September 11, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Investors Savings Bank of South Carolina, Inc. ("Investors"), to be held in the
main lobby of Investors at 132 West Cheves Street, Florence, South Carolina on
October 14, 1997 at 5:30 p.m., local time.
The Notice of Special Meeting of Shareholders and Prospectus/Proxy
Statement that appear on the following pages describe the formal business to be
transacted at the meeting. At the meeting, you will be asked to consider and
vote upon a proposal to approve the Agreement and Plan of Merger (the "Merger
Agreement") dated as of June 25, 1997 by and among First Financial Holdings,
Inc. ("First Financial"), Peoples Federal Savings and Loan Association of South
Carolina ("Peoples Federal") and Investors. The Merger Agreement provides that
Investors will be merged with Peoples Federal, which is a wholly-owned
subsidiary of First Financial.
Upon consummation of the merger, you will receive shares of First
Financial common stock in exchange for your shares of Investors common stock.
The number of shares you receive will be determined by dividing $45 by the
average closing price of First Financial common stock for the ten trading days
prior to the effective date of the merger. Because the number of shares of
First Financial common stock you will receive will depend on the market price
of First Financial common stock, the exact number of shares will not be
determinable at the time of the meeting. The last reported sale price of First
Financial common stock on the Nasdaq National Market ("FFCH") on September 2,
1997 was $33.00 per share. You are urged to review carefully the enclosed
Prospectus/Proxy Statement, which contains a more complete description of the
terms of the merger.
The Board of Directors of Investors has unanimously approved the Merger
Agreement and recommends that you vote FOR the approval of the Merger
Agreement. Approval of the Merger Agreement requires the affirmative vote of
two-thirds of the outstanding shares of Investors common stock.
It is very important that your shares be represented at the meeting,
regardless of whether you plan to attend in person. A failure to vote, either
by not returning the enclosed proxy or by checking the "Abstain" box thereon,
will have the same effect as a vote against approval of the Merger Agreement.
To assure that your shares are represented in voting on this very important
matter, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD in the enclosed
postage-prepaid envelope whether or not you plan to attend the meeting. If you
are a shareholder of record and do attend, you may, if you wish, revoke your
proxy and vote your shares in person at the meeting.
On behalf of the Board of Directors, I urge you to vote FOR approval of
the Merger Agreement.
Sincerely,
/s/ Joseph D. Carson
Joseph D. Carson
President
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INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
132 WEST CHEVES STREET
FLORENCE, SOUTH CAROLINA 29503
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Investors Savings Bank of South Carolina, Inc. ("Investors") will be held in
the main lobby of Investors at 132 West Cheves Street, Florence, South
Carolina, on Tuesday, October 14, 1997, at 5:30 p.m., for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and
Plan of Merger dated as of June 25, 1997 (the "Merger Agreement")
by and among First Financial Holdings, Inc. ("First Financial"),
Peoples Federal Savings and Loan Association of South Carolina
("Peoples Federal") and Investors, pursuant to which Investors
would merge into Peoples Federal and outstanding shares of
Investors common stock would be converted into the right to receive
First Financial common stock, all on and subject to the terms and
conditions contained therein.
2. To consider and act upon such other matters as may properly come
before the meeting or any adjournments thereof.
Only those shareholders of record at the close of business on August 29,
1997 shall be entitled to notice of, and to vote at, the meeting or any
adjournments thereof. The affirmative vote of the holders of two-thirds of the
outstanding shares of Investors common stock is required for approval of the
Merger Agreement.
INVESTORS SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM THE MERGER AND
OBTAIN PAYMENT IN CASH OF THE FAIR VALUE OF THEIR SHARES OF INVESTORS COMMON
STOCK UNDER THE APPLICABLE PROVISIONS OF SOUTH CAROLINA LAW. IN ORDER TO
PERFECT DISSENTERS' RIGHTS, INVESTORS SHAREHOLDERS MUST GIVE WRITTEN NOTICE OF
THEIR INTENT TO DEMAND PAYMENT FOR THEIR SHARES OF INVESTORS COMMON STOCK AT OR
BEFORE THE SPECIAL MEETING ON OCTOBER 14 AND MUST NOT VOTE IN FAVOR OF THE
MERGER. A copy of the applicable South Carolina statutory provisions is set
forth in Appendix B to the accompanying Prospectus/Proxy Statement and a
summary of such provisions is set forth under "THE MERGER -- Dissenters'
Rights." Further information regarding voting rights and the business to be
transacted at the meeting is given in the accompanying Prospectus/Proxy
Statement.
THE BOARD OF DIRECTORS OF INVESTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
By Order of the Board of Directors
/s/ Joseph D. Carson
Florence, South Carolina Joseph D. Carson
September 11, 1997 President
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD USING THE ENCLOSED POSTAGE-PREPAID ENVELOPE. IF YOU
ARE A RECORD SHAREHOLDER AND FOR ANY REASON YOU SHOULD DESIRE TO REVOKE YOUR
PROXY, YOU MAY DO SO AT ANY TIME BEFORE IT IS VOTED AT THE MEETING.
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INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
PROXY STATEMENT
FIRST FINANCIAL HOLDINGS, INC.
PROSPECTUS
UP TO 542,400 SHARES OF COMMON STOCK
This Prospectus/Proxy Statement is being furnished by Investors Savings
Bank of South Carolina, Inc. ("Investors") to the holders of Investors common
stock, par value $5.00 per share ("Investors Common Stock"), in connection with
the solicitation of proxies by the Board of Directors of Investors (the
"Investors Board") for use at a special meeting of Investors shareholders to be
held on October 14, 1997, and at any adjournments or postponements thereof (the
"Special Meeting"). This Prospectus/Proxy Statement is first being mailed to
shareholders on or about September 11, 1997.
At the Special Meeting, shareholders of Investors will consider and vote
upon a proposal to approve the Agreement and Plan of Merger dated as of June
25, 1997 (the "Merger Agreement"), by and among First Financial Holdings, Inc.
("First Financial"), Peoples Federal Savings and Loan Association of South
Carolina ("Peoples Federal") and Investors pursuant to which, among other
things, Investors would be merged with and into Peoples Federal (the "Merger")
and shareholders of Investors will receive shares of First Financial common
stock, par value $.01 per share ("First Financial Common Stock"), in exchange
for their shares of Investors common stock.
Upon consummation of the Merger, each outstanding share of Investors
Common Stock will be converted into the right to receive the number of shares
of First Financial Common Stock (the "Exchange Ratio") determined by dividing
$45 by the average last price per share of First Financial Common Stock as
reported in The Wall Street Journal for each of the ten trading days
immediately preceding the effective date of the Merger (the "First Financial
Price"). Because the number of shares of First Financial Common Stock to be
received by Investors shareholders will depend on the market price of First
Financial Common Stock, the exact number of shares to be received by Investors
shareholders will not be determinable at the time Investors shareholders vote
on the Merger at the Special Meeting. The Merger Agreement may be terminated
by First Financial if the First Financial Price is less than $24.00 or by
Investors if the First Financial Price is greater than $33.00, if First
Financial and Investors have not agreed to an adjustment of the Exchange Ratio.
The last reported sale price of First Financial Common Stock on the Nasdaq
National Market ("FFCH") on September 2, 1997 was $33.00 per share. FOR A MORE
DETAILED DESCRIPTION OF THE TERMS OF THE MERGER, SEE "THE MERGER."
First Financial has filed a registration statement on Form S-4 (the
"Registration Statement") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), with respect to up to 542,400 shares of First Financial
Common Stock to be issued pursuant to the Merger Agreement. This Prospectus/
Proxy Statement also constitutes the prospectus of First Financial filed as
part of the Registration Statement.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS,
OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
This Prospectus/Proxy Statement does not cover any resale of the
securities to be received by shareholders of Investors upon consummation of the
proposed transaction, and no person is authorized to make any use of this
Prospectus/Proxy Statement in connection with any such resale.
THE DATE OF THIS PROSPECTUS/PROXY STATEMENT IS SEPTEMBER 5, 1997.
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NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE A SECURITY, OR A SOLICITATION
OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT WOULD BE
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES MADE UNDER THIS PROSPECTUS/PROXY STATEMENT
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF FIRST FINANCIAL OR INVESTORS OR IN THE INFORMATION SET
FORTH HEREIN SINCE THE DATE OF THIS PROSPECTUS/PROXY STATEMENT.
AVAILABLE INFORMATION
First Financial is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC" or the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of such material also can be obtained at
prescribed rates from the Commission's Public Reference Section at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, materials
filed by First Financial are available for inspection at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. Reports,
proxy statements and other information filed by First Financial are also
available on the Internet at the Commission's World Wide Web site at
http://www.sec.gov.
This Prospectus/Proxy Statement constitutes part of a Registration
Statement on Form S-4 (File No. 333-33951) filed by First Financial with the
Commission under the Securities Act. This Prospectus/Proxy Statement omits
certain of the information contained in the Registration Statement in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and related exhibits for further
information with respect to First Financial and First Financial Common Stock.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, where a copy of such document has
been filed as an exhibit to the Registration Statement or otherwise has been
filed with the Commission, reference is made to the copy so filed. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by First Financial with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus/Proxy
Statement by reference:
1. First Financial's Annual Report on Form 10-K for the year ended
September 30, 1996; and
2. First Financial's Quarterly Reports on Form 10-Q for the quarters
ended December 31, 1996, March 31, 1997, and June 30, 1997.
All documents filed by First Financial pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date hereof and prior to the
Special Meeting shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes hereof to the
extent that a statement contained herein or in any other subsequently filed
document that also
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is, or is deemed to be, incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part hereof.
AS DESCRIBED ABOVE, THIS PROSPECTUS/PROXY STATEMENT INCORPORATES BY
REFERENCE DOCUMENTS THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE
DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO THE TEXT OF SUCH DOCUMENTS) ARE AVAILABLE,
WITHOUT CHARGE, TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY
OF THIS PROSPECTUS/PROXY STATEMENT IS DELIVERED, UPON WRITTEN OR ORAL REQUEST
TO PHYLLIS B. AINSWORTH, CORPORATE SECRETARY, FIRST FINANCIAL HOLDINGS, INC.,
34 BROAD STREET, CHARLESTON, SOUTH CAROLINA 29401 (TELEPHONE NUMBER: (803)
529-5800). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY OCTOBER 6, 1997.
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All information contained in this Prospectus/Proxy Statement with respect
to First Financial has been supplied by First Financial, and Investors is
relying upon the accuracy of that information. All information contained in
this Prospectus/Proxy Statement with respect to Investors has been supplied by
Investors, and First Financial is relying upon the accuracy of that
information.
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TABLE OF CONTENTS
Page
----
Available Information................................................. (ii)
Incorporation of Certain Documents By Reference....................... (ii)
Summary............................................................... (v)
Selected Historical Financial Data.................................... (viii)
Comparative Per Share Data............................................ (xii)
Comparative Market Price Data......................................... (xiii)
The Special Meeting................................................... 1
The Merger............................................................ 2
General............................................................ 2
Merger Consideration............................................... 2
Effective Date of the Merger....................................... 3
Exchange of Investors Stock Certificates........................... 3
Background and Reasons for the Merger.............................. 4
Opinion of Financial Advisor....................................... 5
Interests of Certain Persons in the Merger......................... 9
Certain Federal Income Tax Consequences............................ 9
Conduct of Business Pending the Merger............................. 10
Conditions to Consummation of the Merger........................... 11
Regulatory Requirements............................................ 11
No Solicitation.................................................... 12
Dissenters' Rights................................................. 12
Amendment; Waiver; Termination..................................... 13
Termination Fee.................................................... 14
Resale of First Financial Common Stock............................. 15
Accounting Treatment............................................... 15
Expenses........................................................... 15
Business of the Parties to the Merger................................. 15
First Financial ................................................... 16
Investors.......................................................... 18
Voting Securities of Investors and Principal Holders Thereof.......... 19
Description of First Financial Capital Stock.......................... 19
Common Stock....................................................... 19
Preferred Stock.................................................... 19
Comparison of Shareholders' Rights.................................... 20
Payment of Dividends............................................... 20
Size of Board of Directors ....................................... 20
Classified Board of Directors .................................... 20
Cumulative Voting ................................................ 21
Removal of Directors ............................................. 21
Vacancies on the Board of Directors ............................... 21
Special Meetings of Shareholders and Action Without a Meeting ..... 21
Advance Notice Requirements for Nominations of Directors and
Presentation of New Business at Meetings of Shareholders......... 22
Approval of Mergers, Consolidations, Sale of Substantially All
Assets and Dissolution........................................... 22
Dissenters' Appraisal Rights....................................... 23
Indemnification of Officers and Directors and Limitation of Liability 23
Amendment of Certificate of Incorporation and Bylaws............... 24
Certain Information Concerning First Financial........................ 24
Legal Opinions........................................................ 24
Experts............................................................... 24
Other Matters......................................................... 25
Appendix A - Agreement and Plan of Merger
Appendix B - Chapter 13 of the South Carolina Business Corporations Act
Appendix C - Fairness Opinion of RP Financial, LC.
Appendix D - Financial Information for Investors Savings Bank of South
Carolina, Inc.
Appendix E - Financial Information for Peoples Federal Savings and Loan
Association of South Carolina
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SUMMARY
The following summary of certain information relating to the Merger is
not intended to be complete and is qualified by reference to, and should be
read in conjunction with, the more detailed information appearing elsewhere in
this Prospectus/Proxy Statement, including the Appendices hereto, and the
documents incorporated herein by reference.
THE PARTIES TO THE MERGER
First Financial. First Financial is a savings and loan holding company
registered with the Office of Thrift Supervision ("OTS"). The business of
First Financial consists primarily of holding 100% of the capital stock of
First Federal Savings and Loan Association of Charleston ("First Federal") and
Peoples Federal. At June 30, 1997, First Financial had total assets of $1.7
billion, total deposits of $1.1 billion and stockholders' equity of $101.9
million. The principal executive offices of First Financial are located at 34
Broad Street, Charleston, South Carolina 29401 and its telephone number is
(803) 529-5800.
First Federal and Peoples Federal are federally chartered savings and
loan associations and are regulated by the OTS, their primary federal
regulator, and by the Federal Deposit Insurance Corporation ("FDIC"), the
insurer of their deposits. First Federal's and Peoples Federal's deposits are
insured up to applicable limits under the Savings Association Insurance Fund
("SAIF") of the FDIC.
See "SELECTED HISTORICAL FINANCIAL DATA" and "BUSINESS OF THE PARTIES
TO THE MERGER -- First Financial." Additional information concerning First
Financial is included in the documents incorporated herein by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Investors. Investors is a South Carolina state chartered savings
Association regulated by the South Carolina State Board of Financial
Institutions ("Board of Financial Institutions"), the OTS, its primary federal
regulator, and the FDIC, the insurer of its deposits. Investors' deposits are
insured up to applicable limits by the SAIF. At June 30, 1997, Investors had
total assets of $64.1 million, total deposits of $56.6 million, and total
stockholders' equity of $7.1 million. Investors' has two offices in Florence,
South Carolina, and its principal business consists of attracting deposits from
the general public and originating residential mortgage loans and commercial
and consumer loans. Investors maintains its principal office at 132 West
Cheves Street, Florence, South Carolina 29503 and its telephone number is (803)
667-6408.
See "SELECTED HISTORICAL FINANCIAL DATA," "BUSINESS OF THE PARTIES TO THE
MERGER -- Investors" and Appendix D.
SPECIAL MEETING
Place, Time and Date; Purpose. The Special Meeting will be held on
Tuesday, October 14, 1997 at 5:30 p.m., local time, in the main lobby of
Investors at 132 West Cheves Street, Florence, South Carolina, for the purpose
of considering and voting upon a proposal to approve the Merger Agreement
attached hereto as Appendix A. See "THE SPECIAL MEETING -- Place, Time and
Date" and "-- Purpose."
Record Date; Shares Entitled to Vote. The Investors Board has fixed the
close of business on August 29, 1997 as the record date (the "Record Date") for
determining shareholders entitled to notice of and to vote at the Special
Meeting. Only those holders of shares of Investors Common Stock of record on
the Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of Investors Common Stock will be entitled to one vote.
Shareholders of record who execute proxies retain the right to revoke them at
any time prior to being voted at the Special Meeting. At the Record Date,
there were 260,588 shares of Investors Common Stock
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outstanding and entitled to be voted at the Special Meeting. See "THE SPECIAL
MEETING -- Record Date; Shares Entitled to Vote."
Vote Required. Approval of the Merger Agreement requires the affirmative
vote of the holders of two-thirds of the outstanding shares of Investors Common
Stock. At the Record Date, the directors and executive officers of Investors
and their affiliates beneficially owned 42,043 shares of Investors Common
Stock, which represents 15.9% of the shares entitled to be voted at the Special
Meeting. All of the directors of Investors have agreed to vote their shares
for the approval of the Merger Agreement. See "THE SPECIAL MEETING -- Vote
Required." At the Record Date, directors and executive officers of First
Financial owned an aggregate of 802 shares of Investors Common Stock.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE MERGER AGREEMENT.
THE MERGER; EXCHANGE RATIO
The Merger Agreement provides for the merger of Investors with and into
Peoples Federal, which is a wholly-owned subsidiary of First Financial. As a
result of the Merger, Investors will cease to exist and Peoples Federal will
succeed to all of the assets and liabilities of Investors. See "THE MERGER --
General."
Upon consummation of the Merger, each outstanding share of Investors
Common Stock will be converted into the right to receive shares of First
Financial Common Stock. The number of shares of First Financial Common Stock
to be exchanged for each share of Investors Common Stock will be determined by
dividing $45 by the First Financial Price. Each holder of Investors Common
Stock who would otherwise be entitled to a fractional share of First Financial
Common Stock will receive cash in lieu thereof determined by multiplying such
fraction by the First Financial Price. Upon completion of the Merger,
shareholders of Investors will no longer own any stock in Investors.
Investors shareholders should note that the First Financial Common Stock
they receive will continue to be subject to changes in market value and may,
therefore, have a market value as of the date they receive certificates for
their shares (or such shares are otherwise made available to them) that is less
than, or greater than, the value of such stock as of the consummation of the
Merger. For a more detailed discussion of the consideration to be received in
exchange for Investors Common Stock, see "THE MERGER -- Merger Consideration."
RECOMMENDATION OF THE INVESTORS BOARD
THE INVESTORS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE SHAREHOLDERS OF INVESTORS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
For a discussion of the circumstances surrounding the Merger and the
factors considered by the Investors Board in making its recommendation, see
"THE MERGER -- Background and Reasons for the Merger." Approval of the Merger
Agreement by Investors shareholders is required by law and is a condition to
consummation of the Merger. See "THE MERGER -- Conditions to Consummation of
the Merger." For a description of certain economic interests directors and
officers of Investors may be deemed to have in the Merger, see "THE MERGER --
Interests of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISOR
RP Financial, LC. ("RP Financial"), Investors' financial advisor, has
delivered a written opinion to the Investors Board, dated the date of this
Prospectus/Proxy Statement, to the effect that the Merger consideration is fair
to Investors shareholders from a financial point of view. A copy of RP
Financial's opinion, dated the date of this Prospectus/Proxy Statement, setting
forth the assumptions made, matters considered, procedures followed and limits
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of its review, is attached hereto as Appendix C and should be read by
shareholders in its entirety. See "THE MERGER -- Opinion of Financial
Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Investors' management and the Investors Board may be
deemed to have interests in the Merger in addition to their interests as
shareholders of Investors generally. Following consummation of the Merger,
Joseph D. Carson and A. P. Skinner, III, each of whom is an executive officer
of Investors, will enter into employment agreements with First Financial and
Peoples Federal. First Financial intends to establish a Florence area advisory
board to the Board of Directors of Peoples Federal. Members of the Investors
Board who reside in the Florence area will be considered for advisory board
membership and, if selected, will receive such compensation as First Financial
may from time to time establish for advisory directors to its subsidiaries. In
addition, First Financial has agreed to appoint one member of the Investors
Board to the Board of Directors of Peoples Federal. As of the date of this
Prospectus/Proxy Statement, Peoples Federal had not selected such person. See
"THE MERGER -- Interests of Certain Persons in the Merger."
EFFECTIVE DATE OF THE MERGER
Subject to the conditions to the obligations of the parties to complete
the Merger as set forth in the Merger Agreement, the "Effective Date" of the
Merger will occur on such date as First Financial notifies Investors in writing
not less than five days prior thereto, provided such date is not more than 30
days after such conditions have been satisfied or waived. The "Effective Time"
of the Merger is the time on the Effective Date at which the Merger becomes
effective. Either First Financial or Investors may terminate the Merger
Agreement if the Effective Date does not occur on or before February 28, 1998.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to, among other things: (i)
approval of the Merger Agreement by the holders of not less than two-thirds of
the outstanding shares of Investors Common Stock; (ii) receipt of all
applicable regulatory approvals without any condition that, in the opinion of
First Financial, would deprive First Financial of the material economic or
business benefits of the Merger; (iii) receipt by First Financial and Investors
of the opinion of Breyer & Aguggia, dated as of the Effective Date, as to
certain federal income tax consequences of the Merger; (iv) Joseph D. Carson
and A. P. Skinner, III having entered into employment agreements with First
Financial and Peoples Federal; (v) receipt by First Financial of a voting
agreement from each director of Investors pursuant to which each director
agreed to vote his or her shares in favor of the Merger; (vi) the absence of
any material adverse change in the financial position or results of operations
of First Financial or Investors; and (vii) the number of shares for which
dissenters' rights are exercised not exceeding 10% of the outstanding shares of
Investors Common Stock. In addition, the Merger Agreement may be terminated by
First Financial if the First Financial Price is less than $24.00 or by
Investors if the First Financial Price is greater than $33.00 if First
Financial and Investors have not agreed to an adjustment of the Exchange Ratio.
See "THE MERGER -- Conditions to Consummation of the Merger."
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests by First Financial under generally accepted accounting principles.
See "THE MERGER -- Conditions to Consummation of the Merger" and "-- Accounting
Treatment."
REGULATORY REQUIREMENTS
The Merger is subject to the receipt of certain prior approvals from the
OTS and the Board of Financial Institutions. An application for approval of
the Merger was filed with the OTS and the Board of Financial
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Institutions on July 25, 1997. There can be no assurance that such approvals
will be obtained, and, if obtained, that they will not impose conditions that,
in the opinion of First Financial, would deprive First Financial of the
economic and business benefits of the Merger so as to render it inadvisable in
the judgment of First Financial to proceed with the Merger. See "THE MERGER --
Regulatory Requirements."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned, among other things, on receipt
by First Financial and Investors of an opinion of Breyer & Aguggia, special
counsel for First Financial, to the effect that the Merger will be treated as a
reorganization described in Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). In accordance with this opinion, holders of
Investors Common Stock who receive solely First Financial Common Stock in
exchange for their shares will recognize no gain or loss on such exchange.
However, holders of Investors Common Stock may recognize gain or loss by reason
of cash received in lieu of fractional shares. See "THE MERGER -- Certain
Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH INVESTORS SHAREHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES
TO SUCH HOLDER OF THE MERGER, INCLUDING THE SPECIFIC APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS TO SUCH SHAREHOLDER.
DISSENTERS' RIGHTS
Investors shareholders have the right to dissent from the Merger and
obtain payment in cash of the fair value of their shares of Investors Common
Stock under the provisions of Chapter 13 of the South Carolina Business
Corporation Act ("South Carolina BCA"). A SHAREHOLDER'S FAILURE TO FOLLOW
EXACTLY THE PROCEDURES SPECIFIED IN CHAPTER 13 OF THE SOUTH CAROLINA BCA WILL
RESULT IN LOSS OF SUCH SHAREHOLDER'S DISSENTERS' RIGHTS. Accordingly,
Investors shareholders wishing to dissent from the Merger are urged to read
carefully "THE MERGER -- Dissenters' Rights" and the copy of Chapter 13 of the
South Carolina BCA (the "South Carolina Dissenters' Rights Statute") set forth
in Appendix B to this Prospectus/Proxy Statement, and to consult with their own
legal advisors. If Investors shareholders perfect dissenters' rights with
respect to more than 10% of the outstanding shares of Investors Common Stock,
First Financial may elect not to consummate the Merger. See "THE MERGER --
Conditions to Consummation of the Merger."
COMPARISON OF SHAREHOLDERS' RIGHTS
The rights of Investors shareholders are currently determined by
reference to the South Carolina BCA, the South Carolina Savings Association
Act, and Investors' Articles of Incorporation and Bylaws. On the Effective
Date, shareholders of Investors will become shareholders of First Financial,
and their rights as shareholders of First Financial will be determined by
reference to the Delaware General Corporation Law (the "DGCL") and First
Financial's Certificate of Incorporation and Bylaws. For a discussion of
certain material differences in the rights of shareholders of First Financial
and Investors and an explanation of certain possible antitakeover effects of
certain provisions in First Financial's Certificate of Incorporation and
Bylaws, see "COMPARISON OF SHAREHOLDERS' RIGHTS."
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SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth selected historical consolidated financial
data for First Financial and Investors. This information should be read in
conjunction with the historical financial statements of First Financial and
Investors, including the respective notes thereto, appearing elsewhere in this
Prospectus/Proxy Statement and in the other documents incorporated by reference
herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and Appendix D.
The First Financial historical consolidated financial statement data as
of and for the nine months ended June 30, 1997 and 1996 have been prepared on
the same basis as the historical information derived from audited financial
statements, and in the opinion of management, contain all adjustments,
consisting only of normal recurring accruals, necessary for the fair
presentation of results of operations for such periods. The Investors
historical consolidated financial statement data as of and for the six months
ended June 30, 1997 and 1996 have been prepared on the same basis as the
historical information derived from audited financial statements and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for the fair presentation of results of
operations for such periods.
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FIRST FINANCIAL HOLDINGS, INC.
CONSOLIDATED HISTORICAL SELECTED FINANCIAL DATA
At or For the At or For the
Nine Months Ended Years Ended
June 30, September 30,
-------------- ---------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
------ ------ ------ ------ ------ ------ ------
(Dollars in thousands, except for per share data)
HISTORICAL OPERATING
DATA:
Interest income...... $90,191 $82,024 $111,118 $95,503 $85,652 $95,407$86,328
Interest expense..... 53,730 48,645 65,997 55,794 44,755 51,696 51,930
------ ------ ------ ------ ------ ------ ------
Net interest income.. 36,461 33,379 45,121 39,709 40,897 43,711 34,398
Provision for loan
losses.............. (1,650) (1,223) (1,823) (451) (1,097) (3,700)(3,440)
Net interest income
after provision for ------ ------ ------ ------ ------ ------ ------
loan losses......... 34,811 32,156 43,298 39,258 39,800 40,011 30,958
Other income......... 9,059 7,320 10,052 8,575 8,681 5,493 2,248
Non-interest expense. (27,239)(26,228) (35,249)(33,424)(32,351)(30,745)(21,916)
SAIF special
assessment.......... -- -- (6,955) -- -- -- --
Income tax expense... (6,122) (4,802) (4,118) (5,171) (4,125) (3,481) (4,320)
Income before change
in accounting
principle.......... 10,509 8,446 7,028 9,238 12,005 11,278 6,970
Change in accounting
principle........... -- -- -- -- -- 1,584 --
------ ------ ------ ------ ------ ------ -------
Net income......... $10,509 $ 8,446 $ 7,028 $ 9,238 $12,005 $12,862 $ 6,970
======= ======= ======= ======= ======= ======= =======
HISTORICAL PER SHARE
DATA:
Net income........... $1.66 $1.33 $1.11(2) $1.47 $1.88 $2.02(3) $1.10
Book value........... 16.03 15.26 14.91 14.50 13.20 12.56 10.75
Dividends............ .54 .48 .64 .56 .48 .34 .28
Dividend payout
ratio............... 32.53% 36.09% 57.66% 38.10% 25.53% 16.83% 25.45%
SELECTED RATIOS:
Return on average
equity.............. 14.25% 11.93% 7.41%(4)10.61% 14.64% 17.28% 10.59%
Return on average
assets.............. .87 .78 .48(5) .71 .97 1.00 .71
Gross interest
margin(6)........... 2.91 2.93 2.93 2.91 3.21 3.39 3.36
Average equity as a
percentage of
average assets...... 6.12 6.53 6.51 6.67 6.65 5.79 6.68
Problem assets as a
percentage of
total assets....... 1.66 1.32 1.28 1.67 1.74 1.98 2.73
HISTORICAL CONSOLIDATED
STATEMENT OF FINANCIAL
CONDITION DATA:
At or For the At or For the
Nine Months Ended Years Ended
June 30, September 30,
--------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993(1) 1992
---- ---- ---- ---- ---- ------- ----
Assets..
$1,667,178 $1,523,224 $1,546,149 $1,365,348 $1,244,270 $1,259,265 $985,794
Loans
receivable,
net. 1,377,030 1,234,174 1,280,110 1,083,367 963,366 967,607 757,448
Mortgage-
backed
securities...
111,993 98,556 82,991 101,126 105,620 106,021 104,882
Investment
securities...
81,008 121,303 109,541 119,967 117,876 104,554 35,308
Deposits.
1,069,217 1,062,649 1,061,617 1,074,313 1,062,995 1,015,219 737,586
Borrowings.
465,500 333,526 348,970 172,120 79,267 106,677 165,058
Total
liabilities.
1,565,299 1,425,894 1,451,354 1,273,939 1,161,598 1,178,719 917,480
Stockholders'
equity.
101,879 97,330 94,795 91,409 82,672 80,546 68,314
Number
of
offices. 33 32 33 32 32 32 20
Full-time
equivalent
employees. 552 530 540 509 537 532 335
- -------------------
(1) On October 9, 1992, First Financial acquired Peoples Federal. The
acquisition was accounted for under the purchase method of accounting, and
accordingly, the consolidated financial statements do not include Peoples
Federal's assets, liabilities and equity or results of operations prior to
that date.
(2) Includes the effect of the SAIF special assessment which resulted in a
decrease of $.69 in earnings per common share.
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(3) Includes the cumulative effect of a change in accounting principle which
resulted in an increase of $.25 in earnings per common share.
(4) Return on average equity excluding the effect of the SAIF Special
Assessment was 12.04%.
(5) Return on average assets excluding the effect of the SAIF Special
Assessment was .78%.
(6) Gross interest margin is the difference between the weighted average yield
on all interest-earning assets and the weighted average rate paid on all
interest-bearing liabilities.
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
SELECTED HISTORICAL FINANCIAL DATA
At or For
The Six At or For the
Months Ended Years Ended
June 30, December 31,
----------- --------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except for per share data)
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Interest income...........$2,417 $2,276 $4,598 $4,368 $3,727 $3,603 $3,792
Interest expense.......... 1,336 1,197 2,432 2,317 1,753 1,771 2,067
------ ------ ------ ------ ------ ------ ------
Net interest income....... 1,081 1,079 2,166 2,051 1,974 1,832 1,725
Provision for loan losses. 30 30 60 85 60 87 88
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses 1,051 1,049 2,106 1,966 1,914 1,745 1,637
Other income.............. 190 209 405 314 221 335 299
Non-interest expense...... 675 667 1,345 1,301 1,249 1,175 1,120
SAIF Special Assessment... -- -- 313 -- -- -- --
Income tax expense........ 202 213 259 353 319 346 304
------ ------ ------ ------ ------ ------ ------
Net income..............$ 364 $ 378 $ 594 $ 626 $ 567 $ 559 $ 512
====== ====== ====== ====== ====== ====== ======
HISTORICAL PER SHARE DATA:
Net income.................$1.40 $ 1.47 $ 2.30 $ 2.46 $ 2.23 $ 2.20 $ 2.11
Book value................ 27.27 25.68 25.88 24.21 22.26 20.39 19.44
Dividends................. -- -- .45 .375 .36 .33 .29
Dividend payout ratio..... -- -- 19.67% 15.24% 16.03% 15.00% 14.43%
SELECTED RATIOS:
Return on average equity.. 10.53% 11.79% 9.16% 10.53% 10.45% 11.29% 11.38%
Return on average assets.. 1.15 1.32 1.00 1.15 1.10 1.13 1.11
HISTORICAL CONSOLIDATED
STATEMENT OF FINANCIAL
CONDITION DATA:
Assets...................$64,130 $57,035 $62,021 $57,028 $52,244$51,323 $47,232
Loans receivable, net.... 47,763 45,646 46,003 44,815 44,432 41,350 40,577
Mortgage-backed
securities.............. 745 911 818 1,002 1,120 357 573
Investment securities.... 2,801 1,803 2,302 848 2,342 2,646 2,144
Deposits................. 56,606 50,040 54,735 50,326 46,233 45,828 42,277
Stockholders' equity..... 7,105 6,599 6,743 6,221 5,667 5,190 4,716
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COMPARATIVE PER SHARE DATA
The following table sets forth selected comparative per share data for
First Financial on both an historical and a pro forma combined basis and for
Investors on both an historical and a pro forma equivalent basis giving effect
to the Merger using the pooling of interests method of accounting. These
tables should be read in conjunction with the historical financial statements
of First Financial and Investors, including the respective notes thereto,
appearing elsewhere in this Prospectus/Proxy Statement, and the other documents
incorporated by reference herein. The pro forma information has been prepared
based on a 1.46 Exchange Ratio, which is the Exchange Ratio that would be
utilized if the First Financial Price were $30.75 (the closing price of First
Financial Common Stock on the last full trading day prior to public
announcement of the Merger). The actual Exchange Ratio will depend on the
average closing price of First Financial Common Stock during the ten trading
days prior to the Effective Date and may be different from 1.46. The pro forma
information would be different if the First Financial Price results in an
Exchange Ratio different from 1.46. Investors shareholders are urged to obtain
current quotations of the market price of First Financial Common Stock. The
following information is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
Merger been consummated at the beginning of the periods indicated, nor is it
necessarily indicative of the results of operations of future periods or future
combined financial position.
At At
June 30, September 30,
1997 1996
-------- --------
BOOK VALUE PER SHARE(1):
First Financial historical.......... $16.03 $14.91
Investors historical................ 27.27 24.99
Pro forma combined.................. 16.18 15.04
Investors pro forma equivalent..... 23.62 21.96
For the For the Year Ended
Nine Months Ended September 30,(3)
June 30, 1997 1996 1995 1994
CASH DIVIDENDS DECLARED PER SHARE(2): ----------------- ---- ---- ----
First Financial historical.......... $ .54 $ .64 $ .56 $ .48
Investors historical................ .45 .45 .375 .36
Pro forma combined ................. .54 .64 .56 .48
Investors pro forma equivalent...... .79 .93 .82 .70
NET INCOME PER SHARE(4):
First Financial historical.......... $1.66 $1.11 $1.47 $1.88
Investors historical................ 2.30 2.30 2.46 2.23
Pro forma combined ................. 1.66 1.14 1.48 1.86
Investors pro forma equivalent..... 2.42 1.66 2.16 2.72
- -----------------------
(1) The pro forma combined book value per share of First Financial Common Stock
is based upon the historical total combined common stockholders' equity for
First Financial and Investors divided by total pro forma common shares of
the combined entities. The pro forma equivalent book value per share of
Investors Common Stock represents the pro forma combined book value of
First Financial Common Stock multiplied by the 1.46 Exchange Ratio.
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
cash dividends declared per share of Investors Common Stock represent the
pro forma combined cash dividends declared per share of First Financial
Common Stock multiplied by the 1.46 Exchange Ratio.
(3) Information for Investors is for its fiscal year ended December 31.
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(4) The pro forma combined net income per share of First Financial Common Stock
(based on fully diluted net income and weighted average shares outstanding)
is based upon the combined historical net income for First Financial for
its fiscal year ended September 30 and Investors for its fiscal year ended
December 31 divided by the average pro forma common shares of the combined
entities. The pro forma equivalent net income per share of Investors
Common Stock represents the pro forma combined net income per share
multiplied by the 1.46 Exchange Ratio.
COMPARATIVE MARKET PRICE DATA
First Financial Common Stock is quoted on the Nasdaq National Market
under the symbol "FFCH." There is no established trading market for Investors
Common Stock. The table below sets forth, for the calendar quarters indicated,
the high and low sales prices of First Financial Common Stock as reported on
the Nasdaq National Market and the dividends per share declared on First
Financial and Investors Common Stock in each such quarter. The market for
shares of Investors Common Stock is highly illiquid and the shares are neither
traded on an established exchange nor listed on the Nasdaq Stock Market.
Management of Investors is aware of only a few trades in Investors Common Stock
in the twelve months ended June 30, 1997. Such trades were at prices ranging
from $25.00 per share to $29.00 per share, with the most recent trade at $29.00
per share. Management of Investors has not ascertained that these transactions
are the result of arm's length negotiations between the parties, thus these
prices may not be indicative of the market value of Investors Common Stock.
