As filed with the Securities and Exchange Commission on August 18, 1998.
Registration No. 333-______
---------------------
- --------------------------------------------------------------------------------
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 Classification Code Number Identification No.)
organization)
102 SOUTH MAIN STREET
GREENVILLE, SOUTH CAROLINA 29601
(864) 255-7900
- --------------------------------------------------------------------------------
(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
(864) 255-7913
- --------------------------------------------------------------------------------
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
Copies to:
WILLIAM P. CRAWFORD, JR., ESQ.
WYCHE, BURGESS, FREEMAN & PARHAM, P.A.
POST OFFICE BOX 728
GREENVILLE, SOUTH CAROLINA 29602-0728
(864) 242-8200 (TELEPHONE)
(864) 235-8900 (FACSIMILE)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box.[ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount
Title of Each Class Amount to Offering Price Aggregate of Registration
of Securities to be Registered be Registered Per Unit (1) Offering Price (1) Fee (2)
- ------------------------------ ------------- ------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Common Stock 642,571 $8.27 $5,314,683 $1,567.83
(par value $1.00 per share)
</TABLE>
================================================================================
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(f). Pursuant to Rule 457(f)(2), the Proposed
Maximum Aggregate Offering Price has been determined based upon $5,314,683,
which is the book value of the Colonial Bank of South Carolina, Inc. common
stock to be received by Carolina First Corporation in the Merger as of June
30, 1998 (the latest practicable date).
(2) Calculated pursuant to Rule 457(f).
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 THAT 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>
COLONIAL BANK OF SOUTH CAROLINA, INC.
1111 Broad Street
Camden, South Carolina 29020
August 24, 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Colonial Bank of South Carolina, Inc. ("Special Meeting") to be held at the main
office of Colonial Bank of South Carolina, Inc. ("Colonial Bank") located at
1111 Broad Street, Camden, South Carolina 29020, on Monday, September 28,
1998, at 10:00 a.m., local time.
At the Special Meeting you will be asked to consider and vote upon the
Reorganization Agreement ("Reorganization Agreement") dated as of July 9, 1998
by and among Colonial Bank, Carolina First Corporation and Carolina First Bank.
If the Reorganization Agreement is approved by the holders of at least
two-thirds of the outstanding shares of common stock of Colonial Bank and
certain other conditions are met, Colonial Bank will be merged (the "Merger")
with and into Carolina First Bank, a wholly-owned banking subsidiary of Carolina
First Corporation, which will be the surviving entity in the Merger. In
connection with the Merger, Colonial Bank shareholders will receive shares of
Carolina First Corporation common stock having a fair market value (as defined
in the Reorganization Agreement) of $23.00 for each share of Colonial Bank
common stock held by them. On August ___, 1998, the last reported sale price of
Carolina First Corporation common stock on the Nasdaq National Market was
$_______ per share. The Reorganization Agreement is described in detail in the
accompanying Proxy Statement/Prospectus and is attached as Annex A thereto.
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 Colonial Bank, and
other information. You are urged to consider carefully the entire Proxy
Statement/Prospectus, including the annexes thereto.
THE BOARD OF DIRECTORS OF COLONIAL BANK BELIEVES THAT THE REORGANIZATION
AGREEMENT IS IN THE BEST INTERESTS OF COLONIAL BANK AND ITS SHAREHOLDERS AND
RECOMMENDS A VOTE FOR THE APPROVAL OF THE REORGANIZATION AGREEMENT.
Because the affirmative vote of holders of at least two-thirds of the
issued and outstanding shares of Colonial Bank common stock is required to
approve the Reorganization Agreement, it is important that your shares of
Colonial Bank common stock be represented at the Special Meeting, whether or not
you are personally able to attend. A failure to vote, either by not returning
the enclosed Proxy or by checking the "Abstain" box thereon, will have the same
effect as a vote against the Reorganization Agreement. 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 shares of which
you are the record owner in person, even if you have already returned your
Proxy.
Sincerely,
Guy S. Hutchins, Jr.
Chairman of the Board
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
1111 Broad Street
Camden, South Carolina 29020
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 28, 1998
TO THE SHAREHOLDERS OF COLONIAL BANK OF SOUTH CAROLINA, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Colonial
Bank of South Carolina, Inc. ("Special Meeting") is to be held at the main
office of Colonial Bank of South Carolina, Inc. ("Colonial Bank") located at
1111 Broad Street, Camden, South Carolina 29020, on Monday, September 28,
1998, at 10:00 a.m., local time, for the following purposes:
1. CONSIDERATION OF THE REORGANIZATION AGREEMENT. To consider and vote
upon a proposal to approve the Reorganization Agreement ("Reorganization
Agreement") dated as of July 9, 1998, between Carolina First Corporation,
Carolina First Bank and Colonial Bank, pursuant to which Colonial Bank will be
merged (the "Merger") into Carolina First Bank, a wholly-owned banking
subsidiary of Carolina First Corporation, and Colonial Bank shareholders will
receive Carolina First Corporation common stock in exchange for their shares of
Colonial Bank common stock, all on and subject to the terms and conditions
contained therein.
2. OTHER BUSINESS. To transact such other business as may properly come
before the Special Meeting or any adjournments thereof.
Only shareholders of record at the close of business on August 14, 1998,
are entitled to notice of and to vote at the Special Meeting or any adjournments
thereof. The affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Colonial Bank common stock is required to
approve the Reorganization Agreement. 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 the record shareholder (i) by giving written notice to the
Secretary of Colonial Bank at any time before it is voted, (ii) by submitting a
proxy having a later date, or (iii) by such persons appearing at the Special
Meeting and giving notice of revocation to the corporate officers responsible
for maintaining the list of shareholders.
By Order of the Board of Directors,
August 24, 1998 Guy S. Hutchins, Jr.
Chairman of the Board
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN.
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 for 642,571 Shares of Common Stock $1.00 Par Value Per Share
COLONIAL BANK OF SOUTH CAROLINA, INC.
Proxy Statement for Special Meeting of Shareholders
This Proxy Statement/Prospectus relates to the issuance by Carolina First
Corporation of up to 642,571 shares (the "Carolina First Corporation Shares") of
its $1.00 par value common stock ("Carolina First Corporation common stock") in
connection with the proposed merger (the "Merger") of Colonial Bank of South
Carolina, Inc. ("Colonial Bank") with and into Carolina First Bank, a
wholly-owned banking subsidiary of Carolina First Corporation. Upon consummation
of the Merger, each outstanding share of Colonial Bank common stock will be
converted into shares of Carolina First Corporation common stock having a fair
market value (as defined in the Reorganization Agreement) of $23.00. The
Carolina First Corporation Shares are offered to the Colonial Bank shareholders
subject to the terms and conditions specified in the Reorganization Agreement
("Reorganization Agreement") dated as of July 9, 1998 and entered into by and
among Carolina First Corporation, Carolina First Bank and Colonial Bank. The
Reorganization Agreement provides that as a result of the transactions specified
in the Reorganization Agreement, the Colonial Bank common stock will be
canceled. Upon consummation of the transactions specified in the Reorganization
Agreement, the current operations of Colonial Bank would become part of the
banking operations of Carolina First Bank. Cash will be paid in lieu of
fractional shares to which a Colonial Bank shareholder becomes entitled. See
"THE PROPOSED TRANSACTION -- General Description of the Terms of the
Reorganization Agreement."
This Proxy Statement/Prospectus serves as the Proxy Statement of Colonial
Bank in connection with the solicitation of proxies to be used at the Special
Meeting of Shareholders of Colonial Bank (the "Special Meeting") to be held on
September 28, 1998 for the purposes described herein. This Proxy
Statement/Prospectus is first being sent to Colonial Bank shareholders on or
about August 24, 1998.
Consummation of the transactions contemplated in the Reorganization
Agreement is subject to certain conditions, including, among others, approval by
the shareholders of Colonial Bank at the Special Meeting and approval by
applicable regulatory authorities.
Any shareholder of Colonial Bank 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 Colonial Bank 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 Colonial Bank."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY SHAREHOLDERS OF COLONIAL BANK.
COLONIAL BANK'S BOARD OF DIRECTORS RECOMMENDS THAT COLONIAL BANK'S
SHAREHOLDERS VOTE TO APPROVE THE REORGANIZATION AGREEMENT.
The Carolina First Corporation common stock is traded on the Nasdaq
National Market under the Nasdaq market symbol "CAFC." On May 21, 1998 (the last
business day prior to the announcement of the Merger), the closing bid price of
the Carolina First Corporation common stock, as reported by Nasdaq, was $28.125
per share. The Colonial Bank common stock is not traded on any established
market and has experienced very limited trading. Colonial Bank management is
aware of sales prices for Colonial Bank common stock ranging from $11.00 to
$12.00 per share during 1998.
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 CAROLINA FIRST CORPORATION SHARES OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS AND LOAN
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
OTHER GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is August 24, 1998.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION........................................................4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE............................4
OTHER INFORMATION............................................................5
SUMMARY......................................................................6
Introduction...........................................................6
Time, Place and Purposes of the Special Meeting........................6
Parties to the Reorganization Agreement................................6
General Terms of the Proposed Transaction..............................7
Vote Required and Record Date..........................................7
Recommendation of Colonial Bank's Board of Directors...................7
Rights of Dissenting Shareholders......................................7
Certain Differences in Shareholders' Rights............................8
Conditions and Regulatory Approvals....................................8
Termination of the Reorganization Agreement............................8
Effective Time of the Merger...........................................8
Opinion of Financial Advisor...........................................9
Certain Federal Income Tax Consequences................................9
Interests of Certain Persons...........................................9
Restrictions on Resales by Affiliates.................................10
Accounting Treatment..................................................10
Market Prices and Dividends...........................................10
Selected Consolidated Financial Data..................................11
Comparative Per Share Data............................................15
RISK FACTORS................................................................16
Dependence on Senior Management.......................................16
Growth Through Acquisitions...........................................16
Antitakeover Measures.................................................16
Commercial Lending Activities.........................................16
INFORMATION CONCERNING THE COLONIAL BANK SPECIAL MEETING....................17
Special Meeting.......................................................17
Purpose of the Special Meeting..................................17
Colonial Bank Record Date and Voting Rights.....................17
Proxies.........................................................17
Recommendation..................................................18
THE PROPOSED TRANSACTION....................................................19
General Description of the Terms of the Reorganization Agreement......19
Background of and Reasons for the Reorganization Agreement............20
Opinion of Colonial Bank's Financial Advisor..........................21
Exchange of Colonial Bank Stock Certificates..........................24
Conditions to Consummation of the Merger..............................25
Termination...........................................................26
Amendment.............................................................26
Conduct of Colonial Bank's and Carolina First Corporation's
Business Prior to the Effective Time................................26
Required Regulatory Approvals.........................................27
Operations After the Merger...........................................28
Interests of Certain Persons in the Merger............................28
Accounting Treatment..................................................29
Certain Federal Income Tax Consequences...............................29
1
<PAGE>
Restrictions on Resales by Affiliates.................................30
Rights of Dissenting Shareholders of Colonial Bank....................31
Recommendation of Colonial Bank's Board of Directors..................33
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION..........................34
INFORMATION ABOUT CAROLINA FIRST CORPORATION................................39
General...............................................................39
Capital Adequacy......................................................40
Recent Developments...................................................42
INFORMATION ABOUT COLONIAL BANK.............................................43
History and Business..................................................43
Management's Discussion and Analysis of Financial Condition and
Results of Operation................................................43
Earnings Review.......................................................43
Net Interest Income...................................................44
Interest Rate Sensitivity.............................................46
Provision for Loan Losses.............................................47
Non-Interest Income...................................................48
Non-Interest Expenses.................................................48
Income Taxes..........................................................48
Securities............................................................48
Loan Portfolio........................................................49
Allowance for Loan Losses.............................................53
Deposits..............................................................54
Return on Equity and Assets...........................................55
Liquidity.............................................................55
Capital Resources.....................................................56
Inflation.............................................................56
Accounting and Regulatory Matters.....................................56
Year 2000.............................................................57
Employees.............................................................57
Supervision and Regulation............................................57
Description of Property...............................................63
Legal Proceedings.....................................................63
Market for Common Stock and Dividends.................................63
Management and Principal Shareholders of Colonial Bank................65
COMPARATIVE RIGHTS OF SHAREHOLDERS..........................................67
Comparison of Carolina First Corporation Common Stock and
Colonial Bank Common Stock..........................................67
CAROLINA FIRST CORPORATION CAPITAL STOCK....................................70
Common Stock..........................................................70
Preferred Stock.......................................................70
Certain Matters.......................................................70
LEGAL MATTERS...............................................................74
EXPERTS.....................................................................74
OTHER MATTERS...............................................................74
INDEX TO FINANCIAL STATEMENTS...............................................F-1
2
<PAGE>
ANNEXES
Reorganization Agreement.........................................Annex A
Opinion of Capital Resources Group, Inc..........................Annex B
Dissenter's Rights Statute.......................................Annex C
Financial Statements of Carolina First Bank......................Annex D
3
<PAGE>
AVAILABLE INFORMATION
Carolina First Corporation and Colonial Bank are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
("Exchange Act") and, in accordance therewith, files reports, proxy statements
and other information with the Securities and Exchange Commission
("Commission"). Such reports, proxy statements and other information filed with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 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, Suite 1300, New
York, New York 10048 and Chicago Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. 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, upon the payment of fees at prescribed rates. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
(including Carolina First Corporation and Colonial) that file electronically
with the Commission.
Carolina First Corporation has filed with the Commission a Registration
Statement (which shall include any amendments thereto) on Form S-4
("Registration Statement") under the Securities Act of 1933, as amended
("Securities Act"), with respect to the Carolina First Corporation 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 annexes 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, Colonial Bank and the
Carolina First Corporation Shares offered hereby, reference is hereby made to
the Registration Statement, including the annexes and schedules thereto.
All information contained or incorporated by reference in this Proxy
Statement/Prospectus with respect to Carolina First Corporation has been
supplied by Carolina First Corporation, and all information contained or
incorporated by reference in this Proxy Statement/Prospectus with respect to
Colonial Bank has been supplied by Colonial Bank.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH
RESPECT TO CAROLINA FIRST CORPORATION 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 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 (864) 255-7900. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY SEPTEMBER
17, 1998.
The following documents filed with the Commission by Carolina First
Corporation pursuant to Section 13(a) or 15(d) of the Exchange Act are
incorporated herein by reference:
(i) Carolina First Corporation's Annual Report on Form 10-K for the
year ended December 31, 1997;
(ii) Carolina First Corporation's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1998 and June 30, 1998;
4
<PAGE>
(iii) Carolina First Corporation's Current Reports on Form 8-K dated
February 13, 1998; and
(iv) The description of the Carolina First Corporation common stock
which is contained in Carolina First Corporation's Form 8-A filed
with the Commission on or about October 20, 1986, 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 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
Carolina First Corporation common stock offered hereby to be received by
shareholders deemed to be "affiliates" of Carolina First Corporation or Colonial
Bank 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 Colonial Bank.
No person is authorized to give any information or to make any
representation not contained in or incorporated by reference in this Proxy
Statement/Prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by Carolina First Corporation
or Colonial Bank. This Proxy Statement/Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, any of the securities offered
hereby to any person or 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 in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor any sale hereunder shall under any circumstances create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs of
Carolina First Corporation or Colonial Bank since such date.
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 ANNEXES, AND THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE AND
INCLUDED HEREWITH. A COPY OF THE REORGANIZATION AGREEMENT (EXCLUDING THE
SCHEDULES ATTACHED THERETO) IS ATTACHED HERETO AS ANNEX A AND IS INCORPORATED
HEREIN BY REFERENCE. AS USED HEREIN, THE TERM "CAROLINA FIRST CORPORATION"
REFERS TO CAROLINA FIRST CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES, UNLESS
THE CONTEXT OTHERWISE REQUIRES.
INTRODUCTION. This Proxy Statement/Prospectus is furnished in connection
with (i) the issuance by Carolina First Corporation of the Carolina First
Corporation Shares and (ii) the solicitation of proxies by the Colonial Bank
Board of Directors with respect to the Special Meeting to be held on September
28, 1998 and at any adjournment thereof. The Special Meeting is being held for
the purpose of considering and voting upon the Reorganization Agreement. This
Proxy Statement/Prospectus is first being mailed to Colonial Bank shareholders
on or about August 24, 1998.
TIME, PLACE AND PURPOSES OF THE SPECIAL MEETING. The Special Meeting
will be held on September 28, 1998 at 10:00 a.m., local time, at Colonial Bank's
main office, located at 1111 Broad Street, Camden, South Carolina. At the
Special Meeting, shareholders of Colonial Bank will consider and vote on the
proposal to approve the Reorganization Agreement, which provides for the Merger
of Colonial Bank into Carolina First Bank and the exchange of Colonial Bank
common stock for Carolina First Corporation common stock. See "INFORMATION
CONCERNING THE SPECIAL MEETING."
PARTIES TO THE REORGANIZATION AGREEMENT.
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 four principal operating subsidiaries: (1) Carolina
First Bank, a South Carolina-chartered commercial bank headquartered in
Greenville, South Carolina, (2) Carolina First Mortgage Company, a mortgage loan
origination and servicing company headquartered in Columbia, South Carolina, (3)
Blue Ridge Finance Company, Inc., an automobile finance company headquartered in
Greenville, South Carolina, and (4) Resource Processing Group, Inc., a credit
card origination and servicing company headquartered in Columbia, South
Carolina. Carolina First Corporation is a South Carolina corporation which was
organized in 1986. At June 30, 1998, it had total consolidated assets of
approximately $2.3 billion. Its principal executive offices are located at 102
South Main Street, Greenville, South Carolina 29601, and its telephone number is
(864) 255-7900. See "INFORMATION ABOUT CAROLINA FIRST CORPORATION."
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 58 locations which are located
throughout South Carolina. It began its operations in December 1986 and at June
30, 1998 had total assets of approximately $2.2 billion, total loans net of
unearned income of approximately $1.5 billion and total deposits of
approximately $1.9 billion. Carolina First Bank's deposits are insured by the
Federal Deposit Insurance Corporation (the "FDIC"). See "INFORMATION ABOUT
CAROLINA FIRST CORPORATION."
COLONIAL BANK. Colonial Bank is a state-chartered commercial bank
headquartered in Camden,
6
<PAGE>
South Carolina which conducts a general banking business principally in Kershaw
County, South Carolina. At June 30, 1998, Colonial Bank had total assets of
approximately $59.8 million. Its principal executive offices are located at
1111 Broad Street, Camden, South Carolina 29020, and its telephone number is
(803) 432-3500. See "INFORMATION ABOUT COLONIAL BANK" and the documents that
accompany this Proxy Statement/Prospectus.
GENERAL TERMS OF THE PROPOSED TRANSACTION. Pursuant to the terms of the
Reorganization Agreement, upon consummation of the Merger, holders of Colonial
Bank common stock will be entitled to receive shares of Carolina First
Corporation common stock having a fair market value (as defined in the
Reorganization Agreement) of $23.00 for each outstanding share of Colonial Bank
common stock held by them (the "Conversion Ratio"). The "fair market value" is
defined in the Reorganization Agreement as the average of the closing prices as
quoted on the Nasdaq National Market for Carolina First Corporation common stock
for the twenty days in which Carolina First Corporation common stock was traded
immediately prior to the Closing Date, except that if prior to the effective
time of the Merger, any other person or entity shall have publicly announced an
intention to acquire control of Carolina First Corporation by merger or
otherwise or Carolina First Corporation shall have publicly acknowledged that it
is seeking to be acquired by another person or entity or is discussing being
acquired by another person or entity, then the average of the closing prices as
quoted on the Nasdaq National Market for Carolina First Corporation common stock
for the 20 days for which the Carolina First Corporation common stock was traded
immediately prior to such announcement or acknowledgment shall be determined
and, if such average is less than the average derived from the 20 trading days
immediately prior to the Closing Date, then the smaller average shall be the
fair market value. All of the stock prices set forth above are subject to
equitable adjustment for stock splits, stock dividends, reverse stock splits and
similar items. See "THE PROPOSED TRANSACTION -- General Description of the Terms
of the Reorganization Agreement."
VOTE REQUIRED AND RECORD DATE. Only Colonial Bank shareholders of record
at the close of business on August 14, 1998 ("Record Date") will be entitled to
notice of and to vote 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 Colonial Bank common stock eligible to vote at the Special Meeting. As of the
Record Date, there were 583,019 shares of Colonial Bank's common stock entitled
to vote. As of the date hereof, the directors and executive officers of Colonial
Bank and their affiliates beneficially owned 276,421 shares, or approximately
41.2% of Colonial Bank's common stock. Upon consummation of the transactions
contemplated hereby (and assuming a "fair market value" of $25.00 per share of
Carolina First Corporation common stock), such persons will beneficially own
254,307 shares of Carolina First Corporation common stock, or 1.4% of the
outstanding Carolina First Corporation common stock.
RECOMMENDATION OF COLONIAL BANK'S BOARD OF DIRECTORS.
THE BOARD OF DIRECTORS OF COLONIAL BANK HAS APPROVED THE REORGANIZATION
AGREEMENT AND BELIEVES THAT THE REORGANIZATION AGREEMENT IS IN THE BEST
INTERESTS OF COLONIAL BANK AND ITS SHAREHOLDERS. IT RECOMMENDS THAT COLONIAL
BANK'S SHAREHOLDERS VOTE FOR THE REORGANIZATION AGREEMENT. SEE "THE PROPOSED
TRANSACTION -- RECOMMENDATION OF BOARD OF DIRECTORS."
RIGHTS OF DISSENTING SHAREHOLDERS. Pursuant to Chapter 13 of the South
Carolina Business Corporation Act of 1988, as amended (the "South Carolina
Dissenters' Rights Statute"), the holders of shares of Colonial Bank common
stock are entitled to dissent from the approval of the Merger Agreement and to
receive payment of the fair value of their shares of Colonial Bank common stock
in the event the Merger is consummated, upon compliance with the provisions of
the South Carolina Dissenters' Rights Statute. Holders of Colonial Bank common
stock who wish to assert their dissenters' rights must (i) deliver to Colonial
Bank,
7
<PAGE>
before the vote on the Merger Agreement is taken, written notice of their intent
to demand payment for their shares in the event the Merger is consummated, (ii)
not vote such shares in favor of the Merger and the Merger Agreement and (iii)
comply with the further provisions of the South Carolina Dissenters' Rights
Statute. The delivery of a proxy or a vote against approval of the Merger
Agreement will not constitute adequate notice of an intent to demand payment,
but a failure to vote against such approval will not constitute a waiver of
dissenters' rights. Any deviation from the procedures set forth in the South
Carolina Dissenters' Rights Statute could result in the forfeiture of
dissenters' rights. Accordingly, shareholders of Colonial Bank wishing to
dissent from approval of the Merger Agreement are urged to read carefully "THE
PROPOSED TRANSACTION -- Rights of Dissenting Shareholders of Colonial Bank" and
the copy of the South Carolina Dissenters' Rights Statute set forth as Annex C
to this Proxy Statement/Prospectus and to consult with their own legal advisors.
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS. Upon effectiveness of the
Merger, the former Colonial Bank shareholders will become shareholders of
Carolina First Corporation, and their rights as shareholders will be determined
by Carolina First Corporation's Articles of Incorporation and Bylaws. The rights
of shareholders of Carolina First Corporation differ from the rights of
shareholders of Colonial Bank in several important respects, including, among
other things, dissenters' rights, required shareholder votes on certain matters
and the existence of certain antitakeover provisions. See "COMPARATIVE RIGHTS OF
SHAREHOLDERS."
CONDITIONS AND REGULATORY APPROVALS. Consummation of the transactions
contemplated by the Reorganization Agreement is subject to various conditions,
including receipt of the necessary regulatory approvals (including, without
limitation, the approval by the FDIC and the South Carolina State Board of
Financial Institutions (the "State Board")), and the requisite shareholder
approval of Colonial Bank. Applications to the necessary regulatory authorities
seeking approval of the proposed transaction have been filed. The parties expect
that such applications will be approved. Carolina First Corporation and Colonial
Bank 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 REORGANIZATION AGREEMENT. The Reorganization
Agreement may be terminated at any time prior to the Closing Date: (a) by mutual
consent of the parties; (b) by either Carolina First Corporation or Colonial
Bank, at that party's option, (i) 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, or (ii) if the Colonial Bank shareholder approval is not
received at the Special Meeting; (c) by either Carolina First Corporation or
Colonial Bank if the other party (or its subsidiaries) has failed to comply with
the agreements or failed to fulfill the conditions contained in the
Reorganization Agreement except that any such failure of compliance or
fulfillment must result in a "material adverse event" (as defined in the
Reorganization Agreement) and the breaching party must be given notice of the
failure to comply and a reasonable period of time to cure; or (d) by either
Carolina First Corporation or Colonial Bank in the event that closing has not
occurred by March 31, 1999. The Reorganization 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 ("Effective Time") that
are delivered for filing to the Secretary of State of South Carolina. The
Effective Time will occur after all conditions specified in the Reorganization
Agreement have been satisfied or waived, on such date as Carolina First
Corporation shall notify Colonial Bank in writing not
8
<PAGE>
less than five days prior thereto, which date shall not be more than 30 days
after all conditions have been satisfied or waived in writing. The Effective
Time currently is anticipated to be approximately September 30, 1998, although
delays in the satisfaction of the conditions to consummation of the Merger could
result in a later Effective Time. See "THE PROPOSED TRANSACTION -- Conditions to
Consummation of the Merger."
OPINION OF FINANCIAL ADVISOR. Capital Resources Group, Inc. ("Capital
Resources") has served as financial adviser to Colonial Bank in connection with
the Reorganization Agreement and has rendered an opinion to the Colonial Bank
Board of Directors that the consideration to be received by shareholders of
Colonial Bank is fair from a financial point of view to the Colonial Bank
shareholders. For additional information concerning Capital Resources and its
opinion, see "THE PROPOSED TRANSACTION -- Opinion of Colonial Bank's Financial
Advisor" and the opinion of Capital Resources attached as Annex B to this Proxy
Statement/Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Colonial Bank 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)(1)(A)
and Section 368(a)(2)(D) 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
will opine that if certain conditions are met, no taxable gain or loss for
federal income tax purposes will be recognized by Colonial Bank shareholders
upon the exchange of Colonial Bank common stock solely for Carolina First
Corporation common stock. To the extent that shareholders receive cash
consideration for fractional shares, such shareholders will be taxed to the
extent that the cash exceeds such shareholder's allocated basis in such Colonial
Bank common stock. A dissenting shareholder who receives cash in lieu of
Carolina First Corporation common stock will be taxed to the extent that the
cash exceeds such dissenting shareholder's basis in the Colonial Bank 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 Colonial
Bank consult his or her tax adviser concerning the Federal (and any applicable
state, local or other) tax consequences of the Merger.
INTERESTS OF CERTAIN PERSONS. Carolina First Corporation has agreed
under the Reorganization Agreement to nominate and elect Guy S. Hutchins, Jr. to
the board of Carolina First Mortgage Company immediately following the Closing
Date and to re-elect Mr. Hutchins to such directorship for a period of five
years. The Reorganization Agreement also provides that Carolina First
Corporation will indemnify Colonial Bank directors and executive officers
against certain liabilities and will maintain such directors' and officers'
insurance for these persons after the Closing Date as shall be obtainable for
annual premiums of $15,000. Guy S. Hutchins, Jr., William F. Nettles, III and
William C. Bochette, III, each of whom are executive officers of Colonial Bank
will receive certain payments and benefits provided for in their employment
agreements with Colonial Bank because the Merger constitutes a change of control
giving rise to a right to those payments and benefits under those employment
contracts. Carolina First Corporation has also specifically agreed to honor or
assume (as applicable) Colonial Bank's obligations under its various existing
benefit plans.
The Reorganization Agreement provides that holders of options to
purchase Colonial Bank common stock outstanding at the Effective Time of the
Merger will be converted into an option to acquire Carolina First Corporation
common stock based on the Conversion Ratio. These options will continue to have
the same terms and conditions, except for any condition of continued employment,
as were in effect with respect to such options prior to the Merger. The
Reorganization Agreement also provides that an option holder may elect
immediately prior to the Effective Time (in lieu of having such options
converted into the right to receive Carolina First Corporation common stock), to
surrender such options in exchange for a cash payment per share equal
to the difference between
9
<PAGE>
$23.00 and the exercise price per share of each option. See "THE PROPOSED
TRANSACTION -- Interests of Certain Persons in the Merger."
RESTRICTIONS ON RESALES BY AFFILIATES. Colonial Bank has agreed that,
prior to closing, it will use its best efforts to cause certain affiliates of
Colonial Bank to deliver written agreements to Carolina First Corporation that
they will not dispose of any shares of Carolina First Corporation common stock
received upon consummation of the Merger except in compliance with the
Securities Act and rules and regulations promulgated thereunder. See "THE
PROPOSED TRANSACTION -- Restrictions on Resales by Affiliates."
ACCOUNTING TREATMENT. The Merger will be accounted for as a "purchase"
of Colonial Bank by Carolina First Corporation under generally accepted
accounting principles. See "THE PROPOSED TRANSACTION -- Accounting Treatment."
MARKET PRICES AND DIVIDENDS. Carolina First Corporation common stock is
traded on the Nasdaq National Market. Carolina First Corporation currently pays
a regular quarterly dividend of $.08 per share. Although Carolina First
Corporation currently expects to continue payment of its regular cash dividend
on the Carolina First Corporation 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
Carolina First Corporation common stock is subject 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.
Colonial Bank common stock is not traded on any established market and
has experienced very limited trading. Colonial Bank has not paid cash dividends
since inception in 1993. Federal banking regulations and state law restrict the
amount of dividends that Colonial Bank can pay to shareholders. See
"COMPARATIVE RIGHTS OF SHAREHOLDERS -- Dividends."
The information presented in the following table reflects the last
reported sales prices for Carolina First Corporation common stock on May 21,
1998, the last trading day prior to the public announcement of the proposed
Merger, and on August __, 1998. The Colonial Bank equivalent is the total dollar
amount of consideration to be received by holders of Colonial Bank common stock.
The actual Conversion Ratio is subject to adjustment based on the "fair market
value" of Carolina First Corporation common stock. The table also includes a
historical price for Colonial Bank common stock. The information is based on
trades ranging from $11.00 to $12.00 per share in 1998. Colonial Bank common
stock is not traded on any established market and has experienced very limited
trading.
Market Values Per Share
-----------------------------------------------------
Carolina First Corporation Colonial Bank
-------------------------- -------------------------
Historical Historical Equivalent
---------- ---------- ----------
May 21, 1998 $28.44 $12.00 $23.00
August ____, 1998 -- 12.00 23.00
Colonial Bank shareholders are advised to obtain current market quotations
for the Carolina First Corporation common stock. The market price of Carolina
First Corporation common stock at the Effective Time may be higher or lower than
the market price at the time the Reorganization Agreement was executed, at the
date of mailing this Proxy Statement/Prospectus, or at the time of the Special
Meeting.
10
<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 Colonial Bank. This information is
derived from the historical financial statements of Carolina First Corporation
(consolidated) and Colonial Bank, and should be read in conjunction with such
historical financial statements and the notes thereto either contained elsewhere
in this Proxy Statement/Prospectus, the documents that accompany this Proxy
Statement/Prospectus or incorporated herein by reference. The pro forma
financial data are presented using the purchase method of accounting. The
selected pro forma combined unaudited financial information showing the combined
results of Carolina First Corporation (consolidated) and Colonial Bank is
provided for informational purposes only. It is not necessarily indicative of
actual results that would have been achieved had the Reorganization Agreement
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, see "PRO FORMA COMBINED FINANCIAL INFORMATION." The fully pro forma
combined selected financial data also includes pro forma data for Carolina First
Corporation's pending acquisitions of First National Bank of Pickens County
("First National") and Poinsett Financial Corporation ("Poinsett"). See
"INFORMATION ABOUT CAROLINA FIRST CORPORATION - Recent Developments."
CAROLINA FIRST CORPORATION
(Dollars in thousands, except per share data and footnotes)
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
---------------------------------------------------------- --------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
STATEMENT OF INCOME DATA
Net interest income $29,358 $43,260 $50,772 $57,070 $66,706 $31,313 $41,576
Provision for loan losses 1,106 1,197 6,846 10,263 11,646 5,993 5,583
Noninterest income, excluding
securities transactions 6,085 8,151 16,557 20,368 16,604 8,814 9,373
Securities transactions 680 75 769 973 3,011 882 323
Noninterest income 6,765 8,226 17,326 21,341 19,615 9,696 9,696
Noninterest expenses (1) 27,294 51,839 46,882 51,675 52,243 25,105 29,482
Net income (loss) (1) 5,418 (1,740) 9,414 10,474 14,340 6,378 10,230
Dividends on preferred stock 1,930 2,433 2,752 63 -- -- --
Net income (loss) applicable
to common shareholders (1) 3,488 (4,173) 6,662 10,411 14,340 6,378 10,230
BALANCE SHEET DATA (Period End)
Total assets $904,474 $1,204,350 $1,414,92 $1,574,204 $2,156,346 $1,705,77 $2,277,991
Securities and temporary
investments 190,683 137,091 187,029 271,396 333,236 290,092 494,614
Loans, net of unearned income 623,646 923,068 1,062,660 1,124,775 1,602,415 1,255,691 1,554,866
Allowance for loan losses 6,679 6,002 8,661 11,290 16,211 12,175 15,625
Nonperforming assets 5,366 4,722 4,868 5,880 3,767 4,487 2,447
Total earning assets 814,579 1,059,455 1,249,689 1,396,171 1,935,651 1,545,783 2,049,480
Total deposits 804,549 1,001,748 1,095,491 1,281,050 1,746,542 1,332,551 1,838,517
Borrowed funds 16,779 106,074 186,789 145,189 139,739 216,042 111,309
Long-term debt 1,274 1,162 26,347 26,442 39,119 26,507 39,346
Total liabilities 834,059 1,117,868 1,319,955 1,469,240 1,954,687 1,595,336 2,021,066
Preferred stock 15,662 37,014 32,909 943 -- -- --
Shareholders' equity 70,415 86,482 94,967 104,964 201,659 110,441 256,925
PER SHARE DATA (2)
Net income (loss) per common share:
Basic(1) $0.63 $(0.59) $0.89 $0.97 $1.19 $0.56 $0.59
Diluted(1) 0.63 (0.59) 0.84 0.92 1.18 0.56 0.59
Cash dividends declared 0.04 0.17 0.21 0.25 0.29 0.14 0.16
Book value per common
share (period end) 7.70 6.61 7.61 9.26 12.88 9.71 14.16
Common shares outstanding:
Weighted average
Basic 5,505,461 7,004,214 7,516,620 10,705,107 11,989,517 11,338,141 17,138,421
Diluted 8,208,935 10,114,812 11,183,726 11,368,035 12,175,561 11,481,436 17,509,212
Period end 6,969,484 7,079,866 7,820,839 11,225,568 15,659,338 11,379,286 18,142,554
FINANCIAL RATIOS
Return on average assets 0.69% (0.16)% 0.74% 0.71% 0.84% 0.80% 0.92%
Return on average equity 8.27 (1.99) 10.43 10.56 11.62 11.93 8.69
Net interest margin 4.16 4.65 4.54 4.35 4.36 4.45 4.21
</TABLE>
- -------------------------------------------
(1) Includes 1996 SAIF special assessment of $1,184,000 (pre-tax) and 1994
restructuring charges of $12,214,000 (pre-tax).
(2) Adjusted for stock dividends and stock split.
11
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Twelve Months
Ended Six Months
Years Ended March 31, December 31, Ended June 30,
------------------------------ ----------- --------------
1994(1) 1995 1996 1997 1997(2) 1997 1998
------- ---- ---- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited) (unaudited)
STATEMENT OF INCOME DATA
Net interest income $303 $919 $1,251 $1,681 $1,765 $864 $1,080
Provision for loan losses 16 31 38 64 309 43 30
Noninterest income,
excluding securities
transactions 20 68 243 294 335 129 157
Securities transactions -- -- -- -- -- -- --
Noninterest income 20 68 243 294 335 129 157
Noninterest expenses 304 849 1,301 1,567 1,807 925 963
Net income 3 107 155 208 (75) 25 163
BALANCE SHEET DATA
(PERIOD END)
Total assets $17,484 $30,327 $40,251 $50,918 $54,656 $49,680 $59,752
Securities and
temporary
investments 175 677 1,075 -- 3,285 5,653 6,609
Loans, net of unearned
income 15,479 25,493 34,424 40,117 43,181 40,511 48,152
Allowance for loan losses 16 46 72 107 375 139 350
Nonperforming assets -- -- -- 40 294 375 258
Total earning assets 15,969 27,280 36,456 46,876 50,157 45,650 54,484
Total deposits 10,679 24,864 31,060 37,420 40,366 37,734 43,013
Borrowed funds 3,500 2,000 5,500 9,500 9,000 8,000 11,300
Total liabilities 14,217 26,953 36,722 47,181 49,502 45,894 54,437
Shareholders' equity 3,267 3,374 3,529 3,737 5,154 3,786 5,315
PER SHARE DATA (3)
Net income per
common share:
Basic $0.01 $0.25 $0.36 $0.48 $(0.15) $0.06 $0.28
Diluted 0.01 0.24 0.35 0.47 (0.15) 0.06 0.26
Book value per
common share
(period end) 9.05 9.35 9.78 8.63 8.84 8.74 9.12
Common shares
outstanding:
Weighted average -
basic 433,019 433,019 433,019 433,019 486,851 433,019 583,019
Weighted average -
diluted 443,530 443,530 443,530 443,530 497,362 443,530 633,725
Period end 433,019 433,019 433,019 433,019 583,019 433,019 583,019
FINANCIAL RATIOS
Return on average assets 0.03% 0.45% 0.44% 0.47% (0.15)% 0.10% 0.56%
Return on average equity 0.09 3.21 4.51 5.63 (1.73) 1.32 6.22
Net interest margin 2.75 3.83 3.55 3.76 3.65 3.54 3.72
</TABLE>
- --------------------------
(1) Colonial Bank commenced operations on June 5, 1993.
(2) Colonial Bank changed its fiscal year end to December 31 from March 31 in
1997. This column includes historical financial data for the nine months ending
December 31, 1997 combined with the three months ended March 31, 1997.
(3) Adjusted for a 20% stock dividend effected in the form of a six-for-five
stock split payable April 17, 1997.
12
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
CAROLINA FIRST CORPORATION AND COLONIAL BANK OF SOUTH CAROLINA, INC.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 (1) JUNE 30, 1998
--------------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 68,471 $ 42,656
Provision for loan losses 11,955 5,613
Noninterest income 19,950 9,853
Noninterest expenses 54,563 30,702
Net income 13,802 10,161
PER SHARE DATA Net income per common share:
Basic $ 1.11 $ 0.57
Diluted 1.09 0.56
Cash dividends declared 0.29 0.16
Book value per common share (period end) 13.30 14.50
Common shares outstanding:
Weighted average - basic 12,437,420 17,674,798
Weighted average - diluted 12,633,134 18,092,239
Period end 16,195,715 18,678,931
BALANCE SHEET DATA JUNE 30, 1998
-------------
Total assets $ 2,347,892
Securities and temporary investments 500,915
Loans, net of unearned income 1,603,018
Allowance for loan losses 15,975
Total earning assets 2,103,933
Total deposits 1,881,530
Borrowed funds 122,609
Long-term debt 39,346
Total liabilities 2,077,002
Shareholders' equity 270,890
</TABLE>
- ----------------------------------
(1) Colonial Bank changed its fiscal year end to December 31 from March 31 in
1997. This column includes historical financial data for the nine months
ending December 31, 1997 combined with the three months ended March 31,
1997.
13
<PAGE>
UNAUDITED FULLY PRO FORMA COMBINED SELECTED FINANCIAL DATA
CAROLINA FIRST CORPORATION, COLONIAL BANK OF SOUTH CAROLINA, INC.,
FIRST NATIONAL BANK OF PICKENS COUNTY, AND POINSETT FINANCIAL CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 (1) JUNE 30, 1998
--------------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 76,492 $ 46,826
Provision for loan losses 12,175 6,188
Noninterest income 21,297 10,698
Noninterest expenses 61,184 34,280
Net income 15,383 10,655
PER SHARE DATA Net income per common share:
Basic $ 1.00 $ 0.51
Diluted 0.98 0.50
Cash dividends declared 0.29 0.16
Book value per common share (period end) 12.85 14.02
Common shares outstanding:
Weighted average - basic 15,458,993 20,699,452
Weighted average - diluted 15,674,387 21,116,892
Period end 19,217,909 21,703,585
BALANCE SHEET DATA JUNE 30, 1998
-------------
Total assets $2,571,504
Securities and temporary investments 552,960
Loans, net of unearned income 1,737,337
Allowance for loan losses 17,447
Total earning assets 2,290,297
Total deposits 2,060,716
Borrowed funds 130,456
Long-term debt 39,346
Total liabilities 2,267,204
Shareholders' equity 304,300
</TABLE>
- ----------------------------------
(1) Colonial Bank, Poinsett, and First National have fiscal year ends other than
December 31. This column was adjusted to reflect a December 31 fiscal year
end for each entity as follows:
(a) Colonial Bank changed its fiscal year end to December 31 from March
31 in 1997. Historical financial data for the nine months ended December 31,
1997 have been combined with the three months ended March 31, 1997.
(b) Historical earnings for Poinsett, which has a September 30 fiscal
year end, have been adjusted by adding the subsequent three-month period and
subtracting the comparable preceding year interim results from the results
for the year ended September 30, 1997.
(c) Historical earnings for First National, which has a June 30 fiscal
year end, were adjusted by adding the subsequent six-month period and
subtracting the comparable preceding year interim results from the results
for the year ended June 30, 1997.
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following tables present at the dates and for the periods indicated (i)
certain consolidated historical and pro forma combined per share data for the
Carolina First Corporation common stock after giving effect to the
Reorganization Agreement, and after giving effect to the Reorganization
Agreement and the acquisitions of Poinsett and First National and (ii) certain
historical and pro forma data for the Colonial Bank common stock. The pro forma
financial data are presented using the purchase method of accounting, and an
assumed Conversion Ratio of 0.9200 shares of Carolina First Corporation common
stock for each share of Colonial Bank 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 are not necessarily indicative of actual
results that would have been achieved had the Reorganization Agreement been
consummated at the beginning of the periods presented and are not indicative of
future results.
<TABLE>
<CAPTION>
Diluted earnings per Cash Dividends Declared Book Value Per
Common Share Per Common Share Common Share
-------------------- ----------------------- --------------
<S> <C> <C> <C>
At and For the Six Months
Ended June 30, 1998
Carolina First Corporation $0.59 $0.16 $14.16
Colonial Bank 0.28 - 9.12
Pro Forma Combined 0.56 0.16 14.50
Colonial Bank Equivalent(1) 0.52 0.15 13.34
Fully Pro Forma Combined (2) 0.50 0.16 14.02
---- ---- -----
Fully Pro Forma Colonial
Bank Equivalent (3) 0.46 0.15 12.90
---- ---- -----
At and For the Year Ended
December 31, 1997
Carolina First Corporation $1.18 $0.29 $12.88
Colonial Bank (4) (0.15) - 8.84
Pro Forma Combined 1.09 0.29 13.30
Colonial Bank Equivalent(1) 1.00 0.27 12.24
Fully Pro Forma Combined (2) 0.98 0.29 12.85
---- ---- -----
Fully Pro Forma Colonial
Bank Equivalent (3) 0.90 0.27 11.82
---- ---- -----
</TABLE>
- --------------------------------------
(1) Calculated by multiplying the Pro Forma Combined by the assumed Conversion
Ratio of 0.9200.
(2) Pro forma information includes the acquisitions of First National and
Poinsett.
(3) Calculated by multiplying the Fully Pro Forma Combined by the assumed
Conversion Ratio of 0.9200.
(4) Colonial Bank changed its fiscal year end to December 31 from March 31 in
1997. This column includes historical financial data for the nine months
ending December 31, 1997 combined with the three months ended March 31,
1997.
15
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN, THE FOLLOWING FACTORS
SHOULD BE CONSIDERED CAREFULLY WHEN EVALUATING CAROLINA FIRST CORPORATION AND
THE CAROLINA FIRST CORPORATION 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, 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 ("Federal Reserve"). In the
future, Carolina First Corporation may issue capital stock in connection with
additional acquisitions. Such acquisitions and related issuances of stock may
have a dilutive effect on earnings per share and ownership. Although Carolina
First Corporation is engaged from time to time in discussions relating to
possible acquisitions, Carolina First Corporation presently has no agreements or
understandings relating to any acquisitions except for the pending acquisitions
of Poinsett Financial Corporation and First National Bank of Pickens County as
described below in "INFORMATION ABOUT CAROLINA FIRST CORPORATION--Recent
Developments."
ANTITAKEOVER MEASURES. Carolina First Corporation has certain antitakeover
measures in place. These include (i) a Shareholders' Rights Plan which, among
other things, provides for the dilution of the Carolina First Corporation common
stock holdings of certain shareholders who acquire 20% or more of the Carolina
First Corporation 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 and may
prevent shareholders from taking part in a transaction in which they could
realize a premium over the current market price of Carolina First Corporation
common stock. See "CAROLINA FIRST CORPORATION CAPITAL STOCK."
COMMERCIAL LENDING ACTIVITIES. Over the past several years, Carolina First
Corporation has experienced significant growth in commercial and commercial
mortgage loans. These loans are generally more risky than one-to-four family or
consumer loans because they are unique in character, generally larger in amount
and dependent upon the borrower's ability to generate cash to service the loan.
There are certain risks inherent in making all loans, including risks with
respect to the period of time over which loans may be repaid, risks resulting
from uncertainties as to the future value of collateral, risks resulting from
changes in economic and industry conditions and risks inherent in dealing with
individual borrowers. While Carolina First Corporation's nonperforming loans as
a percentage of total loans is below its peer group average, there is a risk
that the quality of its loan portfolio could decline, particularly in connection
with the rapid growth in loans that Carolina First Corporation has experienced
over the past several years.
