SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K405
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
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( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file Number 0-17939
CAROLINA FIRST BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1655882
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
236 East Main Street, Lincolnton, N.C. 28092
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (704) 732-2222
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.50 per share
(Title of class)
Indicate by check mark whether the registrant: ( ) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO__
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the $2.50 par value common stock held by
non-affiliates of registrant as of March 23, 2000: $165,415,301 based on the
last sale price on March 23, 2000, using the beneficial ownership rules adopted
pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting
stock owned by directors and certain executive officers, some of whom may not be
held to be affiliates upon judicial determination.
As of March 17, 2000, 6,028,443 shares of the registrant's $2.50 par value
common stock were issued and outstanding.
<PAGE>
SPECIAL CAUTIONARY NOTICE
REGARDING FORWARD LOOKING STATEMENTS
Certain of the statements made herein under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Annual Report are forward-looking statements for purposes of
the Securities Act of 1933, as amended (the "Securities Act"), and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and as such
may involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Such forward-looking statements
include statements using the words such as "may," "will," "anticipate,"
"should," "would," "believe," "contemplate," "expect," "estimate," "continue,"
"intend" or other similar words and expressions of the future.
These forward-looking statements involve risks and uncertainties and
actual results may differ significantly due to a variety of factors, including,
without limitation: the effects of future economic conditions; governmental
monetary and fiscal policies, as well as legislative and regulatory changes; the
risks of changes in interest rates on the level and composition of deposits,
loan demand, and the values of loan collateral, securities, and other
interest-sensitive assets and liabilities; interest rate risks; the effects of
competition from other commercial banks, thrifts, mortgage banking firms,
consumer finance companies, credit unions, securities brokerage firms, insurance
companies, money market and other mutual funds and other financial institutions
operating in the Company's market area and elsewhere, including institutions
operating, regionally, nationally and internationally, together with such
competitors offering banking products and services by mail, telephone, computer
and the Internet; and the failure of assumptions underlying the establishment of
reserves for possible loan losses. All written or oral forward-looking
statements attributable to the Company are expressly qualified in their entirety
by these cautionary statements.
PART I
Item 1. Business
Carolina First BancShares, Inc. (the "Company"), a North Carolina
corporation, is registered as a bank holding company with the Board of Governors
of the Federal Reserve System ("Federal Reserve") under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"). Carolina First was incorporated on
November 8, 1988, for purposes of becoming a bank holding company, and acquired
Lincoln Bank of North Carolina ("Lincoln Bank"), a North Carolina bank, on June
6, 1989. The Company also owns all the outstanding common stock of Cabarrus Bank
of North Carolina ("Cabarrus Bank") and Community Bank & Trust Co. ("Community
Bank"), both of which are North Carolina banks. Cabarrus Bank was acquired on
January 30, 1992 and Community Bank was acquired on December 23, 1998. Lincoln
Bank, Cabarrus Bank and Community Bank, (collectively the "Banks") operate 31
branch offices, and through them the Company provides a broad range of banking
and financial services principally in the greater Charlotte, North Carolina
area, including Lincoln County, southeastern Catawba County, Iredell County,
Cabarrus County and north and west Mecklenburg County. Community Bank operates
in Avery, Buncombe, Jackson, McDowell, Rutherford and Transylvania Counties,
North Carolina in the western part of the state. The Banks are members of the
Federal Deposit Insurance Corporation ("FDIC"), and Lincoln Bank's and Community
Bank's deposits are insured by the Bank Insurance Fund ("BIF") and Cabarrus
Bank's deposits are insured by the Savings Association Insurance Fund ("SAIF").
The Banks jointly own a mortgage company, Carolina First Mortgage
Corp., which originates mortgage loans for resale in the secondary market, and a
financial services company, Carolina First Financial Services Corporation,
("Financial Services"), which offers, as an agent for its customers, mutual
funds and annuity products. During 1999, Lincoln Bank acquired the majority
ownership interest in Lincoln Center at Mallard Creek, LLC, previously held by
the Company. Lincoln Center is a three-story office building occupied in part by
a branch of Lincoln Bank. During 1999, Lincoln Bank established a Delaware
holding company, CFBI Corp. which owns CFBI Mortgage, Inc. ("CFBI Mortgage"),
which holds a significant portion of Lincoln Bank's real estate mortgage loans.
CFBI Mortgage has elected to be taxed as a "real estate investment trust".
The Company owns approximately 13% of the total common stock of First
Gaston Bank of North Carolina, Gastonia, North Carolina ("First Gaston").
Gastonia, which is located just west of Charlotte and south of Lincolnton, is
contiguous to the markets served by Lincoln Bank. First Gaston opened in July
1995 and operates three branches in markets not currently served by the Company.
The Company provides certain operational functions for First Gaston. The Federal
Reserve, in approving this investment under the BHC Act, required the Company to
enter into a commitment to serve as a "source of strength" for First Gaston. The
Company's investment in First Gaston is accounted for under the equity method of
accounting and thus the Company's portion of income or losses is reflected in
current period earnings. See "Supervision and Regulation."
The Company engages in no significant operations other than the
ownership of its subsidiaries. The Company maintains its principal executive
offices at 236 East Main Street, Lincolnton, North Carolina 28092, and its
telephone number is (704) 732-2222.
The Banks provide a wide range of commercial banking products and
services. Services include checking accounts, interest bearing checking, savings
and other time deposits of various types, including retirement accounts and
certificates of deposit. Loan services include mortgage loan originations, loans
for business, real estate, personal and household purposes, and lines of credit
and credit cards. Considering the volatility of quality loan demand, the Company
maintains an investment portfolio. Other services include safe deposit boxes,
wire transfer facilities, and electronic banking facilities. Lincoln Bank began
exercising trust powers at the end of 1994, and at December 31, 1999, Lincoln
Bank had trust assets under management of $33.2 million.
Competition
Commercial banking is highly competitive. The Banks compete with other
financial institutions located in metropolitan Charlotte and elsewhere in
western North Carolina. Other competitors include banks, savings and loan
associations, finance companies, credit unions, mortgage bankers, pension
trusts, out-of-state banks and other institutions that provide loan and
investment services and money market funds. Competition between commercial bank
and thrift institutions has intensified significantly as a result of the
elimination of many previous distinctions between the various types of financial
institutions. The Banks also compete for interest-bearing funds with a number of
other financial intermediaries and investment alternatives, including mutual
funds, brokerage and insurance firms, investment advisors, governmental and
corporate bonds, and short-term money market securities. The ability of the
Banks to retain deposits depends on their ability to generally provide a rate of
return, liquidity and risk comparable to that offered by competing investment
opportunities.
The Banks compete for deposits, loans and other business with a number
of major banks and bank holding companies which have numerous offices and
affiliates 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 the Banks, 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 the Banks, 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 such competitors are subject to less regulation and
more favorable tax treatment than the Company. Many of the major commercial
banks, or their affiliates, in the Company's service area offer services such as
international banking and investment services, which are not offered directly by
the Banks. Such competitors, because of their greater capitalization, also have
substantially higher lending limits than the Banks, and because of their size
and geographic diversification are better able to absorb risk.
Supervision And Regulation
Bank holding companies and banks are extensively regulated under
federal and state law. This discussion 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 status or regulations
applicable to the Company's and the Banks' business. Supervision, regulation,
and examination of the Company and the Banks and their respective subsidiaries
by the bank regulatory agencies are intended primarily for the protection of
depositors rather than holders of Company capital stock. Any change in
applicable law or regulation may have a materiel effect on the Company's
business.
Bank Holding Company Regulation - The Company is subject to supervision
and regulation by the Federal Reserve under the BHC Act. The Company is required
to file with the Federal Reserve periodic reports and such other information as
the Federal Reserve may request. The Federal Reserve examines the Company, and
may examine the Company's subsidiaries. The Company is also registered as a bank
holding company with the North Carolina Commissioner of Banks (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 substantially all
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 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 its
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 regulation or order 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.
In November 1999, Congress enacted the Gramm-Leach-Bliley Act ("GLB")
which made substantial revisions to the statutory restrictions separating
banking activities from certain other financial activities. Under GLB, bank
holding companies that are well-capitalized and well-managed and have
satisfactory or better CRA ratings and meet certain other conditions can elect
to become "financial holding companies." As such, they and their subsidiaries
are permitted to acquire or engage in previously impermissible activities such
as insurance underwriting, securities underwriting and distribution, travel
agency activities, broad insurance agency activities, merchant bank, and other
activities that the Federal Reserve determines to be financial in nature or
complementary thereto. Financial holding companies continue to be subject to the
overall oversight and supervision of the Federal Reserve, but GLB applies the
concept of functional regulation to the activities conducted by subsidiaries.
For example, insurance activities would be subject to supervision and regulation
by state insurance authorities. The Company does not currently intend to become
a financial holding company.
The Company is a legal entity separate and distinct from the Banks and
its other subsidiaries. Various legal limitations restrict the Banks from
lending or otherwise supplying funds to the Company or its non-bank
subsidiaries. The Company and the Banks are subject to Section 23A of the
Federal Reserve Act. Section 23A defines "covered transactions", which include
extensions of credit, and limits a bank's covered transactions with any
affiliate to 10% of such 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 and banks and their
subsidiaries are prohibited from purchasing low-quality assets from the bank's
affiliates. Finally, Section 23A requires that all of a bank's extensions of
credit to an affiliate be appropriately secured by acceptable collateral,
generally United States government or agency securities. The Company and the
Banks also are 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 prevailing at the
time for transactions with unaffiliated companies.
Since September 29, 1995, the BHC Act has permitted the Company and
any other bank holding companies located in North Carolina to acquire banks
located in any other state, and any bank holding company located outside North
Carolina may lawfully acquire any bank based in another state, regardless of
state law to the contrary, in either case subject to certain deposit-percentage,
age of bank charter requirements, and other restrictions. Since June 1, 1997,
national and state-chartered banks may branch interstate through acquisitions of
banks in other states. 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 and 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 subsidiary depository institutions are responsible for any losses to
the Federal Deposit Insurance Corporation ("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 a subsidiary bank likely will be unsecured and
subordinated to such bank's depositors and perhaps to other creditors of the
bank.
Bank And Bank Subsidiary Regulation - The Banks are subject to
supervision, regulation, and examination by the FDIC and the Commissioner, which
monitor all areas of the operations of the Banks, including reserves, loans,
mortgages, issuances of securities, payment of dividends, establishment of
branches, capital adequacy, and compliance with laws. The Banks are members of
the FDIC and their deposits are insured by the FDIC to the maximum extent
provided by law. Lincoln Bank's and Community Bank's deposits are insured by the
FDIC's Bank Insurance Fund ("BIF") and Cabarrus Bank's deposits are insured
primarily by the Savings Association Insurance Fund ("SAIF"). See "FDIC
Insurance Assessments."
Under present North Carolina law, the Banks may establish and operate
branches throughout the State of North Carolina, subject to the maintenance of
adequate capital and the receipt of the necessary approvals of the FDIC and the
Commissioner.
The FDIC 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 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, liquidity and sensitivity to market risk. The quality of risk
management practices has been emphasized. For most institutions, the FFIEC 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: (i) management's ability to identify, measure, monitor, and control
market risk; (ii) the institution's size; (iii) the nature and complexity of its
activities and its risk profile; and (iv) 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.
GLB requires the Banks and their affiliated companies to adopt and
disclose privacy policies regarding the sharing of personal information it
obtains from its customers with third parties. GLB also permits the Banks to
engage in "financial activities" through subsidiaries similar to that permitted
financial holding companies. See the discussion regarding GLB in "Bank Holding
Company Regulation" above.
Community Reinvestment Act - The Company 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
their 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 requirements 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 of 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; (v) merge or
consolidate with, or acquire the assets or assume the liabilities of, a
federally regulated financial institution; or (vi) expand other activities
including engaging in financial services activities authorized by GLB. In the
case of a bank holding company applying for approval to acquire a bank or other
bank holding company or to become a "financial 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. A less than satisfactory CRA rating will slow, if not preclude
the expansion of banking activities, however, the Banks each received a
satisfactory rating upon recent examinations.
The recently enacted GLB Act makes various changes to the CRA. Among
other changes, CRA agreements with private parties must be disclosed and annual
CRA reports must be made to a bank's primary federal regulator. A bank holding
company will not be permitted to become a financial holding company and no new
activities authorized under GLB may be commenced by a holding company or by a
bank financial subsidiary if any of it bank subsidiaries received less than a
"satisfactory" CRA rating in its latest CRA examination.
The Banks also are subject to, among other things, 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 familial status in the aspect of a consumer or
commercial credit or residential real estate transaction. Based on 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 the federal banking agencies in April 1994 issued an Interagency
Policy Statement on Discrimination in Lending in order to provide guidance to
financial institutions in determining whether discrimination exists, how the
agencies will respond to lending discrimination, and what steps lenders might
take to prevent discriminatory lending practices. The DOJ also has increased its
efforts to prosecute what it regards as violations of the ECOA and FHA.
Payment Of Dividends - The Company is a legal entity separate and
distinct from its banking and other subsidiaries. The prior approval of the FDIC
is required if the total of all dividends declared by a state non-member bank
(such as the Banks) 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 if its surplus is less than 50%
of its paid-in capital stock.
