as adjusted). If the MRP is submitted to and approved
by the Company's stockholders more than one year after consummation of the
Conversion, the regulatory percentage limitations set forth above would not
apply.
The MRP will only be implemented if approved by the stockholders of the
Company at a meeting of stockholders to be held no sooner than six months
following the Conversion. Recipients of restricted stock under the MRP will not
have to pay for their restricted shares. See "MANAGEMENT OF THE BANK" --
Proposed Management Recognition Plan" in the Prospectus.
Stock Options. Pursuant to the Stock Option Plan which is expected to be
adopted by the Boards of Directors of the Company and the Bank, directors and
certain employees of the Bank could receive options to purchase a number of
shares of Common Stock equal to 10% of the shares issued in the Conversion
(between 56,100 and 75,900 shares (87,285 shares at the maximum, as adjusted),
assuming the issuance of between 561,000 and 759,000 shares) (872,850 shares at
the maximum, as adjusted).
Under applicable regulations, if the proposed Stock Option Plan is
submitted to and approved by the stockholders of the Company within one year
after consummation of the Conversion, (i) no employee of the Bank (including Mr.
Ward) could receive more than 25% of the options issued under the Stock Option
Plan, or options to purchase 18,975 shares (21,821 shares at the maximum, as
adjusted), assuming the issuance of 759,000 shares (872,850 shares at the
maximum, as adjusted) in the Conversion, (ii) the six non-employee directors of
the Bank could receive in the aggregate not more than 30% of the options issued
under the Stock Option Plan, or options to purchase not more than 22,770 shares
(26,186 shares at the maximum, as adjusted), assuming the issuance of 759,000
shares (872,850 shares at the maximum, as adjusted) in the Conversion, and (iii)
none of the six non-employee directors of the Bank could receive individually
more than 5% of the options issued under the Stock Option Plan, or options to
purchase not more than 3,795 shares (4,364 shares at the maximum, as adjusted),
assuming
25
<PAGE>
the issuance of 759,000 shares (872,850 shares at the maximum, as adjusted) in
the Conversion. If the Stock Option Plan is submitted to and approved by the
Company's stockholders more than one year after consummation of the Conversion,
the regulatory percentage limitations set forth above would not apply.
The Stock Option Plan will only be implemented if approved by the
stockholders of the Company at a meeting of stockholders to be held no sooner
than six months following the Conversion. The exercise price of the options
will be the fair market value of the Common Stock at the time the options are
granted (which will be after the Stock Option Plan is approved by the Company's
stockholders), and the options will have terms of ten years or less. Recipients
of options under the Stock Option Plan will not have to pay for the options
issued to them. See "MANAGEMENT OF THE BANK" -- Proposed Option Plan" in the
Prospectus.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently estimated that
such net proceeds will be between $5.12 million and $7.05 million, based on the
current Estimated Valuation Range. If the gross proceeds of the shares sold are
increased to 15% above the maximum of the Estimated Valuation Range, it is
estimated that net proceeds will equal $8.16 million. See "PRO FORMA DATA" in
the Prospectus for the assumptions used to arrive at these amounts. The actual
net proceeds may vary materially from the estimated amounts described herein.
The Company expects to retain 50% of the proceeds of the Offering and will use
the balance to purchase the capital stock of the Bank to be issued in the
Conversion.
The Company expects to use the portion of the net proceeds it retains for
working capital and investment purposes. The Company does not expect to have
significant operating expenses and anticipates that initially it will invest the
net proceeds it retains primarily in interest-earning deposits, U.S. government,
federal agency and other marketable securities and mortgage-backed securities.
The types and amounts of such investments will vary from time to time based upon
the interest rate environment, asset/liability mix considerations and other
factors.
Net proceeds paid to the Bank initially will become part of the Bank's
general funds and will be invested primarily in mortgage and other loans, and
investments consisting primarily of interest-earning deposit balances, U.S.
government and federal agency obligations and other marketable securities in
accordance with the Bank's lending and investment policies. The relative
amounts to be invested in each of these types of investments will depend upon
loan demand, rates of return and asset/liability matching considerations at the
time the investments are to be made. Management is not able to predict the
yields which will be produced by the investment of the proceeds of the Offering
because such yields will be significantly influenced by general economic
conditions and the interest rate environment existing at the time the
investments are made. Remaining net proceeds paid to the Bank will be used for
general corporate purposes.
The proceeds of the Offering will result in an increase in the Bank's net
worth and regulatory capital and may enhance the potential for growth through
increased lending and investment activities, branch expansion, ATMs or
otherwise. The net proceeds retained by the Company could be used to support
the future expansion of operations of the Company through the opening of a
branch office in or adjacent to the Bank's primary market area. The Company has
no current plans to open any additional office. Payments for shares of Common
Stock of the Company made through the withdrawal of existing deposit accounts at
the Bank will not result in the receipt of new funds for investment by the Bank.
26
<PAGE>
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but are not limited to (i)
market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, (ii) the ability to increase the book value and earnings per share
of the remaining outstanding shares, and improve the Company's return on equity;
(iii) the reduction of dilution to stockholders caused by having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iv) any other circumstances in which repurchases would
be in the best interests of the Company and its stockholders.
Any stock repurchases will be subject to the determination of the Board of
Directors that both the Company and the Bank will be capitalized in excess of
applicable regulatory requirements after any such repurchases and that capital
will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Company's and the Bank's current and
projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. Federal regulations
require that, subject to certain exceptions, the Company must obtain approval of
the Federal Reserve prior to repurchasing Common Stock in excess of 10% of its
net worth during any twelve-month period. See "SUPERVISION AND REGULATION --
Regulation of the Company -- Dividend and Repurchase Limitations" in the
Prospectus.
The Company and the Bank have entered into a tax allocation agreement which
contemplates the filing of consolidated tax returns at a yet undetermined future
time when most advantageous to the Company, the Bank and the Company's
shareholders. However, the Company and the Bank have no present intention to
file consolidated tax returns which will preserving for the Company the ability
to use a portion of the proceeds to make a return of capital in the future.
However, the Company has not made any decision to pay such a return of capital.
The Company and the Bank have agreed to notify the FDIC before making a return
of capital during the first three years following the Conversion. See "DIVIDEND
POLICY."
At any time following approval of the MRP by the Company's stockholders, it
is expected that the MRP may acquire a number of shares of Common Stock equal to
4% of the number of shares issued in the Conversion. See "MANAGEMENT OF THE
BANK -- Proposed Management Recognition Plan" in the Prospectus. Such shares
may be acquired in the open market or acquired through the Company's issuance of
authorized but unissued shares. In the event shares are acquired in the open
market, the funds for such purchase may be provided by the Bank from the
proceeds of the Conversion. It is estimated that between 22,440 and 30,360
shares may be acquired by the MRP, assuming the issuance of between 561,000 and
759,000 shares, respectively, in the Conversion. If the Common Stock is
acquired in the open market, it will be purchased at a price equal to the fair
market value of the Common Stock at the time of purchase, which price may be
greater or lower than the offering price of $10.00 per share of Common Stock. If
all such shares were acquired by the MRP in the open market, and if such shares
were acquired at a price of $10.00 per share, the Bank would contribute between
$224,400 and $303,600, respectively, to the MRP for this purpose.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare semiannual dividends on the Common Stock, subject to
statutory and regulatory requirements. The
27
<PAGE>
Company expects to pay annual dividends on the Common Stock at a rate of $0.30
per share which is equal to 3% of the offering price for the Common Stock in the
Conversion. The payment of dividends is expected to begin as soon as practicable
after completion of the Conversion. In addition, the Board of Directors may
determine from time to time that it is prudent to pay special nonrecurring cash
dividends, which may or may not constitute a return of capital. Special cash
dividends, if paid, may be in addition to, or in lieu of, regular cash
dividends. The Company's Board of Directors will periodically review its policy
concerning dividends. Declarations of dividends, if any, by the Board of
Directors will depend upon a number of factors, including investment
opportunities available to the Company and the Bank, capital requirements,
regulatory limitations, the Company's and the Bank's results of operations and
financial condition, tax considerations and general economic conditions. Upon
review of such considerations, the Board of Directors of the Company may
authorize dividends to be paid in the future if it deems such payment
appropriate and in compliance with applicable law and regulation. No assurances
can be given that any dividends will in fact be paid on the Common Stock or, if
dividends are paid, that they will not be reduced or discontinued in the
future.
In connection with the Conversion, the Bank has agreed with the FDIC that,
within the first three years after completion of the Conversion, neither the
Company nor the Bank will pay any taxable dividend or make any taxable
distribution in excess of their current and retained earnings. The Company and
the Bank have agreed to notify the FDIC before making a return of capital during
the first three years following the Conversion.
The sources of income to the Company initially will consist of earnings on
the capital retained by the Company and dividends paid by the Bank to the
Company, if any. Consequently, future declarations of cash dividends by the
Company may depend upon dividend payments by the Bank to the Company, which
payments are subject to various restrictions. Under current North Carolina
regulations, the Bank could not declare or pay a cash dividend if the effect
thereof would be to reduce its net worth to an amount which is less than the
minimum required by the FDIC and the Administrator. In addition, for a period
of five years after the consummation of the Conversion, the Bank will be
required, under existing regulations, to obtain the prior written approval of
the Administrator before it can declare and pay a cash dividend on its capital
stock in an amount in excess of one-half of the greater of (i) its net income
for the most recent fiscal year, or (ii) the average of its net income after
dividends for the most recent fiscal year and not more than two of the
immediately preceding fiscal years, if applicable. See "SUPERVISION AND
REGULATION -- Regulation of the Bank -- Restrictions on Dividends and Other
Capital Distributions" in the Prospectus. As a result of this limitation, if
the Bank had been a stock institution at the end of fiscal 1997 and for the two
preceding fiscal years, it could not have paid a dividend in excess of
$61,244.33 without the approval of the Administrator.
As a converted institution, the Bank also will be subject to the regulatory
restriction that it will not be permitted to declare or pay a dividend on or
repurchase any of its capital stock if the effect thereof would be to cause its
regulatory capital to be reduced below the amount required for the liquidation
account established in connection with the Conversion. See "THE CONVERSION --
Effects of Conversion -- Liquidation Rights." Also, see "TAXATION -- Federal
Income Taxation" in the Prospectus for a discussion of federal income tax
provisions that may limit the ability of the Bank to pay dividends to the
Company without incurring a recapture tax.
MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for the Common Stock at this
time. Following the completion of the
28
<PAGE>
Offering, it is anticipated that the Common Stock will be traded on the over-
the-counter market with quotations available through the OTC Electronic Bulletin
Board. Trident Securities is expected to make a market in the Common Stock, by
developing and maintaining historical stock trading records, soliciting
potential buyers and sellers of shares and attempting to match buy and sell
orders. In connection with its market making activities, Trident may buy or sell
shares from time to time for its own account. However, Trident Securities will
not be subject to any obligation with respect to such efforts.