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INFORMATION CONCERNING THE COLONIAL BANK SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to shareholders of
Colonial Bank as of the Record Date in connection with the solicitation of
proxies by the Board of Directors of Colonial Bank for use at the Special
Meeting and at any adjournments thereof. The Special Meeting is to be held on
September 28, 1998 at 10:00 a.m., local time, at the main office of Colonial
Bank, 1111 Broad Street, Camden, South Carolina. Holders of Colonial Bank common
stock are requested to complete, date and sign the accompanying Proxy and return
it promptly to Colonial Bank 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 Reorganization
Agreement. As required by South Carolina law, approval of the Reorganization
Agreement will require the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Colonial Bank common stock entitled to
vote on the Reorganization Agreement. See "--Colonial Bank Record Date and
Voting Rights." This Proxy Statement/Prospectus, Notice of Special Meeting and
the Proxy are first being mailed to shareholders of Colonial Bank on or about
August 24, 1998.
COLONIAL BANK RECORD DATE AND VOTING RIGHTS. Only the holders of Colonial
Bank 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 583,019 shares of Colonial Bank common stock outstanding, which were
held by approximately 604 holders of record. Each share of Colonial Bank common
stock outstanding on the Record Date is entitled to one vote as to each of the
matters submitted 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.
THE MERGER MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT
LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF COLONIAL BANK COMMON STOCK
ELIGIBLE TO VOTE AT THE SPECIAL MEETING. ACCORDINGLY, PROXIES MARKED "ABSTAIN"
AND SHARES THAT ARE NOT VOTED (INCLUDING BROKER NON-VOTES) WILL HAVE THE SAME
EFFECT AS VOTES AGAINST THE REORGANIZATION AGREEMENT.
On August 14, 1998, the directors and executive officers of Colonial Bank
and their affiliates owned a total of 276,421 shares, or approximately 41.2% of
Colonial Bank's common stock.
PROXIES. The accompanying Proxy is for use at the Special Meeting. A
record 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 Reorganization Agreement. The Board of
Directors of Colonial Bank is not aware of any other matters that may be
presented for action at the Special Meeting, 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 Colonial Bank common
stock are voted in favor of approval of the Reorganization Agreement than the
number required for approval, it is expected that the Special
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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).
The presence of a record shareholder at the Special Meeting will not
automatically revoke such shareholder's proxy. The proxy may be revoked by the
record shareholder (i) by giving written notice to the Secretary of Colonial
Bank at any time before it is voted, (ii) by submitting a proxy having a later
date, or (iii) by such person appearing at the Special Meeting and giving notice
of revocation to the corporate officers responsible for maintaining the list of
shareholders.
Solicitation of proxies may be made in person or by mail, or by telephone
or other electronic means, by directors, officers and regular employees of
Colonial Bank, 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. Colonial Bank 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 Colonial Bank, 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 Colonial Bank or Carolina First
Corporation since the date of this Proxy Statement/Prospectus.
RECOMMENDATION. THE COLONIAL BANK BOARD OF DIRECTORS HAS APPROVED THE
REORGANIZATION AGREEMENT AND BELIEVES THAT THE PROPOSED TRANSACTION IS FAIR TO
AND IN THE BEST INTERESTS OF COLONIAL BANK AND ITS SHAREHOLDERS. THE COLONIAL
BANK BOARD OF DIRECTORS RECOMMENDS THAT COLONIAL BANK'S SHAREHOLDERS VOTE FOR
APPROVAL OF THE REORGANIZATION AGREEMENT.
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THE PROPOSED TRANSACTION
THE FOLLOWING DESCRIPTION OF THE TERMS AND PROVISIONS OF THE
REORGANIZATION AGREEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
REORGANIZATION AGREEMENT, WHICH IS SET FORTH IN FULL AS ANNEX A TO THIS PROXY
STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE.
GENERAL DESCRIPTION OF THE TERMS OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement provides for the merger of Colonial Bank with
and into Carolina First Bank, a wholly-owned subsidiary of Carolina First
Corporation. As a result of the Merger, the separate corporate existence of
Colonial Bank will cease and Carolina First Bank, as the surviving entity, will
possess all rights, franchises and interests of Colonial Bank. As of the
Effective Time of the Merger, certificates of Colonial Bank common stock will
represent only the right to receive the requisite number of shares of Carolina
First Corporation common stock and cash for any fractional shares. The
Reorganization Agreement also provides that Carolina First Corporation may
restructure the transactions contemplated therein, provided that any such
restructuring shall not (i) alter the type of consideration to be issued to the
holders of Colonial Bank common stock as provided for in the Reorganization
Agreement, (ii) reduce the value of such consideration, (iii) adversely affect
the intended tax-free treatment to Colonial Bank's shareholders as a result of
receiving such consideration or prevent the parties from obtaining the tax
opinion of Wyche, Burgess, Freeman & Parham, P.A. referred to herein, (iv)
materially impair the ability to receive the required regulatory approvals, or
(v) materially delay the closing.
Pursuant to the terms of the Reorganization Agreement, upon consummation
of the Merger, holders of Colonial Bank's common stock will be entitled to
receive shares of Carolina First Corporation common stock having a "fair market
value" (as defined in the Reorganization Agreement) of $23.00 for each
outstanding share of Colonial Bank common stock held by them. Assuming a fair
market value of $25.00 per share, this results in a Conversion Ratio of 0.9200.
The "fair market value" is defined in the Reorganization Agreement as the
average of the closing prices as quoted on the Nasdaq National Market for
Carolina First Corporation common stock for the twenty days in which Carolina
First Corporation common stock was traded immediately prior to the Closing Date,
except that if prior to the effective time of the Merger, any other person or
entity shall have publicly announced an intention to acquire control of Carolina
First Corporation by merger or otherwise or Carolina First Corporation shall
have publicly acknowledged that it is seeking to be acquired by another person
or entity or is discussing being acquired by another person or entity, then the
average of the closing prices as quoted on the Nasdaq National Market for
Carolina First Corporation common stock for the 20 days for which the Carolina
First Corporation common stock was traded immediately prior to such announcement
or acknowledgment shall be determined and, if such average is less than the
average derived from the 20 trading days immediately prior to the Closing Date,
then the smaller average shall be the fair market value. All of the stock prices
set forth above are subject to equitable adjustment for stock splits, stock
dividends, reverse stock splits and similar items.
Because the number of shares of Carolina First Corporation common stock to
be received by Colonial Bank shareholders will depend on the market price of
Carolina First Corporation common stock, the exact number of shares to be
received by Colonial Bank shareholders will not be known until the effective
date of the Merger. On August ____, 1998, the most recent date for which it was
practicable to obtain information prior to the printing of this Prospectus/Proxy
Statement, the closing price per share of Carolina First Corporation common
stock, as reported on the Nasdaq National Market, was $_____. Colonial Bank
shareholders should note, however, that the market price of the Carolina First
Corporation common stock they receive will continue to be subject to market
fluctuations, as well as the future results of operations and financial
condition of Carolina First Corporation, among other factors, and therefore may
be worth less than, or more than, such amount as of the date they receive their
Carolina First Corporation common stock certificates.
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No fractional shares of Carolina First Corporation common stock will be
issued as a result of the Merger. In lieu of the issuance of fractional shares,
cash will be paid to the holders of the Colonial Bank common stock in respect of
any fractional share that would otherwise be issuable based on the fair market
value of Carolina First Corporation common stock.
The Reorganization Agreement generally provides that Carolina First
Corporation and Colonial Bank will each bear and pay their own costs and
expenses incurred in connection with the transactions contemplated in the
Reorganization Agreement, including fees of attorneys and accountants. The
Reorganization Agreement specifically provides that Carolina First Corporation
will bear the cost of the filing fees for the Registration Statement and the
cost for all filing fees associated with obtaining necessary regulatory
approvals.
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, Colonial Bank
shareholders will no longer be owners of Colonial Bank common stock and (to the
extent that they receive Carolina First Corporation common stock as
consideration) will automatically become owners of Carolina First Corporation
common stock. After the Effective Time, each outstanding certificate
representing shares of Colonial Bank common stock prior to the Effective Time
shall be deemed for all corporate purposes (other than voting and the payment of
dividends and other distributions by Colonial Bank to which the former
shareholders of Colonial Bank common stock may be entitled) to evidence only the
right of the holder thereof to surrender such certificate and receive the
consideration as provided in the Reorganization Agreement.
BACKGROUND OF AND REASONS FOR THE REORGANIZATION AGREEMENT
COLONIAL BANK REASONS. Colonial Bank is headquartered in Camden, South
Carolina and conducts its business through its 3 office facilities in Kershaw
County. In connection with its normal strategic planning process, Colonial Bank
continuously reviewed its strategic business alternatives, devoting particular
attention to the continuing consolidation and increasing competition in the
banking and financial services industries in South Carolina. In the recent
years, competition in the local banking and financial services industries has
intensified. In efforts to increase Colonial Bank's ability to remain
competitive in this environment, the management of Colonial Bank has
periodically analyzed various potential strategic options.
In late February 1998, the Chief Executive Officer of Carolina First
Corporation met with the Chairman of Colonial Bank and expressed a possible
interest in Carolina First Corporation's acquiring Colonial Bank. The Chairman
then met with Colonial Bank's counsel and discussed the legal requirements for
such a transaction.
The Chairman and Colonial Bank's counsel contacted a number of other
potential acquirors. Further discussions were held with the Chairman of Carolina
First Corporation and the Chairman met with representatives of two of the other
potential acquirors that had expressed some interest in Colonial Bank. The
Chairman and other officers of Colonial Bank concluded that the best proposal
available was the proposal being made by Carolina First Corporation. On May 21,
1998, the Board of Directors of Colonial Bank met with Colonial Bank's counsel
to discuss the Carolina First Corporation proposal and the other proposals
received by management of Colonial Bank. The Board of Directors of Colonial Bank
then authorized the Chairman to execute a nonbinding letter of intent with
Carolina First Corporation. On May 27, 1998, Carolina First Corporation publicly
announced that it had entered into a letter of intent to acquire Colonial Bank.
Thereafter the Chairman, and counsel for Colonial Bank negotiated the
terms of the Reorganization Agreement with Carolina First Corporation's officers
and counsel.
On June 24, 1998, the Board of Directors met again and considered the
terms of the Reorganization Agreement. The Board of Directors voted unanimously
to authorize the Chairman to execute the Reorganization Agreement on behalf of
Colonial Bank and recommended approval of the Merger to the shareholders.
In deciding to approve the Reorganization Agreement the Board of Directors
received information and advice from the officers of the Colonial Bank and
Colonial Bank's counsel. In reaching its decision the Colonial Bank Board of
Directors considered a number of factors. Without assigning any relative or
specific weights to the factors, the Colonial Bank Board of Directors considered
the following material factors:
(i) Colonial Bank's business, operations, earnings, managerial
requirements and resources, prospects and financial condition;
(ii) Carolina First Corporation's business, operations, earnings,
financial condition and lending capacity on both an historical and prospective
basis;
(iii) The enhanced opportunities for operating efficiencies that could
result from the Merger, the enhanced opportunities for growth in Colonial Bank's
market areas that the Merger would make possible and the respective
contributions the parties would bring to a combined institution;
(iv) The Colonial Bank Board of Directors's belief that Carolina First
Bank would retain valued Colonial Bank employees and continue to make
substantial contributions in the communities served by Colonial Bank;
(v) The terms of the Reorganization Agreement and the value of the
Carolina First Corporation common stock to be received by Colonial Bank
shareholders;
(vi) Carolina First Corporation as an ongoing institution and its growth
prospects, asset quality, reserves for losses, capital adequacy and
profitability;
(vii) The liquidity of the Carolina First Corporation common stock and the
number of unaffiliated shareholders of Carolina First Corporation;
(viii) Alternatives to the Merger, including the alternatives of remaining
independent and growing internally, or remaining independent for a period of
time and then selling;
(ix) Possible affiliation partners for Colonial Bank (other than
Carolina First Corporation), prospects for such other possible affiliation
partners, and the consideration which might be available from such other
partners;
(x) The expectation that the Merger will be a tax free transaction to
Colonial Bank and its shareholders;
(xi) Factors that may affect the market value of Carolina First
Corporation common stock in the near future and the long term;
(xii) Current and prospective economic environment, competitive
constraints and regulatory burdens facing financial institutions, including
Colonial; and
(xiii) The expected receipt of an opinion from CRGI that the consideration
to be received by the Colonial Bank shareholders was fair from a financial point
of view.
The terms of the Reorganization Agreement were the result of arm's length
negotiations between representatives of Colonial Bank and Carolina First
Corporation.
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 expanding into Kershaw County. Carolina First Corporation's goal is to
be the leading South Carolina-headquartered, state-wide financial institution,
and having a strong market presence in Colonial Bank's market areas is an
important step in achieving this goal. Carolina First Corporation believes that
acquiring an
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existing institution is a superior means of expanding in Colonial Bank's
markets, as compared to branching DE NOVO, primarily because of the acquisition
of the established customer relationships. Carolina First Corporation believes
that Colonial Bank has valuable community relationships which it will be able to
use to expand its banking operations in Colonial Bank's market areas. Carolina
First Corporation also believes that the terms of the proposed Merger are fair
from its point of view and from a financial perspective.
OPINION OF COLONIAL BANK'S FINANCIAL ADVISOR
Colonial Bank retained Capital Resources as its financial advisor in
connection with the Merger and requested that Capital Resources render its
opinion with respect to the fairness, from a financial point of view, of the
consideration, to the holders of Colonial Bank shares. Capital Resources
rendered its written opinion to Colonial Bank's Board of Directors on June 24,
1998, that, as of the date of such opinion, the consideration was fair, from a
financial point of view, to the holders of Colonial Bank shares. Capital
Resources has consented to the inclusion of the opinion and the related
disclosure in the Prospectus and Proxy Statement.
THE FULL TEXT OF THE OPINION OF CAPITAL RESOURCES, WHICH SETS FORTH
CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEWS
UNDERTAKEN, ARE ATTACHED AS ANNEX B TO THIS PROSPECTUS AND PROXY STATEMENT, AND
SHOULD BE READ IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF CAPITAL RESOURCES
AS OF JUNE 24, 1998, SET FORTH IN THIS PROSPECTUS AND PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THAT OPINION. CAPITAL RESOURCES'
OPINION SHOULD NOT BE CONSTRUED BY HOLDERS OF COLONIAL BANK'S SHARES AS A
RECOMMENDATION AS TO HOW SUCH HOLDERS SHOULD VOTE AT THE SPECIAL MEETING.
Capital Resources is an investment banking and financial consulting firm
which, as part of its specialization in financial institutions, is regularly
engaged in providing financial valuations and analyses of business enterprises
and securities in connection with mergers, acquisitions, mutual-to-stock
conversions, initial and secondary stock offerings and other corporate
transactions. Colonial Bank has utilized the services of Capital Resources in
the past. Colonial Bank's Board of Directors chose Capital Resources because of
its expertise, experience and familiarity with Colonial Bank and the financial
institution industry. Capital Resources reviewed the terms of the Reorganization
Agreement and the related financial data and reviewed these issues with Colonial
Bank's Board and executive management of Colonial Bank. No limitations were
imposed on Capital Resources by Colonial Bank's Board with respect to the
investigation made or procedures followed by it in rendering its opinion.
In the course of rendering its fairness opinion, the following factors
were considered by Capital Resources:
1. The proposed terms of the Reorganization Agreement;
2. The audited financial statements of Colonial Bank for the fiscal
period ended March 31, 1994, the fiscal years ended March 31, 1995
through 1997 and the fiscal period ended December 31, 1997, the
unaudited financial statements of Colonial Bank for the three months
ended March 31, 1998, certain regulatory reports including the
report for the quarter ended March 31, 1998, Form 10-SB covering the
fiscal period ended Decmeber 31, 1997, the latest available
asset/liability reports, operating budget, and other
miscellaneous internally-generated management information reports
and business plan, as well as other publicly-available information;
3. Annual Report to Stockholders for 1997, which provides a discussion
of Colonial Bank's business and operations and a review of various
financial data and trends;
4. Discussions with executive management of Colonial Bank regarding the
business, operations, recent financial condition and operating
results and future prospects of Colonial Bank;
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5. Comparisons of Colonial Bank's financial condition and operating
results with those of similarly sized banks operating
in South Carolina and the United States;
6. Comparisons of Colonial Bank's financial condition and operating
performance with the published financial statements and market price
data of publicly traded banks in general and publicly
traded commercial banks in Colonial Bank's region of the United
States specifically;
7. The relevant market information regarding Colonial Bank shares
including any trading activity and information on options to
purchase Colonial Bank shares;
8. Other financial and pricing analyses and investigations as deemed
necessary, including a comparative financial analysis and review of
the financial terms of other pending and completed acquisitions of
companies considered to be generally similar to Colonial Bank;
9. Examination of Colonial Bank's economic operating environment and
the competitive environment of Colonial Bank's market area;
10. Available financial reports and financial data for Carolina First
Corporation, including annual reports to stockholders and Form 10-K
reports covering the fiscal years ended through December 31, 1997,
quarterly reports, Form 10-Q reports, other internal and regulatory
financial reports provided by management of Carolina First
Corporation and other published financial data; Carolina First
Corporation's banking office network; and the pricing trends of the
Carolina First Corporation's shares, as reported on the Nasdaq
National Market, and dividend payment history; and
11. A visit to Carolina First Corporation's administrative and executive
offices and interviews with senior management of Carolina First
Corporation, including a discussion of Carolina First Corporation's
business and prospects.
12. The pro forma financial impact of the merger of Colonial Bank and
Carolina First Corporation.
The fairness opinion states that Capital Resources has relied on the
accuracy and completeness of the information provided by the parties to the
Reorganization Agreement and the representations and warranties in the
Reorganization Agreement, without independent verification. Capital Resources
did not make an independent evaluation or appraisal of the assets of Colonial
Bank or Carolina First Corporation.
The summary set forth below describes the approaches utilized by Capital
Resources in support of its June 24, 1998 fairness opinion. It does not purport
to be a complete description of the analyses performed by Capital Resources in
this regard.
OVERVIEW OF VALUATION METHODOLOGY. In preparing its fairness opinion,
Capital Resources evaluated whether the consideration payable upon consummation
of the Merger was fair from a financial point of view to the shareholders of
Colonial Bank. The fairness of the consideration was determined by comparing it
to acquisition offers received by other comparable types of companies over a
time-frame that reflects a similar economic environment. The comparison included
an examination of key financial characteristics of the comparative acquisition
companies, including balance sheet, earnings and credit risk characteristics.
Colonial Bank's key operating statistics and ratios through March 31,
1998, were compared to a select group of commercial banking institutions that
have also been the subject of a proposed or completed acquisition. It is
important to note that the comparative group utilized in the fairness opinion
was comprised only of commercial banks, given the distinctive financial,
operating, market pricing and regulatory characteristics of commercial banks.
Capital Resources reviewed relevant acquisition pricing ratios, notably offer
price-to-book value (and offer price-to-tangible book value), offer
price-to-earnings, offer price-to- deposits and offer price-to-assets, of the
comparative group and compared these ratios to those of Colonial Bank. The
analysis included a review of and comparison of the mean and median pricing
ratios represented by a sample of 15 comparative group banks concentrated in
the southeastern and midwestern United States.
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PRICING COMPARISON. Based on an assumed consideration of $23.00 for each
outstanding Colonial Bank share, there resulted the following acquisition
pricing ratios for Colonial Bank relative to those of the comparative group:
o Colonial Bank's price/tangible book value ratio of 268.1% exceeded
the mean and median price/tangible book value ratios of 253.1% and 261.0%,
respectively, of the comparative group;
o Colonial Bank's price/earnings multiple of 56.1x based on trailing
12 months adjusted net income (adjusted to reflect the elimination of
non-recurring expenses and to reflect a normal level of loan loss provisions)
compared to the mean and median price/earnings multiples of the comparative
group of 26.2x and 23.7x, respectively;
o Colonial Bank's price/assets ratio of 23.4% compared to the mean
and median price/assets ratios of 23.6% and 24.8%, respectively, of the
comparative group;
o Colonial Bank's price/deposits ratio of 30.7% compared to the mean
and median price/deposits ratios of 28.0% and 29.3%, respectively, of the
comparative group;
o Colonial Bank's tangible book premium (offer price minus tangible
book value)/core deposits ratio of 23.5% compared to the mean and median ratios
of 19.3% and 20.6%, respectively, of the comparative group.
In analyzing the reasonableness of Colonial Bank's acquisition pricing
ratios relative to those of the comparative group, Capital Resources considered
the following factors:
o Colonial Bank reported a lower level of profitability relative to
that of the comparative group. Colonial Bank reported a return on assets ("ROA")
of 3 basis points versus the comparative group which reported an ROA of 103
basis points. However, Capital Resources also calculated an adjusted ROA of 40
basis points for Colonial Bank. Given that Colonial Bank has expanded in recent
years to better capitalize upon the opportunities in its market area, Colonial
Bank's earnings growth potential relative to that of the comparative group
appears at least similar.
o Colonial Bank's lower level of profitability reflected a lower net
interest margin and a lower non-interest operating income level
relative to the comparative group. Colonial Bank's yield/cost spread and net
earning asset position is lower than that of the comparative group.
o Colonial Bank's lower adjusted ROA of 40 basis points and only a
modestly lower net worth ratio of 9.1% translated into a lower return on equity
("ROE"). Colonial Bank's adjusted ROE of 4.8% compared to a mean and median ROE
for the peer group of 10.7 and 11.2%, respectively. Colonial Bank had a reported
ROE of under one percent.
o A review of other important financial ratios, indicated that
Colonial Bank's non-performing assets ("NPA") level compared favorably to that
of the comparative peer group. Colonial Bank's NPA/Assets ratio of 0.38%
compared to mean and median ratios of 0.78% and 0.36%, respectively, for the
comparative group.
Therefore, based on the above financial comparisons, Capital Resources
believed that, on balance, Colonial Bank's acquisition pricing ratios were very
reasonable when compared to the comparative group's acquisition pricing ratios.
Also, Capital Resources noted that at the time of its initial public
offering in 1993, Colonial Bank's stock was offered at $8.33 per share (split
adjusted) and in the second offering in 1997, Colonial Bank's stock was offered
at $10 per share. Thus, the acquisition price of $23 per share represents a
significant return to existing shareholders who purchased stock in Colonial
Bank's two public offerings.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Capital Resources
also performed an analysis of potential returns to shareholders of Colonial
Bank, which was based on an estimate of Colonial Bank's future cash dividend
streams to shareholders and Colonial Bank's future stock price and sell-out
price
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(terminal value). This analysis assumed Colonial Bank was not acquired but
remained independent for at least three to five years. The analysis utilized
certain key assumptions for Colonial Bank, including the most likely retail
asset growth and earnings level scenario as well as regular, periodic dividend
payments. The analysis also reflected the utilization of $10 million of
wholesale borrowings to support additional asset and earnings growth.
To approximate the range of terminal values of Colonial Bank common stock
at the end of a three year and five year period, Capital Resources applied a
price-to-earnings multiple of __x, and a price/tangible book value ratio of
___%. The resulting terminal values and dividend streams were then discounted to
present values using different discount rates (ranging from 10% to 15%) chosen
to reflect different assumptions regarding required rates of return of holders
or prospective buyers of Colonial Bank common stock.
The analysis indicated a present value for Colonial Bank shares and future
dividend payments ranging from $_____ per share (based on a 15% discount rate)
to $_____ per share (based on a 10% discount rate) assuming Colonial Bank is
acquired after three years, and a present value ranging from $_____ per share
(based on a 15% discount rate) to $____ per share (based on a 10% discount rate)
assuming Colonial Bank is acquired after five years.
The results of the above described analysis confirmed that the
consideration being offered by Carolina First Corporation to Colonial Bank
shareholders was fair from a financial point of view.
Capital Resources will receive a fee from Colonial Bank for its services
including the rendering of the fairness opinion. Colonial Bank has also agreed
to reimburse Capital Resources for reasonable out-of-pocket expenses and to
indemnify Capital Resources and certain related persons against certain
liabilities relating to or arising out of its engagement. Capital Resources has
in the past provided and may in the future provide other financial advisory
services to Colonial Bank and has received and will receive its customary
compensation for such services. In the ordinary course of its business, Capital
Resources may actively trade the equity securities of Carolina First Corporation
and Colonial Bank and their respective affiliates for its own account and for
the accounts of customers and, may at any time hold a long or short position in
such securities.
EXCHANGE OF COLONIAL BANK STOCK CERTIFICATES
As soon as practicable after the Effective Time (but in no event more than
five days after the Effective Time), Carolina First Corporation or its transfer
agent (in such capacity, the "Exchange Agent") will mail, and otherwise make
available to each former record holder of shares of Colonial Bank common stock,
a form of the letter of transmittal and instructions for use in effecting
surrender and exchange of certificates which immediately before the Effective
Time represented shares of Colonial Bank common stock ("Certificates") for
payment therefor. Adequate provisions shall be made to permit Certificates to be
surrendered and exchanged in person not later than the business day following
the Effective Time.
COLONIAL BANK SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE TRANSMITTAL FORMS.
Upon receipt of such notice and transmittal form, each holder of
Certificates at the Effective Time should send or provide the Certificate, or
Certificates, to the Exchange Agent, whereupon the holder shall promptly receive
the Carolina First Corporation common stock issuable to him in exchange for such
Certificates. If any portion of the payment to be made upon surrender and
exchange of a Certificate is to be paid to a person other than the person in
whose name the Certificate is registered, it shall be a condition of such
payment that the Certificate shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay in
advance any transfer or other taxes or establish to the satisfaction of Carolina
First Corporation that no such tax is applicable.
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Carolina First Corporation is not obligated to deliver the Carolina First
Corporation common stock to which any former holder of Colonial Bank common
stock is entitled as a result of the Merger until such holder surrenders his or
her Certificates, 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
Carolina First Corporation or Colonial Bank. In addition, no dividend or other
distribution payable to the holders of record of Carolina First Corporation
common stock as of any time subsequent to the Effective Time shall be paid to
the holder of any certificate representing shares of Colonial Bank Common Stock
issued and outstanding at the Effective Time until such holder surrenders such
Certificate to the Exchange Agent for exchange. However, upon surrender of the
Certificates, both the Carolina First Corporation 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 Certificates.
After the Effective Time, each outstanding Certificate shall be deemed for
all corporate purposes (other than voting and the payment of dividends and other
distributions to which the former shareholders of Colonial Bank 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 Carolina First
Corporation common stock in exchange therefore (and cash in lieu of fractional
shares) as provided in the Reorganization Agreement.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of Carolina First Corporation and Carolina First Bank to
consummate the transactions contemplated in the Reorganization Agreement are
subject to the satisfaction of the following conditions (among others) at or
before the Closing Date: (i) the compliance by Colonial Bank with its covenants
set forth in the Reorganization Agreement and the material accuracy, on the
Closing Date, of each of the representations and warranties of Colonial Bank set
forth in the Reorganization Agreement (subject to certain limited exceptions);
(ii) the receipt by Carolina First Corporation of an opinion of counsel of
Colonial Bank in form and substance reasonably satisfactory to Carolina First
Corporation and its counsel; (iii) that there shall have been no "material
adverse event" (as defined in the Reorganization Agreement) with respect to
Colonial Bank through the Closing Date; (iv) the receipt of necessary regulatory
approvals; (v) the receipt of the necessary shareholder approval of Colonial
Bank; (vi) that immediately prior to Closing, the Colonial Bank allowance for
loan losses meets certain requirements; and (vii) the execution of a consulting
agreement between Carolina First Corporation and each of Guy S. Hutchins, Jr.
and William F. Nettles, III.
The obligations of Colonial Bank to consummate the transactions
contemplated in the Reorganization Agreement are subject to the satisfaction of
the following conditions (among others) at or before the Closing Date: (i) the
compliance by Carolina First Corporation and Carolina First Bank with their
respective covenants set forth in the Reorganization Agreement and the material
accuracy, on the Closing Date, of each of the representations and warranties of
Carolina First Corporation and Carolina First Bank set forth in the
Reorganization Agreement (subject to certain limited exceptions); (ii) the
receipt by Colonial Bank of an opinion of counsel of Carolina First Corporation
and Carolina First Bank in form and substance reasonably satisfactory to
Colonial Bank and its counsel; (iii) that there shall have been no "material
adverse event" (as defined in the Reorganization Agreement) with respect to
Carolina First Corporation or Carolina First Bank through the Closing Date; (iv)
the receipt of necessary regulatory approvals; (v) the receipt of the necessary
shareholder approval of Colonial Bank; (vi) the receipt of a tax opinion from
Wyche, Burgess, Freeman & Parham, P.A., reasonably satisfactory to Colonial
Bank, 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; and (vii) the execution of a consulting
agreement between Carolina First Corporation and each of Guy S. Hutchins, Jr.
and William F. Nettles, III.
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Carolina First Corporation and Colonial Bank may, to the extent permitted
by applicable law, waive certain of the conditions imposed with respect to their
respective obligations to consummate the Reorganization Agreement.
TERMINATION
The Reorganization Agreement may be terminated at any time prior to the
Closing Date: (a) by mutual consent of the parties; (b) by either Carolina First
Corporation or Colonial Bank, at that party's option, (i) 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, or (ii) if the requisite Colonial Bank
shareholder approval is not received at the Special Meeting; (c) by either
Carolina First Corporation or Colonial Bank if the other party (or its
subsidiaries) has failed to comply with the agreements or failed to fulfill the
conditions contained in the Reorganization Agreement except that any such
failure of compliance or fulfillment must result in a "material adverse event"
(as defined in the Reorganization Agreement) and the breaching party must be
given notice of the failure to comply and a reasonable period of time to cure;
or (d) by either Carolina First Corporation or Colonial Bank in the event that
closing has not occurred by March 31, 1999.
AMENDMENT
The Reorganization Agreement may be amended or supplemented in writing by
mutual agreement of Carolina First Corporation, Carolina First Bank and Colonial
Bank. The Reorganization Agreement also provides that Carolina First Corporation
may restructure the transactions contemplated therein, provided that any such
restructuring shall not (i) alter the type of consideration to be issued to the
holders of Colonial Bank common stock as provided for in the Reorganization
Agreement, (ii) reduce the value of such consideration, (iii) adversely affect
the intended tax-free treatment to Colonial Bank's shareholders as a result of
receiving such consideration or prevent the parties from obtaining the tax
opinion of Wyche, Burgess, Freeman & Parham, P.A. referred to herein, (iv)
materially impair the ability to receive the required regulatory approvals, or
(v) materially delay the closing.
CONDUCT OF COLONIAL BANK'S AND CAROLINA FIRST CORPORATION'S BUSINESS
PRIOR TO THE EFFECTIVE TIME
Under the terms of the Reorganization Agreement, Colonial Bank has agreed
with respect to the conduct of its respective businesses pending closing, among
other things: (a) to carry on its business only in the ordinary course and to
use all reasonable efforts to preserve intact its business organization and
goodwill, maintain the services of its present officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings; (b) not to amend its charter or bylaws; (c) not to issue or acquire
any shares of its capital stock of any class or any securities convertible into
its capital stock or declare or pay any dividends or distributions, or make any
change in its capital structure; (d) to promptly advise Carolina First
Corporation of any material adverse change in the business of Colonial Bank; (e)
not to breach the Reorganization Agreement or cause any of the representations
of Colonial Bank contained in the Reorganization Agreement to become untrue; (f)
not to incur any indebtedness other than in the ordinary course of business; (g)
except for Merger-related expenses and current contractual obligations, not to
incur any expense in excess of $50,000; (h) not to grant any executive officers
any increase in compensation (except in the ordinary course of business) or
enter into any employment agreement; (i) not to engage in acquisitions, mergers
or other reorganizations; (j) except as may be directed by any regulatory
authority or in certain other limited instances, not change its lending,
investment, liability management or other material banking or other policies in
any material respect, or implement or adopt any change in accounting principles,
practices or methods; or (k) except in limited instances, not impose, or permit
or suffer the imposition of any liens on any of its assets.
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Under the terms of the Reorganization Agreement, Carolina First
Corporation has agreed, with respect to the conduct of its business pending
closing, among other things: (i) to carry on its business in substantially the
same manner as heretofore conducted; (ii) not to amend its Articles of
Incorporation or Bylaws in any manner that will adversely affect the Colonial
Bank shareholders in any material respect; (iii) to promptly advise Colonial
Bank of any material adverse change in its business; and (iv) not to take any
action that would be contrary to or breach any of the terms or provisions of the
Reorganization Agreement, or which would cause Carolina First Corporation's
representations in the Reorganization Agreement to become untrue in any material
respect.
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 acquisition of Colonial Bank as contemplated herein is subject to
approval of the FDIC pursuant to both the Bank Merger Act (12 U.S.C. ss. 1828 et
seq.) ("BMA") and Section 5(d)(3) of the Federal Deposit Insurance Act ("FDI
Act"). The BMA requires that the relevant regulatory agency take into
consideration, among other factors, the financial and managerial resources and
future prospects of the institutions and the convenience and needs of the
communities to be served. The BMA prohibits the FDIC from approving the
acquisition (i) if such transaction would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or (ii) if
the effect of such transaction in any section of the country may be
substantially to lessen competition or to tend to create a monopoly, or if it
would in any other manner be a restraint of trade, unless the relevant
regulatory agency finds that the anticompetitive effects of such merger are
clearly outweighed by the public interest and by the probable effect of the
transaction 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 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 BMA provides that no bank merger may be consummated until the 15th day after
approval, during which time the United States Department of Justice ("DOJ") may
challenge the Reorganization Agreement on antitrust grounds. Carolina First
Corporation has submitted an application to the FDIC for approval to consummate
the Merger.
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.
Carolina First Corporation and Colonial Bank are not aware of any other
governmental approvals or actions that are required for consummation of the
Merger except as described above. 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
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consummation of the Merger.
OPERATIONS AFTER THE MERGER
After consummation of the Merger, it is expected all of the former
Colonial Bank banking locations will be operated as branch locations of Carolina
First Bank and such locations are expected to conduct their business in
generally the same manner as prior to the Merger. It is generally expected that
the retained Colonial Bank officers and employees will continue in similar
positions of Carolina First Bank in an at-will employment capacity. In general,
retained Colonial Bank 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. After
consummation of the Merger, it is anticipated that Carolina First Bank will
continue to conduct its business in generally the same manner in which it is now
conducted. See "--Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
DIRECTORS. In accordance with the Reorganization Agreement, Carolina First
Corporation will nominate and elect Guy S. Hutchins, Jr. to the Board of
Directors of Carolina First Mortgage Company for a period of five years.
INDEMNIFICATION; ADVANCEMENT OF EXPENSES; DIRECTORS' AND OFFICERS'
INSURANCE. The Reorganization Agreement provides that Carolina First Corporation
will indemnify the Colonial Bank directors and executive officers against
certain liabilities (and will advance certain expenses) to the fullest extent
that such persons would have been entitled to indemnification (or advancement of
expenses) under the laws of South Carolina and the Colonial Bank Articles of
Incorporation and Bylaws as in effect on the date of the Reorganization
Agreement. The Reorganization Agreement also provides that prior to closing,
Colonial Bank shall use its best efforts to extend its existing directors' and
officers' liability insurance policy past the Closing Date (spending up to
$15,000) and after closing, Carolina First Corporation shall take no action to
terminate prematurely such policy.
EMPLOYMENT AGREEMENTS. Guy S. Hutchins, Jr., William F. Nettles, III and
William C. Bochette, III, each executive officers of Colonial Bank, have
employment contracts with Colonial Bank which provide for certain payments, in
connection with changes of control, such as the Merger. The benefits payable
upon the change of control under these agreements are $399,000, $359,000, and
$220,000 for Guy S. Hutchins, Jr., William F. Nettles, III and William C.
Bochette, III, respectively.
STOCK OPTIONS. The Reorganization Agreement provides that holders of
options to purchase Colonial Bank common stock outstanding at the Effective Time
of the Merger will be converted into options to acquire Carolina First
Corporation common stock based on the Conversion Ratio. These options will
continue to have the same terms and conditions as were in effect with respect to
such options prior to the Merger except for any requirement of continued
employment. The Reorganization Agreement also provides that an option holder may
elect immediately prior to the Effective Time (in lieu of having such options
converted into the right to receive Carolina First Corporation common stock), to
surrender such options in exchange for a cash payment per share equal to the
difference between $23.00 and the exercise price per share of each option.
OTHER MATTERS RELATED TO EMPLOYEES AND EMPLOYEE BENEFIT PLANS. In the
Reorganization Agreement, Carolina First Corporation, Colonial Bank agreed to
cooperate to develop staffing plans which will result in the retention of as
many Colonial Bank managers and employees as is practical (as determined by
Carolina First Corporation). Carolina First Corporation agreed that Colonial
Bank employees shall also be eligible for consideration for any other available
positions for which they are qualified at Carolina First Corporation and its
subsidiaries. Carolina First Corporation agreed that those former Colonial Bank
employees who are employed by Carolina First Corporation or its subsidiaries
immediately following the Closing Date: (i) will be eligible,
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on the same basis as current Carolina First Corporation employees, for all
Carolina First Corporation Benefit Plans (as defined in the Reorganization
Agreement); and (ii) will receive past service credit for eligibility and
vesting (but not benefit accrual) purposes under Carolina First Corporation
Benefit Plans for years of service with Colonial Bank as if such service had
been with Carolina First Corporation or its subsidiaries. Carolina First
Corporation agreed that Colonial Bank may elect to fully vest its employees
under some or all Colonial Bank Benefit Plans prior to consummation of the
Merger. Any Colonial Bank Benefit Plans that are intended to be qualified under
Section 401(a) of the Code and exempt from tax under Section 501(a) of the Code
will be terminated by proper action of the Board of Directors of Colonial Bank
prior to the Effective Time. Carolina First Corporation further agrees that
those former Colonial Bank employees who are employed by Carolina First
Corporation or its subsidiaries immediately following the Closing Date will not
be subject to any pre-existing condition exclusion under Carolina First
Corporation's medical Benefit Plans.
ACCOUNTING TREATMENT
Carolina First Corporation expects to account for the acquisition of
Colonial Bank as a purchase. Under the purchase method of accounting, the assets
and liabilities of Colonial will be adjusted to their estimated market values
and combined with the assets and liabilities of Carolina First Bank.
Stockholders' equity and cash will be adjusted to reflect common stock and cash
issued for the purchase price. The excess of the purchase price over the
estimated market value of the net assets acquired will be recorded as intangible
assets, which will be amortized over 10 to 25 years using accelerated and
straight-line methods. Prior period statements will not be restated.
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
Colonial Bank 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 Colonial Bank 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 Colonial Bank shareholders who acquired
their shares of Colonial Bank's common stock pursuant to the exercise of
employee stock options or rights or otherwise as compensation. Shareholders are
urged to consult their own tax advisers 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 Reorganization Agreement, Colonial Bank 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 Reorganization Agreement and assuming the Merger occurs in
accordance with the Reorganization Agreement and conditioned on the accuracy of
certain representations made by Colonial Bank and Carolina First Corporation,
for federal income tax purposes:
1. The Merger will qualify as a reorganization under the provisions of
Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code, provided
that substantially all of the assets of Colonial Bank are acquired
in the Merger.
2. No gain or loss will be recognized either to Carolina First
Corporation or Colonial Bank as a result of the Merger.
3. No gain or loss will be recognized to the shareholders of Colonial
Bank upon their receipt of shares of Carolina First Corporation
common stock in the Merger (disregarding for this purpose
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any cash received for fractional shares or in connection with the
exercise of dissenters' rights).
4. The receipt of cash by Colonial Bank shareholders in the Merger in
exchange for fractional shares will be treated for federal income
tax purposes as a redemption of such shares.
5. The tax basis of the Carolina First Corporation common stock so
received by Colonial Bank shareholders in connection with the Merger
will be the same as the basis in the Colonial Bank common stock
surrendered in exchange for such Carolina First Corporation common
stock as set forth above.
6. The holding period of the Carolina First Corporation common stock
received by a Colonial Bank shareholder will include the holding
period of the shares of Colonial Bank surrendered therefor provided
that the Colonial Bank shares are capital assets in the hands of the
shareholder at the time of the Merger.
FRACTIONAL SHARE INTERESTS. A Colonial Bank shareholder who receives cash
in lieu of a fractional share interest in Carolina First Corporation 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 Colonial Bank 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 Carolina First
Corporation common stock received, determined as set forth above, is longer than
one year.
CASH RECEIVED BY HOLDERS OF COLONIAL BANK COMMON STOCK WHO DISSENT. A
shareholder of Colonial Bank who perfects his dissenter's rights under federal
law and who receives payment of the value of his shares of Colonial Bank 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 Colonial Bank 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 Colonial
Bank 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 FEDERAL 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 ADVISERS 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 Carolina First Corporation Shares has been registered
under the Securities Act. Accordingly, resales of the Carolina First Corporation
Shares by non-affiliates of Colonial Bank will not require registration.
However, under existing law, any person who is an "affiliate" of Colonial Bank
(as defined below) at the time the proposed exchange is submitted to a vote of
the Colonial Bank shareholders who wishes to sell Carolina First Corporation
Shares will be required either to (a) register the sale of the Carolina First
Corporation 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
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145(d) requires that persons deemed to be Colonial Bank affiliates resell their
Carolina First Corporation Shares pursuant to certain of the requirements of
Rule 144 under the Securities Act if such Carolina First Corporation Shares are
sold within one year after receipt thereof. After one year, 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, a former Colonial
Bank affiliate may freely sell the Carolina First Corporation Shares without
limitation. After two years from the issuance of the Carolina First Corporation
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 Carolina First Corporation Shares without limitation, regardless of
the status of Carolina First Corporation's periodic securities law filings.
Colonial Bank has agreed that it will use its best efforts to cause affiliates
of Colonial Bank to agree in writing that they will not sell the Carolina First
Corporation common stock to be received by them except as provided above. Stop
transfer instructions will be given by Carolina First Corporation to the
Exchange Agent with respect to the Carolina First Corporation 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
Colonial Bank, 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, Colonial Bank at
the time of consummation of the Merger. In this context, an "affiliate" will
generally include the following persons: directors or executive officers, and
the holders of 10% or more of Colonial Bank common stock (and any relative or
spouse of any such person having the same home as 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 COLONIAL BANK
THE FOLLOWING DISCUSSION IS MERELY A SUMMARY OF RIGHTS OF DISSENTING
SHAREHOLDERS PURSUANT TO SOUTH CAROLINA LAW AND IS QUALIFIED IN ITS ENTIRETY BY
THE PROVISIONS OF THE SOUTH CAROLINA DISSENTERS' RIGHTS STATUTE (SECTION
13-13-101 ET SEQ. OF THE SOUTH CAROLINA BUSINESS CORPORATION ACT OF 1988,
AS AMENDED (THE "SCBCA")), A COPY OF WHICH IS INCLUDED HEREWITH AS ANNEX C.
DISSENTING SHAREHOLDERS HAVE ONLY THOSE RIGHTS PROVIDED BY SUCH LAW. ANY
SHAREHOLDER WISHING TO EXERCISE DISSENTERS' RIGHTS IS STRONGLY ADVISED TO
CONSULT WITH AN ATTORNEY.
Any shareholder of Colonial Bank entitled to vote on the Merger has the
right to dissent from the Merger and receive payment of the fair value of his
shares of Colonial Bank common stock upon compliance with the South Carolina
Dissenters' Rights Statute. A shareholder may not dissent as to less than all of
the shares that he beneficially owns, regardless of the number of accounts
maintained for the benefit of such shareholder. A nominee or fiduciary may not
dissent on behalf of any beneficial owner as to less than all of the shares of
such beneficial owner held of record by such nominee or fiduciary. A beneficial
owner asserting dissenters' rights to shares held on his behalf must notify
Colonial Bank in writing of the names and addresses of the record holders of the
shares, if known to him. Any Colonial Bank shareholder intending to enforce this
right may not vote in favor of the Merger and must file a written notice of
intent to demand payment for his shares (the "Objection Notice") with the
Corporate Secretary of Colonial Bank either before the Special Meeting or before
the vote is taken at the Special Meeting. The Objection Notice must state that
the shareholder intends to demand payment for his shares of Colonial Bank common
stock if the Merger is effected. Although any Colonial Bank shareholder who has
filed an Objection Notice must not vote in favor of the Merger, a vote in favor
of the Merger cast by the holder of a proxy appointment solicited by Colonial
Bank (whether pursuant to the instruction of the shareholder or otherwise) will
not disqualify the shareholder from demanding payment for his shares under the
SCBCA. A vote against approval of the Merger will not, in and of itself,
constitute an Objection Notice satisfying the requirements of Section 33-13-210
of the SCBCA. If the Merger is approved by Colonial Bank's shareholders at the
Colonial Bank Special Meeting, each shareholder who has filed an Objection
Notice will be notified by Colonial Bank of such approval within 10 days after
the Colonial Bank Special Meeting (the "Dissenters' Notice"). The Dissenters'
Notice will (i) state where dissenting shareholders must (a) send the Payment
Demand (as defined below) and (b) deposit their Certificates; (ii) inform
holders of uncertificated
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shares of Colonial Bank common stock of the extent of any restrictions on the
transferability of such shares; (iii) be accompanied by a form for demanding
payment that includes the date of the first announcement to the news media or to
shareholders of the terms of the proposed Merger; (iv) set a date by which (x)
Colonial Bank must receive the Payment Demand, which may not be fewer than 30 or
more than 60 days after the date the Dissenters' Notice is delivered and (y) the
Certificates must be deposited as instructed in the Dissenters' Notice, which
may not be earlier than 20 days after the date the Payment Demand is received by
Colonial Bank; and (v) be accompanied by a copy of the South Carolina
Dissenters' Rights Statute. Within the time prescribed in the Dissenters'
Notice, a shareholder electing to dissent must make a demand for payment (the
"Payment Demand"), certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares of Colonial Bank common stock before January 29, 1997 (the date of the
first public announcement of the terms of the Merger) and deposit his
Certificates in accordance with the terms of the Dissenter's Notice. Upon filing
the Payment Demand and depositing the Certificates, the shareholder will retain
all other rights of a shareholder until these rights are canceled or modified by
consummation of the Merger. FAILURE TO COMPLY SUBSTANTIALLY WITH THESE
PROCEDURES WILL CAUSE THE SHAREHOLDER TO LOSE HIS DISSENTERS' RIGHTS TO PAYMENT
FOR THE SHARES. CONSEQUENTLY, ANY COLONIAL BANK SHAREHOLDER WHO DESIRES TO
EXERCISE HIS RIGHTS TO PAYMENT FOR HIS SHARES IS URGED TO CONSULT HIS LEGAL
ADVISOR BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
As soon as the Merger is consummated, or upon receipt of a Payment Demand,
Carolina First Corporation shall, pursuant to Section 33-13-250 of the SCBCA,
pay to each dissenting shareholder who has substantially complied with the
requirements of Section 33-13-230 of the SCBCA, the amount that Carolina First
Corporation estimates to be the fair value of the shares of Colonial Bank common
stock plus accrued interest. Section 33-13-250 of the SCBCA requires that
payment to be accompanied by (i) certain of Colonial Bank's financial
statements, (ii) a statement of Carolina First Corporation's estimate of fair
value of the shares and explanation of how Carolina First Corporation's estimate
of fair value and the interest were calculated, (iii) notification of rights to
demand additional payment, and (iv) a copy of the South Carolina Dissenters'
Rights Statute. As authorized by Section 33-13-270, Carolina First
Corporation intends to delay any payments with respect to any shares (the
"After-acquired sales") held by a dissenting shareholder which were not held by
such shareholder on January 29, 1997, the date of the first public announcement
of the terms of the Merger, unless the beneficial ownership devolved upon him by
operation of law from a person who was the beneficial owner on such date. Where
payments are so withheld, Sections 33-13-270(b) and 33-13-280(a) of the SCBCA
will require Carolina First Corporation, after the Merger, to send to the holder
of the After-acquired shares an offer to pay the holder an amount equal to
Carolina First Corporation's estimate of their fair value plus accrued interest,
together with an explanation of the calculation of fair value and interest and a
statement of the holder's right to demand additional payment under Section
33-13-280 of the SCBCA.
