<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-59729
August 14, 1998
TO THE SHAREHOLDERS OF
COMMUNITY BANK & TRUST COMPANY:
You are cordially invited to attend a Special Meeting of the Shareholders
(together with any adjournments or postponements, the "Special Meeting") of
Community Bank & Trust Company ("CB&T") to be held at CB&T's offices at 2 South
Main Street, Marion, North Carolina, on September 15, 1998, at 10:00 A.M., local
time, notice of which is enclosed.
At the Special Meeting, you will be asked to consider and vote to approve
an Agreement and Plan of Merger, dated as of June 4, 1998, (the "Merger
Agreement") by and between Carolina First BancShares, Inc., a North Carolina
corporation ("Carolina First") and CB&T, pursuant to which Carolina First
Interim Bank, a North Carolina interim bank being formed by Carolina First, will
merge (the "Merger") with and into CB&T with the effect that CB&T will become a
wholly owned subsidiary of Carolina First. At the effective date and time (the
"Effective Time") of the Merger, each share of CB&T Common Stock issued and
outstanding (except for certain shares held by CB&T or Carolina First, or their
respective subsidiaries, in each case other than shares held in a fiduciary
capacity or in satisfaction of debts previously contracted, and excluding shares
held by CB&T shareholders, if any, who perfect their dissenters' rights) will be
exchanged for shares of Carolina First Common Stock. In addition, Carolina First
will assume all CB&T Options outstanding at the Effective Time. The number of
shares of Carolina First Common Stock to be issued and reserved for issuance in
the Merger will be determined by dividing 1,021,202 shares of Carolina First
Common Stock by the sum of (i) all issued and outstanding shares of CB&T Common
Stock immediately prior to the Effective Time plus (ii) the aggregate number of
shares of CB&T Common Stock issuable upon the exercise of all outstanding CB&T
Options (the "Option Shares") as of the Effective Time (in no event to exceed
61,429 shares of CB&T Common Stock) (the "Preliminary Exchange Ratio"). The
Preliminary Exchange Ratio will be used to determine the number of shares of
Carolina First Common Stock to be reserved for issuance upon exercise of the
CB&T Options assumed by Carolina First at the Effective Time pursuant to the
Merger Agreement. The "Final Exchange Ratio" will be determined by dividing the
difference between 1,021,202 less the number of shares of Carolina First Common
Stock to be reserved in respect of the Option Shares, by the total number of
shares of CB&T Common Stock issued and outstanding at the Effective Time.
Assuming that the aggregate number of shares of CB&T Common Stock outstanding
and subject to issuance pursuant to CB&T Options as of the CB&T Record Date is
used in the Preliminary and Final Exchange Ratio determinations, then each share
of CB&T Common Stock outstanding at the Effective Time of the Merger would be
exchanged for approximately 0.73 shares of Carolina First Common Stock, with
cash being paid in lieu of fractional shares. In addition, Carolina First will
assume all CB&T Options outstanding at the Effective Time.
The accompanying Proxy Statement/Prospectus includes a description of the
proposed Merger and provides other specific information concerning the Special
Meeting. Please read these materials carefully and consider thoughtfully the
information set forth in them.
Your Board of Directors has unanimously approved the Merger Agreement and
recommends that you approve it. Your Board believes that, among other benefits,
the Merger will result in a company with greater financial strength and
increased opportunity and flexibility for profitable expansion and
diversification. Carolina First's Common Stock also has greater liquidity and
has paid a regular dividend. Consummation of the Merger is subject to certain
conditions, including approval of the Merger by various regulatory agencies. One
condition is that the Merger be accounted for as a pooling-of-interests. Such
accounting treatment requires formal rescission of all previously authorized
CB&T stock repurchase programs (the "Rescission"). Your Board of Directors
unanimously recommends that you approve the Rescission.
(COMMUNITY BANK & TRUST COMPANY LETTERHEAD)
<PAGE> 2
It is important to understand that approval of the Merger Agreement and the
Rescission will require the affirmative vote of two-thirds of the issued and
outstanding shares of CB&T Common Stock. ACCORDINGLY, WHETHER OR NOT YOU PLAN TO
ATTEND THE SPECIAL MEETING, YOU ARE URGED TO COMPLETE, SIGN, AND RETURN PROMPTLY
THE ENCLOSED PROXY CARD. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN
PERSON IF YOU WISH, EVEN IF YOU PREVIOUSLY HAVE RETURNED YOUR PROXY CARD. A
FAILURE TO VOTE EITHER BY PROXY, OR IN PERSON, HAS THE EFFECT OF A VOTE AGAINST
THE MERGER AND THE RESCISSION. The proposed Merger is a significant step for
CB&T and your vote on this matter is of great importance.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN, AND THE
RESCISSION AND TERMINATION OF ALL PREVIOUSLY AUTHORIZED CB&T STOCK REPURCHASE
PROGRAMS BY MARKING THE ENCLOSED PROXY CARD "FOR" ITEMS ONE AND TWO.
We look forward to seeing you at the Special Meeting.
Sincerely,
Ronnie D. Blanton
Ronnie D. Blanton
President and Chief Executive Officer
<PAGE> 3
COMMUNITY BANK & TRUST COMPANY
112 North Main Street
Rutherfordton, North Carolina 28139
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 15, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (together
with any adjournments or postponements, the "Special Meeting") of Community Bank
& Trust Company ("CB&T") will be held at CB&T's offices at 2 South Main Street,
Marion, North Carolina, on September 15, 1998, at 10:00 A.M., local time, for
the following purposes:
1. MERGER AGREEMENT. To consider and vote upon a proposal to approve an
Agreement and Plan of Merger, dated as of June 4, 1998 (the "Merger Agreement"),
by and between Carolina First BancShares, Inc., a North Carolina corporation
("Carolina First"), and CB&T pursuant to which, among other matters, Carolina
First Interim Bank, a North Carolina interim bank subsidiary being formed by
Carolina First as a wholly owned subsidiary of Carolina First, will merge (the
"Merger") with and into CB&T with the effect that CB&T will become wholly owned
by Carolina First. Each share of CB&T Common Stock issued and outstanding at the
effective time of the Merger will be converted into the right to receive shares
of Carolina First Common Stock, all as more fully described in the accompanying
Proxy Statement/Prospectus. Carolina First will also assume the obligations of
CB&T under various stock plans and programs and adopt substitute plans where
appropriate. A copy of the Merger Agreement is set forth as Appendix I to the
accompanying Proxy Statement/Prospectus.
2. STOCK REPURCHASE PROGRAMS. To consider and vote upon a proposal to
rescind and terminate all previously authorized CB&T stock repurchase programs
(the "Rescission").
3. OTHER BUSINESS. To transact such other business, if any, as may come
properly before the Special Meeting.
Only shareholders of record at the close of business on August 5, 1998,
will be entitled to receive notice of and to vote at the Special Meeting.
Approval of the Merger Agreement and the transactions contemplated therein and
the Rescission requires the affirmative vote of two-thirds of the issued and
outstanding shares of CB&T Common Stock.
THE BOARD OF DIRECTORS OF CB&T UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE RESCISSION.
BY ORDER OF THE BOARD OF DIRECTORS
/S/ Eric L. Ross
Eric L. Ross
Corporate Secretary
Rutherfordton, North Carolina
August 14, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
AND SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE SPECIAL MEETING.
---------------------
EACH SHAREHOLDER HAS THE RIGHT TO DISSENT FROM THE MERGER AGREEMENT AND
DEMAND PAYMENT OF THE FAIR VALUE OF HIS SHARES IF THE MERGER IS CONSUMMATED. THE
RIGHT OF ANY SHAREHOLDER TO RECEIVE SUCH PAYMENT IS CONTINGENT UPON STRICT
COMPLIANCE WITH THE REQUIREMENTS OF ARTICLE 13 OF CHAPTER 55 OF THE NORTH
CAROLINA BUSINESS CORPORATION ACT. THE FULL TEXT OF ARTICLE 13 OF CHAPTER 55
SETTING FORTH THE RIGHT TO DISSENT IS SET FORTH IN APPENDIX IV TO THE PROXY
STATEMENT/PROSPECTUS. A SUMMARY OF THE REQUIREMENTS OF ARTICLE 13 OF CHAPTER 55,
WHICH IS QUALIFIED IN ITS ENTIRETY BY THE STATUTORY PROVISIONS, IS INCLUDED IN
"DESCRIPTION OF THE MERGER -- DISSENTERS' RIGHTS" IN THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS.
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PROSPECTUS PROXY STATEMENT
CAROLINA FIRST BANCSHARES, INC. COMMUNITY BANK & TRUST COMPANY
COMMON STOCK, $2.50 PAR VALUE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 15, 1998
</TABLE>
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This Prospectus of Carolina First BancShares, Inc. ("Carolina First"), a
North Carolina corporation and bank holding company, relates to up to 1,021,202
shares of Carolina First's $2.50 par value common stock ("Carolina First Common
Stock"), which are issuable or reserved for issuance in connection with the
proposed merger (the "Merger") of Carolina First Interim Bank ("Interim Bank"),
a North Carolina banking subsidiary being formed by Carolina First, with and
into Community Bank & Trust Company ("CB&T"), pursuant to the terms of the
Agreement and Plan of Merger, dated as of June 4, 1998 (the "Merger Agreement"),
between Carolina First and CB&T.
At the Merger's effective time (the "Effective Time"), except as described
herein, each issued and outstanding share of the $2.50 par value common stock of
CB&T ("CB&T Common Stock") will be converted into and exchanged for that number
of shares of Carolina First Common Stock determined in accordance with the terms
described herein.
This Prospectus also serves as a Proxy Statement of CB&T, and is being
furnished to the shareholders of CB&T in connection with the solicitation of
proxies by CB&T's Board of Directors for use at its special meeting of
shareholders to be held on September 15, 1998 (including any adjournment or
postponement thereof, the "Special Meeting"), to consider and vote upon the
Merger Agreement and the transactions contemplated therein. This Proxy
Statement/Prospectus ("Proxy Statement/Prospectus") is being mailed to
shareholders of CB&T on or about August 14, 1998.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS ACCOUNTS, OR OTHER
OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS AUGUST 14, 1998.
<PAGE> 5
AVAILABLE INFORMATION
Carolina First is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file reports, proxy statements, and other information
with the Securities and Exchange Commission (the "SEC"). Copies of such reports,
proxy statements, and other information can be obtained, at prescribed rates,
from the SEC by addressing written requests for such copies to the Public
Reference Room at the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. The public may obtain information regarding the SEC's
Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, such
reports, proxy statements, and other information can be inspected at the public
reference facilities referred to above and at the regional offices of the SEC at
7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
SEC also maintains a Web site at http://www.sec.gov. that contains reports,
proxy statements and other information regarding registrants such as Carolina
First that file electronically with the SEC.
CB&T is subject to the reporting requirements of the Exchange Act, and is
required to file reports, proxy statements and other information with the
Federal Deposit Insurance Corporation (the "FDIC"). Such reports, proxy
statements and other information can be inspected at the offices of the FDIC at
550 17th Street, N.W., Washington D.C. 20429.
This Proxy Statement/Prospectus constitutes part of the Registration
Statement filed on Form S-4 of Carolina First (including any exhibits and
amendments thereto, the "Registration Statement") filed with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"). This Proxy
Statement/Prospectus does not include all of the information in the Registration
Statement, certain portions of which have been omitted pursuant to the rules and
regulations of the SEC. For further information about Carolina First and the
securities offered hereby, reference is made to the Registration Statement. The
Registration Statement may be inspected and copied, at prescribed rates, at the
SEC's public reference facilities at the addresses set forth above.
Certain financial and other information relating to Carolina First is
contained in the documents indicated below under "Documents Incorporated by
Reference."
All information contained or incorporated by reference herein with respect
to Carolina First was supplied by Carolina First, which is solely responsible
therefor, and all information contained herein with respect to CB&T was supplied
by CB&T, which is solely responsible therefor.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE HEREIN, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY SALE OF THE SECURITIES BEING OFFERED HEREBY SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF CAROLINA FIRST OR CB&T OR THE INFORMATION SET FORTH HEREIN SINCE
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS
WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND BUSINESS OF
CAROLINA FIRST AND CB&T, AND OF CAROLINA FIRST FOLLOWING THE CONSUMMATION OF THE
MERGER, INCLUDING STATEMENTS RELATING TO THE POTENTIAL COST SAVINGS AND REVENUE
ENHANCEMENTS THAT ARE PRESENTLY ESTIMATED TO BE REALIZED FROM THE MERGER, THE
EXPECTED EFFECTS OF THE MERGER ON CAROLINA FIRST'S FINANCIAL PERFORMANCE, AS
WELL AS INFORMATION DEVELOPED INDEPENDENTLY BY CB&T'S FINANCIAL ADVISOR, AS TO
WHICH CAROLINA FIRST AND CB&T MAKE NO REPRESENTATION OR WARRANTY.
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THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES.
FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHER THINGS, THE
FOLLOWING POSSIBILITIES: (i) EXPECTED COST SAVINGS FROM THE MERGER AND OTHER
ACQUISITIONS CANNOT BE FULLY REALIZED; (ii) DEPOSIT ATTRITION, CUSTOMER LOSS OR
REVENUE LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (iii) COMPETITIVE
PRESSURE IN THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; (iv) COSTS OR
DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF CAROLINA FIRST AND
CB&T ARE GREATER THAN EXPECTED; (v) CHANGES IN BUSINESS CONDITIONS, INFLATION
AND/OR INTEREST RATES REDUCE MARGINS; (vi) GENERAL ECONOMIC CONDITIONS, EITHER
NATIONALLY OR REGIONALLY, BECOME LESS FAVORABLE, RESULTING IN, AMONG OTHER
THINGS, A DETERIORATION IN CREDIT QUALITY; (vii) CHANGES IN THE REGULATORY
ENVIRONMENT; (viii) CHANGES IN THE SECURITIES MARKETS; AND (ix) DISRUPTIONS OF
THE OPERATION OF CAROLINA FIRST, CB&T, OR ANY OF THEIR SUBSIDIARIES, OR ANY
OTHER GOVERNMENTAL OR PRIVATE ENTITY AS A RESULT OF THE "YEAR 2000 PROBLEM." THE
FORWARD-LOOKING ESTIMATES INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS HAVE NOT
BEEN EXAMINED OR COMPILED BY THE INDEPENDENT PUBLIC ACCOUNTANTS OF CAROLINA
FIRST OR CB&T, NOR HAVE SUCH ACCOUNTANTS APPLIED ANY PROCEDURES THERETO.
ACCORDINGLY, SUCH ACCOUNTANTS DO NOT EXPRESS AN OPINION OR ANY OTHER FORM OF
ASSURANCE ON THEM. FURTHER INFORMATION ON OTHER FACTORS THAT COULD AFFECT THE
FINANCIAL RESULTS OF CAROLINA FIRST ARE INCLUDED IN ITS SEC FILINGS INCORPORATED
BY REFERENCE HEREIN.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed with the SEC by Carolina First
pursuant to Sections 13(a) or 15(d) of the Exchange Act are hereby incorporated
by reference in this Proxy Statement/Prospectus:
(a) Carolina First's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997;
(b) Carolina First's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1998;
(c) Carolina First's Proxy Statement dated March 26, 1998, except for
Annex A thereto; and
(d) Carolina First's Current Reports on Form 8-K filed on April 15,
1998, June 19, 1998 and on Form 8-K/A filed on July 14, 1998.
All documents subsequently filed by Carolina First pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the Special Meeting are
deemed to be incorporated by reference in this Proxy Statement/Prospectus and
are deemed to be a part hereof from the date of filing of such documents.
Any statement contained herein, in any supplement hereto, or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein, in any supplement hereto, or in any other subsequently filed
document which also is incorporated herein or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed to constitute a part hereof, except
as so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST FROM JAN H. HOLLAR, SECRETARY, CAROLINA
FIRST BANCSHARES, INC., 402 EAST MAIN STREET, LINCOLNTON, NORTH CAROLINA 28092
(TELEPHONE (704) 732-2222). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE BY SEPTEMBER 8, 1998.
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TABLE OF CONTENTS
<TABLE>
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Summary..................................................... 1
The Parties............................................... 1
Special Meeting of Shareholders; Record Date; Vote
Required............................................... 2
The Merger................................................ 3
Comparative Per Share Data................................ 8
Selected Financial Data................................... 10
Selected Condensed Consolidated Pro Forma Financial
Data................................................... 13
Special Meeting of CB&T Shareholders........................ 14
Date, Place, Time, and Purpose............................ 14
Record Date, Voting Rights, Required Votes, and
Revocability of Proxies................................ 14
Description of the Merger................................... 16
General................................................... 16
Effect of the Merger on CB&T Options...................... 16
Background of and Reasons for the Merger.................. 17
Background of the Merger............................... 17
Expression of Interest by Carolina First............... 17
Decision to Explore Market for Acquisitions............ 17
Solicitation of Proposals.............................. 18
Decision to Negotiate Exclusively with Carolina
First................................................. 18
Due Diligence and Definitive Agreement................. 19
CB&T's Reasons for the Merger and Recommendation of
Directors............................................. 19
Opinion of CB&T's Financial Advisor....................... 20
General................................................ 20
Comparative Analysis of Financial Condition -- Peer
Group Analysis........................................ 21
Market Comparable Analysis............................. 23
Discounted Future Earnings and Cash Flow............... 23
Comparable Acquisition Analysis........................ 24
Opinion of Carolina First's Financial Advisor............. 24
General................................................ 24
Valuation Methodologies................................ 25
Comparable Transaction Analysis........................ 25
Discounted Cash Flow Analysis.......................... 26
Compensation of Robinson-Humphrey...................... 27
Effective Time of the Merger.............................. 27
Distribution of Carolina First Stock Certificates......... 27
Conditions to Consummation of the Merger.................. 28
Regulatory Approvals...................................... 29
Waiver, Amendment, and Termination........................ 29
Dissenters' Rights........................................ 30
Conduct of Business Pending the Merger.................... 32
Management and Operations After the Merger; Interests of
Certain Persons in the Merger.......................... 34
Indemnification and Advancement of Expenses............ 34
Employment Agreement................................... 34
Consulting, Severance and Shareholder's Agreements..... 35
Officer Stock Options.................................. 36
Other Matters Relating to CB&T Employee Benefit
Plans................................................. 36
Federal Income Tax Consequences of the Merger............. 37
Accounting Treatment...................................... 38
Expenses and Fees......................................... 38
</TABLE>
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Resales of Carolina First Common Stock.................... 39
Certain Differences in the Rights of Shareholders........... 40
Authorized Capital Stock.................................. 40
Amendments to Articles and Bylaws......................... 41
Shareholder Proposals..................................... 41
Board of Directors and Absence of Cumulative Voting....... 41
Special Meetings of Shareholders.......................... 42
Shareholder Action Without a Meeting...................... 42
Mergers, Consolidations, and Sales of Assets.............. 42
Exculpation of Directors.................................. 43
Comparative Market Prices and Dividends..................... 44
Business of CB&T............................................ 47
General................................................... 47
Competition............................................... 47
Properties................................................ 48
Legal Proceedings......................................... 48
Management................................................ 48
Director Compensation..................................... 49
Executive Officers........................................ 49
Management Compensation................................... 49
Employment Agreements..................................... 49
Stock Option Plan......................................... 50
Indebtedness of and Transactions with Management.......... 51
Beneficial Ownership of CB&T Common Stock................. 51
CB&T Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 53
Quarters Ended March 31, 1998 and 1997................. 53
Years Ended December 31, 1997, 1996 and 1995........... 57
Business of Carolina First.................................. 64
General................................................... 64
Pro Forma Financial Information............................. 65
Supervision and Regulation.................................. 70
Bank Holding Company Regulation........................... 70
Bank Regulation........................................... 71
Community Reinvestment Act................................ 72
Payment of Dividends...................................... 73
Capital................................................... 74
FDICIA.................................................... 75
FDIC Insurance Assessments................................ 76
Community Development Act................................. 76
Fiscal and Monetary Policy................................ 77
Enforcement Policies and Actions.......................... 77
Depositor Preference...................................... 77
Legislative and Regulatory Changes........................ 77
Other Information........................................... 78
Proxy Solicitation Costs.................................. 78
Experts..................................................... 78
Legal Matters............................................... 78
Other Matters............................................... 78
Index to CB&T Financial Statements.......................... F-1
</TABLE>
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Appendices:
Appendix I -- Agreement and Plan of Merger, dated as of
June 4, 1998, by and between
Carolina First BancShares, Inc. and
Community Bank & Trust Company........... I-1
Appendix II -- Opinion of Smith Capital, Inc............. II-1
Appendix III -- Opinion of The Robinson-Humphrey Company,
LLC.................................................... III-1
Appendix IV -- Sections of North Carolina Business
Corporation Act Relating to Dissenters'
Appraisal Rights......................... IV-1
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v
<PAGE> 10
SUMMARY
The following is a summary of certain information contained in this Proxy
Statement/Prospectus and the documents incorporated herein by reference. This
summary is not intended to be a complete description of the matters covered in
this Proxy Statement/Prospectus and is qualified in its entirety by the more
detailed information appearing elsewhere or incorporated by reference in this
Proxy Statement/Prospectus. Shareholders are urged to read carefully the entire
Proxy Statement/Prospectus, including the Appendices. As used in this Proxy
Statement/Prospectus, the term "Carolina First" refers to that entity, and,
where the context requires, to that entity and its subsidiaries.
THE PARTIES
CB&T
CB&T is a North Carolina state bank that commenced operations in 1987. It
is headquartered in Rutherfordton, North Carolina and has seven branch offices
in the Counties of Avery, Buncombe, Jackson, Marion, McDowell and Transylvania,
North Carolina. As of March 31, 1998, CB&T had total assets of approximately
$101 million, total deposits of approximately $89 million, and total
shareholders' equity of approximately $10 million. CB&T offers a wide variety of
deposit accounts, and commercial, consumer and mortgage lending. CB&T operates
banking offices in the cities of Banner Elk, Black Mountain, Brevard, Forest
City, Marion, Rutherfordton and Sylva. CB&T's principal executive offices are
located at 2 South Main Street, Marion, North Carolina 28752, and its telephone
number at such address is (828) 652-1112. See "Business of CB&T."
On April 21, 1998, CB&T declared its third annual cash dividend, payable on
May 15, 1998 to shareholders of record on May 1, 1998. This total per share
dividend equaled the per share dividend paid in 1997.
On July 27, 1998, CB&T announced its operating results for the quarter
ended June 30, 1998. Net income for the quarter was $154,310 or $.11 per diluted
share of CB&T Common Stock, a decrease of 9.95% from the net income of $171,361
or $.12 per diluted share for the same period in 1997. The decrease in earnings
was attributable to an increase in compensation and depreciation expense which
more than offset increases in net interest income and noninterest income.
Net income for the six months ended June 30, 1998 was $254,878 or $.19 per
diluted share compared to net income of $245,705 or $.18 per diluted share for
the same period in 1997. The slight growth in earnings was attributable to a
combination of an increase in net interest income which more than offset a
slight decrease in noninterest income and an increase in noninterest expense.
At June 30, 1998, CB&T had assets of $103.3 million, an 8.85% increase over
June 30, 1997. Deposits increased 8.60% to $89.5 million and net loans increased
2.35% to $56.6 million, reflecting the continued growth in the economies of the
markets served by CB&T.
Nonperforming assets at June 30, 1998 were $311,000 or .30% of total assets
compared to .07% at June 30, 1997. Nonperforming assets increased from March 31,
1998 due to CB&T's foreclosure of a single family residence ($136,000) while
CB&T charged off $50,000 for a nonaccrual loan. Both transactions relate to the
same borrower. The allowance for loan losses was 1.32% of outstanding loans at
June 30, 1998, compared to 1.48% at June 30, 1997.
Carolina First
Carolina First is a bank holding company headquartered in Lincolnton, North
Carolina, with 22 banking offices in North Carolina. As of March 31, 1998,
Carolina First had total consolidated assets of approximately $547 million,
total consolidated deposits of approximately $486 million, and total
consolidated shareholders' equity of approximately $48 million. Through its
banking subsidiaries, Lincoln Bank of North Carolina ("Lincoln Bank") and
Cabarrus Bank of North Carolina ("Cabarrus Bank," and together with Lincoln
Bank, the "Banks"), and other indirect subsidiaries, Carolina First offers a
full array of deposit accounts and retail
1
<PAGE> 11
and commercial banking services, and engages in insurance agency activities and
mortgage lending. Carolina First's primary service area is the greater
Charlotte, North Carolina area, including Cabarrus County, southeastern Catawba
County, Iredell County, Lincoln County, Mecklenburg County and parts of
Rutherford County, all of which are situated in the Piedmont area of North
Carolina. The Banks operate banking offices in the cities of Charlotte, Concord,
Cornelius, Denver, Huntersville, Kannapolis, Lake Lure, Lincolnton, Mathews,
Mooresville, Mount Pleasant, Troutman and Weddington.
Carolina First was organized under the laws of the state of North Carolina
and commenced operations in 1989 as a registered bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Carolina First's
principal executive offices are located at 402 East Main Street, Lincolnton,
North Carolina 28092, and its telephone number at such address is (704)
732-2222. Additional information with respect to Carolina First is included
herein and in documents incorporated by reference herein. See "Available
Information," "Documents Incorporated by Reference," and "Business of Carolina
First."
On July 24, 1998, Carolina First announced its results for the quarter
ended June 30, 1998. Consolidated net income for the quarter was $1,888,970 or
$.42 diluted earnings per share ($.43 basic earnings per share) of Carolina
First Common Stock, an increase of 26% over the earnings for the same period in
1997 of $1,499,216 or $.36 diluted and basic earnings per share. The growth in
earnings was attributed to growth in noninterest income and continued strength
in net interest income produced by increased earning assets.
Consolidated net income for the six months ended June 30, 1998 was
$3,623,806 or $.80 diluted earnings per share ($.83 basic earnings per share),
compared to consolidated net income of $2,936,629 or $.71 diluted and basic
earnings per share for the same period in 1997.
At June 30, 1998, Carolina First had consolidated assets of $567.8 million,
a 15.7% increase over June 30, 1997. Deposits increased 13.8% to $505.8 million
and gross loans increased 11.9% to $363.3 million, reflecting the continued
strong growth in the economy.
Non-performing assets remained low at 0.19% of total assets compared to
0.39% at June 30, 1997. The allowance for loan losses was 1.48% of outstanding
loans at June 30, 1998, compared to 1.50% for the same period in 1997.
SPECIAL MEETING OF SHAREHOLDERS; RECORD DATE; VOTE REQUIRED
This Proxy Statement/Prospectus is being furnished to the holders of CB&T
Common Stock in connection with the solicitation by the CB&T Board of Directors
(the "CB&T Board") of proxies for use at the Special Meeting at which CB&T
shareholders will be asked to vote upon (i) a proposal to approve the Merger
Agreement and the transactions contemplated therein, and (ii) a proposal to
rescind and terminate all previously authorized CB&T stock repurchase programs
(the "Rescission"). The Special Meeting will be held at CB&T's offices at 2
South Main Street, Marion, North Carolina, on September 15, 1998, at 10:00 A.M.
local time. See "Special Meeting of CB&T Shareholders -- Date, Place, Time, and
Purpose."
CB&T's Board has fixed the close of business on August 5, 1998, as the
record date (the "CB&T Record Date") for determination of the shareholders
entitled to notice of and to vote at the Special Meeting. Only CB&T shareholders
of record on the CB&T Record Date will be entitled to notice of and to vote at
the Special Meeting. Each share of CB&T Common Stock is entitled to one vote.
Shareholders who execute proxies retain the right to revoke them at any time
prior to them being voted at the Special Meeting. On the CB&T Record Date, there
were 1,345,080 shares of CB&T Common Stock issued and outstanding, which were
held of record by approximately 1,584 persons. See "Special Meeting of CB&T
Shareholders -- Record Date, Voting Rights, Required Votes, and Revocability of
Proxies."
Approval of the Merger Agreement and the transactions contemplated therein
requires the affirmative vote by holders of at least two-thirds (896,721 shares)
of the shares of CB&T Common Stock entitled to vote at the Special Meeting.
Approval of the Rescission also requires the affirmative vote by holders of at
least two-thirds (896,721 shares) of the shares of CB&T Common Stock entitled to
vote at the Special Meeting. As of the CB&T Record Date, CB&T's directors
beneficially owned approximately 137,330 shares, or 9.97%, of the outstanding
shares of CB&T Common Stock entitled to vote at the Special Meeting, and have
agreed to vote
2
<PAGE> 12
such shares of CB&T Common Stock in favor of the Merger and the Rescission. In
addition, executive officers of CB&T who are not CB&T directors beneficially own
approximately 11,774 shares, or 0.85% of CB&T Common Stock and have agreed to
vote such shares in favor of the Merger and the Rescission. As of the CB&T
Record Date, Carolina First and its directors and executive officers held
approximately 41,048 shares, or 2.98% of CB&T Common Stock. See "Special Meeting
of CB&T Shareholders -- Record Date, Voting Rights, Required Votes, and
Revocability of Proxies."
CB&T'S SHAREHOLDERS HAVE THE RIGHT TO DISSENT FROM APPROVAL OF THE MERGER
AGREEMENT AND OBTAIN PAYMENT FOR THE FAIR VALUE OF THEIR SHARES OF CB&T COMMON
STOCK BY FOLLOWING THE PROCEDURES DESCRIBED IN SECTION 55-13-01, ET SEQ. OF THE
NORTH CAROLINA BUSINESS CORPORATION ACT ("NCBCA"). SEE "THE
MERGER -- DISSENTERS' RIGHTS" AND APPENDIX IV.
THE MERGER
General
The Merger Agreement provides for the acquisition of CB&T by Carolina First
pursuant to the Merger of Interim Bank with and into CB&T with CB&T being the
surviving bank from the Merger. A copy of the Merger Agreement is set forth at
Appendix I to this Proxy Statement/Prospectus.
Consideration and Exchange Ratios
At the Effective Time, each share of CB&T Common Stock then issued and
outstanding (excluding shares held by CB&T, Carolina First, or their respective
subsidiaries, in each case other than shares held in a fiduciary capacity or in
satisfaction of debts previously contracted, and excluding shares held by CB&T
shareholders who perfect their dissenters' rights) will be converted into and
exchanged for shares of Carolina First Common Stock. In addition, Carolina First
will assume all outstanding CB&T Options. The number of shares of Carolina First
Common Stock to be issued or reserved for issuance in the Merger will be
determined by dividing 1,021,202 shares of Carolina First Common Stock by the
sum of (i) all issued and outstanding shares of CB&T Common Stock immediately
prior to the Effective Time plus (ii) the aggregate number of shares of CB&T
Common Stock issuable upon the exercise of all outstanding CB&T Options (the
"Option Shares") as of the Effective Time (in no event to exceed 61,429 shares
of CB&T Common Stock) (the "Preliminary Exchange Ratio"). The Preliminary
Exchange Ratio will be used to determine the number of shares of Carolina First
Common Stock to be reserved for issuance upon exercise of the CB&T Options
assumed by Carolina First pursuant to the Merger Agreement. The "Final Exchange
Ratio" will be determined by dividing the difference between 1,021,202 less the
number of shares of Carolina First Common Stock to be reserved in respect of the
Option Shares, by the total number of shares of CB&T Common Stock issued and
outstanding at the Effective Time. Assuming that the number of shares of CB&T
Common Stock and CB&T Options outstanding as of the CB&T Record Date are used in
the Preliminary and Final Exchange Ratio determinations, then each share of CB&T
Common Stock outstanding at the Effective Time of the Merger will be exchanged
for 0.72716 (approximately 0.73) shares of Carolina First Common Stock.
No fractional shares of Carolina First Common Stock will be issued. Rather,
cash (without interest) will be paid in lieu of any fractional share interest to
which any CB&T shareholder would be entitled upon consummation of the Merger, in
an amount equal to such fractional part of a share of Carolina First Common
Stock multiplied by the market value of one share of Carolina First Common Stock
at the Effective Time which shall be the last trading price of such Common Stock
prior to the Effective Time, as reported by Interstate/Johnson Lane Corporation
or J.C. Bradford & Co., as the case may be. See "Description of the
Merger -- General."
The Merger Agreement also contemplates that at the Effective Time, each
CB&T Option, which is outstanding at the Effective Time, whether or not
exercisable, will be assumed by Carolina First, and will be converted into and
become rights with respect to Carolina First Common Stock on a basis adjusted to
reflect the Final Exchange Ratio.
3
<PAGE> 13
As of the CB&T Record Date, CB&T had 1,345,080 shares of CB&T Common Stock
issued and outstanding, and 59,286 additional shares of CB&T Common Stock
subject to CB&T Options. Carolina First will issue or reserve for issuance an
aggregate of up to 1,021,202 shares of Carolina First Common Stock in connection
with the Merger. Based on the number of CB&T shares of Common Stock and CB&T
Options outstanding as of the CB&T Record Date, it is anticipated that upon
consummation of the Merger, Carolina First would issue approximately 0.73 shares
of Carolina First Common Stock for each share of CB&T Common Stock
(approximately 978,092 shares of Carolina First Common Stock), and reserve for
issuance approximately 43,110 shares of Carolina First Common Stock for future
issuance to holders of CB&T Options outstanding at the Effective Time.
Accordingly, Carolina First would then have issued and outstanding approximately
5,429,521 shares of Carolina First Common Stock based on the number of shares of
Carolina First Common Stock issued and outstanding on July 31, 1998.
Reasons for the Merger, Recommendation of the Board of Directors of CB&T
The CB&T Board believes that the Merger and the related Rescission are in
the best interests of CB&T and its shareholders, has unanimously approved the
Merger Agreement and unanimously recommends that the shareholders vote "FOR"
approval of the Merger Agreement and the consummation of the transactions
contemplated therein and the related Rescission. In deciding to approve the
Merger Agreement and the consummation of the transactions contemplated therein
and the related Rescission, the CB&T Board considered a number of factors,
including, among other matters, the financial terms of the proposed Merger, a
comparison of the terms with comparable transactions, the opinion of its
financial and legal advisors, and alternatives to the Merger. See "Description
of the Merger -- Background of and Reasons for the Merger."
The CB&T Board believes that the Merger will result in a company with
expanded opportunities for profitable growth and that the combined resources and
capital of CB&T and Carolina First will provide an enhanced ability to compete
in the changing and competitive financial services industry. See "Description of
the Merger -- Background of and Reasons for the Merger."
Opinion of Financial Advisors
Smith Capital, Inc. ("Smith Capital") has advised CB&T in connection with
the negotiation and delivery of the Merger Agreement, and has rendered an
opinion to CB&T that, based on and subject to the procedures, matters, and
limitations described in its opinion and such other matters as it considered
relevant, as of the date of its opinion, the terms of the Merger are fair, from
a financial point of view, to the shareholders of CB&T. The opinion of Smith
Capital is attached as Appendix II to this Proxy Statement/Prospectus. CB&T
shareholders are urged to read the opinion in its entirety for a description of
the procedures followed, matters considered, and limitations on the reviews
undertaken in connection therewith. See "Description of the Merger -- Opinion of
CB&T's Financial Advisor."
The Robinson-Humphrey Company, LLC ("Robinson-Humphrey") has rendered an
opinion to Carolina First that, based on and subject to the procedures, matters,
and limitations described in its opinion and such other matters as it considered
relevant, as of the date of its opinion, the consideration to be paid in
connection with the Merger is fair, from a financial point of view, to the
shareholders of Carolina First. The opinion of Robinson-Humphrey is attached as
Appendix III to this Proxy Statement/Prospectus. See "Description of the
Merger -- Opinion of Carolina First's Financial Advisor."
Effective Time
Subject to the conditions to the obligations of the parties to effect the
Merger, it shall become effective on the date and at the time that the Articles
of Merger become effective with the North Carolina Secretary of State (the
"Effective Time"). Unless otherwise agreed upon by CB&T and Carolina First, and
subject to the conditions to the obligations of the parties to effect the
Merger, the parties will use their reasonable efforts to cause the Effective
Time to occur on the first business day following the last to occur of (i) the
effective date (including the expiration of any applicable waiting period) of
the last consent of any regulatory authority required for the Merger and (ii)
the date on which the shareholders of CB&T, and Carolina First as the sole
4
<PAGE> 14
shareholder of Interim Bank, approve the matters relating to the Merger
Agreement which are required to be approved by such shareholders by applicable
law; or such later date within 30 days thereof as may be specified by Carolina
First. See "Description of the Merger -- Effective Time of the Merger,"
" -- Conditions to Consummation of the Merger," and " -- Waiver, Amendment, and
Termination."
NO ASSURANCE CAN BE PROVIDED THAT THE NECESSARY SHAREHOLDER AND REGULATORY
APPROVALS CAN BE OBTAINED OR THAT THE OTHER CONDITIONS PRECEDENT TO THE MERGER
CAN OR WILL BE SATISFIED. CB&T AND CAROLINA FIRST ANTICIPATE THAT ALL CONDITIONS
TO THE CONSUMMATION OF THE MERGER WILL BE SATISFIED SO THAT THE MERGER CAN BE
CONSUMMATED DURING THE THIRD QUARTER OF 1998. HOWEVER, DELAYS IN THE
CONSUMMATION OF THE MERGER COULD OCCUR.
Exchange of Stock Certificates
Promptly after the Effective Time, Carolina First and CB&T will cause its
transfer agent, First Citizens Bank, Raleigh, North Carolina, acting in its
capacity as exchange agent for Carolina First (the "Exchange Agent"), to mail to
each holder of record of a certificate or certificates (collectively, the
"Certificates") which, immediately prior to the Effective Time, represented
outstanding shares of CB&T Common Stock, a letter of transmittal and
instructions for use in effecting the surrender and cancellation of the
Certificates in exchange for certificates representing shares of Carolina First
Common Stock. Cash will be paid to the holders of CB&T Common Stock in lieu of
the issuance of any fractional shares of Carolina First Common Stock. In no
event will the holder of any surrendered Certificates be entitled to receive
interest on any cash to be issued to such holder, and in no event will CB&T,
Carolina First, Interim Bank, or the Exchange Agent be liable to any holder of
CB&T Common Stock for any Carolina First Common Stock or dividends thereon or
cash delivered in good faith to a public official pursuant to any applicable
abandoned property, escheat, or similar law.
Regulatory Approvals And Other Conditions
The Merger is subject to approval by the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), the Federal Deposit Insurance
Corporation ("FDIC") and the North Carolina Office of the Commissioner of Banks
(the "Commissioner"). Applications have been filed with the Federal Reserve, the
FDIC and the Commissioner for the requisite approvals. THERE CAN BE NO ASSURANCE
THAT SUCH REGULATORY APPROVALS WILL BE OBTAINED OR AS TO THE TIMING OF, OR THE
CONDITIONS OR RESTRICTIONS IMPOSED BY, ANY SUCH APPROVAL.
Consummation of the Merger is subject to various other conditions,
including receipt of the required approval of CB&T shareholders, receipt of an
opinion of counsel as to the tax-free nature of certain aspects of the Merger,
receipt of a letter from the independent accountants of Carolina First that the
Merger will qualify for pooling-of-interests accounting treatment, CB&T having a
minimum shareholders' equity amount at Closing and certain other conditions. See
"Description of the Merger -- Conditions to Consummation of the Merger."
Conduct of Business Pending the Merger
Each party has agreed in the Merger Agreement, among other things, to take
no action that would materially adversely affect its ability to perform its
covenants and agreements under the Merger Agreement or the ability of any party
to obtain the consents required for the transactions contemplated by the Merger
Agreement. CB&T has agreed to operate its business only in the usual, regular
and ordinary course, and in a manner designed to preserve intact its business
organization and assets and maintain its rights and franchises. Carolina First
has also agreed to continue to conduct its business in a manner designed in its
reasonable judgment, to enhance the long-term value of the Carolina First Common
Stock and the business prospects of Carolina First and its subsidiaries, and to
preserve its core businesses and goodwill with their respective employees and
the communities they serve. In addition, CB&T has agreed not to take certain
actions relating to the operation of CB&T pending consummation of the Merger
without the prior written consent of Carolina First, except as otherwise
permitted by the Merger Agreement, including, among other things: (i) becoming
5
<PAGE> 15
responsible for any obligation for borrowed money in excess of $50,000, except
in the ordinary course of business consistent with past practices; (ii)
repurchasing, redeeming or otherwise acquiring or exchanging any shares of its
capital stock, or, subject to certain exceptions, issuing any additional shares
of its capital stock or giving any person the right to acquire any such shares,
or encumbering any shares of capital stock of any subsidiary or any other
assets; (iii) acquiring control over any other entity; (iv) subject to certain
exceptions, granting any increase in compensation or benefits, or paying any
bonus, to any of its directors, officers or employees; (v) entering into any
employment contracts that cannot be terminated without liability; (vi) adopting
any new employee benefit plan, or subject to certain exceptions, terminating or
materially changing any existing employee benefit plan; (vii) making significant
changes in any tax or accounting methods, unless required by law or regulation
or generally accepted accounting principles; (viii) commencing or settling any
litigation other than in accordance with past practice; (ix) modifying, amending
or terminating any material contract, or (x) incurring any expenses exceeding
$50,000, other than in the ordinary course of business. See "Description of the
Merger -- Conduct of Business Pending the Merger."
Waiver, Amendment, And Termination
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time by mutual consent of CB&T and Carolina First, or by
either CB&T or Carolina First under certain circumstances, including an uncured
breach of a representation and/or warranty by the other party, or if the Merger
is not consummated by November 30, 1998, unless the failure to consummate by
such time is due to a breach of the Merger Agreement by the party seeking to
terminate. Carolina First also has a unilateral right to terminate the Merger
Agreement if the CB&T Board shall have resolved not to reaffirm or support the
Merger (to the exclusion of any other similar transaction) or shall have
recommended or authorized entering into any other transaction involving a
merger, share exchange, consolidation or transfer of all or substantially all of
the assets of CB&T. If for any reason the Merger is not consummated, CB&T will
continue to operate as a bank under its present management. To the extent
permitted by law and as set forth in the Agreement, the Agreement may be amended
upon the written agreement of Carolina First and CB&T without the approval of
CB&T shareholders before or after the matters relating to the Merger Agreement
required to be approved by the CB&T shareholders are approved by such
shareholders, provided, that, after any such approval by the CB&T shareholders,
there shall be no amendment that modifies in any material respect the
consideration to be received by such shareholders without the further approval
of such shareholders. In addition, prior to the Effective Time, either CB&T or
Carolina First may waive or extend the time for compliance or fulfillment by the
other party of any and all obligations of such party under the Merger Agreement.
If the Merger Agreement is terminated for certain reasons, including an uncured
material breach of a representation, warranty or covenant by CB&T, and CB&T
agrees to, or enters into, another business combination with a third-party
within six months of the date of termination of the Merger Agreement, the
third-party, or failing them, CB&T, must pay Carolina First $1.6 million in cash
as a "break-up fee." See "Description of the Merger -- Waiver, Amendment, and
Termination" and " -- Expenses and Fees."
Dissenters' Rights
Each holder of CB&T Common Stock who perfects his rights is entitled to the
rights and remedies of a dissenting shareholder under Article 13 of Chapter 55
of the NCBCA, subject to compliance with the procedures set forth therein. Among
other things, a dissenting shareholder who has perfected his dissenter's rights
is entitled to receive an amount in cash equal to the "fair value" of such
holder's shares. A copy of Article 13 of Chapter 55 of the NCBCA is set forth in
Appendix IV of this Proxy Statement/Prospectus and a summary thereof is included
under "Description of the Merger -- Dissenters' Rights." TO PERFECT DISSENTERS'
RIGHTS, A SHAREHOLDER MUST COMPLY WITH ARTICLE 13 OF CHAPTER 55 OF THE NCBCA,
WHICH REQUIRES, AMONG OTHER THINGS, THAT THE SHAREHOLDER GIVE CB&T NOTICE OF
SUCH HOLDER'S INTENTION TO DISSENT FROM THE APPROVAL OF THE MERGER AGREEMENT
PRIOR TO THE VOTE OF CB&T SHAREHOLDERS AT THE SPECIAL MEETING AND THAT SUCH
SHAREHOLDER SHALL NOT VOTE SUCH HOLDER'S SHARES IN FAVOR OF THE MERGER
AGREEMENT. ANY CB&T SHAREHOLDER WHO RETURNS A SIGNED PROXY BUT FAILS TO PROVIDE
INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO BE VOTED WILL
BE DEEMED TO HAVE VOTED IN FAVOR OF THE MERGER AGREEMENT AND THUS WILL NOT BE
ENTITLED TO ASSERT DISSENTERS' RIGHTS.
6
<PAGE> 16
Interests of Certain Persons in the Merger
Certain members of CB&T's management and the CB&T Board have interests in
the Merger in addition to their interests as shareholders of CB&T generally.
These include, among other things, provisions in the Merger Agreement relating
to indemnification of directors and officers and eligibility for certain
Carolina First employee benefits. The directors and officers (except for Mr.
Alan W. Jackson, a Senior Vice President and the Chief Financial Officer, whose
resignation will become effective at the Effective Time) of CB&T immediately
prior to the Effective Time will continue to serve as directors and officers
respectively, of CB&T following the Merger. Promptly after the Effective Time,
three current directors of CB&T will become members of Carolina First's Board of
Directors.
Ronnie D. Blanton, the current President and Chief Executive Officer of
CB&T, will continue in such roles, pursuant to a three-year employment agreement
between Mr. Blanton and CB&T that will become effective at the Effective Time.
Mr. Jackson has resigned effective as of the Effective Time, pursuant to the
terms of a severance agreement, but he has entered into a consulting agreement
with CB&T which shall become effective as of the Effective Time. The Merger
Agreement provides that, after the Effective Time, Carolina First will provide
generally to officers and employees of CB&T, employee benefits under employee
benefit and welfare plans (other than stock options or other plans involving the
potential issuance of Carolina First Common Stock), on terms and conditions
that, when taken as a whole, are substantially similar to those currently
provided by Carolina First and its subsidiaries to their similarly situated
officers and employees. See "Description of the Merger -- Management and
Operations After the Merger; Interests of Certain Persons in the Merger."
In addition, for a period of 12 months after the Effective Time, Carolina
First shall provide generally to officers and employees of CB&T, severance
benefits with the following terms: (i) for Vice Presidents and above, an amount
equal to two weeks' compensation for each year of continuous employment with
CB&T (such amount not to be less than one month nor greater than 12 months of
compensation); (ii) for Assistant Vice Presidents, an amount equal to two weeks'
compensation for each year of continuous employment with CB&T (such amount not
to be less than one month nor greater than nine months of compensation); and
(iii) for all other employees, an amount equal to two weeks' compensation for
each year of continuous employment with CB&T (such amount not to be less than
one month nor greater than six months of compensation). All such payments will
be paid in cash and in full, not later than 30 days after termination. Carolina
First will offer such employees compensation for unused vacation days and career
continuation counseling and will give each such employee priority consideration
for future positions at Carolina First as they become available, consistent with
said employee's ability to perform such duties. For purposes of participation,
vesting and benefit accrual under such employee benefit and welfare plans (other
than benefit accrual in the case of Carolina First's retirement plans), service
with CB&T or its subsidiaries prior to the Effective Time will be treated as
service with Carolina First or its subsidiaries. As of July 31, 1998, the
directors and executive officers of CB&T did not own any shares of Carolina
First Common Stock. See "Description of the Merger -- Management and Operations
After the Merger; Interests of Certain Persons in the Merger."
Federal Income Tax Consequences of the Merger
Consummation of the Merger is conditioned on the receipt of an opinion of
Alston & Bird LLP, counsel to Carolina First, to the effect that, among other
things, the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and no gain or loss will be recognized by holders of CB&T Common Stock upon the
exchange in the Merger of CB&T Common Stock solely for Carolina First Common
Stock (except to the extent of any cash received in lieu of a fractional share
interest in Carolina First Common Stock). Subject to the provisions and
limitations of Section 302(a) of the Code, gain or loss will be recognized upon
the receipt of cash in lieu of fractional share interests and cash received by
dissenters. See "Description of the Merger -- Federal Income Tax Consequences of
the Merger."
7
<PAGE> 17
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCE OF EACH SHAREHOLDER AND OTHER FACTORS, EACH CB&T
SHAREHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE
PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER (INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS).
Accounting Treatment
It is intended that the Merger will be accounted for under the
pooling-of-interests method of accounting. See "Description of the
Merger -- Accounting Treatment."
Certain Differences in Shareholders' Rights
At the Effective Time, CB&T shareholders, whose rights are governed by
CB&T's Articles of Incorporation and Bylaws and by Chapter 53 of the General
Statutes of North Carolina, will automatically become Carolina First
shareholders, and their rights as Carolina First shareholders will be determined
by Carolina First's Articles of Incorporation and Bylaws and by the NCBCA. The
rights of Carolina First shareholders differ from the rights of CB&T
shareholders in certain important respects, including, but not limited to: (i)
certain provisions that may have an anti-takeover effect, (ii) Carolina First
has a class of Preferred Stock authorized, and (iii) procedures that Carolina
First has established for shareholder nominations and proposals. See "Certain
Differences in the Rights of Shareholders."
Comparative Market Prices Of Common Stock
Carolina First Common Stock is currently quoted in the "pink sheets" under
the symbol "CAFP." The high and low bid quotations for Carolina First Common
Stock are reported in The Charlotte Observer. Currently, Carolina First stock
trades infrequently. The following table sets forth the prices of the last
trades in Carolina First Common Stock as reported by either Interstate/Johnson
Lane Corporation or J.C. Bradford & Co., and the equivalent per share prices for
CB&T Common Stock on June 3, 1998, the last full business day preceding the
public announcement of the execution of the Merger Agreement, and on August 12,
1998, the latest practicable date prior to the mailing of this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
EQUIVALENT PRICE
CAROLINA FIRST CB&T PER CB&T
MARKET PRICE PER SHARE AT: COMMON STOCK COMMON STOCK(1) SHARE
-------------------------- -------------- --------------- ----------------
<S> <C> <C> <C>
June 3, 1998..................................... $34.00 $ -- $24.82
August 12, 1998.................................. $34.00 $ -- $24.82
</TABLE>
- ---------------
(1) The average price of the last ten known trades of CB&T Common Stock was
$9.10 per share and the last known trade, effected on March 18, 1998, was
for 1,920 shares at $8.50 per share.
There is no established public trading market for CB&T Common Stock, and no
reliable information available as to trades of such shares or the prices at
which such shares have traded. CB&T is not aware of any trades being effected
since the announcement of the Merger.
The information regarding Carolina First and CB&T Common Stock is provided
for informational purposes only, and due to the absence of an active market for
either company's shares, should not be viewed as indicative of the actual or
market value of Carolina First Common Stock or CB&T Common Stock. There can be
no assurance as to the market price of the Carolina First Common Stock if and
when the Merger is consummated or any time thereafter. See "Comparative Market
Prices and Dividends."
COMPARATIVE PER SHARE DATA
The following table sets forth certain comparative per share data relating
to income, cash dividends, and shareholders' equity ("book value") on (i) a
historical basis for Carolina First and CB&T; (ii) a pro forma
8
<PAGE> 18
combined basis per share of Carolina First Common Stock, giving effect to the
Merger; and (iii) an equivalent pro forma basis per share of CB&T Common Stock,
giving effect to the Merger. The CB&T and Carolina First pro forma combined
information and the CB&T pro forma Merger equivalent information give effect to
the Merger on a pooling-of-interests accounting basis and reflects an assumed
exchange ratio of 0.74. The pro forma data is presented for information purposes
only and is not necessarily indicative of the results of operations or combined
financial position that would have resulted had the Merger been consummated at
the dates or during the periods indicated, nor is it necessarily indicative of
future results of operations or combined financial position. See "Special
Cautionary Notice Regarding Forward-Looking Statements" and "Description of the
Merger -- Accounting Treatment."
The information shown below should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of Carolina
First and CB&T, including the respective notes thereto, set forth herein and
incorporated by reference herein, and the pro forma financial information set
forth herein. See "Documents Incorporated by Reference," "Index to CB&T
Financial Statements" "-- Selected Financial Data," "-- Selected Condensed
Consolidated Pro Forma Financial Data," and "Pro Forma Financial Information."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
--------------- -------------------------------------
1998 1997 1997 1996 1995 1994 1993
------ ------ ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE:
NET INCOME:
Carolina First
Historical Basic(1)...................... $0.40 $0.35 $1.49 $1.14 $1.09 $0.94 $0.75
Pro Forma Combined(2).................... 0.34 0.30 1.32 1.03 0.92 0.85 0.69
Historical Diluted(1).................... 0.39 0.35 1.47 1.14 1.09 0.94 0.75
Pro Forma Combined(2).................... 0.34 0.29 1.30 1.02 0.92 0.85 0.69
CB&T
Historical Basic(1)...................... 0.08 0.06 0.42 0.41 0.20 0.39 0.38
Pro Forma Equivalent(3).................. 0.25 0.22 0.97 0.76 0.68 0.63 0.51
Historical Diluted(1).................... 0.08 0.06 0.42 0.41 0.20 0.39 0.38
Pro Forma Equivalent(3).................. 0.25 0.22 0.96 0.76 0.68 0.63 0.51
CASH DIVIDENDS DECLARED:
Carolina First Historical................ 0.08 0.06 0.28 0.21 0.18 0.17 0.16
CB&T Historical.......................... -- 0.12 0.12 0.08 -- -- --
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT DECEMBER 31, 1997
----------------- --------------------
<S> <C> <C>
SHAREHOLDERS' EQUITY (BOOK VALUE):
Carolina First --
Historical(4)......................................... $10.93 $10.63
Pro Forma Combined(2)................................. 10.78 10.52
CB&T --
Historical(4)......................................... 7.52 7.43
Pro Forma Equivalent(3)............................... 7.98 7.79
</TABLE>
- ---------------
(1) Based on the weighted average common shares and dilutive common stock
equivalents outstanding during the indicated periods.
(2) The pro forma combined net income and shareholders' equity (book value) per
common share data present the historical combined net income and book value
per common share data of Carolina First and CB&T assuming the reorganization
is accounted for as a pooling-of-interests.
(3) CB&T pro forma equivalent amounts represent pro forma combined information
multiplied by assumed exchange ratio of 0.74 shares of Carolina First Common
Stock for each share of CB&T Common Stock.
(4) Based on common shares outstanding at the indicated dates.
9
<PAGE> 19
SELECTED FINANCIAL DATA
The following tables present certain selected unaudited historical
financial information for Carolina First and CB&T and are derived from the
respective consolidated financial statements of Carolina First and CB&T,
including the respective notes thereto, which are incorporated by reference in
this Proxy Statement/ Prospectus and included herein, respectively. The data for
the three months ended March 31, 1998 and 1997 has been derived from Carolina
First and CB&T's unaudited financial statements, but is not necessarily
indicative of the results that may be expected for any future periods. This data
should be read in conjunction with the historical financial statements,
including the respective notes thereto, and other financial information and the
respective management discussions and analyses of financial condition and
results of operations concerning Carolina First and CB&T incorporated by
reference or included herein. See "Available Information," "Documents
Incorporated by Reference, "Special Cautionary Notice Regarding Forward-Looking
Statements," "CB&T Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Index to CB&T Financial Statements."
