As filed with the Securities and Exchange Commission on June 17, 1998
Registration No. 333-
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Anchor Financial Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
South Carolina 7374 57-0778015
<S> <C> <C>
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation) Code Number)
</TABLE>
2002 Oak Street
Myrtle Beach, South Carolina 29577
(843) 448-1411
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
Tommy E. Looper
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
(843) 448-1411
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
COPIES TO:
<TABLE>
<S> <C>
Ann W. Langston George S. King, Jr.
GERRISH & MCCREARY, P.C. SINKLER & BOYD, P.A.
700 Colonial Road, Suite 200 1426 Main Street, 12th Floor
Memphis, TN 38117 Columbia, SC 29201
(901) 767-0900 (803) 779-3080
</TABLE>
---------------
Approximate date of commencement of proposed sale of securities to the public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
---------------
Calculation of Registration Fee
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of each class Proposed maximum Proposed maximum Amount of
of securities to Amount to be offering price aggregate registration
be registered registered(1) per share(2) offering price(3) fee
<S> <C> <C> <C> <C>
Common Stock,
no par value ........ 2,632,333 $76,791,515 $ 23,270.00
</TABLE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
(1) Calculated as of June 16, 1998, as the sum of (a) the 2,342,683 outstanding
shares of ComSouth Bankshares, Inc. ("ComSouth") to be exchanged based on
an exchange ratio of 0.75, and (b) the 1,006,116 outstanding shares of M&M
Financial Corporation ("M&M") to be exchanged based on an exchange ratio
of 0.87.
(2) Not applicable.
(3) Calculated as the sum of (a) the 2,342,683 outstanding shares of ComSouth
times the average of the high and low prices reported on the American
Stock Exchange on June 16, 1998 of $27.66 per share, pursuant to Rule
457(c) and (f)(1), and (b) the 1,006,116 outstanding shares of M&M times
the book value per share on May 31, 1998 of $11.92 per share, pursuant to
Rule 457(f)(2).
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>
ANCHOR FINANCIAL CORPORATION
2002 Oak Street
Myrtle Beach, South Carolina 29578
, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Anchor Financial Corporation ("Anchor") to be held at , Myrtle Beach,
South Carolina, on , , 1998 at .m., local time (the
"Anchor Special Meeting").
At the Anchor Special Meeting, you will be asked to consider and vote
upon:
(1) A proposal to approve an Agreement and Plan of Merger, dated as of
April 14, 1998, by and between ComSouth Bankshares, Inc. ("ComSouth") and
Anchor Financial Corporation, which provides that ComSouth will be merged
into Anchor (the "ComSouth Merger"). Upon consummation of the ComSouth
Merger, each share of ComSouth Common Stock issued and outstanding will be
converted into 0.75 of a share of Anchor Common Stock, with cash to be paid
in lieu of the issuance of fractional shares; and
(2) A proposal to approve an Agreement and Plan of Merger, dated as of
May 15, 1998, by and between M&M Financial Corporation ("M&M") and Anchor
Financial Corporation, which provides that M&M will be merged into Anchor
(the "M&M Merger"). Upon consummation of the M&M Merger, each share of M&M
Common Stock issued and outstanding will be converted into 0.87 of a share
of Anchor Common Stock, with cash to be paid in lieu of the issuance of
fractional shares.
The accompanying Joint Proxy Statement/Prospectus includes descriptions of
the proposed ComSouth Merger and the proposed M&M Merger, and provides other
information concerning the Anchor Special Meeting, Anchor, ComSouth and M&M.
Please read these materials carefully and consider fully the information set
forth therein.
THE COMSOUTH MERGER AND THE M&M MERGER HAVE BEEN APPROVED UNANIMOUSLY BY
THE ANCHOR BOARD OF DIRECTORS, AND THE BOARD UNANIMOUSLY RECOMMENDS THAT THE
ANCHOR STOCKHOLDERS VOTE "FOR" APPROVAL OF BOTH THE COMSOUTH AGREEMENT AND THE
M&M AGREEMENT.
YOUR VOTE IS IMPORTANT! It is important to understand that approval of the
ComSouth Agreement and approval of the M&M Agreement require the affirmative
vote of the holders of two-thirds of the outstanding shares of Anchor Common
Stock. Whether or not you plan to attend the Anchor Special Meeting, you are
urged to complete, sign, and return promptly the enclosed proxy card in the
enclosed prepaid envelope as soon as possible. If you attend the Anchor Special
Meeting, you may vote in person if you wish, even if you previously have
returned your proxy card.
Thank you for your continued support of Anchor Financial Corporation.
Sincerely,
STEPHEN L. CHRYST
President and Chief Executive Officer
<PAGE>
ANCHOR FINANCIAL CORPORATION
Myrtle Beach, South Carolina
----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on , 1998
----------------------------------------
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors of Anchor Financial Corporation ("Anchor"), a Special Meeting of
Stockholders of Anchor will be held at , Myrtle Beach, South
Carolina, on , 1998, at .m., local time (the "Anchor
Special Meeting"), for the purpose of considering and voting on the following
matters:
1. COMSOUTH MERGER. To consider and vote on the Agreement and Plan of
Merger, dated April 14, 1998 (the "ComSouth Agreement"), by and between
Anchor and ComSouth Bankshares, Inc. ("ComSouth") which provides that (i)
Anchor will acquire all the issued and outstanding common stock of ComSouth
through the merger of Comsouth into Anchor (the "ComSouth Merger"), (ii)
each outstanding share of common stock, no par value, of ComSouth
("ComSouth Common Stock") will be converted into 0.75 of a share of Anchor
common stock, no par value ("Anchor Common Stock"), except for shares of
ComSouth Common Stock owned by Anchor and shares as to which dissenters'
rights have been exercised and perfected under South Carolina law, and
(iii) each ComSouth stockholder will receive cash in lieu of any remaining
fractional share, all as described more fully in the accompanying Joint
Proxy Statement/ Prospectus;
2. M&M MERGER. To consider and vote on the Agreement and Plan of Merger,
dated May 15, 1998 (the "M&M Agreement"), by and between Anchor and M&M
Financial Corporation ("M&M") which provides that (i) Anchor will acquire
all the issued and outstanding common stock of M&M through the merger of
M&M into Anchor (the "M&M Merger"), (ii) each outstanding share of common
stock, $5.00 par value per share, of M&M ("M&M Common Stock") will be
converted into 0.87 of a share of Anchor Common Stock, except for shares of
M&M Common Stock as to which dissenters' rights have been exercised and
perfected under South Carolina law, and (iii) each M&M stockholder will
receive cash in lieu of any remaining fractional share, all as described
more fully in the accompanying Joint Proxy Statement/Prospectus; and
3. OTHER BUSINESS. To transact such other business as may be properly
brought before the Anchor Special Meeting or any adjournment(s) thereof.
Only stockholders of record of Anchor Common Stock at the close of
business on , 1998, are entitled to receive notice of and to vote at
the Anchor Special Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF ANCHOR UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
ANCHOR COMMON STOCK VOTE TO APPROVE THE COMSOUTH AGREEMENT AND TO APPROVE THE
M&M AGREEMENT.
All Anchor stockholders are invited to attend the Anchor Special Meeting
in person. Whether or not you plan to attend the Anchor Special Meeting, the
Board of Directors urges you to complete, sign and date and return as soon as
possible the enclosed proxy card. A proxy may be revoked by the record holder
of the shares it represents at any time before it is voted by signing and
returning a later dated proxy with respect to the same shares, by filing with
the Secretary of Anchor a written revocation bearing a later date, or by
attending and voting at the Anchor Special Meeting. The affirmative vote of the
record holders of two-thirds of the outstanding capital stock of Anchor is
required to approve each of the proposed agreements.
Stockholders of Anchor are entitled to dissent to the proposed Comsouth
Merger and the proposed M&M Merger and, upon compliance with South Carolina
Business Corporation Act of 1988, as amended, Section 33-13-101 et. seq. (which
is set forth in full as Appendix C hereto), to be paid cash for the fair value
of their shares of Anchor Common Stock.
By order of the Board of Directors,
STEPHEN L. CHRYST
President and Chief Executive Officer
Myrtle Beach, South Carolina
, 1998
<PAGE>
COMSOUTH BANKSHARES, INC.
1136 Washington Street, Suite 200
Columbia, South Carolina 29201
, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
ComSouth Bankshares, Inc. ("ComSouth") to be held at , South Carolina, on
, 1998 at .m., local time (the "ComSouth Special Meeting").
At the ComSouth Special Meeting, you will be asked to consider and vote
upon a proposal to approve an Agreement and Plan of Merger, dated as of April
14, 1998, by and between Anchor Financial Corporation ("Anchor") and ComSouth
Bankshares, Inc., which provides that ComSouth will merge into Anchor. Upon
consummation of this merger, each share of ComSouth Common Stock issued and
outstanding will be converted into the right to receive 0.75 of a share of
Anchor Common Stock, with cash to be paid in lieu of fractional shares.
The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the proposed merger and other specific information concerning
the ComSouth Special Meeting, ComSouth, Anchor and another proposed acquisition
by Anchor of M&M Financial Corporation. A copy of the proposed Agreement and
Plan of Merger is attached as Appendix A thereto. Please read these materials
carefully and consider fully the information set forth therein.
THE PROPOSED MERGER HAS BEEN APPROVED UNANIMOUSLY BY THE COMSOUTH BOARD OF
DIRECTORS, AND THE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER.
YOUR VOTE IS IMPORTANT! It is important to understand that approval of the
Agreement and Plan of Merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of ComSouth Common Stock entitled to vote
at the Special Meeting. Whether or not you plan to attend the ComSouth Special
Meeting, you are urged to complete, sign, and return promptly the enclosed
proxy card in the enclosed prepaid envelope as soon as possible, even if you
currently plan to attend the Special Meeting. If you attend the ComSouth
Special Meeting, you may vote in person if you wish, even if you previously
have returned your proxy card.
Sincerely,
ARTHUR M. SWANSON
President and Chief Executive Officer
<PAGE>
COMSOUTH BANKSHARES, INC.
Columbia, South Carolina
-----------------------------------------
NOTICE OF SPECIAL MEETINGS OF STOCKHOLDERS
To be held on , 1998
-----------------------------------------
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors of ComSouth Bankshares, Inc. ("ComSouth"), a Special Meeting of
Stockholders of ComSouth will be held at , South Carolina, on , 1998,
at .m., local time (the "ComSouth Special Meeting"), for the purpose of
considering and voting on the following matters:
1. Merger. To consider and vote on the Agreement and Plan of Merger,
dated April 14, 1998 (the "ComSouth Agreement"), by and between ComSouth
and Anchor Financial Corporation ("Anchor") which provides that (i) Anchor
will acquire all the issued and outstanding common stock of ComSouth
through the merger of Comsouth into Anchor (the "ComSouth Merger"), (ii)
each outstanding share of common stock, no par value, of ComSouth
("ComSouth Common Stock") will be converted into 0.75 of a share of Anchor
common stock, no par value ("Anchor Common Stock"), except for shares of
ComSouth owned by Anchor and shares as to which dissenters' rights have
been exercised and perfected under South Carolina law, and (iii) each
ComSouth stockholder will receive cash in lieu of any remaining fractional
share, all as described more fully in the accompanying Joint Proxy
Statement/Prospectus; and
2. Other Business. To transact such other business as may be properly
brought before the ComSouth Special Meeting or any adjournment(s) thereof.
Only stockholders of record of ComSouth Common Stock at the close of
business on , 1998, are entitled to receive notice of and to vote at the
ComSouth Special Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF COMSOUTH UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
COMSOUTH COMMON STOCK VOTE TO APPROVE THE COMSOUTH AGREEMENT.
All ComSouth stockholders are invited to attend the ComSouth Special
Meeting in person. Whether or not you plan to attend the ComSouth Special
Meeting, the Board of Directors urges you to complete, sign and date and return
as soon as possible the enclosed proxy card. A proxy may be revoked by the
record holder of the shares it represents at any time before it is voted by
signing and returning a later dated proxy with respect to the same shares, by
filing with the Secretary of ComSouth a written revocation bearing a later
date, or by attending and voting at the ComSouth Special Meeting. The
affirmative vote of the record holders of two-thirds of the outstanding capital
stock of ComSouth is required to approve the proposed agreement.
Stockholders of ComSouth are entitled to dissent to the proposed merger
and, upon compliance with South Carolina Business Corporation Act of 1988, as
amended, Section 33-13-101 et. seq. (which is set forth in full as Appendix C
hereto), to be paid cash for the fair value of their shares of ComSouth Common
Stock.
By order of the Board of Directors,
ARTHUR M. SWANSON
President and Chief Executive Officer
Columbia, South Carolina
, 1998
<PAGE>
M&M FINANCIAL CORPORATION
307 North Main Street
Marion, South Carolina 29571
, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
M&M Financial Corporation ("M&M") to be held at , Marion, South
Carolina, on , , 1998 at .m., local time (the "M&M Special
Meeting").
At the M&M Special Meeting, you will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger, dated as of May 15, 1998,
by and between Anchor Financial Corporation ("Anchor") and M&M Financial
Corporation, which provides that M&M will merge into Anchor. Upon consummation
of this merger, each share of M&M Common Stock issued and outstanding will be
converted into the right to receive 0.87 of a share of Anchor Common Stock,
with cash to be paid in lieu of fractional shares.
The accompanying Joint Proxy Statement/Prospectus provides a detailed
description of the proposed merger and other specific information concerning
the M&M Special Meeting, M&M, Anchor and another proposed acquisition by Anchor
of ComSouth Bankshares, Inc. A copy of the proposed Agreement and Plan of
Merger is attached as Appendix B thereto. Please read these materials carefully
and consider fully the information set forth therein.
THE PROPOSED MERGER HAS BEEN APPROVED UNANIMOUSLY BY THE M&M BOARD OF
DIRECTORS, AND THE BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER.
YOUR VOTE IS IMPORTANT! It is important to understand that approval of the
Agreement and Plan of Merger requires the affirmative vote of the holders of
two-thirds of the outstanding shares of M&M Common Stock entitled to vote at
the Special Meeting. Whether or not you plan to attend the M&M Special Meeting,
you are urged to complete, sign, and return promptly the enclosed proxy card in
the enclosed prepaid envelope as soon as possible, even if you currently plan
to attend the Special Meeting. If you attend the M&M Special Meeting, you may
vote in person if you wish, even if you previously have returned your proxy
card.
Sincerely,
CHESTER A. DUKE
Chairman of the Board and President
<PAGE>
M&M FINANCIAL CORPORATION
Marion, South Carolina
-------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
-------------------------------------------------
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors of M&M Financial Corporation ("M&M"), a Special Meeting of
Stockholders of M&M will be held at , South Carolina, on , 1998,
at .m., local time (the "M&M Special Meeting"), for the purpose of
considering and voting on the following matters:
1. MERGER. To consider and vote on the Agreement and Plan of Merger,
dated May 15, 1998 (the "M&M Agreement"), by and between M&M and Anchor
Financial Corporation ("Anchor") which provides that (i) Anchor will
acquire all the issued and outstanding common stock of M&M through the
merger of M&M into Anchor (the "M&M Merger"), (ii) each outstanding share
of common stock, $5.00 par value per share, of M&M ("M&M Common Stock")
will be converted into 0.87 of a share of Anchor common stock, no par value
("Anchor Common Stock"), except for shares of M&M Common Stock as to which
dissenters' rights have been exercised and perfected under South Carolina
law, and (iii) each M&M stockholder will receive cash in lieu of any
remaining fractional share, all as described more fully in the accompanying
Joint Proxy Statement/Prospectus; and
2. OTHER BUSINESS. To transact such other business as may be properly
brought before the M&M Special Meeting or any adjournment(s) thereof.
Only stockholders of record of M&M Common Stock at the close of business
on , 1998, are entitled to receive notice of and to vote at the M&M
Special Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS OF M&M UNANIMOUSLY RECOMMENDS THAT HOLDERS OF M&M
COMMON STOCK VOTE TO APPROVE THE M&M AGREEMENT.
All M&M stockholders are invited to attend the M&M Special Meeting in
person. Whether or not you plan to attend the M&M Special Meeting, the Board of
Directors urges you to complete, sign and date and return as soon as possible
the enclosed proxy card. A proxy may be revoked by the record holder of the
shares it represents at any time before it is voted by signing and returning a
later dated proxy with respect to the same shares, by filing with the Secretary
of M&M a written revocation bearing a later date, or by attending and voting at
the M&M Special Meeting. The affirmative vote of the record holders of
two-thirds of the outstanding capital stock of M&M is required to approve the
proposed agreement.
Stockholders of M&M are entitled to dissent to the proposed merger and,
upon compliance with South Carolina Business Corporation Act of 1988, as
amended, Section 33-13-101 et. seq. (which is set forth in full as Appendix C
hereto), to be paid cash for the fair value of their shares of M&M Common
Stock.
By order of the Board of Directors,
CHESTER A. DUKE
Chairman of the Board and President
Marion, South Carolina
, 1998
<PAGE>
JOINT PROXY STATEMENT
<TABLE>
<S> <C> <C>
Proxy Statement Proxy Statement Proxy Statement
of of of
Anchor Financial Corporation ComSouth Bankshares, Inc. M&M Financial Corporation
Special Meeting Special Meeting Special Meeting
of Stockholders of Stockholders of Stockholders
to be held on to be held on to be held on
, 1998 , 1998 , 1998
</TABLE>
---------------
PROSPECTUS
of
Anchor Financial Corporation
for
Shares of Common Stock, No Par Value
---------------
INTRODUCTION
This Joint Proxy Statement/Prospectus constitutes a Prospectus of Anchor
Financial Corporation ("Anchor") with respect to the shares of Anchor Common
Stock to be issued pursuant to the ComSouth Agreement and the M&M Agreement,
described below, if the respective ComSouth and M&M Mergers, described herein,
are consummated. The actual number of shares of Anchor Common Stock to be
issued will be determined in accordance with the terms of the ComSouth
Agreement and the M&M Agreement.
This Joint Proxy Statement/Prospectus also is being furnished to the
stockholders of Anchor, ComSouth Bankshares, Inc. ("ComSouth"), and M&M
Financial Corporation ("M&M") in connection with the solicitation of proxies by
the respective Boards of Directors of Anchor, ComSouth, and M&M, for use at the
respective Special Meetings of Stockholders of Anchor, ComSouth and M&M and any
postponements or adjournments thereof. The Special Meeting of Stockholders of
Anchor is to be held on , 1998 (the "Anchor Special Meeting"). The
Special Meeting of Stockholders of ComSouth is to be held on , 1998 (the
"ComSouth Special Meeting"). The Special Meeting of Stockholders of M&M is to
be held on , 1998 (the "M&M Special Meeting").
ComSouth/Anchor Merger. The respective Special Meetings of Comsouth and
Anchor have been called to consider and vote upon the Agreement and Plan of
Merger by and between Anchor and ComSouth, dated April 14, 1998 (the "ComSouth
Agreement") which provides that (i) Comsouth will be merged into Anchor, and
Anchor will be the corporation surviving the merger (the "ComSouth Merger"),
and (ii) each outstanding share of ComSouth Common Stock, except for shares of
Comsouth Common Stock owned by Anchor and shares as to which dissenters' rights
have been exercised and perfected under South Carolina law, will be converted
into 0.75 shares of Anchor Common Stock, no par value, subject to possible
increase by Anchor's Board of Directors if certain declines occur in the market
value of Anchor Common Stock (the "ComSouth Exchange Ratio"). Cash will be paid
in lieu of issuing fractional shares. The ComSouth Merger is subject to various
conditions including, among others, approval by the holders of two-thirds of
the outstanding shares of ComSouth Common Stock and the holders of two-thirds
of the outstanding shares of Anchor Common Stock at the ComSouth and Anchor
Special Meetings, respectively, and approval by applicable regulatory
authorities. A copy of the ComSouth Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix A and incorporated herein by reference.
M&M/Anchor Merger. The respective Special Meetings of M&M and Anchor have
been called to consider and vote upon the Agreement and Plan of Merger by and
between Anchor and M&M, dated May 15, 1998 (the "M&M Agreement") which provides
that (i) M&M will be merged into Anchor, and Anchor will be the corporation
surviving the merger (the "M&M Merger"), and (ii) each outstanding share of M&M
Common Stock, except for shares of M&M Common Stock as to which dissenters'
rights have been exercised and perfected under South Carolina law, will be
converted into 0.87 shares of Anchor Common Stock, no par value, subject to
possible increase by Anchor's Board of Directors if certain declines occur in
the market value of Anchor Common Stock (the "M&M Exchange Ratio"). Cash will
be paid in lieu of issuing fractional shares. The M&M Merger is subject to
various conditions including, among others, approval by the holders of
two-thirds of the outstanding shares of M&M Common Stock and the holders of
two-thirds of the outstanding shares of Anchor Common Stock at the M&M and
Anchor Special Meetings, respectively, and approval by applicable regulatory
authorities. A copy of the M&M Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix B and incorporated herein by reference.
THE TWO PROPOSED MERGER TRANSACTIONS ARE SEPARATE AND DISTINCT
TRANSACTIONS. THE CONSUMMATION OF ONE MERGER TRANSACTION IS NOT DEPENDENT UPON
THE OTHER. THE STOCKHOLDERS OF ANCHOR ARE BEING ASKED TO APPROVE BOTH THE
COMSOUTH MERGER AND THE M&M MERGER. THE STOCKHOLDERS OF COMSOUTH ARE BEING
ASKED TO APPROVE THE COMSOUTH MERGER ONLY. THE STOCKHOLDERS OF M&M ARE BEING
ASKED TO APPROVE THE M&M MERGER ONLY. BOTH MERGER TRANSACTIONS ARE DISCLOSED
HEREIN TO COMPLY WITH VARIOUS FEDERAL AND STATE RULES AND REGULATIONS GOVERNING
DISCLOSURE OF THE PROPOSED MERGERS TO THE RESPECTIVE COMPANY'S STOCKHOLDERS, TO
FACILITATE DISCLOSURE OF INFORMATION BY ANCHOR, COMSOUTH AND M&M, AND TO
FACILITATE REVIEW OF THIS DISCLOSURE MATERIAL BY FEDERAL AND STATE REGULATORY
AUTHORITIES.
COMSOUTH MAKES NO REPRESENTATIONS HEREIN REGARDING M&M OR THE BUSINESS,
FINANCIAL CONDITION, FINANCIAL OPERATIONS, DIRECTORS OR EMPLOYEES OF M&M OR THE
M&M MERGER.
<PAGE>
M&M MAKES NO REPRESENTATIONS HEREIN REGARDING COMSOUTH OR THE BUSINESS,
FINANCIAL CONDITION, FINANCIAL OPERATIONS, DIRECTORS OR EMPLOYEES OF COMSOUTH
OR THE COMSOUTH MERGER.
No person is authorized to give any information or to make any
representations other than those contained in this Joint Proxy
Statement/Prospectus, and, if given or made, such information or representation
may not be relied upon as having been made by Anchor, ComSouth or M&M.
---------------
THE SECURITIES OF ANCHOR FINANCIAL CORPORATION TO BE ISSUED IN CONNECTION
WITH THE COMSOUTH MERGER AND THE M&M MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY
STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OF ANCHOR OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS
OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ANCHOR,
COMSOUTH OR M&M. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY
SECURITY OTHER THAN THE ANCHOR COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO
SELL THE ANCHOR COMMON STOCK COVERED BY THIS PROSPECTUS IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER
THE DELIVERY HEREOF NOR ANY DISTRIBUTION OF THE ANCHOR COMMON STOCK MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
---------------
This Joint Proxy Statement/Prospectus and the accompanying Proxies are
first being mailed to stockholders of Anchor on or about , 1998, to
stockholders of ComSouth on or about , 1998, and to stockholders of M&M
on or about , 1998.
---------------
The date of this Joint Proxy Statement/Prospectus is , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
INTRODUCTION ...........................................................................
AVAILABLE INFORMATION ..................................................................
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................................
CAUTIONARY STATEMENT CONCERNING FORWARDING-LOOKING INFORMATION FOR ANCHOR ..............
SUMMARY ................................................................................
Introduction ........................................................................
General .............................................................................
Parties to the ComSouth Merger ......................................................
Parties to the M&M Merger ...........................................................
Special Meetings of Anchor, ComSouth and M&M Stockholders, Record Dates and Votes
Required ............................................................................
Recommendations of the Boards of Directors and Fairness Opinions ....................
Reasons for and Backgrounds of the ComSouth Merger and the M&M Merger ...............
Dissenters' Rights of Anchor, ComSouth and M&M Stockholders .........................
The ComSouth Agreement ..............................................................
The M&M Agreement ...................................................................
Certain Federal Income Tax Consequences .............................................
Accounting Treatment ................................................................
Certain Differences in Stockholders' Rights .........................................
Resale Restrictions on Affiliates of ComSouth and M&M ...............................
Directors and Management of Anchor Following the Mergers ............................
Risk Factors ........................................................................
Share Information and Comparative Market Prices .....................................
COMPARATIVE PER SHARE DATA .............................................................
SELECTED FINANCIAL INFORMATION .........................................................
RISK FACTORS ...........................................................................
THE SPECIAL MEETINGS ...................................................................
THE ANCHOR SPECIAL MEETING .............................................................
Purposes of the Anchor Special Meeting ..............................................
Time, Date and Place of the Anchor Special Meeting ..................................
Record Date and Securities Entitled to Vote at the Anchor Special Meeting ...........
Required Anchor Vote ................................................................
Voting and Revocation of Anchor Proxies .............................................
Solicitation of Proxies by Anchor ...................................................
Anchor Stockholder Proposals for Next Annual Meeting ................................
THE COMSOUTH SPECIAL MEETING ...........................................................
Purposes of the ComSouth Special Meeting ............................................
Time, Date and Place of the ComSouth Special Meeting ................................
Record Date and Securities Entitled to Vote at the ComSouth Special Meeting .........
Required ComSouth Vote ..............................................................
Voting and Revocation of ComSouth Proxies ...........................................
Solicitation of Proxies by ComSouth .................................................
ComSouth Stockholder Proposals for Next Annual Meeting ..............................
THE M&M SPECIAL MEETING ................................................................
Purposes of the M&M Special Meeting .................................................
Time, Date and Place of the M&M Special Meeting .....................................
Record Date and Securities Entitled to Vote at the M&M Special Meeting ..............
Required M&M Vote ...................................................................
Voting and Revocation of M&M Proxies ................................................
Solicitation of Proxies by M&M ......................................................
M&M Stockholder Proposals for Next Annual Meeting ...................................
</TABLE>
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<TABLE>
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<S> <C>
THE PROPOSED MERGERS .....................................................................
General ................................................................................
Background of the Mergers ..............................................................
Anchor ................................................................................
ComSouth ..............................................................................
M&M ...................................................................................
Reasons for the Mergers ................................................................
Opinion of Anchor's Financial Advisor ..................................................
ComSouth Merger ........................................................................
General ...............................................................................
Procedure for Exchange of ComSouth Common Stock for Anchor Common Stock ...............
Conditions to Consummation of the ComSouth Merger .....................................
Termination Provisions ................................................................
Possible Adjustment to the ComSouth Exchange Ratio ....................................
Opinion of ComSouth's Financial Advisor ...............................................
ComSouth Effective Date ...............................................................
Employment Agreements .................................................................
Expenses and Fees Related to the ComSouth Merger ......................................
M&M Merger .............................................................................
General ...............................................................................
Procedure for Exchange of M&M Common Stock for Anchor Common Stock ....................
Conditions to Consummation of the M&M Merger ..........................................
Termination Provisions ................................................................
Possible Adjustment to the M&M Exchange Ratio .........................................
Opinion of M&M's Financial Advisor ....................................................
M&M Effective Date ....................................................................
Employment Agreement ..................................................................
Expenses and Fees Related to the M&M Merger ...........................................
Regulatory Approvals ...................................................................
Rights of Dissenting Stockholders ......................................................
Accounting Treatment ...................................................................
Directors and Executive Officers Following the Mergers .................................
Interests of Certain Persons in the Mergers ............................................
Material Federal Income Tax Consequences of the Mergers ................................
Resales of Anchor Common Stock to be Received by Certain Stockholders of ComSouth and
M&M ....................................................................................
Certain Differences in Rights of Anchor, ComSouth and M&M Stockholders .................
COMPARATIVE MARKET PRICES AND DIVIDENDS ..................................................
Anchor Market Prices ...................................................................
ComSouth Market Prices .................................................................
M&M Market Prices ......................................................................
Dividends ..............................................................................
DESCRIPTION OF ANCHOR COMMON STOCK .......................................................
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS ..............................
INFORMATION ABOUT ANCHOR .................................................................
Business of Anchor .....................................................................
Recent Developments ....................................................................
Selected Historical Financial Data of Anchor ...........................................
SUPERVISION AND REGULATION ...............................................................
INFORMATION ABOUT COMSOUTH ...............................................................
Business of ComSouth ...................................................................
Security Ownership of Certain Beneficial Owners and Management of ComSouth .............
Management's Discussion and Analysis of Financial Condition and Results of Operations
of ComSouth ............................................................................
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
INFORMATION ABOUT M&M ....................................................................
Business of M&M ........................................................................
Security Ownership of Certain Beneficial Owners and Management of M&M ..................
Management's Discussion and Analysis of Financial Condition and Results of Operations
of M&M .................................................................................
ANCHOR'S RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS .......................................
EXPERTS ..................................................................................
LEGAL MATTERS ............................................................................
FAIRNESS OPINIONS ........................................................................
INDEMNIFICATION ..........................................................................
APPENDICES
Appendix A -- Agreement and Plan of Merger by and between Anchor and ComSouth, dated
April 14, 1998. ......................................................................
Appendix B -- Agreement and Plan of Merger by and between Anchor and M&M, dated May 15,
1998. .................................................................................
Appendix C -- Rights of Dissenting Stockholders as set forth in Section 33-13-101 et.
seq. of the South Carolina Business Corporation Act of 1988, as amended ...............
Appendix D -- Opinion of Sandler O'Neill & Partners, L.P. to Anchor ......................
Appendix E -- Opinion of Interstate/Johnson Lane Corporation to ComSouth .................
Appendix F -- Opinion of Orr Management Company to M&M ...................................
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS OF COMSOUTH ................................................ F-
INDEX TO FINANCIAL STATEMENTS OF M&M ..................................................... F-
</TABLE>
iii
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AVAILABLE INFORMATION
Anchor, ComSouth and M&M are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information can be obtained, at prescribed
rates, at the Public Reference Section of the Commission at 450 Fifth Street,
NW, Room 1024, Washington, DC 20549, and can be inspected and copied at the
public reference facilities maintained by the Commission in Washington, D.C.
and at the Commission's Regional Offices located at 7 World Trade Center, Suite
1300, New York, NY 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. The Commission also maintains a site on
the World Wide Web regarding issuers that file electronically with the
Commission that contains reports, proxy and information statements and other
information, and the address of that Web site is http://www.sec.gov.
Anchor Financial Corporation has filed a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Anchor Financial Corporation Common
Stock being offered by this Prospectus. This Prospectus does not contain all
the information set forth in the Registration Statement, certain portions of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information regarding Anchor and the securities offered
hereby, reference is made to the Registration Statement, including all
amendments and the schedules and exhibits filed as part thereof. The
Registration Statement and the schedules and the exhibits filed as part thereof
may be inspected and copied, at prescribed rates, at the addresses of the
Commission set forth above. Statements contained herein concerning provisions
of documents are necessarily summaries of the documents and each statement is
qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the Registration Statement with the Commission. Anchor
Common Stock is traded on The Nasdaq Stock Market. Reports, proxy statements
and other information concerning Anchor may be inspected at the offices of The
Nasdaq Stock Market, 1735 K. Street, N.W., Washington, DC 20006-1500.
All information contained in or incorporated by reference in this Joint
Proxy Statement/Prospectus relating to Anchor has been supplied by Anchor; all
information relating to ComSouth contained in or incorporated by reference
herein with respect to ComSouth was supplied by ComSouth; and all information
relating to M&M contained in or incorporated by reference herein with respect
to M&M was supplied by M&M.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents listed below and previously filed with the
Commission by Anchor are hereby incorporated by reference in this Joint Proxy
Statement/Prospectus:
1. Anchor's Annual Report on Form 10-K for the year ended December 31, 1997
(File No. 0-13759);
2. Anchor's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 (File No. 0-13759);
3. Anchor's Current Reports on Form 8-K, dated April 14, 1998 and May 1,
1998 (File No. 0-13759);
4. The description of Anchor's directors and executive officers, executive
compensation and certain relationships and related transactions contained in
Anchor's definitive Proxy Statement, dated March 30, 1998, relating to its 1998
Annual Meeting of Shareholders held on April 30, 1998 (File No. 0-18759),
incorporated by reference in Anchor's Annual Report on Form 10-K for the year
ended December 31, 1997.
All documents subsequently filed by Anchor with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement/Prospectus and prior to the date of the respective
Anchor, ComSouth and M&M Special Meetings shall be deemed to be incorporated by
reference in this Joint Proxy Statement/Prospectus and to be a part hereof from
the date of filing of such documents. No statement made herein will be deemed
to modify or supersede any statement contained in a document incorporated or
deemed to be incorporated by reference. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. These documents are
available upon written or oral request directed to Tommy E. Looper, Secretary,
Anchor Financial Corporation, 2002 Oak Street, P.O. Box 2428, Myrtle Beach,
South Carolina 29578, Telephone (843) 448-1411. In order to insure timely
delivery of the documents, any request should be made by , 1998.
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The following documents previously filed with the Commission by ComSouth
pursuant to the Exchange Act are hereby incorporated by reference in this Joint
Proxy Statement/Prospectus:
1. ComSouth's Annual Report on Form 10-K for the year ended December 31,
1997;
2. ComSouth's Quarterly Report on Form 10-Q for the three months ended
March 31, 1998; and
3. ComSouth's Current Report on Form 8-K, dated April 14, 1998.
The following documents previously filed with the Commission by M&M
pursuant to the Exchange Act are hereby incorporated by reference in this Joint
Proxy Statement/Prospectus:
1. M&M's Annual Report on Form 10-KSB for the year ended December 31, 1997;
2. M&M's Quarterly Report on Form 10-QSB for the three months ended March
31, 1998; and
3. M&M's Current Report on Form 8-K, dated May 1, 1998.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION FOR ANCHOR
This Joint Proxy Statement/Prospectus, the documents incorporated by
reference herein or any other written or oral statements made by or on behalf
of Anchor may include forward-looking statements with respect to the financial
condition, results of operations and business of Anchor, based on management's
belief and information currently available to management. Such forward-looking
statements are subject to risks, uncertainties and assumptions. Actual results
may vary materially from those anticipated, estimated, projected or expected.
Among, but not limited to, the factors that may cause variations from such
forward-looking statements are fluctuations in the economy, especially in the
market areas of Anchor and its proposed acquisition entities; changes in the
interest rate environment; Anchor's ability to realize anticipated cost savings
relating to pending acquisitions; Anchor's success in assimilating acquired
operations in Anchor's culture, including its ability to instill Anchor's
credit culture into acquired operations; the continued growth of the markets in
which Anchor operates; and the enactment of legislation impacting Anchor.
Readers are cautioned not to place undue reliance on any forward-looking
statements made by or on behalf of Anchor. Anchor undertakes no obligation to
update or revise any forward-looking statements. Additional information with
respect to factors that may cause results to differ materially from those
contemplated by such forward-looking statements is included in Anchor's current
and subsequent filings with the Commission.
See "INFORMATION ABOUT COMSOUTH -- Management's Discussion and Analysis of
Financial Condition and Results of Operations of ComSouth -- Safe Harbor for
Forward-Looking Statements."
See "INFORMATION ABOUT M&M -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Safe Harbor for
Forward-Looking Statements."
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<PAGE>
SUMMARY
Introduction
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This summary is not
intended to be complete and should be read in conjunction with the more
detailed information contained elsewhere in this Joint Proxy
Statement/Prospectus. Stockholders of Anchor, ComSouth and M&M should read the
entire Joint Proxy Statement/Prospectus carefully.
General
At the Anchor Special Meeting, Anchor stockholders will consider and vote
on:
(i) a proposal to approve the ComSouth Agreement and the ComSouth Merger
transaction contemplated thereby, including the issuance of Anchor
Common Stock to ComSouth stockholders upon consummation of the
ComSouth Merger; and
(ii) a proposal to approve the M&M Agreement and the M&M Merger
transaction contemplated thereby, including the issuance of Anchor
Common Stock to M&M stockholders upon consummation of the M&M Merger.
See "THE PROPOSED MERGERS."
At the ComSouth Special Meeting, ComSouth stockholders will consider and
vote on a proposal to approve the ComSouth Agreement and the ComSouth Merger
transaction contemplated thereby. A copy of the ComSouth Agreement is attached
as Appendix A to this Joint Proxy Statement/Prospectus.
The ComSouth Agreement provides for the acquisition of ComSouth by Anchor
pursuant to the merger of ComSouth into Anchor. On the effective date of the
ComSouth Merger, each share of ComSouth Common Stock then issued and
outstanding will be converted into 0.75 of a share of Anchor Common Stock,
except shares of ComSouth Common Stock owned by Anchor and shares as to which
dissenters' rights have been exercised and perfected under South Carolina law.
No fractional shares of Anchor Common Stock will be issued, and cash will be
paid in lieu of any fractional share interest to which any ComSouth stockholder
will be entitled upon the consummation of the ComSouth Merger, based on the
last sale price of Anchor Common Stock on The Nasdaq Stock Market (as reported
by The Wall Street Journal, or, if not reported thereby, by another
authoritative source selected by Anchor) on the last trading day immediately
preceding the effective date of the ComSouth Merger. See "THE PROPOSED MERGERS
- - -- ComSouth Merger."
At the M&M Special Meeting, M&M stockholders will consider and vote on a
proposal to approve the M&M Agreement and the M&M Merger transaction
contemplated thereby. A copy of the M&M Agreement is attached as Appendix B to
this Joint Proxy Statement/Prospectus.
The M&M Agreement provides for the acquisition of M&M by Anchor pursuant
to the merger of M&M into Anchor. On the effective date of the M&M Merger, each
share of M&M Common Stock then issued and outstanding will be converted into
0.87 of a share of Anchor Common Stock, except shares of M&M Common Stock as to
which dissenters' rights have been exercised and perfected under South Carolina
law. No fractional shares of Anchor Common Stock will be issued, and cash will
be paid in lieu of any fractional share interest to which any M&M stockholder
will be entitled upon the consummation of the M&M Merger, based on the last
sale price of Anchor Common Stock on The Nasdaq Stock Market (as reported by
The Wall Street Journal, or, if not reported thereby, by another authoritative
source selected by Anchor) on the last trading day immediately preceding the
effective date of the M&M Merger. See "THE PROPOSED MERGERS -- M&M Merger."
Parties to the ComSouth Merger
Anchor Financial Corporation. Anchor Financial Corporation is a registered
bank holding company incorporated in 1984 under the laws of the State of South
Carolina. Anchor was organized to acquire The Anchor Bank ("Anchor Bank") and
to invest in other bank-related businesses. Anchor provides its customers with
banking services through its principal subsidiary, The Anchor Bank. Anchor
previously provided data processing services through its subsidiary, Anchor
Automated Services, Inc., but this subsidiary is now inactive. Anchor owns 100%
of the issued and outstanding stock of The Anchor Bank and Anchor Automated
Services, Inc. (collectively the "Anchor Subsidiaries").
3
<PAGE>
The principal role of Anchor is to supervise and coordinate the activities
of the Anchor Subsidiaries and to provide them with capital and services of
various kinds. Anchor derives substantially all its income from dividends from
Anchor Bank. Such dividends are determined on an individual basis, generally in
relation to Anchor Bank's earnings, deposit growth and capital position.
Anchor Bank was organized in 1974 as a state-chartered bank and was
acquired by Anchor on June 15, 1984. Anchor subsequently acquired three other
South Carolina banks which were merged into Anchor Bank, and Anchor acquired a
North Carolina bank. In 1994, Anchor merged its two banking subsidiaries, The
Anchor Bank and The Anchor Bank of North Carolina. The Anchor Bank survived the
merger and all information presented herein reflects this merger for all
periods presented.
Anchor Bank accounted for 100% of Anchor's total consolidated assets as of
December 31, 1997, and 100% of total net income for 1997. The Anchor Bank
conducts its business through its nineteen branches along the North Carolina
and South Carolina coasts.
The principal executive offices of Anchor and Anchor Bank are located at
2002 Oak Street, Myrtle Beach, South Carolina 29578, and their telephone number
is (843) 448-1411. For additional information concerning the business and
financial condition of Anchor, reference is made to the Anchor reports
incorporated herein by reference. See "AVAILABLE INFORMATION," "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE," and "INFORMATION ABOUT ANCHOR."
ComSouth Bankshares, Inc. ComSouth Bankshares, Inc. is a registered bank
holding company incorporated on May 15, 1987, pursuant to the laws of the State
of South Carolina. ComSouth conducts is business through its two bank
subsidiaries (the "ComSouth Banks"), Bank of Columbia, N.A. ("Columbia Bank")
and Bank of Charleston, N.A. ("Charleston Bank").
The Columbia Bank is a national bank, chartered July 12, 1988, based in
Columbia, South Carolina. This bank engages in the commercial banking business
in the Columbia area. The Charleston Bank is a national bank, chartered April
12, 1990, based in Charleston, South Carolina. This bank engages in the
commercial banking business in the Charleston area.
The principal executive offices of ComSouth are located at 1136 Washington
Street, Suite 200, Columbia, South Carolina 29201, and its telephone number is
(803) 343-2144. See "INFORMATION ABOUT COMSOUTH."
Parties to the M&M Merger
Anchor Financial Corporation. See above discussion regarding Anchor.
M&M Financial Corporation. M&M Financial Corporation is a registered bank
holding company incorporated on February 24, 1984, under the laws of the State
of South Carolina. M&M provides its customers with banking services through its
subsidiary, First National South (the "M&M Bank"). M&M provides no active
services through its subsidiary, Marion National Investment Corporation. M&M
owns 100% of the issued and outstanding stock of the M&M Bank and Marion
National Investment Corporation (collectively, the "M&M Subsidiaries").
The M&M Bank was organized in 1911 as a national bank. The M&M Bank
conducts its business from its main banking offices in Marion, South Carolina,
and its other offices in Marion, Mullins, Nichols, Myrtle Beach and Florence,
South Carolina.
The principal executive offices of M&M are located at 307 North Main
Street, Marion, South Carolina 29571, and its telephone number is (843)
431-1000. See "INFORMATION ABOUT M&M."
Special Meetings of Anchor, ComSouth and M&M Stockholders, Record Dates and
Votes Required
Anchor Special Meeting, Record Date and Votes Required. The Special
Meeting of Stockholders of Anchor (the "Anchor Special Meeting") will be held
at , on , 1998 at .m., local time, at which time Anchor
stockholders will be asked to consider and vote on:
(i) a proposal to approve the ComSouth Agreement and the ComSouth Merger
transaction contemplated thereby; and
(ii) a proposal to approve the M&M Agreement and the M&M Merger
transaction contemplated thereby.
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<PAGE>
Only the record holders of shares of the common stock, no par value, of
Anchor ("Anchor Common Stock") at the close of business on , 1998, are
entitled to notice of and to vote at the Anchor Special Meeting and any
postponements or adjournments thereof. On that date, there were shares of
Anchor Common Stock outstanding, with each share being entitled to one vote on
each matter properly to come before the Anchor Special Meeting. See "THE ANCHOR
SPECIAL MEETING -- Record Date and Securities Entitled to Vote at the Anchor
Special Meeting."
Both the ComSouth Agreement and M&M Agreement must be approved by the
affirmative vote of the holders of two-thirds of the outstanding shares of
Anchor Common Stock. As of , 1998, Anchor's directors and executive
officers beneficially owned shares, or %, of the Anchor Common Stock
entitled to vote at the Anchor Special Meeting. To Anchor's knowledge, no
shareholder other than Anchor's Employee Stock Ownership Plan ("ESOP") owned
beneficially 5% or more of the Anchor Common Stock as of such date.
Participants in the ESOP will be entitled to vote the shares of Anchor Common
Stock allocated to them in the ESOP at the Anchor Special Meeting. The
directors and executive officers have indicated their intention to vote all
their shares in favor of approval of the ComSouth Agreement and the ComSouth
Merger and in favor of approval of the M&M Agreement and the M&M Merger. See
"THE ANCHOR SPECIAL MEETING -- Required Anchor Vote."
ComSouth Special Meeting, Record Date and Vote Required. The Special
Meeting of Stockholders of ComSouth (the "ComSouth Special Meeting") will be
held at , on , 1998 at .m., local time, at which meeting
ComSouth stockholders will be asked to consider and vote on a proposal to
approve and adopt the ComSouth Agreement and the ComSouth Merger transaction
contemplated thereby.
Only the record holders of shares of the common stock, no par value, of
ComSouth ("Comsouth Common Stock") at the close of business on , 1998,
are entitled to notice of and to vote at the ComSouth Special Meeting and any
postponements or adjournments thereof. On that date, there were shares of
ComSouth Common Stock outstanding, with each share being entitled to one vote
on each matter properly to come before the ComSouth Special Meeting. See "THE
COMSOUTH SPECIAL MEETING -- Record Date and Securities Entitled to Vote at the
ComSouth Special Meeting."
The ComSouth Agreement must be approved by the affirmative vote of the
holders of two-thirds of the outstanding shares of ComSouth Common Stock. As of
, 1998, ComSouth's directors, executive officers and three holders of 5%
or more of ComSouth Common Stock, beneficially owned approximately
shares, or %, of the ComSouth Common Stock entitled to vote at the
ComSouth Special Meeting. The directors and executive officers have indicated
their intention to vote all their shares in favor of approval of the ComSouth
Merger. See "THE COMSOUTH SPECIAL MEETING -- Required ComSouth Vote."
M&M Special Meeting, Record Date and Vote Required. The Special Meeting of
Stockholders of M&M (the "M&M Special Meeting") will be held at , on
, 1998 at .m., local time, at which time M&M stockholders will be
asked to consider and vote on a proposal to approve and adopt the M&M Agreement
and the M&M Merger transaction contemplated thereby. Only the record holders of
shares of the common stock, $5.00 par value per share, of M&M ("M&M Common
Stock") at the close of business on , 1998, are entitled to notice of and
to vote at the M&M Special Meeting and any postponements or adjournments
thereof. On that date, there were shares of M&M Common Stock outstanding,
with each share being entitled to one vote on each matter properly to come
before the M&M Special Meeting. See "THE M&M SPECIAL MEETING -- Record Date and
Securities Entitled to Vote at the M&M Special Meeting."
The M&M Agreement must be approved by the affirmative vote of the holders
of two-thirds of the outstanding shares of M&M Common Stock. As of ,
1998, M&M's directors and executive officers beneficially owned approximately
shares, or %, of the M&M Common Stock entitled to vote at the M&M
Special Meeting. To M&M's knowledge, no shareholder owned beneficially 5% or
more of the M&M Common Stock as of such date. The directors and executive
officers of M&M have indicated their intention to vote all their shares in
favor of approval of the M&M Merger. See "THE M&M SPECIAL MEETING -- Required
M&M Vote."
Recommendations of the Boards of Directors and Fairness Opinions
ComSouth and Anchor. The Boards of Directors of ComSouth and Anchor
believe that the ComSouth Merger is in the best interests of the respective
ComSouth and Anchor stockholders, and both Boards unanimously recommend a vote
FOR approval of the ComSouth Agreement. The Board of Directors of Anchor has
received from Sandler O'Neill & Partners, L.P., an opinion that the terms of
the ComSouth Merger are fair, from a financial point of view, to the
stockholders of Anchor. See "THE PROPOSED MERGERS -- Opinion of Anchor's
Financial Advisor." A copy of such opinion, dated
5
<PAGE>
, 1998, is attached hereto as Appendix D and should be read in its
entirety with respect to the assumptions made, the matters considered and the
limitations of the review undertaken in rendering the opinion. The Board of
Directors of ComSouth has received from Interstate/Johnson Lane Corporation, an
opinion that the terms of the ComSouth Merger are fair, from a financial point
of view, to the stockholders of ComSouth. A copy of such opinion, dated May 29,
1998, is attached hereto as Appendix E. See "THE PROPOSED MERGERS -- ComSouth
Merger -- Opinion of ComSouth's Financial Advisor."
M&M and Anchor. The Boards of Directors of M&M and Anchor believe that the
M&M Merger is in the best interests of the respective M&M and Anchor
stockholders, and both Boards unanimously recommend a vote FOR approval of the
M&M Agreement. The Board of Directors of Anchor has received from Sandler
O'Neill & Partners, L.P., an opinion that the terms of the M&M Merger are fair,
from a financial point of view, to the stockholders of Anchor. See "THE
PROPOSED MERGERS -- Opinion of Anchor's Financial Advisor." A copy of such
opinion, dated , 1998, is attached hereto as Appendix D and should be
read in its entirety with respect to the assumptions made, the matters
considered and the limitations of the review undertaken in rendering the
opinion. The Board of Directors of M&M has received from Orr Management
Company, an opinion that the terms of the M&M Merger are fair, from a financial
point of view, to the stockholders of M&M. A copy of such opinion, dated May
15, 1998, is attached hereto as Appendix F. See "THE PROPOSED MERGERS -- M&M
Merger -- Opinion of M&M's Financial Advisor."
Reasons for and Backgrounds of the ComSouth Merger and the M&M Merger
The Boards of Directors of Anchor, ComSouth and M&M, respectively, believe
that the ComSouth Merger and the M&M Merger, respectively, will (i) provide
opportunities to achieve economies of scale and should increase the efficiency
and profitability of the combined companies (in other words, Anchor and Anchor
Bank), and (ii) permit more effective management of the combined companies. In
addition, the combined greater financial resources, the economies of scale and
more effective management resulting from the Mergers are expected to improve
the ability of the combined companies to compete with the many financial
institutions doing business in Anchor, ComSouth and M&M's respective market
areas, result in an institution better able to respond to the needs of its
customers and the communities served, and allow the stockholders of Anchor,
ComSouth and M&M to participate in an institution which has greater financial
resources, a larger number of banking locations and a larger market than
Anchor, ComSouth or M&M has at the present time. See "THE PROPOSED MERGERS --
Background of the Mergers and Reasons for the Mergers."
Dissenters' Rights of Anchor, ComSouth and M&M Stockholders
Under certain conditions and by fully complying with specific procedures
required by the South Carolina Business Corporation Act of 1988, as amended,
and described elsewhere in this Joint Proxy Statement/Prospectus, Anchor,
ComSouth and M&M stockholders will have the right to dissent from the Comsouth
Merger and the M&M Merger, respectively, in which event, if the ComSouth Merger
or the M&M Merger, as applicable, is consummated, such stockholder may be
entitled to receive cash for the fair value of his shares of Anchor Common
Stock, ComSouth Common Stock or M&M Common Stock held, as applicable. See "THE
PROPOSED MERGERS -- Rights of Dissenting Stockholders" and "Appendix C."
The ComSouth Agreement
General Terms. On April 14, 1998, the ComSouth Agreement was executed by
Anchor and ComSouth. Pursuant to the ComSouth Agreement, at the effective date
of the ComSouth Merger ("ComSouth Effective Date"), ComSouth will merge into
Anchor whereby:
(i) all ComSouth Common Stock issued and outstanding as of the ComSouth
Effective Date will be converted into and exchanged for 0.75 of a share of
Anchor Common Stock, subject to possible increase by Anchor's Board of
Directors if certain declines occur in the market value of Anchor Common
Stock, except for shares of ComSouth Common Stock owned by Anchor and
shares whose holders have perfected their rights of dissent related to the
ComSouth Merger, and except that cash will be paid in lieu of issuing any
fractional shares of Anchor Common Stock;
(ii) all outstanding options to purchase ComSouth Common Stock (the
"ComSouth Options") will be converted into options to purchase shares of
Anchor Common Stock on the basis of the ComSouth Exchange Ratio; and
(iii) ComSouth stockholders will become stockholders of Anchor and
ComSouth will cease to exist.
6
<PAGE>
Procedure for Exchange of ComSouth Common Stock
Promptly after the ComSouth Effective Date, Anchor will cause an exchange
agent selected by Anchor (the "Exchange Agent") to mail to the former
stockholders of ComSouth a form letter of transmittal, together with
instructions for the exchange of such ComSouth stockholders' certificates
representing shares of ComSouth Common Stock for certificates representing
shares of Anchor Common Stock. ComSouth stockholders should not send their
stock certificates until they receive the form letter of transmittal and
instructions. See "THE PROPOSED MERGERS -- ComSouth Merger -- Procedure for
Exchange of ComSouth Common Stock for Anchor Common Stock."
Regulatory Approvals and Other Conditions to ComSouth Merger
The ComSouth Merger is subject to the approval by the Board of Governors
of the Federal Reserve System (the "Federal Reserve"). The ComSouth Merger also
is subject to approval by the South Carolina State Board of Financial
Institutions (the "South Carolina Board"). Applications for the required
approvals have been filed with the Federal Reserve and the South Carolina Board
and are pending at this time.
Consummation of the ComSouth Merger is subject to various other
conditions, including receipt of the required approvals of the respective
ComSouth and Anchor stockholders, receipt of certain customary legal opinions,
consummation of the transaction shall be accountable as a pooling-of-interests,
and there shall have been no material adverse change in the financial condition
or results of operations of ComSouth or Anchor. See "THE PROPOSED MERGERS --
ComSouth Merger -- Conditions to Consummation of the ComSouth Merger."
Termination Provisions of ComSouth Agreement
The ComSouth Agreement may be terminated at any time prior to the ComSouth
Effective Date (i) by the mutual consent of the Boards of Directors of Anchor
and ComSouth; (ii) by the Board of Directors of either party to the ComSouth
Agreement in the event of a material breach of any agreement, covenant,
representation or warranty by the other party, if the breaching party fails to
correct the breach promptly after notice thereof; (iii) by either party if the
ComSouth Merger is not consummated by December 31, 1998; (iv) by either party
if the required approvals of the respective Comsouth and Anchor stockholders
are not obtained at the Special Meetings or any adjournments thereof; or (v) by
the Board of Directors of ComSouth if certain fluctuations in the market price
of Anchor Common Stock occur, and Anchor does not exercise its option to
increase the ComSouth Exchange Ratio as provided in the ComSouth Agreement. See
"THE PROPOSED MERGERS -- ComSouth Merger -- Termination Provisions."
Effective Date of the ComSouth Merger
The ComSouth Merger will be effective on the date and at the time when the
Articles of Merger have been delivered to and accepted by the Secretary of
State of South Carolina for filing. See "THE PROPOSED MERGERS -- ComSouth
Merger -- ComSouth Effective Date."
Employment Agreements
On the ComSouth Effective Date, Anchor will enter into employment
agreements with J. Michael Kapp, Arthur P. Swanson, John P. Barnwell, and
Carmel Dodds, provided these individuals have not terminated their employment
with ComSouth or the ComSouth Banks at or prior to the ComSouth Effective Date.
See "THE PROPOSED MERGERS -- ComSouth Merger -- Employment Agreements."
Interests of Certain Persons in the ComSouth Merger
In addition to the employment agreements described above, certain members
of ComSouth's management and its Board of Directors may be deemed to have
interests in the ComSouth Merger that are in addition to their interests as
ComSouth stockholders generally. These interests include, among others, (i) the
appointment of four current members of the Boards of Directors of ComSouth or
the ComSouth Banks to the Board of Directors of Anchor, (ii) agreement by Anchor
to indemnify certain officers, directors and former directors of ComSouth and
the ComSouth Banks in a pending lawsuit, including advancing expenses to defend
the case, (iii) agreement by Anchor to provide three years of directors and
officers' liability insurance coverage to officers and directors of ComSouth and
the ComSouth Banks, (iv) agreement by Anchor to indemnify the directors and
officers of ComSouth and the ComSouth Banks to the fullest extent permitted by
South Carolina law against all liabilities and the expense of defending claims
or liabilities connected with or arising out of such directors or officers'
service as such, and (v) conversion of certain outstanding ComSouth Options
granted to certain officers and directors of ComSouth into options to acquire
Anchor Common Stock, adjusted in accordance with the Comsouth Exchange Ratio.
See "THE PROPOSED MERGERS -- Interests of Certain Persons in the Mergers."
7
<PAGE>
The M&M Agreement
General Terms. On May 15, 1998, the M&M Agreement was executed by Anchor
and M&M. Pursuant to the M&M Agreement, at the effective date of the M&M Merger
("M&M Effective Date"), M&M will merge into Anchor whereby:
(i) all M&M Common Stock issued and outstanding as of the M&M Effective
Date will be converted into 0.87 of a share of Anchor Common Stock, subject
to possible increase by Anchor's Board of Directors if certain declines
occur in the market value of Anchor Common Stock, except for shares whose
holders have perfected their rights of dissent related to the M&M Merger
and except that cash will be issued in lieu of issuing any fractional
shares of Anchor Common Stock;
(ii) all outstanding options to purchase M&M Common Stock (the "M&M
Options") will be converted into options to purchase shares of Anchor
Common Stock on the basis of the M&M Exchange Ratio; and
(iii) M&M stockholders will become stockholders of Anchor and M&M will
cease to exist.
Procedure for Exchange of M&M Common Stock
Promptly after the M&M Effective Date, Anchor will cause an exchange agent
selected by Anchor (the "Exchange Agent") to mail to the former stockholders of
M&M a form letter of transmittal, together with instructions for the exchange
of such M&M stockholders' certificates representing shares of M&M Common Stock
for certificates representing shares of Anchor Common Stock. M&M stockholders
should not send their stock certificates until they receive the form letter of
transmittal and instructions. See "THE PROPOSED MERGERS -- M&M Merger --
Procedure for Exchange of M&M Common Stock for Anchor Common Stock."
Regulatory Approvals and Other Conditions to M&M Merger
The M&M Merger is subject to the approval by the Federal Reserve. The M&M
Merger also is subject to approval by the South Carolina Board. Applications
for the required approvals have been filed with the Federal Reserve and the
South Carolina Board and are pending at this time.
Consummation of the M&M Merger is subject to various other conditions,
including receipt of the required approvals of the respective M&M and Anchor
stockholders, receipt of certain customary legal opinions, consummation of the
transaction shall be accountable as a pooling of interests, and there shall
have been no material adverse change in the financial condition or results of
operations of M&M or Anchor. See "THE PROPOSED MERGERS -- M&M Merger --
Conditions to Consummation of the M&M Merger."
Termination Provisions of M&M Agreement
The M&M Agreement may be terminated at any time prior to the M&M Effective
Date (i) by the mutual consent of the Boards of Directors of Anchor and M&M;
(ii) by the Board of Directors of either party to the M&M Agreement in the
event of a material breach of any agreement, covenant, representation or
warranty by the other party, if the breaching party fails to correct the breach
promptly after notice thereof; (iii) by either if the M&M Merger is not
consummated by December 31, 1998; (iv) by either party if the required
approvals of the respective M&M and Anchor stockholders are not obtained at the
Special Meetings or any adjournments thereof; or (v) by the Board of Directors
of M&M if certain fluctuations in the market price of Anchor Common Stock
occur, and Anchor does not exercise its option to increase the M&M Exchange
Ratio as provided in the M&M Agreement. See "THE PROPOSED MERGERS -- M&M Merger
- - -- Termination Provisions."
Effective Date of the M&M Merger
The M&M Merger will be effective on the date and at the time (the "M&M
Effective Date") when the Articles of Merger have been delivered to and
accepted by the Secretary of State of South Carolina for filing. See "THE
PROPOSED MERGERS -- M&M Merger -- M&M Effective Date."
Employment Agreement
On the M&M Effective Date, Anchor will enter into an employment agreement
with Chester A. Duke, the current Chairman, President and Chief Executive
Officer of M&M. See "THE PROPOSED MERGERS -- M&M Merger -- Employment
Agreement."
8
<PAGE>
Interests of Certain Persons in the M&M Merger
In addition to the employment agreement described above, certain members
of M&M's management and its Board of Directors may be deemed to have interests
in the M&M Merger that are in addition to their interests as M&M stockholders
generally. These interests include, among others, (i) the appointment of two
current members of the Boards of Directors of M&M or the M&M Bank to the Board
of Directors of Anchor and the appointment of two such M&M Directors to the
Board of Directors of Anchor Bank, (ii) agreement by Anchor to provide three
years of directors and officers' liability insurance coverage to officers and
directors of M&M and its Subsidiaries, (iii) agreement by Anchor to indemnify
the directors and officers of M&M or any of its Subsidiaries to the fullest
extent permitted by South Carolina law against all liabilities and the expense
of defending claims of liabilities connected with or arising out of such
directors or officers' service as such, and (iv) conversion of certain
outstanding M&M Options granted to certain officers of M&M into options to
acquire Anchor Common Stock in accordance with the M&M Exchange Ratio. See "THE
PROPOSED MERGERS -- Interests of Certain Persons in the Mergers."
Certain Federal Income Tax Consequences
The ComSouth Merger and the M&M Merger have been structured as tax-free
corporate reorganizations for federal income tax purposes, except with respect
to the receipt of cash pursuant to the exercise of dissenters' rights and in
lieu of issuing fractional shares. Consummation of both the ComSouth Merger and
the M&M Merger is subject to the receipt of an opinion of Gerrish & McCreary,
P.C., counsel for Anchor, as to the above tax treatment of the Mergers. The tax
opinion regarding each Merger as issued by Gerrish & McCreary, P.C. has been
received by the parties. See "THE PROPOSED MERGERS -- Material Federal Income
Tax Consequences of the Mergers."
Because of the complexities of federal and state income tax laws, each
Anchor, ComSouth and M&M stockholder is urged to consult with a tax advisor in
order to determine the specific tax consequences to the stockholder as a result
of the respective Mergers, including federal, foreign, state, and local tax
consequences. This Joint Proxy Statement/ Prospectus does not include a
discussion of the tax consequences that may result from any foreign, state,
local, or other tax law. See "THE PROPOSED MERGERS -- Material Federal Income
Tax Consequences of the Mergers."
Accounting Treatment
Each Merger is expected to be accounted for as a pooling-of-interests. See
"THE PROPOSED MERGERS -- Accounting Treatment".
Certain Differences in Stockholders' Rights
On the Effective Dates of the ComSouth Merger and the M&M Merger, ComSouth
and M&M stockholders, respectively, whose rights are governed by the applicable
corporation's Articles of Incorporation and Bylaws and the South Carolina
Business Corporation Act, as amended (the "South Carolina Act"), will
automatically become Anchor stockholders, and their rights as Anchor
stockholders will be determined by Anchor's Articles of Incorporation and
Bylaws and the South Carolina Act.
The rights of Anchor stockholders differ from the rights of ComSouth and
M&M stockholders in certain respects, some of which constitute additional
anti-takeover provisions provided for in the governing documents of Anchor. See
"THE PROPOSED MERGERS -- Certain Differences in Rights of Anchor, ComSouth and
M&M Stockholders."
Resale Restrictions on Affiliates of ComSouth and M&M
ComSouth and M&M have agreed to obtain from each individual identified by
them as affiliates, an agreement providing that such person will not sell or
otherwise transfer any Anchor Common Stock to be received by such person as a
result of the ComSouth Merger or the M&M Merger, except in compliance with the
Securities Act and as permitted under the accounting rules governing the
pooling of interests method of accounting. See "THE PROPOSED MERGERS -- Resales
of Anchor Common Stock to be Received by Certain Stockholders of ComSouth and
M&M."
Directors and Management of Anchor Following the Mergers
Pursuant to the ComSouth Agreement and M&M Agreement and contingent upon
consummation of each Merger transaction:
9
<PAGE>
i. Anchor will appoint and nominate for election four Directors of
ComSouth or the ComSouth Banks and two Directors of M&M or the M&M Bank to
its Board of Directors. As of the date of this Joint Proxy
Statement/Prospectus, Anchor has not determined which persons it will
appoint and nominate for election to its Board of Directors.
ii. Anchor Bank will appoint and nominate for election two Directors of
M&M or the M&M Bank to its Board of Directors. As of the date of this Joint
Proxy Statement/Prospectus, Anchor Bank has not determined which persons it
will appoint to its Board of Directors. See "THE PROPOSED MERGERS --
Directors and Executive Officers Following the Mergers."
Anchor currently has sixteen (16) Directors and its Articles of
Incorporation provide for a maximum of twenty (20) Directors. In order to
accommodate the addition of the six new Directors to the Anchor Board of
Directors described above, if and when the ComSouth Merger and the M&M Merger
are consummated, two of the current Directors of Anchor will resign their
directorships. Mr. Zeb M. Thomas, Sr. and Mr. Admah Lanier, Jr. have submitted
their resignations effective on the Effective Date of the last to close of the
Mergers. The Board of Directors of Anchor has advised Mr. Thomas that he will
be elected by the Board as the non-voting Chairman Emeritus of the Anchor
Board, and Mr. Lanier that he will be elected to the Board of Directors of the
Anchor Bank. The Board of Anchor has indicated its intent to elect Mr. Stephen
L. Chryst as its chairman if the above changes occur.
Risk Factors
In deciding whether to approve the respective ComSouth Merger and M&M
Merger, ComSouth stockholders and M&M stockholders should carefully evaluate
the matters set forth under "RISK FACTORS."
Share Information and Comparative Market Prices
Shares of Anchor Common Stock are traded on the Nasdaq National Market
("Nasdaq") under the symbol "AFSC." As of the Anchor Record Date, there were
approximately shares of Anchor Common Stock outstanding held by
approximately stockholders of record.
Shares of ComSouth Common Stock are traded on the American Stock Exchange
("AMEX") under the symbol "CSB." See "COMPARATIVE MARKET PRICES AND DIVIDENDS
- - -- ComSouth Market Prices." As of the ComSouth Record Date, there were
approximately shares of ComSouth Common Stock outstanding held by
approximately stockholders of record.
There is no established trading market for M&M's Common Stock. Based on
transactions of which M&M management is aware, during the period from May 1,
1997 to May 1, 1998, sales of M&M Common Stock have been effected in a range of
$13.33 to $17.00 per share (sale prices have been retroactively adjusted to
give effect to the three-for-one stock split effected by M&M in 1997). However,
management of M&M has not ascertained that these transactions are the results
of arm's-length negotiations between the parties, and because of the limited
number of shares involved, these prices may not be indicative of the market
value of the M&M Common Stock. See "COMPARATIVE MARKET PRICES AND DIVIDENDS --
M&M Market Prices." As of the M&M Record Date, there were approximately
shares of M&M Common Stock outstanding held by approximately
stockholders of record.
The following table sets forth the closing sales prices reported on Nasdaq
for Anchor Common Stock on April 13, 1998, the last trading date preceding
public announcement of the ComSouth Merger, and April 30, 1998, the last
trading date preceding public announcement of the M&M Merger. It also sets
forth the closing price reported on AMEX for ComSouth Common Stock on April 13,
1998, and the most recent known sales price for M&M Common Stock prior to April
30, 1998, as well as per share equivalent prices for ComSouth Common Stock and
M&M Common Stock on those dates, respectively.
<TABLE>
<CAPTION>
Per Share Price
---------------------------------------
On April 13, 1998 On April 30, 1998
(prior to ComSouth (prior to M&M
announcement) announcement)
-------------------- ------------------
<S> <C> <C>
Anchor Common Stock -- historical ......... $ 44.00 $ 39.25
ComSouth Common Stock
-- historical ............................ $ 30.19
-- equivalent (1) ........................ $ 33.00
M&M Common Stock
-- historical ............................ $ 17.00
-- equivalent (2) ........................ $ 34.15
</TABLE>
10
<PAGE>
- - ---------
(1) The equivalent per share price of ComSouth Common Stock represents the
closing sales price of a share of Anchor Common Stock on that date
multiplied by the ComSouth Exchange Ratio of 0.75.
(2) The equivalent per share price of M&M Common Stock represents the closing
sales price of a share of Anchor Common Stock on that date multiplied by
the M&M Exchange Ratio of 0.87.
The ComSouth and M&M Exchange Ratios may be adjusted as provided in the
ComSouth and M&M Agreements, respectively. Stockholders of Comsouth and M&M are
advised to obtain current market quotations for Anchor Common Stock. No
assurance can be given as to the market price of the Anchor Common Stock at the
Effective Dates of the ComSouth Merger and the M&M Merger. For additional
information regarding the historical market prices of Anchor Common Stock
during the previous two years, see "COMPARATIVE MARKET PRICES AND DIVIDENDS --
Anchor Market Prices."
COMPARATIVE PER SHARE DATA
The following table sets forth at the dates and for the periods indicated,
(i) selected comparative per share data for Anchor, ComSouth and M&M on an
historical basis, and (ii) selected unaudited pro forma comparative per share
data reflecting the consummation of the ComSouth Merger, the M&M Merger and
both the ComSouth and M&M Mergers. The unaudited pro forma data has been
prepared giving effect to each of the Mergers as a pooling-of-interests. This
data should be read in conjunction with the financial statements, related notes
and other financial information for Anchor, ComSouth and M&M incorporated by
reference or set forth elsewhere in this Joint Proxy Statement/Prospectus. The
following information is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
Mergers been consummated at the beginning of the periods presented, nor is it
necessarily indicative of the results of operations of future periods or of
future combined financial position.
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of Anchor,
ComSouth and M&M, including the respective notes thereto, incorporated by
reference or appearing elsewhere herein, and the pro forma financial
information included herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE," "FINANCIAL STATEMENTS OF COMSOUTH," "FINANCIAL STATEMENTS OF M&M,"
and "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
11
<PAGE>
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
----------------- -----------------------------------------
1998 1997 1996 1995
----------------- ------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Anchor historical -- basic ........................ $ 0.43 $ 1.59 $ 1.25 $ 0.93
Anchor historical -- diluted ...................... $ 0.40 $ 1.51 $ 1.21 $ 0.93
ComSouth historical -- basic ...................... $ 0.29 $ 0.98 $ 0.80 $ 0.61
ComSouth historical -- diluted .................... $ 0.27 $ 0.91 $ 0.77 $ 0.60
M&M historical -- basic ........................... $ 0.29 $ 1.12 $ 0.85 $ 0.59
M&M historical -- diluted ......................... $ 0.29 $ 1.12 $ 0.85 $ 0.59
Pro forma combined (unaudited):
Anchor/ComSouth/M&M -- basic (1) .................. $ 0.41 $ 1.45 $ 1.15 $ 0.84
Anchor/ComSouth/M&M -- diluted (1) ................ $ 0.39 $ 1.38 $ 1.11 $ 0.83
Pro forma combined (unaudited):
Anchor/ComSouth -- basic (1) ...................... $ 0.42 $ 1.52 $ 1.17 $ 0.86
Anchor/ComSouth -- diluted (1) .................... $ 0.39 $ 1.43 $ 1.13 $ 0.86
Pro forma combined (unaudited):
Anchor/M&M -- basic (1) ........................... $ 0.41 $ 1.48 $ 1.20 $ 0.88
Anchor/M&M -- diluted (1) ......................... $ 0.39 $ 1.42 $ 1.17 $ 0.88
Pro forma equivalents for ComSouth (unaudited):
Anchor/ComSouth/M&M -- basic (2) ................. $ 0.31 $ 1.09 $ 0.86 $ 0.63
Anchor/ComSouth/M&M -- diluted (2) ............... $ 0.29 $ 1.03 $ 0.84 $ 0.63
Anchor/ComSouth -- basic (2) ..................... $ 0.31 $ 1.14 $ 0.88 $ 0.65
Anchor/ComSouth -- diluted (2) ................... $ 0.30 $ 1.07 $ 0.85 $ 0.64
Pro forma equivalents for M&M (unaudited):
Anchor/ComSouth/M&M -- basic (3) ................. $ 0.36 $ 1.26 $ 1.00 $ 0.73
Anchor/ComSouth/M&M -- diluted (3) ............... $ 0.34 $ 1.20 $ 0.97 $ 0.73
Anchor/M&M -- basic (3) .......................... $ 0.36 $ 1.29 $ 1.04 $ 0.77
Anchor/M&M -- diluted (3) ........................ $ 0.34 $ 1.24 $ 1.02 $ 0.77
CASH DIVIDENDS DECLARED PER COMMON SHARE:
Anchor historical ................................. $ 0.12 $ 0.38 $ 0.28 $ 0.24
ComSouth historical ............................... $ 0.00 $ 0.00 $ 0.00 $ 0.00
M&M historical .................................... $ 0.00 $ 0.37 $ 0.33 $ 0.30
Pro forma equivalents (unaudited):
For ComSouth (4) ................................. $ 0.09 $ 0.28 $ 0.21 $ 0.18
For M&M (4) ...................................... $ 0.10 $ 0.33 $ 0.24 $ 0.21
BOOK VALUE PER COMMON SHARE (PERIOD END):
Anchor historical ................................. $ 10.30 $ 9.95 $ 8.62 $ 7.63
ComSouth historical ............................... $ 7.18 $ 6.90 $ 5.94 $ 5.15
M&M historical .................................... $ 11.66 $ 11.37 $ 10.62 $ 10.10
Pro forma combined (unaudited):
Anchor/ComSouth/M&M (1) ........................... $ 10.05 $ 10.16 $ 8.95 $ 8.01
Pro forma combined (unaudited):
Anchor/ComSouth (1) ............................... $ 9.78 $ 9.75 $ 8.42 $ 7.43
Pro forma combined (unaudited):
Anchor/M&M (1) .................................... $ 10.57 $ 10.47 $ 9.30 $ 8.38
Pro forma equivalents for ComSouth (unaudited):
Anchor/ComSouth/M&M (2) .......................... $ 7.54 $ 7.62 $ 6.71 $ 6.01
Anchor/ComSouth (2) .............................. $ 7.34 $ 7.31 $ 6.32 $ 5.57
Pro forma equivalents for M&M (unaudited):
Anchor/ComSouth/M&M (3) .......................... $ 8.74 $ 8.84 $ 7.79 $ 6.97
Anchor/M&M (3) ................................... $ 9.19 $ 9.11 $ 8.09 $ 7.29
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Anchor historical -- basic ........................ 3,830,637 3,843,227 3,830,103 3,810,744
Anchor historical -- diluted ...................... 4,076,268 4,050,156 3,947,187 3,823,007
ComSouth historical -- basic ...................... 2,341,320 2,311,098 2,287,562 2,260,369
ComSouth historical -- diluted .................... 2,469,695 2,464,833 2,387,573 2,299,470
M&M historical -- basic ........................... 1,006,116 1,006,116 1,006,116 1,006,116
M&M historical -- diluted ......................... 1,013,747 1,006,763 1,006,116 1,006,116
</TABLE>
- - ---------
(1) Represents the combined results of Anchor, ComSouth and/or M&M, as if the
merger(s) were consummated on January 1, 1995 and were accounted for as a
pooling of interests.
12
<PAGE>
(2) Represents pro forma combined information multiplied by the ComSouth
Exchange Ratio of 0.75 of a share of Anchor Common Stock for each share of
ComSouth Common Stock.
(3) Represents pro forma combined information multiplied by the M&M Exchange
Ratio of 0.87 of a share of Anchor Common Stock for each share of M&M
Common Stock.
(4) Represents historical dividends declared per share by Anchor multiplied by
the ComSouth Exchange Ratio of 0.75 of a share of Anchor Common Stock for
each share of ComSouth Common Stock and multiplied by the M&M Exchange
Ratio of 0.87 of a share of Anchor Common Stock for each share of M&M
Common Stock.
SELECTED FINANCIAL INFORMATION
The following table sets forth (i) summary selected financial information
for each of Anchor, ComSouth and M&M on a historical basis, and (ii) summary
unaudited pro forma selected financial information reflecting the consummation
of the ComSouth Merger, the M&M Merger and both the ComSouth and M&M Mergers.
The unaudited pro forma selected financial information assumes consolidation
was effective as of January 1, 1995. The summary selected financial information
for each of Anchor, ComSouth and M&M and the unaudited pro forma selected
financial information have been prepared based on the historical financial
statements of Anchor, ComSouth and M&M for each of the five years in the period
ended December 31, 1997, and the three months ended March 31, 1998 and 1997.
The data should be read in conjunction with the historical financial
statements, related notes and other financial information for Anchor, ComSouth
and M&M incorporated by reference or included elsewhere in this Joint Proxy
Statement/Prospectus. Each Merger is accounted for under the pooling-
of-interests method of accounting. See "THE PROPOSED MERGERS -- Accounting
Treatment." The results of operations for the three month period ended March
31, 1998, may not be indicative of the results of operations to be achieved for
the year ending December 31, 1998, or for future interim periods. The unaudited
pro forma selected financial information does not purport to represent the
actual results of operations or the financial condition of the combined
companies had the Mergers actually occurred in the periods or on the dates
indicated. See "UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS."
13
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------------ -----------------------------------
1998 1997 1997 1996 1995
------------ ----------- ----------- ----------- -----------
(Unaudited)
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
(At end of period)
Total assets
Anchor ........................ $ 624,672 $520,556 $585,397 $493,504 $407,506
ComSouth ...................... 217,375 173,437 205,572 164,634 133,423
M&M ........................... 167,879 143,520 156,271 133,914 117,815
Pro forma combined (unaudited):
Anchor/ComSouth/M&M .......... 1,007,469 836,392 945,303 790,971 658,442
Anchor/ComSouth .............. 839,780 693,195 789,222 657,379 540,690
Anchor/M&M ................... 792,361 663,753 741,478 627,096 525,258
Investments Securities
Anchor ........................ $ 117,679 $107,061 $121,462 $100,231 $ 83,447
ComSouth ...................... 38,173 38,631 43,026 34,106 22,135
M&M ........................... 33,643 37,127 32,875 38,342 40,625
Pro forma combined (unaudited):
Anchor/ComSouth/M&M .......... 187,038 181,698 195,426 171,598 145,740
Anchor/ComSouth .............. 153,585 144,894 162,741 133,578 105,178
Anchor/M&M ................... 151,132 143,865 154,147 138,251 124,009
Loans, net
Anchor ........................ $ 433,270 $362,034 $411,110 $341,604 $282,058
ComSouth ...................... 146,946 118,552 142,671 113,879 91,024
M&M ........................... 112,108 88,024 104,501 79,896 60,525
Pro forma combined (unaudited):
Anchor/ComSouth/M&M .......... 692,324 568,610 658,282 535,379 433,607
Anchor/ComSouth .............. 580,216 480,586 553,781 455,483 373,082
Anchor/M&M ................... 545,378 450,058 515,611 421,500 342,583
Total deposits
Anchor ........................ $ 523,997 $449,346 $493,708 $420,212 $353,876
ComSouth ...................... 192,633 152,811 182,673 145,408 117,763
M&M ........................... 142,320 109,020 130,482 107,473 96,084
Pro forma combined (unaudited):
Anchor/ComSouth/M&M .......... 858,950 711,177 806,863 673,093 567,723
Anchor/ComSouth .............. 716,630 602,157 676,381 565,620 472,639
Anchor/M&M ................... 666,317 558,366 624,190 527,685 449,960
Borrowed funds
Anchor ........................ $ 53,399 $ 33,124 $ 48,100 $ 37,185 $ 22,703
ComSouth ...................... 6,506 5,226 5,615 4,659 2,193
M&M ........................... 11,924 22,013 12,461 14,083 10,248
Pro forma combined (unaudited):
Anchor/ComSouth/M&M .......... 71,829 60,363 66,176 55,927 35,144
Anchor/ComSouth .............. 59,905 38,350 53,715 41,844 24,896
Anchor/M&M ................... 65,323 55,137 60,561 51,268 32,951
Stockholders' equity
Anchor ........................ $ 41,495 $ 33,573 $ 39,528 $ 32,975 $ 28,542
ComSouth ...................... 16,812 14,115 16,016 13,641 11,879
M&M ........................... 11,896 10,983 11,688 10,822 10,158
Pro forma combined (unaudited):
Anchor/ComSouth/M&M .......... 65,503 57,795 65,858 56,587 50,277
Anchor/ComSouth .............. 54,935 47,037 54,298 45,989 40,182
Anchor/M&M ................... 52,063 44,331 51,088 43,573 38,637
</TABLE>
14
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION -- Continued
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- --------------------------------
1998 1997 1997 1996 1995
--------- --------- ---------- ---------- ----------
(Unaudited)
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Net interest income
Anchor ........................ $ 6,286 $5,425 $23,675 $19,784 $16,671
ComSouth ...................... 2,134 1,736 8,013 6,352 5,109
M&M ........................... 1,614 1,525 6,137 5,062 4,394
Pro forma combined (unaudited):
Anchor/ComSouth/M&M ......... 10,034 8,686 37,825 31,199 26,174
Anchor/ComSouth ............. 8,420 7,161 31,688 26,136 21,780
Anchor/M&M .................. 7,900 6,950 29,812 24,847 21,065
Provision for loan losses
Anchor ........................ $ 210 $ 200 $ 910 $ 850 $ 596
ComSouth ...................... 210 15 334 110 195
M&M ........................... 114 84 800 180 39
Pro forma combined (unaudited):
Anchor/ComSouth/M&M ......... 534 299 2,044 1,140 830
Anchor/ComSouth ............. 420 215 1,244 960 791
Anchor/M&M .................. 324 284 1,710 1,030 635
Non-interest income
Anchor ........................ $ 1,104 $1,049 $ 4,313 $ 3,760 $ 2,977
ComSouth ...................... 625 483 1,995 1,646 1,469
M&M ........................... 447 387 1,921 1,330 1,276
Pro forma combined (unaudited):
Anchor/ComSouth/M&M ......... 2,176 1,919 7,971 6,736 5,722
Anchor/ComSouth ............. 1,729 1,532 6,308 5,406 4,446
Anchor/M&M .................. 1,551 1,436 5,976 5,090 4,253
Non-interest expense
Anchor ........................ $ 4,599 $4,180 $17,522 $15,331 $13,560
ComSouth ...................... 1,556 1,368 6,059 5,131 4,576
M&M ........................... 1,533 1,300 5,628 5,091 4,851
Pro forma combined (unaudited):
Anchor/ComSouth/M&M ......... 7,688 6,848 29,209 25,553 22,987
Anchor/ComSouth ............. 6,155 5,548 23,581 20,462 18,136
Anchor/M&M .................. 6,132 5,480 23,150 20,422 18,411
Provision for income taxes
Anchor ........................ $ 938 $ 759 $ 3,442 $ 2,594 $ 1,953
ComSouth ...................... 318 316 1,361 929 426
M&M ........................... 120 165 503 263 187
Pro forma combined (unaudited):
Anchor/ComSouth/M&M ......... 1,376 1,240 5,306 3,951 2,783
Anchor/ComSouth ............. 1,256 1,075 4,803 3,688 2,596
Anchor/M&M .................. 1,058 924 3,945 2,857 2,140
Net income
Anchor ........................ $ 1,643 $1,335 $ 6,114 $ 4,769 $ 3,539
ComSouth ...................... 675 520 2,254 1,828 1,381
M&M ........................... 294 363 1,127 859 593
Pro forma combined (unaudited):
Anchor/ComSouth/M&M ......... 2,612 2,218 9,237 7,291 5,296
Anchor/ComSouth ............. 2,318 1,855 8,368 6,432 4,703
Anchor/M&M .................. 1,937 1,698 6,983 5,628 4,132
</TABLE>
15
<PAGE>
SELECTED FINANCIAL RATIOS
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
------------- ----------------------------------
1998 (2) 1997 1996 1995
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Return on average assets (1)(2)
Anchor .................................... 1.13% 1.13% 1.04% 0.93%
ComSouth .................................. 1.32 1.24 1.30 1.22
M&M ....................................... 0.71 0.76 0.68 0.51
Proforma combined:
Anchor/ComSouth/M&M ...................... 1.10% 1.06% 1.00% 0.87%
Anchor/ComSouth .......................... 1.18 1.16 1.07 0.96
Anchor/M&M ............................... 1.04 1.01 0.96 0.83
Return on average stockholders' equity(1)(2)
Anchor .................................... 16.94% 17.21% 15.38% 12.75%
ComSouth .................................. 16.70 15.19 14.54 12.74
M&M ....................................... 10.10 9.94 8.10 6.09
Proforma combined:
Anchor/ComSouth/M&M ...................... 16.78% 15.19% 13.62% 11.02%
Anchor/ComSouth .......................... 17.85 16.87 14.90 12.26
Anchor/M&M ............................... 15.77 14.94 13.60 11.04
Tier 1 risk-based capital (3)
Anchor .................................... 8.68% 8.79% 9.13% 9.37%
ComSouth .................................. 11.06 10.90 11.90 12.17
M&M ....................................... 9.61 10.00 12.13 14.14
Proforma combined (2):
Anchor/ComSouth/M&M ...................... 8.71% 9.27% 9.13% 10.65%
Anchor/ComSouth .......................... 8.75 9.14 11.90 10.01
Anchor/M&M ............................... 8.65 9.03 9.69 10.31
Total risk-based capital (3)
Anchor .................................... 12.16% 12.42% 13.33% 12.18%
ComSouth .................................. 12.27% 12.10 13.30 13.34
M&M ....................................... 10.47 10.81 13.29 15.29
Proforma combined (2):
Anchor/ComSouth/M&M ...................... 11.29% 11.92% 13.18% 12.88%
Anchor/ComSouth .......................... 11.67 12.17 13.19 12.44
Anchor/M&M ............................... 11.57 12.06 13.28 12.79
Tier 1 leverage (3)
Anchor .................................... 6.70% 6.55% 6.79% 6.76%
ComSouth .................................. 8.21 8.30 10.10 10.42
M&M ....................................... 7.00 7.32 8.04 8.54
Proforma combined (2):
Anchor/ComSouth/M&M ...................... 6.60% 6.90% 7.51% 7.70%
Anchor/ComSouth .......................... 6.68 6.83 7.42 7.52
Anchor/M&M ............................... 6.59 6.70 7.03 7.16
</TABLE>
- - ---------
(1) Information for interim period ended March 31 has been annualized.
(2) Unaudited.
(3) Leverage ratio is Tier 1 capital to average total assets.
16
<PAGE>
RISK FACTORS
In addition to the other information contained in this Joint Proxy
Statement/Prospectus, the following factors should be given careful
consideration by stockholders of Anchor, ComSouth and M&M in evaluating both
the ComSouth Merger and the M&M Merger.
Prospects of Anchor After the Mergers
The banking and financial services industry is highly competitive. To the
extent the present customers of Anchor, ComSouth and M&M are not retained by
Anchor subsequent to the consummation of each Merger or additional expenses are
incurred in retaining them, there could be adverse effects on future results
for the combined companies. Realization of continued profitability is dependent
in part on the extent to which the revenues of Anchor's banking subsidiaries
are maintained after the Mergers. There can be no assurance that Anchor and its
banking subsidiaries will be able to realize the economies of scale, structural
benefits and other benefits anticipated to be received after the Mergers
because of the inherent uncertainties associated with each Merger.
Anchor is an entity separate and distinct from its banking subsidiary, The
Anchor Bank, although the principal source of Anchor's revenues is dividends
from its banking subsidiary operations. Regulations limit the amount of
dividends that may be paid by Anchor's banking subsidiaries without prior
regulatory approval.
Growth and Competition
Anchor has grown and may seek to continue to grow by acquiring other
financial institutions and opening de novo branches. However, the market for
acquisitions of financial institutions is highly competitive. Any acquisitions
will be subject to regulatory approval, and there can be no assurance that
Anchor will obtain such approval. Anchor may not be as successful in the future
as it has been in the past in identifying acquisition candidates, integrating
acquired institutions or preventing deposit erosion at acquired institutions.
Anchor's ability to continue to grow through acquisitions will depend on
maintaining sufficient regulatory capital and on economic conditions.
Anchor's banking subsidiaries have substantial competition for loans and
deposits in the communities they serve. Competition includes other banks,
thrifts and trust companies, credit unions, finance companies, insurance
companies, mortgage banking operations, money market funds and other financial
and non-financial companies which may offer products that are similar or
equivalent to those offered by Anchor and its banking subsidiaries. These
competitors may have greater financial resources than Anchor and offer services
within the market areas served by Anchor's banking operations.
Dependence on Management
Many of the anticipated benefits from an investment in Anchor Common Stock
are dependent upon the ability of Anchor's management to successfully manage
Anchor subsequent to the Mergers. Should the management be unable to
satisfactorily perform its duties, the actual benefits to an investor in Anchor
Common Stock could be substantially less than those anticipated. There is no
guarantee that the current management of Anchor, ComSouth or M&M will continue
to be employed by Anchor and its subsidiaries subsequent to the Mergers. Loss
of the services of certain members of management of Anchor could have a
material adverse effect on Anchor's business and prospects. Anchor believes
that its future success will depend upon its ability to attract, retain and
motivate qualified personnel, and there can be no assurance that Anchor will be
successful in such endeavors.
Anchor's Software Capability to Accommodate the Year 2000
Anchor recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. This issue affects computer systems
that have time-sensitive programs that may not properly recognize the Year
2000. Potential software problems due to processing errors arising from
calculations using the Year 2000 date are a known risk. Early in 1997, Anchor
initiated a corporate-wide plan for the purpose of identifying, evaluating and
implementing changes to computer programs necessary to address the Year 2000
issue. Internal Year 2000 issues are being addressed by Anchor with
modifications to existing programs and conversions to new programs. As a result
of the Mergers, Anchor will need to address the Year 2000 software issues in
regard to converting the systems of ComSouth and M&M. Anchor previously had
scheduled software conversion and renovations to be completed by Anchor as of
December 31, 1998. Additional time may be necessary to complete such
conversions and renovations in regard to the banking subsidiaries of ComSouth
and M&M. Anchor does not expect the costs to be incurred with the required
modifications and conversions to be material to Anchor's financial position,
but there can be no assurance as to the amount of such costs at this time.
17
<PAGE>
THE SPECIAL MEETINGS
THE ANCHOR SPECIAL MEETING
Purposes of the Anchor Special Meeting
This Joint Proxy Statement/Prospectus is being furnished to the holders of
Anchor Common Stock in connection with the solicitation by the Anchor Board of
Directors of proxies for use at the Anchor Special Meeting at which Anchor
stockholders are being asked to vote upon proposals:
(i) to approve the ComSouth Agreement, dated April 14, 1998, which
provides for the following:
ComSouth will merge into Anchor, and each share of ComSouth Common Stock,
no par value, issued and outstanding, other than shares whose holders
have perfected their rights to dissent to the ComSouth Merger and shares
of ComSouth owned by Anchor, will be converted into and exchanged for
0.75 shares of newly-issued Anchor Common Stock, no par value, and all
options to purchase shares of ComSouth Common Stock then outstanding will
be converted into options to purchase shares of Anchor Common Stock on
the basis of 0.75 Anchor Common Stock shares for each option to purchase
one share of ComSouth Common Stock. Anchor will survive the ComSouth
Merger and the former stockholders of ComSouth will become stockholders
of Anchor. No fractional shares of Anchor Common Stock will be issued.
The former ComSouth stockholders entitled to fractional shares of Anchor
Common Stock will be paid cash by Anchor in lieu of any fractional share
interest to which ComSouth stockholders will be entitled upon
consummation of the ComSouth Merger, based on the last sale price of
Anchor Common stock on The Nasdaq Stock Market (as reported by The Wall
Street Journal, or, if not reported thereby, by another authoritative
source selected by Anchor) on the last trading date immediately preceding
the effective date of the ComSouth Merger; and
(ii) to approve the M&M Agreement, dated May 15, 1998, which provides for
the following:
M&M will merge into Anchor, and each share of M&M Common Stock, $5.00 par
value, issued and outstanding, other than shares whose holders have
perfected their rights to dissent to the M&M Merger, will be converted
into and exchanged for 0.87 shares of newly-issued Anchor Common Stock,
no par value, and all options to purchase shares of M&M Common Stock then
outstanding will be converted into options to purchase shares of Anchor
Common Stock on the basis of 0.87 Anchor Common Stock shares for each
option to purchase one share of M&M Common Stock. Anchor will survive the
M&M Merger and the former stockholders of M&M will become stockholders of
Anchor. No fractional shares of Anchor Common Stock will be issued. The
former M&M stockholders entitled to fractional shares of Anchor Common
Stock will be paid cash by Anchor in lieu of any fractional share
interest to which M&M stockholders will be entitled upon consummation of
the M&M Merger, based on the last sale price of Anchor Common stock on
The Nasdaq Stock Market (as reported by The Wall Street Journal, or, if
not reported thereby, by another authoritative source selected by Anchor)
on the last trading date immediately preceding the effective date of the
M&M Merger.
Time, Date and Place of the Anchor Special Meeting
The Anchor Special Meeting of Stockholders will be held at .m., local
time, on , 1998, at .
Record Date and Securities Entitled to Vote at the Anchor Special Meeting
Only the record holders of Anchor Common Stock at the close of business on
, 1998, are entitled to notice of and to vote at the Anchor Special
Meeting and any postponements or adjournments thereof. On that date, there were
shares of Anchor Common Stock outstanding, with each share being entitled
to one vote on each matter properly to come before the Anchor Special Meeting.
Required Anchor Vote
Both the ComSouth Agreement AND the M&M Agreement must be approved by the
---
affirmative vote of the holders of two-thirds of the outstanding shares of
Anchor Common Stock. Accordingly, abstentions and broker non-votes will have
the same effect as votes against approval of the ComSouth Agreement and the M&M
Agreement. As of , 1998, Anchor's directors and executive officers
beneficially owned as a group shares ( %) of the outstanding Anchor
Common Stock. The directors and executive officers of Anchor have indicated
their intention to vote all their shares in favor of approval of both the
ComSouth Merger and the M&M Merger.
18
<PAGE>
Voting and Revocation of Anchor Proxies
The Proxies for Anchor stockholders which accompany this Joint Proxy
Statement/Prospectus permit each holder of record of Anchor Common Stock, on
the record date, to vote on all matters to come before the Anchor Special
Meeting. Anchor Common Stock represented by properly executed Proxies, unless
previously revoked, will be voted at the Anchor Special Meeting in accordance
with the instructions on the Proxy. If no instructions are indicated, the
shares will be voted FOR approval of both the ComSouth Merger and the M&M
Merger.
No additional business is presently anticipated to be conducted at the
Anchor Special Meeting, and it is not anticipated that other matters will be
brought before the Anchor Special Meeting. If, however, other appropriate
matters are brought before the Anchor Special Meeting, the persons appointed as
Proxies will have discretion to vote or act on those matters according to their
best judgment.
An Anchor stockholder executing and returning a Proxy has the power to
revoke it at any time before it is voted. An Anchor stockholder who wishes to
revoke a proxy may do so by filing with the Secretary of Anchor, a written
revocation or a duly executed Proxy bearing a later date or by voting in person
at the Anchor Special Meeting. ATTENDANCE AT THE ANCHOR SPECIAL MEETING ALONE
DOES NOT REVOKE A PROXY. Written revocation can be made to Mr. Tommy E. Looper,
Secretary, Anchor Financial Corporation, 2002 Oak Street, Myrtle Beach, South
Carolina 29577.
Solicitation of Proxies by Anchor
In addition to solicitation by mail, directors, officers and other
employees of Anchor who will not be specially compensated for such service, may
solicit Proxies from the stockholders of Anchor personally or by telephone or
by telegraph or other forms of communication. Brokerage houses, banks and other
custodians, nominees and fiduciaries will be requested to forward the
solicitation to the beneficial owners and to obtain authorization for the
execution of Proxies. Upon request, those persons and entities will be
reimbursed for their reasonable expenses incurred in forwarding the Joint Proxy
Statement/ Prospectus to beneficial owners of Anchor Common Stock.
Each party to each Merger will bear its own costs and expenses of
soliciting proxies from its respective stockholders and the printing costs and
expenses incurred in connection with this Joint Proxy Statement/Prospectus and
the associated Registration Statement to be filed by Anchor with the
Commission.
Anchor Stockholder Proposals for Next Annual Meeting
Any proposal that an Anchor stockholder intends to present at Anchor's
1999 Annual Meeting must be received at Anchor's principal offices (2002 Oak
Street, Myrtle Beach, South Carolina 29577, Attention: Corporate Secretary) not
later than November 30, 1998. Any such proposal must comply with Rule 14a-8 of
Regulation 14A of the proxy rules of the Securities and Exchange Commission.
19
<PAGE>
THE COMSOUTH SPECIAL MEETING
Purposes of the ComSouth Special Meeting
This Joint Proxy Statement/Prospectus is being furnished to the holders of
ComSouth Common Stock in connection with the solicitation by the ComSouth Board
of Directors of proxies for use at the ComSouth Special Meeting at which
ComSouth stockholders will asked to vote upon a proposal to approve the
ComSouth Agreement, dated April 14, 1998, which provides for the following:
ComSouth will merge into Anchor, and each share of ComSouth Common Stock,
no par value, issued and outstanding, other than shares whose holders have
perfected their rights to dissent to the ComSouth Merger and shares of
ComSouth owned by Anchor, will be converted into and exchanged for 0.75
shares of newly-issued Anchor Common Stock, no par value, and all options
to purchase shares of ComSouth Common Stock then outstanding will be
converted into options to purchase shares of Anchor Common Stock on the
basis of 0.75 Anchor Common Stock shares for each option to purchase one
share of ComSouth Common Stock. Anchor will survive the ComSouth Merger
and the former stockholders of ComSouth will become stockholders of
Anchor. No fractional shares of Anchor Common Stock will be issued. The
former ComSouth stockholders entitled to fractional shares of Anchor
Common Stock will be paid cash by Anchor in lieu of any fractional share
interest to which ComSouth stockholders will be entitled upon consummation
of the ComSouth Merger, based on the last sale price of Anchor Common
Stock on The Nasdaq Stock Market (as reported by The Wall Street Journal,
or, if not reported thereby, by another authoritative source selected by
Anchor) on the last trading date immediately preceding the effective date
of the ComSouth Merger.
Time, Date and Place of the ComSouth Special Meeting
The ComSouth Special Meeting of Stockholders will be held at
.m., local time, on , 1998, at
.
Record Date and Securities Entitled to Vote at the ComSouth Special Meeting
Only the record holders of ComSouth Common Stock at the close of business
on , 1998, are entitled to notice of and to vote at the ComSouth
Special Meeting and any postponements or adjournments thereof. On that date,
there were shares of ComSouth Common Stock outstanding, with each
share being entitled to one vote on each matter properly to come before the
ComSouth Special Meeting.
Required ComSouth Vote
The ComSouth Agreement must be approved by the affirmative vote of the
holders of two-thirds of the outstanding shares of ComSouth Common Stock.
Accordingly, abstentions and broker non-votes will have the same effect as
votes against approval of the ComSouth Agreement and the M&M Agreement. As of
, 1998, ComSouth's directors, executive officers and three holders
of 5% or more of the ComSouth Common Stock, beneficially owned as a group
shares ( %) of the outstanding ComSouth Common Stock. The
directors and executive officers of ComSouth have indicated their intention to
vote all their shares in favor of approval of the ComSouth Merger.
Voting and Revocation of ComSouth Proxies
The Proxies for ComSouth stockholders which accompany this Joint Proxy
Statement/Prospectus permit each holder of record of ComSouth Common Stock, on
the record date, to vote on all matters to come before the ComSouth Special
Meeting. ComSouth Common Stock represented by properly executed Proxies, unless
previously revoked, will be voted at the ComSouth Special Meeting in accordance
with the instructions on the Proxy. If no instructions are indicated, the
shares will be voted FOR approval of the ComSouth Merger.
No additional business is presently anticipated to be conducted at the
ComSouth Special Meeting, and it is not anticipated that other matters will be
brought before the ComSouth Special Meeting. If, however, other appropriate
matters are brought before the ComSouth Special Meeting, the persons appointed
as Proxies will have discretion to vote or act on those matters according to
their best judgment.
20
<PAGE>
A ComSouth stockholder executing and returning a Proxy has the power to
revoke it at any time before it is voted. A ComSouth stockholder who wishes to
revoke a Proxy may do so by filing with the Secretary of ComSouth, a written
revocation or a duly executed Proxy bearing a later date or by voting in person
at the ComSouth Special Meeting. ATTENDANCE AT THE COMSOUTH SPECIAL MEETING
ALONE DOES NOT REVOKE A PROXY. Written revocation can be made to Harry R.
Brown, Secretary, ComSouth Bankshares, Inc., 1136 Washington Street, Suite 200,
Columbia, South Carolina 29201.
Solicitation of Proxies of ComSouth
In addition to solicitation by mail, directors, officers and other
employees of ComSouth, who will not be specially compensated for such service,
may solicit Proxies from the stockholders of ComSouth, personally or by
telephone or by telegraph or other forms of communication. Brokerage houses,
banks and other custodians, nominees and fiduciaries will be requested to
forward the solicitation to the beneficial owners and to obtain authorization
for the execution of Proxies. Upon request, those persons and entities will be
reimbursed for their reasonable expenses incurred in forwarding the Joint Proxy
Statement/Prospectus to beneficial owners of ComSouth Common Stock.
Each party to the ComSouth Merger will bear its own costs and expenses of
soliciting proxies from its respective stockholders and the printing costs and
expenses incurred in connection with this Joint Proxy Statement/Prospectus and
the associated Registration Statement to be filed by Anchor with the
Commission.
COMSOUTH STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARD.
ComSouth Stockholder Proposals for Next Annual Meeting
Any stockholder of ComSouth desiring to present a proposal for action at
ComSouth's 1999 Annual Meeting of Stockholders must deliver the proposal to the
executive offices of ComSouth no later than December 5, 1998. Only proper
proposals that are timely received will be included in ComSouth's Proxy
Statement and Proxy.
THE M&M SPECIAL MEETING
Purposes of the M&M Special Meeting
This Joint Proxy Statement/Prospectus is being furnished to the holders of
M&M Common Stock in connection with the solicitation by the M&M Board of
Directors of proxies for use at the M&M Special Meeting at which M&M
stockholders will asked to vote upon a proposal to approve the M&M Agreement,
dated May 15, 1998, which provides for the following:
M&M will merge into Anchor, and each share of M&M Common Stock, $5.00 par
value, issued and outstanding, other than shares whose holders have
perfected their rights to dissent to the M&M Merger, will be converted
into and exchanged for 0.87 shares of newly-issued Anchor Common Stock, no
par value, and all options to purchase shares of M&M Common Stock then
outstanding will be converted into options to purchase shares of Anchor
Common Stock on the basis of 0.87 Anchor Common Stock shares for each
option to purchase one share of M&M Common Stock. Anchor will survive the
M&M Merger and the former stockholders of M&M will become stockholders of
Anchor. No fractional shares of Anchor Common Stock will be issued. The
former M&M stockholders entitled to fractional shares of Anchor Common
Stock will be paid cash by Anchor in lieu of any fractional share interest
to which M&M stockholders will be entitled upon consummation of the M&M
Merger, based on the last sale price of Anchor Common Stock on The Nasdaq
Stock Market (as reported by The Wall Street Journal, or, if not reported
thereby, by another authoritative source selected by Anchor) on the last
trading date immediately preceding the effective date of the M&M Merger.
Time, Date and Place of the M&M Special Meeting
The M&M Special Meeting of Stockholders will be held at .m.,
local time, on , 1998, at .
Record Date and Securities Entitled to Vote at the M&M Special Meeting
Only the record holders of M&M Common Stock at the close of business on
, 1998, are entitled to notice of and to vote at the M&M Special
Meeting and any postponements or adjournments thereof. On that
21
<PAGE>
date, there were shares of M&M Common Stock outstanding, with each
share being entitled to one vote on each matter properly to come before the M&M
Special Meeting.
Required M&M Vote
The M&M Agreement must be approved by the affirmative vote of the holders
of two-thirds of the outstanding shares of M&M Common Stock. Accordingly,
abstentions and broker non-votes will have the same effect as votes against
approval of the M&M Agreement. As of , 1998, M&M's directors and
executive officers beneficially owned as a group shares ( %) of the
outstanding M&M Common Stock. The directors and executive officers of M&M have
indicated their intention to vote all their shares in favor of approval of the
M&M Merger.
Voting and Revocation of M&M Proxies
The Proxies for M&M stockholders which accompany this Joint Proxy
Statement/Prospectus permit each holder of record of M&M Common Stock, on the
record date, to vote on all matters to come before the M&M Special Meeting. M&M
Common Stock represented by properly executed Proxies, unless previously
revoked, will be voted at the M&M Special Meeting in accordance with the
instructions on the Proxy. If no instructions are indicated, the shares will be
voted FOR approval of the M&M Merger.
No additional business is presently anticipated to be conducted at the M&M
Special Meeting, and it is not anticipated that other matters will be brought
before the M&M Special Meeting. If, however, other appropriate matters are
brought before the M&M Special Meeting, the persons appointed as Proxies will
have discretion to vote or act on those matters according to their best
judgment.
An M&M stockholder executing and returning a Proxy has the power to revoke
it at any time before it is voted. An M&M stockholder who wishes to revoke a
Proxy may do so by filing with the Secretary of M&M, a written revocation or a
duly executed Proxy bearing a later date or by voting in person at the M&M
Special Meeting. ATTENDANCE AT THE M&M SPECIAL MEETING ALONE DOES NOT REVOKE A
PROXY. Written revocation can be made to Marion E. Freeman, Secretary, M&M
Financial Corporation, 307 North Main Street, Marion, South Carolina 29571.
Solicitation of Proxies by M&M
In addition to solicitation by mail, directors, officers and other
employees of M&M, who will not be specially compensated for such service, may
solicit Proxies from the stockholders of M&M, personally or by telephone or by
telegraph or other forms of communication. Brokerage houses, banks and other
custodians, nominees and fiduciaries will be requested to forward the
solicitation to the beneficial owners and to obtain authorization for the
execution of Proxies. Upon request, those persons and entities will be
reimbursed for their reasonable expenses incurred in forwarding the Joint Proxy
Statement/ Prospectus to beneficial owners of M&M Common Stock.
Each party to the M&M Merger will bear its own costs and expenses of
soliciting proxies from its respective stockholders and the printing costs and
expenses incurred in connection with this Joint Proxy Statement/Prospectus and
the associated Registration Statement to be filed by Anchor with the
Commission.
M&M STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARD.
M&M Stockholder Proposals for Next Annual Meeting
Any M&M stockholder desiring to present a proposal for action at M&M's
1999 Annual Meeting of Stockholders must deliver the proposal to the executive
offices of M&M no later than December 4, 1998. Only proper proposals that are
timely received will be included in M&M's Proxy Statement and Proxy.
THE PROPOSED MERGERS
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Mergers. The following descriptions do not purport to be
complete and are qualified in their entirety by reference to the ComSouth
Agreement, which is attached as Appendix A to this Joint Proxy
Statement/Prospectus and incorporated herein by reference, and to the M&M
Agreement, which is attached as Appendix B to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. All stockholders of
Anchor, ComSouth and M&M are urged to read the ComSouth Agreement and the M&M
Agreement carefully and in their entirety.
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General
The two proposed merger transactions, the ComSouth Merger and the M&M
Merger, are separate and distinct transactions. The consummation of one merger
transaction is not dependent upon the other. The stockholders of ComSouth are
being asked to approve the ComSouth Merger only, and the stockholders of M&M
are being asked to approve the M&M Merger only. The stockholders of Anchor are
being asked to approve the ComSouth Merger as one transaction and the M&M
Merger as another transaction. Both merger transactions are discussed herein.
Background of the Mergers
Anchor
Anchor has expanded its operations along the coasts of North and South
Carolina through earlier acquisitions and the opening of new branches in
certain coastal communities. Further, Anchor has experienced significant
internal growth in recent years. Considering its strategic plan for growth,
Anchor's management believed a well executed acquisition plan in concert with
internal growth would allow Anchor to achieve certain benefits while
maintaining loan quality and safe operations. The proposed Mergers expand
Anchor's market areas beyond the coasts of North Carolina and South Carolina
into the Pee Dee and Midlands areas of the State of South Carolina, a strategy
designed to diversify and strengthen Anchor's market areas. Management of
Anchor has continually evaluated acquisition opportunities that would allow the
company to achieve economies of scale and improve Anchor's ability to compete
with the many larger financial institutions doing business in Anchor's market
areas. Management of Anchor believes that the proposed Mergers will enable the
combined companies to better respond to the needs of Anchor's customers and the
communities served and allow the stockholders of Anchor to participate in a
financial institution with greater financial resources, a larger number of
banking locations and diverse and larger market areas.
ComSouth
During the last several years there have been significant developments in
the banking and financial services industry. These developments have included
increased emphasis and dependence on automation, specialization of products and
services, increased competition from other financial institutions, and a trend
toward consolidation and geographic expansion, coupled with a relaxation of
regulatory restrictions on interstate conduct of business of financial
institutions.
In January 1998, the senior management of ComSouth and its subsidiary
banks met to review ComSouth's strategic plans for the future. They concluded
that ComSouth would have to raise a substantial amount of capital in order to
support a level of growth that would be consistent with increasing shareholder
value at a competitive rate. They determined that ComSouth would have to
acquire additional managerial resources in order to provide such growth. They
also considered the possibility that the interest of the shareholders might be
better advanced by ComSouth's combining forces with another institution. Also
in January, ComSouth was approached by Baxter Fentriss and Company ("Baxter
Fentriss") to provide investment banking services. Baxter Fentriss was invited
to present its view of the options available to ComSouth to senior management
on January 23, 1998. As a result of this meeting, senior management unanimously
requested that the chief executive officer present to the executive committee
of the ComSouth Board the managers' belief that the most beneficial path for
ComSouth would be to combine with a larger entity. The proposal was reviewed by
the executive committee on January 27, 1998. The executive committee then
authorized the chief executive officer of ComSouth to engage an investment
banker for the purpose of soliciting proposals for the potential acquisition of
ComSouth. Subsequently, the chief executive officer of ComSouth engaged Baxter
Fentriss as ComSouth's financial advisor.
Baxter Fentriss and the senior management of ComSouth prepared an
information memorandum concerning ComSouth for the use of potential acquirors.
Baxter Fentriss also reviewed with senior management a list of institutions
that might have an interest in ComSouth. Several were eliminated from further
consideration because of the reluctance of senior employees to work for them,
the perceived quality of their management, the focus of their business and
other reasons. In March 1998, Baxter Fentriss began contacting the potential
acquirors remaining on the list. Baxter Fentriss contacted or obtained
information about the current acquisition policies of twelve such institutions,
including Anchor. During March and the first week of April 1998, Baxter
Fentriss received proposals from four financial institutions expressing a
definite quantified interest in acquiring ComSouth.
On March 12, 1998, Baxter Fentriss contacted Mr. Stephen L. Chryst,
President of Anchor. Baxter Fentriss indicated to Mr. Chryst that his firm had
been engaged to explore the possible sale of ComSouth, and he asked if Anchor
would be interested in receiving information regarding ComSouth. Mr. Chryst
asked that the confidential information be sent to
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Anchor. Mr. Chryst discussed the possible acquisition of ComSouth with
management and the Board of Directors of Anchor. On March 31, 1998, Anchor
forwarded a written proposal to Baxter Fentriss regarding the possible
acquisition of ComSouth by Anchor.
On April 3, 1998, Baxter Fentriss and ComSouth's counsel met with
management of ComSouth to review the proposals, including the proposal from
Anchor. Management of ComSouth concluded that the Anchor proposal was the
proposal which was most favorable to ComSouth's shareholders, employees and the
communities in which it operated and decided to recommend the Anchor proposal
to the Board of Directors of ComSouth.
The Board of Directors of ComSouth met on April 10, 1998, with
representatives from Baxter Fentriss and counsel. The ComSouth Board reviewed
its obligation under the ComSouth Articles of Incorporation to consider the
interests of its employees and the communities in which it and its subsidiaries
operate in addition to the interests of the ComSouth shareholders when
considering a merger transaction. The ComSouth Board then reviewed the proposal
of Anchor as well as the other three proposals received by Baxter Fentriss.
Representatives of Anchor were invited to make a presentation about Anchor and
its plans for the future including its proposal to acquire ComSouth. The
ComSouth Board then voted to pursue a transaction with Anchor and authorized
the officers of ComSouth to negotiate the terms of a definitive agreement with
Anchor.
The Board of Directors of ComSouth met again on April 13, 1998, to
consider and discuss the proposed definitive agreement between Anchor and
ComSouth. The terms of the ComSouth Agreement were reviewed with the Board of
Directors by counsel. Baxter Fentriss stated that in its opinion, the terms of
the ComSouth Merger are fair to the ComSouth stockholders from a financial
point of view. After lengthy discussion, the Board of Directors unanimously
agreed to approve the ComSouth Agreement and to recommend approval of the
transaction to the ComSouth stockholders.
In reaching its determination that the ComSouth Agreement is fair to, and
in the best interests of, ComSouth and its shareholders, as well as ComSouth
employees and the communities served by ComSouth and its subsidiaries, the
ComSouth Board consulted with its legal advisors and Baxter Fentriss as well as
ComSouth's management and considered a number of factors including the
following:
(i) ComSouth's business, operations, earnings, managerial requirements
and resources, prospects and financial condition;
(ii) Anchor's business, operations, earnings and financial condition and
lending capacity on both an historical and prospective basis, the enhanced
opportunities for operating efficiencies that could result from the
ComSouth Merger, the enhanced opportunities for growth in ComSouth's market
areas that the ComSouth Merger would make possible and the respective
contributions the parties would bring to the combined institution;
(iii) ComSouth Board's belief that Anchor would retain valued ComSouth
employees and continue to make substantial contributions in the communities
served by ComSouth;
(iv) The terms of the ComSouth Agreement and Baxter Fentriss' assessment
that, based on historical stock prices and prevailing market price for the
Anchor Common Stock during the week immediately preceding April 13, 1998,
the consideration to be received by the ComSouth shareholders was fair to
the ComSouth shareholders from a financial point of view;
(v) Anchor as an ongoing institution and its growth, asset quality,
reserves for losses, capital adequacy and profitability;
(vi) The liquidity of the Anchor Common Stock and the number of
unaffiliated shareholders of Anchor;
(vii) Alternatives to the ComSouth Merger, including the alternatives of
remaining independent and growing internally or remaining independent for a
period and then selling ComSouth;
(viii) Possible affiliation partners for ComSouth (other than Anchor),
the prospects of such other possible affiliation partners and the
consideration proposed by such other affiliation partners;
(ix) The expectation that the ComSouth Merger will be a tax free
transaction to ComSouth and its shareholders;
(x) The factors that may affect the market value of Anchor Common Stock
in the near future and the long term;
(xi) The current and prospective economic environment, competitive
constraints and regulatory burdens facing financial institutions including
ComSouth; and
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(xii) The terms of the ComSouth Agreement were the result of arms-length
negotiations between representatives of ComSouth and Anchor.
The ComSouth Board of Directors did not assign any specific or relative
weight to the foregoing factors in their consideration.
Subsequent to the signing of the ComSouth Agreement, ComSouth retained
Interstate/Johnson Lane Corporation ("Interstate") to render an opinion as to
the fairness of the proposed ComSouth Merger from a financial point of view to
ComSouth stockholders. The Interstate firm issued its opinion dated May 29,
1998, that the proposed ComSouth Merger is fair from a financial point of view
to ComSouth's stockholders. See "COMSOUTH MERGER -- Opinion of ComSouth's
Financial Advisor."
THE BOARD OF DIRECTORS OF COMSOUTH BELIEVES THAT THE COMSOUTH MERGER IS IN
THE BEST INTERESTS OF THE COMSOUTH STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A
VOTE "FOR" APPROVAL OF THE COMSOUTH AGREEMENT.
M&M
For a number of years, management of M&M has recognized that the
opportunities for M&M to grow within the confines of Marion County were limited
and that any significant growth for M&M would have to come from outside the
county. Accordingly, M&M opened branches in Florence and the Myrtle Beach area.
By the first part of 1998, it was apparent that M&M would require additional
capital in order to be able to continue its planned growth. As an interim step,
management decided to borrow funds from another financial institution and asked
Anchor to consider a line of credit to M&M. The line of credit was approved by
Anchor, and on April 20, 1998, the senior officers of M&M went to Anchor to
deliver the executed line of credit documentation. During that meeting, a
discussion of the possibility of combining the two companies arose, and Anchor
mentioned parameters of possible pricing and terms if M&M were interested in
continuing the discussions. M&M's officers stated that they would present this
possibility to M&M's Board of Directors. Subsequent to that meeting, Anchor's
senior officers reviewed available information regarding M&M and continued
Anchor's analysis of a possible acquisition of M&M. The following week, the M&M
Board met on April 28, 1998, to review the suggested terms and whether a merger
at this time would be in the best interests of M&M and its shareholders.
Anchor determined that a proposal for a merger should be submitted to M&M
for consideration. On April 29, 1998, Anchor delivered a written proposal to
M&M regarding an acquisition of M&M by Anchor. On April 29, 1998, the M&M Board
met and, together with members of the executive committee of the board of
directors of M&M's subsidiary bank, listened to a presentation by
representatives of Anchor regarding the Anchor proposal and Anchor's plans for
the future, if a merger with M&M were to be consummated. The M&M Board
requested that Anchor increase the consideration that would be received by M&M
shareholders and Anchor agreed to do so. The M&M Board and members of the board
of directors of M&M's subsidiary bank met on April 30, 1998, to consider the
Anchor proposal. The M&M Board then voted to enter into a letter of intent with
Anchor and a public announcement was made on May 1, 1998, that M&M and Anchor
had signed a letter of intent to merge.
During the first two weeks in May 1998, representatives of M&M and Anchor
negotiated the terms of the M&M Agreement and representatives of each of Anchor
and M&M conducted due diligence investigations of the other party. M&M neither
received nor sought other proposals. On May 14, 1998, the Board of Directors of
M&M, together with five directors of M&M's subsidiary bank and M&M's counsel,
reviewed in detail the M&M Agreement and the proposed merger between M&M and
Anchor. After a thorough discussion of the terms of the M&M Agreement, the M&M
Board voted to enter into the M&M Agreement and to recommend approval of the
M&M Agreement to the M&M shareholders.
In reaching its determination that the M&M Agreement is fair to, and in
the best interests of, M&M and its shareholders, the M&M Board consulted with
its legal advisors and M&M's management and considered a number of factors
including the following:
(i) M&M's business, operations, earnings, managerial requirements and
resources, prospects and financial condition;
(ii) Anchor's business, operations, earnings, financial condition and
lending capacity on both an historical and prospective basis;
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(iii) The enhanced opportunities for operating efficiencies that could
result from the M&M Merger, the enhanced opportunities for growth in M&M's
market areas that the M&M Merger would make possible and the respective
contributions the parties would bring to a combined institution;
(iv) The M&M Board's belief that Anchor would retain valued M&M employees
and continue to make substantial contributions in the communities served by
M&M;
(v) The terms of the M&M agreement and the value of the Anchor Common
Stock to be received by M&M shareholders;
(vi) Anchor as an ongoing institution and its growth prospects, asset
quality, reserves for losses, capital adequacy and profitability;
(vii) The liquidity of the Anchor Common Stock and the number of
unaffiliated shareholders of Anchor;
(viii) Alternatives to the M&M Merger, including the alternatives of
remaining independent and growing internally, or remaining independent for
a period of time and then selling;
(ix) Possible affiliation partners for M&M (other than Anchor), prospects
for such other possible affiliation partners, and the consideration which
might be available from such other partners;
(x) The expectation that the M&M Merger will be a tax free transaction to
M&M and its shareholders;
(xi) Factors that may affect the market value of Anchor Common Stock in
the near future and the long term;
(xii) Current and prospective economic environment, competitive
constraints and regulatory burdens facing financial institutions, including
M&M; and
(xiii) The terms of the M&M Agreement were the result of arm's length
negotiations between representatives of M&M and Anchor.
The M&M Board of Directors did not assign any specific or relative weight
to the foregoing factors in their consideration.
Subsequent to the execution of the M&M Agreement, M&M retained the
investment banking firm of Orr Management Company ("Orr") to render an opinion
as to the fairness of the proposed M&M Merger from a financial point of view to
stockholders of M&M. The Orr firm issued its opinion as of May 15, 1998, that
the proposed M&M Merger is fair from a financial point of view to M&M's
stockholders. See "M&M Merger -- Opinion of M&M's Financial Advisor."
THE BOARD OF DIRECTORS OF M&M BELIEVES THAT THE M&M MERGER IS IN THE BEST
INTERESTS OF THE M&M STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE "FOR"
APPROVAL OF THE M&M AGREEMENT.
Reasons for the Mergers
As discussed above, the terms of each Merger Agreement were agreed upon as
a result of the negotiations between the respective parties to each Agreement.
The Agreements were entered into by each party after consideration of various
factors. In determining the amount and nature of consideration to be received
by the stockholders of each institution (including the Exchange Ratios), the
parties and the Boards of Directors of each party considered, among other
factors, the historical and projected growth rates of the each party, the
proximity of the parties' market areas, the compatibility and similar
philosophies of management and the Board of Directors of the parties, the
efficiencies of operations to be gained by each Merger, each party's dividend
records, the amount of dilution of ownership and future earnings to current
stockholders of Anchor, the market for each party's common stock and the
prospects to better serve the customer needs of all parties.
The Board of Directors of each Party to each Agreement believes that the
Merger provided for in the respective Agreement is fair and equitable and in
the best interests of the party and its stockholders. The Board of Directors of
each party to each Agreement believes that the respective Merger to which it is
a party will (i) provide opportunities to achieve economies of scale that
should increase the efficiency and profitability of the combined companies;
(ii) permit more effective management of the combined companies; and, (iii)
provide certain structural and technological benefits. In addition, the greater
financial resources, more efficient and greater depth of management and
structural benefits resulting from the respective Merger transactions are
expected to improve the ability of the combined companies to compete with the
many financial institutions doing business in each market area; result in each
institution's being better able to respond to technological changes; enable
each institution to better respond to the needs of its customers and the
communities it services; and allow
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the stockholders of each institution to participate in a financial institution
which has greater financial resources, a larger number of banking locations and
more markets than each institution has at the present time.
Operational efficiencies as a result of the respective Mergers will be
achieved primarily through the combination and standardization of the
operational and administrative functions of the companies and their subsidiary
banks. Efficiencies and cost savings also are expected to be achieved through
the consolidation of certain employee benefit plans; the reduction in the
number of holding company and bank regulatory examinations and reports to be
filed with various regulatory authorities; the bidding of insurance coverage;
the greater overall purchasing power to be obtained as a combined entity; and
significant operational efficiencies that will result from the leveraging of
Anchor's present resources. In addition, the reorganization will allow for the
independent audit of the consolidated financial statements of one entity as
opposed to three separate independent audits of Anchor, ComSouth and M&M.
The reorganization of management of the various parties also will allow
for promotions within a larger entity across organizational lines; delete
and/or significantly reduce the duplication of managerial efforts; allow each
entity access to the personnel and management capabilities of the other
entities; and allow for the formation and implementation of consistent policies
among the entities.
Opinion of Anchor's Financial Advisor
Pursuant to a letter agreement dated as of March 30, 1998, Anchor retained
Sandler O'Neill as an independent financial advisor in connection with Anchor's
consideration of a possible business combination with ComSouth. Pursuant to a
letter agreement dated as of , 1998, Anchor also retained Sandler O'Neill
to render an opinion as to the fairness, from a financial point of view, of the
M&M Exchange Ratio to the stockholders of Anchor. Sandler O'Neill is a
nationally recognized investment banking firm whose principal business
specialty is banks and savings institutions. In the ordinary course of its
investment banking business, Sandler O'Neill is regularly engaged in the
valuation of such businesses and their securities in connection with mergers
and acquisitions and other corporate transactions.