If the Merger is not consummated within 60 days after the date set for
demanding payment and depositing Certificates, Colonial Bank, within the 60-day
period, shall return the deposited Certificates and release the transfer
restrictions imposed on the uncertificated shares. If, after returning deposited
Certificates and releasing transfer restrictions, the Merger is consummated,
Colonial Bank must send a new Dissenters' Notice and repeat the payment demand
procedure.
If the dissenting shareholder believes that the amount paid by Carolina
First Corporation pursuant to Section 33-13-250 of the SCBCA or offered under
Section 33-13-270 of the SCBCA is less than the fair value of his shares or that
the interest due is calculated incorrectly, or if Carolina First Corporation
fails to make payment or offer payment (or, if the Merger has not been
consummated, Colonial Bank does not return the deposited Certificates or release
the transfer restrictions imposed on uncertificated shares), within 60 days
after the date set in the Dissenters' Notice, then the dissenting shareholder
may within 30 days after (i) Carolina First Corporation made or offered payment
for the sales or failed to pay for the shares or (ii) Colonial Bank failed to
return deposited Certificates or timely release restrictions on uncertificated
shares, notify Carolina First Corporation in writing of his own estimate of the
fair market value of such shares (including interest due) and
32
<PAGE>
demand payment of such estimate (less any payment previously received). FAILURE
TO NOTIFY CAROLINA FIRST CORPORATION IN WRITING OF ANY DEMAND FOR ADDITIONAL
PAYMENT WITHIN 30 DAYS AFTER CAROLINA FIRST CORPORATION MADE PAYMENT FOR SUCH
SHARES WILL CONSTITUTE A WAIVER OF THE RIGHT TO DEMAND ADDITIONAL PAYMENT.
If Carolina First Corporation and the dissenting shareholder cannot agree
on a fair price within 60 days after Colonial Bank receives such a demand for
additional payment, the statute provides that Carolina First Corporation will
institute judicial proceedings in the South Carolina Court of Common Pleas in
Kershaw County (the "Court") to fix (i) the fair value of the shares immediately
before consummation of the Merger, excluding any appreciation or depreciation in
anticipation of the Merger, unless such exclusion would be inequitable and (ii)
the accrued interest. The "fair value" of the Colonial Bank common stock could
be more than, the same as, or less than that produced by the exchange ratio set
by the Merger. Carolina First Corporation must make all dissenters whose demands
for additional payment remain unsettled parties to the proceeding and all such
parties must be served with a copy of the petition. The Court may, in its
discretion, appoint an appraiser to receive evidence and recommend a decision on
the question of fair value. The Court is required to issue a judgment for the
amount, if any, by which the fair value of the shares, as determined by the
Court, plus interest, exceeds the amount paid by Carolina First Corporation. If
Carolina First Corporation does not institute such proceeding within such 60-day
period, Carolina First Corporation shall pay each dissenting shareholder whose
demand remains unsettled the respective amount demanded by each shareholder.
The Court will assess the costs and expenses of such proceeding (including
reasonable compensation for and the expenses of the appraiser but excluding fees
and expenses of counsel and experts) against Carolina First Corporation, except
that the Court may assess such costs and expenses as it deems appropriate
against any or all of the dissenting shareholders if it finds that their demand
for additional payment was arbitrary, vexatious or otherwise not in good faith.
The Court may award fees and expenses of counsel and experts in amounts the
Court finds equitable: (i) against Carolina First Corporation if the Court finds
that Carolina First Corporation did not comply substantially with the relevant
requirements of the SCBCA or (ii) against either Carolina First Corporation or
any dissenting shareholder, if the Court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously or not in good
faith.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF THE SOUTH CAROLINA
DISSENTERS' RIGHTS STATUTE IS NOT INTENDED TO BE A COMPLETE STATEMENT OF
SUCH PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATUTE,
WHICH IS INCLUDED AS ANNEX C HEREOF.
RECOMMENDATION OF COLONIAL BANK'S BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF COLONIAL BANK HAS CONCLUDED THAT THE MERGER IS
IN THE BEST INTERESTS OF COLONIAL BANK AND HAS AUTHORIZED CONSUMMATION THEREOF,
SUBJECT TO APPROVAL OF THE COLONIAL BANK SHAREHOLDERS, RECEIPT OF ALL REQUISITE
REGULATORY APPROVALS, AND SATISFACTION OF CERTAIN OTHER CONDITIONS. THE BOARD OF
DIRECTORS OF COLONIAL BANK RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
REORGANIZATION AGREEMENT.
33
<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 at June 30, 1998 with the historical consolidated balance sheet of
Colonial Bank at June 30, 1998, adjusting for the issuance of additional shares
expected to be issued in the Merger.
The unaudited Pro Forma Combined Capitalization is based on combining the
historical consolidated capitalization of Carolina First Corporation at June 30,
1998 with the historical capitalization of Colonial Bank at June 30, 1998,
adjusting for the issuance of additional shares expected to be issued in the
Merger.
The unaudited Pro Forma Combined Condensed Statement of Income is based on
combining the historical consolidated statements of income of Carolina First
Corporation for the year ended December 31, 1997 with the historical
consolidated statements of income of Colonial Bank for the twelve months ended
December 31, 1997, and the historical consolidated statements of income of
Carolina First Corporation for the six months ended June 30, 1998 with the
historical consolidated statements of income of Colonial Bank for the six months
ended June 30, 1998. Historical earnings for Colonial Bank, which changed its
fiscal year end to December 31 from March 31 in 1997, have been adjusted to
reflect a December 31 fiscal year-end by adding the nine months ending December
31, 1997 and the three months ending March 31, 1997.
The Merger is expected to be accounted for under the purchase method of
accounting, and pro forma data are derived in accordance with such method.
The pro forma data do not reflect any potential benefits from potential
cost savings or synergies expected to be achieved following the Merger. The pro
forma data also exclude merger costs related to the Merger.
Financial information presented at and for the six months ended June 30,
1998 and for the twelve months ended December 31, 1997 also includes pro forma
data for Carolina First Corporation's pending acquisitions of First National and
Colonial Bank. This information is included in the column titled "Fully Pro
Forma Combined." See "INFORMATION ABOUT CAROLINA FIRST CORPORATION - Recent
Developments."
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.
34
<PAGE>
UNAUDITED PRO FORMA COMBINED CAPITALIZATION
AT JUNE 30, 1998
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Purchase
Carolina First Accounting Pro Forma First Pro Forma Fully
Corporation Colonial Bank Adjustments Combined National Poinsett(a) Adjustments Combined
----------- ------------- ----------- ------------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT
Subordinated notes $25,554 $ -- $ -- $25,554 $ -- $ -- $ -- $25,554
FHLB advances 10,000 -- -- 10,000 -- -- -- 10,000
ESOP debt 2,725 -- -- 2,725 -- -- -- 2,725
Mortgage debt 1,067 -- -- 1,067 -- -- -- 1,067
-------- ------ ----- -------- ---- --- --- --------
Total long-term
debt 39,346 -- -- 39,346 -- -- -- 39,346
-------- ------ ----- -------- ---- --- --- -------
SHAREHOLDERS' EQUITY
Common stock 18,143 583 (72)(b) 18,654 200 2 2,822(e) 21,678
Surplus 212,802 4,412 7,846(b) 226,260 300 1,388 11,399(e) 241,547
1,200(c) 2,200(c)
Retained earnings 27,455 324 (324)(b) 27,455 15,504 3,516 (3,516)(e) 42,209
(750)(d)
Nonvested restricted
stock and guarantee
of ESOP debt (3,411) -- -- (3,411) -- -- -- (3,411)
Unrealized gain
(loss) on securities
available for sale 1,936 (4) -- 1,932 346 (1) -- 2,277
---------- ------ ------ ------- ------- ------ -------
Total shareholders'
equity 256,925 5,315 8,650 270,890 16,350 4,905 12,155 304,300
-------- ------ ------ ------- ------- ------ ------- -------
Total
capitalization $296,271 $5,315 $8,650 $310,236 $16,350 $4,905 $12,155 $343,646
======== ====== ====== ======== ======= ====== ======= ========
(a) The Merger with First National will be accounted for as a "pooling-of-interests" and the Merger with Poinsett will be accounted
for as a "purchase."
(b) To reflect the issuance of 510,617 shares of Carolina First Corporation common stock to holders of Colonial Bank's common stock
based on an assumed average market price of $25.00 per share of Carolina First Corporation common stock.
(c) To record the value of options acquired.
(d) To record estimated Merger costs, including transaction costs and buyout of certain First National employee contracts.
(e) To reflect the issuance of 2,400,256 shares of Carolina First Corporation common stock to holders of First National's common
stock, and the issuance of 624,397 shares of Carolina First Corporation common stock to holders of Poinsett's common stock,
based on an assumed market price of $25.00 per share of Carolina First Corporation's common stock.
</TABLE>
35
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOOTNOTES)
<TABLE>
<CAPTION>
Purchase Fully
Carolina First Accounting Pro Forma First (a) Pro Forma
Corporation Colonial Bank Adjustments Combined National Poinsett Adjustments Combined
------------- ------------- ----------- ------------ -------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $72,052 $ 2,659 $ -- $74,711 $4,673 $14,380 $ -- $93,764
Interest-bearing bank
balances 37,144 950 -- 38,094 -- -- -- 38,094
Fed funds sold & resale
agreements 35,000 -- -- 35,000 4,900 -- -- 39,900
Investment securities 422,470 5,659 (308)(b) 427,821 43,673 3,472 -- 474,966
Loans held for sale 86,373 -- -- 86,373 -- -- -- 86,373
Loans held for
investment 1,477,842 48,152 -- 1,525,994 65,348 68,971 -- 1,660,313
Less unearned income (9,349) -- -- (9,349) -- -- -- (9,349)
Less allowance for
loan losses (15,625) (350) -- (15,975) (714) (758) -- (17,447)
---------- ----------- -------- -------- -------- ------- ----- ---------
Net loans 1,539,241 47,802 -- 1,587,043 64,634 68,213 -- 1,719,890
Premises and equipment 41,606 1,754 350(c) 43,710 1,539 1,282 -- 46,531
Intangible assets 57,109 215 10,107(d) 67,431 -- -- 14,121(i) 81,552
Other assets 73,369 713 -- 74,082 1,203 1,522 -- 76,807
----------- -------- ------- ---------- ---------- -------- -------- ----------
Total assets $ 2,277,991 $ 59,752 $10,149 $ 2,347,892 $ 120,622 $ 88,869 $ 14,121 $ 2,571,504
=========== ======== ======= =========== ========== ======== ======== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $230,717 $ 3,193 $ -- $ 233,910 $ 20,054 $ 3,112 $ -- $ 257,076
Interest-bearing 1,607,800 39,820 -- 1,647,620 77,576 78,444 -- 1,803,640
--------- ------ ----- --------- ------- --------- -------- ----------
Total deposits 1,838,517 43,013 -- 1,881,530 97,630 81,556 -- 2,060,716
Borrowed funds 150,655 11,300 -- 161,955 5,804 2,043 -- 169,802
Other liabilities 31,894 124 399(e) 33,517 838 365 466(e) 36,686
--------- ------- ------- --------- -------- ---------
1,100 (f) 1,500 (f)
----- -----
Total
liabilities 2,021,066 54,437 1,499 2,077,002 104,272 83,964 1,966 2,267,204
--------- ------ ----- --------- ------- ------ ----- ---------
Total shareholders'
equity 256,925 5,315 7,450(g) 270,890 16,350 4,905 10,705(j) 304,300
------- ----- ------- ------- ------ ---------
1,200(h) 2,200(h)
-----
(750)(f)
----
Total liabilities and
shareholders' equity $2,277,991 $59,752 $10,149 $2,347,892 $120,622 $88,869 $14,121 $2,571,504
========== ======== ======== ========== ======== ======= ======== ==========
</TABLE>
(a) The Merger with First National will be accounted for as a
"pooling-of-interests" and the Merger with Poinsett will be accounted for
as a "purchase."
(b) To remove the carrying value of Colonial Bank shares owned by Carolina First
Corporation.
(c) To adjust the fixed assets and property of Colonial Bank to estimated market
value.
(d) To record the excess cost of acquisition over the estimated market value of
the net assets acquired (goodwill of $8,262,000), the valuation of options
acquired (goodwill of $1,200,000) and the core deposit premium ($645,000).
(e) To adjust the deferred tax liabilities as a result of the purchase
accounting adjustments using Carolina First Corporation's statutory rate
of 38%.
(f) To record estimated Merger costs, including transaction costs and buyout
of employee contracts.
(g) To give effect to the acquisition of Colonial Bank, assuming the issuance of
510,617 shares of Carolina First Corporation common stock, based on an
assumed market price of $25.00 per share of Carolina First Corporation
common stock and an exchange ratio of .9200. The total value of Carolina
First Corporation common stock exchanged would be $12,765,000.
(h) To record the value of options acquired.
(i) To record the excess cost of the acquisition of Poinsett over the estimated
market value of the net assets acquired (goodwill of $10,698,000), the
valuation of options acquired (goodwill of $2,200,000) and the core deposit
premium ($1,223,000).
(j) To give effect to the acquisition of Poinsett, assuming the issuance of
624,397 shares of Carolina First Corporation common stock, based on an
assumed market price of $25.00 per share of Carolina First Corporation
common stock and an exchange ratio of 3.280. The total value of Carolina
First Corporation common stock exchanged would be $15,610,000.
36
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 1998
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Carolina Purchase Fully
First Colonial Accounting Pro Forma First (a) Pro Forma
Corporation Bank Adjustments Combined National Poinsett Adjustments Combined
----------- ----- ----------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 85,630 $ 2,311 $ -- $ 87,941 $ 4,376 $ 3,383 $ -- $ 95,700
Interest expense 44,054 1,231 -- 45,285 1,666 1,923 -- 48,874
-------- ------- ----- -------- -------- ------- -------- -----------
Net interest income 41,576 1,080 -- 42,656 2,710 1,460 -- 46,826
Provision for loan losses 5,583 30 -- 5,613 -- 575 -- 6,188
-------- ------- ----- --------- ------- ------- -------- -----------
Net interest income after
provision for loan losses 35,993 1,050 -- 37,043 2,710 885 -- 40,638
Noninterest income 9,696 157 -- 9,853 264 581 -- 10,698
Noninterest expenses 29,482 963 189(b) 30,702 1,607 1,602 258(b) 34,280
-------- -------- --------- ------- ------- -----------
59(c) 111(c)
9(d) -------
------
Income before income taxes 16,207 244 (257) 16,194 1,367 (136) (369) 17,056
Income taxes 5,977 81 (25)(e) 6,033 451 (42) (41)(e) 6,401
------- -------- ------ -------- ------- ------- ------- -----------
Net income $ 10,230 $ 163 $(232) $ 10,161 $ 916 $ (94) $ (328) $ 10,655
======= ======== ===== ======== ====== ======= ======= ===========
Net income per common share:
Basic $0.59 $0.28 $ -- $ 0.57 $11.45 $ (0.49) $ -- $ 0.51
Diluted 0.59 0.26 -- 0.56 11.45 (0.49) -- 0.50
Average shares outstanding:
Basic 17,138,421 583,019 -- 17,674,798 80,000 190,365 -- 20,699,452
Diluted 17,509,212 633,725 -- 18,092,239 80,000 190,365 -- 21,116,892
</TABLE>
(a) The Merger with First National will be accounted for as a
"pooling-of-interests" and the Merger with Poinsett will be accounted for
as a "purchase."
(b) Record amortization of goodwill using the straight-line method
over 25 years.
(c) Record amortization of core deposit intangible using the
sum-of-the-year's digits method over 10 years.
(d) To increase depreciation
expense from mark-up of Colonial Bank premises and equipment to an estimated
market value.
(e) To show impact of taxes at 38% tax rate.
37
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Twelve Months Ended December 31, 1997
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Purchase Fully
Carolina First Colonial Accounting Pro Forma First (a) Pro Forma
Corporation Bank Adjustments Combined National Poinsett Adjustments Combined
------------ -------- ----------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 135,706 $ 3,968 $ -- $ 139,674 $ 8,400 $ 6,076 $ -- $154,150
Interest expense 69,000 2,203 -- 71,203 3,204 3,251 -- 77,658
------- -------- ----- ------- --------- ------ ------ ------
Net interest income 66,706 1,765 -- 68,471 5,196 2,825 -- 76,492
Provision for loan losses 11,646 309 -- 11,955 151 69 -- 12,175
------- ------ ----- ------- -------- -------- ------ ------
Net interest income after
provision for loan losses 55,060 1,456 -- 56,516 5,045 2,756 -- 64,317
Noninterest income 19,615 335 -- 19,950 528 819 -- 21,297
Noninterest expenses 52,243 1,807 378(b) 54,563 3,019 2,864 516(b) 61,184
------- -------- ------- --------- ------ ------
117(c) 222(c)
---
18(d)
--
Income before income
taxes 22,432 (16) (513) 21,903 2,554 711 (738) 24,430
Income taxes 8,092 59 (50)(e) 8,101 788 240 (82)(e) 9,047
-------- ----- ----- ------ -------- ------- ----- -----
Net income $ 14,340 $ (75) $ (463) $ 13,802 $1,766 $ 471 $ (656) $15,383
======== ======= ======= ========= ====== ======== ======== =======
Net income per common share:
Basic $1.19 $(0.15) $ -- $1.11 $22.08 $2.48 $ -- $1.00
Diluted 1.18 (0.15) -- 1.09 22.08 2.41 -- 0.98
Average shares
outstanding:
Basic 11,989,517 486,851 -- 12,437,420 80,000 189,426 -- 15,458,993
Diluted 12,175,561 497,362 -- 12,633,134 80,000 195,426 -- 15,674,387
</TABLE>
(a) The Merger with First National will be accounted for as a
"pooling-of-interests" and the Merger with Poinsett will be accounted for
as a "purchase."
(b) Record amortization of goodwill using the straight-line method
over 25 years.
(c) Record amortization of core deposit intangible using the
sum-of-the-year's digits method over 10 years.
(d) To increase depreciation expense from mark up of Colonial Bank premises and
equipment to an estimated market value.
(e) To show impact of taxes at 38% tax rate.
38
<PAGE>
INFORMATION ABOUT CAROLINA FIRST CORPORATION
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 four principal operating subsidiaries: (1) Carolina
First Bank, a South Carolina-chartered bank headquartered in Greenville, South
Carolina, (2) Carolina First Mortgage Company, a mortgage loan origination and
servicing company headquartered in Columbia, South Carolina, (3) Blue Ridge
Finance Company, Inc., an automobile finance company headquartered in
Greenville, South Carolina, and (4) Resource Processing Group, Inc., a credit
card origination and servicing company headquartered in Columbia, South
Carolina. Through its subsidiaries, Carolina First Corporation provides a full
range of banking services, including mortgage, trust and investment services,
designed to meet substantially all of the financial needs of its customers.
Carolina First Corporation, which commenced operations in December 1986,
currently conducts business in 61 locations in South Carolina and is one of the
largest independent South Carolina- headquartered financial institutions. At
June 30, 1998, it had total assets of approximately $2.3 billion, total loans of
approximately $1.6 billion, total deposits of approximately $1.8 billion and
approximately $257 million in shareholders' equity.
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 four
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); Georgetown and Horry counties (located in the northern coastal
region of South Carolina); and the Charleston metropolitan area (located in the
central coastal region of South Carolina). Carolina First Corporation's market
areas are located in the four largest Metropolitan Statistical Areas of the
state. Carolina First Corporation also has branch locations in other counties in
South Carolina.
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 in 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), the acquisition of 12 branch locations of Republic National Bank in March
1993, and the acquisition of First Southeast Financial Corporation in November
1997. 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 subsidiaries. Accordingly, the right of
Carolina First Corporation, and thus the right of Carolina
39
<PAGE>
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.
CAROLINA FIRST BANK. Carolina First Bank is a South Carolina-chartered,
Federal Reserve non-member bank and a wholly-owned subsidiary of Carolina First
Corporation. It currently engages in a general banking business through 58
locations, which are located throughout South Carolina. It began its operations
in December 1986 and at June 30, 1998 had total assets of approximately $2.2
billion, total loans of approximately $1.5 billion and total deposits of
approximately $1.9 billion. 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 June 30, 1998, Carolina First
Mortgage Company was servicing or subservicing approximately 21,458 loans having
an aggregate principal balance of approximately $1.8 billion.
BLUE RIDGE FINANCE COMPANY, INC. On December 29, 1995, Carolina First
Corporation acquired Blue Ridge Finance Company, an automobile finance company
headquartered in Greenville, South Carolina. Blue Ridge operates from one
location and, at June 30, 1998, had approximately $18.2 million in total assets.
Blue Ridge is engaged primarily in indirect automobile lending.
RESOURCE PROCESSING GROUP, INC. On June 1, 1998, Carolina First
Corporation acquired Resource Processing Group, Inc., a credit card origination
and servicing company headquartered in Columbia, South Carolina. Resource
Processing Group, Inc. operates from one location and, at June 30, 1998, was
servicing approximately $257 million in credit card receivables.
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 stockholders' 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 June 30,
1998, Carolina First Corporation was in compliance with both the risk-based
capital guidelines and the minimum leverage capital ratio.
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 leverage ratio of not less than 4%. At June 30, 1998, Carolina
First Corporation and Carolina First Bank were both in compliance with each of
the applicable regulatory capital requirements.
40
<PAGE>
PRO FORMA REGULATORY CAPITAL. The following tables sets forth Carolina
First Bank's and Carolina First Corporation's regulatory capital position at
June 30, 1998, on a historical basis as well as a pro forma basis assuming
consummation of the Merger. See "PRO FORMA COMBINED CONDENSED FINANCIAL
INFORMATION."
CAROLINA FIRST BANK
At June 30, 1998
----------------------------------------------
Historical Pro Forma
----------------------------------------------
(Dollars in thousands)
Shareholders' Equity........... $219,605 9.82% $233,570 10.13%
======== ===== ======== ======
Regulatory Capital
Tier I risk-based:
Actual...................... $168,150 10.13% $171,800 10.05%
Required*................... 66,418 4.00 68,401 4.00
------ ---- ------ ----
Excess...................... $101,732 6.13% $103,399 6.05%
======== ===== ======== =====
Total risk-based:
Actual...................... $182,286 10.98% $186,286 10.89%
Required*................... 132,835 8.00 136,802 8.00
------- ---- ------- ----
Excess...................... $49,451 2.98% $49,484 2.89%
======= ==== ======= ====
Leverage:
Actual...................... $168,150 7.70% $171,800 7.65%
Required*................... 87,401 4.00 89,784 4.00
------ ---- ------ ----
Excess...................... $80,749 3.70% $82,016 3.65%
======= ===== ======= =====
Total risk-based assets........ $1,660,438 $1,710,023
========== ==========
Total assets................... $2,236,486 $2,306,387
========== ==========
- ---------------------------
* For capital adequacy purposes.
CAROLINA FIRST CORPORATION
At June 30, 1998
----------------------------------------------
Historical Pro Forma
----------------------------------------------
(Dollars in thousands)
Shareholders' Equity........... $256,925 11.28% $270,890 11.54%
======== ====== ======== ======
Regulatory Capital
Tier I risk-based:
Actual....................... $197,980 11.68% $204,941 11.75%
Required*.................... 67,795 4.00 69,778 4.00
------ ---- ------ ----
Excess....................... $130,185 7.68 $135,163 7.75%
======== ==== ======== =====
Total risk-based:
Actual....................... $239,159 14.11% $ 246,470 14.13%
Required*.................... 135,590 8.00 139,556 8.00
------- ---- ------- ----
Excess....................... $103,569 6.11% $ 106,914 6.13%
======== ===== ========= =====
Leverage:
Actual....................... $197,980 8.91% $204,941 8.99%
Required*.................... 88,839 4.00 91,218 4.00
------ ---- ------ ----
Excess....................... $109,141 4.91% $113,723 4.99%
======== ===== ======== =====
Total risk-based assets........ $1,694,871 $1,744,456
========== ==========
Total assets................... $2,277,991 $2,347,892
=================================
- -------------------------------------
* For capital adequacy purposes.
41
<PAGE>
RECENT DEVELOPMENTS
ACQUISITION OF RESOURCE PROCESSING GROUP, INC. On June 1, 1998, Carolina
First Corporation acquired Resource Processing Group, Inc., a credit card
origination and servicing company headquartered in Columbia, South Carolina
("RPGI"), through the merger of RPGI with and into an interim subsidiary of
Carolina First Corporation. The RPGI transaction was accounted for as a purchase
and resulted in the issuance of approximately 398,600 shares of Carolina First
Corporation common stock for the outstanding shares of RPGI common stock.
Additional shares of Carolina First Corporation common stock may become issuable
in the event that certain performance related criteria are met. At June 30,
1998, RPGI operated through one location, had approximately $16.0 million in
assets and was servicing approximately $257 million in credit card receivables.
For the years ended December 31, 1996 and 1997, RPGI had net income of
approximately $448,000 and a loss of $2,296,000, respectively. RPGI does not
have any receivables associated with credit cards or other loans.
PENDING ACQUISITION OF FIRST NATIONAL BANK OF PICKENS COUNTY. On June 9,
1998, Carolina First Corporation signed a definitive agreement to acquire First
National Bank of Pickens County ("First National") through the merger of First
National with and into Carolina First Bank. First National is a national bank
headquartered in Easley, South Carolina. At June 30, 1998, First National
operated through three locations and had total assets, loans, deposits and
shareholders' equity of approximately $120.6 million, $64.6 million, $97.6
million and $16.4 million, respectively. Under the terms of the merger
agreement, First National shareholders will receive compensation of $750.08 per
share for each First National share (for an aggregate consideration amount of
approximately $60 million), payable in the form of Carolina First Corporation
common stock. The per share consideration increases to $769.89 in the event that
the closing of the transaction occurs after September 30, 1998. The fair market
value of Carolina First Corporation common stock will be determined in a manner
similar to which it is being determined for purposes of the Merger (i.e. based
on the 20 trading days immediately prior to the closing date of the transaction,
except in certain instances involving a change of control, in which case the
value may be determined based on the 20 trading days immediately prior to the
announcement regarding such matter).
PENDING ACQUISITION OF POINSETT FINANCIAL CORPORATION. On June 26, 1998,
Carolina First Corporation signed a definitive agreement to acquire Poinsett
Financial Corporation through the merger of Poinsett with and into Carolina
First Corporation. Poinsett is a thrift holding company headquartered in
Travelers Rest, South Carolina, and owns 100% of the stock of Poinsett Bank,
a Federal savings bank. At June 30, 1998, Poinsett operated through three
locations and had total assets, loans, deposits and shareholders' equity of
approximately $88.3 million, $67.5 million, $81.6 million and $5.8 million,
respectively. Under the terms of the merger agreement, Poinsett shareholders
will receive compensation of $82.00 per share for each Poinsett share (for an
aggregate consideration amount of approximately $15.5 million), payable in the
form of Carolina First Corporation common stock. The Carolina First Corporation
common stock will be determined in a manner similar to which it is being
determined for purposes of the Merger (i.e. based on the 20 trading days
immediately prior to the closing date of the transaction, except in certain
instances involving a change of control, in which case the value may be
determined based on the 20 trading days immediately prior to the announcement
regarding such matter).
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.
42
<PAGE>
INFORMATION ABOUT COLONIAL BANK
HISTORY AND BUSINESS
COLONIAL BANK. Colonial Bank conducts a general banking business under a
state charter approved by the State Board and granted by the Secretary of State
of South Carolina. Colonial Bank was originally organized as a South Carolina
state savings association on April 20, 1993. However, in 1996, pursuant to a
vote of its shareholders and approval of the State Board, Colonial Bank amended
its articles of incorporation and converted to a commercial bank. Colonial Bank
conducts its activities from its main office, one branch located in Camden,
South Carolina, and one branch located in Lugoff, South Carolina.
Colonial Bank's business primarily consists of accepting deposits and
originating first mortgage loans on single-family residential properties.
Colonial Bank seeks deposit accounts from households and businesses in its
primary market area by offering a full range of savings accounts, retirement
accounts (including Individual Retirement Accounts and Keogh plans), checking
accounts, money market accounts, and time certificates of deposit. It also
originates mortgage loans and, to a lesser extent, commercial and consumer
loans, primarily on a secured basis, and makes other authorized investments.
Mortgage loans are primarily made for resale in the secondary market. As of June
30, 1998, Colonial Bank employed 32 persons.
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 Colonial Bank, and should be read in
conjunction with the financial statements and related notes contained elsewhere
herein. All per share data has been retroactively restated to reflect a 6 for 5
stock split, effected in the form of a 20% stock dividend, effective April 17,
1997.
FORWARD LOOKING STATEMENTS. Statements included in Management's Discussion
and Analysis or Plan of Operation which are not historical in nature are
intended to be, and are hereby identified as 'forward looking statements' for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. Colonial Bank cautions readers that forward looking
statements, including without limitation, those relating to Colonial Bank's
future business prospects, revenues, working capital, liquidity, capital needs,
interest costs, and income, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those indicated in the
forward looking statements, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in
Colonial Bank's reports filed with the Federal Deposit Insurance Corporation.
EARNINGS REVIEW
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.
Colonial Bank recorded net income after taxes of $162,573 or $.26 per share
for the six months ended June 30, 1998. These results compare favorably to net
income after taxes of $25,149 or $.06 per share for the six months ended June
30, 1997.
Net interest income, the difference between interest earned on earning
assets and interest paid on deposits and borrowed funds, is the primary source
of Colonial Bank's earnings. For the six months ended June 30, 1998, net
interest income totaled $1,080,205, compared to $863,674 for the six months
ended June 30, 1997. This increase resulted primarily from an increase in the
volume of earning assets. During the six months ended June 30, 1998, average
interest earning assets totaled $52.9 million, compared to $44.4 million for the
six months ended June 30, 1997. This represents an $8.5 million or 19.0%
increase in the level of interest earning assets from the six months ended June
30, 1997. Average interest bearing liabilities during the six-month period ended
June 30, 1998 totaled $48.6 million, compared to $41.5 million during the six
months period ended June 30, 1997. This represents a $7.1 million or 17.2%
increase in the level of interest bearing liabilities from the six months ended
June 30, 1997. The average interest rate spread (average yield on interest
earning assets less the average rate paid on interest bearing liabilities) for
the six months ended June 30, 1998 was 3.31%, a decrease of 9 basis points from
the six months ended June 30, 1997. Excluding loan fee income, the net yield on
earning assets (net interest income divided by average interest earning assets)
for the six months ended June 30, 1998 decreased by 6 basis points to 3.43%,
compared to 3.49% for the six months ended June 30, 1997.
The increases in average interest earning assets and interest bearing
liabilities between the six month periods ended June 30, 1998 and 1997 resulted
from growth strategies employed during the period. Average total assets during
the six months ended June 30, 1998 were $57.2 million compared to $47.8 million
for the six months ended June 30, 1997.
The allowance for loan losses, established through charges to expense in
the form of a provision for loan losses, allows for possible loan losses in
Colonial Bank's loan portfolio. Loan losses or recoveries are charged directly
to the allowance. The level of the allowance for loan losses is based on
management's judgment as to the amount required to maintain an allowance
adequate enough to provide for future losses. The provision for loan losses
totaled $30,000 for the six months ended June 30, 1998 compared to $43,000 for
the comparable period in 1997. Net charge-offs during the six months ended June
30, 1998 totaled $54,938, compared to $8,907 for the six months ended June 30,
1997. As of June 30, 1998, the allowance for loan losses totaled 0.73% of loans
compared to 0.34% as of June 30, 1997. Management considers the allowance as of
June 30, 1998 appropriate and adequate to cover possible losses in the
portfolio.
Noninterest income totaled $156,788 for the six months ended June 30, 1998
compared to $128,641 for the comparable period of 1997. The major increase was
in service charges on deposit accounts, which totaled $106,302 for the six
months ended June 30, 1998 compared to $88,394 for the comparable period of
1997. This increase is the result of increased chargeable account activity.
Total deposits increased $5.3 million from June 30, 1997 to June 30, 1998. There
were no realized securities gains or losses in either the 1998 or 1997 periods.
Noninterest expenses totaled $962,919 for the six months ended June 30,
1998, compared to $837,103 for the comparable period of 1997. This increase
totaled $125,816, or 15.0%. Salaries and employee benefits increased by $55,948
or 11.9% from the six month period ended June 30, 1997 to $524,791 for the six
months ended June 30, 1998, due to an increase in staff necessary to support the
growth of Colonial Bank. Net occupancy totaled $118,377 for the six months ended
June 30, 1998 compared to $94,141 for the comparable period of 1997. This
increase is the result of higher depreciation costs associated with an increase
in fixed assets, and higher operating costs associated with an additional branch
facility opened in January of 1998. Data processing, professional fees, and
other operating expenses were higher due to overall growth of Colonial Bank.
Federal insurance premiums decreased from $30,662 for the six months ended June
30, 1997, to $7,951 for the six months ended June 30, 1998. This decrease is the
result of Colonial Bank's pre-paying the one-time SAIF assessment during the
last quarter of 1997, which allowed lower deposit insurance premiums beginning
in January of 1998.
The provision for income taxes totaled $81,501 for the six months ended
June 30, 1998 compared to $87,063 for the comparable period of 1997. The
provision in the first quarter of 1997 included a one-time adjustment of $36,299
to correct for an accrual shortage during the first nine months of the fiscal
year ended March 31, 1997. Colonial Bank's fiscal year end was changed from
March to December in 1997.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND
THE YEAR ENDED MARCH 31, 1997
Earnings are being reported on a nine-month basis as a result of the
change in Colonial Bank's fiscal year end from March to December.
For the nine months ended December 31, 1997, Colonial Bank incurred a net
loss after taxes of $50,788, compared to a net profit of $207,857 for the twelve
months ended March 31, 1997. This loss is the result of strategic changes made
during the nine months designed to better position Colonial Bank for future
growth. These changes included the election to pay the one-time special Savings
Association Insurance Fund ("SAIF") assessment, and to increase the allowance
for possible loan losses to a level consistent with industry standards.
43
<PAGE>
On September 30, 1996, legislation was signed into law requiring a special
assessment to recapitalize the SAIF. Since Colonial Bank initially was chartered
under a thrift charter, the SAIF funds held by Colonial Bank at March 31, 1995
were subject to the special assessment payable in December of 1996. Colonial
Bank took advantage of an exemption which allowed Colonial Bank to continue
paying higher deposit insurance premiums in lieu of the one-time charge. In
September of 1997, management decided that due to an expected growth in the
total deposit base, it was cost-effective to pay the pro-rated one-time
assessment, and take advantage of lower insurance premiums going forward. This
pretax charge to operations of $68,091 was the primary reason for the increase
in federal deposit insurance premiums from $55,858 for the twelve months ended
March 31, 1997 to $119,797 for the nine months ended December 31, 1997.
The other strategic change involved a substantial increase in the
allowance for possible loan losses. The allowance, established through charges
to expense in the form of a provision for loan losses, allows for possible loan
losses in Colonial Bank's loan portfolio. Loan losses or recoveries are charged
directly to the allowance. The level of the allowance is based on management's
judgment as to the amount required to maintain an allowance adequate enough to
provide for possible losses in the future. Colonial Bank made a $299,000
provision for the nine months ended December 31, 1997, compared to $63,500
during the twelve months ended March 31, 1997. This increase in the provision
does not reflect a change of concern for credit quality, rather a decision to
bring the allowance to a level consistent with industry standards. Colonial Bank
converted its charter from a savings association charter to a commercial bank
charter in February, 1996. Commercial banks traditionally maintain a higher
allowance than do comparably sized savings associations. During the nine months
ended December 31, 1997, net charge-offs in the loan portfolio totaled $30,849,
compared to $28,933 during the twelve months ended March 31, 1997. As of
December 31, 1997, the allowance totaled 0.87% of the loan portfolio compared to
0.27% as of March 31, 1997.
NET INTEREST INCOME
Net interest income is the amount of interest earned on interest earning
assets (loans, investment securities, time deposits in other banks and federal
funds sold), less the interest expense incurred on interest bearing liabilities
(interest bearing deposits and borrowed money), and is the principal source of
Colonial Bank's 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.
During the nine months ended December 31, 1997, net interest income
totaled $1,389,000 compared to $1,464,000 for the twelve months ended March 31,
1997. Net interest income was affected by an increase in the net interest rate
spread from 3.18% during the year ended March 31, 1997 to 3.49% (annualized) for
the nine months ended December 31, 1997. The net interest rate spread increased
due to an increase in the yield on interest earning assets from 8.31% for the
twelve months ended March 31, 1997, to 8.65% (annualized) for the nine months
ended December 31, 1997. The net interest position, defined as total interest
earning assets less total interest bearing liabilities, increased from $3.1
million for the twelve months ended March 31, 1997 to $3.7 million for the nine
months ended December 31, 1997. This increase is the result of the $1.5 million
common stock offering completed during the last quarter of 1997. The net
interest position is a measure of interest free funds supporting earning assets.
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 nine months ended December 31,
1997, and the years ended March 31, 1997 and 1996.
44
<PAGE>
AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
December 31, 1997 March 31, 1997 March 31, 1996
----------------------------- ------------------------- ----------------------
Interest Annualized Interest Interest
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances(1) Expense Rates Balances(1) Expense Rates Balances(1) Expense Rates
---------- ------- ------ ----------- ------- ------- ----------- ------- ------
INTEREST EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ 1,537 $ 67 5.79% $ 1,051 $ 58 5.52% $ 348 $ 20 5.75%
Overnight FHLB deposits 3,097 128 5.49 1,001 56 5.59 813 49 6.03
Securities 1,354 62 6.08
Other investments 475 26 7.27 346 25 7.23 418 27 6.46
Loans(2) 40,765 2,796 9.10 38,579 3,268 8.47 29,907 2,529 8.46
------ ------ ------ ------- ------ ------ ------- ------ ------
Total interest earning assets 47,228 3,079 8.65 40,977 3,407 8.31 31,486 2,625 8.34
------ ------ ------
NON-INTEREST EARNING ASSETS
Cash and due from banks 1,384 1,110 1,162
Allowance for loan losses (141) (93) (56)
REO and Other Repossessions 88 2 4
Premises and equipment 1,735 1,583 1,559
Other assets 581 559 527
------ ------ ------
Total non-interest earning
assets 3,647 3,161 3,196
------ ------ ------
Total assets $ 50,875 $ 44,138 $ 34,682
======= ======= =======
INTEREST BEARING LIABILITIES
Interest bearing transaction
accounts $ 4,663 79 2.26% $ 4,081 99 2.43% $ 3,575 90 2.52%
Savings 3,204 70 2.90 3,158 102 3.23 3,473 115 3.31
Time deposits $100M and over 6,053 270 5.92 6,143 355 5.78 5,811 335 5.76
Other time deposits 21,976 948 5.73 18,255 1,043 5.71 13,251 839 6.33
Total interest bearing ------ ------ ----- ------ ------ ----- ------ --- -----
deposits 35,866 1,367 5.06 31,637 1,599 5.05 26,110 1,379 5.28
FHLB Advances 7,631 323 5.62 6,239 344 5.51 3,364 205 6.09
------ ------ ------ ------- ------ ---- ------- ----- ------
Total interest bearing
liabilities 43,497 1,690 5.16% 37,876 1,943 5.13% 29,474 1,584 5.37
NON-INTEREST BEARING LIABILITIES
Noninterest bearing demand
deposits 2,626 2,258 1,606
Other liabilities 295 291 144
---- ----- ------
Total non-interest bearing
liabilities 2,921 2,549 1,750
----- ------- -------
Stockholders' equity 4,457 3,713 3,458
------ ------- -------
Total liabilities and
stockholders' equity $ 50,875 $ 46,687 $ 36,432
======= ========= =======
Interest rate spread (3) 3.50% 3.18% 2.96%
Net interest income and net yield
on earning assets (4) $ 1,389 3.90% $ 1,464 3.57% $ 1,041 3.31%
Interest free funds supporting
earning assets (5) $ 3,731 $ 3,101 $ 2,012
</TABLE>
- --------------------------------
(1)Average balances computed on a daily basis
(2)Nonaccruing loans are included in the average 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.
45
<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 for the nine months
ended December 31, 1997, increased volumes accounted for $136,000 of the growth
in net interest income, while an increase in the net interest rate spread
accounted for $244,000 of this growth. 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
<TABLE>
<CAPTION>
Nine months ended
December 31, 1997 (annualized)* Year Ended March 31, 1997
compared to twelve months ended March 31, 1997 compared to 1996
---------------------------------------------- -------------------------------
Volume Rate Total Change Volume Rate Total Change
------ ---- ------------ ------ ----- ------------
(Dollars in thousands)
INTEREST INCOME
<S> <C> <C> <C> <C> <C> <C>
Time deposits in other banks $ 28 $3 $ 31 $ 39 $(1) $ 38
Overnight FHLB deposits 115 (1) 114 11 (4) 7
Securities 82 -- 82
Other investments 10 -- 10 (5) 3 (2)
Loans 200 243 443 735 4 739
----- ----- ----- ----- ----- -----
Total interest income 435 245 680 780 2 782
----- ----- ----- ----- ----- -----
INTEREST EXPENSE
Interest bearing transaction accounts 13 (7) 6 12 (3) 9
Savings 1 (10) (9) (10) (3) (13)
Time deposits $100M and over (5) 8 3 19 1 20
Other time deposits 212 3 215 286 (82) 204
FHLB Advances 78 7 85 158 (19) 139
----- ----- ----- ----- ----- -----
Total interest expense 299 1 300 465 (106) 359
----- ----- ----- ----- ----- -----
Net interest income $ 136 $ 244 $ 380 $ 315 $ 108 $ 423
- --------------------------------- ===== ===== ===== ===== ===== =====
</TABLE>
* The income and expense amounts used to prepare this table have been annualized
to permit comparison of periods of different lengths. As a result this table
relies on projections which may vary from actual results.
INTEREST RATE SENSITIVITY
Interest rate sensitivity measures the timing and magnitude of the
repricing of assets compared with the repricing of liabilities and is an
important part of asset/liability management. The objective of interest rate
risk management is to generate stable growth in net interest income, and to
control the risks associated with interest rate movements. Management constantly
reviews interest rate risk exposure and the expected interest rate environment
so that adjustments in interest rate sensitivity can be timely made.
The table, "Interest Sensitivity Analysis", indicates that, on a
cumulative basis through December 31, 1997, rate sensitive liabilities exceeded
rate sensitive assets, resulting in a liability sensitive position
46
<PAGE>
of $20.6 million for a cumulative gap ratio of negative 50%. 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 December 31, 1997 with respect to the one-year time horizon. For a bank with
a negative gap, such as Colonial Bank, 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. Amounts of fixed rate loans are reflected at the earlier of their
contractual maturity date or the date at which the loans may be repriced
contractually. Time deposits in other banks are reflected in the deposits'
maturity date. Overnight FHLB deposits are reflected in the earliest contractual
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, Colonial Bank is under no obligation to vary the rates
paid of those deposits within any given period. Fixed rate time deposits are
reflected at their contractual maturity dates.
