As filed with the Securities and Exchange Commission on November 21, 2000
Registration No. _________
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------
SYNOVUS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
-------------------------------
GEORGIA 6022 58-1134883
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
SUITE 301, ONE ARSENAL PLACE
901 FRONT AVENUE
COLUMBUS, GEORGIA 31901
(706) 644-1930
(Address, including zip code, and telephone number, including area code,of
registrant's principal executive offices)
-------------------------
KATHLEEN MOATES, SENIOR VICE PRESIDENT
AND SENIOR DEPUTY GENERAL COUNSEL
SYNOVUS FINANCIAL CORP.
SUITE 202, ONE ARSENAL PLACE
901 FRONT AVENUE
COLUMBUS, GEORGIA 31901
(706) 649-4818
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. ____
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. _____
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Title Of Each Class Proposed Maximum Proposed Maximum Amount Of
Of Securities To Amount To Be Offering Price Aggregate Registration
Be Registered Registered Per Share Offering Price Fee
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value per share 3,295,392<F1> <F2> $57,257,436<F3> $15,116
Common Stock Rights<F4> 3,295,392<F4> <F4> <F4> <F4>
--------------------------------------------------------------------------------------------------------------------
<FN>
<F1> This amount is based upon the number of shares of Synovus common stock
anticipated to be issued upon the merger of Carolina Southern Bank with and
into The National Bank of South Carolina, a wholly owned subsidiary of
Synovus Financial Corp.
<F2> Not applicable.
<F3> Determined pursuant to Rule 457(f)(1) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee. Based
upon the average of the high ($17.375) and low ($17.375) sales price of
common stock of Carolina Southern Bank on November 17, 2000 as reported on
the Nasdaq SmallCap Market.
<F4> The Common Stock Rights are attached to and trade with the common stock of
Synovus Financial Corp. The value, if any, attributable to the rights of
Synovus Financial Corp. is reflected in the market price of the common
stock of Synovus Financial Corp.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Carolina Southern Bank
150 East Henry Street
Spartanburg, South Carolina 29306
SPECIAL MEETING OF SHAREHOLDERS
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
You are cordially invited to attend a special meeting of shareholders
of Carolina Southern to be held in the James Barrett Community Room at the Main
Branch of the Spartanburg County Library at 151 South Church Street,
Spartanburg, South Carolina, on _____, January __, 2001, at 10:00 a.m. local
time.
At the special meeting you will be asked to vote upon a proposal to
approve the acquisition of Carolina Southern by Synovus Financial Corp. by means
of the merger of Carolina Southern with and into The National Bank of South
Carolina, a wholly owned subsidiary of Synovus based in Columbia, South
Carolina.
In the merger, each share of Carolina Southern common stock will
convert into .8514 shares of Synovus common stock. Because the price of Synovus'
common stock fluctuates, the value of the securities you will receive will
fluctuate on a day to day basis. In converting your shares you will generally
not recognize a gain or a loss for tax purposes.
Synovus common stock is traded on the New York Stock Exchange and
Synovus has registered 3,295,392 shares of its common stock for issuance in
connection with the merger.
Carolina Southern has received from its financial advisors, The Carson
Medlin Company, an opinion that the terms of the transaction are fair from a
financial point of view to Carolina Southern's shareholders.
Please read the "Risk Factors" section beginning on page _ of this
document, which describes various risks you should consider in deciding whether
to approve the merger.
The merger cannot be completed unless holders of a majority of the
outstanding shares of Carolina Southern common stock approve it. The board of
directors urges you to consider the enclosed material carefully and recommends
that you vote "FOR" approval of the merger.
Your vote is very important. Whether or not you plan to attend the
special meeting, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you fail to return your card or vote in person,
the effect will be a vote against the merger.
On behalf of the Board of Directors of Carolina Southern, we urge you
to vote "FOR" the merger.
/s/Ernest R. Kluttz
Ernest R. Kluttz
Chairman of the Board
Carolina Southern Bank
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved of the Synovus common stock to be issued in the merger
or determined if this prospectus is accurate or adequate. Any representation to
the contrary is a criminal offense.
--------------------------------------------------------------------------------
The date of this document is December __, 2000, and it is first being
mailed to Carolina Southern shareholders on or about December __, 2000.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates important business and financial information
about Synovus from documents that are not included in or delivered with this
document. The information is available to you without charge upon your written
or oral request. You can obtain documents incorporated by reference in this
document, other than certain exhibits to those documents, by requesting them in
writing or by telephone from Synovus at the following address:
Synovus Financial Corp.
901 Front Avenue, Suite 301
Columbus, Georgia 31901
Attn: G. Sanders Griffith, III
Senior Executive Vice President,
General Counsel & Secretary
Telephone: (706) 649-2267
If you would like to request documents, please do so by _______, 2000
in order to receive them before the special meeting.
Please see "Where You Can Find More Information" on page __ for further
information.
<PAGE>
CAROLINA SOUTHERN BANK
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on January ____, 2001
To Our Shareholders:
Notice is hereby given that a special meeting of the shareholders of
Carolina Southern Bank will be held in the James Barrett Community Room at the
Main Branch of the Spartanburg County Library at 151 South Church Street,
Spartanburg, South Carolina, on _____, January __, 2001, at 10:00 a.m. local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the merger
agreement, dated as of September 18, 2000, by and among Synovus
Financial Corp., Carolina Southern Bank and The National Bank of South
Carolina. Under the terms of this merger agreement, Carolina Southern
Bank will be merged with and into The National Bank of South Carolina,
with The National Bank of South Carolina as the surviving bank, and
Carolina Southern shareholders will receive shares of Synovus common
stock, as more fully described in the accompanying proxy
statement/prospectus dated December ___ , 2000.
2. To consider and vote upon such other matters as may properly come
before the special meeting or any adjournments of the special meeting.
Only shareholders of record on November 24, 2000 are entitled to
receive notice of the special meeting and to vote at the special meeting.
The merger is described in the accompanying proxy statement/prospectus,
which you are urged to read carefully. A copy of the merger agreement is
attached as Appendix "A" to the accompanying proxy statement/prospectus.
Shareholders of Carolina Southern have the right to dissent from the
merger and receive payment in cash of the fair value for their shares of
Carolina Southern common stock upon compliance with the procedures set forth in
Chapter 13 of the South Carolina Business Corporation Act of 1988, a copy of
which is attached as Appendix "B" to the accompanying proxy
statement/prospectus.
By Order of the Board of Directors
/s/John S. Poole
John S. Poole
President and Chief Executive Officer
Spartanburg, South Carolina
December __, 2000
Your vote is important.
Please mark, date, sign and promptly return the enclosed proxy card so
that your shares may be voted in accordance with your wishes and so that a
quorum may be assured. The giving of a proxy does not affect your right to vote
in person if you attend the special meeting.
The Board of Directors of Carolina Southern Bank Unanimously Recommends
that You Vote in Favor of the Merger.
Do Not Send Stock Certificates With Your Proxy Card.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Caption Page
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...........................................................................1
WHO CAN HELP ANSWER YOUR QUESTIONS...............................................................................2
SUMMARY..........................................................................................................3
The Companies...........................................................................................3
The Merger..............................................................................................3
Carolina Southern's Reasons for the Merger..............................................................3
Opinion of Financial Advisor............................................................................4
Carolina Southern Special Shareholders' Meeting.........................................................4
Conditions to the Merger................................................................................4
Accounting Treatment as Additional Condition to the Merger..............................................5
Tax Opinion.............................................................................................5
Effective Date of Merger................................................................................5
Dissenters' Rights......................................................................................5
Interests of Certain Persons in the Merger..............................................................5
Termination and Termination Fee.........................................................................5
No Solicitation; Board Action...........................................................................6
Effect of Merger on Rights of Carolina Southern Shareholders............................................6
Comparative Stock Prices and Dividends..................................................................7
UNAUDITED COMPARATIVE PER SHARE AND SELECTED FINANCIAL DATA......................................................8
RISK FACTORS.....................................................................................................12
Synovus and Carolina Southern are Subject to Risks Arising from
Conditions Beyond Their Control.......................................................................12
THE SPECIAL MEETING..............................................................................................13
Date, Time and Place....................................................................................13
Matters to Be Considered at the Special Meeting.........................................................13
Record Date; Stock Entitled to Vote; Quorum.............................................................13
Vote Required...........................................................................................13
Stock Ownership of Carolina Southern Directors, Management and Others...................................13
Voting of Proxies.......................................................................................13
Revoking Proxies........................................................................................14
Proxy Solicitation......................................................................................14
Recommendation of the Carolina Southern Board...........................................................15
THE MERGER.......................................................................................................15
Terms of the Merger.....................................................................................15
Background of the Merger................................................................................16
Recommendation of Carolina Southern Board and Reasons for the Merger....................................17
Opinion of Financial Advisor............................................................................18
Conditions to the Merger................................................................................24
No Solicitation.........................................................................................27
Conduct of Business of Carolina Southern Pending the Merger.............................................27
Regulatory Approvals....................................................................................28
Waiver and Amendment....................................................................................28
Termination and Termination Fee.........................................................................28
Interests of Carolina Southern's Directors and Officers in the Merger...................................29
Employee Benefits.......................................................................................30
Tax Opinion.............................................................................................30
Accounting Treatment....................................................................................31
Expenses................................................................................................31
New York Stock Exchange Listing.........................................................................31
Resales of Synovus Common Stock.........................................................................31
DESCRIPTION OF STOCK AND EFFECT OF MERGER ON RIGHTS
OF CAROLINA SOUTHERN SHAREHOLDERS..............................................................................32
Synovus Common Stock....................................................................................33
Carolina Southern Common Stock..........................................................................38
DISSENTERS' RIGHTS...............................................................................................41
DESCRIPTION OF SYNOVUS...........................................................................................43
Business................................................................................................43
Management and Additional Information...................................................................44
REGULATORY MATTERS...............................................................................................44
General.................................................................................................44
Dividends...............................................................................................44
Capital Requirements....................................................................................45
Commitments to Subsidiary Banks.........................................................................46
Prompt Corrective Action................................................................................46
Safety and Soundness Standards..........................................................................47
Depositor Preference Statute............................................................................48
Recent Legislation......................................................................................48
Pooling of Interests Accounting.........................................................................49
DESCRIPTION OF CAROLINA SOUTHERN.................................................................................49
Business................................................................................................49
Principal Shareholders..................................................................................49
Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................51
LEGAL MATTERS....................................................................................................61
EXPERTS..........................................................................................................61
OTHER MATTERS....................................................................................................61
SHAREHOLDER PROPOSALS............................................................................................61
WHERE YOU CAN FIND MORE INFORMATION..............................................................................62
INDEX TO FINANCIAL STATEMENTS....................................................................................64
APPENDIX "A" - MERGER AGREEMENT
APPENDIX "B" - SECTION 33-13-101 THROUGH 33-13-310 OF THE SOUTH CAROLINA
BUSINESS CORPORATION ACT OF 1988
APPENDIX "C" - FAIRNESS OPINION
APPENDIX "D" - TAX OPINION
</TABLE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why is the merger being proposed?
A: Carolina Southern's board of directors believes the merger is in the
best interests of Carolina Southern and will provide significant
benefits to its shareholders. Synovus' board of directors believes
that the acquisition of Carolina Southern will offer Synovus the
opportunity to further expand its banking operations in the state of
South Carolina. To review the background and reasons for the merger in
greater detail, see pages __ through __.
Q: What will I receive in the merger?
A: Carolina Southern shareholders will receive .8514 shares of Synovus
common stock for each share of Carolina Southern common stock they
hold. Because the market price of Synovus common stock fluctuates, the
value of securities you will receive will fluctuate on a day to day
basis.
Synovus will not issue fractional shares in the merger.
Instead, Carolina Southern shareholders will receive a cash payment,
without interest, for the value of any fraction of a share of Synovus
common stock that they would otherwise be entitled to receive based
upon the closing price of Synovus common stock on the fifth business
day prior to the effective date of the merger.
Q: What risks should I consider?
A: You should review "Risk Factors" beginning on page _.
Q: What happens as the market price of Synovus common stock fluctuates?
A: Since the market price of Synovus common stock fluctuates, at the time
you vote you will not know what the shares will be worth when
issued in the merger.
Q: When is the merger expected to be completed?
A: We are working to complete the merger during the first quarter of 2001.
Q: What are the tax consequences of the merger to me?
A: We expect that as a result of the merger Carolina Southern
shareholders generally will not recognize gain or loss for United
States federal income tax purposes. Carolina Southern shareholders
will, however, recognize gain or loss on cash received for fractional
shares. To review the tax consequences to Carolina Southern
shareholders in greater detail, see page __.
Your tax consequences will depend on your personal situation.
You should consult your tax advisor for a full understanding of the tax
consequences of the merger to you.
Q: What am I being asked to vote upon and what is the required shareholder
vote?
A: You are being asked to approve the merger of Carolina Southern into
The National Bank of South Carolina, a wholly owned subsidiary of
Synovus. Following the merger, it is anticipated that the former
offices of Carolina Southern will be operated as branches of The
National Bank of South Carolina. Approvalof the proposal requires the
affirmative vote of a majority of the outstanding common stock of
Carolina Southern. Carolina Southern's board of directors believes
that your vote is important and encourages you to vote at the special
meeting.The Carolina Southern board of directors has unanimously
approved and adopted the merger agreement and recommends that Carolina
Southern shareholders vote FOR the approval of the merger.
1
Q: What should I do now?
A: Carolina Southern shareholders should read this document carefully and
determine whether they desire to receive the Synovus common stock, or
whether they desire to exercise their dissenters' rights under South
Carolina law.
Q: Should I send in my stock certificates now?
A: No. If the merger is completed, we will send you written instructions
for exchanging your Carolina Southern common stock certificates for
Synovus common stock certificates.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you want additional copies of this document, or if you want to ask
any questions about the merger, you should contact:
Carolina Southern Bank
150 East Henry Street
Spartanburg, South Carolina 29306
Attention: Thomas H. Lyles, Executive Vice President and Secretary
Telephone: (864) 582-1500
2
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read this entire document carefully, as well as
the additional documents to which we refer you, including the merger agreement.
The Companies (page __)
Synovus Financial Corp.
Suite 301, One Arsenal Place
901 Front Avenue
Columbus, Georgia 31901
(706) 644-1930
Synovus Financial Corp., a Georgia corporation, is a financial services
company whose stock is traded on the New York Stock Exchange under the symbol
"SNV." Synovus is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended, and became a financial holding company in April
2000. As of September 30, 2000, Synovus had total assets of $14.1 billion, total
deposits of $10.4 billion, shareholders' equity of $1.3 billion and net loans of
$10.5 billion. Synovus and its 38 commercial banking affiliates, including The
National Bank of South Carolina which operates 41 branches in 23 communities
across South Carolina, presently provide banking services at approximately 200
offices located in the States of Georgia, Alabama, Florida and South Carolina.
Synovus also provides a variety of other financial services including mortgage
banking, securities brokerage, insurance agency, equipment leasing and trust
services. In addition, Synovus holds an 80.8% interest in Total System Services,
Inc. Total System Services, Inc. is an information technology processor of
credit, debit, commercial and retail cards whose stock is traded on the New York
Stock Exchange.
Carolina Southern Bank
150 East Henry Street
Spartanburg, South Carolina 29306
(864)582-1500
Carolina Southern Bank is a South Carolina state-chartered commercial
bank offering various financial services through three locations in Spartanburg,
South Carolina and one location in Inman, South Carolina. As of September 30,
2000, Carolina Southern had total assets of $209.8 million, total deposits of
$176.2 million, shareholders' equity of $23.9 million and net loans of $137.4
million.
The Merger (page __)
If the merger is approved by Carolina Southern's shareholders, Carolina
Southern will be merged with and into The National Bank of South Carolina, a
national banking association and a wholly owned subsidiary of Synovus. The
merger requires the approval of the holders of a majority of the Carolina
Southern common stock outstanding on the record date.
We have attached the merger agreement (Appendix "A") at the back of
this document. We encourage you to read the merger agreement, as it is the legal
document that governs the merger.
Carolina Southern's Reasons for the Merger (page __)
In reaching its decision to approve and recommend approval of the
merger agreement, the Carolina Southern board of directors considered a number
of factors, including the following:
. the value of the consideration to be received by Carolina Southern
shareholders relative to the book value and earnings per share of
Carolina Southern common stock;
3
. information concerning the financial condition, results of operations
and business prospects of Synovus;
. the financial terms of recent business combinations in the financial
services industry and a comparison of the multiples of selected
combinations with the terms of the proposed transaction with Synovus
and the potential future impact of a change in the rules relating to
pooling of interests accounting;
. the alternatives to the merger, including remaining an independent
institution;
. the competitive and regulatory environmentfor financial institutions
generally;
. the fact that the merger will enable Carolina Southern shareholders to
exchange their shares of Carolina Southern common stock, in a tax-free
transaction, for shares of common stock of a regional company, the
stock of which is widely held and actively traded; and
. the opinion of The Carson Medlin Company that the consideration to be
received by Carolina Southern shareholders as a result of the merger
is fair from a financial point of view.
Opinion of Financial Advisor (page __)
In deciding to approve the merger, Carolina Southern's board of
directors considered, among other factors, results of a strategic evaluation
delivered to the company by The Carson Medlin Company in July 2000. The Carson
Medlin Company subsequently issued an opinion stating that, as of _______, 2000
and subject to the assumptions and qualifications stated in the opinion, the
exchange ratio in the merger was fair from a financial point of view to Carolina
Southern's shareholders. A copy of the opinion is attached to this document as
Appendix "C." We urge you to read this opinion in its entirety.
Carolina Southern Special Shareholders' Meeting (page __)
The special meeting will be held in the James Barrett Community Room at
the Main Branch of the Spartanburg County Library at 151 South Church Street,
Spartanburg, South Carolina, on _____, January __, 2001, at 10:00 a.m. local
time.
Conditions to the Merger (page __)
Consummation of the merger is subject to various conditions,including:
. receipt of Carolina Southern shareholder approval;
. receipt of the necessary regulatory approvals;
. receipt of an opinion from KPMG LLP regarding tax aspects of the
merger;
. Synovus' determination that the merger qualifies for pooling of
interests accounting treatment; and
. satisfaction of other customary closing conditions.
The regulatory approvals necessary to consummate the merger include the
approval of the Comptroller of the Currency, the Georgia Department of Banking
and Finance and the South Carolina State Board of Financial Institutions. The
merger has been approved by the Georgia Banking Department but has not yet been
approved by the other regulatory agencies.
4
Accounting Treatment as Additional Condition to the Merger (page __)
We expect the merger to qualify as a "pooling of interests," which means
that we will treat our companies as if they had always been one company for
accounting and financial reporting purposes. Both Synovus and Carolina Southern
have the right not to complete the merger if Synovus does not reasonably
conclude that the merger will qualify as a "pooling of interests."
Tax Opinion (page __)
The merger is structured so that Carolina Southern shareholders will
not recognize gain or loss for federal income tax purposes for the whole shares
of Synovus common stock they receive in the merger. Synovus' independent public
accountants, KPMG LLP, has issued an opinion to this effect, which is attached
to this document as Appendix "D." Carolina Southern shareholders will be taxed
on cash received instead of any fractional share of Synovus common stock. Tax
matters are complicated, and tax results may vary among shareholders. We urge
you to contact your own tax advisor to understand fully how the merger will
affect you.
Effective Date of Merger (page __)
The merger will become effective when all of the conditions to the
merger have been satisfied and a certificate of merger is issued by the Office
of the Comptroller of the Currency. Subject to the conditions specified in the
merger agreement, the parties anticipate that the merger will become effective
during the first quarter of 2001. There can be no assurances, however, as to
whether or when the merger will occur.
Dissenters' Rights (pages __ and __)
Holders of Carolina Southern common stock are entitled to dissent from
the merger under South Carolina law and, if the merger is consummated, to
receive payment in cash for the fair value of their shares, upon compliance with
the provisions of Chapter 13 of the South Carolina Business Corporation Act of
1988. To preserve these rights, a shareholder must not vote in favor of the
merger and must deliver to Carolina Southern a written notice of intent to
demand payment for such shareholder's shares before the vote on the merger at
the special meeting of Carolina Southern's shareholders. The delivery of a proxy
or vote against the merger is not considered such a notice. Failure to follow
required procedures may result in the loss of statutory dissenters' rights.
Interests of Certain Persons in the Merger (page __)
Certain executive officers and directors of Carolina Southern have
interests in the merger that are different from your interests. John S. Poole,
President and Chief Executive Officer of Carolina Southern, and Thomas H. Lyles,
Executive Vice President and Chief Financial Officer of Carolina Southern, will
enter into employment agreements with Synovus providing for their continued
employment as an Executive Vice President and Senior Vice President of The
National Bank of South Carolina, respectively, for three years following the
merger. In addition, Ernest R. Kluttz, Chairman of the Board of Carolina
Southern, will become a member of the Board of Directors of The National Bank of
South Carolina. The Board of Directors of Carolina Southern was aware of these
interests and took them into account in approving the merger agreement.
Termination and Termination Fee (page __)
Termination. Either Carolina Southern or Synovus may terminate the
merger agreement under the following circumstances, among others:
. all parties consent;
. the merger is not completed before April 30, 2001 unless the failure
to consummate by this time is due to a breach of the merger agreement
by the party seeking to terminate; or
5
. failure of any of the conditions precedent set forth in the merger
agreement unless the failure to meet the conditions precedent is due
to a breach of the merger agreement by the party seeking to terminate.
Synovus may terminate the merger agreement under the following
additional circumstances, among others:
. if the average closing price of Synovus' common stock during any 20
consecutive day trading period ending on the fifth business day before
the special meeting is greater than $23.00;
. if Carolina Southern breaches its no solicitation covenant resulting
in a competing acquisition proposal; or
. if the Carolina Southern board of directors does not recommend to the
shareholders that the merger be approved.
Carolina Southern may terminate the merger agreement under the
following additional circumstances, among others:
. if the average closing price of Synovus' common stock during any 20
consecutive day trading period ending on the fifth business day before
the special meeting is less than $16.00 ; or
. if the Carolina Southern board of directors shall have not recommended
or shall have withdrawn or modified its recommendation or approval of
the merger if the board in good faith believes that its failure to do
so would constitute a breach of the fiduciary duty of the board.
Termination Fee. The merger agreement provides that Carolina Southern
must pay Synovus a termination fee of $500,000, plus actual out of pocket
expenses up to $250,000, if the agreement is terminated because:
. Carolina Southern terminates the merger agreement to negotiate another
acquisition proposal;
. another entity acquires or is granted an option to acquire a
significant portion of the equity securities of Carolina Southern;
. Carolina Southern enters into an agreement with another entity to
acquire all or a significant portion of the assets or equity of
Carolina Southern; or
. Carolina Southern breaches its no solicitation covenant and it results
in a competing acquisition proposal or Carolina Southern does not
recommend to its shareholders that they approve the merger agreement.
No Solicitation; Board Action (page __)
Carolina Southern has agreed that until the completion of the merger,
Carolina Southern will not directly or indirectly take any specified actions
with respect to any acquisition proposal.
However, notwithstanding these restrictions, Carolina Southern may, if
necessary to comply with its fiduciary obligations and subject to other
qualifications and conditions, furnish information and engage in discussions or
negotiations in response to unsolicited acquisition proposals.
Effect of Merger on Rights of Carolina Southern Shareholders (page __)
Carolina Southern is a South Carolina banking corporation and,
therefore, the rights of shareholders of Carolina Southern currently are
determined by reference to the South Carolina banking and corporate law and
Carolina Southern's Articles of Incorporation and bylaws. At the effective time
of the merger, shareholders of
6
Carolina Southern will become shareholders of Synovus, which is a Georgia
corporation. As a result, their rights as shareholders of Synovus will then be
determined by reference to the Georgia Business Corporation Code and Synovus'
Articles of Incorporation and bylaws. The laws of these jurisdictions vary.
There are also various differences between Synovus' Articles of Incorporation
and bylaws and Carolina Southern's Articles of Incorporation and bylaws.
Comparative Stock Prices and Dividends
Synovus common stock is listed on the NYSE under the symbol "SNV" and
Carolina Southern common stock is included on the Nasdaq SmallCap Market under
the symbol "CSBK." The table below shows the high and low closing prices of
Synovus common stock and Carolina Southern common stock and cash dividends
declared per share for the last two fiscal years plus the interim period.
<PAGE>
<TABLE>
<CAPTION>
Synovus Carolina Southern
------- ----------------
Cash Cash
High Low Dividends High Low Dividends
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31, 2000 $19.19 $14.50 $ .1100 $14.50 $10.50 $.06
June 30, 2000 20.94 17.56 .1100 13.50 11.13 .06
September 30, 2000 21.44 17.94 .1100 17.13 11.00 .06
Quarter Ended
March 31, 1999 25.00 20.50 .0900 17.14 12.50 .05
June 30, 1999 23.56 19.13 .0900 16.91 12.86 .05
September 30, 1999 20.31 17.50 .0900 16.85 13.10 .05
December 31, 1999 22.13 18.44 .0900 15.18 12.38 .06
For year 1999 25.00 17.50 .3600 17.14 12.38 .21
Quarter Ended
March 31, 1998 25.81 20.75 .0733 23.12 19.65 -
June 30, 1998 25.81 21.94 .0733 23.12 19.88 -
September 30, 1998 25.00 18.06 .0733 21.50 17.62 .02
December 31, 1998 24.06 20.19 .0733 18.10 15.24 .05
For year 1998 25.81 18.06 .2932 23.12 15.24 .07
</TABLE>
On November 24, 2000, there were __ holders of record of Carolina Southern
common stock.
In the table below it is assumed that the merger had been completed on
September 18, 2000, the last full trading day before the public announcement of
the proposed merger, and on ________, 2000, the last day for which such
information could be calculated before the date of this document. The equivalent
price per share data for Carolina Southern common stock has been determined by
multiplying the last reported sale price of one share of Synovus common stock on
each of these dates by the exchange ratio of .8514.
Equivalent Price
Per Share of
Synovus Carolina Southern Carolina Southern
Date Common Stock Common Stock Common Stock
---- ------------ ----------------- -----------------
September 18, 2000 $20.31 $13.50 $17.29
$ $ $
7
UNAUDITED COMPARATIVE PER SHARE AND SELECTED FINANCIAL DATA
The following tables show summary historical financial data for Synovus
and Carolina Southern and also show similar information reflecting the merger of
Synovus and Carolina Southern. This information is referred to as pro forma
information. In presenting the comparative pro forma information for certain
time periods, it was assumed that Synovus and Carolina Southern had been merged
throughout those periods. The following tables show information about Synovus'
and Carolina Southern's net income per diluted share, dividends per share and
book value per share, and similar pro forma information.
The tables were prepared assuming that Synovus will treat Carolina
Southern as if it had always been combined with Synovus for accounting and
financial reporting purposes, a method known as pooling of interests accounting.
The information listed as pro forma equivalent for Carolina Southern was
computed by multiplying the pro forma amounts by the exchange ratio of .8514
shares of Synovus common stock. This information reflects the fact that Carolina
Southern shareholders will receive less than one share of Synovus common stock
for each share of Carolina Southern common stock they own before the merger.
The pro forma information, while helpful in illustrating the financial
characteristics of the continuation of Synovus and Carolina Southern under one
set of assumptions, does not attempt to predict or suggest future results. The
pro forma information also does not attempt to show how Synovus and Carolina
Southern would actually have performed had the companies been combined
throughout these periods. All adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results of the unaudited
historical interim periods have been included.
The information in the following tables was derived from historical
financial information contained in annual and quarterly reports and other
information Synovus has filed with the SEC and the historical financial
information for Carolina Southern included in this document. When you read the
summary financial information provided in the following tables, you should also
read the historical financial information provided in this document, which you
can find beginning on page F-1, as well as the historical financial information
in the other documents to which Synovus refers. SEE "WHERE YOU CAN FIND MORE
INFORMATION" on page ___.
[Rest of page intentionally left blank]
8
The following table reflects the issuance of 3,125,112 shares of
Synovus common stock pursuant to the exchange ratio of .8514 shares of Synovus
common stock for each share of Carolina Southern common stock currently
outstanding.
<TABLE>
<CAPTION>
Nine Months
Years Ended Ended
December 31, September
1997 1998 1999 30, 2000
------------ -------- --------- ----------
<S> <C> <C> <C> <C>
Net Income per Common Share - Basic
Historical:
Synovus....................................................... $ 0.63 0.72 0.80 0.66
Carolina Southern............................................. 0.60 0.67 0.71 0.51
Pro forma combined..................................................... 0.64 0.72 0.80 0.66
Pro forma equivalent per Carolina Southern common share <F1>........... 0.54 0.61 0.69 0.56
Net Income per Common Share - Diluted
Historical:
Synovus....................................................... 0.63 0.71 0.80 0.66
Carolina Southern............................................. 0.58 0.65 0.70 0.51
Pro forma combined..................................................... 0.63 0.71 0.80 0.66
Pro forma equivalent per Carolina Southern common share <F1>........... 0.53 0.60 0.68 0.56
Cash Dividends Declared per Common Share
Historical:
Synovus....................................................... 0.24 0.29 0.36 0.33
Carolina Southern............................................. - 0.07 0.21 0.18
Pro forma equivalent per Carolina Southern common share <F2>........... 0.20 0.25 0.31 0.28
Book Values per Common Share at Period End
Synovus....................................................... 3.99 4.35
Carolina Southern............................................. 6.12 6.52
Pro forma combined..................................................... 4.03 4.39
Pro forma equivalent per Carolina Southern common share <F1>........... 3.43 3.73
--------------------------------------------------------------------
<FN>
<F1>Determined by multiplying the pro forma amounts by the exchange ratio of .8514:1.
<F2>Determined by multiplying the Synovus historical cash dividends declared
per share by the exchange ratio of .8514:1.
</FN>
</TABLE>
9
Synovus Financial Corp.
Selected Financial Data
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30
------------------------------------------------------------------------------------------------------------------------------------
1995 1996<F2> 1997 1998 1999 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues <F1>.................$ 702,412 $ 821,793 $ 927,398 $ 1,035,979 $1,251,857 $ 911,429 $1,029,198
Net interest income................. 352,355 386,350 425,920 455,065 513,294 376,998 418,790
Provision for losses on loans...... 26,841 32,411 32,485 26,882 34,007 25,343 33,245
Non-interest income................. 350,057 435,443 501,412 582,213 739,765 535,306 610,478
Non-interest expense................ 460,367 563,496 627,834 706,371 869,737 636,601 701,390
Net income.......................... 118,338 144,174 170,829 196,465 225,307 162,051 187,875
Per Share Data:
Net income - basic.................. 0.45 0.54 0.63 0.72 0.80 0.58 0.66
Net income - diluted................ 0.44 0.53 0.63 0.71 0.80 0.57 0.66
Cash dividends declared............. 0.16 0.19 0.24 0.29 0.36 0.27 0.33
Book value.......................... 2.68 3.02 3.50 3.99 4.35 4.24 4.73
Balance Sheet Data:
Investment securities............... 1,527,039 1,685,672 1,702,681 1,877,473 1,993,957 1,992,239 2,044,152
Loans, net of unearned
income............................ 5,620,384 6,188,882 6,752,154 7,603,605 9,068,239 8,599,672 10,454,999
Deposits............................ 6,900,943 7,395,732 7,928,211 8,797,412 9,440,087 9,275,346 10,423,641
Long-term debt...................... 109,299 100,415 131,492 131,802 318,620 228,790 667,387
Shareholders' equity................ 718,408 812,296 937,222 1,111,917 1,226,669 1,185,845 1,343,540
Average total shareholders'
equity............................ 662,458 757,302 865,232 1,013,334 1,165,426 1,153,361 1,282,784
Average total assets................ 7,692,029 8,355,951 9,067,237 9,827,925 11,438,696 11,186,174 13,211,710
Performance Ratios and Other
Data:
Return on average assets............ 1.54% 1.73% 1.88% 2.00% 1.97% 1.94% 1.90%
Return on average equity............ 17.86 19.04 19.74 19.39 19.33 18.79 19.56
Net interest margin................. 5.15 5.19 5.28 5.23 5.07 5.09 4.76
Efficiency ratio <F3>............... 60.95 58.36 56.45 58.01 58.15 58.32 56.67
Dividend payout ratio <F4>.......... 36.69 36.62 38.10 41.52 43.78 45.21 50.08
Average shareholders' equity
to average assets................. 8.16 9.06 9.54 10.31 10.19 10.31 9.71
Average shares outstanding -
basic............................. 265,546 268,271 269,285 272,416 280,016 279,381 283,260
Average shares outstanding -
diluted........................... 268,395 272,594 273,152 277,223 283,355 282,670 286,319
-----------------
<FN>
<F1> Consists of net interest income and non-interest income, excluding securities gains (losses).
<F2> The selected financial data for 1996 reflects the impact of a special assessment by the Federal Deposit
Insurance Corporation. Without the special assessment, net income would have been $146,970,000 and diluted
net income per share would have been $.57.
<F3> For the banking operations segment.
<F4> Determined by dividing dividends declared (excluding pooled subsidiaries) by consolidated net income.
</FN>
</TABLE>
10
<TABLE>
<CAPTION>
Carolina Southern Bank
Selected Financial Data
Nine Months
Year Ended December 31, Ended September 30
------------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999 1999 2000
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Total revenues ..................... $ 5,326 $ 5,936 $ 6,746 $ 7,835 $ 8,453 $ 6,196 $ 6,497
Net interest income................. 5,088 5,617 6,285 7,125 7,776 5,699 6,016
Provision for losses on loans....... 224 148 117 145 92 62 195
Non-interest income................. 238 319 461 777 690 510 438
Non-interest expense................ 3,051 3,174 3,710 4,516 4,908 3,713 3,803
Net income.......................... 1,412 1,816 2,116 2,406 2,579 1,819 1,865
Per Share Data:
Net income - basic.................. 0.41 0.52 0.60 0.67 0.71 0.50 0.51
Net income - diluted................ 0.39 0.50 0.58 0.65 0.70 0.49 0.51
Cash dividends declared............. 0.16 0.19 0.24 0.29 0.36 0.27 0.33
Book value.......................... 2.68 3.02 3.50 3.99 4.35 4.24 4.73
Balance Sheet Data:
Investment securities............... 23,040 32,805 43,684 53,125 52,075 50,371 53,696
Loans, net of unearned
income............................ 89,369 102,897 114,742 125,048 140,422 135,910 139,039
Deposits............................ 116,803 129,194 144,172 166,178 176,076 175,687 176,200
Long-term debt...................... 0 0 0 0 0 0 0
Shareholders' equity................ 14,199 16,016 18,404 20,802 22,410 21,902 23,935
Average total shareholders'
equity............................ 13,476 15,173 17,311 19,863 21,796 21,607 23,338
Average total assets................ 119,429 139,369 160,105 180,891 198,452 196,101 207,995
Performance Ratios and Other
Data:
Return on average assets............ 1.18% 1.30% 1.32% 1.33% 1.30% 1.24% 1.20%
Return on average equity............ 10.50 11.97 12.22 12.11 11.83 11.22 10.66
Net interest margin................. 4.71 4.52 4.48 4.53 4.53 4.45 4.45
Efficiency ratio ................... 56.12 51.84 52.69 53.94 53.90 55.26 53.05
Dividend payout ratio .............. 0.00 0.00 0.00 9.85 28.81 28.59 35.44
Average shareholders' equity
to average assets................. 11.28 10.87 10.81 10.98 10.98 11.02 11.22
Average shares outstanding
basic............................ 3,486 3,502 3,534 3,580 3,638 3,642 3,672
Average shares outstanding
diluted.......................... 3,651 3,612 3,655 3,687 3,683 3,689 3,690
</TABLE>
11
RISK FACTORS
Carolina Southern shareholders should consider carefully the following
factors, in addition to those factors discussed in the documents that Synovus
has filed with the SEC which we have incorporated by reference into this
document, and the other information included in this prospectus, before voting
on the proposal to approve the merger.
Synovus and Carolina Southern are Subject to Risks Arising from Conditions
Beyond Their Control
Synovus and Carolina Southern make forward-looking statements in this
document and in their public documents, that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our operations. Also, when we use any of
the words "believes," "expects," "anticipates" or similar expressions, we are
making forward-looking statements. Many possible events or factors could affect
the financial results and performance of each of our companies. This could cause
results or performances to differ materially from those expressed in our
forward-looking statements. The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for such forward-looking statements. In order to comply
with the terms of the safe harbor, we note that a variety of factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in such forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of our businesses include, but are not limited to, those described
below. You should consider these risks when you vote on the merger. These
possible events or factors include the following:
. our cost savings from the merger are less than we expect, or we are
unable to obtain those cost savings as soon as we expect;
. costs or difficulties relating to the integration of Carolina Southern
may be greater than expected;
. we lose more deposits, customers, or business than we expect;
. competition in the banking industry increases significantly;
. our integration costs are higher than we expect or our operating costs
after the merger are greater than we expect;
. the merger does not generate the synergies we expect;
. technological changes and systems integration are harder to make or
more expensive than we expect;
. changes in the interest rate environment reduce our margins;
. general economic or business conditions are worse than we expect;
. legislative or regulatory changes occur which adversely affect our
business;
. changes occur in business conditions and inflation; and
. changes occur in the securities markets.
Management of each of Synovus and Carolina Southern believes the
forward-looking statements about its company are reasonable; however, you should
not place undue reliance on them. Forward-looking statements are not guarantees
of performance. They involve risks, uncertainties and assumptions. The future
results and shareholder values of Synovus following completion of the merger may
differ materially from those expressed or implied in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond Synovus' and Carolina Southern's ability to control or predict.
12
THE SPECIAL MEETING
We are furnishing this document to shareholders of Carolina Southern in
connection with the solicitation of proxies by the board of directors of
Carolina Southern for use at the special meeting of its shareholders.
Date, Time and Place
The special meeting will be held in the James Barrett Community Room at
the Main Branch of the Spartanburg County Library at 151 South Church Street,
Spartanburg, South Carolina, on _____, January __, 2001, at 10:00 a.m. local
time.
Matters to Be Considered at the Special Meeting
At the special meeting, the shareholders of Carolina Southern will be
asked to consider and vote upon the approval of the merger, and such other
matters as may properly be brought before the special meeting.
The Carolina Southern board has unanimously approved the merger
agreement and the transactions contemplated by the merger agreement and
recommends that you vote "FOR" approval of the merger.
Record Date; Stock Entitled to Vote; Quorum
Only holders of record of Carolina Southern common stock at the close
of business on November 24, 2000, the record date for Carolina Southern's
special meeting, are entitled to receive notice of the special meeting and to
vote at the special meeting. Holders of record of shares of Carolina Southern
common stock on the record date are each entitled to one vote per share on each
matter to be considered at the special meeting.
On the record date,_________ shares of Carolina Southern common stock
were issued and outstanding and were held by __ holders of record.
A majority of all the issued and outstanding shares of Carolina
Southern common stock, present in person or by proxy, will constitute a quorum
for the special meeting.
Vote Required
The approval of the merger requires the affirmative vote of the holders
of a majority of the outstanding shares of Carolina Southern common stock.
The merger does not require the approval of Synovus' shareholders.
Synovus, as the sole shareholder of The National Bank of South Carolina,
approved the merger on September 18, 2000.
Stock Ownership of Carolina Southern Directors, Management and Others
At the close of business on the record date, the directors and
executive officers of Carolina Southern and their affiliates beneficially owned
and were entitled to vote approximately _________ shares of Carolina Southern
common stock. This ownership represents approximately __% of the shares of
Carolina Southern common stock outstanding on that date.
Voting of Proxies
Shares represented by all properly executed proxies received in time
for the special meeting will be voted at the special meeting according to the
voting instructions of the shareholder who executed the proxy. Properly executed
proxies which do not contain voting instructions will be voted in favor of the
merger.
Carolina Southern intends to count shares of Carolina Southern common
stock present in person at the special meeting but not voting, and shares of
Carolina Southern common stock for which we have received proxies
13
but with respect to which holders of shares have abstained from voting on or
voted against any matter, as present at the special meeting for purposes of
determining the presence or absence of a quorum for the special meeting.
For voting purposes at the special meeting, only shares voted in favor
of approval of the merger will be counted as favorable votes for such approval
and adoption. A shareholder's failure to submit a proxy, failure to vote in
person, or abstention from voting with respect to the approval of the merger
will have the same effect as if the shareholder voted against approval of the
merger.
Shares held in street name that have been designated by brokers on
proxy cards as not voted with respect to the merger ("broker non-votes") will
not be counted as votes cast on the merger. Shares with respect to which proxies
have been marked as abstentions also will not be counted as votes cast on the
merger. Shares with respect to which proxies have been marked as abstentions and
broker non-votes, however, will be treated as shares present for purposes of
determining whether a quorum is present.
The proposal to adopt the merger agreement is a non-discretionary item,
meaning that brokerage firms may not vote shares in their discretion on behalf
of a client if the client has not furnished voting instructions. Because the
merger must be approved by the holders of a majority of the outstanding shares
of Carolina Southern common stock, abstentions and broker non-votes will have
the same effect as a vote against the merger at the meeting. Accordingly, the
Carolina Southern board urges Carolina Southern's shareholders to complete, date
and sign the accompanying proxy and return it promptly in the enclosed postage
prepaid envelope.
We do not expect that any matters other than those referred to in this
document will be brought before the special meeting. However, if other matters
are properly presented for a vote, the persons named as proxies will vote in
accordance with their judgment with respect to those matters.
The persons named as proxies by a Carolina Southern shareholder may
propose and vote for one or more adjournments of the special meeting to permit
further solicitations of proxies in favor of approval of the merger. However,
the persons named as proxies will not vote any shares which are voted against
the approval of the merger in favor of such an adjournment.
Revoking Proxies
Carolina Southern shareholders of record may revoke their proxies at
any time before the time their proxies are voted at the special meeting. A
shareholder may revoke a proxy by taking any of the following actions:
. sending a written notice indicating his or her intention to revoke the
proxy, including by telegram or facsimile, to the Corporate Secretary
of Carolina Southern;
. submitting a later-dated signed proxy; or
. attending the special meeting and voting or abstaining from voting in
person.
Attendance at the special meeting alone without voting or abstaining
from the vote on the merger will not revoke a proxy. Any written notice of a
revocation of a proxy must be sent so that it will be delivered to the Corporate
Secretary of Carolina Southern, at Carolina Southern's main office, before the
voting begins at the special meeting.
Proxy Solicitation
Carolina Southern will pay the costs of printing this document and all
other costs of soliciting proxies. In addition to solicitation by mail, the
directors, officers and employees of Carolina Southern may solicit proxies from
shareholders of Carolina Southern by telephone or telegram or by other means of
communication. Such directors, officers and employees will not be additionally
compensated but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation.
14
Recommendation of the Carolina Southern Board
The Carolina Southern board has unanimously adopted the merger
agreement and believes that the proposed transaction is fair to and in the best
interests of Carolina Southern and its shareholders. The Carolina Southern board
unanimously recommends that Carolina Southern's shareholders vote "FOR" approval
of the merger.
THE MERGER
The following is a description of the material information pertaining
to the merger. This description is qualified in its entirety by reference to the
full text of the merger agreement, a copy of which is attached as Appendix "A"
to this document and is incorporated by reference. All shareholders are urged to
read carefully the merger agreement, as well as the other appendices, in their
entirety.
The boards of directors of Synovus, The National Bank of South Carolina
and Carolina Southern have approved, and the proper officers of Synovus, The
National Bank of South Carolina and Carolina Southern have executed and
delivered, the merger agreement.