The Company and the Banks are subject to various general regulatory
policies and requirements relating to the payment of dividends, including
requirements to maintain adequate capital above regulatory minimums. The
appropriate federal regulatory authority is authorized to determine under
certain circumstances relating to the financial condition of a state non-member
bank or 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. The FDIC and
the Federal Reserve have each indicated that financial depository institutions
and their holding companies, respectively, should generally pay dividends only
out of current operating earnings.
Capital - The Federal Reserve and the FDIC have risk-based capital
guidelines for bank holding companies and state non-member banks, respectively.
These guidelines require a minimum ratio of capital to risk-weighted assets
(including certain off-balance-sheet activities, such as standby letters of
credit) of 8%. At least half of the total capital must consist of Tier I
capital, which includes common equity, retained earnings and a limited amount of
qualifying preferred stock, less goodwill and certain core deposit intangibles
("Tier I capital"). The remainder, or Tier II capital, may consist of
non-qualifying preferred stock, qualifying subordinated, perpetual, and/or
mandatory convertible debt, term subordinated debt and intermediate term
preferred stock and up to 45% of pretax unrealized holding gains on
available-for-sale equity securities with readily determinable market values
that are prudently valued, and a limited amount of any loan and lease loss
allowance (up to 1.25% of risk-weighted assets). The sum of Tier I capital and
Tier II capital equals Total capital.
In addition, the Federal Reserve and the FDIC have established minimum
leverage ratio guidelines for bank holding companies and state non-member banks,
which provide for a minimum leverage ratio of Tier I capital to adjusted average
quarterly assets ("leverage ratio") equal to 3%, plus an additional cushion of
1.0% - 2.0%, if the institution has less than the highest regulatory rating. The
guidelines also provide that institutions experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Higher capital may be required in individual cases, depending upon a
bank holding company's risk profile. All bank holding companies and banks are
expected to hold capital commensurate with the level and nature of their risks
including the volume and severity of their problem loans. Lastly, the Federal
Reserve's guidelines indicate that the Federal Reserve will continue to consider
a "Tangible Tier I leverage ratio" (deducting all intangibles) in evaluating
proposals for expansion or new activity. The Federal Reserve, the FDIC or the
Commissioner have not advised the Company or the Banks of any specific minimum
leverage ratio or tangible Tier I leverage ratio applicable to them.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), among other things, requires the federal banking agencies to take
"prompt corrective action" regarding depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: (i) "well
capitalized"; (ii) "adequately capitalized"; (iii) "undercapitalized"; (iv)
"significantly undercapitalized"; and (v) "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 I 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 I capital
ratio of 6% or greater, a leverage ratio of 5% or greater, and is not subject to
any written agreement, order, capital directive, or prompt corrective action
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% of greater, a Tier I capital ratio of 4% or greater,
or a leverage ratio of 4% or greater (3% in certain circumstances); (iii)
undercapitalized if it has a Total capital ratio of less than 8%, a Tier I
capital ratio of less than 4% (3% in certain circumstances); (iv) significantly
undercapitalized if it has a Total capital ratio of less than 6%, or a Tier I
capital ratio of less than 3%, or a leverage ratio of less than 3%; or (v)
critically undercapitalized if its tangible equity is equal to or less than 2%
of average quarterly tangible assets.
As of December 31, 1999, the consolidated capital ratios of the Company
and the Banks were as follows:
<TABLE>
<CAPTION>
Regulatory Lincoln Cabarrus Community
Minimum Company Bank Bank Bank
<S> <C> <C> <C> <C> <C>
Tier I Capital ratio 4.0% 11.9% 11.0% 10.2% 12.7%
Total Capital ratio 8.0% 13.1% 12.3% 11.5% 14.0%
Leverage ratio 3.0 - 5.0% 8.3% 8.4% 7.7% 6.6%
</TABLE>
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, 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
federal regulatory agencies deem appropriate.
FDICA 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 necessary to bring the
institution into balance with applicable capital standards. If a depository
institution fails to submit an acceptable plan, it is treated as if it 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 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, requirements 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. Because the Company and the Banks exceed applicable
capital requirements, the respective management of the Company and the Banks do
not believe that the provisions of FDICIA have had any material impact on the
Company and the Banks or their respective operations.
FDICIA also contains a variety of other provisions that may affect the
operations of the Company and the Banks, including reporting requirements,
regulatory standards for real 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 a prohibition on the
acceptance or renewal of brokered deposits by depository institutions that are
not well capitalized or 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.
Enforcement - Policies And Actions The Federal Reserve, the FDIC and
the Commissioner monitor compliance with laws and regulations. Violations of
laws and regulations, or other unsafe and unsound practices, may result in these
agencies imposing fines or penalties, cease and desist orders, or taking other
enforcement actions. Under certain circumstances, these agencies may enforce
these remedies directly against officers, directors, employees and others
participating in the affairs of a bank or bank holding company.
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 the interest
received by a bank on its loans and securities holdings, constitutes the major
portion of a bank's earnings. Thus, the earnings and growth of the Company and
the Banks 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 the Company and its subsidiaries cannot be predicted.
FDIC Insurance Assessments - The Banks are subject to FDIC deposit
insurance assessments. Lincoln Bank's and Community Bank's deposits are
primarily insured by BIF. Having converted from a thrift charter, Cabarrus
Bank's deposits are insured by SAIF. The FDIC assesses deposits under a
risk-based premium schedule. Each financial institution is assigned to one of
three capital groups: (i) "well capitalized"; (ii) "adequately capitalized"; or
(iii) "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, therefore, depends in part upon the risk assessment classification
so assigned to the institution by the FDIC.
The FDIC's Board of Directors has continued the 1999 BIF and SAIF
assessment schedule of zero to 27 basis points per annum for the first
semiannual period of 2000. The Deposit Insurance Funds Act of 1996 (the "Funds
Act") authorized FICO to levy assessments through the earlier of December 31,
1999 or the merger of BIF and SAIF, on BIF-assessable deposits at a rate equal
to one-fifth of the FICO assessment rate applied to SAIF deposits. The FICO
assessments are set quarterly and in 1999 ranged from 1.16 and 6.10 basis points
for BIF and SAIF, respectively, in the first quarter of 1999, to 1.22 to 5.80
basis points in the last quarter of 1999. These assessment rates are 2.10 basis
points for both BIF and for SAIF, for the first quarter of 2000. During the
years ended December 31, 1999, and 1998, the Banks paid no insurance deposit
premiums, but paid $130,321 and $132,297 of FICO assessments in 1999 and 1998,
respectively.
Legislative And Regulatory Changes - 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 executive branch of the federal government, Congress and
various state governments, including North Carolina. 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 proposals will be
adopted, and if adopted, how these proposals will affect the Company and the
Banks.
Personnel
As of December 31, 1999, the Company and its subsidiaries employed 311
full-time equivalent employees.
Item 2. Properties
The Company's principal executive office is located at 236 East Main
Street, Lincolnton, North Carolina. The Company leases four branch offices of
Cabarrus Bank, five branch offices of Lincoln Bank and two branch offices of
Community Bank; however, the Company owns all other branch locations, the
Company's operation center located at 207 South Popular Street in Lincolnton,
North Carolina, an office building located at 112 South Laurel Street in
Lincolnton, North Carolina and an office building located at 430 East Main
Street in Lincolnton, North Carolina. Lincoln Bank currently leases the
principal executive office building in Lincolnton, North Carolina from D. Mark
Boyd, III, the Company's former Chairman and Chief Executive Officer, and his
wife, Diane Boyd. The buildings of Lincoln Bank were purchased beginning in 1983
and have been renovated as necessary to accommodate the Company's needs. The
buildings of Cabarrus Bank were acquired as a result of the acquisition of
Cabarrus Savings Bank in 1992 and Community Bank's buildings were purchased in
1998 as a result of the acquisition of Community Bank. For Cabarrus Bank, the
Kannapolis branch building is leased from Atlantic American Properties, Inc. in
Kannapolis, and the Super-K Kmart branch is leased from International Banking
Technologies, Inc. For Lincoln Bank, the SouthPark branch building is leased
from Colony Associates Limited Partnership, and the Troutman branch is leased
from Vernon and Jackie Overcash. For Community Bank, the Black Mountain branch
building and the Brevard branch building are leased from Bank of America. Other
properties are leased with options to renew. At December 31, 1999, the company
had net book values of $3,029,395 for land, $6,832,977 for buildings and
improvements and $2,810,066 for furniture, fixtures and equipment.
Item 3. Legal Proceedings
The Company understands that its former Chairman and Chief Executive
Officer, D. Mark Boyd, III, entered a negotiated plea of guilty upon the advice
of counsel pursuant to the principles of North Carolina vs. Alford, 400 U.S. 25,
of two Misdemeanor Statements of Charges regarding his solicitation of the
Company and one of his sons to violate the antifraud provisions of the North
Carolina Securities Act, ending the pending criminal indictments against him in
connection with certain purchases of Community Bank shares prior to the
acquisition of that bank by the Company in 1998. See "Legal Proceedings" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
The Company incurred costs of approximately $16,000 and $215,000
through year-end 1999 and 1998, respectively, in connection with issues related
to Mr. Boyd's purchases of Community Bank shares.
The Federal Reserve has advised the Company that as a result of Mr.
Boyd's transactions, it should not expect to receive expedited processing of any
expansion applications submitted under the BHC Act. The Company's compliance
with the conditions and commitments related to Mr. Boyd that were given in
connection with the acquisition of Community Bank will be reviewed as part of
the Federal Reserve's examinations of the Company. The Company and its
subsidiaries also may be subject to closer regulatory scrutiny as a result of
Mr. Boyd's transactions in Community Bank shares.
In January 1999, the Company was advised by the United States
Securities and Exchange Commission ("SEC") that it had begun an informal inquiry
that the Company believes relates to Mr. Boyd's purchases of Community Bank
shares. The Company has been cooperating with the SEC, and officers of the
Company and its subsidiaries have either provided voluntary testimony to, or
have been interviewed by the SEC. The SEC inquiry is continuing. The Company has
insufficient information to evaluate the scope of the SEC's informal inquiry,
and the timing and outcome of this inquiry cannot be predicted.
Item 4. Submission Of Matters To A Vote Of Shareholders
No matter was submitted to a vote of the shareholders of the Company,
through the solicitation of proxies, or otherwise, during the fourth quarter of
the fiscal year ended December 31, 1999.
Item 5. Market For The Registrant's Common Stock And Related Shareholder
Matters
Carolina First common stock is quoted on the Nasdaq National Market
under the symbol "CFBI." Carolina First common stock was traded in the
over-the-counter market and was quoted in the "pink sheets" under the symbol
"CAFB" until April 22, 1999. The following table sets forth, for the indicated
periods and adjusted for the 10% stock dividend declared in June 1999, the high
and low closing sale prices for Carolina First common stock as reported at the
regular close on the Nasdaq National Market, and the high and low bid quotations
as reported in The Charlotte Observer, as applicable. The quotations in The
Charlotte Observer reflect inter-dealer prices without markup, markdown or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Cash Dividends
Quarter Ended High Low Per Share
- ------------------------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
March 31, 1999 $25.45 $22.73 $.09
June 30, 1999 $24.55 $20.45 $.09
September 30, 1999 $28.00 $17.00 $.10
December 31, 1999 $35.00 $19.75 $.10
March 31, 1998 $28.18 $25.45 $.07
June 30, 1998 $30.91 $28.18 $.07
September 30, 1998 $30.91 $30.91 $.08
December 31, 1998 $30.91 $22.73 $.09
</TABLE>
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and the accompanying notes
presented elsewhere herein. Prior year information has been restated to reflect
the 1998 merger with Community Bank. Cash dividends have not been restated for
the merger.