<TABLE>
<CAPTION>
<S> <C>
INTEREST SENSITIVITY ANALYSIS
December 31, 1997
--------------------------------------------
Within 4-12 Over 1-5 Over 5
3 months months years years Total
-------- ------ --------- ------- -----
(Dollars in thousands)
Interest earning assets
Time deposits in other banks $ 450 $ 350 $ -- $ -- $ 800
Overnight FHLB deposits 2,908 -- -- -- 2,908
Securities 498 1,243 1,549 3,290
Other investments -- -- -- 475 475
Loans (1)
Fixed rate 4,995 2,095 2,517 11,456 21,063
Variable rate 2,342 5,423 14,289 -- 22,054
-------- -------- -------- -------- --------
Total interest earning
assets 11,193 9,111 18,355 11,931 50,590
-------- -------- -------- -------- -------
Interest bearing liabilities
Interest bearing deposits
Interest bearing transaction
accounts 4,984 -- -- -- 4,984
Savings 3,372 -- -- -- 3,372
Time deposits $100M and over 1,207 4,234 612 -- 6,053
Other time deposits 6,860 14,275 1,848 -- 22,983
-------- ------ -------- -------- ------
Total interest bearing
deposits 16,423 18,509 2,460 -- 37,392
-------- -------- -------- --------
FHLB Advances 3,000 3,000 3,000 -- 9,000
-------- -------- -------- -------- ------
Total interest bearing
liabilities $ 19,423 $ 21,509 $ 5,460 $ -- $ 46,392
-------- -------- -------- -------- --------
Interest sensitivity gap $ (8,230) $(12,398) $ 12,895 $ 11,931 $ 4,198
======== ======== ======== ======== ========
Cumulative interest sensitivity gap $ (8,230) $(20,628) $ (7,733) $ 4,198
======== ======== ======== ========
Gap ratio -58% -42% 336% 0% 109%
Cumulative gap ratio -58% -50% -83% 109%
PROVISION FOR LOAN LOSSES
The allowance for loan losses, established through charges to expense in the form of a provision
</TABLE>
47
<PAGE>
for loan losses, allows for possible loan losses in Colonial Bank's loan
portfolio. Loan losses or recoveries are charged directly to the allowance. The
level of the allowance for loan losses is based on management's judgment as to
the amount required to maintain an allowance adequate enough to provide for
future losses. In an effort to bring the allowance for loan losses to a level
consistent with industry standards for commercial banks, Colonial Bank made a
provision of $299,000 for the nine months ended December 31, 1997, compared to
$63,500 during the twelve months ended March 31, 1997. Net charge-offs during
the nine months ended December 31, 1997 totaled $30,849, compared to $28,933 for
the twelve months ended March 31, 1997. As of December 31, 1997, the allowance
totaled 0.87% of the loan portfolio compared to 0.27% as of March 31, 1997.
NON-INTEREST INCOME
Non-interest income totaled $212,371 for the nine months ended December
31, 1997, compared to $293,718 for the twelve months ended March 31, 1997. The
largest component of non-interest income is service charges on deposit accounts,
which totaled $151,357 for the nine months ended December 31, 1997 compared to
$212,524 for the year ended March 31, 1997.
NON-INTEREST EXPENSES
Non-interest expenses, which consist primarily of salaries and employee
benefits, net occupancy, and data processing expenses, totaled $1.3 million for
the nine months ended December 31, 1997 compared to $1.5 million for the twelve
months ended March 31, 1997. This $1.3 million includes the one-time SAIF
assessment of $68,091 and increases attributable to Colonial Bank's growth.
Salaries and employee benefits totaled $692,612 for the nine months ended
December 31, 1997 compared to $848,892 for the twelve months ended March 31,
1997. For the most recent period there was a small increase in staff necessary
to support the growth of Colonial Bank.
INCOME TAXES
No provision for income taxes has been provided for the nine months ended
December 31, 1997 due to the operating loss. During the year ended March 31,
1997, $136,331 was charged to the provision for income taxes. The effective
income tax rate for the year ended March 31, 1997 was 39.6%.
SECURITIES
In an effort to increase the yield on interest earning assets, Colonial
Bank began purchasing short-term obligations of the United States Treasury and
federal agencies in April of 1997. These securities offer a more attractive
yield than time deposits in other banks. As of December 31, 1997, securities
totaled $3,285,379, which represents 6.01% of total assets. Of this amount, $2.0
million were classified as available-for-sale and $1.2 million were classified
as held-to-maturity.
The following table presents maturities and weighted average yields of
securities at June 30, 1998 and December 31, 1997. Colonial Bank held no
securities as of March 31, 1997.
48
<PAGE>
JUNE 30, 1998
Book Fair
Value Value Yield
----- ----- -----
(Dollars in thousands)
SECURITIES AVAILABLE FOR SALE:
FEDERAL AGENCIES
Maturing within one year $1,100 $1,099 5.72%
Maturing after one but within
five years 4,000 3,944 5.97%
------ ------ ----
Total securities available for sale $5,100 $5,093 5.92%
===== ===== =====
SECURITIES HELD TO MATURITY:
UNITED STATES TREASURY
Maturing within one year $ -- $ -- --
FEDERAL AGENCIES
Maturing within one year -- -- --
------ ------ ----
Total securities held to maturity $ -- $ -- --
======= ======= ====
Total $5,100 $5,093 5.92%
===== ===== =====
DECEMBER 31, 1997
Book Fair
Value Value Yield
----- ----- -----
(Dollars in thousands)
SECURITIES AVAILABLE FOR SALE:
FEDERAL AGENCIES
Maturing within one year $ 498 $ 498 5.58%
Maturing after one but within
five years 1,549 1,544 6.15%
------ ------ -----
Total securities available for sale $2,047 $2,042 6.01%
===== ===== =====
SECURITIES HELD TO MATURITY:
UNITED STATES TREASURY
Maturing within one year $ 493 $ 493 5.63%
FEDERAL AGENCIES
Maturing within one year 750 750 5.89%
------ ------ -----
Total securities held to maturity $1,243 $ 1,243 5.93%
===== ======== =====
Total $3,290 $3,285 5.93%
===== ===== =====
LOAN PORTFOLIO
Management believes the loan portfolio is adequately diversified. There are no
significant concentrations of loans in any particular individuals or industry or
group of related individuals or industries, and there are no foreign loans.
The amount of loans outstanding at June 30, 1998, December 31, 1997, March 31,
1997, and March
49
<PAGE>
31, 1996 are shown in the following table according to type of loan:
50
<PAGE>
LOAN PORTFOLIO COMPOSITION
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
June 30, 1998 December 31, 1997 March 31, 1997 March 31, 1996
-------------- ----------------- -------------- ---------------
Amount % Amount % Amount % Amount %
------ -- ------- -- ------ -- ------- --
Mortgage Loans
Principal balances
Secured by one-to-four
family residences $ 33,170 68.8% $ 28,936 67.0% $ 27,619 68.85% $ 24,019 69.8%
Secured by land and other
properties 1,035 2.2 958 2.2 1,296 3.2 1,006 2.9
Secured by commercial real estate 3,397 7.1 2,292 5.3 1,747 4.4 1,175 3.4
Construction loans 1,548 3.2 2,209 5.1 1,727 4.3 2,515 7.3
Loans held for sale -- -- 365 0.8 -- --
-------- ---- -------- ------ ------ --------
39,150 81.3 34,760 80.5 32,389 80.7 28,715 83.4
Less undisbursed portion of
construction loans (166) (0.3) (469) (1.1) (239) (0.6) (1,423) (4.1)
---- ---- ---- ---- ---- ---- ----- ----
Total mortgage loans 38,984 81.0 34,291 79.4 32,150 80.1 27,292 79.3
Consumer Loans 5,105 10.6 4,621 10.7 4,318 10.8 3,855 11.2
Commercial loans secured with other
than a mortgage 2,486 5.2 2,620 6.1 2,468 6.2 2,102 6.1
Unsecured commercial loans 1,577 3.2 1,649 3.8 1,181 2.9 1,175 3.4
------- --- -------- ----- ------- ---- ------- ---
48,152 100.0% 43,181 100.0% 40,117 100.0% 34,424 100.0%
Less allowance for loan losses (350) (375) (107) (72)
---- ---- ---- ------
Net Loans $ 47,802 $ 42,806 $ 40,010 $ 34,352
======== ========= ======== ============
</TABLE>
51
<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 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 the nine month period ended
December 31, 1997, loans for business purposes that are secured by real estate
increased $545,000, or 31%, while commercial loans secured with other than a
mortgage increased $152,000, or 6%. Commercial unsecured loans increased
$468,000 or 40% during this nine-month period. 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, initial and continuing financial analysis of a borrower's
financial information is required.
Real estate construction loans, which increased $482,000 or 28% during the
nine-month period ended December 31, 1997, generally consist of financing the
construction of 1-4 family dwellings. Usually loan to cost ratios are limited to
80% and permanent financing commitments are required prior to the advancement of
loan proceeds.
Loans secured by real estate mortgages comprised over 79% of Colonial
Bank's loan portfolio at December 31, 1997, and at the end of the fiscal years
ended March 31,1997 and 1996. Loans secured by one-to-four family residences
grew $1,317,000 during the nine months ended December 31, 1997. These loans
consist primarily of first and second mortgages with loan-to-value ratios
generally limited to 95%. 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.
52
<PAGE>
NONPERFORMING LOANS; OTHER PROBLEM ASSETS
NONPERFORMING ASSETS
(In thousands)
<TABLE>
<CAPTION>
<S> <C>
June 30, 1998 December 31, 1997 March 31, 1997 March 31, 1996
------------- ------------------ --------------- ---------------
Nonaccrual loans $ 102 $ 64 $ 40 $ --
Accruing loans 90 days or more past due -- -- -- --
------- ------- --------- --------
Total non-accrual and past due 102 64 40 --
Real estate owned and other repossessed assets 156 230 -- --
------- ------- --------- --------
Total non-performing $ 258 $ 294 $ 40 $ --
======= ======== ========= ==========
Percent of non-performing to total loans 0.54% 0.68% 0.10% 0.0%
</TABLE>
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 net realizable value of collateral is sufficient to
assure collection of the principal balance and accrued interest. When the
collectibility of a significant amount of the principal is in serious doubt, the
principal balance is reduced to the estimated fair value of collateral by a
charge-off to the allowance for loan losses and any subsequent collections are
credited first to the remaining principal, and then to the allowance for loan
losses as a recovery of the amount charged off. As of December 31, 1997,
Colonial Bank held no impaired or restructured loans. Total interest income not
recognized on non-performing loans was $6,415 for the nine months ended December
31, 1997.
ALLOWANCE FOR LOAN LOSSES
Colonial Bank maintains an allowance for loan losses based on management's
ongoing evaluation of the loan portfolio. This allowance reflects an amount
that, in management's opinion, is adequate to absorb losses in the existing
portfolio. In evaluating the allowance, management takes into account numerous
factors, including current economic conditions, the composition of the loan
portfolio, and management's estimate of anticipated credit losses. In an effort
to bring the allowance for loan losses to a level consistent with industry
standards, Colonial Bank charged $299,000 to the provision for the nine months
ended December 31, 1997, compared to $63,500 during the twelve months ended
March 31, 1997. As of December 31, 1997, Colonial Bank's allowance for loan
losses totaled $375,039, or 0.87% of the loan portfolio. This represents a
$268,151 increase in the allowance from March 31, 1997 when the allowance
totaled 0.27% of the portfolio. Net charge-offs for the nine months ended
December 31, 1997 totaled $30,849 or 0.08% of average loans compared to $28,933
or 0.07% for the twelve months ended March 31, 1997. Management considers the
year-end allowance appropriate and adequate to cover possible losses in the
portfolio.
The following table set forth the allocation of the allowance for loan
losses by category at June 30, 1998 and December 31, 1997.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(Dollars in thousands)
June 30, 1998 December 31, 1997
------------- -----------------
Percent of loans Percent of loans
in each category in each category
Amount to total loans Amount to total loans
------- -------------- ------- --------------
Single family mortgage loans $88,850 70% $72,464 69%
Consumer secured loans 35,960 9 48,865 10
Consumer unsecured loans 31,575 4 30,141 3
Commercial secured loans 89,601 14 93,266 14
Commercial unsecured loans 103,915 3 130,303 4
------- --- --------- ----
$349,901 100% $375,039 100%
======= ==== ======= ====
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<PAGE>
The allowance is allocated to different segments of the portfolio, based
on management's expectations of risk in that segment of the portfolio. This
allocation is an estimate only and is not intended to restrict Colonial Bank's
ability to respond to losses. Colonial Bank charges losses from any segment of
the portfolio to the allowance, regardless of the allocation.
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Six Months Ended Nine Months Ended Year Ended March 31,
June 30, 1998 December 31, 1997 1997 1996
----------------- ---------------- ---- ----
Total loans outstanding at end of period $ 48,152 $ 43,181 $40,117 $34,352
Average amount of loans outstanding 46,562 40,765 38,579 29,907
Balance of allowance for loan losses-
beginning of period $ 375 $ 107 $ 72 $ 46
Loans charged off
Consumer installment 30 47 30 12
Real Estate 25 -- -- --
------- ------- ------- -------
Total charge-offs 55 47 30 12
Recoveries of loans previously charged-off
Consumer installment -- 16 1 1
------- ------- ------- -------
Net charge-offs 55 31 29 11
Additions to allowance charged to expense 30 299 64 37
------- ------- -------- -------
Balance of allowance for loan losses - end of period $ 350 $ 375 $ 107 $ 72
======= ======= ======= =======
Ratios
Net charge-offs during period to average
loans outstanding during period 0.12% 0.08% 0.08% 0.04%
Net charge-offs to loans at end of period 0.11 0.07 0.07 0.03
Allowance for loan losses to average loans 0.75 0.92 0.28 0.24
Allowance for loan losses to loans at end of period 0.75 0.87 0.27 0.21
Allowance for loan losses to nonperforming loans
at end of period 343.14 585.94 267.50 N/A
Net charge-offs to allowance for loan losses 15.71 8.27 27.10 15.28
Net charge-offs to provision for loan losses 183.33 10.37 45.31 29.73
</TABLE>
DEPOSITS
The average amounts and percentage composition of deposits held by
Colonial Bank for the six months ended June 30, 1998 and the nine months ended
December 31, 1997, and the years ended March 31, 1997, and 1996, are summarized
below:
AVERAGE DEPOSITS
(Dollars in thousands)
54
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Six Months Nine Months
Ended June 30, Ended December 31, Years Ended March 31,
1998 1997 1997 1996
Amount % Amount % Amount % Amount %
------ --- ------- --- ------ --- ------ --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand $ 2,994 7.0% $ 2,626 6.8% $2,258 56.7% $1,607 5.8%
Interest bearing transaction accounts 5,378 12.5 4,633 12.1 4,081 12.0 3,575 12.9
Savings 3,266 7.6 3,204 8.3 3,158 9.3 3,472 12.5
Time deposits - $100M and over 7,189 16.8 6,053 15.7 6,143 18.1 5,811 21.0
Other time deposits 24,103 56.1 21,976 57.1 18,255 53.9 13,251 47.8
------ ---- -------- ----- ------- ---- ------ ----
Total deposits $42,930 100.0% $ 38,492 100.0% $ 33,895 100.0% $27,716 100.0%
====== ===== ======= ===== ======= ===== ====== =====
</TABLE>
As of December 31, 1997, Colonial Bank held $6,053,000 in time
deposits of $100,000 or more compared to $6,143,000 as of March 31, 1997, with
$1,207,000 maturing within three months, $4,234,000 with maturities over three
months through twelve months, and $612,000 with maturities more than twelve
months. Wholesale time deposits (certificates generated through corporations,
banks, credit unions, etc., on a national level) totaled $1,782,000 as of
December 31, 1997 and $2,475,000 as of March 31, 1997. 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 they have the characteristics of shorter-term purchased funds.
Wholesale time deposits involve the maintenance of an appropriate matching of
maturity distribution and a diversification of sources to achieve an appropriate
level of liquidity. Such deposits are generally more volatile and interest rate
sensitive than other deposits.
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. The six-month and nine-month returns on
assets and equity ratios have been annualized.
<TABLE>
<CAPTION>
<S> <C>
Six Months Nine Months Ended Year Ended
Ended June 30, 1998 December 31, 1997 March 31, 1997
-------------------- ----------------- --------------
Return on Average Assets 0.56% (0.10%) 0.47%
Return on Average Equity 6.22% (1.14%) 5.60%
Dividend Payout Ratio -- -- --
Average Equity to Average Assets Ratio 9.03% 8.76% 8.41%
</TABLE>
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 overnight
deposits). 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 Colonial Bank's service area. Core deposits (total
deposits less wholesale time deposits and time deposits of $100,000 and more)
provide a relatively stable funding base, and were equal to 56% of total assets
at December 31, 1997. Asset liquidity is provided from several sources,
including amounts due from banks, FHLB overnight deposits, and funds from
maturing loans. Securities, particularly those classified as available-for-sale
and those maturing within one year, also provide a secondary source of
liquidity. Colonial
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<PAGE>
Bank also has a $10.0 million line of credit with the FHLB as an additional
source of liquidity funding, on which $9.0 million was outstanding as of
December 31, 1997. Colonial Bank's liquidity ratio, as calculated by FDIC
examiners, totaled 18.5% as of December 31, 1997, compared to 15.0% as of March
31, 1997. Management believes that Colonial Bank's overall liquidity sources are
adequate to meet its operating needs.
CAPITAL RESOURCES
In October of 1997, Colonial Bank completed a $1.5 million common
stock offering, in order to help support future growth of Colonial Bank.
Colonial Bank is required to maintain a minimum amount of capital as defined by
FDIC regulations, calculated at the end of each quarter. As of June 30, 1998 and
December 31, 1997, Colonial Bank exceeded the "well-capitalized" regulatory
standards as shown below.
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt Corrective
Adequacy Purposes Action Provisions
----------------- -----------------------
Actual Minimum Minimum
------ ------- -------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
AT JUNE 30, 1998 (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to risk weighted assets) $5,454 14.5% $3,009 8.0% $3,761 10.0%
Tier I Capital (to risk weighted assets) 5,104 13.5 1,512 4.0 2,268 6.0
Tier I Capital (to average assets) 5,104 8.7 2,347 4.0 2,933 5.0
AT DECEMBER 31, 1997
Total Capital (to risk weighted assets) $5,301 15.4% $2,751 8.0% $3,438 10.0%
Tier I Capital (to risk weighted assets) 4,925 14.3 1,375 4.0 2,063 6.0
Tier I Capital (to average assets) 4,925 9.3 2,118 4.0 2,646 5.0
</TABLE>
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 that 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.
ACCOUNTING AND REGULATORY MATTERS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which requires that changes in the amounts of comprehensive income
items, currently reported as separate components of equity, be shown in a
financial statement, displayed as prominently as other financial statements. The
most common components of other comprehensive income include foreign currency
translation adjustments, minimum pension liability adjustments and/or unrealized
gains and losses on available-for-sale securities. SFAS No. 130 does not require
a specific format for the new financial statement, but does require that an
amount representing total comprehensive income be reported. Colonial Bank plans
to adopt SFAS No. 130 in 1998.
56
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", which established new
standards for business segment reporting. Requirements of SFAS No. 131 include
reporting of (a) financial and descriptive information about reportable
operating segments, (b) a measure of segment profit or loss, certain specific
revenue and expense items and segment assets with reconciliations of such
amounts to Colonial Bank's financial statements and (c) information regarding
revenues derived form Colonial Bank's products and services, information about
major customers and information related to geographic areas. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and thus will be
adopted by Colonial Bank in 1998.
In February 1998, the FASB issued SFAS No. 132 "Employers'
Disclosures about Pensions and Other Post-retirement Benefits", an amendment of
SFAS Nos. 87,88 and 106. SFAS No. 132 revises employers' disclosures about
pensions and other Post-retirement benefit plans. It does not change the
measurement or recognition of those plans. The statement is effective for fiscal
years beginning after December 15, 1997 and will be adopted by Colonial Bank in
1998. The effects of adoption are not expected to be material.
YEAR 2000
Colonial Bank has recognized the challenges posed by the Year 2000
issues and has completed preliminary work to inventory computer systems,
software and equipment containing embedded microchips and performed a risk
assessment. Colonial Bank has established a Year 2000 Committee, which reports
regularly to the Board of Directors the level of progress made in ensuring that
this event will not disrupt operations. Colonial Bank perceives no material
costs associated with Year 2000 compliance.
EMPLOYEES
At June 30, 1998, Colonial Bank employed 29 persons on a full-time
basis, and three persons on a part-time basis.
SUPERVISION AND REGULATION
CERTAIN LAWS AND REGULATIONS WHICH RELATE TO THE REGULATION OF
COLONIAL BANK ARE SUMMARIZED BELOW. THE DESCRIPTION DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO APPLICABLE LAWS AND
REGULATIONS.
As a federally-insured bank, Colonial Bank is subject to extensive
regulation. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. Colonial Bank is regularly
examined by its federal regulators and files periodic reports concerning its
activities and financial condition. Colonial Bank's relationships with its
respective depositors and borrowers also are regulated to a great extent by both
federal and state laws, especially in such matters as deposit accounts and the
form and content of loan documents.
Federal Deposit Insurance Corporation
The FDIC is an independent federal agency established originally to
insure the deposits, up to prescribed statutory limits, of federally insured
banks and to preserve the safety and soundness of the banking industry. Upon the
enactment of the Financial Institutions Reform, Recovery and Enforcement Act
("FIRREA") on August 9, 1989, the FDIC also became the insurer, up to the
prescribed limits, of the deposit accounts held at federally insured savings
associations. FIRREA established two separate funds that are
57
<PAGE>
maintained and administered by the FDIC: the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"). As such, the FDIC has examination,
supervisory and enforcement authority over all banks.
Federal Home Loan Bank System
The Federal Home Loan Bank System, consisting of twelve Federal Home
Loan Banks ("FHLBs"), now is under the jurisdiction of the Federal Housing
Finance Board ("FHFB"). The designated duties of the FHFB are to: supervise the
FHLBs; ensure that the FHLBs carry out their housing finance mission; ensure
that the FHLBs remain adequately capitalized and able to raise funds in the
capital market; and ensure that the FHLBs operate in a safe and sound manner.
Colonial Bank, as a member of the FHLB of Atlanta, is required to
acquire and hold shares of capital stock in the FHLB of Atlanta in an amount
equal to the greater of (i) 1.0% of the aggregate outstanding principal amount
of residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each year, or (ii) 1/20 of its advances (borrowings) from
the FHLB of Atlanta. Colonial Bank was in compliance with this requirement with
an investment in FHLB of Atlanta stock of $475,000 at December 31, 1997.
Among other benefits, the FHLB provides a central credit facility
primarily for member institutions. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes advances
to members in accordance with policies and procedures established by the FHFB
and the Board of Directors of the FHLB of Atlanta. At December 31, 1997,
Colonial Bank had $9,000,000 in advances from the FHLB of Atlanta.
Capital Adequacy Guidelines for State Banks
The various federal bank regulators, including the FDIC, have adopted
risk-based capital requirements for assessing bank capital adequacy. These
standards define what qualifies as capital and establish minimum capital
standards in relation to assets and off-balance sheet exposures, as adjusted for
credit risks. Capital is classified into two tiers. Tier I or "core" capital
consists primarily of common shareholders' equity, perpetual preferred stock
(subject to certain limitations) and minority interests in the common equity
accounts of consolidated subsidiaries, and is reduced by goodwill and certain
investments in other corporations ("Tier I Capital"). Tier 2 capital consists of
the allowance for possible loan losses (subject to certain limitations), and
certain subordinated debt, "hybrid capital instruments" subordinated and
perpetual debt and intermediate term and other preferred stock ("Tier 2
Capital"). A minimum ratio of total capital to risk-weighted assets of 8.00% is
required and Tier I Capital must be at least 50% of total capital. The FDIC also
has adopted a minimum leverage ratio of Tier I Capital to total assets (not
risk-weighted) of 3%. The 3% Tier I Capital to total assets ratio constitutes
the leverage standard for banks, and will be used in conjunction with the
risk-based ratio in determining the overall capital adequacy of banking
organizations.
The FDIC has emphasized that the foregoing standards are supervisory minimums
and that an institution would be permitted to maintain such levels of capital
only if it had a composite rating of "1" under the regulatory rating systems for
banks. All other banks are required to maintain a leverage ratio of 3% plus at
least 1% to 2% of additional capital. These rules further provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets. The FDIC continues to consider a "tangible Tier I
leverage ratio" in evaluating proposals for expansion or new activities. The
tangible Tier I leverage ratio is the ratio of a banking organization's Tier I
Capital less all intangibles, to total assets, less all intangibles.
Colonial Bank's actual capital amounts and ratios as of December 31,
1997, and minimum regulatory amounts and ratios are set forth in "Management's
Discussion and Analysis of Financial Condition and
58
<PAGE>
Results of Operations --Capital Resources."
Bank regulators from time to time indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. However, management of Colonial Bank is unable to predict whether and
when higher capital requirements would be imposed and, if so, at what levels and
on what schedule.
Recent Regulations and Proposals Relating to Capital Adequacy
The Federal Deposit Insurance Corporation Improvement Act of 1991
(the "1991 Banking Law") required each federal banking agency, including the
FDIC, 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 risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-family mortgages. The Federal
Reserve, the FDIC and the Office of the Comptroller of the Currency have issued
a joint rule amending the capital standards to specify that the banking agencies
will include in their evaluations of a bank's capital adequacy an assessment of
the exposure to declines in the economic value of the bank's capital due to
changes in interest rates. The agencies have also issued a joint policy
statement that provides bankers guidance on sound practices for managing
interest rate risk. The policy statement identifies the key elements of sound
interest rate risk management and describes prudent principles and practices for
each element, emphasizing the importance of adequate oversight by a bank's board
of directors and senior management and of a comprehensive risk management
process. The policy statement also outlines the critical factors that will
affect the agencies' evaluation of a bank's interest rate risk when making a
determination of capital adequacy. In adopting the policy statement, the
agencies have asserted their intention to continue to place significant emphasis
on the level of a bank's interest rate risk exposure and the quality of its risk
management process when evaluating a bank's capital adequacy.
The Federal Reserve, the FDIC, the Office of the Comptroller of the
Currency and the Office of Thrift Supervision have also issued joint rules
amending the risk-based capital guidelines to take account of concentration of
credit risk and the risk of non-traditional activities, and to incorporate a
measure for exposure to market risk. The rule relating to concentration of
credit risk and risk of non-traditional activities amends each agency's
risk-based capital standards by explicitly identifying concentration of credit
risk and the risk arising from activities that have not customarily been part of
the banking business but have been conducted as a result of developing
technology and changes in financial markets, as well as an institution's ability
to manage these risks, as important factors to be taken into account by the
agency in assessing an institution's overall capital adequacy. The rule relating
to market risk amends each agency's risk-based-capital standards to incorporate
measures for market risk to cover all positions located in a banking
institution's trading account, foreign exchange and commodity positions. The
effect of the market risk rules is that any bank or bank holding company
regulated by the Federal Reserve, the FDIC or the Office of the Comptroller of
the Currency that has significant exposure to market risk must measure that risk
using its own internal value-at-risk model and also hold a commensurate amount
of capital. "Market risk" means the risk of loss resulting from movements in
market prices. "Value-at-risk" is an estimate of potential changes in portfolio
value based on a statistical confidence interval of changes in market prices
that occur during some time intervals. The effective date of the market risk
rules is January 1, 1998.
Payment of Dividends
Payment of dividends is within the discretion of the Board of
Directors of Colonial Bank. Furthermore, there are statutory and regulatory
requirements applicable to the payment of dividends by banks. It is not
anticipated that Colonial Bank will pay cash dividends in the near future.
FDIC Insurance Assessments
Because Colonial Bank's deposits are insured by the FDIC, Colonial
Bank is subject to insurance
59
<PAGE>
assessments imposed by the FDIC. Because Colonial Bank was a savings association
prior to its conversion to a commercial bank in 1996, Colonial Bank has deposits
subject to SAIF insurance assessments imposed by the FDIC. As a result of its
acquisition of a branch of a national bank with BIF-insured deposits, Colonial
Bank also has deposits subject to BIF insurance assessments imposed by the FDIC.
Under current law, the insurance assessment to be paid by BIF-and
SAIF-insured institutions is as specified in a schedule issued by the FDIC that
specifies, at semiannual intervals, target reserve ratios designed to maintain
the FDIC insurance funds' reserve ratios at 1.25% of estimated insured deposits
(or such higher ratio as the FDIC may determine in accordance with the statute).
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 ("Treasury Department").
The FDIC has implemented a risk-based assessment schedule, which
currently imposes assessments on BIF- and SAIF-insured deposits ranging from
0.00% to 0.27% of an institution's average assessment base. The actual
assessment to be paid by each BIF and SAIF member 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, and whether such institution is considered by its supervisory
agency to be financially sound or to have supervisory concerns.
The FDIC may increase or decrease the new assessment rates
semiannually up to a maximum increase or decrease of 5 basis points, as deemed
necessary to maintain the BIF and SAIF reserve ratios at $1.25 per $100 of
insured deposits.
The Deposit Insurance Funds Act of 1996 (the "Funds Act") authorized
the FICO to levy assessments on BIF-and SAIF-assessable deposits, and stipulated
that the BIF rate must equal one-fifth the SAIF rate through year-end 1999, or
until the insurance funds are merged, whichever occurs first. Thereafter, BIF
and SAIF payers will be assessed pro rata for FICO. The BIF rate and the SAIF
rate are based on deposit balances taken from insured institutions' Call Reports
and Thrift Financial Reports, and the assessment will continue to be adjusted
quarterly to reflect changes in the assessment bases of the respective funds
based on quarterly Call Report and Thrift Financial Report submissions.
On September 30, 1996, the President signed into law legislation
requiring a special assessment to recapitalize the SAIF. This assessment was
applied at a rate of 0.657% of SAIF-insured deposits as of March 31, 1995.
Colonial Bank was exempt from the one-time assessment as a result of the date of
its formation, but had the option to elect to lower its annual FDIC insurance
costs by paying an amount equal to the prorated one-time assessment. Management
continued to evaluate, on a quarterly basis, the current cost versus the future
savings in FDIC premiums of paying the prorated one-time assessment, and on
December 30, 1997, management elected to pay the prorated one time pre-tax
assessment in the amount of $68,091.
Other Laws and Regulations Applicable to Colonial Bank
Colonial Bank is also subject to examination by the South Carolina
state bank examiners. In addition, Colonial Bank is subject to various other
state and federal laws and regulations, including state usury laws, laws
relating to fiduciaries, consumer credit and laws relating to branch banking.
Colonial Bank's loan operations are also subject to certain federal consumer
credit laws and regulations promulgated thereunder, including, but not limited
to: the federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers; the Equal Credit Opportunity Act and the Fair Housing Act,
prohibiting discrimination on the basis of certain prohibited factors in
extending credit; the Fair Credit Reporting Act, governing the use and provision
of information to credit reporting agencies; and the Fair Debt Collection Act,
governing the manner in which consumer debts may be collected by collection
agencies. The deposit operations of Colonial Bank are also subject to the Truth
in Savings Act, requiring certain disclosures about rates paid on savings
accounts; the Expedited Funds Availability Act, which deals with disclosure of
the
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availability of funds deposited in accounts and the collection and return of
checks by banks; the Right to Financial Privacy Act, which imposes a duty to
maintain certain confidentiality of consumer financial records; the Bank Secrecy
Act, dealing with, among other things, the reporting of certain currency
transactions; and the Electronic Funds Transfer Act and regulations promulgated
thereunder, 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.
Colonial Bank is also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low-and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
actual performance in meeting community credit needs is evaluated as part of the
examination process, and also is considered in evaluating mergers, acquisitions
and applications to open a branch or facility. For banks with total assets of
less than $250 million, such as Colonial Bank, the FDIC evaluates the bank's
record of helping to meet the credit needs of its assessment area pursuant to
the following criteria: (1) the bank's loan-to-deposit ratio, adjusted for
seasonal variation and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community development
loans, or qualified investments; (2) the percentage of loans and, as
appropriate, other lending-related activities located in the bank's assessment
area; (3) the bank's record of lending to and, as appropriate, engaging in other
lending-related activities for borrowers of different income levels and
businesses and farms of different sizes; (4) the geographic distribution of the
bank's loans; and (5) the bank's record of taking action, if warranted, in
response to written complaints about its performance in helping to meet credit
needs in its assessment area. Small banks may also elect to be assessed under
the generally applicable standards of the rule, but to do so a small bank must
collect and report extensive data.
A bank may also submit a strategic plan to the FDIC and be evaluated
on its performance under the plan.
Other Safety and Soundness Regulations
PROMPT CORRECTIVE ACTION. The federal banking agencies have broad
powers under current federal law 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 I 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. An "adequately
capitalized" bank is defined as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier I 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 that has a composite CAMEL rating of I and is not experiencing or
anticipating significant growth). A bank is considered (A) "undercapitalized" if
it has (i) a total risk-based capital ratio of less than 8%, or (ii) a Tier I
risk-based capital ratio of less that 4%, or (iii) a leverage ratio of less than
4% (or 3% in the case of a bank that has a composite CAMEL rating of I and is
not experiencing or anticipating significant growth); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, or (ii) a Tier I 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%.
A bank that is "undercapitalized" becomes subject to provisions of
the FDIA: restricting payment of capital distributions and management fees;
requiring FDIC to monitor the condition of the bank; requiring submission by the
bank of a capital restoration plan; restricting the growth of the bank's assets;
and requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
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undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the FDIC move promptly to take over
banks that are unwilling or unable to take such steps.
BROKERED DEPOSITS. Under current FDIC regulations, "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept brokered deposits with a waiver from the FDIC (subject to
certain restrictions on payment of rates), while "undercapitalized" banks 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 the 1991 Banking Law described above.
OPERATIONAL AND MANAGERIAL STANDARDS. The federal banking agencies
have also issued Interagency Guidelines Establishing Standards for Safety and
Soundness, which set 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 Guidelines also prohibit payment of
excessive compensation as an unsafe and unsound practice. Compensation is
defined as excessive if it is unreasonable or disproportionate to the services
actually performed. The Guidelines contemplate that each federal agency will
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.
Interstate Banking
In July 1994, South Carolina enacted legislation which effectively
provides that, after September 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 has increased takeover activity in South Carolina, Colonial Bank
does not believe that such legislation will have a material impact on its
competitive position. However, no assurance of such fact may be given.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Riegle-Neal") has increased the ability of bank holding companies and
banks to operate across state lines. Under Riegle-Neal, the former restrictions
on interstate acquisitions of banks by bank holding companies have been
repealed, such that any bank holding company located in South Carolina can
acquire a bank located in any other state, and a bank holding company located
outside South Carolina can acquire any South Carolina-based bank, in either case
subject 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. South
Carolina law was amended, effective July 1, 1996, to permit such interstate
branching but not de novo branching by an out-of-state bank. Colonial Bank
believes that this legislation may result in additional acquisitions of South
Carolina financial institutions by out-of-state financial institutions. However,
Colonial Bank does not presently anticipate that such legislation will have a
material impact on its operations or future plans.
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Legislative Proposals
The Treasury Department has previously issued a proposal to
consolidate the federal bank regulatory agencies. Under this proposal, most of
the supervisory and regulatory oversight authority of the FDIC, the OCC, the OTS
and the Federal Reserve would be transferred to a new independent federal
banking agency. The FDIC would continue to have oversight over the deposit
insurance funds and the Federal Reserve would continue to carry out monetary and
fiscal policy, discount window operations and payments system functions. The
Treasury Department is expected to seek to introduce a bill in Congress
providing for such consolidation in the near future. Several bills providing for
various "modernizations" of the banking system are pending in Congress as well.
Due to the preliminary nature of these proposals and the potential for
opposition by industry groups and others, Colonial Bank cannot determine at this
time the effect of any regulatory consolidation or other modernization.
Other proposed legislation which could significantly affect the
business of banking has been introduced or may be introduced in Congress from
time to time. Management of Colonial Bank cannot predict the future course of
such legislative proposals or their impact on Colonial Bank should they be
adopted.
Fiscal and Monetary Policy
Banking is a business which depends to a large extent on interest
rate differentials. In general, the difference between the interest paid by a
bank on its deposits and its other borrowings, and the interest received by a
bank on its loans and securities holdings, constitutes the major portion of a
bank's earnings. Thus, the earnings and growth of Colonial Bank are subject to
the influence of economic conditions generally, both domestic and foreign, and
also to the monetary and fiscal policies of the United States and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the supply of
money through various means, including open-market dealings in United States
government securities, the discount rate at which banks may borrow from the
Federal Reserve, and the reserve requirements on deposits. The nature and timing
of any changes in such policies and their impact on Colonial Bank cannot be
predicted.
DESCRIPTION OF PROPERTY
Colonial Bank owns the real property at 1111 Broad Street, Camden,
South Carolina, where its main office is located. Colonial Bank owns the
property at its branch locations at 844 Highway 1 South, in Lugoff, South
Carolina and 2534 North Broad Street in Camden. Management of Colonial Bank
believes that all of Colonial Bank's offices are suitable and adequate for the
business of Colonial Bank.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Colonial
Bank 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 Colonial Bank, pending or contemplated,
in which any director, officer or affiliate of Colonial Bank or any holder of 5%
or more of Colonial Bank's outstanding stock, or any associate of any of the
foregoing is a party or has an interest adverse to Colonial Bank.
MARKET FOR COMMON STOCK AND DIVIDENDS
There is very limited trading in the Colonial Bank common stock. 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 Colonial Bank common stock at prices ranging from $11.00 to
$12.00 per share during 1998. Such trades may not be arm's length transactions
and may not be
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indicative of the market value of the Colonial Bank common stock.
As of August 14, 1998, there were approximately 604 holders of record
of Colonial Bank's common stock, excluding individual participants in security
position listings.
Colonial Bank has not paid cash dividends since inception in 1993.
Generally, the approval of the State Board is required to pay dividends.
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MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF COLONIAL BANK
The following table sets forth (i) as of August 1, 1998, the number
and percent of total outstanding shares of Colonial Bank common stock
beneficially owned by all directors and executive officers of Colonial Bank
individually and by all directors and executive officers of Colonial Bank as a
group, and (ii) pro forma upon consummation of the Merger, the number and
percent of total outstanding shares of Carolina First Corporation common stock
(assuming a "fair market value" of $25.00 per share of Carolina First
Corporation common stock) beneficially owned by such persons individually and as
a group.
<TABLE>
<CAPTION>
Pro Forma After Merger
----------------------
Number of Number of
Name of Colonial Shares Bene- Percent Carolina First Corporation Percent
Beneficial Owner ficially Owned of Class Shares Beneficially Owned of Class
- ---------------- --------------------- -------- ------------------------- --------
<S> <C> <C> <C> <C>
John P. Edwards 20,900 (1) 3.6% 19,228 *
Robert LaRoche Heriot 16,240 (2) 2.8% 14,941 *
William F. Nettles, III 60,772 (3) 9.8% 55,910 *
James D. King 21,600 (4) 3.7% 19,872 *
Daniel D. Riddick 30,378 (5) 5.2% 27,948 *
D. Edward Baxley 12,129 (6) 2.1% 11,159 *
Guy S. Hutchins, Jr. 71,630 (7) 11.5% 65,900 *
John N. Lindsay 11,740 (8) 2.0% 10,801 *
Anne duPont Shirley 19,200 3.3% 17,664 *
John C. West, Jr. 1,360 * 1,251 *
All Directors and Executive
Officers as a Group (12 persons) 276,421 (9) 41.2% 254,307 1.4%
</TABLE>
- --------------------------------------------
* Less than 1%.
(1) Includes 10,429 shares owned by Karolyn Edwards, Mr. Edwards' wife; and 42
shares held as custodian for Mr. Edwards nieces and nephews.
(2) Includes 10,440 shares held by Reliance Trust Company for the benefit of
Mr. Heriot.
(3) Includes 38,600 shares subject to acquisition upon exercise of stock
options; 6,840 shares held in Mr. Nettles' IRA; and 1,152 shares held in an
IRA for Moylan D. Nettles, Mr. Nettles' wife.
(4) Includes 18,000 shares owned by Poinsett Financial Corporation, of which
Mr. King is President and Chief Executive Officer; and 2,880 shares owned
by Esther C. King, Mr. King's wife.
(5) Includes 25,840 shares owned jointly with Joan H. Riddick, Mr. Riddick's
wife; and 3,638 shares held in an IRA for Joan H. Riddick.
(6) Includes 7,200 shares held in an IRA for Mr. Baxley; and 4,929 shares held
in an IRA for Elaine Baxley, Mr. Baxley's wife.
(7) Includes 38,600 shares subject to acquisition upon exercise of stock
options; and 14,000 shares held in an IRA for Mr. Hutchins.
(8) Includes 840 shares held in an IRA for Charlotte Lindsay, Mr. Lindsay's
wife.
(9) Includes 87,552 shares subject to acquisition upon exercise of stock
options.
The following table sets forth, as of August 14, 1998, certain
information as to those persons who were beneficial owners of more than 5% of
the outstanding shares of Colonial Bank common stock. Management of Colonial
Bank knows of no persons other than those set forth below who beneficially owned
more than 5% of the outstanding shares of common stock at August 14, 1998.
Amount and Nature Percent of
of Beneficial Common Stock
Beneficial Owner Ownership Outstanding
- ---------------- --------- -----------
Guy S. Hutchins, Jr. 71,630 11.5%
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1111 Broad Street
Camden, South Carolina 29020
William F. Nettles, III 60,772 9.8%
1111 Broad Street
Camden, South Carolina 29020
Daniel D. Riddick
4 Lafayette Court
Camden, South Carolina 29020 30,378 5.2%
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COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time, all of the outstanding shares of Colonial Bank
common stock will be converted into Carolina First Corporation common stock.
Accordingly, shareholders of Colonial Bank 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 Colonial Bank' 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
elimination of director liability.
A comparison of the respective rights of Colonial Bank' shareholders
and Carolina First Corporation's shareholders with respect to these matters is
set forth immediately below. A description of the Carolina First Corporation
common stock is set forth below under "CAROLINA FIRST CORPORATION CAPITAL
STOCK."
COMPARISON OF CAROLINA FIRST CORPORATION COMMON STOCK AND COLONIAL BANK
COMMON STOCK
The rights of Carolina First Corporation shareholders are governed by
Carolina First Corporation's Articles of Incorporation and Bylaws. By contrast,
the rights of Colonial Bank shareholders are governed by Colonial Bank' Articles
of Incorporation and Bylaws. Both Carolina First Corporation and Colonial Bank
are governed by the applicable provisions of the SCBCA. If the holders of
Colonial Bank common stock approve the Merger Agreement and the Merger is
subsequently consummated, holders of Colonial Bank common stock will become
holders of Carolina First Corporation common stock. Although it is impracticable
to note all the differences between the applicable governing documents of
Carolina First Corporation and Colonial Bank, the following is intended to be a
summary of certain significant differences between the rights of holders of
Carolina First Corporation common stock and Colonial Bank common stock. This
comparison of the rights of holders of Colonial Bank common stock and Carolina
First Corporation common stock is based on the current terms of the governing
documents of the respective companies and is qualified in its entirety thereby.
CAPITALIZATION. The authorized capital stock of Colonial Bank
consists of consists of 5,000,000 authorized shares of common stock ($1.00 par
value per share), and 5,000,000 shares of preferred stock, none of which is
outstanding. As of August 14, 1998, Colonial Bank had 583,019 shares of common
stock outstanding. The authorized capital stock of Carolina First Corporation
consists of 100,000,000 shares of Carolina First Corporation common stock, par
value $1.00 per share, and 10,000,000 shares of Carolina First Corporation
preferred stock. As of August 14, 1998, Carolina First Corporation had
18,152,750 shares of common stock outstanding and no shares of preferred stock
outstanding.
VOTING IN GENERAL. In general, holders of both Colonial Bank common
stock and Carolina First Corporation common stock are entitled to one vote per
share and to the same and identical voting rights as other holders of such
common stock. Neither holders of Carolina First Corporation common stock nor
Colonial Bank common stock are entitled to cumulate votes under any
circumstances.
DISSENTERS' RIGHTS. Colonial Bank's shareholders have the right, in
cases of merger or consolidation, and other circumstances provided by law, to be
paid the fair value of their shares under applicable dissenters' rights
provisions. Because Carolina First Corporation common stock is traded on the
Nasdaq National Market, its shareholders do not have similar rights.
MERGERS, CONSOLIDATIONS, EXCHANGES, SALES OF ASSETS OR DISSOLUTION. A
vote of holders of two-thirds of the outstanding shares of Colonial Bank common
stock is required to approve any merger, consolidation, exchange, sale of
substantially all of the assets of, or dissolution of Colonial Bank. 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 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
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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 Incorporation of Colonial Bank provide for
a Board of Directors having not less than nine or more than fifteen 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 Colonial Bank. Carolina
First Corporation's Articles of Incorporation provide that the number of
directors shall be set by the Board of Directors or the shareholders. Under the
provisions of the SCBCA, the Board of Directors of both Carolina First
Corporation and Colonial Bank cannot change the size of their respective Boards
by more than 30% without shareholder approval. Vacancies on the Boards of both
Carolina First Corporation and Colonial Bank may be filled by existing
directors. The Carolina First Corporation Board of Directors currently has
thirteen 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.
Colonial Bank's Articles of Incorporation provide for a classified
board of directors whenever permitted under applicable law. Consequently,
whenever Colonial Bank's board of directors is comprised of six or more members,
it will be divided into three classes of directors (with each class having as
close to an equal number as possible), with the members of each class being
elected for staggered three-year terms.
NOMINATION OF DIRECTORS. The Articles of Incorporation of Colonial
Bank provide that nominations for election to the board of directors may be made
by the board of directors or by any shareholder of Colonial Bank entitled to
vote for election of directors. Nominations other than those made by or on
behalf of the existing Colonial Bank management must be made in writing and be
delivered or mailed to the secretary of Colonial Bank not less than 30 days nor
more than 60 days prior to any meeting of shareholders called for the election
of directors. 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 Colonial Bank 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 Colonial
Bank or Carolina First Corporation.
DIRECTORS EXCULPATION. In accordance with the SCBCA, Carolina First
Corporation's Articles of Incorporation provides for the elimination of personal
liability of each director of Carolina First Corporation except: (i) for any
breach of the director's duty of loyalty to Carolina First Corporation or its
shareholders, (ii) for acts or omissions not made in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for improper
distributions, or (iv) for any transaction from which a director derived an
improper personal benefit. Colonial Bank's Articles of Incorporation contain no
such limitation.
PREEMPTIVE RIGHTS. Holders of neither Colonial Bank common stock nor
Carolina First Corporation common stock are entitled to preemptive rights with
respect to the issuance of additional shares.
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DIVIDENDS. Holders of Colonial Bank common stock and Carolina First
Corporation common stock are entitled to receive such dividends as the
respective Board of Directors may declare out of funds legally available
therefor.
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. Colonial Bank's
Articles of Incorporation provide that directors may be removed only for cause
and only upon the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of Colonial Bank entitled to vote generally
in the election of directors. Directors may be removed for cause as provided
under South Carolina law.