CAROLINA FIRST AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income......... $ 10,463,289 $ 8,709,283 $ 38,457,026 $ 32,677,346 $ 28,177,224
Total interest expense........ 4,521,373 3,859,006 16,951,537 14,439,646 12,717,046
------------ ------------ ------------ ------------ ------------
Net interest income........... 5,941,916 4,850,277 21,505,489 18,237,700 15,460,178
Provision for loan losses..... 209,000 285,600 997,333 1,178,925 710,200
------------ ------------ ------------ ------------ ------------
Net interest income after
provision for loan losses... 5,732,916 4,564,677 20,508,156 17,058,775 14,749,978
Total noninterest income
excluding security gains
(losses).................... 1,511,435 1,207,639 5,497,834 4,457,681 4,172,318
Security gains (losses)....... -- 524 82,508 (10,482) 2,048
Total noninterest expense..... 4,634,365 3,579,151 16,763,518 14,139,748 12,640,560
Income tax expense............ 875,150 756,276 3,165,141 2,687,927 2,154,051
------------ ------------ ------------ ------------ ------------
Net income.............. $ 1,734,836 $ 1,437,413 $ 6,159,839 $ 4,678,299 $ 4,129,733
============ ============ ============ ============ ============
PER SHARE DATA:
Net income -- basic........... $ 0.40 $ 0.35 $ 1.49 $ 1.14 $ 1.09
Net income -- diluted......... $ 0.39 $ 0.35 $ 1.47 $ 1.14 $ 1.09
Cash dividends................ $ 0.08 $ 0.06 $ 0.28 $ 0.21 $ 0.18
Shareholders' Equity (book
value)...................... $ 10.93 $ 8.78 $ 10.63 $ 8.53 $ 7.63
OTHER INFORMATION:
Average number of shares
outstanding -- basic........ 4,366,018 4,105,670 4,134,842 4,096,335 3,793,108
Average number of shares
outstanding -- diluted...... 4,491,239 4,142,203 4,193,206 4,109,768 3,793,108
BALANCE SHEET DATA:
(PERIOD END)
Total Assets.................. $547,066,664 $443,570,565 $523,217,327 $429,711,291 $369,833,439
Securities.................... $142,645,322 $ 85,586,429 $136,923,189 $ 87,616,685 $ 84,024,410
Net Loans..................... $347,125,232 $309,140,175 $342,880,653 $304,623,050 $253,589,374
Total Deposits................ $486,123,893 $398,886,154 $462,597,787 $385,003,286 $335,602,746
Shareholders' Equity.......... $ 47,944,024 $ 36,083,582 $ 46,324,436 $ 35,001,856 $ 31,122,979
PERFORMANCE RATIOS:
Return on average assets(1)... 1.34% 1.35% 1.30% 1.17% 1.21%
Return on average
shareholders' equity(1)..... 16.27% 16.12% 15.97% 14.43% 15.41%
Net interest margin(1)........ 4.91% 4.91% 4.96% 5.01% 5.02%
Dividend payout............... 20.13% 17.15% 19.02% 18.93% 14.96%
ASSET QUALITY RATIOS:
Net charge-offs to average
loans, net of unearned
income(1)................... 0.08% 0.06% 0.14% 0.10% 0.12%
Non performing assets to net
loans and other real
estate...................... 0.40% 0.33% 0.38% 0.25% 0.59%
Allowance for loan losses to
loans outstanding at period
end......................... 1.47% 1.51% 1.45% 1.45% 1.40%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Total interest income......... $ 23,453,571 $ 21,772,713
Total interest expense........ 9,774,369 9,641,056
------------ ------------
Net interest income........... 13,679,202 12,131,657
Provision for loan losses..... 667,303 821,385
------------ ------------
Net interest income after
provision for loan losses... 13,011,899 11,310,272
Total noninterest income
excluding security gains
(losses).................... 3,810,718 3,348,727
Security gains (losses)....... (33,180) 18,288
Total noninterest expense..... 11,871,612 11,040,723
Income tax expense............ 1,547,951 1,017,392
------------ ------------
Net income.............. $ 3,369,874 $ 2,619,172
============ ============
PER SHARE DATA:
Net income -- basic........... $ 0.94 $ 0.75
Net income -- diluted......... $ 0.94 $ 0.75
Cash dividends................ $ 0.17 $ 0.16
Shareholders' Equity (book
value)...................... $ 6.49 $ 5.88
OTHER INFORMATION:
Average number of shares
outstanding -- basic........ 3,590,150 3,504,628
Average number of shares
outstanding -- diluted...... 3,590,150 3,504,628
BALANCE SHEET DATA:
(PERIOD END)
Total Assets.................. $318,605,010 $301,258,643
Securities.................... $ 69,743,982 $ 74,845,035
Net Loans..................... $220,840,891 $195,353,829
Total Deposits................ $292,621,276 $277,898,501
Shareholders' Equity.......... $ 23,888,838 $ 21,615,045
PERFORMANCE RATIOS:
Return on average assets(1)... 1.09% 0.92%
Return on average
shareholders' equity(1)..... 14.81% 12.88%
Net interest margin(1)........ 4.94% 4.75%
Dividend payout............... 16.46% 18.48%
ASSET QUALITY RATIOS:
Net charge-offs to average
loans, net of unearned
income(1)................... 0.04% 0.26%
Non performing assets to net
loans and other real
estate...................... 0.72% 1.10%
Allowance for loan losses to
loans outstanding at period
end......................... 1.41% 1.30%
</TABLE>
10
<PAGE> 20
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses to
non performing assets....... 368.84% 459.65% 384.66% 590.65% 240.03%
LIQUIDITY AND CAPITAL RATIOS:
Average shareholder equity to
average assets.............. 8.21% 8.36% 8.12% 8.10% 7.83%
Average loans to average
deposits.................... 73.25% 78.89% 74.90% 78.76% 75.08%
Tier I capital to
risk-weighted assets at
period end.................. 12.51% 12.99% 12.43% 11.64% 12.58%
Total capital to risk-weighted
assets at period end........ 13.76% 14.24% 13.69% 12.90% 13.92%
Leverage capital to assets at
period end.................. 8.50% 9.16% 9.08% 8.67% 9.28%
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
Allowance for loan losses to
non performing assets....... 196.53% 119.22%
LIQUIDITY AND CAPITAL RATIOS:
Average shareholder equity to
average assets.............. 7.37% 7.13%
Average loans to average
deposits.................... 72.82% 69.83%
Tier I capital to
risk-weighted assets at
period end.................. 11.27% 11.15%
Total capital to risk-weighted
assets at period end........ 12.46% 12.40%
Leverage capital to assets at
period end.................. 7.77% 7.38%
</TABLE>
- ---------------
(1) Ratios for the three months ended March 31, 1998 and 1997 are based on
annualized amounts, where applicable.
11
<PAGE> 21
CB&T
SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income............... $ 1,730,963 $ 1,630,890 $ 6,779,967 $ 6,450,937 $ 4,642,863 $ 3,528,626 $ 3,465,231
Total interest expense.............. 702,880 626,331 2,621,209 2,570,133 1,805,302 1,218,199 1,190,621
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net interest income................. 1,028,083 1,004,559 4,158,758 3,880,804 2,837,561 2,310,427 2,274,610
Provision for loan losses........... -- -- -- -- -- -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses.................... 1,028,083 1,004,559 4,158,758 3,880,804 2,837,561 2,310,427 2,274,610
Total noninterest income excluding
security gains (losses)............ 294,564 318,172 1,182,444 1,185,748 907,542 707,053 713,787
Security gains (losses)............. -- -- -- -- -- -- --
Total noninterest expense........... 1,171,079 1,212,387 4,455,256 4,243,477 3,345,273 2,474,206 2,451,055
Income tax expense.................. 51,000 36,000 325,000 280,600 136,000 -- --
------------ ----------- ----------- ----------- ----------- ----------- -----------
Net income.......................... $ 100,568 $ 74,344 $ 560,946 $ 542,475 $ 263,830 $ 543,274 $ 537,342
============ =========== =========== =========== =========== =========== ===========
PER SHARE DATA:
Net income -- basic................. $ 0.08 $ 0.06 $ 0.42 $ 0.41 $ 0.20 $ 0.39 $ 0.38
Net income -- diluted............... $ 0.08 $ 0.06 $ 0.42 $ 0.41 $ 0.20 $ 0.39 $ 0.38
Cash dividends(2)................... -- $ 0.12 $ 0.12 $ 0.08 -- -- --
Shareholders' Equity (book value)... $ 7.52 $ 7.02 $ 7.43 $ 7.11 $ 6.85 $ 6.12 $ 6.26
OTHER INFORMATION:
Average number of shares
outstanding -- basic............... 1,331,223 1,331,223 1,331,223 1,331,223 1,331,223 1,375,531 1,402,126
Average number of shares
outstanding -- diluted............. 1,348,534 1,331,456 1,336,823 1,331,456 1,331,223 1,375,531 1,402,126
BALANCE SHEET DATA:
(PERIOD END)
Total Assets........................ $100,582,350 $90,100,651 $94,859,419 $90,516,442 $89,324,274 $49,881,671 $50,385,486
Securities.......................... $ 22,352,422 $ 8,291,542 $22,464,389 $22,633,484 $29,239,831 $21,622,352 $17,654,457
Net Loans........................... $ 54,864,994 $52,103,023 $55,307,199 $51,951,995 $41,227,579 $20,388,931 $23,348,556
Total Deposits...................... $ 88,514,901 $79,333,226 $82,452,613 $78,968,633 $78,008,938 $40,878,847 $40,691,454
Shareholders' Equity................ $ 10,005,683 $ 9,339,390 $ 9,886,364 $ 9,462,211 $ 9,114,620 $ 8,392,163 $ 8,785,937
PERFORMANCE RATIOS:
Return on average assets(1)......... 0.41% 0.33% 0.61% 0.61% 0.41% 1.07% 1.13%
Return on average shareholders
equity(1).......................... 4.08% 3.17% 5.91% 5.93% 3.03% 6.37% 6.33%
Net interest margin(1).............. 4.94% 5.13% 5.24% 5.04% 5.06% 5.18% 5.47%
Dividend payout(2).................. -- 214.87% 28.48% 19.63% -- -- --
ASSET QUALITY RATIOS:
Net charge-offs (recoveries) to
average loans, net of unearned
income(1).......................... (0.02)% (0.01)% 0.05% (0.01)% (0.25)% (0.05)% 0.32%
Non performing assets to net loans
and other real estate.............. 0.41% 0.22% 0.13% 0.22% 0.06% 0.61% 0.63%
Allowance for loan losses to loans
outstanding at period end.......... 1.45% 1.57% 1.42% 1.56% 1.95% 2.41% 2.06%
Allowance for loan losses to non
performing assets.................. 356.33% 709.96% 1,067.24% 705.88% 3,353.34% 398.38% 328.03%
LIQUIDITY AND CAPITAL RATIOS:
Average shareholders' equity to
average assets..................... 10.11% 10.35% 10.25% 10.20% 13.43% 16.76% 17.88%
Average loans to average deposits... 65.32% 66.69% 66.11% 58.29% 49.09% 53.48% 63.22%
Tier I capital to risk-weighted
assets at period end............... 13.84% 12.08% 13.46% 12.14% 12.45% 36.71% 30.83%
Total capital to risk-weighted
assets at period end............... 15.10% 13.34% 14.81% 13.39% 13.71% 37.97% 32.09%
Leverage capital to assets at period
end................................ 7.56% 7.40% 7.78% 7.22% 9.00% 17.86% 18.51%
</TABLE>
- ---------------
(1) Ratios for the three months ended March 31, 1998 and 1997 are based on
annualized amounts, where applicable.
(2) Annual dividends were declared in April 1998 and February 1997.
12
<PAGE> 22
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data give effect to
the Merger as of the dates and for the periods indicated and pursuant to the
accounting basis described below. The selected unaudited pro forma financial
data are presented for informational purposes only and are not necessarily
indicative of the combined financial position or results of operations which
actually would have occurred if the transactions had been consummated at the
date and for the periods indicated or which may be obtained in the future. The
information should be read in conjunction with the unaudited pro forma financial
information appearing elsewhere in this Proxy Statement/Prospectus. See
"-- Comparative Per Share Data" and "Pro Forma Financial Information."
SELECTED PRO FORMA COMBINED DATA FOR CAROLINA FIRST AND CB&T
The following unaudited pro forma combined data give effect to the
acquisition of CB&T as of the date or at the beginning of the periods indicated,
assuming such acquisition is treated as a pooling-of-interests transaction.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
--------------------
<S> <C>
BALANCE SHEET DATA:
Total assets.............................................. $674,462,000
Securities................................................ 164,998,000
Loans, net of unearned income............................. 407,975,000
Total deposits............................................ 574,639,000
Other borrowed money...................................... 1,397,000
Shareholders' equity...................................... 57,773,000
Shareholders' equity (book value) per common share........ $ 10.78
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------------------- ---------------------------------------
1998 1997 1997 1996 1995
------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total interest income......... $12,194,000 $10,340,000 $45,237,000 $39,128,000 $32,820,000
Total interest expense........ 5,224,000 4,485,000 19,573,000 17,009,000 14,522,000
----------- ----------- ----------- ----------- -----------
Net interest income........... 6,970,000 5,855,000 25,664,000 22,119,000 18,298,000
Provision for loan losses..... 209,000 286,000 997,000 1,179,000 710,000
----------- ----------- ----------- ----------- -----------
Net interest income after loan
loss provision.............. 6,761,000 5,569,000 24,667,000 20,940,000 17,588,000
Total noninterest income...... 1,805,000 1,527,000 6,763,000 5,633,000 5,082,000
Total noninterest expense..... 5,805,000 4,792,000 21,219,000 18,383,000 15,986,000
Income tax expense............ 926,000 792,000 3,490,000 2,969,000 2,290,000
----------- ----------- ----------- ----------- -----------
Net income.................... $ 1,835,000 $ 1,512,000 $ 6,721,000 $ 5,221,000 $ 4,394,000
=========== =========== =========== =========== ===========
Earnings per common share --
basic....................... $ 0.34 $ 0.30 $ 1.32 $ 1.03 $ 0.92
----------- ----------- ----------- ----------- -----------
Earnings per common share --
diluted..................... $ 0.34 $ 0.29 $ 1.30 $ 1.02 $ 0.92
----------- ----------- ----------- ----------- -----------
Weighted average common
shares
outstanding -- basic..... 5,337,256 5,090,775 5,108,522 5,081,440 4,778,213
----------- ----------- ----------- ----------- -----------
Weighted average common
shares
outstanding -- diluted... 5,475,287 5,127,480 5,171,030 5,095,045 4,778,213
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE> 23
SPECIAL MEETING OF CB&T SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
This Proxy Statement/Prospectus is being furnished to the holders of CB&T
Common Stock in connection with the solicitation of proxies by the CB&T Board
for use at the Special Meeting at which CB&T shareholders will be asked to vote
upon a proposal to approve the Merger Agreement and the transactions
contemplated therein. The Special Meeting will be held at CB&T's offices at 2
South Main Street, Marion, North Carolina, on September 15, 1998, at 10:00 A.M.
local time. See "Description of the Merger."
RECORD DATE, VOTING RIGHTS, REQUIRED VOTES, AND REVOCABILITY OF PROXIES
The close of business on August 5, 1998 has been fixed as the CB&T Record
Date for determining holders of outstanding shares of CB&T Common Stock entitled
to notice of, and to vote at, the Special Meeting. Only CB&T shareholders of
record on the books of CB&T at the close of business on the CB&T Record Date are
entitled to notice of and to vote at the Special Meeting. As of the CB&T Record
Date, there were 1,345,080 shares of CB&T Common Stock issued and outstanding
and held by 1,584 holders of record.
Each holder of record of shares of CB&T Common Stock is entitled to one
vote on each matter considered and voted upon at the Special Meeting for each
share held as of the CB&T Record Date. A quorum, which is a majority of the
shares of CB&T Common Stock issued and outstanding and entitled to vote, must be
present in person or represented by proxy at the Special Meeting. In determining
whether a quorum exists at the Special Meeting for purposes of all matters to be
voted on, all votes "for" or "against," as well as all abstentions, with respect
to the proposal will be counted. The vote required for the approval of the
Merger Agreement is two-thirds (66 2/3%) of the shares of CB&T Common Stock
entitled to be cast at the Special Meeting by holders of the issued and
outstanding shares of CB&T Common Stock, or 896,721 shares of CB&T Common Stock.
Consequently, with respect to the proposal to approve the Merger Agreement,
abstentions, broker non-votes and other shares not voted, will be counted as
part of the base number of votes to be used in determining if the proposal has
received the requisite number of base votes for approval. Thus, an abstention, a
broker non-vote and other failures to vote, will have the same effect as a vote
"against" such proposal.
The Rescission also requires the affirmative vote of two-thirds (66 2/3%)
of the shares of CB&T Common Stock entitled to be cast at the Special Meeting.
An abstention, broker non-vote and other failures to vote, will have the same
effect as a vote "against" the Rescission which could adversely affect the
Merger.
Shares of CB&T Common Stock represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted in accordance
with the instructions indicated on the proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND
THE RESCISSION, AND OTHERWISE IN THE DISCRETION OF THE PROXY HOLDER, AS TO ANY
OTHER MATTER WHICH MAY COME PROPERLY BEFORE THE SPECIAL MEETING, AND THE HOLDERS
WHO RETURNED SUCH PROXIES WITHOUT VOTING INSTRUCTIONS WILL NOT BE ENTITLED TO
ASSERT DISSENTERS' RIGHTS. IF NECESSARY, THE PROXY HOLDER MAY VOTE IN FAVOR OF A
PROPOSAL TO ADJOURN OR POSTPONE THE SPECIAL MEETING IN ORDER TO PERMIT FURTHER
SOLICITATION OF PROXIES IN THE EVENT THERE ARE NOT SUFFICIENT VOTES TO APPROVE
THE FOREGOING PROPOSAL AT THE TIME OF THE SPECIAL MEETING. SEE "DESCRIPTION OF
THE MERGER -- DISSENTERS' RIGHTS."
Failure to return the proxy card or to vote in person at the Special
Meeting will have the effect of a vote cast against approval of the Merger
Agreement and the Rescission.
A CB&T shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Special Meeting by (i) giving written notice of revocation
to the Secretary of CB&T, (ii) properly submitting to CB&T a duly executed proxy
bearing a later date, or (iii) attending the Special Meeting and voting in
person. All written notices of revocation and other communications with respect
to revocation of proxies should be addressed as follows: Community Bank & Trust
Company, 2 South Main Street, Marion, North Carolina 28752; Attention: Eric L.
Ross.
14
<PAGE> 24
The directors of CB&T beneficially owned, as of the CB&T Record Date,
approximately 137,330 shares, or 9.97% of the issued and outstanding shares, of
CB&T Common Stock. Each member of the CB&T Board has agreed to vote those CB&T
shares beneficially owned by such member and over which such member has sole
voting authority in favor of the Merger Agreement and the Rescission. In
addition, executive officers of CB&T who are not CB&T directors beneficially own
approximately 11,774 shares, or 0.85% of CB&T Common Stock and have agreed to
vote such shares in favor of the Merger Agreement and the Rescission. As of the
CB&T Record Date, Carolina First and its directors and executive officers held
approximately 41,048 shares, or 2.98% of the issued and outstanding shares of
CB&T Common Stock, and intend to vote all such shares in favor of the Merger
Agreement and the Rescission.
15
<PAGE> 25
DESCRIPTION OF THE MERGER
The following information describes certain aspects of the Merger. This
description does not purport to be complete and is qualified in its entirety by
reference to the Appendices hereto, including the Merger Agreement, which is
attached as Appendix I to this Proxy Statement/Prospectus and incorporated
herein by reference. All shareholders are urged to read the Appendices in their
entirety.
GENERAL
The Merger Agreement provides for the acquisition of CB&T by Carolina First
pursuant to the Merger of Interim Bank, a North Carolina bank being formed as a
wholly owned subsidiary of Carolina First, with and into CB&T. At the Effective
Time, each share of CB&T Common Stock then issued and outstanding (excluding
shares held by CB&T, Carolina First, or their respective subsidiaries, in each
case other than shares held in a fiduciary capacity or in satisfaction of debts
previously contracted, and excluding shares held by CB&T shareholders, if any,
who perfect their dissenters' rights) will be converted into shares of Carolina
First Common Stock. The Preliminary Exchange Ratio will be determined by
dividing 1,021,202 shares of Carolina First Common Stock by the sum of (i) all
issued and outstanding shares of CB&T Common Stock immediately prior to the
Effective Time plus (ii) the aggregate number of Option Shares as of the
Effective Time (in no event to exceed 61,429 shares of CB&T Common Stock). The
Preliminary Exchange Ratio will be used to determine the number of shares of
Carolina First Common Stock reserved for issuance upon exercise of the former
CB&T Options. The Final Exchange Ratio will be determined by dividing the
difference between 1,021,202 less the number of shares of Carolina First Common
Stock to be reserved in respect of the Option Shares, by the total number of
shares of CB&T Common Stock issued and outstanding at the Effective Time.
Assuming that the number of shares of CB&T Common Stock issued and outstanding
and subject to CB&T Options as of the CB&T Record Date are used in the
Preliminary and Final Exchange Ratio determinations, then each share of CB&T
Common Stock outstanding at the Effective Time of the Merger will be exchanged
for approximately 0.73 shares of Carolina First Common Stock. In addition,
Carolina First will assume all outstanding CB&T Options.
No fractional shares of Carolina First Common Stock will be issued. Rather,
cash (without interest) will be paid in lieu of any fractional share interest to
which any CB&T shareholder would be entitled upon consummation of the Merger, in
an amount equal to such fractional part of a share of Carolina First Common
Stock multiplied by the market value of one share of Carolina First Common Stock
at the Effective Time, which shall be the last trading price of the Carolina
First Common Stock prior to the Effective Time, as reported by
Interstate/Johnson Lane Corporation or J.C. Bradford & Co., as the case may be.
The Merger Agreement also contemplates that at the Effective Time, each
CB&T Option which is outstanding at the Effective Time, whether or not
exercisable, will be converted into and become rights with respect to Carolina
First Common Stock on a basis adjusted to reflect the Final Exchange Ratio.
As of the CB&T Record Date, CB&T had 1,345,080 shares of CB&T Common Stock
issued and outstanding, and 59,286 additional shares of CB&T Common Stock
subject to CB&T Options. Carolina First will issue or reserve for issuance an
aggregate of up to 1,021,202 shares of Carolina First Common Stock in the
Merger. Based on the number of CB&T shares of Common Stock and CB&T Options
outstanding on the CB&T Record Date, it is anticipated that upon consummation of
the Merger, Carolina First would issue approximately 978,092 shares of Carolina
First Common Stock to holders of CB&T Common Stock, and reserve approximately
43,110 shares of Carolina First Common Stock for future issuance to holders of
CB&T Options. Accordingly, on a pro forma basis, Carolina First would have
issued and outstanding approximately 5,429,521 shares of Carolina First Common
Stock following consummation of the Merger.
EFFECT OF THE MERGER ON CB&T OPTIONS
The Merger Agreement contemplates that at the Effective Time, each CB&T
Option which is outstanding at the Effective Time, whether or not exercisable,
will be converted into and become rights with
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respect to Carolina First Common Stock, and Carolina First will assume each CB&T
Option, in accordance with the terms of the CB&T Option Plan and stock option
agreement by which it is evidenced, except that from and after the Effective
Time, (i) Carolina First and its Compensation Committee will be substituted for
CB&T and the Committee of CB&T's Board of Directors (including, if applicable,
the entire Board of Directors of CB&T) administering such CB&T Option Plan, (ii)
each CB&T Option assumed by Carolina First may be exercised solely for shares of
Carolina First Common Stock, (iii) the number of shares of Carolina First Common
Stock subject to such CB&T Option will be equal to the number of shares of CB&T
Common Stock subject to such CB&T Option immediately prior to the Effective Time
multiplied by the Final Exchange Ratio, and (iv) the per share exercise price
under each such CB&T Option will be adjusted by dividing the per share exercise
price under each such CB&T Option by the Final Exchange Ratio and rounding up to
the nearest cent. Carolina First will not be obligated to issue any fraction of
a share of Carolina First Common Stock upon exercise of CB&T Options and any
fraction of a share of Carolina First Common Stock that otherwise would be
subject to a converted CB&T Option will represent the right to receive a cash
payment upon exercise of such converted CB&T Option equal to the product of such
fraction and the difference between the market value of one share of Carolina
First Common Stock at the time of exercise of such CB&T Option and the per share
exercise price of such CB&T Option. The market value of one share of Carolina
First Common Stock will be the last trading price of the Carolina First Common
Stock, as reported by Interstate/Johnson Lane Corporation or J.C. Bradford &
Co., as the case may be. In addition, notwithstanding the provisions of clauses
(iii) and (iv) above, each CB&T Option which is an "incentive stock option" will
be adjusted as required by Section 424 of the Internal Revenue Code of 1986, as
amended (the "Code"), and the regulations promulgated thereunder, so as not to
constitute a modification, extension, or renewal of the CB&T Option, within the
meaning of Section 424(h) of the Code.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger
Since CB&T was founded it has consistently pursued a long-term strategy of
operating as an independent community bank, and creating shareholder value
through a long-term process of steady growth. It remains a relatively small
competitor in each of the counties where it has branch offices.
Expression of Interest by Carolina First
CB&T was first contacted by Carolina First in late October 1997 regarding
Carolina First's possible interest in acquiring CB&T. At that time, CB&T was not
seeking to be acquired and was instead pursuing a strategy of building
shareholder value as an independent entity. After learning of Carolina First's
possible interest, the CB&T Board decided that, while its preference was to
remain independent, it should assess carefully the possibility of being acquired
in order to determine what would best serve the interests of CB&T and its
shareholders.
CB&T sought advice about its alternatives. First, the CB&T Board met with
CB&T's special legal counsel. After meeting with counsel, the CB&T Board decided
to retain an independent business and financial advisor. In January 1998, CB&T
considered several possible advisors, then interviewed and later engaged Smith
Capital. In mid-January 1998, Carolina First renewed its expressions of interest
in acquiring CB&T. Smith Capital was retained on January 7, 1998 to prepare a
comprehensive assessment of CB&T and existing and possible strategies for
creating shareholder value, including both assessments of the possibility that
CB&T would remain independent and also the possibility that it may be acquired
by another company, either in the immediate future or at a later date.
Over a period of weeks, Smith Capital then conducted interviews with CB&T
management and reviewed data with respect to CB&T's business, operations and
financial condition.
Decision to Explore Market for Acquisitions
On March 7, 1998, the CB&T Board met with Smith Capital and received its
report. Smith Capital advised the CB&T Board regarding ranges of shareholder
values based on the possible alternative strategies
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that CB&T might pursue, both as an independent company and by combining with
other companies. Smith Capital concluded that CB&T may be able to create
somewhat higher values by remaining independent, but in order to create those
values CB&T would have to adopt more aggressive and riskier business strategies
than it has pursued in the past, without assurance of success. Smith Capital
also forecast a range of values that CB&T might reasonably expect to receive if
it solicited offers from companies interested in acquiring CB&T.
At the same meeting, the CB&T Board was informed that Carolina First was
willing to propose an acquisition based on exchanging shares of Carolina First
Common Stock for CB&T Common Stock, subject to a due diligence examination of
CB&T's books and records, among other things. Smith Capital advised the CB&T
Board that the value of the Carolina First proposal to CB&T shareholders
depended on an assessment of the current value of Carolina First Common Stock.
Because Carolina First's Common Stock is not traded often or in large amounts,
Smith Capital advised that the currently reported trading price of the Carolina
First Common Stock was not necessarily a reliable indicator of its value in an
exchange.
In light of its report and the Carolina First proposal, Smith Capital
advised the CB&T Board that it should have Smith Capital evaluate Carolina
First's proposal and the current value of Carolina First's Common Stock and at
the same time solicit offers from a selected group of other banks. This would
give the CB&T Board both a basis for deciding whether to continue to follow a
strategy of long-term independence and also provide a market test of the merits
of Carolina First's offer. The CB&T Board decided to accept the advisor's
recommendation.
Solicitation of Proposals
In response to the CB&T Board's directions, Smith Capital then undertook a
detailed evaluation of the Carolina First proposal and the value of Carolina
First Common Stock and also began a process of submitting information to, and
soliciting offers from, companies that Smith Capital concluded were most likely
to be interested in and able to acquire CB&T on terms favorable to CB&T's
shareholders. Five banking companies in addition to Carolina First were
contacted and asked to submit proposals.
The CB&T Board met on April 3, 1998, in order to consider the results. At
that meeting, the CB&T Board learned that three of the companies that had been
contacted had declined to make a proposal, but three additional companies had
expressed interest in acquiring CB&T. The CB&T Board was informed that Carolina
First had submitted a written proposal in the form of a letter and term sheet.
Among other terms, Carolina First proposed to acquire all outstanding shares of
CB&T Common Stock and Options in exchange for 1,030,500 shares of Carolina First
Common Stock, conditioned on CB&T negotiating exclusively with Carolina First,
and subject to due diligence examination of CB&T's books and records and further
negotiations. Before responding to Carolina First's proposal, CB&T conducted
brief discussions with each of the three new companies that had expressed
interest in acquiring CB&T. Based on discussions with the five companies
originally contacted and the three companies contacted later, the CB&T Board
determined that Carolina First's offer was higher than any other offer that CB&T
had received and the CB&T Board concluded that there was little likelihood that
the other companies would increase their offers to match the Carolina First
offer.
Decision to Negotiate Exclusively with Carolina First
At successive meetings in April 1998, Smith Capital presented a detailed
financial analysis of the Carolina First proposal. Smith Capital advised CB&T
that, after considering the advantages and disadvantages of the Carolina First
proposal, based on information known at the time, values to CB&T's shareholders
resulting from CB&T being acquired by Carolina First appeared to be fair to
shareholders, appeared to be at the high end of the range of values received
when compared to comparable transactions, and exceeded values that CB&T might
reasonably expect to create by continuing to operate as an independent company.
After receiving advice from Smith Capital and from CB&T's special legal counsel,
the CB&T Board directed management and the advisors to cease discussions with
other companies and to negotiate exclusively with Carolina First.
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In discussions with Carolina First, it became apparent that Carolina First
was concerned about the size of the change in control payments under the terms
of CB&T's contracts with its two senior officers, President Ronnie Blanton and
Chief Financial Officer Alan Jackson, that would be triggered by the Merger. The
parties negotiated a compromise whereby the change in control payments and the
exchange ratio would be reduced. Following further negotiations a final,
non-binding letter of intent was agreed which provided for Carolina First to
acquire all outstanding CB&T Common Stock and to assume all CB&T Options in
exchange for 1,021,202 shares of Carolina First Common Stock (including shares
to be issued upon exercise of assumed CB&T Options), and the employment
arrangements were renegotiated as part of a new Employment Agreement with Mr.
Blanton and Severance and Consulting Agreements with Mr. Jackson that at the
Effective Time will supersede their former contracts. The parties executed and
delivered the letter of intent on April 15, 1998 and a public announcement was
promptly made. See " -- Management and Operations After the Merger; Interests of
Certain Persons in the Merger."
Due Diligence and Definitive Agreement
Following execution of the letter of intent, the parties negotiated the
definitive Merger Agreement and each party conducted due diligence
investigations of the other. CB&T directed its management, business advisor and
legal advisors to go to Carolina First's office, examine its books and records,
interview its management and report the results to CB&T's Board. At a meeting of
CB&T's Board held on May 28, 1998, the CB&T Board received reports on the
results of the due diligence examinations, received a final report and fairness
opinion from Smith Capital, and reviewed a proposed definitive Merger Agreement.
The CB&T Board concluded that the findings of these investigations were
satisfactory; Smith Capital's report and fairness opinion concluded that the
Carolina First proposal was fair to shareholders from a financial point of view,
and the Board determined that the definitive Merger Agreement fairly reflected
the parties' agreement and was in the best interests of CB&T and its
shareholders. The Merger Agreement was executed on June 4, 1998.
CB&T's Reasons for the Merger and Recommendation of Directors
The CB&T Board, with the assistance of outside financial and legal
advisors, evaluated the financial, legal and market considerations bearing on
the decision to recommend the Merger. The terms of the Merger, including the
purchase price, are a result of arm's-length negotiations between
representatives of CB&T and Carolina First. In reaching its conclusion that the
Merger Agreement is in the best interest of CB&T and its shareholders, the CB&T
Board carefully considered, without assigning any relative or specific values,
the following material factors:
(i) the financial terms of the proposed Merger, including the absence
of recognition of any gain or loss for federal income tax purposes upon
receipt of Carolina First Common Stock in the Merger;
(ii) a comparison of the terms of the proposed Merger with comparable
transactions in North Carolina;
(iii) information concerning the business, financial condition,
results of operations and prospects of CB&T and Carolina First;
(iv) competitive factors and trends toward consolidation in the
banking industry;
(v) the review by the CB&T Board with its legal and financial advisors
of the provisions of the Merger Agreement;
(vi) the opinion rendered by Smith Capital to the CB&T Board that the
consideration to be received in the Merger is fair from a financial point
of view to the holders of the CB&T Common Stock;
(vii) alternatives to the Merger, including proceeding on a
stand-alone basis, in light of the economic conditions and prospects of
North Carolina banking markets and the competitive environment and the
economy generally, and the banking sector specifically; and
(viii) the value received by holders of CB&T Common Stock pursuant to
the Merger in relation to the historical trading prices and book value and
earnings per share of CB&T Common Stock.
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The CB&T Board believes that, by becoming a part of a larger organization
with greater resources, CB&T will be able in the future to serve its customers
and communities better and to provide services that will be competitive in the
market place. Similarly, a larger organization will provide greater career
opportunities for CB&T's employees.
The CB&T Board also considered the separate agreements and benefits
proposed for employees, management and members of the CB&T Board. The Board
concluded that those terms are fair and reasonable. See " -- Management and
Operations After the Merger; Interests of Certain Persons in the Merger."
While each member of the CB&T Board individually considered the foregoing
and other factors, the Board did not collectively assign any specific or
relative weights to the factors considered and did not make any determination
with respect to any individual factor. The CB&T Board collectively made its
determination with respect to the Merger based on the unanimous conclusion
reached by its members, in light of the factors that each of them considered
appropriate, that the Merger is in the best interests of the CB&T shareholders.
THE CB&T BOARD UNANIMOUSLY RECOMMENDS THAT THE MERGER AGREEMENT BE ADOPTED
AND APPROVED BY ALL SHAREHOLDERS OF CB&T.
OPINION OF CB&T'S FINANCIAL ADVISOR
General
Smith Capital was hired by CB&T based upon its principal's knowledge and
experience with respect to community banks, especially in the North Carolina
markets served by CB&T and Carolina First, and her knowledge of Carolina First.
As a result, Smith Capital has acted as CB&T's financial advisor in connection
with the Merger. Smith Capital has rendered opinions (collectively, the
"Opinion") that, based upon and subject to the various considerations set forth
therein, as of May 28, 1998 and the date of this Proxy Statement/Prospectus, the
expected Final Exchange Ratio was and is fair, from a financial point of view to
the holders of CB&T Common Stock. Smith Capital is a North Carolina corporation
primarily engaged in: (1) performing valuations of, and valuations related to,
closely held and publicly traded companies; and (2) providing financial advice
related to mergers, acquisitions and divestitures of closely held and publicly
traded companies.
The consideration to be paid by Carolina First to CB&T shareholders in the
Merger was determined by Carolina First and CB&T through arm's-length
negotiations. No limitations were imposed by the CB&T Board or management of
CB&T upon Smith Capital with respect to the investigations made or the
procedures followed by Smith Capital in rendering its Opinion.
In connection with rendering its Opinion to the CB&T Board, Smith Capital
performed a variety of financial analyses. However, 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 summary description. Smith Capital, in conducting its analyses
and in arriving at its Opinion, has not conducted a physical inspection of any
of the properties or assets of CB&T, and has not made or obtained any
independent valuation or appraisals of any properties, assets or liabilities of
CB&T. Smith Capital has assumed and relied upon the accuracy and completeness of
the financial and other information that was provided to it by Carolina First
and CB&T or that was publicly available. Its Opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of the date of, its analyses. The following description and
the analyses of Smith Capital reflects assumptions, projections and estimates
which are forward-looking, and which have not been adopted or approved by
Carolina First or CB&T. See "Special Cautionary Notice Regarding Forward-Looking
Statements."
Smith Capital delivered its first Opinion dated as of May 28, 1998, and its
updated Opinion dated as of the date of this Proxy Statement/Prospectus, in each
case to the CB&T Board, that the Final Exchange Ratio was fair, from a financial
point of view, to the holders of CB&T Common Stock. At May 28, 1998, based on a
price for Carolina First Common Stock of $33.50, the offer value to CB&T
amounted to $24.45 per share at an
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estimated exchange ratio of approximately 0.73 shares of Carolina First Common
Stock for each share of CB&T Common Stock.
The full text of the Opinion of Smith Capital, dated the date of this Proxy
Statement/Prospectus, which sets forth assumptions made, matters considered and
limits on the review undertaken by Smith Capital is attached hereto as Appendix
II. CB&T shareholders are urged to read this opinion in its entirety. The
summary set forth in this Proxy Statement/Prospectus of the Opinion of Smith
Capital is qualified in its entirety by reference to the full text of the
Opinion.
In connection with the Opinion, Smith Capital reviewed, among other things;
(1) CB&T's Annual and Quarterly Reports to Shareholders, Annual Reports on Form
F-2 and 10-KSB, Annual Proxy Statements to Shareholders and related financial
information for each of the fiscal years in the three-year period ended December
31, 1997; (2) Carolina First's Annual Reports and Quarterly Reports to
Shareholders, Annual Reports on Form 10-K, Annual Proxy Statement to
Shareholders and related financial information for each of the fiscal years in
the three-year period ended December 31, 1997; (3) CB&T's Quarterly Report to
Shareholders and Quarterly Report on Form 10-QSB for the three months ended
March 31, 1998; (4) Carolina First's Quarterly Report to Shareholders and
Quarterly Report on Form 10-Q for the three months ended March 31, 1998; (5)
certain publicly available information with respect to historical market prices
and trading activity for CB&T Common Stock and Carolina First Common Stock and
certain publicly traded financial institutions which Smith Capital deemed
relevant; (6) the Merger Agreement; (7) other financial information concerning
the business and operations of Carolina First and CB&T, including certain
audited financial information, and certain internal analyses and forecasts for
CB&T prepared by the senior management of CB&T; and (8) such financial studies,
analyses, inquiries and other matters as Smith Capital deemed necessary.
Smith Capital also conducted discussions with members of senior management
of CB&T concerning its business and prospects and reviewed certain publicly
available business and financial information and certain other information
prepared or provided to Smith Capital in connection with the Merger.
Smith Capital relied without independent verification upon the accuracy and
completeness of all the financial and other information reviewed by it for
purposes of its Opinion. In that regard, Smith Capital assumed that the
financial forecasts provided to it were reasonably prepared on a basis
reflecting the best currently available judgment of CB&T. Any estimates
contained in Smith Capital's analyses are not necessarily indicative of future
results or values, nor do they purport to be appraisals or reflect prices at
which securities could actually be bought or sold. Smith Capital is not an
expert in the evaluation of loan portfolios or the allowances for loan losses
with respect thereto and has assumed without independent verification, that such
allowances for CB&T and Carolina First are adequate to cover such losses. In
addition, Smith Capital has not reviewed individual credit files nor has it made
or obtained an independent appraisal of the assets and liabilities of CB&T or
Carolina First or any of Carolina First's subsidiaries.
Comparative Analysis of Financial Condition -- Peer Group Analysis
Smith Capital evaluated the financial terms of the Merger using standard
valuation methods, including peer group analysis, market comparable analysis,
comparable acquisition analysis, discounted future earnings and pro forma
equivalent comparison. The following is a brief summary of the analyses
performed by Smith Capital in connection with the Opinion.
Smith Capital analyzed certain balance sheet, asset quality and performance
data for CB&T and Carolina First, comparing these statistics to comparable data
for a selected group of publicly traded banks which Smith Capital deemed
relevant. Smith Capital took into account the fact that CB&T and Carolina First
were different in terms of asset size and performance. The comparable group
comprised 11 small, publicly traded banks with assets ranging from $127 million
to $776 million. The analyses showed, among other things, the following:
CB&T's ratio of equity to assets was 9.95% at March 31, 1998 versus 10.42%
at December 31, 1997. The corresponding median peer group ratios were 9.60% and
9.53%. At March 31, 1998 CB&T's loan to deposit
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ratio was 62.89% versus a median peer group ratio of 81.35%. The corresponding
ratios at December 31, 1997 were 68.05% for CB&T and 79.81% for the peer group.
CB&T's net charge-offs (recoveries) as a percentage of average loans
outstanding ranged from (0.25)% to 0.32% during the five-year period ended
December 31, 1997. In the same period the allowance for loan losses to total
year-end loans has ranged from 1.42% to 2.41%. At March 31, 1998 the allowance
for loan losses was $807,000 or 1.45% of total loans. CB&T experienced net
recoveries of approximately $8,400 in the first quarter 1998, and net
charge-offs of $26,173 in 1997. In the group of comparable banks the median
percentage of the allowance for loan losses to total loans was 1.50% and 1.47%
at December 31,1997 and March 31, 1998, respectively and the median net
charge-off ratios during the year ended December 31, 1997 and three months ended
March 31, 1998, were 0.14% and 0.03%, respectively. The ratio of non-performing
assets to total loans for CB&T was 0.13% at December 31, 1997 and 0.41% at March
31, 1998. The corresponding median percentages for the peer group were 0.43% and
0.36%, respectively.
Smith Capital analyzed CB&T's asset, loan, deposit and income growth for
the first three months of 1998 versus the same three months of 1997. During the
period March 31, 1997 to March 31, 1998, CB&T's assets increased 6.04%, loans
increased 5.17%, deposits increased 7.35%, net income increased 35.27% and net
income per share increased 33.3%. The peer group medians were 15.07%, 14.57%,
14.47%, 15.61% and 13.94%, respectively. For the period 1993 through 1997 CB&T's
assets, loans, deposits, net income, and net income per share increased 31.64%,
33.17%, 31.90%, 8.10%, and 2.53%, respectively. The median peer group rates were
13.78%, 15.97%, 12.68%, 12.94%, and 13.82%, respectively.
CB&T's annualized return on assets was 0.41% and return on equity was 4.06%
for the first three months of 1998, and 0.61% and 5.91%, respectively, during
the year ended December 31, 1997. The corresponding peer group medians were
1.22% and 13.33% for the first three months of 1998 and 1.20% and 12.60% in
1997. CB&T's fully tax equivalent net interest margin was 5.24% in fiscal 1997.
The median margin in the comparable bank group was 4.94% for 1997. CB&T's
noninterest expense to average assets was 4.81% in 1997 compared to the peer
group median of 3.60%, and 4.80% compared to 3.28% for the peer group in the
first three months of 1998. Noninterest income for CB&T was 1.28% of average
assets versus 0.91% for its peers in 1997, and 1.20% versus 1.00% (annualized)
for the peer group in the first three months of 1998.
Smith Capital's comparisons of Carolina First to the peer group showed,
among other things, that Carolina First's ratio of equity to assets was 8.76% at
March 31, 1998 versus 8.85% at December 31, 1997. The corresponding median peer
group ratios were 9.60% and 9.53%. At March 31, 1998 Carolina First's loan to
deposit ratio was 72.47% versus a median peer group ratio of 81.35%. The
corresponding ratios at year end 1997 were 75.21% for Carolina First and 79.81%
for the peer group.
Carolina First's net charge-offs as a percentage of average loans
outstanding ranged from a high of 0.26% to a low of 0.04 % in the periods ending
December 31, 1993 through 1997. In the same period the allowance for loan losses
to total year end loans ranged from 1.30% to 1.45%. At March 31, 1998 the
allowance for loan losses was $5,178,477 or 1.47% of total loans. The ratio of
net loan charge-offs to average loans was 0.08% for the three months ended March
31, 1998. In the group of comparable banks the median percentage of the
allowance for loan losses to total loans was 1.50% at December 31,1997 and 1.47%
at March 31, 1998, and the median net charge-off ratios were 0.14% and 0.03%,
respectively. The ratio of non-performing assets to total loans and other real
estate owned for Carolina First was 0.38% at December 31,1997 and 0.40% at March
31, 1998. The corresponding median percentages for the peer group were 0.43% and
0.36%.
Smith Capital analyzed Carolina First's asset, loan, deposit and income
growth for the first three months of 1998 versus the same period in 1997. During
the period March 31, 1997 to March 31, 1998, assets increased 23.3%, loans
increased 12.25%, deposits increased 21.87%, net income increased 20.69% and
diluted net income per share increased 11.43%. The peer group medians were
15.07%, 14.57%, 14.47%, 15.61% and 13.94%, respectively. From March 31, 1997 to
March 31, 1998 Carolina First's dividend per share increased 33.33%, compared to
a median peer group increase of 12.00%. For the period 1993 through 1998
Carolina First's assets, loans, deposits, net income, net income per share and
dividends per share increased 14.80%, 15.14%, 13.59%, 23.84%, 18.32%, and
15.00%, respectively. The median peer group rates were 13.78%, 15.97%, 12.68%,
12.94%, 13.82%, and 14.19%, respectively.
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Carolina First's annualized return on assets was 1.34% and return on equity
was 16.27%, for the first three months of 1998 and 1.30% and 15.97%,
respectively, during the year ended December 31, 1997. The corresponding peer
group medians were 1.22% and 13.33% in the first three months of 1998 and 1.20%
and 12.60% in 1997. Carolina First's fully tax equivalent net interest margin
was 4.91% for the first three months of 1998 compared to 4.91% in fiscal 1997.
The median margins in the comparable bank group were 4.69% for the first three
months of 1998 and 4.94% for 1997. Carolina First's noninterest expense to
average assets was 3.53% in 1997 compared to the peer group median of 3.60%, and
3.53% compared to 3.28%, respectively, in the first three months of 1998.
Noninterest income for Carolina First was 1.15% of average assets versus a lower
1.00% for its peers in the first three months of 1998 and 1.15% versus 0.91% for
the peer group in 1997.
Market Comparable Analysis
Smith Capital compared the market valuation of CB&T Common Stock and
Carolina First Stock with the comparable group of publicly traded banks used in
the analyses of financial condition.
Smith Capital calculated price to earnings per share adjusted for
non-recurring items ("adjusted LTM earnings") for the 12-month period ending
March 31, 1998, price to book value, and price to assets as of March 31, 1998,
for the comparable group, using the closing market prices of the peer group
banks at May 19, 1998. The mean (excluding high and low) price multiples were
used and they were 21.63x, 2.68x and 25.38%, respectively.
Smith Capital then applied the selected multiples to CB&T's adjusted LTM
earnings, book value and assets. Smith Capital then weighted the results to
derive a final dollar value as follows: earnings 50% and price/book and
price/assets each 25%. The resultant value was $20,301,709 or $14.71 per share.
Carolina First's offer of $24.45 per share represented a premium of 66.21% to
the derived value of $14.71.
In addition, Smith Capital compared Carolina First's price per share to
reported LTM earnings, price to book and price to assets as of March 31, 1998 to
those of the peer group using closing market share prices at May 19, 1998. Smith
Capital used median multiples from the comparable group to allow for the fact
that Carolina First's performance was at least as good as that of the comparable
group. Smith Capital found the respective multiples for Carolina First to be
26.58x, 2.87x and 27.76%. After applying the same weighting as for CB&T, the
resulting value of Carolina First was $158,183,276 or $35.15 per share.
Discounted Future Earnings and Cash Flow
Smith Capital used a discounted cash flow approach to CB&T's cash flows
projected through 2006. Several scenarios involving additional branches or stock
repurchases were considered. The cash flows were discounted at 12.69% with a
terminal cash flow multiple of 13.8x. The values derived ranged from $19,536,000
or $14.16 per share to $26,382,000 or $19.12 per share.
Smith Capital then compared Carolina First's offer of $24.45 per share to
CB&T's derived values and found it to represent premiums of 27.88% to 72.67%.
Smith Capital then discounted estimated future earnings for Carolina First under
various circumstances through 2002.
The earnings derived were discounted at 12.69%. Terminal multiples of
13.80x and 17.40x were applied to earnings in 2002. These were then discounted
at the same discount rates ranges used for the future earnings to produce a
final net present value range for Carolina First.
The range of values for Carolina First was $114,551,000 or $26.11 per share
to $180,985,000 or $40.22 per share. Carolina First did not participate in, nor
did it approve or adopt Smith Capital's analyses or conclusions as to the future
performance of Carolina First or the value of Carolina First Common Stock
performed on behalf of CB&T, much of which depends upon the assumptions used and
future events. See "Special Cautionary Notice Regarding Forward-Looking
Statements."
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Comparable Acquisition Analysis
Smith Capital performed an analysis of premiums paid in completed stock for
stock merger transactions between 1992 and 1998, where the buying or selling
bank was in the Carolinas or Georgia. Smith Capital selected median multiples
for transactions completed in 1998. The multiples used were the price received
by the seller as a multiple of its book value, earnings and assets. The median
price to earnings, price to book value, and price to assets were 23.3x, 3.36x
and 27.10% respectively. These multiples were applied to the appropriate CB&T
values and the results weighted, 50% to earnings and 25% each to book value and
assets. The resulting value was $22,058,320 or $15.98 per fully diluted share.
Carolina First's offer of $24.45 exceeded the CB&T comparable derived
acquisition value of $15.98 by 53.00%.
Smith Capital also calculated the pro forma book value per share, dividend
per share and LTM earnings per share for the combined company as of March 31,
1998 and multiplied each result by the expected Final Exchange Ratio to
determine the equivalent value for CB&T. These values were compared to CB&T's
pre-merger book value per share, LTM earnings and dividend per share as of March
31, 1998. The analysis indicated that the CB&T equivalent book value per share,
dividend per share and LTM earnings per share were $7.86, $0.23, and $0.93
compared to $7.48, $0.12 and $0.44, respectively, before the Merger.
In connection with rendering the Opinion, Smith Capital updated certain of
the analyses used in the Opinion dated May 28, 1998 and reviewed assumptions on
which such analyses were based, and the factors considered in connection
therewith.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying the Opinion. In arriving at its fairness determination, Smith Capital
considered the results of such analyses. No company or transaction used in the
above analysis as a comparison is identical to CB&T or Carolina First or the
contemplated transaction. The analyses were prepared solely for the purposes of
Smith Capital providing its Opinion to the CB&T Board as to the fairness, from a
financial point of view, of the expected Final Exchange Ratio to CB&T's
shareholders and do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Carolina First
did not participate in, and has not approved or adopted, the analyses or
conclusions of Smith Capital as to the future performance of Carolina First or
the value of Carolina First Common Stock, much of which depends upon the
assumptions used and upon future events. See "Special Cautionary Notice
Regarding Forward-Looking Statements."
CB&T has paid Smith Capital $50,000 through June 30, 1988 for its services,
including $30,000 in payment of its monthly retainer of $5,000 and $10,000 for
the Opinion and $10,000 for valuation services. CB&T has also agreed to
reimburse Smith Capital for its out of pocket expenses and to indemnify Smith
Capital against certain liabilities.
THE FULL TEXT OF SMITH CAPITAL'S OPINION AS OF THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS, WHICH SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS
CONSIDERED, AND LIMITATIONS ON REVIEW UNDERTAKEN IS ATTACHED AS APPENDIX II TO
THIS PROXY STATEMENT/PROSPECTUS, IS INCORPORATED HEREIN BY REFERENCE, AND SHOULD
BE READ IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY STATEMENT/PROSPECTUS. THE
SUMMARY OF THE OPINION SET FORTH IN THIS PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE OPINION. SMITH CAPITAL'S OPINION IS DIRECTED
ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE EXPECTED FINAL
EXCHANGE RATIO TO THE HOLDERS OF CB&T COMMON STOCK AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF CB&T COMMON STOCK AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE ON THE MERGER.
OPINION OF CAROLINA FIRST'S FINANCIAL ADVISOR
General
Carolina First retained Robinson-Humphrey to act as its financial adviser
in connection with the Merger, and a condition to Carolina First's obligations
to close the Merger is the receipt from Robinson-Humphrey of a fairness opinion
dated not more than five business days prior to the date of this Proxy
Statement/Prospectus. Robinson-Humphrey has rendered an opinion to Carolina
First's Board of Directors that, based on the matters
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set forth therein, the consideration to be paid in connection with the Merger is
fair, from a financial point of view, to Carolina First's Shareholders. The text
of such opinion is set forth in Appendix III to this Prospectus/ Proxy
Statement.
The consideration to be paid by Carolina First to CB&T shareholders in the
Merger was determined by Carolina First and CB&T through arm's-length
negotiations. No limitations were imposed by the Board of Directors or
management of Carolina First upon Robinson-Humphrey with respect to the
investigations made or the procedures followed by Robinson-Humphrey in rendering
its opinion.
In connection with rendering its opinion to Carolina First's Board of
Directors, Robinson-Humphrey performed a variety of financial analyses. However,
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 summary description. Robinson-Humphrey, in
conducting its analysis and in arriving at its opinion, has not conducted a
physical inspection of any of the properties or assets of CB&T, and has not made
or obtained any independent valuation or appraisals of any properties, assets or
liabilities of CB&T. Robinson-Humphrey has assumed and relied upon the accuracy
and completeness of the financial and other information that was provided to it
by Carolina First and CB&T or that was publicly available. Its opinion is
necessarily based on economic, market and other conditions as in effect on, and
the information made available to it as of the date of, its analyses. The
following description and the analyses of Robinson-Humphrey reflect assumptions,
projections and estimates which are forward-looking, and which have not been
adopted or approved by Carolina First or CB&T. See "Special Cautionary Notice
Regarding Forward-Looking Statements."
Valuation Methodologies
In connection with its opinion on the Merger and the presentation of that
opinion to Carolina First's Board of Directors, Robinson-Humphrey performed two
valuation analyses with respect to CB&T: (i) an analysis of comparable prices
and terms of recent transactions involving financial institutions acquiring
banks; and (ii) a discounted cash flow analysis. For purposes of the comparable
company and comparable transaction analyses, Carolina First's stock was valued
at $33.50 per share.
Comparable Transaction Analysis
Robinson-Humphrey performed three analyses of premiums paid for selected
banks with comparable characteristics to CB&T. Comparable transactions were
considered to be: (i) transactions since January 1, 1997, where the seller was a
bank with total assets between $75 million and $250 million; (ii) transactions
since January 1, 1997, where the seller was a bank located in the Southeast with
total assets between $75 million and $250 million, and (iii) transactions since
January 1, 1997 where the seller was a bank located in North Carolina.
(i) Based on the first of the foregoing transactions since January 1, 1997,
where the seller was a bank with total assets between $75 million and $250
million, the analysis yielded a range of transaction values to shareholders'
equity book value of 89.68% to 558.76%, with a mean of 244.02% and a median of
229.92%. These compare to a transaction value for the Merger of approximately
322.76% of CB&T's book value as of December 31, 1997.
The analysis yielded a range of transaction values as a percentage of
tangible book value for the comparable transactions ranging from 89.68% to
558.76%, with a mean of 248.86% and a median of 237.17%. These compare to a
transaction value to tangible book value at December 31, 1997 of approximately
456.54% for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing 12-month earnings per share. These values ranged from 6.99x to 57.10x,
with a mean of 22.11x and a median of 20.57x. These compare to a transaction
value to the December 31, 1997 trailing 12-month earnings per share of CB&T
Common Stock of 54.03x for the Merger.
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Lastly, the analysis yielded a range of transaction values as a percentage
of total assets for the comparable transactions ranging from 5.07% to 60.56%,
with a mean of 22.67% and a median of 22.38%. These compare to a transaction
value to total assets at December 31, 1997 of approximately 33.66% for the
Merger.
(ii) Based on transactions since January 1, 1997, where the seller was a
bank located in the Southeast with total assets between $75 million and $250
million, the analysis yielded a range of transaction values to book value of
138.10% to 588.76%, with a mean of 272.39% and a median of 269.66%. These
compare to a transaction value for the Merger of approximately 322.76% of CB&T's
book value as of December 31, 1997.
The analysis yielded a range of transaction values as a percentage of
tangible book value for the comparable transactions ranging from 138.10% to
558.76%, with a mean of 278.15% and a median of 269.66%. These compare to a
transaction value to tangible book value at December 31, 1997 of approximately
456.54% for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing 12-month earnings per share. These values ranged from 12.74x to 36.54x,
with a mean of 22.57x and a median of 21.01x. These compare to a transaction
value to the December 31, 1997 trailing 12-month earnings per share of 54.03x or
the Merger.
Lastly, the analysis yielded a range of transaction values as a percentage
of total assets for the comparable transactions ranging from 12.02% to 60.56%,
with a mean of 25.88% and a median of 24.21%. These compare to a transaction
value to total assets at December 31, 1997 of approximately 33.66% for the
Merger.
(iii) Based on transactions since January 1, 1997, where the seller was a
bank located in North Carolina, the analysis yielded a range of transaction
values to book value of 102.09% to 336.34%, with a mean of 230.37% and a median
of 250.95%. These compare to a transaction value for the Merger of approximately
322.76% of CB&T's book value as of December 31, 1997.
The analysis yielded a range of transaction values as a percentage of
tangible book value for the comparable transactions ranging from 102.09% to
356.75%, with a mean of 239.27% and a median of 265.92%. These compare to a
transaction value to tangible book value at December 31, 1997 of approximately
456.54% for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing 12-month earnings per share. These values ranged from 20.60x to 35.08x,
with a mean of 28.94x and a median of 28.83x. These compare to a transaction
value to the December 31, 1997 trailing 12-months earnings per share of 54.03x
for the Merger.
Lastly, the analysis yielded a range of transaction values as a percentage
of total assets for the comparable transactions ranging from 16.20% to 34.19%,
with a mean of 25.16% and a median of 25.14%. These compare to a transaction
value to total assets at December 31, 1997 of approximately 33.66% for the
Merger.
No company or transaction used in the comparable transaction analyses is
identical to CB&T. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments, as well as other factors that
affect the public trading value or the acquisition value of the company to which
it is being compared.
Discounted Cash Flow Analysis
Using discounted cash flow analysis, Robinson-Humphrey estimated the
present value of the future stream of after-tax cash flows that CB&T could
produce through 2002, under various circumstances, assuming that CB&T performed
in accordance with the earnings/return projections of management at the time
that Carolina First entered into acquisition discussions in late October 1997.
Robinson-Humphrey estimated the terminal value for CB&T at the end of the period
by applying multiples of earnings ranging from 14.0x to 16.0x and then
discounting the cash flow streams, dividends paid to shareholders and terminal
value using differing discount rates (ranging from 10.0% to 12.0%) chosen to
reflect different assumptions regarding the required rates of return of CB&T and
the inherent risk surrounding the underlying projections. This discounted cash
flow analysis indicated a reference range of $38.94 million to $45.63 million,
or $27.67 to $33.42 per share, for CB&T. Carolina First did not participate in,
and has not approved or adopted, the analyses or conclusions of
Robinson-Humphrey as to the future performance of Carolina First or the value of
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Carolina First Common Stock, much of which depends upon the assumptions used and
upon future events. See "Special Cautionary Notice Regarding Forward-Looking
Statements."