First Financial Investors
Common Stock Common Stock
----------------------- ------------
High Low Dividends Dividends
---- --- --------- ---------
YEAR ENDED SEPTEMBER 30, 1995:
First Quarter............... $17.00 $13.00 $.14 $.36
Second Quarter.............. 19.75 13.75 .14 --
Third Quarter............... 20.50 17.75 .14 --
Fourth Quarter.............. 22.50 18.00 .14 --
YEAR ENDED SEPTEMBER 30, 1996:
First Quarter............... 20.50 18.00 .16 .375
Second Quarter.............. 22.75 19.25 .16 --
Third Quarter............... 21.75 17.75 .16 --
Fourth Quarter.............. 20.25 17.50 .16 --
YEAR ENDED SEPTEMBER 30, 1997:
First Quarter............... 24.25 19.00 .18 .45
Second Quarter.............. 28.625 22.25 .18 --
Third Quarter............... 32.75 23.75 .18 --
Fourth Quarter (through
September 2, 1997)......... 35.00 29.375 .18 .25
As of September 2, 1997, the 6,368,262 outstanding shares of First
Financial Common Stock were held by approximately 2,090 holders of record and
the 260,588 outstanding shares of Investors Common Stock were held by 325
holders of record.
The following table sets forth the closing price per share for First
Financial Common Stock, as reported on the Nasdaq National Market, and the
equivalent pro forma per share price for Investors Common Stock on June 25,
1997, the last full trading day prior to the public announcement of the
execution of the Merger Agreement, and on
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<PAGE>
September 2, 1997, which is the most recent date for which it was practicable
to obtain market price data prior to the printing of this Prospectus/Proxy
Statement. HOLDERS OF INVESTORS COMMON STOCK ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS FOR SHARES OF FIRST FINANCIAL COMMON STOCK.
June 25, 1997 September 2, 1997
------------- -----------------
Closing price per share:
First Financial........ $30.75 $33.00
Equivalent pro forma
per share of Investors
Common Stock......... 44.90(1) 44.88(2)
- --------------------
(1) Computed by multiplying the closing price per share of First Financial
Common Stock by a 1.46 Exchange Ratio (which is the Exchange Ratio that
would be utilized if the First Financial Price were $30.75).
(2) Computed by multiplying the closing price per share of First Financial
Common Stock by a 1.36 Exchange Ratio (which is the Exchange Ratio that
would be utilized if the First Financial Price were $33.00).
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<PAGE>
<PAGE>
THE SPECIAL MEETING
PLACE, TIME AND DATE
The Special Meeting will be held on Tuesday, October 14, 1997 at 5:30
p.m., local time, in the main lobby of Investors at 132 West Cheves Street,
Florence, South Carolina. This Prospectus/Proxy Statement is being sent to
holders of Investors Common Stock and is accompanied by a form of proxy that is
being solicited by the Investors Board for use at the Special Meeting and any
adjournments or postponements thereof.
PURPOSE
The purpose of the Special Meeting is (i) to consider and vote upon a
proposal to approve the Merger Agreement described herein and (ii) to act upon
such other matters, if any, as may properly come before the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
The Investors Board has fixed the close of business on August 29, 1997 as
the Record Date for determining shareholders entitled to notice of and to vote
at the Special Meeting. Only those holders of Investors Common Stock of record
on the Record Date will be entitled to notice of and to vote at the Special
Meeting. Each share of Investors Common Stock will be entitled to one vote.
At the Record Date, there were 260,588 shares of Investors Common Stock
outstanding and entitled to be voted at the Special Meeting.
VOTE REQUIRED
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum of Investors shareholders at the Special
Meeting. Valid proxies that are marked "Abstain," including proxies submitted
by brokers that are the record owners of shares (so-called "broker non-votes"),
will be considered present for purposes of determining whether a quorum exists.
Approval of the Merger Agreement requires the affirmative vote of the holders
of two-thirds of the outstanding shares of Investors Common Stock. Abstentions
and broker non-votes will have the same effect as votes cast against approval
of the Merger Agreement.
As of the Record Date, the directors and executive officers of Investors
and their affiliates beneficially owned an aggregate of 42,043 shares of
Investors Common Stock, which represents 16.1% of the shares entitled to be
voted at the Special Meeting. All of the directors of Investors have entered
into agreements with First Financial pursuant to which each director agreed to
vote his shares for approval of the Merger Agreement. At the Record Date,
directors and executive officers of First Financial owned an aggregate of 802
shares of Investors Common Stock.
PROXIES
Holders of Investors Common Stock may vote either in person or by
properly executed proxy. Shares of Investors Common Stock represented by a
properly executed proxy received prior to or at the Special Meeting will,
unless such proxy is revoked, be voted in accordance with the instructions
indicated on such proxy. If no instructions are indicated on a properly
executed proxy, the shares covered thereby will be voted FOR the proposal to
approve the Merger Agreement. FAILURE TO RETURN THE PROXY CARD OR TO VOTE IN
PERSON AT THE INVESTORS SPECIAL MEETING WILL HAVE THE EFFECT OF A VOTE CAST
AGAINST THE MERGER AGREEMENT. If any other matters are properly presented at
the Special Meeting for consideration, including, among other things, a motion
to adjourn the Special Meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons
named in the proxy and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment; provided, however, that no
proxy which is voted against the proposal to approve the Merger Agreement
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<PAGE>
will be voted in favor of any such adjournment or postponement. As of the date
hereof, the Investors Board knows of no such other matters.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the record holder of the shares at any time before it is voted by delivering
to the Secretary of Investors, on or before the taking of the vote at the
Special Meeting, a written notice of revocation bearing a later date than the
proxy or a later dated proxy relating to the same shares of Investors Common
Stock, or by attending the Special Meeting and voting in person. Attendance at
the Special Meeting will not in itself constitute revocation of a proxy.
The proxy for the Special Meeting is being solicited on behalf of the
Investors Board. The expense of soliciting proxies for the Special Meeting
will be borne by Investors. All other costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
are to be paid by the party incurring such expenses. Proxies will be solicited
principally by mail, but may also be solicited by the directors, officers and
other employees of Investors in person or by telephone, facsimile or other
means of communication. Such directors, officers and employees will receive no
compensation therefor in addition to their regular compensation, but may be
reimbursed for out-of-pocket expenses in connection with such solicitation.
Brokers and others who hold Investors Common Stock on behalf of another will be
asked to forward proxy material and related documents to the beneficial owners
of such stock, and Investors will reimburse them for their expenses in doing
so.
THE MERGER
The descriptions in this Prospectus/Proxy Statement of the terms and
conditions of the Merger and related transactions are qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached as
Appendix A to this Prospectus/Proxy Statement and is incorporated herein by
reference.
GENERAL
The Merger Agreement provides for the merger of Investors with and into
Peoples Federal, which is a wholly-owned subsidiary of First Financial. The
separate existence of Investors will cease upon completion of the Merger.
While First Financial and Investors believe that they will receive the
requisite regulatory approvals for the Merger, there can be no assurance that
such approvals will be received or, if received, as to the timing of such
approvals or as to the ability to obtain such approvals on satisfactory terms.
See "-- Conditions to Consummation of the Merger" and "-- Regulatory
Requirements."
MERGER CONSIDERATION
Upon consummation of the Merger, each outstanding share of Investors
Common Stock will be converted into the right to receive the number of shares
of First Financial Common Stock determined according to the Exchange Ratio
described below. Each holder of Investors Common Stock who would otherwise be
entitled to a fractional share of First Financial Common Stock will receive
cash in lieu thereof determined by multiplying such fraction by the First
Financial Price. The number of shares of First Financial Common Stock (the
Exchange Ratio) to be exchanged for each share of Investors Common Stock will
be determined by dividing $45 by the average last price per share of First
Financial Common Stock as reported in The Wall Street Journal for each of the
ten trading days immediately preceding the Effective Date (the First Financial
Price). The Merger Agreement may be terminated by First Financial if the First
Financial Price is less than $24.00 or by Investors if the First Financial
Price is greater than $33.00, if First Financial and Investors have not agreed
to an adjustment of the Exchange Ratio. If the Exchange Ratio is adjusted to
decrease the value of the First Financial Common Stock to be received by
Investors shareholders, Investors will resolicit the approval of its
shareholders. Pursuant to the terms of the Merger Agreement, all outstanding
stock options under Investors' stock option plans will be converted into
options to acquire First Financial Common Stock.
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<PAGE>
Because the number of shares of First Financial Common Stock to be
received by Investors shareholders will depend on the market price of First
Financial Common Stock, the exact number of shares to be received by Investors
shareholders will not be known until the Effective Date. On September 2, 1997,
the most recent date for which it was practicable to obtain information prior
to the printing of this Prospectus/Proxy Statement, the closing price per share
of First Financial Common Stock, as reported on the Nasdaq National Market, was
$33.00. Investors shareholders should note, however, that the market price of
the First Financial Common Stock they receive will continue to be subject to
market fluctuations, as well as the future results of operations and financial
condition of First Financial, among other factors, and therefore may be worth
less than, or more than, such amount as of the date they receive their First
Financial Common Stock certificates.
The Exchange Ratio is subject to proportional adjustment as a result of a
stock split, stock dividend, reverse stock split or similar transaction by
First Financial.
EFFECTIVE DATE OF THE MERGER
Subject to the conditions to the obligations of the parties to complete
the Merger as set forth in the Merger Agreement, the Effective Date of the
Merger will occur on such date as First Financial notifies Investors in writing
not less than five days prior thereto, provided such date is not more than 30
days after such conditions have been satisfied or waived. Subject to the
foregoing, it is currently anticipated that the Merger will be consummated in
the fourth calendar quarter of 1997. Either First Financial or Investors may
terminate the Merger Agreement if the Effective Date does not occur on or
before February 28, 1998.
EXCHANGE OF INVESTORS STOCK CERTIFICATES
As promptly as practicable after the Effective Date, First Financial, or
an exchange agent designated by First Financial, will send to each holder of
record of Investors Common Stock on the Record Date transmittal materials for
use in exchanging all of such holder's certificates representing Investors
Common Stock for a certificate or certificates representing the First Financial
Common Stock into which such holder's shares of Investors Common Stock were
converted in the Merger and a check or checks for such holder's fractional
share interests, as appropriate. The transmittal materials will contain
information and instructions with respect to the surrender and exchange of such
certificates.
INVESTORS SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender of all of the certificates for Investors Common Stock
registered in the name of a holder of such certificates (or indemnity
satisfactory to First Financial and the exchange agent selected by First
Financial, if any of such certificates are lost, stolen or destroyed), together
with a properly completed letter of transmittal, such exchange agent will mail
to such holder a certificate or certificates representing the number of shares
of First Financial Common Stock to which such holder is entitled, together with
all undelivered dividends or distributions in respect of such shares and, where
applicable, a check for any fractional share interest (in each case, without
interest).
All shares of First Financial Common Stock issued to the holders of
Investors Common Stock pursuant to the Merger will be deemed issued as of the
Effective Date. First Financial dividends having a record date after the
Effective Date will include dividends on all shares of First Financial Common
Stock issued in the Merger, but no dividend or other distribution payable to
the holders of record of First Financial Common Stock at or as of any time
after the Effective Date will be distributed to the holder of any Investors
Common Stock certificates until such holder physically surrenders all such
certificates as described above. Promptly after such surrender, all
undelivered dividends and other distributions and, where applicable, a check
for any fractional share interest, will be delivered to such holder, in each
case without interest. After the Effective Date, the stock transfer books of
Investors will be
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<PAGE>
closed, and there will be no transfers on the transfer books of Investors of
the shares of Investors Common Stock that were outstanding immediately prior to
the Effective Date.
BACKGROUND AND REASONS FOR THE MERGER
Over the years, the President of Investors has had informal discussions
with various parties regarding possible acquisitions of Investors. Members of
the Investors Board of Directors have also informally monitored the merger
activity of other financial institutions in South Carolina and the southeast.
In the fourth quarter of 1996, Investors' President was contacted by the Vice
Chairman of First Financial and the possibility of a merger was discussed.
Subsequently, the President of Investors and the Vice Chairman and President of
First Financial met to discuss the possibility of a merger. Following these
meetings and discussions, in January 1997, First Financial presented a written
outline of the proposed terms of a possible transaction. The parties continued
to meet and refine the proposed terms. Throughout the course of these
discussions, Investors' President consulted with counsel.
As a result of the discussions, representatives of First Financial made a
proposal to the Investors Board and met with the Investors Board on May 8,
1997. The Investors Board authorized the President to negotiate a definitive
merger agreement and obtain a preliminary fairness opinion for the Investors
Board's further consideration. Investors' President, with the assistance of
counsel and financial advisors, negotiated the terms of the Merger Agreement
with First Financial.
On June 25, 1997, the Investors Board met to consider the Merger
Agreement. At that meeting, RP Financial presented its preliminary fairness
opinion and Investors' counsel reviewed the terms of the Merger Agreement with
the Investors Board. Following a discussion of various matters, the Investors
Board unanimously voted to approve the Merger Agreement and authorized the
President of Investors to execute the Merger Agreement.
Prior to approving the Merger Agreement, the Investors Board did not
solicit offers from other possible acquirors or determine whether other
institutions would be interested in acquiring Investors and, if so, on what
terms. The Investors Board believed that a tax-free transaction pursuant to
which Investors shareholders receive stock of the acquiror would be desired by
most shareholders. The Investors Board also recognized that, since the other
institutions that would possibly have an interest in Investors represented such
a wide range of stock characteristics, comparison of possible transactions
would be difficult at best. The Investors Board believed that the prospects
for growth of First Financial, the lack of an affiliated control group of First
Financial and the current liquidity of the First Financial stock provided a
reasonable basis for not seeking other offers prior to recommending the
proposed transaction to the Investors shareholders. Accordingly, based on
previous knowledge of other institutions and transactions and the analysis
prepared by Investors' financial advisor, the Investors Board believe that the
proposed transaction with First Financial is fair to the shareholders of
Investors and the Investors Board unanimously recommends to the shareholders
that the Merger be approved.
In reaching its determination that the Merger Agreement is fair to, and
in the best interests of, Investors and its shareholders, the Investors Board
consulted with its legal advisors and RP Financial, as well as with Investors'
management, and considered a number of factors, including the following:
(i) Investors' business, operations, earnings, managerial
requirements and resources, prospects and financial condition;
(ii) First Financial's business, operations, earnings and financial
condition, and lending capacity on both an historical and a prospective
basis, the enhanced opportunities for operating efficiencies that could
result from the Merger, the enhanced opportunities for growth in
Investors' market areas that the Merger would make possible, and the
respective contributions the parties would bring to a combined
institution;
(iii) the Investors Board's belief that First Financial would
retain valued Investors' employees and continue to make substantial
contributions in the community served by Investors;
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(iv) the terms of the Merger Agreement and RP Financial's
assessment that, based on historical stock prices and the prevailing
market price of the First Financial Common Stock during the week
immediately preceding June 25, 1997 (the date of the signing of the
Merger Agreement), the consideration to be received by the Investors
shareholders was fair to the Investors shareholders from a financial
point of view;
(v) First Financial as an ongoing institution and its asset
quality, reserve coverage, capital adequacy and profitability;
(vi) the liquidity of the First Financial Common Stock and the
number of unaffiliated shareholders of First Financial;
(vii) alternatives to the Merger, including the alternatives of
remaining independent and growing internally and remaining independent
for a period and then selling Investors;
(viii) possible affiliation partners for Investors (other than
First Financial), the prospects of such other possible affiliation
partners and the likelihood of any such affiliation;
(ix) the expectation that the Merger will be a tax-free transaction
to Investors and its shareholders (see "-- Certain Federal Income Tax
Consequences");
(x) the factors that may effect the market value of First Financial
common stock in the near future and the long term;
(xi) the current and prospective economic environment, competitive
constraints and regulatory burdens facing financial institutions,
including Investors; and
(xii) the impact of the Merger on Investors' deposit account
holders and the public.
The Investors Board of Directors did not assign any specific or relative
weight to the foregoing factors in their consideration.
The Investors Board met again on August 14, 1997, and after further
considering the Merger and consulting with its advisors, the Investors Board
reaffirmed its conclusion that the Merger and the Merger Agreement are in the
best interests of Investors and its shareholders, and adopted the Merger
Agreement and recommended that the Investors shareholders vote for approval of
the Merger Agreement.
Subsequent to entering into the Merger Agreement and pursuant to the
requirements of the Merger Agreement, Investors obtained the written financial
opinion of RP Financial, dated September 5, 1997, to the effect that the
consideration to be paid Investors shareholders by First Financial is fair,
from a financial perspective, to the Investors shareholders. A copy of this
opinion is attached hereto as Appendix C.
FOR THE REASONS SET FORTH ABOVE, THE INVESTORS BOARD HAS APPROVED THE
MERGER AGREEMENT AND RECOMMENDS THAT THE SHAREHOLDERS OF INVESTORS VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The Investors' Board retained RP Financial in May 1997 to provide certain
financial advisory and investment banking services to Investors in conjunction
with the Merger, including the rendering of an opinion with respect to the
fairness of the Merger consideration from a financial point of view to holders
of Investors Common Stock. In requesting RP Financial's advice and opinion,
the Investors Board did not give any special instructions to, or impose any
limitations upon the scope of the investigation which RP Financial might wish
to conduct to enable
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it to give its opinion. RP Financial was selected by Investors to act as its
financial advisor because of RP Financial's expertise in the valuation of
businesses and their securities for a variety of purposes including its
expertise in connection with mergers and acquisitions of savings and loans,
savings banks, and savings and loan holding companies.
On June 25, 1997, at the meeting in which the Investors Board approved
and adopted the Merger Agreement and the transactions contemplated thereby, RP
Financial rendered its opinion to the Investors Board that, as of such date,
the Merger consideration was fair to holders of Investors Common Stock from a
financial point of view. That opinion was updated as of the date of this
Prospectus/Proxy Statement. In connection with its opinion dated the date of
this Prospectus/Proxy Statement, RP Financial also confirmed the
appropriateness of its reliance on the analysis used to render its June 25,
1997 opinion by performing procedures to confirm the appropriateness of such
analyses and by reviewing the assumptions on which such analyses were based and
the factors considered in connection therewith.
The full text of the opinion of RP Financial, which sets forth the
assumptions made, matters considered and limitations on the review undertaken,
is attached as Appendix C to this Prospectus/Proxy Statement and is
incorporated herein by reference. Holders of Investors Common Stock are urged
to read the opinion in its entirety.
THE OPINION OF RP FINANCIAL IS DIRECTED TO THE INVESTORS BOARD IN ITS
CONSIDERATION OF THE MERGER CONSIDERATION AS DESCRIBED IN THE MERGER AGREEMENT,
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF INVESTORS AS TO
ANY ACTION THAT SUCH SHAREHOLDER SHOULD TAKE IN CONNECTION WITH THE MERGER
AGREEMENT, OR OTHERWISE. IT IS FURTHER UNDERSTOOD THAT THE OPINION OF RP
FINANCIAL IS BASED ON MARKET CONDITIONS AND OTHER CIRCUMSTANCES EXISTING ON THE
DATE HEREOF.
The opinion states that RP Financial reviewed the following material:
(1) the Merger Agreement; (2) financial and other information for Investors,
all with regard to balance sheet and off-balance sheet composition,
profitability, interest rates, volumes, maturities, trends, credit risk,
interest rate risk, liquidity risk and operations including: (a) audited
financial statements for the fiscal years ended December 31, 1995 through 1996,
(b) shareholder, regulatory and internal financial and other reports through
June 30, 1997, (c) the most recent proxy statement for Investors, (d) internal
budgets and financial projections prepared by management and third parties, and
(e) Investors Board and management comments regarding past and current
business, operations, financial condition, and future prospects; and (4)
financial and other information for First Financial including: (a) audited
financial statements for the fiscal years ended September 30, 1994 through
1996, incorporated in Annual Reports to shareholders, (b) Form 10-K as of
September 30, 1996, Form 10-Q as of December 31, 1996, March 31, 1997 and June
30, 1997, and interim results and developments released in press release form,
(c) regulatory and internal financial and other reports through June 30, 1997,
(d) internal budgets and financial projections prepared by management of First
Financial, and (e) First Financial's management comments regarding past and
current business, operations, financial condition, and future prospects.
In addition, RP Financial stated that it reviewed financial,
operational, market area and stock price and trading characteristics (for First
Financial) and the stock price and relatively limited trading information
available (for Investors) relative to publicly-traded savings institutions,
respectively, with comparable resources, financial condition, earnings,
operations and markets. RP Financial also considered the economic and
demographic characteristics in the local market area, and the potential impact
of the regulatory, legislative and economic environments on operations for
Investors and First Financial and the public perception of the thrift industry.
In rendering its opinion, RP Financial stated that it relied, without
independent verification, on the accuracy and completeness of the information
concerning Investors and First Financial furnished by the respective
institutions to RP Financial for review, as well as publicly-available
information regarding other financial institutions and economic and demographic
data. RP Financial stated that Investors and First Financial did not restrict
RP Financial as to the material it was permitted to review. The opinion
further states that RP Financial did not perform or obtain any independent
appraisals or evaluations of the assets and liabilities and potential and/or
contingent liabilities of Investors or First Financial. RP Financial further
indicated that the financial forecasts and budgets reviewed by RP
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Financial were prepared by the managements of Investors and First Financial;
that neither Investors nor First Financial publicly discloses internal
management forecasts or budgets of the type provided to RP Financial in
connection with the review of the Merger; and such financial forecasts were not
prepared with a view towards public disclosure. The financial forecasts and
budgets were based upon numerous variables and assumptions which are inherently
uncertain, including without limitation factors related to general economic and
competitive conditions, as well as trends in asset quality. Accordingly, RP
Financial cautioned that actual results could vary significantly from those set
forth in such financial forecasts.
In connection with rendering its opinion dated June 25, 1997 and updated
as of the date of this Prospectus/Proxy Statement, RP Financial performed a
variety of analyses, which are summarized below. The preparation of a fairness
opinion is a complex process involving subjective judgments and is not
necessarily susceptible to partial analyses or summary description. RP
Financial stated that its analyses must be considered as a whole and that
selecting portions of such analyses and of the factors considered by RP
Financial without considering all such analyses and factors could create an
incomplete view of the process underlying RP Financial's opinion. In its
analyses, RP Financial made numerous assumptions with respect to industry
performance, business and economic conditions, applicable laws and regulations,
and other matters, many of which are beyond the control of Investors. Any
estimates contained in RP Financial's analyses are not necessarily indicative
of future results or values, which may be significantly more or less favorable
than such estimates. No company or transaction utilized in RP Financial's
analyses was identical to Investors, First Financial or the Merger. None of
the analyses performed by RP Financial was assigned a greater significance by
RP Financial than any other.
The following is a summary of the material financial analyses performed
by RP Financial in connection with providing its opinion of June 25, 1997.
(a) Transaction Summary. RP Financial summarized the terms of the
Merger, including the conversion of each share of Investors Common Stock into
the right to receive First Financial Common Stock pursuant to the Exchange
Ratio. RP Financial also summarized the formula for calculating the Exchange
Ratio, the treatment of the outstanding options to acquire Investors Common
Stock, the termination provisions incorporated in the Merger Agreement, and the
pricing ratios indicated by the Merger consideration relative to the tangible
book value, earnings, assets and deposits of Investors.
(b) Comparison to Recent Southeast U.S. Business Combinations. In this
analysis, RP Financial conducted an evaluation of the financial terms,
financial and operating condition and market area of other recent business
combinations among comparable thrift institutions both pending and completed.
In conjunction with its analysis, RP Financial considered the multiples of
tangible book value, earnings and assets implied by the terms in such completed
and pending transactions involving selling companies whose financial
characteristics were comparable to those of Investors including companies
operating in the Southeast U.S. with total assets less than $300 million and
completed/announced during 1996 and 1997 (together, "Comparable Transactions").
The median tangible price-to-book value ratio indicated by the Comparable
Transactions was 153%, versus a tangible price-to-book value ratio of
approximately 170% indicated by the Merger consideration based on March 31,
1997 financial data. The median price-to-earnings multiple indicated by the
Comparable Transactions was 18.14 times, versus a price-to-earnings multiple of
approximately 19.17 times indicated by the Merger consideration relative to
Investors budgeted earnings. The median price-to-assets ratio indicated by the
Comparable Transactions was 11.4%, versus a price-to-assets ratio of
approximately 20.2% indicated by the Merger consideration based on March 31,
1997 financial data. The pricing ratios indicated by the Merger consideration
exceeded the median pricing ratios indicated by the Comparable Transactions,
which RP Financial cited in support of its fairness conclusions.
(c) Discounted Cash Flow Analysis. RP Financial prepared several
discounted cash flow ("DCF") analyses, all of which incorporated a five year
financial projection and cash flow analysis to shareholders. The DCF analyses
incorporated several specific factors reflecting the operating environment of
Investors on a stand-alone basis, including growth prospects in the local
market, the level of competition from other financial institutions, and future
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earnings estimates for Investors under a stand-alone business plan without the
benefits of the Merger. The projections of future cash flows to shareholders
included the continued payment of cash dividends during interim years and the
receipt of consideration at the end of five years, assuming a terminal value
for the Investors Common Stock equal to an assumed merger value. The merger
value reflected an estimate of the price that could be received for the
Investors Common Stock assuming the Investors' Board sought to pursue a merger
transaction at the end of five years, including an orderly marketing of
Investors to potential merger partners and receipt of a control premium by the
holders of Investors Common Stock. In the "base case" operating scenario, the
projections of future cash flows assumed continued payment of cash dividends,
asset growth of 9.0% annually, a return on average assets equal to 1.05% of
average assets, and realization of a terminal value at the end of five years of
operations equal to a range of 120% of book value (the conservative scenario)
and 200% of book value (the optimistic scenario). The cash flow represented by
the dividends and terminal value was discounted to present value using a
discount rate of 14%, which RP Financial concluded was appropriate to reflect
the limited liquidity characteristics of the Investors Common Stock, and the
geographic concentration and relatively limited operating diversification of
Investors' banking operations. The "base case" DCF analysis indicated a
present value to shareholders ranging from $25.30 per share (assuming a
terminal value of 120% of book value) to $40.62 per share (assuming a terminal
value of 200% of book value). In addition to the "base case" operating
scenario, RP Financial prepared DCF analyses assuming different operating
scenarios. Under the conservative operating scenario, in which earnings were
projected at 85% of the "base case," the DCF analysis indicated a present value
to shareholders ranging from $23.85 per share to $38.22 per share. Under the
aggressive operating scenario, in which earnings were projected at 115% of the
"base case," the DCF analysis indicated a present value to shareholders ranging
from $26.74 per share to $43.03 per share. RP Financial concluded that, since
the Merger consideration exceeded the present value of future cash flows
accruing to holders of Investors Common Stock under all scenarios, the DCF
analyses supported its fairness conclusions.
(d) Impact Analysis. RP Financial evaluated the projected financial
impact of the Merger on the balance sheet, income statement and per share
financial measures of Investors. RP Financial's analysis considered the
financial condition and operations of Investors and First Financial at March
31, 1997 and the pro forma impact of the Merger. RP Financial calculated the
impact analysis at two price levels for the First Financial Common Stock:
(1)the upper limit, at which the holders of Investors Common Stock would
receive approximately 1.36 shares of First Financial Common Stock pursuant to
the Exchange Ratio formula; and (2) the lower limit, at which the holders of
Investors Common Stock would receive approximately 1.88 shares of First
Financial Common Stock pursuant to the Exchange Ratio formula. At any point
between the upper and lower limits, RP Financial estimated that holders of
Investors Common Stock would realize accretion in market value of approximately
55.2 percent, which represents the difference between the Merger consideration
and the most recent trading price for the Investors Common Stock prior to
execution of the Merger Agreement. RP Financial estimated that holders of
Investors Common Stock would incur dilution of 20 percent and accretion of 8
percent in book value per share at the upper and lower limits, respectively.
RP Financial further estimated that holders of Investors Common Stock would
realize accretion of 24 percent and 67 percent in earnings per share at the
upper and lower limits, respectively, and would realize accretion of 118
percent and 200 percent in dividends per share at the upper and lower limits,
respectively. Moreover, the holders of Investors Common Stock would enjoy a
stronger return on equity (ROE) on a pro forma basis relative to stand-alone
operations. RP Financial considered both the impact of the Merger on the
overall financial measures of Investors as well as the impact of the Merger on
the per share financial measures of Investors in support of the fairness issue.
In addition to these financial analyses, RP Financial considered several
other considerations in its fairness conclusions. Such other financial
considerations included the greater market capitalization of the merged company
relative to Investors on a stand-alone basis; the significantly greater
liquidity in the shares relative to the shares of Investors Common Stock
without the Merger; the likelihood that the merged company would be attractive
to a greater number of institutional and other investors by virtue of its
greater asset size and market capitalization relative to Investors on a
stand-alone basis; the potential benefits to Investors of the greater
geographic and operating diversification of the merged company relative to
Investors on a stand-alone basis; and the potential benefits of
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combining two companies with adjacent market areas, particularly in terms of
greater economies of scale, market presence and the complementary branch
structure.
On the basis of these analyses and other considerations, RP Financial
concluded that the Merger consideration, as described in the Merger Agreement,
is fair to the shareholders of Investors from a financial point of view. As
described above, RP Financial's opinion and presentation to the Investors Board
was one of many factors taken into consideration by the Investors Board in
making its determination to approve the Merger Agreement. Although the
foregoing summary describes the material components of the analyses presented
by RP Financial to the Investors Board, it does not purport to be a complete
description of all the analyses performed by RP Financial and is qualified by
reference to the written opinion of RP Financial set forth as Appendix C
hereto, which the Investors shareholders are urged to read in its entirety.
Pursuant to a letter dated May 13, 1997 (the "RP Financial Engagement
Letter"), RP Financial estimates that it will receive from Investors total fees
of $25,000, of which $20,000 has been paid to date, plus reimbursement of
certain out-of-pocket expenses, for its services in connection with the Merger.
In addition, Investors has agreed to indemnify RP Financial against certain
liabilities, including liabilities under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The directors and executive officers of Investors, together with their
affiliates, beneficially owned a total of 42,043 shares of Investors Common
Stock (representing 16.1% of all outstanding shares of Investors Common Stock)
as of the Record Date. The directors and executive officers will receive the
same consideration in the Merger for their shares as the other shareholders of
Investors. Certain members of Investors' management and the Investors Board
have certain interests in the Merger as described below that are in addition to
their interests as shareholders of Investors generally. The Investors Board
was aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
First Financial intends to establish a Florence area advisory board to
the Board of Directors of Peoples Federal. Members of the Investors Board who
reside in the Florence area will be considered for advisory board membership
and, if selected, will receive such compensation as First Financial may from
time to time establish for advisory directors to its subsidiaries. In
addition, First Financial has agreed to appoint one member of the Investors
Board to the Board of Directors of Peoples Federal. As of the date of this
Prospectus/Proxy Statement, Peoples Federal had not selected such person.
Following the Merger, Joseph D. Carson, the President of Investors, and
A.P. Skinner, III, the Vice President of Investors will enter into employment
agreements with Peoples Federal and First Financial. Pursuant to Mr. Carson's
employment agreement he will serve as a Senior Vice President of Peoples
Federal and as City Executive for Peoples Federal's Florence, South Carolina
market area for a period of three years commencing on the Effective Date. Mr.
Carson's initial base salary under the agreement will be $107,000. Pursuant to
Mr. Skinner's employment agreement, he will serve as a Vice President of
Peoples Federal in the Florence, South Carolina market area for a period of one
year commencing on the Effective Date. Both Mr. Carson's and Mr. Skinner's
employment agreements may be extended for an additional 12 months upon the
expiration of the original term of the agreement and upon each anniversary of
the expiration of the agreement thereafter.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
consequences of the Merger that are generally applicable to Investors
shareholders. This discussion is based on currently existing provisions of the
Code, existing regulations thereunder (including final, temporary or proposed)
and current administrative rulings and court decisions, all of which are
subject to change. Any such change, which may or may not be retroactive, could
alter the tax consequences described herein. The following discussion is
intended only as a summary of the material
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federal income tax consequences of the Merger and does not purport to be a
complete analysis or listing of all potential tax effects relevant to a
decision on whether to vote in favor of approval of the Merger Agreement.
The Merger is expected to qualify as a reorganization under Section
368(a) of the Code. As parties to a reorganization, neither First Financial nor
Investors will recognize gain or loss as a result of the Merger. A holder of
Investors Common Stock who receives solely First Financial Common Stock in
exchange for Investors Common Stock will not recognize gain or loss upon such
exchange. The aggregate tax basis of the First Financial Common Stock received
by such holder will be equal to the aggregate tax basis of the Investors Common
Stock surrendered (excluding any portion of the holder's basis allocated to
fractional shares) and the holding period of the First Financial Common Stock
will include the holding period of the Investors Common Stock surrendered. A
holder of Investors Common Stock who receives cash in lieu of fractional shares
of First Financial Common Stock will be treated as having received such
fractional shares pursuant to the Merger and then as having exchanged such
fractional shares for cash in a redemption by First Financial. Any gain or
loss attributable to fractional shares generally will be capital gain or loss.
The amount of such gain or loss will be equal to the difference between the
ratable portion of the tax basis of the Investors Common Stock surrendered in
the Merger that is allocated to such fractional shares and the cash received in
lieu thereof. Any such capital gain or loss will constitute long-term capital
gain or loss if the Investors Common Stock has been held by the holder for more
than 18 months at the Effective Time or mid-term capital gain if held for more
than one year but less than 18 months at the Effective Time.
Consummation of the Merger is conditioned upon the receipt by First
Financial and Investors of an opinion of Breyer & Aguggia, special counsel to
First Financial, to the effect that if the Merger is consummated in accordance
with the terms set forth in the Merger Agreement (i) the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code, and (ii) no
gain or loss will be recognized by Investors shareholders who exchange all of
their Investors Common Stock solely for shares of First Financial Common Stock
(except for cash received in lieu of fractional shares). First Financial and
Investors may waive receipt of such tax opinion. However, if the material
federal income tax consequences of the Merger are different than those
described herein, Investors will resolicit the approval of its shareholders.
The opinion of counsel, which will be delivered on the Effective Date, is
filed as an exhibit to the Registration Statement, and the foregoing is only a
summary of such tax consequences as described in the opinion. An opinion of
counsel only represents counsel's best legal judgment and has no binding effect
or official status of any kind, and no assurance can be given that contrary
positions may not be taken by the Internal Revenue Service (the "IRS") or a
court considering the issues. Neither Investors nor First Financial has
requested or will request a ruling from the IRS with regard to the federal
income tax consequences of the Merger.
THE FOREGOING IS A GENERAL SUMMARY OF ALL OF THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO INVESTORS SHAREHOLDERS, WITHOUT REGARD TO THE
PARTICULAR FACTS AND CIRCUMSTANCES OF EACH SHAREHOLDER'S TAX SITUATION AND
STATUS. BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH SHAREHOLDER, EACH INVESTORS SHAREHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING SUCH SHAREHOLDER'S SPECIFIC
TAX SITUATION AND STATUS, INCLUDING THE SPECIFIC APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN LAWS TO SUCH SHAREHOLDER AND THE POSSIBLE EFFECT OF
CHANGES IN FEDERAL AND OTHER TAX LAWS.
CONDUCT OF BUSINESS PENDING THE MERGER
Investors has agreed in the Merger Agreement not to take certain actions
without the prior approval of First Financial relating to its operations
pending consummation of the Merger. These actions include, among other things,
(i) issuing or selling any Investors Common Stock; (ii) paying any dividends,
other than dividends payable on Investors Common Stock at an annual rate not to
exceed $.45 per share; (iii) incurring any indebtedness for borrowed money or
becoming liable for the obligations of any other entity other than in the
ordinary course of business; (iv) changing its lending, investment, liability
management or other material banking policies in any material respect; (v)
imposing any lien on any assets of Investors; (vi) entering into or amending
any employment agreements or any
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employee benefit plans or granting any salary increases (other than in the
ordinary course of business); (vii) disposing of any material portion of its
assets or acquiring any material portion of the business or property of any
other entity; (viii) amending its articles of incorporation or bylaws; (ix)
settling any claims involving any liability for money damages except for
amounts that are not material; (x) entering into, terminating or changing any
material agreements, except for those agreements that may be terminated by
Investors without penalty upon not more than 60 days' prior written notice;
(xi) extending credit other than in accordance with existing lending policies
or making or renewing any loan to any borrower if the amount of such loan, when
aggregated with other extensions of credit to such borrower, would exceed
$500,000; (xii) implementing or adopting any change in its accounting
principles, practices or methods other than as may be required by generally
accepted accounting principles; and (xiii) taking any action that would prevent
the Merger from qualifying for pooling of interests accounting. Moreover,
Investors is required, among other things, to operate its businesses in the
usual, regular and ordinary course and to use its best efforts to preserve its
business relationships and to retain key employees.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Investors and First Financial to consummate the Merger
are subject to, among other things, the satisfaction of the following
conditions: (i) approval of the Merger Agreement by the holders of not less
than two-thirds of the outstanding shares of Investors Common Stock; (ii)
receipt of all applicable regulatory approvals without any condition that, in
the opinion of First Financial, would deprive First Financial of the material
economic or business benefits of the Merger; (iii) no court or government or
regulatory authority having taken any action which enjoins or prohibits the
Merger; and (iv) receipt by First Financial and Investors of the opinion of
Breyer & Aguggia, dated as of the Effective Date, as to certain federal income
tax consequences of the Merger.