Terms of the Merger
On the effective date of the merger, which will be specified in the
certificate to be issued by the Office of the Comptroller of the Currency
causing the merger to become effective, each issued and outstanding share of
Carolina Southern common stock will be converted into the right to receive .8514
shares of Synovus common stock.
If the average closing price of Synovus common stock during any 20
consecutive day trading period ending five business days before the special
meeting is less than $16.00 per share, the board of directors of Carolina
Southern may terminate the merger agreement.
If the average closing price of Synovus common stock during any 20
consecutive day trading period ending five business days before the special
meeting is greater than $23.00 per share, the board of directors of Synovus may
terminate the merger agreement.
You should obtain current stock price quotations for Synovus common
stock. The market price of Synovus common stock will fluctuate before and after
completion of the merger. You will not know when you vote on the merger
precisely what the shares of Synovus common stock will be worth when issued in
the merger.
After the effective date of the merger, outstanding certificates
representing shares of Carolina Southern common stock will represent shares of
Synovus common stock. Certificates representing shares of Carolina Southern
common stock will be surrendered to Synovus by the Carolina Southern
shareholders on or after the effective date of the merger for new certificates
representing shares of Synovus common stock. Until so surrendered to Synovus,
the certificates which previously represented shares of Carolina Southern common
stock will be deemed for all corporate purposes to evidence the ownership of the
respective number of shares of Synovus common stock which the holders are
entitled to receive upon their surrender to Synovus except for the payment of
dividends, which is subject to the exchange of stock certificates.
Until the stock certificates nominally representing shares of Carolina
Southern common stock are surrendered to Synovus in exchange for certificates
representing shares of Synovus common stock, no dividends payable as of any date
after the effective date of the merger on the shares of Synovus common stock
represented by the Carolina Southern common stock certificates will be paid.
However, Forms 1099 reporting the payment of such dividends will be filed with
the Internal Revenue Service and mailed to each shareholder. Upon the surrender
to Synovus of the Carolina Southern common stock certificates, Synovus will pay
to the record holders the amount of dividends which previously had become
payable, without interest, upon the shares of Synovus common stock represented
by the outstanding Carolina Southern common stock certificates.
Synovus will not issue fractional shares of Synovus common stock in the
merger. Instead, Synovus will pay cash, without interest, in lieu of fractional
shares, in an amount equal to such fractional part of a share
15
of Synovus common stock multiplied by the closing price per share of Synovus
common stock on the fifth business day immediately preceding the effective date
of the merger.
The delivery of Synovus stock certificates and other amounts may be
subject to forfeiture under applicable escheat laws if Carolina Southern stock
certificates are not surrendered for exchange within the legally specified
periods of time, which vary with the state of residence of the certificate
holder. Therefore, we urge all Carolina Southern shareholders to surrender their
Carolina Southern stock certificates at the earliest possible date after
consummation of the merger in accordance with instructions provided to you by
Synovus in the letter of transmittal described in the following paragraph.
As soon as practicable following consummation of the merger, Synovus
will send each shareholder of Carolina Southern common stock a letter of
transmittal explaining the procedure to be followed in exchanging certificates
representing shares of Carolina Southern common stock for certificates
representing shares of Synovus common stock. Until the letter of transmittal is
received, shareholders of Carolina Southern should continue to hold their
certificates representing shares of Carolina Southern common stock. Do not send
any Carolina Southern stock certificates with your proxy card.
On the basis of the number of shares of Carolina Southern stock
outstanding on the record date, Synovus will issue ______shares of Synovus
common stock to the shareholders of Carolina Southern in connection with the
merger.
After the effective date of the merger, each outstanding Carolina
Southern stock option will be converted into an option to acquire shares of
Synovus common stock. The exercise price of the converted options and the number
of shares subject to the converted options will be adjusted in accordance with
the exchange ratio.
Background of the Merger
In May 2000, the board of directors of Carolina Southern reviewed the
competitive situation in the Spartanburg market and discussed possible
alternatives for continuing the growth of the bank. Among the alternatives
considered were branch expansion, acquisition of another institution and
diversification of the product mix. The board determined that an investment
banking firm should be retained to establish the value of Carolina Southern and
to assist in evaluating the alternatives under consideration. Subsequent to
this, Carolina Southern enlisted the services of The Carson Medlin Company to
perform a strategic evaluation to assist in evaluating various strategic
alternatives for the company, including, but not limited to, an affiliation with
a larger institution.
On July 17, 2000, representatives of The Carson Medlin Company met with
the board of Carolina Southern to review and discuss the strategic evaluation.
In early August 2000, the Executive Committee of the board of directors of
Carolina Southern met to discuss the findings in the strategic evaluation. Both
the level of future growth of the bank, and the low level of liquidity in the
bank's stock were significant issues. After considering the findings of the
strategic evaluation, the Committee determined that the best value would be
realized by an immediate sale of the bank. The Committee instructed Mr. Ernest
R. Kluttz, Chairman of the Board, to identify and contact potential acquirors
for Carolina Southern with particular attention devoted not just to price, but
also to the liquidity of the acquiror's stock. The board of directors
unanimously ratified this decision on August 21, 2000.
During early August, potential acquirors were identified and initial
contacts made by Mr. Kluttz. Mr. Kluttz also asked Mr. John S. Poole, President
and CEO of Carolina Southern, to contact Mr. Fred L. Green, III, President and
CEO of The National Bank of South Carolina. On August 24, 2000, Messrs. Green
and William Pherigo of The National Bank of South Carolina met with Messrs.
Kluttz, Poole and Thomas H. Lyles, Chief Financial Officer of Carolina Southern.
At this meeting, the advantages of a business combination between the two
institutions were discussed as well as the level of interest of The National
Bank of South Carolina in expanding in upstate South Carolina. Mr. Green
indicated that The National Bank of South Carolina and Synovus were interested
in acquiring Carolina Southern.
On August 28, 2000, Messrs. Poole and Lyles met with Mr. Green and
other members of the executive team of The National Bank of South Carolina to
provide further information about Carolina Southern to facilitate Synovus'
determination of an offering price. On September 1, 2000, Mr. Green contacted
Mr. Kluttz and made a
16
verbal offer for Synovus to acquire Carolina Southern. Mr. Kluttz indicated that
the offer was insufficient. Mr. Green agreed to discuss a modified offer. On
September 5, 2000, Mr. Green informed Mr. Kluttz of a revised offer which Mr.
Kluttz indicated he believed would be acceptable to the board of Carolina
Southern. Between September 5 and September 18, 2000, representatives of
Carolina Southern, Synovus and The National Bank of South Carolina negotiated
the merger agreement. On September 18, 2000, the agreement was considered and
adopted by the board of directors of Carolina Southern. At that meeting, the
board also approved a resolution recommending approval of the transaction to the
shareholders of Carolina Southern. The merger agreement was publicly announced
on September 19, 2000.
Recommendation of Carolina Southern Board and Reasons for the Merger
On September 18, 2000, the board of directors of Carolina Southern
unanimously approved and adopted the merger agreement subject to receipt of a
fairness opinion from The Carson Medlin Company. The board of directors of
Carolina Southern believes that the merger and the terms and provisions of the
merger agreement are fair to and in the best interests of Carolina Southern's
shareholders. The board of directors of Carolina Southern unanimously recommends
that you vote to approve the merger.
In reaching its decision to approve and recommend approval of the
merger agreement, the board of directors of Carolina Southern considered a
number of factors, including the following:
. the value of the consideration to be received by Carolina Southern
shareholders relative to the book value and earnings per share of
Carolina Southern common stock;
. information concerning the financial condition, results of operations
and business prospects of Synovus;
. the financial terms of recent business combinations in the financial
services industry and a comparison of the multiples of selected
combinations with the terms of the proposed transaction with Synovus
and the potential future impact of a change in the rules relating to
pooling of interests accounting;
. the alternatives to the merger, including remaining an independent
institution;
. the competitive and regulatory environment for financial institutions
generally;
. the fact that the merger will enable Carolina Southern shareholders to
exchange their shares of Carolina Southern common stock, in a tax-free
transaction, for shares of common stock of a regional company, the
stock of which is widely held and actively traded; and
. the opinion of The Carson Medlin Company that the exchange ratio to be
received by Carolina Southern shareholders as a result of the merger
is fair from a financial point of view.
The foregoing discussion of the information and factors considered by
the Carolina Southern board is not intended to be exhaustive, but includes the
material factors considered. In view of the variety of factors considered in
connection with its evaluation of the merger and the offer price, the Carolina
Southern board did not find it practicable to, and did not, quantify or
otherwise assign relative weight to the specific factors considered in reaching
its determinations and recommendations, and individual directors may have given
differing weight to different factors.
Each member of the Board of Directors of Carolina Southern has
indicated that he or she intends to vote his or her shares of Carolina Southern
common stock in favor of the merger.
17
CAROLINA SOUTHERN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
CAROLINA SOUTHERN SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT.
Management of Synovus believes that the merger will provide Synovus
with expanded market opportunities for profitable long-term growth. Management
of Synovus also believes that the merger will result in the integration of a
well-suited and positioned banking organization into Synovus' existing
organization.
Opinion of Financial Advisor
Carolina Southern engaged The Carson Medlin Company pursuant to an
engagement letter dated September 21, 2000, to render its opinion as to the
fairness, from a financial point of view, of the exchange ratio to be received
in the merger to the shareholders of Carolina Southern. Carolina Southern
selected Carson Medlin as its financial advisor on the basis of Carson Medlin's
historical relationship with Carolina Southern and Carson Medlin's experience
and expertise in representing community banks in similar transactions. Carson
Medlin is an investment banking firm which specializes in the securities of
financial institutions located in the southeastern and western United States. As
part of its investment banking activities, Carson Medlin is regularly engaged in
the valuation of financial institutions and transactions relating to their
securities, including mergers and acquisitions.
Carson Medlin delivered its written opinion, dated as the date of this
document, to Carolina Southern's board to the effect that the exchange ratio is
fair, from a financial point of view, to the shareholders of Carolina Southern.
You should consider the following when reading the discussion of the
Carson Medlin opinion in this document:
. The summary of the opinion of Carson Medlin set forth in this proxy
statement/prospectus is qualified in its entirety by reference to the
full text of the opinion that is attached as Appendix "C" to this
document. You should read the opinion in its entirety for a full
discussion of the procedures followed, assumptions made, matters
considered and qualifications and limitations on the review undertaken
by Carson Medlin in connection with its opinion.
. Carson Medlin expressed no opinion as to the price at which Synovus
common stock would actually be trading at any time.
. Carson Medlin's opinion does not address the merits of the merger
relative to other business strategies, whether or not considered by
Carolina Southern's board, nor does it address the decision by
Carolina Southern's board to proceed with the merger.
. Carson Medlin's opinion to Carolina Southern's board of directors
rendered in connection with the merger does not constitute a
recommendation to any Carolina Southern shareholder as to how he or
she should vote at the special meeting.
No limitations were imposed by Carolina Southern's board of directors
or its management upon Carson Medlin with respect to the investigations made or
the procedures followed by Carson Medlin in rendering its opinion.
The preparation of a financial fairness opinion involves various
determinations as to the most appropriate methods of financial analysis and the
application of those methods to the particular circumstances. It is therefore
not readily susceptible to partial analysis or summary description. In
connection with rendering its opinion, Carson Medlin performed a variety of
financial analyses. Carson Medlin believes that its analyses must be considered
together as a whole and that selecting portions of its analyses and the facts
considered in its analyses, without considering all other factors and analyses,
could create an incomplete or inaccurate view of the analyses and the process
underlying the rendering of Carson Medlin's opinion.
18
In performing its analyses, Carson Medlin made numerous assumptions
with respect to industry performance, business and economic conditions, and
other matters, many of which are beyond the control of Synovus and Carolina
Southern, and may not be realized. Any estimates contained in Carson Medlin's
analyses are not necessarily predictive of future results or values, which may
be significantly more or less favorable than the estimates. Estimates of values
of companies do not purport to be appraisals or necessarily reflect the prices
at which the companies or their securities may actually be sold. Except as
described below, none of the analyses performed by Carson Medlin was assigned a
greater significance by Carson Medlin than any other. The relative importance or
weight given to these analyses by Carson Medlin is not necessarily reflected by
the order of presentation of the analyses herein (and the corresponding
results). The summaries of financial analyses include information presented in
tabular format. The tables should be read together with the text of those
summaries.
Carson Medlin has relied, without independent verification, upon the
accuracy and completeness of the information it reviewed for the purpose of
rendering its opinion. Carson Medlin did not undertake any independent
evaluation or appraisal of the assets and liabilities of Synovus or Carolina
Southern, nor was it furnished with any appraisals.
Carson Medlin is not an expert in the evaluation of loan portfolios,
including under-performing or non-performing assets, charge-offs or the
allowance for loan losses; it has not reviewed any individual credit files of
Synovus or Carolina Southern; and it has assumed that the allowances of Synovus
and Carolina Southern are in the aggregate adequate to cover losses. Carson
Medlin's opinion is necessarily based on economic, market and other conditions
existing on the date of its opinion, and on information as of various earlier
dates made available to it which is not necessarily indicative of current market
conditions.
In rendering its opinion,Carson Medlin made the following assumptions:
. that the merger will be accounted for as a pooling of interests in
accordance with generally accepted accounting principles;
. that all material governmental, regulatory and other consents and
approvals necessary for the consummation of the merger would be
obtained without any adverse effect on Carolina Southern, Synovus or
on the anticipated benefits of the merger;
. that Carolina Southern had provided it with all of the information
prepared by Carolina Southern or its other representatives that might
be material to Carson Medlin in its review; and
. that the financial projections it reviewed were reasonably prepared
on a basis reflecting the best currently available estimates and
judgment of the management of Carolina Southern as to the future
operating and financial performance of Carolina Southern.
In connection with its opinion, Carson Medlin reviewed:
. the merger agreement;
. the annual reports to shareholders of Synovus, including the audited
financial statements for the five years ended December 31, 1999;
. audited financial statements of Carolina Southern for the five years
ended December 31, 1999;
. unaudited interim financial statements of Synovus for the six months
ended June 30, 2000;
. unaudited interim financial statements of Carolina Southern for the
six months ended June 30, 2000; and
19
. financial and operating information with respect to the business,
operations and prospects of Synovus and Carolina Southern.
In addition, Carson Medlin:
. held discussions with members of management of Synovus and Carolina
Southern regarding the historical and current business operations,
financial condition nd future prospects of their respective
companies;
. reviewed the historical market prices and trading activity for the
common stock of Synovus, as well as Carolina Southern common stock;
. compared the results of operations of Synovus and Carolina Southern
with those of certain financial institutions which it deemed to be
relevant;
. compared the financial terms of the merger with the financial terms,
to the extent publicly available, of certain other recent business
combinations of financial institutions; and
. conducted such other studies, analyses, inquiries and examinations as
Carson Medlin deemed appropriate.
Valuation Methodologies
The following is a summary of all material analyses performed by
Carson Medlin in connection with its oral opinion provided to Carolina
Southern's board of directors as of October 25, 2000, and subsequently
confirmed with its written opinion dated November __, 2000. The summary does not
purport to be a complete description of the analyses performed by Carson Medlin.
Summary of Merger Analysis. Carson Medlin reviewed the terms of the
proposed merger, including the form of consideration, the exchange ratio, the
closing price of Synovus' common stock as of September 19, 2000, and October 24,
2000, and the resulting price per share of Carolina Southern common stock
pursuant to the proposed merger. Under the terms of the merger agreement, each
outstanding share of Carolina Southern common stock will be converted into .8514
shares of Synovus' common stock.
Carson Medlin calculated that the indicated value on September 19, 2000
represented:
. $17.56 per share (based on Synovus' stock price of $20.63 per share);
. 25.4% premium to Carolina Southern's market value one week prior to
announcement;
. 277% of stated book value at June 30, 2000;
. 3.9 times earnings for the trailing twelve months ended June 30, 2000;
. 36.6% of total deposits at June 30, 2000; and
. 30.3% of total assets of Carolina Southern at June 30, 2000.
Carson Medlin noted that Synovus' stock was $20.25 on October 24, 2000,
representing a value of $17.24 per share of Carolina Southern common stock.
20
Industry Comparative Analysis. In connection with rendering its
opinion, Carson Medlin compared selected operating results of Carolina Southern
to those of 56 publicly-traded community commercial banks in Alabama, Florida,
Georgia, Mississippi, North Carolina, South Carolina, Virginia and West Virginia
as contained in the Southeastern Independent Bank Review(TM) (SIBR), a
proprietary research publication prepared quarterly by Carson Medlin since 1991.
Carson Medlin considers this group of financial institutions more comparable to
Carolina Southern than larger, more widely traded regional financial
institutions. Carson Medlin compared, among other factors, profitability,
capitalization, and asset quality of Carolina Southern to these financial
institutions. Carson Medlin noted the following returns based on results for the
three months ended March 31, 2000 (most recent available):
<TABLE>
<CAPTION>
Average for
CSBK SIBR Banks
------ -------------
<S> <C> <C>
Return on Average Assets 1.26% 1.17%
Return on Average Equity 11.4% 12.4%
Shareholders' Equity to Total Assets 11.1% 9.3%
Non-Performing Assets (defined as 90 days past due, nonaccrual loans and other real
estate to Total Loans net of unearned income and other real estate) 0.43% 0.82%
</TABLE>
This comparison indicated that Carolina Southern had slightly above
average profitability, and above average capital levels and asset quality,
compared to the SIBR banks.
Carson Medlin also considered the historical operating performance of
Synovus. Carson Medlin noted that there were few, if any, comparable companies
to Synovus because of its 80.8% ownership in Total System Services, Inc. Total
System is a nonbank subsidiary of Synovus which trades on the NYSE. Total System
is involved primarily in credit, debit, commercial and private label card
processing. For the six months ended June 30, 2000, transaction processing
revenues were 46% of Synovus' consolidated revenues. Transaction processing net
income, as a percentage of consolidated net income was 37%, and transaction
processing assets as a percentage of consolidated total assets was 4%. Total
System's total market capitalization was approximately $3.1 billion as of
October 24, 2000. Synovus' 80.8% share totaled $2.5 billion, which is
approximately 42% of Synovus' total market capitalization of $5.9 billion.
Historically, Synovus has traded at a premium to banking industry
averages in terms of price to earnings and price to book valuation ratios. This
valuation premium can be partially attributed to Synovus' ownership of Total
System. Currently, Synovus is trading at approximately 4.5 times book value and
23 times trailing twelve-month earnings. This contrasts to a broad index of
southeast banks which was recently trading at approximately 13 times trailing
twelve months earnings and 2.1 times stated book value.
Each shareholder of Carolina Southern will also receive an ownership
interest in Total System by virtue of Synovus' ownership interest in Total
System.
Comparable Transaction Analysis. Carson Medlin reviewed certain
information relating to the following selected merger transactions involving
commercial banks in the southeast United States, with assets between $150
million and $500 million, announced since January 1999:
<TABLE>
<CAPTION>
Seller Buyer
-------- ------
<S> <C> <C> <C>
First Citizens Corporation GA BB&T Corporation NC
Citrus Bank FL Carolina First Corporation SC
Merit Holding Corporation GA Synovus Financial Corp. GA
North Fulton Bancshares, Inc. GA Premier Bancshares, Inc. GA
21
Farmers & Merchants Bank GA Premier Bancshares, Inc. GA
First Financial Corporation TN National Commerce Bancorp. TN
LCB Corporation TN Regions Financial Corporation AL
American Bancshares, Inc. FL Gold Banc Corporation, Inc. KS
Heritage Financial Services, Inc. TN Old National Bancorp IN
State Bank of the Alleghenies VA F&M National Corporation VA
BC Bankshares, Incorporated GA Wachovia Corporation NC
First Banking Company of Southeast GA GA BB&T Corporation NC
Commerce National Corporation FL Wachovia Corporation NC
Atlantic Financial Corporation VA F&M National Corporation VA
Prattville Financial Services Corporation AL Whitney Holding Corporation LA
First Bankshares of West Point, Inc. GA Capital City Bank Group, Inc. FL
</TABLE>
Carson Medlin considered, among other factors, the earnings, capital
level, asset size and quality of assets of the acquired financial institutions.
Carson Medlin compared the transaction prices at the time of announcement to the
stated book value, earnings, total deposits and total assets of the acquired
institutions. Carson Medlin noted that relative pricing levels and the number of
transactions have declined significantly during 2000, in comparison to 1999 and
1998. This is consistent with Carson Medlin's observations of pricing trends
throughout the country and with the overall trend in bank stock prices.
Accordingly, Carson Medlin determined that pricing for transactions announced in
2000 is more relevant for comparison to the merger than transactions announced
in 1999.
<TABLE>
<CAPTION>
COMPARABLE TRANSACTION ANALYSIS
Purchase Price as a Percentage of Stated Book Value Low High Average
---------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Comparable Transactions 109% 301% 188%
Range of Values (based on CSBK stated book value
of $6.35 per share at June 30, 2000) $6.90 $19.10 $11.93
</TABLE>
The implied consideration of the merger which is obtained by
multiplying Synovus' closing stock price on September 19, 2000 of $20.625 per
share by the exchange ratio is $17.56 per share, or 277% of stated book value,
which is near the high for the comparable transactions.
22
<TABLE>
<CAPTION>
Purchase Price as a Multiple of Earnings Low High Average
---------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Comparable Transactions $17.60 $25.70 $23.00
Range of Values (based on CSBK trailing 12-months
earnings per share of $0.74 as of June 30, 2000 $13.02 $19.01 $17.02
</TABLE>
The implied consideration of the merger of $17.56 per share, or 23.9
times trailing twelve months earnings, is above the average for the comparable
transactions.
<TABLE>
<CAPTION>
Purchase Price as a Percentage of Total Deposits Low High Average
---------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Comparable Transactions 16.2% 29.2% 23.1%
Range of Values (based on CSBK total deposits
of $176 million at June 30, 2000) $7.78 $14.02 $13.03
</TABLE>
The purchase price as a percentage of total deposits implied by the
merger is 36.6%, which is above the range for the comparable transactions.
<TABLE>
<CAPTION>
Purchase Price as a Percentage of Total Assets Low High Average
---------------------------------------------------- ----------- ------------ -------------
<S> <C> <C> <C>
Comparable Transactions 11.5% 24.4% 19.2%
Range of Values (based on CSBK total assets
of $212 million at June 30, 2000) $6.68 $14.14 $11.13
</TABLE>
The purchase price as a percentage of total assets implied by the
merger is approximately 30%, which is above the range for the comparable
transactions.
No company or transaction used in Carson Medlin's analyses is identical
to Synovus, Carolina Southern or the merger. Accordingly, the results of these
analyses necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of Synovus and Carolina
Southern and other factors that could affect the value of the companies to which
they have been compared.
Present Value Analysis. Carson Medlin calculated the present value of
Carolina Southern on the basis of price to earnings and price to book value,
assuming that Carolina Southern remained an independent bank. For purposes of
this analysis, Carson Medlin utilized certain projections of Carolina Southern's
future growth of assets, earnings and dividends and assumed that Carolina
Southern's common stock would be sold at the end of five years at 23 times
projected 2005 earnings. As for the price to book value method, it was assumed
that Carolina Southern's common stock would be sold at the end of five years at
188% of book value. These multiples were based on the average ratios of the
comparable transactions mentioned above. These values were then discounted to
present value utilizing discount rates of 14% through 16%. These rates were
selected because, in Carson Medlin's experience, they represent the rates that
investors in securities such as Carolina Southern's common stock would demand in
light of the potential appreciation and risks.
On the basis of these assumptions, Carson Medlin calculated that the
present value of Carolina Southern as an independent bank ranged from $13.02 per
share to $14.16 per share, on a price to earnings basis, and, $9.92 per share to
$10.78 per share, on a price to book basis. The consideration implied by the
terms of the merger agreement was $17.56 per share, which falls above the range
under present value analysis on both a price to earnings basis and price to book
basis.
Carson Medlin noted that it included present value analysis because it
is a widely used valuation methodology, but also noted that the results of this
methodology are highly dependent upon the numerous assumptions that must be
made, including assets and earnings growth rates, dividend payout rates,
terminal values and discount rates.
Historical Stock Performance Analysis. Carson Medlin reviewed and
analyzed the historical trading prices and volumes of Synovus common stock on a
monthly basis from January 1995 to September 2000. Carson Medlin considers
Synovus common stock to be liquid and marketable.
Carson Medlin also reviewed and analyzed the trading prices and volumes
of Carolina Southern but did not place any weight on this analysis.
23
Contribution Analysis. Carson Medlin reviewed the relative
contributions in terms of various balance sheet and income statement components
to be made by Carolina Southern and Synovus to the combined institution based on
(1) balance sheet data at June 30, 2000, and (2) year to date income statement
data as of June 30, 2000. The income statement and balance sheet components
analyzed included total assets, loans net of unearned income, total deposits,
shareholders' equity, net interest income, core earnings and net income. The
following tables compare the pro forma ownership of Carolina Southern and
Synovus shareholders in the combined company based upon the exchange ratio with
each company's respective contribution to each element of this analysis:
<TABLE>
<CAPTION>
Pro Forma Ownership of Pro Forma Ownership of
CSBK Shareholders in the Synovus Shareholders in the
Combined Company Combined Company
----------------------------------- -----------------------------
<S> <C> <C>
Implied Pro Forma Ownership 1.1% 98.9%
</TABLE>
<TABLE>
<CAPTION>
CSBK Contribution to Combined Synovus Contribution to
Combined Company Combined Company
----------------------------------- -----------------------------
<S> <C> <C>
Income Statement
Net Interest Income 1.4% 98.6%
Core Earnings 0.8% 99.2%
Net Income 1.0% 99.0%
Balance Sheet as of June 30, 2000
Total Assets 1.5% 98.5%
Total Deposits 1.7% 98.3%
Shareholders' Equity 1.8% 98.2%
</TABLE>
Other Analysis. Carson Medlin also reviewed selected investment
research reports on, and earnings estimates for, Synovus as well as other
information which Carson Medlin deemed relevant.
The opinion expressed by Carson Medlin was based upon market, economic
and other relevant considerations as they existed and could be evaluated as of
the date of the opinion. Events occurring after the date of issuance of the
opinion, including but not limited to, changes affecting the securities markets,
the results of operations or material changes in the assets or liabilities of
Carolina Southern or Synovus, could materially affect the assumptions used in
preparing the opinion.
In connection with its opinion, dated as of the date of this document,
Carson Medlin confirmed the appropriateness of its reliance on the analyses used
to render its October 25, 2000 oral opinion by performing procedures to update
certain of such analyses and reviewing the assumptions on which its analyses
were based and the factors considered in connection therewith.
Conditions to the Merger
Each party's obligation to effect the merger is subject to the
satisfaction or waiver of conditions which include, in addition to other closing
conditions, the following:
24
. approval of the merger agreement and the transactions contemplated by the
merger agreement by the affirmative vote of the holders of a majority of
Carolina Southern common stock;
. approval of the merger agreement and the transactions contemplated by the
merger agreement by the Office of the Comptroller of the Currency, the
Georgia Department of Banking and Finance and the South Carolina State
Board of Financial Institutions and the receipt of all other regulatory
consents and approvals which are necessary to the consummation of the
transactions contemplated by the merger agreement;
. the satisfaction of all other statutory or regulatory requirements which
are necessary to the consummation of the transactions contemplated by the
merger agreement;
. no party shall be subject to any order, decree or injunction or any other
action of a United States federal or state court or a United States federal
or state governmental, regulatory or administrative agency or commission
restraining, enjoining or otherwise prohibiting the transactions
contemplated by the merger agreement;
. the registration statementof which this prospectus forms a part 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;
. each party shall have received an opinion from KPMG LLP to the effect that
the merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue
Code;
. receipt by Synovus and Carolina Southern from each other of a certificate
to the effect that the representations made by management of such party to
KPMG LLP in delivery of the opinion referenced immediately above were true,
correct and complete when made; and
. Synovus shall have reasonably concluded that the merger will qualify for
pooling of interests accounting treatment.
The obligation of Synovus to effect the merger is subject to the
satisfaction or waiver of conditions, which include, in addition to the other
closing conditions, the following:
. each of the representations, warranties and covenants of Carolina Southern
contained in the merger agreement will be true on, or complied with by, the
effective date in all material respects as if made on such date (or on the
date when made in the case of any representation or warranty which
specifically relates to an earlier date) and Synovus will have received a
certificate signed by the Chief Executive Officer of Carolina Southern,
dated the effective date, to such effect;
. there will be no discovery of facts, or actual or threatened causes of
action, investigations or proceedings by or before any court or other
governmental body that relates to or involves Carolina Southern: (a) which,
in the reasonable judgment of Synovus, would have a material adverse effect
upon Carolina Southern or the consummation of the transactions contemplated
by the merger agreement; (b) that challenges the validity or legality of
the merger agreement or the consummation of the transactions contemplated
by the merger agreement; or (c) that seeks to restrain or invalidate the
consummation of the transactions contemplated by the merger agreement or
seeks damages in connection therewith;
. Synovus will not have learned of any fact or condition with respect to the
business, properties, assets,
25
liabilities, depositrelationships or earnings of Carolina Southern which,
in the reasonable judgment of Synovus, is materially at variance with
one or more of the warranties or representations set forth in the
merger agreement or which, in the reasonable judgment of Synovus, has
or will have a material adverse effect on Carolina Southern;
. John S. Poole and Thomas H. Lyles will have entered into employment
agreements with Synovus;
. on the effective date, Carolina Southern will have a CAMELS rating of 1 and
a Compliance Rating and Community Reinvestment Act Rating of at least
Satisfactory;
. on the effective date, Carolina Southern will have a loan loss reserve of
at least 1.45% of loans which will be adequate in all material respects
under generally accepted accounting principles applicable to banks;
. Carolina Southern will have delivered to Synovus certain environmental
reports; and
. the results of any regulatory exam of Carolina Southern will be reasonably
satisfactory to Synovus.
The obligation of Carolina Southern to effect the merger is subject to
the satisfaction or waiver of conditions, which include, in addition to other
closing conditions, the following;
. each of the representations, warranties and covenants of Synovus and The
National Bank of South Carolina contained in the merger agreement will be
true on, or complied with by, the effective date in all material respects
as if made on such date (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date)
and Carolina Southern will have received a certificate signed by the Chief
Executive Officer of Synovus, dated the effective date, to such effect;
. the listing for trading of the shares of Synovus common stock to be issued
pursuant to the terms of the merger agreement on the NYSE shall have been
approved by the NYSE subject to official notice of issuance;
. there will be no discovery of facts, or actual or threatened causes of
action, investigations or proceedings by or before any court or other
governmental body that relates to or involves Synovus: (a) which, in the
reasonable judgment of Carolina Southern, would have a material adverse
effect upon either Synovus or the consummation of the transactions
contemplated by the merger agreement; (b) that challenges the validity or
legality of the merger agreement or the consummation of the transactions
contemplated by the merger agreement; or (c) that seeks to restrain or
invalidate the consummation of the transactions contemplated by the merger
agreement or seeks damages in connection therewith;
. Carolina Southern will not have learned of any fact or condition with
respect to he business, properties, assets, liabilities, deposit
relationships or earnings of Synovus which, in the reasonable judgment of
Carolina Southern, is materially at variance with one or more of the
warranties or representations set forth in the merger agreement or which,
in the reasonable judgment of Carolina Southern, has or will have a
material adverse effect on Synovus;
. Carolina Southern shall have received from the Office of the General
Counsel of Synovus an opinion to the effect that, among other opinions, the
shares of Synovus common stock to be issued in the merger are duly
authorized, validly issued, fully paid, nonassessable, and not subject to
any preemptive rights; and
. Carolina Southern shall have received a letter from The Carson Medlin
Company dated not more than
26
five business days prior to the date of this document, to the effect that,
in the opinion of such firm, the exchange ratio is fair from a financial
point of view to the holders of Carolina Southern common stock.
No Solicitation
In the merger agreement, Carolina Southern has agreed that it will not
solicit or encourage any inquiry or proposal relating to the merger or
consolidation of Carolina Southern with any entity or the acquisition of all or
a significant portion of its assets or properties or equity securities by any
person or entity, and that, subject to the fiduciary duties of the board of
directors of Carolina Southern, it will not negotiate with respect to any such
transaction, nor reach any agreement or understanding with respect thereto.
Carolina Southern has also agreed that it will promptly notify Synovus in the
event it receives any inquiry or proposal relating to any such transaction.
These provisions are intended to increase the likelihood that the merger will be
consummated in accordance with the terms of the merger agreement and may have
the effect of discouraging persons who might now or prior to the effective date
of the merger be interested in acquiring all of or a significant interest in
Carolina Southern from considering or proposing such an acquisition.
Conduct of Business of Carolina Southern Pending the Merger
The merger agreement provides that prior to the effective date of the
merger, Carolina Southern will conduct its business only in the ordinary course
and will not, without the prior written consent of Synovus:
. issue any options to purchase capital stock or issue any shares of capital
stock, other than shares of Carolina Southern common stock issued in
connection with the exercise of currently outstanding options to purchase
shares of Carolina Southern common stock;
. declare, set aside, or pay any dividend or distribution with respect to the
capital stock of Carolina Southern, other than normal and customary
quarterly cash dividends in accordance with past practices;
. directly or indirectly redeem, purchase or otherwise acquire any capital
stock of Carolina Southern;
. effect a split or reclassification of the capital stock of Carolina
Southern or a recapitalization of Carolina Southern;
. amend the Articles of Incorporation or bylaws of Carolina Southern;
. grant any increase in the salaries payable or to become payable by Carolina
Southern to any employee other than normal, annual salary increases to be
made with regard to employees;
. make any change in any bonus, group insurance, pension, profit sharing,
deferred compensation, or other benefit plan, payment or arrangement made
to, for or with respect to any employees or directors, except to the extent
such changes are required by applicable laws or regulations;
. enter into, terminate, modify or amend any contract, lease or other
agreement with any officer or director of Carolina Southern or any
"associate" of any such officer or director, as such term is defined in
Regulation 14A under the Securities Exchange Act of 1934, as amended, other
than in the ordinary course of its banking business;
. incur or assume any liabilities, other than in the ordinary course of its
business;
. dispose of any of its assets or properties, other than in the ordinary
course of its business;
. take any other action not in the ordinary course of its business; or
27
. directly or indirectly agree to take any of the foregoing actions.
Regulatory Approvals
Consummation of the merger is subject to, and conditioned upon, receipt
of the approvals from the Office of the Comptroller of the Currency, the Georgia
Department of Banking and Finance and the South Carolina State Board of
Financial Institutions. Applications in connection with the merger were filed
with the regulatory agencies on or about October 10, 2000. The merger has been
approved by the Georgia Banking Department but has not yet been approved by the
other regulatory agencies. The merger cannot be consummated for 30 days after
its approval by the Office of the Comptroller of the Currency, although this
period may be shortened to 15 days by the U.S. Attorney General. During this
period, the United States Justice Department may challenge the merger on
antitrust grounds.
There can be no assurance that the regulatory agencies will approve or
take other required action with respect to the merger. Synovus and Carolina
Southern are not aware of any governmental approvals or actions that are
required in order to consummate the merger except as described above. Should
other approvals or actions be required, it is contemplated that Synovus and
Carolina Southern would seek the approval or action. There can be no assurance
as to whether or when any other approval or action, if required, could be
obtained.
Waiver and Amendment
Before the effective date of the merger, any provision of the merger
agreement may be waived in writing by the party entitled to the benefits of such
provision or by both parties, to the extent allowed by law. In addition, the
merger agreement may be amended at any time, to the extent allowed by law, by an
agreement in writing between the parties after approval of their respective
boards of directors.
Termination and Termination Fee
The merger agreement may be terminated prior to the effective date
either before or after its approval by the shareholders of Carolina Southern.
The merger agreement may be terminated by Synovus:
. by mutual consent of Synovus, The National Bank of South Carolina and
Carolina Southern;
. if consummation of the merger does not occur by reason of the failure of
any of the conditions precedent set forth in the merger agreement unless
the failure to meet the conditions precedent is due to a breach of the
merger agreement by Synovus;
. in he event that the merger is not consummated by April 30, 2001 unless
the failure to consummate by such time is due to the breach of the merger
agreement by Synovus;
. if the average closing price of Synovus common stock on the NYSE during any
20 consecutive day trading period ending on the fifth business day
preceding the date of the special meeting is greater than $23.00 per share;
. if another entity, person, or group (as defined in Section 13(d)(3) of the
Securities Exchange Act) commences a public offer relating to an
acquisition proposal to acquire all or a significant portion of the equity
securities of Carolina Southern and, in fact, acquires all or a significant
portion of the equity securities of Carolina Southern pursuant to such
offer or otherwise or it shall have been publicly disclosed or Synovus
shall have learned that any entity, person or group shall have acquired all
or a significant portion of the equity securities of Carolina Southern or
shall have been granted any option or right, conditional or otherwise, to
acquire all or a significant portion of the equity securities of Carolina
Southern;
28
. if Carolina Southern enters into an agreement relating to an acquisition
proposal whereby Carolina Southern or all or a significant portion of the
equity securities of Carolina Southern, or all or substantially all of
Carolina Southern's assets are to be acquired by, or Carolina Southern is
to be consolidated with, a person or entity other than Synovus or a
subsidiary or affiliate of Synovus; or
. if there has been a breach by Carolina Southern of its no solicitation
covenant in the merger agreement that results in an acquisition proposal,
or if there is a breach of its covenant to recommend approval of the merger
agreement.
The merger agreement may be terminated by Carolina Southern:
. by the mutual consent of Synovus, The National Bank of South Carolina and
Carolina Southern;
. if consummation of the merger does not occur by reason of the failure of
any of the conditions precedent set forth in the merger agreement unless
the failure to meet the conditions precedent is due to a breach of the
merger agreement by Carolina Southern;
. in the event that the merger is not consummated by April 30, 2001 unless
the failure to consummate by such time is due to the breach of the merger
agreement by Carolina Southern;
. if the average closing price of Synovus common stock on the NYSE during any
20 consecutive day trading period ending on the fifth business day
preceding the date of the special meeting is less than $16.00 per share; or
. if the Carolina Southern board of directors shall not have recommended or
shall have withdrawn or modified its recommendation or approval of the
merger if the board in good faith believes that its failure to do so would
constitute a breach of the fiduciary duty of the board.
Carolina Southern must pay Synovus a $500,000 termination fee plus
actual out-of-pocket expenses incurred by Synovus in connection with the merger
in an amount not exceeding $250,000 if:
. the merger agreement is terminated by Carolina Southern because Carolina
Southern's board of directors does not recommend or withdraws or modifies
its recommendation or approval of the merger as a result of the exercise of
the fiduciary duty of the board as determined in good faith after
consultation with counsel in order to entertain, negotiate or enter into an
acquisition proposal;
. the merger agreement is terminated by Synovus because another entity
acquires all or a significant portion of the stock of Carolina Southern or
is granted an option to acquire a significant portion of the stock of
Carolina Southern; or
. the merger agreement is terminated by Synovus because (1) Carolina
Southern's board of directors enters into an agreement with respect to a
competing acquisition proposal, (2) Carolina Southern breaches its no
solicitation covenant, or (3) Carolina Southern modifies in a manner
adverse to Synovus its approval or recommendation of the merger.
Interests of Carolina Southern's Directors and Officers in the Merger
Some members of the Carolina Southern board of directors and management
have interests in the merger in addition to their interests generally as
shareholders of Carolina Southern. The Carolina Southern board of directors was
aware of these interests and considered them, in addition to other matters, in
approving the merger agreement.
It is a condition to the merger that John S. Poole, President and Chief
Executive Officer of Carolina Southern, and Thomas H. Lyles, Executive Vice
President of Carolina Southern, each enter into an employment agreement
29
with Synovus and The National Bank of South Carolina before the effective date
of the merger. Messrs. Poole and Lyles will each be granted options to purchase
5,000 shares of common stock of Synovus at fair market value in connection with
the employment agreements. In addition, Ernest R. Kluttz, Chairman of the Board
of Carolina Southern, will become a member of the Board of Directors of The
National Bank of South Carolina.
Officers and employees with outstanding stock options under any
Carolina Southern stock option plan will have their options converted into
options to purchase Synovus common stock. All other provisions of the stock
option plans of Carolina Southern will remain in effect.
Employee Benefits
Synovus has agreed in the merger agreement that, following the
effective date of the merger, Synovus will provide to employees of Carolina
Southern employee benefits, including without limitation pension benefits,
health and welfare benefits, life insurance and vacation and severance
arrangements, on terms and conditions that are either substantially similar to
those currently provided by Carolina Southern or the same employee benefits as
are provided to employees of The National Bank of South Carolina.
Tax Opinion
The following is a summary description of the material anticipated
federal income tax consequences of the transaction generally applicable to the
shareholders of Carolina Southern and to Synovus and Carolina Southern. This
summary is not intended to be a complete description of all of the federal
income tax consequences of the transaction. No information is provided with
respect to the tax consequences of the transaction under any other tax laws,
including applicable state, local and foreign tax laws. In addition, the
following discussion may not be applicable with respect to specific categories
of shareholders, including but not limited to persons who are corporations,
trusts, dealers in securities, financial institutions, insurance companies or
tax exempt organizations; persons who are not United States citizens or resident
aliens or domestic entities (partnerships or trusts); persons who are subject to
alternative minimum tax (to the extent that tax affects the tax consequences of
the merger) or are subject to the "golden parachute" provisions of the Internal
Revenue Code of 1986 (to the extent that tax affects the tax consequences of the
merger); persons who acquired Carolina Southern common stock with employee stock
options or otherwise as compensation if such shares are subject to any
restriction related to employment; persons who do not hold their shares as
capital assets; or persons who hold their shares as part of a "straddle" or
"conversion transaction." No ruling has been or will be requested from the IRS
with respect to the tax effects of the merger. The federal income tax laws are
complex, and a stockholder's individual circumstances may affect the tax
consequences to the stockholder.
Synovus and Carolina Southern have received an opinion from KPMG LLP,
to the effect that:
. the merger of Carolina Southern with and into The National Bank of South
Carolina will qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code and that no gain or loss will be recognized by
the shareholders of Carolina Southern upon their receipt of shares of
Synovus common stock;
. the basis of Synovus common stock received by each Carolina Southern
stockholder will be the same as the basis of Carolina Southern common stock
being surrendered;
. the holding period of Synovus common stock received by each Carolina
Southern stockholder will include the holding period of the Carolina
Southern common stock being exchanged, provided that the Carolina Southern
common stock is held as a capital asset at the effective date of the
merger;
. any cash payments received by Carolina Southern shareholders in lieu of
their receipt of fractional shares of Synovus common stock will be treated
as if such fractional shares were redeemed by Synovus and taxed under
Section 302 of the Code as an exchange or dividend;
. the share purchase rights, which are described on pages __ through __ of
this document, should be
30
treated as an attribute of the Synovus common stock and no gain or loss
should be recognized by shareholders of Carolina Southern upon receipt of
such share purchase rights; and
. any cash payments received by Carolina Southern shareholders as a result of
their exercise of their statutory dissenters' rights will be treated as a
distribution in redemption of the shareholders' Carolina Southern shares
subject to Section 302 of the Code.
The tax opinion was issued on November 16, 2000. The tax opinion is
based upon assumptions and representations by the management of Synovus and/or
Carolina Southern, including, in general, the absence of any plan or intention
of Carolina Southern's shareholders to sell or otherwise dispose of any amount
of Synovus common stock received in the merger that would violate continuity of
interest requirements. KPMG LLP serves Synovus as its independent public
accountants.