An active and liquid public trading market for the securities of any
issuer, including the Common Stock, depends upon the presence in the marketplace
of both willing buyers and willing sellers of the securities at any given time.
Due to the size of the Company's offering (660,000 shares at the midpoint of the
Estimated Valuation Range), it is unlikely that a stockholder base large enough
to create an active trading market will develop and be maintained. Further,
even if a market develops, there can be no assurance that the shares of Common
Stock offered in the Conversion can be resold at or above the purchase price
after completion of the Conversion. Purchasers of Common Stock should consider
the potentially illiquid and long-term nature of their investment in the shares
being offered hereby. The aggregate price of the Common Stock is based upon an
independent appraisal of the pro forma market value of the Common Stock.
However, there can be no assurance that an investor will be able to sell the
Common Stock purchased in the Conversion at or above the $10.00 purchase price.
REGISTRATION REQUIREMENTS
The Company will register its Common Stock with the SEC pursuant to Section
12 of the Exchange Act in connection with the Conversion and will not deregister
the Common Stock for a period of three years following the completion of the
Conversion. Upon such registration, the proxy and tender offer rules, insider
trading reporting requirements and restrictions, annual and periodic reporting
and other requirements of the Exchange Act will be applicable to the Company.
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<PAGE>
ADDITIONAL INFORMATION AND ORDER FORMS
The Prospectus contains the following: audited consolidated financial
statements of the Bank for the two fiscal years ended June 30, 1997 and 1996;
unaudited consolidated financial statements of the Bank for the six-month
periods ended December 31, 1997 and 1996; capitalization of the Company and the
Bank; Management's Discussion and Analysis of Financial Condition and Results of
Operations; a description of the Bank's lending and savings and investment
activities; information concerning compensation and other benefits of directors
and officers; a description of the Common Stock; anti-takeover provisions of the
Company and the Bank; and additional information about the business and
financial condition of the Bank. The Prospectus also contains forms (the "Stock
Order Forms") for subscribing or submitting an order for the Common Stock. A
copy of the Prospectus accompanies this Proxy Statement. Requests for an
additional copy of the Prospectus and any questions about the Conversion or the
Special Meeting, including questions about proxy voting procedures, should be
directed to the Bank's Stock Information Center at (704) 694-6481, 211 South
Greene Street, Wadesboro, North Carolina 28170.
The Company has filed a registration statement with the SEC on Form SB-2
under the Securities Act, with respect to the Common Stock. As permitted by the
rules and regulations of the SEC, this Proxy Statement does not contain all of
the information set forth in the registration statement. Such information can be
examined and copied at the public reference facilities of the SEC located at
Room 1024, 450 Fifth Street, N.W., Washington, DC. 20549, and at the regional
offices of the SEC at 75 Park Place, Fourteenth Floor, New York, New York 10007
and Room 3190, John C. Kluozynski Building, 230 South Greene Street, Chicago,
Illinois 60604. Copies of such material can be obtained by mail from the SEC at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the SEC maintains a World
Wide Web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC,
including the Company; the address is (http://www.sec.gov.). The statements
contained in the Prospectus as to the contents of any contract or other document
filed as an exhibit to the registration statement are, of necessity, brief
descriptions of each material feature thereof and are not necessarily complete;
each such statement is qualified by reference to such contract or document.
The Bank has filed an Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank with the Administrator. Pursuant to the North Carolina
conversion regulations, this Proxy Statement omits certain information contained
in such Application. The Application, which contains a copy of Ferguson's
appraisal, may be inspected at the office of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, Tower Building,
Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. Copies of the Plan,
which includes a copy of the Bank's proposed Amended Certificate of
Incorporation and Stock Bylaws, and copies of the Company's Articles of
Incorporation and Bylaws are available for inspection at the office of the Bank
and may be obtained by writing to the Bank at 211 South Greene Street,
Wadesboro, North Carolina 28170, Attention: Eugene M. Ward, President, or by
telephoning the Bank at (704) 694-2122. A copy of Ferguson's independent
appraisal is also available for inspection at the Stock Information Center, 211
South Greene Street, Wadesboro, North Carolina 28170.
The Subscription Offering will commence on May 18, 1998, and end on June 9,
1998. Stock Order Forms for purchases of Common Stock in the Subscription
Offering must be received by the Bank on or before 12:00 noon, Eastern Time, on
June 9, 1998.
Any questions about the Conversion or the Special Meeting, including
questions about proxy voting procedures, should be directed to the Bank's Stock
Information Center at (704) 694-6481.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK. SUCH OFFERS ARE MADE ONLY BY THE PROSPECTUS.
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ATTACHMENT 1 TO
Exhibit 99.c
------------
PLAN OF HOLDING COMPANY CONVERSION
OF
ANSON SAVINGS BANK, SSB
Wadesboro, North Carolina
From Mutual to Stock Organization
I. General
On December 11, 1997, the Board of Directors of Anson Savings Bank, SSB,
Wadesboro, North Carolina (the "Savings Bank") adopted a Plan of Holding Company
Conversion pursuant to which the Savings Bank will convert from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered capital
stock savings bank and simultaneously become a wholly-owned subsidiary of Anson
Bancorp, Inc., a bank holding company organized under North Carolina law.
This Plan is subject to the prior approval of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, and must be
adopted by the affirmative vote of the members of the Savings Bank holding not
less than a majority of the total outstanding votes eligible to be cast. In
addition, in order to consummate the conversion herein described, this Plan must
be filed with the Federal Deposit Insurance Corporation ("FDIC") and must not
have been objected to by the FDIC in accordance with applicable FDIC
regulations.
II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: The term "acting in concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal, whether or not pursuant to an express agreement, with
respect to the purchase, ownership, voting or sale of Common Stock; or (ii) a
combination or pooling of voting or other interests in the securities of the
Holding Company for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. The
Holding Company and the Savings Bank may presume that certain persons are acting
in concert based upon, among other things, joint account relationships and the
fact that such persons have filed joint Schedules 13D with the SEC with respect
to other companies.
B. Actual Purchase Price: The actual price per share, determined as
provided in Article VI hereof, at which the shares of common stock of the
Holding Company will be issued and sold by the Holding Company to subscribers.
C. Administrator: Administrator, Savings Institutions Division, North
Carolina Department of Commerce.
D. Affiliate: The term "affiliate" of, or a person "affiliated with," a
specified person, means a person that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
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E. Aggregate Valuation Range: The range of value for the aggregate
number of shares of common stock of the Holding Company to be offered in the
Conversion, which range is established pursuant to Article VI hereof and which
shall be from a low of 15 percent (15%) below the estimated aggregate pro forma
market value of the Savings Bank and the Holding Company to a high of 15 percent
(15%) above the estimated aggregate pro forma market value of the Savings Bank
and the Holding Company, as such range may be amended from time to time by an
independent appraiser.
F. Amended Charter: The Savings Bank's North Carolina stock savings bank
charter in the form permitted by the Administrator.
G. Applications: The Savings Bank's Application to Convert a Mutual
Savings Bank to a Stock Owned Savings Bank and the Holding Company's Acquisition
Application, including amendments thereto, as filed with the Administrator
pursuant to the Regulations.
H. Associate: The term "Associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Savings Bank, the Holding Company or any of their majority-owned subsidiaries)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent (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, except for a tax-qualified employee stock benefit plan or a charitable
trust which is exempt from federal taxation pursuant to Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, and (iii) any relative or spouse of
such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Savings Bank, the Holding Company,
or any of their parents or subsidiaries.
I. Charter: The North Carolina mutual savings bank charter of Anson
Savings Bank, SSB.
J. Community Offering: The offering for sale of shares of Conversion
Stock to the general public, subsequent to termination of the Subscription
Offering, with priority given to natural persons and trusts of natural persons
residing in the Local Community (including Retirement Accounts established for
the benefit of natural persons who are residents of such area).
K. Conversion: The conversion of the Savings Bank to a North Carolina-
chartered stock savings bank, the deposit accounts of which will be insured by
the SAIF of the FDIC, pursuant to, and in accordance with, the regulations of
the FDIC, the Regulations, the Plan and the Applications.
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L. Conversion Stock: The shares of common stock of the Holding Company
to be issued and sold in the Conversion.
M. Converted Savings Bank: Anson Savings Bank, Inc., the North Carolina
capital stock savings bank resulting from the Conversion.
N. Directors: The Board of Directors of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable).
O. Eligibility Record Date: The close of business on September 30, 1996.
P. Eligible Account Holder: The holder of a Qualifying Deposit on the
Eligibility Record Date, with the beneficial owner of a Retirement Account being
deemed the holder thereof.
Q. Executive Officer: An officer of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable) performing a policy-making
function for such entity.
R. FDIC: The Federal Deposit Insurance Corporation.
S. Federal Reserve Board: The Board of Governors of the Federal Reserve
System.
T. First Priority Community Subscribers: Natural persons and trusts of
natural persons residing in the Local Community, including Retirement Accounts
established for the benefit of natural persons residing in the Local Community.
U. Holding Company: The North Carolina corporation under the name of
Anson Bancorp, Inc. which, upon completion of the Conversion, will become a bank
holding company owning all of the outstanding capital stock of the Converted
Savings Bank.
V. Liquidation Account: That account established by the Converted
Savings Bank pursuant to Article XI of this Plan.
W. Local Community: Anson County, North Carolina.
X. 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 (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
Y. Members: All persons or entities who qualify as members of the
Savings Bank pursuant to its Charter and bylaws prior to the Conversion,
including beneficial owners of Retirement Accounts at the Savings Bank.
Z. Notice: The Savings Bank's Notice of Intent to Convert to Stock Form,
including amendments thereto, as filed with the FDIC pursuant to 12 C.F.R. Part
303.
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AA. Order Forms: The order forms to be used to subscribe for Conversion
Stock in the Subscription and Community Offerings pursuant to the Plan.
BB. Other Members: The following as of the Voting Record Date: (1)
holders of Savings Accounts at the Savings Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders), with the beneficial owners
of Retirement Accounts being deemed the holders of such accounts, and (2) those
Persons or entities (other than Eligible Account Holders and Supplemental
Eligible Account Holders) who are borrowers from the Savings Bank whose
borrowings are still in existence as of the Voting Record Date.
CC. Person: An individual, a corporation, a partnership, an association,
a joint stock company, a trust, an unincorporated organization, or a government
or political subdivision thereof.
DD. Plan: This Plan of Holding Company Conversion and any duly adopted
amendments thereto.