The obligations of First Financial are subject to the satisfaction of
certain additional conditions, including: (i) the delivery by Investors of
opinions of its legal counsel and certificates executed by certain of its
executive officers as to compliance with the Merger Agreement; (ii) the
accuracy of the representations and warranties, and compliance in all material
respects with the agreements and covenants of Investors; (iii) Joseph D. Carson
and A. P. Skinner, III having entered into employment agreements with Peoples
Federal and First Financial; (iv) receipt by First Financial of a voting
agreement from each director of Investors; (v) the absence of any material
adverse change in the financial position or results of operations of Investors;
(vi) the number of Dissenting Shares not exceeding 10% of the outstanding
shares of Investors Common Stock; and (vii) the receipt of all required
consents of third parties.
The obligations of Investors are also subject to the satisfaction of
certain additional conditions, including: (i) the delivery by First Financial
of opinions of its legal counsel and certificates executed by certain of its
executive officers as to compliance with the Merger Agreement; (ii) the
accuracy of the representations and warranties, and compliance in all material
respects with the agreements and covenants of First Financial; and (iii) the
absence of any material adverse change in the financial position or results of
operations of First Financial.
First Financial and Investors may waive certain of the conditions to
their respective obligations to consummate the Merger, other than conditions
required by law.
REGULATORY REQUIREMENTS
The Merger is subject to prior approval by the OTS and the Board of
Financial Institutions. An application for approval of the Merger was filed
with the OTS and the Board of Financial Institutions on July 25, 1997.
The approval of any application merely implies satisfaction of regulatory
criteria for approval, which do not include review of the Merger from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed Merger.
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First Financial and Investors are not aware of any governmental approvals
or compliance with banking laws and regulations that are required for
consummation of the Merger other than as described above. Should any other
approval or action be required, it is presently contemplated that such approval
or action would be sought. There can be no assurance that any such approval or
action, if needed, could be obtained and, if such approvals or actions are
obtained, there can be no assurance as to the timing thereof. The Merger
cannot proceed in the absence of all requisite regulatory approvals. See "--
Effective Date of the Merger," "-- Conditions to Consummation of the Merger,"
and "-- Amendment; Waiver; Termination."
The Merger Agreement provides that if the Merger has not been consummated
by February 28, 1998, the Merger Agreement may be terminated by First Financial
or Investors. Since there is the possibility that regulatory approval may not
be obtained for a substantial period of time after approval of the Merger
Agreement by Investors' shareholders, there can be no assurance that the Merger
will be consummated by February 28, 1998. In addition, should regulatory
approval require any material change, a resolicitation of shareholders may be
required if regulatory approval is obtained after shareholder approval of the
Merger Agreement.
NO SOLICITATION
Investors has agreed in the Merger Agreement that it will not solicit,
initiate or encourage inquiries or proposals with respect to, or furnish any
nonpublic information relating to, or participate in any negotiations
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, Investors or any merger or
other business combination with Investors.
DISSENTERS' RIGHTS
Pursuant to the South Carolina Dissenters' Rights Statute, the holders of
shares of Investors Common Stock are entitled to dissent from approval of the
Merger Agreement and receive payment of the fair value of their shares in the
event the Merger is consummated. Any holder of shares of Investors Common
Stock who intends to assert dissenters' rights must comply with the South
Carolina Dissenters' Rights Statute.
Under South Carolina law, only shareholders of Investors who are entitled
to vote on the Merger have the right to dissent from the Merger and obtain
payment of the fair value of such holder's shares of Investors Common Stock,
provided that the shareholder complies with the provisions of the South
Carolina Dissenters' Rights Statute. The South Carolina Dissenters' Rights
Statute contains detailed information as to a dissenting shareholder's right to
payment and the procedural steps to be followed by a dissenting shareholder.
The following description is only a summary of these provisions and is
qualified in its entirety by reference to the South Carolina Dissenters' Rights
Statute, a copy of which is attached to this Prospectus/Proxy Statement as
Appendix B and is incorporated herein by reference.
A vote cast in favor of approval of the Merger Agreement pursuant to the
proxy solicited hereby, however, will not constitute a waiver of a
shareholder's right to dissent, provided such shareholder complies with the
other requirements of the South Carolina Dissenters' Rights Statute.
If the Merger Agreement is approved by the required vote of Investors'
shareholders and is not terminated, each holder of shares of Investors Common
Stock who votes against the Merger Agreement or who fails to vote and who
follows the procedures set forth in the South Carolina Dissenters' Rights
Statute is entitled to demand payment of the fair value of such holder's
shares.
A shareholder electing to exercise such holder's dissenters' rights must
give notice to Investors before the vote on the Merger Agreement at the Special
Meeting of such holder's intent to demand payment for such holder's shares if
the Merger is effectuated. All notices of intent to demand payment should be
addressed to: Secretary, Investors Savings Bank of South Carolina, Inc., 132
West Cheves Street, Florence, South Carolina 29503. A beneficial shareholder
may assert dissenters' rights as to shares held on such holder's behalf by a
nominee only if
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such holder dissents with respect to all shares of which such holder is the
beneficial owner or over which such holder has the power to vote and such
holder notifies Investors in writing of the name and address of the record
holder of the shares, if known. A record shareholder may assert dissenters'
rights as to fewer than all the shares registered in such holder's name only if
such holder dissents with respect to all shares beneficially owned by any one
person and notifies Investors in writing of the name and address of each person
on whose behalf such holder asserts dissenters' rights. A dissenting
shareholder need not vote against the Merger Agreement in order to preserve
such holder's dissenters' rights after filing such holder's notice of dissent.
If the Merger is consummated, within ten days thereafter Peoples Federal
will deliver a written notice to all former Investors shareholders who notified
Investors in compliance with the South Carolina Dissenters' Rights Statute that
they intend to demand payment for their shares. Such notice will: (i) state
where the payment demand must be sent and where certificates representing
shares of Investors Common Stock must be deposited; (ii) 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 Merger and requires that the
person asserting dissenters' rights certify whether or not such holder acquired
beneficial ownership before that date; (iii) set a date by which Peoples
Federal must receive payment demand; and (iv) be accompanied by a copy of the
South Carolina Dissenters' Rights Statute.
A shareholder sent the notice described above must demand payment,
certify whether such holder acquired beneficial ownership of the shares before
the date set forth in the notice, and deposit his or her shares in accordance
with the terms of the notice. A shareholder who does not comply substantially
with the requirements that such holder demand payment and deposit such holder's
shares where required by the appropriate date is not entitled to payment for
such holder's shares.
After consummation of the Merger, or upon receipt of a payment demand,
Peoples Federal will pay each such dissenter the amount that Peoples Federal
estimates to be the fair value of such holder's shares, plus accrued interest.
Such payment will be accompanied by certain financial information regarding
Investors, an explanation of how the fair value and interest were calculated, a
statement of the dissenter's right to demand additional payment under the South
Carolina Dissenters' Rights Statute and a copy of the South Carolina
Dissenters' Rights Statute.
If a dissenter believes that the amount paid for such holder's shares is
less than the fair value of such holder's shares or that the interest due is
calculated incorrectly or if Peoples Federal fails to make or offer payment
within 60 days after the date set for demanding payment, the dissenter may
notify Peoples Federal in writing of such holder's own estimate of the fair
value of such holder's shares and amount of interest due and demand payment of
such holder's estimate (less any payment already received). A shareholder
waives the right to demand additional payment unless such demand is made in
writing within 30 days after Peoples Federal has made or offered payment for
such holder's shares. If Peoples Federal and the dissenter do not settle a
demand for additional payment within 60 days after receiving the demand,
Peoples Federal must commence a proceeding for judicial appraisal of the shares
or pay the amount demanded. The costs of a court-appointed appraiser will be
borne by Peoples Federal, unless the court finds that the dissenter acted
arbitrarily, vexatiously, or not in good faith in demanding additional payment
for his or her shares. The court also may assess the fees and expenses of
counsel and experts for one party against another under certain circumstances.
Because of the detailed provisions and requirements of the South Carolina
Dissenters' Rights Statute, each dissenting shareholder should consult with
such holder's own legal counsel concerning the procedures and remedies
available to such holder. Any failure to follow the detailed procedures set
forth in the South Carolina Dissenters' Rights Statute may result in a
shareholder losing his or her right to claim fair value as described herein.
AMENDMENT; WAIVER; TERMINATION
First Financial may elect to modify the structure of the Merger;
provided, however, that First Financial shall not have the right to make any
revision to the structure of the Merger which (i) changes the amount or kind of
the consideration which the Investors shareholders are entitled to receive,
(ii) adversely affects the tax treatment to
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Investors shareholders of receiving such consideration, or (iii) materially
alters the timing of the transaction. Prior to the Effective Date of the
Merger, any condition of the Merger Agreement may (to the extent allowed by
law) be waived in writing by the party benefitted by the provision or may be
amended or modified by an agreement in writing approved by the Boards of
Directors of First Financial and Investors. After approval of the Merger
Agreement by the shareholders of Investors, the Merger Agreement may not,
without further approval of such shareholders, be amended in any manner that
would decrease the consideration to be received by Investors shareholders in
exchange for their Investors Common Stock.
The Merger Agreement may be terminated at any time prior to the Effective
Date of the Merger, either before or after approval by the Investors
shareholders, as follows: (i) by the mutual consent of the parties; (ii) by
either party if the other party has committed a material breach that cannot be
or has not been cured within 30 days after the giving of written notice of such
breach; (iii) by either party if the Merger is not consummated by February 28,
1998; (iv) by either party if the shareholders of Investors fail to approve the
Merger Agreement or written notice is received which states that any required
regulatory approval has not been approved or has been denied; or (v) by First
Financial, if the First Financial Price is less than $24.00, or by Investors,
if the First Financial Price is greater than $33.00, if First Financial and
Investors have not agreed to an adjustment of the Exchange Ratio.
In the event of the valid termination of the Merger Agreement by either
First Financial or Investors, the obligations of the parties to the Merger
Agreement shall terminate, and there will be no liability on the part of either
party or their officers or directors except for liability for breach of the
Merger Agreement or for any misstatement or misrepresentation made prior to
such termination.
TERMINATION FEE
As a condition and inducement to First Financial's entering into the
Merger Agreement and in consideration thereof, Investors has agreed to pay to
First Financial a termination fee of $350,000 under certain circumstances.
Such fee may be demanded by First Financial in the event that the Merger is not
completed by December 25, 1998 and any of the following occurs: (i) a third
party acquires beneficial ownership of 25% or more of the then outstanding
Investors Common Stock; (ii) Investors, without the written consent of First
Financial, enters into or recommends to Investors shareholders an agreement
with a third party providing for certain actions (each an "Acquisition
Transaction"), including a merger or similar transaction involving Investors,
the purchase, acquisition or lease of substantially all of the assets of
Investors or the purchase or other acquisition of securities representing 10%
or more of the voting power of Investors; or (iii) a bona fide proposal to
engage in an Acquisition Transaction is made to Investors by a third party, and
after such proposal is made either Investors willfully breaches the Merger
Agreement and such breach entitles First Financial to terminate the Merger
Agreement, Investors shareholders fail to approve the Merger Agreement at the
Special Meeting, the Special Meeting is cancelled without the fault of First
Financial, or the Investors Board withdraws or modifies in a manner adverse to
First Financial its recommendation to shareholders to approve the Merger
Agreement.
Investors will not be required to pay the termination fee if, prior to
the occurrence of any of the events described above, Investors validly
terminates the Merger Agreement (i) with the mutual consent of First Financial,
(ii) because of a material breach by First Financial that cannot be or has not
been cured within 30 days after written notice of such breach (but only if at
such time as Investors exercises its right to terminate the Merger Agreement
First Financial is not entitled to terminate the Merger Agreement either
because of a material breach by Investors, because the Merger has not been
consummated by February 28, 1998 or because the shareholders of Investors
failed to approve the Merger Agreement or a required regulatory approval has
been denied) or (iii) because any regulatory authority has denied approval of
the Merger. The termination fee is intended to increase the likelihood that
the Merger will be consummated according to the terms set forth in the Merger
Agreement and may be expected to discourage competing offers to acquire
Investors from potential third party acquirors because the termination fee
could increase the cost of such acquisition. To the best of Investors's
knowledge, no event that would permit First Financial to demand payment of the
termination fee has occurred as of the date of this Prospectus/Proxy Statement.
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RESALE OF FIRST FINANCIAL COMMON STOCK
The shares of First Financial Common Stock to be issued to shareholders
of Investors upon consummation of the Merger have been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those shareholders not deemed to be "affiliates" of Investors or First
Financial as that term is defined in the rules under the Securities Act. First
Financial Common Stock received by those shareholders of Investors who are
deemed to be "affiliates" of Investors on the date of the Special Meeting may
be resold without registration only to the extent provided for by Rule 145, or
as otherwise permitted under the Securities Act. Persons who may be deemed to
be affiliates of Investors generally include individuals or entities that
control, are controlled by or are under common control with, Investors, and may
include the executive officers and directors of Investors and certain of their
affiliates as well as certain principal shareholders of Investors. In the
Merger Agreement, Investors has agreed to use its best efforts to cause each
person who may be deemed to be an affiliate of Investors to enter into an
agreement with First Financial providing that such affiliate will not sell,
transfer, or otherwise dispose of the shares of First Financial Common Stock to
be received by such person in the Merger except in compliance with the
applicable provisions of the Securities Act and the rules and regulations
promulgated thereunder. This Prospectus/Proxy Statement does not cover any
resales of First Financial Common Stock received by affiliates of Investors.
ACCOUNTING TREATMENT
It is expected that the pooling of interests method of accounting will be
used to reflect the Merger. As required by generally accepted accounting
principles, under pooling of interests accounting, as of the Effective Date of
the Merger, the assets and liabilities of Investors would be added to those of
First Financial at their recorded book values and the shareholders' equity
accounts of First Financial and Investors would be combined on First
Financial's consolidated balance sheet. On a pooling of interests accounting
basis, income and other financial statements of First Financial issued after
consummation of the Merger would be restated retroactively to reflect the
consolidated combined financial position and results of operations of First
Financial and Investors as if the Merger had taken place prior to the periods
covered by such financial statements. In order for the Merger to qualify for
pooling of interests accounting treatment, among other things, substantially
all (90% or more) of the outstanding Investors Common Stock must be exchanged
for First Financial Common Stock.
EXPENSES
The Merger Agreement provides that First Financial and Investors each
will pay their own expenses in connection with the Merger Agreement and the
transactions contemplated thereby.
BUSINESS OF THE PARTIES TO THE MERGER
FIRST FINANCIAL
First Financial was incorporated in the State of Delaware on September 3,
1987, for the purpose of becoming a savings and loan holding company for First
Federal. On January 27, 1988, the shareholders of First Federal approved the
reorganization of First Federal into the holding company form of ownership.
The reorganization was completed on June 30, 1988, on which date First Federal
became the wholly-owned subsidiary of First Financial. Prior to completion of
the reorganization, First Financial had no assets or liabilities and engaged in
no business activities. Subsequent to the holding company reorganization,
First Financial has not engaged in any significant activity other than holding
the stock of First Federal and Peoples Federal and certain passive investment
activities.
On October 9, 1992, First Financial consummated the acquisition of
Peoples Federal upon the voluntary supervisory conversion of Peoples Federal
from a federal mutual to a federal stock savings and loan association,
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resulting in Peoples Federal being held as a wholly-owned subsidiary of First
Financial. As a result of the acquisition of Peoples Federal, First Financial
became a multiple savings and loan holding company for First Federal and
Peoples Federal (together, the "Associations").
First Federal, chartered in 1934, is the largest financial institution
headquartered in the Charleston, South Carolina metropolitan area and the
second largest thrift institution in South Carolina. First Federal is a
federally-chartered stock savings and loan association that conducts its
business through its home office in the city's historic district, 21 branch
offices in the three surrounding counties, two full-service offices in
Georgetown, South Carolina and a private banking office in Hilton Head, South
Carolina.
Peoples Federal was chartered in 1914 and is a federal stock savings and
loan association headquartered in Conway, South Carolina. Peoples Federal is
the result of a merger of Peoples Federal of Conway and Peoples Federal of
Florence in 1982. Peoples Federal conducts its business through ten branch
offices, a loan production office in Sunset Beach, North Carolina and its main
office in Conway. Branches are located in the Myrtle Beach/Grand Strand area
(4), Florence (3), Conway (2) and Loris (1).
First Federal and Peoples Federal are members of the Federal Home Loan
Bank ("FHLB") System and their savings deposits are insured by the FDIC under
the Savings Association Insurance Fund up to applicable limits and are subject
to comprehensive regulation, examination and supervision by the OTS and the
FDIC.
The business of the Associations consists primarily of acting as
financial intermediaries by attracting savings deposits from the general public
and originating first mortgage loans on residential properties located in the
Associations' primary market areas. The Associations also make construction
and consumer and other non-mortgage loans and invest in mortgage-backed
securities, federal government and agency obligations, money market obligations
and certain corporate obligations.
Financial and other information relating to First Financial is set forth
in First Financial's Annual Report on Form 10-K for the year ended September
30, 1996, and Quarterly Reports on Form 10-Q for the quarters ended December
31, 1996, March 31, 1997 and June 30, 1997, copies of which may be obtained
from First Financial as indicated under "AVAILABLE INFORMATION" on page (ii)
hereof.
INVESTORS
General. Investors conducts a general savings association business under
a state charter approved by the Board of Financial Institutions and granted by
the Secretary of State of South Carolina on July 25, 1984. Its business
primarily consists of accepting savings deposits and originating first mortgage
loans on single-family residential properties and commercial business and
consumer loans, primarily on a secured basis. Mortgage loans are primarily
made for resale in the secondary market and most are at fixed rates. Investors
seeks savings deposits and transaction accounts from households and businesses
in its primary market area by offering a full range of savings accounts,
individual retirement accounts, checking accounts, money market accounts, and
time certificates of deposit. Investors conducts its activities from its main
office and one branch located in Florence, South Carolina.
Market Area and Competition. Competition among commercial banks and
thrift institutions (savings and loan associations) and credit unions has
intensified significantly as a result of the elimination of many previous
distinctions between the various types of financial institutions, and the
expanded powers and increased activity of thrift institutions in areas of
banking that previously had been the sole domain of commercial banks. Recent
legislation, together with other regulatory changes by the primary regulators
of the various financial institutions, has resulted in the elimination of many
distinctions between a commercial bank and thrift institution. Consequently,
competition among financial institutions of all types is virtually unlimited
with respect to legal authority to provide most financial services.
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Investors competes in the South Carolina County of Florence, for which
the most recent market share data available is as of June 30, 1996. At that
time, in Florence County, 27 banks, savings and loans, credit unions, and
savings banks with 46 branch locations competed for aggregate deposits of
approximately $1.2 billion. Investors had two offices in Florence County, its
main office and its branch office, with approximately $50 million in deposits,
for a county-wide deposit market share of 4.19% and a market share rank of
ninth out of the 24 competitors.
Savings associations generally compete with other financial institutions
through the savings products and services offered, the pricing of services, the
level of service provided, the convenience and availability of services, and
the degree of expertise and personal concern with which services are offered.
In the conduct of certain areas of its business, Investors competes with
commercial banks, credit unions, consumer finance companies, insurance
companies, money market mutual funds and other financial institutions, some of
which are not subject to the same degree of regulation and restriction imposed
upon Investors. Many of these competitors have substantially greater resources
and lending limits than Investors and offer certain services, such as
international banking services and trust services, that Investors does not
provide. Moreover, most of these competitors have more branch offices located
throughout their market areas than does Investors.
The savings and loan industry is significantly affected by prevailing
economic conditions as well as by government policies and regulations
concerning, among other things, monetary and fiscal affairs, the housing
industry and financial institutions. Deposits at savings institutions are
influenced by a number of economic factors, including interest rates, competing
investments, levels of personal income and savings, and the extent to which
interest on retirement savings accounts is tax deferred. Lending activities
are also influenced by a number of economic factors, including demand for and
supply of housing, conditions in the construction industry, and availability of
funds. Primary sources of funds for lending activities include savings
deposits, income from investments, loan principal repayments, proceeds from
sales of loans to conventional participating lenders, and the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation.
Properties. Investors owns the real property at 132 West Cheves Street,
Florence, South Carolina, where its main offices are located, and it leases
parking lots adjacent to the main offices and the property at 108 Pamplico
Highway, Florence, South Carolina where its branch is located. The parking lot
leases expire in 2013. The branch office lease expires in 2011, with a right
to renew for an additional ten years. The net book value of the Cheves Street
property is $545,236. Management of Investors believes that both of Investors'
offices are suitable and adequate for the business of Investors.
Employees. At June 30, 1997, Investors employed 19 persons on a
full-time basis.
Legal Proceedings. Investors is from time to time engaged in routine
litigation in the ordinary course of its business, but is not presently engaged
in any litigation that is expected to have a material adverse effect on
Investors' business or results of operations. There are no material
proceedings known to Investors, pending or contemplated, in which any director,
officer or affiliate of Investors or any holder of 5% or more of Investors'
outstanding stock, or any associate of any of the foregoing, is a party or has
an interest adverse to Investors.
Market for Common Stock and Dividends. Although the Investors Common
Stock is traded from time to time on an individual basis, no established
trading market has developed and none is expected to develop in the foreseeable
future. The Investors Common Stock is not listed on The Nasdaq Stock Market,
nor is it quoted by the National Quotation Bureau, Inc., nor are there any
market makers known to Investors' management.
Management is aware of transactions in the Investors Common Stock at
prices ranging from $25.00 to $29.00 per share to date since June 30, 1996.
Such trades may not be indicative of the market value of the Investors Common
Stock.
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On the Record Date, there were approximately 325 holders of record of
Investors Common Stock, excluding individual participants in security position
listings. There are outstanding options to purchase a total of 28,685 shares of
Investors Common Stock.
Investors paid cash dividends $.375 per share in 1995, $.45 per share in
1996 and $.25 per share (through August 5) in 1997. South Carolina and federal
banking regulations restrict the amount of dividends that Investors can pay to
shareholders, and all of Investors' dividends to shareholders are subject to
the prior approval of the South Carolina Commissioner of Banking.
Financial and other information relating to Investors is set forth in
Appendix D.
VOTING SECURITIES OF INVESTORS AND PRINCIPAL HOLDERS THEREOF
The following table sets forth, as of the Record Date, information as to
the shares of Investors Common Stock beneficially owned by each person who, to
the knowledge of Investors, is the owner of more than 5% of the outstanding
shares of Investors Common Stock, by each director of Investors, by the Chief
Executive Officer of Investors, and by all executive officers and directors of
Investors as a group.
Number of Shares Percent of Shares
Name Beneficially Owned Outstanding
- ---- ------------------ -----------
BENEFICIAL OWNERS OF MORE THAN 5%
Robert P. Schofield, Jr.
Box 679
Georgetown, South Carolina 24,255 9.31%
DIRECTORS
C. B. Askins, Jr. 3,530 1.35
James P. Barnes 1,818 .70
Joseph D. Carson 18,896(1) 6.97
132 West Cheves Street
Florence, South Carolina
Maitland S. Chase, III 978 .38
Vance Gandy, Jr. 4,714 1.81
Roy E. Hudgens 2,545 .98
Walter N. Lawson 1,212 .47
Thomas E. Rogers, Jr. 8,609 3.30
Mary Rigby Sanders 6,063 2.33
A. P. Skinner, III 10,711(2) 4.01
All directors and executive
officers as a group (10 persons) 59,076(3) 21.28
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(1) Includes options to purchase 10,407 shares.
(2) Includes options to purchase 6,626 shares.
(3) Includes options to purchase 17,033 shares.
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DESCRIPTION OF FIRST FINANCIAL CAPITAL STOCK
First Financial is authorized to issue 12,000,000 shares of Common
Stock, $0.01 par value per share, and 3,000,000 shares of preferred stock, par
value $0.01 per share. At June 30, 1997, 6,356,788 shares of First Financial
Common Stock were issued and outstanding. First Financial Common Stock is
listed for trading on the Nasdaq National Market under the symbol "FFCH." Each
share of First Financial Common Stock has the same relative rights and is
identical in all respects with every other share of First Financial Common
stock. The following summary does not purport to be a complete description of
the applicable provisions of the First Financial Certificate of Incorporation
and Bylaws or of applicable statutory or other law, and is qualified in its
entirety by reference thereto. See "AVAILABLE INFORMATION."
COMMON STOCK
Voting Rights. The holders of First Financial Common Stock possess
exclusive voting rights in First Financial. Each holder of First Financial
Common Stock is entitled to one vote for each share held of record on all
matters submitted to a vote of holders of First Financial Common Stock.
Holders of shares of First Financial Common Stock are not entitled to cumulate
votes for the election of directors.
Dividends. The holders of First Financial Common Stock are entitled to
such dividends as the First Financial Board may declare from time to time out
of funds legally available therefor. Dividends from First Financial depend
upon the receipt by First Financial of dividends from its subsidiaries because
First Financial has no source of income other than dividends from its
subsidiaries.
Liquidation. In the event of liquidation, dissolution or winding up of
First Financial, the holders of shares of First Financial Common Stock are
entitled to share ratably in all assets remaining after payment of all debts
and other liabilities of First Financial.
Other Characteristics. Holders of First Financial Common Stock do not
have any preemptive, conversion or other subscription rights with respect to
any additional shares of First Financial Common Stock which may be issued.
Therefore, the Board of Directors of First Financial may authorize the issuance
and sale of shares of common stock of First Financial without first offering
them to existing shareholders of First Financial. First Financial Common Stock
is not subject to any redemption or sinking fund provisions. The outstanding
shares of First Financial Common Stock are, and the shares to be issued in the
Merger will be, fully paid and non-assessable.
PREFERRED STOCK
First Financial's Certificate of Incorporation authorizes the Board of
Directors of First Financial to issue from time to time one or more series of
preferred stock with such designations and preferences, relative,
participating, optional and other special rights and qualifications,
limitations and restrictions thereon, as permitted by law and as fixed from
time to time by resolution of the Board of Directors. Because of its broad
discretion with respect to the creation and issuance of any series of preferred
stock without shareholder approval, the Board of Directors could adversely
affect the voting power of the holders of common stock, and by issuing shares
of preferred stock with certain voting, conversion and/or redemption rights,
could discourage any attempt to obtain control of First Financial in any
transaction not approved by the Board of Directors of First Financial.
COMPARISON OF SHAREHOLDERS' RIGHTS
First Financial is incorporated under the laws of the State of Delaware
and, accordingly, the rights of First Financial's shareholders are governed by
First Financial's Certificate of Incorporation, Bylaws and the DGCL. Investors
is incorporated under the laws of the State of South Carolina and, accordingly,
the rights of Investors' shareholders are governed by Investors' Articles of
Incorporation, Bylaws, the South Carolina Savings Association Act and the South
Carolina BCA.
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Upon consummation of the Merger, shareholders of Investors will become
shareholders of First Financial, and, as such, their rights will be governed by
First Financial's Certificate of Incorporation, Bylaws and the DGCL. The
following is a summary of material differences between the rights of a First
Financial shareholder under First Financial's Certificate of Incorporation and
Bylaws and under the DGCL, on the one hand, and the rights of an Investors
shareholder under Investors' Articles of Incorporation and Bylaws, the South
Carolina Savings Association Act and the South Carolina BCA, on the other hand.
This discussion is not intended to be a complete statement of the differences
affecting the rights of shareholders and is qualified in its entirety by
reference to the governing law and the certificate or articles of incorporation
and bylaws of each corporation.
PAYMENT OF DIVIDENDS
First Financial. Under Delaware law, dividends may be paid either out
of surplus (defined as the excess of the net assets of the corporation over the
stated capital of the corporation) or, if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year.
Investors. Under South Carolina law, dividends may be paid only if,
after giving effect to the dividend: (a) Investors will be able to pay its
debts as they become due in the ordinary course of business and Investors'
total assets will not be less than the sum of its total liabilities plus the
amount that would be needed, if Investors were to be dissolved at the time of
the dividend, to satisfy the preferential rights of persons whose right to
payment is superior to those receiving the dividend; and (b) Investors will
meet minimum requirements for reserves. Payment of cash dividends by Investors
is subject to the approval of the Board of Financial Institutions.
SIZE OF BOARD OF DIRECTORS
First Financial. First Financial's Certificate of Incorporation
provides that its Board of Directors shall consist of not less than seven nor
more than 15 members, with the current number set at ten by the Bylaws of First
Financial. The Bylaws of First Financial provide that the Board of Directors
may change the authorized number of directors within the stated range. Changes
in the size of the range may be made by an amendment to First Financial's
Certificate of Incorporation, which must be approved by at least 80% of the
outstanding shares entitled to vote. The effect of such provisions may be to
make it difficult for a person or entity immediately to acquire control of
First Financial through an increase in the number of First Financial's
directors and election of such person's or entity's nominees to fill the newly
created vacancies.
Investors. South Carolina law provides that the Investors Board shall
consist of not less than five members. The exact number of members, which is
currently set at ten, may be fixed by the directors or the shareholders.
CLASSIFIED BOARD OF DIRECTORS
First Financial. First Financial's Certificate of Incorporation
provides for a Board of Directors divided into three classes, with members of
each class of directors being elected for a term of three years. A classified
board is one in which a certain number, but not all, of the directors are
elected on a rotating basis each year. This method of electing directors makes
a change in the composition of the Board of Directors, and a potential change
in control of a corporation, a lengthier and more difficult process. Since the
terms of only one-third of the incumbent directors expire each year, it
requires at least two annual elections for the shareholders to change a
majority of the directors. In the absence of the provisions of the Certificate
of Incorporation classifying the Board, all of the directors would be elected
each year.
Investors. Investors' directors are elected annually for a term of one
year.
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CUMULATIVE VOTING
First Financial. First Financial's Certificate of Incorporation
eliminates cumulative voting. Cumulative voting entitles each shareholder to
cast a number of votes in the election of directors equal to the number of such
shareholder's shares of common stock multiplied by the number of directors to
be elected and to distribute such votes among one or more of the nominees to be
elected. The absence of cumulative voting rights limits the ability of
minority shareholders to obtain representation on the First Financial Board.
Investors. Shareholders of Investors have a right to cumulate their
votes for directors.
REMOVAL OF DIRECTORS
First Financial. First Financial's Certificate of Incorporation
provides that at a meeting of shareholders called expressly for that purpose,
any director or the entire Board of Directors may be removed by a vote of the
holders of at least 80% of the shares then entitled to vote at such meeting.
The requirement that directors may be removed only upon an 80% vote makes it
difficult for a person or entity immediately to acquire control of the First
Financial Board through the removal of existing directors and the election of
such person's or entity's nominees to fill the newly created vacancies.
Investors. South Carolina law provides that any director or directors
may be removed with or without cause at any time by the affirmative vote of the
holders of a majority of all the outstanding shares of voting stock entitled to
vote at election of directors or by the affirmative vote of two-thirds of the
directors other than the director who is named in the removal action.
VACANCIES ON THE BOARD OF DIRECTORS
First Financial. The Certificate of Incorporation of First Financial
provides that any vacancy on the Board of Directors may be filled by the
affirmative vote of two-thirds of the remaining directors, and any director so
appointed is to hold office for a term expiring at the annual meeting of
shareholders at which the term of the class to which the director has been
chosen expires.
Investors. Investors' Bylaws provide that vacancies created by the
removal of directors may be filled by election of directors at the meeting at
which directors were removed. A vacancy created by an increase in the size of
the Board of Directors may be filled by the shareholders or the Board of
Directors.
SPECIAL MEETINGS OF SHAREHOLDERS AND ACTION WITHOUT A MEETING
First Financial. The Certificate of Incorporation of First Financial
provides that special meetings of shareholders may be called only by the board
of directors. This restriction on the calling of special shareholders'
meetings may deter hostile takeovers of First Financial by making it more
difficult for a person or entity to obtain immediate control of First Financial
between one annual meeting and the next. Pursuant to First Financial's
Certificate of Incorporation, the power of shareholders to take action by
written consent is denied.
Investors. The Bylaws of Investors provides that special meetings of
shareholders may be called by the President, a majority of the Board of
Directors or shareholders of record holding not less than 10% of the
outstanding shares of Investors Common Stock entitled to vote. Any action that
may be taken by shareholders may be taken without a meeting if a consent in
writing is signed by all of the holders of outstanding stock entitled to vote
thereon.
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ADVANCE NOTICE REQUIREMENTS FOR NOMINATIONS OF DIRECTORS AND PRESENTATION OF
NEW BUSINESS AT MEETINGS OF SHAREHOLDERS
First Financial. The Certificate of Incorporation of First Financial
generally provides that any shareholder desiring to make a nomination for the
election of directors or a proposal for new business at a meeting of
shareholders must submit written notice to First Financial at least 30 days and
not more than 60 days in advance of the meeting, together with certain
information relating to the nomination or new business. Failure to comply with
these advance notice requirements will preclude such nominations or new
business from being considered at the meeting. Management believes that it is
in the best interests of First Financial and its shareholders to provide
sufficient time to enable management to disclose to shareholders information
about a dissident slate of nominations for directors. This advance notice
requirement may also give management time to solicit its own proxies in an
attempt to defeat any dissident slate of nominations, should management
determine that doing so is in the best interest of shareholders generally.
Similarly, adequate advance notice of shareholder proposals will give
management time to study such proposals and to determine whether to recommend
to the shareholders that such proposals be adopted. In certain instances, such
provisions could make it more difficult to oppose management's nominees or
proposals, even if shareholders believe such nominees or proposals are in their
best interests.
Investors. Investors' Bylaws provide that nominations by shareholders
may be made if they are delivered in writing to the Secretary of Investors at
least ten days prior to the date of the pertinent meeting of shareholders.
APPROVAL OF MERGERS, CONSOLIDATIONS, SALE OF SUBSTANTIALLY ALL ASSETS AND
DISSOLUTION
First Financial. First Financial's Certificate of Incorporation
requires the approval of the holders of (i) at least 80% of First Financial's
outstanding shares of voting stock, and (ii) at least a majority of First
Financial's outstanding shares of voting stock, not including shares held by a
"Related Person," to approve certain "Business Combinations," except in cases
where the proposed transaction has been approved in advance by a majority of
those members of the First Financial Board who were directors prior to the time
when the Related Person became a Related Person. In the event the requisite
approval of the Board were given, the normal vote requirement of applicable
Delaware law would apply, or, for certain transactions, no shareholder vote
would be necessary. The term "Related Person" is defined to include any
individual, corporation, partnership or other entity which owns beneficially or
controls, directly or indirectly, 15% or more of the outstanding shares of
voting stock of First Financial. These provisions apply to any "Business
Combination" which is defined to include among other things: (i) any merger,
reorganization, or consolidation of First Financial or any of its affiliates
with or into any Related Person; (ii) any sale, lease, exchange, mortgage,
transfer, or other disposition of all or a substantial part of the assets of
First Financial or any of its affiliates to any Related Person (the term
"substantial part" is defined to include more than 25% of First Financial's
total assets); (iii) any sale, lease, exchange, or other transfer by any
Related Person to First Financial of any assets, cash or securities in exchange
for shares of First Financial's voting stock; (iv) the acquisition by First
Financial of any securities of the Related Person; (v) any reclassification of
First Financial Common Stock; and (vi) any agreement, contract or other
arrangement providing for any of the transactions described above. The
increased shareholder vote required to approve a Business Combination may have
the effect of foreclosing mergers and other business combinations which a
majority of shareholders deem desirable and place the power to prevent such a
merger or combination in the hands of a minority of shareholders.
Under Delaware law, absent this provision, business combinations,
including mergers, consolidations and sales of substantially all of the assets
of a corporation must, subject to certain exceptions, be approved by the vote
of the holders of a majority of the outstanding shares of common stock of the
corporation and any other affected class of stock. One exception under
Delaware law to the majority approval requirement applies to shareholders
owning 15% or more of the common stock of a corporation for a period of less
than three years. Such 15% shareholder, in order to obtain approval of a
business combination, must obtain the approval of two-thirds of the outstanding
stock, excluding the stock owned by such 15% shareholder, or satisfy other
requirements under Delaware law relating to board of director approval of his
or her acquisition of the shares of the corporation.
