<PAGE>
Registration File No. 33-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CAROLINA FIRST CORPORATION
(Exact name of Registrant as specified in its charter)
South Carolina 6711 57-0824914
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code No.) Identification No.)
102 South Main Street
Greenville, South Carolina 29601
(803) 255-7913
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
WILLIAM S. HUMMERS, III
Executive Vice President
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
(803) 255-7913
(Name, address, including Zip Code, and telephone
number, including area code, of agent for service)
Copies to:
WILLIAM P. CRAWFORD, JR., ESQ. ROBERT C. SCHWARTZ, ESQ.
Wyche, Burgess, Freeman & Parham, P.A. Smith Gambrell & Russell
Post Office Box 728 3343 Peachtree Road N.E.; Suite 1800
Greenville, South Carolina 29602 Atlanta, Georgia 30326
(803) 242-8265 (tel) (803)
235-8900 (fax) (404) 264-2658 (tel) (404) 264-2652 (fax)
Approximate date of commencement of proposed sale
to the public: As soon as practicable after the Registration Statement
becomes effective and after the waiver or satisfaction of all other
conditions to the merger of Midlands National Bank ("Midlands") with
and into a wholly-owned subsidiary of the Registrant, all as set forth
in the Merger Agreement described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. ( )
Calculation of Registration Fee
<TABLE>
<CAPTION>
Proposed Proposed
Title of each class maximum maximum
of securities to be Amount to be price aggregate offering Amount of
registered registered(1) per unit(2) price(2) registration fee(2)
<S> <C> <C> <C> <C>
Common Stock 784,242 $11.42 $8,956,044 $3,088
</TABLE>
(1) Based on an estimate of the maximum number of shares of common
stock of the Registrant to be issued in connection with the merger of
Midlands with and into a wholly-owned subsidiary of the Registrant.
(2) Estimated solely for the purpose of computing the registration fee
based on the book value of the Midlands common stock computed as of
December 31, 1994 (the latest practicable date prior to the filing date
hereof).
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item
Number Caption in Form S-4 Caption in Prospectus
<S> <C> <C>
1 Forepart of Registration Statement and
Outside Front Cover Page of Prospectus . . .Facing Page of Registration Statement;
Cross Reference Sheet; Prospectus
Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus . . . . . . . Available Information; Incorporation by
Reference; Table of Contents
3 Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information . . . Summary
4 Terms of the Transaction . . Summary; The Proposed Transaction;
Comparative Rights of Shareholders
5 Pro Forma Financial Information . . Pro Forma Condensed Financial Information
6 Material Contacts with the Company
Being Acquired . . The Proposed Transaction
7 Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters . . . . . . . Not Applicable
8 Interests of Named Experts and Counsel . . Legal Matters
9 Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Not Applicable
10 Information with Respect to S-3 Registrants . Summary; Information about Carolina First
Corporation
11 Incorporation of Certain Information by
Reference . . . . Summary; Information about Carolina First
Corporation
12 Information with Respect to S-2 and S-3
Registrants . . . Not Applicable
13 Incorporation of Certain Information by Reference . Not Applicable
14 Information with Respect to Registrants
Other Than S-3 or S-2 Registrants . . . . . . . . Not Applicable
15 Information with Respect to S-3 Companies Not Applicable
16 Information with Respect to S-2 or S-3
Companies . . . . Not Applicable
17 Information with Respect to Companies
Other Than S-3 or S-2 Companies . . . . . . Summary; Information About Midlands
18 Information if Proxies, Consents or Authori-
zations are to be Solicited . . . . Information About the Special Meeting; The
Proposed Transaction; Management
Information; Information about Carolina
First Corporation; Information about
Midlands;
19 Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer . . . . Not Applicable
</TABLE> 2
<PAGE>
MIDLANDS NATIONAL BANK
305 North Main Street
Prosperity, South Carolina 29127
April 30, 1995
Dear Shareholder:
You are cordially invited to attend the Special Meeting of
Shareholders (the "Special Meeting") of Midlands National Bank
("Midlands") to be held at the main office of Midlands located
at 305 North Main Street, Prosperity, South Carolina 29127, on May 30,
1995 at 10:30 a.m., local time.
At the Special Meeting you will be asked to consider and vote upon the
Agreement and Plan of Reorganization (the "Merger Agreement"), dated
November 14, 1994, between Carolina First Corporation, Carolina First
Bank and Midlands, which Merger Agreement is described in the
accompanying Proxy Statement/Prospectus. If the Merger Agreement is
approved by holders of two-thirds of the outstanding stock of Midlands,
Midlands will be merged with and into Carolina First Bank (the
"Merger"). At the effective time of the Merger (the "Effective Time"),
Midlands shareholders will become entitled to receive 1.65 shares of
CFC common stock for each share of Midlands common stock owned by
them. As a result of the Merger, the Midlands common stock will be
cancelled and Carolina First Bank will be the surviving corporation. The
current Midlands offices will continue in operation as branch offices of
Carolina First Bank.
Enclosed herewith are the Notice of Special Meeting of
Shareholders, a Proxy Statement/Prospectus and a Proxy for use in
connection with the Special Meeting. The Proxy Statement/Prospectus
includes a description of the terms and conditions of the Merger and
related agreements, financial and other information about Carolina First
Corporation, Carolina First Bank and Midlands, and other information.
You are urged to consider carefully the entire Proxy
Statement/Prospectus, including the appendices thereto.
THE BOARD OF DIRECTORS OF MIDLANDS BELIEVES THAT THE MERGER IS IN
THE BEST INTERESTS OF MIDLANDS AND ITS SHAREHOLDERS AND RECOMMENDS A
VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
Because the affirmative vote of holders of at least two-thirds of
the issued and outstanding shares of Midlands common stock is
required to approve the Merger, it is important that your shares of
Midlands common stock be represented at the Special Meeting, whether or
not you are personally able to attend. You are therefore urged to
complete, date and sign the enclosed Proxy, and return it promptly in
the enclosed return envelope, which does not require any postage if
mailed in the United States. If you attend the Special Meeting, you may
vote your shares in person, even if you have already returned your
Proxy.
Sincerely,
Rodney S. Griffin
Chairman of the Board
<PAGE>
MIDLANDS NATIONAL BANK
305 North Main Street
Prosperity, South Carolina 29127
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 30, 1995
TO THE SHAREHOLDERS OF MIDLANDS NATIONAL BANK:
NOTICE IS HEREBY GIVEN that the Special Meeting of
Shareholders (the "Special Meeting") of Midlands National Bank
("Midlands") will be held at the main office of Midlands located at
305 North Main Street in Prosperity, South Carolina 29127, on May 30,
1995 at 10:30 a.m., local time, for the following purposes:
1. Consideration of the Merger. To consider and vote upon a
proposal to adopt the Agreement and Plan of Reorganization (the
"Merger Agreement") dated November 14, 1994, between Carolina First
Corporation, Carolina First Bank and Midlands pursuant to which
Midlands will be merged with and into Carolina First Bank (the
"Merger").
2. Other Business. To transact such other business as may properly
come before the Special Meeting or any adjournment thereof.
Only shareholders of record at the close of business on April 3,
1995, are entitled to notice of and to vote at the Special Meeting or
any adjournment thereof. All shareholders, whether or not they expect to
attend the Special Meeting in person, are requested to complete,
date, sign and return the enclosed Proxy in the accompanying envelope.
The Proxy may be revoked by written notice to the Secretary of Midlands
at any time before it is voted, by submitting a proxy having a
later date, by such person appearing at the Special Meeting and giving
notice of revocation to the corporate officers responsible for
maintaining the list of shareholders, or by giving notice of such
revocation in the open meeting of the shareholders.
By Order of the Board of Directors
Rodney S. Griffin
Chairman of the Board
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD
<PAGE>
Proxy Statement/Prospectus
CAROLINA FIRST CORPORATION
Prospectus
784,242 Shares
Common Stock $1 Par Value
MIDLANDS NATIONAL BANK
Proxy Statement for
Special Meeting of Shareholders
This Proxy Statement/Prospectus relates to the issuance by Carolina
First Corporation of up to 784,242 shares (the "CFC Shares") of its
common stock in connection with the proposed merger (the "Merger") of
Midlands National Bank ("Midlands") with and into Carolina First Bank, a
wholly-owned subsidiary of Carolina First Corporation. The CFC Shares
are offered to the Midlands shareholders as contemplated in the
Reorganization Agreement, dated as of November 14, 1994, (the "Merger
Agreement") and entered into by and among Carolina First Corporation,
Carolina First Bank and Midlands. The Merger Agreement provides that in
connection with the Merger, each outstanding share of Midlands common
stock will automatically be converted into 1.65 shares of CFC common
stock, $1 par value per share ("CFC common stock"). Cash will be paid in
lieu of fractional shares.
This Proxy Statement/Prospectus also serves as the Proxy
Statement of Midlands in connection with the solicitation of proxies to
be used at the Special Meeting of Shareholders of Midlands (the "Special
Meeting") to be held on May 30, 1995 for the purposes described herein.
This Proxy Statement/Prospectus is first being sent to Midlands
shareholders on or about April 30, 1995.
The Merger is subject to certain conditions, including, among
others, approval by the shareholders of Midlands at the Special Meeting
described herein and approval by applicable regulatory authorities.
Conditions to the Merger not required by state or federal law may
be waived by the respective parties. Any shareholder of Midlands who,
at or prior to the Special Meeting, gives written notice that he
dissents from the Merger or who votes against the Merger shall be
entitled, upon strict compliance with certain statutory procedures, to
receive the value of the Midlands common stock owned by such
shareholder at the time and in the manner set forth herein. See "THE
PROPOSED TRANSACTION -- Rights of Dissenting Shareholders of
Midlands." It is a condition to consummation of the Merger,
however, that dissenters' rights not have been perfected with respect to
more than 10% of the outstanding shares of Midlands common stock.
THE MIDLANDS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE MERGER. FAILURE TO VOTE IS EQUIVALENT
TO VOTING AGAINST THE MERGER.
The CFC common stock is traded on the Nasdaq National Market under the
Nasdaq market symbol "CAFC." On April 13, 1995, the closing bid price
of the CFC common stock, as reported by Nasdaq, was $12.75 per share.
There is no established public trading market for Midlands' common
stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE CFC SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
The date of this Proxy Statement/Prospectus is April 30, 1995.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION . . . . . . 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE 4
OTHER INFORMATION . . . . . . . . . . . . . . . . . 5
SUMMARY . . . . . . . . 6
Introduction . . . . . 6
Time, Place and Purpose of the Special Meeting 6
Parties to the Merger . . . . . . . . 6
Terms of the Proposed Transaction . . 6
Vote Required and Record Date . . . . . . 7
Recommendation of Board of Directors . . . 7
Rights of Dissenting Shareholders . . . . . 7
Certain Differences in Shareholder's Rights . . . 7
Conditions and Regulatory Approvals . . 7
Termination of the Merger . . . . 7
Effective Time of the Merger . . . . . . . . . . . . . . . . . . . . . . . 8
Opinion of Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . 8
Certain Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . 8
Restrictions on Resales by Affiliates . . . . . . . . . . . . . . . . . . . 8
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Market Prices and Dividends . . . . . . . . . . . . . . . . . . 8
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . 10
Comparative Per Share Data . . . . . . . . . . . . . . . . . . . . . . . 13
INFORMATION CONCERNING THE SPECIAL MEETING . . . . . 14
Purpose of the Special Meeting . . . . . . . . 14
Record Date and Voting Rights . . . . . . 14
Proxies . . . . . . . . . . . . 15
Recommendation . . . . . . . . . 15
THE PROPOSED TRANSACTION . . . . . . . . . . 16
General Description of the Terms of the Merger 16
Background of and Reasons for the Merger . . . . . 16
Opinion of Financial Advisor . . . . . 19
Exchange of Midlands Stock Certificates . . . . 21
Conditions to Consummation of the Merger . . . . . . . . . 21
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Amendment . . . . . . . . . . . . . . . . . 22
Conduct of Midlands' and Carolina First Corporation's Business
Prior to the Effective Time . . . . . 22
Required Regulatory Approvals . . . . . . . . . . . 23
Operations After the Merger . . . . . . . . . . . . . . . . 24
Interests of Certain Persons in the Merger . . . . . 24
Accounting Treatment . . . . . . . . . . . . . . . . . . . 25
Certain Federal Income Tax Consequences . . . . . . . . . . 25
Restrictions on Resales by Affiliates . . . . . . . . . . . . 26
Rights of Dissenting Shareholders of Midlands . . . 27
Recommendation of Board of Directors . . . . . . . 27
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION . . . . 28
2
<PAGE>
INFORMATION ABOUT CAROLINA FIRST CORPORATION . . . 33
In General . . . . . . . . . . . . 33
Corporate Reorganization . . . . . . . 34
Recent Developments . . . . . . . . . . . . . . . . . . 35
Market Prices of and Dividends Paid on CFC Common Stock . . . . . 35
Special Investment Considerations . . . . . . . 36
Incorporation of Certain Information By Reference . . . 37
Certain Regulatory Matters . . . . . . . 38
INFORMATION ABOUT MIDLANDS . . . . . . . . . . . . 47
General . . . . . . . . . . . . . . . . . . . . . . 47
Market Area and Competition . . . . . . . 47
Correspondent Banking . . . . . . . . . . . . . . 63
Data Processing . . . . . . . . . . . . 63
Employees . . . . . . . . . . . . . . . . 63
Monetary Policies . . . . . . . 64
Supervision and Regulation . . . 64
Description of Property . . . . . . . . . . . 67
Legal Proceedings . . . . . . . . . . . . . . . 67
Market for Common Stock and Dividends . . . . . . . . . . . . . . 68
MANAGEMENT INFORMATION . . . . . . . . . . . . . . . . . . . . . 69
Management and Principal Shareholders of Midlands . . . . . . . . . 69
Management and Principal Shareholders of Carolina First Corporation . . 70
COMPARATIVE RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . 71
Comparison of CFC Common Stock and Midlands Common Stock . . . . . . 71
CAROLINA FIRST CORPORATION CAPITAL STOCK . . . . . . . . . . . 74
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Terms of the Preferred Stock . . . . . . . . . . . . . . . . . . . . . 78
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
PROPOSALS BY MIDLANDS SHAREHOLDERS . . . . . . . . . . . . . . . . . . 80
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
INDEX TO FINANCIAL STATEMENTS OF MIDLANDS NATIONAL BANK . . . . . . . F-1
APPENDICES
Merger Agreement . . . APPENDIX A
12 U.S.C. (section mark) 214a(b) . . . . . . . . . . . . . APPENDIX B
Opinion of Hatcher/Johnson Valuation, Inc . . . . . . . . . APPENDIX C
Certain Financial Statements of Carolina First Bank . . . . . APPENDIX D
3
<PAGE>
AVAILABLE INFORMATION
Carolina First Corporation 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 "Commission"). Such reports, proxy statements and
other information filed by Carolina First Corporation with the
Commission may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60606. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Carolina First Corporation has filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the CFC Shares offered hereby. This Proxy
Statement/Prospectus does not contain all the information set forth in
the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. The
Registration Statement and the exhibits and schedules thereto are
available for inspection and copying as set forth in the preceding
paragraph. For further information with respect to Carolina First
Corporation, Midlands and the CFC Shares offered hereby, reference is
hereby made to the Registration Statement, including the exhibits and
schedules thereto.
Carolina First Corporation furnishes shareholders with annual
reports containing audited financial information.
Midlands is subject to the informational and reporting
requirements of the Exchange Act, and in accordance therewith files
reports, proxy statements and other information with the Office of the
Comptroller of the Currency (the "OCC"). Such reports, proxy statements
and other information may be inspected and copied at the OCC,
Communications Department, 250 E. Street, Washington, D.C. 20219.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Copies of any
such documents (other than exhibits to such a document unless such
exhibit is specifically incorporated by reference into such documents)
are available without charge to any person to whom this Proxy
Statement/Prospectus is delivered (i) with respect to Carolina First
Corporation, upon oral or written request to William S. Hummers III,
Executive Vice President, Carolina First Corporation, 102 South Main
Street, Greenville, SC 29601, telephone number 803-255-7900, and
(ii) with respect to Midlands, upon oral or written request to David
W. Bowers, President and Chief Executive Officer, Midlands National
Bank, 305 North Main Street, Prosperity, South Carolina 29127,
telephone number 803-364-7300. In order to ensure timely delivery of the
documents, any request should be made by May 15, 1995.
The following documents filed with the Commission are incorporated
herein by reference: Carolina First Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, and Carolina
First Corporation's Current Reports on Form 8-K dated January 24,
1995, March 15, 1995 and April 10, 1995, in each case filed with the
Commission pursuant to Section 13 of the Exchange Act; the description
of the CFC common stock which is contained in its registration
statements filed under Section 12 of the Exchange Act,
4
<PAGE>
including any amendment or report filed for the purpose of
updating such description; and all other reports filed pursuant to
Section 13(a) or 15(d) of the Exchange Act since the end of the fiscal
year ended December 31, 1994.
All documents filed by Carolina First Corporation pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof and prior to the Special Meeting shall be deemed to be
incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the respective dates of filing of such documents.
Any statement contained herein or in a document incorporated herein
shall be deemed to be modified or superseded for purposes of this
Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently-filed document which also is
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 of
this Proxy Statement/Prospectus.
OTHER INFORMATION
This Proxy Statement/Prospectus does not cover any resales of the CFC
common stock offered hereby to be received by the shareholders
deemed to be "affiliates" of Carolina First Corporation or Midlands
upon consummation of the Merger. No person is authorized to
make use of this Proxy Statement/Prospectus in connection with such
resales, although such securities may be traded without the use
of this Proxy Statement/Prospectus by those shareholders of
Carolina First Corporation not deemed to be "affiliates" of Carolina
First Corporation or Midlands.
No person is authorized to give any information or to make
any representations other than those contained herein and, if given or
made, such information or representations must not be relied upon as
having been authorized. This document does not constitute an offer or
solicitation by any one in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer
or solicitation is not qualified to do so or to any person to whom it
is unlawful to make such offer or solicitation. Neither the delivery of
this document nor any distribution of securities made hereunder shall
under any circumstances create an implication that there has been no
change in the affairs of Carolina First Corporation or Midlands since
the date hereof or that the information herein is correct as of any time
subsequent to the date hereof.
5
<PAGE>
SUMMARY
The following is a summary of certain information
contained elsewhere in this Proxy Statement/Prospectus. This
Summary is not intended to be a complete statement and is
qualified in its entirety by reference to more detailed information
contained elsewhere in this Proxy Statement/Prospectus, the accompanying
appendices, and the documents incorporated herein by reference.
Introduction. This Proxy Statement/Prospectus is furnished in
connection with the issuance by Carolina First Corporation of the
CFC Shares and the solicitation of proxies by the Board of Directors of
Midlands with respect to the Special Meeting to be held on May 30,
1995 and at any adjournment(s) thereof, for the purpose of considering
and voting upon the Merger of Midlands with and into Carolina First
Bank. This Proxy Statement/Prospectus is first being mailed to
shareholders of Midlands on or about April 30, 1995.
Time, Place and Purpose of the Special Meeting. The Special
Meeting will be held on May 30, 1995 at 10:30 a.m. at Midlands' main
office, 305 North Main Street, Prosperity, South Carolina. At the
Special Meeting, shareholders of Midlands will consider and vote on
the proposal to approve the Merger Agreement, which provides for the
Merger of Midlands into Carolina First Bank and the conversion of
Midlands common stock into CFC common stock. See "INFORMATION CONCERNING
THE SPECIAL MEETING."
Parties to the Merger. Carolina First Corporation. Carolina First
Corporation is a bank holding company headquartered in Greenville,
South Carolina which engages in a general banking business through
its two subsidiaries: (1) Carolina First Bank, a South
Carolina-chartered commercial bank headquartered in Greenville,
South Carolina, and (2) Carolina First Mortgage Company, a
mortgage loan origination and servicing company headquartered in
Columbia, South Carolina. Carolina First Corporation is a South Carolina
corporation which was organized in 1986. At December 31, 1994, it
had total assets of approximately $1.1 billion, total loans of
approximately $866 million and total deposits of approximately $925
million. Its principal executive offices are located are 102 South
Main Street, Greenville, South Carolina 29601, and its telephone number
is (803) 255-7900. See "INFORMATION ABOUT CAROLINA FIRST CORPORATION."
Midlands. Midlands is a national bank, the deposit accounts of which
are insured by the Bank Insurance Fund of the Federal Deposit
Insurance Corporation (the "FDIC"). Midlands' principal office is
located at 305 North Main Street, Prosperity, South Carolina
29802, and its telephone number is (803) 364-7300. As of December 31,
1994, Midlands had total assets of approximately $42.6 million, total
loans of approximately $27.1 million, and total deposits of
approximately $38.3 million and operated through three locations. See
"INFORMATION ABOUT MIDLANDS."
Carolina First Bank. Carolina First Bank is a South
Carolina-chartered bank which is a wholly-owned subsidiary of Carolina
First Corporation. It engages in a general banking business through
43 locations, which are located throughout South Carolina. It began
its operations in December 1986 and at December 31, 1994, had total
assets of approximately $838 million, total loans of approximately
$578 million and total deposits of approximately $709 million. On
February 3, 1995, Carolina First Savings Bank, F.S.B., a wholly- owned
savings bank subsidiary of Carolina First Corporation, was merged
into Carolina First Bank, adding assets of approximately $280 million
and 13 branch locations. Carolina First Bank's deposits are insured by
the FDIC. See "INFORMATION ABOUT CAROLINA FIRST CORPORATION." The
Merger will be effected through the merger of Midlands with and into
Carolina First Bank.
Terms of the Proposed Transaction. Pursuant to the terms of the
Merger Agreement, upon consummation of the Merger, each outstanding
share of Midlands' common stock will be converted into 1.65 shares of
CFC common stock, and current shareholders of Midlands will no
longer have any rights in Midlands' common stock. Cash will be paid
in lieu of issuance of fractional shares. See "THE PROPOSED TRANSACTION
- -- General Description of the Terms of the Merger."
6
<PAGE>
Vote Required and Record Date. Only Midlands shareholders of record at
the close of business on April 3, 1995 (the "Record Date") will be
entitled to notice of and to vote at the Special Meeting; provided however,
that shares held of record by persons whose liabilities to Midland are
past due may not be voted at the Special Meeting. The Merger
must be approved by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Midlands'
common stock eligible to vote at the Special Meeting. As of the
Record Date, there were 354,526 shares of Midlands' common stock
entitled to vote. As of the date hereof, the directors and executive
officers of Midlands and their affiliates beneficially owned 227,672
shares, or approximately 64.2%, of Midlands' common stock, all of
which are expected to be voted in favor of the Merger. Upon
consummation of the transactions contemplated hereby, such persons
will beneficially own 554,307 shares of CFC common stock, or 9.46% of
the outstanding CFC common stock.
No shareholder vote is required on behalf of Carolina First
Corporation. Carolina First Corporation will vote all shares of Carolina
First Bank in favor of the Merger. See "THE PROPOSED TRANSACTION."
Recommendation of Board of Directors. The Board of Directors
of Midlands has approved the Merger Agreement and believes that the
Merger is in the best interests of Midlands and its shareholders.
It unanimously recommends that Midlands' shareholders vote FOR the
Merger. See "THE PROPOSED TRANSACTION -- Recommendation of Board of
Directors."
Rights of Dissenting Shareholders. Shareholders of Midlands who give
written notice at or prior to the Special Meeting that they dissent
to the proposed Merger, or who vote against the proposed Merger will be
entitled to obtain payment of the value of their shares of Midlands
common stock under federal law. Failure to comply strictly with
certain statutory procedures may result in the forfeiture of such
rights. It is a condition to consummation of the Merger that
dissenters' rights not have been perfected with respect to more than
10% of Midlands' outstanding shares of common stock. See "THE
PROPOSED TRANSACTION -- Rights of Dissenting Shareholders of Midlands."
Certain Differences in Shareholder's Rights. Upon effectiveness of the
Merger, the outstanding shares of Midlands common stock will be
converted into shares of CFC common stock. Accordingly, the
Midlands shareholders will become shareholders of Carolina First
Corporation, and their rights as shareholders will be determined by
South Carolina corporations law and by Carolina First Corporation's
Articles of Incorporation and Bylaws. The rights of shareholders
of Carolina First Corporation will differ from the rights of
shareholders of Midlands in several important respects, including
the right to remove directors, required shareholder votes on certain
matters, classification of directors, nominations of directors,
cumulative voting, and statutory and other restrictions on certain
business combinations and control share acquisitions. See "COMPARATIVE
RIGHTS OF SHAREHOLDERS."
Conditions and Regulatory Approvals. Consummation of the
transactions contemplated by the Merger Agreement is subject to
various conditions, including receipt of the approval by the FDIC, the
South Carolina State Board of Financial Institutions (the "State
Board"), and the shareholders of Midlands. Applications to the FDIC
and the State Board seeking approval of the proposed transaction
have been filed and approved. Consummation of the Merger is also
conditioned upon, among other things, a determination by Carolina First
Corporation that the Merger will qualify for pooling-of-interests
accounting treatment and dissenters' rights not being exercised by
the holders of more than 10% of the outstanding shares of Midlands
common stock. Carolina First Corporation and Midlands may waive
certain of the conditions to their respective obligations to consummate
the Merger, other than conditions required by law. See "THE PROPOSED
TRANSACTION -- Conditions to Consummation of the Merger" and "THE
PROPOSED TRANSACTION -- Required Regulatory Approvals."
Termination of the Merger. The Merger Agreement may be terminated at
any time prior to the closing date (i) by mutual consent of
Carolina First Corporation, Midlands and Carolina First Bank; (ii)
by either Carolina First Corporation or Midlands if any order
preventing consummation of the Merger is entered by any
7
<PAGE>
state or federal governmental or regulatory body; (iii) by either Carolina
First Corporation or Midlands if the other party has failed to comply with
the agreements or fulfill the conditions of the Merger Agreement in a
way that is material to the consolidated businesses of either party and
has not cured the failure to comply within a reasonable period of
time after being given notice thereof; or (iv) by either Carolina
First Corporation or Midlands if the closing has not occurred by May
31, 1995. The Merger Agreement may be amended by mutual written consent
of all the parties.
Effective Time of the Merger. The Effective Time of the Merger will
be the time and date specified in the Articles of Merger that are
delivered for filing to the Secretary of State of South Carolina. The
Effective Time will occur as soon as practicable following the
date that all conditions specified in the Merger Agreement have been
satisfied or waived. The Effective Time currently is anticipated
to be approximately May 31, 1995, although delays in the
satisfaction of the conditions to consummation of the Merger could
result in a later Effective Time. See "THE MERGER -- Conditions to
Consummation of the Merger."
Opinion of Financial Adviser. Hatcher/Johnson Valuation, Inc.
("Hatcher/Johnson") has served as financial adviser to Midlands in
connection with the Merger and has rendered an opinion to the Midlands
Board of Directors that the exchange ratio of CFC common stock for
Midlands common stock is fair from a financial point of view to the
Midlands shareholders. For additional information concerning
Hatcher/Johnson and its opinion, see "THE MERGER -- Opinion of
Financial Adviser" and the opinion of Hatcher/Johnson attached as
Appendix C to this Proxy Statement/Prospectus.
Certain Income Tax Consequences. Midlands will receive an
opinion of counsel to Carolina First Corporation stating that the
Merger will constitute a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), subject to certain conditions. However, this opinion of
counsel is not binding on the Internal Revenue Service (the "IRS"). In
such opinion, counsel has opined that if certain conditions are met,
no taxable gain or loss for federal income tax purposes will be
recognized by Midlands shareholders upon the exchange of Midlands
common stock solely for CFC common stock, except to the extent that
such shareholders receive cash in lieu of fractional shares. A
dissenting shareholder who receives cash in lieu of CFC common stock
will be taxed to the extent that the cash exceeds such dissenting
shareholder's basis in the Midlands common stock. See "THE PROPOSED
TRANSACTION -- Certain Federal Income Tax Consequences." Because of
the complexities of the federal income tax laws and because the tax
consequences may vary depending upon a holder's individual circumstances
or tax status, it is recommended that each shareholder of Midlands
consult his or her tax advisor concerning the federal (and any
applicable state, local or other) tax consequences of the Merger.
Restrictions on Resales by Affiliates. As a condition to Carolina
First Corporation's obligation to consummate the Merger, affiliates
of Midlands must deliver written agreements to Carolina First
Corporation that they will not dispose of any shares of CFC common
stock received upon consummation of the Merger except in compliance
with Rule 145 under the Securities Act or otherwise in compliance with
the Securities Act and rules and regulations promulgated thereunder. See
"THE MERGER -- Restrictions on Resales by Affiliates."
Accounting Treatment. The Merger is expected to be accounted for as a
"pooling-of-interests" of Midlands and Carolina First Corporation under
generally accepted accounting principles. See "THE PROPOSED TRANSACTION-
- -Accounting Treatment."
Market Prices and Dividends. CFC common stock is traded on the
Nasdaq National Market. Carolina First Corporation currently pays a
regular quarterly dividend of $.06 per share. Although Carolina
First Corporation currently expects to continue payment of its regular
cash dividend on the CFC common stock, there can be no assurance that
Carolina First Corporation's current dividend policy will continue
unchanged after consummation of the Merger. The declaration and
payment of dividends on CFC common stock is subject
8
<PAGE>
to legal restrictions and further depends upon business conditions,
operating results, capital and reserve requirements and the Carolina
First Corporation Board of Directors' consideration of other relevant
factors.
Trading in Midlands common stock is limited. There are no market
makers for the Midlands common stock, and it is not listed on any
exchange or with the Nasdaq Stock Market. Management is aware of
transactions in the Midlands common stock at prices ranging from
$11.00 to $12.50 per share during 1994. Such trades may not be arm's
length transactions and may not be indicative of the market value of
the Midlands common stock. Management is not aware of any trades in
Midlands common stock since December 31, 1994.
The information presented in the following table reflects the last
reported sales prices for CFC common stock on November 13, 1994, the
last trading day prior to the public announcement of the proposed
Merger, and the Midlands common stock on an equivalent per share
basis, calculated by multiplying the closing price of the CFC common
stock on such date by the 1.65 exchange ratio. The table also reflects
the last reported sales price for CFC common stock on April 13, 1995:
Market Values Per Share
<TABLE>
<CAPTION>
Carolina First Corporation Midlands
Historical Historical Equivalent
<S> <C> <C> <C>
November 13, 1994 $14.88 $11.00 * $24.55
April 13, 1995 $12.75 Not Available $21.00
</TABLE>
* This amount represents the lowest trade in Midlands common stock
during 1994 known to Midlands management.
Midlands shareholders are advised to obtain current market
quotations for the CFC common stock. The market price of CFC common
stock on the Effective Time may be higher or lower than the market price
at the time the Merger Agreement was executed, at the date of
mailing this Proxy Statement/Prospectus, or at the time of the Special
Meeting.
In January 1994, Midlands' Board of Directors declared a cash
dividend of $.25 per share, payable on March 4, 1994 to shareholders
of record on December 31, 1993. In January 1995, Midlands' Board of
Directors declared a cash dividend of $.25 per share, payable
on February 28, 1995 to shareholders of record on December 31, 1994.
Prior to 1994, Midlands had not paid or declared any cash
dividends. The Board of Directors and management of Midlands
evaluate Midlands' earning performance, capital needs, regulatory
requirements and other factors on an annual basis when
considering the feasibility of declaring cash dividends. Generally,
the approval of the OCC is required to pay dividends in excess of the
sum of a bank's earnings retained during the year plus retained
net profit for the preceding two years. See "INFORMATION ABOUT MIDLANDS
- -- Market for Common Stock and Dividends."
9
<PAGE>
Selected Consolidated Financial Data
The following tables present selected unaudited historical financial
information and selected unaudited combined pro forma financial
information of Carolina First Corporation (consolidated) and Midlands.
This information is derived from the historical financial statements
of Carolina First Corporation (consolidated) and Midlands, and should
be read in conjunction with such historical financial statements and
the notes thereto either contained elsewhere in this Proxy
Statement/Prospectus or incorporated herein by reference. The pro
forma financial data is presented using the pooling-of-interests method
of accounting. The selected pro forma combined unaudited financial
information showing the combined results of Carolina First Corporation
(consolidated) and Midlands is provided for informational purposes
only. It is not necessarily indicative of actual results that would
have been achieved had the Merger been consummated on the dates or at
the beginning of the periods presented, nor is it necessarily
indicative of future results. For additional pro forma information,
including pro forma results of additional acquisitions by Carolina
First Corporation, see "PRO FORMA COMBINED FINANCIAL INFORMATION."
Carolina First Corporation
<TABLE>
<CAPTION>
Years Ended December 31,
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Statement of Income Data
Net interest income $ 10,241 $ 12,866 $ 17,819 $ 26,943 $41,627
Provision for loan losses 790 1,423 1,453 909 950
Other income, excluding
securities transactions 1,099 1,622 2,939 5,590 7,624
Securities transactions (4) 664 517 662 234
Total other income 1,095 2,286 3,456 6,252 7,858
Total other expenses 8,927 11,607 16,145 25,178 50,453
Net income (loss) 1,045 1,680 2,517 4,935 (1,869)
Dividends on common stock -- -- -- 214 936
Dividends on preferred stock -- -- 625 1,930 2,433
Net income (loss) applicable to
common shareholders 1,045 1,680 1,892 3,005 (4,302)
Balance Sheet Data (Period End)
Total assets $345,745 $447,314 $529,063 $816,421 $ 1,120,097
Debt securities and temporary investments 42,186 69,007 80,766 169,188 117,559
Loans, net of unearned income 275,315 338,701 396,557 565,158 865,869
Allowance for loan losses 2,403 3,727 4,263 5,688 5,267
Total earning assets 317,501 407,708 477,323 734,346 983,928
Total deposits 299,933 407,371 476,268 724,585 925,448
Borrowed funds 12,260 2,755 2,591 16,779 106,038
Long-term debt 276 1,322 1,268 1,214 1,162
Preferred stock -- -- 10,319 15,662 37,014
Shareholders' equity 30,235 31,875 44,225 62,869 79,041
Per Share Data(1)(2)
Net income (loss) per common share:
Primary $ 0.32 $ 0.51 $ 0.57 $ 0.90 $ (0.95)
Fully diluted n/a n/a n/a n/a n/a
Book value per common
share (period end) 9.28 9.71 9.90 10.27 8.58
Tangible book value per
common share (period end) 9.28 8.90 9.07 7.02 4.16
Common shares outstanding:
Weighted average 3,233,633 3,266,288 3,290,692 3,331,787 4,521,274
Period end 3,259,429 3,284,593 3,306,008 4,279,724 4,581,247
</TABLE>
(1) This information reflects the after-tax writedown of approximately
$8,410,000 and tax liability of approximately $1,005,000 which occurred
in the fourth quarter of 1994. See "INFORMATION ABOUT CAROLINA FIRST
CORPORATION--Corporate Reorganization."
(2) Adjusted for stock dividends.
10
<PAGE>
Midlands National Bank
<TABLE>
<CAPTION>
Years Ended December 31,
1990 1991(1) 1992(1) 1993(1) 1994
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Statement of Income Data
Net interest income $ 946 $ 1,056 $ 1,381 $ 1,786 $ 1,992
Provision for loan losses 133 203 490 145 106
Other income, excluding
securities transactions 258 201 327 283 239
Securities transactions -- 69 98 18 --
Total other income 258 270 425 301 239
Total other expenses 886 986 1,209 1,440 1,451
Net income 176 133 83 370 435
Dividends on common stock -- -- -- -- 89
Balance Sheet Data (Period End)
Total assets $29,811 $35,042 $41,937 $44,101 $42,628
Securities and temporary
investments 9,811 9,817 10,090 11,485 11,032
Loans, net of unearned income 17,948 22,905 28,478 29,127 27,463
Allowance for loan losses 230 284 392 409 333
Total earning assets 27,759 32,722 38,568 40,612 38,495
Total deposits 25,919 30,838 37,925 39,872 38,278
Borrowed funds -- -- -- -- --
Long-term debt 257 271 169 60 36
Shareholders' equity 3,258 3,391 3,474 3,844 4,048
Per Share Data
Net income per common share $ 0.47 $ 0.36 $ 0.23 $ 1.01 $1.16
Book value per common
share (period end) 9.19 9.56 9.80 10.84 11.42
Tangible book value per
common share (period end) 9.04 9.46 9.75 10.84 11.42
Common shares outstanding:
Weighted average 374,768 372,195 364,758 366,953 373,963
Period end 354,526 354,526 354,526 354,526 354,526
</TABLE>
(1) The financial statements for the years ended December 31, 1993, 1992
and 1991 have been restated. See Note L to the Financial Statements of
Midlands contained elsewhere herein for additional information.
11
<PAGE>
Unaudited Pro Forma Combined Selected Financial Data
of Carolina First Corporation and Midlands
<TABLE>
<CAPTION>
Years Ended December 31,
1990 1991 1992 1993 1994
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Statement of Income Data
Net interest income $ 11,187 $ 13,922 $ 19,200 $ 28,729 $ 43,619
Provision for loan losses 923 1,626 1,943 1,054 1,056
Other income, excluding
securities transactions 1,357 1,823 3,266 5,873 7,863
Securities transactions (4) 733 615 680 234
Total other income 1,353 2,556 3,881 6,553 8,097
Total other expenses 9,813 12,593 17,354 26,618 51,904
Net income (loss) 1,221 1,813 2,600 5,305 (1,434)
Dividends on common stock 0 0 0 214 1,025
Dividends on preferred stock -- -- 625 1,930 2,433
Net income (loss) applicable to
common shareholders $ 1,221 $ 1,813 $ 1,975 $ 3,375 $ (3,867)
Balance Sheet Data (Period End)
Total assets $375,556 $482,356 $571,000 $860,522 $1,162,725
Debt securities and temporary investments 51,997 78,824 90,856 180,673 128,591
Loans, net of unearned income 293,263 361,606 425,035 594,285 893,332
Allowance for loan losses 2,633 4,011 4,655 6,097 5,600
Total earning assets 345,260 440,430 515,891 774,958 1,022,423
Total deposits 325,852 438,209 514,193 764,457 963,726
Borrowed funds 12,260 2,755 2,591 16,779 106,038
Long-term debt 533 1,593 1,437 1,274 1,198
Preferred stock -- -- 10,319 15,662 37,014
Shareholders' equity 33,493 35,266 47,699 66,713 83,089
Per Share Data(1)(2)
Net income (loss) per common share:
Primary $ 0.32 $ 0.47 $ 0.51 $ 0.86 $(0.75)
Fully diluted n/a n/a n/a n/a n/a
Book value per common
share (period end) 8.71 9.12 9.31 9.82 8.39
Tangible book value per
common share (period end) 8.71 8.43 8.60 6.97 4.47
Common shares outstanding:
Weighted average 3,852,000 3,880,409 3,892,542 3,937,259 5,138,313
Period end 3,884,397 3,869,561 3,890,976 4,864,692 5,166,215
(1) This information reflects the after-tax writedown of approximately $8,410,000 and tax liability of
approximately $1,005,000 which occurred in the fourth quarter of 1994. See "INFORMATION ABOUT
CAROLINA FIRST CORPORATION--Corporate Reorganization."
(2) Adjusted for stock dividends.
12
<PAGE>
Comparative Per Share Data
The following table presents at the dates and for the periods
indicated (i) certain consolidated historical and pro forma combined
per share data for CFC common stock after giving effect to the Merger
and (ii) certain historical and pro forma data for Midlands
common stock. The pro forma financial data is presented using the
pooling-of-interests method of accounting, and an exchange ratio of
1.65 shares of CFC common stock for each share of Midlands common
stock. The data presented should be read in conjunction with the
historical financial statements and the related notes thereto included
elsewhere herein or incorporated herein by reference and in
conjunction with the pro forma combined condensed financial information
included elsewhere herein. The data is not necessarily indicative of
actual results that would have been achieved had the Merger been
consummated at the beginning of the periods presented and is not
indicative of future results.
Historical Pro Forma
CFC Midlands CFC Combined Midlands Equivalent(1)
Primary Earnings Per Common Share
Years Ended December 31,
1994 $( .95) $1.16 $( .75) $(1.24)
1993 .90 1.01 .86 1.42
1992 .57 .23 .67 1.11
1991 .51 .36 .47 .78
1990 .32 .47 .32 .53
Cash Dividends Declared Per Common Share
Years Ended December 31,
1994 .21 .25 .20 .33
1993 .05 -- .04 .05
1992 -- -- -- --
1991 -- -- -- --
1990 -- -- -- --
Book Value Per Common Share
Years Ended December 31,
1994 8.58 11.42 8.39 13.84
1993 10.27 10.84 9.84 16.24
1992 9.90 9.80 9.31 15.36
1991 9.71 9.56 9.12 15.05
1990 9.28 9.19 8.71 14.37
________________________
(1) Calculated by multiplying the CFC Combined by the 1.65 exchange ratio.
13
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to shareholders of
Midlands as of the Record Date in connection with the solicitation
of proxies by the Board of Directors of Midlands for use at the
Special Meeting and at any adjournment or adjournments thereof. The
Special Meeting is to be held on May 30, 1995 at 10:30 a.m. at the
main office of Midlands, 305 North Main Street, Prosperity, South
Carolina. This Proxy Statement/Prospectus also serves as the
Prospectus of Carolina First Corporation with regard to the offering of
the CFC Shares to shareholders of Midlands.
Holders of Midlands common stock are requested to complete, date
and sign the accompanying Proxy and return it promptly to Midlands in
the enclosed postage-paid envelope.
Purpose of the Special Meeting
The purpose of the Special Meeting is to consider and take action with
respect to approval of the Merger Agreement. As required by federal
law, approval of the Merger Agreement will require the affirmative vote
of the holders of two-thirds of the outstanding shares of Midlands
common stock entitled to vote on the Merger Agreement. See "Record Date
and Voting Rights."
This Proxy Statement/Prospectus, Notice of Special Meeting and
the Proxy are first being mailed to shareholders of Midlands on or about
April 30, 1995.
Record Date and Voting Rights
Only the holders of Midlands common stock on the Record Date are
entitled to receive notice of and to vote at the Special Meeting and at
any adjournments thereof. On the Record Date, there were 354,526 shares
of Midlands common stock outstanding, which were held by
approximately 600 holders of record. Each share of Midlands common
stock outstanding on the Record Date is entitled to one vote as to
each of the matters submitted at the Special Meeting; provided,
however, that shares held of record by persons whose liabilities to
Midlands are past due and unpaid may not be voted at the Special
Meeting.
A majority of the shares entitled to be voted at the Special Meeting
constitutes a quorum. If a share is represented for any purpose at
the Special Meeting by the presence of the registered owner or a
person holding a valid proxy for the registered owner, it is deemed
to be present for purposes of establishing a quorum. Therefore, valid
proxies which are marked "Abstain" as to which no vote is marked,
including proxies submitted by brokers that are the record owners of
shares (so-called "broker non-votes"), will be included in determining
the number of shares present or represented at the Special Meeting.
Approval of the Merger Agreement requires the affirmative vote of
two-thirds of the outstanding shares of Midlands common stock.
Accordingly, proxies marked "Abstain" and shares that are not voted
(including broker non-votes) will have the same effect as votes against
the Merger Agreement.
As of April 3, 1995, the directors and executive officers of Midlands
and their affiliates owned a total of 227,672 shares, or approximately
64.2% of Midlands common stock, all of which are expected to be voted in
favor of the Merger Agreement.
14
<PAGE>
Proxies
The accompanying Proxy is for use at the Special Meeting. A
shareholder may use this Proxy if he is unable to attend the Special
Meeting in person or wishes to have his shares voted by proxy even if he
does attend the Special Meeting. All shares represented by valid
proxies received pursuant to this solicitation that are not revoked
before they are exercised will be voted in the manner specified
therein. If no specification is made, the proxies will be voted FOR
approval of the Merger Agreement. The Board of Directors of Midlands
is not aware of any other matters that may be presented for action
at the Special Meeting of Shareholders, but if other matters do
properly come before the Special Meeting, it is intended that shares
represented by proxies in the accompanying form will be voted by the
persons named in the Proxy in accordance with their best judgment.
If a quorum is not obtained, or if fewer shares of Midlands common
stock are voted in favor of approval of the Merger than the number
required for approval, it is expected that the Special Meeting will
be postponed or adjourned for the purpose of allowing additional time
for obtaining additional proxies or votes, and, at any subsequent
reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original
convening of the meeting (except for any proxies which have theretofore
effectively been revoked), notwithstanding that they might have been
effectively voted on the same or any other matter at a previous meeting.
The presence of a shareholder at the Special Meeting will not
automatically revoke such shareholder's proxy. The proxy may be
revoked (1) by written notice to the Secretary of Midlands at any time
before it is voted, (2) by submitting a proxy having a later date, (3)
by such person appearing at the Special Meeting and giving notice of
revocation to the corporate officers responsible for maintaining the
list of shareholders, or (4) by giving notice of such revocation in the
open meeting of the shareholders.
Solicitation of proxies may be made in person or by mail, or by
telephone or telegraph by directors, officers and regular employees
of Midlands, who will not be specially compensated in such regard.
Brokerage houses, nominees, fiduciaries and other custodians will
be requested to forward solicitation materials to beneficial owners and
secure their voting instructions, if necessary, and will be reimbursed
for the expenses incurred in sending proxy materials to beneficial
owners. Midlands will bear the costs associated with the solicitation of
proxies and other expenses associated with the Special Meeting.