Compensation of Robinson-Humphrey
Pursuant to an engagement letter dated April 4, 1998 between Carolina First
and Robinson-Humphrey, Carolina First agreed to pay a $150,000 Fairness Opinion
Fee at the time that the opinion is rendered. Carolina First has also agreed to
indemnify and hold harmless Robinson-Humphrey and its officers and employees
against certain liabilities in connection with its services under the engagement
letter, except for liabilities resulting from the gross negligence of
Robinson-Humphrey. Robinson-Humphrey has been engaged to advise Carolina First
in connection with various transactions considered by Carolina First in recent
years, and has agreed to serve as a market maker for Carolina First Common Stock
if and when it is listed on the Nasdaq National Market.
As part of its investment banking business, Robinson-Humphrey is regularly
engaged in the valuation of securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. Carolina First's Board of Directors decided to retain
Robinson-Humphrey based on its experience as a financial advisor in mergers and
acquisitions of financial institutions, particularly transactions in the
Southeastern region of the U.S., and its knowledge of financial institutions and
Carolina First in particular.
EFFECTIVE TIME OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
Merger, unless otherwise mutually agreed upon in writing by Carolina First and
CB&T, the Effective Time will occur on the date and at the time that the
Articles of Merger relating to the Merger become effective with the North
Carolina Secretary of State. Unless otherwise agreed upon by CB&T and Carolina
First, and subject to the conditions to the obligations of the parties to effect
the Merger, the parties will use their reasonable efforts to cause the Effective
Time to occur on the first business day following the last to occur of (i) the
effective date (including the expiration of any applicable waiting period) of
the last consent of any regulatory authority required for the Merger; and (ii)
the date on which the shareholders of CB&T and Carolina First, as the sole
shareholder of Interim Bank, approve the matters relating to the Merger
Agreement which are required to be approved by such shareholders by applicable
law, or such later date within 30 days thereof as may be specified by Carolina
First.
No assurance can be provided that the necessary shareholder and regulatory
approvals can be obtained or that other conditions precedent to the Merger can
or will be satisfied. CB&T and Carolina First anticipate that all conditions to
consummation of the Merger will be satisfied so that the Merger can be
consummated during the Fall 1998. However, unexpected delays in the consummation
of the Merger could occur.
The Board of Directors of either CB&T or Carolina First generally may
terminate the Merger Agreement if the Merger is not consummated by November 30,
1998, unless the failure to consummate by that date is the result of a breach of
the Merger Agreement by the party seeking termination. See "-- Conditions to
Consummation of the Merger" and "-- Waiver, Amendment, and Termination."
DISTRIBUTION OF CAROLINA FIRST STOCK CERTIFICATES
Promptly after the Effective Time, Carolina First and CB&T will cause First
Citizens Bank, acting in its capacity as Exchange Agent, to mail to each holder
of record of Certificates which, immediately prior to the Effective Time,
represented outstanding shares of CB&T Common Stock, a letter of transmittal and
instructions for use in effecting the surrender and cancellation of the
Certificates in exchange for certificates representing shares of Carolina First
Common Stock issuable pursuant to the Merger Agreement.
HOLDERS OF CB&T COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS.
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Except for holders of CB&T Common Stock, if any, that have perfected
dissenters' rights, upon surrender to the Exchange Agent of Certificates for
CB&T Common Stock, together with a properly completed letter of transmittal,
there will be issued and mailed to each holder of CB&T Common Stock surrendering
such items, a certificate or certificates representing the number of shares of
Carolina First Common Stock to which such holder is entitled, if any, and a
check for the amount to be paid in lieu of any fractional share (without
interest), together with all undelivered dividends or distributions in respect
of such shares (without interest thereon).
Whenever a dividend or other distribution is declared by Carolina First on
Carolina First Common Stock, the record date for which is at or after the
Effective Time, the declaration will include dividends or other distributions on
all shares of Carolina First Common Stock issuable pursuant to the Merger
Agreement, but no dividend or other distribution payable after the Effective
Time with respect to Carolina First Common Stock will be paid to the holder of
any unsurrendered CB&T Common Stock Certificate until the holder duly surrenders
such Certificate. Upon surrender of such CB&T Common Stock Certificate, however,
both the Carolina First Common Stock certificate, together with all undelivered
dividends or other distributions (without interest) and any undelivered cash
payments to be paid in lieu of fractional shares (without interest), will be
delivered and paid with respect to each share represented by such Certificate.
In no event will the holder of any surrendered Certificates be entitled to
receive interest on any dividends or other amounts payable to such holder, and
in no event will CB&T, Carolina First, or the Exchange Agent be liable to any
holder of CB&T Common Stock for any Carolina First Common Stock or dividends
thereon or cash delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat, or similar law.
After the Effective Time, there will be no transfers of shares of CB&T
Common Stock on CB&T's stock transfer books. If Certificates representing shares
of CB&T Common Stock are presented for transfer after the Effective Time, upon
proper completion of the letter of transmittal and surrender of such
Certificates and other exchange material, such Certificates will be canceled and
exchanged for the shares of Carolina First Common Stock and a check for the
amount due in lieu of fractional shares, if any, will be deliverable in respect
thereof.
After the Effective Time, holders of CB&T Certificates will have no rights
with respect to the shares of CB&T Common Stock formerly represented thereby
other than the right to surrender such Certificates and receive in exchange
therefor the shares of Carolina First Common Stock, if any, to which such
holders are entitled, as described above, or the right to perfect their
dissenters' rights.
If any certificate for Carolina First Common Stock is to be issued in a
name other than that in which the CB&T Certificate surrendered for exchange is
issued, the CB&T Certificate so surrendered shall be accompanied by all
documents required to evidence such transfer and by evidence satisfactory to the
Exchange Agent that any applicable stock transfer taxes have been paid.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including (i)
receipt of the approval of the Merger Agreement by the shareholders of CB&T as
required by the CB&T Articles of Incorporation and North Carolina law; (ii)
receipt of certain regulatory approvals required for consummation of the Merger;
(iii) receipt of a favorable opinion of Alston & Bird LLP as to the tax-free
nature (except for cash received in lieu of fractional shares) of the Merger;
(iv) the Registration Statement being declared effective and all necessary SEC
and state approvals relating to the issuance or trading of the shares of
Carolina First Common Stock issuable pursuant to the Merger shall have been
received; (v) the accuracy, as of the date of the Merger Agreement and as of the
Effective Time, of the representations and warranties of CB&T and Carolina First
as set forth in the Merger Agreement; (vi) the performance in all material
respects of all agreements and the compliance in all material respects with all
covenants of CB&T and Carolina First as set forth in the Merger Agreement; (vii)
receipt by Carolina First and CB&T of a letter from KPMG Peat Marwick LLP, dated
as of the Effective Time, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment and that such firm is not aware of any
matters relating to CB&T that would preclude the Merger from qualifying for
pooling-of-interests accounting treatment; (viii) receipt of all consents
required for consummation of the
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Merger or for the preventing of any default under any contract or permit which,
if not obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect; (ix) the absence of any law or order or
any action taken by any court, governmental, or regulatory authority
prohibiting, restricting, or making illegal the consummation of the transaction;
(x) receipt by Carolina First and CB&T of letters from Robinson-Humphrey and
Smith Capital respectively, confirming that the consideration to be paid by
Carolina First in connection with the Merger is fair from a financial point of
view; (xi) that the CB&T shareholders' equity as of the Closing is not less that
CB&T's shareholders' equity as of December 31, 1997, excluding certain items;
(xii) shareholders of CB&T shall not have given notice of their intent to
exercise their statutory rights of dissent with respect to more than 5% of the
outstanding shares of CB&T Common Stock; and (xiii) satisfaction of certain
other conditions, including the receipt of agreements of affiliates of CB&T
relating to claims against CB&T or Carolina First, non-competition and
securities law compliance, and various certificates from the officers of CB&T
and Carolina First. See "-- Regulatory Approvals" and "-- Waiver, Amendment, and
Termination."
No assurance can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the party
permitted to do so. In the event the Merger is not effected on or before
November 30, 1998, the Merger Agreement may be terminated and the Merger
abandoned by vote of a majority of the Board of Directors of either CB&T or
Carolina First. See "-- Waiver, Amendment, and Termination."
REGULATORY APPROVALS
The Merger may not proceed in the absence of receipt of the requisite
regulatory approvals. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY APPROVALS
WILL BE OBTAINED OR AS TO THE TIMING OF, OR CONDITIONS OR RESTRICTIONS IMPOSED
BY, ANY SUCH APPROVALS.
CB&T and Carolina First are not aware of any material governmental
approvals or actions that are required for consummation of the Merger, except as
described below. Should any other approval or action be required, it presently
is contemplated that such approval or action would be sought.
The Merger is subject to the prior approval of the Federal Reserve under
the BHC Act. The formation of Interim Bank is subject to the prior approval of
the Office of the Commissioner of Banks of North Carolina (the "Commissioner,"
and together with the Federal Reserve and the FDIC, the "Regulators"), and the
Merger is subject to approval by the FDIC and the Commissioner. Applications
seeking such approvals were filed with the Federal Reserve, the FDIC and the
Commissioner on July 13, 1998. In evaluating the Merger, the Federal Reserve and
FDIC must consider, 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 Commissioner must determine whether (i) the
interests of depositors, creditors and shareholders of each party to the Merger
are protected; (ii) the Merger is in the public interest; and (iii) the Merger
is made for legitimate purposes. The relevant statutes prohibit the Regulators
from approving the Merger if (i) it would result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States; or (ii) its
effect in any section of the country may be to substantially lessen competition
or to tend to create a monopoly, or if it would be a restraint of trade in any
other manner, unless the Regulators find that any anti-competitive effects are
outweighed clearly by the public interest and the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Merger may not be consummated until the 15th day following the date
of the FDIC or Federal Reserve approval, whichever is the later, during which
time the United States Department of Justice may challenge the transaction on
antitrust grounds. Carolina First and CB&T are unaware of any facts that would
preclude approval of the applications by the Regulators.
WAIVER, AMENDMENT, AND TERMINATION
To the extent permitted by applicable law, CB&T and Carolina First may
amend the Merger Agreement by written agreement at any time before or after
approval of the Merger Agreement by the CB&T shareholders; provided, however,
that after such approval is granted, no amendment may be made that,
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pursuant to the North Carolina law, would require further approval by CB&T's
shareholders without the requisite approval of the holders of the issued and
outstanding shares of CB&T Common Stock entitled to vote thereon. In addition,
prior to or at the Effective Time, either CB&T or Carolina First, or both,
acting through their respective Board of Directors, chief executive officer or
other authorized officers may waive any default in the performance of any term
of the Merger Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Merger Agreement, and may waive any or all of the conditions precedent
to the obligations of such party under the Merger Agreement, except any
condition that, if not satisfied, would result in the violation of any
applicable law or governmental regulation. No such waiver will be effective
unless written and unless executed by a duly authorized officer of CB&T or
Carolina First, as the case may be.
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time (i) by the mutual consent of CB&T and Carolina
First; (ii) by CB&T or Carolina First (a) in the event of any material breach by
the other party of any representation or warranty contained in the Merger
Agreement which cannot be or has not been cured within 30 days after giving
written notice to the breaching party of such breach and which breach is
reasonably likely, in the opinion of the non-breaching party, to have,
individually or in the aggregate, a CB&T or Carolina First Material Adverse
Effect (as defined in the Merger Agreement), as applicable, on the breaching
party; (b) in the event of a material breach by the other party of any covenant
or agreement contained in the Merger Agreement which cannot be or has not been
cured within 30 days after the giving of written notice to the breaching party
of such breach; (c) if the Merger is not consummated by November 30, 1998,
provided that the failure to consummate is not due to the breach by the party
electing to terminate; (d) if (1) any approval of any regulatory authority
required for consummation of the Merger and the other transactions contemplated
by the Merger Agreement has been denied by final nonappealable action, or if any
action taken by such authority is not appealed within the time limit for appeal,
or (2) the shareholders of CB&T fail to vote their approval of the Merger
Agreement and the other transactions contemplated therein at the Special
Meeting, or (e) if any of the conditions precedent to the obligations of such
party to consummate the Merger have not been satisfied or fulfilled by the
appropriate party by November 30, 1998, (provided that the terminating party is
not then in breach of any representation, warranty, covenant or other agreement
contained in the Merger Agreement); (iii) by Carolina First, in the event that
the CB&T Board has resolved not to reaffirm the Merger (to the exclusion of any
other Acquisition Proposal (as defined in the Merger Agreement)) or if the CB&T
Board has affirmed, recommended or authorized entering into any other
Acquisition Proposal or other transaction involving a merger, share exchange,
consolidation or transfer of substantially all of the assets of CB&T.
If the Merger is terminated as described above, the Merger Agreement will
become void and have no effect, except that certain provisions of the Merger
Agreement, including those relating to the obligations to share certain
expenses, maintain the confidentiality of certain information obtained, and
return all documents obtained from the other party under the Merger Agreement,
will survive. In addition, termination of the Merger Agreement will not relieve
any breaching party from liability for any uncured willful breach of a
representation, warranty, covenant, or agreement giving rise to such
termination.
If the Merger Agreement is terminated for certain reasons, including an
uncured material breach of a representation, warranty or covenant by CB&T, and
CB&T agrees to, or enters into, another business combination with a third-party
within six months of the date of termination of the Merger Agreement, the
third-party, or failing them, CB&T, must pay Carolina First $1.6 million in cash
as a "break-up fee." See "-- Expenses and Fees."
DISSENTERS' RIGHTS
If the Merger Agreement and the transactions contemplated thereby are
consummated, any shareholder of CB&T who properly dissents from the Merger and
perfects his statutory rights of dissent will be entitled to receive in cash the
fair value of such shareholder's shares of CB&T Common Stock determined
immediately prior to the Merger, excluding any appreciation or depreciation in
anticipation of the Merger, unless such exclusion would be inequitable. FAILURE
TO COMPLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW WILL RESULT IN THE
LOSS OF DISSENTERS' RIGHTS.
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Any shareholder of CB&T entitled to vote on the Merger Agreement has the
right to receive payment of the fair value of his or her shares of CB&T Common
Stock upon compliance with the applicable provisions of the NCBCA. A CB&T
shareholder may dissent as to all or less than all of the shares that are
registered in his or her name if such shareholder dissents with respect to all
shares beneficially owned by one person and notifies CB&T in writing of the name
and address of each person on whose behalf he or she asserts dissenters' rights.
Any CB&T shareholder intending to enforce the right to dissent (i) must not vote
in favor of the Merger Agreement, and (ii) must file a written notice of intent
to demand payment for his or her shares (the "Objection Notice") with CB&T, 2
South Main Street, Marion, North Carolina 28752 (telephone (828) 652-1112,
Attention: Eric L. Ross), before the vote on the proposal to approve the Merger
Agreement and the transactions contemplated thereby is taken at the Special
Meeting. The Objection Notice must state that the shareholder intends to demand
payment for his or her shares of CB&T Common Stock if the Merger is effected. A
VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT, IN AND OF ITSELF, WILL NOT
CONSTITUTE AN OBJECTION NOTICE SATISFYING THE REQUIREMENTS OF THE NCBCA.
If the Merger Agreement is approved by CB&T's shareholders at the Special
Meeting, each shareholder who has properly filed an Objection Notice and did not
vote in favor of the Merger Agreement will be notified by CB&T of such approval,
by a dissenters' notice (the "Dissenters' Notice"), within 10 days of the
Special Meeting. Within 30-60 days following receipt of the Dissenters' Notice,
which date shall be specified in the Dissenters' Notice, any shareholder
electing to dissent must demand payment of the fair value of such shares (the
"Demand"), and deposit the Certificates representing the CB&T Common Stock with
CB&T.
As soon as the Merger is consummated, or upon the receipt of the Demand,
CB&T shall offer to pay each shareholder who has properly filed a Demand, an
amount CB&T estimates to be the fair value for the shareholder's shares, plus
interest accrued to the date of payment. This offer will be accompanied by (i)
certain of CB&T's financial statements; (ii) an explanation of how CB&T
estimated the fair value of the shareholder's shares and how the interest was
calculated; (iii) a statement of the shareholder's right to demand payment under
NCBCA Section 55-13-28; and (iv) a copy of NCBCA Article 13. If the Merger is
not consummated within 60 days following the date set for demanding payment and
depositing share Certificates, CB&T shall return the deposited Certificates. If
the Merger is subsequently consummated it must send a new Dissenters' Notice and
repeat the payment demand procedure.
A dissenter may notify CB&T in writing of his own estimate of the fair
value of his shares and amount of interest due, and demand payment of such
estimated value, or reject CB&T's offer and demand payment of the fair value of
his shares and interest due, if (i) he believes that the amount offered is less
than the fair value of his shares or the interest due is incorrectly calculated;
(ii) CB&T fails to make payment within 30 days after the dissenter's acceptance
of CB&T's offer; or (iii) having failed to consummate the Merger, CB&T does not
return the deposited Certificates within 60 days after the date set for
demanding payment. A dissenter will waive his right to demand payment under the
foregoing provisions if he does not notify CB&T of his demand in writing within
30 days after CB&T offers payment for his shares, or within 30 days after CB&T
fails to perform timely, as applicable. If the dissenter fails to notify CB&T of
his demand within such 30-day period, he shall be deemed to have withdrawn his
dissent and demand for payment.
If a demand for payment remains unsettled, the dissenter may institute
proceedings within 60 days of the earlier of the date payment is made or the
date of the dissenter's payment demand for his estimate of the fair value of his
CB&T Common Stock, in the Superior Court Division of the General Court of
Justice (the "Court") requesting the Court to determine the fair value of such
dissenting shareholder's shares and accrued interest. If the dissenter fails to
file such action within such 60-day period, he shall be deemed to have withdrawn
his dissent and demand for payment. The Court may, in its discretion, appoint
one or more appraisers to receive evidence and recommend a decision on the
question of fair value. The judgment may, in the discretion of the Court,
include a fair rate of interest.
The Court will determine the costs and expenses of such proceeding
(including reasonable compensation for and the expenses of the appraisers) and
shall assess such costs as it finds equitable. The Court may also assess the
fees and expenses of counsel and experts for the respective parties in amounts
the Court finds equitable, against (i) CB&T and in favor of any or all
dissenters if the Court finds that CB&T did not
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substantially comply with the requirements of the dissenter's rights provisions
of the NCBCA; or (ii) against either CB&T or a dissenter, in favor of either or
any other party, if the Court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by the NCBCA.
THE FOREGOING SUMMARY OF THE APPLICABLE PROVISIONS OF NCBCA SECTIONS
55-13-01 THROUGH 55-13-31 IS NOT INTENDED TO BE A COMPLETE STATEMENT OF SUCH
PROVISIONS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH SECTIONS,
WHICH ARE INCLUDED AS APPENDIX IV HEREOF. THE PROVISIONS OF THE STATUTES ARE
TECHNICAL IN NATURE AND COMPLEX. IT IS SUGGESTED THAT ANY SHAREHOLDER WHO
DESIRES TO EXERCISE THE RIGHT TO OBJECT TO THE MERGER AGREEMENT CONSULT HIS OWN
COUNSEL. FAILURE TO COMPLY WITH THE PROVISIONS OF THE STATUTE MAY PRECLUDE A
SHAREHOLDER FROM PERFECTING HIS RIGHTS OF DISSENT AND APPRAISAL.
Any dissenting CB&T shareholder who perfects such holder's right to be paid
the value of such holder's shares will recognize taxable gain or loss upon
receipt of cash for such shares for federal income tax purposes. See "-- Federal
Income Tax Consequences of the Merger."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, CB&T has agreed that unless the prior
written consent of Carolina First has been obtained, and except as otherwise
expressly contemplated in the Merger Agreement, CB&T will (i) operate its
business only in the usual, regular, and ordinary course and in a manner to
preserve intact its business organization and assets and maintain its rights and
franchises; and (ii) take no action which would (a) materially adversely affect
the ability of any party to obtain any consents required for the transactions
contemplated by the Merger Agreement without imposition of a condition or
restriction of the type referred to in the Merger Agreement; or (b) materially
adversely affect the ability of any party to perform its covenants and
agreements under the Merger Agreement. The Merger Agreement also provides that
CB&T shall cooperate with Carolina First in terminating the CB&T ESOP (as
defined in the Merger Agreement) and otherwise changing its benefit plans
effective as of consummation of the Merger.
In addition, CB&T has agreed that, prior to the earlier of the Effective
Time or termination of the Merger Agreement, CB&T will not, except with the
prior written consent of Carolina First or as expressly contemplated or
permitted by the Merger Agreement, do or agree or commit to do, any of the
following: (i) amend the Articles of Incorporation, Bylaws, or other governing
instruments of CB&T; (ii) incur any additional debt obligation or other
obligation for borrowed money in excess of an aggregate of $50,000 except as
reasonable and customary or in the ordinary course of the business of CB&T
consistent with past practices (which shall include the creation of deposit
liabilities, purchases of federal funds, advances from the Federal Home Loan
Bank or the Federal Reserve Bank, and entry into repurchase agreements fully
secured by U.S. government or agency securities), or impose, or suffer the
imposition, on any asset of CB&T of any lien or permit any such lien to exist
(other than in connection with deposits, repurchase agreements, bankers
acceptances, "treasury tax and loan" accounts established in the ordinary course
of business, the satisfaction of legal requirements in the exercise of trust
powers, and liens in effect as of the date of the Merger Agreement that were
previously disclosed to Carolina First by CB&T); (iii) repurchase, redeem, or
otherwise acquire or exchange (other than exchanges in the ordinary course under
employee benefit plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of CB&T, or declare or pay any
dividend or make any other distribution in respect of any CB&T capital stock;
(iv) except pursuant to the Merger Agreement, or pursuant to the exercise of
stock options outstanding as of the date of the Merger Agreement and pursuant to
the terms thereof in existence on the date of the Merger Agreement or as
disclosed to Carolina First by CB&T, issue, sell, pledge, encumber, authorize
the issuance of, enter into any contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional shares of CB&T Common Stock, or any other capital stock of CB&T, or
any stock appreciation rights, or any option, warrant or other equity right (as
defined in the Merger Agreement); (v) adjust, split, combine, or reclassify any
capital stock of CB&T or issue or authorize the issuance of any other securities
in respect of or in substitution for shares of CB&T Common Stock or sell, lease,
mortgage, or otherwise dispose of or otherwise encumber any shares of capital
stock of any CB&T subsidiary (unless any such shares of stock are sold or
otherwise transferred to another CB&T company) or any assets other than in
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the ordinary course of business for reasonable and adequate consideration; (vi)
except for purchases of U.S. Treasury securities or U.S. Government agency
securities, which in either case have maturities of three years or less,
purchase any securities or make any material investment, either by purchase of
stock or securities, contributions to capital, asset transfers, or purchase of
any assets, in any person other than a wholly owned CB&T subsidiary, or
otherwise acquire direct or indirect control over any person, other than in
connection with (a) foreclosures in the ordinary course of business, (b)
acquisitions of control by a depository institution subsidiary in its fiduciary
capacity, or (c) the creation of new wholly owned subsidiaries organized to
conduct or continue activities otherwise permitted by the Merger Agreement;
(vii) grant any increase in compensation or benefits to the employees or
officers of any CB&T company except in accordance with past practice previously
disclosed to Carolina First by CB&T or as required by law; pay any severance or
termination pay or any bonus other than pursuant to written policies or written
contracts in effect on the date of the Merger Agreement and previously disclosed
to Carolina First by CB&T; enter into or amend any severance agreements with
officers of any CB&T company; or grant any material increase in fees or other
increases in compensation or other benefits to directors of any CB&T company
except in accordance with past practice previously disclosed to Carolina First
by CB&T; or voluntarily accelerate the vesting of any stock options or other
stock-based compensation or employee benefits or other equity rights (as defined
in the Merger Agreement); (viii) enter into or amend any employment contract
between any CB&T company and any person (unless such amendment is required by
law) that the CB&T company does not have the unconditional right to terminate
without liability (other than liability for services already rendered), at any
time on or after the Effective Time; (ix) adopt any new employee benefit plan of
any CB&T company or terminate or withdraw from, or make any material change in
or to, any existing employee benefit plans of any CB&T company other than any
such change that is required by law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such plan; or
make any distributions from such employee benefit plans, except as required by
law, the terms of such plans or consistent with past practice, (x) make any
significant change in any tax or accounting methods or systems of internal
accounting controls, except as may be appropriate to conform to changes in tax
laws or regulatory accounting requirements or generally accepted accounting
principles; (xi) commence any litigation other than in accordance with past
practice or settle any litigation involving any liability of any CB&T company
for material money damages or restrictions upon the operations of any CB&T
company; (xii) enter into, modify, amend or terminate any material contract
(including any loan contract with an unpaid balance exceeding $250,000) or
waive, release compromise or assign any material rights or claims; or (xiii)
incur or become obligated to incur any expenses exceeding $50,000, whether
capitalized, expensed or otherwise, other than in the ordinary course of
business.
The Merger Agreement also provides that from the date of the Merger
Agreement until the earlier of the Effective Time or the termination of the
Merger Agreement, Carolina First covenants and agrees that unless the prior
written consent of CB&T has been obtained, and except as otherwise expressly
contemplated in the Merger Agreement, it will (i) continue to conduct its
business and the business of its subsidiaries in a manner designed in its
reasonable judgment, to enhance the long-term value of the Carolina First Common
Stock and the business prospects of the Carolina First companies, and to the
extent consistent therewith use all reasonable efforts to preserve intact the
Carolina First core businesses and goodwill with their respective employees and
the communities they serve, and (ii) take no action which would (a) materially
adversely affect the ability of any party to obtain any consents required for
the transactions contemplated by the Merger Agreement without imposition of a
condition or restriction of the type referred to in the Merger Agreement, or (b)
materially adversely affect the ability of any party to perform its covenants
and agreements under the Merger Agreement; provided, that the foregoing shall
not prevent any Carolina First company from acquiring any assets or other
businesses or from discontinuing or disposing of any of its assets or business
if such action is, in the reasonable judgment of Carolina First, desirable in
the conduct of the business of Carolina First and its subsidiaries, provided
that such actions shall not materially delay the Effective Time or materially
hinder consummation of the Merger. Carolina First also has agreed to not,
without the prior written consent of CB&T, which consent may not be unreasonably
withheld, amend the Carolina First Articles of Incorporation or Bylaws in any
manner adverse to the holders of CB&T Common Stock as compared to the rights of
holders of Carolina First Common Stock generally as of the date of the Merger
Agreement.
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MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
CB&T will be the surviving bank resulting from the Merger. The directors of
CB&T in office immediately prior to the Effective Time, together with two
additional persons nominated by Carolina First, will serve as directors of CB&T
after the Effective Time. The officers of CB&T in office immediately prior to
the Effective Time (except for Alan W. Jackson, Senior Vice President and Chief
Financial Officer, who has resigned effective at such time), will serve as the
officers of CB&T from and after the Effective Time. Three current directors of
CB&T, who shall be recommended by CB&T, will be elected to the Board of
Directors of Carolina First. For a description of the provisions of the Merger
Agreement affecting the operations of CB&T and Carolina First prior to the
Effective Time, see "-- Conduct of Business Pending the Merger."
Indemnification and Advancement of Expenses
The Merger Agreement provides that for a period of three years after the
Effective Time, Carolina First will indemnify, and will cause CB&T as the
surviving bank to defend and hold harmless, the present and former directors,
officers, employees, and agents of CB&T against all liabilities arising out of
actions or omissions arising out of the indemnified party's service or services
as directors, officers, employees or agents of CB&T, or at CB&T's request, of
another corporation, partnership, joint venture, trust or other enterprise,
occurring at or prior to the Effective Time (including the transactions
contemplated by the Merger Agreement) to the fullest extent permitted under
North Carolina law and by CB&T's Articles of Incorporation or Bylaws, as in
effect on March 1, 1998, including provisions relating to advances of expenses
incurred in the defense of any litigation and whether or not any Carolina First
company is insured against any such matter. Nothing in the Merger Agreement is
intended, however, to affect the indemnified party's right to indemnity under
CB&T's Articles of Incorporation and Bylaws (as in effect on March 1, 1998),
subject to the claims letters to be delivered to Carolina First prior to the
Effective Time. In any case in which approval by Carolina First is required to
effectuate any indemnification, at the election of the indemnified party, the
determination of any such approval will be made by independent counsel mutually
agreed upon between Carolina First and the indemnified party.
Employment Agreement
CB&T has entered into an employment agreement with Ronnie D. Blanton, dated
as of June 4, 1998, which will become effective at the Effective Time (the
"Blanton Agreement"). The terms of the Blanton Agreement are substantially
similar to the terms of Carolina First's other employment agreements with
executive officers. The Blanton Agreement has a three-year term, provided
however, that the employment may continue beyond such term, upon the mutual
agreement of Mr. Blanton and CB&T.
The Blanton Agreement provides for payment of a transition bonus of
$105,000 at the Effective Time, with an additional transition bonus payable in
12 equal monthly installments of $8,781.25, through the first anniversary of the
Effective Time, a base salary of $92,500 per annum, a suitable automobile for
Mr. Blanton's use in carrying out his duties to CB&T and its affiliates,
participation in the Carolina First 401K plan, a non-contributory employee group
life insurance plan, a non-contributory accident and health insurance plan and a
non-contributory disability plan, club dues to a civic club and a country club,
a grant of new stock options to purchase 7,500 shares of Carolina First Common
Stock at a per share exercise price equal to the closing price of shares of
Carolina First Common Stock on the date of grant and three weeks of paid
vacation annually. The new options will vest ratably over a six-year period and
have a term of 10 years, and all of Mr. Blanton's existing 25,000 CB&T Options
will be assumed by Carolina First and converted into options of Carolina First
Common Stock pursuant to the Final Exchange Ratio. Mr. Blanton may also receive
other compensation, including a bonus based on meeting certain performance
goals, and will be entitled to participate in all current and future employee
benefit plans and arrangements in which senior management of Carolina First's
bank subsidiaries may participate.
The Blanton Agreement provides that Mr. Blanton's employment may be
terminated for cause, as defined in the Blanton Agreement, and also upon Mr.
Blanton's death or permanent disability. The Blanton Agreement may also be
terminated by either party giving written notice of termination to the other at
least
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60 days prior to the effective date of such termination. In the event that CB&T
terminates Mr. Blanton's employment, without cause, by giving 60 days' written
notice, or upon Mr. Blanton's death or disability, Mr. Blanton, or his personal
representatives, shall continue to receive the payments and benefits described
above as if his employment had not terminated. If Carolina First terminates Mr.
Blanton's employment without cause prior to January 31, 2002, Carolina First
shall continue to pay the annual salary and other benefits described above
(other than performance bonus) until January 31, 2002, or 12 months pay,
whichever is greater, as severance pay. The Blanton Agreement also contains a
change in control provision which would allow Mr. Blanton to terminate such
agreement and to receive a lump sum payment equal to his annual salary and
maximum bonus for the year in which the change in control occurs and such
payment will be in addition to and not in lieu of his regular compensation
should he remain in the employ of Carolina First or its successor after a change
in control. A "change in control" includes the acquisition of 25% or more of the
combined voting power of Carolina First's or its parent company's then
outstanding securities.
The non-competition clause in the Blanton Agreement provides that, during
the term of the Blanton Agreement and for a period of two years after the
termination of Mr. Blanton's employment, Mr. Blanton is prohibited from (i)
using any information obtained as a result of his employment with CB&T to
solicit any business of any customers; (ii) soliciting the employment of any
employees of CB&T or Carolina First, or their affiliates; or (iii) directly or
indirectly serving as a consultant to, a management official of, or being or
becoming a major shareholder of any financial institution (other than Carolina
First or CB&T) having an office in Avery, Buncombe, Jackson, McDowell,
Rutherford and Transylvania Counties, North Carolina, without CB&T's prior
written consent. The prohibitions in clause (iii) regarding service with any
other financial institution are inapplicable in the event that Mr. Blanton is
involuntarily terminated by CB&T.
Consulting, Severance and Shareholder's Agreements
CB&T has entered into a consulting agreement and a severance agreement with
Alan W. Jackson (the "Consulting Agreement" and "Severance Agreement,"
respectively), both dated as of June 4, 1998, which will become effective at the
Effective Time.
The Severance Agreement provides for a lump sum cash severance payment of
$210,935 in consideration for Mr. Jackson continuing to serve in his present
capacity as Senior Vice President and Chief Financial Officer of CB&T pending
consummation of the Merger and using his best efforts to facilitate the Merger.
Mr. Jackson will also be entitled to any vested benefits he has under the
employee benefit plans of CB&T at the Effective Time and he has the right to
purchase continued health insurance coverage for a period of up to 18 months
pursuant to the terms of applicable law. All of Mr. Jackson's vested and
unvested CB&T Options will expire and cease to be of effect at the Effective
Time.
The Severance Agreement also contains a reciprocal release and discharge by
Mr. Jackson and CB&T, from any and all claims, demands, causes of action, suits,
contracts or liabilities whatsoever, in law or in equity, which are in any way
connected with Mr. Jackson's employment with CB&T or the termination of that
employment.
The Consulting Agreement provides that Mr. Jackson will continue to provide
certain services to CB&T for a period of nine months after the Effective Time
(the "Engagement Period"). During the Engagement Period, CB&T will pay Mr.
Jackson a total of $68,000, in equal monthly installments. Mr. Jackson's
consulting engagement may be terminated by CB&T at any time during the
Engagement Period for any reason, with or without cause, and will terminate
automatically upon Mr. Jackson's death during the Engagement Period. Mr. Jackson
may resign at any time during the Engagement Period. If CB&T terminates the
Consulting Agreement during the Engagement Period, by reason of a breach of Mr.
Jackson's obligations to CB&T, which breach cannot be cured or which has not
been cured within 30 days of Mr. Jackson receiving written notice of such
breach, CB&T will make a lump sum cash payment within 30 days of the date of
termination in respect of the compensation due to Mr. Jackson under the
Consulting Agreement to the extent not theretofore paid. If Mr. Jackson's
engagement is terminated otherwise than by reason of a breach of his obligations
to CB&T, CB&T shall make a lump sum payment within 30 days of the date of
termination in respect of compensation due through the date of termination to
the extent not theretofore paid and CB&T
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shall continue to pay Mr. Jackson the compensation due to him pursuant to the
Consulting Agreement until the last day of the Engagement Period. If Mr.
Jackson's engagement is terminated by reason of his death during the Engagement
Period, his estate will receive all compensation accrued but not paid and the
compensation due to Mr. Jackson pursuant to the terms of the Consulting
Agreement until the end of the Engagement Period. If Mr. Jackson terminates his
consulting engagement arrangement, he shall only receive a lump sum cash payment
in respect of sums due to him to the date of such termination but which have not
been paid. The Consulting Agreement also contains a nonsolicitation clause
pursuant to which, for a period of two years after termination of Mr. Jackson's
consulting arrangement, he shall not (i) use any information obtained as a
result of his engagement with CB&T or his prior employment with CB&T to solicit
any business of any customers; or (ii) solicit the employment of any employees
of CB&T or Carolina First, or their affiliates or subsidiaries.
Mr. Jackson has also entered into a Shareholder's Agreement with CB&T dated
as of June 4, 1998, pursuant to which Mr. Jackson has agreed that he will not
transfer, sell, assign, convey or encumber any of the shares of CB&T Common
Stock owned by him during the term of the Shareholder's Agreement and that he
intends to and will vote all such shares beneficially owned by him in favor of
the Merger and that he will surrender the Certificate of Certificates
representing such shares to Carolina First upon consummation of the Merger. Mr.
Jackson has also agreed that, for a period of two years after the Effective
Time, he will not, without the prior written consent of Carolina First, directly
or indirectly serve as a consultant to, a management official of, or become a
major shareholder of, any financial institution (other than Carolina First or
CB&T) having its main office in the cities of Banner Elk, Black Mountain, Sylva,
Marion, Forest City, Rutherfordton or Brevard, North Carolina.
Officer Stock Options
CB&T has granted stock options to certain of its officers under the CB&T
Stock Option Plan (the "CB&T Option Plan"). Options granted are intended to be
incentive stock options. The options have vesting and exercise periods of not
more than seven years from the date of grant. Such stock options, to the extent
not exercised or terminated at the Effective Time of the Merger, will be assumed
by Carolina First in the Merger. See "Business of CB&T -- Stock Option Plan."
Other Matters Relating to CB&T Employee Benefit Plans
The Merger Agreement also provides that, after the Effective Time, Carolina
First will provide generally to officers and employees of CB&T, employee
benefits under employee benefit and welfare plans (other than stock option or
other plans involving the potential issuance of Carolina First Common Stock), on
terms and conditions which when taken as a whole are substantially similar to
those currently provided by the Carolina First companies to its similarly
situated officers and employees, provided, that, for a period of 12 months after
the Effective Time, Carolina First shall provide generally to officers and
employees of CB&T severance benefits with the following terms: (i) for Vice
President and above, an amount equal to two weeks' compensation for each year of
continuous employment with CB&T (such amount not to be less than one month nor
greater than 12 months of compensation); (ii) for Assistant Vice President, an
amount equal to two weeks' compensation for each year of continuous employment
with CB&T (such amount not to be less than one month nor greater than nine
months of compensation); and (iii) for all other employees, an amount equal to
two weeks' compensation for each year of continuous employment with CB&T (such
amount not to be less than one month nor greater than six months of
compensation). All such payments will be paid in cash and in full, not later
than 30 days after termination. Carolina First will offer any terminated
employees compensation for unused vacation days and career continuation
counseling and will give each such employee priority consideration for future
positions at Carolina First as they become available, consistent with the
employee's ability to perform such duties. The foregoing severance benefits
shall not be applicable to Alan W. Jackson, who is the subject of separate
agreements which are referred to above. For purposes of participation, vesting
and (except in the case of Carolina First retirement plans) benefit accrual
under Carolina First's employee benefit plans, the service of the employees of
CB&T prior to the Effective Time shall be treated as service with a Carolina
First company participating in such employee benefit plans.
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FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the Merger to holders of CB&T Common Stock. This discussion may
not apply to special situations, such as CB&T shareholders, if any, who hold
CB&T Common Stock other than as a capital asset, who received CB&T Common Stock
upon the exercise of employee stock options or otherwise as compensation, who
hold CB&T Common Stock as part of a "straddle" or "conversion transaction," or
who are insurance companies, securities dealers, financial institutions, or
foreign persons, and does not discuss any aspects of state, local, or foreign
taxation. This discussion is based upon the laws, regulations, rulings, and
decisions now in effect and on proposed regulations, all of which are subject to
change (possibly with retroactive effect) by legislation, administrative action,
or judicial decision. No ruling has been or will be requested from the Internal
Revenue Service on any matter relating to the tax consequences of the Merger.
Consummation of the Merger is conditioned upon receipt by Carolina First
and CB&T of an opinion from Alston & Bird LLP, special counsel to Carolina
First, concerning the material federal income tax consequences of the Merger.
Based upon the assumption that the Merger is consummated in accordance with the
Merger Agreement and upon factual statements and factual representations made by
Carolina First and CB&T, it is such firm's opinion that:
(a) The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
(b) No gain or loss will be recognized by the holders of CB&T Common
Stock upon the exchange in the Merger of all of their shares of CB&T Common
Stock solely for shares of Carolina First Common Stock (except with respect
to any cash received in lieu of a fractional share interest in Carolina
First Common Stock).
(c) No gain or loss will be recognized by Carolina First upon the
receipt of CB&T Common Stock solely in exchange for Interim Bank Common
Stock.
(d) No gain or loss will be recognized by Interim Bank on the transfer
of its assets to CB&T solely in exchange for shares of CB&T Common Stock.
(e) No gain or loss will be recognized by CB&T upon the receipt of the
assets of Interim Bank solely in exchange for shares of CB&T Common Stock.
(f) The aggregate tax basis of the Carolina First Common Stock
received by the CB&T shareholders in the Merger will, in each instance, be
the same as the aggregate tax basis of the CB&T Common Stock surrendered in
exchange therefor, less the basis of any fractional share of Carolina First
Common Stock settled by cash payment.
(g) The holding period of the Carolina First Common Stock received by
the CB&T shareholders will, in each instance, include the period during
which the CB&T Common Stock surrendered in exchange therefor was held,
provided that the CB&T Common Stock was held as a capital asset at the
Effective Time.
(h) The payment of cash to CB&T shareholders in lieu of fractional
share interests of Carolina First Common Stock will be treated for federal
income tax purposes as if the fractional shares were distributed as part of
the exchange and then were redeemed by Carolina First. These cash payments
will be treated as having been received as distributions in full payment in
exchange for the stock redeemed, as provided in Section 302(a) of the Code.
(i) Where solely cash is received by a CB&T shareholder in exchange
for CB&T Common Stock pursuant to the exercise of dissenters' rights, such
cash will be treated as having been received in redemption of such holder's
CB&T Common Stock, subject to the provisions and limitations of Section 302
of the Code.
THE TAX OPINION DOES NOT ADDRESS ANY ISSUES RELATED TO INTERCOMPANY
TRANSACTIONS, ACCOUNTING METHODS, CHANGES IN ACCOUNTING METHODS OR INCOME OR
DEFERRED GAIN RECOGNIZED PURSUANT TO THE TREASURY REGULATIONS
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UNDER SECTION 1502 OF THE CODE. THE TAX OPINION DOES NOT ADDRESS ANY STATE,
LOCAL, FOREIGN, OR OTHER TAX CONSEQUENCES OF THE MERGER. CB&T SHAREHOLDERS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF
THE PROPOSED TRANSACTION TO THEM INDIVIDUALLY, INCLUDING TAX REPORTING
REQUIREMENTS AND TAX CONSEQUENCES UNDER STATE, LOCAL, AND FOREIGN LAW.
ACCOUNTING TREATMENT
It is a condition to the closing of the Merger that KPMG Peat Marwick LLP
issue a written letter that the Merger will be accounted for under the
pooling-of-interests method of accounting. Under the pooling-of-interests method
of accounting, the recorded amounts of the assets and liabilities of CB&T will
be carried forward at their previously recorded amounts. Carolina First and CB&T
currently believe the Merger will qualify for treatment under the
pooling-of-interests method of accounting.
For information concerning certain conditions to be imposed on the exchange
of CB&T Common Stock for Carolina First Common Stock in the Merger by affiliates
of CB&T and certain restrictions to be imposed on the transferability of the
Carolina First Common Stock received by those affiliates in the Merger in order,
among other things, to ensure the availability of pooling-of-interests
accounting treatment, see "-- Resales of Carolina First Common Stock."
EXPENSES AND FEES
The Merger Agreement provides, in general, that each of the parties will
bear and pay its own expenses in connection with the transactions contemplated
by the Merger Agreement, including fees and expenses of its own financial or
other consultants, investment bankers, accountants and counsel, except that each
of Carolina First and CB&T will bear and pay one-half of the filing fees and
printing costs incurred in connection with the Registration Statement and this
Proxy Statement/Prospectus.
If, within six months of the termination of the Merger Agreement for the
reasons described below, any third-party acquires, merges with, combines with,
purchases 25% or more of the assets of, or engages in any other business
combination with, or purchases any equity securities involving an acquisition of
25% or more of the voting stock of, CB&T, or enters into any binding agreement
to do any of the foregoing (collectively, a "Business Combination") or any of
the directors of CB&T individually or with other persons enters into any
commitment, option, agreement, understanding or arrangement (whether or not
binding) with respect to any Business Combination, such third-party shall pay to
Carolina First, prior to the earlier of the consummation of the Business
Combination or execution of any letter of intent or definitive agreement with
CB&T relating to such Business Combination, $1.6 million in cash (the "Break-up
Fee"), which amount represents Carolina First's and CB&T's best estimate of the
value of the management time, overhead, opportunity costs and other costs that
Carolina First incurred by or on behalf of Carolina First in connection with the
transactions contemplated by the Merger Agreement. In the event such third-party
shall refuse to pay such amounts within 10 days of demand therefor by Carolina
First, the amounts shall be an obligation of CB&T and shall be paid by CB&T
promptly upon notice to CB&T by Carolina First. The Break-up Fee shall only be
payable if Carolina First terminates the Merger Agreement because (i) CB&T is in
material breach of any representation, warranty, covenant, or other agreement
contained in the Merger Agreement which cannot be or has not been cured within
30 days after Carolina First has given written notice of such breach, (ii) CB&T
is unable to satisfy or fulfill any of the conditions precedent to the
obligations of Carolina First to consummate the Merger by November 30, 1998
(other than those with respect to the receipt by Carolina First of the fairness
opinion from Robinson-Humphrey or the signed affiliates agreements), (iii) the
CB&T Board fails to reaffirm or support the Merger, or (iv) either party
terminates the Merger Agreement because the CB&T shareholders fail to approve
the Merger Agreement.
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<PAGE> 48
RESALES OF CAROLINA FIRST COMMON STOCK
Carolina First Common Stock to be issued to shareholders of CB&T in
connection with the Merger will be registered under the Securities Act. All
shares of Carolina First Common Stock received by holders of CB&T Common Stock,
and all shares of Carolina First Common Stock issued and outstanding immediately
prior to the Effective Time, upon consummation of the Merger will be freely
transferable by those shareholders of CB&T and Carolina First not deemed to be
"affiliates" of CB&T or Carolina First. "Affiliates" generally are defined as
persons or entities who control, are controlled by, or are under common control
with CB&T or Carolina First at the time of the Special Meeting (generally,
executive officers and directors and controlling shareholders).
SEC Rules 144 and 145 promulgated under the Securities Act restrict the
sale of Carolina First Common Stock received in the Merger by Affiliates and
certain of their family members and related interests. Generally speaking,
during the one-year period following the Effective Time, each Affiliate (and his
family and related interests) of CB&T or Carolina First may resell shares of
Carolina First Common Stock received by him in the Merger in any three-month
period in "brokers' transactions" up to the greater of (i) 1% of the total
outstanding shares of Carolina First Common Stock or (ii) the average weekly
trading volume for the preceding four weeks. After this one-year period,
Affiliates of CB&T who do not become Affiliates of Carolina First may resell
their shares without restriction. Affiliates will receive additional information
regarding the effect of Rules 144 and 145 on their ability to resell Carolina
First Common Stock received in the Merger. Affiliates also would be permitted to
resell Carolina First Common Stock received in the Merger pursuant to an
effective registration statement under the Securities Act or an available
exemption from the Securities Act registration requirements. This Proxy
Statement/Prospectus does not cover any resales of Carolina First Common Stock
received by persons who may be deemed to be Affiliates of CB&T or Carolina
First.
CB&T has agreed to use its reasonable efforts to cause each person who may
be deemed to be an Affiliate of CB&T to execute and deliver to Carolina First
prior to the Effective Time, an agreement (each, an "Affiliate Agreement")
providing that such Affiliate will not sell, pledge, transfer, or otherwise
dispose of or reduce its risk in respect of any Carolina First Common Stock
obtained or to be obtained as a result of the Merger (i) during the 30 days
preceding the Effective Time, (ii) until such time as financial results covering
at least 30 days of post-Merger combined operations of Carolina First and CB&T
have been published, and (iii) except in compliance with the Securities Act and
the rules and regulations of the SEC thereunder. The receipt of these Affiliate
Agreements by Carolina First is also a condition to Carolina First's obligation
to consummate the Merger. Certificates representing shares of CB&T Common Stock
surrendered for exchange by any person who is an Affiliate of CB&T for purposes
of Rule 145(c) under the Securities Act shall not be exchanged for certificates
representing shares of Carolina First Common Stock until Carolina First has
received such a written agreement from such person. Prior to publication of such
combined financial results, Carolina First will not transfer on its books any
shares of Carolina First Common Stock received by any CB&T Affiliate pursuant to
the Merger. The stock certificates representing Carolina First Common Stock
issued to Affiliates in the Merger may bear a restrictive legend to enforce the
foregoing provisions. See "-- Conditions to Consummation of the Merger."
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<PAGE> 49
CERTAIN DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
As a result of the Merger, holders of CB&T Common Stock will exchange their
shares of common stock of a North Carolina banking corporation governed by
Chapter 53 of the General Statutes of North Carolina and the NCBCA and CB&T's
Articles of Incorporation, as amended (the "CB&T Articles") and Bylaws, for
shares of Common Stock of Carolina First, a North Carolina corporation governed
by the NCBCA and Carolina First's Articles of Incorporation (the "Carolina First
Articles") and Bylaws. Certain significant differences exist between the rights
of CB&T shareholders and those of Carolina First shareholders. The differences
deemed material by CB&T and Carolina First are summarized below. The following
discussion is necessarily general; it is not intended to be a complete statement
of all differences affecting the rights of shareholders, and their respective
entities, and it is qualified in its entirety by reference to Chapter 53 of the
General Statutes of North Carolina and the NCBCA as well as the Carolina First
Articles and Bylaws and the CB&T Articles and Bylaws.
Certain provisions of the Carolina First Articles and Bylaws, such as the
authorized preferred stock, the ability to classify the Carolina First Board of
Directors with each class having a term of three years, the procedural
requirements for shareholder proposals and nominations for directors, the
limitation on calling special meetings of shareholders and the effects on
constituencies that the Carolina First Board of Directors are required to
consider, may have the effect of discouraging potential takeovers that certain
shareholders might believe are desirable. These potential anti-takeover effects
are discussed more fully in Carolina First's Proxy Statement dated March 26,
1998. See "Documents Incorporated by Reference."
AUTHORIZED CAPITAL STOCK
Carolina First. Carolina First is authorized to issue an aggregate of
25,000,000 shares of capital stock, consisting of 20,000,000 shares of Common
Stock, of which 4,408,319 shares were issued as of July 31, 1998, and 5,000,000
shares of preferred stock, $1.00 par value, none of which were issued as of July
31, 1998. The Carolina First Board of Directors is authorized to fix and
determine the designations, voting powers (if any), preferences and other
special rights and qualifications, limits or restrictions, relating to any
particular series of preferred stock, including the rates and times at which
dividends shall be paid, redemption provisions, conversion, exchange, purchase
or other privileges, if any, rights upon liquidation, and the terms of the
sinking fund, retirement, redemption or purchase account related thereto, if
any, which will apply to such shares, and any rights of priority to which any
funds or payments allocated therefor will have over the payment of any dividends
or over any sinking fund, retirement, redemption or purchase account, or other
payments or distributions in respect of other series of preferred stock.
No holder of any shares has, as a matter of right, any preemptive or
preferential right to subscribe for, purchase or receive any shares of any kind
or any other corporation's securities or obligations.
Unless otherwise required by Carolina First Articles, each outstanding
share is entitled to one vote upon each matter submitted to a vote in a meeting
of shareholders. The vote of a majority of the shares voted on any matter at a
meeting of shareholders at which a quorum is present shall be the act of the
shareholders on that matter unless the vote of a greater number is required by
law or by the Carolina First Articles or Bylaws.
CB&T. CB&T's authorized capital stock consists only of 4,000,000 shares of
CB&T Common Stock, of which 1,345,080 shares were issued as of the CB&T Record
Date. No preferred stock is authorized. CB&T's shareholders do not have the
preemptive right to purchase or subscribe to any unissued authorized shares of
CB&T Common Stock.
Each outstanding share having voting rights is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders. Except in the election
of directors, the vote of a majority of shares voted on any matter at a meeting
of shareholders at which a quorum is present shall be the act of the
shareholders on that matter, unless the vote of a greater number is required by
law or by the CB&T Articles or Bylaws.
Under Chapter 53 of the North Carolina General Statutes, if CB&T's capital
stock is impaired by losses or otherwise, the Commissioner is authorized to
require payment of the deficiency by assessment upon CB&T's shareholders, pro
rata, and to the extent necessary, if any such assessment is not paid by any
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<PAGE> 50
shareholder, upon 30 days' notice, to sell as much as is necessary of the stock
of such shareholder to make good the deficiency.
AMENDMENTS TO ARTICLES AND BYLAWS
Carolina First. The Carolina First Articles contain a special provision
which states that the Board of Directors may amend, alter, change or repeal any
and all of the bylaws of Carolina First and adopt new bylaws without limitation,
including the adoption of any bylaws relating to supermajority quorum or voting
provisions or the classification or staggering of the Carolina First Board of
Directors.
CB&T. The CB&T Bylaws may be amended or repealed and new bylaws may be
adopted by the affirmative vote of a majority of the directors. However, the
CB&T Board has no power to adopt a bylaw which (i) requires a supermajority of
the voting shares for a quorum or votes to constitute an action by the
shareholders, unless higher percentages are required by law; or (ii) provides
for the management of CB&T otherwise than by the CB&T Board or its executive
committee. The CB&T Board may not alter or repeal any bylaw adopted or amended
by the shareholders.
SHAREHOLDER PROPOSALS
Carolina First. Any shareholder entitled to vote generally in the election
of directors may make proposals for a shareholder vote in connection with any
annual meeting of Carolina First shareholders if that shareholder complies with
certain provisions set forth in the Carolina First Articles. The requirements
include giving advance notice of the proposal within specified time limits prior
to the meeting, the notice must include certain information regarding the
shareholder and the proposal, and the shareholder must be present in person or
by proxy at the meeting at which the proposal is made. The chairman of the
shareholders' meeting may, if the facts warrant, determine and declare to the
meeting that a proposal was not made in accordance with the foregoing
procedures, and if he should so determine and declare to the meeting, the
defective proposal will be disregarded.
CB&T. The CB&T Articles and Bylaws do not contain any comparable
provisions, and do not limit shareholder action.
BOARD OF DIRECTORS AND ABSENCE OF CUMULATIVE VOTING
Carolina First. The Carolina First Bylaws provide that the number of
directors shall be not less than three and not more than 25 and that the Board
of Directors shall determine the exact number within such limits from time to
time by resolution of a majority of the full Board of Directors or by resolution
of the shareholders. If the number of directors is nine or more, the Carolina
First Board of Directors is authorized to adopt Bylaws classifying or staggering
the Board into three classes, with each class elected for a three-year term.
Any directorships not filled by the shareholders may be filled by an
affirmative vote of a majority of the remaining directors, though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. Each director holds
office until the next annual meeting of shareholders and until his successor
shall have been elected and qualified. Nominations for directors to be voted
upon at each annual meeting of shareholders are made by action of the Board of
Directors, in addition to any nominations made by one or more shareholders,
provided that the shareholder complies with certain requirements set out in the
Carolina First Articles. Such requirements include receipt of advance notice by
the Secretary within specified time limits, which notice must contain certain
information with regard to the proposed nominee, and the shareholder must be
present in person or by proxy at a meeting of shareholders called for the
election of directors. The chairman of the shareholders' meeting may, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedures, and if he should so determine
and declare to the meeting, the defective nomination will be disregarded.
Cumulative voting is not permitted in the election of Carolina First directors.
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<PAGE> 51
Each director must hold at least $1,000 aggregate market value of stock of
Carolina First at the time he or she becomes a director, and shall hold such
stock in his or her own name unpledged and unencumbered in any way. Directors
need not be residents of the State of North Carolina. There may be up to three
designations of directors including Active Directors, up to 70 years of age,
Advisory Directors, aged 70 to 75 who have served as an Active Director within
12 months preceding the age of 70, who may attend meetings of the Board of
Directors and take part in discussions but do not have the power to vote, and
Directors Emeritus, aged 75 or older, who are not required to attend or take
part in any meeting of the Board of Directors and do not have the power to vote.
Advisory Directors or Directors Emeritus may be appointed prior to reaching the
ages specified above when such action appears to be desirable and in the
interests of Carolina First.
The Carolina First Bylaws provide that any directorships not filled by the
shareholders shall be treated as vacancies to be filled by and in the discretion
of the Board of Directors.
CB&T. The number of directors is determined by the CB&T Board from time to
time, but in no event shall the CB&T Board have less than six nor more than 25
directors. Directors need not be residents of the State of North Carolina but
must hold shares of CB&T Common Stock representing not less than $1,000 in book
value, which shares must remain unpledged and unencumbered. All elections for
directors are decided by a plurality vote at the annual meeting of shareholders.
If any shareholder so demands, election of directors shall be by ballot. The
CB&T Bylaws provide that in the event of a vacancy on the CB&T Board, it may be
filled by the affirmative vote of a majority of the remaining directors, though
less than a quorum, or by the sole remaining director. A vacancy created by an
increase in the authorized number of directors may be filled only by election at
an annual meeting or at a special meeting of shareholders called for that
purpose. The shareholders may elect a director at any time to fill any vacancy
not filled by the directors. Cumulative voting is not permitted in the election
of CB&T directors.
SPECIAL MEETINGS OF SHAREHOLDERS
Carolina First. Carolina First's Bylaws provide that special meetings may
be called for a specific purpose at any time by the Board of Directors. The
shareholders, however, do not have the right to call a special meeting.
CB&T. The CB&T Bylaws provide that special meetings may be called at any
time by the Chief Executive Officer, the Secretary or the CB&T Board, or
pursuant to the written request of the holders of not less than 10% of all the
shares entitled to vote at the meeting.
