As filed with the Securities and Exchange Commission on March 3, 1999.
Registration No. 333-
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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)
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SOUTH CAROLINA 6711 57-0824914
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(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number Identification No.)
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102 SOUTH MAIN STREET
GREENVILLE, SOUTH CAROLINA 29601
(864) 255-7900
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(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
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(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.|_|
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CALCULATION OF REGISTRATION FEE
=========================================================================================================
Proposed Maximum Proposed Maximum Amount
Title of Each Class Amount to Offering Price Aggregate Registration
of Securities to be Registered be Registered Per Unit (1) Offering Price (1) Fee (2)
- ------------------------------ ------------- ------------ ------------------ -------
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Common Stock 600,000 $8.03 $4,816,678 $1,339.04
(par value $1.00 per share)
=========================================================================================================
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(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 $4,816,678, which is the
book value of the Citizens First National Bank common stock to be received by
Carolina First Corporation in the acquisition as of December 31, 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.
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CITIZENS FIRST NATIONAL BANK
500 North Summit Street
Crescent City, Florida 32112
March 10, 1999
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Citizens First National Bank to be held on Monday, April 12, 1999, at 5:00 p.m.,
local time, at the main office of Citizens First National Bank located at 500
North Summit Street, Crescent City, Florida 32112.
At the Special Meeting, you will be asked to vote upon the proposed
acquisition of Citizens by Carolina First Corporation. If the acquisition is
approved, you will receive shares of Carolina First common stock valued at
$109.19 for each share of Citizens common stock owned by you. Based on the
average of the closing prices of Carolina First common stock for the 30 trading
days ending March ____, 1999, you would receive ____ shares of Carolina First
common stock for each share of Citizens stock you own.
THE BOARDS OF EACH OF CITIZENS AND CAROLINA FIRST HAVE APPROVED THE
ACQUISITION AND RECOMMEND THAT YOU VOTE IN FAVOR OF THE ACQUISITION. The
acquisition cannot be completed unless holders of two-thirds of the outstanding
common stock of Citizens are voted in favor of the acquisition.
Enclosed with this Letter 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, among other
things, (1) a description of the terms and conditions of the proposed
acquisition and related agreements, and (2) certain financial and other
information about Carolina First and Citizens. You may also obtain information
about Carolina First from documents that it has filed with the Securities and
Exchange Commission. You are urged to review all of this information carefully,
because it is important.
YOUR VOTE IS IMPORTANT. YOU CAN VOTE EITHER IN PERSON AT THE SPECIAL
MEETING OR BY PROXY. IF YOU VOTE BY PROXY, PLEASE 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 NEVERTHELESS VOTE YOUR SHARES IN PERSON, EVEN IF YOU
HAVE ALREADY RETURNED YOUR PROXY. 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 ACQUISITION.
Sincerely,
Joe H. Pickens
Chairman
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CITIZENS FIRST NATIONAL BANK
500 North Summit Street
Crescent City, Florida 32112
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 12, 1999
TO THE SHAREHOLDERS OF CITIZENS FIRST NATIONAL BANK:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Citizens
First National Bank (the "Special Meeting") will be held at the main office of
Citizens First National Bank ("Citizens") located at 500 North Summit Street,
Crescent City, Florida 32112, on Monday, April 12, 1999, at 5:00 p.m., local
time, for the following purposes:
1. CONSIDERATION OF THE ACQUISITION OF CITIZENS BY CAROLINA FIRST
CORPORATION. To consider and vote upon the proposed acquisition of Citizens by
Carolina First Corporation. The terms of this proposed acquisition is set forth
in the Proxy Statement/Prospectus included with this Notice.
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 February 22, 1999,
are entitled to notice of and to vote at the Special Meeting. The affirmative
vote of the holders of at least two-thirds of the issued and outstanding shares
of Citizens common stock is required to approve the acquisition. 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
(1) by giving written notice to the Secretary of Citizens at any time before it
is voted, (2) by submitting a proxy having a later date, or (3) by such person
appearing at the Special Meeting and giving notice of revocation to the
corporate officers responsible for maintaining the list of shareholders.
By Order of the Board of Directors,
March 10, 1999 Joe H. Pickens
Chairman
YOUR VOTE IS IMPORTANT
REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN AND WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD.
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PROXY STATEMENT/PROSPECTUS
CAROLINA FIRST CORPORATION
PROSPECTUS FOR 600,000 SHARES OF COMMON STOCK $1.00 PAR VALUE PER SHARE
CITIZENS FIRST NATIONAL BANK
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
This Proxy Statement/Prospectus is provided with respect to the proposed
acquisition of Citizens First National Bank ("Citizens") by Carolina First
Corporation ("Carolina First").
If the acquisition is consummated, Citizens will become a wholly-owned
subsidiary of Carolina First, and stockholders of Citizens will receive shares
of Carolina First common stock valued at $109.19 for each outstanding share of
Citizens common stock. Based on the average of the closing prices of Carolina
First common stock for the 30 trading days ending March ___, 1999, this would
result in a "conversion ratio" of _____ shares of Carolina First common stock
for each share of Citizens stock.
The acquisition must be approved by holders of at least two-thirds of the
outstanding stock of Citizens. A Special Meeting of shareholders of Citizens is
being held on April 12, 1999 in order to provide the shareholders with an
opportunity to vote on the proposed acquisition. More specific information
regarding the Special Meeting is included in this document. Completion of the
acquisition is also subject to the compliance with certain other conditions,
including approval by applicable regulatory authorities.
The acquisition will be structured as a merger, in which Citizens will be
merged into a wholly-owned subsidiary of Carolina First. After the acquisition,
the "surviving corporation" in the merger will be a wholly-owned subsidiary of
Carolina First, and the former Citizens shareholders will hold Carolina First
common stock. Citizens shareholders who wish to exercise "dissenter's rights"
with respect to this acquisition, may do so by following the procedure set forth
herein. If such procedure is followed, such shareholders will receive cash upon
the surrender of the Citizens stock, instead of receiving Carolina First common
stock. Cash will be paid in lieu of fractional shares to which a Citizens
shareholder becomes entitled. The exact terms of the acquisition are set forth
in the Reorganization Agreement attached hereto as Exhibit A. A discussion and
description of these terms are set forth below in this Proxy Statement/
Prospectus. See "THE PROPOSED TRANSACTION" below.
PLEASE REVIEW CAREFULLY THE "RISK FACTORS" SECTION BELOW BEGINNING ON PAGE
14. IT SETS FORTH A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE
CONSIDERED BY SHAREHOLDERS OF CITIZENS IN EVALUATING THE ACQUISITION.
CITIZENS' BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOR OF
THE PROPOSED ACQUISITION.
Carolina First's common stock is traded on the Nasdaq National Market
under the Nasdaq market symbol "CAFC." On January 14, 1999 (the last business
day prior to the announcement of the acquisition), the closing bid price of the
Carolina First common stock, as reported by Nasdaq, was $22.88 per share. The
Citizens common stock is not traded on any established market and has
experienced very limited trading. Citizens' management is aware of only one
trade in the past six months at $32.00 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE CAROLINA FIRST COMMON STOCK TO BE ISSUED IN THE
ACQUISITION, OR DETERMINED THAT THIS PROXY STATEMENT/PROSPECTUS IS EITHER
ACCURATE OR INACCURATE, OR ADEQUATE OR INADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE CAROLINA FIRST 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 March 10, 1999.
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TABLE OF CONTENTS
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SUMMARY...........................................................................5
The Purpose of this Proxy Statement/Prospectus..............................5
Time, Place and Purposes of the Special Meeting.............................5
Parties to the Reorganization Agreement.....................................5
General Terms of the Proposed Transaction...................................5
Vote Required and Record Date...............................................6
Recommendation of Board of Directors........................................6
Rights of Dissenting Shareholders...........................................6
Certain Differences in Shareholders' Rights after the Acquisition...........6
Conditions to Consummation of the Acquisition...............................6
Termination of the Transaction..............................................7
Effective Time of the Acquisition...........................................7
Opinion of Financial Adviser................................................7
Certain Federal Income Tax Consequences.....................................7
Interests of Certain Affiliates of Citizens.................................8
Restrictions on Resales by Affiliates.......................................8
Accounting Treatment........................................................8
Market Prices and Dividends.................................................8
Selected Consolidated Financial Data.......................................10
Comparative Per Share Data.................................................13
RISK FACTORS.....................................................................14
Carolina First is dependent on its senior management.......................14
Carolina First has experienced significant growth through acquisitions,
which could, in certain circumstances, adversely affect net income...14
Carolina First has certain antitakeover measures which could impede the
takeover of Carolina First...........................................14
Carolina First has experienced significant growth in commercial lending
activities, which entails special risks not associated with
certain other types of loans.........................................14
Recent regulatory rulings will increase chargeoffs associated with past
due credit cards.....................................................15
INFORMATION CONCERNING THE SPECIAL MEETING.......................................16
Special Meeting............................................................16
Purpose of the Special Meeting.......................................16
Citizens Record Date and Voting Rights...............................16
Proxies..............................................................16
Recommendation.......................................................17
THE PROPOSED TRANSACTION.........................................................18
General Description of the Terms of the Reorganization Agreement...........18
Background of and Reasons for the Reorganization Agreement.................19
Citizens Reasons.....................................................19
Carolina First Reasons...............................................20
Opinion of Citizens' Financial Adviser.....................................20
Exchange of Citizens Stock Certificates....................................23
Conditions to Consummation of the Acquisition..............................24
Termination................................................................25
Amendment..................................................................25
Conduct of Citizens' and Carolina First's Business Prior to the
Effective Time.......................................................25
Required Regulatory Approvals..............................................26
Operations After the Acquisition...........................................27
Interests of Certain Persons in the Acquisition............................27
Directors............................................................27
Indemnification; Advancement of Expenses; Directors' and Officers'
Insurance......................................................27
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Employment Agreements................................................28
Other Matters Related to Employees and Employee Benefit Plans........28
Accounting Treatment.......................................................28
Certain Federal Income Tax Consequences....................................28
Restrictions on Resales by Affiliates......................................30
Rights of Dissenting Shareholders of Citizens..............................30
Recommendation of the Citizens Board of Directors..........................31
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION...............................32
INFORMATION ABOUT CAROLINA FIRST.................................................39
General....................................................................39
Capital Adequacy...........................................................40
Recent Developments........................................................41
INFORMATION ABOUT CITIZENS FIRST NATIONAL BANK...................................43
Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................43
Earnings Performance.............................................................43
Nine Months Ended September 30, 1998 Compared with Nine Months Ended
September 30, 1997...................................................43
1997 Compared with 1996....................................................43
Interest Rate Sensitivity........................................................46
Provision for Loan Losses........................................................47
Noninterest Income...............................................................48
Noninterest Expenses.............................................................48
Provision For Income Taxes.......................................................48
Investment Portfolio.............................................................48
Nonperforming Loans; Other Problem Assets........................................52
Potential Problem Loans..........................................................52
Other Real Estate Owned..........................................................52
Allowance for Loan Losses........................................................52
Deposits.........................................................................54
Return on Equity and Assets......................................................55
Capital Resources................................................................55
Inflation........................................................................56
Correspondent Banking............................................................56
Data Processing..................................................................56
Employees........................................................................56
Monetary Policies................................................................56
Supervision and Regulation.......................................................57
Description of Property..........................................................60
Legal Proceedings................................................................60
Market for Common Stock and Dividends............................................60
Management and Principal Shareholders of Citizens................................60
COMPARATIVE RIGHTS OF SHAREHOLDERS...............................................62
Comparison of Carolina First Common Stock and Citizens Common Stock........62
CAROLINA FIRST CAPITAL STOCK.....................................................65
Common Stock...............................................................65
Preferred Stock............................................................65
Certain Matters............................................................65
Shareholders' Rights Agreement.......................................65
Management Contracts.................................................67
Board of Directors...................................................67
Voting...............................................................68
Control Share Acquisition/Business Combination Statutes..............68
Transfer Agent.......................................................69
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Dividend Reinvestment Plan...........................................69
LEGAL MATTERS....................................................................69
EXPERTS..........................................................................69
OTHER MATTERS....................................................................69
ADDITIONAL INFORMATION AVAILABLE THROUGH THE SEC.................................69
INCORPORATION OF CERTAIN INFORMATION FILED WITH THE SEC BY REFERENCE............70
RESALE MATTERS; SOURCE OF INFORMATION; CERTAIN OTHER MATTERS.....................71
INDEX TO FINANCIAL STATEMENTS...................................................F-1
ANNEXES
Reorganization Agreement..............................................Annex A
Opinion of First Capital Group, LLC...................................Annex B
Dissenter's Rights Statute............................................Annex C
Financial Statements of Carolina First Interim Bank, N.A..............Annex D
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4
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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. 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 TERMS "CAROLINA FIRST" AND "CITIZENS" REFER TO CAROLINA FIRST
CORPORATION AND CITIZENS FIRST NATIONAL BANK, RESPECTIVELY, AND WITH RESPECT TO
CAROLINA FIRST, UNLESS THE CONTEXT OTHERWISE REQUIRES, ITS CONSOLIDATED
SUBSIDIARIES.
THE PURPOSE OF THIS PROXY STATEMENT/PROSPECTUS. This Proxy
Statement/Prospectus is being sent to the Citizens shareholders in order to
provide information concerning the proposed acquisition of Citizens by Carolina
First. This document is called a "Proxy Statement/Prospectus" because it is both
(1) a prospectus with respect to the proposed issuance by Carolina First of its
common stock to the Citizens shareholders and (ii) a proxy statement with
respect to the solicitation of proxies by the Citizens Board of Directors for
the Special Meeting. This Proxy Statement/Prospectus is first being mailed to
Citizens shareholders on or about March 10, 1999.
TIME, PLACE AND PURPOSES OF THE SPECIAL MEETING. The Special Meeting will
be held on April 12, 1999 at 5:00 p.m., local time, at Citizens' main office,
500 North Summit Street, Crescent City, Florida. At the Special Meeting,
shareholders of Citizens will consider and vote upon the proposed acquisition of
Citizens.
See "INFORMATION CONCERNING THE SPECIAL MEETING."
PARTIES TO THE REORGANIZATION AGREEMENT.
CAROLINA FIRST. Carolina First is a bank holding company headquartered in
Greenville, South Carolina which engages in a general banking business through
its five 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,
(4) Resource Processing Group, Inc., a credit card origination and
servicing company headquartered in Columbia, South Carolina, and
(5) Carolina First Bank, F.S.B., a federal savings bank
headquartered in Travelers Rest, South Carolina.
Carolina First is a South Carolina corporation which was organized in 1986. At
September 30, 1998, it had total consolidated assets of approximately $2.6
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."
CITIZENS. Citizens is a national banking association headquartered in
Crescent City, Florida which conducts a general banking business principally in
Putnam County, Florida. At September 30, 1998, Citizens had total assets of
approximately $55 million. Its principal executive offices are located at 500
North Summit Street, Crescent City, Florida 32112, and its telephone number is
(904) 698-1982. See "INFORMATION ABOUT CITIZENS."
GENERAL TERMS OF THE PROPOSED TRANSACTION. The transaction is being
structured as a merger in which Citizens will be merged into a wholly-owned
subsidiary of Carolina First. After the acquisition, the "surviving
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corporation" in the merger will be a wholly-owned subsidiary of Carolina First,
and the former Citizens shareholders will hold Carolina First common stock
(which they received upon surrender of their Citizens shares).
Assuming the acquisition is consummated, stockholders of Citizens will
receive shares of Carolina First common stock valued at $109.19 for each
outstanding share of Citizens common stock. Except for certain instances
involving a change of control of Carolina First, the value of the Carolina First
common stock to be issued in the transaction will be determined based on the
average of the closing prices as quoted on the Nasdaq National Market for
Carolina First common stock for the thirty days in which Carolina First common
stock was traded immediately prior to the closing of the transaction (except
that the parties have agreed that fair market value shall never be deemed to be
lower than $20.00 per share or higher than $30.00 per share). Based on the
average of the closing prices of Carolina First common stock for the 30 trading
days ending March 1, 1999, this would result in a "conversion ratio" of 5.0688
shares of Carolina First common stock for each share of Citizens stock.
The complete terms of the acquisition are set forth in the Reorganization
Agreement attached hereto as Exhibit A. A discussion and description of these
terms are set forth below in this Proxy Statement/Prospectus. See "THE PROPOSED
TRANSACTION" below.
VOTE REQUIRED AND RECORD DATE. Only Citizens shareholders of record at the
close of business on February 22, 1999 ("Record Date") will be entitled to vote
at the Special Meeting. The proposed acquisition must be approved by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Citizens common stock eligible to vote at the Special Meeting. As of the
Record Date, there were 109,900 shares of Citizens' common stock entitled to
vote. As of the date hereof, the directors and executive officers of Citizens
and their affiliates beneficially owned 56,738 shares, or approximately 52% of
Citizens' common stock. Upon consummation of the transactions contemplated
hereby (and assuming a fair market value of $21.50 per share of Carolina First
common stock), such persons will beneficially own 288,146 shares of Carolina
First common stock, or approximately 1.3% of the outstanding shares of Carolina
First common stock.
RECOMMENDATION OF BOARD OF DIRECTORS. THE BOARD OF DIRECTORS OF CITIZENS
HAS APPROVED THE PROPOSED ACQUISITION AND BELIEVES IT TO BE IN THE BEST
INTERESTS OF CITIZENS AND ITS SHAREHOLDERS. ACCORDINGLY, IT RECOMMENDS THAT
CITIZENS' SHAREHOLDERS VOTE FOR THE PROPOSED ACQUISITION. SEE "THE PROPOSED
TRANSACTION -- RECOMMENDATION OF THE CITIZENS BOARD OF DIRECTORS."
RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of Citizens who comply
with certain statutory procedures and who either (1) give written notice at or
before the Special Meeting that they dissent to the proposed acquisition, or (2)
vote against the proposed acquisition, will be entitled to obtain payment of the
value of their shares of Citizens common stock under federal law. Failure to
comply strictly with certain statutory procedures may result in the forfeiture
of such rights. It is a condition to consummation of the acquisition that
dissenters' rights not have been perfected with respect to more than 10% of
Citizens' outstanding shares of common stock. See "THE PROPOSED TRANSACTION --
Rights of Dissenting Shareholders of Citizens."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS AFTER THE ACQUISITION. Upon
consummation of the acquisition, the former Citizens shareholders will become
shareholders of Carolina First, and their rights as shareholders will be
determined by Carolina First's Articles of Incorporation and Bylaws. The rights
of shareholders of Carolina First differ from the rights of shareholders of
Citizens in several important respects, including, among other things, with
respect to required shareholder votes on certain matters and the existence of
certain antitakeover provisions. In addition, Carolina First is a South Carolina
corporation instead of a national banking association (like Citizens). See
"COMPARATIVE RIGHTS OF SHAREHOLDERS."
CONDITIONS TO CONSUMMATION OF THE ACQUISITION. Consummation of the
proposed acquisition is
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subject to various conditions, including receipt of the necessary regulatory
approvals and the requisite shareholder approval of Citizens. The necessary
regulatory approvals include the approval by the Office of the Comptroller of
the Currency and the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). Applications to these necessary regulatory authorities
seeking approval of the proposed transaction have been filed. The parties expect
that such applications will be approved. Carolina First and Citizens may waive
certain of the conditions to their respective obligations to consummate the
acquisition, other than conditions required by law. See "THE PROPOSED
TRANSACTION -- Conditions to Consummation of the Acquisition" and "THE PROPOSED
TRANSACTION -- Required Regulatory Approvals."
TERMINATION OF THE TRANSACTION. The parties' obligation to pursue the
transaction may be terminated at any time prior to the Closing Date:
(1) by mutual consent of the parties;
(2) by either Carolina First or Citizens, (a) if a permanent injunction
or other order has been issued by a court or regulatory body which
prevents the consummation of the transactions contemplated herein,
or (b) if the Citizens shareholder approval is not received at the
Special Meeting;
(3) by either Carolina First or Citizens if the other party has breached
the Reorganization Agreement and such breach constitutes a "material
adverse event;" or
(4) by either Carolina First or Citizens in the event that closing has
not occurred by July 31, 1999.
EFFECTIVE TIME OF THE ACQUISITION. The effective time of the acquisition
will be set forth in the Articles of Merger that have been filed with the Office
of the Comptroller of the Currency (the "OCC") and will occur after all
conditions specified in the Reorganization Agreement have been satisfied or
waived. The effective time currently is anticipated to be in April 1999,
although delays in the satisfaction of the conditions to consummation of the
acquisition could result in a later Effective Time. See "THE PROPOSED
TRANSACTION -- Conditions to Consummation of the Acquisition."
OPINION OF FINANCIAL ADVISER. First Capital Group, LLC ("First Capital")
has served as financial adviser to Citizens in connection with the proposed
acquisition and has rendered an opinion to the Citizens Board of Directors that
the consideration to be received by shareholders of Citizens is fair from a
financial point of view to the Citizens shareholders. For additional information
concerning First Capital and its opinion, see "THE PROPOSED TRANSACTION --
Opinion of Citizens' Financial Adviser" and the opinion of First Capital
attached as Annex B to this Proxy Statement/Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Citizens will receive an opinion
of counsel to Carolina First stating that, subject to certain conditions, the
acquisition 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 ("Code"). However, this opinion of counsel is not binding on
the Internal Revenue Service ("IRS"). In such opinion, counsel will opine (among
other things) that if certain conditions are met:
1. no taxable gain or loss for federal income tax purposes will be
recognized by Citizens shareholders upon the exchange of Citizens
common stock solely for Carolina First common stock;
2. 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
Citizens common stock;
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3. a dissenting shareholder who receives cash in lieu of Carolina First
common stock will be taxed to the extent that the cash exceeds such
dissenting shareholder's basis in the Citizens 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 Citizens shareholder consult his or her tax
adviser concerning the federal (and any applicable state, local or other) tax
consequences of the acquisition.
INTERESTS OF CERTAIN AFFILIATES OF CITIZENS. In the Reorganization
Agreement, for a period of at least three years following closing, Carolina
First has agreed to nominate and elect Joe H. Pickens, Michael E. Glenn and Paul
D. Causey to the board of the surviving corporation. The Reorganization
Agreement also provides that Carolina First will indemnify Citizens 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 $25,000. In addition, Michael E.
Glenn and Mary Ellen Webb (both officers of Citizens) are expected to enter into
two year employment contracts with Carolina First after the closing. Joe H.
Pickens (Citizens' board chairman) is expected to enter into a two year
noncompetition and consulting agreement with Carolina First after the closing.
Carolina First has also specifically agreed to honor Citizens' obligations under
its various existing employee benefit plans. See "THE PROPOSED TRANSACTION --
Interests of Certain Persons in the Acquisition."
RESTRICTIONS ON RESALES BY AFFILIATES. Citizens has agreed that, prior to
closing, it will use its best efforts to cause certain affiliates of Citizens to
deliver written agreements to Carolina First that they will not dispose of any
shares of Carolina First 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 acquisition is expected to be accounted for as a
"pooling-of-interests" of Citizens by Carolina First under generally accepted
accounting principles. See "THE PROPOSED TRANSACTION -- Accounting Treatment."
MARKET PRICES AND DIVIDENDS. Carolina First common stock is traded on the
Nasdaq National Market. Carolina First currently pays a regular quarterly
dividend of $.09 per share. Although Carolina First currently expects to
continue payment of its regular cash dividend on the Carolina First common
stock, there can be no assurance that Carolina First's current dividend policy
will continue unchanged after closing. The declaration and payment of dividends
on Carolina First common stock is subject to legal restrictions and further
depends upon business conditions, operating results, capital and reserve
requirements and the Carolina First Board of Directors' consideration of other
relevant factors.
Citizens common stock is not traded on any established market and has
experienced very limited trading. Citizens has paid dividends of $0.55, $0.70
and $0.80 per share during its fiscal years ended December 31, 1996, and 1997,
and the nine months ended September 30, 1998, respectively. Federal banking
regulations restrict the amount of dividends that Citizens 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 common stock on January 14, 1999, the
last trading day prior to the public announcement of the proposed acquisition,
and on March ___, 1999. The Citizens Equivalent is the total dollar amount of
consideration to be received by holders of Citizens common stock. The actual
Conversion Ratio is subject to adjustment based on the fair market value of
Carolina First common stock. The table also includes a historical price of
$32.00 for Citizens common stock. This was the price of the only trade of
Citizens common stock that management was aware of during the past six months.
8
<PAGE>
Market Values Per Share
-----------------------
Carolina First Citizens
-------------- --------
Historical Historical Equivalent
---------- ---------- ----------
January 14, 1999 $22.88 $32.00 $109.19
March ___, 1999 __.__ 32.00 109.19
Citizens shareholders are advised to obtain current market quotations for
the Carolina First common stock. The market price of Carolina First common stock
at the effective time of the acquisition 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.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected unaudited historical financial
information and selected unaudited combined pro forma financial information of
Carolina First and Citizens. This information is derived from the historical
financial statements of Carolina First and Citizens, 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 pooling of
interests method of accounting. The selected pro forma combined unaudited
financial information showing the combined results of Carolina First and
Citizens 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."
CAROLINA FIRST CORPORATION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
------------------------ -------------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 29,358 $43,260 $50,772 $ 57,070 $ 66,706 $ 48,265 $ 64,028
Provision for loan losses 1,106 1,197 6,846 10,263 11,646 9,603 8,686
Noninterest income, excluding
securities transactions 6,085 8,151 16,557 20,368 16,604 12,769 15,409
Securities transactions 680 75 769 973 3,011 2,453 451
Noninterest income 6,765 8,226 17,326 21,341 19,615 15,222 15,860
Noninterest expenses (1) 27,294 51,839 46,882 51,675 52,243 38,278 45,997
Net income (loss) (1) 5,418 (1,740) 9,414 10,474 14,340 10,016 15,869
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 10,016 15,869
BALANCE SHEET DATA (Period End)
Total assets $904,474 $1,204,350 $1,414,922 $1,574,204 $2,156,346 $1,762,674 $2,632,674
Securities and temporary
investments 190,683 137,091 187,029 271,396 333,236 273,354 406,239
Loans, net of unearned
income 623,646 923,068 1,062,660 1,124,775 1,602,415 1,305,612 1,757,399
Allowance for loan losses 6,679 6,002 8,661 11,290 16,211 13,925 17,627
Nonperforming assets 5,366 4,722 4,868 5,880 3,767 4,921 2,558
Total earning assets 814,579 1,059,455 1,249,689 1,396,171 1,935,651 1,599,568 2,330,053
Total deposits 804,549 1,001,748 1,095,491 1,281,050 1,746,542 1,396,802 2,069,140
Borrowed funds 16,779 106,074 186,789 145,189 139,739 194,237 163,238
Long-term debt 1,274 1,162 26,347 26,442 39,119 25,457 25,586
Preferred stock 15,662 37,014 32,909 943 -- -- --
Shareholders' equity 70,415 86,482 94,967 104,964 201,659 124,501 337,434
PER SHARE DATA (2)
Net income (loss) per common share:
Basic(1) $0.63 $(0.59) $ 0.89 $ 0.97 $ 1.19 $ 0.87 $ 0.91
Diluted(1) 0.63 (0.59) 0.84 0.92 1.18 0.86 0.89
Cash dividends declared 0.04 0.17 0.21 0.25 0.29 0.21 0.24
Book value per common
share (period end) 7.70 6.61 7.61 9.26 12.88 10.25 15.53
Common shares outstanding:
Weighted average - basic 5,505,461 7,004,214 7,516,620 10,705,107 11,989,517 11,510,575 17,446,512
Weighted average - diluted 8,208,935 10,114,812 11,183,726 11,368,035 12,175,561 11,672,269 17,799,710
Period end 6,969,484 7,079,866 7,820,839 11,225,568 15,659,338 12,150,453 21,728,599
FINANCIAL RATIOS (3)
Return on average assets 0.69% (0.16)% 0.74% 0.71% 0.84% 0.82% 0.94%
Return on average equity 8.27 (1.99) 10.43 10.56 11.62 12.02 8.70
Net interest margin 4.16 4.65 4.54 4.35 4.36 4.40 4.23
</TABLE>
- ------------------
(1) Includes 1996 Savings Association Insurance Fund special assessment of
$1,184 (pre-tax) and 1994 restructuring charges of $12,214 (pre-tax).
(2) Adjusted for stock dividends and stock splits.
(3) Ratios as of September 30, 1997 and 1998 have been annualized for
comparative purposes.
10
<PAGE>
CITIZENS FIRST NATIONAL BANK
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Nine Months
Years Ended December 31, Ended September 30,
------------------------ -------------------
1993 1994 1995 1996 1997 1997 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(unaudited)
STATEMENT OF INCOME DATA
Net interest income $ 2,179 $ 2,223 $ 2,283 $ 2,348 $ 2,378 $ 1,790 $ 1,913
Provision for loan losses -- 132 146 79 -- -- 10
Noninterest income, excluding
securities transactions 437 489 454 480 434 328 297
Securities transactions 10 5 -- -- -- -- --
Noninterest income 448 494 454 480 434 328 297
Noninterest expenses 2,086 2,199 2,220 2,190 2,183 1,642 1,653
Net income 326 233 294 363 472 355 351
Dividends on preferred stock -- -- -- -- -- -- --
Net income applicable to
common shareholders 326 233 294 363 472 355 351
BALANCE SHEET DATA (Period End)
Total assets $ 46,726 $47,753 $46,992 $47,773 $53,385 $51,599 $54,667
Securities and temporary
investments 9,462 9,267 8,950 7,357 7,931 7,873 8,944
Loans, net of unearned income 31,968 30,986 30,932 34,484 36,227 35,103 37,361
Allowance for loan losses 423 384 439 452 409 416 393
Nonperforming assets 1,566 1,135 1,151 809 1,025 927 667
Total earning assets 42,629 42,531 42,407 42,638 48,344 46,392 49,534
Total deposits 43,137 44,103 42,917 43,335 48,484 46,866 49,432
Borrowed funds -- -- -- -- -- -- --
Long-term debt -- -- -- -- -- -- --
Preferred stock -- -- -- -- -- -- --
Shareholders' equity 3,285 3,257 3,747 4,026 4,440 4,318 4,730
PER SHARE DATA Net income per common share:
Basic $2.99 $2.13 $2.68 $3.30 $4.30 $ 3.23 $ 3.20
Diluted 2.99 2.13 2.68 3.30 4.30 3.23 3.20
Cash dividends declared 0.50 0.50 -- 0.55 0.70 0.70 0.80
Book value per common
share (period end) 30.13 29.75 34.10 36.64 40.40 39.29 43.04
Common shares outstanding:
Weighted average - basic 109,000 109,454 109,900 109,900 109,900 109,900 109,900
Weighted average - diluted 109,000 109,454 109,900 109,900 109,900 109,900 109,900
Period end 109,000 109,900 109,900 109,900 109,900 109,900 109,900
FINANCIAL RATIOS (1)
Return on average assets 0.69% 0.48% 0.62% 0.77% 0.92% 0.90% 0.85%
Return on average equity 10.18 6.77 7.93 9.49 11.17 11.06 10.00
Net interest margin 5.20 5.25 5.44 5.61 5.12 5.03 5.11
</TABLE>
- -----------------------
(1) Ratios as of September 30, 1997 and 1998 have been annualized for
comparative purposes.