No person is authorized to give any information or to make
any representation not contained or incorporated by reference in
this Proxy Statement/Prospectus and, if given or made, such
information or representation should not be relied upon as having been
authorized by Midlands, Carolina First Corporation or any other
person. The delivery of this Proxy Statement/Prospectus will not, under
any circumstances, create any implication that there has been no
change in the affairs of Midlands or Carolina First Corporation since
the date of this Proxy Statement/Prospectus.
Recommendation
The Midlands Board of Directors has unanimously approved the
Merger Agreement and believes that the proposed transaction is fair
to and in the best interests of Midlands and its shareholders. The
Midlands Board of Directors unanimously recommends that Midlands'
shareholders vote FOR approval of the Merger Agreement.
15
<PAGE>
THE PROPOSED TRANSACTION
The following description of the terms and provisions of the
Merger is qualified in its entirety by r e f e r ence to the Merger
Agreement, which is set forth in full as Appendix A to this
Proxy Statement/Prospectus and incorporated herein by reference.
General Description of the Terms of the Merger
The Merger Agreement provides for the Merger of Midlands with and
into Carolina First Bank. As a result of the Merger, the separate
corporate existence of Midlands will cease and Carolina First Bank,
as the surviving entity, will possess all rights, franchises and
interests of Midlands. As of the Effective Time of the Merger,
certificates of Midlands common stock will represent only the right
to receive the requisite number of shares of CFC common stock based on
the exchange ratio of 1.65 shares of CFC common stock for each share of
Midlands common stock outstanding as of April 3, 1995. At the
Effective Time, all outstanding options and warrants to purchase
Midlands common stock will be converted into the right to receive CFC
common stock based on the 1.65 exchange ratio.
Cash will be paid to holders of Midlands common stock in lieu
of any fractional share that would otherwise be issuable. The amount
of such cash to be paid in lieu of fractional shares will be based on
the Fair Market Value of the CFC common stock on the last trading day
immediately preceding the Effective Time. The "Fair Market Value" of
the CFC common stock means, with respect to a particular day in
question, the average of the high and low sale prices as quoted on
the Nasdaq National Market for that particular day and the immediately
preceding four business days.
The Merger Agreement provides that Carolina First Corporation and
Midlands will each bear and pay their own costs and expenses
incurred in connection with the transactions contemplated in the Merger
Agreement, including fees of attorneys and accountants. The Merger
will become effective at the Effective Time, which will be
specified in the articles of merger to be filed with the South
Carolina Secretary of State. At the Effective Time, by operation of law,
Midlands shareholders (other than those perfecting dissenters'
rights) will automatically become owners of CFC common stock and
will no longer be owners of Midlands common stock. After the
Effective Time, each outstanding certificate representing shares of
Midlands common stock prior to the Effective Time shall be deemed for
all corporate purposes (other than the payment of dividends and other
distributions to which the former shareholders of Midlands common
stock may be entitled) to evidence only the right of the holder
thereof to surrender such certificate and receive the requisite
number of shares of CFC common stock in exchange therefor as provided in
Merger Agreement.
Background of and Reasons for the Merger
Since the passage of legislation in 1986 permitting bank holding
companies in the southeastern region to operate in more than one
state, the banking industry in the Southeast has undergone a great
deal of consolidation. This consolidation has resulted in the
acquisition of substantially all of the large South Carolina banks by
the larger out-of-state regional banking concerns. It was in this
consolidating environment that both Carolina First Corporation and
Midlands were created. Both institutions sought to target
individuals and small to medium-sized businesses in South Carolina
that were believed to be ignored by the larger regional banking
concerns.
Carolina First Corporation's objective is to become the leading
South Carolina banking institution headquartered in the state. It
believes that it can accomplish this goal by being a "super-community"
bank which offers both the personalized service and "relationship"
banking typically found in community banks, as well as the
sophisticated banking products offered by the regional and
super-regional institutions. Since its
16
<PAGE>
inception, it has pursued a strategy of growth both internally and
through acquisitions. As a result of such strategy, Carolina First
Corporation has engaged in numerous acquisitions of financial
institutions, branch locations and other financial assets over the past
five years. To effect such strategy, Carolina First Corporation
continually reviews potential acquisition candidates and markets.
In the second quarter of 1994, the Midlands Board of Directors
began considering alternatives to remaining independent. The costs of
keeping pace with technology, new products and services, and regulatory
issues were certain of the factors involved in the Midlands Board's
decision to pursue such alternatives. After extensive discussion of
several alternatives, including , without limitation, a merger of equals
and acquisition by a larger institution, it was decided that the
best interest of the Midlands shareholders, customers, and employees
would be served by merging with a larger institution of similar
philosophies and culture. It was the opinion of the Board that such a
transaction would be mutually beneficial for all parties and in the best
long term interest of Midlands and its shareholders.
In May 1994, an outside consultant engaged by Carolina First
Corporation to investigate potential acquisition candidates approached
Midlands regarding the possibility of a merger. The desire of
Midlands' Board of Directors to commence negotiations was conveyed by
Midlands' President to the President of Carolina First Corporation
during an August telephone conference. Those two individuals met in
person in September, at which time Midlands' President indicated a
threshold asking price for a merger. Following such meeting, Carolina
First Corporation and Midlands each engaged in a due diligence
review of certain financial information. The parties met in person
in mid-September to further the negotiation process. At that time,
Carolina First Corporation made a preliminary offer in the form of
a non-binding letter of intent, which included a proposed price in
excess of the threshold set by Midlands. Midlands directors reviewed
the preliminary offer, and sought advice of counsel and
accountants. The directors determined that the offer warranted further
discussion. After further discussions with Carolina First Corporation,
the Midlands Board of Directors determined, after consultation with
its advisors and further review of potential alternatives, that the
Carolina First Corporation proposal was in the best long-term
interest of Midlands, its shareholders, customers and employees
and authorized the Chairman of the Board of Midlands to execute the
letter of intent, which contemplated additional due diligence by
each of the parties. During October and early November, 1994, Midlands
and Carolina First Corporation negotiated a definitive Merger Agreement,
which was unanimously approved by the Midlands Board. The Merger
Agreement was similarly approved by the Carolina First Corporation
Board of Directors and was executed by both parties on November 14,
1994. A copy of the Merger Agreement is attached hereto as Appendix A.
The terms of the Merger Agreement, including the consideration to be
paid to Midlands shareholders, were the result of arm's length
negotiations between Carolina First Corporation and Midlands.
Midlands Reasons. In reaching its determination that the Merger
Agreement is fair to, and in the best interests of, Midlands and its
shareholders, the Midlands Board of Directors consulted with its
legal advisors, as well as with Midlands management, and considered a
number of factors, including the following:
(i) Midlands' business, operations, earnings, managerial
requirements and resources, prospects and financial condition;
(ii) Carolina First Corporation's business, operations, earnings
and financial condition, 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
Midlands' market areas that the Merger would make possible, and the
respective contributions the parties would bring to a combined
institution;
(iii) the commitments of Carolina First Corporation to
retain Midlands employees and to make substantial contributions in the
communities served by Midlands;
(iv) the terms of the Merger Agreement, including the
consideration to be received, and the Board of Directors' assessment
that, based on historical stock prices and the prevailing market price
of the CFC
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common stock (approximately $15.00) during the week
immediately preceding November 14, 1994 (the date immediately
preceding the announcement of the Merger) and the conversion ratio
of 1.65, the consideration to be received by the Midlands shareholders
was favorable to the Midlands shareholders;
(v) Carolina First Corporation as an ongoing institution and its
asset quality, reserve coverage, capital adequacy and profitability,
all of which are believed by the Board of Directors to be positive
attributes;
(vi) the liquidity of the CFC Common Stock;
(vii) alternatives to the Merger, including the alternatives of
remaining independent and growing internally, remaining independent
for a period of time and then selling the bank, and remaining
independent and growing through future acquisitions;
(viii) possible affiliation partners for Midlands (other than
Carolina First Corporation), the prospects of such other possible
affiliation partners and the likelihood of any such affiliation;
(ix) the Midlands Board of Directors' belief that, in light of
the reasons discussed above, the respective geographic areas in which
Midlands and Carolina First Corporation operate and the similarity in
business outlook and approach and corporate cultures between Midlands
and Carolina First Corporation, Carolina First Corporation was the
most attractive choice as a long term affiliation partner for
Midlands;
(x) the expectation that the Merger will generally be a tax-free
transaction to Midlands and its shareholders (see "--Certain Income Tax
Consequences of the Merger");
(xi) the current and prospective economic environment,
competitive constraints and regulatory burdens facing financial
institutions, including Midlands; and
(xii) the Midlands Board of Directors' appraisal of the
benefits of the Merger to the employees of Midlands and the communities
served by Midlands.
The Midlands Board of Directors did not assign any specific or
relative weight to the factors in their consideration.
Subsequent to entering into the Merger Agreement and pursuant
to the requirements of the Merger Agreement, Midlands obtained the
financial opinion of Hatcher/Johnson dated March 3, 1995 to the effect
that the exchange ratio to be paid Midlands shareholders by Carolina
First Corporation is fair, from a financial perspective, to the Midlands
shareholders.
After receiving the opinion of Hatcher/Johnson, the
Midlands Board of Directors met again, and after further considering
the Merger and consulting with Hatcher/Johnson, Midlands' Board of
Directors reaffirmed its conclusion that the Merger and the
Merger Agreement are in the best interest of Midlands and its
shareholders and recommended that the Midlands shareholders vote for
approval of the Merger Agreement.
Carolina First Corporation Reasons. After consideration of
relevant business, financial, and market factors, the Board of
Directors of Carolina First Corporation believes that the Merger will
provide it with a favorable means for entering the
Prosperity/Newberry market. Carolina First Corporation's goal is to be
the leading South Carolina-headquartered, state-wide financial
institution, and having a market presence in Midlands' market areas
is an important step in achieving this goal. Carolina First Corporation
believes that acquiring an existing institution is a superior
means of entry into a market, as compared to beginning operations de
novo, primarily because of the acquisition of the established customer
relationships. Carolina First Corporation believes that Midlands has
valuable community relationships which it will be able to use to
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expand its banking operations in Midlands' market areas. Carolina First
Corporation also believes that terms of the proposed Merger are fair
from its point of view, from a financial perspective.
Opinion of Financial Advisor
The Board of Directors of Midlands retained the services of
Hatcher/Johnson, an appraisal firm headquartered in Roswell, Georgia,
to render its opinion as to the fairness, from a financial point of
view, of the consideration to be received by the common
shareholders of Midlands in connection with the Merger. Hatcher/Johnson
specializes in the valuation of closely-held corporations and
rendering fairness opinions. Hatcher/Johnson was selected by
Midlands on the basis of its general reputation in the industry and
its proposed fee arrangement.
Midlands has paid Hatcher/Johnson a fee of $7,500 for its services.
There are no material relationships between Hatcher/Johnson or its
affiliates or unaffiliated representatives, and either Midlands or
Carolina First Corporation or any of their respective affiliates which
have existed during the past two years or which are mutually understood
to be contemplated. The amount of consideration to be paid in the
Merger was determined by negotiations between Carolina First Corporation
and Midlands.
There were no limitations placed on the scope of the investigation of
Hatcher/Johnson by either Midlands or Carolina First Corporation, or
any of their affiliates. The instructions given to Hatcher/Johnson were
to assess the fairness of the terms of the proposed transaction
from a financial point of view to the shareholders of Midlands.
In reaching its opinion, Hatcher/Johnson reviewed and analyzed
audited and unaudited financial information regarding Midlands and
Carolina First Corporation, the Merger Agreement, financial terms and
characteristics of recent relevant mergers and acquisitions from
a variety of sources. In addition, Hatcher/Johnson also reviewed
regulatory applications, various peer group financial and market
information and various other management reports and information deemed
appropriate.
The exchange ratio defined in the Merger Agreement is calculated
to equal 1.65 shares of CFC common stock for each share of
Midlands common stock. The exchange ratio is calculated based upon the
average of the high and low sales prices of the CFC common stock for
September 30, 1994 and the immediately preceding four business days.
Based on that value, which was $15.50 per share, the value to be
received by the shareholders of Midlands would have been $25.58 per share.
At December 31, 1994, with a CFC common stock price of $14.00 per share,
the value to be received by the shareholders of Midlands would have been
$23.10 per share. As of the date of the fairness opinion, with a CFC
common stock price of $15.00 per share, the value to be received by
the shareholders of Midlands would have been $24.75 per share. Since
September 30, 1994, the CFC common stock price has been as low as $13.63
per share. Based on this low market price, the value to be received
by the shareholders of Midlands would have been $22.49 per share.
Hatcher/Johnson considered each of these value calculations in
performing its analysis and determining the purchase premium.
Having considered a range of value of the transaction, stated in
terms of the purchase price to book value and purchase price to
earnings, Hatcher/Johnson reviewed other transactions which it deemed
comparable to the proposed Merger to determine the fairness of the
Merger. Comparable transactions ( Transaction Peer Groups ) were
selected by geographic region, seller total assets and return on
assets, market type, institution type and transaction type.
The Merger involves a selling institution with total assets of less
than $50 million, and a return on average assets of between 1.00
percent and 1.50 percent. Midlands is located in a rural market and the
Merger is a 100% common stock transaction. During the first half
of 1994, there were at least 40 transactions nationwide and at least
five transactions in the Southern United States region that
involved selling institutions with one or more of these similarities.
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On a national basis, the group average purchase price to book value
ratio of the Transaction Peer Groups ranged from a low of 1.31 to a
high of 2.15. On a regional basis, the group average purchase price to
book value ratio of the Transaction Peer Groups ranged from a low
of 1.52 to a high of 2.20. The range of the purchase price to book
value of the Merger has been calculated to be between 2.00 and 2.25
which falls within or exceeds the ranges of both the national and
regional range.
On a national basis, the group average purchase price to earnings
ratio of these Transaction Peer Groups ranged from a low of 10.93
times to a high of 15.35 times. On a regional basis, the group average
purchase price to earnings ratio of these Transaction Peer Groups
ranged from a low of 12.42 times to a high of 23.43 times. The range
of the purchase price to earnings for the Merger has been calculated
to be between 18.59 times and 20.90 times which falls within or exceeds
the ranges of both the national and regional range.
Hatcher/Johnson reviewed all transactions that have been announced in the
Southeastern United States between January 1, 1994 and December 31,
1994. Of these 108 transactions, Hatcher/Johnson determined that the
following 17 transactions, of comparable size, market and/or
structure, which are either closed or pending, are comparable:
Stock
Deal Total Equity to Consideration Purchase Price to
Individual Transactions Announce Status Value Assets Assets Type LTM Earn. Equity
Reliance Bank of Florida, FL Dec-94 Pending $19,500 $91,024 8.62% Common 16.90 2.49
Huntington Bancshares, OH
Bank of the Potomac, VA Nov-94 Pending $13,000 $56,630 12.95% Common 29.28 1.75
F&M National Corp., VA
Peoples State Bank, FL Nov-94 Pending $15,500 $83,935 7.52% Common 22.90 2.46
SunTrust, Inc., GA
Plant State Bank, FL Oct-94 Pending $ 7,200 $39,270 9.83% Common 16.07 1.87
SouthTrust, AL
Peoples Commercial, MS Oct-94 Pending $18,800 $92,613 11.53% Common 12.91 1.76
First Tennessee National, TN
Aiken County National Bank, SC Oct-94 Pending $ 7,000 $44,002 8.55% Common 32.56 1.86
Carolina First, SC
Citizens & Merchants Sep-94 Pending $11,800 $44,544 13.60% Common 17.00 2.17
Corporation, GA
Synovus Financial, GA
Standard Bank, NC Sep-94 Pending $14,200 $77,536 9.84% Common 32.95 1.86
Triangle Bancorp, NC
Peach State Bank, GA Aug-94 Pending $ 4,900 $40,453 19.69% Common 18.08 1.41
Synovus Financial, GA
Commercial Bancorp, TN Jun-94 Pending $ 5,300 $28,74 13.25% Common 15.73 1.39
Union Planters Corp., TN
Dickenson-Buchanan, VA Jun-94 Pending $10,500 $82,622 6.57% Common 8.93 1.93
Premier Bankshares, VA
State Bancshares, VA May-94 Pending $10,000 $62,006 8.86% Common 7.98 1.82
Synovus Financial, GA
Brundidge Banking Company, AL Apr-94 Pending $ 6,300 $53,220 6.95% Common 16.36 1.70
Colonial BancGroup, AL
Citizens Express Co., GA Feb-94 Closed $17,000 $98,944 8.03% Common 11.64 2.14
Bank South Corp., GA
Barrow Bancshares, Inc., GA Jan-94 Closed $10,900 $54,280 9.66% Common 14.67 2.08
First National Bancorp, GA
Bank of Iredell, NC Jan-94 Closed $16,000 $79,300 8.40% Common 20.13 2.40
United Carolina Bancshares, NC
Bank of Loudoun, VA Jan-94 Closed $10,800 $57,160 9.30% Common N/M 1.57
Jefferson Bankshares, VA
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Hatcher/Johnson utilized an analysis of these transactions in
particular to determine that the consideration to be received by the
common shareholders of Midlands was fair from a financial point of view.
A separate investment and cash flow analysis was also performed. This
analysis was used to determine what price an individual would be willing
to pay for a share of Midlands common stock given a required rate of
return during the investment period. For this analysis, it was assumed
that the investor would own the shares for a ten year period with a required
annual return ranging from 12% to 14%. Based on these assumptions and this
analysis, it was determined that the price an individual would be willing
to pay for shares of Midlands common stock would range from $10.78 per
share to $12.57 per share. This analysis does not include a control
premium, nor does it indicate the acquisition value.
By letter dated March 3, 1995, addressed to the Board of
Directors of Midlands, Hatcher/Johnson stated that in its opinion,
the 100% common stock consideration to be received by the
shareholders of Midlands is fair from a financial point of view. A copy
of such letter is attached as Appendix C.
In performing its analysis, Hatcher/Johnson relied upon and assumed
without independent verification, the accuracy and completeness of
all information provided to it. Hatcher/Johnson did not perform any
independent appraisal or valuation of the assets of Midlands, Carolina
First Corporation or its subsidiaries. As such, Hatcher/Johnson did
not express an opinion as to the fair market value of Midlands. The
opinion of financial fairness is necessarily based on market, economic
and other relevant considerations as they existed and could be evaluated
as of February 27, 1995.
Exchange of Midlands Stock Certificates
As soon as practicable after the Effective Time, Midlands
shareholders will be sent transmittal forms for use in forwarding to
Carolina First Corporation stock certificates previously representing
Midlands common stock for surrender and exchange for certificates
representing CFC common stock.
MIDLANDS SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL FORMS.
After the surrender of Midlands stock certificates by a Midlands
shareholder, Carolina First Bank, as transfer agent for Carolina
First Corporation (the "Agent"), will deliver certificates to such
shareholder representing the aggregate number of shares of CFC common
stock to which such shareholder is entitled under the Merger
Agreement. Certificates for CFC common stock distributable to the former
shareholders of Midlands shall not be delivered to any shareholder except
upon surrender by such shareholder of the certificate or certificates for
shares of Midlands common stock with respect to which the shares of
CFC common stock are deliverable, or upon appropriate arrangements
with respect to missing certificates, which may include the furnishing of
a satisfactory indemnity bond. Any dividends or other distributions
with respect to CFC common stock for which certificates have not been
delivered will be remitted by Carolina First Corporation to the Agent
and held by the Agent until the expiration of one year after the
Effective Time. During such one year period, upon the subsequent delivery
by Midlands shareholders of certificates or the making of appropriate
arrangements with respect to missing certificates, such dividends or
other distributions shall be paid by the Agent to the former Midlands
shareholders, without any interest thereon. After the expiration of such one
year period, any remaining funds deposited by Carolina First Corporation
with the Agent shall be returned to Carolina First Corporation and
any former Midlands shareholder entitled thereto shall look only to
Carolina First Corporation for payment.
Conditions to Consummation of the Merger
The respective obligations of Carolina First Corporation,
Carolina First Bank and Midlands to consummate the Merger are
subject to the satisfaction of certain conditions, including, without
limitation, the taking of all necessary corporate action with respect
to the Merger Agreement, including the approval of the Merger
Agreement by the shareholders of Midlands; the continuing
effectiveness of the registration statement under the Securities Act
and applicable state securities or "Blue Sky" laws or exemptions to
those laws; the receipt of all necessary regulatory approvals for the
Merger and expiration of all notice periods and waiting periods
required after the granting of any such approvals; the receipt of an
opinion from Wyche, Burgess, Freeman & Parham, P.A., in form and
substance reasonably satisfactory to Midlands, substantially to the
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effect that the Merger will, upon compliance with reasonable
conditions, qualify as a tax free reorganization under Section 368(a)
of the Code and the receipt by Midlands of an acceptable fairness
opinion from a reputable investment banking firm; the absence of any
order, writ decree or injunction of a judicial authority or agency
which enjoins or prohibits consummation of the transactions
contemplated by the Merger Agreement; the receipt of all permits,
consents or other authorizations necessary to the consummation of the
Merger; the accuracy of the representations and warranties set forth
in the Merger Agreement in all material respects as of the Effective
Time as though made on and as of such date; the performance by Midlands
and Carolina First Corporation in all material respects of all
material obligations and compliance with all material covenants
required by the Merger Agreement; and the receipt of certain
opinions of counsel and certificates from officers of Carolina First
Corporation and Midlands.
Consummation of the Merger also is subject to the conditions
that from the date of the Merger Agreement through the Effective
Time, the business of Midlands shall have been conducted in the usual
and customary manner, and neither Carolina First Corporation nor
Midlands shall have suffered a material casualty or a material
adverse change in their business or financial condition. It is also a
condition that Carolina First Corporation will have determined that
the Merger will qualify for the pooling-of-interests method of
accounting and received written agreements from the affiliates of
Midlands that they will not sell any shares of CFC common stock
received upon consummation of the Merger (a) in such a manner so as to
destroy the tax- free status of the Merger or the qualification by
the Merger as a pooling-of-interests transaction, and (b) except in
compliance with Rule 145 under the Securities Act or otherwise in
compliance with the Securities Act and rules and regulations
promulgated thereunder. A further condition of the Merger is that
dissenters' rights pursuant to 12 U.S.C. (section mark) 214a with respect
to the Merger will not have been exercised by the holders of more than
10% of the outstanding shares of Midlands common stock. See "THE PROPOSED
TRANSACTION -- Rights of Dissenting Shareholders of Midlands."
Carolina First Corporation and Midlands may waive certain of the
conditions imposed with respect to their respective obligations to
consummate the Merger.
Termination
The Merger Agreement may be terminated at any time on or prior
to the closing date by the mutual consent in writing of the
parties. Either party may elect to terminate the Merger Agreement prior
to the closing date (i) if a permanent injunction or other order
shall have been issued by any state or federal court, or governmental
or regulatory body preventing consummation of the transactions
contemplated by the Merger Agreement; (ii) if the other party has
failed to comply with the agreements or fulfill the conditions contained
in the Merger Agreement if such failure of compliance or
fulfillment is material to the consolidated businesses of either
Carolina First Corporation or Midlands and the breaching party has been
given notice of the failure to comply and a reasonable time to cure; or
(iii) if the Closing has not occurred by May 31, 1995.
Amendment
The Merger Agreement may be amended or supplemented in writing by
mutual agreement of Carolina First Corporation, Carolina First Bank and
Midlands.
Conduct of Midlands' and Carolina First Corporation's Business Prior to
the Effective Time
Under the terms of the Merger Agreement, Midlands may not,
without the prior written consent of Carolina First Corporation, which
consent may not be unreasonably withheld, until consummation or
termination of the Merger, among other things: (i) carry on its
business other than in the ordinary course in
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substantially the same manner as theretofore conducted; (ii) amend
its Articles of Association or Bylaws; (iii) except for existing
items or in the ordinary course of business in accordance with past
practice, issue, grant, pledge, sell, or authorize the issuance of,
reclassify, redeem, purchase or otherwise acquire any shares of its
capital stock or any rights, warrants or options to acquire any such
shares (except for employee stock options in the ordinary course
in accordance with past practice and upon prior notice to Carolina First
Corporation); (iv) declare, set aside or pay dividends or change its
equity capital structure; provided, however, that Midlands shall be
permitted to pay in 1995 substantially the same regular cash dividend
to holders of Midlands common stock as was paid in 1994; (v) take, agree
to take or knowingly permit any action that would be contrary to or
breach any of the terms or provisions of the Merger Agreement, or which
would cause Midlands' representations in the Merger Agreement to be or
become untrue in any material respect; (vi) incur any indebtedness for
borrowed money other than in the ordinary course of business; (vii)
except for expenses attendant to the Merger and current contractual
obligations, incur any expense in excess of $25,000; (viii) grant any
executive officers any increase in compensation, except in the ordinary
course in accordance with past practice and only upon prior notice to
Carolina First Corporation, or enter into any employment agreement with
any executive officer; or (ix) acquire or agree to acquire any business.
The Merger Agreement also requires Midlands to promptly advise
Carolina First Corporation of any change in its business which is or may
be reasonably expected to be materially adverse to Midlands' business.
Under the terms of the Merger Agreement, Carolina First
Corporation may not, without the prior written consent of Midlands,
which consent may not be unreasonably withheld, until
consummation or termination of the Merger, among other things: (i)
carry on its business other than in the ordinary course in substantially
the same manner as theretofore conducted; (ii) amend its Articles of
Incorporation or Bylaws in any manner that will adversely affect
the Midlands shareholders in any material respect; (iii) create or issue
any shares of capital stock except (A) shares it is already
obligated to issue (including shares in connection with prior
offerings of convertible preferred stock), or (B) shares in connection
with pending acquisitions, or in the ordinary course in accordance
with past practice (such as employee stock grants or options); or (iv)
take, agree to take or knowingly permit any action that would be
contrary to or breach any of the terms or provisions of the
Merger Agreement, or which would cause Carolina First Corporation's
representations in the Merger Agreement to become untrue in any
material respect. The Merger Agreement also requires Carolina First
Corporation to promptly advise Midlands of any change in its business
which is or may reasonably be expected to be materially adverse to
Carolina First Corporation.
Required Regulatory Approvals
The Merger is subject to certain regulatory approvals as set
forth below. To the extent that the following information describes
statutes and regulations, it is qualified in its entirety by reference
to the particular statutes and regulations promulgated under such
statutes.
The Merger of Midlands with Carolina First Bank is subject to
approval of the FDIC pursuant to the Bank Merger Act (12 U.S.C. 1828
et seq.). The Bank Merger Act requires that the FDIC take into
consideration the financial and managerial resources and future
prospects of the existing and proposed institutions and the convenience
and needs of the communities to be served. Further, the FDIC may not
approve the Merger if it would result in a monopoly or if it would be
in furtherance of any combination or conspiracy to monopolize or attempt
to monopolize the business of banking in any part of the United
States, or if the effect in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or
if the Merger would be in any other manner in restraint of trade,
unless the FDIC finds that the anticompetitive effects of the Merger
are clearly outweighed in the public interest by the probable
effect of the transactions in meeting the convenience and needs of the
communities to be served. In addition, the FDIC must take into account
the record of performance of the existing and proposed institutions
under the Community Reinvestment Act of 1977 ("CRA") in meeting
the credit needs of the entire community, including low- and
moderate-income neighborhoods, served by such institutions.
Applicable regulations also require
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publication of notice of the application for approval of the Merger
and provide an opportunity for the public to comment on the
application in writing and to request a hearing. Subject to certain
exceptions, the Bank Merger Act provides that no bank merger may be
consummated until the 30th day after approval, during which time the
United States Department of Justice (the "DOJ") may challenge the
merger on antitrust grounds. Carolina First Corporation has submitted
an application to the FDIC for approval to consummate the Merger, which
application has been approved.
The Merger also is subject to approval by the State Board
under Section 34-24-30 of the South Carolina Bank Holding Company Act
("SCBHCA"). Under Section 34-24-50 of the SCBHCA, the State Board may
approve the Merger only after determining that the Merger would not
create anticompetitive or monopolistic effects on the South Carolina
banking business. The State Board also must take into consideration
the financial and managerial resources and future prospects of the
companies and banks involved as well as the convenience and needs of
the communities to be served. In making its determination, the State
Board will wait until after the FDIC makes its determination and will
deny the application only if the State Board finds that the FDIC's
determination is not supported by evidence that is substantial when
viewed in light of the whole record considered by the FDIC.
Carolina First Corporation has submitted an application to the State
Board for approval to consummate the Merger, and such application
has been approved.
Carolina First Corporation and Midlands are not aware of any other
governmental approvals or actions that are required for consummation of the
Merger except as described above (all of which have been received).
Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought or taken.
There can be no assurance that any such approval or action, if needed,
could be obtained or would not delay consummation of the Merger.
Operations After the Merger
After consummation of the Merger, the former Midlands banking
locations will be operated as branch locations of Carolina First Bank
and such locations are expected to conduct their business in
substantially the same manner as prior to the Merger. The Midlands
officers and employees will continue as officers and employees of
Carolina First Bank in an at-will employment capacity, except that
certain Midlands employees will serve under employment contracts.
See "--Interests of Certain Persons in the Merger." The Midlands
officers and employees will continue at approximately their
current levels of compensation and will be eligible for benefits
available to other similarly situated officers and employees of
Carolina First Bank. The former Midlands directors will constitute an
Advisory Board for Carolina First Bank for Newberry County.
After consummation of the Merger, it is anticipated that Carolina
First Bank will continue to conduct its business in substantially the
same manner in which it is now conducted.
Interests of Certain Persons in the Merger
On the closing date of the Merger, Carolina First Corporation will
enter into employment agreements with David W. Bowers and E. Monte
Bowers, each of whom are currently executive officers and directors of
Midlands. These agreements, which are substantially similar, will
provide for continued payment of salary in the event of certain types
of termination, an employment term of five years, that may be extended by
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Carolina First Corporation, and for certain other benefits.
Neither such individual will be considered an executive officer of
Carolina First Bank after the Merger.
All directors of Midlands own warrants and or options to purchase
Midlands common stock granted in connection with Midlands' initial
stock offering. At the Effective Time, such warrants and options to
purchase Midlands common stock will be converted into the right to
receive CFC common stock based on the 1.65 exchange ratio.
Pursuant to the Merger Agreement, for a period of three years after
the Effective Time of the Merger, Carolina First Corporation will
ensure that all rights to indemnification and limitations of
liability existing in favor of officers and directors of Midlands as
provided in Midlands' charter documents and bylaws arising from facts
or events existing or occurring prior to the Effective Time of the
Merger shall survive the Merger and continue in full force and effect.
Accounting Treatment
Carolina First Corporation expects to account for the
acquisition of Midlands as a pooling-of- interests. For the
transaction to qualify for the pooling-of-interests method, it must
satisfy certain conditions, including the condition that substantially
all (at least 90%) of the outstanding Midlands common stock must be
exchanged for CFC common stock. Under the pooling-of-interests
method, the assets and liabilities of Carolina First Bank and
Midlands will be combined and carried forward at their previously
recorded amounts. The revenues and expenses of Carolina First
Bank and Midlands will be retroactively combined for the entire
fiscal period in which the combination occurs and for all periods
prior to the combination at historically recorded amounts. The
consummation of the Merger is conditioned upon Carolina First
Corporation receiving reasonable assurance from Elliott, Davis &
Company, L.L.P. that the Merger will qualify for pooling-of-interests
accounting treatment under generally accepted accounting principles.
Certain Federal Income Tax Consequences
The following is a summary of certain material federal income
tax consequences of the Merger, including certain consequences to
holders of the Midlands common stock who are citizens or residents of
the United States and who hold their shares as capital assets. It does
not discuss all tax consequences that may be relevant to Midlands
shareholders subject to special federal income tax treatment (such as
insurance companies, dealers in securities, certain retirement plans,
financial institutions, tax exempt organizations or foreign persons),
or to Midlands shareholders who acquired their shares of Midlands'
common stock pursuant to the exercise of employee stock options or
rights or otherwise as compensation. Shareholders are urged to consult
their own tax advisors as to the specific tax consequences to them
of the Merger, including the applicability and effect of state, local
and other tax laws. The summary does not address the state, local or
foreign tax consequences of the Merger, if any.
Pursuant to the terms of the Merger Agreement, Midlands will
receive the opinion of Wyche, Burgess, Freeman & Parham, P.A., dated
as of the Effective Time, to the effect that based upon the Code
and regulations thereunder and rulings issued by the IRS in
transactions similar to those contemplated by the Merger Agreement and
assuming the Merger occurs in accordance with the Merger Agreement and
conditioned on the accuracy of certain representations made by
Midlands and Carolina First Corporation, for federal income tax
purposes:
(1) The Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code;
(2) No gain or loss will be recognized by either Carolina
First Corporation or Midlands as a result of the Merger;
25
<PAGE>
(3) No gain or loss will be recognized by Midlands shareholders
on the exchange of their shares of Midlands common stock for
CFC common stock (disregarding for this purpose any cash
received for fractional share interests or in connection with
the exercise of dissenters' rights);
(4) The tax basis of the CFC common stock to be received by
Midlands shareholders in connection with the Merger will be
the same as the basis in Midlands common stock surrendered in
exchange therefor; and
(5) The holding period of the CFC common stock to be
received by Midlands shareholders in connection with the Merger
will include the holding period of Midlands common stock
surrendered in exchange therefor, provided that Midlands common
stock is held as a capital asset at the date of the exchange.
Fractional Share Interests. A Midlands shareholder who receives
cash in lieu of a fractional share interest in CFC common stock
will be treated as having received the cash in redemption of the
fractional share interest. The receipt of cash in lieu of a fractional
share interest should generally result in capital gain or loss to the
holder equal to the difference between the amount of cash received and
the portion of the holder's federal income tax basis in the Midlands
common stock allocable to the fractional share interest. Such capital
gain or loss will be long-term capital gain or loss if the holder's
holding period for the CFC common stock received, determined as set
forth above, is longer than one year.
Cash Received by Holders of Midlands Common Stock Who Dissent. A
shareholder of Midlands who perfects his dissenter's rights under
federal law and who receives payment of the value of his shares of
Midlands common stock will be treated as having received such
payment in redemption of such stock. Such redemption will be subject to
the conditions and limitations of Section 302 of the Code, including the
attribution rules of Section 318 of the Code. In general, if the
shares of Midlands common stock are held by the holder as a capital
asset at the Effective Time, such holder will recognize capital
gain or loss measured by the difference between the amount of cash
received by such holder and the basis for such shares. Each holder of
Midlands common stock who contemplates exercising his dissenter's
rights should consult his own tax adviser as to the possibility that any
payment to him will be treated as dividend income.
THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED ON THE CODE (AND AUTHORITIES
THEREUNDER) AS IN EFFECT ON THE DATE OF THIS PROXY STATEMENT/PROSPECTUS,
WITHOUT CONSIDERATION OF THE PARTICULAR FACTS OR CIRCUMSTANCES OF ANY
SHAREHOLDER. SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER IN THEIR PARTICULAR SITUATIONS, AS WELL AS CONSEQUENCES UNDER ANY
APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
Restrictions on Resales by Affiliates
The issuance of the CFC Shares has been registered under the
Securities Act. Accordingly, resales of the CFC Shares by
non-affiliates of Midlands will not require registration. However, under
existing law, any person who is an affiliate of Midlands at the
time the proposed exchange is submitted to a vote of the Midlands
shareholders who wishes to sell CFC Shares will be required to either
(a) register the sale of the CFC Shares under the Securities Act,
(b) sell in compliance with Rule 145 promulgated under the Securities
Act (permitting limited sales under certain circumstances), or
(c) utilize an exemption (if any) from registration. Rule 145(d)
requires that persons deemed to be Midlands affiliates resell their
CFC Shares pursuant to certain of the requirements of Rule 144
under the Securities Act if such CFC Shares are sold within the first
two years after receipt thereof. After two years, if such person is
not an affiliate of Carolina First Corporation and Carolina First
Corporation is current in the filing of its periodic securities law
filings,
26
<PAGE>
a former Midlands affiliate may freely sell the CFC Shares
without limitation. After three years from the issuance of the CFC
Shares, if such person is not a Carolina First Corporation affiliate at
the time of sale or for at least three months prior to such sale, such
person may freely sell such CFC Shares without limitation, regardless of
the status of Carolina First Corporation's periodic securities law
filings.
It is a condition to the consummation of the Merger, that
affiliates of Midlands agree in writing that they will not sell or
reduce their risk with respect to the CFC common stock to be received by
them until Carolina First Corporation has published financial results
covering at least 30 days of post-exchange combined operations. Stop
transfer instructions will be given by Carolina First Corporation to the
Agent with respect to the CFC common stock to be received by persons
subject to the restrictions described above, and the certificates for
such stock may be appropriately legended. An "affiliate" of Midlands, as
defined by the rules promulgated pursuant to the Securities Act, is a
person who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with,
Midlands at the time of consummation of the Merger Agreement. In
this context, an "affiliate" will generally include the following
persons: directors or executive officers, and the holders of 10% or
more of Midlands common stock (and any relative or spouse of any such
person and any trusts, estates, corporations, or other entities in which
such persons have a 10% or greater beneficial or equity interest).
Rights of Dissenting Shareholders of Midlands
The following discussion is merely a summary of rights of dissenting
shareholders pursuant to federal law and is qualified in its
entirety by the provisions of 12 U.S.C. (section mark) 214a(b), a copy of
which is included herewith as Appendix B. Dissenting shareholders have only
those rights provided by 12 U.S.C. (section mark) 214a(b). Any shareholder
wishing to exercise dissenters' rights is strongly advised to consult with an
attorney.
Any shareholder of Midlands who has voted against the Merger at
the Special Meeting, or has given notice in writing at or prior to
such meeting to the presiding officer that he dissents from the Merger,
shall be entitled to receive in cash the value of the shares so
held by him upon written request made to Carolina First Corporation
at any time before thirty days after the date of consummation of the
Merger, accompanied by the surrender of his stock certificates.
The value of such shares shall be ascertained, as of the date of the
Special Meeting, by an appraisal made by a committee of three
persons, composed of (1) one selected by the majority vote of the
dissenting shareholders entitled to payment in cash; (2) one selected
by the directors of Carolina First Bank; and (3) one selected by the
two so selected. The valuation agreed upon by any two of the three
appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment,
that shareholder may, within five days after being notified of the
appraised value of his shares, appeal to the OCC, which shall
cause a reappraisal to be made which shall be final and binding as to
the value of the shares of the appealing shareholder.
If, within 90 days from the date of consummation of the Merger,
for any reason one or more of the appraisers is not selected, or the
appraisers fail to determine the value of such shares, the OCC shall
upon written request of any interested party cause an appraisal to be
made which shall be final and binding on all parties. The expenses of
the OCC in making the reappraisal or the appraisal, as the case may be,
shall be paid by Carolina First Bank.
Recommendation of Board of Directors
The Board of Directors of Midlands has concluded that the Merger is
in the best interests of Midlands and has authorized consummation
thereof, subject to approval of the shareholders, receipt of all
requisite regulatory approvals, and satisfaction of certain other
conditions.
27
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The unaudited Pro Forma Combined Condensed Balance Sheet is
based on combining the historical consolidated balance sheet for
Carolina First Corporation (as used in the financial statements
contained in this Section, "CFC") at December 31, 1994 with the
balance sheet of Midlands at the same date, and adjusting for the
issuance of additional shares expected to be issued in the Merger.
It also reflects adjustments anticipated in connection with the
acquisition by Carolina First Corporation of Aiken County National Bank
(as used in the financial statements contained in this Section,
"ACNB"). See "INFORMATION ABOUT CAROLINA FIRST CORPORATION -- Recent
Developments."
The unaudited Pro Forma Combined Capitalization is based on
combining the historical consolidated capitalization of Carolina First
Corporation at December 31, 1994 with the capitalization of Midlands at
the same date, and adjusting for the issuance of additional shares
expected to be issued in the Merger. It also reflects adjustments
anticipated in connection with the acquisition by Carolina First
Corporation of ACNB.
The unaudited Pro Forma Combined Condensed Summary of
Earnings (Excluding ACNB) combines the consolidated statements of
income of Carolina First Corporation for the years ended December 31,
1992, 1993 and 1994 with the statements of income of Midlands for
the same periods but does not reflect adjustments anticipated in
connection with the acquisition of ACNB by Carolina First Corporation.
The unaudited Pro Forma Combined Condensed Summary of Earnings
(Including ACNB) combines the consolidated statements of income of
Carolina First Corporation for the years ended December 31, 1992, 1993
and 1994 with the statements of income of Midlands and ACNB for the same
periods.
The Merger is expected to be accounted for under the pooling of
interests method of accounting and pro forma data is derived in
accordance with such method.
Information set forth below should be read in conjunction
with such historical and pro forma financial statements and the notes
thereto. The unaudited pro forma information is provided for
informational purposes only and is not necessarily indicative of
actual results that would have been achieved had the Merger been
consummated at the beginning of the period presented, nor is it
necessarily indicative of future results.
28
<PAGE>
Pro Forma Combined Condensed Balance Sheet
December 31, 1994
(dollars in thousands, except per share data)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma
CFC Midlands Adjustments Combined ACNB Adjustments Combined
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks . . . . . . . . . . . . $ 55,047 $ 2,500 $ -- $ 57,547 $ 2,204 $ -- $ 59,751
Federal funds sold . . . . . . . . . . . . . . 500 1,44 -- 1,940 2,480 $ -- 4,420
Investment securities . . . . . . . . . . . . 117,059 9,192 -- 126,251 4,246 $ -- 130,496
Loans . . . . . . . . . . . . . . . . . . . . 866,742 27,463 -- 894,205 29,736 $ -- 923,941
Less unearned income . . . . . . . . . . . (873) -- -- (873) -- -- (873)
Less allowance for loan losses . . . . . . (5,267) (333) (5,600) (402) (6,002)
Net loans . . . . . . . . . . . . . . . . . 860,602 27,130 0 887,732 29,334 0 917,066
Premises and equipment . . . . . . . . . . . 36,842 1,319 -- 38,161 1,662 -- 39,823
Other assets . . . . . . . . . . . . . . . . 50,047 1,047 -- 51,094 1,700 -- 52,794
Total assets . . . . . . . . . . . . . . $ 1,120,097 $ 42,628 $ 0 $ 1,162,725 $ 41,625 $ 0 $ 1,204,350
Liabilities and shareholders' equity:
Liabilities
Deposits
Noninterest-bearing . . . . . . . . . . $ 119,950 $ 2,444 $ -- $ 122,394 $ 4,580 $ -- $ 126,974
Interest bearing . . . . . . . . . . . . . 805,498 35,834 -- 841,332 33,442 -- 874,774
Total deposits . . . . . . . . . . . . . . 925,448 38,278 0 963,726 38,022 0 1,001,748
Borrowed funds . . . . . . . . . . . . . . 107,200 36 -- 107,236 -- -- 107,236
Other liabilities . . . . . . . . . . . . . 8,408 266 -- 8,674 211 -- 8,885
Total liabilities . . . . . . . . . . . . 1,041,056 38,580 0 1,079,636 38,233 0 1,117,869
Total shareholders' equity . . . . . . . 79,041 4,048 -- 83,089 3,392 -- 86,481
Total liabilities and shareholders'
equity $ 1,120,097 $ 42,628 $ 0 $ 1,162,725 $ 41,625 $ 0 $ 1,204,350
</TABLE>
29
<PAGE>
Pro Forma Combined Capitalization
December 31, 1994
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
CFC Midlands Adjustments Combined ACNB Adjustments Combined
<S> <C> <C> <C> <C> <C> <C>
Long-term debt:
ESOP loan payable in annual installments of
$50,000, plus interest at 90% of prime . $ 76 $ -- $ -- $ 76 $ -- $ -- $ 76
Mortgage debt and capital lease obligations . 1,086 36 -- 1,122 -- -- 1,122
Total long-term debt . . . . . . . . . . . 1,162 36 0 1,198 0 0 1,198
Shareholders' equity:
Preferred stock-authorized 37,014 -- -- 37,014 -- -- 37,014
Common stock 4,581 1,773 (1,189)(1) 5,165 2,013 (1,560)(2) 5,617
Surplus 39,037 1,773 1,189 (1) 41,999 1,985 1,560(2) 45,544
Retained earnings 472 645 -- (1,083) -- -- 514
Noninvested restricted stock (1,083) -- -- (1,083) -- -- (1,083)
Guarantee of ESOP debt (126) -- -- (126) -- -- (126)
Unrealized loss on securities available for sale (854) (143) -- (997) -- (999)
Total shareholders' equity 79,041 4,048 0 83,089 3,392 0 86,481
Total capitalization $ 80,203 $ 4,084 $ 0 $ 84,287 $ 3,392 $ 0 $ 87,679
</TABLE>
(1) Reflects the issuance of 584,968 shares of CFC common stock to
holders of Midlands common stock.
(2) Reflects the issuance 452,813 shares of CFC common stock to holders
of ACNB common stock.