All Carolina Southern shareholders are urged to consult their own tax
advisors as to the specific consequences to them of the merger under federal,
state, local and any other applicable income tax laws.
Accounting Treatment
It is anticipated that the merger will be accounted for as a pooling of
interests for financial reporting purposes. Under this accounting method,
holders of Carolina Southern common stock will be deemed to have combined their
existing voting common stock interest with that of holders of Synovus common
stock by exchanging their shares for shares of Synovus common stock. The book
value of the assets, liabilities and shareholders' equity of Carolina Southern,
as reported on its balance sheet, will be carried over to the consolidated
balance sheet of Synovus, and no goodwill will be created. Synovus will include
in its consolidated income the consolidated income of Carolina Southern for the
entire fiscal year in which the merger occurs and for other periods presented;
however, certain expenses incurred to effect the merger must be treated by
Synovus as current charges against income rather than adjustments to its balance
sheet. The merger agreement provides that consummation of the merger is subject
to Synovus reasonably concluding that the merger will qualify as a pooling of
interests under generally accepted accounting principles and applicable rules of
the SEC.
Expenses
The merger agreement provides that each of Synovus, The National Bank
of South Carolina and Carolina Southern will pay its own expenses in connection
with the merger and related transactions, including, but not limited to, the
fees and expenses of its own investment bankers, legal counsel and accountants.
New York Stock Exchange Listing
Synovus common stock is listed on the NYSE. The Synovus common stock
issued to the shareholders of Carolina Southern in the merger will be listed on
the NYSE.
Resales of Synovus Common Stock
The shares of Synovus common stock issued pursuant to the merger
agreement will be freely transferable under the Securities Act of 1933, except
for shares issued to any shareholder who may be deemed to be an "affiliate" of
Carolina Southern for purposes of Rule 145 under the Securities Act as of the
date of the Carolina Southern special meeting. Affiliates may not sell their
shares of Synovus common stock acquired in connection with the merger except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 promulgated under the
Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Persons who may be deemed to be affiliates
of Carolina Southern generally include individuals or entities that control, are
controlled by or are under common control with Carolina Southern and may include
certain officers and directors of Carolina Southern as well as principal
shareholders of Carolina Southern.
Carolina Southern has agreed in the merger agreement to use its best
efforts to cause each director, executive officer and other person who is an
affiliate of Carolina Southern to enter into an agreement with Synovus
31
providing that such person will not sell, pledge, transfer or otherwise dispose
of shares of Carolina Southern common stock owned by such person or Synovus
common stock to be received by such person in the merger: (i) in the case of
shares of Synovus common stock only, except in compliance with the applicable
provisions of the Securities Act and the rules and regulations thereunder; and
(ii) during the periods when any such sale, pledge, transfer or other
disposition would, under generally accepted accounting principles or the rules,
regulations or interpretations of the SEC, disqualify the merger for pooling of
interests accounting treatment. Such periods in general encompass the period
commencing 30 days prior to the merger and ending at the time of publication of
financial results covering at least 30 days of combined operations of Synovus
and Carolina Southern. This prospectus does not cover resales of Synovus common
stock following consummation of the merger, and no person may make use of this
prospectus in connection with any such resale.
DESCRIPTION OF STOCK AND EFFECT OF MERGER ON RIGHTS OF
CAROLINA SOUTHERN SHAREHOLDERS
If the merger is completed, all holders of Carolina Southern common
stock and options will become holders of shares of Synovus common stock or
holders of options for shares of Synovus common stock. The rights of a holder of
Synovus common stock are similar in some respects and different in other
respects from the rights of a holder of Carolina Southern common stock. The
rights of Carolina Southern shareholders are currently governed by the South
Carolina Business Corporation Act of 1988 and the Articles of Incorporation and
bylaws of Carolina Southern. The rights of Synovus shareholders are currently
governed by the Georgia Business Corporation Code and the Articles of
Incorporation and bylaws of Synovus. The following are summaries of the material
differences between the current rights of Carolina Southern shareholders and the
rights they will have as Synovus shareholders following the merger.
The following comparison of shareholders' rights is necessarily a
summary, is not intended to be complete or to identify all differences that may,
under given situations, be material to shareholders and is subject, in all
respects, and is qualified by reference, to the South Carolina Business
Corporation Act, Carolina Southern's Articles of Incorporation, Carolina
Southern's bylaws, the Georgia Business Corporation Code, Synovus' Articles of
Incorporation and Synovus' bylaws. Copies of Synovus' Articles of Incorporation
and bylaws and Carolina Southern's Articles of Incorporation and bylaws are
incorporated by reference into this document.
<TABLE>
<CAPTION>
SYNOVUS CAROLINA SOUTHERN
------------ ------------------
<S> <C>
. Ten votes for each share held, except in limited . One vote for each share held
circumstances described below
. No cumulative voting rights in the election of . Cumulative voting rights - same as Synovus
directors, meaning that the holders of a plurality of
the shares elect the entire board of directors
. Dividends may be paid from funds legally . Dividends - same as Synovus
available, subject to contractual and regulatory
restrictions
. Right to participate pro rata in distribution of . Liquidation - same as Synovus
assets upon liquidation
. No pre-emptive or other rights to subscribe for . Pre-emptive rights - same as Synovus
any additional shares or securities
. No conversion rights . Conversion rights - same as Synovus
. Directors serve staggered 3-year terms . Director terms - same as Synovus
. Some corporate actions, including business . Corporate actions require the
affirmative combinations, require the affirmative vote of a majority of the votes cast at the
actionor vote of 66-2/3% of the votes entitled to be meeting, unless
32
otherwise required by law,
cast by the shareholders of all except that certain business combinations
voting stock involving an interested shareholder required the
affirmative vote of the holders of a least 80% of
the outstanding shares of capital stock entitled to
vote in the election of directors. In addition Carolina
Southern's Articles of Incorporation provide that all
corporate actions for which the South Carolina Business
Corporation Act of 1988 requires a vote of more than a
majority unless the Articles of Incorporation provide
otherwise may be approved by a majority of the shares
entitled to vote on such action.
. No preferred stock is authorized . Preferred stock - same as Synovus
. Common Stock Purchase Rights trade with shares as . No comparable provision
described below
</TABLE>
Synovus Common Stock
Synovus is incorporated under the Georgia Business Corporation Code.
Synovus is authorized to issue 600,000,000 shares of Synovus common stock, of
which 284,262,475 shares were outstanding on October 31, 2000. Synovus has no
preferred stock authorized. Synovus' board of directors may at any time, without
additional approval of the holders of Synovus common stock, issue authorized but
unissued shares of Synovus common stock.
As described below, Synovus' Articles of Incorporation and bylaws
presently contain several provisions which may make Synovus a less attractive
target for an acquisition of control by an outsider who lacks the support of
Synovus' board of directors.
Voting Rights; Anti-Takeover Effects; The Voting Amendment
Under an amendment to Synovus' Articles of Incorporation and bylaws
which became effective on April 24, 1986, referred to in this document as the
"voting amendment," shareholders of Synovus common stock are entitled to ten
votes on each matter submitted to a vote at a meeting of shareholders for each
share of Synovus common stock which:
. has had the same beneficial owner since April 24, 1986;
. was acquired by reason of participation in a dividend reinvestment plan
offered by Synovus and is held by the same beneficial owner for whom it was
acquired under such plan;
. is held by the same beneficial owner to whom it was issued as a result of
an acquisition of a company or business by Synovus where the resolutions
adopted by Synovus' board of directors approving such issuance specifically
reference and grant such rights, including shares of Synovus common stock
to be issued to the former shareholders of Carolina Southern upon
consummation of the merger;
. was acquired under any employee, officer and/or director benefit plan
maintained for one or more employees, officers and/or directors of Synovus
and/or its subsidiaries, and is held by the same beneficial owner for whom
it was acquired under such plan;
. is held by the same beneficial owner to whom it was issued by Synovus, or
to whom it was transferred by Synovus from treasury shares, and the
resolutions adopted by Synovus' board of directors approving such issuance
and/or transfer specifically reference and grant such rights;
33
. has been beneficially owned continuously by the same shareholder for a
period of 48 consecutive months before the record date of any meeting of
shareholders at which the share is eligible to be voted;
. was acquired as a direct result of a stock split, stock dividend or other
type of share distribution if the share as to which it was distributed has
had the same beneficial owner for a period of 48 consecutive months before
the record date of any meeting of shareholders at which the share is
eligible to be voted; or
. is owned by a holder who, n addition to shares which are beneficially
owned under any of the other requirements set forth above, is the
beneficial owner of less than 1,139,063 shares of Synovus common stock,
which amount has been appropriately adjusted to reflect the stock splits
which have occurred subsequent to April 24, 1986 and with such amount to be
appropriately adjusted to properly reflect any other change in Synovus
common stock by means of a stock split, a stock dividend, a
recapitalization or other similar action occurring after April 24, 1986.
Holders of shares of Synovus common stock not described above are
entitled to one vote per share for each such share. A shareholder may own both
ten-vote shares and one-vote shares, in which case he or she will be entitled to
ten votes for each ten-vote share and one vote for each one-vote share.
In connection with various meetings of Synovus' shareholders,
shareholders are required to submit to Synovus' board of directors satisfactory
proof necessary for it to determine whether such shareholders' shares of Synovus
common stock are ten-vote shares. If such information is not provided to
Synovus' board of directors, shareholders who would, if they had provided such
information, be entitled to ten votes per share, are entitled to only one vote
per share.
As Synovus common stock is registered with the SEC and is listed on the
NYSE, Synovus common stock is subject to the provisions of an NYSE rule, which,
in general, prohibits a company's common stock and equity securities from being
authorized or remaining authorized for listing on the NYSE if the company issues
securities or takes other corporate action that would have the effect of
nullifying, restricting or disparately reducing the voting rights of existing
shareholders of the company. However, such rule contains a "grandfather"
provision, under which Synovus' voting amendment qualifies, which, in general,
permits grandfathered disparate voting rights plans to continue to operate as
adopted. Synovus' management believes that all current shareholders of Synovus
common stock are entitled to ten votes per share, and as such, the further
issuance of any ten-vote shares would not disenfranchise any existing
shareholders. In the event it is determined in the future that Synovus cannot
continue to issue ten-vote shares in mergers and acquisitions, Synovus will
consider repealing the voting amendment and restoring the principle of one
share/one vote.
If the merger is approved, present shareholders of Carolina Southern
capital stock, as future shareholders of Synovus common stock, will, under the
voting amendment described above, be entitled to ten votes per share for each
share of Synovus common stock received by them on the effective date of the
merger. Each shareholder of Carolina Southern may also acquire by purchase,
stock dividend or otherwise, up to 1,139,063 additional shares of Synovus common
stock which will also be entitled to ten votes per share. However, if a Carolina
Southern shareholder acquires by purchase, stock dividend or otherwise, more
than 1,139,063 additional shares of Synovus common stock, he or she will be
entitled to only receive one vote per share for each of the shares in excess of
1,139,063 shares until they have been held for four years.
Except with respect to voting, ten-vote shares and one-vote shares are
identical in all respects and constitute a single class of stock, i.e., Synovus
common stock. Neither the ten-vote shares nor the one-vote shares have a
preference over the other with regard to dividends or upon liquidation. Synovus
common stock does not carry any pre-emptive rights enabling a holder to
subscribe for or receive shares of Synovus common stock.
34
The Rights Plan
Synovus has adopted a shareholder rights plan under which holders of
shares of Synovus common stock also hold rights to purchase securities that may
be exercised upon the occurrence of "triggering events." Shareholder rights
plans such as Synovus' plan are intended to encourage potential hostile
acquirors to negotiate with the board of directors of the target corporation to
avoid occurrence of the "triggering events" specified in such plans. Shareholder
rights plans are intended to give the directors of a target corporation the
opportunity to assess the fairness and appropriateness of a proposed transaction
to determine whether or not it is in the best interests of the corporation and
its shareholders. Notwithstanding these purposes and intentions of shareholder
rights plans, such plans, including that of Synovus, could have the effect of
discouraging a business combination that shareholders believe to be in their
best interests. The provisions of Synovus' shareholder rights plan are discussed
below.
On April 27, 1999, the board of directors of Synovus adopted a rights
plan and authorized and declared a dividend of one common stock purchase right
with respect to each outstanding share of Synovus common stock outstanding on
May 4, 1999, and to each holder of common stock issued thereafter until the date
the rights become exercisable or the expiration or earlier redemption of the
rights. Each right entitles the registered holder to purchase from Synovus one
share of common stock at a price of $225.00 per share, subject to adjustment,
once rights become exercisable. The description and terms of the rights are set
forth in the rights agreement between Synovus and State Street Bank and Trust
Company, as the rights agent.
Initially, the rights will attach to all certificates of outstanding
shares of common stock, and no separate right certificates will be distributed.
The rights will become exercisable and separate from the shares of common stock
upon the earlier to occur of:
. ten days after the date of a public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of 15%
or more of the outstanding common stock, such date being referred to in
this document as the "stock acquisition date" and such person or group as
an "acquiring person"; or
. ten business days, or such later date as the board may determine, following
the commencement of, or announcement of an intention to make, a tender
offer or exchange offer, the consummation of which would result in a person
or group becoming the beneficial owner of 15% or more of the outstanding
common stock, the earlier of such date and the stock acquisition date being
the "distribution date".
Shares of common stock beneficially owned by Synovus or any subsidiary
of Synovus will not be considered outstanding for purposes of calculating the
percentage ownership of any person.
Each of the following persons will not be deemed to be an acquiring
person even if they have acquired, or obtained the right to acquire beneficial
ownership of 15% or more of the outstanding common stock:
. Synovus, any subsidiary of Synovus, or any employee benefit plan of Synovus
or of any subsidiary of Synovus;
. any shareholder who is a descendant of D. Abbott Turner, any shareholder
who is affiliated or associated with the Turner family and any person who
would otherwise become an acquiring person as a result of the receipt of
common stock or a beneficial interest in common stock from one or more
members of the Turner family by way of gift, devise, descent or
distribution, but not by way of sale, unless any such person, together with
his affiliates and associates, becomes the beneficial owner of more than
30% of the outstanding shares of common stock;
. any person who would otherwise become an acquiring person solely by virtue
of a reduction in the number of outstanding shares of common stock unless
and until such person becomes the beneficial owner of any additional shares
of common stock; and
35
. any person who as of May 4, 1999 was the beneficial owner of 15% or more of
the outstanding common stock unless and until such person shall become the
beneficial owner of any additional shares of common stock. Until the
distribution date or earlier redemption or expiration of the rights:
. the rights will be evidenced by the certificates for the common stock;
. the rights will be transferred with, and only with, the shares of common
stock;
. new common stock certificates issued after the record date upon transfer or
new issuance of shares of common stock will contain a notation
incorporating the rights agreement by reference; and
. the surrender for transfer of any certificates for shares of common stock
outstanding as of the record date, even without such notation, will also
constitute the transfer of the rights associated with the shares of common
stock represented by such certificate.
As soon as practicable following the distribution date, separate
certificates evidencing the rights will be mailed to holders of record of the
shares of common stock as of the close of business on the distribution date, and
such separate right certificates alone will evidence the rights. The rights are
not exercisable until the distribution date. The rights will expire at the close
of business on May 5, 2009, unless earlier redeemed by Synovus.
If any person becomes an acquiring person, each holder of a right will
thereafter have the "flip-in right" to receive, upon payment of the purchase
price of the right, shares of common stock, or in some circumstances, cash,
property or other securities of Synovus, having a value equal to two times the
purchase price of the right. Notwithstanding the foregoing, all rights that are,
or were, beneficially owned by an acquiring person or any affiliate or associate
of an acquiring person will be null and void and not exercisable.
If, at any time following the stock acquisition date: (1) Synovus is
acquired in a merger or other business combination transaction in which the
holders of all of the outstanding shares of common stock immediately before the
consummation of the transaction are not the holders of all of the surviving
corporation's voting power, or (2) more than 30% of Synovus' assets, cash flow
or earning power is sold or transferred other than in the ordinary course of
Synovus' business, then each holder of a valid right shall thereafter have the
"flip-over right" to receive, in lieu of shares of common stock and upon
exercise and payment of the purchase price, common shares of the acquiring
company having a value equal to two times the purchase price of the right. If a
transaction would otherwise result in a holder's having a flip-in as well as a
flip-over right, then only the flip-over right will be exercisable. If a
transaction results in a holder's having a flip-over right after a transaction
resulting in a holder's having a flip-in right, a holder will have flip-over
rights only to the extent such holder's flip-in rights have not been exercised.
The purchase price payable, and the number of shares of common stock or
other securities or property issuable, upon exercise of the rights are subject
to adjustment from time to time to prevent dilution (1) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the common
stock, (2) upon the grant to holders of the common stock of rights or warrants
to subscribe for common stock or convertible securities at less than the current
market price of the common stock or (3) upon the distribution to holders of the
common stock of evidences of indebtedness or assets, excluding dividends payable
in common stock, or of subscription rights or warrants, other than those
referred to above. However, no adjustment in the purchase price will be required
until cumulative adjustments require an adjustment of at least 1%.
The number of outstanding rights and the number of shares of common
stock issuable upon exercise of each right are also subject to adjustment in the
event of a stock split of the common stock or a stock dividend on the common
stock payable in common stock or subdivisions, consolidations or combinations of
the common stock occurring, in any such case, before the distribution date.
36
At any time after a person becomes an acquiring person and before the
acquisition by a person of 50% or more of the outstanding common stock of
Synovus, the board of directors may, at its option, issue common stock or common
stock equivalents of Synovus in mandatory redemption of, or in exchange for, all
or part of the then outstanding exercisable rights, other than rights owned by
such acquiring person which would become null and void, at an exchange ratio of
one share of common stock, or common stock equivalents equal to one share of
common stock, per right, subject to adjustment.
To the extent that, after the triggering of flip-in rights,
insufficient shares of common stock are available for the exercise in full of
the rights, holders of rights will receive upon exercise shares of common stock
to the extent available and then cash, property or other securities of Synovus,
in proportions determined by Synovus, so that the aggregate value received is
equal to twice the purchase price.
Synovus is not required to issue fractional shares of common stock.
Instead, a payment in cash will be made to the holder of such rights equal to
the same fraction of the current value of a share of common stock. Following the
triggering of the flip-in rights, Synovus will not be required to issue
fractional shares of common stock upon exercise of the rights. Instead, a
payment in cash will be made to the holder of such rights equal to the same
fraction of the current market value of a share of common stock.
At any time before the distribution date, the board of directors of
Synovus may redeem all, but not less than all, of the then outstanding rights at
a price of $.001 per right. The redemption of the rights may be made effective
at such time, on such basis and with such conditions as the board of directors
in its sole discretion may establish. Immediately upon the action of the board
of directors ordering redemption of the rights, the right to exercise the rights
will terminate and the only right of the holders of rights will be to receive
the redemption price.
Until a right is exercised, the holder of the right, as such, will have
no rights as a shareholder of Synovus, including, without limitation, the right
to vote or to receive dividends.
The issuance of the rights is not taxable to Synovus or to shareholders
under presently existing federal income tax law, and will not change the way in
which shareholders can presently trade Synovus' shares of common stock. If the
rights should become exercisable, shareholders, depending on then existing
circumstances, may recognize taxable income.
Before the stock acquisition date, the rights agreement generally may
be amended by Synovus without the consent of the holders of the rights or the
common stock. On or after the stock acquisition date, Synovus may amend the
rights agreement only to (1) cure any ambiguity, (2) correct or supplement any
provision which may be defective or inconsistent with the other provisions of
the rights agreement, or (3) change or supplement the rights agreement in any
other manner which Synovus may deem necessary or desirable, provided that no
amendment shall adversely affect the interests of the holders of rights, other
than an acquiring person and its affiliates and associates.
A copy of the rights agreement has been filed with the SEC as an
exhibit to Synovus' Registration Statement on Form 8-A with respect to the
rights filed with the SEC. This Registration Statement and the rights agreement
are incorporated by reference in this document, and reference is made to them
for the complete terms of the rights agreement and the rights. This summary
description of the rights does not purport to be complete and is qualified in
its entirety by reference to the rights agreement. If the merger is approved,
rights will attach to Synovus common stock issued to the present shareholders of
Carolina Southern.
Staggered Board of Directors; Supermajority Approvals
Under Synovus' Articles of Incorporation and bylaws, Synovus' board of
directors is divided into three classes of directors serving staggered 3-year
terms, with the terms of each class of directors to expire each succeeding year.
Also under Synovus' Articles of Incorporation and bylaws, the vote or action of
shareholders possessing 66-2/3% of the votes entitled to be cast by the
shareholders of all the issued and outstanding shares of Synovus common stock is
required to:
. call a special meeting of Synovus' shareholders;
37
. fix, from time to time, the number of members of Synovus' board of
directors;
. remove a member of Synovus' board of directors;
. approve any merger or consolidation of Synovus with or into any other
corporation, or the sale, lease, exchange or other disposition of all, or
substantially all, of Synovus' assets to or with any other corporation,
person or entity, with respect to which the approval of Synovus'
shareholders is required by the provisions of the corporate laws of the
State of Georgia; and
. alter, delete or rescind any provision of Synovus' Articles of
Incorporation.
This allows directors to be removed only for cause by 66-2/3% of the
votes entitled to be cast at a shareholders' meeting called for that purpose.
Vacancies or new directorships can only be filled by a majority vote of the
directors then in office. Synovus' staggered board of directors, especially when
combined with the voting amendment, makes it more difficult for its shareholders
to force an immediate change in the composition of the majority of the board. A
potential acquiror with shares recently acquired, and not entitled to 10 votes
per share under the voting amendment, may be discouraged or prevented from
soliciting proxies for the purpose of electing directors other than those
nominated by current management for the purpose of changing the policies or
control of Synovus.
Evaluation of Business Combinations
Synovus' Articles of Incorporation also provide that in evaluating any
business combination or other action, Synovus' board of directors may consider,
in addition to the amount of consideration involved and the effects on Synovus
and its shareholders, the interests of the employees, customers, suppliers and
creditors of Synovus and its subsidiaries, the communities in which offices of
the corporation or its subsidiaries are located, and any other factors the board
of directors deems pertinent.
Carolina Southern Common Stock
The Articles of Incorporation of Carolina Southern authorize the
issuance of 10,000,000 shares of Carolina Southern common stock, without par
value. At October 31, 2000, there were 3,675,246 shares of Carolina Southern
common stock issued and outstanding. The remaining authorized shares of Carolina
Southern common stock may be issued from time to time in such amounts as the
board of directors determines. Each holder of Carolina Southern common stock has
one vote per share upon all matters voted upon by shareholders. Voting rights
are noncumulative so that shareholders holding more than 50% of the outstanding
shares of Carolina Southern common stock are able to elect all members of the
board of directors.
All shares of Carolina Southern common stock, when issued and fully
paid, are non-assessable and are not subject to redemption or conversion and
have no preemptive rights. Upon the liquidation, dissolution or winding up of
Carolina Southern, whether voluntary or involuntary, holders of Carolina
Southern common stock are entitled to share ratably, after satisfaction in full
of all liabilities, in all remaining assets of Carolina Southern available for
distribution.
All shares of Carolina Southern common stock are entitled to share
equally in such dividends as the board of directors may declare on the Carolina
Southern common stock from sources legally available therefor. The payment by
Carolina Southern of dividends rests within the discretion of its board of
directors and depends upon, among other criteria, Carolina Southern's earnings,
its capital requirements, its financial condition and other relevant factors.
Under South Carolina law, Carolina Southern is authorized to pay cash dividends
up to 100% of its net income in any calendar year without obtaining the prior
approval of the South Carolina State Board of Financial Institutions, provided
that Carolina Southern received a composite rating of one or two at the last
examination conducted by the state or federal regulators. All other cash
dividends require prior approval of the South Carolina State Board.
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Carolina Southern's Articles of Incorporation and bylaws and South
Carolina law contain certain provisions designed to enhance the ability of the
board of directors to deal with attempts to acquire control of Carolina
Southern. These provisions may be deemed to have an anti-takeover effect and may
discourage takeover attempts that have not been approved by the board of
directors (including takeovers that certain shareholders may deem to be in their
best interests) and may adversely affect the price that a potential purchaser
will be willing to pay for Carolina Southern's stock. These provisions also
could discourage or make more difficult a merger, tender offer or proxy contest,
even though the transaction may be favorable to the interests of shareholders,
and could potentially adversely affect the market price of Carolina Southern
common stock. See pages ____ through ___ below.
Required Shareholder Votes
South Carolina law provides that unless a corporation's Articles of
Incorporation provide for a higher or lower vote, certain significant corporate
actions, such as amendments to a corporation's Articles of Incorporation, a
merger, share exchange or sale of all or substantially all of the corporation's
assets, must be approved by the holders of two-thirds of the shares entitled to
vote on the matter.
Carolina Southern's Articles of Incorporation provide that in the event
of certain proposed business combinations involving a 10% shareholder (including
mergers, consolidations, stock exchanges and sales of all or substantially all
of the assets of Carolina Southern), the approval of holders of 80% of the
outstanding shares of stock entitled to vote will be required unless either (i)
the transaction is approved by at least a majority of Carolina Southern's
disinterested directors or (ii) certain minimum price, form of consideration and
procedural requirements are met, in which case, except as provided by the
Business Combination Statute described on page __ below, if shareholder vote is
required under South Carolina law, approval by the holders of only a majority of
the outstanding shares of stock entitled to vote would be sufficient.
Essentially, the fair price and form of consideration requirements mean that
shareholders must receive consideration for their shares either in the form of
cash or in the same form as the 10% shareholder gave for the shares in the
transactions through which it became a 10% shareholder and that the per share
value of such consideration must be equal to (i) the greater of (a) the highest
per share price paid by the 10% shareholder or (b) the fair market value of a
share on a certain date, plus (ii) interest at the rate for 90-day United States
Treasury obligations in effect on the date the shareholder became a 10%
shareholder from that date through the date the business combination is
effected, less the per share amount of cash dividends payable to shareholders of
record on dates occurring in the interim, up to the amount of such interest.
Carolina Southern's Articles of Incorporation also require the board of
directors, when evaluating any proposed business combination, to consider other
factors including the interests of the employees of Carolina Southern and the
community or communities in which Carolina Southern does business in addition to
the interests of Carolina Southern's shareholders.
These provisions of Carolina Southern's Articles of Incorporation
cannot be amended, nor can any provision inconsistent therewith be included in
Carolina Southern's Articles of Incorporation or its bylaws without the approval
of the holders of 80% of the outstanding shares of stock entitled to vote unless
it is approved by a majority of disinterested directors.
Carolina Southern's Articles of Incorporation provide that, except as
to the higher vote requirement for certain business combinations discussed
above, the vote of the shareholders required for any action for which South
Carolina law requires a vote of more than a majority of the shares entitled to
vote on the action unless the Articles of Incorporation of the corporation
provide otherwise, shall be a majority of the shares entitled to vote on the
action. In addition, all provisions of Carolina Southern's Articles of
Incorporation, other than the provisions governing certain business
combinations, may be amended at any regular or special meeting of the
shareholders by the affirmative vote of a majority of the holders of outstanding
shares of Carolina Southern common stock entitled to vote on the actions.
Business Combination and Control Share Acquisitions Statutes
Carolina Southern is currently subject to the South Carolina business
combination statute which, with certain enumerated exceptions, places
restrictions on mergers, consolidations, sales of assets, liquidations,
reclassifications or other similar type transactions with or between a resident
domestic corporation with shares
39
registered under Section 12 of the Securities Exchange Act such as Carolina
Southern and any person who owns beneficially 10% or more of the voting power of
the outstanding voting shares of the resident domestic corporation. The business
combination statute provides that a resident domestic corporation may not engage
in any business combination with any interested shareholder of the resident
domestic corporation for a period of two years following the date the person
became an interested shareholder unless the business combination or the purchase
of shares made by the interested shareholder on the share acquisition date is
approved by a majority of the "disinterested" members of the board of directors
of the resident domestic corporation before the interested shareholder's share
acquisition date. (Carolina Southern's board of directors has approved the
merger.) A member of the board is disinterested if the director is not a present
or former employee of the resident domestic corporation or a related
corporation.
The business combination statute further provides that, subject to
certain exceptions, a resident domestic corporation may not engage at any time
in a business combination with an interested shareholder unless the business
combination complies with all requirements of the resident domestic
corporation's Articles of Incorporation and either: (a) the business combination
is approved by the board of directors of the resident domestic corporation
before the share acquisition date, or the purchase of shares made by the
interested shareholder on the share acquisition date has been approved by the
board of directors of the resident domestic corporation before the share
acquisition date; (b) the business combination is approved by the affirmative
vote of the holders of a majority of the outstanding voting shares not
beneficially owned by the interested shareholder proposing the business
combination at a meeting called for that purpose no earlier than two years after
the share acquisition date; or (c) the business combination meets certain
specified fair price and form of consideration requirements. A company may
opt-out of the business combination statute, which Carolina Southern has not
done, by adopting an amendment to the company's articles of incorporation
expressly electing not to be governed by the business combination statute.
Carolina Southern is currently subject to the South Carolina control
share acquisitions statute which is designed to afford shareholders of certain
corporations (generally, corporations that have shares registered under Section
12 of the Securities Exchange Act, have their principal place of business or
substantial assets within South Carolina and meet certain share ownership
requirements) protection against certain types of acquisitions in which a
person, entity or group seeks to gain voting control of the issuing public
corporation. With certain enumerated exceptions, the statute applies to
acquisitions of shares of an issuing public corporation which would result in an
acquiring person's ownership of the corporation's shares entitled to vote in the
election of directors falling within any one of the following ranges: 1/5 or
more but less than 1/3 of all voting power; 1/3 or more but less than a majority
of all voting power; or a majority or more of all voting power. Shares that are
the subject of a control share acquisition will not have voting rights unless
the holders of a majority of "disinterested shares" vote at an annual or special
meeting of shareholders of the corporation to accord the control shares voting
rights. "Disinterested shares" are shares other than those owned by the
acquiring person or a member of a group with respect to a control share
acquisition, any officer of the corporation or any employee of the corporation
who is also a director.
Under certain circumstances, the statute permits an acquiring person to
call a special shareholders' meeting for the purpose of considering the grant of
voting rights to the holder of the control shares. Unless otherwise provided in
a corporation's Articles of Incorporation or bylaws before a control share
acquisition has occurred, in the event control shares acquired in a control
share acquisition are accorded full voting rights and the acquiring person has
acquired control shares with a majority or more of all voting power, all
shareholders of the issuing public corporation have dissenters' rights to
receive fair value for their shares. There is currently no provision in Carolina
Southern's Articles of Incorporation or bylaws limiting or eliminating these
rights. The control share statute also enables a corporation to provide for
redemption under certain circumstances of control shares with no voting rights.
A corporation may opt-out of the control share statute, which Carolina Southern
has not done, by so providing in its Articles of Incorporation or bylaws. Among
the acquisitions specifically excluded from the control share statute are
acquisitions consummated pursuant to a merger (such as the merger of Carolina
Southern and The National Bank of South Carolina) or plan of share exchange in
compliance with law if the issuing public corporation is a party to the
agreement of merger or plan of share exchange.
Classification of Directors
Carolina Southern's board of directors is classified so that, as nearly
as possible, one-third of the board of directors is elected each year to serve a
three-year term. This classification would delay an attempt by dissatisfied
shareholders or anyone who obtains a controlling interest in Carolina Southern
to elect a new board of directors,
40
because, absent the removal, resignation or death of the members of the board,
it would take three annual meetings of shareholders to change fully the
composition of the board.
Limitation of Liability and Indemnification of Directors
Carolina Southern's Articles of Incorporation provide that no director
shall be personally liable to Carolina Southern or its shareholders for monetary
damages for any breach of a fiduciary duty as a director; provided, however,
that this provision does not eliminate or limit the liability of a director
resulting or arising from (a) a breach of the director's duty of loyalty to
Carolina Southern or its shareholders, (b) acts or omissions not in good faith
or involving gross negligence, intentional misconduct or a knowing violation of
law, (c) unlawful distributions as set forth in section 33-8-330 of the South
Carolina Business Corporations Act of 1988 or (d) a transaction from which the
director derived an improper personal benefit.Carolina Southern's bylaws provide
that, to the fullest extent permitted by South Carolina law, Carolina Southern
shall indemnify all persons whom it may indemnify pursuant thereto, including
directors and officers, so long as they have conducted themselves in good faith
and reasonably believed their conduct not to be opposed to Carolina Southern's
best interests. Under Sections 33-8-510, 33-8-550 and 33-8-560 of the South
Carolina Business Corporation Act, a South Carolina corporation is authorized
generally to indemnify its directors and officers in civil or criminal actions
if they acted in good faith and reasonably believed their conduct to be in the
best interests of the corporation and, in the case of criminal actions, had no
reasonable cause to believe that the conduct was unlawful. In addition, Carolina
Southern's bylaws authorize the board of directors to obtain insurance
protecting directors and officers against liability whether or not Carolina
Southern would have the power to indemnify them under law.
DISSENTERS' RIGHTS
Any shareholder of Carolina Southern entitled to vote on the merger
agreement has the right to assert dissenters' rights under Chapter 13 of the
South Carolina Business Corporation Act and receive payment of the fair value of
his shares of Carolina Southern common stock upon compliance with Sections
33-13-210 and 33-13-230 of the South Carolina Business Corporation Act. A
shareholder may not dissent as to less than all of the shares that he
beneficially owns.
A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of the beneficial owner held of record
by the nominee or fiduciary. The nominee or fiduciary must notify Carolina
Southern in writing of the name and address of each beneficial owner on whose
behalf he asserts dissenter's rights. A beneficial owner asserting dissenter's
rights to shares held on his behalf must notify Carolina Southern in writing of
the name and address of the record holder of the shares, if known to him. Any
Carolina Southern shareholder intending to enforce this right may not vote in
favor of the merger agreement and must file a written notice of intent to demand
payment for his shares with the Corporate Secretary of Carolina Southern either
before the Carolina Southern special meeting or before the vote is taken at the
meeting. The objection notice must state that the shareholder intends to demand
payment for his shares of Carolina Southern common stock if the merger is
effected. Although any Carolina Southern shareholder who has filed an objection
notice must not vote in favor of the merger agreement, a vote in favor of the
merger agreement cast by the holder of a proxy appointment solicited by Carolina
Southern (whether pursuant to the instruction of the shareholder or others) will
not disqualify the shareholder from demanding payment for his shares under the
South Carolina Business Corporation Act. A vote against approval of the merger
agreement will not, in and of itself, constitute an objection notice satisfying
the requirements of Section 33-13-210 of the South Carolina Business Corporation
Act.
If the merger agreement is approved by Carolina Southern's shareholders
at the special meeting, each shareholder who has filed an objection notice and
did not vote in favor of the merger agreement will be notified by Carolina
Southern of the approval within 10 days of the special meeting. The dissenters'
notice will:
. state where dissenting shareholders must send the payment demand and
deposit their Carolina Southern common stock certificates;
. inform holders of uncertificated shares of Carolina Southern common stock
of the extent of any restrictions on the transferability of the shares;
41
. be accompanied by a form for demanding payment that includes the date of
the first announcement to the news media or to shareholders of the terms of
the proposed merger;
. set a date by which Carolina Southern must receive the payment demand,
which may not be fewer than 30 or more than 60 days after the date the
dissenters' notice is delivered;
. set a date by which the certificates must be deposited as instructed in the
dissenters' notice, which may not be earlier than 20 days after the date
the payment demand is received by Carolina Southern; and
. be accompanied by a copy of Sections 33-13-101 through 33-13-310 of the
South Carolina Business Corporation Act.
Within the time prescribed in the dissenters' notice, a shareholder
electing to dissent must:
. make a demand for payment;
. certify whether he (or the beneficial shareholder on whose behalf he is
asserting dissenter's rights) acquired beneficial ownership of the shares
of Carolina Southern common stock before September 19, 2000 (the date of
the first public announcement of the terms of the proposed merger); and
. deposit his certificates in accordance with the terms of the dissenters'
notice.
Upon filing the payment demand and depositing the certificates, the
shareholder will retain all other rights of a shareholder until these rights are
cancelled or modified by consummation of the merger. Failure to comply
substantially with the requirements that he make a payment demand and deposit
his certificates where required will cause the shareholder to lose his
dissenter's rights to payment for the shares. Consequently, any Carolina
Southern shareholder who desires to exercise his rights to payment for his
shares is urged to consult his legal adviser before attempting to exercise these
rights.
As soon as the merger is consummated, or upon receipt of a payment
demand, Carolina Southern will, pursuant to Section 33-13-250, pay to each
dissenting shareholder who has substantially complied with the requirements of
Section 33-13-230 of the South Carolina Business Corporation Act, the amount
that Carolina Southern estimates to be the fair value of the shares of Carolina
Southern common stock, plus accrued interest. Section 33-13-250 of the South
Carolina Business Corporation Act requires the payment to be accompanied by:
. Carolina Southern's financial statements,
. a statement of Carolina Southern's estimate of the fair value of the shares
and an explanation of how Carolina Southern's estimate of the fair value
and the interest were calculated;
. notification of rights to demand additional payment; and
. a copy of Sections 33-13-101 through 33-13-310 of the South Carolina
Business Corporation Act.
As authorized by Section 33-13-270, Carolina Southern intends to
withhold any payments from a dissenting shareholder as to any shares of which
the dissenting shareholder (or the beneficial owner on whose behalf he is
asserting dissenter's rights) was not the beneficial owner on September 19,
2000, the date of the first public announcement of the terms of the proposed
merger, unless the beneficial ownership devolved upon him by operation of law
from a person who was the beneficial owner on that date. Where payments are
withheld, Sections 33-13-270(b) and 33-13-280(a) will require Carolina Southern,
after the merger, to send to the holder of these shares an offer to pay the
holder an amount equal to Carolina Southern's estimate of their fair value plus
accrued interest, together with an explanation of the calculation of fair value
and interest and a statement of the holder's right to demand additional payment
under Section 33-13-280.
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If the merger is not consummated within 60 days after the date set for
demanding payment and depositing certificates, Carolina Southern, within the
same 60-day period, will return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares. If, after returning
deposited certificates and releasing transfer restrictions, the merger is
consummated, Carolina Southern must send a new dissenters' notice and repeat the
payment demand procedure.
If the dissenting shareholder believes that the amount paid by Carolina
Southern pursuant to Section 33-13-250 or offered under Section 33-13-270 of the
South Carolina Business Corporation Act is less than the fair value of his
shares or that the interest due is calculated incorrectly, or if Carolina
Southern fails to make payment or offer payment (or, if the merger has not been
consummated, Carolina Southern does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares) within 60
days after the date set for demanding payment in the dissenters' notice, then
the dissenting shareholder may within 30 days after (i) Carolina Southern made
or offered payment for the shares or failed to pay for the shares or (ii)
Carolina Southern failed to return deposited certificates or release
restrictions on uncertificated shares timely, notify Carolina Southern in
writing of his own estimate of the fair value of the shares (including interest
due) and demand payment of the estimate (less any payment previously received).
Failure to notify Carolina Southern in writing of any demand for additional
payment within 30 days after Carolina Southern made or offered payment for the
shares will constitute a waiver of the right to demand additional payment.
If Carolina Southern and the dissenting shareholder cannot agree on a
fair price within 60 days after Carolina Southern receives the demand for
additional payment, the statute provides that Carolina Southern will institute
judicial proceedings in a South Carolina state circuit court in Spartanburg
County to fix (i) the fair value of the shares immediately before consummation
of the merger, excluding any appreciation or depreciation in anticipation of the
merger, unless such exclusion would be inequitable and (ii) the accrued
interest. The "fair value" of the Carolina Southern common stock could be more
than, the same, or less than that produced by the exchange ratio. Carolina
Southern must make all dissenters whose demands for additional payment remain
unsettled parties to the proceeding and all the parties must be served with a
copy of the petition. The court may, in its discretion, appoint an appraiser to
receive evidence and recommend a decision on the question of fair value. The
court is required to issue a judgment for the amount, if any, by which the fair
value of the shares, as determined by the court, plus interest, exceeds the
amount paid by Carolina Southern. If Carolina Southern does not institute a
proceeding within the 60 day period, Carolina Southern will pay each dissenting
shareholder whose demand remains unsettled the respective amount demanded by
each shareholder.
The court will assess the costs and expenses of the proceeding
(including the reasonable compensation for and the expenses of the appraiser but
excluding fees and expenses of counsel and experts) against Carolina Southern,
except that the court may assess costs and expenses as it deems appropriate
against any or all of the dissenting shareholders if it finds that their demand
for additional payment was arbitrary, vexatious or otherwise not in good faith.
The court may award fees and expenses of counsel and experts in amounts the
court finds equitable (i) against Carolina Southern if the court finds that
Carolina Southern did not comply substantially with the relevant requirements of
the South Carolina Business Corporation Act or (ii) against either Carolina
Southern or any dissenting shareholder, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith.
The foregoing summary of the applicable provisions of Sections
33-13-101 through 33-13-310 of the South Carolina Business Corporation Act is
not intended to be a complete statement of its provisions, and is qualified in
its entirety by reference to these sections, which are included as Appendix "B"
to this document.
DESCRIPTION OF SYNOVUS
Business
The disclosures made in this document, together with the following
information which is specifically incorporated by reference into this document,
describe the business of Synovus:
1. Synovus' Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (which incorporates certain portions of
Synovus' 1999 Annual Report to Shareholders and its Proxy
43
Statement for its Annual Meeting of Shareholders held on April
20, 2000), as amended by Synovus' Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1999.
2. Synovus' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000 and September 30, 2000.
3. Synovus' Current Reports on Form 8-K dated January 12, 2000,
May 31, 2000, July 5, 2000, August 9, 2000 and October 19,
2000.
Management and Additional Information
Information relating to executive compensation, various benefit plans,
voting securities and the principal holders of voting securities, relationships
and related transactions and other related matters as to Synovus is incorporated
by reference or set forth in Synovus' Annual Report on Form 10-K for the year
ended December 31, 1999 which is incorporated into this document by reference.
See "WHERE YOU CAN FIND MORE INFORMATION." Shareholders desiring
copies of such documents may contact Synovus at its address or phone number
indicated under "WHERE YOU CAN FIND MORE INFORMATION."
REGULATORY MATTERS
General
As a bank holding company, Synovus is subject to regulation under the
Bank Holding Company Act of 1956, and to inspection, examination and supervision
by the Board of Governors of the Federal Reserve System. Synovus' affiliate
national banking associations are subject to regulation and examination
primarily by the Office of the Comptroller of the Currency and, secondarily, by
the FDIC and the Federal Reserve. Synovus' state-chartered banks are subject to
primary federal regulation and examination by the FDIC and, in addition, are
regulated and examined by their respective state banking departments. Numerous
other federal and state laws, as well as regulations promulgated by the Federal
Reserve, the state banking regulators, the OCC and the FDIC govern almost all
aspects of the operations of the banks. Various federal and state bodies
regulate and supervise Synovus' non-banking subsidiaries including its
brokerage, investment advisory, insurance agency and processing operations.
These include, but are not limited to, the SEC, the National Association of
Securities Dealers, Inc., federal and state banking regulators and various state
regulators of insurance and brokerage activities.