SHAREHOLDER ACTION WITHOUT A MEETING
Carolina First. Any action required or permitted to be taken by the
shareholders must be effected at a duly called annual or special meeting and may
not be effected by any consent in writing unless all of Carolina First's Common
Stock is held of record by one shareholder, or unless it is provided in the
designation of the preferences, limitations and relative rights of any series of
Carolina First's preferred stock.
CB&T. Any action taken at a meeting of shareholders may be taken without a
meeting if a consent in writing, setting forth the action, is signed by all
persons who would be entitled to vote at such meeting, and filed with the
Secretary of CB&T and kept in CB&T's Minute Book.
MERGERS, CONSOLIDATIONS, AND SALES OF ASSETS
Carolina First. The Carolina First Articles provide that the Board of
Directors when exercising its judgment in determining what is in the best
interests of Carolina First and its shareholders in evaluating an actual or
proposed business combination, a tender or exchange offer, a solicitation of
options or offers to purchase or sell shares to Carolina First by another
person, or a solicitation of proxies to vote shares of Carolina First by another
person, may, in addition to considering the adequacy of any consideration to be
paid or received in connection with such transaction, consider the following
factors and any other factors which it deems relevant: (i) the social and
economic effects of the transaction or proposal on Carolina First and any of its
subsidiaries, its and their employees, depositors, loan and other customers,
creditors and the communities
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in which Carolina First and its subsidiaries operate or are located; (ii) the
business and financial condition, and earnings prospects of the acquiring person
or persons, including, but not limited to, debt service and other existing
financial obligations, financial obligations to be incurred in connection with
the acquisition, and other likely financial obligations of the acquiring person
or persons, and the possible effect of such conditions upon Carolina First and
its subsidiaries and the other elements of the communities in which Carolina
First and its subsidiaries operate or are located; (iii) the competence,
experience and integrity of the person and their management proposing or making
such actions; (iv) the prospects for a successful conclusion of the business
combination; and (v) Carolina First's prospects as an independent entity.
However, no constituency has the right to be considered by the Board of
Directors in connection with any transaction or matter.
The Carolina First Bylaws specifically exclude the provisions of Articles 9
and 9A of the NCBCA (the North Carolina Shareholder Protection Act and the North
Carolina Control Share Acquisition Act, respectively). Accordingly, under the
NCBCA, a plan of merger or consolidation, or a proposal to sell all or
substantially all of the assets of Carolina First, otherwise than in the normal
course of business, must be approved by a majority of all of the votes entitled
to be cast on such a proposal.
CB&T. In general, transactions effectuating a plan of merger or share
exchange, or a sale of assets other than in the regular course of business, are
not addressed by the CB&T Articles or Bylaws. Pursuant to Section 53-12 of the
General Statutes of North Carolina, holders of at least two-thirds of the stock
of a banking corporation must vote in favor of a merger or consolidation
proposal.
The CB&T Bylaws also exclude the provisions of Articles 9 and 9A of the
NCBCA.
EXCULPATION OF DIRECTORS
Carolina First. The Carolina First Articles and Bylaws contain a provision
eliminating the liability of the directors for money damages pursuant to Section
55-8-57 of the NCBCA.
CB&T. The CB&T Articles and Bylaws do not contain a comparable exculpation
provision.
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<PAGE> 53
COMPARATIVE MARKET PRICES AND DIVIDENDS
Carolina First Common Stock is traded in the over-the-counter market and is
quoted in the "pink sheets" (the "Pink Sheets") under the symbol "CAFP". The
following table sets forth the high and low bid quotations for shares of
Carolina First Common Stock as reported in The Charlotte Observer and the cash
dividends declared per share for the periods indicated. Such quotations reflect
inter-dealer prices without markup, markdown or commission and may not
necessarily represent actual transactions. The prices and dividends have been
adjusted to reflect the 5-for-4 stock split paid on August 23, 1996, and the
2-for-1 stock split paid on August 22, 1997.
Carolina First is applying to have Carolina First Common Stock approved for
quotation on the Nasdaq National Market following the Effective Time. However,
there can be no assurance such application will be approved or that any active
trading market will develop for the Common Stock or, if developed, will be
maintained.
<TABLE>
<CAPTION>
DIVIDENDS DECLARED
BID PER SHARE OF PER SHARE OF
CAROLINA FIRST CAROLINA FIRST
COMMON STOCK COMMON STOCK
----------------- ------------------
HIGH LOW
------- -------
<S> <C> <C> <C>
1998
- ------------------------------------------------------------
First Quarter............................................... $31.00 $28.00 $0.08
Second Quarter.............................................. 34.00 31.00 0.08
Third Quarter (through August 12, 1998)..................... 36.00 34.00 --
1997
- ------------------------------------------------------------
First Quarter............................................... $17.00 $16.00 $0.06
Second Quarter.............................................. 19.25 17.00 0.06
Third Quarter............................................... 22.00 19.25 0.08
Fourth Quarter.............................................. 28.00 22.00 0.08
1996
- ------------------------------------------------------------
First Quarter............................................... $12.00 $10.80 $0.05
Second Quarter.............................................. 13.00 12.00 0.05
Third Quarter............................................... 15.00 13.00 0.06
Fourth Quarter.............................................. 16.00 15.00 0.06
</TABLE>
On June 3, 1998, the last day prior to public announcement that Carolina
First and CB&T had executed the Merger Agreement, the last reported sale price
per share of Carolina First Common Stock in the Pink Sheets was $34.00, and the
resulting equivalent pro forma price per share of CB&T Common Stock was $24.82.
On August 12, 1998, the last reported sale price per share of Carolina First
Common Stock was $34.00, and the resulting equivalent pro forma price per share
of CB&T Common Stock was $24.82. The equivalent per share price of a share of
CB&T Common Stock at each specified date represents the bid quotation of a share
of Carolina First Common Stock on such date multiplied by an assumed exchange
ratio of 0.73.
There is no established trading market for the CB&T Common Stock;
transactions in the stock are privately negotiated between individuals. CB&T
attempts to facilitate private transactions by matching persons who have
indicated an interest in buying and selling stock. Therefore, no reliable
information is available as to trades of such shares or the prices at which such
shares have traded. Based upon the limited
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<PAGE> 54
information available to it, CB&T believes that the following table sets forth
the high and low prices paid for CB&T Common Stock, and the cash dividends
declared per share for the periods indicated.
<TABLE>
<CAPTION>
TRADE PRICE PER SHARE OF
CB&T COMMON STOCK ANNUAL DIVIDENDS DECLARED
------------------------ PER SHARE OF
HIGH TRADE LOW TRADE CB&T COMMON STOCK
----------- ---------- -------------------------
<S> <C> <C> <C>
1998
- ----
First Quarter..................................... $11.00 $7.25 $ --
Second Quarter.................................... -- -- 0.12
Third Quarter (through August 12, 1998)........... -- -- --
1997
- ----
First Quarter..................................... $ 8.00 $6.75 $0.12
Second Quarter.................................... 8.00 7.00 --
Third Quarter..................................... 7.50 7.25 --
Fourth Quarter.................................... 9.00 8.00 --
1996
- ----
First Quarter..................................... $ 6.67 $6.00 $ --
Second Quarter.................................... 7.20 6.79 0.08
Third Quarter..................................... 8.00 6.00 --
Fourth Quarter.................................... 7.50 6.00 --
</TABLE>
To the knowledge of CB&T, the most recent trade of CB&T Common Stock prior
to June 3, 1998, the last day prior to public announcement that Carolina First
and CB&T had executed the Merger Agreement, was 1920 shares at $8.50 per share
on March 18, 1998. The average price of the last ten known trades was $9.10 per
share. To the knowledge of CB&T, there have been no trades since the
announcement of the Merger.
The foregoing information regarding CB&T Common Stock is provided for
informational purposes only and, due to the absence of an active market for
CB&T's shares, should not be viewed as indicative of the actual or market value
of CB&T Common Stock.
<TABLE>
<CAPTION>
EQUIVALENT PRO FORMA
PRICE PER SHARE
OF CB&T COMMON
STOCK(1)
----------------------
HIGH TRADE LOW TRADE
---------- ---------
<S> <C> <C>
1998
- ----
First Quarter............................................... $22.63 $20.44
Second Quarter.............................................. 24.82 22.63
Third Quarter (through August 12, 1998)..................... 26.28 24.82
1997
- ----
First Quarter............................................... $12.41 $11.68
Second Quarter.............................................. 14.05 12.41
Third Quarter............................................... 16.06 14.05
Fourth Quarter.............................................. 20.44 16.06
1996
- ----
First Quarter............................................... $ 8.76 $ 7.88
Second Quarter.............................................. 9.49 8.76
Third Quarter............................................... 10.95 9.49
Fourth Quarter.............................................. 11.68 10.95
</TABLE>
- ---------------
(1) Pro forma equivalent market values per share of CB&T Common Stock represent
the historical market value per share of Carolina First Common Stock
multiplied by an assumed exchange ratio of 0.73.
The holders of Carolina First Common Stock are entitled to receive
dividends when and if declared by the Carolina First Board of Directors out of
funds legally available therefor. Carolina First has paid regular
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<PAGE> 55
cash dividends on its Common Stock on a quarterly basis for the past five years
and intends to continue its current dividend policy, but there can be no
assurance that Carolina First's dividend policy will remain unchanged after
completion of the Merger. The declaration and payment of dividends thereafter
will depend upon the earnings of Carolina First and its subsidiaries,
principally CB&T and the Banks, their financial condition, capital adequacy,
applicable governmental regulations and policies, and the Carolina First Board
of Directors' consideration of other relevant factors. For information with
respect to the effect of provisions of the Merger Agreement on CB&T's ability to
pay dividends on CB&T Common Stock during the pendency of the Merger, see
"Description of the Merger -- Conduct of Business Pending the Merger."
Carolina First is a legal entity separate and distinct from its
subsidiaries and its revenues depend in significant part on the payment of
dividends from its subsidiary depository institutions. Carolina First's
subsidiary depository institutions are subject to certain legal restrictions on
the amount of dividends they are permitted to pay. See "Supervision and
Regulation -- Payment of Dividends."
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<PAGE> 56
BUSINESS OF CB&T
GENERAL
CB&T was incorporated on November 28, 1987 under the laws of the State of
North Carolina as a state-chartered commercial bank serving the citizens and
business interests of Marion, North Carolina and surrounding communities. CB&T
conducts its business from its main offices located at 112 North Main Street,
Rutherfordton, North Carolina and seven branch offices. CB&T is primarily
engaged in the business of attracting commercial and retail deposits from the
general public and using such deposits to provide a broad range of secured and
unsecured consumer and commercial loan products. The principal deposit services
offered by CB&T include checking, NOW, money markets, savings and other time
deposit accounts. As of March 31, 1998, CB&T had total assets of approximately
$101 million, total deposits of approximately $89 million, and total
shareholders' equity of approximately $10 million.
The majority of CB&T's deposit and loan customers are individuals and small
to medium-sized businesses located in CB&T's market area. CB&T's primary source
of revenue is interest income from its lending activities. CB&T's other major
sources of revenue are interest and dividend income from investments, its
interest-earning deposits in other depository institutions, and transaction and
fee income from its lending and deposit activities. The major expenses of CB&T
are interest on deposits and general and administrative expenses such as
employee compensation and benefits and occupancy expenses.
The operations of CB&T and depository institutions in general are
significantly influenced by general economic conditions and by related monetary
and fiscal policies of depository institution regulatory agencies, including the
Federal Reserve, the FDIC and the Commissioner. Deposit flows and cost of funds
are influenced by interest rates on competing investments and general market
rates of interest. Lending activities are affected by the demand for financing,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds.
Additional information with respect to CB&T is included herein. CB&T's
principal executive offices are located at 2 South Main Street, Marion, North
Carolina 28752, and its telephone number at such address is (828) 652-1112. See
"Summary -- The Parties" and "Available Information."
COMPETITION
CB&T is a relatively small competitor in the markets it serves, and faces
strong competition both in attracting deposits and making loans. Competition for
deposits includes savings institutions, credit unions, brokerage firms and
commercial banks located in its primary market area, and large financial
institutions which have greater financial, personnel and marketing resources
available to them. CB&T also faces additional significant competition for
interest-bearing funds from a number of other financial intermediaries and
investment alternatives, including mutual funds, brokerage and insurance firms,
investment advisors, government and corporate bonds and short-term money market
securities. The ability of CB&T to attract and retain deposits depends on its
ability to generally provide a rate of return, liquidity and risk comparable to
that offered by competing investment opportunities.
CB&T experiences strong competition for loans from savings institutions,
commercial banks, insurance companies, mortgage banking companies, brokerage
firms, finance companies and specialty lenders. CB&T competes for loans
primarily through the interest rates and loan fees it charges, and the
efficiency and quality of services it provides borrowers, including its
flexibility. Competition may increase as a result of the continuing reduction of
restrictions on the interstate operations of financial institutions. CB&T
competes for deposits, loans and other business with a number of major banks and
bank holding companies which have numerous offices and facilities operating over
wide geographic areas. Other competitors such as thrifts, credit unions,
mortgage companies, brokerage firms, finance companies and specialty lenders and
other local and non-local financial institutions also compete with CB&T through
a local presence or through offerings by mail, telephone or over the internet.
Among the advantages certain of these institutions may have compared to CB&T are
the ability to finance extensive advertising campaigns and the ability to
allocate and diversify their assets among loans and securities of the highest
yield in locations with the greatest demand. Some of the
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<PAGE> 57
competitors are subject to less regulation and more favorable tax treatment than
CB&T. Many of the major commercial banks in CB&T's service area offer services
such as trust, international banking and investment services which are not
offered by CB&T. Such competitors, because of their greater capacity, also have
substantially higher lending limits than CB&T, and because of their size and
geographic diversification are better able to absorb risk.
PROPERTIES
At December 31, 1997, CB&T conducted its business from the headquarters
office in Rutherfordton, North Carolina, and its seven branch offices in Marion,
Forest City, Sylva, Banner Elk, Black Mountain and Brevard, North Carolina. The
total net book value of CB&T's real property on December 31, 1997 was
$2,097,312. Unless indicated otherwise, all properties are held in fee simple by
CB&T.
CB&T leases the two office sites located in Black Mountain and Brevard. The
term of the Black Mountain lease expires on December 31, 2008 and the lease
payments are $2,300 per month. The term of the Brevard lease expires on December
31, 2008 and the lease payments are $3,777 per month.
The total net book value of CB&T's furniture, fixtures and equipment on
December 31, 1997 was $1,437,583. All properties are considered by CB&T's
management to be in good condition and adequately covered by insurance.
LEGAL PROCEEDINGS
CB&T is not involved in any pending legal proceedings other than routine,
non-material proceedings that are incidental to its business.
MANAGEMENT
The following table sets forth information about the directors of CB&T.
<TABLE>
<CAPTION>
AGE ON PRINCIPAL OCCUPATION DURING
NAME MARCH 31, 1998 LAST FIVE YEARS DIRECTOR SINCE
- ---- -------------- --------------------------- --------------
<S> <C> <C> <C>
Harold D. Alexander 62 President and Owner, Young & 1987
Alexander, 1987 Inc. (Electrical
Contractor)
Ronnie D. Blanton 40 President and Chief Executive Officer 1992
of CB&T
Dr. Nagui R. El-Bayadi 63 President and Owner, Sylva Surgical 1993
Associates, P.A.; Staff Surgeon, C.J.
Harris Hospital
Delos R. Hall 53 President and Owner, Country Road 1993
Farms, Inc. (Nursery and Garden
Center)
Jack L. Lutz 60 Co-owner, Lutz Corporation (Petroleum 1987
Products Sales and Real Estate
Rentals); Co-Owner, L & L Partnership
(Commercial Real Estate Leasing); and
Co-Owner, JL Rentals (Real Estate
Rentals)
Thomas M. Robbins 63 Secretary and Treasurer, Tri-City 1987
Concrete Co., Inc. (Ready Mix
Concrete Sales); Co-Owner,
Rutherfordton Properties (Real Estate
Rentals) and Robbins Leasing
(Equipment Rentals)
</TABLE>
48
<PAGE> 58
DIRECTOR COMPENSATION
During the fiscal year ended December 31, 1997, outside directors received
a fee of $400 for each Board of Directors meeting attended. An additional fee of
$100 was paid to outside directors for each committee meeting attended, if not
held on the same day as a Board of Directors meeting. No director who was also a
salaried employee of CB&T received remuneration for his or her service on CB&T's
Board or any committee of the Board of Directors.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are executive officers of CB&T.
<TABLE>
<CAPTION>
AGE ON POSITIONS AND OCCUPATIONS EMPLOYED BY
NAME MARCH 31, 1998 DURING LAST FIVE YEARS CB&T SINCE
---- -------------- ------------------------- -----------
<S> <C> <C> <C>
Ronnie D. Blanton........ 40 President and Chief Executive Officer of 1989
CB&T
Alan W. Jackson.......... 36 Senior Vice President and Chief Financial 1991
Officer of the Bank
</TABLE>
MANAGEMENT COMPENSATION
The following table shows, for the three fiscal years ending December 31,
1997, 1996 and 1995, the cash compensation paid by CB&T, as well as certain
other compensation paid or accrued for those years, to CB&T's Chief Executive
Officer. No other executive officer received more than $100,000 annual salary
and bonus.
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION COMPENSATION(2)
------------------------------------------ ---------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ---- ------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Ronnie D. Blanton, Director, President and Chief
Executive Officer............................. 1997 $82,500 $26,010 $ -- $1,031
1996 72,933 28,545 -- 1,004
1995 67,518 -- -- 908
</TABLE>
- ---------------
(1) Perquisites for the fiscal year did not exceed the lesser of $50,000, or 10%
of salary and bonus as reported for Mr. Blanton.
(2) Consists of amounts contributed to CB&T's 401(k) Savings Plan by CB&T for
Mr. Blanton's benefit.
EMPLOYMENT AGREEMENTS
CB&T has entered into employment agreements with Ronnie D. Blanton and Alan
W. Jackson in order to establish their duties and compensation and to provide
for their continued employment with CB&T. The agreements provide for an initial
term of employment of three years. Commencing on the first anniversary date and
continuing on each anniversary date thereafter, unless notice of a non-extension
is given by either party, each agreement is automatically extended for an
additional year so that the remaining term shall always be no less than two and
no more than three years. Mr. Blanton's agreement provides for an annual base
salary of $82,500. Mr. Jackson's agreement provides for an annual base salary of
$80,000. The agreements also provide that the base salary shall be reviewed by
the CB&T Board not less often than annually. In addition, the employment
agreements provide for profitability and discretionary bonuses and participation
in other pension, profit-sharing or retirement plans maintained by CB&T, as well
as fringe benefits normally associated with such employee's office. The
employment agreements provide that they may be terminated by CB&T for cause, as
defined in the agreements, and that they may otherwise be terminated by CB&T
(subject to vested rights) or by the employee.
49
<PAGE> 59
Each employment agreement provides that upon (i) termination of employment
by CB&T or the employee within one year after a change in control not approved
by the CB&T's Board; or (ii) the required relocation of the of the employee to
more than 20 miles from Marion, North Carolina, or the diminishment of the
nature of the employee's compensation, duties or benefits within one year
following a change in control approved by CB&T's Board, the employee will
receive an amount equal to 3.99 times his salary plus bonuses.
For purposes of the employment agreements, a "change in control" means (i)
a change in control of CB&T of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act; (ii) the acquisition of control, within the meaning of Section
2(a)(2) of the Bank Holding Act of 1956, as amended, or Section 602 of the
Change in Control Act of 1978, of CB&T by any person; (iii) if any person is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of CB&T representing 30% or more of
the combined voting power of CB&T's then outstanding securities; or (iv) during
any period of two consecutive years, individuals who at the beginning of the
term of the employment agreement constitute the CB&T Board cease for any reason
to constitute at least a majority thereof unless the election, or the nomination
for election by CB&T's shareholders, of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were directors
at the beginning of the term.
Mr. Blanton has executed a new employment agreement with CB&T to be
effective at the Effective Time. Mr. Jackson has resigned effective as of the
Effective Time pursuant to a severance agreement. Mr. Jackson has also entered
into a consulting agreement, to be effective as of the Effective Time. See
"Description of the Merger -- Management and Operations After the Merger;
Interests of Certain Persons in the Merger."
STOCK OPTION PLAN
The CB&T Stock Option Plan (the "CB&T Plan") authorizes CB&T's Board, at
its discretion from time to time, to grant options to purchase shares of CB&T's
Common Stock to officers or directors of CB&T. The CB&T Plan is administered by
a committee of three non-employee members (the "Compensation Committee") of the
Board of Directors, appointed by the Chairman of the Board of Directors. The
Compensation Committee makes recommendations to the CB&T Board relating to the
grant and terms of the options and interprets the provisions of the CB&T Plan.
Pursuant to the CB&T Plan, options to purchase up to 10% of the outstanding
shares of the Common Stock (133,122 shares at December 31, 1997) can be granted
over a period of 10 years following the effective date of the CB&T Plan at a
price per share of no less than 100% of the fair market value of a share of the
Common Stock on the date of grant (as determined by the CB&T Board in the manner
described in the CB&T Plan). The aggregate price of shares purchased upon the
exercise of an option is to be paid in cash at the time of purchase. CB&T
receives no payment upon the grant of an option.
At the time an option is granted, the CB&T Board sets the expiration date
and other terms of such option and may impose certain conditions on its
exercise. In the event an optionee's employment or directorship with CB&T is
terminated, then his option will terminate at the end of three months
thereafter. Options held by an optionee who dies while an employee or director
of CB&T or within three months following retirement may be exercised by the
optionee's executor, administrator, legatees or heirs, within one year following
the optionee's death, to the same extent such options were exercisable by the
optionee on such date of death. In no event, however, may any option be
exercised more than seven years after the date it was granted.
The number of shares and option price called for by each option granted
under the CB&T Plan will be adjusted proportionately to reflect the effect of
stock dividends or stock splits by CB&T or certain other increases or decreases
in CB&T's outstanding Common Stock. Although options granted will automatically
terminate upon the effective date of the dissolution or liquidation of CB&T or a
merger or consolidation of CB&T in which it is not the surviving entity, CB&T
will be the surviving entity from the Merger, and all CB&T options outstanding
at the Effective Time will be assumed by Carolina First. The terms of a
previously granted option cannot be amended without the consent of the optionee.
See "Description of the Merger -- Management and Operations After the Merger;
Interests of Certain Persons in the Merger."
50
<PAGE> 60
As of June 30, 1998, seven employees and the relative of one deceased
employee, participated in the CB&T Plan. Unexpired options to purchase an
aggregate of 76,000 shares at a price of from $5.83 to $7.00 per share have been
granted pursuant to the CB&T Plan, including options for 25,000 shares and
16,000 shares granted to Mr. Blanton and Mr. Jackson, respectively. No options
were granted or exercised during the fiscal year ending December 31, 1997.
During the period January 1, 1998 through June 30, 1998 no options were granted,
and options to purchase 11,714 shares of CB&T Common Stock were exercised. The
granted options vest in equal increments over either a five- or seven-year
period with the first increment vesting one year after the date of grant. The
options expire if not exercised within seven years after the date of grant.
All of the stock options granted to employees are intended to be incentive
stock options. In the case of an incentive stock option, an optionee is not
deemed to have received taxable income upon the grant or exercise of the stock
option, provided the shares are not disposed of by the optionee for at least one
year after the date of exercise and two years after the date of grant. No
compensation deduction may be taken by CB&T at the time of the grant or exercise
of an incentive option, assuming these holding periods are satisfied.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
DATE OF EXERCISE ACQUIRED VALUE OPTIONS/SARS AT 1997 IN-THE-MONEY OPTIONS
NAME GRANT PRICE ON EXERCISE REALIZED FISCAL YEAR END(1) AT 1997 FISCAL YEAR END(2)
---- ------- -------- ----------- -------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ronnie D. Blanton...... 12/31/93 $ 7.00 $0 $0 14,286 10,714 $14,429 $10,821
</TABLE>
- ---------------
(1) No stock appreciation rights (SARs) have been granted by CB&T.
(2) The average price paid for the Common Stock in the last ten trades known to
management to have occurred prior to December 31, 1997 was $8.01.
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT
Certain directors and executive officers of CB&T and their immediate
families and associates were customers of and had transactions with CB&T in the
ordinary course of business during 1997. All outstanding loans, extensions of
credit or overdrafts, endorsements and guarantees outstanding at any time during
1997 (i) were made in the ordinary course of business; (ii) were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons; and (iii)
were transactions which in the opinion of management of CB&T did not involve
more than the normal risk of collectibility or present other unfavorable
features. During the fiscal year ended December 31, 1997, the highest aggregate
amount of extensions of credit outstanding to directors and executive officers,
together with their associates, was $1,308,472, or 13.20% of the equity capital
accounts of CB&T at that time.
BENEFICIAL OWNERSHIP OF CB&T COMMON STOCK
Set forth below is certain information, as of June 30, 1998, regarding
those persons or groups who held of record or who are known to CB&T to own
beneficially, more than five percent of CB&T's outstanding Common Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF %
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(2)
------------------- ----------------------- -----------
<S> <C> <C>
Kenneth R. Hughes............................ 92,745 6.91%
200 Huntley Street
Spindale, NC 28160
</TABLE>
- ---------------
(1) Unless otherwise noted, all shares are owned directly of record by the named
individuals, by their spouses and minor children, or by other entities
controlled by the named individuals.
(2) Based upon a total of 1,342,937 shares of Common Stock outstanding as of
June 30, 1998.
51
<PAGE> 61
Set forth below is certain information as of June 30, 1998, regarding those
shares of Common Stock owned beneficially by each of the members of the Board of
Directors of CB&T (including nominees for election at the Meeting), and the
directors and executive officers of CB&T as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF %
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS(2)
- ------------------- ----------------------- -----------
<S> <C> <C>
Harold D. Alexander.......................... 63,801 4.75%
111 Anne Street
Rutherfordton, NC 28139
Ronnie D. Blanton............................ 14,526(3) 1.07%
115 Grahams Fort Drive
Grover, NC 28073
Nagui El-Bayadi.............................. 9,126 0.68%
181 Monteith Branch Road
Sylva, NC 28779
Delos R. Hall................................ 4,146 0.31%
41 Hall Town Road
Sylva, NC 28779
Jack L. Lutz................................. 17,694 1.32%
827 East Main Street
Forest City, NC 28043
Thomas M. Robbins............................ 28,037 2.09%
1527 Highway 120
Mooresboro, NC 28114
All current directors and executive officers
as a group (7 people)...................... 149,104 10.99%
</TABLE>
- ---------------
(1) Unless otherwise noted, all shares are owned directly of record by the named
individuals, by their spouses and minor children, or by other entities
controlled by the named individuals.
(2) The calculation of the percentage of class beneficially owned by each
individual and by the group as a whole is based, in each case, on a number
of total outstanding shares equal to the 1,342,937 shares outstanding as of
June 30, 1998, plus the number of shares capable of being issued to that
individual (if any) and to the group as a whole within 60 days upon the
exercise of stock options held by each of them (if any) and by the group,
respectively.
(3) Includes 14,286 shares of Common Stock which could be purchased within 60
days pursuant to the exercise of stock options granted to the named
beneficial owner under the CB&T Plan.
52
<PAGE> 62
CB&T MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1998 AND 1997
Analysis of Financial Condition. At March 31, 1998 total assets were
$100.6 million, compared to $94.9 million at December 31, 1997. Deposits
increased 7.4% from $82.5 million at December 31, 1997 to $88.5 million at March
31, 1998 as CB&T experienced increases in all deposit categories. The increase
in federal funds sold is a direct result of the increase in deposits while loans
and securities decreased slightly.
Loans and Allowance for Loan Losses. Loans are stated at the amount of
unpaid principal, reduced by an allowance for loan losses. Loan origination fees
and certain direct loan origination costs are deferred and amortized over the
estimated life of the loan using a method that approximates a level yield.
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Construction.................................... $ 1,193,714 $ 1,536,731
Commercial...................................... 4,246,658 4,270,658
Real estate 1 -- 4 family....................... 28,501,776 28,631,949
Real estate -- other............................ 15,827,312 15,527,505
Installment..................................... 5,873,239 6,105,936
Overdrafts...................................... 29,016 32,713
----------- -----------
55,671,715 56,105,492
Less allowance for loan losses.................. (806,721) (798,293)
----------- -----------
Loans, net...................................... $54,864,994 $55,307,199
=========== ===========
</TABLE>
Interest accrual ceases when a loan exceeds 90 days past due in all
instances. Also, the accrual of interest is suspended when, in management's
judgment, there is doubt as to the collectibility of additional interest within
a reasonable time. Loans are returned to accrual status when management
determines, based on an evaluation of the underlying collateral together with
the borrower's payment record and financial condition, that the borrower has the
ability and intent to meet the contractual obligations of the loan agreement.
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
<S> <C> <C>
Nonaccrual loans................................ $155,000 $ 3,400
Foreclosed properties........................... 71,400 71,400
-------- -------
Nonperforming assets............................ $226,400 $74,800
======== =======
</TABLE>
The increase in nonaccrual loans since December 31, 1997 relates primarily
to one lending relationship which in management's judgment doubt existed as to
the ultimate collectibility of outstanding principal balances due. Foreclosed
properties at each period end represent two unimproved real estate parcels.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses inherent in existing loans, based on periodic
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, collateralization of specific loans, and current economic
conditions and trends that may affect the borrowers' ability to pay.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review CB&T's allowance for loan losses. Such
agencies may require CB&T to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
53
<PAGE> 63
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
-------------------
1998 1997
-------- --------
<S> <C> <C>
Beginning Balance........................................... $798,293 $824,466
Provision for loan losses................................... 0 0
Loans charged off........................................... (3,709) (3,893)
Recoveries on loans charged off............................. 12,137 8,664
-------- --------
Ending Balance.............................................. $806,721 $829,237
======== ========
</TABLE>
Management considers loans to be impaired when based on current information
and events, it is probable that CB&T will be unable to collect all amounts due
according to contractual terms of the loan agreement. Factors that influence
management's judgments include, but are not limited to, loan payment pattern,
source of repayment, and value of collateral. A loan would not be considered
impaired if an insignificant delay in loan payment occurs and management expects
to collect all amounts due. The major sources for identification of loans to be
evaluated for impairment include past due and nonaccrual reports, internally
generated lists of loans of certain risk grades, and regulatory reports of
examination. Impaired loans are measured using either the discounted expected
cash flow method or the value of collateral method.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. When
this doubt no longer exists, cash receipts are applied under the contractual
terms of the loan agreement to principal and then to interest income. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent that any interest has been foregone.
Future cash receipts are recorded as recoveries of any amounts previously
charged off.
At March 31, 1998 and December 31, 1997, the recorded investment in loans
that were considered to be impaired was approximately $150,000 and $0,
respectively, of which all were on nonaccrual and had a related allowance. The
related allowance for loan losses for these loans totaled approximately $34,000
and $0 at March 31, 1998 and December 31, 1997, respectively. The average
recorded investment in impaired loans for the three months ended March 31, 1998
and 1997 was approximately $37,000 and $34,000, respectively. No interest income
was recorded on impaired loans during the quarters ended March 31, 1998 and
1997. Interest income not recognized on nonaccrual loans was approximately
$4,160 and $1,050 during the quarters ended March 31, 1998 and 1997,
respectively.
Results of Operations. CB&T's net income for the three months ended March
31, 1998 was $100,568, a 35.3% increase over the $74,344 recorded in the same
period of 1997.
Net interest income for the 1998 quarter was $1,028,083, a slight increase
over net interest income of $1,004,559 for the same period last year.
Several factors affected net interest income during the first quarter of
1998. While interest income increased approximately $100,000 on strong loan
demand and larger federal funds positions, yields on interest-earning assets
declined from 8.6% at March 31, 1997 to 8.3% a year later. Similarly, interest
expense for the first quarter of 1998 was approximately $76,000 higher than in
the year earlier period. This increased expense is primarily attributable to
deposit growth of over $6 million in the 1998 first quarter.
CB&T continues to experience downward pressure on net interest margins.
CB&T's net interest margin has declined from 5.3% at March 31, 1997 to 5.24% at
December 31, 1997 to 4.94% at March 31, 1998. As CB&T continues to experience
significant deposit growth, especially interest-bearing deposits, pressure to
maintain interest margins will continue if deposit increases have to be
channeled into lower yielding liquid assets due to flat or slow loan growth.
CB&T actively monitors the interest rates paid on deposits and makes periodic
adjustments to ensure CB&T's net interest margins are not severely impacted.
54
<PAGE> 64
Noninterest income decreased 7.4% between the 1997 and 1998 first quarters
as CB&T experienced reductions in non-sufficient funds fee income and insurance
commissions. Noninterest expense decreased 3.4% from $1,212,387 in 1997 to
$1,171,079 in 1998 as decreases in salaries and employee benefits and other
noninterest expenses more than offset an increase in expenses of premises and
fixed assets.
Liquidity. The liquidity of a bank measures its access to or ability to
raise funds. Sustaining adequate liquidity requires a bank to ensure the
availability of funds to satisfy reserve requirements, loan demand, deposit
withdrawals, and maturing liabilities while funding asset growth and producing
appropriate earnings. Liquidity is provided through maturities and repayments of
loans and investments, deposit growth, and access to sources of funds other than
deposits, such as the federal funds market or other borrowing sources.
CB&T's primary liquid assets are cash and due from banks and federal funds
sold. At March 31, 1998, the ratio of liquid assets to total deposits was 18.3%
compared to a ratio of 11.9% at December 31, 1997, reflecting the aforementioned
increase in deposits and federal funds sold.
Stockholders' Equity and Capital Adequacy. CB&T's total stockholders'
equity was $10,005,683 at March 31, 1998 and $9,886,364 at December 31, 1997.
Components of the increase include $100,568 from CB&T's net income for the 1998
first quarter and an increase of $18,751 due to unrealized gains (net) on
securities available for sale.
Risk-based capital guidelines define capital as "core," or Tier 1 capital,
and "supplementary," or Tier 2 capital. Core capital consists of common
stockholders' equity while "supplementary," or Tier 2 capital, consists of the
allowance for loan losses, subject to certain limitations. These amounts are
referred to collectively as total qualifying capital. Banks are expected to meet
a minimum ratio of total qualifying capital to risk adjusted assets of 8.0%.
CB&T's risk-based capital ratio was 15.1% at March 31, 1998.
In addition to the risk-based capital guidelines mentioned above, banking
regulatory agencies have adopted leverage capital ratio requirements. The
leverage ratio -- or core capital to assets ratio -- works in tandem with the
risk-based capital guidelines. The minimum leverage ratios range from three to
five percent. At March 31, 1998, CB&T's leverage capital ratio was 7.56%.
Management is not presently aware of any current recommendations to CB&T by
regulatory authorities which, if they were to be implemented, would have a
material effect on CB&T's liquidity, capital resources, or operations.
Year 2000 Consideration. CB&T utilizes many computer software programs and
operating systems throughout the organization. Some of these software
applications contain source code that is unable to appropriately interpret the
upcoming calendar Year 2000. Therefore some level of modification, or even
possibly replacement, of such applications will be necessary. CB&T is currently
in the process of completing its identification of applications that are not
Year 2000 compliant. Given information known at this time about CB&T's on-going,
normal course-of-business efforts to upgrade or replace business critical
systems as necessary, management has not fully determined an estimated cost to
become Year 2000 compliant. At March 31, 1998, management does not anticipate
that the total costs of becoming Year 2000 compliant will have a material
adverse impact on CB&T's liquidity or its results of operations, but no
assurance can be given. CB&T is expensing all costs associated with required
system changes as the costs are incurred.
CB&T recognizes the potentially severe implications of the "Year 2000
Issue" and is actively pursuing solutions. The "Year 2000 Issue" is a general
term used to describe the various problems that may result from the improper
processing of date and date-sensitive calculations by computers and other
machinery as the Year 2000 approaches. These problems generally arise because
most computer hardware and software historically have used only two digits to
identify the applicable year. Since there may be no accommodation for the full
four-digit year, computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
error could result in system failure or miscalculations causing disruption of
operations, including among other things a temporary inability to process
customer transactions, properly accrue interest income and expense or engage in
similar normal business activities. In addition, non-banking systems such as
security alarms, telephones, vaults, etc. are also subject to malfunction due to
their dependence upon software that utilizes special codes and conventions using
the date field. The CB&T Board
55
<PAGE> 65
has approved a Year 2000 Action Plan ("Action Plan") that has been developed in
accordance with the Federal Financial Institutions Examination Council (FFIEC)
guidelines. In the implementation of the Action Plan, CB&T has performed a
thorough inventory on all hardware, software and facilities that might be
impacted by the Year 2000 Issue. CB&T does not perform in-house programming of
its software. Therefore, it is dependent upon its third-party vendors for
modifications or conversions of its existing systems to correct the effects of
the Year 2000 Issue. CB&T is soliciting written documentation from all of its
software and hardware vendors with respect to their action plans for remediation
and testing. The vendor of CB&T's core processing system has indicated to CB&T
that its product will be tested and fully compliant no later than October 18,
1998, and CB&T receives updates on its progress on a regular basis. Based upon
this information, CB&T currently anticipates a target date of December 31, 1998
for completion of the renovation phase, at which time, testing will begin.
CB&T also has developed a communication and assessment plan for its
customers. Pursuant to this plan, CB&T is initiating contact with its key
customers to determine such customers' plans with respect to the Year 2000 Issue
and CB&T's vulnerability to any such customer's failure to remediate its own
Year 2000 Issue. A number of CB&T's corporate customers depend on computer
systems that must be Year 2000 compliant, a disruption in their businesses may
result in potentially significant financial difficulties that could affect their
creditworthiness. CB&T is also initiating contact with key suppliers to
determine their plan with respect to the Year 2000 Issue. There can be no
guarantee that customers and suppliers will convert their systems on a timely
basis or in a manner that is compatible with CB&T's systems. Significant
business interruptions or failures by key business customers, suppliers, trading
partners or governmental agencies resulting from the effects of the Year 2000
Issue could have a material adverse effect on CB&T.
The expected cost to CB&T of the Year 2000 project is currently estimated
at up to approximately $25,000 for hardware, software and facilities upgrades,
customer communications, testing and other items required to pursue the Action
Plan. All costs will be expensed in the year incurred and will be funded through
normal operating cash flow. Less than $5,000 was spent on the Year 2000 project
during the three months ended March 31, 1998.
The costs of the Year 2000 project and the date on which CB&T plans to
complete Year 2000 compliance are based on management's best estimates, which
were derived using numerous assumptions of future events such as the
availability of certain resources (including internal and external resources),
third-party vendor plans and other factors. However, there can be no guarantee
that these estimates will be achieved at the cost disclosed or within the
timeframe indicated, and actual results could differ materially from these
plans. Factors that might affect the timely and efficient completion of CB&T's
Year 2000 project include, but are not limited, to vendors' abilities to
adequately correct or convert software and the effect on CB&T's ability to test
its systems, the availability and cost of personnel trained in the Year 2000
area, the ability to identify and correct all relevant computer programs and
similar uncertainties. Additional expenses may be incurred beyond those
presently contemplated.
Other Events. On April 15, 1998, CB&T executed a letter of intent with
Carolina First whereby Carolina First proposes to acquire 100% of CB&T's issued
and outstanding common stock. The acquisition, if approved, is projected to be
consummated in the fourth quarter of 1998.
Forward-Looking Statements. This discussion contains forward-looking
statements. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, changes in the interest rate environment, management's
business strategy, national, regional, and local market conditions and
legislative and regulatory conditions. See "Special Cautionary Notice Regarding
Forward-Looking Statements."
Readers should not place undue reliance on forward-looking statements,
which reflect management's view only as to the date hereof. CB&T undertakes no
obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances.
56
<PAGE> 66
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
This discussion is intended to provide an understanding of the major
elements of CB&T's financial condition, results of operations, liquidity and
capital resources, and should be read in conjunction with its audited financial
statements and notes thereto, the analyses accompanying this discussion, and
other information appearing elsewhere in the 1997 Annual Report to Stockholders.
CB&T operates seven commercial bank branches in western North Carolina. Three of
the branches were purchased from other institutions during 1995. At the time of
purchase, these branch purchases effectively doubled the level of loans and
deposits owned by CB&T. This event significantly affects most financial
statement comparisons between 1995 and subsequent years.
Financial Condition
Liquidity. The liquidity of a bank measures its access to or ability to
raise funds. Sustaining adequate liquidity requires a bank to ensure the
availability of funds to satisfy reserve requirements, loan demand, deposit
withdrawals, and maturing liabilities while funding asset growth and producing
appropriate earnings. Liquidity is provided through maturities and repayments of
loans and investments, deposit growth and access to sources of funds other than
deposits, such as the federal funds market or other borrowing sources.
CB&T's primary liquid assets are cash and due from banks and federal funds
sold. At December 31, 1997, the ratio of liquid assets to total deposits was
11.9%, compared to a ratio of 10.8% at December 31, 1996, reflecting a moderate
increase in liquid assets.
Earning Assets. Management focused increased emphasis on improving the
return on assets employed and controlling the cost of funds on liabilities
incurred. During the year ended December 31, 1997, average interest-earning
assets, primarily investments and loans, increased $2.4 million, or 3.2%, and
average interest-bearing liabilities, primarily customer deposits, increased by
$.4 million, or 0.5%, from the previous year. The net asset growth was funded
primarily through an increase in noninterest-bearing demand deposits.
Securities Available for Sale. Securities available for sale totaled
$15,047,795 and $13,986,626 at December 31, 1997 and 1996, respectively.
Securities available for sale are recorded at fair value with any unrealized
gain or loss reported as a separate component of stockholders' equity (net of
tax effect). CB&T recorded net fair value adjustments of $9,474 and $(13,479)
for the unrealized gain (loss) on securities available for sale at December 31,
1997 and 1996, respectively, as a separate component of stockholders' equity.
These securities represent 15.9% and 15.5% of total assets at December 31, 1997
and 1996, respectively. Securities available for sale may be sold in response to
liquidity needs, changes in interest rates, changes in prepayment risk, and
other factors related to CB&T's asset/liability management strategy.
Investment Securities. CB&T's portfolio of investment securities totaled
$7,416,594 and $8,646,858 at December 31, 1997 and 1996, respectively, which
represented 7.8% and 9.6%, respectively, of total assets. Investment securities
are carried at cost, adjusted for amortization of premiums and accretion of
discounts, because management has determined that CB&T has the ability and
intent to hold them to maturity. At December 31, 1997, investment securities had
a weighted average maturity of 8 years 6 months, which includes stated final
maturities on the mortgage-backed securities, although they are expected to
payoff considerably sooner than the stated final maturity. Additionally, these
investment securities had a market value exceeding book value by $51,882 at
December 31, 1997.
Loans. A substantial portion of CB&T's loans are derived from real estate
transactions. At December 31, 1997 and 1996, real estate loans comprised 81.5%
and 77.6% of gross loans, respectively, with commercial loans representing 7.6%
and 8.3% of gross loans, respectively, and consumer installment loans
representing 10.9% and 14.1% of gross loans, respectively. Management
continually monitors the concentration of loans, particularly real estate loans,
in order to minimize the impact a downturn in the local real estate markets or a
particular industry may have on the loan portfolio and on CB&T's financial
condition and operating results. Table 1 accompanying this discussion sets forth
certain loan maturities of CB&T's loan portfolio.
57
<PAGE> 67
TABLE 1
ANALYSIS OF LOAN PORTFOLIO (000S)
The following is an analysis of certain loan maturities as of December 31,
1997.
<TABLE>
<CAPTION>
COMMERCIAL, FINANCIAL CONSTRUCTION LAND
AND AGRICULTURAL DEVELOPMENT
--------------------- -----------------
<S> <C> <C>
Due within one year................................. $2,645 $2,180
------ ------
Due years one through five:
Fixed rate........................................ 946 129
Variable rate..................................... 439 556
------ ------
Total............................................... 1,385 685
====== ======
Due years five through ten:
Fixed rate........................................ 41 35
Variable rate..................................... 146 379
------ ------
Total............................................... 187 414
====== ======
Due over ten years:
Fixed rate........................................ 68 0
Variable rate..................................... 0 18
Total............................................... 68 18
------ ------
$4,285 $3,297
====== ======
</TABLE>
Allowance for Loan Losses. CB&T maintains an allowance for loan losses to
cover anticipated losses and the inherent risk of losses in the loan portfolio.
The allowance is based on an evaluation by management of the amount necessary to
maintain an allowance to cover possible losses. In determining the allowance,
management considers the dollar amount of loans outstanding, its assessment of
known or potential problem loans, current economic conditions, the fair value of
underlying collateral, and other factors.
At December 31, 1997, the allowance for loan losses was $798,293 or 1.42%
of gross loans as compared to $824,466 or 1.56% at December 31,1996. Loans
charged off were $70,636 in 1997, $50,139 in 1996, and $15,469 in 1995.
Recoveries were $44,463 in 1997, $56,389 in 1996, and $83,330 in 1995. CB&T did
not record a provision in 1997, 1996, or 1995 as several larger, adversely
classified loans, that had specific reserves allocated for them have paid off
over the years; thereby improving the overall creditworthiness of the portfolio.
These reductions in the required allowance were largely offset by additions
needed to provide for losses inherent in annual loan growth. Management feels
that the allowance for loan losses is adequate to absorb losses that are
inherent in the loan portfolio at December 31, 1997, although future additions
may be necessary based on changes in economic conditions and other factors. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review CB&T's allowance for loan losses. Such agencies may
require CB&T to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
CB&T's Credit Committee meets at least weekly to approve new loans and
evaluate delinquent loans. The CB&T Board also discusses the status of loans and
determines appropriate actions to be taken. Loans are charged off when and to
the extent they are deemed to be a loss by management and the credit committee.
The footnotes to CB&T's financial statements (included herein) summarize
CB&T's allowance and provisions for possible loan losses and nonperforming loans
at the dates indicated therein.
Premises and Equipment. CB&T's investment in net premises and equipment
increased during 1997 by $134,713. This 4.0% increase reflects routine purchases
of premises and equipment amounting to $442,168 offset by annual depreciation
expense of $307,455.
Deposits. Time deposits (including certificates of deposit of $100,000 or
more) were 39.8% and 40.9% of total deposits at December 31, 1997 and 1996,
respectively. Certificates of deposit over $100,000 amounted
58
<PAGE> 68
to 7.6% and 7.2% of total deposits at December 31, 1997 and 1996, respectively.
Demand deposits increased approximately $2.7 million, or 9.3%, in 1997 as CB&T
attracted new local customers through competitive products, yields, and
services. Table 2 accompanying this discussion sets forth maturities of large
time deposits.
TABLE 2
LARGE TIME DEPOSIT MATURITIES (000S)
The following is an analysis of large time deposits ($100,000 or more) as
of December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Large time deposits maturing:
3 months or less............................................ $2,109 $2,339
3 through 6 months.......................................... 1,349 1,123
6 through 12 months......................................... 1,469 1,065
12 through 24 months........................................ 636 836
24 through 48 months........................................ 664 326
------ ------
$6,227 $5,689
====== ======
</TABLE>
Stockholders' Equity and Capital Adequacy. CB&T's total stockholders'
equity was $9,886,364 at December 31, 1997 and $9,462,211 at December 31, 1996,
up $424,153 or 4.5%. Components included an increase of $560,946 from CB&T's
1997 net income and an increase of $22,953 due to unrealized gains (net) on
securities available for sale offset by a $159,746 reduction resulting from the
payment of cash dividends of $.12 per share in 1997.
Risk-based capital guidelines define capital as "core," or Tier I capital,
and "supplementary," or Tier 2 capital. Core capital consists of common
stockholders' equity while "supplementary," or Tier 2 capital, consists of the
allowance for loan losses, subject to certain limitations. These amounts are
referred to collectively as total qualifying capital. The required risk-based
capital ratio is 8.0%. CB&T's risk-based capital ratio was 14.8% at December 31,
1997.
In addition to the risk-based capital guidelines mentioned above, banking
regulatory agencies have adopted leverage capital ratio requirements. The
leverage ratio -- or core capital to assets ratio -- works in tandem with the
risk-based capital guidelines. The minimum leverage ratios range from three to
five %. At December 31, 1997, CB&T's leverage capital ratio was 7.8%
Management is not presently aware of any current recommendations to CB&T by
regulatory authorities which, if they were to be implemented, would have a
material effect on CB&T's liquidity, capital resources, or operations.
Earnings Analysis
Results of Operations. CB&T's earnings are largely dependent on its net
interest income which is the difference between interest earned on earning
assets and interest paid on deposits and short-term borrowings. Changes in net
interest income are caused by changes in the interest rates earned or paid and
by changes in the amounts and mix of loans, securities, federal funds sold and
interest bearing deposits. CB&T's loan to deposit ratio increased from 65.8% at
December 31,1996 to 67.1% at December 31,1997 due to increased loan demand in
the current economic environment and the continued success of the 15-year
mortgage product. CB&T maintains funds to meet loan demand in highly liquid,
short term instruments such as cash and federal funds sold which typically earn
lower rates of interest than loans. Excess cash is invested in U.S. Treasury and
Government agency securities and mortgage-backed securities, which also have
yields that are generally lower than loan rates.
During 1997, CB&T's net interest income increased 7.2% to $4,158,758
primarily due to higher average earning assets, particularly loans which
increased 17.0%, and a higher overall yield on average earning assets.
59
<PAGE> 69
The net yield on interest-earning assets increased to 5.24% in 1997 from 5.04%
in 1996 primarily due to strong loan growth and slightly higher overall asset
yields while the cost of interest-bearing liabilities was virtually unchanged
(see Table 4). For 1996, net interest income increased 36.8% from $2,837,561 to
$3,880,804, primarily due to higher average earning assets resulting from the
1995 branch acquisitions. The net interest yield on average earning assets
decreased slightly from 5.06% in 1995 to 5.04% in 1996. CB&T actively monitors
the interest rates paid on deposits and makes periodic adjustments to ensure
CB&T's net interest margins are not severely impacted.
In order to manage interest rate sensitivity, CB&T generally does not grant
loans for terms of more than 15 years and its interest rates, with the exception
of the 15 year mortgage product, generally are subject to adjustment at least
every five years. Most commercial loans include interest rates tied to the prime
rate.
Noninterest Income. Noninterest income was virtually unchanged in 1997
versus 1996, while 1996 increased $278,206, or 30.7%, compared to 1995 due to
increased service charges on deposit accounts, largely reflective of a higher
level of average deposits as a result of the 1995 branch acquisitions.
Noninterest Expense. During 1997, total noninterest expense increased by
$211,779, or 5.0%, to $4,455,256 reflecting general increases in bank
operations. Salaries and employee benefits increased $121,421, or 5.6%, from
1996 levels, comprising 51.3% of total noninterest expense during 1997, as
compared to 51.0% in 1996 and 48.7% in 1995. Total noninterest expense for the
years ended December 31, 1996 and 1995 were $4,243,477 and $3,345,273,
respectively. The increase in 1996 was primarily due to increased personnel and
occupancy costs and amortization of intangible assets reflecting a full year of
operations for the 1995 branch acquisitions.
Income Taxes. CB&T recorded a provision for income taxes of $325,000,
$280,600, and $136,000 during 1997, 1996, and 1995, respectively. The effective
tax rates were 36.7% in 1997, 34.1% in 1996, and 34.0% in 1995. The increase in
the 1997 effective tax rate is due to higher state tax expense and other items.
Net Income. As discussed in the detail components above, CB&T reported net
income of $560,946 in 1997, which compares to $542,475 in 1996, and $263,830 for
1995. Basic and diluted earnings per share were $.42 in 1997, $.41 in 1996, and
$.20 in 1995.
Ratios. Table 3 accompanying this discussion reflects certain key
financial ratios for CB&T.
TABLE 3
KEY FINANCIAL RATIOS
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Return on assets*........................................... .61% .61% .41%
Return on equity*........................................... 5.91% 5.93% 3.03%
Equity to assets*........................................... 10.25% 10.20% 13.43%
Dividend payout ratio....................................... 28.48% 19.63% 0%
Book value per share........................................ $7.43 $7.11 $6.85
</TABLE>
- ---------------
*Computed on daily average balances.
60
<PAGE> 70
TABLE 4
AVERAGE BALANCES AND NET INTEREST INCOME (000S)
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
AVERAGE INTEREST AVERAGE INTEREST
BALANCE INCOME/ YIELD/ BALANCE INCOME/ YIELD/
SHEET EXPENSE COST SHEET EXPENSE COST
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Securities............................. $19,219 $1,178 6.13% $25,476 $1,565 6.14%
Federal funds sold..................... 6,431 344 5.35 5,525 284 5.14
Loans.................................. 53,754 5,258 9.78 45,964 4,601 10.01
------- ------ ---- ------- ------ -----
Total interest-earning assets........ 79,404 6,780 8.54 76,965 6,450 8.38
------- ------ ---- ------- ------ -----
NONINTEREST-EARNING ASSETS:
Cash and due from banks................ 5,835 5,168
Premises and equipment................. 3,591 3,368
Interest receivable and other.......... 3,790 4,132
------- -------
Total noninterest-earning assets..... 13,216 12,668
------- -------
Total assets......................... $92,620 $89,633
------- -------
INTEREST-BEARING LIABILITIES:
Customer deposits...................... $65,059 $2,583 3.97% $64,852 $2,538 3.91%
Other borrowings....................... 1,082 38 3.51 933 32 3.43
------- ------ ---- ------- ------ -----
Total interest-bearing liabilities... 66,141 2,621 3.96 65,785 2,570 3.91
------- ------ ---- ------- ------ -----
NONINTEREST-BEARING LIABILITIES:
Demand deposits........................ 16,245 14,006
Interest payable and other............. 744 699
------- -------
Total noninterest-bearing
liabilities....................... 16,989 14,705
------- -------
Total liabilities.................... 83,130 80,490
Stockholders' equity................... 9,490 9,143
------- -------
Total liabilities and stockholders'
equity............................ $92,620 $89,633
------- -------
NET INTEREST INCOME.................... $4,159 4.58% $3,880 4.47%
====== ==== ====== =====
NET YIELD ON INTEREST-EARNING ASSETS... 5.24% 5.04%
==== =====
</TABLE>
Year 2000 Consideration
CB&T utilizes many computer software programs and operating systems
throughout the organization. Some of these software applications contain source
code that is unable to appropriately interpret the upcoming calendar Year
"2000." Therefore some level of modification, or even possibly replacement, of
such applications will be necessary. CB&T is currently in the process of
completing its identification of applications that are not "Year 2000"
compliant. Given information known at this time about CB&T's on-going, normal
course-of-business efforts to upgrade or replace business critical systems as
necessary, management has not fully determined an estimated cost to become "Year
2000" compliant. At December 31, 1997, management does not anticipate the total
costs of becoming "Year 2000" compliant will have a material adverse impact on
CB&T's liquidity or its results of operations but additional expenses may be
incurred as problems are identified. CB&T is expensing all costs associated with
required system changes as the costs are incurred.
61
<PAGE> 71
TABLE 5
ANALYSIS OF RATE AND VOLUME VARIANCES (000S)
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
---------------------------- ----------------------------
VARIANCE VARIANCE
INTEREST ATTRIBUTABLE INTEREST ATTRIBUTABLE
INCOME/EXP. TO INCOME/EXP. TO
VARIANCE RATE VOLUME VARIANCE RATE VOLUME
----------- ----- ------ ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Securities............................... $(387) $ (3) $(384) $ 218 $ 72 $ 146
Federal funds sold....................... 60 12 48 (32) (15) (17)
Loans.................................... 657 (102) 759 1,622 (350) 1,972
----- ----- ----- ------ ----- ------
Total.......................... 330 (93) 423 1,808 (293) 2,101
INTEREST-BEARING LIABILITIES:
Customer deposits........................ 45 37 8 746 (21) 767
Other borrowings......................... 6 1 5 19 1 20
----- ----- ----- ------ ----- ------
Total.......................... 51 38 13 765 (22) 787
----- ----- ----- ------ ----- ------
Net Interest Income...................... $ 279 $(131) $ 410 $1,043 $(271) $1,314
----- ----- ----- ------ ----- ------
</TABLE>
Variances attributable to changes in rate/volume are allocated to changes
in rate and changes in volume.