30
<PAGE>
Pro Forma Combined Condensed Summary of Earnings
(Excluding ACNB)
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans . . . . . . . . . . $ 36,766 $ 44,788 $ 68,069
Interest on securities . . . . . . . . . . . . 3,910 6,600 6,388
Other interest income . . . . . . . . . . . . . 554 511 485
Total Interest Income . . . . . . . . . . 41,230 51,899 74,942
Interest Expense
Interest on deposits . . . . . . . . . . . . . 21,781 22,618 29,562
Interest on short-term borrowings . . . . . . . 128 427 1,638
Interest on long-term debt . . . . . . . . . . 121 125 121
Total interest expense . . . . . . . . . . 22,030 23,170 31,322
Net interest income . . . . . . . . . . . . . . 19,200 28,729 43,619
Provision for loan losses . . . . . . . . . 1,943 1,054 1,056
Net interest income after provision
for loan losses . . . . . . . . . . . . . 17,257 27,675 42,563
Noninterest Income
Service charges on deposit accounts . . . . . . 1,627 2,735 3,879
Mortgage banking income . . . . . . . . . . . . 1,274 1,788 1,638
Gain on sale of securities . . . . . . . . . . 615 680 234
Sundry . . . . . . . . . . . . . . . . . . . . 365 1,350 2,345
Total noninterest income . . . . . . . . . 3,881 6,553 8,097
Noninterest Expenses
Salaries, wages and benefits . . . . . . . . . 7,792 12,396 18,615
Occupancy and furniture and equipment . . . . . 2,756 3,959 6,014
Sundry . . . . . . . . . . . . . . . . . . . . 6,806 10,263 15,062
Credit card restructuring charge . . . . . . . - - 12,214
Total noninterest expenses . . . . . . . . 17,354 26,618 51,905
Income before income taxes . . . . . . . . . . 3,784 7,610 (1,244)
Income taxes . . . . . . . . . . . . . . . 1,184 2,305 190
Net income . . . . . . . . . . . . . . . . . . 2,600 5,305 (1,434)
Dividends on preferred stock . . . . . . . 625 1,930 2,433
Net income applicable to common shareholders . $ 1,975 $ 3,375 $ (3,867)
Net income per common share
Primary . . . . . . . . . . . . . . . . . . . $ 0.51 $ 0.86 $ (0.75)
Fully diluted . . . . . . . . . . . . . . . . n/a n/a n/a
Average shares outstanding
Primary . . . . . . . . . . . . . . . . . . . . 3,892,542 3,937,259 5,138,313
Fully diluted . . . . . . . . . . . . . . . . . 4,955,690 6,446,205 7,591,853
</TABLE>
31
<PAGE>
Pro Forma Combined Condensed Summary of Earnings
(Including ACNB)
<TABLE>
<CAPTION>
Years Ended December 31,
1992 1993 1994
(dollars in thousands, except per share data)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans . . . . . . . . . $ 39,788 $ 47,313 $ 70,679
Interest on securities . . . . . . . . . . . 4,277 6,999 6,671
Other interest income . . . . . . . . . . . . 694 654 623
Total Interest Income . . . . . . . . . . 44,759 54,966 77,973
Interest Expense
Interest on deposits . . . . . . . . . . . . 23,760 24,055 30,750
Interest on short-term borrowings . . . . . . 128 427 1,638
Interest on long-term debt . . . . . . . . . 121 125 121
Total Interest Expense . . . . . . . . . . 24,009 24,607 32.509
Net interest income . . . . . . . . . . . . . 20,750 30,359 45,464
Provision for loan losses . . . . . . . . . . . 2,319 1,106 1,196
Net interest income after
provision for loan losses . . . . . . . . 18,431 29,253 44,268
Noninterest Income
Services charges on deposit accounts . . . . 1,791 2,916 4,108
Mortgage banking income . . . . . . . . . . . 1,274 1,788 1,638
Gain on sale of securities . . . . . . . . . 634 710 75
Sundry . . . . . . . . . . . . . . . . . . . 418 1,350 2,404
Total Noninterest income . . . . . . . . . 4,117 6,764 8,225
Noninterest Expenses
Salaries, wages and benefits . . . . . . . . 8,466 13,140 19,397
Occupancy and furniture and equipment . . . . 3,032 4,234 6,306
Sundry . . . . . . . . . . . . . . . . . . . 7,400 10,920 16,127
Credit card restructuring charge . . . . . . 0 0 12,214
Total Noninterest expenses . . . . . . . . 18,898 28,294 54,044
Income before income taxes . . . . . . . . . 3,650 7,723 (1,551)
Income taxes . . . . . . . . . . . . . . . . . 1,184 2,305 190
Net income . . . . . . . . . . . . . . . . . 2,466 5,418 (1,741)
Dividends on preferred stock . . . . . . . . . 625 1,930 2,433
Net income applicable to
common shareholders . . . . . . . . . . . $ 1,841 $ 3,488 $ (4,174)
Net income per common share
Primary . . . . . . . . . . . . . . . . . . . $ 0.43 $ 0.80 $ (0.75)
Fully diluted . . . . . . . . . . . . . . . . n/a 0.79 n/a
Average shares outstanding
Primary . . . . . . . . . . . . . . . . . . . 4,295,043 4,339,760 5,540,814
Fully diluted . . . . . . . . . . . . . . . . . 5,358,191 6,848,706 7,994,354
</TABLE>
32
<PAGE>
INFORMATION ABOUT CAROLINA FIRST CORPORATION
In General
Carolina First Corporation. Carolina First Corporation is a
bank holding company headquartered in Greenville, South Carolina
which engages in a general banking business through its two
subsidiaries: (1) Carolina First Bank, a South Carolina-
chartered bank headquartered in Greenville, South Carolina and
(2) Carolina First Mortgage Company, a mortgage loan origination
and servicing company headquartered in Columbia, South Carolina.
Carolina First Corporation, which commenced operations in
December 1986, currently conducts business in 46 locations in
South Carolina and is the second largest independent South
Carolina-headquartered financial institution. At December 31,
1994, it had total assets of approximately $1.1 billion, total
loans of approximately $866 million and total deposits of
approximately $925 million.
Carolina First Corporation was formed principally in response
to opportunities resulting from the takeovers of several South
Carolina-based banks by large southeastern regional bank holding
companies. A significant number of Carolina First Corporation's
executive officers and management personnel were previously
employed by certain of the larger South Carolina-based banks that
were acquired by these southeastern regional institutions.
Consequently, these officers and management personnel have
significant customer relationships and commercial banking
experience that have contributed to Carolina First Corporation's
loan and deposit growth. Carolina First Corporation targets
individuals and small to medium-sized businesses in South
Carolina that require a full range of quality banking services
typically provided by larger regional banking concerns, but that
prefer the personalized service afforded by a South
Carolina-based institution.
Carolina First Corporation's objective is to become the
leading South Carolina-based banking institution headquartered in
the state. It believes that it can accomplish this goal by being
a "super-community" bank which offers both the personalized
service and "relationship" banking typically found in community
banks, as well as the sophisticated banking products offered by
the regional and super-regional institutions. Carolina First
Corporation currently serves three principal market areas: the
Greenville metropolitan area and surrounding counties (located in
the " Upstate" region of South Carolina); the Columbia
metropolitan area and surrounding counties (located in the
"Midlands" region of South Carolina); and Georgetown and Horry
counties (located in the "Coastal" region of South Carolina).
Carolina First Corporation's market areas are located in three of
the four largest Metropolitan Statistical Areas of the state.
Carolina First Corporation began its operations with the de
novo opening of Carolina First Bank in Greenville and has pursued
a strategy of growth through internal expansion and through the
acquisition of branch locations and financial institutions is
selected market areas. Its more significant acquisitions include
the acquisition in August 1990 of First Federal Savings and Loan
Association of Georgetown (subsequently renamed Carolina First
Savings Bank, which was subsequently merged into Carolina First
Bank on February 3, 1995) and the acquisition of 12 branch
locations of Republic National Bank in March 1993, in which
depositsof approximately $190 million were assumed.
Approximately half of Carolina First Corporation's total deposits
have been generated through acquisitions. Carolina First
Corporation anticipates that it will continue to expand in the
future and is frequently in discussions regarding possible
acquisitions. See "--Recent Developments."
Carolina First Corporation is a legal entity separate and
distinct from its subsidiary bank and non-banking subsidiary.
Accordingly, the right of Carolina First Corporation, and thus
t h e right of Carolina First Corporation's creditors and
shareholders, to participate in any distribution of the assets or
earnings of any subsidiary is necessarily subject to the prior
claims of creditors of the subsidiary, except to the extent that
claims of Carolina First Corporation in its capacity as a
creditor may be recognized. The principal source of Carolina
First Corporation's revenues is dividends from its subsidiaries.
See "--Certain Regulatory Matters" for a discussion of regulatory
restrictions on the ability of certain subsidiaries to pay
dividends to Carolina First Corporation.
33
<PAGE>
Carolina First Bank. Carolina First Bank is a South Carolina-
chartered, non-member bank and a wholly-owned subsidiary of
Carolina First Corporation. It engages in a general banking
business through 30 locations, which are located throughout South
Carolina. It began its operations in December 1986 and at
December 31, 1994, had total assets of approximately $830
million, total loans of approximately $528 million and total
deposits of approximately $709 million. Its deposits are insured
by the FDIC.
Carolina First Mortgage Company. Carolina First Mortgage
Company is a South Carolina corporation which principally
originates and services one-to-four family mortgage loans through
its six offices located in South Carolina. It is headquartered in
Columbia, South Carolina. At December 31, 1994, Carolina First
Mortgage Company was servicing approximately 10,000 loans having
an aggregate principal balance of approximately $800 million.
Corporate Reorganization
In General. In the fourth quarter of 1994, Carolina First
Corporation initiated a reorganization which was designed to
improve the long-term competitive position of Carolina First
Corporation.This reorganization had several different
components, although none of the components was contingent upon
or related to the other components. The reorganization involved
the merger of Carolina First Savings Bank and Carolina First
Bank, the transfer of Carolina First Bank's credit card portfolio
off balance sheet to a master trust, and the write-off of certain
intangible assets. In connection with these transactions,
Carolina First Corporation incurred in the fourth quarter of
1994,an aggregate one-time, after-tax write-down of
approximately $8.4 million and a tax liability of $1 million.
Such writedowns offset all earnings of Carolina First Corporation
in 1994. However, Carolina First Corporation expects that on a
going-forward basis, the aggregate effect of the reorganization
will be to increase Carolina First Corporation's pre-tax income
by approximately $2.8 million a year. The reorganization was
undertaken by Carolina First Corporation in an effort to improve
its financial performance by reducing expenses and finding
alternative off-balance sheet income sources. Absent the one-time
charge associated with these corporate transactions, Carolina
First Corporation would have had net income of $7 million during
1994.
Writedown of Certain Intangible Assets. In the third quarter
of 1994, Carolina First Corporation retained a consulting firm to
determine whether any of its intangible assets were impaired and
should be written off. Such intangible assets were created
p r i ncipally in connection with acquisitions of financial
institutions and financial assets, and the origination of credit
c a rd accounts. Such study determined that Carolina First
Corporation should write off after-tax approximately $3 million
in intangible assets associated with the origination of credit
card accounts. Such writedown occurred in the fourth quarter of
1994 in connection with securitization of Carolina First Bank's
credit card portfolio and the merger of Carolina First Savings
Bank into Carolina First Bank.
Securitization of Credit Card Portfolio. On January 24, 1995,
Carolina First Bank consummated the securitization of
substantially all of its credit card portfolio. In connection
with such securitization, Carolina First Bank transferred
substantially all of its credit card accounts and receivables
(approximately $100 million) to a trust. Carolina First Bank
retained an interest in approximately 30% of the underlying
assets of the trust, while certain interests in approximately 70%
of the underlying assets of the trust were sold to accredited
institutional investors. The various interests in the trust have
different rights with respect to the income of the trust, and a
substantial portion of Carolina First Bank's interest is
subordinated (with respect to losses) to such institutional
investors' interests. One of the principal benefits of this
structure is that Carolina First Bank will receive income from
the trust (assuming its continued viability), while the assets
(except for the 30% interest retained) are not included on
Carolina First Bank's balance sheet. In addition, this
transaction is expected to provide Carolina First Bank with
significant liquidity to make loans in its market areas. The
trust documents provide that the trust arrangement may be
terminated in certain events, including in the event that credit
card loan losses exceed a stated percentage or in the event that
principal repayments exceed a stated percentage. In the event
that the trust is terminated, Carolina First Corporation will
generally not be required to repurchase
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the credit card accounts represented by the 70% interest sold to
accredited institutional investors. Carolina First Corporation believes
that the liability associated with the securitization is not materially
greater than the liability that would exist if Carolina First Bank
retained its credit card portfolio.
Merger of Carolina First Savings Bank and Carolina First
Bank. In 1990, Carolina First Corporation acquired First Federal
Savings and Loan Association of Georgetown, which was
subsequently renamed Carolina First Savings Bank ("CF Savings
Bank"). From 1990 until its merger with Carolina First Bank on
February 3, 1995, CF Savings Bank was operated as a separate
savings bank subsidiary of Carolina First Corporation. As part of
the reorganization, Carolina First Corporation determined to
merge CF Savings Bank into Carolina First Bank. In connection
with such merger, Carolina First Corporation incurred a one-time
tax liability of approximately $1 million as a result of the
different tax treatment accorded the allowance for loan losses of
CF Savings Bank and Carolina First Bank. This merger is expected
to result in significant savings for Carolina First Corporation
on a going-forward basis, primarily as a result of the
elimination of duplicative administration, the reduction of
regulatory burdens and the facilitation of corporate management.
Recent Developments
Sale of Purchase Mortgage Servicing Rights. On March 31,
1995, Carolina First Bank sold the servicing rights associated
with approximately $415,000,000 of mortgage loans to Bank of
America, FSB. In connection with this sale, Carolina First Bank
received proceeds of approximately $7.2 million on March 31,
1995, and will receive approximately $1.8 million on the date the
transfer is completed, which date is expected to occur prior to
July 31, 1995.
Acquisition of ACNB. On April 10, 1995, Carolina First
Corporation acquired ACNB through the merger of ACNB with and
into Carolina First Bank. The ACNB Transaction was accounted for
as a pooling-of-interests and resulted in the issuance of 452,813
shares of CFC common stock in exchange for the outstanding shares
of ACNB common stock. At December 31, 1994, ACNB operated through
two locations in Aiken, South Carolina and had approximately $42
million in assets. In connection with the ACNB transaction,
Carolina First Bank received approximately $29 million in loans
and approximately $38 million in deposits. At December 31, 1994,
ACNB's non-performing assets (which includes loans which are 90
days or more past due and still accruing interest) totaled 62% of
total loans and other real estate owned. For the years ended
December 31, 1993 and 1994, ACNB had net income (loss) of
approximately $112 million and $(306) million, respectively.
Other Acquisitions. Carolina First Corporation continues to
explore opportunities to acquire banks and other companies
engaging in financial institutions-related activities. It is not
presently known whether, or on what terms, such discussions will
result in further acquisitions. Carolina First Corporation's
acquisition strategy is flexible in that it does not require
Carolina First Corporation to effect specific acquisitions so as
to enter certain markets or to attain specified growth levels.
Rather than being market driven or size motivated, Carolina First
Corporation's acquisition strategy reflects its willingness to
consider potential acquisitions wherever and whenever such
opportunities arise based on the then-existing market conditions
and other circumstances. Carolina First Corporation's
acquisitions may be made by the exchange of stock, through cash
purchases, or with other consideration. Other than as described
above, Carolina First Corporation does not currently have any
definitive understandings or agreements for any acquisitions
material to Carolina First Corporation. However, Carolina First
Corporation anticipates that it will continue to expand by
acquisition in the future.
Market Prices of and Dividends Paid on CFC Common Stock
The CFC common stock is, and the CFC Shares offered hereby
will be, traded on the Nasdaq National Market. The following
table sets forth, for the periods indicated, the high and low
reported closing sale prices
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per share of CFC common stock as reported by the Nasdaq Stock
Market and the cash dividends per share of the CFC common stock.
The dividend and stock price information has been adjusted to reflect
stock dividends.
Price Range of CFC Common Stock
High Low Dividends
1992
First Quarter . . . . . . . . . . $ 9.50 $ 7.34 $ --
Second Quarter. . . . . . . . . 9.75 8.16 --
Third Quarter . . . . . . . . . . 10.66 8.62 --
Fourth Quarter. . . . . . . . . . 12.02 10.20 --
1993
First Quarter . . . . . . . . . . $ 11.79 $ 10.43 $ --
Second Quarter. . . . . . . . . . 12.38 10.48 --
Third Quarter . . . . . . . . . . 12.38 11.43 --
Fourth Quarter. . . . . . . . . . 14.05 11.67 $ 0.05
1994
First Quarter . . . . . . . . . . $ 12.86 $11.43 $ 0.05
Second Quarter. . . . . . . . . . 15.00 12.50 0.05
Third Quarter . . . . . . . . . . 15.75 14.00 0.05
Fourth Quarter. . . . . . . . . . 14.00 13.25 0.06
1995
First Quarter . . . . . . . . . . $ 15.25 $13.50 $ 0.06
Carolina First Corporation intends to continue its present
policy of paying quarterly cash dividends to its shareholders.
However, the timing and amount of future dividends will depend
upon earnings, cash requirements, the financial condition of
Carolina First Corporation and its subsidiaries, applicable
government regulations and other factors deemed relevant by
Carolina First Corporation management. As described under "--
Certain Regulatory Matters," various state and federal laws limit
the ability of Carolina First Bank to pay dividends to Carolina
First Corporation.
Special Investment Considerations
In addition to the other information contained in this Proxy
Statement/Prospectus, the following factors should be considered
carefully when evaluating Carolina First Corporation and the CFC
common stock.
Dependence on Senior Management. Carolina First Corporation
is dependent upon the services of certain of the senior executive
officers of Carolina First Corporation and its subsidiaries. The
loss of the services of one or more of such individuals could
have an adverse effect on Carolina First Corporation. No
assurance can be given that replacements for any of these
officers could be employed if their services were no longer
available. Carolina First Corporation maintains key employee
insurance on Mack I. Whittle, Jr., Carolina First Corporation's
Chief Executive Officer.
Growth Through Acquisitions. Carolina First Corporation has
experienced significant growth in assets as a result of
acquisitions. Moreover, Carolina First Corporation anticipates
engaging in selected acquisitions of financial institutions and
branch locations in the future. There are certain risks
associated with Carolina First Corporation's acquisition strategy
that could adversely impact net income. Such risks include, among
others,
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incorrectly assessing the asset quality of a particular
institution being acquired, encountering greater than anticipated
costs of incorporating acquired businesses into Carolina First
Corporation and being unable to profitably deploy funds acquired
in an acquisition. Furthermore, there can be no assurance as to
the extent that Carolina First Corporation can continue to grow
through acquisitions. In the past, Carolina First Corporation has
engaged in acquisitions accounted for by the purchase method of
accounting. Acquisitions accounted for by the purchase method of
accounting may lower the capital ratios of the entities involved.
Consequently, in the event that Carolina First Corporation
engages in significant acquisitions accounted for by the purchase
method of accounting in the future, Carolina First Corporation
may be required to raise additional capital in order to maintain
capital levels required by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"). In the future, Carolina
First Corporation may issue capital stock in connection with
additional acquisitions accounted for as a pooling of interests.
Such acquisitions and related issuances of stock may have a
dilutive effect on earnings per share and ownership.
Anti-takeover Measures. Carolina First Corporation has
certain anti-takeover measures in place. These include (i) a
Shareholders' Rights Plan which, among other things, provides for
the dilution of the CFC common stock holdings of certain
shareholders who acquire 20% or more of the CFC common stock and
attempt to acquire Carolina First Corporation without the consent
of management, (ii) certain management contracts which provide
for additional management compensation in the event that
executive officers who are a party thereto are terminated after a
change in control of Carolina First Corporation, and (iii)
various charter provisions providing for, among other things, a
"staggered" board of directors and supermajority voting
requirements in connection with the removal of directors without
cause and certain business combinations involving Carolina First
Corporation. Any one or more of these measures may impede the
takeover of Carolina First Corporation without the approval of
Carolina First Corporation's Board of Directors. See "CAROLINA
FIRST CORPORATION CAPITAL STOCK."
Incorporation of Certain Information By Reference
The following documents are hereby incorporated by reference:
Carolina First Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994;
Carolina First Corporation's Current Reports on Form 8-K
dated January 24, 1995, March 15, 1995 and April 10,
1995; and
the description of the CFC common stock which is
contained in its registration statements filed under
Section 12 of the Exchange Act, including any amendment
or report filed for the purpose of updating such
description.
All documents filed by Carolina First Corporation pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date hereof and prior to the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement/Prospectus
and to be a part hereof from the respective dates of filing of
such documents.
Any statement contained herein or in a document incorporated
herein shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement
contained herein or in any other subsequently-filed document
which also is incorporated by reference herein modifies or
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supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy
Statement/Prospectus.
Certain Regulatory Matters
General
Carolina First Corporation and its subsidiaries are
extensively regulated under federal and state law. To the extent
that the following information describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the
particular statutory and regulatory provisions. Any change in
applicable laws may have a material effect on the business and
prospects of Carolina First Corporation. The operations of
Carolina First Corporation may be affected by possible
legislative and regulatory changes and by the monetary policies
of the United States.
Carolina First Corporation. As a bank holding company
registered under the Bank Holding Company Act of 1956, as amended
(the "BHCA"), Carolina First Corporation is subject to regulation
and supervision by the Federal Reserve. Under the BHCA, Carolina
First Corporation's activities and those of its subsidiaries are
limited to banking, managing or controlling banks, furnishing
services to or performing services for its subsidiaries or
engaging in any other activity that the Federal Reserve
determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. The BHCA
prohibits Carolina First Corporation from acquiring direct or
indirect control of more than 5% of any class of outstanding
voting stock, or substantially all of the assets of any bank, or
merging or consolidating with another bank holding company
without prior approval of the Federal Reserve. The BHCA also
prohibits Carolina First Corporation from acquiring control of
any bank operating outside the State of South Carolina (until
September 29, 1995) unless such action is specifically authorized
by the statutes of the state where the bank to be acquired is
located. See " -- Certain Regulatory Matters -- Interstate
Banking."
Additionally, the BHCA prohibits Carolina First Corporation
from engaging in or from acquiring ownership or control of more
than 5% of the outstanding voting stock of any company engaged in
a nonbanking business unless such business is determined by the
Federal Reserve to be so closely related to banking or managing
or controlling banks as to be properly incident thereto. The BHCA
generally does not place territorial restrictions on the
activities of such nonbanking-related entities.
Further, the Federal Deposit Insurance Act, as amended
("FDIA"), authorizes the merger or consolidation of any Bank
Insurance Fund ("BIF") member with any Savings Association
Insurance Fund ("SAIF") member, the assumption of any liability
by any BIF member to pay any deposits of any SAIF member or vice
versa, or the transfer of any assets of any BIF member to any
SAIF member in consideration for the assumption of liabilities of
such BIF member or vice versa, provided that certain conditions
are met and, in the case of any acquiring, assuming or resulting
d e pository institution which is a BIF member, that such
institution continues to make payment of SAIF assessments on the
portion of liabilities attributable to any acquired, assumed or
merged SAIF-insured institution (or, in the case of any
acquiring, assuming or resulting depository institution which is
a SAIF member, that such institution continues to make payment of
BIF assessments on the portion of liabilities attributable to any
acquired, assumed or merged BIF-insured institution).
There are a number of obligations and restrictions imposed on
bank holding companies and their depository institution
subsidiaries by law and regulatory policy that are designed to
minimize potential loss exposure to the depositors of such
depository institutions and to the FDIC insurance funds in the
event the
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depository institution becomes in danger of defaulting
or in default under its obligations to repay deposits. For
example, under current federal law, to reduce the likelihood of
receivership of an insured depository institution subsidiary, a
bank holding company is required to guarantee the compliance of
any insured depository institution subsidiary that may become
"undercapitalized" with the terms of any capital restoration plan
filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became
undercapitalized, or (ii) the amount that is necessary (or would
have been necessary) to bring the institution into compliance
with all applicable capital standards as of the time the
institution fails to comply with such capital restoration plan.
Under a policy of the Federal Reserve with respect to bank
holding company operations, a bank holding company is required to
serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent
such policy. The Federal Reserve also has the authority under the
BHCA to require a bank holding company to terminate any activity
or relinquish control of a nonbank subsidiary (other than a
nonbank subsidiary of a bank) upon the Federal Reserve's
determination that such activity or control constitutes a serious
risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further,
federal law grants federal bank regulatory authorities additional
discretion to require a bank holding company to divest itself of
any bank or nonbank subsidiary if the agency determines that
divestiture may aid the depository institution's financial
condition.
In addition, the "cross-guarantee" provisions of the FDIA
require insured depository institutions under common control to
reimburse the FDIC for any loss suffered by either the SAIF or
the BIF as a result of the default of a commonly controlled
insured depository institution or for any assistance provided by
the FDIC to a commonly controlled insured depository institution
in danger of default. The FDIC may decline to enforce the cross-
guarantee provisions if it determines that a waiver is in the
best interest of the SAIF or the BIF, or both. The FDIC's claim
for damages is superior to claims of shareholders of the insured
depository institution or its holding company but is subordinate
to claims of depositors, secured creditors and holders of
subordinated debt (other than affiliates) of the commonly
controlled insured depository institutions.
Carolina First Corporation is subject to the obligations and
restrictions described above. However, management currently does
not expect that any of these provisions will have any material
impact on its operations.
As a bank holding company registered under the South Carolina
Bank Holding Company Act, Carolina First Corporation also is
subject to regulation by the State Board. Consequently, Carolina
First Corporation must receive the approval of the State Board
prior to engaging in the acquisitions of banking or nonbanking
institutions or assets. Carolina First Corporation must also file
with the State Board periodic reports with respect to its
financial condition and operations, management, and intercompany
relationships between Carolina First Corporation and its
subsidiaries.
Carolina First Bank. Carolina First Bank is a FDIC-insured,
South Carolina-chartered banking corporation and is subject to
various statutory requirements and rules and regulations
promulgated and enforced primarily by the State Board and the
FDIC. These statutes, rules and regulations relate to insurance
of deposits, required reserves, allowable investments, loans,
mergers, consolidations, issuance of securities, payment of
dividends, establishment of branches and other aspects of the
business of Carolina First Bank. The FDIC has broad authority to
prohibit Carolina First Bank from engaging in what it determines
to be unsafe or unsound banking practices. In addition, federal
law imposes a number of restrictions on state-chartered,
FDIC-insured banks and their subsidiaries. These restrictions
range from prohibitions against engaging as a principal in
certain activities to the requirement of prior notification of
branch closings. Carolina First Bank also is subject to various
other state and federal laws and regulations, including state
usury laws, laws relating
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to fiduciaries, consumer credit and equal credit and fair credit
reporting laws. Carolina First Bank is not a member of the Federal
Reserve System.
Dividends. The holders of CFC common stock are entitled to
receive dividends when and if declared by the Board of Directors
out of funds legally available therefor. The holders of Carolina
First Corporation's outstanding series of preferred stock are
also entitled to receive dividends when, as and if declared by
the Board of Directors in their discretion out of funds legally
available therefor and as set forth in Carolina First
Corporation's Articles of Incorporation. For a description of the
dividends to which holders of such preferred stock are entitled,
see "CAROLINA FIRST CORPORATION CAPITAL STOCK." Carolina First
Corporation is a legal entity separate and distinct from its
subsidiaries and depends for its revenues on the payment of
dividends from its subsidiaries. Current federal law would
prohibit, except under certain circumstances and with prior
regulatory approval, an insured depository institution, such as
Carolina First Bank, from paying dividends or making any other
capital distribution if, after making the payment or
distribution, theinstitutionwouldbeconsidered
"undercapitalized," as that term is defined in applicable
regulations. In addition, as a South Carolina-chartered bank,
Carolina First Bank is subject to legal limitations on the amount
of dividends it is permitted to pay. In particular, Carolina
First Bank must receive the approval of the South Carolina
Commissioner of Banking prior to paying dividends to Carolina
First Corporation.
Capital Adequacy
Carolina First Corporation. The Federal Reserve has adopted
risk-based capital guidelines for bank holding companies. Under
these guidelines, the minimum ratio of total capital to risk-
weighted assets (including certain off-balance sheet activities,
such as standby letters of credit) is 8%. At least half of the
total capital is required to be "Tier 1 capital," principally
consisting of common shareholders' equity, noncumulative
preferred stock, a limited amount of cumulative perpetual
preferred stock, and minority interests in the equity accounts of
consolidated subsidiaries, less certain goodwill items. The
remainder (Tier 2 capital) may consist of a limited amount of
subordinated debt and intermediate-term preferred stock, certain
hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss
allowance. In addition to the risk-based capital guidelines, the
Federal Reserve has adopted a minimum Tier 1 (leverage) capital
ratio under which a bank holding company must maintain a minimum
level of Tier 1 capital (as determined under applicable rules) to
average total consolidated assets of at least 3% in the case of
bank holding companies which have the highest regulatory
examination ratios and are not contemplating significant growth
or expansion. All other bank holding companies are required to
maintain a ratio of at least 100 to 200 basis points above the
stated minimum. At December 31, 1994, Carolina First Corporation
was in compliance with both the risk-based capital guidelines and
the minimum leverage capital ratio, with consolidated Tier 1
capital of 7.65% of risk-weighted assets, total capital of 8.35%
of risk-weighted assets and a leverage capital ratio of 5.44%.
Carolina First Bank. As a state-chartered, FDIC-insured
institution which is not a member of the Federal Reserve System,
Carolina First Bank is subject to capital requirements imposed by
the FDIC. The FDIC requires state-chartered nonmember banks to
comply with risk-based capital standards substantially similar to
those required by the Federal Reserve, as described above. The
FDIC also requires state-chartered nonmember banks to maintain a
minimum leverage ratio similar to that adopted by the Federal
Reserve. Under the FDIC's leverage capital requirement, state
nonmember banks that (a) receive the highest rating during the
examination process and (b) are not anticipating or experiencing
any significant growth are required to maintain a minimum
leverage ratio of 3% of Tier 1 capital to total assets; all other
banks are required to maintain a minimum ratio of 100 to 200
basis points above the stated minimum, with an absolute minimum
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leverage ratio of not less than 4%. As of December 31, 1994,
Carolina First Bank had Tier 1 capital of 6.19% of risk-weighted
assets, total capital of 6.70% of risk-weighted assets, and a
leverage capital ratio of 5.21%.
As a result of Carolina First Bank's total risk-based capital
ratio being less than 8% at December 31, 1994, Carolina First
Bank committed to (1) combine CF Savings Bank and Carolina First
Bank; (2) consummate the credit card securitization; (3) have
Carolina First Corporation contribute capital of $3.5 million to
Carolina First Bank; and (4) sell certain purchase mortgage
servicing rights, all as described under "--Recent Developments."
All of these steps have been completed. At the end of February
1995, and as a result of the January and February 1995 operating
results (and without the consummation of the sale of the purchase
mortgage servicing rights), Carolina First Bank's total risk-
based capital ratio was 8.10%. Carolina First Bank expects that
its total risk-based capital ratio will continue to increase as a
result of monthly operating results and the consummation of the
acquisition of Midlands.
As a result of the total risk-based capital ratio of Carolina
First Bank declining below 8%, Carolina First Corporation,
Carolina First Bank and the FDIC entered into a Capital
Maintenance Commitment and Guaranty Agreement (the "Guaranty
Agreement") pursuant to which Carolina First Corporation
guaranteed that Carolina First Bank will comply with the
restoration plan described above until Carolina First Bank has
been adequately capitalized on average during each of four
consecutive quarters. The Guaranty Agreement provides that in the
event Carolina First Bank fails to comply with the applicable
capital requirements, Carolina First Corporation will pay to
Carolina First Bank or its successors or assigns an amount equal
to the lesser of (a) 5% of Carolina First Bank's total assets at
the time Carolina First Bank was notified or deemed to have
notice that Carolina First Bank was undercapitalized, or (b) the
amount which is necessary to bring Carolina First Bank into
compliance with all capital standards applicable to Carolina
First Bank at the time Carolina First Bank failed to so comply.
Management of Carolina First Corporation does not believe that it
will be required to make payments under the Guaranty Agreement or
that Carolina First Bank will not be at least adequately
capitalized in the foreseeable future.
Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") required each federal banking agency to revise
its risk-based capital standards to ensure that those standards
take adequate account of interest rate risk, concentration of
credit risk and the risk of nontraditional activities, as well as
reflect the actual performance and expected risk of loss on
multifamily mortgages. The Federal Reserve, the FDIC and the OCC
have issued a joint advance notice of proposed rulemaking, and
have issued a revised proposal, soliciting comments on a proposed
framework for implementing these revisions. Under the proposal,
an institution's assets, liabilities, and off-balance sheet
positions would be weighted by risk factors that approximate the
instruments' price sensitivity to a 100 basis point change in
interest rates. Institutions with interest rate risk exposure in
excess of a threshold level would be required to hold additional
capital proportional to that risk. The notice also asked for
comments on how the risk-based capital guidelines of each agency
may be revised to take account of concentration and credit risk
and the risk of nontraditional activities. Carolina First
Corporation cannot assess at this point the impact the proposal
would have on the capital requirements of Carolina First
Corporation or its subsidiary depository institutions.
Insurance
As an FDIC-insured institution, Carolina First Bank is
subject to insurance assessments imposed by the FDIC. Under
current law, the insurance assessment to be paid by insured
institutions shall be as specified in a schedule required to be
issued by the FDIC that specifies, at semiannual intervals,
target reserve ratios
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designed to increase the FDIC insurance fund's reserve ratio
to 1.25% of estimated insured deposits (or such higher ratio
as the FDIC may determine in accordance with the statute) in
15 years. Further, the FDIC is authorized to impose one or
more special assessments in any amount deemed necessary to
enable repayment of amounts borrowed by the FDIC
from the United States Department of the Treasury (the "Treasury
Department").
Effective January 1, 1993, the FDIC implemented a risk-based
assessment schedule, having assessments ranging from 0.23% to
0.31% of an institution's average assessment base. The actual
assessment to be paid by each FDIC-insured institution is based
on the institution's assessment risk classification, which is
determined based on whether the institution is considered "well
capitalized," "adequately capitalized" or "undercapitalized," as
such terms have been defined in applicable federal regulations
adopted to implement the prompt corrective action provisions of
FDICIA (see "--Certain Regulatory Matters--Other Safety and
Soundness Regulations"), and whether such institution is
considered by its supervisory agency to be financially sound or
to have supervisory concerns. As a result of the current
provisions of federal law, the assessment rates on deposits could
increase over the next 15 years over present levels. Based on the
current financial condition and capital levels of Carolina First
Bank, Carolina First Corporation does not expect that the current
risk-based assessment schedule will have a material adverse
effect on Carolina First Bank's earnings. Carolina First Bank's
risk-based insurance assessment currently is set at 0.26% of its
average assessment base.
In connection with the merger of CF Savings Bank into
Carolina First Bank and Carolina First Bank's assumption of other
SAIF-insured deposits in connection with various acquisitions,
approximately 28% of Carolina First Bank's total deposits are
subject to SAIF insurance assessments imposed by the FDIC. Under
current law, the insurance assessment to be paid by SAIF-insured
institutions must be the greater of 0.15% of the institution's
average assessment base (as defined) or such rate as the FDIC, in
its sole discretion, determines to be appropriate to be able to
increase (or maintain) the SAIF reserve ratio to 1.25% of
estimated insured deposits (or such higher ratio as the FDIC may
determine in accordance with the statute) within a reasonable
period of time. From January 1, 1994 through December 31, 1997,
the assessment rate must not be less than 0.18% of the
i n stitution's average base assessment. In each case, the
assessment rate may be higher if the FDIC, in its sole
discretion, determines a higher rate to be appropriate. In
addition, the FDIC has adopted for SAIF assessments the risked
based assessment schedule described above. Carolina First Bank's
risk-based insurance assessment on its SAIF-insured deposits has
been set at 0.23% of its average assessment base.
Other Safety and Soundness Regulations
Prompt Corrective Action. Current law provides the federal
banking agencies with broad powers to take prompt corrective
action to resolve problems of insured depository institutions.
The extent of these powers depends upon whether the institutions
in question are "well capitalized, "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or
"critically undercapitalized."Under uniform regulations
defining such capital levels issued by each of the federal
banking agencies, a bank is considered "well capitalized" if it
has (i) a total risk-based capital ratio of 10% or greater, (ii)
a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater, and (iv) is not subject to any
order or written directive to meet and maintain a specific
capital level for any capital measure. An "adequately
capitalized" bank is defined as one that has (i) a total risk-
based capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% or greater, and (iii) a leverage ratio of 4%
or greater (or 3% or greater in the case of a bank with a
composite CAMEL rating of 1). A bank is considered
(A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in
the case of a bank with a composite CAMEL rating of 1);
(B) "significantly
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undercapitalized" if the bank has (i) a total risk-based capital
ratio of less than 6%, or (ii) a Tier 1 risk-based capital ratio of
less than 3%, or (iii) a leverage ratio of less than 3%; and
(c) "critically undercapitalized" if the bank has a ratio of
tangible equity to total assets equal to or less than 2%. Carolina
First Corporation and Carolina First Bank each currently meet the
definition of adequately capitalized.
Brokered Deposits. Current federal law also regulates the
acceptance of brokered deposits by insured depository
institutions to permit only a "well capitalized" depository
institution to accept brokered deposits without prior regulatory
approval. Under FDIC regulations, "well capitalized" insured
depository institutions may accept brokered deposits without
restriction,"adequately capitalized" insured depository
institutions may accept brokered deposits with a waiver from the
FDIC (subject to certain restrictions on payments of interest
rates) while "undercapitalized" insured depository institutions
may not accept brokered deposits. The regulations provide that
the definitions of "well capitalized," "adequately capitalized"
and "undercapitalized" are the same as the definitions adopted by
the agencies to implement the prompt corrective action provisions
of FDICIA (as described in the previous paragraph). Carolina
First Corporation does not believe that these regulations will
have a material adverse effect on its current operations.
Other FDICIA Regulations. To facilitate the early
identification of problems, FDICIA required the federal banking
agencies to review and, under certain circumstances, prescribe
more stringent accounting and reporting requirements than those
required by generally accepted accounting principles. The FDIC
has issued final regulations implementing those provisions. The
rule, among other things, requires that management report on the
institution's responsibility for preparing financial statements
and establishing and maintaining an internal control structure
and procedures for financial reporting and compliance with
designated laws and regulations concerning safety and soundness,
and that independent auditors attest to and report separately on
assertions in management's reports concerning compliance with
such laws and regulations, using FDIC approved audit procedures.
FDICIA required each of the federal banking agencies to
develop regulations addressing certain safety and soundness
standards for insured depository institutions (such as Carolina
First Bank) and depository institution holding companies (such as
Carolina First Corporation), including operational and managerial
standards, asset quality, earnings and stock valuation standards,
as well as compensation standards (but not dollar levels of
compensation). Each of the federal banking agencies has issued a
joint notice of proposed rulemaking, which requested comment on
the implementation of these standards. The proposed rule sets
forth general operational and managerial standards in the areas
of internal controls, information systems and internal audit
systems, loan documentation, credit underwriting, interest rate
exposure, asset growth and compensation fees and benefits. The
proposed rule also establishes a maximum ratio of classified
assets to capital, and requires institutions to meet minimum
capital standards as a measure of whether such institutions have
minimum earnings sufficient to absorb losses without impairing
capital. Finally, the proposed rule would define compensation as
excessive if it is unreasonable or disproportionate to the
services actually performed. Bank holding companies would not be
subject to the standards on compensation. The proposal
contemplates that each federal agency would determine compliance
with these standards through the examination process, and if
necessary to correct weaknesses, require an institution to file a
written safety and soundness compliance plan. Carolina First
Corporation has not yet determined the effect the proposed rule
would have on its operations and the operations of its depository
institution subsidiary if it is adopted substantially as
proposed.
Community Reinvestment Act
Carolina First Bank is subject to the requirements of the
CRA. The CRA requires that financial institutions have an
affirmative and ongoing obligation to meet the credit needs of
their local communities,
43
<PAGE>
including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of those institutions. Each
financial institution's efforts in meeting community credit
needs are evaluated as part of the examination process pursuant
to twelve assessment factors. These factors also are considered
in evaluating mergers, acquisitions and applications to open a
branch or facility. Carolina First Bank received an "outstanding"
rating in its most recent evaluation.
As a result of a Presidential initiative, each of the federal
banking agencies has issued a notice of proposed rulemaking that
would replace the current CRA assessment system with a new
evaluation system that would rate institutions based on their
actual performance (rather than efforts) in meeting community
credit needs. Under the proposal, each institution would be
evaluated based on the degree to which it is providing loans (the
lending test), branches and other services (the service test) and
investments to low- and moderate-income areas (the investment
test). Under the lending test, as proposed, an institution would
be evaluated on the basis of its market share of reportable loans
in low- and moderate-income areas in comparison to other lenders
subject to CRA in its service area, and in comparison with the
institution's market share of reportable loans in other service
areas. An institution would be evaluated under the investment
test based on the amount of investments made that have had a
demonstrable impact on low- and moderate-income areas or persons
as compared to its risk-based capital. The service test would
evaluate a retail institution primarily based on the percentage
of its branches located in, or that are readily accessible to,
low- and moderate-income areas. Each depository institution would
have to report to its federal supervisory agency and make
available to the public data on the geographic distribution of
its loan applications, denials, originations and purchases. Small
institutions could elect to be evaluated under a streamlined
method that would not require them to report this data. All
institutions, however, would receive one of five ratings based on
their performance:Outstanding, High Satisfactory, Low
Satisfactory, Needs to Improve or Substantial Noncompliance. An
institution that received a rating of Substantial Noncompliance
would be subject to enforcement action. Carolina First
Corporation currently is studying the proposal and determining
whether the regulation, if adopted, would require changes to
Carolina First Bank's CRA action plans.
Transactions Between Carolina First Corporation, Its Subsidiaries
and Affiliates
Carolina First Corporation's subsidiaries are subject to
certain restrictions on extensions of credit to executive
officers, directors, principal shareholders or any related
interest of such persons. Extensions of credit (i) must be made
on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons; and (ii) must not involve
more than the normal risk of repayment or present other
unfavorable features. Aggregate limitations on extensions of
credit also may apply. Carolina First Corporation's subsidiaries
also are subject to certain lending limits and restrictions on
overdrafts to such persons.
Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Reserve Act on
extensions of credit to the bank holding company or its nonbank
subsidiary, on investments in their securities and on the use of
their securities as collateral for loans to any borrower. Such
restrictions may limit Carolina First Corporation's ability to
obtain funds from its bank subsidiary for its cash needs,
including funds for acquisitions, interest and operating
expenses. Certain of these restrictions are not applicable to
transactions between a bank and a savings association owned by
the same bank holding company, provided that every bank and
savings association controlled by such bank holding company
complies with all applicable capital requirements without relying
on goodwill.
In addition, under the BHCA and certain regulations of the
Federal Reserve, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in
connection with any
44
<PAGE>
extension of credit, lease or sale of property or furnishing of
services. For example, a subsidiary may not generally require a
customer to obtain other services from any other subsidiary or
Carolina First Corporation, and may not require the customer to
promise not to obtain other services from a competitor, as a
condition to an extension of credit to the customer.
Interstate Banking
In 1986, South Carolina adopted legislation which permitted
banks and bank holding companies in certain southern states to
acquire banks in South Carolina to the extent that such other
states had reciprocal legislation which was applicable to South
Carolina banks and bank holding companies. The legislation
resulted in a number of South Carolina banks being acquired by
large out-of-state bank holding companies. Size gives the larger
banks certain advantages in competing for business from large
corporations. These advantages include higher lending limits and
the ability to offer services in other areas of South Carolina
and the region. As a result, Carolina First Corporation does not
generally attempt to compete for the banking relationships of
large corporations, but concentrates its efforts on small to
medium-sized businesses and on individuals. Carolina First
Corporation believes it has competed effectively in this market
segment by offering quality, personal service.
In July 1994, South Carolina enacted legislation which
effectively provides that, after June 30, 1996, out-of-state bank
holding companies (including bank holding companies in the
Southern Region, as defined under the statute) may acquire other
banks or bank holding companies having offices in South Carolina
upon the approval of the South Carolina State Board of Financial
Institutions and assuming compliance with certain other
conditions, including that the effect of the transaction not
lessen competition and that the laws of the state in which the
out-of-state bank holding company filing the applications has its
principal place of business permit South Carolina bank holding
companies to acquire banks and bank holding companies in that
state. Although such legislation may increase takeover activity
in South Carolina, Carolina First Corporation does not believe
that such legislation will have a material impact on its
competitive position. However, no assurance of such fact may be
given.
Congress recently enacted the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994, which will increase the
ability of bank holding companies and banks to operate across
state lines. Under the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994, the existing restrictions on
interstate acquisitions of banks by bank holding companies will
be repealed one year following enactment, such that Carolina
First Corporation and any other bank holding company located in
South Carolina would be able to acquire a bank located in any
other state, and a bank holding company located outside South
Carolina could acquire any South Carolina-based bank, in either
c a s es ubject to certain deposit percentage and other
restrictions. The legislation also provides that, unless an
individual state elects beforehand either (i) to accelerate the
effective date or (ii) to prohibit out-of-state banks from
operating interstate branches within its territory, on or after
June 1, 1997, adequately capitalized and managed bank holding
companies will be able to consolidate their multistate bank
operations into a single bank subsidiary and to branch interstate
through acquisitions. De novo branching by an out-of-state bank
would be permitted only if it is expressly permitted by the laws
of the host state. The authority of a bank to establish and
operate branches within a state will continue to be subject to
applicable state branching laws. Carolina First Corporation
believes that this legislation may result in increased takeover
activity of South Carolina financial institutions by out-of-state
financial institutions. However, Carolina First Corporation does
not presently anticipate that such legislation will have a
material impact on its operations or future plans.