Dividends
Under the laws of the State of Georgia, Synovus, as a business
corporation, may declare and pay dividends in cash or property unless the
payment or declaration would be contrary to restrictions contained in its
Articles of Incorporation, and unless, after payment of the dividend, it would
not be able to pay its debts when they become due in the usual course of its
business or its total assets would be less than the sum of its total
liabilities. Synovus is also subject to regulatory capital restrictions that
limit the amount of cash dividends that it may pay. Additionally, Synovus is
subject to contractual restrictions that limit the amount of cash dividends it
may pay. Carolina Southern is authorized to pay cash dividends up to 100% of its
net income in any calendar year without prior approval of the South Carolina
State Board of Financial Institutions if it received a composite rating of one
or two at its most recent examination by state or federal banking regulators.
All other cash dividends require the prior approval of the South Carolina Board.
The primary sources of funds for Synovus' payment of dividends to its
shareholders are dividends and fees to Synovus from its banking and nonbanking
affiliates. Various federal and state statutory provisions and regulations limit
the amount of dividends that the subsidiary banks of Synovus may pay. Under the
regulations of the Georgia Banking Department, a Georgia bank must have approval
of the Georgia Banking Department to pay cash dividends if, at the time of such
payment:
44
. the ratio of Tier 1 capital to adjusted total assets is less than 6%;
. the aggregate amount of dividends to be declared or anticipated to be
declared during the current calendar year exceeds 50% of its net profits,
after taxes but before dividends, for the previous calendar year; or
. its total classified assets in its most recent regulatory examination
exceeded 80% of its Tier 1 capital plus its allowance for loan losses, as
reflected in the examination.
In general, the approval of the Alabama Banking Department and the
Florida Banking Department is required if the total of all dividends declared by
an Alabama or Florida bank, as the case may be, in any year would exceed the
total of its net profits for that year combined with its retained net profits
for the preceding two years less any required transfers to surplus. In addition,
the approval of the OCC is required for a national bank to pay dividends in
excess of the bank's retained net income for the current year plus retained net
income for the preceding two years.
Some of Synovus' banking affiliates have in the past been required to
secure prior regulatory approval for the payment of dividends to Synovus in
excess of regulatory limits and may be required to seek approval for the payment
of dividends to Synovus in excess of those limits in the future. If prior
regulatory approvals are sought, there is no assurance that any such regulatory
approvals will be granted.
Federal and state banking regulations applicable to Synovus and its
banking subsidiaries require minimum levels of capital which limit the amounts
available for payment of dividends. Synovus' objective is to pay out at least
one-third of prior year's earnings in cash dividends to its shareholders.
Synovus and its predecessors have paid cash dividends on their common
stock in every year since 1891. Under restrictions imposed under federal and
state laws, Synovus' subsidiary banks could declare aggregate dividends to
Synovus of approximately $109.7 million during 2000 without obtaining regulatory
approval.
At September 30, 2000, under restrictions imposed under federal and
state laws, Carolina Southern could declare aggregate dividends to its
shareholders of approximately $1.8 million without obtaining regulatory
approval.
Capital Requirements
Synovus is required to comply with the capital adequacy standards
established by the Federal Reserve and its banking subsidiaries must comply with
similar capital adequacy standards established by the OCC and FDIC, as
applicable. There are two basic measures of capital adequacy for bank holding
companies and their banking subsidiaries that have been promulgated by the
Federal Reserve, the FDIC and the OCC: a risk-based measure and a leverage
measure. All applicable capital standards must be satisfied for a bank holding
company or a bank to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets (including certain off-balance-sheet items, such as standby letters of
credit) is 8.0%. At least half of total capital must comprise common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets,
referred to as Tier 1 Capital. The remainder may consist of subordinated debt,
other preferred stock and a limited amount of loan loss reserves, referred to as
Tier 2 Capital. The Federal Reserve also requires certain bank holding companies
that engage in trading activities to adjust their risk-based capital to take
into consideration market risk that may result from movements in market prices
of covered trading positions in trading accounts, or from foreign exchange
45
or commodity positions, whether or not in trading accounts, including changes in
interest rates, equity prices, foreign exchange rates or commodity prices. Any
capital required to be maintained under these provisions may consist of new Tier
3 Capital consisting of certain short term subordinated debt. In addition, the
Federal Reserve has issued a policy statement, under which a bank holding
company that is determined to have weaknesses in its risk management processes
or a high level of interest rate risk exposure may be required to hold
additional capital.
The Federal Reserve has also established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
leverage ratio of Tier 1 Capital to average assets, less goodwill and certain
other intangible assets, of 3.0% for bank holding companies that meet certain
specified criteria, including having the highest regulatory rating. All other
bank holding companies generally are required to maintain a leverage ratio of at
least 4.0%. Bank holding companies are expected to maintain higher-than- minimum
capital ratios if they have supervisory, financial, operational or managerial
weaknesses, or if they are anticipating or experiencing significant growth.
Synovus has not been advised by the Federal Reserve of any specific minimum
leverage ratio applicable to it.
At September 30, 2000, Synovus' total capital ratio was 12.81%, its
Tier 1 Capital ratio was 11.60% and its Tier 1 leverage ratio was 10.19%.
Assuming the merger had been consummated on September 30, 2000, the total
capital ratio of Synovus would have been 12.87%, its Tier 1 Capital ratio would
have been 11.67% and its Tier 1 leverage ratio would have been 10.21%. Each of
these ratios exceeds the current requirements under the Federal Reserve's
capital guidelines.
Each of Synovus' banking subsidiaries is subject to similar risk-based
and leverage capital requirements adopted by its applicable federal banking
agency, and each was in compliance with the applicable minimum capital
requirements as of September 30, 2000.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits and other restrictions on its business. As described below, substantial
additional restrictions can be imposed upon FDIC-insured depository institutions
that fail to meet applicable capital requirements. See "Prompt Corrective
Action" below.
Commitments to Subsidiary Banks
Under the Federal Reserve's policy, Synovus is expected to act as a
source of financial strength to its subsidiary banks and to commit resources to
support its subsidiary banks in circumstances when it might not do so absent
that policy. In addition, any capital loans by Synovus to any of its subsidiary
banks would also be subordinate in right of payment to depositors and to certain
other indebtedness of that bank.
In the event of Synovus' bankruptcy, any commitment by Synovus to a
federal bank regulatory agency to maintain the capital of a banking subsidiary
will be assumed by the bankruptcy trustee and entitled to a priority of payment.
In addition, the Federal Deposit Insurance Act provides that any financial
institution whose deposits are insured by the FDIC generally will be liable for
any loss incurred by the FDIC in connection with the default of, or any
assistance provided by the FDIC to, a commonly controlled financial institution.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991
establishes a system of prompt corrective action to resolve the problems of
undercapitalized institutions. Under this system the federal banking regulators
are required to rate supervised institutions on the basis of five capital
categories as described below. The federal banking regulators are also required
to take mandatory supervisory actions, and are authorized to take other
discretionary actions, with respect to institutions in the three
undercapitalized categories, the severity of which will depend upon the capital
category in which the institution is placed. Generally, subject to a narrow
exception, the Federal Deposit Insurance Corporation Improvement Act requires
the banking regulator to appoint a receiver or conservator for an institution
that is critically undercapitalized. The federal banking agencies have specified
by regulation the relevant capital level for each category.
46
Under the Federal Deposit Insurance Corporation Improvement Act, the
Federal Reserve, the FDIC, the OCC and the Office of Thrift Supervision have
adopted regulations setting forth a five-tier scheme for measuring the capital
adequacy of the financial institutions they supervise. Under the regulations, an
institution would be placed in one of the following capital categories:
. Well Capitalized - an institution that has a total capital ratio of at
least 10%, a Tier 1 Capital ratio of at least 6% and a Tier 1 leverage
ratio of at least 5%;
. Adequately Capitalized - an institution that has a total capital ratio of
at least 8%, a Tier 1 Capital ratio of at least 4% and a Tier 1 leverage
ratio of at least 4%;
. Undercapitalized - an institution that has a total capital ratio of under
8%, a Tier 1 Capital ratio of under 4% or a Tier 1 leverage ratio of under
4%;
. Significantly Undercapitalized - an institution that has a total capital
ratio of under 6%, a Tier 1 Capital ratio of under 3% or a Tier 1 leverage
ratio of under 3%; and
. Critically Undercapitalized - an institution whose tangible equity is not
greater than 2% of total tangible assets.
The regulations permit the appropriate federal banking regulator to
downgrade an institution to the next lower category if the regulator determines
(1) after notice and opportunity for hearing or response, that the institution
is in an unsafe or unsound condition or (2) that the institution has received
and not corrected a less-than-satisfactory rating for any of the categories of
asset quality, management, earnings or liquidity in its most recent examination.
Supervisory actions by the appropriate federal banking regulator depend upon an
institution's classification within the five categories. Synovus' management
believes that Synovus and its bank subsidiaries have the requisite capital
levels to qualify as well capitalized institutions under the Federal Deposit
Insurance Corporation Improvement Act regulations.
The Federal Deposit Insurance Corporation Improvement Act generally
prohibits a depository institution from making any capital distribution,
including payment of a dividend, or paying any management fee to its holding
company if the depository institution would thereafter be undercapitalized.
Undercapitalized depository institutions are subject to restrictions on
borrowing from the Federal Reserve System. In addition, undercapitalized
depository institutions are subject to growth limitations and are required to
submit capital restoration plans. A depository institution's holding company
must guarantee the capital plan, up to an amount equal to the lesser of 5% of
the depository institution's assets at the time it becomes undercapitalized or
the amount of the capital deficiency when the institution fails to comply with
the plan. Federal banking agencies may not accept a capital plan without
determining, among other things, that the plan is based on realistic assumptions
and is likely to succeed in restoring the depository institution's capital. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject
to a number of requirements and restrictions, including orders to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized depository institutions are subject to appointment
of a receiver or conservator.
Safety and Soundness Standards
The Federal Deposit Insurance Act, as amended by the Federal Deposit
Insurance Corporation Improvement Act and the Riegle Community Development and
Regulatory Improvement Act of 1994, requires the federal bank regulatory
agencies to prescribe standards, by regulations or guidelines, relating to
internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth,
asset quality, earnings, stock valuation and compensation, fees and benefits and
such other operational
47
and managerial standards as the agencies deem appropriate. The federal bank
regulatory agencies have adopted a set of guidelines prescribing safety and
soundness standards under the Federal Deposit Insurance Corporation Improvement
Act. The guidelines establish general standards relating to internal controls
and information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director or principal shareholder. The federal
banking agencies determined that stock valuation standards were not appropriate.
In addition, the agencies have adopted regulations that authorize, but do not
require, an agency to order an institution that has been given notice by an
agency that it is not satisfying any of such safety and soundness standards to
submit a compliance plan. If, after being so notified, an institution fails to
submit an acceptable compliance plan, the agency must issue an order directing
action to correct the deficiency and may issue an order directing other actions
of the types to which an undercapitalized institution is subject under the
prompt correction action provisions of the Federal Deposit Insurance Corporation
Improvement Act. See "Prompt Corrective Action" above. If an institution fails
to comply with such an order, the agency may seek to enforce such order in
judicial proceedings and to impose civil money penalties.
Depositor Preference Statute
Federal law provides that deposits and certain claims for
administrative expenses and employee compensation against an insured depository
institution would be afforded a priority over other general unsecured claims
against such an institution, including federal funds and letters of credit, in
the liquidation or other resolution of such an institution by any receiver.
Recent Legislation
On November 12, 1999, President Clinton signed into law legislation
which allows bank holding companies to engage in a wider range of non-banking
activities, including greater authority to engage in securities and insurance
activities. Under the Gramm-Leach-Bliley Act, a bank holding company that elects
to become a financial holding company may engage in any activity that the
Federal Reserve, in consultation with the Secretary of the Treasury, determines
by regulation or order is: (1) financial in nature; (2) incidental to any such
financial activity; or (3) complementary to any such financial activity and does
not pose a substantial risk to the safety or soundness of depository
institutions or the financial system generally. The Gramm-Leach-Bliley Act makes
significant changes in United States banking law, principally by repealing
restrictive provisions of the 1933 Glass-Steagall Act. The Gramm-Leach-Bliley
Act specifies certain activities that are deemed to be financial in nature,
including lending, exchanging, transferring, investing for others, or
safeguarding money or securities; underwriting and selling insurance; providing
financial, investment or economic advisory services; underwriting, dealing in or
making a market in, securities; and any activity currently permitted for bank
holding companies by the Federal Reserve under Section 4(c)(8) of the Bank
Holding Company Act. The Gramm-Leach-Bliley Act does not authorize banks or
their affiliates to engage in commercial activities that are not financial in
nature. A bank holding company may elect to be treated as a financial holding
company only if all depository institution subsidiaries of the holding company
are well-capitalized, well-managed and have at least a satisfactory rating under
the Community Reinvestment Act. Synovus became a financial holding company in
April 2000.
National banks are also authorized by the Gramm-Leach-Bliley Act to
engage, through "financial subsidiaries," in any activity that is permissible
for a financial holding company and any activity that the Secretary of the
Treasury, in consultation with the Federal Reserve, determines is financial in
nature or incidental to any such financial activity, except: (1) insurance
underwriting; (2) real estate development or real estate investment activities,
unless otherwise permitted by law; (3) insurance company portfolio investments;
and (4) merchant banking. The authority of a national bank to invest in a
financial subsidiary is subject to a number of conditions, including, among
other things, requirements that the bank must be well-managed and
well-capitalized, after deducting from the bank's capital outstanding
investments in financial subsidiaries. The Gramm-Leach-Bliley Act provides that
state banks may invest in financial subsidiaries, assuming they have the
requisite authority under applicable state law, subject to the same conditions
that apply to national bank investments in financial subsidiaries.
48
In addition to the Gramm-Leach Bliley Act, there have been a number of
legislative and regulatory proposals that would have an impact on bank/financial
holding companies and their bank and nonbank subsidiaries. It is impossible to
predict whether or in what form these proposals may be adopted in the future and
if adopted, what their effect will be on Synovus.
Pooling of Interests Accounting
The Financial Accounting Standards Board has published The FASB
Exposure Draft on Business Combinations and Intangible Assets that would, if
adopted, eliminate the availability of pooling of interest accounting treatment
for most, if not all, mergers and acquisitions. Under purchase accounting, an
amount equal to the difference between the value of the consideration paid and
the value of the net assets acquired is characterized as "goodwill," recorded as
an asset of the acquiring company, and amortized as a charge against earnings
over a period of years. The FASB is currently redeliberating the provisions in
the exposure draft and expects to issue a final statement near the end of the
first quarter of 2001.
DESCRIPTION OF CAROLINA SOUTHERN
Business
Carolina Southern is a locally owned and state-chartered commercial
bank offering various financial services to its local clientele through four
locations. Carolina Southern was chartered on July 26, 1988, and has operated
since June 26, 1989. Carolina Southern Bank's financial services include a full
range of FDIC insured deposit accounts, including various checking accounts,
savings accounts, certificates of deposit, money market accounts and individual
retirement accounts.
Carolina Southern offers short to intermediate term commercial and
personal loans for a variety of purposes on both a secured and unsecured basis.
Commercial loans are made primarily to small and medium sized businesses in
Spartanburg County. The bank offers these services for general operating capital
such as to acquire fixed assets or finance accounts receivables. Lease financing
is also available for businesses and municipalities. Personal loans are made to
finance the purchase of automobiles, mobile homes, boats or other recreational
items, home improvements, education or personal investments. Customers can also
use a wide variety of long-term fixed and variable rate loan products to finance
residential mortgages.
Customers wanting other convenient banking services turn to Carolina
Southern for nationwide ATM access via the ATM Networks CIRRUS(TM) and STAR(TM),
safe deposit boxes, travelers checks and direct deposits. MasterCard(TM)
services are also available. Additionally, Carolina Southern offers debit cards
that allow customers to easily pay for purchases through the global
MasterCard(TM) Network using their Carolina Southern checking account and a
MasterMoney(TM) check card.
In 1991, Carolina Southern received authority to exercise limited trust
powers. The bank uses these powers primarily to act as a trustee for its
Employee Stock Ownership Plan. Carolina Southern does not offer trust services
to the general public.
Carolina Southern operates in Spartanburg County, a highly competitive
banking environment with 20 financial institutions including banks and savings
and loans occupying 80 offices. Carolina Southern held 10.74% of all deposits
held by commercial banks in the marketplace and 7.64% of total deposits in the
marketplace on June 30, 1999, the latest available date for this information. As
of that date, total marketplace deposits were $2.25 billion.
Principal Shareholders
The following table sets forth as September 30, 2000, the stock
ownership of each of Carolina Southern's directors, by all directors and
executive officers as a group and by each owner of more than 5% of the
outstanding shares of Carolina Southern common stock.
49
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership
Sole Voting Shared Voting
and and
Investment Investment Percent
Name Power Power of Class
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles E. Atchison, Sr. 2,138 -- *
Vollie C. Bailey, Jr. 102,052 -- 2.78%
Albert B. Bullington, Jr.<F1> 179,014 46,791 6.15
Marsha H. Gibbs 1,703 -- *
Robert A. Harley<F2> 177,508 71,560 6.78
Ernest R. Kluttz<F3> 96,073 7,456 2.82<F9>
William Lowndes, III<F4> 53,047 65,214 3.22
Thomas H. Lyles<F5> 54,751 8,733 1.69<F9>
E. Lewis Miller 81,656 -- 2.22
John S. Poole<F6> 28,968 37,909 1.78<F9>
Robert L. Wynn, III<F7> 2,439 424 *
Kurt Zimmerli<F8> 89,474 26,250 3.15
All Directors and Executive
Officers as a group (13
persons) 860,367 264,337 30.02<F9>
*Less than one percent
<FN>
<F1> Includes 26,124 shares owned by Mr. Bullington's spouse, as to which he
disclaims beneficial ownership, 18,730 shares owned by a partnership of
which Mr. Bullington is a partner and 1,937 shares owned by a corporation
of which Mr. Bullington is a principal.
<F2> Includes 49,205 shares which Mr. Harley holds as sole trustee and 22,355
shares owned by Mr. Harley's spouse, as to which he disclaims beneficial
ownership.
<F3> Includes options to purchase 22,031 shares of common stock exercisable
within 60 days of September 30, 2000, held by Mr. Kluttz, and 7,456 shares
allocated to Mr. Kluttz by Carolina Southern's ESOP.
<F4> Includes 65,214 shares owned by a corporation controlled by Mr. Lowndes.
<F5> Includes options to purchase 24,031 shares of common stock exercisable
within 60 days of September 30, 2000, held by Mr. Lyles, and 8,733 shares
allocated to Mr. Lyles by Carolina Southern's ESOP.
50
<F6> Includes options to purchase 24,031 shares of common stock exercisable
within 60 days of September 30, 2000, held by Mr. Poole, 32,165 shares
owned by Mr. Poole's spouse, 749 shares owned by a minor child of Mr.
Poole's and 4,995 shares allocated to Mr. Poole by Carolina Southern's
ESOP.
<F7> Includes 424 shares owned by Mr. Wynn's spouse.
<F8> Includes 26,250 shares owned by members of Mr. Zimmerli's family,
as to which he disclaims beneficial
ownership.
<F9> Includes options to purchase 74,743 shares of common stock exercisable
within 60 days of September 30, 2000, held by Messrs. Kluttz, Lyles and
Poole and all executive officers as a group.
</FN>
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CAROLINA SOUTHERN BANK FOR THE YEARS ENDED DECEMBER 31, 1999, 1998
AND 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
General - Years Ended December 31, 1999 and 1998
The following data and analysis represents management's evaluation of
industry and economic trends that affected the Bank's performance as of December
31, 1999, 1998, and 1997. Because the banking industry has recently evolved
rather rapidly due to new regulations, interest rate changes, increasing
technology, and the like, financial institutions cannot afford to remain static.
In as much as the Bank is in an ever-changing industry subject to varying
economic factors, trend data over the previous three years may not be indicative
of future growth.
RESULTS OF OPERATIONS
---------------------
Net Interest Income
1999 to 1998
Interest income again reached record levels in 1999, ending the year
with a 6.1% increase over year-end 1998. This $850 thousand rise in interest
income came from a $16.3 million increase in earning assets since year-end 1998.
Interest income on loans accounted for $1.0 million of the increase in
total interest income, with loans outstanding increasing 12.3% to $140.4
million. Federal funds sold, a due from interest-bearing account, and investment
securities combined for a minimal decline of $134 thousand, attributable to
lower rates. At year-end, the Bank saw total interest income reach $14.8
million.
Interest expense on deposits rose $87 thousand in 1999. This minimal
increase in expense is attributable to the Bank gaining funds with lower deposit
rates in the beginning of 1999 prior to the rate increases in the latter part of
the year. Interest-bearing deposits, i.e. savings accounts, money markets, NOW
accounts, IRAs, and certificates of deposit, rose $10.8 million during 1999 and
ended the year at $152.7 million. By 1999's end, interest expense on deposits
reached $6.8 million, a 1.3% increase over 1998.
Interest expense on other borrowed funds increased $112 thousand during
1999. This increase is mainly attributed to the Bank drawing on a $27 million
line of credit with the Federal Home Loan Bank of Atlanta to help fund
additional loan growth during 1999. Interest expense on other borrowed funds
totaled $211 thousand for the year ended December 31, 1999.
In all, net interest income rose 9.1% ending 1999 at $7.8 million
compared to $7.1 million for 1998.
1998 to 1997
Interest income reached record levels in 1998, ending the year with a
11.0% increase over year-end 1997. This $1.4 million rise in interest income
came with a $19.6 million increase in earning assets since year-end 1997.
51
Interest income on loans accounted for $1.0 million of the increase in
total interest income, with loans outstanding increasing 9.0% to $125.0 million.
Federal funds sold, a due from interest-bearing account, and investment
securities contributed the remaining $344 thousand. At year-end, the Bank saw
total interest income reach $13.9 million.
Interest expense on deposits rose $508 thousand in 1998. The Bank
raised deposit rates during the first quarter of 1998 to help fund expected loan
growth. The increase in rates spurred deposit growth of $17.2 million during the
first quarter of 1998. This initial growth allowed the Bank to decrease deposit
rates throughout the remainder of the year, with some of the decrease
attributable to the cut in Federal interest rates during the fourth quarter of
1998. Interest-bearing deposits, i.e. savings accounts, money markets, NOW
accounts, IRAs, and certificates of deposit, rose $17.7 million during 1998 and
ended the year at $142.0 million. By 1998's end, interest expense on deposits
reached $6.7 million, a 8.2% increase over 1997.
Interest expense on other borrowed funds increased $32 thousand during
1998. This increase is mainly attributed to the Bank drawing on a $5 million
line of credit with the Federal Home Loan Bank of Atlanta to help fund
additional loan growth during the first quarter of 1998. The related interest
expense totaled $98 thousand for the year ended December 31, 1998.
In all, net interest income rose 13.4% ending 1998 at $7.1 million
compared to $6.3 million for 1997.
The table below sets forth certain information regarding changes in
interest income and interest expense of Carolina Southern for the periods
indicated. For each category of interest earning assets and interest bearing
liabilities, information is provided on changes attributable to (1) changes in
volume (changes in volume multiplied by old rate); (2) changes in rate (change
in rate multiplied by the old volume); (3) changes in rate/volume (changes in
rate multiplied by the change in volume) have been allocated to rate and volume
variances consistently on a proportionate basis.
Table 1: Changes in interest income and expense attributable to changes in
volume and rates
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997 1997 COMPARED TO 1996
Variance Variance Variance
Attributable to Attributable to Attributable to
Volume Rate Total Volume Rate Total Volume Rate Total
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 1,431 $ (447) $ 984 $ 1,150 $ (114) $ 1,036 $ 1,062 $ 37 $ 1,099
Investments 181 (169) 12 515 (47) 468 414 0 414
Fed funds sold &
other investments (136) (10) (146) (121) (3) (124) 51 (4) 47
--------------------------------------------------------------------------------------------
Total impact on
interest income $ 1,476 $ (626) $ 850 $ 1,515 $ (135) $ 1,380 $ 1,527 $ 33 $ 1,560
============================================================================================
Savings $ (1) $ (104) $ (105) $ 165 $ (25) $ 140 $ 14 $ (1) $ 13
NOW and Money
market accounts 116 (49) 67 5 (154) (149) 57 (58) (1)
Certificates of deposit 429 (304) 125 618 (101) 517 800 41 841
Fed funds purchased &
other borrowed money 136 (24) 112 33 (1) 32 35 4 39
--------------------------------------------------------------------------------------------
Total impact on
interest expense 680 (481) 199 822 (282) 540 906 (14) 892
============================================================================================
Increase in net
interest income $ 651 $ 840 $ 668
--------------------------------------------------------------------------------------------
</TABLE>
52
On the following pages, Tables 2 and 3 illustrate the Bank's average
interest earning asset and average interest bearing liability structures and
show changes in interest income and expense over the previous three years. It is
worthy to note that the Bank has seen significant increases in non-interest
bearing liabilities since 1997. These funds rose an average of $1.5 million
during 1999 and an average of $3.2 million during 1998. Higher levels of these
funds contribute to the Bank's rise in net interest income by providing funding
for various investments and loans.
Table 2: Average Balance Sheets and Interest Rates on Earning Assets (including
nonaccruing loans) and Interest Bearing Liabilities
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
Average Revenue/ Yield Average Revenue/ Yield Average Revenue/ Yield
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans $132,794 $12,058 9.08% $117,604 $11,074 9.42% $105,510 $10,038 9.51%
Investment securities<F1> 50,182 2,550 5.08% 46,835 2,538 5.42% 37,490 2,070 5.52%
Federal funds sold 2,809 134 4.77% 5,283 290 5.49% 5,208 289 5.55%
Deposits at other banks 318 13 4.09% 49 3 6.12% 2,332 128 5.49%
------------------------------------------------------------------------------------
Total interest earning
assets $186,103 $14,755 7.93% $169,771 $13,905 8.19% $150,540 $12,525 8.32%
------------------------------------------------------------------------------------
<FN>
<F1>The average balance sheet amounts and yields on securities
available-for-sale are based on the average of historical amortized cost
balances.
</FN>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest earning assets:
Cash and due from banks $ 7,063 $ 6,010 $ 5,201
Premises and equipment 4,553 4,573 4,056
Other assets 2,442 2,218 1,908
Less allowance for loan
losses (1,709) (1,681) (1,600)
-------------------------------------------------------------------------------------------------
Total non-interest
earning assets 12,349 11,120 9,565
-------------------------------------------------------------------------------------------------
Total assets $ 198,452 $ 180,891 $ 160,105
=================================================================================================
Interest bearing liabilities:
Savings & IRA accounts $ 19,057 713 3.74% $ 19,087 818 4.29% $ 15,335 678 4.42%
NOW and money market 35,297 891 2.52% 30,952 824 2.66% 30,781 973 3.16%
Certificates of deposits 94,739 5,165 5.45% 87,310 5,040 5.77% 76,804 4,523 5.89%
Federal funds purchased 414 22 5.31% 134 8 5.97% 101 6 5.94%
Other borrowed funds 3,805 188 4.94% 1,640 90 5.49% 1,085 60 5.53%
-------------------------------------------------------------------------------------------------
Total interest bearing
liabilities $153,312 $6,979 4.55% $139,123 $ 6,780 4.87% $ 124,106 $ 6,240 5.03%
Non-interest bearing liabilities
and shareholders' equity:
Demand deposits $ 21,859 $ 20,412 $ 17,339
Other liabilities 1,512 1,493 1,349
Shareholders' equity 21,769 19,863 17,311
-------------------------------------------------------------------------------------------------
Total non-interest bearing
liabilities and
53
shareholders' equity $ 45,140 $ 41,768 $ 35,999
-------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 198,452 $ 180,891 $ 160,105
=================================================================================================
Net interest income $7,776 $ 7,125 $ 6,285
=================================================================================================
Net interest income/
earning assets 4.18% 4.20% 4.18%
=================================================================================================
</TABLE>
Table 3: Average Interest-Earning Data Trends
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 Gains Over 1998 1998 Gains Over 1997
Dollar Growth Percent Growth Dollar Growth Percent Growth
<S> <C> <C> <C> <C>
Interest earning assets $16,332 9.6% $19,231 12.8%
Interest-bearing liabilities $14,189 10.2% $15,017 12.1%
Interest income $ 850 6.1% $ 1,380 11.0%
Interest expense $ 199 2.9% 540 8.7%
Net interest income $ 651 9.1% $ 840 13.4%
</TABLE>
The Provision for Possible Loan Losses
The Bank records a provision expense (the "Provision") for possible
loan losses regularly, normally once a month, and credits this amount to the
Allowance for Possible Loan Losses (the "Allowance"). At any given time the
Allowance is equal to all provision expenses over the Bank's life, less all
charged-off loans, plus all recoveries from previously charged-off loans. This
amount is netted against total loans to arrive at net loans outstanding on the
balance sheet. The Bank gives much consideration to providing an adequate
Allowance level using the "Allowance for Loan Loss Adequacy Model" (the
"Model"). This is a crucial exercise for any financial institution. Not only can
loan charge-offs significantly impact an institution's financial condition but
current provision expenses reduce reported net income; therefore, it is vital to
accurately estimate an adequate Allowance level on a regular basis. The Model
was devised by the Bank to measure many factors influencing an adequate
Allowance level. These factors include charge off and recovery history by loan
type, loan portfolio diversification, current and projected market conditions,
and analysis of discounted projected cash flow and collateral values for certain
specially identified loans. The Bank also consults current sources for economic
trends and other pertinent data when considering Allowance levels.
1999 to 1998
The Bank recorded a Provision of $92,000 during 1999, a 36.6% reduction
from 1998. At December 31, 1999, the Bank's allowance for loan losses as a
percentage of loans (the "Ratio") was 1.22%, a decrease from 1998's 1.39%. This
comes with a $15.4 million increase in outstanding loans during 1999. Over time,
with regular provision expenses and high loan quality, it becomes less difficult
to maintain an adequate allowance ratio even as outstanding loans grow. During
1999, the Bank had net loan charge-offs of $125,428 as compared to net loan
charge-offs of $35,975 in 1998. At year end 1999, the Allowances provided
coverages of 5.9 times to non-performing loans (loans past due more than 90
days, loans past due less than 90 days in non-accrual status, and other real
estate owned.)
During 1999, the Bank refined its method of loan grading to more
accurately assess the quality of the loan portfolio. This improved method
allowed a lower provision expense as high quality credits were more readily
identified.
1998 to 1997
The Bank recorded a Provision of $145,000 during 1998, a 23.9%
reduction from 1997. At December 31, 1998, the Bank's allowance for loan losses
as a percentage of loans (the "Ratio") was 1.39%, a decrease from 1997's 1.42%.
This comes with an $10.3 million increase in outstanding loans during 1998. Over
time, with
54
regular provision expenses and high loan quality, it becomes less
difficult to maintain an adequate allowance ratio even as outstanding loans
grow. During 1998, the Bank had net loan charge-offs of $35,975 as compared to
net loan charge-offs of $43,954 in 1997. At year end 1998, the Allowances
provided coverage of 7.1 times to non-performing loans (loans past due more than
90 days, loans past due less than 90 days in non-accrual status, and other real
estate owned.)
Non-interest Income and Expense
1999 to 1998
A portion of the Bank's income is less sensitive to the interest rate
environment. This non-interest income is composed mainly of service charges,
fees on deposit products, and mortgage origination fees. Non-interest income
accounted for 4.5% of all income received in 1999. In 1999, the Bank's
non-interest income fell 11.1% from 1998's to total $690,318 for the year.
Attributable to this decline is a fall-off in mortgage origination fees, which
suffered because of a dwindling refinance market as a result of higher mortgage
interest rates during the second half of 1999. The Bank originated $9.0 million
in mortgage loans in 1999, which were subsequently sold, down 28.6% from 1998
levels resulting in a corresponding decline in related fee income.
The relationship between non-interest expense and total 1999 expenses
provides a stark contrast to that of non-interest income and total income.
Non-interest expense accounted for 41.3% of total expenses incurred during 1999,
an increase of 8.7% over 1998. It is not uncommon in banking to see such expense
represent a large portion of the total. Salaries and employee benefits accounted
for 59.9% of the $4.9 million in total non-interest expense, an increase of 9.5%
since year-end 1998. Insurance expense increased 57.0%, mainly due to the Bank's
increased premiums because of growth, expansion, and increased technological
equipment. Miscellaneous expense rose 15.5% during 1999 due in general to the
overall growth of the Bank. Occupancy, equipment, and supplies expense had
minimal increases, while FDIC insurance showed a decline of 22.7% from 1998's
amount.
Advertising expense showed a 7.5% increase, displaying the Bank's
continued presence in the community through advertising campaigns in local
newspapers, on television, radio and other media sources. Carolina Southern Bank
has also engaged in local philanthropic activities for the community's benefit
through charitable contributions.
In 1994 the Bank established the Carolina Southern Foundation (the
"Foundation") to benefit local charities. During 1998, the Bank funded the
Foundation $25,000. However, in 1999 the Bank did not contribute since the
Foundation could sustain itself at an adequate level during the year from the
funding in 1998. The Bank may decide to continue such funding to help the
Foundation reach a totally self-sustaining level.
The Bank's efficiency ratio, that is, non-interest expense as a
percentage of net interest income and non-interest income (effective taxable
equivalent), shed light on its overall non-interest expense picture. This ratio
equals 100% when a bank is breaking even. The smaller the ratio, the less income
is being used to pay for non-interest expenses. Carolina Southern Bank had
efficiency ratios of 53.9%, 53.4%, and 52.7% in 1999, 1998, and 1997,
respectively.
1998 to 1997
Non-interest income accounted for 5.3% of all income received in 1998.
In 1998, the Bank's non-interest income grew 68.5% over 1997's to total $776,731
for the year due largely to the opening of the Bank's Mortgage Loan Department.
Non-interest expense accounted for 40.0% of total expenses incurred
during 1998, an increase of 21.7% over 1997. Salaries and employee benefits
accounted for 59.4% of the $4.5 million in total non-interest expense, an
increase of 23.7% since year-end 1997. A full-year of staffing two new branch
locations and the opening of the Mortgage Loan Department explains much of the
increase. Occupancy and equipment expense rose 47.2% this year also due to the
additional two branches and the Mortgage Loan Department. Miscellaneous expense
rose 10.3% during 1998 due to several minor increases in various expense
accounts. Insurance and FDIC insurance expense had minimal increases, while
supplies showed a decline of 8.8% from 1997's amount. Although advertising
expense showed a slight decline, the Bank still continued to mark its presence
in the community through advertising campaigns in local newspapers, on
television, radio and other media sources.
55
Earnings Ratios
Several widely-accepted measures exist that attempt to define bank
performance in the form of ratios. For example, the return on average assets
(ROA), is calculated by dividing average assets for the year into the period's
net earnings. ROA is very sensitive to fluctuations in non-interest expense and
changes in net interest margin, and therefore is a crucial ratio in the banking
industry. For 1999, Carolina Southern attained a 1.30% ROA. This decline from
1998's 1.33% is due to slightly higher increases in non-interest expense and a
small decrease in the Bank's net interest margin. However, continued growth for
the Bank will make it easier to achieve economies of scale and positively impact
operating efficiency.
Another commonly used profitability measure in banking is the return on
equity (ROE). ROE is calculated by dividing the average equity figure into net
earnings for the period. This measure indicates how well the Bank generated
return on shareholders' dollars during the period. In 1999, the Bank achieved an
ROE of 11.84%, down slightly from 1998's 12.11% ROE. This decline indicates that
the capital component of the Bank's balance sheet grew at a faster rate in 1999
than the rate of growth for the Bank's assets.
FINANCIAL CONDITION
--------------------
Asset and Liability Management
It is critical for the Bank to properly invest available funds. This
means that the Bank must strike a balance between the maturity and repricing of
both its assets and liabilities and manage overall liquidity, risk, and return.
The Bank strives to fund its loan portfolio aggressively while controlling the
associated risks, as this is the Bank's most profitable investment. Other
investable funds are placed either in investment securities or federal funds
sold. The Bank's securities are held more for return than liquidity. The most
liquid component of interest-earning assets is federal funds sold ("fed funds").
Fed funds are overnight loans to other domestic banks for the purpose of meeting
their liquidity needs. The Bank uses excess investable funds to earn more
revenue in this manner as its own liquidity changes. Fed funds sold is a
volatile asset and normally fluctuates daily.
1999 to 1998
During 1999, the Bank's earning assets grew $16.3 million. Outstanding
loans grew $15.4 million, a 12.3% gain over 1998. Investment securities incurred
a slight decline as funds were used to fund the strong loan demand during the
year. The majority of these earning asset increases, $10.8 million, were mainly
funded with interest-bearing deposit gains. Non-interest bearing deposits fell
slightly during the year dropping $856 thousand in low cost funds from the
Bank's portfolio. Non-interest earning assets rose a minor 2.4% due to overall
bank growth.
1998 to 1997
During 1998, the Bank's earning assets grew $19.6 million. Investment
securities grew the most as a percentage, ending 1998 with a 21.6%, or $9.4
million increase. Outstanding loans grew $10.3 million, a 9.0% gain over 1997.
The majority of these earning asset increases, $17.7 million, were funded with
interest-bearing deposit gains. Non-interest bearing deposits expanded 21.8%
during the year adding $4.3 million in low cost funds to the Bank's portfolio.
Non-interest earning assets rose 11.6% due to a 23.8% increase in cash and due
from bank accounts. The strong increase in cash and due from bank accounts can
be attributed to the Bank's two new branches gaining business and maintaining
additional cash reserves.
The Loan Portfolio
1999 to 1998
During 1999, the prime lending rate saw two increases, ending the year
at 8.50%. Earnings from the Bank's loan portfolio are significantly impacted by
prime rate fluctuations as variable rate loans represent just under half of the
Bank's total loans. At December 31, 1999, the Bank's variable rate loans stood
at $65.6 million, up 1.1% from year-end 1998, while those with fixed rates
increased $15.8 million to $74.9 million, up 26.7% from year-end 1998.
Table 4 shows the Bank's average loan portfolio mix for the years 1999,
1998 and 1997. Commercial loans have consistently been the single largest type
of loan for the Bank. Commercial loans, on average, were 72.8% of average
outstanding loans in 1999. That same figure compares to 70.3% in 1998. One of
the ways the
56
Bank can reduce loan risk is by taking substantial collateral for outstanding
loans. As such, the Bank has sought to collateralize commercial loans with real
estate when feasible. During 1999, 41.5% of the Bank's average commercial loans
were collateralized with real estate. This figure fell slightly from previous
years. Comparatively, average commercial loans collateralized with real estate
were 47.8% and 53.5% of average outstanding loans in 1998 and 1997.
Total average commercial loans increased 17.0% in 1999. Other
commercial loans, i.e. those commercial loans not collateralized with real
estate, increased $11.2 million, or 27.5% in 1999 as compared to 1998. This was
the largest average dollar volume increase in any loan category during 1999.
Commercial loans designated for construction and development showed the single
largest percentage increase, 101.0% over 1998.
All consumer loan categories showed average increases in 1999. Total
average consumer loans rose 3.3% compared to 1998.
Table 4: Composition of Loan Portfolio (Average Outstanding Dollars)
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------
<S> <C> <C> <C>
Commercial
Real estate $ 40,081,856 $ 39,509,890 $ 40,252,956
Construction and development 4,409,059 2,193,309 2,495,583
Other commercial 52,183,106 40,940,352 32,453,059
---------------------------------------------------
Total average commercial loans 96,674,021 82,643,551 75,201,598
Consumer
Mortgage 15,554,785 15,152,475 13,177,478
Equity lines 12,074,505 11,599,681 10,032,229
Other consumer 8,490,289 8,208,690 7,025,769
---------------------------------------------------
Total average consumer loans 36,119,579 34,960,846 30,235,476
---------------------------------------------------
Total average loans outstanding $ 132,793,600 $ 117,604,397 $ 105,437,074
===================================================
</TABLE>
Table 5: Outstanding Loans by Maturity and Repricing Opportunities at
December 31:
<TABLE>
<CAPTION>
After One
Within But Within After Five
1999 One Year Five Years Years Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, Financial & Agricultural $ 30,375,313 $ 24,808,419 $ 3,600,293 $ 58,784,025
Real Estate, Construction & Land
Development 22,586,124 33,531,841 4,020,877 60,138,842
Consumer 3,625,830 6,267,772 11,605,075 21,498,677
----------------------------------------------------------------------
Total $ 56,587,267 $ 64,608,032 $ 19,226,245 $ 140,421,544
======================================================================
1998
Commercial, Financial & Agricultural $ 26,884,819 $ 19,196,330 $ 2,024,148 $ 48,105,297
Real Estate, Construction & Land
Development 19,802,522 28,763,667 4,461,234 53,027,423
Consumer 5,070,215 5,406,821 13,438,580 23,915,616
----------------------------------------------------------------------
Total $ 51,757,556 $ 53,366,818 $ 19,923,962 $ 125,048,336
======================================================================
</TABLE>
The Bank has significant control over credit risk via loan underwriting
policies and procedures. Obviously, economic conditions and other factors beyond
management's control can also impact loan quality. In light of this, management
can still plan for risk through the Bank's allowance for possible loan losses.
Table 6 outlines loan quality measures for the Bank over the previous three
years.
57
Table 6: Analysis of Allowance for Loan Losses
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Beginning balance $ 1,741 $ 1,632 $ 1,559
Charge-offs:
Commercial, financial and agricultural 75 42 24
Real estate, construction and land development 0 0 35
Real estate, mortgage 0 0 12
Installment loans to individuals 59 16 2
-----------------------------------------
Total charge-offs 134 58 73
Recoveries:
Commercial, financial and agricultural 5 16 27
Real estate, construction and land development 0 2 0
Real estate, mortgage 0 0 0
Installment loans to individuals 3 4 2
-----------------------------------------
Total recoveries 8 22 29
-----------------------------------------
Net charge-offs 126 36 44
Provision for loan losses 92 145 117
-----------------------------------------
Ending balance $ 1,707 $ 1,741 $ 1,632
=========================================
Table 7: Loan Quality and Allowance for Loan Loss Measures
<CAPTION>
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Net charge-offs (recoveries) to average loans
outstanding .09% .03% .04%
Non-performing loans and other real estate
owned to average loans outstanding .22% .21% .18%
The Allowance to average loans 1.29% 1.48% 1.55%
Non-performing loans $ 288,000 $ 229,347 $ 185,869
Other real estate owned $ 1 $ 17,343 $ 0
</TABLE>
In Table 7, non-performing loans are those loans that are past due
ninety days or more. Other real estate owned (OREO) represents real estate that
the Bank has taken title to through foreclosure proceedings or deed in lieu of
foreclosure. All OREO properties are carried on the Bank's books at the lower of
actual market value less estimated cost of disposal, or the balance of the loan
that the property collateralized until such time as the property is sold.
Investment Securities
The investment securities portfolio allows the Bank to reduce interest
rate risks and maintain liquidity. The funds placed in this portfolio generally
will mature inside of seven years and produce a reasonable rate of return. The
Bank selects components of its investment securities portfolio from U.S.
Government and Agency Bonds, high grade corporate bonds and tax-free issues of
highly rated government agencies within the Southeast. Tax-exempt securities are
purchased as a part of the Bank's overall tax planning. During 1999, the Bank
was able to lower its federal and state income tax rates from a statutory rate
of 38.5% to an effective rate of approximately 25.6% due mostly to tax-free
income from these securities.