EE. Prospectus: The document containing information about and a
description of the Savings Bank, the Holding Company, this Plan and the process
of issuing the Conversion Stock, which will be distributed to the Members in the
Subscription Offering and which may be distributed to the general public in the
Community Offering and Syndicated Community Offering.
FF. Proxy Statement: The written information distributed by the Savings
Bank to the Members in its solicitation of their votes in connection with
consideration of the Plan at the Special Meeting, which written information may
be in summary form.
GG. Qualifying Deposit: A balance of $50 or more in any Savings Account
in the Savings Bank as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. Each deposit account which is deemed to
be a separate account for purposes of FDIC insurance shall be deemed to be a
separate account for purposes of determining whether a Qualifying Deposit
exists.
HH. Regulations: The Rules and Regulations of the Administrator set forth
in North Carolina Administrative Code Title 4, Chapter 16, Subchapter 16G.
II. Retirement Accounts: Individual retirement accounts, Keogh savings
accounts or similar retirement accounts.
JJ. SAIF: The Savings Association Insurance Fund of the FDIC.
KK. Savings Accounts: Withdrawable deposits, certificates or other
savings and deposit accounts of the Savings Bank, including money market deposit
accounts and negotiable order of withdrawal accounts, held by Members. Each
such deposit, certificate or other deposit account which is deemed to be a
separate account for FDIC insurance shall be deemed to be a separate Savings
Account for purposes of the Plan.
LL. Savings Bank: Anson Savings Bank, SSB, Wadesboro, North Carolina, a
North Carolina-chartered mutual savings bank.
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MM. SEC: The Securities and Exchange Commission.
NN. Special Meeting: The Special Meeting of Members called for the
purpose of considering approval of the Plan.
OO. Subscription Offering: The offering of shares of Conversion Stock to
Eligible Account Holders, Supplemental Eligible Account Holders, Other Members,
and Directors, officers and employees of the Savings Bank pursuant to the Plan.
PP. Subscription Rights: Non-transferable, non-negotiable, personal
rights distributed, without payment, to Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members, and Directors, officers and employees
of the Savings Bank to subscribe for shares of Conversion Stock in the
Subscription Offering pursuant to the Plan.
QQ. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Applications by the Administrator, if the
establishment of such date is required by the Regulations.
RR. Supplemental Eligible Account Holder: The holder of a Qualifying
Deposit (other than an Executive Officer or Director of the Savings Bank or any
Associate of such Person), on the Supplemental Eligibility Record Date, with the
beneficial owner of a Retirement Account being deemed the holder thereof.
SS. Syndicated Community Offering: The offering for sale of shares of
Conversion Stock to the general public through a syndicate of registered broker-
dealers to be formed and managed by the sales agent in the Subscription Offering
and Community Offering.
TT. Voting Record Date: The date fixed by the Board of Directors of the
Savings Bank for determining Members entitled to vote at the Special Meeting.
III. Steps Prior to Submission of Plan of Conversion to the Members for Approval
Prior to submission of the Plan to the Members of the Savings Bank for
approval, the Savings Bank must receive the Administrator's approval of the
Applications and the FDIC must have issued a notice of non-objection to the
proposed conversion or the time period for FDIC review and objection shall have
expired without objection by the FDIC. The following steps must be taken prior
to such regulatory approvals:
A. The Board of Directors of the Savings Bank shall adopt and approve the
Plan by the affirmative vote of not less than two-thirds of its members.
B. The Savings Bank shall notify its members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in the
communities in which the Savings Bank maintains offices or by mailing a letter
to each of its Members.
C. Copies of the Plan shall be made available for inspection at each
office of the Savings
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Bank.
D. The Holding Company shall submit an application to the Federal Reserve
Board pursuant to Federal law for permission to become a savings bank holding
company in order to enable it to acquire 100% of the capital stock of the
Converted Savings Bank, and such application shall be approved and any required
waiting period shall have expired.
E. The Savings Bank shall submit the requisite number of copies of the
Applications to the Administrator and the requisite number of copies of the
Notice to the FDIC. Upon receipt of advice from the Administrator that the
Applications have been received, are properly executed and not materially
incomplete, the Savings Bank shall publish a "Notice of Filing of an Application
for Holding Company Conversion" in a newspaper of general circulation in each
community in which the Savings Bank maintains an office. The Savings Bank also
shall prominently display a copy of such notice in each of its offices.
F. The Savings Bank shall obtain an opinion of counsel or tax advisor or
a favorable ruling from the Internal Revenue Service to the effect that the
Conversion of the Savings Bank from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered capital stock savings bank, the sale of the
Conversion Stock to subscribers in the Subscription, Community and Syndicated
Community Offerings and the issuance of the shares of common stock of the
Converted Savings Bank to the Holding Company, all in accordance with the terms
of the Plan, should not result in any gain or loss for federal or North Carolina
income tax purposes, to the Savings Bank, the Converted Savings Bank, the
Holding Company or the Members of the Savings Bank. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
G. The Holding Company shall file a registration statement with the SEC
with respect to the Conversion Stock to be offered pursuant to the Plan and such
registration statement shall be declared effective.
IV. Meeting of Members
Upon receipt of Administrator approval of the Applications and (i) receipt
from the FDIC of a conditional intention to issue a notice of non-objection or
(ii) expiration of the time period for FDIC review and objection without receipt
of an objection by the FDIC, a Special Meeting of the Members of the Savings
Bank shall be scheduled in accordance with the Savings Bank's bylaws for the
purpose of voting on approval of the Plan. Promptly after receipt of
Administrator approval and at least 20 days, but not more than 45 days, prior to
the Special Meeting, the Savings Bank will distribute proxy solicitation
materials to all Members as of the Voting Record Date. The proxy materials will
include the Proxy Statement and the Prospectus and other documents authorized
for use by the regulatory authorities and may also include a copy of the Plan,
the Amended Charter and other materials as provided in Article VII hereof.
At the Special Meeting, an affirmative vote of not less than a majority of
the total votes entitled to be cast by the Savings Bank's Members will be
required for approval of the Plan. Voting may be in person or by proxy. The
Administrator shall be promptly notified of the results of the vote of the
Members at the Special Meeting.
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<PAGE>
V. Procedure
The Conversion Stock shall be offered for sale in the Subscription Offering
to Eligible Account Holders, Supplemental Eligible Account Holders, Other
Members, and Directors, officers and employees of the Savings Bank. The
Subscription Offering may commence concurrently with or during the solicitation
of proxies for the Special Meeting. The Community Offering may commence at any
time following commencement of the Subscription Offering. The Syndicated
Community Offering, if any, may commence concurrently with or during the
Community Offering or as promptly thereafter as is practicable. The
Subscription Offering may be closed before the Special Meeting, provided that
the offer and sale of the Conversion Stock shall be conditioned upon approval of
the Plan by the Members at the Special Meeting.
The period for the Subscription Offering shall not be less than 20 days nor
more than 45 days, unless extended by the Savings Bank and the Holding Company.
Any unsubscribed shares of Conversion Stock are to be offered for sale to the
general public in the Community Offering with priority being given to natural
persons and trusts of natural persons residing in the Local Community, including
Retirement Accounts established for the benefit of natural persons who reside in
such area. The Community Offering may commence, subject to the availability of
shares, at any time following commencement of the Subscription Offering. Any
shares of Conversion Stock offered but not subscribed for in the Subscription
and Community Offerings may, in the discretion of the Savings Bank and the
Holding Company, be offered for sale in the Syndicated Community Offering.
Completion of the sale of all shares of Conversion Stock not sold in the
Subscription Offering shall occur within 45 days after termination of the
Subscription Offering, subject to extension of such 45-day period by the Savings
Bank and the Holding Company with the approval of the Administrator. The Boards
of Directors of the Savings Bank and the Holding Company may seek one or more
extensions of such 45-day period if necessary to complete the sale of all shares
of Conversion Stock. In connection with any such extension, subscribers shall be
permitted to increase, decrease or rescind their subscriptions to the extent
required by the Administrator in approving the extensions. As provided in
Article XIII hereof, completion of the sale of all shares of Conversion Stock
must occur in any event within 24 months after the date of the Special Meeting.
VI. Stock Offering
A. Purchase Price and Number of Shares of Conversion Stock
-------------------------------------------------------
The total number of shares and the subscription price per share of the
Conversion Stock being issued and sold by the Holding Company in the Conversion
will be determined by the Holding Company. The aggregate purchase price at which
all shares of the Conversion Stock will be sold in the Conversion will be based
upon the aggregate pro forma market value of the Converted Savings Bank and the
Holding Company after giving effect to the issuance of the Conversion Stock, as
determined by an independent appraisal. The aggregate purchase price will be
within the Aggregate Valuation Range as stated in the approval or amended
approval of the Plan by the Administrator; provided, however, that with the
consent of the Administrator and the FDIC, the aggregate purchase price of the
Conversion Stock sold may be increased to up to 15% above the maximum of the
Aggregate Valuation Range, without any resolicitation of subscribers or any
right to cancel, rescind or change subscription orders, to reflect changes in
market and financial conditions following commencement of the Subscription
Offering. The appraisal will be made by an investment banking or financial
consulting
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<PAGE>
firm selected by the Savings Bank and which is experienced and expert in the
area of savings institution appraisals. Such appraisal will be updated prior to
the commencement of the Subscription Offering, if necessary, and will be further
updated upon completion of the later of the Subscription Offering, the Community
Offering or the Syndicated Community Offering.
The Actual Purchase Price per share at which the Conversion Stock will be
offered to subscribers in the Subscription, Community and Syndicated Community
Offerings will be determined by the Holding Company immediately prior to the
commencement of the Subscription Offering. All shares of Conversion Stock sold
in the Conversion will be sold at the same price per share.
B. Method of Offering Shares
-------------------------
On the date Order Forms are mailed, Subscription Rights to purchase shares
will be issued at no cost to Eligible Account Holders, Supplemental Eligible
Account Holders (if applicable), Other Members, and Directors, officers and
employees of the Savings Bank pursuant to priorities established by this Plan
and the Regulations. With respect to Eligible Account Holders, Supplemental
Eligible Account Holders and Voting Members who are beneficial owners of
Retirement Accounts, such persons have the right to exercise Subscription Rights
only to the extent Subscription Rights granted with respect to such Retirement
Accounts are not exercised directly by such Retirement Accounts. Each subscriber
shall purchase the number of whole shares indicated on the Order Form of such
subscriber, subject to the purchase limitations set forth herein, and any excess
amounts shall be refunded. To the extent that shares are available, no
subscriber will be allowed to purchase Conversion Stock having an aggregate
purchase price of less than $500.