45
<PAGE>
Change in Bank Control
The BHCA and the Change in Bank Control Act, together with
regulations promulgated by the Federal Reserve, require that,
depending on the particular circumstances, either Federal Reserve
approval must be obtained or notice must be furnished to the
Federal Reserve and not disapproved prior to any person or
company acquiring control of a bank holding company, such as
Carolina First Corporation, subject to certain exemptions for
certain transactions. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of
voting securities of the bank holding company. Control is
rebuttably presumed to exist if a person acquires 10% or more but
less than 25% of any class of voting securities and either the
company has registered securities under Section 12 of the
Exchange Act (which Carolina First Corporation has done with
respect to the Common Stock) or no other person will own a
greater percentage of that class of voting securities immediately
after the transaction. The regulations provide a procedure for
challenge of the rebuttable control presumption.
Approval of Senior Officers. Banks and their holding
companies which have undergone a change in control within the
past two years or which have been deemed by their primary federal
bank regulator to be troubled institutions must give their
primary federal bank regulator or the Federal Reserve,
respectively, 30 days prior notice of the appointment of any
senior executive officer or director. Within the 30 day period,
their primary federal bank regulator or the Federal Reserve, as
the case may be, may approve or disapprove any such appointment.
Neither Carolina First Corporation nor Carolina First Bank
currently meet the criteria which trigger this additional
approval.
Other Regulations
Interest and certain other charges collected or contracted
for by Carolina First Bank and Carolina First Mortgage Company
are subject to state usury laws and certain federal laws
concerning interest rates. Carolina First Bank's and Carolina
First Mortgage Company's loan operations are also subject to
certain federal laws applicable to credit transactions, such as
the federal Truth-In-Lending Act governing disclosures of credit
terms to consumer borrowers, CRA requiring financial institutions
to meet their obligations to provide for the total credit needs
of the communities they serve, including investing their assets
in loans to low- and moderate-income borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to
provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it
serves,the Equal Credit Opportunity Act prohibiting
discrimination on the basis of race, creed or other prohibited
factors in extending credit, the Fair Credit Reporting Act of
1978 governing the use and provision of information to credit
reporting agencies, the Fair Debt Collection Act governing the
manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such
federal laws. The deposit operations of Carolina First Bank also
are subject to the Right to Financial Privacy Act, which imposes
a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer
Act and Regulation E issued by the Federal Reserve to implement
that act, which govern automatic deposits to and withdrawals from
deposit accounts and customers' rights and liabilities arising
from the use of automated teller machines and other electronic
banking services.
46
<PAGE>
INFORMATION ABOUT MIDLANDS
General
Midlands was organized as a national banking association on
May 11, 1988 and commenced business operations on December 7,
1988 in its current headquarters which are located at 305 Main
Street, Prosperity, South Carolina 29127. Midlands' Chapin branch
office, located on S.C. Highway 48 in Chapin, South Carolina
opened for business on December 14, 1988, and its Newberry branch
office, located at 2633 Winnsboro Road in Newberry, South
Carolina, opened for business on October 21, 1991. All three
facilities are owned by Midlands.
Midlands is a full service commercial bank which offers a
full range of interest bearing and noninterest bearing deposit
accounts, including commercial and retail checking accounts,
negotiable order of withdrawal ("NOW") accounts, money market
accounts, regular interest bearing statement savings accounts,
certificates of deposit, commercial loans, real estate loans,
home equity loans and consumer/installment loans. In addition,
Midlands provides such consumer services as cashiers checks, bank
money orders, wire transfer, Mastercard and Visa accounts, and
safe deposit boxes. Midlands does not offer trust services.
Market Area and Competition
The primary market area for Midlands is the municipal limits
of the cities in which its branches are located and the
immediately surrounding area (generally eight to ten miles in
every direction from the branches). Included in Midlands' primary
market area are the cities of Newberry, Prosperity, Chapin and
Ballentine, South Carolina. Midlands draws approximately 75% of
its business from this primary market area. Midlands does not
rely on foreign sources of funds or income.
There are eight banking offices and six offices of savings
and loan associations within the primary market area of Midlands.
Several competitors in Midlands' primary market area are large
financial institutions which have substantially greater financial
resources, a broader marketing base, and more human resources
than Midlands. In addition, some of Midlands' competitors have
substantially higher lending limits than Midlands and perform
functions such as trust services, which Midlands does not offer.
Management of Midlands believes, however, that it can compete
effectively with such institutions by virtue of its local
ownership, experienced management and responsiveness to the
financial needs of the community.
Midlands is also in competition with existing area financial
institutions other than commercial banks and savings and loan
associations, including insurance companies, consumer finance
companies, brokerage houses, credit unions and other business
entities which have recently been targeting the traditional
banking markets.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion is intended to assist in understanding the
financial condition and results of operations of Midlands, and
should be read in conjunction with the financial statements and related
notes contained elsewhere herein. The financial statements for fiscal
years 1991 through 1993 have been restated to reflect the correction
of certain accounting errors as explained in Note L to the financial
statements, and the amounts included in this discussion have also been
adjusted for the corrections. Information concerning tax-exempt interest
income and securities is not presented on a fully taxable equivalent
basis.
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<PAGE>
Earnings Performance
1994 Compared with 1993
Midlands' net income was $435,000, or $1.16 per share, for the year
ended December 31, 1994, which is the highest recorded since
Midlands' inception in 1988. Net income for the year ended December 31,
1993 was $370,000 or $1.01 per share.
The principal factor contributing to the increase in earnings for 1994
was an increase in net interest income. Net interest income for 1994
increased $206,000, or 11.5%, over the 1993 figure. The increase in net
interest income resulted both from improvements in the yields on
interest earning assets and lower rates paid on interest bearing
liabilities during 1994. In addition, the provision for loan losses
decreased $39,000 in 1994 compared with 1993. A decline in loan volume
during 1994 was a major factor in this decrease.
Noninterest income decreased $62,000 in 1994 compared with 1993.
Service charges on deposits were down $40,000 in 1994 due to
decreased account activity. Furthermore, there were no securities gains
recorded in 1994 compared with $18,000 of such gains for 1993.
Noninterest overhead expenses increased only $11,000 or .8% in 1994,
primarily because of a decrease in furniture and equipment expense in
1994 compared with 1993. Income tax expense was up $58,000 in 1994
due to increased pre-tax income. Also, in 1993, there was a one- time
increase in net income of $49,000 because of the cumulative effect of
a required accounting change in the method of computing deferred income
taxes.
1993 Compared with 1992
Midlands' net income was $370,000, or $1.01 per share, for the
year ended December 31, 1993. These results compare favorably with
net income of $83,000, or $.23 per share, for the year ended December
31, 1992. Net income for 1993 includes the cumulative effect of an
accounting change effective January 1, 1993, regarding the method of
computing deferred income taxes. This accounting change increased net
income $49,000 or $.14 per share in 1993.
A significant increase in net interest income was the main factor
in the increase in net income for 1993 compared with 1992. Net
interest income increased $405,000, or 29.3%, in 1993 over the 1992
amount. The increase in net interest income resulted from lower
interest rates paid throughout 1993 on interest bearing liabilities and
larger volumes of interest earning assets at more favorable
spreads. Also significantly contributing to the improvement in 1993
net income was a $345,000, or 70.4%, decrease in the provision for loan
losses charged to expense. Fewer loan charge-offs and slower loan growth
contributed to this decrease.
Noninterest income decreased a total of $124,000 in 1993 compared
with 1992. Securities gains were down $80,000 because of fewer sales.
Credit life insurance commission income decreased $91,000 due to fewer
loan originations in the consumer portion of the loan portfolio.
Noninterest overhead expenses increased $231,000 during 1993, mainly
due to increased personnel costs and expenses associated with other real
estate. Income tax expense was up significantly because of the increase
in income before income taxes.
Net Interest Income
Net interest income is the amount of interest earned on interest
earning assets (loans, securities, time deposits in other banks and
federal funds sold), less the interest expense incurred on interest
bearing liabilities
48
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(interest bearing deposits and capital lease obligations), and is
the principal source of Midlands' earnings. Net interest 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.
Net interest income was $1,992,000, $1,786,000 and $1,381,000 for
1994, 1993 and 1992, respectively. The $206,000 growth in net
interest income for 1994 was due largely to a 33 basis point (a basis
point is .01%) improvement in the average interest rate spread
from 4.28% for 1993 to 4.61% for 1994. The average yield on interest
earning assets in 1994 was up 21 basis points, primarily because of
increased interest rates earned on the loan portfolio. The average
rate paid on interest bearing liabilities in 1994 decreased 12 basis
points, mainly because of lower rates paid on time deposits.
Additionally, net interest income for 1994 was favorably affected by
an increase in the average interest free funds supporting interest
earning assets. As a result, the net yield on earning assets
increased 44 basis points over the 1993 figure. During 1994, loan
demand softened and the volume of loans decreased. Management
responded by reducing deposit volumes through offering lower interest
rates, particularly on time deposits of $100,000 and over. Thus, the
overall cost of funds that could not be more profitably employed in
the higher-yielding loan portfolio was reduced.
The most important factor in the $405,000, or 29.3%, increase in net
interest income for 1993 compared with 1992, was the decrease in the
average rate paid on interest bearing liabilities. The average rate paid
on interest bearing liabilities dropped 111 basis points during
1993 compared with 1992, reflecting the overall lower interest rate
environment experienced in 1993. However, the average rate earned on
interest earning assets decreased by only 24 basis points for an
overall improvement in the average interest rate spread of 87 basis
points from 3.41% to 4.28%. Increased volumes of both interest earning
assets and interest bearing liabilities during 1993 compared with
1992 also contributed to the increase in net interest income. Loan
demand remained strong in 1993 which enabled management to employ new
deposits acquired largely into the higher-yielding loan portfolio. The
table, "Average Balances, Yields and Rates", provides a detailed
analysis of the effective yields and rates on the categories of
interest earning assets and interest bearing liabilities for the years
ended December 31, 1994, 1993 and 1992.
49
<PAGE>
Average Balances, Yields and Rates
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
Interest Average Interest Average Interest
Average Income/ Yields/ Balances(1) Income/ Yields/ Balances(1) Income/ Yields/
Balances(1) Expense Rates Expense Rates Expense Rates
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Time deposits in other banks $ 704 $ 29 4.12% $ 1,034 $ 42 4.06% $ 993 $ 51 5.14%
Securities
Taxable 8,308 426 5.13% 7,422 407 5.48% 7,078 468 6.61%
Tax-exempt 421 17 4.04% -- -- -- -- -- --
Federal funds sold 2,744 111 4.05% 2,119 62 2.93% 2,506 88 3.51%
Loans, net of unearned income(2) 28,021 2,767 9.87% 28,909 2,696 9.33% 25,994 2,450 9.43%
Total interest earning assets 40,198 3,350 8.33% 39,484 3,207 8.12% 36,571 3,057 8.36%
Cash and due from banks 1,311 1,502 907
Allowance for loan losses (399) (407) (342)
Premises and equipment 1,273 1,279 1,400
Other assets 1,011 1,086 556
Total assets $43,394 $ 42,944 $ 39,092
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction
accounts $ 8,112 $ 198 2.44% $ 7,050 $ 165 2.34% $ 6,575 $ 213 3.24%
Savings 2,228 55 2.47% 2,241 60 2.68% 2,733 111 4.06%
Time deposits $100M and over 7,133 300 4.21% 8,182 350 4.28% 7,291 403 5.53%
Other time deposits 19,021 803 4.22% 19,376 841 4.34% 17,042 938 5.50%
Total interest bearing deposits 36,494 1,356 3.72% 36,849 1,416 3.84% 33,641 1,665 4.95%
Obligations under capital leases 45 2 4.44% 126 5 3.97% 230 11 4.78%
Total interest bearing liabilities 36,539 1,358 3.72% 36,975 1,421 3.84% 33,871 1,676 4.95%
Noninterest bearing demand deposits 2,571 1,959 1,475
Other liabilities 284 351 314
Shareholders' equity 4,000 3,659 3,432
Total liabilities and stock-
holders' equity $43,394 $ 42,944 $ 39,092
Interest rate spread (3) 4.61% 4.28% 3.78%
Net interest income and net yield
on earning assets (4) $1,992 4.96% $1,786 4.52% $1,381 3.78%
Interest free funds supporting
earning assets (5) $ 3,659 $ 2,509 $ 2,700
</TABLE>
- -------------------------------
(1) Average balances are computed on a daily basis.
(2) Nonaccruing loans are included in the average loan balances and
income on such loans is recognized on a cash basis.
(3) Total interest bearing assets yield less the total interest bearing
liabilities rate.
(4) Net interest income divided by total interest earning assets.
(5) Total interest earning assets less total interest bearing
liabilities.
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<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. As reflected in the
table, increased volumes accounted for $25,000, or 12.1%, of the
growth in net interest income for 1994, while changes in rates
accounted for $181,000, or 87.9%. In 1993, increased volumes
accounted for $129,000, or 31.9%, of the increase in net interest
income, with changes in rates accounting for $276,000, or 68.1%, of
the increase. 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
1994 compared to 1993 1993 compared to 1992
Volume Rate Total Volume Rate Total
(dollars in thousands)
Time deposits in other banks $ (14) $ 1 $ (13) $ 2 $ (11) $ (9)
Taxable securities 47 (28) 19 22 (83) (61)
Tax-exempt securities 17 - 17 - - -
Federal funds sold 21 28 49 (13) (13) (26)
Loans, net of unearned income (82) 153 71 272 (26) 246
Total interest income (11) 154 143 283 (133) 150
Interest bearing deposits
Interest bearing transaction
accounts 26 7 33 14 (62) (48)
Savings - (5) (5) (18) (33) (51)
Time deposits $100M and over (44) (6) (50) 45 (98) (53)
Other time deposits (15) (23) (38) 117 (214) (97)
Obligations under capital leases (3) - (3) (4) (2) (6)
Total interest expense (36) (27) (63) 154 (409) (255)
Net interest income $ 25 $ 181 $ 206 $ 129 $ 276 $ 405
Interest Rate Sensitivity
Interest rate sensitivity management is concerned with the
management of 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 movement. The Asset/Liability
Management Committee, along with Midlands' asset/liability management
consultant, monthly reviews interest rate risk exposure and the
expected interest rate environment so that adjustments in interest rate
sensitivity can be timely made.
The 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 the end of 1994 of $10,180,000, for a cumulative gap ratio
of .68. 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 1994 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 table below 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
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<PAGE>
scheduled payment date. Variable rate amortizing loans reflect 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, Midlands 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
<TABLE>
<CAPTION>
December 31, 1994
Within 4-12 Over 1-5 Over 5
3 Months Months Years Years Total
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest earning assets
Time deposits in other banks $ 300 $ 100 $ - $ - $ 400
Securities - 1,572 7,005 615 9,192
Federal funds sold 1,440 - - - 1,440
Loans, net of unearned income
Fixed rate 1,642 3,069 6,907 2,084 13,702
Variable rate 13,517 - - - 13,517
Total interest earning
assets 16,899 4,741 $13,912 $ 2,699 $ 38,251
Interest bearing liabilities
Interest bearing deposits
Interest bearing transaction 7,543 - $ - $ - $ 7,543
accounts
Savings 1,998 - - - 1,998
Time deposits $100M and over 4,649 1,920 400 - 6,969
Other time deposits 8,584 7,090 3,650 - 19,324
Obligations under capital
leases 36 - - - 36
Total interest bearing
liabilities 22,810 9,010 $4,050 $ - $ 35,870
Interest sensitivity gap (5,911) (4,269)
Cumulative interest
sensitivity gap (5,911) (10,180)
Gap ratio .74 .53
Cumulative gap ratio .74 .68
</TABLE>
________________________________________
Loans are net of nonaccrual loans totaling $244,000.
During 1994, management managed the repricing characteristics of the
loan portfolio by increasing the proportion of variable rate versus
fixed rate loans in order to stabilize Midlands' negative gap ratio. The
success of this strategy was evidenced by the increase in net
interest income due to rate changes during 1994. During 1995,
management will attempt to reduce Midlands' liability sensitive
position by further increasing the mix of variable versus fixed rate
loans and attempting to extend the maturities of fixed rate time
deposits. This strategy is designed to provide a stable net
interest spread and soften the negative effects of any increase in
interest rates that might occur.
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<PAGE>
During 1995, management expects that interest rates will move
within a narrow range, and management has not identified any factors
that would cause interest rates to increase sharply in a short period of
time.
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 totaled
$106,000, $145,000, and $490,000 for the years ended December 31,
1994, 1993 and 1992, respectively. The lower provision for 1994
resulted principally from a reduction in loan volume. An increase in
loan volume was the primary reason for the higher provision in
1993. The large provision in 1992 was mainly due to replenishing the
allowance for reductions for net loan charge-offs.
The economic recovery in 1993 (which continued into 1994), from the
economic recession that began in 1990 has generally had a positive
impact on some loan customers of Midlands. Net loan charge-offs for 1994
totaled $182,000 compared with $128,000 and $382,000 for 1993 and
1992, respectively. See "Nonperforming Loans; Other Problem Assets"
and "Allowance for Loan Losses" under this Management's Discussion and
Analysis of Financial Condition and Results of Operations section for a
discussion of the factors management considers in its review of the
adequacy of the allowance and provisions for loan losses.
Other Income
Noninterest income for 1994 decreased $62,000, or 20.6%, after
decreasing $124,000, or 29.2%, for 1993. Service charges on deposit
accounts decreased $40,000 in 1994 and increased $40,000 in 1993. These
changes in service charge income resulted principally from
fluctuations in chargeable account activity. Credit life insurance
income was down $7,000 for 1994, and was down $91,000 for 1993. Fewer
consumer loan originations during 1994 and 1993 caused the decrease
in this source of noninterest income. This trend is expected to
continue. Changes in federal income tax laws that excluded the
deductibility of consumer loan interest combined with aggressive
financing programs by affiliates of automobile manufacturers has reduced
the volume of consumer lending by most commercial banks. There
were no securities gains in 1994, while Midlands had securities gains of
$18,000 in 1993 and $98,000 in 1992.
Other Expenses
Noninterest expenses for 1994 increased $11,000, or .8%, compared
with an increase of $231,000, or 19.1%, for 1993. Salaries and
employee benefits increased only $15,000 in 1994 compared with an
increase of $131,000 for 1993. The size of Midlands' staff was reduced
in 1994 by not replacing employees who resigned to pursue other
interests, and their duties were reallocated to other remaining
employees or outsourced. Also, 1994 bonus and incentive pay for
executive officers and other employees was lower than the 1993 amount.
Furniture and equipment expense was down $53,000 for 1994 compared
with 1993 because most of the equipment under capital leases had been
fully amortized by the end of 1993. Other expenses increased $45,000 in
1994, compared with a $93,000 increase in 1993 over 1992. Professional
services expense increased $28,000 in 1994, largely as the result of
outsourcing services previously furnished by in-house employees.
For 1994, advertising and promotion expenses were up $5,000,
directors' fees were up $4,000, and telephone expense was up $6,000.
Management believes that it is important to control the growth of
noninterest expenses in order to maintain and increase the net income of
Midlands.
53
<PAGE>
Income Taxes
For the years ended December 31, 1994, 1993 and 1992, income tax
expense applicable to income before income taxes, extraordinary
credit and cumulative effect of accounting change was $239,000,
$181,000 and $41,000, respectively. During 1992, all remaining benefits
of operating loss carry forwards were utilized and were reflected as
an extraordinary credit of $17,000, or $.05 per share, in the
statement of income. The effective income tax rate (income tax expense
divided by income before income taxes, extraordinary credit and
cumulative effect of accounting change) for 1994 was 35.5%. Management
estimates that the effective combined federal and state income tax rates
on income before income taxes will be approximately 37% for 1995.
Midlands adopted, effective January 1, 1993, Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes", issued in February, 1992. Under the liability method specified
by SFAS No. 109, deferred tax assets and liabilities are determined
based on the differences between the financial statement and income tax
bases of assets and liabilities as measured by the currently enacted tax
rates which are assumed will be in effect when these differences
reverse. Deferred tax expense is the result of changes in deferred tax
assets and liabilities. The deferred method, used in years prior to
1993, required Midlands to provide for deferred income tax expense
based on certain items of income and expense which were reported in
different years in the financial statements and the tax returns as
measured by the tax rate in effect for the year the difference
occurred. As permitted under SFAS No. 109, prior years' financial
statements have not been restated for this change in accounting
principle. The effect of adopting SFAS No. 109 was immaterial to income
before the cumulative effect of the change in accounting for 1993. Net
income for 1993 was increased $49,000, or $.14 per share, by the
cumulative effect of the change in accounting related to years prior to
1993.
Securities
At December 31, 1994, securities comprised approximately 21.6% of
Midlands' assets. The following table summarizes the carrying value
amounts of securities held by Midlands at each of the dates indicated.
Available-for-sale securities are stated at estimated fair value
and held-to-maturity and investment securities are stated at amortized
cost.
Securities Portfolio Composition
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
Available- Held-to-
for-Sale Maturity Investment Securities
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies $ 5,018 $ - $4,113 $2,912
Obligations of states and political subdivisions - 458 - -
Mortgage-backed securities 3,559 - 3,606 4,475
Equity securities 157 - 166 103
Total $ 8,734 $ 458 $7,885 $7,490
</TABLE>
The following table presents maturities and weighted average
yields of securities at December 31, 1994.
54
<PAGE>
Securities Portfolio Maturities and Yields
<TABLE>
<CAPTION>
December 31, 1994
Available-for-Sale Held-to-Maturity
Carrying Carrying
Amount Yield Amount Yield
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies
Within one year $ 1,572 4.79%
After one through five years 3,446 6.06%
Total 5,018 5.66%
States and political subdivisions
After ten years $ 458 4.35%
Mortgage-backed securities
After one through five years 3,559 6.07%
Equity securities
After ten years 157 5.72%
Total
Within one year 1,572 4.79%
After one through five years 7,005 6.07%
After ten years 157 5.72% 458 4.35%
Total $ 8,734 5.83% $ 458 4.35%
</TABLE>
SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," was issued by the Financial Accounting Standards
Board in May, 1993. As required, Midlands adopted the provisions of
this statement effective January 1, 1994, without retroactive
application to prior years' financial statements. Midlands' management
reclassified, as of January 1, 1994, Midlands' investment securities
into available-for- sale and held-to-maturity categories based on
current intent in accordance with the criteria established by SFAS No.
115. At that date, investment securities with an amortized cost of
$7,885,000 and an estimated fair value of $7,937,000 were classified
as available-for-sale. The effect of this change in accounting principle
was to increase the carrying value of securities $52,000 and directly
increase shareholders' equity $33,000, which is net of income taxes
of $19,000. The increase, net of income tax effect, is presented in
the statement of changes in shareholders' equity as an adjustment
of the balance of the separate component of shareholders' equity
required by SFAS No. 115 for the unrealized holding gains and losses on
available-for- sale securities.
On an ongoing basis, management assigns securities upon purchase into
one of the categories designated by SFAS No. 115 based on intent,
taking into consideration other factors including expectations for
changes i nmarket rates of interest, liquidity needs,
asset/liability management strategies, and capital requirements.
Management generally has assigned U. S. Treasury and U. S. Government
agencies securities to the available-for-sale category because these
securities are the most readily marketable in response to liquidity
needs and interest rate changes. Mortgage-backed securities are
generally classified as available- for-sale because changes in
interest rates may make the sale of such securities desirable in
order to reposition the repricing characteristics of Midlands' earning
assets. Midlands has never held securities for trading purposes, and
there were no transfer transactions during 1994 affecting the
available-for-sale or held-to-maturity categories of securities. All
1994 securities sales were made from securities classified as
available-for-sale.
At December 31, 1994, Midlands held a $400,000 Barnwell County, South
Carolina School District No. 45 bond with a 7.25% coupon rate,
maturing on February 1, 2011. The bond, classified as held-to-maturity,
55
<PAGE>
is included in the balance sheet at an amortized cost of $458,000 and
has an estimated fair value of $402,000. The Moody rating of the bond
is Baa. All of Midlands' mortgage-backed securities held at December 31,
1994, were issued by the Federal Home Loan Mortgage Corporation.
Loan Portfolio
Midlands engages in a full complement of lending activities, including
commercial, consumer/installment and real estate loans.
Commercial lending is directed principally towards businesses
whose demands for funds fall within Midlands' legal lending limits and
which are potential deposit customers of Midlands. This category of
loans includes loans made to individual, partnership or corporate
borrowers, and obtained for a variety of business purposes. Particular
emphasis is placed on loans to small and medium-sized businesses with a
residential and commercial first and second mortgage loans and
construction loans.
Midlands' consumer loans consist primarily of installment loans to
individuals for personal, family and household purposes, including
automobile loans to individuals and pre-approved lines of credit. This
category of loans also includes lines of credit and term loans
secured by second mortgage on the residences of borrowers for a variety
of purposes including home improvement, education and other personal
expenditures.
No material portion of Midlands' loans were concentrated within a
single industry or group of related industries. There are no
material seasonal factors that would have an adverse impact on
Midlands' loans portfolio. However, Midlands derives a substantial
portion of its business from mortgage loans, and to the extent that
fluctuations and changes occur in the housing industry, Midlands'
business could fluctuate as well.
Management believes the loan portfolio is adequately diversified.
There are no foreign loans and a few agricultural production loans.
The amount of loans outstanding at the indicated dates are shown in
the following table according to type of loan.
Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
Amount % Amount % Amount %
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural
Commercial and industrial $ 4,156 15.1% $ 4,431 15.2% $ 4,901 17.2%
Agricultural production 498 1.8% 380 1.3% 482 1.7%
4,654 16.9% 4,811 16.5% 5,383 18.9%
Real estate - construction 936 3.4% 1,510 5.2% 1,078 3.8%
Real estate - mortgage
Farmland 623 2.3% 810 2.8% 915 3.2%
1-4 family residential 8,390 30.6% 8,572 29.4% 7,823 27.4%
Nonfarm, nonresidential 5,833 21.2% 5,953 20.4% 5,603 19.7%
14,846 54.1% 15,335 52.6% 14,341 50.3%
Consumer installment
Checking credit 50 .2% 43 .1% 35 .1%
Other 6,977 25.4% 7,434 25.6% 7,671 26.9%
7,027 25.6% 7,477 25.7% 7,706 27.0%
Total $ 27,463 100.0% $29,133 100.0% $28,508 100.0%
</TABLE>
56
<PAGE>
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 and industrial 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 1994, commercial and
industrial loans decreased $275,000 or 6.2% from the end of 1993. Such
loans decreased $470,000 or 9.6% during 1993 from the end of 1992.
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 cash flows and other financial information is required.
During 1994 and 1993, management utilized the services of financial
analysis consultants to assist in the financial analysis of some of
Midlands' larger and more complex commercial loans.
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.
Loans secured by real estate mortgages comprised just over 50% of
Midlands' loan portfolio at the end of 1994, 1993 and 1992.
Residential real estate loans consist mainly of first and second
mortgages on single family homes, with loan-to-value ratios for
these instruments being generally limited to 80%. Nonfarm,
nonresidential loans are secured by business and commercial
properties with loan-to-value ratios generally being limited to 70%.
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
Nonaccrual and Past Due Loans
December 31,
1994 1993 1992
(dollars in thousands)
Nonaccrual loans $244 $390 $327
Accruing loans 90 days or more past due - - -
Total $244 $390 $327
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 on a
cash basis when received. When the ultimate collectibility of a
significant amount of principal is in serious doubt, the principal
balance is reduced to the estimated net realizable value of collateral
by charge-off to the allowance for loan losses and any subsequent
payments are credited to the remaining outstanding principal
balance until the loan is repaid. 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.
57
<PAGE>
Interest income that would have been recorded if nonaccrual loans
had been current in accordance with their original terms amounted to
$42,000, $54,000 and $47,000 for the years ended December 31, 1994, 1993
and 1992, respectively. Recognized interest income on these loans
was $21,000, $3,000 and $1,000 for the years ended December 31, 1994,
1993 and 1992, respectively. Collections of interest on nonaccrual loans
applied on a principal recovery basis totaled $88,023, $4,000 and
$14,150 for the years ended December 31, 1994, 1993 and 1992,
respectively.
In May, 1993, the Financial Accounting Standards Board issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan,"
effective for fiscal years beginning after December 15, 1994. This
Statement generally applies to all loans, whether or not
collateralized, and to all loans that are restructured in a troubled
debt restructuring involving a modification of terms. It does not
apply to large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment, loans that are measured at fair
value or lower of cost or fair value, leases and debt securities.
SFAS No. 114 requires that impaired loans within its scope be measured
based on the present value of expected future cash flows discounted
at the loan's effective interest rate, which is the contractual
interest rate adjusted for any deferred loan fees or costs, premium or
discount existing at the inception or acquisition of the loan. SFAS No.
114 also allows creditors, as a practical expedient, to measure the
loan at its observable market price or the fair value of the
collateral if the repayment of the loan is expected to be provided
solely by the underlying collateral. The required adoption of SFAS
No. 114 effective January 1, 1995 did not have a material effect on
Midlands' financial statements.
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
past due 90 days or more and still accruing. 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 outstanding
at December 31, 1994 determined by management to be potential problem
loans was $1,169,000. This amount does not represent management's
estimate of potential losses since a large proportion of such loans
are secured by real estate and other collateral.
The following table presents information about the categories and
types of collateral with respect to potential problem loans as of
December 31, 1994.
Potential Problem Loan Analysis
December 31, 1994
Amount %
(dollars in thousands)
Commercial and industrial
Real estate $ 395 33.8%
Equipment, inventory and vehicles 666 57.0%
Unsecured 26 2.2%
Consumer installment
Automobiles 81 6.9%
Unsecured 1 .1%
Total $1,169 100.0%
Other Real Estate
Other real estate totaled $352,000 and $445,000 at December 31,
1994 and 1993, respectively, and consisted of foreclosed properties.
All of the other real estate held at the end of 1994 is located in the
Newberry
58
<PAGE>
County area, where sales of the property are expected to be
moderately slow. Other real estate is initially recorded at the lower
of net loan principal balance or its estimated fair 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 such loans have become uncollectible. Recoveries of previously
charged off loans are credited to the allowance. The following table
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.
Summary of Loan Loss Experience
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992 1991 1990
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding at the end of the period,
net of unearned income $ 27,463 $29,127 $28,478 $ 22,905 $17,948
Average amount of loans outstanding,
net of unearned income 28,021 28,909 25,994 20,417 15,652
Balance of allowance for loan losses at
beginning of period 409 392 284 230 135
Loans charged off
Commercial and industrial 125 69 272 107 -
Real estate - mortgage 30 33 80 21 -
Consumer installment 41 42 40 28 39
Total charge-offs 196 144 392 156 39
Recoveries of loans previously charged-off
Commercial and industrial 10 11 6 - -
Consumer installment 4 5 4 7 1
Total recoveries 14 16 10 7 1
Net charge-offs 182 128 382 149 38
Additions to allowance charged to expense 106 145 490 203 133
Balance of allowance for loan losses at end of period $333 $409 $392 $284 $230
Ratios
Net charge-offs during period to average loans
outstanding during period .65% .44% 1.47% .73% .24%
Net charge-offs to loans at end of period .66% .44% 1.34% .65% .21%
Allowance for loan losses to average loans 1.19% 1.41% 1.51% 1.39% 1.47%
Allowance for loan losses to loans at end of year 1.21% 1.40% 1.38% 1.24% 1.28%
Net charge-offs to allowance for loan losses 54.65% 31.30% 97.45% 52.46% 16.52%
Net charge-offs to provision for loan losses 171.70% 88.28% 77.96% 73.40% 28.57%
</TABLE>
In reviewing the adequacy of the allowance for loan losses at
each year end, management took into consideration the historical loan
losses experienced by Midlands, 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 December 31,
1994.
59
<PAGE>
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 and
detailed loan reviews to assess credit risks 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. Management's calculation of the
allowance for loan losses does not provide an allocation by individual
loan categories.
Deposits
Midlands offers a full range of interest bearing and noninterest
bearing accounts, including commercial and retail checking accounts,
NOW accounts, money market accounts, regular interest bearing statement
savings accounts, and certificates of deposit with fixed and
variable rates and a range of maturity date options. The sources of
deposits are residents, businesses and employees of businesses within
Midlands' market area, obtained through the personal solicitation
and advertisements published in the local media. Midlands generally
pays competitive interest rates on its time and savings deposits [up
to the maximum permitted by law or regulation]. In addition, Midlands
has implemented a service charge fee schedule competitive with other
financial institutions in Midlands' market area, covering such
matters as maintenance fees on checking accounts, per item processing
fees on checking accounts, returned check charges and the like.
No material portion of Midlands' deposits have been obtained from any
one customer or group of customers. There are no material seasonal
factors that would have an adverse impact on Midlands' deposits.
The average amounts and percentage composition of deposits held by
Midlands for the years ended December 31, 1994, 1993 and 1992, are
summarized below:
Average Deposits
<TABLE>
<CAPTION>
Years Ended December 31,
1994 % 1993 % 1992 %
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $ 2,571 6.6% $ 1,959 5.0% $ 1,475 4.2%
Interest bearing transaction accounts 8,112 20.8% 7,050 18.2% 6,575 18.7%
Savings 2,228 5.7% 2,241 5.8% 2,733 7.8%
Time deposits $100M and over 7,133 18.2% 8,182 21.1% 7,291 20.8%
Other time deposits 19,021 48.7% 19,376 49.9% 17,042 48.5%
Total average deposits $ 39,065 100.0% $ 38,808 100.0% $ 35,116 100.0%
</TABLE>
As of December 31, 1994, Midlands held $6,969,000 in time deposits
$100,000 and over with approximately $4,649,000 maturing within three
months, $1,616,000 maturing in over three through six months, $304,000,
maturing in over six through twelve months, and $400,000 maturing after
twelve months.
Average time deposits $100,000 and over have decreased to
$7,133,000 in 1994, after increasing from $7,291,000 in 1992 to
$8,182,000 in 1993. The vast majority of time deposits $100,000 and over
are acquired from customers within Midlands' service areas in the
ordinary course of business. Midlands does not purchase brokered
deposits. While management believes that most of the large time
deposits are acquired from customers with standing relationships with
Midlands, it is a common industry practice not to consider these types
of deposits as core deposits because their retention can be expected
to be heavily influenced by rates offered, and therefore have the
characteristics of shorter-term purchased funds.
60
<PAGE>
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.
Years Ended December 31,
1994 1993 1992
Return on assets 1.00% .86% .21%
Return on equity 10.88% 10.11% 2.42%
Dividend payout ratio 21.55% - -
Equity to assets ratio 9.22% 8.52% 8.78%
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
Midlands' service areas. Core deposits (total deposits less time
deposits of $100,000 and over) provide a relatively stable funding base,
and represented 73.4% of total assets at December 31, 1994 compared with
73.0% at the end of 1993. Time deposits $100,000 and over involve an
appropriate matching of maturity distribution and a diversification of
sources to achieve an appropriate level of liquidity. In addition,
Midlands has available unused short-term lines of credit to
purchase up to $1,500,000 of federal funds from unrelated correspondent
institutions on an unsecured basis. Generally, the lines are
available on a one to seven day basis. Asset liquidity is provided from
several sources, including amounts due from banks and federal funds
sold. Securities, particularly those available-for-sale and those
maturing within one year, also provide a secondary source of liquidity.
In addition, funds from maturing loans are a source of liquidity.
Management believes that Midlands' overall liquidity sources are
adequate to meet its operating needs.
Understanding the changes in Midlands' financial condition and
liquidity is enhanced by reviewing the changes in the size and
composition of the various categories of earning and non-earning assets
due to cash flows and the sources of cash for those changes. The
table "Sources and Uses of Cash" is closely related to the statement of
cash flows appearing in the financial statements and related notes
contained elsewhere herein. The information in this table focuses on
changes in year end balances between 1994 and 1993, and between 1993 and
1992, caused by cash flows. No material one-day transactions occurred
at year end 1994, 1993 or 1992 that would distort the picture of funding
sources and uses.
61
<PAGE>
Sources and Uses of Cash
Increase (Decrease) December 31,
1994 % 1993 %
(dollars in thousands)
Sources of cash
Core deposits
Noninterest bearing demand $ - - $ 372 8.6%
Interest bearing transaction accounts - - 2,177 50.1%
Savings - - (275) (6.3%)
Time deposits under $100M - - 1,065 24.5%
Total core deposits - - 3,339 76.9%
Earning assets
Time deposits in other banks 800 20.2% - -
Federal funds sold 960 24.3% -
Loans made to customers 1,395 35.3% - -
Total earning assets 3,155 79.8% - -
Shareholders' equity
Operating activities 700 17.7% 660 15.2%
Non-earning assets
Other real estate 100 2.5% 341 7.9%
Total sources of cash $ 3,955 100.0% $4,340 100.0%
Uses of cash
Earning assets
Time deposits in other banks $ - - $ 300 6.9%
Investment securities 1,578 39.9% 413 9.5%
Loans made to customers - - 1,324 30.6%
Federal funds sold - - 700 16.1%
Total earning assets 1,578 39.9% 2,737 63.1%
Non-earning assets
Cash and due from banks 489 12.4% 74 1.7%
Premises and equipment 181 4.5% 27 .6%
Total non-earning assets 670 16.9% 101 2.3%
Core deposits
Noninterest bearing demand (588) (14.9)% - -
Interest bearing transaction accounts 976 24.7% - -
Savings 168 4.2% - -
Time deposits under $100M 308 7.8% - -
Total core deposits 864 21.8% - -
Time deposits $100M and over 731 18.5% 1,392 32.1%
Obligations under capital leases 23 .6% 110 2.5%
Shareholders' equity
Cash dividends paid 89 2.3% - -
Total uses of cash $ 3,955 100.0% $ 4,340 100.0%
Capital Resources
The capital base for Midlands increased by $435,000, $370,000 and
$83,000 during 1994, 1993 and 1992, respectively, as the result of
net income. In 1994, capital was decreased $89,000 for cash dividends
paid, and $142,000 for unrealized holding gains and losses on
available-for-sale securities, net of income tax effect.
Midlands is subject to regulatory risk-based capital adequacy
standards. Under these standards, banks are required to maintain
certain minimum ratios of capital to risk-weighted assets and average
total assets. Under the provisions of FDICIA, federal bank regulatory
authorities are required to implement prescribed "prompt
62
<PAGE>
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. Unrealized holding gains and losses on
available-for-sale securities are excluded for purposes of calculating
regulatory capital ratios. However, the extent of any unrealized
appreciation or depreciation on securities will continue to be a
factor that regulatory examiners consider in their overall assessment of
a bank's capital adequacy.
Midlands qualifies as a "well-capitalized" institution under the
regulatory definitions and guidelines. The following table sets
forth the risk-based capital ratios of Midlands and the minimum levels
prescribed by regulations as of December 31, 1994:
Total
Tier 1 Capital Leverage
Midlands National Bank 14.3% 15.5% 9.5%
Minimum "well-capitalized" requirement 6.0% 10.0% 5.0%
Minimum "adequately-capitalized" requirement 4.0% 8.0% 3.0%
Inflation
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.
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.
Correspondent Banking
Correspondent banking involves the providing of services by one
bank to another bank which does not provide that service for itself
from an economic or practical standpoint. Midlands uses correspondent
services offered by larger banks, including check collections, purchase
of Federal funds, security safekeeping, investment services, coin and
currency supplies, overline and liquidity loan participations and
sales of loans to or participations with correspondent banks and other
secondary lenders.
Data Processing
Midlands has a data-processing department which performs a full
range of data processing for Midlands. Such services include an
automated general ledger, deposit accounting and commercial and
installment lending data processing.
Employees
At December 31, 1994, Midlands employed 24 persons on a full-time
basis, and three persons on a part- time basis.
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Monetary Policies
The results of operations of Midlands are affected by credit
policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include
open market operations in U.S. Government securities, changes in the
discount rate on member bank borrowings, changes in reserve requirements
against member bank deposits and limitations on interest rates which
member banks may pay on time and savings deposits. In view of changing
conditions in the national economy and in the money markets, as well as
the effect of action by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes
in interest rates, deposit levels, loan demand or the business and
earnings of Midlands.
Supervision and Regulation
Midlands operates in a highly regulated environment, and its
business activities are governed by statute, regulation and
administrative policies. The business activities of Midlands are
supervised by a number of federal regulatory agencies, including the
Federal Reserve, the OCC and the FDIC.
Midlands was organized as a national banking association under the
National Bank Act. Its deposits are insured to $100,000 per account by
the FDIC, subject to aggregation rules. Midlands is subject to
supervision and periodic examination by the OCC, which oversees
substantially all aspects of Midlands' operations, including security
devices and procedures, loan and securities policies, adequacy of
capitalization and loss reserves, loan portfolio evaluation, payment of
dividends, location of branch offices and facilities, reserves against
deposits, maintenance of required books and records, and adequacy of
staff training to carry on safe lending and deposit gathering practices.
All national banks are required to be members of the Federal
Reserve System. Midlands is subject to rules and regulations from
time to time promulgated by the Board of Governors of the Federal
Reserve System. Also, the Glass-Steagall Act prohibits Federal
Reserve member banks from being affiliated with any company engaged
principally in the issue, flotation, underwriting, public sale or
distribution of securities. However, the OCC has ruled that national
banks may engage in discount brokerage activities.
The Change in Bank Control Act provides that the OCC must be
notified in writing in advance if any person or persons acting in
concern propose to acquire 25% or more of any class of Midlands' voting
stock. In addition, if any person or persons acting in concert
purpose to acquire 10% or more of any class of Midlands' voting stock,
such person or persons will be presumed to have acquired control of
Midlands (subject to rebuttal) if (i) Midlands has issued any class of
securities subject to the registration requirements of Section 12 of the
Securities Exchange Act of 1934, or (ii) immediately after the
transaction, no other person will own a greater proportion of the
class of voting securities. Approval of the OCC is required before any
change in control of Midlands may be effectuated.
In addition to a variety of generally applicable state and
federal laws governing businesses and employers, such as the Equal
Employment Opportunity Act prohibiting employment discrimination, the
Occupational Safety and Health Act governing employee working
conditions, Midlands is subject to a variety of special federal statutes
and regulations applicable only to financial institutions. These
include (i) the Truth in Lending Act and Federal Reserve Regulation
Z, which require disclosure of the terms of consumer finance
transactions and regulate certain credit card practices, (ii) the
Equal Credit Opportunity Act and Federal Reserve Regulation B, which
prohibit discrimination in the evaluation and extension of credit,
(iii) the Home Mortgage Disclosure Act and Federal Reserve Regulation
C, which are intended to provide information to enable to public and
public officials to determine if a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves, (iv) the Electronic Funds Transfer Act and Federal Reserve
Regulation E, which provide for consumer
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rights and safeguards in electronic funds transfer systems, (v) the
Community Reinvestment Act and regulations applicable thereto, which
require financial institutions to meet their obligation to provide for
the total credit needs of the communities they serve, including
their assets in loans to low and moderate income borrowers, (vi) the
Fair Debt Collection Practices Act, which govern practices which may be
used by associations and other credit grantors to eliminate abusive
debt collection practices, (vii) the Fair Credit Reporting Act, which
governs the collection and use of credit information by credit
reporting agencies to insure the confidentiality, accuracy, relevancy,
and proper utilization of consumer credit information, (viii) and Right
to Financial Privacy Act, which imposes a duty to maintain the
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records, (ix)
the Bank Secrecy Act, which requires banks to file a report with
the Internal Revenue Service of each deposit, withdrawal, exchange of
currency or other payment or transfer, by, through, or to Midlands
which involves a transaction in currency of more than $10,000, and
(x) the Financial Institutions Regulatory and Interest Rate Control Act
of 1978 and Federal Reserve Regulation O, which place restrictions on
extensions of credit to executive officers, directors and principal
shareholders of Midlands.
National banks are subject to restrictions under federal law in
dealing with affiliates. For instance, extensions of credit to an
affiliate, investment in the securities of an affiliate and the purchase
of assets from an affiliate are limited to no more than 10% of
Midlands' capital stock and surplus to any single affiliate and 20% to
all affiliates.
The National Bank Act imposes on national banks to same limitations
on branch banking as are imposed by state law on state-chartered banks
in the state where the national bank is located. In South Carolina, a
bank may establish branch offices throughout the state by means of
merger with an existing bank or by opening branches de novo. South
Carolina prohibits a bank from merging with another bank unless the
target bank has been in existence for at least five years. South
Carolina law likewise prohibits Midlands from being acquired by a bank
holding company until it has been in existence and continuously
operating for at least two years.
In August, 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted. FIRREA, among other
things, abolished the Federal Savings and Loan Insurance Corporation and
established two new insurance funds under the jurisdiction of the
FDIC: the SAIF and the BIF. The law also provided for a phased-in
increase in the rate of annual insurance assessments paid by a bank,
deposits of which are insured by the BIF from the current rate of
1/18th of 1% of such bank's average assessment base (as defined) to
0.15% of such assessment base on and after January 1, 1991, subject to
increases in the assessment rate to a rate not in excess of 0.325% of
such assessment base upon the occurrence of certain circumstances
relating to the BIF.
FIRREA also gives banking agencies more potent enforcement
mechanisms. The authority of a banking agency to issue a
cease-and-desist order now specifically includes the power to order
affirmative action to correct any harm resulting from a violation
or practice. The non-exhaustive list of actions that may be ordered
includes restitution, reimbursement, indemnification or guaranty
against loss if violation or practice showed a reckless disregard for
the law, applicable regulations or a prior banking agency order. Other
specific actions which may be ordered include restricting the
growth of the institutions, disposing of any loan or assets;
rescinding contracts, hiring qualified officers or employees, or
"other action as the banking agency determines to be appropriate."