All per share amounts reflect, for all years presented, the 5% stock
dividend paid on December 22, 1995, the 5-for-4 stock split effected on August
23, 1996, the 2-for-1 stock split effected on August 22, 1997 and the 10% stock
dividend effected on July 23, 1999.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings
Interest income $57,554,154 $52,051,833 $45,236,993 $39,128,283 $32,820,087
Interest expense 23,030,418 22,070,734 19,572,746 17,009,779 14,522,348
Net interest income 34,523,736 29,981,099 25,664,247 22,118,504 18,297,739
Provision for possible loan losses 1,655,200 1,365,000 997,333 1,178,925 710,200
Net income 8,775,805 6,708,929 6,720,785 5,220,774 4,393,563
Per Share
Net income per share - basic $1.47 $1.14 $1.20 $0.94 $0.84
Net income per share - diluted 1.45 1.11 1.18 0.94 0.84
Cash dividends per share 0.38 0.31 0.25 0.19 0.16
Shareholders' equity (book value) 10.99 10.44 9.59 7.96 7.22
Balance Sheet Data at Year End
Total assets 786,098,584 731,626,244 618,076,746 520,227,733 459,157,713
Loans 541,539,925 476,109,833 404,025,180 361,888,469 299,223,658
Allowance for possible loan losses 7,662,823 6,723,516 5,837,328 5,313,424 4,406,705
Securities 187,162,010 187,690,188 159,387,578 110,250,169 113,264,241
Deposits 666,979,656 652,602,570 545,050,400 463,971,919 413,611,684
Shareholders' equity 65,971,242 61,977,731 56,210,800 44,464,067 40,237,599
Ratios
Return on average assets 1.16% 1.00% 1.18% 1.07% 1.08%
Return on average equity 13.51% 11.55% 13.98% 12.56% 12.37%
Average equity to average assets 8.56% 8.67% 8.47% 8.49% 8.72%
Allowance for loan losses to loans,
net of unearned income 1.42% 1.41% 1.44% 1.47% 1.47%
Dividend payout 25.85% 27.20% 21.21% 20.39% 19.57%
</TABLE>
Quarterly Financial Data
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
1999 December 31, September 30, June 30, March 31,
<S> <C> <C> <C> <C>
Interest income $15,079 $14,693 $14,125 $13,657
Interest expense 5,953 5,652 5,710 5,715
---------- ----------- ---------- ----------
Net interest income 9,126 9,041 8,415 7,942
Provision for loan losses 485 440 347 383
Noninterest income 1,897 2,120 2,053 1,954
Noninterest expense 7,912 6,928 6,728 6,420
Income taxes 890 1,244 1,003 993
---------- ----------- ---------- ----------
Net income $1,736 $2,549 $2,390 $2,100
========== =========== ========== ==========
Shares outstanding:
Average - basic 5,988,692 5,982,252 5,984,536 5,972,918
Average - diluted 6,081,239 6,066,323 6,067,227 6,066,867
At quarter end 6,000,127 5,984,144 5,438,225 5,438,567
Per Common Share
Net income - basic $0.29 $0.43 $0.40 $0.35
Net income - dilute 0.29 0.42 0.39 0.35
Three Months Ended
-------------------------------------------------------------------------------------------
1998 December 31, September 30, June 30, March 31,
For the Quarter
Interest income $13,633 $13,381 $12,844 $12,194
Interest expense 5,815 5,568 5,464 5,224
---------- ----------- ---------- ----------
Net interest income 7,818 7,813 7,380 6,970
Provision for loan losses 485 370 301 209
Noninterest income 2,163 2,007 2,072 1,806
Noninterest expense 7,741 6,287 6,022 5,805
Income taxes 1,010 1,078 1,086 926
---------- ----------- ---------- ----------
Net income $745 $2,085 $2,043 $1,836
========== =========== ========== ==========
Shares outstanding:
Average - basic 5,934,070 5,927,135 5,906,784 5,867,433
Average - diluted 6,072,055 6,074,249 6,073,826 6,019,023
At quarter end 5,396,736 5,390,858 5,382,131 5,356,000
Per Common Share
Net income - basic $0.13 $0.35 $0.35 $0.31
Net income - diluted 0.12 0.34 0.34 0.31
</TABLE>
Item 7. Management's Discussion And Analysis of Financial Condition And Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and related notes and other information
appearing elsewhere in this Annual Report. The Company's operations are treated
as a single business segment. The Company consummated one merger in 1998, which
has been accounted for as a pooling-of-interests. In accordance with the
accounting for pooling-of-interests, the financial statements of the Company
have been restated to reflect the respective merger as if it had been effective
as of the earliest period presented.
General
The Company owns all the outstanding stock of three commercial banks,
Lincoln Bank, Cabarrus Bank and Community Bank. The Banks are North
Carolina-chartered commercial banks that are members of the FDIC. Cabarrus Bank
is also a member of the Federal Home Loan Bank of Atlanta ("FHLB"). The primary
business of the Banks includes retail and commercial banking and mortgage
lending. Jointly, the Banks own a mortgage company, Carolina First Mortgage
Corp. ("Mortgage"), which originates mortgage loans for resale in the secondary
market, and a financial services company, Carolina First Financial Services
Corporation, ("Financial Services"), which offers, as agent for its customers,
mutual funds and annuity products. Financial Services began business in October
1994 and Mortgage began business in February 1993. During 1999 Lincoln Bank
established a Delaware holding company, CFBI Corp. which owns CFBI Mortgage,
which holds a significant portion of Lincoln Bank's real estate mortgage loans.
Lincoln Bank, which commenced operations in 1983, currently operates in
18 offices located in 12 communities in areas primarily to the north and west of
Charlotte, North Carolina with three offices in southeast Charlotte. It is
anticipated that as a result of the merger with First Charter Corporation, 3
branch offices of Lincoln Bank will be consolidated into existing First Charter
Corporations offices. Lincoln Bank had assets of $511 million at December 31,
1999.
Cabarrus Bank was organized in 1889 as Cabarrus Savings Bank. In
January 1992, the Company acquired Cabarrus Savings, and in October 1992,
Cabarrus Savings was converted from a state savings bank to a commercial bank.
Cabarrus Bank operates six full service branches in Cabarrus County. It is
anticipated that as a result of the merger with First Charter Corporation, 3
branch offices of Cabarrus Bank will be consolidated into existing First Charter
Corporations offices. Cabarrus Bank had assets of $172 million at December 31,
1999.
Community Bank was organized in 1987 and acquired by the Company in
December 1998. Community Bank operates seven branches in Marion, Rutherfordton,
Forest City, Sylva, Banner Elk, Black Mountain and Brevard, North Carolina.
Community Bank had assets of $111 million at December 31, 1999.
The Company also owns approximately 13% of the total common stock of
First Gaston Bank of North Carolina, Gastonia, North Carolina ("First Gaston").
First Gaston opened in July 1995 and operates three branches in markets
contiguous to Lincoln Bank's markets. (Certain operational functions are
provided for First Gaston by Carolina First and it is anticipated that these
services to First Gaston will be terminated in the second quarter of 2000.) The
Federal Reserve, under the BHC Act, has required Carolina First to enter into a
commitment to serve as a source of strength for First Gaston. The Company's
investment in First Gaston is accounted for under the equity method of
accounting and thus its portion of income or losses is reflected in current
period earnings. During 1999, the Company recognized income, net of applicable
income taxes, of $77,567. See "Supervision and Regulation."
In 1997 the Company purchased three branches and related deposits. In
1998 the Company purchased one branch and related deposits, and acquired
Community Bank through a tax-free exchange of stock whereby each outstanding
share of Community Bank was exchanged for 0.72716 of a share of the Company's
common stock. The transaction was accounted for under the pooling-of-interests
method of accounting.
On November 7, 1999, First Charter Corporation ("FCC") and the Company
entered into an Agreement and Plan of Merger, pursuant to which Carolina First
will be merged into FCC and each share of the Company common stock will be
converted into the right to receive 2.267 shares of FCC common stock. The merger
is expected to close in the second quarter of 2000, subject to a number of
conditions, including approval of regulatory authorities and by the stockholders
of Carolina First and FCC.
Results Of Operations
In 1999, earnings were $8.8 million or $1.45 per share on a fully
diluted basis, a 31% increase over 1998. Earnings were $6.7 million, or $1.11
per share on a fully diluted basis in 1998, an 0.18% decrease from 1997. The
decrease in earnings in 1998 as compared to 1997 resulted from merger expenses
in connection with the acquisition of Community Bank in December 1998. The
Company's strong growth in consumer and small commercial customers is the
primary reason for the increase in 1999 net income. The growth in current
markets has been achieved by growth in existing branches, de novo branches and
acquisitions of deposits from competitors as they divest branch sites.
The Company's primary source of income is net interest income, which is
the difference between interest earned and interest paid. The net interest
margin is calculated as net interest income as a percentage of average earning
assets. The growth within the counties served by the Banks has significantly
outpaced the overall growth within North Carolina. Such positive demographics
translate into increased opportunities for building banking relationships which
enhance deposit and loan growth.
Net interest income as a percentage of average earning assets was 4.96%
in 1999, compared to 4.89% in 1998 and 5.00% in 1997. Interest income as a
percentage of average earning assets, which is substantially comprised of
interest received from loans and to a lesser degree the interest earned on the
Company's securities portfolios decreased from 8.46% in 1998 to 8.24% in 1999.
Interest expense, which is primarily the amount of interest paid to depositors,
has decreased to 3.88% in 1999 from 4.22% in 1998. Interest rates declined
generally in 1998 and increased in the second half of 1999. Changes in interest
rates affect variable rate loans almost immediately causing a change in net
interest margin. With the passage of time interest expense will follow the trend
and the net interest margin should return to traditional levels, subject to
competitive pressures. The rate earned on assets and the rate paid on
liabilities is expected to continue to be influenced by competition for solid
customers as well as economic conditions and governmental fiscal and monetary
policies.
The increase in the Company's monthly provision for loan losses is
based on the results of a monthly analysis of the allowance for loan losses.
This judgmental analysis is based upon a model that considers the current status
of the loan portfolio, historical experience and the key market indicators
within the counties served by the Company. Additionally, the Company monitors
the overall portfolio as well as current economic conditions and other factors
which affect the allowance. The monthly provision for loan losses fluctuates
based on the results of this analysis.
Noninterest income decreased slightly by .30% in 1999 as compared to
1998, resulting from losses incurred on the sale of securities. This decrease
was prompted by management's decision to sell certain securities which would
incur realized losses at the time of the transaction. In 1998, noninterest
income increased 19.0% over 1997. Our growth in deposit accounts led the way for
this increase. Additionally, Cabarrus Bank has been successful in changing from
a thrift with few deposit service charges to that of a commercial bank with fees
for services rendered. Insurance commissions relate to the fees generated by
Financial Services from the sale of annuity products and mutual funds, which
totaled $634,546 in 1999 compared to $603,025 in 1998 and $725,474 in 1997. The
decrease from 1997 to 1998 was due to the restructuring of Financial Services
and the transition to outsourcing the sales department to a new third party
vendor. Other income increased 27%, or approximately $ 317,000, compared to 1998
due to an increase in customer base and debit card usage volume. Also included
in other income are fees of $137,814 generated from services provided to First
Gaston. These services include account operations, item processing, bookkeeping
and internal auditing that are terminable by either party. It is anticipated
that these services to First Gaston will be terminated during the second quarter
of 2000.
Operating expenses decreased as a percentage of average assets in 1997,
1998 and 1999, but total operating expenses increased because of the additional
outsourcing of various data processing functions in 1999 and the growth
experienced from 1997 to 1998. Specifically, four new branch locations were
opened during 1997 and another four locations were opened in 1998. One method of
improving operating efficiencies is through the use of technology. Expenses
associated with technology are included in equipment expense and represent
capital outlays of $230,323 and $740,923 in 1999 and 1998, respectively
(excluding approximately $25,000 and $28,202, in 1999 and 1998, respectively, of
Year 2000 expenses).
The Company's operating efficiency ratio, which is the ratio of
operating expenses to net interest income and noninterest income, has continued
to improve, falling from 71% in 1993 to 66% in 1999, notwithstanding transaction
costs related to acquisitions and market expansion.
Year 2000 Issue
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates that have been
sorted as two digits rather than four (e.g., "99" for "1999"). On January 1,
2000, any clock or date recording the year may have recognized a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruption of operations, including, among other
things, a temporary inability to process transactions, send invoices or perform
similar tasks.
The Company had recognized the scope and potential problems that
required a comprehensive Year 2000 compliance program. The Company had adopted a
plan of action and over a period of 2 1/2 years implemented the plan to assure
minimal disruptions to its various activities and operations that could be
experienced as a result of the century date rollover. Due to this high level of
preparedness, the Company experienced no disruptions at December 31, 1999.
There remains six dates which have been identified as potentially
causing system problems. The Company tested the dates during the testing phase
of its Year 2000 plan and anticipates no problems related to the dates.
The Company budgeted expenses of approximately $25,000 to modify its
information systems to accurately process information for the year 2000 and
beyond. The Company incurred costs of less than $75,000 in 1999 and $28,202 in
1998 related to systems testing, review and testing of contingency plans. The
Company does not anticipate any further material costs associated with the year
2000 issue.
Asset/Liability Management
The regular evaluation of the sensitivity of net interest income to
changes in interest rates is an integral part of the Company's interest rate
risk management.