AMENDMENT. Colonial Bank's Articles of Incorporation provide that
they may be amended by the affirmative vote of a majority of Colonial Bank's
directors, then affirmative vote of two-thirds of Colonial Bank's shareholders,
including a majority of each class, 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 the instances below, such two-thirds requirement is increased to 80%:
(i) supermajority voting requirements to approve certain mergers,
sales or exchanges of assets or stock exchanges (See
"--Shareholder Voting in Certain Business Combinations");
(ii) provisions regarding the Board of Director's powers to evaluate
proposals for business combinations;
(iii) provision of notice requirements for shareholder nominations of
directors;
(iv) supermajority voting requirements for removal of directors
without cause;
(v) provision of staggered terms for three classes of directors; and
(vi) supermajority voting provisions for dissolution of Carolina
First Corporation.
If 80% of the directors approve amendments pertaining to the Articles of
Incorporation listed above, then holders of only two-thirds of the outstanding
shares entitled to vote is needed to approve the amendments.
ANTI-TAKEOVER MEASURES. Colonial Bank has not implemented any
material current 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.
Both Carolina First Corporation and Colonial Bank are subject to the
business combination and control share acquisition statutes set forth in South
Carolina law. These statutes 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
69
<PAGE>
certain minimum standards set forth in the statute.
OTHER CONSIDERATIONS. Both Colonial Bank and Carolina First
Corporation 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.
CAROLINA FIRST CORPORATION CAPITAL STOCK
COMMON STOCK
Carolina First Corporation has 100,000,000 shares of common stock
authorized, of which 18,152,750 shares were outstanding as of August 1, 1998.
The holders of the Carolina First Corporation 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." All outstanding shares of Carolina First Corporation common
stock are fully paid and nonassessable. No holder of Carolina First Corporation
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 Carolina First Corporation
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
senior stock which may be issued in the future. Holders of the Carolina First
Corporation 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 ("Preferred Stock"), none of which is outstanding.
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.
CERTAIN MATTERS
SHAREHOLDERS' RIGHTS AGREEMENT. In 1993, the Carolina First
Corporation Board of Directors adopted a Shareholders' Rights Agreement, which
was subsequently amended and restated in December 1996 ("Rights Agreement").
Under the Rights Agreement, the Board of Directors declared a distribution of
one common stock purchase right (a "Right") for each outstanding share of
Carolina First Corporation common stock outstanding on November 23, 1993 and
each share to be issued by Carolina First Corporation thereafter. Each Right
entitles the registered holder to purchase from Carolina First Corporation
one-half share of Carolina First Corporation common stock at a cash exercise
price of $30.00, subject to adjustment.
Initially, the Rights are not exercisable and no separate rights
certificates are distributed. However, the Rights will separate from the
Carolina First Corporation common stock and a "Distribution Date" will occur
upon the earlier of (i) the close of business on the 10th calendar day after the
Share Acquisition Date (as defined below), or (ii) the close of business on the
10th business day after the date of (x) the commencement, by any person, other
than an "exempt person", of, or (y) the first public announcement of the
intention of any person
70
<PAGE>
(other than an exempt person) to commence, a tender or exchange offer if, upon
consummation thereof, such person would be an Acquiring Person (defined as a
person or group which has acquired beneficial ownership of 20% or more of the
outstanding shares of the Carolina First Corporation common stock) (the date of
said announcement being referred to as the "Share Acquisition Date"). Until the
Distribution Date, (i) the Rights will be evidenced by the Carolina First
Corporation common stock certificates and will be transferred with and only with
such certificates, and (ii) the surrender for transfer of any certificates for
Carolina First Corporation common stock will also constitute the transfer of the
Rights associated with the Carolina First Corporation common stock represented
by such certificate. The Rights are not exercisable until the Distribution Date
and will expire at the close of business on December 18, 2006, unless previously
redeemed by Carolina First Corporation as described below. As soon as
practicable after the Distribution Date, rights certificates will be mailed to
holders of record of Carolina First Corporation common stock as of the close of
business on the Distribution Date and, thereafter, the separate rights
certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Carolina First Corporation 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 Carolina First Corporation 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 Carolina
First Corporation 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 Carolina First Corporation 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 following 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 Carolina First Corporation 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 Carolina First Corporation common
stock per Right, subject to adjustment as provided in the Rights Agreement.
The exercise price payable, and the number of shares of Carolina
First Corporation 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 Carolina First Corporation common stock, (ii) if
holders of the Carolina First Corporation common stock are granted certain
rights or warrants to subscribe for Carolina First Corporation common stock or
securities convertible into Carolina First Corporation common stock at less than
the current market price of the Carolina First Corporation common stock, or
(iii) upon the distribution to holders of the Carolina First Corporation 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).
The Rights may be redeemed in whole, but not in part, at a price of
$.001 per Right (payable in cash, Carolina First Corporation common stock or
other consideration deemed appropriate by the Board of Directors) by the Board
of Directors at any time prior to a 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 two-thirds 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
71
<PAGE>
his beneficial ownership to 15% or less of the outstanding shares of Carolina
First Corporation common stock in a 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 two-thirds 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, a copy of which has been included in Carolina First
Corporation's public filings with the Securities and Exchange Commission.
MANAGEMENT CONTRACTS. Carolina First Corporation has entered into
Noncompetition, Severance and Employment Agreements with Mack I. Whittle, Jr.,
William S. Hummers III, James W. Terry, Jr., David L. Morrow and Joseph C.
Reynolds. 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 ten persons. In accordance with its
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 replace current Directors than would
otherwise be the case. Accordingly, unless the shareholders vote to remove one
or more Directors as described below, it would take three annual meetings for
shareholders to change the members of the entire Board of Directors. 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.
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. Directors may be
removed for cause as provided under South Carolina law.
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 SCBCA. This statutory provision
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 involve gross negligence, intentional
misconduct, or a knowing violation of law, (iii) imposed under Section 33-8-330
of the SCBCA (improper distribution to shareholder), or
72
<PAGE>
(iv) for any transaction from which the director derived an improper personal
benefit.
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.
Voting For Directors. 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
would not be able to elect any board members. In cases where there are more
nominees for Directors than positions available, the nominees receiving the
largest number of votes are elected.
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 (i) merge or consolidate with any
other corporation, (ii) sell or exchange all or a substantial part of its assets
to or with any other corporation, or (iii) issue or deliver any stock or other
securities of its issue in exchange or in 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, a merger
or the sale of substantially all the assets requires the 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 shares 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. The SCBCA
has business combination and control share acquisition statutes which may serve
to impede takeovers not favored by management. See "COMPARATIVE RIGHTS OF
SHAREHOLDERS -- Change in Control, Business Combinations and Anti- Takeover
Provisions."
TRANSFER AGENT. The transfer agent for the Carolina First Corporation
common stock is Reliance Trust Company, Atlanta, Georgia.
DIVIDEND REINVESTMENT PLAN. Carolina First Corporation has in place a
dividend reinvestment plan with respect to the Carolina First Corporation common
stock. As set forth in the plan, holders of such shares may elect to receive
Carolina First Corporation common stock in lieu of receiving the cash dividends
to which such holder
73
<PAGE>
may otherwise be entitled. The plan also provides for purchases of Carolina
First Corporation common stock through optional cash payments.
LEGAL MATTERS
Certain legal matters in connection with the Reorganization
Agreement, including the validity of the Carolina First Corporation 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 Colonial Bank
regarding the Reorganization Agreement. As of July 21, 1998, members and
attorneys of Wyche, Burgess Freeman & Parham, P.A. beneficially owned a total of
approximately 18,944 shares of Carolina First Corporation common stock.
Certain legal matters in connection with the Reorganization Agreement
will be passed upon for Colonial Bank by Sinkler & Boyd, P.A., Columbia, South
Carolina.
EXPERTS
The financial statements of Colonial Bank as of March 31, 1995, 1996
and 1997 and December 31, 1997, and for each of the years in the three year
period ended December 31, 1997, have been included herein and in the
registration statement in reliance upon the report of Elliott, Davis & Company,
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Carolina First Corporation
as of December 31, 1997 and 1996 and for each of the years in the three year
period ended December 31, 1997, have been incorporated by reference herein and
in the registration statement in reliance upon the report of KPMG Peat Marwick
LLP, independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
OTHER MATTERS
The Board of Directors of Colonial Bank 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
Colonial Bank 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.
74
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
AUDITED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F - 2
BALANCE SHEETS F - 3
STATEMENTS OF INCOME F - 4
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F - 5
STATEMENTS OF CASH FLOWS F - 6
NOTES TO FINANCIAL STATEMENTS F - 7 - 17
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F - 18
BALANCE SHEETS F - 19
STATEMENTS OF INCOME F - 20
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F - 21
STATEMENTS OF CASH FLOWS F - 22
NOTES TO FINANCIAL STATEMENTS F - 23 - 32
INTERIM FINANCIAL STATEMENTS
BALANCE SHEETS F - 33
STATEMENTS OF INCOME F - 34 - 35
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F - 36
STATEMENTS OF COMPREHENSIVE INCOME F - 37
STATEMENTS OF CASH FLOWS F - 38
NOTES TO UNAUDITED FINANCIAL STATEMENTS F - 39
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders
Colonial Bank of South Carolina, Inc.
Camden, South Carolina
We have audited the accompanying balance sheets of Colonial Bank of
South Carolina, Inc. as of March 31, 1996 and 1995, and the related statements
of income, changes in stockholders' equity, and cash flows for the years then
ended. 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 audits 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 Colonial Bank of
South Carolina, Inc. as of March 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
May 8, 1996
F-2
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
------
CASH AND CASH EQUIVALENTS - Note 6 $2,624,235 $2,298,755
TIME DEPOSITS IN OTHER BANKS 800,000 -
INVESTMENT SECURITIES HELD TO MATURITY
(fair value $489,357 at March 31, 1995) - Note 3 - 489,428
LOANS, net of allowance for losses of $72,321 and
$46,078 at March 31, 1996 and 1995, respectively - Note 4 34,352,246 25,446,523
ACCRUED INTEREST RECEIVABLE 236,484 134,277
PREMISES AND EQUIPMENT, NET - Note 5 1,579,841 1,383,148
INVESTMENT IN FEDERAL HOME LOAN BANK (FHLB)
STOCK, at cost 275,000 188,100
GOODWILL, NET OF ACCUMULATED AMORTIZATION - Note 2 293,577 328,585
OTHER ASSETS 89,741 58,115
----------- -----------
$40,251,124 $30,326,931
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES
Deposits - Note 6 $31,060,122 $24,864,466
Advances from Federal Home Loan Bank - Note 7 5,500,000 2,000,000
Accrued interest payable 87,214 17,544
Advances from borrowers for taxes and insurance 15,782 20,674
Other liabilities 58,734 50,218
---------- ----------
Total liabilities 36,721,852 26,952,902
---------- ----------
COMMITMENTS AND CONTINGENCIES - Notes 8 and 10
STOCKHOLDERS' EQUITY - Notes 12 and 13
Preferred stock $1 par value;
5,000,000 shares authorized; none issued - -
Common stock $1 par value; 5,000,000 shares
authorized; 360,855 shares issued 360,855 360,855
Additional paid-in capital 3,091,868 3,091,868
Retained earnings (deficit) 76,549 (78,694)
--------- ----------
Total stockholders' equity 3,529,272 3,374,029
--------- ----------
$40,251,124 $30,326,931
=========== ===========
</TABLE>
See Notes to Financial Statements which an integral part of these statements.
F-3
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
<S> <C>
FOR THE YEARS ENDED MARCH 31,
-----------------------------
1996 1995
----------- -----------
INTEREST INCOME
Loans $2,707,924 $1,695,183
Overnight deposits 69,429 41,192
Investment securities and time deposits 12,671 11,416
FHLB stock dividend 14,292 10,016
---------- ----------
Total interest income 2,804,316 1,757,807
---------- ----------
INTEREST EXPENSE
Interest-bearing checking accounts 157,746 166,113
Certificates of deposit 1,158,710 516,254
Advances from FHLB 205,407 133,645
Passbook accounts 31,820 22,743
---------- ----------
Total interest expense 1,553,683 838,755
---------- ----------
Net interest income 1,250,633 919,052
PROVISION FOR LOAN LOSSES - Note 4 37,597 30,913
---------- ----------
Net interest income after provision for
loan losses 1,213,036 888,139
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 151,791 57,353
Gain on sale of mortgage loans 64,496 3,918
Other 27,125 6,990
---------- ----------
Total noninterest income 243,412 68,261
---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits 678,289 465,718
Advertising 32,307 25,621
Office supplies, telephone and postage 117,535 72,215
Net occupancy 119,974 59,365
Federal insurance premiums 53,240 45,195
Data processing 91,366 59,911
Professional fees 53,776 28,839
Amortization of goodwill 35,009 19,131
Other operating 108,209 70,103
---------- ----------
Total noninterest expenses 1,289,705 846,098
---------- ----------
Income before income taxes 166,743 110,302
PROVISION FOR INCOME TAXES - Note 9 11,500 3,235
---------- ----------
Net income $ 155,243 $ 107,067
========== ==========
NET INCOME PER SHARE OF COMMON STOCK $ .43 $ .30
========== ==========
</TABLE>
See Notes to Financial Statements which are an integral part of these
statements.
F-4
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C>
COMMON STOCK ADDITIONAL RETAINED TOTAL
---------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ---------- --------- -------------
BALANCE, MARCH 31, 1994 360,855 $360,855 $3,091,868 $(185,761) $3,266,962
Net income - - - 107,067 107,067
------- -------- --------- -------- ----------
BALANCE, MARCH 31, 1995 360,855 360,855 3,091,868 (78,694) 3,374,029
Net income - - - 155,243 155,243
------- -------- --------- -------- ---------
BALANCE, MARCH 31, 1996 360,855 $360,855 $3,091,868 $ 76,549 $3,529,272
======= ======== ========== ========= ==========
</TABLE>
See Notes to Financial Statements which are an integral part of these
statements.
F-5
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C>
FOR THE YEARS ENDED MARCH 31,
------------------------------
1996 1995
-------------- -------------
OPERATING ACTIVITIES
Net income $ 155,243 $ 107,067
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 37,597 30,913
Deferred income taxes (7,321) -
Depreciation 111,179 78,145
Amortization of goodwill 35,009 19,131
Discount accretion on investment securities (10,572) (9,059)
Originations of mortgage loans held for sale (2,149,775) (1,466,706)
Proceeds from mortgage loans sold 2,177,627 1,470,624
Changes in operating assets and liabilities
Increase in accrued interest receivable (102,207) (62,483)
Increase in other assets (24,305) (34,791)
Increase in accrued interest payable 69,670 16,090
Increase in other liabilities 8,516 29,837
---------- ----------
Net cash provided by operating activities 300,661 178,768
---------- ----------
INVESTING ACTIVITIES
Purchases of time deposits in other banks (800,000) -
Net increase in loans (8,971,172) (7,707,965)
Purchased loans - (2,312,871)
Purchases of premises and equipment (307,873) (381,394)
Proceeds from maturities of investment securities held
to maturity 500,000 -
Purchase of FHLB stock (86,900) (13,100)
Purchase of investment securities held to maturity - (478,013)
Goodwill related to branch acquisition - (347,716)
---------- -----------
Net cash used for investing activities (9,665,945) (11,241,059)
---------- -----------
FINANCING ACTIVITIES
Net increase in deposits 6,195,656 5,635,941
Assumed deposits from branch acquisition - 8,549,660
Advances from FHLB 5,000,000 3,800,000
Repayments of advances from FHLB (1,500,000) (5,300,000)
Net change in advances from borrowers for taxes
and insurance (4,892) 4,002
---------- -----------
Net cash provided by financing activities 9,690,764 12,689,603
---------- ----------
Net increase in cash and cash equivalents 325,480 1,627,312
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,298,755 671,443
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $2,624,235 $2,298,755
========== ==========
CASH PAID FOR
Interest $1,484,013 $ 822,665
Income taxes $ 9,735 $ -
=========== ==========
</TABLE>
See Notes to Financial Statements which are an integral part of these
statements.
F-6
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
- ------------------------------------------------------------------
Colonial Bank of South Carolina, Inc. (the "Bank") is a state chartered,
non-member commercial bank which provides services to customers located
primarily in Kershaw County, South Carolina. The Bank chartered as a stock
savings bank on June 5, 1993 (The Colonial Savings Bank of South Carolina, Inc.)
and by amendment to its articles of incorporation and with regulatory approval
converted to a state chartered commercial bank and changed its name on February
15, 1996. The principal business of the Bank is to accept various types of
deposits from the general public, make mortgage loans and, to a lesser extent,
commercial and consumer loans.
Concentration of credit risk
----------------------------
The Bank originates loans to individuals for single family residential
mortgages and for various consumer purposes and to small businesses for
various commercial purposes. The Bank's loan portfolio consists primarily
of single family residential mortgage loans for which the borrowers'
ability to repay is not dependent upon any specific economic segment.
Use of estimates in financial statement preparation
---------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents
-------------------------
For purposes of the statements of cash flows, cash and cash equivalents
are defined as those amounts having an original maturity of three months
or less.
Investment securities
---------------------
The Bank accounts for investment securities in accordance with Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Debt securities are
classified upon purchase as available for sale, held to maturity or
trading. Such assets classified as available for sale are carried at fair
value. Unrealized gains or losses are reported as a component of
stockholders' equity net of deferred income taxes. Securities classified
as held to maturity are carried at cost, adjusted for the amortization of
premiums and the accretion of discounts. In order to qualify as held to
maturity the Bank must have the intention and the ability to hold the
securities to maturity. Trading securities are carried at market value.
Gains or losses on disposition of securities are based on the difference
between the net proceeds and the adjusted carrying amount of the
securities sold, using the specific identification method.
Loans
-----
Loans are stated at unpaid principal balances, less the allowance for
loan losses. Interest on loans is recognized using the interest method.
The recognition of interest income is discontinued when, in management's
judgment, the interest is not collectible in the normal course of
business.
(Continued)
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
-----------------------------------------------------------------------------
Allowance for loan losses
-------------------------
The allowance for loan losses is based on management's ongoing evaluation
of the loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration numerous
factors, including current economic conditions, the composition of the
loan portfolio, and management's estimate of anticipated credit losses.
Loans are charged against the allowance at such time as they are
determined to be losses. Subsequent recoveries are credited to the
allowance. Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio.
Effective April 1, 1995, the Bank adopted the provisions of SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114, as
amended by SFAS No. 118, requires that impaired loans be measured based
on the present value of expected future cash flows or the underlying
collateral values as defined in the pronouncement. The adoption of SFAS
No. 114 had no effect on the balance sheet or income statements of the
Bank. The Bank includes the provisions of SFAS No. 114, if any, in the
allowance for loan losses.
Premises and equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the assets
primarily using the straight-line method. Additions to premises and
equipment and major replacements or improvements are capitalized at cost.
Maintenance, repairs and minor replacements are expensed when incurred.
Gains and losses on routine dispositions are reflected in current
operations.
Income taxes
------------
The Bank accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
pronouncement requires an asset and liability approach for financial
reporting for income taxes. Certain items of income and expense
(principally provision for loan losses, depreciation, and preopening
expenses) are included in one reporting period for financial accounting
purposes and another for income tax purposes.
Loan origination fees
---------------------
The Bank accounts for loan origination and commitment fees and related
direct costs in accordance with SFAS 91, "Accounting for Non-refundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases." Loan origination fees and certain direct costs
are capitalized and recognized as an adjustment of the yield of the
related loan.
Goodwill
--------
The Bank is amortizing the goodwill resulting from the Southern National
branch acquisition (Note 2) over the estimated economic life of ten years
using the straight-line method. On an on-going basis, the Bank evaluates
the carrying value of this goodwill.
Reclassifications
-----------------
Certain amounts for 1995 have been reclassified to conform with statement
presentations for 1996. These reclassifications have no affect on
previously reported net income.
(Continued)
F-8
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
- -----------------------------------------------------------------------------
Fair values of financial instruments
------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," as amended by SFAS No. 119,
requires disclosure of fair value information for financial instruments,
whether or not recognized in the balance sheet, when it is practicable to
estimate the fair value. SFAS No. 107 defines a financial instrument as
cash, evidence of an ownership interest in an entity or contractual
obligations which require the exchange of cash or other financial
instruments.
Certain items are specifically excluded from the disclosure requirements,
including the Bank's common stock. In addition, other nonfinancial
instruments such as premises and equipment and other assets and
liabilities are not subject to the disclosure requirements. The Bank's
loan portfolio is intended to be held to maturity. Therefore, any
differences between carrying value and fair value may not be realized.
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
CASH AND CASH EQUIVALENTS AND TIME DEPOSITS IN OTHER BANKS - The
carrying amounts of cash and cash equivalents and time deposits in
other banks approximate their fair value.
INVESTMENT SECURITIES HELD TO MATURITY - Fair values for investment
securities are based on quoted market prices.
LOANS - For variable rate loans that reprice frequently and for loans
that mature within one year, fair values are based on carrying values.
Fair values for all other loans are estimated using discounted cash
flow analyses, with interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. Fair values
for impaired loans are estimated using discounted cash flow analyses
or underlying collateral values, where applicable.
INVESTMENT IN FEDERAL HOME LOAN BANK STOCK - Fair value for FHLB stock
approximates its carrying amount.
DEPOSITS - The fair values disclosed for demand deposits are, by
definition, equal to their carrying amounts. The carrying amounts of
variable rate, fixed-term money market accounts and short-term
certificates of deposit approximate their fair values at the reporting
date. Fair values for long-term fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule
of aggregated expected monthly maturities.
ADVANCES FROM FEDERAL HOME LOAN BANK - The carrying amounts of these
short-term borrowings approximate their fair values.
OFF-BALANCE SHEET INSTRUMENTS - Fair values of off-balance sheet
lending commitments are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.
Recently issued accounting pronouncements
-----------------------------------------
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS
121, effective for fiscal years beginning after December 15, 1995,
requires that long-lived assets and certain identifiable intangible
assets be reviewed
(Continued)
F-9
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
- -----------------------------------------------------------------------------
for impairment when events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable by estimating future
cash flows. This statement is not expected to have a significant impact
on the Bank's financial statements or results of operations.
In May 1995, the Financial Accounting Standards Board (FASB) issued SFAS
122, "Accounting for Mortgage Servicing Rights," which amends SFAS No.
65, "Accounting for Mortgage Banking Activities." This rule allows the
capitalization of servicing-related costs associated with mortgage loans
that are originated for sale, and to create servicing assets for such
loans. Prior to this rule, originated mortgage servicing rights were
generally accorded off-balance sheet treatment. The statement is
effective for the Bank for the fiscal year ending March 31, 1997. The
adoption is not expected to have a material effect on the Bank's
financial condition or results of operations.
The FASB also issued SFAS No. 123, "Accounting for Stock-Based
Compensation," in October 1995. This statement supersedes Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" and establishes financial accounting and reporting standards
for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to
employees in amounts based on the price of the employer's stock. The
statement also applies to transactions in which an entity issues its
equity instruments to acquire goods or services from nonemployees. The
Bank has not determined the impact of adopting SFAS 123, but believes the
impact, if any, will be immaterial.
Other accounting standards issued or proposed, if adopted, are not
expected to have a significant effect on the financial position or
results of operations of the Bank.
NOTE 2 - BUSINESS COMBINATION
- -----------------------------
Effective August 5, 1994, the Bank acquired certain assets and assumed
certain liabilities of the Camden, South Carolina branch of Southern National
Bank. The Bank acquired $2,313,000 in loans receivable, $81,000 in furniture and
equipment and assumed $8,550,000 in deposit liabilities. The Bank paid a premium
of $308,271 in connection with this acquisition which is included in goodwill.
In addition, the Bank incurred acquisition costs of $39,445 which are also
included in goodwill. This transaction has been accounted for using the purchase
method of accounting.
NOTE 3 - INVESTMENT SECURITIES HELD TO MATURITY
- -----------------------------------------------
The book value and approximate fair value of investment securities held
to maturity are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
March 31, 1995
------------------------------------------
Unrealized
Book ---------------- Fair
Value Gains Losses Value
--------- ----- -------- ---------
United States Treasury
Due within one year $ 489,428 $ - $ 71 $489,357
========= ===== ====== ========
</TABLE>
At March 31, 1996 the Bank did not hold any investment securities.
F-10
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------
Loans outstanding by major classification consist of the following:
<TABLE>
<CAPTION>
<S> <C>
March 31,
----------------------------
Mortgage Loans 1996 1995
----------------------------
Principal balances
Secured by one-to-four family residences (including
$400,046 and $849,135 of home equity lines of credit) $ 24,019,300 $19,081,520
Secured by land and other properties 1,006,120 349,061
Secured by commercial real estate 1,174,482 1,589,607
Construction loans 2,515,090 1,086,400
----------- -----------
28,714,992 22,106,588
Less undisbursed portion of construction loans (1,423,005) (536,995)
---------- --------
Total first mortgage loans 27,291,987 21,569,593
Consumer loans 3,855,802 2,464,207
Commercial secured with other than a mortgage 2,101,810 1,116,574
Unsecured commercial 1,174,968 330,895
Deferred loan origination costs - 11,332
----------- -----------
34,424,567 25,492,601
Less allowance for loan losses (72,321) (46,078)
----------- -----------
Net loans $34,352,246 $25,446,523
Changes in the allowance for loan
losses are summarized as follows:
Balance, beginning of year $ 46,078 $ 16,000
Provision charged to income 37,597 30,913
Charge-offs and recoveries, net (11,354) (835)
----------- -----------
Balance, end of year $ 72,321 $ 46,078
=========== ===========
</TABLE>
At March 31, 1996 and 1995, there were no non-accrual loans.
The principal amount of loans sold with servicing rights retained at
March 31, 1996 and 1995 were $-0- and $1,466,706, respectively. During 1996 and
1995 servicing rights on principal balances of $2,689,910 and $-0-,
respectively, were sold for a gain of approximately $25,000.
The principal amount of loans sold through participation at March 31,
1996 and 1995 were $100,000 and $-0-, respectively.
NOTE 5 - PREMISES AND EQUIPMENT
- -------------------------------
Premises and equipment are summarized as follows:
March 31,
--------------------------
1996 1995
--------------------------
Land $ 240,000 $ 240,000
Building 1,040,392 814,678
Building improvements 128,924 125,224
Furniture, fixtures and equipment 379,078 300,620
Automobiles 10,451 10,451
----------- -----------
1,798,845 1,490,973
Less accumulated depreciation 219,004 107,825
----------- -----------
$ 1,579,841 $ 1,383,148
=========== ===========
F-11
<PAGE>
NOTE 6 - DEPOSITS
<TABLE>
<CAPTION>
<S> <C>
Weighted
average rate As of March 31, 1996
at March 31, ------------------------
1996 Amount % of Total
------------- ------------ ----------
Non-interest bearing checking accounts - $2,032,670 6.54%
Interest-bearing checking accounts 2.33% 3,642,533 11.73
Money market deposit accounts 3.26 1,995,514 6.42
Passbook savings accounts 2.65 1,254,098 4.04
Certificates of deposit:
4.0 to 4.99 percent 4.38 356,054 1.15
5.0 to 5.99 percent 5.43 14,019,228 45.14
6.0 to 6.99 percent 6.05 7,029,282 22.63
7.0 to 8.00 percent 7.66 730,743 2.35
------------ ---------
4.64% $ 31,060,122 100.00%
============ =========
Weighted
average rate As of March 31, 1995
at March 31, ------------------------
1995 Amount % of Total
------------ ---------- ----------
Non-interest bearing checking accounts - $1,035,835 4.17%
Interest-bearing checking accounts 2.28% 3,410,257 13.72
Money market deposit accounts 3.33 2,703,378 10.87
Passbook savings accounts 2.68 1,148,650 4.62
Certificates of deposit:
3.0 to 3.99 percent 3.65 838,612 3.37
4.0 to 4.99 percent 4.53 3,056,879 12.29
5.0 to 5.99 percent 5.23 2,356,237 9.48
6.0 to 6.99 percent 6.30 5,892,713 23.70
7.0 to 8.00 percent 7.17 4,421,905 17.78
--------- ---------
4.74% $24,864,466 100.00%
=========== =========
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination
of $100,000 was $5,811,674 and $5,133,409 at March 31, 1996 and 1995,
respectively.
At March 31, 1996, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending March 31,
-------------------------------------------------------------
1997 1998 1999 2000 Total
--------- --------- --------- ---------- ---------
4.00 to 4.99 percent $ 328,937 $ 27,117 $ - $ - $ 356,054
5.00 to 5.99 percent 13,105,346 798,650 112,970 2,262 14,019,228
6.00 to 6.99 percent 6,662,966 224,984 136,331 5,001 7,029,282
7.00 to 8.00 percent 402,748 308,411 19,584 - 730,743
---------- --------- -------- -------- ----------
$20,499,997 $1,359,162 $268,885 $ 7,263 $22,135,307
=========== ========== ======== ======== ===========
</TABLE>
At March 31, 1996, $400,000 of cash was pledged to secure public deposits.
F-12
<PAGE>
NOTE 7 - ADVANCES FROM FEDERAL HOME LOAN BANK
- ---------------------------------------------
At March 31, 1996 and 1995, the Bank had $5,500,000 and $2,000,000,
respectively, of advances outstanding from the Federal Home Loan Bank. Specific
mortgage loans with balances of $7,208,344 and $5,615,055 at March 31, 1996 and
1995, respectively, were pledged to the FHLB as collateral for these advances.
The maturity of these advances are as follows:
YEAR ENDING MARCH 31,
---------------------
1997 $ 2,500,000
1998 3,000,000
-----------
$ 5,500,000
===========
NOTE 8 - LEASES
- ---------------
The Bank, as lessor, leases office space to unrelated parties under
leases requiring fixed monthly payments over various terms. Related to these
leases, the Bank, recognized $136,687 and $138,334 in 1996 and 1995,
respectively, of rental income.
At March 31, 1996 future rental income is as follows:
Year ending March 31,
---------------------
1997 $ 73,079
1998 63,104
1999 37,037
2000 30,480
2001 30,780
Thereafter 99,540
--------
$334,020
========
During 1996, the Bank, as lessee, leased two automobiles under
noncancellable operating leases. Rent expense totaled approximately $11,000 for
the year ended March 31, 1996.
Future minimum operating lease payments are as follows:
1997 $ 9,662
1998 6,218
--------
$ 15,880
========
NOTE 9 - INCOME TAXES
- ---------------------
The Bank accounts for income taxes using Statement of Financial
Accounting Standards No. 109. Under SFAS 109, deferred income taxes are
recognized for temporary differences between the financial statement and income
tax bases of assets and liabilities.
(Continued)
F-13
<PAGE>
NOTE 9 - INCOME TAXES, CONTINUED
- --------------------------------
The sources of temporary differences and the resulting deferred income
tax assets and (liabilities) at March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 1995
------------ -----------
Allowance for loan losses in excess of tax deductible amounts $ 11,522 $ 7,673
Tax depreciation in excess of financial statement depreciation (31,143) (15,340)
Development stage expenses capitalized for income tax purposes 22,104 32,306
Other 4,838 (286)
Net deferred asset 7,321 24,353
Valuation allowance - 24,353
-------- ---------
Net deferred asset after valuation allowance (included
in other assets at March 31, 1996) $ 7,321 $ -
======== =========
</TABLE>
The provision for income taxes is reconciled to the amount of income tax
computed at the federal statutory rate as follows:
<TABLE>
<CAPTION>
<S> <C>
For the years ended March 31,
------------------------------------
1996 1995
--------------- ------------------
Amount % Amount %
Tax expense at the applicable statutory rate $56,693 34.0% $37,503 34.0%
Benefit of net operating losses (6,818) (4.1) (15,009) (13.6)
Effect of surtax exemption (33,349) (20.0) (20,957) (19.0)
Other (5,026) (3.0) 1,698 1.5
------- ------ ------- ------
Total provision for income taxes $11,500 6.9% $ 3,235 2.9%
======= ====== ======= ===
</TABLE>
The Bank was exempt from South Carolina income taxes for its initial three
years of operation. Effective upon the date of the charter conversion, the Bank
will pay South Carolina Bank income taxes. These taxes were not significant for
the period February 15, 1996 to March 31, 1996.
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES
- ------------------------------------------------
In the normal course of business, the Bank has outstanding commitments to
extend credit and other contingencies which are not reflected in the
accompanying financial statements. In the opinion of management, no material
losses or liabilities are expected as a result of these transactions.
In order to meet the financing needs of its customers, the Bank is a
party to financial instruments with off-balance sheet risk. These financial
instruments are principally commitments to extend credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheet. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instrument is represented by the contractual amount of those instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
(Continued)
F-14
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENT LIABILITIES, CONTINUED
- -----------------------------------------------------------
Commitments to extend credit are agreements to lend as long as there is
no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Bank upon extension of credit, is based on management's credit evaluation.
At March 31, 1996, the Bank is committed to extend $3,541,680 under existing
commitments.
The FDIC has proposed a one-time assessment on all Savings Association
Insurance Fund (SAIF) deposits, at an estimated amount of 85 basis points on
total domestic deposits, held as of March 31, 1995. If the assessment is made at
the proposed rate in 1996, the effect on the Bank would be a pretax charge of
approximately $135,000 (approximates $90,000 after tax), subject to certain
changes which may arise as a result of pending legislation.
NOTE 11 - REGULATORY MATTERS
- ----------------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. The regulations require the Bank to
meet specific capital adequacy guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The capital classification is also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the maintenance of minimum amounts and ratios (set forth in the
table below) of Tier I capital to adjusted total assets (Leverage Capital ratio)
and minimum ratios of Tier I and total capital to risk-weighted assets. To be
considered adequately capitalized under the regulatory framework for prompt
corrective action, the Bank must maintain minimum Tier I leverage and Tier I
risk-based ratios. The Bank's required minimum and actual capital ratios are
presented in the table below as of March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Required
minimum Actual
--------- ------
Tier I Leverage Capital 4.0% 8.4%
Tier I Risk-based Capital 4.0% 12.4%
Total Risk-based Capital 8.0% 12.6%
</TABLE>
NOTE 12 - DIVIDEND RESTRICTIONS
- -------------------------------
The Bank is restricted as to payment of dividends. Prior to payment of any
dividend, the Bank must obtain approval from the South Carolina State Board of
Financial Institutions.
F-15
<PAGE>
NOTE 13 - STOCKHOLDERS' EQUITY AND STOCK OPTIONS
- ------------------------------------------------
The Bank calculates net income per share of common stock using the weighted
average number of shares of common stock outstanding, 360,855, for the years
ended March 31, 1996 and 1995. The potentially dilutive effect of stock options
is excluded from the weighted average number of shares as the impact is not
significant.
The Bank's Board of Directors has adopted a Stock Option Plan (the "Option
Plan"). Pursuant to the Option Plan, a number of shares equal to 10 percent of
the common stock (36,085 shares at March 31, 1996) are reserved for issuance by
the Bank to officers and employees. The purpose of the Option Plan is to provide
additional incentive to certain officers and key employees by facilitating their
purchase of stock in the Bank. As of March 31, 1996, 36,085 options have been
granted at $10 per share, the fair market value as of the date of grant. No
options have been exercised or canceled.
NOTE 14 - EMPLOYEE BENEFIT PLAN
- -------------------------------
The Bank established a defined contribution 401(k) plan during the year
ended March 31, 1995 covering all employees who have attained age twenty-one and
have a minimum of six months of service. Upon ongoing approval of the Board of
Directors, the Bank matches one-hundred percent of employee contributions up to
four percent of employee salary. For the years ended March 31, 1996 and 1995,
$15,630 and $2,766, respectively, were charged to operations under the plan.
NOTE 15 - RELATED PARTY TRANSACTIONS
- ------------------------------------
Directors, executive officers and associates of such persons were customers
of and had transactions with the Bank in the ordinary course of business.
Included in such transactions are outstanding loans and commitments, all of
which were made under normal credit terms and did not involve more than normal
risk of collection. These related party loans totaled $750,087 and $570,059 as
of March 31, 1996 and 1995, respectively.
Activity in related party loans for the year ended March 31, 1996 is as
follows:
Balance April 1, 1995 $ 570,059
New borrowings 310,456
Repayments (130,428)
----------
Balance March 31, 1996 $ 750,087
==========
F-16
<PAGE>
NOTE 16 - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------------
The estimated fair value of the Company's financial instruments were as
follows at March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Carrying Approximate
amount fair value
----------- ------------
FINANCIAL ASSETS
Cash and cash equivalents and time deposits in
other banks $ 3,424,235 $ 3,424,235
Loans 34,424,567 33,000,000
FHLB stock 275,000 275,000
FINANCIAL LIABILITIES
Deposits 31,060,122 31,000,000
FHLB advances 5,500,000 5,500,000
OFF-BALANCE-SHEET INSTRUMENTS
Commitments to extend credit 3,541,680 3,541,680
</TABLE>
F-17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors and Stockholders
COLONIAL BANK OF SOUTH CAROLINA, INC.
Camden, South Carolina
We have audited the accompanying balance sheets of COLONIAL BANK OF
SOUTH CAROLINA, INC. as of December 31, 1997 and March 31, 1997, and the related
statements of income, changes in stockholders' equity, and cash flows for the
nine months ended December 31, 1997 and the year ended March 31, 1997. 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 audits 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 COLONIAL BANK OF
SOUTH CAROLINA, INC. as of December 31, 1997 and March 31, 1997, and the results
of its operations and its cash flows for the nine months ended December 31, 1997
and the year ended March 31, 1997 in conformity with generally accepted
accounting principles.
February 5, 1998
F-18
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
DECEMBER 31, MARCH 31,
1997 1997
--------------- ------------
ASSETS
CASH AND DUE FROM BANKS $4,561,556 $5,837,763
TIME DEPOSITS IN OTHER BANKS 800,000 2,250,000
SECURITIES
Available for sale 2,042,512 -
Held to maturity ($1,243,287 at fair value) 1,242,867 -
LOANS, net of allowance for losses of $375,039 and
$106,888, respectively 42,805,828 40,010,275
ACCRUED INTEREST RECEIVABLE 337,911 286,024
PREMISES AND EQUIPMENT, net 1,755,042 1,705,237
INVESTMENT IN FEDERAL HOME LOAN BANK (FHLB)
STOCK, at cost 475,000 475,000
GOODWILL, net of accumulated amortization 232,314 258,570
OTHER ASSETS 402,693 95,448
--------- ----------
$54,655,723 $50,918,317
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 40,365,724 $37,419,530
Advances from Federal Home Loan Bank 9,000,000 9,500,000
Accrued interest payable 47,755 100,187
Advances from borrowers for taxes and insurance 14,632 11,614
Other liabilities 73,125 149,857
--------- ----------
Total liabilities 49,501,236 47,181,188
---------- ----------
COMMITMENTS AND CONTINGENCIES - Notes 8, 9 and 11
STOCKHOLDERS' EQUITY
Preferred stock $1 par value; 5,000,000 shares
authorized; none issued - -
Common stock $1 par value; 5,000,000 shares
authorized; 583,019 and 433,019 shares issued 583,019 433,019
Additional paid-in capital 4,413,398 3,091,868
Retained earnings 161,385 212,242
Unrealized holding loss on securities available
for sale, net of income taxes (3,315) -
--------- ----------
Total stockholders' equity 5,154,487 3,737,129
--------- ----------
$54,655,723 $50,918,317
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
------------- ------------
<S> <C> <C>
INTEREST INCOME
Loans and loan fees $2,796,241 $3,454,212
Time and overnight deposits 195,247 114,575
FHLB stock dividend 26,040 25,033
Securities 61,299 -
---------- ----------
Total interest income 3,078,827 3,593,820
---------- ----------
INTEREST EXPENSE
Interest-bearing checking accounts 119,703 149,860
Certificates of deposit 1,217,630 1,382,652
Advances from FHLB 323,238 344,536
Passbook accounts 29,107 35,486
---------- ----------
Total interest expense 1,689,678 1,912,534
---------- ----------
Net interest income 1,389,149 1,681,286
PROVISION FOR LOAN LOSSES 299,000 63,500
---------- ----------
Net interest income after provision for
loan losses 1,090,149 1,617,786
---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 151,357 212,524
Premiums related to sale of mortgage loans 36,562 56,064
Other 24,452 25,130
---------- ----------
Total noninterest income 212,371 293,718
---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits 692,612 848,892
Advertising 17,443 23,127
Office supplies, telephone and postage 90,095 123,187
Net occupancy 144,847 189,900
Federal insurance premiums 119,797 55,858
Data processing 93,948 110,890
Professional fees 19,857 30,941
Amortization of goodwill 23,120 35,009
Other operating 151,589 149,512
---------- ----------
Total noninterest expenses 1,353,308 1,567,316
---------- ----------
(Loss) income before income taxes (50,788) 344,188
PROVISION FOR INCOME TAXES - 136,331
---------- ----------
Net (loss) income $ (50,788) $ 207,857
========== ==========
BASIC NET (LOSS) INCOME PER SHARE OF COMMON STOCK $ (.10) $ .48
========== ==========
DILUTED NET (LOSS) INCOME PER SHARE OF COMMON STOCK $ (.10) $ .47
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 1997 AND THE YEAR ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
<S> <C>
UNREALIZED
HOLDING LOSS
COMMON STOCK ADDITIONAL ON SECURITIES TOTAL
---------------- PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
-------- ------ ---------- -------- ------------- -------------
BALANCE, MARCH 31, 1996 360,855 $360,855 $3,091,868 $ 76,549 $ - $ 3,529,272
Six-for-five stock
split effected in the
form of a 20% stock
dividend 72,164 72,164 - (72,164) - -
Net income - - - 207,857 - 207,857
------ ------ -------- -------- -------- ---------
BALANCE, MARCH 31, 1997 433,019 433,019 3,091,868 212,242 - 3,737,129
Proceeds from sale
of stock 150,000 150,000 1,321,530 - - 1,471,530
Cash in lieu of fractional
shares on stock dividend - - - (69) - (69)
Net change in unrealized
holding loss on securities
available for sale, net
of taxes of $1,707 - - - - (3,315) (3,315)
Net loss - - - (50,788) - (50,788)
------ ------ -------- -------- -------- ---------
BALANCE, DECEMBER 31, 1997 583,019 $583,019 $4,413,398 $ 161,385 $ (3,315) $5,154,487
======= ======== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1997
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $ (50,788) $ 207,857
Adjustments to reconcile net (loss) income to net cash (used for)
provided by operating activities
Provision for loan losses 299,000 63,500
Deferred income taxes (61,483) 5,391
Depreciation 112,075 125,145
Amortization of goodwill 26,256 35,009
Discount accretion on securities (22,385) --
Premium amortization on securities 128 --
Originations of mortgage loans held for sale (3,182,866) (4,721,530)
Proceeds from the sale of mortgage loans held for sale 3,216,794 4,777,594
Changes in operating assets and liabilities
Increase in accrued interest receivable (51,887) (49,540)
Increase in other assets (244,055) (11,098)
(Decrease) increase in accrued interest payable (52,432) 12,973
(Decrease) increase in other liabilities (76,732) 91,120
------------ ------------
Net cash provided by operating activities (88,375) 536,421
------------ ------------
INVESTING ACTIVITIES
Purchases of time deposits in other banks (350,000) (1,450,000)
Maturities of time deposits in other banks 1,800,000 --
Net increase in loans (3,128,481) (5,777,593)
Purchases of premises and equipment (161,880) (250,540)
Purchases of securities available for sale (2,045,973) --
Purchases of securities held to maturity (1,522,171) --
Proceeds from maturities of securities held to maturity 300,000 --
Purchase of FHLB stock -- (200,000)
------------ ------------
Net cash used for investing activities (5,108,505) (7,678,133)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 2,946,194 6,359,408
Advances from FHLB 10,200,000 11,925,000
Repayments of advances from FHLB (10,700,000) (7,925,000)
Net change in advances from borrowers for taxes and insurance 3,018 (4,168)
Proceeds from sale of stock 1,471,530 --
Cash in lieu of fractional shares on stock dividend (69) --
------------ ------------
Net cash provided by financing activities 3,920,673 10,355,240
------------ ------------
Net increase (decrease) in cash and cash equivalents (1,276,207) 3,213,528
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,837,763 2,624,235
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,561,556 $ 5,837,763
============ ============
CASH PAID FOR
Interest $ 1,742,110 $ 1,864,075
============ ============
Income taxes $ 175,033 $ 52,631
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
Colonial Bank of South Carolina, Inc. (the "Bank") is a state chartered,
Federal Reserve non-member commercial bank which provides services to customers
located primarily in Kershaw County, South Carolina. The principal business of
the Bank is to accept various types of deposits from the general public, make
mortgage loans and, to a lesser extent, commercial and consumer loans.
CONCENTRATION OF CREDIT RISK
The Bank originates loans to individuals for single family residential
mortgages and for various consumer purposes and to small businesses for
various commercial purposes. The Bank's loan portfolio consists primarily
of single family residential mortgage loans for which the borrowers'
ability to repay is not dependent upon any specific economic segment.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, cash and cash equivalents
are defined as those amounts having an original maturity of three months
or less and are presented on the balance sheet as cash and due from
banks.
SECURITIES
The Bank accounts for securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Debt securities are
classified upon purchase as available for sale, held to maturity or
trading. Such assets classified as available for sale are carried at fair
value. Unrealized holding gains or losses are reported as a component of
stockholders' equity net of deferred income taxes. Securities classified
as held to maturity are carried at cost, adjusted for the amortization of
premiums and the accretion of discounts. In order to qualify as held to
maturity, the Bank must have the ability and intent to hold the
securities to maturity. Trading securities are carried at market value.
The Bank has no trading securities. Gains or losses on dispositions of
securities are based on the difference between the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
LOANS
Loans are stated at unpaid principal balances, less the allowance for
loan losses. Interest on loans is recognized using the interest method.
The recognition of interest income is discontinued when, in management's
judgment, the interest is not collectible in the normal course of
business.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's ongoing evaluation
of the loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses in the existing portfolio.