The priorities established by applicable Regulations for the purchase of
shares are as follows:
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1. Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights of
Eligible Account Holders shall be superior to those of all other subscription
rights granted in the Conversion. In the event of an oversubscription for the
Conversion Stock among Eligible Account Holders, shares shall be allocated among
Eligible Account Holders as follows. The Conversion Stock shall be allocated
among subscribing Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase the lesser of (a) the number
of shares for which such Eligible Account Holder subscribed, or (b) 100 shares.
Any shares remaining after that allocation shall be allocated among subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of Qualifying Deposits of each such Eligible Account
Holder bears to the total amount of Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Eligible Account Holders whose subscriptions are still not fully satisfied on
the same principle described above until all available shares have been
allocated or all subscriptions satisfied. All computations shall be rounded
down to the nearest whole share.
2. Category No. 2: Supplemental Eligible Account Holders
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment of the Applications filed prior to
Administrator approval, then, and only in that event, each Supplemental Eligible
Account Holder of the Savings Bank shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights
received pursuant to this Category shall be subordinated to all Subscription
Rights received pursuant to Category No. 1. Any Subscription Rights received by
an Eligible Account Holder in accordance with Category No. 1 shall reduce, to
the extent thereof, the Subscription Rights to be distributed to such account
holder pursuant to this Category.
In the event of an oversubscription for the Conversion Stock, shares shall
be allocated among the Supplemental Eligible Account Holders as follows. The
Conversion Stock shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase the lesser of (including the number of
shares, if any allocated in accordance with Category No. 1) (a) the number of
shares for which such Supplemental Eligible Account Holder subscribed, or (b)
100 shares. Any shares remaining after that allocation shall be allocated among
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposits of each
such Supplemental Eligible Account Holder bears to the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Supplemental Eligible Account Holders, the
excess shall be reallocated (one or more times as necessary) among those
Supplemental Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle described above until all available shares have
been allocated or all subscriptions satisfied. All computations shall be
rounded down to the nearest whole share.
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3. Category No. 3: Other Members
Each Other Member shall receive, without payment, Subscription Rights to
purchase an amount of Conversion Stock equal to the maximum purchase limitation
set forth in Section D.1 of this Article. Subscription Rights received pursuant
to this Category shall be subordinated to all Subscription Rights received
pursuant to Category Nos. 1 and 2.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the Conversion Stock available shall be allocated among the
subscribing Other Members whose subscriptions are not satisfied in the
proportion that the number of votes eligible to be cast by each such Other
Member at the Special Meeting bears to the total number of votes eligible to be
cast by all Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Other Member,
the excess shall be reallocated (one or more times as necessary) among those
Other Members whose subscriptions are still not satisfied on the same principle
described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
4. Category No. 4: Directors, Officers and Employees
Each Director and officer of the Savings Bank, and each employee of the
Savings Bank, as of the date of the commencement of the Subscription Offering
shall receive, without payment, Subscription Rights to purchase an amount of
Conversion Stock equal to the maximum purchase limitation set forth in Section
D.1 of this Article. Subscription Rights received pursuant to this Category
shall be subordinated to all Subscription Rights received pursuant to Category
Nos. 1-3. Any Subscription Rights received by a Director, officer or employee
in accordance with Category Nos. 1-3, shall reduce, to the extent thereof, the
Subscription Rights to be distributed to such Director, officer or employee
pursuant to this Category.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the shares available shall be allocated among the subscribing
Directors, officers and employees of the Savings Bank whose subscriptions are
not satisfied pro rata on the basis of the amounts of their respective
subscriptions. All computations shall be rounded down to the nearest whole
share.
5. Category No. 5: Community Offering
Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights received pursuant to Category Nos. 1-4 above may be sold to
the general public in a Community Offering. The Community Offering may
commence, subject to the availability of shares, at any time following
commencement of the Subscription Offering and may terminate at any time
thereafter. The Community Offering must be completed within 45 days after the
last day of the Subscription Offering, unless extended by the Savings Bank and
the Holding Company with the approval of the Administrator.
The Savings Bank and the Holding Company may accept or reject, in whole or
in part, orders received in the Community Offering in their sole discretion.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then
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(i) subscriptions of First Priority Community Subscribers will be filled
in full up to applicable purchase limitations (to the extent such
subscriptions are not rejected by the Savings Bank and the Holding
Company),
(ii) then subscriptions of other subscribers in the Community Offering will
be filled up to applicable purchase limitations (to the extent such
subscriptions are not rejected by the Savings Bank and the Holding
Company).
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Conversion Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Savings Bank and the Holding Company in the
entire amount of such order up to a number of shares no greater than the number
which would have an aggregate purchase price of $75,000, which number shall be
determined by the Board of Directors of the Savings Bank prior to the time the
Conversion is consummated with the intent to provide for a wide distribution of
shares among such subscribers. Any shares remaining after such allocation will
be allocated to each First Priority Community Subscriber whose order is accepted
in full or in part on an equal number of shares basis until all orders are
filled. Such allocation shall also be applied to subscriptions by other
subscribers in the Community Offering, in the event shares are available for
subscribers in such category but there is an oversubscription within such
category. All computations shall be rounded down to the nearest whole share.
The Conversion Stock to be offered in this Category No. 5 will be offered
and sold in a manner that will achieve the widest distribution of such stock.
6. Category No. 6: Syndicated Community Offering
If necessary, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, may, at the option of the Savings
Bank and Holding Company, be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
as selected dealers to be formed and managed by the sales agent in the
Subscription and Community Offerings. The Holding Company and Savings Bank have
the right to reject orders, in whole or part, in their sole discretion in the
Syndicated Community Offering. During the Syndicated Community Offering, shares
of Conversion Stock will be sold subject to such conditions, terms and
procedures as may be determined by the Holding Company and the Savings Bank.
Shares of Conversion Stock sold in the Syndicated Community Offering will be
sold in a manner calculated to achieve the widest distribution of Conversion
Stock.
The Syndicated Community Offering may close as early as the Community
Offering, or thereafter at the discretion of the Savings Bank and the Holding
Company. The Syndicated Community Offering may run concurrently with the
Community Offering or subsequent to such offering.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock in the Conversion:
11
<PAGE>
1. The aggregate purchase price of shares of Conversion Stock purchased
by any Person (or Persons exercising Subscription Rights through a single
account), or a group of Persons acting in concert, shall not exceed $100,000
(which limit may be decreased or increased by the Board of Directors of the
Savings Bank in accordance with Section D.5 of this Article).
2. In addition to the purchase limitation provided for in Section D.1 of
this Article, no Person (or group of Persons acting in concert), together with
any Associate, shall purchase shares of Common Stock having an aggregate
purchase price of more than $150,000 (which limit may be increased or decreased
by the Board of Directors of the Savings Bank in accordance with Section D.5 of
this Article).
3. The Boards of Directors of the Savings Bank and Holding Company will
not be deemed to be Associates or a group acting in concert solely as a result
of membership on the Boards of Directors.
4. To the extent that Conversion Stock is available, no subscriber will
be allowed to purchase Conversion Stock having an aggregate purchase price of
less than $500.
5. Either before or subsequent to approval of the Plan by the Members and
prior to consummation of the sale of the Conversion Stock, the Board of
Directors of the Savings Bank may, in its sole discretion, (i) increase the
maximum purchase limitations set forth in Sections D.1 and D.2 of this Article
to an amount not greater than five percent (5%) of the aggregate purchase price
of shares of Conversion Stock offered and sold in the Conversion or (ii) reduce
such maximum purchase limitations to an amount not less than one percent (1%) of
the aggregate purchase price of shares of Conversion Stock offered and sold in
the Conversion, each without further approval of the Members.
6. Each person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the purchase
limitations under the Plan or otherwise imposed by law, rule or regulation.
7. Subscription Rights to purchase the Conversion Stock received by
Executive Officers and Directors of the Savings Bank and their Associates, 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 to purchase the Conversion Stock
pursuant to Category No. 1.
E. Restrictions on and Other Characteristics of Stock Being Sold
1. Transferability. Conversion Stock purchased by Directors or Executive
---------------
Officers of the Converted Savings Bank shall not be sold or otherwise disposed
of for value for a period of not less than one year from the date of purchase
without written permission of the Administrator, except for any disposition of
such shares following the death of the original purchaser.
The Conversion Stock issued by the Holding Company to Directors and
Executive Officers of the Converted Savings Bank shall bear a legend giving
appropriate notice of the one-year holding period restriction. This legend will
state as follows:
The shares of stock evidenced by this Certificate may not be sold, except
in the event
12
<PAGE>
of the death of the registered holder, for a period of one year from the
date of this certificate without the prior written consent of the
Administrator, Savings Institutions Division, North Carolina Department of
Commerce.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares 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 Directors and
Executive Officers of the Converted Savings Bank as may be then applicable to
such restricted stock.
No Director, Executive Officer or Associate of a Director or Executive
Officer of the Converted Savings Bank shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following the
Conversion without the prior written approval of the Administrator, except (a)
through a broker or dealer registered with the SEC or the Secretary of State of
North Carolina or (b) in a "negotiated transaction" involving more than one
percent of the then outstanding shares of capital stock of the Holding Company
or (c) through the purchase of common stock made by and held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Converted
Savings Bank or the Holding Company which may be attributable to Executive
Officers or Directors. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any Person acting on his or her behalf and the purchaser or his or her
investment representative. The term "investment representative" shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
2. Repurchase and Dividend Rights. Subject to the Regulations and
regulations of the FDIC, the Converted Savings Bank may not declare or pay a
cash dividend on or repurchase any of its capital stock if the effect thereof
would cause the regulatory capital of the Converted Savings Bank to be reduced
below (a) the amount required for the Liquidation Account or (b) the net worth
requirements of the Administrator or the minimum capital requirements of the
FDIC. As set forth in the Regulations and regulations of the FDIC, there exist
additional limitations on the ability of the Converted Savings Bank to pay
dividends and repurchase stock without the written approval of the Administrator
and the FDIC.
The above limitations shall not preclude payments of dividends or
repurchases of capital stock by the Converted Savings Bank or the Holding
Company in the event applicable federal or state regulatory limitations are
liberalized subsequent to the Conversion.
3. Voting Rights. After the Conversion, holders of Savings Accounts and
obligors on loans will not have voting rights in the Converted Savings Bank.
Exclusive voting rights shall be vested in the Holding Company as the owner of
all of the capital stock of the Converted Savings Bank. Each holder of common
stock of the Holding Company will be entitled to vote on any matter coming
before the stockholders of the Holding Company for consideration and will be
entitled to one vote for each share of common stock of the Holding Company owned
by such stockholder.