In connection with its consideration of the ComSouth Merger, the Board of
Directors of Anchor requested Sandler O'Neill to render its opinion as to the
fairness of the ComSouth Exchange Ratio to the stockholders of Anchor from a
financial point of view. On April 13, 1998, Sandler O'Neill delivered to the
Anchor Board of Directors its oral opinion, subsequently confirmed in writing,
that, as of such date, the ComSouth Exchange Ratio was fair to the stockholders
of Anchor from a financial point of view. In connection with the M&M Merger,
the Board of Directors of Anchor also requested Sandler O'Neill to render its
opinion as to the fairness of the M&M Exchange Ratio to the stockholders of
Anchor from a financial point of view. In connection with the issuance of this
Joint Proxy Statement/Prospectus, Sandler O'Neill has delivered to Anchor's
Board of Directors a written opinion dated the date of this Joint Proxy
Statement/Prospectus (the "Sandler O'Neill Fairness Opinion") to the effect
that, as of such date, the ComSouth Exchange Ratio and the M&M Exchange Ratio
are fair to the stockholders of Anchor from a financial point of view. The full
text of the Sandler O'Neill Fairness Opinion, which sets forth the procedures
followed, assumptions made, matters considered and qualifications and
limitations on the review undertaken in connection with rendering such opinion,
is attached as Appendix D to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference. The description of the opinion set forth
herein is qualified in its entirety by reference to Appendix D. Anchor's
stockholders are urged to read the Sandler O'Neill Fairness Opinion in its
entirety in connection with their consideration of the proposed ComSouth Merger
and the proposed M&M Merger.
The Sandler O'Neill Fairness Opinion was provided to the Anchor Board of
Directors for its information and is directed only to the fairness, from a
financial point of view, of the ComSouth Exchange Ratio and the M&M Exchange
Ratio to the stockholders of Anchor. It does not address the underlying
business decision of Anchor to engage in the ComSouth Merger or the M&M Merger
or any other aspect of the ComSouth Merger or the M&M Merger and does not
constitute a recommendation to any holder of shares of Anchor Common Stock as
to how such stockholder should vote at the Anchor Special Meeting with respect
to the ComSouth Merger or the M&M Merger or any other matters related thereto.
In connection with rendering its opinions, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of such analyses, but
does not purport to be a complete description of all the analyses underlying
Sandler O'Neill's opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not necessarily susceptible to a
partial analysis or summary description. Sandler O'Neill believes that its
analyses must be considered as a whole and that selecting portions of such
analyses and the factors considered therein, without considering all factors
and analyses, could create an incomplete view of the analyses and processes
underlying its opinion. In performing its
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analyses, Sandler O'Neill made numerous assumptions with respect to industry
performance, business and economic conditions and various other matters, many
of which cannot be predicted and are beyond the control of Anchor, ComSouth,
M&M and Sandler O'Neill. Any estimates contained in Sandler O'Neill's analyses
are not necessarily indicative of future results or values, which may be
significantly more or less favorable than such estimates. Estimates on the
values of companies do not purport to be appraisals or necessarily reflect the
prices at which companies or their securities may actually be sold. Because
such estimates are inherently subject to uncertainty, neither Anchor, ComSouth,
M&M nor Sandler O'Neill assumes responsibility for their accuracy.
The ComSouth Merger. The following is a summary of the analyses underlying
--------------------
Sandler O'Neill's May 19, 1998 opinion relating to the ComSouth Merger. In
connection with rendering the Sandler O'Neill Fairness Opinion, Sandler O'Neill
confirmed the appropriateness of its reliance on the analyses used to render
its May 19, 1998 opinion by performing procedures to update certain of such
analyses and by reviewing the assumptions upon which such analyses were based
and the factors considered in connection therewith.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction between Anchor and ComSouth. Based on the closing price of
Anchor Common Stock on April 13, 1998 of $44.00 and a ComSouth Exchange Ratio
of 0.75, Sandler O'Neill calculated an implied transaction value per share of
ComSouth Common Stock of $33.00. Based on the closing price of ComSouth Common
Stock on April 13, 1998 of $30.19, the transaction value represented a market
premium of approximately 9.3%. Based upon ComSouth's December 31, 1997
financial information, Sandler O'Neill calculated the price-to-tangible book
value, price to the last twelve months' normalized earnings per share and core
deposit premium. This analysis yielded a price-to-tangible book value multiple
of 445%, a price to the last twelve months' normalized earnings per share
multiple of 28.7x and a core deposit premium multiple of 28.9%.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of Anchor Common Stock and ComSouth Common
Stock, and the relationship between the movements in the prices of Anchor
Common Stock and ComSouth Common Stock, respectively, to movements in certain
stock indices, including Standard & Poor's 500 Index, the Nasdaq Banking Index
and selected composite groups of publicly traded commercial banks (identified
below).
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Anchor and two groups of selected institutions. The first group consisted of
Anchor and the following twelve publicly traded Southeastern commercial banks
(the "Large Regional Group"): Premier Bancshares Inc., First Charter Corp., ABC
Bancorp, Fidelity National Corp., Matewan Bancshares Inc., LSB Bancshares Inc.,
Union Bankshares Corp., First National Corp., Bank of Granite Corp., American
Bancorp., First Banking Co. of SE GA and First Bancorp. Sandler O'Neill also
compared Anchor to a group of twelve publicly traded commercial banks which had
a return on equity (based on the last twelve months' earnings) of greater than
16.0% and a price-to-tangible book value of greater than 265% (the "Large
Highly-Valued Group"). The Large Highly-Valued Group was comprised of Lakeland
Financial Corp., Premier Bancshares Inc., Tompkins County Trustco Inc., Broad
National Bancorp., SierraWest Bancorp, Merchants Bancshares Inc., Glacier
Bancorp Inc., Bank of Commerce, Interchange Financial Services, Bank of Granite
Corp., S.Y. Bancorp Inc. and Summit Bancshares Inc. The analysis compared
publicly available financial information for Anchor and the median data for
each of the Large Regional Group and the Large Highly-Valued Group as of and
for each of the years ended December 31, 1992 through December 31, 1997.
Sandler O'Neill also used publicly available information for a similar
analysis which compared selected financial and market trading information for
ComSouth and two groups of selected institutions. The first group consisted of
ComSouth and the following sixteen publicly traded Southeastern commercial
banks (the "Mid-Sized Regional Group"): Community Bankshares Inc., Merit
Holding Corp., Auburn National Bancorp., NewSouth Bancorp Inc., Community
Capital Corp., Southern Financial Bancorp, Southwest Georgia Financial,
Resource Bank, Community Financial Group Inc., Pinnacle Bancshares Inc., First
Southern Bancshares, Summit Bank Corp., Carolina Southern Bank, First Sterling
Banks Inc., Savannah Bancorp Inc. and Britton & Koontz Capital Corp. Sandler
O'Neill also compared ComSouth to a group of fourteen publicly traded
commercial banks which had a return on equity (based on the last twelve months'
earnings) of greater than 16.75% and a price-to-tangible book value of greater
than 200% (the "Mid-Sized Highly-Valued Group"). The Mid-Sized Highly-Valued
Group was comprised of S.Y. Bancorp Inc., Summit Bancshares Inc., Belmont
Bancorp., Republic First Bancorp Inc., Atlantic Bank & Trust Co., Citizens
National Bank of TX, Bank of Los Angeles, North Valley Bancorp, Coast Bancorp,
Cascade Bancorp, Borel Bank & Trust Co., First International Bancorp and
Resource Bank. The analysis compared publicly available financial information
for ComSouth and the median data for each of the Mid-Sized Regional Group and
the Mid-Sized Highly-Valued Group as of and for each of the years ended
December 31, 1992 through December 31, 1997.
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Analyses of Selected Merger Transactions. Sandler O'Neill reviewed 52
transactions announced from January 1, 1998 to April 7, 1998 (the "ComSouth
Analysis Period") involving publicly traded commercial banks as acquired
institutions with transaction values over $15 million ("ComSouth Nationwide
Transactions") and 18 transactions announced during the ComSouth Analysis
Period involving publicly traded commercial banks in the Southeast as acquired
institutions with transaction values over $15 million ("ComSouth Regional
Transactions"). Sandler O'Neill reviewed the ratios of transaction value to
last twelve months' net income, transaction value to tangible book value,
transaction value to book value, tangible book premium to core deposits,
transaction value to total deposits and transaction value to total assets and
computed high, low, mean and median ratios and premiums for the respective
groups of transactions. These multiples were applied to ComSouth's financial
information as of and for the twelve months ended December 31, 1997. Based upon
the median multiples for the ComSouth Nationwide Transactions, Sandler O'Neill
derived an imputed range of values per share of ComSouth Common Stock of $19.54
to $25.64. Based upon the median multiples for the ComSouth Regional
Transactions, Sandler O'Neill derived an imputed range of values per share of
ComSouth Common Stock of $20.88 to $26.38.
No company involved in the transactions included in the above analysis is
identical to Anchor or ComSouth and no transaction included in the above
analysis is identical to the ComSouth Merger. Accordingly, an analysis of the
results of the foregoing analysis is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading value of Anchor and ComSouth and the companies to which they
are being compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
performed an analysis which estimated the future stream of after-tax dividend
flows of ComSouth through 2002 under various circumstances, assuming ComSouth
performed in accordance with earnings forecasts based upon its most recent
performance and certain variations thereof. To approximate the terminal value
of ComSouth Common Stock at December 31, 2002, Sandler O'Neill applied price to
earnings multiples ranging from 16x to 34x and applied multiples of tangible
book value ranging from 320% to 500%. The dividend income streams and terminal
values were then discounted to present values using different discount rates
(ranging from 9% to 14%) chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of ComSouth Common
Stock. This analysis, assuming the current dividend payout ratio and earnings
forecasts consistent with ComSouth's most recent performance, indicated an
imputed range of values per share of ComSouth Common Stock of between $16.89
and $44.92 when applying the price to earnings multiples, and an imputed range
of values per share of ComSouth Common Stock of between $23.84 and $46.62 when
applying multiples of tangible book value. In connection with its analysis,
Sandler O'Neill used sensitivity analyses to consider the effects changes in
the underlying assumptions (including variations with respect to the levels of
assets, net interest spread, non-interest income, non-interest expense and
dividend payout ratio) would have on the resulting present value and discussed
these changes with the Anchor Board. Sandler O'Neill noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or actual future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the ComSouth Merger on Anchor, based upon the ComSouth
Exchange Ratio of 0.75, Anchor's and ComSouth's current and projected income
statements and balance sheets, and assumptions regarding the economic
environment, accounting and tax treatment of the ComSouth Merger, charges
associated with the ComSouth Merger, operating efficiencies and other
adjustments discussed with the senior managements of Anchor and ComSouth. This
analysis indicated that the ComSouth Merger would be accretive to Anchor's
earnings per share in each year analyzed following the year in which the
ComSouth Merger was consummated, and slightly dilutive to tangible book value
per share of Anchor's Common Stock in the anticipated closing period ending
December 31, 1998 and thereafter until the year ending December 31, 2003. The
actual results achieved by Anchor may vary from projected results and the
variations may be material.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total securities, total net loans, total
deposits, total borrowings, total tangible equity and net income to be made by
Anchor and ComSouth to the combined institution based on data at and for the
quarter ended December 31, 1997. This analysis indicated that ComSouth's
implied contribution was 26.0% of total assets, 29.0% of total securities,
25.8% of total net loans, 27.0% of total deposits, 0.0% of total borrowings,
29.9% of total tangible equity and 26.9% of net income. Based upon a ComSouth
Exchange Ratio of 0.75, holders of the ComSouth Common Stock would own
approximately 31.02% of the outstanding shares of the combined institution.
In connection with rendering its April 13, 1998 opinion with respect to
the ComSouth Merger, Sandler O'Neill also reviewed, among other things: (i) the
ComSouth Agreement and exhibits thereto; (ii) certain publicly available
financial statements of Anchor and other historical financial information
provided by Anchor that Sandler O'Neill deemed relevant;
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(iii) certain publicly available financial statements of ComSouth and other
historical financial information provided by ComSouth that Sandler O'Neill
deemed relevant; (iv) certain financial analyses and forecasts of Anchor
prepared by and reviewed with management of Anchor and the views of senior
management of Anchor regarding Anchor's past and current business operations,
results thereof, financial condition and future prospects; (v) certain
financial analyses and forecasts of ComSouth prepared by and reviewed with
management of ComSouth and the views of senior management of ComSouth regarding
ComSouth's past and current business operations, results thereof, financial
condition and future prospects; (vi) the pro forma impact of the ComSouth
Merger on Anchor; (vii) the publicly reported historical price and trading
activity for Anchor's and ComSouth's common stock, including a comparison of
certain financial and stock market information for Anchor and ComSouth with
similar publicly available information for certain other companies the
securities of which are publicly traded; (viii) the financial terms of recent
business combinations in the commercial banking industry, to the extent
publicly available; (ix) the current market environment generally and the
banking environment in particular; and (x) such other information, financial
studies, analyses and investigations and financial, economic and market
criteria as Sandler O'Neill considered relevant.
The M&M Merger. The following is a summary of the analyses underlying the
---------------
Sandler O'Neill Fairness Opinion relating to the M&M Merger.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction between Anchor and M&M. Based on the closing price of
Anchor on May 14, 1998 of $43.00 and an M&M Exchange Ratio of 0.87, Sandler
O'Neill calculated an implied transaction value per share of M&M Common Stock
of $37.41. Based upon M&M's March 31, 1998 financial information, Sandler
O'Neill calculated the price-to-tangible book value, price to the last twelve
months' earnings per share and core deposit premium. This analysis yielded a
price-to-tangible book value multiple of 322.02%, a price to the last twelve
months' earnings per share multiple of 35.62x and a core deposit premium of
18.83%.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Anchor and two groups of selected institutions. The first group consisted of
Anchor and the Large Regional Group and the second group was the Large
Highly-Valued Group. The analysis compared publicly available financial
information for Anchor and the median data for each of the Large Regional Group
and the Large Highly-Valued Group as of and for each of the years ended
December 31, 1993 through December 31, 1997 and the twelve months ended March
31, 1998.
Sandler O'Neill also used publicly available information for a similar
analysis which compared selected financial information for M&M and two groups
of selected institutions. The first group consisted of M&M and the following
fifteen publicly traded Southeastern commercial banks (the "Small Regional
Group"): Summit Bank Corp., Carolina Southern Bank, First Southern Bancshares,
Britton & Koontz Capital Corp., First Sterling Banks Inc., Summit Financial
Corp., First WV Bancorp Inc., Central Virginia Bankshares, Community Bankshares
Inc., Guaranty Financial Corp., Eufaula BancCorp Inc., Bank of South Carolina
Corp., Golden Isles Financial and Shore Financial Corp. Sandler O'Neill also
compared M&M to a group of nine publicly traded commercial banks which had a
return on equity (based on the last twelve months' earnings) of greater than
15.0% and a price-to-tangible book value of greater than 170% (the "Small
Highly-Valued Group"). The Small Highly-Valued Group was comprised of Cascade
Bancorp, Borel Bank & Trust Co., Orange National Bancorp, Mid Penn Bancorp
Inc., MidSouth Bancorp Inc., First International Bancorp, Summit Bank Corp, BYL
Bancorp and Bridge View Bancorp. The analysis compared publicly available
financial information for M&M and the median data for each of the Small
Regional Group and the Small Highly-Valued Group as of and for each of the
years ended December 31, 1993 through December 31, 1997 and for the twelve
months ended March 31, 1998.
Analyses of Selected Merger Transactions. Sandler O'Neill reviewed 97
transactions announced from January 1, 1998 to June 1, 1998 (the "M&M Analysis
Period") involving publicly traded commercial banks as acquired institutions
with transaction values over $15 million ("M&M Nationwide Transactions") and 38
transactions announced during the M&M Analysis Period involving publicly traded
commercial banks in the Southeast as acquired institutions with transaction
values over $15 million ("M&M Regional Transactions"). Sandler O'Neill reviewed
the ratios of transaction value to last twelve months' net income, transaction
value to tangible book value, transaction value to book value, tangible book
premium to core deposits, transaction value to total deposits and transaction
value to total assets and computed high, low, mean and median ratios and
premiums for the respective groups of transactions. These multiples were
applied to M&M's financial information as of and for the twelve months ended
March 31, 1997. Based upon the median multiples for the M&M Nationwide
Transactions, Sandler O'Neill derived an imputed range of values per share of
M&M Common Stock of $24.73 to $47.96. Based upon the median multiples for the
M&M Regional Transactions, Sandler O'Neill derived an imputed range of values
per share of M&M Common Stock of $23.95 to $48.82.
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No company involved in the transactions included in the above analysis is
identical to Anchor or M&M and no transaction included in the above analysis is
identical to the M&M Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Anchor and M&M and the companies to which they are being
compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
performed an analysis which estimated the future stream of after-tax dividend
flows of M&M through 2002 under various circumstances, assuming M&M performed
in accordance with the earnings forecasts of its management and certain
variations thereof. To approximate the terminal value of M&M Common Stock at
December 31, 2002, Sandler O'Neill applied price to earnings multiples ranging
from 16x to 34x and applied multiples of tangible book value ranging from 200%
to 380%. The dividend income streams and terminal values were then discounted
to present values using different discount rates (ranging from 9% to 14%)
chosen to reflect different assumptions regarding required rates of return of
holders or prospective buyers of M&M Common Stock. This analysis, assuming the
current dividend payout ratio and management's earnings forecasts, indicated an
imputed range of values per share of M&M Common Stock of between $23.67 and
$59.35 when applying the price to earnings multiples, and an imputed range of
values per share of M&M Common Stock of between $21.36 and $47.89 when applying
multiples of tangible book value. In connection with its analysis, Sandler
O'Neill used sensitivity analyses to consider the effects changes in the
underlying assumptions (including variations with respect to the levels of
assets, net interest spread, non-interest income, non-interest expense and
dividend payout ratio) would have on the resulting present value. Sandler
O'Neill noted that the discounted dividend stream and terminal value analysis
is a widely used valuation methodology, but the results of such methodology are
highly dependent upon the numerous assumptions that must be made, and the
results thereof are not necessarily indicative of actual values or actual
future results.
Pro Forma Merger Analysis. Sandler O'Neill also analyzed certain potential
pro forma effects of the M&M Merger on Anchor, based upon the M&M Exchange
Ratio of 0.87, Anchor's and M&M's current and projected income statements and
balance sheets, and assumptions regarding the economic environment, accounting
and tax treatment of the M&M Merger, charges associated with the M&M Merger,
operating efficiencies and other adjustments discussed with the senior
managements of Anchor and M&M. This analysis indicated that the M&M Merger
would be accretive to Anchor's earnings per share in all periods analyzed
following the year in which the M&M Merger was consummated and accretive to the
tangible book value per share of Anchor's Common Stock in all periods analyzed.
The actual results achieved by Anchor may vary from projected results and the
variations may be material.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total securities, total net loans, total
deposits, total borrowings, total tangible equity and net income to be made by
Anchor and M&M to the combined institution based on data at and for the quarter
ended March 31, 1998. The analysis indicated that M&M's implied contribution
was 21.2% of total assets, 22.4% of total securities, 20.6% of total net loans,
21.4% of total deposits, 18.3% of total borrowings, 22.7% of total tangible
equity and 14.2% of total net income. Based upon an M&M Exchange Ratio of 0.87,
holders of the M&M Common Stock would own approximately 17.1% of the
outstanding shares of the combined institution.
In connection with rendering its fairness opinion with respect to the M&M
Merger, Sandler O'Neill reviewed, among other things: (i) the M&M Agreement and
exhibits thereto; (ii) the ComSouth Agreement and exhibits thereto; (iii)
certain publicly available financial statements of Anchor and other historical
financial information provided by Anchor that Sandler O'Neill deemed relevant;
(iv) certain publicly available financial statements of M&M and other
historical financial information provided by M&M that Sandler O'Neill deemed
relevant; (v) certain financial analyses and forecasts of Anchor prepared by
and reviewed with management of Anchor and the views of senior management of
Anchor regarding Anchor's past and current business operations, results
thereof, financial condition and future prospects; (vi) certain financial
analyses and forecasts of M&M prepared by and reviewed with management of M&M
and the views of senior management of M&M regarding M&M's past and current
business operations, results thereof, financial condition and future prospects;
(vii) the pro forma impacts of the M&M Merger on Anchor; (viii) the publicly
reported historical price and trading activity for Anchor's common stock,
including a comparison of certain financial and stock market information for
Anchor with similar publicly available information for certain other companies
the securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the commercial banking industry, to the extent
publicly available; (x) the current market environment generally and the
banking environment in particular; and (xi) such other information, financial
studies, analyses and investigations and financial, economic and market
criteria as Sandler O'Neill considered relevant.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon, without independent verification, the accuracy and completeness of all
the financial information, analyses and other information that was publicly
available or
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otherwise furnished to, reviewed by or discussed with it, and Sandler O'Neill
does not assume any responsibility or liability therefor. Sandler O'Neill did
not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Anchor, ComSouth or M&M or any of their subsidiaries, or the collectibility of
any such assets, nor was it furnished with any such evaluations or appraisals.
Sandler O'Neill is not an expert in the evaluation of allowances for loan
losses and it has not made an independent evaluation of the adequacy of the
allowance for loan losses of Anchor, ComSouth or M&M, nor has it reviewed any
individual credit files relating to Anchor, ComSouth or M&M. With Anchor's
consent, Sandler O'Neill has assumed that the respective aggregate allowances
for loan losses for Anchor, ComSouth and M&M are adequate to cover such losses
and will be adequate on a pro forma basis for the combined entity. In addition,
Sandler O'Neill has not conducted any physical inspection of the properties or
facilities of Anchor, ComSouth and M&M. With respect to all financial
information and projections reviewed with each company's management, Sandler
O'Neill assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of Anchor, ComSouth and M&M and
that such performances will be achieved. Sandler O'Neill expressed no opinion
as to such financial projections or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the
ComSouth Agreement and the M&M Agreement and all related agreements are true
and correct, that each party to such agreements will perform all of the
covenants required to be performed by such party under such agreements and that
the conditions precedent in the ComSouth Agreement and the M&M Agreement are
not waived. Sandler O'Neill also assumed, with Anchor's consent, that there has
been no material change in Anchor's, ComSouth's and M&M's assets, financial
condition, results of operations, business, or prospects since the date of the
last financial statements made available to them, that the ComSouth Merger and
the M&M Merger will be accounted for using the pooling-of-interests method of
accounting, that Anchor, ComSouth and M&M will remain as going concerns for all
periods relevant to its analyses and that the ComSouth Merger and the M&M
Merger will qualify as tax-free reorganizations for federal income tax
purposes.
Under Anchor's agreements with Sandler O'Neill, Anchor will pay Sandler
O'Neill a transaction fee in connection with the ComSouth Merger, a substantial
part of which is contingent upon the consummation of the Merger. Anchor will
pay Sandler O'Neill a transaction fee equal to 0.35% of the aggregate purchase
price paid in the transaction, subject to a maximum fee of $200,000. Based on
the closing price of Anchor Common Stock on , 1998 (the date of this
Joint Proxy Statement/Prospectus), Anchor would pay Sandler O'Neill a
transaction fee of approximately $200,000, of which $50,000 has been paid and
the balance will be paid upon consummation of the ComSouth Merger. Sandler
O'Neill also has received a fee of $75,000 for rendering the Sandler O'Neill
Fairness Opinion. Anchor also has agreed to indemnify Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees,
agents and controlling persons against certain expenses and liabilities,
including liabilities under securities laws.
In the ordinary course of its business, Sandler O'Neill may actively trade
the equity securities of Anchor and ComSouth and their respective affiliates
for its own account and for the accounts of customers and, accordingly, may at
any time hold a long or short position in such securities. Sandler O'Neill may
also provide other financial advisory services to Anchor in the future and will
receive compensation for such services.
THE FAIRNESS OPINION OF SANDLER O'NEILL TO ANCHOR IS ATTACHED AS APPENDIX
D TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY
REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX D. ANCHOR STOCKHOLDERS ARE URGED TO READ THE
OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY SANDLER O'NEILL IN CONNECTION WITH RENDERING ITS OPINION.
ComSouth Merger
General. On April 14, 1998, Anchor and ComSouth executed the ComSouth
Agreement. Pursuant to that Agreement, ComSouth will merge into Anchor at the
effective date of the ComSouth Merger (the "ComSouth Effective Date"), and:
(i) Each share of ComSouth Common Stock, no par value, then issued and
outstanding, other than shares of ComSouth Common Stock owned by Anchor and
shares whose holders have perfected their right of dissent, will be
converted into and exchanged for 0.75 shares of newly issued Anchor Common
Stock, no par value;
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(ii) Each outstanding ComSouth Option will be converted into an option to
purchase 0.75 shares of Anchor Common Stock;
(iii) ComSouth stockholders will become stockholders of Anchor;
(iv) Anchor will survive the ComSouth Merger and retain the name "Anchor
Financial Corporation;"and
(v) The ComSouth stockholders entitled to fractional shares of Anchor
Common Stock will be paid cash by Anchor for such fractional shares, based
on the last sale price of Anchor Common Stock on The Nasdaq Stock Market
(as reported by The Wall Street Journal, or, if not reported thereby, by
another authoritative source selected by Anchor) on the last trading date
immediately preceding the ComSouth Effective Date.
Procedure for Exchange of ComSouth Common Stock for Anchor Common Stock.
As soon as practicable after the ComSouth Effective Date, Anchor will have
delivered to each of the former stockholders of ComSouth a transmittal letter
for use in delivering their ComSouth Common Stock certificates. After the
Exchange Agent for Anchor receives a properly completed transmittal letter and
the certificate(s) representing a ComSouth stockholder's shares of ComSouth
Common Stock, the Exchange Agent for Anchor will issue and mail a certificate
representing the Anchor Common Stock into which the ComSouth Common Stock has
been converted, and a check for the cash, if any, payable in respect to any
fractional Anchor Common Stock issuable.
The registered holder of any certificate(s) representing ComSouth Common
Stock who has lost or destroyed such certificate(s), can obtain certificate(s)
for Anchor Common Stock (and cash for any fractional share) to which such
ComSouth stockholder is entitled, if the ComSouth stockholder delivers to the
Exchange Agent for Anchor: (a) a sworn statement certifying such loss or
destruction and specifying the circumstances thereof, and (b) a lost instrument
bond with a corporate security, satisfactory to the Exchange Agent,
indemnifying Anchor against any loss or expense which it may incur as a result
of such lost or destroyed certificate(s) presented at a later time.
Conditions to Consummation of the ComSouth Merger. Consummation of the
ComSouth Merger is subject to certain material conditions, including, but not
limited to:
(i) Approval of the ComSouth Agreement by the holders of at least
two-thirds of the issued and outstanding shares of ComSouth Common Stock
and the holders of at least two-thirds of the issued and outstanding shares
of Anchor Common Stock;
(ii) Receipt of all necessary state and federal regulatory approvals,
including approval by the Federal Reserve and the South Carolina Board, as
required for consummation of the proposed Merger;
(iii) Receipt by ComSouth and Anchor of opinions of each other's legal
counsel as required by the ComSouth Agreement;
(iv) Receipt by Anchor and ComSouth of an opinion from Anchor's counsel
to the effect that the ComSouth Merger will constitute a tax-free merger
under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended
("Code"), and no gain or loss will be recognized by the stockholders of
ComSouth and Anchor, except for cash paid to dissenting stockholders of
ComSouth and cash paid in lieu of fractional shares;
(v) The ComSouth Merger will be accounted for as a pooling of interests;
(vi) Anchor and ComSouth will have received a fairness opinion from the
respective firms they have engaged to the effect that the proposed Merger
is fair to their respective stockholders from a financial point of view;
(vii) The shares of Anchor Common Stock to be issued to the ComSouth
stockholders will have been approved for listing on The Nasdaq Stock
Market;
(viii) The shares of ComSouth Common Stock for which cash is to be paid
pursuant to dissenter's rights of appraisal under South Carolina law will
not exceed in the aggregate 6% of the outstanding shares of ComSouth Common
Stock; and
(ix) There will not have been any material adverse change in the
financial position or results of operations of ComSouth or Anchor.
Termination Provisions. The ComSouth Agreement may be terminated at any
time prior to the ComSouth Effective Date:
(i) by the mutual consent of the Boards of Directors of Anchor and
ComSouth;
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(ii) by the Board of Directors of any party in the event of a material
breach of any representation or warranty by any other, if the breaching
party fails to correct the breach;
(iii) by the Board of Directors of Anchor or ComSouth if the ComSouth
Merger is not consummated by December 31, 1998;
(iv) by Anchor or ComSouth's Board of Directors if the required
stockholder approval is not obtained at the appropriate Special Meeting; or
(v) by the Board of Directors of ComSouth if any changes occur in the
market price of the Anchor Common Stock and Anchor does not elect to adjust
the ComSouth Exchange Ratio. See "ComSouth Merger -- Possible Adjustment to
the ComSouth Exchange Ratio."
Possible Adjustment to the ComSouth Exchange Ratio. For purposes of
understanding this possible adjustment to the ComSouth Exchange Ratio, the
following definitions apply:
"Average Closing Price" shall mean the average of the daily last sales
prices of Anchor Common Stock as reported on The Nasdaq Stock Market (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by Anchor) for the 20 consecutive full
trading days in which such shares are traded ending at the closing of
trading on the Determination Date.
"Average Index Price" shall mean the average of the daily current market
price of the Index for the 20 consecutive full trading days ending at the
closing of trading on the Determination Date.
"Determination Date" shall mean the date on which the last consent of the
Board of Governors of the Federal Reserve System shall be received.
"Index" shall mean the NASDAQ Bank Index which is a broad-based
capitalization-weighted index of domestic and foreign common stock of banks
that are traded on The Nasdaq Market System as well as the SmallCap Market.
The Index was developed with a base level of 100 as of February 5, 1971.
"Index Price" on a given date shall mean the current market price of the
Index for that date.
"Starting Date" shall mean April 14, 1998.
"Starting Price" shall mean $41.00 per share.
The Board of Directors of ComSouth, by majority vote, may terminate the
ComSouth Agreement if, at any time during the ten day period commencing two
days after the Determination Date both of the following conditions are
satisfied:
1. The Average Closing Price is twenty percent (20%) less than the
Starting Price; and
2. (i) the quotient of the Average Closing Price divided by the Starting
Price (such quotient being the "Anchor Ratio") shall be less than (ii) the
quotient of the Average Index Price divided by the Index Price on the
Starting Date less 0.10 of such quotient (which quotient less 0.10 shall be
the "Index Ratio").
Even if the two conditions set forth above are satisfied and ComSouth
refuses to consummate the ComSouth Merger on that basis, ComSouth must give
prompt written notice to Anchor. However, ComSouth may withdraw that notice at
any time within the ten day period commencing two days after the Determination
Date. During the five day period after receipt of such notice, Anchor has the
option to elect to increase the ComSouth Exchange Ratio to equal the lesser of
(i) the quotient obtained by dividing (1) the product of 0.80, the Staring
Price and the ComSouth Exchange Ratio (as then in effect) by (2) the Average
Closing Price, and (ii) the quotient obtained by dividing (1) the product of
the Index Ratio and the ComSouth Exchange Ratio (as then in effect) by (2) the
Anchor Ratio. If Anchor makes this election within the five day period, Anchor
must give prompt written notice to ComSouth of the election, and the ComSouth
Agreement will remain in effect in accordance with its terms, except the
ComSouth Ratio will have been modified as described.
This possible adjustment reflects the parties agreement that ComSouth's
stockholders will assume the risk of declines in the value of Anchor Common
Stock to $32.80 per share. If the value of Anchor Common Stock were to decline
to $32.80 or less per share, but the price of Anchor Common Stock did not
decline more than 10% in comparison to the stock prices of the comparable bank
holding company stocks in the Index, then ComSouth's stockholders would
continue to assume the risk of decline in the value of the Anchor Common Stock.
The operation of the possible adjustment formula is illustrated by the
following. For purposes of this numerical example only, the ComSouth Exchange
Ratio is 0.75, the Starting Price is $41.00 and the Index Price as of the
Starting Date is $150.
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Assuming the Average Closing Price is $28.00 and the Index Price is $140
on the Determination Date, the ComSouth Ratio would adjust. The Average Closing
Price would be 20% less than the Starting Price and the Anchor Ratio would be
0.6829 ($28.00 divided by $41.00), which would be less than the Index Ratio of
0.8333 ($140 divided by $150 less 10%). Therefore, at the option of Anchor the
ComSouth Ratio could be adjusted to be 0.8786 which represents the lesser of:
(a) 0.8786 [the quotient obtained by dividing (a) $24.60 (the product of
0.80 times the Starting Price of $41.00 times the original ComSouth Ratio
of 0.75) by (b) the Average Closing Price of $28.00], and
(b) 0.9152 [the quotient obtained by dividing .6250 (the product of the
Index Ratio of .8333 times the original ComSouth Ratio of 0.75) by the
Anchor Ratio of .6829].
The example above is for illustration purposes only. The actual market
price of Anchor Common Stock will vary and stockholders are urged to obtain
information on the market price of Anchor Common Stock that is more current
than the information in this Joint Proxy Statement/Prospectus. See "COMPARATIVE
MARKET PRICES AND DIVIDENDS -- Anchor Market Prices."
Opinion of ComSouth's Financial Advisor.
Interstate/Johnson Lane Corporation ("Interstate") was engaged by ComSouth
to render an opinion with respect to the fairness, from a financial point of
view, to the stockholders of ComSouth Common Stock of the consideration
proposed to be paid by Anchor in the ComSouth Merger. Interstate is a
recognized investment banking firm and, as part of its investment banking
activities, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. ComSouth selected Interstate to render its opinion on the
basis of its experience and expertise in merger transactions, and its
reputation in the banking and investment communities. In the ordinary course of
its business, Interstate trades the equity securities of Anchor for its own
account and for the accounts of its customers, and, accordingly, may at any
time hold a long or short position in such security.
In connection with its engagement, a written opinion dated May 29, 1998
was delivered by Interstate to the ComSouth Board of Directors to the effect
that, as of such date and based upon and subject to certain matters, the
consideration to be paid by Anchor in the ComSouth Merger to the stockholders
of ComSouth was fair to the stockholders of ComSouth from a financial point of
view. Interstate has confirmed its written opinion dated , by
delivery of the written opinion contained herein as Appendix E. Interstate
updated certain of its analyses, as necessary, and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith.
THE FULL TEXT OF INTERSTATE'S WRITTEN OPINION TO THE COMSOUTH BOARD, DATED
, AND THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS OF REVIEW BY
INTERSTATE, IS ATTACHED HERETO AS APPENDIX E AND IS INCORPORATED HEREIN BY
REFERENCE AND SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH
THIS JOINT PROXY STATEMENT/ PROSPECTUS. THE FOLLOWING SUMMARY OF INTERSTATE'S
OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION. INTERSTATE'S OPINION, WHICH IS ADDRESSED TO THE COMSOUTH BOARD, IS
DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW TO THE HOLDERS OF
COMSOUTH COMMON STOCK OF THE CONSIDERATION TO BE PAID BY ANCHOR IN THE COMSOUTH
MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF THE PROPOSED COMSOUTH MERGER OR
ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE COMSOUTH SPECIAL
MEETING.
In connection with its opinion, Interstate, among other things: (i)
reviewed certain publicly available financial and other data with respect to
ComSouth and Anchor, including the consolidated financial statements of
ComSouth and Anchor for recent fiscal years and interim periods to March 31,
1998, and certain other relevant financial and operating data relating to
ComSouth and Anchor made available to Interstate from published sources and
from the internal records of ComSouth and Anchor; (ii) reviewed the ComSouth
Agreement and certain related documents provided to Interstate by Anchor; (iii)
reviewed the current Reports on Form 8-K, filed by ComSouth and Anchor,
respectively, with respect to the ComSouth Merger; (iv) reviewed a draft of
this Joint Proxy Statement/Prospectus; (v) reviewed certain historical market
prices and trading volumes of ComSouth and Anchor as reported by The American
Stock Exchange and The Nasdaq Stock Market, respectively; (vi) compared
ComSouth from a financial point of view with certain other public companies
which Interstate deemed to be relevant; (vii) considered the financial terms,
to the extent publicly available, of selected business combinations in the bank
industry; (viii) reviewed and discussed with representatives of management of
ComSouth and Anchor certain information
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regarding the business and financial issues of the ComSouth Merger, including
financial forecasts relating to cost savings and other potential synergies
anticipated to result from the ComSouth Merger and related assumptions; (ix)
made inquires regarding and discussed the due diligence review of ComSouth
conducted by Anchor with senior executives of ComSouth; (x) made inquires
regarding and discussed the ComSouth Merger, the ComSouth Agreement and other
matters related thereto with Anchor's counsel; and (xi) performed such other
analyses and examinations as Interstate deemed appropriate.
In connection with its review, Interstate did not assume any obligation to
verify any of the foregoing information and relied on all such information
being complete and accurate in all material respects. With respect to the
financial forecasts for ComSouth and Anchor prepared by their respective
management teams, Interstate assumed, with ComSouth's consent, for purposes of
its opinion, that such forecasts were reasonably prepared on bases reflecting
at the time of preparation the best available estimates and judgments of their
respective management teams, as to the cost savings, revenue enhancements and
other potential synergies (including the timing, amount and achievability
thereof) anticipated to result from the ComSouth Merger, and that such
forecasts provided a reasonable basis upon which Interstate could form its
opinion. Interstate also assumed, with Anchor's consent, that there were no
material changes in Anchor's or ComSouth's assets, financial condition, results
of operations, business or prospects since the respective dates of their last
financial statements reviewed by Interstate and that off-balance sheet
activities of ComSouth and Anchor will not materially and adversely affect the
future financial position or results of operations of ComSouth and Anchor.
Interstate further assumed, with Anchor's consent, that in the course of
obtaining the necessary regulatory and third party consents for the ComSouth
Merger, no restriction will be imposed that will have a material adverse effect
on the contemplated benefits of the ComSouth Merger or the transactions
contemplated thereby. Interstate further assumed, with Anchor's consent, that
the Comsouth Merger will be consummated in accordance with the terms and
provisions of the ComSouth Agreement, without any amendments to, and without
any waiver by Anchor of, any of the material conditions to its obligations
thereunder. Interstate noted that it is not an expert in the evaluation of loan
portfolios for purposes of assessing the adequacy of the allowances for losses
with respect thereto and Interstate assumed, with Anchor's consent, that such
allowances for each of ComSouth and Anchor are in the aggregate adequate to
cover such losses. In addition, Interstate did not assume responsibility for
reviewing any individual credit files or making an independent evaluation,
appraisal or physical inspection of the assets or individual properties of
ComSouth and Anchor, nor was Interstate furnished with any such evaluations or
appraisals. Finally, Interstate's opinion was based on economic, monetary and
market and other conditions as in effect on, and the information made available
to Interstate as of, the date thereof. Although Interstate evaluated the
consideration to be paid by Anchor in the ComSouth Merger to the holders of the
ComSouth from a financial point of view, Interstate was not requested to, and
did not, recommend the specific consideration payable in the proposed ComSouth
Merger. No other limitations were imposed by ComSouth on Interstate with
respect to the investigations made or procedures followed by Interstate in
rendering its opinion.
Set forth below is a summary of the material analyses performed by
Interstate in connection with its opinion delivered to the ComSouth Board on
May 29, 1998.
Comparable Company Analysis. Based on publicly available information and
earnings estimates, Interstate reviewed and compared actual and estimated
selected financial, operating and stock market information and financial ratios
of ComSouth, Anchor and a group of six banks consisting of Bank of South
Carolina; Carolina Southern Bank; CNB Corporation; Community Bankshares, Inc.;
Community Capital Corporation; and Summit Financial Corporation (the
"Comparable Banks").
Interstate noted for ComSouth's Board that, among other things: (i)
ComSouth had a common equity to total assets ratio of 7.7% at March 31, 1998,
as compared to the average for the Comparable Banks of 10.0%; (ii) ComSouth had
a return on average assets and a return on average equity for the quarter ended
March 31, 1998 of 1.2% and 15.6%, respectively, as compared to the average for
the Comparable Banks of 1.1% and 10.4%, respectively; (iii) ComSouth had an
efficiency ratio (defined as noninterest expenses divided by net interest
income plus noninterest income) of 59.2% for the quarter ended March 31, 1998,
as compared to the average for the Comparable Banks of 63.6%; (iv) ComSouth had
a price to book ratio of 4.18x, as of May 26, 1998 based on the balance sheet
at March 31, 1998, as compared to the average for the selected banks of 2.82x;
and (v) ComSouth had a price to earnings ratio of 28.8x at May 26, 1998 based
on the EPS for the latest twelve months ended March 31, 1998, as compared to
the average for the Comparable Banks of 31.3x.
Analysis of Selected Comparable Bank Merger Transactions. Interstate
reviewed the consideration paid in the following five transactions
(Acquiror/Target) announced since 1995: Carolina First Corporation/First
National Bank of Pickens County; Anchor Financial Corporation/M&M Financial
Corporation; Centura Banks, Inc./Pee Dee Bankshares, Inc.; Regions Financial
Corporation/First United Bancorporation; Regions Financial
Corporation/Greenville Financial Corporation (collectively, the "Comparable
Transactions"). For each company merged or to be merged in such transactions,
Interstate compiled figures illustrating, among other things, transaction price
to latest 12 months earnings per share, transaction price to book value,
transaction price to tangible book value, and the ratio of premium over
tangible book value to core deposits.
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The figures for the Comparable Transactions represent announced deals in
South Carolina from May 27, 1995 through May 27, 1998. The ratios are as
follows: (i) an average ratio of transaction price to latest 12 months' ended
earnings per share of 28.47x; (ii) an average ratio of transaction price to
book value of 3.59x; (iii) an average ratio of transaction price to tangible
book value of 3.50x; and (iv) an average ratio of premium over tangible book
value to core deposits of 25.65%. The average of the high and low sales prices
of Anchor Common Stock as reported by The Nasdaq Stock Market on March 27, 1998
was $40.50 per share and on April 13, 1998, the last trading day preceding
public announcement of the proposed merger, was $44.00 per share. ComSouth
Common Stock is traded on The American Stock Exchange. The average of the high
and low sales prices of ComSouth Common Stock on March 27, 1998 was $28.38 per
share and on April 13, 1998 was $29.25 per share. The consideration to be paid
to the holders of ComSouth represented a ratio of transaction price to latest
12 months adjusted earnings per share of 31.73x, a ratio of transaction price
to book value of 4.60x, a ratio of transaction price to tangible book value of
4.60x and a ratio of tangible premium to core deposits of 45.37%
No other company or transaction used in the above analysis as a comparison
is identical to Anchor, ComSouth or the proposed ComSouth Merger. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operational characteristics of the companies and other factors
that could affect the acquisition or public trading multiples of the companies
to which Anchor, ComSouth and the proposed ComSouth Merger are being compared.
The summary set forth above does not purport to be a complete description
of the analyses performed by Interstate. The preparation of a fairness opinion
is not necessarily susceptible to partial analysis or summary description.
Interstate believes that its analyses and the summary set forth above must be
considered as a whole and that selecting portions of its analyses and of the
factors considered, without considering all analyses and factors, would create
an incomplete view of the process underlying the analyses. In addition,
Interstate may have given various analyses more or less weight than other
analyses, and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Interstate's view
of the actual values of Anchor, ComSouth or the combined company. The fact that
any specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
In performing its analyses, Interstate made numerous assumptions with
respect to industry performance, regulatory, general business and economic
conditions and other matters, many of which are beyond the control of Anchor
and ComSouth. The analyses performed by Interstate are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses.
Such analyses were prepared solely as part of Interstate's analysis of the
fairness of the consideration to be paid by Anchor from a financial point of
view in connection with the delivery of Interstate's opinion. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future. Interstate used in its analyses estimates by
management of Anchor for Anchor and projections prepared by Anchor management
as to the cost savings and other potential synergies anticipated to result from
the ComSouth Merger. Such projections and estimates are based on numerous
variables and assumptions which are inherently unpredictable and must be
considered not certain of occurrence as projected. Accordingly, actual results
could vary significantly from those set forth in such projections.
Pursuant to the terms of Interstate's engagement, ComSouth has agreed to
pay Interstate a fee equal to $25,000. ComSouth also has agreed to reimburse
Interstate for its reasonable out-of-pocket expenses, including the fees and
expenses of Interstate's legal counsel. ComSouth has agreed to indemnify
Interstate, its affiliates, and their respective partners, directors, officers,
agents, consultants, employees and controlling persons against certain
liabilities, including liabilities under the federal securities laws.
THE WRITTEN OPINION OF INTERSTATE TO COMSOUTH IS ATTACHED AS APPENDIX E TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
THE DESCRIPTION OF THE COMSOUTH FAIRNESS OPINION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO APPENDIX E. COMSOUTH STOCKHOLDERS ARE URGED TO READ THE OPINION
IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE,
MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY INTERSTATE IN CONNECTION WITH RENDERING ITS OPINION.
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ComSouth Effective Date
Subject to the conditions to the obligations of the parties to consummate
the ComSouth Merger, the ComSouth Effective Date will be when the Articles of
Merger have been accepted for filing by the Secretary of State of South
Carolina in accordance with the South Carolina Business Corporation Act of
1988, as amended.
No assurance can be provided that the necessary stockholder and regulatory
approvals can be obtained or that other conditions precedent to the ComSouth
Merger can or will be satisfied. Anchor and ComSouth anticipate that all
conditions to consummation of the ComSouth Merger will be satisfied so that the
ComSouth Merger can be consummated in the third quarter of 1998. However,
delays in the consummation of the ComSouth Merger could occur.
Employment Agreements
On the ComSouth Effective Date, Anchor will enter into Employment
Agreements with J. Michael Kapp, Arthur P. Swanson, John P. Barnwell and Carmel
Dodds, provided such individuals have not terminated their employment with
ComSouth or its subsidiaries at or prior to the ComSouth Effective Date. The
specific terms of the Employment Agreements with these individuals have not
been negotiated between Anchor and each individual.
Expenses and Fees Related to the ComSouth Merger. Each party to the
ComSouth Agreement will pay its own expenses incurred in connection with
ComSouth Merger, including the cost of soliciting proxies for the respective
ComSouth and Anchor Special Meetings and the printing costs and expenses
incurred in connection with this Joint Proxy Statement/ Prospectus and the
associated Anchor Registration Statement.
The ComSouth Agreement also provides that if it is terminated for any of
the reasons listed below, ComSouth will pay Anchor a termination fee of $2.5
million. The termination fee would be payable to Anchor if the ComSouth
Agreement is terminated:
1. By Anchor, if the Board of Directors of ComSouth has failed to
recommend the ComSouth Merger to the ComSouth stockholders at any time
prior to the ComSouth Special Meeting or has withdrawn such recommendation
or modified or changed such recommendation in a manner adverse in any
respect to the interests of Anchor, or by the Board of Directors of
ComSouth if a tender offer or exchange offer for 25% or more of the
outstanding shares of ComSouth Common Stock is commenced by a party other
than Anchor,and the Board of ComSouth recommends that the ComSouth
stockholders tender their shares in such tender or exchange offer or the
Board otherwise fails to recommend that the ComSouth stockholders reject
such tender offer or exchange offer within ten business days after it is
commenced;
2. By ComSouth or Anchor because of a failure to obtain the required
approval of the ComSouth stockholders after a proposal for an acquisition
or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, ComSouth or any merger or other business
combination with ComSouth other than as contemplated by the ComSouth
Agreement (an "Acquisition Proposal") shall have been publicly disclosed,
or any person shall have publicly disclosed an intention to make an
Acquisition Proposal; or
3. By Anchor if ComSouth has willfully breached the ComSouth Agreement
and, at or prior to such termination by Anchor because of such breach by
ComSouth, an Acquisition Proposal has been made known to ComSouth or any of
its subsidiaries or has been publicly disclosed to ComSouth stockholders or
any person has made known to ComSouth or any of its subsidiaries or
otherwise publicly disclosed an intention to make an Acquisition Proposal
and regardless of whether such Acquisition Proposal has been rejected by
ComSouth or withdrawn prior to the time of such termination.
M&M Merger
General. On May 15, 1998, Anchor and M&M executed the M&M Agreement.
Pursuant to that Agreement, M&M will merge into Anchor at the effective date of
the M&M Merger (the "M&M Effective Date"), and:
(i) Each share of M&M Common Stock, $5.00 par value, then issued and
outstanding, other than shares whose holders have perfected their right of
dissent, will be converted into and exchanged for 0.87 shares of newly
issued Anchor Common Stock, no par value;
(ii) Each M&M Option will be converted into an option to purchase 0.87
shares of Anchor Common Stock;
(iii) M&M stockholders will become stockholders of Anchor;
(iv) Anchor will survive the M&M Merger and retain the name "Anchor
Financial Corporation;" and
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(v) The M&M stockholders entitled to fractional shares of Anchor Common
Stock will be paid cash by Anchor for such fractional shares, based on the
last sale price of Anchor Common Stock on The Nasdaq Stock Market (as
reported by The Wall Street Journal, or, if not reported thereby, by
another authoritative source selected by Anchor) on the last trading date
immediately preceding the M&M Effective Date.
Procedure for Exchange of M&M Common Stock for Anchor Common Stock. As
soon as practicable after the M&M Effective Date, Anchor will have delivered to
each of the former stockholders of M&M a transmittal letter for use in
delivering their M&M Common Stock certificates. After the Exchange Agent for
Anchor receives a properly completed transmittal letter and the certificate(s)
representing a M&M stockholder's shares of M&M Common Stock, the Exchange Agent
for Anchor will issue and mail a certificate representing the Anchor Common
Stock into which the M&M Common Stock has been converted, and a check for the
cash, if any, payable in respect to any fractional Anchor Common Stock
issuable.
The registered holder of any certificate(s) representing M&M Common Stock
who has lost or destroyed such certificate(s), can obtain certificate(s) for
Anchor Common Stock (and cash for any fractional share) to which such M&M
stockholder is entitled, if the M&M stockholder delivers to the Exchange Agent
for Anchor: (a) a sworn statement certifying such loss or destruction and
specifying the circumstances thereof, and (b) a lost instrument bond with a
corporate security, satisfactory to the Exchange Agent, indemnifying Anchor
against any loss or expense which it may incur as a result of such lost or
destroyed certificate(s) presented at a later time.
Conditions to Consummation of the M&M Merger. Consummation of the M&M
Merger is subject to certain material conditions, including, but not limited
to:
(i) Approval of the M&M Agreement by the holders of at least two-thirds
of the issued and outstanding shares of M&M Common Stock and the holders of
at least two-thirds of the issued and outstanding shares of Anchor Common
Stock;
(ii) Receipt of all necessary state and federal regulatory approvals,
including approval by the Federal Reserve and the South Carolina Board, as
required for consummation of the proposed Merger;
(iii) Receipt by M&M and Anchor of opinions of each other's legal counsel
as required by the M&M Agreement;
(iv) Receipt by Anchor and M&M of an opinion from Anchor's counsel to the
effect that the M&M Merger will constitute a tax-free merger under Section
368(a)(1)(A) of the Code, and no gain or loss will be recognized by the
stockholders of M&M and Anchor, except for cash paid to dissenting
stockholders of M&M and cash paid in lieu of fractional shares;
(v) The M&M Merger will be accounted for as a pooling-of-interests;
(vi) Anchor and M&M will have received a fairness opinion from the
respective firms they have engaged to the effect that the proposed Merger
is fair to their respective stockholders from a financial point of view;
(vii) The shares of Anchor Common Stock to be issued to the M&M
stockholders will have been approved for listing on The Nasdaq Stock
Market;
(viii) The shares of M&M Common Stock for which cash is to be paid
pursuant to dissenter's rights of appraisal under South Carolina law will
not exceed in the aggregate 10% of the outstanding shares of M&M Common
Stock; and
(ix) There will not have been any material adverse change in the
financial position or results of operations of M&M or Anchor.
Termination Provisions. The M&M Agreement may be terminated at any time
prior to the M&M Effective Date:
(i) by the mutual consent of the Boards of Directors of Anchor and M&M;
(ii) by the Board of Directors of any party in the event of a material
breach of any representation or warranty by any other, if the breaching
party fails to correct the breach;
(iii) by the Board of Directors of Anchor or M&M if the M&M Merger is not
consummated by December 31, 1998;
(iv) by Anchor or M&M's Board of Directors if the required stockholder
approval is not obtained at the appropriate Special Meeting; or
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(v) by the Board of Directors of M&M if any changes occur in the market
price of the Anchor Common Stock and Anchor does not elect to adjust the
M&M Exchange Ratio. See "M&M Merger -- Possible Adjustment to the M&M
Exchange Ratio."
Possible Adjustment to the M&M Exchange Ratio. For purposes of
understanding this possible adjustment to the M&M Exchange Ratio, the following
definitions apply:
"Average Closing Price" shall mean the average of the daily last sales
prices of Anchor Common Stock as reported on The Nasdaq Stock Market (as
reported by The Wall Street Journal or, if not reported thereby, another
authoritative source as chosen by Anchor) for the 20 consecutive full
trading days in which such shares are traded ending at the closing of
trading on the Determination Date.
"Average Index Price" shall mean the average of the daily current market
price of the Index for the 20 consecutive full trading days ending at the
closing of trading on the Determination Date.
"Determination Date" shall mean the date on which the last consent of the
Board of Governors of the Federal Reserve System shall be received.
"Index" shall mean the NASDAQ Bank Index which is a broad-based
capitalization-weighted index of domestic and foreign common stock of banks
that are traded on The Nasdaq Market System as well as the SmallCap Market.
The Index was developed with a base level of 100 as of February 5, 1971.
"Index Price" on a given date shall mean the current market price of the
Index for that date.
"Starting Date" shall mean April 28, 1998.
"Starting Price" shall mean $40.50 per share.
The Board of Directors of M&M, by majority vote, may terminate the M&M
Agreement if, at any time during the ten day period commencing two days after
the Determination Date both of the following conditions are satisfied:
1. The Average Closing Price is twenty percent (20%) less than the Starting
Price; and
2. (i) the quotient of the Average Closing Price divided by the Starting
Price (such quotient being the "Anchor Ratio") shall be less than (ii) the
quotient of the Average Index Price divided by the Index Price on the Starting
Date less 0.10 of such quotient (which quotient less 0.10 shall be the "Index
Ratio").
Even if the two conditions set forth above are satisfied and M&M refuses
to consummate the M&M Merger on that basis, M&M must give prompt written notice
to Anchor. However, M&M may withdraw that notice at any time within the ten day
period commencing two days after the Determination Date. During the five day
period after receipt of such notice, Anchor has the option to elect to increase
the M&M Exchange Ratio to equal the lesser of (i) the quotient obtained by
dividing (1) the product of 0.80, the Staring Price and the M&M Exchange Ratio
(as then in effect) by (2) the Average Closing Price, and (ii) the quotient
obtained by dividing (1) the product of the Index Ratio and the M&M Exchange
Ratio (as then in effect) by (2) the Anchor Ratio. If Anchor makes this
election within the five day period, Anchor must give prompt written notice to
M&M of the election, and the M&M Agreement will remain in effect in accordance
with its terms, except the M&M Ratio will have been modified as described.
This possible adjustment reflects the parties agreement that M&M's
stockholders will assume the risk of declines in the value of Anchor Common
Stock to $32.40 per share. If the value of Anchor Common Stock were to decline
to $32.40 or less per share, but the price of Anchor Common Stock did not
decline more than 10% in comparison to the stock prices of the comparable bank
holding company stocks in the Index, then M&M's stockholders would continue to
assume the risk of decline in the value of the Anchor Common Stock.
The operation of the possible adjustment formula is illustrated by the
following. For purposes of this numerical example only, the M&M Exchange Ratio
is 0.87, the Starting Price is $40.50 and the Index Price as of the Starting
Date is $150.
Assuming the Average Closing Price is $28.00 and the Index Price is $140
on the Determination Date, the M&M Ratio would adjust. The Average Closing
Price would be 20% less than the Starting Price and the Anchor Ratio would be
0.6914 ($28.00 divided by $40.50) which would be less than the Index Ratio of
0.8333 ($140 divided by $150 less 10%). Therefore, at the option of Anchor the
M&M Ratio could be adjusted to be 1.0068 which represents the lesser of:
(a) 1.0068 [the quotient obtained by dividing (a) $28.19 (the product of
0.80 times the Starting Price of $40.50 times the original M&M Ratio of
0.87) by (b) the Average Closing Price of $28.00], and
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(b) 1.0486 [the quotient obtained by dividing .7250 (the product of the
Index Ratio of .8333 times the original M&M Ratio of 0.87) by the Anchor
Ratio of 0.6914].
The example above is for illustration purposes only. The actual market
price of Anchor Common Stock will vary and stockholders are urged to obtain
information on the market price of Anchor Common Stock that is more current
than the information in this Joint Proxy Statement/Prospectus. See "COMPARATIVE
MARKET PRICES -- Anchor Market Prices."
Opinion of M&M's Financial Advisor.
M&M retained Orr Management Company ("Orr") on May 6, 1998, to render to
the Board of Directors of M&M, a written opinion as to the fairness, from a
financial point of view, to the stockholders of M&M of the terms of the
proposed M&M Merger. On June 3, 1998, Orr presented its written opinion to the
M&M Board. On , 1998, Orr confirmed and updated its opinion that,
as of such date, the terms of the M&M Merger were fair, from a financial point
of view to the M&M stockholders.
The full text of Orr's opinion, dated as of May 15, 1998, is attached as
Appendix F hereto and should be read in its entirety with respect to the
procedures followed, assumptions made, matters considered and qualification and
limitation on the review undertaken by Orr in connection with its opinion.
M&M's stockholders are urged to read the opinion in its entirety.
Orr's opinion to M&M's Board of Directors on the M&M Merger is directed
only to the M&M Exchange Ratio and does not address the fairness, from a
financial point of view, of any Exchange Ratio that may be agreed upon by M&M
and Anchor pursuant to the provisions of the M&M Agreement that provides for
possible adjustment of the Exchange Ratio. Orr's opinion does not constitute a
recommendation to any stockholder of M&M as to how such stockholder should vote
at the M&M Special Meeting.
M&M selected Orr as its investment banker on the basis of its expertise in
merger and acquisition advisory services. Orr is an investment banking firm
whose principals have over 75 years of combined banking experience and have
been involved with over 35 bank related mergers and acquisitions.
No limitations were imposed by M&M upon Orr with respect to rendering its
opinion.
In arriving at its opinion, Orr reviewed, among other things: (i) the M&M
Agreement; (ii) certain publicly available information concerning M&M and
Anchor, including the respective Annual Reports on Form 10-K of M&M and Anchor
for each of the years in the three year period ended December 31, 1995-1997,
the respective Quarterly Reports on Form 10-Q for M&M and Anchor for the
quarter ended March 31, 1998; (iii) certain available financial forecasts
concerning the business and operations of M&M and Anchor, respectively; and
(iv) certain publicly available information with respect to other companies
that Orr believes to be comparable in certain respects to M&M and Anchor and
the trading markets for such other companies' securities.
In Orr's review and analysis, Orr assumed and relied upon the accuracy and
completeness of all of the financial and other information provided to Orr, or
that was publicly available, and has not attempted independently to verify nor
assumed responsibility for verifying any such information. With respect to the
financial projections, Orr assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of M&M or
Anchor, as the case may be, and Orr expresses no opinion with respect to such
forecasts or the assumptions on which they are based. Orr has not made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets (including properties and
facilities) or liabilities of M&M or Anchor.
The following summary does not purport to be a complete description of the
analyses performed or the matters considered by Orr in arriving at its opinion.
In addressing the fairness, from a financial point of view, of the
consideration to be issued by Anchor to the stockholders of M&M, Orr addressed
certain issues relating to the financial fairness of the proposed M&M Merger,
including: (i) how the M&M Merger compares to similar bank transactions; (ii)
the financial impact of the M&M Merger to the current stockholders of M&M; and
(iii) whether Anchor's operations and currency are of similar value to other
acquirors in similar transactions. To address the impact of the proposed M&M
Merger transaction, Orr reviewed analyses of recently announced bank
acquisitions, M&M's contribution to the new combined entity, its analysis of
stockholders' claims on the new entity, a present value analysis of M&M's
Common Stock on a stand-alone basis, M&M's operations and stock compared to its
peers, and Anchor's operations and stock compared to its peers. In summary, Orr
reached the conclusions that the proposed M&M
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Merger transaction is comparable to similar bank transactions, the financial
impact to the current stockholders of M&M is positive and fair, and Anchor's
operations and stock are well within the range of comparable acquirors in the
industry.
Orr employed a variety of methodologies in its analyses, including
analyses of the financial impact of the transaction based on a pro forma
contribution analysis, a shareholder's claims analysis, and a discounted
dividend analysis. The pro forma contribution analysis looked at the financial
impact of the M&M Merger on certain balance sheet and income statement items.
Such analysis included calculations, among others, that showed the percentage
contributions of M&M and Anchor to the total equity capital of the combined
entities would be 22.82% and 77.18%, respectively; and the percent of
contribution to market capitalization at May 15, 1998, would be 9.69% by M&M
and 90.31% by Anchor.
Shareholder's Claims Analysis. In its shareholder's claims analysis, Orr
calculated an earnings per share claims analysis (including Anchor's proposed
merger with ComSouth and assuming a 15% savings factor), and Orr concluded that
the M&M Merger would result in an increase of 6.3% in the earnings per
share-basic, and an increase of 7.6% in earnings per share-fully diluted. In
Orr's dividend claims analysis as part of its shareholder's claims analysis,
based on Anchor's annualized first quarter 1998 dividend of $0.12 per share of
Anchor Common Stock, the new equivalent dividend per share (basic) for M&M
would increase by 13.5%.
Discounted Dividends Analysis. Orr's discounted divided analysis compared
the value of M&M's current stock value to the value it will receive in the
exchange for shares of Anchor Common Stock. The five year financial projections
were supplied by M&M. Orr discounted the dividends at rates of 12%, 14%, and
16% and assumed a take out value at the end of year five based on
price-to-earnings multiples of 16, 18, and 20. The discounted values ranged
from a low of $18.92 per share to a high of $27.67 per share. The analysis
revealed that the current offer from Anchor, $35.67 per share based on the
exchange ratio, is higher than the stock price of holding the shares of M&M
Common Stock.
Comparable Bank Transactions Analysis. Orr reviewed 15 comparable bank
transactions involving sellers with assets less than $300 million announced
between February, 1997 and May, 1998. Orr noted the prices paid in these
mergers as a multiple of book values and earnings, and Orr reviewed other data
in connection with these mergers, including the amount of total assets, the
return on average assets and the return on average earnings of the acquired
institutions. Orr then compared this data to that of M&M and the value to be
received by M&M stockholders in the M&M Merger.
The comparable bank transactions showed a range of transaction values as
multiples of book value per share of a low of 1.51 times to a high of 4.78
times and an average of 3.26 times. The range of transaction values as
multiples of earnings per share revealed a low of 15.38 times and a high of
36.30 times and an average of 23.94 times. The M&M acquisition multiple of book
value was 3.07 times and the multiple of earnings per share was 31.85 times.
No company or transaction used in the above analyses as a comparison is
identical to M&M, Anchor or the M&M Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial growth and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis in and of itself does not necessarily provide meaningful intercompany
comparisons.
On May 6, 1998, M&M engaged Orr and agreed to pay Orr fees totaling
$20,000 plus expenses for rendering its fairness opinion regarding the proposed
M&M Merger. The payment of that fee is not contingent upon consummation of the
M&M Merger. Further, M&M has agreed to reimburse legal and other reasonable
expenses and to indemnify Orr and its affiliates, directors, agents, employees
and controlling persons in connection with certain matters related to rendering
its opinion, including liabilities under securities laws.
THE WRITTEN OPINION OF ORR TO M&M IS ATTACHED AS APPENDIX F TO THIS JOINT
PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE M&M FAIRNESS OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX F. M&M STOCKHOLDERS ARE URGED TO READ THE OPINION IN ITS
ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY ORR
IN CONNECTION WITH RENDERING ITS OPINION.
M&M Effective Date
Subject to the conditions to the obligations of the parties to consummate
the M&M Merger, the M&M Effective Date will be when the Articles of Merger have
been accepted for filing by the Secretary of State of South Carolina in
accordance with the South Carolina Business Corporation Act of 1988, as
amended.
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No assurance can be provided that the necessary stockholder and regulatory
approvals can be obtained or that other conditions precedent to the M&M Merger
can or will be satisfied. Anchor and M&M anticipate that all conditions to
consummation of the M&M Merger will be satisfied so that the M&M Merger can be
consummated in the third quarter of 1998. However, delays in the consummation
of the M&M Merger could occur.
Employment Agreement
On the M&M Effective Date, Anchor will enter into an Employment Agreement
with Chester A. Duke, provided he has not terminated his employment with M&M or
its subsidiaries at or prior to the M&M Effective Date. The specific terms of
the Employment Agreement with Mr. Duke have not been negotiated between Anchor
and Mr. Duke.
Expenses and Fees Related to the M&M Merger. Each party to the M&M
Agreement will pay its own expenses incurred in connection with M&M Merger,
including the cost of soliciting proxies for the respective M&M and Anchor
Special Meetings and the printing costs and expenses incurred in connection
with this Joint Proxy Statement/Prospectus and the associated Anchor
Registration Statement.
The M&M Agreement also provides that if it is terminated for any of the
reasons listed below, M&M will pay Anchor a termination fee of $1.5 million.
The termination fee would be payable to Anchor if the M&M Agreement is
terminated:
1. By Anchor, if the Board of Directors of M&M has failed to recommend
the M&M Merger to the M&M stockholders at any time prior to the M&M Special
Meeting or has withdrawn such recommendation or modified or changed such
recommendation in a manner adverse in any respect to the interests of
Anchor, or by the Board of Directors of M&M if a tender offer or exchange
offer for 25% or more of the outstanding shares of M&M Common Stock is
commenced by a party other than Anchor,and the Board of M&M recommends that
the M&M stockholders tender their shares in such tender or exchange offer
or the Board otherwise fails to recommend that the M&M stockholders reject
such tender offer or exchange offer within ten business days after it is
commenced;
2. By M&M or Anchor because of a failure to obtain the required approval
of the M&M stockholders after a proposal for an acquisition or purchase of
all or a substantial portion of the assets of, or a substantial equity
interest in, M&M or any merger or other business combination with M&M other
than as contemplated by the M&M Agreement (an "Acquisition Proposal") shall
have been publicly disclosed, or any person shall have publicly disclosed
an intention to make an Acquisition Proposal; or
3. By Anchor if M&M has willfully breached the M&M Agreement and, at or
prior to such termination by Anchor because of such breach by M&M, an
Acquisition Proposal has been made known to M&M or any of its subsidiaries
or has been publicly disclosed to M&M stockholders or any person has made
known to M&M or any of its subsidiaries or otherwise publicly disclosed an
intention to make an Acquisition Proposal and regardless of whether such
Acquisition Proposal has been rejected by M&M or withdrawn prior to the
time of such termination.
Regulatory Approvals
The Mergers may not proceed until Anchor has received the required
regulatory approvals. Applications for approvals of the Federal Reserve and the
South Carolina Board have been submitted for the ComSouth Merger and the M&M
Merger. These applications are pending. There can be no assurance that such
approvals will not be accompanied by conditions which cause such approvals to
fail to satisfy the conditions set forth in the ComSouth Agreement and the M&M
Agreement.
Neither Anchor, ComSouth nor M&M is aware of any material governmental
approvals or actions that are required for consummation of the respective
Mergers, except as described below. If any other approval or action should be
required, it presently is contemplated that such approval or action would be
sought.
Both Mergers require the prior approval of the Federal Reserve, pursuant
to Section 3 of the Bank Holding Company Act of 1956, as amended ("BHCA"). In
granting its approval under Section 3 of the BHCA, the Federal Reserve must
take into consideration, among other factors, the financial and managerial
resources and future prospects of the institution and the convenience and needs
of the communities to be served. Applicable law prohibits the Federal Reserve
from approving each Merger if it would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or if its
effect in any area of the country may be to substantially lessen competition or
to tend to create a monopoly, or if it would be a restraint of trade in any
other manner, unless the Federal Reserve finds that any anti-competitive
effects are outweighed clearly by the public interest and the probable effect
of the transaction in meeting the convenience and needs of the communities to
be served. Under the BHCA, the
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Mergers may not be consummated until the 30th day following the date of Federal
Reserve approval, which may be shortened by the Federal Reserve to the 15th
day, during which time the United States Department of Justice may challenge
the transaction on anti-trust grounds. The commencement of any anti-trust
action would stay the effectiveness of the Federal Reserve's approval, unless a
court specifically orders otherwise.
Rights of Dissenting Stockholders
Anchor, ComSouth and M&M are South Carolina corporations, and each is
organized under and governed by the South Carolina Business Corporation Act of
1988, as amended ("South Carolina Act"). The South Carolina Act governs the
rights of dissent of the stockholders of Anchor, ComSouth and M&M.
Pursuant to Section 33-13-101 et. seq. of the South Carolina Act (the text
of which is reproduced in full as Appendix C hereto), each stockholder of
Anchor, ComSouth and M&M is entitled to dissent from and obtain payment of the
fair value of his shares in the event a merger transaction upon which he is
entitled to vote occurs ("Dissenters' Rights"). The stockholders of Anchor have
Dissenters' Rights in regard to both the proposed ComSouth Merger and the M&M
Merger. Stockholders of ComSouth have Dissenters' Rights regarding the proposed
ComSouth Merger. Stockholders of M&M have Dissenters' Rights regarding the
proposed M&M Merger.
A stockholder of Anchor, ComSouth or M&M who wishes to assert his Dissenters'
Rights:
1. must give to the company in which he owns shares before the vote is
taken, written notice of his intent to demand payment for his shares if
the proposed action is effectuated, and
2. must not vote his shares in favor of the proposed action. A vote in
favor of the proposed action cast by the holder of a proxy solicited by
the Company shall not disqualify a stockholder from demanding payment for
his shares under the South Carolina Act.
A STOCKHOLDER OF ANCHOR, COMSOUTH OR M&M WHO DOES NOT SATISFY THE ABOVE
REQUIREMENTS IS NOT ENTITLED TO PAYMENT FOR HIS SHARES PURSUANT TO HIS
DISSENTERS' RIGHTS.
A stockholder's failure to vote against the proposed action will not in
itself constitute a waiver of his appraisal rights. A vote against the proposed
action will not by itself be deemed to satisfy the notice requirements under
South Carolina law with respect to appraisal rights.
Stockholders of Anchor must give notice regarding their intent to assert
the Dissenters' Rights to Tommy E. Looper, Secretary, Anchor Financial
Corporation, 2002 Oak Street, Myrtle Beach, South Carolina 29577.
Stockholders of ComSouth Common Stock must give written notice regarding
their desire to assert the Dissenters' Rights to Harry R. Brown, Secretary,
ComSouth Bankshares, Inc. 1136 Washington Street, Suite 200, Columbia, South
Carolina 29201.
Stockholders of M&M must give written notice regarding their desire to
assert their Dissenters' Rights to Marion E. Freeman, Secretary, M&M Financial
Corporation, 307 North Main Street, Marion, South Carolina 29571.
If the ComSouth Merger and/or the M&M Merger are authorized at the Anchor
Special Meeting, Anchor will deliver a written dissenters' notice ("Dissenters'
Notice") to all Anchor stockholders who satisfied the above requirements to
assert Dissenters' Rights. The Dissenters' Notice must be sent no later than
ten (10) days after the Anchor Special Meeting and must contain the information
described below in regard to all Dissenters' Notices.
If the ComSouth Merger is authorized at the ComSouth Special Meeting,
ComSouth will deliver a written Dissenters' Notice to all ComSouth stockholders
who satisfied the above requirements regarding asserting Dissenters' Rights.
The Dissenters' Notice must be sent no later than ten (10) days after the
ComSouth Special Meeting and must contain the information described below in
regard to Dissenters' Notices.
If the M&M Merger is authorized at the M&M Special Meeting, M&M will
deliver a written Dissenters' Notice to all M&M stockholders who satisfied the
above requirements regarding asserting Dissenters' Rights. The Dissenters'
Notice must be sent no later than ten (10) days after the M&M Special Meeting
and must contain the information described below for Dissenters' Notices.
All Dissenters' Notices to stockholders of Anchor, ComSouth or M&M, must,
in addition to other items, provide the following:
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1. State where the payment demand must be sent and where certificates for
shares must be deposited;
2. Supply a form for demanding payment that includes certain specific
information;
3. Set a date by which the company sending the notice to its dissenting
stockholder must receive the payment demand, which date may not be fewer
than thirty (30) days nor more than sixty (60) days after the date the
Dissenters' Notice is delivered and set a date by which certificates must
be deposited, which may not be earlier than twenty days after the demand
date; and
4. Be accompanied by a copy of ss. 33-13-101 et. seq. of the South
Carolina Code.
An Anchor, ComSouth or M&M stockholder who demands payment and otherwise
complies with terms of the Dissenters' Notice will retain all other rights as a
stockholder of the respective company in which he owns shares until such rights
are cancelled or modified by the consummation of the ComSouth and/or M&M
Merger, as applicable.
An Anchor, ComSouth or M&M stockholder who does not comply with the
requirement that he demand payment and deposit his share certificates where
required, each by the date set forth on the Dissenters' Notice, is not entitled
to payment for his shares as a dissenter.
Except as otherwise provided by law, as soon as the proposed ComSouth
Merger and/or M&M Merger is consummated, or upon receipt of a payment demand,
Anchor shall pay each dissenting Anchor stockholder who complied with the law,
the amount Anchor estimates to be the fair value of his shares, plus accrued
interest. The payment must be accompanied by certain information, including
certain financial information and a statement of Anchor's estimate of the fair
value of his shares.
Except as otherwise provided by law, as soon as the proposed ComSouth
Merger is consummated, or upon receipt of a payment demand, ComSouth shall pay
each dissenting ComSouth stockholder who complied with the law, the amount
ComSouth estimates to be the fair value of his shares, plus accrued interest.
The payment must be accompanied by certain information including certain
financial information and a statement of ComSouth's estimate of the fair value
of the shares.
Except as otherwise provided by law, as soon as the proposed M&M Merger is
consummated, or upon receipt of a payment demand, M&M shall pay each dissenting
M&M stockholder who complied with the law, the amount M&M estimates to be the
fair value of his shares, plus accrued interest. The payment must be
accompanied by certain information including certain financial information and
a statement of M&M's estimate of the fair value of the shares.
A corporation may withhold immediate payment from a dissenting
stockholder, if such dissenting stockholder was not the beneficial owner of the
shares on the date set forth in the Dissenters' Notice.
A dissenter may reject his company's offer of fair value and demand in
writing payment of his estimated fair value and interest due, if within thirty
(30) days after his company offers payment: (i) the dissenter believes the
amount offered is less than the fair value of his shares or that interest due
is incorrectly calculated; or (ii) the stockholder's company fails to make
payment within sixty (60) days after the date for demanding payment. If a
demand for payment remains unsettled, the company with the dissenting
stockholder shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the fair value of his
shares and accrued interest. If the applicable company does not commence the
proceedings within the sixty (60) day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
The court in an appraisal proceeding shall determine all costs of the
proceeding. The costs shall be assessed against the company with the dissenting
stockholder unless the court finds the dissenter acted arbitrarily, vexatiously
or not in good faith in demanding payment. The court also may assess fees and
expenses of counsel and experts for the respective parties.
THE FOREGOING SUMMARY IS NOT A COMPLETE STATEMENT OF THE LAW WITH RESPECT
TO DISSENTERS' RIGHTS, BUT IT IS INTENDED MERELY TO APPRISE THE STOCKHOLDERS OF
ANCHOR, COMSOUTH AND M&M THAT SUCH RIGHTS EXIST. ANY STOCKHOLDER OF ANCHOR,
COMSOUTH OR M&M WHO INTENDS TO EXERCISE RIGHTS TO DISSENT SHOULD CAREFULLY READ
SECTIONS 33-13-101 ET SEQ OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT OF
1988, AS AMENDED, ATTACHED HERETO AS APPENDIX C AND INCORPORATED HEREIN BY
REFERENCE. FAILURE TO COMPLY STRICTLY WITH THE STATUTORY PROCEDURES IN THE
SOUTH CAROLINA ACT MAY RESULT IN THE FORFEITURE OF DISSENTERS' RIGHTS.
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Accounting Treatment
Each of the Mergers is intended to be accounted for as a
pooling-of-interests. Accordingly, under generally accepted accounting
principles the assets and liabilities of Anchor, ComSouth and M&M will be
carried forward on the consolidated books of Anchor after the Effective Dates
of the Mergers at the amounts recorded on the respective books of each party
prior to the Mergers. Net income of Anchor for the year ended in which each
Merger occurs will include the net income of Anchor as well as ComSouth and
M&M, as the case may be, for the entire fiscal period in which each Merger
occurs. After the Mergers, the reported income of Anchor for each year prior to
the Mergers will be combined with that of ComSouth and M&M and restated as
income of the combined company. The unaudited pro forma financial information
included in this Joint Proxy Statement/Prospectus reflects each of the Mergers
using the "pooling-of-interests" method of accounting.
Directors and Executive Officers Following the Mergers
The officers and directors of Anchor will remain the same following the
proposed Mergers, except that certain additional persons will be named to the
Board of Directors of Anchor and two current Directors of Anchor will resign.
Pursuant to the ComSouth Agreement, four additional directors will be
designated to the Anchor Board of Directors from the current directors of
ComSouth or the ComSouth Banks. Pursuant to the M&M Agreement, two additional
directors will be designated for the Anchor Board of Directors from the current
directors of M&M or the M&M Bank, and two additional directors will be
designated to the Anchor Bank Board of Directors from the current directors of
M&M or the M&M Bank. The new directors to be designated for the Boards of
Directors of Anchor and Anchor Bank shall serve on such Boards from and after
the Effective Date in accordance with the Articles of Incorporation and Bylaws
of Anchor and Anchor Bank, as applicable.
Anchor currently has sixteen (16) Directors and its Articles of
Incorporation provide for a maximum of twenty (20) Directors. In order to
accommodate the addition of the six new Directors to the Anchor Board of
Directors described above, if and when the ComSouth Merger and the M&M Merger
are consummated, two of the current Directors of Anchor will resign their
directorships. Mr. Zeb M. Thomas, Sr. and Mr. Admah Lanier, Jr. have submitted
their resignations effective on the Effective Date of the last to close of the
Mergers. The Board of Directors of Anchor has advised Mr. Thomas that he will
be elected by the Board as the non-voting Chairman Emeritus of the Anchor
Board, and Mr. Lanier that he will be elected to the Board of Directors of the
Anchor Bank. The Board of Anchor has indicated its intent to elect Mr. Stephen
L. Chryst as its Chairman if the above changes occur.
Interests of Certain Persons in the Mergers
The ComSouth Agreement provides that after the ComSouth Effective Date,
Anchor will:
1. Indemnify each officer, director and former director of ComSouth or the
ComSouth Banks named as a defendant in the lawsuit styled Roof v. Swanson et al
which is pending in the Court of Common Pleas for Richland County, South
Carolina, including the advancing of expenses of defending the case;
2. Purchase and keep in force for not less than three years, directors and
officers' liability insurance to the extent available providing coverage for
actions and omissions by officers and directors of ComSouth and the ComSouth
Banks for claims made during the period commending with and after the ComSouth
Effective Date; and
3. Indemnify each director and officer of ComSouth or the ComSouth Banks
to the fullest extent permitted by South Carolina law by Anchor against all
liabilities and the expense of defending claims of liability connected with or
arising out of such director's or officer's service as such.
In addition, the ComSouth Agreement provides that Anchor will enter into
employment agreements with J. Michael Kapp, Arthur P. Swanson, John P.
Barnwell, and Carmel Dodds, provided these persons have not terminated their
employment with ComSouth or its subsidiaries at or prior to the ComSouth
Effective Date.
The M&M Agreement provides that after the M&M Effective Date, Anchor will:
1. Indemnify each director and officer of M&M or any of its subsidiaries
to the fullest extent permitted by South Carolina law by Anchor against all
liabilities and the expense of defending claims of liability connected with or
arising out of such director's or officer's service as such; and
2. Purchase and keep in force for not less than three years, directors and
officers' liability insurance to the extent available providing coverage for
actions and omissions by officers and directors of M&M and its subsidiaries for
claims made during the period commending with and after the M&M Effective Date.
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In addition, the M&M Agreement provides that Anchor will enter into an
employment agreement with Chester A. Duke, provided Mr. Duke has not terminated
his employment with M&M or its subsidiaries at or prior to the M&M Effective
Date.
Material Federal Income Tax Consequences of the Mergers
THE FOLLOWING IS A SUMMARY OF MATERIAL, ANTICIPATED FEDERAL INCOME TAX
CONSEQUENCES OF THE COMSOUTH MERGER AND THE M&M MERGER. THIS SUMMARY IS BASED
ON THE FEDERAL INCOME TAX LAWS NOW IN EFFECT AND AS CURRENTLY INTERPRETED; IT
DOES NOT TAKE INTO ACCOUNT POSSIBLE CHANGES IN SUCH LAWS OR INTERPRETATIONS,
INCLUDING AMENDMENTS TO APPLICABLE STATUTES OR REGULATIONS OR CHANGES IN
JUDICIAL OR ADMINISTRATIVE RULINGS, SOME OF WHICH MAY HAVE RETROACTIVE EFFECT.
THIS SUMMARY DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF THE POSSIBLE FEDERAL
INCOME TAX CONSEQUENCES OF THE COMSOUTH MERGER AND/OR THE M&M MERGER AND IS NOT
INTENDED AS TAX ADVICE TO ANY PERSON. IN PARTICULAR, AND WITHOUT LIMITING THE
FOREGOING, THIS SUMMARY DOES NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES OF
EITHER THE COMSOUTH MERGER OR THE M&M MERGER TO STOCKHOLDERS IN LIGHT OF THEIR
PARTICULAR CIRCUMSTANCES OR STATUS. NOR, DOES THIS SUMMARY ADDRESS ANY
CONSEQUENCES OF THE COMSOUTH MERGER AND THE M&M MERGER UNDER ANY STATE, LOCAL,
ESTATE OR FOREIGN TAX LAWS.
STOCKHOLDERS OF ANCHOR, COMSOUTH AND M&M ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE COMSOUTH AND/OR
M&M MERGER, AS APPLICABLE, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICATION AND EFFECT OF FEDERAL, FOREIGN, STATE, LOCAL AND OTHER TAX LAWS,
AND THE IMPLICATIONS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
A federal income tax ruling with respect to the proposed Mergers was not
requested from the Internal Revenue Service. Anchor has received an opinion of
its legal counsel, Gerrish & McCreary, P.C., Memphis, Tennessee, concerning
certain federal income tax consequences of the proposed Mergers under federal
income tax law, and this discussion is qualified in its entirety by such
opinion.
It is the opinion of Gerrish & McCreary, P.C. that:
1. The ComSouth Merger and the M&M Merger will be treated for federal
income tax purposes as tax-free mergers under Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended.
2. No gain or loss will be recognized by Anchor, ComSouth or M&M or the
stockholders of Anchor, ComSouth or M&M upon the exchange of the Common Stock
of ComSouth and M&M for Anchor Common Stock, except by the stockholders of
ComSouth and M&M who receive cash in lieu of any fractional share otherwise
issuable.
3. Stockholders of Anchor, ComSouth and M&M who dissent from the Mergers,
as applicable, will be treated as having received such payment as a
distribution and redemption of their shares of stock as required by Section
356(a) of the Code. Holders of Anchor, ComSouth or M&M Common Stock electing to
exercise their Dissenters' Rights should consult their own tax advisors as to
the tax treatment in their particular circumstance.
4. The aggregate tax basis of Anchor Common Stock received by stockholders
of ComSouth and M&M will be the same as the basis of ComSouth Common Stock and
M&M Common Stock, respectively, surrendered in exchange therefore.
5. The holding period of Anchor Common Stock received by the stockholders
of ComSouth Common Stock and M&M Common Stock, respectively, will include the
period in which ComSouth Common Stock and M&M Common Stock surrendered
therefore was held, provided that the ComSouth Common Stock or the M&M Common
Stock, respectively, is a capital asset in the hand of the stockholders of
ComSouth and M&M, respectively, on the date of exchange.
Among other things, the opinion of Gerrish & McCreary, P.C. was based on
stockholders of ComSouth and M&M maintaining sufficient equity ownership
interest in Anchor after the respective Mergers. The Internal Revenue Service
takes the position for purposes of issuing an advance ruling on reorganizations
that the stockholders of an acquired corporation (in other words, ComSouth and
M&M) must maintain a continuing equity ownership interest in the acquiring
corporation (in other words, Anchor) equal, in terms of value, to at least
fifty percent (50%) of their interest in the acquired corporation. Moreover,
shares of the acquired corporation and the acquiring corporation held by
stockholders of the acquired corporation and otherwise sold, redeemed or
disposed of prior to or shortly after the applicable effective date are taken
into account. Management of Anchor has represented that it has no plan or
intention to cause Anchor to redeem or otherwise reacquire the shares of Anchor
Common Stock issued in either the ComSouth Merger or the M&M Merger. In
addition to
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the foregoing requirements, certain additional matters must be true with
respect to the ComSouth Merger and the M&M Merger and Anchor believes that
these factual matters will be satisfied.
Resales of Anchor Common Stock to be Received by Certain Stockholders of
ComSouth and M&M
Anchor has registered under the Securities Act of 1933, as amended (the
"1933 Act"), the Anchor Common Stock to be issued to ComSouth and M&M
stockholders in the Mergers. Such registration does not cover resales by
stockholders of ComSouth and M&M who may be deemed to control or to be
controlled by or be under common control with ComSouth and M&M, respectively,
at the time of the respective Special Meetings (the "Affiliates") or those who
were Affiliates of Anchor prior to these Mergers.
Anchor Common Stock issued pursuant to the Mergers to persons who are not
Affiliates of ComSouth or M&M will be freely transferable without restriction.
Anchor Common Stock issued pursuant to the Mergers to persons who are
Affiliates of ComSouth or M&M will be subject to certain restrictions on
transfer as set forth in Rule 145 of the Securities and Exchange Commission
(the "Commission").
Both ComSouth and M&M have agreed to use their best efforts to provide
Anchor with such information as may be reasonably necessary for Anchor to
determine the identity of those persons who may be deemed to be Affiliates of
ComSouth and M&M, respectively, and a list of those persons who ComSouth and
M&M, respectively, believe may be deemed to be Affiliates. Anchor will
determine the identity of those individuals whom it deems to be Affiliates of
ComSouth or M&M. Anchor must receive from each Affiliate an agreement not to
transfer any Anchor Common Stock issued to such Affiliate until financial
statements covering at least thirty (30) days of post-merger combined
operations of Anchor and ComSouth, and Anchor and M&M, as appropriate, have
been published. The Affiliates agree that they will not transfer any Anchor
Common Stock received in the Mergers except in compliance with the 1933 Act,
the rules and regulations and regulations of the Commission promulgated
thereunder and applicable restrictions regarding pooling-of-interests
accounting treatment.
Certain Differences in Rights of Anchor, ComSouth and M&M Stockholders
As a result of the Mergers, on the respective ComSouth and M&M Effective
Dates, stockholders of ComSouth and M&M, respectively, will exchange their
shares of Common Stock in ComSouth and M&M for shares of Common Stock in Anchor
and will become stockholders of Anchor. Thereafter the rights as stockholders
of the ComSouth stockholders and the M&M stockholders will be determined by
Anchor's Articles of Incorporation and Bylaws. The following is a summary of
the material differences in the rights of stockholders of Anchor and ComSouth
and the rights of stockholders of Anchor and M&M. Anchor, ComSouth and M&M are
South Carolina corporations governed by the South Carolina Code. Accordingly,
there are no material differences between the rights of an Anchor stockholder
and the rights of a stockholder of ComSouth or M&M solely under the South
Carolina Code. This summary does not purport to be a complete discussion of,
and is qualified in its entirety by reference to, the South Carolina Code and
the Articles of Incorporation and Bylaws of each company.
Authorized Capital Stock. Anchor currently is authorized to issue
-------------------------
10,000,000 shares of common stock, no par value, of which shares were
issued and outstanding as of , 1998. No other class of common stock is
authorized. The Board of Directors of Anchor may issue additional shares of
Anchor Common Stock up to the maximum amount permitted by the Articles of
Incorporation, without further action by the stockholders of Anchor, unless
such action is otherwise required by applicable law. Anchor's Articles of
Incorporation provide that no stockholders of Anchor have preemptive rights to
subscribe for or to purchase any shares or other securities issued by Anchor.
ComSouth is authorized to issue 75,000,000 shares of ComSouth Common
Stock, no par value, of which shares were issued and outstanding as of the
ComSouth Record Date. ComSouth also is authorized to issue 50,000,000 shares of
voting preferred stock, no par value, and 50,000,000 shares of special stock,
no par value, of which none are issued and outstanding as of the ComSouth
Record Date.
M&M is authorized to issue 3,000,000 shares of M&M Common Stock, no par
value, of which shares were issued and outstanding as of the M&M Record
Date.
Preemptive Rights. Stockholders of Anchor and ComSouth have no preemptive
------------------
rights. Stockholders of M&M have preemptive rights. The Board of Directors of
each company may issue authorized shares of each company's common stock without
further stockholder vote, unless required for a particular transaction by
applicable law. Preemptive rights are rights to purchase a pro rata amount of
subsequently issued common stock. The absence of preemptive rights may cause
dilution of a stockholder's interest in the company without specific
shareholder authority.
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Voting Rights. The stockholders of Anchor, ComSouth and M&M are entitled
--------------
to one vote per share in the election of directors and all matters to come
before the respective stockholders. The stockholders of M&M are entitled to
cumulate their votes for the election of directors. The stockholders of Anchor
and ComSouth do not have cumulative voting.
Special Meetings of Stockholders. Special meetings of the stockholders of
---------------------------------
Anchor may be called by the President, the Chairman of the Board of Directors,
a majority of the directors or by the holders of not less than one-tenth of all
shares entitled to vote at such meeting. Special meetings of the stockholders
of ComSouth may be called by the President or the Chairman of the Board of
Directors or a majority of the directors and will be called by the President or
Secretary at the request in writing of a majority of the directors or
shareholders owning at least 10% of the shares of ComSouth issued and
outstanding and entitled to vote. Special meetings of stockholders of M&M may
be called at any time by the Board of Directors or shareholders owning, in the
aggregate, not less than 10% of the stock of M&M issued and outstanding and
entitled to vote.
Quorum. The holders of a majority of the shares of Anchor and M&M entitled
-------
to vote at the respective shareholder meetings of these companies, represented
in person or by proxy, will constitute a quorum for the transaction of
business. The holders of one-third of the shares of ComSouth Common Stock
entitled to vote at a shareholder meeting of ComSouth, represented in person or
by proxy, will constitute a quorum for the transaction of business.
Directors. Anchor and ComSouth's Articles and Bylaws provide for a Board
----------
of Directors to serve staggered three year terms. Stockholders of Anchor and
ComSouth vote only for candidates in the class of directors whose terms expire
at the time of the annual stockholders' meeting. The members of the Board of
Directors of M&M do not serve staggered terms; such directors serve one-year
terms which expire at the time of the annual meeting of stockholders.
The staggered classification and election of members to a board of
directors could make it more difficult for stockholders to effect a significant
change in the overall composition of the board, thus perpetuating the tenure of
management.
The Anchor Articles of Incorporation provide that any of the directors of
Anchor may be removed by a vote of the majority of the entire Board for
"cause," which shall mean fraudulent or dishonest acts or gross abuse of
authority in the discharge of the director's duties to the corporation and
shall be established after written notice of specific charges and the
opportunity to meet and refute such charges. The holders of a majority of the
outstanding shares of Anchor Common Stock may remove directors with or without
cause.
The ComSouth Articles of Incorporation provide that an affirmative vote of
80% of the outstanding shares of ComSouth shall be required to remove any or
all of the directors without cause.
The Articles and Bylaws of M&M do not address removal of directors.
Therefore, such removal would be governed by the South Carolina Code.
Amendment of Articles of Incorporation and Bylaws. Unless applicable law
--------------------------------------------------
or an Article of Incorporation of Anchor requires a different vote to amend or
repeal such Articles, Anchor's Articles may be amended or repealed by a
two-thirds vote of the stockholders entitled to vote thereon. However, Anchor's
Articles require that certain of the Articles of Incorporation may only be
amended or repealed by the affirmative vote of holders of at least 80% of all
outstanding voting shares. These provisions render more difficult the
accomplishment of a merger or the assumption of control by a principal
stockholder, and such provisions make the removal of management more difficult.
The specific Articles of Incorporation requiring 80% approval for amendment or
repeal include:
i. The capital stock of Anchor may be issued for valid corporate purposes
upon authorization by the Board of Directors of Anchor without stockholder
approval. Such authorization by the Board may be made by a majority or
other vote of the Board as may be provided in the Bylaws of Anchor. The
affirmative vote of the holders of not less than eighty percent (80%) of
the outstanding voting stock of Anchor is required to amend or repeal these
provisions.
ii. The affirmative vote of the holders of not less than eighty percent
(80%) of the outstanding voting stock of Anchor is required in the event
that the Board of Anchor does not recommend to the stockholders of Anchor a
vote in favor of (1) a merger or consolidation of Anchor with, or (2) a
sale, exchange or lease of all or substantially all of the assets of Anchor
to any person or entity. The affirmative vote of the holders of not less
than eighty percent (80%) of the outstanding voting stock of Anchor is
required to amend or repeal these provisions.
iii. The Board of Anchor shall consist of a maximum of 20 persons. The
affirmative vote of the holders of not less than eighty percent (80%) of
the outstanding voting stock of Anchor is required to amend or repeal this
provision.
49
<PAGE>
Unless applicable law requires a different vote with respect to a
particular provision in the Anchor Bylaws, such Bylaws may be amended or
repealed by a majority vote of the entire Board of Anchor or a majority vote of
the stockholders entitled to vote thereon. The Bylaws of Anchor explicitly
require the Board of Directors to consider all factors it deems relevant in
evaluating any proposed tender offer, exchange offer or other change in control
for Anchor or any of its subsidiaries. This provision requires the Board to
evaluate whether a proposal is in the best interests of Anchor by considering
the best interests of the stockholders, and other relevant factors including
the social, legal and economic effects on employees, customers and the
communities served by Anchor and its subsidiaries. These specific standards
could make it more difficult to challenge the business judgment of the Board of
Anchor in deciding not to recommend a particular transaction to the Anchor
stockholders, even if the transaction were favorable to the interests of such
stockholders.
The ComSouth Articles of Incorporation require the affirmative vote of
holders of 80% of the outstanding shares of ComSouth to approve any plan of
merger, consolidation or exchange or any plan for the sale of all, or
substantially all, the property and assets, with or without the goodwill, of
ComSouth or any resolution to dissolve ComSouth, if such plan or resolution has
not been adopted by the affirmative vote of at least 80% of the full Board of
Directors of ComSouth. ComSouth's Articles also require the directors of
ComSouth, when evaluating any proposed plan of merger, consolidation, exchange
or sale of all, or substantially all, of the assets of ComSouth, to consider
the interests of the employees of ComSouth and the community or communities in
which ComSouth and its subsidiaries do business in addition to the interests of
ComSouth's shareholders. In addition, the provisions of the ComSouth Articles
of Incorporation discussed in this paragraph, as well as the provisions
relating to removal of directors, classification of the Board of Directors and
nomination of directors, may not be amended, altered or repealed or be
inconsistent with such provisions unless approved by the affirmative vote of
80% of the full Board of Directors and approved by the affirmative vote of 80%
of the outstanding shares of ComSouth.
The ComSouth Bylaws provide that two-thirds of the Board of Directors must
consent to any amendment, repeal or adoption of a Bylaw provision. The ComSouth
Bylaws also may be amended or appealed by vote of the holders of shares
entitled at to time vote for the election of directors.
The M&M Articles of Incorporation require that when any proposed merger or
purchase or sale of assets not in the ordinary course of business is on the
agenda for a meeting of shareholders of M&M and said proposal is not
recommended by the M&M Board of Directors, 80% of the shares issued by M&M
shall constitute a quorum for such shareholders' meeting. In addition, a vote
of 80% of the shares of M&M issued shall be required to approve any proposed
merger or purchase or sale of assets not in the ordinary course of business
which is not recommended by the M&M Board.
The M&M Bylaws may be amended, altered or repealed by a vote of a majority
of the entire Board of Directors.
THE FOREGOING DISCUSSION OF CERTAIN SIMILARITIES AND MATERIAL DIFFERENCES
BETWEEN THE RIGHTS OF ANCHOR, COMSOUTH AND M&M STOCKHOLDERS IS ONLY A SUMMARY
OF CERTAIN PROVISIONS AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF SUCH
SIMILARITIES AND DIFFERENCES, AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE TO
SOUTH CAROLINA CODE AND THE FULL TEXT OF THE ARTICLES OF INCORPORATION AND
BYLAWS OF ANCHOR, COMSOUTH AND M&M.
50
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
Anchor Market Prices
The Anchor Common Stock is listed on The Nasdaq Stock Market under the
symbol "AFSC." The following table sets forth, for the indicated periods, the
high and low closing sales prices for Anchor Common Stock as reported by The
Nasdaq Stock Market for each of the quarters indicated.
<TABLE>
<CAPTION>
Sales Price
-----------------------
Calendar Period High Low
- - -------------------------------------------- ----------- -----------
<S> <C> <C>
1996
First Quarter ..................... $ 14.67 $ 13.17
Second Quarter .................... $ 14.00 $ 13.50
Third Quarter ..................... $ 20.33 $ 13.33
Fourth Quarter .................... $ 23.67 $ 18.00
1997
First Quarter ..................... $ 23.00 $ 21.00
Second Quarter .................... $ 23.33 $ 21.00
Third Quarter ..................... $ 29.33 $ 22.17
Fourth Quarter .................... $ 35.00 $ 30.50
1998
First Quarter ..................... $ 44.00 $ 32.00
Second Quarter (thru 5/19/98) ..... $ 44.00 $ 39.25
</TABLE>
ComSouth Market Prices
The ComSouth Common Stock has been listed on the American Stock Exchange
("AMEX") under the symbol "CSB" since March 21, 1996. Prior to that date, there
had been only limited trading in ComSouth Common Stock since there was no
established market for the stock. The following table sets forth, for the
indicated periods, the high and low closing sales prices for ComSouth Common
Stock as reported by AMEX for the quarters in which trading occurred since
March, 1996.
<TABLE>
<CAPTION>
Sales Price
-----------------------
Calendar Period High Low
- - -------------------------------------------- ----------- -----------
<S> <C> <C>
1996
Second Quarter .................... $ 14.50 $ 12.37
Third Quarter ..................... $ 13.12 $ 11.62
Fourth Quarter .................... $ 15.25 $ 12.50
1997
First Quarter ..................... $ 15.88 $ 14.50
Second Quarter .................... $ 20.63 $ 15.13
Third Quarter ..................... $ 24.88 $ 19.63
Fourth Quarter .................... $ 23.50 $ 16.75
1998
First Quarter ..................... $ 30.00 $ 21.00
Second Quarter (thru 4/30/98) ..... $ 33.00 $ 27.63
</TABLE>
M&M Market Prices
M&M Common Stock is not listed for quotation on any stock exchange. The
price of M&M Common Stock in the last known sales transaction prior to May 1,
1998 (the date the M&M Merger was publicly announced) was $17.00 per share and
occurred on April 10, 1998. Based on transactions of which M&M management is
aware, sales of M&M Common Stock have been effected in a range of $13.33 to
$17.00 per share during the period from May 1, 1997 to May 1, 1998 (sales
prices have been retroactively adjusted to give effect to the three-for-one
stock split in 1997). Management has not determined that such sales were
arms-length transactions. Thus, no assurance can be given that the stated price
range represents the actual market value of M&M Common Stock, especially
considering the absence of a known sales transaction subsequent to the May 1,
1998, public announcement of the M&M Merger.
51
<PAGE>
Dividends
Anchor paid total cash dividends of $0.375 per share during 1997, and
total cash dividends of $.24 per share during the first and second quarters of
1998.
No representations can be made as to when or if Anchor will pay dividends
in the future. Anchor's ability to pay dividends to its stockholders
significantly depends upon the ability of its subsidiaries to pay dividends to
Anchor. Under South Carolina law, Anchor Bank must receive the written consent
of the South Carolina Board to pay dividends. Anchor Bank cannot guarantee that
such written consent will be received in the future. See "SUPERVISION AND
REGULATION."
ComSouth paid no cash dividends during 1997 or 1998.
M&M paid total cash dividends of $0.37 per share during 1997, and total
cash dividends of $ per share through , 1998.
DESCRIPTION OF ANCHOR COMMON STOCK
Anchor has authorized capital stock consisting of 10,000,000 shares of
common stock, no par value per share, of which 3,890,323 shares are issued and
outstanding at , 1998, all of which are validly issued, fully paid and
non-assessable. 388,159 shares of Anchor Common Stock are subject to options as
of the date of this Joint Proxy Statement/ Prospectus. It is anticipated that
an additional 1,697,117 and 875,321 shares of Anchor Common Stock will be
issued pursuant to the ComSouth Merger and the M&M Merger, respectively. In
addition, outstanding options to purchase ComSouth Common Stock and M&M Common
Stock will be converted into options to acquire Anchor Common Stock, based on
the applicable ComSouth and M&M Exchange Ratios. There currently are
outstanding options to purchase an aggregate of 214,254 shares of ComSouth
Common Stock and 66,000 shares of M&M Common Stock. Based on the ComSouth
Exchange Ratio of 0.75 and the M&M Exchange Ratio of 0.87, the outstanding
options convert into options to purchase 160,691 and 57,420 (a total of
218,111) shares, respectively, of Anchor Common Stock.
There are no other outstanding securities or other obligations which are
convertible into shares or options, warrants, rights, calls or other
commitments of any nature relating to the unissued shares of Anchor Common
Stock.
Holders of Anchor Common Stock are entitled to one vote per share in the
election of directors and all matters to come before the stockholders. Holders
of Anchor Common Stock are entitled to received dividends as may be declared by
Anchor's Board of Directors out of funds legally available therefore. In the
event of liquidation, dissolution or winding-up of the affairs of Anchor,
holders of Anchor Common Stock are entitled to share ratably in Anchor's assets
and funds legally available for distribution to its stockholders.
Holders of Anchor Common Stock have no preemptive, subscription,
redemption or conversion rights. See "THE PROPOSED MERGERS -- Certain
Differences in Rights of Anchor, ComSouth and M&M Stockholders."
52
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)
(Unaudited)
The following unaudited pro forma combined condensed balance sheet
combines the historical condensed balance sheets of Anchor, ComSouth and M&M as
of March 31, 1998, to reflect (i) assumption of the proposed ComSouth Merger
and the proposed M&M Merger; (ii) assumption of only the proposed ComSouth
Merger; and (iii) assumption of only the proposed M&M Merger. Such pro forma
information assumes the proposed Mergers occurred as of March 31, 1998 and is
based on the historical balance sheets of Anchor, ComSouth and M&M as of that
date, giving effect to the proposed Mergers using the pooling-of-interests
method of accounting and to the pro forma adjustments described in the Notes to
the Unaudited Pro Forma Combined Condensed Financial Statements.
The following unaudited pro forma combined condensed statements of income
include the historical condensed statements of income of Anchor, ComSouth and
M&M to reflect (i) assumption of the proposed ComSouth Merger and the proposed
M&M Merger (Schedule I); (ii) assumption of only the proposed ComSouth Merger
(Schedules II); and (iii) assumption of only the proposed M&M Merger (Schedules
III). Such pro forma information assumes the companies had been combined for
each period presented on a pooling-of-interests accounting basis and is based
on the historical statements of income of Anchor, ComSouth and M&M, giving
effect to the pro forma adjustments described in the Notes to the Unaudited Pro
Forma Combined Condensed Financial Statements.
The pro forma adjustments are based on currently available information and
upon certain assumptions that management believes to be reasonable in the
circumstances. The unaudited pro forma combined condensed financial statements
are for illustrative purposes only and should not be viewed as a projection or
forecast of the combined company's performance for any future period. The
unaudited pro forma combined condensed financial statements do not purport to
present the combined company's actual financial position or results of
operations had the ComSouth merger and/or the M&M merger actually occurred on
the dates assumed for purposes of preparation.
For a description of the pooling-of interests accounting basis with
respect to the Mergers and the related effects on historical financial
statements of Anchor, see "THE PROPOSED MERGERS -- Accounting Treatment." The
unaudited pro forma combined condensed financial statements should be read in
conjunction with the respective historical financial statements of Anchor,
ComSouth and M&M, including the notes thereto which are incorporated by
reference or included elsewhere in this Joint Proxy Statement/Prospectus.
53
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
(ANCHOR, COMSOUTH AND M&M)
(March 31, 1998 balances in thousands)
<TABLE>
<CAPTION>
Anchor/ Anchor/
ComSouth Pro ComSouth
Forma Pro Forma
Anchor ComSouth Adjustments(2)(4) Combined
----------- ------------ ------------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from
banks ....................... $ 27,561 $ 11,036 $ 0 $ 38,597
Federal funds sold ............ 18,600 17,685 0 36,285
Investment securities ......... 117,679 38,173 (2,267) 153,585
Loans ......................... 438,045 148,785 0 586,830
Less-reserve for loan
losses ..................... (4,775) (1,839) 0 (6,614)
-------- -------- --------- --------
Net loans .................. 433,270 146,946 0 580,216
-------- -------- --------- --------
Premises and equipment 17,062 1,249 0 18,311
Intangible assets ............. 914 0 0 914
Other assets .................. 9,586 2,286 0 11,872
-------- -------- --------- --------
Total assets ............... $624,672 $217,375 $ (2,267) $839,780
======== ======== ========= ========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities:
Deposits:
Noninterest-bearing
deposits ................... $ 98,762 $ 35,537 $ 0 $134,299
Interest-bearing
deposits ................... 425,235 157,096 0 582,331
-------- -------- --------- --------
Total deposits ............. 523,997 192,633 0 716,630
Federal funds
purchased and
securities sold
under agreements
to repurchase .............. 4,818 3,670 0 8,488
Other short-term
borrowings ................. 1,581 728 0 2,309
Long-term debt .............. 47,000 2,108 0 49,108
Other liabilities ........... 5,781 1,424 1,105 6,510
-------- -------- --------- --------
Total liabilities .......... 583,177 200,563 1,105 783,045
-------- -------- --------- --------
Stockholders' Equity:
Common Stock .................. 23,342 13,825 (3,642) 33,525
Surplus ....................... 1,838 0 3,238 5,076
Retained earnings ............. 16,315 2,987 (2,968) 18,134
-------- -------- --------- --------
Total stockholders'
equity ..................... 41,495 16,812 (3,372) 56,735
-------- -------- --------- --------
Total liabilities and
stockholders'
equity ..................... $624,672 $217,375 $ (2,267) $839,780
======== ======== ========= ========
<CAPTION>
Anchor/ Anchor/
Anchor/ Anchor/ ComSouth/ ComSouth/
M&M M&M M&M M&M
Pro Forma Pro Forma Pro Forma Pro Forma
M&M Adjustments(2)(4) Combined Adjustments Combined
------------ ------------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks ....................... $ 7,954 $ 0 $ 35,515 $ 0 $ 46,551
Federal funds sold ............ 4,500 0 23,100 0 40,785
Investment securities ......... 33,643 (190) 151,132 (2,457) 187,038
Loans ......................... 113,153 0 551,198 0 699,983
Less-reserve for loan
losses ..................... (1,045) 0 (5,820) 0 (7,659)
-------- -------- -------- --------- ----------
Net loans .................. 112,108 0 545,378 0 692,324
-------- -------- -------- --------- ----------
Premises and equipment 4,459 0 21,521 0 22,770
Intangible assets ............. 0 0 914 0 914
Other assets .................. 5,215 0 14,801 0 17,087
-------- -------- -------- --------- ----------
Total assets ............... $167,879 $ (190) $792,361 $ (2,457) $1,007,469
======== ======== ======== ========= ==========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities:
Deposits:
Noninterest-bearing
deposits ................... $ 18,272 $ 0 $117,034 $ 0 $ 152,571
Interest-bearing
deposits ................... 124,048 0 549,283 0 706,379
-------- -------- -------- --------- ----------
Total deposits ............. 142,320 0 666,317 0 858,950
Federal funds
purchased and
securities sold
under agreements
to repurchase .............. 1,325 0 6,143 0 9,813
Other short-term
borrowings ................. 599 0 2,180 0 2,908
Long-term debt .............. 10,000 0 57,000 0 59,108
Other liabilities ........... 1,739 1,138 7,458 2,243 8,187
-------- -------- -------- --------- ----------
Total liabilities .......... 155,983 1,138 739,098 2,243 938,966
-------- -------- -------- --------- ----------
Stockholders' Equity:
Common Stock .................. 5,030 192 28,564 (3,450) 38,747
Surplus ....................... 2,484 (220) 4,102 3,018 7,340
Retained earnings ............. 4,382 (1,300) 20,597 (4,268) 22,416
-------- -------- -------- --------- ----------
Total stockholders'
equity ..................... 11,896 (1,328) 53,263 (4,700) 68,503
-------- -------- -------- --------- ----------
Total liabilities and
stockholders'
equity ..................... $167,879 $ (190) $792,361 $ (2,457) $1,007,469
======== ======== ======== ========= ==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
54
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE I (ANCHOR, COMSOUTH AND M&M)
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Interest income ......................................... $ 19,020 $ 15,867 $ 69,564 $ 56,576 $ 47,737
Interest expense ........................................ 8,986 7,181 31,739 25,377 21,563
---------- ---------- ---------- ---------- ----------
Net interest income ..................................... 10,034 8,686 37,825 31,199 26,174
Provision for loan losses ............................... 534 299 2,044 1,140 830
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses ..... 9,500 8,387 35,781 30,059 25,344
Noninterest income ...................................... 2,176 1,919 7,971 6,736 5,722
Noninterest expense ..................................... 7,688 6,848 29,209 25,553 22,987
---------- ---------- ---------- ---------- ----------
Income before taxes ..................................... 3,988 3,458 14,543 11,242 8,079
Provision for income taxes .............................. 1,376 1,240 5,306 3,951 2,783
---------- ---------- ---------- ---------- ----------
Net income .............................................. $ 2,612 $ 2,218 $ 9,237 $ 7,291 $ 5,296
========== ========== ========== ========== ==========
Net income per share -- basic ........................... $ 0.41 $ 0.35 $ 1.45 $ 1.15 $ 0.84
Net income per share -- diluted ......................... $ 0.39 $ 0.33 $ 1.38 $ 1.11 $ 0.83
Weighted average common shares
outstanding -- basic .................................. 6,398,066 6,370,852 6,382,036 6,349,372 6,309,914
Weighted average common shares
outstanding -- diluted ................................ 6,746,617 6,645,248 6,704,829 $6,541,464 6,351,503
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
See Schedule II A through E for Anchor and ComSouth historical condensed
statement of income and the related pro forma adjustments.
See Schedule III A through E for Anchor and M&M historical condensed
statement of income and the related pro forma adjustments.
55
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIA (ANCHOR AND COMSOUTH)
Three months ended March 31, 1998
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
ComSouth ComSouth
Pro Forma Pro Forma
Anchor ComSouth Adjustments Combined
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 11,758 $ 4,048 $0 $ 15,806
Interest expense ......................................... 5,472 1,914 0 7,386
---------- ---------- -- ----------
Net interest income ...................................... 6,286 2,134 0 8,420
Provision for loan losses ................................ 210 210 0 420
---------- ---------- -- ----------
Net interest income after provision for loan losses ...... 6,076 1,924 0 8,000
Noninterest income ....................................... 1,104 625 0 1,729
Noninterest expense ...................................... 4,599 1,556 0 6,155
---------- ---------- -- ----------
Income before taxes ...................................... 2,581 993 0 3,574
Provision for income taxes ............................... 938 318 0 1,256
---------- ---------- -- ----------
Net income ............................................... $ 1,643 $ 675 $0 $ 2,318
========== ========== == ==========
Net income per share -- basic ............................ $ 0.43 $ 0.29 $ 0.42
Net income per share -- diluted .......................... $ 0.40 $ 0.27 $ 0.39
Weighted average common shares outstanding -- basic ...... 3,830,637 2,341,320 5,527,754
Weighted average common shares outstanding -- diluted .... 4,076,268 2,469,695 5,869,666
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
56
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIB (ANCHOR AND COMSOUTH)
Three months ended March 31, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
ComSouth ComSouth
Pro Forma Pro Forma
Anchor ComSouth Adjustments Combined
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 9,913 $ 3,241 $0 $ 13,154
Interest expense ......................................... 4,488 1,505 0 5,993
---------- ---------- -- ----------
Net interest income ...................................... 5,425 1,736 0 7,161
Provision for loan losses ................................ 200 15 0 215
---------- ---------- -- ----------
Net interest income after provision for loan losses ...... 5,225 1,721 0 6,946
Noninterest income ....................................... 1,049 483 0 1,532
Noninterest expense ...................................... 4,180 1,368 0 5,548
---------- ---------- -- ----------
Income before taxes ...................................... 2,094 836 0 2,930
Provision for income taxes ............................... 759 316 0 1,075
---------- ---------- -- ----------
Net income ............................................... $ 1,335 $ 520 $0 $ 1,855
========== ========== == ==========
Net income per share -- basic ............................ $ 0.35 $ 0.23 $ 0.34
Net income per share -- diluted .......................... $ 0.33 $ 0.21 $ 0.32
Weighted average common shares outstanding -- basic ...... 3,839,010 2,304,465 5,508,485
Weighted average common shares outstanding -- diluted .... 4,027,302 2,419,271 5,782,882
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
57
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIC (ANCHOR AND COMSOUTH)
For the year ended December 31, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
ComSouth ComSouth
Pro Forma Pro Forma
Anchor ComSouth Adjustments Combined
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 43,416 $ 14,593 $ 0 $ 58,009
Interest expense ......................................... 19,741 6,580 0 26,321
---------- ---------- --- ----------
Net interest income ...................................... 23,675 8,013 0 31,688
Provision for loan losses ................................ 910 334 0 1,244
---------- ---------- --- ----------
Net interest income after provision for loan losses ...... 22,765 7,679 0 30,444
Noninterest income ....................................... 4,313 1,995 0 6,308
Noninterest expense ...................................... 17,522 6,059 0 23,581
---------- ---------- --- ----------
Income before taxes ...................................... 9,556 3,615 0 13,171
Provision for income taxes ............................... 3,442 1,361 0 4,803
---------- ---------- --- ----------
Net income ............................................... $ 6,114 $ 2,254 $ 0 $ 8,368
========== ========== === ==========
Net income per share -- basic ............................ $ 1.59 $ 0.98 $ 1.52
Net income per share -- diluted .......................... $ 1.51 $ 0.91 $ 1.43
Weighted average common shares outstanding -- basic ...... 3,843,227 2,311,098 5,517,677
Weighted average common shares outstanding -- diluted .... 4,050,156 2,464,833 5,839,907
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
58
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IID (ANCHOR AND COMSOUTH)
For the year ended December 31, 1996
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
ComSouth ComSouth
Pro Forma Pro Forma
Anchor ComSouth Adjustments Combined
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 35,880 $ 11,276 $ 0 $ 47,156
Interest expense ......................................... 16,096 4,924 0 21,020
---------- ---------- ------ ----------
Net interest income ...................................... 19,784 6,352 0 26,136
Provision for loan losses ................................ 850 110 0 960
---------- ---------- ------ ----------
Net interest income after provision for loan losses ...... 18,934 6,242 0 25,176
Noninterest income ....................................... 3,760 1,646 0 5,406
Noninterest expense ...................................... 15,331 5,131 0 20,462
---------- ---------- ------ ----------
Income before taxes ...................................... 7,363 2,757 0 10,120
Provision for income taxes ............................... 2,594 929 165 3,688
---------- ---------- ------ ----------
Net income ............................................... $ 4,769 $ 1,828 $ (165) $ 6,432
========== ========== ====== ==========
Net income per share -- basic ............................ $ 1.25 $ 0.80 $ 1.17
Net income per share -- diluted .......................... $ 1.21 $ 0.77 $ 1.13
Weighted average common shares outstanding -- basic ...... 3,830,103 2,287,562 5,486,901
Weighted average common shares outstanding -- diluted .... 3,947,187 2,387,573 5,678,993
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
59
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIE (ANCHOR AND COMSOUTH)
For the year ended December 31, 1995
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
ComSouth ComSouth
Pro Forma Pro Forma
Anchor ComSouth Adjustments Combined
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 30,270 $ 9,234 $ 0 $ 39,504
Interest expense ......................................... 13,599 4,125 0 17,724
---------- ---------- ------ ----------
Net interest income ...................................... 16,671 5,109 0 21,780
Provision for loan losses ................................ 596 195 0 791
---------- ---------- ------ ----------
Net interest income after provision for loan losses ...... 16,075 4,914 0 20,989
Noninterest income ....................................... 2,977 1,469 0 4,446
Noninterest expense ...................................... 13,560 4,576 0 18,136
---------- ---------- ------ ----------
Income before taxes ...................................... 5,492 1,807 0 7,299
Provision for income taxes ............................... 1,953 426 217 2,596
---------- ---------- ------ ----------
Net income ............................................... $ 3,539 $ 1,381 $ (217) $ 4,703
========== ========== ====== ==========
Net income per share -- basic ............................ $ 0.93 $ 0.61 $ 0.86
Net income per share -- diluted .......................... $ 0.93 $ 0.60 $ 0.86
Weighted average common shares outstanding -- basic ...... 3,810,744 2,260,369 5,447,147
Weighted average common shares outstanding -- diluted .... 3,823,007 2,299,470 5,488,736
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
60
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIIA (ANCHOR AND M&M)
Three months ended March 31, 1998
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
M&M M&M
Pro Forma Pro Forma
Anchor M&M Adjustments Combined
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 11,758 $ 3,214 $0 $ 14,972
Interest expense ......................................... 5,472 1,600 0 7,072
---------- ---------- -- ----------
Net interest income ...................................... 6,286 1,614 0 7,900
Provision for loan losses ................................ 210 114 324
---------- ---------- ----------
Net interest income after provision for loan losses ...... 6,076 1,500 0 7,576
Noninterest income ....................................... 1,104 447 0 1,551
Noninterest expense ...................................... 4,599 1,533 0 6,132
---------- ---------- -- ----------
Income before taxes ...................................... 2,581 414 0 2,995
Provision for income taxes ............................... 938 120 0 1,058
---------- ---------- -- ----------
Net income ............................................... $ 1,643 $ 294 $0 $ 1,937
========== ========== == ==========
Net income per share -- basic ............................ $ 0.43 $ 0.29 $ 0.41
Net income per share -- diluted .......................... $ 0.40 $ 0.29 $ 0.39
Weighted average common shares outstanding -- basic ...... 3,830,637 1,006,116 4,700,949
Weighted average common shares outstanding -- diluted .... 4,076,268 1,013,747 4,953,219
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
61
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIIB (ANCHOR AND M&M)
Three months ended March 31, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
M&M M&M
Pro Forma Pro Forma
Anchor M&M Adjustments Combined
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 9,913 $ 2,713 $0 $ 12,626
Interest expense ......................................... 4,488 1,188 0 5,676
---------- ---------- -- ----------
Net interest income ...................................... 5,425 1,525 0 6,950
Provision for loan losses ................................ 200 84 0 284
---------- ---------- -- ----------
Net interest income after provision for loan losses ...... 5,225 1,441 0 6,666
Noninterest income ....................................... 1,049 387 0 1,436
Noninterest expense ...................................... 4,180 1,300 0 5,480
---------- ---------- -- ----------
Income before taxes ...................................... 2,094 528 0 2,622
Provision for income taxes ............................... 759 165 0 924
---------- ---------- -- ----------
Net income ............................................... $ 1,335 $ 363 $0 $ 1,698
========== ========== == ==========
Net income per share -- basic ............................ $ 0.35 $ 0.36 $ 0.36
Net income per share -- diluted .......................... $ 0.33 $ 0.36 $ 0.35
Weighted average common shares outstanding -- basic ...... 3,839,010 1,006,116 4,701,377
Weighted average common shares outstanding -- diluted .... 4,027,302 1,006,116 4,889,669
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
62
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIIC (ANCHOR AND M&M)
For the year ended December 31, 1997
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
M&M M&M
Pro Forma Pro Forma
Anchor M&M Adjustments(5) Combined
------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Interest income ........................................... $ 43,416 $ 11,555 $ 0 $ 54,971
Interest expense .......................................... 19,741 5,418 0 25,159
---------- ---------- ------- ----------
Net interest income ....................................... 23,675 6,137 0 29,812
Provision for loan losses ................................. 910 800 0 1,710
---------- ---------- ------- ----------
Net interest income after provision for loan losses ....... 22,765 5,337 0 28,102
Noninterest income ........................................ 4,313 1,921 (258) 5,976
Noninterest expense ....................................... 17,522 5,628 0 23,150
---------- ---------- ------- ----------
Income before taxes ....................................... 9,556 1,630 (258) 10,928
Provision for income taxes ................................ 3,442 503 0 3,945
---------- ---------- ------- ----------
Net income ................................................ $ 6,114 $ 1,127 $ (258) $ 6,983
========== ========== ======= ==========
Net income per share -- basic ............................. $ 1.59 $ 1.12 $ 1.48
Net income per share -- diluted ........................... $ 1.51 $ 1.12 $ 1.42
Weighted average common shares outstanding -- basic ....... 3,843,227 1,006,116 4,707,586
Weighted average common shares outstanding -- diluted ..... 4,050,156 1,006,763 4,915,078
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
63
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIID (ANCHOR AND M&M)
For the year ended December 31, 1996
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
M&M M&M
Pro Forma Pro Forma
Anchor M&M Adjustments Combined
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 35,880 $ 9,420 $0 $ 45,300
Interest expense ......................................... 16,096 4,357 0 20,453
---------- ---------- -- ----------
Net interest income ...................................... 19,784 5,063 0 24,847
Provision for loan losses ................................ 850 180 0 1,030
---------- ---------- -- ----------
Net interest income after provision for loan losses ...... 18,934 4,883 0 23,817
Noninterest income ....................................... 3,760 1,330 0 5,090
Noninterest expense ...................................... 15,331 5,091 0 20,422
---------- ---------- -- ----------
Income before taxes ...................................... 7,363 1,122 0 8,485
Provision for income taxes ............................... 2,594 263 0 2,857
---------- ---------- -- ----------
Net income ............................................... $ 4,769 $ 859 0 $ 5,628
========== ========== == ==========
Net income per share -- basic ............................ $ 1.25 $ 0.85 $ 1.20
Net income per share -- diluted .......................... $ 1.21 $ 0.85 $ 1.17
Weighted average common shares outstanding -- basic ...... 3,830,103 1,006,116 4,692,574
Weighted average common shares outstanding -- diluted .... 3,947,187 1,006,116 4,809,658
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
64
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
SCHEDULE IIIE (ANCHOR AND M&M)
For the year ended December 31, 1995
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Anchor/ Anchor/
M&M M&M
Pro Forma Pro Forma
Anchor M&M Adjustments Combined
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Interest income .......................................... $ 30,270 $ 8,233 $0 $ 38,503
Interest expense ......................................... 13,599 3,839 0 17,438
---------- ---------- -- ----------
Net interest income ...................................... 16,671 4,394 0 21,065
Provision for loan losses ................................ 596 39 0 635
---------- ---------- -- ----------
Net interest income after provision for loan losses ...... 16,075 4,355 0 20,430
Noninterest income ....................................... 2,977 1,276 0 4,253
Noninterest expense ...................................... 13,560 4,851 0 18,411
---------- ---------- -- ----------
Income before taxes ...................................... 5,492 780 0 6,272
Provision for income taxes ............................... 1,953 187 0 2,140
---------- ---------- -- ----------
Net income ............................................... $ 3,539 $ 593 $0 $ 4,132
========== ========== == ==========
Net income per share -- basic ............................ $ 0.93 $ 0.59 $ 0.88
Net income per share -- diluted .......................... $ 0.93 $ 0.59 $ 0.88
Weighted average common shares outstanding -- basic ...... 3,810,744 1,006,116 4,673,511
Weighted average common shares outstanding -- diluted .... 3,823,007 1,006,116 4,685,774
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
65
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS, PER SHARE AMOUNTS ACTUAL)
NOTE 1 -- BASIS OF PRESENTATION
On April 14, 1998, Anchor Financial Corporation entered into a definitive
agreement and plan of merger with ComSouth Bankshares, Inc., headquartered in
Columbia, South Carolina. The ComSouth Merger calls for a tax-free exchange of
0.75 shares of Anchor Common Stock for each outstanding share of ComSouth
Common Stock.
