As filed with the Securities and Exchange Commission on February 5, 1999
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)
South Carolina 6712 57-0778015
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation) Code Number)
---------------------
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:
Ann W. Langston M. Craig Garner, Jr.
GERRISH & MCCREARY, P.C. MCNAIR LAW FIRM, P.A.
700 Colonial Road, Suite 200 NationsBank Tower
Memphis, TN 38117 1301 Gervais St., Suite 1700
(901) 767-0900 Columbia, SC 29201
(803) 799-9800
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. ___
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
=========================== ========================= ========================= ========================== =========================
Title of each class of Proposed maximum Proposed maximum
securities to be offering price per aggregate offering Amount of registration
registered Amount to be share(2) price(3) fee
registered(1)
<S> <C> <C> <C> <C>
Common Stock, no par value 1,552,685 $16,155,723.40 $4,895.67
=========================== ========================= ========================= ========================== =========================
</TABLE>
(1) Calculated as of February 1, 1999, as the product of the 95,140
outstanding shares of Bailey Financial Corporation ("Bailey") to be
exchanged based on an exchange ratio of 16.32.
(2) Not applicable.
(3) Calculated as the product of outstanding shares of Bailey times the
book value per share on February 1, 1999 of $169.81 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 under 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 logo) (Bailey logo)
Merger Proposed - Your Vote is Very Important
The boards of directors of Anchor Financial Corporation and Bailey
Financial Corporation have agreed on a merger of the two companies. In the
merger, Bailey shareholders will receive 16.32 shares of Anchor common stock for
each share of Bailey common stock, and generally will not recognize federal
income tax gain or loss for the Anchor common stock they receive. Anchor
shareholders will continue to own their existing shares of Anchor common stock
after the merger.
Anchor common stock trades on The Nasdaq National Market under the
symbol "AFSC."
We cannot complete the merger unless the Anchor shareholders and the
Bailey shareholders vote to approve the merger. We have scheduled special
meetings for the Anchor shareholders and the Bailey shareholders to vote on the
merger.
Your vote is important. Whether or not you plan to attend your special
meeting, please take the time to vote by completing and mailing the enclosed
proxy card to us. If you date and mail your proxy card without indicating how
you want to vote, your proxy will be counted as a vote FOR the matters
considered at your meeting. If you fail to return your proxy card or vote in
person, the effect will be a vote against approval of the merger.
The dates, times and places of the special meetings are:
For Anchor shareholders: For Bailey shareholders:
March 23, 1999 March 23, 1999
____ _. m. local time 10:00 a.m. local time
_______________________ M. S. Bailey & Son, Bankers
Myrtle Beach, South Carolina 29577 211 N. Broad Street
Clinton, South Carolina 29325
This joint proxy statement/prospectus provides you with detailed
information about the proposed merger. We encourage you to read this entire
document carefully.
The boards of directors of Anchor and Bailey support the merger and
urge you to vote "FOR" the merger agreement.
Thank you for your support.
Sincerely,
/s/Stephen L. Chryst /s/John W. Dickens
- -------------------- ------------------
Stephen L. Chryst John W. Dickens
Chairman of the Board, President President and Chief
And Chief Executive Officer Executive Officer
Anchor Financial Corporation Bailey Financial Corporation
Neither the Securities and Exchange Commission nor any state securities
regulators have approved the Anchor common stock to be issued in the merger or
determined if this joint proxy statement/prospectus is accurate or adequate. Any
representation to the contrary is a criminal offense.
This joint proxy statement/prospectus is dated February __, 1999 and is first
being mailed to Anchor shareholders and Bailey shareholders on or about February
__, 1999.
<PAGE>
Anchor Financial Corporation
Myrtle Beach, South Carolina
Notice of Special Meeting of Shareholders
To be held on March 23, 1999
NOTICE IS HEREBY GIVEN that the Board of Directors of Anchor Financial
Corporation has called a special meeting of shareholders of Anchor to be held
at_______________________, Myrtle Beach, South Carolina, on March 23, 1999, at
______ __.m., local time, for the following purposes:
1. To consider and vote on the Agreement and Plan of Merger, dated
September 24, 1998, between Anchor Financial Corporation and Bailey
Financial Corporation. The merger agreement provides that Anchor will
acquire all the issued and outstanding common stock of Bailey through
the merger of Bailey into Anchor. In the merger, each outstanding share
of common stock, par value $.01, of Bailey will be converted into 16.32
shares of Anchor common stock, no par value, except for shares as to
which dissenters' rights have been exercised and perfected under South
Carolina law, and each Bailey shareholder will receive cash in lieu of
any remaining fractional share, all as described more fully in the
accompanying joint proxy statement/prospectus. A copy of the merger
agreement is Appendix A to the joint proxy statement/prospectus.
2. To transact such other business as may be properly brought before the
special meeting or any adjournments of that meeting.
Only shareholders of record of Anchor common stock at the close of business on
February 10, 1999, are entitled to notice of and to vote at the Anchor special
meeting and any adjournments or postponements of that meeting.
Anchor shareholders are invited to attend the Anchor special meeting in person.
Whether or not you plan to attend the Anchor special meeting, your 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 in person. Approval by the record holders of
two-thirds of the outstanding stock of Anchor is required to approve the
proposed Agreement and Plan of Merger.
As a shareholder of Anchor, you may dissent to the proposed merger if you comply
with the procedures required by the South Carolina Business Corporation Act, and
you will be entitled to receive payment of the fair value of your shares of
Anchor common stock. We have attached a copy of this law as Appendix B to this
joint proxy statement/prospectus. If you are considering exercising dissenters'
rights, please carefully review these materials and information before voting at
the Anchor special meeting.
By order of the Board of Directors,
Myrtle Beach, South Carolina /s/Stephen L. Chryst
February, 1999 --------------------
Stephen L. Chryst
Chairman of the Board,
President
and Chief Executive Officer
<PAGE>
Bailey Financial Corporation
Clinton, South Carolina
Notice Of Special Meeting Of Shareholders
To Be Held On March ___, 1999
NOTICE IS HEREBY GIVEN that the Board of Directors of Bailey Financial
Corporation has called a special meeting of shareholders of Bailey to be held at
the offices of M.S. Bailey & Son, Bankers, at 211 North Broad Street, Clinton,
South Carolina, on March ___, 1999, at 10:00 a.m., local time, for the following
purposes:
1. To consider and vote on the Agreement and Plan of Merger, dated
September 24, 1998, by and between Bailey Financial Corporation and
Anchor Financial Corporation. The merger agreement provides that Anchor
will acquire all the issued and outstanding common stock of Bailey
through the merger of Bailey into Anchor. In the merger, each
outstanding share of common stock, par value $.01, of Bailey will be
converted into 16.32 shares of Anchor common stock, no par value,
except for shares as to which dissenters' rights have been exercised
and perfected under South Carolina law, and each Bailey shareholder
will receive cash in lieu of any remaining fractional share, all as
described more fully in the accompanying joint proxy
statement/prospectus. A copy of the merger agreement is Appendix A to
the joint proxy statement/prospectus.
2. To transact such other business as may be properly brought before the
Bailey special meeting or any adjournments of that meeting.
Only shareholders of record of Bailey common stock at the close of business on
__________ __, 1999, are entitled to receive notice of and to vote at the
special meeting and any adjournments or postponements of that meeting.
Bailey shareholders are invited to attend the Bailey special meeting in person.
Whether or not you plan to attend the special meeting, your 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 Bailey a
written revocation bearing a later date, or by attending and voting at the
Bailey special meeting in person. Approval by the record holders of two-thirds
of the outstanding stock of Bailey is required to approve the proposed Agreement
and Plan of Merger.
Dissenting shareholders of Bailey who comply with the procedures required by the
South Carolina Business Corporation Act will be entitled to receive payment of
the fair value of their shares of Bailey common stock. We have attached a copy
of this law as an Appendix B to this joint proxy statement/prospectus. If you
are considering exercising dissenters' rights, please carefully review these
materials and information before voting at the Bailey special meeting.
By order of the Board of Directors,
Clinton, South Carolina /s/John W. Dickens
February __, 1999 ------------------
John W. Dickens
President and Chief Executive Officer
<PAGE>
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................... 3
SUMMARY..................................................................... 5
COMPARATIVE PER SHARE DATA ................................................. 8
SELECTED FINANCIAL INFORMATION..............................................10
THE BAILEY SPECIAL MEETING..................................................15
Purposes of the Bailey Special Meeting.............................15
Time, Date and Place of the Bailey Special Meeting.................15
Record Date; Shares Outstanding and Entitled to Vote...............15
Required Vote of Bailey Shareholders...............................15
Voting and Withdrawal of Proxies by Bailey Shareholders............15
Solicitation of Proxies by Bailey..................................15
THE ANCHOR SPECIAL MEETING
Purposes of the Anchor Special Meeting.............................16
Time, Date and Place of the Anchor Special Meeting.................16
Record Date; Shares Outstanding and Entitled to Vote...............16
Required Vote of Anchor Shareholders...............................16
Voting and Withdrawal of Proxies by Anchor Shareholders............16
Solicitation of Proxies by Anchor..................................17
Anchor Shareholder Proposals for Next Annual Meeting...............17
THE PROPOSED MERGER.........................................................17
Background of the Merger...........................................17
Reasons for the Merger.............................................19
General Information about the Merger...............................20
How to Exchange Bailey Common Stock for
Anchor Common Stock.............................................21
Conditions for the Merger..........................................21
Termination Provisions.............................................22
Effective Date.....................................................22
Employment Agreements..............................................22
Expenses and Fees Related to the Merger............................22
Stock Option Grant.................................................22
Regulatory Approvals...............................................23
Rights of Dissenting Shareholders of Anchor and Bailey.............23
Accounting Treatment...............................................25
Directors and Executive Officers Following the Merger..............25
Interests of Bailey's Board and Management in the Merger...........25
Material Federal Income Tax Consequences of the Merger.............25
Resales of Anchor Common Stock to be Received by Affiliates
of Bailey.......................................................26
Differences in Rights of Anchor and Bailey Shareholders............27
COMPARATIVE MARKET PRICES AND DIVIDENDS.....................................29
Anchor Market Prices...............................................29
Bailey Market Prices...............................................29
Dividends..........................................................29
DESCRIPTION OF ANCHOR COMMON STOCK..........................................30
SELECTED HISTORICAL FINANCIAL DATA OF ANCHOR................................31
SELECTED HISTORICAL FINANCIAL DATA OF BAILEY................................32
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.................33
<PAGE>
INFORMATION ABOUT ANCHOR....................................................43
Business of Anchor.................................................43
Recent Developments................................................44
Historical Condensed Consolidated Balance Sheet....................46
-1-
<PAGE>
SUPERVISION AND REGULATION..................................................47
INFORMATION ABOUT BAILEY....................................................50
Business of Bailey.................................................50
Security Ownership of Certain Beneficial Owners and
Management of Bailey.............................................53
Management's Discussion and Analysis of Financial
Condition and Results of Operations of ..........................55
EXPERTS.....................................................................74
LEGAL MATTERS...............................................................74
WHERE YOU CAN FIND MORE INFORMATION.........................................75
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................75
CAUTIONARY STATEMENT CONCERNING FORWARDING-LOOKING INFORMATION FOR ANCHOR...76
APPENDICES
Appendix A - Agreement and Plan of Merger by and between Anchor and Bailey,
dated September 24, 1998.
Appendix B - Rights of Dissenting Shareholders as set forth in Section
33-13-101 et. seq. of the South Carolina Business Corporation
Act of 1988, as amended
FINANCIAL STATEMENTS OF BAILEY
INDEX TO FINANCIAL STATEMENTS OF BAILEY.....................................F-1
-2-
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What will happen in the merger?
A: The businesses and operations of Anchor and Bailey will be combined
into Anchor as a single, larger company.
Q: As a Bailey shareholder, how will I be affected by the merger?
A: If the merger is completed, you will receive 16.32 shares of Anchor
common stock in exchange for each share of Bailey common stock you own.
You will receive cash instead of any fractional Anchor shares based on
the closing price of Anchor common stock on the effective date of the
merger.
Q: What do I need to do now?
A: Just indicate on your proxy card how you want to vote, and sign and
mail the proxy card in the enclosed envelope as soon as possible so
that your shares will be represented at your company's special meeting
even if you cannot attend.
Q: What do I do if I want to change my vote?
A: You may send in a later-dated proxy card or attend your company's
special meeting and vote your shares in person. If you have already
mailed your proxy card and want to vote in person, before the meeting
please notify the Secretary of Bailey if you are a Bailey shareholder
or the Secretary of Anchor if you are an Anchor shareholder.
Q: Should Bailey Shareholders send in their stock certificates now?
A: No. After the merger is completed, Anchor will send you written
instructions for exchanging your Bailey common stock certificates for
Anchor common stock certificates.
Q: What are the tax consequences to me?
A: We expect that the exchange of shares by Bailey shareholders generally
will be tax free to Bailey, Anchor, and the Bailey shareholders for
U.S. federal income tax purposes. Bailey shareholders will have to pay
taxes on a portion of any cash you receive instead of Anchor fractional
shares. If you are a dissenting shareholder of Bailey or Anchor and
receive cash payment for your Bailey or Anchor shares, you will have to
pay taxes on a portion of the cash you receive.
Your tax consequences depend on your personal situation. You are
encouraged to consult your tax advisor.
Q: What happens when the market price of Anchor common stock fluctuates?
A: The market price of Anchor common stock will fluctuate before and after
the merger is completed. The value of the Anchor common stock that
Bailey shareholders will receive in the merger will fluctuate as well,
and it could increase or decrease. You can obtain current market prices
for shares of Anchor common stock on The Nasdaq National Market under
the symbol "AFSC."
-3-
<PAGE>
Q: What will happen to M.S. Bailey & Son, Bankers and the Saluda County
Bank in the merger?
A: The Saluda County Bank will merge into M.S. Bailey & Son, Bankers. The
banking business of The Saluda County Bank will continue under the name
of M.S. Bailey & Son, Bankers. M.S. Bailey & Son, Bankers will become a
subsidiary bank of Anchor.
Q: When will the merger be completed?
A: We are working to complete the merger during the first quarter of 1999.
There could be delays.
Q: Whom should I call with questions?
A: Bailey shareholders should contact:
Bailey Financial Corporation
Mr. John W. Dickens
211 N. Broad Street
Clinton, SC 29325
Telephone (864) 833-1910
Anchor shareholders should contact:
Anchor Financial Corporation
Mr. Tommy E. Looper
2002 Oak Street
Myrtle Beach, SC 29577
Telephone (843) 448-1411
Please rely only on the information in this joint proxy statement/prospectus. We
have not authorized anyone to provide you with different information.
-4-
<PAGE>
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus. This summary is not complete and you are encouraged to
read the more detailed information in this joint proxy statement/prospectus
carefully.
Parties to the Merger
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
(843)448-1411
Anchor is the holding company for The Anchor Bank, a commercial bank with
offices in South Carolina and North Carolina. See "Information About Anchor -
Business of Anchor," page 41.
Bailey Financial Corporation
211 North Broad Street
Clinton, South Carolina 29325
(864) 833-1910
Bailey is the holding company for M.S. Bailey & Son, Bankers and The Saluda
County Bank, commercial banks in Clinton and Saluda, South Carolina. See
"Information About Bailey - Business of Bailey," page 48.
Bailey Special Meeting to be Held March 23, 1999
The Bailey special meeting will be held at 10:00 a.m., local time, at the office
of M.S. Bailey & Son, Bankers, at 211 North Broad Street, Clinton, South
Carolina, on Marach 23, 1999. At this meeting Bailey shareholders will consider
and vote on the merger agreement and conduct any other business that properly
arises. See "The Bailey Special Meeting," page 13.
Bailey Record Date Set at February ____, 1999; One Vote Per Share
You can vote at the Bailey special meeting only if you owned shares of Bailey
common stock on February __, 1999, which was the Bailey record date. On February
__,1999 there were 95,140 shares of Bailey common stock outstanding. Each share
has one vote.
Two-Thirds Bailey Shareholder Vote Required to Approve the Merger
The merger requires the approval of the holders of at least two-thirds of the
outstanding shares of Bailey common stock. Your failure to vote will have the
effect of a vote against approval of the merger. On February __, 1999, Bailey's
directors, executive officers and holders of 5% or more of Bailey's common stock
together own about 67.59% of the Bailey shares entitled to vote at the Bailey
special meeting. We expect all of the directors and executive officers of Bailey
except C. Bailey Dixon to vote all their shares in favor of the merger.
<PAGE>
Anchor Special Meeting to be Held March 23, 1999
The Anchor special meeting will be held on March 23, 1999, at ___ _.m., local
time, at ______________________, Myrtle Beach, South Carolina. At this meeting
Anchor shareholders will consider and vote on the merger agreement and conduct
any other business that properly arises. See "The Anchor Special Meeting," page
14.
Anchor Record Date Set at February 10, 1999; One Vote Per Share
You can vote at the Anchor special meeting only if you owned shares of Anchor
common stock on February 10, 1999, which was the Anchor record date. On February
10, 1999 there were _______ shares of Anchor common stock outstanding. Each
share has one vote.
-5-
<PAGE>
Anchor Shareholder Vote Required to Approve the Merger
The merger requires the approval of the holders of at least two-thirds of the
outstanding shares of Anchor common stock. On February 10, 1999, Anchor's
directors and executive officers together own about ____% of the Anchor common
stock entitled to vote at the Anchor special meeting. We expect all of the
directors and executive officers of Anchor to vote all their shares in favor of
the merger.
Bailey and Anchor Boards Recommend Shareholder Approvals
The boards of directors of Bailey and Anchor believe that the merger is in the
best interests of each of their shareholders, and recommend a vote FOR approval
of the merger. See "The Proposed Merger - Reasons for the Merger," page 17.
Dissenters' Rights of Bailey and Anchor Shareholders
Bailey and Anchor shareholders will have the right to dissent from the merger.
If the merger is completed, you may be entitled to receive cash for the fair
value of your shares of Bailey common stock or Anchor common stock. See "The
Proposed Merger - Rights of Dissenting Shareholders of Anchor and Bailey," page
21.
The Merger Agreement
We have attached the merger agreement as Appendix A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement, as it is
the legal document that governs the merger.
How to Exchange Bailey Common Stock for Anchor Common Stock
Promptly after the merger is completed, Anchor will select an exchange agent to
mail to the former shareholders of Bailey a letter of transmittal, along with
instructions for exchanging certificates for shares of Bailey common stock for
certificates for shares of Anchor common stock. Bailey shareholders should not
send your stock certificates until you receive the form letter of transmittal
and instructions. See "The Proposed Merger - How to Exchange Bailey Common Stock
for Anchor Common Stock," page 19.
Regulatory Approvals and Other Conditions for the Merger
The merger must be approved by the Board of Governors of the Federal Reserve and
by the South Carolina State Board of Financial Institutions. Applications for
the required approvals have been filed with the Federal Reserve and the South
Carolina Board and approvals have been granted.
These conditions must be met for us to complete the merger:
Approvals of the merger by the Bailey shareholders and the Anchor
shareholders
Receipt of legal opinions
Completion of the merger as a pooling-of-interests
No material adverse change in the financial condition or results of
operations of Bailey or Anchor.
See "The Proposed Merger - Conditions for the Merger," page 19 and "Regulatory
Approvals," page 21.
-6-
<PAGE>
Termination Provisions of the Merger Agreement
The merger agreement may be terminated at any time before the merger is
completed:
by the mutual consent of the boards of directors of Anchor and Bailey
by the board of directors of Anchor or Bailey in the event of an
uncorrected material breach of any agreement, covenant, representation or
warranty by the other party
by either party if the merger is not completed by June 30, 1999
by Bailey if the Bailey shareholders fail to approve the merger.
See "The Proposed Merger - Termination Provisions," page 20.
Stock Option Grant Agreement
Anchor and Bailey have also entered into a stock option grant agreement that
requires Bailey to grant Anchor a stock option to purchase from Bailey up to
19.9% of Bailey's common stock at a price of $633.00 per share. The option must
be granted and becomes exercisable only if specified events happen that result
in termination of the proposed merger. See "The Proposed Merger - Stock Option
Grant," page 20.
Interests of Bailey's Board and Management in the Merger
Please be aware that some of Bailey's directors and officers may have interests
in the merger that are in addition to their interests as Bailey shareholders.
Two current members of the boards of directors of Bailey or Bailey's subsidiary
banks will be appointed to the board of directors of Anchor Bank. Anchor has to
indemnify the directors and officers of Bailey 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. See "The Proposed Merger -
Employment Agreements," page 20 and "Interests of Bailey's Board and Management
in the Merger," page 23.
Anchor to Use Pooling-of-Interests Accounting Treatment
The merger is expected to be accounted for as a pooling-of-interests.
Differences in Shareholders' Rights
When the merger is completed, Bailey shareholders will automatically become
Anchor shareholders, and your rights as Anchor shareholders will be determined
by Anchor's articles of incorporation and bylaws and the South Carolina Business
Corporation Act. The rights of Anchor shareholders differ from the rights of
Bailey shareholders in several ways, some of which constitute anti-takeover
provisions provided for in the governing documents of Anchor. See "The Proposed
Merger - Differences in Rights of Anchor and Bailey Shareholders," page 25.
-7-
<PAGE>
Comparative Prices of Anchor and Bailey Common Stocks
Anchor common stock is traded on The Nasdaq National Market under the symbol
"AFSC."
Bailey common stock is not listed for quotation on any stock exchange and is not
actively traded.
The following table shows the closing sales prices reported on Nasdaq for Anchor
common stock on September 3, 1998, the last trading date preceding public
announcement of the merger. The table also shows the most recent known sales
price for Bailey common stock before September 4, 1998, and the per share
equivalent price for Bailey common stock on September 3, 1998.
Per Share Price On
September 3, 1998
(before
announcement )
Anchor Common Stock - historical $ 36.00
Bailey Common Stock - historical $150.00
- equivalent (1) $587.52
(1) The equivalent per share price of Bailey common stock represents the closing
sales price of a share of Anchor common stock on September 3, 1998 multiplied by
the exchange ratio of 16.32.
-8-
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth at the dates and for the periods indicated, (1)
selected comparative per share data for Anchor and Bailey on an historical
basis, and (2) selected unaudited pro forma comparative per share data
reflecting the completion of the merger. The unaudited pro forma data has been
prepared giving effect to the merger as a pooling-of-interests. All Anchor
historical data has been restated for the mergers of ComSouth Bankshares, Inc.
and M&M Financial Corporation with and into Anchor which were accounted for as
poolings-of-interests. The pro forma equivalent information for Bailey
represents pro forma combined information multiplied by the exchange ratio of
16.32 shares of Anchor common stock for each share of Bailey common stock. Book
value per share is calculated using common stock, surplus and retained earnings
divided by total shares outstanding at period end. The following information is
not necessarily indicative of the results of operations or combined financial
position that would have resulted had the merger been completed 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 and Bailey,
including the notes thereto, incorporated by reference or appearing elsewhere in
this Joint proxy statement/prospectus, and the pro forma financial information
included herein. See "Incorporation of Certain Documents By Reference,"
"Financial Statements of Bailey," and Unaudited Pro Forma Combined Condensed
Financial Statements."
-9-
<PAGE>
<TABLE>
<CAPTION>
For the For the
Nine Months Years Ended
Ended September 30, December 31,
------------------- -------------------------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE:
Anchor historical - basic $ 0.83 $ 1.46 $ 1.16 $ 0.85
Anchor historical - diluted $ 0.79 $ 1.38 $ 1.11 $ 0.83
Bailey historical - basic $ 18.09 $ 15.19 $ 14.00 $ 14.05
Bailey historical - diluted $ 18.09 $ 15.19 $ 14.00 $ 14.05
Pro forma combined (unaudited):
Anchor/Bailey - basic $ 0.89 $ 1.36 $ 1.10 $ 0.85
Anchor/Bailey - diluted $ 0.85 $ 1.29 $ 1.07 $ 0.84
Pro forma equivalents for Bailey (unaudited):
Anchor/Bailey - basic $ 14.45 $ 22.15 $ 17.99 $ 13.93
Anchor/Bailey - diluted $ 13.88 $ 21.12 $ 17.39 $ 13.70
CASH DIVIDENDS DECLARED PER
COMMON SHARE:
Anchor historical $ 0.36 $ 0.375 $ 0.28 $ 0.24
Bailey historical $ 2.82 $ 3.30 $ 3.20 $ 3.15
Pro forma equivalents (unaudited):
For Bailey $ 5.88 $ 6.12 $ 4.57 $ 3.92
BOOK VALUE PER COMMON SHARE (PERIOD END):
Anchor historical $ 10.86 $ 10.23 $ 9.02 $ 8.08
Bailey historical $167.47 $152.20 $140.31 $129.51
Pro forma combined (unaudited):
Anchor/Bailey $ 10.74 $ 10.06 $ 8.93 $ 8.05
Pro forma equivalents for Bailey (unaudited):
Anchor/Bailey $175.29 $164.14 $145.81 $131.43
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
Anchor historical - basic 6,410,995 6,317,141 6,271,333 6,218,729
Anchor historical - diluted 6,734,681 6,703,191 6,539,544 6,349,626
Bailey historical - basic 95,140 95,140 95,140 95,140
Bailey historical - diluted 95,140 95,140 95,140 95,140
Pro forma combined (unaudited):
Anchor/Bailey - basic 7,963,680 7,869,826 7,824,018 7,771,414
Anchor/Bailey - diluted 8,287,366 8,255,876 8,092,229 7,902,311
</TABLE>
-10-
<PAGE>
SELECTED FINANCIAL INFORMATION
The following table sets forth (1) summary selected financial information for
each of Anchor and Bailey on a historical basis, and (2) summary unaudited pro
forma selected financial information reflecting the consummation of the merger.
The 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 and Bailey, giving effect to the pro
forma adjustments described in the Notes to the Unaudited Pro Forma Combined
Condensed Financial Statements on page 39. See "The Proposed Merger - Accounting
Treatment." The summary selected financial information for each of Anchor and
Bailey and the unaudited pro forma selected financial information have been
prepared based on the historical financial statements of Anchor and Bailey for
each of the three years in the period ended December 31, 1997, and the nine
months ended September 30, 1998 and 1997. All Anchor historical data has been
restated for the mergers of ComSouth Bankshares, Inc. and M&M Financial
Corporation with and into Anchor which were accounted for as
poolings-of-interests.
The data should be read in conjunction with the historical financial statements,
related notes and other financial information for Anchor and Bailey incorporated
by reference or included elsewhere in this joint proxy statement/prospectus. The
interim financial data as of September 30, 1998 and 1997 and for the nine months
ended September 30, 1998 and 1997 is unaudited; however, in the opinion of
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim periods. The return on average assets and the return on average
stockholders' equity for the period ended September 30, 1998 has been
annualized. The results of operations for the nine month period ended September
30, 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 merger actually occurred in the periods or on the dates
indicated. See "Unaudited Pro Forma Combined Condensed Financial Statements."
-11-
<PAGE>
<TABLE>
<CAPTION>
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
Nine Months Ended Years Ended
September 30, December 31,
----------------------------- --------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(Unaudited)
(In thousands, except ratios)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
(At end of period)
Total assets
Anchor $ 1,011,912 $ 910,024 $ 945,453 $ 791,511 $ 658,976
Bailey 168,655 166,768 173,301 149,712 149,418
Pro forma combined:
Anchor/Bailey 1,181,419 1,076,792 1,118,754 941,223 808,394
Investment securities
Anchor $ 228,133 $ 185,416 $ 197,325 $ 172,759 $ 145,740
Bailey 37,379 40,752 41,781 30,879 32,884
Pro forma combined:
Anchor/Bailey 269,872 228,933 241,919 206,429 178,974
Loans, net
Anchor $ 694,784 $ 629,861 $ 658,267 $ 535,379 $ 433,608
Bailey 112,008 104,913 110,933 101,531 94,960
Pro forma combined:
Anchor/Bailey 806,792 734,774 769,200 636,910 528,568
Total deposits
Anchor $ 869,761 $ 782,190 $ 796,682 $ 673,093 $ 567,723
Bailey 133,969 132,424 135,830 128,236 130,679
Pro forma combined:
Anchor/Bailey 1,003,730 914,614 932,512 801,329 698,402
Borrowed funds
Anchor $ 62,128 $ 57,981 $ 76,221 $ 55,927 $ 35,144
Bailey 17,022 18,662 21,587 6,725 4,925
Pro forma combined:
Anchor/Bailey 79,150 76,643 97,808 62,652 40,069
Stockholders' equity
Anchor $ 71,665 $ 61,940 $ 66,099 $ 57,126 $ 50,811
Bailey 16,137 14,318 14,585 13,413 12,558
Pro forma combined:
Anchor/Bailey 87,254 76,258 80,684 70,539 63,369
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL RATIOS
Nine Months
Ended Years Ended
September 30, December 31,
-------------- ----------------------------------
1998 1997 1996 1995
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Return on average assets
Anchor 0.71 % 1.07 % 1.00 % 0.87 %
Bailey 1.31 0.89 0.88 0.88
Pro forma combined:
Anchor/Bailey 0.80 % 1.04 % 0.98 % 0.87 %
Return on average stockholders' equity
Anchor 10.08 % 15.15 % 13.62 % 11.02 %
Bailey 15.04 10.37 9.92 10.64
Pro forma combined:
Anchor/Bailey 10.96 % 14.26 % 12.88 % 10.95 %
Tier 1 risk-based capital
Anchor 9.36 % 9.27 % 10.05 % 10.65 %
Bailey 12.73 11.42 11.25 12.43
Pro forma combined:
Anchor/Bailey 9.98 % 9.75 % 10.45 % 11.00 %
Total risk-based capital
Anchor 11.97 % 11.93 % 13.19 % 12.88 %
Bailey 12.51 11.11 11.25 13.51
Pro forma combined:
Anchor/Bailey 12.39 % 12.16 % 13.33 % 13.05 %
Tier 1 leverage
Anchor 6.78 % 6.88 % 7.32 % 7.70 %
Bailey 8.23 7.74 7.84 8.03
Pro forma combined:
Anchor/Bailey 6.99 % 7.01% 7.39 % 7.77 %
</TABLE>
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<PAGE>
THE BAILEY SPECIAL MEETING
Purposes of the Bailey Special Meeting
The purposes of the Bailey special meeting are to:
Vote on the merger agreement, and
Act on any matters that may properly come before the special meeting.
Time, Date and Place of the Bailey Special Meeting
The Bailey special meeting will be held at the offices of M.S. Bailey & Son,
Bankers, 211 North Broad Street, Clinton, South Carolina, at 10:00 a.m., local
time, on March 23, 1999.
Record Date; Shares Outstanding and Entitled to Vote
Only the record holders of Bailey common stock at the close of business on the
Bailey record date of February __, 1999 are entitled to notice of and to vote at
the Bailey special meeting and any postponement or adjournments of that meeting.
On the Bailey record date, there were 95,140 shares of Bailey common stock
outstanding, with each share being entitled to one vote on each matter properly
coming before the Bailey special meeting.
Required Vote of Bailey Shareholders
The agreement must be approved by the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Bailey common stock. Accordingly,
abstentions and broker non-votes will have the same effect as votes against
approval of the agreement. As of the Bailey record date, Bailey's directors and
executive officers and holders of 5% or more of Bailey's common stock
beneficially owned as a group approximately 64,308 shares (67.59%) of the
outstanding Bailey common stock. All of the directors, executive officers of
Bailey except C. Bailey Dixon have indicated their intention to vote all shares
of Bailey common stock owned or controlled by them in favor of approval of the
merger agreement. Mr. Dixon has indicated he will not exercise any dissenter's
rights if the shareholders of Bailey approve the merger.
Voting and Withdrawal of Proxies by Bailey Shareholders
The proxies for Bailey shareholders which accompany this joint proxy
statement/prospectus permit each holder of record of Bailey common stock on the
Bailey record date to vote on all matters to come before the Bailey special
meeting. Bailey common stock represented by proxies, unless previously
withdrawn, will be voted at the Bailey special meeting in accordance with the
instructions on the proxy card. If no instructions are indicated, the shares
will be voted FOR approval of the merger agreement.
No additional business is presently scheduled to be conducted at the Bailey
special meeting, and it is not anticipated that other matters will be brought
before the Bailey special meeting. If, however, other appropriate matters are
brought before the Bailey special meeting, the persons appointed as proxies will
have discretion to vote or act on those matters according to their best
judgment.
A Bailey shareholder executing and returning a proxy card has the power to
withdraw it at any time before it is voted. A Bailey shareholder who wishes to
withdraw a proxy may do so by filing with the Secretary of Bailey prior to the
<PAGE>
Bailey special meeting, a written withdrawal or a duly executed proxy bearing a
later date or by voting in person at the Bailey special meeting. Attendance at
the Bailey special meeting alone does not revoke a proxy. Written withdrawal can
be made to Mr. William R. Davis, Secretary, Bailey Financial Corporation, 211
North Broad Street, Clinton, South Carolina 29325.
Solicitation of Proxies by Bailey
In addition to solicitation by mail, directors, officers and other employees of
Bailey, who will not be specially compensated for such service, may solicit
proxies from the shareholders of Bailey, 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 materials 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 Bailey common stock.
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<PAGE>
Each party to the merger will bear its own costs and expenses of soliciting
proxies and the printing costs and expenses incurred in connection with this
joint proxy statement/prospectus and the associated registration statement filed
by Anchor with the Securities and Exchange Commission.
Bailey shareholders should not send any stock certificates with their proxy
card.
THE ANCHOR SPECIAL MEETING
Purposes of the Anchor Special Meeting
The purposes of the Anchor special meeting are to:
vote on the merger agreement, and
act on any matters that may properly come before the special meeting.
Time, Date and Place of the Anchor Special Meeting
The Anchor special meeting will be held at _______, Myrtle Beach, South Carolina
at ___.m., local time, on March 23, 1999.
Record Date; Shares Outstanding and Entitled to Vote
Only the record holders of Anchor common stock at the close of business on the
Anchor record date of February 10, 1999 are entitled to notice of and to vote at
the Anchor special meeting and any postponements or adjournments of that
meeting. On the Anchor record 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 Vote of Anchor Shareholders
The 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 Agreement. As of the Anchor record date, Anchor's directors and
executive officers beneficially owned as a group approximately ________ shares
(______%) of the outstanding Anchor common stock. The directors and executive
officers of Anchor have indicated their intention to vote all shares of Anchor
common stock owned or controlled by them in favor of approval of the merger
agreement.
Voting and Withdrawal of Proxies by Anchor Shareholders
The proxies for Anchor shareholders which accompany this joint proxy
statement/prospectus permit each holder of record of Anchor common stock on the
Anchor record date to vote on all matters to come before the Anchor special
meeting. Anchor common stock represented by properly executed proxies, unless
previously withdrawn, will be voted at the Anchor special meeting in accordance
with the instructions on the proxy card. If no instructions are indicated, the
shares will be voted FOR approval of the merger agreement.
<PAGE>
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 shareholder executing and returning a proxy card has the power to
withdraw it at any time before it is voted. An Anchor shareholder who wishes to
withdraw a proxy may do so by filing with the Secretary of Anchor prior to the
Anchor special meeting, a written withdrawal 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 withdrawal can
be made to Mr. Tommy E. Looper, Secretary, Anchor Financial Corporation, 2002
Oak Street, Myrtle Beach, South Carolina 29577.
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<PAGE>
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 shareholders 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 materials 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 the merger will bear its own costs and expenses of soliciting
proxies and the printing costs and expenses incurred in connection with this
joint proxy statement/prospectus and the associated registration statement filed
by Anchor with the Securities and Exchange Commission.
Anchor Shareholder Proposals for Next Annual Meeting
Any proposal that an Anchor shareholder intends to present at Anchor's 2000
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, 1999. Any such proposal must comply with Rule 14a-8 of
Regulation 14A of the proxy rules of the Securities and Exchange Commission.
With respect to any proposal by an Anchor shareholder not received by Anchor
prior to February 14, 2000, proxies solicited by management of Anchor will be
voted on such proposal in the discretion of the designated proxy agents.
THE PROPOSED MERGER
This section of the joint proxy statement/prospectus describes certain aspects
of the merger. The following descriptions are not complete and are qualified in
their entirety by reference to the merger agreement, which is attached as
Appendix A to this joint proxy statement/prospectus and incorporated by
reference in this document. All shareholders of Bailey and Anchor are urged to
read the merger agreement carefully and in its entirety.
Background of the Merger
Anchor. Anchor has expanded its operations along the coasts of North Carolina
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. Two recent acquisitions have expanded 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 to diversify and
strengthen Anchor's market areas. The proposed merger with Bailey will further
diversify 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 merger
will enable the combined companies to better respond to the needs of Anchor's
customers and the communities served and allow the shareholders of Anchor to
participate in a financial institution with greater financial resources, a
larger number of banking locations and diverse and larger market areas.
<PAGE>
Bailey. In recent years, Bailey's management concluded that Bailey's
opportunities for further significant growth in Laurens County, South Carolina
were severely limited. Recognizing the need to expand beyond Laurens County,
Bailey acquired The Saluda County Bank in Saluda County in 1993, and Bailey
helped organize and acquired 51% of the stock of Rock Hill Bank & Trust ("Rock
Hill Bank"), in York County, in 1996. Bailey's ownership percentage of Rock Hill
Bank was reduced to 22.3% due to a stock offering and issue by Rock Hill Bank
during 1998.
Bailey's management has sought to improve the net income generated by its
Laurens County operations and implemented an expense control program recommended
by a consultant in June 1997. In 1997, the Bailey board engaged an investment
banking firm to provide information for the board's strategic planning and to
propose strategic options designed to enhance
-17-
<PAGE>
shareholder value in Bailey. The investment banking firm's analysis of Bailey
was based on historical data that predated, and therefore did not reflect, the
results of the expense control programs recommended by the consultant. That firm
reported the following as Bailey's primary strengths at that time:
strong yield on earning assets
low cost source of funds with a solid core deposit base
impressive noninterest earnings stream
adequately leveraged loan to deposit base
solid management
strong trust and insurance departments
significant market share in Laurens and Saluda Counties
efficiencies in consolidation through loan participations, funding and
back room operations and processing
Against these strengths, the investment banking firm identified the following as
Bailey's primary challenges:
high overhead expenses
limited prospects for sustained loan, deposit and asset growth in
markets currently served
increasing competition from banks and nonbank financial institutions
rising cost of technology
The investment banking firm presented the following options as ways to improve
Bailey shareholder value while remaining independent:
issue additional stock
acquire the remaining stock in Rock Hill Bank in exchange for stock in
Bailey
acquire another bank or branch by purchase
enter into a merger of equals
The board considered the likelihood of success of each option, the impact of
each option on the liquidity of Bailey stock, and the amount and timing of
increases to Bailey's stock value projected to be realized from each option.
Based on these considerations, the board decided to investigate further the
possibility of a merger involving Bailey.
<PAGE>
In September 1997, the board engaged Orr Management Company, ("Orr"), an
investment banking firm with extensive knowledge of banks in South Carolina and
North Carolina, to provide financial advisory services necessary for such
consideration. Representatives of Orr analyzed Bailey, reviewed the investment
banking firm's report and presented their own analysis of Bailey's position and
their own recommendations. They reported that Bailey was beginning to realize
the benefits of the expense controls recommended by the consultant and these
expense controls would improve Bailey's operating results, and shareholder
value, as time passed. They noted, however, that these improvements would be
limited unless Bailey also grew. Orr described the current banking environment
as highly competitive, with consolidation occurring at all levels and with
historically high stock prices being paid in mergers and acquisitions. Orr
explained that this environment was caused by an excess of banks, the offering
of financial services by non-banks and a strong economy with low interest rates.
Orr recommended a merger of Bailey with a larger financial institution as the
best method of both achieving a substantial and immediate increase in
shareholder value and providing liquidity for Bailey shareholders.
-18-
<PAGE>
The Bailey board decided to investigate the possibility of a merger of Bailey
with another financial institution and, after interviewing another investment
banker specializing in banks, engaged Orr in July 1998 to conduct that
investigation. The board appointed a committee of four directors to work with
Orr personnel in this engagement.