4. Preemptive Rights. Holders of common stock of the Holding Company
shall not have preemptive rights to acquire additional or treasury shares of the
Holding Company. Holders of common stock of the Converted Savings Bank shall
not have preemptive rights to acquire additional or
13
<PAGE>
treasury shares of the Savings Bank.
F. Mailing of Offering Materials and Collation of Subscriptions
After (i) approval of the Plan by the Administrator, (ii) receipt of a
notice of non-objection by the FDIC or expiration of the time period for FDIC
review and objection without receipt of an objection from the FDIC and (iii) the
SEC's declaration of the effectiveness of the registration statement containing
the Prospectus, the Holding Company shall distribute the Prospectus and Order
Forms for the purchase of shares to holders of Subscription Rights in accordance
with the terms of the Plan.
As set forth in the Prospectus, each such recipient of an Order Form will
be given a period of not less than 20 days nor more than 45 days from the date
of mailing, unless extended, to properly complete, execute and return the Order
Form to the Savings Bank on behalf of the Holding Company. Self-addressed,
postage-paid return envelopes will accompany these forms when mailed. The
Savings Bank will collate the returned executed forms upon completion of the
subscription period. Failure of any eligible subscriber in the Subscription or
Community Offerings to return a properly completed and executed Order Form with
full payment for all shares subscribed for within the prescribed time limits
shall be deemed a waiver and a release by such person of any rights to purchase
shares hereunder.
The Savings Bank may require a Person to provide evidence satisfactory to
the Savings Bank that such Person qualifies as an Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member, or First Priority Community
Subscriber, as the case may be. All determinations as to whether a Person
qualifies to purchase in a particular category shall be made by the Savings Bank
in its sole discretion and shall be final and conclusive.
The Savings Bank reserves the right to make an independent investigation of
any facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription Rights. The nature and extent of such
investigation will be at the Savings Bank's sole discretion and the Savings Bank
may require a holder of Subscription Rights to provide certified affidavits and
other documentation to satisfy the Savings Bank that the Plan and North Carolina
and federal conversion regulations regarding nontransferability are not being
subverted by actions of holders of Subscription Rights. In extreme cases the
Savings Bank reserves the right to seek legal advice from the General Counsel
for the Administrator as to compliance with all regulations governing the
Conversion, including the nontransferability of Subscription Rights.
If the Board of Directors of the Savings Bank determines that a subscriber
(i) has submitted false or misleading information on an Order Form or otherwise,
(ii) has attempted to purchase shares of Conversion Stock in violation of
provisions of this Plan or applicable law or (iii) has failed to cooperate with
attempts by the Savings Bank, its employees or agents to verify information with
respect to purchase rights, such Board of Directors may reject the order of such
subscriber.
G. Method of Payment
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings may be made in cash, if delivered in
person, by check or money order, or if the subscriber
14
<PAGE>
has a Savings Account (other than a demand deposit or NOW account), by
withdrawal authorization from the Savings Account for the purchase amount.
Unless payment is to be made by withdrawal from a Savings Account, it shall
accompany the Order Forms.
If a subscriber authorizes the withdrawal from his or her Savings Account,
the funds may be withdrawn from the subscriber's Savings Account at any time
after receipt of the subscriber's stock order form and will continue to earn
interest at the applicable rate for such Savings Account until the Conversion is
completed or terminated. The withdrawal will be given effect only to the
extent necessary to satisfy the subscription at a price equal to the aggregate
Actual Purchase Price of the Conversion Stock sold to the subscriber. The
Savings Bank will allow subscribers to purchase shares of Conversion Stock by
withdrawing funds from certificate accounts 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 will earn interest at the
passbook savings rate. This waiver of the early withdrawal penalty is
applicable only to withdrawals made in connection with the purchase of
Conversion Stock under the Plan.
A subscriber who is the beneficial owner of a Retirement Account may pay
for shares of Conversion Stock subscribed for by authorizing and directing the
Savings Bank on the Order Form to roll over the subscriber's Retirement Account
to a self-directed Retirement Account at an independent trustee, who shall then
be directed to make a withdrawal from such Retirement Account in an amount equal
to the Actual Purchase Price of such shares. Such shares shall then become part
of the Retirement Account estate.
All amounts received for the purchase of Conversion Stock in the
Subscription Offering and the Community Offering (other than by charge against
the Subscriber's account or as provided above) shall be placed in a special
escrow account with the Savings Bank. The Savings Bank shall pay interest to
the subscriber at the passbook savings rate on such amounts paid to purchase
Conversion Stock from the date payment is received until the Conversion is
completed or terminated, as the case may be. The Savings Bank shall deliver
all amounts received for the purchase of Conversion Stock in the Subscription
Offering and the Community Offering to the Holding Company on the date the
Conversion is consummated.
H. Undelivered, Defective or Late Order Forms: Insufficient Payment
If an Order Form in the Subscription or Community Offering (a) is not
delivered and is returned by the United States Postal Service (or the Savings
Bank is unable to locate the addressee); (b) is not received by the Savings Bank
or is received by the Savings Bank after the date specified for receipt therein;
(c) is defectively completed or executed; (d) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscriber's Savings Account is insufficient to cover the
amount of such required payment pursuant to a withdrawal authorization) or (e)
is not accompanied by immediately available funds, the Subscription Rights and
other rights to purchase of the person to whom such rights have been granted
will be deemed waived and will not be honored. The Savings Bank may, but will
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
subscribed shares by such date as the Savings Bank may specify. Subscription
orders, once tendered, cannot be revoked. The Savings Bank's interpretation of
the terms and conditions of this
15
<PAGE>
Plan and acceptability of the Order Forms will be final.
I. Members in Non-Qualified States or in Foreign Countries
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Conversion Stock reside. However, the Holding Company
shall not elect to offer or sell shares of Conversion Stock or Subscription
Rights under the Plan of Conversion in a foreign country, and may elect not to
offer or sell shares of Conversion Stock or Subscription Rights in a state in
the United States (i) where a small number of persons otherwise eligible to
subscribe for shares under this Plan reside or (ii) if the Holding Company
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
requirement that the Holding Company, the Savings Bank or any employee or
representative thereof register as a broker, dealer, agent or salesperson or
register or otherwise qualify the Subscription Rights or Conversion Stock for
sale in such state. No payments will be made in lieu of the granting of
Subscription Rights to persons residing in such jurisdictions.
J. Acquisition of Capital Stock of the Converted Savings Bank
One half of the net proceeds from the sale of the Conversion Stock will be
used by the Holding Company to purchase all of the outstanding capital stock of
the Converted Savings Bank.
VII. Amended Charter and Bylaws
As part of the Conversion and this Plan, the Amended Charter and new
bylaws of the Converted Savings Bank will be adopted to authorize the Converted
Savings Bank to operate as a North Carolina capital stock savings bank under the
name Anson Savings Bank, Inc. The Amended Charter and new bylaws for the
Converted Savings Bank are attached hereto as Annex I and Annex II,
respectively. By approving the Plan, the Members will thereby approve the
Amended Charter and new bylaws. Accordingly, the Amended Charter and new bylaws
may be amended in the same manner as the Plan pursuant to Article XIII.
VIII. Consummation of Conversion
After approval of the Plan by the Members, completion of the issuance and
sale of the Conversion Stock, and provided the Amended Charter and new bylaws
have been filed with and approved by the Administrator, the Conversion will
become effective. The effective time of such Conversion will be the date of
completion of such issuance and sale unless a later date is specified by the
Savings Bank. The Conversion shall constitute a change of form of organization
of the Savings Bank and shall not impair or affect any contracts, rights,
liabilities, obligations, interest and relations of whatever kind of the Savings
Bank.
The Conversion of the Savings Bank from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered capital stock savings bank shall be
deemed to be an extension of the corporate existence of the Savings Bank, and
all property of the Savings Bank including all its rights, title and interest in
and to all property of whatever kind, whether real, personal or mixed, and
things in action, and every right, privilege, interest and asset of any
conceivable value or benefit then existing,
16
<PAGE>
belonging or pertaining to it, or which would inure to it, shall immediately by
act of law and without any conveyance or transfer, and without any further act
or deed, be vested in and become the property of the Converted Savings Bank,
which shall have, hold and enjoy the same in its own right as fully and to the
same extent as the same was possessed, held and enjoyed by the Savings Bank, and
the Converted Savings Bank shall succeed to all the rights, obligations and
relations of the Savings Bank.
IX. Registration and Market Making
Upon completion of the Conversion, the Conversion Stock will be registered
with the SEC pursuant to the Securities Exchange Act of 1934, as amended. In
connection with the registration, the Holding Company hereby undertakes not to
deregister such stock for a period of three years thereafter.
The Holding Company will use its best efforts to encourage and assist a
Market Maker to establish and maintain a market for the shares of the Conversion
Stock. The Holding Company will also use its best efforts to list the
Conversion Stock on a national or regional securities exchange or on the
National Association of Securities Dealers Inc. Automated Quotation System.
X. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts will retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a Savings Account or Accounts in the Converted Savings Bank,
equal in amount to the withdrawable value of such account holder's Savings
Account or Accounts in the Savings Bank prior to Conversion. All Savings
Accounts will continue to be insured by the SAIF of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after Conversion as such loans had prior to Conversion.
XI. Liquidation Account
After the Conversion, holders of Savings Accounts and borrowers will not
have voting rights in the Converted Savings Bank and will not be entitled to
share in the residual assets after liquidation of the Converted Savings Bank.
However, pursuant to the Regulations, the Savings Bank shall, at the time of
Conversion, establish a Liquidation Account on the records of the Converted
Savings Bank in an amount equal to its total regulatory capital as of the date
of the latest statement of financial condition contained in the final Prospectus
used in connection with the Conversion or such other amount as shall be required
by the Regulations. The function of the Liquidation Account is to establish a
priority on liquidation and, except as provided in Article VI.E.2 above, the
existence of the Liquidation Account shall not operate to restrict the use or
applications of any of the net worth, regulatory capital or other accounts of
the Converted Savings Bank.
The Liquidation Account shall be maintained by the Converted Saving Bank
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders (as applicable) who maintain Savings
Accounts in the Converted 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 (the "subaccount balance").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a
17
<PAGE>
Supplemental Eligible Account Holder shall be determined by multiplying the
total opening balance in the Liquidation Account by a fraction, of which the
numerator is the amount of the Qualifying Deposits in the related Savings
Account on the Eligibility Record Date or the Supplemental Eligibility Record
Date (as applicable) and of which the denominator is the total amount of all
Qualifying Deposits of all Eligible Account Holders or Supplemental Eligible
Account Holders (as applicable) on such dates. Each such initial subaccount
balance in the Liquidation Account shall never be increased, but 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 or Supplemental
Eligibility Record Date (as applicable) is less than the lesser of (a) the
deposit balance in such Savings Account at the close of business on any previous
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, or (b) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, 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, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. The subaccount balance of a Savings Account holder shall be
maintained for as long as the Savings Account holder maintains an account with
the same social security number with the Converted Savings Bank.