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First Financial's Articles of Incorporation require First Financial's
Board of Directors to consider certain factors in addition to the amount of
consideration to be paid when evaluating certain business combinations or a
tender or exchange offer. These additional factors include: (i) the social
and economic effects of the transaction; (ii) the business and financial
condition and earnings prospects of the acquiring person or entity; and (iii)
the competence, experience, and integrity of the acquiring person or entity and
its management.
Investors. Under South Carolina law, any plan of merger or share
exchange involving Investors would require adoption by the Investors Board, who
would generally be required to recommend its approval to the shareholders, who
in turn would be required to approve the plan by a vote of two-thirds of the
outstanding shares. Any sale, lease, exchange or other disposition of all or
substantially all of Investors' assets not made in the usual and regular course
of business would generally require that the Investors Board recommend the
proposed transaction to the shareholders who would be required to approve the
transaction by a vote of two-thirds of the outstanding shares. The transaction
would also have to be approved by the Board of Financial Institutions.
DISSENTERS' APPRAISAL RIGHTS
First Financial. Under the DGCL, appraisal rights are available for the
shares of any class or series of stock of a corporation that is a party to a
merger or consolidation, other than a merger of a parent corporation and a 90%
or more owned subsidiary. However, shareholders generally will not have
appraisal rights if the corporation's stock is listed on a national securities
exchange or the Nasdaq National Market or is held of record by more than 2,000
holders, or if shareholder approval is not required by the DGCL for the
corporate action. Shareholders of First Financial do not have appraisal rights
in connection with the Merger.
Investors. South Carolina law generally provides dissenters' rights for
mergers and certain share exchanges that would require shareholder approval,
sales of all or substantially all of the assets (other than sales that are in
the usual and regular course of business and certain liquidations and
court-ordered sales), certain amendments to the articles of incorporation and
any corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or a resolution of the Board of Directors
entitles shareholders to dissent. Shareholders of Investors have dissenters'
rights in connection with the Merger. See "THE MERGER -- Dissenters' Rights."
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND LIMITATION OF LIABILITY
First Financial. Pursuant to First Financial's Certificate of
Incorporation, First Financial will indemnify the officers, directors and
employees of First Financial for expenses, settlements, judgments and fines in
suits which are not shareholders' derivative suits if the person is successful
on the merits or if he or she acted in good faith, in a manner reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and in the case of a criminal suit if he or she had no reasonable cause to
believe his or her conduct was unlawful. In the case of a shareholders'
derivative suit First Financial will indemnify any of the aforementioned
persons for expenses if such person is successful on the merits or otherwise or
if he or she acted in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of First Financial, but no such
indemnification may be given if the person is judged liable for negligence or
misconduct in the performance of his or her duty to First Financial, unless the
court determines the person is fairly and reasonably entitled to
indemnification. In addition, First Financial's Certificate of Incorporation
provides that the directors of First Financial shall not be personally liable
for monetary damages to First Financial for certain breaches of their fiduciary
duty as directors, except for liabilities that involve a breach of the
director's duty of loyalty to First Financial or its shareholders, actions not
in good faith, intentional misconduct or a knowing violation of law by the
director, the authorization of illegal distributions or receipt of an improper
personal benefit from their actions as directors. This provision might, in
certain instances, discourage or deter shareholders or management from bringing
a lawsuit against directors for a breach of their duties even though such an
action, if successful, might have benefitted First Financial.
Investors. Investors' Bylaws provide that Investors shall indemnify
every person who is serving or has served as an officer, director, employee or
agent of Investors or, at its request, of any other corporation of which
Investors is a shareholder or creditor and from which such person is not
entitled to be indemnified, in the manner
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and to the full extent permitted by South Carolina law and the rules and
regulations of any supervisory authority that has jurisdiction over Investors.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
First Financial. First Financial's Certificate of Incorporation may be
amended by the vote of the holders of a majority of the outstanding shares of
First Financial Common Stock, except that the provisions of the Certificate of
Incorporation governing (i) meetings of shareholders and cumulative voting,
(ii) notice requirements for nominations and proposals, (iii) the number,
filling of vacancies and staggered terms of directors, (iv) removal of
directors, (v) approval of certain business combinations, (vi) evaluation of
business combinations, (vii) indemnification of officers and directors, (viii)
elimination of directors' liability, (ix) amendments to bylaws, and (xi) the
manner of amending the Certificate of Incorporation may not be repealed,
altered, amended or rescinded except by the vote of the holders of at least 80%
of the outstanding shares of First Financial. This requirement exceeds the
majority vote of the outstanding stock that would otherwise be required by
Delaware law for the repeal or amendment of any provision of the Certificate of
Incorporation. The Bylaws of First Financial may be amended by a majority vote
of the Board of Directors or by the holders of at least 80% of the outstanding
shares of First Financial. This provision is intended to prevent the holders
of less than 80% of the outstanding stock of First Financial from circumventing
any of the foregoing provisions by amending the Certificate of Incorporation to
delete or modify one of such provisions. This provision would enable the
holders of more than 20% of First Financial's voting stock to prevent
amendments to First Financial's Certificate of Incorporation or Bylaws even if
they were favored by the holders of a majority of the voting stock.
Investors. Under South Carolina law, an amendment to Investors'
Articles of Incorporation generally requires the recommendation of the Board of
Directors and the approval of two-thirds of the votes entitled to be cast on
the amendment as well as approval of the amendment by the Board of Financial
Institutions. The Bylaws of Investors may be amended by majority vote of the
directors, provided that such amendment shall not conflict with Bylaws adopted
by the shareholders.
CERTAIN INFORMATION CONCERNING FIRST FINANCIAL
Information regarding the names, ages, positions and business backgrounds
of the executive officers and directors of First Financial, as well as
additional information, including executive compensation, security ownership of
certain beneficial owners and management and certain relationships and related
transactions, is incorporated by reference to First Financial's Annual Report
on Form 10-K for the year ended September 30, 1996 (which incorporates portions
of First Financial's Proxy Statement dated December 18, 1996). See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders desiring copies
of such documents may contact First Financial as indicated under "AVAILABLE
INFORMATION."
LEGAL OPINIONS
The validity of the First Financial Common Stock to be issued in the
Merger is being passed upon for First Financial by Breyer & Aguggia,
Washington, D.C. Breyer & Aguggia will deliver an opinion concerning certain
federal income tax consequences of the Merger.
EXPERTS
The consolidated financial statements of First Financial Corporation and
subsidiaries as of September 30, 1996 and 1995, and for each of the years in
the three-year period ended September 30, 1996, have been incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public
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accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of Investors as of December 31, 1996 and 1995
and for each of the three years in the period ended December 31, 1996, have
been included in this Prospectus/Proxy Statement, in reliance upon the report
of Webster, Rogers, West, Berry & Grady, LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
OTHER MATTERS
The Investors Board is not aware of any business to come before the
Investors Special Meeting other than those matters described above in this
Prospectus/Proxy Statement. However, if any other matters should properly come
before the Investors Special Meeting, it is intended that proxies in the
accompanying form will be voted in respect thereof in accordance with the
judgment of the person or persons voting the proxies.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 25th day of June 1997 (this
"Agreement"), by and among FIRST FINANCIAL HOLDINGS, INC. (the "Company"),
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA ("Peoples
Federal") and INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC. ("Investors").
RECITALS:
(A) THE COMPANY. The Company is a corporation duly organized and
existing in good standing under the laws of the State of Delaware, with its
principal executive offices located in Charleston, South Carolina. As of the
date hereof, the Company has 12,000,000 authorized shares of common stock of
$.01 par value per share ("Company Common Stock") and 3,000,000 shares of
preferred stock of $.01 par value per share ("Company Preferred Stock") (no
other class of capital stock being authorized), of which 7,010,958 shares of
Company Common Stock and no shares of Company Preferred Stock are issued and
outstanding as of March 31, 1997.
(B) PEOPLES FEDERAL. Peoples Federal is a savings and loan association
duly organized and existing in good standing under the laws of the United
States, with its principal executive offices located in Conway, South Carolina.
As of the date hereof, Peoples Federal has 10,000 authorized shares of common
stock of $1.00 par value per share ("Peoples Federal Common Stock") (no other
class of capital stock being authorized), of which 10,000 shares of Peoples
Federal Common Stock and no shares of Peoples Federal Preferred Stock are
issued and outstanding. All of the issued and outstanding shares of Peoples
Federal Common Stock are owned by the Company.
(C) INVESTORS. Investors is a savings association duly organized and
existing in good standing under the laws of the State of South Carolina, with
its principal executive offices located in Florence, South Carolina. As of the
date hereof, Investors has 500,000 authorized shares of common stock of $5.00
par value per share ("Investors Common Stock") (no other class of capital stock
being authorized), of which 260,588 shares of Investors Common Stock are issued
and outstanding. As of the date hereof, Investors had 54,574 shares of
Investors Common Stock reserved for issuance under employee and director stock
option plans pursuant to which options covering 28,685 shares of Investors
Common Stock are outstanding as of the date hereof.
(D) VOTING AGREEMENTS. As a condition and an inducement to the
Company's willingness to enter into this Agreement, C.B. Askins, Jr., James P.
Barnes, Joseph D. Carson, Maitland S. Chase, III, Vance Gandy, Jr., Dr. Roy E.
Hudgens, Walter N. Lawson, Thomas E. Rogers, Jr., Mary R. Sanders and A.P.
Skinner, III each has entered into an agreement with the Company pursuant to
which, among other things, each has agreed to vote in favor of approval of the
transactions contemplated by this Agreement at the Meeting (as hereinafter
defined).
(E) RIGHTS, ETC. Except as Previously Disclosed in Schedule 4.01(C),
there are no other shares of capital stock of Investors authorized and reserved
for issuance and Investors does not have any Rights (as defined below) issued
or outstanding or any commitment to authorize, issue or sell any such shares or
any Rights. The term "Rights" means securities or obligations convertible into
or exchangeable for, or giving any person any right to subscribe for or
acquire, or any options, calls or commitments relating to, shares of capital
stock. There are no preemptive rights in respect of Investors Common Stock.
(F) INTENTION OF THE PARTIES. It is the intention of the parties to this
Agreement that the Merger (as defined in Section 1.01) shall (i) be accounted
for as a "pooling of interests" under generally accepted accounting principles
and (ii) qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
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(G) APPROVALS. The Boards of Directors of Investors, Peoples Federal and
the Company have approved, at meetings of each of such Boards of Directors,
this Agreement and have authorized the execution hereof in counterparts.
In consideration of their mutual promises and obligations, the parties
hereto adopt and make this Agreement and prescribe the terms and conditions
thereof and the manner and basis of carrying it into effect, which shall be as
follows:
I. THE MERGER
1.01. THE MERGER. Subject to the provisions of this Agreement,
including the Plan of Merger attached hereto as Exhibit A, at the Effective
Time (as hereinafter defined):
(A) THE CONTINUING CORPORATION. Investors shall be merged into Peoples
Federal, a wholly-owned subsidiary of the Company pursuant to the terms and
conditions set forth herein and pursuant to the Plan of Merger attached hereto
as Exhibit A (the "Merger"). Upon consummation of the Merger, the separate
existence of Investors shall cease and Peoples Federal (the "Continuing
Corporation") shall survive.
(B) RIGHTS, ETC. The Continuing Corporation shall thereupon and
thereafter possess all of the rights, privileges, immunities and franchises, of
a public as well as of a private nature, of each of the merging corporations;
and all property, real, personal and mixed, and all debts due on whatever
account, and all other chooses in action, and all and every other interest, of
or belonging to or due to each of the corporations so merged, shall be deemed
to be vested in the Continuing Corporation without further act or deed; and the
title to any real estate or any interest therein, vested in each of such
corporations, shall not revert or be in any way impaired by reason of the
Merger.
(C) LIABILITIES. The Continuing Corporation shall thenceforth be
responsible and liable for all the liabilities, obligations and penalties of
each of the corporations so merged, in accordance with applicable law.
(D) CHARTER; BYLAWS; DIRECTORS; OFFICERS. The Charter and Bylaws of the
Continuing Corporation shall be those of Peoples Federal, as in effect
immediately prior to the Effective Time. The directors and officers of Peoples
Federal in office immediately prior to the Effective Time shall be the
directors and officers of the Continuing Corporation, together with such
additional directors and officers as may thereafter be elected, who shall hold
office until such time as their successors are elected and qualified.
1.02. EFFECTIVE DATE. Subject to the conditions to the obligations of
the parties to effect the Merger as set forth in Article VI, the effective date
(the "Effective Date") of the Merger shall be such date as the Company shall
notify Investors in writing not less than five days prior thereto, which date
shall not be more than 30 days after such conditions have been satisfied or
waived in writing. Prior to the Effective Date, the Company and Investors
shall execute and deliver to the Office of Thrift Supervision ("OTS") and the
Secretary of State of the State of South Carolina, Articles of Merger in
accordance with applicable law. The time on the Effective Date at which the
Merger becomes effective is referred to as the "Effective Time."
II. CONSIDERATION
2.01. MERGER CONSIDERATION. Subject to the provisions of this Agreement,
at the Effective Time:
(A) OUTSTANDING PEOPLES FEDERAL COMMON STOCK. The shares of common stock
of Peoples Federal issued and outstanding immediately prior to the Effective
Time shall, on and after the Effective Time, remain as issued and outstanding
shares of common stock of Peoples Federal.
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(B) OUTSTANDING INVESTORS COMMON STOCK. Each share of Investors Common
Stock issued and outstanding immediately prior to the Effective Time shall
become and be converted into the right to receive a number of shares of Company
Common Stock equal to the Exchange Ratio (as defined below).
The "Exchange Ratio" shall be equal (rounded to the nearest hundredth) to
the result obtained by dividing $45.00 by the Final Company Price subject to
the provisions of Section 7.06 hereof. The "Final Company Price" shall be the
average last price per share of Company Common Stock as reported in The Wall
Street Journal for each of the ten trading days immediately preceding the
Effective Date. In the event the Company Common Stock does not trade on one or
more of the trading days in such period, any such date shall be disregarded in
computing the average last price per share and the average shall be based upon
the last price per share and number of days on which the Company Common Stock
actually traded during such period.
Notwithstanding any other provision of this Agreement, shares of
Investors Common Stock with respect to which dissenters' rights have been
perfected in accordance with Section 33-13-200 through Section 33-13-280 of the
South Carolina Business Corporation Act, as amended (the "SCBCA") ("Dissenters'
Shares") and shares of Investors Common Stock held by Investors or by the
Company or any of its Subsidiaries, in each case other than in a fiduciary
capacity or as a result of debts previously contracted (together with
Dissenters' Shares, "Excluded Shares") shall, by virtue of the Merger, be
canceled without any conversion thereof.
2.02. STOCKHOLDER RIGHTS; STOCK TRANSFERS. At the Effective Time,
holders of Investors Common Stock shall cease to be, and shall have no rights
as, stockholders of Investors, other than to receive the consideration provided
under this Article II. After the Effective Time, there shall be no transfers
on the stock transfer books of Investors or the Continuing Corporation of the
shares of Investors Common Stock which were issued and outstanding immediately
prior to the Effective Date.
2.03. FRACTIONAL SHARES. Notwithstanding any other provision hereof, no
fractional shares of Company Common Stock and no certificates or scrip
therefore, or other evidence of ownership thereof, will be issued in the
Merger; instead, the Company shall pay to each holder of Investors Common Stock
who would otherwise be entitled to a fractional share an amount in cash
determined by multiplying such fraction by the average of the last sale prices
of the Company Common Stock, as reported by the Nasdaq Stock Market reporting
system (as reported in The Wall Street Journal or, if not reported therein, in
another authoritative source), for the ten trading days immediately preceding
the Effective Date.
2.04. EXCHANGE PROCEDURES. As promptly as practicable after the
Effective Date, the Company shall send or cause to be sent to each former
stockholder of Investors of record immediately prior to the Effective Date
transmittal materials for use in exchanging such stockholder's certificates for
Investors Common Stock for the consideration set forth in this Article II. The
certificates representing the shares of Company Common Stock into which shares
of such stockholder's Investors Common Stock are converted on the Effective
Date, any cash payments which such stockholder shall be entitled to receive,
and any dividends paid on such shares of Company Common Stock for which the
record date for determination of stockholders entitled to such dividends is on
or after the Effective Date, will be delivered to such stockholder only upon
delivery to the Company or its agent of the certificates representing all of
such shares of Investors Common Stock (or indemnity satisfactory to the
Company, in its judgment, if any of such certificates are lost, stolen or
destroyed). No interest will be paid on any such cash payments or dividends to
which the holder of such shares shall be entitled to receive upon such
delivery.
2.05. ANTI-DILUTION PROVISIONS. In the event the Company changes the
number of shares of Company Common Stock issued and outstanding prior to the
Effective Date as a result of a stock split, stock dividend, recapitalization
or similar transaction with respect to the outstanding Company Common Stock and
the record date therefor shall be prior to the Effective Date, the Merger
Consideration shall be proportionately adjusted.
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2.06. EXCLUDED SHARES; DISSENTERS' SHARES. Each of the Excluded Shares
shall be canceled and retired at the Effective Time and no consideration shall
be issued in exchange therefor. Dissenters' Shares shall be paid for in
accordance with Section 33-13-200 through Section 33-13-280 of the SCBCA.
2.07. OPTIONS. From and after the Effective Time, all employee and
director stock options to purchase shares of Investors Common Stock (each, an
"Investors Stock Option"), which are then outstanding and unexercised, shall be
converted into and become options to purchase shares of Company Common Stock,
and the Company shall assume each such Investors Stock Option in accordance
with the terms of the plan and agreement by which it is evidenced; provided,
however, that from and after the Effective Time (i) each such Investors Stock
Option assumed by the Company may be exercised solely to purchase shares of the
Company Common Stock, (ii) the number of shares of the Company Common Stock
purchasable upon exercise of such Investors Stock Option shall be equal to the
number of shares of Investors Common Stock that were purchasable under such
Investors Stock Option immediately prior to the Effective Time multiplied by
the Exchange Ratio and rounding down to the nearest whole share, with cash
being paid for any fractional share interest that otherwise would be
purchasable, and (iii) the per share exercise price under each such Investors
Stock Option shall be adjusted by dividing the per share exercise price of each
such Investors Stock Option by the Exchange Ratio, and rounding up to the
nearest cent. The terms of each Investors Stock Option shall, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar transaction with
respect to the Company Common Stock on or subsequent to the Effective Date. It
is intended that the foregoing assumption shall be effected in a manner which
is consistent with the requirements of Section 424 of the Code, as to any
Investors Stock Option that is an "incentive stock option" (as defined in
Section 422 of the Code).
2.08. RESERVATION OF RIGHT TO REVISE TRANSACTION. The Company may at any
time change the method of effecting the acquisition of Investors by the Company
(including without limitation the provisions of this Article II) if and to the
extent it deems such change to be desirable; PROVIDED, HOWEVER, that no such
change shall (i) alter or change the amount or kind of consideration to be
issued to holders of Investors Common Stock as provided for in this Agreement
(ii) adversely affect the tax treatment to Investors stockholders as a result
of receiving such consideration or (iii) materially alter the timing of the
transaction.
III. ACTIONS PENDING CONSUMMATION
Without the prior written consent of the Company, Investors shall conduct
its business in the ordinary and usual course consistent with past practice and
shall use its best efforts to maintain and preserve its business organization,
employees and advantageous business relationships and retain the services of
its officers and key employees, and Investors will agree not to:
3.01. CAPITAL STOCK. Except for or as otherwise permitted in or
expressly contemplated by this Agreement or as Previously Disclosed in Schedule
4.01(C), issue, sell or otherwise permit to become outstanding any additional
shares of capital stock of Investors or any shares of a Subsidiary as
hereinafter defined, or any Rights with respect thereto, or enter into any
agreement with respect to the foregoing, or permit any additional shares of
Investors Common Stock to become subject to grants of employee stock options,
stock appreciation rights or similar stock based employee compensation rights.
3.02. DIVIDENDS, ETC. Make, declare or pay any dividend on or in respect
of, (other than dividends payable on Investors Common Stock at an annual rate
not to exceed $.45 per share) or declare or make any distribution on, or
directly or indirectly combine, redeem, reclassify, purchase or otherwise
acquire, any shares of its capital stock or, other than as permitted in or
contemplated by this Agreement, authorize the creation or issuance of, or
issue, any additional shares of its capital stock or any Rights with respect
thereto.
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3.03. INDEBTEDNESS; LIABILITIES; ETC. Other than in the ordinary course
of business consistent with past practice, incur any indebtedness for borrowed
money, assume, guarantee, endorse or otherwise as an accommodation become
responsible or liable for the obligations of any other individual, corporation
or other entity.
3.04. LINE OF BUSINESS; OPERATING PROCEDURES; ETC. Except as may be
directed by any regulatory agency, (i) change its lending, investment,
liability management or other material banking policies in any material
respect, except such changes as are in accordance and in an effort to comply
with Section 5.09, or (ii) commit to incur any further capital expenditures
beyond those Previously Disclosed in Schedule 3.04 other than in the ordinary
course of business and not exceeding $10,000 individually or $50,000 in the
aggregate.
3.05. LIENS AND ENCUMBRANCES. Impose or suffer the imposition on any of
its assets, any lien, charge or encumbrance, or permit any such lien, charge or
encumbrance to exist except in the ordinary course of business consistent with
past practices.
3.06. COMPENSATION; EMPLOYMENT AGREEMENTS; ETC. Except as Previously
Disclosed in Schedule 3.06, enter into or amend any employment, severance or
similar agreement or arrangement with any of its directors, officers or
employees, or grant any salary or wage increase, amend the terms of any stock
option or increase any employee benefit (including incentive or bonus
payments), except normal individual increases in regular compensation to
employees in the ordinary course of business consistent with past practice.
3.07. BENEFIT PLANS. Except as Previously Disclosed in Schedule 3.07,
enter into or modify (except as may be required by applicable law) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees, including without limitation taking any action that accelerates the
vesting or exercise of any benefits payable thereunder.
3.08. CONTINUANCE OF BUSINESS. Dispose of or discontinue any portion of
its assets, business or properties, which is material to Investors, or merge or
consolidate with, or acquire all or any portion of, the business or property of
any other entity which is material to Investors (except foreclosures or
acquisitions by Investors in a fiduciary capacity, in each case in the ordinary
course of business consistent with past practice).
3.09. AMENDMENTS. Amend its Articles of Incorporation or Bylaws.
3.10. CLAIMS. Settle any claim, litigation, action or proceeding
involving any liability for money damages or restrictions upon the operations
of Investors except in the ordinary course of business for amounts which are
not material and are consistent with past practices.
3.11 CONTRACTS. Except as Previously Disclosed in Schedule 3.11, enter
into, renew, terminate or make any change in any material contract, agreement
or lease, except in the ordinary course of business consistent with past
practice with respect to contracts, agreements and leases that are terminable
by it without penalty on more than 60 days prior written notice.
3.12. LOANS. Extend credit other than in accordance with existing
lending policies, except that Investors shall not, without the prior written
consent of the Company, make any new loan or modify, restructure or renew any
existing loan to any borrower if the amount of the resulting loan, when
aggregated with all other loans or extensions of credit to such person (or
which would be required to be aggregated for loans-to-one-borrower limitations)
would be in excess of $500,000.
3.13. ACCOUNTING METHODS. Implement or adopt any change in its
accounting principles, practices or methods, other than as may be required by
generally accepted accounting principles.
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3.14. ADVERSE ACTIONS. (1) Take any action that would, or is
reasonably likely to, prevent or impede the Merger from qualifying (i) for
pooling-of-interests accounting treatment or (ii) as a reorganization within
the meaning of Section 368(a) of the Code; or (2) take any action that is
intended or would be reasonably likely to result in (x) any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, (y) any
of the conditions to the Merger set forth in Article VI not being satisfied or
(z) a material violation of any provision of this Agreement except, in every
case, as may be required by applicable law.
IV. REPRESENTATIONS AND WARRANTIES
4.01. REPRESENTATIONS AND WARRANTIES OF INVESTORS. Investors hereby
represents and warrants to the Company as follows:
(A) RECITALS. The facts set forth in the Recitals of this Agreement
with respect to it are true and correct.
(B) ORGANIZATION, STANDING AND AUTHORITY. It is duly qualified to do
business and is in good standing in the State of South Carolina. It is not
required to register to do business in any foreign jurisdictions. It has in
effect all federal, state and local governmental authorizations necessary for
it to own or lease its properties and assets and to carry on its business as it
is now conducted, the absence of which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it. Investors is an
"insured depository institution" as defined in the Federal Deposit Insurance
Act and applicable regulations thereunder. The deposits of Investors are
insured by Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). Investors is a member in good
standing with the Federal Home Loan Bank ("FHLB") of Atlanta.
(C) SHARES. The outstanding shares of it are validly issued and
outstanding, fully paid and nonassessable, and subject to no preemptive rights.
Except as Previously Disclosed in Schedule 4.01(C), there are no shares of
capital stock or other equity securities of Investors outstanding and no
outstanding Rights with respect thereto.
(D) INVESTORS' SUBSIDIARIES. Investors has no Subsidiaries (as defined
below). Investors does not own beneficially, directly or indirectly, any
shares of any equity securities or similar interests of any corporation, bank,
partnership, joint venture, business trust, association or other organization
other than Federal Home Loan Bank stock. The term "Subsidiary" with respect to
any entity means each partnership or corporation, the majority of the
outstanding partnership interests, capital stock or voting power of which is
(or upon the exercise of all outstanding warrants, options and other rights
would be) owned, directly or indirectly, at the time in question by such
entity.
(E) CORPORATE POWER. It has the corporate power and authority to
carry on its business as it is now being conducted and to own all its material
properties and assets.
(F) CORPORATE AUTHORITY. Subject to receipt of approval by its
stockholders referred to in Section 6.01, this Agreement has been authorized by
all necessary corporate action of it and is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject as to enforcement
to bankruptcy, insolvency and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
(G) NO DEFAULTS. Subject to the approval by its stockholders referred to
in Section 6.01, the required regulatory approvals referred to in Section 6.02,
and the required filings under federal and state securities laws, and except as
Previously Disclosed in Schedule 4.01(G), the execution, delivery and
performance of this Agreement and the consummation by it of the transactions
contemplated hereby, does not and will not (i) constitute a breach or violation
of, or a default under, any law, rule or regulation or any judgment, decree,
order, governmental
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permit or license, or agreement, indenture or instrument of it or to which it
or its properties is subject or bound, which breach, violation or default is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it, (ii) constitute a breach or violation of, or a default under, its
Articles of Incorporation or Bylaws, or (iii) 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 any such consent or approval,
which if not obtained, would not be reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Investors.
(H) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.01(H), (i) its audited statement of financial condition as of December 31,
1996 and 1995 and related statements of operations and stockholders' equity and
cash flows for the years ended December 31, 1996, 1995 and 1994, and (ii) its
Thrift Financial Report for the fiscal year ended December 31, 1996, and all
other financial reports filed or to be filed subsequent to December 31, 1996,
in the form filed with the FDIC, the OTS, and the State of South Carolina,
including the State of South Carolina Board of Financial Institutions ("Board")
(together, the "Investors Financial Reports") did not and will not contain any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading; and each of
the balance sheets in or incorporated by reference into the Investors Financial
Reports (including the related notes and schedules thereto) fairly presents and
will fairly present the financial position of the entity or entities to which
it relates as of its date and each of the statements of operations and
stockholders' equity and cash flows or equivalent statements in the Investors
Financial Reports (including any related notes and schedules thereto) fairly
presents and will fairly present the results of operations, changes in
stockholders' equity and cash flows, as the case may be, of the entity or
entities to which it relates for the periods set forth therein, in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except in each case as may be noted therein,
subject to normal and recurring year-end audit adjustments in the case of
unaudited statements.
(I) ABSENCE OF UNDISCLOSED LIABILITIES. Investors has no obligation or
liability (contingent or otherwise) that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on it, except (i) as
reflected in Investors Financial Reports prior to the date of this Agreement,
and (ii) for commitments and obligations made, or liabilities incurred, in the
ordinary course of its business consistent with past practice since December
31, 1996. Since December 31, 1996, Investors has not incurred or paid any
obligation or liability (including any obligation or liability incurred in
connection with any acquisitions in which any form of direct financial
assistance of the federal government or any agency thereof has been provided)
which, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on it.
(J) NO EVENTS. Except as Previously Disclosed on Schedule 4.01(J), since
December 31, 1996, no events have occurred which, individually or in the
aggregate, have had or are reasonably likely to have a Material Adverse Effect
on it.
(K) PROPERTIES. Except as reserved against in the Investors Financial
Reports, Investors has good and marketable title, free and clear of all liens,
encumbrances, charges, defaults, or equities of any character, to all of the
properties and assets, tangible and intangible, reflected in the Investors
Financial Reports as being owned by Investors as of the dates thereof other
than those that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect on it, except those properties or assets sold or
otherwise disposed of in the ordinary course of business. All buildings and all
material fixtures, equipment, and other property and assets which are held
under leases or subleases by Investors are held under valid leases or subleases
enforceable in accordance with their respective terms, other than any such
exceptions to validity or enforceability that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect on
Investors.
(L) LITIGATION; REGULATORY ACTION. Except as Previously Disclosed in
Schedule 4.01(L), no litigation, proceeding or controversy before any court or
governmental agency is pending which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Investors or which
alleges claims under
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any fair lending law or other law relating to discrimination, including,
without limitation, the Equal Credit Opportunity Act,the Fair Housing Act, the
Community Reinvestment Act and the Home Mortgage Disclosure Act, and to the
knowledge of management of Investors, no such litigation, proceeding or
controversy has been threatened; and except as Previously Disclosed in Schedule
4.02(D), neither Investors nor any of its material properties or officers,
directors or controlling persons is a party to or is subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or
a commitment letter or similar submission to, any federal or state governmental
agency or authority charged with the supervision or regulation of depository
institutions or engaged in the insurance of deposits (together with any and all
agencies or departments of federal, state or local government (including,
without limitation, the Board, the OTS, the FDIC, the FHLB, the Federal Reserve
Board, and any other federal or state bank, or other financial institution,
insurance and securities regulatory authorities, the"Regulatory Authorities"))
and it has not been advised by any of such Regulatory Authorities that such
authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order,decree, agreement,
memorandum or understanding, commitment letter or similar submission.
(M) COMPLIANCE WITH LAWS. Except as Previously Disclosed in Schedule
4.01(M), Investors:
(1) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with,
all Regulatory Authorities that are required in order to permit it
to own its businesses presently conducted and that are material to
the business of Investors; all such permits, licenses, certificates
of authority, orders and approvals are in full force and effect
and, no suspension or cancellation of any of them is threatened;
and all such filings, applications and registrations are current;
(2) has received no notification or communication from any
Regulatory Authority or the staff thereof (i) asserting that
Investors is not in compliance with any of the statutes,
regulations or ordinances which such Regulatory Authority enforces,
which, as a result of such noncompliance in any such instance,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Investors, (ii) threatening to revoke
any license, franchise, permit or governmental authorization, which
revocation, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect on Investors, or (iii) requiring
Investors (or any of its officers, directors or controlling
persons) to enter into a cease and desist order, agreement or
memorandum of understanding (or requiring the Board of Directors of
Investors to adopt any resolution or policy);
(3) is not required by Section 32 of the Federal Deposit Insurance
Act to give prior notice to any federal banking agency of the
proposed addition of an individual to its board of directors or the
employment of an individual as a senior executive officer; and
(4) is in compliance in all material respects with all fair lending
laws or other laws relating to discrimination, including, without
limitation, the Equal Credit Opportunity Act, the Fair Housing Act,
the Community Reinvestment Act and the Home Mortgage Disclosure
Act.
(N) MATERIAL CONTRACTS.
(1) Except as Previously Disclosed in Schedule 4.01(N), (and with a
true and correct copy of the document or other item in question
attached to such Schedule), Investors is not a party or subject to
any of the following (whether written or oral, express or implied):
(i) any agreement, arrangement or commitment (a) not made
in the ordinary course of business or (b) pursuant to which
Investors is or may become obligated to invest in or contribute
capital to any other entity;
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(ii) any agreement, indenture or other instrument not
disclosed in the Investors Financial Reports relating to the
borrowing of money by Investors or the guarantee by Investors of
any such obligation (other than trade payables or instruments
related to transactions entered into in the ordinary course of
business by Investors, such as deposits, Fed Funds, FHLB
borrowings, or other borrowings and repurchase agreements);
(iii) any contract containing covenants that limit the
ability of Investors to compete in any line of business or with any
person or containing any restriction of the geographical area in
which, or method by which, Investors may carry on its business
(other than as may be required by law or any applicable Regulatory
Authority);
(iv) any contract or agreement which is a "material
contract" within the meaning of Item 601(b)(10) of Regulation S-K
promulgated by the Securities and Exchange Commission ("SEC");
(v) any lease with annual rental payments aggregating
$10,000 or more;
(vi) consulting agreement (other than data processing,
software programming and licensing contracts entered into in the
ordinary course of business) involving the payment of more than
$10,000 or more per annum;
(vii) any agreement with any executive officer or other key
employee of Investors the benefits of which are contingent, or the
terms of which are materially altered or any payments or rights are
accelerated, upon the occurrence of a transaction involving
Investors of the nature contemplated by this Agreement;
(viii) any agreement with respect any executive officer of
Investors providing any term of employment or compensation
guarantee; or
(ix) any agreement or plan, including any stock option
plan, stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
(2) Except as Previously Disclosed on Schedule 4.01(N), no officer
or director of Investors or any "associate" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of any such officer or director, has
any material interest in any material contract or property (real or
personal), tangible or intangible, used in or pertaining to the
business of Investors.
(3) Investors is not in default under any contract, agreement,
commitment, arrangement, lease, insurance policy or other
instrument to which it is a party, by which its assets, business or
operations may be bound or affected, or under which it or any of
its assets, business or operations receives benefits, which
default, individually or in the aggregate, is reasonably likely to
have a Material Adverse Effect on Investors, 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. Except as
Previously Disclosed in Schedule 4.01(N), Investors is not subject
to or bound by any contract containing covenants which limit the
ability of Investors to compete in any line of business or with any
person or which involve any restriction of geographical area in
which, or method by which, Investors may carry on its business
(other than as may be required by law or any applicable Authority).
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(O) REPORTS. Since January 1, 1992, Investors has filed all reports and
statements, together with any amendments required to be made with respect
thereto, that it was required to file with (i) the FDIC, (ii) the OTS, (iii)
the Board, (iv) the FHLB-Atlanta and the FHLB System, (v) the Federal Reserve
Board and (vi) any other applicable Regulatory Authorities. As of their
respective dates (and without giving effect to any amendments or modifications
filed after the date of this Agreement with respect to reports and documents
filed before the date of this Agreement), each of such reports and documents,
including the financial statements, exhibits and schedules thereto, complied in
all material respects with all of the statutes, rules and regulations enforced
or promulgated by the Regulatory Authority with which they were filed and did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
(P) NO BROKERS. Except as Previously Disclosed on Schedule 4.01(P), all
negotiations relative to this Agreement and the transactions contemplated
hereby have been carried on by it directly with the other parties hereto and no
action has been taken by it that would give rise to any valid claim against any
party hereto for a brokerage commission, finder's fee or other like payment.
(Q) EMPLOYEE BENEFIT PLANS.
(1) Schedule 4.01(Q)(1) contains a complete list of all
bonus, deferred compensation, pension, retirement, profit-sharing,
thrift savings, employee stock ownership, stock bonus, stock
purchase restricted stock and stock option plans, all employment or
severance contracts, all medical, dental, health and life insurance
plans, all other employee benefit plans, contracts or arrangements
and any applicable "change of control" or similar provisions in any
plan, contract or arrangement maintained or contributed to by it
for the benefit of employees, former employees, directors, former
directors or their beneficiaries (the "Compensation and Benefit
Plans"). True and complete copies of all Compensation and Benefit
Plans, including, but not limited to, any trust instruments and/or
insurance contracts, if any, forming a part thereof, and all
amendments thereto have been supplied to the Company.