Orr and Bailey management prepared a confidential packet of material describing
Bailey. Orr distributed this packet in August 1998 to 11 financial institutions
that expressed interest and signed confidentiality agreements. All of these
institutions were requested to submit proposals to Orr by September 2, 1998,
keeping in mind the board's strong preferences that the transaction be
tax-exempt, that the dividends received by Bailey shareholders be maintained at
least at the current level and that Bailey's role as an active member of the
Clinton community be continued. Three institutions made offers, which were
analyzed by Orr and studied by the board committee. Orr conferred with those
institutions to improve their offers. The board committee unanimously
recommended that the revised offer from Anchor be accepted, and the board
approved that recommendation on September 4, 1998.
Reasons for the Merger
Anchor. The board of directors of Anchor believes that the merger provided for
in the merger agreement is fair and equitable and in the best interests of
Anchor and its shareholders. The Anchor board believes that the merger will
provide opportunities to achieve economies of scale that should increase the
efficiency and profitability of the combined companies and permit more effective
management of the combined companies. The Anchor board also believes the merger
will provide opportunities to expand products and services offered by the
combined companies and provide certain structural and technological benefits.
The greater financial resources and greater depth of management resulting from
the merger are expected to improve the ability of the combined companies to
compete with the many financial institutions doing business in the market areas
of each company. Anchor expects the merger to allow the shareholders of each
company to participate in a financial institution which has greater financial
resources, a larger number of, and more diverse, banking locations, and more
markets than each company has at the present time.
Some efficiencies in cost savings 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 obtain as a combined entity; and certain
operational efficiencies that will result from the leveraging of Anchor's
present resources.
Bailey. The Bailey board believes that the merger presents a very attractive
opportunity to combine Bailey with a financially strong and growing financial
institution that shares Bailey's philosophy about banking. In reaching its
decision to approve the merger agreement, the Bailey board consulted with
management, as well as its financial and legal advisors, and considered the
following factors, among others:
(1) The board's familiarity with and review of Bailey's business,
operations, financial condition, earnings and prospects.
(2) The similarity of the banking philosophies of Bailey and
Anchor.
<PAGE>
(3) The anticipated effectiveness of the merger in allowing Bailey
to market its trust services in attractive markets and to
achieve greater operating efficiencies that would enhance
opportunities for increased growth and profitability in
Bailey's markets.
(4) Anchor's business, operations, financial condition, earnings
and prospects.
(5) The enhanced opportunities for operating efficiencies that
could result from the merger, and the contributions the
parties would bring to a combined institution.
(6) The board's belief that Anchor will continue to use the Bailey
name, will retain valued Bailey employees and will continue to
make substantial contributions in the communities served by
Bailey.
(7) The terms of the merger agreement and the value and liquidity
of the Anchor common stock to be received by Bailey
shareholders.
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<PAGE>
(8) Alternatives to the merger, including the alternatives of
remaining independent and growing internally, growing by
merger of equals or remaining independent for a period of time
and then selling.
(9) Possible merger or affiliation partners for Bailey (other than
Anchor), prospects for such other possible partners and the
consideration which might be available from such other
partners.
(10) The expectation that the merger will be a tax free transaction
to Bailey and its shareholders.
(11) Current and prospective economic environments and competitive
constraints.
(12) The terms of the merger agreement were the result of arm's
length negotiations between representatives of Bailey and
Anchor.
The preceding list of factors considered by the Bailey board is not exhaustive
but does include all material factors considered by the Bailey board. In
deciding to approve and recommend the merger, the Bailey board did not assign
any specific or relative weights to any of these factors; however, individual
directors may have done so, and individual directors may have weighted the
factors differently.
After the execution of the letter of intent between Bailey and Anchor, Bailey
retained Orr to perform a due diligence review of Anchor. Orr was selected by
Bailey based on Orr's knowledge of Bailey and Anchor that Orr gained by serving
as investment banker as previously discussed. No material relationship existed
between Orr and Bailey except for Orr's role as investment banker. The purpose
of the assignment was to verify that Anchor's operations, books, loans and other
aspects of its business are properly revealed through financial and other
information reported by Anchor. Orr's assignment was to ascertain any findings
that may not have been reported or were not reported correctly and to determine
if they were material in nature.
Orr inspected eight specific areas of Anchor's business along with a general
review of other information. The specific areas were Anchor's: (1) history,
operational structure, legal proceedings and financial performance, (2) loan
portfolio, (3) investment portfolio, (4) compliance status, (5) human resources
practices, (6) strategic plan, (7) Year 2000 project, and (8) board minutes and
major shareholders. Orr's review of these areas was based on information
provided to Orr by Anchor, and Orr did not independently verify such information
and, for the purposes of its report, assumed the information to be accurate,
complete and fair. The review was also based on interviews with Anchor's senior
management team.
Orr found that the information that Anchor reports on a regular basis fairly and
adequately represents the integrity of Anchor's operations. Orr noted that
because of Anchor's current growth, key areas should be monitored. These are
Anchor's systems and controls, management, loan portfolio review system, and
adequate liquidity. These areas are to be monitored with all rapidly growing
financial institutions.
<PAGE>
On October 1, 1998, Orr delivered the report of its due diligence examination to
Bailey's management. Orr did not report any reason why Bailey should not
consummate the merger.
General Information about the Merger
On September 24, 1998, Anchor and Bailey executed the merger agreement. Pursuant
to the merger agreement, Bailey will merge into Anchor at the effective date of
the merger, and:
(1) Each share of Bailey common stock, $.01 par value, issued and
outstanding immediately prior to the Effective Date, other
than shares whose holders have perfected their right of
dissent, will be converted into and exchanged for 16.32 shares
of newly issued Anchor common stock, no par value;
(2) Bailey shareholders will become shareholders of Anchor;
(3) Anchor will survive the merger and retain the name "Anchor
Financial Corporation;" and
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<PAGE>
(4) The Bailey shareholders entitled to fractional shares of
Anchor common stock will be paid cash by Anchor for such
fractional shares, based on the closing price of a share of
Anchor common stock on Nasdaq (as reported by The Wall Street
Journal, or, if not reported thereby, by another authoritative
source selected by Anchor) on the effective date of the
merger.
How to Exchange Bailey Common Stock for Anchor Common Stock
As soon as practicable after the merger is completed, Anchor will have delivered
to each of the former shareholders of Bailey of record immediately prior to the
effective date, a transmittal letter for use in delivering their Bailey common
stock certificates. After the exchange agent for Anchor receives a properly
completed transmittal letter and the certificate(s) representing a Bailey
shareholder's shares of Bailey common stock, the exchange agent for Anchor will
issue and mail a certificate representing the Anchor common stock into which the
Bailey common stock has been converted, and a check for the cash, if any,
payable in respect to any fractional Anchor common stock issuable. Certificates
for shares of Bailey common stock surrendered for exchange by any person who is
an "affiliate" of Bailey will not be exchanged for certificates representing
Anchor common stock until Anchor has received a written agreement from such
person as required under the terms of the merger agreement. See "The Proposed
Merger - Resales of Anchor Common Stock to be Received by Affiliates of Bailey."
The registered holder of any certificates representing Bailey common stock who
has lost or destroyed such certificates can obtain certificate(s) for Anchor
common stock (and cash for any fractional share) to which such Bailey
shareholder is entitled, if the Bailey shareholder delivers to the exchange
agent for Anchor: (1) a sworn statement certifying such loss or destruction and
specifying the circumstances thereof, and (2) 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 for the Merger
Completion of the merger is subject to several material conditions, including,
but not limited to:
(1) Approval of the merger agreement by the holders of at least
two-thirds of the issued and outstanding shares of Bailey
common stock;
(2) Receipt of all necessary state and federal regulatory
approvals, including approval by the Federal Reserve and the
South Carolina Board;
(3) Receipt by Bailey and Anchor of opinions of each other's legal
counsel;
(4) Receipt by Anchor and Bailey of an opinion from Anchor's
counsel to the effect that the merger will constitute a
tax-free merger under Section 368(a)(1)(A) of the Internal
Revenue Code, and no gain or loss will be recognized by the
shareholders of Bailey for Federal income tax purposes, except
for cash paid to dissenting shareholders of Bailey and cash
paid in lieu of fractional shares;
<PAGE>
(5) The merger will be accounted for as a pooling-of-interests;
(6) The shares of Anchor common stock to be issued to the Bailey
shareholders will have been approved for listing on Nasdaq;
(7) The number of shares of Bailey common stock for which cash is
to be paid pursuant to dissenter's rights of appraisal under
the South Carolina Act and in lieu of fractional shares of
Anchor common stock will not exceed in the aggregate 10% of
the outstanding shares of Bailey common stock;
(8) There will not have been any material adverse change in the
financial position or results of operations of Bailey or
Anchor;
(9) Bailey's capital will not be less than $15,518,000 on the
effective date; and
(10) Bailey's allowance for possible loan and lease losses will not
be less than .95% of Bailey's total outstanding loans and will
be adequate to absorb Bailey's anticipated loan and lease
losses.
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<PAGE>
Termination Provisions
The merger agreement may be terminated at any time before the effective date:
(1) by the mutual consent of the boards of directors of Anchor and
Bailey;
(2) by the board of directors of either party in the event of a
material breach of any covenant, agreement, representation or
warranty by the other, if the breaching party fails to correct
the breach within 30 days after written notice of the breach
has been given;
(3) by the board of directors of Anchor or Bailey if the merger is
not consummated by June 30, 1999; or
(4) by Bailey's board of directors if the required shareholder
approval is not obtained at the Bailey special meeting (or any
adjournment of that meeting).
Effective Date
When all of the conditions to the obligations of Anchor and Bailey to complete
the merger are met or waived, the effective date of the merger will be the tenth
business day after the fulfillment or waiver of all the conditions and the
granting of all required regulatory approvals and when the Articles of Merger
have been accepted for filing by the Secretary of State of South Carolina under
the South Carolina Act.
Anchor and Bailey anticipate that all conditions to completion of the merger
will be satisfied so that the merger can be completed in the first quarter of
1999. However, delays in the completion of the merger could occur.
Employment Agreements
On the effective date of the merger, Anchor will enter into employment
agreements with John W. Dickens, William R. Davis, Robert H. Todd, and Norman W.
Dixon, provided each of these individuals has not terminated his employment with
Bailey or its subsidiaries at or before the effective date. The form of these
employment agreements is Exhibit B to the merger agreement, which is Appendix A
to this joint proxy statement/prospectus.
Expenses and Fees Related to the Merger
Each party to the merger agreement will pay its own expenses incurred in
connection with the merger, including the cost of soliciting proxies for the
Bailey special meeting and the Anchor special meeting and the printing costs and
expenses incurred in connection with this joint proxy statement/prospectus and
the Anchor registration statement.
Stock Option Grant
The merger agreement requires that Bailey execute and deliver to Anchor a stock
option grant agreement which provides that Bailey will grant Anchor an option to
purchase approximately 23,637 authorized but unissued shares or up to 19.9% of
the issued and outstanding shares of Bailey common stock if:
<PAGE>
(1) Bailey or its board of directors enters into an agreement or recommends
to the shareholders of Bailey an agreement, other than the merger
agreement, under which any entity, person or group, would (i) merge or
consolidate with, acquire 25% or more of the assets or liabilities of,
or enter into any similar transaction with Bailey, or (ii) purchase or
otherwise acquire (including by merger, reorganization, consolidation,
share exchange or any similar transaction) securities representing 25%
or more of Bailey's voting shares;
(2) Any person (other than Anchor or any of its subsidiaries and other than
any person owning or acquiring as a result of operation of law as of
the date of the merger agreement, 25% or more of Bailey's voting
shares) acquires the beneficial ownership or the right to acquire
beneficial ownership of securities which, when aggregated with other
securities owned by such person, represents 25% or more of the voting
shares of Bailey. Notwithstanding the foregoing, this option of Anchor
will not be exercisable in the circumstances described above in this
paragraph if a person acquires the beneficial ownership of securities
which, when aggregated with other securities owned by such person,
represents 10% or more, but less than 25%, of
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<PAGE>
Bailey's voting shares and the transaction does not result in, and is
not presumed to constitute "control" as defined in the Federal Deposit
Insurance Act or as determined by the Federal Reserve;
(3) The Bailey board of directors fails to recommend, or withdraws its
prior recommendation of, the merger with Anchor to the shareholders of
Bailey; or
(4) The shareholders of Bailey fail to approve the merger by the required
two-thirds vote at the Bailey special meeting (including any
adjournment of that meeting), after any person (other than Anchor or a
subsidiary of Anchor) announces publicly or communicates, in writing,
to Bailey a proposal to (a) acquire Bailey, (b) purchase or otherwise
acquire securities representing 25% or more of the voting shares of
Bailey, or (c) change the composition of the Bailey board of directors.
Regulatory Approvals
The merger may not proceed until Anchor has received the required regulatory
approvals. Approvals from the Federal Reserve and the South Carolina Board have
been received for the merger. Neither Anchor nor Bailey is aware of any other
material governmental approvals or actions that are required for consummation of
the merger. If any other approval or action should be required, it presently is
contemplated that such approval or action would be sought.
Anchor's application to the Federal Reserve to acquire Bailey also included the
acquisition of Bailey's subsidiary banks, M.S. Bailey & Son, Bankers and The
Saluda County Bank (the "Bailey Banks")and the 22% ownership of Rock Hill Bank &
Trust, Rock Hill, South Carolina now owned by Bailey. The Federal Reserve
approved the application of Anchor to acquire Bailey, its subsidiary banks and
the 22% ownership of the Rock Hill Bank based on certain commitments by Anchor
as required by the Federal Reserve. The representations and commitments by
Anchor required by the Federal Reserve relate to maintaining a passive
investment in the Rock Hill Bank and agreeing not to exercise or attempt to
exercise control over the Rock Hill Bank without the prior approval of the
Federal Reserve. Anchor also made these same commitments to the Rock Hill Bank.
Rights of Dissenting Shareholders of Anchor and Bailey
Bailey and Anchor are South Carolina corporations, and are organized under and
governed by the South Carolina Act. The South Carolina Act governs the rights of
dissent of the shareholders of Bailey and Anchor.
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 shareholder of Bailey or
Anchor is entitled to dissent from and obtain payment of the fair value of his
shares in the event of the consummation of the merger transaction on which he is
entitled to vote ("Dissenters' Rights"). Shareholders of Bailey and Anchor have
Dissenters' Rights regarding the proposed merger.
A shareholder of Bailey or Anchor 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 will not disqualify a
shareholder from demanding payment for his shares under the
South Carolina Act.
<PAGE>
A shareholder of Bailey or Anchor who does not satisfy the above requirement is
not entitled to payment for his shares pursuant to dissenters' rights.
A shareholder's failure to vote against the proposed merger will not in itself
constitute a waiver of his appraisal rights. A vote against the proposed merger
will not by itself be deemed to satisfy the notice requirements under the South
Carolina Act with respect to Dissenters' Rights.
Shareholders of Bailey must give written notice regarding their desire to assert
their Dissenters' Rights to Mr. William R. Davis, Secretary, Bailey Financial
Corporation, 211 North Broad Street, Clinton, South Carolina 29325.
-23-
<PAGE>
Shareholders of Anchor must give written notice regarding their desire to assert
their Dissenters' Rights to Mr. Tommy E. Looper, Secretary, Anchor Financial
Corporation, 2002 Oak Street, Myrtle Beach, South Carolina 29577.
If the merger is authorized at the Bailey special meeting, Bailey will deliver a
written dissenters' notice to all Bailey shareholders who satisfied the above
requirements regarding asserting Dissenters' Rights. The dissenters' notice must
be delivered no later than 10 days after the Bailey special meeting and must
contain the information described below for dissenters' notices.
If the merger is authorized at the Anchor special meeting, Anchor will deliver a
written dissenters' notice to all Anchor shareholders who satisfied the above
requirements regarding asserting Dissenters' Rights. The dissenters' notice must
be delivered no later than 10 days after the Anchor special meeting and must
contain the information described below for dissenters' notices.
All dissenters' notices to shareholders of Bailey or Anchor must, in addition to
other items;
(1) State where the payment demand must be sent and where certificates for
shares of the company's common stock must be deposited;
(2) Supply a form for demanding payment that includes certain specific
information;
(3) Set a date by which the company must receive the payment demand, which
date may not be fewer than 30 days nor more than 60 days after the date
the dissenters' notice is delivered and set a date by which
certificates must be deposited, which date may not be earlier than 20
days after the demand date; and
(4) Be accompanied by a copy of ss.ss. 33-13-101 et.seq. of the South
Carolina Act.
A Bailey or Anchor shareholder who demands payment, deposits his certificates
and otherwise complies with terms of the dissenters' notice will retain all
other rights as a shareholder of the company until such rights are cancelled or
modified by the consummation of the merger.
A Bailey or Anchor shareholder who does not comply with the requirement that he
demand payment and deposit his share certificates where required, each by the
date set forth in 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 merger is
consummated, or upon receipt of a payment demand, Anchor shall pay each
dissenting Bailey or Anchor shareholder who complied with the law the amount
Anchor estimates to be the fair value of his shares, plus accrued interest from
the effective date of the merger. The payment must be accompanied by certain
information, including certain financial information and a statement of Anchor's
estimate of the fair value of the shares.
Anchor may withhold immediate payment from a dissenting shareholder as to any
shares of which such dissenting shareholder was not the beneficial owner on the
date set forth in the dissenters' notice, unless the beneficial ownership of the
shares devolved upon him by operation of law from a person who was a beneficial
owner on that date.
<PAGE>
A dissenter may reject Anchor's offer of fair value and demand in writing
payment of his estimated fair value and interest due, if: (1) the dissenter
believes the amount paid or offered is less than the fair value of his shares or
that interest due is incorrectly calculated; or (2) Anchor fails to make or
offer payment within 60 days after the date for demanding payment. A dissenter
waives his right to demand additional payment if he does not notify Anchor of
his demand in writing within 30 days after Anchor made or offered payment for
his shares. If a demand for payment remains unsettled, Anchor shall commence a
proceeding within 60 days after receiving the payment demand and petition the
court to determine the fair value of his shares and accrued interest. If Anchor
does not commence the proceedings within the 60 day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
-24-
<PAGE>
The court in an appraisal proceeding shall determine all costs of the
proceeding. The costs shall be assessed against Anchor unless the court finds
the dissenter acted arbitrarily, vexatiously or not in good faith in demanding
payment and assesses the dissenter. The court also may assess fees and expenses
of counsel and experts for the parties.
The foregoing summary is not a complete statement of the law with respect to
dissenter' rights, but it merely apprises the shareholders of Bailey and Anchor
that such rights exist. Any shareholder of Bailey or Anchor who intends to or
may exercise rights to dissent is encouraged to carefully read sections
33-13-101 et seq. of the South Carolina Act, 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.
Accounting Treatment
The merger will be accounted for as a pooling-of-interests. Accordingly, under
generally accepted accounting principles the assets and liabilities of Anchor
and Bailey will be carried forward on the consolidated books of Anchor after the
effective date of the merger at the amounts recorded on the books of each party
before the merger. Net income of Anchor for the year in which the merger occurs
will include the net income of Anchor and Bailey for the entire fiscal period in
which the merger occurs. After the merger, the reported income of Anchor for
each year before the merger will be combined with that of Bailey and restated as
income of the combined company. The unaudited pro forma financial information
included in this joint proxy statement/prospectus reflects the merger using the
"pooling-of-interests" method of accounting.
Directors and Executive Officers Following the Merger
The officers and directors of Anchor will remain the same following the proposed
merger, except that two additional persons will be named to the board of
directors of Anchor Bank. Also, John W. Dickens will continue to serve as
President of M.S. Bailey & Son, Bankers, which will be a subsidiary of Anchor,
and he will be considered an executive officer.
Pursuant to the Agreement, two additional directors will be designated for the
board of directors of Anchor Bank from the current directors of Bailey or the
Bailey Banks. The new directors to be designated for the board of directors of
Anchor Bank shall serve on such board from and after the effective date of the
merger under the articles of incorporation and bylaws of Anchor Bank until their
successors are elected and qualified. As of the date of this joint proxy
statement/prospectus, the identity of those two additional directors has not
been determined.
John W. Dickens will serve as President of M.S. Bailey & Son, Bankers after the
merger. In that position, Mr. Dickens will have a base salary of $165,000 per
annum and be entitled to participate in the bonus and incentive compensation
plans of Anchor that are available to its senior officers. Mr. Dickens will also
be entitled to reimbursement of expenses, participation in employee benefit
plans, and Anchor will pay for his use of an automobile and his annual
membership dues at several clubs.
<PAGE>
Interests of Bailey's Board and Management in the Merger
The merger agreement provides that from and after the effective date of the
merger, Anchor will indemnify each director, officer and employee of Bailey or
any of its subsidiaries to the fullest extent that Bailey would have been
permitted under South Carolina law or Bailey's articles of incorporation or
bylaws 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 merger agreement provides that Anchor will enter into
employment agreements with Messrs. Dickens, Davis, Todd and Dixon, provided they
have not terminated their employment with Bailey or its subsidiaries on or
before the effective date of the merger.
Material Federal Income Tax Consequences of the Merger
The following is a summary of material, anticipated federal income tax
consequences of the 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
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<PAGE>
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 address all aspects of the possible
federal income tax consequences of the 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 the merger to
shareholders because of their particular circumstances or status, nor does this
summary address any consequences of the merger under any state, local, estate or
foreign tax laws.
Shareholders of Bailey are urged to consult their own tax advisors as to the
specific tax consequences to them of the 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 merger 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 merger under federal
income tax law, and this discussion is qualified in its entirety by that
opinion.
It is the opinion of Gerrish & McCreary, P.C. that:
1. The merger will be treated for federal income tax purposes as a
tax-free merger 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 or Bailey or the
shareholders of Anchor or Bailey upon the exchange of the common stock
of Bailey for Anchor common stock, except by the shareholders of Bailey
who receive cash in lieu of any fractional share otherwise issuable.
3. Shareholders of Bailey or Anchor who dissent from the merger 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 Bailey common stock or Anchor 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 shareholders
of Bailey will be the same as the basis of Bailey common stock
surrendered in exchange for the Anchor shares.
5. The holding period of Anchor common stock received by the shareholders
of Bailey common stock will include the period in which Bailey common
stock surrendered therefor was held, provided that the Bailey common
stock is a capital asset in the hands of the shareholders of Bailey on
the date of exchange.
Among other things, the opinion of Gerrish & McCreary, P.C. was based on the
representation of management of Anchor that it has no plan or intention to cause
Anchor to redeem or otherwise reacquire the shares of Anchor common stock issued
in the merger. In addition to the foregoing requirements, additional factual
matters must be true with respect to the merger and Anchor believes that these
factual matters will be satisfied.
<PAGE>
Resales of Anchor Common Stock to be Received by Affiliates of Bailey
Anchor has registered under the Securities Act of 1933, as amended (the
"Securities Act"), the Anchor common stock to be issued to Bailey shareholders
in the merger. Such registration does not cover resales by shareholders of
Bailey who may be deemed to control or to be controlled by or be under common
control with Bailey at the time of the Bailey special meeting (the "Affiliates")
or those who were Affiliates of Anchor before the merger.
Anchor common stock issued pursuant to the merger to persons who are not
Affiliates of Bailey will be freely transferable without restriction. Anchor
common stock issued pursuant to the merger to persons who are Affiliates of
Bailey will be subject to certain restrictions on transfer as set forth in Rule
145 of the Securities and Exchange Commission.
Bailey has agreed to use its best efforts to induce each person who may be
deemed to be an Affiliate of Bailey to execute and deliver to Anchor an
agreement not to transfer any Anchor common stock issued to such Affiliate until
financial statements covering at least
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<PAGE>
30 days of post-merger combined operations of Anchor and Bailey have been
published by Anchor. The Affiliates also must agree that they will not transfer
any Anchor common stock received in the merger except in compliance with the
Securities Act, the rules and regulations of the Securities and Exchange
Commission under the Securities Act and applicable restrictions regarding
pooling-of-interests accounting treatment.
Differences in Rights of Anchor and Bailey Shareholders
As a result of the merger, on the effective date, shareholders of Bailey will
exchange their shares of common stock in Bailey for shares of common stock in
Anchor and will become shareholders of Anchor. Thereafter, the rights as
shareholders of the Bailey shareholders will be determined by Anchor's articles
of incorporation and bylaws. The following is a summary of the material
differences in the rights of shareholders of Anchor and Bailey. Anchor and
Bailey are South Carolina corporations governed by the South Carolina Act.
Accordingly, there are no material differences between the rights of an Anchor
shareholder and the rights of a shareholder of Bailey solely under the South
Carolina Act. This summary is not a complete discussion of, and is qualified in
its entirety by reference to, the South Carolina Act and the articles of
incorporation and bylaws of Anchor and Bailey.
Authorized Capital Stock. Anchor currently is authorized to issue 50,000,000
shares of common stock, no par value, of which ______ shares were issued and
outstanding as of the Anchor record date. No other class of capital stock is
authorized.
Bailey is authorized to issue 1,000,000 shares of Bailey common stock, par value
$.01 per share, of which 95,140 shares were issued and outstanding as of the
Bailey record date. No other class of capital stock is authorized.
Preemptive Rights. Shareholders of Anchor have no preemptive rights.
Shareholders of Bailey have preemptive rights. 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 shareholder's interest in Anchor
without specific shareholder authority. Preemptive rights could make it more
difficult to gain control of Bailey. The boards of directors of Anchor and
Bailey may issue authorized shares of each company's stock without further
shareholder vote, unless required for a particular transaction by applicable
law.
Voting Rights. The shareholders of Anchor and Bailey are entitled to one vote
per share in the election of directors and all matters to come before the their
shareholders. The shareholders of Bailey are entitled to cumulate their votes
for the election of directors. The right to cumulate votes means that the
shareholders of Bailey are entitled to multiply the number of votes they are
entitled to vote by the number of directors to be elected and cast the product
for a single candidate or distribute the product among two or more candidates.
Cumulative voting could make it more difficult to effect a change in control of
Bailey's board. The shareholders of Anchor do not have cumulative voting.
Special Meetings of Shareholders. Special meetings of the shareholders of Anchor
may be called by the president, the chairman of the board of directors, a
majority of the directors or the holders of not less than one-tenth of all
shares entitled to vote at such meeting. Special meetings of the shareholders of
Bailey may be called by the president or by a majority of the directors and must
be called by the president at the request in writing of shareholders owning at
least 10% of the shares of Bailey issued and outstanding and entitled to vote on
any issue proposed to be cast at the special meeting.
<PAGE>
Quorum. The holders of a majority of the shares of Anchor and Bailey entitled to
vote at the shareholders' meetings of these companies, represented in person or
by proxy, will constitute a quorum for the transaction of business.
Directors. Anchor's articles of incorporation and bylaws provide for a board of
directors to serve staggered three-year terms. Shareholders of Anchor vote only
for candidates in the class of directors whose terms expire at the time of the
annual shareholders' meeting. The members of the board of directors of Bailey do
not serve staggered terms; such directors serve one-year terms which expire at
the time of the annual meeting of shareholders.
The staggered classification and election of members to Anchor's board of
directors could make it more difficult for shareholders to effect a significant
change in the overall composition of Anchor's board, thus perpetuating the
tenure of management.
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<PAGE>
Anchor's 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. "Cause" is established
after the affected director has received 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 articles of incorporation and bylaws of Bailey do not address removal of
directors. Therefore, such removal would be governed by the South Carolina Act.
Amendment of the Articles of Incorporation and Bylaws. Unless applicable law or
the articles of incorporation of Anchor or Bailey requires a different vote to
amend or repeal such articles of incorporation, Anchor's and Bailey's articles
of incorporation may be amended or repealed by a two-thirds vote of the
shareholders entitled to vote thereon.
Anchor's articles of incorporation 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 shareholder, and such provisions make the removal of management more
difficult. The specific items in Anchor's articles of incorporation requiring
80% approval for amendment or repeal include:
(1) The capital stock of Anchor may be issued for valid corporate
purposes upon authorization by the board of directors of
Anchor without shareholder 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 80% of the outstanding voting
stock of Anchor is required to amend or repeal these
provisions.
(2) The affirmative vote of the holders of not less than 80% of
the outstanding voting stock of Anchor is required if the
board of Anchor does not recommend to the shareholders of
Anchor a vote in favor of (a) a merger or consolidation of
Anchor with, or (b) 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
80% of the outstanding voting stock of Anchor is required to
amend or repeal these provisions.
(3) The board of Anchor shall consist of a maximum of 20 persons.
The affirmative vote of the holders of not less than 80% of
the outstanding voting stock of Anchor is required to amend or
repeal this provision.
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 shareholders entitled to vote thereon.
<PAGE>
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 shareholders, 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 shareholders, even if the transaction were favorable
to the interests of such shareholders.
The Bailey bylaws provide that they may be amended by the board of directors or
by vote of the holders of shares.
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<PAGE>
The foregoing discussion of certain similarities and material differences
between the rights of Anchor and Bailey shareholders is only a summary of
certain provisions, is not a complete description of such similarities and
differences and is qualified in its entirety by reference to the South Carolina
Act and the full text of the articles of incorporation and bylaws of Anchor and
Bailey.
COMPARATIVE MARKET PRICES AND DIVIDENDS
Anchor Market Prices
Anchor common stock is listed on Nasdaq 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 Nasdaq for each of the quarters
indicated.
CALENDAR PERIOD SALES PRICE
--------------- -----------
High Low
---- ---
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 $33.67 $22.17
Fourth Quarter $35.00 $30.50
1998
First Quarter $44.00 $32.00
Second Quarter $44.00 $36.75
Third Quarter $41.75 $35.50
Fourth Quarter $36.75 $29.00
1999 First Quarter $33.25 $29.00
(thru February 3, 1999)
Bailey Market Prices
Bailey common stock is not listed for quotation on any stock exchange
and is not actively traded. The price of Bailey common stock in the last sales
transaction reported to Bailey's management before September 4, 1998 (the date
the merger was publicly announced) was $150 per share and occurred on April 11,
1996. Management has not determined that such transaction was arms-length. Thus,
no assurance can be given that the stated price represents the actual market
value of Bailey common stock, especially considering the absence of a known
sales transaction after the September 4, 1998, public announcement of the
merger.
<PAGE>
Dividends
Anchor paid total cash dividends of $0.375 per share during 1997, and $0.48 per
share during 1998. Anchor has declared a cash dividend of $ 0.14 per share to be
paid in February 1999.
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 shareholders depends primarily
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."
Bailey paid total cash dividends of $3.30 per share during 1997, and total cash
dividends of $3.79 per share during 1998. Bailey has declared no dividends to be
paid in 1999.
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<PAGE>
DESCRIPTION OF ANCHOR COMMON STOCK
Anchor has authorized capital stock consisting of 50,000,000 shares of common
stock, no par value per share, of which [____________] shares are issued and
outstanding at February 10, 1999, all of which are validly issued, fully paid
and non-assessable. __________ shares of Anchor common stock are reserved to be
issued if outstanding options as of February 10, 1999 are exercised. It is
anticipated that an additional 1,552,685 shares of Anchor common stock will be
issued pursuant to the merger.
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 shareholders. Holders
of Anchor common stock are entitled to receive dividends as may be declared by
Anchor's board of directors out of funds legally available for the payment of
dividends. 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
shareholders.
Holders of Anchor common stock have no preemptive, subscription, redemption or
conversion rights. See "The Proposed Merger - Differences in Rights of Anchor
and Bailey Shareholders."
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<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. This financial
data is derived in part from and should be read in conjunction with the
historical Consolidated Financial Statements and the related notes thereto
contained in Anchor's Current Report on Form 8-K, dated January 29, 1999.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Nine Months Ended
September 30, Years Ended December 31,
---------------------- ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 59,691 $ 51,394 $ 70,452 $ 57,212 $ 48,106 $ 37,299 $ 33,734
Interest expense 27,553 23,016 31,732 25,377 21,562 14,621 13,330
Net interest income 32,138 28,378 38,720 31,835 26,544 22,678 20,404
Provision for loan losses 2,372 1,192 2,044 1,140 830 1,289 1,541
Noninterest income 6,359 5,354 7,064 6,100 5,353 6,473 5,550
Noninterest expense 27,092 21,667 29,198 25,552 22,987 21,757 19,660
Provision for income taxes 3,705 3,860 5,305 3,952 2,784 1,615 1,430
Cumulative effect on prior years
of changing to a different
method of accounting for income -- -- -- -- -- -- 49
taxes
Net income 5,328 7,013 9,237 7,291 5,296 4,490 3,372
PER SHARE DATA:
Net income - basic $ 0.83 $ 1.11 $ 1.46 $ 1.16 $ 0.85 $ 0.71 $ 0.54
Net income - diluted 0.79 1.05 1.38 1.11 0.83 .070 0.53
Cash dividends declared (Anchor) 0.36 0.28 0.375 0.28 0.24 0.21 0.20
Book value 10.86 9.76 10.23 9.02 8.08 7.44 6.96
Total assets $1,011,912 $ 910,024 $ 945,453 $ 791,511 $ 658,976 $ 562,851 $ 515,004
Investment securities 228,133 185,416 197,325 172,759 145,740 100,549 130,729
Total loans 703,170 637,707 665,708 542,106 439,282 349,304 253,624
Net loans 694,784 629,861 658,267 535,379 433,608 344,157 309,641
Total deposits 869,760 782,190 796,682 673,093 567,723 482,437 449,806
Total liabilities 940,247 848,084 879,354 734,385 608,165 518,197 471,584
Total stockholders' equity 71,665 61,940 66,099 57,126 50,811 44,654 43,420
</TABLE>
-31-
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF BAILEY
The following table sets forth selected historical financial data concerning
Bailey. The selected financial data has been derived from the consolidated
financial statements which have been audited by Tourville, Simpson & Henderson,
L.L.P. independent accountants. This information should be read in conjunction
with the historical financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations of Bailey.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Nine Months Ended
September 30, Year ended December 31,
----------------------- ------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Securities available-for-sale $ 24,239 $ 33,304 $ 34,237 $ 26,770 $ 28,081 $ 24,358 $
Securities held-to-maturity 13,140 7,448 7,544 4,109 4,803 5,101 31,374
Allowance for loan losses 1,249 964 1,045 1,318 1,233 1,128 1,192
Net loans 112,008 104,913 110,933 101,531 94,960 91,728 89,131
Premises and equipment - net 5,689 4,953 4,828 5,113 5,499 5,621 5,859
Investment in unconsolidated
subsidiary 3,001 2,765 2,813 2,791 350 -- --
Total assets 168,655 166,768 173,301 149,712 149,418 134,778 139,692
Non-interest bearing deposits 12,340 10,551 13,066 12,066 15,562 12,243 15,812
Interest bearing deposits 121,629 121,873 122,764 116,170 115,117 107,545 107,006
Total deposits 133,969 132,424 135,830 128,236 130,679 119,788 122,818
Short-term borrowings 3,925 8,075 11,100 3,225 3,725 2,350 4,525
Advances from the Federal
Home Loan Bank 10,187 7,187 7,187 -- -- -- --
Long-term debt 2,910 3,400 3,300 3,500 1,200 1,350 1,500
Total liabilities 152,518 152,450 158,716 136,299 136,859 123,934 129,347
Total shareholders' equity 16,137 14,318 14,585 13,413 12,558 10,844 10,345
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations:
Interest income $ 9,918 $ 9,365 $ 12,686 $ 12,177 $ 11,523 $ 10,129 $ 8,083
Interest expense 4,727 4,264 5,804 5,692 5,190 3,944 3,270
--------- --------- --------- --------- --------- --------- --------
Net interest income 5,191 5,101 6,882 6,485 6,333 6,185 4,813
Provision for loan losses 315 350 490 230 287 605 327
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 4,876 4,751 6,392 6,255 6,046 5,580 4,486
Other income 2,076 1,627 2,097 1,987 1,673 1,658 1,364
Other expenses 4,603 4,763 6,429 6,030 5,804 5,788 4,927
Equity in net income (loss) of 192 (33) 15 (269) -- -- --
investee
Income tax expense 819 532 630 611 578 404 142
--------- --------- --------- --------- --------- --------- ---------
Net income $ 1,722 $ 1,050 $ 1,445 $ 1,332 $ 1,337 $ 1 ,047 $ 849
========= ========= ========= ========= ========= ========= ==========
Cash Dividends Paid: $ 268 $ 228 $ 314 $ 304 $ 300 $ 107 $ 285
========= ========= ========= ========= ========= ========= ==========
Per Share Data:
Weighted average common
shares outstanding 95,140 95,140 95,140 95,140 95,140 95,140 95,140
Net income - basic $ 18.09 $ 11.04 $ 15.19 $ 14.00 $ 14.05 $ 11.00 $ 8.91
Cash dividends paid $ 2.82 $ 2.40 $ 3.30 $ 3.20 $ 3.15 $ 1.12 $ 3.00
Period end book value $ 169.62 $ 150.50 $ 153.30 $ 140.98 $ 132.00 $ 113.97 $ 108.73
</TABLE>
-32-
<PAGE>
ANCHOR FINANCIAL CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet combines the
historical condensed balance sheets of Anchor and Bailey as of September 30,
1998, to reflect the completion of the proposed merger. Such pro forma
information assumes the proposed merger occurred as of September 30, 1998, and
is based on the historical balance sheets of Anchor and Bailey as of that date,
giving effect to the proposed merger 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 and Bailey
adjusted to reflect the completion of the proposed merger. 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 and Bailey, 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 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 merger and the related effects on historical financial statements of Anchor,
see "The Proposed Merger - Accounting Treatment." The unaudited pro forma
combined condensed financial statements should be read in conjunction with the
historical financial statements of Anchor and Bailey, including the notes
thereto which are incorporated by reference or included elsewhere in this joint
proxy statement/prospectus.
-33-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED BALANCE SHEET (UNAUDITED)
September 30, 1998
(Dollars in thousands)
Anchor/ Anchor/
Bailey Bailey
Pro Forma Pro Forma
Anchor Bailey Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 42,826 $ 6,446 $ 0 $ 49,272
Federal funds sold 8,960 1,100 0 10,060
Investment securities 228,133 37,379 4,360 269,872
Loans 703,029 113,257 0 816,286
Less - reserve for loan losses (8,245) (1,249) 0 (9,494)
----------- ----------- ----------- -----------
Net loans 694,784 112,008 0 806,792
----------- ----------- ----------- -----------
Premises and equipment 21,471 5,689 0 27,160
Intangible assets 796 0 0 796
Other assets 14,942 6,033 (3,508) 17,467
----------- ----------- ----------- -----------
Total assets $ 1,011,912 $ 168,655 $ 852 $ 1,181,419
=========== =========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing deposits
$ 160,058 $ 12,340 $ 0 $ 172,398
Interest-bearing deposits 709,703 121,629 0 831,332
----------- ----------- ----------- -----------
Total Deposits 869,761 133,969 0 1,003,730
Federal funds purchased and
securities sold under
agreements to repurchase 16,548 3,925 0 20,473
Other short-term borrowings 2,080 0 0 2,080
Long-term debt 43,500 13,097 0 56,597
Other liabilities 8,358 1,527 1,400 11,285
----------- ----------- ----------- -----------
Total Liabilities 940,247 152,518 1,400 1,094,165
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Stockholders' Equity:
Common Stock 46,762 1 7,501 54,264
Surplus 0 7,501 (7,501) 0
Retained earnings 23,550 8,431 (1,400) 30,581
Accumulated other comprehensive
income, net of tax 1,773 204 852 2,829
Unearned ESOP Shares
(420) 0 0 (420)
----------- ----------- ----------- -----------
Total stockholders' equity 71,665 16,137 (548) 87,254
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
$ 1,011,912 $ 168,655 $ 852 $ 1,181,419
=========== =========== =========== ===========
</TABLE>
See accompanying notes to pro forma financial statements.