11
<PAGE>
UNAUDITED PRO FORMA COMBINED
SELECTED FINANCIAL DATA
CAROLINA FIRST CORPORATION AND CITIZENS FIRST NATIONAL BANK
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------ -------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net interest income $ 31,537 $ 45,483 $ 53,055 $ 59,418 $ 69,084 $ 50,055 $ 65,941
Provision for loan losses 1,106 1,329 6,992 10,342 11,646 9,603 8,696
Noninterest income, excluding
securities transactions 6,522 8,640 17,011 20,848 17,038 13,097 15,706
Securities transactions 690 80 769 973 3,011 2,453 451
Noninterest income 7,213 8,720 17,780 21,821 20,049 15,550 16,157
Noninterest expenses (1) 29,380 54,038 49,102 53,865 54,426 39,920 47,650
Net income (loss) (1) 5,744 (1,507) 9,708 10,837 14,812 10,371 16,220
Dividends on preferred stock 1,930 2,433 2,752 63 -- -- --
Net income (loss) applicable
to common shareholders (1) 3,814 (3,940) 6,956 10,774 14,812 10,371 16,220
BALANCE SHEET DATA (PERIOD END)
Total assets $ 951,200 $1,252,103 $1,461,914 $1,621,977 $2,209,731 $1,814,273 $2,687,341
Securities and temporary
investments 200,145 146,358 195,979 278,753 341,167 281,227 415,183
Loans, net of unearned income 655,614 954,054 1,093,592 1,159,259 1,638,642 1,340,715 1,794,760
Allowance for loan losses 7,102 6,386 9,100 11,742 16,620 14,341 18,020
Nonperforming assets 6,922 5,857 6,019 6,689 4,792 5,848 3,225
Total earning assets 857,208 1,101,986 1,292,096 1,438,809 1,983,995 1,645,960 2,379,587
Total deposits 847,686 1,045,851 1,138,408 1,324,385 1,795,026 1,443,668 2,118,572
Borrowed funds 16,779 106,074 186,789 145,189 139,739 194,237 163,238
Long-term debt 1,274 1,162 26,347 26,442 39,119 25,457 25,586
Preferred stock 15,662 37,014 32,909 943 -- -- --
Shareholders' equity 73,700 89,739 98,714 108,990 206,099 128,819 342,164
PER SHARE DATA (2)
Net income (loss) per common share:
Basic (1) $0.63 $(0.52) $0.86 $0.96 $1.18 $0.86 $0.90
Diluted (1) 0.63 (0.52) 0.83 0.90 1.16 0.85 0.88
Cash dividends declared 0.04 0.17 0.21 0.25 0.29 0.21 0.24
Book value per common
share (period end) 7.71 6.90 7.85 9.17 12.71 10.14 15.35
Common shares outstanding:
Weighted average - basic 6,063,561 7,562,314 8,074,720 11,263,207 12,547,617 12,068,675 18,004,612
Weighted average - diluted 8,767,035 10,672,912 11,741,826 11,926,135 12,733,661 12,230,369 18,357,810
Period end 7,527,584 7,637,966 8,378,939 11,783,668 16,217,438 12,708,553 22,286,699
FINANCIAL RATIOS (3)
Return on average assets 0.69% (0.14) % 0.74 % 0.71 % 0.84 % 0.82 % 0.93 %
Return on average equity 8.36 (1.66) 10.33 10.52 11.61 11.98 8.72
Net interest margin 4.22 4.68 4.58 4.39 4.38 4.42 4.25
</TABLE>
- ----------------------
(1) Includes Carolina First's 1996 Savings Association Insurance Fund special
assessment of $1,184 (pre-tax) and 1994 restructuring charges of $12,214
(pre-tax).
(2) Adjusted for stock dividends and stock splits.
(3) Ratios as of September 30, 1997 and 1998 have been annualized for
comparative purposes.
12
<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 common stock after giving effect to the Reorganization
Agreement and (ii) certain historical and pro forma data for the Citizens common
stock. The pro forma financial data are presented using the pooling-of-interests
method of accounting, and an assumed fair market value of Carolina First common
stock of $21.50 per share, resulting in a Conversion Ratio of 5.0786 shares of
Carolina First common stock for each share of Citizens 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.
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Fully
Fully Pro Forma
Pro Forma Citizens Pro Forma Combined
Carolina First Citizens Combined Equivalent(1) Combined Equivalent(2)
-------------- -------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Diluted earnings per common share $0.89 $3.20 $0.88 $ 4.47 $ 0.45 $ 2.29
Cash dividends declared per
common share 0.24 0.80 0.24 1.22 0.24 1.22
Book value per common
share (period end) 15.53 43.04 15.35 77.96 15.45 78.46
</TABLE>
- -------------------
(1) Calculated by multiplying the Pro Forma Combined by an assumed Conversion
Ratio of 5.0786.
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Fully
Fully Pro Forma
Pro Forma Citizens Pro Forma Combined
Carolina First Citizens Combined Equivalent(1) Combined Equivalent(2)
-------------- -------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Diluted earnings per common share $1.19 $ 4.30 $1.16 $ 5.89 $ 0.68 $ 3.45
Cash dividends declared per
common share 0.29 0.70 0.28 1.42 0.23 1.17
Book value per common
share (period end) 12.88 40.40 12.71 64.55 12.70 64.50
</TABLE>
- -----------------
(1) Calculated by multiplying the Pro Forma Combined by the assumed Conversion
Ratio of 5.0786.
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Fully
Fully Pro Forma
Pro Forma Citizens Pro Forma Combined
Carolina First Citizens Combined Equivalent(1) Combined Equivalent(2)
-------------- -------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Diluted earnings per common share $0.92 $3.30 $0.91 $ 4.62 -- --
Cash dividends declared per
common share 0.25 0.55 0.24 1.22 -- --
Book value per common
share (period end) 9.26 36.64 9.17 46.57 -- --
</TABLE>
- -----------------
(1) Calculated by multiplying the Pro Forma Combined by an assumed Conversion
Ratio of 5.0786.
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Fully
Fully Pro Forma
Pro Forma Citizens Pro Forma Combined
Carolina First Citizens Combined Equivalent(1) Combined Equivalent(2)
-------------- -------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Diluted earnings per common share $0.84 $2.68 $0.83 $ 4.22 -- --
Cash dividends declared per
common share 0.21 -- 0.20 1.02 -- --
Book value per common
share (period end) 7.61 34.10 7.85 39.87 -- --
</TABLE>
- --------------
(1) Calculated by multiplying the Pro Forma Combined by an assumed Conversion
Ratio of 5.0786.
(2) Calculated by multiplying the Fully Pro Forma Combined by an assumed
Conversion Ratio of 5.0786.
13
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY WHEN
EVALUATING THIS TRANSACTION AND THE VALUE OF CAROLINA FIRST COMMON STOCK TO BE
RECEIVED IN THIS TRANSACTION.
CAROLINA FIRST IS DEPENDENT ON ITS SENIOR MANAGEMENT. Carolina First is
dependent upon the services of certain of the senior executive officers of
Carolina First and its subsidiaries. The loss of the services of one or more of
such individuals could have an adverse effect on Carolina First. No assurance
can be given that replacements for any of these officers could be employed if
their services were no longer available. Carolina First maintains key employee
insurance on Mack I. Whittle, Jr., Carolina First's Chief Executive Officer.
CAROLINA FIRST HAS EXPERIENCED SIGNIFICANT GROWTH THROUGH ACQUISITIONS,
WHICH COULD, IN CERTAIN CIRCUMSTANCES, ADVERSELY AFFECT NET INCOME. Carolina
First has experienced significant growth in assets as a result of acquisitions.
Moreover, Carolina First anticipates engaging in selected acquisitions of
financial institutions and assets in the future. There are certain risks
associated with Carolina First'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
and being unable to profitably deploy funds acquired in an acquisition.
Furthermore, there can be no assurance as to the extent that Carolina First can
continue to grow through acquisitions.
In the past, Carolina First 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 engages in significant
acquisitions accounted for by the purchase method of accounting in the future,
Carolina First may be required to raise additional capital in order to maintain
capital levels required by the Federal Reserve Board.
In the future, Carolina First 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. Carolina First does
not currently have any definitive understandings or agreements for any
acquisitions material to Carolina First. However, as noted above, Carolina First
anticipates that it will continue to expand by acquisition in the future.
CAROLINA FIRST HAS CERTAIN ANTITAKEOVER MEASURES WHICH COULD IMPEDE THE
TAKEOVER OF CAROLINA FIRST. Carolina First has certain antitakeover measures in
place, certain of which are listed below. Any one or more of these measures may
impede the takeover of Carolina First without the approval of Carolina First'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 common stock. See "CAROLINA FIRST CAPITAL STOCK."
The antitakeover measures include:
(1) a Shareholders' Rights Plan which, among other things, provides for
the dilution of the Carolina First common stock holdings of certain shareholders
who acquire 20% or more of the Carolina First common stock and attempt to
acquire Carolina First without the consent of management;
(2) 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, and
(3) 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.
CAROLINA FIRST HAS EXPERIENCED SIGNIFICANT GROWTH IN COMMERCIAL LENDING
ACTIVITIES, WHICH ENTAILS
14
<PAGE>
SPECIAL RISKS NOT ASSOCIATED WITH CERTAIN OTHER TYPES OF LOANS. Over the past
several years, Carolina First 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's
nonperforming loans as a percentage of total loans is below its peer group
average, there is a risk that the quality of Carolina First's loan portfolio
could decline, particularly in connection with the rapid growth in loans
Carolina First has experienced over the past several years.
CERTAIN REGULATORY CHANGES COULD HAVE AN ADVERSE EFFECT ON INCOME. In February
1999, the Federal Financial Institutions Examination Council (the "FFIEC")
adopted policy changes regarding classification and account management for
retail credits, including the establishment of uniform charge-off policies
and guidelines for re-aging past due accounts. The FFIEC policy changes
should be implemented for reporting in the quarter ending June 30, 1999 for
manual adjustments and the quarter ending December 31, 2000 for programming
changes. The Company anticipates making changes to its existing procedures
to comply with the FFIEC policy changes. The Company has not determined the
financial impact of adopting the new FFIEC policies, which could have a
material adverse impact on the Company's operating results.
15
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to shareholders of
Citizens as of the Record Date in connection with the solicitation of proxies by
the Board of Directors of Citizens for use at the Special Meeting and at any
adjournments. The Special Meeting is to be held on April 12, 1999 at 5:00 p.m.,
local time, at the main office of Citizens, 500 North Summit Street, Crescent
City, Florida. Holders of Citizens common stock are requested to complete, date
and sign the accompanying Proxy and return it promptly to Citizens 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 Federal law, approval of the Reorganization Agreement
will require the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Citizens common stock entitled to vote on the
Reorganization Agreement. See "--Citizens Record Date and Voting Rights." This
Proxy Statement/Prospectus, Notice of Special Meeting and the Proxy are first
being mailed to shareholders of Citizens on or about March 10, 1999.
CITIZENS RECORD DATE AND VOTING RIGHTS. Only the holders of Citizens
common stock as of 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 109,900 shares of Citizens common stock outstanding, which were held
by approximately 185 holders of record. Each share of Citizens 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 ACQUISITION MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF
AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF CITIZENS 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 February 22, 1999, the directors and executive officers of Citizens and
their affiliates owned a total of 56,738 shares, or approximately 52% of
Citizens' common stock.
PROXIES. The accompanying Proxy is for use at the Special Meeting. A
shareholder may use this Proxy if he is unable to attend the Special Meeting in
person or wishes to have his shares voted by proxy even if he does attend the
Special Meeting. All shares represented by valid proxies received pursuant to
this solicitation that are not revoked before they are exercised will be voted
in the manner specified therein. If no specification is made, the proxies will
be voted FOR approval of the Reorganization Agreement. The Board of Directors of
Citizens 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 Citizens common stock
are voted in favor of approval of the Reorganization Agreement than the number
required for approval, it is expected that the Special Meeting will be postponed
or adjourned for the purpose of allowing additional time for obtaining
additional proxies or votes, and, at any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner
16
<PAGE>
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:
(1) by giving written notice to the Secretary of Citizens at any time
before it is voted,
(2) by submitting a proxy having a later date, or
(3) by such person appearing at the Special Meeting and giving notice of
revocation to the corporate officers responsible for maintaining the list of
shareholders.
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
Citizens, 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. Citizens 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 Citizens, Carolina First
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 Citizens or Carolina First since the date of this Proxy
Statement/Prospectus.
RECOMMENDATION. THE CITIZENS BOARD OF DIRECTORS HAS APPROVED THE
REORGANIZATION AGREEMENT AND BELIEVES THAT THE PROPOSED TRANSACTION IS FAIR TO
AND IN THE BEST INTERESTS OF CITIZENS AND ITS SHAREHOLDERS. THE CITIZENS BOARD
OF DIRECTORS RECOMMENDS THAT CITIZENS' 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 Citizens with and
into Carolina First Interim Bank, N.A., a wholly-owned national bank subsidiary
of Carolina First which is being formed to effect the acquisition. As a result
of the acquisition, the separate corporate existence of Citizens will cease and
Carolina First Interim Bank, N.A. as the surviving entity, will possess all
rights, franchises and interests of Citizens. After consummation of the
acquisition, Carolina First Interim Bank, N.A. will change its name to "Citizens
First National Bank."
As of the effective time of the acquisition, certificates of Citizens
common stock will represent only the right to receive the requisite number of
shares of Carolina First common stock and cash for any fractional shares. The
Reorganization Agreement also provides that Carolina First may restructure the
transactions contemplated therein, provided that any such restructuring does
not:
(1) alter the type of consideration to be issued to the holders of
Citizens common stock,
(2) reduce the value of such consideration,
(3) adversely affect the intended tax-free treatment to Citizens'
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,
(4) materially impair the ability to receive the required regulatory
approvals, or
(5) materially delay the closing.
Pursuant to the terms of the Reorganization Agreement, upon consummation
of the acquisition, holders of Citizens' common stock will be entitled to
receive shares of Carolina First common stock having a "fair market value" (as
defined in the Reorganization Agreement) of $109.19 for each outstanding share
of Citizens common stock held by them. Assuming a fair market value of $21.50
per share, this results in a Conversion Ratio of 5.0786.
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 common stock for the thirty days in which Carolina First common
stock was traded immediately prior to the Closing Date, except that (1) the fair
market value shall never be deemed to be lower than $20.00 per share or higher
than $30.00 per share and (2) if prior to the effective time of the acquisition,
any other person or entity shall have publicly announced an intention to acquire
control of Carolina First by acquisition or otherwise or Carolina First 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 common stock for the 30 days for which the Carolina First 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 30
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 common stock to be received
by Citizens shareholders will depend on the market price of Carolina First
common stock, the exact number of shares to be received by Citizens shareholders
will not be known until the effective date of the acquisition. On
_______________, the
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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 common stock, as reported on the Nasdaq National Market, was
$________. Citizens shareholders should note, however, that the market price of
the Carolina First 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, among other factors, and therefore may be worth
less than, or more than, such amount as of the date they receive their Carolina
First common stock certificates.
No fractional shares of Carolina First common stock will be issued as a
result of the acquisition. In lieu of the issuance of fractional shares, cash
will be paid to the holders of Citizens common stock in respect of any
fractional share that would otherwise be issuable based on the fair market value
of Carolina First common stock.
The Reorganization Agreement generally provides that Carolina First and
Citizens 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 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 acquisition will become effective at the Effective Time, which will be
specified in the Articles of Merger that have been filed with the OCC. At the
Effective Time, by operation of law, Citizens shareholders will no longer be
owners of Citizens common stock and (to the extent that they receive Carolina
First common stock as consideration) will automatically become owners of
Carolina First common stock. After the Effective Time, each outstanding
certificate representing shares of Citizens common stock prior to the Effective
Time shall be deemed for all corporate purposes (other than the payment of
dividends and other distributions by Citizens to which the former shareholders
of Citizens 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
CITIZENS REASONS. Citizens is headquartered in Crescent City, Florida and
conducts its business through four office facilities in Putnam County. In
connection with its normal strategic planning process, Citizens continuously
reviews its strategic business alternatives, including devoting attention to the
continuing consolidation and increasing competition in the banking and financial
services industries in Northeast Florida. In recent years, competition in the
local banking and financial services industries has intensified and required
increased efforts to enhance Citizens' ability to remain competitive in this
environment.
These efforts resulted in the Board of Directors directing Citizen's
Chairman and management to explore various methods of maintaining and increasing
Citizens' competitive abilities including combinations with other institutions
in the form of merger of equals or acquisition. Additionally, the Board had
received two unsolicited merger proposals which were rejected as not being in
the best interests of Citizens or its shareholders. Based on these events, the
Board determined to investigate fully all available business opportunities for
the benefit of Citizens and its shareholders.
The Board retained First Capital to perform an evaluation of Citizens and
to assess merger and acquisition opportunities. Through this process, several
institutions were targeted as possible merger/acquisition partners and contact
was made with them. First Capital was contacted by Carolina First, which
indicated its interest in acquiring Citizens. In these preliminary
conversations, Carolina First evidenced a strong desire to retain the majority
of management and employees, while at the same time affording Citizens the
opportunity to be the base on which Carolina First would build its Florida
banking operations. Management continued to negotiate with Carolina First and
other suitors for a period of several weeks, the culmination of which was
Carolina First's offer to purchase Citizens for a purchase price in excess of
that offered by any other institution. Equally as important was Carolina First's
stated commitment to retain the majority of senior management and employees and
to honor all of Citizens' commitments to its management and employees.
Upon the recommendation of First Capital and after careful analysis of the
various proposals, the Board
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of Directors unanimously agreed to accept the acquisition proposal submitted by
Carolina First.
In deciding to approve the Reorganization Agreement the Board of Directors
received information and advice from the officers of Citizens, Citizens' counsel
and First Capital, including First Capital's opinion that the consideration to
be received by the shareholders of Citizens was fair from a financial point of
view. In reaching its decision the Citizens Board of Directors considered a
number of factors. Without assigning any relative or specific weights to the
factors, the Citizens Board of Directors considered the following material
factors:
(i) Citizens' business, operations, earnings, managerial and
technological requirements and resources, prospects and financial
condition;
(ii) Carolina First's business, operations, earnings, financial
condition and lending capacity on both a historical and
prospective basis;
(iii) The enhanced opportunities for operating efficiencies that could
result from the acquisition, the enhanced opportunities for
growth in Citizens' market areas that the acquisition would make
possible and the respective contributions the parties would bring
to a combined institution;
(iv) The Citizens Board of Directors' belief that Carolina First Bank
would retain valued employees of Citizens and continue to make
substantial contributions in the communities served by Citizens;
(v) The terms of the Reorganization Agreement and the value of the
Carolina First common stock to be received by Citizens
shareholders;
(vi) Carolina First as an ongoing institution and its growth
prospects, asset quality, reserves for losses, capital adequacy
and profitability;
(vii) The liquidity of the Carolina First common stock and the number
of unaffiliated shareholders of Carolina First;
(viii) Alternatives to the acquisition, including remaining independent
and growing internally, or remaining independent for a period of
time and then selling;
(ix) Possible affiliation partners for Citizens (other than Carolina
First), prospects for such other possible affiliation partners,
and the consideration which might be available from such other
partners;
(x) The expectation that the acquisition will be a tax free
transaction to Citizens and its shareholders;
(xi) Factors that may affect the market value of Carolina First common
stock in the near future and the long term; and
(xii) Current and prospective economic environment, competitive
constraints and regulatory burdens facing financial institutions,
including Citizens.
The terms of the Reorganization Agreement were the result of arm's length
negotiations between representatives of Citizens and Carolina First.
CAROLINA FIRST REASONS. Carolina First has determined to expand its
banking operations into Florida. After consideration of relevant business,
financial, and market factors, the Board of Directors of Carolina First believes
that the acquisition of Citizens will provide it with a favorable means for its
entry into Florida. Carolina First believes that acquiring an existing
institution is a superior means of expanding in Citizens' markets, as opposed to
opening DE NOVO branches, primarily because of the acquisition of established
customer relationships. Carolina First believes that Citizens has valuable
community relationships which it will be able to use to expand its banking
operations in Citizens' market areas. Citizens is located near Jacksonville,
Florida, which is believed by Carolina First to be a very desirable market with
many of the same characteristics as South Carolina. Carolina First also believes
that the terms of the proposed acquisition are fair from its point of view and
from a financial perspective.
OPINION OF CITIZENS' FINANCIAL ADVISER
Opinion of Financial Advisor General. Citizens retained First Capital to act as
its financial advisor in connection with the Merger and related matters based
upon its qualifications, expertise and reputation (the "Opinion"). On
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February 24, 1999, First Capital rendered its written opinion to the Board that
the consideration to be received pursuant to the Agreement is fair from a
financial point of view to the holders of Citizens Common Stock. THE FULL TEXT
OF THE OPINION WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT-PROSPECTUS.
CITIZENS' SHAREHOLDERS ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY. THE OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF
CITIZENS AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. In
connection with rendering its Opinion, First Capital, among other things: (i)
analyzed certain internal financial statements and other financial and operating
data concerning Citizens prepared by the management of Citizens; (ii) analyzed
certain publicly available financial statements, both audited and unaudited, and
other information of Citizens and Carolina First, including those included in
Citizens' financial statements for the period ended December 31, 1998, Carolina
First's Annual Reports for the three years ended December 31, 1997, Carolina
First's earnings release for December 31, 1998, Carolina First's Quarterly
Reports for the periods ended March 31, 1998, June 30, 1998 and September 30,
1998, and Citizens' financial statements for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998; (iii) analyzed certain financial
projections of Citizens prepared by the management of Citizens; (iv) discussed
the past and current operations and financial condition of Citizens with senior
executives of Citizens; (v) reviewed the reported stock prices and trading
activity for Carolina First Common Stock; (vi) compared the financial
performance of Carolina First Common Stock and trading activity with that of
certain other comparable publicly-traded companies and their securities; (vii)
reviewed and compared certain security analysis reports of Carolina First's
common stock prepared by various investment banking firms; (viii) reviewed the
financial terms, to the extent publicly available, of certain comparable
precedent transactions; (ix) reviewed the Agreement; and (x) performed such
other analyses as deemed appropriate. In connection with its review, First
Capital relied upon and assumed the accuracy and completeness of all of the
foregoing information provided to it or made publicly available, and First
Capital has not assumed any responsibility for independent verification of such
information. With respect to the financial projections, First Capital assumed
that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the future financial performance
of Citizens. First Capital has not made any independent valuation or appraisal
of the assets or liabilities of Citizens, nor has First Capital been furnished
with any such appraisals, and First Capital has not examined any individual loan
files of Citizens. With respect to Carolina First, First Capital relied solely
upon publicly available data and did not conduct discussions with the management
of Carolina First regarding Carolina First's financial condition, performance,
and prospects. First Capital did not conduct any independent evaluation or
appraisal of the assets, liabilities or business prospects of Carolina First,
was not furnished with any evaluations or appraisals, and did not review any
individual credit files. First Capital is not an expert in the evaluation of
loan portfolios for the purposes of assessing the adequacy of the allowance for
losses with respect thereto and has assumed that such allowances for each of the
companies are, in the aggregate, adequate to cover such losses. First Capital's
opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to First Capital as of, the date
of the opinion. In connection with rendering its opinion, First Capital
performed a variety of financial analyses. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis of summary description. Moreover, the evaluation of the
fairness, from a financial point of view, of the Exchange Rate to the holders of
Citizens Common Stock was to some extent a subjective one based on the
experience and judgment of First Capital and not merely the result of
mathematical analysis of financial data. Accordingly, notwithstanding the
separate factors summarized below, First Capital believes that its analyses must
be considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. The
ranges of valuations resulting from any particular analysis described below
should not be taken to be First Capital's view of the actual value of Citizens.
In performing its analyses, First Capital made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Citizens. The analyses performed by
First Capital are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such
analyses. The analyses do not purport to be appraisals or to reflect the prices
at which a company might actually be sold. In addition, First Capital's analyses
should not be viewed as determinative of the opinion of the Citizens Board or
Citizens'
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management with respect to the value of Citizens.
The following is a summary of the analyses performed by First Capital in
connection with its Opinion:
Analysis of Selected Transactions. First Capital performed an analysis of
premiums paid in selected pending or recently completed acquisitions of banking
organizations in Florida with comparable characteristics to the Merger. The
comparable transactions were comprised to reflect transactions where the seller
possessed similar asset size, regional location and form of consideration. The
comparable transactions specifically consisted of 12 mergers and acquisitions of
banking organizations in Florida from February 1, 1997 to February 23, 1999,
with seller's total assets ranging from $30 million to $80 million. Based on the
closing stock price of Carolina First Common Stock on February 23, 1999, and
Citizens' financial data as of December 31, 1998, the analysis yielded ratios of
the transactions' purchase price as a multiple of: (i) equity ranging from 1.28
times to 3.54 times with an average of 2.48 times and a median of 2.33 times
(compared with Citizens' proposed transaction with Carolina First of 2.49 times
December 31, 1998 book value); (ii) tangible equity ranging from 1.28 times to
3.54 times with an average of 2.48 times and a median of 2.33 times (compared
with Citizens' proposed transaction with Carolina First of 2.49 times December
31, 1998 tangible book value); (iii) trailing last 12 months earnings ranging
from 13.17 times to 32.61 times with an average of 23.55 times and a median of
23.10 times (compared with Citizens' proposed transaction with Carolina First of
26.0 times December 31, 1998); and (iv) sellers' average and median equity to
asset ratio of 9.64% and 9.38%, respectively, compared to 8.39% for Citizens.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, First
Capital estimated the present value of the future stream of after-tax cash flow
that Citizens could produce through the year 2003, under various circumstances,
assuming that Citizens performed in accordance with the earnings/return
projections of management. First Capital utilized two separate terminal values
for Citizens at the end of the period by applying multiples of earnings ranging
from 20 times to 22 times and multiples of book ranging from 2.0 times to 3.0
times. First Capital then discounted the cash flow streams, dividends paid to
the shareholders (assuming all earnings in excess of that required to maintain
the current tangible equity to tangible asset ratio are paid out in dividends)
and terminal values using discount rates ranging from 12.0% to 16.0% chosen to
reflect different assumptions regarding the required rates of return for
Citizens and the inherent risk surrounding the underlying projections. This
discounted cash flow analysis indicated a range of $94.01 per share to $121.24
per share utilizing multiples of earnings as residual values and $62.28 per
share to $104.96 per share utilizing multiples of book value. This compares
favorably to the consideration to be paid to Citizens shareholders of: (i)
$109.19 per share of Citizens Common Stock, based on a closing price of $22.88
per share of Carolina First Common Stock on the date of announcement, January
14, 1999; and (ii) $109.19 per share of Citizens Common Stock, based on a
closing price of $21.50 per share of Carolina First Common Stock on February 23,
1999.
Comparable Company Analysis. First Capital compared selected balance sheet data,
asset quality, capitalization and profitability ratios and market statistics
using financial data at or for the twelve months ended September 30, 1998, and
market data as of February 22, 1999, for Carolina First to a group of selected
bank holding companies which First Capital deemed to be relevant, including
Alabama National Bancorporation, Capital City Bank Group, Inc., First Citizens
Bancorporation of South Carolina Inc., Hancock Holding Company, Premier
Bancshares, Inc., Republic Bancshares Inc., Republic Security Financial
Corporation and Triangle Bancorp, Inc., all being bank holding companies in the
Southeastern United States with assets between $1 billion and $5 billion,
(collectively, the "Comparable Composite"). This comparison, among other things,
showed that: (i) Carolina First's equity to asset ratio was 12.82%, compared to
an average of 8.69% and a median of 8.41% for the Comparable Composite; (ii) for
the twelve-month period ended September 30, 1998, Carolina First's return on
average assets was 0.92%, compared to an average of 0.85% and a median of 1.00%
for the Comparable Composite; (iii) for the twelve-month period ended September
30, 1998, Carolina First's return on average equity was 7.59%, compared to an
average of 9.77% and a median of 11.40% for the Comparable Composite; (iv) at
September 30,1998, Carolina First's non performing loans to gross loans ratio
was 0.41%, compared to an average of 0.75% and a median of 0.62% for the
Comparable Composite; (v) at February 22, 1999, Carolina First's price per share
to book value per share at September 30, 1998, was 1.39 times, compared to an
average of 1.94 times and median of 1.94 times for the Comparable Composite;
(vi) at February 22, 1999, Carolina First's price per share to earnings per
share at September 30, 1998, was 17.30 times, compared to an average of 25.09
times and median of 16.43 times for the Comparable Composite; and (vii) at
February 22, 1999, Carolina First's dividend
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yield was 1.45%, compared to an average of 1.18% and a median of 1.41% for the
Comparable Composite. First Capital also compared selected stock market results
of Carolina First to the publicly available corresponding data of other
composites which First Capital deemed to be relevant, including Philadelphia KBW
Bank Index, Nasdaq Bank Index of publicly traded banks and the S&P 500. Results
from indexing the S&P 500, Philadelphia KBW Bank Index , the Nasdaq Bank Index
of publicly traded banks, and Carolina First's stock from February 24, 1998, to
February 23, 1999, revealed similar relationships in pricing movements. No
company or transaction used in the comparable company and comparable transaction
analyses is identical to Citizens or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
Citizens and other factors that could affect the public trading value of the
companies to which they are being compared. Mathematical analysis (such as
determining the average or median) is not in itself a meaningful method of using
comparable transaction data or comparable company data.
Pursuant to an engagement letter entered into in August 1998, Citizens has
agreed to pay a fee of $225,000 to First Capital as an advisory fee in
connection with the Merger. As part of its investment banking business, First
Capital is engaged in the valuation of securities in connection with mergers and
acquisitions, private placements, and valuations for estate, corporate and other
purposes. The Citizens Board decided to retain First Capital based on its
experience as a financial advisor in mergers and acquisitions of financial
institutions, and its knowledge of financial institutions.
THE WRITTEN OPINION OF FIRST CAPITAL TO CITIZENS IS ATTACHED AS ANNEX B TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE CITIZENS FAIRNESS OPINION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX B. CITIZENS SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS
ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY FIRST
CAPITAL IN CONNECTION WITH RENDERING ITS OPINION.
EXCHANGE OF CITIZENS STOCK CERTIFICATES
As soon as practicable after the Effective Time (but in no event more than
five days after the Effective Time), Carolina First or its transfer agent (in
such capacity, the "Exchange Agent") will mail, and otherwise make available to
each former record holder of shares of Citizens 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 Citizens 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.
CITIZENS 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 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 that no such tax is applicable.
Carolina First is not obligated to deliver the Carolina First common stock
to which any former holder of Citizens common stock is entitled as a result of
the acquisition 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 or Citizens.
In addition, no dividend or other distribution payable to the holders of record
of Carolina First common stock as of any time subsequent to the Effective Time
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shall be paid to the holder of any certificate representing shares of Citizens
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 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 Citizens 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 common
stock in exchange therefore (and cash in lieu of fractional shares) as provided
in the Reorganization Agreement.
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
The obligations of Carolina First 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:
(1) the compliance by Citizens 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
Citizens set forth in the Reorganization Agreement (subject to
certain limited exceptions);
(2) the receipt by Carolina First of an opinion of counsel of
Citizens in form and substance reasonably satisfactory to
Carolina First and its counsel;
(3) that there shall have been no "material adverse event" (as
defined in the Reorganization Agreement) with respect to Citizens
through the Closing Date;
(4) the receipt of necessary regulatory approvals;
(5) the receipt of the necessary shareholder approval of Citizens;
(6) that immediately prior to Closing, the Citizens allowance for
loan losses meets certain requirements;
(7) the execution of the consulting agreement between Carolina First
and Michael E. Glenn; and
(8) that the holders of 10% or more of the Citizens common stock
outstanding at the time of the Shareholders' Meeting shall not
have dissented to the acquisition.
The obligations of Citizens 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:
(1) the compliance by Carolina First 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 and
Carolina First Bank set forth in the Reorganization Agreement
(subject to certain limited exceptions);
(2) the receipt by Citizens of an opinion of counsel of Carolina
First and Carolina First Bank in form and substance reasonably
satisfactory to Citizens and its counsel;
(3) that there shall have been no "material adverse event" (as
defined in the Reorganization
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Agreement) with respect to Carolina First or Carolina First Bank
through the Closing Date;
(4) the receipt of necessary regulatory approvals;
(5) the receipt of the necessary shareholder approval of Citizens;
(6) the receipt of a tax opinion from Wyche, Burgess, Freeman &
Parham, P.A., reasonably satisfactory to Citizens, opining,
subject to reasonable qualifications, that the acquisition shall,
upon compliance with reasonable conditions, qualify as a tax-free
reorganization under Section 368(a) of the Code; and
(7) the execution of the employment or noncompetition/consulting
agreements (as applicable) between Carolina First and Michael E.
Glenn, Mary Ellen Webb and Joe H. Pickens.
Carolina First and Citizens 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:
(1) by mutual consent of the parties;
(2) by either Carolina First or Citizens, 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
Citizens shareholder approval is not received at the Special Meeting;
(3) by either Carolina First or Citizens if the other party (or its
subsidiaries) has failed to comply with the agreements or 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
(4) by either Carolina First or Citizens in the event that closing has not
occurred by July 31, 1999.