(Continued)
F-23
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, CONTINUED
ALLOWANCE FOR LOAN LOSSES
In evaluating the portfolio, management takes into consideration numerous
factors, including current economic conditions, the composition of the
loan portfolio, and management's estimate of anticipated credit losses.
Loans are charged against the allowance at such time as they are
determined to be losses. Subsequent recoveries are credited to the
allowance. Management considers the year-end allowance appropriate and
adequate to cover possible losses in the loan portfolio.
ACCOUNTING FOR IMPAIRED LOANS
The Bank accounts for impaired loans in accordance with SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS 114, as amended
by SFAS 118, requires that the allowance for loan losses for impaired
loans (as defined) be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as
a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. SFAS 114
also changed the treatment of in-substance foreclosed properties to
require that properties should be included as other real estate owned
when legal possession of the property has been obtained.
The Bank's policy is to evaluate impaired loans based on the fair value
of the collateral. Provisions computed under SFAS 114, if any, are
included in the allowance for loan losses. Interest income from impaired
loans is recorded using the cash method. There were no impaired loans at
December 31, 1997 or March 31, 1997, or related interest income
recognized in the nine months ended December 31, 1997 or the year ended
March 31, 1997.
NON-PERFORMING ASSETS
Loans are placed in a non-accrual status when, in the opinion of
management, the collection of additional interest is questionable.
Thereafter, no interest is taken into income unless received in cash or
until such time as the borrower demonstrates the ability to pay principal
and interest.
REAL ESTATE ACQUIRED THROUGH FORECLOSURE
Real estate acquired through foreclosure is stated at the lower of cost
or estimated fair value less estimated costs to sell. Any accrued
interest on the related loan at the date of acquisition is charged to
operations. Costs relating to the development and improvement of property
are capitalized to the extent that such costs do not exceed the estimated
fair value less selling costs of the property, whereas those relating to
holding the property are charged to expense.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives of the assets
primarily using the straight-line method. Additions to premises and
equipment and major replacements or improvements are capitalized at cost.
Maintenance, repairs and minor replacements are expensed when incurred.
Gains and losses on routine dispositions are reflected in current
operations.
INCOME TAXES
The Bank accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS 109 requires an asset and liability
approach for financial reporting for income taxes. Certain items of
income and expense (principally provision for loan losses, depreciation,
and preopening expenses) are included in one reporting period for
financial accounting purposes and another for income tax purposes.
F-24
(Continued)
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES,
CONTINUED
LOAN ORIGINATION FEES
The Bank accounts for loan origination and commitment fees and related
direct costs in accordance with SFAS 91, "Accounting for Non-refundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases." Loan origination fees and certain direct costs
are capitalized and recognized as an adjustment of the yield of the
related loan.
GOODWILL
The Bank is amortizing goodwill resulting from a branch acquisition over
the estimated economic life of ten years using the straight-line method.
On an on-going basis, the Bank evaluates the carrying value of this
goodwill.
RECLASSIFICATIONS
Certain amounts from the prior year financial statements have been
reclassified to conform with statement presentations for the current
year. These reclassifications had no effect on previously reported net
income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Accounting standards that have been issued or proposed by the Financial
Accounting Standards Board that do not require adoption until a future
date are not expected to have a material impact on the financial
statements upon adoption.
NOTE 2 - CASH AND DUE FROM BANKS
The Bank maintains certain cash reserves to secure the receipt of public
deposits. At December 31, 1997 and March 31, 1997 the cash reserves were
$1,250,000 and $1,030,000, respectively.
NOTE 3 - SECURITIES
Securities are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------
AMORTIZED UNREALIZED HOLDING FAIR
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE:
FEDERAL AGENCIES
Maturing within one year $ 498,450 $ -- $ 185 $ 498,265
Maturing after one but within five years 1,549,084 -- 4,837 1,544,247
---------- ---------- ---------- ----------
Total securities available for sale $2,047,534 $ -- $ 5,022 $2,042,512
========== ========== ========== ==========
SECURITIES HELD TO MATURITY:
UNITED STATES TREASURY
Maturing within one year $ 492,891 $ 399 $ -- $ 493,290
FEDERAL AGENCIES
Maturing within one year 749,976 284 263 749,997
---------- ---------- ---------- ----------
Total securities held to maturity $1,242,867 $ 683 $ 263 $1,243,287
========== ========== ========== ==========
</TABLE>
F-25
<PAGE>
NOTE 4 - LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans outstanding by major classification consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997
------------ ------------
<S> <C> <C>
Mortgage Loans
Principle balances
Secured by one-to-four family residences (including
$1,632,560 and $1,344,152 of home equity lines of credit) $ 28,936,362 $ 27,619,085
Secured by land and other properties 957,400 1,295,789
Secured by commercial real estate 2,291,754 1,746,735
Construction loans 2,209,030 1,727,541
Loans held for sale 365,000 --
------------ ------------
34,759,546 32,389,150
Less undisbursed portion of construction loans (468,619) (239,565)
------------ ------------
Total mortgage loans 34,290,927 32,149,585
Consumer loans 4,620,892 4,317,881
Commercial secured with other than a mortgage 2,619,685 2,468,380
Unsecured commercial 1,649,363 1,181,317
------------ ------------
43,180,867 40,117,163
Less allowance for loan losses (375,039) (106,888)
------------ ------------
Net loans $ 42,805,828 $ 40,010,275
============ ============
</TABLE>
Fixed rate loans amount to approximately $24,366,000 and $22,213,000 at
December 31, 1997 and March 31, 1997, respectively.
Changes in allowance for loan losses are summarized as follows:
Balance, beginning of year $ 106,888 $ 72,321
Provision charged to income 299,000 63,500
Charge-offs and recoveries, net (30,849) (28,933)
----------- -----------
Balance, end of year $ 375,039 $ 106,888
=========== ===========
At December 31, 1997 and March 31, 1997 there were $63,793 and $40,281
of non-accrual loans, respectively. Total interest income not recognized on
these loans was $6,415 for the nine months ended December 31, 1997 and $5,281
for the year ended March 31, 1997.
F-26
<PAGE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
DECEMBER 31, MARCH 31,
1997 1997
---------- ----------
Land $ 315,000 $ 315,000
Building 1,154,687 1,150,299
Building improvements 133,641 133,641
Furniture, fixtures and equipment 564,339 439,994
Automobiles 43,598 10,451
---------- ----------
2,211,265 2,049,385
Less accumulated depreciation 456,223 344,148
---------- ----------
$1,755,042 $1,705,237
========== ==========
NOTE 6 - INVESTMENT IN FHLB STOCK
The Bank, as a member institution of the Federal Home Loan Bank (FHLB) of
Atlanta, is required to own capital stock in the FHLB of Atlanta based generally
upon FHLB advances. FHLB capital stock is pledged to secure FHLB advances. No
ready market exists for this stock and it has no quoted market value. However,
redemption of this stock has historically been at par value.
NOTE 7 - DEPOSITS
<TABLE>
<CAPTION>
Deposits consist of the following: WEIGHTED
AVERAGE RATE AS OF DECEMBER 31, 1997
AT DECEMBER 31, --------------------------
1997 AMOUNT % OF TOTAL
---- ------ ----------
<S> <C> <C> <C>
Non-interest bearing checking accounts
Interest-bearing checking accounts 2.00% $ 2,973,615 7.37%
Money market deposit accounts 3.20 4,983,769 12.35
Passbook savings accounts 2.55 1,831,457 4.54
Certificates of deposit: 1,540,784 3.82
3.0 to 3.99 percent 3.02
4.0 to 4.99 percent 4.34 212,056 .52
5.0 to 5.99 percent 5.38 637,706 1.58
6.0 to 6.99 percent 6.15 17,596,939 43.59
7.0 to 8.00 percent 7.86 10,382,054 25.72
4.54% 207,344 .51
---- ----------- ------
$40,365,724 100.00%
=========== ======
</TABLE>
(CONTINUED)
F-27
<PAGE>
NOTE 7 - DEPOSITS, CONTINUED
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE AS OF MARCH 31, 1997
AT MARCH 31, -------------------------
1997 AMOUNT % OF TOTAL
---- ------ ----------
<S> <C> <C> <C>
Non-interest bearing checking accounts
Interest-bearing checking accounts $ 2,358,942 6.30%
Money market deposit accounts 2.00% 4,713,276 12.60
Passbook savings accounts 3.20 1,553,187 4.15
Certificates of deposit: 2.55 1,549,113 4.14
4.0 to 4.99 percent
5.0 to 5.99 percent 4.65 381,828 1.02
6.0 to 6.99 percent 5.44 15,958,337 42.65
7.0 to 8.00 percent 6.16 10,572,032 28.25
7.90 332,815 .89
----------- ------
4.71% $37,419,530 100.00%
=========== ======
</TABLE>
The aggregate amount of time deposits with a minimum denomination of
$100,000 was $6,053,082 and $6,003,455 at December 31, 1997 and March 31, 1997,
respectively. Interest expense on these deposits was $271,000 for the nine
months ended December 31, 1997 and $368,000 for the year ended March 31, 1997.
At December 31, 1997, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------------------------------
1998 1999 2000 2001 TOTAL
---------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
3.00 to 3.99 percent $ 212,056 $ - $ - $ - $ 212,056
4.00 to 4.99 percent 637,706 - - - 637,706
5.00 to 5.99 percent 15,471,344 1,875,676 239,719 10,200 17,596,939
6.00 to 6.99 percent 8,752,073 1,261,559 368,422 - 10,382,054
7.00 to 8.00 percent 207,344 - - - 207,344
---------- --------- -------- -------- ----------
$25,280,523 $3,137,235 $608,141 $ 10,200 $29,036,099
=========== ========== ======== ======== ===========
</TABLE>
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK
At December 31, 1997 and March 31, 1997, the Bank had $9,000,000 and
$9,500,000, respectively, of advances outstanding from the Federal Home Loan
Bank. As of December 31, 1997, $4,500,000 of the borrowings bears interest at
fixed rates ranging from 5.38 to 5.85 percent. The remaining $4,500,000 bears
interest at a weighted average variable rate of 5.65 percent for the nine months
ended December 31, 1997. Specific mortgage loans with balances of $10,806,906
and $13,132,417 at December 31, 1997 and March 31, 1997, respectively, and the
Bank's FHLB stock were pledged to the FHLB as collateral for these advances.
(CONTINUED)
F-28
<PAGE>
NOTE 8 - ADVANCES FROM FEDERAL HOME LOAN BANK, CONTINUED
Minimum required payments of principle are as follows:
FOR THE YEAR ENDING DECEMBER 31,
--------------------------------
1998 $6,000,000
2002 3,000,000
---------
$9,000,000
==========
The Bank has the ability to borrow an additional $1,000,000 from the FHLB
as of December 31, 1997. The borrowings are available by pledging collateral and
purchasing additional stock in the FHLB.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Bank, as lessor, leases office space to unrelated parties under
leases requiring fixed monthly payments for varying lease terms. Related to
these leases, the Bank recognized $80,554 for the nine months ended December 31,
1997 and $85,449 for the year ended March 31, 1997 of rental income.
At December 31, 1997 future rental income is as follows:
YEAR ENDING DECEMBER 31,
------------------------
1998 $ 115,683
1999 107,469
2000 95,634
2001 95,634
2002 and thereafter 238,587
--------
$ 653,007
=========
During 1997, the Bank, as lessee, leased two automobiles under
noncancellable operating leases. Rent expense totaled $7,409 for the nine months
ended December 31, 1997 and $12,283 for the year ended March 31, 1997.
The Bank has, from time to time, various lawsuits and claims arising from
the conduct of its business. Such items are not expected to have any material
adverse effect on the financial position or results of operations of the Bank.
NOTE 10 - INCOME TAXES
The Bank accounts for income taxes using SFAS No. 109. Under this
statement, deferred income taxes are recognized for temporary differences
between the financial statement and income tax bases of assets and liabilities.
The sources of temporary differences and the resulting deferred income
tax assets and (liabilities) at December and March 31, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1997
----------------- --------------
<S> <C> <C>
Allowance for loan losses in excess of tax deductible amounts $ 104,193 $ 26,543
Tax depreciation in excess of financial statement depreciation (58,680) (51,080)
Development stage expenses capitalized for income tax purposes 6,000 16,752
Unrealized loss on securities available for sale 1,707 --
Amortization of goodwill 11,900 9,715
--------- ---------
Net deferred tax asset (included in other assets) $ 65,120 $ 1,930
========= =========
</TABLE>
F-29
(CONTINUED)
<PAGE>
NOTE 10 - INCOME TAXES, CONTINUED
No provision for income taxes has been provided for the nine months ended
December 31, 1997 due to the operating loss. The provision for income taxes for
the year ended March 31, 1997 is reconciled to the amount of income tax computed
at the federal statutory rate as follows:
AMOUNT %
Tax expense at the applicable statutory rate $117,024 34.0%
State taxes, net of federal benefit 9,738 2.8
Other 9,569 2.8%
-------- ----
Total provision for income taxes $136,331 39.6%
======== ====
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include available credit on credit lines
and commitments to extend credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheets. The contract amounts of these instruments reflect the extent
of involvement the Bank has in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts CONTRACT
represent credit risk at December 31, 1997: AMOUNT
-----------
Commitments to extend credit $3,375,356
Of these commitments to extend credit $2,906,737 are at variable rates
and $468,619 are at fixed rates.
Commitments to extend credit are agreements to lend as long as there is
no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by the
Bank upon extension of credit is based on management's credit evaluation.
NOTE 12 - REGULATORY MATTERS AND DIVIDEND RESTRICTIONS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt correct action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Banks
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practice. The Bank's capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
(Continued)
F-30
<PAGE>
NOTE 12 - REGULATORY MATTERS AND DIVIDEND RESTRICTIONS, CONTINUED
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios of total and
Tier I capital to risk-weighted assets, and of Tier I capital to average assets.
Management believes, as of December 31, 1997, that the Bank meets all capital
adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the South
Carolina State Board of Financial Institutions categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. There
are no conditions or events since that notification that management believes
have changed the institution's category. The Bank's actual capital amounts and
ratios and minimum regulatory amounts and ratios are presented as follows:
<TABLE>
<CAPTION>
To be well capitalized
For capital under prompt corrective
adequacy purposes action provisions
Actual Minimum Minimum
---------------- -------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(AMOUNTS IN $000)
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital (to risk
weighted assets) $5,301 15.4% $2,751 8.0% $3,438 10.0%
Tier I Capital (to risk
weighted assets) 4,925 14.3 1,375 4.0 2,063 6.0
Tier I Capital (to average assets) 4,925 9.3 2,118 4.0 2,646 5.0
AS OF MARCH 31, 1997
Total Capital (to risk
weighted assets) $3,586 11.19% $2,563 8.0% $3,204 10.0%
Tier I Capital (to risk
weighted assets) 3,479 10.86 1,282 4.0 1,922 6.0
Tier I Capital (to average assets) 3,479 7.53 1,849 4.0 2,311 5.0
</TABLE>
The Bank is restricted as to payment of dividends. Prior to payment of
any dividend, the Bank must obtain approval from the South Carolina State Board
of Financial Institutions.
NOTE 13 - STOCKHOLDERS' EQUITY AND STOCK OPTIONS
On February 20, 1997, the Bank's Board of Directors declared a
six-for-five stock split effected in the form of a 20 percent common stock
dividend. The stock was issued on April 17, 1997 to common shareholders of
record on April 3, 1997. A total of 72,164 shares of common stock were issued in
connection with the six-for-five stock split.
The Bank adopted SFAS No. 128, "Earnings per share," on December 31,
1997. This statement requires that the Bank present basic and diluted net income
per share of common stock. The assumed conversion of stock options creates the
difference between basic and diluted net income per share. Income per share is
calculated by dividing net income by the weighted average number of common
shares outstanding for each period presented. The weighted average number of
shares outstanding for basic net income per share was 505,060 for the nine
months ended December 31, 1997 and 433,019 for the year ended March 31, 1997.
The weighted average number of common shares outstanding for diluted net income
per share was 515,571 for the nine months ended December 31, 1997 and 443,530
for the year ended March 31, 1997.
(CONTINUED)
F-31
<PAGE>
NOTE 13 - STOCKHOLDERS' EQUITY AND STOCK OPTIONS, CONTINUED
The Bank's Board of Directors has adopted a Stock Option Plan (the
"Option Plan"). Pursuant to the Option Plan, 43,302 shares of common stock are
reserved for issuance by the Bank to officers and employees. The purpose of the
Option Plan is to provide additional incentive to certain officers and key
employees by facilitating their purchase of stock in the Bank. As of December
31, 1997, 43,302 options have been granted at $8.33 per share, the fair market
value as of the date of grant. No options have been exercised or canceled.
The Bank has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plan. The Bank had no stock options issued
after the effective date of SFAS No. 123; thus, no proforma disclosures are
required.
NOTE 14 - EMPLOYEE BENEFIT PLAN
The Bank has a defined contribution 401(k) plan covering all employees
who have attained age twenty-one and have a minimum of six months of service.
Upon ongoing approval of the Board of Directors, the Bank matches one-hundred
percent of employee contributions up to four percent of employee salary. Under
the Plan, $15,774 for the nine months ended December 31, 1997 and $19,213 the
year ended March 31, 1997, were charged to operations.
NOTE 15 - TRANSACTIONS WITH DIRECTORS, OFFICERS AND ASSOCIATES
Directors, executive officers and associates of such persons were
customers of and had transactions with the Bank in the ordinary course of
business. Additional transactions may be expected to take place in the future.
Also, included in such transactions are outstanding loans and commitments, all
of which were made on comparable terms, including interest rates and collateral,
as those prevailing at the time for other customers of the Bank, and did not
involve more than normal risk of collectibility or present other unfavorable
features. These related party loans totaled $827,178 and $487,820 as of December
31, 1997 and March 31, 1997, respectively.
Activity in related party loans for the nine months ended December 31,
1997 is as follows:
Balance April 1, 1997 $ 487,820
New borrowings 353,266
Repayments (13,908)
----------
Balance December 31, 1997 $ 827,178
==========
Deposits by directors, officers and their related interests, as of
December 31, 1997 and March 31, 1997, totaled $408,557 and $368,916,
respectively.
F-32
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 3,609,374 $ 4,561,556
TIME DEPOSITS IN OTHER BANKS - 800,000
SECURITIES
Available for sale 5,093,757 2,042,512
Held to maturity ($1,243,287 at fair value) - 1,242,867
LOANS, net of allowance for losses of $349,901 and
$375,039, respectively 47,801,991 42,805,828
ACCRUED INTEREST RECEIVABLE 375,075 337,911
PREMISES AND EQUIPMENT, NET 1,754,310 1,755,042
INVESTMENT IN FEDERAL HOME LOAN BANK (FHLB)
STOCK, AT COST 565,000 475,000
GOODWILL, net of accumulated amortization 214,810 232,314
OTHER ASSETS 338,181 402,693
------------ -----------
$ 59,752,498 $54,655,723
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 43,013,054 $40,365,724
Advances from Federal Home Loan Bank 11,300,000 9,000,000
Accrued interest payable 6,536 47,755
Advances from borrowers for taxes and insurance 26,776 14,632
Other liabilities 91,449 73,125
------------ -----------
Total liabilities 54,437,815 49,501,236
------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock $1 par value; 5,000,000 shares
authorized; none issued - -
Common stock $1 par value; 5,000,000 shares
authorized; 583,019 issued 583,019 583,019
Additional paid-in-capital 4,412,348 4,413,398
Retained earnings 323,958 161,385
Unrealized holding loss on securities available
for sale (4,642) (3,315)
------------ -----------
Total stockholders' equity 5,314,683 5,154,487
------------ -----------
$ 59,752,498 $54,655,723
============ ===========
</TABLE>
See notes to unaudited financial statements.
F-33
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and loan fees $2,084,364 $1,797,033 $1,075,076 $ 916,620
Time and overnight deposits 100,667 97,516 42,445 60,860
FHLB stock dividend 17,373 14,972 8,976 8,586
Securities 108,376 8,445 62,204 8,445
---------- ---------- ---------- ----------
Total interest income 2,310,780 1,917,966 1,188,701 994,511
---------- ---------- ---------- ----------
INTEREST EXPENSE
Interest-bearing checking accounts 82,193 72,639 42,723 37,000
Certificates of deposit 880,369 758,959 444,353 394,405
Advances from FHLB 246,505 203,980 130,980 107,556
Passbook accounts 21,508 18,714 11,291 9,786
---------- ---------- ---------- ----------
Total interest expense 1,230,575 1,054,292 629,347 548,747
---------- ---------- ---------- ----------
Net interest income 1,080,205 863,674 559,354 445,764
PROVISION FOR LOAN LOSSES 30,000 43,000 10,000 33,000
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 1,050,205 820,674 549,354 412,764
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges on deposit accounts 106,302 88,394 52,291 43,420
Premiums related to sale of mortgage loans 28,930 20,363 14,179 9,197
Other 21,556 19,884 11,384 8,864
---------- ---------- ---------- ----------
Total noninterest income 156,788 128,641 77,854 61,481
---------- ---------- ---------- ----------
NONINTEREST EXPENSES
Salaries and employee benefits 524,791 468,843 255,906 225,545
Advertising 12,289 7,129 5,182 2,885
Office supplies, telephone and postage 37,550 32,519 18,422 17,133
Net occupancy 118,377 94,141 59,915 41,898
Federal insurance premiums 7,951 30,662 4,018 15,211
Data processing 83,601 62,876 44,944 29,649
Professional fees 11,639 3,298 11,349 947
Amortization of goodwill 17,504 17,502 8,752 8,751
Other operating 149,217 120,133 77,667 55,461
---------- ---------- ---------- ----------
Total noninterest expenses 962,919 837,103 486,155 397,480
---------- ---------- ---------- ----------
Net income before taxes 244,074 112,212 141,053 76,765
PROVISION FOR INCOME TAXES 81,501 87,063 48,000 27,732
---------- ---------- ---------- ----------
Net income $ 162,573 $ 25,149 $ 93,053 $ 49,033
========== ========== ========== ==========
</TABLE>
(Continued)
F-34
<PAGE>
(CONTINUED)
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
1998 1997 1998 1997
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
BASIC NET INCOME PER SHARE OF
COMMON STOCK $ 0.28 $ 0.06 $ 0.16 $ 0.11
========== ========== =========== ===========
DILUTED NET INCOME PER SHARE
OF COMMON STOCK $ 0.26 $ 0.06 $ 0.15 $ 0.11
========== ========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 583,019 433,019 583,019 433,019
========= ========= ========= ===========
Diluted 633,725 443,530 633,725 443,530
========== ========== =========== ===========
NO CASH DIVIDEND PAID
</TABLE>
See notes to unaudited financial statements.
F-35
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED
HOLDING LOSS
ADDITIONAL ON SECURITIES TOTAL
COMMON STOCK PAID-IN RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 583,019 $ 583,019 $ 4,413,398 $ 161,385 $ (3,315) $ 5,154,487
Net change in unrealized holding
loss on securities available for
sale, net of taxes of $725 -- -- -- -- (1,327) (1,327)
Stock issuance costs -- -- (1,050) -- -- (1,050)
Net income -- -- -- 162,573 -- 162,573
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, JUNE 30, 1998 583,019 $ 583,019 $ 4,412,348 $ 323,958 $ (4,642) $ 5,314,683
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to unaudited financial statements.
F-36
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET INCOME $ 162,573 $ 25,149 $ 93,053 $ 49,033
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net change in unrealized gain or loss on
securities available for sale (1,327) -- 187 --
--------- --------- --------- ---------
Total other comprehensive income (1,327) -- 187 --
--------- --------- --------- ---------
COMPREHENSIVE INCOME $ 161,246 $ 25,149 $ 93,240 $ 49,033
========= ========= ========= =========
</TABLE>
See notes to unaudited financial statements.
F-37
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 162,573 $ 25,149
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for loan losses 30,000 43,000
Depreciation 97,233 67,770
Amortization of goodwill 17,504 17,502
Discount accretion on securities (12,014) (6,189)
Premium amortization on securities 1,212 23
Changes in operating assets and liabilities
(Increase) decrease in accrued interest receivable (37,164) 71,304
(Increase) decrease in other assets 64,512 (58,812)
Decrease in accrued interest payable (41,219) (13,829)
(Decrease) increase in other liabilities 20,715 (95,675)
----------- -----------
Net cash provided by operating activities 303,352 50,243
----------- -----------
INVESTING ACTIVITIES
Purchases of time deposits in other banks -- (2,200,000)
Maturities of time deposits in other banks 800,000 1,600,000
Net increase in loans (5,026,163) (549,998)
Purchases of premises and equipment (96,501) (215,682)
Purchases of securities available for sale (4,602,344) --
Purchases of securities held to maturity -- (722,265)
Proceeds from maturities of securities held to maturity 1,250,000 --
Proceeds from maturities of securities available for sale 1,550,000 --
Purchase of FHLB stock (90,000) (200,000)
----------- -----------
Net cash used for investing activities (6,215,008) (2,287,945)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 2,647,330 1,912,770
Net increase in FHLB advances 2,300,000 2,500,000
Cash in lieu of fractional shares on stock dividend -- (69)
Net change in advances from borrowers for taxes and insurance 12,144 12,817
----------- -----------
Net cash provided by financing activities 4,959,474 4,425,518
----------- -----------
Net increase (decrease) in cash and cash equivalents (952,182) 2,187,816
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,561,556 1,624,241
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,609,374 $ 3,812,057
=========== ===========
</TABLE>
See notes to unaudited financial statements.
F-38
<PAGE>
COLONIAL BANK OF SOUTH CAROLINA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
ACCOUNTING POLICIES - A summary of significant accounting policies is included
in the Bank's audited financial statements for the year ended December 31, 1997,
which are included in the Bank's Registration Statement on Form 10-SB filed with
the Federal Deposit Insurance Corporation on April 30, 1998.
MANAGEMENT OPINION - In the opinion of management, the accompanying unaudited
financial statements of Colonial Bank reflect all adjustments which are
necessary for a fair presentation of the results of the periods presented. Such
adjustments were of a normal recurring nature. The amounts included as of
December 31, 1997 have been derived from the audited financial statements for
the year ended December 31, 1997 which are included in the Bank's Registration
Statement on Form 10-SB. The unaudited financial statements should be read in
conjunction with the audited financial statements for the period ended December
31, 1997.
F-39
<PAGE>
ANNEX A
REORGANIZATION AGREEMENT
BY AND AMONG
CAROLINA FIRST CORPORATION,
CAROLINA FIRST BANK,
AND
COLONIAL BANK OF SOUTH CAROLINA, INC.
DATED AS OF JULY 9, 1998
<PAGE>
TABLE OF CONTENTS
SECTION I. DEFINITIONS......................................................9
1.1. Articles of Merger...............................................9
1.2. Benefit Plans....................................................9
1.3. CERCLA...........................................................9
1.4. CFB..............................................................9
1.5. CFC..............................................................9
1.6. CFC Benefit Plans................................................9
1.7. CFC Common Stock.................................................9
1.9. Code.............................................................9
1.10. Colonial.........................................................9
1.11. Colonial Benefit Plans...........................................9
1.12. Colonial Common Stock............................................9
1.13. Confidential Information.........................................9
1.14. Derivative Contract..............................................10
1.15. Effective Time...................................................10
1.17. ERISA............................................................10
1.18. Exchange Act.....................................................10
1.19. FDIC.............................................................10
1.20. Federal Reserve..................................................10
1.21. GAAP.............................................................10
1.22. IRS..............................................................10
1.23. Knowledge........................................................10
1.24. Lien.............................................................10
1.25. Material Adverse Event; Material Adverse Effect..................10
1.26. Merger...........................................................11
1.27. OTS..............................................................11
1.28. PBGC.............................................................11
1.29. Person...........................................................11
1.30. Plan of Merger...................................................11
1.31. Proxy Statement..................................................11
1.32. Registration Statement...........................................11
1.33. Regulations......................................................11
1.34. Regulatory Approvals.............................................11
1.35. Regulatory Authority.............................................11
1.36. Reorganization Agreement.........................................11
1.37. Rights...........................................................11
1.38. SEC..............................................................11
1.39. Securities Act...................................................11
1.40. Shareholder Approval.............................................11
1.41. Shareholders' Meeting............................................11
1.42. State Board......................................................11
SECTION II. THE MERGER......................................................11
2.1. Merger...........................................................11
2.2. The Closing......................................................12
2.3. Consideration for the Merger.....................................12
2.4. Shareholder Approval; Registration Statement.....................12
2.5. Cooperation; Regulatory Filings..................................12
2.6. Tax Treatment....................................................12
2
<PAGE>
SECTION III. REPRESENTATIONS AND WARRANTIES OF Colonial....................13
3.1. Organization, Good Standing and Conduct of Business.............13
3.2. Subsidiaries....................................................13
3.3. Corporate Authority.............................................13
3.4. Binding Effect..................................................13
3.5. Capitalization of Colonial......................................13
3.6. Compliance with Laws; Absence of Defaults.......................13
3.7. Non-Contravention and Defaults; No Liens........................14
3.8. Necessary Approvals.............................................14
3.9. Financial Statements............................................14
3.10. Tax Returns.....................................................14
3.11. Undisclosed Liabilities.........................................15
3.12. Properties, Encumbrances........................................15
3.13. Litigation......................................................15
3.14. Reports.........................................................15
3.15. Brokers.........................................................15
3.16. Expenditures....................................................15
3.17. Insurance.......................................................15
3.18. Contracts and Commitments.......................................15
3.19. Employee Benefit Plans and Contracts............................16
3.20. Allowance for Loan Losses.......................................17
3.21. Environmental Matters...........................................17
3.22. Colonial Information............................................18
3.23. Asset Classification............................................18
3.24. Derivatives Contracts, Etc......................................18
3.25. Labor Matters...................................................18
3.26. Securities Reports..............................................18
3.27. Ownership of CFC Common Stock...................................18
3.28. Resale of CFC Common Stock......................................18
SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC AND CFB..................19
4.1. Organization, Good Standing and Conduct of Business.............19
4.2. Subsidiaries....................................................19
4.3. Corporate Authority.............................................19
4.4. Binding Effect..................................................19
4.5. Capitalization of CFC...........................................20
4.6. Compliance with Laws; Absence of Defaults.......................20
4.7. Non-Contravention and Defaults; No Liens........................20
4.8. Necessary Approvals.............................................20
4.9. Financial Statements............................................21
4.10. Undisclosed Liabilities.........................................21
4.11. Litigation and Regulatory Agreements............................21
4.12. Reports.........................................................21
4.13. CFC Information.................................................21
4.14. Securities Reports..............................................21
4.15. Due Diligence...................................................21
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING............................21
5.1. Conduct of Colonial Pending Closing.............................21
5.2. Conduct of CFC Pending Closing..................................23
SECTION VI. COVENANTS OF THE PARTIES.......................................23
3
<PAGE>
6.1. Access to Properties and Records................................23
6.2. Confidentiality.................................................23
6.3. Cooperation.....................................................23
6.4. Affiliates' Letters.............................................23
6.5. Listing of CFC Common Stock.....................................24
6.6. Letters from Accountants........................................24
6.7. Tax Treatment...................................................24
6.8. Expenses........................................................24
6.9. Material Events.................................................24
6.10. Public Announcements............................................24
6.11. Updating of Schedules...........................................24
6.12. Certain Policies of Colonial....................................24
6.13. Employee Matters................................................25
6.14. Directors.......................................................25
6.15. Charitable Contributions........................................25
6.16. Agreements with Colonial Officers...............................25
6.17. Prohibited Actions..............................................25
SECTION VII. CONDITIONS TO CFC'S AND CFB'S OBLIGATIONS TO CLOSE...........25
7.1. Performance of Acts and Representations by Colonial.............26
7.2. Opinion of Counsel for Colonial.................................26
7.3. Conduct of Business.............................................26
7.4. Consents........................................................26
7.5. Certificate.....................................................26
7.6. Shareholder Approval............................................26
7.7. Securities Laws.................................................27
7.8. Colonial Allowance..............................................27
7.9. Consulting Agreement............................................27
SECTION VIII. CONDITIONS TO THE OBLIGATION OF COLONIAL TO CLOSE.............27
8.1. Performance of Acts and Representations by CFC and CFB..........27
8.2. Opinion of Counsel for CFC......................................27
8.3. Conduct of Business.............................................27
8.4. Consents........................................................27
8.5. Certificate.....................................................28
8.6. Tax Opinion.....................................................28
8.7. Shareholder Approval............................................28
8.8. Securities Laws.................................................28
8.9. Consulting Agreement............................................28
SECTION IX. TERMINATION...................................................28
9.1. Termination.....................................................28
SECTION X. INDEMNIFICATION................................................28
10.1. Information for Application and Statements.....................28
10.2. Indemnification of Officers and Directors......................29
10.3. Insurance......................................................29
SECTION XI. MISCELLANEOUS.................................................30
11.1. Survival of Representations and ...............................30
11.2. Entire Agreement...............................................30
11.3. Binding Agreement..............................................30
4
<PAGE>
11.4. Notices........................................................30
11.5. Counterparts...................................................30
11.6. Headings.......................................................30
11.7. Law Governing..................................................30
11.8. Amendment......................................................31
11.9. Waiver.........................................................31
5
<PAGE>
6
<PAGE>
7
<PAGE>
APPENDICES
Appendix A Plan of Merger
SCHEDULES
Schedule 3.5: Existing Rights and Exceptions to Capitalization Representation
Schedule 3.6: Violations
Schedule 3.11: Material Liabilities or Obligations Not Disclosed in Colonial
Financial Statements
Schedule 3.12: Exceptions to No Liens
Schedule 3.13: Litigation
Schedule 3.16: Proposed Expenditures Exceeding $50,000
Schedule 3.17: Insurance
Schedule 3.18: Contracts or Other Commitments of Colonial; Other Material
Contracts
Schedule 3.19: Colonial Employee Benefit and Welfare Plans
Schedule 3.21: Environmental Matters
Schedule 3.23: Classified Assets
Schedule 3.24: Derivatives Contracts, Etc.
Schedule 4.5: Exceptions to CFC Capitalization Representations
Schedule 4.10: CFC Tax Matters Schedule 4.1Material Liabilities or Obligations
Not Disclosed in the CFC Financial Statements
Schedule 4.11: Litigation
Schedule 4.12: CFC Employee Benefit and Welfare Plans
Schedule 6.15: Charitable Contributions
Schedule 6.16: Consulting Agreement
8
<PAGE>
This REORGANIZATION AGREEMENT is entered into as of this 9th day of July,
1998 among 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 Colonial Bank of South Carolina, Inc. ("Colonial"), a state
banking corporation organized and existing under the laws of South Carolina.
RECITALS
A. Colonial is a state banking corporation headquartered in Camden, South
Carolina.
B. CFC is a South Carolina corporation headquartered in Greenville, South
Carolina, and a registered bank holding company under the Bank Holding Company
Act of 1956, as amended ("BHCA").
C. CFB is a South Carolina-chartered, non-member banking corporation
headquartered in Greenville, South Carolina.
D. The parties hereto desire that Colonial be merged with and into CFB,
upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, CFC, CFB and
Colonial hereby agree as follows:
SECTION I. DEFINITIONS
I.1. ARTICLES OF MERGER. The Articles of Merger to be executed by CFB and
Colonial in a 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.
I.2. BENEFIT PLANS. All employee benefit plans within the meaning of
Section 3(3) of ERISA and any related or separate contracts, plans, trusts,
annuities, programs, policies, arrangements, practices, customs and
understandings that provide benefits of economic value to any present or former
employee, or current or former beneficiary, dependent or assignee of any such
employee or former employee.
I.3. CERCLA. The Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. 9601 ET SEQ.
I.4. CFB. Carolina First Bank, a South Carolina corporation and a
wholly-owned subsidiary of CFC.
I.5. CFC. Carolina First Corporation, a bank holding company headquartered
in Greenville, South Carolina.
I.6. CFC BENEFIT PLANS. All Benefit Plans, and all other material fringe
benefit plans or programs, sponsored or maintained by CFC or CFB or under which
CFC or CFB may be obligated.
I.7. CFC COMMON STOCK. The common stock, par value $1.00 per share, of
CFC.
I.8. CLOSING; CLOSING DATE. The terms "Closing" and "Closing Date" shall
have the meanings ascribed to them in Section 2.2 hereof.
I.9. CODE. The Internal Revenue Code of 1986, as amended, including, if
the context permits, the applicable regulations promulgated pursuant thereto.
I.10. COLONIAL. Colonial Bank of South Carolina, Inc., a state banking
corporation organized and existing under the laws of South Carolina.
I.11. COLONIAL BENEFIT PLANS. All Benefit Plans, and all other material
fringe benefit plans or programs, sponsored or maintained by Colonial or under
which Colonial may be obligated.
I.12. COLONIAL COMMON STOCK. The common stock, par value $1.00 per share,
of Colonial.
I.13. 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 6.1 hereof as a result of the
transactions contemplated herein, except information (i) ascertainable or
obtained from public or published information, (ii) received from a third party
not known to the recipient of
9
<PAGE>
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 Reorganization 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.
I.14. DERIVATIVE CONTRACT. Any exchange-traded or over-the-counter swap,
forward, future, option, cap, floor or collar financial contract or any other
contract not included on a balance sheet which is a derivative contract
(including various combinations thereof).
I.15. EFFECTIVE TIME. The date and time which the Merger becomes effective
as set forth in the Articles of Merger. Subject to the terms and conditions
hereof, the Effective Time shall be such time on such date as CFC shall notify
Colonial in writing not less than five days prior thereto, which date shall not
be more than 30 days after all conditions have been satisfied or waived in
writing.
I.16. ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
I.17. EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
I.18. FAIR MARKET VALUE. The average of the closing prices as quoted on
the Nasdaq National Market for CFC Common Stock for the twenty days in which CFC
Common Stock was traded immediately prior to the Closing Date; provided,
however, if prior to the Effective Time, any other Person shall have publicly
announced an intention to acquire control of CFC by merger or otherwise or CFC
shall have publicly acknowledged that it is seeking to be acquired by another
Person or is discussing being acquired by another Person, then the average of
the Closing Prices as quoted on the Nasdaq National Market for CFC Common Stock
for the 20 days for which the CFC Common Stock was traded immediately prior to
such announcement or acknowledgment shall be determined and, if such average is
less than the average determined pursuant to the first clause of this sentence,
then the smaller average shall be the Fair Market Value.
I.19. FDIC. The Federal Deposit Insurance Corporation.
I.20. FEDERAL RESERVE. The Board of Governors of the Federal Reserve
System.
I.21. GAAP. Generally accepted accounting principles consistently applied.
I.22. IRS. The Internal Revenue Service.
I.23. KNOWLEDGE. When used in the phrase "to the knowledge" or a similar
phrase, shall mean the actual knowledge of the executive officers of the
referenced party or parties, as applicable, after reasonable inquiry of the
other executive officers and the directors of the parties and the Persons
responsible for the day-to-day operations of the parties or their subsidiaries
(although this definition shall not give rise to any duty of any independent
verification or confirmation by members of senior management or board of
directors of the entity making the representation or warranty from other
Persons).
I.24. LIEN. Any lien, claim, encumbrance, security interest, assessment,
charge, restriction (including restriction on voting rights or rights of
disposition), mortgage, deed of trust, equity of any character, third party
right of whatever nature or other similar or like charge.
I.25. MATERIAL ADVERSE EVENT; MATERIAL ADVERSE EFFECT. This shall mean an
event, effect, occurrence or circumstance which, alone or when taken with other
breaches, events, effects, occurrences or circumstances existing concurrently
therewith (including without limitation, any breach of a representation or
warranty contained herein by such party) (i) has or is reasonably expected to
have a material adverse effect on the properties, financial condition, results
of operations, or business of such party and its subsidiaries, taken as a whole,
or (ii) would materially prevent such party's, or any affiliated party's,
ability to perform its obligations under this Reorganization Agreement or the
consummation of any of the transactions contemplated hereby; provided, however,
that in determining whether a Material Adverse Effect or Material Adverse Event
has occurred, there shall be excluded any effect the cause of which is (A) any
change in banking, tax and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, (B) any change in
GAAP or regulatory accounting requirements applicable to the parties hereto, (C)
any action or omission of Colonial or CFC or a subsidiary thereof taken with the
prior written consent of CFC or Colonial, as applicable, in contemplation of the
transaction contemplated herein, (D) the actions contemplated by Section 6.12,
(E) the consolidation of Colonial's Rutledge Street Branch
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with its main office, or (F) any changes in general economic conditions
affecting financial institutions generally, including but not limited to changes
in interest rates.
I.26. MERGER. The Merger of Colonial with and into CFB, all as provided
herein.
I.27. OTS. Office of Thrift Supervision.
I.28. PBGC. The Pension Benefit Guaranty Corporation.
I.29. PERSON. An individual, a partnership, a corporation, a commercial
bank, an industrial bank, a savings association, a savings bank, a limited
liability company, an association, a joint stock company, a trust, a business
trust, a joint venture, an unincorporated organization, a governmental entity
(or any department, agency, or political subdivision thereof) or other entity.
I.30. PLAN OF MERGER. The Plan of Merger attached to this Reorganization
Agreement as Appendix A.
I.31. PROXY STATEMENT. The joint proxy statement/prospectus included in
the Registration Statement which shall be furnished to the Colonial shareholders
in connection with the Shareholders' Meeting and the matters contemplated
hereby.
I.32. REGISTRATION STATEMENT. The Registration Statement on Form S-4 to be
filed with the SEC registering the issuance of the CFC Common Stock to be issued
to the Colonial shareholders in connection with the Merger.
I.33. REGULATIONS. The regulations issued by the IRS under the Code.
I.34. REGULATORY APPROVALS. The orders, approvals, or exemptions of the
FDIC, the State Board, or any other Regulatory Authority approving the Merger
and the transactions contemplated herein.
I.35. REGULATORY AUTHORITY. Any Federal or state governmental agency or
authority charged with the supervision or regulation of depository institutions
or engaged in the insurance of deposits (including, without limitation and the
FDIC and the State Board) and any other Federal or state bank, thrift or other
financial institution, insurance or securities regulatory authorities, and any
and all other agencies or departments of Federal, state or local government,
including without limitation the SEC.
I.36. REORGANIZATION AGREEMENT. This Reorganization Agreement, including
all schedules, appendices and exhibits attached hereto.
I.37. RIGHTS. Rights shall mean warrants, calls, commitments, options,
rights (whether stock appreciation rights, conversion rights, exchange rights,
profit participation rights, or otherwise), securities or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, and other arrangements or commitments which obligate a
Person to issue, otherwise cause to become outstanding, sell, transfer, pledge,
or otherwise dispose of any of its capital stock or other ownership interests,
or any voting rights thereof or therein, or to pay monetary sums by reference to
the existence or market valuation of, any of its capital stock or ownership
interests therein.
I.38. SEC. The Securities and Exchange Commission.
I.39. SECURITIES ACT. The Securities Act of 1933, as amended.
I.40. SHAREHOLDER APPROVAL. The approval of the Merger by the requisite
vote of the shareholders of Colonial at the Shareholders' Meeting, all in
accordance with this Reorganization Agreement and the Plan of Merger.
I.41. SHAREHOLDERS' MEETING. The meeting of Colonial shareholders at which
the Merger will be voted upon.
I.42. STATE BOARD. The South Carolina State Board of Financial
Institutions.
SECTION II. THE MERGER
II. 1. MERGER. Subject to the terms and conditions of this Reorganization
Agreement, including the Plan of Merger, Colonial shall merge with and into CFB
(the "Merger"), the separate existence of Colonial shall cease, and CFB shall
survive and the name of the surviving corporation shall be "Carolina First
Bank".
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The parties agree that the Merger will be effected pursuant to the terms set
forth in the Plan of Merger, the terms of which are incorporated herein.
II.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 March 31, 1999, any party hereto shall
have the right to terminate this Reorganization Agreement.
II.3. CONSIDERATION FOR THE MERGER. The manner of converting the shares of
Colonial into shares of CFC shall be as set forth in the Plan of Merger.
II.4. SHAREHOLDER APPROVAL; REGISTRATION STATEMENT. CFC shall vote all
shares of CFB in favor of this Reorganization Agreement and the Merger. Colonial
shall call its Shareholders' Meeting in accordance with the applicable
provisions of state and Federal law for the purpose of considering and voting on
this Reorganization Agreement and the transactions contemplated hereby. The
Shareholders' Meeting shall be held as soon as practicable. The board of
directors of Colonial shall recommend (subject to compliance with their legal
and fiduciary duties, as advised by counsel) to its shareholders and use its
best efforts to obtain their approval of this Reorganization Agreement and the
Merger. 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. CFC and Colonial shall jointly prepare the Proxy Statement,
which shall be reasonably acceptable to all parties. The Proxy Statement shall
be mailed to the Colonial 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 Regulatory Approvals. Colonial shall mail, at its expense, the Proxy
Statement to its shareholders.
II.5. COOPERATION; REGULATORY FILINGS. Subject to the terms and conditions
of this Reorganization Agreement, CFC and Colonial shall cooperate, and shall
cause each of their subsidiaries to cooperate, in the preparation and submission
by CFC and Colonial, as promptly as reasonably practicable, of such
applications, petitions, and other documents and materials as any of them may
reasonably deem necessary or desirable to the SEC, the appropriate Regulatory
Authorities of South Carolina, the shareholders of Colonial, and any other
Persons for the purpose of obtaining any approvals or consents necessary to
consummate the transactions contemplated by this Reorganization Agreement. Prior
to the making of any such filings with any Regulatory Authority or the making of
any written disclosures with respect to the transactions contemplated hereby to
shareholders or to any third person (such as mailings to shareholders or press
releases), the parties shall submit to each other the material to be filed,
mailed, or released. Any such materials shall be reasonably acceptable to all
parties prior to the filings with any Regulatory Authorities or the disclosures
to shareholders or to any third person, except to the extent that any person is
legally required to proceed prior to obtaining the approvals of the other
parties. CFC shall be responsible for all filings fees associated with the
Regulatory Approvals.
II.6. TAX TREATMENT. CFC and Colonial intend that the Merger shall qualify
as a tax-free reorganization under Section 368(a) of the Code.