-34-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(Dollars in thousands except per share data)
Nine Months Ended
September 30, Years Ended December 31,
--------------------------- -------------------------------------------
1998 1997 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Interest income $ 69,609 $ 60,759 $ 83,137 $ 69,389 $ 59,629
Interest expense 32,280 27,280 37,535 31,069 26,752
----------- ----------- ----------- ----------- -----------
Net interest income 37,329 33,479 45,602 38,320 32,877
Provision for loan losses 2,687 1,542 2,534 1,370 1,117
----------- ----------- ----------- ----------- -----------
Net interest income after
Provision for loan losses 34,642 31,937 43,068 36,950 31,760
Noninterest income 8,435 6,981 9,161 8,087 7,026
Noninterest expense 31,695 26,430 35,627 31,582 28,791
----------- ----------- ----------- ----------- -----------
Income before taxes and equity in
net income (loss) of investee 11,382 12,488 16,602 13,455 9,995
Equity in net income (loss) of investee 192 (33) 15 (269) 0
----------- ----------- ----------- ----------- -----------
Income before taxes 11,574 12,455 16,617 13,186 9,995
Provision for income taxes 4,524 4,392 5,935 4,563 3,362
----------- ----------- ----------- ----------- -----------
Net income $ 7,050 $ 8,063 $ 10,682 $ 8,623 $ 6,633
=========== =========== =========== =========== ===========
Net income per share-basic $ 0.89 $ 1.03 $ 1.36 $ 1.10 $ 0.85
Net income per share-diluted $ 0.85 $ 0.98 $ 1.29 $ 1.07 $ 0.84
Weighted average common
shares outstanding-basic 7,963,680 7,864,269 7,869,826 7,824,018 7,771,414
Weighted average common
shares outstanding-diluted 8,287,366 8,214,338 8,255,876 8,092,229 7,902,311
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
-35-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED)
Nine months ended September 30, 1998
(Dollars in thousands except per share data)
ANCHOR/ ANCHOR/
BAILEY BAILEY
PRO FORMA PRO FORMA
ANCHOR BAILEY ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 59,691 $ 9,918 $ 0 $ 69,609
Interest expense 27,553 4,727 0 32,280
---------- ---------- ---------- ----------
Net interest income 32,138 5,191 0 37,329
Provision for loan losses 2,372 315 0 2,687
---------- ---------- ---------- ----------
Net interest income after
Provision for loan losses 29,766 4,876 0 34,642
Noninterest income 6,359 2,076 0 8,435
Noninterest expense 27,092 4,603 0 31,695
---------- ---------- ---------- ----------
Income before taxes and equity in
net income of investee 9,033 2,349 0 11,382
Equity in net income of investee 0 192 0 192
---------- ---------- ---------- ----------
Income before taxes 9,033 2,541 0 11,574
Provision for income taxes 3,705 819 0 4,524
---------- ---------- ---------- ----------
Net income $ 5,328 $ 1,722 $ 0 $ 7,050
========== ========== ========== ==========
Net income per share-basic $ 0.83 $ 18.09 $ $ 0.89
Net income per share-diluted $ 0.79 $ 18.09 $ $ 0.85
Weighted average common
shares outstanding-basic 6,410,995 95,140 7,963,680
Weighted average common
shares outstanding-diluted 6,734,681 95,140 8,287,366
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
-36-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED) Nine months ended
September 30, 1997 (Dollars in thousands except per share data)
ANCHOR/ ANCHOR/
BAILEY BAILEY
PRO FORMA PRO FORMA
ANCHOR BAILEY ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 51,394 $ 9,365 $ 0 $ 60,759
Interest expense 23,016 4,264 0 27,280
---------- ---------- ---------- ----------
Net interest income 28,378 5,101 0 33,479
Provision for loan losses 1,192 350 0 1,542
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 27,186 4,751 0 31,937
Noninterest income 5,354 1,627 0 6,981
Noninterest expense 21,667 4,763 0 26,430
---------- ---------- ---------- ----------
Income before taxes and equity in
net (loss) of investee 10,873 1,615 0 12,488
Equity in net (loss) of investee 0 (33) 0 (33)
---------- ---------- ---------- ----------
Income before taxes 10,873 1,582 0 12,455
Provision for income taxes 3,860 532 0 4,392
---------- ---------- ---------- ----------
Net income $ 7,013 $ 1,050 $ 0 $ 8,063
========== ========== ========== ==========
Net income per share-basic $ 1.11 $ 11.04 $ $ 1.03
Net income per share-diluted $ 1.05 $ 11.04 $ $ 0.98
Weighted average common
shares outstanding-basic 6,311,584 95,140 7,864,269
Weighted average common
shares outstanding-diluted 6,661,653 95,140 8,214,338
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
-37-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED) For the year ended
December 31, 1997 (Dollars in thousands except per share data)
ANCHOR/ ANCHOR/
BAILEY BAILEY
PRO FORMA PRO FORMA
ANCHOR BAILEY ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 70,452 $ 12,685 0 $ 83,137
Interest expense 31,732 5,803 0 37,535
---------- ---------- ---------- ----------
Net interest income 38,720 6,882 0 45,602
Provision for loan losses 2,044 490 0 2,534
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 36,676 6,392 0 43,068
Noninterest income 7,064 2,097 0 9,161
Noninterest expense 29,198 6,429 0 35,627
---------- ---------- ---------- ----------
Income before taxes and equity in
net income of investee 14,542 2,060 0 16,602
Equity in net income of investee 0 15 0 15
---------- ---------- ---------- ----------
Income before taxes 14,542 2,075 0 16,617
Provision for income taxes 5,305 630 0 5,935
---------- ---------- ---------- ----------
Net income $ 9,237 $ 1,445 0 $ 10,682
========== ========== ========== ==========
Net income per share-basic $ 1.46 $ 15.19 $ 1.36
Net income per share-diluted $ 1.38 $ 15.19 $ 1.29
Weighted average common
shares outstanding-basic 6,317,141 95,140 7,869,826
Weighted average common
shares outstanding-diluted 6,703,191 95,140 8,255,876
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
-38-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED) For the year ended
December 31, 1996 (Dollars in thousands except per share data)
ANCHOR/ ANCHOR/
BAILEY BAILEY
PRO FORMA PRO FORMA
ANCHOR BAILEY ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 57,212 $ 12,177 $ 0 $ 69,389
Interest expense 25,377 5,692 0 31,069
---------- ---------- ---------- ----------
Net interest income 31,835 6,485 0 38,320
Provision for loan losses 1,140 230 0 1,370
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 30,695 6,255 0 36,950
Noninterest income 6,100 1,987 0 8,087
Noninterest expense 25,552 6,030 0 31,582
---------- ---------- ---------- ----------
Income before taxes and equity in
net (loss) of investee 11,243 2,212 0 13,455
Equity in net (loss) of investee 0 (269) 0 (269)
---------- ---------- ---------- ----------
Income before taxes 11,243 1,943 0 13,186
Provision for income taxes 3,952 611 0 4,563
---------- ---------- ---------- ----------
Net income $ 7,291 $ 1,332 $ 0 $ 8,623
========== ========== ========== ==========
Net income per share-basic $ 1.16 $ 14.00 $ $ 1.10
Net income per share-diluted $ 1.11 $ 14.00 $ $ 1.07
Weighted average common
shares outstanding-basic 6,271,333 95,140 7,824,018
Weighted average common
shares outstanding-diluted 6,539,544 95,140 8,092,229
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
-39-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (UNAUDITED) For the year ended
December 31, 1995 (Dollars in thousands except per share data)
ANCHOR/ ANCHOR/
BAILEY BAILEY
PRO FORMA PRO FORMA
ANCHOR BAILEY ADJUSTMENTS COMBINED
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income $ 48,106 $ 11,523 $ 0 $ 59,629
Interest expense 21,562 5,190 0 26,752
---------- ---------- ---------- ----------
Net interest income 26,544 6,333 0 32,877
Provision for loan losses 830 287 0 1,117
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 25,714 6,046 0 31,760
Noninterest income 5,353 1,673 0 7,026
Noninterest expense 22,987 5,804 0 28,791
---------- ---------- ---------- ----------
Income before taxes 8,080 1,915 0 9,995
Provision for income taxes 2,784 578 0 3,362
---------- ---------- ---------- ----------
Net income $ 5,296 $ 1,337 $ 0 $ 6,633
========== ========== ========== ==========
Net income per share-basic $ 0.85 $ 14.05 $ $ 0.85
Net income per share-diluted $ 0.83 $ 14.05 $ $ 0.84
Weighted average common
shares outstanding-basic 6,218,729 95,140 7,771,414
Weighted average common
shares outstanding-diluted 6,349,626 95,140 7,902,311
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
statements.
-40-
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
On September 24, 1998, Anchor Financial Corporation entered into a definitive
agreement and plan of merger with Bailey Financial Corporation, parent company
of the Bailey Banks. After consummation of the merger, The Saluda County Bank
will be merged into M.S. Bailey & Son, Bankers, which will continue to operate
as a subsidiary of Anchor. The merger calls for a tax-free exchange of 16.32
shares of Anchor common stock for each outstanding share of Bailey common stock.
The unaudited Pro Forma Combined Condensed Financial Statements have been
prepared assuming that the merger will be accounted for under the
pooling-of-interests method and are based on the historical consolidated
financial statements of Anchor and Bailey. Amounts for Anchor for all periods
presented have been restated to reflect the acquisitions of ComSouth Bankshares,
Inc. and M&M Financial Corporation, which were acquired under the
pooling-of-interests method of accounting on August 31, 1998.
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 merger been consummated at
the beginning of the periods indicated, nor are they necessarily indicative of
the results of operations in future periods or of the future financial position
of the combined entities.
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 and Bailey, incorporated by reference or
appearing elsewhere herein.
Note 2 - Stockholders' Equity
In conjunction with the merger, Anchor will exchange 16.32 shares of its common
stock for each share of common stock of Bailey. The pro forma adjustments herein
reflect, where applicable, the 16.32 Exchange Ratio for each of the 95,140
shares of Bailey common stock which were issued and outstanding at September 30,
1998.
The capital accounts have been adjusted to reflect the issuance of 1,552,685
shares of Anchor common stock in exchange for all of the outstanding shares of
Bailey based on the Exchange Ratio.
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 of Anchor and Bailey by
the weighted average number of common shares outstanding of Anchor common stock
and the weighted average number of common shares, adjusted to equivalent shares
of Anchor common stock. Unallocated common shares held by the Employee Stock
Ownership Plan of Anchor are excluded from the weighted average shares
outstanding.
<PAGE>
Net income per share - diluted has been computed by dividing the pro forma
combined net income applicable to common shareholders of Anchor and Bailey by
the weighted average number of common shares outstanding and dilutive common
share equivalents of Anchor common stock and the weighted average number of
common shares outstanding, adjusted to equivalent shares of Anchor common stock,
of Bailey common stock, using the treasury stock method. Dilutive common share
equivalents include common shares issuable upon exercise of stock options
outstanding. Bailey has no dilutive common share equivalents.
-41-
<PAGE>
Note 4 - Merger and Restructuring Costs
In connection with the merger, Anchor expects to incur merger-related expenses
of approximately $1.4 million, after tax. Anchor estimates that $1.1 million of
the expenses will be directly related to effecting the merger and $300,000 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 September 30, 1998.
Anchor and Bailey expect that the combined company resulting from the merger
will achieve substantial benefits from the merger 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 - Investment in Rock Hill Bank & Trust
Bailey owns 306,000 shares of common stock of Rock Hill Bank, representing a
22.3% interest, and accounts for its investment under the equity method of
accounting.
As described on page 21, Anchor entered into an agreement with Rock Hill Bank
and made commitments as required by the Federal Reserve under which Anchor
agrees not to exercise certain influence which it may have by virtue of its
22.3% interest in Rock Hill Bank. Accordingly, upon consummation of the merger
Anchor will transfer the investment in Rock Hill Bank to available-for-sale
securities and will cease application of the equity method of accounting.
Therefore, the equity in the income or loss of the investee will not be included
in net income. Such amounts recorded by Bailey were $192,000, $(33,000), and
$15,000 for the nine months ended September 30, 1998 and 1997, and for the year
ended December 31, 1997, respectively.
To account for the investment as available for sale, the Pro Forma Combined
Condensed Balance Sheet includes a $1,359 adjustment to Investment Securities
for the difference between the market value and the historical investment amount
as of September 30, 1998. The tax effect of $507 is included as an adjustment to
Other Assets. The net adjustment of $852 is included as an adjustment to
Accumulated Other Comprehensive Income.
-42-
<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
Anchor Bank and to provide it with capital and services of various kinds. Anchor
derives substantially all of its income from dividends from Anchor Bank. Such
dividends are determined 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, under 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.
On August 31, 1998, Anchor acquired ComSouth Bankshares, Inc. and its subsidiary
banks, Bank of Columbia, N.A. and Bank of Charleston, N.A., and M&M Financial
Corporation and its subsidiary bank, First National South. ComSouth Bankshares,
Inc. and M&M Financial Corporation were merged into Anchor and each of those
mergers was accounted for as a pooling-of-interests. Subsequently, Bank of
Columbia, N.A., Bank of Charleston, N.A. and First National South were merged
into The Anchor Bank.
Anchor Bank conducts its business through 28 offices in South Carolina and North
Carolina.
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, may have wide swings in activity between the winter and summer
months.
<PAGE>
On July 17, 1995, Anchor Bank formed Anchor Investor Services, Inc., a non-bank
securities brokerage firm, to market non-traditional banking products to
customers in all its markets. Anchor Investor Services, Inc., a wholly-owned
subsidiary of Anchor Bank, offers mutual funds, annuities and other securities.
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
-43-
<PAGE>
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, and it
continues to be inactive at this time.
Additional information about Anchor and its subsidiaries is included in
documents incorporated by reference in this joint proxy statement/prospectus.
See "Where You Can Find More Information" and "Incorporation of Certain
Documents By Reference."
Recent Developments
Anchor announced earnings for the fourth quarter of 1998 of $2,917,207, an
increase of 31.2% from the same period in 1997, before one-time pretax charges
of $161,812 during the quarter which were associated with completing the
acquisitions of ComSouth Bankshares, Inc. and M&M Financial Corporation and the
pending merger with Bailey. Excluding these non-recurring charges, Anchor's
earnings per diluted share for the quarter ended December 31, 1998 were $0.43,
an increase of 31.3% from the fourth quarter of 1997.
For the twelve months ended December 31, 1998, Anchor earned $11,424,848 on a
recurring basis compared with $9,236,950 in 1997, an increase of 23.7%.
Recurring earnings per diluted share for the twelve months ended December 31,
1998 were $1.70 compared to $1.38 in 1997, an increase of 23.1%. For the twelve
months ended December 31, 1998, return on average assets and return on average
equity, excluding non-recurring charges, were 1.14% and 16.19%, respectively.
Including the effect of the non-recurring charges, Anchor recorded net income
totaling $2,794,006 or $0.41 per diluted share for the quarter ended December
31, 1998, compared to $2,224,078 or $0.33 per diluted share earned in the same
period of 1997. For the twelve months ended December 31, 1998, Anchor's net
income totaled $8,122,006 or $1.21 per diluted share, compared to $9,236,950 or
$1.38 per diluted share earned in the same period in 1997. One-time costs
associated with the completed mergers and the proposed merger were $4.35
million, pre-tax, and were in line with Anchor's preliminary expectations.
Anchor's total assets at December 31, 1998 were $1.0 billion, an increase of
7.3% compared to $945.5 million at December 31, 1997. Anchor's total deposits at
December 31, 1998 were $832.0 million, up 4.4% from $796.7 million at December
31, 1997. Anchor's total loans increased 5.3% from $665.6 million at December
31, 1997 to $701.2 million at December 31, 1998.
Anchor's non-performing assets were 0.26% of total loans and foreclosed property
at December 31, 1998. For the twelve months ended December 31, 1998, Anchor's
net loan charge-offs represented 0.22% of average loans outstanding.
In April 1998, Anchor and The Anchor Bank entered into Executive Employment
Agreements (the "Employment Agreements") with Stephen L. Chryst, Robert E.
Coffee, Jr., Robert R. DuRant, III and Tommy E. Looper, which Employment
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 Employment Agreement is five years, ending on
December 31, 2002, unless further extended or sooner terminated as discussed
<PAGE>
below. Mr. Coffee will continue to serve as Executive Vice-President and Chief
Administrative Officer, with his Employment 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 Employment
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 $465,000 for Mr. Chryst, $163,000 for Mr.
Coffee, $185,000 for Mr. DuRant, and $238,000 for Mr. Looper. On August 31,
1998, Anchor Bank entered into an Employment Agreement with Chester A. Duke for
Mr. Duke to serve as Vice Chairman of Anchor Bank. Mr. Duke's Employment
Agreement is for a term of three years, expiring August 31, 2001, and provides
for a per annum base salary of $185,000 for Mr. Duke. Other than the term and
the base salary for each of these five executive officers, the terms of the
Executive Employment Agreements are generally the same for each of these
individuals.
Other provisions of these five Executive Employment Agreements include:
(1) 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, Looper and Duke. 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 positions and club
dues.
<PAGE>
(2) Compensation and Benefits in the Event of Termination - If the
executive's employment is terminated for "cause" (as defined
in the Employment Agreement) before a "change in control" (as
defined in the Employment 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 Employment
Agreement), at any time, or by reason of the executive's
death, "disability" or "retirement" (both terms as defined in
the Employment 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 before a
"change in control" and for "good reason," or by action of
Anchor Bank
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<PAGE>
coincident with, following or before 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, and 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.
(3) Confidentiality and Restrictive Covenant - The Employment
Agreements prohibit the executives from disclosing any
confidential information both during their employment and
thereafter under Anchor and Anchor Bank's rules and procedures
to decide to protect their confidential information. The
Employment 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 similar
work or work related to Anchor Bank's work to discontinue
employment with Anchor Bank or seek employment or engage in
any business of Anchor Bank.
-45-
<PAGE>
Historical Condensed Consolidated Balance Sheet
The following balance sheets of Anchor at December 31, 1997 and 1996 are
provided in compliance with the requirements of Section 33-11-103(d) of the
South Carolina Act. The income statements of Anchor as required by that section
are set forth in the historical condensed statements of income. See "Unaudited
Pro Forma Combined Condensed Financial Statements."
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 42,124 $ 41,762
Interest-bearing balances due from banks 2,566 1,407
Federal funds sold 6,820 4,350
Investment securities 197,325 172,759
Loans 665,707 542,107
Less-allowance for loan losses (7,321) (6,631)
-unearned income (119) (97)
--------- ---------
Net loans 658,267 535,379
--------- ---------
Premises and equipment 22,433 21,319
Other assets 15,918 14,535
--------- ---------
Total assets $ 945,453 $ 791,511
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing deposits $ 140,840 $ 133,562
Interest-bearing deposits 655,842 539,531
--------- ---------
Total deposits 796,682 673,093
Federal funds purchased and securities
sold under agreements to repurchase 25,967 17,546
Other short-term borrowings 5,065 3,181
Long-term debt 34,189 24,200
Subordinated notes 11,000 11,000
Other liabilities 6,451 5,365
--------- ---------
Total liabilities 879,354 734,385
--------- ---------
Stockholders' Equity
Common Stock 46,153 45,301
Retained earnings 19,659 12,222
Accumulated other comprehensive income, net of tax 814 236
Unearned ESOP shares (527) (633)
--------- ---------
Total stockholders' equity 66,099 57,126
--------- ---------
Total liabilities and stockholders' equity $ 945,453 $ 791,511
========= =========
</TABLE>
See notes to consolidated financial statements incorporated herein by reference.
-46-
<PAGE>
SUPERVISION AND REGULATION
Bank Holding Companies
Anchor and Bailey are under the supervisory and regulatory authority granted the
Federal Reserve by the Bank Holding Company Act of 1956, as amended ("BHCA").
Anchor and Bailey 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 and Bailey
and their 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 Interstate Act further provides that
individual states may opt out of interstate branching. If a state did not opt
out of interstate branching before 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. South Carolina did not opt 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 and
other affiliates (which includes any holding company of which such bank is a
subsidiary and any 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.
<PAGE>
Subsidiary Banks
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 and the Bailey Banks 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
-47-
<PAGE>
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 December 31, 1998, Anchor Bank and each of the Bailey Banks were "well
capitalized," and were 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.
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 Board. The South Carolina Board 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 Bailey Banks are South Carolina banking associations subject to regulation
and supervision of the FDIC and the South Carolina Board.
<PAGE>
Anchor Bank and the Bailey Banks (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 as it attempts to control the money supply and credit
availability in order to influence the economy.
Each of Anchor and Bailey generally depend upon payments of dividends by their
Subsidiary Banks in order to pay dividends to their shareholders and to meet
their other needs for cash or to pay expenses. Various statutory restrictions
govern the ability of the Subsidiary Banks to pay dividends to their holding
companies. Federal law provides that no insured depository institution may make
any capital distribution (which would include a
-48-
<PAGE>
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. An insured bank is 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 Federal Reserve, and the 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 Bailey and their subsidiaries.
-49-
<PAGE>
INFORMATION ABOUT BAILEY
Business of Bailey
Bailey Financial Corporation is a registered bank holding company incorporated
in 1969 pursuant to the laws of the state of South Carolina. It presently
conducts its business through its two bank subsidiaries, M.S. Bailey & Son,
Bankers ("M.S. Bailey") and The Saluda County Bank ("Saluda Bank"). As of
September 30, 1998, Bailey had total assets of approximately $168,655,000 and
total shareholders' equity of approximately $16,137,000. At September 30, 1998,
Bailey and the Bailey Banks had a total of 95 full-time equivalent employees.
The principal executive offices of Bailey are located at 211 North Broad Street,
Clinton, South Carolina 29325, and its telephone number is (864) 833-1910.
M.S. Bailey is based in Clinton, South Carolina, and has operated a banking
business there since 1886. It became a state chartered banking corporation in
1949. M.S. Bailey seeks to attract as customers small and mid-sized companies
and individuals residing in its market area, principally Laurens County.
Saluda Bank is a South Carolina banking corporation chartered in 1987 and based
in Saluda, South Carolina. Saluda Bank seeks to attract as its customers small
and mid-sized companies and individuals residing in its market area, principally
Saluda County.
The Bailey Banks offer a full range of deposit services, including personal and
business 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 transaction accounts and time certificates are
tailored to the principal market areas of the Bailey Banks at rates competitive
with those offered in the areas. The Bailey Banks also offer individual
retirement accounts. All deposit accounts are insured by the FDIC up to the
maximum amount permitted by law. Although the Bailey Banks are competitive in
their efforts to attract deposit accounts, they do not aggressively seek jumbo
certificates of deposit (certificates in amounts greater than $100,000).
The Bailey Banks engage in a variety of lending activities, including
commercial, consumer and real estate loans, with particular emphasis on short-
and medium-term commercial credits to individuals and small businesses.
Commercial lending activities are directed principally towards businesses whose
demand for funds are within M.S. Bailey's and Saluda Bank's lending limits, such
as small- to medium-sized professional firms, retail and wholesale outlets and
light industrial and manufacturing concerns. Consumer loans include loans for
boats, home improvements, debt consolidation and other personal, family and
household needs. Real estate loans include home acquisition and improvement
loans, home equity loans and construction loans, made primarily to individuals
and small and mid-sized businesses operating in the Bailey Banks' market areas,
principally Laurens and Saluda Counties. These loans are available for general
operating purposes, acquisition of fixed assets, including real estate,
purchases of equipment and machinery, financing of inventory and accounts
receivable and other business purposes. In order to stress high quality loans,
the boards of directors of the Bailey Banks have each established lending
authority for each loan officer, but each loan request exceeding a loan
officer's authority must be approved by one or more senior officers. A loan
committee of each of the boards of directors reviews larger loans for approval
when the loan request exceeds established limits for the senior officers.
<PAGE>
The Bailey Banks participate in a regional network of automated teller machines
that may be used by bank customers in major cities throughout the Southeast. The
Bailey Banks issue credit cards and act as a merchant depository for card holder
drafts for both Visa(R) and MasterCard(R). In addition, the Bailey Banks provide
collection services.
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<PAGE>
The Bailey Banks also provide safe deposit boxes, night depository, travelers
checks and cashier's checks, debit card services, direct deposit of payroll and
social security checks, bank-by-mail and automatic drafts for various accounts,
but do not provide international services.
As of September 30, 1998, M.S. Bailey had total deposits of approximately
$97,105,000, total assets of approximately $126,979,000 and total shareholders'
equity of approximately $12,327,000. As of September 30, 1998, Saluda Bank had
total deposits of approximately $36,959,000, total assets of approximately
$40,777,000 and total shareholders' equity of approximately $3,402,000.
M.S. Bailey also has trust powers and its trust department provides a variety of
fiduciary services ranging from the management of funds for individuals to the
administration of estates and trusts. Portfolio management, advisory and
custodial services also are offered. As of September 30, 1998, M.S. Bailey held
in a fiduciary capacity, exclusive of safekeeping and custodial accounts,
securities with a market value exceeding $218,470,666.
M.S. Bailey also provides certain insurance services. These services are
provided by a division of M.S. Bailey operated under the name of The William J.
Bailey Agency. This agency is an independent agent for various insurance
companies and earns commissions on personal and commercial policies written.
Neither of the Bailey Banks is dependent upon any particular depositor or small
group of depositors for its business. In the opinion of the management of
Bailey, neither of the Bailey Banks has any material customer or industry
concentration in its loan portfolio. The credit demands of and the level of
deposit acquisition by the Bailey Banks are not significantly influenced by
seasonal factors.
During 1998, Bailey upgraded its data processing equipment to a Unisys Clearpath
- - NX4600 main frame and installed ITI Premier II software. Personal computers
and file servers were installed to facilitate a Windows N.T. network utilizing
Microsoft 4.0.
The primary assets of each of the Bailey Banks consist of a loan portfolio and
investment account. Efforts are made generally to match maturities and rates of
loans in the loan portfolio with those of deposits, although exact matching is
not possible. The Bailey Banks' securities investments include obligations of
the United States government, federal agencies and state and municipal
governments with varied maturities.
Long-term loans are generally priced to be interest-rate sensitive with only a
small portion of the Bailey Banks' portfolios of long-term loans at fixed rates.
Presently, such fixed-rate loans do not have maturities longer than five years,
except in exceptional cases.
Deposit accounts represent the majority of the liabilities of the Bailey Banks.
These include transaction accounts, time deposits and certificates of deposit.
The maturities of the majority of interest-sensitive accounts are six months or
less.
<PAGE>
Banking Facilities
M.S. Bailey operates five banking offices. The main banking office of M.S.
Bailey is located at 211 North Broad Street, Clinton, South Carolina 29325. M.S.
Bailey owns the main office building (containing approximately 34,000 square
feet of finished floor space) and the land on which it is located (approximately
3.52 acres). The main office houses the trust department and the operations
center as well as teller facilities, including a drive-through teller lane. The
land and improvements at two of M.S. Bailey's branch offices also are owned by
M.S. Bailey. M.S. Bailey leases the land at its other two branches.
The Saluda Bank owns its banking office at 200 North Main Street, Saluda, South
Carolina, which was constructed in 1988 at a cost of approximately $500,000. The
office contains approximately 6,000 square feet which management believes to be
adequate for its current needs. The Saluda Bank also offers drive-in banking at
this location.
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<PAGE>
Competition
The banking business is highly competitive. The Bailey Banks compete with other
commercial banks, savings and loan associations, credit unions and money market
mutual funds operating in Laurens County, Saluda County and elsewhere. Some of
these institutions have numerous offices in the State of South Carolina and may
offer certain services which the Bailey Banks do not offer, and some of these
competitors offer rates for loans and deposits that the Bailey Banks do not
choose to match. Some of these competitors have greater capitalization than the
Bailey Banks and thus higher lending limits than the Bailey Banks. The Bailey
Banks face further competition for loans and deposits from a wide variety of
local and nonlocal financial institutions. As more and different kinds of
businesses enter the market for financial services, competition from mortgage
companies, insurance companies and other financial institution intermediaries
may be expected to intensify. Certain of these competitors are not subject to
the same regulatory restrictions as the Bailey Banks. The Bailey Banks and other
community banks also have experienced significant competition for deposits from
mutual funds and other investment companies and from money center banks'
offerings of high yielding investments and deposits.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management of Bailey
Directors and Executive Officers
The following table sets forth as of _______ __, 1999, the number and percentage
of outstanding shares of Bailey common stock beneficially owned by each
executive officer and director of Bailey and by all executive officers and
directors of Bailey as a group.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name Title Beneficially Owned(1) Class
- ---- ----- --------------------- -----
<S> <C> <C> <C>
Emily F. Bailey Director 11,690 12.29%
George H. Cornelson Vice Chairman and Director 9,610(2) 10.10%
Scott M. Cornelson Director 960 1.01%
John W. Dickens President, Chief Executive 50(3) *
Officer and Director
C. Bailey Dixon Director 2,280(4) 2.40%
Michael S. Guy Director 4(5) *
Walter S. Montgomery,Jr. Director 9,624(6) 10.12%
James L. Switzer Director 80(3) *
Toccoa W. Switzer Director 8,430 8.86%
Robert M. Vance Chairman and Director 10,480(7) 11.02%
S. James Von Hollen Director 1,000(3) 1.05%
William R. Davis Vice President and -0- N/A
Secretary
Norman W. Dixon Vice President 400 *
Valerie W. Stevenson Chief Financial Officer -0- N/A
Robert H. Todd Vice President -0- N/A
All Directors and Executive Officers
as a group (15 persons) 54,608 57.40%
</TABLE>
- -----------------------------
* Signifies less than 1.00%
(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) Includes 900 shares held by Mr. Cornelson's wife and 6,090 shares held
by a trust for which Mr. Cornelson serves as a co-trustee.
(3) All of the shares shown as owned by Mr. Dickens and Mr. Von Hollen and
50 of the shares shown as owned by Mr. Switzer are director qualifying
shares and are subject to repurchase pursuant to a Director Qualifying
Shares Agreement.
(4) Includes 780 shares held by a trust for which Mr.Dixon serves as
trustee.
<PAGE>
(5) Does not include 2,298 shares owned by Mr. Guy's wife as to which he
disclaims beneficial ownership.
(6) Includes 8,724 shares held by three trusts for which Mr. Montgomery
serves as a co-trustee.
(7) Includes 380 shares owned by Mr. Vance's wife and 10,050 shares held by
a revocable trust established by Mr. Vance and over which his wife
exercises sole voting power.
-53-
<PAGE>
Five Percent Shareholders
The following table sets forth as of _________ ___, 1999, information regarding
persons or groups who are known by management of Bailey to beneficially own five
percent or more of the outstanding shares of Bailey's common stock.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
- ------------------------ -------------------- -----
Shared
Sole Voting Voting
And And
Investment Investment
Power Power
----- -----
<S> <C> <C> <C>
Emily F. Bailey
316 S. Woodrow Street 11,690 -0- 12.29%
Clinton, South Carolina 29325
George H. Cornelson
Route 2, Box 354 9,610(1) -0- 10.10%
Clinton, South Carolina 29325
Walter S. Montgomery, Jr.
Forty Acres Farm 9,624(2) -0- 10.12%
Campobello, South Carolina 29322
Toccoa W. Switzer
305 E. South Street 8,430 -0- 8.86%
Union, South Carolina 29379
Robert M. Vance
c/o M.S. Bailey & Son, Bankers 10,480(3) -0- 11.02%
Post Office Box 494
Clinton, South Carolina 29325
M.S. Bailey & Son, Bankers
Post Office Box 494 9,700(4) -0- 10.20%
Clinton, South Carolina 29325
</TABLE>
- -----------------------------
(1) Includes 900 shares owned by Mr. Cornelson's wife and 6,090 shares held
by a trust for which Mr. Cornelson serves as a co-trustee.
(2) Includes 8,724 shares held by three trusts for which Mr. Montgomery
serves as a co-trustee.
(3) Includes 380 shares owned by Mr. Vance's wife and 10,050 shares held by
a revocable trust established by Mr. Vance and over which his wife
exercises sole voting power.
(4) All shares shown are held by M.S. Bailey & Son, Bankers as personal
representative of an estate.
-54-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
Bailey is a bank holding company headquartered in Clinton, South Carolina. The
principal business activity of Bailey is provided through its subsidiaries, M.S.
Bailey and the Saluda Bank, both state-chartered banks, providing commercial
banking services to domestic markets, principally in the counties of Laurens and
Saluda, South Carolina. Bailey 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. M.S.
Bailey also has a trust department which offers a full range of trust services.
In addition, Bailey provides certain insurance agency services. These services
are provided by a division of M.S. Bailey operated under the name of The William
J. Bailey Agency. The agency is an independent agent for various insurance
companies and earns commissions on personal and commercial policies written.
In 1996, Bailey entered into an agreement with a group of local investors in
Rock Hill, South Carolina to form a community bank. In May 1996, Rock Hill Bank
opened for business. At December 31, 1997, Bailey owned 51% of the outstanding
common stock in Rock Hill Bank but Rock Hill Bank's financial statements were
not consolidated with those of Bailey because Bailey does not maintain control.
The investment in Rock Hill Bank is accounted for under the equity method of
accounting and is reflected as investment in an unconsolidated subsidiary in
Bailey's financial statements and elsewhere in this document. During 1998 the
percentage of Bailey's ownership of Rock Hill Bank was reduced to 22.3% due to a
common stock issuance by Rock Hill Bank.
Basis of Presentation - Nine Months Ended September 30, 1998
The following is a discussion of Bailey's financial condition as of September
30, 1998 compared to December 31, 1997, and the results of operations for the
three and nine months ended September 30, 1998 compared to the three and nine
months ended September 30, 1997. These comments should be read in conjunction
with Bailey's condensed consolidated financial statements and accompanying
footnotes appearing elsewhere herein.
Results of Operations
Net Interest Income
For the nine months ended September 30, 1998, net interest income increased
$89,624 or 1.75% over the same period in 1997. The net interest margin realized
on earning assets decreased slightly from 4.70% for the nine months ended
September 30, 1997 to 4.62% for the same period in 1998. Yields on earning
assets decreased by 10 basis points, primarily as a result of a decrease of 32
basis points on loans, to a yield of 9.40% while yields on interest bearing
liabilities remained virtually the same between the two periods. The interest
rate spread decreased by 8 basis points from 4.70% for the nine months ended
September 30, 1997 to 4.62% for the nine months ended September 30, 1998.
Net interest income increased from $1,737,690 for the quarter ending September
30, 1997 to $1,826,511 for the quarter ending September 30, 1998. This
represents an increase of $88,821 or 5.11%. The net interest margin realized on
earning assets decreased from 4.66% for the quarter ended September 30, 1997 to
4.34% for the quarter ended September 30, 1998. The interest rate spread also
decreased by 29 basis points from 4.28% for the quarter ended September 30, 1997
to 3.99% for the quarter ended September 30, 1998.
<PAGE>
Provision and Allowance for Loan Losses
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 nine months ended September 30, 1998, the
provision charged to expense was $315,000, a decrease of $35,000 over the same
period in 1997. For the quarters ended September 30, 1998 and 1997, the
provision charged to expense was $105,000 and $100,000, respectively. Based on
present information, management of Bailey believes the allowance for loan losses
is adequate at September 30, 1998 to meet presently known and inherent risks in
the loan portfolio.
-55-
<PAGE>
Non-Interest Income
Non-interest income during the nine months ended September 30, 1998 was
$2,075,722, an increase of $448,173 or 27.53% from the comparable period in
1997. The subsidiary banks sold investment securities which resulted in gains of
$163,826 for the nine months ended September 30, 1998 as compared to $23,656 for
the nine months ended September 30, 1997. The increase is also a result of an
increase in service charges from $516,039 at September 30, 1997 to $604,219 at
September 30, 1998. Deposits at September 30, 1997 were $132,425,461 compared to
$133,968,397 at September 30, 1998.
For the quarter ended September 30, 1998, non-interest income increased $131,604
or 22.00% over the same period in 1997. The Bailey Banks sold investment
securities which resulted in gains of $57,425 for the quarter ended September
30, 1998 as compared to $1,072 for the quarter ended September 30, 1997. The
increase is also due to service charges which increased $18,060 or 9.83% from
the quarter ended September 30, 1997 to the quarter ended September 30, 1998.
Non-Interest Expense
Total non-interest expense for the nine months ended September 30, 1998 was
$160,477 or 3.37% lower than the nine months ended September 30, 1997. Salaries
and employee benefits increased from $2,391,103 at September 30, 1997 to
$2,414,021 for the nine months ended September 30, 1998. This increase was
offset by decreases in net occupancy expense and in other expenses. Net
occupancy expense decreased from $964,092 for the nine months ending September
30, 1997 to $856,812 for the nine months ending September 30, 1998. Other
operating expenses decreased $78,115 to $1,332,076 for the nine months ending
September 30, 1998 as compared to the same period in 1997.
For the quarter ended September 30, 1998, non-interest expense decreased $30,850
or 1.94% over the same period in 1997. Salaries and employee benefits increased
$40,212 or 5.22% to $810,847 for the quarter ending September 30, 1998 as
compared to the quarter ending September 30, 1997. This increase was offset by
decreases in net occupancy expense and in other operating expenses. Net
occupancy expense decreased $37,110 to $327,756 for the quarter ending September
30, 1998 as compared to the same period in 1997. Other operating expenses
decreased from $453,462 for the quarter ending September 30, 1997 to $419,510
for the same quarter in 1998.
Income Taxes
The income tax provision for the nine months ended September 30, 1998 was
$819,341 as compared to $532,420 for the same period in 1997. The effective tax
rates were 32.25% and 33.64% at September 30, 1998 and 1997, respectively. The
effective tax rates were 37.30% and 33.56% for the quarter ended September 30,
1998 and September 30, 1997, respectively.
Net Income
The combination of the above factors resulted in net income for the nine months
ended September 30, 1998 of $1,721,459 as compared to $1,050,434 for the same
period in 1997. This represents an increase of $671,025 or 63.88% over the same
period in 1997. For the quarter ended September 30, 1998, net income was
$598,870 as compared to $439,768 for the quarter ended September 30, 1997. This
represents an increase of $159,102 or 36.18% from the quarter ending September
30, 1998 as compared to the quarter ending September 30, 1997.
<PAGE>
Assets and Liabilities
During the first nine months of 1998, total assets decreased $4,645,776 or 2.68%
from the December 31, 1997 total. The most significant change was from the sales
of investment securities resulting in a decrease in investment securities of
$4,401,770 or 10.54% from December 31, 1997. A portion of the available funds
were used for the increase in the loan portfolio. Loans increased $1,278,585 or
1.14% to $113,257,198 at September 30, 1998. The decrease in total assets was
partially attributable to a decrease in total deposits of $1,861,439 or 1.37% to
a balance of $133,968,397 at September 30, 1998.
-56-
<PAGE>
Investment Securities
Investment securities decreased $4,401,770 to $37,379,262 at September 30, 1998.
Investment securities decreased in an effort to have funds available for loans
and as a result of the decrease in deposits. A shift also occurred in the dollar
volume of available for sale securities to correspond with the changing interest
rate environment. A number of mortgage-backed securities classified as
available-for-sale were sold and funds reinvested in municipal securities and
classified as held to maturity. Management believes that municipal securities
will provide an overall greater after tax benefit to Bailey.
Loans
The demand for loans remained stable in Bailey's market during the first nine
months of 1998. Loans increased $1,278,585 or 1.14% during the period.
Balances within the major loan receivable categories as of September 30, 1998
and December 31, 1997 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural $ 20,909,712 $ 22,118,694
Real estate loans 65,550,797 60,102,816
Consumer and other loans 26,796,689 29,757,103
------------ ------------
$113,257,198 $111,978,613
============ ============
</TABLE>
Risk Elements in the Loan Portfolio
The following is a summary of risk elements in the loan portfolio:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ----------
<S> <C> <C>
Loans:
Nonaccrual loans $1,124,822 $ 563,000
Accruing loans more than 90 days past due $ 7,865 $ 11,000
Loans identified by the internal review mechanism:
Criticized $1,827,048 $2,141,902
Classified $3,496,202 $3,388,887
</TABLE>
-57-
<PAGE>
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Balance, January 1, $ 1,045,222 $ 1,317,701
Provision for loan losses for the period 315,000 350,000
Net loans charged off for the period (111,439) (703,859)
------------- -------------
Balance, end of period $ 1,248,783 $ 963,842
============= =============
Gross loans outstanding, end of period $ 113,257,198 $ 105,876,609
Allowance for loan losses to loans outstanding 1.10% .91%
</TABLE>
Deposits
Total deposits decreased $1,861,439 or 1.37% from December 31, 1997. Expressed
in percentages, noninterest-bearing deposits decreased 5.56% and
interest-bearing deposits decreased .92%. A significant decrease occurred in
money market demand accounts while overall certificates of deposit increased
during the period.