TABLE 6
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total interest income......... $ 6,779,967 $ 6,450,937 $ 4,642,863 $ 3,528,626 $ 3,465,231 $ 3,864,511 $ 4,574,516
Total interest expense........ 2,621,209 2,570,133 1,805,302 1,218,199 1,190,621 1,533,144 2,442,231
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income........... 4,158,758 3,880,804 2,837,561 2,310,427 2,274,610 2,331,367 2,132,285
Provision for loan losses..... 0 0 0 0 0 196,000 117,200
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses... 4,158,758 3,880,804 2,837,561 2,310,427 2,274,610 2,135,367 2,015,085
Noninterest income............ 1,182,444 1,185,748 907,542 707,053 713,787 674,126 550,898
Noninterest expense........... 4,455,256 4,243,477 3,345,273 2,474,206 2,451,055 2,286,206 2,396,064
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before taxes........... 885,946 823,075 399,830 543,274 537,342 523,287 169,919
Income taxes.................. 325,000 280,600 136,000 0 0 160,700 19,500
Extraordinary items........... 0 0 0 0 0 (160,700) (19,500)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.................... $ 560,946 $ 542,475 $ 263,830 $ 543,274 $ 537,342 $ 523,287 $ 169,919
=========== =========== =========== =========== =========== =========== ===========
Basic and diluted EPS......... $ .42 $ .41 $ .20 $ .39 $ .38 $ .37 $ .12
=========== =========== =========== =========== =========== =========== ===========
Cash dividends per share...... $ .12 $ .08 $ 0 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== =========== =========== ===========
BALANCE SHEET SUMMARY
Federal funds sold............ $ 1,800,000 $ 1,800,000 $ 3,550,000 $ 400,000 $ 2,100,000 $ 100,000 $ 1,150,000
Securities available for
sale........................ 15,047,795 13,986,626 16,634,515 15,517,591 0 0 0
Investment securities......... 7,416,594 8,646,858 12,605,316 6,104,761 17,654,457 14,331,683 11,067,752
Loans, net.................... 55,307,199 51,951,995 41,227,579 20,388,931 23,348,556 25,664,868 29,043,413
Total Assets................ 94,859,419 90,516,442 89,324,274 49,881,671 50,385,486 46,361,203 47,486,199
Deposits...................... 84,973,055 78,968,633 78,008,938 40,878,847 40,691,454 37,034,278 38,081,838
Stockholders' equity.......... 9,886,364 9,462,211 9,114,620 8,392,163 8,785,937 8,237,630 7,714,343
</TABLE>
62
<PAGE> 72
The following tables provide additional information relative to CB&T's
allowance for loan losses.
The following table sets forth a six year analysis of the allowance for
loan losses (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year.............. $824 $818 $504 $492 $570 $584
Charge offs
Commercial, financial, and
agricultural....................... 0 7 6 3 50 62
Real estate-mortgage................. 4 6 0 0 18 161
Installment loans to individuals..... 66 37 10 20 67 44
---- ---- ---- ---- ---- ----
Total charge offs............... 70 50 16 23 135 267
---- ---- ---- ---- ---- ----
Recoveries
Commercial, financial, and
agricultural....................... 8 23 11 19 23 20
Real estate-mortgage................. 16 26 64 10 24 6
Installment loans to individuals..... 20 7 9 6 10 31
---- ---- ---- ---- ---- ----
Total recoveries................ 44 56 84 35 57 57
---- ---- ---- ---- ---- ----
Net charge offs (recoveries).............. 26 (6) (68) (12) 78 210
Additions to reserve for acquired loans... 0 0 246 0 0 0
Additions charged to operations........... 0 0 0 0 0 196
---- ---- ---- ---- ---- ----
Balance at end of year.................... $798 $824 $818 $504 $492 $570
==== ==== ==== ==== ==== ====
Ratio of net charge offs (recoveries)
during the period to average loans
outstanding........................ 0.05% (.01)% (.25)% (.05)% .32% .75%
==== ==== ==== ==== ==== ====
</TABLE>
The following table sets forth the allocation of the allowance for loan
losses (amounts in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- -----------------
% OF % OF % OF
LOANS TO LOANS TO LOANS TO
TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial and agricultural....... $ 61 7.6% $ 82 8.3% $ 70 8.5%
Real estate-construction..................... 22 2.8% 44 4.6% 35 0.6%
Real estate-mortgage......................... 408 78.7% 396 73.0% 401 73.9%
Installment loans to individuals............. 87 10.9% 130 14.1% 132 17.0%
Unallocated.................................. 220 -- 176 -- 180 --
---- ----- ---- ----- ---- -----
Allowance for loan losses...................... $798 100.0% $824 100.0% $818 100.0%
==== ===== ==== ===== ==== =====
</TABLE>
63
<PAGE> 73
BUSINESS OF CAROLINA FIRST
GENERAL
Carolina First was incorporated under the laws of the state of North
Carolina on November 8, 1988 and was registered as a bank holding company in
June 1989. Carolina First is headquartered in Lincolnton, North Carolina with 22
banking offices in North Carolina. As of March 31, 1998, Carolina First had
total consolidated assets of approximately $547 million, total consolidated
deposits of approximately $486 million, and total consolidated shareholders'
equity of approximately $48 million. Through its direct and indirect
subsidiaries, Carolina First offers a broad range of retail and commercial
banking and banking-related services, including a mortgage company and a
financial services company.
Carolina First owns all of the outstanding common stock of Lincoln Bank of
North Carolina and Cabarrus Bank of North Carolina (collectively, the "Banks").
The Banks are North Carolina state banks that are not members of the Federal
Reserve System. Carolina First's principal executive offices are located at 402
East Main Street, Lincolnton, North Carolina 28092, and its telephone number at
such address is (704) 732-2222.
Carolina First continually evaluates business combination opportunities and
frequently conducts due diligence activities in connection with possible
business combinations. As a result, business combination discussions and, in
some cases, negotiations frequently take place, and future business combinations
involving cash, debt, or equity securities can be expected. Any future business
combination or series of business combinations that Carolina First might
undertake may be material, in terms of assets acquired or liabilities assumed,
to Carolina First's financial condition. Recent business combinations in the
banking industry have typically involved the payment of a premium over book and
market values. This practice could result in dilution of book value and net
income per share for the acquirer.
Additional information about Carolina First and its subsidiaries is
included herein and in documents incorporated by reference in this Proxy
Statement/Prospectus. See "Summary -- The Parties," "Available Information" and
"Documents Incorporated by Reference."
64
<PAGE> 74
PRO FORMA FINANCIAL INFORMATION
The following tables contain unaudited pro forma condensed consolidated
financial statements, including a balance sheet as of March 31, 1998 and
statements of income for the three months ended March 31, 1998 and the years
ended December 31, 1997, 1996 and 1995. These statements present on a historical
and pro forma basis results for Carolina First and CB&T for all periods. The
unaudited pro forma condensed financial statements should be read in conjunction
with the historical consolidated financial statements of Carolina First and
CB&T, including the respective notes thereto, which are incorporated by
reference in this Proxy Statement/Prospectus or included herein, and the
unaudited pro forma financial information, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus. See "Documents
Incorporated by Reference," "Summary -- Comparative Per Share Data," and
" -- Selected Condensed Consolidated Pro Forma Financial Data." Pro forma
results are not necessarily indicative of future results.
CAROLINA FIRST AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
CAROLINA FIRST CB&T ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Assets:
Cash and due from banks............................. $ 19,724,351 $ 6,933,244 $ -- $ 26,657,595
Federal funds sold.................................. 14,445,000 9,278,462 -- 23,723,462
------------ ------------ --------- ------------
Total cash and cash equivalents............ 34,169,351 16,211,706 -- 50,381,057
Interest bearing deposits in other banks............ 690,088 -- -- 690,088
Investment securities(1)............................ 26,732,770 7,278,987 -- 34,011,757
Securities available for sale(2).................... 115,912,552 15,073,435 -- 130,985,987
Loans, net of unearned income(3).................... 352,303,709 55,671,715 -- 407,975,424
Allowance for loan losses......................... (5,178,477) (806,721) -- (5,985,198)
------------ ------------ --------- ------------
Loans, net........................................ 347,125,232 54,864,994 -- 401,990,226
Premises and equipment, net......................... 9,556,130 3,467,741 -- 13,023,871
Intangibles:
Goodwill.......................................... 2,127,430 2,237,000 -- 4,364,430
Core Deposit Intangibles.......................... 532,569 573,000 -- 1,105,569
Other assets(4)..................................... 10,220,542 875,487 (187,390) 10,908,639
------------ ------------ --------- ------------
Total Assets............................... $547,066,664 $100,582,350 $(187,390) $647,461,624
============ ============ ========= ============
Liabilities and Shareholders' Equity Deposits:
Demand............................................ $ 59,763,956 $ 18,250,605 $ -- $ 78,014,561
Interest bearing demand accounts.................. 115,927,102 23,268,095 -- 139,195,197
Savings........................................... 49,899,994 11,236,335 -- 61,136,329
Time, $100,000 and over........................... 61,456,428 8,584,230 -- 70,040,658
Other time........................................ 199,076,413 27,175,636 -- 226,252,049
------------ ------------ --------- ------------
Total deposits............................. 486,123,893 88,514,901 -- 574,638,794
Other liabilities................................... 12,998,747 2,061,766 (10,722) 15,049,791
------------ ------------ --------- ------------
Total Liabilities.......................... 499,122,640 90,576,667 (10,722) 589,688,585
Shareholders' Equity:
Common stock, $2.50 par value(4)(5)............... 10,969,970 3,328,057 (899,962) 13,398,065
Additional paid-in capital(4)..................... 16,631,779 4,934,895 740,100 22,306,774
Retained earnings................................. 19,752,302 1,714,506 -- 21,466,808
Accumulated comprehensive income.................. 589,973 28,225 (16,806) 601,392
------------ ------------ --------- ------------
Total Shareholders' Equity................. 47,944,024 10,005,683 (176,668) 57,773,039
Commitments and Contingent Liabilities.............. -- -- -- --
------------ ------------ --------- ------------
Total Liabilities and Shareholders'
Equity................................... $547,066,664 $100,582,350 $(187,390) $647,461,624
============ ============ ========= ============
</TABLE>
- ---------------
(1) Carolina First -- market value of $26,979,458.
CB&T -- market value of $7,224,000.
(2) Carolina First -- cost of $114,944,776.
CB&T -- cost of $15,030,671.
(3) Carolina First -- unearned income of $424,467.
(4) Elimination of 18,739 shares converted at an assumed exchange ratio of 0.74
to 13,867 shares of CB&T owned by Carolina First.
Elimination of 346,118 shares of CB&T at an assumed exchange ratio of 0.74
as a result of acquisition.
(5) Carolina First -- authorized -- 20,000,000 shares; issued and
outstanding -- 4,387,988 shares.
CB&T -- authorized -- 4,000,000 shares; issued and outstanding -- 1,331,223
shares.
65
<PAGE> 75
CAROLINA FIRST AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
PRO FORMA
CAROLINA FIRST CB&T COMBINED
-------------- ---------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................... $ 8,326,465 $1,306,778 $ 9,633,243
Interest on investment securities and mortgage-backed
securities............................................. 2,024,272 335,895 2,360,167
Interest on interest-bearing deposits at banks........... 28 -- 28
Interest on federal funds sold........................... 112,524 88,290 200,814
----------- ---------- -----------
Total interest income.......................... 10,463,289 1,730,963 12,194,252
Interest expense:
Interest on deposits..................................... 4,418,495 683,523 5,102,018
Interest on other borrowings............................. 102,878 19,357 122,235
----------- ---------- -----------
Total interest expense......................... 4,521,373 702,880 5,224,253
Net interest income...................................... 5,941,916 1,028,083 6,969,999
Provision for loan losses................................ 209,000 -- 209,000
----------- ---------- -----------
Net interest income after provision for loan losses...... 5,732,916 1,028,083 6,760,999
Non-interest income:
Service charges on deposit accounts...................... 691,097 214,090 905,187
Investment securities gains (losses), net................ -- -- --
Other income............................................. 820,338 80,474 900,812
----------- ---------- -----------
Total noninterest income....................... 1,511,435 294,564 1,805,999
Non-interest expense:
Salaries and personnel benefits.......................... 2,477,944 580,505 3,058,449
Net occupancy and equipment expense...................... 569,275 204,069 773,344
Amortization of intangible assets........................ 49 82,222 82,271
Other expense............................................ 1,587,097 304,283 1,891,380
----------- ---------- -----------
Total noninterest expense...................... 4,634,365 1,171,079 5,805,444
Income before income taxes............................... 2,609,986 151,568 2,761,554
Provision for income taxes............................... 875,150 51,000 926,150
----------- ---------- -----------
Net income..................................... $ 1,734,836 $ 100,568 $ 1,835,404
=========== ========== ===========
Earnings per common share -- basic....................... $ 0.40 $ 0.08 $ 0.34
----------- ---------- -----------
Earnings per common share -- diluted..................... $ 0.39 $ 0.08 $ 0.34
----------- ---------- -----------
Weighted average common shares outstanding -- basic...... 4,366,018 1,331,223 5,337,256
----------- ---------- -----------
Weighted average common shares outstanding -- diluted.... 4,491,239 1,348,534 5,475,287
----------- ---------- -----------
</TABLE>
66
<PAGE> 76
CAROLINA FIRST AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
CAROLINA FIRST CB&T COMBINED
-------------- ---------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................. $31,294,068 $5,257,952 $36,552,020
Interest on investment securities and mortgage-backed
securities........................................... 6,632,766 1,178,116 7,810,882
Interest on interest-bearing deposits at banks......... 56 -- 56
Interest on federal funds sold......................... 530,136 343,899 874,035
----------- ---------- -----------
Total interest income........................ 38,457,026 6,779,967 45,236,993
Interest expense:
Interest on deposits................................... 16,638,142 2,583,545 19,221,687
Interest on other borrowings........................... 313,395 37,664 351,059
----------- ---------- -----------
Total interest expense....................... 16,951,537 2,621,209 19,572,746
Net interest income.................................... 21,505,489 4,158,758 25,664,247
Provision for loan losses.............................. 997,333 -- 997,333
----------- ---------- -----------
Net interest income after provision for loan losses.... 20,508,156 4,158,758 24,666,914
Non-interest income:
Service charges on deposit accounts.................... 2,441,737 937,355 3,379,092
Investment securities gains (losses), net.............. 82,508 -- 82,508
Other income........................................... 3,056,097 245,089 3,301,186
----------- ---------- -----------
Total noninterest income..................... 5,580,342 1,182,444 6,762,786
Non-interest expense:
Salaries and personnel benefits........................ 8,964,874 2,286,392 11,251,266
Net occupancy and equipment expense.................... 2,152,811 707,061 2,859,872
Amortization of intangible assets...................... 226 348,946 349,172
Other expense.......................................... 5,645,607 1,112,857 6,758,464
----------- ---------- -----------
Total noninterest expense.................... 16,763,518 4,455,256 21,218,774
Income before income taxes............................. 9,324,980 885,946 10,210,926
Provision for income taxes............................. 3,165,141 325,000 3,490,141
----------- ---------- -----------
Net income................................... $ 6,159,839 $ 560,946 $ 6,720,785
=========== ========== ===========
Earnings per common share -- basic..................... $ 1.49 $ 0.42 $ 1.32
----------- ---------- -----------
Earnings per common share -- diluted................... $ 1.47 $ 0.42 $ 1.30
----------- ---------- -----------
Weighted average common shares outstanding -- basic.... 4,134,842 1,331,223 5,108,522
----------- ---------- -----------
Weighted average common shares outstanding --diluted... 4,193,206 1,336,823 5,171,030
----------- ---------- -----------
</TABLE>
67
<PAGE> 77
CAROLINA FIRST AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
PRO FORMA
CAROLINA FIRST CB&T COMBINED
-------------- ---------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................. $27,388,938 $4,601,104 $31,990,042
Interest on investment securities and mortgage-backed
securities........................................... 5,028,428 1,565,279 6,593,707
Interest on interest-bearing deposits at banks......... 46 -- 46
Interest on federal funds sold......................... 259,934 284,554 544,488
----------- ---------- -----------
Total interest income........................ 32,677,346 6,450,937 39,128,283
Interest expense:
Interest on deposits................................... 14,145,984 2,537,718 16,683,702
Interest on other borrowings........................... 293,662 32,415 326,077
----------- ---------- -----------
Total interest expense....................... 14,439,646 2,570,133 17,009,779
Net interest income.......................... 18,237,700 3,880,804 22,118,504
Provision for loan losses.............................. 1,178,925 -- 1,178,925
----------- ---------- -----------
Net interest income after provision for loan losses.... 17,058,775 3,880,804 20,939,579
Non-interest income:
Service charges on deposit accounts.................... 2,116,069 965,739 3,081,808
Investment securities gains (losses), net.............. (10,482) -- (10,482)
Other income........................................... 2,341,612 220,009 2,561,621
----------- ---------- -----------
Total noninterest income..................... 4,447,199 1,185,748 5,632,947
Non-interest expense:
Salaries and personnel benefits........................ 7,381,676 2,164,971 9,546,647
Net occupancy and equipment expenses................... 1,657,552 672,462 2,330,014
Amortization of intangible assets...................... 91 369,002 369,093
Other expense.......................................... 5,100,429 1,037,042 6,137,471
----------- ---------- -----------
Total noninterest expense.................... 14,139,748 4,243,477 18,383,225
Income before income taxes............................. 7,366,226 823,075 8,189,301
Provision for income taxes............................. 2,687,927 280,600 2,968,527
----------- ---------- -----------
Net income................................... $ 4,678,299 $ 542,475 $ 5,220,774
=========== ========== ===========
Earnings per common share -- basic..................... $ 1.14 $ 0.41 $ 1.03
----------- ---------- -----------
Earnings per common share -- diluted................... $ 1.14 $ 0.41 $ 1.02
----------- ---------- -----------
Weighted average common shares outstanding -- basic.... 4,096,335 1,331,223 5,081,440
----------- ---------- -----------
Weighted average common shares outstanding --diluted... 4,109,768 1,331,456 5,095,045
----------- ---------- -----------
</TABLE>
68
<PAGE> 78
CAROLINA FIRST AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
PRO FORMA
CAROLINA FIRST CB&T COMBINED
-------------- ---------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............................. $23,279,164 $2,978,906 $26,258,070
Interest on investment securities and mortgage-backed
securities........................................... 4,584,733 1,347,537 5,932,270
Interest on interest-bearing deposits at banks......... 24 -- 24
Interest on federal funds sold......................... 313,303 316,420 629,723
----------- ---------- -----------
Total interest income........................ 28,177,224 4,642,863 32,820,087
Interest expense:
Interest on deposits................................... 12,670,832 1,792,398 14,463,230
Interest on other borrowings........................... 46,214 12,904 59,118
----------- ---------- -----------
Total interest expense....................... 12,717,046 1,805,302 14,522,348
Net interest income.................................... 15,460,178 2,837,561 18,297,739
Provision for loan losses.............................. 710,200 -- 710,200
----------- ---------- -----------
Net interest income after provision for loan losses.... 14,749,978 2,837,561 17,587,539
Non-interest income:
Service charges on deposit accounts.................... 1,676,264 716,569 2,392,833
Investment securities gains (losses), net.............. 2,048 -- 2,048
Other income........................................... 2,496,054 190,973 2,687,027
----------- ---------- -----------
Total noninterest income..................... 4,174,366 907,542 5,081,908
Non-interest expense:
Salaries and personnel benefits........................ 6,773,540 1,628,975 8,402,515
Net occupancy and equipment expense.................... 1,447,252 487,548 1,934,800
Amortization of intangible assets...................... 84 124,820 124,904
Other expense.......................................... 4,419,684 1,103,930 5,523,614
----------- ---------- -----------
Total noninterest expense.................... 12,640,560 3,345,273 15,985,833
Income before income taxes............................. 6,283,784 399,830 6,683,614
Provision for income taxes............................. 2,154,051 136,000 2,290,051
----------- ---------- -----------
Net income................................... $ 4,129,733 $ 263,830 $ 4,393,563
=========== ========== ===========
Earnings per common share -- basic..................... $ 1.09 $ 0.20 $ 0.92
----------- ---------- -----------
Earnings per common share -- diluted................... $ 1.09 $ 0.20 $ 0.92
----------- ---------- -----------
Weighted average common shares outstanding -- basic.... 3,793,108 1,331,223 4,778,213
----------- ---------- -----------
Weighted average common shares outstanding --diluted... 3,793,108 1,331,223 4,778,213
----------- ---------- -----------
</TABLE>
69
<PAGE> 79
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. The following is a brief summary of certain statutes,
rules, and regulations affecting Carolina First as a bank holding company, and
its bank subsidiaries, Lincoln Bank and Cabarrus Bank, and CB&T (collectively,
the "Banks") as state-chartered North Carolina banks, respectively, and which is
qualified in its entirety by reference to the particular statutory and
regulatory provisions referred to below and is not intended to be an exhaustive
description of the statutes and regulations applicable to Carolina First's and
CB&T's businesses. Supervision, regulation and examination of Carolina First and
the Banks by the bank regulatory agencies are intended primarily for the
protection of depositors rather than shareholders of Carolina First or CB&T. Any
change in applicable law or regulation may have a material effect on Carolina
First's or CB&T's business.
BANK HOLDING COMPANY REGULATION
Carolina First, as a "bank holding company" under the BHC Act, is
registered with, and subject to supervision by, the Board of Governors of the
Federal Reserve. As a bank holding company, Carolina First is required to file
periodic reports and such additional information as the Federal Reserve may
require pursuant to the BHC Act. The Federal Reserve examines Carolina First and
may examine its subsidiaries. Carolina First is also registered as a bank
holding company with the Commissioner and files reports with the Commissioner.
The BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than 5% of the voting shares or all or
substantially all of the assets of any bank, or for a merger or consolidation of
a bank holding company with another bank holding company. With certain
exceptions, the BHC Act prohibits a bank holding company from acquiring direct
or indirect ownership or control of any voting shares of any company which is
not a bank or bank holding company and from engaging directly or indirectly in
any activity other than banking or managing or controlling banks or performing
services for authorized subsidiaries. A bank holding company may, however,
engage in or acquire an interest in a company that engages in activities which
the Federal Reserve has determined by order or regulation to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. Certain acquisitions by bank holding companies are subject to approval
by the Commissioner.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("EGRPRA") was signed into law on September 30, 1996. EGRPRA streamlined the
non-banking activities application process for well-capitalized and well-managed
bank holding companies. Under EGRPRA, qualified bank holding companies may
commence a regulatory approved non-banking activity without prior notice to the
Federal Reserve; written notice is required within 10 days after commencing the
activity. Under EGRPRA, the prior notice period is reduced to 12 days in the
event of any non-banking acquisition or share purchase or de novo non-banking
activity previously approved by order of the Federal Reserve, but not yet
implemented by regulations, assuming the size of the acquisition or proposed
activity does not exceed 10% of risk-weighted assets of the acquiring bank
holding company and the consideration does not exceed 15% of Tier 1 capital.
Effective April 21, 1997, the Federal Reserve adopted amendments to its
Regulation Y implementing certain provisions of EGRPRA. Among other things,
these amendments to Federal Reserve Regulation Y reduced the notice and
application requirements applicable to bank and nonbank acquisitions and de novo
expansion by well-capitalized and well-managed bank holding companies; expanded
the list of nonbanking activities permitted under Regulation Y and reduced
certain limitations on previously permitted activities; and amended Federal
Reserve anti-tying restrictions that include provisions that allow banks greater
flexibility to package products with their affiliates.
Carolina First is a legal entity separate and distinct from its bank
subsidiaries and its other subsidiaries. Various legal limitations restrict the
bank subsidiaries from lending or otherwise supplying funds to Carolina First or
its non-bank subsidiaries. Carolina First and its bank subsidiaries are subject
to Section 23A of the Federal Reserve Act, as amended by the Banking Affiliates
Act of 1982. Section 23A defines "covered transactions," which include
extensions of credit, and limits a bank's covered transactions with any single
70
<PAGE> 80
affiliate to no more than 10% of a bank's capital and surplus. All covered and
exempt transactions between a bank and its affiliates must be on terms and
conditions consistent with safe and sound banking practices. Further, banks and
their subsidiaries are prohibited from purchasing low-quality assets from the
bank's affiliates. Finally, Section 23A states that all extensions of credit by
a bank to an affiliate must be appropriately secured by acceptable collateral.
Carolina First and its bank subsidiaries are also subject to Section 23B of the
Federal Reserve Act, which generally limits covered and other transactions among
affiliates to terms and under circumstances, including credit standards, that
are substantially the same or at least as favorable to the bank or its
subsidiaries as are prevailing at that time for transactions with unaffiliated
companies.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that Carolina First and any other bank holding company located
in North Carolina may now acquire a bank located in any other state, regardless
of state law to the contrary, in either case subject to certain deposit-
percentage, age requirements, and other restrictions. The Interstate Banking Act
also generally provides that, after June 1, 1997, national and state-chartered
banks may branch interstate through acquisitions of banks in other states. By
adopting legislation prior to that date, a state has the ability either to "opt
in" and accelerate the date after which interstate branching is permissible or
"opt out" and prohibit interstate branching altogether. North Carolina adopted
legislation opting into interstate branching effective July 1, 1995, including
de novo interstate branching prior to July 1, 1997 with states where reciprocal
branching is permitted, and thereafter without limit.
Federal Reserve policy requires a bank holding company to act as a source
of financial strength to each of its bank subsidiaries and to commit resources
to support each of its subsidiaries. Such policy also requires a bank holding
company to take measures to preserve and protect bank subsidiaries in situations
where additional investments in a troubled bank may not otherwise be warranted.
In addition, under the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA"), where a bank holding company has more than one bank or
thrift subsidiary, each of the bank holding company's other subsidiary
depository institutions are responsible for any losses to the FDIC as a result
of an affiliated depository institution's failure. As a result, a bank holding
company may be required to loan money to its subsidiaries in the form of capital
notes or other instruments which qualify as capital under regulatory rules.
However, any loans from the holding company to such subsidiary banks will likely
be unsecured and subordinated to such bank's depositors and perhaps to other
creditors of the bank. In November 1994, Carolina First invested $1,375,000 to
purchase approximately 17% of the total common stock of a de novo commercial
bank, First Gaston Bank of North Carolina, Gastonia, North Carolina ("First
Gaston"), which is just west of Charlotte and south of Lincolnton. Carolina
First's Chairman was an organizer of First Gaston, which is located in a market
contiguous to others served by Lincoln Bank and operates in a market not
currently served by Carolina First. The Chairman and President of Carolina First
also serve as directors of First Gaston. Certain operational functions are
provided for First Gaston by Carolina First. The Federal Reserve, in approving
this investment, under the BHC Act, has required Carolina First to enter into a
commitment to serve as a source of strength for First Gaston.
BANK REGULATION
The Banks are state banks organized under the North Carolina Banking Act,
and Lincoln Bank's and CB&T's deposits are insured by the Bank Insurance Fund
("BIF") of the FDIC and Cabarrus Bank's deposits are primarily insured by the
Savings Association Insurance Fund ("SAIF") up to the maximum amount permitted
by law. The Banks are subject to regulation, supervision and regular examination
by the FDIC and the Commissioner, which examine and monitor all areas of the
operations of the Banks, including their loans and investments, reserves against
deposits, mergers and acquisitions, borrowings, dividends, minimum capital
requirements, and the location of branch offices and certain facilities.
The Banks are not members of the Federal Reserve System, and, as a result,
the FDIC is their primary federal regulator.
71
<PAGE> 81
Under present North Carolina law, the Banks currently may establish and
operate branches throughout the State of North Carolina, subject to the
maintenance of adequate capital for each branch and the receipt of the necessary
approvals of the FDIC and the Commissioner.
COMMUNITY REINVESTMENT ACT
Carolina First and the Banks are subject to the provisions of the Community
Reinvestment Act of 1977, as amended (the "CRA"), and the federal banking
agencies' regulations thereunder. Under the CRA, all banks and thrifts have a
continuing and affirmative obligation, consistent with safe and sound operation,
to help meet the credit needs for their entire communities, including low- and
moderate-income neighborhoods. The CRA does not establish specific lending
requirement or programs for financial institutions, nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires a depository institution's primary federal regulator, in
connection with its examination of the institution, to assess the institution's
record in assessing and meeting the credit needs of the community served by that
institution, including low- and moderate-income neighborhoods. The regulatory
agency's assessment of the institution's record is made available to the public.
Further, such assessment is required of any institution which has applied to:
(i) charter a national bank; (ii) obtain deposit insurance coverage for a
newly-chartered institution; (iii) establish a new branch office that accepts
deposits; (iv) relocate an office; or (v) merge or consolidate with, or acquire
the assets or assume the liabilities of, a federally regulated financial
institution. In the case of a bank holding company applying for approval to
acquire a bank or other bank holding company, the Federal Reserve will assess
the records of each subsidiary depository institution of the applicant bank
holding company, and such records may be the basis for denying the application.
Under new CRA regulations, effective January 1, 1996, the process-based CRA
assessment factors were replaced with a new evaluation system that rates
institutions based on their actual performance in meeting community credit
needs. The evaluation system used to judge an institution's CRA performance
consists of three tests: a lending test; an investment test; and a service test.
Each of these tests are applied by the institution's primary federal regulator
taking into account such factors as: (i) demographic data about the community;
(ii) the institution's capacity and concentrations; (iii) the institution's
product offerings and business strategy; and (iv) data on the prior performance
of the institution and similarly-situated lenders. The new lending test -- the
most important of the three tests for all institutions other than wholesale and
limited purpose (e.g., credit card) banks -- evaluates an institution's lending
activities as measured by its home mortgage loans, small business and farm
loans, community development loans and, at the option of the institutions, its
consumer loans.
Each of these lending categories are weighted to reflect its relative
importance to the institution's overall business and, in the case of community
development loans, the characteristics and needs of the institution's service
area and the opportunities available for this type of lending. Assessment
criteria for the lending test include: (i) geographic distribution of the
institution's lending; (ii) distribution of the institution's home mortgage and
consumer loans among different economic segments of the community; (iii) the
number and amount of small business and small farm loans made by the
institution; (iv) the number and amount of community development loans
outstanding; and (v) the institution's use of innovative or flexible lending
practices to meet the needs of low- to moderate-income individuals and
neighborhoods. At the election of an institution, or if particular circumstances
so warrant, the banking agencies will take into account in making their
assessments lending by the institution's affiliates as well as community
development loans made by any lending consortia and other lenders in which the
institution has invested. As part of the new regulation, all financial
institutions are required to report data on their small business and small farm
loans as well as their home mortgage loans.
The investment test focuses on the institution's qualified investments
within its service area that (i) benefit low- to moderate-income individuals and
small businesses or farms; (ii) address affordable housing needs; or (iii)
involve donations of branch offices to minority or women's depository
institutions. Assessment of an institution's performance under the investment
test is based upon the dollar amount of the institution's
72
<PAGE> 82
qualified investments, its use of innovative or complex techniques to support
community development initiatives, and its responsiveness to credit and
community development needs.
The service test evaluates an institution's systems for delivering retail
banking services, taking into account such factors as (i) the geographic
distribution of the institution's branch offices and ATMs; (ii) the
institution's record of opening and closing branch offices and ATMs; and (iii)
the availability of alternative product delivery systems such as home banking
and loan production offices in low- to moderate-income areas. The federal
regulators also will consider an institution's community development service as
part of the service test. A separate community development test is applied to
wholesale or limited purpose financial institutions.
Institutions having total assets of less than $250 million will be
evaluated under more streamlined criteria. In addition, a financial institution
will have the option of having its CRA performance evaluated based on a
strategic plan of up to five years in length that it had developed in
cooperation with local community groups. In order to be rated under a strategic
plan, the institution will be required to obtain the prior approval of its
federal regulator.
The interagency CRA regulations provide that an institution evaluated under
a given test will receive one of five ratings for that test: outstanding, high
satisfactory, low satisfactory, needs to improve, or substantial noncompliance.
An institution will receive a certain number of points for its rating on each
test, and the points are combined to produce an overall composite rating of
either outstanding, satisfactory, needs to improve, or substantial
noncompliance. Under the agencies' rating guidelines, an institution that
receives an "outstanding" rating on the lending test will receive an overall
rating of at least "satisfactory," and no institution can receive an overall
rating of "satisfactory" unless it receives a rating of at least "low
satisfactory" on its lending test. In addition, evidence of discriminatory or
other illegal credit practices would adversely affect an institution's overall
rating. Under the new regulations, an institution's CRA rating would continue to
be taken into account by its primary federal regulator in considering various
types of applications. As a result of the Banks' most recent CRA examination on
March 13, 1995, January 16, 1996 and May 26, 1998, Lincoln Bank, Cabarrus Bank
and CB&T have CRA ratings of "2," "1" and "2," respectively.
The Banks are also subject, among other things, to the provisions of the
Equal Credit Opportunity Act (the "ECOA") and the Fair Housing Act (the "FHA"),
both of which prohibit discrimination based on race or color, religion, national
origin, sex, and familiar status in any aspect of a consumer or commercial
credit or residential real estate transaction. Based on recently heightened
concerns that some prospective home buyers and other borrowers may be
experiencing discriminatory treatment in their efforts to obtain loans, the
Department of Housing and Urban Development, the Department of Justice (the
"DOJ"), and all of the federal banking agencies in April 1994 issued an
Interagency Policy Statement on Discrimination in Lending in order to provide
guidance to financial institutions as to what the agencies consider in
determining whether discrimination exists, how the agencies will respond to
lending discrimination, and what steps lenders might take to prevent
discriminatory practices. The DOJ has also recently increased its efforts to
prosecute what it regards as violators of the ECOA and FHA.
PAYMENT OF DIVIDENDS
The Banks' ability to pay dividends, or otherwise supply funds to their
respective shareholders is limited by various laws and regulations. Dividends
from its bank subsidiaries constitute the major sources of income for Carolina
First. The payment of dividends by the Banks are subject to the applicable
restrictions contained in the North Carolina Banking Act and the FDIC's
regulations and interpretive rulings. The Commissioner, the FDIC and Federal
Reserve have the general authority to limit or prohibit the dividends paid by
insured banks and bank holding companies, respectively, if such payment may be
deemed to constitute an unsafe or unsound practice. The prior approval of the
FDIC is required if the total of all dividends declared by a state non-member
bank in any calendar year will exceed the sum of such bank's net profits for the
year and its retained net profits for the preceding two calendar years, less any
required transfers to surplus. North Carolina law also prohibits any state
non-member bank from paying dividends that would be greater than such bank's
undivided profits after deducting statutory bad debt in excess of such bank's
allowance for loan losses. See "Comparative Market Information and Dividends."
73
<PAGE> 83
In addition, Carolina First and the Banks are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital. The appropriate federal
regulatory authority is authorized to determine under certain circumstances
relating to the financial condition of a national or state member bank or a bank
holding company that the payment of dividends would be an unsafe or unsound
practice and to prohibit payment thereof. The FDIC has indicated that paying
dividends that deplete a state non-member bank's capital base to an inadequate
level would be an unsound and unsafe banking practice, and that banks should
only pay dividends out of current earnings.
CAPITAL
The Federal Reserve has adopted risk-based capital guidelines for bank
holding companies and the FDIC has adopted risk-based capital guidelines for
state non-member banks. Common equity, retained earnings and a limited amount of
qualifying preferred stock, less goodwill, qualifies as "Tier 1 Capital". Tier 1
Capital plus subordinated debt, non qualifying preferred stock and a limited
amount of any loan loss allowance qualifies as "Tier 2 Capital" and together
with Tier 1 Capital, "Total Capital." The guideline for a minimum ratio of Total
Capital to risk-weighted assets (including certain off-balance-sheet activities,
such as standby letters of credit) is 8%.
In addition, the federal bank regulatory agencies have established minimum
leverage ratio guidelines for state non-member banks, which provide a minimum
leverage ratio of Tier 1 capital to adjusted average quarterly assets ("leverage
ratio") equal to 3%, plus an additional cushion of 100 to 200 basis points
(i.e., 1%-2%) if the institution has less than the highest regulatory rating.
The guidelines also provide that institutions anticipating or experiencing
significant growth, or that have supervisory, financial, operational or
managerial weaknesses, will be expected to maintain higher than minimum capital
levels without significant reliance on intangible assets. Effective June 30,
1998, the Federal Reserve amended Regulation Y to change its minimum leverage
ratio to 3.0% for bank holding companies that have a composite Federal Reserve
(BOPEC) rating of 1 or that have implemented the Federal Reserve's risk-based
capital market risk measure. All other bank holding companies are required to
maintain a leverage ratio of at least 4.0%. Furthermore, the Federal Reserve's
guidelines indicate that the Federal Reserve will continue to consider a
"Tangible Tier 1 leverage ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity. Carolina First has not been advised of
any specific minimum leverage ratio or Tangible Tier 1 leverage ratio applicable
to it.
The Federal Deposit Insurance Corporation Improvement Act of 1992
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." A depository institution's
capital tier will depend upon how its capital levels compare to various relevant
capital measures and certain other factors, as established by regulation.
All of the federal banking agencies have adopted regulations establishing
relevant capital measures and relevant capital levels. The relevant capital
measures are the Total Capital Ratio, Tier 1 capital ratio, and the leverage
ratio. Under the regulations, a state non-member bank will be (i) "well
capitalized" if it has a Total Capital ratio of 10% or greater, a Tier 1 capital
ratio of 6% or greater, and a leverage ratio of 5% or greater and is not subject
to any order or written directive by a federal bank regulatory agency to meet
and maintain a specific capital level for any capital measure, (ii) "adequately
capitalized" if it has a Total Capital ratio of 8% or greater, a Tier 1 capital
ratio of 4% or greater, and a leverage ratio of 4% or greater (3% in certain
circumstances) and is not well capitalized, (iii) "undercapitalized" if it has a
Total Capital ratio of less than 8%, or a Tier 1 capital ratio of less than 4%
or a leverage ratio of less than 4% (3% in certain circumstances), (iv)
"significantly undercapitalized" if its Total Capital Ratio is less than 6%, its
Tier 1 Capital ratio is less than 3% or its leverage ratio is less than 3% or
(v) "critically undercapitalized" if its tangible equity is equal to or less
than 2% of average quarterly tangible assets.
74
<PAGE> 84
As of March 31, 1998, the capital ratios of Carolina First and the Banks
were as follows:
<TABLE>
<CAPTION>
REGULATORY
MINIMUMS CAROLINA FIRST LINCOLN BANK CABARRUS BANK CB&T
---------- -------------- ------------ ------------- ------
<S> <C> <C> <C> <C> <C>
Tier 1 Capital ratio............. 4.0% 12.51% 10.84% 10.36% 13.84%
Total Capital ratio.............. 8.0% 13.76% 12.09% 11.60% 15.10%
Leverage ratio................... 3.0 - 4.0% 8.50% 7.81% 6.81% 7.56%
</TABLE>
The federal banking agencies have, pursuant to FDICIA, adopted final
regulations which require regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. The bank regulatory agencies have
concurrently proposed a methodology for evaluating interest rate risk which
would require banks with excessive interest rate risk exposure to hold
additional amounts of capital against such exposures.
The FDIC has adopted the Federal Financial Institutions Examination
Council's ("FFIEC") updated statement of policy entitled "Uniform Financial
Institutions Rating System" ("UFIRS") effective January 1, 1997. UFIRS is an
internal rating system used by the federal and state regulators for assessing
the soundness of financial institutions on a uniform basis and for identifying
those institutions requiring special supervisory attention. Under the previous
UFIRS, each financial institution was assigned a confidential composite rating
based on an evaluation and rating of five essential components of an
institution's financial condition and operations including Capital Adequacy,
Asset Quality, Management, Earnings, and Liquidity. The major changes include an
increased emphasis on the quality of risk management practices and the addition
of a sixth component for sensitivity to market risk. For most institutions, the
FDIC has indicated that market risk primarily reflects exposures to changes in
interest rates. When regulators evaluate this component, consideration is
expected to be given to: management's ability to identify, measure, monitor, and
control market risk; the institution's size, the nature and complexity of its
activities and its risk profile; and the adequacy of its capital and earnings in
relation to its level of market risk exposure. Market risk is rated based upon,
but not limited to, an assessment of the sensitivity of the financial
institution's earnings or the economic value of its capital to adverse changes
in interest rates, foreign exchange rates, commodity prices, or equity prices;
management's ability to identify, measure, monitor, and control exposure to
market risk; and the nature and complexity of interest rate risk exposure
arising from nontrading positions.
FDICIA
FDICIA directs that each federal banking regulatory agency prescribe
standards for depository institutions and depository institution holding
companies relating to internal controls, information systems, internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, a maximum ratio of classified assets to capital, minimum
earnings sufficient to absorb losses, a minimum ratio of market value to book
value for publicly traded shares, and such other standards as the agency deems
appropriate.
FDICIA also contains a variety of other provisions that may affect the
operations of Carolina First and the Banks, including reporting requirements,
regulatory standards for estate lending, "truth in savings" provisions, the
requirement that a depository institution give 90 days prior notice to customers
and regulatory authorities before closing any branch, and prohibition on the
acceptance or renewal of brokered deposits by depository that are not well
capitalized or are adequately capitalized and have not received a waiver from
the FDIC. Under regulations relating to brokered deposits, the Banks are well
capitalized and not restricted.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan for approval.
For a capital restoration plan to be acceptable, the depository institution's
parent holding company must guarantee that the institution comply with such
capital restoration plan. The aggregate liability of the parent holding company
is limited to the lesser of 5% of the depository institution's total assets at
the time it became undercapitalized and the amount
75
<PAGE> 85
necessary to bring the institution into compliance with applicable capital
standards. If a depository institution fails to submit an acceptable plan, it is
treated as if is significantly undercapitalized. If the controlling holding
company fails to fulfill its obligations under FDICIA and files (or has filed
against it) a petition under the federal Bankruptcy Code, the claim would be
entitled to a priority in such bankruptcy proceeding over third-party creditors
and shareholders of the bank holding company.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirement to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDIC INSURANCE ASSESSMENTS
The Banks are subject to FDIC deposit insurance assessments. Lincoln Bank's
and CB&T's deposits are primarily insured by the FDIC's BIF. Having converted
from a thrift charter, Cabarrus Bank's deposits are insured principally by the
FDIC's SAIF. In 1996, the FDIC adopted a new risk-based premium schedule which
decreased the assessment rates for BIF depository institutions. Under this
schedule, which took effect for assessment periods after January 1, 1996, the
annual premiums for BIF insurance range from zero to $.27 for every $100 of
deposits. Each financial institution is assigned to one of three capital
groups -- "well capitalized," "adequately capitalized" or
"undercapitalized" -- and further assigned to one of three subgroups within a
capital group, on the basis of supervisory evaluations by the institution's
primary federal and, if applicable, state regulators and other information
relevant to the institution's financial condition and the risk posed to the
applicable insurance fund. The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.
The EGRPRA recapitalized the FDIC's SAIF fund to bring it into parity with
BIF. As part of this recapitalization, The Deposit Insurance Funds Act of 1996
(the "Funds Act") authorized FICO to levy assessments on BIF-assessable deposits
at a rate equal to one-fifth of the FICO assessment rate that is applied to
deposits assessable by SAIF through the earlier of year end 1999 or the merger
of BIF and SAIF. SAIF-insured institutions, SAIF-insured deposits have been
assessed annual SAIF premiums of zero to 27 basis points per $100 of deposits,
based upon the institution's assigned risk category and supervisory evaluation.
During the years ended December 31, 1996 and 1997, Lincoln Bank paid $30,364 and
$43,850 and CB&T paid $2,000 and $9,837, in BIF deposit insurance premiums.
Cabarrus Bank paid SAIF deposit insurance premiums of $111,972 and $62,267 in
1996 and 1997, respectively.
The FDIC's Board of Directors continues to maintain the 1996 BIF and SAIF
assessment schedule of zero to 27 basis points per annum for the second
semiannual assessment period of 1998. The actual annual assessment rates for
FICO for the June 30, 1998 quarterly payment were set at 1.22 basis points for
BIF-assessable deposits and 6.10 basis points for SAIF deposits.
COMMUNITY DEVELOPMENT ACT
The Community Development Act of 1994 has several titles. Title I provides
for the establishment of community development financial institutions to provide
equity investments, loans and development services to financially under-served
communities. A portion of this Title also contains various provisions regarding
reverse mortgages, consumer protections for qualifying mortgages and hearings
for home equity lending, among other things. Title II provides for small
business loan securitization and securitizations of other loans, including
authorizing a study on the impact of additional securities based on pooled
obligations. Small business capital enhancement is also provided. Title III of
the Act provides for paperwork reduction and regulatory improvement, including
certain examination and call report issues, as well as changes in certain
consumer compliance requirements, certain audit requirements and real estate
appraisals, and simplification and expedited processing of bank holding company
applications, merger applications and securities filings, among other things. It
also provides for commercial mortgage-related securities to be added to the
definition of a "mortgage-related security" in the Exchange Act. This will
permit commercial mortgages to be pooled and securitized, and permit investment
in such instruments without limitation by insured depository
76
<PAGE> 86
institutions. It also preempts state legal investment and blue sky laws related
to qualifying commercial mortgage securities. Title IV deals with money
laundering and currency transaction reports, and Title V reforms the national
flood insurance laws and requirements. The nature, timing, and effect upon
Carolina First and CB&T of any changes resulting from the Community Development
Act cannot be predicted.
FISCAL AND MONETARY POLICY
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and
its other borrowings, and interest received by a bank on its loans and
securities holdings, constitutes the major portion of a bank's earnings. Thus,
the earnings and growth of Carolina First and CB&T are subject to the influence
of economic conditions generally, both domestic and foreign, and also to the
monetary and fiscal policies of the United States and its agencies, particularly
the Federal Reserve. The Federal Reserve regulates the supply of money through
various means, including open market dealings in United States government
securities, the discount rate at which banks may borrow from the Federal
Reserve, and the reserve requirements on deposits. The nature and timing of any
changes in such policies and their effect on Carolina First or CB&T cannot be
predicted.
ENFORCEMENT POLICIES AND ACTIONS
FIRREA and subsequent federal legislation significantly increased the
enforcement authorities of the FDIC and other federal depository institution
regulators, and authorizes the imposition of civil money penalties of up to $1
million per day. Persons who are affiliated with depository institutions can be
removed from any office held in such institution and banned for life from
participating in the affairs of any such institution. The banking regulators
have not hesitated to use the new enforcement authorities provided under FIRREA.
The Federal Reserve and the FDIC have taken no formal enforcement actions
against Carolina First or CB&T.
DEPOSITOR PREFERENCE
The Omnibus Budget Reconciliation Act of 1993 provides that deposits and
certain claims for administrative expenses and employee compensation against an
insured depository institution would be afforded a priority over other general
unsecured claims against such an institution in the "liquidation or other
resolution" of such an institution by any receiver.
LEGISLATIVE AND REGULATORY CHANGES
Various changes have been proposed with respect to restructuring and
changing the regulation of the financial services industry. FIRREA required a
study of the deposit insurance system. On February 5, 1991, the Department of
the Treasury released "Modernizing the Financial System; Recommendations for
Safer, More Competitive Banks." Among other matters, this study analyzed and
made recommendations regarding reduced bank competitiveness and financial
strength, over-extension of deposit insurance, the fragmented regulatory system
and the under capitalized deposit insurance fund. It proposed restoring
competitiveness by allowing banking organizations to participate in a full range
of financial services outside of insured commercial banks. Deposit insurance
coverage would be narrowed to promote market discipline. Risk-based deposit
insurance premiums were proposed with feasibility tested through an FDIC
demonstration project using private reinsurers to provide market pricing for
risk-based premiums.
The Interstate Banking Act also directed the Secretary of the Treasury to
take a broad look at the strengths and weaknesses of the United States'
financial services system. In June 1997, the Treasury Department proposed
legislation to eliminate what it deemed outmoded barriers to competition among
financial services providers. On November 17, 1997 the United States Department
of the Treasury released its study "American Finance for the 21st Century" which
considered changes in the financial services industry during the next 10 years
and beyond and reviewed the adequacy of existing statutes and legislation.
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions and bank
and bank holding company powers are being considered by the
77
<PAGE> 87
executive branch of the Federal government, Congress and various state
governments, including North Carolina. Among other items under consideration are
changes in or repeal of the Glass-Steagall Act which separates commercial
banking from investment banking, a possible combination of the FDIC's BIF and
SAIF, and changes in the BHC Act to broaden the powers of "financial services"
companies to own and control depository institutions and engage in activities
not closely related to banking and changes to the activities permitted to bank
and bank holding company organizations. Certain of these proposals, if adopted,
could significantly change the regulation of banks and the financial services
industry. It cannot be predicted whether any of these be adopted, and, if
adopted, how these proposals will affect Carolina First or CB&T.
OTHER INFORMATION
PROXY SOLICITATION COSTS
The cost of soliciting proxies for the Special Meeting will be paid by
CB&T.
EXPERTS
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 have been incorporated
by reference in the Carolina First Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (the "Carolina First Annual Report"), in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein and incorporated by reference in
the Carolina First Annual Report, and upon the authority of said firm as experts
in accounting and auditing.
The financial statements of CB&T as of December 31, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997, have been
included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of Carolina First Common Stock to be issued in
the Merger will be passed upon by Alston & Bird LLP, Atlanta, Georgia. Alston &
Bird LLP will also opine as to certain federal income tax consequences of the
Merger. See "Description of the Merger -- Federal Income Tax Consequences of the
Merger."
OTHER MATTERS
AS OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS, THE CB&T BOARD KNOWS OF
NO MATTERS THAT WILL BE PRESENTED FOR CONSIDERATION AT THE SPECIAL MEETING OTHER
THAN AS DESCRIBED IN THIS PROXY STATEMENT/ PROSPECTUS. HOWEVER, IF ANY OTHER
MATTER SHALL COME BEFORE THE SPECIAL MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF AND SHALL BE VOTED UPON, THE PROPOSED PROXY WILL BE DEEMED
TO CONFER AUTHORITY TO THE INDIVIDUALS NAMED AS AUTHORIZED THEREIN TO VOTE THE
SHARES REPRESENTED BY SUCH PROXY AS TO ANY SUCH MATTERS THAT FALL WITHIN THE
PURPOSES SET FORTH IN THE NOTICE OF SPECIAL MEETING AS DETERMINED BY A MAJORITY
OF THE CB&T BOARD.
78
<PAGE> 88
INDEX TO CB&T FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Balance Sheets as of March 31, 1998 (Unaudited) and December
31, 1997.................................................. F-2
Statements of Income for the Three Months Ended March 31,
1998 and 1997 (Unaudited)................................. F-3
Statements of Changes in Stockholders' Equity for the Three
Months Ended March 31, 1998 and 1997 (Unaudited).......... F-4
Statements of Cash Flows for the Three Months Ended March
31, 1998 and 1997 (Unaudited)............................. F-5
Notes to Financial Statements............................... F-6
Balance Sheets as of December 31, 1997 and 1996............. F-7
Statements of Income for the Years Ended December 31, 1997,
1996 and 1995............................................. F-8
Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1997,
1996 and 1995............................................. F-9
Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995....................................... F-10
Notes to Financial Statements............................... F-11
Report of KPMG Peat Marwick LLP, Independent Auditors....... F-23
</TABLE>
F-1
<PAGE> 89
CB&T BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 6,933,244 $ 7,985,872
Federal funds sold.......................................... 9,278,462 1,800,000
Securities available for sale (cost basis of $15,030,671 in
1998 and $15,033,441 in 1997)............................. 15,073,435 15,047,795
Investment securities (market value of $7,224,000 in 1998
and $7,468,000 in 1997)................................... 7,278,987 7,416,594
Loans....................................................... 55,671,715 56,105,492
Less allowance for loan losses.............................. (806,721) (798,293)
------------ -----------
Loans, net.................................................. 54,864,994 55,307,199
------------ -----------
Premises and equipment, net................................. 3,467,741 3,534,895
Accrued interest and other assets........................... 3,685,487 3,767,064
------------ -----------
Total assets...................................... $100,582,350 $94,859,419
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits........................................... $ 33,358,468 $31,820,619
Savings................................................... 11,236,335 10,624,868
Money market accounts..................................... 8,160,232 7,197,120
Certificates of deposit, $100,000 or more................. 8,584,230 6,226,738
Other time deposits....................................... 27,175,636 26,583,268
------------ -----------
Total deposits.................................... 88,514,901 82,452,613
Other borrowings............................................ 1,396,766 1,930,293
Accrued interest and other liabilities...................... 665,000 590,149
------------ -----------
Total liabilities................................. 90,576,667 84,973,055
------------ -----------
Stockholders' equity:
Common stock ($2.50 par value, 4,000,000 shares
authorized; issued and outstanding 1,331,223 shares for
1998 and 1997)......................................... 3,328,057 3,328,057
Surplus................................................... 4,934,895 4,934,895
Retained earnings......................................... 1,714,506 1,613,938
Accumulated comprehensive income.......................... 28,225 9,474
------------ -----------
Total stockholders' equity........................ 10,005,683 9,886,364
------------ -----------
Total liabilities and stockholders' equity........ $100,582,350 $94,859,419
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 90
CB&T STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Interest income:
Interest and fees on loans.................................. $1,306,778 $1,257,665
U.S. Treasury securities.................................... 102,815 124,176
U.S. government agency securities........................... 113,666 65,586
Mortgage-backed securities.................................. 119,414 140,232
Federal funds sold.......................................... 88,290 40,231
---------- ----------
Total interest income............................. 1,730,963 1,630,890
---------- ----------
Interest expense:
Certificates of deposit, $100,000 or more................... 100,724 85,190
Other deposits.............................................. 582,799 534,449
Other borrowings............................................ 19,357 6,692
---------- ----------
Total interest expense............................ 702,880 626,331
---------- ----------
Net interest income......................................... 1,028,083 1,004,559
Provision for loan losses................................... 0 0
---------- ----------
Net interest income after provision for loan losses......... 1,028,083 1,004,559
---------- ----------
Noninterest income:
Service charges on deposit accounts......................... 214,090 243,605
Other noninterest income.................................... 80,474 74,567
---------- ----------
Total noninterest income.......................... 294,564 318,172
---------- ----------
Noninterest expense:
Salaries and employee benefits.............................. 580,505 615,844
Expenses of premises and fixed assets....................... 204,069 173,183
Amortization of intangible assets........................... 82,222 92,250
Other noninterest expense................................... 304,283 331,110
---------- ----------
Total noninterest expense......................... 1,171,079 1,212,387
---------- ----------
Income before income taxes.................................. 151,568 110,344
Income tax provision........................................ 51,000 36,000
---------- ----------
Net income.................................................. $ 100,568 $ 74,344
========== ==========
Basic and diluted earnings per share........................ $ 0.08 $ 0.06
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 91
CB&T STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
COMMON STOCK COMPRE- STOCK-
---------------------- RETAINED HENSIVE HOLDERS'
SHARES AMOUNT SURPLUS EARNINGS INCOME EQUITY
--------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997
Balance at beginning of
period.................. 1,331,223 $3,328,057 $4,934,895 $1,212,738 $(13,479) $ 9,462,211
Net income................ 0 0 0 74,344 0 74,344
Cash dividends, $.12 per
share................... 0 0 0 (159,746) 0 (159,746)
Change in unrealized loss
on securities available
for sale, net of tax
effect.................. 0 0 0 0 (37,419) (37,149)
--------- ---------- ---------- ---------- -------- -----------
Balance at end of
period.................. 1,331,223 $3,328,057 $4,934,895 $1,127,336 $(50,898) $ 9,339,390
========= ========== ========== ========== ======== ===========
1998
Balance at beginning of
period.................. 1,331,223 $3,328,057 $4,934,895 $1,613,938 $ 9,474 $ 9,886,364
Net income................ 0 0 0 100,568 0 100,568
Change in unrealized gain
on securities available
for sale, net of tax
effect.................. 0 0 0 0 18,751 18,751
--------- ---------- ---------- ---------- -------- -----------
Balance at end of
period.................. 1,331,223 $3,328,057 $4,934,895 $1,714,506 $ 28,225 $10,005,683
========= ========== ========== ========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 92
CB&T STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 100,568 $ 74,344
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization, net........................ 167,066 157,507
Changes in other assets and liabilities:
Other assets........................................... (10,420) (150,006)
Other liabilities...................................... 74,853 (102,147)
----------- ----------
Net cash provided by (used in) operating activities......... 332,067 (20,302)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan (originations) principal repayments, net............... 442,205 (58,948)
Maturities, paydowns and calls of securities................ 140,225 1,370,493
Capital expenditures for premises and equipment............. (17,424) (313,883)
----------- ----------
Net cash provided by investment activities.................. 565,006 997,662
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net................................... 6,062,288 369,917
Decrease in other borrowings................................ (533,527) (652,815)
Cash dividends.............................................. 0 (159,746)
----------- ----------
Net cash provided by (used in) financing activities......... 5,528,761 (442,644)
----------- ----------
Net increase in cash and cash equivalents................... 6,425,834 534,716
Cash and cash equivalents at beginning of period............ 9,785,872 8,536,367
----------- ----------
Cash and cash equivalents at end of period.................. $16,211,706 $9,071,083
=========== ==========
Supplemental cash flow disclosures:
Unrealized gain (loss) in value of securities available
for sale (net of tax effect of $9,658 in 1998 and
$18,124 in 1997)....................................... $ 18,751 $ (37,419)
=========== ==========
Cash paid during period for interest...................... $ 660,003 $ 528,984
=========== ==========
Cash paid during period for income taxes.................. $ 102,250 $ 230,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 93
CB&T NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of CB&T have been prepared
in accordance with generally accepted accounting principles for condensed
interim financial statements and, therefore, do not include all information
required by generally accepted accounting principles for complete financial
statements. The notes included herein should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this document, and the notes to CB&T's financial
statements for the year ended December 31, 1997 included in CB&T's 1997 Annual
Report to Stockholders.