The following table summarizes net interest income and average yields
and rates paid for the years indicated. For purposes of this analysis, the
interest on non-taxable investment securities has been adjusted to a
taxable-equivalent amount to facilitate comparison with other asset yields. The
adjustment gives effect to the exemption from federal income taxes for earnings
on obligations of state and political subdivisions and assumes a marginal tax
rate of 34%. Non-accrual loans are excluded from the interest-earning loan
balances shown.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ------------------------------ ----------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
----------- --------- -------- --------- --------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest bearing deposits
in other banks $625 $45 7.20% $714 $43 6.02% $574 $56 9.76%
Taxable securities 190,318 11,075 5.82% 162,674 9,555 5.87% 121,499 7,335 6.04%
Non-taxable securities 8,204 623 7.59% 5,569 500 8.98% 6,972 722 10.36%
Federal funds sold 7,081 367 5.18% 24,772 1,276 5.15% 15,117 818 5.41%
Loans 494,732 45,656 9.23% 423,246 40,848 9.65% 373,910 36,552 9.78%
----------- --------- --------- --------- -------- ---------- --------- --------
Interest earning assets 700,960 57,766 8.24% 616,975 52,222 8.46% 518,072 45,483 8.78%
--------- -------- --------- -------- --------- --------
Other assets 57,780 53,004 49,461
----------- --------- ----------
$758,740 $669,979 $567,533
=========== ========= ==========
Liabilities and Shareholders' Equity
Interest bearing deposits
Demand $173,084 $3,554 2.05% $145,141 $3,341 2.30% $125,583 3,028 2.41%
Savings 67,326 1,389 2.06% 61,516 1,426 2.32% 55,459 1,425 2.57%
Time 327,765 16,786 5.12% 306,807 16,805 5.48% 266,301 14,769 5.55%
Notes payable and other
interest bearing liabilities 24,989 1,301 5.21% 9,084 499 5.49% 7,221 351 4.86%
----------- --------- -------- --------- --------- -------- ---------- --------- --------
Interest bearing liabilities 593,164 23,030 3.88% 522,548 22,071 4.22% 454,564 19,573 4.31%
--------- -------- --------- -------- --------- --------
Other liabilities 100,617 89,362 64,900
Shareholders' equity 64,959 58,069 48,069
----------- --------- ----------
Total liabilities and
shareholders' equity $758,740 $669,979 $567,533
=========== ========= ==========
Interest rate spread 4.36% 4.24% 4.47%
======== ======== ========
Net interest earned and
net yield on earning
assets (Margin) $34,736 4.96% $30,151 4.89% $25,910 5.00%
========= ======== ========= ======== ========= ========
</TABLE>
The following table presents the dollar amount of changes in interest
income and interest expense on a taxable-equivalent basis. The table
distinguishes between the changes related to average outstanding (volume) of
earning assets and interest-bearing liabilities, as well as the changes related
to average interest rates (rate) on such assets and liabilities. Changes
attributable to both volume and rate have been allocated to change in volume.
<TABLE>
<CAPTION>
1999 1998 1997
Income/ Income/ Income/
Expense Volume Rate Expense Volume Rate Expense
----------- ---------- --------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits in other banks $45 ($6) $8 $43 $8 ($21) $56
Taxable investment securities 11,075 1,609 (89) 9,555 2,419 (199) 7,335
Non-taxable investment securities 623 200 (77) 500 (126) (96) 722
Federal funds sold and securities purchased
with agreements to resell 367 (917) 8 1,276 497 (39) 818
Loans 45,656 6,597 (1,789) 40,848 4,761 (465) 36,552
----------- ---------- --------- ------------ ----------- --------- -----------
Total interest income 57,766 7,483 (1,939) 52,222 7,559 (820) 45,483
=========== ========== ========= ============ =========== ========= ===========
Interest bearing liabilities:
Interest bearing demand deposits 3,554 574 (361) 3,341 450 (137) 3,028
Savings deposits 1,389 120 (157) 1,426 140 (139) 1,425
Time deposits 16,786 1,073 (1,092) 16,805 2,219 (183) 14,769
Notes payable and other interest bearing
liabilities 1,301 828 (26) 499 102 46 351
----------- ---------- --------- ------------ ----------- --------- -----------
Total interest expense 23,030 2,595 (1,636) 22,071 2,911 (413) 19,573
----------- ---------- --------- ------------ ----------- --------- -----------
Net interest income $34,736 $4,888 ($303) $30,151 $4,648 ($407) $25,910
=========== ========== ========= ============ =========== ========= ===========
</TABLE>
Financial institutions are subject to interest rate risk to the degree
that their interest bearing liabilities (consisting principally of customer
deposits) mature or reprice more or less frequently, or on a different basis,
than their interest earning assets (generally consisting of intermediate or
long-term loans and investment securities). The match between the scheduled
repricing and maturities of the Company's earning assets and liabilities within
defined time periods is referred to as "gap" analysis. At December 31, 1999, the
cumulative one-year gap for the consolidated Company was a negative $88.0
million, or 11.20% of total assets. At December 31, 1999, the cumulative
five-year gap was a negative $89.3 million, or 11.36% of total assets. A
negative gap means that liabilities would reprice faster than assets if interest
rates changed. Accordingly, an increase in rates would adversely affect the
Company's earnings. The Company's one-year and five-year cumulative gap would
result in a change of $1,120,000 and $1,136,000, respectively, with a one-
percent change in interest rates. As interest rates declined during 1998,
depositors were unwilling to extend the maturity of time deposits, as the yield
curve was somewhat flat and did not reward depositors sufficiently for longer
maturities. As interest rates increased during 1999, depositors continued to
favor shorter-term deposits and thus margins did not suffer as a negative gap
would anticipate. Intense competition in the Company's markets continues to
pressure quality loan rates downward while conversely pressuring deposit rates
upward.
The following table reflects the Company's rate sensitive assets and
liabilities by maturity as of December 31, 1999. Variable rate loans are shown
in the category of due "within one year" because they reprice with changes in
the prime-lending rate. These variable rate loans have actual maturities of
$30.6 million maturing within one year, with an additional $30.5 million
maturing within five years, and $52.0 million maturing after five years. Fixed
rate loans are presented assuming the entire loan matures on the final due date.
Actually, payments are made at regular intervals and are not reflected in this
schedule. Additionally, demand deposits and savings accounts have no stated
maturity, however, it has been the Company's experience that these accounts are
not totally rate sensitive, and thus, are presented in the categories that
management believes best identifies their actual repricing patterns. This
analysis assumes 20% of these deposits reprice within one year and the remaining
80% within one to five years.
<TABLE>
<CAPTION>
Within 1 - 5 Over Non-
Assets: Prime Loans One Year Years 5 Years Market Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury $-- $1,001 $995 $-- $-- $1,996
U.S. government agencies -- -- -- 7,831 -- 7,831
States and political subdivisions -- 220 1,271 7,097 -- 8,588
Mortgage-backed securities -- -- 2,326 15,342 -- 17,668
------------- ----------- ----------- ----------- ----------- -----------
Total securities held to maturity -- 1,221 4,592 30,270 -- 36,083
Securities available for sale:
U.S. Treasury -- 14,509 1,007 -- -- 15,516
U.S. government agencies -- 18,460 85,208 12,654 -- 116,322
Mortgage-backed securities -- -- -- 18,152 -- 18,152
Other (1) -- -- -- -- 1,089 1,089
------------- ----------- ----------- ----------- ----------- -----------
Total securities available for sale -- 32,969 86,215 30,806 1,089 151,079
Loans:
Commercial and financial 28,813 6,227 27,335 7,310 -- 69,685
Real estate:
Construction 36,388 8,478 7,387 11,269 -- 63,522
Mortgage (2) 111,416 10,490 106,874 114,794 -- 343,574
Consumer (3) 4,930 11,530 45,327 2,864 108 64,759
------------- ----------- ----------- ----------- ----------- -----------
Total loans 181,547 36,725 186,923 136,237 108 541,540
Other (4) -- -- -- -- 439 439
------------- ----------- ----------- ----------- ----------- -----------
Total earning assets 181,547 70,915 277,730 197,313 1,636 729,141
Noninterest-earning assets -- -- -- -- 56,958 56,958
------------- ----------- ----------- ----------- ----------- -----------
Total assets $181,547 $70,915 $277,730 $197,313 $58,594 $786,099
============= =========== =========== =========== =========== ===========
Liabilities and Shareholders' Equity:
Deposits:
Interest-bearing checking $-- $10,752 $43,006 $-- $-- $53,758
Savings -- 13,272 53,086 -- -- 66,358
Market deposit accounts -- 26,125 104,502 -- -- 130,627
Time, $100,000 and over -- 70,040 15,813 -- -- 85,853
Other time (5) -- 170,308 62,632 27 -- 232,967
------------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing deposits -- 290,497 279,039 27 -- 569,563
Borrowed funds -- 49,440 -- -- -- 49,440
Other liabilities -- 535 -- 69 -- 604
------------- ----------- ----------- ----------- ----------- -----------
Total interest-bearing liabilities -- 340,472 279,039 96 -- 619,607
Noninterest-bearing liabilities -- -- -- -- 100,521 100,521
Shareholders' equity -- -- -- -- 65,971 65,971
------------- ----------- ----------- ----------- ----------- -----------
Total liabilities and shareholders'
equity -- 340,472 279,039 96 166,492 786,099
============= =========== =========== =========== =========== ===========
Gap $181,547 ($269,557) ($1,309) $197,217 ($107,898) --
============= =========== =========== =========== =========== ===========
Cumulative Gap $181,547 ($88,010) ($89,319) $107,898 -- --
============= =========== =========== =========== =========== ===========
Exclude noninterest-earning assets,
noninterest-bearing liabilities and
shareholders' equity -- -- -- -- 95,002 --
-----------------------------------------------------------------------------
Adjusted cumulative gap $181,547 ($88,010) ($89,319) $107,898 $95,002 --
============= =========== =========== =========== =========== ===========
</TABLE>
(1) The nonmarket column consists of Federal Home Loan Bank stock, mutual
funds, and Peoples Bank stock.
(2) Mortgage loans consist primarily of residential loans, and home equity
lines of credit.
(3) The nonmarket column consists of overdrafts.
(4) The nonmarket column consists of interest-bearing deposits due from
other banks.
(5) Other time deposits within one year consists of $37,164, maturing
within three months and $40,843 maturing after three months but within
six months.
Liquidity
Liquidity refers to the Company's ability to meet the needs of daily
operations. The Company relies primarily on dividends and management fees from
the Banks for liquidity. These sources have provided adequate liquidity for the
Company. The Banks' liquidity refers to the ability or financial flexibility to
adjust its future cash flows to meet the withdrawal needs of depositors, and to
fund loans to borrowers and operations on a timely and cost effective basis. The
Banks' primary sources of funds are cash generated by repayments of outstanding
loans, interest payments on loans and new deposits. Additional liquidity is
available from the maturity and earnings on securities and liquid assets, as
well as the ability to liquidate securities available for sale. The Banks also
had federal fund lines of credit of $36.1 million at year-end under which they
can borrow funds to meet short-term liquidity needs. Lines available for Lincoln
Bank are: through Wachovia Bank, $2 million, The Banker's Bank, Atlanta,
Georgia, $5 million and Bank of America, $10 million. Cabarrus Bank has
unsecured lines available through the FHLB of $18.9 million and Bank of America
of $5 million. Community Bank has unsecured lines available through Wachovia of
$1.5 million, Bank of America of $4 million and Compass Bank, Birmingham,
Alabama, of $0.5 million. Borrowed funds also consist of repurchase
transactions. A repurchase transaction is a secured source of funding
characterized by the sale of securities with a simultaneous agreement to
repurchase such securities on an agreed upon future date. At December 31, 1999,
Lincoln Bank and Cabarrus Bank had repurchase transactions totaling $27.3
million at a rate of 6.00%. These sources have been and are presently considered
adequate to provide appropriate liquidity for the Banks.
Net cash provided from operations results primarily from net income,
adjusted for the following noncash accounting items: the provisions for possible
loan losses, depreciation and amortization, and deferred income taxes or
benefits. These items amounted to $3.7 million in 1999 and $3.0 million 1998.
This cash was available during 1999 to increase earning assets and to pay
dividends. As of December 31, 1999, the Banks had combined retained earnings of
approximately $42,129,000 all of which are available to be paid as dividends
without prior regulatory approval, provided the Banks maintain adequate capital.
Financial Condition
The Company's consolidated assets increased 7.45%, 18.3% and 18.8%
during 1999, 1998 and 1997, respectively. Asset growth is directly related to
deposit growth, both internally and through acquisitions, and the funds
available to the Company for investment. The Company has been successful in
expanding existing market share as well as adding new branch locations in prior
years. During 1998 and 1997, the Company purchased approximately $9.0 and $30.0
million, respectively, of deposits accounts pursuant to branch acquisitions.
This acquired growth, as well as the strong growth expected of the Company's
markets has resulted in continued growth for the Company. Deposit growth will
allow the Company to continue to take advantage of the vibrant local economy and
quality loan demand experienced over the past several years.
The Company's commercial loan portfolio has grown over the past several
years as the Company has employed seasoned commercial lenders to develop these
opportunities and the booming Charlotte metropolitan market has facilitated this
growth. Management believes the Company is not dependent on any single customer
or group of customers concentrated in a particular industry, the loss of whose
deposits or whose insolvency would have a material adverse effect on operations.
As interest rates reflect an increasing yield curve, customers have
still continued to select shorter terms for their deposits and in many cases
chose transaction deposit accounts, including interest-bearing and money market
deposit ("MMDA") accounts without a stated maturity. This shift from longer-term
deposits allows the depositor to react more quickly to rising rates. Fluctuating
interest rates and competitive pressure enforce the need for effective asset
liability management.
Securities have been segregated into two categories, "held to maturity"
and "securities available for sale". While the Company has no plans to liquidate
a significant amount of any securities, the securities available for sale may be
used for liquidity purposes should management deem it to be in the best interest
of the Company. Due to increases in interest rates, the majority of securities
purchased have been relatively short term and categorized as available for sale
in anticipation that these would be available to the Company if interest rates
begin to rise or if quality loan demand accelerates. United States government
and government agency securities continue to represent the majority of both
securities held to maturity and securities available for sale. During 1999, the
securities available for sale decreased slightly as a percentage of total assets
compared to 1998 as a result of the use in 1999 of cash received from branch
acquisitions in 1998.