Balances within the major deposit categories as of September 30, 1998 and
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Non-interest bearing demand deposits $ 12,339,576 $ 13,065,611
Interest bearing demand deposits 41,277,096 46,341,363
Savings deposits 23,053,550 23,023,049
Certificates of deposit 57,298,175 53,399,813
------------ ------------
$133,968,397 $135,829,836
============ ============
</TABLE>
Long-term Debt
Bailey has $2,910,000 in long-term debt with another financial institution.
Proceeds from these borrowings were used to finance Bailey's investment in Rock
Hill Bank and for refinancing the remaining debt used to acquire the Saluda
Bank. The full amount is scheduled to mature in April 2001.
Liquidity
Funding loans and deposit withdrawals are two of the main uses of Bailey's
liquidity. Liquidity needs are met by Bailey through scheduled maturities of
loans and investments, borrowings, and through pricing policies for interest
bearing deposit accounts.
<PAGE>
Maturities and sales of securities are a ready source of liquidity. Bailey also
has $5,250,000 of unused lines of credit with correspondent banks to purchase
federal funds. As a secondary source of liquidity, Bailey has securities
available-for-sale with a carrying value of $24,238,963 as of September 30,
1998.
Capital Resources
Total stockholders' equity increased $1,552,314 from December 31, 1997 to
$16,137,413 at September 30, 1998. The increase is due to earnings for the
period ended September 30, 1998 of $1,721,459, an increase of $99,150 in the
unrealized gain on securities available-for-sale, less dividends paid of
$268,295.
Bailey and the Bailey Banks are required by banking regulators to meet certain
minimum levels of capital adequacy, expressed in the form of certain ratios.
Capital is separated into Tier 1 capital (essentially common stockholders'
equity less intangible assets) and Tier 2 capital (essentially the allowance for
loan losses limited to 1.25% of risk-weighted assets). The ratio of Tier 1
capital to risk-weighted assets must be at least 4.0% and the ratio of total
capital (Tier 1 capital plus Tier 2 capital) to risk-weighted assets must be at
least 8.0%. The capital leverage ratio supplements the risk-based
-58-
<PAGE>
capital guidelines. Bailey and its banking subsidiaries are required to maintain
a minimum ratio of Tier 1 capital to adjusted quarterly average total assets of
4.0%. The banking subsidiaries are also required to meet specific capital
guidelines to be well-capitalized under the regulatory framework for prompt
corrective action.
The following table summarizes Bailey's and the Bailey Banks' capital ratios at
September 30, 1998:
<TABLE>
<CAPTION>
Tier 1 Total Tier 1
Risk-Based Risk-Based Leverage
---------- ---------- --------
<S> <C> <C> <C>
Actual ratios:
Bailey 12.73% 12.51% 8.23%
Bailey Bank 13.90 14.84 9.03
Saluda Bank 11.17 12.57 8.34
Minimum ratios for capital adequacy purposes:
Bailey 4.00% 8.00% 4.00%
Bailey Bank 4.00 8.00 4.00
Saluda Bank 4.00 8.00 4.00
To be well-capitalized under prompt corrective
action provisions:
Bailey 6.00% 10.00% 5.00%
Saluda 6.00% 10.00% 5.00%
</TABLE>
Regulatory Matters
The management of Bailey is not aware of any current recommendations by
regulatory authorities which, if they were to be implemented, would have a
material effect on Bailey's liquidity, capital resources, or operations.
Accounting Rule Changes
As of January 1, 1998, Bailey 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. Bailey reported comprehensive income in its
condensed consolidated financial statements as of September 30, 1998 and
reclassified prior periods to reflect the application of SFAS 130.
Year 2000
Bailey 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 recognize properly the Year 2000.
Potential software failures due to processing errors arising from calculations
using the Year 2000 date are a known risk. In December, 1997, a corporate-wide
plan was initiated for the purpose of identifying, evaluating and implementing
changes to computer programs necessary to address the Year 2000 issue. As of
March 30, 1998, Bailey had completed its Year 2000 assessment. Internal Year
2000 issues are being addressed by Bailey with modifications to existing
programs and conversion to new programs. Bailey is also communicating with
<PAGE>
software vendors and other service providers with whom it conducts business to
help identify and resolve Year 2000 issues. Software conversion and renovations
were scheduled to be completed as of December 31, 1998. Bailey expects to
complete Year 2000 validation and testing of software by March 1999. The total
cost associated with the required modifications and conversions, while not
completely known at this time, is not expected to exceed $50,000. These costs
are not expected to be material to Bailey's financial position and are being
expensed as incurred. Bailey has communicated with a large number of its
customers to confirm that they were aware of the Year 2000 issue and have
implemented procedures to minimize any adverse impact on their business.
Bailey has also developed a Year 2000 Business Resumption Contingency Plan (the
Plan). This plan has been designed to protect employees during emergencies and
to provide for the restoration of financial services. The Plan provides for
financial restoration; backup of
-59-
<PAGE>
documents and records; recovery locations for operations; and backup of data
processing hardware, program and documentation, and data files. The Plan
outlines the strategies to be used for disaster recovery planning. Periodic
testing of the adequacy of the recovery plans is also a requirement of the Plan.
Basis of Presentation
The following discussion and analysis is intended to assist the reader in
understanding Bailey's financial condition and results of operations for each of
the three years in the period ended December 31, 1997. This commentary should be
read in conjunction with the consolidated financial statements and the related
notes and the other statistical information contained in this joint proxy
statement/prospectus.
Results of Operations
1997 compared to 1996
Bailey's net income for the year ended December 31, 1997 was $1,445,245, or
$15.19 per share, compared to $1,331,664, or $14.00 per share, for the year
ended December 31, 1996. An increase in net interest income of $397,148 over the
1996 amount of $6,484,600 contributed to this overall increase. Other income
increased $110,719 or 5.57% over 1996. Other operating expenses increased from
$6,030,004 for 1996 to $6,428,646 for 1997. Income from Bailey's investment in
an unconsolidated subsidiary was $14,888 in 1997, compared to a loss of $268,838
for the year ending December 31, 1996.
1996 compared to 1995
Bailey had net income of $1,331,664, or $14.00 per share, for 1996 as compared
to $1,336,684, or $14.05 per share for 1995. Net interest income increased
slightly by $151,177 or 2.38% over the 1995 amount of $6,333,423. Other income
increased $313,431, or 18.73%, over 1995. The decrease in net income was
partially affected by an increase in other operating expenses from $5,803,932
for 1995 to $6,030,004 for the year ended December 31, 1996. In addition,
Bailey's 1996 earnings were negatively affected by its investment in the
unconsolidated subsidiary. Bailey's equity in the net loss of the unconsolidated
subsidiary was $268,838 in 1996.
Net Interest Income
General. To a large degree, Bailey's earnings are dependent on net interest
income, which represents the difference between interest earned on assets and
the interest paid on liabilities. Interest rate spread and net interest margin
are two significant elements in analyzing Bailey's net interest income. Interest
rate spread is the difference between the yield on average earning assets and
the rate on average interest bearing liabilities. Net interest margin is net
interest income divided by earning assets.
For the year ended December 31, 1997, net interest income was $6,881,748, an
increase of $397,148, or 6.12%, 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 70.63% of average
earning assets compared to 69.99% for 1996. The improvement in interest income
was partially attributable to a decrease in interest expense on deposit
<PAGE>
accounts. Total interest expense was $5,803,660, an increase of $111,262, or
1.95%, from the prior year. The increase was due mainly to Bailey's use of
borrowings from the Federal Home Loan Bank as a funding source for some
investment purchases. This increase was partially offset by a decrease in
interest expense on deposit accounts of $253,281 to $4,933,303 for the year
ending December 31, 1997. The increase in the volume of both assets and
liabilities is attributable to management's ability to strengthen its influence
in Bailey's market area and Bailey's emphasis on growth.
The influence of these factors had the effect of increasing the interest rate
spread 8 basis points to 4.28% and increasing the net interest margin 2 basis
points to 4.63% for the year ended December 31, 1997.
For the year ended December 31, 1996, net interest income was $6,484,600, an
increase of $151,177, or 2.38% from the prior year. An increase in higher
yielding loans resulted in an overall increase in loan income of $280,675 to
$9,504,502 for 1996. Also, income derived from investment securities increased
$334,328, or 16.94% to $2,307,163 for the year ended December 31, 1996. However,
these increases were partially offset by an
-60-
<PAGE>
increase in total interest expense of $502,905 to $5,692,398 for 1996. The net
interest spread and net interest margin were 4.20% and 4.61%, respectively in
1996. Average Balances, Income, Expenses and Rates. The following table sets
forth, for the periods indicated, the weighted average yields earned, the
weighted average yields paid, the net interest spread and the net interest
margin on earning assets. The table also indicates the average monthly balance
and the interest income or expense by specific categories.
<TABLE>
<CAPTION>
Average Balances, Income, Expenses and Rates
1997 1996
----------------------------------- -------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Time deposits in other banks $ 34 $ 2 5.88% $ - $ - -
Taxable securities (1) 30,880 1,954 6.33% 31,619 1,981 6.27%
Tax-exempt securities (1) 6,293 375 5.96% 5,051 326 6.45%
Federal funds sold 6,432 343 5.33% 5,548 365 6.58%
Loans (2) 104,995 10,012 9.54% 98,500 9,505 9.65%
--------- --------- --------- -----------
Total earning assets 148,634 12,686 8.54% 140,718 12,177 8.65%
--------- -----------
Cash and due from banks 5,485 5,487
Allowance for loan losses (983) (1,362)
Premises and equipment 5,166 5,485
Other real estate owned 146 290
Investment in unconsolidated
subsidiary 2,785 1,893
Other assets 2,026 1,916
--------- ---------
Total assets $ 163,259 $ 154,427
========= =========
Liabilities:
Interest bearing deposits $ 122,406 4,933 4.24% 120,839 5,187 4.62%
Short-term borrowings 7,082 361 5.10% 4,692 299 5.51%
Advances from FHLB 3,550 222 6.25% - - -
Long-term debt 3,400 287 8.44% 2,350 206 8.77%
--------- --------- --------- -----------
Total interest-
bearing liabilities 136,438 5,803 4.25% 127,881 5,692 4.45%
--------- -----------
Non-interest bearing deposits 11,265 11,543
Accrued interest and
other liabilities 1,664 1,846
Shareholders' equity 13,892 13,157
--------- ---------
Total liabilities and
shareholders' equity $ 163,259 $ 154,427
========= =========
Net interest income/
interest rate spread $ 6,883 4.28% $ 6,485 4.20%
========= ========= =========== =====
Net interest margin on earning 4.63% 4.61%
assets ========= =====
</TABLE>
<PAGE>
(1) Yields on securities are computed at their nominal rates and have been
adjusted for tax rate differences.
(2) The effect of loans in non-accrual status and fees collected is not
significant to the computations. All loans and deposits are domestic.
Analysis of Changes in Net Interest Income. Net interest income can also be
analyzed in terms of the impact of changing rates and changing volume. The
following table describes the extent to which changes in interest rates and
changes in the volume of earning assets
-61-
<PAGE>
and interest bearing liabilities have affected Bailey's interest income and
interest expense during the periods indicated. The changes in each category are
attributable to (i) changes due to volume (change in volume multiplied by prior
period rate), (ii) changes due to rates (changes in rates multiplied by prior
period volume) and (iii) changes in rate and volume (change in rate multiplied
by the change in volume).
<TABLE>
<CAPTION>
Analysis of Changes in Net Interest Income
1997 compared to 1996
Due to increase (decrease)in
(Dollars in thousands) Volume Rate Volume/Rate Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earning Assets
Time deposits in other banks $ 2 $ - $ - $ 2
Taxable securities (46) 20 (1) (27)
Tax-exempt securities 80 (25) (6) 49
Federal funds sold 58 (69) (11) (22)
Loans 627 (112) (8) 507
-------- -------- -------- --------
Total interest income 721 (186) (26) 509
-------- -------- -------- --------
Interest Bearing Liabilities
Interest bearing deposits 1 (254) (1) (254)
Short-term borrowings 152 (60) (30) 62
Advances from FHLB 222 - - 222
Long-term debt 92 (8) (3) 81
-------- -------- -------- --------
Total interest expense 467 (322) (34) 111
-------- -------- -------- --------
Net interest income $ 254 $ 136 $ 8 $ 398
======== ======== ======== ========
<CAPTION>
1996 compared to 1995
Due to increase (decrease) in
(Dollars in thousands) Volume Rate Volume/Rate Total
<S> <C> <C> <C> <C>
Earning Assets
Time deposits in other banks $ (1) $ (1) $ 1 $ (1)
Taxable securities 390 (56) (13) 321
Tax-exempt securities (25) (9) 1 (33)
Federal funds sold 70 (89) (16) (35)
Loans 305 109 4 418
-------- -------- -------- --------
Total interest income 739 (46) (23) 670
-------- -------- -------- --------
Interest Bearing Liabilities
Interest bearing deposits 463 (31) (3) 429
Short-term borrowings 24 (101) (7) (84)
Advances from FHLB - - - -
Long-term debt 100 (8) (7) 85
-------- -------- -------- --------
Total interest expense 587 (140) (17) 430
-------- -------- -------- --------
Net interest income $ 152 $ 94 $ (6) $ 240
======== ======== ======== ========
</TABLE>
-62-
<PAGE>
Interest Sensitivity. Bailey monitors and manages the pricing and maturity of
its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by Bailey is the measurement of Bailey's
interest sensitivity "gap," which is the positive or negative dollar difference
between assets and liabilities that are subject to interest rate repricing
within a given period of time. Interest rate sensitivity can be managed by
repricing assets or liabilities, selling securities available-for-sale,
replacing an asset or liability at maturity, or adjusting the interest rate
during the life of an asset or liability. Managing the amount of assets and
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
The following table presents Bailey's rate sensitivity at each of the time
intervals indicated as of December 31, 1997. The table may not be indicative of
Bailey's rate sensitivity position at other points in time.
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
After six
Within After three through Within Greater than
three through six twelve one one year or
(Dollars in thousands) months months months year nonsensitive Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Federal funds sold $ 2,175 $ - $ - $ 2,175 $ - $ 2,175
Time deposits with other banks 91 50 - 141 215 356
Investment securities 1,780 2,064 3,117 6,961 34,820 41,781
Loans (1) 45,336 3,596 7,194 56,126 55,290 111,416
--------- --------- --------- --------- --------- ---------
Total 49,382 5,710 10,311 65,403 90,325 155,728
--------- --------- --------- ========= ========= =========
Liabilities
Interest bearing liabilities:
Demand deposits 46,341 - - 46,341 - 46,341
Savings deposits 23,023 - - 23,023 - 23,023
Time deposits 13,778 10,374 20,749 44,901 8,499 53,400
Short-term borrowings 11,100 - - 11,100 - 11,100
Advances from FHLB - 1,000 1,000 2,000 5,187 7,187
Long-term debt - - - - 3,300 3,300
--------- --------- --------- --------- --------- ---------
Total 94,242 11,374 21,749 127,365 16,986 144,351
--------- --------- --------- ========= ========= =========
Period gap $(44,860) $ (5,664) $ (11,438) $ (61,962) $ 73,339
-========= ========== ========== ========== =========
Cumulative gap $ (44,860) $ (50,524) $ (61,962) $ (61,962) $ 11,377
========== ========== ========== ========== =========
Ratio of cumulative gap to
total earning assets (28.81)% (32.44)% (39.79)% (39.79)% 7.31%
</TABLE>
- ---------------------
(1) Excludes nonaccrual loans.
-63-
<PAGE>
The above table reflects the balances of interest earning assets and interest
bearing liabilities at the earlier of their repricing or maturity dates.
Overnight federal funds are reflected at the earliest pricing interval due to
the immediately available nature of the instruments. Scheduled payment amounts
of fixed rate amortizing loans are reflected at each scheduled payment date.
Scheduled payment amounts of variable rate amortizing loans are reflected at
each scheduled payment date until the loan may be repriced contractually; the
unamortized balance is reflected at that point. Interest bearing liabilities
with no contractual maturity, such as savings deposits and interest bearing
transaction accounts, are reflected in the earliest repricing period due to
contractual arrangements which give Bailey the opportunity to vary the rates
paid on those deposits within a thirty-day or shorter period. Fixed rate time
deposits, principally certificates of deposit, are reflected at their
contractual maturity date. Short-term borrowings are reflected in the earliest
repricing period since these borrowings mature daily.
Bailey generally would benefit from increasing market rates of interest when it
has an asset-sensitive gap and generally would benefit from decreasing market
rates of interest when it is liability sensitive. Bailey currently is liability
sensitive over periods with maturity dates of less than one year. However,
Bailey's gap analysis is not a precise indicator of its interest sensitive
position. The analysis presents a static view of the timing of maturities and
repricing opportunities, without taking into consideration that changes in
interest rates do not affect all assets and liabilities equally. Net interest
income is also impacted by other significant factors, including changes in the
volume and mix of earning assets and interest bearing liabilities.
Provision and Allowance for Loan Losses
General. Bailey has developed policies and procedures for evaluating the overall
quality of its credit portfolio and the timely identification of potential
problem credits. Management's judgment as to the adequacy of the allowance is
based upon a number of assumptions about future events which it believes to be
reasonable, but which may or may not be valid. Thus, there can be no assurance
that charge-offs in future periods will not exceed the allowance for loan losses
or that additional increases in the loan loss allowance will not be required.
Additions to the allowance for loan losses, which are expended as the provision
for loan losses on Bailey's income statement, are made periodically to maintain
the allowance at an appropriate level based on management's analysis of the
potential risk in the loan portfolio. Bailey 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. The amount of the
provision is a function of the level of loans outstanding, the level of
nonperforming loans, historical loan loss experience, the amount of loan losses
actually charged against the reserve during a given period and current and
anticipated economic conditions.
Bailey's allowance for loan losses is based upon judgments and assumptions of
risk elements in the portfolio, 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 portfolio quality through observable
trends in delinquency, charge-offs, and general economic conditions in the
service area. The adequacy of the allowance for loan losses and the
effectiveness of Bailey's monitoring and analysis system are also reviewed
periodically by the banking regulators and Bailey's independent auditors.
<PAGE>
The reserve for loan losses was .93% and 1.28% of total loans on December 31,
1997 and 1996, respectively. Management continues to evaluate its reserve policy
and adjust the policy based on historical loss experience, changes in economic
conditions, growth in the portfolio and evaluations of specific loans.
Management believes the level of the allowance for loan losses is sufficient to
provide for potential losses in the loan portfolio.
The 1997 provision for loan losses was $490,000 or $260,000 higher than in 1996.
The increase in the loan loss provision was due mainly to one loan of
approximately $650,000 which eventually defaulted, and also to the growth in the
loan portfolio.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. No
-64-
<PAGE>
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges to
earnings. For all periods presented, the additional interest income, which would
have been recognized into earnings if Bailey's nonaccrual loans had been current
in accordance with their original terms, is immaterial.
<TABLE>
<CAPTION>
Allowance for Loan Losses+
1997 1996
------------ ------------
<S> <C> <C>
Loans outstanding at the end of year $111,978,613 $102,848,823
============ ============
Average amount of loans outstanding $104,995,426 $ 98,499,966
============ ============
Balance, beginning of year $ 1,317,701 $ 1,233,366
------------ ------------
Loans charged off:
Commercial, financial and agricultural 664,818 101,958
Real estate-mortgage 27,631 45,023
Consumer 262,838 199,770
------------ ------------
Total loans charged off 955,287 346,751
Recoveries of previous loan losses:
Commercial, financial and agricultural 75,446 59,064
Real estate-mortgage 36,406 79,878
Consumer 80,956 62,144
------------ ------------
Total recoveries 192,808 201,086
------------ ------------
Net charge-offs 762,479 145,665
------------ ------------
Provision charged to operations 490,000 230,000
------------ ------------
Balance, end of year $ 1,045,222 $ 1,317,701
============ ============
Ratios:
Net charge-offs to average loans outstanding .72% .14%
Net charge-offs to loans at end of year .68% .14%
Allowance for loan losses to average loans .99% 1.33%
Allowance for loan losses to loans, end of year .93% 1.28%
Net charge-offs to allowance for loan losses 72.94% 11.05%
Net charge-offs to provisions for loan losses 155.60% 63.33%
</TABLE>
-65-
<PAGE>
Nonperforming Assets. The following table sets forth Bailey's nonperforming
assets for the dates indicated:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Nonaccrual loans $ 563,000 $1,614,000
Restructured or impaired loans -- --
---------- ----------
Total nonperforming loans $ 563,000 $1,614,000
========== ==========
Loans 90 days or more past due and still accruing interest $ 11,000 $ 9,000
========== ==========
</TABLE>
Potential Problem Loans. At December 31, 1997, through their internal review
mechanisms Bailey had identified $2,141,902 of criticized loans and $3,388,887
of classified loans. The results of this internal review process are the primary
determining factor in management's assessment of the adequacy of the allowance
for loan losses.
Non-Interest Income and Expense
Non-interest Income. Other income increased $110,719 or 5.57% to $2,097,375 for
the year ending December 31, 1997. Income from the Bailey trust department was
the primary reason for the increase. Income from fiduciary activities increased
$116,951 or 11.93% to $1,096,950 for the year ended December 31, 1997. Service
charges on deposit accounts increased from $658,404 for 1996 to $696,279 for the
year ending December 31, 1997.
Non-interest income increased $313,431 to $1,986,656 for the year ended December
31, 1996 as compared to the same period one year ago. Income from trust
activities generated a significant portion of the increase which resulted in
$979,993 in trust income for the year ended December 31, 1996. Other income also
increased $138,304 to $358,086 for the year ended December 31, 1996 when
compared to the year ended December 31, 1995. This increase was significantly
impacted by the $71,622 gain that was recognized on the sale of a parcel of
other real estate owned. Fees from service charges on deposit accounts increased
from $623,122 in 1995 to $658,404 for the year ending December 31, 1996.
Non-interest Expense. For the year ended December 31, 1997, non-interest expense
was $6,428,646, an increase of $398,642 or 6.61%, over the $6,030,004 recorded
in 1996. The increase in non-interest expense was attributable mainly to the
continuing growth of Bailey. The largest component of non-interest expense is
salaries and employee benefits which increased $90,059 or 2.97% to $3,123,733
for the year. Other expenses also increased $256,798 to $2,375,111 for the year
ended December 31, 1997. A significant portion of this increase was attributable
to the payment of approximately $150,000 for an expense reduction study at
Bailey.
<PAGE>
Non-interest expense increased $226,072 or 3.89% over the 1995 amount to
$6,030,004 for the year ended December 31, 1996. The largest component of this
increase was in salaries and employee benefits, which increased $208,485 or
7.37%. The addition of several employees, including a Senior Loan Officer, and
annual pay raises were the primary reasons for the increase. Other categories of
non-interest expense such as net occupancy expense increased primarily as a
result of depreciation expense on new equipment. Net occupancy expense increased
$61,443 to $878,017 for the year ended December 31, 1996.
Income Taxes. Bailey's income tax expense for 1997 was $630,120, an increase of
$19,370 over the 1996 expense of $610,750. The increase in the expense results
primarily from increased income before taxes. Bailey's effective tax rates for
the years ended December 31, 1997 and 1996 were 30.36% and 31.44%, respectively.
-66-
<PAGE>
Earning Assets
Loans. Loans are the largest category of earning assets and typically provide
higher yields than other types of earning assets. Associated with the higher
loan yields are the inherent credit and liquidity risks which management
attempts to control and counterbalance. Loans averaged $104,995,426 in 1997
compared to $98,499,966 in 1996, an increase of $6,495,460, or 6.59%. At
December 31, 1997, total loans were $111,978,613 compared to $102,848,823 at
December 31, 1996.
Bailey's ratio of loans to deposits was 82.44% on December 31, 1997, as compared
to 80.20% on December 31, 1996. The loan to deposit ratio is used to monitor a
financial institution's potential profitability and efficiency of asset
distribution and utilization. Generally, a higher loan to deposit ratio is
indicative of higher interest income since loans yield a higher return than
alternative investment vehicles. Management has concentrated on maintaining
quality in the loan portfolio while continuing to increase the deposit base.
Bailey extends credit primarily to consumers and small businesses in Laurens and
Saluda counties in South Carolina, and to customers in surrounding areas.
Bailey's service area is mixed in nature. Laurens County is a regional business
center whose economy contains elements of medium and light manufacturing, higher
education, regional health care, and distribution facilities. The economy of
Saluda County includes manufacturing, agriculture, and timber. No particular
category or segment of the economies previously described is expected to grow or
contract disproportionately in 1998. Management is of the opinion that the loan
portfolio is adequately diversified. There are no significant concentrations of
loans in any particular individuals or industry or group of related individuals
or industries. The loan demand remains strong in Bailey's market area, supported
in part by customers moving from larger financial institutions after recent
mergers.
<TABLE>
<CAPTION>
Loan Portfolio Composition
December 31,
----------------------------------------------------------------
1997 1996
------------------------------ ----------------------------
Percent of Percent of
Amount Total Amount Total
------------- ------ ------------- ------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 22,118,694 19.75% $ 22,587,549 21.96%
Real estate loans 60,102,816 53.67 59,086,136 57.44
Consumer and other loans 29,757,103 26.58 21,175,138 20.60
------------- ------ ------------- ------
Total gross loans 111,978,613 100.00% 102,848,823 100.00%
============= ======
Allowance for loan losses (1,045,222) (1,317,701)
------------- -------------
Total net loans $ 110,933,391 $ 101,531,122
============= =============
</TABLE>
<PAGE>
Commercial, financial and agricultural loans decreased $468,855 or 2.07% to
$22,118,694 at December 31, 1997. Competition from other financial institutions
was a primary factor for this decrease.
Real estate loans totaled $60,102,816 at December 31, 1997. The increase of
$1,016,680, or 1.72%, is considered normal growth in the portfolio.
Consumer and all other loans increased $8,581,965, or 40.52%, to $29,757,103 at
December 31, 1997. This increase is attributable to management's strategy of
obtaining the typically higher yielding consumer loans.
-67-
<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>
One year One to After
or less five years five years Total
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 14,854,473 $ 6,573,571 $ 690,650 $ 22,118,694
Real estate loans 24,222,471 29,950,273 5,930,072 60,102,816
Consumer and other loans 17,612,175 11,526,166 618,762 29,757,103
-------------- -------------- -------------- --------------
$ 56,689,119 $ 48,050,010 $ 7,239,484 $ 111,978,613
============== ============== ============== ==============
Loans maturing after one year with:
Fixed interest rates $ 55,213,262
Floating interest rates 76,232
--------------
$ 55,289,494
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval as well as modification of terms upon their maturity.
Consequently, management believes this treatment presents fairly the maturity
and repricing structure of the loan portfolio shown on the above table.
Federal Funds Sold. Federal funds sold averaged $6,431,644 in 1997, as compared
to $5,548,156 in 1996. At December 31, 1997, federal funds sold totaled
$2,175,000. These funds are a primary source of Bailey's liquidity and are
generally invested in an earning capacity on an overnight basis.
Investment Securities. The investment securities portfolio is an important
component of Bailey's total earning assets. Total securities averaged
$37,173,097 in 1997, compared to $36,669,748 in 1996. At December 31, 1997, the
total securities portfolio was $41,781,032. Securities designated as available
for sale totaled $34,237,406 and were recorded at estimated fair market value,
and securities designated as held to maturity totaled $7,543,626 and were
recorded at amortized cost. The investment objectives of Bailey include
maintaining and investing in a portfolio of high quality and highly liquid
investments with competitive returns. Based on these objectives, Bailey's
investments are primarily in U.S. Treasury and U.S. Government agency
obligations.
-68-
<PAGE>
Investment Portfolio. The following tables summarize the carrying value of
investment securities as of the indicated dates and maturities and weighted
average yields on investment securities excluding equity securities, at December
31, 1997 and 1996. Yields on tax-exempt securities have been adjusted to reflect
the pre-tax equivalent yields.
<TABLE>
<CAPTION>
Investment Securities Portfolio Composition
December 31,
---------------------------
Held to Maturity (1) 1997 1996
----------- -----------
<S> <C> <C>
Obligations of states and political subdivisions $ 7,543,626 $ 4,109,096
=========== ===========
Available for Sale (1)
U.S. Treasury and U.S. Government agencies $29,140,441 $25,917,165
Obligations of states and political subdivisions 700,554 853,301
Mortgage-backed securities 4,396,411 --
----------- -----------
$34,237,406 $26,770,466
=========== ===========
</TABLE>
(1) Held to maturity securities are stated at amortized cost and available for
sale securities are stated at estimated fair market value.
Investment Portfolio
<TABLE>
<CAPTION>
Investment Securities Maturity Distribution and Yields
December 31, 1997
-----------------------------------------------------------
Available for Sale Yield Held to Maturity Yield
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies due:
Within one year $ 6,690,478 5.98% $ - -
After one year but within five years 20,328,109 6.41% - -
After five years but within ten years 1,000,358 7.04% - -
After ten years 1,121,496 7.96% - -
------------
29,140,441 6.39%
------------
Obligations of state and political subdivisions due:
Within one year 140,525 6.95% 129,957 9.69%
After one year but within five years 469,622 8.73% 2,778,103 9.42%
After five years but within ten years 90,407 8.78% 723,676 8.92%
After ten years - - 3,911,890 7.14%
------------ -----------
700,554 8.37% 7,543,626 8.19%
------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Mortgage-backed securities due:
After ten years 4,396,411 6.42% - -
------------
Total due:
Within one year 6,831,003 5.12% 129,957 9.69%
After one year but within five years 20,797,731 6.63% 2,778,103 9.42%
After five years but within ten years 1,090,765 7.14% 723,676 8.92%
After ten years 5,517,907 6.66% 3,911,890 7.14%
------------ -----------
$ 34,237,406 6.51% $ 7,543,626 8.19%
============ ===========
</TABLE>
-69-
<PAGE>
Deposits and Other Interest Bearing Liabilities
Deposits. During 1997, Bailey experienced moderate growth in overall deposits.
Total average deposits increased $1,289,837, or .90% over 1996 average deposits
of $132,381,938. The following table summarizes the Bailey Banks' deposits at
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
Percent Percent
Amount of Deposits Amount of Deposits
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Non-interest bearing demand $ 13,065,611 9.61% $ 12,066,169 9.40%
Interest bearing transaction accounts 46,341,363 34.12 40,269,955 31.41
Savings 23,023,049 16.95 23,243,976 18.13
Time deposits of $100,000 and over 9,187,072 6.76 9,737,671 7.59
Other time deposits 44,212,741 32.56 42,917,795 33.47
------------ ------ ------------ ------
$135,829,836 100.00% $128,235,566 100.00%
============ ====== ============ ======
</TABLE>
Core deposits, which exclude certificates of deposit of $100,000 or more,
provide a relatively stable funding source for Bailey's loan portfolio and other
earning assets. Bailey's core deposits were $126,642,764 and $118,497,895 at
December 31, 1997 and 1996, respectively. A stable base of deposits is expected
to be Bailey's primary source of funding to meet both its short-term and
long-term liquidity needs in the future.
The maturity distribution of Bailey's time deposits at December 31, 1997, is
shown in the following table.
<TABLE>
<CAPTION>
Maturities of Certificates of Deposit of $100,000 or More
After three After six
Within through through twelve After twelve
three months six months months months Total
------------ ---------- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Certificates of deposit
of $100,000 or more $ 3,408,109 $ 2,284,946 $ 2,071,703 $ 1,422,314 $ 9,187,072
============== ============== ============== ============== ==============
</TABLE>
Large certificate of deposit customers tend to be extremely sensitive to
interest rate levels, making these deposits less reliable sources of funding for
liquidity planning purposes than core deposits. Some financial institutions
partially fund their balance sheet using large certificates of deposit obtained
through brokers. These brokered deposits are generally expensive and are
unreliable as long-term funding sources. Bailey does not accept brokered
deposits.
<PAGE>
Short-term Borrowings. At December 31, 1997 and 1996, Bailey had short-term
borrowings which consisted of federal funds purchased and securities sold under
agreements to repurchase of $11,100,000 and $3,225,000, respectively. Bailey
purchases federal funds from two other financial institutions. Federal funds
purchased totaled $11,000,000 at December 31, 1997. Securities sold under
agreement to repurchase totaled $100,000 at December 31, 1997. These repurchase
agreements mature on a one to seven day basis. The maximum amount outstanding at
any month-end for the repurchase agreements was $1,225,000 during 1997. The
average interest rate paid on the repurchase agreements was 5.10% during 1997.
Advances from The Federal Home Loan Bank. At December 31, 1997, Bailey had
advances from the Federal Home Loan Bank totaling $7,187,000. Of this total,
$4,987,000 were fixed rate advances and $2,200,000 were adjustable rate
advances. Maturities include $2,000,000 in 1998 and $5,187,000 in 1999. These
borrowings were used to invest in United States agency obligations.
-70-
<PAGE>
Advances from the Federal Home Loan Bank consisted of the following at December
31, 1997:
Interest
Description Rate Balance
- ----------- ---- -------
Fixed rate advances maturing:
June 16, 1998 6.00% $1,000,000
December 15, 1998 5.98% 1,000,000
March 1, 1999 6.04% 1,987,000
June 16, 1999 6.37% 1,000,000
Adjustable rate advance maturing:
January 19, 1999 5.81% 2,200,000
----------
Total $7,187,000
==========
Long-Term Debt. At December 31, 1997 and 1996, Bailey had long-term debt which
totaled $3,300,000 and $3,500,000, respectively. The debt was obtained for the
purpose of financing Bailey's investment in Rock Hill Bank and for refinancing
its 1993 borrowings used to acquire the Saluda Bank. The debt is scheduled for
maturity on May 15, 1999.
Capital
At December 31, 1997, Bailey's shareholders' equity was $14,585,099, an increase
of $1,172,337 from December 31, 1996. The increase is a result of net income for
1997, less cash dividends paid to shareholders, and the positive effects of the
valuation allowance on securities available for sale in the amount of $41,054.
The Federal Reserve 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%. The Federal Reserve guidelines also contain an
exemption from the capital requirements for bank holding companies with less
than $150 million in consolidated assets. Accordingly, prior to 1997, Bailey was
not subject to the Federal Reserve's minimum requirements. Under the risk-based
standard, capital is classified into two tiers. Tier 1 capital of Bailey
consists of common shareholders' equity, excluding the unrealized gain (loss) on
securities available for sale, minus certain intangible assets. Tier 2 capital
consists of 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% of risk-weighed assets for Tier 1 and 8%
of risk-weighed assets for total risk-based capital. A holding company and its
banking subsidiaries are also required to maintain capital at a minimum level
based on total assets, 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.
-71-
<PAGE>
The following table summarizes the capital amounts and ratios of Bailey and the
Bailey Banks and the regulatory minimum requirements at December 31, 1997 and
1996.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------- -------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Bailey Financial Corporation
Total capital (to risk weighted assets) $12,713 11.11% $ 9,157 8.00% N/A --
Tier 1 capital (to risk weighted assets) 13,073 11.42 4,578 4.00 N/A --
Tier 1 capital (to average assets) 13,073 7.74 5,069 3.00 N/A --
M.S. Bailey
Total capital (to risk weighted assets) 11,941 13.94 6,851 8.00 $ 8,564 10.00%
Tier 1 capital (to risk weighted assets) 11,232 13.11 3,426 4.00 5,139 6.00
Tier 1 capital (to average assets) 11,232 8.60 5,224 4.00 6,531 5.00
Saluda Bank
Total capital (to risk weighted assets) 3,527 12.59 2,241 8.00 2,802 10.00
Tier 1 capital (to risk weighted assets) 3,191 11.39 1,121 4.00 1,681 6.00
Tier 1 capital (to average assets) 3,191 8.36 1,526 4.00 1,908 5.00
December 31, 1996
Bailey Financial Corporation
Total capital (to risk weighted assets) 11,697 11.25 8,330 8.00 N/A --
Tier 1 capital (to risk weighted assets) 11,865 11.25 4,165 4.00 N/A --
Tier 1 capital (to average assets) 11,865 7.84 4,541 3.00 N/A --
M.S. Bailey
Total capital (to risk weighted assets) 11,475 14.77 6,216 8.00 7,770 10.00
Tier 1 capital (to risk weighted assets) 10,504 13.52 3,108 4.00 4,662 6.00
Tier 1 capital (to average assets) 10,504 9.39 4,472 4.00 5,590 5.00
Saluda Bank
Total capital (to risk weighted assets) 3,208 12.27 2,091 8.00 2,614 10.00
Tier 1 capital (to risk weighted assets) 2,881 11.02 1,045 4.00 1,569 6.00
Tier 1 capital (to average assets) 2,881 7.32 1,574 4.00 1,968 5.00
</TABLE>
-72-
<PAGE>
Liquidity Management
Bailey manages its liquidity from both the asset and liability side of the
balance sheet through the coordination of the relative maturities of its assets
and liabilities. Short-term liquidity needs are generally met from cash, due
from banks, federal funds sold and deposit levels. Management has established
policies and procedures governing the length of time to maturity on loans and
investments. Investments classified as available for sale are placed in this
category specifically to fund future liquidity needs, if necessary. Bailey
maintained a high level of liquidity during 1997 which was attributable to the
growth in deposits during the year. In the opinion of management, Bailey's
short-term and long-term liquidity needs can be adequately supported by Bailey's
deposit base.
Impact of Inflation
The financial statements and related financial data presented herein 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 relative purchasing power
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and the liabilities of a financial institution are monetary in
nature. As a result, interest rates generally have a more significant impact on
a financial institution's performance than does the effect of inflation.
While the effect of inflation on a bank is normally not as significant as its
influence on those businesses that have large investments in plant and
inventories, it does have an effect. Interest rates generally increase as the
rate of inflation increases, but the magnitude of the change in rates may not be
the same. While interest rates have traditionally moved with inflation, the
effect on income is diminished because both interest earned on assets and
interest paid on liabilities vary directly with each other. Also, increases in
the price of goods and services will generally result in increased operating
expenses.
Accounting and Financial Reporting Issues
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (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.
<PAGE>
Forward Looking and Trend Information
The management of Bailey is not aware of any trends or events other than those
included in this discussion that are likely to have a material effect on
Bailey's capital resources, liquidity, or operations. See the following
discussion on Bailey's plan for handling Year 2000. Also, no known factors
regarding regulatory matters are expected to affect materially the overall
operating results of Bailey.
Bailey has conducted a comprehensive review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of Bailey's programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. Bailey presently
believes that, with modifications to existing
-73-
<PAGE>
software and converting to new software, the Year 2000 problem will not pose
significant operational problems for Bailey's computer systems as so modified
and converted. However, if such modifications and conversions are not completed
timely, the Year 2000 problem may have a material impact on the operations of
Bailey.
Bailey cannot predict with any certainty the costs Bailey will incur to respond
to any Year 2000 issues. Further, the business of many of Bailey's customers may
be negatively affected by the Year 2000 issue, and any financial difficulties
incurred by Bailey's customers in solving Year 2000 issues could negatively
affect such customers' ability to repay any loans which the subsidiary banks may
have extended. Therefore, even if Bailey and the Bailey Banks do not incur
significant direct costs in connection with responding to the year 2000 issue,
there can be no assurance that the failure or delay of the Bailey Banks'
customers or other third parties in addressing the Year 2000 issue or the costs
involved in such process will not have a material adverse effect on Bailey's
business, financial condition and results of operations. Bailey has also
developed a Year 2000 Business Resumption Contingency Plan (the Plan). This plan
has been designed to protect employees during emergencies and to provide for the
restoration of financial services. The Plan provides for financial restoration;
backup of documents and records; recovery locations for operations; backup of
data processing hardware, program and documentation, and data files. The Plan
outlines the strategies to be used for disaster recovery planning. Periodic
testing of the adequacy of the recovery plans is also a requirement of the Plan.