Moreover, the power to issue a cease-and-desist order includes "the
authority to place limitations on the activities or functions of an
insured depository institution or any institution-affiliated party."
Finally, FIRREA expanded the enforcement powers of bank regulatory
agencies, including the expansion of the FDIC's power to act as a
conservator and receiver for troubled financial institutions. The FDIC
may appoint itself conservator or receiver for an insured
depository institution for any of the following reasons: the
institution is insolvent in that the assets of the institutions are
less than its obligations to creditors and others; a substantial
dissipation of the assets or earnings has occurred due to any
violation of law or regulation of any
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unsafe or unsound practice; the institution is in an unsafe or unsound
position to transact business including substantially insufficient
capital or otherwise; the institution has willfully violated a
cease-and-desist order that has become final; the institution
conceals or withholds its books or records from banking regulators; it
is unlikely that the institution will be able to meet depositors'
demands or pay its obligations in the normal course of business; the
institution has or is likely to incur losses that will deplete all or
substantially all of its capital and there is no reasonable prospect
for the capital to be replenished without federal assistance; or there
exists one or more violations of laws, rules or regulations or an unsafe
or unsound practice or condition that is likely to cause
insolvency or substantially dissipate the assets or earnings or is
likely to weaken the bank's condition or seriously prejudice the
depositors' interests. The FDIC as conservator or receiver may take over
the assets of and operate the institution with all of the powers of its
management, may conduct all business of the institution, and perform
all of the functions of the institution in its own name. The FDIC may
take action to put the institution in a sound and solvent condition and
dispose of it as a going concern, or it may liquidate it and proceed to
realize upon its assets.
FDICIA, which was enacted on December 19, 1991, provides for a
number of reforms relating to the safety and soundness of the deposit
insurance system, supervision of domestic and foreign depository
institutions and improvement of accounting standards. One aspect of
FDICIA involves the development of a regulatory monitoring system
requiring "prompt corrective action" on the part of banking regulators
with regard to certain classes of undercapitalized institutions. While
FDICIA does not change any of the minimum capital requirements, it
directs each of the federal banking agencies to issue regulations
putting the monitoring plan into effect. FDICIA creates five "capital
categories" ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") which are defined in FDICIA and which will be
used to determine the severity of corrective action the
appropriate regulator may take in the event an institution reaches a
given level of undercapitalization. For example, an institution which
becomes "undercapitalized" must submit a capital restoration plan
to the appropriate regulator outlining the steps it will take to
become adequately capitalized. Upon approving the plan, the regulator
will monitor the institution's compliance. Before a capital
restoration plan will be approved, an entity controlling a bank
(i.e., holding companies) must guarantee compliance with the plan
until the institution has been adequately capitalized for four
consecutive calendar quarters. The liability of the holding company is
limited to the lesser of 5% of the institution's total assets or the
amount which is necessary to bring the institution into compliance with
all capital standards. In addition, "undercapitalized" institutions
will be restricted from paying management fees, dividends and other
capital distributions, will be subject to certain asset growth
restrictions and will be required to obtain prior approval from the
appropriate regulator to open new branches or expand into new lines of
business.
As an institution drops to lower capital levels, the extent of
action to be taken by the appropriate regulator increases, restricting
the types of transactions in which the institution may engage and
ultimately providing for the appointment of a receiver for certain
institutions deemed to be critically undercapitalized.
FDICIA also provides that banks will have to meet new safety
and soundness standards that must be adopted by the regulators.
Regulators are charged with promulgating regulations defining
operational and managerial standards relating to internal controls,
loan documentation, credit underwriting, interest rate exposure, asset
growth, director and officer compensation, asset quality, earnings and
stock valuation.
Both the capital standards and the safety and soundness standards
which FDICIA seeks to implement are designed to bolster and protect the
deposit insurance fund. The BIF funding provisions under FDICIA could
result in a significant increase in the assessment rate on deposits over
the next 15 years. No assurance can be given at this time as to what the
level of premiums will be over this 15 year period.
In response to the directive issued by FDICIA, the regulators have
issued regulations which, among other things, prescribe the capital
thresholds for each of the five capital categories established by
FDICIA. The following table reflects the proposed capital thresholds:
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<TABLE>
<CAPTION>
Total Risk-based Tier 1 Risk-based Tier 1 Leverage
Capital Ratio Capital Ratio Ratio
<S> <C> <C> <C>
Well capitalized (1) 10% 6% 5%
Adequately capitalized (1) 8% 4% 4%(2)
Undercapitalized (3) < 8% < 4% < 4%
Significantly undercapitalized (3) < 6% 3% < 3%
Critically undercapitalized -- -- < 2%
</TABLE>
(1) An institution must meet all three minimums.
(2) 3% for composite CAMEL 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(3) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
With respect to the compliance with federal, state and local
provisions relating to the protection of the environment, Midlands does
not believe that such compliance will have any substantial or material
effect upon the capital expenditures, earnings and competitive position
of Midlands.
The scope of regulation and permissible activities of Midlands is
subject to change by future federal and state legislation.
Description of Property
Midlands' main office, which is situated on approximately six
acres of land on Main Street in Prosperity, South Carolina, is a
two-story building containing approximately 4,500 square feet. The main
office consists of a main banking floor with five teller stations and
four offices, and has a vault, a night depository, a drive-in window and
a remote lane. The second floor of the facility consists of a board
room, a record vault, a computer room, and an operating area.
In addition to its main office, Midlands also has a branch office
located on approximately one acre of land on S.C. Highway 48 in
Chapin, South Carolina. The branch office is also a two-story building
containing approximately 2,700 square feet. The branch office
consists of a main banking floor with five teller stations, four
offices, and a drive-up window and a remote lane.
Midlands' branch office in Newberry, South Carolina is located at
2633 Winnsboro Road and is situated on approximately one-half acre of
land. The branch office is a one-story building containing approximately
2,500 square feet. The branch office consists of a main banking floor
with four teller stations, three offices, and a drive-up window and a
remote lane.
Midlands owns all of its banking locations. Midlands does not
own any other real estate of material value.
Legal Proceedings
There are no material pending legal proceedings to which
Midlands is a party of which any of its properties is subject; nor are
there material proceedings known to be contemplated by an governmental
authority; nor are there material proceedings known to Midlands,
pending or contemplated, in which any director, officer or affiliate of
Midlands or any holder of 5% or more of Midlands' outstanding stock, or
any associate of any of the foregoing is a party or has an interest
adverse to Midlands.
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Market for Common Stock and Dividends
There has not been extensive trading in the Midlands common stock
since its initial public offering in December 1988, and the volume
of trades occurring cannot be characterized as amounting to an active
trading market. The common stock is not a Nasdaq quoted stock, nor is
it quoted by the National Quotation Bureau, Inc., nor are there any
market makers. Management is aware of transactions in the Midlands
common stock at prices ranging from $11.00 to $12.50 per share during
1994. Such trades may not be arm's length transactions and may not be
indicative of the market value of the Midlands common stock. Management
is not aware of any trades in Midlands common stock since December 31,
1994.
As of April 3, 1994, there were approximately 570 holders of record
of Midlands' common stock, excluding individual participants in security
position listings.
In January 1994, Midlands' Board of Directors declared a $.25
per share cash dividend to all shareholders of record as of
December 31, 1993, payable on March 4, 1994. In January 1995, Midlands'
Board of Directors declared a $.25 per share cash dividend to all
shareholders of record as of December 31, 1994, payable on February 28,
1995. Prior to January 1994, there had been no cash dividends declared
or paid since Midlands' inception in 1988. Generally, the approval
of the OCC is required to pay dividends in excess of Midlands'
earnings retained in the current year plus retained net profits for the
preceding two years.
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MANAGEMENT INFORMATION
Management and Principal Shareholders of Midlands
The following table sets forth (i) as of April 3, 1995, the
number and percent of total outstanding shares ofMidlands common
stock beneficially owned by all directors and executive officers of
Midlands individually and by all directors and executive officers
of Midlands as a group, and (ii) pro forma upon consummation of the
Merger, the number and percent of total outstanding shares of
CFC common stock beneficially owned by such persons individually and as
a group.
<TABLE>
<CAPTION>
Pro Forma After Merger
Number of Shares Percent Number of Shares Percent
Name of Beneficial Owner Beneficially Owned of Class Beneficially Owned of Class
<S> <C> <C> <C> <C>
Directors
Earl H. Bergen (1) 17,500 4.87% 28,875 *
David W. Bowers (2) 67,972 17.83% 112,153 1.92%
E. Monte Bowers (3) 67,972 17.83% 112,153 1.92%
Jacob A. Bowers, Jr. (4) 10,500 2.94% 17,325 *
Chilton W. Ellett (5) 7,500 2.10% 12,375 *
Rodney S. Griffin (6) 40,700 11.17% 67,155 1.15%
Dan H. Hamm, Jr. (7) 15,200 4.23% 25,080 *
Terry L. Koon (8) 10,500 2.94% 17,325 *
Heyward D. Shealy (9) 55,600 15.05% 91,740 1.57%
C. Gurnie Stuck (10) 42,500 11.58% 70,125 1.20%
Executive Officers
David W. Bowers (2) 67,972 17.83% 112,153 1.92%
E. Monte Bowers (3) 67,972 17.83% 112,153 1.92%
Executive Officers and directors
as a group (10 persons) (11) 335,944 72.48% 554,307 9.46%
</TABLE>
- ------------------------------------
* Less than 1%.
(1) Includes 5,000 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering. Mr. Bergen owns 11,400 shares individually, 900
shares are owned by Fashion Enterprise, a business controlled
by Mr. Bergen, and 200 shares are owned by the Estate of Lethea
Bergen, of which Mr. Bergen is Executor.
(2) Includes 12,500 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering, 10,636 shares subject to presently exercisable
stock options granted in connection with Mr. Bowers' employment
agreement and 3,500 shares subject to presently exercisable
incentive stock options. Mr. Bowers' business address is 305 Main
Street, Prosperity, South Carolina 29127.
(3) Includes 12,500 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering, 10,636 shares subject to presently exercisable
stock options granted in connection with Mr. Bowers' employment
agreement and 3,500 shares subject to presently exercisable
incentive stock options. Mr. Bowers's business address is 305 Main
Street, Prosperity, South Carolina 29127.
(4) Includes 2,500 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering and 5,300 shares owned jointly by Mr. Bowers and
his wife.
(5) Includes 2,500 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering.
(6) Includes 10,000 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering. Mr. Griffin owns 21,700 shares individually,
1,000 shares are owned by his wife, 2,000 shares are owned by Mr.
Griffin as custodian for his two minor daughters, 2,000 shares are
owned by his mother as custodian for his two minor daughters,
2,000 shares are owned by his adult daughter living in his
household and 2,000 shares are owned jointly with his mother. Mr.
Griffin's business address is Rt. 2, Box 242, Newberry, South
Carolina 29108.
(7) Includes 5,000 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering and 5,000 shares owned jointly by Mr. Hamm and his
wife.
(8) Includes 2,500 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering.
(9) Includes 15,000 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering. Mr. Shealy owns 30,000 shares individually, 400
shares are owned by his wife, 100 shares are owned by his wife as
custodian for his daughter, 100 shares are owned by his daughter
and 10,000 shares are owned by Chapin Red & White, Inc., a
business controlled by Mr. Shealy. Mr. Shealy's business address
is Hwy. 76, Box 260 A 1, Prosperity, South Carolina 29127.
(10) Includes 12,500 shares subject to presently exercisable stock
purchase warrants granted in connection with Midlands' initial
stock offering. Mr. Stuck owns 25,000 shares individually,
4,000 shares are owned by his wife, and 1,000 shares are owned
jointly by his wife and mother-in-law. Mr. Stuck's business
address is 119 Amicks Ferry Road, Chapin, South Carolina 29036.
(11) Includes an aggregate of 80,000 shares subject to presently
exercisable stock purchase warrants granted in connection with
Midlands' initial stock offering, and an aggregate of 28,272
shares subject to presently exercisable stock options.
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Certain Transactions
Midlands had outstanding loans to certain of Midlands' directors,
executive officers, their associates and members of the immediate
families of such directors and executive officers. None of these loans
are nonaccrual, past due, restructured, or potential problems. These
loans were all made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with
persons not affiliated with Midlands and did not involve more than the
normal risk of collectibility or present other unfavorable features.
Management and Principal Shareholders of Carolina First
Corporation
Information concerning the directors and executive officers of Carolina
First Corporation, compensation of directors and executive officers
of Carolina First Corporation and any related transactions in which
they have an interest, together with information related to
principal shareholders of Carolina First Corporation, is set forth in
Carolina First Corporation Proxy Statement, dated March 8, 1995,
incorporated herein by reference to Carolina First Corporation's
Annual Report on Form 10-K for t h e year ended December 31, 1994.
See "INCORPORATION BY REFERENCE."
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COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time, all of the outstanding shares of
Midlands common stock will be converted into CFC common stock.
Accordingly, shareholders of Midlands will become shareholders of
Carolina First Corporation, and their rights as Carolina First
Corporation shareholders will be determined by South Carolina law
and Carolina First Corporation's Articles of Incorporation and
Bylaws. The rights of Carolina First Corporation shareholders
differ from the rights of Midlands' shareholders with respect to
certain important matters, including the required shareholder
votes as to mergers, consolidations, exchanges, sales of assets or
dissolution, removal of directors and amendments to the articles
of incorporation, classification of the board of directors,
cumulative voting rights, nomination of directors, and statutory
and other restrictions on certain business combinations and
control share acquisitions.
A comparison of the respective rights of Midlands'
shareholders and Carolina First Corporation's shareholders with
respect to these matters is set forth immediately below. A
description of the CFC common stock is set forth below under
"CAROLINA FIRST CORPORATION CAPITAL STOCK."
Comparison of CFC Common Stock and Midlands Common Stock
The rights of Carolina First Corporation shareholders are
governed by Carolina First Corporation's Articles of Incorporation
and Bylaws and the applicable provisions of the South Carolina
Business Corporation Act of 1988, as amended (the "South Carolina
Corporations Law"). By contrast, the rights of Midlands
shareholders are governed by Midlands' Articles of Association and
Bylaws and by federal law. If the holders of Midlands common stock
approve the Merger Agreement and the Merger is subsequently
consummated, holders of Midlands common stock will become holders
of CFC common stock. Although it is impracticable to note all the
differences between the South Carolina Corporations Law and
federal law generally, and all of the differences between the
applicable governing documents of Carolina First Corporation and
Midlands, the following is intended to be a summary of certain
significant differences between the rights of holders of CFC
common stock and Midlands common stock. This comparison of the
rights of holders of Midlands common stock and CFC common stock is
based on the current terms of the governing documents of the
respective companies and on the current provisions of state and
federal law and is qualified in its entirety thereby.
Capitalization. Midlands is authorized to issue 10,000,000
shares of common stock, $5.00 par value, of which 354,526 shares
were issued and outstanding as of April 3, 1995. Carolina First
Corporation has (i) 20,000,000 shares of $1 par value common stock
authorized, of which 4,619,459 shares of CFC common stock were
outstanding as of April 3, 1995, and (ii) 10,000,000 shares of
"blank check" preferred stock authorized, of which 616,000 shares
of Noncumulative Convertible Preferred Stock Series 1993 (the
"Series 1993 Preferred Stock"), 56,038 shares of Noncumulative
Convertible Preferred Stock Series 1993B (the "Series 1993B
Preferred Stock") and 918,700 shares of Noncumulative Convertible
Preferred Stock Series 1994 (the "Series 1994 Preferred Stock")
were authorized and outstanding at April 3, 1995.
Voting in General. In general, holders of both Midlands common
stock and CFC common stock are entitled to one vote per share and
to the same and identical voting rights as other holders of such
common stock. However, in the election of directors, Midlands
shareholders have the right to cumulate votes, i.e. the right to
give one candidate as many votes as equals the number of directors
multiplied by the number of his shares, or to distribute them on
the same principle among as many candidates as he shall think fit.
Holders of CFC common stock are not entitled to cumulate votes
under any circumstances.
Mergers, Consolidations, Exchanges, Sales of Assets or
Dissolution. A vote of two-thirds of the outstanding shares of
Midlands is required to approve any merger, consolidation,
exchange, sale of substantially all of the assets of, or
dissolution of Midlands. Carolina First Corporation's Articles of
Incorporation require the affirmative vote of holders of at least
80% of the outstanding stock of Carolina First Corporation
entitled to vote for approval before Carolina First Corporation
may (a) merge or consolidate with any other corporation, (b)
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sell or exchange all or a substantial part of its assets to or with any
other corporation, or (c) issue or deliver any stock or other
securities in exchange or payment for any properties or assets of
any other corporation, or securities issued by any other
corporation, or in a merger of any subsidiary of Carolina First
Corporation with or into any other corporation (the foregoing
being hereinafter referred to as a "business combination"). This
80% supermajority is reduced to the percentage required by
applicable law if such business combination was approved and
recommended without condition by the affirmative vote of at least
80% of the directors.
Directors. The Articles of Association of Midlands provide for
a Board of Directors having not less than five or more than
twenty-five members as determined from time to time by vote of a
majority of the members of the Board of Directors or by resolution
of the shareholders of Midlands. Vacancies may be filled by the
other or remaining directors, provided, however, that the
directors may not increase the number of directors to a number
that (i) exceeds by more than two the number of directors last
elected by the shareholders where the number was fifteen or less,
or (ii) exceeds by more than four the number of directors last
elected by shareholders where the number was 16 or more. Carolina
First Corporation's Articles of Incorporation provide that the
number of directors shall be set by the Board of Directors or the
shareholders. However, the Board of Directors cannot change the
size of the Board by more than 30% without shareholder approval.
Vacancies may be filled by existing directors. The Carolina First
Corporation Board of Directors currently has twelve members. In
accordance with Carolina First Corporation's Articles of
Incorporation, whenever the Board consists of nine or more
persons, the Board shall be divided into three classes of
directors (with each class having as close to an equal number as
possible). The members of each class are elected for staggered
three-year terms.
Nomination of Directors. The Articles of Association of
Midlands provide that nominations for election to the board of
directors may be made by the board of directors or by any
s h areholder of Midlands entitled to vote for election of
directors. Nominations other than those made by or on behalf of
the existing Midlands management must be made in writing and be
delivered or mailed to the president of Midlands and to the OCC
not less than 14 days nor more than 50 days prior to any meeting
of shareholders called for the election of directors; provided,
however, that if less than 21 days notice of the meeting is given
to shareholders, such nominations must be mailed or delivered to
the president of Midlands and to the OCC not later than the close
of business on the seventh day following the day on which the
notice of meeting was mailed. Such notification must contain
certain specified information to the extent known to the notifying
shareholder. Carolina First Corporation's Articles of
Incorporation provide that, in addition to the Board of Directors,
any shareholder entitled to vote for the election of directors may
make nominations for the election of directors only by giving
written notice to the Secretary of Carolina First Corporation at
least 30 days but not more than 60 days prior to the annual
meeting of shareholders at which directors are to be elected,
unless such requirement is waived in advance of the meeting by the
Board of Directors.
Indemnification of Officers and Directors. The governing
documents of both Carolina First Corporation and Midlands
generally provide that the parties have the power to indemnify any
director, officer or employee, his or her heirs, executors or
administrators, and agents for expenses, judgments, decrees and
any liability incurred in actions to which the director, officer
or employee is a party, or potential party, by reason of the
performance of his official duties, assuming he conducted himself
in good faith and reasonably believed his conduct in his official
capacity to be in the parties' best interest. Such indemnification
provisions do not apply in instances where such person acted in
bad faith or engaged in conduct against the interest of Midlands
or Carolina First Corporation.
Assessment. Under the National Bank Act, if the capital stock
of a national bank (such as Midlands) is impaired, by losses or
otherwise, the OCC is authorized to seek payment of the deficiency
by assessment upon its shareholders, pro rata, but the assessment
is only enforceable by selling the stock of any shareholder who
does not pay the assessment. There are no assessment provisions
applicable to CFC common stock.
Conversion; Redemption; Sinking Fund. Neither CFC common stock
nor Midlands common stock is convertible, redeemable nor entitled
to any sinking fund.
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Liquidation Rights. In the event of the liquidation,
dissolution or winding-up of the affairs of Midlands, holders of
outstanding shares of Midlands common stock are entitled to share,
in proportion to their respective interests, in Midlands' assets
and funds remaining after payment, or provision for payment, of
all debts and other liabilities of Midlands. In the event of the
liquidation, dissolution or winding-up of the affairs of Carolina
First Corporation, holders of CFC common stock are entitled to
share, pro rata, in Carolina First Corporation's assets and funds
remaining after payment, or provision for payment, of all debts
and other liabilities of Carolina First Corporation, and after
payment of all amounts due to holders of Preferred Stock upon
liquidation.
Dividends. Holders of Midlands common stock and CFC common
stock are entitled to receive such dividends as the respective
Board of Directors may declare out of funds legally available
therefor.
Amendment. Midlands' Articles of Association provide that they
may be amended by the affirmative vote of a majority of Midlands'
shareholders, unless a greater vote is required by law. Carolina
First Corporation's Articles of Incorporation generally may be
amended only upon the approval of holders of two-thirds of the
votes outstanding votes, and in certain circumstances, such two-
thirds requirement is increased to 80%.
Anti-takeover Measures. Midlands has not implemented any
material anti-takeover measures. By contrast, Carolina First
Corporation has implemented a number of provisions which have the
effect of impeding a takeover of Carolina First Corporation that
is not favored by Carolina First Corporation management.
Furthermore, South Carolina law has business combination and
control share acquisition statutes which may serve to impede
takeovers not favored by management.
The South Carolina control share statute provides that upon
the acquisition by a person of certain threshold percentages of
stock (20%, 33% and 50%), a shareholders' meeting must be held in
order to determine whether or not to confer voting rights upon
such acquiring person's shares. An affirmative vote of holders of
a majority of all outstanding company's stock (excluding shares
held by the acquiring person, company officers and company
employees who are also directors of the company) is required to
confer voting rights upon such acquiring person's shares.
The South Carolina business combinations statute provides that
a 10% or greater shareholder of a resident domestic corporation
cannot engage in a "business combination" (as defined in the
statute) with such corporation for a period of two years following
the date on which the 10% shareholder became such, unless the
business combination or the acquisition of shares is approved by a
majority of the disinterested members of such corporation's board
of directors before the 10% shareholder's share acquisition date.
This statute further provides that at no time (even after the two-
year period subsequent to such share acquisition date) may the 10%
shareholder engage in a business combination with the relevant
corporation unless certain approvals of the board of directors or
disinterested shareholders are obtained or unless the
consideration given in the combination meets certain minimum
standards set forth in the statute.
There are no comparable federal statutes which are applicable
to Midlands.
Other Considerations. Shares of common stock of Midlands, being
stock of a national bank, may be treated differently from shares
of Carolina First Corporation for state and local tax purposes,
including for purposes of any intangible taxes. Midlands
shareholders should consult their tax advisers with respect to
relevant differences in Midlands common stock and CFC common
stock.
Generally, Midlands is prohibited from purchasing its own
shares. Carolina First Corporation, however, may purchase, hold
and dispose of its own shares subject only to restrictions on
distributions by a corporation which prohibit any distribution
which would render a company insolvent.
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CAROLINA FIRST CORPORATION CAPITAL STOCK
Common Stock
Carolina First Corporation has 20,000,000 shares of common
stock authorized, of which 4,619,459 shares were outstanding as of
April 3, 1995. The holders of the CFC common stock are entitled to
dividends when, as and if declared by the Board of Directors in
their discretion out of funds legally available therefor. The
principal source of funds for Carolina First Corporation is
dividends from its subsidiaries. Carolina First Corporation's
subsidiaries are subject to certain legal restrictions on the
amount of dividends they are permitted to pay. See "INFORMATION
ABOUT CAROLINA FIRST CORPORATION - Certain Regulatory Matters."
All outstanding shares of CFC common stock are fully paid and
nonassessable. No holder of CFC common stock has any redemption or
sinking fund privileges, any preemptive or other rights to
subscribe for any other shares or securities, or any conversion
rights. In the event of liquidation, the holders of CFC common
stock are entitled to receive pro rata any assets distributable to
shareholders in respect of shares held by them, subject to the
rights of any holders of the Series 1993 Preferred Stock, the
Series 1993B Preferred Stock, Series 1994 Preferred Stock, and any
other senior stock which may be issued in the future. Holders of
the CFC common stock are entitled to one vote per share.
Preferred Stock
Carolina First Corporation has 10,000,000 shares of "blank
check" preferred stock authorized (the "Preferred Stock"), of
which 616,000 shares of Series 1993 Preferred Stock, 56,038 shares
of Series 1993B Preferred Stock and 918,700 shares of Series 1994
Preferred Stock were authorized and outstanding at April 3, 1995.
Carolina First Corporation's Board of Directors has the sole
authority, without shareholder vote, to issue shares of authorized
but unissued Preferred Stock to whomever and for whatever purposes
it, in its sole discretion, deems appropriate. The relative
rights, preferences and limitations of the Preferred Stock are
determined by Carolina First Corporation's Board of Directors in
its sole discretion. Among other things, the Board may designate
with respect to the Preferred Stock, without further action of the
shareholders of Carolina First Corporation, the dividend rate and
whether dividends shall be cumulative or participating or possess
other special rights, the voting rights, Carolina First
Corporation's rights and terms of redemption, the liquidation
preferences, any rights of conversion and any terms related
thereto, and the price or other consideration for which the
Preferred Stock shall be issued. The Preferred Stock could be
utilized by Carolina First Corporation to impede the ability of
third parties who attempt to acquire control of Carolina First
Corporation without the cooperation of Carolina First
Corporation's Board of Directors.
A summary of the provisions of the outstanding series of
Preferred Stock is set forth below under "--Terms of the Preferred
Stock."
Certain Matters
Shareholders' Rights Agreement
On November 9, 1993, the Board of Directors adopted a
Shareholders' Rights Agreement (the "Rights Agreement"). Pursuant
to the Rights Agreement, on November 9, 1993, the Board of
Directors declared a dividend distribution to shareholders of
record at the close of business on November 24, 1993 of one common
stock purchase right (a "Right") for each outstanding share of CFC
common stock. Each Right entitles the registered holder to
purchase from Carolina First Corporation one-half share of CFC
common stock at a cash exercise price of $18.00, subject to
adjustment.
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Initially, the Rights are not exercisable and are attached to
all outstanding shares of CFC common stock (including to all
shares of CFC common stock issued after November 24, 1993). No
separate Right Certificates have been or will be distributed. The
Rights will separate from the CFC common stock and a "Distribution
Date" will occur upon the earliest of (i) 10 days following a
public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial
ownership of 20% or more of the outstanding shares of CFC common
stock (the date of said announcement being referred to as the
"Share Acquisition Date") and (ii) 10 business days following the
commencement of a tender offer or exchange offer that would result
in a person or group owning 20% or more of the outstanding shares
of CFC common stock. Until the Distribution Date, (i) the Rights
will be evidenced by the CFC common stock certificates and will be
transferred with and only with such certificates, (ii) new CFC
common stock certificates issued after November 24, 1993 will
contain a notation incorporating the Rights Agreement by
reference, and (iii) the surrender for transfer of any
certificates for CFC common stock will also constitute the
transfer of the Rights associated with the CFC common stock
represented by such certificate. The Rights are not exercisable
until the Distribution Date and will expire at the close of
business on November 24, 2003, unless previously redeemed by
Carolina First Corporation as described below. As soon as
practicable after the Distribution Date, Right Certificates will
be mailed to holders of record of CFC common stock as of the close
of business on the Distribution Date and, thereafter, the separate
Right Certificates alone will represent the Rights. Except as
otherwise determined by the Board of Directors, only shares of CFC
common stock issued prior to the Distribution Date will be issued
with Rights.
ln the event that (i) a person acquires beneficial ownership
of 20% or more of the CFC common stock, (ii) Carolina First
Corporation is the surviving corporation in a merger with an
Acquiring Person or any Affiliate or Associate (as defined in the
Rights Agreement) and the CFC common stock is not changed or
exchanged, (iii) an Acquiring Person engages in one of a number of
self-dealing transactions specified in the Rights Agreement, or
(iv) an event occurs which results in an Acquiring Person's
ownership interest being increased by more than 1% (e.g., a
reverse stock split), proper provision will be made so that each
holder of a Right will thereafter have the right to receive upon
exercise thereof at the then current exercise price, that number
of shares of CFC common stock (or in certain circumstances, cash,
property, or other securities of Carolina First Corporation)
having a market value of two times such exercise price. However,
the Rights are not exercisable following the occurrence of any of
the events set forth above until such time as the Rights are no
longer redeemable as set forth below. Notwithstanding any of the
foregoing, Rights that are or were beneficially owned by an
Acquiring Person shall become null and void. In the event that
f o l lowing the Share Acquisition Date, (i) Carolina First
Corporation is acquired in a merger or other business combination
transaction, or (ii) 50% or more of Carolina First Corporation's
assets or earning power is sold, each holder of a Right shall
thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a market value equal to two times
the exercise price of the Right. At any time after any person
becomes an Acquiring Person and prior to such time such Acquiring
Person, together with its Affiliates and Associates, becomes the
Beneficial Owner of 50% or more of the outstanding CFC common
stock, the Board of Directors may exchange the Rights (other than
Rights which have become void), in whole or in part, at the
exchange rate of one share of CFC common stock per Right, subject
to adjustment as provided in the Rights Agreement.
The exercise price payable, and the number of shares of CFC
common stock or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time
to prevent dilution (i) in the event of a stock dividend on, or a
subdivision, combination or reclassification of, the CFC common
stock, (ii) if holders of the CFC common stock are granted certain
rights or warrants to subscribe for CFC common stock or securities
convertible into CFC common stock at less than the current market
price of the CFC common stock, or (iii) upon the distribution to
holders of the CFC common stock of evidence of indebtedness or
assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to
above).
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The Rights may be redeemed in whole, but not in part, at a
price of $.001 per Right (payable in cash, CFC common stock or
other consideration deemed appropriate by the Board of Directors)
by the Board of Directors at any time prior to the close of
business on the tenth day after the Share Acquisition Date or the
final expiration Date of the Rights (whichever is earlier);
provided that under certain circumstances, the Rights may not be
redeemed unless there are Disinterested Directors (as defined in
the Rights Agreement) in office and such redemption is approved by
a majority of such Disinterested Directors. After the redemption
period has expired, Carolina First Corporation's right of
redemption may be reinstated upon the approval of the Board of
Directors if an Acquiring Person reduces his beneficial ownership
to 15% or less of the outstanding shares of CFC common stock in
transaction or series of transactions not involving Carolina First
Corporation and there are no other Acquiring Persons. Immediately
upon the action of the Board of Directors ordering redemption of
the Rights, the Rights will terminate and thereafter the only
right of the holders of Rights will be to receive the redemption
price.
Any of the provisions of the Rights Agreement may be amended
by the Board of Directors of Carolina First Corporation prior to
the Distribution Date. After the Distribution Date, the provisions
of the Rights Agreement, other than those relating to the
principal economic terms of the Rights, may be amended by the
Board to cure any ambiguity, defect or inconsistency, to make
changes which do not adversely affect the interests of holders of
Rights (excluding the interests of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement.
Amendments adjusting time periods may, under certain
circumstances, require the approval of a majority of Disinterested
Directors, or otherwise be limited. This summary description of
the Rights does not purport to be complete and is qualified in its
entirety by reference to the Shareholder Rights Agreement.
Management Contracts
Carolina First Corporation has entered into Noncompetition,
Severance and Employment Agreements with Mack I. Whittle, Jr.,
William S. Hummers III and James W. Terry, Jr. These agreements
set forth general provisions regarding compensation,
confidentiality, termination and noncompetition. However, they
also provide that in the event that the named executive's
employment with Carolina First Corporation is voluntarily or
involuntarily terminated after a "change in control" (as defined
in such agreement), then, except in very limited instances, the
named executive becomes entitled to receive immediately amounts
substantially equal to three years' compensation (including bonus
compensation).
Board of Directors
Classification of Board of Directors. Carolina First
Corporation's Board of Directors currently consists of twelve
persons. In accordance with the Articles of Incorporation,
whenever the Board consists of nine or more persons, the Board
shall be divided into three classes of directors (with each class
having as close to an equal number as possible). The members of
each class are elected for staggered three-year terms. The
staggering of Board terms has the effect of making it more
difficult to remove current Directors than would otherwise be the
case. In addition, Carolina First Corporation's Articles of
Incorporation require the affirmative vote of the holders of not
less than 80% of the outstanding voting securities of Carolina
First Corporation to remove any Director without cause.
Accordingly, unless holders of 80% of the outstanding CFC common
stock vote to remove one or more Directors, it would take three
annual meetings for shareholders to change the composition of the
Board. See "--Removal of Directors".
Limitation of Director Liability. The members of the Board of
Directors of Carolina First Corporation are exempt under Carolina
First Corporation's Articles of Incorporation from personal
monetary liability to the extent permitted by Section 33-2-102(e)
of the South Carolina Corporations Law. This statutory provision
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provides that a director of the corporation shall not be
personally liable to the corporation or any of its shareholders
for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not be deemed to eliminate or
limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders,
(ii) for acts or omissions not in good faith or which involved
gross negligence, intentional misconduct, or a knowing violation
of law, (iii) imposed under Section 33-8-330 of the South Carolina
Corporations Law (improper distribution to shareholder), or
(iv) for any transaction from which the director derived an
improper personal benefit.
Removal of Directors. Carolina First Corporation's Articles of
Incorporation require the affirmative vote of the holders of not
less than 80% of the outstanding voting securities of Carolina
First Corporation to remove any Director or the entire Board of
Directors without cause. Carolina First Corporation's Articles of
Incorporation also provide that any shareholder entitled to vote
for the election of directors may make nominations for the
election of directors only by giving written notice to the
Secretary of Carolina First Corporation at least 30 days but not
more than 60 days prior to the annual meeting of shareholders at
which directors are to be elected, unless such requirement is
waived in advance of the meeting by the Board of Directors.
Evaluation of Proposed Business Combinations. Carolina First
Corporation's Articles of Incorporation provide that the Board of
Directors, when evaluating any proposed business combination with
Carolina First Corporation, shall give due consideration to
(i) all relevant factors, including without limitation, the
social, legal, environmental and economic effects on the
employees, customers, suppliers and other constituencies of
Carolina First Corporation, and on its subsidiaries, the
communities and geographical areas in which Carolina First
Corporation and its subsidiaries operate or are located, and on
any of the businesses and properties of Carolina First Corporation
or any of its subsidiaries, as well as such other factors as the
directors deem relevant, and (ii) not only the consideration being
offered in relation to the then current market price for Carolina
First Corporation's outstanding shares, but also in relation to
the then current value of Carolina First Corporation in a
freely-negotiated transaction and in relation to the Board of
Directors' estimate of the future value of Carolina First
Corporation (including the unrealized value of its properties and
assets) as an independent going concern.
Voting
Noncumulative Voting. Carolina First Corporation's Articles of
Incorporation provide that shareholders may not cumulate votes for
the election of directors. Accordingly, holders of more than 50%
of the shares voting at the election of directors can elect all of
the directors if they choose to do so and, in such event, the
holders of the remaining shares (less than 50%) voting are not
able to elect any board members.
Supermajority Voting Requirements. Carolina First
Corporation's Articles of Incorporation require the affirmative
vote of holders of at least 80% of the outstanding stock of
Carolina First Corporation entitled to vote for approval before
Carolina First Corporation may (a) merge or consolidate with any
other corporation, (b) sell or exchange all or a substantial part
of its assets to or with any other corporation, or (c) issue or
deliver any stock or other securities of its issue in exchange or
payment for any properties or assets of any other corporation, or
securities issued by any other corporation, or in a merger of any
subsidiary of Carolina First Corporation with or into any other
corporation (the foregoing being hereinafter referred to as a
"business combination"). This 80% supermajority is reduced to the
percentage required by applicable law if such business combination
was approved (or adopted) and recommended without condition by the
affirmative vote of at least 80% of the directors. The Articles of
Incorporation expressly permit the Board of Directors to condition
its approval (or adoption) of any business combination upon the
approval of holders of 80% of the outstanding stock of Carolina
First Corporation entitled to vote on such business combination.
The 80% supermajority provision is not applicable to any
transaction solely between Carolina First Corporation and another
corporation, 50% or more of the voting stock of which is owned by
Carolina First Corporation. Under present South Carolina law,
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a merger or the sale of substantially all the assets requires the
affirmative approval of holders of two-thirds of the outstanding
shares entitled to vote. The amendment of the foregoing business
combination provisions requires the approval of holders of 80% of
the outstanding stock entitled to vote. The foregoing
supermajority voting provision could impede the ability of third
parties who attempt to acquire control of Carolina First
Corporation without the cooperation of Carolina First
Corporation's Board of Directors.
Control Share Acquisition / Business Combination Statutes
South Carolina Corporations Law has business combination and
control share acquisition statutes which may serve to impede
takeovers not favored by management. These statutes are summarized
above in "--Comparison of CFC common stock and Midlands Common
Stock."
Transfer Agent
The transfer agent for the CFC common stock is Carolina First
Bank.
Dividend Reinvestment Plans
Carolina First Corporation has in place dividend reinvestment
plans with respect to the CFC common stock, its Series 1993
Preferred Stock, and its Series 1994 Preferred Stock. As set forth
in the plans, holders of such shares may elect to receive CFC
common stock in lieu of receiving the cash dividends to which such
holder may otherwise be entitled. These plans also provide for
purchases of CFC common stock through optional cash payments.
Terms of the Preferred Stock
Series 1994 Preferred Stock. Holders of the Series 1994
Preferred Stock are entitled to receive when, as and if declared
by the Board of Directors in their discretion, out of funds
legally available therefor, quarterly noncumulative cash dividends
of approximately $0.46 per share. To date, Carolina First
Corporation has paid all regular dividends on the Series 1994
Preferred Stock and Carolina First Corporation intends to continue
to pay the regular cash dividends on the Series 1994 Preferred
Stock unless prohibited by Carolina First Corporation's regulatory
authorities. Carolina First Corporation may at any time after July
1, 1994, at the option of the Board of Directors, redeem all or
part of the outstanding shares of the Series 1994 Preferred Stock
upon the specified notice and upon receipt of approval of the
Federal Reserve. However, if Carolina First Corporation elects to
redeem the Series 1994 Preferred Stock prior to 2001, Carolina
First Corporation must pay a premium as set forth in its Articles
of Amendment establishing the Series 1994 Preferred Stock.
However, the Series 1994 Preferred Stock may not be redeemed prior
to July 1, 1997, unless, certain market price standards for the
CFC common stock are met, all as set forth in the Articles of
Amendment establishing the Series 1994 Preferred Stock. The Series
1994 Preferred Stock is convertible at any time at the option of
the holder into fully-paid and nonassessable shares of CFC common
stock at a conversion price of $13.95 per share of CFC common
stock (equivalent to a conversion ratio of approximately 1.7931
shares of CFC common stock for each share of Series 1994 Preferred
Stock), subject to adjustment in certain circumstances for
equitable purposes. Holders of the Series 1994 Preferred Stock are
entitled to vote on each matter on which holders of CFC common
stock are entitled to vote and are otherwise accorded all voting
powers and rights of CFC common stock. Each share of Series 1994
Preferred Stock has the number of votes equal to the number of
shares of CFC common stock into which it is convertible. In the
event of any liquidation, dissolution, or winding up of Carolina
First Corporation, the holders of shares of the Series 1994
Preferred Stock shall be entitled to be paid, out of the assets of
Carolina
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First Corporation available for distribution to its
shareholders whether from capital, surplus or earnings and before
any payment shall be made in respect of the CFC common stock or on
any other class of stock ranking junior to the Series 1994
Preferred Stock (but only after all amounts payable upon
liquidation with respect to the Series 1993 Preferred Stock and
Series 1993B Preferred Stock have been paid), an amount equal to
$25.00 per share.
Series 1993 Preferred Stock. Holders of the Series 1993
Preferred Stock are entitled to receive when, as and if declared
by the Board of Directors in their discretion, out of funds
legally available therefor, quarterly noncumulative cash dividends
of approximately $0.47 per share. To date, Carolina First
Corporation has paid all regular dividends on the Series 1993
Preferred Stock and Carolina First Corporation intends to continue
to pay the regular cash dividends on the Series 1993 Preferred
Stock unless prohibited by Carolina First Corporation's regulatory
authorities. Carolina First Corporation may at any time after July
1, 1993, at the option of the Board of Directors, redeem all or
part of the outstanding shares of the Series 1993 Preferred Stock
upon the specified notice and upon receipt of approval of the
Federal Reserve. However, if Carolina First Corporation elects to
redeem the Series 1993 Preferred Stock prior to July 1, 2000,
Carolina First Corporation must pay a premium as set forth in its
Articles of Amendment establishing the Series 1993 Preferred
Stock. However, the Series 1993 Preferred Stock may not be
redeemed prior to July 1, 1996, unless, certain market price
standards for the CFC common stock are met, all as set forth in
the Articles of Amendment establishing the Series 1993 Preferred
Stock. The Series 1993 Preferred Stock is convertible at any time
at the option of the holder into fully-paid and nonassessable
shares of CFC common stock at a conversion price of $13.04 per
share of CFC common stock (equivalent to a conversion ratio of
approximately 1.917 shares of CFC common stock for each share of
Series 1993 Preferred Stock), subject to adjustment in certain
circumstances for equitable purposes. Holders of the Series 1993
Preferred Stock are entitled to vote on each matter on which
holders of CFC common stock are entitled to vote and are otherwise
accorded all voting powers and rights of CFC common stock. Each
share of Series 1993 Preferred Stock has the number of votes equal
to the number of shares of CFC common stock into which it is
convertible. In the event of any liquidation, dissolution, or
winding up of Carolina First Corporation, the holders of shares of
the Series 1993 Preferred Stock shall be entitled to be paid, out
of the assets of Carolina First Corporation available for
distribution to its shareholders whether from capital, surplus or
earnings and before any payment shall be made in respect of CFC
common stock or on any other class of stock ranking junior to the
Series 1993 Preferred Stock, an amount equal to $25.00 per share.
Series 1993B Preferred Stock. Holders of the Series 1993B
Preferred Stock are entitled to receive when, as and if declared
by the Board of Directors, in their discretion, out of funds
legally available therefor, quarterly cumulative cash dividends of
approximately $0.31 per share. The Series 1993B Preferred Stock is
subordinate to the Series 1993 Preferred Stock with respect to
dividends. The regular cash dividends on the Series 1993B
Preferred Stock cumulate, provided that current quarterly earnings
are available for payment of such regular cash dividends and
assuming that all regular dividends on the Series 1993 Preferred
Stock for the current and all past quarters have been paid in
cash. The Series 1993B Preferred Stock is not subject to any
prescribed redemption provisions, but redemption may be otherwise
effected as permitted by applicable law. Each share of Series
1993B Preferred Stock may be converted at any time after issuance,
at the option of the holder, until January 31, 1997, into 1.75
fully-paid and non-assessable shares of CFC common stock, subject
to equitable adjustment in certain circumstances and to adjustment
based on certain earnings goals, all as more particularly set
forth in the Articles of Amendment establishing the Series 1993B
Preferred Stock. In the event that all outstanding shares of
Series 1993B Preferred Stock have not been converted by February
1, 1997, on such date all remaining outstanding shares of the
Series 1993B Preferred Stock shall be converted into CFC common
stock in accordance with the above-stated conversion ratio.
Holders of the Series 1993B Preferred Stock are entitled to vote
on each matter on which holders of CFC common stock are entitled
to vote and are otherwise accorded all voting powers and rights of
CFC common stock. Each share of Series 1993B Preferred Stock has
the number of votes equal to the number of shares of CFC common
stock into which it is convertible. In the event of any
l i quidation, dissolution, or winding up of Carolina First
Corporation, the holders of shares of the Series 1993B Preferred
Stock shall be entitled to be paid, out of the assets of Carolina
First Corporation available for
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distribution to its shareholders whether from capital, surplus or earnings
and before any payment shall be made in respect of CFC common stock or on any
other class of stock ranking junior to the Series 1993B Preferred Stock (but
only after all amounts payable upon liquidation with respect to the Series
1993 Preferred Stock have been paid), an amount equal to $20.00 per share.
LEGAL MATTERS
Certain legal matters in connection with the Merger, including
the validity of the CFC Shares offered hereby, will be passed upon
for Carolina First Corporation by Wyche, Burgess, Freeman &
Parham, P.A., Greenville, South Carolina. Wyche, Burgess, Freeman
& Parham, P.A. is also rendering a tax opinion to Midlands
regarding the Merger. As of April 3, 1995, members and attorneys
of Wyche, Burgess Freeman & Parham, P.A. beneficially owned a
total of 38,300 shares of CFC common stock, 2,000 shares of Series
1993 Preferred Stock, and 1,200 shares of Series 1994 Preferred
Stock.
Certain legal matters in connection with the Merger will be
passed upon for Midlands by Smith, Gambrell & Russell, Atlanta,
Georgia.