AMENDMENT
The Reorganization Agreement may be amended or supplemented in writing by
mutual agreement of Carolina First and Citizens. The Reorganization Agreement
also provides that Carolina First 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 Citizens 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
Citizens' 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 CITIZENS' AND CAROLINA FIRST'S BUSINESS PRIOR TO THE EFFECTIVE TIME
Under the terms of the Reorganization Agreement, Citizens has agreed with
respect to the conduct of its
25
<PAGE>
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 of any material adverse change in
the business of Citizens;
(e) not to breach the Reorganization Agreement or cause any of the
representations of Citizens 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 acquisition-related expenses and current contractual
obligations, not to incur any expense in excess of $25,000;
(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.
Under the terms of the Reorganization Agreement, Carolina First 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 Citizens shareholders in any material respect;
(iii) to promptly advise Citizens 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's representations in the Reorganization Agreement to become
untrue in any material respect.
REQUIRED REGULATORY APPROVALS
The acquisition 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 Citizens as contemplated herein is subject to approval
of the OCC pursuant to both the Bank Merger Act (12 U.S.C. Sec. 1828 et seq.)
("BMA") and pursuant to the National Bank Act.
26
<PAGE>
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 OCC 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 OCC 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 acquisition 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 has submitted an application to the OCC for
approval to consummate the acquisition.
The acquisition also is subject to approval by the Federal Reserve Board
under the Bank Holding Company Act of 1956, as amended. The Federal Reserve
Board may approve the acquisition only after determining that the acquisition
would not create anticompetitive or monopolistic effects on the relevant
markets. The Federal Reserve 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. Carolina First has submitted an application to the Federal Reserve Board
for approval to consummate the acquisition.
Carolina First and Citizens are not aware of any other governmental
approvals or actions that are required for consummation of the acquisition
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 consummation of the acquisition.
OPERATIONS AFTER THE ACQUISITION
After consummation of the acquisition, it is expected all of the former
Citizens banking locations will continue to be operated as branch locations of
the surviving bank (which will be called Citizens First National Bank) and such
locations are expected to conduct their business in generally the same manner as
prior to the acquisition. The operating systems of Citizens will be converted
to the operating systems of Carolina First immediately following the merger,
but no later than December 31, 1999. Carolina First has taken steps to address
potential computer and business risks associated with the "Year 2000 problem"
as more fully described in its September 30, 1998 10-Q filing.
It is generally expected that the retained Citizens officers and employees
will continue in similar positions of Carolina First Bank in an at-will
employment capacity. In general, retained Citizens 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 other Carolina First banking subsidiaries. After consummation of
the acquisition, 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 Acquisition."
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
DIRECTORS. In accordance with the Reorganization Agreement, Carolina First
will nominate and elect Michael E. Glenn, Joe H. Pickens and Paul D. Causey to
the Board of Directors of Citizens (the surviving bank) for a period of three
years following the acquisition.
INDEMNIFICATION; ADVANCEMENT OF EXPENSES; DIRECTORS' AND OFFICERS'
INSURANCE. The Reorganization Agreement provides that Carolina First will
indemnify the Citizens 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 the federal law of the United States of America
27
<PAGE>
and the Citizens Articles of Association and Bylaws as in effect on the date of
the Reorganization Agreement. The Reorganization Agreement also provides that
prior to closing, Citizens shall use its best efforts to extend its existing
directors' and officers' liability insurance policy past the Closing Date
(spending up to $25,000) and after closing, Carolina First shall take no action
to terminate prematurely such policy.
EMPLOYMENT AGREEMENTS. Michael E. Glenn and Mary Ellen Webb, both officers
of Citizens (the "Officers") expect to enter into employment arrangements with
Citizens (the surviving bank) which provide for compensation substantially
similar to their present compensation amounts. The agreements also provide that
they may not be terminated during the two year term of the agreement except for
cause.
In connection with this transaction, Carolina First and Joe H. Pickens
will enter into a noncompetition and consulting agreement that will be effective
upon consummation of the acquisition, whereby Mr. Pickens, as an independent
contractor, will assist Carolina First in the assimilation of Citizens. The
agreement further restricts or prohibits Mr. Pickens' ability (1) to engage in
certain competitive conduct, and (2) to serve in positions with entities which
are in competition with Carolina First within a specific geographical area,
during the two year term of the agreement. Compensation under such agreement
will be $50,000 per year.
OTHER MATTERS RELATED TO EMPLOYEES AND EMPLOYEE BENEFIT PLANS. In the
Reorganization Agreement, Carolina First and Citizens agreed to cooperate to
develop staffing plans which will result in retention of as many Citizens
managers and employees as is practical (as determined by Carolina First).
Carolina First agreed that Citizens employees shall also be eligible for
consideration for any other available positions for which they are qualified at
Carolina First and its subsidiaries. Carolina First agreed that those former
Citizens employees who are employed by Carolina First or its subsidiaries
immediately following the Closing Date: (i) will be eligible, on the same basis
as current Carolina First employees, for all Carolina First 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 Benefit Plans for years of service with Citizens as if such
service had been with Carolina First or its subsidiaries. Carolina First agreed
that Citizens may elect to fully vest its employees under some or all Citizens
Benefit Plans prior to consummation of the acquisition. Any Citizens 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 Citizens prior to the Effective Time.
Carolina First further agrees that those former Citizens employees who are
employed by Carolina First or its subsidiaries immediately following the Closing
Date will not be subject to any pre-existing condition exclusion under Carolina
First's medical Benefit Plans.
ACCOUNTING TREATMENT
Carolina First expects to account for the acquisition of Citizens as a
pooling-of-interests. For the transaction to qualify for the
pooling-of-interests method, it must satisfy certain conditions, including the
condition that substantially all (at least 90%) of the outstanding Citizens
common stock must be exchanged for Carolina First common stock. Under the
pooling-of-interests method, the assets and liabilities of Carolina First Bank
and Citizens will be combined and carried forward at their previously recorded
amounts.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material federal income tax
consequences of the acquisition, including certain consequences to holders of
the Citizens 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 Citizens 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 Citizens shareholders who acquired
their shares of Citizens' 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 acquisition, including the applicability and effect of state, local and
other tax laws. The following summary does not address the state, local or
foreign tax
28
<PAGE>
consequences of the acquisition, if any.
Pursuant to the terms of the Reorganization Agreement, Citizens 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 acquisition occurs
in accordance with the Reorganization Agreement and conditioned on the accuracy
of certain representations made by Citizens and Carolina First, for federal
income tax purposes:
1. The acquisition 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 Citizens are
acquired in such an acquisition.
2. No gain or loss will be recognized either to Carolina First or
Citizens as a result of the acquisition.
3. No gain or loss will be recognized to the shareholders of Citizens
upon their receipt of shares of Carolina First common stock in the
acquisition (disregarding for this purpose any cash received for
fractional shares or in connection with the exercise of dissenters'
rights).
4. The receipt of cash by Citizens shareholders in the acquisition 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 common stock so received by
Citizens shareholders in connection with the acquisition will be the
same as the basis in the Citizens common stock surrendered in
exchange for such Carolina First common stock as set forth above.
6. The holding period of the Carolina First common stock received by a
Citizens shareholder will include the holding period of the shares of
Citizens surrendered therefor provided that the Citizens shares are
capital assets in the hand of the shareholder at the time of the
acquisition.
FRACTIONAL SHARE INTERESTS. A Citizens shareholder who receives cash in
lieu of a fractional share interest in Carolina First 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 Citizens 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 common stock received,
determined as set forth above, is longer than one year.
CASH RECEIVED BY HOLDERS OF CITIZENS COMMON STOCK WHO DISSENT. A
shareholder of Citizens who perfects his dissenter's rights under federal law
and who receives payment of the value of his shares of Citizens 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 Citizens 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 Citizens 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
29
<PAGE>
APPLICABLE STATE, LOCAL OR FOREIGN TAX LAWS.
RESTRICTIONS ON RESALES BY AFFILIATES
The issuance of the Carolina First Shares has been registered under the
Securities Act. Accordingly, resales of the Carolina First Shares by
non-affiliates of Citizens will not require registration. However, under
existing law, any person who is an "affiliate" of Citizens (as defined below) at
the time the proposed exchange is submitted to a vote of the Citizens
shareholders who wishes to sell Carolina First Shares will be required either to
(a) register the sale of the Carolina First Shares under the Securities Act, (b)
sell in compliance with Rule 145 promulgated under the Securities Act
(permitting limited sales under certain circumstances), or (c) utilize an
exemption (if any) from registration. Rule 145(d) requires that persons deemed
to be Citizens affiliates resell their Carolina First Shares pursuant to certain
of the requirements of Rule 144 under the Securities Act if such Carolina First
Shares are sold within one year after receipt thereof. After one year, if such
person is not an affiliate of Carolina First and Carolina First is current in
the filing of its periodic securities law filings, a former Citizens affiliate
may freely sell the Carolina First Shares without limitation. After two years
from the issuance of the Carolina First Shares, if such person is not a Carolina
First affiliate at the time of sale or for at least three months prior to such
sale, such person may freely sell such Carolina First Shares without limitation,
regardless of the status of Carolina First's periodic securities law filings.
Citizens has agreed that it will use its best efforts to cause affiliates of
Citizens to agree in writing that they will not sell the Carolina First common
stock to be received by them except as provided above. Stop transfer
instructions will be given by Carolina First to the Exchange Agent with respect
to the Carolina First 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 Citizens, 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, Citizens at the time of consummation of the
acquisition. In this context, an "affiliate" will generally include the
following persons: directors or executive officers, and the holders of 10% or
more of Citizens 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 CITIZENS
THE FOLLOWING DISCUSSION IS MERELY A SUMMARY OF RIGHTS OF DISSENTING
SHAREHOLDERS PURSUANT TO FEDERAL LAW AND IS QUALIFIED IN ITS ENTIRETY BY THE
PROVISIONS OF 12 U.S.C. SS. 214A(B), A COPY OF WHICH IS INCLUDED HEREWITH AS
ANNEX C. DISSENTING SHAREHOLDERS HAVE ONLY THOSE RIGHTS PROVIDED BY 12 U.S.C.
SS. 214A(B). ANY SHAREHOLDER WISHING TO EXERCISE DISSENTERS' RIGHTS IS STRONGLY
ADVISED TO CONSULT WITH AN ATTORNEY.
Any shareholder of Citizens who has voted against the acquisition at the
Special Meeting, or has given notice in writing at or prior to such meeting to
the presiding officer that he dissents from the acquisition, shall be entitled
to receive in cash the value of the shares so held by him upon written request
made to Carolina First at any time before thirty days after the date of
consummation of the acquisition, accompanied by the surrender of his stock
certificates.
The value of such shares shall be ascertained, as of the date of the
Special Meeting, by an appraisal made by a committee of three persons, composed
of (1) one selected by the majority vote of the dissenting shareholders entitled
to payment in cash; (2) one selected by the directors of Carolina First Bank;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the OCC, which shall cause a reappraisal to be made which
shall be final and binding as to the value of the shares of the appealing
shareholder.
If, within 90 days from the date of consummation of the acquisition, for
any reason one or more of the appraisers is not selected, or the appraisers fail
to determine the value of such shares, the OCC shall upon written request of any
interested party cause an appraisal to be made which shall be final and binding
on all parties. The expenses of the OCC in making the reappraisal or the
appraisal, as the case may be, shall be paid by Carolina First.
30
<PAGE>
In the event the OCC is requested to make an appraisal of the Citizens
common stock, such valuation will be made in accordance with the guidelines set
forth in the OCC's Bank Circular 259.
RECOMMENDATION OF THE CITIZENS BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF CITIZENS HAS CONCLUDED THAT THE ACQUISITION IS
IN THE BEST INTERESTS OF CITIZENS AND HAS AUTHORIZED CONSUMMATION THEREOF,
SUBJECT TO APPROVAL OF THE CITIZENS SHAREHOLDERS, RECEIPT OF ALL REQUISITE
REGULATORY APPROVALS, AND SATISFACTION OF CERTAIN OTHER CONDITIONS. THE BOARD OF
DIRECTORS OF CITIZENS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
REORGANIZATION AGREEMENT.
31
<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 at
September 30, 1998 with the historical consolidated balance sheet of Citizens at
September 30, 1998, adjusting for the issuance of additional shares expected to
be issued in the acquisition.
The unaudited Pro Forma Combined Capitalization is based on combining the
historical consolidated capitalization of Carolina First at September 30, 1998
with the historical capitalization of Citizens at September 30, 1998, adjusting
for the issuance of additional shares expected to be issued in the acquisition.
The unaudited Pro Forma Combined Condensed Statement of Income is based on
combining the historical consolidated statements of income of Carolina First for
the year ended December 31, 1997 with the historical consolidated statements of
income of Citizens for the year ended December 31, 1997, and the historical
consolidated statements of income of Carolina First for the nine months ended
September 30, 1998 with the historical consolidated statements of income of
Citizens for the nine months ended September 30, 1998.
For 1996 and 1995, the unaudited Pro Forma Combined Condensed Statements
of Income are presented combining the historical consolidated statements of
income of Carolina First for the years ended December 31 with the historical
consolidated statements of income of Citizens for the years ended December 31.
The acquisition is expected to be accounted for under the
pooling-of-interests method of accounting, and pro forma data are derived in
accordance with such method.
The pro forma data do not, given the operational and market overlap
between Carolina First and Citizens, reflect any potential benefits from
potential cost savings or synergies expected to be achieved following the
acquisition. The pro forma data also exclude acquisition costs related to the
acquisition.
Financial information presented at and for the nine months ended September
30, 1998 and for the year ended December 31, 1997 also includes pro forma data
for Carolina First's fourth quarter 1998 acquisition of Colonial Bank of South
Carolina, Inc. ("Colonial"). See "INFORMATION ABOUT CAROLINA FIRST Recent
Developments." Financial information presented for the nine months ended
September 30, 1998 and for the year ended December 31, 1997 includes pro forma
data for Carolina First's 1998 acquisitions. Financial information presented for
the year ended December 31, 1997 also includes pro forma data for Carolina
First's 1997 acquisitions.
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 acquisition been consummated at the beginning of the period presented,
nor is it necessarily indicative of future results.
32
<PAGE>
UNAUDITED PRO FORMA COMBINED CAPITALIZATION
AT SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Pro Purchase Fully
Forma Accounting Pro Forma
Carolina First Citizens Adjustments Combined Colonial Adjustments Combined
-------------- -------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT
Subordinated notes $ 25,586 $ -- $ -- $ 25,586 $ -- $ -- $ 25,586
FHLB advances 35,300 -- -- 35,300 9,111 -- 44,411
ESOP debt 2,650 -- -- 2,650 -- -- 2,650
Mortgage debt 1,061 -- -- 1,061 -- -- 1,061
-------- ------ --------- --------- -------- ------ ---------
Total long-term debt 64,597 -- -- 64,597 9,111 -- 73,708
-------- ------ --------- --------- -------- ------ ---------
SHAREHOLDERS' EQUITY
Common stock 21,729 1,099 (511)(a) 22,317 583 68 (c) 22,968
Surplus 285,668 1,190 511 (a) 287,369 4,412 7,678 (c) 299,459
Retained earnings 31,323 2,414 (500)(b) 33,237 (1,486) 1,486 (c) 33,237
Nonvested restricted stock and
guarantee of ESOP debt (3,182) -- -- (3,182) -- -- (3,182)
Unrealized gain (loss) on
securities available for sale 1,896 27 -- 1,923 18 -- 1,941
-------- ------ --------- --------- -------- ------ ---------
Total shareholders' equity 337,434 4,730 (500) 341,664 3,527 9,232 354,423
-------- ------ --------- --------- -------- ------ ---------
Total capitalization $402,031 $4,730 $ (500) $406,261 $12,638 $ 9,232 $ 428,131
======== ====== ========= ========= ======== ======= ==========
</TABLE>
- ----------------------------------
(a) To reflect the issuance of 558,100 shares of Carolina First common stock
to holders of Citizens common stock based on an assumed market price of
$21.50 per share of Carolina First common stock.
(b) To record estimated merger costs.
(c) To give effect to the acquisition of Colonial, assuming the issuance of
651,455 shares of Carolina First common stock based on an average market
price of $20.575 per share and an exchange ratio of 1.1179.
33
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
September 30, 1998
(Dollars in Thousands, except footnotes)
<TABLE>
<CAPTION>
Pro Purchase Fully
Forma Accounting Pro Forma
Carolina First Citizens Adjustments Combined Colonial Adjustments Combined
-------------- -------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 79,512 $ 3,113 $ -- $ 82,625 $ 2,311 $ -- $ 84,936
Interest-bearing bank balances 51,365 -- -- 51,365 826 -- 52,191
Fed funds sold & resale agreements 115,050 3,229 -- 118,279 -- -- 118,279
Investment securities 406,239 8,944 -- 415,183 5,278 (308) (b) 420,153
Loans held for sale 88,055 -- -- 88,055 -- -- 88,055
Loans held for investment 1,677,880 37,361 -- 1,715,241 50,709 -- 1,765,950
Less unearned income (8,536) -- -- (8,536) -- -- (8,536)
Less allowance for loan losses (17,627) (393) -- (18,020) (309) -- (18,329)
----------- -------- -------- ----------- -------- ---------- -----------
Net loans 1,739,772 36,968 -- 1,776,740 50,400 -- 1,827,140
Premises and equipment 44,683 1,098 -- 45,781 1,709 350 (c) 47,840
Intangible assets 117,476 -- -- 117,476 181 10,467 (d) 128,124
Other assets 78,577 1,315 -- 79,892 726 -- 80,618
----------- -------- -------- ----------- -------- ---------- -----------
Total assets $ 2,632,674 $ 54,667 $ -- $2,687,341 $ 61,431 $ 10,509 $ 2,759,281
=========== ======== ======== =========== ======== ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest-bearing $ 252,706 $ 8,815 $ -- $ 261,521 $ 3,175 $ -- $ 264,696
Interest-bearing 1,816,434 40,617 -- 1,857,051 39,597 -- 1,896,648
----------- -------- -------- ----------- -------- ---------- -----------
Total deposits 2,069,140 49,432 -- 2,118,572 42,772 -- 2,161,344
Borrowed funds 163,238 -- -- 163,238 13,199 -- 176,437
Other liabilities 62,862 505 500 (a) 63,867 1,933 997 (a) 67,077
----------- -------- -------- ----------- -------- ---------- -----------
280 (e)
Total liabilities 2,295,240 49,937 500 2,345,677 57,904 1,277 2,404,858
----------- -------- -------- ----------- -------- ---------- -----------
Total shareholders' equity 337,434 4,730 (500)(a) 341,664 3,527 9,232 (f) 354,423
----------- -------- -------- ----------- -------- ---------- -----------
Total liabilities and
shareholders' equity $ 2,632,674 $ 54,667 $ -- $ 2,687,341 $ 61,431 $ 10,509 $ 2,759,281
=========== ======== ======== =========== ======== ========== ===========
</TABLE>
- ----------------------------
(a) To record estimated merger costs.
(b) To remove the carrying value of Colonial shares owned by Carolina First
Corporation.
(c) To adjust the fixed assets and property of Colonial to estimated market
value.
(d) To record the excess acquisition cost over the estimated market value of
net assets acquired (goodwill of $10,128,000 and core deposit premium of
$339,000).
(e) To adjust the deferred tax liabilities as a result of the purchase
accounting adjustments using Carolina First's statutory rate of 38%.
(f) To give effect to the acquisition of Colonial, assuming the issuance of
651,455 shares of Carolina First Corporation common stock based on an
average market price of $20.575 per share and an exchange ratio of 1.1179.
34
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1997
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Purchase Fully
Pro Forma 1997 1998 Accounting Pro Forma
Carolina First Citizens Adjustments Combined Acquisitions Acquisitions Adjustments Combined
-------------- -------- ----------- -------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 135,706 $ 3,925 $ -- $ 139,631 $ 22,402 $ 18,640 $ (325) (a) $ 180,348
Interest expense 69,000 1,547 -- 70,547 12,752 8,937 -- 92,236
---------- -------- ------- ---------- --------- --------- --------- --------
Net interest income 66,706 2,378 -- 69,084 9,650 9,703 (325) 88,112
Provision for loan losses 11,646 -- -- 11,646 178 529 -- 12,353
---------- -------- ------- ---------- --------- --------- --------- --------
Net interest income after
provision for loan losses 55,060 2,378 -- 57,438 9,472 9,174 (325) 75,759
Noninterest income 19,615 434 -- 20,049 1,262 21,594 -- 42,905
Noninterest expenses 52,243 2,183 -- 54,426 5,874 31,256 2,226 (b) 95,068
---------- -------- ------- ---------- --------- --------- 1,229 (c) --------
57 (d)
Income before income taxes 22,432 629 -- 23,061 4,860 (488) (3,837) 23,596
Income taxes 8,092 157 -- 8,249 1,812 (354) (529) (e) 9,178
---------- -------- ------- ---------- --------- --------- --------- --------
Net income $ 14,340 $ 472 $ -- $ 14,812 $ 3,048 $ (134) $ (3,308) $ 14,418
========== ======== ======= ========== ========= ========= ========= ========
Net income per common share:
Basic $ 1.19 $ 4.30 $ -- $ 1.18 $ 0.57 $ (0.02) $ -- $ 0.69
Diluted 1.18 4.30 -- 1.16 0.58 (0.01) -- 0.68
Average shares outstanding:
Basic 11,989,517 109,900 -- 12,547,617 5,354,391 9,793,188 -- 20,855,257
Diluted 12,175,561 109,900 -- 12,733,661 5,291,807 9,809,699 -- 21,183,445
</TABLE>
- ---------------------------
(a) To amortize securities and loan mark-to-market adjustments over seven
years and to reflect reduced earnings on Lowcountry securities for cash
portion of purchase price.
(b) Record amortization of goodwill using the straight-line method over 25
years and 10 years.
(c) Record amortization of core deposit intangible using the sum-of-the-years'
digits method over 10 years.
(d) To increase depreciation expense from mark-up of premises and equipment to
an estimated market value.
(e) To show impact of taxes at 38% tax rate.
35
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Nine Months Ended September 30, 1998
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Purchase Fully
Pro Forma 1998 Accounting Pro Forma
Carolina First Citizens Adjustments Combined Acquisitions Adjustments Combined
-------------- -------- ----------- -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 130,859 $ 3,115 $ -- $ 133,974 $ 12,130 $ -- $ 146,104
Interest expense 66,831 1,202 -- 68,033 5,715 -- 73,748
---------- --------- -------- ---------- ---------- ---------- ---------
Net interest income 64,028 1,913 -- 65,941 6,415 -- 72,356
Provision for loan losses 8,686 10 -- 8,696 398 -- 9,094
---------- --------- -------- ---------- ---------- ---------- ---------
Net interest income after
provision for loan losses 55,342 1,903 -- 57,245 6,017 -- 63,262
Noninterest income 15,860 296 -- 16,156 10,163 -- 26,319
Noninterest expenses 45,997 1,653 -- 47,650 19,027 1,950 (a) 69,114
---------- --------- -------- ---------- ---------- 473 (b) ---------
14 (c)
Income before income taxes 25,205 546 -- 25,751 (2,847) (2,437) 20,467
Income taxes 9,336 195 -- 9,531 579 (10) (d) 10,100
---------- --------- -------- ---------- ---------- ---------- ---------
Net income $ 15,869 $ 351 $ -- $ 16,220 $ (3,426) $ (2,427) $ 10,367
========== ========= ======== ========== ========== ========== =========
Net income per common share:
Basic $ 0.91 $ 3.20 $ -- $ 0.90 $ (0.35) $ -- $ 0.46
Diluted 0.89 3.20 -- 0.88 (0.34) -- 0.45
Average shares outstanding:
Basic 17,446,512 109,900 -- 18,004,612 9,890,295 -- 22,365,484
Diluted 17,799,710 109,900 -- 18,357,810 9,941,001 -- 22,801,779
</TABLE>
- -------------------------------
(a) Record amortization of goodwill using the straight-line method over 25
years and 10 years.
(b) Record amortization of core deposit intangible using the sum-of-the-years'
digits method over 10 years.
(c) To increase depreciation expense from mark-up of premises and equipment to
an estimated market value.
(d) To show impact of taxes at 38% tax rate.
36
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
----------------- Pro Forma
Carolina First Citizens Adjustments Combined
-------------- -------- ----------- --------
<S> <C> <C> <C> <C>
Interest income $ 116,872 $ 3,600 $ -- $ 120,472
Interest expense 59,802 1,252 -- 61,054
--------- ---------- ---------- ---------
Net interest income 57,070 2,348 -- 59,418
Provision for loan losses 10,263 79 -- 10,342
--------- ---------- ---------- ---------
Net interest income after
provision for loan losses 46,807 2,269 -- 49,076
Noninterest income 21,341 480 -- 21,821
Noninterest expenses 51,675 2,190 -- 53,865
--------- ---------- ---------- ---------
Income before income taxes 16,473 559 -- 17,032
Income taxes 5,999 196 -- 6,195
--------- ---------- ---------- ---------
Net income 10,474 363 -- 10,837
Dividends on preferred stock 63 -- -- 63
--------- ---------- ---------- ---------
Net income applicable to
common shareholders $ 10,411 $ 363 $ -- $ 10,774
========= ========= ========== =========
Net income per common share:
Basic $ 0.97 $ 3.30 $ -- $ 0.96
Diluted 0.92 3.30 -- 0.90
Average shares outstanding:
Basic 10,705,107 109,900 -- 11,263,207
Diluted 11,368,035 109,900 -- 11,926,135
</TABLE>
37
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
------------------------------- Pro Forma
Carolina First Citizens Adjustments Combined
-------------- -------- ----------- --------
<S> <C> <C> <C> <C>
Interest income $ 101,750 $ 3,625 $ -- $ 105,375
Interest expense 50,978 1,342 -- 52,320
--------- ---------- -------- ----------
Net interest income 50,772 2,283 -- 53,055
Provision for loan losses 6,846 146 -- 6,992
--------- ---------- -------- ----------
Net interest income after
provision for loan losses 43,926 2,137 -- 46,063
Noninterest income 17,326 454 -- 17,780
Noninterest expenses 46,882 2,220 -- 49,102
--------- ---------- -------- ----------
Income before income taxes 14,370 371 -- 14,741
Income taxes 4,956 77 -- 5,033
--------- ---------- -------- ----------
Net income 9,414 294 -- 9,708
Dividends on preferred stock 2,752 -- -- 2,752
--------- ---------- -------- ----------
Net income applicable to
common shareholders $ 6,662 $ 294 $ -- $ 6,956
========= ========== ======== ==========
Net income per common share:
Basic $ 0.89 $ 2.68 $ -- $ 0.86
Diluted 0.84 2.68 -- 0.83
Average shares outstanding:
Basic 7,516,620 109,900 -- 8,074,720
Diluted 11,183,726 109,900 -- 11,741,826
</TABLE>
38
<PAGE>
INFORMATION ABOUT CAROLINA FIRST
GENERAL
CAROLINA FIRST. Carolina First is a bank holding company headquartered in
Greenville, South Carolina which engages in a general banking business through
its five 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) Carolina First Bank,
F.S.B., a Federal Savings Bank, (4) Blue Ridge Finance Company, Inc., an
automobile finance company headquartered in Greenville, South Carolina, and (5)
Resource Processing Group, Inc., a credit card origination and servicing company
headquartered in Columbia, South Carolina. Through its subsidiaries, Carolina
First 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, which commenced operations in December 1986,
currently conducts business in 73 locations in South Carolina and is one of the
largest independent South Carolina-headquartered financial institutions. At
September 30, 1998, it had total assets of approximately $2.6 billion, total
loans of approximately $1.8 billion, total deposits of approximately $2.1
billion and approximately $337 million in shareholders' equity.
Carolina First 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'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's loan and deposit growth.
Carolina First 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'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 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's market areas are located in the four
largest Metropolitan Statistical Areas of the state. Carolina First also has
branch locations in other counties in South Carolina.
Carolina First 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 following:
Institution Date
----------- ----
First Federal Savings and Loan Association of Georgetown 1990
12 branch locations of Republic National Bank 1993
Midlands National Bank 1995
Aiken County National Bank 1995
First Southeast Financial Corporation 1997
Lowcountry Savings Bank 1997
First National Bank of Pickens County 1998
39
<PAGE>
Poinsett Financial Corporation 1998
Colonial Bank of South Carolina, Inc. 1998
Approximately half of Carolina First's total deposits have been generated
through acquisitions. Carolina First anticipates that it will continue to expand
in the future and is frequently in discussions regarding possible acquisitions.
See "--Recent Developments."
Carolina First is a legal entity separate and distinct from its subsidiary
bank and non-banking subsidiaries. Accordingly, the right of Carolina First, and
thus the right of Carolina First'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 in its capacity as a creditor may be recognized.
The principal source of Carolina First'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.
It currently engages in a general banking business through 69 locations, which
are located throughout South Carolina. It began its operations in December 1986
and at September 30, 1998 had total assets of approximately $2.5 billion, total
loans of approximately $1.7 billion and total deposits of approximately $2.0
billion. Its deposits are insured by the Federal Deposit Insurance Corporation
("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 September 30, 1998, Carolina First
Mortgage Company was servicing or subservicing approximately 22,589 loans having
an aggregate principal balance of approximately $2.0 billion.
BLUE RIDGE FINANCE COMPANY, INC. On December 29, 1995, Carolina First
acquired Blue Ridge Finance Company, Inc., an automobile finance company
headquartered in Greenville, South Carolina. Blue Ridge operates from one
location and, at September 30, 1998, had approximately $18 million in total
assets. Blue Ridge is engaged primarily in indirect automobile lending.
RESOURCE PROCESSING GROUP, INC. On June 1, 1998, Carolina First 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 September 30, 1998, was servicing
approximately $131 million in credit card receivables.
CAROLINA FIRST BANK, F.S.B. Carolina First Bank, F.S.B. is a federal
savings bank and a wholly-owned subsidiary of Carolina First. It currently
engages in a thrift business through three locations, which are located in
Greenville and York counties in South Carolina. At September 30, 1998 had total
assets of approximately $99.1 million, total loans of approximately $70.0
million and total deposits of approximately $82.5 million. Its deposits are
insured by the FDIC.
CAPITAL ADEQUACY
CAROLINA FIRST. The Federal Reserve has adopted risk-based capital
guidelines for bank holding companies. Under these guidelines, the minimum ratio
of total capital to risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the total
capital is required to be "Tier 1 capital," principally consisting of common
shareholders' equity, noncumulative preferred stock, a limited amount of
cumulative perpetual preferred stock, and minority interests in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder (Tier 2 capital) may consist of a limited
40
<PAGE>
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 September 30, 1998, Carolina First was in compliance with
both the risk-based capital guidelines and the minimum leverage capital ratio.
PRO FORMA REGULATORY CAPITAL. The following table sets forth Carolina
First regulatory capital position at September 30, 1998, on a historical basis
as well as a pro forma basis assuming consummation of the acquisition. See "PRO
FORMA COMBINED CONDENSED FINANCIAL INFORMATION."
At September 30, 1998
---------------------
Historical Pro Forma
---------- ---------
(Dollars in thousands)
Shareholders' Equity............. $ 337,434 12.82% $ 342,164 12.73%
=========== ===== =========== =====
Regulatory Capital
Tier 1 risk-based:
Actual......................... $ 220,475 11.43 % $ 225,178 11.47%
Required*...................... 77,162 4.00 78,508 4.00
------------ ----- ------------ -----
Excess......................... $ 143,313 7.43 % $ 146,670 7.47%
=========== ===== =========== =====
Total risk-based:
Actual......................... $ 263,688 13.67 % $ 264,082 13.46%
Required*...................... 154,325 8.00 157,015 8.00
------------ ----- ------------ -----
Excess......................... $ 109,363 5.67 % $ 107,067 5.46%
=========== ==== ============ =====
Leverage:
Actual......................... $ 220,475 8.76 % $ 225,178 8.75%
Required*...................... 100,719 4.00 102,904 4.00
------------ ---- ------------ -----
Excess......................... $ 119,756 4.76 % $ 122,274 4.75 %
=========== ==== =========== =====
Total risk-based assets.......... $1,929,059 $1,962,693
========== ==========
Total assets..................... $2,632,674 $2,687,309
========== ==========
- ---------------------------------------
* For capital adequacy purposes.