1999 to 1998
The Bank's average investment portfolio return in 1999 was 5.08%. (As
indicated in Table 2.) At year-end 1999, the securities portfolio comprised
25.0% of total assets. This figure is down from 27.7% at year-end 1998 and
presents a drop of $1.0 million in the securities portfolio. The average return
for federal funds sold for 1999 was
58
4.77%. The declining rate environment at the end of 1998 can be attributed to
the lower return yields on investments and federal funds sold. Maturing higher
rate securities in the first half of the year were replaced with lower yielding
securities that have not been off-set by the rate increases during the latter
half of 1999. Excess funds that were available to be sold as overnight federal
funds decreased significantly during the year as loan demand continued to be
strong.
At December 31, 1999, the Bank owned $575 thousand in Federal Home Loan
Bank stock. As a member of the FHLB, the Bank can enjoy access to funds
earmarked for residential loans. This stock, along with $64 thousand of stock in
Community Financial Services, Inc., the holding company for a bankers' bank,
represent the only equity securities in the Bank's investment portfolio.
On December 31, 1999, 51.9% of the Bank's investment portfolio was
classified as available for sale.
1998 to 1997
Again in 1998's rate environment, as was also true for 1997, federal
funds sold proved to be the more profitable investment over securities. This is
unusual because fed funds represent an overnight investment to other banks while
the securities portfolio is structured to mature in increments from one month to
seven years. Longer terms in the securities did not push up the overall rate of
return. For example, the Bank's average investment portfolio return in 1998 was
5.42%. This compares with the 5.49% earned in average federal funds sold over
the same period. (As indicated in Table 2.) However, the Bank did encourage
investment in securities during the year, to effectively match maturing
liabilities. At year-end 1998, the securities portfolio comprised 27.7% of total
assets. This figure is up from 25.6% at year-end 1997 and presents an increase
of $9.4 million in the securities portfolio.
On December 31, 1998, 55.5% of the Bank's investment portfolio was
classified as available for sale.
Deposits
The deposit mix is an important concern for management, not only
because deposits are the Bank's single largest liability, but also because the
interest paid for these funds represents the Bank's largest expense.
Additionally, deposit growth drives the Bank's ability to increase funding for
its earning assets.
1999 to 1998
Interest-bearing liabilities again showed significant gains in 1999. By
year-end, these deposits rose $10.8 million, a 7.6% increase over 1998. The mix
of interest-bearing deposits is also important to the Bank. The single largest
interest-bearing deposit category is certificates of deposit ("CDs"). CDs rose
10.2% during the year, ending the year with a $9.2 million increase. The Bank
tracks all CDs that are greater than or equal to $100,000 as a means of
determining reliance on high dollar deposits. At December 31, 1999, such CDs had
risen by $3.4 million while CDs less than $100,000 rose $5.8 million. In all,
deposits rose to $176.1 million, a 6.0% increase over 1998.
Maturing Time Deposits of $100,000 or greater, as of December 31, 1999
<TABLE>
<S> <C>
3 months or less $11,072,110
Over 3 months - 6 months 9,983,080
6 months - 12 months 5,375,505
Over 12 months 1,803,581
-----------
Total $28,234,276
</TABLE>
1998 to 1997
Interest-bearing liabilities showed significant gains in 1998. By
year-end, these deposits rose $17.7 million, an 14.2% increase over 1997. CDs
rose 17.2% during the year, ending the year $13.2 million higher. At December
31, 1998, CDs greater than $100,000 had risen by $2.7 million while CDs less
than $100,000 rose $10.5 million.
59
Inflation
In accordance with Generally Accepted Accounting Principles, Carolina
Southern's financial statements do not consider the effects of inflation. GAAP
requires the preparation of financial information in terms of historical dollars
and not changes in relative purchasing power over time due to inflation.
Generally, the performance of banks is not affected by inflation as the majority
of their assets and liabilities are monetary. It is true that inflation can
affect the interest rate environment, however, this relationship is not
necessarily congruent. The largest impact of inflation to any bank may be the
corresponding increases in the prices of goods and services that will affect
non-interest expense.
Year 2000
Even as the century date change has come and gone, with little or no
effect to the Bank, the year 2000 issue is still being monitored. Since all
potential impact to the Bank may not be known for some months to come,
management will continue to be aware of and oversee the Bank's preparedness to
identify potential risks associated with the Y2K issue.
General - Nine Months Ended September 30, 2000 and 1999
The following data and analysis represents management's evaluation of
certain significant factors which have affected the Bank's financial condition
and results of operation for the period ended September 30, 2000.
Material Changes in Financial Condition
As of September 30, 2000, earning assets rose $7.3 million over the
third quarter of last year to total $196.1 million. Loan demand has risen over
the last year with outstanding loans totaling $139.0 million representing a $3.1
million increase since 1999's third quarter. Investment securities rose $3.3
million over the past year, representing a 6.6% gain. Due to asset growth during
the past year, the Bank continues to use funding from an advance from the
Federal Home Loan Bank. Deposit accounts have risen $513 thousand since the
previous third quarter, representing a .3% increase. Since the prior third
quarter, non-interest bearing deposit accounts increased $803 thousand. Interest
bearing deposits decreased slightly during the same time period, falling $290
thousand, a .2% decline.
The allowance for possible loan losses decreased 4.8% during the past
year as a result of chargeoffs to the allowance of $318 thousand. The provision
expense is calculated to protect against inherent risk in the loan portfolio.
The ratio at quarter end was 1.18%.
Material Changes in Results of Operation
Total interest income rose 13.7% by September 30, 2000 compared to
1999's same figure. This increase is due to higher earning asset levels and
increases in the prime lending rate. As such, total interest income from loans
has been favorably affected due to rate changes this year more so than in recent
years. A 14.5% increase in loan income was realized compared to the same period
in 1999. A 10.3% increase in investment income is due to a restructuring in the
investment portfolio. Federal funds sold balances are overnight deposits with
domestic banks and fluctuate daily. Income from Federal funds sold increased
11.1% over 1999's comparable figure. Interest expense on deposits displayed an
increase of 17.3% compared to the same period of 1999. This expense item saw
increases due to increased deposit rates. The Bank has also incurred interest
expense on borrowed funds of $479 thousand since the beginning of the year. The
majority of this amount was due to the Bank drawing on a line of credit with the
Federal Home Loan Bank during 2000. All said, net interest income rose 5.5%
compared to the same 1999 year-to-date figure.
In the first three quarters of 2000, Carolina Southern's average asset
level was $11.9 million higher than the same 1999 average. Although this kind of
growth normally leads to higher non-interest expenses, the Bank has been
successful in stabilizing these expenses. Some of the items comprising
non-interest expense rose these past nine months, while others decreased from
the comparable 1999 year-to-date figures. Salaries and employee benefits, by far
the largest non-interest expense item, rose only 3.8% over the comparable 1999
year-to-date figure. Miscellaneous expenses experienced minimal increases due to
higher overhead incurred as a cost of the Bank's asset growth.
60
Equipment expense fell 18.4% because of several data processing items fully
depreciating at the end of 1999. Advertising and public relations dropped 21.5%
because the Bank benefitted from advertising campaigns started in 1999 that
needed only renewal expenses. Occupancy and supplies expenses stayed level due
to the Bank operating near capacity over the past two years. Non-interest income
fell 14.1% attributable to the overall decline in the mortgage refinance market
and losses incurred from the sale of investment securities. During the quarter,
the Bank elected to reposition some of its investment portfolio to take
advantage of higher interest rates. Although this strategy resulted in $42.7
thousand in losses during the first three quarters of the year, these losses
will be fully recovered over the last quarter of the year by higher interest
income on the securities purchased. This will result in higher securities income
in future periods.
In total, net income rose 2.5% for the nine months ending September 30,
2000 over 1999's same income number. Year-to-date basic and diluted earnings per
share were both at $.51 compared to the basic and diluted earnings per share of
$.50 and $.49 for the nine months ended September 30, 1999.
LEGAL MATTERS
The validity of the Synovus common stock to be issued in connection
with the merger will be passed upon by Kathleen Moates, Senior Vice President
and Senior Deputy General Counsel of Synovus. Ms. Moates beneficially owns
shares of Synovus common stock and options to purchase additional shares of
Synovus common stock. As of the date of this document, the number of shares Ms.
Moates owns or has the right to acquire upon exercise of her options is, in the
aggregate, less than 0.1% of the outstanding shares of Synovus common stock.
EXPERTS
The consolidated financial statements of Synovus Financial Corp.
incorporated in this document by reference to our Annual Report on Form 10-K for
the year ended December 31, 1999 have been so incorporated in reliance on the
report of KPMG LLP, independent public accountants, given on the authority of
such firm as experts in accounting and auditing.
The financial statements as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
OTHER MATTERS
Carolina Southern's board of directors does not know of any matters to
be presented at the special meeting other than those set forth above. If any
other matters are properly brought before the special meeting or any adjournment
of the special meeting, the enclosed proxy will be deemed to confer
discretionary authority on the individuals named as proxies to vote the shares
represented by the proxy as to any such matters.
SHAREHOLDER PROPOSALS
Synovus' 2001 annual meeting of shareholders will be held in April
2001. Any shareholder satisfying the Securities and Exchange Commission
requirements and wishing to submit a proposal to be included in the proxy
statement for the 2001 annual meeting of shareholders should submit the proposal
in writing to the Secretary, Synovus Financial Corp., 901 Front Avenue, Suite
301, Columbus, Georgia 31901. Synovus must receive a proposal by November 16,
2000 to consider it for inclusion in the proxy statement for the 2001 annual
meeting of shareholders.
If the merger is not consummated, Carolina Southern will inform its
shareholders of the date and time of the 2001 annual meeting of shareholders of
Carolina Southern.
61
WHERE YOU CAN FIND MORE INFORMATION
Synovus files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information that Synovus files with
the SEC at the SEC's public reference rooms at 450 Fifth Street, NW, Washington,
D.C. 20549, 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and
other information should also be available for inspection at the offices of the
NYSE.
Synovus filed a registration statement to register with the SEC the
Synovus common stock to be issued to Carolina Southern shareholders in the
merger. This document is a part of that registration statement and constitutes a
prospectus of Synovus. As allowed by SEC rules, this document does not contain
all the information you can find in Synovus' registration statement or the
exhibits to that registration statement.
The SEC allows Synovus to "incorporate by reference" information into
this document, which means that Synovus can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered part of this document,
except for any information superseded by information contained directly in this
document or in later filed documents incorporated by reference in this document.
This document incorporates by reference the documents set forth below
that Synovus has previously filed with the SEC. These documents contain
important information about Synovus and its business.
Synovus SEC Filings (File No. 1-10312)
(1) Synovus' Annual Report on Form 10-K for the year ended
December 31, 1999, as amended by Synovus' Annual Report on
Form 10-K/A for the fiscal year ended December 31, 1999;
(2) Synovus' Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2000, June 30, 2000; and September 30, 2000;
(3) Synovus' Current Reports on Form 8-K dated January 12, 2000,
May 31, 2000, July 5, 2000, August 9, 2000 and October 19,
2000;
(4) the description of Synovus common stock contained in Synovus'
Registration Statement on Form 8-A filed with the SEC on
August 21, 1989; and
(5) the description of the shareholder rights plan of Synovus
contained in Synovus' Registration Statement on Form 8-A filed
with the SEC on April 28, 1999.
Synovus also incorporates by reference additional documents that may be
filed with the SEC between the date of this document and the consumation of the
merger or termination of the merger agreement. These include periodic reports,
such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, as well as proxy statements.
Synovus has supplied all information contained or incorporated by
reference in this document relating to Synovus and Carolina Southern has
supplied all information contained in this document relating to Carolina
Southern.
You can obtain any of the documents incorporated by reference from
Synovus, the SEC or the SEC's Internet web site as described above. Documents
incorporated by reference are available from Synovus without charge, excluding
all exhibits, except that if Synovus has specifically incorporated by reference
an exhibit in this document, the exhibit will also be available without charge.
You may obtain documents incorporated by reference
62
in this document by requesting them in writing or by telephone from Synovus or
Carolina Southern at the following addresses:
Synovus Financial Corp.
901 Front Avenue, Suite 301
Columbus, Georgia 31901
Attn: G. Sanders Griffith, III
Senior Executive Vice President,
General Counsel & Secretary
Telephone: (706) 649-2267
Carolina Southern Bank
150 East Henry Street
Spartanburg, South Carolina 29306
Attn: Thomas H. Lyles
Executive Vice President and Corporate Secretary
Telephone: (864) 582-1500
If you would like to request documents from us, please do so by _______
2000 to receive them before the Carolina Southern special meeting.
You should rely only on the information contained or incorporated by
reference in this document. Synovus and Carolina Southern have not authorized
anyone to provide you with information that is different from what is contained
in this document. This document is dated December _, 2000. You should not assume
that the information contained in this document is accurate as of any date other
than that date. Neither the mailing of this document to shareholders nor the
issuance of Synovus common stock in the merger creates any implication to the
contrary.
63
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Carolina Southern Bank:
<S> <C>
Independent Accountants' Report........................................................................F-1
Balance Sheets - December 31, 1999 and 1998............................................................F-2
Statements of Income for the Years
ended December 31, 1999, 1998 and 1997.......................................................F-3
Statements of Shareholders' Equity for the Years
ended December 1999, 1998 and 1997...........................................................F-4
Statements of Cash Flows for the Years
ended December 31, 1999, 1998 and 1997........................................................F-5
Notes to Financial Statements..........................................................................F-6
Unaudited Balance Sheets - September 30, 2000.........................................................F-20
Unaudited Statements of Income
for the Three and Nine Months Ended
September 30, 2000 and 1999.................................................................F-21
Unaudited Statements of Shareholders' Equity
for the Nine Months Ended
September 30, 2000 and 1999..................................................................F-22
Unaudited Statements of Cash Flows
for the Nine Months Ended
September 30, 2000 and 1999..................................................................F-23
Notes to Unaudited
Financial Statements.........................................................................F-24
</TABLE>
64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Carolina Southern Bank:
In our opinion, the accompanying balance sheets and the related statements of
income, of changes in shareholders' equity and of cash flows present fairly, in
all material respects, the financial position of Carolina Southern Bank (the
"Bank") at December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Bank's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Spartanburg, South Carolina
January 15, 2000
F-1
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,255,655 $ 8,270,247
Federal funds sold 1,940,000 0
Investment securities held-to-maturity (market value
of $24,858,323 in 1999 and $24,130,123 in 1998) 25,070,799 23,610,093
Investment securities available-for-sale 26,365,397 28,820,113
Equity Securities 639,053 694,453
Loans 140,421,544 125,048,336
Less allowance for possible loan losses (1,707,188) (1,740,616)
------------------------------------
Net loans 138,714,356 123,307,720
Other real estate 1 17,343
Premises and equipment, net 4,409,803 4,527,082
Other assets 2,724,569 2,216,972
------------------------------------
TOTAL ASSETS $208,119,633 $191,464,023
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 23,356,762 $ 24,213,004
Interest bearing, including certificates of deposit
of $100,000 or more of $27,198,375 in 1999
and $23,808,912 in 1998 152,718,905 141,965,115
------------------------------------
Total Deposits 176,075,667 166,178,119
Federal funds purchased 0 2,400,000
Other borrowed funds 7,807,646 321,821
Accrued expenses and other liabilities 1,826,555 1,761,591
------------------------------------
TOTAL LIABILITIES 185,709,868 170,661,531
Shareholders' Equity:
Common stock, no par value,
authorized 10,000,000 shares, issued and
outstanding 3,663,209 in 1999 and 3,415,084 in 1998 22,031,107 19,294,174
Retained earnings 935,992 1,440,628
Accumulated other comprehensive income (557,334) 67,690
------------------------------------
TOTAL SHAREHOLDERS' EQUITY 22,409,765 20,802,492
------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $208,119,633 $191,464,023
====================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans and fees $ 12,058,469 $ 11,074,522 $ 10,038,329
Federal funds sold 133,776 290,146 288,969
Investment securities - taxable 1,296,692 1,598,819 1,381,376
Investment securities - non-taxable 1,252,865 939,066 688,517
Deposits with other banks 13,138 2,807 128,089
------------------------------------------------------
Total interest income 14,754,940 13,905,360 12,525,280
Interest expense on deposits 6,768,558 6,681,575 6,173,232
Interest expense on other borrowed funds 210,709 98,316 66,723
------------------------------------------------------
Total interest expense 6,979,267 6,779,891 6,239,955
Net interest income 7,775,673 7,125,469 6,285,325
Provision for possible loan losses 92,000 145,000 117,000
------------------------------------------------------
Net interest income after provision for 7,683,673 6,980,469 6,168,325
possible loan losses
Non-interest income:
Service charges and general banking fees 656,039 653,352 448,597
Gains on sale of securities 12,703 66,703 0
Gains on sale of assets 4,713 34,355 0
Other 16,863 22,321 12,472
------------------------------------------------------
Total non-interest income: 690,318 776,731 461,069
Non-interest expense:
Salaries and employee benefits 2,938,803 2,684,910 2,171,135
Occupancy 622,986 604,931 411,064
Equipment 356,609 352,053 292,628
Advertising and public relations 196,470 182,809 184,049
Insurance 44,397 28,275 26,428
Supplies 125,871 117,777 129,188
FDIC insurance 14,376 18,600 17,245
Miscellaneous 608,608 526,956 477,788
------------------------------------------------------
Total non-interest expense 4,908,120 4,516,311 3,709,525
------------------------------------------------------
Income before income taxes 3,465,871 3,240,889 2,919,869
Provision for income taxes 886,460 834,609 803,728
------------------------------------------------------
NET INCOME $ 2,579,411 $ 2,406,280 $ 2,116,141
======================================================
Basic net income per share $ 0.71 $ 0.67 $ 0.60
======================================================
Diluted net income per share $ 0.70 $ 0.65 $ 0.58
======================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
THREE YEARS ENDED DECEMBER 31 Common Stock Other
--------------------------- Retained Comprehensive
Shares Amount Earnings Income (loss) Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 3,058,026 14,779,518 1,262,483 (25,548) 16,016,453
Comprehensive income:
Net income -- -- 2,116,141 -- --
Other comprehensive income (loss),
net of tax -- -- -- 78,367 --
Total comprehensive income 2,194,508
Options exercised 50,704 156,189 -- -- 156,189
Disqualifying disposition of ISO's -- 37,578 -- -- 37,578
5% stock dividend 155,457 1,968,862 (1,968,862) -- 0
Cash issued in lieu of fractional
shares from stock split -- -- (2,628) -- (2,628)
Fractional shares acquired by the ESOP -- 2,357 -- -- 2,357
----------------------------------------------------------------------------------
Balance at December 31, 1997 3,264,187 16,944,504 1,407,134 52,819 $ 18,404,457
Comprehensive income:
Net income -- -- 2,406,280 -- --
Other comprehensive income (loss),
net of tax -- -- -- 14,871 --
Total comprehensive income 2,421,151
Options exercised 51,558 214,777 -- -- 214,777
3% stock dividend 99,339 2,129,597 (2,129,597) -- --
Cash issued in lieu of fractional
shares from stock dividend -- -- (6,208) -- (6,208)
Fractional shares acquired by the ESOP -- 5,296 -- -- 5,296
Cash dividend -- -- (236,981) -- (236,981)
----------------------------------------------------------------------------------
Balance at December 31, 1998 3,415,084 19,294,174 1,440,628 67,690 20,802,492
Comprehensive income:
Net income -- -- 2,579,411 -- --
Other comprehensive income (loss),
net of tax -- -- -- (625,024) --
Total comprehensive income 1,954,387
Options exercised 73,886 395,509 -- -- 395,509
5% stock dividend 174,239 2,341,424 (2,341,424) -- --
Cash issued in lieu of fractional
shares from stock dividend -- -- (3,017) -- (3,017)
Cash dividend -- -- (739,606) -- (739,606)
----------------------------------------------------------------------------------
Balance at December 31, 1999 3,663,209 $22,031,107 $ 935,992 $(557,334) $ 22,409,765
==================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31
1999 1998 1997
----------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 2,579,411 $ 2,406,280 $ 2,116,141
Adjustments to reconcile net income to net
cash provided by operating activities:
Net amortization(accretion) of unearned
discounts/premiums on securities 68,939 75,928 (8,320)
Provision for possible loan losses 92,000 145,000 117,000
Depreciation 515,688 515,743 386,375
Deferred income tax benefit (76,365) (99,075) (58,500)
Increase in other assets (507,597) (24,171) (319,855)
Increase in accrued expenses and other liabilities 108,522 419,268 248,869
----------------------------------------------------
Net cash provided by operating activities 2,780,598 3,438,973 2,481,710
Investing Activities
Loans originated, net of collections (15,373,208) (10,306,753) (11,844,146)
Purchases of premises and equipment (398,409) (443,679) (1,529,302)
Decrease(increase) in other real estate owned 17,342 (17,343) 0
Proceeds from maturities of investment securities:
Held-to-maturity 3,785,000 4,729,545 7,575,000
Available-for-sale 9,635,960 15,032,748 6,000,000
Purchases of investment securities:
Held-to-maturity (4,815,359) (6,150,756) (8,567,518)
Available-for-sale (9,082,381) (23,287,274) (15,746,159)
----------------------------------------------------
Net cash used in investing activities (16,231,055) (20,443,512) (24,112,125)
Financing Activities
Net increase in deposits 9,897,548 22,006,215 14,977,889
Proceeds (repayments) from borrowings 6,000,000 (5,000,000) 5,000,000
Net (decrease)increase in other borrowed funds (914,175) 1,221,821 701,653
Proceeds from exercised stock options 395,509 214,777 156,189
Cash issued in lieu of fractional shares (3,017) (6,208) (2,628)
Acquisition of fractional shares for ESOP 0 5,296 2,357
----------------------------------------------------
Net cash provided by financing activities 15,375,865 18,441,901 20,835,460
----------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,925,408 1,437,362 (794,955)
Cash and cash equivalents at beginning of year 8,270,247 6,832,885 7,627,840
Cash and cash equivalents at end of year $ 10,195,655 $ 8,270,247 $ 6,832,885
====================================================
Supplemental disclosures of cash flow information:
Interest paid $ 7,116,336 $ 6,584,536 $ 5,840,085
Income taxes paid $ 831,001 $ 817,381 $ 911,724
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999
1. ACCOUNTING POLICIES
NATURE OF OPERATIONS
Carolina Southern Bank (the "Bank") operates four branches in Spartanburg, South
Carolina. The Bank's primary source of revenue is derived from loans to
customers, who are predominately small and medium size businesses and middle
income individuals.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH EQUIVALENTS
Cash and cash equivalents are composed of certain highly liquid investments with
an original maturity of less than three months, including amounts due from banks
and federal funds sold. Generally, federal funds are sold for one-day periods.
INVESTMENT SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
Management determines the appropriate classification of all investment
securities at the time of purchase. Debt securities are classified as
held-to-maturity when the Bank has the positive intent and ability to hold the
securities to maturity. Held-to-maturity securities are stated at amortized
cost, adjusted for amortization of premiums and accretion of discounts to
maturity. Such amortization is included in investment income. Interest on
securities classified as held-to-maturity is included in investment income.
Debt securities not classified as held-to-maturity are classified as
available-for-sale and are carried at estimated fair value, with the unrealized
gains and losses, net of tax, reported in comprehensive income. The amortized
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization is included
in investment income. Realized gains and losses on available-for-sale securities
are included in non-interest income. The cost of securities sold is based on the
specific identification method. Interest and dividends on securities classified
as available-for-sale are included in investment income.
Declines in the value of investment securities that are deemed to be other than
temporary are recognized as a reduction to non-interest income. No such declines
were experienced during 1999, 1998, or 1997.
LOANS
Loans are carried at the principal amount outstanding reduced by deferred loan
origination fees net of costs. Interest on loans and amortization of net
deferred loan fees is recognized by the interest method over the terms of the
loans based on the principal amount outstanding.
Nonaccrual loans. Generally, a loan is classified as nonaccrual and the accrual
of interest on such loan is discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of principal or interest, even though the
loan currently is performing. A loan may remain on accrual status if it is in
the process of collection and is either guaranteed or well collateralized. When
a loan is placed on nonaccrual status, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is charged
against the allowance for possible loan losses. Amounts received on nonaccrual
loans generally are either applied against principal or reported as interest
income, according to management's judgment as to the collectibility of
principal. Generally, loans are restored to accrual status when the obligation
is brought current, has performed in accordance with the contractual terms for a
reasonable period of time and the ultimate collectibility of the total
contractual principal and interest is no longer in doubt.
Allowance for Possible Loan Losses. The allowance for possible loan losses is
established through provisions for loan losses charged against income. Loans
deemed to be uncollectible are charged against the allowance for possible loan
losses, and any subsequent recoveries are credited to the allowance.
The Bank follows the provisions of Statements of Financial Accounting Standards
(SFAS) No. 114 and 118, "Accounting by Creditors for Impairment of a Loan". SFAS
114 and 118 apply to loans for which it is probable that the creditor will not
collect all principal and interest payments according to the loan's contractual
terms. The impairment of a loan is measured at the present value of expected
future
F-6
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999
cash flows using the loan's effective interest rate, the fair value of the
collateral if the loan is collateral dependent or the loan's observable market
price. Loans to be considered for evaluation of collectibility under SFAS 114
and 118 include loans classified as doubtful, certain substandard loans, certain
nonaccrual loans and any other loans for which collection of all principal and
interest payments under the contractual terms is not considered probable.
Impaired loans do not include large groups of smaller balance, homogenous loans
such as residential mortgages and retail loans that are evaluated collectively
for impairment. A valuation allowance is recorded if the measured value of the
impaired loan is less that its recorded investment (outstanding principal
balance, accrued interest receivable, net deferred loan fees or costs and
unamortized premium or discount). The valuation allowances for impaired loans
are included in the allowance for possible loan losses through changes in the
provision for possible loan losses.
The allowance for possible loan losses is maintained at a level believed
adequate by management to absorb estimated probable credit losses. Management's
periodic evaluation of the adequacy of the allowance is based on the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the timing
of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates, including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to significant
change.
OTHER REAL ESTATE OWNED (OREO)
Properties acquired by foreclosure or deed in lieu of foreclosure on loans which
the borrowers have defaulted as to the principal and interest are transferred to
OREO and recorded at the lower of cost or fair value based on the appraised
value at the date actually or constructively received minus estimated selling
costs. Loan losses arising from the acquisition of such property are charged
against the allowance for loan losses.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation of premises and equipment is provided over the estimated useful
lives of the respective assets under the straight-line method. Expenditures for
major renovations are capitalized and those for ordinary maintenance and repairs
are charged to operating expenses as incurred. Upon disposition, the asset and
related accumulated depreciation are relieved and any resulting gain or loss is
charged to income.
INCOME TAXES
Deferred tax assets and liabilities are recognized for future tax consequences
attributable to temporary differences between financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which temporary differences
are expected to be reversed or settled. Deferred tax assets are reduced if
necessary by the amount of such benefits that are not expected to be realized
based on available events.
NET INCOME PER SHARE
Basic and diluted net income per common share are based upon the average number
of common shares outstanding and common stock equivalents for each year, as
applicable. All per share data has been adjusted to reflect the three-for-two
stock split for shareholders of record on December 19, 1997, the 5% stock
dividends declared during 1997 and 1999 and the 3% stock dividend declared
during 1998.
F-7
SEGMENT INFORMATION
During the year ended December 31, 1998, the Bank adopted the provisions of SFAS
No. 131 "Disclosures about Segments of an Enterprise and Related Information."
This Statement requires that public business enterprises report certain
information about operating segments in their annual financial statements and in
condensed financial statements of interim periods issued to shareholders. It
also requires that public business enterprises report related disclosures and
descriptive information about products and services provided by significant
segments, geographic areas, and major customers, differences between the
measurements used in reporting segment information and those used in the
enterprises general-purpose financial statements, and changes in the
measurement of segment amounts from period to period.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Bank has determined that it has one significant operating
segment, the providing of general commercial financial services to customers
located in the single geographic area of Spartanburg County, South Carolina and
surrounding communities. The various products are those generally offered by
community banks, and the allocation of resources is based on the overall
performance of the institution, versus the individual branches or products.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". As amended, SFAS
No. 133 is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000. This standard establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Based on its operations at December
31, 1999, management does not expect this standard to have a material effect on
the Bank's financial statements upon adoption.
RECLASSIFICATION
Certain 1998 and 1997 amounts have been reclassified to conform with the 1999
presentation.
F-8
2. INVESTMENT SECURITIES
The following is a summary of held-to-maturity securities and available-for-sale
securities at December 31, 1999 and 1998. The weighted average yield is shown in
parentheses for each security class.
<TABLE>
<CAPTION>
HELD-TO-MATURITY
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1999 COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
US Government obligations:
Maturing:
After one but within five years (5.63%) $ 100,155 $ -- $ 936 $ 99,219
-----------------------------------------------------------
100,155 -- 936 99,219
US Government agency obligations:
Maturing:
Within one year (6.23%) 499,750 -- 60 499,690
-----------------------------------------------------------
499,750 -- 60 499,690
State, county and municipal obligations:
Maturing:
Within one year (4.96%) 3,479,787 3,543 33,647 3,449,683
After one but within five years (4.77%) 16,322,532 16,665 157,524 16,181,673
After five but within ten years (5.25%) 4,668,575 4,740 45,257 4,628,058
-----------------------------------------------------------
24,470,894 24,948 236,428 24,259,414
-----------------------------------------------------------
Total Securities Held-to-Maturity $25,070,799 $ 24,948 $ 237,424 $24,858,323
===========================================================
<CAPTION>
AVAILABLE-FOR-SALE
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1999 COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
US Government obligations:
Maturing:
Within one year (4.62%) $ 499,322 $ -- $ 5,877 $ 493,445
US Government mortgage-backed obligations:
Maturing:
After five but within ten years (6.5%) 1,572,625 -- 19,593 1,553,032
US Government agency obligations:
Maturing:
Within one year (5.00%) 1,219,741 -- 32,701 1,187,040
After one but within five years (5.83%) 18,979,399 -- 512,318 18,467,081
-----------------------------------------------------------
20,199,140 -- 545,019 19,654,121
State, county, and municipal obligations:
Maturing:
After one but within five years (3.75%) 767,248 -- 42,463 724,785
-----------------------------------------------------------
After five but within ten years (4.12%) 4,171,508 -- 231,494 3,940,014
-----------------------------------------------------------
4,938,756 -- 273,957 4,664,799
-----------------------------------------------------------
Total Securities Available-for-Sale $27,209,843 $ -- $ 844,446 $26,365,397
===========================================================
</TABLE>
F-9
<TABLE>
<CAPTION>
HELD-TO-MATURITY
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1998 COST GAINS LOSSES VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
US Government obligations:
Maturing:
After one but within five years (5.42%) $ 600,693 $ 5,935 $ -- $ 606,628
US Government agency obligations:
Maturing:
Within one year (5.69%) 999,821 3,264 -- 1,003,085
After one but within five years (6.23%) 499,286 1,814 -- 501,100
-----------------------------------------------------------
1,499,107 5,078 -- 1,504,185
State, county and municipal obligations:
Maturing:
Within one year (5.43%) 1,786,381 5,206 -- 1,791,587
After one but within five years (4.87%) 14,969,498 315,671 -- 15,285,169
After five but within ten years (4.68%) 4,754,414 188,267 127 4,942,554
-----------------------------------------------------------
21,510,293 509,144 127 22,019,310
-----------------------------------------------------------
Total Securities Held-to-Maturity $23,610,093 $ 520,157 $ 127 $24,130,123
===========================================================
<CAPTION>
AVAILABLE-FOR-SALE
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
December 31, 1998 COST GAINS LOSSES VALUE
-----------------------------------------------------------
US Government obligations:
Maturing:
Within one year (5.92%) $ 1,502,935 $ 4,100 $ -- $ 1,507,035
After one but within five years (5.50%) 496,740 8,215 -- 504,955
-----------------------------------------------------------
1,999,675 12,315 -- 2,011,990
US Government agency obligations:
Maturing:
Within one year (5.78%) 3,000,123 4,567 -- 3,004,690
After one but within five years (5.79%) 18,777,890 97,661 12,016 18,863,535
-----------------------------------------------------------
21,778,013 102,228 12,016 21,868,225
State, county and municipal obligations:
Maturing:
After five but within ten years (4.06%) 4,939,866 101 69 4,939,898
-----------------------------------------------------------
Total Securities Available-for-Sale $28,717,554 $ 114,644 $ 12,085 $28,820,113
===========================================================
</TABLE>
Expected maturities may differ from contractual maturities because many issuers
have the right to call or prepay obligations with or without call or prepayment
penalties.
The Bank may pledge investment securities to collateralize deposits in excess of
the FDIC insurance maximum of $100,000. Such security generally is required for
public funds deposited at the Bank by government entities. The par value of
securities pledged was $2,325,000, and $3,225,000 at December 31, 1999 and 1998,
respectively.
F-10
3. LOANS
The carrying amounts of loans at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
----------------------------------
<S> <C> <C>
Commercial, financial and agricultural $ 58,784,026 $ 48,105,297
Real estate - construction 20,786,523 17,938,611
Real estate - mortgage 39,516,406 35,189,533
Installment and consumer credit lines 21,474,279 23,915,616
----------------------------------
140,561,234 125,149,057
Less deferred fees 139,690 100,721
----------------------------------
$140,421,544 $125,048,336
==================================
</TABLE>
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $1,740,616 1,631,591 $1,558,545
Provision for possible loan losses 92,000 145,000 117,000
Loans charged off (133,902) (57,564) (73,017)
Recoveries of charged off loans 8,474 21,589 29,063
-----------------------------------------------
Balance at end of year $1,707,188 $1,740,616 $1,631,591
===============================================
</TABLE>
The following is a summary of impaired loans as of and for the year ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Loans considered to be impaired $719,102 $215,593 $255,432
Nonaccrual loans considered to be impaired 288,001 155,990 87,158
Valuation allowance for impaired loans included
in the allowance for possible loan losses 84,810 102,842 83,649
Average recorded investment in impaired loans
for the year ended 512,894 364,721 237,094
Interest income recognized on impaired loans:
Accrual basis 21,580 84 184
Cash basis 87 16,112 14,793
</TABLE>
The Bank grants short to intermediate term commercial and personal loans in the
Spartanburg County area. Although the Bank has a diversified portfolio, a
significant factor in its debtors' ability to honor their contracts is the
economy of Spartanburg County.
F-11
4. PREMISES AND EQUIPMENT
The following is a summary at December 31 of premises and equipment:
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
<S> <C> <C>
Land $ 409,556 $ 409,556
Buildings 3,102,474 2,841,867
Leasehold improvements 1,020,577 987,252
Furniture and equipment 2,496,191 2,310,167
-----------------------------------
7,028,798 6,548,842
Less accumulated depreciation 2,618,995 2,120,469
-----------------------------------
4,409,803 4,428,373
Construction in process 0 98,709
-----------------------------------
$4,409,803 $4,527,082
===================================
</TABLE>
5. EARNINGS PER SHARE
The following tables reconcile the numerator and denominator of the basic and
diluted computations for income from continuing operations for the years ended
December 31:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------
<S> <C> <C> <C>
1999
Basic EPS
Income available to common shareholders $2,579,411 3,637,740 $.71
Effect of Dilutive Securities 0 45,553
-----------------------------------------------------------
Diluted EPS
Income available to common shareholders
and assumed conversions $2,579,411 3,683,293 $.70
-----------------------------------------------------------
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------
<S> <C> <C> <C>
1998
Basic EPS
Income available to common shareholders $2,406,280 3,579,817 $.67
Effect of Dilutive Securities 0 107,238
-----------------------------------------------------------
Diluted EPS
Income available to common shareholders
and assumed conversions $2,406,280 3,687,055 $.65
-----------------------------------------------------------
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------
<S> <C> <C> <C>
1997
(Numerator)
Basic EPS
Income available to common shareholders $2,116,141 3,533,812 $.60
Effect of Dilutive Securities 0 120,719
-----------------------------------------------------------
Diluted EPS
Income available to common shareholders
and assumed conversions $2,116,141 3,654,531 $.58
-----------------------------------------------------------
</TABLE>
F-12
6. DEPOSITS
The aggregate amount of certificates of deposit with denominations of $100,000
or greater was $27,198,375 and $23,808,912 at December 31, 1999 and 1998,
respectively.
At December 31, 1999, the scheduled maturities of all time deposits are as
follows:
<TABLE>
<S> <C>
2000............................................... $ 93,167,729
2001............................................... 9,398,426
2002............................................... 2,511,961
2003............................................... 1,268,841
After 2003......................................... 183,381
--------------
$ 106,530,338
==============
</TABLE>
7. OTHER BORROWED FUNDS
Federal Home Loan Bank (FHLB) advances of $6,000,000, all of which will mature
during 2000, are included in other borrowed funds at December 31, 1999. At
December 31, 1999, the Bank had pledged its investment in stock of the FHLB and
first mortgage loans to collateralize FHLB advances. No advances were
outstanding at December 31, 1998. Also, the Bank retains various tax payments
made by its customers to the U.S. Treasury. The funds are retained by the Bank
until called by the U.S. Treasury. The Bank held amounts of $1,807,646 and
$321,821 at December 31, 1999 and 1998, respectively. These borrowings are
secured by investment securities pledged to the Federal Reserve Bank of
Richmond.
8. INCOME TAXES
Significant components of the provision (benefit) for income taxes attributable
to continuing operations are as follows:
<TABLE>
<CAPTION>
Current: 1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Federal $ 842,487 $ 816,545 $ 764,261
State 120,338 117,139 97,967
Total taxes currently payable 962,825 933,684 862,228
Deferred income tax (76,365) (99,075) (58,500)
-----------------------------------------------------------
Total income tax expense $ 886,460 $ 834,609 $ 803,728
===========================================================
</TABLE>
F-13
Significant components of the Bank's deferred tax assets and liabilities
included in other assets as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------
<S> <C> <C>
Deferred tax assets:
Book over tax depreciation $ 19,885 $ --
Allowance for loan losses 585,252 597,883
Deferred loan fees 51,685 37,267
Unrealized loss on investment securities
available-for-sale 287,112 --
Total gross deferred tax assets 943,934 635,150
Deferred tax liabilities:
Prepaid expenses and other 107,430 149,314
Tax over book depreciation -- 12,809
Unrealized gain on investment securities
available-for-sale -- 34,870
----------------------------
Total gross deferred tax liabilities 107,430 196,993
----------------------------
Net deferred tax asset $ 836,504 $ 438,157
============================
</TABLE>
The reconciliations of income tax computed at the U.S. Federal statutory tax
rates to the effective tax rate for the three years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
Amount Percent Amount Percent Amount Percent
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax at US statutory
rates $ 1,178,396 34% $ 1,101,902 34% $ 992,755 34%
State income taxes, net of
Federal tax benefits 77,144 4% 69,761 2% 60,542 2%
Tax-exempt interest income (396,775) (15%) (376,428) (12%) (233,310) (8%)
Other 27,695 3% 39,374 2% (16,259) --
-------------------------------------------------------------------------------
$ 886,460 26% $ 834,609 26% $ 803,728 28%
===============================================================================
</TABLE>
9. EMPLOYEE BENEFIT PLANS
Stock Option Plans. The Bank maintains two fixed stock option plans, the
1988 Plan and the 1996 Plan (the "Plans"), which are intended to
attract and induce continued employment of key employees, provide to
them an opportunity to acquire a proprietary interest in the Bank, and
to align their long-term interests with that of the shareholders. Both
Plans were ratified by the shareholders prior to implementation.
Non-employee directors do not participate in the Plans. The number of
shares provided for by the Plans are adjusted for stock splits, stock
dividends and similar events. The exercise price of each share of
common stock covered by an option shall be equal to the fair market
value per share of the Bank's common stock on the date the option is
granted and therefore has no associated expense. Employees vest in the
options at 20% on the day of grant and 20% on each of the four
subsequent anniversaries of the grant. Options under the 1988 Plan
expire five years after the grant date while options under the 1996
Plan have a ten year life.
Under the 1988 Plan, 326,092 shares are authorized for grants of options, all of
which have been issued, with exercise price at $8.67. Under the 1996 Plan,
335,347 shares are authorized for grant, of which 160,112 have been issued, with
exercise prices ranging from $8.53 to $21.27. The Bank has adopted the
disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation costs for the Bank's two stock option plans
F-14
been determined based on the fair value at the grant date for awards in the
following years consistent with the provisions of SFAS No. 123, the Bank's net
income and basic income per share would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------
<S> <C> <C> <C>
Net income as reported $2,579,411 $2,406,280 $2,116,141
Net income pro forma $2,151,804 $2,073,710 $1,921,378
Basic EPS as reported $ 0.71 $ 0.67 $ 0.60
Basic EPS pro forma $ 0.59 $ 0.58 $ 0.54
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used:
<TABLE>
<CAPTION>
GRANTS AWARDED
1999 1998 1997
---------------------------------------
<S> <C> <C> <C>
Dividend Yield 1.53% 0.4% 0.0%
Expected Volatility 75.8% 79.4% 91.1%
Risk-free
Interest rates 5.50% 4.67% - 5.83% 6.50% - 6.70%
Weighted avg.
expected life
(months) 120 120 118 to 120
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 208,509 $ 10.15 218,980 $ 6.35 229,453 $ 4.77
Granted 67,035 $ 16.19 45,146 $ 20.84 48,940 $ 9.55
Exercised 77,575 $ 5.10 55,617 $ 3.86 57,566 $ 2.71
Cancelled 981 $ 14.06 0 $ 0 1,847 $ 7.43
---------------------------------------------------------------------------------
Outstanding at
end of year 196,988 $ 14.18 208,509 $ 10.15 218,980 $ 6.35
=================================================================================
Options exercisable
at year-end 88,870 $ 12.49 126,246 $ 7.45 137,338 $ 5.20
Weighted average fair
value of options granted $ 11.29 $ 17.48 $ 6.71
Weighted average remaining
contractual life 6.9 years 4.4 years 3.2 years
</TABLE>
EMPLOYEE STOCK OWNERSHIP PLAN
In 1990, the Board of Directors adopted an employee stock ownership plan (the
"ESOP") for all employees meeting certain eligibility requirements. In 1991, the
ESOP was ratified by the shareholders.
The ESOP is a defined contribution stock purchase plan which is designed to
invest primarily in common stock of the Bank ("Shares"). The ESOP is funded
completely from Bank contributions, the level of which is established annually
by the Board of Directors after consideration of the Bank's performance and
earnings, among other factors. The Bank currently has 67 employees of which 54
were eligible to participate in the ESOP at December 31, 1999.
The Bank's contributions to the ESOP were $120,000, $108,000, and $90,000 in
1999, 1998, and 1997, respectively.
F-15
401 (K) RETIREMENT PLAN
In 1990, the Board of Directors approved the adoption of the Carolina Southern
Bank 401(k) Retirement Plan (the 401(k) Plan) effective January 1, 1991. All
employees of the Bank that meet certain eligibility requirements are eligible to
participate. The Bank currently has 67 employees of which 48 were eligible to
participate at December 31, 1999.
Participants may elect to defer up to 10% of their annual compensation and these
dollars will be contributed to the 401(k) Plan on their behalf. The Bank makes
monthly contributions equal to 100% of the employees' deferral percentage up to
a maximum deferral of 6%. The maximum Bank contribution is 6% of an employee's
compensation. All deferrals and matching contributions are remitted to the
401(k) Plan on a monthly basis.
The Bank contributed $96,997, $86,409, and $39,577 to the 401(k) Plan in 1999,
1998, and 1997, respectively.