In the opinion of management, the accompanying unaudited financial
statements include all adjustments (including normal recurring entries)
necessary for a fair presentation of CB&T's financial condition and interim
results of operations. The results of operations for the three months ended
March 31, 1998 are not necessarily indicative of the operating results that may
be expected for the year ended December 31, 1998. The preparation of the
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities at the date of the financial statements and
that affect the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
2. EARNINGS PER SHARE
CB&T calculates its basic and diluted earnings per share (EPS) in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share." A reconciliation of the denominator of the basic EPS
computations to the denominator of the diluted EPS computations is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1998 1997
--------- ---------
<S> <C> <C>
Basic EPS denominator: weighted average number of common
shares outstanding........................................ 1,331,223 1,331,223
Dilutive effect arising from assumed exercise of stock
options................................................... 17,311 233
--------- ---------
Diluted EPS denominator..................................... 1,348,534 1,331,456
========= =========
</TABLE>
3. COMPREHENSIVE INCOME
On January 1, 1998 CB&T adopted SFAS No. 130 "Reporting Comprehensive
Income." As required by SFAS No. 130, prior year information has been modified
to conform with the new presentation.
Comprehensive income includes net income and all changes to CB&T's equity,
with the exception of transactions with stockholders ("other comprehensive
income"). CB&T's only component of other comprehensive income is the change in
unrealized gains and losses on securities available for sale.
CB&T's total comprehensive income for the three months ended March 31, 1998
and 1997 was $119,319 and $36,925, respectively. Information concerning CB&T's
other comprehensive income for the three months ended March 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Unrealized gain (loss) on securities available for sale..... $28,409 $(55,543)
Reclassification of gains recognized in net income.......... 0 0
Income tax expense (benefit) relating to unrealized gain
(loss) on securities available for sale................... 9,658 (18,124)
------- --------
Other comprehensive income.................................. $18,751 $(37,419)
======= ========
</TABLE>
F-6
<PAGE> 94
CB&T BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 7,985,872 $ 6,736,367
Federal funds sold.......................................... 1,800,000 1,800,000
Securities available for sale (cost basis of $15,033,441 in
1997 and $14,007,048 in 1996)............................. 15,047,795 13,986,626
Investment securities (market value of $7,468,476 in 1997
and $8,596,671 in 1996)................................... 7,416,594 8,646,858
Loans....................................................... 56,105,492 52,776,461
Less allowance for loan losses.............................. (798,293) (824,466)
----------- -----------
Loans, net........................................ 55,307,199 51,951,995
----------- -----------
Accrued interest receivable................................. 575,282 560,525
Premises and equipment, net................................. 3,534,895 3,400,182
Other assets................................................ 3,191,782 3,433,889
----------- -----------
Total assets...................................... $94,859,419 $90,516,442
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits, noninterest-bearing...................... $16,853,506 $14,921,636
Demand deposits, interest-bearing......................... 14,967,113 14,198,262
Savings................................................... 10,624,868 11,425,336
Money market accounts..................................... 7,197,120 6,165,746
Certificates of deposit, $100,000 or more................. 6,226,738 5,689,238
Other time deposits....................................... 26,583,268 26,568,415
----------- -----------
Total deposits.................................... 82,452,613 78,968,633
Other borrowings............................................ 1,930,293 1,307,286
Accrued interest and other liabilities...................... 590,149 778,312
----------- -----------
Total liabilities................................. 84,973,055 81,054,231
Stockholders' equity:
Common stock ($2.50 par value, authorized 4,000,000
shares; issued and outstanding 1,331,223 shares in 1997
and 1996).............................................. 3,328,057 3,328,057
Surplus................................................... 4,934,895 4,934,895
Retained earnings......................................... 1,613,938 1,212,738
Unrealized gain (loss) on securities available for sale,
net.................................................... 9,474 (13,479)
----------- -----------
Total stockholders' equity........................ 9,886,364 9,462,211
----------- -----------
Total liabilities and stockholders' equity........ $94,859,419 $90,516,442
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 95
CB&T STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans................................. $5,257,952 $4,601,104 $2,978,906
U.S. Treasury securities................................... 441,319 652,788 703,671
U.S. government agency securities.......................... 202,816 275,925 193,014
Mortgage-backed securities................................. 533,981 623,451 409,122
Other securities........................................... 0 13,115 41,730
Federal funds sold......................................... 343,899 284,554 316,420
---------- ---------- ----------
Total interest income...................................... 6,779,967 6,450,937 4,642,863
---------- ---------- ----------
Interest expense:
Certificates of deposit, $100,000 or more.................. 346,918 342,905 294,722
Other deposits............................................. 2,236,627 2,194,813 1,497,676
Other borrowings........................................... 37,664 32,415 12,904
---------- ---------- ----------
Total interest expense..................................... 2,621,209 2,570,133 1,805,302
---------- ---------- ----------
Net interest income........................................ 4,158,758 3,880,804 2,837,561
Provision for loan losses.................................. 0 0 0
---------- ---------- ----------
Net interest income after provision for loan losses........ 4,158,758 3,880,804 2,837,561
---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts........................ 937,355 965,739 716,569
Insurance commissions...................................... 66,796 74,404 65,086
Mortgage origination agency commissions.................... 34,254 22,164 34,453
Other noninterest income................................... 144,039 123,441 91,434
---------- ---------- ----------
Total noninterest income................................... 1,182,444 1,185,748 907,542
---------- ---------- ----------
Noninterest expense:
Salaries and employee benefits............................. 2,286,392 2,164,971 1,628,975
Occupancy.................................................. 320,395 322,418 196,460
Equipment rental, depreciation and maintenance............. 386,666 350,044 291,088
Amortization of intangible assets.......................... 348,946 369,002 124,820
Other noninterest expense.................................. 1,112,857 1,037,042 1,103,930
---------- ---------- ----------
Total noninterest expense.................................. 4,455,256 4,243,477 3,345,273
---------- ---------- ----------
Income before income taxes................................. 885,946 823,075 399,830
Income tax provision....................................... 325,000 280,600 136,000
---------- ---------- ----------
Net income................................................. $ 560,946 $ 542,475 $ 263,830
========== ========== ==========
Earnings per share:
Basic...................................................... $ .42 $ .41 $ .20
---------- ---------- ----------
Diluted.................................................... $ .42 $ .41 $ .20
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 96
CB&T STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
COMMON STOCK SECURITIES TOTAL
---------------------- RETAINED AVAILABLE STOCKHOLDERS'
SHARES AMOUNT SURPLUS EARNINGS FOR SALE EQUITY
--------- ---------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994..................... 1,370,254 $3,425,635 $5,149,565 $ 512,931 $(695,968) $8,392,163
Purchase of common stock... (39,031) (97,578) (214,670) 0 0 (312,248)
Change in unrealized gain
(loss) on securities
available for sale, net
of tax effect............ 0 0 0 0 770,875 770,875
Net income................. 0 0 0 263,830 0 263,830
--------- ---------- ---------- ---------- --------- ----------
Balance at December 31,
1995..................... 1,331,223 3,328,057 4,934,895 776,761 74,907 9,114,620
Change in unrealized gain
(loss) on securities
available for sale, net
of tax effect............ 0 0 0 0 (88,386) (88,386)
Net income................. 0 0 0 542,475 0 542,475
Cash dividends, $.08 per
share.................... 0 0 0 (106,498) 0 (106,498)
--------- ---------- ---------- ---------- --------- ----------
Balance at December 31,
1996..................... 1,331,223 3,328,057 4,934,895 1,212,738 (13,479) 9,462,211
Change in unrealized gain
(loss) on securities
available for sale, net
of tax effect............ 0 0 0 0 22,953 22,953
Net income................. 0 0 0 560,946 0 560,946
Cash dividends, $.12 per
share.................... 0 0 0 (159,746) 0 (159,746)
--------- ---------- ---------- ---------- --------- ----------
Balance at December 31,
1997..................... 1,331,223 $3,328,057 $4,934,895 $1,613,938 $ 9,474 $9,886,364
========= ========== ========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE> 97
CB&T STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................. $ 560,946 $ 542,475 $ 263,830
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation......................................... 307,455 297,455 222,304
Amortization of securities premiums.................. 26,490 50,517 32,985
Accretion of securities discounts.................... (19,920) (30,832) (23,687)
(Increase) decrease in accrued interest receivable... (14,757) 54,696 (236,079)
Amortization of intangible assets.................... 348,946 369,002 124,820
(Increase) decrease in other assets.................. (118,664) 73,047 86,648
Increase (decrease) in accrued interest and other
liabilities....................................... (188,163) 188,157 136,517
----------- ------------ -----------
Net cash flows from operating activities..... 902,333 1,544,517 607,338
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale............. (6,026,250) 0 (4,048,280)
Maturities and calls of securities available for
sale................................................. 5,000,000 2,500,000 3,750,000
Purchases of investment securities..................... (1,500,000) 0 (6,887,382)
Maturities, paydowns and calls of investment
securities........................................... 2,723,553 3,943,500 377,594
Loan (originations) principal repayments, net.......... (3,355,204) (10,724,416) (4,448,648)
Net cash acquired in purchases of branches............. 0 0 15,313,000
Capital expenditures for premises and equipment........ (442,168) (350,980) (97,528)
----------- ------------ -----------
Net cash flows from investing activities..... (3,600,069) (4,631,896) 3,958,756
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net.............................. 3,483,980 959,695 362,091
Increase (decrease) in other borrowings................ 623,007 (303,275) 1,379,705
Repurchase of common stock............................. 0 0 (312,248)
Dividends paid......................................... (159,746) (106,498) 0
----------- ------------ -----------
Net cash flows from financing activities..... 3,947,241 549,922 1,429,548
----------- ------------ -----------
Net increase (decrease) in cash and cash equivalents... 1,249,505 (2,537,457) 5,995,642
Cash and cash equivalents, beginning of year........... 8,536,367 11,073,824 5,078,182
----------- ------------ -----------
Cash and cash equivalents, end of year................. $ 9,785,872 $ 8,536,367 $11,073,824
=========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE> 98
CB&T NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CB&T was organized and incorporated under the laws of the State of North
Carolina in 1987. CB&T is engaged in commercial banking in Marion,
Rutherfordton, Forest City, Sylva, Banner Elk, Black Mountain and Brevard, North
Carolina.
The accounting and reporting policies of CB&T conform to generally accepted
accounting principles and general practices within the banking industry. In the
presentation of the financial statements, management was required to make
certain estimates and assumptions that affected the reported value of certain
assets and liabilities at the end of each year presented, and the revenues and
expenses for those periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
amounts due from banks and federal funds sold. Generally, federal funds are sold
for one-day periods.
SECURITIES
Investments are classified into one of three categories, depending on
management's intent at the time of purchase, as follows: held to maturity
securities (investment securities), which are reported at amortized cost;
securities available for sale which are reported at fair value with unrealized
gains and losses reported as a separate component of stockholders' equity (net
of tax effect); or trading securities which are reported at fair value with
unrealized gains and losses included in the statement of income.
Gains and losses on sales of securities are recognized using the specific
identification method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by an allowance
for loan losses. Loan origination fees and certain direct loan origination costs
are deferred and amortized over the estimated life of the loan using a method
that approximates a level yield.
Interest accrual ceases when a loan exceeds 90 days past due in all
instances. Also, the accrual of interest is suspended when, in management's
judgment, there is doubt as to the collectibility of additional interest within
a reasonable time. Loans are returned to accrual status when management
determines, based on an evaluation of the underlying collateral together with
the borrower's payment record and financial condition, that the borrower has the
ability and intent to meet the contractual obligations of the loan agreement.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses inherent in existing loans, based on periodic
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, collateralization of specific loans, and current economic
conditions and trends that may affect the borrower's ability to pay.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review CB&T's allowance for loan losses. Such
agencies may require CB&T to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting
by Creditors for Impairment of a Loan," prescribes the recognition criterion for
loan impairment and the measurement methods for certain impaired loans and loans
whose terms are modified in troubled debt restructurings. When a loan is
impaired, a creditor must measure impairment based on (1) the present value of
the impaired loans expected future cash flows discounted at the loan's original
effective interest rate; (2) the observable market
F-11
<PAGE> 99
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
price of the impaired loan; or (3) the fair value of the collateral for a
collateral-dependent loan. Any measurement losses are recognized through
additions to the allowance for loan losses.
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income
Recognition and Disclosures," amended SFAS No. 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired loan and by
requiring additional disclosures about how a creditor recognizes interest income
related to impaired loans.
Effective January 1, 1995, CB&T adopted SFAS No. 114 and No. 118. The
adoption of the Standards required no increase to the allowance for loan losses
and has had no impact on net income.
Management considers loans to be impaired when, based on current
information and events, it is probable that CB&T will be unable to collect all
amounts due according to contractual terms of the loan agreement. Factors that
influence management's judgments include, but are not limited to, loan payment
pattern, source of repayment, and value of collateral. A loan would not be
considered impaired if an insignificant delay in loan payment occurs and
management expects to collect all amounts due. The major sources for
identification of loans to be evaluated for impairment include past due and
nonaccrual reports, internally generated lists of loans of certain risk grades,
and regulatory reports of examination. Impaired loans are measured using either
the discounted expected cash flow method or the value of collateral method.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. When
this doubt no longer exists, cash receipts are applied under the contractual
terms of the loan agreement to principal and then to interest income. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent that any interest has been foregone.
Future cash receipts are recorded as recoveries of any amounts previously
charged off.
A loan is also considered impaired if its terms are modified in a troubled
debt restructuring after January 1, 1995. For these accruing impaired loans,
cash receipts are typically applied to principal and interest receivable in
accordance with the terms of the restructured loan agreement. Interest income is
recognized on these loans using the accrual method of accounting.
FORECLOSED ASSETS
Foreclosed assets are initially recorded at the lower of cost or net fair
value (less estimated costs to sell). If cost exceeds net fair value, the asset
is written down to net fair value with the difference being charged against the
allowance for loan losses. Subsequent to foreclosure, such assets are carried at
the lower of cost or net fair value, as determined by periodic appraisals, with
any additional write downs being charged as real estate losses.
INTANGIBLE ASSETS
Intangible assets are amortized over the estimated benefit periods.
Accordingly, goodwill is currently amortized over fifteen years using the
straight-line method and deposit base premiums are amortized over ten years
using an accelerated method. Goodwill and other intangible assets are reviewed
for possible impairment when events or changed circumstances may affect the
underlying basis of the asset.
INCOME TAXES
CB&T accounts for income taxes on the asset and liability method. The
objective of the asset and liability method is to establish deferred tax assets
and liabilities for the temporary differences between the financial reporting
basis and the tax basis of CB&T's assets and liabilities at enacted rates
expected to be in effect when such amounts are realized or settled.
F-12
<PAGE> 100
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the fair
value of employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income as of the date of the grant of
awards related to such plans or that the impact of such fair value on net income
and earnings per share be disclosed on a pro forma basis in a footnote to
financial statements for awards granted after December 15,1994, if the
accounting for such awards continues to be in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). CB&T adopted SFAS No. 123 as of January 1, 1996, and has elected to
continue accounting for stock-based compensation under the provisions of APB 25.
As there were no options granted during 1997, 1996, or 1995, there is no
required SFAS No. 123 pro forma information disclosed in the notes to the
financial statements.
EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share," which applies to all entities with publicly
held common stock or potential common stock. This statement replaces the
presentation of primary earnings per share ("EPS") with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement for all entities with complex capital structures, and it
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS No. 128 requires restatement of all prior-period EPS data presented. CB&T
adopted this statement for the year ended December 31, 1997. Therefore, the EPS
data for the years ended December 31, 1996 and 1995 have been restated to comply
with this statement.
Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding for the year. Diluted
earnings per share reflects the potential dilution that could occur if CB&T's
common stock equivalents, which consist of dilutive stock options, were
exercised. The numerator of the basic earnings per share computations is the
same as the numerator of the diluted earnings per share computations for all
periods presented. A reconciliation of the denominator of the basic EPS
computations to the denominator of the diluted EPS computations is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Basic EPS denominator: weighted average number of
common shares outstanding........................... 1,331,223 1,331,223 1,331,223
Dilutive effect arising from assumed exercise of stock
options............................................. 5,600 233 0
--------- --------- ---------
Diluted EPS denominator............................... 1,336,823 1,331,456 1,331,233
========= ========= =========
</TABLE>
ACQUISITIONS
During 1995, CB&T acquired certain assets and assumed deposit liabilities
of the Banner Elk office of First Union National Bank of North Carolina, and two
NationsBank, N.A. branches located in Black Mountain and Brevard. Approximately
$16 million in loans and $37 million in deposits were acquired in these
purchases. The following table summarizes the remaining unamortized intangible
assets recorded in connection with the acquisitions, and the effect on income
before taxes of the related amortization.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
REMAINING INTANGIBLE ASSETS:
Deposit base premiums....................................... $ 665,978 $ 839,474
Goodwill.................................................... 2,226,046 2,401,496
</TABLE>
F-13
<PAGE> 101
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDING DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
AMORTIZATION OF INTANGIBLE ASSETS:
Deposit base premiums....................................... $173,496 $193,552 $70,023
Goodwill.................................................... 175,450 175,450 54,797
</TABLE>
SECURITIES
Investment securities with approximate book values of $5,213,000 and
$3,516,000 at December 31, 1997 and 1996, respectively, were pledged to secure
certain deposits with CB&T, as required by law. There were no sales of available
for sale or investment securities in any of the years in the three-year period
ended December 31, 1997.
Securities available for sale and investment securities are summarized as
follows:
<TABLE>
<CAPTION>
GROSS GROSS WEIGHTED AVERAGE
AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE MATURITY
COST GAINS LOSSES VALUE YIELD YEARS/MONTHS
----------- ---------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
SECURITIES AVAILABLE FOR SALE
U.S. TREASURY SECURITIES:
Due within 12 months............... $ 3,995,653 $ 2,386 $ (8,669) $ 3,989,370 5.44% 0/7
After one year through five
years............................ 3,012,213 49,347 (0) 3,061,560 6.61 2/1
----------- ------- -------- ----------- ---- ----
U.S. Treasury securities........... 7,007,866 51,733 (8,669) 7,050,930 5.94 1/3
----------- ------- -------- ----------- ---- ----
U.S. GOVERNMENT AGENCY SECURITIES:
Due within 12 months............... 2,000,000 0 (13,760) 1,986,240 5.04 0/9
After one year through five
years............................ 6,025,575 605 (15,555) 6,010,625 5.88 3/0
----------- ------- -------- ----------- ---- ----
U.S. Government agency
securities....................... 8,025,575 605 (29,315) 7,996,865 5.67 2/5
----------- ------- -------- ----------- ---- ----
Total securities available for
sale............................. $15,033,441 $52,338 $(37,984) $15,047,795 5.80% 1/11
----------- ------- -------- ----------- ---- ----
INVESTMENT SECURITIES
MORTGAGE-BACKED SECURITIES:
After one year through five
years............................ $ 5,959,062 $34,250 $ (2,676) $ 5,990,636 6.60% 4/8
After ten years.................... 1,457,532 21,375 (1,067) 1,477,840 7.35 24/5
----------- ------- -------- ----------- ---- ----
Mortgage-backed securities......... 7,416,594 55,625 (3,743) 7,468,476 6.75 8/6
----------- ------- -------- ----------- ---- ----
Total investment securities........ $ 7,416,594 $55,625 $ (3,743) $ 7,468,476 6.75% 8/6
----------- ------- -------- ----------- ---- ----
DECEMBER 31, 1996
SECURITIES AVAILABLE FOR SALE
U.S. TREASURY SECURITIES:
Due within 12 months............... $ 2,003,200 $ 3,210 $ 0 $ 2,006,410 6.07% 0/3
After one year through five
years............................ 7,003,970 50,790 (34,140) 7,020,620 5.94 2/3
----------- ------- -------- ----------- ---- ----
U.S. Treasury securities........... 9,007,170 54,000 (34,140) 9,027,030 5.97 1/9
----------- ------- -------- ----------- ---- ----
U.S. GOVERNMENT AGENCY SECURITIES:
Due within 12 months............... 1,000,000 0 (6,250) 993,750 4.25 0/9
After one year through five
years............................ 3,999,878 3,046 (37,078) 3,965,846 5.80 2/1
----------- ------- -------- ----------- ---- ----
U.S. Government agency
securities....................... 4,999,878 3,046 (43,328) 4,959,596 5.49 1/9
----------- ------- -------- ----------- ---- ----
Total securities available for
sale............................. $14,007,048 $57,046 $(77,468) $13,986,626 5.80% 1/9
----------- ------- -------- ----------- ---- ----
</TABLE>
F-14
<PAGE> 102
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS WEIGHTED AVERAGE
AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE MATURITY
COST GAINS LOSSES VALUE YIELD YEARS/MONTHS
----------- ---------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES
MORTGAGE-BACKED SECURITIES:
After five years through ten
years............................ $ 6,780,645 $ 0 $(51,368) $ 6,729,277 6.59% 5/9
After ten years.................... 1,866,213 8,756 (7,575) 1,867,394 7.64 25/8
----------- ------- -------- ----------- ---- ----
Mortgage-backed securities......... 8,646,858 8,756 (58,943) 8,596,671 6.81 10/0
----------- ------- -------- ----------- ---- ----
Total investment securities........ $ 8,646,858 $ 8,756 $(58,943) $ 8,596,671 6.81% 10/0
----------- ------- -------- ----------- ---- ----
</TABLE>
LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Construction................................................ $ 1,536,731 $ 2,431,255
Commercial.................................................. 4,270,658 4,400,898
Real estate -- 1 to 4 family................................ 28,631,949 26,144,734
Real estate -- other........................................ 15,527,505 12,370,579
Installment................................................. 6,105,936 7,421,840
Overdrafts.................................................. 32,713 7,155
----------- -----------
56,105,492 52,776,461
Less allowance for loan losses.............................. (798,293) (824,466)
----------- -----------
Loans, net.................................................. $55,307,199 $51,951,995
=========== ===========
</TABLE>
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Beginning balance...................................... $824,466 $818,216 $504,355
Provision for loan losses.............................. 0 0 0
Addition to reserve for acquired loans................. 0 0 246,000
Loans charged off...................................... (70,636) (50,139) (15,469)
Recoveries on loans charged off........................ 44,463 56,389 83,330
-------- -------- --------
Ending balance......................................... $798,293 $824,466 $818,216
======== ======== ========
</TABLE>
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
1997 1996
------- --------
<S> <C> <C>
Nonaccrual loans............................................ $ 3,400 $114,000
Foreclosed properties....................................... 71,400 2,800
------- --------
Nonperforming assets........................................ $74,800 $116,800
======= ========
</TABLE>
At December 31, 1997 and 1996, the recorded investment in loans that were
considered to be impaired under SFAS No. 114 was approximately $0 and $114,000,
respectively, of which all were on nonaccrual and had a related allowance. The
related allowance for loan losses for these loans totaled approximately $0 and
$12,500 at December 31, 1997 and 1996, respectively. The average recorded
investment in impaired loans for the years ended December 31, 1997 and 1996 was
$57,000 and $73,700, respectively. No interest income was recorded on these
impaired loans during 1997, 1996, and 1995. Interest income not recognized on
nonaccrual loans was approximately $2,600 in 1997, $4,400 in 1996 and $4,900 in
1995.
F-15
<PAGE> 103
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PREMISES AND EQUIPMENT, NET
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over the estimated useful
lives of the related assets. Estimated useful lives range from five to
thirty-one years. Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land and building........................................... $2,690,759 $2,719,586
Furniture, fixtures and equipment........................... 2,560,461 2,089,468
---------- ----------
5,251,220 4,809,054
Less accumulated depreciation............................... (1,716,325) (1,408,872)
---------- ----------
Premises and equipment, net................................. $3,534,895 $3,400,182
========== ==========
</TABLE>
TIME DEPOSITS
At December 31, 1997, time deposits, which include savings accounts, money
market accounts and certificates of deposits, have stated final maturities as
follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- ------------------------- (IN THOUSANDS)
<S> <C>
1998................................................... $41,443
1999................................................... 4,324
2000................................................... 2,317
2001................................................... 883
2002 and after......................................... 1,665
-------
$50,632
=======
</TABLE>
OTHER BORROWINGS
At December 31, 1997 and 1996, CB&T had overnight customer repurchase
agreements totaling $1,291,411 and $672,303, respectively. The weighted average
interest rate at December 31, 1997 and 1996 was 3.54% and 2.50%, respectively.
Repurchase agreements are collateralized by U.S. Treasury securities that remain
under CB&T's control.
CB&T maintains treasury, tax, and loan funds on deposit, which are payable
on demand to the U.S. Treasury collateralized by U.S. Treasury securities. At
December 31, 1997 and 1996, these funds totaled $638,882 and $634,983,
respectively, and had weighted average interest rates of approximately 5.10% and
5.00% at December 31, 1997 and 1996, respectively.
F-16
<PAGE> 104
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
LEASES
CB&T is obligated under operating lease agreements for two branch buildings
acquired during 1995. The leases expire on December 31, 2008. Rent expense
recorded in connection with these operating leases was $72,923 in 1997 and 1996
and $20,229 in 1995. A summary of lease commitments outstanding at December 31,
1997 follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
1998................................................... $ 72,923
1999................................................... 72,923
2000................................................... 72,923
2001................................................... 72,923
2002................................................... 72,923
Thereafter............................................. 437,537
--------
Total commitments...................................... $802,152
========
</TABLE>
INCOME TAXES
The provisions for income taxes charged to operations are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current................................................ $333,000 $203,431 $ 92,169
Deferred............................................... (8,000) 77,169 43,831
-------- -------- --------
Total.................................................. $325,000 $280,600 $136,000
======== ======== ========
</TABLE>
A reconciliation of the tax computed at the statutory rate of 34% to the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Tax at the statutory rate............................ $301,222 $279,846 $135,942
Change in beginning of the year valuation allowance
allocated to income tax expense.................... 0 (3,000) (6,000)
State tax expense, net of federal tax benefit........ 13,343 5,271 6,000
Other................................................ 10,435 (1,517) 58
-------- -------- --------
Provision for income taxes........................... $325,000 $280,600 $136,000
======== ======== ========
Effective income tax rate............................ 36.7% 34.1% 34.0%
======== ======== ========
</TABLE>
CB&T's income tax returns for 1994 and subsequent years are subject to
review by taxing authorities.
F-17
<PAGE> 105
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for loan losses................................... $182,478 $177,409
Unrealized loss on securities available for sale............ 0 6,944
Tax over book basis in intangible assets.................... 21,508 0
Other....................................................... 8,447 3,125
-------- --------
Total gross deferred tax assets........................ 212,433 187,478
Less valuation allowance............................... 0 0
-------- --------
Net deferred tax assets................................ 212,433 187,478
-------- --------
DEFERRED TAX LIABILITIES:
Depreciable basis of fixed assets........................... (265,433) (217,619)
Unrealized gain on securities available for sale............ (4,881) 0
Book over tax basis in intangible assets.................... 0 (23,915)
-------- --------
Total gross deferred tax liability..................... (270,314) (241,534)
-------- --------
Net deferred tax asset (liability)..................... $(57,881) $(54,056)
======== ========
</TABLE>
A portion of the change in the net deferred tax asset (liability) relates
to the unrealized gain (loss) on securities available for sale. The related
current period deferred tax expense of $11,825 has been recorded directly to
stockholders' equity. The balance of the change in the deferred tax asset
(liability) results from the current period deferred tax benefit of $8,000.
The valuation allowance as of January 1, 1996 was $3,000. The change in the
valuation allowance was a net decrease of $3,000 in 1996. It is management's
belief that realization of the deferred tax assets are more likely than not,
based upon CB&T's history of taxable income and estimates of future taxable
income.
COMMITMENTS AND CREDIT RISKS
CB&T is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include loan commitments, lines of credit and standby
letters of credit. These instruments involve elements of credit risk in excess
of amounts recognized in the accompanying financial statements.
CB&T's risk of loss in the event of nonperformance by the other party to
the loan commitment, line of credit or standby letter of credit is represented
by the contractual amount of these instruments. CB&T uses the same credit
policies in making commitments under such instruments as it does for on-balance
sheet instruments. The amount of collateral obtained, if any, is based on
management's credit evaluation of the borrower. Collateral obtained varies, but
may include accounts receivable, inventory, real estate and time deposits with
financial institutions.
As of December 31, 1997, outstanding financial instruments whose contract
amounts represent credit risk consisted of outstanding loan commitments of
$627,000, unfunded lines of credit of $7,414,000 and standby letters of credit
of $388,000. CB&T anticipates funding these commitments from normal sources.
CB&T's lending is concentrated primarily in the western North Carolina
counties in which it operates. The real estate loan portfolio can be affected by
the condition of the local real estate market. Commercial and installment loans
can be affected by local economic conditions. Credit has been extended to
certain of CB&T's customers through multiple lending transactions. However, none
creates a significant concentration of risk to any single borrower or industry.
F-18
<PAGE> 106
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS
Loans are made, in the normal course of business, to directors, officers
and their related interests. In the opinion of CB&T's management, the terms of
these loans, including interest rates and collateral, are similar to those
prevailing for comparable transactions and do not involve more than a normal
risk of collectibility. At December 31, 1997 and 1996, loans outstanding to
directors, officers, and their related interests totaled $264,596 and $400,234,
respectively. New loans and repayments in 1997 for such loans were $214,059 and
$349,697, respectively.
STOCK OPTIONS
Options to purchase shares of CB&T's outstanding common stock have been
granted to executives and key employees. The options, at the discretion of the
board, become exercisable in varying increments and expire no later than seven
years from the date of grant. Stock option transactions for 1997 are summarized
as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICES
------- ---------------
<S> <C> <C>
Outstanding options, beginning of year...................... 77,200 $ 5.83
Options exercised........................................... 0 0
Options expired............................................. (1,200) 9.17
Options granted............................................. 0 0
------ -----------
Outstanding options, end of year............................ 76,000 $ 5.83
====== ===========
</TABLE>
The options outstanding at the beginning of 1997 were also outstanding
during 1996 and 1995, with no option activity occurring in those years. At
December 31, 1997, options for 56,000 shares were exercisable at prices ranging
from $5.83 to $7.00 per share. Shares available for option amount to 80,000 at
December 31, 1997. The weighted average exercise price for the outstanding
options at December 31, 1997 is $6.95, with a weighted average contractual life
of 33 months.
EMPLOYEE BENEFIT PLANS
CB&T has an employee stock ownership plan (the "ESOP"). CB&T made required
contributions to this plan of $6,000 in each of the years ending December 31,
1997, 1996 and 1995. Additionally, in 1997, CB&T made a supplemental
contribution of $10,000. The common stock in the ESOP has a put feature to the
ESOP participants since the stock is not "readily tradable on an established
market." This feature permits the participants to sell their common shares
obtained from the ESOP to CB&T at the fair market value of such shares. Under
certain circumstances the fair value of the ESOP shares are to be presented
outside of stockholders' equity on the balance sheet. Because of the
immateriality of the fair value of the ESOP shares to stockholders' equity and
the change in market value thereof to net income, management has elected not to
present the fair value of the ESOP shares outside of stockholders' equity. In
the future, if the fair value of the ESOP shares becomes material to
stockholders' equity or the change in market value thereof to net income,
management will adopt this requirement. Had this requirement been reflected in
the accompanying balance sheets, stockholders' equity would have been reduced by
approximately $106,000 and $41,000 at December 31, 1997 and 1996, respectively.
CB&T also has a 401(k) plan. Matching contribution expensed for the years
ended December 31, 1997, 1996 and 1995 amounted to $13,109, $12,681 and $9,792,
respectively.
These plans, which are available to all employees age 21 and older, and
employed in a position requiring a minimum of 1,000 hours of service per year,
call for matching or optional contributions made by CB&T at the Board of
Directors' discretion.
F-19
<PAGE> 107
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
REGULATORY MATTERS
Certain regulatory agencies may prohibit the payment of dividends by CB&T
if they determine that such payment would constitute an unsafe or unsound
practice. At December 31, 1997, CB&T had available undivided profits of
approximately $1,600,000 for payment of dividends without obtaining prior
regulatory approval, subject to FDIC requirements and General Statutes of North
Carolina.
CB&T must comply with regulatory capital requirements established by the
Federal Deposit Insurance Corporation (the "FDIC"). These standards require CB&T
to maintain a minimum ratio of Tier I Capital (as defined) to total
risk-weighted assets of 4.00% and a minimum ratio of Total Capital (as defined)
to risk-weighted assets of 8.00%. Tier I Capital is comprised of total
stockholders' equity calculated in accordance with generally accepted accounting
principles less certain intangible assets, less unrealized gains or losses on
securities available for sale, and Total Capital is comprised of Tier I Capital
plus certain adjustments, the largest of which for CB&T is the general allowance
for loan losses. Risk-weighted assets refer to the on- and off-balance sheet
exposures of CB&T adjusted for their related risk levels using amounts set forth
in FDIC regulations.
In addition to the risk-based capital requirements described above, CB&T is
subject to a leverage capital requirement, which calls for a minimum ratio of
Tier I Capital (as defined previously) to total assets of 3% to 5%.
At December 31, 1997, CB&T was in compliance with all existing capital
requirements. CB&T's capital requirements are summarized in the accompanying
tables:
<TABLE>
<CAPTION>
LEVERAGE CAPITAL
----------------------
AMOUNT PERCENTAGE(1)
------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actual...................................................... $6,985 7.78%
Required.................................................... 3,589 4.00
Excess...................................................... 3,396 3.78
</TABLE>
<TABLE>
<CAPTION>
RISK-BASED CAPITAL
-----------------------------------------------
TIER 1 CAPITAL TOTAL CAPITAL
---------------------- ----------------------
AMOUNT PERCENTAGE(2) AMOUNT PERCENTAGE(2)
------ ------------- ------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Actual............................................... $6,985 13.46% $7,686 14.81%
Required............................................. 2,076 4.00 4,152 8.00
Excess............................................... 4,909 9.46 3,534 6.81
</TABLE>
- ---------------
(1) Percentage of total adjusted assets. The regulatory minimum leverage ratio
requirement is 3% to 5%, depending on the Bank's composite rating as
determined by its regulators. The regulators have not advised the Bank of a
specific requirement.
(2) Percentage of risk-weighted assets.
The average Federal Reserve balance requirement was approximately $780,000
at December 31, 1997.
CONTINGENCIES
CB&T is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of those matters will not have a material effect on CB&T's financial
position.
FAIR VALUE OF FINANCIAL INSTRUMENTS
CB&T is required under SFAS No. 107, "Disclosures about Fair Value of
Financial Instruments," to disclose in its financial statements the fair value
of all financial instruments, including assets and liabilities
F-20
<PAGE> 108
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
both on- and off-balance sheet, for which it is practicable to estimate such
fair value. Fair value estimates, methods and assumptions, as of December 31,
1997, for the Bank are set forth below and are subject to the following
limitations. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time CB&T's entire holdings of a particular financial
instrument. Because no market exists for a portion of CB&T's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include deferred tax assets and
premises and equipment. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered.
Based on the limitations, methods and assumptions noted below, the
estimated fair values of CB&T's financial instruments at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- -----------
<S> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks................................... $ 7,985,872 $ 7,985,872
Federal funds sold........................................ 1,800,000 1,800,000
Securities available for sale............................. 15,047,795 15,047,795
Investment securities..................................... 7,416,594 7,468,476
Loans, net................................................ 55,307,199 54,842,844
Accrued interest receivable............................... 575,282 575,282
----------- -----------
FINANCIAL LIABILITIES:
Demand deposits, noninterest-bearing...................... $16,853,506 $16,853,506
Demand deposits, interest-bearing......................... 14,967,113 14,967,113
Savings................................................... 10,624,868 10,624,868
Money market accounts..................................... 7,197,120 7,197,120
Certificates and other time deposits...................... 32,810,006 32,960,473
Other borrowings.......................................... 1,930,293 1,930,293
Accrued interest payable.................................. 590,149 590,149
----------- -----------
</TABLE>
CB&T's fair value methods and assumptions are as follows:
CASH AND DUE FROM BANKS, FEDERAL FUNDS SOLD AND ACCRUED INTEREST
RECEIVABLE: The carrying value is a reasonable estimate of fair value.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES: Fair value is
based on available quoted market prices or quoted market prices for similar
securities if a quoted market price is not available.
LOANS: The carrying value for variable rate loans is a reasonable estimate
of fair value due to contractual interest rate based on prime. Fair value for
fixed rate loans is estimated based upon discounted future cash flows using
discount rate comparable to rates currently offered for such loans.
DEPOSIT ACCOUNTS: The fair value of certificates and other time deposits
are estimated using rates currently offered for deposits of similar remaining
maturities. The fair value of all other deposit account types is the amount
payable on demand at year-end.
F-21
<PAGE> 109
CB&T NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OTHER BORROWINGS AND ACCRUED INTEREST PAYABLE: The carrying value is a
reasonable estimate of fair value because these instruments are payable in 90
days or less.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT: The large
majority of CB&T's loan commitments are at variable rates and, therefore, are
subject to minimal interest rate risk exposure. Thus, they are deemed to have no
current fair market value.
OTHER NONINTEREST EXPENSE
The following is a breakdown of items included in other noninterest expense
on the Statements of Income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Stationery, supplies & printing.................... $ 108,626 $ 140,958 $ 146,259
Check printing..................................... 31,027 28,361 120,759
Telephone.......................................... 141,655 124,811 103,037
Postage, express and freight....................... 88,179 102,084 70,349
Consulting fees.................................... 0 7,900 99,308
Courier service.................................... 89,429 101,068 66,786
Other.............................................. 653,941 531,860 497,432
---------- ---------- ----------
Total.................................... $1,112,857 $1,037,042 $1,103,930
========== ========== ==========
</TABLE>
SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Unrealized gain (loss) in value of securities
available for sale (net of tax effect of $11,825
in 1997, $54,776 in 1996, and $47,831 in 1995)... $ 22,953 $ (88,836) $ 770,875
---------- ---------- ----------
Cash paid for interest............................. $2,609,175 $2,593,601 $1,648,779
---------- ---------- ----------
Cash paid for income taxes......................... $ 535,463 $ 95,407 $ 129,000
========== ========== ==========
</TABLE>
F-22
<PAGE> 110
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Board of Directors
Community Bank & Trust Company
We have audited the accompanying balance sheets of Community Bank & Trust
Company as of December 31, 1997 and 1996, and the related statements of income,
changes in stockholders' equity, and cash flows for each of the years in the
three-year period 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Community Bank & Trust
Company as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
February 27, 1998
F-23
<PAGE> 111
APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CAROLINA FIRST BANCSHARES, INC.
AND
COMMUNITY BANK & TRUST COMPANY
DATED AS OF JUNE 4, 1998
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
Parties...................................................................... I-1
Preamble..................................................................... I-1
ARTICLE 1 -- TRANSACTIONS AND TERMS OF MERGER............................ I-1
1.1 Merger...................................................... I-1
1.2 Time and Place of Closing................................... I-1
1.3 Effective Time.............................................. I-1
ARTICLE 2 -- TERMS OF MERGER............................................. I-2
2.1 Charter..................................................... I-2
2.2 Bylaws...................................................... I-2
2.3 Directors and Officers...................................... I-2
ARTICLE 3 -- MANNER OF CONVERTING SHARES................................. I-2
3.1 Conversion of Shares........................................ I-2
3.2 Anti-Dilution Provisions.................................... I-3
3.3 Shares Held by CB&T or Carolina First....................... I-3
3.4 Dissenting Shareholders..................................... I-3
3.5 Fractional Shares........................................... I-3
3.6 Conversion of Stock Options; Restricted Stock............... I-3
ARTICLE 4 -- EXCHANGE OF SHARES.......................................... I-5
4.1 Exchange Procedures......................................... I-5
4.2 Rights of Former CB&T Shareholders.......................... I-5
ARTICLE 5 -- REPRESENTATIONS AND WARRANTIES OF CB&T...................... I-6
5.1 Organization, Standing, and Power........................... I-6
5.2 Authority of CB&T; No Breach By Agreement................... I-6
5.3 Capital Stock............................................... I-7
5.4 CB&T Subsidiaries........................................... I-7
5.5 SEC Filings; Financial Statements........................... I-7
5.6 Absence of Undisclosed Liabilities.......................... I-7
5.7 Absence of Certain Changes or Events........................ I-7
5.8 Tax Matters................................................. I-8
5.9 Allowance for Possible Loan Losses.......................... I-8
5.10 Assets...................................................... I-9
5.11 Intellectual Property....................................... I-9
5.12 Environmental Matters....................................... I-9
5.13 Compliance with Laws........................................ I-10
5.14 Labor Relations............................................. I-10
5.15 Employee Benefit Plans...................................... I-10
5.16 Material Contracts.......................................... I-12
5.17 Legal Proceedings........................................... I-12
5.18 Reports..................................................... I-12
5.19 Statements True and Correct................................. I-12
5.20 Accounting, Tax and Regulatory Matters...................... I-13
5.21 State Takeover Laws......................................... I-13
5.22 Charter Provisions.......................................... I-13
5.23 Reserved.................................................... I-13
5.24 Directors' Agreements....................................... I-13
5.25 Opinion of Financial Advisor................................ I-13
5.26 Board Recommendation........................................ I-13
5.27 Millennium Compliance....................................... I-14
</TABLE>
i
<PAGE> 113
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE 6 -- REPRESENTATIONS AND WARRANTIES OF CAROLINA FIRST............ I-14
6.1 Organization, Standing, and Power........................... I-14
6.2 Authority; No Breach By Agreement........................... I-14
6.3 Capital Stock............................................... I-15
6.4 Carolina First Subsidiaries................................. I-15
6.5 SEC Filings; Financial Statements........................... I-15
6.6 Absence of Undisclosed Liabilities.......................... I-16
6.7 Absence of Certain Changes or Events........................ I-16
6.8 Tax Matters................................................. I-16
6.9 Allowance for Possible Loan Losses.......................... I-17
6.10 Assets...................................................... I-17
6.11 Intellectual Property....................................... I-17
6.12 Environmental Matters....................................... I-18
6.13 Compliance With Laws........................................ I-18
6.14 Labor Relations............................................. I-19
6.15 Employee Benefit Plans...................................... I-19
6.16 Reserved.................................................... I-20
6.17 Legal Proceedings........................................... I-20
6.18 Reports..................................................... I-20
6.19 Statements True and Correct................................. I-20
6.20 Authority of Sub............................................ I-20
6.21 Accounting, Tax and Regulatory Matters...................... I-21
6.22 Opinion of Financial Advisor................................ I-21
6.23 Millennium Compliance....................................... I-21
ARTICLE 7 -- CONDUCT OF BUSINESS PENDING CONSUMMATION.................... I-21
7.1 Affirmative Covenants of CB&T............................... I-21
7.2 Negative Covenants of CB&T.................................. I-21
7.3 Covenants of Carolina First................................. I-23
7.4 Reserved.................................................... I-23
7.5 Adverse Changes in Condition................................ I-23
7.6 Reports..................................................... I-23
ARTICLE 8 -- ADDITIONAL AGREEMENTS....................................... I-23
8.1 Registration Statement; Proxy Statement; Shareholder I-23
Approval....................................................
8.2 [Reserved].................................................. I-24
8.3 Applications................................................ I-24
8.4 Filings with State Offices.................................. I-24
8.5 Agreement as to Efforts to Consummate....................... I-24
8.6 Investigation and Confidentiality........................... I-24
8.7 Press Releases.............................................. I-25
8.8 Certain Actions............................................. I-25
8.9 Accounting and Tax Treatment................................ I-25
8.10 State Takeover Laws......................................... I-25
8.11 Charter Provisions.......................................... I-25
8.12 Reserved.................................................... I-25
8.13 Agreement of Affiliates..................................... I-25
8.14 Employee Benefits and Contracts............................. I-26
8.15 Indemnification............................................. I-26
8.16 Certain Policies of CB&T.................................... I-27
ARTICLE 9 -- CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........... I-27
9.1 Conditions to Obligations of Each Party..................... I-27
9.2 Conditions to Obligations of Carolina First................. I-28
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
9.3 Conditions to Obligations of CB&T........................... I-29
ARTICLE 10 -- TERMINATION................................................. I-30
10.1 Termination................................................. I-30
10.2 Effect of Termination....................................... I-31
10.3 Non-Survival of Representations and Covenants............... I-31
ARTICLE 11 -- MISCELLANEOUS............................................... I-31
11.1 Definitions................................................. I-31
11.2 Expenses.................................................... I-37
11.3 Brokers and Finders......................................... I-38
11.4 Entire Agreement............................................ I-38
11.5 Amendments.................................................. I-38
11.6 Waivers..................................................... I-38
11.7 Assignment.................................................. I-39
11.8 Notices..................................................... I-39
11.9 Governing Law............................................... I-39
11.10 Counterparts................................................ I-39
11.11 Captions; Articles and Sections............................. I-39
11.12 Interpretations............................................. I-39
11.13 Enforcement of Agreement.................................... I-40
11.14 Severability................................................ I-40
Signatures................................................................... I-40
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of June 4, 1998, by and between CAROLINA FIRST BANCSHARES, INC.
("Carolina First"), a North Carolina corporation and COMMUNITY BANK & TRUST
COMPANY ("CB&T"), a North Carolina bank.
PREAMBLE
The respective Boards of Directors of CB&T and Carolina First are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective shareholders. This Agreement
provides for the acquisition of CB&T by Carolina First pursuant to the merger of
a North Carolina interim banking subsidiary to be formed by Carolina First
("Sub") with and into CB&T. At the effective time of such merger, the
outstanding shares of the capital stock of CB&T shall be converted into the
right to receive shares of the common stock of Carolina First (except as
provided herein). As a result, shareholders of CB&T shall become shareholders of
Carolina First and CB&T shall conduct its business and operations as a wholly
owned subsidiary of Carolina First. The transactions described in this Agreement
are subject to the approvals of the shareholders of CB&T, the Board of Governors
of the Federal Reserve System, the Federal Deposit Insurance Corporation (the
"FDIC") and the North Carolina Office of the Commissioner of Banks, and the
satisfaction of certain other conditions described in this Agreement. It is the
intention of the parties to this Agreement that the Merger for federal income
tax purposes shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code, and for accounting purposes shall qualify
for treatment as a pooling of interests. Upon formation of Sub, the parties
agree that Sub, CB&T and Carolina First will enter into an Agreement and Plan of
Merger to effectuate the terms of this Agreement.
Certain terms used in this Agreement are defined in Section 11.1 of this
Agreement.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at the
Effective Time, Sub shall be merged with and into CB&T in accordance with the
provisions of Section 53-12 of the General Statutes of North Carolina and with
the effect provided in Section 53-13 thereof (the "Merger"). CB&T shall be the
Surviving Corporation resulting from the Merger and shall become a wholly-owned
Subsidiary of Carolina First and shall continue to be governed by the Laws of
the State of North Carolina. The Merger shall be consummated pursuant to the
terms of this Agreement, which has been approved and adopted by the respective
Boards of Directors of CB&T, Sub and Carolina First and by Carolina First, as
the sole shareholder of Sub.
1.2 Time and Place of Closing. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree. The Closing shall
be held at such location as may be mutually agreed upon by the Parties.
1.3 Effective Time. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Articles of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of North Carolina (the "Effective Time") Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the
authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the first business day
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following the last to occur of (i) the effective date (including expiration of
any applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the date on which the shareholders of CB&T and Sub approve this Agreement to the
extent such approval is required by applicable Law; or such later date within 30
days thereof as may be specified by Carolina First.
ARTICLE 2
TERMS OF MERGER
2.1 Charter. The Certificate of Incorporation of CB&T shall be the
Certificate of Incorporation of the Surviving Corporation; provided that, such
Certificate of Incorporation shall be amended and restated, pursuant to the
Articles of Merger, to be identical to the Certificate of Incorporation of Sub
in effect immediately prior to the Effective Time (except that the name of CB&T
therein shall remain "Community Bank & Trust Company").
2.2 Bylaws. The Bylaws of Sub in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation until duly amended or
repealed, except that the name therein shall be changed to "Community Bank &
Trust Company."
2.3 Directors and Officers. The directors of CB&T in office immediately
prior to the Effective Time, together with two additional persons nominated by
Carolina First and such additional persons as may thereafter be elected, shall
serve as the directors of the Surviving Corporation from and after the Effective
Time in accordance with the Bylaws of the Surviving Corporation. The officers of
CB&T in office immediately prior to the Effective Time (except for those whose
resignation is contemplated), together with such additional persons as may
thereafter be elected, shall serve as the officers of the Surviving Corporation
from and after the Effective Time in accordance with the Bylaws of the Surviving
Corporation. Three persons recommended by CB&T shall be elected to the Board of
Directors of Carolina First.
ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Shares. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of Carolina First, CB&T, Sub or the shareholders of any of the foregoing, the
shares of the constituent corporations shall be converted as follows:
(a) Each share of capital stock of Carolina First issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of Sub Common Stock issued and outstanding immediately
prior to the Effective Time shall be converted into one share of Common
Stock of the Surviving Corporation.
(c) Each share of CB&T Common Stock, excluding shares held by any CB&T
Entity or Carolina First Entity, in each case other than in a fiduciary
capacity or as a result of debts previously contracted, and excluding
shares held by shareholders to perfect their statutory dissenter's rights
as provided in Section 3.4, that are issued and outstanding immediately
prior to the Effective Time shall cease to be outstanding and shall
represent the right to be converted and exchanged for shares of Carolina
First Common Stock as provided in this Section 3.1(c). In no event shall
Carolina First be required to issue and/or reserve for issuance more than
1,021,202 shares of Carolina First Common Stock in connection with the
Merger for (i) all issued and outstanding shares of CB&T Common Stock at
the Effective Time and (ii) in connection with all options (the "CB&T
Options") granted under the CB&T Option Plan on shares of CB&T Common Stock
and outstanding as of the date of this Agreement. Carolina First shall
determine the preliminary exchange ratio (the "Preliminary Exchange Ratio")
by dividing 1,021,202 shares of Carolina First Common Stock by the sum of
(x) all issued shares of CB&T Common Stock immediately prior to the
Effective Time, plus the (y) aggregate number of shares of CB&T Common
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Stock issuable upon the exercise of all outstanding CB&T Options as of the
Effective Time (in no event to exceed 61,429 shares of CB&T Common Stock
(the "Option Shares")). The Preliminary Exchange Ratio shall then be used
to determine pursuant to Section 3.6, the number of shares of Carolina
First Common Stock to be reserved as provided in such Section 3.6 for
issuance upon exercise of all such former CB&T Options. After calculating
the number of shares of Carolina First Common Stock to be reserved in
respect of the Option Shares, the final exchange ratio ("Final Exchange
Ratio") shall be determined by dividing the difference between 1,021,202
less the number of shares of Carolina First Common Stock to be reserved
pursuant to Section 3.6 in respect of the Option Shares, and dividing such
difference by the total number of shares of CB&T Common Stock issued and
outstanding as of the Effective Time.
3.2 Anti-Dilution Provisions. In the event Carolina First changes the
number of shares of Carolina First Common Stock issued and outstanding prior to
the Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in the
case of a stock dividend) or the effective date thereof (in the case of a stock
split or similar recapitalization for which a record date is not established)
shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
3.3 Shares Held by CB&T or Carolina First. Each of the shares of CB&T
Common Stock held by any CB&T Entity or by any Carolina First Entity, in each
case other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 Dissenting Shareholders. Any holder of shares of CB&T Common Stock who
perfects his dissenters' rights in accordance with and as contemplated by
Section 55-13-01, et. seq., of the NCBCA shall be entitled to receive the value
of such shares in cash as determined pursuant to such provision of Law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the NCBCA and surrendered to CB&T the certificate or certificates
representing the shares for which payment is being made. In the event that after
the Effective Time a dissenting shareholder of CB&T fails to perfect, or
effectively withdraws or loses, his right to appraisal and of payment for his
shares, Carolina First shall issue and deliver the consideration to which such
holder of shares of CB&T Common Stock is entitled under this Article 3 (without
interest) upon surrender by such holder of the certificate or certificates
representing shares of CB&T Common Stock held by him. If and to the extent
required by applicable Law, CB&T will establish (or cause to be established) an
escrow account with an amount sufficient to satisfy the maximum aggregate
payment that may be required to be paid to dissenting shareholders. Upon
satisfaction of all claims of dissenting shareholders, the remaining escrowed
amount, reduced by payment of the fees and expenses of the escrow agent, will be
returned to the Surviving Corporation.
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of CB&T Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of Carolina First Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of Carolina
First Common Stock multiplied by the market value of one share of Carolina First
Common Stock at the Effective Time. The market value of one share of Carolina
First Common Stock at the Effective Time shall be the last trading price of such
Common Stock, as reported by Interstate/Johnson Lane Corporation or J.C.
Bradford & Co., as the case may be. No such holder will be entitled to
dividends, voting rights, or any other rights as a shareholder in respect of any
fractional shares.
3.6 Conversion of Stock Options; Restricted Stock. (a) At the Effective
Time, each CB&T Option which is outstanding at the Effective Time, whether or
not exercisable, shall be converted into and become rights with respect to
Carolina First Common Stock, and Carolina First shall assume each CB&T Option,
in accordance with the terms of the CB&T Stock Plan and stock option agreement
by which it is evidenced, except that from and after the Effective Time, (i)
Carolina First and its Compensation Committee shall be substituted for CB&T and
the Committee of CB&T's Board of Directors (including, if applicable, the entire
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Board of Directors of CB&T) administering such CB&T Stock Plan, (ii) each CB&T
Option assumed by Carolina First may be exercised solely for shares of Carolina
First Common Stock, (iii) the number of shares of Carolina First Common Stock
subject to such CB&T Option shall be equal to the number of shares of CB&T
Common Stock subject to such CB&T Option immediately prior to the Effective Time
multiplied by the Exchange Ratio, and (iv) the per share exercise price under
each such CB&T Option shall be adjusted by dividing the per share exercise price
under each such CB&T Option by the Exchange Ratio and rounding up to the nearest
cent. Notwithstanding the provisions of clause (iii) of the preceding sentence,
Carolina First shall not be obligated to issue any fraction of a share of
Carolina First Common Stock upon exercise of CB&T Options and any fraction of a
share of Carolina First Common Stock that otherwise would be subject to a
converted CB&T Option shall represent the right to receive a cash payment upon
exercise of such converted CB&T Option equal to the product of such fraction and
the difference between the market value of one share of Carolina First Common
Stock at the time of exercise of such Option and the per share exercise price of
such Option. The market value of one share of Carolina First Common Stock at the
time of exercise of an Option shall be the last trading price of such Common
Stock, as reported by Interstate/Johnson Lane Corporation or J.C. Bradford &
Co., as the case may be. In addition, notwithstanding the provisions of clauses
(iii) and (iv) of the first sentence of this Section 3.6, each CB&T Option which
is an "incentive stock option" shall be adjusted as required by Section 424 of
the Internal Revenue Code, and the regulations promulgated thereunder, so as not
to constitute a modification, extension or renewal of the option, within the
meaning of Section 424(h) of the Internal Revenue Code. Each of CB&T and
Carolina First agrees to take all necessary steps to effectuate the foregoing
provisions of this Section 3.6, including using its reasonable efforts to obtain
from each holder of a CB&T Option any Consent or Contract (including amendments
to existing Employment Agreements and option award agreements) that may be
deemed necessary or advisable in order to effect the transactions contemplated
by this Section 3.6. Anything in this Agreement to the contrary notwithstanding,
Carolina First shall have the right, in its sole discretion, not to deliver the
consideration provided in this Section 3.6 to a former holder of a CB&T Option
who has not delivered such Consent or Contract.
(b) As soon as practicable after the Effective Time, Carolina First shall
deliver to the participants in each CB&T Stock Plan an appropriate notice
setting forth such participant's rights pursuant thereto and the grants subject
to such CB&T Stock Plan shall continue in effect on the same terms and
conditions (subject to the adjustments required by Section 3.6(a) after giving
effect to the Merger), and Carolina First shall comply with the terms of each
CB&T Stock Plan to ensure, to the extent required by, and subject to the
provisions of, such CB&T Stock Plan, that CB&T Options which qualified as
incentive stock options prior to the Effective Time continue to qualify as
incentive stock options after the Effective Time. At or prior to the Effective
Time, Carolina First shall take all corporate action necessary to reserve for
issuance sufficient shares of Carolina First Common Stock for delivery upon
exercise of CB&T Options assumed by it in accordance with this Section 3.6. As
soon as practicable after the Effective Time, Carolina First shall file a
registration statement on Form S-3 or Form S-8, as the case may be (or any
successor or other appropriate forms), with respect to the shares of Carolina
First Common Stock subject to such options and shall use its reasonable efforts
to maintain the effectiveness of such registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such options remain outstanding. With respect to those individuals who
subsequent to the Merger will be subject to the reporting requirements under
Section 16(a) of the Exchange Act, where applicable, Carolina First shall
administer the CB&T Stock Plan assumed pursuant to this Section 3.6 in a manner
that complies with Rule 16b-3 promulgated under the Exchange Act to the extent
the CB&T Stock Plan complied with such rule prior to the Effective Time.
(c) All contractual restrictions or limitations on transfer with respect to
CB&T Common Stock awarded under the CB&T Stock Plan or any other plan, program,
Contract or arrangement of any CB&T Entity, to the extent that such restrictions
or limitations shall not have already lapsed (whether as a result of the Merger
or otherwise), and except as otherwise expressly provided in such plan, program,
Contract or arrangement, shall remain in full force and effect with respect to
shares of Carolina First Common Stock into which such restricted stock is
converted pursuant to Section 3.1.