(2) All "employee benefit plans" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA ("Multiemployer Plans"), covering employees
or former employees of it (the "ERISA Plans"), to the extent
subject to ERISA, are in substantial compliance with ERISA. Except
as Previously Disclosed in Schedule 4.01(Q)(2) each ERISA Plan
which is an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA ("Pension Plan") and which is intended to be
qualified under Section 401(a) of the Internal Revenue Code of 1986
(as amended, the "Code") has received a favorable determination
letter from the Internal Revenue Service, and it is not aware of
any circumstances reasonably likely to result in the revocation or
denial of any such favorable determination letter or the inability
to receive such a favorable determination letter. There is no
material pending or, to its knowledge, threatened litigation
relating to the ERISA Plans. Investors has not engaged in a
transaction with respect to any ERISA Plan that could subject it to
a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material.
(3) No liability under Subtitle C or D of Title IV of ERISA has
been or is expected to be incurred by Investors with respect to any
ongoing, frozen or terminated "single-employer plan," within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by it, or the single-employer plan of any entity which
is considered one employer with it under Section 4001(a)(15) of
ERISA or Section 414 of the Code (an "ERISA Affiliate"). Investors
does not presently contribute to a Multiemployer Plan, nor has it
contributed to such a plan within the past five calendar years. No
notice of a "reportable event," within the meaning of Section 4043
of
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ERISA for which the 30-day reporting requirement has not been
waived, has been required to be filed for any Pension Plan or by
any ERISA Affiliate within the past 12-month period.
(4) All contributions required to be made under the terms of any
ERISA Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an "accumulated
funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. Investors has not
provided, or is not required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(5) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year, the actuarially
determined present value of all "benefit liabilities," within the
meaning of Section 4001(a)(16) of ERISA (as determined on the basis
of the actuarial assumptions contained in the plan's most recent
actuarial valuation) did not exceed the then current value of the
assets of such plan, and there has been no material change in the
financial condition of such plan since the last day of the most
recent plan year.
(6) Investors has no obligations for retiree health and life
benefits under any plan, except as set forth in Schedule
4.01(Q)(6). There are no restrictions on the rights of Investors
to amend or terminate any such plan without incurring any liability
thereunder.
(7) Except as Previously Disclosed in Schedule 4.01(Q)(7), neither
the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due to any
director or any employee of it under any Compensation and Benefit
Plan or otherwise from it, (ii) increase any benefits otherwise
payable under any Compensation and Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such
benefit.
(R) NO KNOWLEDGE. It knows of no reason why the regulatory approvals
referred to in Section 6.02 should not be obtained or why the transaction
referred to herein would not qualify for pooling-of-interest accounting
treatment.
(S) LABOR AGREEMENTS. Investors is not a party to, or 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 (within the meaning of
the National Labor Relations Act) or seeking to compel it to bargain with any
labor organization as to wages and conditions of employment, nor is there any
strike or other labor dispute involving it, pending or, to the best of its
knowledge, threatened, nor is it aware of any activity involving its employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
(T) ASSET CLASSIFICATION. It has Previously Disclosed in Schedule
4.01(T) a list, accurate and complete in all material respects, of the
aggregate amounts of loans, extensions of credit or other assets of Investors
that have been classified by it as of March 31, 1997 (the "Asset
Classification"); and no amounts of loans, extensions of credit or other assets
that have been classified as of March 31, 1997 by any regulatory examiner as
"Other Loans Specially Mentioned," "Substandard," "Doubtful," "Loss," or words
of similar import are excluded from the amounts disclosed in the Asset
Classification, other than amounts of loans, extensions of credit or other
assets that were charged off by Investors prior to March 31, 1997.
(U) ALLOWANCE FOR LOAN AND LEASE LOSSES. The allowance for loan and lease
losses shown on the statements of financial condition of Investors included in
the December 31, 1996 Investors Financial Reports was, and the allowance for
possible loan losses to be shown on subsequent Investors Financial Reports,
will
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be, adequate in the opinion of the Board of Directors, determined in accordance
with generally accepted accounting principles, to provide for possible losses,
net of recoveries relating to loans previously charged off, on loans
outstanding (including accrued interest receivable) as of the date thereof.
(V) INSURANCE. Investors has taken all requisite action (including
without limitation the making of claims and the giving of notices) pursuant to
its directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters that are known to
Investors, except for such matters which, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect on it. Previously
Disclosed in Schedule 4.01(V) is a list of all insurance policies maintained by
or for the benefit of Investors or their directors, officers, employees or
agents. Each such policy is in an amount reasonably sufficient for the
protection of the assets and business covered thereby, and, in the aggregate,
all such policies are reasonably adequate for the protection of all the assets
and business of Investors.
(W) STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. Investors has taken
all necessary action to exempt this Agreement and the transactions contemplated
hereby and thereby from, and this Agreement and the transactions contemplated
hereby are exempt from, (i) any applicable state takeover laws, and (ii) any
supermajority provisions or other provisions imposing special conditions on
business combinations contained in Investors' Articles of Incorporation.
(X) NO FURTHER ACTION. It has taken all action so that the entering into
of this Agreement and the consummation of the transactions contemplated hereby
(including without limitation the Merger), or any other action or combination
of actions, or any other transactions, contemplated hereby or thereby do not
and will not (i) require a vote of stockholders (other than as set forth in
Section 6.01), or (ii) result in the grant of any rights to any person under
the Articles of Incorporation or Bylaws of Investors or under any agreement to
which Investors is a party, or (iii) restrict or impair in any way the ability
of the Company to exercise the rights granted hereunder.
(Y) ENVIRONMENTAL MATTERS.
(1) To its knowledge, it and each of the Participation Facilities
and the Loan/Fiduciary Properties (each as defined below) are, and
have been, in compliance with all Environmental Laws (as defined
below), except for instances of noncompliance which are not
reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Investors.
(2) There is no proceeding pending or, to its knowledge, threatened
before any court, governmental agency or board or other forum in
which it or any Participation Facility has been, or with respect to
threatened proceedings, reasonably would be expected to be, named
as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental
Law, or (ii) relating to the release or threatened release into the
environment of any Hazardous Material (as defined below), whether
or not occurring at or on a site owned, leased or operated by it or
any Participation Facility, except for such proceedings pending or
threatened that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it or have been
Previously Disclosed in Schedule 4.01(Y)(2).
(3) There is no proceeding pending or, to its knowledge, threatened
before any court, governmental agency or board or other forum in
which any Loan/Fiduciary Property (or it in respect of any Loan/
Fiduciary Property) has been, or with respect to threatened
proceedings, reasonably would be expected to be, named as a
defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any Environmental
Law, or (ii) relating to the release or threatened release into the
environment of any Hazardous Material, whether or not occurring at
or on a Loan/Fiduciary Property, except for such proceedings
pending or threatened that are not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on it or
have been Previously Disclosed in Schedule 4.01(Y)(3).
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(4) To its knowledge, there is no reasonable basis for any
proceeding of a type described in subparagraphs (2) or (3) above,
except as has been Previously Disclosed in Schedule 4.01(Y)(4).
(5) To its knowledge, during the period of (i) its ownership
or operation of any of its current properties, (ii) its
participation in the management of any Participation Facility, or
(iii) its holding of a security or other interest in a
Loan/Fiduciary Property, there have been no releases of Hazardous
Material in, on, under or affecting any such property,
Participation Facility or Loan/Fiduciary Property, except for such
releases that are not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on it or have been
Previously Disclosed in Schedule 4.01(Y)(5).
(6) To its knowledge, prior to the period of (i) its ownership or
operation of any of its current properties, (ii) its participation
in the management of any Participation Facility, or (iii) its
holding of a security or other interest in a Loan/Fiduciary
Property, there were no releases of Hazardous Material in, on,
under or affecting any such property, Participation Facility or
Loan/Fiduciary Property, except for such releases that are not
reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on it or have been Previously Disclosed in
Schedule 4.01(Y)(6).
(7) The following definitions apply for purposes of this Section
4.01(Y): "Loan/Fiduciary Property" means any property owned or
controlled by it or in which it holds a security or other interest,
and, where required by the context, includes any such property
where Investors constitutes the owner or operator of such property,
but only with respect to such property; "Participation Facility"
means any facility in which it participates in the management and,
where required by the context, includes the owner or operator of
such property, but only with respect to such property;
"Environmental Law" means (i) any federal, state and local law,
statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental
entity, relating to (a) the protection, preservation or restoration
of the environment, (including, without limitation, air, water
vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural
resource), or to human health or safety, or (b) the exposure to, or
the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
Hazardous Material, in each case as amended and as now in effect
and includes, without limitation, the Federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation and
Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, and the Federal Insecticide,
Fungicide and Rodenticide Act, the Federal Occupational Safety and
Health Act of 1970, each as amended and as now in effect, and (ii)
any common law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or
threatened as a result of, the presence of or exposure to any
Hazardous Material; "Hazardous Material" means any substance
presently listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any
Environmental Law, whether by type or quantity, and includes,
without limitation, any oil or other petroleum product, toxic
waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste or petroleum or any
derivative or by-product thereof, radon, radioactive material,
asbestos, asbestos containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl; and "to its
knowledge" means the actual knowledge of its officers and its Board
of Directors and does not imply that it has made any investigation
with respect to such matters.
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(Z) TAX REPORTS. Except as Previously Disclosed in Schedule 4.01(Z), (i)
all reports and returns with respect to Taxes (as defined below) that are
required to be filed by or with respect to it, including without limitation
federal income tax returns of it (collectively, the "Investors Tax Returns"),
have been duly filed, or requests for extensions have been timely filed and
have not expired, except to the extent all such failures to file, taken
together, are not reasonably likely to have a Material Adverse Effect on it,
and such Investors Tax Returns were true, complete and accurate in all material
respects, (ii) all taxes (which shall mean federal, state, local or foreign
income, gross receipts, windfall profits, severance, property, production,
sales, use, license, excise, franchise, employment, withholding or similar
taxes imposed on the income, properties or operations of it, together with any
interest, additions, or penalties with respect thereto and any interest in
respect of such additions or penalties, collectively the "Taxes") shown to be
due on Investors Tax Returns have been paid in full, (iii) the Investors Tax
Returns have been examined by the Internal Revenue Service or the appropriate
state, local or foreign taxing authority or the period for assessment of the
Taxes in respect of which such Investors Tax Returns were required to be filed
has expired, (iv) all Taxes due with respect to completed and settled
examinations have been paid in full, (v) no issues have been raised by the
relevant taxing authority in connection with the examination of any of the
Investors Tax Returns which are reasonably likely, individually or in the
aggregate, to result in a determination that would have a Material Adverse
Effect on it, except as reserved against in the Investors Financial Reports,
and (vi) no waivers of statutes of limitations (excluding such statutes that
relate to years under examination by the Internal Revenue Service) have been
given by or requested with respect to any Taxes of it.
(AA) ACCURACY OF INFORMATION. The statements with respect to Investors
contained in this Agreement, the Schedules and any other written documents
executed and delivered by or on behalf of Investors pursuant to the terms of
this Agreement are true and correct in all material respects, and such
statements and documents do not omit any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
(BB) DERIVATIVES CONTRACTS. Investors is neither a party to nor has it
agreed to enter into an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract or any other contract
not included on the balance sheet which is a derivative contract (including
various combinations thereof) (each a "Derivatives Contract"); Investors does
not own securities that are referred to as "structured notes"; except for those
Derivatives Contracts and structured notes Previously Disclosed in Schedule
4.01(BB), including a list, as applicable, of any Investors assets pledged as
security for each such Derivatives Contract.
(CC) ACCOUNTING CONTROLS. Investors has devised and maintained systems
of internal accounting controls sufficient to provide reasonable assurances
that (i) all material transactions are executed in accordance with management's
general or specific authorization; (ii) all material transactions are recorded
as necessary to permit the preparation of financial statements in conformity
with generally accepted accounting principles consistently applied with respect
to banks or savings banks or any other criteria applicable to such statements,
and to maintain proper accountability for items; (iii) access to the material
property and assets of Investors is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for items is compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any differences.
4.02. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PEOPLES FEDERAL.
The Company and Peoples Federal each hereby represents and warrants to
Investors, as follows:
(A) RECITALS. The facts set forth in the Recitals of this Agreement
with respect to it are true and correct.
(B) CORPORATE AUTHORITY. Subject to the required regulatory approvals
referred to in Section 6.02, this Agreement has been authorized by all
necessary corporate action of it and is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject as to enforcement
as to bankruptcy, insolvency and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
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(C) ORGANIZATION, STANDING AND AUTHORITY. It is duly incorporated and
validly existing as a corporation in good standing under the laws of the State
of Delaware in the case of the Company and the United States in the case of
Peoples Federal. It is duly qualified to do business and is in good standing
as a foreign corporation in the State of South Carolina. It is not required to
register to do business in any foreign jurisdictions except South Carolina. It
has in effect all federal, state and local governmental authorizations
necessary for it to own or lease its properties and assets and to carry on its
business as it is now conducted, the absence of which, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on it.
Peoples Federal is an "insured depository institution" as defined in the
Federal Deposit Insurance Act and applicable regulations thereunder. The
deposits of Peoples Federal are insured by Savings Association Insurance Fund
(the "SAIF") of the Federal Deposit Insurance Corporation (the "FDIC"). Peoples
Federal is a member in good standing with the Federal Home Loan Bank ("FHLB")
of Atlanta.
(D) SHARES. The outstanding shares of it are validly issued and
outstanding, fully paid and nonassessable, and subject to no preemptive rights.
Except as Previously Disclosed in Schedule 4.02(D), there are no shares of
capital stock or other equity securities of it outstanding and no outstanding
Rights with respect thereto.
(E) NO DEFAULTS. Subject to the required regulatory approvals referred
to in Section 6.02 herein and the required filings under federal and state
securities' laws, the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby and thereby by it, do
not and will not (i) constitute a breach or violation of, or a default under,
any law, rule or regulation or any judgment, decree, order, governmental permit
or license, or agreement, indenture or instrument of it or of any of its
Subsidiaries or to which it or any of its Subsidiaries or properties is subject
or bound, which breach, violation or default is reasonably likely individually
or in the aggregate to have a Material Adverse Effect on the Company, (ii)
constitute a breach or violation of, or a default under, its Certificate of
Incorporation, Charter or Bylaws, or (iii) 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.
(F) FINANCIAL REPORTS. Except as Previously Disclosed in Schedule
4.02(F), and all documents filed or to be filed under Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, in the form filed with the SEC (in each such
case, the "the Company Financial Reports"), complied in all material respects
with the applicable forms and regulations of the SEC and did not and will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading; and each of the balance sheets in or incorporated by reference into
the Company Financial Reports (including the related notes and schedules
thereto) fairly presents and will fairly present the financial position of the
entity or entities to which it relates as of its date and each of the
statements of income and changes in stockholders' equity and cash flows or
equivalent statements in the Company Financial Reports (including any related
notes and schedules thereto) fairly presents and will fairly present the
results of operations, changes in stockholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for
the periods set forth therein, in each case in accordance with generally
accepted accounting principles consistently applied to savings associations and
savings and loan holding companies during the periods involved, except as may
be noted therein, subject to normal and recurring year-end audit adjustments in
the case of unaudited statements.
(G) NO EVENTS. Except as Previously Disclosed in Schedule 4.02(G), since
September 30, 1996, no events have occurred which, individually or in the
aggregate, have had or are reasonably likely to have a Material Adverse Effect
on it.
(H) SHARES AUTHORIZED. The shares of Company Common Stock to be issued
in exchange for shares of Investors Common Stock upon consummation of the
Merger in accordance with Article II of this Agreement have been duly
authorized and, when issued in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable and subject to no
preemptive rights.
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(I) CORPORATE POWER. The Company and Peoples Federal each has the
corporate power and authority to carry on its business as it is now being
conducted and to own all its material properties and assets.
(J) ACCURACY OF INFORMATION. The statements with respect to the Company
and its Subsidiaries contained in this Agreement, the Schedules and any other
written documents executed and delivered by or on behalf of the Company
pursuant to the terms of this Agreement are true and correct in all material
respects, and such statements and documents do not omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
(K) ACCOUNTING CONTROLS. The Company has devised and maintained systems
of internal accounting controls sufficient to provide reasonable assurances
that (i) all material transactions are executed in accordance with management's
general or specific authorization; (ii) all material transactions are recorded
as necessary to permit the preparation of financial statements in conformity
with generally accepted accounting principles consistently applied with respect
to savings and loan holding companies or any other criteria applicable to such
statements, and to maintain proper accountability for items; (iii) access to
the material property and assets of the Company is permitted only in accordance
with management's general or specific authorization; and (iv) the recorded
accountability for items is compared with the actual levels at reasonable
intervals and appropriate action is taken with respect to any differences.
V. COVENANTS
Investors hereby covenants to the Company and the Company hereby
covenants to Investors, that:
5.01. BEST EFFORTS. Subject to the terms and conditions of this
Agreement and to the exercise by its Board of Directors of such Board's
fiduciary duties established under applicable law and advised in writing by its
outside counsel, it shall use its best efforts in good faith to take, or cause
to be taken, all actions, and to do, or cause to be done, all things necessary,
proper or desirable, or advisable under applicable laws, so as to permit
consummation of the Merger on the Effective Date and to otherwise enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the other parties hereto to that end.
5.02. INVESTORS PROXY. In the case of Investors, it shall promptly
assist the Company in the preparation of a proxy statement (the "Proxy
Statement") to be mailed to the holders of Investors Common Stock in connection
with the transactions contemplated hereby to be filed by the Company in a
registration statement (the "Registration Statement"), with the SEC as provided
in Section 5.03, which shall conform to all applicable legal requirements and
it shall call a special meeting (the "Meeting") of the holders of Investors
Common Stock to be held as soon as practicable for purposes of voting upon the
transactions contemplated hereby and Investors shall use its best efforts to
solicit and obtain votes of the holders of Investors Common Stock in favor of
the transactions contemplated hereby and the Board of Directors of Investors
shall recommend approval of such transactions by such holders.
5.03 REGISTRATION STATEMENT COMPLIANCE WITH SECURITIES LAWS. When the
Registration Statement or any post-effective amendment or supplement thereto
shall become effective, and at all times subsequent to such effectiveness, up
to and including the date of the Meeting, such Registration Statement, and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by or on behalf of Investors relating to
Investors and by or on behalf of the Company relating to the Company or its
Subsidiaries, (i) will comply in all material respects with the provisions of
the Securities Act and any other applicable statutory or regulatory
requirements, and (ii) will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading; provided, however, in no
event shall any party be liable for any untrue statement of a material fact or
omission to state a material fact in the Registration Statement made in
reliance upon, and in conformity with, written information concerning another
party furnished by or on behalf of such other party specifically for use in the
Registration Statement.
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5.04 REGISTRATION STATEMENT EFFECTIVENESS. In the case of the Company:
it will advise Investors, promptly after the Company 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 Company Common Stock for offering or
sale in any jurisdiction, of the initiation or threat of any proceeding for any
such purpose, or of any request by the SEC for the amendment or supplement of
the Registration Statement or for additional information.
5.05. PRESS RELEASES. Investors will not, without the prior approval of
the Company, and the Company will not, without the prior approval of Investors,
issue any press release or written statement for general circulation relating
to the transactions contemplated hereby, except as otherwise required by law.
5.06. ACCESS; INFORMATION.
(1) Upon reasonable notice, Investors shall afford the Company and
its officers, employees, counsel, accountants and other authorized
representatives, access, during normal business hours throughout the period up
to the Effective Date, to all of its properties, books, contracts, commitments
and records and, during such period, Investors shall furnish promptly to the
Company (i) a copy of each material report, schedule and other document filed
by Investors with any Regulatory Authority, and (ii) all other information
concerning the business, properties and personnel of Investors the Company may
reasonably request, provided that no investigation pursuant to this Section
5.06 shall affect or be deemed to modify or waive any representation or
warranty made by Investors or the conditions to the obligations of Investors to
consummate the transactions contemplated by this Agreement; and
(2) It will not use any information obtained pursuant to this
Section 5.06 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement and, if this Agreement is terminated, will hold
all information and documents obtained pursuant to this paragraph in confidence
(as provided in Section 8.06) unless and until such time as such information or
documents become publicly available other than by reason of any action or
failure to act by the Company or as it is advised by counsel that any such
information or document is required by law or applicable stock exchange rule to
be disclosed, and in the event of the termination of this Agreement, the
Company will, upon request by Investors, deliver to Investors all documents so
obtained by the Company or destroy such documents and, in the case of
destruction, will certify such fact to Investors.
5.07. ACQUISITION PROPOSALS. In the case of Investors, without the prior
written consent of the Company, it shall not solicit, initiate or encourage
inquiries or proposals with respect to, or, furnish any nonpublic information
relating to or participate in any negotiations or discussions concerning, any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, Investors or any merger or other business
combination with Investors other than as contemplated by this Agreement; it
shall instruct its officers, directors, agents, advisors and affiliates to
refrain from doing any of the foregoing; and it shall notify the Company
immediately if any such inquiries or proposals are received by, or any such
negotiations or discussions are sought to be initiated with it.
5.08. BLUE-SKY FILINGS. In the case of the Company, it shall use its
best efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities laws or "blue sky" permits and
approvals, provided that the Company shall not be required by virtue thereof to
submit to general jurisdiction in any state.
5.09. CERTAIN POLICIES OF INVESTORS. Investors shall, at the Company's
request: (i) modify and change its loan, litigation and other reserve and real
estate valuation policies and practices (including loan classifications and
levels of reserves), and (ii) generally conform its operating, lending and
compliance policies and procedures, immediately prior to the Effective Date so
as to be consistent on a mutually satisfactory basis with those of the Company
and generally accepted accounting principles; PROVIDED, HOWEVER, Investors
shall not be required to take any such action set forth in (i) above until all
regulatory approvals set forth in Section 6.02 shall have been obtained.
Investors' representations, warranties and covenants contained in this
Agreement shall not be
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deemed to be untrue or breached in any respect for any purpose as a consequence
of any modifications or changes undertaken solely on account of this Section
5.09.
5.10. STATE TAKEOVER LAW. In the case of Investors, Investors shall not
take any action that would cause the transactions contemplated by this
Agreement to be subject to any applicable state takeover statute and Investors
shall take all necessary steps to exempt (or ensure the continued exemption of)
the transactions contemplated by this Agreement from, or, if necessary,
challenge the validity or applicability of, any applicable state takeover law,
as now or hereafter in effect.
5.11. NO RIGHTS TRIGGERED. In the case of Investors, Investors shall
take all necessary steps to ensure that the entering into of this Agreement and
the consummation of the transactions contemplated hereby and thereby (including
without limitation the Merger) and any other action or combination of actions,
or any other transactions contemplated hereby or thereby do not and will not
(i) result in the grant of any rights to any person under the Articles of
Incorporation or Bylaws of Investors or under any agreement to which Investors
is a party, or (ii) restrict or impair in any way the ability of the Company to
exercise the rights granted hereunder.
5.12. SHARES LISTED. In the case of the Company, it shall file with the
Nasdaq Stock Market a Notification Form for Listing of Additional Shares.
5.13. REGULATORY APPLICATIONS. In the case of the Company, it shall (i)
promptly prepare and submit applications to the appropriate Regulatory
Authorities for approval of the Merger, and (ii) promptly make all other
appropriate filings to secure all other approvals, consents and rulings which
are necessary for the consummation of the Merger by the Company.
5.14 REGULATORY DIVESTITURES. In the case of Investors, effective on or
immediately before the Effective Date, Investors shall cease engaging in such
activities as the Company shall advise Investors in writing are not permitted
to be engaged in by the Company under applicable law following the Effective
Date.
5.15 CURRENT INFORMATION.
(a) During the period from the date of this Agreement to the Effective
Date, each of Investors and the Company shall, and shall cause its
representatives to, confer on a regular and frequent basis with representatives
of the other.
(b) Investors shall promptly notify the Company of (i) any material
change in the business or operations of Investors, (ii) any material
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) of any Regulatory Authority relating to Investors,
(iii) the initiation or threat of material litigation involving or relating to
Investors, or (iv) any event or condition that might reasonably be expected to
cause any of Investors' representations or warranties set forth herein not to
be true and correct in all material respects as of the Effective Date or
prevent Investors from fulfilling its obligations hereunder; and in each case
shall keep the Company informed with respect thereto.
(c) The Company shall (i) promptly notify Investors of any event or
condition that might reasonably be expected to cause any of the Company's
representations or warranties set forth herein not to be true and correct in
all material respects as of the Effective Date, and (ii) notify Investors
immediately of any denial of any application filed by the Company with any
Regulatory Authority with respect to this Agreement, and in each case shall
keep Investors informed with respect thereto.
5.16. AFFILIATE AGREEMENTS. (i) Not later than the 15th day prior
to the mailing of the Proxy Statement, Investors shall deliver to the Company,
a schedule of each person that, to the best of its knowledge, is or is
reasonably likely to be, as of the date of the Meeting, deemed to be an
"affiliate" of it (each, an "Affiliate") as that term is used in Rule 145 under
the Securities Act or SEC Accounting Series Releases 130 and 135 and (ii)
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Investors shall use its best efforts to cause each person who may be deemed to
be an Affiliate of Investors, to execute and deliver to the Company on or
before the date of mailing of the Proxy Statement an agreement in the form
attached hereto as Exhibit B.
5.17. POOLING OF INTERESTS. In the case of Investors, it shall not take
any action which with respect to Investors would disqualify the Merger as a
"pooling of interests" for accounting purposes.
5.18. PEOPLES FEDERAL. The Company shall vote all outstanding shares of
Peoples Federal in favor of the Merger.
VI. CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is conditioned upon:
6.01. SHAREHOLDER VOTE. Approval of the transactions contemplated
hereby by the requisite vote of the stockholders of Investors and Peoples
Federal.
6.02. REGULATORY APPROVALS. Procurement by the Company of all required
regulatory consents and approvals by the appropriate Regulatory Authorities and
the expiration of the statutory waiting period relating thereto; PROVIDED,
HOWEVER, that no such approval or consent shall have imposed any condition or
requirement which, in the opinion of the Company, would so materially adversely
impact the economic or business benefits to the Company of the transactions
contemplated by this Agreement so as to render inadvisable the consummation of
the Merger.
6.03. NO INJUNCTION. There shall not be in effect any order, decree or
injunction of any court or agency of competent jurisdiction that enjoins or
prohibits consummation of any of the transactions contemplated hereby.
6.04. LEGAL OPINION. Investors shall have received an opinion, dated the
Effective Date, of Breyer & Aguggia, special counsel for the Company, in form
reasonably satisfactory to Investors, which shall cover the matters contained
in Exhibit C hereto.
6.05. LEGAL OPINION. The Company shall have received an opinion, dated
the Effective Date, of Sinkler & Boyd, P.A., counsel for Investors, in form
reasonably satisfactory to the Company, which shall cover the matters contained
in Exhibit D hereto.
6.06. OFFICER'S CERTIFICATE. (i) Each of the representations and
warranties contained herein of the Company and Peoples Federal shall be true
and correct as of the date of this Agreement and upon the Effective Date with
the same effect as though all such representations and warranties had been made
on the Effective Date, except for any such representations and warranties made
as of a specified date, which shall be true and correct as of such date, and
(ii) each and all of the agreements and covenants of the Company and Peoples
Federal to be performed and complied with pursuant to this Agreement on or
prior to the Effective Date shall have been duly performed and complied with in
all material respects, and Investors shall have received a certificate signed
by the Chief Executive Officer and the Chief Financial Officer of the Company
dated the Effective Date, to such effect.
6.07. OFFICERS' CERTIFICATE. (i) Each of the representations and
warranties contained herein of Investors shall be true and correct as of the
date of this Agreement and upon the Effective Date with the same effect as
though all such representations and warranties had been made on the Effective
Date, except for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date and except as otherwise
provided in Section 5.09, and (ii) each and all of the agreements and covenants
of Investors to be performed and complied with pursuant to this Agreement on or
prior to the Effective Date shall have been duly
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performed and complied with in all material respects, and the Company shall
have received a certificate signed by the Chief Executive Officer and the Chief
Financial Officer of Investors dated the Effective Date, to such effect.
6.08. ABSENCE OF STOP ORDER. No stop order suspending the offering of
the Company Common Stock or the use of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC, any state securities administrator or any other
Regulatory Authority.
6.09. BLUE-SKY PERMITS. The Company shall have received all state
securities laws and "blue sky" permits necessary to consummate the Merger.
6.10. TAX OPINION. The Company and Investors shall have received an
opinion from Breyer & Aguggia to the effect that (i) the Merger constitutes a
reorganization under Section 368 of the Code, and (ii) no gain or loss will be
recognized by stockholders of Investors who receive shares of the Company
Common Stock in exchange for their shares of Investors Common Stock, and, in
rendering its opinion, Breyer & Aguggia may require and rely upon
representations contained in certificates of officers of the Company, Investors
and others.
6.11. EMPLOYMENT AGREEMENTS. The Employment Agreement attached as
Exhibit E shall have been duly executed and delivered by the parties to such
agreement.
6.12. VOTING AGREEMENT. The Voting Agreement attached as Exhibit F shall
have been duly executed and delivered by each of C.B. Askins, Jr., James P.
Barnes, Joseph D. Carson, Maitland S. Chase, III, Vance Gandy, Jr., Dr. Roy E.
Hudgens, Walter N. Lawson, Thomas E. Rogers, Jr., Mary R. Sanders and A.P.
Skinner, III.
6.13. ADVERSE CHANGE OF INVESTORS. During the period from December 31,
1996 to the Effective Date, there shall not have been any material adverse
change in the financial position or results of operations of Investors, nor
shall Investors have sustained any loss or damage to its properties, whether or
not insured, that materially affects its ability to conduct its business; and
the Company shall have received a certificate dated the Effective Date signed
by the Chief Executive Officer of Investors to such effect.
6.14. ADVERSE CHANGE OF COMPANY. During the period from December 31,
1996 to the Effective Date, there shall not have been any material adverse
change in the financial position or results of operations of the Company, nor
shall the Company have sustained any loss or damage to its properties, whether
or not insured, that materially affects its ability to conduct its business;
and the Company shall have received a certificate dated the Effective Date
signed by the Chief Executive Officer of the Company to such effect.
6.15. DISSENTERS' RIGHTS. The number of Dissenters' shares shall not
exceed in the aggregate ten percent of the outstanding shares of Investors
Common Stock.
6.16. THIRD PARTY CONSENTS. All consents or approvals of all persons
(other than Regulatory Authorities) required for the consummation of the Merger
shall have been obtained and shall be in full force and effect, unless the
failure to obtain any such consent or approval is not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on Investors
or the Company, respectively.
PROVIDED, HOWEVER, that a failure to satisfy any of the conditions set
forth in the proviso following Section 6.02 or in Sections 6.05, 6.07, 6.12,
6.13 or 6.15 shall only constitute conditions if asserted by the Company, and a
failure to satisfy any of the conditions set forth in Section 6.04, 6.06 and
6.14 shall only constitute conditions if asserted by Investors.
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VII. TERMINATION
This Agreement may be terminated prior to the Effective Date, either
before or after receipt of required stockholder approvals:
7.01. MUTUAL CONSENT. By the mutual consent of the Company and
Investors, if the Board of Directors of each so determines by vote of a
majority of the members of its entire Board.
7.02. BREACH. By the Company or Investors, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event of (i) a material breach by the other party of any representation or
warranty contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching party of
such breach, or (ii) a breach by the other party of any of the material
covenants or agreements contained herein, which breach cannot be or has not
been cured within thirty (30) days after the giving of written notice to the
breaching party of such breach.
7.03. DELAY. By the Company or Investors, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event that the Merger is not consummated by February 28, 1998.
7.04. NO STOCKHOLDER OR REGULATORY APPROVAL. By the Company or
Investors, if its Board of Directors so determines by a vote of a majority of
the members of its entire Board, (i) in the event that any stockholder approval
contemplated by Section 6.01 is not obtained at the Meeting, including any
adjournment or adjournments thereof, or (ii) in the event that written notice
is received which states that any required regulatory approval contemplated by
Section 6.02 has not been approved or has been denied.
7.05. DUE DILIGENCE REVIEW. By the Company or Investors in the event
that (i) any situation, event, circumstance or other matter shall come to its
attention during the course of its Due Diligence Review which it shall, in a
good faith exercise of its reasonable discretion, believe (A) to be
inconsistent in any material respect with any of the representations and
warranties of the other party, (B) to be of such significance as to have a
Material Adverse Effect on the financial condition, prospects, results of
operations or business of the other party, or (C) is a material deviation from
Investors' or the Company's Financial Reports, as the case may be, and (ii) it
notifies the other party of such matters within five (5) business days after
the end of its Due Diligence Review Period and such matters are not capable of
being cured or have not been cured within thirty (30) days after written notice
thereof. For purposes of this Section 7.05, (i) the "Due Diligence Review"
shall be limited to a review by management of the respective entities shall
mean a review by one party of the other party's operations, business affairs,
prospects and financial condition, including without limitation, those matters
which are the subject of representations and warranties and (ii) the "Due
Diligence Review Period" shall mean a forty-five (45) day period beginning on
the date of this Agreement. Notwithstanding anything in this Section 7.05
contained or implied to the contrary, the Due Diligence Review shall not limit,
restrict or preclude either party, at any time or from time to time, from
conducting such reviews or from exercising any rights available to it hereunder
as a result of the existence or occurrence prior to the Due Diligence Review
Period of any event or condition which was not detected in the Due Diligence
Review and which constitutes a breach of any representation or warranty under
this Agreement.
7.06 FINAL COMPANY PRICE. By the Company, within five business days
after the end of the ten trading day period used to determine the Final Company
Price, if the Final Company Price is less than $24.00 or by Investors, within
five business days after the end of the ten trading day period used to
determine the Final Company Price, if the Final Company Price is greater than
$33.00, in each instance only if the Company and Investors have not agreed to
an adjustment to the Exchange Ratio.
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VIII. OTHER MATTERS
8.01. SURVIVAL. If the Effective Date occurs, all representations,
warranties, agreements and covenants contained in this Agreement shall not
survive the Effective Date. If this Agreement is terminated prior to the
Effective Date, the agreements and representations of the parties in Section
4.01(P), Sections 5.04, 5.06(2), 5.10 and 5.11, and Sections 8.01, 8.03, 8.04,
8.05, 8.06, 8.07, 8.09, 8.11 and 8.12 shall survive such termination.
8.02. WAIVER; AMENDMENT. Prior to the Effective Date, any provision of
this Agreement may be (i) waived in writing by the party benefitted by the
provision, or (ii) amended or modified at any time (including the structure of
the transactions contemplated hereby) by an agreement in writing among the
parties hereto approved by their respective Boards of Directors and executed in
the same manner as this Agreement, except that, after the vote by the
stockholders of Investors, the consideration to be received by the stockholders
of Investors for each share of Investors Common Stock shall not thereby be
decreased.
8.03. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original. This
Agreement shall become effective when one counterpart has been signed by each
party hereto.
8.04. GOVERNING LAW. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of South Carolina,
except as federal law may be applicable.
8.05. EXPENSES. Each party hereto will bear all expenses incurred by it
in connection with this Agreement and the transactions contemplated hereby.
8.06. CONFIDENTIALITY. Except as otherwise provided in Section 5.06(2),
each of the parties hereto and their respective agents, attorneys and
accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
8.07. NOTICES. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram or telex (confirmed in writing) to such party at
its address set forth below or such other address as such party may specify by
notice to the parties hereto.
If to the Company to:
First Financial Holdings, Inc.
2440 Mall Drive
Suite 100
Charleston, SC 29418
Attn: A. Thomas Hood
Copies to: John F. Breyer, Jr., Esq.
Breyer & Aguggia
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
If to Investors to: Investors Savings Bank
132 West Cheves Street
Florence, South Carolina 29503
Attn: Joseph D. Carson
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Copies to: George S. King, Jr.
Sinkler & Boyd, P.A.
The Palmetto Center
1426 Main Street, Suite 1200
P.O. Box 11889 (29211)
Columbia, South Carolina 29201
8.08. DEFINITIONS. Any term defined anywhere in this Agreement shall
have the meaning ascribed to it for all purposes of this Agreement (unless
expressly noted to the contrary). In addition:
(1) the term "Material Adverse Effect," when applied to a party,
shall mean an event, occurrence or circumstance (including without
limitation (i) the making of any provisions for possible loan and
lease losses, write-downs of other real estate and taxes and (ii)
any breach of a representation or warranty contained herein by such
party) which (a) has or is reasonably likely to have a material
adverse effect on the financial condition, results of operations,
business or prospects of the party and its subsidiaries, taken as a
whole, or (b) would materially impair the party's ability to
perform its obligations under this Agreement or the consummation of
any of the transaction contemplated hereby; and
(2) the term "Previously Disclosed" by a party shall mean
information set forth in a Schedule that is delivered by that party
to the other party contemporaneously with the execution of this
Agreement and specifically designated as information "Previously
Disclosed" pursuant to this Agreement.