In the event of a complete liquidation of the Converted Savings Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder, as applicable, shall be entitled to receive a liquidation
distribution from the Liquidation Account in the amount of the then current
adjusted subaccount balances for Savings Accounts then held, after the payment
of creditors of the Converted Savings Bank, including deposit account holders,
but before any liquidation distribution may be made to the Converted Savings
Bank's stockholders. No merger, consolidation, purchase of bulk assets with
assumption of deposit accounts and other liabilities, or similar combination or
transaction with or by another FDIC-insured institution shall be considered to
be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
XII. Management
The Savings Bank or the Holding Company have entered or will enter into
contracts of employment with selected executives; and, subject to approval of
the stockholders of the Holding Company, the Holding Company intends to approve
and adopt stock option plans for employees and directors of the Holding Company
and/or the Savings Bank and a management recognition plan providing for the
issuance of restricted stock of the Holding Company to certain employees and
directors of the Holding Company and/or the Savings Bank.
XIII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Board of Directors of the Savings Bank. After submission of the Plan and
proxy materials to the Members, the Plan may be amended by a two-thirds vote of
the Board of Directors of the Savings Bank, but only with the concurrence of the
18
<PAGE>
Administrator.
In the event that mandatory new regulations pertaining to conversions are
adopted by the Administrator or FDIC prior to the completion of the Conversion,
the Plan will be amended as provided above to conform to the new mandatory
regulations without a re-solicitation of proxies or another Special Meeting. In
the event that new conversion regulations adopted by the Administrator or FDIC
prior to completion of the Conversion contain optional provisions, the Plan may
be amended as provided above to utilize such optional provisions without a re-
solicitation of proxies or another Special Meeting.
The Plan may be terminated by a two-thirds vote of the Board of Directors
of the Savings Bank at any time prior to the Special Meeting, and at any time
following such Special Meeting with the concurrence of the Administrator. The
Plan shall terminate automatically if the sale of all shares of Conversion Stock
required to be sold is not completed within 12 months of the date of the Special
Meeting, unless the Administrator agrees in writing to an extension of up to an
additional 12 months.
By adoption of the Plan, the Members authorize the Board of Directors of
the Savings Bank to amend or terminate the Plan under the circumstances set
forth above.
XIV. Expenses of the Conversion
The Savings Bank will use its best efforts to assure that expenses incurred
in connection with the Conversion shall be reasonable.
XV. Prohibition on Extensions of Credit
The Savings Bank, the Holding Company or any subsidiary of either of them
may not knowingly loan funds or otherwise extend unsecured credit or credit
secured by the Holding Company's Conversion Stock to any person to purchase
shares of Conversion Stock.
XVI. Contributions to Tax-Qualified Employee Stock Benefit Plans
The Savings Bank may make scheduled discretionary contributions to a tax-
qualified employee stock benefit plan, provided such contributions do not cause
the Savings Bank to fail to meet its net worth requirements.
19
<PAGE>
ANNEX I
Amended and Restated Certificate of Incorporation
of
Anson Savings Bank, Inc.
ARTICLE I
The name of the corporation is Anson Savings Bank, Inc. (the "Savings
Bank").
ARTICLE II
The principal office of the Savings Bank shall be located at 211 South
Greene Street, Wadesboro, Anson County, North Carolina. The street address of
the registered office of the Savings Bank is 211 South Greene Street, Wadesboro,
North Carolina, the mailing address of the registered office of the Savings Bank
is P.O. Box 249, Wadesboro, North Carolina 28170-0249, and the name of the
registered agent at the address is Eugene M. Ward.
ARTICLE III
The period of duration of the Savings Bank is perpetual.
ARTICLE IV
The purposes for which the Savings Bank is organized are to pursue any and
all of the lawful objectives of a stock savings bank chartered under the
provisions of the General Statutes of North Carolina and to exercise all of the
express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the constitutions and
laws of the State of North Carolina and the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations and orders of appropriate regulatory authorities.
ARTICLE V
The Savings Bank shall have authority to issue 100,000 shares of stock.
These shares shall be all of one class, designated as common stock with no par
value.
ARTICLE VI
The minimum amount of consideration to be received for its shares of stock
before the Savings Bank shall commence business as a stock savings bank is $100.
<PAGE>
ARTICLE VII
The shareholders of the Savings Bank do not have preemptive rights to
---
acquire additional or treasury shares of the Savings Bank.
ARTICLE VIII
Pursuant to the requirements of the rules and regulations of the
Administrator of the Savings Institutions Division, North Carolina Department of
Commerce, the Savings Bank shall establish and maintain a liquidation account
for the benefit of its "Eligible Account Holders" and "Supplemental Eligible
Account Holders," if applicable, as defined in the Plan of Holding Company
Conversion adopted by the Savings Bank in connection with its conversion to the
stock form of ownership. In the event of a complete liquidation of the Savings
Bank, it shall comply with such rules and regulations with respect to the amount
and the priorities on liquidation of each Eligible Account Holder's or
Supplemental Eligible Account Holder's inchoate interest in the liquidation
account, to the extent it is still in existence; provided, however, that an
Eligible Account Holder's or Supplemental Eligible Account Holder's inchoate
interest in the liquidation account shall not entitle such person or entity to
any voting rights at meetings of the Savings Bank's shareholders.
ARTICLE IX
The business and affairs of the Savings Bank shall be managed by a Board of
Directors. The number of directors shall be fixed by the Savings Bank's Bylaws
but shall not be less than five (5). Terms of directors may be classified as
stated in the Savings Bank's Bylaws.
ARTICLE X
To the fullest extent that the law of North Carolina as it exists on the
effective date of this Article, or as it may thereafter be amended, permits the
elimination of liability of directors, no director of the Savings Bank shall be
personally liable to the Savings Bank or any of its shareholders for monetary
damages for any breach of duty as a director. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Savings Bank for or with respect to any act or failure to
act on the part of such director occurring prior to such amendment or repeal.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Savings Bank for any liability of a
director which has not been eliminated by the provisions of this Article.
2
<PAGE>
ARTICLE XI
Any addition, alteration or amendment to this Charter shall be made in
accordance with the provisions of Chapter 54C of the General Statutes of North
Carolina and any amendments thereto.
ANSON SAVINGS BANK, SSB
ATTEST:
By:
By: -------------------------------
------------------------------- Eugene M. Ward, President
______________ Secretary
STATE OF NORTH CAROLINA
COUNTY OF ANSON
This is to certify that on this ________ day of __________________, 1997,
before me, a Notary Public, personally appeared Eugene M. Ward and
____________________, each of whom, being by me first duly sworn, declared that
he signed the foregoing instrument in the capacity indicated, that he was
authorized so to sign, and that the statements contained therein are true.
Witness my hand and official seal, this _____ day of ______________, 1997.
----------------------------------
Notary Public
(OFFICIAL SEAL)
My Commission Expires: ___________
3
<PAGE>
ANNEX II
BYLAWS
OF
ANSON SAVINGS BANK, INC.
ARTICLE I.
OFFICES
-------
Section 1. Principal Office. The principal office of the Savings Bank
--------- ----------------
shall be located at 211 South Greene Street, Wadesboro, North Carolina 28170-
2645.
Section 2. Registered Office. The registered office of the Savings Bank
--------- -----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
ARTICLE II.
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
--------- -----------------
at the principal office of the Savings Bank, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or agreed upon by a majority of the shareholders entitled
to vote thereat.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
--------- ---------------
held during the first five calendar months following the end of the Savings
Bank's fiscal year, or any day (except Saturday, Sunday or a legal holiday)
during that period as shall be determined by the Board of Directors, for the
purpose of electing directors of the Savings Bank, receiving annual reports of
officers, and transacting such other business as may be properly brought before
the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
--------- -------------------------
held on the date designated by these Bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
<PAGE>
Section 4. Special Meetings. Special meetings of the shareholders may be
--------- ----------------
called at any time by the President, or a majority of the Board of Directors by
giving notice as hereinafter provided, and, unless the Savings Bank shall at
such time have a class of shares registered under Section 12 of the Securities
Exchange Act of 1934, as amended, shall be called by any of the foregoing
pursuant to the written request of the holders of not less than one-tenth of all
votes entitled to be cast on any issue proposed to be considered at the meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
--------- ------------------
time, place and date of the meeting shall be delivered not less than ten (10)
nor more than sixty (60) days before the date thereof, either in person or by
mail, by or at the direction of the Board of Directors, the President or the
Secretary to each shareholder of record entitled to vote at such meeting unless
applicable law or the Saving Bank's articles of incorporation require that such
notice shall be given to all shareholders with respect to such meeting. If
mailed, such notice shall be deemed to be effective when deposited in the United
States mail, correctly addressed to the shareholder at the shareholder's address
as it appears on the current record of shareholders of the Savings Bank, with
postage thereon prepaid.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting must be given as provided in this Section to persons who
are shareholders as of the new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
--------- ----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the Savings Bank for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or the shareholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Voting List. Before each meeting of shareholders, an
--------- -----------
alphabetical list of the shareholders entitled to notice of such meeting shall
be prepared by the Secretary of the Savings Bank. The list shall be arranged by
voting group and within each voting group by class or series of shares and show
the address of and number of shares held by each shareholder. The list shall be
kept on file at the principal office of the Savings Bank for the period
beginning two (2) business days after notice of the meeting is given and
continuing through the meeting, and shall be available for inspection by any
shareholder or the agent or attorney of any shareholder at any time prior to the
meeting during regular business hours and at any time during the meeting or any
adjournment thereof.
<PAGE>
Section 8. Voting Group. All shares of one or more classes or series that
--------- ------------
under the Savings Bank's articles of incorporation or the North Carolina
Business Corporation Act are entitled to vote and be counted together
collectively on a matter at a meeting of shareholders constitute a voting group.
All shares entitled by the Savings Bank's articles of incorporation or the North
Carolina Business Corporation Act to vote generally on a matter are for that
purpose a single voting group. Classes or series of shares shall not be entitled
to vote separately by voting group unless expressly authorized by the Savings
Bank's articles of incorporation or specifically required by law.
Section 9. Quorum. Shares entitled to vote generally as a single voting
--------- ------
group or as a separate voting group may take action on a matter at the meeting
of shareholders only if a quorum of those shares is present at the meeting. A
majority of the votes entitled to be cast on the matter by the voting group
shall constitute a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by a vote of a majority of the
votes cast on the motion to adjourn; and at any adjourned meeting any business
may be transacted which might have been transacted at the original meeting if a
quorum exists with respect to the matter proposed.