EXPERTS
The financial statements of Midlands as of and for each of the
years in the three-year period ended December 31, 1994, included
in this Proxy Statement/Prospectus have been so included in
reliance on the reports of Donald G. Jones and Company, P.A.,
independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in auditing
and accounting. Representatives of Donald G. Jones and Company,
P.A. are expected to be present at the Special Meeting and will
have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
The consolidated financial statements of Carolina First
Corporation as of and for each of the years in the three-year
period ended December 31, 1994, incorporated by reference herein
have been audited by Elliott, Davis & Company, L.L.P., independent
certified public accountants, and have been so incorporated by
reference on the reports of Elliott, Davis & Company, L.L.P.
appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
PROPOSALS BY MIDLANDS SHAREHOLDERS
If the Merger is not consummated, management of Midlands
expects that the 1995 Annual Meeting of Shareholders would be held
in June 1995. As stated in Midlands' Proxy Statement for its 1994
Annual Meeting of Shareholders, proposals of Midlands'
shareholders intended to be presented at such meeting must have
been received by Midlands on or before November 10, 1994 to be
considered for inclusion in Midlands' proxy statement and form of
proxy relating to that meeting. Midlands has received no such
shareholder proposals.
OTHER MATTERS
The Board of Directors of Midlands is not aware of any other
matters which may be presented for action at the Special Meeting,
but if other matters do properly come before the meeting, it is
intended that the shares of Midlands common stock represented by
proxies in the accompanying form will be voted by the persons
named in the proxies in accordance with their best judgment.
80
<PAGE>
MIDLANDS NATIONAL BANK
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report of Donald G. Jones and Company, P.A.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet as of December 31, 1994 and 1993 . . . . . . . F-3
Statement of Income for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . F-4
Statement of Changes in Stockholders' Equity for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . F-5
Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . F-7
F-1
<PAGE>
DONALD G. JONES AND COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
810 DUTCH SQUARE BOULEVARD, SUITE 320
COLUMBIA, S.C. 29210
TELEPHONE
(803)772-9452
FACSIMILE
(803)772-9497
MEMBER MEMBER
SOUTH CAROLINA AMERICAN INSTITUTE OF
ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS
CERTIFIED PUBLIC ACCOUNTANTS DIVISION FOR CPA FIRMS
SECPS AND PCPS
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
of Midlands National Bank
We have audited the accompanying balance sheet of Midlands National Bank
as of December 31, 1994 and 1993, and the related statements of income,
changes in stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1994. 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 Midlands National
Bank as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note C to the financial statements, the Bank changed its
method of accounting for certain investments in debt securities and equity
securities effective January 1, 1994. In addition, as described in Note J
to the financial statements, the Bank changed its method of accounting
for deferred income taxes effective January 1, 1993.
Donald G. Jones and Company, P.A.
Columbia, South Carolina
February 8, 1995
F-2
Balance Sheet
Midlands National Bank
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks (Note B) $ 2,100,158 $ 1,611,208
Time deposits in other banks 400,000 1,200,000
Securities (Note C)
Available-for-sale 8,733,845
Held-to-maturity (estimated fair
value - $401,976) 457,873
Investment (estimated fair value - $7,936,534) 7,884,995
Federal funds sold 1,440,000 2,400,000
Loans (Note D) 27,463,291 29,133,317
Unearned income (692) (6,345)
Allowance for loan losses (333,000) (409,000)
Loans - net 27,129,599 28,717,972
Premises and equipment - net (Note E) 1,318,954 1,214,260
Accrued interest receivable 388,269 321,407
Other real estate 352,000 445,000
Other assets 306,836 306,118
Total assets $ 42,627,534 $ 44,100,960
Liabilities
Deposits (Note F)
Noninterest bearing $ 2,444,503 $ 1,856,259
Interest bearing 35,833,522 38,016,084
Total deposits 38,278,025 39,872,343
Obligations under capital leases (Note G) 36,355 59,843
Accrued interest payable 241,042 222,153
Other liabilities 24,431 102,466
Total liabilities 38,579,853 40,256,805
Commitments and contingent liabilities
(Note K)
Stockholders' equity (Notes H and L)
Common stock - $5.00 par value; 10,000,000
shares authorized; 354,526 shares issued
and outstanding 1,772,630 1,772,630
Capital surplus 1,772,630 1,717,894
Undivided profits 645,062 353,631
Unrealized holding gains and losses on
available-for-sale securities (142,641)
Total stockholders' equity 4,047,681 3,844,155
Total liabilities and stockholders' equity $ 42,627,534 $ 44,100,960
</TABLE>
See accompanying notes to financial statements.
F-3
Statement of Income
Midlands National Bank
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Interest income
Loans, including fees $2,767,451 $2,696,111 $2,449,973
Time deposits in other banks 28,739 41,618 50,543
Securities
Taxable 425,569 406,612 467,636
Tax-exempt 17,483
Federal funds sold 111,513 62,338 88,425
Total interest income 3,350,755 3,206,679 3,056,577
Interest expense
Time deposits $100,000 and over 300,126 349,969 403,450
Other deposits 1,056,284 1,066,420 1,261,410
Obligations under capital leases 1,464 4,534 10,733
Total interest expense 1,357,874 1,420,923 1,675,593
Net interest income 1,992,881 1,785,756 1,380,984
Provision for loan losses (Note D) 106,392 145,327 490,328
Net interest income after provision 1,886,489 1,640,429 890,656
Other income
Service charges on deposit accounts 159,494 199,025 159,137
Credit life insurance commissions 66,769 73,288 164,158
Investment securities gains 17,941 98,411
Other income 12,641 10,795 3,762
Total other income 238,904 301,049 425,468
Other expenses (Note I)
Salaries and employee benefits 688,603 673,938 543,317
Net occupancy expense 90,387 85,555 75,203
Furniture and equipment expense 133,825 186,401 189,753
Other expense 538,303 493,698 400,834
Total other expenses 1,451,118 1,439,592 1,209,107
Income before income taxes,
extraordinary credit and cumulative
effect of accounting change 674,275 501,886 107,017
Income tax expense (Note J) 239,476 181,557 40,652
Income before extraordinary credit and
cumulative effect of accounting change 434,799 320,329 66,365
Extraordinary credit - utilization of
net operating loss carryforward 16,804
Cumulative effect of accounting change -
method of computing deferred income
taxes (Note J) 49,302
Net income $ 434,799 $ 369,631 $ 83,169
Per share (Notes H and L)
Average shares outstanding 373,963 366,953 364,758
Income before extraordinary credit and
cumulative effect of accounting change $ 1.16 $ .87 $ .18
Extraordinary credit .05
Cumulative effect of accounting change .14
Net income 1.16 1.01 .23
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Statement of Changes in Stockholders' Equity
Midlands National Bank
<TABLE>
<CAPTION>
Unrealized
Holding
Gains and
Common Stock Losses on
Number Available-
of Capital Undivided for-Sale
Shares Amount Surplus Profits Securities Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992,
as previously reported 354,526 $1,772,630 $1,717,894 $ (55,169) $3,435,355
Correction of accounting errors (Note L) (44,000) (44,000)
Balance, January 1, 1992, as restated 354,526 1,772,630 1,717,894 (99,169) 3,391,355
Net income 83,169 83,169
Balance, December 31, 1992 354,526 1,772,630 1,717,894 (16,000) 3,474,524
Net income 369,631 369,631
Balance, December 31, 1993 354,526 1,772,630 1,717,894 353,631 3,844,155
Net income 434,799 434,799
Transfer of undivided profits
to capital surplus 54,736 (54,736)
Cash dividend declared -
$.25 per share (88,632) (88,632)
Change in accounting
for available-for-sale
securities, net of income
taxes of $18,503 (Note C) $ 33,036 33,036
Change in unrealized holding gains
and losses on available-
for-sale securities, net of income
tax benefits of $98,391 (175,677) (175,677)
Balance, December 31, 1994 354,526 $1,772,630 $1,772,630 $ 645,062 $ (142,641) $4,047,681
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Statement of Cash Flows
Midlands National Bank
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Operating activities
Net income $ 434,799 $ 369,631 $ 83,169
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 106,392 145,327 490,328
Depreciation and amortization 76,478 142,620 145,819
Deferred income taxes 103,692 (28,270) (81,690)
Amortization of net loan fees and costs 46,740 41,957 40,199
Amortization of organizational costs 17,039 18,588
Writedowns of other real estate 37,733 14,000
Securities accretion and premium amortization 48,442 35,581 29,724
Investment securities gains (17,941) (98,411)
Gains on sales of other real estate (3,510) (9,820)
(Increase) decrease in interest receivable (66,862) 36,789 (43,080)
(Decrease) increase in interest payable 18,889 (53,709) (212,575)
(Increase) decrease in prepaid expenses (24,522) (43,739) 820
(Decrease) increase in other accrued expenses (78,035) 10,047 38,712
Net cash provided by
operating activities 700,236 659,512 411,603
Investing activities
Net decrease (increase) in time deposits
in other banks 800,000 (300,000) 100,000
Purchases of available-for-sale securities (4,013,559)
Sales of available-for-sale securities 9,150
Maturities of available-for-sale securities 2,893,527
Purchases of held-to-maturity securities (466,812)
Purchases of investment securities (4,083,623) (8,220,759)
Sales and maturities of investment securities 3,670,808 6,216,751
Net decrease (increase) in loans
made to customers 1,394,508 (1,323,684) (6,269,941)
Purchase of premises and equipment (181,172) (26,896) (30,667)
Proceeds from sales of other real estate 99,510 340,431
Net cash provided (used)
by investing activities 535,152 (1,722,964) (8,204,616)
Financing activities
Net increase (decrease) in demand deposits,
interest bearing transaction accounts and
savings accounts (555,171) 2,273,779 1,506,658
Net increase (decrease) in certificates of
deposit and other time deposits (1,039,147) (326,357) 5,580,025
Principal payments on capital lease obligations (23,488) (109,652) (101,194)
Cash dividends paid (88,632)
Net cash (used) provided by
financing activities (1,706,438) 1,837,770 6,985,489
(Decrease) increase in cash and cash equivalents (471,050) 774,318 (807,524)
Cash and cash equivalents, beginning 4,011,208 3,236,890 4,044,414
Cash and cash equivalents, ending $3,540,158 $4,011,208 $3,236,890
</TABLE>
See accompanying notes to financial statements.
F-6
Notes to Financial Statements
Midlands National Bank
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Midlands National Bank (the "Bank") was chartered as a
national bank on December 7, 1988, and its deposits are insured by the
Federal Deposit Insurance Corporation. The Bank commenced commercial
banking operations from its principal office in Prosperity, South Carolina
on December 7, 1988, from its branch office in Chapin, South Carolina on
December 14, 1988, and from its branch office in Newberry, South Carolina
on October 21, 1991.
Basis of Presentation - The accounting and reporting policies of the Bank
are in conformity with generally accepted accounting principles and
general practices within the banking industry.
Securities - Effective January 1, 1994, The Bank adopted the
provisions of Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Under the provisions of SFAS No. 115, equity securities that have readily
determinable fair values and all debt securities are classified generally
at the time of purchase into one of three categories; held-to-maturity,
trading and available-for-sale. Debt securities which the Bank has the
positive intent and ability to hold to ultimate maturity are classified as
held-to-maturity and accounted for at amortized cost. Debt and equity
securities that are bought and held primarily for sale in the near term are
classified as trading and are accounted for on an estimated fair value basis,
with unrealized gains and losses included in other operating income.
Securities not classified as either held-to-maturity or trading are
classified as available-for-sale and are accounted for at estimated fair
value. Unrealized holding gains and losses on available-for-sale securities
are excluded from earnings and recorded in a separate account included in
stockholders' equity, net of applicable income tax effects. Dividend and
interest income, including amortization of any premium or accretion of
discount arising at acquisition, is included in earnings for all three
categories of securities. Realized gains and losses on all categories of
securities are included in other operating income, based on the amortized
cost of the specific certificate on a trade date basis. Reference is made to
Note C to the financial statements for additional information. Prior to
January 1, 1994, investment securities were stated at cost, increased by
accretion of discount and decreased by amortization of premiums. Realized
gains and losses on the sale of an investment security were included in
other operating income based on the adjusted cost of the specific
certificate on a trade date basis.
Interest and Fees on Loans - Interest income on some installment loans is
recognized using the sum-of-the-months digits method. The results of using
this method are not materially different from those obtained by using the
interest method. Interest income on all other loans is recognized using the
interest method based upon the principal amounts outstanding. Loan
origination and commitment fees and certain direct loan origination costs
(principally salaries and employee benefits) are being deferred and
amortized as an adjustment of the related loan's yield. Generally, these
amounts are being amortized over the contractual life of the related loans
or commitments.
F-7
<PAGE>
When a loan is 90 days past due as to interest or principal or there is
serious doubt as to ultimate 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 ultimate collectibility of
a significant amount of principal is in serious doubt, the principal balance
is reduced to the estimated net realizable value of collateral by charge-off
to the allowance for loan losses and any subsequent payments are credited
to the remaining outstanding principal balance until the loan is repaid.
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.
Allowance for Loan Losses - An allowance for possible loan losses is
maintained at a level deemed appropriate by management to provide
adequately for known and inherent risks in the loan portfolio. The
allowance is based upon a continuing review of past loan loss experience,
current economic conditions which may affect the borrowers' ability to
pay and the underlying collateral value of the loans. When management
determines that a loan will not perform substantially as agreed, a review of
the loan is initiated to ascertain whether it is more likely than not that a
loss has occurred. If it is determined that a loss is likely, the estimated
amount of the loss is charged off and deducted from the allowance. The
provision for possible loan losses and recoveries on loans previously
charged off are added to the allowance.
Premises and Equipment - Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for depreciation and
amortization of equipment under capital leases is computed by the
straight-line method. Rates of depreciation are generally based on the
following estimated useful lives: buildings - 40 years; furniture and
equipment - 5 to 10 years. Amortization of equipment under capital leases is
recorded at the lesser of the estimated useful lives of the respective assets
or the terms of the leases. The cost of assets sold or otherwise disposed of,
and the related allowance for depreciation are eliminated from the accounts
and the resulting gains or losses are reflected in the income statement.
Maintenance and repairs are charged to current expense as incurred and the
costs of major renewals and improvements are capitalized.
Other Real Estate - Other real estate includes properties acquired
through foreclosure or acceptance of a deed in lieu of foreclosure. Other
real estate is initially recorded at the lower of cost or the estimated
fair market value less estimated selling costs. Loan losses arising from
the acquisition of such property are charged to the allowance for loan
losses. An allowance for losses on other real estate is maintained for
subsequent downward valuation adjustments. Holding or operating costs are
charged to expense as incurred, and the cost of significant improvements
is capitalized.
Retirement Plans - The Bank did not have any pension or profit-sharing
retirement plans in effect at December 31, 1994 and 1993. Also, the Bank
does not sponsor any postretirement or postemployment benefits.
Income Taxes - As of January 1, 1993, the Bank adopted SFAS No. 109,
"Accounting for Income Taxes". The Statement requires the use of an
asset and liability approach for financial accounting and reporting for
income taxes. If it is more likely than not that some portion or all
of a deferred tax asset will not be realized, a valuation allowance is
recognized. For the periods preceding 1993, the Bank used the deferred
method, where deferred income taxes were provided for timing differences
between the period in which certain income and expense items were recognized
for financial reporting purposes and the period in which they affect taxable
income as measured by
F-8
<PAGE>
the tax rate in effect for the year the timing differences occurred. Refer
to Note J to the financial statements for further information.
Statement of Cash Flows - The statement of cash flows reports net cash
provided or used by operating, investing and financing activities and the
net effect of those flows on cash and cash equivalents. Cash equivalents
include amounts due from banks and federal funds sold and securities
purchased under agreements to resell.
During 1994, 1993 and 1992, interest paid on deposits and other
borrowings amounted to $1,338,985, $1,474,632 and $1,888,168, respectively.
Income tax payments of $215,050, $176,801 and $54,240 were made during 1994,
1993 and 1992, respectively. In 1994 and 1993, non-cash transfers totaling
$40,733 and $501,611, respectively, were made from loans to other real
estate. A non-cash transfer of $54,736 was made from undivided profits to
capital surplus in 1994. During 1994, non-cash valuation adjustments totaling
$222,529 were made, decreasing available-for-sale securities with a related
stockholders' equity account decreasing $142,641 and deferred tax assets
increasing $79,888.
NOTE B - CASH AND DUE FROM BANKS
National banks are generally required by regulation to maintain an average
cash reserve balance based on a percentage of deposits. As of December 31,
1994 and 1993, the Bank had not attained the volume of deposits to be
subject to such reserve requirement.
NOTE C - SECURITIES
Securities available-for-sale and held-to-maturity consisted of the
following at December 31, 1994:
<TABLE>
<CAPTION>
December 31, 1994
Available-for-Sale Held-to-Maturity
Gross Gross Gross Gross
Unrealized Unrealized Estimated Unrealized Unrealized
Estimated
Amortized Holding Holding Fair Amortized Holding Holding Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $5,122,186 $103,895 $5,018,291
Obligations of states
and political
subdivisions $457,873 $ 55,897 $401,976
Mortgage-backed
securities 3,677,738 118,634 3,559,104
Equity securities 156,450 156,450
Total $8,956,374 $ $222,529 $8,733,845 $457,873 $ $ 55,897 $401,976
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Available-for-Sale Held-to-Maturity
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less $1,600,594 $1,572,079
Due after one through five years 3,521,592 3,446,212
Due after ten years $ 457,873 $ 401,976
5,122,186 5,018,291 457,873 401,976
Mortgage-backed securities 3,677,738 3,559,104
Equity securities 156,450 156,450
Total $8,956,374 $8,733,845 $ 457,873 $ 401,976
</TABLE>
F-9
<PAGE>
At December 31, 1993, investment securities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Government agencies $4,112,934 $ 26,347 $ 5,082 $4,134,199
Mortgage-backed securities 3,606,461 30,274 3,636,735
Equity securities 165,600 165,600
Total $7,884,995 $ 56,621 $ 5,082 $7,936,534
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
Amortized Estimated
Cost Fair Value
<S> <C> <C>
Due in one year or less $2,010,280 $2,022,444
Due after one through five years 2,102,654 2,111,755
4,112,934 4,134,199
Mortgage-backed securities 3,606,461 3,636,735
Equity securities 165,600 165,600
Total $7,884,995 $7,936,534
</TABLE>
The fair value of U.S. Treasury and U.S. Government agencies debt
securities is estimated based on published closing quotations. The fair
value of obligations of states and political subdivisions is generally
not available from published quotations; consequently, their fair value
estimates are based on matrix pricing or quoted market prices of similar
instruments adjusted for credit quality differences between the quoted
instruments and the instruments being valued. Fair value for mortgage-backed
securities is estimated primarily using dealers' quotes. The fair value of
equity securities, consisting of Federal Reserve Bank and Georgia Bankers
Bank stocks, is estimated based on the amount at which the issuer would
repurchase the shares.
The proceeds from sales of securities and the gross realized gains
and gross realized losses on such sales were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C>
Proceeds from sales $9,150 $943,874 $4,738,759
Gross realized gains 17,941 106,356
Gross realized losses 7,945
</TABLE>
The Bank has never held securities for trading purposes, and there
were no transfer transactions during 1994 affecting the available-for-sale
or held-to-maturity categories of securities. All 1994 securities sales
were made from securities classified as available-for-sale.
At December 31, 1994, securities with an amortized cost of $2,583,293
and an estimated fair value of $2,544,312 were pledged as collateral to
secure public deposits. The amortized cost and estimated fair value of such
pledged securities was $4,196,545 and $4,246,273, respectively, at the end
of 1993.
At December 31, 1994, the Bank held a $400,000 Barnwell County, South
Carolina School District No. 45 bond with a 7.25% coupon rate, maturing
on February 1, 2011. The bond, classified as held-to-maturity, is included in
the balance sheet at an amortized cost of $457,873 and has an estimated fair
value of $401,976. The Moody rating of the bond is Baa. All of the Bank's
mortgage-backed securities held at December 31, 1994, were issued by the
Federal Home Loan Mortgage Corporation.
F-10
<PAGE>
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," was issued by the Financial Accounting Standards Board in May,
1993. As required, the Bank adopted the provisions of this statement
effective January 1, 1994, without retroactive application to prior years'
financial statements. The Bank's management reclassified, as of January
1, 1994, the Bank's investment securities into available-for-sale and
held-to-maturity categories based on current intent in accordance with the
criteria established by SFAS No. 115. At that date, investment securities
with an amortized cost of $7,884,995 and an estimated fair value of
$7,936,534 were classified as available-for-sale. The effect of this
change in accounting principle was to increase the carrying value of
securities $51,539 and directly increase stockholders' equity $33,036, which
is net of income taxes of $18,503. The increase, net of income tax effect, is
presented in the statement of changes in stockholders' equity as an
adjustment of the balance of the separate component of stockholders' equity
required by SFAS No. 115 for the unrealized holding gains and losses on
available-for-sale securities.
NOTE D - LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Commercial, financial and agricultural
Commercial and industrial $ 4,156,609 $ 4,430,449
Agricultural production 497,988 379,870
Real estate - construction 936,233 1,509,891
Real estate - mortgage
Farmland 622,730 810,173
1-4 family residential 8,390,402 8,572,630
Nonfarm, nonresidential 5,832,757 5,953,559
Consumer installment
Checking credit 49,607 42,941
Other 6,976,965 7,433,804
Total loans - gross $27,463,291 $29,133,317
</TABLE>
Included in the above were nonaccrual loans with outstanding principal
balances totaling $244,053 and $389,712 as of December 31, 1994 and 1993,
respectively. There were no outstanding commitments at December 31, 1994,
to lend additional funds to debtors owing nonaccrual loans. Interest
income that would have been recorded if nonaccrual loans had been current
in accordance with their original terms amounted to $42,000, $54,000 and
$47,000 for the years ended December 31, 1994, 1993 and 1992, respectively.
Recognized interest income on these loans was $21,000, $3,000 and $1,000
for the years ended December 31, 1994, 1993 and 1992, respectively.
Collections of interest on nonaccrual loans applied on a principal recovery
basis totaled $88,023, $4,000 and $14,150 for the years ended December 31,
1994, 1993 and 1992, respectively.
As of December 31, 1994 and 1993, there were no significant concentrations of
credit risk in any single borrower or groups of borrowers. The Bank's
loan portfolio consists primarily of extensions of credit to businesses and
individuals in its service areas within Newberry and Lexington counties
of South Carolina. The economy of these areas is diversified and does not
depend on any one industry or group of related industries. Management
has established loan policies and practices that include set limitations on
loan-to-collateral value for different types of collateral, requirements
for appraisals, obtaining and maintaining current credit and financial
information on borrowers, and credit approvals.
F-11
<PAGE>
Transactions in the allowance for loan losses are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Balance at January 1 $ 409,000 $ 392,000 $ 284,000
Provision charged to expense 106,392 145,327 490,328
Recoveries 14,368 15,419 10,315
Charge-offs (196,760) (143,746) (392,643)
Balance at December 31 $ 333,000 $ 409,000 $ 392,000
</TABLE>
Certain officers and directors of the Bank, their immediate families and
business interests were loan customers of, and had other transactions in
the normal course of business with the Bank. Related party loans are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than normal risk of collectibility. The
aggregate dollar amount of these loans was $989,828 and $941,375 at December
31, 1994 and 1993, respectively. During 1994, 787,481 of new loans were made
and repayments totaled $739,028.
In May, 1993, the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," effective for
fiscal years beginning after December 15, 1994. This Statement generally
applies to all loans, whether or not collateralized, and to all loans
that are restructured in a troubled debt restructuring involving a modification
of terms. It does not apply to large groups of smaller balance homogeneous
loans that are collectively evaluated for impairment, loans that are measured
at fair value or lower of cost or fair value, leases and debt securities. SFAS
No. 114 requires that impaired loans within its scope be measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate, which is the contractual interest rate adjusted for
any deferred loan fees or costs, premium or discount existing at the inception
or acquisition of the loan. SFAS No. 114 also allows creditors, as a practical
expedient, to measure the loan at its observable market price or the fair value
of the collateral if the repayment of the loan is expected to be provided solely
by the underlying collateral. The required adoption of SFAS No. 114 effective
January 1, 1995 did not have a material effect on the Bank's financial
statements.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Land $ 197,378 $ 197,378
Building and land improvements 985,515 946,899
Furniture and equipment 456,002 700,470
Total 1,638,895 1,844,747
Less accumulated depreciation and amortization 319,941 630,487
Premises and equipment - net $ 1,318,954 $ 1,214,260
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1994,
1993 and 1992 was $76,478, $142,620 and $145,819, respectively.
F-12
<PAGE>
NOTE F - DEPOSITS
A summary of deposits follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Noninterest bearing demand $ 2,444,503 $ 1,856,259
Interest bearing transaction accounts 7,543,060 8,518,884
Savings 1,998,140 2,165,731
Time deposits $100,000 and over 6,968,921 7,700,037
Other time deposits 19,323,401 19,631,432
Total deposits $38,278,025 $39,872,343
</TABLE>
NOTE G - OBLIGATIONS UNDER CAPITAL LEASES
Assets recorded under capital leases and included in premises and equipment
are as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Equipment $ 95,389 $ 485,856
Less accumulated amortization 60,413 428,360
Net assets under capital leases $ 34,976 $ 57,496
</TABLE>
The present value of future minimum capital lease payments as of December 31,
1994 is as follows:
1995 $ 22,224
1996 16,330
Total minimum lease payments 38,554
Less amount representing interest
(approximate interest rate of 8.5%) 2,199
Obligations under capital leases $ 36,355
NOTE H - STOCKHOLDERS' EQUITY
Dividends - Banking laws and regulations limit the amount of cash dividends
which a national bank can pay without obtaining prior approval from the
Comptroller of the Currency. Generally, this amount is limited to a bank's
net income retained in the current year plus retained net income for the
preceding two years. At December 31, 1993, the Bank had available $645,062
for the payment of cash dividends without obtaining prior approval from the
Comptroller of the Currency.
Stock Warrants and Options - The Bank had stock warrants and options
outstanding as of December 31, 1994 and 1993. Each of the Bank's organizers
received one non-transferable warrant to purchase one share of the Bank's
common stock for each share they had committed to purchase in the 1988 initial
offering. The exercise price of the warrants is $10.00 per share, and
warrants are exercisable at any time until their expiration on December 7,
1998. The total number of shares that could be purchased with these warrants
was 92,500 at the end of 1994 and 1993.
F-13
<PAGE>
The employment agreements for two of the Bank's employees provided for
the granting of options to those employees to purchase up to 21,272 shares
of the Bank's common stock at an exercise price equal to the book value per
share as of the end of the calendar quarter preceding the awarding of the
options, but not less than $10.00 per share. All options granted under the
employment agreements expire seven years from the date of award. As of
December 31, 1994 and 1993, those employees had earned options to purchase
at any time, 7,091 shares at a price of $10.00 per share with an expiration date
of December 31, 1995, and 14,181 shares at a price of $11.11 per share with
an expiration date of November 30, 2000.
The 1988 Incentive Stock Option Plan provides for the granting of options
to certain eligible employees to purchase up to an aggregate of 50,000 shares
of the Bank's common stock. The exercise price of options granted under the
Plan is the fair market value of the Bank's common stock on the date the
option is granted, but in no event less than the $5.00 par value of the stock.
For any person owning directly or indirectly more than 10% voting control
of the Bank's outstanding shares, the option price may not be less than 110%
of fair market value of the shares. Options are exercisable at any time for up
to ten years from the date of grant (five years with respect to 10% owners).
At December 31, 1994 and 1993, options had been granted to purchase 7,000
shares under the Plan for an exercise price of $10.00 per share, expiring June
29, 1998.
At December 31, 1994 and 1993, none of the stock warrants or options granted
by the Bank have ever been exercised.
Net Income per Share - Net income per share is calculated by dividing net
income by the weighted average number of shares of common stock and dilutive
common stock equivalents outstanding. Common stock equivalents represent the
dilutive effect of the assumed exercise of the outstanding stock warrants
and options and are calculated using the treasury stock method. Average
shares outstanding for the years ended December 31, 1994, 1993 and 1992 include
equivalent shares of 19,437, 12,427 and 10,232, respectively.
Regulatory Capital - All banks are subject to regulatory risk-based
capital adequacy standards. Under these standards banks are required to
maintain various minimum ratios of capital to risk-weighted assets and
average assets. The following table sets forth the risk-based capital ratios of
Midlands National Bank and the minimum levels prescribed by regulations as of
December 31, 1994:
Tier 1 Total Capital Leverage
Midlands National Bank 14.3% 15.5% 9.5%
Minimum required 4.0% 8.0% 3.0%
F-14
<PAGE>
NOTE I - OTHER EXPENSES
Noninterest expenses are summarized below:
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Salaries and employee benefits $ 688,603 $ 673,938 $ 543,317
Net occupancy expense 90,387 85,555 75,203
Furniture and equipment expense 133,825 186,401 189,753
Other expense
Stationery, printing and postage 72,625 69,440 64,820
Telephone 34,345 28,473 28,775
Advertising and promotion 28,605 23,685 35,750
Professional services 77,477 49,618 42,924
Insurance 24,151 27,164 25,463
FDIC insurance assessment 88,410 87,648 71,909
Directors fees 35,400 31,700 29,250
Other real estate costs and
and expenses, net 55,522 52,195
Other 121,768 123,775 101,943
Total $1,451,118 $1,439,592 $1,209,107
</TABLE>
NOTE J - INCOME TAXES
The Bank adopted, effective January 1, 1993, SFAS No. 109, "Accounting for
Income Taxes", issued in February, 1992. Under the liability method
specified by SFAS No. 109, deferred tax assets and liabilities are
determined based on the differences between the financial statement and
income tax bases of assets and liabilities as measured by the currently enacted
tax rates which are assumed will be in effect when these differences reverse.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities. The deferred method, used in years prior to 1993, required the
Bank to provide for deferred income tax expense based on certain items of
income and expense which were reported in different years in the financial
statements and the tax returns as measured by the tax rate in effect for the
year the difference occurred. As permitted under SFAS No. 109, prior years'
financial statements have not been restated for this change in accounting
principle. The effect of adopting SFAS No. 109 was immaterial to income before
the cumulative effect of the change in accounting for 1993. Net income for 1993
was increased $49,302, or $.14 per share, by the cumulative effect of the change
in accounting related to years prior to 1993.
F-15
<PAGE>
Income before income taxes, extraordinary credit and cumulative effect of
accounting change presented in the statement of income for the years ended
December 31, 1994, 1993 and 1992, included no foreign component. Income tax
expense consisted of:
<TABLE>
<CAPTION>
Deferred
Liability Method Method
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Current
Federal $ 124,261 $ 147,667 $ 96,793
State 11,523 12,858 8,745
Total current 135,784 160,525 105,538
Deferred
Federal 95,374 20,026 (58,774)
State 8,318 1,006 (6,112)
Total deferred 103,692 21,032 (64,886)
Total income tax expense $ 239,476 $ 181,557 $ 40,652
</TABLE>
The principal components of the deferred portion of income tax expense were:
<TABLE>
<CAPTION>
Deferred
Liability Method Method
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Provision for loan losses $ 64,423 $ 16,286 $ (52,932)
Accelerated depreciation 10,308 5,986 3,846
Start-up costs 13,350 (915)
Capitalized leases 348 6,567 (1,340)
Other real estate writedowns (10,411) (5,026)
Nonaccrual loan interest income 35,985 (17,587) (18,398)
Other, net 3,039 1,456 4,853
Total $ 103,692 $ 21,032 $ (64,886)
</TABLE>
A reconciliation between the income tax expense and the amount computed by
applying the federal statutory rate of 34% to income before income taxes,
extraordinary credit and cumulative effect of accounting change follows:
<TABLE>
<CAPTION>
Deferred
Liability Method Method
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Tax expense at statutory rate $ 229,254 $ 170,641 $ 36,386
State income tax, net of federal
income tax benefit 13,095 8,887 1,688
Tax exempt bond interest (5,944)
Other, net 3,071 2,029 2,578
Total $ 239,476 $ 181,557 $ 40,652
</TABLE>
F-16
<PAGE>
Deferred tax assets and liabilities included in the balance sheet consisted of
the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 56,236 $ 120,670
Capital leases 495 843
Deferred net loan costs 798 3,826
Other real estate 15,437 5,026
Nonaccrual loan interest income 35,985
Unrealized holding gains and losses
on available-for-sale securities 79,888
Gross deferred tax assets 152,854 166,350
Valuation allowance - -
Total 152,854 166,350
Deferred tax liabilities
Accelerated depreciation 31,372 21,064
Net deferred income tax assets $ 121,482 $ 145,286
</TABLE>
Income tax expense related to investment securities transactions was $6,441
and $37,383 for 1993 and 1992, respectively.
NOTE K - COMMITMENTS AND CONTINGENCIES
Commitments - In the normal course of business, the Bank is party to
financial instruments with off-balance-sheet risk. These financial
instruments include commitments to extend credit and standby letters of
credit, and have elements of credit risk in excess of the amount recognized in
the balance sheet. The exposure to credit loss in the event of nonperformance
by the other parties to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual notional
amount of those instruments. Generally, the same credit policies used for
on-balance-sheet instruments, such as loans, are used in extending loan
commitments and standby letters of credit.
Following are the off-balance-sheet financial instruments whose contract
amounts represent credit risk:
December 31,
1994 1993
Loan commitments $1,641,408 $1,454,263
Standby letters of credit 30,000 30,000
Loan commitments involve agreements to lend to a customer as long as there is
no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments do not necessarily
represent future cash requirements. Each customer's creditworthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential
real properties, accounts receivable, inventory and equipment.
F-17
<PAGE>
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in
issuing standby letters of credit is the same as that involved in making
loan commitments to customers. Collateral for secured standby letters of
credit varies but may include commercial and residential real properties,
accounts receivable, inventory, equipment, marketable securities and
certificates of deposit. Since most letters of credit are expected to
expire without being drawn upon, they do not necessarily represent future cash
requirements.
Short-term Borrowing Commitments - At December 31, 1994 and 1993, the Bank
hadunused short-term lines of credit to purchase up to $1,500,000 of
unsecured federal funds from unrelated correspondent financial institutions.
The lines are available generally on a one to seven day basis for the general
corporate purposes of the Bank. The lines expire December 1, 1995.
Contingent Liabilities - As of December 31, 1994, the Bank was involved
as defendant in a lawsuit concerning a depositor's forgery matter in
which the plaintiff seeks $28,000 in damages. Management is vigorously
defending this lawsuit; however, the probability of an unfavorable outcome
cannot be currently evaluated and no loss contingency has been accrued.
Management and legal counsel are not aware of any other pending or threatened
litigation, or unasserted claims or assessments that could result in losses, if
any, that would be material to the financial statements.
NOTE L - RESTATEMENT OF FINANCIAL STATEMENTS
During 1994, Midlands National Bank received a report on examination from
its primary regulator, the Office of the Comptroller of the Currency ("OCC").
In this report, the OCC found errors had been made in accounting for three
commercial loans involving two borrowers. These three loans had not performed
as originally agreed, but the bank followed a workout policy of forbearance
as to collection litigation and/or repossession in order to enhance, in
management's opinion, the ultimate collectibility of the loans.
On two of the loans, the Bank entered extensions of monthly payment terms into
the computerized loan accounting system beginning in 1992 to reflect the
forbearance workout approach. Interest income continued to accrue and the loans
were not correctly identified as nonaccrual loans. However, under generally
accepted accounting principles these loans should have been placed on a
nonaccrual status and accounted for accordingly.
One loan criticized by the OCC examiners was an unsecured loan made in 1991 to
clear an overdraft of a customer who had other loans that were also not being
serviced as agreed. The loan was renewed in 1992 and 1993 without reduction of
principal. The correct accounting for this loan should have been to classify the
loan as doubtful at the end of 1991 with appropriate adjustments to the
provision and allowance for loan losses, and charge-off in 1992 due to lack of
performance. Instead, the Bank erroneously carried the loan as an earning
asset until 1994.
F-18
<PAGE>
The financial statements for the periods indicated below have been restated to
reflect the corrections for the accounting errors. The effects of the
corrections on the statement of income, including per share amounts, and
undivided profits are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Statement of income corrections
Interest income on loans $ (48,989) $ (51,247)
Provision for loan losses (80,000) $ (44,000)
Income tax expense 31,210 41,000 15,796
Extraordinary credit (41,000) (15,796)
Cumulative effect of accounting change 49,302
(Decrease) increase in net income $ 31,523 $ (131,247) $ (44,000)
(Decrease) increase per share
Income before extraordinary credit
and cumulative effect of accounting change $ (.05) $ (.25) $ (.07)
Extraordinary credit (.11) (.04)
Cumulative effect of accounting change .14
Net income .09 (.36) (.11)
Undivided profits, as previously reported at period end $ 497,355 $ 159,247 $ (55,169)
Correction of accounting errors (143,724) (175,247) (44,000)
Undivided profits, as restated at period end $ 353,631 $ (16,000) $ (99,169)
</TABLE>
NOTE M - PENDING MERGER TRANSACTION
In November, 1994, the Bank entered into a Reorganization Agreement with
Carolina First Corporation ("CFC"), Greenville, South Carolina,
whereby the Bank's stockholders will exchange all of their 354,526 currently
outstanding common shares of the Bank for approximately 585,000 shares of the
common stock of CFC. In addition, the various outstanding warrants and options
described in Note H to the financial statements for the purchase of 120,772
shares of the Bank's common stock will be converted into options to purchase
approximately 199,000 shares of CFC common stock for an average exercise price
of approximately $6.14 per share.
According to the provisions of the Reorganization Agreement, the Bank will be
merged into CFC's subsidiary, Carolina First Bank, and will cease to operate
as a separate corporation. The proposed merger is expected to be accounted for
as a pooling-of-interests. At December 31, 1994, CFC had assets totaling
approximately $1.1 billion.
The pending merger transaction is subject to the approval of the Bank's
stockholders and various regulatory agencies.
F-19
REORGANIZATION AGREEMENT
This REORGANIZATION AGREEMENT is entered into as of this 14th day of
November, 1994, between Carolina First Corporation ("CFC"), a
corporation organized and existing under the laws of the State of South
Carolina, Carolina First Bank ("CFB"), a corporation organized and
existing under the laws of the State of South Carolina, and Midlands
National Bank ("Midlands"), a national banking association organized and
existing under the laws of the United States of America.
WHEREAS, CFC desires to acquire Midlands through the merger of
Midlands with and into CFB (the "Merger");
WHEREAS, the respective Boards of Directors of CFC, CFB and Midlands
have approved such Merger pursuant to the terms and conditions of this
Agreement and the Plan of Merger attached hereto as Appendix A (the
"Plan of Merger");
WHEREAS, for Federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended; and
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, CFC, CFB
and Midlands hereby agree as follows:
SECTION I. DEFINITIONS
1.1. Agreement. This Reorganization Agreement between CFC, CFB and
Midlands, together with all schedules, exhibits and appendices attached
hereto.
1.2. Articles of Merger. The Articles of Merger to be executed by
CFC, CFB and Midlands and in form appropriate for filing with the
Secretary of State of South Carolina and the OCC, and relating to the
effective consummation of the Merger as contemplated by the Plan of
Merger.
1.3. CFC. Carolina First Corporation, a bank holding company
headquartered in Greenville, South Carolina, which term shall include,
when the context permits, CFC and all CFC subsidiaries.
1.4. CFC Common Stock. The common stock, par value $1.00 per
share, of CFC.
1.5. CFB. Carolina First Bank, a South Carolina corporation and a
wholly-owned subsidiary of CFC.
1.6. Closing Date. The term Closing Date shall have the meaning
ascribed to it in Section 2.2 hereof.
1.7. Confidential Information. The term "Confidential Information"
shall mean all information of any kind concerning a party hereto that is
furnished by such party or on its behalf pursuant to Section 6.2 hereof
and designated in writing as "Confidential Information", except
information (i) ascertainable or obtained from public or published
information, (ii) received from a third party not known to the recipient
of Confidential Information to be under an obligation to keep such
information confidential, (iii) which is or becomes known to the public
(other than through a breach of this Agreement), (iv) of which the
recipient was in possession prior to disclosure thereof in connection
with the Merger, or (v) which was independently developed by the
recipient without the benefit of Confidential Information.
1.8. Code. The Internal Revenue Code of 1986, as amended.
1.9. Merger. The merger of Midlands with and into CFB as more
particularly set forth herein and in the Plan of Merger.
1.10. ERISA. The Employee Retirement Income Security Act of 1974,
as amended.
1.11. Effective Time. The date and time which the Merger becomes
effective as more particularly set forth in Section 2.2 of the Plan of
Merger.
1.12. FDIC. The Federal Deposit Insurance Corporation.
1.13. Midlands Common Stock. The common stock, par value $5.00 per
share, of Midlands.
1.14. OCC. The Office of Comptroller of the Currency.
1.15. OTS. The Office of Thrift Supervision.
1.16. Plan of Merger. The Plan of Merger attached to this
Reorganization Agreement as Appendix A.
1.17. Proxy Statement. The proxy statement included in the
Registration Statement which shall be furnished to the Midlands
stockholders in connection with the solicitation by the Midlands Board
of Directors of proxies for the approval of this Agreement and the
matters contemplated hereby.
1.18. Registration Statement. The Registration Statement on Form
S-4 to be filed with the SEC registering the CFC Common Stock to be
issued to the Midlands shareholders in connection with the Merger.
1.19. SEC. The Securities and Exchange Commission.
1.20. Securities Act. The Securities Act of 1933, as amended.
1.21. State Board. The South Carolina State Board of Financial
Institutions.
1.22. Stockholder Approvals. This term shall mean, as the context
may require, the written consent (duly authorized) of CFC to the Merger
of Midlands with and into CFB and the approval by the requisite vote of
the stockholders of Midlands at the Stockholders' Meeting of the Merger
of Midlands with and into CFB, all in accordance with the Reorganization
Agreement and this Plan of Merger.
1.23. Stockholders' Meeting. The meeting of the stockholders of
Midlands at which the Merger shall be voted upon.
1.24. Surviving Corporation. The surviving corporation after
consummation of the Merger, which shall be CFB.
A-1
<PAGE>
SECTION II. THE MERGER
2.1. General Provisions. Subject to the terms and conditions of
this Agreement, including the Plan of Merger, at the Effective Time,
Midlands shall be merged with and into CFB, which shall be the Surviving
Corporation and remain a wholly-owned subsidiary of CFC. At the
Effective Time, the separate corporate existence of Midlands shall
cease. CFC and Midlands hereby agree that the Merger will be effected
pursuant to the terms set forth in the Plan of Merger.
2.2. The Closing. The Closing of the transaction contemplated
herein shall be held as soon as reasonably practicable after fulfillment
of all conditions set forth in Section VII and Section VIII hereof (the
"Closing Date"), at the offices of Wyche, Burgess, Freeman & Parham,
P.A. or at such other place and time as the parties hereto may mutually
agree; provided, however, that in the event that Closing has not
occurred by May 31, 1995, either party hereto shall have the right to
terminate this Agreement.
2.3. Consideration for the Merger. The manner of converting the
shares of Midlands into shares of CFC shall be as set forth in Articles
II and III of the Plan of Merger.
2.4. Approval of Midlands Stockholders. CFC, CFB and Midlands
shall jointly prepare the Proxy Statement, which shall be reasonably
acceptable to all parties. The Proxy Statement shall be mailed to
Midlands shareholders as soon as reasonably practicable after the SEC's
declaration of effectiveness of the Registration Statement, with due
consideration given to the anticipated length of time that will be
required to obtain the necessary regulatory approvals.
2.5. Tax Treatment. CFC and Midlands intend that the Merger shall
qualify as a tax-free reorganization under Section 368(a) of the Code.
SECTION III. REPRESENTATIONS AND WARRANTIES OF MIDLANDS
Midlands hereby represents and warrants to CFC the following matters
on and as of the date of this Agreement and at the Effective Time;
provided, however, that before any breach of or inaccuracy in any of the
representations or warranties given in this Section III shall be
actionable or shall constitute grounds for termination of or failure to
perform under the terms of this Agreement by CFC, such breach or
inaccuracy must be materially adverse in the aggregate with respect to
the business of Midlands.
3.1. Organization, Good-Standing and Conduct of Business. Midlands
is a corporation, duly organized, validly existing and in good standing
under the laws of the United States of America, and has full power and
authority and all necessary governmental and regulatory authorization to
own all of its properties and assets and to carry on its business as it
is presently being conducted, and is properly licensed, qualified and in
good standing as a foreign corporation in all jurisdictions wherein the
character of the properties or the nature of the business transacted by
Midlands makes such license or qualification necessary.
3.2. Corporate Authority. The execution, delivery and performance
of this Agreement have been duly authorized by the Board of Directors of
Midlands. Other than approval of the Merger by the shareholders of
Midlands, no other corporate acts or proceedings on the part of Midlands
are required or necessary to authorize this Agreement or the Merger.
3.3. Binding Effect. Subject to receipt of Stockholder Approval
and any required regulatory approvals, when executed, this Agreement
will constitute a valid and legally binding obligation of Midlands,
enforceable against Midlands in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights or
the relief of debtors generally. Each document and instrument
contemplated by this Agreement, when executed and delivered by Midlands
in accordance with the provisions hereof, shall be duly authorized,
executed and delivered by Midlands and enforceable against Midlands in
accordance with its terms, subject to the exceptions in the previous
sentence.
3.4. Capitalization of Midlands. The authorized capital stock of
Midlands consists solely of (i) 10,000,000 authorized shares of common
stock ($5.00 par value), of which 354,526 shares are issued and
outstanding. All of the issued and outstanding shares of Midlands are
validly issued and fully paid and, except as provided in 12 U.S.C.A.