RECENT DEVELOPMENTS
DECEMBER 31, 1998 YEAR END EARNINGS AND FINANCIAL DATA. On January 21,
1999, Carolina First announced its earnings and other financial data at and for
the year ended December 31, 1998. For the 1998 year, Carolina First's net income
totaled $22.4 million, or $1.19 per diluted share, compared with the 1997 net
income of $14.3 million, or $1.18 per diluted share. At December 31, 1998,
Carolina First's total assets, loans, deposits and shareholders' equity were
approximately $2.7 billion, $1.9 billion, $2.1 billion and $344 million,
respectively. At December 31, 1998, Carolina First's ratio of nonperforming
assets to loans and other real estate owned was 0.28%.
41
<PAGE>
ACQUISITION OF COLONIAL BANK OF SOUTH CAROLINA, INC. On October 19, 1998,
the Company acquired all the outstanding common shares of Colonial Bank of South
Carolina, Inc., a state-chartered banking corporation headquartered in Camden,
South Carolina, in exchange for 651,455 shares of the Company's Common Stock.
This transaction was accounted for using the purchase method of accounting and
was valued at approximately $14 million (as of the closing date of the
acquisition). The excess of the purchase price over the fair market value of the
net identifiable assets acquired of approximately $10 million has been recorded
as goodwill and core deposit premium. Colonial operated through three locations
and had total assets, loans, deposits and shareholders' equity of approximately
$61 million, $51 million, $43 million and $5 million, respectively.
OTHER ACQUISITIONS. Carolina First 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's acquisition
strategy is flexible in that it does not require Carolina First 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'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's
acquisitions may be made by the exchange of stock, through cash purchases, or
with other consideration. Carolina First does not currently have any definitive
understandings or agreements for any acquisitions material to Carolina First.
However, Carolina First anticipates that it will continue to expand by
acquisition in the future.
42
<PAGE>
INFORMATION ABOUT CITIZENS FIRST NATIONAL BANK
HISTORY AND BUSINESS
Citizens First National Bank, a national banking association, was
organized in 1982 for the purpose of conducting a general banking business in
Putnam County, Florida and surrounding areas. At September 30, 1998, Citizens
had total assets of $54.7 million, total deposits of $49.4 million and
shareholders' equity of $4.7 million. Citizens is regulated by the OCC and its
deposits are insured up to applicable limits under the Bank Insurance Fund of
FDIC.
Citizens's principal business consists of accepting deposits from the
general public through a variety of deposit programs and originating commercial,
consumer and mortgage loans.
RECENT DEVELOPMENTS
1998 Earnings and Financial Data. For the year ended December 31, 1998,
Citizens's net income totaled $461,845 or $4.20 per share. This compares to
$472,199 or $4.30 per share for the year ended December 31, 1997. As of December
31, 1998, Citizens total assets, loans, deposits, and shareholders' equity were
$57.2, $36.4, $51.9 and $4.8 million, respectively.
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 Citizens, and should be read in
conjunction with the financial statements and related notes contained elsewhere
herein.
EARNINGS PERFORMANCE
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
Net income for the nine months ended September 30, 1998 was $351,430, or $3.20
per share. This compares to net income of $355,330 or $3.23 per share, for the
nine months ended September 30, 1997. This was a decrease of $3,900, or $.03 per
share.
1997 COMPARED WITH 1996
Citizens experienced record earnings of $472,199, or $4.30 per share, for
the year ended December 31, 1997. This compared to $362,895, or $3.30 per share,
for the year ended December 31, 1996. This was an increase of $109,304, or $1
per share. The return on average equity improved from 9.49% in 1996 to 11.17% in
1997, while return on average assets improved from 0.77% in 1996 to 0.91% in
1997.
1996 COMPARED WITH 1995
Net income for the year ended December 31, 1996 was $362,895 or $3.30 per
share. This compared to net income of $294,152 or $2.68 per share for the year
ended December 31, 1995. This was an increase of $68,743 or $.62 per share, a
23.4% increase.
43
<PAGE>
NET INTEREST INCOME
Net interest income is the amount of interest earned on interest earning
assets (loans, investment securities, and federal funds sold), less the interest
expense incurred on interest-bearing liabilities (interest-bearing deposits),
and is the principal source of Citizens' 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.
For the nine months ended September 30, 1998, net interest income
increased $123,317 or 6.9% to $1,913,107 when compared to the nine months ended
September 30, 1997. This increase is attributed to an increase in interest
income, partially offset by an increase in interest expense on deposits.
Interest and fees on loans increased $105,905 or 9.3% from $2,448,453 in 1997 to
$2,554,358 in 1998 due to an increase in the average balances of loans
outstanding, partially offset by a decrease in the average yield on loans from
9.38% in 1997 to 9.36% for 1998. Interest on investments increased $59,430 or
21.6% from $274,668 in 1997 to $334,098 for 1998 due to a decrease in average
balances of investments. Interest on Federal Funds sold increased $25,802 or
14.3% from $180,516 in 1997 to $206,318 for the same nine month period ended
September 30, 1998 due to an increase in average balances outstanding. Interest
expense increased $67,371 or 5.9% from $1,134,640 in 1997 to $1,202,011 for 1998
due to the increase in average balances of deposits outstanding.
Net interest income increased $29,335 or 1.2% from $2,348,347 in 1996 to
$2,377,682 in 1997. Interest and fees on loans increased $238,161 or 7.9% from
$3,033,760 in 1996 to $3,271,921 in 1997 due to an increase in the average
balance of loans outstanding, partially offset by a decrease in the average
yield on loans from 9.52% in 1996 to 9.38% in 1997. Interest on investments
decreased $80,999 or 16.8% from $483,397 in 1996 to $402,398 in 1997 due
primarily to a decrease in average balances of investments as funds were
invested in Federal Funds sold. Interest on Federal Funds sold increased
$168,123 or 202.9% from $82,877 in 1996 to $251,000 in 1997 due to an increase
in average balances outstanding. Interest expense increased $295,950 or 23.6%
from $1,251,687 in 1996 to $1,547,637 in 1997 due to the increase in average
balances of deposits outstanding and due to an increase in average rates from
3.59% in 1996 to 3.99% in 1997. The net interest margin decreased from 5.61% in
1996 to 5.12% in 1997.
Net interest income increased $65,405 or 2.9% from $2,282,942 in 1995 to
$2,348,347 in 1996 primarily attributable to a $89,888 or a 6.7% decrease in
interest expense, that was partially offset by a $23,483 decrease in total
interest income. Interest and fees on loans increased $59,610 or 2.0% from
$2,974,150 in 1995 to $3,033,760 in 1996 due to an increase in the average
balance of loans outstanding, partially offset by a decrease in the average
yield on loans. Interest on investments decreased $26,677 or 5.2% from $510,074
in 1995 to $483,397 in 1996 due primarily to a decrease in average balances of
investments, partially offset by an increase in the average yield. Interest on
Federal Funds sold decreased $57,416 or 40.9% from $140,293 in 1995 to $82,877
in 1996 due to decrease in average balances outstanding and a decrease in the
average yield. Interest expense decreased $89,888 or 6.7% from $1,341,575 in
11995 to $1,251,687 in 1996 due to a decrease in average balances of deposits
outstanding and a decrease in average rates.
The table "Comparative Average Balances, Yields and Rates" provides a
detailed analysis of the effective yields and rates on the categories of
interest earning assets and interest-bearing liabilities for the years ended
December 31, 1997.
44
<PAGE>
<TABLE>
<CAPTION>
COMPARATIVE AVERAGE BALANCES, YIELDS AND RATES
(Dollars in thousands) Year Ended Year Ended
December 31, 1996 December 31, 1997
-------------------------------------------------------
Average Income/ Yield/ Average Income/ Yield/
Balances Expense Rate Balances Expense Rate
-------- ------- ---- -------- ------- ----
ASSETS
Earning assets
<S> <C> <C> <C> <C> <C> <C>
Loans (including fees) (1) $ 31,883 $ 3,034 9.52% $ 34,884 $ 3,272 9.38%
Securities 8,519 483 5.67% 7,048 402 5.70%
Federal funds sold 1,471 83 5.64% 4,481 251 5.60%
-------- ------- -------- -------
Total earnings assets 41,873 3,600 8.60% 46,413 3,925 8.46%
----- -----
Non-earning assets
Cash and due from banks 2,602 2,694
Property and equipment 1,207 1,352
Other 1,342 1,235
-------- ---------
Total assets $ 47,024 $ 51,694
======== ========
LIABILITIES
Interest-bearing liabilities
Demand and savings deposits $ 16,492 $ 299 1.81% $ 16,398 $ 294 1.79%
Time deposits $100,000 and greater 2,857 162 5.67% 4,071 244 5.99%
Time deposits under $100,000 15,454 790 5.11% 18,294 1,009 5.52%
-------- ------- ---- -------- ------- -----
Total interest bearing liabilities 34,803 1,251 3.59% 38,763 1,547 3.99%
Noninterest-bearing liabilities
Noninterest-bearing deposits 7,887 8,332
Other liabilities 511 373
Total liabilities 43,201 47,468
Stockholders' equity 3,823 4,226
-------- --------
Total liabilities and stockholders' equity $ 47,024 $ 51,694
======== ========
Net interest income and net yield on earning assets (2) $ 2,349 5.61% $2,378 5.12%
======= ======
Interest rate spread (3) 5.01% 4.47%
</TABLE>
- ----------------------------------------------------
(1) Non-accrual loans are included in the total loan balance but the interest
income associated with these loans is excluded.
(2) Net interest income divided by total average earning assets.
(3) Total interest earning assets yield minus total interest bearing
liabilities rate.
The table "Volume and Rate Variance Analysis" provides a summary of
changes in net interest income resulting from changes in volumes of interest
earning assets and interest bearing liabilities, and the rates earned and paid
on such assets and liabilities. The rate/volume variances for each category has
been allocated on a consistent basis between rate and volume variances based on
the percentage of rate or volume variances to the sum of the two absolute
variances.
45
<PAGE>
VOLUME AND RATE VARIANCE ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 Compared to 1997 1995 Compared to 1996
--------------------------- ----------------------------
Amount Amount Amount Amount
Caused Caused Caused Caused
By By By By
Total Change in Change in Total Change in Change in
Change Volume Rate Change Volume Rate
------ ------ ---- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans (including fees) $ 238 $ 283 $ (45) $ 60 $ 71 $ (11)
Securities (81) (84) 3 (27) (39) 12
Federal funds sold 168 169 (1) (57) (49) (8)
Total interest income 325 368 (43) (24) (17) (7)
Interest-bearing liabilities
Demand and savings deposits $ (5) $ (2) $ (3) $ (80) $ (16) $ (64)
Time deposits >$100,000 82 73 9 (4) (13) 9
Time deposits <$100,000 219 153 66 (7) (9) 2
Total interest expense 296 224 (72) (91) (38) (53)
Net interest income $ 29 $ 144 $(115) $ 67 $ 21 $ 46
</TABLE>
- -------------------------------
INTEREST RATE SENSITIVITY
Interest rate sensitivity management is concerned with the management of
the timing and magnitude of repricing assets compared to liabilities and is an
important part of asset/liability management. It is the objective of interest
rate sensitivity management to generate stable growth in net interest income,
and to control the risks associated with interest rate movement. The
Asset/Liability Management Committee reviews interest rate risk exposure
quarterly and the expected interest rate environment so that adjustments in
interest rate sensitivity can be timely made.
The table, "Interest Sensitivity Analysis", indicates that, as of
December 31, 1997 on a cumulative basis through twelve months, rate sensitive
liabilities exceeded rate sensitive assets, resulting in a liability sensitive
position of $25,815,000. 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 is the case at December 31, 1997 with
respect to the one year time horizon. For a bank with a negative gap, falling
interest rates would be expected to have a positive effect on net interest
income and rising rates would be expected to have the opposite effect.
The table below reflects the balances of interest earning assets and
interest-bearing liabilities at the earlier of their repricing or maturity
dates. Scheduled payment amounts to amortizing fixed rate loans are reflected at
each scheduled payment date. Variable rate amortizing loans reflect scheduled
payments at each scheduled payment date until the loan may be repriced
contractually; the unamortized balances are reflected at that point. Overnight
Federal Funds sold are reflected in the earliest repricing interval due to the
immediately available nature of these funds. Interest-bearing liabilities with
no contractual maturity, such as interest-bearing transaction accounts and
savings deposits are reflected in the earliest repricing interval due to
contractual arrangements which give management the opportunity to vary the rates
paid on these deposits within a thirty-day or shorter period. However, Citizens
is under no obligation to vary the rates paid on those deposits within any given
period. Fixed rate time deposits, principally certificates of deposit are
reflected at their contractual maturity dates. Variable rate time deposits,
principally Individual Retirement Accounts, are reflected at the earlier of
their next repricing or maturity dates.
46
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY AS OF DECEMBER 31, 1997
(Dollars in thousands)
Within 4-12 Over 1-5 Over 5
3 months months years years Total
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans (including fees) $ 631 $ 2,191 $ 10,517 $ 23,049 $ 36,388
Securities 237 1,499 5,094 1,101 7,931
Federal funds sold 4,186 -- -- -- 4,186
-------- ------- -------- -------- --------
Total earning assets 5,054 3,690 15,611 24,150 48,505
Non-earning assets
Cash and due from banks -- -- -- 2,885 2,885
Property and equipment -- -- -- 1,129 1,129
Other -- -- -- 866 866
-------- ------- -------- -------- --------
Total assets $ 5,054 $ 3,690 $ 15,611 $ 29,030 $ 53,385
======== ======= ======== ======== ========
LIABILITIES
Interest-bearing liabilities
Demand and savings deposits $ 16,506 $ -- $ -- $ -- $ 16,506
Time deposits >$100,000 400 3,012 598 -- 4,010
Time deposits <$100,000 6,077 8,564 4,794 -- 19,435
-------- ------- -------- -------- --------
Total interest bearing liabilities 22,983 11,576 5,392 -- 39,951
Noninterest-bearing liabilities
Non-interest bearing deposits -- -- -- 8,532 8,532
Other liabilities -- -- -- 172 172
-------- ------- -------- -------- --------
Total liabilities -- -- -- 8,704 9,524
Stockholders' equity -- -- -- 4,730 4,730
-------- ------- -------- -------- --------
Total liabilities and stockholders'
equity $ 22,983 $ 11,576 $ 5,392 $ 13,434 $ 53,385
======== ======= ======== ======== ========
Interest sensitive gap $ (17,929) $ (7,886) $ 10,219 $ 15,596 $ --
Cumulative interest sensitive gap $ (17,929) $ (25,815) $ (15,596) $ -- $ --
</TABLE>
PROVISION FOR LOAN LOSSES
For the nine months ended September 30, 1998, the provision for loan
losses was $10,000 and for the same period, net charge-offs were $25,648. This
provision for loan losses reflects continued improvements in loan charge-offs
and a decrease in the amount of non-accrual loans.
The provision for loan losses is charged to earnings based on management's
continuing review and evaluation of the loan portfolio and general economic
conditions. The provision for loan losses was $78,877 and $0 for the years ended
December 31, 1996 and 1997, respectively. The absence of a provision for loan
losses in 1997 reflects management's belief that the allowance for loan losses
at December 31, 1997 was adequate to absorb potential losses in the loan
portfolio as of that date. This also reflects improvements in Citizens' loan
charge-off experience.
The provision for loan losses for 1996 was $78,877 compared to $146,000 in
1995. The decrease in the provision in 1996 reflects management's belief that
the allowance for loan losses at December 31, 1996 was adequate to absorb
potential losses in the loan portfolio as of that date based upon improvements
in Citizens' loan charge-off experience. Net charge-offs for 1996 totaled
$66,627 compared to $90,683 in 1995. See "Allowance for Loan Losses" for further
discussion.
Net loan charge-offs for 1997 totaled $42,311, compared with $66,627 in
1996. Management is not aware of
47
<PAGE>
any trend toward significantly higher charge-offs in any particular loan
category in 1997. See "Nonperforming Loans; Other Problem Assets" and "Allowance
for Loan Losses" for a discussion of the factors management considers in its
review of the adequacy of the allowance and provisions for loan losses.
NONINTEREST INCOME
Noninterest income decreased $46,264 or 9.6% from $480,200 in 1996 to
$433,936 in 1997. Service charges on deposit accounts increased $13,911, or 3.6%
from $391,547 in 1996 to $405,458 in 1997, which was offset by a decrease in
other income of $60,175. During 1996, other real estate owned was sold at a gain
of approximately $45,000 which is reported in other income.
Noninterest income increased $26,695 or 5.9% from $453,505 in 1995 to
$480,200 in 1996 due primarily as a result of the gain on sale of other real
estate, partially offset by a decrease of $37,521 in service charges on deposit
accounts in 1996.
NONINTEREST EXPENSES
Noninterest expenses decreased $7,140 or 0.3% from $2,189,850 in 1996 to
$2,182,710 in 1997. Salaries and employee benefit expense increased $28,181 or
2.5% and professional services expense decreased $42,262 or 57.2%. All other
noninterest expenses remained relatively consistent from 1996 to 1997.
Noninterest expenses decreased $29,838 or 1.3% from $2,219,688 in 1995 to
$2,189,850 in 1996. Salaries and employee benefit expenses increased $56,986 or
5.4%, furniture and equipment expense decreased $30,666 or 14.3% and insurance
expense decreased $61,071 or 61.7%, while all other noninterest expenses were
relatively consistent from 1995 to 1996.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased $40,216 or 20.4% from $196,925 in
1996 to $156,709 in 1997 due to the nature of Citizens' permanent book-tax
differences. Management estimates that the effective combined federal and state
income tax rate on income before income taxes will be approximately 38% for
1998.
INVESTMENT PORTFOLIO
At December 31, 1997, securities comprised approximately 14.9% of
Citizens's assets. The following table summarizes the carrying value amounts of
securities held by Citizens's at each of the dates indicated. Available-for-sale
securities are stated at estimated fair value and held-to-maturity investment
securities are stated at amortized cost.
48
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31,
------------------------------------------------
1996 1997
----- ----
Net Net
Unrealized Unrealized
Amortized Holding Fair Amortized Holding Fair
Cost Gain (Loss) Value Cost Gain (Loss) Value
---- ----------- ----- ---- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Agency obligations $ 2,602 $ (7) $ 2,595 $ 3,193 $ (1) $ 3,192
Municipal obligations 1,019 15 1,034 518 13 531
Mortgage-backed obligations 1,951 (41) 1,910 1,392 (12) 1,380
---------- ----------- --------- ---------- ------------- ----------
Total available for sale $ 5,572 $ (33) $ 5,539 $ 5,103 $ -- $ 5,103
========= ========== ======== ========= ============ =========
Held to Maturity:
U.S. Agency obligations $ 1,248 $ (11) $ 1,237 $ 2,749 $ -- $ 2,749
Mortgage-backed obligations 491 (3) 488 -- -- --
Municipal obligations -- -- -- -- -- --
---------- ----------- --------- ---------- ------------- ----------
Total held to maturity $ 1,739 $ (14) $ 1,725 $ 2,749 $ -- $ 2,749
========= ========== ======== ========= =========== =========
</TABLE>
49
<PAGE>
SECURITIES PORTFOLIO MATURITIES AND YIELDS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1997
-----------------
Book Fair
Value Value Yield (%)(1)
----- ----- ------------
<S> <C> <C> <C>
Available for sale:
U.S. Agency obligations
0 to 1 years $ 1,000 $ 994 6.02%
1 to 5 years 1,850 1,848 5.62%
10 to 20 years 343 350 7.11%
---------- --------- -----
Total 3,193 3,192 5.90%
Municipal obligations
1 to 5 years 202 202 4.36%
5 to 10 years 316 329 7.38%
---------- ---------- -----
Total 518 531 6.21%
Mortgage-backed obligations
0 to 1 years 237 236 4.36%
1 to 5 years 792 783 6.06%
5 to 10 years 363 361 7.42%
---------- ---------- -----
Total 1,392 1,380 6.46%
TOTAL
0 to 1 years 1,237 1,230 6.08%
1 to 5 years 2,844 2,832 5.65%
5 to 10 years 679 691 7.40%
Over 10 years 343 350 7.11%
---------- ---------- -----
Total $ 5,103 $ 5,103 6.08%
========= ========= =====
Held to maturity:
U.S. Agency obligations
0 to 1 years $ 499 $ 500 6.09%
1 to 5 years 2,250 2,249 6.31%
--------- --------- -----
TOTAL $ 2,749 $ 2,749 6.27%
========= ========= =====
- ------------------------------------
</TABLE>
(1) Yields on tax exempt obligations have been computed on a tax equivalent
basis.
LOAN PORTFOLIO COMPOSITION
Management believes the loan portfolio is adequately diversified. A loan
concentration does exist regarding commercial loans to the fern industry. Loans
to the fern industry totaled approximately $3,877,000 at September 30, 1998,
which amounted to 10.4% of the total loan balance. No foreign loans existed as
of September 30, 1998.
The amount of loans outstanding at December 31, 1996 and 1997 are shown in
the following table according to type of loan:
50
<PAGE>
LOAN PORTFOLIO COMPOSITION
(Dollars in thousands)
December 31,
----------------------------
1996 1997
----------- ----------
Real estate $ 24,529 $ 25,073
Commercial 3,906 4,077
Installment 6,364 7,230
Other 5 8
---------- ----------
Total $ 34,804 $ 36,388
========== ==========
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 1997, total commercial and
industrial loans increased $171,065 or 4.4%. Also, loans for business purposes
that are secured by real estate (nonfarm, nonresidential) decreased by $972,000
or 22% during 1997. 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.
Real estate construction loans generally consists of financing the
construction of 1-4 family dwellings and some nonfarm, nonresidential real
estate. Usually, loan-to-cost ratios are limited to 80% to 85% and permanent
financing commitments are required prior to the advancement of loan proceeds.
Loans secured by real estate mortgages comprised approximately 68.9% and
70.5% of Citizens's loan portfolio at the end of 1997 and 1996, respectively.
Residential real estate loans consist mainly of first and second mortgages on
single family homes, with some multifamily loans. Loan-to-value ratios for these
instruments are generally limited to 85%. Nonfarm, nonresidential loans are
secured by business and commercial properties with loan-to-value ratios
generally limited to 80%. 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.
The repayment of loans in the loan portfolio as they mature is a source of
liquidity for Citizens. The following table sets forth the maturity of Citizens'
loan portfolio within specified intervals as of December 31, 1997:
<TABLE>
<CAPTION>
Due in 1 Due after Due
Year or Less 1 to 5 Years After 5 Years Total
------------ ------------ ------------- -----
<S> <C> <C> <C> <C>
(Type of Loan)
Real Estate $ 695,332 $ 2,867,160 $ 21,510,462 $ 25,072,954
Installment 1,680,469 1,634,737 761,957 4,077,163
Commercial 438,574 6,015,533 776,131 7,230,238
Other 7,864 -- -- 7,864
-------------- -------------- -------------- --------------
Total $ 2,822,239 $ 10,517,430 $ 23,048,550 $ 36,388,219
============== ============== ============== ==============
</TABLE>
Loans due after one year totaling $19,925,382 have predetermined interest rates
and $13,640,598 have floating or adjustable interest rates.
51
<PAGE>
NONPERFORMING LOANS; OTHER PROBLEM ASSETS
NON-ACCRUAL LOANS AND PAST DUE LOANS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, September 30
------------ ------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Non-accrual loans $ 520 $ 775 $ 478
Loans contractually past due -- -- 0
90 days or more on which interest
is still being accrued 289 250 189
--------- --------- -----------
Other real estate owned $ 809 $ 1,025 $ 667
========= ======== ===========
Total nonperforming assets
</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 estimated net realizable value of collateral is
sufficient to assure collection of the principal balance and accrued interest.
Previously accrued interest on loans placed in a nonaccrual status is reversed
against current income, and subsequent interest income is recognized when
received. Non-accrual loans amounted to 1.5%, 2.1% and 1.3% of total loans at
December 31, 1996, December 31, 1997 and September 30, 1998, respectively.
When the collectibility of a significant amount of principal is in serious
doubt, the principal balance is reduced to the estimated fair value of
collateral by charge-off to the allowance for loan losses and any subsequent
collections are credited first to the remaining principal balance and then to
the allowance for loan losses as a recovery of the amount charged off. A
nonaccrual loan is not returned to accrual status unless principal and interest
are current and the borrower has demonstrated the ability to continue making
payments as agreed.
POTENTIAL PROBLEM LOANS
Management has identified and maintains a list of potential problem loans.
These are loans that are not included in the nonaccrual or the past due 90 days
or more and still accruing categories. A loan is added to the potential problem
list when management becomes aware of information about possible credit problems
of borrowers that causes serious doubts as to the ability of such borrowers to
comply with the current loan repayment terms.
The total amount of loans determined by management to be potential problem
loans was $188,660 at December 31, 1997 and $409,655 at September 30, 1998.
These amounts do not represent management's estimate of potential losses since a
large proportion of such loans is secured by various types of collateral.
OTHER REAL ESTATE OWNED
Real estate owned is located in areas where sales of the property are
expected to be moderate to quick. Real estate owned is initially recorded at the
lower of net loan principal balance or its estimated fair market value less
estimated selling costs. The estimated fair value is determined by appraisal at
the time of acquisition.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by direct charges to operating
expenses. Losses on loans are charged against the allowance in the period in
which management has determined that it is more likely than not such loans have
become uncollectible. Recoveries of previously charged off loans are credited to
the allowance. The table "Summary of Loan Loss Experience" summarizes loan
balances at the end of each period indicated, changes in the allowance arising
from charge-offs and recoveries by loan category, and additions to the allowance
which have been charged to expense.
52
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
December 31,
------------
1996 1997
---- ----
Balance at beginning of period $ 439 $ 451
Charge-offs:
Real estate (46) (17)
Installment (28) (39)
Commercial (10) (1)
Recoveries:
Real estate 13 --
Installment 5 2
Commercial -- 13
--------- ---------
Net charge-offs (67) (42)
Provision charged to expense 79 --
--------- ----------
Balance at end of period $ 451 $ 409
========= =========
Net charge-offs to average loans 0.21% 0.12%
==== ====
In reviewing the adequacy of the allowance for loan losses at each year
end, management took into consideration the historical loan losses experienced
by Citizens, current economic conditions affecting the borrowers' ability to
repay, the volume of loans, the trends in delinquent , nonaccruing, and
potential problem loans, and the quality of collateral securing nonperforming
problem loans. After charging off all known losses, management considers the
allowance for loan losses adequate to cover its estimate of possible future loan
losses inherent in the loan portfolio as of December 31, 1996 and 1997 and at
September 30, 1998.
In calculating the amount required in the allowance for loan losses,
management applies a consistent methodology that is updated quarterly. The
methodology utilizes a loan risk grading system, detailed loan reviews to assess
credit risks, mix of the loan portfolio and the overall quality of the loan
portfolio. Also, the calculation provides for management's assessment of trends
in national and local economic conditions that might affect the general quality
of the loan portfolio. Regulators review the adequacy of the allowance for loan
losses as part of their examination of Citizens and may require adjustments to
the allowance based upon information available to them at the time of the
examination. Although management's calculation of the allowance for loan losses
does not provide an allocation by individual loan categories, it recognizes that
various categories have differing degrees of risk and this is factored into
overall assessment.
53
<PAGE>
DEPOSITS
The average amounts and percentage composition of deposits held by
Citizens for the years ended December 31, 1997 and 1996 are summarized below:
AVERAGE DEPOSITS
(Dollars in thousands)
December 31,
------------
1996 1997
---- ----
Amount % Amount %
Noninterest-bearing demand $ 7,887 18.5% $ 8,332 17.8%
Interest-bearing demand and savings 16,492 38.6% 16,398 34.8%
Time deposits $100,000 and greater 2,857 6.7% 4,071 8.6%
Time deposits under $100,000 15,454 36.2% 18,294 38.7%
-------- --------- --------- --------
Total $ 42,690 100.0% $ 47,095 100.0%
======== ======== ========= ========
The vast majority of time certificates of deposits of $100,000 and over
are acquired from customers within Citizens service area in the ordinary course
of business and are perceived as core deposits although their retention can be
expected to be heavily influenced by rates offered, and therefore they have the
characteristics of shorter-term purchased funds. The maturities of time
certificates of deposits in amounts of $100,000 or more at December 31, 1997 are
summarized below:
MATURITIES OF CERTIFICATES OF DEPOSITS December 31,
IN AMOUNTS OF $100,000 OR MORE: 1997
(Dollars in thousands) ------------
3 months or less $ 400
3-6 months 1,300
6-12 months 1,712
Over 12 months 598
----------
$ 4,010
==========
54
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table shows the return on assets (net income divided by
average total assets), return on equity (net income divided by average equity),
equity assets ratio (average equity divided by average total assets) and the
dividend payout ratio (dividends declared per share divided by net income per
share) for each period indicated.
RETURN ON EQUITY AND ASSETS
For the Years Ended
December 31,
------------
1996 1997
---- ----
Return on average equity 9.49% 11.17%
Return on average assets 0.77% 0.92%
Average equity to average assets 8.13% 8.18%
Dividend payout ratio 16.66% 16.29%
LIQUIDITY
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of additional
liabilities. Adequate liquidity is necessary to meet the requirements of
customers for loans and deposit withdrawals in the most timely and economical
manner. Some liquidity is ensured by maintaining assets which may be immediately
converted into cash at minimal cost (amounts due from banks and Federal funds
sold). However, the most manageable sources of liquidity are composed of
liabilities, with the primary focus on liquidity management being on the ability
to obtain deposits within Citizens' service area. Core deposits provide a
relatively stable funding base, and were equal to $48,483,615 or 91% of total
assets at December 31, 1997 compared with $43,334,589 or 91% at the end of
fiscal 1996. Asset liquidity is provided from several sources, including amounts
due from banks and federal funds sold, and funds from maturing loans. Citizens
also has available unused short-term line of credit to purchase up to $1 million
of federal funds from an unrelated correspondent institution. Management
believes that Citizens' overall liquidity sources are adequate to meet its
operating needs.
CAPITAL RESOURCES
The equity capital of Citizens increased by $413,246 and $278,967 during
1997 and 1996, respectively, primarily the result of retained earnings. During
the nine month period ended September 30, 1998, Citizens also increased equity
capital $306,118, resulting from net income of $351,430 and unrealized gain on
available-for-sale investments of $42,608, partially offset by the payment of
dividends of $87,920.
Citizens is subject to regulatory capital adequacy standards. Under these
standards, financial institutions are required to maintain certain minimum
ratios of capital to risk-weighted assets and average total assets. Under the
provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), federal financial institution regulatory authorities are required to
implement prescribed "prompt corrective actions" upon the deterioration of the
capital position of a bank. If the capital position of an affected institution
were to fall below certain levels, increasingly stringent regulatory corrective
actions are mandated.
Citizens's September 30, 1998 capital ratios are presented in the
following table, compared with the "well capitalized" and minimum ratios under
the FDIC regulatory definitions and guidelines:
55
<PAGE>
Total Capital Tier 1 Leverage
------------- ------ --------
Minimum requirement 8.00% 4.00% 3.00%
Well capitalized requirement 10.00% 6.00% 5.00%
Actual 15.15% 13.98% 8.69%
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
its influence on those businesses which have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above-average growth in assets, loans and deposits. Also general
increases in the prices of goods and services will result in increased operating
expenses.
CORRESPONDENT BANKING
Correspondent banking involves the providing of services by one bank to
another bank which does not provide that service for itself from an economic or
practical standpoint. Citizens uses correspondent services offered by larger
banks, including check collections, purchase of Federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participations with
correspondent banks and other secondary lenders.
DATA PROCESSING
Citizens maintains a data-processing department which performs a full
range of data processing for Citizens. Such services include and automated
general ledger, deposit accounting and commercial and installment lending data
processing.
EMPLOYEES
At September 30, 1998, Citizens employed 34 persons on a full-time basis,
and 2 persons on a part-time basis.
MONETARY POLICIES
The results of operations of Citizens are affected by credit policies of
monetary authorities, particularly the Federal Reserve. The instruments of
monetary policy employed by the Federal Reserve include open market operations
in U.S. Government securities, changes in the discount rate on member bank
borrowings, changes in reserve requirements against member bank deposits and
limitations on interest rates which member banks may pay on time and savings
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve, no prediction can be made as to
possible future changes in interest rates, deposit levels, loan demand or the
business and earnings of Citizens.
56
<PAGE>
SUPERVISION AND REGULATION
Citizens operates in a highly regulated environment, and its business
activities are governed by statute, regulation and administrative policies. The
business activities of Citizens are supervised by a number of federal regulatory
agencies, including the Federal Reserve, the OCC and the FDIC.