Section 10. Proxies. Shares may be voted either in person or by one or
---------- -------
more agents authorized by a written proxy executed by the shareholder or by the
shareholder's duly authorized attorney-in-fact. A proxy shall not designate as
a holder any corporation or partnership including any person acting on behalf of
any corporation or partnership, or any person other than a living natural
person. However, a proxy may designate the holder of a specified title or
office, if a natural person, or a committee composed solely of natural persons,
including a committee composed of the Board of Directors of the Savings Bank.
Section 11. Voting of Shares. Subject to the provisions of the Savings
---------- ----------------
Bank's articles of incorporation, each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
Except in the election of directors as provided in Section 3 of Article
III, if a quorum exists, action on a matter by a voting group at a meeting of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless a greater vote is
required by law or the Savings Bank's articles of incorporation or these Bylaws.
Section 12. Informal Action by Shareholders. Any action which may be
---------- -------------------------------
taken at a meeting of shareholders may be taken without a meeting if one or more
written consents, setting forth the action so taken, shall be signed by all of
the persons who would be entitled to vote upon such action at a meeting, and
delivered to the Secretary of the Savings Bank for inclusion in the minutes or
filing with the corporate records.
If the Savings Bank is required by law to give notice to nonvoting
shareholders of action to be
3
<PAGE>
taken by unanimous written consent of the voting shareholders, then the Savings
Bank shall give the nonvoting shareholders, if any, written notice of the
proposed action at least ten (10) days before the action is taken.
ARTICLE III.
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Savings Bank
--------- --------------
shall be managed by the Board of Directors or by such Executive Committee as the
Board may establish.
Section 2. Number, Term and Qualifications. The number of Directors of
--------- -------------------------------
the Savings Bank shall be no less than five (5) and no more than nine (9), with
the exact number to be fixed from time to time by the Board of Directors. Each
Director shall hold office until his death, resignation, retirement, removal,
disqualification, or his successor shall have been elected and qualified.
Section 3. Election of Directors. Except as provided in Section 5 of this
--------- ---------------------
Article III, the directors shall be elected at the annual meeting of
shareholders, and those persons who receive the highest number of votes at a
meeting at which a quorum is present shall be deemed to have been elected. If
any shareholder so demands, election of directors shall be by ballot. At all
times when the number of directors shall be nine (9) or more, the Board of
Directors shall be divided into three (3) classes, as nearly equal in number as
possible, and each class shall be elected for staggered terms of three (3) years
or until successors are duly elected and qualified.
Section 4. Removal. Any director may be removed at any time with or
--------- -------
without cause by a vote of shareholders holding a majority of the votes entitled
to be cast at an election of the directors. If any directors are so removed, new
directors may be elected at the same meeting.
Section 5. Vacancies. Any vacancy occurring in the Board of Directors,
--------- ---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders, a majority of
the remaining directors, though less than a quorum, or by the sole remaining
director. A director elected to fill a vacancy shall be elected to serve the
remaining term of the director replaced, or if a director is not elected to
replace a previously elected director, the new director shall be elected to
serve until the next shareholders' meeting at which directors are elected. The
shareholders may elect a director at any time to fill any vacancy not filled by
the directors.
Section 6. Compensation. The Board of Directors may provide for the
--------- ------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
4
<PAGE>
ARTICLE IV.
MEETINGS OF DIRECTORS
---------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
--------- ----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the President, Vice President acting in
his absence or incapacity, or any three Directors, upon notice either in person
or by mail. Such meetings shall be held either within or without the State of
North Carolina as fixed by the person or persons calling any such meeting.
Section 3. Notice of Meetings. The applicable provisions of North
--------- ------------------
Carolina law shall govern meetings of the Board of Directors, notice of
meetings, waiver of notice, quorums and actions of the Board of Directors.
Section 4. Quorum. A majority of the number of directors shall constitute
--------- ------
a quorum for the transaction of business at any meeting of the Board of
Directors.
Section 5. Manner of Acting. Except as otherwise provided in these
--------- ----------------
Bylaws, 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.
Section 6. Presumption of Assent. A director of the Savings Bank who is
--------- ---------------------
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action unless his contrary vote
is recorded or his dissent is otherwise 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 Savings Bank immediately
after the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 7. Informal Action by Directors. Action taken by the directors
--------- ----------------------------
without a meeting is nevertheless Board action if written consent to the action
is signed by all the directors and filed with the minutes of the proceedings of
the Board or other corporate records, whether done before or after the actions
are taken.
ARTICLE V.
OFFICERS
--------
Section 1. Officers of the Savings Bank. The officers of the Savings Bank
--------- ----------------------------
shall consist of a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two or more offices may
be held by the same person, except the offices of President and Secretary, but
no officer
5
<PAGE>
may act in any more than one capacity where action of two or more officers is
required.
Section 2. Election and Term. The officers of the Savings Bank shall be
--------- -----------------
elected by the Board of Directors. Such election may be held at any regular or
special meeting of the Board. Each officer shall hold office until his death,
resignation, retirement, removal, disqualification or his successor is elected
and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the Savings Bank will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. President. The President shall be the principal executive
--------- ---------
officer and managing officer of the Savings Bank and, subject to the control of
the Board of Directors, shall supervise and control all of the business and
affairs of the Savings Bank. He or she shall sign, with the Secretary, an
Assistant Secretary, or with any other proper officer authorized by the Board of
Directors and whose signature is required, certificates for shares of the
Savings Bank and any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the Savings Bank, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Savings Bank;
and, in general, he or she shall perform all duties incident to the office of
the President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 5. Vice Presidents. In the absence of the President or in the
--------- ---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President, with any other proper
officer whose signature is required, may sign certificates for shares of the
Savings Bank and shall perform such other duties as from time to time may be
assigned to him or her by the President or Board of Directors.
Section 6. Secretary. The Secretary shall: (a) keep the minutes of the
--------- ---------
meetings of shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Savings Bank and see that the seal
of the Savings Bank is affixed to all documents the execution of which on behalf
of the Savings Bank under its seal is duly authorized; (d) have general charge
of the stock transfer books of the Savings Bank and shall keep, at the
registered or principal office of the Savings Bank a record of shareholders
showing the name and address of each shareholder and the number and class of the
shares held by each; (e) be authorized, with any other proper officer, to sign
certificates for shares of the Savings Bank and shall sign such other
instruments as may require the Secretary's signature; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President or by the Board of
Directors.
Section 7. Assistant Secretaries. In the absence of the Secretary or in
--------- ---------------------
the event of his or her death, inability or refusal to act, the Assistant
Secretaries, unless otherwise determined by the Board of Directors, shall
perform the duties of the Secretary, and when so acting shall have all the
6
<PAGE>
powers of and be subject to all the restrictions upon the Secretary. Any
Assistant Secretary, with any other proper officer, may sign certificates for
shares of the Savings Bank. They shall perform such other duties as may be
assigned to them by the Secretary, by the President, or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge and custody
--------- ---------
of and be responsible for all funds and securities of the Savings Bank; receive
and give receipts for money due and payable to the Savings Bank from any source
whatsoever, and deposit all such moneys in the name of the Savings Bank in such
depositories as shall be selected by the Board of Directors of the Savings Bank;
(b) have authority, with any other proper officer, to sign certificates for
shares of the Savings Bank; and (c) in general perform all of the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the President or by the Board of Directors, or by
these Bylaws.
Section 9. Assistant Treasurers. In the absence of the Treasurer or in
--------- --------------------
the event of his or her death, inability or refusal to act, the Assistant
Treasurers, unless otherwise determined by the Board of Directors, shall perform
the duties of the Treasurer, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Treasurer. Any Assistant Treasurer,
with any other proper officer, may sign certificates for shares of the Savings
Bank. They shall perform such other duties as may be assigned to them by the
Treasurer, by the President, or by the Board of Directors.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
--------- ---------
officers, agent or agents, to enter into any contract or execute and deliver any
instruments in the name of and on behalf of the Savings Bank, and such authority
may be general or confined to specific instances.
Section 2. Loans. No loan shall be contracted on behalf of the Savings
--------- -----
Bank and no evidences of indebtedness shall be issued in its name unless
authorized by Article VI of these Bylaws or authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for the
--------- -----------------
payment of money issued in the name of the Savings Bank shall be signed by such
President or such other officer or officers, agent or agents of the Savings Bank
and 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 Savings Bank not otherwise employed
--------- --------
shall be deposited from time to time to the credit of the Savings Bank in such
depositories as the Board of Directors shall direct.
7
<PAGE>
ARTICLE VII.
DEPOSIT ACCOUNTS
----------------
Section 1. Classes of Deposit Accounts. The Savings Bank may issue as
--------- ---------------------------
many classes of deposit accounts as the Board of Directors shall establish,
subject to such regulations and limitations as the Administrator of the Savings
Institutions Division of the North Carolina Department of Commerce and the
Federal Deposit Insurance Corporation may prescribe. Such classes of deposit
accounts may include passbook accounts, certificate accounts, NOW accounts,
trust accounts, demand accounts and such other accounts as are permitted by law.
The minutes of the meetings of the Board of Directors of the Savings Bank shall
define each class of deposit account being offered to the public and shall show
all changes made in the class or classes of deposit accounts available to the
customers of the Savings Bank.
Section 2. Withdrawals. The Savings Bank shall have the right to pay the
--------- -----------
withdrawal value of its deposit accounts at any time upon written application
therefor and to pay the holders thereof the withdrawal value thereof. Upon
receipt of a written application from any holder of a deposit account of all or
any part of the withdrawal value thereof, the Savings Bank shall within thirty
(30) days pay the amount requested. If the Savings Bank is unable to pay all
withdrawals requested at the end of thirty (30) days from the date of such
requests, it shall then pay all withdrawals requested in accordance with the
applicable provisions of the General Statutes of North Carolina, as amended, and
the regulations of the Federal Deposit Insurance Corporation. Holders of
deposit accounts for which application for withdrawal has been made shall remain
holders of deposit accounts until paid and shall not become creditors.
When a certificate or agreement between the Savings Bank and the account
holder specifies a particular period of time for notice of withdrawals,
withdrawals shall be made in accordance with such certificate or agreement.