II.7. RESERVATION OF RIGHT TO REVISE TRANSACTION. CFC may at any time
change the method of effecting the acquisition of Colonial (including without
limitation the provisions of this Section II) if and to the extent it deems such
change to be desirable; provided, however, that no such change shall (i) alter
the type of consideration to be issued to the holders of Colonial Common Stock
as provided for in this Reorganization Agreement, (ii) reduce the value of such
consideration, (iii) adversely affect the intended tax-free treatment to
Colonial's stockholders as a result of receiving such consideration or prevent
the parties from obtaining the tax opinion of Wyche, Burgess, Freeman & Parham,
P.A. referred to herein, (iv) materially impair the ability of the parties to
receive the Regulatory Approvals, or (v) materially delay the Closing.
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SECTION III. REPRESENTATIONS AND WARRANTIES OF COLONIAL
Colonial hereby represents and warrants to CFC and CFB the following
matters on and as of the date of this Reorganization 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 Reorganization Agreement by CFC or CFB, such breach or
inaccuracy must have a Material Adverse Effect.
III.1. ORGANIZATION, GOOD STANDING AND CONDUCT OF BUSINESS. Colonial is a
corporation, duly organized, validly existing and in good standing under the
laws of South Carolina, is duly registered as a state banking corporation, and
has full power and authority and all governmental and regulatory authorizations
("Authorizations") necessary 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 Colonial makes such license or qualification necessary.
III.2. SUBSIDIARIES. Colonial neither owns nor controls five percent (5%) or
more of the outstanding equity securities, either directly or indirectly, of any
Person.
III.3. CORPORATE AUTHORITY. The execution, delivery and performance of this
Reorganization Agreement have been duly authorized by the Board of Directors of
Colonial. Other than the Shareholder Approval, no further corporate acts or
proceedings on the part of Colonial are required or necessary to authorize this
Reorganization Agreement or the Merger.
III.4. BINDING EFFECT. Subject to receipt of the Shareholder Approval and
the Regulatory Approvals, when executed, this Reorganization Agreement will
constitute valid and legally binding obligations of Colonial, enforceable
against Colonial in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to rights of creditors of FDIC-insured institutions
or the relief of debtors generally, (ii) laws relating to the safety and
soundness of depository institutions, and (iii) general principles of equity.
Each document and instrument contemplated by this Reorganization Agreement, when
executed and delivered by Colonial in accordance with the provisions hereof,
shall be duly authorized, executed and delivered by Colonial and enforceable
against Colonial in accordance with its terms, subject to the exceptions in the
previous sentence.
III.5. CAPITALIZATION OF COLONIAL. The authorized capital stock of Colonial
consists solely of (i) 5,000,000 authorized shares of common stock ($1.00 par
value), of which 583,019 shares are issued and outstanding as of the date
hereof, and (ii) 5,000,000 shares of preferred stock, none of which is
outstanding. All of the issued and outstanding shares of Colonial are validly
issued and fully paid and nonassessable. Except as set forth on Schedule 3.5,
there are no outstanding Rights to purchase shares of any class of capital stock
of Colonial, or outstanding agreements pursuant to which Colonial is or may
become obligated to issue any shares of its capital stock. None of the shares of
the Colonial Common Stock is subject to any restrictions as to the transfer
thereof, except as set forth in Colonial's Articles of Incorporation or Bylaws
and except for restrictions on account of applicable Federal or state securities
laws.
III.6. COMPLIANCE WITH LAWS; ABSENCE OF DEFAULTS. (a) Colonial is not in
default under, or in violation of, any provision of its Articles of
Incorporation or Bylaws. Colonial is not in default under, or in violation of,
any material agreement to which Colonial is a party.
(b) Except as disclosed on Schedule 3.6, Colonial is not in violation of
any applicable law, rule or regulation. Colonial has not received any
notification or communication from, or consented to or entered into any
memorandum, agreement or order with, any Regulatory Authority (i) asserting that
Colonial is not in compliance with any of the statutes, regulations, rules or
ordinances which such Regulatory Authority has promulgated or enforces, or the
internal policies and procedures of Colonial, as applicable, (ii) threatening to
revoke any Authorization, (iii) requiring or threatening to require Colonial, or
indicating that Colonial may be required, to enter into a cease and desist
order, agreement or memorandum of understanding or any other agreement
restricting or limiting or purporting to restrict or limit in any manner the
operations of Colonial,
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or (iv) directing, restricting or limiting, or threatening to direct, restrict
or limit in any manner the operations of Colonial (any such notification,
communication, memorandum, agreement or order described in this sentence herein
referred to as a "Regulatory Agreement").
(c) Colonial is "well capitalized" as defined in applicable FDIC
regulations and is not in "troubled condition" as defined therein, and is in
compliance in all material respects with all fair lending laws or other laws
relating to discrimination, including, without limitation, the Equal Credit
Opportunity Act, the Fair Credit Reporting Act, the Fair Housing Act, the
Community Reinvestment Act and the Home Mortgage Disclosure Act and similar
Federal and state laws and regulations.
III.7. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Reorganization 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 material agreement to which Colonial is a party or by which it may
be bound, (ii) violate any provision of any law, rule or regulation, (iii)
result in the creation or imposition of any Lien on any asset of Colonial, or
(iv) violate any provisions of Colonial's Articles of Incorporation or Bylaws.
To the best of Colonial's knowledge, no other party to any material agreement to
which Colonial is a party is in default thereunder or in breach of any provision
thereof. To the best of Colonial'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.
III.8. NECESSARY APPROVALS. Colonial 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 or
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. Further, there is no reasonable basis for any
such expiration, lapse, revocation, threat of revocation or restriction. Except
for any necessary Regulatory Approvals, no consent, approval, Authorization,
registration, or filing with or by any governmental authority, foreign or
domestic, is required on the part of Colonial in connection with the execution
and delivery of this Reorganization Agreement or the consummation by Colonial of
the transactions contemplated hereby. Except for the Regulatory Approvals,
Colonial is not required to procure the approval of any Person in order to
prevent the termination of any right, privilege, license or contract of Colonial
as a result of this Reorganization Agreement.
III.9. FINANCIAL STATEMENTS. The audited financial statements of Colonial at
and for each of the fiscal years ended March 31, 1995 and 1996 and December 31,
1997 and the unaudited quarterly statements at and for the three months ended
March 31, 1998 (the "Colonial 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 GAAP, the financial position of Colonial at
the dates indicated and the results of its operations for each of the periods
indicated, except with respect to the unaudited statements, normal year end
adjustments. The books and records of Colonial 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
Colonial.
III.10. TAX RETURNS. Colonial files its income tax returns and maintains its
tax books and records on the basis of a taxable year ending December 31.
Colonial has duly filed all tax reports and returns required to be filed by any
Federal, state and local taxing authorities (including, without limitation,
those due in respect of its properties, income, franchises, licenses, sales,
payrolls, and trusts established by Colonial) through the date hereof, and
Colonial has duly paid all taxes with respect to the periods covered thereby and
has established adequate reserves in accordance with GAAP for the payment of all
income, franchises, property, sales, employment or other taxes anticipated to be
payable after the date hereof. Colonial 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.
Colonial 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,
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franchise, sales, license or payroll tax. Colonial does not know of, 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 Colonial which, if
determined adversely, would result in the assertion of any deficiency. All tax
information reported by Colonial to Federal and state authorities and other
Persons has been accurately and timely reported, except as such will not have a
Material Adverse Effect.
III.11. UNDISCLOSED LIABILITIES. Except for the liabilities which are
disclosed in the Colonial Financial Statements or as set forth on Schedule 3.11,
Colonial has no material liabilities or material obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due. Since March 31, 1998, there has been no (i) Material Adverse Event with
respect to Colonial, or (ii) any incurrence by or subjection of Colonial to any
obligation or liability (whether fixed, accrued or contingent) or commitment
material to Colonial not referred to in this Reorganization Agreement, except
such obligations or liabilities as were or may be incurred in the ordinary
course of business and which are reflected on the Colonial Financial Statements
at and for the periods subsequent to March 31, 1998.
III.12. PROPERTIES, ENCUMBRANCES. Colonial has good and marketable title to
all of the real property and depreciable tangible personal property owned by it,
free and clear of any Lien, except for any Lien for (i) current taxes not yet
due and payable, (ii) pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, (iii) such imperfections of title,
easements and other encumbrances, if any, as are not material in character,
amount or extent, or (iv) such items as are set forth on Schedule 3.12. Set
forth on Schedule 3.12 are all business locations of Colonial, including whether
such locations are owned or leased and a statement of when such locations were
first occupied by Colonial. All buildings and all fixtures, equipment, and other
property and assets which are material to its business are held by Colonial
under valid leases or subleases enforceable in accordance with their respective
terms.
III.13. LITIGATION. Except as shown on Schedule 3.13, there are no claims,
actions, suits or proceedings pending or threatened against Colonial, or to its
knowledge affecting Colonial, 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, and Colonial knows of no basis for any of the
foregoing. There is no order, writ, memorandum, agreement, injunction, or decree
of any court, domestic or foreign, or any Federal or state agency affecting
Colonial specifically or to which Colonial is subject.
III.14. REPORTS. Colonial has duly made all reports and filings required to
be made pursuant to applicable law.
III.15. BROKERS. Colonial 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.
III.16. EXPENDITURES. Schedule 3.16 sets forth any single expenditure of
$50,000 or more proposed to be made by Colonial after the date hereof and a
summary of the terms and conditions pertaining thereto. At least 20 business
days prior to the Closing Date, Colonial will advise CFC of any changes to
Schedule 3.16 reflecting additions or deletions thereto since the date hereof.
III.17. INSURANCE. Attached hereto as Schedule 3.17 is a list of the
policies of fire, liability, life and other types of insurance held by Colonial,
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. Colonial management
believes that 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 Colonial taking into account the availability and cost of such
coverage. To the extent permissible pursuant to such policies, 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 Colonial that any such policy
would not be renewable on terms and conditions as favorable as those set forth
in such policy.
III.18. CONTRACTS AND COMMITMENTS. (a) Schedule 3.18 attached hereto sets
forth each contract or other commitment of Colonial which requires an aggregate
payment by Colonial after the date hereof of more than $50,000, and any other
contract or commitment that in the opinion of Colonial management
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Materially Adversely Affects the business of Colonial. Except for the contracts
and commitments described in this Reorganization Agreement or as set forth on
Schedule 3.18, Colonial is not party to or subject to:
1. Any contracts or commitments which are material to its business,
operations or financial condition other than loans or agreements with
respect thereto entered into in the ordinary course of business;
2. Any employment contract or arrangement, whether oral or written,
with any officer, consultant, director or employee which is not terminable
on 30 days' 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 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 (other than banking items being
processed in the ordinary course of business);
8. Any joint venture contract or arrangement or any other agreement
involving a sharing of profits;
9. Any license agreement in which Colonial is the licensor or
licensee;
10. Any material contract or agreement, not of the type covered by
any of the other items of this Section 3.18, 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 Colonial, or
any successors or assigns prior to 30 days from the date hereof.
III.19. EMPLOYEE BENEFIT PLANS AND CONTRACTS. (a) Schedule 3.19 contains a
complete list of all Colonial Benefit Plans. Colonial has delivered to CFC (i)
accurate and complete copies of all Colonial Benefit Plan documents and all
other material documentsrelating thereto, including all summary plan
descriptions, summary annual reports and insurance contracts, (ii) accurate and
complete detailed summaries of all unwritten Colonial Benefit Plans, (iii)
accurate and complete copies of the most recent financial statements and
actuarial reports with respect to all Colonial Benefit Plans for which financial
statements or actuarial reports are required or have been prepared, (iv)
accurate and complete copies of all annual reports for all Colonial Benefit
Plans (for which annual reports are required) prepared within the last two
years, and (v) accurate and complete copies of determination letters from the
IRS for any Colonial Benefit Plan maintained or intended to be maintained under
Section 401(a) of the Code. Any Colonial Benefit Plan providing benefits that
are funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the Colonial Benefit Plan on Schedule 3.19.
(b) All Colonial Benefit Plans conform in all material respects to, and are
being administered and operated in material compliance with, all applicable
requirements of ERISA and the Code. All returns, reports and disclosure
statements required to be filed or delivered under ERISA and the Code with
respect to all Colonial Benefit Plans have been filed or delivered. There have
not been any "prohibited transactions," as such term is defined in Section 4975
of the Code or Section 406 of ERISA, involving any of the Colonial Benefit Plans
that could subject Colonial to any material penalty or tax imposed under the
Code or ERISA.
(c) Except as set forth on Schedule 3.19, any Colonial Benefit Plan that is
intended to be qualified under Section 401(a) of the Code and exempt from tax
under Section 501(a) of the Code has been determined by the IRS to be so
qualified, and such determination is current, remains in effect and has not been
revoked. Nothing has occurred since the date of any such determination that is
reasonably likely to affect adversely
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such qualification or exemption, or result in the imposition of excise taxes or
income taxes on unrelated business income under the Code or ERISA with respect
to any Colonial Benefit Plan.
(d) Colonial adequately reserved for all liabilities accrued prior to the
Effective Time under Colonial's nonqualified retirement or deferred compensation
plans.
(e) Except as set forth on Schedule 3.19, Colonial has no current or
contingent obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA). Colonial has no liability with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA) other than with respect to
the Colonial Benefit Plans.
(f) There are no pending or threatened claims by or on behalf of any
Colonial Benefit Plan, or by or on behalf of any individual participants or
beneficiaries of any Colonial Benefit Plan, alleging any breach of fiduciary
duty on the part of Colonial or any of its officers, directors or employees
under ERISA, the Code or any applicable regulations, or claiming benefit
payments other than those made in the ordinary operation of such plans. The
Colonial Benefit Plans are not the subject of any investigation, audit or action
by the IRS, the Department of Labor or the PBGC. Colonial has made all required
contributions under the Colonial Benefit Plans, including the payment of any
premiums payable to the PBGC and other insurance premiums. There is no
underfunding liability for any Colonial Benefit Plan that is subject to the
funding requirements of Section 412 of the Code.
(g) Colonial does not maintain any defined benefit plan, and neither has
incurred, nor has any reason to expect that it will incur, any liability to the
PBGC or otherwise under Title IV or ERISA (including early withdrawal liability)
or under the Code with respect to any such plan. No Colonial Benefit Plan has
been subject to a reportable event for which notice would be required to be
filed with the PBGC, and no proceeding by the PBGC to terminate any Colonial
Benefit Plan has been instituted or threatened.
(h) With respect to any Colonial Benefit Plan that is an employee welfare
benefit plan (within the meaning of Section 3(1) of ERISA) (in this subsection,
a "Welfare Plan"), (i) each such Welfare Plan for which contributions are
claimed as deductions under any provision of the Code is in material compliance
with all applicable requirements pertaining to such deduction, (ii) with respect
to any welfare benefit fund (within the meaning of Section 419 of the Code)
related to such a Welfare Plan, there is no disqualified benefit (within the
meaning of Section 4976(b) of the Code) that would result in the imposition of a
tax under Section 4976(a) of the Code, (iii) any Colonial Benefit Plan that is a
group health plan (within the meaning of Section 4980B(g)(2) of the Code)
complies, and in each and every case has complied, with all of the material
requirements of Section 4980B of the Code, ERISA, Title XXII of the Public
Health Service Act and the applicable provisions of the Social Security Act,
(iv) such Welfare Plan may be amended or terminated at any time on or after the
Closing Date, and (v) there are no benefits to be provided to retirees under a
group health plan that are subject to disclosure under Financial Accounting
Standards Board No. 106.
(i) Except as set forth on Schedule 3.19, as of the Closing Date, there
will be no contract, agreement, plan or arrangement covering any person that
provides for the payment of an amount that would not be deductible to CFC by
reason of Section 280G or any other provision of the Code.
III.20. ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses (the
"Colonial Allowance") shown on the Colonial Call Report dated as of March 31,
1998 and provided to the FDIC, as of such date has been determined, in the
opinion of management of Colonial in accordance with GAAP, to be adequate to
provide for losses relating to or inherent in the loan portfolios of Colonial.
III.21. ENVIRONMENTAL MATTERS. Colonial is in material compliance with all
local, state and Federal environmental statutes, laws, rules, regulations and
permits, including but not limited to CERCLA and the Toxic Substances Control
Act, 15 U.S.C. 2601 et seq. Colonial has not, nor to the best of Colonial's
knowledge have other parties, used, stored, disposed of or permitted any
"hazardous substance" (as defined in CERCLA), petroleum hydrocarbon,
polychlorinated biphenyl, asbestos or radioactive material (collectively,
"Hazardous Substances") to remain at, on, in or under any of the real property
owned or leased by Colonial (including, without limitation, the buildings or
structures thereon) (the "Real Property"). Colonial has not, nor to the best of
Colonial's knowledge have other parties, installed, used, or disposed of any
asbestos or asbestos-containing material on, in or under any of the Real
Property. Colonial has not, nor
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to the best of Colonial's knowledge have other parties, installed or used
underground storage tanks in or under any of the Real Property. Colonial has
provided CFC with copies of all complaints, citations, orders, reports, written
data, notices or other communications sent or received by it with respect to any
local, state or Federal environmental law, ordinance, rule or regulation as any
of them relate to Colonial. Any exceptions to the foregoing are set forth on
Schedule 3.21.
III.22. COLONIAL INFORMATION. The written information with respect to
Colonial and its officers, directors, and affiliates which shall have been
supplied by Colonial (or any of its accountants, counsel or other authorized
representatives) specifically for use in soliciting the Shareholder Approval, or
which shall be contained in the Registration Statement, will not, on the date
the Proxy Statement is first mailed to shareholders of Colonial or on the date
of the Shareholders' Meeting, 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.
III.23. ASSET CLASSIFICATION. Set forth on Schedule 3.23 is a list, accurate
and complete in all material respects, of the aggregate amounts of loans,
extensions of credit or other assets of Colonial that have been classified by it
as of March 31, 1998 (the "Asset Classification"); and no amounts of loans,
extensions of credit or other assets that have been classified as of March 31,
1998 by any regulatory examiner as "Other Loans Specially Mentioned",
"Substandard", "Doubtful", "Loss", or words of similar import are excluded
from the amounts disclosed in the Asset Classification, other than amounts of
loans, extensions of credit or other assets that were charged off by Colonial
prior to March 31, 1998.
III.24. DERIVATIVES CONTRACTS, ETC. Colonial is not a party to nor has
agreed to enter into an exchange-traded or over-the-counter swap, forward,
future, option, cap, floor or collar financial contract or any other contract
not included on the balance sheet which is a derivative contract (including
various combinations thereof) (each a "Derivatives Contract") or owns securities
that (i) are referred to as "structured notes", "high risk mortgage
derivatives", "capped floating rate notes" or "capped floating rate mortgage
derivatives", or (ii) are likely to have changes in value as a result of
interest rate changes that significantly exceed normal changes in value
attributable to interest rate changes, except for those Derivatives Contracts
and other instruments legally purchased or entered into in the ordinary course
of business and set forth on Schedule 3.24, including a list, as applicable, of
any Colonial assets pledged as security for each such instrument.
III.25. LABOR MATTERS. No material work stoppage involving Colonial is
pending or, to the best knowledge of Colonial, threatened. Colonial is not
involved in, or, to the best knowledge of Colonial's management, threatened with
or affected by, any labor dispute, arbitration, lawsuit or administrative
proceeding which might reasonably be expected to have a Material Adverse Effect.
Employees of Colonial are not represented by any labor union, and, to the best
knowledge of Colonial's management, no labor union is attempting to organize
employees of Colonial.
III.26. SECURITIES REPORTS. Within the last two (2) years, Colonial has
filed on a timely basis all securities-related reports, registrations, and
statements, together with any amendments, required by applicable Regulatory
Authorities, all of which, as of their respective dates, were in compliance in
all material respects with the applicable rules and regulations.
III.27. OWNERSHIP OF CFC COMMON STOCK. No shares of CFC Common Stock are
beneficially owned (as defined in Rule 13d-3 under the Exchange Act) by
Colonial.
III.28. RESALE OF CFC COMMON STOCK. Colonial 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 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 Colonial Common Stock outstanding as of the Effective
Time. For purposes of this representation, shares of Colonial 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 Colonial and
then disposed of by shareholders of Colonial.
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SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC AND CFB
Each of CFC and CFB hereby represents and warrants to Colonial the
following matters on and as of the date of this Reorganization 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 Reorganization Agreement by Colonial, such breach or
inaccuracy must have a Material Adverse Effect.
IV.1. ORGANIZATION, GOOD STANDING AND CONDUCT OF BUSINESS. CFC is a
corporation, duly organized, validly existing and in good standing under the
laws of South Carolina, is duly registered as a bank holding company under the
BHCA, and has full power and authority and all Authorizations necessary 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 CFC makes such license or
qualification necessary. CFB is a direct subsidiary of CFC. CFB is a state
banking corporation, duly organized, validly existing and in good standing under
the laws of the state of South Carolina, and has full power and authority and
all Authorizations necessary 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 CFB makes such license or qualification necessary. CFB is
a state, non-member bank and is an "insured depository institution" as defined
in the Federal Deposit Insurance Act and the applicable regulations thereunder.
The deposits of CFB are insured by the Bank Insurance Fund of the FDIC.
IV.2. SUBSIDIARIES. (a) Other than CFB, Carolina First Mortgage Company,
and Blue Ridge Finance Company, Inc. (collectively, the "Subsidiaries") or
except as provided below, CFC neither owns nor controls five percent (5%) or
more of the outstanding equity securities, either directly or indirectly, of any
Person. CFC is the direct, record and beneficial owner of 100% of the
outstanding shares of capital stock of the Subsidiaries. There are no contracts,
commitments, understandings or arrangements by which CFC is or may be bound to
sell or otherwise issue any shares of the Subsidiaries' capital stock, and there
are no contracts, commitments, understandings or arrangements relating to the
rights of CFC to vote or to dispose of such shares. All of the shares of capital
stock of the Subsidiaries are fully paid and nonassessable and are owned by CFC
free and clear of any Liens. CFC has, or has the right to acquire, in excess of
15% of the common stock of (i) Affinity Technology Group, Inc., a Delaware
corporation headquartered in Columbia, South Carolina, (ii) Net.B@nk, Inc., a
Georgia corporation and savings and loan holding company headquartered in
Atlanta, Georgia and (iii) ITS, Inc. None of the Subsidiaries either owns or
controls five percent (5%) or more of the outstanding equity securities, either
directly or indirectly, of any Person, except that CFB owns Carolina First
Securities, Inc. and Blue Ridge Finance Company, Inc. owns CF Investment
Company.
IV.3. CORPORATE AUTHORITY. The execution, delivery and performance of this
Reorganization Agreement have been duly authorized by the respective 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 Reorganization
Agreement or the Merger.
IV.4. BINDING EFFECT. Subject to receipt of the Regulatory Approvals, when
executed, this Reorganization Agreement will constitute valid and legally
binding obligations of CFC and CFB, enforceable against CFC and CFB in
accordance with its terms, subject to (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors of FDIC-insured institutions or the relief of
debtors generally, (ii) laws relating to the safety and soundness of depository
institutions, and (iii) general principles of equity. Each document and
instrument contemplated by this Reorganization 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 (as applicable) and
enforceable against CFC and/or CFB (as applicable) in accordance with its terms,
subject to the exceptions in the previous sentence.
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IV.5. CAPITALIZATION OF CFC. The authorized capital stock of CFC consists
solely of (i) 100,000,000 authorized shares of common stock ($1.00 par value),
of which approximately 18,119,186 shares were issued and outstanding as of the
date hereof and (ii) 10,000,000 shares of preferred stock, none of which is
outstanding. All of the issued and outstanding shares of CFC are validly issued
and fully paid and nonassess able. Except for ((i) stock or options to purchase
shares of CFC Common Stock granted under director or employee benefit plans or
stock issued by CFC to its Employee Stock Ownership Plan, (ii) shares which may
be issued pursuant to CFC's Shareholders' Rights Plan entered into as of
November 9, 1993 between CFC and CFB, as amended and restated (the "Rights
Plan"), (iii) existing dividend reinvestment plans, (iv) shares which may be
issued in connection with acquisitions of other financial institutions or assets
or (v) as otherwise set forth on Schedule 4.5, there are no outstanding Rights
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 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 or the Rights Plan and
except for restrictions on account of applicable Federal or state securities
laws. The Common Stock to be issued in connection with this Reorganization
Agreement and the Merger will, when issued, (i) be validly issued, fully paid
and nonassessable, (ii) have been issued pursuant to an effective registration
statement, (iii) have been properly registered for trading on the Nasdaq
National Market and (iv) will be entitled to all benefits accorded other shares
of CFC Common Stock under the Rights Plan.
IV.6. COMPLIANCE WITH LAWS; ABSENCE OF DEFAULTS. (a) Neither CFC nor CFB is
in default under, or in violation of, any provision of its Articles of
Incorporation or Bylaws. Neither CFC nor CFB is in default under, or in
violation of, any material agreement to which either CFC or CFB is a party.
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.
IV.7. NON-CONTRAVENTION AND DEFAULTS; NO LIENS. Neither the execution or
delivery of this Reorganization 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 material 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 regulation, (iii)
result in the creation or imposition of any Lien 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.
IV.8. NECESSARY APPROVALS. Each of 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 or 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. Further, there is no
basis for any such expiration, lapse, revocation, threat of revocation or
restriction. Except for any necessary Regulatory Approvals (including 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
Reorganization Agreement or the consummation by CFC and CFB of the transactions
contemplated hereby. Except for the Regulatory Approvals, neither CFC nor CFB is
required to procure the approval of any Person in order to prevent the
termination of any right, privilege, license or contract of CFC or CFB as a
result of this Reorganization Agreement.
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IV.9. FINANCIAL STATEMENTS. The audited financial statements of CFC at and
for each of the fiscal years ended December 31, 1995, 1996 and 1997, and the
unaudited quarterly statements at and for the quarter ended March 31, 1998 (the
"CFC Financial Statements") all of which have been provided to Colonial, are
true, correct and complete in all material respects and present fairly, in
conformity with GAAP, the financial position of CFC at the dates indicated and
the results of its operations for each of the periods indicated. 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.
IV.10. 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 March 31, 1998, there has been no (i) Material Adverse Event with respect
to either CFC or CFB, or (ii) any incurrence by or subjection of CFC or CFB to
any obligation or liability (whether fixed, accrued or contingent) or commitment
material to CFC or CFB not referred to in this Reorganization Agreement, except
such obligations or liabilities as were or may be incurred in the ordinary
course of business and which are reflected on the CFC Financial Statements at
and for the periods subsequent to March 31, 1998.
IV.11. LITIGATION AND REGULATORY AGREEMENTS. Except as set forth on
Schedule 4.11, there are no claims, actions, suits or proceedings pending or
threatened against or, to its knowledge, affecting CFC or CFB 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, and neither CFC nor
CFB knows of any basis for any of the foregoing. There is no order, writ,
memorandum or agreement, injunction, or decree of any court, domestic or
foreign, or any Federal or state agency affecting CFC or CFB or to which CFC or
CFB is subject, except for (i) agreements between CFC and the Federal Reserve
regarding CFC's ownership interest in Affinity Technology Group, Inc. and (ii)
agreements between CFC and the Federal Reserve, and CFC and the OTS regarding
CFC's ownership interest in Net.B@nk, Inc.
IV.12. REPORTS. CFC has duly made all reports and filings required to be
made pursuant to applicable law.
IV.13. 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 the Shareholder Approval, or which shall be
contained in the Registration Statement, will not, on the date the Proxy
Statement is first mailed to shareholders of Colonial or on the date of the
Shareholders' 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 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.
IV.14. SECURITIES REPORTS. Within the last two (2) years, CFC has filed on
a timely basis all reports, registrations, and statements, together with any
amendments, required under the Securities Act and the Exchange Act, all of
which, as of their respective dates, were in compliance in all material respects
with the rules and regulations of the SEC.
IV.15. DUE DILIGENCE. All information provided by CFC in connection with
the due diligence investigation by Colonial was, at the time that such
information was provided, fair, accurate and complete in all material respects.
Since the date of such provision of information, there have been no changes in
such information, which, taken in the aggregate, represent a Material Adverse
Event. CFC has not failed to provide or make available to Colonial all material
information regarding CFC.
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING
V.1. CONDUCT OF COLONIAL PENDING CLOSING. During the period commencing on
the date hereof and continuing until the Closing Date, Colonial covenants and
agrees to the following (except to the extent that
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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 have a
Material Adverse Effect before such breach shall be actionable or shall
constitute grounds for termination or failure to perform under this
Reorganization Agreement.
(a) Colonial 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, will use all reasonable efforts to
preserve intact its business organization and goodwill, maintain the
services of its present officers and employees and preserve its
relationships with customers, suppliers and others having business
dealings with Colonial. Colonial shall not purchase or otherwise acquire
or enter into a contract to acquire servicing or subservicing rights with
respect to loans not originated by Colonial without the written consent of
CFC, which consent shall not be unreasonably withheld.
(b) Colonial will not amend its Articles of Incorporation or Bylaws
as in effect on the date hereof, except as may be required by applicable
law or regulation.
(c) Colonial 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 Rights to acquire any such
shares or any shares; nor will it enter into any arrangement or contract
with respect to the issuance of any such shares or other Rights to acquire
shares; nor will it declare, set aside or pay any dividends (of any type)
or make any other change in its equity capital structure.
(d) Colonial will promptly advise CFC in writing of any change in
the businesses of Colonial which has, or may reasonably be expected to
have, a Material Adverse Effect.
(e) Colonial will not take, agree to take, or knowingly permit to be
taken (except as may be required by applicable law or regulation) any
action or do or knowingly permit to be done anything in the conduct of the
business of Colonial, or otherwise, which would be contrary to or in
breach of any of the terms or provisions of this Reorganization Agreement,
or which would cause any of the representations of Colonial contained
herein to be or become untrue in any material respect.
(f) Colonial 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, Colonial will not incur any expense in an amount
in excess of $50,000 after the execution of this Reorganization Agreement
without the prior written consent of CFC.
(h) Colonial will not grant any executive officers any increase in
compensation (except in the ordinary course of business 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) Colonial 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.
(j) Except as may be directed by any Regulatory Authority, as may be
undertaken in the ordinary course of business in accordance with past
practices, or as may be reasonably appropriate in view of changes in
economic circumstances, Colonial shall not (1) change its lending,
investment, liability management or other material banking or other
policies in any material respect, or (2) implement or adopt any change in
accounting principles, practices or methods, other than as may be required
by GAAP.
(k) Colonial shall not impose, or permit or suffer the imposition of
any Liens (except in the ordinary course of business) on any of its
assets, other than Liens on such assets that, individually or in the
aggregate, are not material to the business, properties or operations of
Colonial.
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V.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 Colonial 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 have a Material Adverse Effect before
such breach shall be actionable or shall constitute grounds for termination or
failure to perform under this Reorganization Agreement.
(a) CFC shall carry on its business in substantially the same manner
as heretofore conducted.
(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
Colonial shareholders in any material respect.
(c) CFC will promptly advise Colonial orally and in writing of any
change in its business which is or may reasonably be expected to be
materially adverse to CFC.
(d) 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 Reorganization 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
VI.1. ACCESS TO PROPERTIES AND RECORDS. Between the date of this
Reorganization Agreement and the Closing Date, the parties will provide to each
other and to their respective accountants, counsel and other authorized
representatives reasonable access, 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.
VI.2. CONFIDENTIALITY. 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. The party gaining access to such Confidential Information shall
exercise the same degree of care with respect thereto that any such party uses
to preserve and safeguard its own confidential proprietary information.
Confidential Information shall be used only for the purpose of and in connection
with consummating the transaction contemplated herein. If this Reorganization
Agreement is terminated, each party hereto will promptly return all documents
received by it from each other party containing Confidential Information. 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, the status of the Merger.
Each party shall coordinate with the other parties, any public statements
regarding the Merger.
VI.3. COOPERATION. Each party shall use its respective, reasonable best
efforts to take any and all necessary or appropriate actions, and to use its
reasonable best efforts to cause its officers, directors, employees, agents, and
representatives to use their reasonable best efforts and to take all steps in
good faith within their power, to cause to be fulfilled those of the conditions
precedent to its obligations to consummate the Merger which are dependent upon
its or their actions, including but not limited to (i) requesting the delivery
of appropriate opinions and letters from its counsel and (ii) obtaining any
consents, approvals, or waivers required to be obtained from other parties.
VI.4. AFFILIATES' LETTERS. Colonial 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 Colonial, "affiliates" of Colonial for purposes of Rule
145 of the General Rules and Regulations under the Securities Act. Colonial
shall use its reasonable
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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 that such Person shall
not sell, pledge, transfer or otherwise dispose of any capital stock of Colonial
or any CFC Common Stock owned by such person or to be received by such person as
part of the consideration except in compliance with the applicable provisions of
the Securities Act.
VI.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 the Nasdaq Stock Market as may be required to permit the listing of
the CFC Common Stock issued in connection with the Merger.
VI.6. LETTERS FROM ACCOUNTANTS. Prior to the date the Registration
Statement is declared effective and prior to the Effective Time, Colonial will
deliver to CFC letters from Elliott, Davis & Company, LLP 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 Colonial letters from KPMG Peat Marwick LLP, addressed
to Colonial 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
Colonial, in each case with respect to the financial condition of the other
party and such other matters as are customary in accountants' comfort letters.
VI.7. TAX TREATMENT. Colonial and CFC shall each take such acts within
their power as may be reasonably necessary to cause the Merger to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code, except to the
extent such performance or failure would be prohibited by law or regulation.
VI.8. EXPENSES. Except to the extent expressly provided otherwise herein,
the parties shall pay their own fees and expenses (including legal and
accounting fees) incurred in connection with the Merger.
VI.9. MATERIAL EVENTS. At all times prior to the Closing Date, each party
shall promptly notify the other parties in writing of the occurrence of any
event which will or may result in a breach of any covenant, representation or
warranty in this Reorganization Agreement, or the failure to satisfy the
conditions specified in Section VII or Section VIII of this Reorganization
Agreement or other material developments relevant to the consummation of the
Merger, and shall use its reasonable best efforts to prevent or promptly to
remedy the same.
VI.10. PUBLIC ANNOUNCEMENTS. At all times until after the Closing Date,
neither Colonial 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 Reorganization
Agreement, without the express prior consent of the other party, except as may
be required by law or the policies of the Nasdaq Stock Market. The parties shall
cooperate to prepare a joint press release with respect to the transactions
contemplated herein.
VI.11. UPDATING OF SCHEDULES. Colonial and CFC shall, at the Effective
Time, prepare and deliver to each other such supplements to the schedules
attached hereto as may be necessary or appropriate to ensure the accuracy and
completeness of the information required to be disclosed in such schedules at
all times prior to the Effective Time, provided that the furnishing of any such
supplement to such Schedules shall not modify, limit, or otherwise affect any
representations or warranties of Colonial or CFC contained herein or any right
of Colonial or CFC to terminate this Reorganization Agreement. Colonial and CFC
shall provide to each other drafts of such supplemental Schedules at least three
(3) business days prior to the Closing Date.
VI.12. CERTAIN POLICIES OF COLONIAL. Colonial shall, consistent with GAAP
and regulatory accounting principles, use its best efforts to record any
accounting adjustments required to conform its loan, litigation and other
reserve and real estate valuation policies and practices (including loan
classifications and levels of reserves) so as to reflect consistently on a
mutually satisfactory basis the policies and practices of CFC; provided,
however, that Colonial shall not be obligated to record any such accounting
adjustments pursuant to this Section (i) unless and until Colonial shall be
reasonably satisfied that all the conditions to the
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obligation of the parties to consummate the Merger will be satisfied or waived
on or before the Effective Time, and (ii) in no event until the day prior to the
Closing Date. Notwithstanding any other provision hereof, until the Effective
Time, the management of Colonial and the authority to establish and implement
its business policies shall continue to reside solely in Colonial officers and
board of directors, and the election of Colonial directors shall be solely the
prerogative of Colonial shareholders.
VI.13. EMPLOYEE MATTERS. (a) CFC and Colonial agree to cooperate and use
reasonable efforts to develop staffing plans which will result in the retention
of as many Colonial managers and employees as is practical (as determined by
CFC). CFC agrees that Colonial employees shall also be eligible for
consideration for any other available positions for which they are qualified at
CFC and its subsidiaries. CFC agrees that those former Colonial employees who
are employed by CFC or its subsidiaries immediately following the Closing Date:
(i) will be eligible, on the same basis as current CFC employees, for all CFC
Benefit Plans; and (ii) will receive past service credit for eligibility and
vesting (but not benefit accrual) purposes under CFC Benefit Plans for years of
service with Colonial as if such service had been with CFC or its subsidiaries.
CFC agrees that Colonial may elect to fully vest its employees under some or all
Colonial Benefit Plans prior to consummation of the Merger. Any Colonial Benefit
Plans that are intended to be qualified under Section 401(a) of the Code and
exempt from tax under Section 501(a) of the Code will be terminated by proper
action of the Board of Directors of Colonial prior to the Effective Time. CFC
further agrees that those former Colonial employees who are employed by CFC or
its subsidiaries immediately following the Closing Date will not be subject to
any pre-existing condition exclusion under CFC's medical Benefit Plans. CFC
agrees that, upon the Merger, it will assume or honor (as appropriate)
Colonial's Benefit Plans and agreements listed on Schedule 3.19.
(b) Except as set forth on Schedule 3.19, as of the Closing Date, there
will be no contract, agreement, plan or arrangement covering any person that
provides for the payment of an amount that would not be deductible to CFC by
reason of Section 280G or any other provision of the Code.
VI.14. DIRECTORS. Upon closing, CFC will nominate and elect Guy S.
Hutchins, Jr. to serve on the Board of Directors of Carolina First Mortgage
Company, which person shall be renominated and re-elected for a period of at
least five years.
VI.15. CHARITABLE CONTRIBUTIONS. CFC shall honor Colonial's obligations to
make the charitable contributions set forth on Schedule 6.15 (which
contributions shall not exceed $1,750 annually).
VI.16. AGREEMENTS WITH COLONIAL OFFICERS. Upon closing, CFB shall enter
into consulting agreements with Guy S. Hutchins, Jr. and William F. Nettles III
in substantially the forms set forth on Schedule 6.16 (the "Consulting
Agreements").
VI.17. PROHIBITED ACTIONS. (a) Except as expressly provided in this
Reorganization Agreement, as agreed to by CFC or as required by applicable law,
rules or regulations (including the fiduciary duties of the Colonial directors
under applicable law), during the period from the date of this Reorganization
Agreement to the Effective Time, Colonial shall (i) take no action which would
adversely affect or delay the ability of the parties hereto to obtain any
necessary Regulatory Approvals or Authorizations required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely basis
under this Reorganization Agreement and (ii) take no action that could
reasonably be expected to have a Material Adverse Effect on Colonial.
(b) Except as expressly provided in this Reorganization Agreement, as
agreed to by Colonial or as required by applicable law, rules or regulations,
during the period from the date of this Reorganization Agreement to the
Effective Time, CFC shall, and shall cause its subsidiaries to, (i) take no
action which would adversely affect or delay the ability of the parties hereto
to obtain any necessary Regulatory Approvals or Authorizations required for the
transactions contemplated hereby or to perform its covenants and agreements on a
timely basis under this Reorganization Agreement and (ii) take no action that
could reasonably be expected to have a Material Adverse Effect on CFC.
SECTION VII. CONDITIONS TO CFC'S AND CFB'S OBLIGATIONS TO CLOSE
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The obligations of CFC and CFB to consummate the transactions contemplated
in this Reorganization Agreement are subject to the satisfaction of the
following conditions at or before the Closing Date:
VII.1. PERFORMANCE OF ACTS AND REPRESENTATIONS BY COLONIAL. Each of the acts
and undertakings of Colonial to be performed on or before the Closing Date
pursuant to the terms of this Reorganization Agreement shall have been duly
authorized and duly performed, and each of the representations and warranties of
Colonial set forth in this Reorganization Agreement shall be true in all
material respects on the Closing Date, except as to transactions contemplated by
this Reorganization Agreement or representations which are as of a specific
date.
VII.2. OPINION OF COUNSEL FOR COLONIAL. Colonial 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,
except as disclosed herein: (i) Colonial is duly organized, validly existing and
in good standing under the laws of South Carolina; (ii) the consummation of the
transactions contemplated by this Reorganization Agreement will not (A) violate
any provision of Colonial's Articles of Incorporation or Bylaws, as applicable,
(B) violate any provision of, result in the termination of, or result in the
acceleration of any obligation under, any agreement listed on Schedule 3.18 or
any order, arbitration award, judgment or decree known to counsel to which
Colonial is a party, or by which it is bound, except as such would not, in the
aggregate, have a Material Adverse Effect, except as disclosed on schedules to
the Reorganization Agreement, or (C) violate or conflict with any other
restriction of any kind or character of which such counsel has knowledge and to
which Colonial is subject; (iii) all of the shares of Colonial Common Stock are
validly authorized and issued, fully paid and non-assessable; (iv) Colonial has
the legal right and power, and all authorizations and approvals required by law,
to enter into this Reorganization Agreement, and to consummate the transactions
contemplated herein and all applicable regulatory waiting periods have passed;
(v) other than filings and registrations required under applicable law to be
made by CFC or CFB, all filings and registrations with, and notifications to,
all Federal and state authorities required on the part of Colonial for the
consummation of the Merger have been made; (vi) Colonial has full corporate
power and authority to enter into this Reorganization Agreement, and this
Reorganization Agreement has been duly authorized, executed and delivered by
Colonial and constitutes a valid and legally binding obligation of Colonial
enforceable against Colonial in accordance with its terms, except as such
enforceability may be limited by (x) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors of FDIC-insured institutions or the relief of
debtors generally, (y) laws relating to the safety and soundness of depository
institutions, and (z) general principles of equity; and (vii) to the best
knowledge of such counsel, no material suit or proceeding is pending or
threatened against Colonial or other parties which would have a Material Adverse
Effect on Colonial's business or properties or its ability to make the
representations and warranties and perform the obligations set forth herein.
VII. 3. CONDUCT OF BUSINESS. There shall have been no Material Adverse
Event with respect to Colonial from the date hereof through the Closing Date.
VII.4. CONSENTS. All Regulatory Approvals and 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. Regulatory Approvals shall have been obtained
without the imposition of any condition or requirement that, in the reasonable
judgment of CFC, renders the consummation of this transaction unduly burdensome
(excluding conditions or requirements that are typically imposed in transactions
of the type contemplated herein).
VII.5. CERTIFICATE. CFC shall have been furnished with such certificates of
officers of Colonial, 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.
VII.6. SHAREHOLDER APPROVAL. The Shareholder Approval shall have been
obtained.
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VII.7. SECURITIES LAWS. The Registration Statement shall have been declared
effective. No order suspending the sale of the shares of CFC Common Stock in any
jurisdiction shall have been issued, and no proceedings for that purpose shall
have been instituted.
VII.8. CONSULTING AGREEMENTS. The Consulting Agreements shall have been
executed.
SECTION VIII. CONDITIONS TO THE OBLIGATION OF COLONIAL TO CLOSE
The obligation of Colonial to consummate the transactions contemplated in
this Reorganization Agreement is subject to the satisfaction of the following
conditions at or before the Closing Date:
VIII.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 Reorganization Agreement shall have been duly
authorized and duly performed, and each of the representations and warranties of
CFC and CFB set forth in this Reorganization Agreement shall be true in all
material respects on the Closing Date, except as to transactions contemplated by
this Reorganization Agreement or representations which are as of a specific
date.
VIII.2. OPINION OF COUNSEL FOR CFC. CFC shall have furnished Colonial with an
opinion of its counsel, dated as of the Closing Date, and in form and substance
reasonably satisfactory to Colonial and its counsel, to the effect that, except
as disclosed herein: (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 Reorganization 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 accelera tion 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 Reorganization Agreement, and to consummate the
transactions contemplated herein and all applicable regulatory waiting periods
have passed; (v) all filings and registrations with, and notifications to, all
Federal and state authorities required on the part of Colonial for the
consummation of the Merger have been made; (vi) CFC and CFB have full corporate
power and authority to enter into this Reorganization Agreement, and this
Reorganization 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 (x) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors of FDIC-insured institutions or the relief of
debtors generally, (y) laws relating to the safety and soundness of depository
institutions, and (z) general principles of equity; (vii) 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, and (viii) the
Registration Statement became effective on [date] and no stop order suspending
the effectiveness of the Registration Statement or any part thereof has been
issued and no proceedings for that purpose have been instituted or are pending
under the Securities Act.
VIII.3. CONDUCT OF BUSINESS. There shall have been no Material Adverse Event
with respect to CFC or CFB from the date hereof through the Closing Date.
VIII.4. CONSENTS. All Regulatory Approvals or other authorizations necessary,
in the reasonable opinion of counsel for Colonial, 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,
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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 Colonial, renders the consummation of this
transaction unduly burdensome (excluding conditions or requirements that are
typically imposed in transactions of the type contemplated herein).
VIII.5. CERTIFICATE. Colonial shall have been furnished with such
certificates of officers of CFC and CFB, in form and substance reasonably
satisfactory to Colonial, dated as of the Closing Date, certifying to such
matters as Colonial may reasonably request, including but not limited to the
fulfillment of the conditions specified in this Section VIII.
VIII.6. TAX OPINION. Colonial shall have received from Wyche, Burgess,
Freeman & Parham, P.A. a tax opinion, reasonably satisfactory to Colonial,
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.
VIII.7. SHAREHOLDER APPROVAL. The Shareholder Approval shall have been
obtained.
VIII.8. SECURITIES LAWS. The Registration Statement shall have been declared
effective. No order suspending the sale of the shares of CFC Common Stock in any
jurisdiction shall have been issued, and no proceedings for that purpose shall
have been instituted.
VIII.9. CONSULTING AGREEMENTS. The Consulting Agreements shall have been
executed.