Asset Quality
The allowance for loan losses represents management's assessment of
the risk associated with extending credit and its evaluation of the quality of
the loan portfolio. Management analyzes the loan portfolio to determine the
adequacy of the allowance for loan losses and the appropriate provision required
to maintain a level considered adequate to absorb estimated probable losses in
the loan portfolio. In assessing the adequacy of the allowance, management
reviews the size, quality and risk of loans in the portfolio. Management also
considers such factors as the bank's loan loss experience, the amount of past
due and nonperforming loans, specific known risk, the status and amount of
nonperforming assets, underlying collateral values securing loans, current
economic conditions and other factors which affect the allowance for potential
credit losses. An analysis of the credit quality of the loan portfolio and the
adequacy of the allowance for loan losses is prepared by the Banks' Credit
Administration area and presented to the Loan Committee on a quarterly basis.
The allowance is comprised of both allocated and general reserves.
The allocation of the allowance is based on management's grading of the
loan portfolio and the assignment of risk factors to compute the respective
reserves. All commercial loans or $25,000 and greater are risk rated at
inception, at renewal, and at any point at which management becomes aware of
information that may affect the risk rating (e.g. deterioration in financial
condition, payment delinquency, loss of collateral value). To accomplish this,
an eleven-grade risk rating system, ranging from superior to loss is utilized.
The risk grades assigned are determined based on several elements, including
current and historical financial strength and cash flow of the borrower,
collateral value, terms of financing, and compliance with loan policy.
Additionally, on a semi-annual basis, a historical loss analysis is preformed on
the loan portfolio, utilizing three running years of historical loss experience.
This historical loss information is then utilized to assign reserve factors to
each major segment of the loan portfolio.
For the general reserve, management determines the appropriate level
of general reserve to absorb estimated probable losses in the loan portfolio.
Management considers the Banks' historical loan losses, past due and
non-performing loans, current economic conditions, underlying collateral values
securing loans and other factors which affect the allowance. This evaluation is
heavily dependent upon estimates and appraisals, which are susceptible to rapid
changes because of economic conditions and the economic prospects of borrowers.
The general reserve has increased over the past year. The trend of
loans made over the past several years has been toward larger commercial loans
and as a result, the loan portfolio has had limited historical loss experience
for which to base a specific reserve. Thus the general reserve has been
increased to compensate for loan growth and the lack of historical experience
with the volume of such loans. In addition, nonaccural loans have increased over
the prior year. This also supports the increased level of general reserve.
The Banks' allowances for loan losses are also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance for loan losses and
the size of the allowance for loan losses in comparison to a group of peer banks
identified by the regulators. During their routine examinations of banks, the
Federal Reserve and the Commissioner may require a bank to make additional
provisions to its allowance for loan losses when, in the opinion of the
regulators, credit evaluations and allowance for loan loss methodology differ
materially from those of management. See "Supervision and Regulation."
While it is the Banks' policy to charge off in the current period loans
for which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy,
management's judgment as to the adequacy of the allowance is necessarily
approximate and imprecise.
The following table depicts the allocation of the allowance for loan
losses at December 31, 1999, 1998, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
------------------ ---------------- --------------- -------------- ----------------
1999 1998 1997 1996 1995
------------------ ---------------- --------------- -------------- ----------------
Loan Loan Loan Loan Loan
Percent Percent Percent Percent Percent
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and financial $829 13% $617 14% $182 12% $269 12% $347 10%
Real estate:
Residential construction 126 12 205 11 12 8 157 8 44 5
Commercial construction - - - - - - - - - -
Residential mortgage 336 30 413 35 482 33 511 46 428 40
Commercial mortgage 377 33 347 29 501 34 237 21 338 31
Consumer 1,149 12 986 11 949 13 353 13 356 14
General 4,846 - 4,156 - 3,711 - 3,786 - 2,894 -
-------- ------- -------- ------- ------- ------- -------- -------- --------- -------
Total allowance for possible loan losses $7,663 100% $6,724 100% $5,837 100% $5,313 100% $4,407 100%
======== ======= ======== ======= ======= ======= ======== ======== ========= =======
</TABLE>
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize changes to the
allowance based on their judgement about information available at the time of
examination.
Non-performing assets include non-accrual loans, accruing loans
contractually past due 90 days or more, restructured loans, other real estate,
and other real estate under contract for sale. Loans are placed on non-accrual
status when management has concerns relating to the ability to collect the loan
principal and interest, and generally when such loans are 90 days or more past
due. Interest of $23,000 was reported on these loans during 1999. Non-accrual
loans at December 31, 1999 consists of 55 loans, the largest of which had a
balance of $677,600. Non-accrual loans at December 31, 1998 consists of 61
loans, the largest of which had a balance of $496,000. At December 31, 1999,
impaired loans totaled $2,069,000, of which all were on nonaccrual status, and
their related reserve for loan losses totaled $625,000. The average carrying
value of impaired loans was $1,370,000. At December 31, 1998, impaired loans
totaled $920,000, of which all were on nonaccrual status, and their related
reserve for loan losses totaled $399,000. The average carrying value of impaired
loans was $820,000. The amount of interest income recognized on impaired loans
was not considered material during 1999 or 1998. No amount of loans that have
been classified by regulatory examiners as loss, substandard, doubtful or
special mention has been excluded from amounts disclosed as non-performing
loans. Management believes the current allowance for loan losses is sufficient
to absorb probable losses inherent in the portfolio. No assurance can be given
that adverse economic conditions will not adversely affect borrowers and result
in increased losses.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $2,615 $1,432 $720 $690 $812
Loans 90 days or more past due
and still accruing interest 178 111 152 51 106
----------- ----------- ----------- ----------- -----------
Total non-performing loans 2,793 1,543 872 741 918
Other real estate 221 326 514 144 686
----------- ----------- ----------- ----------- -----------
Total non-performing assets $3,014 $1,869 $1,386 $885 $1,604
</TABLE>
The increase in nonaccrual loans is due to 5 commercial loans totaling
approximately $1,637,000. The Company believes there will be no losses
associated with these loans based on the collateral values, the borrowers'
ability to repay and the allowance for loan losses that has been provided. Net
charge-offs as a percentage of average loans outstanding increased slightly from
.11% in 1998 to .14% in 1999. This ratio, although it increased slightly,
continues to reflect the moderate level of losses experienced by the Company.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $6,724 $5,837 $5,313 $4,407 $3,662
Charge-offs:
Commercial, financial and agricultural (390) (119) (29) (46) (101)
Real estate:
Construction -- -- -- -- --
Mortgage (69) (72) (93) (24) (77)
Consumer (399) (489) (516) (350) (229)
-------- -------- -------- -------- --------
Total charge-offs (858) (680) (638) (420) (407)
Recoveries:
Commercial, financial and agricultural 35 20 41 28 14
Real estate:
Construction -- -- -- -- --
Mortgage 36 51 27 48 87
Consumer 71 131 97 71 95
-------- -------- -------- -------- --------
Total recoveries 142 202 165 147 196
-------- -------- -------- -------- --------
Net charge-offs (716) (478) (473) (273) (211)
Provision for loan losses 1,655 1,365 997 1,179 956
-------- -------- -------- -------- --------
Balance at end of year $7,663 $6,724 $5,837 $5,313 $4,407
======== ======== ======== ======== ========
Loans, net of unearned income at end
of year $541,540 $476,110 $404,025 $361,888 $299,224
Ratio of allowance for loan losses to
loans, net of unearned income
at end of year 1.42% 1.41% 1.44% 1.47% 1.47%
Average loans, net of unearned interest $494,732 $423,246 $373,910 $328,517 $262,685
Ratio of net charge-offs to average loans
outstanding during the year 0.14% 0.11% 0.13% 0.08% 0.08%
</TABLE>
Capital Resources
Banks and bank holding companies, as regulated institutions, must meet
required levels of capital. The FDIC and the Federal Reserve, the primary
Federal regulators for the Banks and the Company, respectively, have adopted
minimum capital regulations or guidelines that categorize components and the
level of risk associated with various types of assets. Financial institutions
are expected to maintain a level of capital commensurate with risk profile
assigned to its assets in accordance with the guidelines. The Company, Lincoln
Bank, Cabarrus Bank and Community Bank all maintain capital levels exceeding the
minimum levels for well-capitalized bank holding companies and banks.
<TABLE>
<CAPTION>
Well The Lincoln Cabarrus Community
Capitalized Company Bank Bank Bank
--------------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Tier I capital to risk adjusted assets 6.0% 11.9% 11.0% 10.2% 12.6%
Total capital to risk adjusted assets 10.0% 13.1% 12.3% 11.5% 14.0%
Leverage ratio 5.0% 8.3% 8.4% 7.7% 6.6%
</TABLE>
Accounting And Regulatory Matters
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. The
Statement is effective for all fiscal quarters beginning after June 15, 2000.
This effective date reflects the deferral provided by Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133", which
defers the earlier effective date specified in SFAS No. 133. The Company has not
yet determined the financial impact of the adoption of SFAS No. 133.
Item 7a. Quantitative And Qualitative Disclosures About Market Risk
Market risk is inherent to all industries and financial institutions'
assets and liabilities all are affected by market risks. The Company considers
credit to be the most significant; however, interest rate risk is a close
second. There are eight risks that must be considered in managing the Company.
These risks are listed in order of the perceived level of risk imposed upon the
Company. The Company does not believe foreign exchange risk to be significant
and thus, does not address it in this assessment. The Company has identified
certain critical risks to the Banks.
Credit Risks. Credit risk is the risk to the Company's earnings or
capital from the potential of an obligator or related group of obligators
failing to fulfill its or their contractual commitments to the bank. Credit risk
is most closely associated with a bank's lending. It encompasses the potential
of loss on a particular loan as well as the potential for loss from a group of
related loans, i.e., a credit concentration. Credit risk extends also to less
traditional bank activities. It includes the credit behind the bank's investment
portfolio, the credit of counterparties to interest rate contracts, and the
credit of securities brokers holding the bank's investment portfolio in street
name.
Interest Rate Risk. Interest rate risk is the risk to earnings or
capital from the potential of movement in interest rates. It is the sensitivity
of the bank's future earnings to interest rate changes. Interest rate risk is
generally measured on the basis of duration analysis or gap analysis. Duration
analysis measures the degree of risk in a particular instrument or portfolio and
gap analysis defines the timing when loss may occur. The Company's policy has
been generally to attempt to achieve a modified duration of 5% and a one-year
cumulative gap of +/- 5% and a one- to five-year cumulative gap of +/- 8%. As of
December 31, 1999, as a result of Board action, the Company determined to
operate with a modified duration of 3.19% and a one-year cumulative gap of
11.20% and a one to five-year cumulative gap of 11.52%. This means that the
Company's assets will reprice faster than it's liabilities, which should
favorably affect earnings in the rising interest rate environmnet that has
existed since mid 1999. The major components of interest rate risk are described
as repricing risk, basis risk, yield curve risk, and options risk. While current
levels are outside of traditional approved levels, the Company is comfortable
with these levels at this particular time and is monitoring levels quarterly.
Price Risk. Price risk is the risk to earnings or capital from changes
in the value of portfolios of financial instruments. Frequently this is referred
to as market risk. Price risk is generally reflected as the risk of a decline in
market value of its securities portfolio and the Company is willing to accept a
7.5% change in value after experiencing a 300 basis point rate shock, either
positive or negative. At December 31, 1999, the price change was less than 8.9%
with such a rate shock. While this price change is outside of the traditional
approved levels the Company is comfortable with this change at this particular
time and is monitoring levels quarterly.
Liquidity Risk. Liquidity risk is the risk to earnings or capital from
the Company's inability to meet its obligations when they come due without
incurring unacceptable losses or costs such as when depositors withdraw their
deposits and the bank does not have the liquid assets to fund the withdrawals
and to meet its loan funding obligations. The risk is particularly great with
brokered deposits of which the Company currently has none.
Transaction Risk. Transaction risk is the risk to earnings or capital
arising from problems with service or product delivery. Transaction risk is the
risk of a failure in a bank's operating processes. It is a risk of failure in a
bank's automation, its employee integrity, or its internal controls.
Compliance Risk. Compliance risk is the risk to earnings or capital
from noncompliance with laws, rules, and regulations.
Strategic Risk. Strategic risk is the risk to earnings or capital
arising from adverse business decisions or improper implementation of those
decisions.
Reputation Risk. Reputation risk is the risk to earnings or capital
from negative public opinion.
Most of these risks are interrelated and thus all must be considered by
management regardless of the implied risk. Management reviews performance
against these ranges on a quarterly basis. See the "GAP" table in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
the Company's quantitative sensitivity analyses.
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. The estimated
fair market value of loans outstanding was approximately $538,251,000 and
$480,244,000 at December 31, 1999 and 1998, respectively. The fair value of
noninterest-bearing demand deposits and interest-bearing deposits, savings and
money market deposits is the amount payable on demand at the reporting date. The
fair value of the time deposits is estimated using the rates currently offered
for deposits of similar remaining maturities. The estimated fair market value of
deposits was approximately $666,499,000 and $652,617,000 at December 31, 1999
and 1998, respectively.
<PAGE>
Independent Auditors' Report
The Shareholders and the Board of Directors of
Carolina First BancShares, Inc.