EXPERTS
The consolidated financial statements of Anchor Financial Corporation
incorporated in this joint proxy statement/prospectus by reference to the Annual
Report on Form 10-K of Anchor Financial Corporation for the year ended December
31, 1997, and the audited consolidated financial statements included in Anchor
Financial Corporation's Current Report on Form 8-K, dated January 29, 1999 have
been so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Bailey 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
Tourville, Simpson & Henderson, L.L.P. independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the report
of such firm given their authority as experts in accounting and auditing.
The consolidated financial statements of ComSouth Bankshares, Inc. as of
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997 have been audited by J.W. Hunt and Company, LLP, independent
auditors, as stated in their report incorporated by reference in this joint
proxy statement/prospectus, that has been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
<PAGE>
The consolidated 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 have been audited by Tourville, Simpson & Henderson, L.L.P.,
independent auditors, as stated in their report incorporated by reference in
this joint proxy statement/prospectus, that has been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
LEGAL MATTERS
Gerrish & McCreary, P.C., counsel to Anchor, has passed upon the validity of the
issuance of shares of Anchor common stock to be issued in connection with the
merger and the federal income tax treatment of the merger.
-74-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Anchor that is not included in or delivered with
this document. You can obtain free copies of this information by writing or
calling:
Anchor Financial Corporation
Mr. Tommy E. Looper
2002 Oak Street
Myrtle Beach, SC 29577
Telephone (843) 448-1411
In order to obtain timely delivery of the documents, you must request the
information by _________________, 1999.
Anchor files reports, proxy statements and other information with the Securities
and Exchange Commission under the Securities Exchange Act of 1934. Copies of
these 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. You can obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. Such reports, proxy statements and other information 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 Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661. The Commission also
maintains a site on the World Wide Web regarding issuers like Anchor that file
electronically with the Commission. The Web site contains reports, proxy and
information statements and other information, and the address of that Web site
is http://www.sec.gov.
Anchor has filed a registration statement on Form S-4 under the Securities Act
with respect to the Anchor common stock being offered by this joint proxy
statement/prospectus. This joint proxy statement/prospectus does not contain all
the information set forth in the registration statement, certain portions of
which have been omitted under the rules and regulations of the Commission. For
further information regarding Anchor and the common stock being offered,
reference is made to the registration statement, including all amendments and
the schedules and exhibits filed as part of it. The registration statement and
the schedules and the exhibits filed as part of it may be inspected and copied,
at prescribed rates, at the addresses of the Commission set forth above.
Statements contained in this joint proxy statement/prospectus 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 National Market.
Reports, proxy statements and other information concerning Anchor may be
inspected at the offices of The Nasdaq National 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 Bailey was supplied by Bailey.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below and previously filed with the Commission by Anchor
are 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 Reports on Form 10-Q for the quarters ended March
31, 1998, June 30, 1998 and September 30, 1998 (File No. 0-13759);
3. Anchor's Current Reports on Form 8-K, dated April 14, 1998, May 1,
1998, September 4, 1998 and January 29, 1999; (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).
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<PAGE>
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 before the date of the Bailey special
meeting 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.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION FOR ANCHOR
This joint proxy statement/prospectus, the documents incorporated by reference
in this joint proxy statement/prospectus, 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 have 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 recent and
proposed acquisition entities; changes in the interest rate environment;
Anchor's ability to realize anticipated cost savings relating to recent and
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 and other financial
institutions. 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.
-76-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Bailey Financial Corporation
Condensed Consolidated Statements of Financial Position as of
September 30, 1998 and December 31, 1997................................ F-2
Condensed Consolidated Statements of Income for
the nine months ended September 30, 1998 and 1997....................... F-3
Condensed Consolidated Statements of Comprehensive Income for
the nine months ended September 30, 1998 and 1997....................... F-4
Condensed Consolidated Statements of Changes in Stockholders' Equity for
the nine months ended September 30, 1998 and 1997...................... F-5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and 1997....................... F-6
Notes to Condensed Consolidated Financial Statements....................... F-7
Independent Auditors' Report............................................... F-9
Consolidated Statements of Financial Position as of December 31, 1997 and
1996................................................................... F-10
Consolidated Statements of Income for the years ended December 31, 1997,
1996, and 1995......................................................... F-11
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996, and 1995................................ F-12
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996, and 1995................................................... F-13
Notes to Consolidated Financial Statements................................. F-14
F-1
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Condensed Consolidated Statements of Financial Position
September 30, December 31,
1998 1997
------------- -------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 6,181,166 $ 7,099,758
Federal funds sold 1,100,000 2,175,000
------------- -------------
7,281,166 9,274,758
Time deposits with other banks 264,824 355,860
Investments held-to-maturity (estimated market value;
1998 - $13,568,166; 1997 - $7,873,123) 13,140,299 7,543,626
Investments available-for-sale 24,238,963 34,237,406
Loans receivable 113,257,198 111,978,613
Less allowance for loan losses (1,248,783) (1,045,222)
------------- -------------
Loans, net 112,008,415 110,933,391
Premises and equipment, net 5,688,612 4,828,091
Accrued interest receivable 1,229,644 1,500,164
Investment in unconsolidated subsidiary 3,001,368 2,813,036
Other real estate owned 289,861 380,454
Other assets 1,512,046 1,434,188
------------- -------------
Total assets $ 168,655,198 $ 173,300,974
============= =============
Liabilities
Deposits:
Non-interest bearing transaction accounts $ 12,339,576 $ 13,065,611
Interest bearing transaction accounts 41,277,096 46,341,363
Savings 23,053,550 23,023,049
Certificates of deposit $100,000 and over 14,685,733 9,187,072
Other time deposits 42,612,442 44,212,741
------------- -------------
133,968,397 135,829,836
Federal funds purchased and securities sold
under agreements to repurchase 3,925,000 11,100,000
Advances from the Federal Home Loan Bank 10,187,000 7,187,000
Long-term debt 2,910,000 3,300,000
Accrued interest payable 873,046 845,283
Other liabilities 654,342 453,756
------------- -------------
Total liabilities 152,517,785 158,715,875
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity
Common stock, $.01 par value; 1,000,000 shares authorized;
95,140 shares issued and outstanding 951 951
Capital surplus 7,501,132 7,501,132
Accumulated other comprehensive income 203,746 104,596
Retained earnings 8,431,584 6,978,420
------------- -------------
Total stockholders' equity 16,137,413 14,585,099
------------- -------------
Total liabilities and stockholders' equity $ 168,655,198 $ 173,300,974
============= =============
</TABLE>
See notes to condensed consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Interest income: Loans, including fees $ 7,895,469 $ 7,430,424
Investment securities:
Taxable 1,377,790 1,426,121
Tax-exempt 412,832 257,157
Federal funds sold 219,460 52,050
Time deposits with other banks 12,197 --
----------- -----------
Total interest income 9,917,748 9,365,752
----------- -----------
Interest expense:
Deposit accounts 3,793,799 3,715,435
Federal funds purchased and
securities sold under agreements
to repurchase 342,675 219,570
Advances from the FHLB 400,740 113,178
Long-term debt 189,329 215,988
----------- -----------
Total interest expense 4,726,543 4,264,171
----------- -----------
Net interest income 5,191,205 5,101,581
Provision for loan losses 315,000 350,000
----------- -----------
Net interest income after provision
for loan losses 4,876,205 4,751,581
----------- -----------
Other income:
Income from fiduciary activities 933,000 890,000
Service charges on deposit accounts 604,219 516,039
Income (loss) of Bailey Agency 25,855 (51,238)
Gain on sales of investments 163,826 23,656
Other income 348,822 249,092
----------- -----------
Total other income 2,075,722 1,627,549
----------- -----------
Other expenses:
Salaries and employee benefits 2,414,021 2,391,103
Net occupancy expense 856,812 964,092
Other expense 1,332,076 1,408,191
----------- -----------
Total other expenses 4,602,909 4,763,386
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Income before income taxes and
equity in net income (loss) of
unconsolidated subsidiary 2,349,018 1,615,744
Equity in net income (loss) of
unconsolidated subsidiary 191,782 (32,890)
----------- -----------
Income before income taxes 2,540,800 1,582,854
Income tax provision 819,341 532,420
----------- -----------
Net income $ 1,721,459 $ 1,050,434
=========== ===========
Earnings per share:
Average shares outstanding 95,140 95,140
Net income $ 18.09 $ 11.04
</TABLE>
See notes to condensed consolidated financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
Nine Months Ended September 30,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income $ 1,721,459 $ 1,050,434
----------- -----------
Other comprehensive income, net of tax:
Unrealized gains (losses) on
securities during the period 207,276 99,403
Less: reclassification adjustment
for gains included in net income (108,126) (15,613)
----------- -----------
Other comprehensive income 99,150 83,790
----------- -----------
Comprehensive income $ 1,820,609 $ 1,134,224
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 1998
(Unaudited)
Accumulated
Common Stock Other
---------------------------- Capital Comprehensive Retained
Shares Amount Surplus Income Earnings Total
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 95,140 $ 951 $ 7,501,132 $ 104,596 $ 6,978,420 $ 14,585,099
Net income 1,721,459 1,721,459
Cash dividends declared
- $2.82 per share (268,295) (268,295)
Other comprehensive income 99,150 99,150
----------- ----------- ----------- ----------- ------------ ------------
Balance, September 30, 1998 95,140 $ 951 $ 7,501,132 $ 203,746 $ 8,431,584 $ 16,137,413
=========== =========== =========== =========== ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended September 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 1,721,459 $ 1,050,153
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 315,000 350,000
Depreciation and amortization 369,129 387,359
Accretion less amortization on investments (145,759) (69,141)
Gain on sales of investments (163,826) (15,841)
Amortization of loan fees and costs 141,807 159,963
Equity in net (income) loss of unconsolidated subsidiary (191,782) 32,890
(Increase) decrease in interest receivable and other assets 576,655 247,932
Increase (decrease) in interest payable and other liabilities 168,100 (6,090)
------------ ------------
Net cash provided by operating activities 2,790,783 2,137,225
------------ ------------
Investing activities:
Maturities of time deposits with other banks 91,036 --
Proceeds from sales of investments available-for-sale 38,905,873 8,221,557
Maturities of investments available-for-sale 11,456,830 4,952,267
Purchases of investments available-for-sale (40,016,671) (19,515,465)
Maturities of investments held-to-maturity 190,000 909,000
Purchases of investments held-to-maturity (5,661,828) (4,248,523)
Net increase in loans made to customers (1,531,831) (4,100,369)
Purchases of premises and equipment (1,229,650) (232,674)
Purchase of Federal Home Loan Bank stock (293,400) (315,300)
------------ ------------
Net cash provided (used) by investing activities 1,910,359 (14,329,507)
------------ ------------
Financing activities:
Net increase (decrease) in deposit accounts (1,861,439) 4,189,895
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase (7,175,000) 4,850,000
Advances from the Federal Home Loan Bank 3,000,000 7,187,000
Repayments of long-term debt (390,000) (100,000)
Cash dividends paid (268,295) (228,336)
------------ ------------
Net cash provided (used) by financing activities (6,694,734) 15,898,559
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net increase (decrease) in cash and cash equivalents (1,993,592) 3,706,277
Cash and cash equivalents, beginning 9,274,758 6,844,030
------------ ------------
Cash and cash equivalents, ending $ 7,281,166 $ 10,550,307
============ ============
Cash paid during the period for:
Income taxes $ 850,120 $ 767,706
Interest 4,698,780 4,119,035
</TABLE>
See notes to condensed consolidated financial statements.
F-6
<PAGE>
BAILEY 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 notes to the annual financial statements. The
financial statements as of September 30, 1998 and for the interim periods ended
September 30, 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, refer to the financial statements and the notes included in
Bailey's annual financial statements included elsewhere herein.
Note 2 - Adoption of Accounting Principle
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 nine months ended September 30, 1998 and 1997 and for
the three months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
For the Nine Months Ended September 30, 1998: Amount Benefit Amount
--------------- ---------------- ---------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 314,054 $ (106,778) $ 207,276
Plus: reclassification adjustment for gains
(losses) realized in net income (163,826) 55,700 (108,126)
--------------- ---------------- ---------------
Net unrealized gains (losses) on securities 150,228 (51,078) 99,150
--------------- ---------------- ---------------
Other comprehensive income $ 150,228 $ (51,078) $ 99,150
=============== ================ ===============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
For the Nine Months Ended September 30, 1997: Amount Benefit Amount
--------------- ---------------- ---------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 150,610 $ (51,207) $ 99,403
Plus: reclassification adjustment for gains
(losses) realized in net income (23,656) 8,043 (15,613)
--------------- ---------------- ---------------
Net unrealized gains (losses) on securities 126,954 (43,164) 83,790
--------------- ---------------- ---------------
Other comprehensive income $ 126,954 $ (43,164) $ 83,790
=============== ================ ===============
<CAPTION>
Pre-tax (Expense) Net of tax
For the Quarter Ended September 30, 1998: Amount Benefit Amount
--------------- ---------------- ---------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 228,837 $ (77,805) $ 151,032
Plus: reclassification adjustment for gains (losses)
realized in net income (57,425) 18,606 (38,819)
--------------- ---------------- ---------------
Net unrealized gains (losses) on securities 171,412 (59,199) 112,213
--------------- ---------------- ---------------
Other comprehensive income $ 171,412 $ (59,199) $ 112,213
=============== ================ ===============
</TABLE>
F-7
<PAGE>
BAILEY FINANCIAL CORPORATION
Note 2 - Adoption of Accounting Principle -- continued
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
For the Quarter Ended September 30, 1997: Amount Benefit Amount
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 124,086 $ (42,189) $ 81,897
Plus: reclassification adjustment for gains (losses)
realized in net income (1,072) 364 (708)
--------------- ---------------- ---------------
Net unrealized gains (losses) on securities 123,014 (41,825) 81,189
--------------- ---------------- ---------------
Other comprehensive income $ 123,014 $ (41,825) $ 81,189
=============== ================ ===============
</TABLE>
Accumulated other comprehensive income consists solely of the unrealized gain on
securities available-for-sale, net of the deferred tax effects.
Note 3 - Investment in Unconsolidated Subsidiary
The Company's investment in unconsolidated subsidiary was affected by the
actions taken at the April 16, 1998 stockholders meeting of the Rock Hill Bank.
Stockholders of the Rock Hill Bank approved an amendment to eliminate Class B
common stock (including separate voting and distribution rights), Class B
directors, and the right of first refusal held by the Rock Hill Bank on any
proposed transfer by Bailey of the Class A or Class B shares that Bailey owns.
Subsequent to these actions, the Rock Hill Bank held a secondary stock offering
whereby an additional 776,250 shares of stock were issued. Effective August 3,
1998, Bailey's investment in the unconsolidated subsidiary decreased to 22.2% of
the outstanding common stock.
Note 4 - Merger Agreement
On September 24, 1998, the Company executed a definitive agreement to merge with
Anchor Financial Corporation. The proposed merger is subject to various
conditions, including approval by the Company's stockholders and approvals by
appropriate regulatory agencies.
If the proposed merger is consummated, the Company will owe a fee of 1% of the
gross transaction value at the time of the closing of the merger to an
investment banking firm. Additionally, the same investment banking firm has been
engaged to perform the Company's due diligence procedures for a fee of $175,000.
This fee is due upon delivery of a written report to the Company's board of
directors.
F-8
<PAGE>
Independent Auditors' Report
The Board of Directors
Bailey Financial Corporation
Clinton, South Carolina
We have audited the accompanying consolidated statements of financial position
of Bailey Financial Corporation and subsidiaries 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 Bailey 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.
/s/Tourville, Simpson & Henderson
- ---------------------------------
Tourville, Simpson & Henderson
Columbia, South Carolina
January 30, 1998
F-9
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Consolidated Statements of Financial Position
December 31, 1997 and 1996
Assets 1997 1996
------------- -------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 7,099,758 $ 6,744,030
Federal funds sold 2,175,000 100,000
------------- -------------
9,274,758 6,844,030
Time deposits with other banks 355,860 --
Investments held-to-maturity (estimated market value;
1997 - $7,873,123; 1996 - $4,341,243) 7,543,626 4,109,096
Investments available-for-sale 34,237,406 26,770,466
Loans receivable 111,978,613 102,848,823
Less allowance for loan losses (1,045,222) (1,317,701)
------------- -------------
Loans, net 110,933,391 101,531,122
Premises and equipment, net 4,828,091 5,112,977
Accrued interest receivable 1,500,164 1,298,024
Investment in unconsolidated subsidiary 2,813,036 2,791,162
Other real estate owned 380,454 249,384
Other assets 1,434,188 1,005,973
------------- -------------
Total assets $ 173,300,974 $ 149,712,234
============= =============
Liabilities
Deposits:
Non-interest bearing transaction accounts $ 13,065,611 $ 12,066,169
Interest bearing transaction accounts 46,341,363 40,269,955
Savings 23,023,049 23,243,976
Certificates of deposit $100,000 and over 9,187,072 9,737,671
Other time deposits 44,212,741 42,917,795
------------- -------------
135,829,836 128,235,566
Federal funds purchased and securities sold
under agreements to repurchase 11,100,000 3,225,000
Advances from the Federal Home Loan Bank 7,187,000 --
Long-term debt 3,300,000 3,500,000
Accrued interest payable 845,283 644,310
Other liabilities 453,756 694,596
------------- -------------
Total liabilities 158,715,875 136,299,472
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Stockholders' equity
Common stock, $.01 par value; 1,000,000 shares authorized;
95,140 shares issued and outstanding 951 951
Capital surplus 7,501,132 7,501,132
Unrealized gain on investments available-for-sale, net 104,596 63,542
Retained earnings 6,978,420 5,847,137
------------- -------------
Total stockholders' equity 14,585,099 13,412,762
------------- -------------
Total liabilities and stockholders' equity $ 173,300,974 $ 149,712,234
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Consolidated Statements of Income
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 10,011,821 $ 9,504,502 $ 9,223,827
Investment securities:
Taxable 1,953,821 1,981,208 1,615,102
Tax-exempt 374,840 325,955 357,733
Federal funds sold 343,029 365,333 326,254
Time deposits with other banks 1,897 -- --
------------ ------------ ------------
Total interest income 12,685,408 12,176,998 11,522,916
------------ ------------ ------------
Interest expense:
Deposit accounts 4,933,303 5,186,584 4,758,382
Federal funds purchased and securities sold
under agreements to repurchase 361,083 299,373 309,714
Advances from the Federal Home Loan Bank 222,362 -- --
Long-term debt 286,912 206,441 121,397
------------ ------------ ------------
Total interest expense 5,803,660 5,692,398 5,189,493
------------ ------------ ------------
Net interest income 6,881,748 6,484,600 6,333,423
Provision for loan losses 490,000 230,000 287,500
------------ ------------ ------------
Net interest income after provision for loan losses 6,391,748 6,254,600 6,045,923
------------ ------------ ------------
Other income:
Income from fiduciary activities 1,096,950 979,993 862,955
Service charges on deposit accounts 696,279 658,404 623,122
Income (loss) of William J. Bailey Agency (64,505) (9,827) (32,634)
Gain on sales of investments available-for-sale 8,560 1,545 --
Other income 360,091 356,541 219,782
------------ ------------ ------------
Total other income 2,097,375 1,986,656 1,673,225
------------ ------------ ------------
Other expenses:
Salaries and employee benefits 3,123,733 3,033,674 2,825,189
Net occupancy expense 929,802 878,017 816,574
Other expense 2,375,111 2,118,313 2,162,169
------------ ------------ ------------
Total other expenses 6,428,646 6,030,004 5,803,932
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income before income taxes and equity in net income
(loss) of unconsolidated subsidiary 2,060,477 2,211,252 1,915,216
Equity in net income (loss) of unconsolidated subsidiary 14,888 (268,838) --
------------ ------------ ------------
Income before income taxes 2,075,365 1,942,414 1,915,216
Income tax provision 630,120 610,750 578,532
------------ ------------ ------------
Net income $ 1,445,245 $ 1,331,664 $ 1,336,684
============ ============ ============
Earnings per share:
Average shares outstanding 95,140 95,140 95,140
Net income $ 15.19 $ 14.00 $ 14.05
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995
Unrealized
Gain on
Common Stock Investments
------------------------ Capital Available- Retained
Shares Amount Surplus for-Sale, net Earnings Total
--------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 95,140 $ 951 $ 7,501,132 $ (441,254) $ 3,782,928 $ 10,843,757
Net income 1,336,684 1,336,684
Cash dividends declared
- $3.15 per share (299,691) (299,691)
Change in fair value
during the year 677,461 677,461
--------- ------------ ------------ ------------- ------------ -------------
Balance, December 31, 1995 95,140 951 7,501,132 236,207 4,819,921 12,558,211
Net income 1,331,664 1,331,664
Cash dividends declared
- $3.20 per share (304,448) (304,448)
Change in fair value
during the year (172,665) (172,665)
--------- ------------ ------------ ------------- ------------ -------------
Balance, December 31, 1996 95,140 $ 951 $ 7,501,132 $ 63,542 $ 5,847,137 $ 13,412,762
Net income 1,445,245 1,445,245
Cash dividends declared
- $3.30 per share (313,962) (313,962)
Change in fair value
during the year 41,054 41,054
--------- ------------ ------------ ------------- ------------ -------------
Balance, December 31, 1997 95,140 $ 951 $ 7,501,132 $ 104,596 $ 6,978,420 $ 14,585,099
========= ============ ============ ============= ============ =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE>
<TABLE>
<CAPTION>
BAILEY FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,445,245 $ 1,331,664 $ 1,336,684
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 490,000 230,000 287,500
Depreciation and amortization 533,506 514,099 458,105
Accretion less amortization on investments (100,240) (153,296) (150,955)
Deferred income tax provision (benefit) 127,810 (41,356) 129,998
(Gain) loss on disposal of other real estate 1,028 (71,622) --
Gain on investments available-for-sale (8,560) (1,545) --
Amortization of loan fees and costs 207,698 204,614 196,863
Provision for losses on other real estate 18,962 17,498 30,445
Losses on disposal of premises and equipment 17,487 -- --
Equity in net (income) loss of unconsolidated subsidiary (14,888) 268,838 --
Increase in interest receivable (202,140) (6,622) (130,554)
Increase (decrease) in interest payable 200,973 (124,273) 252,042
Increase in other assets (101,393) (294,179) (317,345)
Increase (decrease) in other liabilities (390,329) 338,016 427,146
------------ ------------ ------------
Net cash provided by operating activities 2,225,159 2,211,836 2,519,929
------------ ------------ ------------
Investing activities:
Purchases of time deposits with other banks (355,860) -- --
Proceeds from sales of investments available-for-sale 9,168,665 1,998,455 --
Maturities of investments available-for-sale 7,837,778 15,019,978 10,658,121
Purchases of investments available-for-sale (24,315,365) (15,819,867) (13,206,995)
Maturities of investments held-to-maturity 909,000 700,000 300,000
Purchases of investments held-to-maturity (4,348,523) -- --
Proceeds from sale of other real estate 249,881 402,802 193,521
Net increase in loans made to customers (10,500,908) (7,171,383) (4,120,097)
Purchases of premises and equipment (266,107) (128,065) (336,222)
Investment in unconsolidated subsidiary -- (2,710,000) (350,000)
Purchase of Federal Home Loan Bank stock (315,300) (23,800) --
------------ ------------ ------------
Net cash used by investing activities (21,936,739) (7,731,880) (6,861,672)
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Financing activities:
Net increase (decrease) in deposit accounts 7,594,270 (2,443,284) 10,890,818
Net increase (decrease) in federal funds purchased
and securities sold under agreements to repurchase 7,875,000 (500,000) 1,375,000
Advances from the Federal Home Loan Bank 7,187,000 -- --
Advances of long-term debt -- 3,500,000 --
Repayments of long-term debt (200,000) (1,200,000) (150,000)
Cash dividends paid (313,962) (304,448) (299,691)
------------ ------------ ------------
Net cash provided (used) by financing activities 22,142,308 (947,732) 11,816,127
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,430,728 (6,467,776) 7,474,384
Cash and cash equivalents, beginning 6,844,030 13,311,806 5,837,422
------------ ------------ ------------
Cash and cash equivalents, ending $ 9,274,758 $ 6,844,030 $ 13,311,806
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - Bailey Financial Corporation, a bank holding company (the
Company), and its subsidiaries, M.S. Bailey & Son, Bankers (Bailey) and The
Saluda County Bank (Saluda) provide banking services to domestic markets
principally in Laurens County and Saluda County, South Carolina, respectively.
Bailey also provides certain insurance services through a department of the Bank
operated under the name of The William J. Bailey Agency. The consolidated
financial statements include the accounts of the parent company and its
wholly-owned subsidiaries after elimination of all significant intercompany
balances and transactions.
Investment Securities Held-to-Maturity - Investment securities held-to-maturity
are stated at cost, adjusted for amortization of premium and accretion of
discount both computed by the straight-line method. The Company has the ability
and management has the intent 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.
Investment Securities Available-for-Sale - Investment securities
available-for-sale are carried at amortized cost and adjusted to estimated
market value by recognizing the aggregate unrealized gains or losses in a
valuation account. Aggregate market valuation adjustments are recorded in
stockholders' equity net of deferred income taxes. 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. The adjusted cost basis
of investments available-for-sale is determined by specific identification and
is used in computing the gain or loss upon sale.
Loans - Loans are stated at their unpaid principal balance. 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 when a loan
becomes 90 days past due as to principal or interest, interest income is
generally discontinued unless the estimated net realizable value of collateral
exceeds the principal balance and accrued interest. When interest accruals are
discontinued, income earned but not collected is reversed.
Impaired loans are measured based on the present value of discounted expected
cash flows. When it is determined that a loan is impaired, a direct charge to
bad debt expense is made for the difference between the net present value of
expected future cash flows based on the contractual rate and discount rate and
the Company's recorded investment in the related loan. The corresponding entry
is to a related valuation account. Interest is discontinued on impaired loans
when management determines that a borrower may be unable to meet payments as
they become due.
Loan Fees and Costs - Loan origination and commitment fees and certain direct
loan origination costs (principally salaries and employee benefits) are being
deferred and amortized to income over the contractual life of the related loans
or commitments, adjusted for prepayments, using the level yield method. Net
deferred fees and costs associated with the origination of home equity lines of
credit are being amortized to income over the contractual life of the lending
agreement using the straight-line method.
<PAGE>
Allowance for Loan Losses - An allowance for possible loan losses is maintained
at a level deemed appropriate by management to provide adequately for known and
inherent risks in the loan portfolio. The allowance is based upon a continuing
review of past loan loss experience, current economic conditions which may
affect the borrowers' ability to pay and the underlying collateral value of the
loans. Loans which are deemed to be uncollectible are charged off and deducted
from the allowance. The provision for possible loan losses and recoveries on
loans previously charged off are added to the allowance.
Premises and Equipment - Premises and equipment are recorded at cost, less
accumulated depreciation. The provision for depreciation is computed principally
by the straight-line method over the estimated useful lives: buildings and
improvements - 10 to 40 years; furniture and equipment - 5 to 10 years. The cost
of assets sold or otherwise disposed of, and the related accumulated
depreciation are eliminated from the accounts and the resulting gains or losses
are reflected in the income statement. Maintenance and repairs are charged to
current expense as incurred, and the costs of major renewals and improvements
are capitalized.
F-14
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Investment in Unconsolidated Subsidiary - The Company records its investment in
Rock Hill Bank & Trust (Rock Hill Bank) under the equity method of accounting.
Accordingly, the investment in unconsolidated subsidiary account is adjusted to
reflect the Company's prorata share of the Rock Hill Bank's earnings or losses
and its changes in unrealized gains or losses on investment securities
available-for-sale. The carrying amount is also reduced by any dividends
received from the Rock Hill Bank. (See Note 6).
Other Real Estate Owned - Other real estate owned includes real estate acquired
through foreclosure and loans accounted for as in-substance foreclosures.
Collateral is considered foreclosed in-substance when the borrower has little or
no equity in the fair value of the collateral, proceeds for repayment of the
debt can be expected to come only from the sale of the collateral and it is
doubtful that the borrower can rebuild equity or otherwise repay the loan in the
foreseeable future. Other real estate owned is initially recorded at the lower
of cost (principal balance of the former loan plus costs of improvements) or
estimated fair value. Any write-downs at the dates of acquisition are charged to
the allowance for loan losses. Expenses to maintain such assets, subsequent
writedowns, and gains and losses on disposal are included in other expenses.
Federal Home Loan Bank Stock - Other assets include the cost of Bailey's
investment in the stock of the Federal Home Loan Bank. The stock has no quoted
market value and no ready market exists. 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 any borrowings. At December 31, 1997 and 1996, the
investment in Federal Home Loan Bank stock was $653,400 and $338,100,
respectively. Dividends received on Federal Home Loan Bank stock are included in
other income.
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 and depreciable premises and equipment.
Earnings Per Share - Earnings per share is calculated by dividing net income by
the weighted average number of shares outstanding during the year.
Statement of Cash Flows - For purposes of reporting cash flows, the Company
considers certain highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash equivalents include amounts
due from banks and federal funds sold. Generally, federal funds are sold for
one-day periods.
During 1997, 1996 and 1995, the Company paid $5,602,687, $5,816,672 and
$4,937,451, respectively for interest. Cash paid for income taxes was $828,706,
$612,405 and $375,932 in 1997, 1996 and 1995, respectively.
<PAGE>
Supplemental noncash investing activities are as follows: During 1997, 1996 and
1995, the banking subsidiaries reclassified loans aggregating $400,941, $165,600
and $403,283, respectively, as foreclosures of real estate and repossessed
assets.
Changes in the valuation account of investments available-for-sale, including
the deferred tax effects, are considered noncash transactions for purposes of
the statement of cash flows and are presented in detail in the notes to the
financial statements.
Off-Balance-Sheet Financial Instruments - In the ordinary course of business,
the banking subsidiaries have entered into off-balance-sheet financial
instruments consisting of commitments to extend credit and letters of credit.
These financial instruments are recorded in the financial statements when they
become payable by the customer.
F-15
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Concentrations of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of loans
receivable, investment securities, federal funds sold and amounts due from
banks. Management is not aware of any concentrations of loans to classes of
borrowers or industries that would be similarly affected by economic conditions.
Although the banking subsidiaries' loan portfolios are diversified, a
substantial portion of their borrowers' ability to honor the terms of their
loans is dependent on business and economic conditions in Laurens County, Saluda
County and the surrounding areas. Management does not believe credit risk is
associated with obligations of the United States, its agencies or its
corporations. The banking subsidiaries have invested in obligations of states
and political subdivisions all of which are within the state of South Carolina.
Management believes that the credit risk associated with these securities is
limited due to the diversity of the portfolio. The banking subsidiaries place
their deposits and correspondent accounts with and sell federal funds to high
credit quality institutions. Management believes credit risk associated with
these financial instruments is not significant.
Management's Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications - Certain captions and amounts in the 1996 and 1995
consolidated financial statements were reclassified to conform with the 1997
presentation.
NOTE 2 - CASH AND DUE FROM BANKS
The banking subsidiaries are required by regulation to maintain an average cash
reserve balance computed as a percentage of deposits. At December 31, 1997 and
1996, the amount of the required cash reserve was satisfied by vault cash on
hand.
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated market value of investments available-for-sale
at December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 14,659,173 $ 96,022 $ 7,613 $ 14,747,582
U.S. Government agencies and
corporations 18,756,346 54,511 21,587 18,789,270
Obligations of state and political
subdivisions 681,386 19,483 315 700,554
---------------- --------------- --------------- --------------
$ 34,096,905 $ 170,016 $ 29,515 $ 34,237,406
================ =============== =============== ==============
</TABLE>
F-16
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 3 - INVESTMENT SECURITIES - Continued
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasuries $ 12,026,536 $ 93,216 $ 23,485 $ 12,096,267
U.S. Government agencies and
corporations 13,816,934 67,032 63,068 13,820,898
Obligations of state and political
subdivisions 830,719 23,957 1,375 853,301
---------------- --------------- --------------- --------------
$ 26,674,189 $ 184,205 $ 87,928 $ 26,770,466
================ =============== =============== ==============
</TABLE>
The amortized cost and estimated market value of investments held-to-maturity at
December 31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Obligations of state and political
subdivisions $ 7,543,626 $ 330,556 $ 1,059 $ 7,873,123
================ =============== =============== ==============
<CAPTION>
1996
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Obligations of state and political
subdivisions $ 4,109,096 $ 232,537 $ 390 $ 4,341,243
================ =============== =============== ==============
</TABLE>
<PAGE>
The amortized cost and estimated market value of investments available-for-sale
at December 31, 1997 based on their contractual maturities are summarized below.
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations without penalty.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due within one year $ 6,830,000 $ 6,831,003
Due after one year but within five years 20,649,303 20,797,731
Due after five years but within ten years 1,085,000 1,090,765
Due after ten years 1,130,180 1,121,496
----------- -----------
29,694,483 29,840,995
Mortgage-backed securities 4,402,422 4,396,411
----------- -----------
$34,096,905 $34,237,406
=========== ===========
</TABLE>
F-17
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 3 - INVESTMENT SECURITIES - Continued
The amortized cost and estimated market value of investments held-to-maturity at
December 31, 1997 based on their contractual maturities are summarized below.
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations without penalty.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
---------- ----------
<S> <C> <C>
Due within one year $ 129,957 $ 130,733
Due after one year but within five years 2,778,103 2,916,123
Due after five years but within ten years 723,676 772,078
Due after ten years 3,911,890 4,054,189
---------- ----------
$7,543,626 $7,873,123
========== ==========
</TABLE>
At December 31, 1997 and 1996, investment securities with a book value of
$9,748,500 and $12,357,456 and a market value of $9,902,958 and $12,495,294,
respectively, were pledged as collateral to secure public and trust deposits,
and for other purposes as required and permitted by law.
Proceeds from sales of investments available-for-sale during 1997 and 1996 were
$9,168,665 and $1,998,455, with realized gains of $25,042 and $2,518 and
realized losses of $16,482 and $973. There were no sales of investments in 1995.
NOTE 4 - LOANS
At December 31, 1997 and 1996, loans consisted of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Commercial $ 22,118,694 $ 22,587,549
Real estate 60,102,816 59,086,136
Consumer 25,292,326 17,072,137
Home equity 4,464,777 4,103,001
------------ ------------
Total loans $111,978,613 $102,848,823
============ ============
</TABLE>
<PAGE>
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, management reviewed its problem
loan list and determined that no impairment on loans existed that would have a
material effect on the Company's consolidated financial statements.
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 $563,000
and $1,614,000 in nonaccrual status because the loans were not performing as
originally contracted. Loans ninety days or more past due and still accruing
interest were $11,000 and $9,000, at December 31, 1997 and 1996, respectively.
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.
F-18
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 4 - LOANS - Continued
Transactions in the allowance for loan losses are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 1,317,701 $ 1,233,366 $ 1,128,218
Provision charged to expense 490,000 230,000 287,500
Recoveries 192,808 201,086 123,307
Chargeoffs (955,287) (346,751) (305,660)
----------- ----------- -----------
Balance, end of year $ 1,045,222 $ 1,317,701 $ 1,233,365
=========== =========== ===========
</TABLE>
In the normal course of business the banking subsidiaries are parties to
financial instruments with off-balance-sheet risk to meet the financing needs of
its customers. 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 statements of financial position. The exposure to credit loss in the event
of nonperformance by the other party to the financial instrument for commitments
to extend credit and standby letters of credit is represented by the contractual
or notional amount of those instruments. The banking subsidiaries use the same
credit policies in making commitments and conditional obligations as they do for
on-balance-sheet instruments.
Standby letters of credit are conditional commitments issued to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loans to
customers.
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 some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained if deemed
necessary is based on management's credit evaluation of the counter-party.
Collateral held for commitments to extend credit and standby letters of credit
varies but may include accounts receivable, inventory, property, plant,
equipment and income-producing commercial properties.
At December 31, 1997 and 1996, the banking subsidiaries had unfunded commitments
to extend credit and letters of credit totaling $18,569,002 and $15,493,020,
respectively. At December 31, 1997 and 1996, the banking subsidiaries had not
committed to extend additional credit to borrowers having loans in non-accrual
status.
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
At December 31, 1997 and 1996, premises and equipment consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------------ -------------
<S> <C> <C>
Land $ 787,696 $ 782,696
Office and building 4,422,046 4,450,194
Furniture and equipment 5,130,390 4,888,671
------------ ------------
10,340,132 10,121,561
Less, accumulated depreciation (5,512,041) (5,008,584)
------------ ------------
$ 4,828,091 $ 5,112,977
============ ============
</TABLE>
F-19
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 6 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The Company entered into an agreement with a group of investors in 1995 to form
a state-chartered bank known as Rock Hill Bank & Trust. The Rock Hill Bank was
capitalized by issuing two classes of common stock (Class A and Class B). As of
December 31, 1997, the Company owned 100% of the Class B stock which represents
51% of the total capital of the Rock Hill Bank. Each share of Class A common
stock and Class B common stock has the same rights, privileges and preferences
as every other share except with respect to the election of directors and any
matters which, under state law, require separate class votes. The bylaws of the
Rock Hill Bank provide that the board of directors will consist of nine to
fifteen directors of which seven to thirteen, as set from time to time by the
Class A directors, will be Class A directors and two will be Class B directors.
The holders of Class A common stock, voting as a class, have the right to elect
Class A directors, and the holders of Class B common stock, voting as a class,
have the right to elect Class B directors. Except for the election of directors
and where class voting is required by law, each shareholder is entitled to one
vote per share (regardless of class) on any issue requiring a vote at any
meeting of shareholders. Due to the voting restrictions placed on the Class B
stock, the Company does not maintain control with regard to the board of
directors of the Rock Hill Bank and therefore the accounts and transactions of
the Rock Hill Bank are not consolidated with those of the Company for financial
reporting purposes.
A summary of the financial position of the Rock Hill Bank as of December 31,
1997 and 1996 and the results of its operations for the year ended December 31,
1997 and from inception to December 31, 1996 are summarized below:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Total assets $ 52,324,259 $ 28,206,803
Total liabilities 46,808,502 22,733,154
Net income (loss) for the period 55,167 (527,133)
</TABLE>
NOTE 7 - DEPOSITS
At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows:
1998 $44,901,457
1999 4,768,670
2000 3,394,252
2001 198,434
2002 and thereafter 137,000
-----------
$53,399,813
===========
<PAGE>
NOTE 8 - SHORT-TERM BORROWINGS
At December 31, 1997 and 1996, Bailey had arrangements to purchase federal funds
and sell securities under agreements to repurchase from an unrelated financial
institution and a municipal government, respectively. Under the terms of the
agreements, Bailey may borrow at mutually agreed-upon rates for one to seven day
periods. Either party may cancel the arrangement without penalty. Information
concerning securities sold under agreements to repurchase for the year ended
December 31, 1997 is summarized as follows:
Average balance during the year $ 1,054,041
Average interest rate during the year 5.11%
Maximum month-end balance during the year $ 1,225,000
As of December 31, 1997, the amortized cost and market value of the securities
underlying the agreements were $998,320 and $1,008,905, respectively.
F-20
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 9 - ADVANCES FROM THE FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank consisted of the following at December
31, 1997:
Interest
Description Rate Balance
- ----------- ---- -------
Fixed rate advances maturing:
June 16, 1998 6.00% $ 1,000,000
December 15, 1998 5.98% 1,000,000
March 1, 1999 6.04% 1,987,000
June 16, 1999 6.37% 1,000,000
Adjustable rate advance maturing:
January 19, 1999 5.81% $ 2,200,000
-----------
Total $ 7,187,000
===========
Scheduled principal reductions of Federal Home Loan Bank advances are as
follows:
1998 $ 2,000,000
1999 5,187,000
------------
Total $ 7,187,000
============
As collateral, Bailey has pledged eligible first mortgage loans on one to four
family residential loans which were $29,904,000 at December 31, 1997. In
addition, the Company's Federal Home Loan Bank stock, which is included in other
assets (See Note 1), is pledged to secure the borrowings. Certain advances are
subject to prepayment penalties.