On May 15, 1998, Anchor and M&M Financial Corporation, parent company of
First National South, a national bank headquartered in Marion, South Carolina,
entered into a definitive agreement and plan of merger. The M&M Merger provides
for a tax-free exchange of 0.87 shares of Anchor Common Stock for each
outstanding share of M&M Common Stock.
The unaudited Pro Forma Combined Condensed Financial Statements have been
prepared assuming that the ComSouth Merger and the M&M Merger (the "Mergers")
will be accounted for under the pooling-of-interests method and are based on
the historical consolidated financial statements of Anchor, ComSouth, and M&M.
Certain amounts in the historical financial statements of ComSouth and M&M have
been reclassified to conform with Anchor's historical financial statement
presentation. The accounting policies for Anchor, ComSouth and M&M were
substantially consistent for the periods presented.
The unaudited Pro Forma Combined Condensed Financial Statements presented
are not necessarily indicative of the results of operations or the combined
financial position that would have resulted had the Mergers been consummated at
the beginning of the periods indicated, nor are they necessarily indicative of
the results of operations in future periods or the future financial position of
the combined entitles. Consummation of each Merger is not contingent upon
consummation of the other.
The unaudited Pro Forma Combined Condensed Financial Statements should be
read in conjunction with the historical consolidated financial statements and
the related notes thereto of each of Anchor, ComSouth, and M&M incorporated by
reference or appearing elsewhere herein. The ComSouth Annual Report on Form
10-K and the M&M Annual Report on Form 10-KSB, each for the year ended December
31, 1997, should be read in conjunction with the ComSouth Current Report on
Form 8-K filed April 16, 1998, and the M&M Current Report on Form 8-K filed May
5, 1998.
NOTE 2 -- STOCKHOLDERS' EQUITY
In conjunction with the Mergers, Anchor will exchange 0.75 shares of its
common stock for each share of common stock of ComSouth, and 0.87 shares of its
common stock for each share of common stock of M&M.
The pro forma adjustments herein reflect, where applicable, the 0.75
ComSouth Exchange Ratio for each of the 2,341,320 shares of ComSouth Common
Stock which were issued and outstanding at March 31, 1998, and the 0.87 M&M
Exchange Ratio for each of the 1,006,116 shares of M&M Common Stock which were
issued and outstanding at March 31, 1998.
The capital accounts have been adjusted to reflect the issuance of
1,755,990 shares of Anchor Common Stock in exchange for all of the outstanding
shares of ComSouth based on the ComSouth Exchange Ratio. The excess
($3,289,000) of the historical stated value of ComSouth shares received in
exchange over the par value of Anchor Common Stock issued has been credited to
surplus.
At March 31, 1998, Anchor owned 78,498 shares of ComSouth Common Stock
(58,874 shares after applying the ComSouth Exchange Ratio) with a recorded fair
value of $2,267,000 and an unrealized gain of $1,168,000 (net of tax effect of
$695,000) recorded as a component of stockholders' equity. These shares will be
retired upon consummation of the ComSouth Merger. Therefore, the investment
balances discussed above and the related 58,874 shares of Anchor Common Stock
amounting to $353,000 were eliminated, and the remaining amount of $51,000 was
recorded as a decrease in surplus at March 31, 1998, in the unaudited pro forma
combined condensed financial statements.
The capital accounts have been adjusted to reflect the issuance of 875,321
shares of Anchor Common Stock in exchange for all of the outstanding shares of
M&M based on the M&M Exchange Ratio. The excess ($222,000) of the par value of
Anchor Common Stock issued over the historical par value of M&M shares received
in exchange has been charged to surplus.
At March 31, 1998, M&M owned 5,759 shares of Anchor Common Stock (5,010
shares after applying the M&M Exchange Ratio) with a recorded fair value of
$190,000 and an unrealized gain of $100,000 (net of tax effect of $62,000)
which is recorded as a component of stockholders' equity. These shares will be
retired upon consummation of the M&M
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION -- Continued
NOTE 2 -- STOCKHOLDERS' EQUITY -- (Continued)
Merger. Therefore, the investment balances discussed above and the related
5,010 shares of Anchor Common Stock amounting to $30,000 were eliminated, and
the remaining amount of $2,000 was recorded as an increase in surplus at March
31, 1998.
NOTE 3 -- PER SHARE DATA
Net income per share -- basic has been computed by dividing the pro forma
combined net income applicable to common stockholders by the weighted average
number of common shares outstanding of Anchor Common Stock plus the weighted
average number of common shares, adjusted to equivalent shares of Anchor Common
Stock, of ComSouth and M&M, using the ratios of 0.75 for ComSouth and 0.87 for
M&M, as of the earliest period presented.
Net income per share -- diluted has been computed by dividing the pro
forma combined net income applicable to common stockholders by the weighted
average number of common shares outstanding and dilutive common share
equivalents of Anchor Common Stock plus the weighted average number of common
shares outstanding and dilutive common share equivalents, adjusted to
equivalent shares of Anchor Common Stock, of ComSouth and M&M, using the ratios
of 0.75 for ComSouth and 0.87 for M&M, as of the earliest period presented,
using the treasury stock method. Dilutive common share equivalents include
common shares issuable upon exercise of stock options outstanding. Unallocated
common shares held by the Employee Stock Ownership Plan are excluded from the
weighted average shares outstanding.
NOTE 4 -- MERGER AND RESTRUCTURING COSTS
In connection with the ComSouth Merger, Anchor expects to incur
merger-related expenses of approximately $1.8 million, after tax. Anchor
estimates that $1.3 million of the expenses will be directly related to
effecting the Merger and $500,000 will be incurred in restructuring costs. In
connection with the M&M Merger, Anchor expects to incur merger-related expenses
of approximately $1.2 million, after tax. Anchor estimates that $200,000 of the
expenses will be directly related to effecting the Merger and $1.0 million will
be incurred in restructuring costs. The impact of these adjustments, net of the
related tax effect, has been reflected in the Pro Forma Combined Condensed
Balance Sheet as of March 31, 1998.
Anchor and ComSouth expect that the combined company resulting from the
ComSouth Merger will achieve substantial benefits from the ComSouth Merger in
the form of operating cost savings. Anchor and M&M expect that the combined
company resulting from the M&M Merger will achieve substantial benefits in the
form of operating cost savings. However, the unaudited Pro Forma Combined
Condensed Financial Statements do not reflect any direct costs or potential
savings which are expected to result from the consolidation of operations of
the combining companies, and, therefore, do not purport to be indicative of
future operations.
NOTE 5 -- ELIMINATIONS
M&M realized a gross gain of $258,000 on the sale of 9,300 shares of
Anchor Common Stock during 1997. The pro forma adjustment for this gain is
reflected in the unaudited Pro Forma Combined Condensed Statement of Income.
Dividends paid by Anchor to M&M on the shares of Anchor Common Stock owned by
M&M are deemed immaterial and pro forma adjustments for such dividends are not
reflected in the unaudited Pro Forma Combined Condensed Financial Statements.
NOTE 6 -- INCOME TAXES
The pro forma financial information for 1996 and 1995 includes adjustments
associated with the reduction in valuation allowances against the net deferred
tax assets recorded by ComSouth to the level required by the combined company.
These adjustments were based on an evaluation of the ability of the combined
company to utilize ComSouth's temporary difference deductions, on a pro forma
basis.
67
<PAGE>
INFORMATION ABOUT ANCHOR
Business of Anchor
Anchor Financial Corporation is a registered bank holding company
incorporated in 1984 under the laws of the State of South Carolina. The purpose
for incorporation was to acquire The Anchor Bank and to invest in other
bank-related businesses. Anchor provides its customers with banking services
through its principal subsidiary, The Anchor Bank, and previously provided data
processing services through its subsidiary, Anchor Automated Services, Inc.,
which is now inactive. Anchor owns 100% of the issued and outstanding stock of
Anchor Bank and Anchor Automated Services, Inc.
The principal role of Anchor is to supervise and coordinate the activities
of the Anchor Subsidiaries and to provide them with capital and services of
various kinds. Anchor derives substantially all of its income from dividends
from Anchor Bank. Such dividends are determined on an individual basis,
generally in relation to Anchor Bank's earnings, deposit growth and capital
position.
Organized in 1974 as a state-charted bank, The Anchor Bank of Myrtle
Beach, Inc. was acquired by Anchor on June 15, 1984, and subsequently changed
its name to The Anchor Bank. In 1993, Anchor acquired a bank in Hampstead,
North Carolina, and, in accordance with the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, Anchor merged its two banking subsidiaries,
The Anchor Bank and The Anchor Bank of North Carolina, on October 4, 1996.
Anchor Bank survived the merger and all information presented in that report
reflects this merger for all periods presented.
Anchor Bank accounted for 100% of Anchor's total consolidated assets as of
December 31, 1997, and 100% of total net income for 1997. Anchor Bank conducts
its business through nineteen branches along the North Carolina and South
Carolina coasts.
The primary market area served by Anchor Bank is centered in the City of
Myrtle Beach, South Carolina and includes the entire segment of the South
Carolina coast known as the Grand Strand, which stretches from Little River to
Pawley's Island and west to Conway, South Carolina. During 1991, Anchor Bank
acquired two offices in Hilton Head Island, South Carolina, which is along the
southern coastal region of the state. In a merger with 1st Atlantic Bank in
1993, Anchor Bank acquired two offices in Little River and Cherry Grove, South
Carolina, which are approximately 20 miles north of Myrtle Beach. In 1994,
Anchor Bank opened a branch office in the Crescent Beach section of North
Myrtle Beach, South Carolina, which is 10 miles north of Myrtle Beach. In 1995,
Anchor Bank opened branches in Mount Pleasant, South Carolina and Wilmington,
North Carolina. Mount Pleasant is located north of Charleston, South Carolina
and Wilmington is located in the southeast corner of North Carolina. In 1996,
Anchor Bank opened an additional branch office in Wilmington, North Carolina.
Anchor Bank maintains three other branch offices in the coastal communities of
Wilmington, Hampstead, and Jacksonville, North Carolina. In 1997, Anchor Bank
opened a branch in Charleston, South Carolina. Myrtle Beach and Hilton Head
Island are coastal resort areas that serve a significant amount of tourists
primarily during the summer months. Because of the seasonal nature of these
market areas, most of the businesses in these markets, including financial
institutions, are subject to wide swings in activity between the winter and
summer months.
On July 17, 1995, Anchor Bank formed Anchor Capital Corporation ("ACC"), a
non-bank securities brokerage firm, to market non-traditional banking products
to customers in all its markets. ACC offers mutual funds, annuities and other
securities.
For the year ended December 31, 1997, approximately 76% of the revenues of
Anchor Bank were derived from interest and fees on loans, 14% from income on
investment securities, 1% from temporary investments, 4% from service charges
on deposit accounts, and 5% from other sources.
Anchor Bank offers a full range of banking services, including trust
services, to both businesses and individuals in its market area. These services
include regular and interest checking, money market, savings and time deposit
accounts, as well as personal and business loans. Anchor Bank also provides
automated twenty-four hour banking for the convenience of its customers. In
1997, Anchor Bank began offering Anchor PC Banking, which allows customers to
do a wide range of banking functions from their home computers.
Chartered in July 1985, Anchor Automated Services, Inc. has previously
provided data processing services to Anchor and Anchor Bank, as well as to the
public. This subsidiary was inactive for the year ended December 31, 1997.
Additional information about Anchor and its subsidiaries is included in
documents incorporated by reference in this Joint Proxy Statement/Prospectus.
See "AVAILABLE INFORMATION" AND "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
68
<PAGE>
Recent Developments
In April 1998, Anchor and The Anchor Bank executed Executive Employment
Agreements with Stephen L. Chryst, Robert E. Coffee, Jr., Robert R. DuRant, III
and Tommy E. Looper, which Agreements were made effective as of January 1,
1998. Under the terms of these Employment Agreements, Mr. Chryst will continue
as President and Chief Executive Officer, and the term of his Agreement is five
years, ending on December 31, 2002, unless further extended or sooner
terminated as discussed below. Mr. Coffee will continue to serve as Executive
Vice-President and Chief Administrative Officer, with his Agreement having an
initial term of three years and ending on December 31, 2000, unless further
extended or sooner terminated as discussed below. Mr. DuRant will continue to
serve as Executive Vice-President and Chief Credit Officer and Mr. Looper will
continue to serve as Executive Vice-President and Chief Financial Officer, with
their Agreements having an initial term of four years ending on December 31,
2001, unless further extended or further terminated as discussed below. The
Agreements provide for a per annum base salary of $333,000 for Mr. Chryst,
$134,000 for Mr. Coffee, $150,000 for Mr. DuRant, and $172,000 for Mr. Looper.
Other than the term and the base salary for each of these four executive
officers, the terms of the Executive Employment Agreements are generally the
same for each of these individuals.
Other provisions of these four Executive Employment Agreements include:
(i) Bonus Incentive Compensation. Each executive shall receive such cash
bonus as the Board of Directors of Anchor and Anchor Bank shall determine
for Mr. Chryst and as Mr. Chryst shall recommend and as shall be ratified
by the Board of Directors for Messrs. Coffee, DuRant and Looper. Further,
the executives have the right to participate in any incentive compensation
plan adopted by Anchor Bank or adopted or sponsored by Anchor in which the
senior officers of any of Anchor's banking subsidiaries are participants.
The executives also shall be entitled to reimbursement of expenses, other
employee benefits made available by Anchor Bank, vacations, facilities and
services suitable to their respective positions and club dues.
(ii) Compensation and Benefits in the Event of Termination -- If the
executive's employment is terminated for "cause" (as defined in the
Agreement) prior to a "change in control" (as defined in the Agreement) or
for "cause" coincident with or following a "change in control," by action
of the executive not for "good reason" (as defined in the Agreement), at
any time, or by reason of the executive's death, "disability" or
"retirement" (both terms as defined in the Agreement), the executive will
receive his base salary and any other benefits to which he is entitled to
the date of termination which have not been paid. If the executive's
employment is terminated other than by reason of the executive's death,
disability or retirement, and by action of the executive coincident with,
following, or prior to a "change in control" and for "good reason," or by
action of Anchor Bank coincident with, following or prior to a "change in
control" and other than for "cause," Anchor Bank shall pay and provide the
executive with all amounts in compensation owing to him and unpaid at the
date of termination, and shall continue to pay the executive his base
salary, to provide his insurance coverages he would have had had he
remained as an employee or with substantially equivalent coverages until
the then current termination date of the respective Executive Employment
Agreements, but in no event shall such benefits be for less than a period
of 12 months. The executive's base salary shall continue to be payable in
equal installments in arrears on the last day of the month.
(iii) Confidentiality and Restrictive Covenant -- The Agreements prohibit
the executives from disclosing any confidential information both during
employment and thereafter in accordance with Anchor and Anchor Bank's rules
and procedures designed to protect their confidential information. The
Agreements further provide that for a period of 12 months after the
termination of the executive's employment under the Agreement, the
termination of the Agreement or the completion of base salary payments
pursuant to the Agreement, whichever is later, the executive will not,
within a 25-mile radius of Myrtle Beach, South Carolina (or any office of
any subsidiary of Anchor, if the executive should be employed by and
located at a subsidiary of Anchor other than in Myrtle Beach, South
Carolina) manage, operate or be employed by, participate in, or be
connected in any manner with the management, operation, or control of any
banking business or savings and loan business or financial services
business. Further, during the same period of time, the executive will not
solicit the business or patronage, directly or indirectly, from any
customers of Anchor Bank or seek to, or assist others to, persuade any
employee of Anchor Bank engaged in work similar or related to Anchor Bank's
work, to discontinue employment with Anchor Bank, seek employment in any
business similar or related to that of Anchor Bank or engage in any
business similar or related to that of Anchor Bank.
69
<PAGE>
Selected Historical Financial Data of Anchor
The following table presents consolidated selected financial data for
Anchor for each of the five years in the period ended December 31, 1997. Net
income per share has been restated for all periods presented to reflect a
three-for-two stock split payable to Anchor's stockholders of record on August
29, 1997, as well as to conform to the requirements of Financial Accounting
Standards Board ("FASB") Statement No. 128, "Earnings Per Share." This
financial data is derived in part from, and should be read in conjunction with
the Consolidated Financial Statements and the related notes thereto contained
in Anchor's Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income .................... $ 43,416 $ 35,880 $ 30,270 $ 23,392 $ 19,612
Interest expense ................... 19,741 16,096 13,599 9,133 7,552
Net interest income ................ 23,675 19,784 16,671 14,259 12,060
Provision for loan losses .......... 910 850 596 940 522
Noninterest income ................. 4,313 3,760 2,977 4,433 3,350
Noninterest expense ................ 17,522 15,331 13,560 12,368 11,153
Provision for income taxes ......... 3,442 2,594 1,953 1,879 1,366
Net income ......................... $ 6,114 $ 4,769 $ 3,539 $ 3,505 $ 2,419
PER SHARE DATA:
Net income -- basic ................ $ 1.59 $ 1.25 $ 0.93 $ 0.92 $ 0.64
Net income -- diluted .............. 1.51 1.21 0.93 0.90 0.63
Cash dividends declared ............ 0.375 0.28 0.24 0.21 0.20
Book value ......................... 9.95 8.63 7.63 6.93 6.23
Average total equity ............... $ 35,986 $ 30,914 $ 27,642 $ 25,008 $ 22,615
Average total assets ............... 540,163 459,252 378,998 330,699 285,339
Total assets ....................... 585,397 493,504 407,506 351,867 304,334
Investment securities .............. 121,462 100,231 83,447 79,079 60,066
Total loans ........................ 415,699 345,405 285,104 236,771 202,987
Net loans .......................... 411,110 341,604 282,058 233,975 200,626
Total deposits ..................... 493,708 420,212 353,876 308,208 271,759
Total liabilities .................. 545,868 460,529 378,964 327,092 281,118
Total stockholders' equity ......... 39,528 32,975 28,542 24,775 23,217
</TABLE>
SUPERVISION AND REGULATION
Bank Holding Companies
Anchor, ComSouth and M&M are under the supervisory and regulatory
authority granted the Federal Reserve Board of Governors by the Bank Holding
Company Act of 1956, as amended ("BHCA"). Anchor, ComSouth and M&M are required
to file with the Federal Reserve an annual report and such additional
information as the Federal Reserve may require pursuant to the BHCA. The
Federal Reserve also may make examinations of Anchor, ComSouth and M&M and
their respective subsidiaries.
The BHCA requires every bank holding company to obtain the prior approval
of the Federal Reserve before it may acquire substantially all the assets of
any bank or ownership or control, directly or indirectly, of more than five
percent of the voting shares of any such bank. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Interstate Act") provides for
nationwide interstate banking and branching with certain limitations. The
Interstate Act permits bank holding companies to acquire banks without regard
to state boundaries after September 29, 1996. The Federal Reserve may approve
an interstate acquisition only if, as a result of the acquisition, the bank
holding company would control less than 10% of the total amount of insured
deposits in the United States or 30% of the deposits in the home state of the
bank being acquired. The home state can waive the 30% limit as long as there is
no discrimination against out-of-state institutions.
Pursuant to the Interstate Act, interstate branching took effect on June
1, 1997, except under certain circumstances. Once a bank has established
branches in a host state (a state other than its headquarters state) through an
interstate merger transaction, the bank may establish and acquire additional
branches at any location in the host state where any bank involved in the
interstate merger transaction could have established or acquired branches under
applicable federal or state law. The
70
<PAGE>
Interstate Act further provides that individual states may opt out of
interstate branching. If a state did not opt out of interstate branching prior
to May 31, 1997, then a bank in that state may merge with a bank in another
state provided that neither of the states have opted out.
Under the BHCA, bank holding companies are prohibited, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
five percent of the voting shares of any company engaging in activities other
than banking or managing or controlling banks or furnishing services to or
performing services for their banking subsidiaries. However, the BHCA
authorizes the Federal Reserve to permit bank holding companies to engage in,
and to acquire or retain shares of companies that engage in, activities 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 generally imposes certain limitations on extensions of credit and
other transactions by and between banks which are members of the Federal
Reserve System and other affiliates (which includes any holding company of
which such bank is a subsidiary and other non-bank subsidiary of such holding
company). Further, under Section 106 of the 1970 Amendments to the BHCA, a bank
holding company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, lease or sale
of property, or the furnishing of services.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. This act recapitalized the Bank Insurance
Fund, of which Anchor Bank, the ComSouth Banks and the M&M Bank are members,
substantially revised bank regulations, including capital standards, restricted
certain powers of state banks, gave regulators the authority to limit officer
and director compensation and required bank holding companies in certain
circumstances to guarantee the capital compliance of their banks. Among other
things, FDICIA required the federal banking agencies to take "prompt corrective
action" in respect of banks that do not meet minimum capital requirements.
FDICIA established five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized," as defined by regulations adopted by the Federal
Reserve, the FDIC, and the other federal depository institution regulatory
agencies. A depository institution is well capitalized if it significantly
exceeds the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets such measure, undercapitalized if
it fails to meet any such measure, significantly undercapitalized if it is
significantly below such measure, and critically undercapitalized if it fails
to meet any critical capital level set forth in the regulations. The critical
capital level must be a level of tangible equity capital equal to not less than
2% of total tangible assets and not more than 65% of the minimum leverage ratio
to be prescribed by regulation (except to the extent that 2% would be higher
than such 65% level). An institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital requirements,
the regulatory agencies can require submission and funding of a capital
restoration plan by the institution, place limits on its activities, require
the raising of additional capital and, ultimately, require the appointment of a
conservator or receiver for the institution. The obligation of a controlling
bank holding company under FDICIA to fund a capital restoration plan is limited
to the lesser of 5% of an undercapitalized subsidiary's assets or the amount
required to meet regulatory capital requirements. If the controlling bank
holding company fails to fulfill its obligation under FDICIA and files (or has
filed against it) a petition under the Federal Bankruptcy Code, the FDIC's
claim may be entitled to a priority in such bankruptcy proceeding over third
party creditors of the bank holding company.
An insured depository institution may not pay management fees to any
person having control of the institution nor may an institution, except under
certain circumstances and with prior regulatory approval, make any capital
distribution if, after making such payment or distribution, the institution
would be undercapitalized. FDICIA also restricts the acceptance of brokered
deposits by insured depository institutions and contains a number of consumer
banking provisions, including disclosure requirements and substantive
contractual limitations with respect to deposit accounts.
At March 31, 1998, Anchor Bank was "well capitalized," and was not subject
to any of the foregoing restrictions.
FDICIA contains numerous other provisions, including reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy. In addition, FDICIA required the FDIC to establish a system
of risk-based assessments for federal deposit insurance, by which banks that
pose a greater risk of loss to the FDIC (based on their capital levels and the
FDIC's level of supervisory concern) pay a higher insurance assessment.
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<PAGE>
Subsidiary Banks
As a state nonmember bank with deposits insured by the FDIC, Anchor Bank
is subject to the supervisory and regulatory authority of the FDIC and the
South Carolina State Board of Financial Institutions. The South Carolina State
Board of Financial Institutions and the North Carolina Banking Commission
regulate all areas of commercial banking operations of state chartered banks
under their supervision, including reserves, loans, mergers, payment of
dividends, interest rates, establishment of branches, and other aspects of
operations.
The Comsouth Banks and the M&M Bank are national banking associations
subject to regulation and supervision of the Comptroller of the Currency
("OCC").
Anchor Bank, the ComSouth Banks and the M&M Bank (collectively, the
"Subsidiary Banks") are also subject to various requirements and restrictions
under federal and state law, including requirements to maintain reserves
against deposits, restrictions on the types and amounts of loans that may be
granted and the interest that may be charged thereon and limitations on the
types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations affect the operations of the
Subsidiary Banks. In addition to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal Reserve Board as it
attempts to control the money supply and credit availability in order to
influence the economy.
Each of Anchor, ComSouth and M&M generally depend upon payments of
dividends by their respective Subsidiary Banks in order to pay dividends to
their shareholders and to meet their other needs for cash or to pay expenses.
The Subsidiary Banks are subject to various statutory restrictions on their
ability to pay dividends to their respective holding companies. Federal law
provides that no insured depository institution may make any capital
distribution (which would include a cash dividend) if, after making the
distribution, the institution would not satisfy one or more of its minimum
capital requirements. Moreover, the federal bank regulatory agencies also have
the general authority to limit the dividends paid by insured banks if such
payments may be deemed to constitute an unsafe and unsound practice. Insured
banks are prohibited from paying dividends on its capital stock while in
default in the payment of any assessment due to the FDIC except in those cases
where the amount of the assessment is in dispute and the insured bank has
deposited satisfactory security for the payment thereof. See "COMPARATIVE
MARKET PRICES AND DIVIDENDS."
The Community Reinvestment Act of 1977 ("CRA") and the related regulations
of the Comptroller of the Currency, the Board of Governors of the Federal
Reserve, and the Federal Deposit Insurance Corporation ("FDIC") are intended to
encourage regulated financial institutions to help meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. The CRA and such regulations provide that the appropriate
regulatory authority will assess the records of regulated financial
institutions in satisfying their continuing and affirmative obligations to help
meet the credit needs of their local communities as part of their regulatory
examination of the institution. The results of such examinations are made
public and are taken into account upon the filing of any application to
establish a domestic branch or, to merge or to acquire the assets or assume the
liabilities of a bank. In the case of a bank holding company, the CRA
performance record of the subsidiary banks involved in the transaction are
reviewed in connection with the filing of an application to acquire ownership
or control of shares or assets of a bank or to merge with any other bank
holding company. An unsatisfactory record can substantially delay or block the
transaction.
Other
Other legislative and regulatory proposals regarding changes in
banking,and the regulation of banks, thrifts, and other financial institutions,
are being considered by the executive branch of the Federal government,
Congress, and various state governments, including South Carolina and North
Carolina. Certain of these proposals, if adopted, could significantly change
the regulation of banks and the financial services industry. It cannot be
predicted whether any of these proposals will be adopted or, if adopted, how
these proposals will affect Anchor or Anchor Bank or ComSouth or M&M and their
respective subsidiaries.
INFORMATION ABOUT COMSOUTH
Business of ComSouth
ComSouth is a multi-bank holding company incorporated on May 15, 1987,
pursuant to the laws of the State of South Carolina. Subsidiaries of ComSouth
are Bank of Columbia, NA, which opened for business on July 12, 1988, and Bank
of Charleston, N.A., which opened for business on April 12, 1990 (the "ComSouth
Banks"). Both ComSouth Banks offer a full
72
<PAGE>
range of deposit services, including checking accounts, NOW accounts, and
savings and other time deposits of various types, ranging from daily money
market accounts to longer-term certificates of deposit. The ComSouth Banks also
offer individual retirement accounts. The ComSouth Banks each offer a full
range of short-term and intermediate-term commercial and personal loans. The
Banks originate variable-rate, residential and other mortgage loans and
fixed-rate mortgage loans primarily for resale. Commercial loans are made
primarily to individuals and small and mid-sized businesses operating in the
central and coastal regions of South Carolina, principally Richland and
Lexington Counties for the Columbia Bank, and Charleston, Dorchester, and
Berkeley Counties for the Charleston Bank. The Columbia Bank serves its
customers from its main office at 1350 Main Street and drive-in facility at
1427 Park Street in Columbia, South Carolina. The Charleston Bank serves its
customers from its main office and drive-in facility at 276 East Bay Street,
Charleston, South Carolina.
Security Ownership of Certain Beneficial Owners and Management of Comsouth
The following tables set forth as of , 1998, the number and
percentage of outstanding shares beneficially owned by each executive officer
and director of ComSouth, by all executive officers and directors of ComSouth
as a group, and by each person known by ComSouth to own more than 5% of the
outstanding ComSouth Common Stock.
<TABLE>
<CAPTION>
Number of Shares Percent
Management Name Beneficially Owned (1)(2) of Class
- - ----------------------------------------------------------- --------------------------- ---------
<S> <C> <C>
Harry R. Brown .................................... 13,467 (3) *
W. Carlyle Blakeney, Jr. .......................... 21,886 (4) *
R. Lee Burrows, Jr. ............................... 11,842 (5) *
Mason R. Chrisman ................................. 52,341 (6) 2.21
Charles R. Jackson ................................ 22,407 (7) *
J. Michael Kapp ................................... 41,411 (8) 1.73
LaVonne N. Phillips ............................... 31,275 (9) 1.31
John C.B. Smith, Jr. .............................. 65,440 (10) 2.73
Arthur M. Swanson ................................. 93,606 (11) 3.91
Arthur P. Swanson ................................. 27,447 (12) 1.15
All Directors and Executive Officers as a group
(10 persons) ..................................... 381,122 15.9
</TABLE>
- - ---------
* Less than one percent.
(1) Unless otherwise indicated, share amounts represent only those shares with
respect to which the named holder has sole power to vote or to direct the
vote and sole power to dispose of or to direct such disposition.
(2) Included in the ComSouth Common Stock share amounts for certain individuals
are shares of ComSouth Common Stock which such individuals have the right
to acquire within 60 days of March 23, 1998 pursuant to stock options as
set forth in more detail in the footnotes to this table and under the
caption "Employee Benefit Plans" appearing elsewhere herein. Consequently,
the number of shares shown in the table may not necessarily correspond
with the number of shares which may be voted by such individuals at the
ComSouth Special Meeting. Percentage calculations for these individuals
assume that all of their respective stock options have been exercised.
(3) Includes 6,600 shares subject to acquisition pursuant to exercise of stock
options.
(4) Includes 1,553 shares subject to acquisition pursuant to exercise of stock
options and 1,725 shares held as custodian for members of Mr. Blakeney's
family.
(5) Includes 92 shares held by Mr. Burrows' spouse, and 891 shares subject to
acquisition pursuant to exercise of stock options.
(6) Includes 1,435 shares subject to acquisition pursuant to exercise of stock
options and 3,339 shares owned by Mr. Chrisman's spouse.
(7) Includes 15,853 shares owned by two corporations in which Mr. Jackson is a
principal and 2,210 shares subject to acquisition pursuant to exercise of
stock options.
(8) Includes 36,668 shares subject to acquisition pursuant to exercise of stock
options.
(9) Includes 1,605 shares subject to acquisition pursuant to exercise of stock
options, but does not include 9,487 shares held in a trust of which Mrs.
Phillips is a beneficiary but as to which she does not have the power to
vote, direct the vote, dispose of or direct the disposition of.
73
<PAGE>
(10) Includes 24,702 shares held by Mr. Smith as custodian for members of his
family, 3,160 shares subject to acquisition pursuant to exercise of stock
options, and 4,743 shares owned by Mr. Smith's spouse.
(11) Includes 4,309 shares owned by Mr. Swanson's spouse and 11,550 shares
subject to acquisition pursuant to exercise of stock options.
(12) Includes 9,900 shares subject to acquisition pursuant to exercise of stock
options.
Five Percent Shareholders
The following table sets forth information regarding persons or groups
that beneficially own five percent or more of outstanding shares of ComSouth's
Common Stock. The information presented is derived from Schedules 13D provided
to ComSouth pursuant to the regulations of the Commission. The information has
not been verified by ComSouth.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and Address Beneficially Owned of Class
- - ------------------------------------------ -------------------- ---------
<S> <C> <C>
Mid-Atlantic Investors (1) ..... 150,810 6.5
Post Office Box 7574
Columbia, SC 29202
Jerry Shearer (1) .............. 230,866 9.96
289 Hunters Blind Drive
Columbia, SC 29212
Jerry Zucker (1) ............... 150,810 6.5
16 Buckingham Drive
Charleston, SC 29407
</TABLE>
- - ---------
(1) Messrs. Shearer and Zucker are the partners of Mid-Atlantic Investors.
Messrs. Shearer and Zucker have shared voting power over 150,810 shares
owned by Mid-Atlantic. Mr. Shearer has sole voting power over 77,295
shares and holds options to acquire 830 shares. Also included are 34
shares held by Mr. Shearer as custodian for members of his family and
1,897 shares owned by his wife. Mr. Shearer also holds options to purchase
53,385 shares from a trust. These shares have not been included as Mr.
Shearer has no voting or investment power with respect to these shares.
Mr. Shearer is employed by ComSouth on a part time basis to provide
additional support as the Manager of Financial and Regulatory Affairs.
74
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Comsouth
Safe Harbor for Forward-Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations of ComSouth which are not historical in
nature, are intended to be, and are hereby identified as, \`forward looking
statements' for purposes of the safe harbor provided by Section 21E of the
Securities Exchange Act of 1934, as amended. ComSouth cautions readers that
forward looking statements, including without limitation, those relating to
ComSouth's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the ComSouth's reports filed with the Commission. Management's
Discussion and Analysis of ComSouth should be read in conjunction with the
consolidated financial statements and accompanying notes thereto as well as the
supplementary financial, tabular, and historical information set forth
elsewhere herein. See "FINANCIAL STATEMENTS OF COMSOUTH."
TABLE 1 -- FINANCIAL SUMMARY
Summary of Operations
(thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income ......................................... $ 14,593 $ 11,276 $ 9,234 $ 6,786 $ 6,537
Interest expense ........................................ 6,580 4,924 4,125 2,570 2,690
-------- -------- -------- ------- -------
Net interest income ..................................... 8,013 6,352 5,109 4,216 3,847
Provision for loan losses ............................... 334 110 195 75 135
-------- -------- -------- ------- -------
Net interest income after provision for loan losses ..... 7,679 6,242 4,914 4,141 3,712
Noninterest income ...................................... 1,995 1,646 1,469 771 690
Noninterest expense ..................................... 6,059 5,131 4,576 3,927 3,836
-------- -------- -------- ------- -------
Income before income taxes............................... 3,615 2,757 1,807 985 566
Applicable income (taxes) benefit ....................... (1,361) (929) (426) 62 (43)
-------- -------- -------- ------- -------
Net income .............................................. $ 2,254 $ 1,828 $ 1,381 $ 1,047 $ 523
======== ======== ======== ======= =======
Earnings per share -- Basic (1) ......................... $ .98 $ .80 $ .61 $ .47 $ .23
Earnings per share -- Diluted (1) ....................... $ .91 $ .77 $ .60 $ .47 $ .23
Book value at year-end per common share ................. $ 6.91 $ 5.93 $ 5.19 $ 4.46 $ 4.08
Selected year-end assets and liabilities
Total assets ............................................ $205,572 $164,634 $133,423 $96,920 $95,008
Interest-earning assets ................................. 192,517 151,635 119,429 89,179 87,105
Investment securities ................................... 43,026 34,106 22,135 21,878 23,323
Loans (net) ............................................. 142,671 113,879 91,024 67,301 59,883
Deposits ................................................ 182,673 145,408 117,763 82,908 82,898
Noninterest-bearing deposits ............................ 41,284 35,678 24,654 13,392 11,430
Interest-bearing deposits ............................... 141,389 109,730 93,109 69,516 71,468
Interest-bearing liabilities ............................ 5,615 4,659 2,193 3,422 2,513
Stockholders' equity .................................... 16,016 13,641 11,879 10,104 9,238
Ratios (average)
Loans to deposits ....................................... 80.89% 82.55% 80.62% 71.87% 73.58%
Return on assets ........................................ 1.24% 1.30% 1.22% 1.13% 0.58%
Return on interest-earning assets ....................... 1.31% 1.37% 1.30% 1.20% 0.62%
Return on stockholders' equity .......................... 15.19% 14.54% 12.74% 11.12% 5.68%
Net interest income to interest-earning assets .......... 4.66% 4.78% 4.81% 4.84% 4.53%
Net charge-offs (recoveries) to loans ................... .26% 0.09% 0.01% (0.11%) 0.66%
Stockholders' equity to assets .......................... 8.17% 8.94% 9.55% 10.13% 10.21%
Stockholders' equity to deposits ........................ 9.32% 10.16% 10.94% 11.69% 11.60%
Risk-based capital ratio ................................ 12.10% 13.30% 13.43% 16.23% 15.27%
Tier 1 leverage ratio ................................... 10.90% 11.90% 12.17% 14.96% 14.00%
</TABLE>
- - ---------
(1) See Note 1 to ComSouth's consolidated financial statements regarding
earnings per share calculation.
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<PAGE>
Results of Operations
For the first three months of 1998, ComSouth had net earnings of $675,000
or $.27 per diluted share, an increase of 30% over the $520,000 or $.21 per
diluted share for the same period of 1997. ComSouth recorded net income of
$2,254,000 or $.91 per diluted share at year end 1997, an increase of 23% over
the $1,828,000 or $.77 per diluted share reported for 1996. The economy in both
markets serviced by each ComSouth Bank has been favorable over the past several
years and has generated a need for businesses to borrow to fund expansion and
growth. As a result, loans outstanding grew by 25% to $144,500,000 during 1997,
which was the primary reason for the improved earnings over the prior year.
ComSouth had total revenues of $4,673,000 and $3,724,000 and total
expenses of $3,998,000 and $3,204,000 for the three months ended March 31, 1998
and 1997, respectively. ComSouth had total revenues of $16,588,000, $12,922,000
and $10,703,000 for the three years ending 1997, 1996 and 1995, respectively.
Total expenses for the same periods were $14,334,000, $11,094,000 and
$9,322,000.
Summarized in Table 2 is an analysis of the composition of ComSouth's
revenues and expenses for 1997, 1996 and 1995.
TABLE 2 -- REVENUE AND EXPENSES
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------
1997 1996 1995
Amount % Amount % Amount %
-------------- ---------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Interest on loans ................................... $11,945,201 72.0% $ 9,454,242 73.2% $ 7,723,855 72.2%
Interest and dividends on investment securities ..... 2,520,380 15.2% 1,674,717 13.0% 1,361,008 12.7%
Interest on temporary investments ................... 127,606 .8% 147,320 1.1% 148,778 1.4%
Noninterest income .................................. 1,995,115 12.0% 1,646,054 12.7% 1,469,342 13.7%
----------- ----- ----------- ----- ----------- -----
Total revenues ...................................... $16,588,302 100.0% $12,922,333 100.0% $10,702,983 100.0%
=========== ===== =========== ===== =========== =====
Expenses
Interest on deposits ................................ $ 6,263,216 43.7% $ 4,756,452 42.9% $ 4,008,427 43.0%
Interest on note payable and securities sold
under agreements to repurchase .................... 317,278 2.2% 167,104 1.5% 116,136 1.2%
Provision for loan losses ........................... 334,000 2.3% 110,000 1.0% 195,000 2.1%
Salaries and employee benefits ...................... 3,090,304 21.6% 2,661,977 24.0% 2,481,335 26.6%
Occupancy expenses .................................. 448,647 3.1% 433,592 3.9% 429,183 4.6%
Furniture and equipment ............................. 474,652 3.3% 406,767 3.6% 341,966 3.7%
Advertising and marketing ........................... 161,966 1.1% 89,358 0.8% 78,643 0.8%
Other ............................................... 1,883,592 13.2% 1,539,418 13.9% 1,244,695 13.4%
Taxes ............................................... 1,360,424 9.5% 929,239 8.4% 426,127 4.6%
----------- ----- ----------- ----- ----------- -----
Total expenses ...................................... $14,334,079 100.0% $11,093,907 100.0% $ 9,321,512 100.0%
=========== ===== =========== ===== =========== =====
</TABLE>
Interest on loans was responsible for most of the change in revenues in
each of the last three years and for the three months ended March 31, 1998.
Increased volume was the major factor for the growth in loan interest income as
the yield realized on loans declined from 1995 to 1996, but remained relatively
stable from 1996 to 1997. Interest income generated by investment securities
also increased over the same three year period as a result of asset growth and
improved yields earned on the portfolio each year. Noninterest income also
increased over the three year period with the majority of these increases being
derived from the "Business Manager" product. This product provides immediate
cash flows to small businesses through the purchase by the ComSouth Banks of
such businesses' receivables. The ComSouth Banks are paid a fee for the billing
and collection of these receivables and retain full recourse against the seller
of the purchased receivables in case of default. Fees derived from this product
increased by $200,000 from 1995 to 1996 and $195,000 from 1996 to 1997.
Management's emphasis on the attraction of core deposit relationships to
provide the funding source for its loan growth continued to provide additional
revenue from deposit fees charged to service these accounts. Fees derived from
deposit service charges increased by $113,000 from 1995 to 1996 and $145,000
from 1996 to 1997. The increase in deposit fee income over the three year
period, though impacted somewhat by a modest increase by the Columbia Bank in
deposit fees during the third quarter of 1996, was principally the result of
growth in the number of deposit accounts.
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<PAGE>
The increase in interest paid on deposits for the period from 1995 to 1996
was entirely due to growth in deposit accounts as rates paid on deposits
declined. The increase in interest paid for deposits in the 1996 to 1997 period
resulted from both growth and rate changes as rates paid on interest-bearing
deposits increased by 13 basis points during the period. The increase in
interest in the note payable category each year is the result of a borrowing
during 1996 of $1,200,000 by ComSouth and an additional advance of $250,000 on
the same note in 1997. Proceeds from these borrowings were used to support
funding needs at the corporate level for legal fees and general operating
expenses. Legal and regulatory expenses declined in the first quarter of 1998
due to reduced legal expenses as a result of the settlement of a significant
portion of the pending litigation during that quarter. An increase in
charged-off loans during 1997, coupled with a maturing loan portfolio and
strong loan growth over the past two years resulted in a management decision to
increase the contribution to the provision for loan losses during 1997. The
significant change in the loan loss provision for the two periods ended March
31, 1998 and 1997, is due to additional reserves needed to support the $28
million increase in loans outstanding, management's recognition that a
significant portion of the portfolio is beginning to mature, and the charge-off
of a sizable credit in the fourth quarter of 1997 and another in the first
quarter of 1998. Additionally, ComSouth has begun to estimate and accrue for
potential credit risk as a result of the year 2000 problem. Salaries and
employee benefits increased a modest 7% from 1995 to 1996 principally due to
annual merit increases, however in 1997 management realized the need to
increase staffing to better serve its customer base and to promote continued
growth in ComSouth. As a result, salary and employee benefits increased by 16%
in 1997 over 1996. The increase in furniture and equipment expense is the
direct result of the increased staffing over the three year period. Advertising
and marketing expenses increased over the three year period as a result of
increased business and promotional materials to develop cross selling
opportunities. In addition, charitable contributions increased by $25,000
during 1997 to support various local community projects in both service areas.
Other expenses increased by $295,000 from 1995 to 1996 and by $344,000
from 1996 to 1997. Legal fees accounted for the major portion of these
increases as legal fees were $170,000 higher in 1996 than 1995 and $150,000
higher in 1997 than 1996. During 1995, 1996 and 1997, ComSouth advanced legal
defense expenses for 8 present and former directors of ComSouth named as
defendants in 16 suits brought by stockholders including several former
directors of ComSouth or the ComSouth Banks and the wife of the former
President of ComSouth, one of which was asserted to be a class action status.
In 1997, the trial judge granted summary judgment to all of the defendants in
the suit which had been brought as a class action and the plaintiff indicated
that he would appeal. Because it appeared that ComSouth would be obligated to
indemnify the individual defendants for their legal expenses and ComSouth was
advised by counsel that the posture of the 16 cases was such that further legal
proceedings, and thus legal expenses, could be substantial, ComSouth agreed to
participate in a settlement of the 16 cases pursuant to which ComSouth paid
$250,000 to the plaintiffs and released its claims for reimbursement and future
coverage against its directors' and officers' liability insurance carrier. The
$250,000 was accrued as a legal expense in the fourth quarter of 1997 although
the settlement did not become final until court approval of the settlement and
dismissal of the suits occurred in the first quarter of 1998. In 1997, another
shareholder represented by different counsel brought a suit against the same 8
former and present directors based on essentially the same facts. ComSouth has
advanced the legal expenses for the defendants in that suit although ComSouth
is not named as a defendant in that suit. Defense of the suit is not covered by
insurance and ComSouth expects to have to pay the expense of defending the
suit. The amount of such expense cannot be reasonably estimated. Accordingly,
ComSouth has not set up a reserve to cover the expense but will accrue the
expense as it occurs. Supplies and printing expenses increased by $25,000 from
1995 to 1996 and $22,000 from 1996 to 1997 and postage and freight increased by
$25,000 from 1995 to 1996 and $18,000 from 1996 to 1997. These increases were
primarily due to the growth in assets and deposits. Directors fees increased by
$9,000 in 1996 over 1995 and $43,000 in 1997 from 1996 as a result of changes
made to the fee structure in 1996, coupled with the addition of several new
directors in the Columbia Bank and increased attendance in board and committee
meetings. Temporary employment services increased by $18,000 from 1995 to 1996,
but remained relatively stable from 1996 to 1997 as additional support was
needed to support the growth each year until permanent staffing could be hired.
Consulting fees declined by $24,000 from 1995 to 1996 due to a reduction in
fees related to the development and implementation of a local area network
(LAN) in the Columbia Bank during the last quarter of 1995. Consulting fees for
1997 were up $14,000 over 1996 due to additional programming needs to assess
the potential problems related to the year 2000. Training expenses increased by
$22,000 in 1996 over 1995 and declined by only $4,000 from 1996 to 1997 as each
ComSouth Bank continued to strengthen banking skills for its staff through
various banking schools and seminars. An additional $21,000 in expense was
incurred by ComSouth during 1997 as a result of its 3 for 2 stock split in
October 1997. Listing fees for the newly issued stock certificates with the
American Stock Exchange (AMEX) were $17,000, while processing fees by the
transfer agent to issue the new certificates were $4,000.
The increase in tax expenses for each year is primarily due to the
increase in pretax income for each year.
77
<PAGE>
Discussion of ComSouth's financial condition and expanded discussion of
its operating results are presented in the following narratives and tables.
Net Interest Income
Net interest income represents the differences between interest earned on
assets and the interest paid on liabilities. It traditionally constitutes the
largest source of a financial institution's earnings.
Net interest income for the three months ended March 31, 1998 and 1997 was
$2,135,000 and $1,736,000, respectively. The average yield on earning assets
was 8.1% and 8.3%, the average rate paid on interest bearing liabilities was
4.7% and 4.7%, and the annualized net interest margin was 4.3% and 4.4% for the
three months ended March 31, 1998 and 1997, respectively.
For the years 1997, 1996 and 1995, net interest income totaled $8,013,000,
$6,353,000 and $5,109,000, respectively. The increase in net interest income
for all three years was principally due to the growth in loans outstanding for
each year as loans outstanding increased by approximately 25% in 1997 and 1996
over the preceding year.
The average yield on earning assets for 1997, 1996 and 1995 was 8.48%,
8.48% and 8.69%, the average rate paid on interest bearing liabilities was
4.85%, 4.72% and 4.84%, and the annualized net yield on average earning assets
(net interest income divided by average earning assets) was 4.66%, 4.78% and
4.81%, respectively.
The change in rates paid on interest bearing liabilities from 1996 to 1997
was the result of competitive pricing in both markets served by the ComSouth
Banks and the need for each ComSouth Bank to attract higher priced funds to
support loan growth and an increase in the federal funds rate during the first
quarter of the year. The change in yields and rates of the 1995 to 1996 period
were primarily due to several prime rate changes, which occurred at various
times during the period. Even though rates paid on interest bearing liabilities
are not generally tied to the prime lending rate, changes in the prime lending
rate have traditionally impacted the market rate for such liabilities.
Management continues to focus its efforts on minimizing any negative earnings
impact as a result of increased competition, or rate changes. However, the
reduction in the net interest margin in 1997 is the result of higher rates paid
on deposits due to competition for deposits to support the strong loan growth.
Table 3 shows the yields and costs on average balances for the periods
discussed.
78
<PAGE>
TABLE 3 -- COMPARATIVE AVERAGE BALANCE SHEETS -- YIELD AND COSTS
(Average balances for years ended December 31, in thousands)
<TABLE>
<CAPTION>
1997 1996
---------------------------------- ----------------------------------
Average Revenues/ Yield Average Revenues/ Yield
Balance expense Rate Balance expense Rate
----------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans(1) .......................... $128,892 $11,945 9.27% $102,207 $ 9,454 9.25%
Investment securities
(taxable) ....................... 40,747 2,520 6.18% 28,064 1,675 5.97%
Federal funds sold ................ 2,443 128 5.24% 2,757 147 5.33%
-------- ------- ---- -------- ------- ----
Total interest-earning assets ..... 172,082 14,593 8.48% 133,028 11,276 8.48%
-------- ------- ---- -------- ------- ----
Noninterest earning assets
Cash and due from banks ........... 7,639 6,263
Premises and equipment ............ 1,421 1,419
Other, less allowance for loan
losses .......................... 554 46
-------- --------
Total noninterest earning
assets .......................... 9,614 7,728
-------- --------
Total assets ...................... $181,696 $140,756
======== ========
Interest-bearing liabilities:
Interest-bearing deposits
NOW, money market and
savings ........................ $ 64,907 $ 2,649 4.08% $ 54,257 $ 2,139 3.94%
Time deposits ................... 64,589 3,614 5.60% 46,848 2,618 5.59%
-------- ------- ---- -------- ------- ----
Total interest-bearing
deposits ........................ 129,496 6,263 4.84% 101,105 4,757 4.71%
Short-term borrowings ............. 4,411 196 4.44% 2,017 88 4.36%
Note payable and US
Treasury tax and loan
accounts ........................ 1,738 121 6.96% 1,183 79 6.68%
-------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities ..................... 135,645 6,580 4.85% 104,305 4,924 4.72%
-------- ------- ---- -------- ------- ----
Noninterest-bearing liabilities
Demand deposits ................... 29,848 22,706
Other liabilities ................. 1,358 1,167
-------- --------
166,851 128,178
Stockholders' equity .............. 14,845 12,578
-------- --------
Total liabilities and
stockholders' equity ............ $181,696 $140,756
======== ========
Net interest income ............... $ 8,013 $ 6,352
======= =======
Margin analysis
Interest income/earning assets..... 8.48% 8.48%
---- ----
Interest expense/earning
assets .......................... 3.82% 3.70%
---- ----
Net interest income/earning
assets(2) ....................... 4.66% 4.78%
==== ====
<CAPTION>
1995
----------------------------------
Average Revenues/ Yield
Balance expense Rate
----------- ----------- ----------
<S> <C> <C> <C>
Interest earning assets:
Loans(1) .......................... $ 79,881 $7,724 9.67%
Investment securities
(taxable) ....................... 23,902 1,361 5.69%
Federal funds sold ................ 2,532 149 5.88%
-------- ------ ----
Total interest-earning assets ..... 106,315 9,234 8.69%
-------- ------ ----
Noninterest earning assets
Cash and due from banks ........... 5,763
Premises and equipment ............ 1,321
Other, less allowance for loan
losses .......................... 64
--------
Total noninterest earning
assets .......................... 7,148
--------
Total assets ...................... $113,463
========
Interest-bearing liabilities:
Interest-bearing deposits
NOW, money market and
savings ........................ $ 41,363 $1,653 4.00%
Time deposits ................... 41,329 2,356 5.70%
-------- ------ ----
Total interest-bearing
deposits ........................ 82,692 4,009 4.85%
Short-term borrowings ............. 1,915 83 4.33%
Note payable and US
Treasury tax and loan
accounts ........................ 641 33 5.15%
-------- ------ ----
Total interest-bearing
liabilities ..................... 85,248 4,125 4.84%
-------- ------ ----
Noninterest-bearing liabilities
Demand deposits ................... 16,387
Other liabilities ................. 985
--------
102,620
Stockholders' equity .............. 10,843
--------
Total liabilities and
stockholders' equity ............ $113,463
========
Net interest income ............... $5,109
======
Margin analysis
Interest income/earning assets..... 8.69%
----
Interest expense/earning
assets .......................... 3.88%
----
Net interest income/earning
assets(2) ....................... 4.81%
====
</TABLE>
- - ---------
(1) Nonaccrual loan balances have been excluded.
(2) Net interest income divided by total interest earning assets.
Table 4 analyzes changes in net interest income resulting from changes in
volume and rates in the periods discussed.
79
<PAGE>
TABLE 4 -- VOLUME AND RATE VARIANCE ANALYSIS
(Tax equivalent basis)
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
--------------------------------------- ------------------------------------------
Change in Change in Change in Change in
Volume(1) Rate(1) Total Volume(1) Rate(1) Total
------------- ----------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans .................................... $2,470,533 $ 20,426 $2,490,959 $2,066,082 $ (335,695) $1,730,387
Investment securities(2) ................. 786,551 59,112 845,663 247,140 66,569 313,709
Federal funds sold and securities
purchased under agreement to resell ..... (17,133) (2,581) (19,714) 8,925 (10,383) (1,458)
---------- -------- ---------- ---------- ---------- ----------
Total interest-earning assets ............ 3,239,951 76,957 3,316,908 2,322,147 (279,509) 2,042,638
---------- -------- ---------- ---------- ---------- ----------
Interest expense:
NOW, money market and savings ............ 434,053 75,878 509,931 511,219 (24,992) 486,227
Time deposits ............................ 992,148 4,685 996,833 307,037 (45,239) 261,798
Federal funds purchased and securities
sold under agreements to repurchase ..... 106,406 1,620 108,026 4,380 568 4,948
Note payable and US Treasury tax and
loan accounts ........................... 38,815 3,334 42,149 36,350 9,669 46,019
---------- -------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities ....... 1,571,422 85,517 1,656,939 858,986 (59,994) 798,992
---------- -------- ---------- ---------- ---------- ----------
Net interest income ...................... $1,668,529 $ (8,560) $1,659,969 $1,463,161 $ (219,515) $1,243,646
========== ======== ========== ========== ========== ==========
</TABLE>
- - ---------
(1) Volume-rate changes have been allocated to each category based on the
percentage of each to the total change.
(2) Interest income is presented on a fully taxable equivalent basis using the
federal income tax of 34% and state tax rate of 4.5%.
Rate Sensitivity
The management of the composition and maturities of rate sensitive assets
and liabilities is vital to the optimization of net interest income as interest
rates earned on assets and paid on liabilities fluctuate in periods in which
the rate environment is unstable. Management constantly reviews interest rate
risk exposure through its Asset/Liability Management function using such
techniques as GAP Analysis and simulation modeling. Additionally, management
gathers and analyzes information concerning local and national market
conditions which may affect the rate environment. The results of the review of
interest rate risk and expected changes in the rate environment are then used
to make timely and reasonable changes to the balance sheet composition to
reduce the potential earnings impact.
Table 5 sets forth ComSouth's interest sensitivity position as of December
31, 1997 by showing the amount of interest-earning assets and interest-bearing
liabilities that reprice in the periods shown.
80
<PAGE>
TABLE 5 -- INTEREST SENSITIVITY GAP ANALYSIS
(December 31, 1997 balances in thousands)
<TABLE>
<CAPTION>
Total One
0 to 3 4 to 6 7 to 12 Within through Over five
Months Months Months One Year Five Years Years Total
------------- ------------ --------- ------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Federal funds sold ..................... $ 6,820 $ 6,820 $ 6,820
Investment securities .................. 9,490 $ 5,152 14,642 $ 27,102 $ 1,282 43,026
Loans receivable (1) .................... 69,937 $ 4,288 12,269 86,494 51,741 6,154 144,389
--------- -------- ------- -------- -------- -------- --------
86,247 4,288 17,421 107,956 78,843 7,436 194,235
--------- -------- ------- -------- -------- -------- --------
Interest-bearing liabilities
Deposits
NOW, money market and savings ........ 70,905 70,905 70,905
Time deposits ........................ 34,988 10,984 16,451 62,423 8,062 70,485
Securities sold under agreements to
repurchase ........................... 3,096 3,096 3,096
US Treasury tax and loan accounts ...... 1,330 1,330 1,330
Note payable ........................... 81 81 161 323 866 1,189
--------- -------- ------- -------- -------- --------
110,400 11,065 16,612 138,077 8,928 0 147,005
--------- -------- ------- -------- -------- -------- --------
Interest-sensitive gap .................. $ (24,153) $ (6,777) $ 809 $(30,121) $ 69,915 $ 7,436 $ 47,230
========= ======== ======= ======== ======== ======== ========
Cumulative interest-sensitivity gap ..... $(30,121) $ 39,794 $ 47,230
======== ======== ========
Ratios of interest-earnings assets to
interest-bearing liabilities ........... 78.2% 883.1%
======== ========
Cumulative gap to total
interest-earning assets ................ (15.5%) 20.5% 24.3%
======== ======== ========
</TABLE>
- - ---------
(1) Excludes nonaccrual loans.
At December 31, 1997 approximately 55% of ComSouth's interest earning
assets will reprice within one year, compared to 94% of interest bearing
liabilities. The 15.5% or $30,121,000 negative interest-sensitivity gap
position at December 31, 1997 is slightly higher than management prefers,
however not at a level high enough that management would expect to create a
material impact on earnings if rates were to change. This negative gap position
is partially due to management's decision to classify all NOW, money market and
saving deposits within the one year category when in fact a significant portion
of these deposits are core deposits which may or may not be sensitive to rate
changes. Management believes that paying the current market rates required to
attract longer term time deposits to reduce the negative gap position is not
warranted. Management is aware of its gap position and has developed specific
strategies to maintain the gap position at a reasonable level.
Investment Securities
Investment securities represent the second largest component of earning
assets, comprising 22% and 23% of total earning assets in 1997 and 1996,
respectively. Note 4 to the accompanying consolidated financial statements
presents the book value of investment securities by category as of December 31,
1997 and 1996. As shown in Table 6, ComSouth primarily invests in U.S. Treasury
securities and securities of other U.S. Government agencies with maturities of
up to five years.
Management reviews the investment securities portfolio and classifies
securities as either held-to-maturity or available-for-sale. Securities which
ComSouth has the positive intent and ability to hold to maturity are classified
as held-to-maturity, and are carried at amortized cost while all other
securities were classified as available-for-sale and recorded at estimated fair
value with any unrealized gain or loss recorded in stockholders' equity net of
taxes. See Note 4 to the consolidated financial statements for further details.
81
<PAGE>
TABLE 6 -- ANALYSIS OF INVESTMENT SECURITIES
December 31 (thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- Weighted --------------------- ---------------------
Average
Taxable
Amortized Fair Equivalent Amortized Fair Amortized Fair
Value Value Yield (1) Value Value Value Value
----------- --------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
US Treasuries
Within one year ..................... $ 4,434 $ 4,435 5.36% $ 1,504 $ 1,500 $ 1,494 $ 1,493
One to five years ................... 8,350 8,390 5.99% 6,778 6,753 2,545 2,532
-------- ------- ---- ------- ------- ------- -------
Total ............................. 12,784 12,825 5.77% 8,282 8,253 4,039 4,025
-------- ------- ---- ------- ------- ------- -------
US Government Agencies
Within one year ..................... 1,700 1,706 6.28% 41 43 3,300 3,290
One to five years ................... 3,933 3,940 6.46% 4,570 4,551 1,757 1,778
Five to ten years ................... 25 27 7.94% 107 111 90 96
After ten years ..................... 56 60 8.93% 72 77 134 144
-------- ------- ---- ------- ------- ------- -------
Total ............................. 5,714 5,733 6.44% 4,790 4,782 5,281 5,308
-------- ------- ---- ------- ------- ------- -------
Total Held-to-Maturity ............... $ 18,498 $18,558 5.98% $13,072 $13,035 $ 9,320 $ 9,333
======== ======= ==== ======= ======= ======= =======
Available-for-Sale
US Treasuries
Within one year ..................... $ 5,704 $ 5,708 6.06% $ 1,249 $ 1,257 $ 1,500 $ 1,508
One to five years ................... 2,614 2,633 5.92% 7,131 7,150 3,290 3,339
-------- ------- ---- ------- ------- ------- -------
Total ............................. 8,318 8,341 6.02% 8,380 8,407 4,790 4,847
-------- ------- ---- ------- ------- ------- -------
US Government Agencies
Within one year ..................... 2,800 2,799 5.72% 1,000 1,003
One to five years ................... 12,185 12,187 6.32% 10,974 10,908 7,262 7,348
-------- ------- ---- ------- ------- ------- -------
Total ............................. 14,985 14,986 6.20% 11,974 11,911 7,262 7,348
-------- ------- ---- ------- ------- ------- -------
Other Securities
After ten years (2) ................. 1,201 1,201 6.91% 716 716 620 620
-------- ------- ---- ------- ------- ------- -------
Total ............................. 1,201 1,201 6.91% 716 716 620 620
-------- ------- ---- ------- ------- ------- -------
Total Available-for-Sale ............. $ 24,504 $24,528 6.18% $21,070 $21,034 $12,672 $12,815
======== ======= ==== ======= ======= ======= =======
Average Maturity in Years of Total
Investment Securities (3) ........... 1.64
=========
</TABLE>
- - ---------
(1) Computed using a federal tax rate of 34%.
(2) Includes Federal Reserve Bank stock and Federal Home Loan Bank (FHLB)
stock. These stocks are excluded from the calculation of average maturity
in years. Dividends are paid at variable rates. The weighted average
taxable equivalent yield for these securities is for the year 1997 only.
(3) Federal Reserve Bank Stock and FHLB Stock are excluded from the calculation
of average maturity in years.
Loans and Allowance for Loan Losses
At December 31, 1997, total loans outstanding increased by 25% to $144
million over the $116 million reported for year end 1996. The strong loan
demand experienced by both ComSouth Banks in 1996 continued throughout 1997 as
the economies in both markets serviced by the banks remained good. In addition,
management of the ComSouth Banks continued their efforts to service the needs
of their respective markets and improve each ComSouth Bank's market share
within their communities.
Management continuously monitors business and geographic concentrations of
its loan portfolio and believes that the loan portfolio is adequately
diversified. There were no significant concentrations in any industry or with
any individual borrower at years ending December 31, 1997 and 1996.
82
<PAGE>
The mortgage loan division of each bank originates loans primarily for
sale to others and does not generally service such loans; however, certain
older mortgage loans are held and serviced.
Management has policies and procedures in place to reduce any risk related
to environmental issues in its lending activity. As of December 31, 1997 and
1996, management was not aware of any environmental risk or exposure in its
loan portfolio or any other assets of ComSouth.
Table 7 shows the distribution of the loan portfolio among loan categories
at December 31 and the maturity or repricing distribution of selected loan
categories at December 31, 1997.
TABLE 7 -- LOAN RECEIVABLES AND SELECTED LOAN MATURITIES AND INTEREST RATE
SENSITIVITY
Loans were composed of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Commercial ......................... $134,160,877 $106,816,552 $84,216,406 $59,564,663 $50,226,133
Real estate-mortgage ............... 3,278,376 3,642,852 4,658,041 5,797,527 6,740,922
Mortgage loans held for resale ..... 799,200
Consumer and other ................. 6,949,247 4,995,419 3,867,409 3,005,902 2,964,538
Nonaccrual ......................... 87,989 226,582 66,739 526,500 602,786
------------ ------------ ----------- ----------- -----------
Total .............................. $144,476,489 $115,681,405 $92,808,595 $68,894,592 $61,333,579
============ ============ =========== =========== ===========
</TABLE>
Loan maturities and interest rate sensitivity
(December 31, 1997 balances in thousands)
<TABLE>
<CAPTION>
One One to Over
Year or less Five Years Five Years Total(1)
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Types of loans:
Commercial ........................... $82,778 $46,397 $4,986 $134,161
Real Estate -- Mortgage .............. 2,487 153 639 3,279
Consumer and other ................... 1,229 5,191 529 6,949
------- ------- ------ --------
Total .............................. $86,494 $51,741 $6,154 $144,389
======= ======= ====== ========
Total of loans above with:
Predetermined interest rates ......... 20,256 51,699 5,772 77,727
Adjustable interest rates ............ 66,238 42 382 66,662
------- ------- ------ --------
Total .............................. $86,494 $51,741 $6,154 $144,389
======= ======= ====== ========
</TABLE>
- - ---------
(1) Excludes nonaccrual loans totaling $87,879.
Because extending credit involves a certain degree of risk-taking,
management has established loan and credit policies designed to control both
the types and amounts of risk assumed and to minimize losses. Such policies
include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices, collection procedures, and nonaccrual and charge-off
guidelines. In addition, both the Columbia Bank and the Charleston Bank
maintain a loan classification system to monitor exposure to potential loan
losses. Management believes that the December 1997 allowance levels at both the
Columbia Bank and the Charleston Bank are sufficient to absorb expected
charge-offs and provide adequately for the inherent losses that exist in the
loan portfolio, assuming more or less normal conditions exist.
Management continues to closely monitor the levels of nonperforming and
potential problem loans to address any weaknesses in credits and to enhance the
amount of ultimate collection or recovery of problem loans. Should increases in
the overall level of nonperforming and potential problem loans accelerate from
current trends, management will adjust the methodology for determining the
allowance for loan losses to increase the provision and allowance for loan
losses.
The allowance for loan losses is increased by direct charges to
operations. Among other factors, management considers the state of the economy,
industry trends, conditions affecting individual borrowers and regulatory
concerns in determining whether the amount of the allowance for loan losses is
sufficient. Losses on loans are charged against the allowance in
83
<PAGE>
the period in which management determines that such loans have become
uncollectible. Recoveries of previously charged-off loans are credited to the
allowance.
At March 31, 1998, the consolidated allowance for loan losses was
$1,839,000, compared to $1,806,000 or 1.25% of total loans at December 31,
1997, as compared to $1,802,000 or 1.56% at December 31, 1996. The decline in
the percentage of the allowance to total loans is largely due to the 25%
increase in loans outstanding during 1997 and several charge-offs recorded
during the year. Management's evaluation of the allowance at year-end 1997
indicated that it provided an adequate level of protection against inherent
losses even with the strong growth realized during the year. ComSouth recorded
net charge-offs of $331,000 for 1997, $92,000 for 1996 and $4,000 for 1995. The
increase in charge-offs in 1997 is primarily due to the loss of a specific
loan. Additional data covering net charge-offs/recoveries to average loans, and
other charges to operations is provided in Note 5 to the consolidated financial
statements as well as Table 1.
The provision for loan losses was $334,000 for 1997 and $110,000 for 1996.
The increase is the provision in 1997 over 1996 was the result of increased
contributions to support the strong loan growth as well as to compensate for
the impact on the reserve due to the increase in loan losses for the year.
Management's emphasis on sound credit underwriting standards and its continuous
evaluation of its credit rating system and credit review function, indicated
that this provision was sufficient to provide an adequate allowance for the
loan portfolio at December 31, 1997.
Table 8 includes the activity in the allowance for loan losses at December
31 and an allocation of the allowance for loan losses to loan categories.
Although the allowance is primarily general in character and available to
absorb expected losses regardless of loan category, the allocation is provided
to offer an indication of the relative risk characteristics of the indicated
categories of the loan portfolio.
Effective January 1, 1995, ComSouth adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for the Impairment of a
Loan" ("SFAS 114") and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosure" ("SFAS 118"). These statements require creditors to account for
impaired loans, except for those collateral dependent loans that are accounted
for at fair value or at the lower of cost or fair value, at the present value
of the expected future cash flows discounted at the loan's effective interest
rate. Specific reserves are maintained on impaired loans in accordance with
SFAS 114 and SFAS 118, when required. The adoption of these accounting
standards has not had a material effect on the financial position and results
of operations of ComSouth. See Notes 1 and 5 to the consolidated financial
statements for further details.
TABLE 8 -- ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year ...... $ 1,802,402 $ 1,784,508 $ 1,593,771 $ 1,450,776 $ 1,698,327
Provision for loan losses ......... 334,000 110,000 195,000 75,000 135,000
Loans charged off:
Commercial ....................... (321,642) (96,977) (46,704) (43,565) (488,282)
Real estate-mortgage ............. 0 0 0 (142) (103,513)
Consumer and other ............... (34,097) (28,954) (47,167) (53,393) (94,842)
----------- ----------- ----------- ----------- -----------
Total .......................... (355,739) (125,931) (93,871) (97,100) (686,637)
----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial ....................... 20,931 28,272 85,738 135,955 159,920
Real estate-mortgage ............. 0 0 0 550 97,390
Consumer and other ............... 4,266 5,553 3,870 28,590 46,776
----------- ----------- ----------- ----------- -----------
Total .......................... 25,197 33,825 89,608 165,095 304,086
----------- ----------- ----------- ----------- -----------
Balance at end of year ............ $ 1,805,860 $ 1,802,402 $ 1,784,508 $ 1,593,771 $ 1,450,776
=========== =========== =========== =========== ===========
</TABLE>
84
<PAGE>
Allocation of allowance for loan losses to loan categories:
(December 31, 1997 balances in thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------------- ------------------ ------------------ ------------------ -----------------
Amount Percent* Amount Percent Amount Percent Amount Percent Amount Percent
-------- ---------- -------- --------- -------- --------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial ...................... $1,402 93% $1,348 93% $1,249 91% $1,184 85% $ 974 83%
Real Estate -- Mortgage ......... 150 2% 194 3% 273 5% 225 9% 193 12%
Consumer and other .............. 100 5% 101 4% 89 4% 66 6% 67 5%
Unallocated ..................... 154 159 174 119 217
------ ------ ------ ------ ------
Total ........................... $1,806 100% $1,802 100% $1,785 100% $1,594 100% $1,451 100%
====== === ====== === ====== === ====== === ====== ===
</TABLE>
- - ---------
* Percent of Loans in each category to Total Loans.
Problem Assets
When a loan becomes 90 days past due as to interest or principal or
serious doubt exists as to collectibility, the accrual of income is
discontinued unless the loan is well secured and in the process of collection.
Previously accrued interest on loans transferred to nonaccrual status is
reversed against current earnings and any subsequent interest is recognized on
the cash basis. Problem assets include nonaccrual loans, restructured loans and
foreclosed properties. At December 31, 1997, $88,000 of loans were on
nonaccrual status as compared to $227,000 at December 31, 1996. The decrease in
nonaccrual loans was primarily due to one of the loans being paid out on an SBA
guarantee and another loan being charged off. Interest income of $11,530,
$4,132 and $57,370 was recognized during 1997, 1996 and 1995, respectively, for
loans either returned to accrual status from nonaccrual or paid in full from
nonaccrual status. For those loans classified as nonaccrual as of December 31,
1997, 1996 and 1995, interest income of $6,722, $7,779 and $9,798 would have
been recognized in the respective periods if those loans had performed under
the original terms. ComSouth realized a loss of approximately $23,000 on the
sale of Other Real Estate Owned ("OREO") property in 1996 and a gain of
approximately $8,100 on the sale of OREO property in 1995.
TABLE 9 -- PROBLEM ASSETS
(Balance at December 31)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ....................... $ 87,989 $ 226,582 $ 66,739 $ 526,500 $ 602,786
Loans past due ninety days or more ..... 77,673 125,512 15,853 28,703 8,000
Troubled debt restructuring ............ 0 0 0 0 0
Other real estate owned ................ 0 0 172,500 191,100 474,996
---------- ---------- ---------- ---------- -----------
$ 165,662 $ 352,094 $ 255,092 $ 746,303 $ 1,085,782
========== ========== ========== ========== ===========
Nonperforming assets to total loans
and other real estate owned ........... .11% .30% .27% 1.08% 1.78%
========== ========== ========== ========== ===========
</TABLE>
All accruing loans 90 days of more past due were in the process of
collection at each year end. At December 31, 1997, total classified loans,
which include nonaccrual and accruing loans 90 days past due, were $3,736,000
or 2.6% of total loans, compared to $2,831,000 or 2.5% at December 31, 1996.
While it is difficult to determine the impact of these potential problem loans,
the future impact is not expected to be material as an estimate of the
potential impact has been considered in determining the amount of the allowance
for loan losses at December 31, 1997. Other than the loans previously
discussed, management is not aware of any possible credit problems of borrowers
which causes management to have serious doubts about the ability of the
borrower to comply with present loan repayment terms.
Average Deposits
Average deposits in 1997 were $159.3 million, compared to $123.8 million
the prior year, an increase of $35.5 million or 28.7%.
The total average deposits for the years ended December 31, 1997 and 1996,
are summarized below.
85
<PAGE>
TABLE 10 -- AVERAGE DEPOSITS
(Average balances in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- --------------------
Average Average Average Average Average Average
Balance Cost Balance Cost Balance Cost
----------- --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing deposits .............. $ 29,848 $ 22,706 $16,387
Interest bearing transaction accounts ..... 24,781 2.87% 23,717 2.78% 20,234 2.89%
Savings ................................... 40,126 4.83% 30,540 4.85% 21,128 5.05%
Time ...................................... 64,590 5.60% 46,848 5.59% 41,329 5.70%
-------- -------- -------
Total average deposits .................... $159,345 $123,811 $99,078
======== ======== =======
</TABLE>
At December 31, 1997, ComSouth had $34,363,250 in certificates of deposit
of $100,000 or more. Of those accounts, maturities are as follows:
<TABLE>
<S> <C>
MATURITY
Less than three months .............. $22,313,212
Over 3 through 6 months ............. 4,367,533
Over 6 through 12 months ............ 6,192,505
Over 1 year through 5 years ......... 1,490,000
-----------
Total ............................... $34,363,250
===========
</TABLE>
Liquidity and Capital Resources
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. ComSouth's primary source of liquidity is funds derived from the
deposit gathering operations of ComSouth's Banks with additional funds provided
from maturing loans and investment securities, sales of temporary investments,
or sales of investment securities classified as available-for-sale. These funds
are primarily used to pay interest on deposits and to fund deposit outflows.
Any remaining funds are utilized for investments and to fund loan commitments
and disbursements, to repay debt, and to fund operating expense. Negative funds
positions are dealt with by a combination of actions including borrowings from
other banks or rediscounting qualifying loans with the Federal Reserve Bank. At
December 31, 1997, the Columbia Bank had approximately $11.0 million while the
Charleston Bank had approximately $10.1 million in standby credit available to
them from other financial institutions. Management believes that a sufficient
liquidity balance is maintained through the operation of its asset and
liability management program. Additionally, the standby credit facilities
provide adequate protection in the event of negative cash flows.
At March 31, 1998 and December 31, 1997, liquid assets of approximately
$67.2 million and $59.2 million, respectively, were available to meet demands
for deposit withdrawals, undisbursed amounts on lines of credit ("loan
commitments") of $25,224,000 and $22,043,000, respectively, and letters of
credit totaling $2,181,000 and $3,327,000, respectively. The amount of liquid
assets available at March 31, 1998, includes cash and cash equivalents of
$29,000,000, an increase of $12,900,000 from the December 31, 1997, amount of
$16,100,000. This increase in cash and cash equivalents is primarily
attributable to investment securities which were either called or matured
during the last week of the quarter and were reinvested in federal funds sold.
At December 31, 1997 and 1996, liquid assets of approximately $59.2
million and $47.2 million, respectively, were available to meet demands for
deposit withdrawals, undisbursed amounts on lines of credit ("loan
commitments") of $22,043,000 and $21,396,000 and letters of credit totaling
$3,327,000 and $1,689,000, respectively. The amount of liquid assets available
on December 31, 1997 includes cash and cash equivalents of $16,150,000, a
increase of $3,050,000 over the December 31, 1996 amount of $13,100,000. This
increase in cash and cash equivalents is attributable to short-term deposits
made during the last week of the year which were invested in federal funds
sold.
Reliance is being placed upon continued deposit growth as the principal
source of funds. Management is committed to pay competitive market rates for
deposits. Deposits were approximately $192.6 million at March 31, 1998,
compared to $182.7 million at December 31, 1997, compared to $145.4 million at
December 31, 1996. Of the total deposit base of ComSouth at March 31, 1998,
approximately $40.0 million, or 20.8%, consisted of Certificates of Deposits in
amounts of $100,000 and higher ("Jumbo Certificates"), compared to
approximately $34.4 million, or 18.8% at December 31, 1997.
86
<PAGE>
While most of the large time deposits are acquired from customers with
standing relationships with the ComSouth Banks, it is a common industry
practice not to consider these types of deposits as core deposits because their
retention can be expected to be heavily influenced by rates offered, and they
therefore have the characteristics of shorter-term purchased funds.
Certificates of deposit of $100,000 and over involve the maintenance of an
appropriate matching of maturity distribution and a diversification of sources
to achieve an appropriate level of liquidity. Management believes that
ComSouth's liquidity position is relatively strong and is adequate to meet the
withdrawal demand of these Jumbo Certificates.
One of the principal uses of funds is to meet loan demand at the Columbia
Bank and the Charleston Bank. At March 31, 1998, total loans outstanding were
approximately $148.5 million. As mentioned in the loan sections of this
discussion, at December 31, 1997, total loans outstanding were approximately
$144 million, as compared to $116 million at December 31, 1996.
The Comptroller of the Currency ("OCC"), the ComSouth Banks' primary
regulator, requires national banks to maintain a Tier 1 (primarily
stockholders' equity) risk-based capital ratio of 4.0% and a total risk-based
capital ratio of 8.0%. At December 31, 1997, the Tier 1 capital ratio for the
Columbia Bank was 9.4% and the total capital ratio was 10.6%, while the
Charleston Bank had a Tier 1 ratio of 13.0% and a total capital ratio of 14.2%.
ComSouth's primary regulator, the Board of Governors of the Federal
Reserve, has issued guidelines requiring a minimum risk based capital ratio of
8.0%, of which at least 4.0% must consist of Tier 1 capital. ComSouth's Tier 1
capital ratio was 10.9% and its total capital ratio was 12.1% at December 31,
1997. These ratios are well within guidelines established by ComSouth's primary
regulator. See Note 14 to the consolidated financial statements for further
discussion concerning capital ratios.
Impact of Inflation and Changing Prices
The financial statements and related data presented have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation.
The impact of inflation is reflected in the increased cost of ComSouth's
operations. Since the primary assets and liabilities of ComSouth are monetary
in nature, to the extent that inflation impacts interest rates, it will impact
the net income of ComSouth.
Stock Data and Dividends
The Boards of Directors of ComSouth, the Columbia Bank and the Charleston
Bank intend to follow a policy of retaining earnings to provide funds to
operate and expand the business of the corporation. Consequently, ComSouth has
not declared or distributed any cash dividends to its shareholders. However,
ComSouth's Board of Directors did declare and pay a ten percent (10%) stock
dividend on December 2, 1996 for stockholders of record as of November 15,
1996, and recorded a 3 for 2 stock split in the form of a fifty percent (50%)
stock dividend on October 30, 1997 for shareholders of record as of October 15,
1997.
Prior to March 21, 1996, there had been only limited trading in ComSouth's
stock since there was no established market for the stock. ComSouth's stock was
listed on the American Stock Exchange (AMEX) on March 21, 1996 under the ticker
symbol of CSB. The initial sale price of the stock adjusted for the 10%
dividend and the 3 for 2 split was $6.25 per share. Closing price at December
31, 1997 was $23.00 per share. The average monthly market trading volume for
1997 was 20,400 shares. There were approximately 600 holders of record of
ComSouth's Common Stock (no par value) as of December 31, 1997.
The future dividend policy of ComSouth is subject to the discretion of the
Board of Directors and will depend upon a number of factors including future
earnings, financial condition, cash needs, and general business conditions.
ComSouth's ability to distribute cash dividends depends entirely on the
ComSouth Banks' ability to distribute dividends to ComSouth. All national banks
must comply with the requirements of the National Bank Act and may have to
obtain the approval of the OCC before paying any dividend. The ComSouth Banks
may not declare or pay a dividend if the effect of the payment would cause the
minimum capital of the ComSouth Banks to be reduced below the minimum capital
requirements imposed by the OCC. Additionally, ComSouth is subject to loan
covenants that prohibit payments of dividends without prior approval of the
lender.
87
<PAGE>
Year 2000 Compliance
Because ComSouth is heavily dependent upon computers, failure of the
computer systems, or the computer systems of other entities to which ComSouth's
computers are linked or on which they are dependent, to operate properly after
December 31, 1999, could have a material adverse effect on ComSouth. Although
management has prepared a plan for addressing year 2000 issues and believes
that its computer systems will not experience any significant problems with the
changeover to the year 2000, it has not yet tested its systems for year 2000
compliance. Furthermore, ComSouth has not received confirmation from all of the
other entities with which its systems are linked or upon which its systems are
dependent that such entities do not expect to encounter problems. In addition,
computer problems experienced by the customers of the ComSouth Banks and others
could cause economic disruptions that would affect business. Therefore, there
can be no assurance that ComSouth will not experience year 2000 problems, or
that such problems, if experienced, will not have a material adverse effect on
ComSouth.
Fourth Quarter Earnings
Net income for the fourth quarter of 1997 was $610,000 or $.25 per diluted
share, compared to $574,000 or $.24 per diluted share earned in the same
quarter of 1996. Strong loan demand during 1997 was the major factor
contributing to this increase in income as interest income was $900,000 higher
for the fourth quarter of 1997 over 1996. Noninterest income improved by
$49,000 between the two periods as fees provided by the "Business Manager"
product increased by $20,000 and fees derived from deposit services, due to the
growth of deposit accounts, increased by $20,000. The remainder of the increase
in noninterest income is due to fees from origination of mortgage loans which
were sold during the year. Mortgage loan origination activity increased during
1997 as rates remained relatively low, generating new home purchases and
refinancing activity. Noninterest expense increased by $376,000 in the fourth
quarter of 1997 over the same quarter of 1996. Salary and employee benefit
expenses increased by $170,000 between the two periods as additional staffing
was needed during the year to support growth and future production. Legal fees
increased by $75,000 over the same period of 1996. The additional staffing
needed to support the growth resulted in increased expenses for occupancy,
furniture, fixtures and equipment in the amount of $25,000. Advertising and
marketing expenses increased by $25,000 due to production of materials to
support emphasis on cross selling opportunities. Supplies and postage increased
by $20,000 over the two periods as a result of the increased growth in loans
and deposits during the year. Other expenses also increased between the two
periods by approximately $15,000. This increase was primarily due to expenses
related to the 3-for-2 stock split in October as additional listing fees paid
to the AMEX for listing of the shares issued in connection with the split were
approximately $17,000 and processing expenses paid to ComSouth's transfer agent
in connection with issuance of the additional stock certificates were
approximately $4,000.
Income tax expenses increased by $59,000 as a result of pretax income
being $95,000 higher in the fourth quarter of 1997 over the same period of 1996
and income tax expenses being reduced by $38,000 in the fourth quarter of 1996
as a result of an adjustment to the deferred tax asset valuation allowance.
Table 11 summarizes the financial results and selected average balances by
quarter for 1997 and 1996.
88
<PAGE>
TABLE 11 -- QUARTERLY FINANCIAL RESULTS
(dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 Quarter Ended
-------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Consolidated Income Statement
Interest income ......................... $ 3,958 $ 3,803 $ 3,590 $ 3,242
Interest expense ........................ 1,781 1,716 1,578 1,505
-------- -------- -------- --------
Net interest income ..................... 2,177 2,087 2,012 1,737
Provision for loan losses ............... 114 115 90 15
-------- -------- -------- --------
Net interest income after provision
for loan losses ........................ 2,063 1,972 1,922 1,722
Noninterest income ...................... 491 496 526 482
Noninterest expense ..................... 1,583 1,507 1,601 1,368
-------- -------- -------- --------
Net income before income taxes .......... 971 961 847 836
Current income taxes .................... (361) (362) (322) (316)
-------- -------- -------- --------
Net income .............................. $ 610 $ 599 $ 525 $ 520
======== ======== ======== ========
Net income per share -- basic ........... $ .26 $ .26 $ .23 $ .23
======== ======== ======== ========
Net income per share -- diluted ......... $ .25 $ .24 $ .21 $ .21
======== ======== ======== ========
Quarterly average balances
Assets .................................. $181,696 $177,159 $172,317 $166,211
Earning assets .......................... 172,082 167,605 162,776 157,037
Investment securities ................... 43,190 41,964 41,207 39,052
Loans ................................... 128,893 125,641 121,569 117,985
Deposits ................................ 159,345 154,899 150,362 145,185
Stockholders' equity .................... 14,845 14,539 14,250 14,002
Common stock data (dollar per share)
Market price range:
High ................................... $ 23.50 $ 24.88 $ 20.63 $ 15.88
Low .................................... $ 16.75 $ 19.63 $ 15.13 $ 14.50
Average ................................ $ 22.84 $ 22.83 $ 17.64 $ 15.30
Close .................................. $ 23.00 $ 23.75 $ 19.63 $ 15.50
<CAPTION>
1996 Quarter Ended
-------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Consolidated Income Statement
Interest income ......................... $ 3,052 $ 2,866 $ 2,747 $ 2,611
Interest expense ........................ 1,351 1,233 1,169 1,171
-------- -------- -------- --------
Net interest income ..................... 1,701 1,633 1,578 1,440
Provision for loan losses ............... 60 0 40 10
-------- -------- -------- --------
Net interest income after provision
for loan losses ........................ 1,641 1,633 1,538 1,430
Noninterest income ...................... 442 401 411 392
Noninterest expense ..................... 1,207 1,370 1,284 1,270
-------- -------- -------- --------
Net income before income taxes .......... 876 664 665 552
Current income taxes .................... (302) (218) (251) (158)
-------- -------- -------- --------
Net income .............................. $ 574 $ 446 $ 414 $ 394
======== ======== ======== ========
Net income per share -- basic ........... $ .25 $ .20 $ .18 $ .17
======== ======== ======== ========
Net income per share -- diluted ......... $ .24 $ .19 $ .17 $ .17
======== ======== ======== ========
Quarterly average balances
Assets .................................. $152,750 $141,559 $137,284 $131,227
Earning assets .......................... 144,696 133,904 129,404 124,435
Investment securities ................... 33,298 29,357 31,042 29,567
Loans ................................... 111,398 104,547 98,362 94,868
Deposits ................................ 134,534 124,018 121,738 114,838
Stockholders' equity .................... 13,267 12,624 12,195 12,117
Common stock data (dollar per share)
Market price range:
High ................................... $ 15.25 $ 13.12 $ 14.50 $ 12.37
Low .................................... $ 12.50 $ 11.62 $ 12.37 $ 10.00
Average ................................ $ 13.80 $ 12.30 $ 13.51 $ 11.54
Close .................................. $ 14.62 $ 13.12 $ 12.39 $ 12.25
</TABLE>
89
<PAGE>
INFORMATION ABOUT M&M
Business of M&M
M&M is a bank holding company headquartered in Marion, South Carolina. The
principal business activity of M&M is provided through its principal
subsidiary, First National South, a national bank, which provides commercial
banking services to domestic markets, principally in the counties of Marion,
Horry and Florence, South Carolina. M&M pursues a community banking business
which is characterized by personalized service and local decision-making and
emphasizes the banking needs of individuals and small to medium-sized
businesses. During 1997, M&M opened a new branch in Florence, South Carolina
(the "new branch").
Security Ownership of Certain Beneficial Owners and Management of M&M
The following table sets forth, as of , 1998, the number and percentage
of outstanding shares of M&M Common Stock beneficially owned by (i) each
director of M&M, (ii) the chief executive officer, and (iii) all executive
officers and directors of M&M as a group. To M&M's knowledge, no shareholder
owned beneficially more than 5% of M&M's outstanding voting stock as of such
date.
<TABLE>
<CAPTION>
Number of
Shares Percent
Beneficially of
Name Owned Class
- - ------------------------------------------------- -------------- --------
<S> <C> <C>
Chester A. Duke ...................... 11,178(1) 1.11
Charles McElveen ..................... 8,400(2) .84
J. M. McLendon ....................... 9,600 .95
Bruce Siegal ......................... 2,001(3) .19
Nancy B. Williams .................... 18,050(4) 1.79
All Executive Officers and Directors as a group
(9 persons) ......................... 59,188(5) 5.88
</TABLE>
- - ---------
(1) Includes 270 shares owned by Mr. Duke's wife, as to which Mr. Duke
disclaims beneficial ownership; 1,575 shares held in a self-directed
Individual Retirement Account; 1,992 shares held by First National South
f/b/o Mr. Duke; 1,200 shares owned by the W. H. Bryant Charitable Trust of
which Mr. Duke is one of three Trustees; and 2,700 shares subject to
currently exercisable options or options that first become exercisable
within 90 days of March 3, 1998.
(2) Includes 2,700 shares owned by Mr. McElveen's wife and 900 shares owned by
his children, as to which Mr. McElveen disclaims beneficial ownership.
(3) Includes 150 shares owned by Mr. Siegal's wife, as to which Mr. Siegal
disclaims beneficial ownership.
(4) Includes 750 shares owned by Mrs. Williams' husband and 7,800 shares owned
by her children, as to which Mrs. Williams disclaims beneficial ownership.
(5) Includes 4,715 shares subject to currently exercisable options or options
that become exercisable within 90 days of March 3, 1998.
Management's Discussion and Analysis of Financial Condition and Results of
Operation's of M&M
Safe Harbor for Forward-Looking Statements
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations of M&M which are not historical in nature,
are intended to be and are hereby identified as "forward looking statements"
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. M&M cautions readers that forward looking
statements, including without limitation, those relating to M&M's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
M&M's reports filed with the Commission.
90
<PAGE>
Selected Financial Data
The following table sets forth certain selected financial data concerning
M&M. The financial data selected by M&M has been derived from the audited
consolidated financial statements. This information should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Interest income ....................................... $ 11,555 $ 9,420 $ 8,233 $ 7,121 $ 7,585
Interest expense ...................................... 5,418 4,357 3,839 2,919 3,088
Net interest income ................................... 6,137 5,063 4,394 4,202 4,497
Provision for loan losses ............................. 800 180 39 274 885
Net interest income after provision for loan losses ... 5,337 4,883 4,355 3,928 3,612
Noninterest income .................................... 1,921 1,330 1,276 1,270 1,511
Noninterest expense ................................... 5,628 5,091 4,851 5,462 4,672
Income tax expense (benefit) .......................... 503 263 187 (203) 20
Net income (loss) ..................................... 1,127 859 593 (61) 431
Basic and diluted earnings (loss) per share(1) ........ 1.12 0.85 0.59 (0.06) 0.43
Cash dividends paid ................................... 369 335 302 314 280
Cash dividends per share(1) ........................... 0.37 0.33 0.30 0.31 0.28
Balance Sheet Data:
Assets ................................................ $ 156,271 $ 133,914 $ 117,815 $ 113,616 $ 115,213
Gross loans outstanding ............................... 105,427 80,923 61,344 43,607 50,599
Allowance for loan losses ............................. 927 1,027 819 726 1,467
Time deposits in other banks .......................... 300 800 300 300 1,150
Investment securities ................................. 32,875 38,342 40,625 55,544 47,802
Deposits:
Interest-bearing ...................................... 111,524 89,548 78,714 73,316 77,976
Noninterest-bearing ................................... 18,958 17,925 17,370 18,004 17,173
Stockholders' equity .................................. 11,688 10,822 10,158 9,327 10,517
Other Data:
Nonperforming loans ................................... $ 473 $ 723 $ 855 $ 1,859 $ 2,009
Loan loss reserve to nonperforming loans .............. 195.86% 142.15% 95.79% 39.05% 73.02%
</TABLE>
- - ---------
(1) Share data have been restated to reflect the three-for-one stock split on
July 1, 1997.
Basis of Presentation
This discussion and analysis is intended to assist the reader in
understanding the financial condition and results of operations of M&M and its
subsidiaries, First National South and Marion National Investment Corporation.
This commentary should be read in conjunction with the consolidated financial
statements and the related notes and the other statistical information
contained herein. See "FINANCIAL STATEMENTS OF M&M."
Results Of Operations
Three Months Ended March 31, 1998 Compared with Three Months Ended March
31, 1997
and Year Ended December 31, 1997 Compared With Year Ended December 31,
1996
For the quarter ended March 31, 1998, net interest income increased
$89,362, or 5.86%, over the first quarter of 1997. The improvement in the
three-month period ended March 31, 1998, is related to an increase in the
volume of interest-earning assets. Average interest-earnings assets increased
21.73% to $152,302,696 when compared to the corresponding quarter of 1997. Most
of the growth was in loan volume, which averaged $108,745,624 during the
quarter ended March 31, 1998, compared to $85,351,404 for the quarter ended
March 31, 1997. The yields on loans were 9.51% and 9.77% for the three months
ended March 31, 1998 and 1997, respectively. The growth in assets was primarily
funded by interest-bearing liabilities, particularly certificates of deposit,
$5,000,000 of new borrowings from the Federal Home Loan Bank, and deposits of
local municipalities and hospitals. Certificates of deposit and borrowings from
the Federal Home Loan Bank are typically
91
<PAGE>
more expensive funding sources than transaction and savings accounts.
Accordingly, the overall rate paid on interest-bearing liability accounts
increased to 4.73% for the quarter ended March 31, 1998, from 4.41% for the
comparable quarter of 1997.
The influence of the factors above had the effect of decreasing the
interest rate spread 55 basis points to 3.71% and decreasing the net yield on
earning assets 63 basis points to 4.24% for the three-month period ended March
31, 1998.
For the year ended December 31, 1997, net interest income was $6,137,243,
an increase of $1,073,704, or 21.2%, from the prior year. The improvement is
related to an increase in the volume of interest earning assets and an increase
in the yields on interest earning assets due to an increase in the percentage
of loans to total earning assets. For 1997, average loans comprised 70.9% of
average earning assets compared to 61.6% for 1996. The improvement in interest
income was partially offset by the increase in interest expense due to the
increase in both the volume of and rates paid on interest-bearing liability
accounts. Interest expense was $5,418,294, an increase of $1,061,366, or
24.36%, from the prior year. The increase was due mainly to a $17,263,000
increase in average interest-bearing deposits during 1997 and M&M's increased
use of borrowings from the Federal Home Loan Bank as a funding source. The
increase in the volume of both assets and liabilities is attributable to
management's ability to strengthen its influence in M&M's market area and M&M's
emphasis on growth.
The influence of the factors above had the effect of increasing the
interest rate spread 23 basis points to 3.97% and increasing the net interest
margin 14 basis points to 4.57% for the year ended December 31, 1997.
The provision for loan losses is the charge to operating earnings that
management feels is necessary to maintain the allowance for possible loan
losses at an adequate level. For the quarter ended March 31, 1998, the
provision was $114,000, an increase of $30,000 from the comparable 1997 period.
The increase does not reflect a negative trend in nonperforming or classified
assets but is indicative of management's decision to attain a target ratio for
the allowance for loan losses to total loans at or above 1.0%. Based on present
information, management of M&M believes the allowance for loan losses is
adequate at March 31, 1998, to meet presently known and inherent risks in the
loan portfolio. The 1997 provision for loan losses was $800,000, or $620,000
higher than in 1996. The increase in the loan loss provision was due mainly to
one asset-based loan of approximately $827,000 which eventually defaulted and
to the growth in the loan portfolio-particularly commercial loans.
Total non-interest income during the three months ended March 31, 1998,
was $447,602, an increase of $60,584, or 15.65%, from the comparable period in
1997. The increase is due primarily to higher income from service charges on a
larger deposit account base and to changes in the fee structures on overdrawn
accounts and checks drawn on nonsufficient funds.
Noninterest income increased $591,995 to $1,921,413 in 1997 from
$1,329,418 in 1996. Most of the increase was attributable to a gain of $266,232
that M&M realized on the sale of selected available-for-sale securities. M&M's
purchase of additional Federal Home Loan Bank stock during 1997 in order to
meet the borrowing requirements of the Federal Home Loan Bank resulted in an
increase of $72,931 in dividend income. During the first quarter of 1997, M&M
began charging customers of other banks for use of its ATM's. These charges
generated approximately $52,260 of additional fee income. Due to M&M's
continued emphasis on securities sales through its brokerage department, fees
from these sales were $154,756 in 1997 compared to $101,387 for 1996, an
increase of $53,369. Additionally, noninterest income for 1997 was favorably
impacted by the $101,907 increase in service charges on deposit accounts. The
increase in these service charges was attributable to the opening of the new
branch in Florence, the increase in demand deposit accounts, and an emphasis on
charging customers for writing checks on insufficient funds.
Total non-interest expense for the three months ended March 31, 1998, was
$1,533,105, an increase of 15.18% compared to the three months ended March 31,
1997. The increase in non-interest expense is attributable mainly to the
continuing growth of M&M. The primary component of non-interest expense is
salaries and benefits which increased to $888,603 in 1998 from $739,179 in
1997, an increase of $151,424.
For the year ended December 31, 1997, noninterest expense was $5,628,380,
an increase of $537,529, or 10.6%, over the $5,090,851 recorded in 1996. The
increase in noninterest expense was attributable mainly to the continuing
growth of M&M. The largest component of noninterest expense is salaries and
benefits which increased $255,149 to $3,039,928 for the year. Most of the
increase was due to the hiring of employees to staff the new branch and several
experienced loan officers from larger regional banks to increase loan business.
M&M's total income tax expense for 1997 was $502,874, an increase of
$239,531 from the 1996 income tax expense of $263,343. The effective tax rates
for 1997 and 1996 were 30.8% and 23.5%, respectively. The increase was
partially attributable to a decrease in tax-exempt income as a percentage of
income before income taxes.
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<PAGE>
The combination of the factors described above regarding the first quarter
of 1998, resulted in net income for the three months ended March 31, 1998 of
$294,294 or $0.29 per share as compared to $362,830 or $0.36 per share for the
three months ended March 31, 1997.
The combination of the factors above regarding the years 1997 and 1996
resulted in net income for the year ended December 31, 1997, of $1,127,402, or
$1.12 per share, as compared to $858,763 or $0.85 per share for the year ended
December 31, 1996.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
For the year ended December 31, 1996, net interest income was $5,063,539,
an increase of $669,379, or 15.2%, from the prior year. Management attributes
the increase to a continuing favorable mix of interest earning assets in 1996.
Investments in securities were reduced, and more emphasis was placed on
increasing loans which traditionally have higher returns than other
interest-earning assets. During 1996, M&M earned 8.25% on earning assets, an
increase of 46 basis points from 1995.
M&M's interest rate spread for the year ended December 31, 1996, was 3.74%
and was 31 basis points higher than for the year ended December 31, 1995. The
net interest margin in 1996 was 4.43% compared to 4.16% in 1995. The
improvements in the interest rate spread and the net interest margin were
primarily attributable to an increase in loan volumes.
The 1996 provision for loan losses was $180,000, or $141,110 higher than
in 1995. The increase in the loan loss provision was due mainly to the growth
in the loan portfolio.
Noninterest income increased $53,125 to $1,329,418 in 1996 from $1,276,293
in 1995. Brokerage department commissions on sales of securities during 1996
were $101,387, an increase of $72,582 over the amount recorded in 1995. These
increased commissions were the primary source of the overall increase in
noninterest income. M&M also realized a $25,369 gain on the sale of foreclosed
property in 1996. Other categories of noninterest income increased due to the
growth of M&M. The increases were offset by the $45,595 decrease in service
charges on deposit accounts due to a new fee structure on checks drawn on
insufficient funds and by the $139,544 decrease in the gain on the sale of
securities because there were no sales of securities from the investment
portfolio during 1996.
For the year ended December 31, 1996, noninterest expense was $5,090,851,
an increase of $239,456, or 4.9%, over the $4,851,395 recorded in 1995. The
increase in salaries and employee benefits was $135,182 and was the principal
component of the increase in noninterest expense in 1996. Other categories of
noninterest expense increased due to the growth of M&M. The cost of federal
deposit insurance decreased $104,729 to $2,054 in 1996 from $106,783 in 1995
due to an industry-wide reduction in the insurance assessment.
M&M's total income tax expense for 1996 was $263,343, an increase of
$75,993 from the 1995 income tax expense of $187,350. This increase resulted
primarily from increased income before taxes. The effective tax rates for 1996
and 1995 were 23.5% and 24.0%, respectively.
The combination of the factors above resulted in net income for the year
ended December 31, 1996 of $858,763 or $0.85 per share as compared to $592,818
or $0.59 per share for the year ended December 31, 1995.
Net Interest Income
The largest component of M&M's net income is its net interest income,
which is the difference between the income earned on assets and interest paid
on deposits and borrowings used to support such assets. Net interest income is
determined by the yields earned on the M&M's interest-earning assets and the
rates paid on its interest-bearing liabilities, the relative amounts of
interest-earning assets and interest-bearing liabilities and the degree of
mismatch and the maturity and repricing characteristics of its interest-earning
assets and interest-bearing liabilities. Net interest income divided by average
interest-earning assets represents M&M's net interest margin.
The following tables set forth, for the periods indicated, certain
information related to M&M's average balance sheet and its average yields on
assets and average costs of liabilities. Such yields are derived by dividing
income or expense by the average balance of the corresponding assets or
liabilities. Average balances have been derived from the daily balances
throughout the periods indicated.
The following tables, "Comparative Average Balances, Yields and Rates" and
"Rate/Volume Analysis," provide information on specific factors affecting M&M's
net interest income.
93
<PAGE>
Comparative Average Balances, Yields and Rates
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------------- ---------- ---------- ------------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning deposits in other banks ......... $ 1,251 $ 100 7.99% $ 1,448 $ 118 8.15%
Taxable securities (1) ........................... 32,324 2,040 6.31 34,390 2,078 6.04
Tax-exempt securities (1) ........................ 3,782 224 5.92 4,848 296 6.11
Federal funds sold ............................... 1,720 97 5.64 3,146 195 6.20
Loans (2) ........................................ 95,162 9,094 9.56 70,406 6,733 9.56
--------- ------- --------- -------
Total interest-earning assets .................. 134,239 11,555 8.61 114,238 9,420 8.25
--------- ------- --------- -------
Cash and due from banks .......................... 5,527 5,037
Allowance for loan losses ........................ (1,170) (928)
Premises and equipment ........................... 4,270 3,823
Other real estate owned .......................... -- 49
Other assets ..................................... 4,569 3,494
--------- ---------
Total assets ................................... $ 147,435 $ 125,713
========= =========
Liabilities and Stockholders' Equity:
Interest-bearing deposits ........................ $ 101,354 4,574 4.51% $ 84,091 3,717 4.42%
Advances from FHLB ............................... 9,397 550 5.85 3,060 181 5.92
Other borrowings ................................. 6,036 294 4.87 9,592 459 4.79
--------- ------- --------- -------
Total interest-bearing liabilities ............. 116,787 5,418 4.64 96,743 4,357 4.50
--------- ------- --------- -------
Noninterest-bearing deposits ..................... 18,063 16,937
Accrued interest and other liabilities ........... 1,244 1,430
Stockholders' equity ............................. 11,341 10,603
--------- ---------
Total liabilities and stockholders' equity ..... $ 147,435 $ 125,713
========= =========
Net interest income/interest rate spread (3) ..... $ 6,137 3.97% $ 5,063 3.74%
======= ==== ======= ====
Net interest margin (4) .......................... 4.57% 4.43%
==== ====
</TABLE>
- - ---------
(1) Yields on securities are computed at their nominal rates and have not been
adjusted for tax rate differences.
(2) The effects of loans in non-accrual status and fees collected are not
significant to the computations.
(3) Interest rate spread is the difference between the average yield on
interest-earning assets and the average effective rate paid on
interest-bearing liabilities.
(4) Net interest margin is net interest income divided by average
interest-earning assets.
Rate/Volume Analysis
The following table describes the extent to which changes in interest
rates and changes in the volume of earning assets and interest-bearing
liabilities affected M&M's interest income and interest expense during the
periods indicated. Information is provided on impacts in each category
attributable to (a) changes due to volume (change in volume multiplied by prior
period rate), (b) changes due to rates (change in rates multiplied by prior
period volume) and (c) changes in rate and volume (change in rate multiplied by
the change in volume).
94
<PAGE>
1997 Compared to 1996
Due to increase (decrease) in
<TABLE>
<CAPTION>
Volume/
Volume Rate Rate Total
----------- ----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Time deposits in other banks ....... $ (16) $ (2) $ 0 $ (18)
Taxable securities ................. (125) 92 (5) (38)
Tax-exempt securities .............. (65) (9) 2 (72)
Federal funds sold ................. (88) (18) 8 (98)
Loans .............................. 2,367 (5) (1) 2,361
------- -------- ------- -------
Total interest income ........... 2,073 58 4 2,135
------- ------- ------ -------
Interest expense:
Interest bearing deposits .......... 763 78 16 857
Advances from FHLB ................. 375 (2) (4) 369
Other borrowings ................... (170) 8 (3) (165)
------- ------- ------- -------
Total interest expense .......... 968 84 9 1,061
------- ------- ------ -------
Net interest income ................ $ 1,105 $ (26) $ (5) $ 1,074
======= ======= ====== =======
</TABLE>
1996 Compared to 1995
Due to increase (decrease) in
<TABLE>
<CAPTION>
Volume/
Volume Rate Rate Total
--------- ----------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income:
Time deposits in other banks ....... $ 17 $ 34 $ 11 $ 62
Taxable securities ................. (521) 64 (13) (470)
Tax-exempt securities .............. (57) (2) 0 (59)
Federal funds sold ................. 11 34 3 48
Loans .............................. 1,727 (91) (30) 1,606
------ ------- ------ ------
Total interest income ........... 1,177 39 (29) 1,187
------ ------- ------ ------
Interest expense:
Interest bearing deposits .......... 365 134 16 515
Advances from FHLB ................. 121 (8) (12) 101
Other borrowings ................... (89) (11) 2 (98)
------ ------- ------ ------
Total interest expense .......... 397 115 6 518
------ ------- ------ ------
Net interest income ................ $ 780 $ (76) $ (35) $ 669
====== ======= ====== ======
</TABLE>
Interest Rate Risk and Sensitivity
Interest rates paid on deposits and borrowed funds and interest rates
earned on loans and investments generally followed the fluctuations in market
rates in 1997 and 1996. However, fluctuations in market interest rates do not
necessarily have a significant impact on net interest income, depending on
M&M's sensitivity position. A rate-sensitive asset or liability is one that can
be repriced either up or down in interest rate within a certain time interval.
Within an acceptable range of the balance between rate-sensitive assets and
rate-sensitive liabilities, market interest rate fluctuations should not have a
significant impact on liquidity and earnings. The larger the imbalance, the
greater is the interest rate risk that is assumed; and the greater is the
positive or negative impact of interest rate fluctuations on liquidity and
earnings.
Interest rate sensitivity management is concerned with both the timing and
the magnitude of repricing characteristics of interest-earning assets and
interest-bearing liabilities and is an important part of asset/liability
management. The objectives of interest rate sensitivity management are to
insure the adequacy of net interest income and to control the risks associated
with movements in interest rates. The following table, "Interest Rate
Sensitivity Analysis," displays M&M's static gap, or the difference between the
amount of assets and liabilities which reprice or mature within a specified
time interval.
No adjustments have been made to allow for the effects of probable calls,
prepayments on mortgage-backed securities, or any other option or timing
related considerations. The table indicates that, on a cumulative basis through
twelve months,
95
<PAGE>
unadjusted rate-sensitive liabilities exceeded unadjusted rate-sensitive
assets, resulting in a liability sensitive position at the end of 1997 of
$77,615,000. The table may not be indicative of M&M's position at other points
in time. For a bank with a liability sensitive position, or negative static
gap, falling interest rates would generally be expected to have a positive
effect on net interest income and rising interest rates would generally be
expected to have the opposite effect.
Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
Interest Sensitive Non Interest Sensitive
------------------------------------------ ------------------------------------
Less than 4-6 7-12 1-5 Over 5
3 months months months years years Total
-------------- ------------- ------------- ----------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Deposits in other banks ................ $ 1,520 $ 100 $ 200 $ -- $ -- $ 1,820
Investment securities .................. 2,390 496 1,749 13,282 14,958 32,875
Loans, net of unearned income .......... 12,264 8,872 11,119 53,314 19,858 105,427
---------- ---------- ---------- -------- -------- ---------
Total ............................... 16,174 9,468 13,068 $ 66,596 $ 34,816 $ 140,122
---------- ---------- ---------- ======== ======== =========
Interest-bearing liabilities:
Interest-bearing deposits .............. 73,927 13,258 20,679 $ 3,660 $ -- $ 111,524
Advances from FHLB ..................... 5,000 500 500 4,000 -- 10,000
Short-term borrowings .................. 2,461 -- -- -- -- 2,461
---------- ---------- ---------- -------- -------- ---------
Total ............................... 81,388 13,758 21,179 $ 7,660 $ -- $ 123,985
---------- ---------- ---------- ======== ======== =========
Interest sensitivity gap ................ $ (65,214) $ (4,290) $ (8,111)
========== ========== ==========
Cumulative interest sensitivity gap ..... $ (65,214) $ (69,504) $ (77,615)
========== ========== ==========
Gap ratio ............................... 0.20 0.69 0.62
Cumulative gap ratio .................... 0.20 0.27 0.33
</TABLE>
Liquidity
Liquidity is the ability to meet cash obligations through the maturity, or
sometimes sale, of assets or the acquisition of liabilities. M&M manages
liquidity at the banking subsidiary level. Adequate liquidity is necessary to
meet the requirements of customers for loans and deposit withdrawals in the
most timely and economical manner. Some liquidity is ensured by maintaining
assets which may be converted into cash at minimal cost. These assets include
amounts due from banks and federal funds sold. Some liquidity is provided from
maturing loans; however, the most manageable source of liquidity is
liabilities, with the primary focus of liquidity management being on the
ability to obtain deposits within M&M's market area. Core deposits, which are
all deposits except individual certificates of deposit in excess of $100,000,
are a relatively stable source of liquidity. Certificates of deposit in excess
of $100,000 are considered a less stable source of liquidity because they are
on occasion more sensitive to interest rate changes than are other deposit
accounts. The M&M Bank has a $20,000,000 line of credit with the Federal Home
Loan Bank of Atlanta. As of March 31, 1998, the M&M Bank has borrowed
$10,000,000 on this line of credit. As a secondary source of liquidity, M&M has
securities available for sale with a carrying value of $31,363,789 as of March
31, 1998. As of December 31, 1997, the M&M Bank had unused lines of credit to
purchase federal funds from unrelated banks totaling $9,500,000 and an unused
commitment from the Federal Home Loan Bank totaling $10,000,000 available to it
as secondary sources of liquidity. Management believes M&M's liquidity sources
adequately meet its operational needs.
The M&M Bank is required by regulation to maintain an average cash reserve
balance computed as a percentage of deposits. This requirement is met by vault
and teller cash and amounts due from the Federal Reserve Bank, both of which
are reported as cash equivalents on M&M's consolidated balance sheet.
As a bank holding company, M&M's ability to pay dividends and meet its
cash obligations is primarily dependent upon the earnings of the M&M Bank. Most
of the cash dividends have been paid in the past, and most future dividends
will be paid, from the earnings of the M&M Bank. For a national bank, prior
approval of the Comptroller of the Currency is required if the total of all
dividends declared in any year exceed the M&M Bank's net profits (as defined)
for that year combined with its retained net profits (as defined) for the two
preceding years.
96
<PAGE>
Capital Resources
M&M uses several ratios as indicators of capital strength. The most
commonly used measure is average common equity to average assets which was 7.7%
during 1997 and 8.4% during 1996. The decrease in this ratio reflects the fact
that average asset growth has outpaced equity growth from earnings. Average
assets grew 17.3% in 1997 while equity increased 6.9%. In April 1998 management
formally assessed its capital levels to assure continued capital adequacy for
current and projected growth.
At March 31, 1998, total stockholders' equity increased $207,893 to
$11,896,251 since December 31,1997. The increase is due to earnings for the
period ended March 31, 1998, of $294,294 and an after tax reduction of $84,401
in the unrealized gain on securities available-for-sale.
On April 16, 1998, M&M executed a $3,000,000 line of credit with Anchor
Bank, a wholly-owned subsidiary of Anchor. M&M has this line available for the
capital needs of the M&M Bank. The line of credit is collateralized by M&M's
investment in its M&M Bank subsidiary. The debt service, if any, is expected to
be paid from dividends from the M&M Bank. There have been no draws on this
line.
The Federal Reserve Board and bank regulatory agencies require bank
holding companies and financial institutions to maintain capital at adequate
levels based on a percentage of assets and off-balance sheet exposures,
adjusted for risk weights ranging from 0% to 100%. Under the risk-based
standard, capital is classified into two tiers. Tier 1 capital of M&M consists
of common stockholders' equity, excluding the unrealized gain(loss) on
available-for-sale securities, minus intangible assets. M&M's Tier 2 capital
consists of the general reserve for loan losses subject to certain limitations.
A bank holding company's qualifying capital base for purposes of its risk-based
capital ratio consists of the sum of its Tier 1 and Tier 2 capital. The
regulatory minimum requirements are 4% for Tier 1 and 8% for total risk-based
capital.
M&M and the M&M Bank are also required to maintain capital at a minimum
level based on average total assets (as defined), which is known as the
leverage ratio. Only the strongest bank holding companies and banks are allowed
to maintain capital at the minimum requirement. All others are subject to
maintaining ratios 100 to 200 basis points above the minimum. The M&M Bank is
also required to meet specific capital guidelines to be well-capitalized under
the regulatory framework for prompt corrective action.
The Federal Reserve guidelines contain an exemption from the capital
requirements for bank holding companies with less than $150 million in
consolidated assets. Accordingly, prior to 1997, M&M was not subject to the
Federal Reserve's minimum requirements.
Both M&M and the M&M Bank exceeded the fully phased-in regulatory ratios
at December 31, 1997 and 1996, as set forth in the following table.
97
<PAGE>
Capital Ratios
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------- -------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ----------- ---------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
M&M
Total capital (to risk weighted assets) ... $12,366 10.81% $ 9,154 8.0% $ N/A --%
Tier 1 capital (to risk weighted assets) .. 11,440 10.00 4,577 4.0 N/A --
Tier 1 capital (to average assets) ........ 11,440 7.32 6,254 4.0 N/A --
The M&M Bank
Total capital (to risk weighted assets) ... 12,136 10.60 9,156 8.0 11,445 10.0
Tier 1 capital (to risk weighted assets) .. 11,209 9.79 4,578 4.0 6,867 6.0
Tier 1 capital (to average assets) ........ 11,209 7.19 6,235 4.0 7,794 5.0
December 31, 1996
M&M
Total capital (to risk weighted assets) ... $11,708 13.29% $ 7,047 8.0% $ N/A --%
Tier 1 capital (to risk weighted assets) .. 10,681 12.13 3,524 4.0 N/A --
Tier 1 capital (to average assets) ........ 10,681 8.04 5,315 4.0 N/A --
The M&M Bank
Total capital (to risk weighted assets) ... 11,403 13.00 7,016 8.0 8,771 10.0
Tier 1 capital (to risk weighted assets) .. 10,376 11.83 3,508 4.0 5,262 6.0
Tier 1 capital (to average assets) ........ 10,376 7.82 5,307 4.0 6,634 5.0
</TABLE>
At December 31, 1997, M&M's stockholders' equity was $11,688,358, an
increase of $866,646 from December 31, 1996. The increase stems from the net
income for 1997, less cash dividends paid to stockholders, and the positive
effects of the valuation allowance on securities available-for-sale in the
amount of $108,153.
At December 31, 1997, M&M had no significant commitments for capital
expenditures.
Investment Securities
Note 4 to M&M's Consolidated Financial Statements presents the book value
of investment securities by category as of December 31, 1997 and 1996. The
following table summarizes the carrying value, maturities and weighted average
yields of M&M's investment securities, excluding equity securities, at December
31, 1997. Yields on tax-exempt securities have been adjusted to reflect the
pre-tax equivalent yields.
98
<PAGE>
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------------- -------------------------
Carrying Carrying
Amount Yield Amount Yield
-------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury Securities
Due in one year or less ....................... $ 1,002,500 7.28%
Due after one year but within five years ...... 6,093,281 5.98
Due after five years but within ten years ..... 1,000,625 6.01
------------
Total ........................................ $ 8,096,406 6.14
============
Securities of Other U.S. Government
Agencies and Corporations
Due in one year or less ....................... $ 2,679,471 5.66
Due after one year but within five years ...... 4,948,052 6.28
Due after ten years ........................... 3,793,531 5.92
------------
Total ........................................ $ 11,421,054 6.01
============
Obligations of States and Local Governments
Due in one year or less ....................... $ 297,767 10.66 $ 655,006 9.84%
Due after one year but within five years ...... 267,869 10.74 1,972,309 8.98
Due after five years but within ten years ..... -- -- 234,924 4.01
Due after ten years ........................... -- -- 111,597 12.55
------------ -----------
Total ........................................ $ 565,636 10.70 $ 2,973,837 8.87
============ -----------
Total Securities
Due in one year or less ....................... $ 3,979,738 6.44 $ 655,006 9.84
Due after one year but within five years ...... 11,309,202 6.22 1,972,309 8.98
Due after five years but within ten years ..... 1,000,625 6.01 234,924 4.01
Due after ten years ........................... 3,793,531 5.92 111,597 12.55
Mortgage-backed securities .................... 9,628,265 5.93 -- --
------------ -----------
Total securities ............................. $ 29,711,361 6.11 $ 2,973,837 8.87
============ ===========
</TABLE>
Loan Portfolio
M&M extends credit primarily to consumers and small businesses in three
contiguous but distinctly different counties in eastern South Carolina. The
service area is mixed in nature. The economy in Marion County includes
agriculture, timber, light manufacturing, and local government activities.
Marion County is adjacent to Horry County, a county dominated by tourist,
recreational and retirement activities. Florence County is also adjacent to
Marion County. Florence County is a regional business center whose economy
contains elements of medium and light manufacturing, higher education, regional
health care and distribution facilities. M&M is affected by the economic
influences of the components of its market area. Except for recent increases in
commercial and residential construction activity in the Myrtle Beach area of
Horry County, no particular category or segment of these economies previously
described is expected to grow or contract disproportionately in 1998.
Management believes the loan portfolio is adequately diversified. There
are no foreign loans, and agricultural lending is limited to seasonal activity.
Real estate loans are primarily construction loans and loans secured by real
estate. Commercial loans are spread across a variety of industries with no
significant concentrations existing by industry or customer type other than in
the hotel/motel industry. Loans to borrowers in this industry are $10,843,010
or 10.3% of the total loan portfolio. There have been no adverse economic
developments that have affected these customers' repayment capability. Loans in
this industry are performing as agreed. Note 5 to M&M's Consolidated Financial
Statements presents separately the amount of loans by category as of December
31, 1997 and 1996.
Loans, the largest component of earning assets, represented 70.9% of
average earning assets and 64.5% of average total assets during 1997 compared
with 61.6% and 56.0%, respectively, during 1996. M&M has focused on growth in
its market area, loan quality and expansion of existing customer relationships.
These efforts enabled loans to increase to $105,427,377 at December 31, 1997, a
30.3% increase over the $80,922,947 amount reported for year-end 1996.
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<PAGE>
Maturities and Sensitivity of Loans to Changes in Interest Rates
The following table summarizes the loan maturity distribution, by type, at
December 31, 1997 and related interest rate characteristics:
<TABLE>
<CAPTION>
Less than One to After
one year five years five years Total
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Commercial loans ...................... $ 28,010,355 $ 44,369,469 $ 15,739,668 $ 88,119,492
Real estate -- construction ........... 2,986,810 38,448 987,549 4,012,807
Consumer and other .................... 1,256,842 8,907,169 3,131,067 13,295,078
------------ ------------ ------------ -------------
$ 32,254,007 $ 53,315,086 $ 19,858,284 $ 105,427,377
============ ============ ============ =============
Loans maturing after one year with:
Fixed interest rates ................. $ 52,494,854
Variable interest rates .............. 20,678,516
-------------
Total ............................. $ 73,173,370
=============
</TABLE>
Provision And Allowance for Loan Losses
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on M&M's statement of income, are made periodically
to maintain the allowance at an appropriate level based on management's
analysis of the potential risk in the loan portfolio. Loan losses and
recoveries are charged or credited directly to the allowance. The amount of the
provision is a function of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, and current and
anticipated economic conditions.
The following is an analysis of activity in the allowance for loan losses
for the years ended December 31, 1997 and 1996:
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Net loans outstanding at the end of the year ............ $105,427,377 $ 80,922,947
============ ============
Average amount of loans outstanding during the year ..... $ 95,162,041 $ 70,406,181
============ ============
Allowance for loan losses, beginning of year ............ $ 1,027,355 $ 818,637
------------ ------------
Loans charged off:
Commercial ............................................. 902,003 17,004
Real estate, construction .............................. -- --
Consumer ............................................... 57,421 19,481
------------ ------------
Total loans charged off ...................................... 959,424 36,485
------------ ------------
Recoveries of loans previously charged off .............. 58,704 65,203
------------ ------------
Net charge-offs (recoveries) ................................. 900,720 (28,718)
------------ ------------
Provision charged to operations ......................... 800,000 180,000
------------ ------------
Allowance for loan losses, end of year .................. $ 926,635 $ 1,027,355
============ ============
</TABLE>
The following is a summary of nonperforming assets at December 31,1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Nonaccrual loans -- (all loans are collateralized$ 473,103 $ 710,834
Accruing loans 90 days or more past due ....... -- 11,916
Loans impaired ................................ -- --
Restructured loans ............................ -- --
Other real estate owned ....................... -- --
--------- ---------
Total nonperforming assets ........................... $ 473,103 $ 722,750
========= =========
</TABLE>
100
<PAGE>
Nonperforming assets have decreased significantly in recent years. These
decreases were primarily the result of the disposal of other real estate owned
and improved loan quality. As of December 31, 1997 and 1996, nonperforming
assets to total loans and other real estate owned was 0.45% and 0.89%,
respectively.
<TABLE>
<CAPTION>
Ratios
- - -----------------------------------------------------------
<S> <C> <C>
Net charge-offs to average loans outstanding .. 0.95% -0.04%
Net charge-offs to loans at end of year ....... 0.85 -0.04
Allowance for loan losses to average loans outstan 0.97 1.46
Allowance for loan losses to loans, end of year 0.88 1.27
Net charge-offs to allowance for loan losses .. 97.20 -2.80
Net charge-offs to provisions for loan losses . 112.59 -15.95
Allowance for loan losses to nonperforming loans 195.86 142.15
</TABLE>
In 1997, M&M increased the allowance for loan losses by a charge to
operations of $800,000. M&M has concluded that this provision, combined with
the quality of its loan underwriting processes, its loan monitoring and
administration mechanisms, and its aggressive charge off policy, is sufficient
to maintain its allowance for loan losses at an adequate level. Measured as a
percentage of loans outstanding, the allowance for loan losses at the end of
the year decreased from 1.27% at December 31, 1996 to 0.88% at December 31,
1997.
For 1997 M&M had net charge-offs of $900,720, compared to net recoveries
of $28,718 for 1996. The amount of charge-offs in 1997 was largely attributable
to one Business Manager loan that originated in the first quarter of 1997. In
December 1997, management determined that the loan was not collectible and
charged off the balance of $826,671. Management does not believe that the
increase in loan charge-offs is indicative of any future trend. Although
management cannot determine the exact amount of loans to be charged off in the
future, it knows some loans will continue to be charged off due to the risks
associated with extending credit.
At December 31, 1997 and 1996, M&M's internal review mechanism had
identified $4,904,483 and $4,066,439, respectively, of criticized and
classified loans. These are loans as to which known information about possible
credit problems of the borrowers cause management to have serious doubts as to
the ability of such borrowers to comply with present loan repayment terms,
which may result in such loans becoming non-performing loans. Included in this
amount are $3,425,674 and $1,751,459, respectively, of loans graded by M&M as
"other loans especially mentioned", the least severe credit grading category.