(section mark)55, nonassessable. Except for the items set forth on
Schedule 3.4 attached hereto, there are no outstanding obliga- tions,
options, warrants or commitments of any kind or nature or any
outstanding securities or other instruments convertible into shares of
any class of capital stock of Midlands, or pursuant to which Midlands is
or may become obligated to issue any shares of its capital stock. None
of the shares of the Midlands Common Stock is subject to any
restrictions as to the transfer thereof, except as set forth in
Midlands's Articles of Incorporation or Bylaws and except for
restrictions on account of applicable federal or state securities laws.
Midlands does not hold 10% of any class of equity securities of any
other company or legal entity.
3.5. Absence of Defaults. Midlands is not in default under, or in
violation of, any provision of its Articles of Incorporation or Bylaws.
Midlands is not in default under, or in violation of, any agreement to
which Midlands is a party, the effect of which default or violation
would have a material adverse effect on Midlands or its business
operations or prospects. Midlands is not in violation of any applicable
law, rule or regulation, the effect of which would have a material
adverse effect on Midlands or its business operations or prospects.
3.6. Non-Contravention and Defaults; No Liens. Neither the
execution or delivery of this Agreement, nor the fulfillment of, or
compliance with, the terms and provisions hereof, will (i) result in a
breach of the terms, conditions or provisions of, or constitute a
default under, or result in a violation of, termination of or
acceleration of the performance provided by the terms of, any agreement
to which Midlands is a party or by which it may be bound, (ii) violate
any provision of any law, rule or regulation,
A-2
<PAGE>
(iii) result in the creation or imposition of any lien, charge,
restriction, security interest or encumbrance of any nature whatsoever
on any asset of Midlands, or (iv) violate any provisions of Midlands's
Articles of Incorporation or Bylaws. To the best of Midlands's
knowledge, no other party to any material agreement to which Midlands is
a party is in default thereunder or in breach of any provision thereof.
To the best of Midlands's knowledge, there exists no condition or event
which, after notice or lapse of time or both, would constitute a default
by any party to any such agreement.
3.7. Necessary Approvals. Midlands has obtained all certificates
of authority, licenses, permits, franchises, registrations of foreign
ownership or other regulatory approvals in every jurisdiction necessary
for the continuing conduct of its business and ownership of its assets.
Except for those which may be renewed or extended in the ordinary course
of business, no such certificate, license, permit, franchise,
registration or other approval is about to expire, lapse, has been
threatened to be revoked or has otherwise become restricted by its terms
which would, upon such expiration, lapse, revocation or restriction,
have a material adverse effect on the financial circumstances of
Midlands. Further, there is no reasonable basis for any such
expiration, lapse, revocation, threat of revocation or restriction.
Except for any necessary filings with, and approvals and authorizations
of the OCC, the FDIC and the State Board, no consent, approval,
authorization, registration, or filing with or by any governmental
authority, foreign or domestic, is required on the part of Midlands in
connection with the execution and delivery of this Agreement or the
consummation by Midlands of the transactions contemplated hereby.
Except for the agencies in the preceding sentence or as disclosed in
Schedule 3.7 attached hereto, Midlands is not required to procure the
approval of any person, firm, corporation, or other entity, foreign or
domestic, in order to prevent the termination of any right, privilege,
license or contract of Midlands as a result of this Agreement.
3.8. Financial Statements. The audited financial statements of
Midlands for each of the fiscal years 1991, 1992 and 1993, the unaudited
financial statements of Midlands at and for the six month period ending
June 30, 1994 and the unaudited monthly statements subsequent to June
30, 1994 (the "Midlands Financial Statements") all of which have been
provided to CFC, are true, correct and complete in all material respects
and present fairly, in conformity with generally accepted accounting
principles consistently applied, the financial position of Midlands at
the dates indicated and the results of its operations for each of the
periods indicated, except as otherwise set forth in the notes thereto.
The books and records of Midlands have been kept, and will be kept to
the Closing Date, in reasonable detail, and will fairly and accurately
reflect in all material respects to the Closing Date, the transactions
of Midlands.
3.9. Tax Returns. Midlands files its income tax returns and
maintains its tax books and records on the basis of a taxable year
ending December 31. Midlands has duly filed all tax reports and returns
required to be filed by any federal, state or local taxing authorities
(including, without limitation, those due in respect of its properties,
income, franchises, licenses, sales and payrolls) through the date
hereof, and Midlands has duly paid all taxes with respect to the periods
covered thereby and has established adequate reserves in accordance with
generally accepted accounting principles consistently applied for the
payment of all income, franchises, property, sales, employment or other
taxes anticipated to be payable after the date hereof. Midlands is not
delinquent in the payment of any taxes, assessments or governmental
charges and no deficiencies have been asserted or assessed, which have
not been paid or for which adequate reserves have not been established.
Midlands does not have in effect any waiver relating to any statute of
limitations for assessment of taxes with respect to any federal, state
or local income, property, franchise, sales, license or payroll tax.
Midlands does not know, or have reason to know, of any questions which
have been raised or which may be raised by any taxing authority relating
to taxes or assessments of Midlands which, if determined adversely,
would result in the assertion of any deficiency.
3.10. Undisclosed Liabilities. Except for the liabilities which are
disclosed in the Midlands Financial Statements or as set forth on
Schedule 3.10, Midlands has no material liabilities or material
obligations of any nature, whether absolute, accrued, contingent or
otherwise, and whether due or to become due. Since December 31, 1993,
there has been (i) no material adverse change in the business or
operations of Midlands, (ii) no incurrence by or subjection of Midlands
to any obligation or liability (whether fixed, accrued or contingent) or
commitment material to Midlands not referred to in this Agreement,
except such obligations or liabilities as were or may be incurred in the
ordinary course of business and which are reflected on the Midlands
Financial Statements at and for the periods subsequent to December 31,
1993.
3.11. Title to Properties, Encumbrances. All real property and
personal property owned by Midlands is set forth on Schedule 3.11.
Midlands has good and marketable title to all of the real property and
personal property set forth on Schedule 3.11, free and clear of any
liens, claims, charges, options or other encumbrances, except for any
lien for current taxes not yet due and payable.
3.12. Litigation. Except as set forth on Schedule 3.12, there are
no claims, actions, suits or proceedings pending or threatened against
Midlands, or to its knowledge affecting Midlands, at law or in equity,
before or by any Federal, state, municipal, administrative or other
court, governmental department, commission, board, or agency, an adverse
determination of which could have a material adverse effect on the
business or operations of Midlands, and Midlands knows of no basis for
any of the foregoing. There is no order, writ, injunction, or decree of
any court, domestic or foreign, or any Federal agency affecting Midlands
or to which Midlands is subject.
3.13. Reports. Midlands has duly made all reports and filings
required to be made pursuant to applicable law, except for failures to
file or reports which would not have a material adverse effect on the
business or financial condition of Midlands.
3.14. Brokers. Midlands has not incurred any liability for any
commission or fee in the nature of a finder's, originator's or broker's
fee in connection with the transaction contemplated herein.
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3.15. Expenditures. Schedule 3.15 sets forth any single expenditure
of $25,000 or more proposed to be made by Midlands after the date hereof
and a summary of the terms and conditions pertaining thereto. At least
20 business days prior to the Closing Date, Midlands will advise CFC of
any changes to Schedule 3.15 reflecting additions or deletions thereto
since the date hereof.
3.16. Insurance. Attached hereto as Schedule 3.16 is a true and
complete summary of the policies of fire, liability, life and other type
of insurance held by Midlands, setting forth with respect to each such
policy, the policy number, name of the insured party, type of insurance,
insurance company, annual premium, expiration date, deductible amount,
if any, and amount of coverage. 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 Midlands
taking into account the availability and cost of such coverage. All
such policies shall remain in full force and effect for a period of at
least 90 days following the Closing Date. There is no reason known to
Midlands that any such policy will not be renewable on terms and
conditions as favorable as those set forth in such policy.
3.17. Contracts and Commitments. Schedule 3.17 attached hereto sets
forth each contract or other commitment of Midlands which requires an
aggregate payment by Midlands after the date hereof of more than
$25,000, and any other contract or commitment that in the opinion of the
Midlands management materially affects the business of Midlands. Except
for the contracts and commitments described in this Agreement or as set
forth in Schedule 3.17, Midlands is not party to or subject to:
1. Any contracts or commitments which are material to its
business, operations or financial condition;
2. Any employment contract or arrangement, whether oral or
written, with any officer, consultant, director or employee which is
not terminable on 30 day's notice without penalty or liability to
make any payment thereunder for more than 30 days after such
termination;
3. Any plan or contract or other arrangement, oral or
written, providing for insurance for any officer or employee or
members of their families;
4. Any plan or contract or other arrangement, oral or
written, providing for bonuses, pensions, options, deferred
compensation, retirement payments, profit-sharing or other benefits
for employees;
5. Any contract or agreement with any labor union;
6. Any contract or agreement with customers for the sale of
products or the furnishing of services, or any sales agency, broker,
distribution or similar contract, except contracts made in the
ordinary course of business;
7. Any contract restricting Midlands from carrying on its
business anywhere in the United States;
8. Any instrument or arrangement evidencing or related to
indebtedness for money borrowed or to be borrowed, whether directly
or indirectly, by way of purchase money obligation, guaranty,
conditional sale, lease-purchase, or otherwise;
9. Any joint venture contract or arrangement or any other
agreement involving a sharing of profits;
10. Any license agreement in which Midlands is the licensor
or licensee;
11. Any material contract or agreement, not of the type
covered by any of the other items of this Section 3.17, which by its
terms is either (i) not to be performed prior to 30 days from the
date hereof, or (ii) does not terminate, or is not terminable
without penalty to Midlands, or any successors or assigns prior to
30 days from the date hereof.
3.18. Employee Benefit Plans.
(a) Except as described on Schedule 3.18, Midlands does not
sponsor or maintain and is not otherwise a party to or liable under,
any plan, program, fund or arrangement (whether or not qualified for
Federal income tax purposes, whether benefiting a single individual
or multiple individuals, and whether funded or not) that is an
"employee pension benefit plan", or an "employee welfare benefit
plan", as such terms are defined in ERISA, or any incentive or other
benefit arrangement for its employees, their dependents and
beneficiaries.
(b) Midlands has, for all periods ending on or prior to the date
hereto, administered each employee welfare benefit plan described on
Schedule 3.18 in material compliance with the reporting, disclosure
and all other requirements applicable under ERISA, the Code or any
other applicable law.
(c) All amounts required to be accrued under generally accepted
accounting principles applied consistently by Midlands under any
incentive or other compensation plan have been accrued and are
reflected in the balance sheet contained in the December 31, 1993
Midlands Financial Statements.
3.19. Midlands Information. The written information with respect to
Midlands, and its officers, directors, and affiliates supplied by
Midlands to CFC for use in the Registration Statement which shall be
used in soliciting approval of the Merger by shareholders of Midlands
will not, on the date the Proxy Statement is first mailed to share-
holders of Midlands or on the date of the Stockholders' Meeting, as
amended or supplemented, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, or necessary
to correct any statement in any earlier communication to Midlands
shareholders with respect to the Merger.
3.20. Due Diligence. All information provided by Midlands in
connection with the due diligence investigation by CFC was, at the time
that such information was provided, fair, accurate and complete in all
material respects. Midlands has not failed to provide or make available
to CFC all material information regarding Midlands.
3.21. Resale of CFC Common Stock. Midlands knows of no present plan
or intention on the part of its shareholders to sell, assign, transfer
or otherwise dispose of shares of CFC Common Stock to be received by
such shareholders in connection with the
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Merger which would reduce said shareholders' holdings of CFC common
stock to a number of shares having, in the aggregate, a value of less
than 50% of the value of Midlands Common Stock outstanding as of the
Effective Time. For purposes of this representation, the number of
shares of CFC Common Stock which would have been received by any
dissenting shareholders of Midlands had they not dissented, and shares
of Midlands Common Stock sold, redeemed or otherwise disposed of prior
or subsequent to and as part of the Merger, will be considered as shares
received by shareholders of Midlands and then disposed of by
shareholders of Midlands.
SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC AND CFB
CFC and CFB hereby represent and warrant to Midlands the following
matters on and as of the date of this Agreement and at the Effective
Time; provided, however, that before any breach of or inaccuracy in any
of the representations or warranties given in this Section IV shall be
actionable or shall constitute grounds for termination of or failure to
perform under the terms of this Agreement by Midlands, such breach or
inaccuracy must be materially adverse in the aggregate with respect to
the businesses of CFC and CFB.
4.1. Organization, Good-Standing and Conduct of Business. CFC and
CFB are corporations, duly organized, validly existing and in good
standing under the laws of the State of South Carolina, and have full
power and authority and all necessary governmental and regulatory
authorization to own all of their properties and assets and to carry on
their business as they are presently being conducted, and are properly
licensed, qualified and in good standing as foreign corporations in all
jurisdictions wherein the character of the properties or the nature of
the business transacted by CFC and CFB makes such license or
qualification necessary.
4.2. Corporate Authority. The execution, delivery and performance
of this Agreement have been duly authorized by the Boards of Directors
of CFC and CFB. No further corporate acts or proceedings on the part of
CFC or CFB are required or necessary to authorize this Agreement or the
Merger.
4.3. Binding Effect. When executed, this Agreement will constitute
a valid and legally binding obligation of CFC and CFB, enforceable
against CFC and CFB in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
now or hereafter in effect relating to creditors' rights or the relief
of debtors generally. Each document and instrument contemplated by this
Agreement, when executed and delivered by CFC and/or CFB in accordance
with the provisions hereof, shall be duly authorized, executed and
delivered by CFC and/or CFB and enforceable against CFC and/or CFB in
accordance with its terms, subject to the exceptions in the previous
sentence.
4.4. Capitalization of CFC. The authorized capital stock of CFC
consists solely of (i) 20,000,000 authorized shares of common stock
($1.00 par value), of which 4,523,784 shares are issued and outstanding
and (ii) 10,000,000 shares of preferred stock, of which 621,000 shares
of 7.50% Noncumulative Convertible Preferred Stock Series 1993, 60,000
shares of Convertible Preferred Stock Series 1993B, and 920,000 shares
of 7.32% Noncumulative Convertible Preferred Stock Series 1994, are
outstanding. All of the issued and outstanding shares of CFC are
validly issued and fully paid and nonassessable. Except for (i) stock
options to purchase shares of CFC Common Stock granted under employee
benefit plans, (ii) the 621,000 shares of 7.50% Noncumulative
Convertible Preferred Stock Series 1993, (iii) the 60,000 shares of
Convertible Preferred Stock Series 1993B, and (iv) the 920,000 shares of
7.32% Noncumulative Convertible Preferred Stock Series 1994, (v) the CFC
Shareholders' Rights Plan entered into as of November 9, 1993 between
CFC and CFB, or (vi) as otherwise set forth on Schedule 4.4, there are
no outstanding obligations, options, warrants or commitments of any kind
or nature or any outstanding securities or other instruments convertible
into shares of any class of capital stock of CFC, or pursuant to which
CFC is or may become obligated to issue any shares of its capital stock.
None of the shares of the CFC Common Stock is subject to any
restrictions as to the transfer thereof, except as set forth in CFC's
Articles of Incorporation or Bylaws and except for restrictions on
account of applicable federal or state securities laws. The Common
Stock to be issued in connection with this Agreement and the Merger
will, when issued, be validly issued, fully paid and nonassessable and
issued pursuant to an effective registration statement.
4.5. Subsidiaries of CFC. CFC owns 100% of the issued and
outstanding shares of CFB, Carolina First Savings Bank, F.S.B and
Carolina First Mortgage Company. Other than CFC, no individual or
entity has rights to acquire shares of CFB, Carolina First Savings Bank,
F.S.B or Carolina First Mortgage Company. CFC does not hold 10% of any
class of equity securities of any other company or legal entity other
than CFB, Carolina First Savings Bank, F.S.B. and Carolina First
Mortgage Company.
4.6. Absence of Defaults. Neither CFC nor CFB is in default under,
or in violation of any provision of their Articles of Incorporation or
Bylaws. Neither CFC nor CFB is in default under, or in violation of,
any agreement to which they are a party, the effect of which default or
violation would have a material adverse effect on CFC or CFB or their
business operations or prospects. Neither CFC nor CFB is in violation
of any applicable law, rule or regulation the effect of which would have
a material adverse effect on CFC or CFB or their business operations or
prospects.
4.7. Non-Contravention and Defaults; No Liens. Neither the
execution or delivery of this Agreement, nor the fulfillment of, or
compliance with, the terms and provisions hereof, will (i) result in a
breach of the terms, conditions or provisions of, or constitute a
default under, or result in a violation of, termination of or
acceleration of the performance provided by the terms of, any agreement
to which CFC or CFB is a party or by which they may be bound, (ii)
violate any provision of any law, rule or
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regulation, (iii) result in the creation or imposition of any lien,
charge, restriction, security interest or encumbrance of any nature
whatsoever on any asset of CFC or CFB, or (iv) violate any provisions of
CFC's or CFB's Articles of Incorporation or Bylaws. To the best of
CFC's and CFB's knowledge, no other party to any material agreement to
which CFC or CFB is a party is in default thereunder or in breach of any
provision thereof. To the best of CFC's and CFB's knowledge, there
exists no condition or event which, after notice or lapse of time or
both, would constitute a default by any party to any such agreement.
4.8. Necessary Approvals. CFC and CFB have obtained all
certificates of authority, licenses, permits, franchises, registrations
of foreign ownership or other regulatory approvals in every jurisdiction
necessary for the continuing conduct of its business and ownership of
its assets. Except for those which may be renewed or extended in the
ordinary course of business, no such certificate, license, permit,
franchise, registration or other approval is about to expire, lapse, has
been threatened to be revoked or has otherwise become restricted by
their terms which would, upon such expiration, lapse, revocation or
restriction, have a material adverse effect on the financial
circumstances of CFC or CFB. Further, there is no basis for any such
expiration, lapse, revocation, threat of revocation or restriction.
Except for (i) any necessary filings with, and approvals and
authorizations of the OCC, the FDIC and the State Board, and (ii) the
filing with the SEC of the Registration Statement and filings with blue
sky authorities, no consent, approval, authorization, registration, or
filing with or by any governmental authority, foreign or domestic, is
required on the part of CFC or CFB in connection with the execution and
delivery of this Agreement or the consummation by CFC and CFB of the
transactions contemplated hereby. Except for the agencies and other
entities in the preceding sentence, neither CFC nor CFB is required to
procure the approval of any person, firm, corporation, or other entity,
foreign or domestic, in order to prevent the termination of any right,
privilege, license or contract of CFC or CFB as a result of this
Agreement.
4.9. Financial Statements. The audited financial statements of
CFC for each of the fiscal years 1991, 1992 and 1993, the unaudited
financial statements of CFC at and for the six month period ending June
30, 1994 and the unaudited monthly statements subsequent to June 30,
1994 (the "CFC Financial Statements") all of which have been provided to
Midlands, are true, correct and complete in all material respects and
present fairly, in conformity with generally accepted accounting
principles consistently applied, the financial position of CFC at the
dates indicated and the results of its operations for each of the
periods indicated, except as otherwise set forth in the notes thereto.
The books and records of CFC have been kept, and will be kept to the
Closing Date, in reasonable detail, and will fairly and accurately
reflect in all material respects to the Closing Date, the transactions
of CFC.
4.10. Tax Returns. CFC files its income tax returns and maintains
its tax books and records on the basis of a taxable year ending December
31. CFC has duly filed all tax reports and returns required to be filed
by any federal, state or local taxing authorities (including, without
limitation, those due in respect of its properties, income, franchises,
licenses, sales and payrolls) through the date hereof, and CFC has duly
paid all taxes with respect to the periods covered thereby and has
established adequate reserves in accordance with generally accepted
accounting princi- ples consistently applied for the payment of all
income, franchises, property, sales, employment or other taxes
anticipated to be payable in respect of the period subsequent to the
period ending after the date hereof. CFC is not delinquent in the
payment of any taxes, assessments or governmental charges and no
deficiencies have been asserted or assessed, which have not been paid or
for which adequate reserves have not been established and which are not
being contested in good faith. CFC does not have in effect any waiver
relating to any statute of limitations for assessment of taxes with
respect to any federal, state or local income, property, franchise,
sales, license or payroll tax. Except as set forth on Schedule 4.10, CFC
does not know, or have reason to know, of any questions which have been
raised or which may be raised by any taxing authority relating to taxes
or assessments of CFC which, if determined adversely, would result in
the assertion of any deficiency.
4.11. Undisclosed Liabilities. Except for the liabilities which are
disclosed in the CFC Financial Statements or as set forth on Schedule
4.11, CFC has no material liabilities or material obligations of any
nature, whether absolute, accrued, contingent or otherwise, and whether
due or to become due. Since December 31, 1993, there has been no
material adverse change in the business or operations of CFC.
4.12. Litigation. There are no claims, actions, suits or
proceedings pending or threatened against or, to its knowledge,
affecting CFC at law or in equity, before or by any Federal, state,
municipal, administrative or other court, governmental department,
commission, board, or agency, an adverse determination of which could
have a material adverse effect on the business or operations of CFC, and
CFC knows of no basis for any of the foregoing. There is no order,
writ, injunction, or decree of any court, domestic or foreign, or any
Federal agency affecting CFC or to which CFC is subject, except for a
dividend agreement between CFC and the OTS which regulates the payment
of dividends from Carolina First Savings Bank, F.S.B. to CFC.
4.13. Reports. CFC has duly made all reports and filings required
to be made pursuant to applicable law, except for failures to file or
reports which would not have a material adverse effect on the business
or financial condition of CFC.
4.14. CFC Information. The written information with respect to CFC,
and its officers, directors, and affiliates which shall have been
supplied by CFC (or any of its accountants, counsel or other authorized
representatives) specifically for use in soliciting approval of the
Merger by shareholders of Midlands, or which shall be contained in the
Registration Statement, will not, on the date the Proxy Statement is
first mailed to shareholders of Midlands or on the date of the
Stockholders' Meeting, or in the case of the Registration Statement, at
the time it becomes effective, contain any untrue statement of a
material fact, or omit to state any
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material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading, or necessary to correct any statement in
any earlier communication to Midlands stockholders with respect to the
Merger. The Registration Statement will comply as to form with all
applicable laws, including the provisions of the Securities Act.
4.15. Due Diligence. All information provided by CFC in connection
with the due diligence investigation by Midlands was, at the time that
such information was provided, fair, accurate and complete in all
material respects. CFC has not failed to provide or make available to
Midlands all material information regarding CFC.
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING
5.1. Conduct of Midlands Pending Closing. During the period
commencing on the date hereof and continuing until the Closing Date,
Midlands covenants and agrees to the following (except to the extent
that CFC shall otherwise expressly consent in writing, which consent
shall not be unreasonably delayed or withheld); provided, however, that
any breach of or inaccuracy in any of the covenants given in this
Section 5.1 must be material in the aggregate with respect to the
business of Midlands before such breach shall be actionable or shall
constitute grounds for termination or failure to perform under this
Agreement.
(a) Midlands will carry on its business only in the ordinary
course in substantially the same manner as heretofore conducted and,
to the extent consistent with such business, use all reasonable
efforts to preserve intact its business organization, maintain the
services of its present officers and employees and preserve its
relationships with customers, suppliers and others having business
dealings with it so that its goodwill and going business shall be
unimpaired at the Closing Date. Midlands shall not purchase or
otherwise acquire or enter into a contract to acquire servicing or
subservicing rights without the written consent of CFC, which
consent shall not be unreasonably withheld.
(b) Midlands will not amend its Articles of Incorporation or
Bylaws as in effect on the date hereof.
(c) Midlands will not issue, grant, pledge or sell, or authorize
the issuance of, reclassify or redeem, purchase or otherwise
acquire, any shares of its capital stock of any class or any
securities convertible into shares of any class, or any rights,
warrants or options to acquire any such shares (except for employee
stock options in the ordinary course in accordance with past
practice and only upon prior notice to CFC); nor will it enter into
any arrangement or contract with respect to the issuance of any such
shares or other convertible securities (except that it may permit
the exercise of existing warrants to purchase Midlands Common Stock
which are currently exercisable); nor will it declare, set aside or
pay any dividends (of any type) or make any other change in its
equity capital structure; provided, however, that Midlands shall be
permitted to pay in 1995 substantially the same regular cash
dividend (on an aggregate and percentage of net income basis) to
holders of the Midlands Common Stock as was paid in 1994.
(d) Midlands will promptly advise CFC orally and in writing of
any change in the businesses of Midlands which is or may reasonably
be expected to be materially adverse to the business of Midlands.
(e) Midlands will not take, agree to take, or knowingly permit
to be taken any action or do or knowingly permit to be done anything
in the conduct of the business of Midlands, or otherwise, which
would be contrary to or in breach of any of the terms or provisions
of this Agreement, or which would cause any of the representations
of Midlands contained herein to be or become untrue in any material
respect.
(f) Midlands will not incur any indebtedness for borrowed money,
issue or sell any debt securities, or assume or otherwise become
liable, whether directly, contingently or otherwise, for the
obligation of any other party, other than in the ordinary course of
business.
(g) Except for expenses attendant to the Merger and current
contractual obligations, Midlands will not incur any expense in an
amount in excess of $25,000 after the execution of this Agreement
without the prior written consent of CFC.
(h) Midlands will not grant any executive officers any increase
in compensation (except in the ordinary course in accordance with
past practice and only upon prior notice to CFC), or enter into any
employment agreement with any executive officer without the consent
of CFC except as may be required under employment or termination
agreements in effect on the date hereof which have been previously
disclosed to CFC in writing.
(i) Midlands will not acquire or agree to acquire by merging or
consolidating with, purchasing substantially all of the assets of or
otherwise, any business or any corporation, partnership, association
or other business organization or division thereof.
5.2. Conduct of CFC Pending Closing. During the period commencing
on the date hereof and continuing until the Closing Date, CFC covenants
and agrees to the following (except to the extent that Midlands shall
otherwise expressly consent in writing, which consent shall not be
unreasonably delayed or withheld); provided, however, that any breach of
or inaccuracy in any of the covenants given in this Section 5.2 must be
material in the aggregate with respect to the business of CFC before
such breach shall be actionable or shall constitute grounds for
termination or failure to perform under this Agreement.
(a) CFC shall carry on its business in substantially the same
manner as heretofore conducted.
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(b) CFC will not amend its Articles of Incorporation or Bylaws
as in effect on the date hereof in any manner that will adversely
affect the Midlands stockholders in any material respect.
(c) Except for the issuance of stock (i) in connection with the
Convertible Preferred Stock, (ii) in connection with the items set
forth on Schedule 4.4, (iii) in connection with acquisitions
(including, but not limited to, the acquisitions listed on Schedule
4.4), or (iv) in the ordinary course in accordance with past
practice (such as employee stock grants or options), CFC will not
authorize, create or issue any shares of capital stock.
(d) CFC will promptly advise Midlands orally and in writing of
any change in its business which is or may reasonably be expected to
be materially adverse to CFC.
(e) CFC will not take, agree to take, or knowingly permit to be
taken any action or do or knowingly permit to be done anything in
the conduct of its business or otherwise, which would be contrary to
or in breach of any of the terms or provisions of this Agreement, or
which would cause any of the representations of CFC contained herein
to be or become untrue in any material respect.
SECTION VI. COVENANTS OF THE PARTIES
6.1. Access to Properties and Records. Between the date of this
Agreement and the Closing Date, the parties will provide to each other
and to their respective accountants, counsel and other authorized
representatives reasonable access (with due consideration being given to
the fact that CFC is a company traded on the Nasdaq National Market,
that CFC is acquiring all of Midlands and that Midlands will constitute
only a small portion of CFC after the consummation of the transactions
herein), during reasonable business hours and upon reasonable notice, to
their respective premises, properties, contracts, commitments, books,
records and other information and will cause their respective officers
to furnish to the other party and its authorized representatives such
financial, technical and operating data and other information pertaining
to their respective businesses, as the parties shall from time to time
reasonably request. Each party will and will cause its employees and
agents to hold in strict confidence, unless disclosure is compelled by
judicial or administrative process, or in the opinion of its counsel, by
other requirements of law, all Confidential Information and will not
disclose the same to any person. Confidential Information shall be used
only for the purpose of and in connection with consummating the
transaction contemplated herein. If this Agreement is terminated, each
party hereto will promptly return all documents received by it from each
other party containing Confidential Information. The covenants in this
Section 6.1 shall survive the Closing Date forever.
6.2. Regulatory Filings. The parties hereto will use their
respective best efforts and cooperate with each other to obtain promptly
all such regulatory approvals and to make such filings as, in the
opinion of their respective counsels, may be necessary or advisable in
connection with this transaction. CFC shall be responsible for all
filings fees required in connection with such approvals or filings.
6.3. Registration Statement/Proxy Statement. CFC shall file the
Registration Statement with the SEC and shall pay the required filing
fees. The parties will use their respective best efforts and cooperate
with each other to obtain promptly the effectiveness of the Registration
Statement. CFC shall also take any reasonable action required to be
taken under the blue sky laws in connection with the issuance of CFC
Common Stock in the Merger. Midlands shall file the Proxy Statement
with the OCC and mail, at its expense, the Proxy Statement to its
shareholders.
6.4. Affiliates' Letters. Midlands shall deliver to CFC a letter
identifying all persons who are, at the time the Merger is submitted to
a vote of the shareholders of Midlands, "affiliates" of Midlands for
purposes of Rule 145 of the General Rules and Regulations under the
Securities Act. Midlands shall use its best efforts to cause each
person who is identified as an "affiliate" in the letter referred to
above to deliver to CFC on or prior to the Effective Time a written
agreement, in form reasonably satisfactory to CFC, (a) that such person
will not offer to sell, transfer or otherwise dispose of any of the
shares of CFC Common Stock issued to such person pursuant to the Merger
in such a manner so as to destroy the tax-free status of the Merger or
the qualification by the Merger as a pooling of interests transaction,
and (b) that such person will not offer to sell, transfer or otherwise
dispose of any of the shares of CFC Common Stock issued to such person
pursuant to the Merger, except in accordance with the applicable
provisions of Rule 145.
6.5. Listing of CFC Common Stock. CFC shall cause the shares of
CFC Common Stock to be issued in the transactions contemplated by this
Reorganization Agreement to be approved for quotation on the Nasdaq
National Market, subject to official notice of issuance, prior to the
Effective Time. CFC shall give such notice to Nasdaq as may be required
to permit the listing of the CFC Common Stock issued in connection with
the Merger.
6.6. Letters from Accountants. Prior to the date the Registration
Statement is declared effective and prior to the Effective Time,
Midlands will deliver to CFC letters from Donald G. Jones and Company,
P.A. addressed to CFC and dated not more than two business days before
the date on which such Registration Statement shall have become
effective and not more than two business days prior to the Effective
Time, respectively, in form and substance satisfactory to CFC, and CFC
will deliver to Midlands letters
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from Elliott Davis & Co., addressed to Midlands and dated not more than
two business days before the Registration Statement shall have become
effective and not more than two business days prior to the Effective
Time, respectively, in form and substance satisfactory to Midlands, in
each case with respect to the financial condition of the other party and
such other matters as are customary in accountants' comfort letters.
6.7. Tax Treatment/Accounting Treatment. Midlands and CFC shall
each take such acts within their power as may be reasonably necessary to
cause the Merger to qualify (i) as a "reorganization" within the meaning
of Section 368(a) of the Code and (ii) as a "pooling of interests" under
general accepted accounting practices, except to the extent such
performance or failure would be prohibited by law. Such reasonable acts
shall include, without limitation, the abstention from resales of CFC
Common Stock received in connection herewith.
6.8. Expenses. The parties shall pay their own fees and expenses
(including legal and accounting fees) incurred in connection with this
transaction.
6.9. Material Events. At all times prior to the Closing Date, each
party shall promptly notify the other in writing of the occurrence of
any event which will or may result in the failure to satisfy the
conditions specified in Section VI or Section VII of this Agreement.
6.10. Public Announcements. At all times until after the Closing
Date, neither Midlands nor CFC shall issue or permit any of its
respective subsidiaries, affiliates, officers, directors or employees to
issue any press release or other information to the press with respect
to this Agreement, without the express prior consent of the other party,
except as may be required by law or the policies of NASDAQ.
6.11. Employment Contracts. At Closing, CFC shall enter into
employment contracts with David W. Bowers and E. Monte Bowers, which
contracts shall be substantially in the form of those contracts attached
hereto as Appendix B.
SECTION VII. CONDITIONS TO CFC'S OBLIGATION TO CLOSE
The obligation of CFC and CFB to consummate the transactions
contemplated in this Agreement is subject to the satisfaction of the
following conditions at or before the Closing Date:
7.1. Performance of Acts and Representations by Midlands. Each of
the acts and undertakings of Midlands to be performed on or before the
Closing Date pursuant to the terms of this Agreement shall have been
duly authorized and duly performed, and each of the representations and
warranties of Midlands set forth in this Agreement shall be true on the
Closing Date, except as to transactions contemplated by this Agreement.
7.2. Opinion of Counsel for Midlands. Midlands shall have
furnished CFC with an opinion of its counsel, dated as of the Closing
Date, and in form and substance reasonably satisfactory to CFC and its
counsel, to the effect that: (i) Midlands is duly organized, validly
existing and in good standing under the laws of the United States of
America; (ii) the consummation of the transactions contemplated by this
Agreement will not (A) violate any provision of Midlands's Articles of
Incorporation or Bylaws, (B) violate any provision of, result in the
termination of, or result in the acceleration of any obligation under,
any mortgage, lien, lease, franchise, license, permit, agreement,
instrument, order, arbitration award, judgment or decree known to
counsel to which Midlands is a party, or by which it is bound, except as
such would not, in the aggregate, have a material adverse effect on the
business or financial condition of Midlands, or (C) violate or conflict
with any other restriction of any kind or character of which such
counsel has knowledge and to which Midlands is subject; (iii) all of the
shares of Midlands Common Stock are validly authorized and issued, fully
paid and, except as provided in 12 U.S.C.A. (section mark)55,
non-assessable; (iv) Midlands has the legal right and power, and all
authorizations and approvals required by law, to enter into this
Agreement, and to consummate the transactions contemplated herein; (v)
Midlands has full corporate power and authority to enter into this
Agreement, and this Agreement has been duly authorized, executed and
delivered by Midlands and constitutes a valid and legally binding
obligation of Midlands enforceable against Midlands in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance or similar laws now or
hereafter in effect relating to creditors' rights or debtors'
obligations generally; (vi) to the best knowledge of such counsel, no
material suit or proceeding is pending or threatened against Midlands or
other parties which would have a material adverse effect on Midlands's
business or properties or its abilities to make the representations and
warranties and perform the obligations set forth herein.
7.3. Conduct of Business. The business of Midlands shall have been
conducted in the usual and customary manner, and there shall have been
no material casualty or material adverse change in the business or
financial condition of Midlands from the date hereof through the Closing
Date.
7.4. Consents. All permits, orders, consents, or other
authorizations necessary, in the reasonable opinion of counsel for CFC,
to the consummation of the transactions contemplated hereby shall have
been obtained, and no governmental agency or department or judicial
authority shall have issued any order, writ, injunction or decree
prohibiting the consummation of the transactions contemplated hereby.
Approvals of all applicable regulatory agencies shall have been obtained
without the imposition
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of any condition or requirements that, in the reasonable judgment of
CFC, renders the consummation of this transaction unduly burdensome.
7.5. Certificate. CFC shall have been furnished with such
certificates of officers of Midlands and/or such certificates of
Midlands stockholders, in form and substance reasonably satisfactory to
CFC, dated as of the Closing Date, certifying to such matters as CFC may
reasonably request, including but not limited to the fulfillment of the
conditions specified in this Section VII.
7.6. Limit on Dissent. The holders of 10% or more of the Midlands
Common Stock outstanding at the time of the Stockholders' Meeting shall
not have dissented to the Merger by demanding payment for fair value of
their shares in the manner provided by 12 U.S.C.A. (section mark)214a.
7.7. Pooling of Interests. CFC shall have received reasonable
assurance from Elliott, Davis & Co. that the Merger will qualify for
pooling of interests accounting treatment under general accepted
accounting practices.
7.8. Affiliates' Letters. CFC shall have received letters from all
affiliates of Midlands as contemplated in Section 6.4 hereof.
7.9. Due Diligence. CFC shall have completed a due diligence
investigation of Midlands by a date not later than two weeks from the
date hereof, the results of which shall be reasonably satisfactory to
CFC.
SECTION VIII. CONDITIONS TO THE OBLIGATION OF MIDLANDS TO CLOSE
The obligation of Midlands to consummate the transactions
contemplated in this Agreement is subject to the satisfaction of the
following conditions at or before the Closing Date:
8.1. Performance of Acts and Representations by CFC and CFB. Each
of the acts and undertakings of CFC and CFB to be performed on or before
the Closing Date pursuant to the terms of this Agreement shall have been
duly authorized and duly performed, and each of the representations and
warranties of CFC and CFB set forth in this Agreement shall be true on
the Closing Date, except as to transactions contemplated by this
Agreement.
8.2. Opinion of Counsel for CFC. CFC shall have furnished Midlands
with an opinion of its counsel, dated as of the Closing Date, and in
form and substance reasonably satisfactory to Midlands and its counsel,
to the effect that: (i) CFC and CFB are duly organized, validly existing
and in good standing under the laws of the State of South Carolina; (ii)
the consummation of the transactions contemplated by this Agreement will
not (A) violate any provision of CFC's or CFB's Articles of
Incorporation or Bylaws, (B) violate any provision of, result in the
termination of, or result in the acceleration of any obligation under,
any mortgage, lien, lease, franchise, license, permit, agreement,
instrument, order, arbitration award, judgment or decree known to
counsel to which CFC or CFB is a party, or by which it is bound, except
as such would not, in the aggregate, have a material adverse effect on
the business or financial condition of CFC, or (C) violate or conflict
with any other restriction of any kind or character of which such
counsel has knowledge and to which CFC or CFB is subject; (iii) all of
the shares of CFC Common Stock to be issued in connection with the
Merger will be, when issued, validly authorized and issued, fully paid
and non-assessable; (iv) CFC and CFB have the legal right and power, and
all authorizations and approvals required by law, to enter into this
Agreement, and to consummate the transactions contemplated herein; (v)
CFC and CFB have full corporate power and authority to enter into this
Agreement, and this Agreement has been duly authorized, executed and
delivered by CFC and CFB and constitutes a valid and legally binding
obligation of CFC and CFB enforceable against CFC and CFB in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance or similar
laws now or hereafter in effect relating to creditors' rights or
debtors' obligations generally; (vi) to the best knowledge of such
counsel, no material suit or proceeding is pending or threatened against
CFC or other parties which would have a material adverse effect on CFC's
business or properties or its abilities to make the representations and
warranties and perform the obligations set forth herein.
8.3. Conduct of Business. There shall have been no material
casualty or material adverse change in the business or financial
condition of CFC from the date hereof through the Closing Date.
8.4. Consents. All permits, orders, consents, or other
authorizations necessary, in the reasonable opinion of counsel for
Midlands, to the consummation of the transactions contemplated hereby
shall have been obtained, and no governmental agency or department or
judicial authority shall have issued any order, writ, injunction or
decree prohibiting the consummation of the transactions contemplated
hereby. Approvals of all applicable regulatory agencies shall have been
obtained without the imposition of any condition or requirements that,
in the reasonable judgment of Midlands, renders the consummation of this
transaction unduly burdensome.
8.5. Certificate. Midlands shall have been furnished with such
certificates of officers of CFC, in form and substance reasonably
satisfactory to Midlands, dated as of the Closing Date, certifying to
such matters as Midlands may reasonably request, including but not
limited to the fulfillment of the conditions specified in this Section
VIII.
8.6. Tax Opinion. Midlands shall have received from Wyche,
Burgess, Freeman & Parham, P.A. a tax opinion, reasonably satisfactory
to Midlands, opining, subject to reasonable qualifications, that the
Merger shall, upon compliance with reasonable conditions, qualify as a
tax-free reorganization under Section 368(a) of the Code.
8.7. Fairness Opinion. The Board of Directors of Midlands shall
have received a fairness opinion from a reputable
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investment banking firm, which opinion is reasonably acceptable to
Midlands.
8.8. Stockholder Approvals. The Stockholder Approvals shall have
been obtained.
SECTION IX. TERMINATIONS
9.1. Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by mutual consent of the parties;
(b) by either CFC or Midlands, at that party's option, if a
permanent injunction or other order (including any order denying any
required regulatory consent or approval) shall have been issued by
any Federal or state court of competent jurisdiction in the United
States or by any United States Federal or state governmental or
regulatory body, which order prevents the consummation of the
transactions contemplated herein;
(c) by either CFC or Midlands if the other party has failed to
comply with the agreements or fulfill the conditions contained
herein, provided, however, that any such failure of compliance or
fulfillment must be material to the consolidated businesses of
either CFC or Midlands and the breaching must be given notice of the
failure to comply and a reasonable period of time to cure; or
(d) by either CFC or Midlands as set forth in Section 2.2 hereof.
9.2. Effect of Termination. In the event of termination of this
Agreement by either CFC or Midlands as provided above, this Agreement
shall forthwith become void and there shall be no liability hereunder on
the part of CFC or Midlands, or their respective officers or directors,
except for intentional breach; provided, however, that in the event this
Agreement is terminated, (i) any agreements between the two parties as
to confidential information and (ii) the grant of the option to purchase
65,000 shares of Midlands common stock as set forth in that certain
Letter of Intent between CFC and Midlands dated September 21, 1994,
shall survive such termination.
SECTION X. INDEMNIFICATION
10.1. Information for Application and Statements. Each of CFC and
Midlands represents and warrants that all information concerning it
which is or will be included in any statement and application made to
any governmental agency (including the Registration Statement) in
connection with the transactions contemplated by the Agreement shall be
true and correct in all material respects and shall not omit any
material fact required to be stated therein or necessary to make the
statements made, in light of the circumstances under which they were
made, not misleading. Each of CFC and Midlands so representing and
warranting will indemnify and hold harmless the other, each of its
directors and officers, who controls the other within the meaning of the
Securities Act, from and against any and all losses, claims, damages,
expenses or liabilities to which any of them may become subject under
applicable laws and rules and regulations thereunder and will reimburse
them for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any actions whether or not
resulting in liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of are based upon any untrue
statement or alleged untrue statement of a material fact contained in
any such application or statement or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein, or necessary in order to make the statements
therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information
furnished in writing by the representing and warranting party expressly
for use therein. Each of CFC and Midlands agrees, at any time upon the
request of the other, to furnish to the other a written letter or
statement confirming the accuracy of the information contained in any
proxy statement, registration statement, report or other application or
statement, or in any draft of any such document, and confirming that the
information contained in such document or draft was furnished expressly
for use therein or, if such is not the case, indicating the inaccuracies
contained in such document or draft or indicating the information not
furnished expressly for use therein. The indemnity agreement contained
in this Section X shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the other party.
10.2. Indemnification of Directors and Officers. CFC shall ensure
that all rights to indemnification and limitations of liability existing
in favor of officers and directors of Midlands as provided in the
charter documents and bylaws of Midlands arising from facts or events
existing or occurring prior to the Effective Time shall survive the
transactions contemplated by this Agreement and shall continue in full
force and effect for a period of not less than three years.
SECTION XI. MISCELLANEOUS
11.1. Survival of Representations and Warranties. Except with
respect to confidentiality provisions contained herein, the
representations, warranties and covenants contained in this Agreement or
in any other documents delivered pursuant hereto, shall not survive the
Closing of the transactions contemplated hereby. Notwithstanding any
investigation made by or on behalf of the
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parties, whether before or after Closing Date, the parties shall be
entitled to rely upon the representations and warranties given or made
by the other party(ies) herein.
11.2. Entire Agreement. This Agreement, including any schedules,
exhibits, lists and other documents referred to herein which form a part
hereof, contains the entire agreement of the parties with respect to the
subject matter contained herein and there are no agreements, warranties,
covenants or undertakings other than those expressly set forth herein.
11.3. Binding Agreement. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Agreement shall not
be assigned by either of the parties hereto without the prior written
consent of the other party hereto.
11.4. Notices. Any notice given hereunder shall be in writing and
shall be deemed delivered and received upon reasonable proof of receipt.
Unless written designation of a different address is filed with each of
the other parties hereto, notice shall be transmitted to the following
addresses:
For CFC: William S. Hummers III
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
Copies to: William P. Crawford, Jr.
Wyche, Burgess, Freeman & Parham, P.A.
Post Office Box 728
Greenville, South Carolina 29602
For Midlands: David W. Bowers
Midlands National Bank
Post Office Box 248
Prosperity, South Carolina 29127
Copy to: Robert C. Schwartz
Smith Gambrell & Russell
3343 Peachtree Road N.E., Suite 1800
Atlanta, Georgia 30326
11.5. Counterparts. This Agreement may be executed in one or more
Counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
11.6. Headings. The section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretations of this Agreement.
11.7. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina.
11.8. Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of all of the parties.
11.9. Waiver. Any term, provision or condition of this Agreement
(other than the required by law) may be waived in writing at any time by
the party which is entitled to the benefits thereof.
IN WITNESS WHEREOF, this Agreement has been duly entered as of the
date first written above.