8.09. ENTIRE UNDERSTANDING; NO THIRD PARTY BENEFICIARIES. This Agreement
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. Nothing in this Agreement expressed or
implied, is intended to confer upon any person, other than the parties hereto
or their respective successors, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
8.10 BENEFIT PLANS, ETC.
(A) The Company and Peoples Federal anticipate retaining the employees of
Investors after the Effective Time, subject to the needs of Peoples Federal and
the qualification of such employees. As soon as administratively practicable
after the Effective Time, employees of Investors who continue as Peoples
Federal employees shall be entitled to participate on an equitable basis in the
same benefit plans, programs or policies as are generally available to Peoples
Federal employees of similar rank and status. For purposes of eligibility and
vesting (but not for the accrual of benefits) under such plans, programs or
policies, employees of Investors who continue as Peoples Federal employees will
be credited for prior years of service with Investors, and there shall be no
exclusion from coverage under the Peoples Federal health insurance plan as a
result of pre-existing conditions to the extent such conditions were covered
under any health insurance plan maintained by Investors prior to the Effective
Time.
(B) Following the Effective Time, it is the Company's intention to
establish a Florence area advisory board to the Board of Directors of Peoples
Federal. Members of the Board of Directors of Investors who reside in the
Florence area will be considered for advisory board membership and, if
selected, will receive such compensation as the Company may from time to time
establish for advisory directors to its subsidiaries. It is the Company's
intention to maintain the advisory board for at least one year following the
Effective Time and extend the period of service of the Florence area advisory
board each year for an additional year for so long as the Company and its
members deem it mutually beneficial. Not later than the Effective Time,
Peoples Federal will select a member of the Investors Board of Directors to be
added to the Peoples Federal Board of Directors.
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8.11. BREAK-UP FEE. The parties hereby acknowledge that, in negotiating
and executing this Agreement and in taking the steps necessary or appropriate
to effect the transaction contemplated hereby, the Company has incurred and
will incur direct and indirect monetary and other costs (including, without
limitation, attorney's fees and costs and costs of Company employee and
management time) and will forego discussion with respect to other potential
acquisitions. To compensate the Company for such cost and to induce it to
forego initiating discussions regarding other acquisitions, Investors shall be
obligated to pay the Company on demand (and in no event more than three days
after such demand) in immediately available funds $350,000 if within 18 months
after the date hereof the Merger has not been completed and there occurs any of
the events set forth in subparagraphs (i), (ii) or (iii) below.
(A) Any person other than the Company or an affiliate of the
Company acquires beneficial ownership of 25% or more of the then-outstanding
Investors Common Stock;
(B) Investors or any of its affiliates, without having received the
Company's prior written consent, enters into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term "person"
for purposes of this section having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Exchange Act and the rules and regulations
thereunder) other than the Company or any of its Subsidiaries, or Investors'
Board of Directors recommends that the shareholders of Investors approve or
accept any Acquisition Transaction with any person other than the Company or
any of its Subsidiaries. For purposes of this section, "Acquisition
Transaction" shall mean (a) a merger or consolidation, or any similar
transaction, involving Investors, (b) a purchase, lease or other acquisition of
all or substantially all of the assets of Investors, or (c) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of securities representing 10% or more of the voting power of
Investors; or
(C) A bona fide proposal is made by a third party to Investors to
engage in an Acquisition Transaction and after such proposal is made any of the
following events occurs: Investors willfully breaches this Agreement and such
breach entitles the Company to terminate this Agreement; the holders of
Investors Common Stock do not approve this Agreement at the Investors Meeting;
the Investors Meeting is not held or is canceled prior to termination of this
Agreement for reasons other than the fault of the Company; or Investors' Board
of Directors modifies in a manner adverse to the Company the recommendation of
Investors' Board of Directors with respect to this Agreement.
Notwithstanding the foregoing, Investors shall not be obligated to pay to
the Company the amounts if, prior to the occurrence of any of the events
specified in 8.11(A)(B), or (C), Investors validly terminates this Agreement
pursuant to Section 7.01 or 7.02 (but only in the event that the Company
materially breaches a representation, warranty or covenant contained herein
and, as a result thereof, Investors exercises its right to terminate this
Agreement under Section 7.02 at a time when the Company was not entitled to
terminate this Agreement under Section 7.02, 7.03 or 7.04) or clause (ii) of
Section 7.04. The parties further agree that this Section 8.09 is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
8.12. HEADINGS. The headings contained in this Agreement are for
reference purposes only and are not part of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
FIRST FINANCIAL HOLDINGS, INC.
By: /s/ A. Thomas Hood
-------------------------------
NAME: A. Thomas Hood
TITLE: President
PEOPLES FEDERAL SAVINGS AND
LOAN ASSOCIATION OF SOUTH CAROLINA
By: /s/ George N. Magrath, Jr.
-------------------------------
NAME: George N. Magrath, Jr.
TITLE: President
INVESTORS SAVINGS BANK OF SOUTH
CAROLINA, INC.
By: /s/ Joseph D. Carson
-------------------------------
NAME: Joseph D. Carson
TITLE: President
A-25
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<PAGE>
Exhibit A
PLAN OF MERGER
Setting Forth the Plan of Merger
of
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
with and into
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA
THIS PLAN OF MERGER ("Plan of Merger") is made and entered into as of the
____ day of _____________, 1997 by and between INVESTORS SAVING BANK OF SOUTH
CAROLINA, INC. ("ISB"), a savings bank chartered and existing under the laws of
the State of South Carolina and whose administrative offices are located at 132
West Cheves Street, Florence, South Carolina 29503; FIRST FINANCIAL HOLDINGS,
INC. ("Company"), a corporation organized and existing under the laws of the
State of Delaware having its principal office at 2400 Mall Drive, Suite 100,
Charleston, South Carolina 29418 and which is registered as a savings and loan
holding company under the Savings and Loan Holding Company Act and PEOPLES
FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA ("Peoples Federal"), a
savings and loan association organized and existing under the laws of the
United States of America having its main office at 1601 11th Avenue, Conway,
South Carolina 29526, and which is a wholly-owned subsidiary of the Company.
PREAMBLE
WHEREAS, Company, Peoples Federal and ISB have entered into an Agreement
and Plan of Merger dated as of the 25th day of June, 1997 ("Agreement"), to
which this Plan of Merger is Exhibit A and is incorporated by reference as an
integral part thereof, providing for the merger of ISB with and into Peoples
Federal (with Peoples Federal as the Surviving Corporation) and the acquisition
of all of the ISB Common Stock outstanding immediately prior to the Effective
Time of the Merger (as defined below) by Peoples Federal for the consideration
set forth in the Agreement and this Plan of Merger; and
WHEREAS, the Boards of Directors of Company, Peoples Federal and ISB are
each of the opinion that the interests of their respective corporations and
their corporations' respective shareholders would best be served if ISB were to
be merged with and into Peoples Federal, which would survive the Merger, on the
terms and conditions provided in the Agreement and in this Plan of Merger.
NOW, THEREFORE, in consideration of the covenants and agreements of the
Parties contained herein, ISB, Company, and Peoples Federal hereby make, adopt
and approve this Plan of Merger in order to set forth the terms and conditions
for the merger of ISB with and into Peoples Federal (the "Merger").
ARTICLE 1
DEFINITIONS
1.1 As used in this Plan of Merger and in any amendments hereto, all
capitalized terms herein shall have the meanings assigned to such terms in the
Agreement unless otherwise defined herein.
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ARTICLE 2
CAPITALIZATION
2.1 Peoples Federal. Peoples Federal is a savings and loan association
duly organized and existing in good standing under the laws of the United
States, with its principal executive offices located in Conway, South Carolina.
As of the date hereof, Peoples Federal has 10,000 authorized shares of common
stock of $1.00 par value per share ("Peoples Federal Common Stock") (no other
class of capital stock being authorized), of which 10,000 shares of Peoples
Federal Common Stock and no shares of Peoples Federal Preferred Stock are
issued and outstanding. All of the issued and outstanding shares of Peoples
Federal Common Stock are owned by the Company.
2.2 Investors. Investors is a savings association duly organized and
existing in good standing under the laws of the State of South Carolina, with
its principal executive offices located in Florence, South Carolina. As of the
date hereof, Investors has 500,000 authorized shares of common stock of $5.00
par value per share ("Investors Common Stock") (no other class of capital stock
being authorized), of which 260,588 shares of Investors Common Stock are issued
and outstanding. As of the date hereof, Investors had 54,574 shares of
Investors Common Stock reserved for issuance under employee and director stock
option plans pursuant to which options covering 28,685 shares of Investors
Common Stock are outstanding as of the date hereof.
ARTICLE 3
PLAN OF MERGER
3.1 Constituent Corporations. The name of each constituent corporation
to the Merger is:
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
and
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA
3.2 Surviving Corporation. The Surviving Corporation shall be:
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA
which as of the Effective Time of the Merger (as defined below) shall continue
to be named:
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA
3.3 Terms and Conditions of Merger. The Merger shall be consummated only
pursuant to, and in accordance with this Plan of Merger and the Agreement.
Conditioned upon the satisfaction or lawful waiver (by the party or parties
hereto entitled to the benefit thereof) of all conditions precedent to
consummation of the Merger, including the approval of the OTS, the Merger will
become effective in accordance with applicable law ("Effective Time of the
Merger"), or at such later time and/or date as may be agreed upon by the
parties and set forth in the Articles of Merger. At the Effective Time of the
Merger, ISB shall be merged with and into Peoples Federal which will survive
the Merger, and the separate existence of ISB shall cease thereupon, and
without further action, ISB shall thereafter possess all of the assets, rights,
privileges, appointments, powers, licenses, permits and franchises of Peoples
Federal and ISB, whether of a public or private nature, and shall be subject to
all of the liabilities, restrictions, disabilities, and duties of both Peoples
Federal and ISB.
3.4 Charter. At the Effective Time of the Merger, the Federal Stock
Charter of Peoples Federal, as in effect immediately prior to the Effective
Time of the Merger, shall constitute the Federal Stock Charter of Peoples
Federal as the Surviving Corporation, unless and until the same shall be
amended as provided by law and the terms of such Federal Stock Charter.
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3.5 Bylaws. At the Effective Time of the Merger, the Bylaws of Peoples
Federal, as in effect immediately prior to the Effective Time of the Merger,
shall continue to be its Bylaws as the Surviving Corporation, unless and until
amended or repealed as provided by law, its Charter and such Bylaws.
3.6 Directors and Officers. The directors and officers of Peoples
Federal in office immediately prior to the Effective Time of the Merger shall
continue to be the directors and officers of the Surviving Corporation, to hold
office as provided in the Federal Stock Charter and Bylaws of the Surviving
Corporation, unless and until their successors shall have been elected or
appointed and shall have qualified or they shall be removed as provided
therein.
The name, residential address and term of each director is set forth on
Schedule 1 hereto.
3.7 Name. The name of Peoples Federal as the Surviving Corporation
following the Merger, shall remain:
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION OF SOUTH CAROLINA
3.8 Offices. The location of the home office of the Surviving
Corporation shall continue to be 1601 11th Avenue, Conway, South Carolina 29526
and the other offices of the Surviving Corporation shall be:
Address City or Town State Zip Code
- ------- ------------ ----- --------
[insert branches at time of execution]
ARTICLE 4
CONVERSION, EXCHANGE AND PAYMENT OF ISB COMMON STOCK
4.01. MERGER CONSIDERATION. Subject to the provisions of the Agreement,
at the Effective Time of the Merger:
(A) Outstanding Peoples Federal Common Stock. Each share of Peoples
Federal Common Stock issued and outstanding immediately prior to the Effective
Time of the Merger shall, on and after the Effective Time of the Merger, remain
as issued and outstanding shares of Peoples Federal Common Stock.
(B) Outstanding Investors Common Stock. Each share of Investors Common
Stock issued and outstanding immediately prior to the Effective Time of the
Merger shall become and be converted into the right to receive a number of
shares of Company Common Stock equal to the Exchange Ratio (as defined below).
The "Exchange Ratio" shall be equal (rounded to the nearest hundredth) to
the result obtained by dividing $45.00 by the Final Company Price subject to
the provisions of Section 7.06 of the Agreement. The "Final Company Price"
shall be the average last price per share of Company Common Stock as reported
in The Wall Street Journal for each of the ten trading days immediately
preceding the Effective Time of the Merger. In the event the Company Common
Stock does not trade on one or more of the trading days in such period, any
such date shall be disregarded in computing the average last price per share
and the average shall be based upon the last price per share and number of days
on which the Company Common Stock actually traded during such period.
Notwithstanding any other provision of this Plan of Merger or the
Agreement, shares of Investors Common Stock with respect to which dissenters'
rights have been perfected in accordance with Section 33-13-200 through Section
33-13-280 of the South Carolina Business Corporation Act, as amended ("SCBCA")
("Dissenters' Shares") and shares of Investors Common Stock held by Investors
or by the Company or any of its Subsidiaries, in each case other than in a
fiduciary capacity or as a result of debts previously contracted (together with
Dissenters' Shares, "Excluded Shares") shall, by virtue of the Merger, be
canceled without any conversion thereof.
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4.02. Stockholder Rights; Stock Transfers. At the Effective Time of the
Merger, holders of Investors Common Stock shall cease to be, and shall have no
rights as, stockholders of Investors, other than to receive the consideration
provided under this Article IV. After the Effective Time of the Merger, there
shall be no transfers on the stock transfer books of Investors or the
Continuing Corporation of the shares of Investors Common Stock which were
issued and outstanding immediately prior to the Effective Time of the Merger.
4.03. Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Company Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, the Company shall pay to each holder of Investors Common Stock who
would otherwise be entitled to a fractional share an amount in cash determined
by multiplying such fraction by the average of the last sale prices of the
Company Common Stock, as reported by the Nasdaq Stock Market reporting system
(as reported in The Wall Street Journal or, if not reported therein, in another
authoritative source), for the ten trading days immediately preceding the
Effective Time of the Merger.
4.04. Exchange Procedures. As promptly as practicable after the Effective
Time of the Merger, the Company shall send or cause to be sent to each former
stockholder of Investors of record immediately prior to the Effective Time of
the Merger transmittal materials for use in exchanging such stockholder's
certificates for Investors Common Stock for the consideration set forth in this
Article IV. The certificates representing the shares of Company Common Stock
into which shares of such stockholder's Investors Common Stock are converted on
the Effective Time of the Merger, any cash payments which such stockholder
shall be entitled to receive, and any dividends paid on such shares of Company
Common Stock for which the record date for determination of stockholders
entitled to such dividends is on or after the Effective Time of the Merger,
will be delivered to such stockholder only upon delivery to the Company or its
agent of the certificates representing all of such shares of Investors Common
Stock (or indemnity satisfactory to the Company, in its judgment, if any of
such certificates are lost, stolen or destroyed). No interest will be paid on
any such cash payments or dividends to which the holder of such shares shall be
entitled to receive upon such delivery.
4.05. Anti-dilution Provisions. In the event the Company changes the
number of shares of Company Common Stock issued and outstanding prior to the
Effective Time of the Merger as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding Company
Common Stock and the record date therefor shall be prior to the Effective Time
of the Merger, the Merger Consideration shall be proportionately adjusted.
4.06. Excluded Shares; Dissenters' Shares. Each of the Excluded Shares
shall be canceled and retired at the Effective Time of the Merger and no
consideration shall be issued in exchange therefor. Dissenters' Shares shall
be paid for in accordance with Section 33-13-200 through Section 33-13-280 of
the SCBCA.
4.07. Options. From and after the Effective Time of the Merger, all
employee and director stock options to purchase shares of Investors Common
Stock (each, an "Investors Stock Option"), which are then outstanding and
unexercised, shall be converted into and become options to purchase shares of
Company Common Stock, and the Company shall assume each such Investors Stock
Option in accordance with the terms of the plan and agreement by which it is
evidenced; provided, however, that from and after the Effective Time of the
Merger (i) each such Investors Stock Option assumed by the Company may be
exercised solely to purchase shares of the Company Common Stock, (ii) the
number of shares of the Company Common Stock purchasable upon exercise of such
Investors Stock Option shall be equal to the number of shares of Investors
Common Stock that were purchasable under such Investors Stock Option
immediately prior to the Effective Time of the Merger multiplied by the
Exchange Ratio and rounding down to the nearest whole share, with cash being
paid for any fractional share interest that otherwise would be purchasable, and
(iii) the per share exercise price under each such Investors Stock Option shall
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be adjusted by dividing the per share exercise price of each such Investors
Stock Option by the Exchange Ratio, and rounding up to the nearest cent. The
terms of each Investors Stock Option shall, in accordance with its terms, be
subject to further adjustment as appropriate to reflect any stock split, stock
dividend, recapitalization or other similar transaction with respect to the
Company Common Stock on or subsequent to the Effective Time of the Merger. It
is intended that the foregoing assumption shall be effected in a manner which
is consistent with the requirements of Section 424 of the Code, as to any
Investors Stock Option that is an "incentive stock option" (as defined in
Section 422 of the Code).
4.08. Reservation of Right to Revise Transaction. The Company may at any
time change the method of effecting the acquisition of Investors by the Company
(including without limitation the provisions of this Article IV) if and to the
extent it deems such change to be desirable; provided, however, that no such
change shall (i) alter or change the amount or kind of consideration to be
issued to holders of Investors Common Stock as provided for in this Plan of
Merger or the Agreement (ii) adversely affect the tax treatment to Investors
stockholders as a result of receiving such consideration or (iii) materially
alter the timing of the transaction.
ARTICLE 5
MISCELLANEOUS
5.01. Waiver; Amendment. Prior to the Effective Time of the Merger, any
provision of the Agreement or this Plan of Merger may be (i) waived in writing
by the party benefitted by the provision, or (ii) amended or modified at any
time (including the structure of the transactions contemplated hereby) by an
agreement in writing among the parties hereto approved by their respective
Boards of Directors and executed in the same manner as this Plan of Merger,
except that, after the vote by the stockholders of Investors, the consideration
to be received by the stockholders of Investors for each share of Investors
Common Stock shall not thereby be decreased.
5.02. Counterparts. This Plan of Merger may be executed in one or more
counterparts, each of which shall be deemed to constitute an original. This
Plan of Merger shall become effective when one counterpart has been signed by
each party hereto.
5.03. Governing Law. This Plan of Merger shall be governed by, and
interpreted in accordance with, the laws of the State of South Carolina, except
as federal law may be applicable.
5.04. Headings. The headings contained in this Plan of Merger are for
reference purposes only and are not part of this Plan of Merger.
5.05. Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram or telex (confirmed in writing) to such party at
its address set forth below or such other address as such party may specify by
notice to the parties hereto.
If to the Company to: First Financial Holdings, Inc.
2440 Mall Drive
Suite 100
Charleston, South Carolina 29418
Attn: A. Thomas Hood
With copies to: John F. Breyer, Jr., Esq.
Breyer & Aguggia
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
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If to Investors to: Investors Savings Bank of South Carolina, Inc.
132 West Cheves Street
Florence, South Carolina 29503
Attn: Joseph D. Carson
With copies to: George S. King, Jr.
Sinkler & Boyd, P.A.
The Palmetto Center
1426 Main Street, Suite 1200
P.O. Box 11889 (29211)
Columbia, South Carolina 29201
5.07. Termination. The parties may terminate this Plan of Merger at any
time before the Effective Time of the Merger pursuant to the terms of Article
VII of the Agreement.
* * *
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<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Plan of Merger to
be duly executed and delivered by its duly authorized officers as of the date
first above written.
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
By:
-----------------------------------------
Its: President and Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
FIRST FINANCIAL HOLDINGS, INC.
By:
-----------------------------------------
A. Thomas Hood
Its: President and Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
PEOPLES FEDERAL SAVINGS AND LOAN
ASSOCIATION OF SOUTH CAROLINA
By:
-----------------------------------------
Its: President and Chief Executive Officer
ATTEST:
- ----------------------------
Secretary
A-32
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APPENDIX B
SOUTH CAROLINA BUSINESS CORPORATIONS ACT
CHAPTER 13. DISSENTERS' RIGHTS
SS. 33-13-101. DEFINITIONS.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that right when and
in the manner required by Sections 33-13-200 through 33-13-280.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any 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.
SS. 33-13-102. RIGHT TO DISSENT.
A shareholder is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event of any of the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section 33-11-103 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its
parent under Section 33-11-104 or 33-11-108 or if the corporation is a parent
that is merged with its subsidiary under Section 33-11-108;
(2) consummation of a 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
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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) 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.
SS. 33-13-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if he dissents with respect to all shares of which he
is the beneficial shareholder or over which he has power to direct the vote. A
beneficial shareholder asserting 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.
SS. 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.
SS. 33-13-210. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights (1) must give to the
corporation
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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.
SS. 33-13-220. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
Section 33-13-102 is authorized at a shareholders' meeting, the corporation
shall deliver a written 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.
SS. 33-13-230. SHAREHOLDERS' PAYMENT DEMAND.
(a) A shareholder sent a dissenters' notice described in Section
33-13-220 must demand payment, certify whether he (or the beneficial
shareholder on whose behalf he is asserting dissenters' rights) acquired
beneficial ownership of the shares before the date set forth in the dissenters'
notice pursuant to Section 33-13-220(b)(3), and deposit his certificates in
accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not comply substantially with the
requirements that he demand payment and deposit his share certificates where
required, each by the date set in the dissenters' notice, is not entitled to
payment for his shares under this chapter.
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SS. 33-13-240. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for payment for them is received until the
proposed corporate action is taken or the restrictions are released under
Section 33-13-260.
(b) The person for whom 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.
SS. 33-13-250. PAYMENT.
(a) Except as provided in Section 33-13-270, as soon as the
proposed corporate action is taken, or upon receipt of a payment demand, the
corporation shall pay each dissenter who substantially complied with Section
33-13-230 the amount the corporation estimates to be the fair value of his
shares, plus accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the 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.
SS. 33-13-260. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share
certificates, the corporation, 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.
SS. 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
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amount to each dissenter who agrees to accept it in full satisfaction of his
demand. The corporation shall send with its offer a statement of its estimate
of the fair value of the shares, an explanation of how the fair value and
interest were calculated, and a statement of the dissenter's right to demand
additional payment under Section 33-13-280.
SS. 33-13-280. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in
writing of his own estimate of the fair value of his shares and 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.
SS. 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.
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SS. 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 benefitted.
(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.
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RP FINANCIAL, LC. APPENDIX C
- ----------------------------------------------
Financial Services Industry Consultants
September 5, 1997
Board of Directors
Investors Savings Bank of South Carolina, Inc.
132 West Cheves Street
Florence, South Carolina 29503-0071
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you with
its opinion as to the fairness from a financial point of view to the
shareholders of Investors Savings Bank of South Carolina, Inc., Florence, South
Carolina ("Investors"), of the Agreement and Plan of Merger (the "Agreement")
dated June 25, 1997, by and among First Financial Holdings, Inc. (the
"Company"), Peoples Federal Savings and Loan Association ("Peoples Federal")
and Investors. The Agreement is incorporated herein by reference. Unless
otherwise defined, all capitalized terms incorporated herein have the meanings
ascribed to them in the Agreement.
Summary Description of Consideration
- ------------------------------------
At the Effective Time, each issued and outstanding share of the common
stock of Investors, par value $5.00 per share ("Investors Common Stock"), shall
become and be converted into the right to receive a number of shares of Company
Common Stock, par value $0.01 per share, equal to the Exchange Ratio. The
Exchange Ratio shall be equal (rounded to the nearest hundredth) to the result
obtained by dividing $45.00 by the Final Company Price (as defined below)
provided that the Final Company Price is greater than or equal to $24.00 and
less than or equal to $33.00. No fractional shares of Company Common Stock
will be issued in the Merger; instead, the Company shall pay to each holder of
Investors Common Stock who would otherwise be entitled to a fractional share an
amount in cash determined by multiplying such fraction by Final Company Price.
The Final Company Price shall be the average last price per share of the
Company Common Stock as reported in The Wall Street Journal for each of the ten
trading days preceding the Effective Time. In the event the Company Common
Stock does not trade on one or more of the trading days in such period, any
such date shall be disregarded in computing the average last price per share
and the average shall be based upon the last price per share and number of days
on which the Company Common Stock actually traded during such period. The
Agreement may be terminated by the Company, within five business days after the
end of the ten trading day period used to determine the Final Company Price, if
the Final Company Price is less than $24.00 and the Company and Investors have
not agreed to an adjustment to the Exchange Ratio. The Agreement may be
terminated by the Investors, within five business days after the end of the ten
trading day period used to determine the Final Company Price, if the Final
Company Price is greater than $33.00 and the Company and Investors have not
agreed to an adjustment to the Exchange Ratio.
Additionally, from and after the Effective Time, all employee and director
stock options to purchase shares of Investors Common Stock (each, an "Investors
Stock Option"), which are then outstanding and unexercised, shall be converted
into and become options to purchase shares of Company Common Stock, and the
Company shall assume each such Investors Stock Option in accordance with the
terms of the plan and agreement by which it is evidenced; provided, however,
that from and after the Effective Time(i) each such Investors Stock Option
assumed by the Company may be exercised solely to purchase shares of the
Company Common
- -------------------------------------------------------------------------------
Washington Headquarters
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
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RP Financial, L.C.
Board of Directors
September 5, 1997
Page 2
Stock, (ii) the number of shares of the Company Common Stock purchasable upon
exercise of such Investors Stock Option shall be equal to the number of shares
of Investors Common Stock that were purchasable under such Investors Stock
Option immediately prior to the Effective Time multiplied by the Exchange Ratio
and rounding down to the nearest whole share, with cash being paid for any
fractional share interest that otherwise would be purchasable, and (iii) the
per share exercise price under each such Investors Stock Option shall be
adjusted by dividing the per share exercise price of each such Investors Stock
Option by the Exchange Ratio, and rounding up to the nearest cent.
RP Financial Background and Experience
- --------------------------------------
RP Financial, as part of its financial institution valuation and
consulting practice, is regularly engaged in the valuation of financial
institution securities in connection with mergers and acquisitions of
commercial banks and thrift institutions, initial and secondary stock
offerings, mutual-to-stock conversions of thrift institutions, and business
valuations for other corporate purposes for financial institutions. As
specialists in the securities of financial institutions, RP Financial has
experience in, and knowledge of, the South Carolina and Southeast U.S. markets
for bank securities and financial institutions operating in South Carolina.
Materials Reviewed
- ------------------
In rendering this fairness opinion, RP Financial reviewed the following
material: (1) the Agreement; (2) the Prospectus/Proxy Statement and related
Appendixes included in the Form S-4 Registration Statement filed with the
Securities and Exchange Commission on August 19, 1997; (3) financial and other
information for Investors, all with regard to balance sheet and off-balance
sheet composition, profitability, interest rates, volumes, maturities, trends,
credit risk, interest rate risk, liquidity risk and operations including: (a)
audited financial statements for the fiscal years ended December 31, 1995
through 1996, (b) shareholder, regulatory and internal financial and other
reports through June 30, 1997, (c) the most recent proxy statement for
Investors, (d) internal budgets and financial projections prepared by
management and third parties, and (e) Investors' management and Board comments
regarding past and current business, operations, financial condition, and
future prospects; and (4) financial and other information for the Company
including: (a) audited financial statements for the fiscal years ended
September 30, 1994 through 1996, incorporated in Annual Reports to
shareholders, (b) Form 10K as of September 30, 1996, Form 10Q as of December
31, 1996, March 31, 1997 and June 30, 1997, and interim results and
developments released in press release form, (c) regulatory and internal
financial and other reports through June 30, 1997, (d) internal budgets and
financial projections prepared by management of the Company, and, (e) the
Company's management comments regarding past and current business, operations,
financial condition, and future prospects.
In addition, RP Financial reviewed financial, operational, market area and
stock price and trading characteristics (for the Company) and the stock price
and relatively limited trading information available (for Investors) relative
to publicly-traded savings institutions, respectively, with comparable
resources, financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the local
market area, and the potential impact of the regulatory, legislative and
economic environments on operations for Investors and the Company and the
public perception of the thrift industry. RP Financial also considered: (a) a
transaction summary of the financial terms of the Merger, including the
aggregate consideration represented by the Exchange Ratio formula relative to
fully diluted book value, fully diluted earnings, fully diluted assets, and
deposit liabilities of Investors; (b) the financial terms, financial condition,
operating performance, and market area of other recently completed mergers and
acquisitions of comparable financial institution entities, including evaluating
Southeast U.S. transactions both generally and specifically; (c) discounted
cash flow analyses for Investors on a stand-alone basis, incorporating the
current
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RP Financial, L.C.
Board of Directors
September 5, 1997
Page 3
business plan and future prospects; and (d) the pro forma impact of the Merger
to the holders of Investors Common Stock (incorporating the Exchange Ratio,
transaction adjustments and potential earnings improvements), including the
resulting impact to the market value per share, tangible book value per share,
earnings per share, and dividends per share of the Investors Common Stock. RP
Financial also considered the improved liquidity characteristics of the Company
Common Stock relative to the Investors Common Stock, the enhanced competitive
position of the Company resulting from the Merger, the greater return on equity
of the Company Common Stock relative to the Investors Common Stock, and the
opportunities for the Company to increase earnings in the future. The results
of these analyses and the other factors considered were evaluated as a whole,
with the aggregate results indicating a range of financial parameters utilized
to assess the Exchange Ratio as described in the Agreement.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Investors and the Company furnished by the respective institutions to RP
Financial for review, as well as publicly-available information regarding other
financial institutions and economic and demographic data. Investors and the
Company did not restrict RP Financial as to the material it was permitted to
review. RP Financial did not perform or obtain any independent appraisals or
evaluations of the assets and liabilities and potential and/or contingent
liabilities of Investors or the Company. The financial forecasts and budgets
reviewed by RP Financial were prepared by the managements of Investors and the
Company. Neither Investors nor the Company publicly discloses internal
management forecasts or budgets of the type provided to RP Financial n
connection with the review of the Merger, and such financial forecasts were not
prepared with a view towards public disclosure. The financial forecasts and
budgets were based upon numerous variables and assumptions which are inherently
uncertain, including without limitation factors related to general economic and
competitive conditions, as well as trends in asset quality. Accordingly,
actual results could vary significantly from those set forth in such financial
forecasts.
RP Financial expresses no opinion on matters of a legal, regulatory, tax
or accounting nature or the ability of the Merger as set forth in the Agreement
to be consummated. In rendering its opinion, RP Financial assumed that, in the
course of obtaining the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed on the Company that would have
a material adverse effect on the ability of the Merger to be consummated as set
forth in the Agreement.
Opinion
- -------
It is understood that this letter is directed to the Board of Directors
of Investors in its consideration of the Agreement, and does not constitute a
recommendation to any shareholder of Investors as to any action that such
shareholder should take in connection with the Agreement, or otherwise.
It is understood that this opinion is based on market conditions and
other circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in any
communication by Investors or its Board of Directors to the stockholders of
Investors. It is also understood that this opinion may be included in its
entirety in any regulatory filing by Investors or Company, and that RP
Financial consents to the summary of the opinion in the proxy materials of
Investors, and any amendments thereto. Except as described above, this opinion
may not be summarized, excerpted from or otherwise publicly referred to without
RP Financial's prior written consent.
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<PAGE>
RP Financial, L.C.
Board of Directors
September 5, 1997
Page 4
Based upon and subject to the foregoing, and other such matters considered
relevant, it is RP Financial's opinion that, as of the date hereof, the
Exchange Ratio to be received by the holders of Investors Common Stock, as
described in the Agreement, is fair to such shareholders from a financial point
of view.
Respectfully submitted,
RP FINANCIAL, LC.
/s/ RP Financial, LC
<PAGE>
<PAGE>
APPENDIX D
FINANCIAL INFORMATION
FOR
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
Table of Contents
Management's Discussion and Analysis of Financial Condition and Results
of Operations for Investors Savings Bank of South Carolina, Inc.......... D-2
Independent Auditors' Report............................................. D-17
Statements of Financial Condition as of December 31, 1996 and 1995....... D-18
Statements of Operations for the years ended December 31, 1996,
1995 and 1994............................................................ D-19
Statements of Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994...................................................... D-20
Statements of Cash Flow for the years ended December 31, 1996,
1995 and 1994............................................................ D-21
Notes to Financial Statements............................................ D-22
Condensed Statement of Financial Condition as of
June 30, 1997 (unaudited) ............................................... D-42
Condensed Statements of Operations for the six months
ended June 30, 1997 and 1996 (unaudited)................................. D-43
Condensed Statements of Changes in Stockholders' Equity for the six months
ended June 30, 1997 and 1996 (unaudited)................................. D-44
Condensed Statements of Cash Flows for the six months ended
June 30, 1997 and 1996 (unaudited)....................................... D-45
Notes to Condensed Financial Statements.................................. D-46
D-1
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
This discussion is intended to assist in understanding the financial
condition and results of operations of Investors, and should be read in
conjunction with the financial statements and related notes contained herein.
All per share data has been retroactively restated to reflect a 5% stock
dividend effective June 1, 1995.
EARNINGS PERFORMANCE
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Net income for the six months ended June 30, 1997 was $364,516, or $1.40
per share, compared with net income of $377,738, or $1.47 per share, for the
six month period ended June 30, 1996. This was a decrease of $13,222, or $.07
per share, which represents a 3.5% decrease in net income. The change in
earnings reflects a decrease in net other income of $18,091, or 8.7%,
attributable primarily to declines in loan fees and deposit account service
charges and fees.
1996 COMPARED WITH 1995
Net income for the year ended December 31, 1996 was $593,787, or $2.30
per share, compared with net income of $626,171, or $2.46 per share, for 1995.
This was a decrease of $32,384, or $.16 per share, which represents a 5.2%
decrease in net income.
The decrease in earnings reflects an increase in other expense of
$357,457, resulting primarily from a one-time assessment of $313,000 for the
Savings Association Insurance Fund ("SAIF"). The increase in other expense was
offset partially by increases in net interest income and other income. Net
interest income increased by $115,356, or 5.6%, over 1995. This increase is
attributable to an increase in average interest earning assets to $54,921,112.
Other income increased $90,717, or 28.9%, over 1995, generated primarily by
increases in service charges and fees on deposit accounts.
1995 COMPARED WITH 1994
Net income for the year ended December 31, 1995 was $626,171, or $2.46
per share, compared with net income of $567,594, or $2.23 per share, for the
year ended December 31, 1994. This was an increase of $58,577, or $.23 per
share, representing a 10.3% increase in net income from 1994.
The 1995 increase in earnings is attributable to increases in net
interest income and net other income. In 1995 net interest income increased
$76,238, or 3.9%, over 1994, primarily due to an increase in average interest
earning assets of $2,853,681 Other income increased $92,985, or 42.0%, in 1995
compared with 1994, primarily due to an increase in loan fees, service charges
and activity fees on deposit accounts and a one-time state income tax refund.
Other expenses increased $51,646, or 4.1%, in 1995 compared with 1994,
primarily due to increased personnel expenses, occupancy expenses and data
processing expenses.
NET INTEREST INCOME
Net interest income is the amount of interest earned on interest earning
assets (loans, investment securities, time deposits in other banks and federal
funds sold), less the interest expense incurred on interest bearing liabilities
(interest bearing deposits and capital lease obligation), and is the principal
source of Investors' earnings. Net interest
D-2
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<PAGE>
income is affected by the level of interest rates, volume and mix of interest
earning assets and interest bearing liabilities and the relative funding of
these assets.
For the six months ended June 30, 1997, net interest income increased
$2,300, or less than 1.0%, to $1,081,288 from the six months ended June 30,
1996. Average earning assets increased to $59,221,961 with an average yield of
8.21%. Average interest bearing liabilities were $51,820,784 at an average
cost of 5.20%. The net yield on average earning assets for the six months
ended June 30, 1997 was 3.66%.
For the year ended December 31, 1996, net interest income increased
$115,356, or 5.6%, to $2,165,919. Average earning assets grew 6.4% to
$54,921,112. The average yield on interest-earning assets decreased to 8.37%
from 8.46% in 1996. The average cost of funds decreased by 1.5% to 5.10% and
resulted in a gross interest margin of 3.27%.
Net interest income was $2,050,563 and $1,974,325 for the years ended
December 31, 1995 and 1994, respectively. The $76,238, or 3.9% increase in
1995 was primarily attributable to an increase in average earning assets. The
average rate paid on interest bearing liabilities increased by 26.0% to 5.18%.
The average yield on interest earning assets also increased during 1995 by
10.1% to 8.46%. Increases in the volumes of both interest earning assets and
interest bearing liabilities also affected net interest income. Average
interest earning assets increased $2,853,681, or 5.9%, and average interest
bearing liabilities increased $2,054,669, or 4.8%, for 1995 compared to 1994.
The overall cost of funds rose to 5.18% from 4.11% in 1994. The overall growth
is a continuation of management's controlled growth plans.