M&M is not aware of any common condition or problem among the potentially
problem borrowers. This internal review process is the primary determining
factor in management's assessment of the adequacy of the allowance for loan
losses. Except for the information used by management in its internal review
process, management is not aware of any further information about any material
credits which causes management to have serious doubts as to the ability of
borrowers to comply with the loan repayment terms. M&M does not allocate the
allowance for loan losses to specific categories of loans but evaluates the
adequacy on an overall portfolio basis utilizing its risk grading system.
M&M's provision and allowance for loan losses is subjective in nature and
relies on judgments and assumptions about risk elements in the portfolio, M&Ms
charge-off history, future economic conditions and other factors affecting
borrowers. The process includes identification and analysis of loss potential
in various portfolio segments utilizing a credit risk grading process and
specific reviews and evaluations of significant problem credits. In addition,
management monitors the overall economic conditions in the service area.
Management is not aware of any trends, material risks or uncertainties
affecting the loan portfolio, nor is management aware of any information about
any significant borrowers which causes serious doubts as to the ability of the
borrowers to comply with the loan repayment terms. It should be noted however
that no assurances can be made that future charges to the allowance for loan
losses or provision for loan losses may not be significant to a particular
accounting period. At December 31, 1997 and 1996, management considered the
allowance for loan losses adequate based on its judgements, evaluations and
analysis of the loan portfolio.
101
<PAGE>
Average Daily Deposits
The following table summarizes M&M's average daily deposits for the years
ended December 31, 1997 and 1996. The 1997 totals include certificates of
deposit over $100,000 which at December 31, 1997 totaled approximately
$16,294,857. Of this total, $9,449,021 had scheduled maturities within three
months, $1,746,865 within four to six months, $4,773,971 within seven to twelve
months and $325,000 thereafter.
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
Average Average Average Average
Amount Rate Paid Amount Rate Paid
--------------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Noninterest-bearing demand ................ $ 18,062,755 --% $ 16,937,418 --%
Interest-bearing transaction accounts ..... 28,583,650 3.37 21,623,547 3.13
Savings ................................... 16,682,701 3.11 15,656,646 3.00
Certificates of deposit ................... 56,087,786 5.50 46,810,808 5.49
------------ ------------
Total .................................. $119,416,892 $101,028,419
============ ============
</TABLE>
Return on Equity and Assets
The following table shows the return on average assets (net income divided
by average total assets), return on average equity (net income divided by
average equity), dividend payout ratio (dividends declared per share divided by
net income per share) and equity to assets ratio (average equity divided by
average total assets) for the period indicated.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Return on average assets ..... 0.76% 0.68%
Return on average equity ..... 9.94 8.10
Dividend payout ratio ........ 32.72 39.05
Equity to assets ratio ....... 7.69 8.43
</TABLE>
Short-term Borrowings
At December 31, 1997 and 1996, M&M had borrowings characterized as
securities sold under agreements to repurchase aggregating $1,072,526 and
$8,534,279, respectively. The weighted average interest rate paid was 4.78% and
4.76%, for the years ended December 31, 1997 and 1996, respectively.
Additionally, M&M had $6,000,000 and $5,000,000 in fixed-rate advances from the
Federal Home Loan Bank due to mature within one year at December 31, 1997 and
1996, respectively.
Long-term Debt
M&M had $4,000,000 in fixed-rate advances from the Federal Home Loan Bank
as of December 31, 1997 scheduled to be repaid in more than one year.
Accounting Rule Changes
In June 1997, the FASB released SFAS 130, "Reporting Comprehensive
Income." SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is the change in equity of a
business during a period from transactions and other events and circumstances
from nonowner sources and excludes investments by owners and distributions to
owners. Comprehensive income consists of two components-net income and other
comprehensive income. Other comprehensive income includes, among other things,
the change in the unrealized gain or loss on securities available for sale.
This statement is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
As of January 1, 1998, M&M adopted SFAS 130. M&M reported comprehensive
income in its condensed consolidated financial statements as of March 31, 1998,
and reclassified prior periods to reflect the application of SFAS 130.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share,"
effective for years ending after December 15, 1997. SFAS 128 simplifies the
standards for computing earnings per share and makes them comparable to
international earning per share standards. It also requires the dual
presentation of basic and diluted earnings per share on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic earnings per share
computation to the numerator and denominator of the diluted earnings per share
computation.
102
<PAGE>
Basic earnings per share is computed by dividing net income by the
weighted-average number of shares outstanding for the period excluding the
effects of any dilutive potential common shares. Diluted earnings per share is
similar to the computation of basic earnings per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common shares had been
issued. The dilutive effect of options outstanding under M&M's stock option
plan is reflected in diluted earnings per share by the application of the
treasury stock method.
SFAS 128 became effective for M&M as of December 31, 1997. SFAS 128 had no
effect on earnings per share data for prior years because M&M previously had a
simple capital structure.
Impact of Inflation
Unlike most industrial companies, the assets and liabilities of financial
institutions such as M&M and its subsidiaries are primarily monetary in nature.
Therefore, interest rates have a more significant effect on M&M's performance
than do the effects of changes in the general rate of inflation and change in
prices. In addition, interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation.
The Year 2000
During 1997, M&M commenced a year 2000 date conversion project to address
all necessary code changes, testing and implementation. Failure to address the
issue could result in computer applications which fail or create erroneous
results by or at the year 2000. Bank regulators have established minimum
guidelines for banks in addressing the year 2000 issue. The regulators are
monitoring the progress of banks in complying with these guidelines and have
the option of taking regulatory action for banks which have not made
satisfactory progress in addressing the year 2000 issue. M&M is utilizing both
internal and external resources to identify, correct, and test the systems for
the year 2000 compliance. M&M has contacted its primary processing vendors, and
the vendors have developed plans to address processing of transactions in the
year 2000. Additionally, in the normal course of business, management decided
to replace its outdated core banking software beginning in the fourth quarter
of 1998. The vendor for the new core software has certified that it will be
fully capable of correctly processing transactions in the year 2000. Management
has assessed the anticipated year 2000 compliance expenses and does not expect
them to have a material effect on M&M's earnings. Maintenance or modification
costs will be expensed as incurred, while the costs of new software will be
capitalized over the software's useful life.
ANCHOR'S RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, independent accountants, have continuously served as
the independent accountants for Anchor from its formation in 1984 through the
present. A representative of Price Waterhouse LLP is expected to be present at
the Anchor Special meeting and will have an opportunity to make a statement if
he so desires and will be available to respond to appropriate questions.
EXPERTS
The consolidated financial statements of Anchor Financial Corporation as
of December 31, 1997 and 1996, and for each of the three years in the period
ended December 31, 1997, appearing in the Anchor Financial Corporation Annual
Report on Form 10-K for the year ended December 31, 1997, and incorporated by
reference in this Joint Proxy Statement/Prospectus, have been so incorporated
in reliance upon the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
The financial statements of ComSouth Bancshares, Inc. as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997 included in this Joint Proxy Statement/Prospectus have been audited by JW
Hunt and Company, LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of M&M Financial Corporation as of December 31,
1997 and 1996, and for each of the three years in the period ended December 31,
1997 included in this Joint Proxy Statement/Prospectus have been so included in
reliance upon the report of Tourville, Simpson & Henderson, independent
accountants, given on their authority of said firm as experts in accounting and
auditing.
103
<PAGE>
LEGAL MATTERS
Gerrish & McCreary, P.C., counsel to Anchor Financial Corporation, has
passed upon the validity of the issuance of shares of Anchor Common Stock to be
issued in connection with the Mergers and the Federal income tax treatment of
the Mergers.
FAIRNESS OPINIONS
Sandler O'Neill & Partners, L.P., an investment banking firm, has issued
opinions that the Comsouth Merger and the M&M Merger are fair and equitable
from a financial point of view to the stockholders of Anchor. See "THE PROPOSED
MERGERS -- Opinion of Anchor's Financial Advisor."
Interstate/Johnson Lane Corporation, an investment banking firm, has
issued its opinion that the ComSouth Merger is fair and equitable from a
financial point of view to the stockholders of ComSouth. See "THE PROPOSED
MERGERS -- ComSouth Merger -- Opinion of ComSouth's Financial Advisor."
Orr Management Company, an investment banking firm, has issued its opinion
that the M&M Merger is fair and equitable from a financial point of view to the
stockholders of M&M. See "THE PROPOSED MERGERS -- M&M Merger -- Opinion of
M&M's Financial Advisor."
INDEMNIFICATION
Anchor's Bylaws contain the following provision regarding indemnification
by Anchor:
Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the corporation for reasonable expenses actually
incurred in connection with any action, suit or proceeding, civil or
criminal, in which he or they shall be made a party by reason of his
being or having been a director, officer, or employee of the corporation
or of any firm, corporation, or organization which he served in any such
capacity at the request of the corporation; provided, however, that no
person shall be so indemnified or reimbursed in relation to any matter in
such action, suit, or proceeding as to which he shall finally be adjudged
to have been guilty or liable for gross negligence, willful misconduct or
criminal acts in the performance of his duties to the corporation; and,
provided further, that no such person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding
which has been made the subject of a compromise settlement except with
the approval of a court of competent jurisdiction, or the holders of
record of a majority of the outstanding shares of the corporation, or the
board of directors, acting by vote of directors not parties to the same
or substantially the same action, suit, or proceeding, constituting a
majority of the whole number of directors. The foregoing right of
indemnification or reimbursement shall not be exclusive of other rights
to which such persons, his heirs, executors, or administrators may be
entitled as a matter of law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Anchor,
Anchor has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
104
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
ANCHOR FINANCIAL CORPORATION
AND
COMSOUTH BANKSHARES, INC.
DATED APRIL 14, 1998
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Page
PREAMBLE..........................................................................................................1
RECITALS..........................................................................................................1
DEFINITIONS.......................................................................................................1
ARTICLE I. MERGER................................................................................................5
1.1 THE MERGER......................................................................................5
1.2 EFFECTIVE DATE..................................................................................5
ARTICLE II. MERGER CONSIDERATION.................................................................................5
2.1 CONSIDERATION...................................................................................5
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.............................................................6
2.3 FRACTIONAL SHARES...............................................................................6
2.4 EXCHANGE PROCEDURES.............................................................................6
2.5 DISSENTING SHARES...............................................................................6
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION......................................................7
2.7 OPTIONS.........................................................................................7
2.8 ANTI-DILUTION ADJUSTMENTS.......................................................................7
ARTICLE III. COMSOUTH ACTIONS PENDING CONSUMMATION...............................................................8
3.1 CAPITAL STOCK...................................................................................8
3.2 DISTRIBUTIONS...................................................................................8
3.3 LIABILITIES.....................................................................................8
3.4 OPERATIONS......................................................................................8
3.5 LIENS AND ENCUMBRANCES..........................................................................8
3.6 EMPLOYMENT ARRANGEMENTS.........................................................................8
3.7 BENEFIT PLANS...................................................................................9
3.8 CONTINUANCE OF BUSINESS.........................................................................9
3.9 AMENDMENTS......................................................................................9
3.10 CLAIMS..........................................................................................9
3.11 CONTRACTS.......................................................................................9
3.12 LOANS...........................................................................................9
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION..................................................................9
ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................................................................10
5.1 COMSOUTH'S REPRESENTATIONS AND WARRANTIES......................................................10
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES........................................................19
5.3 EXCEPTIONS TO REPRESENTATIONS..................................................................21
ARTICLE VI. COVENANTS...........................................................................................22
6.1 BEST EFFORTS...................................................................................22
6.2 THE PROXY......................................................................................22
6.3 REGISTRATION STATEMENT - COMPLIANCE
WITH SECURITIES LAWS...........................................................................22
6.4 REGISTRATION STATEMENT EFFECTIVENESS...........................................................23
6.5 PRESS RELEASES.................................................................................23
6.6 ACCESS; INFORMATION............................................................................23
6.7 ACQUISITION PROPOSALS..........................................................................24
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.......................................................................24
6.9 APPOINTMENT OF DIRECTORS.......................................................................24
6.10 EMPLOYMENT AGREEMENTS..........................................................................24
6.11 BLUE-SKY FILINGS...............................................................................25
6.12 AFFILIATE AGREEMENTS...........................................................................25
6.13 TAKEOVER LAW...................................................................................25
6.14 NO RIGHTS TRIGGERED............................................................................25
6.15 SHARES LISTED..................................................................................25
6.16 CURRENT INFORMATION............................................................................25
<PAGE>
6.17 SEVERANCE......................................................................................26
6.18 INDEMNIFICATION................................................................................26
ARTICLE VII. CONDITIONS TO CONSUMMATION
OF THE MERGER..................................................................................................26
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................................................26
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR............................................................27
7.3 CONDITIONS TO OBLIGATIONS OF COMSOUTH..........................................................28
ARTICLE VIII. TERMINATION.......................................................................................29
8.1 EVENTS OF TERMINATION..........................................................................29
8.2 CONSEQUENCES OF TERMINATION....................................................................31
ARTICLE IX. OTHER MATTERS.......................................................................................32
9.1 SURVIVAL.......................................................................................32
9.2 WAIVER; AMENDMENT..............................................................................32
9.3 COUNTERPARTS...................................................................................32
9.4 GOVERNING LAW..................................................................................32
9.5 EXPENSES.......................................................................................33
9.6 CONFIDENTIALITY................................................................................33
9.7 NOTICES........................................................................................33
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES..................................................................................33
9.9 HEADINGS.......................................................................................34
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 14, 1998 (the
"Agreement"), is made and entered into by and between ANCHOR FINANCIAL
CORPORATION ("Anchor"), a South Carolina corporation, and COMSOUTH BANKSHARES,
INC. ("ComSouth"), a South Carolina corporation.
PREAMBLE
The management and Boards of Directors of Anchor and ComSouth believe,
respectively, that the business combination transaction provided for herein, in
which ComSouth will, subject to the terms and conditions set forth herein, merge
with and into Anchor so that Anchor is the surviving corporation in the Merger,
is in the best interests of Anchor and ComSouth's shareholders.
RECITALS
A. ANCHOR. Anchor is a corporation duly organized and validly existing
under South Carolina law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal offices located at
2002 Oak Street, Myrtle Beach, South Carolina. As of the date of this Agreement,
Anchor has 7,000,000 authorized shares of common stock, par value $6.00 per
share ("Anchor Common Stock") (no other class of capital stock being
authorized), of which 3,890,323 shares of Anchor Common Stock are issued and
outstanding and of which 388,784 shares are subject to issuance pursuant to
certain stock options.
B. COMSOUTH. ComSouth is a corporation duly organized and validly
existing under South Carolina law and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, with its principal executive
offices located at 1136 Washington Street, Suite 200, Columbia, South Carolina.
As of the date of this Agreement, ComSouth has 75,000,000 authorized shares of
common stock, no par value per share ("ComSouth Common Stock") (with preferred
stock being authorized but no shares of which are issued), of which 2,341,320
shares of ComSouth Common Stock are issued and outstanding and of which 214,254
shares of ComSouth Common Stock are subject to issuance pursuant to certain
stock options.
C. APPROVALS. At meetings of the respective Boards of Directors of
Anchor and ComSouth, each such Board has approved and authorized the execution
of this Agreement.
D. INTENTION OF THE PARTIES. The parties intend the Merger to qualify,
for accounting purposes, as a "pooling of interests." The parties intend the
Merger to qualify, for federal income tax purposes, as a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
In consideration of their mutual promises and obligations, Anchor and
ComSouth agree as follows:
DEFINITIONS
A. DEFINITIONS. Capitalized terms used in this Agreement have the
following meanings:
<PAGE>
"Acquisition Proposal" has the meaning assigned in Section
6.7(A).
"Agreement" means this Agreement and Plan of Merger.
"Anchor" means Anchor Financial Corporation, a South Carolina
corporation.
"Anchor Common Stock" has the meaning assigned in Recital A.
"Anchor Financial Reports" has the meaning assigned in Section
5.2(G).
"Anchor Option" has the meaning assigned in Section 2.7.
"Appraisal Laws" has the meaning assigned in Section 2.5.
"Asset Classification" has the meaning assigned in Section
5.1(5).
"Charleston Bank" means The Bank of Charleston, a national
banking association.
"Code" has the meaning assigned in Section 5.1(P)(2).
"Columbia Bank" means The Bank of Columbia, a national banking
association.
"Compensation and Benefit Plans" has the meaning assigned in
Section 5.1(P)(1).
"ComSouth" means ComSouth Bankshares, Inc., a South Carolina
corporation.
"ComSouth Common Stock" has the meaning assigned in Recital B.
"ComSouth Financial Reports" has the meaning assigned in
Section 5.1(H).
"ComSouth Option" has the meaning assigned in Section 2.7.
"Dissenting Shares" means the shares of ComSouth Common Stock
held by those shareholders of ComSouth who have timely and properly exercised
their dissenters' rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned in Section 1.2.
"Eligible ComSouth Common Stock" means shares of ComSouth
Common Stock validly issued and outstanding on the Effective Date other than
Dissenting Shares.
"Employment Agreement" means Exhibit C.
"Environmental Law" means (1) any federal state, and/or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or human
health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Federal Comprehensive Environmental
Response,
2
<PAGE>
Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, and (2) any common
law or equitable doctrine (including injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
"ERISA" has the meaning assigned in Section 5.1(P)(2).
"ERISA Affiliate" has the meaning assigned in Section
5.1(P)(3).
"ERISA Plans" has the meaning assigned in Section 5.1(P)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated under such statute.
"Exchange Agent" has the meaning assigned in Section 2.4.
"Exchange Ratio" has the meaning assigned in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"GAAP" means generally accepted accounting principles
consistently applied.
"Hazardous Material" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or
quantity, including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Joint Proxy Statement" has the meaning assigned in Section
6.2.
"Loan/Fiduciary Property" means any property owned or
controlled by ComSouth or either of its Subsidiaries or in which ComSouth or
either of its Subsidiaries holds a security or other interest, and, where
required by the context, includes any such property where ComSouth or either of
its Subsidiaries constitutes the owner or operator of such property, but only
with respect to such property.
"Material Adverse Effect" means, with respect to any Party, an
event, occurrence or circumstance (including (i) the making of any provisions
for possible loan and lease losses, write-downs of other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Agreement
3
<PAGE>
by such Party) that (a) has or is reasonably likely to have a material adverse
effect on the financial condition, results of operations, business or prospects
of such Party and its Subsidiaries, taken as a whole, or (b) would materially
impair such party's ability to perform its obligations under this Agreement or
the consummation of any of the transactions contemplated by this Agreement.
"Meeting" has the meaning assigned in Section 6.2.
"Merger" has the meaning assigned in Section 1.1.
"Multiemployer Plans" has the meaning assigned in Section
5.1(P)(2).
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"OCC" means the Office of the Comptroller of the Currency.
"Participation Facility" means any facility in which ComSouth
or its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
"Party" means a party to this Agreement.
"Pension Plan" has the meaning assigned in Section 5.1(P)(2).
"Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
governmental body, or other entity.
"Registration Statement" has the meaning assigned in Section
6.2.
"Regulatory Authorities" means federal or state governmental
agencies, authorities or departments charged with the supervision or regulation
of depository institutions or engaged in the insurance of deposits.
"Rights" means securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire, or
any options, calls or commitments relating to, shares of capital stock.
"Schedule" refers to information provided by a Party in a
Schedule that is delivered contemporaneously with the execution of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, each
partnership, limited liability company, or corporation the majority of the
outstanding partnership interests, membership interests, capital stock or voting
power of which is (or upon the exercise of all outstanding warrants, options and
other rights would be) owned, directly or indirectly, at the time in question by
such entity.
"Tax Returns" has the meaning assigned in Section 5.1(Z).
"Taxes" means federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes imposed on
the
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income, properties or operations of the respective Party or its Subsidiaries,
together with any interest, additions, or penalties relating to such taxes and
any interest charged on those additions or penalties.
B. GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Agreement or unless the context clearly requires otherwise, the following
rules of interpretation apply: (i) the terms defined in this Agreement include
the plural as well as the singular; (ii) the phrase "in this Agreement" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and (iii) references in this
Agreement to Articles, Sections, Schedules, and Exhibits refer to Articles and
Sections of and Schedules and Exhibits to this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they will be
deemed to be following by the words "without limitation." Unless otherwise
stated references to Subsections refer to the Subsections of the Section in
which the reference appears. All pronouns used in this Agreement include the
masculine, feminine and neuter gender, as the context requires.
ARTICLE I. MERGER
1.1 THE MERGER. Subject to the provisions of this Agreement and in
accordance with the terms of Section 33-11-101 of the Code of Laws of South
Carolina of 1976, as amended (the "South Carolina Code"), on the Effective Date,
ComSouth will merge with and into Anchor, under the Articles of Incorporation of
Anchor (the "Merger"), and the resulting corporation will operate under the name
"Anchor Financial Corporation" (the "Merged Company"). After the Effective Date,
the Board of Directors of the Merged Company will consist of the directors of
Anchor immediately preceding the Effective Date plus four additional directors
to be designated from the current directors of ComSouth or its Subsidiary banks.
ComSouth may offer suggestions to Anchor, and Anchor shall make the final
designation of such directors.
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fulfillment or waiver
of all conditions precedent set forth in, and the granting of all approvals (and
expiration of any waiting period) required by, Article VII of this Agreement. A
business day is any day other than a Saturday, Sunday or legal holiday in the
State of South Carolina. If the Merger is not consummated in accordance with
this Agreement on or before December 31, 1998, Anchor or ComSouth may terminate
this Agreement in accordance with Article VIII.
ARTICLE II. MERGER CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Agreement, on the
Effective Date:
(A) OUTSTANDING ANCHOR COMMON STOCK. The shares of Anchor
Common Stock issued and outstanding immediately prior to the Effective Date
will, on and
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after the Effective Date, remain as issued and outstanding shares of Anchor
Common Stock.
(B) OUTSTANDING COMSOUTH COMMON STOCK. Except as provided
below in Section 2.3, each share of Eligible ComSouth Common Stock issued and
outstanding immediately prior to the Effective Date will, by virtue of the
Merger, automatically and without any action on the part of the holder of the
share, be converted into the right to receive 0.75 shares of Anchor Common Stock
(the "Exchange Ratio").
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, all
shares, other than Dissenting Shares, of ComSouth Common Stock issued and
outstanding immediately prior to the Effective Date will be converted into
shares of Anchor Common Stock in accordance with Section 2.1(B) by virtue of the
Merger. After the Effective Date, there will be no transfers on the stock
transfer books of ComSouth of the shares of ComSouth Common Stock that were
issued and outstanding immediately prior to the Effective Date.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no fractional shares of Anchor Common Stock and no certificates or
other evidence of ownership of such fractional shares will be issued in the
Merger. Anchor will pay to each holder of ComSouth Common Stock who would
otherwise be entitled to a fractional share an amount in cash (without interest)
determined by multiplying such fractional part of a share of Anchor Common Stock
by the closing price of Anchor Common Stock on the Effective Date on The Nasdaq
Stock Market (as reported in The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Anchor).
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Anchor will send or cause to be sent to each former shareholder of
ComSouth of record immediately prior to the Effective Date transmittal materials
for use in exchanging such shareholder's certificates for Anchor Common Stock
for the consideration set forth in this Article II. The certificates
representing the shares of Anchor Common Stock for which shares of such
shareholder's ComSouth Common Stock are exchanged on the Effective Date, and any
fractional share checks that such shareholder will be entitled to receive will
be delivered to such shareholder only upon delivery to Anchor's exchange agent
(the "Exchange Agent") of the certificates representing all such shares of
ComSouth Common Stock (or indemnity satisfactory to Anchor and the Exchange
Agent, in their judgment, if any of such certificates are lost, stolen or
destroyed). Certificates surrendered for exchange by any person constituting an
"affiliate" of ComSouth for purposes of Rule 145 of the Securities Act will not
be exchanged for certificates representing Anchor Common Stock until Anchor has
received a written agreement from such person as specified in Section 6.12.
2.5 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, each Dissenting Share whose holder, as of the Effective Date of the
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Merger, has not effectively withdrawn or lost his dissenters' rights under
Section 33-13-102 of the South Carolina Code (the "Appraisal Laws") will not be
converted into or represent a right to receive Anchor Common Stock, but the
holder of such Dissenting Share will be entitled only to such rights as are
granted by the Appraisal Laws. Each holder of Dissenting Shares who becomes
entitled to payment for his ComSouth Common Stock pursuant to the provisions of
the Appraisal Laws will receive payment for such Dissenting Shares from Anchor
(but only after the amount of payment is agreed upon or finally determined
pursuant to the Appraisal Laws).
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision of this Agreement to the contrary,
Anchor may at any time change the method of effecting its acquisition of
ComSouth, but no such change will (A) change the amount or kind of consideration
to be issued to holders of ComSouth Common Stock as provided for in this
Agreement, or (B) adversely affect the tax treatment to the ComSouth
shareholders as a result of receiving such consideration. If Anchor elects to
change the method of acquisition, ComSouth will cooperate with and assist Anchor
with any necessary amendment to this Agreement, and with the preparation and
filing of such applications, documents, instruments and notices as may be
necessary or desirable, in the opinion of counsel for Anchor, to obtain all
necessary shareholder approvals and approvals of any regulatory agency,
administrative body or governmental entity.
2.7 OPTIONS. On the Effective Date, by virtue of the Merger and without
any action on the part of any holder of an option, each option granted by
ComSouth to purchase shares of ComSouth Common Stock ("ComSouth Option") that
has been outstanding and unexercised will be converted into and become an option
to purchase Anchor Common Stock ("Anchor Option") on the same terms and
conditions as are in effect with respect to the ComSouth Options immediately
prior to the Effective Date, except that (A) each such Anchor Option may be
exercised solely for shares of Anchor Common Stock, (B) the number of shares of
Anchor Common Stock subject to such Anchor Options will be equal to the number
of shares of ComSouth Common Stock subject to such ComSouth Options immediately
prior to the Effective Date, multiplied by the Exchange Ratio, the product being
rounded, if necessary, up or down to the nearest whole share, and (C) the per
share exercise price under each such Anchor Option will be adjusted by dividing
the per share exercise price of the ComSouth Option by the Exchange Ratio, and
rounding up or down to the nearest cent. The number of shares of ComSouth Common
Stock that are issuable upon exercise of ComSouth Options as of the date of this
Agreement are disclosed in Schedule 2.7.
2.8 ANTI-DILUTION ADJUSTMENTS. In the event Anchor changes the number
of shares of Anchor Common Stock issued and outstanding prior to the Effective
Date as a result of a stock split, stock dividend or similar recapitalization
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with respect to Anchor Common Stock, and the record date therefore (in the case
of a stock dividend) or the effective date thereof (in the case of stock split
or similar recapitalization for which a record date is not established) shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
ARTICLE III. COMSOUTH ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by Anchor, ComSouth and its
Subsidiaries will conduct their business in the ordinary and usual course
consistent with past practice and will use their best efforts to maintain and
preserve their business organizations, employees and advantageous business
relationships and retain the services of their officers and key employees
identified by Anchor, and ComSouth, without the prior written consent of Anchor,
will not:
3.1 CAPITAL STOCK. Issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of ComSouth, except pursuant
to the exercise of stock options outstanding on the date hereof, or grant any
Rights with respect to its capital stock, or enter into any agreement to do any
of the foregoing, or permit any additional shares of ComSouth Common Stock to
become subject to grants of employee stock options, stock appreciation rights or
similar stock-based employee compensation rights.
3.2 DISTRIBUTIONS. Make, declare or pay any dividend on or in respect
of, or declare or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its capital
stock or authorize the creation or issuance of, or issue, any additional shares
of its capital stock or grant any Rights with respect to its capital stock.
3.3 LIABILITIES. Other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual corporation or other
entity.
3.4 OPERATIONS. Except as may be directed by any regulatory agency, (A)
change its lending, investment, liability management or other material banking
policies in any material respect, or (B) commit to incur any capital
expenditures other than in the ordinary course of business and not exceeding
$15,000 individually or $25,000 in the aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist, except such liens, charges
or encumbrances occurring in the ordinary course of business which do not have a
material adverse effect on ComSouth.
3.6 EMPLOYMENT ARRANGEMENTS. Hire any new employees, increase the
number of full time employees disclosed in Schedule 3.6, enter into or amend any
employment, severance or similar agreement or arrangement with any of its
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directors, officers or employees, or grant any salary or wage increase, amend
the terms of any ComSouth Option or increase any employee benefit (including
incentive or bonus payments), except normal individual increases in regular
compensation to employees in the ordinary course of business consistent with
past practice or as disclosed in Schedule 3.6.
3.7 BENEFIT PLANS. Enter into or modify (except as may be required by
applicable law or to continue coverage) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees, including taking any action that
accelerates the vesting or exercise of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion of
its assets, business or properties, that is material to ComSouth or any one of
its Subsidiaries taken as a whole, or merge or consolidate with, or acquire all
or any portion of, the business or property of any other entity that is material
to ComSouth or any one of its Subsidiaries taken as a whole (except foreclosures
or acquisitions by Comsouth or any one of its Subsidiaries in its fiduciary
capacity, in each case in the ordinary course of business consistent with past
practice).
3.9 AMENDMENTS. Amend its Articles of Incorporation or Bylaws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of ComSouth.
3.11 CONTRACTS. Enter into, renew, terminate or make any change in any
material contract, agreement or lease, except in the ordinary course of business
consistent with past practice with respect to contracts, agreements and leases
that are terminable by it without penalty on no more than 60 days prior written
notice.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices. With regard
to any new extension of credit in excess of $500,000, the Chief Financial
Officer of ComSouth will report to the Chief Financial Officer of Anchor, as
expeditiously as possible, the substance and nature of the transaction for the
purpose of keeping Anchor abreast of the ongoing credit quality at ComSouth.
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION
From the date of this Agreement until the earlier of the Effective Date
or the termination of this Agreement, Anchor will continue to conduct the
business of Anchor and its Subsidiaries in a manner designed in its reasonable
judgment to enhance the long-term value of Anchor Common Stock and the business
prospects of Anchor, and will not: (1) make any distributions with respect to
its capital stock except its regular quarterly dividends made in accordance with
its past
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practices; or (2) take any action which would materially adversely affect the
ability of Anchor or ComSouth to obtain any regulatory approvals or other
consents required for the Merger described in this Agreement without imposition
of any condition or restriction that would adversely impact the transactions
contemplated hereby or prevent the Merger from qualifying as a pooling of
interests for accounting purposes or as a tax free organization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code, or materially
adversely affect the ability of any party to this Agreement to perform its
covenants or agreements under this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 COMSOUTH'S REPRESENTATIONS AND WARRANTIES. ComSouth hereby
represents and warrants to Anchor as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to ComSouth are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. ComSouth is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. ComSouth and its Subsidiaries have in effect all federal
state, local and foreign governmental authorizations necessary for them to own
or lease their properties and assets and to carry on their businesses as they
are now conducted. The Columbia Bank and the Charleston Bank are "insured
depository institutions" as defined in the Federal Deposit Insurance Act, as
amended, and applicable regulations under such statute, and their deposits are
insured by the Bank Insurance Fund of the FDIC.
(C) SHARES. The outstanding shares of ComSouth's capital stock
are validly issued and outstanding, fully paid and nonassessable and are not
subject to preemptive rights of ComSouth's shareholders. Except as ComSouth
disclosed in Schedule 5.1(C), there are no shares of capital stock or other
equity securities of ComSouth outstanding and no outstanding Rights with respect
to its capital stock or other equity securities.
(D) SUBSIDIARIES. ComSouth has two Subsidiaries, The Bank of
Columbia and The Bank of Charleston.
(E) CORPORATE POWER. ComSouth has the corporate power and
authority to carry on its business as it is now being conducted and to own all
its material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 7.1(A), this Agreement has
been authorized by all necessary corporate action of ComSouth, and this
Agreement is a valid and binding agreement of ComSouth, enforceable against
ComSouth in accordance with its terms, subject to bankruptcy, insolvency and
other laws of
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general applicability relating to or affecting creditors' rights and to general
equitable principles.
(G) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), the required regulatory approvals referred to in
Section 7.1(B), and the required filings under federal and state securities
laws, and except as set forth on Schedule 5.1(G), the execution, delivery and
performance of this Agreement and the consummation by ComSouth of the
transactions contemplated by this Agreement do not and will not (1) constitute a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of ComSouth or to which ComSouth or its properties is subject or
bound, (2) constitute a breach or violation of, or a default under its articles
of incorporation or bylaws, or (3) require any consent or approval under any
such law, rule, regulation, judgment, decree, order governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(H) FINANCIAL REPORTS. ComSouth's audited consolidated
statements of financial condition and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the fiscal year ended
December 31, 1997 (collectively, the "ComSouth Financial Reports") do not
contain any untrue statement of a material fact or omit 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; and
each of the consolidated balance sheets in or incorporated by reference into the
ComSouth Financial Reports (including the related notes and schedules thereto)
fairly presents and will fairly present the financial position of ComSouth as of
its date, and each of the consolidated statements of income and changes in
shareholders' equity and cash flows (including any related notes and schedules
thereto) fairly presents and will fairly present the results of operations,
changes in shareholders' equity and cash flows, as the case may be, for the
periods set forth therein, in accordance with GAAP.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 5.1(I), ComSouth has no obligation or liability (contingent or
otherwise) except (1) as reflected in the ComSouth Financial Reports prior to
the date of this Agreement, and (2) for commitments and obligations made, or
liabilities incurred, in the ordinary course of business consistent with past
practice since December 31, 1997.
(J) NO EVENTS. Since December 31, 1997, no event has occurred
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on ComSouth.
(K) PROPERTIES. ComSouth has good and marketable title, free
and clear of all liens, encumbrances, charges, defaults, or equities of any
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character, to all of the properties and assets, tangible and intangible,
reflected in the ComSouth Financial Reports as being owned by ComSouth as of the
dates of the ComSouth Financial Reports, except those sold or otherwise disposed
of in the ordinary course of business. All buildings and all material fixtures,
equipment, and other property and assets that are held under leases or subleases
by ComSouth are held under valid leases or subleases enforceable in accordance
with their respective terms.
(L) LITIGATION. Except as disclosed in Schedule 5.2(L), before
the date of this Agreement:
(1) no criminal or administrative investigations or
hearings, before or by any Regulatory Authorities, or civil, criminal or
administrative actions, suits, claims or proceedings, before or by any person
(including any Regulatory Authority) are pending or, to the knowledge of its
executive officers, threatened, against it (including under the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, or any fair lending law or
other law relating to discrimination); and
(2) neither ComSouth or either of its Subsidiaries
nor any of their officers, directors, controlling persons, nor any of their
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any Regulatory Authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of ComSouth or either of
its Subsidiaries, and they have not been advised by any such Regulatory
Authority that such Regulatory Authority is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission.
(M) COMPLIANCE WITH LAWS. ComSouth and its Subsidiaries:
(1) are in compliance, in the conduct of their
businesses, with all applicable federal, state, local, and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or decrees, including
the Bank Secrecy Act, the Truth in Lending Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure act and all applicable fair lending laws or other laws relating to
discriminations;
(2) have all permits, licenses, certificates of
authority, orders, and approvals of, and have made all filings, applications,
and registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit them to carry on their
businesses as they are presently conducted;
(3) have no notification or other communication from
any Regulatory Authority (including any bank, insurance and securities
regulatory
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authorities) or its staff (1) asserting a failure to comply with any of the
statutes, regulations or ordinances that such Regulatory Authority enforces, (2)
threatening to revoke any license, franchise, permit or governmental
authorization, or (3) threatening or contemplating revocation or limitation of,
or that would have the effect of revoking or limiting, FDIC deposit insurance
(nor do any grounds for any of the foregoing exist);
(4) are not required to notify any federal banking
agency before adding directors to their boards of directors or employing senior
executives (except notifications required as a result of the Merger); and
(5) have adopted and are implementing a program to
address any problems associated with the capacity of the computer software
operated by ComSouth and its Subsidiaries and their vendors to properly process
transactions after December 31, 1999.
(N) MATERIAL CONTRACTS. Neither ComSouth nor either of its
Subsidiaries nor their assets, businesses or operations, is a party to, or bound
or affected by, or receives benefits under, any material contract or agreement
or amendment to such contract or agreement. ComSouth or either of its
Subsidiaries is not in default under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party,
by which its assets, business or operations may be bound or affected or under
which it or its respective assets, business or operations receives benefits, and
there has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default. ComSouth or either of its
Subsidiaries is not subject to or bound by any contract containing covenants
that limit its ability to compete in any line of business or with any Person or
that involve any restriction of geographical area in which, or method by which,
it may carry on its business (other than as may be required by law or any
applicable Regulatory Authority).
(O) REPORTS. Since January 1, 1993, ComSouth and its
Subsidiaries filed all reports and statements, together with any required
amendments, that they were obligated to file with (1) the OCC, (2) the FDIC, (3)
the Federal Reserve Board and (4) any other Regulatory Authorities having
jurisdiction over ComSouth and/or its Subsidiaries. As of their respective dates
(and without giving effect to any amendments or modification filed after the
date of this Agreement with respect to reports and documents filed before the
date of this Agreement), each of such reports and documents, including the
financial statements, exhibits and schedules to the financial statements,
complied with all of the statutes, rules and regulations enforced or promulgated
by the Regulatory Authority with which they were filed and did not contain any
untrue statement of fact or omit to state any fact necessary in order to make
the statements, in light of the circumstances under which they were made, not
misleading.
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(P) EMPLOYEE BENEFIT PLANS.
(1) Schedule 5.1(P)(1) contains a complete list of
all bonus, deferred compensation, pension, retirement, profit-sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts, all medical,
dental, health and life insurance plans, all other employee benefit plans,
contracts or arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained on contributed to by
Comsouth and/or its Subsidiaries for the benefit of employees, former employees,
directors, former directors or their beneficiaries (the "Compensation and
Benefit Plans"). True and complete copies of all Compensation and Benefit Plans
of ComSouth and/or its Subsidiaries, including any trust instruments and/or
insurance contracts, if any, forming a part of such plans, and all related
amendments, have been supplied to Anchor.
(2) All "employee benefit plans" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA ("Multiemployer Plans"), covering employees or former
employees of Comsouth and/or its Subsidiaries (the "ERISA Plans"), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each ERISA Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986 (as amended, the "Code") has
received a favorable determination letter from the Internal Revenue Service, and
ComSouth is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the inability
to receive such favorable determination letter. There is no material pending or,
to its knowledge, threatened litigation relating to the ERISA Plans. ComSouth or
either of its Subsidiaries has not engaged in a transaction with respect to any
ERISA Plan that could subject ComSouth or either of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by ComSouth or either of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by it, or the single-employer plan of any entity which is considered
one employer with ComSouth or either of its Subsidiaries under Section
4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA Affiliate"). ComSouth
or either of its Subsidiaries does not presently contribute to a Multiemployer
Plan, nor has it contributed to such a plan within the past five calendar years.
No notice of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30-
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day reporting requirement has not been waived, has been required to be filed for
any Pension Plan or by any ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the
terms of any ERISA Plan have been timely made. Neither any Pension Plan nor any
single- employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Comsouth or either of its Subsidiaries has not
provided, or is not required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year, the
actuarially determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan's most recent actuarial valuation)
did not exceed the then current value of the assets of such plan, and there has
been no material changes in the financial condition of such plan since the last
day of the most recent plan year.
(6) ComSouth has no obligations for retiree health
and life benefits under any plan, except as set forth in Schedule 5.1(P)(6).
There are no restrictions on the rights of ComSouth to amend or terminate any
such plan without incurring any liability under the plan.
(7) Except as set forth on Schedule 5.1(P)(7),
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (a) result in any payment
(including severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of ComSouth or its Subsidiaries
under any Compensation and Benefit Plan or otherwise from ComSouth or its
Subsidiaries, (b) increase any benefits otherwise payable under any Compensation
and Benefit Plan, or (c) result in any acceleration of the time of payment or
vesting of any such benefit.
(Q) NO KNOWLEDGE. ComSouth knows of no reason why the
regulatory approvals referred to in Section 7.1(B) will not be obtained.
(R) LABOR AGREEMENTS. ComSouth is neither a party to nor bound
by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is ComSouth the
subject of a proceeding asserting that it has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to compel it
to bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
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(S) ASSET CLASSIFICATION. ComSouth has disclosed to Anchor in
Schedule 5.1(S) a list, accurate and complete in all material respects, of the
aggregate amounts of loans, extensions of credit or other assets of ComSouth and
its Subsidiaries that have been classified by them as of December 31, 1997 (the
"Asset Classification"): and no amounts of loans, extensions of credit or other
assets that have been classified as of December 31, 1997 by any regulatory
examiner as "Other Loans Specially Mentioned," "Substandard," "Doubtful,"
"Loss," or words of similar import are excluded from the amounts disclosed in
the Asset Classification, other than amounts of loans, extension of credit or
other assets that were charged off by ComSouth and its Subsidiaries prior to
December 31, 1997.
(T) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the consolidated balance sheet in the December 31,
1997, Financial Reports was, and the allowance for possible loan losses to be
shown on subsequent Financial Reports will be, adequate in the opinion of the
Board of Directors of ComSouth to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of the dates noted.
(U) INSURANCE. ComSouth has taken all requisite action
(including the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies in order to
preserve all rights under the policy or policies. Set forth in Schedule 5.1(U)
is a list of all insurance policies maintained by or for the benefit of ComSouth
and its Subsidiaries and their directors, officers, employees or agents.
(V) AFFILIATES. Except as disclosed in Schedule 5.1(V), there
is no person who, as of the date of this Agreement, may be deemed to be an
"affiliate" of ComSouth as that term is used in Rule 145 under the Securities
Act.
(W) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. ComSouth has taken
all necessary action to exempt this Agreement, and the transactions contemplated
by this Agreement from, and this Agreement and such transactions are exempt from
(1) any applicable takeover laws, and (2) any takeover-related provisions of
Comsouth's Articles of Incorporation.
(X) NO FURTHER ACTION. ComSouth has taken all action so that
entering into this Agreement and the consummation of the transactions
contemplated by this Agreement (including the Merger) or any other action or
combination of actions, or any other transactions, contemplated by this
Agreement do not and will not (1) require a vote of shareholders (other than as
set forth in Section 7.1(A)), or (2) result in the grant of any rights to any
Person under the Articles of Incorporation or Bylaws of ComSouth under any
agreement to which Comsouth is a party, or (3) restrict or impair in any way the
ability of Anchor to exercise the rights granted under this Agreement.
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(Y) ENVIRONMENTAL MATTERS.
(1) To ComSouth and its Subsidiaries' knowledge, the
Participation Facilities and the Loan/Fiduciary Properties are, and have been,
in compliance with all Environmental Laws.
(2) There is no proceeding pending or, to ComSouth
and its Subsidiaries' knowledge, threatened before any court, governmental
agency or board or other forum in which ComSouth or either of its Subsidiaries
or any Participation Facility has been, or with respect to threatened
proceedings, reasonably would be expected to be, named as a defendant or
potentially responsible party (a) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (b) relating to the release or
threatened release into the environment of any Hazardous Material, whether or
not occurring at or on a site owned, leased or operated by ComSouth or either of
its Subsidiaries or any Participation Facility.
(3) There is no proceeding pending or, to ComSouth or
its Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which any Loan/Fiduciary Property (or ComSouth or its
Subsidiaries in respect of any Loan/Fiduciary Property) has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a Loan/Fiduciary Property.
(4) To Comsouth or its Subsidiaries' knowledge, there
is no reasonable basis for any proceeding of a type described in subparagraph
(2) or (3) of this paragraph (Y).
(5) To ComSouth or its Subsidiaries' knowledge,
during the period of (a) ownership or operation by ComSouth or either of its
Subsidiaries of any of its current properties, (b) participation in the
management of any Participation Facility by ComSouth or either of its
Subsidiaries, or (c) holding of a security or other interest in a Loan/Fiduciary
Property by ComSouth or either of its Subsidiaries, there have been no releases
of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Fiduciary Property.
(6) To ComSouth or its Subsidiaries' knowledge, prior
to the period of (a) ownership or operation by ComSouth or either of its
Subsidiaries of any of its current properties, (b) participation in the
management of any Participation Facility by ComSouth or either of its
Subsidiaries or (c) holding of a security or other interest in a Loan/Fiduciary
Property by ComSouth or either of its Subsidiaries, there was no release of
Hazardous Material in, on, under or affecting any such property, Participation
Facility or Loan) Fiduciary Property.
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(Z) TAX REPORTS. (1) All reports and returns with respect to
Taxes that are required to be filed by or with respect to ComSouth, including
consolidated federal income tax returns of ComSouth, (collectively, the "Tax
Returns"), have been duly filed, or requests for extensions have been timely
filed and have not expired, for periods ended on or prior to the most recent
fiscal year-end, and such Tax Returns were true, complete and accurate, (2) all
Taxes shown to be due on the Tax Returns have been paid in full, (3) the Tax
Returns have been examined by the Internal Revenue Service or the appropriate
state, local or foreign taxing authority, or the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired, (4) all Taxes due with respect to completed and settled examinations
have been paid in full, (5) no issues have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns except as
reserved against in the Financial Reports, and (6) no waivers of statutes of
limitations (excluding such statutes that relate to years under examination by
the Internal Revenue Service) have been given by or requested with respect to
any Taxes of ComSouth.
(AA) ACCURACY OF INFORMATION. The statements with respect to
ComSouth and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of ComSouth and
its Subsidiaries or any other Party pursuant to the terms of or relating to this
Agreement are true and correct, and such statements and documents do not omit
any fact necessary to make the statements, in light of the circumstances under
which they were made, not misleading.
(BB) DERIVATIVES CONTRACTS. ComSouth is not a party to nor has
it agreed to enter into a Derivatives Contract or to own securities that are
referred to as "structured notes," except as set forth on Schedule 5.1(BB).
(CC) ACCOUNTING CONTROLS. ComSouth has devised and maintained
systems of internal accounting controls sufficient to provide reasonable
assurances that (1) all transactions are executed in accordance with
management's general or specific authorization, (2) all transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP, and to maintain proper accountability for items, (3)
access to the material property and assets of ComSouth is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(DD) COMMITMENTS AND CONTRACTS. ComSouth or either of its
Subsidiaries is not a party or subject to any of the following (whether written
or oral, express or implied):
(1) except disclosed in Schedule 5.1(DD)(1), any
employment contract or understanding (including any understandings or
obligations with
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respect to severance or termination pay liabilities or fringe benefits) with any
present or former officer, director or employee (other than those which are
terminable at will by ComSouth or its Subsidiaries without any obligation on the
part of ComSouth or its Subsidiaries to make any payment in connection with such
termination);
(2) except as disclosed in Schedule 5.1(DD)(2), any
real or personal property lease with annual rental payments aggregating $5,000
or more; or
(3) any material contract with any affiliate.
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES. Anchor hereby represents
and warrants to ComSouth as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to Anchor are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Anchor is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. Anchor and its Subsidiaries have in effect all federal
state, local and foreign governmental authorizations necessary for them to own
or lease their properties and assets and to carry on their businesses as they
are now conducted.
(C) SHARES. The outstanding shares of Anchor's capital stock
are, and the shares to be issued in exchange for ComSouth Common Stock when
issued will be, validly issued and outstanding, fully paid and nonassessable and
subject to no preemptive rights.
(D) CORPORATE POWER. Anchor has the corporate power and
authority to carry on its business as it is now being conducted or will be
conduced and to own all its material properties and assets.
(E) CORPORATE AUTHORITY. Subject to the approval by its
shareholders referred to in Section 7.1(A), this Agreement has been authorized
by all necessary corporate action of Anchor and is a valid and binding agreement
of Anchor, enforceable against Anchor in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles.
(F) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), subject to receipt of the required regulatory
approvals referred to in Section 7.1(B), and the required filings under federal
and state securities laws, the execution, delivery and performance of this
Agreement and the consummation by Anchor and each of its Subsidiaries of the
transactions contemplated by this Agreement does not and will not (1) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Anchor or any of its Subsidiaries or to which Anchor or any of
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its Subsidiaries or its properties is subject or bound, (2) constitute a breach
or violation of, or a default under its articles of incorporation or bylaws of
Anchor or any of its Subsidiaries, or (3) require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(G) FINANCIAL REPORTS. The Annual Report of Anchor on Form
10-K for the fiscal year ended December 31, 1997, and all other documents filed
or to be filed subsequent to December 31, 1997 under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed with the SEC (in each such case,
the "Anchor Financial Reports") did not and will not contain any untrue
statement of fact or omit to state a fact required to be stated or necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading; and each of the consolidated balance sheets in or
incorporated by reference into the Anchor Financial Reports (including the
related notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date,
and each of the consolidated statements of income and changes in shareholders'
equity and cash flows or equivalent statements in the Anchor Financial Reports
(including any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in shareholders' equity and
changes in cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth herein, in each case in accordance with GAAP,
except as may be noted therein.
(H) NO EVENTS. Since December 31, 1997, no event has occurred
which is reasonably likely to have a Material Adverse Effect on Anchor.
(I) LITIGATION; REGULATORY ACTION. No litigation, proceeding
or controversy before any court or governmental agency is pending that alleges
claims under any fair lending law or other law relating to discrimination,
including the Equal Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act and the Home Mortgage Disclosure Act, and no such litigation,
proceeding or controversy has been threatened; and neither Anchor nor any of its
Subsidiaries or any of its or their material properties or their officers,
directors or controlling persons is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Regulatory Authority, and
neither Anchor nor any of its Subsidiaries has been advised by any of such
Regulatory Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission.
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(J) REPORTS. Since December 31, 1993, Anchor and its
Subsidiaries have filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (1)
the FDIC, (2) the Federal Reserve Board, and (3) any other Regulatory
Authorities having jurisdiction with respect to Anchor and its Subsidiaries. As
of their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to reports and
documents filed before the date of this Agreement), each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of fact or omit to state any
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to
Anchor and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of Anchor or any
other Party pursuant to the terms of this Agreement are true and correct, and
such statements and documents do not omit any material fact necessary to make
the statements, in light of the circumstances under which they were made, not
misleading.
(L) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Anchor nor any
of its Subsidiaries has any obligation or liability (contingent or otherwise)
except (1) as reflected the Anchor Financial Reports prior to the date of this
Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997. Since December 31, 1997, neither Anchor nor any of its
Subsidiaries has incurred or paid any obligation or liability that, individually
or in the aggregate, is unreasonably likely to have Material Adverse Effect on
Anchor.
(M) NO KNOWLEDGE. Anchor knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained.
(N) YEAR 2000 COMPLIANCE. Anchor has taken and is taking
appropriate steps to assure, and believes, that computer software operated by
Anchor and its Subsidiaries and their vendors will be able to properly process
transactions and function after December 31, 1999.
5.3 EXCEPTIONS TO REPRESENTATIONS.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a
Schedule is disclosed only for purposes of the representations referred in that
exception, but the following conditions apply:
(1) no exception is required to be set forth in a
Schedule if its absence would not result in the related representation being
found untrue or incorrect under the standard established by Section 5.3(B); and
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(2) the mere inclusion of an exception in a Schedule
is not an admission by a party that the exception represents a material fact,
material set of facts, or material event or would result in a Material Adverse
Effect with respect to that party.
(B) NATURE OF EXCEPTIONS. No representation contained in this
Article V will be found untrue or incorrect and no party to this Agreement will
have breached a representation due to the following: the existence of any fact,
set of facts, or event if the fact or event individually or taken together with
other facts or events would not, or, in the case of Article V is not reasonably
likely to, have a Material Adverse Effect with respect to such party.
ARTICLE VI. COVENANTS
ComSouth hereby covenants to Anchor, and Anchor hereby covenants to
ComSouth, that:
6.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement
and to the exercise by its Board of Directors of such Board's fiduciary duties,
it will use its best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as soon as practicable and to otherwise enable consummation of the
transactions contemplated by this Agreement and will cooperate fully with the
other Parties to that end.
6.2 THE PROXY. ComSouth will promptly assist Anchor in the preparation
of a joint proxy statement (the "Joint Proxy Statement") to be mailed to the
holders of ComSouth Common Stock in connection with the transactions
contemplated by this Agreement and to be filed by Anchor in a registration
statement (the "Registration Statement") with the SEC as provided in Section
6.8, which will conform to all applicable legal requirements. ComSouth and
Anchor will call meetings (the "Meetings") of the holders of ComSouth Common
Stock and the holders of Anchor Common Stock to be held as soon as practicable
for purposes of voting upon the transactions contemplated by this Agreement, and
ComSouth and Anchor will use their respective best efforts to solicit and obtain
votes of the holders of ComSouth Common Stock and the holders of Anchor Common
Stock in favor of the transactions contemplated by this Agreement and, subject
to the exercise of their respective fiduciary duties, the Boards of Directors of
ComSouth and Anchor will recommend approval of such transactions by such
holders.
6.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement to the
Registration Statement becomes effective, and at all times subsequent to such
effectiveness, up to and including the dates of the Meetings, such Registration
Statement, and all amendments or supplements thereto, with respect to all
information set forth therein furnished or to be furnished by or on behalf of
ComSouth relating to ComSouth and by or on behalf of Anchor relating to Anchor,
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(A) will comply in all material respects with the provisions of the Securities
Act and any other applicable statutory or regulatory requirements, and (B) will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading. But, no Party will be liable for any untrue statement
of a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another Party furnished by or on behalf of such other Party
specifically for use in the Registration Statement.
6.4 REGISTRATION STATEMENT EFFECTIVENESS. Anchor will advise ComSouth,
promptly after Anchor receives any notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
Anchor Common Stock for offering or sale in any jurisdiction, of the initiation
or threat of any proceeding for any such purpose, or of any request by the SEC
for the amendment or supplement of the Registration Statement or for additional
information.
6.5 PRESS RELEASES. ComSouth will not, without the prior approval of
Anchor, and Anchor will not, without the prior approval of ComSouth, issue any
press release or written statement for general circulation relating to the
transactions contemplated by this Agreement, except as otherwise required by
law.
6.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, each party will afford the other
party and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of its properties, books, contracts, commitments
and records and, during the period up to the Effective Date, ComSouth will
promptly furnish (and cause its accountants and other agents to promptly
furnish) to Anchor (1) a copy of each material report, schedule and other
document filed by ComSouth with any Regulatory Authority, (2) such
representations and certifications as are necessary for purposes of the pooling
letter described in Section 7.2(F), and (3) all other information concerning the
business, properties and personnel of ComSouth as Anchor may reasonably request,
provided that no investigation pursuant to this Section 6.6 will affect or be
deemed to modify or waive any representation or warranty made by ComSouth in
this Agreement or the conditions to the obligations of ComSouth to consummate
the transactions contemplated by this Agreement; and
(B) Anchor will not use any information obtained pursuant to
this Section 6.6 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement and, if this Agreement is
terminated, will hold all confidential information and documents obtained
pursuant to this paragraph in confidence (as provided in Section 9.6) unless and
until such time as such
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information or documents become publicly available other than by reason of any
action or failure to act by Anchor or as it is advised by counsel that any such
information or document is required by law or applicable stock exchange rule to
be disclosed, and in the event of the termination of this Agreement, Anchor
will, upon request by ComSouth, deliver to ComSouth all documents so obtained by
Anchor or destroy such documents and, in the case of destruction, will certify
such fact to ComSouth.
6.7 ACQUISITION PROPOSALS.
(A) ComSouth will not solicit, initiate or encourage inquiries
or proposals with respect to, or, except as required by the fiduciary duties of
the Board of Directors of ComSouth (as advised in writing by its outside
counsel), furnish any nonpublic information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
substantial portion of the assets of, or a substantial equity interest in,
ComSouth or any merger or other business combination with ComSouth other than as
contemplated by this Agreement ("Acquisition Proposal"); it will instruct its
officers, directors, agents, advisors and affiliates to refrain from doing any
of the foregoing; and it will notify Anchor immediately if any such inquiries or
proposals are received by, or any such negotiations or discussions are sought to
be initiated with, ComSouth.
(B) ComSouth will immediately cease and cause to be terminated
any activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Anchor with respect to any Acquisition
Proposal.
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. Anchor will, as promptly as practicable following the date of this
Agreement, prepare and file the Registration Statement with the SEC with respect
to the shares of Anchor Common Stock to be issued to the holders of ComSouth
Common Stock pursuant to this Agreement, and Anchor will use its best efforts to
cause the Registration Statement to be declared effective as soon as practicable
after the filing of the Registration Statement. Anchor will, as promptly as
practicable following the date of this Agreement, prepare and file all necessary
notices or applications with Regulatory Authorities having jurisdiction with
respect to the transactions contemplated by this Agreement.
6.9 APPOINTMENT OF DIRECTORS. Immediately after the Effective Date,
Anchor will cause the appointment of four directors from the current directors
of ComSouth or its Subsidiaries to the Board of Directors of Anchor to hold
office until such time as his or her successor is elected and qualified.
6.10 EMPLOYMENT AGREEMENTS. Employment agreements, in form
substantially similar to that attached as Exhibit C, will have been duly
executed and delivered by Anchor and the parties to such employment agreements,
including J. Michael Kapp, Arthur P. Swanson, John P. Barnwell, and Carmel
Dodds, provided such
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persons have not terminated their employment with ComSouth or its Subsidiaries
at or prior to the Effective Date.
6.11 BLUE-SKY FILINGS. Anchor will use its best efforts to obtain,
prior to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that Anchor will
not be required as a result to submit to general jurisdiction in any state.
6.12 AFFILIATE AGREEMENTS. Comsouth will use its best efforts to induce
each person who may be deemed to be an "affiliate" of ComSouth for purposes of
Rule 145 under the Securities Act to execute and deliver to Anchor on or before
the mailing of the Joint Proxy Statement for the ComSouth Meeting an agreement
in the form attached hereto as Exhibit A restricting the disposition of such
affiliate's shares of ComSouth Common Stock and the shares of Anchor Common
Stock to be received by such person in exchange for such person's shares of
ComSouth Common Stock. In the case of Anchor, Anchor agrees to use its best
efforts to maintain the availability of Rule 145 for use by such "affiliates".
6.13 TAKEOVER LAW. ComSouth will not take any action that would cause
the transactions contemplated by this Agreement to be subject to any applicable
takeover statute, and ComSouth will take all necessary steps to exempt (or
ensure the continued exemption of) the transactions contemplated by this
Agreement from, or, if necessary, challenge the validity or applicability of,
any applicable takeover law.
6.14 NO RIGHTS TRIGGERED. ComSouth will take all necessary steps to
ensure that entering into this Agreement and the consummation of the
transactions contemplated by this Agreement and any other action or combination
of actions, or any other transactions contemplated by this Agreement, do not and
will not (A) result in the grant of any rights to any Person under the Articles
of Incorporation or Bylaws of ComSouth or under any agreement to which ComSouth
is a party, or (B) restrict or impair in any way the ability of Anchor to
exercise the rights granted to Anchor under this Agreement or the Stock Option
Agreement.
6.15 SHARES LISTED. Anchor will use its best efforts to cause to be
listed, prior to the Effective Date, on The Nasdaq Stock Market, upon official
notice of issuance, the shares of Anchor Common Stock to be issued to the
holders of ComSouth Common Stock.
6.16 CURRENT INFORMATION.
(A) During the period from the date of this Agreement to the
Effective Date, both ComSouth and Anchor will, and will cause its
representatives to, confer on a regular and frequent basis with representatives
of the other.
(B) Both ComSouth and Anchor will promptly notify the other of
(1) any material change in the business or operations of it or its Subsidiaries,
(2) any material complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any Regulatory Authority
relating to it or its Subsidiaries, (3) the initiation or threat of material
litigation involving
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or relating to it or its Subsidiaries, or (4) any event or condition that might
reasonably be expected to cause any of its representations or warranties set
forth in this Agreement not to be true and correct in all material respects as
of the Effective Date or prevent it or its Subsidiaries from fulfilling its or
their obligations under this Agreement.
6.17 SEVERANCE. On the Effective Date, Anchor will adopt a severance
plan for employees of ComSouth and its Subsidiaries with terms as set forth in
Schedule 6.17.
6.18 INDEMNIFICATION.
(A) Anchor shall indemnify each officer, director and former
director of ComSouth or its Subsidiaries named as a defendant in the lawsuit
styled Roof v. Swanson et al which is pending in the Court of Common Pleas for
Richland County, South Carolina, including the advancing of the expenses of
defending the case.
(B) Anchor agrees to purchase and keep in force for not less
than three years directors' and officers' liability insurance to the extent
available providing coverage for actions and omissions by officers and directors
of ComSouth and its Subsidiaries for claims made during the period commencing
with and after the Effective Date.
(C) Following the Effective Date, each director and officer of
ComSouth or any of its Subsidiaries shall be indemnified to the fullest extent
permitted by South Carolina law by Anchor against all liabilities and the
expense of defending claims of liability connected with or arising out of such
director's or officer's service as such.
ARTICLE VII. CONDITIONS TO
CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each Party to consummate the transactions contemplated by this Agreement are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
(A) SHAREHOLDER VOTES. This Agreement will have been duly
approved by the requisite vote of ComSouth's shareholders and of Anchor's
shareholders under applicable law and the Articles of Incorporation and Bylaws
of, respectively, ComSouth and Anchor.
(B) REGULATORY APPROVALS. The Parties will have procured all
necessary regulatory consents and approvals by the appropriate Regulatory
Authorities, any waiting periods relating to such consents and approvals will
have expired, and no such approval or consent will have imposed any condition or
requirement that, in the opinion of Anchor, would deprive Anchor of the material
economic or business benefits of the transactions contemplated by this
Agreement.
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(C) NO INJUNCTION. There will not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of any of the transactions contemplated by
this Agreement.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement will have become effective and no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or threatened by the SEC
or any other Regulatory Authority.
(E) BLUE SKY PERMITS. Anchor will have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
(F) TAX OPINION. Anchor and ComSouth will have received an
opinion from Gerrish & McCreary, P.C. to the effect that (1) the Merger
constitutes a tax-free merger under Section 368(a)(1)(A) of the Code, and (2) no
gain or loss will be recognized by shareholders of ComSouth who receive shares
of Anchor Common Stock in exchange for their shares of the ComSouth Common
Stock, except that gain or loss may be recognized as to cash received in lieu of
fractional share interests and, in rendering their opinion, Gerrish & McCreary,
P.C. may require and rely upon representations contained in certificates of
officers of Anchor, ComSouth and others.
(G) NASDAQ LISTING. The shares of Anchor Common Stock to be
issued pursuant to this Agreement will have been approved for listing on The
Nasdaq Stock Market subject only to official notice of issuance.
(H) FAIRNESS OPINION. Anchor will have received, immediately
prior to the mailing of the Joint Proxy Statement to Anchor's shareholders, an
opinion of Sandler O'Neill to the effect that the financial terms of the Merger
are fair from a financial point of view to Anchor's shareholders.
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR. The obligations of Anchor to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by Anchor or the fulfillment on or prior to the Effective
Date of each of the following conditions:
(A) LEGAL OPINION. Anchor will have received an opinion, dated
the Effective Date, of Sinkler & Boyd, P.A., counsel for ComSouth, incorporating
the opinions set forth in Exhibit B.
(B) OFFICERS' CERTIFICATE. (1) Each of the representations and
warranties contained in this Agreement of ComSouth will be true and correct as
of the date of this Agreement and upon the Effective Date with the same effect
as though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) the chief executive officers, chief financial officers, and chief
lending officers of ComSouth and its Subsidiaries will sign a certificate, dated
the
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Effective Date, certifying that each and all of the agreements and covenants of
ComSouth to be performed and complied with pursuant to this Agreement on or
prior to the Effective Date have been duly performed and complied with in all
material respects.
(C) RECEIPT OF AFFILIATE AGREEMENTS. Anchor will have received
from each affiliate of ComSouth the agreement referred to in Section 6.11.
(D) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any material adverse change in
the financial position or results of operations of ComSouth, nor will ComSouth
have sustained any loss or damage to its properties, whether or not insured,
that materially affects its ability to conduct its business; and Anchor will
have received a certificate dated the Effective Date signed by the Chief
Executive Officer of ComSouth to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of ComSouth
Common Stock for which cash is to be paid because dissenters' rights of
appraisal under the Appraisal Laws will have been effectively preserved as of
the Effective Date or because of the payment of cash in lieu of fractional
shares of Anchor Common Stock, will not exceed in the aggregate 6% of the
outstanding shares of ComSouth Common Stock.
(F) POOLING LETTER. Anchor will have received a letter dated
as of the Effective Date, in form and substance acceptable to Anchor, from Price
Waterhouse LLP to the effect that the Merger will qualify for pooling-of-
interests accounting treatment.
(G) CAPITAL. ComSouth's capital will not be less than
$16,500,000 on the Effective Date.
(H) ALLOWANCE FOR LOAN AND LEASE LOSSES. ComSouth's allowance
for possible loan and lease losses will not be less than 1.2% of ComSouth's
total outstanding loans and leases and will be adequate to absorb ComSouth's
anticipated loan and lease losses.
7.3 CONDITIONS TO OBLIGATIONS OF COMSOUTH. The obligations of ComSouth
to consummate the transactions contemplated by this Agreement also are subject
to the written waiver by ComSouth or the fulfillment on or prior to the
Effective Date of each of the following conditions:
(A) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of Anchor contained in this Agreement will be true and correct as of
the date of this Agreement and upon the Effective Date, with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) each and all of the agreements and covenants of Anchor to be
performed and complied with pursuant to this Agreement on or prior to the
Effective Date will have been duly performed and complied with in all material
respects, and ComSouth
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will have received a certificate dated the Effective Date signed by an executive
officer of Anchor to such effect.
(B) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any material adverse change in
the financial position or results of operations of Anchor, nor will Anchor have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and ComSouth will have
received a certificate dated the Effective Date signed by an executive officer
of Anchor to such effect.
(C) FAIRNESS OPINION. ComSouth will have received, immediately
prior to the mailing of the Joint Proxy Statement to ComSouth's shareholders, an
opinion of a qualified firm to the effect that the financial terms of the Merger
are fair from a financial point of view to ComSouth's shareholders.
(D) LEGAL OPINION. ComSouth will have received an opinion,
dated the Effective Date, of Gerrish & McCreary, P.C., counsel for Anchor,
incorporating the opinions set forth in Exhibit D.
ARTICLE VIII. TERMINATION
8.1 EVENTS OF TERMINATION. This Agreement may be terminated prior to
the Effective Date, either before or after receipt of required shareholder
approvals:
(A) MUTUAL CONSENT. By the mutual consent of Anchor and
ComSouth, if the Board of Directors of each so determines by vote of a majority
of the members of its entire board.
(B) BREACH. By Anchor or ComSouth, if its Board of Directors
so determines by vote of a majority of the members of its entire Board, in the
event of (A) a material breach by any other Party of any representation or
warranty in this Agreement, which breach cannot be or has not been cured within
30 days after written notice of the breach has been given to the breaching
Party, or (B) a material breach by any other Party of any of the covenants or
agreements in this Agreement, which breach cannot be or has not been cured
within 30 days after written notice of the breach has been given to the
breaching Party.
(C) DELAY. By Anchor or ComSouth, if its Board of Directors so
determines by vote of a majority of the members of the entire Board, in the
event that the Merger is not consummated by December 31, 1998; provided,
however, that no Party that is in material breach of any of the provisions of
this Agreement will be entitled to terminate this Agreement pursuant to this
Section 8.1(C).
(D) NO SHAREHOLDER APPROVAL. By Anchor or ComSouth, if its
Board of Directors so determines by a vote of a majority of the members of its
entire Board, if the shareholder approval contemplated by Section 7.1(A) is not
obtained at the Meetings or any adjournment(s) of the Meetings.
(E) MARKET PRICE. By the Board of Directors of ComSouth, if it
determines by a vote of a majority of the members of its entire Board, at any
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time during the ten-day period commencing two days after the Determination Date,
if both of the following conditions are satisfied:
(1) the Average Closing Price shall be twenty percent
(20%) less than the Starting Price; and
(2) (i) the quotient of the Average Closing Price
divided by the Starting Price (such quotient being the "Anchor Ratio")
shall be less than (ii) the quotient of the Average Index Price divided
by the Index Price on the Starting Date less 0.10 of such quotient
(which quotient less 0.10 shall be the "Index Ratio");
subject, however, to the following: If ComSouth refuses to consummate the Merger
pursuant to this Section 8.1(E), it shall give prompt written notice thereof to
Anchor; provided, that such notice of election to terminate may be withdrawn at
any time within the aforementioned ten-day period. During the five-day period
commencing with its receipt of such notice, Anchor shall have the option to
elect to increase the Exchange Ratio to equal the lesser of (i) the quotient
obtained by dividing (1) the product of 0.80, the Starting Price and the
Exchange Ratio (as then in effect) by (2) the Average Closing Price, and (ii)
the quotient obtained by dividing (1) the product of the Index Ratio and the
Exchange Ratio (as then in effect) by (2) the Anchor Ratio. If Anchor makes an
election contemplated by the preceding sentence, within such five-day period, it
shall give prompt written notice to ComSouth of such election pursuant to this
Section 8.1(E) and this Agreement shall remain in effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified), and any
references in this Agreement to "Exchange Ratio" shall thereafter be deemed to
refer to the Exchange Ratio as adjusted pursuant to this Section 8.1(E).
For purposes of this Section 8.1(E), the following terms shall
have the meanings indicated:
"Average Closing Price" shall mean the average of the
daily last sales prices of Anchor Common Stock as reported on The
Nasdaq Stock Market (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by Anchor) for
the 20 consecutive full trading days in which such shares are traded
ending at the closing of trading on the Determination Date.
"Average Index Price" shall mean the average of the
daily current market price of the Index for the 20 consecutive full
trading days ending at the closing of trading on the Determination
Date.
"Determination Date" shall mean the date on which the
last consent of the Board of Governors of the Federal Reserve System
shall be received.
"Index" shall mean the NASDAQ Bank Index which is a
broad- based capitalization-weighted index of domestic and foreign
common stock of banks that are traded on the Nasdaq National Market
System as well as
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the SmallCap Market. The Index was developed with a base level of 100
as of February 5, 1971.
"Index Price" on a given date shall mean the current
market price of the Index for that day.
"Starting Date" shall mean April 14, 1998.
"Starting Price" shall mean $41.00 per share.
If Anchor declares or effects a stock dividend,
reclassification, recapitalization, split up, combination, exchange of shares,
similar transaction between the date of this Agreement and the Determination
Date, the prices for the common stock of Anchor shall be appropriately adjusted
for the purposes of applying this Section 8.1(E).
8.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 6.6, in the event
of the termination or abandonment of this Agreement pursuant to the provisions
of this Section 8.1, this Agreement will become void and have no force or
effect, without any liability on the part of the Parties or any of their
respective directors or officers or shareholders with respect to this Agreement.
(B) OTHER CONSEQUENCES. Notwithstanding anything in this
Agreement to the contrary, no termination of this Agreement will relieve any
Party of any liability for any breach of this Agreement or for any
misrepresentation under this Agreement or be deemed to constitute a waiver of
any remedy available for such breach or misrepresentation. In any action or
proceeding in connection with such breach or misrepresentation, the prevailing
Party will be entitled to reasonable attorneys' fees and expenses.
(C) TERMINATION FEE. If this Agreement is terminated:
(1)(i) by Anchor, if at any time prior to the
ComSouth Meeting, the Board of Directors of ComSouth shall have failed to
recommend the Merger to the holders of ComSouth Common Stock, withdrawn such
recommendation or modified or changed such recommendation in a manner adverse in
any respect to the interests of Anchor, or (ii) by the action of the Board of
Directors of ComSouth if a tender offer or exchange offer for 25% or more of the
outstanding shares of ComSouth Common Stock is commenced (other than by Anchor)
and the Board of ComSouth recommends that the stockholders of ComSouth tender
their shares in such tender or exchange offer or otherwise fails to recommend
that such stockholders reject such tender offer or exchange offer within ten
business days after the commencement thereof (which, in the case of an exchange
offer, shall be the effective date of the registration statement relating to
such exchange offer);
(2) by ComSouth or Anchor because of a failure to
obtain the required approval of the stockholders of ComSouth after an
Acquisition Proposal for ComSouth shall have been publicly disclosed, or any
Person shall have publicly disclosed an intention (whether or not conditional)
to make an Acquisition Proposal; or
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(3) by Anchor pursuant to Section 8.1(B) if the
breach by ComSouth giving rise to such termination was willful and, at or prior
to such termination, an Acquisition Proposal shall have been made known to
ComSouth or any of its Subsidiaries or shall have been publicly disclosed to
ComSouth's stockholders or any Person shall have made known to ComSouth or any
of its Subsidiaries or otherwise publicly disclosed an intention (whether or not
conditional) to make an Acquisition Proposal and regardless of whether such
Acquisition Proposal shall have been rejected by ComSouth or withdrawn prior to
the time of such termination, then, in such case, ComSouth shall pay to Anchor a
termination fee of $2.5 million (the "Termination Fee").
Any Termination Fee that becomes payable pursuant to
this Section shall be paid promptly following the receipt of a written request
for Termination Fee to ComSouth from Anchor. Notwithstanding the foregoing, in
no event shall ComSouth be obligated to pay any Termination Fee if ComSouth
shall be entitled to terminate this Agreement pursuant to Section 8.1(B) due to
a breach by Anchor.
ARTICLE IX. OTHER MATTERS
9.1 SURVIVAL. Only those agreements and covenants in this Agreement
that, by their express terms apply in whole or in part after the Effective Date,
will survive the Effective Date. All other representations, warranties, and
covenants will be deemed only to be conditions of the Merger and will not
survive the Effective Date. If the Merger is abandoned and this Agreement is
terminated, the provisions of Article VIII will apply and the agreements of the
Parties in Section 6.6 will survive such abandonment and termination.
9.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Agreement may be (A) waived in writing by the Party benefitted by the
provision, or (B) amended or modified at any time (including the structure of
the transactions contemplated by this Agreement) by an agreement in writing
among the Parties approved by their respective Boards of Directors and executed
in the same manner as this Agreement, except that, after the votes by the
shareholders of Anchor and ComSouth, the consideration to be received by the
shareholders of ComSouth for each share of ComSouth Common Stock will not
thereby be altered. Nothing contained in this Section 9.2 is intended to modify
Anchor's rights pursuant to Section 6.7.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed to constitute an original.
This Agreement will become effective when one counterpart has been signed by
each Party.
9.4 GOVERNING LAW. This Agreement will be governed by, and interpreted
in accordance with, the laws of the State of South Carolina, except as federal
law may be applicable.
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9.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated by this
Agreement.
9.6 CONFIDENTIALITY. Except as otherwise provided in Section 6.6(B),
each of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
9.7 NOTICES. All notices, requests and other communications hereunder
to a "Party" will be in writing and will be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopier or telex (confirmed in writing) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
Parties.
Anchor: Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29578
Attn: Stephen L. Chryst
with a copy to: Gerrish & McCreary, P.C.
700 Colonial Road - Suite 200
Memphis, TN 38117
Attn: Ann W. Langston, Esq.
ComSouth: ComSouth Bancshares, Inc.
1136 Washington Street
Suite 200
Columbia, SC 29201
Attn: Arthur M. Swanson
with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Twelfth Floor
Columbia, SC 29201
Attn: George S. King, Jr., Esq.
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the Parties with reference to
transactions contemplated by this Agreement and supersedes any and all other
oral or written agreements previously made. Nothing in this Agreement, expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
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9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
ANCHOR FINANCIAL CORPORATION
By: /s/ Stephen L. Chryst
Stephen L. Chryst
Its President and
Chief Executive Officer
COMSOUTH BANKSHARES, INC.
By: /s/ Arthur M. Swanson
Arthur M. Swanson
Its President
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APPENDIX B
AGREEMENT AND PLAN OF MERGER
BETWEEN
ANCHOR FINANCIAL CORPORATION
AND
M&M FINANCIAL CORPORATION
DATED MAY 15, 1998
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Page
PREAMBLE..........................................................................................................1
RECITALS..........................................................................................................1
DEFINITIONS.......................................................................................................1
ARTICLE I. MERGER................................................................................................5
1.1 THE MERGER......................................................................................5
1.2 EFFECTIVE DATE..................................................................................5
ARTICLE II. MERGER CONSIDERATION.................................................................................5
2.1 CONSIDERATION...................................................................................5
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.............................................................6
2.3 FRACTIONAL SHARES...............................................................................6
2.4 EXCHANGE PROCEDURES.............................................................................6
2.5 DISSENTING SHARES...............................................................................6
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION......................................................7
2.7 OPTIONS.........................................................................................7
2.8 ANTI-DILUTION ADJUSTMENTS.......................................................................7
ARTICLE III. M&M ACTIONS PENDING CONSUMMATION....................................................................8
3.1 CAPITAL STOCK...................................................................................8
3.2 DISTRIBUTIONS...................................................................................8
3.3 LIABILITIES.....................................................................................8
3.4 OPERATIONS......................................................................................8
3.5 LIENS AND ENCUMBRANCES..........................................................................8
3.6 EMPLOYMENT ARRANGEMENTS.........................................................................8
3.7 BENEFIT PLANS...................................................................................9
3.8 CONTINUANCE OF BUSINESS.........................................................................9
3.9 AMENDMENTS......................................................................................9
3.10 CLAIMS..........................................................................................9
3.11 CONTRACTS.......................................................................................9
3.12 LOANS...........................................................................................9
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION..................................................................9
ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................................................................10
5.1 M&M'S REPRESENTATIONS AND WARRANTIES...........................................................10
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES........................................................18
5.3 EXCEPTIONS TO REPRESENTATIONS..................................................................21
ARTICLE VI. COVENANTS...........................................................................................21
6.1 BEST EFFORTS...................................................................................21
6.2 THE PROXY......................................................................................22
6.3 REGISTRATION STATEMENT - COMPLIANCE
WITH SECURITIES LAWS...........................................................................22
6.4 REGISTRATION STATEMENT EFFECTIVENESS...........................................................22
6.5 PRESS RELEASES.................................................................................23
6.6 ACCESS; INFORMATION............................................................................23
6.7 ACQUISITION PROPOSALS..........................................................................23
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.......................................................................24
6.9 APPOINTMENT OF DIRECTORS.......................................................................24
6.10 EMPLOYMENT AGREEMENTS..........................................................................24
6.11 BLUE-SKY FILINGS...............................................................................24
6.12 AFFILIATE AGREEMENTS...........................................................................24
6.13 TAKEOVER LAW...................................................................................24
6.14 NO RIGHTS TRIGGERED............................................................................25
6.15 SHARES LISTED..................................................................................25
6.16 CURRENT INFORMATION............................................................................25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.17 SEVERANCE......................................................................................25
6.18 INDEMNIFICATION................................................................................25
ARTICLE VII. CONDITIONS TO CONSUMMATION
OF THE MERGER..................................................................................................26
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................................................26
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR............................................................27
7.3 CONDITIONS TO OBLIGATIONS OF M&M...............................................................27
ARTICLE VIII. TERMINATION.......................................................................................28
8.1 EVENTS OF TERMINATION..........................................................................28
8.2 CONSEQUENCES OF TERMINATION....................................................................30
ARTICLE IX. OTHER MATTERS.......................................................................................31
9.1 SURVIVAL.......................................................................................31
9.2 WAIVER; AMENDMENT..............................................................................32
9.3 COUNTERPARTS...................................................................................32
9.4 GOVERNING LAW..................................................................................32
9.5 EXPENSES.......................................................................................32
9.6 CONFIDENTIALITY................................................................................32
9.7 NOTICES........................................................................................32
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES..................................................................................33
9.9 HEADINGS.......................................................................................33
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 15, 1998 (the
"Agreement"), is made and entered into by and between ANCHOR FINANCIAL
CORPORATION ("Anchor"), a South Carolina corporation, and M&M FINANCIAL
CORPORATION ("M&M"), a South Carolina corporation.
PREAMBLE
The management and Boards of Directors of Anchor and M&M believe,
respectively, that the business combination transaction provided for herein, in
which M&M will, subject to the terms and conditions set forth herein, merge with
and into Anchor so that Anchor is the surviving corporation in the Merger, is in
the best interests of Anchor and M&M's shareholders.
RECITALS
A. ANCHOR. Anchor is a corporation duly organized and validly existing
under South Carolina law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal offices located at
2002 Oak Street, Myrtle Beach, South Carolina. As of the date of this Agreement,
Anchor has 10,000,000 authorized shares of common stock, no par value per share
("Anchor Common Stock") (no other class of capital stock being authorized), of
which 3,890,323 shares of Anchor Common Stock are issued and outstanding and of
which 388,784 shares are subject to issuance pursuant to certain stock options.
B. M&M. M&M is a corporation duly organized and validly existing under
South Carolina law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal executive offices
located at 307 North Main Street, Marion, South Carolina. As of the date of this
Agreement, M&M has 3,000,000 authorized shares of common stock, $5.00 par value
per share ("M&M Common Stock") of which 1,006,116 shares of M&M Common Stock are
issued and outstanding and of which 66,000 shares of M&M Common Stock are
subject to issuance pursuant to certain stock options.
C. APPROVALS. At meetings of the respective Boards of Directors of
Anchor and M&M, each such Board has approved and authorized the execution of
this Agreement.
D. INTENTION OF THE PARTIES. The parties intend the Merger to qualify,
for accounting purposes, as a "pooling of interests." The parties intend the
Merger to qualify, for federal income tax purposes, as a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
In consideration of their mutual promises and obligations, Anchor and
M&M agree as follows:
DEFINITIONS
A. DEFINITIONS. Capitalized terms used in this Agreement have the
following meanings:
"Acquisition Proposal" has the meaning assigned in Section
6.7(A).
"Agreement" means this Agreement and Plan of Merger.
<PAGE>
"Anchor" means Anchor Financial Corporation, a South Carolina
corporation.
"Anchor Bank" means The Anchor Bank, a South Carolina banking
association.
"Anchor Common Stock" has the meaning assigned in Recital A.
"Anchor Financial Reports" has the meaning assigned in Section
5.2(G).
"Anchor Option" has the meaning assigned in Section 2.7.
"Appraisal Laws" has the meaning assigned in Section 2.5.
"Asset Classification" has the meaning assigned in Section
5.1(S).
"Code" has the meaning assigned in Section 5.1(P)(2).
"Compensation and Benefit Plans" has the meaning assigned in
Section 5.1(P)(1).
"Dissenting Shares" means the shares of M&M Common Stock held
by those shareholders of M&M who have timely and properly exercised their
dissenters' rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned in Section 1.2.
"Eligible M&M Common Stock" means shares of M&M Common Stock
validly issued and outstanding on the Effective Date other than Dissenting
Shares.
"Employment Agreement" means Exhibit C.
"Environmental Law" means (1) any federal state, and/or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or human
health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, and (2) any common
law or equitable doctrine (including injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
2
<PAGE>
"ERISA" has the meaning assigned in Section 5.1(P)(2).
"ERISA Affiliate" has the meaning assigned in Section
5.1(P)(3).
"ERISA Plans" has the meaning assigned in Section 5.1(P)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated under such statute.
"Exchange Agent" has the meaning assigned in Section 2.4.
"Exchange Ratio" has the meaning assigned in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"First National South" means First National South, a national
banking association.
"GAAP" means generally accepted accounting principles
consistently applied.
"Hazardous Material" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or
quantity, including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Joint Proxy Statement" has the meaning assigned in Section
6.2.
"Loan/Fiduciary Property" means any property owned or
controlled by M&M or either of its Subsidiaries or in which M&M or either of its
Subsidiaries holds a security or other interest, and, where required by the
context, includes any such property where M&M or either of its Subsidiaries
constitutes the owner or operator of such property, but only with respect to
such property.
"M&M" means M&M Financial Corporation, a South Carolina
corporation.
"M&M Common Stock" has the meaning assigned in Recital B.
"M&M Financial Reports" has the meaning assigned in Section
5.1(H).
"M&M Option" has the meaning assigned in Section 2.7.
"Material Adverse Effect" means, with respect to any Party, an
event, occurrence or circumstance (including (i) the making of any provisions
for possible loan and lease losses, write-downs of other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Agreement by such Party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business or
prospects of such Party and its Subsidiaries, taken as a whole, or (b) would
materially impair such party's ability to perform its obligations under this
Agreement or the consummation of any of the transactions contemplated by this
Agreement.
"Meeting" has the meaning assigned in Section 6.2.
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"Merger" has the meaning assigned in Section 1.1.
"Multiemployer Plans" has the meaning assigned in Section
5.1(P)(2).
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"OCC" means the Office of the Comptroller of the Currency.
"Participation Facility" means any facility in which M&M or
its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
"Party" means a party to this Agreement.
"Pension Plan" has the meaning assigned in Section 5.1(P)(2).
"Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
governmental body, or other entity.
"Registration Statement" has the meaning assigned in Section
6.2.
"Regulatory Authorities" means federal or state governmental
agencies, authorities or departments charged with the supervision or regulation
of depository institutions or engaged in the insurance of deposits.
"Rights" means securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire, or
any options, calls or commitments relating to, shares of capital stock.
"Schedule" refers to information provided by a Party in a
Schedule that is delivered contemporaneously with the execution of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, each
partnership, limited liability company, or corporation the majority of the
outstanding partnership interests, membership interests, capital stock or voting
power of which is (or upon the exercise of all outstanding warrants, options and
other rights would be) owned, directly or indirectly, at the time in question by
such entity.
"Tax Returns" has the meaning assigned in Section 5.1(Z).
"Taxes" means federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes imposed on
the income, properties or operations of the respective Party or its
Subsidiaries, together with any interest, additions, or penalties relating to
such taxes and any interest charged on those additions or penalties.
B. GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Agreement or unless the context clearly requires otherwise, the following
rules of interpretation apply: (i) the terms defined in this Agreement include
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the plural as well as the singular; (ii) the phrase "in this Agreement" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and (iii) references in this
Agreement to Articles, Sections, Schedules, and Exhibits refer to Articles and
Sections of and Schedules and Exhibits to this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they will be
deemed to be following by the words "without limitation." Unless otherwise
stated references to Subsections refer to the Subsections of the Section in
which the reference appears. All pronouns used in this Agreement include the
masculine, feminine and neuter gender, as the context requires.
ARTICLE I. MERGER
1.1 THE MERGER. Subject to the provisions of this Agreement and in
accordance with the terms of Section 33-11-101 of the Code of Laws of South
Carolina of 1976, as amended (the "South Carolina Code"), on the Effective Date,
M&M will merge with and into Anchor, under the Articles of Incorporation of
Anchor (the "Merger"), and the resulting corporation will operate under the name
"Anchor Financial Corporation" (the "Merged Company"). After the Effective Date,
the Board of Directors of the Merged Company will consist of the directors of
Anchor immediately preceding the Effective Date plus two additional directors to
be designated from the current directors of M&M or its Subsidiary bank. The
Board of Directors of Anchor Bank will consist of the directors of Anchor Bank
immediately preceding the Effective Date plus two additional directors to be
resignated from the current directors of M&M or its Subsidiary bank. M&M may
offer suggestions to Anchor, and Anchor shall make the final designation of such
directors.
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fulfillment or waiver
of all conditions precedent set forth in, and the granting of all approvals (and
expiration of any waiting period) required by, Article VII of this Agreement. A
business day is any day other than a Saturday, Sunday or legal holiday in the
State of South Carolina. If the Merger is not consummated in accordance with
this Agreement on or before December 31, 1998, Anchor or M&M may terminate this
Agreement in accordance with Article VIII.
ARTICLE II. MERGER CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Agreement, on the
Effective Date:
(A) OUTSTANDING ANCHOR COMMON STOCK. The shares of Anchor Common Stock
issued and outstanding immediately prior to the Effective Date will, on and
after the Effective Date, remain as issued and outstanding shares of Anchor
Common Stock.
(B) OUTSTANDING M&M COMMON STOCK. Except as provided below in Section
2.3, each share of Eligible M&M Common Stock issued and outstanding
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immediately prior to the Effective Date will, by virtue of the Merger,
automatically and without any action on the part of the holder of the share, be
converted into the right to receive 0.87 shares of Anchor Common Stock (the
"Exchange Ratio").
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, all
shares, other than Dissenting Shares, of M&M Common Stock issued and outstanding
immediately prior to the Effective Date will be converted into shares of Anchor
Common Stock in accordance with Section 2.1(B) by virtue of the Merger. After
the Effective Date, there will be no transfers on the stock transfer books of
M&M of the shares of M&M Common Stock that were issued and outstanding
immediately prior to the Effective Date.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no fractional shares of Anchor Common Stock and no certificates or
other evidence of ownership of such fractional shares will be issued in the
Merger. Anchor will pay to each holder of M&M Common Stock who would otherwise
be entitled to a fractional share an amount in cash (without interest)
determined by multiplying such fractional part of a share of Anchor Common Stock
by the closing price of Anchor Common Stock on the Effective Date on The Nasdaq
Stock Market (as reported in The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Anchor).
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Anchor will send or cause to be sent to each former shareholder of M&M of
record immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates for Anchor Common Stock for the
consideration set forth in this Article II. The certificates representing the
shares of Anchor Common Stock for which shares of such shareholder's M&M Common
Stock are exchanged on the Effective Date, and any fractional share checks that
such shareholder will be entitled to receive will be delivered to such
shareholder only upon delivery to Anchor's exchange agent (the "Exchange Agent")
of the certificates representing all such shares of M&M Common Stock (or
indemnity satisfactory to Anchor and the Exchange Agent, in their judgment, if
any of such certificates are lost, stolen or destroyed). Certificates
surrendered for exchange by any person constituting an "affiliate" of M&M for
purposes of Rule 145 of the Securities Act will not be exchanged for
certificates representing Anchor Common Stock until Anchor has received a
written agreement from such person as specified in Section 6.12.
2.5 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, each Dissenting Share whose holder, as of the Effective Date of the
Merger, has not effectively withdrawn or lost his dissenters' rights under
Section 33-13-102 of the South Carolina Code (the "Appraisal Laws") will not be
converted into or represent a right to receive Anchor Common Stock, but the
holder of such Dissenting Share will be entitled only to such rights as are
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granted by the Appraisal Laws. Each holder of Dissenting Shares who becomes
entitled to payment for his M&M Common Stock pursuant to the provisions of the
Appraisal Laws will receive payment for such Dissenting Shares from Anchor (but
only after the amount of payment is agreed upon or finally determined pursuant
to the Appraisal Laws).
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision of this Agreement to the contrary,
Anchor may at any time change the method of effecting its acquisition of M&M,
but no such change will (A) change the amount or kind of consideration to be
issued to holders of M&M Common Stock as provided for in this Agreement, or (B)
adversely affect the tax treatment to the M&M shareholders as a result of
receiving such consideration. If Anchor elects to change the method of
acquisition, M&M will cooperate with and assist Anchor with any necessary
amendment to this Agreement, and with the preparation and filing of such
applications, documents, instruments and notices as may be necessary or
desirable, in the opinion of counsel for Anchor, to obtain all necessary
shareholder approvals and approvals of any regulatory agency, administrative
body or governmental entity.
2.7 OPTIONS. On the Effective Date, by virtue of the Merger and without
any action on the part of any holder of an option, each option granted by M&M to
purchase shares of M&M Common Stock ("M&M Option") that has been outstanding and
unexercised will be converted into and become an option to purchase Anchor
Common Stock ("Anchor Option") on the same terms and conditions as are in effect
with respect to the M&M Options immediately prior to the Effective Date, except
that (A) each such Anchor Option may be exercised solely for shares of Anchor
Common Stock, (B) the number of shares of Anchor Common Stock subject to such
Anchor Options will be equal to the number of shares of M&M Common Stock subject
to such M&M Options immediately prior to the Effective Date, multiplied by the
Exchange Ratio, the product being rounded, if necessary, up or down to the
nearest whole share, and (C) the per share exercise price under each such Anchor
Option will be adjusted by dividing the per share exercise price of the M&M
Option by the Exchange Ratio, and rounding up or down to the nearest cent. The
number of shares of M&M Common Stock that are issuable upon exercise of M&M
Options as of the date of this Agreement are disclosed in Schedule 2.7.
2.8 ANTI-DILUTION ADJUSTMENTS. In the event Anchor changes the number
of shares of Anchor Common Stock issued and outstanding prior to the Effective
Date as a result of a stock split, stock dividend or similar recapitalization
with respect to Anchor Common Stock, and the record date therefore (in the case
of a stock dividend) or the effective date thereof (in the case of stock split
or similar recapitalization for which a record date is not established) shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
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ARTICLE III. M&M ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by Anchor, M&M and its
Subsidiaries will conduct their business in the ordinary and usual course
consistent with past practice and will use their best efforts to maintain and
preserve their business organizations, employees and advantageous business
relationships and retain the services of their officers and key employees
identified by Anchor, and M&M, without the prior written consent of Anchor, will
not:
3.1 CAPITAL STOCK. Issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of M&M, except pursuant to
the exercise of stock options outstanding on the date hereof, or grant any
Rights with respect to its capital stock, or enter into any agreement to do any
of the foregoing, or permit any additional shares of M&M Common Stock to become
subject to grants of employee stock options, stock appreciation rights or
similar stock-based employee compensation rights.
3.2 DISTRIBUTIONS. Except a cash dividend in an amount not to exceed
$0.37 per share of M&M Common Stock per annum prorated to the Effective Date,
make, declare or pay any dividend on or in respect of, or declare or make any
distribution on, or directly or indirectly combine, redeem, reclassify, purchase
or otherwise acquire, any shares of its capital stock or authorize the creation
or issuance of, or issue, any additional shares of its capital stock or grant
any Rights with respect to its capital stock.
3.3 LIABILITIES. Other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual corporation or other
entity.
3.4 OPERATIONS. Except as may be directed by any regulatory agency, (A)
change its lending, investment, liability management or other material banking
policies in any material respect, or (B) commit to incur any capital
expenditures other than in the ordinary course of business and not exceeding
$15,000 individually or $25,000 in the aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist, except such liens, charges
or encumbrances occurring in the ordinary course of business which do not have a
Material Adverse Effect on M&M.
3.6 EMPLOYMENT ARRANGEMENTS. Hire any new employees, increase the
number of full time employees disclosed in Schedule 3.6, enter into or amend any
employment, severance or similar agreement or arrangement with any of its
directors, officers or employees, or grant any salary or wage increase, amend
the terms of any M&M Option or increase any employee benefit (including
incentive or bonus payments), except normal individual increases in regular
compensation to
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employees in the ordinary course of business consistent with past practice or as
disclosed in Schedule 3.6.
3.7 BENEFIT PLANS. Enter into or modify (except as may be required by
applicable law or to continue coverage) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees, including taking any action that
accelerates the vesting or exercise of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion of
its assets, business or properties, that is material to M&M or any one of its
Subsidiaries taken as a whole, or merge or consolidate with, or acquire all or
any portion of, the business or property of any other entity that is material to
M&M or any one of its Subsidiaries taken as a whole (except foreclosures or
acquisitions by M&M or any one of its Subsidiaries in its fiduciary capacity, in
each case in the ordinary course of business consistent with past practice).
3.9 AMENDMENTS. Amend its Articles of Incorporation or Bylaws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of M&M.
3.11 CONTRACTS. Enter into, renew, terminate or make any change in any
material contract, agreement or lease, except in the ordinary course of business
consistent with past practice with respect to contracts, agreements and leases
that are terminable by it without penalty on no more than 60 days prior written
notice.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices. With regard
to any new extension of credit in excess of $250,000, M&M will report to the
Chief Financial Officer of Anchor, as expeditiously as possible, the substance
and nature of the transaction for the purpose of keeping Anchor abreast of the
ongoing credit quality at M&M.
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION
From the date of this Agreement until the earlier of the Effective Date
or the termination of this Agreement, Anchor will continue to conduct the
business of Anchor and its Subsidiaries in a manner designed in its reasonable
judgment to enhance the long-term value of Anchor Common Stock and the business
prospects of Anchor, and will not: (1) make any distributions with respect to
its capital stock except its regular quarterly dividends made in accordance with
its past practices; or (2) take any action which would materially adversely
affect the ability of Anchor or M&M to obtain any regulatory approvals or other
consents required for the Merger described in this Agreement without imposition
of any condition or restriction that would adversely impact the transactions
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contemplated hereby or prevent the Merger from qualifying as a pooling of
interests for accounting purposes or as a tax free organization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code, or materially
adversely affect the ability of any party to this Agreement to perform its
covenants or agreements under this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 M&M'S REPRESENTATIONS AND WARRANTIES. M&M hereby represents and
warrants to Anchor as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to M&M are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. M&M is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. M&M and its Subsidiaries have in effect all federal state,
local and foreign governmental authorizations necessary for them to own or lease
their properties and assets and to carry on their businesses as they are now
conducted. First National South is an "insured depository institutions" as
defined in the Federal Deposit Insurance Act, as amended, and applicable
regulations under such statute, and its deposits are insured by the Bank
Insurance Fund of the FDIC.
(C) SHARES. The outstanding shares of M&M's capital stock are
validly issued and outstanding, fully paid and nonassessable and are subject to
preemptive rights of M&M's shareholders. Except as M&M disclosed in Schedule
5.1(C), there are no shares of capital stock or other equity securities of M&M
outstanding and no outstanding Rights with respect to its capital stock or other
equity securities.
(D) SUBSIDIARIES. M&M has two Subsidiaries, First National
South and Marion National Investment Corporation.
(E) CORPORATE POWER. M&M has the corporate power and authority
to carry on its business as it is now being conducted and to own all its
material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 7.1(A), this Agreement has
been authorized by all necessary corporate action of M&M, and this Agreement is
a valid and binding agreement of M&M, enforceable against M&M in accordance with
its terms, subject to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles.
(G) NO DEFAULTS. Except as set forth on Schedule 5.1(G),
subject to the approval by its shareholders referred to in Section 7.1(A), the
required regulatory approvals referred to in Section 7.1(B), and the required
filings under federal and state securities laws, and except as set forth on
Schedule
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5.1(G), the execution, delivery and performance of this Agreement and the
consummation by M&M of the transactions contemplated by this Agreement do not
and will not (1) constitute a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of M&M or to which M&M or its
properties is subject or bound, (2) constitute a breach or violation of, or a
default under its articles of incorporation or bylaws, or (3) require any
consent or approval under any such law, rule, regulation, judgment, decree,
order governmental permit or license or the consent or approval of any other
party to any such agreement, indenture or instrument.
(H) FINANCIAL REPORTS. M&M's audited consolidated statements
of financial condition and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the fiscal year ended
December 31, 1997, (collectively, the "M&M Financial Reports") do not contain
any untrue statement of a material fact or omit 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; and
each of the consolidated balance sheets in or incorporated by reference into the
M&M Financial Reports (including the related notes and schedules thereto) fairly
presents the financial position of M&M as of its date, and each of the
consolidated statements of income and changes in shareholders' equity and cash
flows (including any related notes and schedules thereto) fairly presents the
results of operations, changes in shareholders' equity and cash flows, as the
case may be, for the periods set forth therein, in accordance with GAAP.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 5.1(I), M&M has no obligation or liability (contingent or otherwise)
except (1) as reflected in the M&M Financial Reports prior to the date of this
Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997.
(J) NO EVENTS. Since December 31, 1997, no event has occurred
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on M&M.
(K) PROPERTIES. M&M has good and marketable title, free and
clear of all liens, encumbrances, charges, defaults, or equities of any
character, to all of the properties and assets, tangible and intangible,
reflected in the M&M Financial Reports as being owned by M&M as of the dates of
the M&M Financial Reports, except those sold or otherwise disposed of in the
ordinary course of business. All buildings and all material fixtures, equipment,
and other property and assets that are held under leases or subleases by M&M are
held under valid leases or subleases enforceable in accordance with their
respective terms.
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(L) LITIGATION. Except as disclosed in Schedule 5.2(L), before
the date of this Agreement:
(1) no criminal or administrative investigations or
hearings, before or by any Regulatory Authorities, or civil, criminal or
administrative actions, suits, claims or proceedings, before or by any person
(including any Regulatory Authority) are pending or, to the knowledge of its
executive officers, threatened, against it (including under the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, or any fair lending law or
other law relating to discrimination); and
(2) neither M&M nor either of its Subsidiaries nor
any of their officers, directors, controlling persons, nor any of their
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any Regulatory Authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of M&M or either of its
Subsidiaries, and they have not been advised by any such Regulatory Authority
that such Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission.
(M) COMPLIANCE WITH LAWS. M&M and its Subsidiaries:
(1) are in compliance, in the conduct of their
businesses, with all applicable federal, state, local, and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or decrees, including
the Bank Secrecy Act, the Truth in Lending Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure act and all applicable fair lending laws or other laws relating to
discriminations;
(2) have all permits, licenses, certificates of
authority, orders, and approvals of, and have made all filings, applications,
and registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit them to carry on their
businesses as they are presently conducted;
(3) have no notification or other communication from
any Regulatory Authority (including any bank, insurance and securities
regulatory authorities) or its staff (1) asserting a failure to comply with any
of the statutes, regulations or ordinances that such Regulatory Authority
enforces, (2) threatening to revoke any license, franchise, permit or
governmental authorization, or (3) threatening or contemplating revocation or
limitation of, or that would have the effect of revoking or limiting, FDIC
deposit insurance (nor do any grounds for any of the foregoing exist);
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(4) are not required to notify any federal banking
agency before adding directors to their boards of directors or employing senior
executives (except notifications required as a result of the Merger); and
(5) have adopted and are implementing a program to
address any problems associated with the capacity of the computer software
operated by M&M and its Subsidiaries and their vendors to properly process
transactions after December 31, 1999.
(N) MATERIAL CONTRACTS. Neither M&M nor either of its
Subsidiaries nor their assets, businesses or operations, is a party to, or bound
or affected by, or receives benefits under, any material contract or agreement
or amendment to such contract or agreement. M&M or either of its Subsidiaries is
not in default under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by which its
assets, business or operations may be bound or affected or under which it or its
respective assets, business or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default. M&M or either of its Subsidiaries is not
subject to or bound by any contract containing covenants that limit its ability
to compete in any line of business or with any Person or that involve any
restriction of geographical area in which, or method by which, it may carry on
its business (other than as may be required by law or any applicable Regulatory
Authority).
(O) REPORTS. Since January 1, 1993, M&M and its Subsidiaries
filed all reports and statements, together with any required amendments, that
they were obligated to file with (1) the OCC, (2) the FDIC, (3) the Federal
Reserve Board and (4) any other Regulatory Authorities having jurisdiction over
M&M and/or its Subsidiaries. As of their respective dates (and without giving
effect to any amendments or modification filed after the date of this Agreement
with respect to reports and documents filed before the date of this Agreement),
each of such reports and documents, including the financial statements, exhibits
and schedules to the financial statements, complied with all of the statutes,
rules and regulations enforced or promulgated by the Regulatory Authority with
which they were filed and did not contain any untrue statement of fact or omit
to state any fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
(P) EMPLOYEE BENEFIT PLANS.
(1) Schedule 5.1(P)(1) contains a complete list of
all bonus, deferred compensation, pension, retirement, profit-sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts, all medical,
dental, health and life insurance plans, all other employee benefit plans,
contracts or arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained on contributed to by
M&M and/or its
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Subsidiaries for the benefit of employees, former employees, directors, former
directors or their beneficiaries (the "Compensation and Benefit Plans"). True
and complete copies of all Compensation and Benefit Plans of M&M and/or its
Subsidiaries, including any trust instruments and/or insurance contracts, if
any, forming a part of such plans, and all related amendments, have been
supplied to Anchor.
(2) All "employee benefit plans" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA ("Multiemployer Plans"), covering employees or former
employees of M&M and/or its Subsidiaries (the "ERISA Plans"), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each ERISA Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986 (as amended, the "Code") has
received a favorable determination letter from the Internal Revenue Service, and
M&M is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the inability
to receive such favorable determination letter. There is no material pending or,
to its knowledge, threatened litigation relating to the ERISA Plans. M&M or
either of its Subsidiaries has not engaged in a transaction with respect to any
ERISA Plan that could subject M&M or either of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by M&M or either of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by it, or the single-employer plan of any entity which is considered
one employer with M&M or either of its Subsidiaries under Section 4001(a)(15) of
ERISA or Section 414 of the Code (an "ERISA Affiliate"). M&M or either of its
Subsidiaries does not presently contribute to a Multiemployer Plan, nor has it
contributed to such a plan within the past five calendar years. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Pension Plan or by any ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the
terms of any ERISA Plan have been timely made. Neither any Pension Plan nor any
single- employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. M&M or either of its Subsidiaries has not
provided, or is not required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
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(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year, the
actuarially determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan's most recent actuarial valuation)
did not exceed the then current value of the assets of such plan, and there has
been no material change in the financial condition of such plan since the last
day of the most recent plan year.
(6) M&M has no obligations for retiree health and
life benefits under any plan, except as set forth in Schedule 5.1(P)(6). There
are no restrictions on the rights of M&M to amend or terminate any such plan
without incurring any liability under the plan.
(7) Except as set forth on Schedule 5.1(P)(7),
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (a) result in any payment
(including severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of M&M or its Subsidiaries under
any Compensation and Benefit Plan or otherwise from M&M or its Subsidiaries, (b)
increase any benefits otherwise payable under any Compensation and Benefit Plan,
or (c) result in any acceleration of the time of payment or vesting of any such
benefit.
(Q) NO KNOWLEDGE. M&M knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained.
(R) LABOR AGREEMENTS. M&M is neither a party to nor bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is M&M the subject
of a proceeding asserting that it has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(S) ASSET CLASSIFICATION. M&M has disclosed to Anchor in
Schedule 5.1(S) a list, accurate and complete in all material respects, of the
aggregate amounts of loans, extensions of credit or other assets of M&M and its
Subsidiaries that have been classified by them as of December 31, 1997 (the
"Asset Classification"); and, no amounts of loans, extensions of credit or other
assets that have been classified as of December 31, 1997 by any regulatory
examiner as "Other Loans Specially Mentioned," "Substandard," "Doubtful,"
"Loss," or words of similar import are excluded from the amounts disclosed in
the Asset Classification, other than amounts of loans, extension of credit or
other assets that were charged off by M&M and its Subsidiaries prior to December
31, 1997.
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(T) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the consolidated balance sheet in the December 31,
1997, Financial Reports was, and the allowance for possible loan losses to be
shown on subsequent Financial Reports will be, adequate in the opinion of the
Board of Directors of M&M to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of the dates noted.
(U) INSURANCE. M&M has taken all requisite action (including
the making of claims and the giving of notices) pursuant to its directors' and
officers' liability insurance policy or policies in order to preserve all rights
under the policy or policies. Set forth in Schedule 5.1(U) is a list of all
insurance policies maintained by or for the benefit of M&M and its Subsidiaries
and their directors, officers, employees or agents.
(V) AFFILIATES. Except as disclosed in Schedule 5.1(V), there
is no person who, as of the date of this Agreement, may be deemed to be an
"affiliate" of M&M as that term is used in Rule 145 under the Securities Act.
(W) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. M&M has taken all
necessary action to exempt this Agreement, and the transactions contemplated by
this Agreement from, and this Agreement and such transactions are exempt from
(1) any applicable takeover laws, and (2) any takeover-related provisions of
M&M's Articles of Incorporation.
(X) NO FURTHER ACTION. M&M has taken all action so that
entering into this Agreement and the consummation of the transactions
contemplated by this Agreement (including the Merger) or any other action or
combination of actions, or any other transactions, contemplated by this
Agreement do not and will not (1) require a vote of shareholders (other than as
set forth in Section 7.1(A)), or (2) result in the grant of any rights to any
Person under the Articles of Incorporation or Bylaws of M&M or under any
agreement to which M&M is a party, or (3) restrict or impair in any way the
ability of Anchor to exercise the rights granted under this Agreement.
(Y) ENVIRONMENTAL MATTERS.
(1) To M&M and its Subsidiaries' knowledge, the
Participation Facilities and the Loan/Fiduciary Properties are, and have been,
in compliance with all Environmental Laws.
(2) There is no proceeding pending or, to M&M and its
Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which M&M or either of its Subsidiaries or any
Participation Facility has been, or with respect to threatened proceedings,
reasonably would be expected to be, named as a defendant or potentially
responsible party (a) for alleged noncompliance (including by any predecessor)
with any Environmental Law, or (b) relating to the release or threatened release
into the environment of any Hazardous Material, whether or not occurring at or
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on a site owned, leased or operated by M&M or either of its Subsidiaries or any
Participation Facility.
(3) There is no proceeding pending or, to M&M or its
Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which any Loan/Fiduciary Property (or M&M or its
Subsidiaries in respect of any Loan/Fiduciary Property) has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a Loan/Fiduciary Property.
(4) To M&M or its Subsidiaries' knowledge, there is
no reasonable basis for any proceeding of a type described in subparagraph (2)
or (3) of this paragraph (Y).
(5) To M&M or its Subsidiaries' knowledge, during the
period of (a) ownership or operation by M&M or either of its Subsidiaries of any
of its current properties, (b) participation in the management of any
Participation Facility by M&M or either of its Subsidiaries, or (c) holding of a
security or other interest in a Loan/Fiduciary Property by M&M or either of its
Subsidiaries, there have been no releases of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan Fiduciary Property.
(6) To M&M or its Subsidiaries' knowledge, prior to
the period of (a) ownership or operation by M&M or either of its Subsidiaries of
any of its current properties, (b) participation in the management of any
Participation Facility by M&M or either of its Subsidiaries or (c) holding of a
security or other interest in a Loan/Fiduciary Property by M&M or either of its
Subsidiaries, there was no release of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan) Fiduciary Property.
(Z) TAX REPORTS. (1) All reports and returns with respect to
Taxes that are required to be filed by or with respect to M&M, including
consolidated federal income tax returns of M&M, (collectively, the "Tax
Returns"), have been duly filed, or requests for extensions have been timely
filed and have not expired, for periods ended on or prior to the most recent
fiscal year-end, and such Tax Returns were true, complete and accurate, (2) all
Taxes shown to be due on the Tax Returns have been paid in full, (3) the Tax
Returns have been examined by the Internal Revenue Service or the appropriate
state, local or foreign taxing authority, or the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired, (4) all Taxes due with respect to completed and settled examinations
have been paid in full, (5) no issues have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns except as
reserved against in the Financial Reports, and (6) no waivers of statutes of
limitations (excluding such statutes that
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relate to years under examination by the Internal Revenue Service) have been
given by or requested with respect to any Taxes of M&M.
(AA) ACCURACY OF INFORMATION. The statements with respect to
M&M and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of M&M and its
Subsidiaries or any other Party pursuant to the terms of or relating to this
Agreement are true and correct, and such statements and documents do not omit
any fact necessary to make the statements, in light of the circumstances under
which they were made, not misleading.
(BB) DERIVATIVES CONTRACTS. M&M is not a party to nor has it
agreed to enter into a Derivatives Contract or to own securities that are
referred to as "structured notes," except as set forth on Schedule 5.1(BB).
(CC) ACCOUNTING CONTROLS. M&M has devised and maintained
systems of internal accounting controls sufficient to provide reasonable
assurances that (1) all transactions are executed in accordance with
management's general or specific authorization, (2) all transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP, and to maintain proper accountability for items, (3)
access to the material property and assets of M&M is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(DD) COMMITMENTS AND CONTRACTS. M&M or either of its
Subsidiaries is not a party or subject to any of the following (whether written
or oral, express or implied):
(1) except disclosed in Schedule 5.1(DD)(1), any
employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or fringe
benefits) with any present or former officer, director or employee (other than
those which are terminable at will by M&M or its Subsidiaries without any
obligation on the part of M&M or its Subsidiaries to make any payment in
connection with such termination);
(2) except as disclosed in Schedule 5.1(DD)(2), any
real or personal property lease with annual rental payments aggregating $5,000
or more; or
(3) any material contract with any affiliate.
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES. Anchor hereby represents
and warrants to M&M as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to Anchor are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Anchor is duly
qualified to do business and is in good standing in the States of the United
States and
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foreign jurisdictions where the failure to be duly qualified, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on it.
Anchor and its Subsidiaries have in effect all federal state, local and foreign
governmental authorizations necessary for them to own or lease their properties
and assets and to carry on their businesses as they are now conducted.
(C) SHARES. The outstanding shares of Anchor's capital stock
are, and the shares to be issued in exchange for M&M Common Stock when issued
will be, validly issued and outstanding, fully paid and nonassessable and
subject to no preemptive rights.
(D) CORPORATE POWER. Anchor has the corporate power and
authority to carry on its business as it is now being conducted or will be
conduced and to own all its material properties and assets.
(E) CORPORATE AUTHORITY. Subject to the approval by its
shareholders referred to in Section 7.1(A), this Agreement has been authorized
by all necessary corporate action of Anchor and is a valid and binding agreement
of Anchor, enforceable against Anchor in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles.
(F) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), subject to receipt of the required regulatory
approvals referred to in Section 7.1(B), and the required filings under federal
and state securities laws, the execution, delivery and performance of this
Agreement and the consummation by Anchor and each of its Subsidiaries of the
transactions contemplated by this Agreement does not and will not (1) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Anchor or any of its Subsidiaries or to which Anchor or any of
its Subsidiaries or its properties is subject or bound, (2) constitute a breach
or violation of, or a default under its articles of incorporation or bylaws of
Anchor or any of its Subsidiaries, or (3) require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(G) FINANCIAL REPORTS. The Annual Report of Anchor on Form
10-K for the fiscal year ended December 31, 1997, and all other documents filed
or to be filed subsequent to December 31, 1997 under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed with the SEC (in each such case,
the "Anchor Financial Reports") did not and will not contain any untrue
statement of fact or omit to state a fact required to be stated or necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading; and each of the consolidated balance sheets in or
incorporated by reference into the Anchor Financial Reports (including the
related notes and
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schedules thereto) fairly presents and will fairly present the financial
position of the entity or entities to which it relates as of its date, and each
of the consolidated statements of income and changes in shareholders' equity and
cash flows or equivalent statements in the Anchor Financial Reports (including
any related notes and schedules thereto) fairly presents and will fairly present
the results of operations, changes in shareholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for the
periods set forth herein, in each case in accordance with GAAP, except as may be
noted therein.
(H) NO EVENTS. Since December 31, 1997, no event has occurred
which is reasonably likely to have a Material Adverse Effect on Anchor.
(I) LITIGATION; REGULATORY ACTION. No litigation, proceeding
or controversy before any court or governmental agency is pending that alleges
claims under any fair lending law or other law relating to discrimination,
including the Equal Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act and the Home Mortgage Disclosure Act, and no such litigation,
proceeding or controversy has been threatened; and neither Anchor nor any of its
Subsidiaries or any of its or their material properties or their officers,
directors or controlling persons is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Regulatory Authority, and
neither Anchor nor any of its Subsidiaries has been advised by any of such
Regulatory Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission.
(J) REPORTS. Since December 31, 1993, Anchor and its
Subsidiaries have filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (1)
the FDIC, (2) the Federal Reserve Board, and (3) any other Regulatory
Authorities having jurisdiction with respect to Anchor and its Subsidiaries. As
of their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to reports and
documents filed before the date of this Agreement), each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of fact or omit to state any
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to
Anchor and its Subsidiaries contained in this Agreement, the Schedules and any
other
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written documents executed and delivered by or on behalf of Anchor or any other
Party pursuant to the terms of this Agreement are true and correct, and such
statements and documents do not omit any material fact necessary to make the
statements, in light of the circumstances under which they were made, not
misleading.
(L) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Anchor nor any
of its Subsidiaries has any obligation or liability (contingent or otherwise)
except (1) as reflected the Anchor Financial Reports prior to the date of this
Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997. Since December 31, 1997, neither Anchor nor any of its
Subsidiaries has incurred or paid any obligation or liability that, individually
or in the aggregate, is unreasonably likely to have Material Adverse Effect on
Anchor.
(M) NO KNOWLEDGE. Anchor knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained.
(N) YEAR 2000 COMPLIANCE. Anchor has taken and is taking
appropriate steps to assure, and believes, that computer software operated by
Anchor and its Subsidiaries and their vendors will be able to properly process
transactions and function after December 31, 1999.
5.3 EXCEPTIONS TO REPRESENTATIONS.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a
Schedule is disclosed only for purposes of the representations referred in that
exception, but the following conditions apply:
(1) no exception is required to be set forth in a
Schedule if its absence would not result in the related representation being
found untrue or incorrect under the standard established by Section 5.3(B); and
(2) the mere inclusion of an exception in a Schedule
is not an admission by a party that the exception represents a material fact,
material set of facts, or material event or would result in a Material Adverse
Effect with respect to that party.
(B) NATURE OF EXCEPTIONS. No representation contained in this
Article V will be found untrue or incorrect and no party to this Agreement will
have breached a representation due to the following: the existence of any fact,
set of facts, or event if the fact or event individually or taken together with
other facts or events would not, or, in the case of Article V is not reasonably
likely to, have a Material Adverse Effect with respect to such party.
ARTICLE VI. COVENANTS
M&M hereby covenants to Anchor, and Anchor hereby covenants to M&M,
that:
6.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement
and to the exercise by its Board of Directors of such Board's fiduciary duties,
it will use its best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
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desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as soon as practicable and to otherwise enable consummation of the
transactions contemplated by this Agreement and will cooperate fully with the
other Parties to that end.
6.2 THE PROXY. M&M will promptly assist Anchor in the preparation of a
joint proxy statement (the "Joint Proxy Statement") to be mailed to the holders
of M&M Common Stock in connection with the transactions contemplated by this
Agreement and to be filed by Anchor in a registration statement (the
"Registration Statement") with the SEC as provided in Section 6.8, which will
conform to all applicable legal requirements. M&M and Anchor will call meetings
(the "Meetings") of the holders of M&M Common Stock and the holders of Anchor
Common Stock to be held as soon as practicable for purposes of voting upon the
transactions contemplated by this Agreement, and M&M and Anchor will use their
respective best efforts to solicit and obtain votes of the holders of M&M Common
Stock and the holders of Anchor Common Stock in favor of the transactions
contemplated by this Agreement and, subject to the exercise of their respective
fiduciary duties, the Boards of Directors of M&M and Anchor will recommend
approval of such transactions by such holders.
6.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement to the
Registration Statement becomes effective, and at all times subsequent to such
effectiveness, up to and including the dates of the Meetings, such Registration
Statement, and all amendments or supplements thereto, with respect to all
information set forth therein furnished or to be furnished by or on behalf of
M&M relating to M&M and by or on behalf of Anchor relating to Anchor, (A) will
comply in all material respects with the provisions of the Securities Act and
any other applicable statutory or regulatory requirements, and (B) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading. But, no Party will be liable for any untrue statement of
a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another Party furnished by or on behalf of such other Party
specifically for use in the Registration Statement.
6.4 REGISTRATION STATEMENT EFFECTIVENESS. Anchor will advise M&M,
promptly after Anchor receives any notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
Anchor Common Stock for offering or sale in any jurisdiction, of the initiation
or threat of any proceeding for any such purpose, or of any request by the SEC
for the amendment or supplement of the Registration Statement or for additional
information.
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6.5 PRESS RELEASES. M&M will not, without the prior approval of Anchor,
and Anchor will not, without the prior approval of M&M, issue any press release
or written statement for general circulation relating to the transactions
contemplated by this Agreement, except as otherwise required by law.
6.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, each party will afford the other
party and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of its properties, books, contracts, commitments
and records and, during the period up to the Effective Date, M&M will promptly
furnish (and cause its accountants and other agents to promptly furnish) to
Anchor (1) a copy of each material report, schedule and other document filed by
M&M with any Regulatory Authority, (2) such representations and certifications
as are necessary for purposes of the pooling letter described in Section 7.2(F),
and (3) all other information concerning the business, properties and personnel
of M&M as Anchor may reasonably request, provided that no investigation pursuant
to this Section 6.6 will affect or be deemed to modify or waive any
representation or warranty made by M&M in this Agreement or the conditions to
the obligations of M&M to consummate the transactions contemplated by this
Agreement; and
(B) Anchor will not use any information obtained pursuant to
this Section 6.6 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement and, if this Agreement is
terminated, will hold all confidential information and documents obtained
pursuant to this paragraph in confidence (as provided in Section 9.6) unless and
until such time as such information or documents become publicly available other
than by reason of any action or failure to act by Anchor or as it is advised by
counsel that any such information or document is required by law or applicable
stock exchange rule to be disclosed, and in the event of the termination of this
Agreement, Anchor will, upon request by M&M, deliver to M&M all documents so
obtained by Anchor or destroy such documents and, in the case of destruction,
will certify such fact to M&M.
6.7 ACQUISITION PROPOSALS.
(A) M&M will not solicit, initiate or encourage inquiries or
proposals with respect to, or, except as required by the fiduciary duties of the
Board of Directors of M&M (as advised in writing by its outside counsel),
furnish any nonpublic information relating to or participate in any negotiations
or discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, M&M or any merger
or other business combination with M&M other than as contemplated by this
Agreement ("Acquisition Proposal"); it will instruct its officers, directors,
agents, advisors and affiliates to refrain from doing any of the foregoing; and
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it will notify Anchor immediately if any such inquiries or proposals are
received by, or any such negotiations or discussions are sought to be initiated
with, M&M.
(B) M&M will immediately cease and cause to be terminated any
activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Anchor with respect to any Acquisition
Proposal.
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. Anchor will, as promptly as practicable following the date of this
Agreement, prepare and file the Registration Statement with the SEC with respect
to the shares of Anchor Common Stock to be issued to the holders of M&M Common
Stock pursuant to this Agreement, and Anchor will use its best efforts to cause
the Registration Statement to be declared effective as soon as practicable after
the filing of the Registration Statement. Anchor will, as promptly as
practicable following the date of this Agreement, prepare and file all necessary
notices or applications with Regulatory Authorities having jurisdiction with
respect to the transactions contemplated by this Agreement.
6.9 APPOINTMENT OF DIRECTORS. Immediately after the Effective Date,
Anchor will cause the appointment of two directors from the current directors of
M&M or its Subsidiary bank to the Board of Directors of Anchor to hold office
until such time as his or her successor is elected and qualified, and the
appointment of two directors from the current directors of M&M or its Subsidiary
bank to the Board of Directors of Anchor Bank to hold office until such time as
his or her successor is elected and qualified.
6.10 EMPLOYMENT AGREEMENT. An employment agreement, in form
substantially similar to that attached as Exhibit C, will have been duly
executed and delivered by Anchor and Chester A. Duke, provided Mr. Duke has not
terminated his employment with M&M or its Subsidiaries at or prior to the
Effective Date.
6.11 BLUE-SKY FILINGS. Anchor will use its best efforts to obtain,
prior to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that Anchor will
not be required as a result to submit to general jurisdiction in any state.
6.12 AFFILIATE AGREEMENTS. M&M will use its best efforts to induce each
person who may be deemed to be an "affiliate" of M&M for purposes of Rule 145
under the Securities Act to execute and deliver to Anchor on or before the
mailing of the Joint Proxy Statement for the M&M Meeting an agreement in the
form attached hereto as Exhibit A restricting the disposition of such
affiliate's shares of M&M Common Stock and the shares of Anchor Common Stock to
be received by such person in exchange for such person's shares of M&M Common
Stock. In the case of Anchor, Anchor agrees to use its best efforts to maintain
the availability of Rule 145 for use by such "affiliates".
6.13 TAKEOVER LAW. M&M will not take any action that would cause the
transactions contemplated by this Agreement to be subject to any applicable
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takeover statute, and M&M will take all necessary steps to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement from,
or, if necessary, challenge the validity or applicability of, any applicable
takeover law.
6.14 NO RIGHTS TRIGGERED. M&M will take all necessary steps to ensure
that entering into this Agreement and the consummation of the transactions
contemplated by this Agreement and any other action or combination of actions,
or any other transactions contemplated by this Agreement, do not and will not
(A) result in the grant of any rights to any Person under the Articles of
Incorporation or Bylaws of M&M or under any agreement to which M&M is a party,
or (B) restrict or impair in any way the ability of Anchor to exercise the
rights granted to Anchor under this Agreement.