<TABLE>
<S> <C>
Witnesses CAROLINA FIRST CORPORATION
_________________________ By: /s/ William S. Hummers III
_________________________ William S. Hummers III, Executive Vice President
Witnesses CAROLINA FIRST BANK
_________________________ By: /s/ Mack I. Whittle, Jr.
_________________________ Mack I. Whittle, Chairman
MIDLANDS NATIONAL BANK
_________________________ By: /s/ David W. Bowers
_________________________ David W. Bowers, President and Chief Executive Officer
</TABLE>
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APPENDIX A
PLAN OF MERGER OF MIDLANDS NATIONAL BANK WITH AND INTO CAROLINA FIRST
BANK. Pursuant to this Plan of Merger (this "Plan of Merger"), Midlands
National Bank ("Midlands"), a national banking association existing
under the laws of the United States of America, shall be acquired by
Carolina First Corporation ("CFC"), a corporation existing under the
laws of the State of South Carolina, by the merger of Midlands with and
into Carolina First Bank ("CFB"), a banking corporation existing under
the laws of the State of South Carolina and a wholly-owned subsidiary of
CFC.
ARTICLE I. DEFINITIONS
The capitalized terms set forth below shall have the following meanings:
1.1. "Articles of Merger" shall mean the Articles of Merger to be
executed by CFC, CFB and Midlands and in form appropriate for filing
with the Secretary of State of South Carolina and relating to the
effective consummation of the Merger as contemplated by the Plan of
Merger.
1.2. "CFC Common Stock" shall mean the common stock, par value
$1.00 per share, of CFC.
1.3. "Conversion Ratio" shall mean the number of shares of CFC
Common Stock issuable in exchange for one share of Midlands Common
Stock, as calculated pursuant to Section 3.1 hereof.
1.4. "Dissenting Stockholder" shall mean the holder of shares of
Midlands Common Stock who has made a timely demand for payment of the
fair value of his or her shares by the effective exercise of dissenters'
rights in the manner provided in 12 U.S.C.A. (section mark)214a.
1.5. "Effective Time" shall mean the date and time which the Merger
becomes effective as more particularly set forth in Section 2.2 hereof.
1.6. "Merger" shall mean the merger of Midlands with and into CFB
as more particularly set forth herein and in the Reorganization
Agreement.
1.7. "Fair Market Value" shall mean, with respect to the CFC Common
Stock for a particular day in question, the average of the high and low
sale prices as quoted on the Nasdaq National Market for that particular
day and the immediately preceding four business days.
1.8. "OCC" shall mean the Office of Comptroller of the Currency.
1.9. "Reorganization Agreement" shall mean the Agreement and Plan
of Reorganization between CFC, CFB and Midlands, to which this Plan of
Merger is attached as Appendix A.
1.10. "Stockholder Approvals" shall mean, as the context may
require, the written consent (duly authorized) of CFC to the merger of
Midlands with and into CFB and the approval by the requisite vote of the
stockholders of Midlands at the Stockholders' Meeting of the merger of
Midlands with and into CFB, all in accordance with the Reorganization
Agreement and this Plan of Merger.
1.11. "Stockholders' Meeting" shall mean the meeting of the
stockholders of Midlands at which the Merger shall be voted upon.
1.12. "Surviving Corporation" shall mean CFB after consummation of
the Merger.
ARTICLE II. THE MERGER
2.1. Merger. Subject to the terms and conditions set forth in
the Reorganization Agreement, unless effectively waived as provided
therein, and in accordance with all applicable laws, regulations and
regulatory requirements, at the Effective Time, Midlands shall be merged
with and into CFB. CFB shall be the Surviving Corporation of the Merger
and shall continue to be governed by the laws of the State of South
Carolina.
2.2. Effective Time. The Merger shall become effective on the
date and at the time specified in the Articles of Merger, and in the
form to be filed with the Secretary of State of the State of South
Carolina as applicable.
2.3. Capitalization The number of authorized shares of capital
stock of the Surviving Corporation shall be the same as immediately
prior to the Merger.
2.4. Charter. The charter of CFB as in effect at the Effective
Time shall be and remain the charter of the Surviving Corporation.
2.5. Bylaws. The Bylaws of CFB, as in effect at the Effective
Time, shall continue in full force and effect as the bylaws of the
Surviving Corporation until otherwise amended as provided by law or by
such bylaws.
2.6. Properties and Liabilities of Midlands and CFB. At the
Effective Time, the separate existence and corporate
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organization of Midlands shall cease, and CFB shall thereupon and
thereafter, to the extent consistent with its charter and the changes,
if any, provided by the Merger, possess all the rights, privileges,
immunities, liabilities and franchises, of a public as well as a private
nature, of Midlands without further act or deed.
ARTICLE III. MANNER OF CONVERTING SHARES
3.1. Midlands Common Stock. Each share of Midlands Common Stock
issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder
thereof, be exchanged for and converted into such number of shares of
CFC Common Stock as shall be equal to the quotient (rounded to the
nearest 1/100th of a share) resulting from the division of (i) 225% of
the September 30, 1994 tangible book value per share of Midlands Common
Stock by (ii) the Fair Market Value per share of the CFC Common Stock on
September 30, 1994.
3.2. CFB Common Stock. None of the shares of CFB shall be converted
in the Merger and the capitalization of CFB after the Merger shall
remain unchanged.
3.3. Treasury Shares. Any and all shares of Midlands Common
Stock held as treasury shares by Midlands shall be cancelled and retired
at the Effective Time, and no consideration shall be issued or given in
exchange therefor.
3.4. Fractional Shares. No fractional shares of CFC Common Stock
will be issued as a result of the Merger. In lieu of the issuance of
fractional shares pursuant to Section 3.1 hereof, cash will be paid to
the holders of the Midlands Common Stock in respect of any fractional
share that would otherwise be issuable based on the Fair Market Value of
the CFC Common Stock on the last trading day immediately preceding the
Effective Time.
ARTICLE IV. EXCHANGE OF COMMON STOCK CERTIFICATES
4.1. Issuance of CFC Certificates; Cash for Fractional Shares.
After the Effective Time, each holder of shares of Midlands Common Stock
issued and outstanding at the Effective Time shall surrender the
certificate or certificates representing such shares to CFC or its
transfer agent, and shall promptly upon surrender receive in exchange
therefor the consideration provided in Section 3.1 of this Plan of
Merger. The certificate or certificates of Midlands Common Stock so
surrendered shall be duly endorsed as CFC or its transfer agent may
require. To the extent required by Section 3.4 of this Plan of Merger,
each holder of shares of Midlands Common Stock issued and outstanding at
the Effective Time also shall receive, upon surrender of the certificate
or certificates representing such shares, cash in lieu of any fractional
share of CFC Common Stock to which such holder might be entitled.
4.2. Authorized Withholdings. CFC shall not be obligated to
deliver the consideration to which any former holder of Midlands Common
Stock is entitled as a result of the Merger until such holder surrenders
his or her certificate or certificates representing the shares of
Midlands Common Stock for exchange as provided in this Article IV, or,
in default thereof, an appropriate affidavit of loss and indemnity
agreement and/or a bond as may be reasonably required in each case by
CFC or Midlands. In addition, no dividend or other distribution payable
to the holders of record of CFC Common Stock as of any time subsequent
to the Effective Time shall be paid to the holder of any certificate
representing shares of Midlands Common Stock issued and outstanding at
the Effective Time until such holder surrenders such certificate for
exchange as provided in Section 4.1 above. However, upon surrender of
the Midlands Common Stock certificate both the CFC Common Stock
certificate, together with all such withheld dividends or other
distributions and any withheld cash payments in respect of fractional
share interest, but without any obligation for payment of interest by
such withholding, shall be delivered and paid with respect to each share
represented by such certificate.
4.3. Limited Rights of Former Midlands Stockholders. After the
Effective Time, each outstanding certificate representing shares of
Midlands Common Stock prior to the Effective Time shall be deemed for
all corporate purposes (other than the payment of dividends and other
distributions to which the former stockholder of Midlands Common Stock
may be entitled) to evidence only the right of the holder thereof to
surrender such certificate and receive the requisite number of shares of
CFC Common Stock in exchange therefor as provided in this Plan of
Merger.
ARTICLE V. STOCK OPTIONS
5.1. Options. At the Effective Time, all outstanding
obligations, commitments, options, warrants or other securities set
forth on Schedule 3.4 of the Reorganization Agreement which are
exercisable for or convertible into, or which require the issuance of,
shares of any class of capital stock of Midlands, shall, after the
Effective Date, represent only the right to receive shares of CFC
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Common Stock as shall be equal to the quotient (rounded to the nearest
1/100th of a share) resulting from the division of (i) 225% of the
September 30, 1994 tangible book value per share of Midlands Common
Stock by (ii) the Fair Market Value per share of the CFC Common Stock on
September 30, 1994.
ARTICLE VI. MISCELLANEOUS
6.1. Conditions Precedent. Consummation of the Merger is
conditioned upon receipt of the Stockholder Approvals. In addition,
consummation of the Merger is conditioned upon the fulfillment of the
conditions precedent set forth in Section VII and Section VIII of the
Reorganization Agreement, subject to waiver of any such conditions, if
appropriate, as provided thereunder.
6.2. Rights of Dissenting Stockholders. If any stockholder of
Midlands shall have filed with Midlands, prior to or at the meeting of
stockholders of Midlands at which the Merger is submitted to a vote,
written notice that he or she objects to the Merger as provided in 12
U.S.C.A. (section mark)214a, CFC, upon written notice from Midlands as
to the identity of each such Dissenting Stockholder and of the number of
shares of Midlands Common Stock held by such Dissenting Stockholder,
shall not include in the certificate or certificates for the CFC Common
Stock to be issued pursuant to Section 3.1, the number of shares of CFC
Common Stock to which any such Dissenting Stockholder would have been
entitled under said Section. Each Dissenting Stockholder who, pursuant
to 12 U.S.C.A. (section mark)214a, becomes entitled to payment of the
fair value of his or her Midlands Common Stock shall receive payment
therefor from CFC (but only after such value shall have been agreed upon
or as finally determined as provided in 12 U.S.C.A (section mark)214a).
In the event that CFC shall become obligated after the Effective Time to
deliver shares of CFC Common Stock to any Dissenting Stockholder who
shall have failed to perfect, or shall have effectively lost or
abandoned, his or her right to appraisal of or payment for his or her
shares of Midlands Common Stock, CFC shall issue and deliver for the
benefit of such Dissenting Stockholder a certificate representing the
shares of CFC Common Stock to which he or she is then entitled.
6.3. Termination. This Plan of Merger may be terminated at any
time prior to the Effective Time as provided in Section IX of the
Reorganization Agreement.
6.4. Amendments. To the extent permitted by law, this Plan of
Merger may be amended by a subsequent writing signed by all of the
parties hereto upon the approval of the board of directors of each of
the parties hereto; provided, however, that this Plan of Merger may not
be amended after the Stockholders' Meeting except in accordance with
applicable law.
Dated as of this _____ day of _____________, 1995.
Appendix B and Schedules
Carolina First Corporation hereby undertakes to provide Appendix B and
any Schedules to the Commission promptly upon request.
A-15
<PAGE>
APPENDIX B
DISSENTERS' RIGHTS
(section mark) 214a. Procedure for conversion, merger, or consolidation;
vote of stockholders
A national banking association may, by vote of the holders of at least
two-thirds of each class of its capital stock, convert into, or merge or
consolidate with, a State bank in the same State in which the
national banking association is located, under a State charter,
in the following manner:
(a) Approval of board of directors; publication of notice of stockholders
meeting; waiver of publication; notice by registered or certified mail
The plan of conversion, merger, or consolidation must be approved by
a majority of the entire board of directors of the national banking association.
The bank shall publish notice of the time, place, and object of the
shareholders' meeting to act upon the plan, in some newspaper with
general circulation in the place where the principal office of the national
banking association is located, at least once a week for
four consecutive weeks: Provided, That newspaper publication may be
dispensed with entirely if waived by all the shareholders and in the case of a
merger or consolidation one publication at least ten days before the meeting
shall be sufficient if publication for four weeks is waived by holders of at
least two-thirds of each class of capital stock and prior written consent of
the Comptroller of the Currency is obtained. The
national banking association shall send such notice to each shareholder
of record by registered mail or by certified mail at least ten days prior
to the meeting, which notice may be waived specifically by any shareholder.
(b) Rights of dissenting stockholders
A shareholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to
the bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when
the conversion, merger, or consolidation is consummated, upon written request
made to the resulting State bank at any time before thirty days after the date
of consummation of such conversion, merger, or consolidation, accompanied by
the surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the shareholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of
three persons, one to be selected by majority vote of the dissenting
shareholders entitled to receive the value of their shares, one by the
directors of the resulting State bank, and the third by the two so chosen.
The valuation agreed upon by any two of three appraisers thus chosen shall
govern; but, if the value so fixed shall not be satisfactory to any dissenting
shareholder who has requested payment as provided herein, such shareholder
may within five days after being notified of the appraised value of his shares
appeal to the Comptroller of the Currency, who shall cause a reappraisal to
be made, which shall be final and binding as to the value of the shares of the
appellant. If, within ninety days from the date of consummation
of the conversion, merger, or consolidation, for any reason one
or more of the appraisers is not selected as herein provided, or the appraisers
fail to determine the value of such shares, the Comptroller shall upon
written request of any interested party, cause an appraisal to be made,
which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal, or the appraisal as the case may be,
shall be paid by the resulting State bank. The plan of conversion, merger,
or consolidation shall provide the manner of disposing of the shares of the
resulting State bank not taken by the dissenting shareholders of
the national banking association.
B-1
<PAGE>
APPENDIX C
Opinion of Hatcher/Johnson Valuation, Inc.
March 3, 1995
Board of Directors
Midlands National Bank
P.O. Box 248
Prosperity, South Carolina 29127
Gentlemen:
Hatcher/Johnson Valuation, Inc., Roswell, Georgia, ("HJV") has been
asked to render an opinion as to the fairness from a financial point of
view of the consideration to be received by the shareholders of Midlands
National Bank (the "Bank") in connection with the proposed merger of the
Bank with Carolina First Bank ("CFB"). a subsidiary of Carolina First
Corporation, Greenville, South Carolina ("CFC"), pursuant to the
Reorganization Agreement and Plan of Merger (the "Merger Agreement")
dated as of November 14, 1994, by and among the Bank, CFB, and CFC (the
"Transaction"). The Merger Agreement calls for each of the 354,526
outstanding shares of Common Stock, par value $5 per share (the
"Shares") to be converted into the right to receive shares of CSBI
Common Stock based on the following exchange ratio: 225 percent of the
September 30, 1994 tangible book value per share of the Share divided by
the Fair Market Value per share of the CFC Common Stocks on September
30, 1994.
HJV is an appraisal firm that specializes in the valuation of
closely-held corporations and provides fairness opinions as part of its
practice. Because of its prior experience in the appraisal of
Southeastern Banks involved in mergers, it has developed an expertise in
fairness opinions related to the securities of Southeastern financial
institutions. HJV has been retained by the Bank for the purpose of
rendering a fairness opinion for which fixed compensation will be
received.
In performing its analysis, HJV relied upon and assumed without
independent verification, the accuracy and completeness of all
information provided to it. HJV has not performed any independent
appraisal or evaluation of the assets of the Bank or of CFC or any of
its subsidiaries. As such, HJV docs not express an opinion as to the
Fair Market Value of the Bank. The opinion of financial fairness
expressed herein is necessarily based on market, economic and other
relevant considerations as they exist and can be evaluated as of
February 27, 1995.
In arriving at its opinion, HJV reviewed and analyzed audited and
unaudited financial information regarding the Bank, CFB, CFC, the
Transaction, the Merger Agreement, regulatory applications, national,
state and local peer group information as well as publicly available
information on actual comparable transactions.
At December 31, 1994, the Bank reported total assets of $42.6 million
and total stockholders' equity of $4.0 million. Net income for the year
was reported at $435 thousand.
The exchange ratio defined in the Merger Agreement is calculated to
equal approximately 1.65 shares of CFC received for 1 Share. At
September 30, 1994, with a CFC market price of $15.50 per share, the
value to be received by the shareholders of the Bank would have been
$25.58 per share. At December 31,
C-1
<PAGE>
Midlands National Bank
March 3, 1995
Page 2
1994, with a CFC market price of $14.00 per share, the value to be
received by the shareholders of the Bank would have been $23.10 per
share. As of the date of this letter, with a CFC market price of $15.00
per share, the value to be received by the shareholders of the Bank
would have been $24.75 per share. Since September 30, 1994, the CFC
closing market price per share has been as low as $13.63 per share.
Based on this low market price the value to be received by the
shareholders of the Bank would have been $22.49 per share. HJV
considered each of these value calculations in performing its analysis
and determining the purchase premium.
HJV has compared the purchase premiums with premiums paid in 17
individually comparable 100% common stock transactions announced between
January 1, 1994 and December 31, 1994, within the Southeastern United
States, (either closed or still pending). HJV also reviewed the
aggregate of all first half, 1994 transactions that included selling
institutions with total assets less than $50 million, selling
institutions that were located in a Rural market, selling institutions
that reported returns on average assets of between 1.00 percent and 1.50
percent and those first half, 1994 transactions listed as l00 percent
common stock transactions, presented both nationally and regionally (the
"Comparables"). The purchase premiums in this transaction rank within
the range of purchase premiums paid in the Comparables.
A separate investment and cash flow analysis was performed. This
analysis was used to determine what price an individual would be willing
to pay for a share of Bank Common Stock given a required rate of return
during the investment period. For this analysis, it was assumed that
the investor would own the shares for a ten year period with a required
annual return ranging from 12.00 percent to 14.00 percent. Based on
these assumptions and this analysis, it was determined that the price an
individual would be willing to pay for shares of Bank Common Stock would
range from $10.78 per share to $12.57 per share. This analysis does not
include a control premium nor does it indicate the acquisition value.
Therefore, in consideration of the above, it is the opinion of HJV that,
based on the structure of the Transaction and the analyses that have
been performed, the consideration to be received by the shareholders of
the Bank is fair from a financial point of view.
Sincerely,
Hatcher/Johnson Valuation, Inc.
C-2
<PAGE>
APPENDIX D
Condensed Summary of Earnings
Carolina First Bank
(unaudited)
<TABLE>
<CAPTION>
Years ended December 31,
(dollars in thousands)
1991 1992 1993 1994
<S> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . $ 23,646 $ 24,495 $36,713 $ 55,594
Interest expense . . . . . . . . . . . . . . 14,647 11,953 15,688 22,451
Net interest income. . . . . . . . . . . . 8,999 12,542 21,025 33,143
Provision for loan losses. . . . . . . . . . 1,108 1,309 809 850
Net interest income after provision
for loan losses. . . . . . . . . . . . 7,891 11,233 20,216 32,293
Noninterest income. . . . . . . . . . . . . 2,228 3,361 5,394 5,416
Noninterest expenses. . . . . . . . . . . . 8,530 11,864 20,028 41,584
Income before income taxes . . . . . . . 1,589 2,730 5,582 (3,875)
Income taxes . . . . . . . . . . . . . . . 284 819 1,709 (1,239)
Net income. . . . . . . . . . . . . . . . $ 1,305 $ 1,911 $ 3,873 $ (2,636)
</TABLE>
D-1
<PAGE>
Condensed Balance Sheet
Carolina First Bank
(unaudited)
December 31,
(dollars in thousands)
1993 1994
Assets:
Cash and due from banks. . . . . . . . . . $ 28,844 $49,048
Federal funds sold . . . . . . . . . . . . 51,641 1,000
Investment securities. . . . . . . . . . . 96,200 90,192
Loans. . . . . . . . . . . . . . . . . . . 425,953 647,696
Less unearned income . . . . . . . . . . (2,161) (819)
Less allowance for loan losses . . . . . (4,466) (3,849)
Net loans. . . . . . . . . . . . . . . 419,326 643,028
Premises and equipment . . . . . . . . . . 18,263 24,583
Other assets . . . . . . . . . . . . . . . 23,745 30,104
Total assets . . . . . . . . . . . . . . . .$ 634,019 $ 837,955
Liabilities and stockholders' equity:
Liabilities
Deposits
Noninterest-bearing. . . . . . . . . . $ 55,111 $ 91,618
Interest bearing . . . . . . . . . . . 513,352 617,425
Total deposits . . . . . . . . . . . 568,463 709,043
Borrowed deposits. . . . . . . . . . . . 10,394 66,886
Other liabilities. . . . . . . . . . . . 9,332 6,788
Total Liabilities. . . . . . . . . . . 588,189 782,717
Total stockholders' equity . . . . . . . . . 45,830 55,238
Total liabilities and stockholders' equity. $ 634,019 $ 837,955
D-2
<PAGE>
PART-II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20: Indemnification of Directors and Officers
Reference is made to Chapter 8, Article 5 of Title 33 of the
1976 Code of Laws of South Carolina, as amended, which provides
for indemnification of officers and directors of South Carolina
corporations in certain instances in connection with legal
proceedings involving any such persons because of being or having
been an officer or director. Carolina First Corporation's Bylaws
provide (i) that the Corporation shall indemnify any individual
made a party to a proceeding because he is or was a Director of
the Corporation against liability incurred in the proceeding to
the fullest extent permitted by law, and (ii) that the Corporation
shall pay for or reimburse the reasonable expenses incurred by a
Director who is a party to a proceeding in advance of final
disposition of the proceeding to the fullest extent permitted by
law. Carolina First Corporation has entered into indemnification
agreements with each of its Directors, which generally makes the
above-referenced Bylaws provisions the basis of a contract between
Carolina First Corporation and each director.
Chapter 8, Article 5 of Title 33 of the 1976 Code of Laws of
South Carolina, as amended, also permits a corporation to purchase
and maintain insurance on behalf of a person who is or was an
o f f icer or director. Carolina First Corporation maintains
directors' and officers' liability insurance.
Reference is made to Chapter 2 of Title 33 of the South
Carolina Corporations Law respecting the limitation in a
corporation's articles of incorporation of the personal liability
of a director for breach of the director's fiduciary duty.
Reference is made to Carolina First Corporation's Articles of
Amendment filed with the South Carolina Secretary of State on
April 18, 1989 which state: "A director of the corporation shall
not be personally liable to the corporation or any of its
shareholders for monetary damages for breach of fiduciary duty as
a director, provided that this provision shall not be deemed to
eliminate or limit the liability of a director (i) for any breach
of the director's duty of loyalty to the corporation or its
shareholders, (ii) for acts or omissions not in good faith or
which involved gross negligence, intentional misconduct, or a
knowing violation of law, (iii) imposed under Section 33-8-330 of
the South Carolina Corporations Law (improper distribution to
shareholder), or (iv) for any transaction from which the director
derived an improper personal benefit."
Item 21: Exhibits and Financial Statement Schedules
(a) Listing of Exhibits:
Exhibit
2.1 -- Reorganization Agreement dated as of November 14, 1994
between and among Carolina First Corporation, Carolina First
Bank and Midlands: Included as Appendix A to this filing.
3.1 -- Articles of Incorporation. Incorporated by reference to
Exhibit 3.1 of Carolina First Corporation's Registration
Statement on Form S-4, Commission File No.57389
3.2 -- Bylaws: Incorporated by reference to Exhibit 4.2 of
Carolina First Corporation's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993, Commission
File No. 0-15083.
4.1 -- Specimen CFC common stock certificate: Incorporated by
reference to Exhibit 4.1 of Carolina First Corporation's
Registration Statement on Form S-1, Commission File No.
33-7470.
4.2 -- Specimen Noncumulative Convertible Preferred Stock Series
1993 certificate: Incorporated by reference to Exhibit 4.3
from Carolina First Corporation's Registration Statement
on Form S-2, Commission File No. 33-57110.
II-1
<PAGE>
4.3 -- Specimen Convertible Preferred Stock Series 1993B
certificate: Incorporated by reference to Exhibit 4.3 from
Carolina First Corporation's Registration Statement on Form
S-2, Commission File No. 33-75458.
4.4 -- Specimen Noncumulative Convertible Preferred Stock Series
1994 certificate: Incorporated by reference to Exhibit
4.12 from Carolina First Corporation's Registration
Statement on Form S-2, Commission File No. 33-75458.
4.5 -- Articles of Incorporation: Included as Exhibit 3.1.
4.6 -- Bylaws: Included as Exhibit 3.2.
4.7 -- Series 1993 Preferred Stock Dividend Reinvestment Plan:
Incorporated by reference to the Prospectus in Carolina First
Corporation's Registration Statement on Form S-3, Commission File No.
33-72868.
4.8 -- Common Stock Dividend Reinvestment Plan: Incorporated by
reference to the Prospectus in Carolina First C o
rporation's Registration Statement on Form S-3,
Commission File No. 33-73280.
4.9 -- Series 1994 Preferred Stock Dividend Reinvestment Plan:
Incorporated by reference to the Prospectus in Carolina First
Corporation's Registration Statement on Form S-3, Commission
File No. 33-79774.
4.10 -- Shareholders' Rights Agreement: Incorporated by
reference to Exhibit 2 of Carolina First Corporation's
Current Report on Form 8-K dated November 9, 1993,
Commission File No. 0-15083.
5.1 -- Opinion of Wyche, Burgess, Freeman & Parham, P.A.
regarding legality of shares of Carolina First
Corporation.
8.1 -- Opinion of Wyche, Burgess, Freeman & Parham, P.A.
regarding federal income tax matters.
10.1 -- Carolina First Restricted Stock Plan: Incorporated by
reference to Exhibit 99.1 from the Company's Registration
Statement on Form S-8, Commission File No. 33-82670.
10.2 -- Carolina First Corporation Employee Stock Ownership Plan:
Incorporated by reference to Exhibit 10.2 of Carolina First
Corporation's Annual Report on Form 10-K for the year
ended December 31, 1991, Commission File No. 0-15083.
10.3 -- Carolina First Corporation Amended and Restate Stock
Option Plan: Incorporated by reference to Exhibit 99.1
from the Company's Registration Statement on Form S-8,
Commission File No. 33-80822.
10.4 -- Carolina First Corporation Salary Reduction Plan:
Incorporated by reference to Exhibit 28.1 of Carolina First
Corporation's Registration Statement on Form S-8, Commission
File No. 33-25424.
10.5 -- Noncompetition and Severance Agreement dated November 9,
1993, between Carolina First Corporation and Mack I.
Whittle, Jr.: Incorporated by reference to Exhibit 10.1
of Carolina First Corporation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993, Commission File No.
0-15083.
10.6 -- Noncompetition and Severance Agreement dated November 9,
1993, between Carolina First Corporation and William S.
Hummers III: Incorporated by reference to Exhibit 10.2 of
Carolina First Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993, Commission File No.
0-15083.
10.7 -- Noncompetition and Severance Agreement dated November 9,
1993, between Carolina First Corporation and James W. Terry,
Jr.: Incorporated by reference to Exhibit 10.3 of
Carolina First Corporation's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1993, Commission File No.
0-15083.
10.8 -- Short-Term Performance Plan: Incorporated by reference to
Exhibit 10.3 of Carolina First Corporation's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993,
Commission File No. 0-15083.
10.9 -- Carolina First Corporation Long-Term Management
Performance Plan. Incorporated by reference to Exhibit 10.11
of the Company's Form 10-K for the year ended December 31,
1994.
10.10 -- Employee Stock Purchase Plan: Incorporated by reference
to Exhibit 99.1 from the Company's Registration Statement on
Form S-8, Commission File No. 33-79668.
II-2
<PAGE>
10.11 -- Directors Stock Option Plan: Incorporated by reference to
Exhibit 99.1 from the Company's Registration Statement on
Form S-8, Commission File No. 33-82668.
10.12 -- Capital Maintenance Commitment and Guaranty between
Carolina First Corporation, Carolina First Bank and the
Federal Deposit Insurance Corporation. Incorporated by
reference to Exhibit 10.16 of Carolina First Corporation's
Annual Report on Form 10-K for the year ended December 31,
1994, Commission File No. 0-15083.
10.14 -- Pooling and Servicing Agreement dated as of December 31, 1994
between Carolina First Bank, as Seller and Master Servicer,
and The Chase Manhattan Bank, as Trustee. Incorporated
by reference to Exhibit 28.1 of Carolina First
Corporation's Current Report on Form 8-K dated as of January
24, 1995.
10.15 -- 1994-A Supplement dated as of December 31, 1994 between
Carolina First Bank, as Seller and Master Servicer, and The
Chase Manhattan Bank, as Trustee. Incorporated by reference
to Exhibit 28.2 of Carolina First Corporation's Current Report
on Form 8-K dated as of January 24, 1995.
10.16 -- Servicing Rights Purchase Agreement between Bank of
America, F.S.B. and Carolina First Bank dated as of March 31,
1995: Incorporated by reference to Exhibit 10.17 of Amendment
No.1 to the Company's Annual Report on Form 10- K for the year
ended December 31, 1994.
11.1 -- Computation of Per Share Earnings.
21.1 -- Subsidiaries of the Registrant: Carolina First Bank and
Carolina First Mortgage Company.
23.1 -- Consents of Wyche, Burgess, Freeman & Parham, P.A.:
Contained in Exhibits 5.1 and 8.1.
23.2 -- Consent of Elliott Davis & Co: Contained in Part II at
II-6.
23.3 -- Consent of Donald G. Jones and Company, P.A.: Contained in
Part II at II-7.
23.4 -- Consent of Hatcher/Johnson Valuation, Inc.: Contained in Part
II at II-8.
24.1 -- The Power of Attorney: Contained on the signature page of the
initial filing of this Registration Statement.
27.1 -- Financial Data Schedules.
99.1 -- Form of Proxy
(b) Financial Statement Schedules: See Index to Financial
Statements of Midlands National Bank
(c) Report, Opinion or Appraisal: The opinion of
Hatcher/Johnson Valuation, Inc. is attached to the Proxy
Statement/Prospectus as an Appendix C.
Item 22: Undertakings
(a) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934
that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to
the Securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that
such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings
by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable forms.
(c) The Registrant hereby undertakes that every prospectus (i) that
is filed pursuant to paragraph (b) above, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an
II-3
<PAGE>
offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until
such amendment has become effective, and that for the purpose of
determining liabilities under the Act, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
Prospectus pursuant to items 4, 10(b), 11, or 13 of this Form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement
through the date of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that was
not the subject of and included in the Registration Statement when it
became effective.
(g) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events a r ising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement:
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post- effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Greenville, State of South Carolina, on April 17, 1995.
CAROLINA FIRST CORPORATION
By: /s/ William S. Hummers III
William S. Hummers III
Executive Vice President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Mack I. Whittle, Jr. and
William S. Hummers, III, and each of them, as true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for him or her and in his or her name, place and
stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the SEC, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all which said attorneys-in-fact and agents
or any of them, or their or his or her substitute or
substitutes, may lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons
in the capacities and as of the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William R. Timmons, Jr. Chairman of the Board April 20, 1995
William R. Timmons, Jr.
/s/ Mack I. Whittle, Jr. President, Chief Executive
Mack I. Whittle, Jr. Officer and Director April 20, 1995
(Principal Executive Officer)
/s/ William S. Hummers III Executive Vice President, Director April 20, 1995
William S. Hummers III (Principal Accounting and Financial
Officer)
/s/ Judd B. Farr Director April 20, 1995
Judd B. Farr
/s/ C. Claymon Grimes, Jr. Director April 20, 1995
C. Claymon Grimes, Jr.
/s/ M. Dexter Hagy Director April 20, 1995
M. Dexter Hagy
/s/ Robert E. Hamby, Jr. Director April 20, 1995
Robert E. Hamby, Jr.
/s/ Glenn Hilliard Director April 20, 1995
R. Glenn Hilliard
/s/ Richard E. Ingram Director April 20, 1995
Richard E. Ingram
/s/ Charles B. Schooler Director April 20, 1995
Charles B. Schooler
/s/ Elizabeth P. Stall Director April 20, 1995
Elizabeth P. Stall
/s/ William M. Webster III Director April 20, 1995
William M. Webster III
</TABLE>
II-5
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated February 3, 1995, in the Registration
Statement (Form S-4) and related Prospectus of Carolina First
Corporation for the registration of 784,242 shares of its Common Stock.
ELLIOTT, DAVIS & COMPANY, L.L.P.
Greenville, South Carolina
April 17, 1995
II-6
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated February 8, 1995, in the Registration
Statement (Form S-4) and related Prospectus of Midlands National Bank.
DONALD G. JONES AND COMPANY, P.A.
Columbia, South Carolina
April 17, 1995
II-7
<PAGE>
Hatcher/Johnson Valuation, Inc.
CONSENT OF HATCHER/JOHNSON VALUATION, INC.
We hereby consent to the inclusion as Appendix C to the Proxy
Statement/Prospectus constituting part of the Registration
Statement on Form S-4 of Carolina First Corporation of our letter
to the Board of Directors of Midlands National Bank of and to the
references made to such letter and to the firm in such Proxy
Statement/Prospectus. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules
and regulations of the Securities and Exchange Commission
thereunder.
Hatcher/Johnson Valuation, Inc.
Roswell, Georgia
April 17, 1995
II-8
<PAGE>
WYCHE, BURGESS, FREEMAN & PARHAM, P.A.
ATTORNEYS AT LAW
44 EAST CAMPERDOWN WAY
POST OFFICE BOX 728
GREENVILLE, SOUTH CAROLINA 29602-0728
April 15, 1995
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
Midlands National Bank
305 North Main Street
Prosperity, South Carolina 29127
RE: Registration Statement on Form S-4 with respect to
784,242 shares of Carolina First Corporation Common
Stock
Gentlemen/Ladies:
The opinions set forth herein are rendered with respect to
the 784,242 shares, $1 par value per share, of the Common Stock
(the "Common Stock") of Carolina First Corporation, a South
Carolina corporation (the "Company"), which may be issued by the
Company in connection with its acquisition of Midlands National
Bank ("Midlands"), all as set forth in that certain
Reorganization Agreement entered into as of October 13, 1994 by
and among the Company, Carolina First Bank and Midlands. The
Common Stock is being registered with the Securities and Exchange
Commission by the Company's Registration Statement on Form S-4
(the "Registration Statement") filed on or about January 17,
1994, pursuant to the Securities Act of 1933, as amended.
We have examined the Company's Articles of Incorporation, as
amended, and the Company's Bylaws, as amended, and reviewed the
records of the Company's corporate proceedings. We have made
such investigation of law as we have deemed necessary in order to
enable us to render this opinion. With respect to matters of
fact, we have relied upon information provided to us by the
Company and no further investigation. With respect to all
examined documents, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals, the conformity to authentic originals of all documents
submitted to us as certified, conformed or photostatic copies and
<PAGE>
Carolina First Corporation
Midlands National Bank
April 15, 1995
Page 2
the accuracy and completeness of the information contained therein.
Based on and subject to the foregoing and subject to the
comments, limitations and qualifications set forth below, we are
of the opinion that the shares of Common Stock to be sold
pursuant to the Registration Statement will, when issued to the
Midlands shareholders in accordance with the Reorganization
Agreement, be legally and validly issued and fully paid and non-assessable.
The foregoing opinion is limited to matters governed by the
laws of the State of South Carolina in force on the date of this
letter. We express no opinion with regard to any matter which
may be (or purports to be) governed by the laws of any other
state or jurisdiction. In addition, we express no opinion with
respect to any matter arising under or governed by the South
Carolina Uniform Securities Act, as amended, any law respecting
disclosure, or any law respecting any environmental matter.
This opinion is rendered as of the date of this letter and
applies only to the matters specifically covered by this opinion,
and we disclaim any continuing responsibility for matters
occurring after the date of this letter.
Except as noted below, this opinion is rendered solely for
your benefit in connection with the Registration Statement and
may not be relied upon, quoted or used by any other person or
entity or for any other purpose without our prior written
consent.
We consent to the use of this opinion as an exhibit to the
Registration Statement.
Yours truly,
Wyche, Burgess, Freeman & Parham, P.A.
By: /s/ William P. Crawford, Jr.
William P. Crawford, Jr.
<PAGE>
FORM OF TAX OPINION
April __, 1995
(803) 242-8255
Midlands National Bank
305 North Main Street
Prosperity, South Carolina 29127
RE: Acquisition of Midlands National Bank by Carolina First
Corporation
Ladies and Gentlemen:
You have requested our opinion as to the federal income tax
consequences of the proposed acquisition of Midlands National
Bank ("Midlands"), a national banking association headquartered
in Prosperity, South Carolina, by Carolina First Corporation
("CFC"), a South Carolina-chartered bank holding company
headquartered in Greenville, South Carolina, such acquisition
being effected pursuant to the terms and provisions of that
certain Reorganization Agreement (the "Reorganization
Agreement"), dated November 14, 1994, entered into by CFC,
Midlands, and Carolina First Bank, which is a wholly-owned
subsidiary of CFC.
This opinion is delivered to you pursuant to section 8.6 of
the Reorganization Agreement. Capitalized terms used herein
which are defined in the Reorganization Agreement have the same
meaning as in the Reorganization Agreement.
The Reorganization Agreement provides that at the Effective
Time, Midlands shall be merged with and into Carolina First Bank.
Carolina First Bank will be surviving corporation in the Merger
and the separate corporate existence of Midlands will cease. The
Merger will be consummated in accordance with applicable
corporate laws of South Carolina and the federal regulations
applicable to thrift institutions. In the Merger, each
outstanding share of Midlands common stock shall be converted
into and exchanged for 1.125 shares of CFC common stock, except
for those shares for which dissenters' rights are perfected.
Cash will be paid in lieu of any fractional shares which result.
<PAGE>
Consummation of the Merger is subject to certain conditions set
forth in the Reorganization Agreement.
We are general counsel to CFC. We have acted as counsel to
CFC in connection with the transactions contemplated by the
Reorganization Agreement and, as such, we have participated in
the negotiation and drafting of the Reorganization Agreement. As
to matters of fact material to this opinion, we have made the
following factual assumptions in rendering the opinion
hereinafter set forth:
(a) That the Merger will be consummated in strict
compliance with the terms and conditions described in the
Reorganization Agreement;
(b) That all representations and warranties contained in
the Reorganization Agreement are true and will be true as of the
Effective Time and that each party to the Reorganization
Agreement will perform all obligations, duties or other
responsibilities agreed upon by such party therein;
(c) That shareholders of Midlands will exchange, for CFC
common stock, an amount of Midlands stock which possesses at
least 80% of the total combined voting power of all classes of
Midlands stock and which is at least 80% of the total number of
shares of all classes of Midlands stock; and that such
shareholders will have no plan or intention to sell or dispose of
the CFC common stock received in the Merger and will not exercise
dissenters' rights with respect to their Midlands shares.
(d) That Carolina First Bank will acquire and hold
substantially all of the properties of Midlands in and after the
Merger, and that no material properties of Midlands were
transferred or otherwise disposed of prior to the Merger other
than in the ordinary course of business.
(e) That all of the shares of CFC common stock to be
received by shareholder/employees of Midlands will be received
solely in exchange for Midlands common stock not acquired
pursuant to the exercise of an employee stock option or otherwise
as compensation.
Based upon the foregoing, we are of the opinion that:
(1) The Merger will constitute a tax-free
reorganization under Section 368(a)(1)(A) and Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended, and no gain or loss for federal income tax purposes
will be recognized by the shareholders of Midlands upon the
exchange of their Midlands common stock solely for CFC
common stock (disregarding any cash received for fractional
share interests or in connection with the exercise of
dissenters' rights).
<PAGE>
(2) The basis of the CFC common stock that such
Midlands shareholders will receive will be the same as their
basis in the Midlands common stock they surrender. Their
holding period for such CFC stock will include their holding
period for the Midlands common stock for which it is
exchanged; provided that the Midlands common stock is held
as a capital asset at the date of the exchange.
(3) When cash is received by a Midlands shareholder in
lieu of fractional shares, such cash will be treated for
federal income tax purposes as having been received by such
shareholder in redemption of such fractional share and
therefore taxable to the extent that such distribution
exceeds the shareholder's basis in such fractional share.
(4) A dissenting shareholder who receives cash for his
Midlands shares will be treated for federal income tax
purposes as having received a payment in redemption for such
shares and, assuming that such payment completely terminates
his interest in Midlands (taking into account any stock
attributed to such shareholder), such payment will be
taxable to the extent it exceeds such shareholder's basis in
such Midlands shares.
(5) No gain or loss will be recognized by CFC, Carolina
First Bank or Midlands in the Merger. The basis of the
assets of the surviving corporation, Carolina First Bank,
will be unchanged.
We express no opinion other than that stated immediately
above. This opinion is based on the current state of the law as
evidenced by applicable statutes, regulations, rulings and
judicial decisions. Any of these statutes, regulations, rulings
and judicial decisions can change at any time on a prospective or
retroactive basis, in which event some or all of the previous
opinion may become inapplicable.
This opinion does not cover all tax consequences that may be
relevant to Midlands shareholders subject to special federal
income tax treatment (such as insurance companies, dealers in
securities, certain retirement plans, financial institutions, tax
exempt organizations or foreign persons), nor does it cover state
or local tax consequences.
The opinion expressed above is solely for the benefit of
Midlands, CFC and Carolina First Bank and may not be relied on in
any manner for any other purpose by any other person.
We hereby indicate our consent to the use of this opinion as
Exhibit 8.1 to the Registration Statement on Form S-4 (No. 33-
______) filed by CFC with respect to the registration under the
Securities Act of 1933 of the CFC common stock issued in
connection with the Merger. We further indicate our consent to
5<PAGE>
the reference to our law firm as it appears under the caption
"Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus included as part of the Registration
Statement.
Very truly yours,
Wyche, Burgess, Freeman & Parham, P.A.
By:
Cary H. Hall, Jr.
6
<PAGE>
EXHIBIT 11.1 Computation of Per Share Earnings
EXHIBIT 11.1
CAROLINA FIRST CORPORATION
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER SHARE
($, Except Share Data, in Thousands)
Year Ended
December 31, 1994
Primary
Net income (loss) applicable to
common shareholders $ (4,302)
Shares:
Weighted average number of
outstanding common shares 4,521,274
Primary earnings per common share $ (0.95)
Fully Diluted
Net income applicable to
common shareholders $ (4,302)
Dividends on preferred stock 2,433
Net income $ (1,869)
Shares:
Weighted average number of
outstanding common shares 4,521,274
Weighted average common share
equivalents from preferred stock 2,468,729
Total common share equivalents 6,990,003
Fully diluted earnings per share $ (0.27)
7
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-1-1994
<PERIOD-END> DEC-31-1994
<CASH> 54,547
<INT-BEARING-DEPOSITS> 500
<FED-FUNDS-SOLD> 500
<TRADING-ASSETS> 1,155
<INVESTMENTS-HELD-FOR-SALE> 49,648
<INVESTMENTS-CARRYING> 66,256
<INVESTMENTS-MARKET> 62,868
<LOANS> 865,869<F1>
<ALLOWANCE> 5,267
<TOTAL-ASSETS> 1,120,097
<DEPOSITS> 925,448
<SHORT-TERM> 106,038
<LIABILITIES-OTHER> 8,408
<LONG-TERM> 1,162
<COMMON> 4,581
0
37,014
<OTHER-SE> 37,446
<TOTAL-LIABILITIES-AND-EQUITY> 1,120,097
<INTEREST-LOAN> 65,302
<INTEREST-INVEST> 5,916
<INTEREST-OTHER> 373
<INTEREST-TOTAL> 71,591
<INTEREST-DEPOSIT> 28,206
<INTEREST-EXPENSE> 29,964
<INTEREST-INCOME-NET> 41,627
<LOAN-LOSSES> 950
<SECURITIES-GAINS> 234
<EXPENSE-OTHER> 50,453
<INCOME-PRETAX> (1,918)
<INCOME-PRE-EXTRAORDINARY> (1,918)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,869)
<EPS-PRIMARY> (.95)
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.37
<LOANS-NON> 1,012
<LOANS-PAST> 1,285
<LOANS-TROUBLED> 675
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,688
<CHARGE-OFFS> 2,562
<RECOVERIES> 113
<ALLOWANCE-CLOSE> 5,267
<ALLOWANCE-DOMESTIC> 5,267
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Included held for sale.
</FN>
</TABLE>
<PAGE>
P EXHIBIT 99.1
R
O MIDLANDS NATIONAL BANK
X This Proxy is Solicited on Behalf of the Board of Directors
Y
Special Meeting, May 23, 1995
The undersigned stockholder of Midlands National Bank, hereby revoking all
previous proxies, hereby appoints _________ and _________ and either of them,
the attorney or attorneys and proxy or proxies of the undersigned, with full
power of substitution, to attend the Special Meeting of Stockholders of
Midlands National Bank to be held March 23, 1995, at 10:30 a.m. at 305 North
Main Street, Prosperity, South Carolina 29127 and at any adjournments
thereof, and to vote all shares of stock of Midlands National Bank that the
undersigned shall be entitled to vote at such meeting. Said proxies are
instructed to vote on the matters set forth in the proxy statement/prospectus
as specified below.
1. To approve the Reorganization Agreement dated November 14, 1994,
providing for the merger of Midlands National Bank with and into
Carolina First Bank, a wholly-owned subsidiary of Carolina First
Corporation, and, in connection therewith, the conversion of each
share of common stock of Midlands National Bank into the right to
receive 1.65 shares of common stock of Carolina First Corporation.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY SIGNED AND DATED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSAL NUMBER 1 AS SPECIFIED ABOVE.
Please sign exactly as name appears on stock certificate. When signing as
attorney, administrator, trustee, guardian or agent, please indicate the
capacity in which you are acting. If stock is held jointly, signature should
appear for both names. If more than one trustee, all should sign. If stock
is held by a corporation, please sign in full corporate name by authorized
officer and give title of office. This Proxy may be revoked any time prior
to its exercise.
Dated: ______________________, 1995
Print Name (and title if appropriate)
Signature
Print Name (and title if appropriate)
Signature
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