Section 3. Forced Retirement. If so provided in the deposit account
--------- -----------------
contract, the Savings Bank may redeem all or any part of its deposit accounts
which have not been pledged as security for loans. The Savings Bank shall give
at least thirty (30) days notice of such redemption by certified mail addressed
to the holder of each deposit account at his or her last address as recorded on
the books of the Savings Bank. The Savings Bank may not redeem any of its
deposit accounts when it has any request for withdrawal which has been on file
and unpaid for more than thirty (30) days. Also, the Savings Bank may not
redeem any fixed-term deposit accounts which have not matured. The redemption
price of each deposit account redeemed shall be the full value thereof, as
determined by the Board of Directors, but in no event shall the redemption price
be less than the withdrawal amount of such deposit accounts. If notice of
redemption is duly given and sufficient funds are available for such redemption,
interest shall cease to accrue on the deposit account as of the redemption date.
After the redemption date all rights with respect to the deposit account shall
terminate, except for the right of the deposit account holder to receive the
redemption price thereof without interest.
Section 4. New Account Books. The Savings Bank may issue a new account
--------- -----------------
book or certificate, or other evidence of ownership of a deposit account, in the
name of the holder of record at
8
<PAGE>
any time when requested by such holder or his or her legal representative upon
proof satisfactory to the Savings Bank that the original account book or
certificate has been lost or destroyed. Such proof of loss shall ordinarily
include a written verification by the holder or his or her legal representative
that the account book or certificate has been lost or destroyed and the account
has not been pledged or assigned. Such new account book or certificate shall
expressly state that it is issued in lieu of the one lost or destroyed and that
the Savings Bank shall in no way be liable thereafter on account of the original
book or certificate. When issuing such a new account book or certificate, the
Savings Bank may, at its option, require the holder of record to give to the
Savings Bank a bond in such sum as it may direct, or such other indemnification
as it may dictate, in order to indemnify the Savings Bank against any loss that
might result from the issuance of the new account book, certificate, or other
evidence of ownership of a deposit account.
ARTICLE VIII.
LOANS AND INVESTMENTS
---------------------
Section 1. General Lending Authority. Funds of the Savings Bank shall be
--------- -------------------------
loaned in compliance with the General Statutes of North Carolina, the
regulations promulgated by the Administrator of the Savings Institutions
Division of the North Carolina Department of Commerce and applicable federal
statutes and regulations, and in such sums and at such times as the Board of
Directors may determine.
Section 2. Manner of Making Loans. The Board of Directors shall establish
--------- ----------------------
and maintain procedures by which loans are to be considered, approved, and made
by the Savings Bank. Such loan procedures may be amended by resolution of the
Board of Directors.
The Board of Directors may establish a Loan Committee to implement the
Board's loan procedures and to consider and approve loans.
The Board of Directors may designate one or more of the Savings Bank's
officers to serve as Loan Officers. Such Loan Officers shall have authority to
approve loans as determined by the Board.
All actions taken on loan applications to the Savings Bank shall be
reported to the Board of Directors at its meeting next following such actions.
Section 3. Appraisals. The Board of Directors shall cause all loans
--------- ----------
secured by real estate to be appraised and approved as provided by law.
ARTICLE IX.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificate For Shares. If the shares of the Savings Bank are
--------- ----------------------
represented by certificates, the certificates shall be in such form as required
by law and as determined by the Board of Directors and shall be signed by the
President or any Vice President and either the Secretary or an
9
<PAGE>
Assistant Secretary or the Treasurer or an Assistant Treasurer. All certificates
for shares shall be numbered consecutively or otherwise identified and shall
indicate thereon a reference to any and all restrictive conditions of said
shares. Certificates representing shares of the Savings Bank may be issued to
every shareholder for the fully paid shares owned thereby; the name and address
of the persons to whom they are issued, the number of shares, and the date of
issue shall be entered on the stock transfer books of the Savings Bank. If the
shares are not represented by certificates, then within a reasonable time after
issuance or transfer of such shares, the Savings Bank shall deliver to the
shareholder to whom such shares have been issued or transferred a written
statement of the information required by law to be on certificates.
Section 2. Transfer of Shares. If the shares are represented by
--------- ------------------
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon surrender of the certificates for the shares sought
to be transferred by the record holder thereof or by such shareholder's duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be canceled before new certificates for the
transferred shares shall be issued. If the shares are not represented by
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon the furnishing of proper evidence of authority to
transfer by the holder of record thereof or such shareholder's duly authorized
agent, transferee or legal representative. Transfer of shares may be restricted
by an agreement of the shareholder(s).
Section 3. Fixing Record Date. The Board of Directors of the Savings Bank
--------- ------------------
may fix a date selected by it as the record date for one or more voting groups
in order to determine (a) the shareholders entitled to notice of a meeting of
shareholders, (b) the shareholders entitled to demand a special meeting, if any,
(c) the shareholders entitled to vote, or (d) the shareholders entitled to take
any other action. A record date fixed under this Section may not be more than
seventy (70) days before the meeting or action requiring a determination of
shareholders.
A determination of shareholders entitled to notice of or to vote at a
meeting of shareholders is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting, which
it must do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 4. Lost Certificates. The Board of Directors may authorize the
--------- -----------------
issuance of a new share certificate in place of a certificate theretofore issued
by the Savings Bank claimed to have been lost or destroyed, upon receipt of an
affidavit of such fact from the person claiming the loss or destruction. When
authorizing such issuance of a new certificate, the Board shall require the
claimant to give the Savings Bank a bond in such sum as the Board may direct to
indemnify the Savings Bank against loss from any claim with respect to the
certificate claimed to have been lost or destroyed; provided, however, that the
Board, by resolution reciting the circumstances justifying such action, may
authorize the issuance of the new certificate without requiring such a bond.
Section 5. Holder of Record. Except as otherwise required by law, the
--------- ----------------
Savings Bank may
10
<PAGE>
treat as the absolute owner of shares and as the person exclusively entitled to
receive notification and distributions, to vote and otherwise to exercise the
rights, powers, and privileges of ownership of such shares, the person in whose
name the shares stand of record on its books.
Section 6. Reacquired Shares. Shares of the Savings Bank that have been
--------- -----------------
issued and thereafter reacquired by the Savings Bank shall constitute authorized
but unissued shares.
ARTICLE X.
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors from time to time may
--------- -------------
authorize, and the Savings Bank may pay, distributions and share dividends on
the Savings Bank's outstanding shares in the manner and upon the terms and
conditions provided by law and by the Savings Bank's articles of incorporation.
Section 2. Seal. The corporate seal of the Savings Bank shall consist of
--------- ----
two concentric circles between which is the name of the Savings Bank and in the
center of which is inscribed SEAL; and such seal, as impressed on the margin
hereof, is hereby adopted as the corporate seal of the Savings Bank.
Section 3. Indemnity. In addition to any indemnification required or
--------- ---------
permitted by law, and except as otherwise provided in these Bylaws, any person
who at any time serves or has served as a director, officer, employee, partner,
trustee or agent of the Savings Bank and any such person who serves or has
served at the request of the Savings Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
shall have a right to be indemnified by the Savings Bank to the full extent
allowed by applicable law against liability and litigation expense arising out
of such status or activities in such capacity. "Liability and litigation
expense" shall include costs and expenses of litigation (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement which are
actually and reasonably incurred in connection with or as a consequence of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the Savings Bank shall determine whether any person
described in this Section 3 is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the
persons to be indemnified are persons described in this Section 3, (ii) whether
the liability or litigation expense incurred arose out of the status or
activities of such persons as described in this Section 3, (iii) whether
liability was actually incurred and litigation expense was actually and
reasonably incurred, and (iv) whether the indemnification requested is not
permitted by applicable law. Such determination shall be made by a majority
vote of directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in
11
<PAGE>
written opinion.
Litigation expense incurred by a person described in this Section 3 in
connection with a matter described in this Section 3 shall be paid by the
Savings Bank in advance of the final disposition or termination of such matter,
if the Savings Bank receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the Savings Bank as
provided in this Section 3. Requests for payments in advance of final
disposition or termination shall be submitted in writing unless this requirement
is waived by the Savings Bank.
Notwithstanding the foregoing, no advance payment shall be made as to any
payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the Savings Bank. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it plainly appears that the person requesting payment will
not be entitled to indemnification.
The Savings Bank shall not be obligated to indemnify persons described in
this Section 3 for any amounts paid in settlement unless the Savings Bank
consents in writing to the settlement. The Savings Bank shall not unreasonably
withhold its consent to proposed settlements. The Savings Bank's consent to a
proposed settlement shall not constitute an agreement by the Savings Bank that
any person is entitled to indemnification hereunder. The Savings Bank shall
waive the requirement of this section for its written consent as fairness and
equity may require.
A person described in this Section 3 may apply to the Savings Bank in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the Savings Bank. The Savings Bank shall respond in writing to such
applications as follows: to a request for indemnity under this Section 3, within
ninety days after receipt of the application; to a request for advance expenses
under this Section 3, within fifteen days after receipt of the application.
If any action is necessary or appropriate to authorize the Savings Bank to
pay the indemnification required by these Bylaws, the Board of Directors shall
take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the Savings Bank, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall be
enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the Savings Bank shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of
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the Savings Bank, or who is or was serving at the request of the Savings Bank as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or as a trustee or administrator under
an employee benefit plan, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Savings Bank has the power to indemnify him against such
liability.
The right to indemnification provided herein shall not be deemed exclusive
of any other rights to which any persons seeking indemnity may be entitled apart
from the provisions of this bylaw, except there shall be no right to
indemnification as to any liability or litigation expense for which such person
is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the Savings
Bank. Such right inures to the benefit of the heirs and legal representatives
of any persons entitled to such right. Any person who at any time after the
adoption of this bylaw serves or has served in any status or capacity described
in this Section 3, shall be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of indemnification provided herein.
Any repeal or modification hereof shall not affect any rights or obligations
then existing. The right provided herein shall not apply as to persons serving
institutions which are hereafter merged into or combined with the Savings Bank,
except after the effective date of such merger or combination and only as to
status and activities after such date.
If this Article or any portion hereof shall be invalidated on any ground by
any court or agency of competent jurisdiction, then the Savings Bank shall
nevertheless indemnify each person described in this Section 3 to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
Section 4. Fiscal Year. The fiscal year of the Savings Bank shall be the
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twelve-month period which ends on June 30th.
Section 5. Amendments. Except as otherwise provided herein, or required
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by law, these Bylaws may be amended or repealed and new Bylaws may be adopted by
the affirmative vote of a majority of the Directors then holding office at any
regular or special meeting of the Board of Directors. No bylaw adopted, amended
or repealed by the shareholders shall be readopted, amended or repealed by the
Board of Directors unless the Savings Bank's articles of incorporation or a
bylaw adopted by the shareholders authorizes the Board of Directors to adopt,
amend or repeal that particular bylaw or the Bylaws generally.
The shareholders may amend or repeal these Bylaws even though these Bylaws
also may be amended or repealed by the Board of Directors.
Adopted this _____ day of _____________, 1997.
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Secretary
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