10. OTHER COMPREHENSIVE INCOME
Comprehensive income is defined as net income plus transactions and other
occurrences which are the result of nonowner changes in equity.
Other comprehensive income is defined as comprehensive income exclusive of net
income. Unrealized gains (losses) on available for sale investment securities
represent the sole component of the Bank's other comprehensive income. Other
comprehensive income (loss) consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Unrealized holdings gains/(losses)
arising during the year $ (844,446) $ 89,233 $ 118,737
Reclassification adjustments for gains
(losses) included in net income 12,703 66,703 0
-----------------------------------------------
Other comprehensive income (loss)
before tax (857,149) 22,530 118,737
Income tax expense (benefit) related
to other comprehensive income (232,125) 7,659 40,370
-----------------------------------------------
Other comprehensive income (loss),
net of tax $ (625,024) $ 14,871 $ 78,367
===============================================
</TABLE>
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet. The
contract amounts of these instruments reflect the extent of involvement the Bank
has in particular classes of financial instruments.
The Bank's 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 amount of these instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Financial instruments off-balance sheet whose contract amounts represent credit
risk at December 31, 1999:
<TABLE>
<S> <C>
Commitments to extend credit $24,506,000
Standby letters of credit $ 439,000
</TABLE>
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
F-16
fixed expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. Collateral obtained, if deemed necessary, by the Bank upon
extension of credit is based on management's credit evaluation of the customer.
Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank 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 loan facilities to customers.
12. LOANS TO RELATED PARTIES
Certain directors, their associates and officers have loans and loan commitments
with the Bank. Activity for outstanding loans to related parties during the year
ended December 31, 1999 is summarized as follows:
<TABLE>
<S> <C>
Balance at December 31, 1998 $3,367,214
Loans made 4,206,293
Repayments 4,612,574
----------
Balance at December 31, 1999 $2,960,933
==========
</TABLE>
The aggregate dollar amount of unused loan commitments at December 31, 1999 was
$743,621.
13. REGULATORY MATTERS
Banking regulations restrict the amount of dividends that can be paid. All
dividends paid from the Bank are subject to prior approval of the Commissioner
of Banking of South Carolina and are payable only from the Bank's undivided
profits. Regulatory authorities may limit payment of dividends by any bank when
it is determined that such a limitation is in the public interest and is
necessary to ensure the institution's financial soundness.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum requirements can initiate
certain mandatory, and possibly additional discretionary, actions by regulators
that, if undertaken, could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1999, that the Bank
meets all capital adequacy requirements to which it is subject.
F-17
<TABLE>
<CAPTION>
Adequately Well
Actual Capitalized Capitalized
($000) Percent ($000) Percent ($000) Percent
<S> <C> <C> <C> <C> <C> <C>
1999
Total Capital (to Risk
Weighted Assets) $24,674 17.5% $11,254 8.0% $14,067 10.0%
Tier 1 Capital (to Risk
Weighted Assets) 22,967 16.3 5,626 4.0 8,440 6.0
Tier 1 Capital (to
Average Assets) 22,967 11.6 7,938 4.0 9,923 5.0
1998
Total Capital (to Risk
Weighted Assets) $22,340 17.4% $10,278 8.0% $12,847 10.0%
Tier 1 Capital (to Risk
Weighted Assets) 20,734 16.1 5,139 4.0 7,708 6.0
Tier 1 Capital (to
Average Assets) 20,734 11.0 7,554 4.0 9,442 5.0
</TABLE>
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Bank.
The following methods and assumptions were used by the Bank in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and short-term instruments approximate those assets' fair values.
Investment securities: Fair values for investment securities are based
on quoted market prices, where available. If
F-18
quoted market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans: The fair values for loans are estimated using discounted cash
flow analyses using interest rates currently being offered for loans with
similar terms. The carrying amount of accrued interest approximates its fair
value.
Off-balance-sheet instruments: Fair values for the Bank's
off-balance-sheet instruments, primarily loan commitments, are based on fees
currently charged to enter into similar agreements taking into account the
remaining terms of the agreements and the counter parties' credit standing.
Deposit liabilities: The fair values disclosed for deposits with no
stated maturity (e.g., interest and non-interest checking, passbook savings, and
certain types of money market accounts) are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts). Fair
values for deposits with a stated maturity date (time deposits) are estimated
using a discounted cash flow calculation that applies interest rates currently
being offered on these accounts to a schedule of aggregated expected monthly
maturities on time deposits.
Other borrowings: These borrowings are short term in nature, and as
such, their carrying value approximates their fair value.
Information regarding the estimated fair values of the Bank's financial
instruments at December 31 follows:
<TABLE>
<CAPTION>
Estimated Fair Value Carrying Value
Assets (Liabilities) Assets (Liabilities)
1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents $ 10,195,655 8,270,247 $ 10,195,655 $ 8,270,247
Securities held-to-maturity 24,858,323 24,130,123 25,070,799 23,610,093
Securities available-for-sale 26,365,397 29,514,566 26,365,397 29,514,566
Net loans 137,365,948 123,875,398 138,714,356 123,307,720
Deposits with no stated maturity (69,769,334) (68,580,263) (69,769,334) (68,580,263)
Deposits with stated maturity (106,532,832) (98,141,499) (106,306,333) (97,597,856)
Other borrowings (9,634,201) (2,721,821) (9,634,201) (2,721,821)
</TABLE>
F-19
CAROLINA SOUTHERN BANK
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999 1999
---------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 7,561,977 $ 6,672,827 $ 8,255,655
Federal funds sold 3,380,000 2,490,000 1,940,000
Investment securities held-to-maturity (market value of
$25,222,287, $23,480,997, and $24,858,323, respectively) 25,249,344 23,607,346 25,070,799
Investment securities available-for-sale 27,807,745 26,124,178 26,365,397
Federal Home Loan Bank stock and other 639,053 639,053 639,053
Loans 139,038,965 135,910,478 140,421,544
Less allowance for possible loan losses (1,636,176) (1,717,946) (1,707,188)
---------------------------------------------------------
Net loans 137,402,789 134,192,532 138,714,356
Other real estate 0 0 1
Premises and equipment, net 4,692,522 4,484,605 4,409,803
Other assets 3,057,362 2,505,281 2,724,569
---------------------------------------------------------
TOTAL ASSETS $ 209,790,792 $ 200,715,822 $ 208,119,633
=========================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing $ 22,640,269 $ 21,837,610 $ 23,356,762
Interest bearing, including certificates of deposit of
$100,000 or more of $25,916,262, $28,726,572,
and $27,198,375, respectively 153,559,957 153,849,817 152,718,905
---------------------------------------------------------
Total Deposits 176,200,226 175,687,427 176,075,667
Other borrowed funds 7,500,000 1,500,000 7,807,646
Accrued expenses and other liabilities 2,155,675 1,626,195 1,826,555
---------------------------------------------------------
TOTAL LIABILITIES 185,855,901 178,813,622 185,709,868
Shareholders' Equity:
Common stock, no par value,
authorized 10,000,000 shares, issued and outstanding
3,671,896, 3,641,657 and 3,663,209 shares, respectively 22,109,559 19,549,322 22,031,107
Retained earnings 2,139,867 2,739,843 935,992
Accumulated other comprehensive income, net of tax (314,535) (386,965) (557,334)
---------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 23,934,891 21,902,200 22,409,765
---------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 209,790,792 $ 200,715,822 $ 208,119,633
=========================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<TABLE>
<CAPTION>
CAROLINA SOUTHERN BANK THIRD QUARTER THIRD QUARTER NINE MONTHS NINE MONTHS
STATEMENTS OF INCOME ENDED ENDED ENDED ENDED
(Unaudited) SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans and fees $3,451,572 $3,072,635 $10,101,478 $8,822,608
Investment securities - taxable 339,192 294,863 1,008,581 969,863
Investment securities - non-taxable 381,875 321,507 1,069,623 914,527
Federal funds sold 73,705 43,370 121,398 109,256
Deposits with other banks (3,849) 3,369 9,581 9,292
---------------------------------------------------------------------------
Total interest income 4,242,495 3,735,744 12,310,661 10,825,546
Interest expense on deposits 2,091,465 1,753,195 5,815,588 4,956,580
Interest expense on other borrowed funds 182,973 19,706 479,433 169,477
---------------------------------------------------------------------------
Total interest expense 2,274,438 1,772,901 6,295,021 5,126,057
Net interest income 1,968,057 1,962,843 6,015,640 5,699,489
Provision for possible loan losses 80,000 20,000 195,000 62,000
---------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 1,888,057 1,942,843 5,820,640 5,637,489
Non-interest income:
Service charges and general banking fees 157,329 153,241 466,120 489,921
(Losses) gains on sale of securities (16,094) 0 (42,669) 13,154
Gains on sale of assets 0 1,575 0 1,615
Other 2,622 2,596 14,938 5,393
---------------------------------------------------------------------------
Total non-interest income 143,857 157,412 438,389 510,083
Non-interest expense:
Salaries and employee benefits 774,692 728,595 2,286,141 2,202,550
Occupancy 160,443 160,709 468,425 470,658
Equipment 94,975 93,539 232,004 284,349
Advertising and public relations 40,621 31,351 125,594 159,961
Insurance 13,364 15,148 49,001 25,944
Supplies 23,899 27,252 86,871 92,707
FDIC insurance 8,824 9,628 26,836 14,376
Miscellaneous 167,435 146,813 528,431 462,333
---------------------------------------------------------------------------
Total non-interest expense 1,284,253 1,213,035 3,803,303 3,712,878
---------------------------------------------------------------------------
Income before income taxes 747,661 887,220 2,455,726 2,434,694
Provision for income taxes 161,120 226,994 591,071 615,811
---------------------------------------------------------------------------
NET INCOME $ 586,541 $ 660,226 $ 1,864,655 $1,818,883
===========================================================================
BASIC NET INCOME PER SHARE $ 0.16 $ 0.18 $ 0.51 $ 0.50
===========================================================================
DILUTED NET INCOME PER SHARE $ 0.16 $ 0.18 $ 0.51 $ 0.49
===========================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
CAROLINA SOUTHERN BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
--------------------------- Retained Comprehensive
Shares Amount Earnings Income Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 3,415,084 $ 19,294,174 $ 1,440,628 $ 67,690 $ 20,802,492
Comprehensive income:
Net income -- -- 1,818,883 --
Other comprehensive (loss) income,
net of tax -- -- -- (454,655)
Total comprehensive income 1,364,228
Cash dividend -- -- (519,668) -- (519,668)
Options exercised 52,099 255,148 -- -- 255,148
-----------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1999 3,467,183 19,549,322 2,739,843 (386,965) $ 21,902,200
Comprehensive income:
Net income -- -- 760,528 --
Other comprehensive (loss) income,
net of tax -- -- -- (170,369)
Total comprehensive income 590,159
5% stock dividend 174,239 2,341,424 (2,341,424) -- --
Cash issued in lieu of fractional
shares from stock dividend -- -- (3,017) -- (3,017)
Cash dividend -- -- (219,938) -- (219,938)
Options exercised 21,787 140,361 -- -- 140,361
-----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 3,663,209 22,031,107 935,992 (557,334) $ 22,409,765
Comprehensive income:
Net income -- -- 1,864,655 --
Other comprehensive income,
net of tax -- -- -- 242,799
Total comprehensive income 2,107,454
Cash dividend -- -- (660,780) -- (660,780)
Fractional shares acquired by the ESOP 235 3,174 -- -- 3,174
Options exercised 8,452 75,278 -- -- 75,278
-----------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 3,671,896 $ 22,109,559 $ 2,139,867 $ (314,535) $ 23,934,891
===================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<TABLE>
<CAPTION>
CAROLINA SOUTHERN BANK
STATEMENTS OF CASH FLOW NINE MONTHS NINE MONTHS
(Unaudited) ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
OPERATING ACTIVITIES 2000 1999
-------------------------------------
<S> <C> <C>
Net income $ 1,864,655 $ 1,818,883
Adjustments to reconcile net income to net
cash provided by operating activities:
Net (amortization) accretion of unearned
discounts/premiums on securities (52,889) 62,662
Provision for possible loan losses 195,000 62,000
Depreciation 337,851 404,014
Increase in other assets (332,793) (88,963)
Decrease in accrued expenses and other liabilities 329,120 (135,396)
-------------------------------------
Net cash provided by operating activities 2,340,944 2,123,200
INVESTING ACTIVITIES
Loans collected (originated), net of collections 1,258,591 (10,946,812)
Purchases of premises and equipment (620,570) (361,537)
Proceeds from maturities of investment securities:
Held-to-maturity 4,050,000 2,560,000
Available-for-sale 3,674,002 9,581,774
Purchases of investment securities:
Held-to-maturity (4,196,869) (2,606,971)
Available-for-sale (4,994,361) (7,497,384)
Proceeds from the sale of other real estate owned 0 17,343
Net cash used in investing activities (829,207) (9,253,587)
FINANCING ACTIVITIES
Net increase in deposits 124,559 9,509,308
Net (decrease) increase in other borrowed funds (307,646) 1,178,179
Decrease in Federal funds purchased 0 (2,400,000)
Dividends paid (660,780) (519,668)
Proceeds from exercised stock options 78,452 255,148
-------------------------------------
Net cash provided by (used by) financing activities (765,415) 8,022,967
-------------------------------------
Net increase in cash and cash equivalents 746,322 892,580
Cash and cash equivalents at beginning of period 10,195,655 8,270,247
------------- ------------
Cash and cash equivalents at end of period $ 10,941,977 $ 9,162,827
=====================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
NOTES TO FINANCIAL STATEMENT
NOTE 1:
These unaudited financial statements should be read in conjunction with the
summary of accounting policies and notes to financial statements included in
Carolina Southern Bank's Annual Report to Shareholders for 1999. These financial
statements reflect all adjustments which are normal and recurring and in the
opinion of management necessary to present a fair statement of the results for
the interim periods.
NOTE 2:
The number of common shares and per share amounts for all periods have been
adjusted to reflect the 5% stock dividend for shareholders of record on December
31, 1999 issued January 10, 2000. Common shares outstanding also reflect the
effect of stock option agreements that have been exercised.
NOTE 3:
The following tables reconcile the numerator and denominator of the basic and
diluted earnings per share computations for income from continuing operations:
<TABLE>
<CAPTION>
THIRD QUARTER ENDED SEPTEMBER 30, 2000
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $586,541 3,671,896 $ .16
Effect of dilutive securities 0 19,990 =======
-------- ---------
Diluted EPS
Income available to common shareholders
and assumed conversions $586,541 3,691,886 $ .16
======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
THIRD QUARTER ENDED SEPTEMBER 30, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $660,226 3,641,657 $ .18
Effect of dilutive securities 0 45,744 =======
-------- ---------
Diluted EPS
Income available to common shareholders
and assumed conversions $660,226 3,687,401 $ .18
======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $1,864,655 3,671,896 $ .51
Effect of dilutive securities 0 17,912 =======
---------- ---------
Diluted EPS
Income available to common shareholders
and assumed conversions $1,864,655 3,689,808 $ .51
========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common shareholders $1,818,883 3,641,657 $ .50
Effect of dilutive securities 0 46,852 =======
---------- ---------
Diluted EPS
Income available to common shareholders
and assumed conversions $1,818,883 3,688,509 $ .49
========== ========= =======
</TABLE>
F-24
APPENDIX "A"
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 18th day of September,
2000 (the "Plan" or the "Agreement") by and between Carolina Southern Bank, a
state bank organized and existing under the laws of the State of South Carolina
("Carolina Southern"), and The National Bank of South Carolina, a national
banking association organized and existing under the laws of the United States
("NBSC"), and joined by SYNOVUS FINANCIAL CORP., a Georgia corporation, which
owns all of the outstanding stock of NBSC ("Synovus").
RECITALS:
A. Synovus. Synovus has been duly incorporated and is an existing
corporation in good standing under the laws of Georgia, with its principal
executive offices located in Columbus, Georgia. As of August 31, 2000, Synovus
had 600,000,000 authorized shares of common stock, par value $1.00 per share
("Synovus Common Stock"), of which 284,304,222 shares are outstanding as of
August 31, 2000. All of the issued and outstanding shares of Synovus Common
Stock are duly and validly issued and outstanding and are fully paid and
nonassessable and not subject to any preemptive rights. Synovus has 39
wholly-owned banking subsidiaries (as defined in Rule 1-02 of Regulation S-X
promulgated by the Securities and Exchange Commission, a "Subsidiary") and other
non-banking Subsidiaries as of the date hereof. Each subsidiary that is a
depository institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and the applicable regulations thereunder, and the
deposits in which are insured by the Federal Deposit Insurance Corporation.
B. Carolina Southern. Carolina Southern has been duly incorporated and
is an existing banking corporation in good standing under the laws of South
Carolina, with its principal executive offices located in Spartanburg, South
Carolina. As of the date hereof, Carolina Southern has 10,000,000 authorized
shares of common stock, no par value per share ("Carolina Southern Common
Stock"), of which 3,670,557 shares are outstanding as of August 31, 2000. All of
the issued and outstanding shares of Carolina Southern Common Stock are duly and
validly issued and outstanding and are fully paid and nonassessable and not
subject to any preemptive rights.
C. NBSC. NBSC has been duly incorporated and is an existing national
banking association in good standing under the laws of the United States, with
its principal executive offices located in Columbia, South Carolina. As of the
date hereof, NBSC has 930,000 authorized shares of common stock, par value $5.00
per share ("NBSC Common Stock"), of which 930,000 shares are outstanding on
August 31, 2000. All of the issued and outstanding shares of NBSC Common Stock
are duly and validly issued and outstanding and are fully paid and (subject to
12 U.S.C. ss. 55) nonassessable and not subject to any preemptive rights.
D. Rights, Etc. Neither Synovus nor Carolina Southern has any shares
of its capital stock reserved for issuance, any outstanding option, call or
commitment relating to shares of its capital stock or any outstanding
securities, obligations or agreements convertible into or
1
exchangeable for, or giving any person any right (including, without limitation,
preemptive rights) to subscribe for or acquire from it, any shares of its
capital stock except as described in filings made with the Securities and
Exchange Commission ("SEC") by Synovus and filings made with the Federal Deposit
Insurance Corporation ("FDIC") by Carolina Southern ("Public Filings") or except
as otherwise disclosed in the letter referred to in Article III below.
E. Board Approvals. The respective Boards of Directors of Synovus,
Carolina Southern and NBSC have unanimously approved and adopted the Plan and
have duly authorized its execution. In the case of Carolina Southern, the
Board of Directors has unanimously voted to recommend to its stockholders that
the Plan be approved.
F. Materiality. Unless the context otherwise requires, any reference
in this Agreement to materiality with respect to any party shall be deemed to
be with respect to such party and its Subsidiaries, if any, taken as a whole.
In consideration of their mutual promises and obligations hereunder,
and intending to be legally bound hereby, Synovus, Carolina Southern and NBSC
adopt the Plan and prescribe the terms and conditions hereof and the manner and
basis of carrying it into effect, which shall be as follows:
I. THE MERGER
(A) Structure of the Merger. Subject to the terms and conditions set
forth in this Agreement, on the Effective Date (as defined in Article VII)
Carolina Southern shall be merged with and into NBSC under the Charter and
Articles of Association of NBSC pursuant to the provisions of and with the
effect provided in 12 U.S.C. ss. 215a ("Merger"). NBSC shall be the surviving
bank and the receiving association resulting from the Merger and shall continue
to conduct its business under the name The National Bank of South Carolina. The
Merger shall be consummated pursuant to the terms of this Plan, which has been
approved and adopted by the respective Boards of Directors of Synovus, Carolina
Southern and NBSC, and by Synovus as the sole shareholder of NBSC.
(B) Effect on Outstanding Shares. By virtue of the Merger,
automatically and without any action on the part of the holder thereof (other
than shares as to which dissenters' appraisal rights have been validly exercised
and perfected as provided by Paragraph (C) of this Article I), each share of
Carolina Southern Common Stock issued and outstanding on the Effective Date
shall be converted into and exchanged for .8514 shares of Synovus Common Stock
("Per Share Exchange Ratio"). As of the Effective Date, each share of Carolina
Southern Common Stock held as treasury stock of Carolina Southern shall be
canceled, retired and cease to exist, and no payment shall be made in respect
thereof.
No fractional shares of Synovus Common Stock shall be issued in
connection with the Merger. Each holder of Carolina Southern Common Stock who
would otherwise have been
2
entitled to receive a fraction of a share of Synovus Common Stock shall receive,
in lieu thereof, cash (without interest) in an amount equal to such fractional
part of a share of Synovus Common Stock multiplied by the closing price per
share of Synovus Common Stock on the New York Stock Exchange ("NYSE") on the
fifth business day immediately preceding the Effective Date of the Merger.
Each shareholder of Carolina Southern Common Stock will be entitled to
ten votes for each share of Synovus Common Stock to be received by him/her on
the Effective Date pursuant to a set of resolutions adopted by the Board of
Directors of Synovus on September 18, 2000 in accordance with and subject to
those certain Articles of Amendment to Synovus' Articles of Incorporation, dated
April 24, 1986. Synovus shall provide Carolina Southern with certified copies of
such resolutions prior to the Effective Date.
The shares of the Synovus Common Stock and NBSC Common Stock issued and
outstanding immediately prior to the Effective Date shall remain outstanding and
unchanged after the Merger.
In the event that, subsequent to the date of this Plan but prior to the
Effective Date, the outstanding shares of Synovus Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split, or other
like changes in Synovus' capitalization, then an appropriate and proportionate
adjustment shall be made to the Per Share Exchange Ratio so as to prevent the
dilutive effect of such transaction on a percentage of ownership basis.
(C) Dissenting Shareholders. Any holder of shares of Carolina Southern
Common Stock who complies with the provisions of Chapter 13 of the South
Carolina Business Corporation Act ("South Carolina Act") as made applicable to
the Merger by Section 33-13- 102 of the South Carolina Act, and does not vote
for or consent to the Merger and delivers to Carolina Southern, prior to the
taking of the vote on the Merger at the Shareholders' Meeting, a written
objection to the Merger and within ten (10) days after the date on which the
vote is taken makes written demand for payment for the shares of Carolina
Southern Common Stock held by such holder as of the Effective Date, shall be
entitled to receive the fair value of such shares in cash as determined pursuant
to Chapter 13 of the South Carolina Act; provided, however, that no such payment
shall be made to any dissenting shareholder unless and until such dissenting
shareholder has surrendered to Carolina Southern the certificate or certificates
representing the shares of Carolina Southern Common Stock for which payment is
being made.
(D) Procedures. Certificates which represent shares of Carolina
Southern Common Stock that are outstanding on the Effective Date (each, a
"Certificate") and are converted into shares of Synovus Common Stock pursuant to
the Plan shall, after the Effective Date, be deemed to represent shares of the
Synovus Common Stock into which such shares have become converted and shall be
exchangeable by the holders thereof in the manner provided in the
3
transmittal materials described below for new certificates representing the
shares of Synovus Common Stock into which such shares have been converted.
As promptly as practicable after the Effective Date, Synovus shall send
to each holder of record of shares of Carolina Southern Common Stock outstanding
on the Effective Date transmittal materials for use in exchanging the
Certificates for such shares for certificates for shares of the Synovus Common
Stock into which such shares of the Carolina Southern Common Stock have been
converted pursuant to the Plan. Upon surrender of a Certificate, duly endorsed
as Synovus may require, the holder of such Certificate shall be entitled to
receive in exchange therefor the consideration set forth in Paragraph I(B)
hereof and such Certificate shall forthwith be canceled. No dividend or other
distribution payable after the Effective Date with respect to the Synovus Common
Stock shall be paid to the holder of any unsurrendered Certificate until the
holder thereof surrenders such Certificate, at which time such holder shall
receive all dividends and distributions, without interest thereon, previously
withheld from such holder pursuant hereto. After the Effective Date, there shall
be no transfers on the stock transfer books of Carolina Southern of shares of
Carolina Southern Common Stock which were issued and outstanding on the
Effective Date and converted pursuant to the provisions of the Plan. If after
the Effective Date, Certificates are presented for transfer to Carolina
Southern, they shall be canceled and exchanged for the shares of Synovus Common
Stock deliverable in respect thereof as determined in accordance with the
provisions of Paragraph (B) of Article I and in accordance with the procedures
set forth in this Paragraph. In the case of any lost, mislaid, stolen or
destroyed Certificate, the holder thereof may be required, as a condition
precedent to the delivery to such holder of the consideration described in
Paragraph B, to deliver to Synovus a bond in such sum as Synovus may direct as
indemnity against any claim that may be made against the exchange agent, Synovus
or Carolina Southern with respect to the Certificate alleged to have been lost,
mislaid, stolen or destroyed.
After the Effective Date, holders of Carolina Southern Common Stock
shall cease to be, and shall have no rights as, stockholders of Carolina
Southern, other than to receive shares of Synovus Common Stock into which such
shares have been converted, fractional share payments pursuant to the Plan and
any dividends or distributions with respect to such shares of Synovus Common
Stock, or in the case of shareholders who exercise dissenters' rights pursuant
to Chapter 13 of the South Carolina Act, the right to receive fair value for
such shares. Until 90 days after the Effective Date, former shareholders of
record of Carolina Southern shall be entitled to vote at any meeting of Synovus
shareholders the record date for which occurs after the Effective Date the
number of shares of Synovus Common Stock into which their respective Carolina
Southern Common Stock are converted regardless of whether such holders have
exchanged their certificates pursuant to the Plan.
Notwithstanding the foregoing, neither Synovus nor Carolina Southern
nor any other person shall be liable to any former holder of shares of Carolina
Southern Common Stock for any amounts paid or property delivered in good faith
to a public official pursuant to applicable abandoned property, escheat or
similar laws.
4
(E) Options. On the Effective Date, each option granted by Carolina
Southern to purchase shares of Carolina Southern Common Stock, which is
outstanding and unexercised immediately prior thereto, shall be converted
automatically into an option to purchase shares of Synovus Common Stock in an
amount and at an exercise price determined as provided below (and otherwise
having the same duration and other terms as the original option):
(1) The number of shares of Synovus Common Stock to be subject
to the new option shall be equal to the product of the number of shares of
Carolina Southern Common Stock subject to the original option multiplied by the
Per Share Exchange Ratio provided that any fractional shares of Synovus Common
Stock resulting from such multiplication shall be rounded down to the nearest
whole share; and
(2) The exercise price per share of Synovus Common Stock under
the new option shall be equal to the exercise price per share of Carolina
Southern Common Stock under the original option divided by the Per Share
Exchange Ratio provided that such exercise price shall be rounded up to the
nearest cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Internal Revenue
Code of 1986 (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code.
Within thirty (30) days after the Effective Date, Synovus shall notify
each holder of an option to purchase Carolina Southern Common Stock of the
assumption of such options by Synovus and the revisions to the options shall be
effected thereby. No payment shall be made for fractional interests. From and
after the date hereof, no additional options to purchase Carolina Southern
Common Stock shall be granted.
(F) Business of NBSC. The business of NBSC from and after the Effective
Date shall continue to be that of a national banking association. The business
shall be conducted from its main office located in Sumter, South Carolina and
at its legally established branches, which shall also include the main office
and all branches, whether in operation or approved but unopened, of Carolina
Southern on the Effective Date.
(G) Assumption of Rights. On the Effective Date, the separate existence
and corporate organization of Carolina Southern shall be merged into and
continued in NBSC, as the surviving bank and receiving association of the
Merger. All rights, franchises and interests of Carolina Southern and NBSC in
and to every type of property (real, personal and mixed), and all choses in
action of Carolina Southern and NBSC shall be transferred to and vested in NBSC
as the surviving bank and receiving association by virtue of the Merger without
any deed or other transfer. NBSC, upon consummation of the Merger and without
any order or other action on the part of any court or otherwise, shall hold and
enjoy all rights of property, franchises and interests, including appointments,
designations and nominations, in the same
5
manner and to the same extent as such rights, franchises, and interests were
held or enjoyed by either of Carolina Southern or by NBSC on the Effective Date,
subject to the conditions imposed by 12 U.S.C. ss. 215a.
(H) Assumption of Liabilities. All liabilities and obligations of both
of Carolina Southern and of NBSC of every kind and description shall be assumed
by NBSC as the surviving bank and receiving association by virtue of the Merger,
and NBSC shall be bound thereby in the same manner and to the same extent that
either of Carolina Southern or NBSC was so bound on the Effective Date.
(I) Articles of Association. On the Effective Date, following
consummation of the Merger, the Articles of Association of NBSC shall be in the
form set forth in Exhibit "A" to this Plan, as modified only by such amendments
as may be adopted by the sole shareholder of NBSC prior to the Effective Date.
The bylaws of NBSC, as in effect on the Effective Date, shall continue in full
force and effect as the bylaws of NBSC after the Effective Date.
(J) Directors. The Board of Directors of NBSC immediately following the
Effective Date shall consist of the persons named in Exhibit "B" to the Plan,
each of whom shall serve until his respective successor is elected and qualified
or until a new Board of Directors is elected as provided in the Articles of
Association or bylaws of NBSC or as provided by law.
(K) Capital Stock of NBSC. The capital stock of NBSC upon completion of
the Merger shall be $4,650,000, consisting of 930,000 issued and outstanding
shares of common stock of a par value of $5.00 per share. In addition, NBSC
shall have a surplus of approximately $73,491,769 and undivided profits,
including capital reserves, of approximately $92,541,259 adjusted, however, for
earnings and expenses between August 31, 2000 and the Effective Date. The
capital structures of NBSC and Carolina Southern are set forth in Exhibit "C" to
this Plan.
II. ACTIONS PENDING MERGER
(A) Carolina Southern shall conduct its business only in the ordinary
course and shall not, without the prior written consent of Synovus, which
consent will not be unreasonably withheld: (1) issue any options to purchase
capital stock or issue any shares of capital stock, other than shares of
Carolina Southern Common Stock issued in connection with the exercise of
currently outstanding options to purchase shares of Carolina Southern Common
Stock; (2) declare, set aside, or pay any dividend or distribution with respect
to the capital stock of Carolina Southern other than normal and customary
quarterly cash dividends in accordance with past practices; (3) directly or
indirectly redeem, purchase or otherwise acquire any capital stock of Carolina
Southern; (4) effect a split or reclassification of the capital stock of
Carolina Southern or a recapitalization of Carolina Southern; (5) amend the
articles of incorporation or bylaws of Carolina Southern; (6) grant any increase
in the salaries payable or to become
6
payable by Carolina Southern to any employee and other than normal, annual
salary increases to be made with regard to the employees of Carolina Southern;
(7) make any change in any bonus, group insurance, pension, profit sharing,
deferred compensation, or other benefit plan, payment or arrangement made to,
for or with respect to any employees or directors of Carolina Southern, except
to the extent such changes are required by applicable laws or regulations; (8)
enter into, terminate, modify or amend any contract, lease or other agreement
with any officer or director of Carolina Southern or any "associate" of any such
officer or director, as such term is defined in Regulation 14A under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), other than in the
ordinary course of its banking business; (9) incur or assume any liabilities,
other than in the ordinary course of its business; (10) dispose of any of its
assets or properties, other than in the ordinary course of its business; (11)
take any other action not in the ordinary course of business; or (12) directly
or indirectly agree to take any of the foregoing actions.
(B) Prior to the Effective Date, Carolina Southern agrees: (1) that it
shall not and Carolina Southern shall direct and use its best efforts to cause
its respective officers, directors, employees, agents and representatives
(including without limitation, any investment banker, attorney or accountant
retained by it) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including without limitation, any proposal or offer to its stockholders) with
respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
equity securities of, Carolina Southern (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal; (2) that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing and Carolina Southern will take
the necessary steps to inform the individuals or entities referred to above of
the obligations undertaken in this Paragraph (B); and (3) that it will notify
Synovus immediately of the identity of the potential acquiror and the terms of
such person's or entity's proposal if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it; provided, however,
that nothing contained in this Paragraph shall prohibit the Board of Directors
of Carolina Southern from (i) furnishing information to or entering into
discussions or negotiations with, any person or entity that makes an unsolicited
written proposal to acquire Carolina Southern pursuant to a merger,
consolidation, share exchange, purchase of a substantial portion of the assets,
business combination or other similar transaction, if, and only to the extent
that, (A) the failure to take such action would constitute a breach of its
fiduciary duties (as determined in good faith by the Carolina Southern Board of
Directors after consultation with counsel), (B) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
or entity, Carolina Southern provides written notice to Synovus to the effect
that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity, and (C)
7
subject to any confidentiality agreement with such person or entity (which
Carolina Southern determined in good faith was required to be executed in order
for the Board of Directors to comply with its fiduciary duties to stockholders),
Carolina Southern keeps Synovus informed of the status of any such discussions
or negotiations; and (ii) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Nothing in this Section shall (x) permit Carolina Southern to terminate this
Agreement (except as specifically provided in Article VI hereof), (y) permit
Carolina Southern to enter into any agreement with respect to an Acquisition
Proposal during the term of this Agreement (it being agreed that during the term
of this Agreement, Carolina Southern shall not enter into any agreement with any
person that provides for, or in any way facilitates, an Acquisition Proposal
(other than a confidentiality agreement in customary form)), or (z) affect any
other obligation of any party under this Agreement.
III. REPRESENTATIONS AND WARRANTIES
Synovus, for itself and on behalf of NBSC, hereby represents and
warrants to Carolina Southern, and Carolina Southern represents and warrants to
Synovus, that, except as previously disclosed in a letter of Synovus or Carolina
Southern, respectively, of even date herewith delivered to the other party (all
references to Synovus below shall be deemed to include its Subsidiaries):
(A) the representations set forth in Recitals A through E of the Plan
with respect to it are true and correct and constitute representations and
warranties for the purpose of Article V, hereof;
(B) its outstanding shares of capital stock are duly authorized,
validly issued and outstanding, fully paid and (subject to 12 U.S.C. ss.55 in
the case of a national bank) non-assessable, and subject to no preemptive rights
of current or past shareholders;
(C) it has the power and authority, and is duly qualified in all
jurisdictions (except for such qualifications the absence of which will not as a
whole have an adverse effect on its business, results of operations or financial
condition which is material to it ("Material Adverse Effect") where such
qualification is required to carry on its business as it is now being conducted,
to own all its material properties and assets, and has all federal, state,
local, and foreign governmental authorizations necessary for it to own or lease
its properties and assets and to carry on its business as it is now being
conducted, except for such authorizations the absence of which, either
individually or in the aggregate, would not have a Material Adverse Effect;
(D) in the case of Synovus, the shares of capital stock of each of its
Subsidiaries are owned by it (except for director's qualifying shares) free and
clear of all liens, claims, encumbrances and restrictions on transfer;
8
(E) subject, in the case of Carolina Southern, to the receipt of any
required shareholder approval of this Plan, its Board of Directors has
unanimously approved any and all transactions, events, agreements and
circumstances (including without limitation, the execution, delivery and
performance of this Agreement) that could have the effect of causing Synovus to
become subject to any of the limitations or restrictions in Sections 35-2-201
through 35-2-226 of the Code of Laws of South Carolina applicable to an
"interested shareholder" (as defined in Section 35-2-210 of the Code of Laws of
South Carolina), none of such limitations or restrictions will apply to the
Plan, and the Plan has been authorized by all necessary corporate action of it
and, subject to receipt of such approvals of shareholders and required
regulatory approvals, is a valid and binding agreement of it enforceable against
it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles;
(F) the execution, delivery and performance of the Plan by it does not,
and the consummation of the transactions contemplated hereby by it will not,
constitute: (1) 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 it or to which it (or any of its
respective properties) is subject which breach, violation or default would have
a Material Adverse Effect, or enable any person to enjoin any of the
transactions contemplated hereby; or (2) a breach or violation of, or a default
under, its certificate or articles of incorporation or bylaws; and the
consummation of the transactions contemplated hereby will not 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, other than the required
approvals of applicable regulatory authorities and the approval of the
shareholders of Carolina Southern, both of which are referred to in Paragraph
(A) of Article V and any consents and approvals the absence of which will not
have a Material Adverse Effect;
(G) since December 31, 1998, Synovus has filed all forms, reports and
documents with the SEC, and Carolina Southern has filed all forms, reports and
documents with the FDIC pursuant to 12 CFR Part 335, required to be filed by it
pursuant to the federal securities laws and SEC rules and regulations thereunder
(the "Reports,") each of which complied as to form, at the time such form,
report or document was filed, in all material respects with the applicable
requirement of the Securities Act of 1933, as amended ("Securities Act"), the
Exchange Act and the applicable rules and regulations thereunder. As of their
respective dates, none of the Reports, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the balance sheets in or
incorporated by reference into the Reports (including the related notes and
schedules) fairly presents the financial position of the entity or entities to
which it relates as of its date and each of the statements of operations and
retained earnings and of cash flows and changes in financial position or
equivalent statements in or incorporated by reference into the Reports
(including
9
any related notes and schedules) fairly presents the results of operations,
retained earnings and cash flows and changes in financial position, as the case
may be, of the entity or entities to which it relates for the periods set forth
therein (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments that are not material in amount or effect), in each
case in accordance with generally accepted accounting principles applicable to
banks and bank holding companies consistently applied during the periods
involved, except as may be noted therein. It has no material obligations or
liabilities (contingent or otherwise) except as disclosed in the Reports.
(H) it has no material liabilities and obligations secured or
unsecured, whether accrued, absolute, contingent or otherwise, known or unknown,
due or to become due, including, but not limited to tax liabilities, that should
have been but are not reflected in or reserved against in its audited financial
statements as of December 31, 1999 or disclosed in the notes thereto;
(I) there has not been the occurrence of one or more events,
conditions, actions or states of facts which have caused a Material Adverse
Effect with respect to it since December 31, 1999;
(J) all material federal, state, local, and foreign tax returns
required to be filed by or on behalf of it have been timely filed or requests
for extensions have been timely filed and any such extension shall have been
granted and not have expired; and to the best of its knowledge, all such returns
filed are complete and accurate in all material respects. All taxes shown on
returns filed by it have been paid in full or adequate provision has been made
for any such taxes on its balance sheet (in accordance with generally accepted
accounting principles). As of the date of the Plan, there is no audit
examination, deficiency, or refund litigation with respect to any taxes of it
that would result in a determination that would have a Material Adverse Effect.
All taxes, interest, additions, and penalties due with respect to completed and
settled examinations or concluded litigation relating to it have been paid in
full or adequate provision has been made for any such taxes on its balance sheet
(in accordance with generally accepted accounting principles). It has not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any material tax due that is currently in effect. Deferred
taxes have been provided for in its financial statements in accordance with
generally accepted accounting principles applied on a consistent basis;
(K)(1) no litigation, proceeding or controversy before any court or
governmental agency is pending, and there is no pending claim, action or
proceeding against it, which is likely to have a Material Adverse Effect or to
prevent consummation of the transactions contemplated hereby, and, to the best
of its knowledge, no such litigation, proceeding, controversy, claim or action
has been threatened or is contemplated; and (2) it is not subject to any
agreement, memorandum of understanding, commitment letter, board resolution or
similar arrangement with, or transmitted to, any regulatory authority materially
restricting its operations as conducted on the date hereof or requiring that
certain actions be taken which
10
could reasonably be expected to have a Material Adverse Effect;
(L) it is not in default in any material respect under any material
contract (as defined in Item 601(b)(10)(i) and (ii) of Regulation S-K) and there
has not occurred any event that with the lapse of time or the giving of notice
or both would constitute such a default;
(M) all "employee benefit plans," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), that cover any of its
employees, comply in all material respects with all applicable requirements of
ERISA, the Code and other applicable laws; it has not engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to any such plan which is likely to result in any material
penalties or taxes under Section 502(i) of ERISA or Section 4975 of the Code; no
material liability to the Pension Benefit Guaranty Corporation has been or is
expected by it or them to be incurred with respect to any such plan which is
subject to Title IV of ERISA ("Pension Plan"), or with respect to any
"single-employer plan" (as defined in Section 4001(a)(15) of ERISA) currently or
formerly maintained by it, them or any entity which is considered one employer
with it under Section 4001 of ERISA or Section 414 of the Code; no Pension Plan
had an "accumulated funding deficiency" (as defined in Section 302 of ERISA
(whether or not waived) as of the last day of the end of the most recent plan
year ending prior to the date hereof; the fair market value of the assets of
each Pension Plan exceeds the present value of the "benefit liabilities" (as
defined in Section 4001(a)(16) of ERISA) under such Pension Plan as of the end
of the most recent plan year with respect to the respective Plan ending prior to
the date hereof, calculated on the basis of the actuarial assumptions used in
the most recent actuarial valuation for such Pension Plan as of the date hereof;
to the actual knowledge of its executive officers, there are no pending or
anticipated material claims against or otherwise involving any of its employee
benefit plans and no suit, action or other litigation (excluding claims for
benefits incurred in the ordinary course of activities of such plans) has been
brought against or with respect to any such plan, except for any of the
foregoing which would not have a Material Adverse Effect; no notice of a
"reportable event" (as defined in 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 within the 12-month period ending on the date hereof; it has not
contributed to a "multi-employer plan", as defined in Section 3(37) of ERISA;
and it does not have any obligations for retiree health and life benefits under
any benefit plan, contract or arrangement, except as required by Section 4980B
of the Code and Part 6 of Subtitle B of Title I of ERISA;
(N) it has good and marketable title to its properties and assets,
tangible or intangible (other than property as to which it is lessee), except
for such defects in title which would not, in the aggregate, have a Material
Adverse Effect;
(O) it knows of no reason why the regulatory approvals referred to in
Paragraphs (A)(2) and (A)(3) of Article V should not be obtained without the
imposition of any condition of the type referred to in the proviso following
such Paragraphs (A)(2) and (A)(3) or why the
11
accountants' letter referred to in Paragraph (A)(10) of Article V cannot be
obtained;
(P) its reserve for possible loan and lease losses as shown in its
audited financial statements as of December 31, 1999 was, and its reserve for
possible loan and lease losses as shown in all Quarterly Reports on Form 10-Q
filed prior to the Effective Date will be, adequate in all material respects
under generally accepted accounting principles applicable to banks and bank
holding companies;
(Q) it has all material permits, licenses, certificates of authority,
orders, and approvals of, and has made all filings, applications, and
registrations with, federal, state, local, and foreign governmental or
regulatory bodies that are required in order to permit it to carry on its
business as it is presently conducted and the absence of which would have a
Material Adverse Effect; all such permits, licenses, certificates of authority,
orders, and approvals are in full force and effect, and to the best knowledge of
it no suspension or cancellation of any of them is threatened;
(R) in the case of Synovus, the shares of capital stock to be issued
pursuant to the Plan, when issued in accordance with the terms of the Plan, will
be duly authorized, validly issued, fully paid and nonassessable and subject to
no preemptive rights of any current or past shareholders;
(S) it is not a party to, nor is bound by, any collective bargaining
agreement, contract, or other agreement or understanding with a labor union or
labor organization, nor is it the subject of a proceeding asserting that it has
committed an unfair labor practice 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 threatened;
(T) other than services provided by The Carson Medlin Company, which
has been retained by Carolina Southern and the arrangements with which,
including fees, have been disclosed to Synovus prior to the date hereof, neither
it, nor any of its respective officers, directors, or employees, has employed
any broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions, or finder's fees, and no broker or finder has acted
directly or indirectly for it, in connection with the Plan or the transactions
contemplated hereby;
(U) the information to be supplied by it for inclusion in: (1) the
Registration Statement on Form S-4 and/or such other form(s) as may be
appropriate to be filed under the Securities Act, with the SEC by Synovus for
the purpose of, among other things, registering the Synovus Common Stock to be
issued to the shareholders of Carolina Southern in the Merger (the "Registration
Statement"); or (2) the proxy statement to be filed with the SEC and the FDIC
under the Exchange Act and distributed in connection with Carolina Southern's
meeting of its shareholders to vote upon this Plan (as amended or supplemented
from time to time, the "Proxy Statement", and together with the prospectus
included in the Registration
12
Statement, as amended or supplemented from time to time, the "Proxy
Statement/Prospectus") will not at the time such Registration Statement becomes
effective, and in the case of the Proxy Statement/Prospectus at the time it is
mailed and at the time of the meeting of stockholders contemplated under this
Plan, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading;
(V) for purposes of this section, the following terms shall have the
indicated meaning:
"Environmental Law" means any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, order, judgment, decree, injunction or agreement with any governmental
entity relating to: (1) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface water,
groundwater, drinking water supply, surface soil, subsurface soil, plant and
animal life or any other natural resource); and/or (2) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
Environmental Law includes without limitation: (1) the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
ss. 9601, et seq; the Resource Conservation and Recovery Act, as amended, 42
U.S.C. ss. 6901, et seq; the Clean Air Act, as amended, 42 U.S.C. ss. 7401, et
seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. ss. 1251, et
seq; the Toxic Substances Control Act, as amended, 15 U.S.C. ss. 9601, et seq;
the Emergency Planning and Community Right to Know Act, 42 U.S.C. ss. 11001, et
seq; the Safe Drinking Water Act, 42 U.S.C. ss. 300f, et seq; all accompanying
federal regulations and all comparable state and local laws; and (2) any common
law (including without limitation common law that may impose 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
Substance.