NOTE 10 - LONG-TERM DEBT
During 1996, the Company entered into a loan agreement with an unrelated
financial institution to borrow $3,500,000 for the purpose of financing its
investment in the Rock Hill Bank (discussed in Note 6) and for refinancing the
debt borrowed for the 1993 acquisition of The Saluda County Bank. The promissory
note was executed on May 6, 1996. The promissory note is an uncollateralized
obligation of the Company which bears interest at the lender's prime rate less
1/4%. The promissory note provides for monthly payments of interest only, with
the principal balance payable on May 15, 1999.
The loan agreement contains certain affirmative covenants relating to the amount
of stockholders' equity and certain ratios relating to non-performing loans,
which must be maintained by the Company. The Company was in substantial
compliance with all covenants at December 31, 1997 and 1996.
<PAGE>
NOTE 11 - RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
The ability of Bailey Financial Corporation to pay cash dividends is dependent
upon receiving cash in the form of dividends from its banking subsidiaries.
However, certain restrictions exist regarding the ability of the subsidiaries to
transfer funds to Bailey Financial Corporation in the form of cash dividends.
The prior approval of the Commissioner of Banking is required, and dividends are
payable only from the subsidiaries' retained earnings. At December 31, 1997, the
retained earnings were $2,231,596 for Bailey and $1,080,060 for Saluda. Under
Federal Reserve Board regulations, the amount of loans or advances from the
banking subsidiaries to the parent company are also restricted.
F-21
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 12 - INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Currently payable:
Federal $ 439,268 $ 578,945 $ 374,965
State 63,042 73,161 73,569
--------- --------- ---------
502,310 652,106 448,534
--------- --------- ---------
Change in deferred income taxes:
Federal 136,794 (111,357) 489,854
State 1,173 (18,946) (10,863)
--------- --------- ---------
137,967 (130,303) 478,991
--------- --------- ---------
$ 640,277 $ 521,803 $ 927,525
========= ========= =========
Income tax expense is allocated as follows:
To continuing operations $ 630,120 $ 610,750 $ 578,532
To stockholders' equity 10,157 (88,947) 348,993
--------- --------- ---------
$ 640,277 $ 521,803 $ 927,525
========= ========= =========
</TABLE>
Deferred income taxes result from temporary differences in the recognition of
certain items of income and expense for tax and financial reporting purposes.
The principal sources of these differences and the related deferred tax effects
are as follows:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Provision for loan losses $ 149,656 $ (36,458) $ (55,907)
Accumulated depreciation (9,062) 14,551 19,392
Net operating loss carryforward (17,254) (11,739) (8,185)
Losses on other real estate owned (13,980) 44,402 (6,362)
Income (loss) on investment in unconsolidated subsidiary 5,732 (103,503)
Pension costs 14,298 8,444 5,486
AMT carryforward -- 44,629 175,489
Loan fees and costs (3,247) (842) (2,284)
Other, net 1,667 (840) 2,369
--------- --------- ---------
Deferred tax expense (benefit) attributable to
continuing operations 127,810 (41,356) 129,998
Deferred tax expense (benefit) attributable to
stockholders' equity 10,157 (88,947) 348,993
--------- --------- ---------
Change in deferred income taxes $ 137,967 $(130,303) $ 478,991
========= ========= =========
</TABLE>
F-22
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 12 - INCOME TAXES - Continued
The gross amounts of deferred tax assets and deferred tax liabilities as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 165,941 $ 315,597
Losses on other real estate owned 45,620 31,640
Net operating loss carryforward 46,064 28,810
Investment in unconsolidated subsidiary 97,771 103,503
Organization costs 15,271 15,271
Other 4,645 6,312
--------- ---------
Total deferred tax assets 375,312 501,133
--------- ---------
Deferred tax liabilities:
Accumulated depreciation (479,809) (488,871)
Loan fees and costs (56,706) (59,953)
Pension costs (54,862) (40,564)
Available-for-sale securities (42,891) (32,734)
--------- ---------
Total deferred tax liabilities (634,268) (622,122)
--------- ---------
Net deferred tax asset (liability) $(258,956) $(120,989)
========= =========
</TABLE>
Deferred tax assets represent the future tax benefit of deductible differences,
and, if it is more likely than not that a tax asset will not be realized, a
valuation allowance is required to reduce the recorded deferred tax assets to
net realizable value. Management has determined that it is more likely than not
that the entire deferred tax asset at December 31, 1997 and 1996 will be
realized, and accordingly, has not established a valuation allowance.
A reconciliation between the income tax expense allocated to continuing
operations and the amount computed by applying the Federal statutory rate of 34%
for 1997, 1996 and 1995 to income before income taxes follows:
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax expense at statutory rate $ 705,624 $ 660,421 $ 651,173
State income tax, net of federal income tax effect 42,781 29,340 37,693
Non-taxable interest income (150,451) (137,061) (143,486)
Non-deductible interest expense to carry
tax-exempt investments 30,812 25,972 25,995
Other, net 1,354 32,078 7,157
--------- --------- ---------
Total $ 630,120 $ 610,750 $ 578,532
========= ========= =========
</TABLE>
NOTE 13 - EMPLOYEE BENEFITS
The Company sponsors trusteed retirement savings plans (the Retirement Plans)
provided under Section 401(k) of the Internal Revenue Code which cover
substantially all employees who meet eligibility requirements. The Retirement
Plans allow employees to defer portions of their eligible compensation through
contributions to the Retirement Plans. Employees are allowed to contribute up to
15% of their annual salary, not to exceed $10,000 per year. Under the terms of
the Retirement Plans, the banking subsidiaries may make discretionary
contributions. Employer contributions designated as discretionary employer
non-elective contributions vest to the participant immediately. All other
employer contributions vest 100% after the employee is credited with six years
of service. Employer contributions vest on a prorata basis for employees with
credited service less than six years. The banking subsidiaries incurred expense
of $15,071, $15,002 and $15,002 for the Retirement Plans during 1997, 1996 and
1995, respectively.
F-23
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 13 - EMPLOYEE BENEFITS - Continued
The Company also sponsors a contributory defined benefit pension plan covering
substantially all its employees. Employees covered under the plan are eligible
to participate after attainment of age 21 and completion of 12 months of
service, and pension benefits are based on salary and years of service. All
employees are vested in the plan after 5 years of service. The actuarially
determined pension benefits are based on the projected unit credit method. The
Company's funding policy provides that payments to the plan shall be consistent
with minimum government funding regulations plus additional amounts which may be
approved by the Company from time to time.
The table of actuarially computed benefit obligations and net assets of the plan
at December 31, 1997 and 1996 is presented below. Plan assets are stated at fair
value and consist primarily of marketable equity securities, corporate
indebtedness and U.S. Government indebtedness.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested employees $ 2,124,397 $ 1,927,314
Nonvested employees 111,403 98,146
----------- -----------
Total accumulated benefit obligation $ 2,235,800 $ 2,025,460
=========== ===========
Projected benefit obligations for services rendered to date $ 3,237,389 $ 3,389,155
Plan assets at fair value 3,066,206 2,768,787
----------- -----------
Funded status (171,183) (620,368)
Unrecognized prior service cost (55,206) 126,363
Unrecognized net loss 438,013 680,012
Unrecognized net transition asset (69,125) (80,646)
----------- -----------
Prepaid pension expense $ 142,499 $ 105,361
=========== ===========
</TABLE>
<PAGE>
The components of net pension costs for 1997, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost for benefits earned $ 167,630 $ 184,889 $ 145,980
Interest cost on projected benefit obligation 217,721 226,601 186,809
Expected return on assets (223,568) (198,997) (152,264)
Net amortization and deferral (9,217) 12,974 15,190
--------- --------- ---------
Net pension cost $ 152,566 $ 225,467 $ 195,715
========= ========= =========
</TABLE>
In determining the actuarial present value of the projected benefit obligations
as of December 31, 1997 and 1996, the discount rate was 7.5% and the expected
return on plan assets was 8.0%. The increase in future compensation levels was
5.0% and 5.5% at December 31, 1997 and 1996.
F-24
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
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>
Professional fees $ 286,081 $ 46,047 $ 135,007
Equipment maintenance and rental 280,483 252,970 276,308
Insurance, other than buildings 105,450 138,160 277,525
Office supplies, forms and stationary 142,806 130,800 134,311
Data processing 292,260 175,728 159,053
Media advertising 129,077 148,889 241,552
Other 1,138,954 1,225,719 938,413
---------- ---------- ----------
$2,375,111 $2,118,313 $2,162,169
========== ========== ==========
</TABLE>
NOTE 15 - CONTINGENCIES
In the normal course of business, the Company and its subsidiaries may, from
time to time, become a party to legal claims and disputes. At December 31, 1997,
management and legal counsel are not aware of any pending litigation or
unasserted claims or assessments that could result in losses, if any, that would
be material to the financial statements.
NOTE 16 - 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 Due from Banks - The carrying amount is a reasonable estimate of fair
value.
Time Deposits with Other Banks - The carrying amount is a reasonable estimate of
fair value.
Federal Funds Sold - Federal funds sold are for a term of one day and the
carrying amount approximates the fair value.
<PAGE>
Investment Securities - The fair values of marketable 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 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 are estimated using a discounted cash flow calculation
that applies current interest rates to a schedule of aggregated expected
maturities.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase - The
carrying amount is a reasonable estimate of fair value because these instruments
typically have terms of one to seven days.
F-25
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS - Continued
Advances from the Federal Home Loan Bank - The carrying amounts of variable rate
borrowings are reasonable estimates of fair value because they can be repriced
frequently. The fair values of fixed rate borrowings are estimated using a
discounted cash flow calculation that applies the Company's current borrowing
rate from the FHLB.
Long-Term Debt - The fair value of the Company's variable-rate long-term debt is
estimated at the carrying amount because the interest rate reprices with changes
in the lender's prime rate, and management is not aware of any significant
changes in the credit risk.
Accrued Interest Receivable and Payable - The carrying value of these
instruments is a reasonable estimate of fair value.
Off-Balance Sheet Financial Instruments - The carrying amount for loan
commitments and letters of credit, which are off-balance sheet financial
instruments, approximates the fair value since the obligations are typically
based on current market rates.
The carrying values and estimated fair values of the Company's financial
instruments as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 7,099,758 $ 7,099,758 $ 6,744,030 $ 6,744,030
Time deposits with other banks 355,860 355,860 -- --
Federal funds sold 2,175,000 2,175,000 100,000 100,000
Investments available-for-sale 34,237,406 34,237,406 26,770,466 26,770,466
Investments held-to-maturity 7,543,626 7,873,123 4,109,096 4,341,243
Loans 111,978,613 112,498,022 102,848,823 102,526,712
Allowance for loan losses (1,045,222) (1,045,222) (1,317,701)
(1,317,701)
Accrued interest receivable 1,500,164 1,500,164 1,298,024 1,298,024
Financial Liabilities:
Demand deposit, interest-bearing transaction,
and savings accounts $ 82,430,023 $ 82,430,023 $ 75,580,100 $ 75,580,100
Certificates of deposit and other time deposits 53,399,813 53,473,984 52,655,466 52,654,010
Accrued interest payable 845,283 845,283 644,310 644,310
Federal funds purchased and securities
sold under agreements to repurchase 11,100,000 11,100,000 3,225,000 3,225,000
Advances from Federal Home Loan Bank 7,187,000 7,171,060 -- --
Long-term debt 3,300,000 3,300,000 3,500,000 3,500,000
Off-Balance Sheet Financial Instruments:
Commitments to extend credit $ 18,526,191 $ 18,526,191 $ 15,466,709 $ 15,466,709
Standby letters of credit 42,811 42,811 26,311 26,311
</TABLE>
F-26
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 17 - RELATED PARTY TRANSACTIONS
Certain officers were loan customers and had other transactions in the normal
course of business with the banking subsidiaries. Presently, policy provides
that loans to directors and senior officers must be approved by a majority of
the board of directors. 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 $84,448 and $155,831,
respectively. From time to time, the Rock hill Bank also sells loans that exceed
its legal lending limit to Bailey and Saluda. the interest income received on
these loans was immaterial to the consolidated financial statements in 1997 and
1996.
As discussed in Note 6, the Rock Hill Bank is an unconsolidated subsidiary of
the Company. The Bailey Bank provides data processing and trust data processing
for the Rock Hill Bank. Fees received from the Rock Hill Bank for these services
for the year ended December 31, 1997 and 1996 were $41,950 and $21,000,
respectively. In addition, the Rock Hill Bank reimbursed the Bailey Bank for
expenses such as postage for customer statements. These costs for the year ended
December 31, 1997 and 1996 were $10,066 and $1,421, respectively. From time to
time, the Rock Hill Bank also sells loans that exceed its legal lending limit to
Bailey and Saluda. The interest income received on these loans was immaterial to
the consolidated financial statements in 1997 and 1996.
NOTE 18 - REGULATORY MATTERS
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly discretionary
actions by regulators that, if undertaken, could have a direct material effect
on the Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, each entity must meet
specific capital guidelines that involve quantitative measures of each entity's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Each entity's capital amounts and
classifications are also subject to qualitative judgements by regulators about
components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require each entity 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 consists of common stockholders' equity,
excluding the unrealized gain or loss on investments available for sale, minus
certain intangible assets. 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.
<PAGE>
Each entity is 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 notifications from each Bank's primary
regulator categorized each as well-capitalized under the regulatory framework
for prompt corrective action. There are no conditions or events that management
believes have changed the Banks' categories.
F-27
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 18 - REGULATORY MATTERS - Continued
The following table summarizes the capital amounts and ratios of the Company and
the Banks and the regulatory minimum requirements at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------- -------------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
The Company
Total capital (to risk weighted assets) $12,713 11.11% $ 9,157 8.00% $N/A --
Tier 1 capital (to risk weighted assets) 12,713 11.11 4,578 4.00 N/A --
Tier 1 capital (to average assets) 12,713 7.52 5,069 3.00 N/A --
M.S. Bailey & Son, Bankers
Total capital (to risk weighted assets) 11,941 13.94 6,851 8.00 8,564 10.00
Tier 1 capital (to risk weighted assets) 11,232 13.11 3,426 4.00 5,139 6.00
Tier 1 capital (to average assets) 11,232 8.60 5,224 4.00 6,531 5.00
The Saluda County Bank
Total capital (to risk weighted assets) 3,527 12.59 2,241 8.00 2,802 10.00
Tier 1 capital (to risk weighted assets) 3,191 11.39 1,121 4.00 1,681 6.00
Tier 1 capital (to average assets) 3,191 8.36 1,526 4.00 1,908 5.00
December 31, 1996
The Company
Total capital (to risk weighted assets) 11,697 11.25 8,330 8.00 N/A --
Tier 1 capital (to risk weighted assets) 11,865 11.25 4,165 4.00 N/A --
Tier 1 capital (to average assets) 11,865 7.84 4,541 3.00 N/A --
M.S. Bailey & Son, Bankers
Total capital (to risk weighted assets) 11,475 14.77 6,216 8.00 7,770 10.00
Tier 1 capital (to risk weighted assets) 10,504 13.52 3,108 4.00 4,662 6.00
Tier 1 capital (to average assets) 10,504 9.39 4,472 4.00 5,590 5.00
The Saluda County Bank
Total capital (to risk weighted assets) 3,208 12.27 2,091 8.00 2,614 10.00
Tier 1 capital (to risk weighted assets) 2,881 11.02 1,045 4.00 1,569 6.00
Tier 1 capital (to average assets) 2,881 7.32 1,574 4.00 1,968 5.00
</TABLE>
F-28
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 19 - BAILEY FINANCIAL CORPORATION (PARENT COMPANY ONLY)
Presented below are the condensed financial statements for Bailey Financial
Corporation (Parent Company Only).
<TABLE>
<CAPTION>
Statements of Financial Position
December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
Assets
Cash $ 209,515 $ 276,708
Investment in banking subsidiaries 14,632,083 13,624,980
Investment in unconsolidated subsidiary 2,813,036 2,791,162
Other assets 230,465 219,912
----------- -----------
Total assets $17,885,099 $16,912,762
=========== ===========
Liabilities and Stockholders' Equity
Long-term debt $ 3,300,000 $ 3,500,000
Stockholders' equity 14,585,099 13,412,762
----------- -----------
Total liabilities and stockholders' equity $17,885,099 $16,912,762
=========== ===========
<CAPTION>
Statements of Income
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income
Interest income $ -- $ 6,679 $ 3,880
Dividends from banking subsidiaries 685,000 650,000 1,415,000
----------- ----------- -----------
Total income 685,000 656,679 1,418,880
----------- ----------- -----------
Expenses
Interest on long-term debt 286,912 206,441 121,397
Other expenses 58,167 29,578 30,208
----------- ----------- -----------
Total expenses 345,079 236,019 151,605
----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income before income taxes, equity in
undistributed earnings of banking subsidiaries and equity
in net income (loss) of unconsolidated subsidiary 339,921 420,660 1,267,275
Equity in net income (loss) of unconsolidated subsidiary 14,888 (268,838)
Income tax benefit 117,400 167,200 50,226
Equity in undistributed earnings of banking subsidiaries 973,036 1,012,642 19,183
----------- ----------- -----------
Net income $ 1,445,245 $ 1,331,664 $ 1,336,684
=========== =========== ===========
</TABLE>
F-29
<PAGE>
BAILEY FINANCIAL CORPORATION
Notes to Consolidated Financial Statements
NOTE 19 - BAILEY FINANCIAL CORPORATION (PARENT COMPANY ONLY) - Continued
<TABLE>
<CAPTION>
Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 1,445,245 $ 1,331,664 $ 1,336,684
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed earnings of banking subsidiaries (973,036) (1,012,642) (19,183)
Equity in net (income) loss of unconsolidated subsidiary (14,888) 268,838
Amortization of organization costs 12,385 14,862 14,862
Decrease in accrued interest payable -- (18,551) (62)
Increase (decrease) in income taxes receivable (11,416) (6,562) 7,203
Increase in other assets (11,521) (95,898) (31,482)
----------- ----------- -----------
Net cash provided by operating activities 446,769 481,711 1,308,022
----------- ----------- -----------
Investing activities:
Investment in unconsolidated subsidiary -- (2,710,000) (350,000)
----------- ----------- -----------
Financing activities:
Advances on long-term debt -- 3,500,000
Repayments of long-term debt (200,000) (1,200,000) (150,000)
Cash dividends paid (313,962) (304,448) (299,691)
----------- ----------- -----------
Net cash provided (used) by financing activities (513,962) 1,995,552 (449,691)
----------- ----------- -----------
Net increase (decrease) in cash (67,193) (232,737) 508,331
Cash, beginning 276,708 509,445 1,114
----------- ----------- -----------
Cash, ending $ 209,515 $ 276,708 $ 509,445
=========== =========== ===========
</TABLE>
<PAGE>
NOTE 20 - RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards 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-30
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
between
ANCHOR FINANCIAL CORPORATION
and
BAILEY FINANCIAL CORPORATION
dated September 24, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
PREAMBLE....................................................................1
RECITALS....................................................................1
DEFINITIONS.................................................................2
ARTICLE I. MERGER..........................................................6
1.1 THE MERGER................................................6
1.2 EFFECTIVE DATE............................................7
1.3 THE BANK MERGER...........................................7
ARTICLE II. MERGER CONSIDERATION...........................................7
2.1 CONSIDERATION.............................................7
2.2 SHAREHOLDER RIGHTS; STOCK TRANSFERS.......................7
2.3 FRACTIONAL SHARES.........................................8
2.4 EXCHANGE PROCEDURES.......................................8
2.5 DISSENTING SHARES.........................................8
2.6 RESERVATION OF RIGHT TO REVISE TRANSACTION................9
2.7 EXECUTION OF STOCK OPTION AGREEMENT.......................9
2.8 ANTI-DILUTION ADJUSTMENTS.................................9
ARTICLE III. BAILEY ACTIONS PENDING CONSUMMATION..........................10
3.1 CAPITAL STOCK............................................10
3.2 DISTRIBUTIONS............................................10
3.3 LIABILITIES..............................................10
3.4 OPERATIONS...............................................10
3.5 LIENS AND ENCUMBRANCES...................................10
3.6 EMPLOYMENT ARRANGEMENTS..................................11
3.7 BENEFIT PLANS............................................11
3.8 CONTINUANCE OF BUSINESS..................................11
3.9 AMENDMENTS...............................................11
3.10 CLAIMS...................................................11
3.11 CONTRACTS................................................11
3.12 LOANS....................................................12
<PAGE>
Page
----
ARTICLE IV. ANCHOR ACTIONS PENDING CONSUMMATION...........................12
5.1 BAILEY'S REPRESENTATIONS AND WARRANTIES..................12
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES..................23
5.3 EXCEPTIONS TO REPRESENTATIONS............................26
ARTICLE VI. COVENANTS.....................................................26
6.1 BEST EFFORTS.............................................26
6.2 THE PROXY................................................27
6.3 REGISTRATION STATEMENT - COMPLIANCE
WITH SECURITIES LAWS.....................................27
6.4 REGISTRATION STATEMENT EFFECTIVENESS.....................27
6.5 PRESS RELEASES...........................................28
6.6 ACCESS; INFORMATION......................................28
6.7 ACQUISITION PROPOSALS....................................29
6.8 REGISTRATION STATEMENT PREPARATION; REGULATORY
APPLICATIONS PREPARATION.................................29
6.9 EMPLOYMENT AGREEMENTS....................................30
6.10 BLUE-SKY FILINGS.........................................30
6.11 AFFILIATE AGREEMENTS.....................................30
6.12 TAKEOVER LAW.............................................30
6.13 NO RIGHTS TRIGGERED......................................30
6.14 SHARES LISTED............................................31
6.15 CURRENT INFORMATION......................................31
6.16 INDEMNIFICATION..........................................31
6.17 APPOINTMENT OF DIRECTORS.................................32
ARTICLE VII. CONDITIONS TO CONSUMMATION
OF THE MERGER............................................................33
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS...................33
7.2 CONDITIONS TO OBLIGATIONS OF ANCHOR......................34
7.3 CONDITIONS TO OBLIGATIONS OF BAILEY......................35
ARTICLE VIII. TERMINATION.................................................36
8.1 EVENTS OF TERMINATION....................................36
8.2 CONSEQUENCES OF TERMINATION..............................37
ARTICLE IX. OTHER MATTERS.................................................37
9.1 SURVIVAL.................................................37
9.2 WAIVER; AMENDMENT........................................37
9.3 COUNTERPARTS.............................................38
9.4 GOVERNING LAW............................................38
9.5 EXPENSES.................................................38
ii
<PAGE>
Page
----
9.6 CONFIDENTIALITY..........................................38
9.7 NOTICES..................................................38
9.8 ENTIRE UNDERSTANDING; NO THIRD PARTY
BENEFICIARIES............................................39
9.9 HEADINGS.................................................39
9.10 BROKERS..................................................39
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 24, 1998 (the
"Agreement"), is made and entered into by and between ANCHOR FINANCIAL
CORPORATION ("Anchor"), a South Carolina corporation, and BAILEY FINANCIAL
CORPORATION ("Bailey"), a South Carolina corporation.
PREAMBLE
The management and Boards of Directors of Anchor and Bailey believe,
respectively, that the business combination transaction provided for herein, in
which Bailey 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 Bailey'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 50,000,000 authorized shares of common stock, no par value per share
("Anchor Common Stock") (no other class of capital stock being authorized), of
which 6,477,008 shares of Anchor Common Stock are issued and outstanding and of
which 624,711 shares are subject to issuance pursuant to certain stock options.
B. BAILEY. Bailey 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 211 North Broad Street, Clinton, South Carolina. As of the date of
this Agreement, Bailey has 1,000,000 authorized shares of common stock, par
value $.01 per share ("Bailey Common Stock") (no other class of capital stock
being authorized), of which 95,140 shares of Bailey Common Stock are issued and
outstanding.
C. APPROVALS. At meetings of the respective Boards of Directors of
Anchor and Bailey, each such Board has approved and authorized the execution of
this Agreement.
D. STOCK OPTION AGREEMENT. In connection with the execution of this
Agreement, as a condition and an inducement to Anchor's willingness to enter
into this Agreement, Bailey and Anchor will enter into a Stock Option Agreement
substantially in the form attached
<PAGE>
hereto as Exhibit A pursuant to which Bailey is granting to Anchor an option to
purchase shares of Bailey Common Stock (the "Stock Option Agreement").
E. 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 Bailey
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.
"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).
"Appraisal Laws" has the meaning assigned in Section 2.5.
"Asset Classification" has the meaning assigned in Section
5.1(S).
"Bailey" means Bailey Financial Corporation, a South Carolina
corporation.
"Bailey Bank" means M.S. Bailey & Son, Bankers, a South
Carolina banking corporation.
"Bailey Common Stock" has the meaning assigned in Recital B.
"Bailey Financial Reports" has the meaning assigned in Section
5.1(H).
"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).
"Derivatives Contract" means an exchange traded or
over-the-counter swap, forward, future, option, cap, floor or collar financial
contract or any other contract that (1) is not included on the balance sheet of
the Bailey Financial Reports, and (2) is a derivative contract (including
various combinations of the foregoing).
-2-
<PAGE>
"Dissenting Shares" means the shares of Bailey Common Stock
held by those shareholders of Bailey 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 Bailey Common Stock" means shares of Bailey Common
Stock validly issued and outstanding on the Effective Date other than Dissenting
Shares.
"Employment Agreement" means Exhibit B.
"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 Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, amended by Superfund Amendments and
Reauthorizations Act of 1986, the Clean Water Act; the Clean Air Act; the
Resource Conservation and Recovery Act of 1976; the Solid Waste Disposal Act;
the Toxic Substances Control Act; the Federal Insecticide, Fungicide and
Rodenticide Act; and the 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).
-3-
<PAGE>
"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, as applicable to financial institutions.
"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.
"Knowledge" with respect to Anchor, Bailey and their
respective Subsidiaries means the actual knowledge of the executive officers of
such entity.
"Loan/Fiduciary Property" means any property owned or
controlled by Bailey or any of its Subsidiaries or in which Bailey or any of its
Subsidiaries holds a security or other interest, and, where required by the
context, includes any such property where Bailey or any 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 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).
-4-
<PAGE>
"NASDAQ" means the National Association of Securities Dealers
Automated Quotations system.
"Participation Facility" means any facility in which Bailey 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.
"Proxy Statement" has the meaning assigned in Section 6.2.
"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.
"Saluda Bank" means The Saluda County Bank, a South Carolina
banking corporation.
"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.
"State Board" means the South Carolina State Board of
Financial Institutions.
"Stock Option Agreement" has the meaning assigned in Recital
D.
"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,
5
<PAGE>
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.
"Third Party" means a person within the meaning of Sections
3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as amended,
excluding (1) Bailey or any Subsidiary of Bailey, and (2) Anchor or any
Subsidiary of Anchor.
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 followed 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,
Bailey 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.
-6-
<PAGE>
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 June 30, 1999, Anchor or Bailey may terminate this
Agreement in accordance with Article VIII.
1.3 THE BANK MERGER. Subject to compliance with applicable state and
federal banking laws, Saluda County Bank will merge with and into M.S. Bailey &
Son, Bankers, under the Articles of Incorporation of the Bailey Bank (the "Bank
Merger"), and the resulting bank will operate under the name "M.S. Bailey & Son,
Bankers" (the "Merged Bank"). The Parties agree to make application to the
necessary Regulatory Authorities for approval of the Bank Merger in order for
the Bank Merger to be effective on the Effective Date of the Merger or as soon
thereafter as practicable. The Board of Directors of the Merged Bank will be the
current directors of the Bailey Bank until their successors are duly elected and
qualified.
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 BAILEY COMMON STOCK. Except as provided below
in Section 2.3, each share of Eligible Bailey 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 16.32 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 Bailey Common Stock issued and
outstanding immediately
-7-
<PAGE>
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 Bailey of the
shares of Bailey 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 Bailey 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 Bailey
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 Bailey
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 Bailey Common Stock
(or indemnity satisfactory to Anchor and the Exchange Agent, in their reasonable
judgment, if any of such certificates are lost, stolen or destroyed).
Certificates surrendered for exchange by any person constituting an "affiliate"
of Bailey 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 6.11.
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
-8-
<PAGE>
granted by the Appraisal Laws. Each holder of Dissenting Shares who becomes
entitled to payment for his Bailey 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 Bailey,
but no such change will (A) change the amount or kind of consideration to be
issued to holders of Bailey Common Stock as provided for in this Agreement, (B)
adversely affect the tax treatment to the Bailey shareholders as a result of
receiving such consideration, (C) materially delay the acquisition, or (D) alter
the proposed Bank Merger transaction as provided for in this Agreement. If
Anchor elects to change the method of acquisition, Bailey 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 EXECUTION OF STOCK OPTION AGREEMENT. Simultaneously with the
execution of this Agreement and as a condition hereto, Bailey shall execute and
deliver to Anchor the Stock Option Agreement in substantially the form of
Exhibit A hereto, pursuant to which Bailey grants to Anchor an option to
purchase shares of Bailey Common Stock.
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 a 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.
-9-
<PAGE>
ARTICLE III. BAILEY ACTIONS PENDING CONSUMMATION
From the date hereof until the Effective Date or the termination of
this Agreement, unless otherwise agreed to in writing by Anchor, Bailey 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 Bailey, without the prior written consent of Anchor
which will not be unreasonably withheld, will not:
3.1 CAPITAL STOCK. Issue, sell or otherwise permit to become
outstanding any additional shares of capital stock of Bailey, 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 Bailey 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 for its regular quarterly dividend of $.97
per quarter made in accordance with past practices, 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, or
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 disclosed in Schedule 3.4 or 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 $25,000 individually or $50,000 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 currently existing, as set forth
-10-
<PAGE>
on Schedule 3.5, and those occurring in the ordinary course of business which do
not have a Material Adverse Effect on Bailey.
3.6 EMPLOYMENT ARRANGEMENTS. Except as disclosed on Schedule 3.6, 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, 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. Except as disclosed in Schedule 3.8,
dispose of or discontinue any portion of its assets, business or properties,
that is material to Bailey 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 Bailey or any one of its
Subsidiaries taken as a whole (except foreclosures or acquisitions by Bailey 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 Bailey, other than any such claim, litigation, action or
proceeding that can be settled by the payment by Bailey of not more than
$50,000.
3.11 CONTRACTS. Except as disclosed in Schedule 3.11, 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.
-11-
<PAGE>
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, the Chief Financial
Officer of Bailey will report to the Chief Financial Officer of Anchor, as
expeditiously as possible following the approval of the extension of credit, the
substance and nature of the transaction for the purpose of keeping Anchor
abreast of the ongoing credit quality at Bailey.
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 Bailey 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 BAILEY'S REPRESENTATIONS AND WARRANTIES. Subject to the limitations
and qualifications stated in Section 5.3, Bailey hereby represents and warrants
to Anchor as follows:
(A) RECITALS. The facts set forth in the Recitals of this
Agreement with respect to Bailey are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. Bailey 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. Bailey and its Subsidiaries have in effect all federal,
state, local and foreign governmental authorizations necessary for them to own
or lease their
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properties and assets and to carry on their businesses as they are now
conducted. The Bailey Bank and the Saluda 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 Bailey's capital stock
are validly issued and outstanding, fully paid and nonassessable and were not
issued in violation of the preemptive rights of Bailey's shareholders. Except as
Bailey disclosed in Schedule 5.1(C), there are no shares of capital stock or
other equity securities of Bailey outstanding and no outstanding Rights with
respect to its capital stock or other equity securities.
(D) SUBSIDIARIES. Bailey has three Subsidiaries, M.S. Bailey &
Son, Bankers and The Saluda County Bank, which are direct subsidiaries, and MSB
Securities, Inc., which is a subsidiary of the Bailey Bank.
(E) CORPORATE POWER. Bailey 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 Bailey, and this Agreement
is a valid and binding agreement of Bailey, enforceable against Bailey 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. 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 Bailey 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 Bailey or to which Bailey 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,
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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. Bailey'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 "Bailey Financial Reports") fairly present
the financial position of Bailey as of December 31, 1997, and the results of its
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), Bailey has no obligation or liability (contingent or otherwise)
except (1) as reflected in the Bailey Financial Reports, 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. Except as disclosed on Schedule 5.1(J), since
December 31, 1997, no event has occurred that, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on Bailey.
(K) PROPERTIES. Except as disclosed on Schedule 5.1(K) or in
the Bailey Financial Reports, Bailey 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 Bailey Financial Reports as being owned by Bailey as of
December 31, 1997, 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 Bailey 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 Bailey
or any of its Subsidiaries, threatened, against Bailey or any of its
Subsidiaries
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(including under the Truth in Lending Act, the Equal Credit Opportunity Act, the
Fair Housing Act, the Community Reinvestment Act of 1977, the Home Mortgage
Disclosure Act of 1975, or any fair lending law or other law relating to
discrimination); and
(2) neither Bailey or any 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 Bailey or any 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. Bailey and its Subsidiaries:
(1) are in compliance in all material respects, 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 of
1977, the Home Mortgage Disclosure Act of 1975 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 received no notice 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 action 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 or will adopt and are implementing or will
implement a program to address any problems associated with the capacity of the
computer software operated by Bailey and its Subsidiaries and their vendors to
properly process transactions after December 31, 1999.
(N) MATERIAL CONTRACTS. Except as disclosed on Schedule
5.1(N), neither Bailey nor any 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. Bailey or any 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. Bailey or any 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 December 31, 1993, Bailey and its
Subsidiaries have filed all reports and statements, together with any required
amendments, that they were obligated to file with (1) the State Board, (2) the
FDIC, (3) the Federal Reserve Board and (4) any other Regulatory Authorities
having jurisdiction over Bailey and/or 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 to the financial statements,
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 therein, 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 or contributed to by
Bailey 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 written Compensation and
Benefit Plans of Bailey and/or its Subsidiaries, including any trust instruments
and/or insurance contracts, if any, forming a part of such plans, and all
related amendments, and detailed information regarding any such unwritten plans
or agreements, have been made available 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 Bailey 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 or a
request for such a determination letter has been made, and Bailey 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. Bailey or any of
its Subsidiaries has not engaged in a transaction with respect to any ERISA Plan
that could subject Bailey or any 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 Bailey or any 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
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or formerly maintained by it, or the single-employer plan of any entity which is
considered one employer with Bailey or any of its Subsidiaries under Section
4001(a)(15) of ERISA or Section 414 of the Code (an "ERISA Affiliate"). Bailey
or any 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. Bailey or any 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) Bailey 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 Bailey 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 Bailey or its Subsidiaries under
any Compensation and Benefit Plan or otherwise from Bailey 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.
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(Q) NO KNOWLEDGE. Except as disclosed in Schedule 5.1(Q),
Bailey knows of no reason why the regulatory approvals referred to in Section
7.1(B) will not be obtained, and of no reason why the Merger will not qualify,
for accounting purposes, as a "pooling of interests" as referred to in Recital
E.
(R) LABOR AGREEMENTS. Bailey 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 Bailey 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. Bailey 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 Bailey and
its Subsidiaries that have been classified by Bailey and/or any of its
Subsidiaries 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, extensions of credit or other assets that were charged off by
Bailey 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, Bailey Financial Reports was, and the allowance for possible loan losses
to be shown on subsequent Bailey audited financial statements will be, adequate
in the opinion of the Board of Directors of Bailey 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. Bailey 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)
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is a list of all insurance policies maintained by or for the benefit of Bailey
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 Bailey as that term is used in Rule 145 under the Securities Act.
(W) TAKEOVER LAWS, ARTICLES OF ASSOCIATION. Bailey 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
Bailey's Articles of Incorporation.
(X) NO FURTHER ACTION. Except as disclosed on Schedule 5.1(X),
Bailey 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 Bailey or under any agreement to which Bailey 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 Bailey 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 Bailey and
its Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which Bailey or any 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 Bailey or any of its Subsidiaries or any
Participation Facility.
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(3) There is no proceeding pending or, to Bailey or
its Subsidiaries' knowledge, threatened before any court, governmental agency or
board or other forum in which any Loan/Fiduciary Property (or Bailey 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 Bailey 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 Bailey or its Subsidiaries' knowledge, during
the period of (a) ownership or operation by Bailey or any of its Subsidiaries of
any of its current properties, (b) participation in the management of any
Participation Facility by Bailey or any of its Subsidiaries, or (c) holding of a
security or other interest in a Loan/Fiduciary Property by Bailey or any 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 Bailey or its Subsidiaries' knowledge, prior
to the period of (a) ownership or operation by Bailey or any of its Subsidiaries
of any of their current properties, (b) participation in the management of any
Participation Facility by Bailey or any of its Subsidiaries, or (c) holding of a
security or other interest in a Loan/Fiduciary Property by Bailey or any 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 Bailey, including
consolidated federal income tax returns of Bailey (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 in all
material respects, (2) all Taxes shown to be due on the Tax Returns have been
paid in full, (3) except for the most recent three (3) years, 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
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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 Bailey
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 Bailey.
(AA) ACCURACY OF INFORMATION. The statements with respect to
Bailey and its Subsidiaries contained in this Agreement, the Schedules and any
other written documents executed and delivered by or on behalf of Bailey and its
Subsidiaries pursuant to the terms of or relating to this Agreement are true and
correct in all material respects, and such statements do not omit any fact
necessary to make such statements, in light of the circumstances under which
they were made, not misleading.
(BB) DERIVATIVES CONTRACTS. Bailey 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. Bailey 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 Bailey 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. Bailey or any of its
Subsidiaries is not a party or subject to any of the following (whether written
or oral, express or implied):
(1) except as 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 Bailey or its Subsidiaries without any
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obligation on the part of Bailey 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) except as disclosed on Schedule 5.1(DD)(3), any
material contract with any affiliate.
5.2 ANCHOR'S REPRESENTATIONS AND WARRANTIES. Subject to the limitations
and qualifications stated in Section 5.3, Anchor hereby represents and warrants
to Bailey 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 Bailey 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. 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 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
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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
the 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. 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 Anchor
or any of its subsidiaries, threatened, against Anchor or any of its
Subsidiaries (including under the Truth in Lending Act, the Equal Credit
Opportunity Act, the Fair
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Housing Act, the Community Reinvestment Act of 1977, the Home Mortgage
Disclosure Act, or any fair lending law or other law relating to
discrimination); and
(2) neither Anchor or any of its Subsidiaries nor any
of their officers, directors, controlling persons, nor any of their material
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 Anchor or any of its
Subsidiaries, and they have not been advised by any of 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.
(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 they were 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 therein, 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 and its
Subsidiaries pursuant to the terms of this Agreement are true and correct in all
material respects, and such statements do not omit any fact necessary to make
such 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 in the
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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
reasonably 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, and of no reason
why the Merger will not qualify, for accounting purposes, as a "pooling of
interests" as referred to in Recital E.
(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 is not reasonably likely to, have a Material
Adverse Effect with respect to such party.
ARTICLE VI. COVENANTS
Bailey hereby covenants to Anchor, and Anchor hereby covenants to
Bailey, 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 reasonable best
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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. Bailey will promptly assist Anchor in the preparation of
a joint proxy statement (the "Proxy Statement") to be mailed to the holders of
Bailey 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. Bailey will call a meeting (the
"Meeting") of the holders of Bailey Common Stock to be held as soon as
practicable for purposes of voting upon the transactions contemplated by this
Agreement, and Bailey will use its reasonable best efforts to solicit and obtain
votes of the holders of Bailey Common Stock in favor of the transactions
contemplated by this Agreement and, subject to the exercise of its fiduciary
duties, the Board of Directors of Bailey will recommend approval of such
transactions by its shareholders.