Citizens was organized as a national banking association under the
National Bank Act. Its deposits are insured to $100,000 per account by the FDIC,
subject to aggregation rules. Citizens is subject to supervision and periodic
examination by the OCC, which oversees substantially all aspects of Citizens'
operations, including security devices and procedures, loan and securities
policies, adequacy of capitalization and loss reserves, loan portfolio
evaluation, payment of dividends, location of branch offices and facilities,
reserves against deposits, maintenance of required books and records, and
adequacy of staff training to carry on safe lending and deposit gathering
practices.
All national banks are required to be members of the Federal Reserve
System. Citizens is subject to rules and regulations from time to time
promulgated by the Board of Governors of the Federal Reserve System. Also, the
Glass- Steagall Act prohibits Federal Reserve member banks from being affiliated
with any company engaged principally in the issue, flotation, underwriting,
public sale or distribution of securities. However, the OCC has ruled that
national banks may engage in discount brokerage activities.
The Change in Bank Control Act provides that the OCC must be notified in
writing in advance if any person or persons acting in concert propose to acquire
25% or more of any class of Citizens' voting stock. In addition, if any person
or persons acting in concert propose to acquire 10% or more of any class of
Citizens' voting stock, such person or persons will be presumed to have acquired
control of Citizens (subject to rebuttal) if (i) Citizens has issued any class
of securities subject to the registration requirements of Section 12 of the
Securities Exchange Act of 1934, or (ii) immediately after the transaction, no
other person will own a greater proportion of the class of voting securities.
Approval of the OCC is required before any change in control of Citizens may be
effectuated.
In addition to a variety of generally applicable state and federal laws
governing businesses and employers, such as the Equal Employment Opportunity Act
prohibiting employment discrimination, and the Occupational Safety and Health
Act governing employee working conditions, Citizens is subject to a variety of
special federal statutes and regulations applicable only to financial
institutions. These include (i) the Truth in Lending Act and Federal Reserve
Regulation Z, which require disclosure of the terms of consumer finance
transactions and regulate certain credit card practices, (ii) the Equal Credit
Opportunity Act and Federal Reserve Regulation B, which prohibit discrimination
in the evaluation and extension of credit, (iii) the Home Mortgage Disclosure
Act and Federal Reserve Regulation C, which are intended to provide information
to enable the public and public officials to determine if a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, (iv) the Electronic Funds Transfer Act and Federal Reserve
Regulation E, which provide for consumer rights and safeguards in electronic
funds transfer systems, (v) the Community Reinvestment Act and regulations
applicable thereto, which require financial institutions to meet their
obligation to provide for the total credit needs of the communities they serve,
including their assets in loans to low and moderate income borrowers, (vi) the
Fair Debt Collection Practices Act, which governs practices which may be used by
associations and other credit grantors to eliminate abusive debt collection
practices, (vii) the Fair Credit Reporting Act, which governs the collection and
use of credit information by credit reporting agencies to insure the
confidentiality, accuracy, relevancy, and proper utilization of consumer credit
information, (viii) the Right to Financial Privacy Act, which imposes a duty to
maintain the confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial records,
(ix) the Bank Secrecy Act, which requires banks to file a report with the
Internal Revenue Service of each deposit, withdrawal, exchange of currency or
other payment or transfer, by, through, or to Citizens which involves a
transaction in currency of more than $10,000, and (x) the Financial Institutions
Regulatory and Interest Rate Control Act of 1978 and Federal Reserve Regulation
O, which place restrictions on extensions of credit to executive officers,
directors and principal shareholders of Citizens.
National banks are subject to restrictions under federal law in dealing
with affiliates. For instance, extensions
57
<PAGE>
of credit to an affiliate, investment in the securities of an affiliate and the
purchase of assets from an affiliate are limited to no more than 10% of
Citizens' capital stock and surplus to any single affiliate and 20% to all
affiliates.
The National Bank Act imposes on national banks the same limitations on
branch banking as are imposed by state law on state-chartered banks in the state
where the national bank is located. In Florida, a bank may establish branch
offices throughout the state by means of merger with an existing bank or by
opening branches de novo. Florida generally prohibits a bank from merging with
another bank unless the target bank has been in existence for at least five
years. Florida law likewise prohibits Citizens from being acquired by a bank
holding company until it has been in existence and continuously operating for at
least two years.
In August, 1989, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was enacted. FIRREA, among other things,
abolished the Federal Savings and Loan Insurance Corporation and established two
new insurance funds under the jurisdiction of the FDIC: the Savings Association
Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF"). The law also
provided for a phased-in increase in the rate of annual insurance assessments
paid by a bank, deposits of which are insured by the BIF from the current rate
of 1/18th of 1% of such bank's average assessment base (as defined) to 0.15% of
such assessment base on and after January 1, 1991, subject to increases in the
assessment rate to a rate not in excess of 0.325% of such assessment base upon
the occurrence of certain circumstances relating to the BIF.
FIRREA also gives banking agencies more potent enforcement mechanisms. The
authority of a banking agency to issue a cease-and-desist order now specifically
includes the power to order affirmative action to correct any harm resulting
from a violation or practice. The non-exhaustive list of actions that may be
ordered includes restitution, reimbursement, indemnification or guaranty against
loss if violation or practice showed a reckless disregard for the law,
applicable regulations or a prior banking agency order. Other specific actions
which may be ordered include restricting the growth of the institutions,
disposing of any loan or assets, rescinding contracts, hiring qualified officers
or employees, or "other action as the banking agency determines to be
appropriate." Moreover, the power to issue a cease- and-desist order includes
"the authority to place limitations on the activities or functions of an insured
depository institution or any institution-affiliated party."
Finally, FIRREA expanded the enforcement powers of bank regulatory
agencies, including the expansion of the FDIC's power to act as a conservator
and receiver for troubled financial institutions. The FDIC may appoint itself
conservator or receiver for an insured depository institution for any of the
following reasons: the institution is insolvent in that the assets of the
institution are less than its obligations to creditors and others; a substantial
dissipation of the assets or earnings has occurred due to any violation of law
or regulation of any unsafe or unsound practice; the institution is in an unsafe
or unsound position to transact business including substantially insufficient
capital or otherwise; the institution has willfully violated a cease-and-desist
order that has become final; the institution conceals or withholds its books or
records from banking regulators; it is unlikely that the institution will be
able to meet depositors' demands or pay its obligations in the normal course of
business; the institution has or is likely to incur losses that will deplete all
or substantially all of its capital and there is no reasonable prospect for the
capital to be replenished without federal assistance; or there exists one or
more violations of laws, rules or regulations or an unsafe or unsound practice
or condition that is likely to cause insolvency or substantially dissipate the
assets or earnings or is likely to weaken the bank's condition or seriously
prejudice the depositors' interests. The FDIC as conservator or receiver may
take over the assets of and operate the institution with all of the powers of
its management, may conduct all business of the institution, and perform all of
the functions of the institution in its own name. The FDIC may take action to
put the institution in a sound and solvent condition and dispose of it as a
going concern, or it may liquidate it and proceed to realize upon its assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (as
amended, "FDICIA"), which was enacted on December 19, 1991, provides for a
number of reforms relating to the safety and soundness of the deposit insurance
system, supervision of domestic and foreign depository institutions and
improvement of accounting standards. One aspect of FDICIA involves the
development of a regulatory monitoring system requiring "prompt corrective
action"
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on the part of banking regulators with regard to certain classes of
undercapitalized institutions. While FDICIA does not change any of the minimum
capital requirements, it directs each of the federal banking agencies to issue
regulations putting the monitoring plan into effect. FDICIA creates five
"capital categories" ("well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized") which are defined in FDICIA and which will be used to
determine the severity of corrective action the appropriate regulator may take
in the event an institution reaches a given level of undercapitalization. For
example, an institution which becomes "undercapitalized" must submit a capital
restoration plan to the appropriate regulator outlining the steps it will take
to become adequately capitalized. Upon approving the plan, the regulator will
monitor the institution's compliance. Before a capital restoration plan will be
approved, an entity controlling a bank (i.e., holding companies) must guarantee
compliance with the plan until the institution has been adequately capitalized
for four consecutive calendar quarters. The liability of the holding company is
limited to the lesser of 5% of the institution's total assets or the amount
which is necessary to bring the institution into compliance with all capital
standards. In addition, "undercapitalized" institutions will be restricted from
paying management fees, dividends and other capital distributions, will be
subject to certain asset growth restrictions and will be required to obtain
prior approval from the appropriate regulator to open new branches or expand
into new lines of business. As an institution drops to lower capital levels, the
extent of action to be taken by the appropriate regulator increases, restricting
the types of transactions in which the institution may engage and ultimately
providing for the appointment of a receiver for certain institutions deemed to
be critically undercapitalized.
FDICIA also provides that banks will have to meet new safety and soundness
standards that must be adopted by the regulators. Regulators are charged with
promulgating regulations defining operational and managerial standards relating
to internal controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, director and officer compensation, asset quality,
earnings and stock valuation.
Both the capital standards and the safety and soundness standards which
FDICIA seeks to implement are designed to bolster and protect the deposit
insurance fund. The BIF funding provisions under FDICIA could result in a
significant increase in the assessment rate on deposits over the next 15 years.
No assurance can be given at this time as to what the level of premiums will be
over this 15 year period.
In response to the directive issued by FDICIA, the regulators have issued
regulations which, among other things, prescribe the capital thresholds for each
of the five capital categories established by FDICIA. The following table
reflects the proposed capital thresholds:
<TABLE>
<CAPTION>
Total Risk-based Tier 1 Risk-based Tier 1 Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
<S> <C> <C> <C>
Well capitalized (1) >= 10% >= 6% >= 5%
Adequately capitalized (1) >= 8% >= 4% >= 4% (2)
Undercapitalized (3) < 8% < 4% < 4% (3)
Significantly undercapitalized (4) < 6% < 3% < 3% (5)
Critically undercapitalized -- -- <= 2%
</TABLE>
- ------------------------------
(1) An institution must meet all three minimums.
(2) 3% for composite CAMELS 1-rated institutions, subject to appropriate
federal banking agency guidelines.
(3) <3% for composite 1-rated institutions, subject to appropriate federal
banking agency guidelines.
(4) An institution falls into this category if it is below the specified
capital level for any of the three capital measures.
(5) Ratio of tangible equity to total assets.
With respect to the compliance with federal, state and local provisions
relating to the protection of the environment, Citizens does not believe that
such compliance will have any substantial or material effect upon the capital
expenditures, earnings or competitive position of Citizens.
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The scope of regulation and permissible activities of Citizens is subject
to change by future federal and state legislation.
DESCRIPTION OF PROPERTY
Citizen's main office, which is located on approximately 2.5 acre of land
on Summit Street, Crescent City, Florida, is a two story building containing
approximately 9,500 square feet. The main office consists of a main banking
floor with 4 teller stations and 4 offices, a night depository, three drive-in
windows, and a vault. The second floor of the facility consists of a board room,
bookkeeping department, a lounge and storage rooms.
In addition to its main location, Citizens owns a branch office located on
approximately one acre of land on Highway 20 in Interlachen, Florida. The branch
office is a single story building containing approximately 3,958 square feet.
The branch consists of 4 teller stations, 3 offices, three drive-up windows and
a vault.
Citizen's branch office in East Palatka, Florida is leased at the East
Gate Center in East Palatka, Florida. The branch office has approximately 3,000
square feet. The branch consists of 5 teller stations, 5 offices, two drive up
windows and a vault.
Citizen owns the offices in Crescent City and Interlachen leases the
branches in East Palatka and Palatka, Florida. Citizens does not own any other
real estate.
Citizen's branch office in Palatka, Florida is leased at the West Gate
Center. The branch office has approximately 2,975 square feet. The branch
consists of 4 teller stations, 2 offices, 2 drive-throughs and a vault.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which Citizens 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 Citizens, pending or contemplated, in which any
director, officer or affiliate of Citizens or any holder of 5% or more of
Citizens's outstanding stock, or any associate of any for the foregoing is party
or has an interest adverse to Citizens.
MARKET FOR COMMON STOCK AND DIVIDENDS
There is very limited trading in the Citizens 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. During the past six months,
Citizens is aware of only one trade at $32.00 per share. Such trade may not be
an arm's length transactions and may not be indicative of the market value of
the Citizens common stock.
As of December 31, 1998, there were approximately 185 holders of record of
Citizens's common stock.
Citizens paid cash dividends of $.55 per share in fiscal year ended
December 31, 1996, $.70 per share in fiscal year ended December 31, 1997 and
$.80 per share in fiscal year ended December 31, 1998. Federal banking
regulations restrict the amount of dividends that Citizens can pay to
shareholders. Generally, the approval of the OCC is required to pay dividends in
excess of Citizens's earnings retained in the current year plus retained net
profits for the preceding two years.
MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF CITIZENS
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The following table sets forth (i) as of December 31, 1998, the number and
percent of total outstanding shares of Citizens common stock beneficially owned
by all directors and executive officers of Citizens individually and by all
directors and executive officers of Citizens 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 beneficially owned by such persons
individually and as a group (assuming that Carolina First common stock's fair
market value is $21.50 and a conversion ratio of 5.0786).
MANAGEMENT AND PRINCIPAL SHAREHOLDERS OF CITIZENS
<TABLE>
<CAPTION>
Pro Forma After Merger
----------------------
Number of Number of
Name and address of Citizens Shares Percent Carolina First Corporation Percent
5% Beneficial Owner Beneficially Owned of Class Shares Beneficially Owned of Class
- ------------------- ------------------ -------- ------------------------- --------
<S> <C> <C> <C> <C>
Directors/Executive Officers
- ----------------------------
Pierce Browning 2,720 2.47% 13,813 *
Paul D. Causey 24,675 22.45% 125,314 *
Warren D. Fletcher 14,583 13.27% 74,061 *
Michael Glenn 130 * 660 *
Edward Lesowitz 5,000 4.55% 25,393 *
Edward A. Peacock 6,480 5.90% 32,909 *
Joe Pickens 3,000 2.73% 15,235 *
Robert Shackley 150 * 761 *
All Executive Officers 56,738 51.63% 288,146 1.3%
and Directors as a Group
(8 persons)
Other 5% Shareholders
Spence Limited, LP. 11,211 10.20% 56,936 2.5%
- ---------------------------------
</TABLE>
* less than 1%
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COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Effective Time, all of the outstanding shares of Citizens common
stock will be converted into Carolina First common stock. Accordingly,
shareholders of Citizens will become shareholders of Carolina First, and their
rights as Carolina First shareholders will be determined by South Carolina law
and Carolina First's Articles of Incorporation and Bylaws. The rights of
Carolina First shareholders differ from the rights of Citizens' shareholders
with respect to certain important matters, including the required shareholder
votes as to mergers, consolidations, exchanges, sales of assets or dissolution,
removal of directors and amendments to the articles of incorporation,
classification of the board of directors, cumulative voting rights, nomination
of directors, and statutory and other restrictions on certain business
combinations and control share acquisitions.
A comparison of the respective rights of Citizens shareholders and
Carolina First shareholders with respect to these matters is set forth
immediately below. A description of the Carolina First common stock is set forth
below under "Carolina First CAPITAL STOCK."
COMPARISON OF CAROLINA FIRST COMMON STOCK AND CITIZENS COMMON STOCK
The rights of Carolina First shareholders are governed by Carolina First's
Articles of Incorporation and Bylaws and the applicable provisions of the South
Carolina Business Corporation Act of 1988, as amended (the "SCBCA"). By
contrast, the rights of Citizens shareholders are governed by Citizens' Articles
of Association and Bylaws and by federal law. If the holders of Citizens common
stock approve the acquisition and it is subsequently consummated, holders of
Citizens common stock will become holders of Carolina First common stock.
Although it is impracticable to note all the differences between the SCBCA and
federal law generally, and all of the differences between the applicable
governing documents of Carolina First and Citizens, the following is intended to
be a summary of certain significant differences between the rights of holders of
Carolina First common stock and Citizens common stock. This comparison of the
rights of holders of Citizens common stock and Carolina First common stock is
based on the current terms of the governing documents of the respective
companies and on the current provisions of state and federal law and is
qualified in its entirety thereby.
CAPITALIZATION. The authorized capital stock of Citizens consists of
125,000 shares of Citizens common stock, par value $10.00 per share. As of
February 22, 1999, Citizens had 109,900 shares of common stock outstanding. The
authorized capital stock of Carolina First consists of 100,000,000 shares of
Carolina First common stock, par value $1.00 per share, and 10,000,000 shares of
"blank check" preferred stock. As of February 22, 1999, Carolina First had
22,022,617 shares of common stock outstanding and no shares of preferred stock
outstanding.
VOTING IN GENERAL. In general, holders of both Citizens common stock and
Carolina First common stock are entitled to one vote per share and to the same
and identical voting rights as other holders of such common stock. However, in
the election of directors, Citizens shareholders have the right to cumulate
votes, i.e. the right to give one candidate as many votes as equals the number
of directors multiplied by the number of his shares, or to distribute them on
the same principle among as many candidates as he shall think fit. Holders of
Carolina First common stock are not entitled to cumulate votes under any
circumstances.
DISSENTERS' RIGHTS. Citizens' shareholders have the right, in cases of
merger or consolidation, to be paid the fair value of their shares under
applicable dissenters' rights provisions. Because Carolina First 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 at least two-thirds of the outstanding shares of Citizens common stock is
required to approve any merger, consolidation, exchange, sale of substantially
all of the assets of, or dissolution of Citizens. Carolina First's Articles of
Incorporation require
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the affirmative vote of holders of at least 80% of the outstanding stock of
Carolina First entitled to vote for approval before Carolina First 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 of Carolina First with or into any
other corporation (the foregoing being hereinafter referred to as a "business
combination"). This 80% supermajority is reduced to 66.67% if such business
combination was approved and recommended without condition by the affirmative
vote of at least 80% of the directors.
DIRECTORS. The Articles of Association of Citizens provide for a Board of
Directors having not less than five nor more than twenty-five members as
determined from time to time by vote of a majority of the members of the Board
of Directors or by resolution of the shareholders of Citizens. Vacancies may be
filled by the other or remaining directors, provided, however, that the
directors may not increase the number of directors to a number that (i) exceeds
by more than two the number of directors last elected by the shareholders where
the number was fifteen or less, or (ii) exceeds by more than four the number of
directors last elected by shareholders where the number was 16 or more. Carolina
First's Articles of Incorporation provide that the number of directors shall be
set by the Board of Directors or the shareholders. However, the Board of
Directors cannot change the size of the Board by more than 30% without
shareholder approval. Vacancies may be filled by existing directors. The
Carolina First Board of Directors currently has thirteen members. In accordance
with Carolina First's Articles of Incorporation, whenever the Board consists of
nine or more persons, the Board shall be divided into three classes of directors
(with each class having as close to an equal number as possible). The members of
each class are elected for staggered three-year terms.
NOMINATION OF DIRECTORS. The Articles of Association of Citizens provide
that nominations for election to the board of directors may be made by the board
of directors or by any shareholder of Citizens entitled to vote for election of
directors. Nominations other than those made by or on behalf of the existing
Citizens management must be made in writing and be delivered or mailed to the
president of Citizens and to the OCC not less than 14 days nor more than 50 days
prior to any meeting of shareholders called for the election of directors;
provided, however, that if less than 21 days notice of the meeting is given to
shareholders, such nominations must be mailed or delivered to the president of
Citizens and to the OCC not later than the close of business on the seventh day
following the day on which the notice of meeting was mailed. Such notification
must contain certain specified information to the extent known to the notifying
shareholder. Carolina First'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 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 SCBCA and federal law, and
the governing documents of both Carolina First and Citizens, 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
Citizens or Carolina First.
ASSESSMENT. Under the National Bank Act, if the capital stock of a
national bank (such as Citizens) is impaired, by losses or otherwise, the OCC is
authorized to seek payment of the deficiency by assessment upon its
shareholders, pro rata, but the assessment is only enforceable by selling the
stock of any shareholder who does not pay the assessment. There are no
assessment provisions applicable to Carolina First common stock.
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CONVERSION; REDEMPTION; SINKING FUND. Neither Carolina First common stock
nor Citizens common stock is convertible, redeemable or entitled to any sinking
fund.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or
winding-up of the affairs of Citizens, holders of outstanding shares of Citizens
common stock are entitled to share, in proportion to their respective interests,
in Citizens' assets and funds remaining after payment, or provision for payment,
of all debts and other liabilities of Citizens. In the event of the liquidation,
dissolution or winding-up of the affairs of Carolina First, holders of Carolina
First common stock are entitled to share, pro rata, in Carolina First's assets
and funds remaining after payment, or provision for payment, of all debts and
other liabilities of Carolina First, and after payment of all amounts due to
holders of Preferred Stock upon liquidation.
DIVIDENDS. Holders of Citizens common stock and Carolina First common
stock are entitled to receive such dividends as the respective Board of
Directors may declare out of funds legally available therefor.
AMENDMENT. Citizens' Articles of Association provide that they may be
amended by the affirmative vote of a majority of Citizens' shareholders, unless
a greater vote is required by law. Carolina First's Articles of Incorporation
generally may be amended only upon the approval of holders of two-thirds of the
outstanding shares entitled to vote, and with respect to the items listed 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 Directors' 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.
If 80% of the directors approve amendments pertaining to the Articles of
Incorporation listed above, then only the affirmative vote of shareholders
holding two-thirds of the outstanding shares entitled to vote is needed to
approve the amendments.
ANTI-TAKEOVER MEASURES. Citizens has not implemented any material
anti-takeover measures. By contrast, Carolina First has implemented a number of
provisions which have the effect of impeding a takeover of Carolina First that
is not favored by Carolina First management. Furthermore, South Carolina law has
business combination and control share acquisition statutes which may serve to
impede takeovers not favored by management.
The South Carolina control share statute provides that upon the
acquisition by a person of certain threshold percentages of stock (20%, 33% and
50%), a shareholders' meeting must be held in order to determine whether or not
to confer voting rights upon such acquiring person's shares. An affirmative vote
of holders of a majority of all of the company's outstanding 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%
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shareholder engage in a business combination with the relevant corporation
unless certain approvals of the board of directors or disinterested shareholders
are obtained or unless the consideration given in the combination meets certain
minimum standards set forth in the statute.
There are no comparable federal statutes which are applicable to Citizens.
OTHER CONSIDERATIONS. Shares of common stock of Citizens, being stock of a
national bank, may be treated differently from shares of Carolina First for
state and local tax purposes, including for purposes of any intangibles taxes.
Citizens shareholders should consult their tax advisers with respect to relevant
differences in Citizens common stock and Carolina First common stock.
Generally, Citizens is prohibited from purchasing its own shares. Carolina
First, however, may purchase, hold and dispose of its own shares subject only to
restrictions on distributions by a corporation which prohibit any distribution
which would render a company insolvent.
CAROLINA FIRST CAPITAL STOCK
COMMON STOCK
Carolina First has 100,000,000 shares of common stock authorized, of which
22,022,617 shares were outstanding as of February 22, 1999. The holders of the
Carolina First 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 is dividends from its
subsidiaries. Carolina First's subsidiaries are subject to certain legal
restrictions on the amount of dividends they are permitted to pay. See
"INFORMATION ABOUT CAROLINA FIRST." All outstanding shares of Carolina First
common stock are fully paid and nonassessable. No holder of Carolina First
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 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 common stock are
entitled to one vote per share.
PREFERRED STOCK
Carolina First has 10,000,000 shares of "blank check" preferred stock
authorized ("Preferred Stock"), none of which is outstanding. Carolina First'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'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, the dividend rate and whether dividends shall be
cumulative or participating or possess other special rights, the voting rights,
Carolina First'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 to impede the ability of third parties who
attempt to acquire control of Carolina First without the cooperation of Carolina
First's Board of Directors.
CERTAIN MATTERS
SHAREHOLDERS' RIGHTS AGREEMENT. In 1993, the Carolina First Board of
Directors adopted a Shareholders' Rights Agreement, which was subsequently
amended and restated in December 1996 ("Rights
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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 common stock outstanding on November 23, 1993 and each
share to be issued by Carolina First thereafter. Each Right entitles the
registered holder to purchase from Carolina First one-half share of Carolina
First 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 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 (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 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 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
common stock will also constitute the transfer of the Rights associated with the
Carolina First 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 as described
below. As soon as practicable after the Distribution Date, rights certificates
will be mailed to holders of record of Carolina First 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 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 common stock, (ii) Carolina First 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 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 common stock (or in certain circumstances, cash, property, or
other securities of Carolina First) 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
is acquired in a merger or other business combination transaction, or (ii) 50%
or more of Carolina First'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 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 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
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 common stock, (ii) if holders of the
Carolina First common stock are granted certain rights or warrants to subscribe
for Carolina First common stock or securities convertible into Carolina First
common stock at less than
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the current market price of the Carolina First common stock, or (iii) upon the
distribution to holders of the Carolina First 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 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's right of redemption may be reinstated upon the approval of the
Board of Directors if an Acquiring Person reduces his beneficial ownership to
15% or less of the outstanding shares of Carolina First common stock in a
transaction or series of transactions not involving Carolina First 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 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's public
filings with the Securities and Exchange Commission.
MANAGEMENT CONTRACTS. Carolina First 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 provisions regarding compensation, confidentiality,
termination and noncompetition.
BOARD OF DIRECTORS.
Classification of Board of Directors. Carolina First's Board of Directors
currently consists of thirteen 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 of directors 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'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 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's Articles of Incorporation require
the affirmative vote of the holders of not less than 80% of the then outstanding
voting securities of Carolina First to remove any Director or the entire Board
of Directors without cause. Directors may be removed for cause as provided under
South Carolina law.
67
<PAGE>
Limitation of Director Liability. The members of the Board of Directors of
Carolina First are exempt under Carolina First'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 involved
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 (iv) for any transaction from which the director derived an
improper personal benefit.
Evaluation of Proposed Business Combinations. Carolina First's Articles of
Incorporation provide that the Board of Directors, when evaluating any proposed
business combination with Carolina First, 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, and on its subsidiaries, the communities
and geographical areas in which Carolina First and its subsidiaries operate or
are located, and on any of the businesses and properties of Carolina First 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's outstanding shares, but also in
relation to the then current value of Carolina First in a freely-negotiated
transaction and in relation to the Board of Directors' estimate of the future
value of Carolina First (including the unrealized value of its properties and
assets) as an independent going concern.
VOTING.
Voting For Directors. Carolina First's Articles of Incorporation provide
that shareholders may not cumulate votes for the election of directors.
Accordingly, holders of more than 50% of the shares voting at the election of
directors can elect all of the directors if they choose to do so and, in such
event, the holders of the remaining shares (less than 50%) voting are not able
to elect any board members. 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's Articles of
Incorporation require the affirmative vote of holders of at least 80% of the
outstanding stock of Carolina First entitled to vote for approval before
Carolina First 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 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 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 entitled to vote on such business
combination. The 80% supermajority provision is not applicable to any
transaction solely between Carolina First and another corporation, 50% or more
of the voting stock of which is owned by Carolina First. 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 without the cooperation
of Carolina First'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
68
<PAGE>
"COMPARATIVE RIGHTS OF SHAREHOLDERS -- Change in Control, Business Combinations
and Anti- Takeover Provisions."
TRANSFER AGENT. The transfer agent for the Carolina First common stock is
Reliance Trust Company, Atlanta, Georgia.
DIVIDEND REINVESTMENT PLAN. Carolina First has in place a dividend
reinvestment plan with respect to the Carolina First common stock. As set forth
in the plan, holders of such shares may elect to receive Carolina First common
stock in lieu of receiving the cash dividends to which such holder may otherwise
be entitled. The plan also provides for purchases of Carolina First common stock
through optional cash payments.
LEGAL MATTERS
Certain legal matters in connection with the Reorganization Agreement,
including the validity of the Carolina First Shares offered hereby, will be
passed upon for Carolina First by Wyche, Burgess, Freeman & Parham, P.A.,
Greenville, South Carolina. Wyche, Burgess, Freeman & Parham, P.A. is also
rendering a tax opinion to Citizens regarding the Reorganization Agreement. As
of February 22, 1999, members and attorneys of Wyche, Burgess, Freeman & Parham,
P.A. beneficially owned a total of approximately 19,000 shares of Carolina First
common stock.
Certain legal matters in connection with the Reorganization Agreement will
be passed upon for Citizens by Holmes & Pickens, Palatka, Florida.
EXPERTS
The financial statements of Citizens as of December 31, 1996 and 1997, and
for each of the years in the three-year period ended December 31, 1997, included
in this prospectus and in the registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein and elsewhere in the registration statement, and are included
in reliance upon the reports of such firm given their authority as experts in
accounting and auditing.
The consolidated financial statements of Carolina First 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 Citizens 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 Citizens
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.
ADDITIONAL INFORMATION AVAILABLE THROUGH THE SEC
69
<PAGE>
Carolina First is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). Pursuant to the
provisions of the Exchange Act, Carolina First 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) that file electronically with the Commission.
Carolina First 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 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, Citizens and the Carolina First 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 has been supplied by
Carolina First, and all information contained or incorporated by reference in
this Proxy Statement/Prospectus with respect to Citizens has been supplied by
Citizens.
INCORPORATION OF CERTAIN INFORMATION FILED WITH THE SEC BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH
RESPECT TO CAROLINA FIRST 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 MARCH ___, 1999.
The following documents filed with the Commission by Carolina First
pursuant to Section 13(a) or 15(d) of the Exchange Act are incorporated herein
by reference:
(1) Carolina First's Annual Report on Form 10-K for the year ended
December 31, 1997;
(2) Carolina First's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998;
(3) Carolina First's Current Reports on Form 8-K dated February 13,
1998; and
(4) The description of the Carolina First common stock which is
contained in Carolina First'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 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
70
<PAGE>
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.
RESALE MATTERS; SOURCE OF INFORMATION; CERTAIN OTHER MATTERS
This Proxy Statement/Prospectus does not cover any resales of the
Carolina First common stock offered hereby to be received by shareholders deemed
to be "affiliates" of Carolina First or Citizens upon consummation of the
acquisition. 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 not deemed to be "affiliates" of Carolina First
or Citizens.
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 or Citizens.
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 or Citizens since such date.
71
<PAGE>
CITIZENS FIRST NATIONAL BANK
TABLE OF CONTENTS
Page
INDEPENDENT AUDITORS' REPORT F-l
FINANCIAL STATEMENTS:
Balance Sheets F-2
Statements of Income F-3
Statements of Shareholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Citizens First National Bank
Crescent City, Florida
We have audited the accompanying balance sheets of Citizens First National Bank
(the "Bank") as of December 31, 1996 and 1997, and the related statements of
income, shareholders' equity and cash flows for the three years ended December
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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Bank at December 31, 1996 and 1997, and
the results of its operations and its cash flows for the three years ended
December 31, 1997 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Jacksonville, Florida
March 27, 1998
F-1
<PAGE>
CITIZENS FIRST NATIONAL BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
------------ ------------
1996 1997 1998
(Unaudited)
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 2,816,088 $ 2,884,713 $ 3,113,139
Federal funds sold 797,000 4,186,000 3,229,000
------------ ------------ ------------
Total cash and cash equivalents 3,613,088 7,070,713 6,342,139
INVESTMENT SECURITIES:
Held to maturity at amortized cost
(fair value of $1,724,695, $2,749,325 and $3,133,163) 1,739,345 2,749,201 3,091,310
Available for sale, at fair value
(amortized cost of $5,571,627, $5,103,399 and $5,731,749) 5,538,734 5,103,345 5,774,323
Other investments 78,700 78,700 78,700
------------ ------------ ------------
Total investment securities 7,356,779 7,931,246 8,944,333
LOANS, net allowance for loan losses
of $451,646, $409,334 and $393,686 34,032,569 35,817,617 36,968,322
PROPERTIES AND EQUIPMENT, net 1,370,563 1,129,118 1,098,461
OTHER REAL ESTATE OWNED 288,749 249,740 187,260
ACCRUED INCOME 361,571 418,947 443,889
DEFERRED INCOME TAXES 77,771 60,388 31,384
OTHER ASSETS 672,128 707,355 650,734
------------ ------------ ------------
TOTAL $ 47,773,218 $ 53,385,124 $ 54,666,522
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Noninterest-bearing demand deposits $ 7,893,049 $ 8,532,159 $ 8,815,294
Interest-bearing 35,441,540 39,951,456 40,616,780
------------ ------------ ------------
Total deposits 43,334,589 48,483,615 49,432,074
ACCRUED INTEREST PAYABLE 79,562 120,234 100,001
INCOME TAXES PAYABLE 109,040 77,297 93,282
OTHER LIABILITIES 223,670 264,375 311,465
------------ ------------ ------------
Total liabilities 43,746,861 48,945,521 49,936,822
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
SHAREHOLDERS' EQUITY:
Common stock, par value $10; 125,000 shares
authorized; 109,900 shares issued and outstanding 1,099,000 1,099,000 1,099,000
Additional paid-in capital 1,189,800 1,189,800 1,189,800
Retained earnings 1,755,567 2,150,836 2,414,346
Accumulated other comprehensive income, net of tax (18,010) (33) 26,554
------------ ------------ ------------
Total shareholders' equity 4,026,357 4,439,603 4,729,700
------------ ------------ ------------
TOTAL $ 47,773,218 $ 53,385,124 $ 54,666,522
============ ============ ============
See notes to financial statements.