"Hazardous Substance" means any substance or waste presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, under any Environmental Law, whether by type or by
quantity, including any material containing any such substance as a component.
Hazardous Substances include without limitation petroleum or any derivative or
by-product thereof, asbestos, radioactive material, and polychlorinated
biphenyls.
"Loan Portfolio Properties and Other Properties Owned" means those
properties owned or operated by Synovus or Carolina Southern as applicable.
(1) there are no actions, suits, demands, notices, claims,
investigations or proceedings pending or, to the actual knowledge of its
officers, threatened against it relating to the Loan Portfolio Properties and
Other Properties Owned by it under any Environmental Law, including without
limitation any notices, demand letters or requests for information from any
13
federal or state environmental agency relating to any such liabilities under or
violations of Environmental Law, nor, in the actual knowledge of its officers,
are there any circumstances which could reasonably be expected to lead to such
actions, suits, demands, notices, claims, investigations or proceedings, except
such which will not have, or result in, a Material Adverse Effect; and
(W) in the case of Carolina Southern, all securities issued by it
convertible into Carolina Southern Common Stock shall, as a result and upon
consummation of the Merger be convertible only into Synovus Common Stock.
IV. COVENANTS
Synovus hereby covenants to Carolina Southern, and Carolina Southern
hereby covenants to Synovus, that:
(A) it shall take or cause to be taken all action necessary or
desirable under the Plan on its part as promptly as practicable, including the
filing of all necessary applications and the Registration Statement, so as to
permit the consummation of the transactions contemplated by the Plan at the
earliest possible date and cooperate fully with the other party hereto to that
end;
(B) in the case of Carolina Southern, it shall: (1) take all steps
necessary to duly call, give notice of, convene and hold a meeting of its
shareholders for the purpose of approving the Plan as soon as is reasonably
practicable; (2) distribute to its shareholders the Proxy Statement/Prospectus
in accordance with applicable federal and state law and with its articles of
incorporation and bylaws; (3) recommend to its shareholders that they approve
the Plan (unless such recommendation would constitute a breach of its fiduciary
duties as determined in good faith after consultation with counsel); and (4)
cooperate and consult with Synovus with respect to each of the foregoing
matters;
(C) it will cooperate in the preparation and filing of the Proxy
Statement/Prospectus and Registration Statement in order to consummate the
transactions contemplated by the Plan as soon as is reasonably practicable;
(D) Synovus will advise Carolina Southern, promptly after Synovus
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order or the suspension of the qualification of the shares of Synovus
Common Stock issuable pursuant to the Plan 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;
(E) in the case of Synovus, it shall take all actions to obtain, prior
to the effective date of the Registration Statement, all applicable state
securities law or "Blue Sky" permits,
14
approvals, qualifications or exemptions for the Synovus shares to be issued
pursuant to this Plan;
(F) subject to its disclosure obligations imposed by law, unless
reviewed and agreed to by the other party hereto in advance, it will not issue
any press release or written statement for general circulation relating to the
transactions contemplated hereby; provided however, that nothing in this
Paragraph (F) shall be deemed to prohibit either party from making any
disclosure which its counsel deems necessary or advisable in order to satisfy
such party's disclosure obligations imposed by law;
(G) from and subsequent to the date hereof, it will: (1) give to the
other party hereto and its respective counsel and accountants reasonable access
to its premises and books and records during normal business hours for any
reasonable purpose related to the transactions contemplated hereby; (2)
cooperate and instruct its respective counsel and accountants to cooperate with
the other party hereto and with its respective counsel and accountants with
regard to the formulation and production of all necessary information,
disclosures, financial statements, registration statements and regulatory
filings with respect to the transactions encompassed by the Plan; and (3) not
use any information obtained pursuant to this Paragraph (G) for any purpose
unrelated to the consummation of the transactions contemplated by the Plan and,
if the Plan is not consummated, it will hold all information and documents
obtained pursuant to this Paragraph (G) in confidence unless and until such time
as such information or documents otherwise become publicly available through no
action by it or as it is advised by counsel that any such information or
document is required by law to be disclosed, and in the event of termination of
the Plan, it will deliver to the other party hereto all documents so obtained by
it and any copies thereof;
(H) it shall notify the other party hereto as promptly as practicable
of: (1) any breach of any of its representations, warranties or agreements
contained herein; (2) any occurrence, or impending occurrence, of any event or
circumstance which would cause or constitute a material breach of any of the
representations, warranties or agreements of it contained herein; and (3) any
material adverse change in its financial condition, results of operations or
business; and it shall use its best efforts to prevent or remedy the same;
(I) it shall cooperate and use its best efforts to promptly prepare and
file all necessary documentation, to effect all necessary applications, notices,
petitions, filings and other documents, and to obtain all necessary permits,
consents, approvals and authorizations of all third parties and governmental
bodies or agencies, including, in the case of Synovus, submission of
applications for approval of the Plan and the transactions contemplated hereby
to the Georgia Department of Banking and Finance ("Georgia Department"), the
South Carolina Board of Financial Institutions ("South Carolina Board"), the
Office of the Comptroller of the Currency ("OCC") and to such other regulatory
agencies as required by law;
(J) it will use its best efforts to cause the Merger to qualify for
pooling of interests
15
accounting treatment and to qualify as a reorganization within the meaning of
Section 368(a) of the Code for federal income tax purposes;
(K) Synovus shall use its best efforts to cause the shares of Synovus
Common Stock to be issued pursuant to the terms of this Plan to be approved for
listing on the NYSE, and each such share shall be entitled to ten votes per
share in accordance with and subject to those certain Articles of Amendment to
Synovus' Articles of Incorporation dated April 24, 1986;
(L) following the Effective Date, Synovus shall continue to provide
generally to officers and employees of Carolina Southern employee benefits,
including without limitation pension benefits, health and welfare benefits, life
insurance and vacation and severance arrangements (collectively, "Employee
Benefits"), on terms and conditions which, when taken as a whole, are: (1)
substantially similar to those currently provided by Carolina Southern; or (2)
the same employee benefits as are provided to employees of NBSC. With respect to
Employee Benefits maintained by Synovus and NBSC in which Carolina Southern
participates after the Effective Date, Synovus agrees: (1) to treat service by
Carolina Southern employees prior to the Effective Date as service with Synovus
for eligibility and vesting purposes only; and (2) to waive pre-existing
condition limitations, if any, as would otherwise be applied to participating
employees of Carolina Southern upon the implementation of such Employee Benefits
constituting "group health plans" within the meaning of Section 5000(b)(i) of
the Code;
(M) from the date hereof, Carolina Southern shall promptly furnish
Synovus with copies of all documents filed prior to the Effective Date with the
FDIC and all documents filed with other governmental or regulatory agencies or
bodies in connection with the Merger;
(N) Carolina Southern shall use its best efforts to cause each
director, executive officer and other person who is an "affiliate" (for purposes
of Rule 145 under the Securities Act and for purposes of qualifying for
"pooling-of interests" treatment as described below) to deliver to Synovus as
soon as practicable after the date hereof, but in no event after the date of the
Carolina Southern shareholders meeting called to approve the Merger, a written
agreement providing that such person will not sell, pledge, transfer or
otherwise dispose of any shares of Carolina Southern Common Stock held by such
"affiliate" and the shares of Synovus Common Stock to be received by such
"affiliate" in the Merger: (1) in the case of shares of Synovus Common Stock
only, except in compliance with the applicable provisions of the Securities Act
and the rules and regulations thereunder; and (2) during the periods during
which any such sale, pledge, transfer or other disposition would, under
generally accepted accounting principles or the rules, regulations or
interpretations of the SEC, disqualify the Merger for "pooling-of-interests"
accounting treatment, except as permitted by Staff Accounting Bulletin No. 76
issued by the SEC. The certificates of Synovus Common Stock issued to affiliates
of Carolina Southern will bear an appropriate legend reflecting the foregoing.
The parties understand that such periods in general encompass the period
commencing 30 days prior to the Merger and ending at the time of the publication
of financial results covering at least 30 days
16
of combined operations of Synovus and Carolina Southern within the meaning of
Section 201.01 of the SEC's Codification of Financial Reporting Policies;
(O) it will not directly or indirectly take any action or omit to take
any action to cause any of its representations and warranties made in this Plan
to become untrue;
(P) in the case of Synovus, it shall take no action which would cause
the shareholders of Carolina Southern to recognize gain or loss as a result of
the Merger to the extent such shareholders would not otherwise recognize gain or
loss as described in Paragraph (A)(8) of Article V;
(Q) it shall take no action which would prevent the merger from
qualifying for pooling-of-interests accounting treatment;
(R) Carolina Southern shall coordinate with Synovus the declaration of
any dividends in respect of Carolina Southern Common Stock and the record dates
and payment dates relating thereto, it being the intention of the parties hereto
that holders of Carolina Southern Common Stock shall not receive two dividends,
or fail to receive one dividend, for any single calendar quarter with respect to
their shares of Carolina Southern Common Stock and any shares of Synovus Common
Stock any such holder receives in exchange therefor in the Merger;
(S) Carolina Southern will, within 30 days after the date hereof,
engage a firm satisfactory to Synovus to conduct: (a) a phase one environmental
assessment of the banking facilities currently owned by Carolina Southern upon
which Carolina Southern is conducting a banking business, which assessment shall
meet the standards of ASTM E1527-97 and shall include at a minimum a site
history, on-site inspection, asbestos report, evaluation of surrounding
properties and soil tests in the event any underground storage tanks are
discovered; and (b) a transaction screen that meets the standards of ASTM E1528
for the properties that Carolina Southern leases, and in addition, Carolina
Southern agrees to conduct a phase one assessment of the leased properties if,
in Synovus' reasonable judgment, the transaction screen indicates potential
environmental liabilities associated with the leased properties. Synovus has
requested such inspection and testing in an effort to reasonably determine
whether potential liabilities exist relating to Environmental Law. Delivery of
the phase one assessments and transaction screens satisfactory to Synovus is an
express condition precedent to the consummation of the Merger. Within 15 days
after receipt of these reports, Synovus shall notify Carolina Southern in
writing whether or not, in the reasonable judgment of Synovus, the results of
such reports will have a Material Adverse Effect on Carolina Southern. In the
event that Synovus determines, in its reasonable judgment, that the results of
such reports will have a Material Adverse Effect on Carolina Southern, such
written notification shall include a statement by Synovus regarding whether or
not it intends to terminate this Agreement based upon the results of such
reports. The Parties agree that Synovus has given Carolina Southern good and
valuable consideration for its agreement to
17
obtain and pay the cost of such inspection and testing, and Synovus shall be
entitled to rely on same; and
(T) Prior to the Effective Date, Carolina Southern shall purchase for,
and on behalf of, its current and former officers and directors, extended
coverage under the current directors' and officers' liability insurance policy
maintained by Carolina Southern to provide for continued coverage of such
insurance for a period of three years following the Effective Date with respect
to matters occurring prior to the Effective Date.
V. CONDITIONS TO CONSUMMATION
(A) The respective obligations of Synovus and of Carolina Southern to
effect the Merger shall be subject to the satisfaction prior to the Effective
Date of the following conditions:
(1) the Plan and the transactions contemplated hereby shall
have been approved by the requisite vote of the shareholders of Carolina
Southern in accordance with applicable law and Carolina Southern shall have
furnished to Synovus certified copies of resolutions duly adopted by Carolina
Southern's shareholders evidencing the same;
(2) the procurement by Synovus and Carolina Southern of
approval of the Plan and the transactions contemplated hereby by: (i) the
Georgia Department; (ii) the South Carolina Board; and (iii) the OCC;
(3) procurement of all other regulatory consents and approvals
which are necessary to the consummation of the transactions contemplated by the
Plan; provided, however, that no approval or consent in Paragraphs (A)(2) and
(A)(3) of this Article V shall be deemed to have been received if it shall
include any conditions or requirements (other than conditions or requirements
which are customarily included in such an approval or consent) which would have
such a material adverse impact on the economic or business benefits of the
transactions contemplated hereby as to render inadvisable the consummation of
the Merger in the reasonable opinion of the Board of Directors of Synovus or
Carolina Southern;
(4) the satisfaction of all other statutory or regulatory
requirements which are necessary to the consummation of the transactions
contemplated by the Plan;
(5) no party hereto shall be subject to any order, decree or
injunction or any other action of a United States federal or state court of
competent jurisdiction restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement;
(6) no party hereto shall be subject to any order, decree or
injunction or any other action of a United States federal or state governmental,
regulatory or administrative agency or commission restraining, enjoining or
otherwise prohibiting the transactions
18
contemplated by this Agreement;
(7) the Registration Statement shall have become effective
under the Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC, and Synovus shall
have received all state securities law and "Blue Sky" permits, approvals,
qualifications or exemptions necessary to consummate the transactions
contemplated hereby;
(8) each party shall have received an opinion ("Tax Opinion")
from KPMG LLP, certified public accountants ("KPMG"), updated as of the
Effective Date, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly: (i) no gain or loss will be recognized by Synovus or
Carolina Southern as a result of the Merger; and (ii) no gain or loss will be
recognized by the shareholders of Carolina Southern who exchange their shares of
Carolina Southern Common Stock solely for shares of Synovus Common Stock
pursuant to the Merger;
(9) each party shall have delivered to the other party a
certificate, dated as of the Effective Date, signed by its Chairman of the
Board, or its Chief Financial Officer, and by its Controller to the effect that,
to the best knowledge and belief of such officers, the statement of facts and
representations made on behalf of the management of such party, presented to
KPMG in delivering the Tax Opinion, were at the date of such presentation true,
correct and complete. Each party shall have received a copy of the Tax Opinion
referred to in Paragraph (A)(8) of this Article V; and
(10) Synovus shall have reasonably concluded that the Merger
will qualify for pooling-of-interests accounting treatment.
(B) The obligation of Synovus to effect the Merger shall be subject to
the satisfaction prior to the Effective Date of the following additional
conditions:
(1) each of the representations, warranties and covenants
contained herein of Carolina Southern shall be true on, or complied with by, the
Effective Date in all material respects as if made on such date (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date) and Synovus shall have received a certificate signed
by the Chief Executive Officer of Carolina Southern, dated the Effective Date,
to such effect;
(2) there shall be no discovery of facts, or actual or
threatened causes of action, investigations or proceedings by or before any
court or other governmental body that relates to or involves Carolina Southern:
(a) which, in the reasonable judgment of Synovus, would have a Material Adverse
Effect upon Carolina Southern or the consummation of the
19
transactions contemplated by this Agreement; (b) that challenges the validity or
legality of this Agreement or the consummation of the transactions contemplated
by this Agreement; or (c) that seeks to restrain or invalidate the consummation
of the transactions contemplated by this Agreement or seeks damages in
connection therewith;
(3) Synovus shall not have learned of any fact or condition
with respect to the business, properties, assets, liabilities, deposit
relationships or earnings of Carolina Southern which, in the reasonable judgment
of Synovus, is materially at variance with one or more of the warranties or
representations set forth in this Agreement or which, in the reasonable judgment
of Synovus, has or will have a Material Adverse Effect on Carolina Southern;
(4) John S. Poole and Thomas H. Lyles shall have entered
into employment agreements with Synovus as proposed by Synovus and approved
by Messrs. Poole and Lyles which will become effective as of the Effective Date;
(5) on the Effective Date, Carolina Southern will have a
CAMELS rating of 1 and a Compliance Rating and Community Reinvestment Act Rating
of at least Satisfactory;
(6) on the Effective Date, Carolina Southern will have a loan
loss reserve of at least 1.45% of loans and which will be adequate in all
material respects under generally accepted accounting principles applicable to
banks;
(7) Carolina Southern shall have delivered to Synovus
the environmental reports referenced in Paragraph (V) of Article III; and
(8) the results of any regulatory exam of Carolina Southern
occurring between the date hereof and the Effective Date shall be reasonably
satisfactory to Synovus.
(C) The obligation of Carolina Southern to effect the Merger shall be
subject to the satisfaction prior to the Effective Date of the following
additional conditions:
(1) each of the representations, warranties and covenants
contained herein of Synovus and NBSC shall be true on, or complied with by, the
Effective Date in all material respects as if made on such date (or on the date
when made in the case of any representation or warranty which specifically
relates to an earlier date) and Carolina Southern shall have received a
certificate signed by the Chief Executive Officer of Synovus, dated the
Effective Date, to such effect;
(2) the listing for trading of the shares of Synovus Common
Stock which shall be issued pursuant to the terms of this Plan on the NYSE shall
have been approved by the NYSE subject to official notice of issuance;
20
(3) there shall be no discovery of facts, or actual or
threatened causes of action, investigations or proceedings by or before any
court or other governmental body that relates to or involves Synovus: (a) which,
in the reasonable judgment of Carolina Southern, would have a Material Adverse
Effect upon either Synovus or the consummation of the transactions contemplated
by this Agreement; (b) that challenges the validity or legality of this
Agreement or the consummation of the transactions contemplated by the Agreement;
or (c) that seeks to restrain or invalidate the consummation of the transactions
contemplated by this Agreement or seeks damages in connection therewith;
(4) Carolina Southern shall not have learned of any fact or
condition with respect to the business, properties, assets, liabilities, deposit
relationships or earnings of Synovus which, in the reasonable judgment of
Carolina Southern, is materially at variance with one or more of the warranties
or representations set forth in this Agreement or which, in the reasonable
judgment of Carolina Southern, has or will have a Material Adverse Effect on
Synovus;
(5) Carolina Southern shall have received from the Office of
the General Counsel of Synovus an opinion to the effect that Synovus is duly
organized, validly existing and in good standing, the Plan has been duly and
validly authorized by all necessary corporate action on the part of Synovus, has
been duly and validly executed and delivered by Synovus, is the valid and
binding obligation of Synovus, enforceable in accordance with its terms except
as such may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and that the shares of Synovus Common Stock to be issued in the Merger
are duly authorized, validly issued, fully paid, nonassessable, and not subject
to any preemptive rights of any current or past shareholders; and
(6) Carolina Southern shall have received from The Carson
Medlin Company a letter, dated not more than five (5) business days prior to the
date of the Proxy Statement, to the effect that, in the opinion of such firm,
the Per Share Exchange Ratio is fair, from a financial point of view, to the
holders of Carolina Southern Common Stock.
VI. TERMINATION
(A) Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Date, before or
after the approval of this Agreement by the stockholders of Carolina Southern,
by the mutual consent of Synovus, Carolina Southern and NBSC.
(B) Termination by Either Synovus or Carolina Southern. This Agreement
may be terminated and the Merger may be abandoned by action of the Board of
Directors of either Synovus or Carolina Southern if (a) the Merger shall not
have been consummated by April 30, 2001 unless the failure to so consummate by
such time is due to the breach of the Plan by the
21
party seeking to terminate, or (b) consummation of the Merger does not occur by
reason of the failure of any of the conditions precedent set forth in Article V
hereof unless the failure to meet such conditions precedent is due to a breach
of the Plan, including the convenants, representations and warranties set forth
herein, by the party seeking to terminate.
(C) Termination by Carolina Southern. This Agreement may be terminated
and the Merger may be abandoned without liability, except with respect to
Paragraph (E) of Article VI, at any time prior to the Effective Date, before or
after the adoption and approval by the shareholders of Carolina Southern
referred to in Paragraph (A)(1) of Article V, by action of the Board of
Directors of Carolina Southern if (a) the Board of Directors of Carolina
Southern shall not have recommended or shall have withdrawn or modified its
recommendation or approval of the transactions contemplated by this Agreement,
if the failure to do so would constitute a breach of the fiduciary duty of the
Board of Directors (as determined in good faith after consultation with
counsel); or (b) the average closing price of Synovus on the New York Stock
Exchange is below $16.00 per share for any 20 consecutive day trading period
ending five business days prior to the shareholders' meeting called to vote on
the Merger. Carolina Southern shall have three business days after such time in
which to make a determination to terminate this Agreement.
(D) Termination by Synovus. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Date, by action of
the Board of Directors of Synovus if (a) the average closing price of Synovus on
the New York Stock Exchange is above $23.00 per share for any 20 consecutive day
trading period ending five business days prior to the shareholders' meeting
called to vote on the Merger (Synovus shall have three business days after such
time in which to make a determination to terminate this Agreement.); or (b)
another entity, person, or group (as defined in Section 13(d)(3) of the Exchange
Act) commences a public offer relating to an Acquisition Proposal to acquire all
or a significant portion of the equity securities of Carolina Southern and, in
fact, acquires all or a significant portion of the equity securities of Carolina
Southern pursuant to said offer or otherwise or it shall have been publicly
disclosed or Synovus shall have learned that any entity, person, or group shall
have acquired all or a significant portion of the equity securities of Carolina
Southern or shall have been granted any option or right, conditional or
otherwise, to acquire all or a significant portion of the equity securities of
Carolina Southern; or (c) Carolina Southern enters into an agreement relating to
an Acquisition Proposal whereby Carolina Southern or all or a significant
portion of the equity securities of Carolina Southern, or all or substantially
all of Carolina Southern's assets are to be acquired by, or Carolina Southern is
to be consolidated with, a person or entity other than Synovus or a subsidiary
or affiliate of Synovus; or (d) there has been a breach by Carolina Southern of
any of the covenants contained in Paragraph (B) of Article II hereof that
results in an Acquisition Proposal, or a breach of its covenant in Paragraph (B)
of Article IV hereof to recommend approval of this Agreement and the
transactions contemplated thereby.
(E) Termination Fee. In the event that (a) Carolina Southern
terminates this
22
Agreement pursuant to Paragraph (C)(a) of this Article VI hereof in order to
entertain, negotiate or enter into an Acquisition Proposal; or (b) Synovus
terminates this Agreement pursuant to Paragraphs D(b),(c) or (d) of this Article
VI and as of the date of such termination, (x) there has been no breach by
Synovus of a representation or warranty herein which would have or would be
reasonably likely to have a Material Adverse Effect on Synovus, (y) there has
been no material breach of any of the covenants or agreements set forth in this
Agreement on the part of Synovus, and (z) Carolina Southern does not have the
right to terminate this Agreement pursuant to Paragraph (A), Paragraph (B) or
Paragraph C (b) of this Article VI, then no later than five (5) business days
after such termination, Carolina Southern shall pay to Synovus an amount in cash
equal to $500,000, plus actual out of pocket expenses incurred by Synovus in
connection with the transactions contemplated hereby (including but not limited
to fees and disbursements of both internal and external counsel, fees and
expenses of investment bankers, accountants and lenders and printing costs) in
an amount not exceeding $250,000.
VII. EFFECTIVE DATE
The "Effective Date" shall be the date on which the Merger becomes
effective as specified in the Certificate of Merger to be issued by the OCC
approving the Merger.
VIII. OTHER MATTERS
(A) The agreements and covenants of the parties which by their terms
apply in whole or in part after the Effective Date shall survive the Effective
Date. Except for Paragraph (R) of Article III, and Paragraph (N) of Article IV
which shall survive the Effective Date, no other representations, warranties,
agreements and covenants shall survive the Effective Date. If the Plan shall be
terminated, the agreements of the parties in Paragraph (G) of Article IV,
Paragraph (E) of Article VI and Paragraphs (E) and (F) of this Article shall
survive such termination.
(B) Prior to the Effective Date, any provision of the Plan may be: (1)
waived by the party benefitted by the provision or by both parties; or (2)
amended or modified at any time (including the structure of the transaction) by
an agreement in writing between the parties hereto approved by their respective
Boards of Directors (to the extent allowed by law) or by their respective Boards
of Directors.
(C) This Plan may be executed in multiple and/or facsimile originals,
and each copy of the Plan bearing the manually executed, facsimile transmitted
or photocopied signature of each of the parties hereto shall be deemed to be an
original.
(D) The Plan shall be governed by, and interpreted in accordance with,
the laws of the State of Georgia, except to the extent federal law is
applicable.
(E) Each party hereto will bear all expenses incurred by it in
connection with the
23
Plan and the transactions contemplated hereby, including, but not limited to,
the fees and expenses of its respective counsel, and accountants and investment
bankers.
(F) Each of the parties and its respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed unless it is advised
by counsel that any such information is required by law to be disclosed.
(G) All notices, requests, acknowledgments and other communications
hereunder to a party shall be in writing and shall be deemed to have been duly
given when delivered by hand, telecopy, telegram or telex (confirmed in
writing), by overnight courier or sent by registered or certified mail, postage
paid, to such party at its address set forth below or such other address as such
party may specify by notice to the other party hereto.
If to Synovus, to Mr. Thomas J. Prescott, Executive Vice President and
Chief Financial Officer of Synovus, Suite 301, 901 Front Avenue, Columbus,
Georgia 31901 (Fax Number 706/649-2342), with a copy to Ms. Kathleen Moates at
the same address.
If to Carolina Southern to Mr. Thomas H. Lyles, Executive Vice
President, 150 East Henry Street, Spartanburg, South Carolina 29306 (Fax Number
864/577-8891), with a copy to Elizabeth B. Anders, McNair Law Firm, P.O.
Box 11390, Columbia, South Carolina 29211 (Fax Number 803/933-1483).
(H) All terms and provisions of the Plan shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Except as expressly provided for herein, nothing in this Plan is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Plan.
(I) The Plan represents the entire understanding of the parties hereto
with reference to the transactions contemplated hereby and supersedes any and
all other oral or written agreements heretofore made.
(J) This Plan may not be assigned by any party hereto without the
written consent of the other parties.
24
In Witness Whereof, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers as of the day and
year first above written.
SYNOVUS FINANCIAL CORP.
By:/s/ Richard E. Anthony
----------------------------------------------------------
Title: Vice Chairman
---------------------------------------------
Attest: /s/Kathy Moates
------------------------------------------------------
Title: Assistant Secretary
-----------------------------------------------
THE NATIONAL BANK OF SOUTH CAROLINA
BY: /s/Fred C. Green, III
----------------------------------------------------------
Title: President & CEO
-----------------------------------------------
Attest:/s/Charl Butler
-------------------------------------------------------
Title: Secretary & Cashier
-----------------------------------------------
CAROLINA SOUTHERN BANK
BY: /s/John s. Poole
----------------------------------------------------------
Title: President & CEO
-----------------------------------------------
Attest:/s/Thomas H. Lyles
-------------------------------------------------------
Title: Executive Vice President & Cashier
-----------------------------------------------
25
STATE OF GEORGIA)
)SS:
COUNTY OF MUSCOGEE)
On this 18th day of September, 2000, before me, a notary public for this state
and county, personally came Richard Anthony, as Vice Chairman, and Kathy Moates,
as assistant secretary, of Synovus Financial Corp., and each in his/her capacity
acknowledged this instrument to be the act and deed of the corporation.
WITNESS my official seal and signature this day and year.
/s/Brenda McKinney
-----------------------------
(Seal of Notary) Notary Public, Muscogee County.
My commission expires 9-18-2003
STATE OF SOUTH CAROLINA)
)SS:
COUNTY OF RICHLAND)
On this 18th day of September, 2000, before me, a notary public for this
state and county, personally came Fred Green, as president, and Charl Butler,
as cashier, of The National Bank of South Carolina, and each in his/her capacity
acknowledged this instrument to be the act and deed of the association.
WITNESS my official seal and signature this day and year.
/s/Miriam Hutto
-----------------------------
(Seal of Notary) Notary Public, Richland County.
My commission expires February 16, 2010
26
STATE OF SOUTH CAROLINA)
)SS:
COUNTY OF SPARTANBURG)
On this 18th day of September, 2000, before me, a notary public for this state
and county, personally came John Poole, as president, and Thomas Lyles, as
cashier, of Carolina Southern Bank, and each in his/her capacity acknowledged
this instrument to be the act and deed of the bank.
WITNESS my official seal and signature this day and year.
/s/Janice C. Addington
-----------------------------
(Seal of Notary) Notary Public, Spartanburg County.
My commission expires 11-1-2005
27
Exhibit "A"
THE NATIONAL BANK OF SOUTH CAROLINA
ARTICLES OF ASSOCIATION
FIRST. The title of this Association shall be "The National Bank of South
Carolina."
SECOND. The main office of the Association shall be in the City of Sumter,
County of Sumter, State of South Carolina. The general business of the
Association shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five persons, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each director, during the full term of his directorship, shall
own a minimum of $1,000 par value of stock of this Association, or an equivalent
interest, as determined by the Comptroller of the Currency, in any company which
has control over this Association within the meaning of Section 2 of the Bank
Holding Company Act of 1956 (12 U.S.C. ss.1841). Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders, the
purpose of which shall be the election of directors and the transaction of
whatever other business may be brought before said meeting. It shall be held at
the main office or other convenient place as the Board of Directors may
designate, on the day of each year specified therefor in the Bylaws, but if no
election is held on that day, it may be held on any subsequent day according to
such lawful rules as may be prescribed by the Board of Directors.
Nominations for election to the Board of Directors may be made by the
Board of Directors or by any shareholder of any outstanding class of capital
stock of the Bank entitled to vote for election of directors. Nominations, other
than those made by or on behalf of the existing management of the Bank, shall be
made in writing and shall be delivered or mailed to the president of the Bank
and to the Comptroller of the Currency, Washington, D.C., not less than 14 days
nor more than 50 days prior to any meeting of shareholders called for the
election of directors, provided, however, that if less than 21 days' notice of
the meeting is given to shareholders, such nominations shall be mailed or
delivered to the president of the Bank and to the Comptroller of the Currency
not later than the close of business on the seventh day following the day on
which the notice of meeting was mailed. Such notification shall contain the
following information to the extent known to the notifying shareholder; (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the Bank
that will be voted for each proposed nominee; (d) the name and residence address
of the notifying shareholder; and (e) the number
28
of shares of capital stock of the Bank owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the chairperson of the meeting, and upon his/her instructions,
the vote tellers may disregard all votes cast for each such nominee.
FIFTH. The authorized amount of capital stock of this Association shall
be 930,000 shares of common stock of the par value of five dollars ($5.00) each;
but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the
Association shall have any preemptive or preferential right of subscription to
any shares of any class of stock of the Association, whether now or hereafter
authorized, nor to any obligations convertible into stock of the Association,
issued or sold, nor any right of subscription to any thereof other than such, if
any, as the Board of Directors, in its discretion, may from time to time
determine and at such price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorize and
issue debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members
president of this Association, who shall be chairperson of the Board, unless the
Board appoints another director to be the chairperson. The Board of Directors
shall have the power to appoint one or more vice presidents, and to appoint a
cashier and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of the City of
Sumter, South Carolina, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
29
NINTH. The Board of Directors of this Association, or any one or more
shareholders, owning in the aggregate not less than 25 percent of the stock of
this Association, may call a special meeting of the shareholders at any time.
Unless otherwise provided by the laws of the United States, a notice of the
time, place, and purpose of every annual and special meeting of the shareholders
shall be given by first-class mail, postage prepaid, mailed at least ten days
prior to the date of such meeting, to each shareholder of record at his address
as shown upon the books of this Association.
TENTH. Indemnification
Section A. The Association shall indemnify any person who was or is a
party or is threatened with being made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative (all such actions, suits, and proceedings and accompanying
modifiers being comprehended by the term "Proceeding") (including actions by, or
in the right of, the Association), by reason of the fact that he is or was a
director or officer of the Association, or is or was serving at the request of
the Association as a director, officer, employee, or agent of another person.
Such indemnification may be made only against those expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding if
(i) he is successful on the merits or otherwise; or
(ii)he acted in the transaction which is the subject of the
Proceeding in good faith; and
a. in the case of conduct in his official capacity with the
Association, he reasonably believed his conduct to be in the
Association's best interest; or
b. in all other cases, he reasonably believed his conduct to be
at least not opposed to this Association's best interest; and
c. with respect to any criminal Proceeding, he had no reasonable
cause to believe his conduct was unlawful.
The termination of any Proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best interest
of the Association, nor, with respect to any criminal Proceedings, that he had
reasonable cause to believe that his conduct was unlawful. Notwithstanding the
foregoing, the Association shall not indemnify any director or officer of the
Association against any expenses, penalties, or other payments incurred in an
administrative Proceeding or action instituted by an appropriate bank regulatory
agency which Proceeding results in a final order assessing civil money penalties
or requiring affirmative action by an individual or individuals in the form of
payments to the Association.
Section B. The Association shall indemnify any person who was or is a
party or is threatened with being made a party to a Proceeding by or in the
right of the Association by
30
reason of the fact that he is or was a director or officer of the Association,
or is or was serving at the request of the Association as a director, officer,
employee, or agent of another person. Such indemnification may be made against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such Proceeding if
(i) he is successful on the merits or otherwise; or
(ii) he acted in the transaction which is the subject of the
Proceeding in good faith; and
a. in the case of conduct in his official capacity with the
Association, he reasonably believed his conduct to be in the
Association's best interest; or
b. in all other cases, he reasonably believed his conduct to be
at least not opposed to the Association's best interest; and
c. with respect to any criminal Proceeding, he had no
reasonable cause to believe his conduct was unlawful.
However, no indemnification may be made in respect of any claim, issue,
or matter in relation to which such person shall have been adjudged to be liable
to the Association or in respect of any Proceeding charging improper personal
benefit to him, whether or not involving action in his official capacity, in
which he shall have been adjudged to be liable on the basis that personal
benefit was improperly received by him or for negligence or misconduct in the
performance of his duty to the Association. Notwithstanding the foregoing
exception, indemnification may be made to the extent that the court in which
such Proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses as
the court of appropriate jurisdiction shall deem proper; provided, however, that
said misconduct did not involve moral turpitude. Notwithstanding the foregoing,
the Association shall not indemnify any director or officer of the Association
against any expenses, penalties, or other payments incurred in an administrative
Proceeding or action instituted by an appropriate bank regulatory agency which
Proceeding results in a final order assessing civil money penalties or requiring
affirmative action by an individual or individuals in the form of payments to
the Association.
Section C. Any indemnification under Section A or Section B of this
Article Tenth (other than one ordered by a court) may be made by the Association
only upon a determination that indemnification of such person is proper in the
circumstances because he has met the applicable standard or conduct set forth in
such section. Such determination shall be made:
(i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such
Proceeding; or
(ii) if such a quorum is not obtainable, then by a majority vote of
a committee of the Board, duly designated to act in the manner
by a majority vote of the full Board (in which designated
directors who are parties may participate), consisting solely
of two or more directors not at the time parties to such
Proceeding; or
31
(iii) by special legal counsel, selected by the Board of Directors
or a committee thereof by vote as set forth in clauses (i) or
(ii) of this Section C, or, if the requisite quorum of the
full Board cannot be obtained therefor and such committee
cannot be established, by a majority vote of the full Board
(in which selected directors who are parties may participate);
or
(iv) by the stockholders.
Section D. Expenses incurred in defending a civil or criminal
Proceeding may be paid by the Association in advance of the final disposition of
such Proceeding as authorized by the Board of Directors or other appropriate
body or party in the manner provided in Section C of this Article Tenth only
when the Association has received a written affirmation by the director who is
to receive such payment of his good faith belief that he has met the standard of
conduct necessary for indemnification by the Association as authorized in
Section A or Section B of this Article Tenth and an undertaking by or on behalf
of the person who is to receive such payment to repay such amount unless it
shall ultimately be determined that he is entitled to be indemnified by the
Association as authorized in this Article Tenth.
Section E. In determining whether the standard of conduct set forth in
Section A or Section B has been met, it may be determined that a person has met
the standard as to some matters but not as to others, and the amount of
indemnification may be accordingly prorated.
Section F. The indemnification provided by Section A through Section E
shall not be exclusive of any other rights to which a person may be entitled by
law, bylaw, agreement, vote of shareholders, or otherwise.
Section G. The indemnification provided by Section A through Section E
shall inure to the heirs, executors, and administrators of any person entitled
to indemnification under this Article Tenth.
Section H. The association may purchase and maintain insurance on any
person who is or was a director, officer, employee, or agent of the Association
or is or was serving at the request of the Association as a director, officer,
employee, or agent of another person against any liability incurred by him in
any such position, or arising out of his status as such, whether or not the
Association would have the power to indemnify him against such liability under
Section A through Section E: provided, however, that such insurance shall not
provide coverage for liability under any formal order assessing civil money
penalties against a director, officer, employee, or agent of the Association.
ELEVENTH. These Articles of Association may be amended at any regular
or special meeting of the shareholders by the affirmative vote of the holders of
a majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case, by the vote of the
holders of such greater amount.
32
Exhibit "B"
Directors of The National Bank of South Carolina
Joe M. Anderson, Jr.
Edgar A. Buck
Stephen M. Creech
C. Edward Floyd, M.D.
Elaine T. Freeman
Fred L. Green, III
Jacob H. Jennings, Esquire
Ernest R. Klutz
Donald D. Leonard
Dr. Joab M. Lesesne, Jr.
Wilson M. MacEwen
Michael B. McGee
William L. Pherigo
John S. Rainey
Robert V. Royall
Alexander M. Sanders, Jr.
M. Edward Sellers
Austin M. Sheheen, Jr.
Marva A. Smalls
William M. Webster, III
David H. Wilkins
James D. Yancey
33
Exhibit "C"
Capital Structures of The National Bank of South Carolina
and Carolina Southern Bank
(As of June 30, 2000)
<TABLE>
<CAPTION>
The National Bank of South Carolina Carolina Southern Bank
<S> <C> <C>
Equity Securities
Authorized 930,000 shares 10,000,000 shares
Outstanding Equity
Securities 930,000 shares 3,670,557 shares
Capital $ 4,650,000 $22,098,204
Surplus 51,230,694 -
Undivided Profits 89,222,474 1,209,080
Total Stockholder
Equity $ 145,103,168 $23,307,284
</TABLE>
APPENDIX "B"
South Carolina Code of Laws
Title 33 - Corporations, Partnerships and Associations
CHAPTER 13.
DISSENTERS' RIGHTS
ARTICLE 1.
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
SECTION 33-13-101. Definitions.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or share
exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from corporate
action under Section 33-13-102 and who exercises that right when and in the
manner required by Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in anticipation of
the corporate action to which the dissenter objects, excluding any appreciation
or depreciation in anticipation of the corporate action unless exclusion would
be inequitable. The value of the shares is to be determined by techniques that
are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate action
until the date of payment, at the average rate currently paid by the corporation
on its principal bank loans or, if none, at a rate that is fair and equitable
under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are registered in
the records of a corporation or the beneficial owner of shares to the extent of
the rights granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial shareholder.
SECTION 33-13-102. Right to dissent.
(A) A shareholder is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event of any of the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a party (i) if
shareholder approval is required for the merger by Section 33-11-103 or the
articles of incorporation and the shareholder is entitled to vote on the merger
or (ii) if the corporation is a subsidiary that is merged with its parent under
Section 33-11-104 or 33-11-108 or if the corporation is a parent that is merged
with its subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the corporation is a party
as the corporation whose shares are to be acquired, if the shareholder is
entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all, of the
property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale must be distributed to the shareholders within one
year after the date of sale;
(4) an amendment of the articles of incorporation that materially and adversely
affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares;
(iii) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities;
(iv) excludes or limits the right of the shares to vote on any matter, or to
cumulate votes, other than a limitation by dilution through issuance of shares
or other securities with similar voting rights; or
(v) reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
Section 33-6-104; or
(5) in the case of corporations which are not public corporations, 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.
(B) Notwithstanding subsection (A), no dissenters' rights under this section are
available for shares of any class or series of shares which, at the record date
fixed to determine shareholders entitled to receive notice of a vote at the
meeting of shareholders to act upon the agreement of merger or exchange, were
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc.
SECTION 33-13-103. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held on
his behalf only if he dissents with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE 2.
PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
SECTION 33-13-200. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
SECTION 33-13-210. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' 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.
SECTION 33-13-220. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after the
corporate action was taken and must:
(1) state where the payment demand must be sent and where certificates for
certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent transfer of the
shares is to be restricted after the payment demand is received;
(3) supply a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he or, if he is a nominee asserting dissenters' rights on
behalf of a beneficial shareholder, the beneficial shareholder acquired
beneficial ownership of the shares before that date;
(4) set a date by which the corporation must receive the payment demand, which
may not be fewer than thirty nor more than sixty days after the date the
subsection (a) notice is delivered and set a date by which certificates for
certificated shares must be deposited, which may not be earlier than twenty days
after the demand date; and
(5) be accompanied by a copy of this chapter.
SECTION 33-13-230. Shareholders' payment demand.
(a) A shareholder sent a dissenters' notice described in Section 33-13-220 must
demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements that
he demand payment and deposit his share certificates where required, each by the
date set in the dissenters' notice, is not entitled to payment for his shares
under this chapter.
SECTION 33-13-240. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from the
date the demand for payment for them is received until the proposed corporate
action is taken or the restrictions are released under Section 33-13-260.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
SECTION 33-13-250. Payment.
(a) Except as provided in Section 33-13-270, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who substantially complied with Section 33-13-230 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year ending not
more than sixteen months before the date of payment, an income statement for
that year, a statement of changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of the shares
and an explanation of how the fair value was calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional payment under
Section 33-13-280; and (5) a copy of this chapter.
SECTION 33-13-260. Failure to take action.
(a) If the corporation does not take the proposed action within sixty days after
the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
SECTION 33-13-270. After-acquired shares.
(a) A corporation may elect to withhold payment required by section 33-13-250
from a dissenter as to any shares of which he (or the beneficial owner on whose
behalf he is asserting dissenters' rights) was not the beneficial owner on the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action,
unless the beneficial ownership of the shares devolved upon him by operation of
law from a person who was the beneficial owner on the date of the first
announcement.
(b) To the extent the corporation elects to withhold payment under subsection
(a), after taking the proposed corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay this amount to each
dissenter who agrees to accept it in full satisfaction of his demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenter's right to demand additional
payment under Section 33-13-280.
SECTION 33-13-280. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate of the
fair value of his shares and amount of interest due and demand payment of his
estimate (less any payment under Section 33-13-250) 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.
ARTICLE 3.