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 date of the Meeting, 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
Bailey relating to Bailey 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 Bailey,
promptly after Anchor receives any notice of the time when the Registration
Statement has become
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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. Bailey will not, without the prior approval of
Anchor, and Anchor will not, without the prior approval of Bailey, 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, and subject to legal, fiduciary and reasonable security
requirements, to all of its properties, books, contracts, commitments and
records; and subject to such requirements, during the period up to the Effective
Date, Bailey 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 Bailey with any Regulatory Authority, (2) such
representations and certifications as are necessary for purposes of the pooling
letter described in Section 7.2(G), and (3) all other information concerning the
business, properties and personnel of Bailey 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 Bailey in this
Agreement or the conditions to the obligations of Bailey to consummate the
transactions contemplated by this Agreement; and
(B) Anchor will not use any information obtained pursuant to
Section 3.12 or 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. In
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the event of the termination of this Agreement, Anchor will, upon request by
Bailey, deliver to Bailey all documents so obtained by Anchor or destroy such
documents and, in the case of destruction, will certify such fact to Bailey.
6.7 ACQUISITION PROPOSALS.
(A) Except as disclosed in Schedule 6.7(A), Bailey 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 Bailey
(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, Bailey or any merger or other
business combination with Bailey 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 an executive officer or director of Bailey or any
of its Subsidiaries acquires knowledge that any such inquiries or proposals are
received by, or any such negotiations or discussions are sought to be initiated
with, Bailey.
(B) If (1) an Acquisition Proposal occurs prior to the Meeting
of the holders of Bailey Common Stock, (2) Bailey shareholder approval
contemplated by Section 7.1(A) is not obtained at the Meeting of the holders of
Bailey Common Stock, and (3) prior to June 30, 2000, a Third Party acquires
control of Bailey by merger, purchase of assets, acquisition of stock or
otherwise, then unless any representation or warranty of Anchor in this
Agreement was false in any material respect as of the date of the Meeting of the
holders of Bailey Common Stock or Anchor was in material default of any covenant
in this Agreement as of such date, Anchor will exercise its rights pursuant to
the Stock Option Agreement. For the purposes of this Subsection (B), a Third
Party will be deemed to have acquired control of Bailey when the Third Party
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of Bailey whether through the ownership of voting
interests, by contract, or otherwise.
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 Bailey
Common Stock pursuant to this
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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 EMPLOYMENT AGREEMENTS. On the Effective Date, employment
agreements, in form substantially similar to that attached as Exhibit B, will
have been duly executed and delivered by Anchor and the parties to such
employment agreements, including John W. Dickens, William R. Davis, Robert H.
Todd, and Norman W. Dixon, provided such persons have not terminated their
employment with Bailey or its Subsidiaries at or prior to the Effective Date.
6.10 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.
6.11 AFFILIATE AGREEMENTS. Bailey will use its reasonable best efforts
to induce each person who may be deemed to be an "affiliate" of Bailey for
purposes of Rule 145 under the Securities Act to execute and deliver to Anchor
on or before the mailing of the Proxy Statement for the Bailey Meeting an
agreement in the form attached hereto as Exhibit C restricting the disposition
of such affiliate's shares of Bailey Common Stock and the shares of Anchor
Common Stock to be received by such person in exchange for such person's shares
of Bailey 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".
6.12 TAKEOVER LAW. Bailey will not take any action that would cause the
transactions contemplated by this Agreement to be subject to any applicable
takeover statute, and Bailey 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.
6.13 NO RIGHTS TRIGGERED. Bailey will take all reasonable necessary
steps to ensure that entering into this Agreement and the consummation of the
transactions contemplated by this
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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 Bailey or under any agreement to which Bailey 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.
6.14 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 Bailey Common Stock.
6.15 CURRENT INFORMATION.
(A) During the period from the date of this Agreement to the
Effective Date, both Bailey and Anchor will, and will cause its representatives
to, confer on a regular and frequent basis with representatives of the other.
(B) Both Bailey 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.
6.16 INDEMNIFICATION.
(A) From and after the Effective Date, Anchor shall indemnify,
defend and hold harmless the present and former directors, officers and
employees of Bailey and its Subsidiaries (each, an "Indemnified Party") against
all costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities occurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, and arising out of matters existing or
occurring at or prior to the Effective Date, whether asserted or claimed prior
to, at or after the Effective Date, to the fullest extent that Bailey would have
been permitted under South Carolina law and its Articles of Incorporation or
Bylaws in effect on the date of this Agreement to indemnify such person (and
Anchor also will advance expenses as incurred to
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the fullest extent permitted under applicable law so long as the person to whom
expenses are advanced provides an undertaking to repay such advances within a
reasonable period of time if it is ultimately determined that applicable law
does not allow for such indemnification).
(B) Any Indemnified Party wishing to claim indemnification
under Paragraph (A) of this Section 6.16, upon learning of such claim, action,
suit, proceeding or investigation, shall promptly notify Anchor thereof,
provided, however, that the failure so to notify shall not affect the
obligations of Anchor under Paragraph (A) of this Section 6.16 (unless such
failure materially and adversely increases Anchor's liability under such
Paragraph (A)). In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Date), (1) Anchor
shall have the right and obligation to assume the defense thereof without
admitting any liability or wrongdoing on the part of the Indemnified Party, and
Anchor shall pay all reasonable fees and expenses of such counsel for the
Indemnified Party promptly as statements therefor are received; provided,
however, that Anchor shall be obligated pursuant to this Paragraph (B) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction for
any single action, suit or proceeding, (2) the Indemnified Parties will
cooperate in the defense of any such matter, and (3) Anchor shall not be liable
for any settlement effected without its prior written consent which shall not be
unreasonably withheld.
(C) If Anchor or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provision shall be made so that the successors and assigns of Anchor shall
assume the obligations set forth in this Section 6.16.
(D) Anchor shall pay all expenses, including attorneys' fees,
that may be incurred by any Indemnified Party in enforcing the indemnity and
other obligations provided for in this Section 6.16. The rights of each
Indemnified Party under this Section 6.16 shall be in addition to any other
rights such Indemnified Party may have under the Articles of Incorporation or
Bylaws of Bailey or under applicable South Carolina law.
6.17 APPOINTMENT OF DIRECTORS. Immediately after the Effective Date,
Anchor will cause the appointment of two directors from the current directors of
Bailey or the Bailey Banks
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to the Board of Directors of The Anchor Bank to hold office until such time as
his or her successor is elected and qualified.
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 VOTE. This Agreement will have been duly
approved by the requisite vote of Bailey's shareholders under applicable law and
the Articles of Incorporation and Bylaws of Bailey.
(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 Bailey 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 Bailey who receive shares of
Anchor Common Stock in exchange for their shares of the Bailey
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Common Stock, except that gain or loss may be recognized as to cash received in
lieu of fractional share interests. In rendering their opinion, Gerrish &
McCreary, P.C. may require and rely upon representations contained in
certificates of officers of Anchor, Bailey 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.
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 McNair Law Firm, P.A., counsel for Bailey, incorporating
the opinions set forth in Exhibit D.
(B) OFFICERS' CERTIFICATE. (1) Except as otherwise
contemplated by this Agreement, each of the representations and warranties
contained in this Agreement of Bailey will be true and correct in all material
respects was 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 officer of Bailey will sign a
certificate, dated the Effective Date, certifying that each and all of the
agreements and covenants of Bailey 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 Bailey the agreement referred to in Section 6.11.
(D) RECEIPT OF NON-COMPETE AGREEMENTS. Anchor will have
received from each of the directors of Bailey and its Subsidiaries, an executed
Non-Compete Agreement with Anchor substantially in the form of Exhibit E
attached hereto. Bailey agrees that it shall use its reasonable best efforts to
cause each of Bailey and its Subsidiaries' directors to enter into a Non-Compete
Agreements.
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(E) 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 Bailey, nor will Bailey 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 Bailey to such effect.
(F) DISSENTERS' RIGHTS. The number of shares of Bailey 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 Bailey
Common Stock.
(G) POOLING LETTER. Anchor will have received a letter dated
as of the Effective Date, in form and substance acceptable to Anchor, from
PriceWaterhouseCoopers, LLP to the effect that the Merger will qualify for
pooling-of-interests accounting treatment.
(H) CAPITAL. Bailey's capital will not be less than
$15,518,000 on the Effective Date.
(I) ALLOWANCE FOR LOAN AND LEASE LOSSES. Bailey's allowance
for possible loan and lease losses will not be less than .95% of Bailey's total
outstanding loans and leases and will be adequate to absorb Bailey's anticipated
loan and lease losses.
7.3 CONDITIONS TO OBLIGATIONS OF BAILEY. The obligations of Bailey to
consummate the transactions contemplated by this Agreement also are subject to
the written waiver by Bailey or the fulfillment on or prior to the Effective
Date of each of the following conditions:
(A) OFFICER'S CERTIFICATE. (1) Except as otherwise
contemplated by this Agreement, each of the representations and warranties of
Anchor contained in this Agreement will be true and correct in all material
respects 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
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material respects, and Bailey 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 Bailey will have
received a certificate dated the Effective Date signed by an executive officer
of Anchor to such effect.
(C) LEGAL OPINION. Bailey will have received an opinion, dated
the Effective Date, of Gerrish & McCreary, P.C., counsel for Anchor,
incorporating the opinions set forth in Exhibit F.
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
approval:
(A) MUTUAL CONSENT. By the mutual consent of Anchor and
Bailey, 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 Bailey, 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 the 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 the 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 Bailey, 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 June 30, 1999; 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 Bailey, if its Board of
Directors so determines by a vote of a majority of the members of its entire
Board, if the shareholder approval
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contemplated by Section 7.1(A) is not obtained at the Meeting or any
adjournment(s) of the Meeting.
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 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.
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 benefited 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 Bailey, the consideration to be received by the shareholders of
Bailey for each share of Bailey 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.
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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
other Party.
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.
Bailey: Bailey Financial Corporation
211 North Broad Street
Clinton, S.C. 29325
Attn: John W. Dickens
with a copy to: McNair Law Firm, P.A.
1301 Gervais Street
Columbia, SC 29201
Attn: M. Craig Garner, Jr., Esq.
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<PAGE>
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.
9.10 BROKERS. No action has been taken by any Party hereto that would
give rise to any valid claim against any Party hereto for a brokerage
commission, finder's fee or other like payment with respect to the transactions
contemplated hereby excluding, in the case of Bailey, fees to be paid to Orr
Management Company pursuant to agreements which have been disclosed in full to
Anchor.
ANCHOR FINANCIAL CORPORATION
By: /s/Stephen L. Chryst
--------------------
Stephen L. Chryst
Its President and Chief Executive Officer
BAILEY FINANCIAL CORPORATION
By: /s/John W. Dickens
------------------
John W. Dickens
Its President and Chief Executive Officer
By: /s/George H. Cornelson
----------------------
George H. Cornelson
Its Vice Chairman
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<PAGE>
EXHIBIT A
STOCK OPTION GRANT AGREEMENT
This Stock Option Grant Agreement ("Agreement"), dated as of September
24, 1998, is between ANCHOR FINANCIAL CORPORATION ("Anchor") and BAILEY
FINANCIAL CORPORATION ("Bailey").
RECITALS
Bailey and Anchor have executed an Agreement and Plan of Merger
("Merger Agreement"), of even date with this Agreement, under which Bailey will
be merged into Anchor upon completion of the merger ("Merger") contemplated in
the Merger Agreement.
By negotiating and executing the Merger Agreement and by taking actions
necessary or appropriate to effect the transactions contemplated by the Merger
Agreement, Anchor has incurred and will incur substantial direct and indirect
costs (including, without limitation, the costs of management and employee time)
and will forgo the pursuit of certain alternative investments and transactions.
AGREEMENT
THEREFORE, in consideration of the promises set forth in this Agreement
and in the Merger Agreement, the parties agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth in
this Agreement, Bailey irrevocably agrees to grant an option ("Option") to
Anchor to purchase approximately 23,637 authorized but unissued shares or up to
19.9% of the issued and outstanding shares (as adjusted as set forth herein) of
Bailey's Common Stock, par value $.01 per share ("Common Stock") at a per share
price of $633.00 ("Option Price").
2. Exercise of Option. Subject to the provisions of this Section 2 and
of Section 13(a) of this Agreement, this Option will be granted to and may be
exercised by Anchor or any transferee as set forth in Section 5 of this
Agreement, in whole or in part, at any time, or from time to time in any of the
following circumstances:
(a) Bailey or its board of directors enters into an agreement or
recommends to Bailey shareholders an agreement (other than the
Merger Agreement) under which any entity, person or group
(collectively "Person"), within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), would: (1) merge or consolidate with,
acquire 25% or more of the assets or liabilities of, or enter
into any similar transaction with Bailey, or (2) purchase or
otherwise acquire (including by merger, reorganization,
consolidation, share exchange or any similar transaction)
securities representing 25% or more of Bailey's voting shares;
<PAGE>
(b) any Person [other than Anchor or any of its subsidiaries and
other than any Person owning or acquiring as a result of
operation of law (i.e inheritance) as of the date of this
Agreement, 25% or more of Bailey's voting shares] acquires the
beneficial ownership or the right to acquire beneficial
ownership of securities which, when aggregated with other such
securities owned by such Person, represents 25% or more of the
voting shares of Bailey (the term "beneficial ownership" for
purposes of this Agreement has the meaning set forth in
Section 13(d) of the Exchange Act, and the regulations
promulgated under the Exchange Act); notwithstanding the
foregoing, the Option will not be exercisable in the
circumstances described above in this subsection 2(b) if a
Person acquires the beneficial ownership of securities which,
when aggregated with other such securities owned by such
Person, represents 10% or more, but less than 25%, of Bailey's
voting shares and the transaction does not result in, and is
not presumed to constitute, "control" as defined under Section
7(j) of the Federal Deposit Insurance Act or 12 CFR Part 225
or as determined by the Board of Governors of the Federal
Reserve;
(c) failure of the board of directors of Bailey to recommend, or
withdrawal by the board of directors of a prior recommendation
of, the Merger to the shareholders; or
(d) failure of the shareholders to approve the Merger by the
required affirmative vote at a meeting of the shareholders,
after any Person (other than Anchor or a subsidiary of Anchor)
announces publicly or communicates, in writing, to Bailey a
proposal to (1) acquire Bailey (by merger, reorganization,
consolidation, the purchase of 25% or more of its assets or
liabilities, or any other similar transaction), (2) purchase
or otherwise acquire securities representing 25% or more of
the voting shares of Bailey or (3) change the composition of
the board of directors of Bailey.
It is understood and agreed that the Option will be granted
and become exercisable on the occurrence of any of the above-described
circumstances even through the circumstance occurred as a result, in part or in
whole, of the board of Bailey complying with its fiduciary duties.
Notwithstanding the foregoing, after the Required Shareholder
Action as provided for in Section 6(a) of this Agreement, the Option may not be
exercised if either (1) any applicable and required governmental approvals have
not been obtained with respect to such exercise or if such exercise would
violate any applicable regulatory restrictions, or (2) at the time of exercise,
Anchor is failing in any material respect to perform or observe its material
covenants or conditions under the Merger Agreement, unless the reason for such
failure is that Bailey is failing to perform or observe its covenants or
conditions under the Merger Agreement.
3. Notice, Time and Place of Exercise. Each time that Anchor or any
transferee wishes to exercise any portion of the Option, Anchor or such
transferee will give written notice of its intention to exercise the Option
specifying the number of shares as to which the Option is being exercised
("Option Shares") and the place and date for the closing of the exercise (which
date may not be later than ten business days from the date such notice is
mailed). If any law, regulation or other restriction will not permit such
exercise to be consummated during this ten-day period, the
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<PAGE>
date for the closing of such exercise will be within five days following the
cessation of the restriction on consummation.
4. Payment and Delivery of Certificate(s). At any closing for an
exercise of the Option or any portion thereof, (a) Anchor and Bailey will each
deliver to the other certificates as to the accuracy, as of the closing date, of
their respective representations and warranties under this Agreement, (b) Anchor
or the transferees will pay the aggregate purchase price for the shares of
Common Stock to be purchased by delivery of a certified or bank cashier's check
in immediately available funds payable to the order of Bailey, and (c) Bailey
will deliver to Anchor or the transferees a certificate or certificates
representing the shares so purchased.
5. Transferability of the Option and Option Shares. Before the Option,
or a portion of the Option, becomes exercisable in accordance with the
provisions of Section 2 of this Agreement, neither the Option nor any portion of
the Option will be transferable. If any of the events or circumstances set forth
in Sections 2(a) through (d) above occur, Anchor may freely transfer, subject to
applicable federal and state securities laws, the Option or any portion of the
Option, or any of the Option Shares.
For purposes of this Agreement, a reorganization or
consolidation of Anchor (whether or not Anchor is the surviving entity) or an
acquisition of Anchor will not be deemed a transfer.
6. Representations, Warranties and Covenants of Bailey. Bailey
represents and warrants to Anchor as follows:
(a) Due Authorization. This Agreement has been duly authorized by
all necessary corporate action on the part of Bailey, has been
duly executed by a duly authorized officer of Bailey and
constitutes a valid and binding obligation of Bailey. Bailey
has obtained agreement and commitment from holders of at least
two-thirds of the shares of the outstanding voting common
stock of Bailey that they will vote in favor of an amendment
to the Articles of Incorporation of Bailey to eliminate
preemptive rights of the shareholders of Bailey in order for
Bailey to grant the Option to Anchor if and when Anchor is
entitled to receive the Option pursuant to the terms of this
Agreement (the "Required Shareholder Action"). Bailey will
cause the Required Shareholder Action to be taken within
fifteen (15) days after the occurrence of any of the
circumstances set forth in Section 2 of this Agreement. No
other shareholder approval by Bailey shareholders is required
by applicable law or otherwise before the grant or the
exercise of the Option in whole or in part.
(b) Option Shares. Except for the Required Shareholder Action,
Bailey has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue and, at all
times from the date of this Agreement to such time as the
obligation to deliver shares under this Agreement terminates,
will have reserved for issuance, at the closing(s) upon
exercise of the Option, or any portion of the Option, the
Option Shares (subject to adjustment, as provided in Section 8
below), all of which,
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<PAGE>
upon issuance under this Agreement, will be duly and validly
issued, fully paid and nonassessable, and will be delivered
free and clear of all claims, liens, encumbrances and security
interests, including any preemptive right of any of the
shareholders of Bailey.
(c) No Conflicts. Except for the Required Shareholder Action,
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by it will
violate or result in any violation of or be in conflict with
or constitute a default under any term of the articles of
incorporation or bylaws of Bailey or any agreement,
instrument, judgment, decree, law, rule or order applicable to
Bailey or any subsidiary of Bailey or to which Bailey or any
such subsidiary is a party.
(d) Notification of Record Date. At any time from and after the
date of this Agreement until the Option is no longer
exercisable, Bailey will give Anchor or any transferee 30 days
prior written notice before setting the record date for
determining the holders of record of the Common Stock entitled
to vote on any matter, to receive any dividend or distribution
or to participate in any rights offering or other matters, or
to receive any other benefit or right, with respect to the
Common Stock.
7. Representations, Warranties and Covenants of Anchor. Anchor
represents and warrants to Bailey as follows:
(a) Due Authorization. This Agreement has been duly authorized by
all necessary corporate action on the part of Anchor, has been
duly executed by a duly authorized officer of Anchor and
constitutes a valid and binding obligation of Anchor.
(b) Transfers of Common Stock. No shares of Common Stock acquired
upon exercise of the Option will be transferred except in a
transaction registered or exempt from registration under any
applicable securities laws.
(c) No Conflicts. Neither the execution and delivery of this
Agreement nor the consummation of the transactions
contemplated by it will violate or result in any violation of
or be in conflict with or constitute a default under any term
of the articles of incorporation or bylaws of Anchor or any
agreement, instrument, judgment, decree, law, rule or order
applicable to Anchor or any subsidiary of Anchor or to which
Anchor or any such subsidiary is a party.
8. Adjustment Upon Changes in Capitalization. In the event of any
change in the Common Stock by reason of stock dividends, split-ups, mergers,
reorganizations, recapitalizations, combinations, exchanges of shares or the
like, the number and kind of shares or securities subject to the Option and the
purchase price per share of Common Stock will be appropriately adjusted. If,
before the Option terminates or is exercised, Bailey is acquired by another
party, consolidates with or merges into another corporation or liquidates,
Anchor or any transferee will thereafter receive, upon exercise of the Option,
the securities or properties to which a holder of the number of shares
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<PAGE>
of Common Stock then deliverable upon the exercise thereof would have been
entitled upon such acquisition, consolidation, merger, reorganization or
liquidation, and Bailey will take all steps in connection with such acquisition,
consolidation, merger, reorganization or liquidation as may be necessary to
assure that the provisions of this Agreement will thereafter be applicable, as
nearly as reasonably may be practicable, in relation to any securities or
property thereafter deliverable upon exercise of the Option.
9. Nonassignability. This Agreement binds and inures to the benefit of
the parties and their successors. This Agreement is not assignable by either
party, but Anchor may transfer the Option, the Option Shares or any portion of
the Option or Option Shares in accordance with Section 5. A merger,
reorganization or consolidation of Anchor (whether or not Anchor is the
surviving entity) or an acquisition of Anchor will not be deemed an assignment
or transfer.
10. Regulatory Restrictions. Bailey will use its reasonable best
efforts to obtain or to cooperate with Anchor or any transferee in obtaining all
necessary regulatory consents, approvals, waivers or other action (whether
regulatory, corporate or other) to permit the acquisition of any or all Option
Shares by Anchor or any transferee.
11. Remedies. Bailey agrees that if for any reason Anchor or any
transferee will have exercised its rights under this Agreement and Bailey will
have failed to issue the Option Shares to be issued upon such exercise or to
perform its other obligations under this Agreement, unless such action would
violate any applicable law or regulation by which Bailey is bound, then Anchor
or any transferee will be entitled to specific performance and injunctive and
other equitable relief. Anchor agrees that if it fails to perform any of its
obligations under this Agreement, then Bailey will be entitled to specific
performance and injunctive and other equitable relief. This provision is without
prejudice to any other rights that Bailey or Anchor or any transferee may have
against the other party for any failure to perform its obligations under this
Agreement.
12. No Rights as Shareholder. This Option, before it is exercised, will
not entitle its holder to any rights as a shareholder of Bailey at law or in
equity. Specifically, this Option, before it is exercised, will not entitle the
holder to vote on any matter presented to the shareholders of Bailey or, except
as provided in this Agreement, to any notice of any meetings of shareholders or
any other proceedings of Bailey.
13. Miscellaneous.
(a) Termination. This Agreement and the Option, to the extent not
previously exercised, will terminate upon the earliest of (1)
June 30, 2000; (2) the mutual agreement of the parties to this
Agreement; (3) 31 days after the date on which any application
for regulatory approval for the Merger has been denied, but if
before the expiration of the 31-day period, Bailey or Anchor
is engaged in litigation or an appeal procedure relating to an
attempt to obtain approval of the Merger, this Agreement will
not terminate until the earlier of (i) June 30, 2000, or (ii)
31 days after the completion of the litigation and appeal
procedure; (4) the 30th day following the termination of the
Merger Agreement for any reason other than a
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<PAGE>
material noncompliance or default by Anchor with respect to
its obligations under it; or (5) the date of termination of
the Merger Agreement if the termination is due to a material
noncompliance or default by Anchor with respect to its
obligations under it; but if the Option has been exercised, in
whole or in part, before the termination of this Agreement,
then the exercise will close under Section 4 of this
Agreement, even though that closing date is after the
termination of this Agreement, and if the Option is sold
before the termination of this Agreement, the Option may be
exercised by the transferee at any time within 31 days after
the date of termination even though such exercise or the
closing of such exercise occurs after the termination of this
Agreement.
(b) Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and
delivery of a written agreement executed by the parties.
(c) Severability of Terms. Any provision of this Agreement that is
invalid, illegal or unenforceable is ineffective only to the
extent of the invalidity, illegality or unenforceability
without affecting in any way the remaining provisions or
rendering any other provisions of this Agreement invalid,
illegal or unenforceable. Without limiting the generality of
the foregoing, if the right of Anchor or any transferee to
exercise the Option in full for the total number of shares of
Common Stock or other securities or property issuable upon the
exercise of the Option is limited by applicable law, or
otherwise, Anchor or any transferee may, nevertheless,
exercise the Option to the fullest extent permissible.
(d) Notices. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and
must be given (and will be deemed to have been duly received
if so given) by delivery, by cable, telecopies or telex, or by
registered or certified mail, postage prepaid, return receipt
requested, to the respective parties at the addresses below,
or to such other address as either party may furnish to the
other in writing. Change of address notices will be effective
upon receipt.
If to Bailey to: Bailey Financial Corporation
211 North Broad Street
Clinton, SC 29325
Attn: John W. Dickens
with a copy to: McNair Law Firm, P.A.
NationsBank Tower
1301 Gervais Street
Columbia, SC 29201
Attn: M. Craig Garner, Jr.
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<PAGE>
If to Anchor to: 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.
(a) Governing Law and Venue. The parties intend this Agreement and
the Option, in all respects, including all matters of
construction, validity and performance, to be governed by the
laws of the State of South Carolina, without giving effect to
conflicts of law principles. Any actions brought by either
party against the other arising under this Agreement must be
filed in Horry County, South Carolina, and each party consents
to personal jurisdiction in Horry County.
(b) Counterparts. This Agreement may be executed in several
counterparts, including facsimile counterparts, each of which
is an original, and all of which together constitute one and
the same agreement.
(c) Effects of Headings. The section headings in this Agreement
are for convenience only and do not affect the meaning of its
provisions.
ANCHOR FINANCIAL CORPORATION
By:
/s/Stephen L. Chryst
--------------------
Stephen L. Chryst
Its President and Chief Executive Officer
BAILEY FINANCIAL CORPORATION
By:
/s/John W. Dickens
------------------
John W. Dickens
Its President and Chief Executive Officer
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<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") made this _______ day of _______, 1998
by and between M. S. BAILEY & SON, BANKERS, a South Carolina banking corporation
with principal offices located at 211 North Broad Street, Clinton, South
Carolina 29325 ("Bank") and ____________________ of ________________, South
Carolina ("Employee"), and joined in by ANCHOR FINANCIAL CORPORATION, a South
Carolina corporation with principal offices located at 2002 Oak Street, Myrtle
Beach, South Carolina 29578 ("Anchor").
RECITALS:
A. The Employee is, as of the date hereof, employed by the Bank as an
executive officer and the Bank desires to insure the Employee's
continued employment with the Bank.
B. The Bank and the Employee 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 Employee, and the Employee agrees
to serve the Bank, on the terms and conditions, set forth herein.
2. Term of Employment. The employment of the Employee by the Bank, as provided
under Section 1, shall commence on the date hereof and end on ____________,
_____ (the "Initial Term") unless further extended or sooner terminated as
hereinafter provided.
3. Position and Duties. The Employee shall serve as 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 of the Bank or
other executive designated by the Board of Directors of the Bank. The Employee
shall perform his responsibilities and duties in the best interests of the Bank
and its stockholders.
4. Place of Performance. In connection with the Employee's employment hereunder,
the Employee shall be based initially at the Bank's office located in , South
Carolina, subject to reasonable travel or relocation necessary to the business
of the Bank.
5. Compensation and Benefits. In consideration of the Employee's performance of
his duties hereunder, the Bank shall provide the Employee with the following
compensation and benefits during the term of his employment hereunder.
<PAGE>
a. Base Salary. Commencing on the first day after the Effective
Date, and continuing for a period of ________ (__) year
thereafter, the Employee shall serve on a full-time basis as
the and of the Bank. During his full-time employment, Employee
shall receive a per annum salary of $____________, payable in
equal installments in arrears on the last day of the month.
During the term of the Employee's employment under this
Agreement, the Bank's Board of Directors periodically will
review and may increase (but not decrease) the Employee's base
salary rate, all 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. The Bank
shall have no obligation to increase the Employee'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 .
b. Bonus and Incentive Compensation. The Bank shall pay to the
Employee with respect to each fiscal year during the term of
the Employee's employment hereunder, such cash bonus as the of
the Bank or other executive designated by the Board of
Directors of the Bank shall determine in his 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 Employee may be given the opportunity to
participate in certain incentive compensation plans that may
be adopted by the Bank or in such plans that may be adopted or
sponsored by the Bank's parent corporation, Anchor, which
participation opportunity may be offered to the Employee in
the full discretion of Anchor and the Bank.
c. Expenses. The Bank, as applicable, shall reimburse the
Employee for all proper and reasonable out-of-pocket expenses
incurred by the Employee 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. Vacations. The Employee 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
Employee, as well as to all paid holidays provided by the Bank
to its employees.
6. Compensation and Benefits in the Event of Termination. In the event of the
termination of the Employee's employment by the Bank or by the Employee during
the term of this Agreement, compensation and benefits shall be paid as set forth
below.
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<PAGE>
a. Definitions. For purposes of this Agreement, the following
terms shall have the meanings indicated:
(i) "Cause" shall mean (A) the breach by Employee of
any material provision of this Agreement, provided that Bank
gives the Employee written notice of such failure and such
failure is not cured within thirty (30) days thereafter; (B)
the willful and continued failure by the Employee to
substantially perform his duties under this Agreement (other
than the Employee'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 Bank, which
demand specifically identifies the manner in which the
Employee is alleged to have not substantially performed his
duties; (C) the willful engaging by the Employee 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 Employee's
conviction of a felony; or (E) the commission in the course of
the Employee'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 Employee becoming unbondable under the Bank's
"banker's blanket bond."
(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 Employee's
employment is terminated by reason of his death, his date of
death; (B) if the Employee's employment is terminated for
Disability, thirty (30) days after Notice of Termination is
given (provided that the Employee shall not have returned to
the performance of his duties as provided under sub-paragraph
(iv) of this paragraph a; or (C) if the Employee'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 Employee'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 Employee'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 Employee 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 Employee'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
Employee 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;
(C) The failure by the Bank to comply with Section 5
of this Agreement; or
(D) Any purported termination of the Employee'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
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<PAGE>
termination of the Employee's employment. Any purported
termination of the Employee'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 Employee's
employment pursuant to the Bank's regular retirement policy
applicable to the position held by the Employee at the time of
such termination.
b. Termination For Cause, Disability, Death, Retirement or Other
Than for Good Reason. In the event the Employee's employment
hereunder is terminated (A) by action of the Bank for Cause
prior to or coincident with or following a Change in Control;
(B) by action of the Employee not for Good Reason, at any
time; or (C) by reason of the Employee's death, Disability or
Retirement, the following compensation and benefits shall be
paid and provided the Employee (or his beneficiary):
(1) The Employee'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 Employee (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 (or death)
under paragraph d. of Section 5; and
(4) Any amounts due the Employee 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 Employee's
employment hereunder is terminated other than by reason of the
Employee's death, Disability or Retirement, and (A) by action
of the Employee 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 Employee 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 Employee:
For the remaining Initial Term or one year term thereafter of
this Agreement, (i) the Bank shall continue to pay to the
Employee the Base Salary provided for in Section
-5-
<PAGE>
5.a. above (at the Employee'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 Employee 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 Employee himself), the Employee will
obtain substantially equivalent insurance coverages from
insurance companies chosen by him and the Bank promptly will
reimburse Employee 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 Employee 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 Employee 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 Employee recognizes that his activities on behalf of the
Bank require considerable responsibility and trust. Relying on
the ethical responsibilities and undivided loyalty of the
Employee, the Bank has and will and Anchor and its
Subsidiaries will in the future entrust the Employee 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
-6-
<PAGE>
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.
c. The Employee recognizes the proprietary and sensitive nature
of the Bank, Anchor and its Subsidiaries' Confidential
Information. The Employee 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 the Employee'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
Employee 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 Employee's employment, the Employee 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 Employee's specific duties for such entities (including all
copies of such materials). The Employee 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 Employee and the Bank. Any
claim the Employee may have against the Bank shall not
constitute a defense to enforcement by the Bank of this
Agreement.
b. The covenants made by the Employee herein shall survive
termination of the Employee's employment, regardless of who
causes the termination and under what circumstances.
10. Restrictive Covenant. In consideration of the Bank's employment of the
Employee, the Employee 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
-7-
<PAGE>
twenty-five (25) mile radius of any operating office of Anchor or the Bank,
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 Employee 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 Employee should have been employed by and located at
such office) and the Employee 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 Employee 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 Employee 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 Employee breaches any covenant of this Agreement. The faithful
observance of all covenants in this Agreement is an essential condition to the
Employee's employment, and the Bank, Anchor and the Subsidiaries of Anchor are
depending upon absolute compliance. Damages would probably be very difficult to
ascertain if the Employee 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
Employee 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 Employee 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 Employee 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:
-8-
<PAGE>
To the Bank: Stephen L. Chryst
President and Chief Executive Officer
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 Employee: _________________________________
_________________________________
_________________________________
_________________________________
with copy to: _________________________________
_________________________________
_________________________________
_________________________________
14. Successors; Binding Agreement. This Agreement shall be binding on the Bank
and its successors and shall inure to the benefit of and be enforceable by the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee 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
Employee'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 Employee 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 Bank, or under any
established personnel practice or policy applicable to the Employee.
-9-
<PAGE>
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 Employee, his beneficiaries or
estates provided for in this Agreement.
b. No Adequate Remedy At Law. The Bank and the Employee 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 Employee 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
Employee 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 Employee'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 Employee 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 Employee 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 Employee in connection with such litigation.
20. Counterparts. This Agreement may be executed in one or more counterparts,
each of which
-10-
<PAGE>
shall be deemed to be an original, but of which together will constitute one and
the same instrument.
IN WITNESS WHEREOF, the Employee and the Bank (by action of its duly
authorized officer) have executed this Agreement on the date first above
written.
M. S. BAILEY & SON, BANKERS
ATTEST: By:
Name:
Title:
ANCHOR FINANCIAL CORPORATION
ATTEST: By:
Name:
Title:
EMPLOYEE
ATTEST:
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<PAGE>
EXHIBIT C
_________________, 1998
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29577
Gentlemen:
I have been advised that I may be considered to be an "affiliate" of Bailey
Financial Corporation for purposes of Rule 145 of the General Rules and
Regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act"). Pursuant to the Agreement and Plan of Merger by and among Bailey
Financial Corporation ("Bailey") and Anchor Financial Corporation ("Anchor"),
dated __________, 1998 (the "Agreement"), I will receive shares of common stock,
no par value, of Anchor ("Anchor Common Stock") in exchange for my shares of
common stock, par value $.01 per share, of Bailey owned by me at the Effective
Date of the merger provided for in the Agreement (the "Merger"). This agreement
is hereinafter referred to as the "Affiliate's Agreement."
I represent and warrant to, and agree with, Anchor that:
A. I shall not make any sale, transfer or other disposition of my Anchor
Common Stock in violation of the 1933 Act or the Rules and Regulations
promulgated thereunder.
B. I have been advised that the offering, sale and delivery of Anchor
Common Stock to me pursuant to the Merger has been registered under the
1933 Act in a Registration Statement on Form S-4. I also have been
advised, however, that, since I may be deemed to be an "affiliate" of
Bailey at the time the Agreement is to be submitted for a vote of the
stockholders of Bailey, any public offering or sale by me of any shares
of Anchor Common Stock will, under current law, require either (i) the
further registration under the 1933 Act of Anchor Common Stock to be
offered and sold, (ii) compliance with Rule 145 promulgated by the
Commission under the 1933 Act, or (iii) the availability of another
exemption from such registration under the 1933 Act.
C. I have read this Affiliate's Agreement and the Agreement and have
discussed their
<PAGE>
Anchor Financial Corporation
Page 2
____________,1998
requirements and other applicable limitations upon my ability to sell,
transfer or otherwise dispose of Anchor Common Stock, to the extent I
felt necessary, with my counsel or counsel for Bailey.
D. I have been informed by Anchor that Anchor Common Stock has not been
registered under the 1933 Act for distribution by me and that Anchor
Common Stock must be held by me for at least one year unless (i) such
shares of Anchor Common Stock have been registered for distribution
under the 1933 Act, (ii) a sale of the shares of Anchor Common Stock is
made in conformity with the volume and/or other limitations of Rule 145
promulgated by the Commission under the 1933 Act, or (iii) in the
opinion of counsel acceptable to Anchor, some other exemption from
registration under the 1933 Act is available with respect to any such
proposed sale, transfer or other disposition of the shares of Anchor
Common Stock.
E. I understand that stop transfer instructions similar to the limitations
referred to in paragraph D above will be given to Anchor's transfer
agent with respect to the Anchor Common Stock delivered to me pursuant
to the Merger and that there will be placed on the certificates for
such shares of Anchor Common Stock, or any substitutions therefor, a
legend stating in substance:
The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Act") applies and prior to
__________________ may be sold or otherwise transferred only
in compliance with the limitations of such Rule 145, or upon
receipt by Anchor Financial Corporation of an opinion of
counsel acceptable to it that some other exemption from
registration under the Act is available, or pursuant to a
registration statement under the Act.
F. I hereby agree that, for a period of one (1) year following the
Effective Date of the Merger provided for in the Agreement, I will
obtain an agreement similar to this from each transferee of Anchor
Common Stock (acquired by me pursuant to the Agreement) if such
transfer is effected other than in a transaction involving a registered
public offering or as a sale pursuant to Rule 145.
G. Notwithstanding the above, I hereby agree that I will not sell any of
my Anchor Common Stock received pursuant to the Merger or in any other
way reduce my risk relative to any Anchor Common Stock received
pursuant to the Merger, until such time as financial results covering
at least 30 days post-Merger consolidated operations have been
published by
<PAGE>
Anchor Financial Corporation
Page 3
____________,1998
Anchor pursuant to the filing of a Form 10-Q, Form 10-K or Form 8-K, as
applicable, with the United States Securities and Exchange Commission
or otherwise.
It is understood and agreed that this Affiliate's Agreement shall terminate and
be of no further force and effect and the legend set forth in paragraph E above
shall be removed by delivery of substitute certificates without such legend, and
the related stop transfer restrictions shall be lifted forthwith if (i) my
shares of Anchor Common Stock shall have been registered under the 1933 Act for
sale, transfer or other disposition by me or on my behalf, or (ii) I am not at
the time an affiliate of Anchor and have held my Anchor Common Stock for at
least one (1) year (or such other period as may be prescribed by the 1933 Act,
and the Rules and Regulations promulgated thereunder), and Anchor has filed with
the Commission all of the reports it is required to file under the Securities
Exchange Act of 1934, as amended, during the preceding twelve (12) months, or
(iii) I am not at the time an affiliate of Anchor and have not been an affiliate
of Anchor for at least three months and have held the Anchor Common Stock for at
least two (2) years (or such other period as may be prescribed by the 1933 Act
and the Rules and Regulations promulgated thereunder), or (iv) Anchor shall have
received a letter from the staff of the Commission, or an opinion of counsel
acceptable to Anchor, to the effect that the stop transfer restrictions and the
legend are not required.
Sincerely,
SOCIAL SECURITY NUMBER OR
FEDERAL TAX ID NUMBER
- ---------------------------- -------------------------
(Name of Stockholder)
ACCEPTED:
BAILEY FINANCIAL CORPORATION
By __________________________
__________________, 1998
<PAGE>
EXHIBIT D
(Letterhead of McNair Law Firm, P.A.)
_______________, 1998
Board of Directors
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, South Carolina 29578
Gentlemen:
We have acted as counsel to Bailey Financial Corporation ("Bailey") a South
Carolina corporation, in connection with the Agreement and Plan of Merger dated
September __, 1998 by and between Anchor Financial Corporation and Bailey (the
"Agreement"). As such counsel, we have reviewed such organizational documents,
indentures, contracts, deeds, instruments, minutes, actions of the Board of
Directors and shareholders of Bailey, and such other information as we have
deemed necessary as a basis for the opinions expressed herein, which are being
delivered to you pursuant to Section 7.2(A) of the Agreement. Capitalized terms
appearing herein and not otherwise defined are used as defined in the Agreement.
In reviewing the documents and information referred to above, we have assumed
without inquiry the genuineness of all signatures and the conformity with
originals of all documents submitted to us as copies. We have assumed that
Anchor Financial Corporation ("Anchor") has and had the power to enter into and
to perform the Agreement and all other instruments in which Anchor's joinder is
contemplated in connection with the Agreement. We have also assumed Anchor's due
authorization, execution and delivery of the Agreement and the validity, binding
effect and enforceability thereof against Anchor with respect to and in
accordance with its terms. We have relied as to certain factual matters on
representations of Bailey contained in the Agreement, and on certificates of
officers of Bailey and certain public officials or agencies.