</TABLE>
F-2
<PAGE>
CITIZENS FIRST NATIONAL BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the nine months ended
For the years ended December 31, September 30,
------------------------------------ --------------------------
1995 1996 1997 1997 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 2,974,150 $ 3,033,760 $ 3,271,921 $ 2,448,453 $ 2,554,358
Investment securities:
Taxable 461,102 434,450 375,315 274,668 334,098
Tax-exempt 48,972 48,947 27,083 20,793 20,344
Federal funds sold 140,293 82,877 251,000 180,516 206,318
----------- ----------- ----------- --------- ------------
Total interest income 3,624,517 3,600,034 3,925,319 2,924,430 3,115,118
INTEREST EXPENSE - Deposits 1,341,575 1,251,687 1,547,637 1,134,640 1,202,011
----------- ----------- ----------- --------- ------------
NET INTEREST INCOME BEFORE
PROVISION FOR LOAN LOSSES 2,282,942 2,348,347 2,377,682 1,789,790 1,913,107
PROVISION FOR LOAN LOSSES 146,000 78,877 10,000
----------- ------------ ----------- --------- ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,136,942 2,269,470 2,377,682 1,789,790 1,903,107
NONINTEREST INCOME:
Service charges on deposits 429,068 391,547 405,458 304,164 287,375
Other 24,437 88,653 28,478 24,192 9,184
----------- ----------- ----------- ---------- ------------
453,505 480,200 433,936 328,356 296,559
----------- ----------- ----------- ---------- ------------
NONINTEREST EXPENSES:
Salaries and employees benefits 1,052,581 1,109,567 1,137,748 856,368 839,419
Occupancy 194,958 215,394 203,695 157,030 162,485
Furniture and equipment 214,309 183,643 187,068 131,779 132,203
Directors' fees 72,511 72,250 73,450 54,925 54,825
Professional services 71,295 73,893 31,631 20,992 62,483
Insurance 98,957 37,886 40,205 29,635 30,788
Postage and freight 55,527 56,927 60,962 45,328 45,393
Other 459,550 440,290 447,951 345,528 325,577
----------- ----------- ----------- ----------- ------------
2,219,688 2,189,850 2,182,710 1,641,585 1,653,173
----------- ----------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES 370,759 559,820 628,908 479,561 546,493
PROVISION FOR INCOME TAXES:
Current 138,342 181,364 154,189 114,517 188,349
Deferred (61,735) 15,561 2,520 6,714 6,714
----------- ----------- ------------ ------------ -----------
Total provision for income taxes 76,607 196,925 156,709 121,231 195,063
----------- ----------- ----------- ------------ ------------
NET INCOME $ 294,152 $ 362,895 $ 472,199 $ 355,330 $ 351,430
=========== =========== =========== ============ ============
NET INCOME FOR COMMON SHARE: BASIC $ 2.68 $ 3.30 $ 4.30 $ 3.23 $ 3.20
=========== =========== =========== =========== ============
WEIGHTED AVERAGE SHARES 109,900 109,900 109,900 109,900 109,900
=========== =========== =========== =========== ============
OUTSTANDING
See notes to financial statements.
</TABLE>
F-3
<PAGE>
CITIZENS FIRST NATIONAL BANK
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Other
Common Stock Additional Comprehensive
-------------- Paid-In Retained (Loss) Income,
Shares Amount Capital Earnings Net of Tax Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 109,900 $ 1,099,000 $ 1,189,800 $ 1,158,965 $ (191,210) $3,256,555
Comprehensive Income:
Net Income 294,152 294,152
Other comprehensive income,
unrealized gains on investment
securities, net of tax of $120,548 196,683 196,683
---------- ----------- -----------
Comprehensive income 294,152 196,683 490,835
----------- ----------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1995 109,900 1,099,000 1,189,800 1,453,117 5,473 3,747,390
Comprehensive Income:
Net Income 362,895 362,895
Other comprehensive income,
unrealized loss on investment
securities, net of tax of $14,393 (23,483) (23,483)
---------- ----------- -----------
Comprehensive income 362,895 (23,483) 339,412
Dividends paid ($.55 per share) (60,445) (60,445)
----------- ----------- ----------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1996 109,900 1,099,000 1,189,800 1,755,567 (18,010) 4,026,357
Comprehensive Income:
Net Income 472,199 472,199
Other comprehensive income,
unrealized gains on investment
securities, net of tax of $11,018 17,977 17,977
----------- ----------- ----------
Comprehensive income 472,199 17,977 490,176
Dividends paid ($.70 per share) (76,930) (76,930)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 109,900 1,099,000 1,189,800 2,150,836 (33) 4,439,603
Comprehensive Income:
Net Income (unaudited) 351,430 351,430
Other comprehensive income,
unrealized gains on investment
securities, net of tax of $16,295
(unaudited) 26,587 26,587
----------- --------- ----------
Comprehensive income (unaudited) 351,430 26,587 378,017
Dividends paid ($.80 per share)
(unaudited) (87,920) (87,920)
----------- ----------- ----------- ---------- ---------- -----------
BALANCE, SEPTEMBER 30, 1998
(UNAUDITED) 109,900 $ 1,099,000 $1,189,800 $ 2,414,346 26,554 $4,729,700
=========== =========== =========== ========== ========== ===========
See notes to financial statements.
</TABLE>
F-4
<PAGE>
CITIZENS FIRST NATIONAL BANK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
For the years then ended December September 30,
------------------------------------- -----------------------------
1995 1996 1997 1997 1998
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 294,152 $ 362,895 $ 472,199 $ 355,330 $ 351,430
-------- ---------- --------- ---------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 146,000 78,877 10,000
Depreciation and amortization 111,440 176,279 122,768 89,709 80,406
Decrease (increase) in accrued income 42,851 (30,763) (57,376) 6,853 (24,942)
Decrease (increase) in other assets 19,083 (150,365) (35,227) (31,125) 56,622
Increase (decrease) in accrued interest
payable 11,264 638 40,672 30,910 (20,233)
Deferred income taxes (61,735) 15,561 2,520 6,714 6,714
(Decrease) increase in income taxes (8,954) 80,784 (31,743) (50,394) 15,985
(Decrease) increase in other liabilities (68,928) 3,518 40,705 65,226 47,090
Other - net 16,566 23,009 42,646 (167,391) (53,690)
---------- ---------- ---------- ---------- ----------
Total adjustments 207,587 197,538 124,965 (49,498) 117,948
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities 501,739 560,433 597,164 305,832 469,378
---------- ---------- ---------- ---------- ----------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities
available for sale 1,831,792 1,000,625 511,824 1,536,747
Proceeds from maturities of
investment securities held to maturity 503,875 999,999 1,250,000
Purchase of investment securities
available for sale (1,076,469) (1,850,107) (1,000,341) (342,109)
Purchase of investment securities held
to maturiy (748,125) (2,000,390) (494,907) (2,653,805)
Proceeds from principal paydowns on
mortgaged-backed securities,
available for sale 412,430 572,828 230,761 488,687
Proceeds from principal paydowns on
mortgaged-backed securities,
held to maturity 125,340 89,442 494,636 245,257
Net increase in loans (124,040) (3,889,508) (1,920,579) (653,887) (1,160,705)
Proceeds from sales of other real
estate owned 154,007 157,464 256,281 256,281 122,443
Purchases of properties and equipment (101,260) (192,334) (14,929) (14,929) (49,749)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities 557,922 (2,415,309) (2,211,635) 919,941 (2,058,491)
---------- ---------- ---------- ---------- ----------
FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits,
NOW, money market and savings accounts (1,979,026) (135,308) 1,213,262 (256,918) 1,248,417
Net increase (decrease) in time deposits 793,666 552,625 3,935,764 3,788,480 (299,958)
Cash dividends paid (60,445) (76,930) (76,930) (87,920)
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by
financing activities (1,185,360) 356,872 5,072,096 3,454,632 860,539
---------- ---------- ---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (125,699) (1,498,004) 3,457,625 2,840,523 (728,574)
CASH AND CASH EQUIVALENTS, BEGINNING OF 5,236,791 5,111,092 3,613,088 3,613,088 7,070,713
========== ========== ========== ========== ==========
CASH AND CASH EQUIVALENTS, END OF YEAR $5,111,092 $3,613,088 $7,070,713 $6,453,611 $6,342,139
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest $1,330,311 $1,251,049 $1,506,965 $1,103,730 $1,933,340
========== ========== ========== ========== ==========
Income taxes $ 147,241 $ 100,580 $ 248,817 $ 59,500 $ 38,000
========== ========== ========== ========== ==========
Noncash financing and investing activities:
Loans foreclosed upon and repossesed $ 87,247 $ 270,347 $ 133,736 $ 96,438 $ 79,436
========== ========== ========== ========== ==========
See notes to financial statements.
</TABLE>
F-5
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - Citizens First National Bank (the "Bank") was incorporated and
commenced operations in 1982. The Bank is a nationally chartered bank and
is subject to the regulations of the Office of the Comptroller of the
Currency.
The accounting and reporting policies of the Bank conform to generally
accepted accounting principles and to general practices within the banking
industry. The following summarizes the more significant of the Bank's
accounting and reporting policies and practices:
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on
hand, amounts due from banks, federal funds sold, and other short-term,
highly liquid interest bearing deposits and investment securities with an
original maturity of three months or less. Generally, federal funds are
purchased and sold for one-day periods.
INVESTMENT SECURITIES - Debt securities for which the Bank has the
positive intent and ability to hold to maturity are classified as held to
maturity and reported at amortized cost. Securities are classified as
trading securities if bought and held principally for the purpose of
selling them in the near future. No investments are held for trading
purposes. Securities not classified as held to maturity or trading are
classified as available for sale, and reported at fair value with
unrealized gains and losses reported net of tax in other comprehensive
income as a non-owner change in shareholders' equity until realized. Other
investments, which includes Federal Reserve Bank stock and Independent
Bankers' Bank stock, are carried at cost as such investments do not have
readily determinable fair values.
Realized gains and losses on sales of investment securities are recognized
upon disposition based upon the adjusted cost of the specific security.
LOANS - Loans are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. Interest on loans is calculated primarily by
using the simple interest method on daily balances of the principal amount
outstanding.
Nonrefundable fees and certain direct costs associated with originating or
acquiring loans are recognized over the life of related loans as an
adjustment of yield.
F-6
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is maintained at
a level believed adequate by management to absorb potential losses in the
loan portfolio. The allowance for loan losses is increased by charges
against income and decreased by chargeoffs (net of recoveries). Chargeoffs
to the allowance are made when the loan is considered uncollectible or is
transferred to real estate owned. Recoveries are credited to the
allowance. Management's periodic evaluation of the adequacy of the
allowance is based upon the Bank's past loan loss experience, known and
inherent risks in the loan portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions. While management uses the
best information available to make such determinations, additional
provision for loan losses may be required to be established in the future
should economic or other conditions change substantially.
Impaired loans are loans for which it is probable that the creditor will
be unable to collect all amounts due according to the contract terms of
the loan agreement. The Bank's impaired loans include nonaccrual loans,
troubled debt restructurings, and large loans more than 90 days delinquent
in which full payment of principal and interest is not expected. Cash
receipts on impaired loans are used to reduce principal balances.
Impairment losses are included in the allowance for loan losses through a
charge to the provision for loan losses. Impairment losses are measured by
the present value of expected future cash flows discounted at the loan's
effective interest rate, or at either the loan's observable market price
or the fair value of the collateral. Adjustments to impairment losses due
to changes in the fair value of an impaired loan's underlying collateral
are included in provision for loan losses. Upon disposition of an impaired
loan, any related valuation allowance is reversed through a chargeoff to
the allowance for loan losses.
Large groups of smaller balance homogeneous loans (installment, home
equity and single family mortgage loans) are collectively evaluated for
impairment. Nonaccrual large loans, troubled debt restructurings,
performing large loans and large loans more than 90 days past due in which
full payment of principal and interest is not expected are individually
evaluated for impairment.
PROPERTIES AND EQUIPMENT - Properties and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and
amortization are computed principally on the straight-line method over
estimated useful lives of 3 to 40 years. Repairs and maintenance are
charged to expense as incurred.
Periodically, management reviews long-lived assets for impairment whenever
events indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is recognized if the sum of the expected
future cash flows (undiscounted and without interest charges) from the use
of an asset is less than its carrying amount.
OTHER REAL ESTATE OWNED - Property acquired by foreclosure or deed in-lieu
of foreclosure is recorded at cost which is the estimated fair value of
the property at the time the loan is foreclosed. Subsequent to
foreclosure, these properties are carried at the lower of cost or fair
value minus estimated costs to sell. Costs relating to maintaining the
property are charged to expense.
F-7
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
The amounts the Bank could ultimately recover from real estate owned could
differ from the amounts used in arriving at the net carrying value of the
assets because of future market factors beyond the Bank's control or
changes in the Bank's strategy for recovering its investment.
INCOME TAXES - Deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of the
Bank's assets and liabilities under an asset and liability approach using
presently enacted rates.
NET INCOME PER COMMON SHARE - During the year ended December 31, 1997, the
Bank adopted SFAS No. 128, "Earnings per Share" (SFAS 128). This Statement
establishes standards for computing and presenting earnings per share
("EPS") and applies to all entities with publicly held common stock or
potential common stock. This Statement replaces the presentation of
primary EPS and fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes dilution and is computed by
dividing earnings available to common stockholders by the weighted-average
number of common shares outstanding for the period. Similar to fully
diluted EPS, diluted EPS reflects the potential dilution of securities
that could share in the earnings. Net income per common share is
calculated on the basis of the weighted average number of common shares
outstanding. There are no dilutive items in any reporting period.
COMPREHENSIVE INCOME - In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income". This
Statement establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a
full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 does not require a specific format for the
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in the financial
statement. Additionally, SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial
position. This Statement is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Bank adopted
the requirements of SFAS No. 130 during 1998.
INTERIM FINANCIAL INFORMATION - Interim financial information at September
30, 1998 and for the nine months ended September 30, 1997 and 1998 is
unaudited. The unaudited interim financial statements reflect all
adjustments consisting of normal reoccurring accruals which are, in the
opinion of management, necessary to a fair statement of the results from
the interim periods. Information for the interim periods is not
necessarily indicative of results to be achieved for the full year.
F-8
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities are
as follows:
<TABLE>
<CAPTION>
For the years then ended December 31, 1997
------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held to maturity
Obligations of U.S. government agencies $ 2,749,201 $ 1,544 $ (1,420) $ 2,749,325
----------- -------- ---------- ------------
Total held to maturity 2,749,201 1,544 (1,420) 2,749,325
----------- -------- ---------- ------------
Available for Sale:
Obligations of U.S. government agencies 3,193,049 7,694 (8,722) 3,192,021
FHLMC and GNMA mortgage-backed securities 1,392,379 (12,634) 1,379,745
Obligations of state and political
subdivisions 517,971 13,608 531,579
----------- -------- ---------- ------------
Total available for sale 5,103,399 21,302 (21,356) 5,103,345
$ 7,852,600 $ 22,846 $ (22,776) $ 7,852,670
============ ======== ========== ============
December 31, 1996
------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Held to maturity
Obligations of U.S. government agencies $ 1,248,352 $ 1,105 $ (12,857) $1,236,600
FHLMC mortgage-backed securities 490,993 (2,898) 488,095
----------- ---------- ---------- -----------
Total held to maturity 1,739,345 1,105 (15,755) 1,724,695
----------- ---------- ---------- -----------
Available for Sale:
Obligations of U.S. government agencies 2,601,883 7 (7,437) 2,594,453
FNMA, GNMA and FHLMC mortgage-backed
securities 1,951,138 (40,951) 1,910,187
Obligations of state and political
subdivisions 1,018,606 15,488 1,034,094
----------- ---------- ---------- -----------
Total available for sale 5,571,627 15,495 (48,388) 5,538,734
----------- ---------- ---------- -----------
$ 7,310,972 $ 16,600 $ (64,143) $7,263,429
=========== ========== ========== ===========
</TABLE>
F-9
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
The amortized cost and estimated market value of debt securities at December 31,
1997, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
------------------- --------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less $ 499,337 $ 499,685 $ 1,000,064 $ 993,750
Due after one year through five years 2,249,864 2,249,640 2,051,852 2,050,386
Due after five years through ten years 316,041 329,098
Due after ten years 343,063 350,366
Mortgaged-backed securities 1,392,379 1,379,745
----------- ----------- ----------- -----------
$ 2,749,201 $ 2,749,325 $ 5,103,399 $ 5,103,345
=========== =========== =========== ==========
</TABLE>
Investment securities carried at $898,794 at December 31, 1997 were
pledged to secure public funds' deposits.
3. LOANS
Major classifications of loans at December 31, 1996 and 1997 are
summarized as follows
1996 1997
Real estate $ 24,529,394 $ 25,072,954
Commercial 3,906,098 4,077,163
Installment 6,363,688 7,230,238
Other 5,295 7,864
-------------- -----------
Gross loans 34,804,475 36,388,219
Unearned income (262,352) (101,215)
Deferred loan fees (57,908) (60,053)
Allowance for loan loses (451,646) (409,334)
------------- ----------
Loans, net $ 34,032,569 $ 35,817,617
============= ===========
F-10
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
Transactions in the allowance for loan losses are as follows:
1995 1996 1997
Balance - Beginning of year $ 384,079 $ 439,396 $ 451,646
Provision 146,000 78,877
Recoveries 13,714 17,481 15,047
Charge-offs (104,397) (84,108) (57,358)
----------- ----------- ------------
Balance - End of year $ 439,396 $ 451,646 $ 409,334
=========== =========== ============
The Bank transacts business with directors and officers of the Bank in the
ordinary course of business. Total loans outstanding to these parties and
their related interests at December 31, 1996 and 1997 approximated
$1,193,000 and $1,532,000. Each director has an approved line of credit of
$5,000.
The Bank's primary lending area is Putnam County, Florida and surrounding
areas. Although the Bank's loan portfolio is diversified, a significant
portion of its loans are collateralized by real estate. It is the Bank's
lending policy to collateralize real estate loans based upon certain loan
to appraised value ratios.
The Bank had nonaccrual loans totaling approximately $520,000 and $775,000
at December 31, 1996 and 1997. Interest earnings associated with such
loans would have amounted to approximately $47,000 and $59,000 for 1996
and 1997. Impaired loans totaled approximately $520,000 and $495,000 at
December 31, 1996 and 1997. Based on the fair value of the related
collateral there is no specific allowance required for such loans. The
average balance and interest income recorded for impaired loans on the
cash basis was not significant during the years ended December 31, 1995,
1996 and 1997.
4. PROPERTIES AND EQUIPMENT
Major classifications of properties and equipment at December 31, 1996 and
1997 are summarized as follows:
1996 1997
Land $ 377,095 $ 256,500
Buildings and leasehold improvements 895,789 895,789
Furniture, equipment and automobiles 1,102,264 1,098,955
------------ ----------
2,375,148 2,251,244
Accumulated depreciation and amortization (1,004,585) (1,122,126)
------------ ----------
Total $ 1,370,563 $ 1,129,118
============= ==========
F-11
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
5. INTEREST BEARING DEPOSITS
The composition of interest bearing deposits at December 31, 1996 and 1997
are summarized below:
1996 1997
NOW accounts $ 7,472,724 $ 7,620,414
Money market accounts 2,192,132 2,029,354
Savings accounts 6,267,684 6,856,924
Time deposits of $100,000 or more 3,325,000 4,010,065
Other time deposits 16,184,000 19,434,699
------------ -----------
Total $35,441,540 $39,951,456
============ ===========
At December 31, 1997, the scheduled maturities of time deposits are as
follows:
1998 $ 18,205,031
1999 3,229,356
2000 1,775,932
2001 234,445
2002 and thereafter --
-------------
Total $ 23,444,764
=============
6. INCOME TAXES
The Bank's provision for income taxes differs from the amount computed by
applying the statutory Federal income tax rate to pretax income for the
following reasons:
1995 1996 1997
Tax at Federal statutory rate of 34% $ 126,058 $ 190,339 $ 213,829
Increase resulting from:
State income tax (net of Federal
income tax benefit) 6,075 20,881 22,829
Tax-exempt interest (19,632) (23,711) (14,826)
Florida intangible tax credit (18,133) (21,780)
Other (35,894) 27,549 (43,343)
---------------------- -----------
Total $ 76,607 $ 196,925 $ 156,709
=========== ========== ==========
F-12
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1996 and 1997, are
presented below:
1996 1997
Deferred tax assets:
Allowance for loan losses $ 119,115 $ 103,193
Deferred loan fees 21,791 22,598
Deferred compensation 26,717 35,247
Unrealized loss on investment securities 14,883 20
Other 20,259 24,003
---------- ----------
Gross deferred tax assets 202,765 185,061
---------- ----------
Valuation allowance -- --
Deferred tax liabilities:
Depreciation 124,994 124,673
---------- ----------
Gross deferred tax liabilities 124,994 124,673
---------- ----------
Net deferred tax asset $ 77,771 $ 60,388
========== ==========
7. COMMITMENTS
In the normal course of business, the Bank has made various commitments
that are not presented in the accompanying financial statements. At
December 31, 1997, the Bank had commitments to fund loans, unused lines of
credit, and unused letters of credit of approximately $101,000, $340,000
and $63,000, respectively. Such commitments all include exposure to some
credit loss in the event of nonperformance of the customer. The Bank's
credit policies and procedures for credit commitments and financial
guarantees are the same as those for extension of credit that are recorded
on the consolidated balance sheet. Management does not believe that these
commitments present any significant liquidity risk to the Bank.
8. LEASES
The Bank's branch office buildings and certain equipment are leased under
leases classified as operating leases. The leases of the branch buildings
are for terms of three years.
F-13
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
Future minimum rental commitments under such noncancelable leases at
December 31, 1997 are as follows:
Year Ending December 31
1998 $ 54,000
1999 45,000
2000 45,000
2001 45,000
2002 45,000
Thereafter 140,000
----------
Total $ 374,000
==========
Rental expense for all operating leases was $56,672, $59,283 and $58,168
for 1995, 1996 and 1997.
9. EMPLOYEE STOCK OWNERSHIP PLAN
The Bank has adopted an Employee Stock Ownership Plan ("ESOP") for all
eligible employees. A participant in the ESOP obtains a vested interest in
the Bank's common stock and cash allocated to his account according to a
schedule which provides for 100% vesting after seven years of
participation in the ESOP. ESOP participants are not permitted to
contribute to the ESOP. The Bank's contributions to the ESOP are
discretionary and are determined annually by the Board of Directors.
Contributions for the years ended December 31, 1995, 1996 and 1997 were
$15,000 each.
10. DEFERRED COMPENSATION AGREEMENTS
The Bank has established nonqualified deferred compensation agreements for
certain employees providing for fixed annual benefits payable over a
period of 10 years in the event of death, full disability or retirement at
age 65. The cost of these benefits is being charged to expense and accrued
using a present value method over the expected terms of employment. The
Bank reserves the right to terminate these agreements. Total expense under
these plans was $26,629, $28,947 and $31,544 for 1995, 1996 and 1997,
respectively.
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 possibly
additional discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance sheet items as calculated under
F-14
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
regulatory accounting practices. The Bank's capital amounts and
classification are 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 Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined) and Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996 and 1997, the most recent notification from the
Office of the Comptroller of the Currency ("OCC") categorized the Bank as
well capitalized under the regulatory framework for prompt and corrective
action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as
set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
<TABLE>
<CAPTION>
For Capital To be Well Capitalized Under
Actual Adequacy Purposes Prompt Corrective Action Provisions
------------------- --------------------- -----------------------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total capital
(to risk weighted
assets) $4,845,801 14.92% $2,599,202 8.0% $3,249,003 10.0%
Tier 1 capital
(to risk weighted
assets) 4,439,636 13.67 1,299,601 4.0 1,949,402 6.0
Tier 1 capital
(to average
assets) 4,439,636 8.78 2,021,959 4.0 2,527,449 5.0
As of December 31, 1996:
Total capital
(to risk weighted
assets) 4,431,247 14.35 2,470,851 8.0 3,088,563 10.0%
Tier 1 capital
(to risk weighted
assets) 4,044,367 13.09 1,235,425 4.0 1,853,138 6.0
Tier 1 capital
(to average
assets) 4,044,367 8.54 1,895,171 4.0 2,368,964 5.0
</TABLE>
F-15
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
The following is a reconciliation of shareholders' equity as reported in
the financial statements to regulatory capital as of December 31, 1996 and
1997:
Tier 1 Total
Leverage Risk Based Risk Based
Capital Capital Capital
----------- ----------- -----------
As of December 31, 1997:
Shareholders' equity $ 4,439,603 $ 4,439,603 $ 4,439,603
Unrealized loss on
investment securities 33 33 33
Allowance for loan loss 406,165
----------- ----------- -----------
Regulatory capital $ 4,439,636 $ 4,439,636 $ 4,845,801
=========== =========== ===========
As of December 31, 1996:
Shareholders' equity $ 4,026,357 $ 4,026,357 $ 4,026,357
Unrealized loss on
investment securities 18,010 18,010 18,010
Allowance for loan loss 386,880
----------- ----------- -----------
Regulatory capital $ 4,044,367 $ 4,044,367 $ 4,431,247
=========== =========== ===========
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Bank in estimating
financial instrument fair values:
GENERAL COMMENT - The financial statements include various estimated fair
value information as required by Statement of Financial Accounting
Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Statement 107). Such information, which pertains to the Bank's financial
instruments is based on the requirement set forth in Statement 107 and
does not purport to represent the aggregate net fair value of the Bank.
Furthermore, the fair value estimates are based on various assumptions,
methodologies and subjective considerations, which vary widely among
different financial institutions and which are subject to change.
CASH AND CASH EQUIVALENTS - The carrying amount for cash and cash
equivalents approximate the estimated fair values of such assets.
HELD TO MATURITY INVESTMENT SECURITIES - Fair values for held to maturity
investment securities are based on quoted market prices.
AVAILABLE FOR SALE INVESTMENT SECURITIES - Fair values for securities
available for sale are based on quoted market prices, if available. If
quoted market prices are not available, fair values are based on quoted
market prices of comparable instruments.
F-16
<PAGE>
CITIZENS FIRST NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
OTHER INVESTMENT SECURITIES - Fair value of the Bank's investment in
Federal Reserve Bank stock and Federal Home Loan Bank stock is based on
its redemption value, which is its cost of $100 per share.
LOANS - For variable rate loans that reprice frequently, the carrying
amount is a reasonable estimate of fair value. The fair value of other
types of loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with
similar credit ratings for the same remaining maturities.
DEPOSITS - The fair value of demand deposits, savings deposits and certain
money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed rate certificates of deposit is estimated
using a discounted cash flow calculation that applies interest rates
currently being offered to a schedule of aggregated expected monthly time
deposit maturities.
A comparison of the carrying amount to the fair values of the Bank's
significant financial instruments as of December 31, 1996 and 1997 is as
follows:
1998 1997
---------------------- --------------------
Carrying Fair Carrying Fair
(Amounts in Thousands) Amount Value Amount Value
Financial assets:
Cash and cash equivalents $ 3,613 $ 3,613 $ 7,071 $ 7,071
Held to maturity 1,739 1,739 2,749 2,749
Investment securities
available for sale 5,539 5,539 5,103 5,103
Other investments 79 79 79 79
Loans 34,804 34,413 36,388 35,458
Financial liabilities:
Deposits 43,335 43,284 48,484 48,463
13. SUBSEQUENT EVENT (UNAUDITED)
In January 1999, the Bank signed a definitive agreement with Carolina
First Corporation to sell the stock of the Bank for twelve million dollars
of Carolina First Corporation stock. The number of shares of Carolina
First Corporation to be exchanged for shares of Citizens First National
Bank will be determined at closing using a thirty day average of the stock
price for Carolina First Corporation. The closing of this transaction is
expected to occur, if such occurs, on April 2, 1999. The merger is subject
to approval of regulatory agencies and shareholders.