6.15 SHARES LISTED. Anchor will use its best efforts to cause to be
listed, prior to the Effective Date, on The Nasdaq Stock Market, upon official
notice of issuance, the shares of Anchor Common Stock to be issued to the
holders of M&M Common Stock.
6.16 CURRENT INFORMATION.
(A) During the period from the date of this Agreement to the
Effective Date, both M&M and Anchor will, and will cause its representatives to,
confer on a regular and frequent basis with representatives of the other.
(B) Both M&M and Anchor will promptly notify the other of (1)
any material change in the business or operations of it or its Subsidiaries, (2)
any material complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any Regulatory Authority
relating to it or its Subsidiaries, (3) the initiation or threat of material
litigation involving or relating to it or its Subsidiaries, or (4) any event or
condition that might reasonably be expected to cause any of its representations
or warranties set forth in this Agreement not to be true and correct in all
material respects as of the Effective Date or prevent it or its Subsidiaries
from fulfilling its or their obligations under this Agreement.
6.17 SEVERANCE. On the Effective Date, Anchor will adopt a severance
plan for employees of M&M and its Subsidiaries with terms as set forth in
Schedule 6.17.
6.18 INDEMNIFICATION.
(A) Following the Effective Date, each director and officer of
M&M or any of its Subsidiaries shall be indemnified to the fullest extent
permitted by South Carolina law by Anchor against all liabilities and the
expense of defending claims of liability connected with or arising out of such
director's or officer's service as such.
(B) Anchor agrees to purchase and keep in force for not less
than three years, directors and officers' liability insurance to the extent
available providing coverage for actions and omissions by officers and directors
of M&M and
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its Subsidiaries for claims made during the period commencing with and after the
Effective Date.
ARTICLE VII. CONDITIONS TO
CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each Party to consummate the transactions contemplated by this Agreement are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
(A) SHAREHOLDER VOTES. This Agreement will have been duly
approved by the requisite vote of M&M's shareholders and of Anchor's
shareholders under applicable law and the Articles of Incorporation and Bylaws
of, respectively, M&M and Anchor.
(B) REGULATORY APPROVALS. The Parties will have procured all
necessary regulatory consents and approvals by the appropriate Regulatory
Authorities, any waiting periods relating to such consents and approvals will
have expired, and no such approval or consent will have imposed any condition or
requirement that, in the opinion of Anchor, would deprive Anchor of the material
economic or business benefits of the transactions contemplated by this
Agreement.
(C) NO INJUNCTION. There will not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of any of the transactions contemplated by
this Agreement.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement will have become effective and no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or threatened by the SEC
or any other Regulatory Authority.
(E) BLUE SKY PERMITS. Anchor will have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
(F) TAX OPINION. Anchor and M&M will have received an opinion
from Gerrish & McCreary, P.C. to the effect that (1) the Merger constitutes a
tax-free merger under Section 368(a)(1)(A) of the Code, and (2) no gain or loss
will be recognized by shareholders of M&M who receive shares of Anchor Common
Stock in exchange for their shares of the M&M Common Stock, except that gain or
loss may be recognized as to cash received in lieu of fractional share interests
and, in rendering their opinion, Gerrish & McCreary, P.C. may require and rely
upon representations contained in certificates of officers of Anchor, M&M and
others.
(G) NASDAQ LISTING. The shares of Anchor Common Stock to be
issued pursuant to this Agreement will have been approved for listing on The
Nasdaq Stock Market subject only to official notice of issuance.
(H) FAIRNESS OPINION. Anchor will have received, immediately
prior to the mailing of the Joint Proxy Statement to Anchor's shareholders, an
opinion
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of Sandler O'Neill to the effect that the financial terms of the Merger are fair
from a financial point of view to Anchor's shareholders.
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR. The obligations of Anchor to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by Anchor or the fulfillment on or prior to the Effective
Date of each of the following conditions:
(A) LEGAL OPINION. Anchor will have received an opinion, dated
the Effective Date, of Sinkler & Boyd, P.A., counsel for M&M, incorporating the
opinions set forth in Exhibit B.
(B) OFFICERS' CERTIFICATE. (1) Each of the representations and
warranties contained in this Agreement of M&M will be true and correct as of the
date of this Agreement and upon the Effective Date with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) the chief executive officers, chief financial officers, and chief
lending officers of M&M and its Subsidiaries will sign a certificate, dated the
Effective Date, certifying that each and all of the agreements and covenants of
M&M to be performed and complied with pursuant to this Agreement on or prior to
the Effective Date have been duly performed and complied with in all material
respects.
(C) RECEIPT OF AFFILIATE AGREEMENTS. Anchor will have received
from each affiliate of M&M the agreement referred to in Section 6.11.
(D) ADVERSE CHANGE. During the period from December 31, 1997,
to the Effective Date, there will not have been any Material Adverse Change in
the financial position or results of operations of M&M, nor will M&M have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and Anchor will have
received a certificate dated the Effective Date signed by the Chief Executive
Officer of M&M to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of M&M Common
Stock for which cash is to be paid because dissenters' rights of appraisal under
the Appraisal Laws will have been effectively preserved as of the Effective Date
or because of the payment of cash in lieu of fractional shares of Anchor Common
Stock, will not exceed in the aggregate 10% of the outstanding shares of M&M
Common Stock.
(F) POOLING LETTER. Anchor will have received a letter dated
as of the Effective Date, in form and substance acceptable to Anchor, from Price
Waterhouse LLP to the effect that the Merger will qualify for pooling-of-
interests accounting treatment.
(G) CAPITAL. M&M's capital will not be less than $11.5 million
on the Effective Date.
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(H) ALLOWANCE FOR LOAN AND LEASE LOSSES. M&M's allowance for
possible loan and lease losses will not be less than .88% of M&M's total
outstanding loans and leases and will be adequate to absorb M&M's anticipated
loan and lease losses.
7.3 CONDITIONS TO OBLIGATIONS OF M&M. The obligations of M&M to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by M&M or the fulfillment on or prior to the Effective Date
of each of the following conditions:
(A) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of Anchor contained in this Agreement will be true and correct as of
the date of this Agreement and upon the Effective Date, with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) each and all of the agreements and covenants of Anchor to be
performed and complied with pursuant to this Agreement on or prior to the
Effective Date will have been duly performed and complied with in all material
respects, and M&M will have received a certificate dated the Effective Date
signed by an executive officer of Anchor to such effect.
(B) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any Material Adverse Change in
the financial position or results of operations of Anchor, nor will Anchor have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and M&M will have
received a certificate dated the Effective Date signed by an executive officer
of Anchor to such effect.
(C) FAIRNESS OPINION. M&M will have received, immediately
prior to the mailing of the Joint Proxy Statement to M&M's shareholders, an
opinion from Orr Management Company to the effect that the financial terms of
the Merger are fair from a financial point of view to M&M's shareholders.
(D) LEGAL OPINION. M&M will have received an opinion, dated
the Effective Date, of Gerrish & McCreary, P.C., counsel for Anchor,
incorporating the opinions set forth in Exhibit D.
ARTICLE VIII. TERMINATION
8.1 EVENTS OF TERMINATION. This Agreement may be terminated prior to
the Effective Date, either before or after receipt of required shareholder
approvals:
(A) MUTUAL CONSENT. By the mutual consent of Anchor and M&M,
if the Board of Directors of each so determines by vote of a majority of the
members of its entire board.
(B) BREACH. By Anchor or M&M, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event
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of (A) a material breach by any other Party of any representation or warranty in
this Agreement, which breach cannot be or has not been cured within 30 days
after written notice of the breach has been given to the breaching Party, or (B)
a material breach by any other Party of any of the covenants or agreements in
this Agreement, which breach cannot be or has not been cured within 30 days
after written notice of the breach has been given to the breaching Party.
(C) DELAY. By Anchor or M&M, if its Board of Directors so
determines by vote of a majority of the members of the entire Board, in the
event that the Merger is not consummated by December 31, 1998; provided,
however, that no Party that is in material breach of any of the provisions of
this Agreement will be entitled to terminate this Agreement pursuant to this
Section 8.1(C).
(D) NO SHAREHOLDER APPROVAL. By Anchor or M&M, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, if the shareholder approval contemplated by Section 7.1(A) is not
obtained at the Meetings or any adjournment(s) of the Meetings.
(E) MARKET PRICE. By the Board of Directors of M&M, if it
determines by a vote of a majority of the members of its entire Board, at any
time during the ten-day period commencing two days after the Determination Date,
if both of the following conditions are satisfied:
(1) the Average Closing Price shall be twenty percent
(20%) less than the Starting Price; and
(2) (i) the quotient of the Average Closing Price
divided by the Starting Price (such quotient being the "Anchor Ratio")
shall be less than (ii) the quotient of the Average Index Price divided
by the Index Price on the Starting Date less 0.10 of such quotient
(which quotient less 0.10 shall be the "Index Ratio"); subject,
however, to the following: If M&M refuses to consummate the Merger
pursuant to this Section 8.1(E), it shall give prompt written notice
thereof to Anchor; provided, that such notice of election to terminate
may be withdrawn at any time within the aforementioned ten-day period.
During the five-day period commencing with its receipt of such notice,
Anchor shall have the option to elect to increase the Exchange Ratio to
equal the lesser of (i) the quotient obtained by dividing (1) the
product of 0.80, the Starting Price and the Exchange Ratio (as then in
effect) by (2) the Average Closing Price, and (ii) the quotient
obtained by dividing (1) the product of the Index Ratio and the
Exchange Ratio (as then in effect) by (2) the Anchor Ratio. If Anchor
makes an election contemplated by the preceding sentence, within such
five-day period, it shall give prompt written notice to M&M of such
election pursuant to this Section 8.1(E) and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to
the Exchange Ratio as adjusted pursuant to this Section 8.1(E).
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For purposes of this Section 8.1(E), the following terms shall
have the meanings indicated:
"Average Closing Price" shall mean the average of the
daily last sales prices of Anchor Common Stock as reported on The
Nasdaq Stock Market (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by Anchor) for
the 20 consecutive full trading days in which such shares are traded
ending at the closing of trading on the Determination Date.
"Average Index Price" shall mean the average of the
daily current market price of the Index for the 20 consecutive full
trading days ending at the closing of trading on the Determination
Date.
"Determination Date" shall mean the date on which the
last consent of the Board of Governors of the Federal Reserve System
shall be received.
"Index" shall mean the NASDAQ Bank Index which is a
broad- based capitalization-weighted index of domestic and foreign
common stock of banks that are traded on the Nasdaq National Market
System as well as the SmallCap Market. The Index was developed with a
base level of 100 as of February 5, 1971.
"Index Price" on a given date shall mean the current
market price of the Index for that day.
"Starting Date" shall mean April 28, 1998.
"Starting Price" shall mean $40.50 per share.
If Anchor declares or effects a stock dividend,
reclassification, recapitalization, split up, combination, exchange of shares,
similar transaction between the date of this Agreement and the Determination
Date, the prices for the common stock of Anchor shall be appropriately adjusted
for the purposes of applying this Section 8.1(E).
8.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 6.6, in the event
of the termination or abandonment of this Agreement pursuant to the provisions
of this Section 8.1, this Agreement will become void and have no force or
effect, without any liability on the part of the Parties or any of their
respective directors or officers or shareholders with respect to this Agreement.
(B) OTHER CONSEQUENCES. Notwithstanding anything in this
Agreement to the contrary, no termination of this Agreement will relieve any
Party of any liability for any breach of this Agreement or for any
misrepresentation under this Agreement or be deemed to constitute a waiver of
any remedy available for such breach or misrepresentation. In any action or
proceeding in connection with such breach or misrepresentation, the prevailing
Party will be entitled to reasonable attorneys' fees and expenses.
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(C) TERMINATION FEE. If this Agreement is terminated:
(1)(i) by Anchor, if at any time prior to the M&M
Meeting, the Board of Directors of M&M shall have failed to recommend the Merger
to the holders of M&M Common Stock, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the interests
of Anchor, or (ii) by the action of the Board of Directors of M&M if a tender
offer or exchange offer for 25% or more of the outstanding shares of M&M Common
Stock is commenced (other than by Anchor) and the Board of M&M recommends that
the stockholders of M&M tender their shares in such tender or exchange offer or
otherwise fails to recommend that such stockholders reject such tender offer or
exchange offer within ten business days after the commencement thereof (which,
in the case of an exchange offer, shall be the effective date of the
registration statement relating to such exchange offer);
(2) by M&M or Anchor because of a failure to obtain
the required approval of the stockholders of M&M after an Acquisition Proposal
for M&M shall have been publicly disclosed, or any Person shall have publicly
disclosed an intention (whether or not conditional) to make an Acquisition
Proposal; or
(3) by Anchor pursuant to Section 8.1(B) if the
breach by M&M giving rise to such termination was willful and, at or prior to
such termination, an Acquisition Proposal shall have been made known to M&M or
any of its Subsidiaries or shall have been publicly disclosed to M&M's
stockholders or any Person shall have made known to M&M or any of its
Subsidiaries or otherwise publicly disclosed an intention (whether or not
conditional) to make an Acquisition Proposal and regardless of whether such
Acquisition Proposal shall have been rejected by M&M or withdrawn prior to the
time of such termination, then, in such case, M&M shall pay to Anchor a
termination fee of $1.5 million (the "Termination Fee"). Any Termination Fee
that becomes payable pursuant to this Section shall be paid promptly following
the receipt of a written request for Termination Fee to M&M from Anchor.
Notwithstanding the foregoing, in no event shall M&M be obligated to pay any
Termination Fee if M&M shall be entitled to terminate this Agreement pursuant to
Section 8.1(B) due to a breach by Anchor.
ARTICLE IX. OTHER MATTERS
9.1 SURVIVAL. Only those agreements and covenants in this Agreement
that, by their express terms apply in whole or in part after the Effective Date,
will survive the Effective Date. All other representations, warranties, and
covenants will be deemed only to be conditions of the Merger and will not
survive the Effective Date. If the Merger is abandoned and this Agreement is
terminated, the provisions of Article VIII will apply and the agreements of the
Parties in Section 6.6 will survive such abandonment and termination.
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9.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Agreement may be (A) waived in writing by the Party benefitted by the
provision, or (B) amended or modified at any time (including the structure of
the transactions contemplated by this Agreement) by an agreement in writing
among the Parties approved by their respective Boards of Directors and executed
in the same manner as this Agreement, except that, after the votes by the
shareholders of Anchor and M&M, the consideration to be received by the
shareholders of M&M for each share of M&M Common Stock will not thereby be
altered. Nothing contained in this Section 9.2 is intended to modify Anchor's
rights pursuant to Section 6.7.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed to constitute an original.
This Agreement will become effective when one counterpart has been signed by
each Party.
9.4 GOVERNING LAW. This Agreement will be governed by, and interpreted
in accordance with, the laws of the State of South Carolina, except as federal
law may be applicable.
9.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated by this
Agreement.
9.6 CONFIDENTIALITY. Except as otherwise provided in Section 6.6(B),
each of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
9.7 NOTICES. All notices, requests and other communications hereunder
to a "Party" will be in writing and will be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopier or telex (confirmed in writing) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
Parties.
Anchor: Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29578
Attn: Stephen L. Chryst
with a copy to: Gerrish & McCreary, P.C.
700 Colonial Road - Suite 200
Memphis, TN 38117
Attn: Ann W. Langston, Esq.
M&M: M&M Financial Corporation
307 North Main Street
Marion, SC 29571
Attn: Chester A. Duke
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with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Twelfth Floor
Columbia, SC 29201
Attn: George S. King, Jr., Esq.
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the Parties with reference to
transactions contemplated by this Agreement and supersedes any and all other
oral or written agreements previously made. Nothing in this Agreement, expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ANCHOR FINANCIAL CORPORATION
By: /s/
-----------------------------
Stephen L. Chryst
Its President and
Chief Executive Officer
M&M FINANCIAL CORPORATION
By: /s/
-----------------------------
Chester A. Duke
Its Chairman and President
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APPENDIX C
CHAPTER 13
Dissenters' Rights
Article 1
Right to Dissent and Obtain Payment for Shares
SECTION 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 33-13-102 and who
exercises that right when and in the manner required by
Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. The value of the
shares is to be determined by techniques that are accepted
generally in the financial community.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank
loans or, if none, at a rate that is fair and equitable under
all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a
nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 33-13-102. RIGHT TO DISSENT.
A shareholder is entitled to dissent from, and obtain payment of the
fair value of, his shares in the event of any of the following corporate
actions:
(1) consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger
by Section 33-11-103 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the
corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is
a parent that is merged with its subsidiary under Section
33-11-108;
(2) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares are to
be acquired, if the shareholder is entitled to vote on the
plan;
(3) consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order
or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale
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must be distributed to the shareholders within one year after
the date of sale;
(4) an amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's
shares because it:
(i) alters or abolishes a preferential right of the
shares;
(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the
shares;
(iii) alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so
created is to be acquired for cash under Section
33-6-104; or
(5) the approval of a control share acquisition under Article 1 of
Chapter 2 of Title 35;
(6) any corporate action to the extent the articles of
incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
SECTION 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenter's rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
Article 2
Procedure for Exercise of Dissenters' Rights
SECTION 33-13-200. NOTICE OF DISSENTER'S RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section
33-13- 102 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
33-13-220.
SECTION 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenter's rights (1) must give to the
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corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated and (2) must not
vote his shares in favor of the proposed action. A vote in favor of the proposed
action cast by the holder of a proxy solicited by the corporation shall not
disqualify a shareholder from demanding payment for his shares under this
chapter.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his shares under this chapter.
SECTION 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenter's notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days
after the corporate action was taken and must:
(1) state where the payment demand must be sent and where
certificates for certificated shares must be
deposited;
(2) inform holders of uncertificated shares to what
extent transfer of the shares is to be restricted
after the payment demand is received;
(3) supply a form for demanding payment that includes the
date of the first announcement to news media or to
shareholders of the terms of the proposed corporate
action and requires that the person asserting
dissenters' rights certify whether or not he or, if
he is a nominee asserting dissenters' rights on
behalf of a beneficial shareholder, the beneficial
shareholder acquired beneficial ownership of the
shares before that date;
(4) set a date by which the corporation must receive the
payment demand, which may not be fewer than thirty
nor more than sixty days after the date the
subsection (a) notice is delivered and set a date by
which certificates for certificated shares must be
deposited, which may not be earlier than twenty days
after the demand date; and
(5) be accompanied by a copy of this chapter.
SECTION 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-
220 must demand payment, certify whether he (or the beneficial shareholder on
whose behalf he is asserting dissenters' rights) acquired beneficial ownership
of the shares before the date set forth in the dissenters' notice pursuant to
Section 33-13-220(b)(3), and deposit his certificates in accordance with the
terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not comply substantially with the
requirements that he demand payment and deposit his share certificates where
required, each by the date set in the dissenters' notice, is not entitled to
payment for his shares under this chapter.
SECTION 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section 33-13-
260.
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(b) The person for whom dissenter's rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SECTION 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months
before the date of payment, an income statement for
that year, a statement of changes in shareholders'
equity for that year, and the latest available
interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair
value of the shares and an explanation of how the
fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand
additional payment under Section 33-13-280; and
(5) a copy of this chapter.
SECTION 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
SECTION 33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by Section 33-
13-250 from a dissenter as to any shares of which he (or the beneficial owner on
whose behalf he is asserting dissenters' rights) was not the beneficial owner on
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
SECTION 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amounts of interest due and demand
payment of his estimate (less any payment under Section 33-15-250) or reject the
4
<PAGE>
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section
33-13- 250 or offered under Section 33-13-270 is less
than the fair value of his shares or that the
interest due is calculated incorrectly;
(2) corporation fails to make payment under Section
33-13-250 or to offer payment under Section 33-13-270
within sixty days after the date set for demanding
payment; or
(3) corporation, having failed to take the proposed
action, does not return the deposited certificates or
release the transfer restrictions imposed on
uncertificated shares within sixty days after the
date set for demanding payment.
(b) A dissenter waives his right to demand additional payment under
this section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
5
<PAGE>
APPENDIX D
___________, 1998
Board of Directors
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29578
Ladies and Gentlemen:
Anchor Financial Corporation ("Anchor") and ComSouth Bankshares, Inc.
("ComSouth") have entered into an Agreement and Plan of Merger, dated as of
April 14, 1998 (the "ComSouth Agreement"), pursuant to which Comsouth will be
merged with and into Anchor (the "ComSouth Merger"). Upon consummation of the
ComSouth Merger, each share of ComSouth common stock, no par value, issued and
outstanding immediately prior to the ComSouth Merger will be converted into the
right to receive 0.75 shares (the "ComSouth Exchange Ratio") of Anchor common
stock, no par value ("Anchor Common Stock"). The terms and conditions of the
ComSouth Merger are more fully set forth in the ComSouth Agreement.
Anchor has also entered into an Agreement and Plan of Merger with M&M Financial
Corporation ("M&M"), dated as of May 15, 1998 (the "M&M Agreement"), pursuant to
which M&M will be merged with and into Anchor (the "M&M Merger"). Upon
consummation of the M&M Merger, each share of M&M common stock, par value $5.00
per share, issued and outstanding immediately prior to the M&M Merger will be
converted into the right to receive 0.87 shares (the "M&M Exchange Ratio") of
Anchor Common Stock. The terms and conditions of the M&M Merger are more fully
set forth in the M&M Agreement.
You have requested our opinion as to the fairness of each of the ComSouth
Exchange Ratio and the M&M Exchange Ratio to the holders of shares of Anchor
Common Stock from a financial point of view.
Sandler O'Neill & Partners, L.P., as part of its investment banking business, is
regularly engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the ComSouth Agreement and exhibits thereto; (ii) the M&M Agreement
and exhibits thereto; (iii) certain publicly available financial statements of
Anchor and other historical financial information provided by Anchor that we
deemed relevant; (iv) certain publicly available financial statements of
ComSouth and other historical financial information provided by ComSouth that we
deemed relevant; (v) certain publicly available financial statements of M&M and
other historical financial information provided by M&M that we deemed relevant;
(vi) certain financial analyses and forecasts of Anchor prepared by and reviewed
with management of Anchor and the views of senior management of Anchor regarding
Anchor's past and current business operations, results thereof, financial
condition and future prospects; (vii) certain financial analyses and forecasts
of ComSouth prepared by and reviewed with management of ComSouth and the views
of senior management of ComSouth regarding ComSouth's past and current business
operations, results thereof, financial condition and future prospects; (viii)
certain financial analyses and forecasts of M&M prepared by and reviewed with
management of M&M and the views of senior management of M&M regarding M&M's past
and current business operations, results thereof, financial condition and future
prospects; (ix) the pro forma impact of the ComSouth Merger and the M&M Merger
on Anchor; (x) the publicly reported historical price and trading activity for
each of Anchor's and ComSouth's common stock, and a comparison of certain
financial and stock market information for Anchor, ComSouth and M&M with similar
publicly available information for certain other companies the securities of
which are publicly traded; (xi) the financial terms of recent business
<PAGE>
Board of Directors
Anchor Financial Corporation
_______________, 1998
Page 2
combinations in the banking industry, to the extent publicly available; (xii)
the current market environment generally and the banking environment in
particular; and (xiii) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant.
In performing our review, we have assumed and relied upon, without independent
verification, the accuracy and completeness of all the financial information,
analyses and other information that was publicly available or otherwise
furnished to, reviewed by or discussed with us, and we do not assume any
responsibility or liability for the accuracy or completeness thereof. We did not
make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Anchor, ComSouth or M&M or any of their subsidiaries, or the collectibility of
any such assets, nor have we been furnished with any such evaluations or
appraisals. With respect to the financial projections reviewed with management,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of Anchor, ComSouth and M&M and
that such performances will be achieved, and we express no opinion as to such
financial projections or the assumptions on which they are based. We have also
assumed that there has been no material change in Anchor's, ComSouth's or M&M's
assets, financial condition, results of operations, business or prospects since
the date of the most recent financial statements made available to us. We have
assumed in all respects material to our analysis that Anchor, ComSouth and M&M
will remain as going concerns for all periods relevant to our analyses, that all
of the representations and warranties contained in the ComSouth Agreement and
the M&M Agreement and all related agreements are true and correct, that each
party to such agreements will perform all of the covenants required to be
performed by such party under such agreements, that the conditions precedent in
such agreements are not waived and that the ComSouth Merger and the M&M Merger
will be accounted for as poolings of interests.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of Anchor Common Stock will be when
issued to ComSouth's shareholders or M&M's shareholders pursuant to the ComSouth
Agreement and the M&M Agreement, respectively, or the prices at which Anchor's,
ComSouth's or M&M's common stock will trade at any time.
We have acted as Anchor's financial advisor in connection with the ComSouth
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the ComSouth Merger. We have also received a
fee for rendering this opinion.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Anchor and ComSouth for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of Anchor in connection with
its consideration of the ComSouth Merger and the M&M Merger and does not
constitute a recommendation to any stockholder of Anchor as to how such
stockholder should vote at any meeting of stockholders called to consider and
vote upon the ComSouth Merger or the M&M Merger. Our opinion is not to be quoted
<PAGE>
Board of Directors
Anchor Financial Corporation
_______________, 1998
Page 3
or referred to, in whole or in part, in a registration statement, prospectus,
proxy statement or in any other document, nor shall this opinion be used for any
other purposes, without Sandler O'Neill's prior written consent; provided,
however, that we hereby consent to the inclusion of this opinion as an appendix
to the Joint Proxy Statement/Prospectus of Anchor, ComSouth and M&M dated the
date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the ComSouth Exchange Ratio and the M&M Exchange Ratio are fair to
the holders of shares of Anchor Common Stock from a financial point of view.
Very truly yours,
<PAGE>
APPENDIX E
May 29, 1998
Board of Directors
ComSouth Bankshares, Inc.
1136 Washington Street, Suite 200
Post Office Box 11671
Columbia, South Carolina 29211-1671
Members of the Board:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, of the consideration to be received by the stockholders
of ComSouth Bankshares, Inc. ("ComSouth Bankshares") under the terms of a
certain Agreement and Plan of Merger (the "Agreement") by and between ComSouth
Bankshares and Anchor Financial Corporation ("Anchor Financial") pursuant to
which ComSouth Bankshares will merge with and into Anchor Financial (the
"Merger"). Under the terms of the Agreement, each of the outstanding shares of
ComSouth Bankshares common stock shall be converted into the right to receive
.75 shares of Anchor Financial common stock. The foregoing summary of the Merger
is qualified in its entirety by reference to the Agreement.
Interstate/Johnson Lane Corporation ("IJL") is one of the largest independent
investment banking firms headquartered in the Southeast. As part of its regular
investment banking business, IJL evaluates securities in connection with
negotiated underwritings, leveraged buyouts, secondary distributions, private
placements, estate and gift valuations, mergers and acquisitions, employee stock
ownership plan purchases and other activities.
We have developed our Opinion on the basis of the findings and conclusions
arising from our conduct of due diligence with respect to ComSouth Bankshares
and Anchor Financial. In arriving at our Opinion, we have, among other things:
1) reviewed the terms and conditions of the Agreement;
2) analyzed certain historical business and financial information
relating to ComSouth Bankshares and Anchor Financial;
3) conducted discussions with members of the senior management of
ComSouth Bankshares and Anchor Financial with respect to the
business and prospects of ComSouth Bankshares and Anchor
Financial and the strategic objectives of the Merger;
4) reviewed financial and market information as to certain other
publicly traded companies believed by us to be reasonably
similar to ComSouth Bankshares;
5) considered the financial terms of selected merger and
acquisition transactions in the bank industry believed by us
to be reasonably similar to the proposed Merger;
6) performed a pro forma dilution analysis using financial
projections for ComSouth Bankshares and Anchor Financial in
calendar year 1998 and 1999, including potential cost savings,
merger costs and synergies, to estimate the impact to the
shareholders Anchor Financial; and
7) conducted, as appropriate and relevant, such other financial
studies, analyses and investigations as the basis for the
conclusions set forth in this Opinion.
<PAGE>
Board of Directors
ComSouth Bankshares, Inc.
May 29, 1998
Page 2
We have relied upon and assumed, without independent verification, the accuracy
and completeness of the financial and other information furnished to us by
ComSouth Bankshares and Anchor Financial including, without limitation, all
financial projections of ComSouth Bankshares and Anchor Financial. Accordingly,
we do not make any warranties, nor do we express any opinion regarding the
accuracy of such projections. We have also relied upon the assurances of
management of ComSouth Bankshares and Anchor Financial that they are unaware of
any facts that would make the information provided to us incomplete or
misleading.
Based upon and subject to the foregoing, and such other matters as we considered
relevant, it is our opinion that as of the date hereof, the consideration
provided for in the Agreement is fair, from a financial point of view, to the
stockholders of ComSouth Bankshares.
Our fees for rendering our Opinion are not contingent upon the Opinion expressed
herein, and neither IJL nor any of its affiliates or employees has a present or
intended material financial interest in the Company. Further, IJL is independent
of all parties participating in the proposed Merger.
This Opinion is furnished pursuant to our engagement letter dated
______________. Our Opinion is directed to the Board of Directors of ComSouth
Bankshares and does not constitute a recommendation to any shareholder of
ComSouth Bankshares as to how such a shareholder should vote in connection with
the Merger. This Opinion is a summary discussion of our underlying analyses and
may be included in communications to the shareholders of ComSouth Bankshares
provided that IJL approves of such disclosures prior to publication.
Very truly yours,
INTERSTATE/JOHNSON LANE
CORPORATION
<PAGE>
APPENDIX F
May 15, 1998
Board of Directors
M&M Financial Corporation
307 North Main Street
Marion, SC 29571
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the stockholders, ("Company Common Stock"), of M&M
Financial Corporation (the "Company") of the consideration to be received by
such stockholders in the proposed merger (the "Merger") of the Company with
Anchor Financial Corporation ("Acquiror") pursuant to an Agreement and Plan of
Reorganization (the "Merger Agreement"), between the Company and Acquiror. Upon
the effectiveness of the Merger, each issued and outstanding share of Company
Common Stock (other than shares owned by stockholders who properly exercise
dissenters' rights) will be converted into and represent the right to receive
0.87 (the "Exchange Ratio") of a share of the common stock of Acquiror (the
"Merger Consideration"). However, the Merger may be terminated or be subject to
renegotiation if the Board of Directors of M&M, at any time during the ten-day
period commencing two days after the Determination Date, determines by majority
vote that:
(1) the Average Closing Price is twenty percent (20%) less than
the Starting Price; and
(2) (i) the quotient of the Average Closing Price divided by the
Starting Price (such quotient being the "Anchor Ratio") is
less than (ii) the quotient of the Average Index Price divided
by the Index Price on the Starting Date less 0.10 of such
quotient (which quotient less 0.10 shall be the "Index
Ratio"). (See Exhibit 1 for definitions.)
In connection with rendering our opinion, we have reviewed and analyzed, among
other things, the following: (i) the Merger Agreement; (ii) certain publicly
available information concerning the Company and Acquiror, including the Annual
Reports on Form 10-K of the Company for each of the years in the three year
period ended December 31, 1995-1997 and of the Acquiror for each of the years in
the three year period ended December 31, 1995-1997, the Quarterly Reports on
Form 10-Q of the Company and Acquiror for the quarter ended March 31, 1998,
(iii) certain available financial forecasts concerning the business and
operations of the Company and Acquiror that were prepared by management of the
Company and Acquiror, respectively, and (iv) certain publicly available
information with respect to other companies that we believe to be comparable in
certain respects to the Company and Acquiror and the trading markets for such
other companies' securities. We have held discussions with certain officers and
employees of the Company and Acquiror to discuss the past and current business
operations, financial condition and prospects of the Company and Acquiror, as
well as matters we believe relevant to our inquiry. We have also considered
other information, financial studies, analyses, investigations, and financial,
economic and market criteria that we deemed relevant.
In our review and analysis, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided us, or that
is publicly available, and have not attempted independently to verify nor
assumed responsibility for verifying any such information. With respect to the
financial projections, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
Company or Acquiror, as the case may be, and we express no opinion with respect
to such
<PAGE>
Board of Directors
M&M Financial Corporation
May 15, 1998
Page 2
forecasts or the assumptions on which they are based. We have not made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets (including properties and
facilities) or liabilities of the Company or Acquiror.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors that we have deemed appropriate
under the circumstances, including the following: (i) the historical and current
financial position and results of operations of the Company and Acquiror; (ii)
the historical and current market for the equity securities of the Company,
Acquiror and other companies that we believe to be comparable in certain
respects to the Company or Acquiror; (iii) the nature and terms of certain other
acquisition transactions that we believe to be relevant; and (iv) the current
and historical relationships between the trading levels of the Company Common
Stock and Acquiror Common Stock. We have taken into account our assessment of
general economic, market and financial conditions and our knowledge of the
banking industry, as well as our experience in connection with similar
transactions and securities valuation generally. Our opinion is based upon
conditions as they exist and can be evaluated on the date hereof, and we assume
no responsibility to update or revise our opinion based upon circumstance or
events occurring after the date hereof. Our opinion expressed below does not
imply any conclusion as to the likely trading range for Acquiror Common Stock
following the consummation of the Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and factors that generally influence the price of
securities. Our opinion does not address the Company's underlying business
decision to effect the Merger. Our opinion is directed only to the fairness,
from a financial point of view, of the Merger Consideration and does not
constitute a recommendation concerning how holders of Company Common Stock
should vote with respect to the Merger Agreement. Orr Management Company was not
requested to, and did not, solicit third-party offers to acquire all or any part
of the Company immediately preceding or in connection with the process resulting
in the proposed Merger nor did Orr Management Company participate in the
discussions or negotiations with respect to the proposed Merger. Our opinion
does not address the fairness, from a financial point of view, of any Exchange
Ratio that may be agreed upon by the Company and Acquiror pursuant to the
provision of the Merger Agreement that provides for renegotiation of the
Exchange Ratio.
In rendering our opinion we have assumed that in the course of obtaining the
necessary regulatory approvals for the Merger no restrictions will be imposed
that would have a material adverse affect on the contemplated benefits of the
Merger to the Company following the Merger. We understand that the Merger will
qualify as a tax-free reorganization under the Internal Revenue Code and that,
for accounting purposes, the Merger will be accounted for as a pooling of
interests.
We will receive a fee from the Company for delivery of this fairness opinion,
the payment of which is not contingent upon consummation of the Merger.
Subject to the foregoing, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the stockholders is fair to such holders
from a financial point of view.
Very truly yours,
Orr Management Company
<PAGE>
INDEX TO FINANCIAL STATEMENTS
COMSOUTH BANKSHARES, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants ........................................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996 ................................ F-3
Consolidated Statements of Operations for Years ended
December 31, 1997, 1996 and 1995 ....................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for Years ended December 31, 1997, 1996 and 1995 ....................................... F-5
Consolidated Statements of Cash Flows for Years ended December 31, 1997, 1996 and 1995 ... F-6
Notes to Consolidated Financial Statements for Years ended
December 31, 1997, 1996 and 1995 ....................................................... F-7
</TABLE>
UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets at March 31, 1998 (unaudited)
and December 31, 1997 (audited) .......................... F-24
Consolidated Statements of Operations for the Three Months
ended March 31, 1998 and 1997 .............................. F-25
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months ended March 31, 1998 and 1997 ......... F-26
Consolidated Statement of Cash Flows for the Three Months
ended March 31, 1998 and 1997 .............................. F-27
Notes to Consolidated Financial Statements .................. F-28
</TABLE>
M&M FINANCIAL CORPORATION AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants ................................. F-31
Consolidated Balance Sheets at December 31, 1997 and 1996 ......... F-32
Consolidated Statements of Income for Years ended
December 31, 1997, 1996 and 1995 ................................. F-33
Consolidated Statements of Changes in Stockholders' Equity
for Years ended December 31, 1997, 1996 and 1995 ................. F-34
Consolidated Statements of Cash Flows for Years ended
December 31, 1997, 1996 and 1995 ................................. F-35
Notes to Consolidated Financial Statements for Years ended
December 31, 1997, 1996 and 1995 ................................. F-36
</TABLE>
UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheets at March 31, 1998 (unaudited)
and December 31, 1997 (audited) ................................... F-53
Condensed Consolidated Statements of Income for the Three Months
ended March 31, 1998 and 1997 ..................................... F-54
Condensed Consolidated Statements of Changes in Stockholders' Equity
for the Three Months ended March 31, 1998 and 1997 ................ F-55
Condensed Consolidated Statements of Cash Flows for the Three Months
ended March 31, 1998 and 1997 ..................................... F-56
Notes to Condensed Consolidated Financial Statements ............... F-57
</TABLE>
F-1
<PAGE>
J. W. HUNT AND COMPANY, LLP
Certified Public Accountants
<TABLE>
<S> <C> <C>
William R. Hunt, CPA Middleburg Office Park
John C. Creech, Jr., CPA Members 1607 St. Julian Place
Anne H. Ross, CPA American Institute of Post Office Box 265
William F. Quattlebaum, CPA Certified Public Accountants Columbia, SC 29202-0265
Susan R. Bernard, CPA Private Companies and SEC Practice Sections 803-254-8196
Fax 803-256-1254
Members of CPA Associates with Associated Offices in
J. W. Hunt, CPA (1907-1987) Principal US and International Cities
</TABLE>
To the Board of Directors and Stockholders
of ComSouth Bankshares, Inc.
We have audited the consolidated balance sheets of ComSouth Bankshares,
Inc. (the "Corporation") and its subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Corporation and its subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
J. W. HUNT AND COMPANY, LLP
Columbia, South Carolina
January 31, 1998
F-2
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................................ $ 9,332,658 $ 9,441,553
Federal funds sold ..................................................................... 6,820,000 3,650,000
------------- -------------
Total cash and cash equivalents ...................................................... 16,152,658 13,091,553
Investment securities:
Held-to-maturity, at amortized cost (fair value of $18,558,395 in 1997 and
$13,035,431 in 1996) ................................................................ 18,498,356 13,071,927
Available-for-sale, at fair value (amortized cost of $24,504,127 in 1997 and
$21,070,548 in 1996) ................................................................ 24,527,758 21,034,568
Loans receivable:
(less allowance for loan losses 1997 -- $1,805,860; 1996--$1,802,402) ................ 142,670,629 113,879,003
Accrued interest receivable ............................................................ 1,643,676 1,343,298
Premises and equipment, net ............................................................ 1,311,260 1,489,159
Other assets ........................................................................... 767,201 724,956
------------- -------------
Total Assets ........................................................................... $ 205,571,538 $ 164,634,464
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing demand ........................................................... 41,283,341 35,677,721
NOW, money market and savings ........................................................ 70,904,709 56,290,307
Time deposits of $100,000 or more .................................................... 34,363,250 26,984,224
Time deposits less than $100,000 ..................................................... 33,235,474 23,442,953
Other time deposits .................................................................. 2,885,885 3,012,613
------------- -------------
Total deposits ......................................................................... 182,672,659 145,407,818
Federal funds purchased and securities sold under agreements to repurchase ............. 3,096,166 2,674,394
Note payable ........................................................................... 1,189,167 1,200,000
U.S. Treasury tax and loan accounts .................................................... 1,330,114 784,106
Accrued interest ....................................................................... 625,948 446,225
Other liabilities ...................................................................... 641,912 481,099
------------- -------------
Total Liabilities ...................................................................... 189,555,966 150,993,642
------------- -------------
Stockholders' Equity
Preferred stock
(no par value, 50,000,000 shares authorized;no shares issued or outstanding)
Special stock
(no par value, 50,000,000 shares authorized;no shares issued or outstanding)
Common stock
(no par value, 50,000,000 shares authorized; shares issued and outstanding --
2,317,600 in 1997 and 2,299,138 in 1996) ............................................ 13,699,539 13,616,273
Retained earnings ...................................................................... 2,300,437 48,296
Unrealized gain (loss) on investment securities available-for- sale, net of applicable
deferred income taxes ................................................................ 15,596 (23,747)
------------- -------------
Total Stockholders' Equity ............................................................. 16,015,572 13,640,822
------------- -------------
Commitments and contingencies
(Notes 2, 12, and 20) ................................................................
Total Liabilities and Stockholders' Equity ............................................. $ 205,571,538 $ 164,634,464
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans ..................................................... $ 11,945,201 $ 9,454,242 $ 7,723,855
Investment securities .......................................................... 2,429,235 1,633,488 1,326,097
Federal funds sold ............................................................. 127,606 147,320 148,778
Dividends ...................................................................... 91,145 41,229 34,911
------------ ----------- -----------
Total interest income ......................................................... 14,593,187 11,276,279 9,233,641
------------ ----------- -----------
Interest expense:
Deposits ....................................................................... 6,263,216 4,756,452 4,008,427
Federal funds purchased and securities sold under agreements to repurchase ..... 195,757 87,731 82,783
U.S. Treasury tax and loan accounts ............................................ 31,425 33,459 33,120
Note payable ................................................................... 90,096 45,913 233
------------ ----------- -----------
Total interest expense ........................................................ 6,580,494 4,923,555 4,124,563
------------ ----------- -----------
Net interest income ............................................................ 8,012,693 6,352,724 5,109,078
Provision for loan losses ...................................................... 334,000 110,000 195,000
------------ ----------- -----------
Net interest income after provision for loan losses ............................ 7,678,693 6,242,724 4,914,078
------------ ----------- -----------
Noninterest income:
Lending operations and services ................................................ 1,223,621 1,013,470 957,418
Service charges on deposit accounts ............................................ 689,840 555,723 442,397
Other .......................................................................... 81,654 76,861 69,527
------------ ----------- -----------
1,995,115 1,646,054 1,469,342
------------ ----------- -----------
Noninterest expenses:
Salaries and employee benefits ................................................. 3,090,304 2,661,977 2,481,335
Occupancy expenses ............................................................. 448,647 433,593 429,183
Furniture and equipment ........................................................ 474,652 406,767 341,966
Advertising and marketing ...................................................... 161,966 89,358 78,643
Other .......................................................................... 1,883,592 1,539,418 1,244,695
------------ ----------- -----------
6,059,161 5,131,113 4,575,822
------------ ----------- -----------
Income before provision for income taxes ....................................... 3,614,647 2,757,665 1,807,598
Provision for income taxes ..................................................... (1,360,424) (929,239) (426,127)
------------ ----------- -----------
Net income ..................................................................... $ 2,254,223 $ 1,828,426 $ 1,381,471
============ =========== ===========
Basic earnings per common share:
Weighted average shares outstanding ........................................... 2,311,098 2,287,562 2,260,369
Net income per weighted average number of shares outstanding .................. $ 0.98 $ .80 $ .61
============ =========== ===========
Diluted earnings per common share:
Weighted average shares outstanding ........................................... 2,464,833 2,387,573 2,299,470
Net income per weighted average number of shares outstanding .................. $ 0.91 $ .77 $ .60
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
Shares (1) Amount
------------ --------------
<S> <C> <C>
Balance at December 31, 1994 ......................... 2,052,582 $11,711,421
Change in unrealized gain on investment
securities available-for-sale, net of applicable
deferred income taxes ..............................
Issuance of common stock ............................. 25,868 118,386
Net income ........................................... --------- ----------
Balance at December 31, 1995 ......................... 2,078,450 11,829,807
Change in unrealized loss on investment
securities available-for-sale, net of applicable
deferred income taxes ..............................
6.4% stock dividend 207,900 1,732,500
Cash in lieu of fractional shares ....................
Issuance of common shares ............................ 12,788 53,966
Net income ........................................... --------- ----------
Balance at December 31, 1996 ......................... 2,299,138 13,616,273
Change in unrealized gain on investment
securities available-for-sale, net of applicable
deferred income taxes ..............................
Cash in lieu of fractional shares ....................
Issuance of common shares ............................ 18,462 83,266
Net income ........................................... --------- -----------
Balance at December 31, 1997 ......................... 2,317,600 $13,699,539
========= ===========
<CAPTION>
Retained Unrealized
Earinings Gain (loss) on Total
(Accumulated Investment Stockholders'
Deficit Securities Equity
---------------- ---------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1994 ......................... ($ 1,426,885) ($ 180,560) $10,103,976
Change in unrealized gain on investment
securities available-for-sale, net of applicable
deferred income taxes .............................. 275,305 275,305
Issuance of common stock ............................. 118,386
Net income ........................................... 1,381,471 1,381,471
----------- ---------- -----------
Balance at December 31, 1995 ......................... (45,414) 94,745 11,879,138
Change in unrealized loss on investment
securities available-for-sale, net of applicable
deferred income taxes .............................. (118,492) (118,492)
6.4% stock dividend (1,732,500)
Cash in lieu of fractional shares .................... (2,216) (2,216)
Issuance of common shares ............................ 53,966
Net income ........................................... 1,828,426 1,828,426
----------- --------- -----------
Balance at December 31, 1996 ......................... 48,296 (23,747) 13,640,822
Change in unrealized gain on investment
securities available-for-sale, net of applicable
deferred income taxes .............................. 39,343 39,343
Cash in lieu of fractional shares .................... (2,082) (2,082)
Issuance of common shares ............................ 83,266
Net income ........................................... 2,254,223 2,254,223
----------- -----------
Balance at December 31, 1997 ......................... $ 2,300,437 $ 15,596 $16,015,572
=========== ========= ===========
</TABLE>
- - ---------
(1) Adjusted for a three-for-two stock split in 1997.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------
1997 1996 1995
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................................... $ 2,254,223 $ 1,828,426 $ 1,381,471
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization ............................................ 381,752 330,309 288,565
Provision for loan losses ................................................ 334,000 110,000 195,000
Deferred tax expense (benefit) ........................................... 49,622 (113,137) (200,000)
Amortization of premium and accretion of discount on investment
securities .............................................................. (36,657) 9,932 17,726
Gross amount of loans originated for resale .............................. (1,800,900)
Proceeds from loans sold ................................................. 1,800,900
Increase in accrued interest receivable .................................. (300,378) (238,393) (304,492)
(Increase) decrease in other assets ...................................... (54,478) 21,381 43,489
Increase (decrease) in interest payable .................................. 179,723 (130,949) 340,014
Increase (decrease) in other liabilities ................................. 103,155 (480,222) 713,520
------------- ------------- -------------
Cash provided by operating activities .................................... 2,910,962 1,337,347 2,475,293
------------- ------------- -------------
Cash flows from investing activities:
Purchases of investment securities held-to-maturity ...................... (6,963,543) (8,623,337) (493,906)
Purchases of investment securities available-for-sale .................... (7,686,525) (11,174,538) (11,556,551)
Maturities of investment securities held-to-maturity ..................... 1,576,718 4,862,449 7,273,578
Maturities of investment securities available-for-sale ................... 4,250,000 2,774,700 4,919,100
Net increase of loans .................................................... (30,734,022) (21,891,265) (22,740,893)
Gross amount of loans serviced for others ................................ 4,299,242 4,233,697 4,464,426
Remittances on loans serviced for others ................................. (2,690,846) (5,307,348) (5,641,798)
Purchases of premises and equipment ...................................... (203,853) (531,910) (308,190)
Proceeds from sale of other real estate owned ............................ 8,063
------------- ------------- -------------
Cash used for investing activities ....................................... (38,152,829) (35,657,552) (24,076,171)
------------- ------------- -------------
Cash flows from financing activities:
Net increase in deposits ................................................. 37,264,841 27,645,028 34,854,381
Increase (maturities of) in federal funds purchased and securities sold
under agreements to repurchase .......................................... 421,772 919,482 (1,190,837)
(Repayment) proceeds of note payable ..................................... (10,833) 1,200,000 (125,000)
Increase in U.S. treasury tax and loan accounts .......................... 546,008 345,620 86,928
Proceeds from issuance of common stock ................................... 83,266 53,966 118,386
Cash in lieu of fractional shares ........................................ (2,082) (2,216)
------------- ------------- -------------
Cash provided by financing activities .................................... 38,302,972 30,161,880 33,743,858
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents ......................... 3,061,105 (4,158,325) 12,142,980
------------- ------------- -------------
Cash and cash equivalents at beginning of year ........................... 13,091,553 17,249,878 5,106,898
------------- ------------- -------------
Cash and cash equivalents at end of year ................................. $ 16,152,658 $ 13,091,553 $ 17,249,878
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................... $ 6,400,771 $ 5,054,504 $ 3,784,548
Cash paid for taxes ...................................................... $ 1,398,336 $ 1,575,933 $ 107,995
Noncash adjustments to report investment securities available-for-sale at
fair value:
Investment securities available-for-sale ................................. $ 23,631 $ (35,980) $ 143,553
Other (liabilities) assets ............................................... (8,035) 12,233 (48,808)
------------- ------------- -------------
Unrealized gain (loss) on investment securities available-for-sale, net of
applicable deferred income taxes ........................................ $ 15,596 $ (23,747) $ 94,745
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1997, 1996 and 1995
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: ComSouth Bankshares, Inc. (the "Corporation") commenced
organizational activities on January 1, 1987, and was chartered on May 15,
1987, as a South Carolina corporation. The Corporation was formed to become a
bank holding company and its wholly-owned subsidiaries, Bank of Columbia, NA
("BOCL") and Bank of Charleston, NA ("BOC") opened for business in Columbia,
South Carolina, on July 12, 1988, and in Charleston, South Carolina, on April
12, 1990, respectively. BOCL and BOC provide general banking services in the
State of South Carolina. The Banks' primary source of revenue is providing
loans to customers, who are predominately small and middle-market businesses
and individuals.
Principles of Consolidation: The accompanying consolidated financial
statements include the accounts of the Corporation and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Consolidated Statements of Cash Flows: For purposes of reporting cash
flows, cash and cash equivalents include cash and federal funds sold.
Generally, federal funds are sold for one-day periods.
Investment Securities Held-to-Maturity: Investment securities which the
Bank has the positive intent and ability to hold to maturity are reported at
cost, adjusted for premiums and discounts that are recognized in interest
income using methods approximating the interest method over the period to
maturity.
Investment Securities Available-for-Sale: Investment securities
available-for-sale consist of securities not classified as securities
held-to-maturity.
Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component of
stockholders' equity until realized.
Gains and losses on the sale of securities available-for-sale are
determined using the specific-identification method.
Declines in the fair value of individual securities held-to-maturity and
available-for-sale below their cost that are other than temporary would result
in write-downs of the individual securities to their fair value. The related
write-downs would be included in earnings as realized losses. The Corporation
has not had any such write-downs. Premiums and discounts are recognized in
interest income using methods approximating the interest method over the period
to maturity.
Loans Receivable: Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding unpaid principal balances adjusted for any
charge-offs and the allowance for loan losses.
Nonaccrual Loans: Commercial loans are placed on nonaccrual at the time
the loan is 90 days delinquent unless the credit is well secured and in process
of collection. Residential real estate loans are typically placed on nonaccrual
at the time the loan is 120 days delinquent. Credit card loans, other unsecured
personal credit lines and certain consumer finance loans are typically
charged-off at 120 days delinquent. In all cases, loans must be placed on
nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash basis or cost recovery method, until
qualifying for return to accrual. Loans are returned to accrual status when all
the principal and interest amounts contractually due are reasonably assured of
repayment within a reasonable time frame and when the borrower has demonstrated
payment performance of cash or cash equivalents for a minimum of six months.
Allowance for Loan Losses: The allowance for loan losses is established through
provisions for loan losses charged against income. Portions of loans deemed to
be uncollectible are charged against the allowance for losses, and subsequent
recoveries, if any, are credited to the allowance.
F-7
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
The allowance for loan losses related to impaired loans that are
identified for evaluation is based on discounted cash flows using the loan's
initial effective interest rate or the fair value, less selling costs, of the
collateral for collateral dependent loans. By the time a loan becomes probable
of foreclosure it has been charged down to fair value, less estimated cost to
sell.
The allowance for loan losses is maintained at a level believed adequate
by management to absorb estimated probable inherent loan losses. Management's
periodic evaluation of the adequacy of the allowance is based on the Banks'
past loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates that are susceptible to significant change including the
amounts and timing of future cash flows expected to be received on impaired
loans.
Foreclosed Assets: Foreclosed assets, which are recorded in other assets,
include properties, acquired through foreclosure or in full or partial
satisfaction of the related loan. Foreclosed assets initially are recorded at
the lower of fair value, net of estimated selling costs, or costs, at the date
of foreclosure. After foreclosure, valuations are periodically performed by
management and the assets are carried at the lower of cost or fair value, less
estimated costs to sell. Revenue and expenses from operations and changes in
the valuation allowance are included in other expenses.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities: In June 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (FASB No. 125), which provides new accounting and reporting
standards for sales, securitizations, and servicing of receivables and other
financial assets and extinguishments of liabilities.
FASB No. 125 is effective for transactions occurring after December 31,
1996, except those provisions relating to repurchase agreements, securities
lending and other similar transactions and pledged collateral, which were
delayed until after December 31, 1997 by FASB No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB No. 125, an amendment of FASB
Statement No. 125." The adoption of FASB No. 125 in 1997 did not have a
material impact on the Corporation's financial position or results of
operation. The adoption of FASB No. 127 in 1998 is not expected to have a
material impact on the Corporation's financial position or results of
operations.
Premises and Equipment: Premises and equipment are stated at cost, less
accumulated depreciation. Additions and major replacements or betterments of
premises and equipment are capitalized. Maintenance, repairs and minor
improvements are expensed as incurred.
Depreciation of premises and equipment and amortization of leasehold
improvements are computed using the straight-line method over the estimated
useful lives (generally three to fifteen years) of the assets or, if shorter,
the lease term for leasehold improvements.
Advertising and Marketing Expenses: The Corporation expenses the costs of
advertising and marketing as incurred.
Stock-Based Compensation: The Corporation applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation cost for stock options is measured
as the excess, if any, of the quoted market price of the Corporation's stock at
the date of grant over the amount an employee must pay to acquire the stock.
Compensation cost for stock awards and appreciation rights is recorded based on
the market price at the end of the period. The compensation cost relating to
performance-based awards was $28,296 during 1997. There were no compensation
costs related to performance-based awards for 1996 or 1995. At December 31,
1997, deferred compensation related to director and management awards was
$28,296. There were no deferred compensation for 1996. In October 1995,
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FASB No. 123), was issued and encourages, but does
not require, adoption of a fair value method of accounting for employee
stock-based compensation plans. As permitted by FASB No. 123, the Corporation
has elected to disclose the pro forma net income and net income per share as if
the fair value method had been applied in measuring compensation cost.
F-8
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Retirement Plan: The Corporation established a 401(K) plan during 1995
covering substantially all employees. Plan participants may contribute annually
up to 12% of their compensation. Additionally, the Corporation may make profit
sharing contributions to the Plan annually. The Corporation's contributions to
the Plan are determined annually by the Board of Directors. The Corporation
contributed approximately $47,200, $42,800 and $25,300 to the Plan in 1997,1996
and 1995, respectively.
Income Taxes: Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes. The provision for income
taxes of each subsidiary is recorded as if each subsidiary filed a separate
return.
Financial Instruments: In the ordinary course of business, the Corporation
has entered into off-balance-sheet financial instruments consisting of
commitments to extend credit, commitments under credit-card arrangements,
commercial letters of credit, and standby letters of credit. Such financial
instruments are recorded in the consolidated financial statements when they are
funded or related fees are incurred or received.
Fair Values of Financial Instruments:
Cash and Cash Equivalents: The carrying amounts of cash and cash
equivalents approximate their fair value.
Investment Securities Available-for-Sale and Held-to-Maturity: Fair
values for securities are based on quoted market prices.
Loans receivable: For variable-rate loans that reprice frequently and
have no significant change in credit risk, fair values are based on
carrying values. Fair values for certain mortgage loans (for example,
one-to-four family residential) and other consumer loans are based on
quoted market prices of similar loans sold, adjusted for differences in
loan characteristics. Fair value for commercial real estate and commercial
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are estimated using
discounted cash flow analyses or underlying collateral values, where
applicable.
Deposit Liabilities: The fair values disclosed for demand deposits are,
by definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money-market accounts and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair values for fixed-
rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term Borrowings: The carrying amounts of federal funds purchased
and securities sold under agreements to repurchase approximate their fair
values. Fair values of other short-term borrowings are estimated using
discounted cash flow analyses based on the current incremental borrowing
rates for similar types of borrowing arrangements.
Accrued interest: The carrying amounts of accrued interest approximate
their fair values.
Off-Balance-Sheet instruments: Fair values for off-balance-sheet lending
commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings.
Reclassification: Certain amounts in the prior year consolidated financial
statements have been reclassified to conform with the manner of presentation in
1997.
Earnings Per Share: Basic earnings per common share are calculated on the
basis of the weighted average number of shares outstanding during the year.
Diluted earnings per share includes stock options granted but not exercised. On
October 30, 1997, a three-for-two stock split in the form of a stock dividend
was authorized, payable to stockholders of record on October 15, 1997. A total
of 770,816 shares were issued in connection with the split. All common share
and per share amounts in these financial statements have been restated to
reflect the split where appropriate.
F-9
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 2 -- STOCKHOLDER LEGAL ACTION
In the last quarter of 1997, the Corporation agreed in principle to a
settlement of 16 lawsuits brought by stockholders against the Corporation and 8
former and present directors of the Corporation. The Corporation agreed to pay
$250,000 in the settlement. Although the settlement was subject to judicial
approval which was not obtained until the first quarter of 1998, the
Corporation accrued the $250,000 in the fourth quarter of 1997.
Another stockholder suit involving the same facts but which does not name
the Corporation as a defendant is still pending against the same 8 former and
present directors of the Corporation. Based on rulings in the suits which were
settled, it appears that the Corporation will be obligated to indemnify the
defendants for their legal expenses and it is accruing those expenses as
incurred. The Corporation and the Banks are defendants in other legal
proceedings in the ordinary course of business. Based on consultation with
legal counsel, management is of the opinion that the outcome of pending and
threatened litigation will not have a material effect on the Corporation's
consolidated financial statements.
NOTE 3 -- RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS
BOCL and BOC are required to maintain average reserve balances with the
Federal Reserve, or in vault cash. The average daily reserve balance
requirement for December 31, 1997 and 1996 was met by vault cash held in the
two banks.
At December 31, 1997, the two banks had due from bank balances in excess
of federally insured limits of approximately $1,347,000.
NOTE 4 -- INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities
held-to-maturity at December 31, 1997 and 1996, are presented below:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Unrealized
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities .. $12,784,336 $ 52,951 $ 12,547 $12,824,740
U.S. Government Agencies .. 5,569,883 11,831 5,581,714
Mortgage-Backed Securities 144,137 7,804 151,941
----------- -------- -------- -----------
Total .................... $18,498,356 $ 72,586 $ 12,547 $18,558,395
=========== ======== ======== ===========
<CAPTION>
1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Unrealized
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities .. $ 8,281,749 $ 13,405 $ 41,624 $ 8,253,530
U.S. Government Agencies .. 4,570,256 4,350 23,535 4,551,071
Mortgage-Backed Securities 219,922 10,908 230,830
----------- -------- -------- -----------
Total .................... $13,071,927 $ 28,663 $ 65,159 $13,035,431
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated fair value of investment securities
available-for-sale at December 31, 1997 and 1996, are presented below:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Unrealized
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 8,318,299 $ 35,379 $ 12,804 $ 8,340,874
U.S. Government Agencies 14,985,028 25,167 24,111 14,986,084
Other ................... 1,200,800 1,200,800
----------- -------- -------- -----------
Total .................. $24,504,127 $ 60,546 $ 36,915 $24,527,758
=========== ======== ======== ===========
<CAPTION>
1996
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Unrealized
Cost Gains Losses Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 8,380,065 $ 51,442 $ 24,328 $ 8,407,179
U.S. Government Agencies 11,974,333 5,323 68,417 11,911,239
Other ................... 716,150 716,150
----------- -------- -------- -----------
Total .................. $21,070,548 $ 56,765 $ 92,745 $21,034,568
=========== ======== ======== ===========
</TABLE>
F-10
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 4 -- INVESTMENT SECURITIES -- Continued
The amortized cost and estimated fair value of investment securities
held-to-maturity at December 31, 1997, based on their contractual maturities,
are shown below:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------- -------------
<S> <C> <C>
Due in one year or less ........... $ 6,134,509 $ 6,140,826
Due after one year through five years 12,282,389 12,330,319
Due after five years through ten years 25,550 26,850
Due after ten years ............... 55,908 60,400
----------- -----------
$18,498,356 $18,558,395
=========== ===========
</TABLE>
The mortgage-backed securities held at December 31, 1997 mature generally
between one and eleven years. The actual lives of these securities may be
shorter as a result of prepayments.
The amortized cost and estimated fair value of investment securities
available-for-sale at December 31, 1997, based on their contractual maturities,
are shown below:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------- -------------
<S> <C> <C>
Due in one year or less .......... $ 8,504,327 $ 8,506,925
Due after one year through five years14,799,000 14,820,033
Due after ten years .............. 1,200,800 1,200,800
----------- -----------
$24,504,127 $24,527,758
=========== ===========
</TABLE>
Securities with book values of $28,592,077 and $21,009,597 at December 31,
1997 and 1996, respectively, were pledged to secure public deposits and for
other purposes as required by law.
There were no sales of securities during 1997, 1996 or 1995.
NOTE 5 -- LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES
Loans were composed of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Commercial .............. $134,160,877 $106,816,552
Real estate-mortgage .... 3,278,376 3,642,852
Mortgage loans held for resale
Consumer and other ...... 6,949,247 4,995,419
Nonaccrual .............. 87,989 226,582
------------ ------------
Total ........................... $144,476,489 $115,681,405
============ ============
</TABLE>
At December 31, 1997, the total loan portfolio included adjustable rate
loans totaling approximately $66 million and fixed rate loans totaling
approximately $78 million. Overdrawn demand deposits totaling approximately
$449,000 and $294,000 have been reclassified as loan balances at December 31,
1997 and 1996, respectively.
F-11
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 5 -- LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES -- Continued
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of year .......... $ 1,802,402 $ 1,784,508 $ 1,593,771
Provision for loan losses ............. 334,000 110,000 195,000
Loans charged off:
Commercial ........................... (321,642) (96,977) (46,704)
Real estate-mortgage ................. 0 0 0
Consumer and other ................... (34,097) (28,954) (47,167)
----------- ----------- -----------
Total ............................... (355,739) (125,931) (93,871)
----------- ----------- -----------
Recoveries:
Commercial ........................... 20,931 28,272 85,738
Real estate-mortgage ................. 0 0 0
Consumer and other ................... 4,266 5,553 3,870
----------- ----------- -----------
Total ............................... 25,197 33,825 89,608
----------- ----------- -----------
Balance at end of year ................ $ 1,805,860 $ 1,802,402 $ 1,784,508
=========== =========== ===========
</TABLE>
Impairment of loans having recorded investments of $520,479 at December
31, 1997, and $396,481 at December 31, 1996, has been recognized in conformity
with FASB Statement 114, as amended by FASB Statement 118. The average recorded
investment in impaired loans during 1997 and 1996 was $458,480 and $231,610,
respectively. The total allowance for loan losses related to these loans was
$77,522 and $82,172 on December 31, 1997 and 1996, respectively. Interest
income on impaired loans of $13,554, $25,871 and $8,208 was recognized for cash
payments received in 1997, 1996 and 1995, respectively. Interest income of
$11,530, $4,132 and $57,370 was recognized during 1997, 1996 and 1995,
respectively, for loans either returned to accrual status from nonaccrual or
paid in full from nonaccrual status. For those loans classified as nonaccrual
as of December 31, 1997, 1996 and 1995, interest income of $6,722, $7,779 and
$9,798 would have been recognized in the respective periods if those loans had
performed under the original terms.
Commercial loans include investments of $1,056,888 and $3,247,629 in
participating interests of loans originated by other financial institutions as
of December 31, 1997 and 1996, respectively.
Commercial loans exclude loans serviced for others of $8,537,258 and
$10,132,951 as of December 31, 1997 and 1996, respectively. Real estate
mortgage loans exclude loans serviced for others of $838,596 and $851,299 as of
December 31, 1997 and 1996, respectively. Servicing loans for others generally
consists of collecting payments, maintaining escrow accounts and disbursing
payments to investors. Loan servicing income is recorded on the accrual basis
and includes servicing fees from investors and certain charges collected from
borrowers, such as late payment fees.
NOTE 6 -- TRANSACTIONS WITH RELATED PARTIES
Directors and officers of the Corporation and its subsidiaries are
customers of and borrow from the Banks in the ordinary course of business. All
of these loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time in comparable
transactions with unrelated third parties, and did not involve more than a
normal risk of collectibility.
Directors and principal officers' direct and indirect indebtedness to the
subsidiaries aggregated $4,552,869 and $4,150,181 at December 31, 1997 and
1996, respectively. During 1997, $3,802,060 of new loans were made to related
parties and repayments totaled $3,399,371. Additionally, unfunded commitments
to extend credit to directors and officers totaled $1,329,472 for 1997 and
$1,022,962 for 1996, and standby letters of credit totaled $208,000 and $35,000
at December 31, 1997 and 1996.
F-12
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 7 -- PREMISES AND EQUIPMENT
Premises and equipment included the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Leasehold improvements .................... $ 1,290,738 $ 1,233,911
Equipment and furnishings ................. 1,825,508 1,678,482
------------ ------------
3,116,246 2,912,393
Less accumulated depreciation and
amortization ............................ (1,804,986) (1,423,234)
------------ ------------
Total premises and equipment, net ........ $ 1,311,260 $ 1,489,159
============ ============
</TABLE>
Depreciation and amortization expenses for 1997, 1996 and 1995 totaled
$381,752, $329,901, and $281,034, respectively.
NOTE 8 -- DEPOSITS
The aggregate amount of short-term jumbo CDs, each with minimum
denomination of $100,000, was approximately $34,363,000 and $26,984,000 at
December 31, 1997 and 1996, respectively.
At December 31, 1997, the scheduled maturities of CDs were as follows:
<TABLE>
<S> <C>
1998 ......... $62,422,521
1999 ......... 5,931,188
2000 ......... 1,427,525
2001 ......... 703,375
-----------
$70,484,609
===========
</TABLE>
NOTE 9 -- NOTE PAYABLE
During 1996, the Corporation established a $1,200,000 revolving
line-of-credit with another financial institution. The line-of-credit was
subsequently converted to a term loan and matures December 2001 with interest
payments due quarterly. BOC's common stock serves as collateral. Borrowings
during 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Interest rate at year-end ................. 8.00% 7.75%
Maximum amount outstanding at any month-end $1,200,000 $1,200,000
Average amount outstanding during the year $1,108,767 $ 777,778
Weighted average interest rate during the
year .................................... 8.10% 7.75%
</TABLE>
During 1997, the Corporation established a $250,000 term loan with the
financial institution noted in the preceding paragraph. This loan matures
September 30, 2000. Interest is variable at the lender's prime rate minus
one-half percent (8.0% average rate for 1997 and at December 31, 1997) with
repayment of $20,833 plus accrued interest due quarterly beginning December 31,
1997. The loan is cross-collateralized with the line-of-credit noted above.
The line-of-credit agreement and the term loan agreement contain certain
covenants. The principal financial covenants require the Corporation to
maintain the allowance for loan losses in an amount of at least 100% of
non-performing assets; tangible equity to total assets at least equal to 8% for
BOC and at least equal to 6% for BOCL; nonperforming loans plus foreclosed
assets to loans receivable plus foreclosed assets at a ratio no greater than
1.80%; and maintain a return on average assets of at least 1%. The Corporation
was in compliance with these covenants at December 31, 1997. The Corporation is
also restricted from paying any dividends unless approved by the lender. The
Corporation received a waiver from the lender on this restriction for the 1997
three-for-two stock split and the 10% stock dividend paid in December 1996.
F-13
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 9 -- NOTE PAYABLE -- Continued
At December 31, 1997, BOCL had approximately $11.0 million and BOC had
approximately $10.1 million in standby credit available from other banks for
short-term borrowings.
NOTE 10 -- FEDERAL HOME LOAN BANK ADVANCES
The Banks are members of the Federal Home Loan Bank and as such, have
access to borrowings. The Banks use the borrowings to meet short-term liquidity
needs and generally repay the advances and variable interest within one day.
Collateral for the borrowings are blanket liens on the Banks' one to four
family residential loans. All borrowings were repaid at December 31, 1997. The
average interest rate on such borrowings was 6.50% for 1997.
NOTE 11 -- OTHER BORROWED FUNDS
Federal funds purchased and securities sold under agreements to repurchase
generally mature within one to four days from the transaction date. Other
borrowed funds consist of term federal funds purchased and treasury tax and
loan deposits and generally are repaid within one to 120 days from the
transaction date.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Average balance during the year ... $ 3,346,634 $ 1,342,644
Average interest rate during the year 4.00% 3.73%
Maximum month-end balance during the
year ............................. $3,806,376 $ 2,674,394
</TABLE>
NOTE 12 -- COMMITMENTS
The Corporation leases its office facilities and certain equipment under
various operating leases. Original lease terms typically range from one to ten
years and normally have options that permit renewals for additional periods.
The aggregate future minimum lease payments under all noncancellable
leases at December 31, 1997 were as follows:
<TABLE>
<S> <C>
1998 ............... $ 382,592
1999 ............... 378,590
2000 ............... 99,116
2001 ............... 99,116
2002 ............... 85,979
Thereafter ......... 114,000
----------
$1,159,393
==========
</TABLE>
Total rental expenses under the above leases for 1997, 1996 and 1995 were
approximately $355,000, $262,000 and $274,000, respectively.
NOTE 13 -- STOCK OPTIONS
The Corporation has reserved 75,900 shares of common stock for issuance to
key employees under an Incentive Stock Option Plan (the "Qualified Option
Plan") and 75,900 shares of common stock for issuance to key employees,
officers, and directors under a non-qualified stock option plan (the
"Non-Qualified Plan"). During 1995, the Corporation reserved an additional
165,000 shares of common stock for issuance to employees under a non-qualified
stock option plan (the "1995 Non-Qualified Plan"). Additionally, as part of the
1995 Non-Qualified Plan, each non-employee director of the Corporation will
receive options to purchase 40 shares of common stock for each board of
directors meeting attended. The options are exercisable after six months from
date of the grant and expire at the earlier of termination of director status
or ten years after the date of grant. The option price will be at fair market
value at the date of grant.
F-14
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 13 -- STOCK OPTIONS -- Continued
The following tables summarize activity of each plan:
<TABLE>
<CAPTION>
Options
Price Per Expiration
Options Share Dates
----------- ---------------- -----------
<S> <C> <C> <C>
Qualified Plan
January 1, 1991 ................................ 43,325
Exercised during 1992 .......................... (2,000)
Exercised during 1995 .......................... (16,500)
Expired during 1995 ............................ (4,300)
Adjusted for 10% stock dividend during 1996 .... 2,053
Adjusted for 3 for 2 split in 1997 ............. 11,289
-------
December 31, 1997 .............................. 33,867 $ 3.56-$5.27 01/24/00
======= ============= ========
Non-Qualified Plan
January 1, 1991 ................................ 18,875
Granted during 1991 ............................ 23,525
Exercised during 1992 .......................... (2,100)
Expired during 1994 ............................ (500)
Exercised during 1995 .......................... (700)
Adjusted for 10% stock dividend during 1996 .... 3,923
Exercised during 1996 .......................... (8,580)
Adjusted for 3 for 2 split in 1997 ............. 17,628
Exercised during 1997 .......................... (17,662)
-------
December 31, 1997 .............................. 34,409 $ 3.56-$5.27 12/31/00
======= ============= ========
1995 Non-Qualified Plan
Granted during 1995 ............................ 40,000
Adjusted for 10% stock dividend during 1996 .... 4,000
Granted during 1996 ............................ 6,746
Adjusted for 3 for 2 split in 1997 ............. 25,397
Granted during 1997 ............................ 56,888
-------
December 31, 1997 .............................. 133,031 $ 5.15-$15.91 04/28/07
======= ============= ========
</TABLE>
Since all options granted during 1997, 1996 and 1995, other than those
granted to Messrs. Barnwell and Swanson discussed below, in management's
opinion, were issued at exercise prices equal to or greater than the market
value of the common stock at the time of grant, compensation expense related to
the grant of these options was not recognized.
As an inducement to the President of BOCL to enter into an employment
agreement in January 1992, the Corporation granted total stock options for
36,668 shares of stock at a purchase price of $2.42 per share. The President of
BOCL's rights in these options fully vested in January 1995.
In recognition of their outstanding performance since the inception of the
Bank of Charleston and as an inducement for their continued employment, Messrs.
Arthur P. Swanson, CEO and President and John P. Barnwell, Executive Vice
President, Bank of Charleston, NA were each granted options to purchase 18,000
shares of common stock at a price of $.67 per share. These options are to vest
on a pro rata basis over a five year period with one fifth of the total vesting
each year, beginning October 10, 1998. Expiration of these options will be in
five year increments beginning with each vesting date. Since these options were
granted at a price less than fair market value, the Corporation expensed
approximately $28,000 in additional compensation expenses during 1997 and plans
to expense approximately $9,200 per month for the remaining vesting period. In
the event of a change of control of the Corporation, any unvested options will
vest immediately.
F-15
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 13 -- STOCK OPTIONS -- Continued
The fair value of stock-based compensation was estimated at date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997: risk-free interest rate of 6.43%; dividend yield of
0.00%; volatility factor of the expected market price of the Corporation's
common stock of .17; a weighted-average expected life of the option of 5.7
years and an assumed annual forfeiture rate of 0%. The Corporation's pro forma
information is presented below:
<TABLE>
<CAPTION>
1997
-------------------------------
As Reported Pro Forma
--------------- ---------------
<S> <C> <C>
Net income ................ $ 2,254,223 $ 2,229,079
Basic net income per
common share ............ 0.98 0.97
Diluted net income per
common share ............ 0.91 0.90
</TABLE>
All options above have been adjusted to reflect the 10% stock dividend
declared in 1996 and the 3 for 2 split in October of 1997.
NOTE 14 -- REGULATORY REQUIREMENTS
National banks are subject to certain restrictions regarding their ability
to transfer funds to the Corporation in the form of cash dividends, loans or
advances. The approval of the Office of the Comptroller of the Currency (OCC)
is required to pay dividends in excess of each Bank's net profits for the
current year plus retained net profits (net profits less dividends paid) for
the preceding two years, less any required transfers to surplus. As of December
31, 1997, approximately $2,902,000 and $3,613,000 of BOCL's and BOC's retained
earnings, respectively, were available for distribution to the Corporation as
dividends without prior regulatory approval.
Under Federal Reserve regulation, the Banks are also limited as to the
amount they may lend to the Corporation unless such loans are collateralized by
specified obligations. Since the assets of the Corporation do not qualify as
assets which may be pledged as collateral to its subsidiary banks, the
Corporation is not eligible to obtain loans from its bank subsidiaries.
BOCL and BOC are subject to various capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
result in initiation of certain mandatory and possible additional discretionary
actions by regulators that, if undertaken, could have a direct material effect
on the Banks' financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Banks must meet specific
capital guidelines that involve quantitative measures of the Banks' assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Banks' capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997, that
BOCL and BOC meet all capital adequacy requirements to which they are subject.
F-16
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 14 -- REGULATORY REQUIREMENTS -- Continued
As of September 30, 1997, the most recent notifications from the Office of
the Comptroller of the Currency categorized the Banks as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Banks must maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as set forth in the table. There have
been no conditions or events since that notification that management believes
have changed the Banks' categories.
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Capitalized
Minimum Required Under Prompt
For Capital Corrective
Actual Adequacy Purposes Actual Provisions
-------------------- -------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Tier 1 Capital (to Average Assets)
Consolidated .......................... $16,000 8.3% $ 7,857 4.0% $ 9,822 5.0%
BOC ................................... 10,243 10.6% 3,865 4.0% 4,832 5.0%
BOCL .................................. 6,363 6.4% 3,965 4.0% 4,956 5.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated .......................... $16,000 10.9% $ 5,869 4.0% $ 8,803 6.0%
BOC ................................... 10,243 13.0% 3,145 4.0% 4,718 6.0%
BOCL .................................. 6,363 9.4% 2,718 4.0% 4,076 6.0%
Total Capital (to Risk Weighted Assets):
Consolidated .......................... $17,806 12.1% $11,737 8.0% $14,671 10.0%
BOC ................................... 11,194 14.2% 6,290 8.0% 7,863 10.0%
BOCL .................................. 7,212 10.6% 5,436 8.0% 6,794 10.0%
As of December 31, 1996
Tier 1 Capital (to Average Assets):
Consolidated .......................... $13,605 10.1% $ 5,377 4.0% $ 6,721 5.0%
BOC ................................... 8,808 11.0% 3,219 4.0% 4,020 5.0%
BOCL .................................. 5,248 7.4% 2,848 4.0% 3,551 5.0%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated .......................... $13,605 11.9% $ 4,567 4.0% $ 6,851 6.0%
BOC ................................... 8,808 13.8% 2,556 4.0% 3,834 6.0%
BOCL .................................. 5,248 10.0% 2,102 4.0% 3,154 6.0%
Total Capital (to Risk Weighted Assets):
Consolidated .......................... $15,137 13.3% $ 9,134 8.0% $11,418 10.0%
BOC ................................... 9,607 15.0% 5,112 8.0% 6,390 10.0%
BOCL .................................. 5,909 11.2% 4,205 8.0% 5,256 10.0%
</TABLE>
F-17
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 15 -- OTHER NONINTEREST EXPENSES
Components of other noninterest expenses were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Legal, accounting, regulatory and insurance ...... $ 796,481 $ 649,977 $ 481,428
Supplies and printing ............................ 172,526 150,749 125,914
Postage and freight .............................. 138,387 120,621 95,385
Loan servicing ................................... 90,555 85,630 78,154
Outside services ................................. 81,236 61,503 52,364
Directors' Fees .................................. 80,199 36,720 28,140
Dues and subscriptions ........................... 68,061 70,683 78,538
Training and other employee expenses ............. 65,759 69,685 47,214
Consulting ....................................... 65,646 51,274 75,377
Telephone ........................................ 60,614 56,843 58,217
Losses other than bad debt ....................... 55,549 34,393 15,112
Temporary employment services .................... 42,784 44,593 27,035
Data communications .............................. 40,567 33,481 23,700
Travel -- nonofficers ............................ 26,509 21,610 17,538
Losses -- OREO ................................... 23,309
Amortization -- organization expense ............. 7,530
Other ............................................ 98,719 28,347 33,049
---------- ---------- ----------
$1,883,592 $1,539,418 $1,244,695
========== ========== ==========
</TABLE>
NOTE 16 -- INCOME TAXES
The Corporation files consolidated federal income tax returns on a
calendar-year basis.
The components of consolidated provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1997 1996 1995
-------------- ------------ ------------
<S> <C> <C> <C>
Taxes currently payable:
Federal ............... $ 1,095,262 $ 903,042 $ 552,598
State ................. 215,540 139,334 73,529
----------- ---------- ----------
1,310,802 1,042,376 626,127
----------- ---------- ----------
Deferred income taxes:
Federal ............... 49,622 (113,137) (200,000)
----------- ---------- ----------
$ 1,360,424 $ 929,239 $ 426,127
=========== ========== ==========
</TABLE>
F-18
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 16 -- INCOME TAXES -- Continued
The Corporation reported its fifth consecutive profitable year as of
December 31, 1997, and prior federal tax net operating loss carryforwards were
fully utilized in 1996. As a result of these changes in circumstances,
management reconsidered its prior policy of fully reserving net deferred tax
assets concluding that it was "more likely than not" that approximately
$140,000 and $200,000 of deferred tax assets would be realized in 1996 and
1995. The decrease in the valuation allowance was due to the realization of
loss carryforwards as reflected in the provision for income taxes.
At December 31, 1997, the Corporation had net operating loss (NOL)
carryforwards for state income tax purposes of approximately $3.5 million
available to offset future state taxable income. The NOL carryforwards expire
in the years 2003 through 2012. The valuation allowance at December 31, 1997
represents management's estimate of the allowance for the state net operating
loss carryforward deferred tax asset.
Deferred tax assets and (liabilities) and related valuation allowance at
December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Allowance for loan losses ................... $ 439,789 $ 497,145
State tax net operating loss carryforward ... 177,257 127,194
Excess tax over book depreciation ........... 67,917 82,522
Accrued liabilities ......................... 29,068
Unrealized loss on securities available-
for-sale .................................. 12,233
----------
Gross deferred tax asset .................... 714,031 719,094
---------- ----------
Accretion of discounts on bonds ............. (20,953) (1,381)
Unrealized gain on securities available-
for-sale .................................. (8,035)
----------
Gross deferred tax liability ................ (28,988) (1,381)
---------- ----------
Net deferred tax asset before valuation
allowance ................................. 685,043 717,713
Less valuation allowance .................... (157,220) (120,000)
---------- ----------
Net deferred tax asset ...................... $ 527,823 $ 597,713
========== ==========
</TABLE>
Total provision for income taxes is different than if it were computed by
applying the federal tax rate due to the following:
<TABLE>
<CAPTION>
For the Year ended December 31, Percentage of Pre-tax income
---------------------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
-------------- ------------ ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate ........................ $ 1,228,980 $ 937,606 $ 614,583 34.0 34.0 34.0
Change in deferred tax asset valuation allowance ..... 37,220 (140,624) (200,000) 1.0 (5.1) (11.1)
State tax, net of federal benefit .................... 107,355 74,036 48,529 3.0 2.7 2.7
Alternative minimum tax expenses ..................... (13,000) ( 1.0)
Nondeductible expenses ............................... (26,856) 46,471 12,622 ( .7) 1.7 1.0
Other, net ........................................... 13,725 11,750 (36,607) .4 .4 ( 2.0)
----------- ---------- ---------- ----- ----- ------
$ 1,360,424 $ 929,239 $ 426,127 37.7 33.7 23.6
=========== ========== ========== ===== ===== ======
</TABLE>
F-19
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 17 -- CONDENSED PARENT COMPANY FINANCIAL INFORMATION
Condensed financial data for ComSouth Bankshares, Inc. (parent only) was
as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- --------------
<S> <C> <C>
Balance Sheet Data
Cash and short-term investments ..... $ 61,415 $ 235,042
Investments in subsidiaries, at equity 16,621,175 14,032,798
Other assets ........................ 713,276 721,916
----------- -----------
Total assets ....................... $17,395,866 $14,989,756
=========== ===========
Note payable ........................ $ 1,189,167 $ 1,200,000
Other liabilities ................... 191,127 148,934
Stockholders' equity ................ 16,015,572 13,640,822
----------- -----------
Total liabilities and stockholders'
equity $17,395,866 $14,989,756
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1997 1996 1995
-------------- --------------- ---------------
<S> <C> <C> <C>
Results of Operations Data
Revenues:
Management fees ................................................... $ 1,019,265 $ 971,336 $ 878,193
Other ............................................................. 40 3,743 1,184
----------- ----------- -----------
1,019,305 975,079 879,377
----------- ----------- -----------
Expenses:
Salaries and employee benefits .................................... 752,165 640,763 579,079
Interest expense .................................................. 90,096 45,912 233
Other expense ..................................................... 771,054 854,900 489,155
----------- ----------- -----------
1,613,315 1,541,575 1,068,467
----------- ----------- -----------
Income (loss) before equity in undistributed income of subsidiaries (594,010) (566,496) (189,090)
Equity in undistributed income of subsidiaries ..................... 2,848,233 2,394,922 1,570,561
----------- ----------- -----------
Net income ......................................................... $ 2,254,223 $ 1,828,426 $ 1,381,471
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Cash Flow Data
Cash flows from operating activities:
Net income ...................................................................... $ 2,254,223 $ 1,828,426 $ 1,381,471
Adjustments to reconcile net income to net cash used for operating activities:
Equity in income of subsidiaries ................................................. (2,848,233) (2,394,922) (1,570,561)
Depreciation and amortization .................................................... 47,064 38,794 34,110
Increase in other assets ......................................................... (7,854) (216,916) (174,641)
Increase (decrease) in other liabilities ......................................... 42,193 (279,740) 292,822
------------ ------------ ------------
Cash used for operating activities: .............................................. (512,607) (1,024,358) (36,799)
------------ ------------ ------------
Cash flow from investing activities:
Purchases of premises and equipment .............................................. (30,570) (41,321) (71,263)
------------ ------------ ------------
Cash used for investing activities ............................................... (30,570) (41,321) (71,263)
------------ ------------ ------------
</TABLE>
F-20
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 17 -- CONDENSED PARENT COMPANY FINANCIAL INFORMATION -- Continued
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -------------
<S> <C> <C> <C>
Cash from financing activities:
(Repayments) net proceeds of note payable ............ (10,833) 1,200,000 (125,000)
Proceeds from issuance of common stock ............... 83,266 53,966 118,386
Cash in lieu of fractional shares .................... (2,083) (2,216)
Dividends received from subsidiaries ................. 299,200
------- --------- --------
Cash provided by (used for) financing activities ..... 369,550 1,251,750 (6,614)
------- --------- --------
(Decrease) increase in cash and cash equivalents ..... (173,627) 186,071 (114,676)
Cash and cash equivalents at beginning of year ....... 235,042 48,971 163,647
-------- --------- --------
Cash and cash equivalents at end of year ............. $ 61,415 $ 235,042 $ 48,971
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................... $ 90,096 $ 45,912 $ 223
</TABLE>
NOTE 18 -- FINANCIAL INSTRUMENTS
BOCL and BOC are parties to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of their
customers and to reduce their own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial position. The contract or notional amounts
of those instruments reflect the extent of involvement the subsidiaries have in
particular classes of financial instruments.
BOCL's and BOC's exposure to credit loss in the event of nonperformance by
the other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual amounts of
those instruments. The subsidiaries use the same credit policies in making
commitments and conditional obligations as they do for on-balance sheet
instruments.
Unless noted otherwise, BOCL and BOC do not require collateral or other
security to support financial instruments with credit risk. Commitments to
extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not represent future cash
requirements. BOCL and BOC evaluate each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
BOCL and BOC upon extension of credit, is based on management's credit
evaluation of the counter party. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
F-21
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 18 -- FINANCIAL INSTRUMENTS -- Continued
Standby letters of credit are conditional commitments issued by BOCL and
BOC to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing arrangements. Most
guarantees expire by December 1998. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loan facilities
to customers. Collateral held varies but may include accounts receivable,
inventory, equipment, marketable securities and property. Since most of the
letters of credit are expected to expire without being drawn upon, they do not
necessarily represent future cash requirements.
The estimated fair values of the Corporation's consolidated financial
instruments were as follows at:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------- ----------------------
Carrying Fair Carrying Fair
Amount Amount Amount Value
---------- ----------- ---------- -----------
(balances in thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ......................................... $ 16,153 $ 16,153 $ 13,092 $ 13,092
Investment securities ............................................. 43,026 43,086 34,106 34,070
Loans receivable .................................................. 142,671 147,563 113,879 117,308
-------- -------- -------- --------
Total Financial Assets .......................................... $201,850 $206,802 $161,077 $164,470
======== ======== ======== ========
Financial Liabilities:
Deposits .......................................................... 182,673 182,878 145,408 145,509
Federal funds purchased and securities sold under agreements to
repurchase ...................................................... 3,096 3,096 2,674 2,674
Note payable ...................................................... 1,189 1,189 1,200 1,200
U.S. Treasury tax and loan accounts ............................... 1,330 1,330 784 784
-------- -------- -------- --------
Total Financial Liabilities ..................................... $188,288 $188,493 $150,066 $150,167
======== ======== ======== ========
Off-balance-sheet financial instruments:
Commitments to extend credit ...................................... 22,044 22,044 21,396 21,396
Standby letters of credit ......................................... 3,327 3,327 1,689 1,689
</TABLE>
NOTE 19 -- SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
Most of BOCL's and BOC's business activity is with customers located
within the Columbia, SC and Charleston, SC metropolitan areas, respectively.
Although BOCL and BOC have diversified loan portfolios, a substantial portion
of their debtor's ability to honor their contracts is dependent upon the
economies of Columbia and Charleston and the surrounding areas.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit and letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the customer
default, and the value of any existing collateral become worthless.
NOTE 20 -- CONTINGENCIES
Litigation
In addition to the matter discussed in Note 2, the Corporation and its
subsidiaries are parties to and defendants in litigation arising from normal
banking activities. In the opinion of management, the ultimate resolution of
these matters will not have a material effect on the Corporation's financial
position or results of operations.
F-22
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
Year 2000 Considerations
Many existing computer programs use only two digits to identify a year in
the date datum field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If uncorrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
Because the Corporation is heavily dependent upon computers, failure of
the computer systems, or the computer systems of other entities to which the
Corporation's computers are linked or on which they are dependent, to operate
properly after December 31, 1999, could have a material adverse effect on the
Corporation. Although management has prepared a plan for addressing year 2000
issues and believes that its computer systems will not experience any
significant problems with the changeover to the year 2000, it has not yet
tested its systems for year 2000 compliance. Furthermore, the Corporation has
not received confirmation from all of the other entities with which its systems
are linked or upon which its systems are dependent that such entities do not
expect to encounter problems. In addition, computer problems experienced by the
customers of the Banks and others could cause economic disruptions that would
affect business. Therefore, there can be no assurance that the Corporation will
not experience year 2000 problems, or that such problems, if experienced, will
not have a material adverse effect on the Corporation. No special provision has
been made by the Corporation for expenses related to the year 2000 problem,
however, management has incorporated into it's 1998 budget certain expenses
which will potentially be incurred as a result of the year 2000 problem.
F-23
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks ........................................................... $ 11,036,269 $ 9,332,658
Federal funds sold ................................................................ 17,685,000 6,820,000
------------ ------------
Total cash and cash equivalents .................................................. 28,721,269 16,152,658
Investment securities:
Held-to-maturity, at amortized cost (fair value of $13,372,158 in 1998
and $18,558,395 in 1997) ....................................................... 13,302,858 18,498,356
Available-for-sale, at fair value (amortized cost of $24,852,379 in 1998
and $24,504,127 in 1997) ....................................................... 24,869,820 24,527,758
Loans receivable:
(less allowance for loan losses 1998 -- $1,838,844; 1997--$1,805,860) ............ 146,946,488 142,670,629
Accrued interest receivable ....................................................... 1,645,462 1,643,676
Premises and equipment ............................................................ 1,248,514 1,311,260
Other assets ...................................................................... 641,016 767,201
------------ ------------
Total Assets ................................................................... $217,375,427 $205,571,538
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest bearing demand ....................................................... 35,537,006 41,283,341
NOW, money market and savings .................................................... 79,443,925 70,904,709
Time deposits of $100,000 or more ................................................ 36,979,405 34,363,250
Time deposits less than $100,000 ................................................. 37,269,934 33,235,474
Other time deposits .............................................................. 3,402,866 2,885,885
------------ ------------
Total deposits ................................................................. 192,633,136 182,672,659
Federal funds purchased and securities sold under agreements to repurchase ........ 3,670,070 3,096,166
Notes payable ..................................................................... 2,108,333 1,189,167
U.S. Treasury tax and loan accounts ............................................... 728,058 1,330,114
Accrued interest .................................................................. 608,580 625,948
Other liabilities ................................................................. 815,391 641,912
------------ ------------
Total Liabilities .............................................................. 200,563,568 189,555,966
------------ ------------
Stockholders' Equity
Preferred Stock
(no par value, 50,000,000 shares authorized; no shares issued or outstanding)
Special stock
(no par value, 50,000,000 shares authorized; no shares issued or outstanding)
Common Stock
(no par value, 50,000,000 shares authorized; shares issued and outstanding --
2,341,320 in 1998 and 2,317,600 in 1997) ....................................... 13,824,539 13,699,539
Retained earnings ................................................................. 2,975,809 2,300,437
Accumulated other comprehensive income ............................................ 11,511 15,596
------------ ------------
Total Stockholders' Equity ..................................................... 16,811,859 16,015,572
------------ ------------
Total Liabilities and Stockholders' Equity ..................................... $217,375,427 $205,571,538
============ ============
</TABLE>
F-24
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF OPERATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
-----------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Interest income:
Interest and fees on loans ................................................ $ 3,323,350 $ 2,653,768
Investment securities ..................................................... 625,315 539,516
Federal funds sold ........................................................ 99,523 48,215
----------- -----------
Total interest income ................................................... 4,048,188 3,241,499
----------- -----------
Interest expense:
Deposits .................................................................. 1,827,176 1,427,395
Federal funds purchased and securities sold under agreements to repurchase 53,510 44,775
U.S. Treasury tax and loan accounts ....................................... 8,944 9,768
Notes payable ............................................................. 23,924 23,250
----------- -----------
Total interest expense .................................................. 1,913,554 1,505,188
----------- -----------
Net interest income ........................................................ 2,134,634 1,736,311
Provision for loan losses .................................................. 210,000 15,000
----------- -----------
Net interest income after provision for loan losses ..................... 1,924,634 1,721,311
Noninterest income:
Lending operations and services ........................................... 404,496 296,547
Service charges on deposit accounts ....................................... 184,892 163,265
Other ..................................................................... 35,969 22,643
----------- -----------
Total noninterest income ................................................ 625,357 482,455
----------- -----------
Noninterest expense:
Salaries and employee benefits ............................................ 908,700 725,732
Occupancy expenses ........................................................ 119,790 107,638
Furniture and equipment ................................................... 107,633 109,574
Advertising and marketing ................................................. 30,488 24,058
Other ..................................................................... 389,879 400,654
----------- -----------
Total noninterest expense ............................................... 1,556,490 1,367,656
----------- -----------
Income before provision for income taxes ................................... 993,501 836,110
Provision for income taxes ................................................. (318,129) (315,950)
----------- -----------
Net income .............................................................. $ 675,372 $ 520,160
=========== ===========
Basic earnings per common share:
Weighted average shares outstanding ....................................... 2,341,320 2,304,465
Net income per weighted average number of shares outstanding .............. $ .29 $ .23
=========== ===========
Diluted earnings per common share:
Weighted average shares outstanding ....................................... 2,469,695 2,419,271
Net income per weighted average number of shares outstanding .............. $ .27 $ .21
=========== ===========
</TABLE>
F-25
<PAGE>
COMSOUTH BANKSHARES,INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Common Retained Comprehensive Stockholders'
Shares Stock Earnings Income (Loss) Equity
----------- -------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ................ 2,299,138 $13,616,273 $ 48,296 $ (23,747) $13,640,822
Comprehensive income:
Net income ................................. 520,160 520,160
Other comprehensive income, net of
tax -- Unrealized loss on securities ..... (74,067) (74,067)
-----------
Comprehensive income ........................ 446,093
-----------
Issuance of common stock .................... 6,112 28,175 28,175
--------- ----------- ---------- --------- -----------
Balance at March 31, 1997 ................... 2,305,250 $13,644,448 $ 568,456 $ (97,814) $14,115,090
========= =========== ========== ========= ===========
Balance at December 31, 1997 ................ 2,317,600 $13,699,539 $2,300,437 $ 15,596 $16,015,572
Comprehensive income:
Net income ................................. 675,372 675,372
Other comprehensive income, net of
tax -- Unrealized loss on securities ..... (4,085) (4,085)
-----------
Comprehensive income ........................ 671,287
-----------
Issuance of common stock .................... 23,720 125,000 125,000
--------- ----------- ---------- --------- -----------
Balance at March 31, 1998 ................... 2,341,320 $13,824,539 $2,975,809 $ 11,511 $16,811,859
========= =========== ========== ========= ===========
</TABLE>
F-26
<PAGE>
COMSOUTH BANKSHARES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
--------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ............................................................................... $ 675,372 $ 520,160
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization .......................................................... 88,101 72,765
Provision for loan losses .............................................................. 210,000 15,000
Amortization of premium and accretion of discount on investment securities ............. (18,364) 3,844
(Increase) decrease in interest receivable ............................................. (1,786) 49,765
Decrease in other assets ............................................................... 126,185 50,819
(Decrease) increase in interest payable ................................................ (17,368) 49,025
Increase in other liabilities .......................................................... 175,584 308,315
------------ ------------
Cash provided by operating activities ................................................. 1,237,724 1,069,693
------------ ------------
Cash flows from investing activities:
Purchase of investments, held-to-maturity .............................................. 0 (3,281,875)
Purchase of investments, available-for-sale ............................................ (7,849,328) (1,364,500)
Maturities of investments, held-to-maturity ............................................ 5,214,938 5,530
Maturities of investments, available-for-sale .......................................... 7,500,000 0
Net increase in loans .................................................................. (4,940,193) (4,352,990)
Gross amount of loans serviced for others .............................................. 1,554,136 375,168
Remittances on loans serviced for others ............................................... (841,147) (709,871)
Purchase of premises and equipment ..................................................... (25,355) (64,101)
------------ ------------
Cash used for investing activities .................................................... 613,051 (9,392,639)
------------ ------------
Cash flows from financing activities:
Net increase in deposits ............................................................... 9,960,477 7,403,419
Increase in federal funds purchased and securities sold under agreements to repurchase . 573,903 190,626
Proceeds (repayment) of note payable ................................................... 919,167 (60,000)
(Decrease) increase in U.S. Treasury, tax and loan accounts ............................ (602,056) 436,991
Proceeds from issuance of common stock ................................................. 125,000 28,175
------------ ------------
Cash provided by financing activities ................................................. 10,976,491 7,999,211
------------ ------------
Increase (decrease) in cash and cash equivalents ....................................... 12,827,266 (323,735)
Cash and cash equivalents at beginning of period ....................................... 16,152,658 13,091,553
------------ ------------
Cash and cash equivalents at end of period ............................................. $ 28,979,924 $ 12,767,818
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................................. $ 1,930,922 $ 1,456,163
Cash paid for taxes .................................................................... $ 1,800 $ 57,952
Noncash adjustments to report investment securities, available-for-sale at fair value:
Investment securities, available-for-sale .............................................. $ 17,441 $ (148,202)
Other (liabilities) assets ............................................................. (5,930) 50,388
Unrealized gain (loss) on investment securities, available-for-sale, net of applicable
deferred income taxes ................................................................. $ 11,511 $ (97,814)
</TABLE>
F-27
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim financial statements reflect all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
consolidated statements of operations and of cash flows for the interim periods
presented. Such adjustments are of a normal recurring nature. The interim
financial statements, including related notes, should be read in conjunction
with the financial statements for the year ended December 31, 1997, appearing
in the Corporation's 1997 Annual Report and included in the Corporation's Form
10-K Annual Report for the year ended December 31, 1997. The unaudited results
of operations for the three month period ended March 31, 1998 may not
necessarily be indicative of the results for the year that will end December
31, 1998.
NOTE 1 -- LOAN COMMITMENTS
At March 31, 1998, standby letters of credit of $2,181,000 and undisbursed
amounts of lines of credit of $25,224,000 were outstanding.
NOTE 2 -- NOTES PAYABLE
During 1996, the Corporation established a $1,200,000 revolving line of
credit with another financial institution. The line-of-credit was subsequently
converted to a term loan and matures December 2001 with interest payments due
quarterly. Interest is variable at the lender's prime rate minus one-half
percent (8.0% at March 31, 1998). 550,000 shares of Bank of Charleston's
("BOC") common stock serve as collateral. At March 31, 1998, the Corporation
had an outstanding balance of $900,000 on this loan. A quarterly payment of
$60,000 was made during March 1998.
During 1997, the Corporation established a $250,000 term loan with the
financial institution noted in the preceding paragraph. This loan matures
September 30, 2000. Interest is variable at the lender's prime rate minus
one-half percent (8.0% at March 31, 1998) with repayments of $20,833 plus
accrued interest due quarterly. The loan is cross-collateralized with the loan
noted above. At March 31, 1998, the Corporation had an outstanding balance of
$208,333 on this loan. A quarterly payment of $20,833 was made during March
1998.
On March 19, 1998, the Corporation established a $1,000,000 term loan with
the financial institution previously mentioned. This loan matures March 26,
2001. Interest is variable at the lender's prime rate minus one-half percent
(8.0% at March 31, 1998) with repayments of interest only quarterly for the
first year, followed by four quarterly principal payments of $50,000 plus
accrued interest, followed by four quarterly principal payments of $200,000
plus accrued interest. This loan is cross-collateralized with the existing term
loans. At March 31, 1998, the Corporation had an outstanding balance of
$1,000,000 on this loan; no quarterly payments were due or made during the
quarter ending March 31, 1998.
The line of credit agreement and the term loan agreements contain certain
covenants. The principal financial covenants require the Corporation to
maintain the allowance for loan losses at a minimum of 100% of non-performing
assets; tangible equity to total assets at least equal to 8% for BOC and at
least equal to 6% for Bank of Columbia ("BOCL"); non-performing loans plus
foreclosed assets to loans receivable plus foreclosed assets at a ratio no
greater than 1.80%; and maintain a return on average assets of at least 1%. The
Corporation was in full compliance with all of the covenants at quarter end.
The Corporation is also restricted from paying any dividends unless approved by
the lender. The Corporation received a waiver from the lender on this
restriction for the 1997 three-for-two stock split and the 10% stock dividend
paid in December 1996.
At March 31, 1997, BOCL had approximately $11.0 million and BOC had
approximately $10.1 million in standby credit available from other banks for
short-term borrowings.
NOTE 4 -- ALLOWANCE FOR CREDIT LOSSES
The Corporation adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosure" on January 1, 1995. These
standards require creditors to account for impaired loans, except for those
collateral dependent loans that are accounted for at fair value or at the lower
of cost or fair value, at the present value of the expected future cash flows
discounted at the loan's effective interest rate. Specific reserves are
maintained on impaired loans in accordance with SFAS 114 and SFAS 118, when
required. The adoption of the standards has not had a material impact on the
Corporation's financial position or results of operations. Currently, the Banks
have $430,000 in loans classified as impaired loans.
F-28
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 4 -- ALLOWANCE FOR CREDIT LOSSES -- Continued
When a loan becomes 90 days past due as to interest or principal or
serious doubt exists as to collectibility, the accrual of income is
discontinued unless the loan is well secured and in the process of collection.
Previously accrued interest on loans transferred to nonaccrual status is
reversed against current earnings and any subsequent interest is recognized on
the cash basis. Problem assets include nonaccrual loans, restructured loans and
foreclosed properties. At March 31, 1998, $183,000 of loans was on nonaccrual
status as compared to $88,000 at December 31, 1997. No previous nonaccrual
loans have been returned to active status during 1998; therefore, no interest
income has been recognized on these loans. Interest income of $4,132 was
recognized during 1997 for loans previously recorded as nonaccrual. For those
loans classified as nonaccrual as of March 31, 1998 and December 31, 1997,
interest income of $4,527 and $6,722 would have been recognized in the
respective periods if those loans had performed under the original terms.
All accruing loans 90 days or more past due were in the process of
collection at each period end. At March 31, 1998, total classified loans were
$3,392,000 or 2.3% of total loans, compared to $3,736,000 or 2.6% at December
31, 1997. While it is difficult to determine the impact of these potential
problem loans, the future impact is not expected to be material as an estimate
of the potential impact has been considered in determining the amount of the
allowance for loan losses at March 31, 1998. Other than the loans previously
discussed, management is not aware of any possible credit problems of
borrowers, which cause management to have serious doubts about the ability of
the borrowers to comply with present loan repayment terms.
Management continuously monitors business and geographic concentrations of
its loan portfolio and believes that the loan portfolio is adequately
diversified. There were no significant concentrations in any industry or with
any individual borrower for the periods presented.
PROBLEM ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Nonaccrual loans ............................................... $ 182,721 $ 87,989
Loans past due ninety days or more ............................. 72,507 77,673
Troubled debt restructuring .................................... 0 0
Other real estate owned ........................................ 0 0
--------- ---------
Total ....................................................... $ 255,228 $ 165,662
========= =========
Nonperforming assets to total loans and other real estate owned .17% .11%
========= =========
</TABLE>
F-29
<PAGE>
COMSOUTH BANKSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 5 -- ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Balance at beginning of period ......... $1,805,860 $1,802,402
Provision for loan losses .............. 210,000 334,000
Loans charged-off:
Commercial ........................... (175,468) (321,642)
Real estate-mortgage ................. 0 0
Consumer and other ................... (1,819) (34,097)
---------- ----------
Total ............................... (177,287) (355,739)
---------- ----------
Recoveries:
Commercial ........................... 200 20,931
Real estate-mortgage ................. 0 0
Consumer and other ................... 71 4,266
---------- ----------
Total ............................... 271 25,197
---------- ----------
Balance at end of period ............... $1,838,844 $1,805,860
========== ==========
</TABLE>
Because extending credit involves a certain degree of risk-taking,
management has established loan and credit policies designed to control both
the types and amounts of risk assumed and to minimize losses. Such policies
include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices, collection procedures, and nonaccrual and charge-off
guidelines. In addition, both BOCL and BOC maintain a loan classification
system to monitor exposure to potential loan losses. Management believes that
the March 1998 allowance levels at both BOCL and BOC are sufficient to absorb
expected charge-offs and provides adequately for the inherent losses that exist
in the loan portfolio, assuming more or less normal conditions exist.
F-30
<PAGE>
TOURVILLE, SIMPSON & HENDERSON
CERTIFIED PUBLIC ACCOUNTANTS
POST OFFICE BOX 8567
1615 PICKENS STREET
COLUMBIA, SOUTH CAROLINA 29202
TELEPHONE (803)252-3000
FAX (803)254-0211
William E. Tourville, CPA Member AICPA SEC and
Harriet S. Simpson, CPA, CISA, CFE, CCP Private Companies
Lewis M. Henderson, CPA Practice Sections
Christopher G. Speaks, CPA
R. Jason Caskey, CPA
Starlene W. Watson, CPA
Frank D. Thomas, CPA
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
M&M FINANCIAL CORPORATION
Marion, South Carolina
We have audited the accompanying consolidated balance sheets of M&M
Financial Corporation as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of M&M Financial
Corporation as of December 31, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
TOURVILLE, SIMPSON & HENDERSON
Columbia, South Carolina
March 9, 1998
F-31
<PAGE>
M&M FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks ................................................................. $ 7,822,361 $ 7,022,370
Interest-bearing demand accounts with other banks ....................................... 1,519,920 241,458
Federal funds sold ...................................................................... -- 700,000
------------- -------------
Total cash and cash equivalents ...................................................... 9,342,281 7,963,828
Time deposits with other banks .......................................................... 300,000 800,000
Investment securities: ..................................................................
Securities available-for-sale ......................................................... 29,901,275 34,997,823
Securities held-to-maturity (estimated market value of $3,031,496 and $3,463,852 at
December 31, 1997 and 1996, respectively) ............................................ 2,973,837 3,344,422
------------- -------------
Total investment securities .......................................................... 32,875,112 38,342,245
Loans receivable ........................................................................ 105,427,377 80,922,947
Less allowance for loan losses ........................................................ (926,635) (1,027,355)
------------- -------------
Loans, net ........................................................................... 104,500,742 79,895,592
Premises and equipment, net ............................................................. 4,355,338 3,708,575
Accrued interest receivable ............................................................. 1,256,335 1,207,411
Other assets ............................................................................ 3,640,886 1,996,546
------------- -------------
Total assets ......................................................................... $ 156,270,694 $ 133,914,197
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing demand deposits ................................................... $ 18,958,066 $ 17,925,223
Interest-bearing demand deposits ...................................................... 32,004,240 23,412,310
Savings deposits ...................................................................... 18,281,077 15,164,905
Time deposits ......................................................................... 61,238,686 50,970,568
------------- -------------
Total deposits ....................................................................... 130,482,069 107,473,006
Short-term borrowings ................................................................... 2,461,432 9,083,374
Advances from the Federal Home Loan Bank ................................................ 10,000,000 5,000,000
Accrued interest and other liabilities .................................................. 1,638,835 1,536,105
------------- -------------
Total liabilities .................................................................... 144,582,336 123,092,485
------------- -------------
Stockholders' equity:
Common stock, $5 par value; 3,000,000 shares authorized; 1,006,116 and 335,372
shares issued and outstanding at December 31, 1997 and 1996, respectively ............. 5,030,580 1,676,860
Capital surplus ......................................................................... 2,483,783 2,483,783
Unrealized gain on securities available-for-sale, net ................................... 248,721 140,568
Retained earnings ....................................................................... 3,925,274 6,520,501
------------- -------------
Total stockholders' equity ........................................................... 11,688,358 10,821,712
------------- -------------
Total liabilities and stockholders' equity ........................................... $ 156,270,694 $ 133,914,197
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE>
M&M FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income:
Loans, including fees ..................................................... $ 9,093,815 $ 6,732,695 $ 5,126,826
Securities, nontaxable .................................................... 224,493 295,842 355,059
Securities, taxable ....................................................... 2,039,786 2,078,500 2,548,207
Federal funds sold ........................................................ 97,026 195,563 147,178
Time deposits with other banks and other .................................. 100,417 117,867 56,108
------------ ------------ ------------
Total interest income .................................................. 11,555,537 9,420,467 8,233,378
------------ ------------ ------------
Interest expense:
Deposits .................................................................. 4,574,507 3,717,409 3,202,304
Advances from the Federal Home Loan Bank .................................. 550,138 181,066 80,306
Federal funds purchased and securities sold under repurchase agreements
and other borrowings .................................................... 293,649 458,453 556,608
------------ ------------ ------------
Total interest expense ................................................. 5,418,294 4,356,928 3,839,218
------------ ------------ ------------
Net interest income ........................................................ 6,137,243 5,063,539 4,394,160
Provision for loan losses .................................................. 800,000 180,000 38,890
------------ ------------ ------------
Net interest income after provision for loan losses ........................ 5,337,243 4,883,539 4,355,270
------------ ------------ ------------
Other income:
Service charges on deposit accounts ....................................... 798,621 735,481 781,076
Commercial analysis charges ............................................... 192,732 153,965 151,536
Gain on sales of securities available-for-sale ............................ 266,232 -- 139,544
Commissions on sales of mutual funds and annuities ........................ 154,756 101,387 28,805
Other income .............................................................. 509,072 338,585 175,332
------------ ------------ ------------
Total other income ..................................................... 1,921,413 1,329,418 1,276,293
------------ ------------ ------------
Other expense:
Salaries and employee benefits 3,039,928 2,784,779 2,649,597
Occupancy expense of premises ............................................. 278,794 279,833 270,831
Furniture and equipment expense ........................................... 554,863 564,280 516,303
Other operating expense ................................................... 1,754,795 1,461,959 1,414,664
------------ ------------ ------------
Total other expense .................................................... 5,628,380 5,090,851 4,851,395
------------ ------------ ------------
Income before income taxes ................................................. 1,630,276 1,122,106 780,168
Income tax provision ....................................................... 502,874 263,343 187,350
------------ ------------ ------------
Net income ................................................................. $ 1,127,402 $ 858,763 $ 592,818
============ ============ ============
Basic earnings per share ................................................... $ 1.12 $ 0.85 $ 0.59
Diluted earnings per share ................................................. 1.12 0.85 0.59
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-33
<PAGE>
M&M FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gain on
Securities Total
Common Stock Capita Available- Retained Stockholders'
Shares Amount Surplus for Sale, net Earnings Equity
------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .............. 335,372 $ 1,676,860 $ 2,483,783 $ (539,617) $ 5,706,127 $ 9,327,153
Cash dividends, $0.30 per share ......... -- -- -- -- (301,835) (301,835)
Change in fair value for the period ..... -- -- -- 540,223 -- 540,223
Net income for 1995 ..................... -- -- -- -- 592,818 592,818
------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 1995 .............. 335,372 1,676,860 2,483,783 606 5,997,110 10,158,359
Cash dividends, $0.33 per share ......... -- -- -- -- (335,372) (335,372)
Change in fair value for the period ..... -- -- -- 139,962 -- 139,962
Net income for 1996 ..................... -- -- -- -- 858,763 858,763
------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 1996 .............. 335,372 1,676,860 2,483,783 140,568 6,520,501 10,821,712
Three-for-one stock split ............... 670,744 3,353,720 -- -- (3,353,720) --
Cash dividends, $0.37 per share ......... -- -- -- -- (368,909) (368,909)
Change in fair value for the period ..... -- -- -- 108,153 -- 108,153
Net income for 1997 ..................... -- -- -- -- 1,127,402 1,127,402
------- ----------- ----------- ---------- ------------ -----------
Balance, December 31, 1997 .............. 1,006,116 $ 5,030,580 $ 2,483,783 $ 248,721 $ 3,925,274 $11,688,358
========= =========== =========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-34
<PAGE>
M&M FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income .............................................................. $ 1,127,402 $ 858,763 $ 592,818
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ......................................... 440,501 429,692 409,519
Gain on sale of securities ............................................ (266,232) -- (139,544)
Provision for loan losses ............................................. 800,000 180,000 38,890
Amortization less accretion on securities ............................. (40,955) 26,993 (69,006)
Deferred income taxes ................................................. 168,584 (35,961) 17,483
Foreclosed asset valuation expense .................................... -- -- 18,417
Gain on disposition of foreclosed assets .............................. -- (25,369) --
(Increase) decrease in interest receivable ............................ (48,924) (218,285) 179,951
Increase in interest payable .......................................... 174,501 293,749 267,081
(Increase) decrease in other assets ................................... (1,167,332) 139,524 (678,495)
Decrease in other liabilities ......................................... (71,771) (81,623) (238,673)
------------- ------------- -------------
Net cash provided by operating activities ............................ 1,115,774 1,567,483 398,441
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale .................... 5,272,801 -- 21,702,952
Proceeds from maturities of securities available-for-sale ............... 9,403,561 10,798,945 7,389,026
Purchases of securities available-for-sale .............................. (9,114,188) (8,954,269) (16,154,008)
Proceeds from maturities of securities held-to-maturity ................. 388,003 702,500 8,976,276
Purchases of securities held-to-maturity ................................ -- -- (5,908,470)
Net increase in loans made to customers ................................. (25,405,150) (19,550,025) (17,770,768)
Net decrease (increase) in deposits in other banks ...................... 500,000 (500,000) --
Purchases of premises and equipment ..................................... (1,065,260) (200,564) (240,523)
Proceeds on disposition of foreclosed assets ............................ -- 108,588 218,353
Purchase of Federal Home Loan Bank Stock ................................ (735,300) (245,500) (304,500)
------------- ------------- -------------
Net cash used by investing activities ................................ (20,755,533) (17,840,325) (2,091,662)
------------- ------------- -------------
Cash flows from financing activities:
Net increase in deposit accounts ........................................ 23,009,063 11,388,893 4,764,235
Net decrease in short-term borrowings ................................... (6,621,942) (1,165,095) (1,073,534)
Proceeds of advances from the Federal Home Loan Bank .................... 5,000,000 5,000,000 --
Cash dividends paid ..................................................... (368,909) (335,372) (301,835)
------------- ------------- -------------
Net cash provided by financing activities ............................ 21,018,212 14,888,426 3,388,866
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents ..................... 1,378,453 (1,384,416) 1,695,645
Cash and cash equivalents, beginning of year ............................. 7,963,828 9,348,244 7,652,599
------------- ------------- -------------
Cash and cash equivalents, end of year ................................... $ 9,342,281 $ 7,963,828 $ 9,348,244
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-35
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The accompanying consolidated financial statements
include the accounts of M&M Financial Corporation (the Company), a bank holding
company, and its wholly-owned subsidiaries; First National South (the Bank),
and Marion National Investment Corporation. The principal business activity of
the Company and the Bank is to provide commercial banking services to domestic
markets, principally in the counties of Marion, Horry and Florence, South
Carolina. In consolidation, all significant intercompany items and transactions
have been eliminated.
Use of Estimates -- In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the balance sheet date and revenues and expenses
for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, including
valuation allowances for impaired loans, and the carrying amount of real estate
acquired in connection with foreclosures or in satisfaction of loans.
Management must also make estimates in determining the estimated useful lives
and methods for depreciating premises and equipment.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowance may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Bank to recognize additions to the allowances based on
their judgements about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowances for losses on loans and foreclosed real estate may change materially
in the near term.
Securities Held-to-Maturity -- Investment securities classified as
held-to-maturity are carried at cost adjusted for amortization of premiums and
accretion of discounts, both computed by the straight - line method. Management
has the intent and the Company has the ability to hold designated investment
securities to maturity. Reductions in market value considered by management to
be other than temporary are reported as a realized loss and a reduction in the
cost basis of the security.
Securities Available-for-Sale -- Securities classified as
available-for-sale by the Company are carried at amortized cost and adjusted to
estimated fair value by recording the aggregate unrealized gain or loss in a
valuation account. Management does not actively trade and may not hold
securities available-for-sale until maturity. The adjusted cost basis of
securities available-for-sale is determined by specific identification and is
used in computing the gain or loss from a sales transaction.
Loans -- Loans are stated at their unpaid principal balance. Substantially
all interest income is computed using the simple interest method and is
recorded in the period earned. When serious doubt exists as to the
collectibility of a loan or a loan is 90 days past due, the accrual of interest
income is generally discontinued unless the estimated net realizable value of
the collateral is sufficient to assure collection of the principal balance and
accrued interest. When interest accruals are discontinued, income in the
current year is reversed, and interest accrued in prior years is charged to the
allowance for loan losses.
Impairment of a loan is measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or fair
value of the collateral if the loan is collateral dependent. When management
determines that a loan is impaired, the difference between the Company's
investment in the related loan and the present value of the expected future
cash flows, or the fair value of the collateral, is charged to bad debt expense
with a corresponding entry to a valuation account. The accrual of interest is
discontinued on an impaired loan when management determines that the borrower
may be unable to meet payments as they become due.
Allowance for Loan Losses -- Management provides for losses on loans
through specific and general charges to operations and credits such charges to
the allowance for loan losses. Specific provision for losses is determined for
identified loans based upon estimates of the excess of the loan's carrying
value over the net realizable value of the underlying collateral. General
provision for loan losses is estimated by management based upon factors
including industry loss experience for similar lending categories, actual loss
experience, delinquency trends, as well as prevailing and anticipated economic
conditions. While management uses the best information available to make
evaluations, future adjustment to the allowance
F-36
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
may be necessary if economic conditions differ substantially from the
assumptions used in making the evaluation. Delinquent loans are charged against
the allowance at the time they are determined to be uncollectible. Recoveries
are added to the allowance.
Premises and Equipment -- Premises and equipment are stated at cost less
accumulated depreciation. Gain or loss on retirement of premises and equipment
is recognized in the statements of income when incurred. Expenditures for
maintenance and repairs are charged to expense; betterments and improvements
are capitalized. Depreciation charges are computed on both the straight-line
and accelerated methods over the estimated useful lives as follows:
<TABLE>
<S> <C> <C>
Building and improvements -- 15-40 years
Furniture, fixtures and
equipment -- 5-20 years
</TABLE>
Investments in Equity Securities -- Other assets include the costs of the
Company's investments in the stock of the Federal Reserve Bank and the Federal
Home Loan Bank. The stocks have no quoted market value and no ready market
exists. Investment in Federal Reserve Bank stock is required for national
banks. Investment in Federal Home Loan Bank stock is a condition of borrowing
from the Federal Home Loan Bank, and the stock is pledged to secure the
borrowings. At December 31, 1997 and 1996, the investment in Federal Reserve
Bank stock was $113,300. At December 31, 1997 and 1996, the investment in
Federal Home Loan Bank stock was $1,470,600 and $735,300, respectively.
Dividends received on Federal Reserve Bank stock and Federal Home Loan Bank
stock are included in other income.
Stock-Based Compensation -- Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", issued in October
1995, allows a company to either adopt the fair value method or continue using
the intrinsic valuation method presented under Accounting Principles Board
("APB") Opinion 25 to account for stock-based compensation. The fair value
method recommended in SFAS 123 requires compensation cost to be measured at the
grant date based on the value of the award and to be recognized over the
service period. The intrinsic value method measures compensation cost based on
the excess, if any, of the quoted market price of the stock at the grant date
over the amount an employee must pay to acquire the stock. The Company has
elected to use APB Opinion 25 to account for stock options granted under the
stock option plan adopted during 1997 and has disclosed in the footnotes pro
forma net income and earnings per share information as if the fair value method
had been used.
Income taxes -- The income tax provision is the sum of amounts currently
payable to taxing authorities and the net changes in income taxes payable or
refundable in future years. Income taxes deferred to future years are
determined utilizing a liability approach. This method gives consideration to
the future tax consequences associated with differences between the financial
accounting and tax bases of certain assets and liabilities, principally the
allowance for loan losses, depreciable premises and equipment, deferred
compensation, and the unrealized gain or loss on securities available-for-sale.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Cash Flow Information -- For purposes of reporting cash flows in the
consolidated financial statements, the Company considers certain highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents include cash and due from banks and federal funds
sold. Generally, federal funds are sold for one-day periods.
During 1997, 1996 and 1995, the Company paid $5,243,793, $4,063,179, and
$3,572,137 respectively, for interest. In 1997, 1996 and 1995, the Company made
tax payments of $369,494, $119,000 and $3,952, respectively.
Supplemental noncash investing and financing activities are as follows:
During 1997, the Company transferred $3,353,720 from retained earnings to
common stock in order to record the stock split (see Note 15).
During 1996, the Company transferred property with a carrying amount of
$46,275 from other real estate owned to premises and equipment. During 1995,
the Company transferred loans totaling $68,219 to other real estate owned.
F-37
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Off-Balance-Sheet Financial Instruments -- In the ordinary course of
business, the Company has entered into off- balance-sheet financial instruments
consisting of commitments to extend credit, commitments under credit card
arrangements and letters of credit. These financial instruments are recorded in
the financial statements when they become payable by the customer.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
time deposits in other banks, loans receivable, securities, federal funds sold
and amounts due from banks. Management is monitoring a concentration of loans
in the hotel/motel industry that would be similarly affected by changes in
economic conditions (See Note 5). Even though the Company's loan portfolio is
diversified, a substantial portion of its borrowers' ability to honor the terms
of their loans is dependent on business and economic conditions in Marion,
Horry and Florence Counties, South Carolina and surrounding areas. Management
does not believe credit risk is associated with obligations of the United
States, its agencies or its corporations. The Company places its deposits and
correspondent accounts with and sells its federal funds to high credit quality
institutions. Management believes credit risk associated with correspondent
accounts is not significant.
Per Share Amounts -- Basic earnings per share is computed by dividing net
income by the weighted-average number of shares outstanding for the period
excluding the effects of any dilutive potential common shares. Diluted earnings
per share is similar to the computation of basic earnings per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the dilutive potential common shares had
been issued. The dilutive effect of options outstanding under the Company's
stock option plan are reflected in diluted earnings per share by the
application of the treasury stock method. See Notes 2 and 18.
Reclassifications -- Certain captions and amounts in the 1996 and 1995
consolidated financial statements were reclassified to conform with the 1997
presentation.
All references in the condensed consolidated financial statements
referring to shares, share prices, per-share amounts and stock plans have been
adjusted retroactively for the three-for-one stock split. Additional
information is presented in Note 15.
During 1996, certain equity securities owned by the Company began trading
on a national exchange creating a ready market for the shares. The Company's
investment was included in other assets at cost as of December 31, 1995. In
1996, the investment was reclassified to securities available-for-sale and is
carried at its fair value as of December 31, 1996 and 1997.
NOTE 2 -- CHANGE IN ACCOUNTING PRINCIPLE
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share", effective for financial statements issued
for periods ending after December 15, 1997. SFAS 128 simplifies the standards
for computing earnings per share (EPS) and makes them comparable to
international EPS standards. It also requires the dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. The reconciliation of basic and diluted EPS is
included in Note 18. SFAS 128 had no effect on earnings per share computations
for prior years because the Company had a simple capital structure with no
dilutive potential shares prior to 1997.
NOTE 3 -- RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank computed as a percentage of deposits. At December 31, 1997 and
1996, the required cash reserve was $1,303,000 and $971,000, respectively, and
was satisfied by vault cash on hand and amounts due from the Federal Reserve
Bank, both of which are reported in the financial statements as cash and cash
equivalents.