We have audited the accompanying consolidated balance sheets of
Carolina First BancShares, Inc., and subsidiaries as of December 31, 1999 and
1998 and the related consolidated statements of income, changes in shareholders'
equity and comprehensive income and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Carolina
First BancShares, Inc. and subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ KPMG, LLP
-------------
KPMG, LLP
January 18, 2000
Charlotte, North Carolina
<PAGE>
Item 8. Financial Statements And Supplementary Data
Carolina First BancShares, Inc.
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Cash and due from banks $33,658,815 $28,611,146
Federal funds sold --- 13,220,957
------------- -------------
Total cash and cash equivalents 33,658,815 41,832,103
Interest bearing deposits in other banks 439,352 777,346
Securities held to maturity (market value $34,686,254 in 1999 and
$33,609,910 in 1998) 36,082,589 33,306,113
Securities available for sale (cost of $154,587,610 in 1999 and
$153,255,268 in 1998) 151,079,421 154,384,075
Loans, net of unearned income ($770,821 in 1999; $565,714 in 1998) 541,539,925 476,109,833
Allowance for loan losses (7,662,823) (6,723,516)
------------- -------------
Loans, net 533,877,102 469,386,317
Premises and equipment, net 12,672,438 13,662,738
Other real estate owned 220,801 326,206
Other assets 18,068,066 17,951,346
------------- -------------
Total Assets $786,098,584 $731,626,244
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $97,416,776 $89,666,447
Interest bearing transaction accounts 184,385,651 167,131,413
Savings 66,357,623 63,833,667
Time, $100,000 and over 85,853,152 87,947,784
Other time 232,966,454 244,023,259
------------- -------------
Total deposits 666,979,656 652,602,570
Repurchase agreements 11,350,893 10,399,634
Other borrowed funds 38,694,034 674,862
Other liabilities 3,102,759 5,971,447
------------- -------------
Total Liabilities 720,127,342 669,648,513
Shareholders' Equity:
Preferred stock, $1.00 par value; authorized - 5,000,000 shares; none
issued and outstanding; Common stock, $2.50 par value; authorized -
20,000,000 shares; issued and outstanding - 6,000,127 in 1999, and
5,396,736 shares in 1998 15,000,318 13,491,840
Additional paid in capital 33,923,354 22,758,001
Retained earnings 19,189,335 25,031,771
Accumulated other comprehensive income (loss) (2,141,765) 696,119
------------- -------------
Total Shareholders' Equity 65,971,242 61,977,731
------------- -------------
Commitments and Contingent Liabilities --- ---
Total Liabilities and Shareholders' Equity $786,098,584 $731,626,244
============= =============
</TABLE>
<PAGE>
Carolina First BancShares, Inc.
Consolidated Statements of Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $45,655,726 $40,848,120 $36,552,020
Interest and dividends on securities:
Taxable income 11,075,384 9,554,933 7,334,682
Non-taxable income 410,945 329,685 476,200
Other interest income 412,099 1,319,095 874,091
---------- ---------- ----------
Total interest income 57,554,154 52,051,833 45,236,993
Interest Expense:
Interest on deposits 21,729,784 21,571,800 19,221,687
Interest on borrowed funds 1,300,634 498,934 351,059
---------- ---------- ----------
Total interest expense 23,030,418 22,070,734 19,572,746
---------- ---------- ----------
Net Interest Income 34,523,736 29,981,099 25,664,247
Provision for Loan Losses 1,655,200 1,365,000 997,333
---------- ---------- ----------
Net Interest Income after Provision for Loan Losses 32,868,536 28,616,099 24,666,914
Noninterest Income:
Charges on deposit accounts 4,113,201 3,864,796 3,357,917
Insurance commissions 634,546 603,025 725,474
Other service fees and commissions 1,398,198 1,445,217 1,203,393
Mortgage banking commission income 603,636 671,448 483,047
Securities gains (losses), net (238,976) 267,304 82,508
Other income 1,513,688 1,196,584 910,447
---------- ---------- ----------
Total noninterest income 8,024,293 8,048,374 6,762,786
Noninterest Expense:
Salaries and benefits 13,774,830 12,037,794 11,251,266
Occupancy and equipment 3,710,067 3,252,949 2,810,863
Federal and other insurance premiums 195,685 208,822 185,798
Office supplies 870,786 938,063 857,966
Data processing 1,248,533 680,130 546,395
Restructuring and merger related expenses - 2,069,570 -
Other expenses 8,187,037 6,667,773 5,566,486
---------- ---------- ----------
Total noninterest expense 27,986,938 25,855,101 21,218,774
---------- ---------- ----------
Income Before Income Taxes 12,905,891 10,809,372 10,210,926
Income Taxes 4,130,086 4,100,443 3,490,141
---------- ---------- ----------
Net Income $8,775,805 $6,708,929 $6,720,785
========== ========== ==========
Earnings per share
Net Income Per Common Share - Basic $1.47 $1.14 $1.20
Net Income Per Common Share - Diluted $1.45 $1.11 $1.18
</TABLE>
<PAGE>
Carolina First BancShares, Inc.
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional Other
Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income (loss) Equity
-------------- ------------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 3,020,983 $7,552,458 $22,285,732 $14,590,974 $34,903 $44,464,067
Issuance of stock in public
offering 225,000 562,500 4,988,907 --- --- 5,551,407
Exercise of stock options 18,311 45,778 32,432 --- --- 78,210
Cash dividend ($.28 per share) --- --- --- (1,331,194) --- (1,331,194)
2-for-1 stock split 2,054,569 5,136,422 (5,136,422) --- --- -
Retirement of stock (1,412) (3,530) (38,174) --- --- (41,704)
Dividend reinvestment plan 8,318 20,795 202,991 --- --- 223,786
Net income --- --- --- 6,720,785 --- 6,720,785
Other comprehensive income -
Unrealized gain on securities
available for sale, net of taxes
of $341,498 --- --- --- --- 545,443 545,443
------------
Total comprehensive income --- --- --- --- --- 7,266,228
-------------- ------------- ------------ ------------ ------------ ------------
Balance, December 31, 1997 5,325,769 13,314,423 22,335,466 19,980,565 $580,346 $56,210,800
Exercise of stock options 70,229 175,572 210,055 --- --- 385,627
Cash dividend ($.34 per share) --- --- --- (1,657,723) --- (1,657,723)
Retirement of stock (3,694) (9,235) (112,707) --- --- (121,942)
Dividend reinvestment plan 4,432 11,080 110,049 --- --- 121,129
Settlement of merger-related claims --- --- 215,138 --- --- 215,138
Net income --- --- --- 6,708,929 --- 6,708,929
Other comprehensive income -
Unrealized gain on securities
available for sale, net of taxes
of $50,921 --- --- --- --- 115,773 115,773
------------
Total comprehensive income --- --- --- --- --- 6,824,702
-------------- ------------- ------------ ------------ ------------ ------------
Balance, December 31, 1998 5,396,736 13,491,840 22,758,001 25,031,771 $696,119 $61,977,731
Exercise of stock options 65,196 162,991 247,589 --- --- 410,580
10% stock dividend 541,173 1,352,932 10,991,429 (12,385,243) --- (40,882)
Minority interest in CFBI --- --- --- 52,900 --- 52,900
Cash dividend ($.40 per share) --- --- --- (2,285,898) --- (2,285,898)
Retirement of stock (3,819) (9,548) (95,952) --- --- (105,500)
Dividend reinvestment plan 841 2,103 22,287 --- --- 24,390
Net income --- --- --- 8,775,805 --- 8,775,805
Other comprehensive income -
Unrealized loss on securities
available for sale, net of taxes
of ($1,799,112) --- --- --- --- (2,837,884) (2,837,884)
------------
Total comprehensive income --- --- --- --- --- 5,937,921
-------------- ------------- ------------ ------------ ------------ ------------
Balance, December 31, 1999 6,000,127 $15,000,318 $33,923,354 $19,189,335 ($2,141,765) $65,971,242
============== ============= ============ ============ ============ ============
</TABLE>
<PAGE>
Carolina First BancShares, Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net Income $ 8,775,805 $ 6,708,929 $ 6,720,785
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,576,340 2,297,164 2,125,307
Accretion and amortization of securities discounts and premiums, net 284,066 (326,143) 701,698
Provision for loan losses 1,655,200 1,365,000 997,333
Deferred tax benefit (509,247) (699,363) (771,281)
Gains on sales of securities available for sale (53,080) (287,166) (99,938)
Losses on sales of securities available for sale 293,871 19,862 19,106
Gains on calls and maturities of securities held to maturity (1,816) -- (1,812)
Losses on calls and maturities of securities held to maturity -- -- 136
Losses (gains) on sales of equipment, net (4,193) 309 (4,810)
Losses (gains) on sales of real estate, net (42,803) 71,501 (65,702)
Increase in other assets (200,253) (634,361) (1,588,494)
Increase (decrease) in other liabilities (1,069,576) 829,437 1,089,214
Settlement of merger related claims -- 215,138 --
-------------- ------------- -------------
Net cash provided by operating activities. 11,704,314 9,560,307 9,121,542
-------------- ------------- -------------
Investing Activities:
Proceeds from maturities of securities available for sale 70,025,000 70,451,327 35,612,012
Proceeds from sales of securities available for sale 47,201,172 599,964 5,809,688
Paydowns of securities available for sale 3,561,993 -- --
Purchases of securities available for sale (119,253,858) (101,960,784) (101,121,315)
Proceeds from calls and maturities of securities held to maturity 7,613,353 16,662,401 18,320,504
Paydowns of securities held to maturity 206,223 -- --
Purchases of securities held to maturity (13,985,742) (13,295,379) (7,490,547)
Purchases and maturities of certificates of deposit, net 337,994 (103,486) (247,094)
Originations of loans, net (66,258,150) (72,922,802) (43,072,427)
Proceeds from sale of real estate 255,778 509,903 211,609
Proceeds from sale of premises and equipment 23,910 2,115 611,477
Cash acquired, net of cash paid, in purchase of branches -- 7,674,161 26,556,399
Capital expenditures (955,482) (1,899,152) (2,147,923)
-------------- ------------- -------------
Net cash used in investing activities (71,227,809) (94,281,732) (66,957,617)
-------------- ------------- -------------
Financing Activities:
Increase (decrease) in time deposits (13,151,437) 44,876,631 20,560,322
Net increase in other deposits 27,528,523 53,602,469 30,945,214
Net increase (decrease) in repurchase agreements 951,259 (523,864) 3,754,186
Net increase in other borrowed funds 38,089,412 -- 200,000
Repayment of notes payable (70,240) (75,176) (19,601)
Retirement of stock (105,500) (121,942) (41,704)
Payment of cash dividends and fractional shares (2,285,898) (1,657,723) (1,331,194)
Issuance of stock 394,088 506,756 5,853,403
-------------- ------------- -------------
Net cash provided by financing activities 51,350,207 96,607,151 59,920,626
-------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (8,173,288) 11,885,726 2,084,551
Cash and Cash Equivalents, Beginning of Year 41,832,103 29,946,377 27,861,826
-------------- ------------- -------------
Cash and Cash Equivalents, End of Year $ 33,658,815 $41,832,103 $29,946,377
============== ============= =============
Supplemental disclosures of cash flow information:
Interest paid $ 22,673,950 $21,540,710 $19,177,341
Income taxes paid 5,145,300 4,791,163 4,340,169
============== ============= =============
Supplemental disclosure of noncash investing and financing activities:
Increase (decrease) in net unrealized loss $ (2,837,884) $ 115,773 $ 545,443
Assets transferred to other real estate 112,165 359,337 533,687
</TABLE>
<PAGE>
Notes To Consolidated Financial Statements
December 31, 1999
Carolina First BancShares, Inc. and Subsidiaries
1. Summary Of Significant Accounting Policies
Principles of Consolidation -- The consolidated financial
statements include the accounts of the Company, the Banks, and their
subsidiaries (referred to herein collectively as the "Company"). All
significant intercompany items and transactions have been eliminated in
consolidation. Certain 1997 amounts have been reclassified to conform
to 1999 and 1998 classifications. The reclassifications have no effect
on shareholder's equity or net income as previously reported. The
Company's chief operating decision-makers review the results of
operations of the Company and its subsidiaries as a single enterprise.
The preparation of the consolidated 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 the amounts of income and expenses during the reporting
period. Actual results could differ from these estimates.
Cash and Cash equivalents -- Cash and cash equivalents include
cash on hand, due from banks and overnight federal funds sold.
Securities -- Securities are classified in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debit and Equity Securities" which prescribes the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt
securities. Securities that the Company has the positive intent and
ability to hold to maturity are classified as held to maturity and
reported at cost. Securities held for current resale are classified as
trading securities and reported at fair value, with unrealized gains
and losses included in income. The Company currently has no such
securities. Securities not classified as held to maturity or trading
securities are classified as available for sale and reported at fair
value, with unrealized gains and losses net of the related tax effect
excluded from income and reported as a separate component of
shareholders' equity. The effect of the foregoing will cause
fluctuations in shareholders' equity based on changes in values of debt
and equity securities. The classification of securities as held to
maturity, trading or available for sale is determined at the date of
purchase.