* * * * * *
F-17
<PAGE>
ANNEX A
REORGANIZATION AGREEMENT
BY AND BETWEEN
CAROLINA FIRST CORPORATION
AND
CITIZENS FIRST NATIONAL BANK
DATED AS OF JANUARY 14, 1999
A-1
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
SECTION I. DEFINITIONS........................................................................6
1.1. Articles of Merger..............................................................6
1.2. Benefit Plans...................................................................6
1.3. CERCLA..........................................................................6
1.4. CFB.............................................................................6
1.5. CFC.............................................................................6
1.6. CFC Benefit Plans...............................................................6
1.7. CFC Common Stock................................................................6
1.8. Citizens........................................................................6
1.9. Citizens Benefit Plans..........................................................6
1.10. Citizens Common Stock...........................................................6
1.11. Closing; Closing Date...........................................................6
1.12. Code............................................................................6
1.13. Confidential Information........................................................6
1.14. Derivatives Contract............................................................7
1.15. ERISA...........................................................................7
1.16. Effective Time..................................................................7
1.17. Exchange Act....................................................................7
1.18. Fair Market Value..............................................................7
1.19. FDIC............................................................................7
1.20. Federal Reserve.................................................................7
1.21. GAAP............................................................................7
1.22. Interim Bank....................................................................7
1.23. IRS.............................................................................7
1.24. Knowledge.......................................................................7
1.25. Lien............................................................................7
1.26. Material Adverse Event; Material Adverse Effect.................................7
1.27. Merger..........................................................................7
1.28. OCC.............................................................................7
1.29. OTS.............................................................................7
1.30. PBGC............................................................................8
1.31. Person..........................................................................8
1.32. Plan of Merger..................................................................8
1.33. Proxy Statement.................................................................8
1.34. Registration Statement..........................................................8
1.35. Regulations.....................................................................8
1.36. Regulatory Approvals............................................................8
1.37. Regulatory Authority............................................................8
1.38. Reorganization Agreement........................................................8
1.39. Rights..........................................................................8
1.40. SEC.............................................................................8
1.41. Securities Act..................................................................8
1.42. State Board.....................................................................8
1.43. Shareholder Approval............................................................8
1.44. Shareholders' Meeting...........................................................8
SECTION II. THE MERGER........................................................................8
2.1. Merger..........................................................................8
2.2. The Closing.....................................................................8
2.3. Consideration for the Merger....................................................9
2.4. Formation of Interim Bank; Shareholder Approval; Registration Statement.........9
2.5. Cooperation; Regulatory Filings.................................................9
2.6. Tax Treatment...................................................................9
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2.8. Accounting Treatment............................................................9
SECTION III. REPRESENTATIONS AND WARRANTIES OF CITIZENS......................................10
3.1. Organization, Good Standing and Conduct of Business............................10
3.2. Subsidiaries...................................................................10
3.3. Corporate Authority............................................................10
3.4. Binding Effect.................................................................10
3.5. Capitalization of Citizens.....................................................10
3.6. Compliance with Laws; Absence of Defaults......................................10
3.7. Non-Contravention and Defaults; No Liens.......................................11
3.8. Necessary Approvals............................................................11
3.9. Financial Statements...........................................................11
3.10. Tax Returns....................................................................11
3.11. Undisclosed Liabilities........................................................12
3.12. Properties, Encumbrances.......................................................12
3.13. Litigation.....................................................................12
3.14. Reports........................................................................12
3.15. Brokers........................................................................12
3.16. Expenditures...................................................................12
3.17. Insurance......................................................................12
3.18. Contracts and Commitments......................................................13
3.19. Employee Benefit Plans and Contracts...........................................13
3.20. Allowance for Loan Losses......................................................14
3.21. Environmental Matters..........................................................14
3.22. Citizens Information...........................................................15
3.23. Asset Classification...........................................................15
3.24. Derivatives Contracts, Etc.....................................................15
3.25. Labor Matters..................................................................15
3.26. Securities Reports.............................................................15
3.27. Ownership of CFC Common Stock..................................................15
3.28. Resale of CFC Common Stock.....................................................15
SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC............................................16
4.1. Organization, Good Standing and Conduct of Business............................16
4.2. Subsidiaries...................................................................16
4.3. Corporate Authority............................................................16
4.4. Binding Effect.................................................................16
4.5. Capitalization of CFC..........................................................16
4.6. Compliance with Laws; Absence of Defaults......................................17
4.7. Non-Contravention and Defaults; No Liens.......................................17
4.8. Necessary Approvals............................................................17
4.9. Financial Statements...........................................................17
4.10. Undisclosed Liabilities........................................................17
4.11. Litigation and Regulatory Agreements...........................................18
4.12. Reports........................................................................18
4.13. CFC Information................................................................18
4.14. Securities Reports.............................................................18
4.15. Due Diligence..................................................................18
4.16. Derivatives Contracts, Etc.....................................................18
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING..............................................18
5.1. Conduct of Citizens Pending Closing............................................18
5.2. Conduct of CFC Pending Closing.................................................19
SECTION VI. COVENANTS OF THE PARTIES.........................................................20
6.1. Access to Properties and Records...............................................20
6.2. Confidentiality................................................................20
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6.3. Cooperation....................................................................20
6.4. Affiliates' Letters............................................................20
6.5. Listing of CFC Common Stock....................................................21
6.6. [Reserved]......................................................................21
6.7. Tax Treatment..................................................................21
6.8. Expenses.......................................................................21
6.9. Material Events................................................................21
6.10. Public Announcements...........................................................21
6.11. Updating of Schedules..........................................................21
6.12. Certain Policies of Citizens...................................................21
6.13. Employee Matters...............................................................21
6.14. Directors......................................................................22
6.15. Charitable Contributions.......................................................22
6.16. Agreements with Citizens Officers..............................................22
6.17. Prohibited Actions.............................................................22
SECTION VII. CONDITIONS TO CFC'S OBLIGATIONS TO CLOSE.......................................22
7.1. Performance of Acts and Representations by Citizens............................22
7.2. Opinion of Counsel for Citizens................................................22
7.3. Conduct of Business............................................................23
7.4. Consents.......................................................................23
7.5. Certificates...................................................................23
7.6. Shareholder Approval...........................................................23
7.7. Securities Laws................................................................23
7.8. Employment Agreements; Consulting Agreement.....................................23
7.9. Limit on Dissent...............................................................23
7.10. Pooling of Interests..........................................................23
SECTION VIII. CONDITIONS TO THE OBLIGATION OF CITIZENS TO CLOSE...............................23
8.1. Performance of Acts and Representations by CFC.................................24
8.2. Opinion of Counsel for CFC.....................................................24
8.3. Conduct of Business............................................................24
8.4. Consents.......................................................................24
8.5. Certificates...................................................................24
8.6. Tax Opinion....................................................................25
8.7. Shareholder Approval...........................................................25
8.8. Securities Laws................................................................25
8.9. Employment Agreements; Consulting Agreement.....................................25
8.10. Due Diligence..................................................................25
SECTION IX. TERMINATION.....................................................................25
9.1. Termination....................................................................25
SECTION X. INDEMNIFICATION..................................................................25
10.1. Information for Application and Statements....................................25
10.2. Indemnification of Officers and Directors.....................................26
10.3. Insurance.....................................................................26
SECTION XI. MISCELLANEOUS...................................................................26
11.1. Survival of Representations and Warranties....................................26
11.2. Entire Agreement..............................................................27
11.3. Binding Agreement.............................................................27
11.4. Notices.......................................................................27
11.5. Counterparts..................................................................27
11.6. Headings......................................................................27
11.7. Law Governing.................................................................28
11.8. Amendment.....................................................................28
11.9. Waiver........................................................................28
</TABLE>
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APPENDICES
Appendix A Plan of Merger
SCHEDULES
Schedule 3.6: Violations
Schedule 3.11: Material Liabilities or Obligations Not Disclosed in Citizens
Financial Statements
Schedule 3.12: Exceptions to No Liens
Schedule 3.13: Litigation
Schedule 3.16: Proposed Expenditures Exceeding $25,000
Schedule 3.17: Insurance
Schedule 3.18: Contracts or Other Commitments of Citizens; Other Material
Contracts
Schedule 3.19: Citizens Employee Benefit and Welfare Plans
Schedule 3.21 Exceptions to Citizens's Environmental Representations
Schedule 3.23: Classified Assets
Schedule 3.24: Derivatives Contracts, Etc.
Schedule 4.5: Exceptions to CFC Capitalization Representations
Schedule 4.6: Violations
Schedule 4.10: CFC Tax Matters
Schedule 4.11: Material Liabilities or Obligations Not Disclosed in the CFC
Financial Statements
Schedule 4.12: Litigation
Schedule 4.14: CFC Employee Benefit and Welfare Plans
Schedule 4.16: Derivatives Contracts, Etc.
Schedule 6.15: Charitable Contributions
Schedule 6.16: Employment Agreements
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This REORGANIZATION AGREEMENT is entered into as of this 14th day of
January, 1999 by and between Carolina First Corporation ("CFC"), a corporation
organized and existing under the laws of the State of South Carolina and
Citizens First National Bank ("Citizens"), a national banking association
organized and existing under the laws of the United States of America.
RECITALS
A. Citizens is a national banking association headquartered in Crescent
City, Florida.
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. The parties hereto desire that Citizens be merged with and into an
interim banking subsidiary of CFC, 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 and Citizens
hereby agree as follows:
SECTION I. DEFINITIONS
1.1. ARTICLES OF MERGER. The Articles of Merger to be executed by
Interim and Citizens in a form appropriate for filing with the OCC and relating
to the effective consummation of the Merger as contemplated by the Plan of
Merger.
1.2. 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.
1.3. CERCLA. The Comprehensive Environmental Response, Compensation,
and Liability Act, 42 U.S.C. 9601 ET SEQ.
1.4. CFB. Carolina First Bank, a South Carolina corporation and a
wholly-owned subsidiary of CFC.
1.5. CFC. Carolina First Corporation, a bank holding company
headquartered in Greenville, South Carolina.
1.6. CFC BENEFIT PLANS. All Benefit Plans, and all other material
fringe benefit plans or programs, sponsored or maintained by CFC or under which
it may be obligated.
1.7. CFC COMMON STOCK. The common stock, par value $1.00 per share, of
CFC.
1.8. CITIZENS. Citizens First National Bank, a national banking
association organized and existing under the laws of the United States of
America.
1.9. CITIZENS BENEFIT PLANS. All Benefit Plans, and all other material
fringe benefit plans or programs, sponsored or maintained by Citizens or under
which Citizens may be obligated.
1.10. CITIZENS COMMON STOCK. The common stock, par value $10.00 per
share, of Citizens.
1.11. CLOSING; CLOSING DATE. The terms "Closing" and "Closing Date"
shall have the meanings ascribed to them in Section 2.2 hereof.
1.12. CODE. The Internal Revenue Code of 1986, as amended, including,
if the context permits, the applicable regulations promulgated pursuant thereto.
1.13. 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 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.
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1.14. DERIVATIVES 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).
1.15. ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
1.16. 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 Citizens 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.
1.17. EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
1.18. FAIR MARKET VALUE. The average of the closing prices (i.e. last
trade prices) as quoted on the Nasdaq National Market for CFC Common Stock for
the 30 trading 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 30 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.
1.19. FDIC. The Federal Deposit Insurance Corporation.
1.20. FEDERAL RESERVE. The Board of Governors of the Federal Reserve
System.
1.21. GAAP. Generally accepted accounting principles consistently
applied.
1.22. INTERIM BANK. Carolina First Interim Bank, N.A. an interim
national bank to be formed by CFC for purposes of effecting the Merger and other
transactions contemplated herein.
1.23. IRS. The Internal Revenue Service.
1.24. 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 the board of
directors of the entity making the representation or warranty from other
Persons).
1.25. 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.
1.26. 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 Citizens or CFC
or a subsidiary thereof taken with the prior written consent of CFC or Citizens,
as applicable, in contemplation of the transaction contemplated herein, (D) the
actions contemplated by Section 6.12, or (E) any changes in general economic
conditions affecting financial institutions generally, including but not limited
to changes in interest rates.
1.27. MERGER. The Merger of Citizens with and into Interim Bank, all as
provided herein.
1.28. OCC. Office of the Comptroller of the Currency.
1.29. OTS. Office of Thrift Supervision.
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1.30. PBGC. The Pension Benefit Guaranty Corporation.
1.31. 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.
1.32. PLAN OF MERGER. The Plan of Merger attached to this
Reorganization Agreement as Appendix A.
1.33. PROXY STATEMENT. The joint proxy statement/prospectus included in
the Registration Statement which shall be furnished to the Citizens shareholders
in connection with the Shareholders' Meeting and the matters contemplated
thereby.
1.34. 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 Citizens shareholders in connection with the Merger.
1.35. REGULATIONS. The regulations issued by the IRS under the Code.
1.36. REGULATORY APPROVALS. The orders, approvals, or exemptions of the
FDIC, Federal Reserve, the OCC, the State Board, or any other Regulatory
Authority approving the Merger and the transactions contemplated herein.
1.37. 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, the OCC,
the State Board and the FDIC) 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.
1.38. REORGANIZATION AGREEMENT. This Reorganization Agreement,
including all schedules, appendices and exhibits attached hereto.
1.39. 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.
1.40. SEC. The Securities and Exchange Commission.
1.41. SECURITIES ACT. The Securities Act of 1933, as amended.
1.42. STATE BOARD. The South Carolina State Board of Financial
Institutions.
1.43. SHAREHOLDER APPROVAL. The approval of the Merger by the requisite
vote of the shareholders of Citizens at the Shareholders' Meeting, all in
accordance with this Reorganization Agreement and the Plan of Merger.
1.44. SHAREHOLDERS' MEETING. The meeting of Citizens shareholders at
which the Merger will be voted upon.
SECTION II. THE MERGER
2.1. MERGER. Subject to the terms and conditions of this
Reorganization Agreement, including the Plan of Merger, Citizens shall merge
with and into Interim Bank (the "Merger"), the separate existence of Citizens
shall cease, and Interim shall survive and the name of the surviving corporation
shall be "Citizens First National Bank". 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.
2.2. THE CLOSING. The Closing of the transaction contemplated herein
shall be held as soon as reasonably practicable after fulfillment of all
conditions set forth in Section VII and Section VIII hereof (the "Closing
Date"), at the offices of Wyche, Burgess, Freeman & Parham, P.A. or at such
other place and time as the parties hereto may mutually agree; provided,
however, that in the event that Closing has not occurred
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by July 31, 1999, either party hereto shall have the right to terminate this
Reorganization Agreement so long as the failure to Close is not the result of a
breach of this Reorganization Agreement by the party seeking to effect such
termination.
2.3. CONSIDERATION FOR THE MERGER. The manner of converting the shares
of Citizens into shares of CFC shall be as set forth in the Plan of Merger.
2.4. FORMATION OF INTERIM BANK; SHAREHOLDER APPROVAL; REGISTRATION
STATEMENT. CFC agrees to form Interim Bank in a timely manner and to vote all
shares of Interim Bank in favor of this Reorganization Agreement and the Merger.
Citizens shall call its Shareholders= Meeting in accordance with the applicable
provisions of 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 Citizens 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 applicable blue sky laws in connection with the issuance of CFC
Common Stock in the Merger. CFC and Citizens shall jointly prepare the Proxy
Statement, which shall be reasonably acceptable to all parties. The Proxy
Statement shall be mailed to the Citizens 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. Citizens shall mail, at its
expense, the Proxy Statement to its shareholders.
2.5. COOPERATION; REGULATORY FILINGS. Subject to the terms and
conditions of this Reorganization Agreement, CFC and Citizens shall cooperate,
and shall cause each of their subsidiaries to cooperate, in the preparation and
submission by CFC and Citizens, 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 OCC, the appropriate
Regulatory Authorities of South Carolina, the shareholders of Citizens, 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.
2.6. TAX TREATMENT. CFC and Citizens intend that the Merger shall
qualify as a tax-free reorganization under Section 368(a) of the Code.
2.7. RESERVATION OF RIGHT TO REVISE TRANSACTION. CFC may at any time
change the method of effecting the acquisition of Citizens (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 Citizens 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
Citizens'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 to receive the
Regulatory Approvals, or (v) materially delay the Closing.
2.8. ACCOUNTING TREATMENT. The parties presently intend that the Merger
shall be accounted for as a "pooling of interests" (although CFC, in its sole
discretion, has the right to cause the Merger to be accounted for as a
"purchase"). If the Merger is accounted for as a "pooling of interests," CFC
shall publish as soon as reasonably practicable financial results covering the
first complete month of combined operations of CFC and Citizens after the
effective date of the Merger (all as contemplated within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies). The parties
acknowledge that the publishing of such financial statements within 11 business
days after the end of the fiscal month shall be deemed to be timely.
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SECTION III. REPRESENTATIONS AND WARRANTIES OF CITIZENS
Citizens hereby represents and warrants to CFC 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, such breach or inaccuracy must
have had a Material Adverse Effect.
3.1. ORGANIZATION, GOOD STANDING AND CONDUCT OF BUSINESS. Citizens is a
corporation, duly organized, validly existing and in good standing under the
laws of the United States of America, and has full power and authority and all
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 Citizens makes such license or
qualification necessary.
3.2. SUBSIDIARIES. Citizens neither owns nor controls five percent (5%)
or more of the outstanding equity securities, either directly or indirectly, of
any Person.
3.3. CORPORATE AUTHORITY. The execution, delivery and performance of
this Reorganization Agreement have been duly authorized by the Board of
Directors of Citizens. Other than the Shareholder Approval, no further corporate
acts or proceedings on the part of Citizens are required or necessary to
authorize this Reorganization Agreement or the Merger.
3.4. 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 Citizens, enforceable
against Citizens 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 Citizens in accordance with the provisions hereof,
shall be duly authorized, executed and delivered by Citizens and enforceable
against Citizens in accordance with its terms, subject to the exceptions in the
previous sentence.
3.5. CAPITALIZATION OF CITIZENS. The authorized capital stock of
Citizens consists solely of 125,000 authorized shares of common stock ($10.00
par value), of which 109,900 shares are issued and outstanding as of the date
hereof. All of the issued and outstanding shares of Citizens are validly issued
and fully paid and nonassessable (except as provided pursuant to Section 55 of
the National Bank Act). There are no outstanding Rights to purchase shares of
any class of capital stock of Citizens, or outstanding agreements pursuant to
which Citizens is or may become obligated to issue any shares of its capital
stock. None of the shares of the Citizens Common Stock is subject to any
restrictions as to the transfer thereof, except as set forth in Citizens's
Articles of Association or Bylaws and except for restrictions on account of
applicable Federal or state securities laws.
3.6. COMPLIANCE WITH LAWS; ABSENCE OF DEFAULTS. (a) Citizens is not in
default under, or in violation of, any provision of its Articles of Association
or Bylaws. Citizens is not in default under, or in violation of, any material
agreement to which Citizens is a party.
(b) Except as disclosed on Schedule 3.6, Citizens is not in violation
of any applicable law, rule or regulation. Citizens 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
Citizens 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 Citizens, as applicable, (ii) threatening to
revoke any Authorization, (iii) requiring or threatening to require Citizens, or
indicating that Citizens 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 Citizens, or (iv) directing, restricting or limiting, or
threatening to direct, restrict or limit in any manner the operations
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of Citizens (any such notification, communication, memorandum, agreement or
order described in this sentence herein referred to as a "Regulatory
Agreement").
(c) Citizens is "well capitalized" as defined in applicable OCC
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.
(d) Citizens is not aware of any reason why the Regulatory Approvals
will not be obtained within the time period set forth in Section 2.2.
3.7. 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 Citizens 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 Citizens, or
(iv) violate any provisions of Citizens's Articles of Association or Bylaws. To
the best of Citizens's knowledge, no other party to any material agreement to
which Citizens is a party is in default thereunder or in breach of any provision
thereof. To the best of Citizens's knowledge, there exists no condition or event
which, after notice or lapse of time or both, would constitute a default by any
party to any such agreement.
3.8. NECESSARY APPROVALS. Citizens 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 Citizens in connection with the execution
and delivery of this Reorganization Agreement or the consummation by Citizens of
the transactions contemplated hereby. Except for the Regulatory Approvals,
Citizens is not required to procure the approval of any Person in order to
prevent the termination of any right, privilege, license or contract of Citizens
as a result of this Reorganization Agreement.
3.9. FINANCIAL STATEMENTS. The audited financial statements of Citizens
at and for each of the twelve month periods ended December 31, 1995, 1996 and
1997 and the unaudited quarterly statements at and for the nine months ended
September 30, 1998 (the "Citizens 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 Citizens 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 Citizens 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
Citizens.
3.10. TAX RETURNS. Citizens files its income tax returns and maintains
its tax books and records on the basis of a taxable year ending December 31.
Citizens 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 Citizens) through the date hereof, and
Citizens 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. Citizens 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.
Citizens does not have in effect any waiver relating to any statute of
limitations for assessment of taxes with respect to any Federal, state or local
income, property, franchise, sales, license or payroll tax. Citizens does not
know of, or have reason to know of, any questions which have
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been raised or which may be raised by any taxing authority relating to taxes or
assessments of Citizens which, if determined adversely, would result in the
assertion of any deficiency. All tax information reported by Citizens to Federal
and state authorities and other Persons has been accurately and timely reported,
except such as will not have a Material Adverse Effect.
3.11. UNDISCLOSED LIABILITIES. Except for the liabilities which are
disclosed in the Citizens Financial Statements or as set forth on Schedule 3.11,
Citizens has no material liabilities or material obligations of any nature,
whether absolute, accrued, contingent or otherwise, and whether due or to become
due. Since September 30, 1998, there has been no (i) Material Adverse Event with
respect to Citizens, or (ii) any incurrence by or subjection of Citizens to any
obligation or liability (whether fixed, accrued or contingent) or commitment
material to Citizens 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 Citizens Financial Statements
at and for the periods subsequent to September 30, 1998.
3.12. PROPERTIES, ENCUMBRANCES. Citizens 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 Citizens, including whether
such locations are owned or leased and a statement of when such locations were
first occupied by Citizens. All buildings and all fixtures, equipment, and other
property and assets which are material to its business are held by Citizens
under valid leases or subleases enforceable in accordance with their respective
terms.
3.13. LITIGATION. Except as shown on Schedule 3.13, there are no
claims, actions, suits or proceedings pending or threatened against Citizens, or
to its knowledge affecting Citizens, 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 Citizens 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 Citizens specifically or to which Citizens is subject. Schedule 3.13
also sets forth each pending claim against Citizens related to the Occupational
Safety and Health Act, each claim related to Citizens pending before the
Wage/Hour Division of the Department of Labor, each claim against Citizens
relating to conciliation agreements or complaints by the Office of Federal
Contract Compliance Programs, charges filed with the Equal Employment
Opportunity Commission with respect to Citizens and charges filed with the
Department of Labor alleging violations of the Family Medical Leave Act by
Citizens, regardless of whether such matters are expected to have a Material
Adverse Affect.
3.14. REPORTS. Citizens has duly made all reports and filings required
to be made pursuant to applicable law.
3.15. BROKERS. Except for its agreement with First Capital Group, LLC
(a copy of which has been provided to CFC), Citizens 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 $25,000 or more
proposed to be made by Citizens after the date hereof and a summary of the terms
and conditions pertaining thereto. At least 20 business days prior to the
Closing Date, Citizens will advise CFC of any changes to Schedule 3.16
reflecting additions or deletions thereto since the date hereof.
3.17. INSURANCE. Attached hereto as Schedule 3.17 is a list of the
policies of fire, liability, life and other types of insurance held by Citizens,
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. Citizens 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 Citizens 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.
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There is no reason known to Citizens that any such policy would not be renewable
on terms and conditions as favorable as those set forth in such policy.
3.18. CONTRACTS AND COMMITMENTS. (a) Schedule 3.18 attached hereto
sets forth each contract or other commitment of Citizens which requires an
aggregate payment by Citizens after the date hereof of more than $25,000, and
any other contract or commitment that in the opinion of Citizens management
Materially Adversely Affects the business of Citizens. Except for the contracts
and commitments described in this Reorganization Agreement or as set forth on
Schedule 3.18, Citizens 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
its banking 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 Citizens is the licensor or
licensee; and
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 Citizens, or any successors or assigns prior to 30 days from
the date hereof.
3.19. EMPLOYEE BENEFIT PLANS AND CONTRACTS. (a) Schedule 3.19 contains
a complete list of all Citizens Benefit Plans. Citizens has delivered to CFC (i)
accurate and complete copies of all Citizens Benefit Plan documents and all
other material documents relating thereto, including all summary plan
descriptions, summary annual reports and insurance contracts, (ii) accurate and
complete detailed summaries of all unwritten Citizens Benefit Plans, (iii)
accurate and complete copies of the most recent financial statements and
actuarial reports with respect to all Citizens 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 Citizens 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 Citizens Benefit Plan maintained or intended to be maintained under
Section 401(a) of the Code. Any Citizens Benefit Plan providing benefits that
are funded through a policy of insurance is indicated by the word "insured"
placed by the listing of the Citizens Benefit Plan on Schedule 3.19.
(b) All Citizens 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 Citizens 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 Citizens Benefit Plans
that could subject Citizens to any material penalty or tax imposed under the
Code or ERISA.
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(c) Except as set forth on Schedule 3.19, any Citizens 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 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 Citizens Benefit Plan.
(d) Citizens adequately reserved for all liabilities accrued prior to
the Effective Time under Citizens's nonqualified retirement or deferred
compensation plans.
(e) Except as set forth on Schedule 3.19, Citizens has no current or
contingent obligation to contribute to any multiemployer plan (as defined in
Section 3(37) of ERISA). Citizens has no liability with respect to any employee
benefit plan (as defined in Section 3(3) of ERISA) other than with respect to
the Citizens Benefit Plans.
(f) There are no pending or threatened claims by or on behalf of any
Citizens Benefit Plan, or by or on behalf of any individual participants or
beneficiaries of any Citizens Benefit Plan, alleging any breach of fiduciary
duty on the part of Citizens 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
Citizens Benefit Plans are not the subject of any investigation, audit or action
by the IRS, the Department of Labor or the PBGC. Citizens has made all required
contributions under the Citizens Benefit Plans, including the payment of any
premiums payable to the PBGC and other insurance premiums. There is no
underfunding liability for any Citizens Benefit Plan that is subject to the
funding requirements of Section 412 of the Code.
(g) Citizens 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 Citizens 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
Citizens Benefit Plan has been instituted or threatened.
(h) With respect to any Citizens 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 Citizens 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.
3.20. ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses (the
"Citizens Allowance") shown on the Citizens Call Report dated as of September
30, 1998 and provided to the OCC, as of such date has been determined, in the
opinion of management of Citizens in accordance with GAAP, to be adequate to
provide for losses relating to or inherent in the loan portfolios of Citizens.
3.21. ENVIRONMENTAL MATTERS. Citizens 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. Citizens has not, nor to the best of
Citizens'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 Citizens (including, without limitation, the buildings or
structures thereon) (the "Real Property"). Citizens has not, nor to the best
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of Citizens'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. Citizens has not, nor to the best of Citizens's knowledge have other
parties, installed or used underground storage tanks in or under any of the Real
Property. Citizens 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 Citizens. Any exceptions to the
foregoing are set forth on Schedule 3.21.
3.22. CITIZENS INFORMATION. The written information with respect to
Citizens and its officers, directors, and affiliates which shall have been
supplied by Citizens (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 Citizens 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.
3.23. 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 and other assets of Citizens that have been
classified by it as of September 30, 1998 (the "Asset Classification"); and no
amounts of loans, extensions of credit or other assets that have been classified
as of September 30, 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
Citizens prior to September 30, 1998.
3.24. DERIVATIVES CONTRACTS, ETC. Citizens 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 Citizens assets pledged as security for each such instrument.
3.25. LABOR MATTERS. No material work stoppage involving Citizens is
pending or, to the best knowledge of Citizens, threatened. Citizens is not
involved in, or, to the best knowledge of Citizens'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 Citizens are not represented by any labor union, and, to the best
knowledge of Citizens's management, no labor union is attempting to organize
employees of Citizens.
3.26. SECURITIES REPORTS. Within the last two (2) years, Citizens 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.
3.27. 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
Citizens.
3.28. RESALE OF CFC COMMON STOCK. Citizens 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 Citizens Common Stock outstanding as of
the Effective Time. For purposes of this representation, shares of Citizens
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
Citizens and then disposed of by shareholders of Citizens.
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SECTION IV. REPRESENTATIONS AND WARRANTIES BY CFC
CFC hereby represents and warrants to Citizens 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 Citizens, such breach or inaccuracy
must have had a Material Adverse Effect.
4.1. 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. At Closing, Interim Bank will (i) be a direct
subsidiary of CFC, duly organized, validly existing and in good standing under
the laws of its jurisdiction of incorporation, and (ii) have 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 then being conducted and to
consummate the transactions contemplated herein.
4.2. SUBSIDIARIES. (a) Other than CFB, Carolina First Bank, F.S.B.,
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 (i) CFB owns 100% of Carolina First
Securities, Inc., over 99% of Carolina First Mortgage Loan Trust and residual
interests in two trusts created in connection with the securitization of loans,
and (ii) Blue Ridge Finance Company, Inc. owns 100% of CF Investment Company.
4.3. CORPORATE AUTHORITY. The execution, delivery and performance of
this Reorganization Agreement have been duly authorized by the Board of
Directors of CFC. No further corporate acts or proceedings on the part of CFC
are required or necessary to authorize this Reorganization Agreement or the
Merger.
4.4. BINDING EFFECT. Subject to receipt of the Regulatory Approvals,
when executed, this Reorganization Agreement will constitute the valid and
legally binding obligation of CFC, enforceable against CFC 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 in accordance
with the provisions hereof, shall be duly authorized, executed and delivered by
CFC and enforceable against CFC in accordance with its terms, subject to the
exceptions in the previous sentence.
4.5. 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 22,125,000 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 nonassessable. 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
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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 CFC 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.
4.6. COMPLIANCE WITH LAWS; ABSENCE OF DEFAULTS. (a) CFC is not in
default under, or in violation of, any provision of its Articles of
Incorporation or Bylaws. CFC is not in default under, or in violation of, any
material agreement to which CFC is a party. CFC is not in violation of any
applicable law, rule or regulation the effect of which would have a Material
Adverse Effect on CFC or its business operations or prospects.
(b) CFC is not aware of any reason why the Regulatory Approvals will
not be obtained within the time period set forth in Section 2.2.
4.7. 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 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 CFC, or (iv)
violate any provisions of CFC's Articles of Incorporation or Bylaws. To the best
of CFC's knowledge, no other party to any material agreement to which CFC is a
party is in default thereunder or in breach of any provision thereof. To the
best of CFC's knowledge, there exists no condition or event which, after notice
or lapse of time or both, would constitute a default by any party to any such
agreement.
4.8. NECESSARY APPROVALS. CFC 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 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 in connection
with the execution and delivery of this Reorganization Agreement or the
consummation by CFC of the transactions contemplated hereby. Except for the
Regulatory Approvals, CFC is not required to procure the approval of any Person
in order to prevent the termination of any right, privilege, license or contract
of CFC as a result of this Reorganization Agreement.
4.9. 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 September 30, 1998
(the "CFC Financial Statements") all of which have been provided to Citizens,
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.
4.10. UNDISCLOSED LIABILITIES. Except for the liabilities which are
disclosed in the CFC Financial Statements or as set forth on Schedule 4.10, 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
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September 30, 1998, there has been no (i) Material Adverse Event with respect to
CFC, or (ii) any incurrence by or subjection of CFC to any obligation or
liability (whether fixed, accrued or contingent) or commitment material to CFC
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 September 30, 1998.
4.11. 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 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 CFC knows of no 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 to which CFC 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.
4.12. REPORTS. CFC has duly made all reports and filings required to be
made pursuant to applicable law.
4.13. 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 Citizens 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.
4.14. 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.
4.15. DUE DILIGENCE. All information provided by CFC in connection
with the due diligence investigation by Citizens 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 Citizens all material
information regarding CFC.
4.16. DERIVATIVES CONTRACTS, ETC. CFC 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 4.16, including a list, as applicable, of any CFC assets pledged as
security for each such instrument.
SECTION V. CONDUCT OF BUSINESS PENDING CLOSING
5.1. CONDUCT OF CITIZENS PENDING CLOSING. During the period commencing
on the date hereof and continuing until the Closing Date, Citizens covenants and
agrees to the following (except to the extent that CFC shall otherwise expressly
consent in writing, which consent shall not be unreasonably delayed or
withheld); provided, however, that any breach of or inaccuracy in any of the
covenants given in this Section 5.1 must 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.
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(a) Citizens 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 Citizens. Citizens
shall not purchase or otherwise acquire or enter into a contract to acquire
servicing or subservicing rights with respect to loans not originated by
Citizens without the written consent of CFC, which consent shall not be
unreasonably withheld.
(b) Citizens will not amend its Articles of Association or
Bylaws as in effect on the date hereof, except as may be required by applicable
law or regulation.
(c) Citizens 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 (other than the declaration and payment of its
regular bi-annual cash dividend on common stock of $0.40 per share to be paid on
or about January 1999).
(d) Citizens will promptly advise CFC in writing of any change
in the business of Citizens which has, or may reasonably be expected to have, a
Material Adverse Effect.
(e) Citizens 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 Citizens, 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 Citizens contained herein to be or become
untrue in any material respect.
(f) Citizens 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, Citizens will not incur any expense in an amount in
excess of $25,000 after the execution of this Reorganization Agreement without
the prior written consent of CFC.
(h) Citizens 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) Citizens 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, Citizens 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) Citizens 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
Citizens.
5.2. CONDUCT OF CFC PENDING CLOSING. During the period commencing on
the date hereof and continuing until the Closing Date, CFC covenants and agrees
to the following (except to the extent that Citizens 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
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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 Citizens shareholders in any material respect.
(c) CFC will promptly advise Citizens 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
6.1. 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.
6.2. 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.
6.3. 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.
6.4. AFFILIATES' LETTERS. Citizens 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 Citizens, "affiliates" of Citizens for purposes of Rule
145 of the General Rules and Regulations under the Securities Act. Citizens
shall use its reasonable 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 Citizens 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.
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6.5. LISTING OF CFC COMMON STOCK. CFC shall cause the shares of CFC
Common Stock to be issued in the transactions contemplated by this
Reorganization Agreement to be approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, prior to the Effective Time. CFC
shall give such notice to the Nasdaq Stock Market as may be required to permit
the listing of the CFC Common Stock issued in connection with the Merger.
6.6. [RESERVED]
6.7. TAX TREATMENT. Citizens 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.
6.8. 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.
6.9. 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.
6.10. PUBLIC ANNOUNCEMENTS. At all times until after the Closing Date,
neither Citizens 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.
6.11. UPDATING OF SCHEDULES. Citizens 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 Citizens or CFC contained herein or any right
of Citizens or CFC to terminate this Reorganization Agreement. Citizens and CFC
shall provide to each other drafts of such supplemental Schedules at least three
(3) business days prior to the Closing Date.
6.12. CERTAIN POLICIES OF CITIZENS. Citizens 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 Citizens shall not be obligated to record any such accounting
adjustments pursuant to this Section (i) unless and until Citizens shall be
reasonably satisfied that all the conditions to the 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 Citizens and the authority to establish and implement its business
policies shall continue to reside solely in Citizens=s officers and board of
directors, and the election of Citizens directors shall be solely the
prerogative of Citizens shareholders.