F-38
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 4 -- INVESTMENT SECURITIES
Securities available-for-sale at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
December 31, 1997
Equity securities ............................................ $ 27,879 $ 162,035 $ -- $ 189,914
U.S. Treasury securities ..................................... 8,024,831 71,575 -- 8,096,406
Securities of other U.S. Government agencies and corporations 11,346,175 74,879 -- 11,421,054
Obligations of states and local government ................... 550,500 15,136 -- 565,636
Mortgage-backed securities ................................... 9,547,467 80,798 -- 9,628,265
------------ --------- --------- ------------
Total ....................................................... $ 29,496,852 $ 404,423 $ -- $ 29,901,275
============ ========= ========= ============
December 31, 1996
Equity securities ............................................ $ 67,468 $ 254,348 $ -- $ 321,816
U.S. Treasury securities ..................................... 2,448,037 36,463 -- 2,484,500
Securities of other U.S. Government agencies and corporations 14,446,568 -- 13,750 14,432,818
Obligations of states and local government ................... 1,297,629 39,912 -- 1,337,541
Mortgage-backed securities ................................... 16,509,555 -- 88,407 16,421,148
------------ --------- --------- ------------
Total ....................................................... $ 34,769,257 $ 330,723 $ 102,157 $ 34,997,823
============ ========= ========= ============
</TABLE>
For the years ended December 31, 1997, 1996, and 1995, aggregate realized
gains on securities available-for-sale were $266,232, $0, and $179,804,
respectively. There were no realized losses in 1997 or 1996. Realized losses
were $40,260 in 1995. Proceeds from sales of securities available-for-sale were
$5,272,801, $0, and $21,702,952 in 1997, 1996, and 1995, respectively.
Securities held-to-maturity at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
December 31, 1997
Obligations of states and local government .. $ 2,973,837 $ 57,69 $-- $ 3,031,496
=========== ========= === ===========
December 31, 1996
Obligations of states and local government .. $ 3,344,422 $ 119,430 $-- $ 3,463,852
=========== ========= === ===========
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, there were no sales
of securities held-to-maturity.
The following table summarizes the maturities of securities
available-for-sale and held-to-maturity as of December 31, 1997, based on the
contractual maturities. Actual maturities may differ from the contractual
maturities because issuers or borrowers may have the right to call or prepay
obligations with or without penalty.
<TABLE>
<CAPTION>
Securities Securities
Available-for-Sale Held-to-Maturity
----------------------------- -----------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Due in one year or less .................. $ 3,975,314 $ 3,979,738 $ 655,006 $ 658,281
Due after one year but within five years . 11,221,420 11,309,202 1,972,309 2,024,674
Due after five years but within ten years 987,193 1,000,625 234,924 236,944
Due after ten years ...................... 3,737,579 3,793,531 111,598 111,597
Mortgage-backed securities ............... 9,547,467 9,628,265 -- --
Equity securities ........................ 27,879 189,914 -- --
------------ ------------ ----------- -----------
Total ................................... $ 29,496,852 $ 29,901,275 $ 2,973,837 $ 3,031,496
============ ============ =========== ===========
</TABLE>
F-39
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 4 -- INVESTMENT SECURITIES -- Continued
Effective November 15, 1995, the Financial Accounting Standards Board
permitted a one-time opportunity for financial institutions to reassess their
investment portfolios and change the classification of their debt securities
from held-to-maturity to available-for-sale without bringing into question the
intent to hold other securities to maturity. In response, management
transferred securities having an amortized cost of $18,606,148 from the held-
to-maturity to available-for-sale category. The redesignation of securities had
no effect on net income or earnings per share.
At December 31, 1997 and 1996, investment securities having an amortized
cost of approximately $31,466,463 and $23,350,545, respectively, and an
estimated market value of approximately $31,751,067 and $23,405,919,
respectively, were pledged as collateral for advances from the Federal Home
Loan Bank, to secure public deposits and for other purposes as required and
permitted by law.
NOTE 5 -- LOANS RECEIVABLE
Loans receivable at December 31, 1997 and 1996, are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
<S> <C> <C>
Commercial ........................... $ 88,119,492 $ 55,300,370
Real estate -- construction .......... 4,012,807 3,296,039
Consumer ............................. 13,295,078 22,326,538
------------- ------------
Total loans ......................... $ 105,427,377 $ 80,922,947
============= ============
</TABLE>
Loans are defined as impaired when "based on current information and
events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement." All loans are
subject to this criteria except for "smaller-balance homogeneous loans that are
collectively evaluated for impairment" and loans "measured at fair value or at
the lower of cost or fair value." The Company considers its consumer
installment portfolio, credit cards and home equity lines as such exceptions.
Therefore, the real estate and commercial loan portfolios are the categories
primarily subject to possible impairment.
The Company identifies impaired loans through its normal internal loan
review process. Loans on the Company's problem loan watch list are considered
potentially impaired loans. These loans are evaluated in determining whether
all outstanding principal and interest are expected to be collected. Loans are
not considered impaired if a minimal delay occurs and all amounts due,
including accrued interest at the contractual interest rate for the period of
delay, are expected to be collected. At December 31, 1997 and 1996, management
reviewed its problem loan watch list and determined that no impairment on loans
existed that would have a material effect on the Company's consolidated
financial statements.
A concentration of loans exists when there are direct or indirect
obligations in a class of borrowers or industries that exceed 10% of total
loans. Under this definition, the Bank has a concentration of credit in the
hotel/motel industry. As of December 31, 1997, loans to the hotel/motel
industry are $10,843,010 or 10.3% of gross loans outstanding and approximately
97% of the Bank's capital.
The accrual of interest is discontinued on impaired loans when management
anticipates that a borrower may be unable to meet the obligations of the note.
Accrued interest through the date the interest is discontinued is reversed.
Subsequent interest earned is recognized only to the point that cash payments
are received. All payments are applied to principal if the ultimate amount of
principal is not expected to be collected.
As of December 31, 1997 and 1996, management had placed loans totaling
$473,103 and $710,834, respectively, in nonaccrual status because the loans
were not performing as originally contracted. However, no impairment has been
recognized because management has determined that the discounted value of
expected proceeds from the sale of collateral, typically real estate, exceeds
the carrying amount of these loans. Loans that were past due 90 days or more
and still accruing interest were $0 and $11,916 for December 31, 1997 and 1996,
respectively.
F-40
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 5 -- LOANS RECEIVABLE -- Continued
An analysis of the allowance for loan losses for the years ended December
31, 1997, 1996 and 1995, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------- --------------- ------------
<S> <C> <C> <C>
Balance, beginning of year ............... $ 1,027,355 $ 818,637 $ 726,097
Provision for loan losses ................ 800,000 180,000 38,890
Recoveries of charged-off loans .......... 58,704 65,203 314,798
Loans charged off ........................ (959,424) (36,485) (261,148)
----------- ----------- ----------
Balance, end of year ................... $ 926,635 $ 1,027,355 $ 818,637
=========== =========== ==========
</TABLE>
During 1996, the Company implemented a credit program in which it advances
money to small businesses based on the outstanding accounts receivable of the
business ("Business Manager"). Payments on the receivables are collected
directly by the Bank. Per the credit agreements, the respective businesses are
required to reduce the outstanding balances based on the aging of the
receivables. As of December 31, 1997, total advances under this program totaled
$1,558,519.
During 1997, the Company advanced money under this program to one Business
Manager account that was not financially able to reduce its loan commitment.
The Company restructured the loan but the customer was not able to support the
payments as they became due. In December 1997, management determined that the
loan was not collectible and charged off the remaining balance of $826,670.
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk. These financial instruments are
commitments to extend credit and letters of credit and have elements of risk in
excess of the amount recognized in the balance sheet. Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee.
A commitment involves, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the balance sheets. The Company's
exposure to credit loss in the event of non-performance by the other party to
the instrument is represented by the contractual amount of the instrument.
Since certain commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
Letters of credit are conditional commitments issued to guarantee a customer's
performance to a third party and have essentially the same credit risk as other
lending facilities. The Company uses the same credit policies in making
commitments to extend credit as it does for on-balance-sheet instruments.
The following table summarizes the Company's off-balance sheet financial
instruments whose contract amounts represent credit risk:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Commitments to extend credit ......... $ 18,033,790 $ 17,668,992
Standby letters of credit ............ 355,000 13,500
</TABLE>
At December 31, 1997, the Company was not committed to lend additional
funds to borrowers who have loans in nonaccrual status.
F-41
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 6 -- PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1997 and 1996, consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Land .................................... $ 1,186,115 $ 720,764
Office and buildings .................... 3,717,196 3,515,952
Furniture and equipment ................. 3,524,918 3,183,260
Construction in process ................. 50,579 3,000
----------- -----------
Total ................................. 8,478,808 7,422,976
Less, accumulated depreciation .......... 4,123,470 3,714,401
----------- -----------
Premises and equipment, net ............. $ 4,355,338 $ 3,708,575
=========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
was $418,497, $422,232 and $408,809, respectively.
NOTE 7 -- DEPOSITS
At December 31, 1997 and 1996, time deposits of $100,000 or more totaled
approximately $16,294,857 and $10,106,220, respectively. Interest expense on
these deposits was approximately $750,102, $464,938 and $361,900 in 1997, 1996
and 1995, respectively.
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1998 ........................ $ 57,578,241
1999 ........................ 3,253,142
2000 ........................ 270,799
2001 ........................ 58,158
2002 and thereafter ......... 78,346
------------
Total ..................... $ 61,238,686
============
</TABLE>
NOTE 8 -- SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Securities sold under agreements to repurchase ........... $ 1,072,326 $ 8,534,279
Interest-bearing demand notes issued to the U.S. Treasury 1,389,106 549,095
----------- -----------
Total .................................................. $ 2,461,432 $ 9,083,374
=========== ===========
</TABLE>
Securities sold under agreements to repurchase generally mature within one
to fourteen days from the transaction date. A third party provides safekeeping
services for the Company and maintains possession of the securities. As of
December 31, 1997, the amortized cost and market value of the securities
underlying the agreements were $1,101,274 and $1,107,295, respectively.
At December 31, 1997, the Bank had unused lines of credit to purchase
federal funds from unrelated banks totaling $9,500,000. These lines of credit
are available on a one to seven day basis for general corporate purposes. The
Bank also had available to it an unused commitment from the Federal Home Loan
Bank totaling $10,000,000.
F-42
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 9 -- ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consisted of the following at
December 31, 1997:
<TABLE>
<CAPTION>
Interest
Description Rate Balance
- - ------------------------------- --------- --------------
<S> <C> <C>
Fixed rate advances maturing:
February 14, 1998 ........... 5.70% $ 5,000,000
November 24, 2002 ........... 6.19 5,000,000
------------
Total ..................... $ 10,000,000
============
</TABLE>
Scheduled principal reductions of Federal Home Loan Bank advances are as
follows:
<TABLE>
<S> <C>
1998 ................ $ 6,000,000
1999 ................ 1,000,000
2000 ................ 1,000,000
2001 ................ 1,000,000
2002 ................ 1,000,000
------------
$ 10,000,000
============
</TABLE>
As collateral, the Bank has pledged its portfolio of first mortgage loans
on one-to-four family residential properties aggregating approximately
$16,197,000 and $1,600,000 of debt securities. In addition, the Company's
Federal Home Loan Bank stock, which is included in other assets, is pledged to
secure the borrowings.
NOTE 10 -- RELATED PARTY TRANSACTIONS
Certain parties (primarily directors, executive officers, principal
stockholders and their associates) were loan customers and had other
transactions in the normal course of business with the Bank. Related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and generally do not involve more than normal risk of
collectibility. Total loans and commitments outstanding to related parties at
December 31, 1997 and 1996, were $878,851 and $1,166,826, respectively. During
1997, $91,896 of new loans were made to related parties and repayments totaled
$379,871.
NOTE 11 -- CONTINGENCIES
In the ordinary course of business, the Company may, from time to time,
become a party to legal claims and disputes. At December 31, 1997, management
is not aware of any unaccrued pending or threatened litigation, or unasserted
claims that could result in losses, if any, that would be material to the
consolidated financial statements.
NOTE 12 -- RESTRICTIONS ON SUBSIDIARY DIVIDENDS
Banking regulations restrict the amount of dividends the Bank may pay to
the Company. Dividends paid by the Bank to the Company are payable from
undivided profits. Prior approval of the Comptroller of the Currency is
required if the total of all dividends declared by a national bank in any year
exceeds the bank's net profits (as defined) for that year combined with its
retained net profits (as defined) for the two preceding years. Under Federal
Reserve Board regulations, the amount of loans or advances from the Bank to the
Company are restricted.
F-43
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 13 -- INCOME TAXES
Income tax expense included in the income statements for the years ended
December 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
Federal ................................. $294,269 $255,457 $141,052
State ................................... 40,021 43,847 28,815
-------- -------- --------
334,290 299,304 169,867
-------- -------- --------
Deferred:
Federal ................................. 205,603 38,141 317,595
State ................................... 30,685 13,518 38,076
236,288 51,659 355,671
-------- -------- --------
Income tax expense ..................... $570,578 $350,963 $525,538
======== ======== ========
Income tax expense is allocated as follows:
To continuing operations ................ $502,874 $263,343 $187,350
To stockholders' equity ................. 67,704 87,620 338,188
-------- -------- --------
Income tax expense ..................... $570,578 $350,963 $525,538
======== ======== ========
</TABLE>
A summary of the Company's deferred tax accounts as of December 31, 1997
and 1996 follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Deferred tax assets ............... $360,196 $ 546,549
Deferred tax liabilities .......... 250,323 200,388
Valuation allowance ............... 193,764 193,764
</TABLE>
The principal sources of temporary differences in 1997, 1996, and 1995,
and the related deferred tax effects are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ -------------- ------------
<S> <C> <C> <C>
Provision for bad debts ............................................... $ 133,294 $ (29,904) $ 9,805
Tax depreciation in excess of book depreciation ....................... (4,172) 32,206 (697)
Valuation allowance on foreclosed property ............................ -- 22,083 (13,774)
Alternative minimum tax ............................................... -- 36,940 18,602
Retirement plans ...................................................... 50,010 37,093 10,922
Other net ............................................................. (10,548) (134,379) (7,375)
--------- ---------- ---------
Temporary differences attributable to continuing operations ......... 168,584 (35,961) 17,483
Change in valuation allowance ....................................... -- -- --
--------- ---------- ---------
Deferred tax expense (benefit) attributable to continuing operations .. 168,584 (35,961) 17,483
Deferred tax expense attributable to stockholders' equity ............. 67,704 87,620 338,188
--------- ---------- ---------
Change in deferred income taxes ..................................... $ 236,288 $ 51,659 $ 355,671
========= ========== =========
</TABLE>
F-44
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 13 -- INCOME TAXES -- Continued
A reconciliation of the income tax provision and the amount computed by
applying the Federal statutory rate of 34% to income before income taxes
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income tax at the statutory rate ........... $ 554,294 $ 381,516 $ 265,257
State income tax, net of federal benefit ... 49,185 32,859 44,148
Tax exempt interest income ................. (99,920) (106,594) (124,745)
Disallowed interest expense ................ 35,144 22,038 17,787
Other, net ................................. (35,829) (66,476) (15,097)
--------- ---------- ----------
Total ..................................... $ 502,874 $ 263,343 $ 187,350
========= ========== ==========
</TABLE>
NOTE 14 -- OTHER OPERATING EXPENSES
Other operating expenses for the years ended December 31, 1997, 1996 and
1995 are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Stationary and banking supplies ............ $ 216,747 $ 199,714 $ 185,669
Federal deposit insurance assessment ....... 13,361 2,054 106,783
Directors' fees ............................ 91,985 97,718 96,450
Professional fees .......................... 201,201 167,446 111,703
Marketing and advertising .................. 178,792 182,774 106,599
Insurance and bonds ........................ 54,527 68,330 81,484
Other real estate expense .................. -- -- 67,751
Telephone .................................. 129,442 103,131 95,141
Other ...................................... 868,740 640,792 563,084
---------- ---------- ----------
Total .................................... $1,754,795 $1,461,959 $1,414,664
========== ========== ==========
</TABLE>
NOTE 15 -- STOCKHOLDERS' EQUITY
On April 17, 1997, the stockholders approved an amendment to the Articles
of Incorporation increasing the number of authorized shares outstanding from
800,000 shares to 3,000,000 shares. On May 5, 1997, the Company declared a
three-for-one stock split effected in the form of a 200 percent stock dividend
to stockholders of record on June 2, 1997. On July 1, 1997, the Company
transferred $3,353,720 from retained earnings to common stock, representing the
670,744 additional shares of the Company's $5 par value stock which were
issued.
In 1997, the Company approved a dividend reinvestment plan for
stockholders of the Company. The plan offers stockholders the opportunity to
reinvest cash dividends paid on common stock by the purchase of additional
shares of common stock. Dividends are reinvested on a semi-annual basis as
paid. The Bank is the plan administrator. There were no shares purchased under
this plan in 1997.
NOTE 16 -- EMPLOYEE BENEFIT PLANS
The Company has a retirement savings and profit sharing plan with 401(k)
provisions covering substantially all full-time employees. Annual expense
provisions are based primarily upon employee participation and earnings of the
Company. The expense recognized under this plan in 1997, 1996, and 1995 totaled
approximately $68,834, $66,704 and $52,521, respectively.
During 1997, the Company terminated its noncontributory defined benefit
pension plan and replaced it with a money purchase pension plan and trust. A
gain of $53,005 was recognized on the termination of the defined benefit plan.
Under the money purchase pension plan and trust, the Company contributes 7% of
the compensation of employees who have completed 1,000 hours of service for the
year and are employed on the last day of the year into a trust account for the
future
F-45
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 16 -- EMPLOYEE BENEFIT PLANS -- Continued
benefit of the employees. An employee becomes fully vested in this plan after
seven years of service. For 1997, the Company accrued $140,000 in plan expense.
Contributions to the plan in 1997 were $130,000.
The Company approved a Salary Continuation Plan in December 1997 which
provides certain officers with salary continuation benefits after retirement.
The plan also provides for benefits in the event of early termination,
disability, death, or substantial change of control of the Company. For the
year ended December 31, 1997, salary continuation expense included in salaries
and employee benefits was $28,260. In connection with the Salary Continuation
Plan, single premium life insurance contracts with total death benefits of
$2,900,000 were purchased on the officers. The Company paid premiums of
$1,290,000 which were based on estimates of the future performance of the
policies. The cash surrender value of $1,312,388 was included in other assets
at December 31, 1997.
During 1997, the Company also approved a performance award plan which
provides certain officers with deferred benefits based upon the Company's
performance in relation to performance goals and objectives established
annually by the Board of Directors. Under the plan, the Company may distribute
in cash, at the sole discretion of the Board of Directors, up to 25% of the
performance award. The Company will accrue an interest portion on the deferred
benefit for each participant equal to the participants' cumulative deferred
benefit multiplied by the sum of the percentage change in the Company's stock
price during the year plus the percentage of dividends paid during the year to
stockholders' equity at the beginning of the year. Upon normal retirement,
early termination, disability, or death, the Company will pay the accumulated
deferred benefit over 180 months crediting interest on the unpaid balance of
the benefit at an annual rate of 8%. Upon substantial change of control, the
Company will pay the accumulated benefit in a lump-sum payment. No awards were
earned under this plan for the year ended December 31, 1997.
NOTE 17 -- STOCK COMPENSATION PLAN
On April 17, 1997, the stockholders approved an Incentive Stock Option
Plan of 1997 (Stock Plan) which provides for the granting of options to
purchase up to 78,000 shares of the Company's common stock to officers and
employees of the Company. The per-share exercise price of incentive stock
options granted under the Stock Plan may not be less than the fair market value
of a share on the date of grant. Participants become vested in options granted
based on each participant's years of service to the Company. The expiration
date of any option may not be greater than ten years from the date of grant.
Options that expire unexercised or are canceled become available for issuance.
As discussed in Note 1, the Company will apply APB Opinion No. 25 and
related interpretations in accounting for the Stock Plan. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
Stock Plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the method of SFAS 123, the Company's net
income and earnings per share for the year ended December 31, 1997 would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997
---------------
<S> <C>
Net income:
As reported ............. $ 1,127,402
Pro forma ............... 1,093,688
Basic earnings per share:
As reported ............. $ 1.12
Pro forma ............... 1.09
Diluted earnings per share:
As reported ............. $ 1.12
Pro forma ............... 1.09
</TABLE>
In calculating the pro forma disclosures, the fair value of options
granted is estimated as of the date granted using the Black-Scholes option
pricing model with the following weighted-average assumptions: dividend yield
of 2.78 percent; expected volatility of 0 percent; risk-free interest rate of
6.84 percent; and an expected life of 10 years.
F-46
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 17 -- STOCK COMPENSATION PLAN -- Continued
On May 5, 1997, the Company granted options to purchase up to 54,000
shares of the Company's common stock for $13.33 per share. As of December 31,
1997, none of the options had been exercised or canceled, and 6,390 options
were exercisable. At December 31, 1997, the weighted-average remaining
contractual life was 9.3 years. The fair value of options, calculated using the
Black-Scholes option pricing model, granted during 1997 was $3.37 per share.
Subsequent to year end, the Company issued an additional 7,000 options
exercisable at $15 per share.
NOTE 18 -- EARNINGS PER SHARE
As discussed in Note 2, the FASB issued SFAS 128, "Earnings Per Share", in
February 1997. SFAS 128 replaces the presentation of primary earnings per share
(EPS) with a presentation of basic EPS. It requires the presentation of basic
and diluted EPS on the face of the income statement for all entities with a
complex capital structure. Basic EPS excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average number
of shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity.
A reconciliation of the numerators and denominators used to calculate
basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders ............................ $ 1,127,402 1,006,116 $ 1.12
=======
Effect of Dilutive Securities
Stock options ...................................................... -- 647
----------- ---------
Diluted EPS
Income available to common stockholders plus assumed conversions ... $ 1,127,402 1,006,763 $ 1.12
=========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders ............................ $ 858,763 1,006,116 $ 0.85
=======
Effect of Dilutive Securities
Stock options ...................................................... -- --
--------- ---------
Diluted EPS
Income available to common stockholders plus assumed conversions ... $ 858,763 1,006,116 $ 0.85
========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- ----------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders ............................ $ 592,818 1,006,116 $ 0.59
=======
Effect of Dilutive Securities
Stock options ...................................................... -- --
--------- ---------
Diluted EPS
Income available to common stockholders plus assumed conversions ... $ 592,818 1,006,116 $ 0.59
========= ========= =======
</TABLE>
F-47
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 19 -- CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The capital amounts
and classifications are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum ratios of Tier 1 and total
capital as a percentage of assets and off-balance-sheet exposures, adjusted for
risk weights ranging from 0% to 100%. Tier 1 capital of the Company consists of
common stockholders' equity, excluding the unrealized gain or loss on
securities available-for-sale, minus certain intangible assets. The Company's
Tier 2 capital consists of the allowance for loan losses subject to certain
limitations. Total capital for purposes of computing the capital ratios
consists of the sum of Tier 1 and Tier 2 capital. The regulatory minimum
requirements are 4% for Tier 1 and 8% for total risk-based capital.
The Company and the Bank are also required to maintain capital at a
minimum level based on total assets, which is known as the leverage ratio. Only
the strongest banks are allowed to maintain capital at the minimum requirement
of 3%. All others are subject to maintaining ratios 1% to 2% above the minimum.
As of December 31, 1997, the most recent notification from the Bank's
primary regulator categorized the Bank as well-capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events that
management believes have changed the Bank's category.
The following table summarizes the capital ratios of the Company and the
Bank and the regulatory minimum requirements at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purpose Action Provisions
----------------------- -------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ---------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
The Company
Total capital (to risk weighted assets) ... $ 12,366 10.81% $ 9,154 8.0% $ N/A --%
Tier 1 capital (to risk weighted assets) .. 11,440 10.00 4,577 4.0 N/A --
Tier 1 capital (to average assets) ........ 11,440 7.32 6,254 4.0 N/A --
The Bank
Total capital (to risk weighted assets) ... 12,136 10.60 9,156 8.0 11,445 10.0
Tier 1 capital (to risk weighted assets) .. 11,209 9.79 4,578 4.0 6,867 6.0
Tier 1 capital (to average assets) ........ 11,209 7.19 6,235 4.0 7,794 5.0
December 31, 1996
The Company
Total capital (to risk weighted assets) ... $ 11,708 13.29% $ 7,047 8.0% $ N/A --%
Tier 1 capital (to risk weighted assets) .. 10,681 12.13 3,524 4.0 N/A --
Tier 1 capital (to average assets) ........ 10,681 8.04 5,315 4.0 N/A --
The Bank
Total capital (to risk weighted assets) ... 11,403 13.00 7,016 8.0 8,771 10.0
Tier 1 capital (to risk weighted assets) .. 10,376 11.82 3,508 4.0 5,262 6.0
Tier 1 capital (to average assets) ........ 10,376 7.76 5,307 4.0 6,634 5.0
</TABLE>
F-48
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 20 -- ANNUAL FINANCIAL DISCLOSURE STATEMENT BY THE OCC
This statement has not been reviewed or confirmed for accuracy or
relevance by the Office of the Comptroller of the Currency. This disclosure is
furnished pursuant to 12 CFR, part 18 of the OCC's rules and regulations.
NOTE 21 -- M&M FINANCIAL CORPORATION (PARENT COMPANY ONLY)
Condensed financial statements for M&M Financial Corporation (Parent
Company Only) as of December 31, 1997 and 1996 and for the years ended December
31, 1997, 1996, and 1995 follow:
BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Assets
Cash and cash equivalents ............................. $ 164,128 $ 145,015
Investment in subsidiaries ............................ 11,422,519 10,419,431
Securities available-for-sale ......................... 189,914 321,816
Other assets .......................................... 67,967 33,374
----------- -----------
Total assets ......................................... $11,844,528 $10,919,636
=========== ===========
Liabilities and Stockholders' Equity
Liabilities ........................................... $ 156,170 $ 97,924
----------- -----------
Total stockholders' equity ........................... 11,688,358 10,821,712
----------- -----------
Total liabilities and stockholders' equity ......... $11,844,528 $10,919,636
=========== ===========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Income
Dividends from subsidiaries ....................................................... $ 117,380 $ 360,372 $ 359,991
Gain on sale of securities ....................................................... 258,343 -- --
Other income ...................................................................... 4,716 14,835 20,642
---------- --------- ---------
380,439 375,207 380,633
Expenses .......................................................................... 1,201 995 4,225
---------- --------- ---------
Income before income taxes and equity in undistributed earnings of subsidiaries ... 379,238 374,212 376,408
Income tax provision .............................................................. 90,000 -- 5,581
---------- --------- ---------
Income before equity in undistributed earnings of subsidiaries .................... 289,238 374,212 370,827
Equity in undistributed earnings of subsidiaries .................................. 838,164 484,551 221,991
---------- --------- ---------
Net income ........................................................................ $1,127,402 $ 858,763 $ 592,818
========== ========= =========
</TABLE>
F-49
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income .............................................................. $1,127,402 $ 858,763 $ 592,818
Adjustments to reconcile net income to net cash provided by operating
activities ............................................................
Equity in undistributed earnings of subsidiaries ...................... (838,164) (484,551) (221,991)
Gain from sale of securities .......................................... (258,343) -- --
(Increase) decrease in other assets ................................... (34,593) -- 18,546
Increase in liabilities ............................................... 93,788 -- --
---------- ---------- ----------
Net cash provided by operating activities ............................ 90,090 374,212 389,373
---------- ---------- ----------
Investing activities:
Proceeds from sale of premises .......................................... -- -- 29,346
Purchase of securities available-for-sale ............................... (4,716) (4,113) (8,074)
Proceeds from sale of securities available-for-sale ..................... 302,648 -- --
---------- ---------- ----------
Net cash provided (used) by investing activities ..................... 297,932 (4,113) 21,272
---------- ---------- ----------
Financing activities:
Cash dividends paid ..................................................... (368,909) (335,372) (301,835)
---------- ---------- ----------
Net cash used by financing activities ................................ (368,909) (335,372) (301,835)
---------- ---------- ----------
Net increase in cash and cash equivalents ................................ 19,113 34,727 108,810
Cash and cash equivalents, beginning of year ............................. 145,015 110,288 1,478
---------- ---------- ----------
Cash and cash equivalents, end of year ................................... $ 164,128 $ 145,015 $ 110,288
========== ========== ==========
</TABLE>
NOTE 22 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset
or obligation could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Fair value estimates are
made at a specific point in time based on relevant market information and
information about the financial instruments. Because no market value exists for
a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.
The following methods and assumptions were used to estimate the fair value
of significant financial instruments:
Cash and Cash Equivalents -- The carrying amount is a reasonable estimate
of fair value.
Time Deposits with Other Banks -- The carrying value is a reasonable
estimate of fair value.
Investment Securities -- The fair values of securities held-to-maturity
are based on quoted market prices or dealer quotes. For securities
available-for-sale, fair value equals the carrying amount which is the quoted
market price. If quoted market prices are not available, fair values are based
on quoted market prices of comparable securities.
Loans -- For certain categories of loans, such as variable rate loans
which are repriced frequently and have no significant change in credit risk and
certain credit card receivables, fair values are based on the carrying amounts.
The fair value of other types of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to the
borrowers with similar credit ratings and for the same remaining maturities.
Deposits -- The fair value of demand deposits, savings, and money market
accounts is the amount payable on demand at the reporting date. The fair values
of certificates of deposit and other time deposits are estimated using a
discounted cash flow calculation that applies current interest rates to a
schedule of aggregated expected maturities.
Short-term Borrowings -- The carrying value is a reasonable estimate of
fair value.
F-50
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 22 -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued
Advances from the Federal Home Loan Bank -- The fair values are estimated
using a discounting cash flow calculation that applies the Company's current
borrowing rate from the Federal Home Loan Bank.
Accrued Interest Receivable and Payable -- The carrying value of these
instruments is a reasonable estimate of fair value.
Off-Balance Sheet Financial Instruments -- 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 counter parties. The contractual amount
is a reasonable estimate of fair value for the instruments because commitments
to extend credit are issued on a short-term or floating rate basis.
The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------ -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ................................... $ 9,342,281 $ 9,342,281 $ 7,963,828 $ 7,963,828
Time deposits with other banks .............................. 300,000 300,000 800,000 800,000
Securities available-for-sale ............................... 29,901,275 29,901,275 34,997,823 34,997,823
Securities held-to-maturity ................................. 2,973,837 3,031,496 3,344,422 3,463,852
Loans ....................................................... 105,427,377 105,335,377 80,922,947 80,596,947
Allowance for loan losses ................................... (926,635) (926,635) (1,027,355) (1,027,355)
Accrued interest receivable ................................. 1,256,335 1,256,335 1,207,411 1,207,411
Financial Liabilities:
Demand deposit, interest-bearing transaction, and savings
accounts .................................................. $ 69,243,383 $ 69,243,383 $ 56,502,438 $ 56,502,438
Time deposits ............................................... 61,238,686 61,583,686 50,970,568 51,013,568
Short-term borrowings ....................................... 2,461,432 2,461,432 9,083,374 9,083,374
Advance from the Federal Home Loan Bank ..................... 10,000,000 10,000,000 5,000,000 5,000,000
Accrued interest payable .................................... 1,834,397 1,834,397 933,401 933,401
Off-Balance Sheet Financial Instruments Commitments to
extend credit ............................................... $ 18,033,790 $ 18,033,790 $ 17,682,492 $ 17,682,492
</TABLE>
NOTE 23 -- RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB released SFAS 130, "Reporting Comprehensive
Income." SFAS 130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is the change in equity of a
business during a period from transactions and other events and circumstances
from nonowner sources and excludes investments by owners and distributions to
owners. Comprehensive income consists of two components, net income and other
comprehensive income. Other comprehensive income includes, among other things,
the change in the unrealized gain or loss on securities available-for-sale.
This statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
F-51
<PAGE>
M&M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks ................................................................ $ 6,593,305 $ 7,822,361
Interest-bearing demand accounts with other banks ...................................... 1,060,909 1,519,920
Federal funds sold ..................................................................... 4,500,000 --
------------ ------------
12,154,214 9,342,281
Time deposits with other banks ......................................................... 300,000 300,000
Securities held-to-maturity (estimated market value of $2,330,510 and $3,031,496 at
March 31, 1998 and December 31, 1997, respectively) ................................... 2,279,228 2,973,837
Securities available-for-sale .......................................................... 31,363,789 29,901,275
Loans receivable ....................................................................... 113,152,575 105,427,377
Less allowance for loan losses ........................................................ (1,044,616) (926,635)
------------ ------------
Loans, net ............................................................................. 112,107,959 104,500,742
Premises, furniture & equipment, net ................................................... 4,458,739 4,355,338
Accrued interest receivable ............................................................ 1,139,166 1,256,335
Other assets ........................................................................... 4,075,765 3,640,886
------------ ------------
Total assets .......................................................................... $167,878,860 $156,270,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits:
Non-interest bearing .................................................................. $ 18,272,459 $ 18,958,066
Interest bearing transaction accounts ................................................. 39,594,871 32,004,240
Savings deposits ...................................................................... 21,408,538 18,281,077
Time deposits ......................................................................... 63,043,658 61,238,686
------------ ------------
142,319,526 130,482,069
Short-term borrowings .................................................................. 1,923,947 2,461,432
Advances from the Federal Home Loan Bank ............................................... 10,000,000 10,000,000
Accrued interest and other liabilities ................................................. 1,739,136 1,638,835
------------ ------------
Total liabilities ...................................................................... 155,982,609 144,582,336
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, $5 par value, 3,000,000 shares authorized, 1,006,116 shares issued and
outstanding at March 31, 1998 and December 31, 1997, respectively ..................... 5,030,580 5,030,580
Surplus ................................................................................ 2,483,783 2,483,783
Accumulated other comprehensive income ................................................. 162,320 248,721
Retained earnings ...................................................................... 4,219,568 3,925,274
------------ ------------
Total stockholders' equity ............................................................ 11,896,251 11,688,358
------------ ------------
Total liabilities and stockholders' equity ............................................ $167,878,860 $156,270,694
============ ============
</TABLE>
See notes to condensed consolidated financial statements
F-52
<PAGE>
M&M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Interest income:
Loans, including fees ................................... $ 2,584,210 $ 2,085,068
Securities, taxable ..................................... 438,743 521,931
Securities, tax-exempt .................................. 45,608 64,391
Other interest income ................................... 145,294 41,755
----------- -----------
3,213,855 2,713,145
----------- -----------
Interest expense:
Deposit accounts ........................................ 1,431,210 951,404
Advances from the Federal Home Loan Bank ................ 147,565 109,167
Short-term borrowings ................................... 21,024 127,880
----------- -----------
1,599,799 1,188,451
----------- -----------
Net interest income ...................................... 1,614,056 1,524,694
Provision for loan losses ................................ 114,000 84,000
----------- -----------
Net interest income after provision for loan losses ...... 1,500,056 1,440,694
----------- -----------
Other operating income:
Service charges on deposit accounts ..................... 254,441 190,129
Other charges, commissions and fees ..................... 193,161 196,889
----------- -----------
447,602 387,018
----------- -----------
Other operating expenses:
Salaries and benefits ................................... 888,603 739,179
Net occupancy expense ................................... 190,119 191,653
Other operating expenses ................................ 454,383 369,498
----------- -----------
1,533,105 1,300,330
----------- -----------
Income before taxes ...................................... 414,553 527,382
Income tax provision ..................................... 120,259 164,552
----------- -----------
Net income ............................................... $ 294,294 $ 362,830
=========== ===========
Earnings per share:
Basic ................................................... $ 0.29 $ 0.36
=========== ===========
Diluted ................................................. $ 0.29 $ 0.36
=========== ===========
Weighted average number of shares outstanding:
Basic ................................................... 1,006,116 1,006,116
Diluted ................................................. 1,013,747 1,006,116
</TABLE>
See notes to condensed consolidated financial statements
F-53
<PAGE>
M&M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
------------------------------
Common Stock Other Total
-------------------------- Retained Comprehensive Stockholders'
Shares Amount Surplus earnings income (loss) Equity
------------ ------------- ------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 .......... 335,372 $ 1,676,860 $ 2,483,783 $ 6,520,501 $ 140,568 $10,821,712
Comprehensive income
Net income ......................... 362,830 362,830
Other comprehensive income,
net of tax .......................
Unrealized losses on investment
securities ...................... (202,030) (202,030)
-----------
Comprehensive income ................ 60,800
--------- ----------- ----------- ----------- ---------- -----------
Balance, March 31, 1997 ............. 335,372 $ 1,676,860 $ 2,483,783 $ 6,883,331 $ (61,462) $10,982,512
======= =========== =========== =========== ========== ===========
Balance, December 31, 1997 .......... 1,006,116 $ 5,030,580 $ 2,483,783 $ 3,925,274 $ 248,721 $11,688,358
Comprehensive income
Net income ......................... 294,294 294,294
Other comprehensive income,
net of tax .......................
Unrealized losses on investment
securities ...................... (86,401) (86,401)
-----------
Comprehensive income ................ 207,893
--------- ----------- ----------- ----------- ---------- -----------
Balance, March 31, 1998 ............. 1,006,116 $ 5,030,580 $ 2,483,783 $ 4,219,568 $ 162,320 $11,896,251
========= =========== =========== =========== ========== ===========
</TABLE>
See notes to condensed consolidated financial statements
F-54
<PAGE>
M&M FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................................... $ 294,294 $ 362,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization .................................................... 81,194 101,837
Provision for loan losses ........................................................ 114,000 84,000
Other, net ....................................................................... (169,970) 37,900
------------ ------------
Net cash provided by operating activities ....................................... 319,518 586,567
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to customers ................................................. (7,721,217) (8,212,748)
Purchases of securities available-for-sale ......................................... (4,516,562) (593,285)
Maturities of securities available-for-sale ........................................ 2,912,386 1,288,581
Maturities of securities held-to-maturity .......................................... 692,199 193,403
Purchase of Federal Home Loan Bank stock ........................................... -- (735,300)
Net (increase) decrease in time deposits with other banks .......................... -- 500,000
Purchases of premises and equipment ................................................ (174,363) (572,181)
------------ ------------
Net cash used by investing activities ........................................... (8,807,557) (8,131,530)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits accounts .................................................. 11,837,457 1,547,200
Advances from Federal Home Loan Bank ............................................... -- 5,000,000
Increase (decrease) in short-term borrowings ....................................... (790,436) 528,519
Increase in repurchase agreements .................................................. 252,951 2,401,502
------------ ------------
Net cash provided by financing activities ....................................... 11,299,972 9,477,221
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................... 2,811,933 1,932,258
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...................................... 9,342,281 7,963,828
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................ $ 12,154,214 $ 9,896,086
============ ============
Cash paid during the period for:
Income taxes ....................................................................... $ 145,844 $ 140,494
Interest ........................................................................... $ 1,698,822 $ 1,434,224
</TABLE>
See notes to condensed consolidated financial statements
F-55
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with the requirements for interim financial statements and,
accordingly, they are condensed and omit disclosures which would substantially
duplicate those contained in the most recent annual report to stockholders. The
financial statements as of March 31, 1998 and for the interim periods ended
March 31, 1998 and 1997 are unaudited and, in the opinion of management,
include all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation. The financial information as of December 31,
1997 has been derived from the audited financial statements as of that date.
For further information, please refer to the financial statements and the notes
included in the Company's 1997 Annual Report.
NOTE 2 -- EARNINGS PER SHARE
A reconciliation of the numerators and denominators used to calculate
basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1998
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- ----------
<S> <C> <C> <C>
Basic earnings per share
Income available to common stockholders ............................ $ 294,294 1,006,116 $ 0.29
=======
Effect of dilutive securities
Stock options ...................................................... -- 7,631
--------- ---------
Diluted earnings per share
Income available to common stockholders plus assumed conversions ... $ 294,294 1,013,747 $ 0.29
========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1997
----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------- --------------- ----------
<S> <C> <C> <C>
Basic earnings per share
Income available to common stockholders ............................ $362,830 1,006,116 $ 0.36
======
Effect of dilutive securities
Stock options ...................................................... -- --
-------- ---------
Diluted earnings per share
Income available to common stockholders plus assumed conversions ... $362,830 1,006,116 $ 0.36
======== ========= ======
</TABLE>
NOTE 3 -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting comprehensive income. Comprehensive
income includes net income and other comprehensive income which is defined as
non-owner related transactions in equity. Prior periods have been reclassified
to reflect the application of the provisions of SFAS 130. The following table
sets forth the amounts of other comprehensive income included in equity along
with the related tax effect for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1998
----------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------------- ----------- -------------
<S> <C> <C> <C>
Net unrealized gains (losses) on securities available for sale arising in 1998 $(140,488) $54,087 $(86,401)
--------- ------- --------
Other comprehensive income .................................................... $(140,488) $54,087 $(86,401)
========= ======= ========
</TABLE>
F-56
<PAGE>
M&M FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE 3 -- COMPREHENSIVE INCOME -- Continued
<TABLE>
<CAPTION>
For the Quarter Ended March 31, 1997
-----------------------------------------
Pre-tax (Expense) Net of tax
Amount Benefit Amount
-------------- ----------- --------------
<S> <C> <C> <C>
Net unrealized gains (losses) on securities available for sale arising in 1997 $(328,504) $ 126,474 $(202,030)
--------- --------- ---------
Other comprehensive income .................................................... $(328,504) $ 126,474 $(202,030)
========= ========= =========
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized
gain (loss) on securities available for sale, net of the deferred tax effects.
NOTE 4 -- STOCK OPTIONS
Effective January 12, 1998, the Company granted options to purchase up to
7,000 shares of the Company's common stock at a price of $15 per share which
was the fair market value on the date of grant.
On April 16, 1998, the Company granted options to purchase up to 5,000
shares of the Company's common stock at a price of $17 per share which was the
fair market value on the date of grant. These options were excluded from the
earnings-per-share computations for the quarter ended March 31, 1998.
NOTE 5 -- SUBSEQUENT EVENTS
On May 1, 1998, the Company announced the signing of a letter of intent to
merge with Anchor Financial Corporation. The proposed merger is subject to due
diligence, execution of a definitive agreement by May 15, 1998, approval by the
boards of directors and stockholders of both companies, and approvals by
appropriate regulatory agencies. The transaction is expected to be completed
during the third quarter of 1998.
Under the terms of the Company's Salary Continuation Plan, which provides
certain officers with salary continuation benefits upon retirement, the
officers become immediately vested in the benefits upon a change of control in
the Company. Upon completion of the merger, approximately $500,000 to $525,000
additional pretax expense related to these benefits will be recorded.
The Company's Incentive Stock Option Plan of 1997 (the Stock Plan)
provides that officers and employees become fully vested in stock options
granted under the Stock Plan upon a change of control of the Company.
Accordingly, upon completion of the merger, all 66,000 options granted under
the Stock Plan will be fully vested.
F-57
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The South Carolina Business Corporation Act of 1988, as amended (the
"Act"), empowers a corporation to indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred in the
proceeding if: (i) he conducted himself in good faith; and (ii) he reasonably
believed: (a) in the case of conduct in his official capacity with the
corporation, that his conduct was in its best interest; and (b) in all other
cases, that his conduct was at least not opposed to its best interest; and (c)
in the case of any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful.
The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the required standard of
conduct.
A corporation may not indemnify a director in connection with: (i) a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or (ii) any other proceeding charging
improper personal benefit to him, whether or not involving action in his
official capacity, in which he was adjudged liable on the basis that personal
benefit was improperly received by him.
Indemnification is limited to reasonable expenses incurred in connection
with the proceeding.
The Act further provides that unless limited by its articles of
incorporation, a corporation shall indemnify a director who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which he was a party because he is or was a director of the corporation against
reasonable expenses incurred by him in connection with the proceeding.
The Act also provides that a corporation may pay for or reimburse the
reasonable expenses incurred by a director who is a party to a proceeding in
advance of final disposition of the proceeding if (i) the director furnishes
the corporation a written (a) undertaking, executed personally or on his
behalf, to repay the advance if it is ultimately determined that he did not
meet the standard of conduct; and (b) affirmation of his good faith belief that
he has met the required standard of conduct; and (ii) a determination is made
that the facts then known to those making the determination would not preclude
indemnification.
A corporation may not indemnify a director as described above unless
authorized in the specific case after a determination has been made by the
board of directors, by special legal counsel or by the shareholders owning a
requisite number of shares that indemnification of the director is permissible
in the circumstances because he has met the applicable standard of conduct.
A corporation may also indemnify and advance expenses to an officer,
employee or agent of the corporation to the same extent as for a director.
The Bylaws of Anchor Financial Corporation contain the following
indemnification provision:
Any person, his heirs, executors, or administrators, may be indemnified
or reimbursed by the corporation for reasonable expenses actually
incurred in connection with any action, suit or proceeding, civil or
criminal, to which he or they shall be made a party by reason of his
being or having been a director, officer, or employee of the corporation
or of any firm, corporation, or organization which he served in any such
capacity at the request of the corporation; provided, however, that no
person shall be so indemnified or reimbursed in relation to any matter in
such action, suit, or proceeding as to which he shall finally be adjudged
to have been guilty or liable for gross negligence, willful misconduct or
criminal acts in the performance of his duties to the corporation; and,
provided further, that no person shall be so indemnified or reimbursed in
relation to any matter in such action, suit, or proceeding which has been
made the subject of a compromise settlement except with the approval of a
court of competent jurisdiction, or the holders of record of a majority
of the outstanding shares of the corporation, or the board of directors,
acting by vote of directors not parties to the same or substantially the
same action, suit, or proceeding, constituting a majority of the whole
number of directors. The foregoing right of indemnification or
reimbursement shall not be exclusive of other rights to which such
person, his heirs, executors, or administrators may be entitled as a
matter of law.
Anchor Financial Corporation maintains an insurance policy insuring the
corporation and its directors and officers against certain liabilities.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules.
An Index to Exhibits appears at pages II-6 through II-7 hereof.
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes:
(i) to file, during any period in which offers or sales are being made
pursuant to this Registration Statement, a post-effective amendment to this
Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(ii) that, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(iii) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by the persons who may be
deemed underwriters, in addition to the information called for by the other
Items of the applicable form;
(iv) that every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and thus used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to
the Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(v) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel 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 Act and will be governed by the final
adjudication of such issue;
(vi) for purpose of determining any liability under the Securities Act of
1933 (the "Act"), each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(vii) to remove from registration by means of a post-effective amendment
any of the securities being registered which are not issued pursuant to the
Mergers;
(viii) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of Form
S-4 within one business day of receipt of such request and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request; and
II-2
<PAGE>
(ix) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Myrtle Beach, State of
South Carolina, on June 15, 1998.
ANCHOR FINANCIAL CORPORATION
By: /S/ STEPHEN L. CHRYST
------------------------------------
Stephen L. Chryst, President
Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors of
Anchor Financial Corporation, a South Carolina corporation ("Anchor"), does
hereby name, constitute and appoint Stephen L. Chryst and Tommy E. Looper and
each of them (with full power to each of them to act alone), his true and
lawful agents and attorneys-in-fact, for him and on his behalf and in his name,
place and stead, in any and all capacities, to sign, execute, acknowledge,
deliver, and file (a) with the Securities and Exchange Commission (or any other
governmental or regulatory authority), a Registration Statement on Form S-4 (or
other appropriate form) and any and all amendments (including post-effective
amendments) thereto, with any and all exhibits and any all other documents
required to be filed with respect thereto or in connection therewith, relating
to the registration under the Securities Act of 1933, as amended, of Common
Stock of Anchor to be issued in the Mergers (i) between Anchor and ComSouth
Bankshares, Inc. ("ComSouth") wherein Anchor agrees to exchange shares of its
common stock for all the outstanding shares of common stock of ComSouth and
merge ComSouth into Anchor, and (ii) between Anchor and M&M Financial
Corporation ("M&M") wherein Anchor agrees to exchange shares of its common
stock for all the outstanding shares of common stock of M&M and merge M&M into
Anchor, and (b) with the securities agencies or officials of various
jurisdictions, all applications, qualifications, registrations or exemptions
relating to such offering under the laws of any such jurisdiction, including
any amendments thereto other documents required to be filed with respect
thereto or in connection therewith, granting unto said agents and attorneys,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be in and about the premises in order to
effectuate the same as fully to all intents and purposes as the undersigned
might or could do if personally present, and the undersigned hereby ratifies
and confirms all that agents and attorneys-in-fact, or any of them may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement and Power of Attorney have been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - ---------------------------------------- ------------- --------------
<S> <C> <C>
Director
----------------------------------
C. Jason Ammons, Jr.
/S/ HOWELL V. BELLAMY, JR. Director June 15, 1998
----------------------------------
Howell V. Bellamy, Jr.
/S/ W. CECIL BRANDON, JR. Director June 15, 1998
----------------------------------
W. Cecil Brandon, Jr.
Director
----------------------------------
James E. Burroughs
/S/ C. DONALD CAMERON Director June 15, 1998
----------------------------------
C. Donald Cameron
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- - ---------------------------------------- ------------------------------------- --------------
<S> <C> <C>
/S/ STEPHEN L. CHRYST President, Chief Executive Officer June 15, 1998
---------------------------------- and Director
Stephen L. Chryst
J. BRYAN FLOYD Director June 15, 1998
----------------------------------
J. Bryan Floyd
Director
----------------------------------
Admah Lanier, Jr.
/S/ TOMMY E. LOOPER Executive Vice-President, June 10, 1998
---------------------------------- Chief Financial Officer and Director
Tommy E. Looper
/S/ W. GAIRY NICHOLS, III Director June 15, 1998
----------------------------------
W. Gairy Nichols, III
/S/ RUPPERT L. PIVER Director June 15, 1998
----------------------------------
Ruppert L. Piver
/S/ THOMAS J. ROGERS Director June 10, 1998
----------------------------------
Thomas J. Rogers
/S/ ALBERT A. SPRINGS, III Director June 15, 1998
----------------------------------
Albert A. Springs, III
/S/ J. RODDY SWAIM Director June 15, 1998
----------------------------------
J. Roddy Swaim
/S/ HARRY A. THOMAS Director June 15, 1998
----------------------------------
Harry A. Thomas
/S/ ZEB M. THOMAS, SR. Chairman of the Board of Directors June 15, 1998
----------------------------------
Zeb M. Thomas, Sr.
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger between Anchor Financial Corporation and ComSouth Bankshares,
Inc., dated April 14, 1998 (included as Appendix A to the Joint Proxy Statement/Prospectus).
2.2 Agreement and Plan of Merger between Anchor Financial Corporation and M&M Financial
Corporation, dated May 15, 1998 (included as Appendix B to the Joint Proxy Statement/Prospectus).
3.1 Articles of Incorporation of Anchor Financial Corporation, as amended through December 31, 1996.
(Incorporated by reference to Exhibit 3.1 of the Registrant's Form 10-K for the year ended
December 31, 1996.)
3.2 Amendment to Articles of Incorporation of Registrant, dated May 19, 1998.
3.3 Bylaws of Anchor Financial Corporation, as amended. (Incorporated by reference to Exhibit 3.2 of
the Registrant's Form 10-K for the year ended December 31, 1996.)
4.1 See Exhibits 3.1, 3.2 and 3.3 for provisions of the Registrant's Articles of Incorporation and Bylaws
defining the rights of holders of the Registrant's Common Stock.
5.1 Opinion of Gerrish & McCreary, P.C. regarding legality.
8.1 Opinion of Gerrish & McCreary, P.C. regarding certain tax consequences of the ComSouth Merger.
8.2 Opinion of Gerrish & McCreary, P.C. regarding certain tax consequences of the M&M Merger.
10.1 Executive Employment Agreement among the Anchor Bank, Anchor Financial Corporation and
Stephen L. Chryst, executed in April 1998, effective as of January 1, 1998
10.2 Executive Employment Agreement among The Anchor Bank, Anchor Financial Corporation and
Robert E. Coffee, Jr., executed in April 1998, effective as of January 1, 1998
10.3 Executive Employment Agreement among The Anchor Bank, Anchor Financial Corporation and
Robert R. DuRant, III, executed in April 1998, effective as of January 1, 1998
10.4 Executive Employment Agreement among The Anchor Bank, Anchor Financial Corporation and
Tommy E. Looper, executed in April 1998, effective as of January 1, 1998
10.5 Salary Continuation Agreement with Stephen L. Chryst, dated February 27, 1996 (Incorporated by
reference to Exhibit 10.1 of the Registrant's Form 10-Q for the quarter ended March 31, 1996.)
10.6 Salary Continuation Agreement with Robert E. Coffee, Jr., dated February 27, 1996 (Incorporated by
reference to Exhibit 10.2 of the Registrant's Form 10-Q for the quarter ended March 31, 1996.)
10.7 Salary Continuation Agreement with Robert R. DuRant, III, dated February 27, 1996 (Incorporated by
reference to Exhibit 10.3 of the Registrant's Form 10-Q for the quarter ended March 31, 1996.)
10.8 Salary Continuation Agreement with Tommy E. Looper, dated February 27, 1996 (Incorporated by
reference to Exhibit 10.4 of the Registrant's Form 10-Q for the quarter ended March 31, 1996.)
10.9 Anchor Financial Corporation, The Anchor Bank and The Anchor Bank of North Carolina Incentive
Stock Option Plan of 1996, dated April 25, 1996 (the "1996 ISOP") (Incorporated by reference to
Exhibit 10 of the Registrant's Form 10-K for the year ended December 31, 1995.)
10.10 First Amendment to the 1996 ISOP, dated December 8, 1997.
10.11 Anchor Financial Corporation, The Anchor Bank and The Anchor Bank of North Carolina Incentive
Stock Option Plan of 1994, dated April 27, 1994, as amended December 8, 1997
10.12 Anchor Financial Corporation and The Anchor Bank Non-Qualified Stock Option Plan of 1988, dated
November 14, 1988, as amended, December 8, 1997
21.1 Subsidiaries of Anchor Financial Corporation
23.1 Consent of Price Waterhouse LLP
23.2 Consent of JW Hunt and Company, LLP
23.3 Consent of Tourville, Simpson & Henderson
23.4 Consent of Gerrish & McCreary, P.C. included in Exhibits 5.1, 8.1 and 8.2 above
23.5 Consent of Sandler O'Neill & Partners, L.P.
23.6 Consent of Interstate/Johnson Lane Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- - ----------- ---------------------------------------------------------------------------------------------------
<S> <C>
23.7 Consent of Orr Management Company
24.1 Power of Attorney (contained in the Signatures section of the Registration Statement)
99.1 Form of Proxy for Anchor Financial Corporation
99.2 Form of Proxy for ComSouth Bankshares, Inc.
99.3 Form of Proxy for M&M Financial Corporation
99.4 Opinions of Sandler O'Neill & Partners, L.P. (included as Appendix D to the Joint Proxy Statement/
Prospectus)
99.5 Opinion of Interstate/Johnson Lane, Inc. (included as Appendix E to the Joint Proxy Statement/
Prospectus)
99.6 Opinion of Orr Management Company (included as Appendix F to the Joint Proxy Statement/
Prospectus)
</TABLE>
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
ANCHOR FINANCIAL CORPORATION
AND
COMSOUTH BANKSHARES, INC.
DATED APRIL 14, 1998
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Page
PREAMBLE..........................................................................................................1
RECITALS..........................................................................................................1
DEFINITIONS.......................................................................................................1
ARTICLE I. MERGER................................................................................................5
1.1 THE MERGER......................................................................................5
1.2 EFFECTIVE DATE..................................................................................5
ARTICLE II. MERGER CONSIDERATION.................................................................................5
2.1 CONSIDERATION...................................................................................5
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.............................................................6
2.3 FRACTIONAL SHARES...............................................................................6
2.4 EXCHANGE PROCEDURES.............................................................................6
2.5 DISSENTING SHARES...............................................................................6
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION......................................................7
2.7 OPTIONS.........................................................................................7
2.8 ANTI-DILUTION ADJUSTMENTS.......................................................................7
ARTICLE III. COMSOUTH ACTIONS PENDING CONSUMMATION...............................................................8
3.1 CAPITAL STOCK...................................................................................8
3.2 DISTRIBUTIONS...................................................................................8
3.3 LIABILITIES.....................................................................................8
3.4 OPERATIONS......................................................................................8
3.5 LIENS AND ENCUMBRANCES..........................................................................8
3.6 EMPLOYMENT ARRANGEMENTS.........................................................................8
3.7 BENEFIT PLANS...................................................................................9
3.8 CONTINUANCE OF BUSINESS.........................................................................9
3.9 AMENDMENTS......................................................................................9
3.10 CLAIMS..........................................................................................9
3.11 CONTRACTS.......................................................................................9
3.12 LOANS...........................................................................................9
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION..................................................................9
ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................................................................10
5.1 COMSOUTH'S REPRESENTATIONS AND WARRANTIES......................................................10
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES........................................................19
5.3 EXCEPTIONS TO REPRESENTATIONS..................................................................21
ARTICLE VI. COVENANTS...........................................................................................22
6.1 BEST EFFORTS...................................................................................22
6.2 THE PROXY......................................................................................22
6.3 REGISTRATION STATEMENT - COMPLIANCE
WITH SECURITIES LAWS...........................................................................22
6.4 REGISTRATION STATEMENT EFFECTIVENESS...........................................................23
6.5 PRESS RELEASES.................................................................................23
6.6 ACCESS; INFORMATION............................................................................23
6.7 ACQUISITION PROPOSALS..........................................................................24
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.......................................................................24
6.9 APPOINTMENT OF DIRECTORS.......................................................................24
6.10 EMPLOYMENT AGREEMENTS..........................................................................24
6.11 BLUE-SKY FILINGS...............................................................................25
6.12 AFFILIATE AGREEMENTS...........................................................................25
6.13 TAKEOVER LAW...................................................................................25
6.14 NO RIGHTS TRIGGERED............................................................................25
6.15 SHARES LISTED..................................................................................25
6.16 CURRENT INFORMATION............................................................................25
<PAGE>
6.17 SEVERANCE......................................................................................26
6.18 INDEMNIFICATION................................................................................26
ARTICLE VII. CONDITIONS TO CONSUMMATION
OF THE MERGER..................................................................................................26
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................................................26
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR............................................................27
7.3 CONDITIONS TO OBLIGATIONS OF COMSOUTH..........................................................28
ARTICLE VIII. TERMINATION.......................................................................................29
8.1 EVENTS OF TERMINATION..........................................................................29
8.2 CONSEQUENCES OF TERMINATION....................................................................31
ARTICLE IX. OTHER MATTERS.......................................................................................32
9.1 SURVIVAL.......................................................................................32
9.2 WAIVER; AMENDMENT..............................................................................32
9.3 COUNTERPARTS...................................................................................32
9.4 GOVERNING LAW..................................................................................32
9.5 EXPENSES.......................................................................................33
9.6 CONFIDENTIALITY................................................................................33
9.7 NOTICES........................................................................................33
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES..................................................................................33
9.9 HEADINGS.......................................................................................34
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of April 14, 1998 (the
"Agreement"), is made and entered into by and between ANCHOR FINANCIAL
CORPORATION ("Anchor"), a South Carolina corporation, and COMSOUTH BANKSHARES,
INC. ("ComSouth"), a South Carolina corporation.
PREAMBLE
The management and Boards of Directors of Anchor and ComSouth believe,
respectively, that the business combination transaction provided for herein, in
which ComSouth will, subject to the terms and conditions set forth herein, merge
with and into Anchor so that Anchor is the surviving corporation in the Merger,
is in the best interests of Anchor and ComSouth's shareholders.
RECITALS
A. ANCHOR. Anchor is a corporation duly organized and validly existing
under South Carolina law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal offices located at
2002 Oak Street, Myrtle Beach, South Carolina. As of the date of this Agreement,
Anchor has 7,000,000 authorized shares of common stock, par value $6.00 per
share ("Anchor Common Stock") (no other class of capital stock being
authorized), of which 3,890,323 shares of Anchor Common Stock are issued and
outstanding and of which 388,784 shares are subject to issuance pursuant to
certain stock options.
B. COMSOUTH. ComSouth is a corporation duly organized and validly
existing under South Carolina law and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended, with its principal executive
offices located at 1136 Washington Street, Suite 200, Columbia, South Carolina.
As of the date of this Agreement, ComSouth has 75,000,000 authorized shares of
common stock, no par value per share ("ComSouth Common Stock") (with preferred
stock being authorized but no shares of which are issued), of which 2,341,320
shares of ComSouth Common Stock are issued and outstanding and of which 214,254
shares of ComSouth Common Stock are subject to issuance pursuant to certain
stock options.
C. APPROVALS. At meetings of the respective Boards of Directors of
Anchor and ComSouth, each such Board has approved and authorized the execution
of this Agreement.
D. INTENTION OF THE PARTIES. The parties intend the Merger to qualify,
for accounting purposes, as a "pooling of interests." The parties intend the
Merger to qualify, for federal income tax purposes, as a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
In consideration of their mutual promises and obligations, Anchor and
ComSouth agree as follows:
DEFINITIONS
A. DEFINITIONS. Capitalized terms used in this Agreement have the
following meanings:
<PAGE>
"Acquisition Proposal" has the meaning assigned in Section
6.7(A).
"Agreement" means this Agreement and Plan of Merger.
"Anchor" means Anchor Financial Corporation, a South Carolina
corporation.
"Anchor Common Stock" has the meaning assigned in Recital A.
"Anchor Financial Reports" has the meaning assigned in Section
5.2(G).
"Anchor Option" has the meaning assigned in Section 2.7.
"Appraisal Laws" has the meaning assigned in Section 2.5.
"Asset Classification" has the meaning assigned in Section
5.1(5).
"Charleston Bank" means The Bank of Charleston, a national
banking association.
"Code" has the meaning assigned in Section 5.1(P)(2).
"Columbia Bank" means The Bank of Columbia, a national banking
association.
"Compensation and Benefit Plans" has the meaning assigned in
Section 5.1(P)(1).
"ComSouth" means ComSouth Bankshares, Inc., a South Carolina
corporation.
"ComSouth Common Stock" has the meaning assigned in Recital B.
"ComSouth Financial Reports" has the meaning assigned in
Section 5.1(H).
"ComSouth Option" has the meaning assigned in Section 2.7.
"Dissenting Shares" means the shares of ComSouth Common Stock
held by those shareholders of ComSouth who have timely and properly exercised
their dissenters' rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned in Section 1.2.
"Eligible ComSouth Common Stock" means shares of ComSouth
Common Stock validly issued and outstanding on the Effective Date other than
Dissenting Shares.
"Employment Agreement" means Exhibit C.
"Environmental Law" means (1) any federal state, and/or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or human
health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Federal Comprehensive Environmental
Response,
2
<PAGE>
Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, and (2) any common
law or equitable doctrine (including injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
"ERISA" has the meaning assigned in Section 5.1(P)(2).
"ERISA Affiliate" has the meaning assigned in Section
5.1(P)(3).
"ERISA Plans" has the meaning assigned in Section 5.1(P)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated under such statute.
"Exchange Agent" has the meaning assigned in Section 2.4.
"Exchange Ratio" has the meaning assigned in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"GAAP" means generally accepted accounting principles
consistently applied.
"Hazardous Material" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or
quantity, including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Joint Proxy Statement" has the meaning assigned in Section
6.2.
"Loan/Fiduciary Property" means any property owned or
controlled by ComSouth or either of its Subsidiaries or in which ComSouth or
either of its Subsidiaries holds a security or other interest, and, where
required by the context, includes any such property where ComSouth or either of
its Subsidiaries constitutes the owner or operator of such property, but only
with respect to such property.
"Material Adverse Effect" means, with respect to any Party, an
event, occurrence or circumstance (including (i) the making of any provisions
for possible loan and lease losses, write-downs of other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Agreement
3
<PAGE>
by such Party) that (a) has or is reasonably likely to have a material adverse
effect on the financial condition, results of operations, business or prospects
of such Party and its Subsidiaries, taken as a whole, or (b) would materially
impair such party's ability to perform its obligations under this Agreement or
the consummation of any of the transactions contemplated by this Agreement.
"Meeting" has the meaning assigned in Section 6.2.
"Merger" has the meaning assigned in Section 1.1.
"Multiemployer Plans" has the meaning assigned in Section
5.1(P)(2).
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"OCC" means the Office of the Comptroller of the Currency.
"Participation Facility" means any facility in which ComSouth
or its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
"Party" means a party to this Agreement.
"Pension Plan" has the meaning assigned in Section 5.1(P)(2).
"Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
governmental body, or other entity.
"Registration Statement" has the meaning assigned in Section
6.2.
"Regulatory Authorities" means federal or state governmental
agencies, authorities or departments charged with the supervision or regulation
of depository institutions or engaged in the insurance of deposits.
"Rights" means securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire, or
any options, calls or commitments relating to, shares of capital stock.
"Schedule" refers to information provided by a Party in a
Schedule that is delivered contemporaneously with the execution of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, each
partnership, limited liability company, or corporation the majority of the
outstanding partnership interests, membership interests, capital stock or voting
power of which is (or upon the exercise of all outstanding warrants, options and
other rights would be) owned, directly or indirectly, at the time in question by
such entity.
"Tax Returns" has the meaning assigned in Section 5.1(Z).
"Taxes" means federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes imposed on
the
4
<PAGE>
income, properties or operations of the respective Party or its Subsidiaries,
together with any interest, additions, or penalties relating to such taxes and
any interest charged on those additions or penalties.
B. GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Agreement or unless the context clearly requires otherwise, the following
rules of interpretation apply: (i) the terms defined in this Agreement include
the plural as well as the singular; (ii) the phrase "in this Agreement" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and (iii) references in this
Agreement to Articles, Sections, Schedules, and Exhibits refer to Articles and
Sections of and Schedules and Exhibits to this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they will be
deemed to be following by the words "without limitation." Unless otherwise
stated references to Subsections refer to the Subsections of the Section in
which the reference appears. All pronouns used in this Agreement include the
masculine, feminine and neuter gender, as the context requires.
ARTICLE I. MERGER
1.1 THE MERGER. Subject to the provisions of this Agreement and in
accordance with the terms of Section 33-11-101 of the Code of Laws of South
Carolina of 1976, as amended (the "South Carolina Code"), on the Effective Date,
ComSouth will merge with and into Anchor, under the Articles of Incorporation of
Anchor (the "Merger"), and the resulting corporation will operate under the name
"Anchor Financial Corporation" (the "Merged Company"). After the Effective Date,
the Board of Directors of the Merged Company will consist of the directors of
Anchor immediately preceding the Effective Date plus four additional directors
to be designated from the current directors of ComSouth or its Subsidiary banks.
ComSouth may offer suggestions to Anchor, and Anchor shall make the final
designation of such directors.
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fulfillment or waiver
of all conditions precedent set forth in, and the granting of all approvals (and
expiration of any waiting period) required by, Article VII of this Agreement. A
business day is any day other than a Saturday, Sunday or legal holiday in the
State of South Carolina. If the Merger is not consummated in accordance with
this Agreement on or before December 31, 1998, Anchor or ComSouth may terminate
this Agreement in accordance with Article VIII.
ARTICLE II. MERGER CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Agreement, on the
Effective Date:
(A) OUTSTANDING ANCHOR COMMON STOCK. The shares of Anchor
Common Stock issued and outstanding immediately prior to the Effective Date
will, on and
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after the Effective Date, remain as issued and outstanding shares of Anchor
Common Stock.
(B) OUTSTANDING COMSOUTH COMMON STOCK. Except as provided
below in Section 2.3, each share of Eligible ComSouth Common Stock issued and
outstanding immediately prior to the Effective Date will, by virtue of the
Merger, automatically and without any action on the part of the holder of the
share, be converted into the right to receive 0.75 shares of Anchor Common Stock
(the "Exchange Ratio").
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, all
shares, other than Dissenting Shares, of ComSouth Common Stock issued and
outstanding immediately prior to the Effective Date will be converted into
shares of Anchor Common Stock in accordance with Section 2.1(B) by virtue of the
Merger. After the Effective Date, there will be no transfers on the stock
transfer books of ComSouth of the shares of ComSouth Common Stock that were
issued and outstanding immediately prior to the Effective Date.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no fractional shares of Anchor Common Stock and no certificates or
other evidence of ownership of such fractional shares will be issued in the
Merger. Anchor will pay to each holder of ComSouth Common Stock who would
otherwise be entitled to a fractional share an amount in cash (without interest)
determined by multiplying such fractional part of a share of Anchor Common Stock
by the closing price of Anchor Common Stock on the Effective Date on The Nasdaq
Stock Market (as reported in The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Anchor).
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Anchor will send or cause to be sent to each former shareholder of
ComSouth of record immediately prior to the Effective Date transmittal materials
for use in exchanging such shareholder's certificates for Anchor Common Stock
for the consideration set forth in this Article II. The certificates
representing the shares of Anchor Common Stock for which shares of such
shareholder's ComSouth Common Stock are exchanged on the Effective Date, and any
fractional share checks that such shareholder will be entitled to receive will
be delivered to such shareholder only upon delivery to Anchor's exchange agent
(the "Exchange Agent") of the certificates representing all such shares of
ComSouth Common Stock (or indemnity satisfactory to Anchor and the Exchange
Agent, in their judgment, if any of such certificates are lost, stolen or
destroyed). Certificates surrendered for exchange by any person constituting an
"affiliate" of ComSouth for purposes of Rule 145 of the Securities Act will not
be exchanged for certificates representing Anchor Common Stock until Anchor has
received a written agreement from such person as specified in Section 6.12.
2.5 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, each Dissenting Share whose holder, as of the Effective Date of the
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Merger, has not effectively withdrawn or lost his dissenters' rights under
Section 33-13-102 of the South Carolina Code (the "Appraisal Laws") will not be
converted into or represent a right to receive Anchor Common Stock, but the
holder of such Dissenting Share will be entitled only to such rights as are
granted by the Appraisal Laws. Each holder of Dissenting Shares who becomes
entitled to payment for his ComSouth Common Stock pursuant to the provisions of
the Appraisal Laws will receive payment for such Dissenting Shares from Anchor
(but only after the amount of payment is agreed upon or finally determined
pursuant to the Appraisal Laws).
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision of this Agreement to the contrary,
Anchor may at any time change the method of effecting its acquisition of
ComSouth, but no such change will (A) change the amount or kind of consideration
to be issued to holders of ComSouth Common Stock as provided for in this
Agreement, or (B) adversely affect the tax treatment to the ComSouth
shareholders as a result of receiving such consideration. If Anchor elects to
change the method of acquisition, ComSouth will cooperate with and assist Anchor
with any necessary amendment to this Agreement, and with the preparation and
filing of such applications, documents, instruments and notices as may be
necessary or desirable, in the opinion of counsel for Anchor, to obtain all
necessary shareholder approvals and approvals of any regulatory agency,
administrative body or governmental entity.
2.7 OPTIONS. On the Effective Date, by virtue of the Merger and without
any action on the part of any holder of an option, each option granted by
ComSouth to purchase shares of ComSouth Common Stock ("ComSouth Option") that
has been outstanding and unexercised will be converted into and become an option
to purchase Anchor Common Stock ("Anchor Option") on the same terms and
conditions as are in effect with respect to the ComSouth Options immediately
prior to the Effective Date, except that (A) each such Anchor Option may be
exercised solely for shares of Anchor Common Stock, (B) the number of shares of
Anchor Common Stock subject to such Anchor Options will be equal to the number
of shares of ComSouth Common Stock subject to such ComSouth Options immediately
prior to the Effective Date, multiplied by the Exchange Ratio, the product being
rounded, if necessary, up or down to the nearest whole share, and (C) the per
share exercise price under each such Anchor Option will be adjusted by dividing
the per share exercise price of the ComSouth Option by the Exchange Ratio, and
rounding up or down to the nearest cent. The number of shares of ComSouth Common
Stock that are issuable upon exercise of ComSouth Options as of the date of this
Agreement are disclosed in Schedule 2.7.
2.8 ANTI-DILUTION ADJUSTMENTS. In the event Anchor changes the number
of shares of Anchor Common Stock issued and outstanding prior to the Effective
Date as a result of a stock split, stock dividend or similar recapitalization
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with respect to Anchor Common Stock, and the record date therefore (in the case
of a stock dividend) or the effective date thereof (in the case of stock split
or similar recapitalization for which a record date is not established) shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
ARTICLE III. COMSOUTH ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by Anchor, ComSouth and its
Subsidiaries will conduct their business in the ordinary and usual course
consistent with past practice and will use their best efforts to maintain and
preserve their business organizations, employees and advantageous business
relationships and retain the services of their officers and key employees
identified by Anchor, and ComSouth, without the prior written consent of Anchor,
will not:
3.1 CAPITAL STOCK. Issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of ComSouth, except pursuant
to the exercise of stock options outstanding on the date hereof, or grant any
Rights with respect to its capital stock, or enter into any agreement to do any
of the foregoing, or permit any additional shares of ComSouth Common Stock to
become subject to grants of employee stock options, stock appreciation rights or
similar stock-based employee compensation rights.
3.2 DISTRIBUTIONS. Make, declare or pay any dividend on or in respect
of, or declare or make any distribution on, or directly or indirectly combine,
redeem, reclassify, purchase or otherwise acquire, any shares of its capital
stock or authorize the creation or issuance of, or issue, any additional shares
of its capital stock or grant any Rights with respect to its capital stock.
3.3 LIABILITIES. Other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual corporation or other
entity.
3.4 OPERATIONS. Except as may be directed by any regulatory agency, (A)
change its lending, investment, liability management or other material banking
policies in any material respect, or (B) commit to incur any capital
expenditures other than in the ordinary course of business and not exceeding
$15,000 individually or $25,000 in the aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist, except such liens, charges
or encumbrances occurring in the ordinary course of business which do not have a
material adverse effect on ComSouth.
3.6 EMPLOYMENT ARRANGEMENTS. Hire any new employees, increase the
number of full time employees disclosed in Schedule 3.6, enter into or amend any
employment, severance or similar agreement or arrangement with any of its
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directors, officers or employees, or grant any salary or wage increase, amend
the terms of any ComSouth Option or increase any employee benefit (including
incentive or bonus payments), except normal individual increases in regular
compensation to employees in the ordinary course of business consistent with
past practice or as disclosed in Schedule 3.6.
3.7 BENEFIT PLANS. Enter into or modify (except as may be required by
applicable law or to continue coverage) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees, including taking any action that
accelerates the vesting or exercise of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion of
its assets, business or properties, that is material to ComSouth or any one of
its Subsidiaries taken as a whole, or merge or consolidate with, or acquire all
or any portion of, the business or property of any other entity that is material
to ComSouth or any one of its Subsidiaries taken as a whole (except foreclosures
or acquisitions by Comsouth or any one of its Subsidiaries in its fiduciary
capacity, in each case in the ordinary course of business consistent with past
practice).
3.9 AMENDMENTS. Amend its Articles of Incorporation or Bylaws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of ComSouth.
3.11 CONTRACTS. Enter into, renew, terminate or make any change in any
material contract, agreement or lease, except in the ordinary course of business
consistent with past practice with respect to contracts, agreements and leases
that are terminable by it without penalty on no more than 60 days prior written
notice.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices. With regard
to any new extension of credit in excess of $500,000, the Chief Financial
Officer of ComSouth will report to the Chief Financial Officer of Anchor, as
expeditiously as possible, the substance and nature of the transaction for the
purpose of keeping Anchor abreast of the ongoing credit quality at ComSouth.
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION
From the date of this Agreement until the earlier of the Effective Date
or the termination of this Agreement, Anchor will continue to conduct the
business of Anchor and its Subsidiaries in a manner designed in its reasonable
judgment to enhance the long-term value of Anchor Common Stock and the business
prospects of Anchor, and will not: (1) make any distributions with respect to
its capital stock except its regular quarterly dividends made in accordance with
its past
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practices; or (2) take any action which would materially adversely affect the
ability of Anchor or ComSouth to obtain any regulatory approvals or other
consents required for the Merger described in this Agreement without imposition
of any condition or restriction that would adversely impact the transactions
contemplated hereby or prevent the Merger from qualifying as a pooling of
interests for accounting purposes or as a tax free organization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code, or materially
adversely affect the ability of any party to this Agreement to perform its
covenants or agreements under this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 COMSOUTH'S REPRESENTATIONS AND WARRANTIES. ComSouth hereby
represents and warrants to Anchor as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to ComSouth are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. ComSouth is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. ComSouth and its Subsidiaries have in effect all federal
state, local and foreign governmental authorizations necessary for them to own
or lease their properties and assets and to carry on their businesses as they
are now conducted. The Columbia Bank and the Charleston Bank are "insured
depository institutions" as defined in the Federal Deposit Insurance Act, as
amended, and applicable regulations under such statute, and their deposits are
insured by the Bank Insurance Fund of the FDIC.
(C) SHARES. The outstanding shares of ComSouth's capital stock
are validly issued and outstanding, fully paid and nonassessable and are not
subject to preemptive rights of ComSouth's shareholders. Except as ComSouth
disclosed in Schedule 5.1(C), there are no shares of capital stock or other
equity securities of ComSouth outstanding and no outstanding Rights with respect
to its capital stock or other equity securities.
(D) SUBSIDIARIES. ComSouth has two Subsidiaries, The Bank of
Columbia and The Bank of Charleston.
(E) CORPORATE POWER. ComSouth has the corporate power and
authority to carry on its business as it is now being conducted and to own all
its material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 7.1(A), this Agreement has
been authorized by all necessary corporate action of ComSouth, and this
Agreement is a valid and binding agreement of ComSouth, enforceable against
ComSouth in accordance with its terms, subject to bankruptcy, insolvency and
other laws of
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general applicability relating to or affecting creditors' rights and to general
equitable principles.
(G) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), the required regulatory approvals referred to in
Section 7.1(B), and the required filings under federal and state securities
laws, and except as set forth on Schedule 5.1(G), the execution, delivery and
performance of this Agreement and the consummation by ComSouth of the
transactions contemplated by this Agreement do not and will not (1) constitute a
breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of ComSouth or to which ComSouth or its properties is subject or
bound, (2) constitute a breach or violation of, or a default under its articles
of incorporation or bylaws, or (3) require any consent or approval under any
such law, rule, regulation, judgment, decree, order governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(H) FINANCIAL REPORTS. ComSouth's audited consolidated
statements of financial condition and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the fiscal year ended
December 31, 1997 (collectively, the "ComSouth Financial Reports") do not
contain any untrue statement of a material fact or omit 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; and
each of the consolidated balance sheets in or incorporated by reference into the
ComSouth Financial Reports (including the related notes and schedules thereto)
fairly presents and will fairly present the financial position of ComSouth as of
its date, and each of the consolidated statements of income and changes in
shareholders' equity and cash flows (including any related notes and schedules
thereto) fairly presents and will fairly present the results of operations,
changes in shareholders' equity and cash flows, as the case may be, for the
periods set forth therein, in accordance with GAAP.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 5.1(I), ComSouth has no obligation or liability (contingent or
otherwise) except (1) as reflected in the ComSouth Financial Reports prior to
the date of this Agreement, and (2) for commitments and obligations made, or
liabilities incurred, in the ordinary course of business consistent with past
practice since December 31, 1997.
(J) NO EVENTS. Since December 31, 1997, no event has occurred
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on ComSouth.
(K) PROPERTIES. ComSouth has good and marketable title, free
and clear of all liens, encumbrances, charges, defaults, or equities of any
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character, to all of the properties and assets, tangible and intangible,
reflected in the ComSouth Financial Reports as being owned by ComSouth as of the
dates of the ComSouth Financial Reports, except those sold or otherwise disposed
of in the ordinary course of business. All buildings and all material fixtures,
equipment, and other property and assets that are held under leases or subleases
by ComSouth are held under valid leases or subleases enforceable in accordance
with their respective terms.
(L) LITIGATION. Except as disclosed in Schedule 5.2(L), before
the date of this Agreement:
(1) no criminal or administrative investigations or
hearings, before or by any Regulatory Authorities, or civil, criminal or
administrative actions, suits, claims or proceedings, before or by any person
(including any Regulatory Authority) are pending or, to the knowledge of its
executive officers, threatened, against it (including under the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, or any fair lending law or
other law relating to discrimination); and
(2) neither ComSouth or either of its Subsidiaries
nor any of their officers, directors, controlling persons, nor any of their
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any Regulatory Authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of ComSouth or either of
its Subsidiaries, and they have not been advised by any such Regulatory
Authority that such Regulatory Authority is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission.
(M) COMPLIANCE WITH LAWS. ComSouth and its Subsidiaries:
(1) are in compliance, in the conduct of their
businesses, with all applicable federal, state, local, and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or decrees, including
the Bank Secrecy Act, the Truth in Lending Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure act and all applicable fair lending laws or other laws relating to
discriminations;
(2) have all permits, licenses, certificates of
authority, orders, and approvals of, and have made all filings, applications,
and registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit them to carry on their
businesses as they are presently conducted;
(3) have no notification or other communication from
any Regulatory Authority (including any bank, insurance and securities
regulatory
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authorities) or its staff (1) asserting a failure to comply with any of the
statutes, regulations or ordinances that such Regulatory Authority enforces, (2)
threatening to revoke any license, franchise, permit or governmental
authorization, or (3) threatening or contemplating revocation or limitation of,
or that would have the effect of revoking or limiting, FDIC deposit insurance
(nor do any grounds for any of the foregoing exist);
(4) are not required to notify any federal banking
agency before adding directors to their boards of directors or employing senior
executives (except notifications required as a result of the Merger); and
(5) have adopted and are implementing a program to
address any problems associated with the capacity of the computer software
operated by ComSouth and its Subsidiaries and their vendors to properly process
transactions after December 31, 1999.
(N) MATERIAL CONTRACTS. Neither ComSouth nor either of its
Subsidiaries nor their assets, businesses or operations, is a party to, or bound
or affected by, or receives benefits under, any material contract or agreement
or amendment to such contract or agreement. ComSouth or either of its
Subsidiaries is not in default under any contract, agreement, commitment,
arrangement, lease, insurance policy or other instrument to which it is a party,
by which its assets, business or operations may be bound or affected or under
which it or its respective assets, business or operations receives benefits, and
there has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default. ComSouth or either of its
Subsidiaries is not subject to or bound by any contract containing covenants
that limit its ability to compete in any line of business or with any Person or
that involve any restriction of geographical area in which, or method by which,
it may carry on its business (other than as may be required by law or any
applicable Regulatory Authority).
(O) REPORTS. Since January 1, 1993, ComSouth and its
Subsidiaries filed all reports and statements, together with any required
amendments, that they were obligated to file with (1) the OCC, (2) the FDIC, (3)
the Federal Reserve Board and (4) any other Regulatory Authorities having
jurisdiction over ComSouth and/or its Subsidiaries. As of their respective dates
(and without giving effect to any amendments or modification filed after the
date of this Agreement with respect to reports and documents filed before the
date of this Agreement), each of such reports and documents, including the
financial statements, exhibits and schedules to the financial statements,
complied with all of the statutes, rules and regulations enforced or promulgated
by the Regulatory Authority with which they were filed and did not contain any
untrue statement of fact or omit to state any fact necessary in order to make
the statements, in light of the circumstances under which they were made, not
misleading.
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(P) EMPLOYEE BENEFIT PLANS.
(1) Schedule 5.1(P)(1) contains a complete list of
all bonus, deferred compensation, pension, retirement, profit-sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts, all medical,
dental, health and life insurance plans, all other employee benefit plans,
contracts or arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained on contributed to by
Comsouth and/or its Subsidiaries for the benefit of employees, former employees,
directors, former directors or their beneficiaries (the "Compensation and
Benefit Plans"). True and complete copies of all Compensation and Benefit Plans
of ComSouth and/or its Subsidiaries, including any trust instruments and/or
insurance contracts, if any, forming a part of such plans, and all related
amendments, have been supplied to Anchor.
(2) All "employee benefit plans" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA ("Multiemployer Plans"), covering employees or former
employees of Comsouth and/or its Subsidiaries (the "ERISA Plans"), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each ERISA Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986 (as amended, the "Code") has
received a favorable determination letter from the Internal Revenue Service, and
ComSouth is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the inability
to receive such favorable determination letter. There is no material pending or,
to its knowledge, threatened litigation relating to the ERISA Plans. ComSouth or
either of its Subsidiaries has not engaged in a transaction with respect to any
ERISA Plan that could subject ComSouth or either of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by ComSouth or either of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by it, or the single-employer plan of any entity which is considered
one employer with ComSouth or either of its Subsidiaries under Section
4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA Affiliate"). ComSouth
or either of its Subsidiaries does not presently contribute to a Multiemployer
Plan, nor has it contributed to such a plan within the past five calendar years.
No notice of a "reportable event," within the meaning of Section 4043 of ERISA
for which the 30-
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day reporting requirement has not been waived, has been required to be filed for
any Pension Plan or by any ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the
terms of any ERISA Plan have been timely made. Neither any Pension Plan nor any
single- employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. Comsouth or either of its Subsidiaries has not
provided, or is not required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year, the
actuarially determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan's most recent actuarial valuation)
did not exceed the then current value of the assets of such plan, and there has
been no material changes in the financial condition of such plan since the last
day of the most recent plan year.
(6) ComSouth has no obligations for retiree health
and life benefits under any plan, except as set forth in Schedule 5.1(P)(6).
There are no restrictions on the rights of ComSouth to amend or terminate any
such plan without incurring any liability under the plan.
(7) Except as set forth on Schedule 5.1(P)(7),
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (a) result in any payment
(including severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of ComSouth or its Subsidiaries
under any Compensation and Benefit Plan or otherwise from ComSouth or its
Subsidiaries, (b) increase any benefits otherwise payable under any Compensation
and Benefit Plan, or (c) result in any acceleration of the time of payment or
vesting of any such benefit.
(Q) NO KNOWLEDGE. ComSouth knows of no reason why the
regulatory approvals referred to in Section 7.1(B) will not be obtained.
(R) LABOR AGREEMENTS. ComSouth is neither a party to nor bound
by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is ComSouth the
subject of a proceeding asserting that it has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to compel it
to bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
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(S) ASSET CLASSIFICATION. ComSouth has disclosed to Anchor in
Schedule 5.1(S) a list, accurate and complete in all material respects, of the
aggregate amounts of loans, extensions of credit or other assets of ComSouth and
its Subsidiaries that have been classified by them as of December 31, 1997 (the
"Asset Classification"): and no amounts of loans, extensions of credit or other
assets that have been classified as of December 31, 1997 by any regulatory
examiner as "Other Loans Specially Mentioned," "Substandard," "Doubtful,"
"Loss," or words of similar import are excluded from the amounts disclosed in
the Asset Classification, other than amounts of loans, extension of credit or
other assets that were charged off by ComSouth and its Subsidiaries prior to
December 31, 1997.
(T) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the consolidated balance sheet in the December 31,
1997, Financial Reports was, and the allowance for possible loan losses to be
shown on subsequent Financial Reports will be, adequate in the opinion of the
Board of Directors of ComSouth to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of the dates noted.
(U) INSURANCE. ComSouth has taken all requisite action
(including the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies in order to
preserve all rights under the policy or policies. Set forth in Schedule 5.1(U)
is a list of all insurance policies maintained by or for the benefit of ComSouth
and its Subsidiaries and their directors, officers, employees or agents.
(V) AFFILIATES. Except as disclosed in Schedule 5.1(V), there
is no person who, as of the date of this Agreement, may be deemed to be an
"affiliate" of ComSouth as that term is used in Rule 145 under the Securities
Act.
(W) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. ComSouth has taken
all necessary action to exempt this Agreement, and the transactions contemplated
by this Agreement from, and this Agreement and such transactions are exempt from
(1) any applicable takeover laws, and (2) any takeover-related provisions of
Comsouth's Articles of Incorporation.
(X) NO FURTHER ACTION. ComSouth has taken all action so that
entering into this Agreement and the consummation of the transactions
contemplated by this Agreement (including the Merger) or any other action or
combination of actions, or any other transactions, contemplated by this
Agreement do not and will not (1) require a vote of shareholders (other than as
set forth in Section 7.1(A)), or (2) result in the grant of any rights to any
Person under the Articles of Incorporation or Bylaws of ComSouth under any
agreement to which Comsouth is a party, or (3) restrict or impair in any way the
ability of Anchor to exercise the rights granted under this Agreement.
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(Y) ENVIRONMENTAL MATTERS.
(1) To ComSouth and its Subsidiaries' knowledge, the
Participation Facilities and the Loan/Fiduciary Properties are, and have been,
in compliance with all Environmental Laws.
(2) There is no proceeding pending or, to ComSouth
and its Subsidiaries' knowledge, threatened before any court, governmental
agency or board or other forum in which ComSouth or either of its Subsidiaries
or any Participation Facility has been, or with respect to threatened
proceedings, reasonably would be expected to be, named as a defendant or
potentially responsible party (a) for alleged noncompliance (including by any
predecessor) with any Environmental Law, or (b) relating to the release or
threatened release into the environment of any Hazardous Material, whether or
not occurring at or on a site owned, leased or operated by ComSouth or either of
its Subsidiaries or any Participation Facility.
(3) There is no proceeding pending or, to ComSouth or
its Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which any Loan/Fiduciary Property (or ComSouth or its
Subsidiaries in respect of any Loan/Fiduciary Property) has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a Loan/Fiduciary Property.
(4) To Comsouth or its Subsidiaries' knowledge, there
is no reasonable basis for any proceeding of a type described in subparagraph
(2) or (3) of this paragraph (Y).
(5) To ComSouth or its Subsidiaries' knowledge,
during the period of (a) ownership or operation by ComSouth or either of its
Subsidiaries of any of its current properties, (b) participation in the
management of any Participation Facility by ComSouth or either of its
Subsidiaries, or (c) holding of a security or other interest in a Loan/Fiduciary
Property by ComSouth or either of its Subsidiaries, there have been no releases
of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Fiduciary Property.
(6) To ComSouth or its Subsidiaries' knowledge, prior
to the period of (a) ownership or operation by ComSouth or either of its
Subsidiaries of any of its current properties, (b) participation in the
management of any Participation Facility by ComSouth or either of its
Subsidiaries or (c) holding of a security or other interest in a Loan/Fiduciary
Property by ComSouth or either of its Subsidiaries, there was no release of
Hazardous Material in, on, under or affecting any such property, Participation
Facility or Loan) Fiduciary Property.
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(Z) TAX REPORTS. (1) All reports and returns with respect to
Taxes that are required to be filed by or with respect to ComSouth, including
consolidated federal income tax returns of ComSouth, (collectively, the "Tax
Returns"), have been duly filed, or requests for extensions have been timely
filed and have not expired, for periods ended on or prior to the most recent
fiscal year-end, and such Tax Returns were true, complete and accurate, (2) all
Taxes shown to be due on the Tax Returns have been paid in full, (3) the Tax
Returns have been examined by the Internal Revenue Service or the appropriate
state, local or foreign taxing authority, or the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired, (4) all Taxes due with respect to completed and settled examinations
have been paid in full, (5) no issues have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns except as
reserved against in the Financial Reports, and (6) no waivers of statutes of
limitations (excluding such statutes that relate to years under examination by
the Internal Revenue Service) have been given by or requested with respect to
any Taxes of ComSouth.
(AA) ACCURACY OF INFORMATION. The statements with respect to
ComSouth and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of ComSouth and
its Subsidiaries or any other Party pursuant to the terms of or relating to this
Agreement are true and correct, and such statements and documents do not omit
any fact necessary to make the statements, in light of the circumstances under
which they were made, not misleading.
(BB) DERIVATIVES CONTRACTS. ComSouth is not a party to nor has
it agreed to enter into a Derivatives Contract or to own securities that are
referred to as "structured notes," except as set forth on Schedule 5.1(BB).
(CC) ACCOUNTING CONTROLS. ComSouth has devised and maintained
systems of internal accounting controls sufficient to provide reasonable
assurances that (1) all transactions are executed in accordance with
management's general or specific authorization, (2) all transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP, and to maintain proper accountability for items, (3)
access to the material property and assets of ComSouth is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(DD) COMMITMENTS AND CONTRACTS. ComSouth or either of its
Subsidiaries is not a party or subject to any of the following (whether written
or oral, express or implied):
(1) except disclosed in Schedule 5.1(DD)(1), any
employment contract or understanding (including any understandings or
obligations with
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respect to severance or termination pay liabilities or fringe benefits) with any
present or former officer, director or employee (other than those which are
terminable at will by ComSouth or its Subsidiaries without any obligation on the
part of ComSouth or its Subsidiaries to make any payment in connection with such
termination);
(2) except as disclosed in Schedule 5.1(DD)(2), any
real or personal property lease with annual rental payments aggregating $5,000
or more; or
(3) any material contract with any affiliate.
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES. Anchor hereby represents
and warrants to ComSouth as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to Anchor are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Anchor is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. Anchor and its Subsidiaries have in effect all federal
state, local and foreign governmental authorizations necessary for them to own
or lease their properties and assets and to carry on their businesses as they
are now conducted.
(C) SHARES. The outstanding shares of Anchor's capital stock
are, and the shares to be issued in exchange for ComSouth Common Stock when
issued will be, validly issued and outstanding, fully paid and nonassessable and
subject to no preemptive rights.
(D) CORPORATE POWER. Anchor has the corporate power and
authority to carry on its business as it is now being conducted or will be
conduced and to own all its material properties and assets.
(E) CORPORATE AUTHORITY. Subject to the approval by its
shareholders referred to in Section 7.1(A), this Agreement has been authorized
by all necessary corporate action of Anchor and is a valid and binding agreement
of Anchor, enforceable against Anchor in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles.
(F) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), subject to receipt of the required regulatory
approvals referred to in Section 7.1(B), and the required filings under federal
and state securities laws, the execution, delivery and performance of this
Agreement and the consummation by Anchor and each of its Subsidiaries of the
transactions contemplated by this Agreement does not and will not (1) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Anchor or any of its Subsidiaries or to which Anchor or any of
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its Subsidiaries or its properties is subject or bound, (2) constitute a breach
or violation of, or a default under its articles of incorporation or bylaws of
Anchor or any of its Subsidiaries, or (3) require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(G) FINANCIAL REPORTS. The Annual Report of Anchor on Form
10-K for the fiscal year ended December 31, 1997, and all other documents filed
or to be filed subsequent to December 31, 1997 under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed with the SEC (in each such case,
the "Anchor Financial Reports") did not and will not contain any untrue
statement of fact or omit to state a fact required to be stated or necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading; and each of the consolidated balance sheets in or
incorporated by reference into the Anchor Financial Reports (including the
related notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date,
and each of the consolidated statements of income and changes in shareholders'
equity and cash flows or equivalent statements in the Anchor Financial Reports
(including any related notes and schedules thereto) fairly presents and will
fairly present the results of operations, changes in shareholders' equity and
changes in cash flows, as the case may be, of the entity or entities to which it
relates for the periods set forth herein, in each case in accordance with GAAP,
except as may be noted therein.
(H) NO EVENTS. Since December 31, 1997, no event has occurred
which is reasonably likely to have a Material Adverse Effect on Anchor.
(I) LITIGATION; REGULATORY ACTION. No litigation, proceeding
or controversy before any court or governmental agency is pending that alleges
claims under any fair lending law or other law relating to discrimination,
including the Equal Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act and the Home Mortgage Disclosure Act, and no such litigation,
proceeding or controversy has been threatened; and neither Anchor nor any of its
Subsidiaries or any of its or their material properties or their officers,
directors or controlling persons is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Regulatory Authority, and
neither Anchor nor any of its Subsidiaries has been advised by any of such
Regulatory Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission.
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(J) REPORTS. Since December 31, 1993, Anchor and its
Subsidiaries have filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (1)
the FDIC, (2) the Federal Reserve Board, and (3) any other Regulatory
Authorities having jurisdiction with respect to Anchor and its Subsidiaries. As
of their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to reports and
documents filed before the date of this Agreement), each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of fact or omit to state any
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to
Anchor and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of Anchor or any
other Party pursuant to the terms of this Agreement are true and correct, and
such statements and documents do not omit any material fact necessary to make
the statements, in light of the circumstances under which they were made, not
misleading.
(L) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Anchor nor any
of its Subsidiaries has any obligation or liability (contingent or otherwise)
except (1) as reflected the Anchor Financial Reports prior to the date of this
Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997. Since December 31, 1997, neither Anchor nor any of its
Subsidiaries has incurred or paid any obligation or liability that, individually
or in the aggregate, is unreasonably likely to have Material Adverse Effect on
Anchor.
(M) NO KNOWLEDGE. Anchor knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained.
(N) YEAR 2000 COMPLIANCE. Anchor has taken and is taking
appropriate steps to assure, and believes, that computer software operated by
Anchor and its Subsidiaries and their vendors will be able to properly process
transactions and function after December 31, 1999.
5.3 EXCEPTIONS TO REPRESENTATIONS.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a
Schedule is disclosed only for purposes of the representations referred in that
exception, but the following conditions apply:
(1) no exception is required to be set forth in a
Schedule if its absence would not result in the related representation being
found untrue or incorrect under the standard established by Section 5.3(B); and
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(2) the mere inclusion of an exception in a Schedule
is not an admission by a party that the exception represents a material fact,
material set of facts, or material event or would result in a Material Adverse
Effect with respect to that party.
(B) NATURE OF EXCEPTIONS. No representation contained in this
Article V will be found untrue or incorrect and no party to this Agreement will
have breached a representation due to the following: the existence of any fact,
set of facts, or event if the fact or event individually or taken together with
other facts or events would not, or, in the case of Article V is not reasonably
likely to, have a Material Adverse Effect with respect to such party.
ARTICLE VI. COVENANTS
ComSouth hereby covenants to Anchor, and Anchor hereby covenants to
ComSouth, that:
6.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement
and to the exercise by its Board of Directors of such Board's fiduciary duties,
it will use its best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as soon as practicable and to otherwise enable consummation of the
transactions contemplated by this Agreement and will cooperate fully with the
other Parties to that end.
6.2 THE PROXY. ComSouth will promptly assist Anchor in the preparation
of a joint proxy statement (the "Joint Proxy Statement") to be mailed to the
holders of ComSouth Common Stock in connection with the transactions
contemplated by this Agreement and to be filed by Anchor in a registration
statement (the "Registration Statement") with the SEC as provided in Section
6.8, which will conform to all applicable legal requirements. ComSouth and
Anchor will call meetings (the "Meetings") of the holders of ComSouth Common
Stock and the holders of Anchor Common Stock to be held as soon as practicable
for purposes of voting upon the transactions contemplated by this Agreement, and
ComSouth and Anchor will use their respective best efforts to solicit and obtain
votes of the holders of ComSouth Common Stock and the holders of Anchor Common
Stock in favor of the transactions contemplated by this Agreement and, subject
to the exercise of their respective fiduciary duties, the Boards of Directors of
ComSouth and Anchor will recommend approval of such transactions by such
holders.
6.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement to the
Registration Statement becomes effective, and at all times subsequent to such
effectiveness, up to and including the dates of the Meetings, such Registration
Statement, and all amendments or supplements thereto, with respect to all
information set forth therein furnished or to be furnished by or on behalf of
ComSouth relating to ComSouth and by or on behalf of Anchor relating to Anchor,
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(A) will comply in all material respects with the provisions of the Securities
Act and any other applicable statutory or regulatory requirements, and (B) will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading. But, no Party will be liable for any untrue statement
of a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another Party furnished by or on behalf of such other Party
specifically for use in the Registration Statement.
6.4 REGISTRATION STATEMENT EFFECTIVENESS. Anchor will advise ComSouth,
promptly after Anchor receives any notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
Anchor Common Stock for offering or sale in any jurisdiction, of the initiation
or threat of any proceeding for any such purpose, or of any request by the SEC
for the amendment or supplement of the Registration Statement or for additional
information.
6.5 PRESS RELEASES. ComSouth will not, without the prior approval of
Anchor, and Anchor will not, without the prior approval of ComSouth, issue any
press release or written statement for general circulation relating to the
transactions contemplated by this Agreement, except as otherwise required by
law.
6.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, each party will afford the other
party and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of its properties, books, contracts, commitments
and records and, during the period up to the Effective Date, ComSouth will
promptly furnish (and cause its accountants and other agents to promptly
furnish) to Anchor (1) a copy of each material report, schedule and other
document filed by ComSouth with any Regulatory Authority, (2) such
representations and certifications as are necessary for purposes of the pooling
letter described in Section 7.2(F), and (3) all other information concerning the
business, properties and personnel of ComSouth as Anchor may reasonably request,
provided that no investigation pursuant to this Section 6.6 will affect or be
deemed to modify or waive any representation or warranty made by ComSouth in
this Agreement or the conditions to the obligations of ComSouth to consummate
the transactions contemplated by this Agreement; and
(B) Anchor will not use any information obtained pursuant to
this Section 6.6 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement and, if this Agreement is
terminated, will hold all confidential information and documents obtained
pursuant to this paragraph in confidence (as provided in Section 9.6) unless and
until such time as such
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information or documents become publicly available other than by reason of any
action or failure to act by Anchor or as it is advised by counsel that any such
information or document is required by law or applicable stock exchange rule to
be disclosed, and in the event of the termination of this Agreement, Anchor
will, upon request by ComSouth, deliver to ComSouth all documents so obtained by
Anchor or destroy such documents and, in the case of destruction, will certify
such fact to ComSouth.
6.7 ACQUISITION PROPOSALS.
(A) ComSouth will not solicit, initiate or encourage inquiries
or proposals with respect to, or, except as required by the fiduciary duties of
the Board of Directors of ComSouth (as advised in writing by its outside
counsel), furnish any nonpublic information relating to or participate in any
negotiations or discussions concerning, any acquisition or purchase of all or a
substantial portion of the assets of, or a substantial equity interest in,
ComSouth or any merger or other business combination with ComSouth other than as
contemplated by this Agreement ("Acquisition Proposal"); it will instruct its
officers, directors, agents, advisors and affiliates to refrain from doing any
of the foregoing; and it will notify Anchor immediately if any such inquiries or
proposals are received by, or any such negotiations or discussions are sought to
be initiated with, ComSouth.
(B) ComSouth will immediately cease and cause to be terminated
any activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Anchor with respect to any Acquisition
Proposal.
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. Anchor will, as promptly as practicable following the date of this
Agreement, prepare and file the Registration Statement with the SEC with respect
to the shares of Anchor Common Stock to be issued to the holders of ComSouth
Common Stock pursuant to this Agreement, and Anchor will use its best efforts to
cause the Registration Statement to be declared effective as soon as practicable
after the filing of the Registration Statement. Anchor will, as promptly as
practicable following the date of this Agreement, prepare and file all necessary
notices or applications with Regulatory Authorities having jurisdiction with
respect to the transactions contemplated by this Agreement.
6.9 APPOINTMENT OF DIRECTORS. Immediately after the Effective Date,
Anchor will cause the appointment of four directors from the current directors
of ComSouth or its Subsidiaries to the Board of Directors of Anchor to hold
office until such time as his or her successor is elected and qualified.
6.10 EMPLOYMENT AGREEMENTS. Employment agreements, in form
substantially similar to that attached as Exhibit C, will have been duly
executed and delivered by Anchor and the parties to such employment agreements,
including J. Michael Kapp, Arthur P. Swanson, John P. Barnwell, and Carmel
Dodds, provided such
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persons have not terminated their employment with ComSouth or its Subsidiaries
at or prior to the Effective Date.
6.11 BLUE-SKY FILINGS. Anchor will use its best efforts to obtain,
prior to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that Anchor will
not be required as a result to submit to general jurisdiction in any state.
6.12 AFFILIATE AGREEMENTS. Comsouth will use its best efforts to induce
each person who may be deemed to be an "affiliate" of ComSouth for purposes of
Rule 145 under the Securities Act to execute and deliver to Anchor on or before
the mailing of the Joint Proxy Statement for the ComSouth Meeting an agreement
in the form attached hereto as Exhibit A restricting the disposition of such
affiliate's shares of ComSouth Common Stock and the shares of Anchor Common
Stock to be received by such person in exchange for such person's shares of
ComSouth Common Stock. In the case of Anchor, Anchor agrees to use its best
efforts to maintain the availability of Rule 145 for use by such "affiliates".
6.13 TAKEOVER LAW. ComSouth will not take any action that would cause
the transactions contemplated by this Agreement to be subject to any applicable
takeover statute, and ComSouth will take all necessary steps to exempt (or
ensure the continued exemption of) the transactions contemplated by this
Agreement from, or, if necessary, challenge the validity or applicability of,
any applicable takeover law.
6.14 NO RIGHTS TRIGGERED. ComSouth will take all necessary steps to
ensure that entering into this Agreement and the consummation of the
transactions contemplated by this Agreement and any other action or combination
of actions, or any other transactions contemplated by this Agreement, do not and
will not (A) result in the grant of any rights to any Person under the Articles
of Incorporation or Bylaws of ComSouth or under any agreement to which ComSouth
is a party, or (B) restrict or impair in any way the ability of Anchor to
exercise the rights granted to Anchor under this Agreement or the Stock Option
Agreement.
6.15 SHARES LISTED. Anchor will use its best efforts to cause to be
listed, prior to the Effective Date, on The Nasdaq Stock Market, upon official
notice of issuance, the shares of Anchor Common Stock to be issued to the
holders of ComSouth Common Stock.
6.16 CURRENT INFORMATION.
(A) During the period from the date of this Agreement to the
Effective Date, both ComSouth and Anchor will, and will cause its
representatives to, confer on a regular and frequent basis with representatives
of the other.
(B) Both ComSouth and Anchor will promptly notify the other of
(1) any material change in the business or operations of it or its Subsidiaries,
(2) any material complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any Regulatory Authority
relating to it or its Subsidiaries, (3) the initiation or threat of material
litigation involving
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or relating to it or its Subsidiaries, or (4) any event or condition that might
reasonably be expected to cause any of its representations or warranties set
forth in this Agreement not to be true and correct in all material respects as
of the Effective Date or prevent it or its Subsidiaries from fulfilling its or
their obligations under this Agreement.
6.17 SEVERANCE. On the Effective Date, Anchor will adopt a severance
plan for employees of ComSouth and its Subsidiaries with terms as set forth in
Schedule 6.17.
6.18 INDEMNIFICATION.
(A) Anchor shall indemnify each officer, director and former
director of ComSouth or its Subsidiaries named as a defendant in the lawsuit
styled Roof v. Swanson et al which is pending in the Court of Common Pleas for
Richland County, South Carolina, including the advancing of the expenses of
defending the case.
(B) Anchor agrees to purchase and keep in force for not less
than three years directors' and officers' liability insurance to the extent
available providing coverage for actions and omissions by officers and directors
of ComSouth and its Subsidiaries for claims made during the period commencing
with and after the Effective Date.
(C) Following the Effective Date, each director and officer of
ComSouth or any of its Subsidiaries shall be indemnified to the fullest extent
permitted by South Carolina law by Anchor against all liabilities and the
expense of defending claims of liability connected with or arising out of such
director's or officer's service as such.
ARTICLE VII. CONDITIONS TO
CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each Party to consummate the transactions contemplated by this Agreement are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
(A) SHAREHOLDER VOTES. This Agreement will have been duly
approved by the requisite vote of ComSouth's shareholders and of Anchor's
shareholders under applicable law and the Articles of Incorporation and Bylaws
of, respectively, ComSouth and Anchor.
(B) REGULATORY APPROVALS. The Parties will have procured all
necessary regulatory consents and approvals by the appropriate Regulatory
Authorities, any waiting periods relating to such consents and approvals will
have expired, and no such approval or consent will have imposed any condition or
requirement that, in the opinion of Anchor, would deprive Anchor of the material
economic or business benefits of the transactions contemplated by this
Agreement.
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(C) NO INJUNCTION. There will not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of any of the transactions contemplated by
this Agreement.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement will have become effective and no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or threatened by the SEC
or any other Regulatory Authority.
(E) BLUE SKY PERMITS. Anchor will have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
(F) TAX OPINION. Anchor and ComSouth will have received an
opinion from Gerrish & McCreary, P.C. to the effect that (1) the Merger
constitutes a tax-free merger under Section 368(a)(1)(A) of the Code, and (2) no
gain or loss will be recognized by shareholders of ComSouth who receive shares
of Anchor Common Stock in exchange for their shares of the ComSouth Common
Stock, except that gain or loss may be recognized as to cash received in lieu of
fractional share interests and, in rendering their opinion, Gerrish & McCreary,
P.C. may require and rely upon representations contained in certificates of
officers of Anchor, ComSouth and others.
(G) NASDAQ LISTING. The shares of Anchor Common Stock to be
issued pursuant to this Agreement will have been approved for listing on The
Nasdaq Stock Market subject only to official notice of issuance.
(H) FAIRNESS OPINION. Anchor will have received, immediately
prior to the mailing of the Joint Proxy Statement to Anchor's shareholders, an
opinion of Sandler O'Neill to the effect that the financial terms of the Merger
are fair from a financial point of view to Anchor's shareholders.
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR. The obligations of Anchor to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by Anchor or the fulfillment on or prior to the Effective
Date of each of the following conditions:
(A) LEGAL OPINION. Anchor will have received an opinion, dated
the Effective Date, of Sinkler & Boyd, P.A., counsel for ComSouth, incorporating
the opinions set forth in Exhibit B.
(B) OFFICERS' CERTIFICATE. (1) Each of the representations and
warranties contained in this Agreement of ComSouth will be true and correct as
of the date of this Agreement and upon the Effective Date with the same effect
as though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) the chief executive officers, chief financial officers, and chief
lending officers of ComSouth and its Subsidiaries will sign a certificate, dated
the
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Effective Date, certifying that each and all of the agreements and covenants of
ComSouth to be performed and complied with pursuant to this Agreement on or
prior to the Effective Date have been duly performed and complied with in all
material respects.
(C) RECEIPT OF AFFILIATE AGREEMENTS. Anchor will have received
from each affiliate of ComSouth the agreement referred to in Section 6.11.
(D) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any material adverse change in
the financial position or results of operations of ComSouth, nor will ComSouth
have sustained any loss or damage to its properties, whether or not insured,
that materially affects its ability to conduct its business; and Anchor will
have received a certificate dated the Effective Date signed by the Chief
Executive Officer of ComSouth to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of ComSouth
Common Stock for which cash is to be paid because dissenters' rights of
appraisal under the Appraisal Laws will have been effectively preserved as of
the Effective Date or because of the payment of cash in lieu of fractional
shares of Anchor Common Stock, will not exceed in the aggregate 6% of the
outstanding shares of ComSouth Common Stock.
(F) POOLING LETTER. Anchor will have received a letter dated
as of the Effective Date, in form and substance acceptable to Anchor, from Price
Waterhouse LLP to the effect that the Merger will qualify for pooling-of-
interests accounting treatment.
(G) CAPITAL. ComSouth's capital will not be less than
$16,500,000 on the Effective Date.
(H) ALLOWANCE FOR LOAN AND LEASE LOSSES. ComSouth's allowance
for possible loan and lease losses will not be less than 1.2% of ComSouth's
total outstanding loans and leases and will be adequate to absorb ComSouth's
anticipated loan and lease losses.
7.3 CONDITIONS TO OBLIGATIONS OF COMSOUTH. The obligations of ComSouth
to consummate the transactions contemplated by this Agreement also are subject
to the written waiver by ComSouth or the fulfillment on or prior to the
Effective Date of each of the following conditions:
(A) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of Anchor contained in this Agreement will be true and correct as of
the date of this Agreement and upon the Effective Date, with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) each and all of the agreements and covenants of Anchor to be
performed and complied with pursuant to this Agreement on or prior to the
Effective Date will have been duly performed and complied with in all material
respects, and ComSouth
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will have received a certificate dated the Effective Date signed by an executive
officer of Anchor to such effect.
(B) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any material adverse change in
the financial position or results of operations of Anchor, nor will Anchor have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and ComSouth will have
received a certificate dated the Effective Date signed by an executive officer
of Anchor to such effect.
(C) FAIRNESS OPINION. ComSouth will have received, immediately
prior to the mailing of the Joint Proxy Statement to ComSouth's shareholders, an
opinion of a qualified firm to the effect that the financial terms of the Merger
are fair from a financial point of view to ComSouth's shareholders.
(D) LEGAL OPINION. ComSouth will have received an opinion,
dated the Effective Date, of Gerrish & McCreary, P.C., counsel for Anchor,
incorporating the opinions set forth in Exhibit D.
ARTICLE VIII. TERMINATION
8.1 EVENTS OF TERMINATION. This Agreement may be terminated prior to
the Effective Date, either before or after receipt of required shareholder
approvals:
(A) MUTUAL CONSENT. By the mutual consent of Anchor and
ComSouth, if the Board of Directors of each so determines by vote of a majority
of the members of its entire board.
(B) BREACH. By Anchor or ComSouth, if its Board of Directors
so determines by vote of a majority of the members of its entire Board, in the
event of (A) a material breach by any other Party of any representation or
warranty in this Agreement, which breach cannot be or has not been cured within
30 days after written notice of the breach has been given to the breaching
Party, or (B) a material breach by any other Party of any of the covenants or
agreements in this Agreement, which breach cannot be or has not been cured
within 30 days after written notice of the breach has been given to the
breaching Party.
(C) DELAY. By Anchor or ComSouth, if its Board of Directors so
determines by vote of a majority of the members of the entire Board, in the
event that the Merger is not consummated by December 31, 1998; provided,
however, that no Party that is in material breach of any of the provisions of
this Agreement will be entitled to terminate this Agreement pursuant to this
Section 8.1(C).
(D) NO SHAREHOLDER APPROVAL. By Anchor or ComSouth, if its
Board of Directors so determines by a vote of a majority of the members of its
entire Board, if the shareholder approval contemplated by Section 7.1(A) is not
obtained at the Meetings or any adjournment(s) of the Meetings.
(E) MARKET PRICE. By the Board of Directors of ComSouth, if it
determines by a vote of a majority of the members of its entire Board, at any
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time during the ten-day period commencing two days after the Determination Date,
if both of the following conditions are satisfied:
(1) the Average Closing Price shall be twenty percent
(20%) less than the Starting Price; and
(2) (i) the quotient of the Average Closing Price
divided by the Starting Price (such quotient being the "Anchor Ratio")
shall be less than (ii) the quotient of the Average Index Price divided
by the Index Price on the Starting Date less 0.10 of such quotient
(which quotient less 0.10 shall be the "Index Ratio");
subject, however, to the following: If ComSouth refuses to consummate the Merger
pursuant to this Section 8.1(E), it shall give prompt written notice thereof to
Anchor; provided, that such notice of election to terminate may be withdrawn at
any time within the aforementioned ten-day period. During the five-day period
commencing with its receipt of such notice, Anchor shall have the option to
elect to increase the Exchange Ratio to equal the lesser of (i) the quotient
obtained by dividing (1) the product of 0.80, the Starting Price and the
Exchange Ratio (as then in effect) by (2) the Average Closing Price, and (ii)
the quotient obtained by dividing (1) the product of the Index Ratio and the
Exchange Ratio (as then in effect) by (2) the Anchor Ratio. If Anchor makes an
election contemplated by the preceding sentence, within such five-day period, it
shall give prompt written notice to ComSouth of such election pursuant to this
Section 8.1(E) and this Agreement shall remain in effect in accordance with its
terms (except as the Exchange Ratio shall have been so modified), and any
references in this Agreement to "Exchange Ratio" shall thereafter be deemed to
refer to the Exchange Ratio as adjusted pursuant to this Section 8.1(E).
For purposes of this Section 8.1(E), the following terms shall
have the meanings indicated:
"Average Closing Price" shall mean the average of the
daily last sales prices of Anchor Common Stock as reported on The
Nasdaq Stock Market (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by Anchor) for
the 20 consecutive full trading days in which such shares are traded
ending at the closing of trading on the Determination Date.
"Average Index Price" shall mean the average of the
daily current market price of the Index for the 20 consecutive full
trading days ending at the closing of trading on the Determination
Date.
"Determination Date" shall mean the date on which the
last consent of the Board of Governors of the Federal Reserve System
shall be received.
"Index" shall mean the NASDAQ Bank Index which is a
broad- based capitalization-weighted index of domestic and foreign
common stock of banks that are traded on the Nasdaq National Market
System as well as
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the SmallCap Market. The Index was developed with a base level of 100
as of February 5, 1971.
"Index Price" on a given date shall mean the current
market price of the Index for that day.
"Starting Date" shall mean April 14, 1998.
"Starting Price" shall mean $41.00 per share.
If Anchor declares or effects a stock dividend,
reclassification, recapitalization, split up, combination, exchange of shares,
similar transaction between the date of this Agreement and the Determination
Date, the prices for the common stock of Anchor shall be appropriately adjusted
for the purposes of applying this Section 8.1(E).
8.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 6.6, in the event
of the termination or abandonment of this Agreement pursuant to the provisions
of this Section 8.1, this Agreement will become void and have no force or
effect, without any liability on the part of the Parties or any of their
respective directors or officers or shareholders with respect to this Agreement.
(B) OTHER CONSEQUENCES. Notwithstanding anything in this
Agreement to the contrary, no termination of this Agreement will relieve any
Party of any liability for any breach of this Agreement or for any
misrepresentation under this Agreement or be deemed to constitute a waiver of
any remedy available for such breach or misrepresentation. In any action or
proceeding in connection with such breach or misrepresentation, the prevailing
Party will be entitled to reasonable attorneys' fees and expenses.
(C) TERMINATION FEE. If this Agreement is terminated:
(1)(i) by Anchor, if at any time prior to the
ComSouth Meeting, the Board of Directors of ComSouth shall have failed to
recommend the Merger to the holders of ComSouth Common Stock, withdrawn such
recommendation or modified or changed such recommendation in a manner adverse in
any respect to the interests of Anchor, or (ii) by the action of the Board of
Directors of ComSouth if a tender offer or exchange offer for 25% or more of the
outstanding shares of ComSouth Common Stock is commenced (other than by Anchor)
and the Board of ComSouth recommends that the stockholders of ComSouth tender
their shares in such tender or exchange offer or otherwise fails to recommend
that such stockholders reject such tender offer or exchange offer within ten
business days after the commencement thereof (which, in the case of an exchange
offer, shall be the effective date of the registration statement relating to
such exchange offer);
(2) by ComSouth or Anchor because of a failure to
obtain the required approval of the stockholders of ComSouth after an
Acquisition Proposal for ComSouth shall have been publicly disclosed, or any
Person shall have publicly disclosed an intention (whether or not conditional)
to make an Acquisition Proposal; or
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(3) by Anchor pursuant to Section 8.1(B) if the
breach by ComSouth giving rise to such termination was willful and, at or prior
to such termination, an Acquisition Proposal shall have been made known to
ComSouth or any of its Subsidiaries or shall have been publicly disclosed to
ComSouth's stockholders or any Person shall have made known to ComSouth or any
of its Subsidiaries or otherwise publicly disclosed an intention (whether or not
conditional) to make an Acquisition Proposal and regardless of whether such
Acquisition Proposal shall have been rejected by ComSouth or withdrawn prior to
the time of such termination, then, in such case, ComSouth shall pay to Anchor a
termination fee of $2.5 million (the "Termination Fee").
Any Termination Fee that becomes payable pursuant to
this Section shall be paid promptly following the receipt of a written request
for Termination Fee to ComSouth from Anchor. Notwithstanding the foregoing, in
no event shall ComSouth be obligated to pay any Termination Fee if ComSouth
shall be entitled to terminate this Agreement pursuant to Section 8.1(B) due to
a breach by Anchor.
ARTICLE IX. OTHER MATTERS
9.1 SURVIVAL. Only those agreements and covenants in this Agreement
that, by their express terms apply in whole or in part after the Effective Date,
will survive the Effective Date. All other representations, warranties, and
covenants will be deemed only to be conditions of the Merger and will not
survive the Effective Date. If the Merger is abandoned and this Agreement is
terminated, the provisions of Article VIII will apply and the agreements of the
Parties in Section 6.6 will survive such abandonment and termination.
9.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Agreement may be (A) waived in writing by the Party benefitted by the
provision, or (B) amended or modified at any time (including the structure of
the transactions contemplated by this Agreement) by an agreement in writing
among the Parties approved by their respective Boards of Directors and executed
in the same manner as this Agreement, except that, after the votes by the
shareholders of Anchor and ComSouth, the consideration to be received by the
shareholders of ComSouth for each share of ComSouth Common Stock will not
thereby be altered. Nothing contained in this Section 9.2 is intended to modify
Anchor's rights pursuant to Section 6.7.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed to constitute an original.
This Agreement will become effective when one counterpart has been signed by
each Party.
9.4 GOVERNING LAW. This Agreement will be governed by, and interpreted
in accordance with, the laws of the State of South Carolina, except as federal
law may be applicable.
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9.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated by this
Agreement.
9.6 CONFIDENTIALITY. Except as otherwise provided in Section 6.6(B),
each of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
9.7 NOTICES. All notices, requests and other communications hereunder
to a "Party" will be in writing and will be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopier or telex (confirmed in writing) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
Parties.
Anchor: Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29578
Attn: Stephen L. Chryst
with a copy to: Gerrish & McCreary, P.C.
700 Colonial Road - Suite 200
Memphis, TN 38117
Attn: Ann W. Langston, Esq.
ComSouth: ComSouth Bancshares, Inc.
1136 Washington Street
Suite 200
Columbia, SC 29201
Attn: Arthur M. Swanson
with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Twelfth Floor
Columbia, SC 29201
Attn: George S. King, Jr., Esq.
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the Parties with reference to
transactions contemplated by this Agreement and supersedes any and all other
oral or written agreements previously made. Nothing in this Agreement, expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
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9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
ANCHOR FINANCIAL CORPORATION
By: /s/ Stephen L. Chryst
Stephen L. Chryst
Its President and
Chief Executive Officer
COMSOUTH BANKSHARES, INC.