D-3
<PAGE>
<PAGE>
Average Yields and Rates
Year Ended December 31,
-------------------------------------------------------
1996 1995
--------------------------- ---------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
Interest-Earning Assets:
Loans(1)(2) $45,040 $4,012 8.91% $44,417 $3,919 8.82%
Mortgage-backed
securities 916 63 6.88 1,067 73 6.84
Investment
securities 1,575 103 6.54 1,662 94 5.66
Other interest-
earning assets(3) 7,390 420 5.68 4,481 282 6.29
------- ------ ---- ------- ------ ----
Total interest-
earning assets 54,921 4,598 8.37 51,627 4,368 8.46
Non-interest- ------ ------
earning assets 3,071 2,885
------- -------
Total Assets $57,992 $54,512
======= =======
Interest-bearing liabilities
Deposit accounts:
Checking accounts
(Includes MMC) $ 7,003 184 2.63 $ 6,338 198 3.12
Savings accounts 3,794 114 3.00 4,119 145 3.52
Certificates 36,926 2,134 5.78 34,266 1,974 5.76
------- ------ ---- ------- ------ ----
Total Deposits 47,723 2,432 5.10 44,723 2,317 5.18%
FHLB Advances
Other borrowings
Total interest-
bearing
liabilities 47,723 2,432 5.10 44,723 2,317 5.18
Non-interest- ------ ------
bearing
liabilities 4,036 3,995
------- -------
Total liabilities 51,759 48,718
Stockholders' equity 6,233 5,794
------- -------
Total liabilities
and stockholders'
equity $57,992 $54,512
======= =======
Net interest
income/gross margin $2,166 3.27% $2,051 3.28%
====== ======
Net yield on average
interest-earning assets 3.94% 3.97%
Percent of average
interest-earning assets
to average interest-bearing
liabilities 115.08% 115.44%
- ---------------
(1) Average balances of loans include non-accrual loans.
(2) The average rate is not adjusted for the effect of deferred loan fees and
costs, which are amortized to income over the lives of the related loans as
a yield adjustment.
(3) This computation includes interest-earning deposits.
D-4
<PAGE>
<PAGE>
The table, "Volume and Rate Variance Analysis", provides a summary of
changes in net interest income resulting from changes in volumes of
interest-earning assets and interest-bearing liabilities, and the rates earned
and paid on such assets and liabilities. The rate/volume variance for each
category has been allocated on a consistent basis between rate and volume
variances based on the percentage of rate or volume variance to the sum of the
two absolute variances except in categories having balances in only one period.
In such cases, the entire variance is attributed to volume differences.
VOLUME AND RATE VARIANCE ANALYSIS
1996 compared to 1995
----------------------
Volume Rate Total
------ ---- -----
(Dollars in thousands)
Interest Income:
Loans $ 54 $ 39 $ 93
Mortgage-backed securities (10) - (10)
Investment securities (5) 14 9
Other interest-earning assets 183 (45) 138
---- ---- ----
Total net change in
interest income 222 8 230
---- ---- ----
Interest Expense:
Checking accounts 19 (33) (14)
Savings accounts (12) (19) (31)
Certificates of deposit 153 7 160
---- ---- ----
Total net change in interest
expense 160 (45) 115
---- ---- ----
Net change in interest income $ 62 $ 53 $115
==== ==== ====
During the remainder of 1997, management expects that interest rates will
not radically change. Therefore, any improvements in net interest income for
1997 are expected to be largely the result of increases in the volume and
changes in the mix of interest-earning assets and liabilities.
INTEREST RATE SENSITIVITY
Management is concerned with the timing and magnitude of repricing assets
compared to liabilities and is an important part of asset/liability management.
It is the objective of interest rate sensitivity management to generate stable
growth in net interest income, and to control the risks associated with
interest rate movements. Management constantly reviews interest rate risk
exposure and the expected interest rate environment so that adjustments in
interest rate sensitivity can be timely made.
When interest sensitive assets exceed interest sensitive liabilities for
a specific repricing "horizon", a positive interest sensitivity gap results.
The gap is negative when interest sensitive liabilities exceed interest
sensitive assets, as was the case at the end of 1996 with respect to the one
year time horizon. For a bank with a negative gap, falling interest rates
would be expected to have a positive effect on net interest income and rising
rates would be expected to have the opposite effect.
The following table, "Interest Sensitivity Analysis", indicates that, on
a cumulative basis through twelve months, rate sensitive liabilities exceeded
rate sensitive assets, resulting in a liability sensitive position at December
31, 1996 of $7,030,000 for a cumulative gap ratio of (11.33%). The table
reflects the balances of interest-earning assets and interest-bearing
liabilities at the earlier of their repricing or maturity dates. Scheduled
payment amounts of amortizing fixed rate loans are reflected at each scheduled
payment date. Variable rate amortizing loans reflect
D-5
<PAGE>
<PAGE>
scheduled payments at each scheduled payment date until the loan may be
repriced contractually; the unamortized balance is reflected at that point.
Deposits in other banks and debt securities are reflected at each instrument's
ultimate maturity date. Overnight federal funds sold are reflected in the
earliest repricing interval due to the immediately available nature of these
funds. Interest bearing liabilities with no contractual maturity, such as
interest-bearing transaction accounts and savings deposits are reflected in the
earliest repricing interval due to contractual arrangements which give
management the opportunity to vary the rates paid on these deposits within a
thirty-day or shorter period. However, Investors is under no obligation to
vary the rates paid on those deposits within any given period. Fixed rate time
deposits, principally certificates of deposit, are reflected at their
contractual maturity dates. Variable rate time deposits, principally
individual retirement accounts, are reflected at the earlier of their next
repricing or maturity dates.
INTEREST SENSITIVITY ANALYSIS
December 31, 1996
-------------------------------------------
Within 4-12 Over 1-5 Over 5
3 Months Months Years Years Total
-------- ------ -------- ------ -----
(Dollars in thousands)
Interest-earning assets
Investment securities $ 499 $ 200 $ 955 $ 648 $ 2,302
Other interest-earning assets 7,768 500 8,268
Mortgage-backed securities 759 59 818
Loans (1)
Single family 2,561 9,987 1,779 9,143 23,470
Construction and land 1,502 298 866 996 3,662
2nd mortgage 1,558 122 776 566 3,022
Commercial mortgage 2,066 476 702 3,820 7,064
Commercial other 2,947 983 1,274 635 5,839
Consumer 954 552 969 797 3,272
-------- ------- ------- -------- -------
Total interest-earning
assets 19,855 13,118 8,080 16,664 57,717
-------- ------- ------- -------- -------
Interest-bearing liabilities
Interest-bearing transaction
accounts 7,161 7,161
Savings accounts 3,437 3,437
Certificates 14,412 14,993 10,457 39,862
-------- ------- ------- -------
Total interest-bearing
liabilities 25,010 14,993 10,457 50,460
-------- ------- -------- -------
Interest sensitivity gap $ (5,155) $(1,875) $ (2,377) $16,664 $ 7,257
======== ======= ======== ======= =======
Cumulative interest sensitivity
gap $ (5,155) $(7,030) $ (9,407) $ 7,257
======== ======= ======== =======
Gap ratio to total assets (8.31%) (3.02%) ( 3.83%) 26.87%
Cumulative gap ratio to total
assets (8.31%) (11.33%) (15.17%) 11.70%
- ---------------
(1) There were no nonaccruing loans at December 31, 1996.
PROVISION FOR LOAN LOSSES
The provision for loan losses is charged to earnings based on
management's continuing review and evaluation of the loan portfolio and general
economic conditions. Provisions for loan losses were $30,000 for the six
months ended June 30, 1997 and $60,000 and $85,000 for the years ended December
31, 1996 and 1995, respectively. The larger provision in 1995 was primarily
attributable to growth of commercial business and commercial real estate loans
during 1995.
D-6
<PAGE>
<PAGE>
Net loan charge-offs for the period ended June 30, 1997 were $54,691. In
1996 net charge-offs totaled $18,664, compared with $3,948 in 1995. Management
is not aware of any trend toward significantly higher charge-offs in any
particular loan category in 1997. See "Nonperforming Loans; Other Problem
Assets" and "Allowance for Loan Losses" for a discussion of the factors
management considers in its review of the adequacy of the allowance and
provisions for loan losses.
OTHER INCOME
For the six months ended June 30, 1997, other income decreased $18,091,
or 8.7%, from the corresponding period in 1996. This change resulted primarily
from lower loan fee income compared to the 1996 period. This decrease is the
result of fewer sales of loans in the secondary market and a decrease in loan
originations.
For the year ended December 31, 1996, other income increased $90,717, or
28.9%, over the comparable period in 1995, primarily resulting from increases
in deposit account service charges and fees. These charges and fees increased
because of increased activity charges on commercial checking accounts.
For the year ended December 31, 1995, other income increased $92,985 or
42.0% over the 1994 period. This increase primarily resulted from increases in
loan fees, deposit account service charges and fees, and a one-time state
income tax refund.
EXPENSES
For the six months ended June 30, 1997, other expenses increased $7,781,
or 1.2%, compared with the same period in 1996. A decline in deposit insurance
premiums of $38,493, or 58.8%, was partially offset by increases in salaries
and benefits and increased directors' fees. The decline in deposit insurance
premiums is the result of a reduction in deposit insurance assessment rates
from $.23 per $100 in deposits for the six months ended June 30, 1996 to $.065
per $100 in deposits for the period ended June 30, 1997.
For the year ended December 31, 1996, expenses grew $357,457, or 27.5%,
to $1,658,058. The increased expenses reflect somewhat higher salaries and
fringe benefits and a one time assessment of $313,000 for the SAIF.
Other expenses for the year ended December 31, 1995 increased $51,646, or
4.1%, over 1994. Salaries and fringe benefits increased $20,775, or 3.1% for
1995. Other operating expense rose 19,696, or 9.5%, due to an increase in
amortized mortgage loan expense which resulted from an increase in loan
originations.
INCOME TAXES
For 1996, federal and state income tax expense decreased $94,000, or
26.6%, from the 1995 period due to the decrease in operating earnings. Income
tax expense continued to decline during the six month period ended June 30,
1997, also due to lower operating earnings. For this period, income tax
expense fell by $10,350, or 4.9%, from the prior period. For 1995, income tax
expense increased by $34,000, or 10.7%, due to increased earnings. Management
estimates that the effective combined federal and state income tax rates on
income before income taxes will be approximately 36.0% for 1997.
D-7
<PAGE>
<PAGE>
INVESTMENT PORTFOLIO
The following table summarizes the carrying value amounts of securities
held by Investors at each of the dates indicated.
INVESTMENT PORTFOLIO COMPOSITION
December 31,
1996 1995
---- ----
(Dollars in thousands)
U. S. Treasury and federal agencies $ 955 $ --
State and local governments 848 848
Mortgage-backed securities 818 1,002
Corporate debt securities 499 --
------ ------
Total $3,120 $1,850
====== ======
- ------------------
Held-to-maturity securities are stated at amortized cost.
The following table presents maturities and weighted average yields of
securities at December 31, 1996.
SECURITIES PORTFOLIO MATURITIES AND YIELDS
December 31, 1996
-----------------
Held-to-
--------
maturity Yield
-------- -----
(Dollars in thousands)
U. S. Treasury and federal agencies
Within one year
After one through five years $ 955 6.57%
After five through ten years
State and local governments
Within one year 200 5.40
After one through five years
After five through ten years 648 6.87
Mortgage-backed securities
Within one year
After one through five years 759 6.08
After five through ten years 59 8.50
Corporate debt securities
Within one year 499 5.47
After one through five years
After five through ten years
Total
Within one year $ 699 5.45%
After one through five years 1,714 6.35
After five through ten years 707 7.01
---- ----
Total $3,120 6.30
======
Investors has classified all of its investment securities as
held-to-maturity based on management's positive intent and ability to hold the
securities until maturity. At December 31, 1996, the market value of
Investors' investment portfolio was $3,203,067, including $93,661 of gross
unrealized gains and $11,080 of gross unrealized losses.
D-8
<PAGE>
<PAGE>
LOAN PORTFOLIO
Management believes the loan portfolio is adequately diversified within
the parameters of the qualified thrift lender test. There are no significant
concentrations of loans to any particular individuals or industry or group of
related individuals or industries, and there are no foreign loans.
The amount of loans outstanding at December 31, 1996 and 1995 are shown
in the following table according to type of loan:
LOAN PORTFOLIO COMPOSITION
At December 31,
---------------------------------------
1996 1995
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in thousands)
Residential real estate $28,893 62.80% $28,555 63.72%
Residential construction 1,545 3.36 2,099 4.68
Commercial real estate 6,546 14.23 6,013 13.42
Less loans in process 852 1.85 430 .96
Less deferred fees 70 .15 66 .15
------- ------ ------- ------
Total mortgage loans 36,062 78.39 36,171 80.71
Other loans
Consumer loans 2,688 5.84 2,753 6.14
Commercial loans 7,277 15.82 6,099 13.61
Loans of savings accounts 454 .99 229 .51
------- ------ ------- ------
Total other loans 10,419 22.65 9,081 20.26
Loans receivable 46,481 101.04 45,252 100.97
Less allowance for loan losses 478 1.04 437 .97
------- ------ ------- ------
Loans receivable, net $46,003 100.00% $44,815 100.00%
======= ====== ======= ======
A certain degree of risk taking is inherent in the extension of credit.
Management has established loan and credit policies designed to control both
the types and amounts of risks assumed and to ultimately minimize losses. Such
policies include limitations on loan-to-collateral values for various types of
collateral, requirements for appraisals of real estate collateral, problem loan
management practices and collection procedures, and nonaccrual and charge-off
guidelines.
Commercial loans primarily represent loans made to businesses, and may be
made on either a secured or an unsecured basis. When taken, collateral
consists of liens on receivables, equipment, inventories, furniture and
fixtures. Unsecured business loans are generally short-term with emphasis on
repayment strengths and low debt to worth ratios. During 1996, total
commercial and industrial loans increased $1,178,660, or 19.3%. Also, loans
for business purposes that are secured by real estate (nonfarm, nonresidential)
increased by $532,867, or 8.9%, during 1996. Commercial lending involves
significant risk because repayment usually depends on the cash flows generated
by a borrower's business, and the debt service capacity of a business can
deteriorate because of downturns in national and local economic conditions. To
control risk, sophisticated initial and continuing financial analysis of a
borrower's financial information is required.
D-9
<PAGE>
<PAGE>
Real estate construction loans generally consist of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan to cost ratios are limited to 75% and permanent
financing commitments are required prior to the advancement of loan proceeds.
During 1996, outstanding real estate construction loans declined by $554,125,
or 26.4%.
Loans secured by real estate mortgages comprised 78.4% and 80.7% of
Investors's loan portfolio at the end of 1996 and 1995, respectively. Gross
real estate mortgage loans of all types grew $316,145 during 1996. Residential
real estate loans consist mainly of first and second mortgages on single-family
homes, with some multifamily loans. Loan-to-value ratios for these instruments
are generally limited to 80%. Nonfarm, nonresidential loans are secured by
business and commercial properties with loan-to-value ratios generally limited
to 75%. The repayment of both residential and business real estate loans is
dependent primarily on the income and cash flows of the borrowers, with the
real estate serving as a secondary or liquidation source of repayment.
NONPERFORMING LOANS; OTHER PROBLEM ASSETS
Nonperforming loans include nonaccrual loans and loans that are 90 days
or more delinquent as to principal or interest payments. Following is a summary
of Investors' nonperforming loans:
NONPERFORMING LOANS
(Dollars in thousands)
June 30, December 31,
-------- --------------
1997 1996 1995
---- ---- ----
Nonaccrual loans $ 81 $ -- $ 8
Accruing loans 90 days or more past due 112 163 113
------ ----- -----
Total $ 193 $ 163 $ 121
====== ===== =====
Percent of total loans .41% .35% .26%
When a loan is 90 days past due as to interest or principal or there is
serious doubt as to collectibility, the accrual of interest income is generally
discontinued unless the estimated net realizable value of collateral is
sufficient to assure collection of the principal balance and accrued interest.
Previously accrued interest on loans placed in a nonaccrual status is reversed
against current income, and subsequent interest income is recognized when
received. When the collectibility of a significant amount of principal is in
serious doubt, the principal balance is reduced to the estimated fair value of
collateral by charge-off to the allowance for loan losses and any subsequent
collections are credited first to the remaining principal balance and then to
the allowance for loan losses as a recovery of the amount charged off. A
nonaccrual loan is not returned to accrual status unless principal and interest
are current and the borrower has demonstrated the ability to continue making
payments as agreed.
Interest income that would have been recorded if nonaccrual loans had
been current in accordance with their original terms amounted to $756 for 1995.
There were no nonaccrual loans in 1996. There was no recognized interest
income on these loans for 1995. As of December 31, 1996, there were no
commitments to lend additional funds to debtors owing amounts on nonaccrual
loans.
POTENTIAL PROBLEM LOANS
Management has identified and maintains a list of potential problem
loans. These are loans that are not included in nonaccrual status, or loans
that are past due 90 days or more and still accruing interest. A loan is added
to the potential problem list when management becomes aware of information
about possible credit problems of borrowers that causes serious doubts as to
the ability of such borrowers to comply with the current loan repayment terms.
The total amount of loans determined by management to be potential problem
loans was $163,000 at
D-10
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<PAGE>
December 31, 1996 and $112,000 at June 30, 1997. These amounts do not represent
management's estimate of potential losses since a large proportion of such
loans is secured by various types of collateral.
The following table presents information about the categories and types
of collateral with respect to potential problem loans as of December 31, 1996.
December 31, 1996
----------------------
Amount %
--------- -------
(Dollars in Thousands)
Commercial and industrial $ 8 4.9%
Equipment, inventory and vehicles * *
Real estate - mortgage
1-4 family residential 104 63.8
Consumer installment * *
Unsecured 51 31.3
----- -----
Total $ 163 100.0%
===== ======
*Less than .1%.
FORECLOSED REAL ESTATE
Foreclosed real estate consists of foreclosed and in-substance foreclosed
properties. At June 30, 1997, and December 31, 1996 there was no foreclosed
real estate. At December 31, 1995 foreclosed real estate totaled $105,733.
Foreclosed real estate is initially recorded at the lower of net loan principal
balance or its estimated fair market value less estimated selling costs. The
estimated fair value is determined by appraisal at the time of acquisition.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by direct charges to operating
expense. Losses on loans are charged against the allowance in the period in
which management has determined that it is more likely than not that such loans
have become uncollectible. Recoveries of previously charged off loans are
credited to the allowance. The table, "Summary of Loan Loss Experience,"
summarizes loan balances at the end of each period indicated, averages for each
period, changes in the allowance arising from charge-offs and recoveries by
loan category, and additions to the allowance which have been charged to
expense.
In reviewing the adequacy of the allowance for loan losses at each year
end, management takes into consideration the historical loan losses experienced
by Investors, current economic conditions affecting the borrowers' ability to
repay, the volume of loans, and the trends in delinquent, nonaccruing, and
potential problem loans, and the quality of collateral securing nonperforming
and problem loans. After charging off all known losses, management considers
the allowance for loan losses adequate to cover its estimate of possible future
loan losses inherent in the loan portfolio as of June 30, 1997 and at December
31, 1996.
In calculating the amount required in the allowance for loan losses,
management applies a consistent methodology that is updated monthly. The
methodology utilizes a loan risk grading system, detailed loan reviews to
assess credit risks, mix of the loan portfolio and the overall quality of the
loan portfolio, as well as other off-balance-sheet credit risks such as loan
commitments and standby letters of credit. Also, the calculation provides for
management's assessment of trends in national and local economic conditions
that might affect the general quality of the loan portfolio. Regulators review
the adequacy of the allowance for loan losses as part of their examination of
Investors and may require adjustments to the allowance based upon information
available to them at the time of the examination.
D-11
<PAGE>
<PAGE>
Management's calculation of the allowance for loan losses provides an
allocation by individual loan categories as the various categories have
differing degrees of risk. Commercial lending generally has the highest degree
of risk among the loan categories because repayment usually depends on cash
flows generated by a borrower's business, and the debt service capacity of a
business can deteriorate because of internal problems with a particular
business or because of downturns in national and local economic conditions.
Real estate lending generally has a significantly lower degree of risk than
commercial lending. The degree of risk in a real estate loan depends primarily
on the loan-to-value ratio, the interest rate and, to a lesser extent, the
borrower's ability to repay in an orderly fashion. Real estate construction
loans may involve a somewhat higher degree of risk than other real estate
mortgage loans because of the necessity of completing projects within specified
time and cost limits. This risk can, however, be reduced by limiting the type
and extent of Investors' involvement. Home equity lending generally is
considered to be relatively low-risk because these loans are secured by housing
assets, the value of which has historically performed well. Installment
lending to individuals generally carries a moderate risk, which is to some
degree offset by higher rates of interest charged and the relatively small
amount of such loans. Notwithstanding the allocation, which is done for
analytical purposes, the entire allowance is available to absorb loan losses
regardless of category.
Management's allocation of the allowance for loan losses is shown in the
following table.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
December 31
----------------------------------------------
1996 1995
--------------------- ---------------------
% of % of
Amount Allowance Amount Allowance
------ --------- ------ ---------
Commercial $338 70.7% $300 68.7%
Real Estate:
Construction and
residential mortgage 57 11.9 60 13.7
Consumer 83 17.4 77 17.6
---- ------ ---- ------
TOTAL $478 100.0% $437 100.0%
==== ====== ==== ======
D-12
<PAGE>
<PAGE>
Charge-offs for 1997 are expected to be approximately the same amounts as
in prior years. See "Summary of Loan Loss Experience" below.
SUMMARY OF LOAN LOSS EXPERIENCE
Year Ended December 31,
-----------------------
1996 1995
---- ----
(Dollars in thousands)
Total loans outstanding at end of period $46,003 $44,815
Average amount of loans outstanding 45,040 44,417
Balance of allowance for loan losses
- beginning $ 437 $ 356
Loans charged off
Commercial and industrial -- --
Real estate - mortgage 4 --
Consumer installment 21 13
------- -------
Total charge-offs 25 13
Recoveries of loans previously charged-off
Commercial and industrial 6 9
Net charge-offs 19 4
Additions to allowance charged to expense 60 85
Additions due to purchase of loans -- --
------- -------
Balance of allowance for loan losses - ending $ 478 $ 437
======= =======
Ratios
Net charge-offs during period to average
loans outstanding during period .04% .01%
Net charge-offs to loans at end of period .04 .01
Allowance for loan losses to average loans 1.06 .98
Allowance for loan losses to loans at end
of period 1.04 .98
Allowance for loan losses to nonperforming
loans at end of period 293.25 361.15
Net charge-offs to allowance for loan
losses 3.97 .92
Net charge-offs to provision for loan
losses 31.67 4.71
D-13
<PAGE>
<PAGE>
DEPOSITS
The average amounts and percentage composition of deposits held by
Investors for the years ended December 31, 1996 and 1995, are summarized below:
AVERAGE DEPOSITS
December 31,
-------------------------------------
1996 1995
---------------- ----------------
Amount % Amount %
------ ------ ------ -------
(Dollars in Thousands)
Noninterest-bearing demand $ 3,370 6.60% $ 3,338 6.95%
Interest-bearing transaction accounts 7,003 13.71 6,338 13.19
Savings 3,794 7.43 4,119 8.57
Certificates 36,926 72.26 34,266 71.29
------- ------ ------- ------
Total deposits $51,093 100.00% $48,061 100.00%
======= ====== ======= ======
As of December 31, 1996 and 1995, Investors held $9,067,000 and
$10,500,000 in time deposits of $100,000 or more, respectively.
RETURN ON EQUITY AND ASSETS
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
dividend payout ratio (dividends declared per share divided by net income per
share), and equity to assets ratio (average equity divided by average total
assets) for each period indicated.
Year Ended December 31,
-----------------------
1996 1995
---- ----
Return on average assets 1.00% 1.15%
Return on average equity 9.16% 10.53%
Dividend payout ratio 19.67% 15.24%
Average equity to average assets ratio 10.89% 10.88%
LIQUIDITY
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be
immediately converted into cash at minimal cost (amounts due from banks and
federal funds sold). However, the most manageable sources of liquidity are
composed of liabilities, with the primary focus on liquidity management being
on the ability to obtain deposits within Investors' service area. Core deposits
(total deposits less wholesale time deposits) provide a relatively stable
funding base, and were equal to 88.3% of total assets at December 31, 1996
compared with 80% at the end of 1995. Asset liquidity is provided from several
sources, including amounts due from banks and federal funds sold, and funds
from maturing loans. Management believes that Investors's overall liquidity
sources are adequate to meet its operating needs.
CAPITAL RESOURCES
The equity capital of Investors increased by $522,052 and $554,108 during
1996 and 1995, respectively, as the result of net income, plus proceeds from
exercise of stock options, minus dividends paid.
D-14
<PAGE>
<PAGE>
Investors is subject to regulatory capital adequacy standards. Under
these standards, financial institutions are required to maintain certain
minimum ratios of capital to risk-weighted assets and average total assets.
Under the provisions of the Federal Deposit Insurance Corporation Improvement
Act of 1991, federal financial institution regulatory authorities are required
to implement prescribed "prompt corrective actions" upon the deterioration of
the capital position of a bank. If the capital position of an affected
institution were to fall below certain levels, increasingly stringent
regulatory corrective actions are mandated.
Investors' June 30, 1997 and December 31, 1996 capital ratios are
presented in the following table, compared with the "well capitalized" and
minimum ratios under the FDIC regulatory definitions and guidelines:
To be well
capitalized
under prompt
For capital corrective
adequacy purposes action provisions
----------------- -----------------
Actual Minimum Minimum
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Amounts in thousands)
AS OF JUNE 30, 1997
Tangible Capital $7,105 11.1% $ 962 1.5%
(to Total
Assets)
Core Capital $7,105 11.1% $1,924 3.0% $3,207 5.0%
(to Total
Assets)
Tier 1 Capital $7,105 18.6% $2,287 6.0%
(to Risk-based
Assets)
Risk-based Capital $7,561 19.8% $3,049 8.0% $3,811 10.0%
(to Risk-based
Assets)
To be well
capitalized
under prompt
For capital corrective
adequacy purposes action provisions
----------------- -----------------
Actual Minimum Minimum
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Amounts in thousands)
AS OF DECEMBER 31, 1996
Tangible Capital $6,743 10.9% $ 930 1.5%
(to Total
Assets)
Core Capital $6,743 10.9% $1,861 3.0% $3,101 5.0%
(to Total
Assets)
Tier 1 Capital $6,743 17.0% $2,378 6.0%
(to Risk-based
Assets)
Risk-based Capital $7,221 18.2% $3,170 8.0% $3,963 10.0%
(to Risk-based
Assets)
Since the assets and liabilities of a bank are primarily monetary in
nature (payable in fixed, determinable amounts), the performance of a bank is
affected more by changes in interest rates than by inflation. Interest rates
generally increase as the rate of inflation increases, but the magnitude of the
change in rates may not be the same.
D-15
<PAGE>
<PAGE>
While the effect of inflation on banks is normally not as significant as
is its influence on those businesses which have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there
are normally corresponding increases in the money supply, and banks will
normally experience above-average growth in assets, loans and deposits. Also
general increases in the prices of goods and services will result in increased
operating expenses.
D-16
<PAGE>
<PAGE>
WEBSTER, ROGERS, WEST, BERRY & GRADY, LLP
==========================================
CERTIFIED PUBLIC ACCOUNTANTS * CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Investors Savings Bank of South Carolina, Inc.
Florence, South Carolina
We have audited the accompanying statements of financial condition of
Investors Savings Bank of South Carolina, Inc., as of December 31, 1996 and
1995, and the related statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Investors Savings Bank of
South Carolina, Inc. as of December 31, 1996 and 1995, and the results of its
operations, and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Webster, Rogers, West, Berry & Grady, LLP
February 4, 1997
(except for Notes 11 and 14,
as to which the date is
August 14, 1997)
Florence, South Carolina
D-17
317 West Cheves Street 2100 Oak Street, Suite 200
P.O. Box 6289 P.O. Box 303
Florence, SC 29502 Myrtle Beach, SC 29578
Telephone: (803) 665-5900 Telephone: (803) 448-1500
Facsimile: (803) 678-9523 Facsimile: (803) 448-4957
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF FINANCIAL CONDITION
December 31, 1996 and 1995
ASSETS 1996 1995
------------- --------------
Cash (including interest bearing deposits
in other banks of $8,268,473 and $6,425,803
in 1996 and 1995, respectively) $ 11,362,232 $ 8,989,951
Investment securities held to maturity 3,120,486 1,850,091
Loans, less allowance for loan losses of $478,056
and $436,720 at December 31, 1996 and 1995, 46,002,763 44,814,517
respectively
Premises and equipment, net 638,765 582,476
Federal Home Loan Bank stock, at cost 296,700 296,700
Accrued interest receivable on loans 357,912 350,539
Prepaid expenses 38,327 18,005
Deferred income taxes 149,637 --
Foreclosed real estate -- 105,733
Other assets 53,951 19,642
------------- ------------
TOTAL ASSETS $ 62,020,773 $ 57,027,654
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 54,734,787 $ 50,326,495
Advance payments by borrowers for taxes
and insurance 54,326 109,051
Accounts payable and accrued expenses 22,392 16,504
Income taxes payable 97,660 36,081
Accrued interest payable 135,691 150,474
Deferred income taxes payable - 23,363
Other liabilities 232,813 144,634
------------- ------------
55,277,669 50,806,602
------------- ------------
Stockholders' Equity
Common stock - $5 par value, 500,000 shares
authorized; 260,588 and 256,948 shares
issued and outstanding, at December 31, 1,302,940 1,284,740
1996 and 1995, respectively
Additional paid-in capital 1,984,308 1,957,458
Retained earnings - substantially restricted 3,455,856 2,978,854
------------- ------------
6,743,104 6,221,052
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 62,020,773 $ 57,027,654
============= ============
The accompanying Notes to Financial Statements are an integral part of
these statements.
D-18
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
Interest income
Interest on loans $4,012,027 $3,919,018 $3,393,500
Interest on investment securities 103,160 93,766 162,899
Interest on mortgage - backed securities 62,775 73,140 58,262
Interest on federal funds 396,566 261,167 96,125
Other interest-earning assets 22,940 20,789 16,057
----------- ----------- ----------
Total interest income 4,597,468 4,367,880 3,726,843
----------- ----------- ----------
Interest expense
Interest on demand deposits 184,000 198,280 183,949
Interest on savings 114,261 145,209 158,702
Interest on time deposits 2,133,288 1,973,828 1,409,867
---------- ---------- ----------
Total interest expense 2,431,549 2,317,317 1,752,518
---------- ---------- ----------
Net interest income 2,165,919 2,050,563 1,974,325
Provision for loan losses 60,000 85,000 60,000
---------- ---------- ----------
Net interest income after provision for 2,105,919 1,965,563 1,914,325
loan losses ---------- ---------- ----------
Other income
Loan fees 151,944 137,186 106,730
Deposit account service charges and fees 220,921 109,774 85,641
Other 32,061 67,249 28,853
---------- ---------- ----------
Total other income 404,926 314,209 221,224
---------- ---------- ----------
Other expense
Salaries and fringe benefits 738,449 694,645 673,870
Occupancy 101,361 101,944 98,229
Furniture and equipment 67,284 68,372 73,127
FDIC insurance premium 439,200 124,350 121,747
Service bureau expense 87,381 85,252 75,640
Other 224,383 226,038 206,342
---------- ---------- ----------
Total other expense 1,658,058 1,300,601 1,248,955
---------- ---------- ----------
852,787 979,171 886,594
Income tax expense 259,000 353,000 319,000
---------- ---------- ----------
Net income $ 593,787 $ 626,171 $ 567,594
========== ========== ==========
Net income per share of common stock $ 2.30 $ 2.46 $ 2.23
========== ========== ==========
Weighted average shares outstanding 258,461 254,549 254,522
========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of these
statements
D-19
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
Common Stock Additional Total
--------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
---------- ---------- ---------- ---------- ------------
Balance,
December 31, 242,654 $1,213,270 $1,702,228 $2,274,849 $5,190,347
1993
Cash dividend -- -- -- (90,997) (90,997)
Net income -- -- -- 567,594 567,594
--------- ---------- ---------- ------- ----------
Balance,
December 31, 242,654 1,213,270 1,702,228 2,751,446 5,666,944
1994
Cash dividend -- -- -- (95,446) (95,446)
Stock dividend 11,868 59,340 237,360 (303,317) (6,617)
Stock option 2,426 12,130 17,870 -- 30,000
exercised
Net income -- -- -- 626,171 626,171
--------- ---------- ---------- ------- ----------
Balance,
December 31, 256,948 1,284,740 1,957,458 2,978,854 6,221,052
1995
Cash dividend -- -- -- (116,785) (116,785)
Stock option 3,638 18,190 26,810 -- 45,000
exercised
Other stock issued 2 10 40 -- 50
Net income -- -- -- 593,787 593,787
--------- ---------- ---------- -------- ----------
Balance,
December 31, 260,588 $1,302,940 $1,984,308 $3,455,856 $6,743,104
1996 ========= ========== =========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of
these statements.
D-20
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 1996, 1995 and 1994
1996 1995 1994
------------ ------------ -----------
OPERATING ACTIVITIES
Net income $ 593,787 $ 626,171 $ 567,594
Adjustments to reconcile net income to
net cash provided by operating
activities
Loss on disposal of property and real 670 1,101 2,716
estate
Deferred income taxes (173,000) 4,000 8,000
Provision for loan losses 60,000 85,000 60,000
Depreciation 61,740 68,127 73,085
Amortization of loan fees (28,357) (37,144) (15,716)
Stock dividend received -- -- (3,300)
(Increase) decrease in other assets (34,309) 17,306 8,256
Increase in interest receivable and (27,695) (6,093) (32,912)
prepaid expenses
Decrease (increase) in prepaid income -- 12,700 (12,700)
taxes
Increase (decrease) in accounts 5,888 3,565 (2,955)
payable
Increase (decrease) in income taxes 61,579 36,081 (27,450)
payable
(Decrease) increase in accrued (14,783) 68,935 17,054
interest payable
Increase (decrease) in other 88,179 (3,770) 39,168
liabilities
------------ ------------ ----------
Net cash provided by operating 593,699 875,979 680,840
activities ------------ ------------ ----------
INVESTING ACTIVITIES
Purchases of investment securities
held to maturity (1,954,008) -- (2,662,194)
Proceeds from maturities of investment 683,613 1,621,805 2,219,425
securities
Purchase of FHLB stock -- (26,800) --
Loans originated, net of payments (3,050,734) (3,185,968) (4,172,522)
received
Proceeds from sales of loans 1,830,845 2,640,054 1,030,206
Purchase of premises and equipment (315,083) (40,144) (52,243)
Proceeds from sale of premises and 197,054 -- --
equipment
Proceeds from sale of foreclosed real 105,063 -- --
estate ------------ ----------- ----------
Net cash (used) provided by investing (2,503,250) 1,008,947 (3,637,328)
activities ------------ ------------ ----------
FINANCING ACTIVITIES
Common stock issued 45,050 30,000 --
Fractional portion of stock dividend -- (6,617) --
paid in cash
Cash dividend paid (116,785) (95,446) (90,997)
Net increase in deposits 4,408,292 4,093,358 405,341
Net (decrease) increase in advance
payments by borrowers for taxes and (54,725) 27,327 5,718
insurance ---------- ----------- -----------
Net cash provided by financing 4,281,832 4,048,622 320,062
activities ---------- ----------- -----------
Net increase (decrease) in cash and cash 2,372,281 5,933,548 (2,636,426)
equivalents
Cash and cash equivalents, beginning of 8,989,951 3,056,403 5,692,829
year =========== ========== ==========
Cash and cash equivalents, end of year $11,362,232 $8,989,951 $3,056,403
=========== ========== ==========
The accompanying Notes to Financial Statements are an integral part of
these statements.
D-21
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Investors Savings Bank of South Carolina, Inc. (the
"Bank") provides a variety of financial services to individuals and corporate
customers through its two branches in Florence, South Carolina. The Bank's
primary source of revenue is single-family residential loans to middle-income
individuals.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities 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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of foreclosed real estate. In connection with the determination of
the estimated losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
A majority of the Bank's loan portfolio consists of single-family residential
loans in the Florence, South Carolina area. The regional economy depends
heavily on the healthcare and paper industries. Accordingly, the ultimate
collectibility of a substantial portion of the Bank's loan portfolio and the
recovery of a substantial portion of the carrying amount of foreclosed real
estate are susceptible to changes in local market conditions. While management
uses available information to recognize losses on loans and foreclosed real
estate, changes in the carrying amounts of loans and foreclosed assets may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the estimated losses on loans and foreclosed real estate.