6.13. EMPLOYEE MATTERS. (a) CFC and Citizens agree to cooperate and
use reasonable efforts to develop staffing plans which will result in the
retention of as many Citizens managers and employees as is practical (as
determined by CFC). CFC agrees that Citizens 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 Citizens employees who
are employed by CFC or its subsidiaries immediately following the Closing Date:
(i) will be eligible to participate in CFC Benefit Plans; and (ii) will receive
past service credit for eligibility and vesting (but not benefit accrual)
purposes under CFC qualified retirement plans for years of service with
Citizens. CFC agrees that Citizens may elect to fully vest its employees under
some or all Citizens Benefit Plans prior to consummation of the Merger. Any
Citizens 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 Citizens prior to the Effective
Time. From and after
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the Effective Time, CFC agrees to provide credit for service as required by the
Health Insurance Portability and Accountability Act of 1996, as amended, for
purposes of determining any preexisting condition exclusion that may apply to an
employee of Citizens who becomes covered by a medical plan sponsored by CFC.
(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.
6.14. DIRECTORS. Upon closing and for a period of at least three
years, CFC will nominate and elect Mike Glenn, Joe H. Pickens and a third person
to be designated by Citizens (and reasonably acceptable to CFC) to serve on the
board of directors of Citizens. Such persons shall receive directors' fees in
accordance with the fee structure and policies generally applicable to directors
of CFC subsidiaries. In the event that the transaction is restructured in
accordance with Section 2.7 and Citizens is merged into Carolina First Bank, the
obligations under this Section will be satisfied if the three individuals are
named as advisory board members of the Company's Florida operations and they
otherwise receive director compensation fees in accordance with the fee
structure and policies generally applicable to directors of Carolina First Bank.
6.15. CHARITABLE CONTRIBUTIONS. CFC shall honor Citizens's obligations
to make the charitable contributions set forth on Schedule 6.15 (which
contributions shall not exceed $15,000 annually).
6.16. AGREEMENTS WITH CITIZENS OFFICERS. Upon closing, CFC shall cause
CFB to enter into employment agreements with Mike Glenn and Mary Ellen Webb in
substantially the form set forth on Schedule 6.16 (the "Employment Agreements").
Upon closing, CFC shall cause CFB to enter into a consulting agreement with Joe
H. Pickens in substantially the form set forth on Schedule 6.16 (the "Consulting
Agreement").
6.17. 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 Citizens directors
under applicable law), during the period from the date of this Reorganization
Agreement to the Effective Time, Citizens 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 Citizens.
(b) Except as expressly provided in this Reorganization Agreement, as
agreed to by Citizens 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 OBLIGATIONS TO CLOSE
The obligations of CFC to consummate the transactions contemplated in
this Reorganization Agreement are subject to the satisfaction of the following
conditions at or before the Closing Date:
7.1. PERFORMANCE OF ACTS AND REPRESENTATIONS BY CITIZENS. Each of the
acts and undertakings of Citizens 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
Citizens 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.
7.2. OPINION OF COUNSEL FOR CITIZENS. Citizens 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) Citizens is duly organized, validly
existing and in good standing under the laws of the United States of America;
(ii) the consummation of the transactions
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contemplated by this Reorganization Agreement will not (A) violate any provision
of Citizens's Articles of Association 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 Citizens 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
Citizens is subject; (iii) all of the shares of Citizens Common Stock are
validly authorized and issued, fully paid and non-assessable (except as provided
in Section 55 of the National Bank Act); (iv) Citizens 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, all
filings and registrations with, and notifications to, all Federal and state
authorities required on the part of Citizens for the consummation of the Merger
have been made; (vi) Citizens has full corporate power and authority to enter
into this Reorganization Agreement, and this Reorganization Agreement has been
duly authorized, executed and delivered by Citizens and constitutes a valid and
legally binding obligation of Citizens enforceable against Citizens 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 Citizens or other parties which would have a
Material Adverse Effect on Citizens's business or properties or its ability to
make the representations and warranties and perform the obligations set forth
herein.
7.3. CONDUCT OF BUSINESS. There shall have been no Material Adverse
Event with respect to Citizens from the date hereof through the Closing Date.
7.4. 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).
7.5. CERTIFICATES. CFC shall have been furnished with such
certificates of officers of Citizens, in form and substance reasonably
satisfactory to CFC, dated as of the Closing Date, certifying to such matters as
CFC may reasonably request, including but not limited to the fulfillment of the
conditions specified in this Section VII.
7.6. SHAREHOLDER APPROVAL. The Shareholder Approval shall have been
obtained.
7.7. 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.
7.8. EMPLOYMENT AGREEMENTS; CONSULTING AGREEMENT. The Employment
Agreements and the Consulting Agreement shall have been executed.
7.9. LIMIT ON DISSENT. The holders of 10% or more of the Citizens
Common Stock outstanding at the time of the Shareholders' Meeting shall not have
dissented to the Merger by demanding payment for fair value of their shares in
the manner provided by 12 U.S.C.A. Section 214a.
7.10. POOLING OF INTERESTS. CFC shall have received reasonable
assurance from KPMG Peat Marwick LLP that the Merger will qualify for pooling of
interests accounting treatment under general accepted accounting practices.
SECTION VIII. CONDITIONS TO THE OBLIGATION OF CITIZENS TO CLOSE
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The obligation of Citizens to consummate the transactions contemplated
in this Reorganization Agreement is subject to the satisfaction of the following
conditions at or before the Closing Date:
8.1. PERFORMANCE OF ACTS AND REPRESENTATIONS BY CFC. Each of the acts
and undertakings of CFC 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 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.
8.2. OPINION OF COUNSEL FOR CFC. CFC shall have furnished Citizens with
an opinion of its counsel, dated as of the Closing Date, and in form and
substance reasonably satisfactory to Citizens and its counsel, to the effect
that, except as disclosed herein: (i) CFC and Interim Bank are duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation; (ii) the consummation of the transactions
contemplated by this Reorganization Agreement will not (A) violate any provision
of CFC's or Interim Bank's Articles of Incorporation, Bylaws or other charter
documents, (B) violate any provision of, result in the termination of, or result
in the acceleration of any obligation under, any mortgage, lien, lease,
franchise, license, permit, agreement, instrument, order, arbitration award,
judgment or decree known to counsel to which CFC 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 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 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,
and Interim Bank has the legal right and power, and all authorizations and
approvals required by law, to enter into the Plan of Merger, and to consummate
the transactions contemplated therein; (v) all filings and registrations with,
and notifications to, all Federal and state authorities required on the part of
CFC and Interim Bank for the consummation of the Merger have been made; (vi) CFC
has 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 constitutes a valid and legally binding obligation of
CFC enforceable against CFC 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.
8.3. CONDUCT OF BUSINESS. There shall have been no Material Adverse
Event with respect to CFC from the date hereof through the Closing Date.
8.4. CONSENTS. All Regulatory Approvals or other authorizations
necessary, in the reasonable opinion of counsel for Citizens, to the
consummation of the transactions contemplated hereby shall have been obtained,
and no governmental agency or department or judicial authority shall have issued
any order, writ, injunction or decree prohibiting the consummation of the
transactions contemplated hereby. Approvals of all applicable regulatory
agencies shall have been obtained without the imposition of any condition or
requirements that, in the reasonable judgment of Citizens, renders the
consummation of this transaction unduly burdensome (excluding conditions or
requirements that are typically imposed in transactions of the type contemplated
herein).
8.5. CERTIFICATES. Citizens shall have been furnished with such
certificates of officers of CFC, in form and substance reasonably satisfactory
to Citizens, dated as of the Closing Date, certifying to such matters as
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Citizens may reasonably request, including but not limited to the fulfillment of
the conditions specified in this Section VIII.
8.6. TAX OPINION. Citizens shall have received from Wyche, Burgess,
Freeman & Parham, P.A. a tax opinion, reasonably satisfactory to Citizens,
opining, subject to reasonable qualifications, that the Merger shall, upon
compliance with reasonable conditions, qualify as a tax-free reorganization
under Section 368(a) of the Code.
8.7. SHAREHOLDER APPROVAL. The Shareholder Approval shall have been
obtained.
8.8. 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.
8.9. EMPLOYMENT AGREEMENTS; CONSULTING AGREEMENT. The Employment
Agreements and the Consulting Agreement shall have been executed.
8.10. DUE DILIGENCE. Citizens shall have completed a due diligence
investigation of CFC within 15 days of the date hereof which investigation shall
be satisfactory to Citizens in all material respects. This condition to Closing
will be deemed to have been met unless Citizens terminates this Agreement based
on the result of such due diligence investigation within 15 days from the date
hereof.
SECTION IX. TERMINATION
9.1. 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 Citizens, 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 Shareholders' Meeting;
(c) by either CFC or Citizens 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 Citizens as set forth in Section 2.2
hereof.
SECTION X. INDEMNIFICATION
10.1. INFORMATION FOR APPLICATION AND STATEMENTS. Each of CFC and
Citizens 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 Citizens so
representing and warranting will indemnify and hold harmless the other, each of
its directors and officers, who controls the other within the meaning of the
Securities Act, from and against any and all losses, claims, damages, expenses
or liabilities to which any of them may become subject under applicable laws and
rules and regulations thereunder and will reimburse them for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any actions whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities or actions arise out of 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
A-25
<PAGE>
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
Citizens agrees, at any time upon the request of the other, to furnish to the
other a written letter or statement confirming the accuracy of the information
contained in any proxy statement, registration statement, report or other
application or statement, or in any draft of any such document, and confirming
that the information contained in such document or draft was furnished expressly
for use therein or, if such is not the case, indicating the inaccuracies
contained in such document or draft or indicating the information not furnished
expressly for use therein. The indemnity agreement contained in this Section X
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the other party.
10.2. INDEMNIFICATION OF OFFICERS AND DIRECTORS. (a) CFC covenants and
agrees that it will cause each person who is an officer or director of Citizens
(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 Citizens 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 of the South Carolina
Business Corporation Act of 1988, as amended, if such Indemnitees had been
directors or officers of CFC. Notwithstanding anything to the contrary herein,
this indemnification shall not extend to claims against an Indemnitee by CFC.
The provisions of this Section X shall survive the closing and shall be
enforceable directly by each officer and director of Citizens 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.
10.3. INSURANCE. Citizens and CFC shall use their reasonable best
efforts to maintain Citizens's existing directors' and officers' liability
insurance policy (or a policy, similar to Citizens'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
Citizens shall not make a premium payment in respect of such policy (or
replacement policy) which exceeds $25,000 and provided further that Citizens and
CFC shall obtain the maximum amount of such coverage as can be obtained by
paying a premium of $25,000. CFC shall take no action to terminate prematurely
such policy.
SECTION XI. MISCELLANEOUS
11.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Reorganization Agreement, or in any other
documents delivered pursuant hereto, shall survive the Closing of the
transactions contemplated hereby for one year. Notwithstanding any investigation
made by
A-26
<PAGE>
or on behalf of the parties, whether before or after Closing Date, the
parties shall be entitled to rely upon the representations and warranties given
or made by the other party(ies) herein.
11.2. ENTIRE AGREEMENT. This 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.
11.3. 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.
11.4. NOTICES. Any notice given hereunder shall be in writing and shall
be deemed delivered and received upon reasonable proof of receipt. Unless
written designation of a different address is filed with each of the other
parties hereto, notice shall be transmitted to the following addresses:
For CFC: William S. Hummers III
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
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 Citizens: Joe H. Pickens
222 N. Third Street
Palatka, Florida 32177-3710
Fax: 904-328-3003
Copies to: Mike Glenn
Citizens First National Bank
Post Office Box 188
Crescent City, Florida 32112
Fax: 904-698-1917
Gary Simanson
First Capital Group, LLC
First Tennessee Capital Markets
845 Crossover Lane, Suite 150
Memphis, TN 38117
Fax: 901-766-4706
11.5. 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.
11.6. 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.
A-27
<PAGE>
11.7. LAW GOVERNING. This Reorganization Agreement shall be governed by
and construed in accordance with the laws of the State of South Carolina.
11.8. AMENDMENT. This Reorganization Agreement may not be amended
except by an instrument in writing signed on behalf of all of the parties.
11.9. WAIVER. Any term, provision or condition of this 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
A-28
<PAGE>
IN WITNESS WHEREOF, this Reorganization Agreement has been duly entered
as of the date first written above.
WITNESS:
CAROLINA FIRST CORPORATION
_________________________ By: /s/
William S. Hummers III
_________________________ Executive Vice President
CITIZENS FIRST NATIONAL BANK
_________________________ By: /s/
Joe H. Pickens
_________________________ Chairman
Schedules omitted.
A-29
<PAGE>
APPENDIX A
PLAN OF MERGER OF
CITIZENS FIRST NATIONAL BANK
WITH AND INTO
CAROLINA FIRST INTERIM BANK, N.A.
Pursuant to this Plan of Merger (the "Plan of Merger"), Citizens First
National Bank ("Citizens"), a national banking association headquartered in
Crescent City, Florida, shall be merged with and into Carolina First Interim
Bank, N.A. ("Interim Bank"), an interim national banking association
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 Interim Bank and Citizens in a form appropriate for filing with the
OCC, relating to the effective consummation of the Merger.
1.2. ACFC@ shall mean the Carolina First Corporation, a South
Carolina corporation headquartered in Greenville, South Carolina.
1.3. "CFC Common Stock" shall mean the common stock, par value $1.00
per share, of CFC.
1.4. "Citizens" shall mean Citizens First National Bank, a national
banking association headquartered in Crescent City, Florida.
1.5. "Citizens Common Stock" shall mean the common stock, par value
$10.00 per share, of Citizens.
1.6. "Conversion Ratio" shall mean the number of shares of CFC Common
Stock issuable in exchange for one share of Citizens 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 Citizens 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 30 days in
which CFC Common Stock was traded immediately prior to the Closing Date;
provided, however, that the Fair Market Value shall never be deemed to be lower
than $20.00 per share or higher than $30.00 per share; provided, further, that
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 30
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 and first proviso of
this sentence, then the smaller average shall be the Fair Market Value.
1.9. "Interim Bank" shall mean Carolina First Interim Bank, N.A., an
interim national banking association headquartered in Greenville, South
Carolina.
1.10. "Merger" shall mean the merger of Citizens with and into
Interim Bank, as more particularly set forth herein and in the Reorganization
Agreement.
1.11. "OCC" shall mean the Office of the Comptroller of the Currency.
1.12. "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).
Appendix A-1
<PAGE>
1.13. "Reorganization Agreement" shall mean the Reorganization
Agreement between CFC and Citizens dated as of the date hereof, to which this
Plan of Merger is attached as Appendix A.
1.14. "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.
1.15. "Shareholder Approvals" shall mean, as the context may require,
the duly authorized written consent of CFC to the Merger; and the approval of
the Merger by the requisite vote of the shareholders of Citizens at the
Shareholders' Meeting.
1.16. "Shareholders' Meeting" shall mean the meeting of the
shareholders of Citizens at which the Merger shall be voted upon.
1.17. "Surviving Corporation" shall mean Interim Bank 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, Citizens
shall merge with and into Interim Bank, the separate existence of Citizens shall
cease, and Interim Bank (the "Surviving Corporation") shall survive and the name
of the Surviving Corporation shall be "Citizens First National Bank." By virtue
of the Merger and without any action on the part of the holders thereof, each of
the shares of Citizens Common Stock issued and outstanding immediately prior to
the Effective Time (excluding shares held by Citizens, 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 Interim
Bank capital stock 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 OCC.
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 ASSOCIATION. The articles of association of Interim
Bank 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 Interim Bank, 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 CITIZENS AND INTERIM BANK;
MANAGEMENT. At the Effective Time, the separate existence and corporate
organization of Citizens shall cease, and Interim Bank shall thereupon and
thereafter, to the extent consistent with applicable law and with its articles
of association 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 Citizens without further act or deed. The directors and
officers of Citizens 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 Citizens Common Stock issued and outstanding immediately prior to the
Effective Time, except for the Exclude Shares, shall, by
Appendix A-2
<PAGE>
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 value of $109.19 (with the CFC Common Stock being
valued at the Fair Market Value).
3.2. CITIZENS COMMON STOCK. Upon consummation of the Merger, Citizens
shall issue 100 shares of its Common Stock to CFC, which shares shall constitute
all outstanding capital stock of Citizens.
3.3. AUTHORIZED OR TREASURY SHARES. Any and all shares of Citizens
Common Stock held as treasury shares by Citizens 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
Citizens Common Stock in respect of any fractional share that would otherwise be
issuable based on the Fair Market Value.
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 Conversion 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 Citizens Common Stock.
3.7. TRANSFERS. At the Effective Time, the stock transfer books of
Citizens shall be closed and no transfer of Citizens 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 Citizens 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 Citizens 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
Citizens 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 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 Citizens 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 Citizens Common Stock is
entitled as a result of the Merger until such holder surrenders his or her
Certificate or Certificates representing the shares of Citizens 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 Citizens. In addition, no dividend or
Appendix A-3
<PAGE>
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 Citizens 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 Citizens 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 CITIZENS SHAREHOLDERS. After the
Effective Time, each outstanding Certificate representing shares of Citizens
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 Citizens 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. There are no Rights to purchase Citizens Common Stock or
securities convertible into Citizens Common Stock.
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 both 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.
Appendix A-4
<PAGE>
ANNEX B
FIRST CAPITAL GROUP, L.L.C.
INVESTMENT BANKERS & FINANCIAL ADVISORS
February 24, 1999
Board of Directors
Citizens First National Bank
500 North Summit Street
Crescent City, FL 32112
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock of Citizens First
National Bank (ACitizens First@), of the consideration (the AMerger
Consideration@) to be received by such holders pursuant to the Reorganization
Agreement and Plan of Merger dated as of January 14, 1999 (the AMerger
Agreement@), which provides for the merger (the AMerger@) of Citizens First with
and into a wholly-owned subsidiary of Carolina First Corporation (ACarolina
First@). Pursuant to Section 3.1 of the Plan of Merger, within certain
established parameters, each shareholder of the outstanding common stock of
Citizens First (the ACitizens First Common Stock@) has a right to receive
$109.19 per share of Citizens First Common Stock, payable in shares of the
common stock of Carolina First (the ACarolina First Common Stock@) for each
share of Citizens First Common Stock tendered, resulting in an aggregate
purchase price of Twelve Million Dollars ($12,000,000). The terms and guidelines
of the transaction are more fully set forth in the Merger Agreement.
In connection with our opinion, we have: (i) analyzed certain internal financial
statements and other financial and operating data concerning Citizens First
prepared by the management of Citizens First; (ii) analyzed certain publicly
available financial statements, both audited and unaudited, and other
information of Citizens First and Carolina First, including those included in
Citizens First's financial statements for the period ended December 31, 1998,
Carolina First's Annual Reports for the three years ended December 31, 1997,
Carolina First=s earnings release for December 31, 1998, Carolina First's
Quarterly Reports for the periods ended March 31, 1998, June 30, 1998 and
September 30, 1998, and Citizens First's financial statements for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998; (iii) analyzed
certain financial projections of Citizens First prepared by the management of
Citizens First; (iv) discussed the past and current operations and financial
condition of Citizens First with senior executives of Citizens First; (v)
reviewed the reported stock prices and trading activity for Carolina First
Common Stock; (vi) compared the financial performance of Carolina First Common
Stock and trading activity with that of certain other comparable publicly-traded
companies and their securities; (vii) reviewed and compared certain security
analysis reports of Carolina First's common stock prepared by various investment
banking firms; (viii) reviewed the financial terms, to the extent publicly
available, of certain comparable precedent transactions; (ix) reviewed the
Agreement; and (x) performed such other analyses as deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. We have not made an independent evaluation of the assets or liabilities
of Citizens First, nor have we been furnished with any such appraisals. With
respect to financial forecasts, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgments or
management of Citizens First as to the future financial performance of Citizens
First. We have assumed such forecasts and projections will be realized in the
amounts and at the times contemplated thereby. With respect to Carolina First,
we relied solely upon publicly available data and we did not conduct discussions
with the management of Carolina First regarding Carolina First=s financial
condition, performance and prospects. We did not conduct any independent
evaluation or appraisal of the assets, liabilities or business prospects of
Carolina First, we were not furnished with any evaluations or appraisals, and we
did not review any individual credit files of
B-1
<PAGE>
Board of Directors
Citizens First National Bank
February 24, 1999
Page 2
Carolina First. We are not experts in the evaluation of loan portfolios for the
purpose of assessing the adequacy of the allowance for losses with respect
thereto and have assumed that such allowances for each of the companies are in
the aggregate, adequate to cover such losses.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion.
Our opinion is limited to the fairness, from a financial point of view, to the
holders of Citizens First Common Stock of the Merger Consideration to be
received by the holders of the Citizens First Common Stock as stated in the
Merger Agreement and does not address Citizens First's underlying business
decision to undertake the Merger. Moreover, this letter, and the opinion
expressed herein, does not constitute a recommendation to any shareholder as to
any approval of the Merger or the Merger Agreement. It is understood that this
letter is for the information of the Board of Directors of Citizens First and
may not be used for any other purpose without our prior written consent, except
that this opinion may be included in its entirety in any filing made by Citizens
First with the Securities and Exchange Commission with respect to the Merger.
Based on the foregoing and such other matters we have deemed relevant, we are of
the opinion, as of the date hereof, that the Merger Consideration is fair, from
a financial point of view, to the holders of Citizens First Common Stock.
Respectfully submitted,
/S/
FIRST CAPITAL GROUP, L.L.C.
B-2
<PAGE>
ANNEX C TO PROXY STATEMENT/PROSPECTUS
DISSENTERS' RIGHTS
ss'214A.PROCEDURE FOR CONVERSION, MERGER, OR CONSOLIDATION; VOTE OF STOCKHOLDERS
A national banking association may, by vote of the holders of at least
two-thirds of each class of its capital stock, convert into, or merge or
consolidate with, a State bank in the same State in which the national banking
association is located, under a State charter, in the following manner:
(a) Approval of board of directors; publication of notice of stockholders
meeting; waiver of publication; notice by registered or certified mail
The plan of conversion, merger, or consolidation must be approved by a
majority of the entire board of directors of the national banking association.
The bank shall publish notice of the time, place, and object of the
shareholders' meeting to act upon the plan, in some newspaper with general
circulation in the place where the principal office of the national banking
association is located, at least once a week for four consecutive weeks:
PROVIDED, That newspaper publication may be dispensed with entirely if waived by
all the shareholders and in the case of a merger or consolidation one
publication at least ten days before the meeting shall be sufficient if
publication for four weeks is waived by holders of at least two-thirds of each
class of capital stock and prior written consent of the Comptroller of the
Currency is obtained. The national banking association shall send such notice to
each shareholder of record by registered mail or by certified mail at least ten
days prior to the meeting, which notice may be waived specifically by any
shareholder.
(b) Rights of dissenting stockholders
A shareholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to the
bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when the
conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of
consummation of such conversion, merger, or consolidation, accompanied by the
surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the shareholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting shareholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation agreed
upon by any two of three appraisers thus chosen shall govern; but, if the value
so fixed shall not be satisfactory to any dissenting shareholder who has
requested payment as provided herein, such shareholder may within five days
after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the
case may be, shall be paid by the resulting State bank. The plan of conversion,
merger, or consolidation shall provide the manner of disposing of the shares of
the resulting State bank not taken by the dissenting shareholders of the
national banking association.
C-1
<PAGE>
ANNEX D
CAROLINA FIRST INTERIM BANK, N.A.
BALANCE SHEET
(UNAUDITED)
(UPON FORMATION AND AT THE TIME OF THE MERGER)
ASSETS
Cash........................................................$ 115,000
---------
$ 115,000
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities................................................. --
Shareholders' Equity:
Common stock............................................$ 115,000
Retained Earnings....................................... --
----------
Total shareholders' equity.......................... 115,000
----------
$ 115,000
=========
D-1
<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'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 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 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 of the corporation. Carolina
First 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'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 involve gross negligence, intentional
misconduct, or a knowing violation of laws, (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
Exhibit
2.1 - Agreement and Plan of Reorganization entered into as of January 14, 1999
by and between Carolina First and Citizens: Included as Annex A to the
Proxy Statement/Prospectus.
3.1 - Articles of Incorporation: Incorporated by reference to Exhibit 3.1 of
Carolina First'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'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, as amended and restated
as of December 18, 1996: Incorporated by reference to Exhibit 3.1 of
Carolina First's Current Report on Form 8-K dated December 18, 1996,
Commission File No. 0-15083.
4.1 - Specimen Carolina First Common Stock certificate: Incorporated by
reference to Exhibit 4.1 of Carolina First'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 Amended and Restated Common Stock Dividend Reinvestment
Plan: Incorporated by reference to the Prospectus in Carolina First'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's Current Report on Form 8-K
dated December 18, 1996, Commission File No. 0-15083.
4.7 - Form of Indenture between Carolina First and First American Trust
Company, N.A., as trustee: Incorporated by reference to Exhibit 4.11 of
Carolina First'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 Carolina First. 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's Annual Report on Form 10-K for the year ended
December 31, 1997, Commission File No. 0-15083.
<PAGE>
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's Annual Report on Form 10-K for the year
ended December 31, 1997, Commission File No. 0-15083.
13.1 - 1998 Annual Report to Shareholders of Carolina First. Incorporated by
reference to Exhibit 13.1 of Carolina First's Annual Report on Form 10-K
for the year ended December 31, 1997, 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 Deloitte & Touche LLP.
23.3 - Consent of First Capital Group, LLC.
23.4 - Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit
5.1.
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's Annual Report on Form 10-K for the year ended December
31, 1997, Commission File No. 0-15083.
99.1 - Form of Proxy
(b) Certain additional financial statements. Not applicable.
(c) The information required by this paragraph is included as an Annex
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 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
<PAGE>
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.
<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 February 22, 1999.
Carolina First Corporation
By: /s/ William S. Hummers III
------------------------------------------------
William S. Hummers III, Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ William R. Timmons, Jr. Chairman of the Board February 22, 1999
- --------------------------
William R. Timmons, Jr.
/s/ Mack I. Whittle, Jr. President, Chief Executive Officer February 22, 1999
- -------------------------- and Director (Principal Executive Officer)
Mack I. Whittle, Jr.
/s/ William S. Hummers III Executive Vice President, Director February 22, 1999
- -------------------------- (Principal Accounting and Financial Officer)
William S. Hummers III
/s/ M. Dexter Hagy Director February 22, 1999
- --------------------------
M. Dexter Hagy
/s/ Eugene E. Stone IV Director February 22, 1999
- --------------------------
Eugene E. Stone IV
/s/ H. Earle Russell, Jr. Director February 22, 1999
- --------------------------
H. Earle Russell, Jr.
/s/ Judd B. Farr Director February 22, 1999
- --------------------------
Judd B. Farr
- -------------------------- Director February 22, 1999
Charles B. Schooler
/s/ Elizabeth P. Stall Director February 22, 1999
- --------------------------
Elizabeth P. Stall
/s/ David C. Wakefield III Director February 22, 1999
- --------------------------
David C. Wakefield III
- -------------------------- Director February 22, 1999
Vernon E. Merchant, Jr.
- -------------------------- Director February 22, 1999
William R. Phillips
- -------------------------- Director February 22, 1999
C. Claymon Grimes, Jr.
</TABLE>
By William S. Hummers III, Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
2.1 - Agreement and Plan of Reorganization entered into as of January 14, 1999
by and between Carolina First and Citizens: Included as Annex A to the
Proxy Statement/Prospectus.
3.1 - Articles of Incorporation: Incorporated by reference to Exhibit 3.1 of
Carolina First'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'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, as amended and restated
as of December 18, 1996: Incorporated by reference to Exhibit 3.1 of
Carolina First's Current Report on Form 8-K dated December 18, 1996,
Commission File No. 0-15083.
4.1 - Specimen Carolina First Common Stock certificate: Incorporated by
reference to Exhibit 4.1 of Carolina First'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 Amended and Restated Common Stock Dividend Reinvestment
Plan: Incorporated by reference to the Prospectus in Carolina First'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's Current Report on Form 8-K
dated December 18, 1996, Commission File No. 0-15083.
4.7 - Form of Indenture between Carolina First and First American Trust
Company, N.A., as trustee: Incorporated by reference to Exhibit 4.11 of
Carolina First'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 Carolina First. 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'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's Annual Report on Form 10-K for the year
ended December 31, 1997, Commission File No. 0-15083.
13.1 - 1998 Annual Report to Shareholders of Carolina First. Incorporated by
reference to Exhibit 13.1 of Carolina First's Annual Report on Form 10-K
for the year ended December 31, 1997, 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 Deloitte & Touche LLP.
23.3 - Consent of First Capital Group, LLC.
23.4 - Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit
5.1.
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's Annual Report on Form 10-K for the year ended December
31, 1997, Commission File No. 0-15083.
99.1 - Form of Proxy
EXHIBIT 5.1
MARCH 3, 1999
[WYCHE, BURGESS, FREEMAN & PARHAM, P.A. LETTERHEAD]
Carolina First Corporation
102 South Main Street
Greenville, South Carolina 29601
Citizens First National Bank
500 North Summit Street
Crescent City, Florida 32112
RE: Registration Statement on Form S-4 with respect to 600,000 shares of
Carolina First Common Stock
Gentlemen/Ladies:
The opinions set forth herein are rendered with respect to the 600,000 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 Citizens First
National Bank ("Citizens"), all as set forth in that certain Reorganization
Agreement entered into as of January 14, 1999 by and between the Company and
Citizens. 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 March 3, 1999, 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 Citizens shareholders in accordance with the Reorganization Agreement, be
legally and validly issued and fully paid and non-assessable.
The foregoing opinion is limited to matters governed by the laws of the State of
South Carolina in force on the date of this letter. We express no opinion with
regard to any matter which may be (or purports to be) governed by the laws of
any other state or jurisdiction. In addition, we express no opinion with respect
to any matter arising under or governed by the South Carolina Uniform Securities
Act, as amended, any law respecting disclosure, or any law respecting any
environmental matter.
This opinion is rendered as of the date of this letter and applies only to the
matters specifically covered by this opinion, and we disclaim any continuing
responsibility for matters occurring after the date of this letter.
Except as noted below, this opinion is rendered solely for your benefit in
connection with the Registration Statement and may not be relied upon, quoted or
used by any other person or entity or for any other purpose without our prior
written consent.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Yours truly,
Wyche, Burgess, Freeman & Parham, P.A.
By: /s/ William P. Crawford, Jr.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Carolina First
We consent to the use of our report dated January 22, 1998 included in Carolina
First's Annual Report on 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
Citizens First National Bank.
KPMG PEAT MARWICK LLP
Greenville, South Carolina
March 2, 1999
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Carolina First
Corporation on Form S-4 of our report dated March 27, 1998, relating to the
balance sheet of Citizens First National Bank as of December 31, 1996 and 1997,
and the related statements of operations, stockholders' equity and cash flows
for the three years ended December 31, 1997, appearing in the Prospectus, which
is part of this Registration Statement, and of our report dated March 27, 1998
relating to the financial statement schedules appearing elsewhere in this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
March 3, 1999
Exhibit 23.3
CONSENT OF FIRST CAPITAL GROUP, LLC
We consent to the inclusion of the Opinion of our Firm in the Registration
Statement on Form S-4 of Carolina First Corporation filed on or about March 3,
1999 with respect to the registration of shares to be issued to Citizens First
National Bank.
/s/
-------------------------------
FIRST CAPITAL GROUP, LLC
Memphis, Tennessee
March 2, 1999
EXHIBIT 99.1
***********************************APPENDIX*************************************
P
R
O CITIZENS FIRST NATIONAL BANK
X This Proxy is Solicited on Behalf of the Board of Directors
Y
Special Meeting, April 12, 1999
The undersigned shareholder of Citizens First National Bank, hereby revoking all
previous proxies, hereby appoints Joe H. Pickens and Michael Glenn 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
Citizens First National Bank to be held April 12, 1999, at 5:00 p.m., local
time, at 500 North Summit Street, Crescent City, Florida 32112 and at any
adjournments thereof, and to vote all shares of Citizens First National Bank
that the undersigned shall be entitled to vote at such meeting. Said proxies are
instructed to vote on the matters set forth in the Proxy Statement/Prospectus as
specified below.
1. To approve the Reorganization Agreement dated as of January 14, 1999,
providing for the merger of Citizens First National Bank with and into
Carolina First Corporation, and, in connection therewith, the conversion
of shares of common stock of Citizens First National Bank into 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: , 1999
--------------------
- --------------------------------------
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.