By: /s/ Arthur M. Swanson
Arthur M. Swanson
Its President
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APPENDIX B
AGREEMENT AND PLAN OF MERGER
BETWEEN
ANCHOR FINANCIAL CORPORATION
AND
M&M FINANCIAL CORPORATION
DATED MAY 15, 1998
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS
Page
PREAMBLE..........................................................................................................1
RECITALS..........................................................................................................1
DEFINITIONS.......................................................................................................1
ARTICLE I. MERGER................................................................................................5
1.1 THE MERGER......................................................................................5
1.2 EFFECTIVE DATE..................................................................................5
ARTICLE II. MERGER CONSIDERATION.................................................................................5
2.1 CONSIDERATION...................................................................................5
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.............................................................6
2.3 FRACTIONAL SHARES...............................................................................6
2.4 EXCHANGE PROCEDURES.............................................................................6
2.5 DISSENTING SHARES...............................................................................6
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION......................................................7
2.7 OPTIONS.........................................................................................7
2.8 ANTI-DILUTION ADJUSTMENTS.......................................................................7
ARTICLE III. M&M ACTIONS PENDING CONSUMMATION....................................................................8
3.1 CAPITAL STOCK...................................................................................8
3.2 DISTRIBUTIONS...................................................................................8
3.3 LIABILITIES.....................................................................................8
3.4 OPERATIONS......................................................................................8
3.5 LIENS AND ENCUMBRANCES..........................................................................8
3.6 EMPLOYMENT ARRANGEMENTS.........................................................................8
3.7 BENEFIT PLANS...................................................................................9
3.8 CONTINUANCE OF BUSINESS.........................................................................9
3.9 AMENDMENTS......................................................................................9
3.10 CLAIMS..........................................................................................9
3.11 CONTRACTS.......................................................................................9
3.12 LOANS...........................................................................................9
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION..................................................................9
ARTICLE V. REPRESENTATIONS AND WARRANTIES.......................................................................10
5.1 M&M'S REPRESENTATIONS AND WARRANTIES...........................................................10
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES........................................................18
5.3 EXCEPTIONS TO REPRESENTATIONS..................................................................21
ARTICLE VI. COVENANTS...........................................................................................21
6.1 BEST EFFORTS...................................................................................21
6.2 THE PROXY......................................................................................22
6.3 REGISTRATION STATEMENT - COMPLIANCE
WITH SECURITIES LAWS...........................................................................22
6.4 REGISTRATION STATEMENT EFFECTIVENESS...........................................................22
6.5 PRESS RELEASES.................................................................................23
6.6 ACCESS; INFORMATION............................................................................23
6.7 ACQUISITION PROPOSALS..........................................................................23
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.......................................................................24
6.9 APPOINTMENT OF DIRECTORS.......................................................................24
6.10 EMPLOYMENT AGREEMENTS..........................................................................24
6.11 BLUE-SKY FILINGS...............................................................................24
6.12 AFFILIATE AGREEMENTS...........................................................................24
6.13 TAKEOVER LAW...................................................................................24
6.14 NO RIGHTS TRIGGERED............................................................................25
6.15 SHARES LISTED..................................................................................25
6.16 CURRENT INFORMATION............................................................................25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.17 SEVERANCE......................................................................................25
6.18 INDEMNIFICATION................................................................................25
ARTICLE VII. CONDITIONS TO CONSUMMATION
OF THE MERGER..................................................................................................26
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................................................26
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR............................................................27
7.3 CONDITIONS TO OBLIGATIONS OF M&M...............................................................27
ARTICLE VIII. TERMINATION.......................................................................................28
8.1 EVENTS OF TERMINATION..........................................................................28
8.2 CONSEQUENCES OF TERMINATION....................................................................30
ARTICLE IX. OTHER MATTERS.......................................................................................31
9.1 SURVIVAL.......................................................................................31
9.2 WAIVER; AMENDMENT..............................................................................32
9.3 COUNTERPARTS...................................................................................32
9.4 GOVERNING LAW..................................................................................32
9.5 EXPENSES.......................................................................................32
9.6 CONFIDENTIALITY................................................................................32
9.7 NOTICES........................................................................................32
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES..................................................................................33
9.9 HEADINGS.......................................................................................33
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 15, 1998 (the
"Agreement"), is made and entered into by and between ANCHOR FINANCIAL
CORPORATION ("Anchor"), a South Carolina corporation, and M&M FINANCIAL
CORPORATION ("M&M"), a South Carolina corporation.
PREAMBLE
The management and Boards of Directors of Anchor and M&M believe,
respectively, that the business combination transaction provided for herein, in
which M&M will, subject to the terms and conditions set forth herein, merge with
and into Anchor so that Anchor is the surviving corporation in the Merger, is in
the best interests of Anchor and M&M's shareholders.
RECITALS
A. ANCHOR. Anchor is a corporation duly organized and validly existing
under South Carolina law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal offices located at
2002 Oak Street, Myrtle Beach, South Carolina. As of the date of this Agreement,
Anchor has 10,000,000 authorized shares of common stock, no par value per share
("Anchor Common Stock") (no other class of capital stock being authorized), of
which 3,890,323 shares of Anchor Common Stock are issued and outstanding and of
which 388,784 shares are subject to issuance pursuant to certain stock options.
B. M&M. M&M is a corporation duly organized and validly existing under
South Carolina law and is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended, with its principal executive offices
located at 307 North Main Street, Marion, South Carolina. As of the date of this
Agreement, M&M has 3,000,000 authorized shares of common stock, $5.00 par value
per share ("M&M Common Stock") of which 1,006,116 shares of M&M Common Stock are
issued and outstanding and of which 66,000 shares of M&M Common Stock are
subject to issuance pursuant to certain stock options.
C. APPROVALS. At meetings of the respective Boards of Directors of
Anchor and M&M, each such Board has approved and authorized the execution of
this Agreement.
D. INTENTION OF THE PARTIES. The parties intend the Merger to qualify,
for accounting purposes, as a "pooling of interests." The parties intend the
Merger to qualify, for federal income tax purposes, as a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
In consideration of their mutual promises and obligations, Anchor and
M&M agree as follows:
DEFINITIONS
A. DEFINITIONS. Capitalized terms used in this Agreement have the
following meanings:
"Acquisition Proposal" has the meaning assigned in Section
6.7(A).
"Agreement" means this Agreement and Plan of Merger.
<PAGE>
"Anchor" means Anchor Financial Corporation, a South Carolina
corporation.
"Anchor Bank" means The Anchor Bank, a South Carolina banking
association.
"Anchor Common Stock" has the meaning assigned in Recital A.
"Anchor Financial Reports" has the meaning assigned in Section
5.2(G).
"Anchor Option" has the meaning assigned in Section 2.7.
"Appraisal Laws" has the meaning assigned in Section 2.5.
"Asset Classification" has the meaning assigned in Section
5.1(S).
"Code" has the meaning assigned in Section 5.1(P)(2).
"Compensation and Benefit Plans" has the meaning assigned in
Section 5.1(P)(1).
"Dissenting Shares" means the shares of M&M Common Stock held
by those shareholders of M&M who have timely and properly exercised their
dissenters' rights in accordance with the Appraisal Laws.
"Effective Date" has the meaning assigned in Section 1.2.
"Eligible M&M Common Stock" means shares of M&M Common Stock
validly issued and outstanding on the Effective Date other than Dissenting
Shares.
"Employment Agreement" means Exhibit C.
"Environmental Law" means (1) any federal state, and/or local
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent, legal doctrine, order, judgment, decree, injunction,
requirement or agreement with any governmental entity, relating to (a) the
protection, preservation or restoration of the environment (including air, water
vapor, surface water, groundwater, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource) or human
health or safety, or (b) the exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of Hazardous Material, in each case as amended
and as now in effect, including the Federal Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the Federal Toxic
Substances Control Act, and the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970, and (2) any common
law or equitable doctrine (including injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material.
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"ERISA" has the meaning assigned in Section 5.1(P)(2).
"ERISA Affiliate" has the meaning assigned in Section
5.1(P)(3).
"ERISA Plans" has the meaning assigned in Section 5.1(P)(2).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated under such statute.
"Exchange Agent" has the meaning assigned in Section 2.4.
"Exchange Ratio" has the meaning assigned in Section 2.1(B).
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System.
"First National South" means First National South, a national
banking association.
"GAAP" means generally accepted accounting principles
consistently applied.
"Hazardous Material" means any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or
quantity, including any oil or other petroleum product, toxic waste, pollutant,
contaminant, hazardous substance, toxic substance, hazardous waste, special
waste or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"Joint Proxy Statement" has the meaning assigned in Section
6.2.
"Loan/Fiduciary Property" means any property owned or
controlled by M&M or either of its Subsidiaries or in which M&M or either of its
Subsidiaries holds a security or other interest, and, where required by the
context, includes any such property where M&M or either of its Subsidiaries
constitutes the owner or operator of such property, but only with respect to
such property.
"M&M" means M&M Financial Corporation, a South Carolina
corporation.
"M&M Common Stock" has the meaning assigned in Recital B.
"M&M Financial Reports" has the meaning assigned in Section
5.1(H).
"M&M Option" has the meaning assigned in Section 2.7.
"Material Adverse Effect" means, with respect to any Party, an
event, occurrence or circumstance (including (i) the making of any provisions
for possible loan and lease losses, write-downs of other real estate owned and
taxes, and (ii) any breach of a representation or warranty contained in this
Agreement by such Party) that (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations, business or
prospects of such Party and its Subsidiaries, taken as a whole, or (b) would
materially impair such party's ability to perform its obligations under this
Agreement or the consummation of any of the transactions contemplated by this
Agreement.
"Meeting" has the meaning assigned in Section 6.2.
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"Merger" has the meaning assigned in Section 1.1.
"Multiemployer Plans" has the meaning assigned in Section
5.1(P)(2).
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"OCC" means the Office of the Comptroller of the Currency.
"Participation Facility" means any facility in which M&M or
its Subsidiaries participates in the management and, where required by the
context, includes the owner or operator of such facility.
"Party" means a party to this Agreement.
"Pension Plan" has the meaning assigned in Section 5.1(P)(2).
"Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
governmental body, or other entity.
"Registration Statement" has the meaning assigned in Section
6.2.
"Regulatory Authorities" means federal or state governmental
agencies, authorities or departments charged with the supervision or regulation
of depository institutions or engaged in the insurance of deposits.
"Rights" means securities or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire, or
any options, calls or commitments relating to, shares of capital stock.
"Schedule" refers to information provided by a Party in a
Schedule that is delivered contemporaneously with the execution of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated under such statute.
"SEC" means the Securities and Exchange Commission.
"Subsidiary" means, with respect to any entity, each
partnership, limited liability company, or corporation the majority of the
outstanding partnership interests, membership interests, capital stock or voting
power of which is (or upon the exercise of all outstanding warrants, options and
other rights would be) owned, directly or indirectly, at the time in question by
such entity.
"Tax Returns" has the meaning assigned in Section 5.1(Z).
"Taxes" means federal, state, local or foreign income, gross
receipts, windfall profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes imposed on
the income, properties or operations of the respective Party or its
Subsidiaries, together with any interest, additions, or penalties relating to
such taxes and any interest charged on those additions or penalties.
B. GENERAL INTERPRETATION. Except as otherwise expressly provided in
this Agreement or unless the context clearly requires otherwise, the following
rules of interpretation apply: (i) the terms defined in this Agreement include
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the plural as well as the singular; (ii) the phrase "in this Agreement" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision; and (iii) references in this
Agreement to Articles, Sections, Schedules, and Exhibits refer to Articles and
Sections of and Schedules and Exhibits to this Agreement. Whenever the words
"include," "includes," or "including" are used in this Agreement, they will be
deemed to be following by the words "without limitation." Unless otherwise
stated references to Subsections refer to the Subsections of the Section in
which the reference appears. All pronouns used in this Agreement include the
masculine, feminine and neuter gender, as the context requires.
ARTICLE I. MERGER
1.1 THE MERGER. Subject to the provisions of this Agreement and in
accordance with the terms of Section 33-11-101 of the Code of Laws of South
Carolina of 1976, as amended (the "South Carolina Code"), on the Effective Date,
M&M will merge with and into Anchor, under the Articles of Incorporation of
Anchor (the "Merger"), and the resulting corporation will operate under the name
"Anchor Financial Corporation" (the "Merged Company"). After the Effective Date,
the Board of Directors of the Merged Company will consist of the directors of
Anchor immediately preceding the Effective Date plus two additional directors to
be designated from the current directors of M&M or its Subsidiary bank. The
Board of Directors of Anchor Bank will consist of the directors of Anchor Bank
immediately preceding the Effective Date plus two additional directors to be
resignated from the current directors of M&M or its Subsidiary bank. M&M may
offer suggestions to Anchor, and Anchor shall make the final designation of such
directors.
1.2 EFFECTIVE DATE. Unless the Parties agree upon another date, the
"Effective Date" will be the tenth business day after the fulfillment or waiver
of all conditions precedent set forth in, and the granting of all approvals (and
expiration of any waiting period) required by, Article VII of this Agreement. A
business day is any day other than a Saturday, Sunday or legal holiday in the
State of South Carolina. If the Merger is not consummated in accordance with
this Agreement on or before December 31, 1998, Anchor or M&M may terminate this
Agreement in accordance with Article VIII.
ARTICLE II. MERGER CONSIDERATION
2.1 CONSIDERATION. Subject to the provisions of this Agreement, on the
Effective Date:
(A) OUTSTANDING ANCHOR COMMON STOCK. The shares of Anchor Common Stock
issued and outstanding immediately prior to the Effective Date will, on and
after the Effective Date, remain as issued and outstanding shares of Anchor
Common Stock.
(B) OUTSTANDING M&M COMMON STOCK. Except as provided below in Section
2.3, each share of Eligible M&M Common Stock issued and outstanding
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immediately prior to the Effective Date will, by virtue of the Merger,
automatically and without any action on the part of the holder of the share, be
converted into the right to receive 0.87 shares of Anchor Common Stock (the
"Exchange Ratio").
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS. On the Effective Date, all
shares, other than Dissenting Shares, of M&M Common Stock issued and outstanding
immediately prior to the Effective Date will be converted into shares of Anchor
Common Stock in accordance with Section 2.1(B) by virtue of the Merger. After
the Effective Date, there will be no transfers on the stock transfer books of
M&M of the shares of M&M Common Stock that were issued and outstanding
immediately prior to the Effective Date.
2.3 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no fractional shares of Anchor Common Stock and no certificates or
other evidence of ownership of such fractional shares will be issued in the
Merger. Anchor will pay to each holder of M&M Common Stock who would otherwise
be entitled to a fractional share an amount in cash (without interest)
determined by multiplying such fractional part of a share of Anchor Common Stock
by the closing price of Anchor Common Stock on the Effective Date on The Nasdaq
Stock Market (as reported in The Wall Street Journal or, if not reported
thereby, any other authoritative source selected by Anchor).
2.4 EXCHANGE PROCEDURES. As promptly as practicable after the Effective
Date, Anchor will send or cause to be sent to each former shareholder of M&M of
record immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates for Anchor Common Stock for the
consideration set forth in this Article II. The certificates representing the
shares of Anchor Common Stock for which shares of such shareholder's M&M Common
Stock are exchanged on the Effective Date, and any fractional share checks that
such shareholder will be entitled to receive will be delivered to such
shareholder only upon delivery to Anchor's exchange agent (the "Exchange Agent")
of the certificates representing all such shares of M&M Common Stock (or
indemnity satisfactory to Anchor and the Exchange Agent, in their judgment, if
any of such certificates are lost, stolen or destroyed). Certificates
surrendered for exchange by any person constituting an "affiliate" of M&M for
purposes of Rule 145 of the Securities Act will not be exchanged for
certificates representing Anchor Common Stock until Anchor has received a
written agreement from such person as specified in Section 6.12.
2.5 DISSENTING SHARES. Notwithstanding anything to the contrary in this
Agreement, each Dissenting Share whose holder, as of the Effective Date of the
Merger, has not effectively withdrawn or lost his dissenters' rights under
Section 33-13-102 of the South Carolina Code (the "Appraisal Laws") will not be
converted into or represent a right to receive Anchor Common Stock, but the
holder of such Dissenting Share will be entitled only to such rights as are
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granted by the Appraisal Laws. Each holder of Dissenting Shares who becomes
entitled to payment for his M&M Common Stock pursuant to the provisions of the
Appraisal Laws will receive payment for such Dissenting Shares from Anchor (but
only after the amount of payment is agreed upon or finally determined pursuant
to the Appraisal Laws).
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION. In its sole discretion,
and notwithstanding any other provision of this Agreement to the contrary,
Anchor may at any time change the method of effecting its acquisition of M&M,
but no such change will (A) change the amount or kind of consideration to be
issued to holders of M&M Common Stock as provided for in this Agreement, or (B)
adversely affect the tax treatment to the M&M shareholders as a result of
receiving such consideration. If Anchor elects to change the method of
acquisition, M&M will cooperate with and assist Anchor with any necessary
amendment to this Agreement, and with the preparation and filing of such
applications, documents, instruments and notices as may be necessary or
desirable, in the opinion of counsel for Anchor, to obtain all necessary
shareholder approvals and approvals of any regulatory agency, administrative
body or governmental entity.
2.7 OPTIONS. On the Effective Date, by virtue of the Merger and without
any action on the part of any holder of an option, each option granted by M&M to
purchase shares of M&M Common Stock ("M&M Option") that has been outstanding and
unexercised will be converted into and become an option to purchase Anchor
Common Stock ("Anchor Option") on the same terms and conditions as are in effect
with respect to the M&M Options immediately prior to the Effective Date, except
that (A) each such Anchor Option may be exercised solely for shares of Anchor
Common Stock, (B) the number of shares of Anchor Common Stock subject to such
Anchor Options will be equal to the number of shares of M&M Common Stock subject
to such M&M Options immediately prior to the Effective Date, multiplied by the
Exchange Ratio, the product being rounded, if necessary, up or down to the
nearest whole share, and (C) the per share exercise price under each such Anchor
Option will be adjusted by dividing the per share exercise price of the M&M
Option by the Exchange Ratio, and rounding up or down to the nearest cent. The
number of shares of M&M Common Stock that are issuable upon exercise of M&M
Options as of the date of this Agreement are disclosed in Schedule 2.7.
2.8 ANTI-DILUTION ADJUSTMENTS. In the event Anchor changes the number
of shares of Anchor Common Stock issued and outstanding prior to the Effective
Date as a result of a stock split, stock dividend or similar recapitalization
with respect to Anchor Common Stock, and the record date therefore (in the case
of a stock dividend) or the effective date thereof (in the case of stock split
or similar recapitalization for which a record date is not established) shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
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ARTICLE III. M&M ACTIONS PENDING CONSUMMATION
Unless otherwise agreed to in writing by Anchor, M&M and its
Subsidiaries will conduct their business in the ordinary and usual course
consistent with past practice and will use their best efforts to maintain and
preserve their business organizations, employees and advantageous business
relationships and retain the services of their officers and key employees
identified by Anchor, and M&M, without the prior written consent of Anchor, will
not:
3.1 CAPITAL STOCK. Issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of M&M, except pursuant to
the exercise of stock options outstanding on the date hereof, or grant any
Rights with respect to its capital stock, or enter into any agreement to do any
of the foregoing, or permit any additional shares of M&M Common Stock to become
subject to grants of employee stock options, stock appreciation rights or
similar stock-based employee compensation rights.
3.2 DISTRIBUTIONS. Except a cash dividend in an amount not to exceed
$0.37 per share of M&M Common Stock per annum prorated to the Effective Date,
make, declare or pay any dividend on or in respect of, or declare or make any
distribution on, or directly or indirectly combine, redeem, reclassify, purchase
or otherwise acquire, any shares of its capital stock or authorize the creation
or issuance of, or issue, any additional shares of its capital stock or grant
any Rights with respect to its capital stock.
3.3 LIABILITIES. Other than in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
or liable for the obligations of any other individual corporation or other
entity.
3.4 OPERATIONS. Except as may be directed by any regulatory agency, (A)
change its lending, investment, liability management or other material banking
policies in any material respect, or (B) commit to incur any capital
expenditures other than in the ordinary course of business and not exceeding
$15,000 individually or $25,000 in the aggregate.
3.5 LIENS AND ENCUMBRANCES. Impose, or suffer the imposition, on any
shares of stock of any of its Subsidiaries, any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist, except such liens, charges
or encumbrances occurring in the ordinary course of business which do not have a
Material Adverse Effect on M&M.
3.6 EMPLOYMENT ARRANGEMENTS. Hire any new employees, increase the
number of full time employees disclosed in Schedule 3.6, enter into or amend any
employment, severance or similar agreement or arrangement with any of its
directors, officers or employees, or grant any salary or wage increase, amend
the terms of any M&M Option or increase any employee benefit (including
incentive or bonus payments), except normal individual increases in regular
compensation to
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employees in the ordinary course of business consistent with past practice or as
disclosed in Schedule 3.6.
3.7 BENEFIT PLANS. Enter into or modify (except as may be required by
applicable law or to continue coverage) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees, including taking any action that
accelerates the vesting or exercise of any benefits payable thereunder.
3.8 CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion of
its assets, business or properties, that is material to M&M or any one of its
Subsidiaries taken as a whole, or merge or consolidate with, or acquire all or
any portion of, the business or property of any other entity that is material to
M&M or any one of its Subsidiaries taken as a whole (except foreclosures or
acquisitions by M&M or any one of its Subsidiaries in its fiduciary capacity, in
each case in the ordinary course of business consistent with past practice).
3.9 AMENDMENTS. Amend its Articles of Incorporation or Bylaws.
3.10 CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for material money damages or restrictions upon the
operations of M&M.
3.11 CONTRACTS. Enter into, renew, terminate or make any change in any
material contract, agreement or lease, except in the ordinary course of business
consistent with past practice with respect to contracts, agreements and leases
that are terminable by it without penalty on no more than 60 days prior written
notice.
3.12 LOANS. Extend credit or account for loans and leases other than in
accordance with existing lending policies and accounting practices. With regard
to any new extension of credit in excess of $250,000, M&M will report to the
Chief Financial Officer of Anchor, as expeditiously as possible, the substance
and nature of the transaction for the purpose of keeping Anchor abreast of the
ongoing credit quality at M&M.
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION
From the date of this Agreement until the earlier of the Effective Date
or the termination of this Agreement, Anchor will continue to conduct the
business of Anchor and its Subsidiaries in a manner designed in its reasonable
judgment to enhance the long-term value of Anchor Common Stock and the business
prospects of Anchor, and will not: (1) make any distributions with respect to
its capital stock except its regular quarterly dividends made in accordance with
its past practices; or (2) take any action which would materially adversely
affect the ability of Anchor or M&M to obtain any regulatory approvals or other
consents required for the Merger described in this Agreement without imposition
of any condition or restriction that would adversely impact the transactions
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contemplated hereby or prevent the Merger from qualifying as a pooling of
interests for accounting purposes or as a tax free organization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code, or materially
adversely affect the ability of any party to this Agreement to perform its
covenants or agreements under this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.1 M&M'S REPRESENTATIONS AND WARRANTIES. M&M hereby represents and
warrants to Anchor as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to M&M are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. M&M is duly
qualified to do business and is in good standing in the States of the United
States and foreign jurisdictions where the failure to be duly qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on it. M&M and its Subsidiaries have in effect all federal state,
local and foreign governmental authorizations necessary for them to own or lease
their properties and assets and to carry on their businesses as they are now
conducted. First National South is an "insured depository institutions" as
defined in the Federal Deposit Insurance Act, as amended, and applicable
regulations under such statute, and its deposits are insured by the Bank
Insurance Fund of the FDIC.
(C) SHARES. The outstanding shares of M&M's capital stock are
validly issued and outstanding, fully paid and nonassessable and are subject to
preemptive rights of M&M's shareholders. Except as M&M disclosed in Schedule
5.1(C), there are no shares of capital stock or other equity securities of M&M
outstanding and no outstanding Rights with respect to its capital stock or other
equity securities.
(D) SUBSIDIARIES. M&M has two Subsidiaries, First National
South and Marion National Investment Corporation.
(E) CORPORATE POWER. M&M has the corporate power and authority
to carry on its business as it is now being conducted and to own all its
material properties and assets.
(F) CORPORATE AUTHORITY. Subject to any necessary receipt of
approval by its shareholders referred to in Section 7.1(A), this Agreement has
been authorized by all necessary corporate action of M&M, and this Agreement is
a valid and binding agreement of M&M, enforceable against M&M in accordance with
its terms, subject to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general
equitable principles.
(G) NO DEFAULTS. Except as set forth on Schedule 5.1(G),
subject to the approval by its shareholders referred to in Section 7.1(A), the
required regulatory approvals referred to in Section 7.1(B), and the required
filings under federal and state securities laws, and except as set forth on
Schedule
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5.1(G), the execution, delivery and performance of this Agreement and the
consummation by M&M of the transactions contemplated by this Agreement do not
and will not (1) constitute a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of M&M or to which M&M or its
properties is subject or bound, (2) constitute a breach or violation of, or a
default under its articles of incorporation or bylaws, or (3) require any
consent or approval under any such law, rule, regulation, judgment, decree,
order governmental permit or license or the consent or approval of any other
party to any such agreement, indenture or instrument.
(H) FINANCIAL REPORTS. M&M's audited consolidated statements
of financial condition and the related consolidated statements of income,
changes in shareholders' equity and cash flows for the fiscal year ended
December 31, 1997, (collectively, the "M&M Financial Reports") do not contain
any untrue statement of a material fact or omit 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; and
each of the consolidated balance sheets in or incorporated by reference into the
M&M Financial Reports (including the related notes and schedules thereto) fairly
presents the financial position of M&M as of its date, and each of the
consolidated statements of income and changes in shareholders' equity and cash
flows (including any related notes and schedules thereto) fairly presents the
results of operations, changes in shareholders' equity and cash flows, as the
case may be, for the periods set forth therein, in accordance with GAAP.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 5.1(I), M&M has no obligation or liability (contingent or otherwise)
except (1) as reflected in the M&M Financial Reports prior to the date of this
Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997.
(J) NO EVENTS. Since December 31, 1997, no event has occurred
that, individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on M&M.
(K) PROPERTIES. M&M has good and marketable title, free and
clear of all liens, encumbrances, charges, defaults, or equities of any
character, to all of the properties and assets, tangible and intangible,
reflected in the M&M Financial Reports as being owned by M&M as of the dates of
the M&M Financial Reports, except those sold or otherwise disposed of in the
ordinary course of business. All buildings and all material fixtures, equipment,
and other property and assets that are held under leases or subleases by M&M are
held under valid leases or subleases enforceable in accordance with their
respective terms.
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(L) LITIGATION. Except as disclosed in Schedule 5.2(L), before
the date of this Agreement:
(1) no criminal or administrative investigations or
hearings, before or by any Regulatory Authorities, or civil, criminal or
administrative actions, suits, claims or proceedings, before or by any person
(including any Regulatory Authority) are pending or, to the knowledge of its
executive officers, threatened, against it (including under the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, or any fair lending law or
other law relating to discrimination); and
(2) neither M&M nor either of its Subsidiaries nor
any of their officers, directors, controlling persons, nor any of their
properties is a party to or is subject to any order, decree, agreement,
memorandum of understanding or similar arrangement with, or a commitment letter
or similar submission to, any Regulatory Authority charged with the supervision
or regulation of depository institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of M&M or either of its
Subsidiaries, and they have not been advised by any such Regulatory Authority
that such Regulatory Authority is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission.
(M) COMPLIANCE WITH LAWS. M&M and its Subsidiaries:
(1) are in compliance, in the conduct of their
businesses, with all applicable federal, state, local, and foreign statutes,
laws, regulations, ordinances, rules, judgments, orders or decrees, including
the Bank Secrecy Act, the Truth in Lending Act, the Equal Credit Opportunity
Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage
Disclosure act and all applicable fair lending laws or other laws relating to
discriminations;
(2) have all permits, licenses, certificates of
authority, orders, and approvals of, and have made all filings, applications,
and registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit them to carry on their
businesses as they are presently conducted;
(3) have no notification or other communication from
any Regulatory Authority (including any bank, insurance and securities
regulatory authorities) or its staff (1) asserting a failure to comply with any
of the statutes, regulations or ordinances that such Regulatory Authority
enforces, (2) threatening to revoke any license, franchise, permit or
governmental authorization, or (3) threatening or contemplating revocation or
limitation of, or that would have the effect of revoking or limiting, FDIC
deposit insurance (nor do any grounds for any of the foregoing exist);
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(4) are not required to notify any federal banking
agency before adding directors to their boards of directors or employing senior
executives (except notifications required as a result of the Merger); and
(5) have adopted and are implementing a program to
address any problems associated with the capacity of the computer software
operated by M&M and its Subsidiaries and their vendors to properly process
transactions after December 31, 1999.
(N) MATERIAL CONTRACTS. Neither M&M nor either of its
Subsidiaries nor their assets, businesses or operations, is a party to, or bound
or affected by, or receives benefits under, any material contract or agreement
or amendment to such contract or agreement. M&M or either of its Subsidiaries is
not in default under any contract, agreement, commitment, arrangement, lease,
insurance policy or other instrument to which it is a party, by which its
assets, business or operations may be bound or affected or under which it or its
respective assets, business or operations receives benefits, and there has not
occurred any event that, with the lapse of time or the giving of notice or both,
would constitute such a default. M&M or either of its Subsidiaries is not
subject to or bound by any contract containing covenants that limit its ability
to compete in any line of business or with any Person or that involve any
restriction of geographical area in which, or method by which, it may carry on
its business (other than as may be required by law or any applicable Regulatory
Authority).
(O) REPORTS. Since January 1, 1993, M&M and its Subsidiaries
filed all reports and statements, together with any required amendments, that
they were obligated to file with (1) the OCC, (2) the FDIC, (3) the Federal
Reserve Board and (4) any other Regulatory Authorities having jurisdiction over
M&M and/or its Subsidiaries. As of their respective dates (and without giving
effect to any amendments or modification filed after the date of this Agreement
with respect to reports and documents filed before the date of this Agreement),
each of such reports and documents, including the financial statements, exhibits
and schedules to the financial statements, complied with all of the statutes,
rules and regulations enforced or promulgated by the Regulatory Authority with
which they were filed and did not contain any untrue statement of fact or omit
to state any fact necessary in order to make the statements, in light of the
circumstances under which they were made, not misleading.
(P) EMPLOYEE BENEFIT PLANS.
(1) Schedule 5.1(P)(1) contains a complete list of
all bonus, deferred compensation, pension, retirement, profit-sharing, thrift
savings, employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts, all medical,
dental, health and life insurance plans, all other employee benefit plans,
contracts or arrangements and any applicable "change of control" or similar
provisions in any plan, contract or arrangement maintained on contributed to by
M&M and/or its
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Subsidiaries for the benefit of employees, former employees, directors, former
directors or their beneficiaries (the "Compensation and Benefit Plans"). True
and complete copies of all Compensation and Benefit Plans of M&M and/or its
Subsidiaries, including any trust instruments and/or insurance contracts, if
any, forming a part of such plans, and all related amendments, have been
supplied to Anchor.
(2) All "employee benefit plans" within the meaning
of Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA ("Multiemployer Plans"), covering employees or former
employees of M&M and/or its Subsidiaries (the "ERISA Plans"), to the extent
subject to ERISA, are in substantial compliance with ERISA. Each ERISA Plan
which is an "employee pension benefit plan" within the meaning of Section 3(2)
of ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986 (as amended, the "Code") has
received a favorable determination letter from the Internal Revenue Service, and
M&M is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the inability
to receive such favorable determination letter. There is no material pending or,
to its knowledge, threatened litigation relating to the ERISA Plans. M&M or
either of its Subsidiaries has not engaged in a transaction with respect to any
ERISA Plan that could subject M&M or either of its Subsidiaries to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(3) No liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by M&M or either of its
Subsidiaries with respect to any ongoing, frozen or terminated "single-employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by it, or the single-employer plan of any entity which is considered
one employer with M&M or either of its Subsidiaries under Section 4001(a)(15) of
ERISA or Section 414 of the Code (an "ERISA Affiliate"). M&M or either of its
Subsidiaries does not presently contribute to a Multiemployer Plan, nor has it
contributed to such a plan within the past five calendar years. No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Pension Plan or by any ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the
terms of any ERISA Plan have been timely made. Neither any Pension Plan nor any
single- employer plan of an ERISA Affiliate has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of the
Code or Section 302 of ERISA. M&M or either of its Subsidiaries has not
provided, or is not required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the
Code.
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(5) Under each Pension Plan which is a
single-employer plan, as of the last day of the most recent plan year, the
actuarially determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the
actuarial assumptions contained in the plan's most recent actuarial valuation)
did not exceed the then current value of the assets of such plan, and there has
been no material change in the financial condition of such plan since the last
day of the most recent plan year.
(6) M&M has no obligations for retiree health and
life benefits under any plan, except as set forth in Schedule 5.1(P)(6). There
are no restrictions on the rights of M&M to amend or terminate any such plan
without incurring any liability under the plan.
(7) Except as set forth on Schedule 5.1(P)(7),
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will (a) result in any payment
(including severance, unemployment compensation, golden parachute or otherwise)
becoming due to any director or any employee of M&M or its Subsidiaries under
any Compensation and Benefit Plan or otherwise from M&M or its Subsidiaries, (b)
increase any benefits otherwise payable under any Compensation and Benefit Plan,
or (c) result in any acceleration of the time of payment or vesting of any such
benefit.
(Q) NO KNOWLEDGE. M&M knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained.
(R) LABOR AGREEMENTS. M&M is neither a party to nor bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor is M&M the subject
of a proceeding asserting that it has committed an unfair labor practice (within
the meaning of the National Labor Relations Act) or seeking to compel it to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to the
best of its knowledge, threatened, nor is it aware of any activity involving its
employees seeking to certify a collective bargaining unit or engaging in any
other organization activity.
(S) ASSET CLASSIFICATION. M&M has disclosed to Anchor in
Schedule 5.1(S) a list, accurate and complete in all material respects, of the
aggregate amounts of loans, extensions of credit or other assets of M&M and its
Subsidiaries that have been classified by them as of December 31, 1997 (the
"Asset Classification"); and, no amounts of loans, extensions of credit or other
assets that have been classified as of December 31, 1997 by any regulatory
examiner as "Other Loans Specially Mentioned," "Substandard," "Doubtful,"
"Loss," or words of similar import are excluded from the amounts disclosed in
the Asset Classification, other than amounts of loans, extension of credit or
other assets that were charged off by M&M and its Subsidiaries prior to December
31, 1997.
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(T) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for
possible loan losses shown on the consolidated balance sheet in the December 31,
1997, Financial Reports was, and the allowance for possible loan losses to be
shown on subsequent Financial Reports will be, adequate in the opinion of the
Board of Directors of M&M to provide for possible losses, net of recoveries
relating to loans previously charged off, on loans outstanding (including
accrued interest receivable) as of the dates noted.
(U) INSURANCE. M&M has taken all requisite action (including
the making of claims and the giving of notices) pursuant to its directors' and
officers' liability insurance policy or policies in order to preserve all rights
under the policy or policies. Set forth in Schedule 5.1(U) is a list of all
insurance policies maintained by or for the benefit of M&M and its Subsidiaries
and their directors, officers, employees or agents.
(V) AFFILIATES. Except as disclosed in Schedule 5.1(V), there
is no person who, as of the date of this Agreement, may be deemed to be an
"affiliate" of M&M as that term is used in Rule 145 under the Securities Act.
(W) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. M&M has taken all
necessary action to exempt this Agreement, and the transactions contemplated by
this Agreement from, and this Agreement and such transactions are exempt from
(1) any applicable takeover laws, and (2) any takeover-related provisions of
M&M's Articles of Incorporation.
(X) NO FURTHER ACTION. M&M has taken all action so that
entering into this Agreement and the consummation of the transactions
contemplated by this Agreement (including the Merger) or any other action or
combination of actions, or any other transactions, contemplated by this
Agreement do not and will not (1) require a vote of shareholders (other than as
set forth in Section 7.1(A)), or (2) result in the grant of any rights to any
Person under the Articles of Incorporation or Bylaws of M&M or under any
agreement to which M&M is a party, or (3) restrict or impair in any way the
ability of Anchor to exercise the rights granted under this Agreement.
(Y) ENVIRONMENTAL MATTERS.
(1) To M&M and its Subsidiaries' knowledge, the
Participation Facilities and the Loan/Fiduciary Properties are, and have been,
in compliance with all Environmental Laws.
(2) There is no proceeding pending or, to M&M and its
Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which M&M or either of its Subsidiaries or any
Participation Facility has been, or with respect to threatened proceedings,
reasonably would be expected to be, named as a defendant or potentially
responsible party (a) for alleged noncompliance (including by any predecessor)
with any Environmental Law, or (b) relating to the release or threatened release
into the environment of any Hazardous Material, whether or not occurring at or
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on a site owned, leased or operated by M&M or either of its Subsidiaries or any
Participation Facility.
(3) There is no proceeding pending or, to M&M or its
Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which any Loan/Fiduciary Property (or M&M or its
Subsidiaries in respect of any Loan/Fiduciary Property) has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law, or (b) relating to
the release or threatened release into the environment of any Hazardous
Material, whether or not occurring at or on a Loan/Fiduciary Property.
(4) To M&M or its Subsidiaries' knowledge, there is
no reasonable basis for any proceeding of a type described in subparagraph (2)
or (3) of this paragraph (Y).
(5) To M&M or its Subsidiaries' knowledge, during the
period of (a) ownership or operation by M&M or either of its Subsidiaries of any
of its current properties, (b) participation in the management of any
Participation Facility by M&M or either of its Subsidiaries, or (c) holding of a
security or other interest in a Loan/Fiduciary Property by M&M or either of its
Subsidiaries, there have been no releases of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan Fiduciary Property.
(6) To M&M or its Subsidiaries' knowledge, prior to
the period of (a) ownership or operation by M&M or either of its Subsidiaries of
any of its current properties, (b) participation in the management of any
Participation Facility by M&M or either of its Subsidiaries or (c) holding of a
security or other interest in a Loan/Fiduciary Property by M&M or either of its
Subsidiaries, there was no release of Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan) Fiduciary Property.
(Z) TAX REPORTS. (1) All reports and returns with respect to
Taxes that are required to be filed by or with respect to M&M, including
consolidated federal income tax returns of M&M, (collectively, the "Tax
Returns"), have been duly filed, or requests for extensions have been timely
filed and have not expired, for periods ended on or prior to the most recent
fiscal year-end, and such Tax Returns were true, complete and accurate, (2) all
Taxes shown to be due on the Tax Returns have been paid in full, (3) the Tax
Returns have been examined by the Internal Revenue Service or the appropriate
state, local or foreign taxing authority, or the period for assessment of the
Taxes in respect of which such Tax Returns were required to be filed has
expired, (4) all Taxes due with respect to completed and settled examinations
have been paid in full, (5) no issues have been raised by the relevant taxing
authority in connection with the examination of any of the Tax Returns except as
reserved against in the Financial Reports, and (6) no waivers of statutes of
limitations (excluding such statutes that
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relate to years under examination by the Internal Revenue Service) have been
given by or requested with respect to any Taxes of M&M.
(AA) ACCURACY OF INFORMATION. The statements with respect to
M&M and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of M&M and its
Subsidiaries or any other Party pursuant to the terms of or relating to this
Agreement are true and correct, and such statements and documents do not omit
any fact necessary to make the statements, in light of the circumstances under
which they were made, not misleading.
(BB) DERIVATIVES CONTRACTS. M&M is not a party to nor has it
agreed to enter into a Derivatives Contract or to own securities that are
referred to as "structured notes," except as set forth on Schedule 5.1(BB).
(CC) ACCOUNTING CONTROLS. M&M has devised and maintained
systems of internal accounting controls sufficient to provide reasonable
assurances that (1) all transactions are executed in accordance with
management's general or specific authorization, (2) all transactions are
recorded as necessary to permit the preparation of financial statements in
conformity with GAAP, and to maintain proper accountability for items, (3)
access to the material property and assets of M&M is permitted only in
accordance with management's general or specific authorization, and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(DD) COMMITMENTS AND CONTRACTS. M&M or either of its
Subsidiaries is not a party or subject to any of the following (whether written
or oral, express or implied):
(1) except disclosed in Schedule 5.1(DD)(1), any
employment contract or understanding (including any understandings or
obligations with respect to severance or termination pay liabilities or fringe
benefits) with any present or former officer, director or employee (other than
those which are terminable at will by M&M or its Subsidiaries without any
obligation on the part of M&M or its Subsidiaries to make any payment in
connection with such termination);
(2) except as disclosed in Schedule 5.1(DD)(2), any
real or personal property lease with annual rental payments aggregating $5,000
or more; or
(3) any material contract with any affiliate.
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES. Anchor hereby represents
and warrants to M&M as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to Anchor are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Anchor is duly
qualified to do business and is in good standing in the States of the United
States and
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foreign jurisdictions where the failure to be duly qualified, individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect on it.
Anchor and its Subsidiaries have in effect all federal state, local and foreign
governmental authorizations necessary for them to own or lease their properties
and assets and to carry on their businesses as they are now conducted.
(C) SHARES. The outstanding shares of Anchor's capital stock
are, and the shares to be issued in exchange for M&M Common Stock when issued
will be, validly issued and outstanding, fully paid and nonassessable and
subject to no preemptive rights.
(D) CORPORATE POWER. Anchor has the corporate power and
authority to carry on its business as it is now being conducted or will be
conduced and to own all its material properties and assets.
(E) CORPORATE AUTHORITY. Subject to the approval by its
shareholders referred to in Section 7.1(A), this Agreement has been authorized
by all necessary corporate action of Anchor and is a valid and binding agreement
of Anchor, enforceable against Anchor in accordance with its terms, subject to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equitable principles.
(F) NO DEFAULTS. Subject to the approval by its shareholders
referred to in Section 7.1(A), subject to receipt of the required regulatory
approvals referred to in Section 7.1(B), and the required filings under federal
and state securities laws, the execution, delivery and performance of this
Agreement and the consummation by Anchor and each of its Subsidiaries of the
transactions contemplated by this Agreement does not and will not (1) constitute
a breach or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of Anchor or any of its Subsidiaries or to which Anchor or any of
its Subsidiaries or its properties is subject or bound, (2) constitute a breach
or violation of, or a default under its articles of incorporation or bylaws of
Anchor or any of its Subsidiaries, or (3) require any consent or approval under
any such law, rule, regulation, judgment, decree, order, governmental permit or
license or the consent or approval of any other party to any such agreement,
indenture or instrument.
(G) FINANCIAL REPORTS. The Annual Report of Anchor on Form
10-K for the fiscal year ended December 31, 1997, and all other documents filed
or to be filed subsequent to December 31, 1997 under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed with the SEC (in each such case,
the "Anchor Financial Reports") did not and will not contain any untrue
statement of fact or omit to state a fact required to be stated or necessary to
make the statements made, in light of the circumstances under which they were
made, not misleading; and each of the consolidated balance sheets in or
incorporated by reference into the Anchor Financial Reports (including the
related notes and
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schedules thereto) fairly presents and will fairly present the financial
position of the entity or entities to which it relates as of its date, and each
of the consolidated statements of income and changes in shareholders' equity and
cash flows or equivalent statements in the Anchor Financial Reports (including
any related notes and schedules thereto) fairly presents and will fairly present
the results of operations, changes in shareholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for the
periods set forth herein, in each case in accordance with GAAP, except as may be
noted therein.
(H) NO EVENTS. Since December 31, 1997, no event has occurred
which is reasonably likely to have a Material Adverse Effect on Anchor.
(I) LITIGATION; REGULATORY ACTION. No litigation, proceeding
or controversy before any court or governmental agency is pending that alleges
claims under any fair lending law or other law relating to discrimination,
including the Equal Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act and the Home Mortgage Disclosure Act, and no such litigation,
proceeding or controversy has been threatened; and neither Anchor nor any of its
Subsidiaries or any of its or their material properties or their officers,
directors or controlling persons is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any Regulatory Authority, and
neither Anchor nor any of its Subsidiaries has been advised by any of such
Regulatory Authorities that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission.
(J) REPORTS. Since December 31, 1993, Anchor and its
Subsidiaries have filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (1)
the FDIC, (2) the Federal Reserve Board, and (3) any other Regulatory
Authorities having jurisdiction with respect to Anchor and its Subsidiaries. As
of their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to reports and
documents filed before the date of this Agreement), each of such reports and
documents, including the financial statements, exhibits and schedules thereto,
complied in all material respects with all of the statutes, rules and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of fact or omit to state any
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading.
(K) ACCURACY OF INFORMATION. The statements with respect to
Anchor and its Subsidiaries contained in this Agreement, the Schedules and any
other
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written documents executed and delivered by or on behalf of Anchor or any other
Party pursuant to the terms of this Agreement are true and correct, and such
statements and documents do not omit any material fact necessary to make the
statements, in light of the circumstances under which they were made, not
misleading.
(L) ABSENCE OF UNDISCLOSED LIABILITIES. Neither Anchor nor any
of its Subsidiaries has any obligation or liability (contingent or otherwise)
except (1) as reflected the Anchor Financial Reports prior to the date of this
Agreement, and (2) for commitments and obligations made, or liabilities
incurred, in the ordinary course of business consistent with past practice since
December 31, 1997. Since December 31, 1997, neither Anchor nor any of its
Subsidiaries has incurred or paid any obligation or liability that, individually
or in the aggregate, is unreasonably likely to have Material Adverse Effect on
Anchor.
(M) NO KNOWLEDGE. Anchor knows of no reason why the regulatory
approvals referred to in Section 7.1(B) will not be obtained.
(N) YEAR 2000 COMPLIANCE. Anchor has taken and is taking
appropriate steps to assure, and believes, that computer software operated by
Anchor and its Subsidiaries and their vendors will be able to properly process
transactions and function after December 31, 1999.
5.3 EXCEPTIONS TO REPRESENTATIONS.
(A) DISCLOSURE OF EXCEPTIONS. Each exception set forth in a
Schedule is disclosed only for purposes of the representations referred in that
exception, but the following conditions apply:
(1) no exception is required to be set forth in a
Schedule if its absence would not result in the related representation being
found untrue or incorrect under the standard established by Section 5.3(B); and
(2) the mere inclusion of an exception in a Schedule
is not an admission by a party that the exception represents a material fact,
material set of facts, or material event or would result in a Material Adverse
Effect with respect to that party.
(B) NATURE OF EXCEPTIONS. No representation contained in this
Article V will be found untrue or incorrect and no party to this Agreement will
have breached a representation due to the following: the existence of any fact,
set of facts, or event if the fact or event individually or taken together with
other facts or events would not, or, in the case of Article V is not reasonably
likely to, have a Material Adverse Effect with respect to such party.
ARTICLE VI. COVENANTS
M&M hereby covenants to Anchor, and Anchor hereby covenants to M&M,
that:
6.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement
and to the exercise by its Board of Directors of such Board's fiduciary duties,
it will use its best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
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desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as soon as practicable and to otherwise enable consummation of the
transactions contemplated by this Agreement and will cooperate fully with the
other Parties to that end.
6.2 THE PROXY. M&M will promptly assist Anchor in the preparation of a
joint proxy statement (the "Joint Proxy Statement") to be mailed to the holders
of M&M Common Stock in connection with the transactions contemplated by this
Agreement and to be filed by Anchor in a registration statement (the
"Registration Statement") with the SEC as provided in Section 6.8, which will
conform to all applicable legal requirements. M&M and Anchor will call meetings
(the "Meetings") of the holders of M&M Common Stock and the holders of Anchor
Common Stock to be held as soon as practicable for purposes of voting upon the
transactions contemplated by this Agreement, and M&M and Anchor will use their
respective best efforts to solicit and obtain votes of the holders of M&M Common
Stock and the holders of Anchor Common Stock in favor of the transactions
contemplated by this Agreement and, subject to the exercise of their respective
fiduciary duties, the Boards of Directors of M&M and Anchor will recommend
approval of such transactions by such holders.
6.3 REGISTRATION STATEMENT -- COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement to the
Registration Statement becomes effective, and at all times subsequent to such
effectiveness, up to and including the dates of the Meetings, such Registration
Statement, and all amendments or supplements thereto, with respect to all
information set forth therein furnished or to be furnished by or on behalf of
M&M relating to M&M and by or on behalf of Anchor relating to Anchor, (A) will
comply in all material respects with the provisions of the Securities Act and
any other applicable statutory or regulatory requirements, and (B) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein not misleading. But, no Party will be liable for any untrue statement of
a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another Party furnished by or on behalf of such other Party
specifically for use in the Registration Statement.
6.4 REGISTRATION STATEMENT EFFECTIVENESS. Anchor will advise M&M,
promptly after Anchor receives any notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
Anchor Common Stock for offering or sale in any jurisdiction, of the initiation
or threat of any proceeding for any such purpose, or of any request by the SEC
for the amendment or supplement of the Registration Statement or for additional
information.
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6.5 PRESS RELEASES. M&M will not, without the prior approval of Anchor,
and Anchor will not, without the prior approval of M&M, issue any press release
or written statement for general circulation relating to the transactions
contemplated by this Agreement, except as otherwise required by law.
6.6 ACCESS; INFORMATION.
(A) Upon reasonable notice, each party will afford the other
party and its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of its properties, books, contracts, commitments
and records and, during the period up to the Effective Date, M&M will promptly
furnish (and cause its accountants and other agents to promptly furnish) to
Anchor (1) a copy of each material report, schedule and other document filed by
M&M with any Regulatory Authority, (2) such representations and certifications
as are necessary for purposes of the pooling letter described in Section 7.2(F),
and (3) all other information concerning the business, properties and personnel
of M&M as Anchor may reasonably request, provided that no investigation pursuant
to this Section 6.6 will affect or be deemed to modify or waive any
representation or warranty made by M&M in this Agreement or the conditions to
the obligations of M&M to consummate the transactions contemplated by this
Agreement; and
(B) Anchor will not use any information obtained pursuant to
this Section 6.6 for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement and, if this Agreement is
terminated, will hold all confidential information and documents obtained
pursuant to this paragraph in confidence (as provided in Section 9.6) unless and
until such time as such information or documents become publicly available other
than by reason of any action or failure to act by Anchor or as it is advised by
counsel that any such information or document is required by law or applicable
stock exchange rule to be disclosed, and in the event of the termination of this
Agreement, Anchor will, upon request by M&M, deliver to M&M all documents so
obtained by Anchor or destroy such documents and, in the case of destruction,
will certify such fact to M&M.
6.7 ACQUISITION PROPOSALS.
(A) M&M will not solicit, initiate or encourage inquiries or
proposals with respect to, or, except as required by the fiduciary duties of the
Board of Directors of M&M (as advised in writing by its outside counsel),
furnish any nonpublic information relating to or participate in any negotiations
or discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, M&M or any merger
or other business combination with M&M other than as contemplated by this
Agreement ("Acquisition Proposal"); it will instruct its officers, directors,
agents, advisors and affiliates to refrain from doing any of the foregoing; and
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it will notify Anchor immediately if any such inquiries or proposals are
received by, or any such negotiations or discussions are sought to be initiated
with, M&M.
(B) M&M will immediately cease and cause to be terminated any
activities, discussions or negotiations conducted prior to the date of this
Agreement with any parties other than Anchor with respect to any Acquisition
Proposal.
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY APPLICATIONS
PREPARATION. Anchor will, as promptly as practicable following the date of this
Agreement, prepare and file the Registration Statement with the SEC with respect
to the shares of Anchor Common Stock to be issued to the holders of M&M Common
Stock pursuant to this Agreement, and Anchor will use its best efforts to cause
the Registration Statement to be declared effective as soon as practicable after
the filing of the Registration Statement. Anchor will, as promptly as
practicable following the date of this Agreement, prepare and file all necessary
notices or applications with Regulatory Authorities having jurisdiction with
respect to the transactions contemplated by this Agreement.
6.9 APPOINTMENT OF DIRECTORS. Immediately after the Effective Date,
Anchor will cause the appointment of two directors from the current directors of
M&M or its Subsidiary bank to the Board of Directors of Anchor to hold office
until such time as his or her successor is elected and qualified, and the
appointment of two directors from the current directors of M&M or its Subsidiary
bank to the Board of Directors of Anchor Bank to hold office until such time as
his or her successor is elected and qualified.
6.10 EMPLOYMENT AGREEMENT. An employment agreement, in form
substantially similar to that attached as Exhibit C, will have been duly
executed and delivered by Anchor and Chester A. Duke, provided Mr. Duke has not
terminated his employment with M&M or its Subsidiaries at or prior to the
Effective Date.
6.11 BLUE-SKY FILINGS. Anchor will use its best efforts to obtain,
prior to the effective date of the Registration Statement, any necessary state
securities laws or "blue sky" permits and approvals, provided that Anchor will
not be required as a result to submit to general jurisdiction in any state.
6.12 AFFILIATE AGREEMENTS. M&M will use its best efforts to induce each
person who may be deemed to be an "affiliate" of M&M for purposes of Rule 145
under the Securities Act to execute and deliver to Anchor on or before the
mailing of the Joint Proxy Statement for the M&M Meeting an agreement in the
form attached hereto as Exhibit A restricting the disposition of such
affiliate's shares of M&M Common Stock and the shares of Anchor Common Stock to
be received by such person in exchange for such person's shares of M&M Common
Stock. In the case of Anchor, Anchor agrees to use its best efforts to maintain
the availability of Rule 145 for use by such "affiliates".
6.13 TAKEOVER LAW. M&M will not take any action that would cause the
transactions contemplated by this Agreement to be subject to any applicable
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takeover statute, and M&M will take all necessary steps to exempt (or ensure the
continued exemption of) the transactions contemplated by this Agreement from,
or, if necessary, challenge the validity or applicability of, any applicable
takeover law.
6.14 NO RIGHTS TRIGGERED. M&M will take all necessary steps to ensure
that entering into this Agreement and the consummation of the transactions
contemplated by this Agreement and any other action or combination of actions,
or any other transactions contemplated by this Agreement, do not and will not
(A) result in the grant of any rights to any Person under the Articles of
Incorporation or Bylaws of M&M or under any agreement to which M&M is a party,
or (B) restrict or impair in any way the ability of Anchor to exercise the
rights granted to Anchor under this Agreement.
6.15 SHARES LISTED. Anchor will use its best efforts to cause to be
listed, prior to the Effective Date, on The Nasdaq Stock Market, upon official
notice of issuance, the shares of Anchor Common Stock to be issued to the
holders of M&M Common Stock.
6.16 CURRENT INFORMATION.
(A) During the period from the date of this Agreement to the
Effective Date, both M&M and Anchor will, and will cause its representatives to,
confer on a regular and frequent basis with representatives of the other.
(B) Both M&M and Anchor will promptly notify the other of (1)
any material change in the business or operations of it or its Subsidiaries, (2)
any material complaints, investigations or hearings (or communications
indicating that the same may be contemplated) of any Regulatory Authority
relating to it or its Subsidiaries, (3) the initiation or threat of material
litigation involving or relating to it or its Subsidiaries, or (4) any event or
condition that might reasonably be expected to cause any of its representations
or warranties set forth in this Agreement not to be true and correct in all
material respects as of the Effective Date or prevent it or its Subsidiaries
from fulfilling its or their obligations under this Agreement.
6.17 SEVERANCE. On the Effective Date, Anchor will adopt a severance
plan for employees of M&M and its Subsidiaries with terms as set forth in
Schedule 6.17.
6.18 INDEMNIFICATION.
(A) Following the Effective Date, each director and officer of
M&M or any of its Subsidiaries shall be indemnified to the fullest extent
permitted by South Carolina law by Anchor against all liabilities and the
expense of defending claims of liability connected with or arising out of such
director's or officer's service as such.
(B) Anchor agrees to purchase and keep in force for not less
than three years, directors and officers' liability insurance to the extent
available providing coverage for actions and omissions by officers and directors
of M&M and
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its Subsidiaries for claims made during the period commencing with and after the
Effective Date.
ARTICLE VII. CONDITIONS TO
CONSUMMATION OF THE MERGER
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations
of each Party to consummate the transactions contemplated by this Agreement are
subject to the written waiver by such Party or the fulfillment on or prior to
the Effective Date of each of the following conditions:
(A) SHAREHOLDER VOTES. This Agreement will have been duly
approved by the requisite vote of M&M's shareholders and of Anchor's
shareholders under applicable law and the Articles of Incorporation and Bylaws
of, respectively, M&M and Anchor.
(B) REGULATORY APPROVALS. The Parties will have procured all
necessary regulatory consents and approvals by the appropriate Regulatory
Authorities, any waiting periods relating to such consents and approvals will
have expired, and no such approval or consent will have imposed any condition or
requirement that, in the opinion of Anchor, would deprive Anchor of the material
economic or business benefits of the transactions contemplated by this
Agreement.
(C) NO INJUNCTION. There will not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of any of the transactions contemplated by
this Agreement.
(D) EFFECTIVE REGISTRATION STATEMENT. The Registration
Statement will have become effective and no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or threatened by the SEC
or any other Regulatory Authority.
(E) BLUE SKY PERMITS. Anchor will have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
(F) TAX OPINION. Anchor and M&M will have received an opinion
from Gerrish & McCreary, P.C. to the effect that (1) the Merger constitutes a
tax-free merger under Section 368(a)(1)(A) of the Code, and (2) no gain or loss
will be recognized by shareholders of M&M who receive shares of Anchor Common
Stock in exchange for their shares of the M&M Common Stock, except that gain or
loss may be recognized as to cash received in lieu of fractional share interests
and, in rendering their opinion, Gerrish & McCreary, P.C. may require and rely
upon representations contained in certificates of officers of Anchor, M&M and
others.
(G) NASDAQ LISTING. The shares of Anchor Common Stock to be
issued pursuant to this Agreement will have been approved for listing on The
Nasdaq Stock Market subject only to official notice of issuance.
(H) FAIRNESS OPINION. Anchor will have received, immediately
prior to the mailing of the Joint Proxy Statement to Anchor's shareholders, an
opinion
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of Sandler O'Neill to the effect that the financial terms of the Merger are fair
from a financial point of view to Anchor's shareholders.
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR. The obligations of Anchor to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by Anchor or the fulfillment on or prior to the Effective
Date of each of the following conditions:
(A) LEGAL OPINION. Anchor will have received an opinion, dated
the Effective Date, of Sinkler & Boyd, P.A., counsel for M&M, incorporating the
opinions set forth in Exhibit B.
(B) OFFICERS' CERTIFICATE. (1) Each of the representations and
warranties contained in this Agreement of M&M will be true and correct as of the
date of this Agreement and upon the Effective Date with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) the chief executive officers, chief financial officers, and chief
lending officers of M&M and its Subsidiaries will sign a certificate, dated the
Effective Date, certifying that each and all of the agreements and covenants of
M&M to be performed and complied with pursuant to this Agreement on or prior to
the Effective Date have been duly performed and complied with in all material
respects.
(C) RECEIPT OF AFFILIATE AGREEMENTS. Anchor will have received
from each affiliate of M&M the agreement referred to in Section 6.11.
(D) ADVERSE CHANGE. During the period from December 31, 1997,
to the Effective Date, there will not have been any Material Adverse Change in
the financial position or results of operations of M&M, nor will M&M have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and Anchor will have
received a certificate dated the Effective Date signed by the Chief Executive
Officer of M&M to such effect.
(E) DISSENTERS' RIGHTS. The number of shares of M&M Common
Stock for which cash is to be paid because dissenters' rights of appraisal under
the Appraisal Laws will have been effectively preserved as of the Effective Date
or because of the payment of cash in lieu of fractional shares of Anchor Common
Stock, will not exceed in the aggregate 10% of the outstanding shares of M&M
Common Stock.
(F) POOLING LETTER. Anchor will have received a letter dated
as of the Effective Date, in form and substance acceptable to Anchor, from Price
Waterhouse LLP to the effect that the Merger will qualify for pooling-of-
interests accounting treatment.
(G) CAPITAL. M&M's capital will not be less than $11.5 million
on the Effective Date.
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(H) ALLOWANCE FOR LOAN AND LEASE LOSSES. M&M's allowance for
possible loan and lease losses will not be less than .88% of M&M's total
outstanding loans and leases and will be adequate to absorb M&M's anticipated
loan and lease losses.
7.3 CONDITIONS TO OBLIGATIONS OF M&M. The obligations of M&M to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by M&M or the fulfillment on or prior to the Effective Date
of each of the following conditions:
(A) OFFICER'S CERTIFICATE. (1) Each of the representations and
warranties of Anchor contained in this Agreement will be true and correct as of
the date of this Agreement and upon the Effective Date, with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties that specifically
relate to an earlier date, which will be true and correct as of such earlier
date, and (2) each and all of the agreements and covenants of Anchor to be
performed and complied with pursuant to this Agreement on or prior to the
Effective Date will have been duly performed and complied with in all material
respects, and M&M will have received a certificate dated the Effective Date
signed by an executive officer of Anchor to such effect.
(B) ADVERSE CHANGE. During the period from December 31, 1997
to the Effective Date, there will not have been any Material Adverse Change in
the financial position or results of operations of Anchor, nor will Anchor have
sustained any loss or damage to its properties, whether or not insured, that
materially affects its ability to conduct its business; and M&M will have
received a certificate dated the Effective Date signed by an executive officer
of Anchor to such effect.
(C) FAIRNESS OPINION. M&M will have received, immediately
prior to the mailing of the Joint Proxy Statement to M&M's shareholders, an
opinion from Orr Management Company to the effect that the financial terms of
the Merger are fair from a financial point of view to M&M's shareholders.
(D) LEGAL OPINION. M&M will have received an opinion, dated
the Effective Date, of Gerrish & McCreary, P.C., counsel for Anchor,
incorporating the opinions set forth in Exhibit D.
ARTICLE VIII. TERMINATION
8.1 EVENTS OF TERMINATION. This Agreement may be terminated prior to
the Effective Date, either before or after receipt of required shareholder
approvals:
(A) MUTUAL CONSENT. By the mutual consent of Anchor and M&M,
if the Board of Directors of each so determines by vote of a majority of the
members of its entire board.
(B) BREACH. By Anchor or M&M, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event
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of (A) a material breach by any other Party of any representation or warranty in
this Agreement, which breach cannot be or has not been cured within 30 days
after written notice of the breach has been given to the breaching Party, or (B)
a material breach by any other Party of any of the covenants or agreements in
this Agreement, which breach cannot be or has not been cured within 30 days
after written notice of the breach has been given to the breaching Party.
(C) DELAY. By Anchor or M&M, if its Board of Directors so
determines by vote of a majority of the members of the entire Board, in the
event that the Merger is not consummated by December 31, 1998; provided,
however, that no Party that is in material breach of any of the provisions of
this Agreement will be entitled to terminate this Agreement pursuant to this
Section 8.1(C).
(D) NO SHAREHOLDER APPROVAL. By Anchor or M&M, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, if the shareholder approval contemplated by Section 7.1(A) is not
obtained at the Meetings or any adjournment(s) of the Meetings.
(E) MARKET PRICE. By the Board of Directors of M&M, if it
determines by a vote of a majority of the members of its entire Board, at any
time during the ten-day period commencing two days after the Determination Date,
if both of the following conditions are satisfied:
(1) the Average Closing Price shall be twenty percent
(20%) less than the Starting Price; and
(2) (i) the quotient of the Average Closing Price
divided by the Starting Price (such quotient being the "Anchor Ratio")
shall be less than (ii) the quotient of the Average Index Price divided
by the Index Price on the Starting Date less 0.10 of such quotient
(which quotient less 0.10 shall be the "Index Ratio"); subject,
however, to the following: If M&M refuses to consummate the Merger
pursuant to this Section 8.1(E), it shall give prompt written notice
thereof to Anchor; provided, that such notice of election to terminate
may be withdrawn at any time within the aforementioned ten-day period.
During the five-day period commencing with its receipt of such notice,
Anchor shall have the option to elect to increase the Exchange Ratio to
equal the lesser of (i) the quotient obtained by dividing (1) the
product of 0.80, the Starting Price and the Exchange Ratio (as then in
effect) by (2) the Average Closing Price, and (ii) the quotient
obtained by dividing (1) the product of the Index Ratio and the
Exchange Ratio (as then in effect) by (2) the Anchor Ratio. If Anchor
makes an election contemplated by the preceding sentence, within such
five-day period, it shall give prompt written notice to M&M of such
election pursuant to this Section 8.1(E) and this Agreement shall
remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to
the Exchange Ratio as adjusted pursuant to this Section 8.1(E).
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For purposes of this Section 8.1(E), the following terms shall
have the meanings indicated:
"Average Closing Price" shall mean the average of the
daily last sales prices of Anchor Common Stock as reported on The
Nasdaq Stock Market (as reported by The Wall Street Journal or, if not
reported thereby, another authoritative source as chosen by Anchor) for
the 20 consecutive full trading days in which such shares are traded
ending at the closing of trading on the Determination Date.
"Average Index Price" shall mean the average of the
daily current market price of the Index for the 20 consecutive full
trading days ending at the closing of trading on the Determination
Date.
"Determination Date" shall mean the date on which the
last consent of the Board of Governors of the Federal Reserve System
shall be received.
"Index" shall mean the NASDAQ Bank Index which is a
broad- based capitalization-weighted index of domestic and foreign
common stock of banks that are traded on the Nasdaq National Market
System as well as the SmallCap Market. The Index was developed with a
base level of 100 as of February 5, 1971.
"Index Price" on a given date shall mean the current
market price of the Index for that day.
"Starting Date" shall mean April 28, 1998.
"Starting Price" shall mean $40.50 per share.
If Anchor declares or effects a stock dividend,
reclassification, recapitalization, split up, combination, exchange of shares,
similar transaction between the date of this Agreement and the Determination
Date, the prices for the common stock of Anchor shall be appropriately adjusted
for the purposes of applying this Section 8.1(E).
8.2 CONSEQUENCES OF TERMINATION.
(A) GENERAL CONSEQUENCES. Subject to Section 6.6, in the event
of the termination or abandonment of this Agreement pursuant to the provisions
of this Section 8.1, this Agreement will become void and have no force or
effect, without any liability on the part of the Parties or any of their
respective directors or officers or shareholders with respect to this Agreement.
(B) OTHER CONSEQUENCES. Notwithstanding anything in this
Agreement to the contrary, no termination of this Agreement will relieve any
Party of any liability for any breach of this Agreement or for any
misrepresentation under this Agreement or be deemed to constitute a waiver of
any remedy available for such breach or misrepresentation. In any action or
proceeding in connection with such breach or misrepresentation, the prevailing
Party will be entitled to reasonable attorneys' fees and expenses.
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(C) TERMINATION FEE. If this Agreement is terminated:
(1)(i) by Anchor, if at any time prior to the M&M
Meeting, the Board of Directors of M&M shall have failed to recommend the Merger
to the holders of M&M Common Stock, withdrawn such recommendation or modified or
changed such recommendation in a manner adverse in any respect to the interests
of Anchor, or (ii) by the action of the Board of Directors of M&M if a tender
offer or exchange offer for 25% or more of the outstanding shares of M&M Common
Stock is commenced (other than by Anchor) and the Board of M&M recommends that
the stockholders of M&M tender their shares in such tender or exchange offer or
otherwise fails to recommend that such stockholders reject such tender offer or
exchange offer within ten business days after the commencement thereof (which,
in the case of an exchange offer, shall be the effective date of the
registration statement relating to such exchange offer);
(2) by M&M or Anchor because of a failure to obtain
the required approval of the stockholders of M&M after an Acquisition Proposal
for M&M shall have been publicly disclosed, or any Person shall have publicly
disclosed an intention (whether or not conditional) to make an Acquisition
Proposal; or
(3) by Anchor pursuant to Section 8.1(B) if the
breach by M&M giving rise to such termination was willful and, at or prior to
such termination, an Acquisition Proposal shall have been made known to M&M or
any of its Subsidiaries or shall have been publicly disclosed to M&M's
stockholders or any Person shall have made known to M&M or any of its
Subsidiaries or otherwise publicly disclosed an intention (whether or not
conditional) to make an Acquisition Proposal and regardless of whether such
Acquisition Proposal shall have been rejected by M&M or withdrawn prior to the
time of such termination, then, in such case, M&M shall pay to Anchor a
termination fee of $1.5 million (the "Termination Fee"). Any Termination Fee
that becomes payable pursuant to this Section shall be paid promptly following
the receipt of a written request for Termination Fee to M&M from Anchor.
Notwithstanding the foregoing, in no event shall M&M be obligated to pay any
Termination Fee if M&M shall be entitled to terminate this Agreement pursuant to
Section 8.1(B) due to a breach by Anchor.
ARTICLE IX. OTHER MATTERS
9.1 SURVIVAL. Only those agreements and covenants in this Agreement
that, by their express terms apply in whole or in part after the Effective Date,
will survive the Effective Date. All other representations, warranties, and
covenants will be deemed only to be conditions of the Merger and will not
survive the Effective Date. If the Merger is abandoned and this Agreement is
terminated, the provisions of Article VIII will apply and the agreements of the
Parties in Section 6.6 will survive such abandonment and termination.
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9.2 WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Agreement may be (A) waived in writing by the Party benefitted by the
provision, or (B) amended or modified at any time (including the structure of
the transactions contemplated by this Agreement) by an agreement in writing
among the Parties approved by their respective Boards of Directors and executed
in the same manner as this Agreement, except that, after the votes by the
shareholders of Anchor and M&M, the consideration to be received by the
shareholders of M&M for each share of M&M Common Stock will not thereby be
altered. Nothing contained in this Section 9.2 is intended to modify Anchor's
rights pursuant to Section 6.7.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
facsimile counterparts, each of which will be deemed to constitute an original.
This Agreement will become effective when one counterpart has been signed by
each Party.
9.4 GOVERNING LAW. This Agreement will be governed by, and interpreted
in accordance with, the laws of the State of South Carolina, except as federal
law may be applicable.
9.5 EXPENSES. Each Party will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated by this
Agreement.
9.6 CONFIDENTIALITY. Except as otherwise provided in Section 6.6(B),
each of the Parties and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection herewith
which has not been publicly disclosed.
9.7 NOTICES. All notices, requests and other communications hereunder
to a "Party" will be in writing and will be deemed to have been duly given when
delivered by hand, telegram, certified or registered mail, overnight courier,
telecopier or telex (confirmed in writing) to such Party at its address set
forth below or such other address as such Party may specify by notice to the
Parties.
Anchor: Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29578
Attn: Stephen L. Chryst
with a copy to: Gerrish & McCreary, P.C.
700 Colonial Road - Suite 200
Memphis, TN 38117
Attn: Ann W. Langston, Esq.
M&M: M&M Financial Corporation
307 North Main Street
Marion, SC 29571
Attn: Chester A. Duke
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with a copy to: Sinkler & Boyd, P.A.
1426 Main Street, Twelfth Floor
Columbia, SC 29201
Attn: George S. King, Jr., Esq.
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
represents the entire understanding of the Parties with reference to
transactions contemplated by this Agreement and supersedes any and all other
oral or written agreements previously made. Nothing in this Agreement, expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
9.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ANCHOR FINANCIAL CORPORATION
By: /s/
-----------------------------
Stephen L. Chryst
Its President and
Chief Executive Officer
M&M FINANCIAL CORPORATION
By: /s/
-----------------------------
Chester A. Duke
Its Chairman and President
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APPENDIX C
CHAPTER 13
Dissenters' Rights
Article 1
Right to Dissent and Obtain Payment for Shares
SECTION 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 33-13-102 and who
exercises that right when and in the manner required by
Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate
action unless exclusion would be inequitable. The value of the
shares is to be determined by techniques that are accepted
generally in the financial community.
(4) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank
loans or, if none, at a rate that is fair and equitable under
all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial
owner of shares to the extent of the rights granted by a
nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SECTION 33-13-102. RIGHT TO DISSENT.
A shareholder is entitled to dissent from, and obtain payment of the
fair value of, his shares in the event of any of the following corporate
actions:
(1) consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger
by Section 33-11-103 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the
corporation is a subsidiary that is merged with its parent
under Section 33-11-104 or 33-11-108 or if the corporation is
a parent that is merged with its subsidiary under Section
33-11-108;
(2) consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares are to
be acquired, if the shareholder is entitled to vote on the
plan;
(3) consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the
usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order
or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale
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must be distributed to the shareholders within one year after
the date of sale;
(4) an amendment of the articles of incorporation that materially
and adversely affects rights in respect of a dissenter's
shares because it:
(i) alters or abolishes a preferential right of the
shares;
(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a
sinking fund for the redemption or repurchase, of the
shares;
(iii) alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or
other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so
created is to be acquired for cash under Section
33-6-104; or
(5) the approval of a control share acquisition under Article 1 of
Chapter 2 of Title 35;
(6) any corporate action to the extent the articles of
incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
SECTION 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he is
the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenter's rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
Article 2
Procedure for Exercise of Dissenters' Rights
SECTION 33-13-200. NOTICE OF DISSENTER'S RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section
33-13- 102 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
33-13-220.
SECTION 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenter's rights (1) must give to the
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corporation before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated and (2) must not
vote his shares in favor of the proposed action. A vote in favor of the proposed
action cast by the holder of a proxy solicited by the corporation shall not
disqualify a shareholder from demanding payment for his shares under this
chapter.
(b) A shareholder who does not satisfy the requirements of subsection
(a) is not entitled to payment for his shares under this chapter.
SECTION 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenter's notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days
after the corporate action was taken and must:
(1) state where the payment demand must be sent and where
certificates for certificated shares must be
deposited;
(2) inform holders of uncertificated shares to what
extent transfer of the shares is to be restricted
after the payment demand is received;
(3) supply a form for demanding payment that includes the
date of the first announcement to news media or to
shareholders of the terms of the proposed corporate
action and requires that the person asserting
dissenters' rights certify whether or not he or, if
he is a nominee asserting dissenters' rights on
behalf of a beneficial shareholder, the beneficial
shareholder acquired beneficial ownership of the
shares before that date;
(4) set a date by which the corporation must receive the
payment demand, which may not be fewer than thirty
nor more than sixty days after the date the
subsection (a) notice is delivered and set a date by
which certificates for certificated shares must be
deposited, which may not be earlier than twenty days
after the demand date; and
(5) be accompanied by a copy of this chapter.
SECTION 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section 33-13-
220 must demand payment, certify whether he (or the beneficial shareholder on
whose behalf he is asserting dissenters' rights) acquired beneficial ownership
of the shares before the date set forth in the dissenters' notice pursuant to
Section 33-13-220(b)(3), and deposit his certificates in accordance with the
terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not comply substantially with the
requirements that he demand payment and deposit his share certificates where
required, each by the date set in the dissenters' notice, is not entitled to
payment for his shares under this chapter.
SECTION 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section 33-13-
260.
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(b) The person for whom dissenter's rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SECTION 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months
before the date of payment, an income statement for
that year, a statement of changes in shareholders'
equity for that year, and the latest available
interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair
value of the shares and an explanation of how the
fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand
additional payment under Section 33-13-280; and
(5) a copy of this chapter.
SECTION 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
SECTION 33-13-270. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by Section 33-
13-250 from a dissenter as to any shares of which he (or the beneficial owner on
whose behalf he is asserting dissenters' rights) was not the beneficial owner on
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
SECTION 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amounts of interest due and demand
payment of his estimate (less any payment under Section 33-15-250) or reject the
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corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section
33-13- 250 or offered under Section 33-13-270 is less
than the fair value of his shares or that the
interest due is calculated incorrectly;
(2) corporation fails to make payment under Section
33-13-250 or to offer payment under Section 33-13-270
within sixty days after the date set for demanding
payment; or
(3) corporation, having failed to take the proposed
action, does not return the deposited certificates or
release the transfer restrictions imposed on
uncertificated shares within sixty days after the
date set for demanding payment.
(b) A dissenter waives his right to demand additional payment under
this section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
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APPENDIX D
___________, 1998
Board of Directors
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29578
Ladies and Gentlemen:
Anchor Financial Corporation ("Anchor") and ComSouth Bankshares, Inc.
("ComSouth") have entered into an Agreement and Plan of Merger, dated as of
April 14, 1998 (the "ComSouth Agreement"), pursuant to which Comsouth will be
merged with and into Anchor (the "ComSouth Merger"). Upon consummation of the
ComSouth Merger, each share of ComSouth common stock, no par value, issued and
outstanding immediately prior to the ComSouth Merger will be converted into the
right to receive 0.75 shares (the "ComSouth Exchange Ratio") of Anchor common
stock, no par value ("Anchor Common Stock"). The terms and conditions of the
ComSouth Merger are more fully set forth in the ComSouth Agreement.
Anchor has also entered into an Agreement and Plan of Merger with M&M Financial
Corporation ("M&M"), dated as of May 15, 1998 (the "M&M Agreement"), pursuant to
which M&M will be merged with and into Anchor (the "M&M Merger"). Upon
consummation of the M&M Merger, each share of M&M common stock, par value $5.00
per share, issued and outstanding immediately prior to the M&M Merger will be
converted into the right to receive 0.87 shares (the "M&M Exchange Ratio") of
Anchor Common Stock. The terms and conditions of the M&M Merger are more fully
set forth in the M&M Agreement.
You have requested our opinion as to the fairness of each of the ComSouth
Exchange Ratio and the M&M Exchange Ratio to the holders of shares of Anchor
Common Stock from a financial point of view.
Sandler O'Neill & Partners, L.P., as part of its investment banking business, is
regularly engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the ComSouth Agreement and exhibits thereto; (ii) the M&M Agreement
and exhibits thereto; (iii) certain publicly available financial statements of
Anchor and other historical financial information provided by Anchor that we
deemed relevant; (iv) certain publicly available financial statements of
ComSouth and other historical financial information provided by ComSouth that we
deemed relevant; (v) certain publicly available financial statements of M&M and
other historical financial information provided by M&M that we deemed relevant;
(vi) certain financial analyses and forecasts of Anchor prepared by and reviewed
with management of Anchor and the views of senior management of Anchor regarding
Anchor's past and current business operations, results thereof, financial
condition and future prospects; (vii) certain financial analyses and forecasts
of ComSouth prepared by and reviewed with management of ComSouth and the views
of senior management of ComSouth regarding ComSouth's past and current business
operations, results thereof, financial condition and future prospects; (viii)
certain financial analyses and forecasts of M&M prepared by and reviewed with
management of M&M and the views of senior management of M&M regarding M&M's past
and current business operations, results thereof, financial condition and future
prospects; (ix) the pro forma impact of the ComSouth Merger and the M&M Merger
on Anchor; (x) the publicly reported historical price and trading activity for
each of Anchor's and ComSouth's common stock, and a comparison of certain
financial and stock market information for Anchor, ComSouth and M&M with similar
publicly available information for certain other companies the securities of
which are publicly traded; (xi) the financial terms of recent business
<PAGE>
Board of Directors
Anchor Financial Corporation
_______________, 1998
Page 2
combinations in the banking industry, to the extent publicly available; (xii)
the current market environment generally and the banking environment in
particular; and (xiii) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant.
In performing our review, we have assumed and relied upon, without independent
verification, the accuracy and completeness of all the financial information,
analyses and other information that was publicly available or otherwise
furnished to, reviewed by or discussed with us, and we do not assume any
responsibility or liability for the accuracy or completeness thereof. We did not
make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Anchor, ComSouth or M&M or any of their subsidiaries, or the collectibility of
any such assets, nor have we been furnished with any such evaluations or
appraisals. With respect to the financial projections reviewed with management,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of Anchor, ComSouth and M&M and
that such performances will be achieved, and we express no opinion as to such
financial projections or the assumptions on which they are based. We have also
assumed that there has been no material change in Anchor's, ComSouth's or M&M's
assets, financial condition, results of operations, business or prospects since
the date of the most recent financial statements made available to us. We have
assumed in all respects material to our analysis that Anchor, ComSouth and M&M
will remain as going concerns for all periods relevant to our analyses, that all
of the representations and warranties contained in the ComSouth Agreement and
the M&M Agreement and all related agreements are true and correct, that each
party to such agreements will perform all of the covenants required to be
performed by such party under such agreements, that the conditions precedent in
such agreements are not waived and that the ComSouth Merger and the M&M Merger
will be accounted for as poolings of interests.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise or reaffirm this opinion or
otherwise comment upon events occurring after the date hereof. We are expressing
no opinion herein as to what the value of Anchor Common Stock will be when
issued to ComSouth's shareholders or M&M's shareholders pursuant to the ComSouth
Agreement and the M&M Agreement, respectively, or the prices at which Anchor's,
ComSouth's or M&M's common stock will trade at any time.
We have acted as Anchor's financial advisor in connection with the ComSouth
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the ComSouth Merger. We have also received a
fee for rendering this opinion.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Anchor and ComSouth for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
Our opinion is directed to the Board of Directors of Anchor in connection with
its consideration of the ComSouth Merger and the M&M Merger and does not
constitute a recommendation to any stockholder of Anchor as to how such
stockholder should vote at any meeting of stockholders called to consider and
vote upon the ComSouth Merger or the M&M Merger. Our opinion is not to be quoted
<PAGE>
Board of Directors
Anchor Financial Corporation
_______________, 1998
Page 3
or referred to, in whole or in part, in a registration statement, prospectus,
proxy statement or in any other document, nor shall this opinion be used for any
other purposes, without Sandler O'Neill's prior written consent; provided,
however, that we hereby consent to the inclusion of this opinion as an appendix
to the Joint Proxy Statement/Prospectus of Anchor, ComSouth and M&M dated the
date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the ComSouth Exchange Ratio and the M&M Exchange Ratio are fair to
the holders of shares of Anchor Common Stock from a financial point of view.
Very truly yours,
<PAGE>
APPENDIX E
May 29, 1998
Board of Directors
ComSouth Bankshares, Inc.
1136 Washington Street, Suite 200
Post Office Box 11671
Columbia, South Carolina 29211-1671
Members of the Board:
You have requested our opinion (the "Opinion") as to the fairness, from a
financial point of view, of the consideration to be received by the stockholders
of ComSouth Bankshares, Inc. ("ComSouth Bankshares") under the terms of a
certain Agreement and Plan of Merger (the "Agreement") by and between ComSouth
Bankshares and Anchor Financial Corporation ("Anchor Financial") pursuant to
which ComSouth Bankshares will merge with and into Anchor Financial (the
"Merger"). Under the terms of the Agreement, each of the outstanding shares of
ComSouth Bankshares common stock shall be converted into the right to receive
.75 shares of Anchor Financial common stock. The foregoing summary of the Merger
is qualified in its entirety by reference to the Agreement.
Interstate/Johnson Lane Corporation ("IJL") is one of the largest independent
investment banking firms headquartered in the Southeast. As part of its regular
investment banking business, IJL evaluates securities in connection with
negotiated underwritings, leveraged buyouts, secondary distributions, private
placements, estate and gift valuations, mergers and acquisitions, employee stock
ownership plan purchases and other activities.
We have developed our Opinion on the basis of the findings and conclusions
arising from our conduct of due diligence with respect to ComSouth Bankshares
and Anchor Financial. In arriving at our Opinion, we have, among other things:
1) reviewed the terms and conditions of the Agreement;
2) analyzed certain historical business and financial information
relating to ComSouth Bankshares and Anchor Financial;
3) conducted discussions with members of the senior management of
ComSouth Bankshares and Anchor Financial with respect to the
business and prospects of ComSouth Bankshares and Anchor
Financial and the strategic objectives of the Merger;
4) reviewed financial and market information as to certain other
publicly traded companies believed by us to be reasonably
similar to ComSouth Bankshares;
5) considered the financial terms of selected merger and
acquisition transactions in the bank industry believed by us
to be reasonably similar to the proposed Merger;
6) performed a pro forma dilution analysis using financial
projections for ComSouth Bankshares and Anchor Financial in
calendar year 1998 and 1999, including potential cost savings,
merger costs and synergies, to estimate the impact to the
shareholders Anchor Financial; and
7) conducted, as appropriate and relevant, such other financial
studies, analyses and investigations as the basis for the
conclusions set forth in this Opinion.
<PAGE>
Board of Directors
ComSouth Bankshares, Inc.
May 29, 1998
Page 2
We have relied upon and assumed, without independent verification, the accuracy
and completeness of the financial and other information furnished to us by
ComSouth Bankshares and Anchor Financial including, without limitation, all
financial projections of ComSouth Bankshares and Anchor Financial. Accordingly,
we do not make any warranties, nor do we express any opinion regarding the
accuracy of such projections. We have also relied upon the assurances of
management of ComSouth Bankshares and Anchor Financial that they are unaware of
any facts that would make the information provided to us incomplete or
misleading.
Based upon and subject to the foregoing, and such other matters as we considered
relevant, it is our opinion that as of the date hereof, the consideration
provided for in the Agreement is fair, from a financial point of view, to the
stockholders of ComSouth Bankshares.
Our fees for rendering our Opinion are not contingent upon the Opinion expressed
herein, and neither IJL nor any of its affiliates or employees has a present or
intended material financial interest in the Company. Further, IJL is independent
of all parties participating in the proposed Merger.
This Opinion is furnished pursuant to our engagement letter dated
______________. Our Opinion is directed to the Board of Directors of ComSouth
Bankshares and does not constitute a recommendation to any shareholder of
ComSouth Bankshares as to how such a shareholder should vote in connection with
the Merger. This Opinion is a summary discussion of our underlying analyses and
may be included in communications to the shareholders of ComSouth Bankshares
provided that IJL approves of such disclosures prior to publication.
Very truly yours,
INTERSTATE/JOHNSON LANE
CORPORATION
<PAGE>
APPENDIX F
May 15, 1998
Board of Directors
M&M Financial Corporation
307 North Main Street
Marion, SC 29571
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the stockholders, ("Company Common Stock"), of M&M
Financial Corporation (the "Company") of the consideration to be received by
such stockholders in the proposed merger (the "Merger") of the Company with
Anchor Financial Corporation ("Acquiror") pursuant to an Agreement and Plan of
Reorganization (the "Merger Agreement"), between the Company and Acquiror. Upon
the effectiveness of the Merger, each issued and outstanding share of Company
Common Stock (other than shares owned by stockholders who properly exercise
dissenters' rights) will be converted into and represent the right to receive
0.87 (the "Exchange Ratio") of a share of the common stock of Acquiror (the
"Merger Consideration"). However, the Merger may be terminated or be subject to
renegotiation if the Board of Directors of M&M, at any time during the ten-day
period commencing two days after the Determination Date, determines by majority
vote that:
(1) the Average Closing Price is twenty percent (20%) less than
the Starting Price; and
(2) (i) the quotient of the Average Closing Price divided by the
Starting Price (such quotient being the "Anchor Ratio") is
less than (ii) the quotient of the Average Index Price divided
by the Index Price on the Starting Date less 0.10 of such
quotient (which quotient less 0.10 shall be the "Index
Ratio"). (See Exhibit 1 for definitions.)
In connection with rendering our opinion, we have reviewed and analyzed, among
other things, the following: (i) the Merger Agreement; (ii) certain publicly
available information concerning the Company and Acquiror, including the Annual
Reports on Form 10-K of the Company for each of the years in the three year
period ended December 31, 1995-1997 and of the Acquiror for each of the years in
the three year period ended December 31, 1995-1997, the Quarterly Reports on
Form 10-Q of the Company and Acquiror for the quarter ended March 31, 1998,
(iii) certain available financial forecasts concerning the business and
operations of the Company and Acquiror that were prepared by management of the
Company and Acquiror, respectively, and (iv) certain publicly available
information with respect to other companies that we believe to be comparable in
certain respects to the Company and Acquiror and the trading markets for such
other companies' securities. We have held discussions with certain officers and
employees of the Company and Acquiror to discuss the past and current business
operations, financial condition and prospects of the Company and Acquiror, as
well as matters we believe relevant to our inquiry. We have also considered
other information, financial studies, analyses, investigations, and financial,
economic and market criteria that we deemed relevant.
In our review and analysis, we have assumed and relied upon the accuracy and
completeness of all of the financial and other information provided us, or that
is publicly available, and have not attempted independently to verify nor
assumed responsibility for verifying any such information. With respect to the
financial projections, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgments of the
Company or Acquiror, as the case may be, and we express no opinion with respect
to such
<PAGE>
Board of Directors
M&M Financial Corporation
May 15, 1998
Page 2
forecasts or the assumptions on which they are based. We have not made or
obtained or assumed any responsibility for making or obtaining any independent
evaluations or appraisals of any of the assets (including properties and
facilities) or liabilities of the Company or Acquiror.
In conducting our analysis and arriving at our opinion as expressed herein, we
have considered such financial and other factors that we have deemed appropriate
under the circumstances, including the following: (i) the historical and current
financial position and results of operations of the Company and Acquiror; (ii)
the historical and current market for the equity securities of the Company,
Acquiror and other companies that we believe to be comparable in certain
respects to the Company or Acquiror; (iii) the nature and terms of certain other
acquisition transactions that we believe to be relevant; and (iv) the current
and historical relationships between the trading levels of the Company Common
Stock and Acquiror Common Stock. We have taken into account our assessment of
general economic, market and financial conditions and our knowledge of the
banking industry, as well as our experience in connection with similar
transactions and securities valuation generally. Our opinion is based upon
conditions as they exist and can be evaluated on the date hereof, and we assume
no responsibility to update or revise our opinion based upon circumstance or
events occurring after the date hereof. Our opinion expressed below does not
imply any conclusion as to the likely trading range for Acquiror Common Stock
following the consummation of the Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and factors that generally influence the price of
securities. Our opinion does not address the Company's underlying business
decision to effect the Merger. Our opinion is directed only to the fairness,
from a financial point of view, of the Merger Consideration and does not
constitute a recommendation concerning how holders of Company Common Stock
should vote with respect to the Merger Agreement. Orr Management Company was not
requested to, and did not, solicit third-party offers to acquire all or any part
of the Company immediately preceding or in connection with the process resulting
in the proposed Merger nor did Orr Management Company participate in the
discussions or negotiations with respect to the proposed Merger. Our opinion
does not address the fairness, from a financial point of view, of any Exchange
Ratio that may be agreed upon by the Company and Acquiror pursuant to the
provision of the Merger Agreement that provides for renegotiation of the
Exchange Ratio.
In rendering our opinion we have assumed that in the course of obtaining the
necessary regulatory approvals for the Merger no restrictions will be imposed
that would have a material adverse affect on the contemplated benefits of the
Merger to the Company following the Merger. We understand that the Merger will
qualify as a tax-free reorganization under the Internal Revenue Code and that,
for accounting purposes, the Merger will be accounted for as a pooling of
interests.
We will receive a fee from the Company for delivery of this fairness opinion,
the payment of which is not contingent upon consummation of the Merger.
Subject to the foregoing, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the stockholders is fair to such holders
from a financial point of view.
Very truly yours,
Orr Management Company
<PAGE>
EXHIBIT 3.2
ARTICLES OF AMENDMENT
TO THE CHARTER OF
ANCHOR FINANCIAL CORPORATION
To the Secretary of State of the State of South Carolina:
Pursuant to the provisions of ss. 33-10-106 of the South Carolina Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Charter:
1. The name of the corporation is Anchor Financial Corporation.
2. The text of each amendment adopted is as follows:
a. Article FOURTH of the Articles of Incorporation of the corporation is
amended to read as follows:
The aggregate number of shares which the corporation is authorized to
issue is ten million (10,000,000) of one class of common stock with no
par value per share. All stock shall be common stock of the same class.
3. No exchange, reclassification or cancellation of issued shares is provided
for by this amendment.
4. The amendment was adopted on April 30, 1998.
5. Amendment 2a., above, was duly adopted and approved by the shareholders as
follows:
There were 3,886,323 outstanding common shares of the corporation.
There were 2,809,583 shares indisputably represented at the meeting to
vote on the amendments. On the amendment to increase to 10,000,000 the
number of shares of common stock the corporation is authorized to
issue, there were 2,754,967 votes cast for the amendment, 25,283 votes
cast against the amendment and 29,333 votes which abstained. On the
amendment to change the par value to no par value, there were 2,696,960
votes cast for the amendment, 48,529 votes cast against the amendment
and 64,094 votes which abstained. The number of votes cast for the
amendments by each represented voting group was sufficient for approval
of the amendments.
Date: May 4, 1998 ANCHOR FINANCIAL CORPORATION
By: /s/
--------------------------
Stephen L. Chryst
Its: President
<PAGE>
EXHIBIT 5.1
June 15, 1998
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29577
Re: Anchor Financial Corporation
S-4 Registration Statement
Mergers with ComSouth Bankshares, Inc. and M&M Financial Corporation
Gentlemen:
We have acted as counsel for Anchor Financial Corporation, a South Carolina
corporation ("Anchor"), in connection with (1) the merger of ComSouth
Bankshares, Inc. ("ComSouth") with and into Anchor (the "ComSouth Merger") and
(2) the merger of M&M Financial Corporation ("M&M") with and into Anchor (the
"M&M Merger") and in connection with the registration of shares of common stock
of Anchor, no par value per share ("Anchor Common Stock"), on Form S-4 under the
Securities Act of 1933, as amended. The ComSouth Merger provides for the
issuance of shares of Anchor Common Stock to the stockholders of ComSouth upon
consummation of the ComSouth Merger. The maximum number of shares of Anchor to
be issued in the ComSouth Merger is estimated to be 1,755,990. The M&M Merger
provides for issuance of shares of Anchor Common Stock to the stockholders of
M&M upon consummation of the M&M Merger. The maximum number of shares of Anchor
to be issued in the M&M Merger is estimated to be 875,321.
We have examined and are familiar with the Registration Statement on Form S-4
filed by Anchor with the Securities and Exchange Commission. We have examined
and are familiar with the records relating to the organization of Anchor and the
documents and records we have deemed relevant for purposes of rendering this
opinion.
Based on the foregoing, it is our opinion that upon consummation of the ComSouth
Merger, the shares of Anchor Common Stock issued pursuant to the ComSouth Merger
will be duly authorized, validly issued and outstanding, fully paid and
non-assessable. It is also our opinion that upon consummation of the M&M Merger,
the shares of Anchor Common Stock issued pursuant to the M&M Merger will be duly
authorized, validly issued and outstanding, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement.
Sincerely,
GERRISH & McCREARY, P.C.
<PAGE>
EXHIBIT 8.1
June 15, 1998
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29577
ComSouth Bankshares, Inc.
1136 Washington Street
Columbia, SC 29201
Re: Proposed Merger of ComSouth Bankshares, Inc.
with and into Anchor Financial Corporation
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences
resulting from the proposed merger of ComSouth Bankshares, Inc. ("ComSouth"), a
South Carolina corporation, with and into Anchor Financial Corporation
("Anchor"), a South Carolina corporation, as set forth and more fully described
in the Agreement and Plan of Merger between Anchor and ComSouth, dated April 14,
1998 (the "Agreement"), including the exhibits attached thereto.
We have acted as special counsel to Anchor with respect to the proposed merger
of ComSouth into Anchor (the "Merger"). In this capacity and for purposes of
rendering this opinion, we have examined (i) the Internal Revenue Code of 1986,
as amended (the "Code") and Treasury Regulations, (ii) the legislative history
of applicable sections of the Code, and (iii) appropriate Internal Revenue
Service and court decisional authority. In addition, we have examined such
documents as we have deemed appropriate, including (i) the Agreement, (ii) the
Registration Statement on Form S-4 filed by Anchor (the "Registration
Statement") pursuant to which Anchor is issuing additional shares of its common
stock, no par value, to the stockholders of ComSouth pursuant to the Merger,
which includes the Joint Proxy Statement/Prospectus for the Anchor Special
Meeting and the ComSouth Special Meeting, and (iii) such additional documents as
we have considered relevant. All terms used herein shall, except where the
context otherwise indicates, be deemed to have the meanings assigned to such
terms in the Agreement and Registration Statement.
In our examination of such documents, we have assumed, with your consent, that
all documents submitted to us as photocopies are accurate reproductions of the
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements set forth in such documents are accurate.
In reaching our opinion, we have relied on certain representations made by the
management of Anchor and ComSouth, including the representations, warranties and
covenants in the Agreement, and have examined such documents, records and other
instruments as we have deemed necessary or appropriate, including, without
limitation, the Agreement and the Registration Statement. We have assumed that
Anchor and ComSouth have been previously and will be in the future maintained
and operated in conformance with the laws of the State of South Carolina and the
United States and the terms of the aforementioned documents.
Anchor is a registered bank holding company organized and existing under the
laws of the State of South Carolina. Anchor has authorized capital stock
consisting of 10,000,000 shares of common stock, no par value ("Anchor Common
Stock"), of which 3,894,118 shares of Anchor Common Stock are issued and
outstanding and of which 388,784 shares of Anchor Common Stock are subject to
outstanding options as of June 1, 1998.
ComSouth is a registered bank holding company organized and existing under the
laws of the State of South Carolina. ComSouth has authorized capital stock
consisting of 75,000,000 shares of common stock, no par value ("ComSouth Common
<PAGE>
Stock") and 50,000,000 shares of preferred stock and 50,000,000 shares of
special stock. No shares of the preferred stock or the special stock are issued.
As of June 10, 1998, 2,342,683 shares of ComSouth Common Stock are issued and
outstanding and 212,891 shares of ComSouth Common Stock are subject to options.
Other than as noted above, there are no outstanding securities or obligations
which are convertible into shares of stock or options, rights, calls or any
other commitments of any nature relating to the unissued shares of Anchor Common
Stock or ComSouth Common Stock.
Subject to the terms and conditions of the Agreement, at the Effective Date of
the Merger, the following transactions will be consummated:
1. ComSouth shall be merged with and into Anchor in accordance with
Section 33-11-101 et seq. of the South Carolina Business Corporation
Act of 1988, as amended (the "South Carolina Law"), whereby each share
of Comsouth Common Stock, no par value, issued and outstanding, other
than shares whose holders have perfected their rights to dissent from
the Merger and shares held by Anchor, shall be converted into and
exchanged for .75 share of newly issued Anchor Common Stock, no par
value (the "Exchange Ratio"). Anchor shall survive the Merger and
continue to be governed by the laws of the State of South Carolina. The
former stockholders of ComSouth shall become stockholders of Anchor. No
fractional shares of Anchor Common Stock will be issued. The former
ComSouth stockholders entitled to fractional shares of Anchor Common
Stock shall be paid cash by Anchor in lieu of any fractional share
interest, the value of which shall be computed based on the last sale
price of Anchor Common Stock on The Nasdaq Stock Market (as reported by
The Wall Street Journal, or if not reported thereby, by another
authoritative source selected by Anchor) on the last trading day
immediately preceding the ComSouth Effective Date. At the Effective
Date, all rights with respect to ComSouth Options outstanding, whether
or not exercisable, shall be converted into and become rights with
respect to Anchor Common Stock, with an adjustment based on the above
stated Exchange Ratio for the Merger, and Anchor shall assume each
ComSouth Option, in accordance with the terms of the applicable
ComSouth option plans and agreements by which such ComSouth Options are
evidenced on substantially the same terms and conditions. Each of the
shares of ComSouth Common Stock held by Anchor shall be canceled and
retired at the Effective Date and no consideration shall be issued in
exchange therefor. The Merger shall be consummated pursuant to the
terms of the Agreement, which has been approved and adopted by the
Boards of Directors of ComSouth and Anchor.
2. The Merger is subject to various conditions, including, among others,
approval by the holders of record of two-thirds of the outstanding
Anchor Common Stock at the Anchor Special Meeting, approval by the
holders of record of two-thirds of the outstanding ComSouth Common
Stock at the ComSouth Special Meeting, approval by all applicable
regulatory authorities, and that no more than 6% of the shares of
ComSouth Common Stock outstanding will be surrendered for cash by
dissenters.
This opinion is conditioned on the following assumptions and representations
being made by management of Anchor and ComSouth in connection with the Merger
transaction at or before the Effective Date:
1. The Merger shall be consummated pursuant to and in accordance with the
Agreement which represents the entire understanding of Anchor and
ComSouth with respect to the Merger.
2. The fair market value of newly issued Anchor Common Stock, no par
value, and other consideration to be received by ComSouth stockholders
will be, in each instance, approximately equal to the fair market value
of the ComSouth Common Stock to be surrendered in exchange therefore.
3. After consummation of the Merger transaction, Anchor will continue its
historical business in a substantially unchanged manner.
<PAGE>
4. There is no plan or intention on the part of the ComSouth stockholders
who own five percent (5%) or more of the shares of ComSouth Common
Stock, and to the best of the knowledge of the management of ComSouth,
there is no plan or intention on the part of the remaining ComSouth
stockholders to sell, exchange, or otherwise dispose of a number of
shares of Anchor Common Stock to be received in the proposed Merger
that would reduce their holdings in Anchor Common Stock received to a
number of shares having, in the aggregate, a value as of the Effective
Date of less than fifty percent (50%) of the total value of all shares
of ComSouth Common Stock outstanding immediately prior to the Effective
Date. For purposes of this assumption, shares of ComSouth Common Stock
exchanged for cash or other property, surrendered by dissenters or
exchanged for cash in lieu of fractional shares of Anchor Common Stock
will be treated as outstanding ComSouth Common Stock as of the
Effective Date. Moreover, shares of ComSouth Common Stock and shares of
Anchor Common Stock held by ComSouth stockholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger will be
considered in making this assumption.
5. Anchor has no plan or intention to redeem or otherwise reacquire any of
its shares of Anchor Common Stock issued in the Merger, except for
purchases of stock in the open market in the normal course of business
executed through an independent broker in which Anchor is not aware of
the identity of any seller.
6. Anchor has no plan or intention to sell or otherwise dispose of any of
the assets of ComSouth acquired in the Merger, except for dispositions
made in the ordinary course of business or transfers described in
Section 368 (a)(2)(C) of the Code, and except that as soon as practical
following the Merger, Anchor will cause Bank of Columbia, N.A. and Bank
of Charleston, N.A., wholly-owned subsidiaries of ComSouth, to be
merged with and into The Anchor Bank, the wholly-owned banking
subsidiary of Anchor.
7. Anchor stockholders who perfect their rights to dissent from the Merger
in accordance with Section 33-13-101 et seq. of the South Carolina Law
shall be paid the value for shares of Anchor Common Stock. The value to
be paid shall be determined in accordance with South Carolina Law.
8. ComSouth stockholders who perfect their rights to dissent from the
Merger in accordance with Section 33-13-101 et seq. of the South
Carolina Law shall be paid the value for shares of ComSouth Common
Stock. The value to be paid shall be determined in accordance with
South Carolina Law.
9. The liabilities of ComSouth assumed by Anchor and the liabilities to
which the transferred assets of ComSouth are subject were incurred by
ComSouth in the ordinary course of its business.
10. Following the transaction, Anchor will continue the historic business
of ComSouth or use a significant portion of ComSouth's historic
business assets in its business.
11. Each party to the Agreement will pay its own expenses incurred in
connection with the Merger, including the cost of soliciting proxies
for the Anchor Special Meeting and the ComSouth Special Meeting and
printing costs and expenses incurred in connection with the Joint Proxy
Statement/Prospectus, except that Anchor shall pay the filing fees
payable in connection with the Registration Statement of which the
Joint Proxy Statement/Prospectus forms a part. In the event that the
Merger is not consummated for any reason, Anchor and ComSouth each have
agreed to pay the expenses arising from the negotiation and preparation
of, and filings and solicitations with respect to, the Agreement and
the transactions contemplated by such Agreement.
12. There is no intercorporate indebtedness existing between Anchor or any
of its affiliates and ComSouth or any of its affiliates that was
issued, acquired, or will be settled at a discount.
13. Neither Anchor nor ComSouth is an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
<PAGE>
14. ComSouth is not under the jurisdiction of a court in a case under Title
11 of the United States Code or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
15. Both the fair market value and the total adjusted basis of the assets
of ComSouth transferred to Anchor will equal or exceed the sum of the
liabilities assumed by Anchor, plus the amount of the liabilities, if
any, to which the transferred assets are subject.
16. None of the compensation received by any stockholder-employee of
ComSouth will be separate consideration for, or allocable to, any of
his or her shares of ComSouth Common Stock; none of the shares of
Anchor Common Stock received by any stockholder-employee will be
separate consideration for, or allocable to, any employment agreement;
and the compensation paid to any stockholder-employee will be for
services actually rendered and will be commensurate with amounts paid
to third parties bargaining at arm's- length for similar services.
17. The payment of cash to ComSouth stockholders in lieu of fractional
shares of Anchor Common Stock was not separately bargained for
consideration and is being made solely for the purpose of saving Anchor
the expense and inconvenience of issuing fractional shares.
18. ComSouth has not owned during the past five years, any shares of Anchor
Common Stock.
Based solely on the information submitted and on the representations set forth
above and assuming that the Merger will take place as described in the Agreement
and that the representations made by Anchor and ComSouth are true and correct at
the time of the consummation of the Merger, our opinion is as follows:
1. Provided the proposed Merger of ComSouth with and into Anchor qualifies
as a statutory merger under South Carolina Law, the Merger will be a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
Anchor and ComSouth will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized to ComSouth stockholders upon the
exchange of ComSouth Common Stock solely for Anchor Common Stock
(Section 354(a)(1) of the Code).
3. The tax basis of the Anchor Common Stock received by the ComSouth
stockholders will be the same as the basis of the ComSouth Common Stock
surrendered in exchange therefore (Section 358(a)(1) of the Code).
4. The holding period of the Anchor Common Stock received by the
stockholders of ComSouth will include the period during which ComSouth
Common Stock surrendered therefore was held, provided the stock of
ComSouth is a capital asset in the hands of the stockholders of
ComSouth on the date of the exchange (Section 1223(1) of the Code).
5. The payment of cash to ComSouth stockholders in lieu of fractional
share interests of Anchor Common Stock will be treated for federal
income tax purposes as if the fractional shares were distributed as
part of the Merger and then redeemed by Anchor in payment of and in
exchange for the shares, as provided for in Section 302(a) of the Code,
depending on the attribution rules of Section 318 of the Code. Assuming
a stockholder's stock is a capital asset, a stockholder receiving such
cash will recognize capital gain or loss equal to the difference
between the amount of cash received and the stockholder's adjusted
basis in the fractional share interest.
6. Where a dissenting stockholder of ComSouth or Anchor receives cash in
exchange for his or her ComSouth Common Stock, or Anchor Common Stock,
as applicable, such cash will be treated as having been received by the
stockholder as a distribution in redemption of his or her stock subject
to the provisions and limitations of Section 302 of the Code.
<PAGE>
No opinion is expressed about the tax treatment of the Merger transaction under
other provisions of the Code and regulations or about the federal income tax or
state income tax treatment of any condition existing at the time of or other tax
consequences resulting from the Merger transaction that are not specifically
covered above. This opinion is addressed only to you and concerns only the
transaction described above. This opinion may be relied upon only by you.
We consent to the inclusion of this opinion in the Registration Statement on
Form S-4 of Anchor relating to the Merger and the reference to our firm under
the caption "Legal Matters" and the caption "Material Federal Income Tax
Consequences of the Merger" in the Joint Proxy Statement/Prospectus which is
part of the Registration Statement.
Very Truly Yours,
GERRISH & McCREARY, P.C.
<PAGE>
EXHIBIT 8.2
June 15, 1998
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29577
M&M Financial Corporation
307 North Main Street
Marion, SC 29571
Re: Proposed Merger of M&M Financial Corporation
with and into Anchor Financial Corporation
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences
resulting from the proposed merger of M&M Financial Corporation ("M&M"), a South
Carolina corporation, with and into Anchor Financial Corporation ("Anchor"), a
South Carolina corporation, as set forth and more fully described in the
Agreement and Plan of Merger between Anchor and M&M, dated May 15, 1998 (the
"Agreement"), including the exhibits attached thereto.
We have acted as special counsel to Anchor with respect to the proposed merger
of M&M into Anchor (the "Merger"). In this capacity and for purposes of
rendering this opinion, we have examined (i) the Internal Revenue Code of 1986,
as amended (the "Code") and Treasury Regulations, (ii) the legislative history
of applicable sections of the Code, and (iii) appropriate Internal Revenue
Service and court decisional authority. In addition, we have examined such
documents as we have deemed appropriate, including (i) the Agreement, (ii) the
Registration Statement on Form S-4 filed by Anchor (the "Registration
Statement") pursuant to which Anchor is issuing additional shares of its common
stock, no par value, to the stockholders of M&M pursuant to the Merger, which
includes the Joint Proxy Statement/Prospectus for the Anchor Special Meeting and
the M&M Special Meeting, and (iii) such additional documents as we have
considered relevant. All terms used herein shall, except where the context
otherwise indicates, be deemed to have the meanings assigned to such terms in
the Agreement and Registration Statement.
In our examination of such documents, we have assumed, with your consent, that
all documents submitted to us as photocopies are accurate reproductions of the
originals thereof, that such originals are authentic, that all such documents
have been or will be duly executed to the extent required, and that all
statements set forth in such documents are accurate.
In reaching our opinion, we have relied on certain representations made by the
management of Anchor and M&M, including the representations, warranties and
covenants in the Agreement, and have examined such documents, records and other
instruments as we have deemed necessary or appropriate, including, without
limitation, the Agreement and the Registration Statement. We have assumed that
Anchor and M&M have been previously and will be in the future maintained and
operated in conformance with the laws of the State of South Carolina and the
United States and the terms of the aforementioned documents.
Anchor is a registered bank holding company organized and existing under the
laws of the State of South Carolina. Anchor has authorized capital stock
consisting of 10,000,000 shares of common stock, no par value ("Anchor Common
Stock"), of which 3,894,118 shares of Anchor Common Stock are issued and
outstanding and of which 388,784 shares of Anchor Common Stock are subject to
outstanding options as of June 1, 1998.
M&M is a registered bank holding company organized and existing under the laws
of the State of South Carolina. M&M has authorized capital stock consisting of
3,000,000 shares of common stock, $5.00 par value per share ("M&M Common
Stock").
<PAGE>
As of June 10, 1998, 1,006,116 shares of M&M Common Stock are issued and
outstanding and 66,000 shares of M&M Common Stock are subject to options.
Other than as noted above, there are no outstanding securities or obligations
which are convertible into shares of stock or options, rights, calls or any
other commitments of any nature relating to the unissued shares of Anchor Common
Stock or M&M Common Stock.
Subject to the terms and conditions of the Agreement, at the Effective Date of
the Merger, the following transactions will be consummated:
1. M&M shall be merged with and into Anchor in accordance with Section
33-11- 101 et seq. of the South Carolina Business Corporation Act of
1988, as amended (the "South Carolina Law"), whereby each share of M&M
Common Stock, $5.00 par value per share, issued and outstanding, other
than shares whose holders have perfected their rights to dissent from
the Merger, shall be converted into and exchanged for .87 share of
newly issued Anchor Common Stock, no par value (the "Exchange Ratio").
Anchor shall survive the Merger and continue to be governed by the laws
of the State of South Carolina. The former stockholders of M&M shall
become stockholders of Anchor. No fractional shares of Anchor Common
Stock will be issued. The former M&M stockholders entitled to
fractional shares of Anchor Common Stock shall be paid cash by Anchor
in lieu of any fractional share interest, the value of which shall be
computed based on the last sale price of Anchor Common Stock on The
Nasdaq Stock Market (as reported by The Wall Street Journal, or if not
reported thereby, by another authoritative source selected by Anchor)
on the last trading day immediately preceding the M&M Effective Date.
At the Effective Date, all rights with respect to M&M Options
outstanding, whether or not exercisable, shall be converted into and
become rights with respect to Anchor Common Stock, with an adjustment
based on the above stated Exchange Ratio for the Merger, and Anchor
shall assume each M&M Option, in accordance with the terms of the
applicable M&M option plans and agreements by which such M&M Options
are evidenced on substantially the same terms and conditions. The
Merger shall be consummated pursuant to the terms of the Agreement,
which has been approved and adopted by the Boards of Directors of M&M
and Anchor.
2. The Merger is subject to various conditions, including, among others,
approval by the holders of record of two-thirds of the outstanding
Anchor Common Stock at the Anchor Special Meeting, approval by the
holders of record of two-thirds of the outstanding M&M Common Stock at
the M&M Special Meeting, approval by all applicable regulatory
authorities, and that no more than 10% of the shares of M&M Common
Stock outstanding will be surrendered for cash by dissenters.
This opinion is conditioned on the following assumptions and representations
being made by management of Anchor and M&M in connection with the Merger
transaction at or before the Effective Date:
1. The Merger shall be consummated pursuant to and in accordance with the
Agreement which represents the entire understanding of Anchor and M&M
with respect to the Merger.
2. The fair market value of newly issued Anchor Common Stock, no par
value, and other consideration to be received by M&M stockholders will
be, in each instance, approximately equal to the fair market value of
the M&M Common Stock to be surrendered in exchange therefore.
3. After consummation of the Merger transaction, Anchor will continue its
historical business in a substantially unchanged manner.
4. There is no plan or intention on the part of the M&M stockholders who
own one percent (1%) or more of the shares of M&M Common Stock, and to
the best of the knowledge of the management of M&M, there is no plan or
intention on the part of the remaining M&M stockholders to sell,
exchange, or otherwise dispose of a number of shares of Anchor Common
Stock to be received in the proposed Merger that would reduce their
holdings in Anchor
<PAGE>
Common Stock received to a number of shares having, in the aggregate, a
value as of the Effective Date of less than fifty percent (50%) of the
total value of all shares of M&M Common Stock outstanding immediately
prior to the Effective Date. For purposes of this assumption, shares of
M&M Common Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of Anchor
Common Stock will be treated as outstanding M&M Common Stock as of the
Effective Date. Moreover, shares of M&M Common Stock and shares of
Anchor Common Stock held by M&M stockholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the Merger will be
considered in making this assumption.
5. Anchor has no plan or intention to redeem or otherwise reacquire any of
its shares of Anchor Common Stock issued in the Merger, except for
purchases of stock in the open market in the normal course of business
executed through an independent broker in which Anchor is not aware of
the identity of any seller.
6. Anchor has no plan or intention to sell or otherwise dispose of any of
the assets of M&M acquired in the Merger, except for dispositions made
in the ordinary course of business or transfers described in Section
368 (a)(2)(C) of the Code, and except that as soon as practical
following the Merger, Anchor will cause First National South, the
wholly-owned banking subsidiary of M&M, to be merged with and into The
Anchor Bank, the wholly-owned banking subsidiary of Anchor.
7. Anchor stockholders who perfect their rights to dissent from the Merger
in accordance with Section 33-13-101 et seq. of the South Carolina Law
shall be paid the value for shares of Anchor Common Stock. The value to
be paid shall be determined in accordance with South Carolina Law.
8. M&M stockholders who perfect their rights to dissent from the Merger in
accordance with Section 33-13-101 et seq. of the South Carolina Law
shall be paid the value for shares of M&M Common Stock. The value to be
paid shall be determined in accordance with South Carolina Law.
9. The liabilities of M&M assumed by Anchor and the liabilities to which
the transferred assets of M&M are subject were incurred by M&M in the
ordinary course of its business.
10. Following the transaction, Anchor will continue the historic business
of M&M or use a significant portion of M&M's historic business assets
in its business.
11. Each party to the Agreement will pay its own expenses incurred in
connection with the Merger, including the cost of soliciting proxies
for the Anchor Special Meeting and the M&M Special Meeting and printing
costs and expenses incurred in connection with the Joint Proxy
Statement/Prospectus, except that Anchor shall pay the filing fees
payable in connection with the Registration Statement of which the
Joint Proxy Statement/Prospectus forms a part. In the event that the
Merger is not consummated for any reason, Anchor and M&M each have
agreed to pay the expenses arising from the negotiation and preparation
of, and filings and solicitations with respect to, the Agreement and
the transactions contemplated by such Agreement.
12. There is no intercorporate indebtedness existing between Anchor or any
of its affiliates and M&M or any of its affiliates that was issued,
acquired, or will be settled at a discount.
13. Neither Anchor nor M&M is an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
14. M&M is not under the jurisdiction of a court in a case under Title 11
of the United States Code or similar case within the meaning of Section
368(a)(3)(A) of the Code.
<PAGE>
15. Both the fair market value and the total adjusted basis of the assets
of M&M transferred to Anchor will equal or exceed the sum of the
liabilities assumed by Anchor, plus the amount of the liabilities, if
any, to which the transferred assets are subject.
16. None of the compensation received by any stockholder-employee of M&M
will be separate consideration for, or allocable to, any of his or her
shares of M&M Common Stock; none of the shares of Anchor Common Stock
received by any stockholder-employee will be separate consideration
for, or allocable to, any employment agreement; and the compensation
paid to any stockholder-employee will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
17. The payment of cash to M&M stockholders in lieu of fractional shares of
Anchor Common Stock was not separately bargained for consideration and
is being made solely for the purpose of saving Anchor the expense and
inconvenience of issuing fractional shares.
18. M&M has owned during the past five years, 5,759 shares of Anchor Common
Stock.
Based solely on the information submitted and on the representations set forth
above and assuming that the Merger will take place as described in the Agreement
and that the representations made by Anchor and M&M are true and correct at the
time of the consummation of the Merger, our opinion is as follows:
1. Provided the proposed Merger of M&M with and into Anchor qualifies as a
statutory merger under South Carolina Law, the Merger will be a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
Anchor and M&M will each be "a party to a reorganization" within the
meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized to M&M stockholders upon the
exchange of M&M Common Stock solely for Anchor Common Stock (Section
354(a)(1) of the Code).
3. The tax basis of the Anchor Common Stock received by the M&M
stockholders will be the same as the basis of the M&M Common Stock
surrendered in exchange therefore (Section 358(a)(1) of the Code).
4. The holding period of the Anchor Common Stock received by the
stockholders of M&M will include the period during which M&M Common
Stock surrendered therefore was held, provided the stock of M&M is a
capital asset in the hands of the stockholders of M&M on the date of
the exchange (Section 1223(1) of the Code).
5. The payment of cash to M&M stockholders in lieu of fractional share
interests of Anchor Common Stock will be treated for federal income tax
purposes as if the fractional shares were distributed as part of the
Merger and then redeemed by Anchor in payment of and in exchange for
the shares, as provided for in Section 302(a) of the Code, depending on
the attribution rules of Section 318 of the Code. Assuming a
stockholder's stock is a capital asset, a stockholder receiving such
cash will recognize capital gain or loss equal to the difference
between the amount of cash received and the stockholder's adjusted
basis in the fractional share interest.
6. Where a dissenting stockholder of M&M or Anchor receives cash in
exchange for his or her M&M Common Stock, or Anchor Common Stock, as
applicable, such cash will be treated as having been received by the
stockholder as a distribution in redemption of his or her stock subject
to the provisions and limitations of Section 302 of the Code.
No opinion is expressed about the tax treatment of the Merger transaction under
other provisions of the Code and regulations or about the federal income tax or
state income tax treatment of any condition existing at the time of or other tax
consequences resulting from the Merger transaction that are not specifically
<PAGE>
covered above. This opinion is addressed only to you and concerns only the
transaction described above. This opinion may be relied upon only by you.
We consent to the inclusion of this opinion in the Registration Statement on
Form S-4 of Anchor relating to the Merger and the reference to our firm under
the caption "Legal Matters" and the caption "Material Federal Income Tax
Consequences of the Merger" in the Joint Proxy Statement/Prospectus which is
part of the Registration Statement.
Very Truly Yours,
GERRISH & McCREARY, P.C.
EXHIBIT 10.1
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made this 1st day of January,
1998 by and among THE ANCHOR BANK, a South Carolina banking corporation with
principal offices located at 2002 Oak Street, Myrtle Beach, South Carolina 29578
("Bank"), ANCHOR FINANCIAL CORPORATION, a South Carolina corporation ("Anchor")
and STEPHEN L. CHRYST of Myrtle Beach, South Carolina ("Executive").
RECITALS:
A. The Executive is, as of the date hereof, employed by the Bank as an
executive officer and the Bank desires to insure the Executive's continued
employment with the Bank.
B. The Bank and the Executive mutually desire that their employment
relationship be set forth under the terms of a written employment agreement;
In consideration of the foregoing and of the promises and mutual agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Employment. The Bank agrees to employ the Executive, and the Executive agrees
to serve the bank, on the terms and conditions, set forth herein.
2. Term of Employment. The employment of the Executive by the Bank, as provided
under Section 1, shall commence on the date hereof and end on December 31, 2002
(the "Initial Term") unless further extended or sooner terminated as hereinafter
provided. On each anniversary date of this Agreement, the term of the
Executive's employment hereunder shall be automatically extended for an
additional one year period unless at least 90 days prior to the date of such
automatic one year extension, notice is given by the Bank or the Executive that
the term of the Executive's employment shall not be extended.
3. Position and Duties. The Executive shall serve as President and Chief
Executive Officer of the Bank and shall be responsible for all duties,
authorities and responsibilities as set forth in the Bylaws of the Bank and
shall assume such additional responsibilities and authority as may from time to
time be assigned to him by the Board of Directors of the Bank or the Board of
Directors of Anchor (which is the parent corporation of the Bank). The Executive
shall report to, be responsible to, and take direction from the Board of
Directors of the Bank and the Board of Directors of Anchor. The Executive shall
perform his responsibilities and duties in the best interests of the Bank and
its stockholders.
4. Place of Performance. In connection with the Executive's employment
hereunder, the Executive shall be based initially at the Bank's main office
located in Myrtle Beach, South Carolina, subject to reasonable travel necessary
to the business of the Bank.
5. Compensation and Benefits. In consideration of the Executive's performance of
his duties hereunder, the Bank shall provide the Executive with the following
compensation and benefits during the term of his employment hereunder.
a. Base salary. Commencing on the first day after the Effective Date,
and continuing during the term hereof, including extensions, the
Executive shall serve on a full-time basis as the President and Chief
Executive Officer of the Bank. During his full-time employment,
Executive shall receive a per annum salary of $333,000, payable in
equal installments in arrears on the last day of the month. During the
term of the Executive's employment under this Agreement, the Bank's
Board of Directors and Anchor's Board of Directors periodically will
review and may increase (but not decrease) the Executive's base salary
rate in accordance with the Bank's salary administration policies and
procedures in effect from time to time; and each change in the base
salary amount listed in this section
<PAGE>
shall become the new base salary amount. Further, the Bank agrees to
increase the Executive's base salary automatically each January 1st
during the existence of this Agreement by an amount equal to the then
existing base salary amount times 3%. Aside from this automatic annual
adjustment, the Bank's Board of Directors and Anchor's Board of
Directors shall have no obligation to increase the Executive's base
salary rate at any particular time or in any particular amount, and any
such increase shall be in the sole and absolute discretion of the
Bank's Board of Directors and Anchor's Board of Directors.
b. Bonus and Incentive Compensation. The Bank shall pay to the
Executive with respect to each fiscal year during the term of the
Executive's employment hereunder, such cash bonus as the Board of
Directors of the Bank or the Board of Directors of Anchor (exclusive of
the Executive) shall determine and the Board of Directors shall ratify
in their sole discretion; provided, however, in no event shall this
paragraph b. be deemed to require that any such bonus be paid with
respect to any such fiscal year. In addition, and without diminution of
any other compensation or benefit provided for in this Agreement, the
Executive shall have the right to participate in any Incentive
Compensation Plan adopted by the Bank or in any such plan adopted or
sponsored by Anchor in which the senior officers of any of its banking
subsidiaries are participants.
c. Expenses. The Bank, as applicable, shall reimburse the Executive for
all proper and reasonable out-of-pocket expenses incurred by the
Executive in his performance of services hereunder, including all such
expenses of travel and living expense while away from home on business
of the Bank, provided that such expenses are incurred and accounted for
in accordance with the regular policies and procedures established by
the Bank from time to time.
d. Employee Benefits. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan or arrangement made
available by the Bank in the future to their executives (whether or not
inclusive of their employees generally), subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Neither coverage nor benefits paid under
any such plan made available shall be deemed to be in lieu of the
salary payable to the Executive under paragraph (a) of this Section 5.
e. Vacations. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned
but unused vacation days, determined in accordance with the Bank's
vacation plan as applicable to the Executive, as well as to all paid
holidays provided by the Bank to their executives.
f. Services. The Bank shall furnish the Executive with office space,
secretarial and administrative assistance, and such other facilities
and services as shall be suitable to his position and adequate for the
performance of his duties hereunder.
g. Club Dues. The Bank shall pay for the Executive's regular annual
membership dues in The Dunes Golf and Beach Club.
6. Compensation and Benefits in the Event of Termination. In the event of the
termination of the Executive's employment by the Bank or by the Executive during
the term of this Agreement, compensation and benefits shall be paid as set forth
below.
a. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated:
(i) "Cause" shall mean (A) the breach by Executive of any
material provision of this Agreement, provided that Bank gives
the Executive written notice of such failure and such failure
is not
2
<PAGE>
cured within thirty (30) days thereafter; (B) the willful and
continued failure by the Executive to substantially perform
his duties under this Agreement (other than the Executive's
inability to perform, with or without reasonable
accommodation, resulting from his incapacity due to physical
or mental illness or impairment), after a demand for
substantial performance is delivered to him by the Board of
Directors of the Bank, which demand specifically identifies
the manner in which the Executive is alleged to have not
substantially performed his duties; (C) the willful engaging
by the Executive in misconduct (criminal, immoral or
otherwise) which is materially injurious to the Bank, its
officers, directors, shareholders, employees, or customers,
monetarily or otherwise; (D) the Executive's conviction of a
felony; or (E) the commission in the course of the Executive's
employment of an act of fraud, embezzlement, theft or proven
dishonesty, or any other illegal act or practice, which would
constitute a felony, (whether or not resulting in criminal
prosecution or conviction), or any act or practice which the
Bank shall, in good faith, deem to have resulted in the
Executive becoming unbondable under the Bank's "banker's
blanket bond". Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for Cause unless
and until Executive has been afforded a reasonable
opportunity, together with his counsel, to be heard before the
Board of Directors of the Bank, and a written finding has been
delivered to him to the effect that in the good faith opinion
of the Board of Directors of the Bank, the Executive was
guilty of conduct as set forth under clause (A), (B), (C), (D)
or (E) of the first sentence of this sub-paragraph, specifying
in writing the particulars thereof in detail.