Based upon and subject to the foregoing and to the qualifications set forth
below, it is our opinion that, except as disclosed in the Registration
Statement, the Agreement or a schedule of exceptions given by Bailey in
connection therewith:
1. Bailey is a corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina and, to the best
of our knowledge, has all requisite power and authority to own, lease
and operate its properties and the corporate power to
<PAGE>
Anchor Financial Corporation
Page 2
____________,1998
carry on its business as now and where being conducted (excepting any
authority or power, the absence of which in the aggregate would not
have a material adverse effect upon the financial condition or
operations, business or prospects of Bailey).
2. Bailey is qualified to do business in South Carolina and each
jurisdiction in which the failure to be so qualified would have a
material adverse effect on its business.
3. Bailey has the full corporate power and authority to execute and
deliver the Agreement as well as all other documents referred to in the
Agreement to be executed and delivered by Bailey and to consummate the
transactions and perform its obligations as contemplated by the
Agreement.
4. The Board of Directors of Bailey, at a lawfully convened meeting, has
unanimously and validly approved the Merger, authorized execution of
the Agreement, and has taken all such other action to approve the
Merger as is required by law, its Articles of Incorporation, its
Bylaws, or any indenture or other agreement to which it is a party and
of which we have knowledge.
5. The shareholders of Bailey at a lawfully convened meeting of Bailey,
have validly approved the Agreement.
6. The Agreement has been duly executed and delivered by and constitutes
the valid and binding obligation of Bailey, enforceable against Bailey
in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect which affect
creditors' rights generally and by legal and equitable limitations on
the availability of injunctive relief, specific performance and other
equitable remedies and by laws or court decisions which may be
applicable limiting the enforceability of indemnification proceedings).
7. Neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated by the Agreement will:
(i) violate any provision of the Articles of Incorporation or Bylaws of
Bailey; (ii) violate or cause a default or termination of any material
rights or obligations existing by virtue of any provision of any
indentures, leases, contracts or agreements to which Bailey is a party
and of which we have knowledge; (iii) violate or require any consent
under any judgment, order, injunction, decree, award or agreement
against, or binding upon Bailey or upon the securities, properties or
business of Bailey, of which we have knowledge, which violation or
failure to obtain consent
<PAGE>
Anchor Financial Corporation
Page 3
____________,1998
would have a material adverse effect upon the business or assets of
Bailey; or (iv) require the approval of any third party or regulatory
agency other than consents or approvals already obtained.
8. The authorized capital stock of Bailey consists of 1,000,000 shares of
common stock having par value $.01 per share (the "Bailey Common
Stock"). To our knowledge after due inquiry, (i) all of the outstanding
shares of Bailey Common Stock are validly issued, fully-paid and
nonassessable and have not been issued in violation of any preemptive
rights of any shareholder; (ii) there are no shares of Bailey Common
Stock held in treasury; no outstanding securities or other obligations
which are convertible into shares of Bailey Common Stock or other
Bailey securities; (iii) there are no outstanding options, warrants,
rights, calls or other commitments of any nature which entitle the
holder, upon exercise thereof, to be issued shares of Bailey Common
Stock or any other equity security of Bailey; and (iv) Bailey does not
have outstanding and is not obligated to issue any subscriptions,
options or other arrangements or commitments obligating it to issue or
dispose of any shares of stock or other securities.
9. The Proxy Statement delivered to the shareholders of Bailey complies as
to form in all material respects with any applicable laws of the State
of South Carolina.
10. Bailey has three subsidiaries, including M. S. Bailey & Son, Bankers,
The Saluda County Bank and MSB Securities, Inc.
11. The Merger will become effective at the Effective Date as specified in
the Agreement and upon the taking of such action as is required to
consummate the Merger under the laws of the State of South Carolina.
12. To the best of our knowledge, except as is specifically disclosed in
the financial statements referred to in Section 5.1(H) of the Agreement
as having been delivered to Anchor, there is no material action, suit,
litigation, or investigation by governmental authorities or otherwise
pending or threatened against or affecting Bailey, or any property or
rights of Bailey or any of their officers or directors (in their
capacity as such). To our knowledge after due inquiry, Bailey is not
subject to any continuing court or administrative order, writ,
injunction, decree or memorandum, applicable specifically to it or to
its business, property, directors or employees, and Bailey is not in
default with respect to any order, writ, injunction, decree or
understanding of any court or other governmental instrumentality.
<PAGE>
Anchor Financial Corporation
Page 4
____________,1998
We have participated in conferences with representatives of Bailey and you and
its and your respective accountants and counsel in connection with the
preparation of the Registration Statement and the Proxy Statement and have
considered the matters required to be stated therein and the statements
contained therein and, based on the foregoing (and, in certain circumstances
relying as to materiality on the opinions of officers and representatives of
Bailey) nothing has come to our attention which would lead us to believe that
the Registration Statement at the time it became effective, or the Proxy
Statement, at the time it became effective, or the Proxy Statement, at the time
it was distributed to shareholders, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except in each such
case for the financial statements and other financial and statistical data
included therein, as to which we make no statement).
The opinions rendered herein are solely for your benefit and are not to be used,
circulated or otherwise referred to without our prior written consent.
Yours very truly,
McNAIR LAW FIRM, P.A.
<PAGE>
EXHIBIT E
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT made and entered into as of the _____
day of _______________, 1998, by and between ANCHOR FINANCIAL CORPORATION
("Anchor"), a South Carolina corporation having its principal office located in
Myrtle Beach, South Carolina; BAILEY FINANCIAL CORPORATION ("Bailey"), a South
Carolina corporation having its principal office located in Clinton, South
Carolina; M. S. BAILEY & SON, BANKERS ("Bailey Bank"), a South Carolina banking
corporation having its principal office located in Clinton, South Carolina; THE
SALUDA COUNTY BANK ("Saluda Bank"), a South Carolina banking corporation, having
its principal office located in Saluda, South Carolina; and
_____________________, an adult resident citizen of the state of South Carolina
and who serves as an executive officer or director of Bailey, Bailey Bank and/or
Saluda Bank ("Person").
WHEREAS, Anchor and Bailey have entered into that certain Agreement and
Plan of Merger dated as of September __, 1998 (the "Merger Agreement"),
providing for the acquisition by Anchor of all or substantially all of the
outstanding common stock of Bailey, par value $.01 per share ("Bailey Common
Stock") through the merger of Bailey into Anchor, with Anchor surviving the
merger (the "Merger"); and
WHEREAS, Person is a shareholder, as well as a director or executive
officer of Bailey, Bailey Bank and/or Saluda Bank (collectively for purposes
hereof, the "Bailey Companies") and has long been associated with the Bailey
Companies and has developed a relationship with the customer base of the Bailey
Companies and possesses confidential information regarding the direct and
indirect business operation of the Bailey Companies; and
WHEREAS, as a condition precedent to Anchor's agreement to consummate
the transactions contemplated by the Merger Agreement, Anchor has required, and
Person has agreed to enter into this Non-Competition Agreement.
NOW, THEREFORE, for and in consideration of Anchor's agreement to
acquire Bailey pursuant to the Merger Agreement and the additional cash
consideration set forth below, the receipt and sufficiency of which as
consideration for this Non-Competition Agreement are hereby acknowledged by
Person, the parties hereto intending to be legally bound hereby agree as
follows:
1. Consideration. Anchor shall pay to Person the sum of Ten Dollars
($10.00) on the date hereof.
<PAGE>
2. Covenant Not to Compete/Term.
a. Bailey, Bailey Bank, Saluda Bank and Person acknowledge and
agree that: (i) various business connections, clientele and customers of Anchor
and subsidiaries and affiliates of Anchor, including, but not limited to,
Bailey, Bailey Bank and Saluda Bank (collectively for purposes hereof the
"Anchor Companies"), have been established and are maintained at a great expense
to the Anchor Companies; (ii) by virtue of his or her close relationship with,
and service as a member of the Board of Directors or executive officer of
Bailey, Bailey Bank and/or Saluda Bank, and in connection with the Merger,
Person has become familiar with the names and lists, and the business needs of
the customers and clientele of certain of the Anchor Companies, including, but
not limited to the Bailey Companies; (iii) Person, through his or her
representation of or association with Bailey, Bailey Bank and/or Saluda Bank and
his or her business dealings with the Anchor Companies, including but not
limited to the Bailey Companies, has become personally acquainted with such
customers and prospective customers of the Anchor Companies; and (iv) the Anchor
Companies will sustain great loss and damage if Person violates the covenants
and agreements hereinafter set forth, for which loss and damages none of the
Anchor Companies has an adequate remedy by law.
b. Based on the foregoing, Person hereby expressly covenants
and agrees, which covenants and agreements are the essence of this
Non-Competition Agreement, that for a period of two (2) years from the later of
the date hereof or the date Person ceases to serve on the Board of Directors of,
or as an officer of, or as a consultant or advisory director for any of the
Anchor Companies, including, but not limited to, Bailey, Bailey Bank and/or
Saluda Bank, Person shall not, unless acting with the prior written consent of
Anchor, directly or indirectly, for himself or herself or on behalf of or in
connection with any other person, firm, corporation or entity, own, manage,
operate, join, control, finance or participate in the ownership, management,
operation or control of, or be connected with as a director, officer, employee,
consultant, partner, stockholder other than to the extent he is a stockholder
therein or a director thereof as of the date of the Merger Agreement, and
further excepting any ownership, solely as an investment and through market
purchases, of securities of any issuer that are registered under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934, as amended, and that are listed
or admitted for trading on any United States national securities exchange or
that are quoted on the National Association of Securities Dealers Automated
Quotations System, or any similar system for automated dissemination of
quotations of securities prices in common use, so long as Person is not a member
of any control group (within the meaning of the rules and regulations of the
Securities and Exchange Commission or the Federal Reserve Board) of any such
issuer, of any business engaged in the business of banking or that of managing
or controlling a bank or banks (which term shall include, but is not limited to,
savings and loan associations and loan production entities), in each county in
which Bailey, Bailey Bank and/or Saluda Bank has a principal office or branch,
either on the date hereof or on the date Person ceases to serve as a member of
the Board of Directors of, or as an officer of, or as a consultant or advisory
director for any of the Anchor Companies, whichever is the later date, and in
each county contiguous thereto, without regard to state lines.
<PAGE>
c. Person further acknowledges and agrees that during his or
her employment with and service on the Board of Directors or as an officer of
Bailey, Bailey Bank and/or Saluda Bank prior to the date hereof, as well as both
prior to and after the Effective Time of the Merger with or for any of the
Anchor Companies, that certain highly confidential information, including, but
not being limited to, customer lists, individual customer habits, and other
confidential customer and corporate information has been, and will be in the
event of continued employment of service, imparted to him or her. Due to the
highly confidential nature of said information, Person covenants and agrees that
he or she will not, during or for a period of two (2) years after the term of
his or her employment or service with or for any of the Anchor Companies,
disclose any such confidential information to any person or entity not employed
by Anchor, or any of the Anchor Companies, and authorized by Anchor to receive
such information. threatened breach of the provisions of this confidentiality
covenant, Anchor shall be entitled to
d. Person acknowledges and agrees that any violation by him or
her of the covenants set forth in this Non-Competition Agreement, whether before
the Effective Time or, should the merger become effective after the Effective
Time, would cause irreparable injury to the Anchor Companies. Person further
acknowledges and agrees that in the event of a breach or injunctive relief
against him or her by any court of competent jurisdiction having the authority
to grant such relief. Nothing herein, however, shall be construed as prohibiting
any of the Anchor Companies from pursuing any other remedies which may be
available to them for such a breach or threatened breach, including the recovery
of damages from Person to any other person or entity.
3. Successors and Assigns. This Non-Competition Agreement shall inure
to the benefit of Anchor, Bailey, Bailey Bank and/or Saluda Bank, and their
respective successors and assigns, including, without limitation, any
corporation or agency which may acquire all or substantially all of Anchor's or
the Anchor Companies' assets and businesses or with which Anchor or the Anchor
Companies may be consolidated or merged.
4. Entire Agreement. This Non-Competition Agreement contains the entire
understanding of the parties. It may not be changed orally but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, notification or discharge is sought.
5. Severability. The invalidity or unenforceability of any provision
hereof in no way affects the validity or enforceability of any other provision.
6. Waiver of Breach. Failure to insist upon strict compliance with any
terms, covenants, or conditions hereof shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
7. Agreement Void if Proposed Merger Not Consummated. This
Non-Competition Agreement shall be null and void should the proposed Merger fail
to be consummated.
<PAGE>
8. Applicable Law. This Non-Competition Agreement shall be governed by
the laws of the State of South Carolina.
ANCHOR FINANCIAL CORPORATION
By:
BAILEY FINANCIAL CORPORATION
By:
M. S. BAILEY & SON, BANKERS
By:
THE SALUDA COUNTY BANK
By:
PERSON
<PAGE>
EXHIBIT F
_______________, 1998
Board of Directors
Bailey Financial Corporation
211 North Broad Street
Clinton, SC 29325
Gentlemen:
We have acted as special counsel to Anchor Financial Corporation ("Anchor"), a
South Carolina corporation, in connection with the Agreement and Plan of Merger
dated September __, 1998 by and between Anchor and Bailey Financial Corporation
(the "Agreement"). As such counsel, we have reviewed such organizational
documents, indentures, contracts, deeds, instruments, minutes, actions of the
Board of Directors and shareholders of Anchor, and such other information as we
have deemed necessary as a basis for the opinions expressed herein, which are
being delivered to you pursuant to Section 7.3(D) of the Agreement. Capitalized
terms appearing herein and not otherwise defined are used as defined in the
Agreement.
In reviewing the documents and information referred to above, we have assumed
without inquiry the genuineness of all signatures and the conformity with
originals of all documents submitted to us as copies. We have assumed that
Bailey Financial Corporation ("Bailey") has and had the power to enter into and
to perform the Agreement and all other instruments in which Bailey's joinder is
contemplated in connection with the Agreement. We have also assumed Bailey's due
authorization, execution and delivery of the Agreement and the validity, binding
effect and enforceability thereof against Bailey with respect to and in
accordance with its terms. We have relied as to certain factual matters on
representations of Anchor contained in the Agreement, and on certificates of
officers of Anchor and certain public officials or agencies.
Based upon and subject to the foregoing and to the qualifications set forth
below, it is our opinion that, except as disclosed in the Registration
Statement, the Agreement or a schedule of exceptions given by Anchor in
connection therewith:
<PAGE>
Anchor Financial Corporation
Page 2
____________,1998
1. Anchor is a corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina and, to the best
of our knowledge, has all requisite power and authority to own, lease
and operate its properties and the corporate power to carry on its
business as now and where being conducted (excepting any authority or
power, the absence of which in the aggregate would not have a material
adverse effect upon the financial condition or operations, business or
prospects of Anchor).
2. Anchor is qualified to do business in South Carolina and each
jurisdiction in which the failure to be so qualified would have a
material adverse effect on its business.
3. Anchor has the full corporate power and authority to execute and
deliver the Agreement as well as all other documents referred to in the
Agreement to be executed and delivered by Anchor and to consummate the
transactions and perform its obligations as contemplated by the
Agreement.
4. The Board of Directors of Anchor, at a lawfully convened meeting, has
unanimously and validly approved the Merger, authorized execution of
the Agreement, and has taken all such other action to approve the
Merger as is required by law, its Articles of Incorporation, its
Bylaws, or any indenture or other agreement to which it is a party and
of which we have knowledge.
5. The Agreement has been duly executed and delivered by and constitutes
the valid and binding obligation of Anchor, enforceable against Anchor
in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect which affect
creditors' rights generally and by legal and equitable limitations on
the availability of injunctive relief, specific performance and other
equitable remedies and by laws or court decisions which may be
applicable limiting the enforceability of indemnification proceedings).
6. Neither the execution and delivery of the Agreement nor the
consummation of the transactions contemplated by the Agreement will:
(i) violate any provision of the Articles of Incorporation or Bylaws of
Anchor; (ii) violate or cause a default or termination of any material
rights or obligations existing by virtue of any provision of any
indentures, leases, contracts or agreements to which Anchor is a party
and of which we have knowledge; (iii) violate or require any consent
under any judgment, order, injunction, decree, award or agreement
against, or binding upon Anchor or upon the securities, properties or
business of Anchor, of which we have knowledge, which violation or
failure to obtain consent would have a material adverse effect upon the
business or assets of Anchor; or (iv) require the approval of any third
party or regulatory agency other than consents or approvals already
obtained.
<PAGE>
Anchor Financial Corporation
Page 3
____________,1998
7. The authorized capital stock of Anchor consists of 50,000,000 shares of
common stock having no par value per share (the "Anchor Common Stock").
All of the outstanding shares of Anchor Common Stock are validly
issued, fully-paid and nonassessable and have not been issued in
violation of any preemptive rights of any shareholder. The shares of
Anchor Common Stock to be issued pursuant to the Merger, when issued in
accordance with the terms of the Agreement, will be validly issued,
fully-paid and nonassessable and will not have been issued in violation
of the preemptive rights of any shareholder. To our knowledge after due
inquiry, (i) there are no shares of Anchor Common Stock held in
treasury; no outstanding securities or other obligations which are
convertible into shares of Anchor Common Stock or other Anchor
securities; (ii) there are no outstanding options, warrants, rights,
calls or other commitments of any nature which entitle the holder, upon
exercise thereof, to be issued shares of Anchor Common Stock or any
other equity security of Anchor, except for __________ options to
purchase shares of Anchor Common Stock pursuant to duly authorized
plans for directors, officers and employees; and (iii) Anchor does not
have outstanding and is not obligated to issue any subscriptions,
options or other arrangements or commitments obligating it to issue or
dispose of any shares of stock or other securities.
8. Anchor has two subsidiaries, including The Anchor Bank and Anchor
Automated Services, Inc.
9. The Merger will become effective at the Effective Date as specified in
the Agreement and upon the taking of such action as is required to
consummate the Merger under the laws of the State of South Carolina.
10. To the best of our knowledge, except as is specifically disclosed in
the financial statements referred to in Section 5.2(G) of the Agreement
as having been delivered to Bailey, there is no material action, suit,
litigation, or investigation by governmental authorities or otherwise
pending or threatened against or affecting Anchor, or any property or
rights of Anchor or any of its officers or directors (in their capacity
as such). To our knowledge after due inquiry, Anchor is not subject to
any continuing court or administrative order, writ, injunction, decree
or memorandum, applicable specifically to it or to its business,
property, directors, or employees, and Anchor is not in default with
respect to any order, writ, injunction, decree or understanding of any
court or other governmental instrumentality.
<PAGE>
Anchor Financial Corporation
Page 4
____________,1998
We have participated in conferences with representatives of Anchor and you and
its and your respective accountants and counsel in connection with the
preparation of the Registration Statement and the Proxy Statement and have
considered the matters required to be stated therein and the statements
contained therein and, based on the foregoing (and, in certain circumstances
relying as to materiality on the opinions of officers and representatives of
Anchor) nothing has come to our attention which would lead us to believe that
the Registration Statement at the time it became effective, or the Proxy
Statement, at the time it became effective, or the Proxy Statement, at the time
it was distributed to shareholders, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading (except in each such
case for the financial statements and other financial and statistical data
included therein, as to which we make no statement).
Gerrish & McCreary, P.C. is located in Memphis, State of Tennessee, and we
actively practice primarily in Tennessee. To the extent this opinion is based on
South Carolina law, we have familiarized ourselves with the laws of that state
and consulted South Carolina counsel.
The opinions rendered herein are solely for your benefit and are not to be used,
circulated or otherwise referred to without our prior written consent.
Yours very truly,
GERRISH & McCREARY, P.C.
<PAGE>
APPENDIX B
CHAPTER 13
Dissenters' Rights
Article 1
Right to Dissent and Obtain Payment for Shares
ss. 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
appreciate 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.
<PAGE>
ss. 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 sale or exchange of all, or substantially
all, of the property of 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 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 of 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.
<PAGE>
ss. 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
ss. 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.
ss. 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
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.
<PAGE>
ss. 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.
ss. 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.
<PAGE>
ss. 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.
(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.
ss. 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 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.
ss. 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, with 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.
<PAGE>
ss. 33-13-270. After-acquired shares.
(a) A corporation may elect to withhold payment required by a 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.
ss. 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
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.
<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 or a committee thereof, by special legal counsel or by the
shareholders (excluding shares owned by or voted under the control of directors
who are at the time parties to the proceeding) 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,
<PAGE>
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.
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
<PAGE>
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 is 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 merger;
(viii) to respond to requests for information that
is incorporated by reference into the prospectus pursuant to
Items 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
(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.
<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 February 5, 1999.
ANCHOR FINANCIAL CORPORATION
By: /s/Stephen L. Chryst
--------------------
Stephen L. Chryst,
Chairman of the Board,
President and
Chief Executive Officer
(Principal Executive Officer)
<PAGE>
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 and 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 merger between Anchor and Bailey Financial
Corporation ("Bailey") wherein Anchor agrees to exchange shares of its common
stock for all the outstanding shares of common stock of Bailey and merge Bailey
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.
Signature Title
- --------- -----
/s/C. Jason Ammons, Jr. Director Date: 1-11-99
- -----------------------
C. Jason Ammons, Jr.
/s/Howell V. Bellamy, Jr. Director Date: 1-11-99
- -------------------------
Howell V. Bellamy, Jr.
/s/W. Cecil Brandon, Jr. Director Date: 1-11-99
- ------------------------
W. Cecil Brandon, Jr.
/s/James E. Burroughs Director Date: 1-11-99
- ---------------------
James E. Burroughs
<PAGE>
__________________________________ Director Date: _______
C. Donald Cameron
/s/Mason R. Chrisman Director Date: 1-11-99
Mason R. Chrisman
/s/Stephen L. Chryst Chairman of the Date: 1-11-99
- -------------------- Board, President,
Stephen L. Chryst Chief Executive
Officer and Director
/s/Robin H. Dial Director Date: 1-11-99
- ----------------
Robin H. Dial
II-5
<PAGE>
/s/Chester A. Duke Director Date: 1-11-99
- ------------------
Chester A. Duke
/s/J. Bryan Floyd Director Date: 1-11-99
- ------------------
J. Bryan Floyd
/s/Tommy E. Looper Executive Vice- Date: 1-11-99
- ------------------ President, Chief
Tommy E. Looper Financial Officer
and Director
/s/Charles B. McElveen Director Date: 1-11-99
- ----------------------
Charles B. McElveen
/s/W. Gairy Nichols, III Director Date: 1-11-99
- ------------------------
W. Gairy Nichols, III
/s/Ruppert L. Piver Director Date: 1-11-99
- -------------------
Ruppert L. Piver
/s/ Thomas J. Rogers Director Date: 1-11-99
- --------------------
Thomas J. Rogers
/s/ John C.B. Smith, Jr. Director Date: 1-11-99
- ------------------------
John C.B. Smith, Jr.
/s/Albert A. Springs, III Director Date: 1-11-99
- -------------------------
Albert A. Springs, III
/s/J. Roddy Swaim Director Date: 1-11-99
- -----------------
J. Roddy Swaim
/s/Arthur P. Swanson Director Date: 1-11-99
- --------------------
Arthur P. Swanson
/s/Harry A. Thomas Director Date: 1-11-99
- ------------------
Harry A. Thomas
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Agreement and Plan of Merger between Anchor Financial
Corporation and Bailey Financial Corporation, dated
September 24, 1998 (included as Appendix A 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. (Incorporated by reference to Exhibit 3.2 of
the Registrant's registration statement on Form S-4, filed
June 17, 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 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.
(Incorporated by reference to Exhibit 10.1 of the
Registrant's registration statement on Form S-4 filed June
17, 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.
(Incorporated by reference to Exhibit 10.2 of the
Registrant's registration statement on Form S-4 filed June
17, 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.
(Incorporated by reference to Exhibit 10.3 of the
Registrant's registration statement on Form S-4 filed June
17, 1998.)
<PAGE>
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.
(Incorporated by reference to Exhibit 10.4 of the
Registrant's registration statement on Form S-4 filed June
17, 1998.)
10.5 Executive Employment Agreement between The Anchor Bank and
Chester A. Duke, dated August 31, 1998. (Incorporated by
reference to Exhibit 10.5 of the Registrant's Form 10-Q for
the quarter ended September 30, 1998.)
II-7
<PAGE>
10.6 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.)
10.7 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.)
10.8 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.)
10.9 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.)
10.10 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.)
10.11 First Amendment to the 1996 ISOP, dated December 8, 1997.
(Incorporated by reference to Exhibit 10.10 of the
Registrant's registration statement on Form S-4 filed June
17, 1998.)
10.12 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.
(Incorporated by reference to Exhibit 10.11 of the
Registrant's registration statement on Form S-4 filed June
17, 1998.)
10.13 Anchor Financial Corporation and The Anchor Bank
Non-Qualified Stock Option Plan of 1988, dated November 14,
1988, as amended, December 8, 1997. (Incorporated by
reference to Exhibit 10.12 of the Registrant's registration
statement on Form S-4 filed June 17, 1998.)
21.1 Subsidiaries of Anchor Financial Corporation
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Tourville, Simpson & Henderson, L.L.P. regarding
Bailey
23.3 Consent of Tourville, Simpson & Henderson, L.L.P. regarding
M&M Financial Corporation
23.4 Consent of J.W. Hunt and Company, LLP
23.5 Consent of Gerrish & McCreary, P.C. included in Exhibits
5.1 and 8.1 above
24.1 Power of Attorney (contained in the Signatures section of
the registration statement)
99.1 Form of Proxy for Bailey Financial Corporation
99.2 Form of Proxy for Anchor Financial Corporation
II-8
EXHIBIT 5.1
February __, 1999
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29577
Re: Anchor Financial Corporation
S-4 Registration Statement
Merger with Bailey Financial Corporation
Gentlemen:
We have acted as counsel for Anchor Financial Corporation, a South Carolina
corporation ("Anchor"), in connection with the merger of Bailey Financial
Corporation ("Bailey") with and into Anchor (the "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 Merger provides for the issuance of shares of Anchor Common Stock
to the stockholders of Bailey upon consummation of the Merger. The maximum
number of shares of Anchor to be issued in the Merger is estimated to be
1,552,685.
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 Merger,
the shares of Anchor Common Stock issued pursuant to the 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,
/s/GERRISH & McCREARY, P.C.
- ---------------------------
GERRISH & McCREARY, P.C
Exhibit 8.1
February __, 1999
Anchor Financial Corporation
2002 Oak Street
Myrtle Beach, SC 29577
Bailey Financial Corporation
211 North Broad Street
Clinton, SC 29325
Re: Proposed Merger of Bailey 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 Bailey Financial Corporation ("Bailey"), 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 Bailey, dated September
24, 1998 (the "Agreement"), including the exhibits attached thereto.
We have acted as special counsel to Anchor with respect to the proposed merger
of Bailey 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 Bailey pursuant to the Merger, which
includes the Joint Proxy Statement/Prospectus for the Anchor Special Meeting and
the Bailey 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 Bailey, 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 Bailey 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. As of September 24, 1998, Anchor has
authorized capital stock consisting of 50,000,000 shares of common stock, no par
value ("Anchor Common Stock"), of which 6,477,008 shares of Anchor Common Stock
are issued and outstanding and of which 624,711 shares of Anchor Common Stock
are subject to outstanding options.
<PAGE>
Bailey is a registered bank holding company organized and existing under the
laws of the State of South Carolina. As of September 24, 1998, Bailey has
authorized capital stock consisting of 1,000,000 shares of common stock, par
value $0.01 per share ("Bailey Common Stock"), of which 95,140 shares of Bailey
Common Stock are issued and outstanding.
Bailey executed and delivered to Anchor a stock option grant agreement which
provides that Bailey will grant Anchor an option to purchase approximately
23,637 authorized but unissued shares or up to 19.9% of the issued and
outstanding shares of Bailey common stock if, under certain circumstances, the
Agreement is terminated.
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 Bailey 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. Bailey 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
Bailey Common Stock (par value $0.01 per share) issued and outstanding,
other than shares whose holders have perfected their rights to dissent
from the Merger, if any, shall be converted into and exchanged, as
described in the Agreement, for shares of newly issued Anchor Common
Stock, no par value. Anchor shall survive the Merger and continue to be
governed by the laws of the State of South Carolina. The former
stockholders of Bailey shall become stockholders of Anchor. No
fractional shares of Anchor Common Stock will be issued. The former
Bailey 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 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, by any other authoritative source selected by Anchor). The
Merger shall be consummated pursuant to the terms of the Agreement,
which has been approved and adopted by the Boards of Directors of
Bailey and Anchor.
2. The Merger is subject to various conditions, including, among others,
approval at the Anchor Special Meeting by the requisite vote of
Anchor's stockholders under applicable law and the Articles of
Incorporation and Bylaws of Anchor, approval at the Bailey Special
Meeting by the requisite vote of Bailey's stockholders under applicable
law and the Articles of Incorporation and Bylaws of Bailey, approval by
all applicable regulatory authorities, receipt by Anchor of a letter
dated as of the Effective Date from Anchor's independent accountants to
the effect that the Merger will qualify for pooling-of-interests
accounting treatment, and that no more than 10% of the shares of Bailey
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 Bailey 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
<PAGE>
Anchor Financial Corporation
Bailey Financial Corporation
Page 3
February __,1999
Agreement which represents the entire understanding of Anchor and
Bailey with respect to the Merger.
2. The fair market value of newly issued Anchor Common Stock, no par
value, and other consideration, if any, to be received by Bailey
stockholders will be approximately equal to the fair market value of
the Bailey Common Stock to be surrendered in exchange therefor.
3. After consummation of the Merger transaction, Anchor will continue its
historical business in a substantially unchanged manner.
4. The value of the Continuing Proprietary Interest (as defined below), as
of the Effective Date of the Merger, will be at least 50% of the value,
as of the Effective Date, of the Existing Proprietary Interest (as
defined below) of Bailey. For purpose of this representation:
a. The Continuing Proprietary Interest means all of the shares of
outstanding Bailey Common Stock as of the Effective Date of the Merger,
other than shares of Bailey Common Stock: (i) exchanged in the Merger
for consideration other than Anchor Common Stock (including Bailey
Common Stock surrendered or exchanged for cash or other property by
Dissenters); (ii) acquired in connection with the Merger (other than in
exchange for the Anchor Common Stock) by Anchor or by a person related
to Anchor (within the meaning of ss. 1.368-1(e)(3) of the Income Tax
Regulations); (iii) exchanged in the Merger for Anchor Common Stock
that, pursuant to a plan or intention existing as of the Effective
Date, is either redeemed by Anchor or acquired (other than in exchange
for Anchor Common Stock) by a person related to Anchor (within the
meaning ofss. 1.368-1(e)(3) of the Income Tax Regulations); or (iv)
acquired prior to the Effective Date and in connection with the Merger
by persons related to Bailey (within the meaning of ss.
1.368-1(e)(3)(i)(B) of the Income Tax Regulations), other than in
exchange for Anchor Common Stock or Bailey Common Stock;
b. The Existing Proprietary Interest means: (i) all of the shares of
outstanding Bailey Common Stock as of the Effective Date of the Merger
(including shares acquired prior to the Effective Date and in
connection with the Merger by persons related to Bailey); (ii) shares
of Bailey Common Stock redeemed prior to the Effective Date and in
connection with the Merger; and (iii) the amount of any extraordinary
distributions made by Bailey with respect to its stock prior to the
Effective Date and in connection with the Merger. For purpose of this
representation, extraordinary distributions will not include periodic
dividends that are consistent with Bailey's historic dividend practice;
c. An acquisition of Anchor Common Stock or of Bailey Common Stock by a
person acting as an intermediary for Anchor, Bailey, or a person
related to Anchor or Bailey (within the meaning of ss. 1.368-1(e)(3) of
the Income Tax Regulations) will be treated as made by Anchor, Bailey,
or the related person, respectively; and
d. Any reference to Anchor or Bailey includes a reference to any successor
or predecessor of such corporation to the extent provided in ss.
1.368-1(e)(5) of the Income Tax Regulations.
5. Anchor has no intention or plan to reacquire any of its stock issued in
the Merger. To the best of the knowledge of the management of Anchor,
<PAGE>
Anchor Financial Corporation
Bailey Financial Corporation
Page 4
February __,1999
no person related to Anchor (within the meaning of ss. 1.368-1(e)(3) of
the Income Tax Regulations) and no person acting as an intermediary for
Anchor or such a related person has a plan or intention to acquire any
of the Anchor Common Stock issued in the Merger.
6. Anchor has no plan or intention to sell or otherwise dispose of any of
the assets of Bailey 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.
7. Bailey 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 Bailey Common Stock. The value to
be paid shall be determined in accordance with South Carolina Law.
8. 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.
9. The liabilities of Bailey assumed by Anchor and the liabilities to
which the transferred assets of Bailey are subject were incurred by
Bailey in the ordinary course of its business.
10. Following the Merger, Anchor will continue the historic business of
Bailey or use a significant portion of Bailey's historic business
assets in a business. For purposes of this representation, Anchor will
be deemed to satisfy this requirement if (a) the members of Anchor's
qualified group (as defined in ss.1.368-1(d)(4)(ii) of the Income Tax
Regulations), in the aggregate, continue the historic business of
Bailey or use a significant portion of Bailey's historic business
assets in a business, or (b) the foregoing activities are undertaken by
a partnership in which (i) the members of Anchor's qualified group, in
the aggregate, own at least a 33-1/3% capital and/or profits interest
in the partnership, or (ii) one or more members of the qualified group
has active and substantial management functions as a partner with
respect to the partnership business and the members of the qualified
group, in the aggregate, own at least a 20% capital and/or profits
interest in the partnership.
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 Bailey 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 Bailey each will
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 Bailey or any of its affiliates that was issued,
acquired, or will be settled at a discount.
13. Neither Anchor nor Bailey is an "investment company" as defined in
<PAGE>
Anchor Financial Corporation
Bailey Financial Corporation
Page 5
February __,1999
Section 368(a)(2)(F)(iii) and (iv) of the Code.
14. Bailey 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 Bailey 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 Bailey
will be separate consideration for, or allocable to, any of his or her
shares of Bailey 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 Bailey 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. Bailey 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 Bailey are true and correct at
the time of the consummation of the Merger, our opinion is as follows:
1. Provided the proposed Merger of Bailey 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 Bailey 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 Bailey stockholders upon the
exchange of Bailey Common Stock solely for Anchor Common Stock (Section
354 of the Code).
3. The tax basis of the Anchor Common Stock received by the Bailey
stockholders will be the same as the basis of the Bailey Common Stock
surrendered in exchange therefor (Section 358(a)(1) of the Code).
4. The holding period of the Anchor Common Stock received by the
stockholders of Bailey will include the period during which Bailey
Common Stock surrendered therefor was held, provided the stock of
Bailey is a capital asset in the hands of the stockholders of Bailey on
the date of the exchange (Section 1223(1) of the Code).
5. The payment of cash to Bailey 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
<PAGE>
Anchor Financial Corporation
Bailey Financial Corporation
Page 6
February __,1999
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 Bailey or Anchor receives cash in
exchange for his or her Bailey 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
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,
/s/GERRISH & McCREARY, P.C.
- ---------------------------
GERRISH & McCREARY, P.C.
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 this Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of our report dated February 12, 1998, except as to the poolings of
interests described in Note 2 which are as of August 31, 1998, relating to the
consolidated financial statements of Anchor Financial Corporation, which report
is included on page 1 of Anchor Financial Corporation's Current Report on Form
8-K dated January 29, 1999, and our report dated February 12, 1998, which
appears on page 25 of Anchor Financial Corporation's 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 Prospectus.
/s/PricewaterhouseCoopers LLP
- -----------------------------
PricewaterhouseCoopers LLP
Columbia, South Carolina
February 3, 1999
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report dated January 30, 1998, relating to
the consolidated financial statements of Bailey Financial Corporation as of
December 31, 1997 and 1998 and for each of the years in the three year period
ended December 31, 1997, included herein, and to the reference to our firm under
the heading "Experts" in the Joint Proxy Statement/Prospectus included in the
registration statement.
/s/TOURVILLE, SIMPSON & HENDERSON, L.L.P.
- -----------------------------------------
TOURVILLE, SIMPSON & HENDERSON, L.L.P.
Columbia, South Carolina
February 3, 1999
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of our report dated March 9, 1998, relating to the consolidated financial
statements of M&M Financial Corporation which report is included on page 3 of
Anchor Financial Corporation's Current Report on Form 8-K dated January 29,
1999, and our report dated March 9, 1998, which appears on page ___ of M&M
Financial Corporation's 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.
/s/TOURVILLE, SIMPSON & HENDERSON, L.L.P.
- -----------------------------------------
TOURVILLE, SIMPSON & HENDERSON, L.L.P.
Columbia, South Carolina
February 3, 1999
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Joint Proxy
Statement/Prospectus constituting part of this Registration Statement on Form
S-4 of our report dated January 31, 1998, relating to the consolidated financial
statements of ComSouth Bankshares, Inc., which report is included on page 2 of
Anchor Financial Corporation's Current Report on Form 8-K dated January 29,
1999, and our report dated January 31, 1998, which appears after page 16 of
ComSouth Bankshares,Inc.'s 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.
/s/J.W. HUNT AND COMPANY, LLP
- -----------------------------
J.W. HUNT AND COMPANY, LLP
Columbia, South Carolina
February 3, 1999
EXHIBIT 99.1
Please Mark, Sign, Date and Return This Proxy Promptly
In The Enclosed Postage Paid Envelope
Proxy
This Proxy is Solicited on Behalf of The Board Of Directors
of Bailey Financial Corporation
The undersigned shareholder of Bailey Financial Corporation hereby
appoints ___________________________ and __________________________, 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, par value $.01 per share, of Bailey held of record by the
undersigned on February __, 1999, at the Special Meeting of Shareholders of
Bailey to be held on _________ __, 1999, and at any adjournments or
postponements of that meeting and, at their discretion, the proxies are
authorized to vote on such other business as may properly come before the Bailey
special meeting.
The shares represented by this proxy will be voted as directed on this
proxy card 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 Bailey, or, if a matter is
properly brought before the Bailey 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 Bailey recommends that you vote FOR approval
of the Agreement and Plan of Merger by and between Anchor and Bailey, dated
September 24, 1998.
1. Proposal to approve the Agreement and Plan of Merger, dated September
24, 1998, by and between Anchor and Bailey pursuant to which Bailey
will merge with and into Anchor and each share of Bailey's common stock
(except for dissenting shares and cash that will be paid instead of
fractional shares) will be converted into 16.32 shares of Anchor common
stock, and such other terms and conditions as are set forth in the
agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the Bailey
special meeting or any adjournment or adjournments of that meeting.
<PAGE>
Please date and sign this proxy exactly as the 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
EXHIBIT 99.2
Please Mark, Sign, Date and Return This Proxy Promptly
In The Enclosed Postage Paid Envelope
Proxy
This Proxy is Solicited on Behalf of the Board of Directors
of Anchor Financial Corporation
The undersigned shareholder of Anchor Financial Corporation 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 February 10, 1999, at the Special Meeting of Shareholders of
Anchor to be held on March 23, 1999, and at any adjournments or postponements of
that meeting and, at their discretion, the proxies are authorized to vote on
such other business as may properly come before the Anchor special meeting.
The shares represented by this proxy will be voted as directed on this
proxy card 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, if 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 the Agreement and Plan of Merger by and between Anchor and Bailey, dated
September 24, 1998.
1. Proposal to approve the Agreement and Plan of Merger, dated September
24, 1998, by and between Anchor and Bailey pursuant to which Bailey
will merge with and into Anchor and each share of Bailey's common stock
(except for dissenting shares and cash that will be paid instead of
fractional shares) will be converted into 16.32 shares of Anchor common
stock, and such other terms and conditions as are set forth in the
agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To transact such other business as may properly come before the Anchor
special meeting or any adjournment or adjournments of that meeting.
<PAGE>
Please date and sign this proxy exactly as the 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