Realized gains or losses on the sale of securities are
recognized on the specific identification method. Premiums and
discounts are amortized to interest income over the life of the
security using a method approximating a level yield method. The market
value of securities is generally based on quoted market prices or
dealer quotes.
As a member of the Federal Home Loan Bank of Atlanta (the
"FHLB"), the Company is required to maintain an investment in the stock
of the FHLB. This stock, which is classified in the other asset
category at December 31, 1999, is carried at cost since it has no
quoted market value.
Allowance for Loan Losses -- The provision for loan losses
charged to operations is an amount that management believes is
sufficient to bring the allowance for loan losses to an amount
considered adequate to absorb estimated probable losses in the
portfolio. Management's determination of the adequacy of the allowance
is based on an evaluation of the portfolios, current economic
conditions, historical loan loss experience and other risk factors.
This evaluation is heavily dependent upon estimates and appraisals that
are susceptible to rapid changes because of economic conditions and the
economic prospects of borrowers.
In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to
recognize changes to the allowance based on their judgement about
information available at the time of examination.
Nonaccrual Loans -- Generally, a loan is classified as
nonaccrual and the accrual of interest on such loan (including impaired
loans) is discontinued when the contractual payment of principal or
interest has become 90 days past due or management has doubts about
further collectibility of principal or interest even though the loan
currently is performing. A loan may remain on accrual status if it is
in the process of collection and is either guaranteed or well secured.
When a loan is placed on nonaccrual status, unpaid interest credited to
income in the current year is reversed and unpaid interest accrued in
prior years is charged against the allowance for credit losses.
Interest received on nonaccrual loans (including impaired loans)
generally is either applied against principal or reported as interest
income according to management's judgement as to the collectibility of
principal. Generally, loans are restored to accrual status when the
obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no
longer in doubt.
Premises and Equipment -- Premises and equipment are stated at
cost less accumulated depreciation. Additions and major replacement or
betterments, which extend the useful lives of premises and equipment,
are capitalized. Maintenance, repairs and minor improvements are
expensed as incurred. Depreciation of buildings and improvements is
computed on the straight-line method over 15 years. Depreciation of
furniture, fixtures and equipment is computed on the straight-line
method over periods that approximate the estimated useful live of the
assets. Accelerated depreciation methods are used for tax purposes.
Gains and losses on dispositions of premises and equipment are
reflected in income.
Other Real Estate Owned -- Other real estate owned is carried
at the lower of cost (principal balance of the loan plus costs of
obtaining title and possession) or fair value less selling costs.
Losses arising at the time of acquisition of such properties is charged
against the allowance for loan losses. Subsequent write-downs that may
be required to the carrying value of these properties are charged to
noninterest expense.
Intangible Assets -- Deposit based premiums and goodwill
arising from branch acquisitions result from the Company paying amounts
in excess of fair value for the branches and core deposits acquired.
Such amounts are included in other assets and deposit based premiums
are amortized on an accelerated basis over 10 years and goodwill is
amortized on a straight-line basis over 25 years.
Earnings Per Share -- SFAS No. 128, "Earnings per Share"
establishes standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 simplifies the standards for computing EPS
previously found in APB opinion No. 15, "Earnings Per Share", and makes
them comparable to international EPS standards. It replaces the
presentation of primary EPS with a 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 requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. The weighted average number of shares for each year
presented has been retroactively adjusted for the 10% stock dividend in
1999 and the two-for-one stock split in 1997.
Financial Instruments -- Financial instruments are valued in
accordance with SFAS No. 107, "Disclosure about Fair Value of Financial
Instruments", which requires disclosure of the estimated fair values of
the Company's financial instruments. Such instruments include
investment securities (see note 3), loans (see note 4), and deposit
accounts (see note 7). Fair value estimates, methods, and assumptions
for each of these instruments are set forth in their respective
footnotes.
The carrying amounts for cash, overnight federal funds sold
and interest bearing deposits in other banks approximate fair value
because they mature in less than 90 days and do not present
unanticipated credit concerns. The carrying amounts for borrowed funds
also approximate fair value because of the daily maturity of most of
these items.
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 the
Company's entire holdings of a particular financial instrument. Because
no active market readily exists for a portion of the Company's
financial instruments, fair value estimates are based on judgements
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments, an other
factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and therefore cannot
be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing 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. Other significant assets and
liabilities that are not considered financial assets or liabilities
include the mortgage banking operation, property, plant, equipment, and
goodwill. 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 in the estimates.
SFAS No. 107 specifies that fair values should be calculated
based on the value of one unit without regard to any premium or
discount that may result from concentration of ownership of a financial
instrument, possible tax ramifications, or estimated transaction costs.
Stock Options -- SFAS No. 123, "Accounting for Stock-Based
Compensation," requires either the (i) 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 grant
of awards related to such plans, or, (ii), 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 Opinion 25"). The Company has
elected to continue to apply the provisions of APB Opinion 25 and
provide the pro forma disclosure provisions of SFAS No. 123.
Income and Expense -- The Company utilizes the accrual method
of accounting except for immaterial amounts of loan income and other
minor fees, which are recorded as income when collected. Substantially
all loans earn interest on the level yield method based on the daily
outstanding balance. The accrual of interest is discontinued when, in
management's judgement, the interest may not be collected.
The Banks defer the recognition of the net amounts of loan
origination fees and certain loan origination costs and amortize these
deferred amounts over the life of each related loan as an adjustment to
the loan yield.
Income Taxes -- Income taxes are accounted for under SFAS No.
109, "Accounting for Income Taxes". According to SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using the statutory tax rates expected to apply to a taxable income in
the years in which those temporary differences are expected to be
recovered in income in the period that includes the enactment date. The
Company files consolidated Federal income tax returns with its
subsidiaries.
Comprehensive Income -- On January 1, 1998, the Company
adopted SFAS No. 130 "Reporting Comprehensive Income". As required by
the SFAS No. 130, prior year information has been modified to conform
to the new presentation. Comprehensive income includes net income and
all non-owner changes to the Company's equity. The Company's only
component of other comprehensive income is the change in unrealized
gains and losses on available-for-sale securities.
The Company's total comprehensive income for the three years
ended December 31, 1999, 1998, and 1997 was $5,937,921, $6,824,702 and
$7,266,228 respectively. Information concerning the Corporation's other
comprehensive income for the three years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Unrealized holdings gains (losses) arising during the period (2,986,049) 281,501 596,598
Less: reclassification adjustment for realized gains (losses), net of tax (148,165) 165,728 51,155
------------ ------------ ------------
Unrealized gains (losses) on securities available for sale,
net of applicable income taxes (2,837,884) 115,773 545,443
============ ============ ============
</TABLE>
Disclosures Regarding Segments -- The Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information" in 1998. SFAS No. 131 establishes standards for the way
that public businesses report information about operating segments in
annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. The Company adopted SFAS No. 131 without any impact on
its consolidated financial statements as the operating decision-maker
reviews the results of operations of the Company and its subsidiaries
as a single enterprise.
2. Mergers Accounted For As A Pooling-of-Interests
On December 23, 1998, the Company merged with Community Bank,
a $110 million community bank headquartered in Rutherfordton, North
Carolina. The merger was effected through a tax-free exchange of stock
whereby each outstanding share of Community Bank was exchanged for
.72716 of a share of the Company's common stock. Consequently, the
Company issued and reserved for issue approximately 1,021,202 shares of
common stock and cash in-lieu of fractional shares for all of the
outstanding shares of Community Bank. Community Bank is continuing to
operate as a wholly-owned subsidiary of the Company. The merger with
Community Bank has been accounted for as a pooling-of-interests.
Certain charges were brought against the Company and one of
the Company's officers related to the merger. In connection with the
litigation the Company formed a settlement trust and irrevocably
transferred all of the shares of Community Bank which it owned to the
trustee to be available for settlement of the claims. The Company
incurred costs of approximately $16,000 and $215,000 in 1999 and 1998,
respectively, for the settlement of the claims.
The financial statements of the Company have been restated to
reflect the Community Bank merger as if it had been effective as of the
earliest period presented. The respective contributions of the pooled
entities to consolidated total income, net interest income after
provision for loan losses and net income for the two years ended
December 31, 1998 were as follows:
<TABLE>
1998 1997
Total income: -----------------------------------
- -------------
<S> <C> <C>
Carolina First BancShares, Inc. $51,575,670 $44,037,368
Community Bank & Trust 8,524,537 7,962,411
-------------- ------------
Combined $60,100,207 $51,999,779
Net interest income after provision for loan losses:
- ----------------------------------------------------
Carolina First BancShares, Inc. $24,482,693 $20,508,156
Community Bank & Trust 4,133,406 4,158,758
-------------- ------------
Combined $28,616,099 $24,666,914
Net income:
- -----------
Carolina First BancShares, Inc. $7,349,951 $6,159,839
Community Bank & Trust (641,022) 560,946
-------------- ------------
Combined $6,708,929 $6,720,785
Earnings per share - basic:
- ---------------------------
Carolina First BancShares, Inc. $1.52 $1.35
Community Bank & Trust (0.38) (0.15)
-------------- ------------
Combined $1.14 $1.20
Earnings per share - diluted:
- -----------------------------
Carolina First BancShares, Inc. $1.50 $1.34
Community Bank & Trust (0.39) (0.16)
-------------- ------------
Combined $1.11 $1.18
</TABLE>
In connection with the Community Bank merger, the Company
incurred restructuring and merger related expenses of $2,070,000 in
1998. The after tax-effect of the restructuring and merger-related
expense was $1,786,000 in 1998. Such expenses were comprised of
severance payments and other payments under employment contracts,
professional fees, costs for the settlement of merger-related claims,
systems conversion costs and other restructuring and merger related
expenses as follows:
<TABLE>
<S> <C>
Severance payments................................................. $171,000
Employment contracts............................................... 489,000
System conversion costs and write-off of old equipment............. 190,000
Settlement of merger related claims................................ 215,000
Professional fees.................................................. 897,000
Other.............................................................. 108,000
---------
Total.............................................................. $2,070,000
==========
</TABLE>
In 1998, the Company incurred merger expenses of $1,410,000
all of which were paid in 1998. There were no such merger expenses in
1999. In 1998, the Company incurred restructuring expenses of $660,000
of which approximately $563,000 were accrued at December 31, 1998 and
included in other liabilities. Such restructuring expenses and
liabilities consisted of severance payments and payments under
employment contracts. There were no restructuring expenses incurred
during 1999. The liabilities related to the restructuring expenses
accrued in 1998 were paid in full during 1999.
3. Securities
Amortized cost, market values and unrealized gains and losses
of securities as of December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Market
December 31, 1999 Cost Gains Losses Value
------------------ ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $1,996,187 $936 ($1,185) $1,995,938
U.S. government agencies 7,830,966 --- (329,791) 7,501,175
Mortgage-backed securities 17,667,548 7,494 (604,843) 17,070,199
State and political subdivisions 8,587,888 48,681 (517,627) 8,118,942
------------------ ---------------- ------------------- -------------------
Total $36,082,589 $57,111 ($1,453,446) $34,686,254
================== ================ =================== ===================
Available For Sale
U. S. Treasury securities $15,519,974 $12,827 ($17,013) $15,515,788
U.S. government agencies 119,919,559 3,595 (3,601,244) 116,321,910
Mortgage-backed securities 18,264,295 4,552 (115,758) 18,153,089
Mutual funds and marketable equity securities 883,782 249,452 (44,600) 1,088,634
------------------ ---------------- ------------------- -------------------
Total $154,587,610 $270,426 ($3,778,615) $151,079,421
================== ================ =================== ===================
December 31, 1998
Held to Maturity
U. S. Treasury securities $6,010,186 $68,878 --- $6,079,064
U.S. government agencies 3,034,710 14,266 --- 3,048,976
Mortgage-backed securities 16,105,620 112,974 ($17,244) 16,201,350
State and political subdivisions 8,155,597 163,271 (38,348) 8,280,520
------------------ ---------------- ------------------- -------------------
Total $33,306,113 $359,389 ($55,592) $33,609,910
================== ================ =================== ===================
Available For Sale
U. S. Treasury securities $42,663,530 $550,230 --- $43,213,760
U.S. government agencies 108,964,028 424,080 ($275,303) 109,112,805
Mortgage-backed securities 743,928 23,695 --- 767,623
Mutual funds and marketable equity securities 883,782 416,155 (10,050) 1,289,887
------------------ ---------------- ------------------- -------------------
Total $153,255,268 $1,414,160 ($285,353) $154,384,075
================== ================ =================== ===================
</TABLE>
Amortized cost and market values of securities at December 31, 1999, by
maturity, are shown below.
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
-------------------------------------- -----------------------------------------
Amortized Amortized
Cost Market Value Cost Market Value
------------------ ---------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Due within one yea $1,220,808 $1,222,702 $33,032,272 $32,969,106
Due after one year but within 5 years 4,592,076 4,597,284 88,929,535 86,214,991
Due after 5 years but within 10 years 10,557,013 10,184,117 11,521,125 10,854,703
Due after 10 years 19,712,692 18,682,151 20,220,896 19,951,987
Mutual funds and marketable equity securities --- --- 883,782 1,088,634
------------------ ---------------- ------------------- -------------------
Total $36,082,589 $34,686,254 $154,587,610 $151,079,421
================== ================ =================== ===================
</TABLE>
Investment securities with an amortized cost of $44,043,000 at
December 31, 1999 were pledged to secure public deposits and for other
purposes required or permitted by law.