(ii) "Change in Control" shall mean either:
(A) the acquisition, directly or indirectly, by any
"person" (as such term is defined for purposes of
Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 ("Exchange Act")), other than by the
Bank, Anchor or any subsidiary controlled by Anchor
or any person so defined who on the date of this
Agreement is a director of the Bank or Anchor, or
whose shares of stock therein are treated as
"beneficially owned" (as such term is defined for
purposes of Rule 13d-3 of the Exchange Act) by any
such director, of the beneficial ownership [as such
term is defined for purposes of section 13(d) (1) of
the Exchange Act] of shares in the Bank or Anchor
which, when added to any other shares the beneficial
ownership of which is held by such acquiror, shall
have fifty percent (50%) or more of the combined
voting power of the Bank or Anchor's then outstanding
voting securities; or
(B) the occurrence of any merger, consolidation or
reorganization to which the Bank or Anchor is a party
and to which the Bank or Anchor (or an entity
controlled by the Bank or Anchor) is not a surviving
entity, or the sale of all or substantially all of
the assets of the Bank or Anchor. The merger,
combination, or consolidation of the Bank with Anchor
or any other wholly owned Subsidiary of Anchor shall
not be construed as a Change in Control.
3
<PAGE>
(iii) "Date of Termination" shall mean: (A) if the Executive's
employment is terminated by reason of his death, his date of
death; (B) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to
the performance of his duties as provided under sub-paragraph
(iv) of this paragraph a.; or (C) if the Executive's
employment is terminated by action of either party for any
other reason, the date specified in the Notice of Termination;
provided, however, that if within thirty (30) days after any
Notice of Termination is given, the party receiving such
Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and
no appeal having been perfected).
(iv) "Disability" shall mean the Executive's failure to
satisfactorily perform the essential functions of his office
on a full-time basis for one hundred and eighty (180)
consecutive days, with or without accommodation, by reason of
the Executive's incapacity resulting from physical or mental
illness or impairment, except where within fifteen (15) days
after Notice of Termination is given following such absence,
the Executive shall have returned to the satisfactory, full
time performance of such duties. Any determination of
Disability hereunder shall be made by the Board of Directors
of the Bank in good faith and on the basis of the certificates
of at least three (3) qualified physicians chosen by it for
such purpose, one (1) of whom shall be the Executive's regular
attending physician.
(v) "Good Reason" shall mean either:
(A) Failure by the Bank to comply with any
material provision of this Agreement,
provided that the Executive gives the Bank
(as applicable) written notice of such
failure and such failure is not cured within
thirty (30) days thereafter:
(B) Failure by the Bank to obtain the assumption of its
obligations under this Agreement by any successor; or
(C) Any of the following which shall occur
coincident with or following a Change in
Control:
(1) Without the Executive's express
written consent, the assignment to
him of any duties inconsistent with
and in diminution of his positions,
duties, responsibilities and status
with the Bank immediately prior to
such Change in Control, or a change
resulting in diminution of his
reporting responsibilities, titles
or offices as in effect immediately
prior to such Change in Control, or
any removal of him from or any
failure to re-elect him to any of
such positions resulting in such
diminution, except in connection
with the termination of his
employment for Cause, Disability or
Retirement or as a result of his
death or termination of employment
by him other than for Good Reason;
(2) Without the Executive's express
written consent, the Bank's
requiring him to be based anywhere
other than within twenty-five (25)
miles of Myrtle Beach, South
Carolina except for required
4
<PAGE>
travel on the Bank's business
consistent with his business travel
obligations immediately prior to
such Change in Control; or
(3) The failure by the Bank to comply
with Section 5 of this Agreement.
(D) Any purported termination of the Executive's
employment by action of the Bank which is
not effected pursuant to a Notice of
Termination.
(vi) "Notice of Termination" shall mean a written notice
which shall include the specific termination provision under
this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment. Any purported
termination of the Executive's employment hereunder by action
of either party shall be communicated by delivery of a Notice
of Termination to the other party.
(vii) "Retirement" shall mean termination of the Executive's
employment pursuant to the Bank's regular retirement policy
applicable to the position held by the Executive at the time
of such termination.
b. Termination For Cause, Disability, Death, Retirement or other Than
for Good Reason. In the event the Executive's employment hereunder is
terminated (A) by action of the Bank for Cause prior to a Change in
Control or for Cause coincident with or following a Change in Control;
(B) by action of the Executive not for Good Reason, at any time; or (C)
by reason of the Executive's death, Disability or Retirement, the
following compensation and benefits shall be paid and provided the
Executive (or his beneficiary):
(1) The Executive's base salary provided under paragraph a. of
Section 5 through the last day of the month in which the Date
of Termination occurs, at the annual rate in effect at the
time Notice of Termination is given (or death occurs), to the
extent unpaid prior to such Date of Termination;
(2) Any bonus under paragraph b. of Section 5 which has been
awarded prior to the Date of Termination, to the extent unpaid
prior to such date;
(3) Any benefits to which the Executive (or his beneficiary)
may be entitled as a result of such termination, under the
terms and conditions of the pertinent plans or arrangements in
effect at the time of the Notice of Termination under
paragraph d. of Section 5; and
(4) Any amounts due the Executive with respect to paragraph c.
or paragraph e. of Section 5 as of the Date of Termination.
c. Termination for Good Reason or Other Than For Cause, Disability,
Death or Retirement. In the event the Executive's employment hereunder
is terminated other than by reason of the Executive's death, Disability
or Retirement, and (A) by action of the Executive coincident with,
following, or prior to a Change in Control and for Good Reason, or (B)
by action of the Bank coincident with, following or prior to a Change
in Control and other than for Cause, the Bank shall pay and provide the
Executive the compensation and benefits stipulated under subparagraph
b. immediately above; provided, however, in addition thereto and
without setoff, the following compensation shall be paid and provided
the Executive:
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<PAGE>
For the remaining Term of this Agreement, (i) the Bank shall continue
to pay to the Executive the Base Salary provided for in Section 5.a.
above (at the Executive's Base Salary rate provided for in that Section
immediately prior to the Date of Termination) and, (ii) at its sole
cost and expense, the Bank will continue to provide the Executive with
the insurance coverages he would have had had he remained as an
employee of the Bank or with insurance coverages substantially
equivalent thereto, or, at the Bank's request (and so long as such
coverage reasonably can be obtained by the Executive himself), the
Executive will obtain substantially equivalent insurance coverages from
insurance companies chosen by him and the Bank promptly will reimburse
Executive for premium costs actually incurred by him from time to time
for the same. If termination pursuant to this section c. shall occur
during the last twelve months of the term of this Agreement, the
Executive shall be entitled to receive the Base Salary pursuant to
section 5a. and the insurance benefits discussed immediately above for
a period of twelve months subsequent to such termination. The Base
Salary shall continue to be payable in equal installments in arrears on
the last day of the month; provided, however if the payment under this
section, either alone or together with other payments which the
Executive has the right to receive from the Bank, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), such severance payment shall be
reduced to the largest amount as will result in no portion of the
severance payment under this Section 6 being subject to the excise tax
imposed by Section 4999 of the Code or the disallowance of a deduction
to the Bank under Section 280G(a) of the Code.
7. Confidentiality.
a. The Executive recognizes that his activities on behalf of the Bank
require considerable responsibility and trust. Relying on the ethical
responsibilities and undivided loyalty of the Executive, the Bank has
and will and Anchor and its Subsidiaries will in the future entrust the
Executive with highly sensitive confidential, restricted and
proprietary information involving Confidential Information (as defined
below).
b. For the purposes of this Agreement, "Confidential Information" means
any data or information, that is material to the Bank, Anchor or the
subsidiaries of Anchor, and not generally known by the public. To the
extent consistent with the foregoing definition, Confidential
Information includes (without limitation):
i. the sales records, circulation, profit and
performance reports, pricing manuals, training
manuals, selling and pricing procedures, financing
methods of the Bank, Anchor or the Subsidiaries of
Anchor, and all other business records of the Bank,
Anchor or the Subsidiaries of Anchor.
ii. the identities of the customers of the Bank, Anchor
or the Subsidiaries of Anchor, their specific
demands, and their current and anticipated
requirements for the products of the Bank, Anchor or
the Subsidiaries of Anchor.
iii. the business plans and internal financial statements
and projections of the Bank, Anchor or the
Subsidiaries of Anchor; and
iv. the specifics of any specialized products or services
of the Bank, Anchor or the Subsidiary of Anchor may
offer or provide to its customers.
The Executive recognizes the proprietary and sensitive nature of the
Bank, Anchor and its Subsidiaries' Confidential Information. The
Executive agrees to abide by all of the Bank and Anchor's rules and
procedures designed to protect their Confidential Information and to
6
<PAGE>
preserve and maintain all such information in strict confidence during
the Executive's engagement with the Bank and as long thereafter as the
Confidential Information remains, in the sole opinion of the Bank,
Anchor and its Subsidiaries, proprietary and confidential to the Bank,
Anchor and its Subsidiaries. The Executive agrees not to use, disclose
or in any other way use or disseminate any Confidential Information to
any person not properly authorized by the Bank, Anchor or the
Subsidiaries of Anchor.
8. Return of Materials. Upon the request of the Bank, and in any event, upon the
termination of the Executive's employment, the Executive must return to the
Bank, Anchor or the Subsidiaries of Anchor and leave at the disposal of the
Bank, Anchor or the Subsidiaries of Anchor, all memoranda, notes, records, and
other documents pertaining to the business of the Bank, Anchor and the
Subsidiaries of Anchor, or the Executive's specific duties for such entities
(including all copies of such materials). The Executive must also return to the
Bank, Anchor and the Subsidiaries of Anchor, and leave at the disposal of the
Bank, Anchor and the Subsidiaries of Anchor, all materials involving any
Confidential Information of the respective entities.
9. Implementation.
a. The covenants contained herein shall be construed as covenants
independent of one another, and as obligations distinct from any other
contract between the Executive and the Bank. Any claim the Executive
may have against the Bank shall not constitute a defense to enforcement
by the Bank of this Agreement.
b. The covenants made by the Executive herein shall survive termination
of the Executive's employment, regardless of who causes the termination
and under what circumstances.
10. Restrictive Covenant. In consideration of the Bank's employment of the
Executive, the Executive agrees that in addition to any other limitation, for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, whichever is later, he will not, within a
twenty-five (25) mile radius of Myrtle Beach, South Carolina (or any office of a
Subsidiary of Anchor, if Executive should be employed by and located at a
Subsidiary of Anchor other than in Myrtle Beach, South Carolina), manage,
operate or be employed by, participate in, or be connected in any manner with
the management, operation, or control of any banking business or savings and
loan business or financial services business. The Executive further agrees,
regardless of the circumstances of the termination of employment, that for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, he will not solicit the business or patronage,
directly or indirectly, from any customers of the Bank (or any other office of a
Subsidiary of Anchor if Executive should have been employed by and located at
such office) and the Executive will not seek to or assist others to persuade any
employee of the Bank engaged in similar work or related to the Bank's work to
discontinue employment with the Bank or seek employment or engage in any
business of the Bank. Furthermore, the Executive will not communicate to any
person, firm or corporation any information related to customer lists, prices,
secrets or other Confidential Information which he might from time to time
acquire with respect to the business of the Bank, Anchor, or its Subsidiaries,
or any of their affiliates. The Executive agrees to disclose the contents of
this Agreement to any subsequent employer for a period of twelve (12) months
following termination of his employment hereunder, the termination of this
Agreement or completion of Base salary payments pursuant to 6.c. above,
whichever is later.
11. Remedies for Breach of Employment Contract. Irreparable harm shall be
presumed if the Executive breaches any covenant of this Agreement. The faithful
observance of all covenants in this Agreement is an essential condition to the
Executive's employment, and the Bank, Anchor and the
7
<PAGE>
Subsidiaries of Anchor are depending upon absolute compliance. Damages would
probably be very difficult to ascertain if the Executive breached any covenant
in this Agreement. This Agreement is intended to protect the proprietary rights
of the Bank, Anchor and the Subsidiaries of Anchor in many important ways. In
light of these facts, the Executive agrees that any court of competent
jurisdiction should immediately enjoin any breach of this Agreement, upon the
request of the Bank, Anchor and the Subsidiaries of Anchor, and the Executive
specifically releases the Bank, Anchor, and the Subsidiaries of Anchor, from the
requirement to post any bond in connection with a temporary or interlocutory
injunctive relief, to the extent permitted by law.
12. Withholding. Any provision of this Agreement to the contrary
notwithstanding, all payments made by the Bank hereunder to the Executive or his
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Bank may accept other provisions to the
end that they have sufficient funds to pay all taxes required by law to be
withheld in respect of any or all such payments.
13. Notices. All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be sufficiently given if and
when mailed in the continental United States by registered or certified mail, or
personally delivered to the party entitled thereto, at the address stated below
or to such changed address as the addressee may have given by a similar notice:
To the Bank: Chairman of the Board
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
with copy to: Ann W. Langston
Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
To the Executive: Stephen L. Chryst
-----------------------------------
-----------------------------------
14. Successors; Binding Agreement. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable to
him hereunder if he had continued to live, all such amounts, except to the
extent otherwise provided under this Agreement, shall be paid in accordance with
the terms of this Agreement to his devisee, legatee or other designee, or if
there be no such designee, to the Executive's estate.
15. Modification, Waiver or Discharge. 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 executive and an authorized officer of the
Bank. 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 agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement; provided, however,
that this Agreement shall not supersede or in any way limit the right, duties or
obligations that the Executive or the Bank may have under any other written
agreement between such parties, under any employee pension benefit plan or
employee welfare benefit plan as defined under the Employee Retirement Income
Security Act of 1974, as amended, and maintained by the
8
<PAGE>
Bank, or under any established personnel practice or policy applicable to the
Executive.
16. Governing Law. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of South Carolina. Any
arbitration, proceeding or litigation pertaining to this Agreement shall be
located in Horry County, South Carolina or such other location as determined by
the Bank.
17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which latter shall remain in full force and effect.
18. Miscellaneous.
a. No Right of Set-off, Etc. There shall be no right of set-off or
counterclaim, in respect of any claim, debt or obligation against any
payments to the Executive, his beneficiaries or estates provided for in
this Agreement.
b. No Adequate Remedy At Law. The Bank and the Executive recognize that
each party will have no adequate remedy at law for breach by the other
of any of the agreements contained herein and, in the event of any such
breach, the Bank and the Executive hereby agree and consent that the
other shall be entitled to decree of specific performance, mandamus, or
other appropriate remedy to enforce performance of such agreements.
c. Non-Assignability. No right, benefit, or interest hereunder shall be
subject to anticipation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation, or setoff in respect of any claim, debt
or obligation, or to execution, attachment, levy or similar process, or
assignment by operation of law. Any attempt, voluntary or involuntary,
to effect any action specified in the immediately preceding sentence
shall, to the full extent permitted by law, be null, void and of no
effect. Any of the foregoing to the contrary notwithstanding, this
provision shall not preclude the Executive from designating one or more
beneficiaries to receive any amount that may be payable after his
death, and shall not preclude the legal representative of the
Executive's estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy
applicable to his estate.
19. Enforcement of Agreement; Attorneys' Fees. In the event litigation is
commenced by the Executive against the Bank in seeking to obtain or enforce any
right, benefit or payment under this Agreement or to enforce any obligation of
the Bank described herein, then, provided the Executive shall prevail in such
litigation, the Bank shall be obligated to pay all reasonable expenses
(including without limitation all reasonable attorneys' fees and court costs)
paid or incurred by the Executive in connection with such litigation.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but of which together will
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Executive, Anchor and the Bank (by action of
its duly authorized officer) have executed this Agreement on the date first
above written.
THE ANCHOR BANK
ATTEST: /s/ By: /s/
____________________________ Name:______________________________
Title:_____________________________
ATTEST: /s/ ANCHOR FINANCIAL CORPORATION
____________________________ By: /s/
Name: _____________________________
Title: ____________________________
EXECUTIVE
ATTEST: /s/ /s/
____________________________ ___________________________________
STEPHEN L. CHRYST
THIS AGREEMENT SUPERCEDES ANY AND ALL PREVIOUS EXECUTIVE EMPLOYMENT AGREEMENTS
BETWEEN ANCHOR AND THE EXECUTIVE.
10
EXHIBIT 10.2
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made this 1st day of January,
1998 by and among THE ANCHOR BANK, a South Carolina banking corporation with
principal offices located at 2002 Oak Street, Myrtle Beach, South Carolina 29578
("Bank"), ANCHOR FINANCIAL CORPORATION, a South Carolina corporation ("Anchor")
and Robert E. Coffee, Jr. of Myrtle Beach, South Carolina ("Executive").
RECITALS:
A. The Executive is, as of the date hereof, employed by the Bank as an
executive officer and the Bank desires to insure the Executive's continued
employment with the Bank.
B. The Bank and the Executive mutually desire that their employment
relationship be set forth under the terms of a written employment agreement;
In consideration of the foregoing and of the promises and mutual agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Employment. The Bank agrees to employ the Executive, and the Executive agrees
to serve the bank, on the terms and conditions, set forth herein.
2. Term of Employment. The employment of the Executive by the Bank, as provided
under Section 1, shall commence on the date hereof and end on December 31, 2000
(the "Initial Term") unless further extended or sooner terminated as hereinafter
provided. On each anniversary date of this Agreement, the term of the
Executive's employment hereunder shall be automatically extended for an
additional one year period unless at least 90 days prior to the date of such
automatic one year extension, notice is given by the Bank or the Executive that
the term of the Executive's employment shall not be extended.
3. Position and Duties. The Executive shall serve as Executive Vice-President
and Chief Administrative Officer of the Bank and shall be responsible for all
duties, authorities and responsibilities as set forth in the Bylaws of the Bank
and shall assume such additional responsibilities and authority as may from time
to time be assigned to him by the Chief Executive Officer of the Bank. The
Executive shall report to, be responsible to, and take direction from the Chief
Executive Officer of the Bank. The Executive shall perform his responsibilities
and duties in the best interests of the Bank and its stockholders.
4. Place of Performance. In connection with the Executive's employment
hereunder, the Executive shall be based initially at the Bank's main office
located in Myrtle Beach, South Carolina, subject to reasonable travel necessary
to the business of the Bank.
5. Compensation and Benefits. In consideration of the Executive's performance of
his duties hereunder, the Bank shall provide the Executive with the following
compensation and benefits during the term of his employment hereunder.
a. Base salary. Commencing on the first day after the Effective Date,
and continuing during the term hereof, including extensions, the
Executive shall serve on a full-time basis as the Executive
Vice-President and Chief Administrative Officer of the Bank. During his
full-time employment, Executive shall receive a per annum salary of
$134,000, payable in equal installments in arrears on the last day of
the month. During the term of the Executive's employment under this
Agreement, the Bank's Chief Executive Officer periodically will review
and may increase (but not decrease) the Executive's base salary rate in
accordance with the Bank's salary administration policies and
procedures in effect from time to time; and each change in the base
salary amount listed in this section shall become the new base salary
amount. Provided, however, that the Chief Executive Officer shall have
no obligation to increase the Executive's
<PAGE>
base salary rate at any particular time or in any particular amount,
and any such increase shall be in the sole and absolute discretion of
the Chief Executive Officer.
b. Bonus and Incentive Compensation. The Bank shall pay to the
Executive with respect to each fiscal year during the term of the
Executive's employment hereunder, such cash bonus as Chief Executive
Officer of the Bank (exclusive of the Executive) shall determine and
the Board of Directors shall ratify in their sole discretion; provided,
however, in no event shall this paragraph b. be deemed to require that
any such bonus be paid with respect to any such fiscal year. In
addition, and without diminution of any other compensation or benefit
provided for in this Agreement, the Executive shall have the right to
participate in any Incentive Compensation Plan adopted by the Bank or
in any such plan adopted or sponsored by Anchor in which the senior
officers of any of its banking subsidiaries are participants.
c. Expenses. The Bank, as applicable, shall reimburse the Executive for
all proper and reasonable out-of-pocket expenses incurred by the
Executive in his performance of services hereunder, including all such
expenses of travel and living expense while away from home on business
of the Bank, provided that such expenses are incurred and accounted for
in accordance with the regular policies and procedures established by
the Bank from time to time.
d. Employee Benefits. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan or arrangement made
available by the Bank in the future to their executives (whether or not
inclusive of their employees generally), subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Neither coverage nor benefits paid under
any such plan made available shall be deemed to be in lieu of the
salary payable to the Executive under paragraph (a) of this Section 5.
e. Vacations. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned
but unused vacation days, determined in accordance with the Bank's
vacation plan as applicable to the Executive, as well as to all paid
holidays provided by the Bank to their executives.
f. Services. The Bank shall furnish the Executive with office space,
secretarial and administrative assistance, and such other facilities
and services as shall be suitable to his position and adequate for the
performance of his duties hereunder.
g. Club Dues. The Bank shall pay for the Executive's regular annual
membership dues in DeBordieu Club.
6. Compensation and Benefits in the Event of Termination. In the event of the
termination of the Executive's employment by the Bank or by the Executive during
the term of this Agreement, compensation and benefits shall be paid as set forth
below.
a. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated:
(i) "Cause" shall mean (A) the breach by Executive of any
material provision of this Agreement, provided that Bank gives
the Executive written notice of such failure and such failure
is not cured within thirty (30) days thereafter; (B) the
willful and continued failure by the Executive to
substantially perform his duties under this Agreement (other
than the Executive's inability to perform, with or without
reasonable accommodation, resulting from his incapacity due to
physical or mental illness or impairment), after a demand for
substantial performance is delivered to him by the Board of
Directors of the Bank, which
2
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demand specifically identifies the manner in which the
Executive is alleged to have not substantially performed his
duties; (C) the willful engaging by the Executive in
misconduct (criminal, immoral or otherwise) which is
materially injurious to the Bank, its officers, directors,
shareholders, employees, or customers, monetarily or
otherwise; (D) the Executive's conviction of a felony; or (E)
the commission in the course of the Executive's employment of
an act of fraud, embezzlement, theft or proven dishonesty, or
any other illegal act or practice, which would constitute a
felony, (whether or not resulting in criminal prosecution or
conviction), or any act or practice which the Bank shall, in
good faith, deem to have resulted in the Executive becoming
unbondable under the Bank's "banker's blanket bond".
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until
Executive has been afforded a reasonable opportunity, together
with his counsel, to be heard before the Board of Directors of
the Bank, and a written finding has been delivered to him to
the effect that in the good faith opinion of the Board of
Directors of the Bank, the Executive was guilty of conduct as
set forth under clause (A), (B), (C), (D) or (E) of the first
sentence of this sub-paragraph, specifying in writing the
particulars thereof in detail.
(ii) "Change in Control" shall mean either:
(A) the acquisition, directly or indirectly, by any
"person" (as such term is defined for purposes of
Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 ("Exchange Act")), other than by the
Bank, Anchor or any subsidiary controlled by Anchor
or any person so defined who on the date of this
Agreement is a director of the Bank or Anchor, or
whose shares of stock therein are treated as
"beneficially owned" (as such term is defined for
purposes of Rule 13d-3 of the Exchange Act) by any
such director, of the beneficial ownership [as such
term is defined for purposes of section 13(d) (1) of
the Exchange Act] of shares in the Bank or Anchor
which, when added to any other shares the beneficial
ownership of which is held by such acquiror, shall
have fifty percent (50%) or more of the combined
voting power of the Bank or Anchor's then outstanding
voting securities; or
B) the occurrence of any merger, consolidation or
reorganization to which the Bank or Anchor is a party
and to which the Bank or Anchor (or an entity
controlled by the Bank or Anchor) is not a surviving
entity, or the sale of all or substantially all of
the assets of the Bank or Anchor. The merger,
combination, or consolidation of the Bank with Anchor
or any other wholly owned Subsidiary of Anchor shall
not be construed as a Change in Control.
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<PAGE>
(iii) "Date of Termination" shall mean: (A) if the Executive's
employment is terminated by reason of his death, his date of
death; (B) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to
the performance of his duties as provided under sub-paragraph
(iv) of this paragraph a.; or (C) if the Executive's
employment is terminated by action of either party for any
other reason, the date specified in the Notice of Termination;
provided, however, that if within thirty (30) days after any
Notice of Termination is given, the party receiving such
Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and
no appeal having been perfected).
(iv) "Disability" shall mean the Executive's failure to
satisfactorily perform the essential functions of his office
on a full-time basis for one hundred and eighty (180)
consecutive days, with or without accommodation, by reason of
the Executive's incapacity resulting from physical or mental
illness or impairment, except where within fifteen (15) days
after Notice of Termination is given following such absence,
the Executive shall have returned to the satisfactory, full
time performance of such duties. Any determination of
Disability hereunder shall be made by the Board of Directors
of the Bank in good faith and on the basis of the certificates
of at least three (3) qualified physicians chosen by it for
such purpose, one (1) of whom shall be the Executive's regular
attending physician.
(v) "Good Reason" shall mean either:
(A) Failure by the Bank to comply with any material
provision of this Agreement, provided that the
Executive gives the Bank (as applicable) written
notice of such failure and such failure is not cured
within thirty (30) days thereafter:
(B) Failure by the Bank to obtain the assumption of its
obligations under this Agreement by any successor; or
(C) Any of the following which shall occur coincident
with or following a Change in Control:
(1) Without the Executive's express written
consent, the assignment to him of any duties
inconsistent with and in diminution of his
positions, duties, responsibilities and
status with the Bank immediately prior to
such Change in Control, or a change
resulting in diminution of his reporting
responsibilities, titles or offices as in
effect immediately prior to such Change in
Control, or any removal of him from or any
failure to re-elect him to any of such
positions resulting in such diminution,
except in connection with the termination of
his employment for Cause, Disability or
Retirement or as a result of his death or
termination of employment by him other than
for Good Reason;
(2) Without the Executive's express written
consent, the Bank's requiring him to be
based anywhere other than within twenty-five
(25) miles of Myrtle Beach, South Carolina
except for required travel on the Bank's
business consistent with his business travel
4
<PAGE>
obligations immediately prior to such Change
in Control; or
(3) The failure by the Bank to comply with
Section 5 of this Agreement.
(D) Any purported termination of the Executive's
employment by action of the Bank which is not
effected pursuant to a Notice of Termination.
(vi) "Notice of Termination" shall mean a written notice
which shall include the specific termination provision under
this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment. Any purported
termination of the Executive's employment hereunder by action
of either party shall be communicated by delivery of a Notice
of Termination to the other party.
(vii) "Retirement" shall mean termination of the Executive's
employment pursuant to the Bank's regular retirement policy
applicable to the position held by the Executive at the time
of such termination.
b. Termination For Cause, Disability, Death, Retirement or other Than
for Good Reason. In the event the Executive's employment hereunder is
terminated (A) by action of the Bank for Cause prior to a Change in
Control or for Cause coincident with or following a Change in Control;
(B) by action of the Executive not for Good Reason, at any time; or (C)
by reason of the Executive's death, Disability or Retirement, the
following compensation and benefits shall be paid and provided the
Executive (or his beneficiary):
(1) The Executive's base salary provided under paragraph a. of
Section 5 through the last day of the month in which the Date
of Termination occurs, at the annual rate in effect at the
time Notice of Termination is given (or death occurs), to the
extent unpaid prior to such Date of Termination;
(2) Any bonus under paragraph b. of Section 5 which has been
awarded prior to the Date of Termination, to the extent unpaid
prior to such date;
(3) Any benefits to which the Executive (or his beneficiary)
may be entitled as a result of such termination, under the
terms and conditions of the pertinent plans or arrangements in
effect at the time of the Notice of Termination under
paragraph d. of Section 5; and
(4) Any amounts due the Executive with respect to paragraph c.
or paragraph e. of Section 5 as of the Date of Termination.
c. Termination for Good Reason or Other Than For Cause, Disability,
Death or Retirement. In the event the Executive's employment hereunder
is terminated other than by reason of the Executive's death, Disability
or Retirement, and (A) by action of the Executive coincident with,
following, or prior to a Change in Control and for Good Reason, or (B)
by action of the Bank coincident with, following or prior to a Change
in Control and other than for Cause, the Bank shall pay and provide the
Executive the compensation and benefits stipulated under subparagraph
b. immediately above; provided, however, in addition thereto and
without setoff, the following compensation shall be paid and provided
the Executive:
For the remaining Term of this Agreement, (i) the Bank shall continue
to pay to the Executive the Base Salary provided for in Section 5.a.
5
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above (at the Executive's Base Salary rate provided for in that Section
immediately prior to the Date of Termination) and, (ii) at its sole
cost and expense, the Bank will continue to provide the Executive with
the insurance coverages he would have had had he remained as an
employee of the Bank or with insurance coverages substantially
equivalent thereto, or, at the Bank's request (and so long as such
coverage reasonably can be obtained by the Executive himself), the
Executive will obtain substantially equivalent insurance coverages from
insurance companies chosen by him and the Bank promptly will reimburse
Executive for premium costs actually incurred by him from time to time
for the same. If termination pursuant to this section c. shall occur
during the last twelve months of the term of this Agreement, the
Executive shall be entitled to receive the Base Salary pursuant to
section 5a. and the insurance benefits discussed immediately above for
a period of twelve months subsequent to such termination. The Base
Salary shall continue to be payable in equal installments in arrears on
the last day of the month; provided, however if the payment under this
section, either alone or together with other payments which the
Executive has the right to receive from the Bank, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), such severance payment shall be
reduced to the largest amount as will result in no portion of the
severance payment under this Section 6 being subject to the excise tax
imposed by Section 4999 of the Code or the disallowance of a deduction
to the Bank under Section 280G(a) of the Code.
7. Confidentiality.
a. The Executive recognizes that his activities on behalf of the Bank
require considerable responsibility and trust. Relying on the ethical
responsibilities and undivided loyalty of the Executive, the Bank has
and will and Anchor and its Subsidiaries will in the future entrust the
Executive with highly sensitive confidential, restricted and
proprietary information involving Confidential Information (as defined
below).
b. For the purposes of this Agreement, "Confidential Information" means
any data or information, that is material to the Bank, Anchor or the
subsidiaries of Anchor, and not generally known by the public. To the
extent consistent with the foregoing definition, Confidential
Information includes (without limitation):
i. the sales records, circulation, profit and
performance reports, pricing manuals, training
manuals, selling and pricing procedures, financing
methods of the Bank, Anchor or the Subsidiaries of
Anchor, and all other business records of the Bank,
Anchor or the Subsidiaries of Anchor.
ii. the identities of the customers of the Bank, Anchor
or the Subsidiaries of Anchor, their specific
demands, and their current and anticipated
requirements for the products of the Bank, Anchor or
the Subsidiaries of Anchor.
iii. the business plans and internal financial statements
and projections of the Bank, Anchor or the
Subsidiaries of Anchor; and
iv. the specifics of any specialized products or services
of the Bank, Anchor or the Subsidiary of Anchor may
offer or provide to its customers.
The Executive recognizes the proprietary and sensitive nature of the
Bank, Anchor and its Subsidiaries' Confidential Information. The
Executive agrees to abide by all of the Bank and Anchor's rules and
procedures designed to protect their Confidential Information and to
preserve and maintain all such information in strict confidence during
6
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the Executive's engagement with the Bank and as long thereafter as the
Confidential Information remains, in the sole opinion of the Bank,
Anchor and its Subsidiaries, proprietary and confidential to the Bank,
Anchor and its Subsidiaries. The Executive agrees not to use, disclose
or in any other way use or disseminate any Confidential Information to
any person not properly authorized by the Bank, Anchor or the
Subsidiaries of Anchor.
8. Return of Materials. Upon the request of the Bank, and in any event, upon the
termination of the Executive's employment, the Executive must return to the
Bank, Anchor or the Subsidiaries of Anchor and leave at the disposal of the
Bank, Anchor or the Subsidiaries of Anchor, all memoranda, notes, records, and
other documents pertaining to the business of the Bank, Anchor and the
Subsidiaries of Anchor, or the Executive's specific duties for such entities
(including all copies of such materials). The Executive must also return to the
Bank, Anchor and the Subsidiaries of Anchor, and leave at the disposal of the
Bank, Anchor and the Subsidiaries of Anchor, all materials involving any
Confidential Information of the respective entities.
9. Implementation.
a. The covenants contained herein shall be construed as covenants
independent of one another, and as obligations distinct from any other
contract between the Executive and the Bank. Any claim the Executive
may have against the Bank shall not constitute a defense to enforcement
by the Bank of this Agreement.
b. The covenants made by the Executive herein shall survive termination
of the Executive's employment, regardless of who causes the termination
and under what circumstances.
10. Restrictive Covenant. In consideration of the Bank's employment of the
Executive, the Executive agrees that in addition to any other limitation, for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, whichever is later, he will not, within a
twenty-five (25) mile radius of Myrtle Beach, South Carolina (or any office of a
Subsidiary of Anchor, if Executive should be employed by and located at a
Subsidiary of Anchor other than in Myrtle Beach, South Carolina), manage,
operate or be employed by, participate in, or be connected in any manner with
the management, operation, or control of any banking business or savings and
loan business or financial services business. The Executive further agrees,
regardless of the circumstances of the termination of employment, that for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, he will not solicit the business or patronage,
directly or indirectly, from any customers of the Bank (or any other office of a
Subsidiary of Anchor if Executive should have been employed by and located at
such office) and the Executive will not seek to or assist others to persuade any
employee of the Bank engaged in similar work or related to the Bank's work to
discontinue employment with the Bank or seek employment or engage in any
business of the Bank. Furthermore, the Executive will not communicate to any
person, firm or corporation any information related to customer lists, prices,
secrets or other Confidential Information which he might from time to time
acquire with respect to the business of the Bank, Anchor, or its Subsidiaries,
or any of their affiliates. The Executive agrees to disclose the contents of
this Agreement to any subsequent employer for a period of twelve (12) months
following termination of his employment hereunder, the termination of this
Agreement or completion of Base salary payments pursuant to 6.c. above,
whichever is later.
11. Remedies for Breach of Employment Contract. Irreparable harm shall be
presumed if the Executive breaches any covenant of this Agreement. The faithful
observance of all covenants in this Agreement is an essential condition to the
Executive's employment, and the Bank, Anchor and the Subsidiaries of Anchor are
depending upon absolute compliance. Damages would
7
<PAGE>
probably be very difficult to ascertain if the Executive breached any covenant
in this Agreement. This Agreement is intended to protect the proprietary rights
of the Bank, Anchor and the Subsidiaries of Anchor in many important ways. In
light of these facts, the Executive agrees that any court of competent
jurisdiction should immediately enjoin any breach of this Agreement, upon the
request of the Bank, Anchor and the Subsidiaries of Anchor, and the Executive
specifically releases the Bank, Anchor, and the Subsidiaries of Anchor, from the
requirement to post any bond in connection with a temporary or interlocutory
injunctive relief, to the extent permitted by law.
12. Withholding. Any provision of this Agreement to the contrary
notwithstanding, all payments made by the Bank hereunder to the Executive or his
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Bank may accept other provisions to the
end that they have sufficient funds to pay all taxes required by law to be
withheld in respect of any or all such payments.
13. Notices. All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be sufficiently given if and
when mailed in the continental United States by registered or certified mail, or
personally delivered to the party entitled thereto, at the address stated below
or to such changed address as the addressee may have given by a similar notice:
To the Bank: Chairman of the Board
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
with copy to: Ann W. Langston
Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
To the Executive: Robert E. Coffee, Jr.
-----------------------------------
-----------------------------------
14. Successors; Binding Agreement. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable to
him hereunder if he had continued to live, all such amounts, except to the
extent otherwise provided under this Agreement, shall be paid in accordance with
the terms of this Agreement to his devisee, legatee or other designee, or if
there be no such designee, to the Executive's estate.
15. Modification, Waiver or Discharge. 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 executive and an authorized officer of the
Bank. 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 agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement; provided, however,
that this Agreement shall not supersede or in any way limit the right, duties or
obligations that the Executive or the Bank may have under any other written
agreement between such parties, under any employee pension benefit plan or
employee welfare benefit plan as defined under the Employee Retirement Income
Security Act of 1974, as amended, and maintained by the
8
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Bank, or under any established personnel practice or policy applicable to the
Executive.
16. Governing Law. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of South Carolina. Any
arbitration, proceeding or litigation pertaining to this Agreement shall be
located in Horry County, South Carolina or such other location as determined by
the Bank.
17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which latter shall remain in full force and effect.
18. Miscellaneous.
a. No Right of Set-off, Etc. There shall be no right of set-off or
counterclaim, in respect of any claim, debt or obligation against any
payments to the Executive, his beneficiaries or estates provided for in
this Agreement.
b. No Adequate Remedy At Law. The Bank and the Executive recognize that
each party will have no adequate remedy at law for breach by the other
of any of the agreements contained herein and, in the event of any such
breach, the Bank and the Executive hereby agree and consent that the
other shall be entitled to decree of specific performance, mandamus, or
other appropriate remedy to enforce performance of such agreements.
c. Non-Assignability. No right, benefit, or interest hereunder shall be
subject to anticipation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation, or setoff in respect of any claim, debt
or obligation, or to execution, attachment, levy or similar process, or
assignment by operation of law. Any attempt, voluntary or involuntary,
to effect any action specified in the immediately preceding sentence
shall, to the full extent permitted by law, be null, void and of no
effect. Any of the foregoing to the contrary notwithstanding, this
provision shall not preclude the Executive from designating one or more
beneficiaries to receive any amount that may be payable after his
death, and shall not preclude the legal representative of the
Executive's estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy
applicable to his estate.
19. Enforcement of Agreement; Attorneys' Fees. In the event litigation is
commenced by the Executive against the Bank in seeking to obtain or enforce any
right, benefit or payment under this Agreement or to enforce any obligation of
the Bank described herein, then, provided the Executive shall prevail in such
litigation, the Bank shall be obligated to pay all reasonable expenses
(including without limitation all reasonable attorneys' fees and court costs)
paid or incurred by the Executive in connection with such litigation.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but of which together will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the Executive, Anchor and the Bank (by action of
its duly authorized officer) have executed this Agreement on the date first
above written.
THE ANCHOR BANK
ATTEST: /s/ By: /s/
Name:______________________________
Title:_____________________________
EXECUTIVE
ATTEST: /s/ /s/
___________________________________
Robert E. Coffee, Jr.
THIS AGREEMENT SUPERCEDES ANY AND ALL PREVIOUS EXECUTIVE EMPLOYMENT AGREEMENTS
BETWEEN ANCHOR AND THE EXECUTIVE.
10
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made this 1st day of January,
1998 by and among THE ANCHOR BANK, a South Carolina banking corporation with
principal offices located at 2002 Oak Street, Myrtle Beach, South Carolina 29578
("Bank"), ANCHOR FINANCIAL CORPORATION, a South Carolina corporation ("Anchor")
and ROBERT R. DURANT, III of Myrtle Beach, South Carolina ("Executive").
RECITALS:
A. The Executive is, as of the date hereof, employed by the Bank as an
executive officer and the Bank desires to insure the Executive's continued
employment with the Bank.
B. The Bank and the Executive mutually desire that their employment
relationship be set forth under the terms of a written employment agreement;
In consideration of the foregoing and of the promises and mutual agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Employment. The Bank agrees to employ the Executive, and the Executive agrees
to serve the bank, on the terms and conditions, set forth herein.
2. Term of Employment. The employment of the Executive by the Bank, as provided
under Section 1, shall commence on the date hereof and end on December 31, 2001
(the "Initial Term") unless further extended or sooner terminated as hereinafter
provided. On each anniversary date of this Agreement, the term of the
Executive's employment hereunder shall be automatically extended for an
additional one year period unless at least 90 days prior to the date of such
automatic one year extension, notice is given by the Bank or the Executive that
the term of the Executive's employment shall not be extended.
3. Position and Duties. The Executive shall serve as Executive Vice-President
and Chief Credit Officer of the Bank and shall be responsible for all duties,
authorities and responsibilities as set forth in the Bylaws of the Bank and
shall assume such additional responsibilities and authority as may from time to
time be assigned to him by the Chief Executive Officer of the Bank. The
Executive shall report to, be responsible to, and take direction from the Chief
Executive Officer of the Bank. The Executive shall perform his responsibilities
and duties in the best interests of the Bank and its stockholders.
4. Place of Performance. In connection with the Executive's employment
hereunder, the Executive shall be based initially at the Bank's main office
located in Myrtle Beach, South Carolina, subject to reasonable travel necessary
to the business of the Bank.
5. Compensation and Benefits. In consideration of the Executive's performance of
his duties hereunder, the Bank shall provide the Executive with the following
compensation and benefits during the term of his employment hereunder.
a. Base salary. Commencing on the first day after the Effective Date,
and continuing during the term hereof, including extensions, the
Executive shall serve on a full-time basis as the Executive
Vice-President and Chief Credit Officer of the Bank. During his
full-time employment, Executive shall receive a per annum salary of
$150,000, payable in equal installments in arrears on the last day of
the month. During the term of the Executive's employment under this
Agreement, the Bank's Chief Executive Officer periodically will review
and may increase (but not decrease) the Executive's base salary rate in
accordance with the Bank's salary administration policies and
procedures in effect from time to time; and each change in the base
salary amount listed in this section shall become the new base salary
amount. Provided, however, that the Chief Executive Officer shall have
no obligation to increase the Executive's
<PAGE>
base salary rate at any particular time or in any particular amount,
and any such increase shall be in the sole and absolute discretion of
the Chief Executive Officer.
b. Bonus and Incentive Compensation. The Bank shall pay to the
Executive with respect to each fiscal year during the term of the
Executive's employment hereunder, such cash bonus as Chief Executive
Officer of the Bank (exclusive of the Executive) shall determine and
the Board of Directors shall ratify in their sole discretion; provided,
however, in no event shall this paragraph b. be deemed to require that
any such bonus be paid with respect to any such fiscal year. In
addition, and without diminution of any other compensation or benefit
provided for in this Agreement, the Executive shall have the right to
participate in any Incentive Compensation Plan adopted by the Bank or
in any such plan adopted or sponsored by Anchor in which the senior
officers of any of its banking subsidiaries are participants.
c. Expenses. The Bank, as applicable, shall reimburse the Executive for
all proper and reasonable out-of-pocket expenses incurred by the
Executive in his performance of services hereunder, including all such
expenses of travel and living expense while away from home on business
of the Bank, provided that such expenses are incurred and accounted for
in accordance with the regular policies and procedures established by
the Bank from time to time.
d. Employee Benefits. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan or arrangement made
available by the Bank in the future to their executives (whether or not
inclusive of their employees generally), subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Neither coverage nor benefits paid under
any such plan made available shall be deemed to be in lieu of the
salary payable to the Executive under paragraph (a) of this Section 5.
e. Vacations. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned
but unused vacation days, determined in accordance with the Bank's
vacation plan as applicable to the Executive, as well as to all paid
holidays provided by the Bank to their executives.
f. Services. The Bank shall furnish the Executive with office space,
secretarial and administrative assistance, and such other facilities
and services as shall be suitable to his position and adequate for the
performance of his duties hereunder.
g. Club Dues. The Bank shall pay for the Executive's regular annual
membership dues in Wachesaw Plantation Golf Club.
6. Compensation and Benefits in the Event of Termination. In the event of the
termination of the Executive's employment by the Bank or by the Executive during
the term of this Agreement, compensation and benefits shall be paid as set forth
below.
a. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated:
(i) "Cause" shall mean (A) the breach by Executive of any
material provision of this Agreement, provided that Bank gives
the Executive written notice of such failure and such failure
is not cured within thirty (30) days thereafter; (B) the
willful and continued failure by the Executive to
substantially perform his duties under this Agreement (other
than the Executive's inability to perform, with or without
reasonable accommodation, resulting from his incapacity due to
physical or mental illness or impairment), after a demand for
substantial performance is delivered to him by the Board of
Directors of the Bank, which
2
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demand specifically identifies the manner in which the
Executive is alleged to have not substantially performed his
duties; (C) the willful engaging by the Executive in
misconduct (criminal, immoral or otherwise) which is
materially injurious to the Bank, its officers, directors,
shareholders, employees, or customers, monetarily or
otherwise; (D) the Executive's conviction of a felony; or (E)
the commission in the course of the Executive's employment of
an act of fraud, embezzlement, theft or proven dishonesty, or
any other illegal act or practice, which would constitute a
felony, (whether or not resulting in criminal prosecution or
conviction), or any act or practice which the Bank shall, in
good faith, deem to have resulted in the Executive becoming
unbondable under the Bank's "banker's blanket bond".
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until
Executive has been afforded a reasonable opportunity, together
with his counsel, to be heard before the Board of Directors of
the Bank, and a written finding has been delivered to him to
the effect that in the good faith opinion of the Board of
Directors of the Bank, the Executive was guilty of conduct as
set forth under clause (A), (B), (C), (D) or (E) of the first
sentence of this sub-paragraph, specifying in writing the
particulars thereof in detail.
(ii) "Change in Control" shall mean either:
(A) the acquisition, directly or indirectly, by any
"person" (as such term is defined for purposes of
Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 ("Exchange Act")), other than by the
Bank, Anchor or any subsidiary controlled by Anchor
or any person so defined who on the date of this
Agreement is a director of the Bank or Anchor, or
whose shares of stock therein are treated as
"beneficially owned" (as such term is defined for
purposes of Rule 13d-3 of the Exchange Act) by any
such director, of the beneficial ownership [as such
term is defined for purposes of section 13(d) (1) of
the Exchange Act] of shares in the Bank or Anchor
which, when added to any other shares the beneficial
ownership of which is held by such acquiror, shall
have fifty percent (50%) or more of the combined
voting power of the Bank or Anchor's then outstanding
voting securities; or
(B) the occurrence of any merger, consolidation or
reorganization to which the Bank or Anchor is a party
and to which the Bank or Anchor (or an entity
controlled by the Bank or Anchor) is not a surviving
entity, or the sale of all or substantially all of
the assets of the Bank or Anchor. The merger,
combination, or consolidation of the Bank with Anchor
or any other wholly owned Subsidiary of Anchor shall
not be construed as a Change in Control.
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<PAGE>
(iii) "Date of Termination" shall mean: (A) if the Executive's
employment is terminated by reason of his death, his date of
death; (B) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to
the performance of his duties as provided under sub-paragraph
(iv) of this paragraph a.; or (C) if the Executive's
employment is terminated by action of either party for any
other reason, the date specified in the Notice of Termination;
provided, however, that if within thirty (30) days after any
Notice of Termination is given, the party receiving such
Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and
no appeal having been perfected).
(iv) "Disability" shall mean the Executive's failure to
satisfactorily perform the essential functions of his office
on a full-time basis for one hundred and eighty (180)
consecutive days, with or without accommodation, by reason of
the Executive's incapacity resulting from physical or mental
illness or impairment, except where within fifteen (15) days
after Notice of Termination is given following such absence,
the Executive shall have returned to the satisfactory, full
time performance of such duties. Any determination of
Disability hereunder shall be made by the Board of Directors
of the Bank in good faith and on the basis of the certificates
of at least three (3) qualified physicians chosen by it for
such purpose, one (1) of whom shall be the Executive's regular
attending physician.
(v) "Good Reason" shall mean either:
(A) Failure by the Bank to comply with any material
provision of this Agreement, provided that the
Executive gives the Bank (as applicable) written
notice of such failure and such failure is not cured
within thirty (30) days thereafter:
(B) Failure by the Bank to obtain the assumption of its
obligations under this Agreement by any successor; or
(C) Any of the following which shall occur coincident
with or following a Change in Control:
(1) Without the Executive's express written
consent, the assignment to him of any duties
inconsistent with and in diminution of his
positions, duties, responsibilities and
status with the Bank immediately prior to
such Change in Control, or a change
resulting in diminution of his reporting
responsibilities, titles or offices as in
effect immediately prior to such Change in
Control, or any removal of him from or any
failure to re-elect him to any of such
positions resulting in such diminution,
except in connection with the termination of
his employment for Cause, Disability or
Retirement or as a result of his death or
termination of employment by him other than
for Good Reason;
(2) Without the Executive's express written
consent, the Bank's requiring him to be
based anywhere other than within twenty-five
(25) miles of Myrtle Beach, South Carolina
except for required travel on the Bank's
business consistent with his business travel
4
<PAGE>
obligations immediately prior to such Change
in Control; or
(3) The failure by the Bank to comply with
Section 5 of this Agreement.
(D) Any purported termination of the Executive's
employment by action of the Bank which is not
effected pursuant to a Notice of Termination.
(vi) "Notice of Termination" shall mean a written notice
which shall include the specific termination provision under
this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment. Any purported
termination of the Executive's employment hereunder by action
of either party shall be communicated by delivery of a Notice
of Termination to the other party.
(vii) "Retirement" shall mean termination of the Executive's
employment pursuant to the Bank's regular retirement policy
applicable to the position held by the Executive at the time
of such termination.
b. Termination For Cause, Disability, Death, Retirement or other Than
for Good Reason. In the event the Executive's employment hereunder is
terminated (A) by action of the Bank for Cause prior to a Change in
Control or for Cause coincident with or following a Change in Control;
(B) by action of the Executive not for Good Reason, at any time; or (C)
by reason of the Executive's death, Disability or Retirement, the
following compensation and benefits shall be paid and provided the
Executive (or his beneficiary):
(1) The Executive's base salary provided under paragraph a. of
Section 5 through the last day of the month in which the Date
of Termination occurs, at the annual rate in effect at the
time Notice of Termination is given (or death occurs), to the
extent unpaid prior to such Date of Termination;
(2) Any bonus under paragraph b. of Section 5 which has been
awarded prior to the Date of Termination, to the extent unpaid
prior to such date;
(3) Any benefits to which the Executive (or his beneficiary)
may be entitled as a result of such termination, under the
terms and conditions of the pertinent plans or arrangements in
effect at the time of the Notice of Termination under
paragraph d. of Section 5; and
(4) Any amounts due the Executive with respect to paragraph c.
or paragraph e. of Section 5 as of the Date of Termination.
c. Termination for Good Reason or Other Than For Cause, Disability,
Death or Retirement. In the event the Executive's employment hereunder
is terminated other than by reason of the Executive's death, Disability
or Retirement, and (A) by action of the Executive coincident with,
following, or prior to a Change in Control and for Good Reason, or (B)
by action of the Bank coincident with, following or prior to a Change
in Control and other than for Cause, the Bank shall pay and provide the
Executive the compensation and benefits stipulated under subparagraph
b. immediately above; provided, however, in addition thereto and
without setoff, the following compensation shall be paid and provided
the Executive:
For the remaining Term of this Agreement, (i) the Bank shall continue
to pay to the Executive the Base Salary provided for in Section 5.a.
5
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above (at the Executive's Base Salary rate provided for in that Section
immediately prior to the Date of Termination) and, (ii) at its sole
cost and expense, the Bank will continue to provide the Executive with
the insurance coverages he would have had had he remained as an
employee of the Bank or with insurance coverages substantially
equivalent thereto, or, at the Bank's request (and so long as such
coverage reasonably can be obtained by the Executive himself), the
Executive will obtain substantially equivalent insurance coverages from
insurance companies chosen by him and the Bank promptly will reimburse
Executive for premium costs actually incurred by him from time to time
for the same. If termination pursuant to this section c. shall occur
during the last twelve months of the term of this Agreement, the
Executive shall be entitled to receive the Base Salary pursuant to
section 5a. and the insurance benefits discussed immediately above for
a period of twelve months subsequent to such termination. The Base
Salary shall continue to be payable in equal installments in arrears on
the last day of the month; provided, however if the payment under this
section, either alone or together with other payments which the
Executive has the right to receive from the Bank, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), such severance payment shall be
reduced to the largest amount as will result in no portion of the
severance payment under this Section 6 being subject to the excise tax
imposed by Section 4999 of the Code or the disallowance of a deduction
to the Bank under Section 280G(a) of the Code.
7. Confidentiality.
a. The Executive recognizes that his activities on behalf of the Bank
require considerable responsibility and trust. Relying on the ethical
responsibilities and undivided loyalty of the Executive, the Bank has
and will and Anchor and its Subsidiaries will in the future entrust the
Executive with highly sensitive confidential, restricted and
proprietary information involving Confidential Information (as defined
below).
b. For the purposes of this Agreement, "Confidential Information" means
any data or information, that is material to the Bank, Anchor or the
subsidiaries of Anchor, and not generally known by the public. To the
extent consistent with the foregoing definition, Confidential
Information includes (without limitation):
i. the sales records, circulation, profit and
performance reports, pricing manuals, training
manuals, selling and pricing procedures, financing
methods of the Bank, Anchor or the Subsidiaries of
Anchor, and all other business records of the Bank,
Anchor or the Subsidiaries of Anchor.
ii. the identities of the customers of the Bank, Anchor
or the Subsidiaries of Anchor, their specific
demands, and their current and anticipated
requirements for the products of the Bank, Anchor or
the Subsidiaries of Anchor.
iii. the business plans and internal financial statements
and projections of the Bank, Anchor or the
Subsidiaries of Anchor; and
iv. the specifics of any specialized products or services
of the Bank, Anchor or the Subsidiary of Anchor may
offer or provide to its customers.
The Executive recognizes the proprietary and sensitive nature of the
Bank, Anchor and its Subsidiaries' Confidential Information. The
Executive agrees to abide by all of the Bank and Anchor's rules and
procedures designed to protect their Confidential Information and to
preserve and maintain all such information in strict confidence during
6
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the Executive's engagement with the Bank and as long thereafter as the
Confidential Information remains, in the sole opinion of the Bank,
Anchor and its Subsidiaries, proprietary and confidential to the Bank,
Anchor and its Subsidiaries. The Executive agrees not to use, disclose
or in any other way use or disseminate any Confidential Information to
any person not properly authorized by the Bank, Anchor or the
Subsidiaries of Anchor.
8. Return of Materials. Upon the request of the Bank, and in any event, upon the
termination of the Executive's employment, the Executive must return to the
Bank, Anchor or the Subsidiaries of Anchor and leave at the disposal of the
Bank, Anchor or the Subsidiaries of Anchor, all memoranda, notes, records, and
other documents pertaining to the business of the Bank, Anchor and the
Subsidiaries of Anchor, or the Executive's specific duties for such entities
(including all copies of such materials). The Executive must also return to the
Bank, Anchor and the Subsidiaries of Anchor, and leave at the disposal of the
Bank, Anchor and the Subsidiaries of Anchor, all materials involving any
Confidential Information of the respective entities.
9. Implementation.
a. The covenants contained herein shall be construed as covenants
independent of one another, and as obligations distinct from any other
contract between the Executive and the Bank. Any claim the Executive
may have against the Bank shall not constitute a defense to enforcement
by the Bank of this Agreement.
b. The covenants made by the Executive herein shall survive termination
of the Executive's employment, regardless of who causes the termination
and under what circumstances.
10. Restrictive Covenant. In consideration of the Bank's employment of the
Executive, the Executive agrees that in addition to any other limitation, for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, whichever is later, he will not, within a
twenty-five (25) mile radius of Myrtle Beach, South Carolina (or any office of a
Subsidiary of Anchor, if Executive should be employed by and located at a
Subsidiary of Anchor other than in Myrtle Beach, South Carolina), manage,
operate or be employed by, participate in, or be connected in any manner with
the management, operation, or control of any banking business or savings and
loan business or financial services business. The Executive further agrees,
regardless of the circumstances of the termination of employment, that for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, he will not solicit the business or patronage,
directly or indirectly, from any customers of the Bank (or any other office of a
Subsidiary of Anchor if Executive should have been employed by and located at
such office) and the Executive will not seek to or assist others to persuade any
employee of the Bank engaged in similar work or related to the Bank's work to
discontinue employment with the Bank or seek employment or engage in any
business of the Bank. Furthermore, the Executive will not communicate to any
person, firm or corporation any information related to customer lists, prices,
secrets or other Confidential Information which he might from time to time
acquire with respect to the business of the Bank, Anchor, or its Subsidiaries,
or any of their affiliates. The Executive agrees to disclose the contents of
this Agreement to any subsequent employer for a period of twelve (12) months
following termination of his employment hereunder, the termination of this
Agreement or completion of Base salary payments pursuant to 6.c. above,
whichever is later.
11. Remedies for Breach of Employment Contract. Irreparable harm shall be
presumed if the Executive breaches any covenant of this Agreement. The faithful
observance of all covenants in this Agreement is an essential condition to the
Executive's employment, and the Bank, Anchor and the Subsidiaries of Anchor are
depending upon absolute compliance. Damages would
7
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probably be very difficult to ascertain if the Executive breached any covenant
in this Agreement. This Agreement is intended to protect the proprietary rights
of the Bank, Anchor and the Subsidiaries of Anchor in many important ways. In
light of these facts, the Executive agrees that any court of competent
jurisdiction should immediately enjoin any breach of this Agreement, upon the
request of the Bank, Anchor and the Subsidiaries of Anchor, and the Executive
specifically releases the Bank, Anchor, and the Subsidiaries of Anchor, from the
requirement to post any bond in connection with a temporary or interlocutory
injunctive relief, to the extent permitted by law.
12. Withholding. Any provision of this Agreement to the contrary
notwithstanding, all payments made by the Bank hereunder to the Executive or his
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Bank may accept other provisions to the
end that they have sufficient funds to pay all taxes required by law to be
withheld in respect of any or all such payments.
13. Notices. All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be sufficiently given if and
when mailed in the continental United States by registered or certified mail, or
personally delivered to the party entitled thereto, at the address stated below
or to such changed address as the addressee may have given by a similar notice:
To the Bank: Chairman of the Board
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
with copy to: Ann W. Langston
Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
To the Executive: Robert R. DuRant, III
-----------------------------------
-----------------------------------
14. Successors; Binding Agreement. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable to
him hereunder if he had continued to live, all such amounts, except to the
extent otherwise provided under this Agreement, shall be paid in accordance with
the terms of this Agreement to his devisee, legatee or other designee, or if
there be no such designee, to the Executive's estate.
15. Modification, Waiver or Discharge. 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 executive and an authorized officer of the
Bank. 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 agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement; provided, however,
that this Agreement shall not supersede or in any way limit the right, duties or
obligations that the Executive or the Bank may have under any other written
agreement between such parties, under any employee pension benefit plan or
employee welfare benefit plan as defined under the Employee Retirement Income
Security Act of 1974, as amended, and maintained by the
8
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Bank, or under any established personnel practice or policy applicable to the
Executive.
16. Governing Law. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of South Carolina. Any
arbitration, proceeding or litigation pertaining to this Agreement shall be
located in Horry County, South Carolina or such other location as determined by
the Bank.
17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which latter shall remain in full force and effect.
18. Miscellaneous.
a. No Right of Set-off, Etc. There shall be no right of set-off or
counterclaim, in respect of any claim, debt or obligation against any
payments to the Executive, his beneficiaries or estates provided for in
this Agreement.
b. No Adequate Remedy At Law. The Bank and the Executive recognize that
each party will have no adequate remedy at law for breach by the other
of any of the agreements contained herein and, in the event of any such
breach, the Bank and the Executive hereby agree and consent that the
other shall be entitled to decree of specific performance, mandamus, or
other appropriate remedy to enforce performance of such agreements.
c. Non-Assignability. No right, benefit, or interest hereunder shall be
subject to anticipation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation, or setoff in respect of any claim, debt
or obligation, or to execution, attachment, levy or similar process, or
assignment by operation of law. Any attempt, voluntary or involuntary,
to effect any action specified in the immediately preceding sentence
shall, to the full extent permitted by law, be null, void and of no
effect. Any of the foregoing to the contrary notwithstanding, this
provision shall not preclude the Executive from designating one or more
beneficiaries to receive any amount that may be payable after his
death, and shall not preclude the legal representative of the
Executive's estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy
applicable to his estate.
19. Enforcement of Agreement; Attorneys' Fees. In the event litigation is
commenced by the Executive against the Bank in seeking to obtain or enforce any
right, benefit or payment under this Agreement or to enforce any obligation of
the Bank described herein, then, provided the Executive shall prevail in such
litigation, the Bank shall be obligated to pay all reasonable expenses
(including without limitation all reasonable attorneys' fees and court costs)
paid or incurred by the Executive in connection with such litigation.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but of which together will
constitute one and the same instrument.
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IN WITNESS WHEREOF, the Executive, Anchor and the Bank (by action of
its duly authorized officer) have executed this Agreement on the date first
above written.
THE ANCHOR BANK
ATTEST: /s/ By: /s/
Name:______________________________
Title:_____________________________
EXECUTIVE
ATTEST: /s/ /s/
Robert R. DuRant, III
THIS AGREEMENT SUPERCEDES ANY AND ALL PREVIOUS EXECUTIVE EMPLOYMENT AGREEMENTS
BETWEEN ANCHOR AND THE EXECUTIVE.
10
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement") made this 1st day of January,
1998 by and among THE ANCHOR BANK, a South Carolina banking corporation with
principal offices located at 2002 Oak Street, Myrtle Beach, South Carolina 29578
("Bank"), ANCHOR FINANCIAL CORPORATION, a South Carolina corporation ("Anchor")
and TOMMY E. LOOPER of Myrtle Beach, South Carolina ("Executive").
RECITALS:
A. The Executive is, as of the date hereof, employed by the Bank as an
executive officer and the Bank desires to insure the Executive's continued
employment with the Bank.
B. The Bank and the Executive mutually desire that their employment
relationship be set forth under the terms of a written employment agreement;
In consideration of the foregoing and of the promises and mutual agreements set
forth below, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Employment. The Bank agrees to employ the Executive, and the Executive agrees
to serve the bank, on the terms and conditions, set forth herein.
2. Term of Employment. The employment of the Executive by the Bank, as provided
under Section 1, shall commence on the date hereof and end on December 31, 2001
(the "Initial Term") unless further extended or sooner terminated as hereinafter
provided. On each anniversary date of this Agreement, the term of the
Executive's employment hereunder shall be automatically extended for an
additional one year period unless at least 90 days prior to the date of such
automatic one year extension, notice is given by the Bank or the Executive that
the term of the Executive's employment shall not be extended.
3. Position and Duties. The Executive shall serve as Executive Vice-President
and Chief Financial Officer of the Bank and shall be responsible for all duties,
authorities and responsibilities as set forth in the Bylaws of the Bank and
shall assume such additional responsibilities and authority as may from time to
time be assigned to him by the Chief Executive Officer of the Bank. The
Executive shall report to, be responsible to, and take direction from the Chief
Executive Officer of the Bank. The Executive shall perform his responsibilities
and duties in the best interests of the Bank and its stockholders.
4. Place of Performance. In connection with the Executive's employment
hereunder, the Executive shall be based initially at the Bank's main office
located in Myrtle Beach, South Carolina, subject to reasonable travel necessary
to the business of the Bank.
5. Compensation and Benefits. In consideration of the Executive's performance of
his duties hereunder, the Bank shall provide the Executive with the following
compensation and benefits during the term of his employment hereunder.
a. Base salary. Commencing on the first day after the Effective Date,
and continuing during the term hereof, including extensions, the
Executive shall serve on a full-time basis as the Executive
Vice-President and Chief Financial Officer of the Bank. During his
full-time employment, Executive shall receive a per annum salary of
$172,000, payable in equal installments in arrears on the last day of
the month. During the term of the Executive's employment under this
Agreement, the Bank's Chief Executive Officer periodically will review
and may increase (but not decrease) the Executive's base salary rate in
accordance with the Bank's salary administration policies and
procedures in effect from time to time; and each change in the base
salary amount listed in this section shall become the new base salary
amount. Provided, however, that the Chief Executive Officer shall have
no obligation to increase the Executive's
<PAGE>
base salary rate at any particular time or in any particular amount,
and any such increase shall be in the sole and absolute discretion of
the Chief Executive Officer.
b. Bonus and Incentive Compensation. The Bank shall pay to the
Executive with respect to each fiscal year during the term of the
Executive's employment hereunder, such cash bonus as Chief Executive
Officer of the Bank (exclusive of the Executive) shall determine and
the Board of Directors shall ratify in their sole discretion; provided,
however, in no event shall this paragraph b. be deemed to require that
any such bonus be paid with respect to any such fiscal year. In
addition, and without diminution of any other compensation or benefit
provided for in this Agreement, the Executive shall have the right to
participate in any Incentive Compensation Plan adopted by the Bank or
in any such plan adopted or sponsored by Anchor in which the senior
officers of any of its banking subsidiaries are participants.
c. Expenses. The Bank, as applicable, shall reimburse the Executive for
all proper and reasonable out-of-pocket expenses incurred by the
Executive in his performance of services hereunder, including all such
expenses of travel and living expense while away from home on business
of the Bank, provided that such expenses are incurred and accounted for
in accordance with the regular policies and procedures established by
the Bank from time to time.
d. Employee Benefits. The Executive shall be entitled to participate in
or receive benefits under any employee benefit plan or arrangement made
available by the Bank in the future to their executives (whether or not
inclusive of their employees generally), subject to and on a basis
consistent with the terms, conditions and overall administration of
such plans and arrangements. Neither coverage nor benefits paid under
any such plan made available shall be deemed to be in lieu of the
salary payable to the Executive under paragraph (a) of this Section 5.
e. Vacations. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned
but unused vacation days, determined in accordance with the Bank's
vacation plan as applicable to the Executive, as well as to all paid
holidays provided by the Bank to their executives.
f. Services. The Bank shall furnish the Executive with office space,
secretarial and administrative assistance, and such other facilities
and services as shall be suitable to his position and adequate for the
performance of his duties hereunder.
g. Club Dues. The Bank shall pay for the Executive's regular annual
membership dues in The Dunes Golf and Beach Club.
6. Compensation and Benefits in the Event of Termination. In the event of the
termination of the Executive's employment by the Bank or by the Executive during
the term of this Agreement, compensation and benefits shall be paid as set forth
below.
a. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated:
(i) "Cause" shall mean (A) the breach by Executive of any
material provision of this Agreement, provided that Bank gives
the Executive written notice of such failure and such failure
is not cured within thirty (30) days thereafter; (B) the
willful and continued failure by the Executive to
substantially perform his duties under this Agreement (other
than the Executive's inability to perform, with or without
reasonable accommodation, resulting from his incapacity due to
physical or mental illness or impairment), after a demand for
substantial performance is delivered to him by the Board of
Directors of the Bank, which
2
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demand specifically identifies the manner in which the
Executive is alleged to have not substantially performed his
duties; (C) the willful engaging by the Executive in
misconduct (criminal, immoral or otherwise) which is
materially injurious to the Bank, its officers, directors,
shareholders, employees, or customers, monetarily or
otherwise; (D) the Executive's conviction of a felony; or (E)
the commission in the course of the Executive's employment of
an act of fraud, embezzlement, theft or proven dishonesty, or
any other illegal act or practice, which would constitute a
felony, (whether or not resulting in criminal prosecution or
conviction), or any act or practice which the Bank shall, in
good faith, deem to have resulted in the Executive becoming
unbondable under the Bank's "banker's blanket bond".
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until
Executive has been afforded a reasonable opportunity, together
with his counsel, to be heard before the Board of Directors of
the Bank, and a written finding has been delivered to him to
the effect that in the good faith opinion of the Board of
Directors of the Bank, the Executive was guilty of conduct as
set forth under clause (A), (B), (C), (D) or (E) of the first
sentence of this sub-paragraph, specifying in writing the
particulars thereof in detail.
(ii) "Change in Control" shall mean either:
(A) the acquisition, directly or indirectly, by any
"person" (as such term is defined for purposes of
Section 13(d) and 14(d) of the Securities Exchange
Act of 1934 ("Exchange Act")), other than by the
Bank, Anchor or any subsidiary controlled by Anchor
or any person so defined who on the date of this
Agreement is a director of the Bank or Anchor, or
whose shares of stock therein are treated as
"beneficially owned" (as such term is defined for
purposes of Rule 13d-3 of the Exchange Act) by any
such director, of the beneficial ownership [as such
term is defined for purposes of section 13(d) (1) of
the Exchange Act] of shares in the Bank or Anchor
which, when added to any other shares the beneficial
ownership of which is held by such acquiror, shall
have fifty percent (50%) or more of the combined
voting power of the Bank or Anchor's then outstanding
voting securities; or
(B) the occurrence of any merger, consolidation or
reorganization to which the Bank or Anchor is a party
and to which the Bank or Anchor (or an entity
controlled by the Bank or Anchor) is not a surviving
entity, or the sale of all or substantially all of
the assets of the Bank or Anchor. The merger,
combination, or consolidation of the Bank with Anchor
or any other wholly owned Subsidiary of Anchor shall
not be construed as a Change in Control.
3
<PAGE>
(iii) "Date of Termination" shall mean: (A) if the Executive's
employment is terminated by reason of his death, his date of
death; (B) if the Executive's employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that the Executive shall not have returned to
the performance of his duties as provided under sub-paragraph
(iv) of this paragraph a.; or (C) if the Executive's
employment is terminated by action of either party for any
other reason, the date specified in the Notice of Termination;
provided, however, that if within thirty (30) days after any
Notice of Termination is given, the party receiving such
Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination
shall be the date on which the dispute is finally resolved,
either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and
no appeal having been perfected).
(iv) "Disability" shall mean the Executive's failure to
satisfactorily perform the essential functions of his office
on a full-time basis for one hundred and eighty (180)
consecutive days, with or without accommodation, by reason of
the Executive's incapacity resulting from physical or mental
illness or impairment, except where within fifteen (15) days
after Notice of Termination is given following such absence,
the Executive shall have returned to the satisfactory, full
time performance of such duties. Any determination of
Disability hereunder shall be made by the Board of Directors
of the Bank in good faith and on the basis of the certificates
of at least three (3) qualified physicians chosen by it for
such purpose, one (1) of whom shall be the Executive's regular
attending physician.
(v) "Good Reason" shall mean either:
(A) Failure by the Bank to comply with any material
provision of this Agreement, provided that the
Executive gives the Bank (as applicable) written
notice of such failure and such failure is not cured
within thirty (30) days thereafter:
(B) Failure by the Bank to obtain the assumption of
its obligations under this Agreement by any
successor; or
(C) Any of the following which shall occur coincident
with or following a Change in Control:
(1) Without the Executive's express written
consent, the assignment to him of any duties
inconsistent with and in diminution of his
positions, duties, responsibilities and
status with the Bank immediately prior to
such Change in Control, or a change
resulting in diminution of his reporting
responsibilities, titles or offices as in
effect immediately prior to such Change in
Control, or any removal of him from or any
failure to re-elect him to any of such
positions resulting in such diminution,
except in connection with the termination of
his employment for Cause, Disability or
Retirement or as a result of his death or
termination of employment by him other than
for Good Reason;
(2) Without the Executive's express written
consent, the Bank's requiring him to be
based anywhere other than within twenty-five
(25) miles of Myrtle Beach, South Carolina
except for required travel on the Bank's
business consistent with his business travel
4
<PAGE>
obligations immediately prior to such Change
in Control; or
(3) The failure by the Bank to comply with
Section 5 of this Agreement.
(D) Any purported termination of the Executive's
employment by action of the Bank which is not
effected pursuant to a Notice of Termination.
(vi) "Notice of Termination" shall mean a written notice
which shall include the specific termination provision under
this Agreement relied upon, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis
for termination of the Executive's employment. Any purported
termination of the Executive's employment hereunder by action
of either party shall be communicated by delivery of a Notice
of Termination to the other party.
(vii) "Retirement" shall mean termination of the Executive's
employment pursuant to the Bank's regular retirement policy
applicable to the position held by the Executive at the time
of such termination.
b. Termination For Cause, Disability, Death, Retirement or other Than
for Good Reason. In the event the Executive's employment hereunder is
terminated (A) by action of the Bank for Cause prior to a Change in
Control or for Cause coincident with or following a Change in Control;
(B) by action of the Executive not for Good Reason, at any time; or (C)
by reason of the Executive's death, Disability or Retirement, the
following compensation and benefits shall be paid and provided the
Executive (or his beneficiary):
(1) The Executive's base salary provided under paragraph a. of
Section 5 through the last day of the month in which the Date
of Termination occurs, at the annual rate in effect at the
time Notice of Termination is given (or death occurs), to the
extent unpaid prior to such Date of Termination;
(2) Any bonus under paragraph b. of Section 5 which has been
awarded prior to the Date of Termination, to the extent unpaid
prior to such date;
(3) Any benefits to which the Executive (or his beneficiary)
may be entitled as a result of such termination, under the
terms and conditions of the pertinent plans or arrangements in
effect at the time of the Notice of Termination under
paragraph d. of Section 5; and
(4) Any amounts due the Executive with respect to paragraph c.
or paragraph e. of Section 5 as of the Date of Termination.
c. Termination for Good Reason or Other Than For Cause, Disability,
Death or Retirement. In the event the Executive's employment hereunder
is terminated other than by reason of the Executive's death, Disability
or Retirement, and (A) by action of the Executive coincident with,
following, or prior to a Change in Control and for Good Reason, or (B)
by action of the Bank coincident with, following or prior to a Change
in Control and other than for Cause, the Bank shall pay and provide the
Executive the compensation and benefits stipulated under subparagraph
b. immediately above; provided, however, in addition thereto and
without setoff, the following compensation shall be paid and provided
the Executive:
For the remaining Term of this Agreement, (i) the Bank shall continue
to pay to the Executive the Base Salary provided for in Section 5.a.
5
<PAGE>
above (at the Executive's Base Salary rate provided for in that Section
immediately prior to the Date of Termination) and, (ii) at its sole
cost and expense, the Bank will continue to provide the Executive with
the insurance coverages he would have had had he remained as an
employee of the Bank or with insurance coverages substantially
equivalent thereto, or, at the Bank's request (and so long as such
coverage reasonably can be obtained by the Executive himself), the
Executive will obtain substantially equivalent insurance coverages from
insurance companies chosen by him and the Bank promptly will reimburse
Executive for premium costs actually incurred by him from time to time
for the same. If termination pursuant to this section c. shall occur
during the last twelve months of the term of this Agreement, the
Executive shall be entitled to receive the Base Salary pursuant to
section 5a. and the insurance benefits discussed immediately above for
a period of twelve months subsequent to such termination. The Base
Salary shall continue to be payable in equal installments in arrears on
the last day of the month; provided, however if the payment under this
section, either alone or together with other payments which the
Executive has the right to receive from the Bank, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), such severance payment shall be
reduced to the largest amount as will result in no portion of the
severance payment under this Section 6 being subject to the excise tax
imposed by Section 4999 of the Code or the disallowance of a deduction
to the Bank under Section 280G(a) of the Code.
7. Confidentiality.
a. The Executive recognizes that his activities on behalf of the Bank
require considerable responsibility and trust. Relying on the ethical
responsibilities and undivided loyalty of the Executive, the Bank has
and will and Anchor and its Subsidiaries will in the future entrust the
Executive with highly sensitive confidential, restricted and
proprietary information involving Confidential Information (as defined
below).
b. For the purposes of this Agreement, "Confidential Information" means
any data or information, that is material to the Bank, Anchor or the
subsidiaries of Anchor, and not generally known by the public. To the
extent consistent with the foregoing definition, Confidential
Information includes (without limitation):
i. the sales records, circulation, profit and
performance reports, pricing manuals, training
manuals, selling and pricing procedures, financing
methods of the Bank, Anchor or the Subsidiaries of
Anchor, and all other business records of the Bank,
Anchor or the Subsidiaries of Anchor.
ii. the identities of the customers of the Bank, Anchor
or the Subsidiaries of Anchor, their specific
demands, and their current and anticipated
requirements for the products of the Bank, Anchor or
the Subsidiaries of Anchor.
iii. the business plans and internal financial statements
and projections of the Bank, Anchor or the
Subsidiaries of Anchor; and
iv. the specifics of any specialized products or services
of the Bank, Anchor or the Subsidiary of Anchor may
offer or provide to its customers.
The Executive recognizes the proprietary and sensitive nature of the
Bank, Anchor and its Subsidiaries' Confidential Information. The
Executive agrees to abide by all of the Bank and Anchor's rules and
procedures designed to protect their Confidential Information and to
preserve and maintain all such information in strict confidence during
6
<PAGE>
the Executive's engagement with the Bank and as long thereafter as the
Confidential Information remains, in the sole opinion of the Bank,
Anchor and its Subsidiaries, proprietary and confidential to the Bank,
Anchor and its Subsidiaries. The Executive agrees not to use, disclose
or in any other way use or disseminate any Confidential Information to
any person not properly authorized by the Bank, Anchor or the
Subsidiaries of Anchor.
8. Return of Materials. Upon the request of the Bank, and in any event, upon the
termination of the Executive's employment, the Executive must return to the
Bank, Anchor or the Subsidiaries of Anchor and leave at the disposal of the
Bank, Anchor or the Subsidiaries of Anchor, all memoranda, notes, records, and
other documents pertaining to the business of the Bank, Anchor and the
Subsidiaries of Anchor, or the Executive's specific duties for such entities
(including all copies of such materials). The Executive must also return to the
Bank, Anchor and the Subsidiaries of Anchor, and leave at the disposal of the
Bank, Anchor and the Subsidiaries of Anchor, all materials involving any
Confidential Information of the respective entities.
9. Implementation.
a. The covenants contained herein shall be construed as covenants
independent of one another, and as obligations distinct from any other
contract between the Executive and the Bank. Any claim the Executive
may have against the Bank shall not constitute a defense to enforcement
by the Bank of this Agreement.
b. The covenants made by the Executive herein shall survive termination
of the Executive's employment, regardless of who causes the termination
and under what circumstances.
10. Restrictive Covenant. In consideration of the Bank's employment of the
Executive, the Executive agrees that in addition to any other limitation, for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, whichever is later, he will not, within a
twenty-five (25) mile radius of Myrtle Beach, South Carolina (or any office of a
Subsidiary of Anchor, if Executive should be employed by and located at a
Subsidiary of Anchor other than in Myrtle Beach, South Carolina), manage,
operate or be employed by, participate in, or be connected in any manner with
the management, operation, or control of any banking business or savings and
loan business or financial services business. The Executive further agrees,
regardless of the circumstances of the termination of employment, that for a
period of twelve (12) months after the termination of his employment hereunder,
the termination of this Agreement or the completion of Base Salary payments
pursuant to section 6.c. above, he will not solicit the business or patronage,
directly or indirectly, from any customers of the Bank (or any other office of a
Subsidiary of Anchor if Executive should have been employed by and located at
such office) and the Executive will not seek to or assist others to persuade any
employee of the Bank engaged in similar work or related to the Bank's work to
discontinue employment with the Bank or seek employment or engage in any
business of the Bank. Furthermore, the Executive will not communicate to any
person, firm or corporation any information related to customer lists, prices,
secrets or other Confidential Information which he might from time to time
acquire with respect to the business of the Bank, Anchor, or its Subsidiaries,
or any of their affiliates. The Executive agrees to disclose the contents of
this Agreement to any subsequent employer for a period of twelve (12) months
following termination of his employment hereunder, the termination of this
Agreement or completion of Base salary payments pursuant to 6.c. above,
whichever is later.
11. Remedies for Breach of Employment Contract. Irreparable harm shall be
presumed if the Executive breaches any covenant of this Agreement. The faithful
observance of all covenants in this Agreement is an essential condition to the
Executive's employment, and the Bank, Anchor and the Subsidiaries of Anchor are
depending upon absolute compliance. Damages would
7
<PAGE>
probably be very difficult to ascertain if the Executive breached any covenant
in this Agreement. This Agreement is intended to protect the proprietary rights
of the Bank, Anchor and the Subsidiaries of Anchor in many important ways. In
light of these facts, the Executive agrees that any court of competent
jurisdiction should immediately enjoin any breach of this Agreement, upon the
request of the Bank, Anchor and the Subsidiaries of Anchor, and the Executive
specifically releases the Bank, Anchor, and the Subsidiaries of Anchor, from the
requirement to post any bond in connection with a temporary or interlocutory
injunctive relief, to the extent permitted by law.
12. Withholding. Any provision of this Agreement to the contrary
notwithstanding, all payments made by the Bank hereunder to the Executive or his
estate or beneficiaries shall be subject to the withholding of such amounts, if
any, relating to tax and other payroll deductions as the Bank may reasonably
determine should be withheld pursuant to any applicable law or regulation. In
lieu of withholding such amounts, the Bank may accept other provisions to the
end that they have sufficient funds to pay all taxes required by law to be
withheld in respect of any or all such payments.
13. Notices. All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be sufficiently given if and
when mailed in the continental United States by registered or certified mail, or
personally delivered to the party entitled thereto, at the address stated below
or to such changed address as the addressee may have given by a similar notice:
To the Bank: Chairman of the Board
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
with copy to: Ann W. Langston
Gerrish & McCreary, P.C.
700 Colonial Road, Suite 200
Memphis, Tennessee 38117
To the Executive: Tommy E. Looper
----------------------------------
----------------------------------
14. Successors; Binding Agreement. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amount would still be payable to
him hereunder if he had continued to live, all such amounts, except to the
extent otherwise provided under this Agreement, shall be paid in accordance with
the terms of this Agreement to his devisee, legatee or other designee, or if
there be no such designee, to the Executive's estate.
15. Modification, Waiver or Discharge. 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 executive and an authorized officer of the
Bank. 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 agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement; provided, however,
that this Agreement shall not supersede or in any way limit the right, duties or
obligations that the Executive or the Bank may have under any other written
agreement between such parties, under any employee pension benefit plan or
employee welfare benefit plan as defined under the Employee Retirement Income
Security Act of 1974, as amended, and maintained by the
8
<PAGE>
Bank, or under any established personnel practice or policy applicable to the
Executive.
16. Governing Law. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the State of South Carolina. Any
arbitration, proceeding or litigation pertaining to this Agreement shall be
located in Horry County, South Carolina or such other location as determined by
the Bank.
17. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not effect the validity or enforceability of any other provision
of this Agreement, which latter shall remain in full force and effect.
18. Miscellaneous.
a. No Right of Set-off, Etc. There shall be no right of set-off or
counterclaim, in respect of any claim, debt or obligation against any
payments to the Executive, his beneficiaries or estates provided for in
this Agreement.
b. No Adequate Remedy At Law. The Bank and the Executive recognize that
each party will have no adequate remedy at law for breach by the other
of any of the agreements contained herein and, in the event of any such
breach, the Bank and the Executive hereby agree and consent that the
other shall be entitled to decree of specific performance, mandamus, or
other appropriate remedy to enforce performance of such agreements.
c. Non-Assignability. No right, benefit, or interest hereunder shall be
subject to anticipation, alienation, sale, assignment, encumbrance,
charge, pledge, hypothecation, or setoff in respect of any claim, debt
or obligation, or to execution, attachment, levy or similar process, or
assignment by operation of law. Any attempt, voluntary or involuntary,
to effect any action specified in the immediately preceding sentence
shall, to the full extent permitted by law, be null, void and of no
effect. Any of the foregoing to the contrary notwithstanding, this
provision shall not preclude the Executive from designating one or more
beneficiaries to receive any amount that may be payable after his
death, and shall not preclude the legal representative of the
Executive's estate from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy
applicable to his estate.
19. Enforcement of Agreement; Attorneys' Fees. In the event litigation is
commenced by the Executive against the Bank in seeking to obtain or enforce any
right, benefit or payment under this Agreement or to enforce any obligation of
the Bank described herein, then, provided the Executive shall prevail in such
litigation, the Bank shall be obligated to pay all reasonable expenses
(including without limitation all reasonable attorneys' fees and court costs)
paid or incurred by the Executive in connection with such litigation.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but of which together will
constitute one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the Executive, Anchor and the Bank (by action of
its duly authorized officer) have executed this Agreement on the date first
above written.
THE ANCHOR BANK
ATTEST: /s/ By: /s/
Name:______________________________
Title:_____________________________
EXECUTIVE
ATTEST: /s/ /s/
TOMMY E. LOOPER
THIS AGREEMENT SUPERCEDES ANY AND ALL PREVIOUS EXECUTIVE EMPLOYMENT AGREEMENTS
BETWEEN ANCHOR AND THE EXECUTIVE.
10
EXHIBIT 10.10
FIRST AMENDMENT TO
ANCHOR FINANCIAL CORPORATION, THE ANCHOR BANK AND
THE ANCHOR BANK OF NORTH CAROLINA
INCENTIVE STOCK OPTION PLAN OF 1996
The Anchor Financial Corporation, The Anchor Bank and The Anchor Bank
of North Carolina Incentive Stock Option Plan of 1996 (the "Plan") is hereby
amended as follows:
1. Section 5(c) is amended to read as follows:
(c) Payment in full of the Option price for shares purchased
pursuant to an Option shall be made upon exercise of the
Option (in whole or in part) and shall be made in cash or with
shares of previously owned Common Stock at their fair market
value on the exercise date.
2. The Incentive Stock Option Agreement referred to in Section 5 of the
Plan and attached as Exhibit A shall be amended as set forth in the
Incentive Stock Option Agreement attached hereto as Exhibit A. The
Incentive Stock Option Agreements issued prior to the adoption of this
Amendment, which provides for the grant of options that have not been
exercised, may be amended to comply with the revised form of Agreement
in Exhibit A and options issued under this Plan after the adoption of
this Amendment shall be in compliance with Exhibit A with such
additional terms and conditions as determined by the Committee.
3. The remaining provisions of the Plan shall continue in full force and
effect.
The above Amendment was duly adopted by the Board of Directors of
Anchor Financial Corporation and The Anchor Bank (for The Anchor Bank and as
successor in interest to The Anchor Bank of North Carolina) and is effective as
of the 8th day of December, 1997.
/s/
Secretary of
Anchor Financial Corporation
/s/
Secretary of The Anchor Bank
EXHIBIT 10.11
ANCHOR FINANCIAL CORPORATION,
THE ANCHOR BANK AND THE ANCHOR BANK OF NORTH CAROLINA
INCENTIVE STOCK OPTION PLAN OF 1994
1. Purpose of Plan
The purpose of this Stock Option Plan ("Plan") is to aid Anchor
Financial Corporation (the "Corporation") and The Anchor Bank and The Anchor
Bank of North Carolina (collectively "Banks") in securing and retaining Top
Management Key Employees of outstanding ability by making it possible to offer
them an increased incentive, in the form of a proprietary interest in the
Corporation, to join or continue in the service of the Corporation and/or one or
both of the Banks and to increase their efforts for its welfare and success.
2. Definitions
As used in this Plan, the following words shall have the following
meanings:
(a) "Board" means the Board of Directors of the Corporation;
(b) "Code" means the Internal Revenue Code of 1986, as amended;
(c) Intentionally Omitted;
(d) "Common Stock" means the $6.00 par value common stock of Anchor
Financial Corporation;
(e) "Banks" means The Anchor Bank, a South Carolina banking
corporation, and The Anchor Bank of North Carolina, a North Carolina banking
corporation, both of which are wholly-owned subsidiaries of Anchor Financial
Corporation;
(f) "Corporation" means Anchor Financial Corporation, a South Carolina
corporation with its principal office located at Myrtle Beach, South Carolina;
(g) "Disability" means the Participant's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months;
(h) "Incentive Stock Option" means a stock option to purchase shares of
Common Stock, which is intended to qualify as an incentive stock option defined
in Code Section 422A;
(i) "Key Employee" means any person in the regular full-time common law
employment of the Corporation or any Subsidiary, as an executive or
non-executive officer thereof, who in the opinion of the Board, is or is
expected to be primarily responsible for the management, growth or protection of
some part or all of the business of the Corporation;
(j) "Option" means an Incentive Stock Option;
(k) "Parent" means any corporation in an unbroken chain of corporations
if each of the corporations owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain;
(l) "Participant" means a person to whom an Option is granted that has
not expired and ceased to be exercisable under the Plan; and
<PAGE>
(m) "Subsidiary" means any corporation other than the Corporation in an
unbroken chain of corporations beginning with the Corporation if each of the
corporations other than the last corporation in the unbroken chain owns fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
3. Administration of Plan
The Plan shall be administered by the Board. In the event that a
director of the Board is eligible to be selected for the grant of an Option,
during such membership as a director, such director shall recuse himself and not
participate in the discussion nor vote on the award of the Option to him. The
Board shall have the power and authority to administer, construe and interpret
the Plan, to make rules for carrying it out and to make changes in such rules.
4. Granting of Options and $100,000 Limitation
The Board may from time to time grant Options under the Plan to such
Key Employees and subject to the limitations of paragraph (a) of Section 7, for
such number of shares as the Board may determine after receiving recommendations
from the compensation committee or the executive officers of the Bank that
employs the Participant. Subject to the provisions of the Plan, the Board may
impose such terms and conditions as it deems advisable on the grant of an
Option. Any of the foregoing to the contrary notwithstanding, the following
limitations shall apply to the grant of any Incentive Stock Option:
(a) The aggregate fair market value, determined at the time the
Incentive Stock Option is granted, of the stock exercised by a Participant for
the first time during any calendar year shall not exceed $100,000.
(b) Any Option granted to a Participant, who immediately before such
grant owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock either of the Corporation or any Subsidiary
shall not be an Incentive Stock Option, unless (i) at the time such Option is
granted the Option price per share is not less than one hundred ten percent
(110%) of the optioned stock's then fair market value; and (ii) the Option shall
not be exercisable after the expiration of five (5) years from the date of the
grant of the Option.
5. Terms of Options
The terms of each Option granted under the Plan shall be as determined
from time to time by the Board and shall be set forth in an Incentive Stock
Option Agreement in a form attached hereto as Exhibit "A" and approved by the
Board; provided, however, the terms of such agreement shall not exceed the
following limitations:
(a) Subject to paragraph (b) of Section 4 with regard to 10% owners,
the Option price per share shall not be less than one hundred percent (100%) of
the fair market value of the optioned stock at the time the Option is granted.
(b) Subject to paragraph (e) of this Section, the Option shall be
exercisable in whole or in part from time to time during the period beginning on
date of grant of the Option, and ending no later than the expiration of ten (10)
years from the date of grant of the Option, unless an earlier expiration date
shall be stated in the Option or the Option shall cease to be exercisable
pursuant to paragraph (d) of this Section 5.
(c) Payment in full of the Option price for shares purchased pursuant
to an Option shall be made upon exercise of the Option (in whole or in part) and
shall be made in cash.
(d) If a Participant's employment with the Corporation or the Banks
terminates, the following rules shall apply:
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<PAGE>
(i) If a Participant's employment with the Corporation or the Banks
terminates other than by reason of the Participant's death, disability or
retirement after reaching age 65, the Participant's Option shall thereupon
expire and cease to be exercisable upon the expiration of the earlier of ten
(10) years from the date of grant of the Option, or three (3) months from the
date of such termination.
(ii) If the Participant's employment with the Corporation or the
Banks terminates by reason of his death, the Participant's Option shall
terminate and cease to be exercisable upon the expiration of the earlier of ten
(10) years from the date of grant of the Option, or one (1) year from the date
of death. Such Option may be exercised by the duly appointed personal
representative of the deceased Participant's estate.
(iii) If a Participant's employment with the Corporation or the Banks
terminates by reason of Disability, the Participant's Option shall terminate and
cease to be exercisable upon the expiration of the earlier of ten (10) years
from the date of grant of the Option, or one (1) year from the date of such
termination in the case of disability.
(iv) If a Participant's employment with the Corporation or the Banks
terminates by reason of retirement after reaching age 65 (other than for
Disability), the Participant's Option shall expire and cease to be exercisable
upon the expiration of the earlier of ten (10) years from the date of grant of
the Option, or three (3) months from the date of such termination.
(v) Notwithstanding anything contained herein to the contrary, if a
Participant's employment with the Corporation or the Banks is terminated for
cause (fraud, embezzlement, failure to perform job responsibilities, etc.) as
determined by the Board, in the Board's sole discretion, or if a Participant
competes with the Corporation or the Banks, any Option granted to that
Participant shall be immediately revoked and terminated and the Participant
shall have no further rights under this Plan. For purposes of this Plan,
competition with the Corporation or the Banks shall include direct or indirect
ownership of or employment with a financial services business within a 100 mile
radius of any office operated by the Corporation or any of its subsidiaries.
(e) Notwithstanding any other provision herein, the options granted
hereunder shall vest and be exercisable on a cumulative basis for one-third of
the shares covered thereby on each of the first three anniversaries of the grant
thereof.
In the event that the Corporation has a change of control in
which 51% or more of the stock of the Corporation is acquired or the Corporation
is merged or consolidated with another corporation in an acquisition transaction
or the Corporation sells substantially all of the assets of the Corporation, or
the Bank which employs the Participant is merged or consolidated with another
Bank not owned at least 50% by the Corporation or its Subsidiary or such Bank
has a change of control in which 51% or more of the stock of the Bank is
acquired or such Bank sells substantially all of its assets, then immediately
prior to any such transaction, the vesting schedule set forth above shall not be
applicable and the holder of any options granted hereunder shall be 100% vested
in such options, subject to the other terms and conditions herein.
6. Exercise of Options
The holder of an Option who decides to exercise the Option in whole or
in part shall give notice to the Secretary of the Corporation of such exercise
in writing on a form approved by the Board. Any exercise shall be effective as
of the date specified in the notice of exercise, but not earlier than the date
the notice of exercise and payment in full of the Option price is actually
received and in the hands of the Secretary of the Corporation.
3
<PAGE>
7. Limitations and Conditions
(a) The total number of shares of Common Stock that may be optioned as
Incentive Stock Options under the Plan is 75,000 shares of Anchor Financial
Corporation's $6.00 par value common stock. Such total number of shares may
consist, in whole or in part, of unissued shares or reacquired shares. The
foregoing numbers of shares may be increased or decreased by the events set
forth in Section 9.
(b) There shall be no limitations on the amount of shares of Common
Stock that may be optioned as Incentive Stock Options under the Plan as set
forth in Section 7(a) above, on an annual basis. The amount of shares to be
optioned, within the total limitation set forth in Section 7(a) above, shall be
determined solely at the discretion of the Board as set forth herein. If there
is a proposed acquisition, merger, change of control or other takeover of the
Corporation or the Bank that employs the Participant as defined in Section 5(e)
of this Plan, the Board, at its sole discretion, may issue any options
authorized under this Plan but unissued prior to such time.
(c) Any shares that have been optioned that cease to be subject to an
Option (other than by reason of exercise of the Option) shall again be available
for option and shall not be considered as having been theretofore optioned.
(d) No Option shall be granted under the Plan after April 27, 2004, (10
years after the effective date), and the Plan shall terminate on such date, but
Options theretofore granted may extend beyond that date in accordance with the
Plan. At the time an Option is granted or amended or the terms or conditions of
an Option are changed, the Board may provide for limitations or conditions on
the exercisability of the Option.
(e) An Option shall not be transferable by the Participant otherwise
than by Will or by the laws of descent and distribution. During the lifetime of
the Participant, an Option shall only be exercisable by the Participant.
(f) No person shall have any rights of a stockholder as to shares under
option until, after proper exercise of the Option, such shares shall have been
recorded on the Corporation's official stockholder records as having been issued
or transferred.
(g) The Corporation shall not be obligated to deliver any shares until
there has been compliance with such laws or regulations as the Corporation may
deem applicable. The Corporation shall use its best efforts to effect such
compliance. In addition to the foregoing and not by way of limitation, the
Corporation may require that the person exercising the Option represent and
warrant at the time of such exercise that any shares acquired by exercise are
being acquired only for investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the Corporation, such
a representation is required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency.
8. Transfers and Leaves of Absence
For the purposes of the Plan: (a) a transfer of a Participant's
employment without an intervening period from the Corporation to a subsidiary or
vice versa, or from one subsidiary to another or from parent to subsidiary or
vice versa, shall not be deemed a termination of employment, and (b) a Key
Employee who is granted in writing a leave of absence of no more than ninety
(90) days, or if more than ninety (90) days, which guarantees his employment
with the Corporation or the Banks at the end of such leave, shall be deemed to
have remained in the employ of the Corporation or the Banks during such leave of
absence.
4
<PAGE>
9. Stock Adjustments
In the event of any merger, consolidation, stock dividend, split-up,
combination or exchange of shares or recapitalization or change in
capitalization, the total number of shares set forth in paragraph (a) of Section
7 shall be proportionately and appropriately adjusted. In any such case, the
number and kind of shares that are subject to any Option (including any Option
outstanding after termination of employment) and the Option price per share
shall be proportionately and appropriately adjusted without any change in the
aggregate Option price to be paid therefor upon the exercise of the Option. The
determination by the Board as to the terms of any of the foregoing adjustments
shall be conclusive and binding.
10. Amendment and Termination
(a) The Board shall have the power to amend the Plan, including the
power to change the amount of the aggregate fair market value of the shares for
which any Key Employee may be granted Incentive Stock Options under Section 4 to
the extent provided in Code Section 422A. It shall not, however, except as
otherwise provided in the Plan, increase the maximum number of shares authorized
for the Plan, nor change the class of eligible employees to other than Key
Employees, nor reduce the basis upon which the minimum Option price is
determined, nor extend the period within which Options under the Plan may be
granted, nor provide for an Option that is exercisable during a period of more
than ten (10) years from the date it is granted. It shall have no power (without
the consent of the person or persons at the time entitled to exercise the
Option) to change the terms and conditions of any Option after the Option is
granted in a manner that would adversely affect the rights of such persons
except to the extent, if any, provided in the Option.
(b) The Board may suspend or terminate the Plan at any time. No such
suspension or termination shall affect Options then in effect.
11. No Employment Right
The grant of an Option hereunder shall not constitute an agreement or
understanding, expressed or implied, on the part of the Corporation, any Parent
or any Subsidiary, to employ the Participant for any specified period and shall
not confer upon any employee the right to continue in the employment of the
Corporation, any Parent or any Subsidiary, nor affect any right which the
Corporation, a Parent or Subsidiary may have to terminate the employment of such
employee.
12. Effective Date
The Plan is adopted on and shall be effective as of April 27, 1994.
/s/
-----------------------------
Secretary
5
<PAGE>
FIRST AMENDMENT TO
ANCHOR FINANCIAL CORPORATION, THE ANCHOR BANK AND
THE ANCHOR BANK OF NORTH CAROLINA
INCENTIVE STOCK OPTION PLAN OF 1994
The Anchor Financial Corporation, The Anchor Bank and The Anchor Bank
of North Carolina Incentive Stock Option Plan of 1994 (the "Plan") is hereby
amended as follows:
1. Section 5(c) is amended to read as follows:
(c) Payment in full of the Option price for shares purchased
pursuant to an Option shall be made upon exercise of the
Option (in whole or in part) and shall be made in cash or with
shares of previously owned Common Stock at their fair market
value on the exercise date.
2. The Incentive Stock Option Agreement referred to in Section 5 of the
Plan and attached as Exhibit A shall be amended as set forth in the
Incentive Stock Option Agreement attached hereto as Exhibit A. The
Incentive Stock Option Agreements issued prior to the adoption of this
Amendment, which provides for the grant of options that have not been
exercised, may be amended to comply with the revised form of Agreement
in Exhibit A and options issued under this Plan after the adoption of
this Amendment shall be in compliance with Exhibit A with such
additional terms and conditions as determined by the Committee.
3. The remaining provisions of the Plan shall continue in full force and
effect.
The above Amendment was duly adopted by the Board of Directors of
Anchor Financial Corporation and The Anchor Bank (for The Anchor Bank and as
successor in interest to The Anchor Bank of North Carolina) and is effective as
of the 8th day of December, 1997.
/s/
Secretary of
Anchor Financial Corporation
/s/
Secretary of The Anchor Bank
EXHIBIT 10.12
ANCHOR FINANCIAL CORPORATION
AND THE ANCHOR BANK
NON-QUALIFIED STOCK OPTION PLAN OF 1988
1. Purpose of Plan
The purpose of this non-qualified Stock Option Plan ("Plan") is to aid
in Anchor Financial Corporation ("Corporation") and The Anchor Bank ("Bank")in
securing and retaining Top Management Key Employees of outstanding ability by
making it possible to offer them an increased incentive, in the form of a
proprietary interest in Anchor Financial Corporation, the parent holding company
that owns Bank, to join or continue in the service of the Corporation or the
Bank and to increase their efforts for its welfare and success.
2. Definitions
As used in this Plan, the following words shall have the following
meanings:
(a) "Bank" means The Anchor Bank, Myrtle Beach, South Carolina;
(b) "Board" means the Board of Directors of the Bank;
(c) "Code" means the Internal Revenue Code of 1986, as amended;
(d) "Committee" means the executive committee appointed by the Board
under Section 3;
(e) "Common Stock" means the $6.00 per value common stock of Anchor
Financial Corporation;
(f) "Corporation" means Anchor Financial Corporation, a South Carolina
corporation with principal offices located at Myrtle Beach, South Carolina;
(g) "Disability" means the Participant's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months;
(h) "Key Employee" means any person in full-time common law employment
of the Bank, the Corporation or any Subsidiary, as an executive officer thereof,
who in the opinion of the Committee, is or is expected to be primarily
responsible for the management, growth or protection of some part or all of the
business of the Corporation or the Bank;
(i) "Non-Qualified Stock Option" means a stock option to purchase
shares of Common Stock, which is not intended to qualify as an incentive stock
option defined in code Section 422a;
(j) "Option" means a Non-qualified Stock Option;
(k) "Parent means any corporation in an unbroken chain of corporations
if each of the corporations owns stock possessing fifty (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chains;
(l) "Participant" means a person to whom an Option is granted that has
not expired and ceased to be exercisable under the Plan; and
<PAGE>
(m) "Subsidiary" means any corporation other than the Bank in an
unbroken chain of corporations beginning with the Bank if each of the
corporations other than the last corporation in the unbroken chain owns fifty
(50%) or more of the total combined voting power of all classes of stock in one
of the other corporations in such chain.
3. Administration of Plan
The Plan shall be administered by the Executive Committee (the
"Committee") appointed by the Board. None of the members of the Committee shall
be eligible to be selected for the grant of an Option, or any other option,
stock appreciation right or shares under the Plan or any other plan maintained
by the Bank during such membership or have been so eligible for selection within
one (1) year prior thereto. The Committee may adopt its own rules of procedure;
and the action of a majority of the Committee, taken at a meeting or taken
without a meeting by a writing signed by such majority, shall constitute action
by the Committee. The Committee shall have the power and authority to
administer, construe and interpret the Plan, to make rules for carrying it out
and to make changes in such rules.
4. Granting of Options
The Committee may from time to time grant Options under the Plan to
such Key Employees and subject to the limitations of paragraph (a) of Section 7,
for such number of shares as the Committee may determine. Subject to the
provisions of the Plan, the Committee may impose such terms and conditions as it
deems advisable on the grant of an Option.
5. Terms of Options
The terms of each Option granted under the Plan shall be as determined
from time to time by the Committee and shall be set forth in a Non-qualified
Stock Option Agreement in a form attached hereto as Exhibit "A" and approved by
the Committee; provided, however, the terms of such agreement shall not exceed
the following limitations:
(a) The Option price per share shall be $17.75.
(b) Subject to paragraph (b) of Section 9 with regard to change in
control, etc., the Option shall be exercisable in accordance
with the limitations set forth below, unless an earlier
expiration date shall be stated in the Option or the Option
shall cease to be exercisable pursuant to paragraph (d) of
this Section 5, regarding termination of employment:
(1) The Options granted each Participant shall vest 25% per
year on December 31 of each year beginning December 31, 1988.
(ii) The Options granted shall expire and not be exercisable
after the expiration of ten (10) years from the vesting date
of the Options.
(c) Payment in full of the Option price for shares purchased
pursuant to an Option shall be made upon exercise of the
Option (in whole or in part) and shall be made in cash.
(d) If a Participant's employment with the Bank terminates, the
following rules shall apply:
(i) If a Participant's employment with the Bank terminates
other than by reason of the Participant's death, disability or
retirement after reaching age 65, the Participant's Option
shall
2
<PAGE>
thereupon expire and cease to be exercisable upon the
expiration of the earlier of ten (10) years from the date of
grant of the Option, or three (3) months from the date of such
termination. There shall be now additional vesting in the
Option after such termination.
(ii) If the Participant's employment with the Bank terminates
by reason of his death, the Participant shall have the
immediate right to exercise the Option for all shares optioned
thereunder and not previously purchased irrespective of any
provision under the Option Agreement which would otherwise
prohibit such exercise at such time. The options shall become
100% vested in the event of termination by reason of
Participant's death. The Participant's Option, however, shall
terminate and cease to be exercisable upon the expiration of
the earlier of ten (10) years from the vesting date of the
Option, or one (1) year from the date of death. Such Option
may be exercised by the duly appointed personal representative
of the deceased Participant's estate.
(iii) If a Participant's employment with the Bank terminates
by reason of disability, the Participant shall immediately
have the right to exercise the Option for all shares optioned
thereunder and not previously purchased, irrespective of any
provision under the Option Agreement which would otherwise
prohibit such exercise at such time. The options shall become
100% vested in the event of termination by reason of
Participant's disability. The Participant's Option, however,
shall terminate and cease to be exercisable upon the
expiration of the earlier of ten (10) years from vesting the
date of the Option, or one (1) year from the date of such
termination in the case of disability.
(iv) If a Participant's employment with the Bank terminates by
reason of retirement after reaching age 65 (other than for
disability), the Participant's Option shall expire and cease
to be exercisable upon the expiration of the earlier of ten
(10) years from the vesting date of the Option, or three (3)
months from the date of such termination.
(v) Notwithstanding anything contained herein to the contrary,
if a Participant's employment with the Bank is terminated for
cause (fraud, embezzlement, misconduct, etc.) as determined by
the Committee, in the Committee's sole discretion, or if a
Participant competes with the Bank, any Option granted to that
Participant shall be immediately revoked and terminated and
the Participant shall have no further rights under this Plan.
For purposes of this Plan, competition with the Bank shall
include direct or indirect ownership of or employment with a
financial institution in the State of South Carolina and shall
be determined in the sole discretion of the Committee.
6. Exercise of Options
The holder of and Option who decides to exercise the Option in whole or
in part shall give notice to the Secretary of the Bank of such exercise in
writing on a form approved by the Committee. Any exercise shall be effective as
of the date specified in the notice of exercise, but not earlier than the date
the notice of exercise and payment in full of the Option price is actually
received and in the hands of the Secretary of the Bank.
7. Limitations and Conditions
(a) The total number of shares of Common Stock that may be
optioned as Non-qualified Stock Options under the Plan is
Fifty Five Thousand One Hundred and Ninety Six (55,196) shares
of Anchor Financial Corporation's $6.00 par value common
stock. Such total number of shares may consist, in whole or in
part, of unissued shares or reacquired shares. The foregoing
numbers of shares may be increased or decreased by the events
set forth in paragraph (a) of Section 9 regarding
recapitalizations, etc.
(b) The amount of shares of Common Stock that may be optioned as
Non- qualified Stock Options under the Plan as set forth in
Section 7(a) above on an annual basis, shall be determined
solely at the discretion of the Committee. Notwithstanding
anything to the contrary herein, if there is a proposed
acquisition, merger, change of control or other takeover of
the Corporation and/or the
3
<PAGE>
Bank, the Committee, at its sole discretion, may issue any
options authorized under this Plan but unissued prior to such
time.
(c) Any shares that have been optioned that cease to be subject to
an Option (other than by reason of exercise of the Option)
shall again be available for option and shall not be
considered as having been theretofore optioned.
(d) No Option shall be granted under the Plan after November 14,
1998 (10 years after the effective date), and the Plan shall
terminate on such date, but Options theretofore granted may
extend beyond that date in accordance with the Plan. At the
time an Option is granted or amended or the terms or
conditions of an Option are changed, the Committee may provide
for limitations or conditions on the exercisability of the
Option.
(e) An Option shall not be transferable by the Participant
otherwise than by Will or by the laws of descent and
distribution. During the lifetime of the Participant, an
Option shall only be exercisable by the Participant.
(f) No person shall have any rights of a stockholder as to shares
under option until, after proper exercise of the Option, such
shares shall have been recorded on the Corporation's official
stockholder records as having been issued or transferred.
(g) The Bank shall not be obligated to deliver any shares until
there has been compliance with such laws or regulations as the
Bank or Corporation may deem applicable. The Bank and
Corporation shall use their best efforts to effect such
compliance. No fractional shares shall be delivered. In
addition to the foregoing and not by way of limitation, the
Bank may require that the person exercising the Option
represent and warrant at the time of such exercise that any
shares acquired by exercise are being acquired only for
investment and without any present intention to sell or
distribute such shares, if, in the opinion of counsel for the
Bank, such a representation is required under the Securities
Act of 1933 or any other applicable law, regulation or rule of
any governmental agency.
8. Transfers and Leaves of Absence
For the purposes of the Plan: (a) a transfer of a Participant's
employment without an intervening period from the Bank to a subsidiary
or vice versa, or from one subsidiary to another or from parent to
subsidiary or vice versa, shall not be deemed a termination of
employment, and (b) a Key Employee who is granted in writing a leave of
absence of no more than ninety (90) days, or if more than ninety (90)
days, which guarantees his employment with the Bank at the end of such
leave, shall be deemed to have remained in the employ of the Bank
during such leave of absence.
9. Stock Adjustments
(a) In the event of any merger, consolidation, stock dividend,
split- up, combination or exchange of shares or
recapitalization or change in capitalization, the total number
of shares set forth in paragraph (a) of Section 7 shall be
proportionately and appropriately adjusted. In any such case,
the number and kind of shares that are subject to any Option
(including any Option outstanding after termination of
employment) and the Option price per share shall be
proportionately and appropriately adjusted without any change
in the aggregate Option price to be paid therefor upon the
exercise of the Option. The determination by the Committee as
to the terms of any of the foregoing adjustments shall be
conclusive and binding.
4
<PAGE>
(b) If after the effective date hereof (and after the requisite
stockholder approval of the Plan under Section 12), either
(i), (ii) or (iii) below shall occur, any Participant holding
an Option shall immediately have the right to exercise the
Option for all shares optioned thereunder and not previously
purchased, irrespective of any provision under the Option
Agreement which would otherwise prohibit such exercise at such
time:
(i) the acquisition ("Acquisition"), directly or indirectly,
by any "person" [as such term is defined for purposes of
Sections 13(d) and 14(d) of the Securities and Exchange Act of
1934 ""Exchange Act")], other than by the Corporation or any
person so defined who on the effective date hereof is a
director of the Bank or Corporation or whose shares of stock
therein are treated as "beneficially owned" (as such term is
defined for purposes of Rule 13d-3 of the Exchange Act) by any
such director ("Acquiror"), of the beneficial ownership (as
such term is defined for purposes of Section 13(d)(1) of the
Exchange Act) of shares of the Corporation which, when added
to any other shares the beneficial when added to any other
shares the beneficial ownership of which is held by the
Acquiror, shall have twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding
securities; or
(ii) the occurrence of any merger, consolidation or
reorganization to which the Corporation or the Bank is a party
and pursuant to which the Corporation or the Bank (or an
entity controlled thereby) is not a surviving entity, or the
sale of all or substantially all of the assets of the
Corporation or the Bank; or
(iii) the occurrence of a change in control of the Corporation
or the Bank of the nature that would be required to be
reported in response to Item 5(j) of Schedule 14A of
Regulation 14A under the Exchange Act, or in response to the
regulations of the Federal Reserve Board or the Comptroller or
any other federal regulatory agency having authority over the
business operations of the Corporation or the Bank.
10. Amendment and Termination
(a) The Board shall have the power to amend the Plan. It
shall not, however, except as otherwise provided in
the Plan, increase the maximum number of shares
authorized for the Plan, nor change the class of
eligible employees to other than Key Employees, nor
extend the period within which Options under the Plan
may be granted, nor provide for an Option that is
exercisable during a period of more then ten (10)
years from the date it vests. It shall have no power
(without the consent of the person or persons at the
time entitled to exercise the Option) to change the
terms and conditions if any Option after the Option
is granted in a manner that would adversely affect
the rights of such persons except to the extent, if
any, provided in the Option.
(b) The Board may suspend or terminate the Plan at any
time. No such suspension or termination shall affect
Options then in effect.
11. No Employment Right
The grant of an Option hereunder shall not constitute an agreement or
understanding, expressed or implied, on the part of the Bank, any Parent or any
Subsidiary, to employ the Participant for any specified period and shall not
confer upon any employee the right to continue in the employment of the
5
<PAGE>
Bank, any Parent or any Subsidiary, nor affect any right which the Bank, a
Parent or Subsidiary may have to terminate the employment of such employee.
12. Effective Date
The Plan is adopted on and shall be effective as of November 14, 1988,
subject to any modification that may be made herein, that may be deemed required
or appropriate by the Board to meet legal requirements.
/s/
Secretary
6
<PAGE>
FIRST AMENDMENT TO
ANCHOR FINANCIAL CORPORATION AND
THE ANCHOR BANK
NON-QUALIFIED STOCK OPTION PLAN OF 1988
The Anchor Financial Corporation and The Anchor Bank Non-Qualified
Stock Option Plan of 1988 (the "Plan") is hereby amended as follows:
1. Section 5(c) is amended to read as follows:
(c) Payment in full of the Option price for shares purchased
pursuant to an Option shall be made upon exercise of the
Option (in whole or in part) and shall be made in cash or with
shares of previously owned Common Stock at their fair market
value on the exercise date.
2. The Non-Qualified Stock Option Agreement referred to in Section 5 of
the Plan and attached as Exhibit A shall be amended as set forth in the
Non- Qualified Stock Option Agreement attached hereto as Exhibit A. The
Non- Qualified Stock Option Agreements issued prior to the adoption of
this Amendment, which provides for the grant of options that have not
been exercised, may be amended to comply with the revised form of
Agreement in Exhibit A and options issued under this Plan after the
adoption of this Amendment shall be in compliance with Exhibit A with
such additional terms and conditions as determined by the Committee.
3. The remaining provisions of the Plan shall continue in full force and
effect.
The above Amendment was duly adopted by the Board of Directors of
Anchor Financial Corporation and The Anchor Bank and is effective as of the 8th
day of December, 1997.
/s/
Secretary of
Anchor Financial Corporation
/s/
Secretary of The Anchor Bank
EXHIBIT 21.1
The Anchor Bank
Anchor Automated Services, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of Anchor Financial Corporation of our report dated February 12, 1998, which
appears on page 25 of Anchor Financial Corporation's 1997 Annual Report on Form
10-K for the year ended December 31, 1997. We also consent to the reference to
us under the heading "Experts" in such Joint Proxy Statement/Prospectus.
PRICE WATERHOUSE LLP
Columbia, South Carolina
June 12, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of ComSouth Bankshares, Inc. of our report dated January 31, 1998, which
appears after page 16 of ComSouth Bankshares, Inc.'s 1997 Annual Report on Form
10-K for the year ended December 31, 1997. We also consent to the reference to
us under the heading "Experts" in such Joint Proxy Statement/Prospectus.
J.W. HUNT AND COMPANY, LLP
Columbia, South Carolina
June 12, 1998
EXHIBIT 23.3
CONSENT OF TOURVILLE, SIMPSON & HENDERSON
We hereby consent to the use of our report dated March 9, 1998, related to the
consolidated financial statements of M&M Financial Corporation as of and for the
year ended December 31, 1997, in the Registration Statement on Form S-4 of
Anchor Financial Corporation and to the reference to our firm under the heading
"Experts" in the Joint Proxy Statement/Prospectus constituting part of such
Registration Statement on Form S-4.
TOURVILLE, SIMPSON & HENDERSON
Columbia, South Carolina
June 12, 1998
EXHIBIT 23.5
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Anchor Financial Corporation (the "Company") as Appendix D to the
Joint Proxy Statement/Prospectus relating to the proposed merger of each of
ComSouth Bankshares, Inc. and M&M Financial Corporation with and into the
Company contained in the Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on the date hereof, and to the references to
our firm and such opinion in such Joint Proxy Statement/Prospectus. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended
(the "Act"), or the rules and regulations of the Securities and Exchange
Commission thereunder (the "Regulations"), nor do we admit that we are experts
with respect to any part of such Registration Statement within the meaning of
the term "experts" as used in the Act or the Regulations.
June 16, 1998 SANDLER O'NEILL & PARTNERS, L.P.
By:
----------------------------
EXHIBIT 23.6
CONSENT OF FINANCIAL ADVISOR
ComSouth Bankshares, Inc.:
We consent to the references to our firm under the caption "Opinion of ComSouth
Bankshares, Inc.'s Financial Advisor" in the Registration Statement (Form S-4,
Commission File No. __________) for the proposed merger of ComSouth Bankshares,
Inc. with and into Anchor Financial Corporation, pursuant to an
Agreement and Plan of Merger dated April 14, 1998.
INTERSTATE/JOHNSON LANE CORPORATION
By: /s/
-------------------------------
James H. Glen, Jr.
Managing Director
EXHIBIT 23.7
CONSENT OF FINANCIAL ADVISOR
We consent to the references to our firm under the caption "Opinion of M&M's
Financial Advisor" in the Registration Statement on Form S-4 being filed with
the Securities and Exchange Commission by Anchor Financial Corporation in
connection with the proposed merger of M&M Financial Corporation with and into
Anchor Financial Corporation, pursuant to an Agreement and Plan of Merger dated
May 15, 1998.
ORR MANAGEMENT COMPANY
By: /s/
---------------------------
Laney G. Orr, III
Vice President
EXHIBIT 99.1
PROXY
ANCHOR FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Anchor Financial Corporation ("Anchor") hereby
appoints John J. Moran, W. Gairy Nichols III and Thomas J. Rogers, or any one of
them, as Proxies with full power of substitution and authorizes them to vote and
act for the undersigned as designated below, with respect to all the shares of
common stock, no par value per share, of Anchor held of record by the
undersigned on ___________, 1998, at the Special Meeting of Stockholders of
Anchor (the "Anchor Special Meeting") to be held on ________, 1998, and at any
adjournments or postponements thereof and, at their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the
Anchor Special Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS SPECIFIED WHEN THE DULY EXECUTED
PROXY IS RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF ANCHOR, OR, IN THE EVENT A MATTER
IS PROPERLY BROUGHT BEFORE THE ANCHOR SPECIAL MEETING AS TO WHICH THE BOARD OF
DIRECTORS HAS MADE NO RECOMMENDATION, THE PROXIES WILL VOTE THE SHARES IN THEIR
DISCRETION.
The Board of Directors of Anchor recommends that you vote FOR approval of (i)
the Agreement and Plan of Merger by and between Anchor and ComSouth Bankshares,
Inc., dated as of April 14, 1998, and (ii) the Agreement and Plan of Merger
between Anchor and M&M Financial Corporation, dated as of May 15, 1998.
1. Proposal to approve the Agreement and Plan of Merger, dated as of April 14,
1998 (the "ComSouth Agreement"), by and between Anchor and ComSouth Bankshares,
Inc. ("ComSouth") pursuant to which ComSouth will merge with and into Anchor and
each share of ComSouth's Common Stock (except for certain shares held by Anchor)
will be converted into .75 of a share of Anchor Common Stock, and such other
terms and conditions as are set forth in the ComSouth Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve the Agreement and Plan of Merger, dated as of May 15,
1998 (the "M&M Agreement"), by and between Anchor and M&M Financial Corporation
("M&M") pursuant to which M&M will merge with and into Anchor and each share of
M&M's Common Stock will be converted into .87 of a share of Anchor Common Stock,
and such other terms and conditions as are set forth in the M&M Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To transact such other business as may properly come before the Anchor
Special Meeting or any adjournments or postponements thereof.
Please date and sign the Proxy exactly as name appears on your stock
certificate. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign the full corporate name by
President or other authorized officer. If a partnership, please sign a
partnership name by authorized person.
Date: _________ _____________________________
Signature of Shareholder
_____________________________
Print Name of Shareholder
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
EXHIBIT 99.2
PROXY
COMSOUTH BANKSHARES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of ComSouth Bankshares, Inc. ("ComSouth") hereby
appoints Harry R. Brown and Arthur M. Swanson, or either of them, as Proxies
with full power of substitution and authorizes them to vote and act for the
undersigned as designated below, with respect to all the shares of common stock,
no par value per share, of ComSouth held of record by the undersigned on
___________, 1998, at the Special Meeting of Stockholders of ComSouth (the
"ComSouth Special Meeting") to be held on ________, 1998, and at any
adjournments or postponements thereof and, at their discretion, the Proxies are
authorized to vote upon such other business as may properly come before the
ComSouth Special Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS SPECIFIED WHEN THE DULY EXECUTED
PROXY IS RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF COMSOUTH, OR, IN THE EVENT A MATTER
IS PROPERLY BROUGHT BEFORE THE COMSOUTH SPECIAL MEETING AS TO WHICH THE BOARD OF
DIRECTORS HAS MADE NO RECOMMENDATION, THE PROXIES WILL VOTE THE SHARES IN THEIR
DISCRETION.
The Board of Directors of ComSouth recommends that you vote FOR approval of the
Agreement and Plan of Merger by and between Anchor and ComSouth Bankshares,
Inc., dated as of April 14, 1998.
1. Proposal to approve the Agreement and Plan of Merger, dated as of April 14,
1998 (the "ComSouth Agreement"), by and between Anchor and ComSouth Bankshares,
Inc. ("ComSouth") pursuant to which ComSouth will merge with and into Anchor and
each share of ComSouth's Common Stock (except for certain shares held by Anchor)
will be converted into .75 of a share of Anchor Common Stock, and such other
terms and conditions as are set forth in the ComSouth Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the Anchor
Special Meeting or any adjournments or postponements thereof.
Please date and sign the Proxy exactly as name appears on your stock
certificate. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign the full corporate name by
President or other authorized officer. If a partnership, please sign a
partnership name by authorized person.
Date: _________ _____________________________
Signature of Shareholder
_____________________________
Print Name of Shareholder
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
EXHIBIT 99.3
PROXY
M&M FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of M&M Financial Corporation ("M&M") hereby appoints
Marion E. Freeman and George H. Hardwick, or either of them, as Proxies with
full power of substitution to vote and act for the undersigned as designated
below, with respect to all the shares of common stock, par value $5.00 per
share, of M&M held of record by the undersigned on ___________, 1998, at the
Special Meeting of Stockholders of M&M (the "M&M Special Meeting") to be held on
________, 1998, and at any adjournments or postponements thereof and, at their
discretion, the Proxies are authorized to vote upon such other business as may
properly come before the M&M Special Meeting.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED HEREIN BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS SPECIFIED WHEN THE DULY EXECUTED
PROXY IS RETURNED, SUCH SHARES WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATION OF THE BOARD OF DIRECTORS OF M&M OR, IN THE EVENT A MATTER IS
PROPERLY BROUGHT BEFORE THE M&M SPECIAL MEETING AS TO WHICH THE BOARD OF
DIRECTORS HAS MADE NO RECOMMENDATION, THE PROXIES WILL VOTE THE SHARES IN THEIR
DISCRETION.
The Board of Directors of M&M recommends that you vote FOR approval of the
Agreement and Plan of Merger between Anchor and M&M Financial Corporation, dated
as of May 15, 1998.
1. Proposal to approve the Agreement and Plan of Merger, dated as of May 15,
1998 (the "M&M Agreement"), by and between Anchor and M&M Financial Corporation
("M&M") pursuant to which M&M will merge with and into Anchor and each share of
M&M's Common Stock will be converted into .87 of a share of Anchor Common Stock,
and such other terms and conditions as are set forth in the M&M Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the Anchor
Special Meeting or any adjournments or postponements thereof.
Please date and sign the Proxy exactly as name appears on your stock
certificate. When shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such. If a corporation, please sign the full corporate name by
President or other authorized officer. If a partnership, please sign a
partnership name by authorized person.
Date: _________ _____________________________
Signature of Shareholder
_____________________________
Print Name of Shareholder
PLEASE MARK, SIGN DATE AND RETURN THIS PROXY
PROMPTLY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