JUDICIAL APPRAISAL OF SHARES
SECTION 33-13-300. Court action.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of the
county where the corporation's principal office (or, if none in this State, its
registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of this
State) whose demands remain unsettled parties to the proceeding as in an action
against their shares and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or by publication, as
provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment for
the amount, if any, by which the court finds the fair value of his shares, plus
interest, exceeds the amount paid by the corporation.
SECTION 33-13-310. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Section 33-13-300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess costs against all or
some of the dissenters, in amounts the court finds equitable, to the extent the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under Section 33-13-280.
(b) The court also may assess the fees and expenses of counsel and experts for
the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters if the court
finds the corporation did not comply substantially with the requirements of
Sections 33-13-200 through 33-13-280; or
(2) against either the corporation or a dissenter, in favor of any other party,
if the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding within the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
APPENDIX "C"
November __, 2000
Board of Directors
Carolina Southern Bank
150 East Henry Street
Spartanburg, SC 29304
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, of the exchange ratio to be received by the shareholders of Carolina
Southern Bank ("Carolina Southern") under the terms of a certain Agreement and
Plan of Merger dated September 18, 2000 (the "Agreement") pursuant to which
Carolina Southern will be merged with and into The National Bank of South
Carolina, a wholly-owned subsidiary of Synovus Financial Corporation ("Synovus")
(the "Merger"). Under the terms of the Agreement, each of the outstanding shares
of Carolina Southern Common Stock shall be converted into approximately 0.8514
shares of Synovus Common Stock. The foregoing summary of the Merger is qualified
in its entirety by reference to the Agreement.
The Carson Medlin Company is a National Association of Securities Dealers, Inc.
(NASD) member investment banking firm, which specializes in the securities of
southeastern United States financial institutions. As part of our investment
banking activities, we are regularly engaged in the valuation of southeastern
United States financial institutions and transactions relating to their
securities. We regularly publish our research on independent community banks
regarding their financial and stock price performance. We are familiar with the
commercial banking industry in South Carolina and the major commercial banks
operating in that market. We have been retained by Carolina Southern in a
financial advisory capacity to render our opinion hereunder, for which we will
receive compensation.
In reaching our opinion, we have analyzed the respective financial positions,
both current and historical, of Synovus and Carolina Southern. We have reviewed:
(i) the Agreement; (ii) the annual reports to shareholders of Synovus, including
audited financial statements for the five years ended December 31, 1999; (iii)
audited financial statements of Carolina Southern for the five years ended
December 31, 1999; (iv) unaudited interim financial statements of Synovus for
the six months ended June 30, 2000; (v) unaudited interim financial statements
of Carolina Southern for the six months ended June 30, 2000; and, (vi) certain
financial and operating information with respect to the business, operations and
prospects of Synovus and Carolina Southern. We also: (a) held discussions with
members of management of Synovus and Carolina Southern regarding historical and
current business operations, financial condition and future prospects of their
respective companies; (b) reviewed the historical market prices and trading
activity for the common stock of Synovus and compared it with those of certain
publicly traded companies which we deemed to be relevant; (c) compared the
results of operations of Synovus and Carolina Southern with those of certain
banking companies which we deemed to be relevant; (d) compared the proposed
financial terms of the Merger with the financial terms, to the extent publicly
available, of certain other recent business combinations of commercial banking
organizations; and (e) conducted such other studies, analyses, inquiries and
examinations as we deemed appropriate.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all information provided to us. We have not performed or
considered any independent appraisal or evaluation of the assets of Synovus or
Carolina Southern. The opinion we express herein is necessarily based upon
market, economic and other relevant considerations as they exist and can be
evaluated as of the date of this letter.
Based upon the foregoing, it is our opinion that the exchange ratio provided for
in the Agreement is fair, from a financial point of view, to the shareholders of
Carolina Southern Bank.
Very truly yours,
THE CARSON MEDLIN COMPANY
APPENDIX "D"
November 16, 2000
PRIVATE & CONFIDENTIAL
Board of Directors Board of Directors
Synovus Financial Corp. Carolina Southern Bank
P.O. Box 120 150 East Henry Street
Columbus, GA 31902 Spartanburg, South Carolina 29306
Board Members:
You have requested the opinion of KPMG LLP ("KPMG") regarding certain Federal
income tax consequences relating to the merger of Carolina Southern Bank ("CSB")
with and into The National Bank of South Carolina ("SUB."), a wholly owned
subsidiary of Synovus Financial Corp. ("Synovus"). Specifically, you have
requested us to opine that the form and substance of the merger of CSB with and
into SUB constitutes a tax-free reorganization under Section 368(a)(1)(A) and
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code") (hereinafter all section references are to the Code unless otherwise
indicated) and that under the Code no gain or loss will be recognized by the
shareholders of CSB upon receipt of the Synovus common stock in exchange for
their CSB common stock upon consummation of the merger. Affected CSB common
shareholders should consult their own tax advisers on these matters.
FACTS
Synovus is a bank holding company organized and existing under the laws of
Georgia and having its principal office in Muscogee County, Georgia. It has
authorized 600,000,000 shares of $1.00 par value common stock of which
284,178,976 were outstanding at September 30, 2000. Synovus common stock is
widely held, is publicly traded and is listed on the New York Stock Exchange.
SUB, a wholly owned subsidiary of Synovus, is organized and existing under the
laws of the United States and having its principal office in Sumter, South
Carolina. SUB has authorized 930,000 shares of $5.00 par value common stock. As
of September 30, 2000, 930,000 shares of SUB common stock were issued and
outstanding.
Synovus common stock carries ten votes per share unless the shares do not meet
certain ownership tests, in which case each share is entitled to only one vote.
In accordance with the amendment to Synovus' Articles of Incorporation which was
adopted by the shareholders of Synovus and became effective on April 24, 1986, a
holder of Synovus common stock will be entitled to ten votes on each matter
submitted to a vote of shareholders for each share of Synovus common stock
beneficially owned on the record date for any meeting of shareholders which: (1)
has had the same beneficial owner since April 24, 1986; (2) was acquired by
reason of participation in a dividend reinvestment plan offered by Synovus and
is held by the same beneficial owner for whom it was acquired under such plan;
(3) is held by the same beneficial owner to whom it was issued as a result of an
acquisition of a company or business by Synovus where the resolutions adopted by
Synovus' Board of Directors approving such issuance specifically reference and
grant such rights; (4) was acquired under any employee, officer and/or director
benefit plan maintained for one or more employees, officers and/or directors of
Synovus and/or its subsidiaries, and is held by the same beneficial owner for
whom it was acquired under any such plan; (5) is held by the same beneficial
owner to whom it was issued by Synovus, or to whom it was transferred by Synovus
from treasury shares, and the resolutions adopted by Synovus' Board of Directors
approving such issuance and/or transfer specifically
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 2
reference and grant such rights; (6) was acquired as a direct result of a stock
split, stock dividend or other type of share distribution if the share as to
which it was distributed has been held by the same beneficial owner for a period
of 48 consecutive months prior to the record date of any meeting of shareholders
at which the share is eligible to be voted; (7) has been beneficially owned
continuously by the same shareholder for a period of 48 consecutive months prior
to the record date of any meeting of shareholders at which the share is eligible
to be voted; or (8) is owned by a holder who, in addition to shares that are
beneficially owned under the provisions of (1)-(7) above, is the beneficial
owner of less than 1,139,063 shares of Synovus common stock (which amount has
been appropriately adjusted to reflect the stock splits which have occurred
subsequent to April 24, 1986, and with such amount to be appropriately adjusted
to properly reflect any other change in Synovus common stock by means of a stock
split, a stock dividend, a recapitalization or otherwise occurring after April
24, 1986). There are no other classes of stock authorized. Ten-vote shares will
be issued to the CSB shareholders in the proposed transaction.
Effective April 27, 1999, the Board of Directors of Synovus adopted a plan that
provides the common shareholders of Synovus with Common Stock Purchase Rights
("poison pill rights"), i.e. rights to acquire the stock of Synovus or its
successor.
Under the terms of the plan, holders of Synovus common stock received a poison
pill right for each share of Synovus common stock held by them. A shareholder's
ability to exercise his rights is contingent upon the occurrence of either a
tender offer for 15 percent or more, or the actual acquisition of 10 percent or
more, of Synovus common stock by a corporation or individual (the "acquiring
person") without the approval of the Synovus' Board of Directors.
In general, the rights become exercisable on the earlier of (1) ten days
following a public announcement that, without prior approval of Synovus, a
person or group of affiliated persons has acquired, or obtained the right to
acquire, beneficial ownership of 10 percent or more of the outstanding common
stock of Synovus, or (2) ten days following the commencement or announcement of
an intention to make a tender offer or exchange offer, without the prior written
consent of Synovus, for 15 percent or more of the outstanding shares of Synovus
common stock. Until the rights become exercisable, they cannot be transferred
separately from the underlying common stock on which they were distributed, nor
are the rights represented by any certificate other than the underlying stock
certificate itself. Additionally, Synovus may redeem the poison pill rights for
1 cent per right until the date that specified events occur. The poison pill
rights expire on May 5, 2009.
Once they become exercisable, the poison pill rights entitle the holder to
purchase from Synovus one share of common stock. No fractional shares of common
stock will be issued upon exercise of the poison pill right. In lieu thereof, a
payment in cash will be made to the holder of such poison pill right equal to
the same fraction of the current market value of a share of common stock.
If, after the rights become exercisable, a "flip-in" or "flip-over" event
occurs, all holders of such rights, except the acquiring person, are entitled to
purchase, at a 50 percent discount, the stock of either Synovus or the acquiring
corporation (whichever is applicable). A "flip-in" event is either (1) the
acquisition by the acquiring person of 15 percent or more of the outstanding
stock of Synovus, or (2) the conduct of certain self-dealing transactions
between an acquiring person or any of its affiliates or associates and Synovus.
A "flip-over" event is either (1) a merger or other business combination in
which Synovus is not the surviving corporation, or (2) a sale or transfer of
more than 30 percent of the assets or earning power of Synovus and its
subsidiaries (taken as a whole) in one or a series of transactions.
CSB is a state-chartered commercial bank organized and existing under the laws
of South Carolina and having its principal office in Spartanburg, South
Carolina. CSB has authorized 10,000,000 shares of no par
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 3
value common stock. As of September 30, 2000, 3,671,896 shares of CSB common
stock were issued and outstanding. CSB shares are traded on the NASDAQ Market.
There are no outstanding warrants, options, rights, calls, or other commitments
of any nature that would require the issuance by CSB of any additional shares of
CSB other than options granted to employees pursuant to employee benefit plans.
There are no outstanding securities or debt obligations of CSB convertible into
shares of CSB common stock.
PROPOSED TRANSACTION
For what has been represented to be valid business purposes, SUB and CSB want to
combine their businesses. In order to reach that result, the following
transaction is proposed:
1. Pursuant to the Agreement and Plan of Merger dated September 18, 2000
(referred to as the "Merger Agreement"), by and among Synovus, SUB, and
CSB, CSB will merge with and into SUB. SUB will survive the merger and the
separate corporate existence of CSB will cease.
2. As a result of the Merger and on its effective date, CSB shareholders will
be entitled to receive from Synovus .8514 shares of Synovus common stock
for each of their shares of CSB common stock (the "Per Share Exchange
Ratio"). The maximum number of shares of Synovus common stock to be issued
in the merger is 3,295,392 shares.
3. No fractional shares of Synovus common stock will be issued in the Merger.
Instead, CSB shareholders who would otherwise be entitled to a fractional
share of Synovus common stock will be paid in cash for the fractional share
based upon the closing price per share of Synovus common stock on the NYSE
on the fifth business day immediately preceding the effective date of the
Merger.
4. Each CSB shareholder has the right, pursuant to the state laws of South
Carolina, to dissent from the Merger. Each dissenting shareholder will be
entitled to receive the fair value of his or her shares in cash as
established by South Carolina law.
The following assumptions of fact have been made in regard to the proposed
merger (and they form an integral part of the opinions contained herein) each of
which you have examined and agree with:
a) The fair market value of the Synovus voting common stock and cash to be
received by each of the CSB shareholders as a result of the merger will be
approximately equal, in each instance, to the fair market value of the CSB
common stock exchanged therefor.
b) Prior the Merger, CSB's shareholders did not dispose of any CSB stock,
or receive any distribution from CSB, and CSB did not dispose of any
stock of CSB in a manner that would cause the merger to violate the
continuity of shareholder interest requirement set forth in Reg.
Section 1.368-1(e). For purposes of this representation, shares of CSB
common stock exchanged for cash as a result of dissenters' rights or
in lieu of fractional shares will be treated as outstanding stock of
CSB on the date of the Merger which was disposed of for cash. None of
(i) Synovus, (ii) any member of Synovus's affiliated group as defined
in Section 1504 of the Code without regard to Section 1504(b) of the
Code, (iii) any corporation in which at least fifty percent of the
total combined voting power of all classes of stock entitled to vote
or at least fifty percent of the value of all classes of stock
outstanding is owned directly or indirectly by Synovus, or (iv) any
entity that is treated as a partnership for federal income tax
purposes and has as an owner a corporation described in (i), (ii) or
(iii) of this paragraph has the intent to, at the time of the merger,
or shall, in a transaction that may be considered in connection with
the merger, acquire or redeem (directly or indirectly) any shares of
Synovus common stock issued pursuant to the Merger, except for
repurchases by Synovus of a small percentage of its stock in the
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 4
open market as part of any ongoing stock repurchase program not created or
modified in any way in connection with the Merger. For purposes
hereof, any entity described in (ii), (iii), or (iv) shall be referred
to as a Synovus Related Party. An entity will be treated as a Synovus
Related Party, if the requisite relationship exists immediately before
or immediately after the acquisition or redemption. In addition, an
entity (other than CSB or any CSB Related Party) will be treated as a
Synovus Related Party if the requisite relationship is created in
connection with the Merger. A CSB Related Party means any corporation
in which at least fifty percent of the total combined voting power of
all classes of stock entitled to vote or at least fifty percent of the
value of all classes of stock outstanding is owned directly or
indirectly by CSB.
c) SUB will hold at least 90 percent of the fair market value of its net
assets and at least 70 percent of the fair market value of its gross assets
held by CSB immediately prior to the transaction. For purposes of this
representation, amounts paid by CSB to shareholders who receive cash or
other property, CSB assets used to pay its reorganization expenses, and all
redemptions and distributions (except for "regular, normal" dividends) made
by CSB immediately preceding the transfer, will be included as assets of
CSB held immediately prior to the transaction.
d) Prior to the Merger, Synovus will be in control of SUB within the meaning
of Section 368(c) of the Code.
e) Following the Merger, SUB will not issue additional shares of its stock
that would result in Synovus losing control of SUB within the meaning of
Section 368(c).
f) Synovus has no plan or intention to liquidate SUB, to merge SUB with and
into another corporation, to sell or otherwise dispose of the stock of SUB,
or to cause SUB to sell or otherwise dispose of any assets of CSB acquired
in the transaction, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C).
g) The liabilities of CSB assumed by SUB and the liabilities to which the
transferred assets of CSB are subject were incurred by CSB in the ordinary
course of its business.
h) Following the transaction, SUB will continue its historic business of CSB
or use a significant portion of CSB's historic assets in a business.
i) Synovus, SUB, CSB, and the shareholders of CSB will each pay their own
fees, expenses, and disbursements in connection with the merger.
j) There is no intercorporate debt existing between Synovus and CSB or between
SUB and CSB that was issued, acquired, settled or will be settled at a
discount.
k) None of the parties to the merger (i.e. Synovus, SUB and CSB) are
investment companies within the meaning of such term as used in Section 368
(a)(2)(F)(iii) and (iv).
l) CSB is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of 368(a)(3)(A).
m) On the effective date of the Merger, the fair market value of the assets of
CSB transferred to SUB will exceed the sum of its liabilities assumed by
SUB plus the amount of liabilities to which the assets are subject.
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 5
n) None of the Synovus common stock being issued to the CSB shareholders will
represent compensation for past or future services. The compensation to be
paid to CSB directors, officers, and employees who are stockholders of CSB
and who will be employed by SUB following the Merger will not be part of
the consideration paid for their CSB common stock but will be commensurate,
in each instance, with past or future services.
o) All distributions made by CSB prior to the merger will be "regular, normal"
distributions.
p) The maximum amount of cash to be paid in lieu of fractional shares of
Synovus voting common stock will, in the aggregate, be less than one
percent of the total consideration paid to the CSB shareholders in the
transaction. The payment of cash in lieu of fractional shares of Synovus
common stock is solely for the purpose of avoiding the expense and
inconvenience of issuing fractional shares and does not represent
separately bargained-for consideration.
q) No event has occurred which would make the poison pill rights exercisable.
r) No stock of SUB will be issued in the Merger.
s) At the time of the Merger, each option to purchase or other right with
respect to shares of CSB common stock pursuant to stock options granted by
CSB, which are outstanding at the time of Merger, whether or not
exercisable, shall be converted into and become rights with respect to
Synovus common stock, and Synovus shall assume each CSB option, in
accordance with the terms of the CSB stock plan by which it is evidenced in
substantially the same terms and conditions.
The opinions expressed in this letter are rendered only with respect to the
specific matters discussed herein and we express no opinion with respect to any
other legal, federal, or state income tax aspect of this transaction. Therefore,
no inference should be drawn on any matter not expressly opined on.
The opinions contained herein are based on the facts, circumstances, and
assumptions stated above. If any of the above-stated facts, circumstances or
assumptions are not entirely complete or accurate, it is imperative that we be
informed immediately, as the incompleteness or inaccuracy could have a material
effect on our conclusions and we have not independently verified each of the
above facts or assumptions.
In rendering our opinion, we are relying upon the relevant provisions of the
Internal Revenue Code of 1986, as amended; the regulations thereunder; and
judicial and administrative interpretations thereof, all of which are subject to
change or modification by subsequent legislative, regulatory, administrative or
judicial decisions. Such change could be retroactive in effect and therefore
could have an effect on our conclusions. We undertake no responsibility to
update our opinions in the event of any such change.
DISCUSSION
Merger
Classification as a reorganization
Section 368(a)(1)(A) provides that the term "reorganization" includes a
statutory merger. The term statutory merger refers to a merger effected pursuant
to the corporate laws of the United States, a state or territory, or the
District of Columbia, Treasury Regulation Section 1.368-2(b).
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 6
Section 368(a)(2)(D) provides that a transaction otherwise qualifying as a
statutory merger under Section 368(a)(1)(A) will not be disqualified if the
stock of a corporation (the "controlling corporation"), which before the merger
was in control of the acquiring corporation, is used to acquire substantially
all of the properties of another corporation if no stock of the acquiring
corporation is used in the transaction.
In order to qualify as a reorganization by operation of Section 368(a)(2)(D),
the acquiring corporation, (i.e., SUB) must acquire substantially all of the
properties of another corporation (i.e., CSB) partly or entirely for stock of a
corporation in control of the acquiring corporation (i.e., Synovus). Control for
this purpose is defined in Section 368(c) as the direct ownership of stock
possessing at least 80 percent of the total combined voting power and at least
80 percent of the total number of shares of all other classes of stock.
The term "substantially all" as used in Section 368(a)(2)(D) has the same
meaning as does the phrase when used in Section 368(a)(1)(C), and in Regulation
Section 1.368-2(b)(2). Section 368(a)(1)(C) and the regulations promulgated
thereunder do not define what constitutes substantially all the properties of a
corporation. The Internal Revenue Service (the "Service") has established a
quantitative test as to the amount of assets of a corporation that will satisfy
the "substantially all" properties requirement for purposes of obtaining a
private letter ruling. Under Revenue Procedure 77-37, 1977-2 C.B. 568, the
"substantially all" requirement is satisfied if the acquiring corporation
acquired properties of the transferor corporation representing at least 90
percent of the fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by the transferor corporation
immediately prior to the reorganization. In the case of a forward triangular
reorganization under 368(a)(2)(D), the transferor corporation is the
disappearing corporation.
The "ninety/seventy" guidelines are arbitrary percentages selected by the
Service that do not necessarily represent judicial interpretations of the
meaning of the phrase "substantially all of the properties" under the various
subdivisions of Section 368. See Louis F. Viereck v. United States, 83-2
U.S.T.C. para 9664 (Cl. Cts.), Ralph C. Wilson, Sr. 46 T.C. 334 (1966), John G.
Moffar 42 T.C. 558, 363 F2d 860 (9th Cir. 1966)(Aff'g T.C.) 66-2 U.S.T.C. para
9498, James Armour, Inc., 43 T.C. 295 (1964), Smothers v. United States, 642 f.
2d 894 (5th Cir. 1981) (affg DC), 79-1 U.S.T.C. para 9216 and American
Manufacturing Company, Inc. 55 T.C. 204 (1970).
What constitutes "substantially all of the properties" in a situation other than
a request for a ruling from the Service depends upon the facts and circumstances
in each case rather than upon any particular percentage, Revenue Ruling 57-518,
1957-2 C.B. 253. The Service is of the view that the "substantially all"
properties requirement applies separately to each trade or business of the
transferor corporation. In this transaction, however, it has been assumed as a
fact that the ninety/seventy test will be met, thus, the substantially all
requirement should clearly be met.
Requisite to all reorganizations under Section 368(a)(1) are (1) a valid
business purpose; (2) a continuity of the business enterprise under the modified
corporate form; and (3) a continuity of interest in the corporation surviving
the merger on the part of those persons who directly or indirectly were the
owners of the merged corporation prior to the reorganization, Regulation Section
1.368-1(b). The term "reorganization" does not embrace the mere purchase by one
corporation of the properties of another, Regulation Section 1.368-2(a). These
regulations reflect well-developed judicial interpretation of the statutory
definition of a reorganization, the purpose of which is to exclude from the
scope of the reorganization provisions those transactions that are in fact
sales.
Continuity of business enterprise requires that the transferee corporation
either continue the transferor corporation's historic business
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 7
or use a significant portion of the transferor corporation's historic business
assets, Regulation Section 1.368-1(d)(1). This will be satisfied in this
transaction as per representation "h" above.
The regulations under Section 368(a) do not establish the amount of qualifying
consideration necessary to satisfy the continuity of shareholder interest
requirement. However, the Service has promulgated a definite test as to the
requirement for purposes of obtaining a private letter ruling. Under Revenue
Procedure 77-37, 1977-2 C.B. 568, the continuity of interest requirement of
Regulation section 1.368-1(b) is satisfied if:
[T]here is continuing interest through stock ownership in the acquiring or
transferee corporation.... on the part of the former shareholders of the
acquired or transferor corporation which is equal in value, as of the effective
date of the reorganization, to at least 50 percent of the value of all the
formerly outstanding stock of the acquired or transferor corporation as of the
same date. It is not necessary that each shareholder of the acquired or
transferor corporation receive in the exchange, stock of the acquiring of
transferor corporation... which is equal in value to at least 50 percent of the
value of his former stock interest in the acquired or transferor corporation, so
long as one or more of the shareholders of the acquired or transferor
corporation have a continuing interest through stock ownership in the acquiring
or transferee corporation... which is, in the aggregate, equal in value to at
least 50 percent of the value of all of the formerly outstanding stock of the
acquired or transferor corporation.
The 50 percent definitive test of this revenue procedure does not as a matter of
law establish the amount of qualifying consideration necessary to meet the
continuity of interest requirement of Regulation Section 1.368-1(b). In other
words, the continuation of a capital stock ownership in the acquiring
corporation equal to less than 50 percent of the value of the stock of the
acquired corporation does not itself mark a discontinuity of interest. The
Supreme Court in John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935), 36-1
U.S.T.C. para 9019, held that there was a reorganization even though the
shareholders of the acquired corporation received less than half of their total
consideration in the form of stock of the acquiring corporation and received
nonvoting preferred stock. It is only necessary that the shareholders continue
to have a definite and substantial equity interest in the assets of the
acquiring corporation, Revenue Ruling 61-156, 1961-2 C.B. 62. This requirement
should be met in this transaction as per representation "b" above.
In addition to the foregoing, it has been represented as a fact that this
transaction is being undertaken for a bona fide corporate business reason, thus
satisfying the first requirement stated above.
The merger of CSB with and into SUB should constitute a reorganization within
the meaning of Section 368(a)(1)(A) and Section 368 (a)(2)(D) provided that (1)
the merger of CSB with and into SUB qualified as a statutory merger under the
applicable federal and state laws and is undertaken for a valid business purpose
as stated in the above facts; (2) after the transaction SUB continues the
historic business of CSB; (3) CSB shareholders exchange for Synovus voting
common stock an amount of the CSB stock meeting the continuity of shareholder
interest test; and (4) SUB acquires "substantially all" of CSB's assets.
Synovus, SUB and CSB will each be "a party to a reorganization" within the
meaning of Section 368(b). As discussed above, each of the foregoing will be
complied with in this transaction.
Federal income tax consequences to exchanging shareholders
Section 354(a)(1) provides that no gain or loss will be recognized if stock of a
corporation which is a party to a reorganization is, pursuant to the plan of
reorganization, exchanged solely for stock of such corporation or of another
corporation which is a party to the reorganization. Section 356(a)(1) in
relevant part provides that if money or other property is received in an
exchange to which section 354 would otherwise apply, then gain, if any, to the
recipient will be recognized to the extent of the sum of the money
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 8
and fair market value of the property received. If the exchange has the effect
of the distribution of a dividend, then the amount of gain recognized that is
not in excess of each distributee shareholder's ratable share of the
undistributed earnings and profits of the acquired corporation will be treated
as a dividend, Section 356(a)(2). No loss will be recognized on the exchange,
Section 356(c). Section 358 provides that, generally, shareholders are entitled
to a carryover basis for stock received in a reorganization transaction
qualifying under Section 354 or 356.
The CSB common shareholders who receive solely Synovus common stock in exchange
for their CSB common stock will not recognize any gain or loss pursuant to
Section 354(a)(1). The tax basis which these CSB common shareholders will have
in their newly received Synovus common stock will be the same as their tax basis
in the CSB common stock immediately prior to the merger under Section 358(a).
If the property received in an exchange (i.e., Synovus common stock) has the
same (i.e., carryover) basis as the property given up, then Section 1223(1)
applies to determine the holding period for the property received. Section
1223(1) provides that the period during which the taxpayer held the property
surrendered in the exchange is added to the period he or she holds the property
received in the exchange in order to determine the holding period of the
property received.
This tacking of the previous holding period applies only if the property
exchanged (i.e., CSB common stock) was a capital asset in the taxpayer's hands
at the time of the exchange, Section 1223(1). The status of the property as a
capital asset is determined under Section 1221, which defines "capital asset" as
any property of a taxpayer other than property within specified classifications.
As a general rule, stock of a corporation would be treated as a capital asset
under this section. Provided that his or her CSB common stock is a capital
asset, then each CSB shareholder will be able to include his or her respective
ownership period of the CSB common stock in determining the holding period of
the Synovus common stock received in the proposed transaction.
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 9
Poison Pill Rights
The shares of Synovus common stock to be issued to the CSB shareholders entitle
such shareholders to receive the poison pill rights which will become
exercisable upon the happening of future events as described above. An issue
with respect to the poison pill rights is whether the rights should be
considered separable from the Synovus common stock and therefore "other
property" within the meaning of Section 356(a) or rather as an attribute of the
Synovus common stock, that is, a right to a future dividend inseparable from the
other rights inherent in the stock and not personal to the shareholders.
Presently, the Service has not published any direct authoritative position
regarding the treatment of poison pill rights in the context of a corporate
reorganization that can be cited as precedent. Nor are there any judicial
opinions specifically addressing poison pill rights in the context of a
corporate reorganization.
The only available guidance consists of Private Letter Rulings ("PLRs") that
address the shareholder tax consequences upon the receipt of capital stock
incorporating a poison pill rights plan in the context of a corporate
reorganization. Under Section 6110(j)(3), PLRs may not be used or cited as
precedent. If the Service issues further authority, such authority could be
prospective only in accordance with the provisions of Section 7805.
In PLR 8808081, the Service ruled that poison pill rights incorporated in the
terms of capital stock issued in a corporate reorganization constituted "other
property" within the meaning of Section 356(a). Accordingly, the filing held
that the acquired corporation's shareholders recognized gain, to the extent of
the fair market value of the poison pill rights, in the exchange for capital
stock of the acquiring corporation.
Subsequently, however, the Service reversed its position and ruled in PLR
8925087, PLR 8925088, PLR 9040069, PLR 9040042, PLR 9120006, and PLR 199904013
(among others) that poison pill rights did not constitute other property within
the meaning of Section 356(a).
Indirect support for the proposition that poison pill rights do not constitute
"other property" can also be found in Revenue Ruling 90-11, 1990-1 C.B. 10.
Although not in the context of a corporate reorganization, the Service concluded
that the initial issuance of poison pill rights is not a distribution of
property which would give rise to current tax to the shareholders. The terms of
the poison pill plan described in the ruling are comparable to the terms of the
Synovus plan. This ruling is a published ruling, and therefore may be cited as
precedent. This published ruling indicates that the more recent private letter
rulings cited immediately above reflect the current thinking of the Service,
i.e., that poison pill rights do not constitute other property when associated
with stock received in a corporate reorganization. Should the Service
successfully maintain that the poison pill rights are other property, then gain,
if any, realized by a CSB common shareholder receiving such rights would be
recognized to the extent of the fair market value of such rights.
CONCLUSION
Based on the foregoing, it is the opinion of KPMG that:
1. The merger of CSB with and into SUB, provided it is in accordance with
the laws of the United States and with South Carolina state law, will
be treated as a reorganization under Section 368(a)(1)(A) and Section
368(a)(2)(D), and that Synovus, SUB and CSB will each be a party to the
reorganization as defined in Section 368(b).
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 10
2. No gain or loss will be recognized by the shareholders of CSB who
receive solely shares of Synovus voting common stock for their CSB
common stock upon consummation of the Merger. The basis of the Synovus
shares received by such CSB shareholders (including any fractional
share to which they may be entitled) will be the same as the basis of
the CSB common stock surrendered in the exchange. Provided that the CSB
common stock was a capital asset in the shareholder's hands, the
holding period of the Synovus common stock (including any fractional
share to which they may be entitled) will include the holding period of
the CSB stock.
3. The payment of cash in lieu of fractional share interests in its common
stock will, for federal income tax purposes, be treated as if the
fractional share interests were issued to the CSB common shareholders
and then redeemed for cash. See Revenue Ruling 66-365, 1966-2 C.B. 116.
Each affected CSB common shareholder should consult their own tax
advisor for the tax effect to them of such redemption (i.e. exchange
treatment or dividend).
4. Under Sections 357(a) and 361, no gain or loss will be recognized by
CSB upon the transfer of substantially all of its assets to SUB in
exchange for solely shares of Synovus common stock and the assumption
by SUB of the CSB liabilities. Under Section 361(c), CSB will not
recognize any gain or loss upon the distribution of the Synovus common
stock to its shareholders in pursuance of the plan of reorganization.
5. Under Section 1032, no gain or loss will be recognized by either
Synovus or SUB upon the acquisition of substantially all of the assets
of CSB in exchange for solely shares of Synovus common stock and the
assumption of the CSB liabilities.
6. Based on the discussion above under Poison Pill Rights, it appears
reasonable to conclude that the Synovus poison pill rights plan
adopted on April 27, 1999, should be treated as an attribute of the
Synovus common stock, a right that is inseparable from other rights
inherent in the stock and does not constitute other property received
by the CSB common shareholders in exchange for their CSB common stock.
However, in view of the lack of precedent, there can be no assurance
that the Service will agree with this conclusion. In the event the
Service ultimately establishes that such poison pill rights constitute
other property, then the CSB shareholders, who realize gain on the
exchange of their shares for Synovus common stock, will recognize such
gain to the extent of the value of the poison pill rights received. 7.
No gain or loss will be recognized by CSB upon the transfer of its
assets, subject to its liabilities, to SUB in the Merger (Section
357(a) and 361(a)).
8. The basis of the assets of CSB in the hands of SUB will be the same as
the basis of such assets in the hands of CSB immediately prior to the
Merger (Section 362(b)).
9. The tax attributes enumerated in Section 381(c), including any earnings
and profits or a deficit of earnings and profits, will be taken into
account by Synovus following the Merger. These tax attributes may be
subject to various provisions and limitations including those of
Sections 381, 382, and 384, the regulations thereunder, and the
consolidated return regulations.
10. Where a CSB shareholder elects to receive cash by exercising statutory
dissenter's rights, such cash will be treated as having been received
by the shareholder as a distribution in redemption of his or her CSB
stock subject to the provisions and limitations of Section 302 of the
Code.
Board of Directors
Synovus Financial Corp.
Carolina Southern Bank
November 16, 2000
Page 11
We are furnishing this opinion to you solely in connection with Article V
paragraph (A)(8) of the Merger Agreement. This opinion is solely for your
benefit and is not to be used, circulated, quoted or otherwise referred to for
any purpose without our express written permission.
/s/KPMG LLP
KPMG LLP
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS; UNDERTAKINGS
Item 20. Indemnification of Directors and Officers
Subsection (a) of Section 14-2-851 of the Georgia Business Corporation
Code provides that a corporation may indemnify or obligate itself to indemnify
an individual made a party to a proceeding because he or she is or was a
director against liability incurred in the proceeding if such individual
conducted himself or herself in good faith and such individual reasonably
believed, in the case of conduct in an official capacity, that such conduct was
in the best interests of the corporation and, in all other cases, that such
conduct was at least not opposed to the best interests of the corporation and,
in the case of any criminal proceeding, such individual had no reasonable cause
to believe such conduct was unlawful. Subsection (d) of Section 14-2-851 of the
Georgia Business Corporation Code provides that a corporation may not indemnify
a director in connection with a proceeding by or in the right of the corporation
except for reasonable expenses incurred if it is determined that the director
has met the relevant standard of conduct, or in connection with any proceeding
with respect to conduct under Section 14-2-851 of the Georgia Business
Corporation Code for which he was adjudged liable on the basis that personal
benefit was improperly received by him. Notwithstanding the foregoing, pursuant
to Section 14- 2-854 of the Georgia Business Corporation Code a court may order
a corporation to indemnify a director or advance expenses if such court
determines that the director is entitled to indemnification under the Georgia
Business Corporation Code or that the director is fairly and reasonably entitled
to indemnification in view of all the relevant circumstances, whether or not
such director met the standard of conduct set forth in subsections (a) and (b)
of Section 14-2-851 of the Georgia Business Corporation Code, failed to comply
with Section 14-2-853 of the Georgia Business Corporation Code or was adjudged
liable as described in paragraph (1) or (2) of subsection (d) of Section
14-2-851 of the Georgia Business Corporation Code.
Section 14-2-852 of the Georgia Business Corporation Code provides that
to the extent that a director has been successful, on the merits or otherwise,
in the defense of any proceeding to which he was a party, because he or she is
or was a director of the corporation, the corporation shall indemnify the
director against reasonable expenses incurred by the director in connection
therewith.
Section 14-2-857 of the Georgia Business Corporation Code provides that
a corporation may indemnify and advance expenses to an officer of the
corporation who is a party to a proceeding because he or she is an officer of
the corporation to the same extent as a director and if he or she is not a
director to such further extent as may be provided in its articles of
incorporation, bylaws, action of its board of directors or contract except for
liability arising out of conduct specified in Section 14-2-857(a)(2) of the
Georgia Business Corporation Code. Section 14-2-857 of the Georgia Business
Corporation Code also provides that an officer of the corporation who is not a
director is entitled to mandatory indemnification under Section 14-2- 852 and is
entitled to apply for court ordered indemnification or advances for expenses
under Section 14-2-854, in each case to the same extent as a director. In
addition, Section 14-2-857 provides that a corporation may also indemnify and
advance expenses to an employee or agent who is not a director to the extent,
consistent with public policy, that may be provided by its
<PAGE>
articles of incorporation, bylaws, action of its board of directors or contract.
In accordance with Article VIII of the Company's Bylaws, every person
who is or was (and the heirs and personal representatives of such person) a
director, officer, employee or agent of the Company shall be indemnified and
held harmless by the Company from and against the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), and reasonable expenses (including attorneys' fees and
disbursements) that may be imposed upon or incurred by him or her in connection
with or resulting from any threatened, pending, or completed, action, suit, or
proceeding, whether civil, criminal, administrative, investigative, formal or
informal, in which he or she is, or is threatened to be made, a named defendant
or respondent: (a) because he or she is or was a director, officer, employee, or
agent of the Company; (b) because he or she or is or was serving at the request
of the Company as a director, officer, partner, trustee, employee, or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise; or (c) because he or she is or was serving as an employee of
the corporation who was employed to render professional services as a lawyer or
accountant to the corporation; regardless of whether such person is acting in
such a capacity at the time such obligation shall have been imposed or incurred,
if (i) such person acted in a manner he or she believed in good faith to be in
or not opposed to the best interest of such corporation, and, with respect to
any criminal proceeding, if such person had no reasonable cause to believe his
or her conduct was unlawful or (ii), with respect to an employee benefit plan,
such person believed in good faith that his or her conduct was in the interests
of the participants in and beneficiaries of the plan.
Pursuant to Article VIII of the Bylaws of the Company, reasonable
expenses incurred in any proceeding shall be paid by the Company in advance of
the final disposition of such proceeding if authorized by the Board of Directors
in the specific case, or if authorized in accordance with procedures adopted by
the Board of Directors, upon receipt of a written undertaking executed
personally by or on behalf of the director, officer, employee or agent to repay
such amount if it shall ultimately be determined that he or she is not entitled
to be indemnified by the Company, and a written affirmation of his or her good
faith belief that he or she has met the standard of conduct required for
indemnification.
The foregoing rights of indemnification and advancement of expenses are
not intended to be exclusive of any other right to which those indemnified may
be entitled, and the Company has reserved the right to provide additional
indemnity and rights to its directors, officers, employees or agents to the
extent they are consistent with law.
The Company carries insurance for the purpose of providing
indemnification to its directors and officers. Such policy provides for
indemnification of the Company for losses and expenses it might incur to its
directors and officers for successful defense of claims alleging negligent acts,
errors, omissions or breach of duty while acting in their capacity as directors
or officers and indemnification of its directors and officers for losses and
expense upon the unsuccessful defense of such claims.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as
II-2
<PAGE>
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company 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.
Item 21. Exhibits and Financial Statement Schedules
The following Exhibits are filed as part of this Registration
Statement:
Exhibit No. Description
2 Agreement and Plan of Merger is attached as Appendix "A" to the Proxy
Statement/Prospectus included in this Registration Statement.
4.1 Articles of Incorporation of Synovus Financial Corp., as amended,
incorporated by reference to Exhibit 4(a) of Synovus Financial Corp.'s
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on July 23, 1990 (File No. 33-35926).
4.2 Bylaws, as amended, of Synovus Financial Corp., incorporated by reference
to Exhibit 4.2 of Synovus Financial Corp.'s Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on May 31, 2000 (File
No. 333-38232).
4.3 Form of Rights Agreement incorporated by reference to Exhibit 4.1 of
Synovus Financial Corp.'s Registration Statement on Form 8-A dated April
28, 1999 filed with the Securities and Exchange Commission on April 28,
1999 pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended.
5 Legal opinion of the Senior Deputy General Counsel of Synovus regarding the
legality of the Synovus Common Stock being issued in the Merger.
8 Tax opinion of KPMG LLP regarding the tax consequences of the Merger to
shareholders of Carolina Southern Bank Common Stock is attached as Appendix
"D" to the Proxy Statement/Prospectus included in this Registration
Statement.
23.1 The consent of KPMG LLP re: Consolidated Financial Statements of Synovus
Financial Corp. and Subsidiaries.
II-3
<PAGE>
23.2 The consent of PriceWaterhouseCoopers re: Financial Statements of Carolina
Southern Bank.
23.3 The consent of KPMG LLP regarding its tax opinion filed as Appendix "D" to
the Proxy Statement/Prospectus included in this Registration Statement.
23.4 The consent of the Senior Deputy General Counsel of Synovus is contained in
her opinion filed as Exhibit 5 to the Registration Statement.
23.5 The consent of The Carson Medlin Company regarding its opinion as to the
fairness of the exchange ratio to be received by Carolina Southern Bank
shareholders.
24 Powers of Attorney contained on the signature pages of the Registration
Statement.
99.1 Form of Proxy
99.2 Opinion of The Carson Medlin Company as to the fairness of the exchange
ratio to be received by Carolina Southern Bank's shareholders is attached
as Appendix "C" to the Proxy/Statement prospectus included in the
Registration Statement.
The Registrant agrees to provide to the Commission, upon request,
copies of instruments defining the rights of holders of long-term debt of the
Registrant.
Item 22. Undertakings.
The undersigned Registrant hereby undertakes 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.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph 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 a 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
II-4
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 public offering thereof.
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 that 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.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, 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 the information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes 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.
acq\CarolinaSouth\PartII.doc
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Columbus, State of Georgia, on the 21st day of
November, 2000.
SYNOVUS FINANCIAL CORP.
(Registrant)
By:/s/James H. Blanchard
---------------------------------------
James H. Blanchard,
Chairman of the Board and
Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James H. Blanchard, James D. Yancey and
Richard E. Anthony, and each of them, his or her true and lawful
attorney(s)-in-fact and agent(s), with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this Registration Statement
and to file the same, with all exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney(s)-in-fact and agent(s) full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/William B. Turner Date: November 21, 2000
-------------------------------------------------
William B. Turner,
Director and Chairman of
the Executive Committee
/s/James H. Blanchard Date: November 21, 2000
------------------------------------------------
James H. Blanchard,
Chairman of the Board and
Principal Executive Officer
<PAGE>
/s/James D. Yancey Date: November 21, 2000
-------------------------------------------------
James D. Yancey,
President and Director
/s/Richard E. Anthony Date: November 21, 2000
-------------------------------------------------
Richard E. Anthony,
Vice Chairman of the Board
Date:
-------------------------------------------------
Walter M. Deriso, Jr.,
Vice Chairman of the Board
/s/Thomas J. Prescott Date: November 21, 2000
-------------------------------------------------
Thomas J. Prescott,
Executive Vice President, Treasurer,
Principal Accounting and Financial Officer
/s/Joe E. Beverly Date: November 21, 2000
-------------------------------------------------
Joe E. Beverly,
Director
/s/Richard Y. Bradley Date: November 21, 2000
-------------------------------------------------
Richard Y. Bradley,
Director
/s/C. Edward Floyd Date: November 21, 2000
-------------------------------------------------
C. Edward Floyd,
Director
/s/Gardiner W. Garrard, Jr. Date: November 21, 2000
-------------------------------------------------
Gardiner W. Garrard, Jr.,
Director
/s/V. Nathaniel Hansford Date: November 21, 2000
-------------------------------------------------
V. Nathaniel Hansford,
Director
/s/John P. Illges, III Date: November 21, 2000
-------------------------------------------------
John P. Illges, III,
Director
<PAGE>
/s/Mason H. Lampton Date: November 21, 2000
-------------------------------------------------
Mason H. Lampton,
Director
/s/Elizabeth C. Ogie Date: November 21, 2000
-------------------------------------------------
Elizabeth C. Ogie,
Director
/s/H. Lynn Page Date: November 21, 2000
-------------------------------------------------
H. Lynn Page,
Director
/s/Robert V. Royall, Jr. Date: November 21, 2000
-------------------------------------------------
Robert V. Royall, Jr.,
Director
/s/Melvin T. Stith Date: November 21, 2000
-------------------------------------------------
Melvin T. Stith,
Director
filings\snv\conf33.wpd
<PAGE>