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ARTICLE 4
EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, Carolina First
and CB&T shall cause the exchange agent selected by Carolina First (the
"Exchange Agent") to mail to each holder of record of a certificate or
certificates which represented shares of CB&T Common Stock immediately prior to
the Effective Time (the "Certificates") appropriate transmittal materials and
instructions (which shall specify that delivery shall be effected, and risk of
loss and title to such Certificates shall pass, only upon proper delivery of
such Certificates to the Exchange Agent). The Certificate or Certificates of
CB&T Common Stock so delivered shall be duly endorsed as the Exchange Agent may
require. In the event of a transfer of ownership of shares of CB&T Common Stock
represented by Certificates that are not registered in the transfer records of
CB&T, the consideration provided in Section 3.1 may be issued to a transferee if
the Certificates representing such shares are delivered to the Exchange Agent,
accompanied by all documents required to evidence such transfer and by evidence
satisfactory to the Exchange Agent that any applicable stock transfer taxes have
been paid. If any Certificate shall have been lost, stolen, mislaid or
destroyed, upon receipt of (i) an affidavit of that fact from the holder
claiming such Certificate to be lost, mislaid, stolen or destroyed, (ii) such
bond, security or indemnity as Carolina First and the Exchange Agent may
reasonably require and (iii) any other documents necessary to evidence and
effect the bona fide exchange thereof, the Exchange Agent shall issue to such
holder the consideration into which the shares represented by such lost, stolen,
mislaid or destroyed Certificate shall have been converted. The Exchange Agent
may establish such other reasonable and customary rules and procedures in
connection with its duties as it may deem appropriate. After the Effective Time,
each holder of shares of CB&T Common Stock (other than shares to be canceled
pursuant to Section 3.3 or as to which statutory dissenters' rights have been
perfected as provided in Section 3.4) issued and outstanding at the Effective
Time shall surrender the Certificate or Certificates representing such shares to
the Exchange Agent and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 3.1, together with all
undelivered dividends or distributions in respect of such shares (without
interest thereon) pursuant to Section 4.2. To the extent required by Section
3.5, each holder of shares of CB&T Common Stock issued and outstanding at the
Effective Time also shall receive, upon surrender of the Certificate or
Certificates, cash in lieu of any fractional share of Carolina First Common
Stock to which such holder may be otherwise entitled (without interest).
Carolina First shall not be obligated to deliver the consideration to which any
former holder of CB&T Common Stock is entitled as a result of the Merger until
such holder surrenders such holder's Certificate or Certificates for exchange as
provided in this Section 4.1. Any other provision of this Agreement
notwithstanding, neither Carolina First, the Surviving Corporation nor the
Exchange Agent shall be liable to a holder of CB&T Common Stock for any amounts
paid or property delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat or similar Law. Adoption of this
Agreement by the shareholders of CB&T shall constitute ratification of the
appointment of the Exchange Agent.
4.2 Rights of Former CB&T Shareholders. At the Effective Time, the stock
transfer books of CB&T shall be closed as to holders of CB&T Common Stock
immediately prior to the Effective Time and no transfer of CB&T Common Stock by
any such holder shall thereafter be made or recognized. Until surrendered for
exchange in accordance with the provisions of Section 4.1, each Certificate
theretofore representing shares of CB&T Common Stock (other than shares to be
canceled pursuant to Sections 3.3 and 3.4) shall from and after the Effective
Time represent for all purposes only the right to receive the consideration
provided in Sections 3.1 and 3.5 in exchange therefor, subject, however, to the
Surviving Corporation's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time which have been
declared or made by CB&T in respect of such shares of CB&T Common Stock in
accordance with the terms of this Agreement and which remain unpaid at the
Effective Time. To the extent permitted by Law, former shareholders of record of
CB&T shall be entitled to vote after the Effective Time at any meeting of
Carolina First shareholders the number of whole shares of Carolina First Common
Stock into which their respective shares of CB&T Common Stock are converted,
regardless of whether such holders have exchanged their Certificates for
certificates representing Carolina First Common Stock in accordance with the
provisions of this Agreement. Whenever a dividend or other distribution is
declared by Carolina First on the Carolina First
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<PAGE> 120
Common Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares of
Carolina First Common Stock issuable pursuant to this Agreement, but 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 shall be delivered to the
holder of any Certificate until such holder surrenders such Certificate for
exchange as provided in Section 4.1. However, upon surrender of such
Certificate, any undelivered dividends and cash payments payable hereunder
(without interest) shall be delivered and paid with respect to each share
represented by such Certificate.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF CB&T
CB&T hereby represents and warrants to Carolina First as follows:
5.1 Organization, Standing, and Power. CB&T is a North Carolina bank duly
organized, validly existing, and in good standing under the Laws of the State of
North Carolina, and has the corporate power and authority to carry on its
business as now conducted and to own, lease and operate its material Assets.
CB&T is duly qualified or licensed to transact business in good standing in the
States of the United States and foreign jurisdictions where the character of its
Assets or the nature or conduct of its business requires it to be so qualified
or licensed, except for such jurisdictions in which the failure to be so
qualified or licensed is not reasonably likely to have, individually or in the
aggregate, a CB&T Material Adverse Effect. The minute book and other
organizational documents for CB&T have been made available to Carolina First for
its review and, except as disclosed in Section 5.1 of the CB&T Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all actions of the Board of Directors and shareholders
thereof.
5.2 Authority of CB&T; No Breach By Agreement. (a) CB&T has the corporate
power and authority necessary to execute, deliver, and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement and the consummation of
the transactions contemplated herein, including the Merger, have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of CB&T, subject to the approval of this Agreement by the holders of
two-thirds of the outstanding shares of CB&T Common Stock, which is the only
shareholder vote required for approval of this Agreement and consummation of the
Merger by CB&T. Subject to such requisite shareholder approval, this Agreement
represents a legal, valid, and binding obligation of CB&T, enforceable against
CB&T in accordance with its terms (except in all cases as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization,
receivership, conservatorship, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief or any other
equitable relief is subject to the discretion of the court before which any
proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by CB&T, nor the
consummation by CB&T of the transactions contemplated hereby, nor compliance by
CB&T with any of the provisions hereof, will (i) conflict with or result in a
breach of any provision of CB&T's Articles of Incorporation or Bylaws or the
certificate or articles of incorporation or bylaws of any CB&T Subsidiary or any
currently effective resolution adopted by the board of directors or the
shareholders of any CB&T Entity, or (ii) except as disclosed in Section 5.2 of
the CB&T Disclosure Memorandum, constitute or result in a Default under, or
require any Consent pursuant to, or result in the creation of any Lien on any
Asset of any CB&T Entity under, any Contract or Permit of any CB&T Entity, where
such Default or Lien, or any failure to obtain such Consent, is reasonably
likely to have, individually or in the aggregate, a CB&T Material Adverse
Effect, or, (iii) subject to receipt of the requisite Consents referred to in
Section 9.1(b), constitute or result in a Default under, or require any Consent
pursuant to, any Law or Order applicable to any CB&T Entity or any of their
respective material Assets (including any Carolina First Entity or any CB&T
Entity becoming subject to or liable for the payment of any Tax or any of the
Assets owned by any Carolina First Entity or any CB&T Entity being reassessed or
revalued by any Taxing authority).
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(c) Other than in connection or compliance with the provisions of the
Securities Laws and applicable state corporate, banking and securities Laws, and
other than Consents required from Regulatory Authorities, and other than notices
to or filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act, no
notice to, filing with, or Consent of, any public body or authority is necessary
for the consummation by CB&T of the Merger and the other transactions
contemplated in this Agreement.
5.3 Capital Stock. (a) The authorized capital stock of CB&T consists of
(i) 4,000,000 shares of CB&T Common Stock, of which 1,342,937 shares are issued
and outstanding as of the date of this Agreement and not more than 1,404,366
shares will be issued and outstanding at the Effective Time, and no shares of
preferred stock. All of the issued and outstanding shares of capital stock of
CB&T are duly and validly issued and outstanding and are fully paid and
nonassessable under North Carolina law, except as provided by Section 53-42 of
the North Carolina Banking Code with respect to North Carolina banks generally.
None of the outstanding shares of capital stock of CB&T has been issued in
violation of any preemptive rights of the current or past shareholders of CB&T.
(b) Except as set forth in Section 5.3(a), or as disclosed in Section
5.3(b) of the CB&T Disclosure Memorandum, there are no shares of capital stock
or other equity securities of CB&T outstanding and no outstanding Equity Rights
relating to the capital stock of CB&T.
5.4 CB&T Subsidiaries. CB&T has no CB&T Subsidiaries.
5.5 SEC Filings; Financial Statements. (a) CB&T has timely filed and made
available to Carolina First all SEC Documents required to be filed by CB&T since
December 31, 1993 (the "CB&T SEC Reports"). The CB&T SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Laws and other applicable Laws and (ii) did not, at the time they
were filed (or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
CB&T SEC Reports or necessary in order to make the statements in such CB&T SEC
Reports, in light of the circumstances under which they were made, not
misleading. No CB&T Subsidiary is required to file any SEC Documents.
(b) Each of the CB&T Financial Statements (including, in each case, any
related notes) contained in the CB&T SEC Reports, including any CB&T SEC Reports
filed after the date of this Agreement until the Effective Time, complied as to
form in all material respects with the applicable published rules and
regulations of the FDIC with respect thereto, was prepared in accordance with
GAAP applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by the appropriate forms for
quarterly reporting promulgated by the FDIC under the 1934 Act), and fairly
presented in all material respects the consolidated financial position of CB&T
as at the respective dates and the consolidated results of operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount or effect.
5.6 Absence of Undisclosed Liabilities. No CB&T Entity has any Liabilities
that are reasonably likely to have, individually or in the aggregate, a CB&T
Material Adverse Effect, except Liabilities which are accrued or reserved
against in the consolidated balance sheets of CB&T as of December 31, 1997
included in the CB&T Financial Statements delivered prior to the date of this
Agreement or reflected in the notes thereto. No CB&T Entity has incurred or paid
any Liability since December 31, 1997, except for such Liabilities incurred or
paid (i) in the ordinary course of business consistent with past business
practice and which are not reasonably likely to have, individually or in the
aggregate, a CB&T Material Adverse Effect or (ii) in connection with the
transactions contemplated by this Agreement.
5.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the CB&T Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 5.7 of the CB&T Disclosure Memorandum,
(i) there have been no events, changes, or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a CB&T Material
Adverse Effect, and (ii) the
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CB&T Entities have not taken any action, or failed to take any action, prior to
the date of this Agreement, which action or failure, if taken after the date of
this Agreement, would represent or result in a material breach or violation of
any of the covenants and agreements of CB&T provided in Article 7.
5.8 Tax Matters. (a) All Tax Returns required to be filed by or on behalf
of any of the CB&T Entities have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on or
before December 31, 1997, and on or before the date of the most recent fiscal
year end immediately preceding the Effective Time, and all Tax Returns filed are
complete and accurate in all material respects. All Taxes shown on filed Tax
Returns have been paid. As of the date of this Agreement, there is no audit
examination, deficiency, or refund Litigation with respect to any Taxes, except
as reserved against in the CB&T Financial Statements or as disclosed in Section
5.8 of the CB&T Disclosure Memorandum. All Taxes and other Liabilities due with
respect to completed and settled examinations or concluded Litigation have been
paid. There are no Liens with respect to Taxes upon any of the Assets of the
CB&T Entities, except for any such Liens which are not reasonably likely to have
a CB&T Material Adverse Effect.
(b) None of the CB&T Entities has executed an extension or waiver of any
statute of limitations on the assessment or collection of any Tax due (excluding
such statutes that relate to years currently under examination by the Internal
Revenue Service or other applicable taxing authorities) that is currently in
effect.
(c) The provision for any Taxes due or to become due for any of the CB&T
Entities for the period or periods through and including the date of the
respective CB&T Financial Statements that has been made and is reflected on such
CB&T Financial Statements is sufficient, in the judgment of CB&T's management
after consultation with CB&T's independent public accountants, to cover all such
Taxes.
(d) Deferred Taxes of the CB&T Entities have been provided for in
accordance with GAAP.
(e) None of the CB&T Entities is a party to any Tax allocation or sharing
agreement, and none of the CB&T Entities has been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a group the
common parent of which was CB&T) or has any Liability for Taxes of any Person
(other than CB&T ) under Treasury Regulation Section 1.1502-6 (or any similar
provision of state, local or foreign Law) as a transferee or successor or by
Contract or otherwise.
(f) Each of the CB&T Entities is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state, and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under Section 3406 of the Internal Revenue Code, except for such instances of
noncompliance and such omissions as are not reasonably likely to have,
individually or in the aggregate, a CB&T Material Adverse Effect.
(g) Except as disclosed in Section 5.8 of the CB&T Disclosure Memorandum,
none of the CB&T Entities has made any payments, is obligated to make any
payments, or is a party to any Contract that could obligate it to make any
payments that would be disallowed as a deduction under Section 280G or 162(m) of
the Internal Revenue Code.
(h) There has not been an ownership change, as defined in Internal Revenue
Code Section 382(g), of the CB&T Entities that occurred during or after any
Taxable Period in which the CB&T Entities incurred a net operating loss that
carries over to any Taxable Period ending after December 31, 1997.
(i) No CB&T Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention between the
United States and such foreign country.
5.9 Allowance for Possible Loan Losses. In the opinion of management of
CB&T, the allowance for possible loan or credit losses (the "Allowance") shown
on the consolidated balance sheets of CB&T included in the most recent CB&T
Financial Statements dated prior to the date of this Agreement was, and the
Allowance shown on the consolidated balance sheets of CB&T included in the CB&T
Financial Statements as of dates subsequent to the execution of this Agreement
will be, as of the dates thereof, adequate (within the meaning of GAAP and
applicable regulatory requirements or guidelines) to provide for all known or
reasonably anticipated losses relating to or inherent in the loan and lease
portfolios (including accrued interest
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receivables) of the CB&T Entities and other extensions of credit (including
letters of credit and commitments to make loans or extend credit) by the CB&T
Entities as of the dates thereof.
5.10 Assets. (a) Except as disclosed in Section 5.10 of the CB&T
Disclosure Memorandum or as disclosed or reserved against in the CB&T Financial
Statements, the CB&T Entities have good and marketable title, free and clear of
all Liens, to all of their respective Assets, except for any such Liens or other
defects of title which are not reasonably likely to have a CB&T Material Adverse
Effect. All tangible properties used in the businesses of the CB&T Entities are
in good condition, reasonable wear and tear excepted, and are usable in the
ordinary course of business consistent with CB&T's past practices.
(b) All Assets which are material to CB&T's business on a consolidated
basis, held under leases or subleases by any of the CB&T Entities, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or other Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief or any other equitable
relief is subject to the discretion of the court before which any proceedings
may be brought), and each such Contract is in full force and effect.
(c) The CB&T Entities currently maintain insurance similar in amounts,
scope, and coverage to that shown in Section 5.10(c) of the CB&T Disclosure
Memorandum. None of the CB&T Entities has received notice from any insurance
carrier that (i) any policy of insurance will be canceled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. There are presently
no claims for amounts exceeding in any individual case $35,000 pending under
such policies of insurance and no notices of claims in excess of such amounts
have been given by any CB&T Entity under such policies.
(d) The Assets of the CB&T Entities include all Assets required to operate
the business of the CB&T Entities as presently conducted.
5.11 Intellectual Property. Each CB&T Entity owns or has a license to use
all of the Intellectual Property used by such CB&T Entity in the course of its
business. Each CB&T Entity is the owner of or has a license to any Intellectual
Property sold or licensed to a third-party by such CB&T Entity in connection
with such CB&T Entity's business operations, and such CB&T Entity has the right
to convey by sale or license any Intellectual Property so conveyed. No CB&T
Entity is in Default under any of its Intellectual Property licenses. No
proceedings have been instituted, or are pending or to the Knowledge of CB&T
threatened, which challenge the rights of any CB&T Entity with respect to
Intellectual Property used, sold or licensed by such CB&T Entity in the course
of its business, nor has any person claimed or alleged any rights to such
Intellectual Property. The conduct of the business of the CB&T Entities does not
infringe any Intellectual Property of any other person. Except as disclosed in
Section 5.11 of the CB&T Disclosure Memorandum, no CB&T Entity is obligated to
pay any recurring royalties to any Person with respect to any such Intellectual
Property. Except as disclosed in Section 5.11 of the CB&T Disclosure Memorandum,
no officer, director or employee of any CB&T Entity is party to any Contract
which restricts or prohibits such officer, director or employee from engaging in
activities competitive with any CB&T Entity or any Carolina First Entity.
5.12 Environmental Matters. (a) To the Knowledge of CB&T, each CB&T
Entity, its Participation Facilities, and its Operating Properties are, and have
been, in compliance with all Environmental Laws, except for violations which are
not reasonably likely to have, individually or in the aggregate, a CB&T Material
Adverse Effect.
(b) To the Knowledge of CB&T, there is no Litigation pending or threatened
before any court, governmental agency, or authority or other forum in which any
CB&T Entity or any of its Operating Properties or Participation Facilities (or
CB&T in respect of such Operating Property or Participation Facility) has been
or, with respect to threatened Litigation, may be named as a defendant (i) for
alleged noncompliance (including by any predecessor) with any Environmental Law
or (ii) relating to the release, discharge, spillage, or disposal into the
environment of any Hazardous Material, whether or not occurring at, on, under,
adjacent to, or affecting (or potentially affecting) a site owned, leased, or
operated by any CB&T
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Entity or any of its Operating Properties or Participation Facilities, except
for such Litigation, pending or threatened that is not reasonably likely to
have, individually or in the aggregate, a CB&T Material Adverse Effect, nor is
there any reasonable basis for any Litigation of a type described in this
sentence, except such as is not reasonably likely to have, individually or in
the aggregate, a CB&T Material Adverse Effect.
(c) During the period of (i) any CB&T Entity's ownership or operation of
any of their respective current properties, (ii) any CB&T Entity's participation
in the management of any Participation Facility (to the Knowledge of CB&T), or
(iii) any CB&T Entity's holding of a security interest in a Operating Property,
there have been no releases, discharges, spillages, or disposals of Hazardous
Material in, on, under, adjacent to, or affecting (or potentially affecting)
such properties, except such as are not reasonably likely to have, individually
or in the aggregate, a CB&T Material Adverse Effect. Prior to the period of (i)
any CB&T Entity's ownership or operation of any of their respective current
properties, (ii) any CB&T Entity's participation in the management of any
Participation Facility, or (iii) any CB&T Entity's holding of a security
interest in a Operating Property, to the Knowledge of CB&T, there were no
releases, discharges, spillages, or disposals of Hazardous Material in, on,
under, or affecting any such property, Participation Facility or Operating
Property, except such as are not reasonably likely to have, individually or in
the aggregate, a CB&T Material Adverse Effect.
5.13 Compliance with Laws. CB&T is duly organized as a North Carolina
bank. Each CB&T Entity has in effect all Permits necessary for it to own, lease,
or operate its material Assets and to carry on its business as now conducted,
and there has occurred no Default under any such Permit. Except as disclosed in
Section 5.13 of the CB&T Disclosure Memorandum, none of the CB&T Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business; or
(c) since January 1, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any CB&T Entity is not in compliance with any of the Laws or Orders
which such governmental authority or Regulatory Authority enforces, (ii)
threatening to revoke any Permits, or (iii) requiring any CB&T Entity to
enter into or consent to the issuance of a cease and desist order, formal
agreement, directive, commitment, or memorandum of understanding, or to
adopt any Board resolution or similar undertaking, which restricts
materially the conduct of its business or in any manner relates to its
capital adequacy, its credit or reserve policies, its management, or the
payment of dividends.
5.14 Labor Relations. No CB&T Entity is the subject of any Litigation
asserting that it or any other CB&T Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other CB&T Entity to bargain with any
labor organization as to wages or conditions of employment, nor is any CB&T
Entity party to any collective bargaining agreement, nor is there any strike or
other labor dispute involving any CB&T Entity, pending or threatened, or to the
Knowledge of CB&T, is there any activity involving any CB&T Entity's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
5.15 Employee Benefit Plans. (a) CB&T has disclosed in Section 5.15 of the
CB&T Disclosure Memorandum, and has delivered or made available to Carolina
First prior to the execution of this Agreement copies in each case of, all
pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
any CB&T Entity or ERISA Affiliate thereof for the benefit of employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the
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"CB&T Benefit Plans"). Any of the CB&T Benefit Plans which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "CB&T ERISA Plan." Each CB&T ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code) is referred to herein as a "CB&T Pension Plan." No CB&T Pension Plan is or
has been a multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) All CB&T Benefit Plans are in compliance with the applicable terms of
ERISA, the Internal Revenue Code, and any other applicable Laws the breach or
violation of which are reasonably likely to have, individually or in the
aggregate, a CB&T Material Adverse Effect. Each CB&T ERISA Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code has
received a favorable determination letter from the Internal Revenue Service, and
CB&T is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. No CB&T Entity has engaged in a transaction
with respect to any CB&T Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, would subject any CB&T Entity to a
Tax imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA.
(c) No CB&T Pension Plan has any "unfunded current liability," as that term
is defined in Section 302(d)(8)(A) of ERISA, and the fair market value of the
assets of any such plan exceeds the plan's "benefit liabilities," as that term
is defined in Section 4001(a)(16) of ERISA. Since the date of the most recent
actuarial valuation, there has been (i) no material change in the financial
position of any CB&T Pension Plan, (ii) no change in the actuarial assumptions
with respect to any CB&T Pension Plan, and (iii) no increase in benefits under
any CB&T Pension Plan as a result of plan amendments or changes in applicable
Law which is reasonably likely to have, individually or in the aggregate, a CB&T
Material Adverse Effect or materially adversely affect the funding status of any
such plan. Neither any CB&T Pension Plan nor any "single-employer plan," within
the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by
any CB&T Entity, or the single-employer plan of any entity which is considered
one employer with CB&T under Section 4001 of ERISA or Section 414 of the
Internal Revenue Code or Section 302 of ERISA (whether or not waived) (an "ERISA
Affiliate") has an "accumulated funding deficiency" within the meaning of
Section 412 of the Internal Revenue Code or Section 302 of ERISA. No CB&T Entity
has provided, or is required to provide, security to a CB&T Pension Plan or to
any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of
the Internal Revenue Code.
(d) No Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any CB&T Entity with respect to any ongoing, frozen,
or terminated single-employer plan or the single-employer plan of any ERISA
Affiliate. No CB&T Entity has incurred any withdrawal Liability with respect to
a multiemployer plan under Subtitle B of Title IV of ERISA (regardless of
whether based on contributions of an ERISA Affiliate). No notice of a
"reportable event," within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any CB&T Pension Plan or by any ERISA Affiliate within the 12-month period
ending on the date hereof.
(e) Except as disclosed in Section 5.15 of the CB&T Disclosure Memorandum,
no CB&T Entity has any Liability for retiree health and life benefits under any
of the CB&T Benefit Plans and there are no restrictions on the rights of such
CB&T Entity to amend or terminate any such retiree health or benefit Plan
without incurring any Liability thereunder.
(f) Except as disclosed in Section 5.15 of the CB&T Disclosure Memorandum,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, or otherwise) becoming
due to any director or any employee of any CB&T Entity from any CB&T Entity
under any CB&T Benefit Plan or otherwise, (ii) increase any benefits otherwise
payable under any CB&T Benefit Plan, or (iii) result in any acceleration of the
time of payment or vesting of any such benefit.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any CB&T Entity and their respective beneficiaries, other than
entitlements accrued pursuant to funded retirement plans subject to the
provisions of Section 412 of the Internal Revenue Code or
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Section 302 of ERISA, have been fully reflected on the CB&T Financial Statements
to the extent required by and in accordance with GAAP.
5.16 Material Contracts. Except as disclosed in Section 5.16 of the CB&T
Disclosure Memorandum or otherwise reflected in the CB&T Financial Statements,
none of the CB&T Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
CB&T Entity or the guarantee by any CB&T Entity of any such obligation (other
than Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, and Federal Home Loan Bank advances of
depository institution Subsidiaries, trade payables and Contracts relating to
borrowings or guarantees made in the ordinary course of business), (iii) any
Contract which prohibits or restricts any CB&T Entity from engaging in any
business activities in any geographic area, line of business or otherwise in
competition with any other Person, (iv) any Contract between or among CB&T
Entities, (v) any Contract involving Intellectual Property (other than Contracts
entered into in the ordinary course with customers and "shrink-wrap" software
licenses), (vi) any Contract relating to the provision of data processing,
network communication, or other technical services to or by any CB&T Entity,
(vii) any Contract relating to the purchase or sale of any goods or services
(other than Contracts entered into in the ordinary course of business and
involving payments under any individual Contract not in excess of $100,000),
(viii) any exchange-traded or over-the-counter swap, forward, future, option,
cap, floor, or collar financial Contract, or any other interest rate or foreign
currency protection Contract not included on its balance sheet which is a
financial derivative Contract, and (ix) any other Contract or amendment thereto
that would be required to be filed as an exhibit to the appropriate forms for
annual reporting promulgated by the FDIC under the 1934 Act filed by CB&T with
the FDIC as of the date of this Agreement (together with all Contracts referred
to in Sections 5.10 and 5.15(a), the "CB&T Contracts") but that has not been so
filed. With respect to each CB&T Contract and except as disclosed in Section
5.16 of the CB&T Disclosure Memorandum: (i) the Contract is in full force and
effect; (ii) no CB&T Entity is in Default thereunder; (iii) no CB&T Entity has
repudiated or waived any material provision of any such Contract; and (iv) no
other party to any such Contract is, to the Knowledge of CB&T, in Default in any
respect or has repudiated or waived any material provision thereunder. All of
the indebtedness of any CB&T Entity for money borrowed is prepayable at any time
by such CB&T Entity without penalty or premium.
5.17 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of CB&T, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any CB&T Entity, or against any director or
employee (in their capacity as such) or employee benefit plan of any CB&T
Entity, or against any Asset, interest, or right of any of them, nor are there
any Orders of any Regulatory Authorities, other governmental authorities, or
arbitrators outstanding against any CB&T Entity. Section 5.17 of the CB&T
Disclosure Memorandum contains a summary of all Litigation as of the date of
this Agreement to which any CB&T Entity is a party and which names a CB&T Entity
as a defendant or cross-defendant or for which any CB&T Entity has any potential
Liability.
5.18 Reports. Since January 1, 1993, or the date of organization if later,
each CB&T Entity has timely filed all reports and statements, together with any
amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a CB&T Material Adverse Effect). As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all applicable Laws. As of its respective date, each such report and
document did not, in all material respects, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
5.19 Statements True and Correct. No statement, certificate, instrument,
or other writing furnished or to be furnished by any CB&T Entity or any
Affiliate thereof to Carolina First pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement
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of material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any CB&T
Entity or any Affiliate thereof for inclusion in the Registration Statement to
be filed by Carolina First with the SEC will, when the Registration Statement
becomes effective, be false or misleading with respect to any material fact, or
omit to state any material fact necessary to make the statements therein not
misleading. None of the information supplied or to be supplied by any CB&T
Entity or any Affiliate thereof for inclusion in the Proxy Statement/Prospectus
to be mailed to CB&T's shareholders in connection with the Shareholders'
Meeting, and any other documents to be filed by a CB&T Entity or any Affiliate
thereof with the SEC or any other Regulatory Authority in connection with the
transactions contemplated hereby, will, at the respective time such documents
are filed, and with respect to the Proxy Statement/ Prospectus, when first
mailed to the shareholders of CB&T, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement/Prospectus or any
amendment thereof or supplement thereto, at the time of the Shareholders'
Meeting, be false or misleading with respect to any material fact, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that any CB&T Entity or any Affiliate
thereof is responsible for filing with any Regulatory Authority in connection
with the transactions contemplated hereby will comply as to form in all material
respects with the provisions of applicable Law.
5.20 Accounting, Tax and Regulatory Matters. No CB&T Entity or any
Affiliate thereof has taken or agreed to take any action or has any Knowledge of
any fact or circumstance that is reasonably likely to (i) prevent the Merger
from qualifying for pooling-of-interests accounting treatment or as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
5.21 State Takeover Laws. Each CB&T Entity has taken all necessary action
to exempt the transactions contemplated by this Agreement from, or if necessary
to challenge the validity or applicability of, any applicable "moratorium,"
"fair price," "business combination," "control share," or other anti-takeover
Laws (collectively, "Takeover Laws"), including Articles 9 and 9A of the NCBCA.
5.22 Charter Provisions. Each CB&T Entity has taken all action so that the
entering into of this Agreement and the consummation of the Merger and the other
transactions contemplated by this Agreement do not and will not result in the
grant of any rights to any Person under the Articles of Incorporation, Bylaws or
other governing instruments of any CB&T Entity or restrict or impair the ability
of Carolina First or any of its Subsidiaries to vote, or otherwise to exercise
the rights of a shareholder with respect to, shares of any CB&T Entity that may
be directly or indirectly acquired or controlled by them, except as may be
provided under Article 13 of the NCBCA.
5.23 [Reserved].
5.24 Directors' Agreements. Each of the directors of CB&T has executed and
delivered to Carolina First an agreement in substantially the form of Exhibit 1
(the "Directors' Agreements").
5.25 Opinion of Financial Advisor. CB&T has received the opinion of SCI,
dated the date of this Agreement, to the effect that the consideration to be
received in the Merger by the holders of CB&T Common Stock is fair, from a
financial point of view, to such holders, a signed copy of which has been
delivered to Carolina First.
5.26 Board Recommendation. The Board of Directors of CB&T, at a meeting
duly called and held, has by vote of the directors present (who constituted all
of the directors then in office) (i) determined that this Agreement and the
transactions contemplated hereby, including the Merger, and the Directors'
Agreements and the transactions contemplated thereby, taken together, are fair
to and in the best interests of the shareholders and (ii) resolved to recommend
that the holders of the shares of CB&T Common Stock approve this Agreement.
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5.27 Millennium Compliance. CB&T has made and is making inquiries of its
software and data processing providers with respect to Year 2000 problem
compliance, and is in compliance in all material respects with the FFIEC
Interagency Statement, "Guidance Concerning Institution Due Diligence in
Connection with Service Provider and Software Vendor Year 2000 Readiness" (March
17, 1998) (the "Interagency Statement").
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF CAROLINA FIRST
Carolina First hereby represents and warrants to CB&T as follows:
6.1 Organization, Standing, and Power. Carolina First is a corporation
duly organized, validly existing, and in good standing under the Laws of the
State of North Carolina, and has the corporate power and authority to carry on
its business as now conducted and to own, lease and operate its material Assets.
Carolina First is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a Carolina First
Material Adverse Effect. The minute book and other organizational documents for
Carolina First have been made available to CB&T for its review and, except as
disclosed in Section 6.1 of the Carolina First Disclosure Memorandum, are true
and complete in all material respects as in effect as of the date of this
Agreement and accurately reflect in all material respects all amendments thereto
and all actions of the Board of Directors and shareholders thereof.
6.2 Authority; No Breach By Agreement. (a) Carolina First has the
corporate power and authority necessary to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein, including the Merger, have
been duly and validly authorized by all necessary corporate action in respect
thereof on the part of Carolina First. This Agreement represents a legal, valid,
and binding obligation of Carolina First, subject to the Consent of all
necessary Regulatory Authorities, enforceable against Carolina First in
accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar Laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief or any other equitable
relief is subject to the discretion of the court before which any proceeding may
be brought).
(b) Neither the execution and delivery of this Agreement by Carolina First,
nor the consummation by Carolina First of the transactions contemplated hereby,
nor compliance by Carolina First with any of the provisions hereof, will (i)
conflict with or result in a breach of any provision of a Carolina First
Entity's Articles of Incorporation or Bylaws, or any currently effective
resolution adopted by the board of directors or the shareholders of any Carolina
First Entity, or (ii) except as disclosed in Section 6.2 of the Carolina First
Disclosure Memorandum, constitute or result in a Default under, or require any
Consent pursuant to, or result in the creation of any Lien on any Asset of any
Carolina First Entity under, any Contract or Permit of any Carolina First
Entity, where such Default or Lien, or any failure to obtain such Consent, is
reasonably likely to have, individually or in the aggregate, a Carolina First
Material Adverse Effect, or, (iii) subject to receipt of the requisite Consents
referred to in Section 9.1(b), constitute or result in a Default under, or
require any Consent pursuant to, any Law or Order applicable to any Carolina
First Entity or any of their respective material Assets (including any Carolina
First Entity or any CB&T Entity becoming subject to or liable for the payment of
any Tax or any of the Assets owned by any Carolina First Entity or any CB&T
Entity being reassessed or revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of the
Securities Laws and applicable state corporate, banking and securities Laws, and
other than Consents required from Regulatory Authorities, and other than notices
to or filings with the Internal Revenue Service or the Pension Benefit Guaranty
Corporation with respect to any employee benefit plans, or under the HSR Act,
and other than Consents,
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filings, or notifications which, if not obtained or made, are not reasonably
likely to have, individually or in the aggregate, a Carolina First Material
Adverse Effect, no notice to, filing with, or Consent of, any public body or
authority is necessary for the consummation by Carolina First of the Merger and
the other transactions contemplated in this Agreement.
6.3 Capital Stock. (a) The authorized capital stock of Carolina First
consists of (i) 20,000,000 shares of Carolina First Common Stock, of which
shares are issued and outstanding as of the date of this
Agreement, and (ii) 5,000,000 shares of Carolina First Preferred Stock, none of
which are issued and outstanding. All of the issued and outstanding shares of
Carolina First Capital Stock are, and all of the shares of Carolina First Common
Stock to be issued in exchange for shares of CB&T Common Stock upon consummation
of the Merger, when issued in accordance with the terms of this Agreement, will
be, duly and validly issued and outstanding and fully paid and nonassessable
under the NCBCA. None of the outstanding shares of Carolina First Capital Stock
has been, and none of the shares of Carolina First Common Stock to be issued in
exchange for shares of CB&T Common Stock upon consummation of the Merger will
be, issued in violation of any preemptive rights of the current or past
shareholders of Carolina First.
(b) Except as set forth in Section 6.3(a), the Carolina First stock option
plan, or as provided pursuant to the Carolina First Dividend Reinvestment and
Stock Purchase Plan, or as disclosed in Section 6.3 of the Carolina First
Disclosure Memorandum, there are no shares of capital stock or other equity
securities of Carolina First outstanding and no outstanding Equity Rights
relating to the capital stock of Carolina First.
6.4 Carolina First Subsidiaries. Except as disclosed in Section 6.4 of the
Carolina First Disclosure Memorandum, Carolina First and/or its Subsidiaries
owns all of the issued and outstanding shares of capital stock (or other equity
interests) of each Carolina First Subsidiary. No capital stock (or other equity
interest) of any Carolina First Subsidiary is or may become required to be
issued (other than to another Carolina First Entity) by reason of any Equity
Rights, and there are no Contracts by which any Carolina First Subsidiary is
bound to issue (other than to another Carolina First Entity) additional shares
of its capital stock (or other equity interests) or Equity Rights or by which
any Carolina First Entity is or may be bound to transfer any shares of the
capital stock (or other equity interests) of any Carolina First Subsidiary
(other than to another Carolina First Entity). There are no Contracts relating
to the rights of any Carolina First Entity to vote or to dispose of any shares
of the capital stock (or other equity interests) of any Carolina First
Subsidiary. All of the shares of capital stock (or other equity interests) of
each Carolina First Subsidiary held by a Carolina First Entity are fully paid
and (except pursuant to 12 USC Section 55 in the case of national banks and
comparable, applicable state Law, if any, in the case of state depository
institutions) nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are owned
by the Carolina First Entity free and clear of any Lien. Each Carolina First
Subsidiary is duly organized, validly existing, and (as to corporations) in good
standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the corporate or entity power and authority necessary for it
to own, lease, and operate its Assets and to carry on its business as now
conducted. Each Carolina First Subsidiary is duly qualified or licensed to
transact business as a foreign corporation in good standing in the States of the
United States and foreign jurisdictions where the character of its Assets or the
nature or conduct of its business requires it to be so qualified or licensed,
except for such jurisdictions in which the failure to be so qualified or
licensed is not reasonably likely to have, individually or in the aggregate, a
Carolina First Material Adverse Effect. Each Carolina First Subsidiary that is a
depository institution is an "insured institution" as defined in the Federal
Deposit Insurance Act and applicable regulations thereunder, and the deposits in
which are insured by the Bank Insurance Fund. The minute book and other
organizational documents for each Carolina First Subsidiary have been made
available to CB&T for its review, and, except as disclosed in Section 6.4 of the
Carolina First Disclosure Memorandum, are true and complete in all material
respects as in effect as of the date of this Agreement and accurately reflect in
all material respects all amendments thereto and all proceedings of the Board of
Directors and shareholders thereof.
6.5 SEC Filings; Financial Statements. (a) Carolina First has timely filed
and made available to CB&T all SEC Documents required to be filed by Carolina
First since December 31, 1993 (the "Carolina First SEC Reports"). The Carolina
First SEC Reports (i) at the time filed, complied in all material respects with
the applicable requirements of the Securities Laws and other applicable Laws and
(ii) did not, at the
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time they were filed (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated in
such Carolina First SEC Reports or necessary in order to make the statements in
such Carolina First SEC Reports, in light of the circumstances under which they
were made, not misleading. Except for Carolina First Subsidiaries that are
registered as a broker, dealer, or investment advisor, no Carolina First
Subsidiary is required to file any SEC Documents.
(b) Each of the Carolina First Financial Statements (including, in each
case, any related notes) contained in the Carolina First SEC Reports, including
any Carolina First SEC Reports filed after the date of this Agreement until the
Effective Time, complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited interim statements, as permitted by Form 10-Q of
the SEC), and fairly presented in all material respects the consolidated
financial position of Carolina First and its Subsidiaries as at the respective
dates and the consolidated results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not or are not
expected to be material in amount or effect.
6.6 Absence of Undisclosed Liabilities. No Carolina First Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Carolina First Material Adverse Effect, except Liabilities which
are accrued or reserved against in the consolidated balance sheets of Carolina
First as of December 31, 1997, included in the Carolina First Financial
Statements delivered prior to the date of this Agreement or reflected in the
notes thereto. No Carolina First Entity has incurred or paid any Liability since
December 31, 1997, except for such Liabilities incurred or paid (i) in the
ordinary course of business consistent with past business practice and which are
not reasonably likely to have, individually or in the aggregate, a Carolina
First Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement.
6.7 Absence of Certain Changes or Events. Since December 31, 1997, except
as disclosed in the Carolina First Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 6.7 of the Carolina First
Disclosure Memorandum, (i) there have been no events, changes or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a Carolina First Material Adverse Effect, and (ii) the Carolina First
Entities have not taken any action, or failed to take any action, prior to the
date of this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of Carolina First provided in Article 7.
6.8 Tax Matters. (a) All Tax Returns required to be filed by or on behalf
of any of the Carolina First Entities have been timely filed or requests for
extensions have been timely filed, granted, and have not expired for periods
ended on or before December 31, 1997, and on or before the date of the most
recent fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably likely
to have a Carolina First Material Adverse Effect, and all Tax Returns filed are
complete and accurate in all material respects. All Taxes shown on filed Tax
Returns have been paid. As of the date of this Agreement, there is no audit
examination, deficiency, or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have, individually or
in the aggregate, a Carolina First Material Adverse Effect, except as reserved
against in the Carolina First Financial Statements or as disclosed in Section
6.8 of the Carolina First Disclosure Memorandum. All Taxes and other Liabilities
due with respect to completed and settled examinations or concluded Litigation
have been paid. There are no Liens with respect to Taxes upon any of the Assets
of the Carolina First Entities, except for any such Liens which are not
reasonably likely to have a Carolina First Material Adverse Effect.
(b) None of the Carolina First Entities has executed an extension or waiver
of any statute of limitations on the assessment or collection of any Tax due
(excluding such statutes that relate to years currently under examination by the
Internal Revenue Service or other applicable taxing authorities) that is
currently in effect.
(c) The provision for any Taxes due or to become due for any of the
Carolina First Entities for the period or periods through and including the date
of the respective Carolina First Financial Statements that has been
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made and is reflected on such Carolina First Financial Statements is sufficient,
in the judgment of CB&T's management after consultation with CB&T's independent
public accountants, to cover all such Taxes.
(d) Deferred Taxes of the Carolina First Entities have been provided for in
accordance with GAAP.
(e) None of the Carolina First Entities is a party to any Tax allocation or
sharing agreement, and none of the Carolina First Entities has been a member of
an affiliated group filing a consolidated federal income Tax Return (other than
a group the common parent of which was Carolina First) or has any Liability for
Taxes of any Person (other than Carolina First and its Subsidiaries) under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local
or foreign Law) as a transferee or successor or by Contract or otherwise.
(f) No Carolina First Entity has or has had in any foreign country a
permanent establishment, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
6.9 Allowance for Possible Loan Losses. In the opinion of management of
Carolina First, the Allowance shown on the consolidated balance sheets of
Carolina First included in the most recent Carolina First Financial Statements
dated prior to the date of this Agreement was, and the Allowance shown on the
consolidated balance sheets of Carolina First included in the Carolina First
Financial Statements as of dates subsequent to the execution of this Agreement
will be, as of the dates thereof, adequate (within the meaning of GAAP and
applicable regulatory requirements or guidelines) to provide for all known or
reasonably anticipated losses relating to or inherent in the loan and lease
portfolios (including accrued interest receivables) of the Carolina First
Entities and other extensions of credit (including letters of credit and
commitments to make loans or extend credit) by the Carolina First Entities as of
the dates thereof, except where the failure of such Allowance to be so adequate
is not reasonably likely to have a Carolina First Material Adverse Effect.
6.10 Assets. (a) Except as disclosed in Section 6.10 of the Carolina First
Disclosure Memorandum or as disclosed or reserved against in the Carolina First
Financial Statements, the Carolina First Entities have good and marketable
title, free and clear of all Liens, to all of their respective Assets, except
for any such Liens or other defects of title which are not reasonably likely to
have a Carolina First Material Adverse Effect. All tangible properties used in
the businesses of the Carolina First Entities are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with Carolina First's past practices.
(b) All Assets which are material to Carolina First's business on a
consolidated basis, held under leases or subleases by any of the Carolina First
Entities, are held under valid Contracts enforceable in accordance with their
respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the
enforcement of creditors' rights generally and except that the availability of
the equitable remedy of specific performance or injunctive relief or any other
equitable relief is subject to the discretion of the court before which any
proceedings may be brought), and each such Contract is in full force and effect.
(c) The Carolina First Entities currently maintain insurance similar in
amounts, scope and coverage to that maintained by other peer banking
organizations. None of the Carolina First Entities has received notice from any
insurance carrier that (i) such insurance will be canceled or that coverage
thereunder will be reduced or eliminated, or (ii) premium costs with respect to
such policies of insurance will be substantially increased. There are presently
no claims pending under such policies of insurance and no notices have been
given by any Carolina First Entity under such policies.
(d) The Assets of the Carolina First Entities include all assets required
to operate the business of the Carolina First Entities as presently conducted.
6.11 Intellectual Property. Each Carolina First Entity owns or has a
license to use all of the Intellectual Property used by such Carolina First
Entity in the course of its business. Each Carolina First Entity is the owner of
or has a license to any Intellectual Property sold or licensed to a third-party
by such Carolina First Entity in connection with such Carolina First Entity's
business operations, and such Carolina First Entity has the right to convey by
sale or license any Intellectual Property so conveyed. No Carolina First Entity
is in
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Default under any of its Intellectual Property licenses. No proceedings have
been instituted, or are pending or to the Knowledge of Carolina First
threatened, which challenge the rights of any Carolina First Entity with respect
to Intellectual Property used, sold or licensed by such Carolina First Entity in
the course of its business, nor has any person claimed or alleged any rights to
such Intellectual Property. The conduct of the business of the Carolina First
Entities does not infringe any Intellectual Property of any other person.
6.12 Environmental Matters. (a) To the Knowledge of Carolina First, each
Carolina First Entity, its Participation Facilities, and its Operating
Properties are, and have been, in compliance with all Environmental Laws, except
for violations which are not reasonably likely to have, individually or in the
aggregate, a Carolina First Material Adverse Effect.
(b) To the Knowledge of Carolina First, there is no Litigation pending or
threatened before any court, governmental agency, or authority or other forum in
which any Carolina First Entity or any of its Operating Properties or
Participation Facilities (or Carolina First in respect of such Operating
Property or Participation Facility) has been or, with respect to threatened
Litigation, may be named as a defendant (i) for alleged noncompliance (including
by any predecessor) with any Environmental Law or (ii) relating to the release,
discharge, spillage, or disposal into the environment of any Hazardous Material,
whether or not occurring at, on, under, adjacent to, or affecting (or
potentially affecting) a site owned, leased, or operated by any Carolina First
Entity or any of its Operating Properties or Participation Facilities, except
for such Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Carolina First Material Adverse Effect, nor
is there any reasonable basis for any Litigation of a type described in this
sentence, except such as is not reasonably likely to have, individually or in
the aggregate, a Carolina First Material Adverse Effect.
(c) During the period of (i) any Carolina First Entity's ownership or
operation of any of their respective current properties, (ii) any Carolina First
Entity's participation in the management of any Participation Facility (to the
Knowledge of Carolina First), or (iii) any Carolina First Entity's holding of a
security interest in a Operating Property, there have been no releases,
discharges, spillages, or disposals of Hazardous Material in, on, under,
adjacent to, or affecting (or potentially affecting) such properties, except
such as are not reasonably likely to have, individually or in the aggregate, a
Carolina First Material Adverse Effect. Prior to the period of (i) any Carolina
First Entity's ownership or operation of any of their respective current
properties, (ii) any Carolina First Entity's participation in the management of
any Participation Facility, or (iii) any Carolina First Entity's holding of a
security interest in a Operating Property, to the Knowledge of Carolina First,
there were no releases, discharges, spillages, or disposals of Hazardous
Material in, on, under, or affecting any such property, Participation Facility
or Operating Property, except such as are not reasonably likely to have,
individually or in the aggregate, a CB&T Material Adverse Effect.
6.13 Compliance with Laws. Carolina First is duly registered as a bank
holding company under the BHC Act. Each Carolina First Entity has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
Carolina First Material Adverse Effect, and there has occurred no Default under
any such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a Carolina First Material Adverse Effect.
Except as disclosed in Section 6.13 of the Carolina First Disclosure Memorandum,
none of the Carolina First Entities:
(a) is in Default under its Articles of Incorporation or Bylaws (or
other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for Defaults which
are not reasonably likely to have, individually or in the aggregate, a
Carolina First Material Adverse Effect; or
(c) since January 1, 1993, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any Carolina First Entity is not in compliance with any of the Laws or
Orders which such governmental authority or Regulatory Authority enforces,
where such noncompliance is reasonably likely to have, individually or in
the aggregate, a Carolina First Material Adverse Effect, (ii) threatening
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to revoke any Permits, the revocation of which is reasonably likely to
have, individually or in the aggregate, a Carolina First Material Adverse
Effect, or (iii) requiring any Carolina First Entity to enter into or
consent to the issuance of a cease and desist order, formal agreement,
directive, commitment or memorandum of understanding, or to adopt any Board
resolution or similar undertaking, which restricts materially the conduct
of its business, or in any manner relates to its capital adequacy, its
credit or reserve policies, its management, or the payment of dividends.
6.14 Labor Relations. No Carolina First Entity is the subject of any
Litigation asserting that it or any other Carolina First Entity has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other Carolina First Entity
to bargain with any labor organization as to wages or conditions of employment,
nor is any Carolina First Entity party to any collective bargaining agreement,
nor is there any strike or other labor dispute involving any Carolina First
Entity, pending or threatened, or to the Knowledge of Carolina First, is there
any activity involving any Carolina First Entity's employees seeking to certify
a collective bargaining unit or engaging in any other organization activity.
6.15 Employee Benefit Plans. (a) Carolina First has delivered or made
available to CB&T prior to the execution of this Agreement copies in each case
of all pension, retirement, profit-sharing, deferred compensation, stock option,
employee stock ownership, severance pay, vacation, bonus, or other incentive
plan, all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans, and
all other employee benefit plans or fringe benefit plans, including "employee
benefit plans" as that term is defined in Section 3(3) of ERISA, currently
adopted, maintained by, sponsored in whole or in part by, or contributed to by
any Carolina First Entity or ERISA Affiliate thereof for the benefit of
employees, retirees, dependents, spouses, directors, independent contractors, or
other beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, the "Carolina First Benefit Plans"). Any of the
Carolina First Benefit Plans which is an "employee pension benefit plan," as
that term is defined in Section 3(2) of ERISA, is referred to herein as a
"Carolina First ERISA Plan." Each Carolina First ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal Revenue
Code) is referred to herein as a "Carolina First Pension Plan." No Carolina
First Pension Plan is or has been a multiemployer plan within the meaning of
Section 3(37) of ERISA.
(b) All Carolina First Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws the
breach or violation of which are reasonably likely to have, individually or in
the aggregate, a Carolina First Material Adverse Effect. Each Carolina First
ERISA Plan which is intended to be qualified under Section 401(a) of the
Internal Revenue Code has received a favorable determination letter from the
Internal Revenue Service, and Carolina First is not aware of any circumstances
likely to result in revocation of any such favorable determination letter. To
the Knowledge of Carolina First, no Carolina First Entity has engaged in a
transaction with respect to any Carolina First Benefit Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
any Carolina First Entity to a Tax imposed by either Section 4975 of the
Internal Revenue Code or Section 502(i) of ERISA in amounts which are reasonably
likely to have, individually or in the aggregate, a Carolina First Material
Adverse Effect.
(c) No Carolina First Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, based on actuarial
assumptions set forth for such plan's most recent actuarial valuation. Since the
date of the most recent actuarial valuation, there has been (i) no material
change in the financial position of a Carolina First Pension Plan, (ii) no
change in the actuarial assumptions with respect to any Carolina First Pension
Plan, and (iii) no increase in benefits under any Carolina First Pension Plan as
a result of plan amendments or changes in applicable Law which is reasonably
likely to have, individually or in the aggregate, a Carolina First Material
Adverse Effect or materially adversely affect the funding status of any such
plan. Neither any Carolina First Pension Plan nor any "single-employer plan,"
within the meaning of Section 4001(a)(15) of ERISA, currently or formerly
maintained by any Carolina First Entity, or the single-employer plan of any
ERISA Affiliate has an "accumulated funding deficiency" within the meaning of
Section 412 of the Internal Revenue Code or Section 302 of ERISA, which is
reasonably
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likely to have a Carolina First Material Adverse Effect. No Carolina First
Entity has provided, or is required to provide, security to a Carolina First
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Internal Revenue Code.
6.16 [Reserved].
6.17 Legal Proceedings. There is no Litigation instituted or pending, or,
to the Knowledge of Carolina First, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any Carolina First Entity, or
against any director, employee or employee benefit plan of any Carolina First
Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Carolina First
Material Adverse Effect, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against any Carolina
First Entity, that are reasonably likely to have, individually or in the
aggregate, a Carolina First Material Adverse Effect.
6.18 Reports. Since January 1, 1993, or the date of organization if later,
each Carolina First Entity has filed all reports and statements, together with
any amendments required to be made with respect thereto, that it was required to
file with Regulatory Authorities (except, in the case of state securities
authorities, failures to file which are not reasonably likely to have,
individually or in the aggregate, a Carolina First Material Adverse Effect). As
of their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading.
6.19 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by any Carolina First Entity or any
Affiliate thereof to CB&T pursuant to this Agreement or any other document,
agreement or instrument referred to herein contains or will contain any untrue
statement of material fact or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the information supplied or to be supplied by any
Carolina First Entity or any Affiliate thereof for inclusion in the Registration
Statement to be filed by Carolina First with the SEC, will, when the
Registration Statement becomes effective, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by any Carolina First Entity or any Affiliate thereof for inclusion in
the Proxy Statement/Prospectus to be mailed to CB&T's shareholders in connection
with the Shareholders' Meeting, and any other documents to be filed by any
Carolina First Entity or any Affiliate thereof with the SEC or any other
Regulatory Authority in connection with the transactions contemplated hereby,
will, at the respective time such documents are filed, and with respect to the
Proxy Statement/Prospectus, when first mailed to the shareholders of CB&T, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Proxy Statement/Prospectus or any amendment thereof or supplement thereto, at
the time of the Shareholders' Meeting, be false or misleading with respect to
any material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that any Carolina First
Entity or any Affiliate thereof is responsible for filing with any Regulatory
Authority in connection with the transactions contemplated hereby will comply as
to form in all material respects with the provisions of applicable Law.
6.20 Authority of Sub. Sub will be at Closing a corporation duly
organized, validly existing and in good standing under the Laws of the State of
North Carolina as a wholly owned Subsidiary of Carolina First, with corporate
power and authority necessary to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby.
Carolina First, as the sole shareholder of Sub, will vote prior to the Effective
Time the shares of Sub Common Stock in favor of adoption of this Agreement, as
and to the extent required by applicable Law.
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6.21 Accounting, Tax and Regulatory Matters. No Carolina First Entity or
any Affiliate thereof has taken or agreed to take any action or has any
Knowledge of any fact or circumstance that is reasonably likely to (i) prevent
the Merger from qualifying for pooling-of-interests accounting treatment or as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, or (ii) materially impede or delay receipt of any Consents of Regulatory
Authorities referred to in Section 9.1(b) or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.22 Opinion of Financial Advisor. Carolina First has received the opinion
of The Robinson-Humphrey Company dated the date of this Agreement, to the effect
that the consideration to be received in the Merger by the holders of Carolina
First Common Stock is fair, from a financial point of view, to such holders, a
signed copy of which has been delivered to CB&T.
6.23 Millennium Compliance. Carolina First has made and is making
inquiries of its software and data processing providers with respect to Year
2000 problem compliance, and is in compliance in all material respects with the
Interagency Statement.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of CB&T. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of Carolina First shall have been obtained, and except
as otherwise expressly contemplated herein, CB&T shall (a) operate its business
only in the usual, regular, and ordinary course, (b) preserve intact its
business organization and Assets and maintain its rights and franchises, and (c)
take no action which would (i) materially adversely affect the ability of any
Party to obtain any Consents required for the transactions contemplated hereby
without imposition of a condition or restriction of the type referred to in the
last sentences of Section 9.1(b) or 9.1(c), or (ii) materially adversely affect
the ability of any Party to perform its covenants and agreements under this
Agreement. CB&T shall cooperate with Carolina First in terminating the CB&T ESOP
and otherwise changing its benefit plans effective as of Closing.
7.2 Negative Covenants of CB&T. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of Carolina First shall have been obtained, and except as
otherwise expressly contemplated herein, CB&T covenants and agrees that it will
not do or agree or commit to do any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any CB&T Entity, or
(b) incur any additional debt obligation or other obligation for
borrowed money in excess of an aggregate of $50,000 except as reasonable
and customary or in the ordinary course of the business of CB&T consistent
with past practices (which shall include creation of deposit liabilities,
purchases of federal funds, advances from the Federal Reserve Bank or
Federal Home Loan Bank, and entry into repurchase agreements fully secured
by U.S. government or agency securities), or impose, or suffer the
imposition, on any Asset of any CB&T Entity of any Lien or permit any such
Lien to exist (other than in connection with deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction of legal
requirements in the exercise of trust powers, and Liens in effect as of the
date hereof that are disclosed in the CB&T Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any CB&T Entity, or declare or pay any dividend or
make any other distribution in respect of CB&T's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of stock
options outstanding as of the date hereof and pursuant to the terms thereof
in existence on the date hereof, or as disclosed in Section 7.2(d) of the
CB&T Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
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issuance of, enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional shares of CB&T Common Stock or any other capital stock of any
CB&T Entity, or any stock appreciation rights, or any option, warrant, or
other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any CB&T
Entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of CB&T Common Stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber (x) any
shares of capital stock of any CB&T Subsidiary (unless any such shares of
stock are sold or otherwise transferred to another CB&T Entity) or (y) any
Asset other than in the ordinary course of business for reasonable and
adequate consideration; or
(f) except for purchases of U.S. Treasury securities or U.S.