SECTION IX. TERMINATION
IX.1. TERMINATION. This Reorganization Agreement may be terminated at any
time prior to the Closing Date:
(a) by mutual consent of the parties;
(b) by either CFC or Colonial, at that party's option, (A) 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, or (B) if the Shareholder Approval is not received at the
Shareholder Meeting;
(c) by either CFC or Colonial if the other party (or any of its
subsidiaries) has failed to comply with the agreements or fulfill the
conditions contained herein, provided, however, that any such failure of
compliance or fulfillment must result in a Material Adverse Event and the
breaching party must be given notice of the failure to comply and a
reasonable period of time to cure; or
(d) by either CFC or Colonial as set forth in Section 2.2 hereof.
SECTION X. INDEMNIFICATION
X.1. INFORMATION FOR APPLICATION AND STATEMENTS. Each of CFC and Colonial
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 Colonial 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
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losses, claims, damages, expenses, liabilities or actions arise out of or 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
Colonial 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.
X.2. INDEMNIFICATION OF OFFICERS AND DIRECTORS. (a) CFC covenants and
agrees that it will cause each person who is an officer or director of Colonial
(an "Indemnitee") on the Closing Date to be indemnified for any costs and
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities (collectively, "Costs") arising out of such
person's service as an officer or director of Colonial to the fullest extent to
which such indemnification is permitted under the Articles of Incorporation and
Bylaws of CFC in effect on the date hereof (except that this provision shall not
be construed so as to cause CFC to violate applicable law). Except for expenses
associated with claims described in the immediately succeeding sentence and
except for, in particular, expenses associated with any claims or threatened or
actual litigation between Indemnitees and CFC, CFC, upon request of such
Indemnitees, shall advance expenses in connection with such indemnification,
provided that such advancement need be made if and only to the extent that such
advancement would have been proper under Section 33-8-530 if such Indemnitees
had been directors or officers of CFC. Notwithstanding the foregoing or anything
to the contrary herein, this indemnification shall not cover any breach of a
Colonial Indemnitee's fiduciary duty which breach shall constitute a breach by
Colonial of this Reorganization Agreement and which breach is the subject of a
lawsuit between CFC and such Indemnitee. The provisions of this Section X shall
survive the closing and shall be enforceable directly by each officer and
director of Colonial benefited by this Section X.
(b) Any Indemnitee wishing to claim indemnification under this Section X,
upon learning of such claims or liabilities, shall promptly notify CFC thereof;
provided, that the failure so to notify shall not affect the obligations of CFC
hereunder unless such failure materially increases CFC's liability hereunder. In
the event of any litigation giving rise to a claim hereunder, (i) CFC shall have
the right to assume the defense thereof, if it so elects, and CFC shall pay all
reasonable fees and expenses of counsel for the Indemnitees promptly as
statements therefor are received; provided, however, that CFC shall be obligated
pursuant to this Section to pay for only one firm of counsel for all Indemnitees
in any jurisdiction for any single action, suit or proceeding or any group of
actions, suits or proceedings arising out of or related to a common body of
facts, (ii) the Indemnitees shall cooperate in the defense of any such matter,
(iii) CFC shall not be liable for any settlement effected without its prior
written consent and (iv) CFC shall have no obligation hereunder in the event a
Federal banking agency or a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that indemnification of an Indemnitee in the manner contemplated hereby is
prohibited by applicable law.
X.3. INSURANCE. Colonial and CFC shall use their reasonable best efforts
to maintain Colonial's existing directors' and officers' liability insurance
policy (or a policy, similar to Colonial's existing policy, providing comparable
coverage on terms no less favorable) past the Closing Date covering persons who
are currently covered by such insurance; provided that CFC or Colonial shall not
make a premium payment in respect of such policy (or replacement policy) which
exceeds $15,000 and provided further that Colonial and CFC shall obtain the
maximum amount of such coverage as can be obtained by paying a premium of
$15,000. CFC shall take no action to terminate prematurely such policy.
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SECTION XI. MISCELLANEOUS
XI.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in this Reorganization Agreement, or in any other documents
delivered pursuant hereto, shall not survive the Closing of the transactions
contemplated.
XI.2. ENTIRE AGREEMENT. This Reorganization 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.
XI.3. BINDING AGREEMENT. This Reorganization 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 any of the parties hereto without the prior written consent of the
other parties hereto.
XI.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/CFB: William S. Hummers III
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
Fax: 864-239-4605
Copy to: William P. Crawford, Jr.
Wyche, Burgess, Freeman & Parham, P.A.
Post Office Box 728
Greenville, South Carolina 29602
Fax: 864-242-8324
For Colonial: Guy S. Hutchins, Jr.
Colonial Bank of South Carolina, Inc.
1111 Broad Street
Camden, South Carolina 29020
Fax: 803-424-0807
Copies to: George S. King, Jr.
Sinkler & Boyd
Post Office Box 11889
Columbia, South Carolina 29211
Fax: 803-765-1243
XI.5. COUNTERPARTS. This Reorganization 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.
XI.6. HEADINGS. The section and paragraph headings contained in this
Reorganization Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretations of this Reorganization Agreement.
XI.7. LAW GOVERNING. This Reorganization Agreement shall be governed by
and construed in accordance with the laws of the State of South Carolina.
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XI.8. AMENDMENT. This Reorganization Agreement may not be amended except
by an instrument in writing signed on behalf of all of the parties.
XI.9. WAIVER. Any term, provision or condition of this Reorganization
Agreement (other than that required by law) may be waived in writing at any time
by the party which is entitled to the benefits thereof.
END OF PAGE
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IN WITNESS WHEREOF, this Reorganization Agreement has been duly entered as
of the date first written above.
WITNESS:
CAROLINA FIRST CORPORATION
/s/______________________ By: /s/_____________________________________
William S. Hummers III
/s/______________________ Executive Vice President
CAROLINA FIRST BANK
/s/______________________ By: /s/_____________________________________
William S. Hummers III
/s/______________________ Executive Vice President
COLONIAL BANK OF SOUTH CAROLINA, INC.
/s/______________________ BY: /s/_____________________________________
Guy S. Hutchins, Jr.
/s/______________________ Chairman of the Board
Schedules to the Reorganization Agreement have been omitted but will be provided
upon the Commission's request.
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APPENDIX A TO REORGANIZATION AGREEMENT
PLAN OF MERGER OF
COLONIAL BANK OF SOUTH CAROLINA, INC.
WITH AND INTO
CAROLINA FIRST BANK
Pursuant to this Plan of Merger (the "Plan of Merger"), Colonial Bank of
South Carolina, Inc. ("Colonial"), a state banking corporation headquartered in
Camden, South Carolina, shall be merged with and into Carolina First Bank
("CFB"), a South Carolina banking corporation headquartered in Greenville, South
Carolina.
ARTICLE I. DEFINITIONS
The capitalized terms set forth below shall have the indicated meanings.
Defined terms used herein, and not otherwise defined herein, shall have the
meanings ascribed to such terms in the Reorganization Agreement.
1.1. "Articles of Merger" shall mean the Articles of Merger to be executed
by CFB and Colonial in a form appropriate for filing with the Secretary of State
of South Carolina, relating to the effective consummation of the Merger.
1.2. "BCA" shall mean the South Carolina Business Corporation Act of 1988,
as amended.
1.3. CFB shall mean Carolina First Bank, a South Carolina corporation and
a wholly-owned subsidiary of Carolina First Corporation ("CFC").
1.4. "CFC Common Stock" shall mean the common stock, par value $1.00 per
share, of CFC.
1.5. "Colonial Common Stock" shall mean the common stock, par value $1.00
per share, of Colonial.
1.6. "Conversion Ratio" shall mean the number of shares of CFC Common
Stock issuable in exchange for one share of Colonial Common Stock, as calculated
pursuant to Section 3.1 hereof.
1.7. "Effective Time" shall mean the date and time which the Merger
becomes effective as more particularly set forth in Section 2.2 hereof. Subject
to the terms and conditions hereof, the Effective Time shall be such time on
such date as CFC shall notify Colonial in writing not less than five days prior
thereto, which date shall not be more than 30 days after all conditions have
been satisfied or waived in writing.
1.8. "Fair Market Value" shall mean the average of the closing prices as
quoted on the Nasdaq National Market for CFC Common Stock for the twenty days in
which CFC Common Stock was traded immediately prior to the Closing Date;
provided, however, if prior to the Effective Time, any other Person shall have
publicly announced an intention to acquire control of CFC by merger or otherwise
or CFC shall have publicly acknowledged that it is seeking to be acquired by
another Person or is discussing being acquired by another Person, then the
average of the Closing Prices as quoted on the Nasdaq National Market for CFC
Common Stock for the 20 days for which the CFC Common Stock was traded
immediately prior to such announcement or acknowledgment shall be determined
and, if such average is less than the average determined pursuant to the first
clause of this sentence, then the smaller average shall be the Fair Market
Value.
1.9. "Merger" shall mean the merger of Colonial with and into CFB as more
particularly set forth herein and in the Reorganization Agreement.
1.10. "Person" shall mean an individual, a partnership, a corporation, a
commercial bank, an industrial bank, a savings association, a savings bank, a
limited liability company, an association, a joint stock company, a trust, a
business trust, a joint venture, an unincorporated organization, or a
governmental entity (or any department, agency, or political subdivision
thereof).
1.11. "Reorganization Agreement" shall mean the Reorganization Agreement
among CFC, CFB, and Colonial dated as of the date hereof, to which this Plan of
Merger is attached as Appendix A.
1.12. "Rights" shall mean warrants, calls, commitments, options, rights
(whether stock appreciation rights, conversion rights, exchange rights, profit
participation rights, or otherwise), securities or obligations convertible into
or exchangeable for, or giving any Person any right to subscribe for or acquire,
and other arrangements or commitments which obligate a Person to issue,
otherwise cause to become outstanding, sell, transfer, pledge, or otherwise
dispose of any of its capital stock or other ownership interests, or any voting
rights thereof or therein, or to pay monetary sums by reference to the existence
or market valuation, or in lieu and place, of any of its capital stock or
ownership interests therein.
1.13. "Shareholder Approvals" shall mean, as the context may require, the
duly authorized written consent of CFC to the merger of Colonial with and into
CFB; and the approval by the requisite vote of the shareholders of Colonial at
the Shareholders' Meeting of the merger of Colonial with and into CFB, all in
accordance with the Reorganization Agreement and this Plan of Merger.
1.14. "Shareholders' Meeting" shall mean the meeting of the shareholders
of Colonial at which the Merger shall be voted upon.
1.15. "Surviving Corporation" shall mean CFB after consummation of the
Merger.
ARTICLE II. THE MERGER
2.1. MERGER. At the Effective Time, subject to the terms and conditions of
the Reorganization Agreement and this Plan of Merger, Colonial shall merge with
and into CFB, the separate existence of Colonial shall cease, and CFB (the
<PAGE>
"Surviving Corporation") shall survive and the name of the Surviving Corporation
shall be "Carolina First Bank". By virtue of the Merger and without any action
on the part of the holders thereof, each of the shares of Colonial Common Stock
issued and outstanding immediately prior to the Effective Time (excluding shares
held by Colonial, in each case other than in a fiduciary capacity or as a result
of debts previously contracted (the "Excluded Shares")) shall be converted into
the right to receive the Merger Consideration referenced in Article III below.
Each of the shares of CFB capital stock and any shares of any CFB subsidiary
outstanding immediately prior to the Effective Time shall continue to be issued
and outstanding, and shall not be converted, exchanged or altered in any manner
as a result of the Merger.
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.
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. ARTICLES OF INCORPORATION. The articles of incorporation of CFB as in
effect at the Effective Time shall be and remain the articles of incorporation
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 COLONIAL AND CFB; MANAGEMENT. At the
Effective Time, the separate existence and corporate organization of Colonial
shall cease, and CFB shall thereupon and thereafter, to the extent consistent
with applicable law and with its articles of incorporation 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 Colonial
without further act or deed. The directors and officers of CFB in office
immediately prior to the Merger's becoming effective shall be the directors and
officers of the Surviving Corporation, together with such additional directors
and officers as may thereafter be elected, who shall hold office until such time
as their successors are elected and qualified.
ARTICLE III. MERGER CONSIDERATION
3.1. MERGER CONSIDERATION. In connection with the Merger, each share of
Colonial 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 shares of CFC Common Stock
(the "Conversion Ratio") having an aggregate Fair Market Value on the Closing
Date of $23.00.
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. AUTHORIZED OR TREASURY SHARES. Any and all shares of Colonial Common
Stock held as treasury shares by Colonial or authorized but unissued shares
shall be canceled 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 Colonial
Common Stock in respect of any fractional share that would otherwise be issuable
based on a price per share of $23.00.
3.5. EXCLUDED SHARES. Each of the Excluded Shares shall be canceled and
retired at the Effective Time and no consideration shall be issued in exchange
therefor.
3.6. EQUITABLE ADJUSTMENTS. In the event of any change in the outstanding
CFC Common Stock by reason of a stock dividend, stock split, stock
consolidation, recapitalization, reorganization, merger, split up or the like,
the Conversation Ratio and all stock prices set forth in this Article III shall
be appropriately adjusted so as to preserve, but not increase, the benefits of
this Plan of Merger to the holders of Colonial Common Stock.
3.7. TRANSFERS. At the Effective Time, the stock transfer books of
Colonial shall be closed and no transfer of Colonial Common Stock shall
thereafter be made or recognized. Any other provision of this Plan of Merger
notwithstanding, none of the parties to the Reorganization Agreement or any
affiliate of the foregoing shall be liable to a holder of Colonial Common Stock
for any amount paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat, or similar law.
ARTICLE IV. EXCHANGE OF COMMON STOCK CERTIFICATES
4.1. ISSUANCE OF CFC CERTIFICATES; CASH FOR FRACTIONAL SHARES. As soon as
practicable after the Effective Time (but in no event more than five days after
the Effective Time), CFC or its transfer agent (in such capacity, the "Exchange
Agent") shall mail, or cause to be mailed, and otherwise make available to each
record holder of Colonial Common Stock, a form of the letter of transmittal and
instructions for use in effecting surrender and exchange of certificates which
immediately before the Effective Time represented shares of Colonial Common
Stock ("Certificates") for payment therefor. Upon receipt of such notice and
transmittal form, each holder of Certificates at the Effective Time shall
surrender the Certificate or Certificates to the Exchange Agent, and shall
promptly upon surrender receive in exchange therefor the Merger Consideration
provided in Article III of this Plan of Merger. If any portion of the payment to
be made upon surrender and exchange of a Certificate is to be paid to a person
other than the person in whose name the Certificate is registered, it shall be a
condition of such payment that the Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay in advance any transfer or other taxes or establish
<PAGE>
to the satisfaction of CFC that no such tax is applicable. Upon surrender,
each Certificate shall be canceled. In addition, Certificates surrendered
for exchange by any person constituting an affiliate of Colonial
for purposes of Rule 145(c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged for certificates
representing shares of CFC Common Stock until CFC has received the written
agreement from such person as provided for in Section 6.4 of the Reorganization
Agreement. Adequate provisions shall be made to permit Certificates to be
surrendered and exchanged in person not later than the business day following
the Effective Time.
4.2. AUTHORIZED WITHHOLDINGS. CFC shall not be obligated to deliver the
consideration to which any former holder of Colonial Common Stock is entitled as
a result of the Merger until such holder surrenders his or her certificate or
certificates representing the shares of Colonial 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 Colonial. 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 Colonial 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 Colonial 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 COLONIAL SHAREHOLDERS. After the Effective
Time, each outstanding certificate representing shares of Colonial Common Stock
prior to the Effective Time shall be deemed for all corporate purposes (other
than voting and the payment of dividends and other distributions to which the
former shareholder of Colonial 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 (and cash in
lieu of fractional shares) as provided in this Plan of Merger.
ARTICLE V. STOCK OPTIONS AND OTHER RIGHTS
5.1. OPTIONS. (a) At the Effective Time, by virtue of the Merger, and
without any action on the part of any holder of an option, each Colonial option
identified in Schedule 3.5 of the Reorganization Agreement (a "Colonial Option")
that is then outstanding and unexercised shall be converted into and become a
option to acquire CFC Common Stock on the same terms and conditions as are in
effect with respect to the Colonial Option immediately prior to the Effective
Time, except that (i) the number of shares of CFC Common Stock subject to such
Colonial Option shall be equal to the number of shares of Colonial Common Stock
subject to such Colonial Option immediately prior to the Effective Time
multiplied by the Conversion Ratio, the product being rounded, if necessary, up
or down to the nearest whole share, and (ii) the per share exercise price of the
option shall be adjusted by dividing the per share exercise price of the
Colonial Option by the Conversion Ratio, and rounding up to the nearest cent. It
is intended that the foregoing assumption shall be effected in a manner which is
consistent with the requirements of Section 424 of the Internal Revenue Code of
1986, as amended, as to any Colonial Option that is an incentive stock option.
(b) In lieu of having a Colonial Option converted pursuant to Section
5.1(a), the holders of such options may elect prior to the Effective Time to
receive, in settlement thereof, solely a cash payment equal to the excess of (i)
$23.00 over the exercise price per share of Colonial Common Stock covered by the
option multiplied by (ii) the total number of shares of Colonial Common Stock
covered by the option. Each Colonial Option the holder of which has made such
election shall at the Effective Time represent solely the right to receive the
foregoing cash payment.
(c) Each Colonial Option shall be deemed to be amended so as to delete any
requirement of continued employment as affecting the Colonial Option in any
respect.
ARTICLE VI. MISCELLANEOUS
6.1. CONDITIONS PRECEDENT. 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. 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.
6.3. AMENDMENTS. To the extent permitted by law, this Plan of Merger may
be amended by a subsequent writing signed by all of the parties to the
Reorganization Agreement upon the approval of the board of directors of each of
the parties thereto; provided, however, that this Plan of Merger may not be
amended after the Shareholders' Meeting except in accordance with applicable
law.
<PAGE>
ANNEX B
June 24, 1998
Board of Directors
Colonial Bank of South Carolina, Inc.
1111 Broad Street
Camden, South Carolina 29020
Dear Board Members:
You have requested our opinion as to the fairness from a financial point of
view to the holders of shares of common stock of Colonial Bank of South
Carolina, Inc. (the "Bank") of the proposed consideration to be paid to the
shareholders of the Bank by Carolina First Corporation ("CFC").
Capital Resources Group, Inc. ("Capital Resources") is a financial
consulting and an investment banking firm that, as part of our specialization in
financial institutions, is regularly engaged in the financial valuations and
analyses of business enterprises and securities in connection with mergers and
acquisitions, valuations for initial and secondary stock offerings, divestiture
and other corporate purposes. Senior members of Capital Resources have extensive
experience in such matters. We believe that, except for the fee we will receive
for our opinion and other financial advisory fees to be received in connection
with the transaction discussed below, we are independent of the Bank.
FINANCIAL TERMS OF THE OFFER
We understand that, pursuant to a Reorganization Agreement including a Plan
of Merger ("Agreement") among the Bank, CFC, and Carolina First Bank ("CFB"), a
wholly-owned bank subsidiary of CFC, each outstanding share (other than certain
"Excluded Shares") of common stock of the Bank shall by virtue of the Merger be
exchanged for and converted into shares of CFC common stock ("Conversion Ratio")
having an aggregate "Fair Market Value" on the Closing Date of $23.00.
"Fair Market Value" shall mean the average of the closing prices as quoted
on the Nasdaq National Market for CFC Common Stock for the 20 days in which CFC
Common Stock was traded immediately prior to the Closing Date; provided,
however, if prior to the Effective Time, any other person shall have publicly
announced an intention to acquire control of CFC by merger or otherwise or CFC
shall have publicly acknowledged that it is seeking to be acquired by another
person or is discussing being acquired by another person, then the average of
the closing prices as quoted on the Nasdaq National market for the 20 days for
which the CFC Common Stock was traded immediately prior to such announcement or
acknowledgment shall be determined and, if such average is less than
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
June 24, 1998
Page 2
the average determined pursuant to the first clause of this sentence, then the
smaller average shall be the Fair Market Value.
It is expected that, at the Effective Time of the Merger, all outstanding
stock options to purchase shares of common stock of the Bank will be exchanged
for CFC stock options based on the Conversion Ratio.
In the event of any change in the outstanding CFC common stock by reason of
a stock split, stock dividend, reverse stock split, recapitalization and similar
items, the Conversion Ratio and all stock prices will be appropriately adjusted.
As a result of the Merger transaction, the Bank will be merged with and into
CFB and the separate existence of the Bank will cease.
MATERIALS REVIEWED
In the course of rendering our opinion we have, among other things:
(1) Reviewed the terms of the Agreement and discussed the Agreement with
management and the Board of Directors of the Bank, and the Bank's
legal counsel, Sinkler & Boyd, P.A.;
(2) Reviewed the following financial data of the Bank:
o the audited financial statements of the Bank for the fiscal years
ended March 31, 1994 through March 31, 1997 and the fiscal period
ended December 31, 1997 and the unaudited financial statements for
the three months ended March 31, 1998 as reported in its Report on
Form 10-QSB,
o the Bank's regulatory financial reports covering the period through
March 31, 1998, the latest available period,
o the Bank's latest available asset/liability reports,
o other miscellaneous internally-generated management information
reports for recent periods, as well as other publicly available
information,
o the Bank's most recent business plan and budget report;
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
June 24, 1998
Page 3
(3) Reviewed the Bank's Annual Report to stockholders and Form 10-KSB
Report for fiscal 1997 which provides a discussion of the Bank's
business and operations and reviews various financial data and trends;
(4) Discussed with executive management of the Bank, the business,
operations, recent financial condition and operating results and
future prospects of the Bank;
(5) Compared the Bank's financial condition and operating results to those
of similarly-sized banks operating in South Carolina and the U.S.;
(6) Compared the Bank's financial condition and operating performance to
the published financial statements and market price data of
publicly-traded banks in general, and publicly-traded banks in the
Bank's region of the U.S. specifically;
(7) Reviewed the relevant market information regarding the shares of
common stock of the Bank including trading activity and volume and
information on options to purchase shares of common stock;
(8) Performed such other financial and pricing analyses and investigations
as we deemed necessary, including a comparative financial analysis and
review of the financial terms of other pending and completed
acquisitions of companies we consider to be generally similar to the
Bank;
(9) Examined the Bank's economic operating environment and the competitive
environment of the Bank's market area;
(10) Reviewed available financial reports and financial data for CFC,
including Annual Reports to shareholders and Form 10-K Reports
covering the fiscal years ended through December 31, 1997, quarterly
reports, Form 10-Q reports, other published financial data and other
internal and regulatory financial reports provided by management of
CFC; reviewed CFC's banking office network; and reviewed the pricing
trends of CFC's common stock and dividend payment history;
(11) Visited CFC's administrative and executive offices and conducted
interviews with management.
In arriving at our opinion, we have relied upon the accuracy and
completeness of the information provided to us by the various parties mentioned
above, upon public information and upon representations and warranties in the
Agreement, and have not conducted any independent investigations to verify any
such information or performed any independent appraisal of the Bank's or CFC's
assets.
<PAGE>
CAPITAL RESOURCES GROUP, INC.
Board of Directors
June 24, 1998
Page 4
This fairness opinion is supported by the detailed information and analysis
contained in the Evaluation and Analysis Report dated June 24, 1998 ("Report"),
which has been produced by Capital Resources and will be delivered to the Bank.
We have relied on the Report for purposes of rendering this current fairness
opinion.
The Report contains a business description and financial analysis of the
Bank, an analysis of current economic conditions in the Bank's primary market
area, and a financial and market pricing comparison with a selected group of
financial institutions which completed merger and acquisition transactions or
are currently subject to pending transactions. In addition, the Report contains
a discounted dividend stream and terminal value analysis. This analysis compares
the value of the consideration proposed by CFC with the potential present value
returns to the Bank's shareholders if the Bank remains independent for at least
three to five years.
OPINION
Based on the foregoing and on our general knowledge of and experience in the
valuation of businesses and securities, we are of the opinion that, as of June
24, 1998, the consideration proposed by CFC for shares of common stock of the
Bank is fair to the shareholders of the Bank from a financial point of view.
Respectfully submitted,
/s/
CAPITAL RESOURCES GROUP, INC.
<PAGE>
ANNEX C TO PROXY STATEMENT/PROSPECTUS
DISSENTERS' RIGHTS
Title 33, Chapter 13 of the Code of Laws of South Carolina 1976,
Dissenters' Rights, provides as follows:
ARTICLE 1
RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
ss. 33-13-101. Definitions.
In this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 33-13-102 and who exercises that
right when and in the manner required by Sections 33-13-200 through
33-13-280.
(3) "Fair Value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action to which the
dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be
inequitable. The value of the shares is to be determined by
techniques that are accepted generally in the financial community.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans or, if none, at a
rate that is fair and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner
of shares to the extent of the rights granted by a nominee
certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
ss. 33-13-102. Right to dissent.
A shareholder is entitled to dissent from, and obtain payment of the fair
value of, his shares in the event of any of the following corporate actions:
(1) consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section
33-11-103 or the articles of incorporation and the shareholder is
entitled to vote on the merger or (ii) if the corporation is a
subsidiary that is merged with its parent under Section 33-11-104 or
33-11- 108 or if the corporation is a parent that is merged with its
subsidiary under Section 33-11-108;
(2) consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares are to be acquired, if the
shareholder is entitled to vote on the plan;
(3) consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the
sale or exchange, including a sale in dissolution, but not including
a sale pursuant to court order or a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the sale
must be distributed to the shareholders within one year after the
date of sale;
(4) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because
it:
(i) alters or abolishes a preferential right of the shares;
(ii) creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(iii) alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities; (iv) excludes
or limits the right of the shares to vote on any matter, or
to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar
voting rights; or
(v) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is
to be acquired for cash under Section 33-6-104; or
(5) the approval of a control share acquisition under Article 1 of
Chapter 2 of Title 35;
(6) any corporate action to the extent the articles of incorporation,
bylaws, or a resolution of the board of directors
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provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
ss. 33-13-103. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his behalf only if he dissents with respect to all shares of which he is the
beneficial shareholder or over which he has the power to direct the vote. A
beneficial shareholder asserting dissenters' rights to shares held on his behalf
shall notify the corporation in writing of the name and address of the record
shareholder of the shares, if known to him.
ARTICLE 2
PROCEDURES FOR EXERCISE OF DISSENTERS' RIGHTS
ss. 33-13-200. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section 33-13-102
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in Section 33-13-220.
ss. 33-13-210. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) must give to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and (2) must not vote his shares in favor of
the proposed action. A vote in favor of the proposed action cast by the holder
of a proxy solicited by the corporation shall not disqualify a shareholder from
demanding payment for his shares under this chapter.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this chapter.
ss. 33-13-220. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under Section
33-13-102 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 33-13-210(a).
(b) The dissenters' notice must be delivered no later than ten days after
the corporate action was taken and must:
(1) state where the payment demand must be sent and where
certificates for certificated shares must be deposited;
(2) inform holders of uncertificated shares to what extent
transfer of the shares is to be restricted after the
payment demand is received;
(3) supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the
terms of the proposed corporate action and requires that the
person asserting dissenters' rights certify whether or not he
or, if he is a nominee asserting dissenters' rights on behalf
of a beneficial shareholder, the beneficial shareholder
acquired beneficial ownership of the shares before that date;
(4) set a date by which the corporation must receive the payment
demand, which may not be fewer than thirty nor more than sixty
days after the date the subsection (a) notice is delivered and
set a date by which certificates for certificated shares must
be deposited, which may not be earlier than twenty days after
the demand date; and
(5) be accompanied by a copy of this chapter.
ss. 33-13-230. Shareholders' payment demand.
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(a) A shareholder sent a dissenters' notice described in Section 33-13-220
must demand payment, certify whether he (or the beneficial shareholder on whose
behalf he is asserting dissenters' rights) acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice pursuant to Section
33-13-220(b)(3), and deposit his certificates in accordance with the terms of
the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not comply substantially with the requirements
that he demand payment and deposit his share certificates where required, each
by the date set in the dissenters' notice, is not entitled to payment for his
shares under this chapter.
ss. 33-13-240. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for payment for them is received until the proposed
corporate action is taken or the restrictions are released under Section
33-13-260.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are canceled
or modified by the taking of the proposed corporate action.
ss. 33-13-250. Payment.
(a) Except as provided in Section 33-13-270, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who substantially complied with Section 33-13-230 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) the corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(2) a statement of the corporation's estimate of the fair value of
the shares and an explanation of how the fair value was
calculated;
(3) an explanation of how the interest was calculated;
(4) a statement of the dissenter's right to demand additional
payment under Section 33-13-280; and (5) a copy of this
chapter.
ss. 33-13-260. Failure to take action.
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation, within the same sixty-day period, shall return the deposited
certificates and release the transfer restrictions imposed on uncertificated
shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Section 33-13-220 and repeat the payment demand
procedure.
ss. 33-13-270. After-acquired shares.
(a) A corporation may elect to withhold payment required by Section
33-13-250 from a dissenter as to any shares of which he (or the beneficial owner
on whose behalf he is asserting dissenters' rights) was not the beneficial owner
on the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action, unless the beneficial ownership of the shares devolved upon
him by operation of law from a person who was the beneficial owner on the date
of the first announcement.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares, plus accrued interest, and shall pay this amount
to each dissenter who agrees to accept it in full satisfaction of his demand.
The corporation shall send with its offer a statement of its estimate of the
fair value of the shares, an explanation of how the fair value and interest were
calculated, and a statement of the dissenters' right to demand additional
payment under Section 33-13-280.
ss. 33-13-280. Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due and demand payment of
his estimate (less any payment under Section 33-13-250) or reject the
corporation's offer under Section 33-13-270 and demand payment of the fair value
of his shares and interest due, if the:
(1) dissenter believes that the amount paid under Section
33-13-250 or offered under Section 33-13-270 is
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less than the fair value of his shares or that the interest
due is calculated incorrectly;
(2) corporation fails to make payment under Section 33-13-250 or
to offer payment under Section 33-13-270 within sixty days
after the date set for demanding payment; or
(3) corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within sixty
days after the date set for demanding payment.
(b) A dissenter waives his right to demand additional payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within thirty days after the corporation made or offered payment
for his shares.
ARTICLE 3
JUDICIAL APPRAISAL OF SHARES
ss. 33-13-300. Court action.
(a) If a demand for additional payment under Section 33-13-280 remains
unsettled, the corporation shall commence a proceeding within sixty days after
receiving the demand for additional payment and petition the court to determine
the fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the sixty-day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this State,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this State, it shall commence the proceeding in
the county in this State where the principal office (or, if none in this State,
the registered office) of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not residents of
this State) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication, as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) is plenary and exclusive. The court may appoint persons as
appraisers to receive evidence and recommend decisions on the question of fair
value. The appraisers have the powers described in the order appointing them or
in any amendment to it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
ss. 33-13-310. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Section 33-13-300
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under Section 33-13-280.
(b) The court also may assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) against the corporation and in favor of any or all dissenters
if the court finds the corporation did not comply
substantially with the requirements of Sections 33-13-200
through 33-13-280; or
(2) against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom
the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
(d) In a proceeding commenced by dissenters to enforce the liability under
Section 33-13-300(a) of a corporation that has failed to commence an appraisal
proceeding within the sixty-day period, the court shall assess the costs of the
proceeding and the fees and expenses of dissenters' counsel against the
corporation and in favor of the dissenters.
C-4
<PAGE>
ANNEX D
CONDENSED SUMMARY OF EARNINGS
CAROLINA FIRST BANK
(unaudited)
Years Ended December 31,
--------------------------------
(dollars in thousands)
1995 1996 1997
-------- -------- --------
Interest income ............................ $100,770 $114,195 $132,077
Interest expense ........................... 49,301 56,732 65,484
-------- -------- --------
Net interest income ...................... 51,469 57,463 66,593
Provision for loan losses .................. 6,718 9,787 9,300
-------- -------- --------
Net interest income after provision
for loan losses ....................... 44,751 47,676 57,293
-------- -------- --------
Noninterest income ......................... 16,136 17,682 14,171
Noninterest expenses ....................... 44,457 46,399 47,321
-------- -------- --------
Income (loss) before income taxes ........ 16,430 18,959 24,143
Income taxes ............................... 5,827 7,016 8,699
-------- -------- --------
Net income (loss) ........................ $ 10,603 $ 11,943 $ 15,444
======== ======== ========
<PAGE>
CONDENSED BALANCE SHEET
CAROLINA FIRST BANK
(unaudited)
Years Ended December 31,
---------------------------
(dollars in thousands)
1996 1997
----------- -----------
Assets:
Cash and due from banks ...................... $ 86,312 $ 67,098
Interest-earning deposits with banks ......... 26,037 47,229
Fed funds sold and resale agreements ......... -- 105,000
Investment securities ........................ 243,182 377,649
Loans ........................................ 1,123,006 1,488,816
Less unearned income ........................ (12,731) (7,431)
Less allowance for loan losses .............. (11,146) (14,189)
----------- -----------
Net loans ................................ 1,099,129 1,467,196
Premises and equipment ....................... 32,211 38,548
Intangible assets ............................ 14,175 54,698
Other assets ................................. 51,365 60,254
----------- -----------
Total assets ................................... $ 1,552,411 $ 2,217,672
=========== ===========
Liabilities and stockholders' equity:
Liabilities
Deposits
Noninterest-bearing ...................... $ 194,685 $ 230,755
Interest bearing ......................... 1,092,583 1,626,783
----------- -----------
Total deposits ....................... 1,287,268 1,857,538
Borrowed funds ............................... 128,228 118,055
Other liabilities ............................ 15,193 25,929
----------- -----------
Total liabilities .......................... 1,430,689 2,001,522
----------- -----------
Total stockholders' equity ..................... 121,722 216,150
----------- -----------
Total liabilities and stockholders' equity ..... $ 1,552,411 $ 2,217,672
=========== ===========
<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
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 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 make 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 officer or director. Carolina
First Corporation maintains directors' and officers' liability insurance.
Reference is made to Chapter 2 of Title 33 of the 1976 Code of Laws
of South Carolina, as amended, 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 Business Corporation Act of 1988
(improper distribution to shareholder), or (iv) for any transaction from which
the director derived an improper personal benefit."
ITEM 21: EXHIBITS
(A) LISTING OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
<S> <C>
2.1 -- Agreement and Plan of Reorganization entered into as of July 9, 1998 between and among
Carolina First Bank, Carolina First Corporation and Colonial Bank: Included as Annex A to the
Proxy Statement/Prospectus.
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. 33-57389.
3.2 -- Articles of Amendment dated June 1, 1997: Incorporated by reference to Exhibit 3.2 of Carolina
First Corporation's Registration Statement on Form S-4 filed on July 30, 1997, Commission File
No. 333-32459.
3.3 -- Amended and Restated Bylaws of Carolina First Corporation, as amended and restated as of
December 18, 1996: Incorporated by reference to Exhibit 3.1 of Carolina First Corporation's
Current Report on Form 8-K dated December 18, 1996, Commission File No. 0-15083.
4.1 -- Specimen Carolina First Corporation 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 -- Articles of Incorporation: Included as Exhibits 3.1 and 3.2.
4.2 -- Bylaws: Included as Exhibit 3.3.
80
<PAGE>
4.3 -- Carolina First Corporation Amended and Restated Common Stock Dividend Reinvestment Plan:
Incorporated by reference to the Prospectus in Carolina First Corporation's Registration Statement
on Form S-3, Commission File No. 333-06975.
4.6 -- Amended and Restated Shareholder Rights Agreement: Incorporated by reference to Exhibit 4.1
of Carolina First Corporation's Current Report on Form 8-K dated December 18, 1996,
Commission File No. 0-15083.
4.7 -- Form of Indenture between Carolina First Corporation and First American Trust Company,
N.A., as trustee: Incorporated by reference to Exhibit 4.11 of Carolina First Corporation's
Registration Statement on Form S-3, Commission File No. 22-58879.
5.1 -- Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding legality of shares of the
Carolina First Corporation.
8.1 -- See "THE PROPOSED TRANSACTION -- Certain Federal Income Tax Consequences" for
discussion regarding tax matters.
11.1-- Computation of Per Share Earnings: Incorporated by reference
to Exhibit 11.1 of Carolina First Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997, Commission File
No. 0-15083.
12.1-- Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Fixed Charges and Preferred Stock Dividends: Incorporated by
reference to Exhibit 12.1 of Carolina First Corporation's Annual
Report on Form 10-K for the year ended December 31, 1997,
Commission File No. 0-15083.
13.1-- 1997 Annual Report to Shareholders of Carolina First
Corporation. Incorporated by reference to Exhibit 13.1 of
Carolina First Corporation's Annual Report on Form 10-K for the
year ended December 31, 1996, Commission File No. 0-15083.
21.1-- Subsidiaries of the Registrant: Carolina First Bank, Carolina First Mortgage Company, Resource
Processing Group, Inc. CF Investment Company and Blue Ridge Finance Company, Inc., all of
which are South Carolina corporations.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Elliott, Davis & Company, L.L.P.
23.3 -- Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit 5.1.
23.4 -- Consent of Capital Resource Group, Inc.
24.1 -- The Power of Attorney: Contained on the signature page of the initial filing of this Registration
Statement.
27.1 -- Financial Data Schedule: Incorporated by reference to Exhibit 10.18 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, Commission
File No. 0-15083.
99.1 -- Form of Proxy
</TABLE>
(b) Certain additional financial statements. Not applicable.
(c) The information required by this paragraph is included as an
Exhibit to the Proxy Statement/Prospectus.
ITEM 22: UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) (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
arising 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
81
<PAGE>
previously disclosed in the registration statement or any
material change in such information in the registration
statement: PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on
Form S-3, Form S-8 or Form F-3, and the information required
to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference 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.
(4) 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 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.
(5) 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.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
(c) 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.
82
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on August 18, 1998.
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 annexes thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, 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>
/s/ William R. Timmons, Jr. Chairman of the Board August 18, 1998
- ---------------------------
William R. Timmons, Jr.
/s/ Mack I. Whittle, Jr. President, Chief Executive Officer August 18, 1998
- ------------------------ and Director (Principal Executive Officer)
Mack I. Whittle, Jr.
/s/ William S. Hummers III Executive Vice President, Director August 18, 1998
- -------------------------- (Principal Accounting and Financial Officer)
William S. Hummers III
/s/ M. Dexter Hagy Director August 18, 1998
- ------------------
M. Dexter Hagy
/s/ Eugene E. Stone IV Director August 18, 1998
- ----------------------
Eugene E. Stone IV
/s/ H. Earle Russell, Jr. Director August 18, 1998
- -------------------------
H. Earle Russell, Jr.
/s/ Judd B. Farr Director August 18, 1998
- ----------------
Judd B. Farr
/s/ Charles B. Schooler Director August 18, 1998
- -----------------------
Charles B. Schooler
/s/ Elizabeth P. Stall Director August 18, 1998
- ----------------------
Elizabeth P. Stall
/s/ David C. Wakefield III Director August 18, 1998
- --------------------------
David C. Wakefield III
/s/ Vernon E. Merchant , Jr. Director August 18, 1998
- ----------------------------
Vernon E. Merchant, Jr.
83
<PAGE>
/s/ William R. Phillips Director August 18, 1998
- -----------------------
William R. Phillips
/s/ C. Claymon Grimes, Jr. Director August 18, 1998
- --------------------------
C. Claymon Grimes, Jr.
</TABLE>
84
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
2.1 -- Agreement and Plan of Reorganization entered into as of July 9, 1998 between and among Carolina First
Bank, Carolina First Corporation and Colonial Bank: Included as Annex A to the Proxy
Statement/Prospectus.
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. 33-57389.
3.2 -- Articles of Amendment dated June 1, 1997: Incorporated by reference to Exhibit 3.2 of Carolina First
Corporation's Registration Statement on Form S-4 filed on July 30, 1997, Commission File No. 333-
32459.
3.3 -- Amended and Restated Bylaws of Carolina First Corporation, as amended and restated as of December
18, 1996: Incorporated by reference to Exhibit 3.1 of Carolina First Corporation's Current Report on
Form 8-K dated December 18, 1996, Commission File No. 0-15083.
4.1 -- Specimen Carolina First Corporation 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 -- Articles of Incorporation: Included as Exhibits 3.1 and 3.2.
4.2 -- Bylaws: Included as Exhibit 3.3.
4.3 -- Carolina First Corporation Amended and Restated Common Stock Dividend Reinvestment Plan:
Incorporated by reference to the Prospectus in Carolina First Corporation's Registration Statement on
Form S-3, Commission File No. 333-06975.
4.6 -- Amended and Restated Shareholder Rights Agreement: Incorporated by reference to Exhibit 4.1 of
Carolina First Corporation's Current Report on Form 8-K dated December 18, 1996, Commission File
No. 0-15083.
4.7 -- Form of Indenture between Carolina First Corporation and First American Trust Company, N.A., as
trustee: Incorporated by reference to Exhibit 4.11 of Carolina First Corporation's Registration Statement
on Form S-3, Commission File No. 22-58879.
5.1 -- Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding legality of shares of the Carolina First
Corporation.
8.1 -- See "THE PROPOSED TRANSACTION -- Certain Federal Income Tax Consequences" for discussion
regarding tax matters.
11.1 -- Computation of Per Share Earnings: Incorporated by reference to Exhibit 11.1 of Carolina First
Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, Commission File No.
0-15083.
12.1 -- Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Stock
Dividends: Incorporated by reference to Exhibit 12.1 of Carolina First Corporation's Annual Report on
Form 10-K for the year ended December 31, 1997, Commission File No. 0-15083.
13.1 -- 1997 Annual Report to Shareholders of Carolina First Corporation. Incorporated by reference to Exhibit
13.1 of Carolina First Corporation's Annual Report on Form 10-K for the year ended December 31,
1996, Commission File No. 0-15083.
21.1-- Subsidiaries of the Registrant: Carolina First Bank, Carolina First Mortgage Company, Resource
Processing Group, Inc. CF Investment Company and Blue Ridge Finance Company, Inc., all of which
are South Carolina corporations.
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consent of Elliott, Davis & Company, L.L.P.
23.3 -- Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit 5.1.
23.4 -- Consent of Capital Resource Group, Inc.
24.1 -- The Power of Attorney: Contained on the signature page of the initial filing of this Registration Statement.
27.1 -- Financial Data Schedule: Incorporated by reference to Exhibit 10.18 of Carolina First Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997, Commission File No. 0-15083.
99.1 -- Form of Proxy
</TABLE>
85
EXHIBIT 5.1 August 4, 1998
[WYCHE, BURGESS, FREEMAN & PARHAM, P.A. LETTERHEAD]
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
Colonial Bank of South Carolina, Inc.
1111 Broad Street
Camden, South Carolina 29020
RE: Registration Statement on Form S-4 with respect to
642,571 shares of Carolina First Corporation Common
Stock
Gentlemen/Ladies:
The opinions set forth herein are rendered with respect to the 642,571 shares,
$1.00 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 Colonial Bank of
South Carolina, Inc. ("Colonial Bank"), all as set forth in that certain
Reorganization Agreement entered into as of July 9, 1998 by and among the
Company, Carolina First Bank and Colonial Bank. 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 August 18, 1998, 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 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 Colonial Bank 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,
/s/
Wyche, Burgess, Freeman & Parham, P.A.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Carolina First Corporation
We consent to the use of our report dated January 22, 1998 included in Carolina
First Corporation's Form 10-K for the year ended December 31, 1997, incorporated
herein by reference and to the reference to our firm under the heading "Experts"
in the Proxy Statement/Prospectus for the acquisition of Colonial Bank of South
Carolina, Inc.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
August 14, 1998
Exhibit 23.2
[ELLIOTT, DAVIS & COMPANY, LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Colonial Bank of South Carolina, Inc.
We consent to the use of our reports dated February 5, 1998 at and
for the periods ended December 31, 1997 and March 31, 1997 and May 8, 1996 at
and for the years ended March 31, 1996 and 1995, with respect to the financial
statements of Colonial Bank of South Carolina, Inc. included in registration
statement (Form S-4) for Carolina First Corporation and to the reference to our
firm under the heading "Experts" in the Proxy Statement/Prospectus for the
acquisition of Colonial Bank of South Carolina, Inc.
ELLIOTT, DAVIS & COMPANY, LLP
Greenville, South Carolina
August 14, 1998
Exhibit 23.4
(Logo) Capital Resources Group, Inc.
1211 Connecticut Ave., N.W. (bullet) Suite 200 (bullet) Washington, DC 20036
(bullet) Tel (202) 466-5685 (bullet) Fax (202) 466-5695
CONSENT OF CAPITAL RESOURCES GROUP, INC.
We hereby consent to the use of our opinion letter to the Board of Directors
of Colonial Bank of South Carolina, Inc. to the Prospectus/Joint Proxy Statement
relating to the proposed merger of Carolina First Corporation, Carolina First
Bank and Colonial Bank of South Carolina, Inc. and to the references to our
Firm and such opinion in such Prospectus/Joint Proxy Statement. In giving such
consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any
part of such Registration Statement within the meaning of the term "experts"
as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Capital Resources Group, Inc.
-------------------------------------
Capital Resources Group, Inc.
August 18, 1998
Exhibit 99.1
P
R
O COLONIAL BANK OF SOUTH CAROLINA, INC.
X This Proxy is Solicited on Behalf of the Board of Directors
Y
Special Meeting, September 28, 1998
The undersigned shareholder of Colonial Bank of South Carolina, Inc., hereby
revoking all previous proxies, hereby appoints Guy S. Hutchins, Jr. and William
F. Nettles III 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 Shareholders of Colonial Bank of South Carolina, Inc. to be
held September 28, 1998, at 10:00 a.m., local time, at 1111 Broad Street,
Camden, South Carolina 29020 and at any adjournments thereof, and to vote all
shares of Colonial Bank of South Carolina, Inc. 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 as of July 9,
1998, providing for the merger of Colonial Bank of South
Carolina, Inc. with and into Carolina First Bank, a
wholly-owned subsidiary of Carolina First Corporation, and,
in connection therewith, the conversion of shares of common
stock of Colonial Bank of South Carolina, Inc. into the right
to receive shares of common stock of Carolina First
Corporation, subject to the terms and conditions of the
Reorganization Agreement.
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: _____________________, 1998
- --------------------------------------------
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.