Such agencies may require the Bank to recognize additional losses based on
their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
estimated losses on loans and foreclosed real estate may change within the next
year.
INVESTMENT SECURITIES AND MORTGAGE - BACKED SECURITIES
Trading Securities: Securities that are held for resale are classified as
short-term trading account securities and recorded at their fair values.
Realized and unrealized gains and losses on trading account securities are
included in other income.
D-22
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Securities Held-to-Maturity: Government, Federal agency, and corporate debt
securities that management has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of premiums and
accretion of discounts that are recognized in interest income, using methods
approximating the interest method over the period to maturity. Mortgage-backed
securities represent participating interests in pools of long-term first
mortgage loans originated and serviced by issuers of the securities. Mortgage-
backed securities are carried at unpaid principal balances, adjusted for
unamortized premiums and unearned discounts. Premiums and discounts are
amortized using methods approximating the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
Securities Available-for-Sale: Available-for-sale securities consist of
investment securities not classified as trading securities nor as
held-to-maturity securities. Unrealized holding gains and losses, net of tax,
on available-for-sale securities are reported as a net amount in a separate
component of stockholders' equity until realized. Gains and losses on the sale
of available-for-sale securities are determined using the specific-
identification method. The amortization of premiums and the accretion of
discounts are recognized in interest income using methods approximating the
interest method over the period of maturity.
Declines in the fair value of individual held-to-maturity and available-for-
sale securities below their cost that are other than temporary result in write-
downs of the individual securities to their fair value. The related write-
downs are included in earnings as realized losses.
The Bank has classified all of its investment securities and mortgage-backed
securities as held-to-maturity.
On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114"). The Statement requires all creditors to account for impaired
loans, except those loans that are accounted for at fair value or at the lower
of cost or fair value, at the present value of expected future cash flows
discounted at the loan's effective interest rate. As an expedient, creditors
may account for impaired loans at the fair value of the collateral or at the
observable market price of the loan if one exists. The adoption of SFAS No.
114, as amended by SFAS No. 118, did not have a material effect on the Bank's
financial condition or results of operations.
D-23
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On January 1, 1996, the Bank adopted SFAS No.121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity be reviewed for impairment and reported at the
lower of carrying amount or fair value, less cost to sell, whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The adoption of SFAS No.121, did not have a material impact on
the financial condition or results of operations of the Bank.
On January 1, 1996, the Bank adopted SFAS No. 122, "Accounting for Mortgage
Servicing Rights". The Statement which amends Statement of Financial
Accounting Standards No. 65, "Accounting for Certain Mortgage Banking
Activities", requires separate capitalization of the costs of rights to service
mortgage loans for others regardless of whether these rights are acquired
through a purchase or loan origination activity. Given the current level of the
Bank's mortgage banking activities, adoption of this Standard did not have a
material effect upon the Bank's financial condition or results of operations.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125
"Accounting for Transfers of Financial Assets and Extinguishments of
Liabilities". The statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are
borrowings. This statement also requires that liabilities and derivatives
incurred or obtained as part of a transfer be measured initially at fair value.
This statement also provides guidance on measurement of servicing rights on
assets transferred and derecognition of liabilities transferred. The statement
is effective for all transfers, servicing, or extinguishments occurring after
December 31, 1996. Adoption of this standard is not expected to have a
material effect upon the Bank's financial condition or results of operations.
FEDERAL HOME LOAN BANK STOCK - The stock has no quoted market value and no
ready market exists. Investment in Federal Home Loan Bank stock is required by
law of every savings bank.
LOANS - Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Unearned discounts on installment loans are recognized as income over the term
of the loans using a method that approximates the interest method.
Loan origination and commitments fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
D-24
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest
income on other impaired loans is recognized only to the extent of interest
payments received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, economic conditions and other risks inherent in the portfolio.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.
PREMISES AND EQUIPMENT - Land is carried at cost. Other premises and equipment
are recorded at cost and are depreciated on the straight-line method.
Depreciation and amortization are provided over the estimated useful lives of
the respective assets, ranging from 5 to 31 years.
FORECLOSED REAL ESTATE - Foreclosed real estate includes both formally
foreclosed property and in-substance foreclosed property. In-substance
foreclosed properties are those properties for which the Bank has taken
physical possession, regardless of whether formal foreclosure proceedings have
taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the carrying amount or fair value less cost to sell, which becomes the
property's new basis. Any write-downs based on the asset's fair value at date
of acquisition are charged to the allowance for loan losses. After
foreclosure, these assets are carried at the lower of their new cost basis or
fair value less cost to sell. Costs incurred in maintaining foreclosed real
estate and subsequent adjustments to the carrying amount of the property are
included in income (loss) on foreclosed real estate.
INCOME TAXES - Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities. Such differences will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities.
D-25
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
STATEMENT OF CASH FLOWS - The Bank considers cash equivalents to be items with
a purchased maturity of three months or less. During the years ended December
31, 1996, 1995 and 1994, the Bank paid cash for interest in the amounts of
$2,446,332, $2,248,382, and $1,735,464, respectively. Tax payments totaled
$372,100, $300,219, and $356,150, for the years ended December 31, 1996, 1995
and 1994, respectively. Transfer of loan receivable to foreclosed real estate
totaled $0, $105,733, and $0 for the years ended December 31, 1996, 1995, and
1994 respectively. At December 31, 1996, cash and cash equivalents with a
carrying balance of $425,000 were pledged to secure deposits as required or
permitted by law.
NET INCOME PER COMMON SHARE - Net income per share of common stock is based
upon the weighted average number of shares of common stock outstanding during
the year (258,461 in 1996, 254,549 in 1995, and 254,522 in 1994). These
weighted average shares have been adjusted for stock dividends in 1995. No
effect has been given to options outstanding under the Bank's Stock Option Plan
as no material delutive effect would result from the exercise of these items.
CONCENTRATION OF CREDIT RISK - Financial instruments which potentially subject
the Bank to concentrations of credit risk consist principally of loans
receivable, securities, and cash. Management is not aware of any
concentrations of loans to classes of borrowers or industries that would be
similarly affected by economic conditions. Although the Bank's loan portfolio
is diversified, a substantial portion of its borrowers' ability to honor the
terms of their loans is dependent on business and economic conditions in
Florence County and surrounding areas. Management does not believe credit risk
is associated with obligations of the United States, its agencies or its
corporations. The Bank places its deposits and correspondent accounts with
high credit quality institutions. The balances held at these institutions are
insured up to $100,000. At December 31, 1996, uninsured amounts held in other
institutions totaled approximately $1,926,000.
FAIR VALUES OF FINANCIAL INSTRUMENTS - SFAS No.107, "Disclosures about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments, whether or not recognized in the statement of
financial condition. 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 instruments. Statement No.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.
D-26
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
statements of financial condition for cash and cash equivalents
approximate those assets' fair values.
Time deposits - Fair values for time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual maturities
on such time deposits.
Investment securities - Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans - For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and commercial
and industrial loans) are estimated using discounted cash flow analysis,
based on interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Loan fair value estimates
include judgments regarding future expected loss experience and risk
characteristics. Fair values for impaired loans are estimated using
discounted cash flow analysis or underlying collateral values, where
applicable. The carrying amount of accrued interest receivable
approximates its fair value.
Deposits - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the reporting date
(that is, their carrying amounts). The carrying amounts of variable-rate,
fixed-term money-market accounts and certificates of deposit approximate
their fair values. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
D-27
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accrued interest - The carrying amounts of accrued interest approximate
the fair values.
Short-term borrowings and notes payable - The carrying amounts of
short-term borrowings and notes payable approximate their fair values.
Advance payments by borrowers for taxes and insurance (escrow) - The
carrying amount of escrow accounts approximate their fair value.
Loan commitments - Commitments to extend credit were evaluated and fair
value was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
RECENTLY ENACTED LEGISLATION - On September 30, 1996, President Clinton
signed the omnibus appropriations bill for Fiscal Year 1997. Among its
many banking provisions, the statute provided for the recapitalization of
SAIF by imposing a one-time special assessment on SAIF-insured deposits to
bring the fund's reserve ratio to the statutorily required minimum level
of 1.25% of deposits. The rate of the special assessment was 65.7 basis
points and applied to the Bank's deposits as of March 31, 1995. During
1996, the Bank paid approximately $313,000 to reflect this special
assessment. The legislation also provides that, no later than January 1,
2000, the obligation to pay interest on the bonds of the Financing
Corporation ("FICO"), which currently is borne entirely by members of the
SAIF, will be shared on a pro rata basis with Bank Insurance Fund ("BIF")
member institutions. From 1997 through 1999, partial sharing will
occur, with SAIF deposits assessed 6.44 basis points and BIF deposits
assessed 1.29 basis points for servicing of the FICO debt As a result of
the recapitalization of the SAIF and the sharing of the FICO obligation,
the Bank's FDIC assessments will be materially reduced.
RECLASSIFICATIONS - Certain 1995 and 1994 amounts have been reclassified
to conform with the 1996 presentation.
D-28
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 2. INVESTMENT SECURITIES
Investment securities have been classified according to management's intent.
The amortized cost of securities and their approximate fair values are as
follows:
Securities held-to-maturity
- ---------------------------
December 31, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Description Cost Gains Losses Value
- -------------------- ----------- ----------- ----------- -----------
U.S. government
and federal $ 954,539 $ -- $ 11,080 $ 943,459
agencies
State and local
governments 848,424 83,564 -- 931,988
Mortgage-backed
securities 818,193 9,427 -- 827,620
Corporate debt
securities 499,330 670 -- 500,000
---------- --------- --------- ----------
$3,120,486 $ 93,661 $ 11,080 $3,203,067
========== ========= ========= ==========
December 31, 1995
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Description Cost Gains Losses Value
- -------------------- ----------- ----------- ----------- -----------
U.S. government
and federal $ -- $ -- $ -- $ --
agencies
State and local
governments 848,285 75,300 -- 923,585
Mortgage-backed
securities 1,001,806 8,427 -- 1,010,233
Corporate debt
securities -- -- -- --
---------- --------- --------- ----------
$1,850,091 $ 83,727 $ -- $1,933,818
========== ========= ========= ==========
Aggregate realized gains and realized losses on the sale of securities
held-to-maturity are $0 for the years ended December 31, 1996, 1995 and 1994,
respectively.
D-29
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 2. INVESTMENT SECURITIES (Continued)
The following is a summary of maturities of securities held-to-maturity as of
December 31, 1996.
Securities held to maturity
---------------------------
Amounts maturing in: Amortized Cost Fair Value
-------------- ----------
One year or less $1,011,527 $1,017,840
After one year through five years 1,427,813 1,414,650
After five years through ten years 224,472 247,287
After ten years 456,674 523,290
========== ==========
$3,120,486 $3,203,067
========== ==========
The amortized cost and fair value of mortgage-backed securities are presented
in the held-to-maturity category by contractual maturity in the preceding
table: Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations without call or
prepayment penalties.
Investment securities with a carrying amount of approximately $2,516,000 and
$1,241,000 were pledged to secure deposits as required or permitted by law at
December 31, 1996 and 1995, respectively.
NOTE 3. LOANS
Loans at December 31, 1996 and 1995 are summarized as follows:
1996 1995
------------ ------------
Real estate mortgage
Residential $ 28,892,497 $ 28,555,094
Construction 1,544,625 2,098,750
Commercial 6,545,581 6,012,714
Consumer 3,142,498 2,982,435
Commercial, other than real 7,277,203 6,098,543
estate
------------ ------------
47,402,404 45,747,536
Less:
Undisbursed portion of loans 851,931 430,255
Allowance for losses 478,056 436,720
Deferred loan fees 69,654 66,044
============ ============
$ 46,002,763 $ 44,814,517
============ ============
D-30
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 3. LOANS (Continued)
Loans serviced for others totaled approximately $11,243,000 and $11,908,000 at
December 31, 1996 and 1995, respectively.
Changes in the allowance for loan losses were as follows:
Year Ended December 31,
------------------------------------
1996 1995 1994
--------- -------- --------
Balance, beginning of year $436,720 $355,668 $314,553
Provision charged to operations 60,000 85,000 60,000
Recoveries 6,121 9,270 4,171
Less Actual write-offs (24,785) (13,218) (23,056)
-------- -------- --------
Balance, end of year $478,056 $436,720 $355,668
======== ======== ========
NOTE 4. PREMISES AND EQUIPMENT
Major classifications of these assets are summarized as follows:
December 31,
-------------------------
1996 1995
---- ----
Land $ 178,247 $ 75,121
Building 555,168 552,043
Automobile 27,070 27,070
Furniture, fixtures and equipment 420,174 409,001
Leasehold improvements 14,831 14,831
---------- ----------
1,195,490 1,078,066
Accumulated depreciation 556,725 495,590
---------- ----------
$ 638,765 $ 582,476
========== ==========
Depreciation expense was $61,740, $68,127, and $73,085 for 1996, 1995 and 1994,
respectively.
D-31
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 5. DEPOSITS
Deposit account balances at December 31, 1996 and 1995 are summarized as
follows:
December 31,
---------------------------------------------
1996 1995
--------------------- ----------------------
Amount % Amount %
----------- ------- ----------- -------
Demand deposits $11,435,925 20.89% $10,437,877 20.74%
Passbooks accounts 3,436,738 6.28 4,079,579 8.11
Certificate of deposit 39,862,124 72.83 35,809,039 71.15
---------- ------ ----------- ------
$54,734,787 100.00% $50,326,495 100.00%
At December 31, 1996 and 1995, certificates of deposit of $100,000 or more
amounted to approximately $9,067,000 and $10,580,000, respectively.
At December 31, 1996, scheduled maturities of certificates of deposits are as
follows:
Within one year $ 29,326,257
Within two years 8,378,379
Within three years 1,527,451
Beyond three years 630,037
============
$ 39,862,124
============
NOTE 6. INCOME TAXES
Income taxes consist of the following:
1996 1995 1994
---------- ---------- ----------
Taxes currently payable
Federal $ 386,000 $ 308,000 $ 272,000
State 46,000 41,000 39,000
---------- ---------- ----------
432,000 349,000 311,000
Deferred tax expense (benefit) (173,000) 4,000 8,000
---------- ---------- ----------
$ 259,000 $ 353,000 $ 319,000
========== ========== ==========
D-32
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 6. INCOME TAXES (Continued)
A summary of the Bank's deferred tax accounts as of December 31, 1996 and 1995
is as follows:
1996 1995
------------ ------------
Deferred tax assets $ 193,400 $ 31,000
Deferred tax liabilities $ 43,763 $ 53,392
Valuation allowances $ 0 $ 0
The principal sources of temporary differences in 1996, 1995 and 1994 and the
related deferred tax effects are as follows:
1996 1995 1994
----------- ---------- ----------
Reserve for loan losses $ (160,900) $ (700) $ 3,700
Tax depreciation in excess of (4,900) 2,000 10,500
book
Loan fees (1,400) 2,000 (4,000)
Other, net (5,800) 700 (2,200)
----------- ---------- ----------
Temporary differences
attributable to
continuing operations (173,000) 4,000 8,000
Change in valuation allowance -- -- --
----------- ---------- ----------
Deferred tax expense $ (173,000) $ 4,000 $ 8,000
=========== ========== ==========
A reconciliation of income tax expense and the amount computed by applying the
Federal statutory rate of 34% to income before income taxes follows:
1996 1995 1994
---------- ---------- ----------
Computed federal income taxes
at statutory rates $ 289,948 $ 332,918 $ 301,441
Tax-exempt income (18,955) (18,859) (16,743)
Interest expense disallowance 2,249 2,452 1,812
State income taxes, net of
federal benefit 18,684 25,397 25,473
Other, net (32,926) 11,092 7,017
----------- --------- ---------
Income tax expense $ 259,000 $ 353,000 $ 319,000
=========== ========= =========
D-33
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 6. INCOME TAXES (Continued)
On August 20,1996, legislation was signed into law which repealed the
percentage of taxable income method tax bad debt deduction available for thrift
institutions. This repeal is effective for the Bank's taxable year beginning
January 1, 1996. In addition, the legislation requires the Bank to include in
taxable income its bad debt reserves in excess of its base year reserve over a
6 - 8 year period depending upon the maintenance of certain loan origination
levels. Since the percentage of taxable income method bad debt deduction used
for tax purposes and the corresponding increase in the tax bad debt reserve in
excess of the base year (1987) have been treated as temporary differences
pursuant to SFAS 109, this change in tax law will have no effect on the Bank's
future statement of operations. Since the Bank's bad debt reserve as of
January 1, 1996 exceeds its base year reserve by approximately $308,000,
approximately $111,000 will be currently payable as a result of the
legislation. As of December 31, 1996, deferred federal income taxes had not
been provided on approximately $195,000 of this 1987 reserve. The deferred
federal income tax for this portion of the reserve, had the tax been provided,
would have totaled approximately $74,000. If this amount that qualified as
deductions for federal income tax purposes are later used for purposes other
than for bad debt losses, including cash dividends and distributions in
liquidation, they will be subject to federal income tax at the then current
corporate rate.
NOTE 7. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has and expects to continue to
have transactions, including borrowings and deposit relationships, with its
officers, directors, stockholders, and their affiliates. In the opinion of
management, such transactions were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time of comparable
transactions with other persons and did not involve more than a normal risk of
collectibility or present any other unfavorable features to the Bank. Loans to
such borrowers are summarized as follows:
1996 1995
---------- ---------
Balance, beginning of year $ 290,454 $ 320,554
New loans or advances 124,619 19,125
Repayments (121,258) (49,225)
--------- ---------
Balance, end of year $ 293,815 $ 290,454
========= =========
D-34
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 8. OPERATING LEASES
The bank is currently leasing its branch office and parking space at the main
office under three long-term operating leases. The following is a schedule by
years of future minimum rental payments required under its operating leases as
of December 31, 1996:
Year ending December 31:
1997 $ 46,800
1995 46,800
1999 46,800
2000 46,800
2001 46,800
Remainder 461,400
--------
$695,400
========
Rent expense was $46,800 annually for 1996, 1995 and 1994.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Loan commitments are made to accommodate the financial needs of the Bank's
customers. This arrangement has credit risk essentially the same as that
involved in extending loans to customers and are subject to the bank's normal
credit policies. Collateral is obtained based on management's credit
assessment of the customer. At December 31, 1996 and 1995, unused lines of
credit were approximately $1,217,000 and $1,020,037, respectively. Additional
loan commitments outstanding, which include the undisbursed portion of certain
loans at December 31, 1996 and 1995 totaled approximately $1,252,000 and
$430,255, respectively.
Additionally, at December 31, 1996, the Bank had an outstanding irrevocable
letter of credit in the amount of $25,000 which expires July 30, 1997.
NOTE 10. EMPLOYEE BENEFIT PLAN
The Bank has established a simplified employee pension plan (SEP). This is a
noncontributory plan in that only the bank, and not the employees, may make
discretionary contributions to each employee's account. Employees must be 21
years old, have worked during 3 of the last 5 years, and must have been paid
$300 during the current year to be eligible to participate in the plan. Any
contributions the bank makes to the eligible employees' accounts must bear a
uniform relationship to compensation. Each employee is 100 percent vested in
his account. The bank made contributions totaling $36,023, $32,018, and
$26,371 to the plan during 1996, 1995 and 1994, respectively.
D-35
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 11. STOCKHOLDERS' EQUITY
The Bank has a qualified incentive stock option plan (the "Plan") under which
the Bank may grant options to its employees. Under the Plan, the exercise
price of each option equals the market price of the Bank's stock on the date of
grant and an option's maximum term is ten years. Options are granted upon
approval of the Board of Directors and vest after one year.
On January 1, 1996, the Bank adopted SFAS No.123, "Accounting for Stock Based
Compensation". As permitted by SFAS 123, the Bank has chosen to apply APB
Opinion No.25, "Accounting for Stock issued to Employees" and related
interpretations in accounting for its Plan. Accordingly, no compensation cost
has been recognized for options granted under the Plan. Had compensation cost
for the Bank's Plan been determined based on the fair value at the grant dates
for awards under the Plan consistent with the method of SFAS 123, the Bank's
net income and net income per share would have been reduced to the pro forma
amounts indicated below:
1996 1995
-------------------------------------------------
As Reported Pro Forma As Reported Pro Forma
----------- ------------------------ ---------
(in thousands, except per share data)
Net income $ 594 $ 569 $ 626 $ 624
Net income per share $ 2.30 $ 2.20 $ 2.46 $ 2.45
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively; dividend yield of
1.8%; expected volatility of 15%; risk-free interest rates of 6%; and expected
life of 1 year.
D-36
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 11. STOCKHOLDERS' EQUITY (Continued)
A summary of changes in common stock options during 1996 and 1995 is:
Number Price
of shares per share
--------- ---------
Outstanding at December 31, 1994 15,475 $12.99-$23.00
Granted 1,500 $26.00
Exercised 2,426 $12.99
Effect of stock dividend 774 $12.37-$21.90
Canceled - -
------
Outstanding at December 31, 1995 15,323 $12.37-$26.00
Granted 17,000 $26.15
Exercised 3,638 $12.37
Canceled -- -
------
Outstanding (held by 5 optionees at
December 31, 1996) 28,685 $14.51-$26.15
======
Options exercisable at:
December 31, 1996 11,685
December 31, 1995 13,685
NOTE 12. COMPENSATING BALANCE ARRANGEMENT
The Bank sold a participation in a real estate mortgage loan to another
financial institution. Included in the participation agreement is a
requirement for the Bank to maintain a compensating balance with that
institution equal to one half the outstanding balance of that mortgage loan.
At December 31, 1996 and 1995, the requirements were approximately $23,300 and
$29,000 respectively. The Bank had a compensating balance at December 31, 1996
and 1995, of approximately $75,350 and $41,000 respectively, with this
institution.
D-37
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 13. FINANCIAL INSTRUMENTS
The estimated fair values of the Bank's financial instruments were as follows:
December 31,
------------------------------------------------------
1996 1995
-------------------------- --------------------------
(in thousands) (in thousands)
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ -----------
Financial assets:
Cash $ 11,362 $ 11,362 $ 8,990 $ 8,990
Investment securities 3,120 3,203 1,850 1,934
Loans receivable 46,003 47,754 44,815 46,683
Accrued interest
receivable 358 358 351 351
Federal Home Loan
Bank stock 297 297 297 297
Financial liabilities:
Demand deposits,
savings deposits
and time deposits $ 54,735 $ 54,943 $ 50,326 $ 50,529
Advance payments by
borrowers for
taxes and insurance 54 54 109 109
Accounts payable and
accrued expenses 22 22 17 17
Accrued interest 136 136 150 150
payable
D-38
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 14. SUBSEQUENT EVENTS
On June 25, 1997, the Board of Directors of the Bank approved an agreement to
merge the Bank with Peoples Federal Savings and Loan Association, a
wholly-owned subsidiary of First Financial Holdings, Inc. ("First Financial").
Under the Agreement and Plan of Merger, the stockholders of the Bank will
exchange their common stock shares for common stock shares of First Financial.
The number of common stock shares that will be received by the Bank's
stockholders is to be based upon an agreed-upon exchange ratio and the average
closing price of First Financial common stock for the ten trading days prior to
the effective date of the merger. The agreement is subject to approval by
regulatory authorities and the Bank's shareholders.
In July, 1997, management determined that the number of common stock shares
outstanding as previously reported at December 31, 1996 and 1995 was
understated and has revised certain amounts related to stockholders' equity
accounts and earnings per share information as of that date and for the year
then ended. The revision had no effect on the total stockholders' equity;
however, at December 31, 1996 and 1995 common stock increased by $5,320 and
$2,130, respectively, and additional paid-in capital decreased by the same
amount. Earnings per share decreased $.01 from $2.31 per share in 1996 and no
change in earnings per share for 1995.
NOTE 15. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
its primary federal regulator, the Office of Thrift supervision (OTS). Failure
to meet the minimum regulatory capital requirements can initiate certain
mandatory, and possible additional discretionary actions by regulators, that if
undertaken, could have a direct material affect on the Bank and the financial
statements. Under the regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines involving quantitative measures of the Bank's assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification under the prompt
corrective action guidelines are also subject to quantitative judgments 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 of total risk-based
capital and Tier I capital to risk-weighted assets (as defined in the
regulations), Tier I capital to adjusted total assets (as defined), and
tangible capital to adjusted total assets (as defined). Management believes,
as of December 31, 1996, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1996, the Bank was categorized as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, the Bank must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as disclosed in the table below. There
are no conditions or events since that date that management believes have
changed the Bank's category.
D-39
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE 15. REGULATORY MATTERS (Continued)
To Be Well
Capitalized
Under the
For Capital Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31,
1996
Tangible capital
(to Total Assets) $6,743 10.9% $ 930 1.5%
Core Capital
(to Total Assets) 6,743 10.9% 1,861 3.0% $3,101 5.0%
Tier 1 Capital
(to Risk-based 6,743 17.0% 2,378 6.0%
Assets)
Risk-based Capital
(to Risk-based 7,221 18.2% 3,170 8.0% 3,963 10.0%
Assets)
To Be Well
Capitalized
Under the
For Capital Prompt
Adequacy Corrective Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31,
1995
Tangible capital
(to Total Assets) $6,221 10.9% $855 1.5%
Core Capital
(to Total Assets) 6,221 10.9% 1,711 3.0% $2,851 5.0%
Tier 1 Capital
(to Risk-based 6,221 17.1% 2,186 6.0%
Assets)
Risk-based Capital
(to Risk-based 6,658 18.3% 2,915 8.0% 3,644 10.0%
Assets)
D-40
<PAGE>
<PAGE>
Interim Financial Information
Interim Unaudited Financial Statements
Investors Savings Bank of South Carolina, Inc.
June 30, 1997
D-41
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
Condensed Statement of Financial Condition
ASSETS June 30, 1997
---------------
(Unaudited)
Cash $ 11,223,124
Investment securities held-to-maturity 3,048,199
Investment securities available-for-sale 497,650
Loans, net 47,762,505
Premises and equipment, net 618,907
Federal Home Loan Bank stock, at cost 296,700
Accrued interest receivable 413,825
Prepaid expenses 54,981
Deferred income taxes 149,637
Foreclosed real estate -
Other assets 64,139
------------
$ 64,129,667
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits $ 56,606,427
Advance payments by borrowers for taxes and 72,161
insurance
Accounts payable and accrued expenses 14,705
Income taxes payable 151,120
Accrued interest payable 123,857
Deferred income taxes payable -
Other liabilities 56,127
------------
Total liabilities 57,024,397
------------
STOCKHOLDERS' EQUITY:
Common stock - $5 par value, 500,000 shares
authorized; 260,588 shares issued and 1,302,940
outstanding
Additional paid-in-capital 1,984,308
Unrealized loss on securities (2,350)
available-for-sale, net
Retained earnings - substantially restricted 3,820,372
------------
$ 64,129,667
============
See accompanying notes to condensed financial statements
D-42
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
Condensed Statements of Operations
(Unaudited)
Six months ended
June 30, 1997 June 30, 1996
--------------- ---------------
Interest income:
Loans $ 2,042,891 $ 1,999,159
Securities 113,706 79,343
Federal funds sold and other 260,953 197,502
------------ ------------
Total interest income 2,417,550 2,276,004
------------ ------------
Interest expense:
Demand deposits 97,001 89,277
Savings 52,755 60,062
Time deposits 1,186,506 1,047,677
------------ ------------
Total interest expense 1,336,262 1,197,016
------------ ------------
Net interest income 1,081,288 1,078,988
Provision for loan losses 30,000 30,000
------------ ------------
Net interest income after
provision for loan losses 1,051,288 1,048,988
------------ ------------
Other income:
Loan fee 66,739 77,266
Service charges and fees 106,129 114,432
Other 17,476 16,737
------------ ------------
190,344 208,435
------------ ------------
Other expense:
Salaries and fringe benefits 379,598 362,754
Occupancy 52,572 51,616
Furniture and equipment 36,151 34,952
FDIC insurance premiums 26,976 65,469
Service bureau expense 47,161 43,262
Other 132,208 108,832
------------ ------------
674,666 666,885
------------ ------------
Income before income taxes 566,966 590,538
Income tax expense 202,450 212,800
------------ ------------
Net income $ 364,516 $ 377,738
============ ============
Net income per common share $ 1.40 $ 1.47
============ ============
Weighted average shares
outstanding 260,588 256,948
============ ============
See accompanying notes to condensed financial statements
D-43
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
Condensed Statement of Stockholders' Equity
(Unaudited)
Unrealized
Gain loss)
On
Securities
Common Stock Available
--------------------- Capital -for- Retained
Shares Amount Surplus Sale, Net Earnings Total
--------- ---------- ---------- ----------- ---------- ---------
Balance,
December
31, 260,588 $1,302,940 $1,984,308 $ -- $3,455,856 $6,743,104
1996
Net income -- -- -- -- 364,516 364,516
Change in
unrealized
gain
(loss) -- -- -- (2,350) -- (2,350)
of
securities
-available
-for-sale
Balance,
June 260,588 $1,302,940 $1,984,308 $ (2,350) $3,820,372 $7,105,270
30, 1997 ======= ========== ========== ========= ========== ==========
See accompanying notes to condensed financial statements.
D-44
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
Condensed Statements of Cash Flows
(Unaudited)
Six months ended June 30,
------------------------------
1997 1996
------------- --------------
Cash flows from operating activities:
Net income $ 364,516 $ 377,738
Adjustments to reconcile net income to net
cash provided by operating activities:
Loss on disposal of property and
foreclosed real estate -- 670
Deferred income taxes -- 1,500
Provision for loan losses 30,000 30,000
Depreciation 28,700 31,200
Amortization of deferred loan origination (6,897) (16,374)
fees
Increase in other assets (10,188) (41,439)
Increase in accrued interest receivable
and prepaid expenses (72,567) (60,643)
Increase (decrease) in accounts payable
and accrued expenses (7,687) 2,924
Increase in income taxes payable 53,460 12,279
Decrease in accrued interest payable (11,834) (19,713)
Decrease in other liabilities (176,686) (62,326)
------------ ------------
Net cash provided by operating activities 190,817 255,816
------------ ------------
Investing activities
Purchases of investment securities held to (500,000) (955,000)
maturity
Purchase of investment securities available (500,000) --
for sale
Proceeds from maturities of investment 572,287 91,191
securities
Loans originated, net of payments received (1,835,845) (2,233,599)
Proceeds from sales of loans 53,000 1,388,844
Purchase of premises and equipment (8,842) (8,283)
Proceeds from sale of foreclosed real estate -- 105,063
------------ ------------
Net cash used by investing activities (2,219,400) (1,611,784)
------------ ------------
Financing activities
Net increase (decrease) in deposits 1,871,640 (266,150)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance 17,835 (18,619)
------------ ------------
Net cash provided (used) by financing 1,889,475 (304,769)
activities
------------- ------------
Net decrease in cash and cash equivalents (139,108) (1,660,737)
Cash and cash equivalents, beginning of period 11,362,232 8,989,951
------------ ------------
Cash and cash equivalents, end of period $ 11,223,124 $ 7,329,214
=========== ============
See accompanying notes to condensed financial statements.
D-45
<PAGE>
<PAGE>
INVESTORS SAVINGS BANK OF SOUTH CAROLINA, INC.
Notes to condensed financial statements
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed financial statements reflect the accounts of
Investors Savings Bank of South Carolina, Inc. (the "Bank") as of June 30, 1997
and for the six-month periods ended June 30, 1997 and 1996. These financial
statements are unaudited and condensed and accordingly, omit disclosures which
would substantially duplicate those contained in the most recent audited
financial statements. However, these financial statements include, in the
opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation. The financial
information as of December 31, 1996 has been derived from the audited financial
statements as of that date. For further information, refer to the financial
statements and the notes included elsewhere in this registrations and proxy.
NOTE 2. BUSINESS COMBINATION
On June 25, 1997, the Bank entered into an Agreement and Plan of Merger with
First Financial Holdings, Inc., whereby First Financial Holdings, Inc. would
acquire all the issued and outstanding common stock of the Bank (including
outstanding stock options) in exchange for shares of First Financial Holdings,
Inc. common stock. The acquisition is subject to approval from various
regulatory authorities and the Bank's shareholders. If approved, the
acquisition is anticipated to be consummated in the fourth quarter of 1997.
D-46
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<PAGE>
APPENDIX E
The following balance sheets and statements of operations for Peoples
Federal Savings and Loan Association of South Carolina are unaudited and are
provided solely for the purpose of complying with South Carolina Code Section
33-11-103(d). The information below is a constituent part of the consolidated
financial statements of First Financial Holdings, Inc., which are incorporated
by reference in this Prospectus/Proxy Statement and should be read in
conjunction therewith.
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
September 30,
1996 1995
(Unaudited)
ASSETS ---------- ----------
Cash and cash equivalents $5,792,864 $3,830,124
Investments securities (fair value of $39,647,811) 39,720,621 36,845,163
Loans receivable, net of allowance 363,488,425 286,704,030
Mortgage-backed securities (fair value of
$21,240,351) 21,240,351 23,661,897
Office properties and equipment, net 5,522,871 4,610,782
Accrued interest receivable, Loans 2,223,435 1,838,463
Accrued interest receivable, Investment 565,031 398,747
Real estate and other assets acquired in
settlement of loans 92,797 230,260
Other assets 5,789,726 5,515,640
------------ ------------
Total assets $444,436,121 $363,635,106
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposit accounts $282,445,790 $284,536,398
Advances from Federal Home Loan Bank 120,000,000 42,457,210
Securities sold under agreements to repurchase 7,479,500 3,980,000
Advances by borrowers for taxes and insurance 1,542,158 1,142,584
Other 6,067,352 4,438,561
------------ ------------
Total liabilities 417,534,800 336,543,896
Stockholders' equity:
Common stock, $1.00 par value, issued and outstanding
10,000 shares at September 30, 1996 and 1995 10,000 10,000
Additional paid-in capital 16,490,000 16,490,000
Retained income, substantially restricted 10,626,638 10,827,441
Unrealized net gain on securities available for
sale, net of income tax (225,317) (236,231)
------------ ------------
Total stockholders' equity 26,901,321 27,091,210
------------ ------------
Total liabilities and stockholders' equity $444,436,121 $363,635,106
============ ============
E-1
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<PAGE>
PEOPLES FEDERAL SAVINGS AND LOAN ASSOCIATION
STATEMENTS OF OPERATIONS
Year Ended September 30,
1996 1995 1994
---------- ---------- ----------
(Unaudited)
INTEREST INCOME
Interest on loans $27,865,385 $23,079,052 $20,846,920
Interest on investments 2,254,358 2,302,301 1,692,066
Other 189,956 137,377 177,356
---------- ---------- ----------
Total interest income 30,309,699 25,518,730 22,716,342
INTEREST EXPENSE
Interest on deposits 13,514,917 12,649,595 10,751,356
Interest on FHLB advances and
other borrowings 5,044,274 1,954,191 990,986
---------- ---------- ----------
Total interest expense 18,559,191 14,603,786 11,742,342
---------- ---------- ----------
NET INTEREST INCOME 11,750,508 10,914,944 10,974,000
Provision for loan losses (700,000) (200,000) (475,000)
---------- ---------- ----------
Net interest income after provision
for loan losses 12,450,508 11,114,944 11,449,000
OTHER INCOME
Net gain on sale of loans 10,139 -- 206,393
Net gain on sale of investments 40,209 73,426 --
Loan servicing fees 537,772 555,537 710,524
Service charges and fees on
deposit accounts 772,270 586,710 787,944
Commissions on insurance 1,632,629 1,346,081 968,940
Gain on sale of branch offices -- 436,991 --
Real estate operations, net 68,035 9,706 304,038
Other 364,686 421,976 1,461,087
---------- ---------- ----------
Total other income 3,425,740 3,430,427 4,438,926
NON-INTEREST EXPENSE
Salaries and employee benefits 5,299,780 5,178,417 4,836,399
Occupancy costs 690,223 626,160 569,565
Marketing 409,664 330,370 280,042
Depreciation, amortization, rental
and maintenance of equipment 349,633 278,466 217,282
FDIC insurance premiums 761,761 718,172 807,439
FDIC SAIF special assessment 2,047,324 -- --
Other 2,261,666 2,015,826 1,826,886
---------- ---------- ----------
Total non-interest expense 11,820,051 9,147,411 8,537,613
---------- ---------- ----------
Income before income taxes 4,056,197 5,397,960 7,350,313
Income tax expense 1,257,000 1,532,284 729,366
---------- ---------- ----------
NET INCOME $2,799,197 $3,865,676 $6,620,947
========== ========== ==========
Net income per common share $279.92 $386.57 $662.09
======= ======= =======
E-2
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