Government agency securities, which in either case have maturities of three
years or less, purchase any securities or make any material investment,
either by purchase of stock of securities, contributions to capital, Asset
transfers, or purchase of any Assets, in any Person other than a wholly
owned CB&T Subsidiary, or otherwise acquire direct or indirect control over
any Person, other than in connection with (i) foreclosures in the ordinary
course of business, (ii) acquisitions of control by a depository
institution Subsidiary in its fiduciary capacity, or (iii) the creation of
new wholly owned Subsidiaries organized to conduct or continue activities
otherwise permitted by this Agreement; or
(g) grant any increase in compensation or benefits to the employees or
officers of any CB&T Entity, except in accordance with past practice, as
disclosed in Section 7.2(g) of the CB&T Disclosure Memorandum or as
required by Law; pay any severance or termination pay or any bonus other
than pursuant to written policies or written Contracts in effect on the
date of this Agreement and disclosed in Section 7.2(g) of the CB&T
Disclosure Memorandum; and enter into or amend any severance agreements
with officers of any CB&T Entity; grant any material increase in fees or
other increases in compensation or other benefits to directors of any CB&T
Entity except in accordance with past practice disclosed in Section 7.2(g)
of the CB&T Disclosure Memorandum; or voluntarily accelerate the vesting of
any stock options or other stock-based compensation or employee benefits or
other Equity Rights; or
(h) enter into or amend any employment Contract between any CB&T
Entity and any Person (unless such amendment is required by Law) that the
CB&T Entity does not have the unconditional right to terminate without
Liability (other than Liability for services already rendered), at any time
on or after the Effective Time; or
(i) adopt any new employee benefit plan of any CB&T Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any CB&T Entity other than any such
change that is required by Law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except as
required by Law, the terms of such plans or consistent with past practice;
or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or
GAAP; or
(k) commence any Litigation other than in accordance with past
practice, settle any Litigation involving any Liability of any CB&T Entity
for material money damages or restrictions upon the operations of any CB&T
Entity; or
(l) enter into, modify, amend or terminate any material Contract
(including any loan Contract with an unpaid balance exceeding $250,000) or
waive, release, compromise or assign any material rights or claims; or
(m) incur or become obligated to incur any expenses exceeding $50,000,
whether capitalized, expensed or otherwise, other than in the ordinary
course of business, without Carolina First's prior written approval.
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7.3 Covenants of Carolina First. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of CB&T shall have been obtained, and except as otherwise
expressly contemplated herein, Carolina First covenants and agrees that it shall
(a) continue to conduct its business and the business of its Subsidiaries in a
manner designed in its reasonable judgment, to enhance the long-term value of
the Carolina First Common Stock and the business prospects of the Carolina First
Entities and to the extent consistent therewith use all reasonable efforts to
preserve intact the Carolina First Entities' core businesses and goodwill with
their respective employees and the communities they serve, and (b) take no
action which would (i) materially adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentences of Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the
ability of any Party to perform its covenants and agreements under this
Agreement; provided, that the foregoing shall not prevent any Carolina First
Entity from acquiring any Assets or other businesses or from discontinuing or
disposing of any of its Assets or business if such action is, in the reasonable
judgment of Carolina First, desirable in the conduct of the business of Carolina
First and its Subsidiaries, provided that such actions shall not materially
delay the Effective Time or materially hinder consummation of the Merger.
Carolina First further covenants and agrees that it will not, without the prior
written consent of CB&T, which consent shall not be unreasonably withheld, amend
the Articles of Incorporation or Bylaws of Carolina First, in each case, in any
manner adverse to the holders of CB&T Common Stock as compared to rights of
holders of Carolina First Common Stock generally as of the date of this
Agreement.
7.4 [Reserved].
7.5 Adverse Changes in Condition. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a CB&T Material Adverse Effect or a Carolina First Material Adverse
Effect, as applicable, or (ii) would cause or constitute a material breach of
any of its representations, warranties, or covenants contained herein, and to
use its reasonable efforts to prevent or promptly to remedy the same.
7.6 Reports. Each Party and its Subsidiaries shall file all reports
required to be filed by it with Regulatory Authorities between the date of this
Agreement and the Effective Time and shall deliver to the other Party copies of
all such reports promptly after the same are filed. If financial statements are
contained in any such reports filed with the SEC, such financial statements will
fairly present the consolidated financial position of the entity filing such
statements as of the dates indicated and the consolidated results of operations,
changes in shareholders' equity, and cash flows for the periods then ended in
accordance with GAAP (subject in the case of interim financial statements to
normal recurring year-end adjustments that are not material). As of their
respective dates, such reports filed with the SEC will comply in all material
respects with the Securities Laws and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Any financial statements contained
in any other reports to another Regulatory Authority shall be prepared in
accordance with Laws applicable to such reports.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Proxy Statement; Shareholder Approval. As soon
as reasonably practicable after execution of this Agreement, Carolina First
shall prepare and file the Registration Statement with the SEC, and shall use
its reasonable efforts to cause the Registration Statement to become effective
under the 1933 Act and take any action required to be taken under the applicable
state Blue Sky or securities Laws in connection with the issuance of the shares
of Carolina First Common Stock upon consummation of the Merger. CB&T shall
cooperate in the preparation and filing of the Registration Statement and shall
furnish all information concerning it and the holders of its capital stock as
Carolina First may reasonably request in connection with such action. CB&T shall
call a Shareholders' Meeting, to be held as soon as reasonably
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practicable after the Registration Statement is declared effective by the SEC,
for the purpose of voting upon approval of this Agreement and such other related
matters as it deems appropriate. In connection with the Shareholders' Meeting,
(i) CB&T and Carolina First shall prepare and file with the SEC a Proxy
Statement/Prospectus and mail such Proxy Statement/Prospectus to the CB&T
shareholders, (ii) the Parties shall furnish to each other all information
concerning them that they may reasonably request in connection with such Proxy
Statement/Prospectus, (iii) the Board of Directors of CB&T shall recommend to
its shareholders the approval of the matters submitted for approval (unless the
Board of Directors of CB&T, after having consulted with and considered the
advice of outside counsel, reasonably determining in good faith that the making
of such recommendation, or the failure to withdraw or modify its recommendation,
would constitute a breach of fiduciary duties of the members of such Board of
Directors to CB&T's shareholders under applicable law), (iv) the Board of
Directors and officers of CB&T shall use their reasonable efforts to obtain such
shareholders' approval (subject to the Board of Directors of CB&T, after having
consulted with and considered the advice of outside counsel, reasonably
determining in good faith that the taking of such actions would not constitute a
breach of fiduciary duties of the members of such Board of Directors to CB&T's
shareholders under applicable law), and (v) Carolina First shall approve the
Merger as the sole shareholder of Sub. Carolina First and CB&T shall make all
necessary filings with respect to the Merger under the Securities Laws.
8.2 [Reserved].
8.3 Applications. Carolina First shall prepare and file, and CB&T shall
cooperate in the preparation and, where appropriate, filing of, applications
with all Regulatory Authorities having jurisdiction over the transactions
contemplated by this Agreement seeking the requisite Consents necessary to
consummate the transactions contemplated by this Agreement. The Parties shall
deliver to each other copies of all filings, correspondence and orders to and
from all Regulatory Authorities in connection with the transactions contemplated
hereby.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, Sub shall execute and file the Articles of Merger
with the Secretary of State of the State of North Carolina in connection with
the Closing.
8.5 Agreement as to Efforts to Consummate. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use, and
shall cause each of its Subsidiaries to use, its reasonable efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement.
8.6 Investigation and Confidentiality. (a) Prior to the Effective Time,
each Party shall keep the other Party advised of all material developments
relevant to its business and to consummation of the Merger and shall permit the
other Party to make or cause to be made such investigation of the business and
properties of it and its Subsidiaries and of their respective financial and
legal conditions as the other Party reasonably requests, provided that such
investigation shall be reasonably related to the transactions contemplated
hereby and shall not interfere unnecessarily with normal operations. No
investigation by a Party shall affect the representations and warranties of the
other Party.
(b) In addition to the Parties' respective obligations under the
Confidentiality Agreement, which is hereby reaffirmed and adopted, and
incorporated by reference herein each Party shall, and shall cause its advisers
and agents to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return or certify the
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destruction of all documents and copies thereof, and all work papers containing
confidential information received from the other Party.
(c) Each Party agrees to give the other Party notice as soon as practicable
after any determination by it of any fact or occurrence relating to the other
Party which it has discovered through the course of its investigation and which
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a CB&T Material Adverse Effect or a
Carolina First Material Adverse Effect, as applicable.
8.7 Press Releases. Prior to the Effective Time, CB&T and Carolina First
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.7
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.8 Certain Actions. Except with respect to this Agreement and the
transactions contemplated hereby, no CB&T Entity nor any Affiliate thereof nor
any Representatives thereof retained by any CB&T Entity shall directly or
indirectly solicit any Acquisition Proposal by any Person. Except to the extent
the Board of Directors of CB&T, after having consulted with and considered the
advice of outside counsel, reasonably determines in good faith that the failure
to take such actions would constitute a breach of fiduciary duties of the
members of such Board of Directors to CB&T's shareholders under applicable law,
no CB&T Entity or any Affiliate or Representative thereof shall furnish any
non-public information that it is not legally obligated to furnish in connection
with, negotiate with respect to, or enter into any Contract with respect to, any
Acquisition Proposal, but CB&T may communicate information about such an
Acquisition Proposal to its shareholders if and to the extent that it is
required to do so in order to comply with its legal obligations as advised by
outside counsel. CB&T shall promptly advise Carolina First following the receipt
of any Acquisition Proposal and the details thereof, and advise Carolina First
of any developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof. CB&T shall (i) immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any of the foregoing, and (ii) direct and use its
reasonable efforts to cause all of its Affiliates and Representatives not to
engage in any of the foregoing.
8.9 Accounting and Tax Treatment. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger, and to take no action
which would cause the Merger not, to qualify for treatment as a pooling of
interests for accounting purposes or as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
8.10 State Takeover Laws. Each CB&T Entity shall take all necessary steps
to exempt the transactions contemplated by this Agreement from, or if necessary
to challenge the validity or applicability of, any applicable Takeover Law,
including Articles 9 and 9A of the NCBCA.
8.11 Charter Provisions. Each CB&T Entity shall take all necessary action
to ensure that the entering into of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby do not and will not result
in the grant of any rights to any Person under the Articles of Incorporation,
Bylaws or other governing instruments of any CB&T Entity or restrict or impair
the ability of Carolina First or any of its Subsidiaries to vote, or otherwise
to exercise the rights of a shareholder with respect to, shares of any CB&T
Entity that may be directly or indirectly acquired or controlled by them, except
as may be provided under Article 13 of the NCBCA.
8.12 [Reserved].
8.13 Agreement of Affiliates. CB&T has disclosed in Section 8.13 of the
CB&T Disclosure Memorandum each Person whom it reasonably believes is an
"affiliate" of CB&T for purposes of Rule 145 under the 1933 Act. CB&T shall use
its reasonable efforts to cause each such Person to deliver to Carolina First
not later than 30 days prior to the Effective Time, a written agreement,
substantially in the form of Exhibit 2, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of CB&T Common Stock
held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge,
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transfer, or otherwise dispose of the shares of Carolina First Common Stock to
be received by such Person upon consummation of the Merger except in compliance
with applicable provisions of the 1933 Act and the rules and regulations
thereunder and, if the Merger is accounted for by the pooling-of-interests
method of accounting, until such time as financial results covering at least 30
days of combined operations of Carolina First and CB&T have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies. If the Merger is accounted for using the
pooling-of-interests method of accounting, shares of Carolina First Common Stock
issued to such affiliates of CB&T in exchange for shares of CB&T Common Stock
shall not be transferable until such time as financial results covering at least
30 days of combined operations of Carolina First and CB&T have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 8.13 (and Carolina First shall be
entitled to place restrictive legends upon certificates for shares of Carolina
First Common Stock issued to affiliates of CB&T pursuant to this Agreement to
enforce the provisions of this Section 8.13). Carolina First shall not be
required to maintain the effectiveness of the Registration Statement under the
1933 Act for the purposes of resale of Carolina First Common Stock by such
affiliates.
8.14 Employee Benefits and Contracts. Following the Effective Time,
Carolina First shall provide generally to officers and employees of the CB&T
Entities employee benefits under employee benefit and welfare plans (other than
stock option or other plans involving the potential issuance of Carolina First
Common Stock), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by the Carolina First Entities
to their similarly situated officers and employees; provided, that, for a period
of 12 months after the Effective Time, Carolina First shall provide generally to
officers and employees of CB&T Entities severance benefits with the following
terms: (i) for Vice President and above, an amount equal to two weeks'
compensation for each year of continuous employment with CB&T (such amount not
to be less than one month nor greater than twelve months of compensation); (ii)
for Assistant Vice President, an amount equal to two weeks' compensation for
each year of continuous employment with CB&T (such amount not to be less than
one month nor greater than nine months of compensation); and (iii) for all other
employees, an amount equal to two weeks' compensation for each year of
continuous employment with CB&T (such amount not to be less than one month nor
greater than six months of compensation). All such payments will be paid in cash
and in full, not later than 30 days after termination. Carolina First will offer
such employees compensation for unused vacation days and career continuation
counseling and will give each such employee priority consideration for future
positions at Carolina First as they become available, consistent with said
employee's ability to perform such duties. Carolina First and CB&T will
cooperate to maintain the continuing employment of key employees during the
pendency of the transaction contemplated herein. The foregoing severance
benefits shall not be applicable to Allen W. Jackson, who is the subject of a
separate agreement. For purposes of participation, vesting and (except in the
case of Carolina First retirement plans) benefit accrual under Carolina First's
employee benefit plans, the service of the employees of the CB&T Entities prior
to the Effective Time shall be treated as service with a Carolina First Entity
participating in such employee benefit plans. Carolina First also shall offer
Ronnie D. Blanton an employment contract in the form attached hereto as Exhibit
3.
8.15 Indemnification. (a) For a period of three years after the Effective
Time, Carolina First shall, and shall cause the Surviving Corporation to,
indemnify, defend and hold harmless the present and former directors, officers,
employees and agents of the CB&T Entities (each, an "Indemnified Party") against
all Liabilities arising out of actions or omissions arising out of the
Indemnified Party's service or services as directors, officers, employees or
agents of CB&T or, at CB&T's request, of another corporation, partnership, joint
venture, trust or other enterprise occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement) to the fullest
extent permitted under North Carolina Law and by CB&T's Articles of
Incorporation and Bylaws as in effect on March 1, 1998, including provisions
relating to advances of expenses incurred in the defense of any Litigation and
whether or not any Carolina First Entity is insured against any such matter.
Nothing herein is intended, however, to affect the Indemnified Parties' rights
to indemnity under CB&T's Articles of Incorporation and Bylaws (as in effect on
March 1, 1998), subject to the Claims Letters to be delivered to Carolina First
prior to Closing. Without limiting the foregoing, in any case in which approval
by the Surviving Corporation is required to effectuate any indemnification, the
Surviving
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Corporation shall direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent counsel mutually
agreed upon between Carolina First and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 8.15, upon learning of any such Liability or Litigation,
shall promptly notify Carolina First thereof. In the event of any such
Litigation (whether arising before or after the Effective Time), (i) Carolina
First or the Surviving Corporation shall have the right to assume the defense
thereof and neither Carolina First nor the Surviving Corporation shall be liable
to such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Carolina First or the Surviving Corporation
elects not to assume such defense or counsel for the Indemnified Parties advises
that there are substantive issues which raise conflicts of interest between
Carolina First or the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Carolina First
or the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties promptly as statements therefor are
received; provided, that Carolina First and the Surviving Corporation shall be
obligated pursuant to this paragraph (b) to pay for only one firm of counsel for
all Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such Litigation, and (iii) neither Carolina
First nor the Surviving Corporation shall be liable for any settlement effected
without its prior written consent; and provided further that neither Carolina
First nor the Surviving Corporation shall have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
Law.
8.16 Certain Policies of CB&T. Carolina First and CB&T shall consult with
respect to their respective loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) and CB&T
shall make such modification or changes to its policies and practices, if any,
prior to the Effective Time as may be mutually agreed upon. Carolina First and
CB&T also shall consult with respect to the character, amount and timing of
restructuring and Merger-related expense charges to be taken by each of the
Parties in connection with the transactions contemplated by this Agreement and
shall take such charges in accordance with GAAP, prior to the Effective Time, as
may be mutually agreed upon by the Parties. Neither Party's representations,
warranties, covenants or agreements contained in this Agreement shall be deemed
to be inaccurate or breached in any respect as a consequence of any
modifications or charges undertaken solely on account of this Section 8.16.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6:
(a) Shareholder Approval. The shareholders of CB&T shall have
approved this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required by
Law, by the provisions of any governing instruments.
(b) Regulatory Approvals. All Consents of, filings and registrations
with, and notifications to, all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired.
(c) Consents and Approvals. Each Party shall have obtained any and
all Consents required for consummation of the Merger (other than those
referred to in Section 9.1(b)) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a CB&T
Material Adverse Effect or a Carolina First Material Adverse Effect, as
applicable. No Consent so obtained which is necessary to consummate the
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transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of
Carolina First would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement that,
had such condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(e) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, no stop orders suspending the effectiveness
of the Registration Statement shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been initiated and be continuing, and all necessary approvals
under state securities Laws or the 1933 Act or 1934 Act relating to the
issuance or trading of the shares of Carolina First Common Stock issuable
pursuant to the Merger shall have been received.
(f) Pooling Letters. Each of the Parties shall have received a
letter, dated as of the date of the Effective Time, addressed to Carolina
First, in form and substance reasonably acceptable to Carolina First, from
KPMG Peat Marwick, L.L.P. to the effect that the Merger will qualify for
pooling-of-interests accounting treatment. Each of the Parties also shall
have received letters, dated as of the date of filing of the Registration
Statement with the SEC and as of the Effective Time, addressed to Carolina
First, in form and substance reasonably acceptable to Carolina First, from
KPMG Peat Marwick, L.L.P. to the effect that such firm is not aware of any
matters relating to CB&T which would preclude the Merger from qualifying
for pooling-of-interests accounting treatment.
(g) Tax Matters. Each Party shall have received a written opinion of
counsel from Alston & Bird LLP, in form reasonably satisfactory to such
Parties (the "Tax Opinion"), to the effect that (i) the Merger will
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code, (ii) the exchange in the Merger of CB&T Common Stock
for Carolina First Common Stock will not give rise to gain or loss to the
shareholders of CB&T with respect to such exchange (except to the extent of
any cash received), and (iii) none of CB&T, Sub or Carolina First will
recognize gain or loss as a consequence of the Merger (except for amounts
resulting from any required change in accounting methods and any income and
deferred gain recognized pursuant to Treasury regulations issued under
Section 1502 of the Internal Revenue Code). In rendering such Tax Opinion,
such counsel shall be entitled to rely upon representations of officers of
CB&T and Carolina First reasonably satisfactory in form and substance to
such counsel.
9.2 Conditions to Obligations of Carolina First. The obligations of
Carolina First to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by Carolina First pursuant to Section
11.6(a):
(a) Representations and Warranties. For purposes of this Section
9.2(a), the representations and warranties of CB&T set forth in this
Agreement shall be accurate and true as of the date of this Agreement and
as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time, except that representations and warranties which are confined to a
specified date shall speak only as of such date. The representations and
warranties set forth in Section 5.3 shall be true and correct (except for
inaccuracies which are de minimis in amount). The representations and
warranties set forth in Sections 5.20, 5.21, and 5.22 shall be true and
correct in all material respects. There shall not exist inaccuracies in the
representations and warranties of CB&T set forth in this Agreement
(including the representations and warranties set forth in Sections 5.3,
5.20, 5.21, and 5.22) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a CB&T Material Adverse Effect;
provided that, for purposes of this sentence only, those representations
and warranties which are qualified by references to "material" or "Material
Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to
include such qualifications.
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(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of CB&T to be performed and complied with pursuant
to this Agreement and the other agreements contemplated hereby prior to the
Effective Time shall have been duly performed and complied with in all
material respects.
(c) Certificates. CB&T shall have delivered to Carolina First (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to CB&T and in Section
9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by CB&T's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as
Carolina First and its counsel shall request.
(d) Fairness Opinion. Carolina First shall have received from The
Robinson-Humphrey Company a letter, dated not more than five business days
prior to the date of the Proxy Statement, to the effect that, in the
opinion of such firm, the consideration to be paid by Carolina First in
connection with the Merger is fair, from a financial point of view, to
Carolina First.
(e) Affiliates Agreements. Carolina First shall have received from
each affiliate of CB&T the affiliates letter referred to in Section 8.13,
to the extent necessary to assure in the reasonable judgment of Carolina
First that the transactions contemplated hereby will qualify for
pooling-of-interests accounting treatment.
(f) Shareholders' Equity. CB&T's shareholders' equity as of the
Closing shall not be less than CB&T's shareholders' equity as of December
31, 1997, excluding for purposes of the calculation of such shareholders'
equity the effects of (i) all costs, fees and charges, including fees and
charges of CB&T's accountants, counsel and financial advisors, whether or
not accrued or paid, that are related to the transactions contemplated by
this Agreement, (ii) all net charges resulting from the application of FASB
Statement No. 115 with respect to unrealized securities gains and losses,
and (iii) any reductions in CB&T's shareholders' equity resulting from any
actions or changes in policies of CB&T taken at the request of Carolina
First, including those described in Section 8.16.
(g) Exercise of Dissenter's Rights. Shareholders of CB&T shall not
have given notice of their intent to exercise their statutory rights of
dissent with respect to more than 5% of the outstanding shares of CB&T
Common Stock.
(h) Claims Letters. Each director and officer of each CB&T Entity
shall have executed and delivered to Carolina First, letters in
substantially the form of Exhibit 4 hereto, and which are reasonably
satisfactory to Carolina First.
9.3 Conditions to Obligations of CB&T. The obligations of CB&T to perform
this Agreement and consummate the Merger and the other transactions contemplated
hereby are subject to the satisfaction of the following conditions, unless
waived by CB&T pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section
9.3(a), the representations and warranties of Carolina First set forth in
this Agreement shall be accurate and true as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time, except that representations and warranties which are confined to a
specified date shall speak only as of such date. The representations and
warranties of Carolina First set forth in Section 6.21 shall be true and
correct in all material respects. The representations and warranties set
forth in Section 6.3 shall be true and correct (except for inaccuracies
which are de minimis in amount). There shall not exist inaccuracies in the
representations and warranties of Carolina First set forth in this
Agreement (including the representations and warranties set forth in
Section 6.3 and 6.21) such that the aggregate effect of such inaccuracies
has, or is reasonably likely to have, a Carolina First Material Adverse
Effect; provided that, for purposes of this sentence only, those
representations and warranties which are qualified by references to
"material" or "Material Adverse Effect" or to the "Knowledge" of any Person
shall be deemed not to include such qualifications.
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(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Carolina First to be performed and complied
with pursuant to this Agreement and the other agreements contemplated
hereby prior to the Effective Time shall have been duly performed and
complied with in all material respects.
(c) Certificates. Carolina First shall have delivered to CB&T (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
the conditions set forth in Section 9.1 as relates to Carolina First and in
Section 9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies of
resolutions duly adopted by Carolina First's Board of Directors and Sub's
Board of Directors and sole shareholder evidencing the taking of all
corporate action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, all in such reasonable detail as CB&T and its counsel
shall request.
(d) Fairness Opinion. CB&T shall have received from Smith Capital,
Inc. a letter, dated not more than five business days prior to the date of
the Proxy Statement, to the effect that, in the opinion of such firm, the
consideration to be received by CB&T shareholders in connection with the
Merger is fair, from a financial point of view, to such shareholders.
(e) Exchange Agent Certification. The Exchange Agent shall have
delivered to CB&T a certificate, dated as of the Effective Time, to the
effect that the Exchange Agent has received from Carolina First appropriate
instructions and authorization for the Exchange Agent to issue a sufficient
number of shares of Carolina First Common Stock in exchange for outstanding
shares of CB&T Common Stock and that Carolina First has deposited with the
Exchange Agent sufficient funds to pay a reasonable estimate of the cash
payments necessary to make all fractional share payments as required by
Section 3.5.
ARTICLE 10
TERMINATION
10.1 Termination. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of CB&T,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of Carolina First and CB&T; or
(b) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any representation or warranty contained in this
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such breach and which
breach is reasonably likely, in the opinion of the non-breaching Party, to
have, individually or in the aggregate, a CB&T Material Adverse Effect or a
Carolina First Material Adverse Effect, as applicable, on the breaching
Party; or
(c) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
nonappealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
shareholders of CB&T fail to vote their approval of the matters relating to
this Agreement and the
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transactions contemplated hereby at the Shareholders' Meeting where such
matters were presented to such shareholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by November 30, 1998, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by
any breach of this Agreement by the Party electing to terminate pursuant to
this Section 10.1(e); or
(f) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event that any of the
conditions precedent to the obligations of such Party to consummate the
Merger cannot be satisfied or fulfilled by the date specified in Section
10.1(e); or
(g) By Carolina First, in the event that the Board of Directors of
CB&T shall have resolved not to reaffirm or support the Merger (to the
exclusion of any other Acquisition Proposal) or shall have affirmed,
recommended or authorized entering into any other Acquisition Proposal or
other transaction involving a merger, share exchange, consolidation or
transfer of all or substantially all of the Assets of CB&T.
10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article 11 and Section 8.6(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c) or
10.1(f) shall not relieve the breaching Party from Liability for an uncured
willful breach of a representation, warranty, covenant, or agreement giving rise
to such termination.
10.3 Non-Survival of Representations and Covenants. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11 and Sections 8.13, 8.14 and 8.15.
ARTICLE 11
MISCELLANEOUS
11.1 Definitions. (a) Except as otherwise provided herein, the capitalized
terms set forth below shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition Proposal" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the acquisition of
a substantial equity interest in, or a substantial portion of the assets
of, such Party or any of its Subsidiaries.
"Affiliate" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
"Agreement" shall mean this Agreement and Plan of Merger, including
the Exhibits delivered pursuant hereto and incorporated herein by
reference.
"Articles of Merger" shall mean the Articles of Merger to be executed
by Sub and filed with the Secretary of State of the State of North Carolina
relating to the Merger as contemplated by Section 1.1.
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"Assets" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, and whether or not
owned in the name of such Person or any Affiliate of such Person and
wherever located.
"BHC Act" shall mean the federal Bank Holding Company Act of 1956, as
amended.
"Carolina First Capital Stock" shall mean, collectively, the Carolina
First Common Stock, the Carolina First Preferred Stock and any other class
or series of capital stock of Carolina First.
"Carolina First Common Stock" shall mean the 2.50 par value common
stock of Carolina First.
"Carolina First Disclosure Memorandum" shall mean the written
information entitled
"Carolina First BancShares, Inc. Disclosure Memorandum" delivered
prior to the date of this Agreement to CB&T describing in reasonable detail
the matters contained therein and, with respect to each disclosure made
therein, specifically referencing each Section of this Agreement under
which such disclosure is being made. Information disclosed with respect to
one Section shall not be deemed to be disclosed for purposes of any other
Section not specifically referenced with respect thereto.
"Carolina First Entity" shall mean each of Carolina First and all
Carolina First Subsidiaries.
"Carolina First Financial Statements" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of Carolina
First as of December 31, 1997 and 1996, and the related statements of
income, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) for each of the three fiscal years ended
December 31, 1997, 1996 and 1995, as filed by Carolina First in SEC
Documents, and (ii) the consolidated balance sheets of Carolina First
(including related notes and schedules, if any) and related statements of
income, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) included in SEC Documents filed with respect
to periods ended subsequent to December 31, 1997.
"Carolina First Material Adverse Effect" shall mean an event, change
or occurrence which, individually or together with any other event, change
or occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of Carolina First and its Subsidiaries,
taken as a whole, or (ii) the ability of Carolina First to perform its
obligations under this Agreement or to consummate the Merger or the other
transactions contemplated by this Agreement, provided that "Material
Adverse Effect" shall not be deemed to include the impact of (a) changes in
banking and similar Laws of general applicability or interpretations
thereof by courts or governmental authorities, (b) changes in generally
accepted accounting principles or regulatory accounting principles
generally applicable to banks and their holding companies, (c) actions and
omissions of Carolina First (or any of its Subsidiaries) taken with the
prior informed written Consent of CB&T in contemplation of the transactions
contemplated hereby, and (d) the direct effects of compliance with this
Agreement on the operating performance of Carolina First, including
expenses incurred by Carolina First in consummating the transactions
contemplated by this Agreement.
"Carolina First Stock Plans" shall mean the existing stock option and
other stock-based compensation plans of Carolina First.
"Carolina First Subsidiaries" shall mean the Subsidiaries of Carolina
First, which shall include Lincoln Bank of North Carolina, Cabarrus Bank of
North Carolina and all other Carolina First Subsidiaries described in
Section 6.4 and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Carolina First in the future and
held as a Subsidiary by Carolina First at the Effective Time.
"CB&T Common Stock" shall mean the $2.50 par value common stock of
CB&T.
"CB&T Disclosure Memorandum" shall mean the written information
entitled "Community Bank & Trust Company Disclosure Memorandum" delivered
prior to the date of this Agreement to Carolina First
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describing in reasonable detail the matters contained therein and, with
respect to each disclosure made therein, specifically referencing each
Section of this Agreement under which such disclosure is being made.
Information disclosed with respect to one Section shall not be deemed to be
disclosed for purposes of any other Section not specifically referenced
with respect thereto.
"CB&T Entity" shall mean each of CB&T and all CB&T Subsidiaries.
"CB&T Financial Statements" shall mean (i) the consolidated balance
sheet (including related notes and schedules, if any) of CB&T as of
December 31, 1997 and 1996, and the related statements of income, changes
in shareholders' equity, and cash flows (including related notes and
schedules, if any) for each of the three fiscal years ended December 31,
1997, 1996 and 1995, as filed by CB&T in SEC Documents, and (ii) the
consolidated balance sheets of CB&T (including related notes and schedules,
if any) and related statements of income, changes in shareholders' equity,
and cash flows (including related notes and schedules, if any) included in
SEC Documents filed with respect to periods ended subsequent to December
31, 1997.
"CB&T Material Adverse Effect" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of CB&T, or (ii) the ability of CB&T to
perform its obligations under this Agreement or to consummate the Merger or
the other transactions contemplated by this Agreement, provided that
"Material Adverse Effect" shall not be deemed to include the impact of (a)
changes in banking and similar Laws of general applicability or
interpretations thereof by courts or governmental authorities, (b) changes
in generally accepted accounting principles or regulatory accounting
principles generally applicable to banks and their holding companies, (c)
actions and omissions of CB&T taken with the prior informed written Consent
of Carolina First in contemplation of the transactions contemplated hereby,
and (d) the Merger on the operating performance of CB&T, including expenses
incurred by CB&T in consummating the transactions contemplated by this
Agreement.
"CB&T Stock Plan" shall mean the existing stock option and other
stock-based compensation plans of CB&T.
"CB&T Subsidiaries" shall mean the Subsidiaries of CB&T, which shall
include any corporation, bank, savings association, or other organization
acquired as a Subsidiary of CB&T in the future and held as a Subsidiary by
CB&T at the Effective Time.
"CB&T" shall mean Community Bank & Trust Company, a North Carolina
Bank.
"Closing Date" shall mean the date on which the Closing occurs.
"Confidentiality Agreement" shall mean that certain Confidentiality
Agreement between CB&T and Carolina First.
"Consent" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"Contract" shall mean any written or oral agreement, arrangement,
authorization, commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding, or undertaking of
any kind or character, or other document to which any Person is a party or
that is binding on any Person or its capital stock, Assets or business.
"Default" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit,
(ii) any occurrence of any event that with the passage of time or the
giving of notice or both would constitute a breach or violation of, default
under, contravention of, or conflict with, any Contract, Law, Order, or
Permit, or (iii) any occurrence of any event that with or without the
passage of time or the giving of notice would give rise to a right of any
Person to exercise any remedy or obtain any relief under, terminate or
revoke, suspend, cancel, or modify or change the current terms of, or
renegotiate, or to accelerate the maturity or performance of, or to
increase or impose any Liability under, any Contract, Law, Order, or
Permit, where, in any such event, such Default is
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reasonably likely to have, individually or in the aggregate, a CB&T
Material Adverse Effect or a Carolina First Material Adverse Effect, as
applicable.
"Environmental Laws" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface, or subsurface strata) and which
are administered, interpreted, or enforced by the United States
Environmental Protection Agency and state and local agencies with
jurisdiction over, and including common law in respect of, pollution or
protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
discharges, releases, or threatened releases of any Hazardous Material, or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of any Hazardous
Material.
"Equity Rights" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exhibits" 1 through 4, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"Hazardous Material" shall mean (i) any hazardous substance, hazardous
material, hazardous waste, regulated substance, or toxic substance (as
those terms are defined by any applicable Environmental Laws) and (ii) any
chemicals, pollutants, contaminants, petroleum, petroleum products, or oil
(and specifically shall include asbestos requiring abatement, removal, or
encapsulation pursuant to the requirements of governmental authorities and
any polychlorinated biphenyls).
"HSR Act" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
"Intellectual Property" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor,
technology rights and licenses, computer software (including any source or
object codes therefor or documentation relating thereto), trade secrets,
franchises, know-how, inventions, and other intellectual property rights.
"Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean those facts that
are known or should reasonably have been known after due inquiry by the
chairman, president, chief financial officer, chief accounting officer,
chief operating officer, chief credit officer, general counsel, any
assistant or deputy general counsel, or any senior, executive or other vice
president of such Person and the knowledge of any such persons obtained or
which would have been obtained from a reasonable investigation.
"Law" shall mean any code, law (including common law), ordinance,
regulation, reporting or licensing requirement, rule, or statute applicable
to a Person or its Assets, Liabilities, or business, including those
promulgated, interpreted or enforced by any Regulatory Authority.
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"Liability" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"Lien" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries
of a Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which do not
materially impair the use of or title to the Assets subject to such Lien.
"Litigation" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, governmental or other examination
or investigation, hearing, administrative or other proceeding relating to
or affecting a Party, its business, its Assets (including Contracts related
to it), or the transactions contemplated by this Agreement, but shall not
include regular, periodic examinations of depository institutions and their
Affiliates by Regulatory Authorities.
"Material" for purposes of this Agreement shall be determined in light
of the facts and circumstances of the matter in question; provided that any
specific monetary amount stated in this Agreement shall determine
materiality in that instance.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq National Market" shall mean the National Market System of the
National Association of Securities Dealers Automated Quotations System.
"NCBCA" shall mean the North Carolina Business Corporation Act.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Operating Property" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries or in which
such Party or Subsidiary holds a security interest or other interest
(including an interest in a fiduciary capacity), and, where required by the
context, includes the owner or operator of such property, but only with
respect to such property.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"Participation Facility" shall mean any facility or property in which
the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"Party" shall mean either CB&T or Carolina First, and "Parties" shall
mean both CB&T and Carolina First.
"Permit" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets, or business.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"Proxy Statement/Prospectus" shall mean the proxy statement/prospectus
used by CB&T to solicit the approval of its shareholders of the
transactions contemplated by this Agreement, which shall include
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the prospectus of Carolina First relating to the issuance of the Carolina
First Common Stock to holders of CB&T Common Stock.
"Registration Statement" shall mean the Registration Statement on Form
S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
Carolina First under the 1933 Act with respect to the shares of Carolina
First Common Stock to be issued to the shareholders of CB&T in connection
with the transactions contemplated by this Agreement.
"Regulatory Authorities" shall mean, collectively, the SEC, the United
States Department of Justice, the Board of the Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, and all other
federal, state, county, local or other governmental or regulatory agencies,
authorities (including self-regulatory authorities), instrumentalities,
commissions, boards or bodies having jurisdiction over the Parties and
their respective Subsidiaries.
"Representative" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC Documents" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to
be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"Securities Laws" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"Shareholders' Meeting" shall mean the meeting of the shareholders of
CB&T to be held pursuant to Section 8.1, including any adjournment or
adjournments thereof.
"Significant Subsidiary" shall mean any present or future consolidated
Subsidiary of the Party in question, the assets of which constitute ten
percent (10%) or more of the consolidated assets of such Party as reflected
on such Party's consolidated statement of condition prepared in accordance
with GAAP.
"Sub Common Stock" shall mean the $1.00 par value common stock of Sub.
"Subsidiaries" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or more of
the outstanding equity securities is owned directly or indirectly by its
parent (provided, there shall not be included any such entity the equity
securities of which are owned or controlled in a fiduciary capacity), (ii)
in the case of partnerships, serves as a general partner, (iii) in the case
of a limited liability company, serves as a managing member, or (iv)
otherwise has the ability to elect a majority of the directors, trustees or
managing members thereof.
"Surviving Corporation" shall mean CB&T as the surviving corporation
resulting from the Merger.
"Tax Return" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"Tax" or "Taxes" shall mean any federal, state, county, local, or
foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, environmental, federal highway use, commercial rent,
customs duties, capital stock, paid-up capital, profits, withholding,
Social Security, single business and unemployment, disability, real
property, personal property, registration, ad valorem, value added,
alternative or add-on minimum, estimated, or other tax or governmental fee
of any kind whatsoever, imposes or required to be withheld by the United
States or any state, county, local or
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foreign government or subdivision or agency thereof, including any
interest, penalties, and additions imposed thereon or with respect thereto.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
<TABLE>
<S> <C>
Allowance................................................... Section 5.9
Carolina First Benefit Plans................................ Section 6.15
Carolina First Contracts.................................... Section 6.16
Carolina First ERISA Plan................................... Section 6.15
Carolina First Pension Plan................................. Section 6.15
Carolina First SEC Reports.................................. Section 6.5(a)
CB&T Benefit Plans.......................................... Section 5.15
CB&T Contracts.............................................. Section 5.16
CB&T ERISA Plan............................................. Section 5.15
CB&T Options................................................ Section 3.6
CB&T Pension Plan........................................... Section 5.15
CB&T SEC Reports............................................ Section 5.5(a)
Closing..................................................... Section 1.2
Directors' Agreements....................................... Section 5.24
Effective Time.............................................. Section 1.3
ERISA Affiliate............................................. Section 5.15(b)
Exchange Agent.............................................. Section 4.1
Exchange Ratio.............................................. Section 3.1(c)
Merger...................................................... Section 1.1
Takeover Laws............................................... Section 5.21
Tax Opinion................................................. Section 9.1(h)
Threshold Prices............................................ Section 3.1(c)
</TABLE>
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 Expenses. (a) Except as otherwise provided in this Section 11.2, each
of the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees and
expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that each of the Parties shall bear and pay
one-half of the filing fees payable in connection with the Registration
Statement and the Proxy Statement/Prospectus and printing costs incurred in
connection with the printing of the Registration Statement and the Proxy
Statement/Prospectus.
(b) Notwithstanding the foregoing, if, after the date of this Agreement and
within six (6) months following
(i) any termination of this Agreement
(1) by Carolina First pursuant to Sections 10.1(b), 10.1(c),
10.1(f) (but only on the basis of the failure of CB&T to satisfy any of
the conditions enumerated in Section 9.2, other than Section 9.2(d) or
(e)) or 10.1(g), or
(2) by either Party pursuant to Section 10.1(d)(ii) (with respect
to approval of the shareholders of CB&T), or
(ii) failure to consummate the Merger by reason of any failure of CB&T
to satisfy the conditions enumerated in Section 9.2, other than Section
9.2(d) or (e), or 9.1(a) (as such section relates to approval by the
shareholders of CB&T),
any third-party shall acquire, merge with, combine with, purchase 25% or more of
the Assets of, or engage in any other business combination with, or purchase any
equity securities involving an acquisition of 25% or more
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of the voting stock of, CB&T, or enter into any binding agreement to do any of
the foregoing (collectively, a "Business Combination") or any of the directors
of CB&T individually or with other Persons enters into any commitment, option,
agreement, understanding or arrangement (whether or not binding) with respect to
any Business Combination, such third-party that is a party to the Business
Combination shall pay to Carolina First, prior to the earlier of consummation of
the Business Combination or execution of any letter of intent or definitive
agreement with CB&T relating to such Business Combination, an amount in cash
equal to the sum of $1.6 million, which amount represents the Parties' best
estimate of the value of the management time, overhead, opportunity costs and
other costs of Carolina First incurred by or on behalf of Carolina First in
connection with the transactions contemplated by this Agreement which cannot be
calculated with certainty. In the event such third-party shall refuse to pay
such amounts within 10 days of demand therefor by Carolina First, the amounts
shall be an obligation of CB&T and shall be paid by CB&T promptly upon notice to
CB&T by Carolina First.
11.3 Brokers and Finders. Except for Smith Capital, Inc. as to CB&T and
except for The Robinson-Humphrey Company as to Carolina First, each of the
Parties represents and warrants that neither it nor any of its officers,
directors, employees, or Affiliates has employed any broker or finder or
incurred any Liability for any financial advisory fees, investment bankers'
fees, brokerage fees, commissions, or finders' fees in connection with this
Agreement or the transactions contemplated hereby. In the event of a claim by
any broker or finder based upon his or its representing or being retained by or
allegedly representing or being retained by CB&T or by Carolina First, each of
CB&T and Carolina First, as the case may be, agrees to indemnify and hold the
other Party harmless of and from any Liability in respect of any such claim.
11.4 Entire Agreement. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral (except, as to Section
8.6(b), for the Confidentiality Agreement). Nothing in this Agreement expressed
or implied, is intended to confer upon any Person, other than the Parties or
their respective successors, any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, other than as provided in Sections 8.14
and 8.15.
11.5 Amendments. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after shareholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of CB&T Common Stock, there shall be made no amendment that pursuant to
the NCBCA requires further approval by such shareholders without the further
approval of such shareholders.
11.6 Waivers. (a) Prior to or at the Effective Time, Carolina First,
acting through its Board of Directors, chief executive officer or other
authorized officer, shall have the right to waive any Default in the performance
of any term of this Agreement by CB&T, to waive or extend the time for the
compliance or fulfillment by CB&T of any and all of its obligations under this
Agreement, and to waive any or all of the conditions precedent to the
obligations of Carolina First under this Agreement, except any condition which,
if not satisfied, would result in the violation of any Law. No such waiver shall
be effective unless in writing signed by a duly authorized officer of Carolina
First.
(b) Prior to or at the Effective Time, CB&T, acting through its Board of
Directors, chief executive officer or other authorized officer, shall have the
right to waive any Default in the performance of any term of this Agreement by
Carolina First, to waive or extend the time for the compliance or fulfillment by
Carolina First of any and all of its obligations under this Agreement, and to
waive any or all of the conditions precedent to the obligations of CB&T under
this Agreement, except any condition which, if not satisfied, would result in
the violation of any Law. No such waiver shall be effective unless in writing
signed by a duly authorized officer of CB&T.
(c) The failure of any Party at any time or times to require performance of
any provision hereof shall in no manner affect the right of such Party at a
later time to enforce the same or any other provision of this Agreement. No
waiver of any condition or of the breach of any term contained in this Agreement
in one or
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more instances shall be deemed to be or construed as a further or continuing
waiver of such condition or breach or a waiver of any other condition or of the
breach of any other term of this Agreement.
11.7 Assignment. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.8 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
<TABLE>
<S> <C>
CB&T: Community Bank & Trust Company
2 South Main Street
Marion, North Carolina 28752
Telecopy Number: (828) 659-7939
Attention: Ronnie D. Blanton
Copy to Counsel: Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
230 North Elm Street
Greensboro, North Carolina 27420
Telecopy Number: (910) 378-1001
Attention: Edward C. Winslow III
Carolina First: Carolina First BancShares, Inc.
402 E. Main Street
Lincolnton, North Carolina 28092
Telecopy Number: (704) 732-7201
Attention: James E. Burt, III
Copy to Counsel: Alston & Bird LLP
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-4777
Attention: Ralph F. MacDonald, III
</TABLE>
11.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of North Carolina, without regard to any
applicable conflicts of Laws.
11.10 Counterparts. This Agreement may be executed in two 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.
11.11 Captions; Articles and Sections. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
11.12 Interpretations. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has
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been reviewed, negotiated, and accepted by all parties and their attorneys and
shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 Enforcement of Agreement. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.14 Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
CAROLINA FIRST BANCSHARES, INC.
By: /s/ JAN H. HOLLAR
------------------------------------
Vice President
COMMUNITY BANK & TRUST COMPANY
By: /s/ RONNIE D. BLANTON
------------------------------------
President
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<PAGE> 155
LIST OF EXHIBITS
<TABLE>
<C> <S> <C>
1. -- Form of Directors' Agreement. (sec. 5.24).
2. -- Form of agreement of affiliates of CB&T. (sec.sec. 8.13,
9.2(g)).
3. -- Form of employment agreement between Carolina First and
Ronnie D. Blanton. (sec. 8.14).
4. -- Form of Claims Letter (sec. 9.2(h)).
</TABLE>
<PAGE> 156
APPENDIX II
SMITH CAPITAL, INC.
200 HARGETT COURT
CHARLOTTE, NORTH CAROLINA 28211
TEL: 704 362 1563 FAX: 704 364 3451
The Board of Directors
Community Bank & Trust Company
2 South Main Street
Marion, North Carolina 28752
August 14, 1998
Gentlemen:
Community Bank and Trust Company ("Community" or the "Bank") and Carolina
First BancShares, Inc. ("CFB") have entered into an Agreement and Plan of Merger
dated as of June 4, 1998 (the "Agreement"), pursuant to which CFB will acquire
Community by means of the merger ("Merger") of an interim North Carolina banking
subsidiary of CFB (being formed) with and into Community and the conversion at
the effective time of the Merger of each of the 1,345,080 outstanding shares
plus options of the $2.50 par value common stock of Community ("Community Common
Stock") into 1,021,202 shares of the $2.50 par value CFB common stock ("CFB
Common Stock"). Each share of Community Common Stock shall be exchanged for
approximately 0.73 shares of CFB Common Stock (the "Exchange Ratio").
You have requested our opinion as to the fairness, from a financial point
of view of the Exchange Ratio, to the holders of Community Common Stock.
Smith Capital, Inc. is a North Carolina based corporation primarily engaged
in: (1) performing valuations of and valuations related to closely held and
publicly traded companies; and (2) providing financial advice related to
mergers, acquisitions and divestitures of closely held and publicly traded
companies.
In arriving at our opinion set forth below, we have conducted discussions
with members of senior management of Community and CFB concerning their business
and prospects, have reviewed certain publicly available business and financial
information and have considered certain other information prepared or provided
to us in connection with the proposed Merger, including, among other things, the
following:
(1) Community's Annual and Quarterly Reports to Stockholders, Annual
Reports on Form F-2 and 10-KSB, Annual Proxy Statement to Shareholders and
related financial information for the three fiscal years ended December 31,
1997;
(2) CFB's Annual Reports and Quarterly Reports to Stockholders, Annual
Reports on Form 10-K, Annual Proxy Statement to Shareholders and related
financial information for the three fiscal years ended December 31, 1997;
(3) Community's Quarterly Report to Stockholders, Call Report and
Quarterly Report on Form 10-QSB for the three months ended March 31, 1998;
(4) CFB's Quarterly Report to Stockholders, Quarterly Report on Form
10-Q and Call Reports for its subsidiary banks for the three months ended
March 31, 1998;
(5) Certain publicly available information with respect to historical
market prices and trading activity for Community and CFB and certain
publicly traded financial institutions which Smith Capital, Inc. deemed
relevant;
(6) The Agreement;
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(7) Other financial information concerning the business and operations
of CFB and Community, including certain audited financial information, and
certain internal analyses and forecasts for Community and CFB prepared by
the senior management of Community or CFB, respectively; and
(8) Such financial studies, analyses, inquiries and other matters as
we deemed necessary.
Smith Capital, Inc. relied without independent verification upon the
accuracy and completeness of all the financial and other information reviewed by
it for purposes of its opinion. In that regard Smith Capital, Inc. assumed that
the financial forecasts provided to it were reasonably prepared on a basis
reflecting the best currently available judgment of Community and CFB. Any
estimates contained in Smith Capital, Inc.'s analyses are not necessarily
indicative of future results or values, nor do they purport to be appraisals or
reflect prices at which securities could actually be bought or sold. Smith
Capital, Inc. is not an expert in the evaluation of loan portfolios or the
allowances for loan losses with respect thereto and has assumed, without
independent verification, that such allowances for Community and CFB are
adequate to cover such losses. In addition, Smith Capital, Inc. has not reviewed
individual credit files nor has it made or obtained an independent appraisal of
the assets and liabilities of Community or CFB or any of their subsidiaries.
Smith Capital, Inc. has had discussions with Community and CFB regarding Year
2000 compliance. Smith Capital, Inc. is not an expert in determining the ability
of either Community or CFB to handle any problems arising from this issue, and
Smith Capital, Inc. has relied on assurances from Community and CFB as to their
own assessment of their readiness to handle any such problems as they arise. Our
opinion is necessarily based upon market, economic, and other conditions as they
exist and can be evaluated on the date hereof and the information made available
to us through the date hereof.
Smith Capital, Inc.'s opinion is directed only to the fairness, from a
financial point of view, of the Exchange Ratio to the stockholders of Community
and does not constitute a recommendation to any stockholder of Community as to
how such stockholder should vote with respect to the Merger. Our opinion has
considered the relative merits of the Merger as compared to any alternative
business strategies that might exist for Community. Our opinion does not address
the effect of any other business combination in which CFB might engage.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof the Exchange Radio is fair, from a financial point of view, to the
stockholders of Community.
Very truly yours,
/s/ SMITH CAPITAL, INC.
-------------------------------------
SMITH CAPITAL, INC.
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<PAGE> 158
APPENDIX III
THE ROBINSON-HUMPHREY COMPANY, LLC
<TABLE>
<S> <C>
Corporate Finance Investment Bankers
Financial Services Group Since 1894
</TABLE>
August 14, 1998
Board of Directors
Carolina First BancShares, Inc.
402 East Main Street
Lincolnton, North Carolina 28093
Dear Sirs:
We understand that Carolina First BancShares, Inc. (the "Company") has
entered into an agreement to purchase Community Bank & Trust Co. ("CB&T") ("the
Proposed Transaction"). The terms and conditions of the Proposed Transaction are
set forth in more detail in the Definitive Merger Agreement (the "Agreement").
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company of the
consideration to be paid in the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement;
(2) publicly available information concerning the Company and CB&T which we
believe to be relevant to our inquiry; (3) financial and operating information
with respect to the business, operations and prospects of the Company and CB&T
furnished to us by the Company and CB&T; (4) a trading history of the Company's
common stock from May 21, 1997 through May 21, 1998, and a comparison of that
trading history with those of other companies which we deemed relevant; (5) a
comparison of the historical financial results and present financial condition
of the Company and CB&T with those of other companies which we deemed relevant;
and (6) a comparison of the financial terms of the Proposed Transaction with the
terms of certain other recent transactions which we deemed relevant. In
addition, we have had discussions with the management of the Company concerning
the Company's and CB&T's business, operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as we deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
financial and other information used by us in arriving at our opinion without
independent verification. With respect to the financial forecasts/projections of
the Company and CB&T, we have assumed that such forecasts/projections have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the management of the Company as to the future financial
performance of the Company and CB&T. In arriving at our opinion, we have not
conducted a physical inspection of the properties and facilities of CB&T and
have not made nor obtained any evaluations or appraisals of the assets or
liabilities of CB&T. Our opinion is necessarily based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.
Atlanta Financial Center
3333 Peachtree Road, NE - Atlanta, Georgia 30326
(404) 266-6000
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<PAGE> 159
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of the rendering of
this opinion. We have also performed various investment banking services for the
Company in the past and have received customary fees for such services.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be paid
in the Proposed Transaction is fair to the Company.
Very truly yours,
/S/ THE ROBINSON-HUMPHREY COMPANY, LLC
The Robinson-Humphrey Company, LLC
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<PAGE> 160
APPENDIX IV
EXCERPT FROM THE NORTH CAROLINA BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
SEC. 55-13-01 DEFINITIONS. -- In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and in
the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances, giving due consideration to the rate currently paid by the
corporation on its principal bank loans, if any, but not less than the rate
provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 55-13-02 RIGHT TO DISSENT.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other
than a parent corporation in a merger under G.S. 55-11-04) is a party
unless (i) approval by the shareholders of that corporation is not required
under G.S. 55-11-03(g); or (ii) such shares are then redeemable by the
corporation at a price not greater than the cash to be received in exchange
for such shares;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than as permitted by G.S.
55-12-01, including a sale in dissolution, but not including a sale
pursuant to court order or a sale pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed in
cash to the shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit corporation
or cooperative organization;
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(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in exchange
for cash or other property, unless the action is unlawful or fraudulent with
respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be no
right of dissent in favor of holders of shares of any class or series which, at
the record date fixed to determine the shareholders entitled to receive notice
of and to vote at the meeting at which the plan of merger or share exchange or
the sale or exchange of property is to be acted on, were (i) listed on a
national securities exchange; or (ii) held by at least 2,000 record
shareholders, unless in either case:
(1) The articles of incorporation of the corporation issuing the
shares provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders of
the class or series are required under the plan of merger or share exchange
to accept for the shares anything except:
a. Cash;
b. Shares or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation which,
at the record date fixed to determine the shareholders entitled to
receive notice of and vote at the meeting at which the plan of merger or
share exchange is to be acted on, were either listed subject to notice
of issuance on a national securities exchange, or held of record by at
least 2,000 record shareholders; or
c. A combination of cash and shares as set forth in subdivisions a.
and b. of this subdivision.
SEC. 55-13-03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights'; and
(2) He does so with respect to all shares of which he is the
beneficial shareholder.
SEC. 55-13-20 NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenter's
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he suffered from
such failure in a civil action brought in his own name within three years after
the taking of the corporate action creating dissenters' rights under G.S.
55-13-02 unless he voted for such corporate action.
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SEC. 55-13-21 NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his shares under this Article.
SEC. 55-13-22 DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under G.S.
55-13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after the
approval of the board of directors, of the corporate action creating dissenters'
rights under G.S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
SEC. 55-13-23 DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this Article.
SEC. 55-13-24 SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
SEC. 55-13-25 OFFER OF PAYMENT.
(2) Inform holders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received;
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(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date the
subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
SEC. 55-13-25 PAYMENT.
(a) As soon as the proposed corporate action is taken, or within 30 days
after receipt of a payment demand, the corporation shall pay each dissenter who
complied with G.S. 55-13-23 the amount the corporation estimates to be the fair
value of his shares, plus interest accrued to the date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the
end of a fiscal year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of cash flows for
that year, and the latest available interim financial statements, if any;
(2) An explanation of how the corporation estimated the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S.
55-13-28; and
(5) A copy of this Article.
SEC. 55-13-26 FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand procedure.
SEC. 55-13-28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH CORPORATION'S PAYMENT
OR FAILURE TO PERFORM.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of the amount in excess of the payment by the corporation under G.S. 55-13-25
for the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing (i) under
subdivision (a)(1) within 30 days after the corporation made payment for his
shares; or (ii) under subdivisions (a)(2) and (a)(3) within 30 days after the
corporation has failed to perform timely. A dissenter who fails to notify the
corporation of his demand under subsection (a) within such 30-day period shall
be deemed to have withdrawn his dissent and demand for payment.
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SEC. 55-13-30 COURT ACTION.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier of (i) the
date payment is made under G.S. 55-13-25; or (ii) the date of the dissenter's
payment demand under G.S. 55-13-28 by filing a complaint with the Superior Court
Division of the General Court of Justice to determine the fair value of the
shares and accrued interest. A dissenter who takes no action within the 60-day
period shall be deemed to have withdrawn his dissent and demand for payment.
(a) Repealed by Session Laws 1997-202, s.4, effective October 1, 1997.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the complaint. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The parties are entitled to
the same discovery rights as parties in other civil proceedings. The proceeding
shall be tried as in other civil actions. However, in a proceeding by a
dissenter in a corporation that was a public corporation immediately prior to
consummation of the corporate action giving rise to the right of dissent under
G.S. 55-13-02, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
SEC. 55-13-31 COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, and shall assess
the costs as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either
or any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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PROXY
COMMUNITY BANK & TRUST COMPANY
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints Nagui El-Bayadi, Thomas M.
Robbins and Delos R. (Doug) Hall, or any of them, as proxies, each with full
power of substitution, to vote the number of shares of common stock of Community
Bank & Trust Company, a North Carolina bank ("CB&T") which the undersigned would
be entitled to vote if personally present at the Special Meeting of CB&T
Shareholders to be held at CB&T's offices at 2 South Main Street, Marion, North
Carolina 28752, on September 15, 1998, at 10:00 A.M., Local Time, and at any
adjournment or postponement thereof (the "Special Meeting") upon the proposals
described in the Proxy Statement/Prospectus, dated August 14, 1998, the receipt
of which is acknowledged in the manner specified below.
1. Merger Agreement. To approve, ratify, confirm and adopt the Agreement
and Plan of Merger, dated as of June 4, 1998 (the "Merger Agreement"), by
and between Carolina First BancShares, Inc. ("Carolina First") and CB&T
pursuant to which Carolina First Interim Bank, a North Carolina bank
subsidiary of Carolina First, will merge (the "Merger") with and into
CB&T; and each share of the $2.50 par value common stock of CB&T ("CB&T
Common Stock") issued and outstanding at the effective time of the Merger
will be exchanged for shares of $2.50 par value Common Stock of Carolina
First ("Carolina First Common Stock"), and related transactions all as
more fully described in the accompanying Proxy/Statement Prospectus
including the Merger Agreement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Stock Repurchase Programs. To rescind and terminate all previously
authorized CB&T stock repurchase programs.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Other Business. In the discretion of the proxies on such other matters
as may properly come before the meeting or any adjournments thereof.
AUTHORIZED NOT AUTHORIZED
---------------- ---------------
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 2 ABOVE.
Please sign this proxy exactly as your name appears below. When shares are
held jointly, any holder may sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" PURPOSES OF 1 AND
2.
Dated: , 1998
--------------------
--------------------------------
Signature
--------------------------------
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF COMMUNITY BANK & TRUST
COMPANY, AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