Included in other assets is an investment in the common stock
of First Gaston Bank of North Carolina with a carrying amount of
approximately $1,276,000 at December 31, 1999. The Company accounts for
the investment under the equity method as the Company has committed to
serve as a source of strength, as defined by the Federal Reserve, for
First Gaston Bank; has representation on the bank's board of directors;
and provides certain operational functions to First Gaston Bank. Under
the equity method, the Company adjusts the carrying value of the
investment for its portion of the First Gaston Bank's earnings or
losses. During 1999, the Company recognized income, net of applicable
income taxes, of $77,567. Also included in other assets is an
investment in the stock of the Federal Home Loan Bank of Atlanta
("FHLB") of $516,900 and $915,000 at December 31, 1999 and 1998,
respectively, and which is pledged as collateral for advances from the
FHLB. No ready market exists for the FHLB stock, which is carried at
cost.
4. Loans
Major classifications of loans as of December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- ---------------------
<S> <C> <C>
Commercial $69,581,382 $68,033,080
Real estate:
Construction 63,521,937 54,441,169
Mortgage 343,574,095 299,396,025
Consumer 58,812,187 48,630,111
Other 6,050,324 5,609,448
----------------- ---------------------
Total loans 541,539,925 476,109,833
Allowance for loan losses (7,662,823) (6,723,516)
----------------- ---------------------
Total loans, net $533,877,102 $469,386,317
================= =====================
</TABLE>
Included in real estate mortgage loans at December 31, 1999
and 1998 are approximately $161,529,000 and $144,138,000, respectively,
in 1 - 4 family residential loans.
Certain officers and directors, and companies in which they
have 10% or more beneficial ownership, were indebted to the Banks in
the aggregate amount of $7,721,066 and $5,827,210 at December 31, 1999
and 1998, respectively. During 1999, additions to such loans were
$5,440,188 and repayments totaled $3,546,332. These loans represented
11.7% and 9.4% of the Company's total shareholders' equity at December
31, 1999 and 1998, respectively. In the opinion of management, these
loans do not involve more than the normal risk of collection, nor do
they present other unfavorable features.
Loans past due 90 days or more and still accruing interest
totaled $177,739 as of December 31, 1999 and $111,272 as of December
31, 1998, while nonaccrual loans as of December 31, 1999 and 1998 were
$2,615,553 and $1,432,086, respectively. Nonaccural loans at December
31, 1999 consists of 55 loans, the largest of which had a balance of
$677,600. Nonaccrual loans at December 31, 1998 consists of 61 loans,
the largest of which had a balance of $496,000. Management considers
collateral on nonaccrual loans to be adequate to avoid any significant
losses on the loans, exclusive of allowance for loan losses. Additional
interest of approximately $249,000 and $51,000 would have been earned
in 1999 and 1998, respectively, if the nonaccrual loans as of each
year-end had been earning throughout each year. Income of $23,000 and
$77,817 was recognized on these loans during 1999 and 1998,
respectively.
The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining
maturities. The estimated fair market value of loans outstanding is
approximately $538,251,000 and $480,244,000 at December 31, 1999 and
1998, respectively.
5. Allowance For Loan Losses
Changes in the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Balance at beginning of year $6,723,516 $5,837,328 $5,313,424
Charge-offs (857,859) (680,309) (638,266)
Recoveries 141,966 201,497 164,837
------------------- ------------------- -------------------
Net charge-offs (715,893) (478,812) (473,429)
------------------- ------------------- -------------------
Provision for loan losses 1,655,200 1,365,000 997,333
------------------- ------------------- -------------------
Balance at end of year $7,662,823 $6,723,516 $5,837,328
=================== =================== ===================
</TABLE>
At December 31, 1999, impaired loans totaled $2,069,000, of
which all were on nonaccrual status, and their related reserve for loan
losses totaled $625,000. The average carrying value of impaired loans
was $1,370,000. At December 31, 1998, impaired loans totaled $920,000,
of which all were on nonaccrual status, and their related reserve for
loan losses totaled $399,000. The average carrying value of impaired
loans was $820,000. The amount of interest income recognized on
impaired loans was not considered material in 1999 or 1998.
6. Premises And Equipment
Major classifications of these assets as of December 31, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Land $3,029,395 $2,896,148
Buildings and improvements 9,908,647 9,409,296
Furniture, fixtures and equipment 10,499,652 10,315,467
----------------- ----------------
Total cost 23,437,694 $22,620,911
Accumulated depreciation 10,765,256 8,958,173
----------------- ----------------
Carrying value 12,672,438 $13,662,738
================= ================
</TABLE>
7. Liabilities
The fair value of noninterest-bearing and interest-bearing
demand deposits and, savings and money market deposits is the amount
payable on demand at the reporting date. The fair value of time
deposits is estimated using the rates currently offered for deposits of
similar remaining maturities. The estimated fair market value of
deposits is approximately $666,499,000 and $652,617,000 at December 31,
1999 and 1998, respectively.
Time deposits maturing in each of the five years subsequent to
December 31, 1999 are as follows: 2000, $240,348,000; 2001,
$59,241,000; 2002, $11,875,000; 2003, $6,225,000; 2004, $1,104,000, and
subsequent years, $27,000.
Short-term borrowings and their related weighed average
interest rates at December 31 were:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ------------------------------------
Amount Rate Amount Rate
---------------- ------------ ---------------- ------------
($ in thousands)
<S> <C> <C> <C> <C>
Repurchase agreements $ 11,351 4.70 % $ 10,400 4.21 %
Repurchase transactions 27,304 6.00 - -
Federal funds purchased 10,785 5.13 - -
Other short-term borrowings 605 4.92 675 4.41
---------------- ------------ ---------------- -----------
$ 50,045 5.50 % $ 11,075 4.22 %
================ ============ ================ ===========
</TABLE>
Repurchase agreements generally are customer funds that mature
daily. These funds, while backed by U.S. Government securities, which
are held by third-party safekeepers, are not secured by the FDIC.
Repurchase transactions are a secured source of funding from primarily
commercial banks characterized by the sale of securities with a
simultaneous agreement to repurchase such securities on an agreed upon
future date. Other short-term borrowings represent Treasury, tax and
loan funds on deposit and are payable on demand to the U.S. Treasury
and are collateralized by U.S. Treasury securities.
The maximum short-term borrowings outstanding at any month end
were:
<TABLE>
<CAPTION>
1999 1998
-------------------- ------------------
($ in thousands)
<S> <C> <C>
Repurchase agreements $ 16,095 $ 13,620
Repurchase transactions 30,000 -
Federal funds purchased 33,585 6,600
Other short-term borrowings 637 753
Aggregate short-term borrowings 50,045 11,075
</TABLE>
Average short-term borrowings during 1999, 1998 and 1997 were
$24,989, $9,084 and $7,221, respectively. The average interest rates on
short-term borrowings during 1999, 1998, and 1997 were 5.21%, 5.49% and
4.86%, respectively.
Interest expense on short-term borrowings for the years ended
December 31, were:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ---------------
($ in thousands)
<S> <C> <C> <C>
Repurchase agreements $ 584 $ 437 $ 275
Repurchase transactions 200 - -
Federal funds purchased 498 32 39
FHLB advances - 6 21
Other short-term borrowings 19 24 16
------------- ------------- -------------
$ 1,301 $ 499 $ 351
============= ============= =============
</TABLE>
Of the Banks $46.9 million federal funded lines of credit,
$36.1 million was available at December 31, 1999. These lines are
maintained at various financial institutions. Such lines are subject to
annual renewal and bear varying interest rates.
8. Branch Acquisitions
In 1998, the Company acquired one branch office with
approximately $9.0 million in deposits. This acquisition was accounted
for as a purchase and the excess of the purchase price over the fair
value of the assets and the core deposits produced approximately
$670,000 in goodwill and $195,000 in deposit based premiums. Such
amounts are included in other assets and deposit based premiums are
amortized on an accelerated basis over 10 years and goodwill is
amortized on a straight-line basis over 25 years. Total goodwill was
$4,549,154 and $4,839,733 at the end of 1999 and 1998, respectively.
Total deposit based premiums were $1,015,798 and $1,313,622 at the end
of 1999 and 1998, respectively.
9. Income Taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
----------------- ----------------- ----------------
<S> <C> <C> <C>
Year ended December 31, 1999
Federal $4,541,363 ($448,212) $4,093,151
State 97,970 (61,035) 36,935
----------------- ----------------- ----------------
Total $4,639,333 ($509,247) $4,130,086
================= ================= ================
Year ended December 31, 1998
Federal $4,386,184 ($584,781) $3,801,403
State 413,622 (114,582) 299,040
----------------- ----------------- ----------------
Total $4,799,806 ($699,363) $4,100,443
================= ================= ================
Year ended December 31, 1997
Federal $3,796,329 ($565,699) $3,230,630
State 465,093 (205,582) 259,511
----------------- ----------------- ----------------
Total $4,261,422 ($771,281) $3,490,141
================= ================= ================
</TABLE>
A reconciliation of total income tax expense for the years
ended December 31, to the amount of tax expense computed by multiplying
income before income taxes by the statutory federal income tax rate of
34 percent for 1997 and 35 percent for 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ---------------- ----------------
<S> <C> <C> <C>
Tax provision at statutory rate $4,517,062 $3,783,280 $3,471,715
Increase (reduction) in income taxes resulting from:
Tax-exempt interest income (148,134) (126,217) (160,883)
Merger expenses --- 432,007 ---
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets allocated
to income tax expense --- --- (71,355)
State income taxes, net of federal tax benefit 24,008 194,376 171,278
Other (262,850) (183,003) 79,386
------------------ ---------------- ----------------
Total Income taxes $4,130,086 $4,100,443 $3,490,141
================== ================ ================
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and (liabilities) at
December 31, 1999 and 1998, respectively are presented below:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves. $3,030,648 $2,607,716
Accrued expenses, deductible when paid --- 153,601
Deferred compensation 826,085 684,202
Intangible assets 186,461 158,795
Unrealized losses on securities available for sale 1,368,236 ---
Other 175,640 105,184
--------------- ----------------
Total gross deferred tax assets. 5,587,070 3,709,498
Less valuation allowance --- ---
--------------- ----------------
Net deferred tax assets 5,587,070 3,709,498
--------------- ----------------
Deferred tax (liabilities):
Bad debt reserve recapture, tax accounting adjustment (230,155) (290,189)
Financial reporting stock basis in excess of tax basis (180,981) (177,480)
Depreciable basis of fixed assets (101,709) (232,622)
Unrealized gain on securities available for sale --- (430,876)
Other (266,300) (78,765)
--------------- ----------------
Total gross deferred tax liability (779,145) (1,209,932)
--------------- ---------------
Net deferred tax asset included in other assets $4,807,925 $2,499,566
=============== ================
</TABLE>
A portion of the change in the net deferred tax asset relates
to unrealized gains and losses on securities available for sale. The
related current period deferred tax benefit of $1,799,112 has been
recorded directly to shareholders' equity. The balance of the change in
the net deferred tax asset results from the current period deferred tax
benefit of $509,247. It is management's contention that realization of
the net deferred tax asset is more likely than not, based upon the
Company's history of taxable income and estimates of future taxable
income.
10. Shareholders' Equity
Earnings per share - Basic net income per share is computed by
dividing net income by the weighted average number of common shares
outstanding for the period. Diluted net income per share reflects the
potential dilution that could occur if the Company's dilutive stock
options were exercised. The numerator of the basic net income per share
computation is the same as the numerator of the diluted net income per
share computation for all periods presented. A reconciliation of the
denominator of the basic net income EPS computation is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Basic EPS denominator: weighted average number of shares outstanding 5,982,099 5,908,855 5,613,139
Dilutive effect arising from assumed exercise of stock options 88,315 150,933 68,680
------------- ------------- -------------
Diluted EPS denominator 6,070,414 6,059,788 5,681,819
============= ============= =============
</TABLE>
Stock Based Compensation -- In 1990, the Board of Directors of
the Company adopted the Carolina First BancShares, Inc. 1990 Stock
Option and Stock Appreciation Rights Plan (the "1990 Plan"), and
certain amendments to the 1990 Plan were approved in 1991 and again in
1999 (as amended, "the Plan"). In January 1991, stock appreciation
rights were granted in accordance with the 1990 Plan. These rights were
granted at market value on the date of the grant and 20% of each grant
becomes exercisable on each anniversary of the date of the grant and
expires five years after they become exercisable. Stock appreciation
rights totaling 36,769 are currently outstanding, with a measurement
price of $4.28. The expense related to these rights is included in
compensation expense and for the years ended December 31, 1999, 1998
and 1997 was $182,970, $92,181 and $826,606, respectively.
Since inception of the Plan, options to purchase shares of
Company common stock have been granted to key employees of the Company
and 545,500 such options are still available. The Plan provides that
options are granted at market value on the date of the grant and 20% of
each grant becomes exercisable on each anniversary of the date of the
grant. All currently outstanding options have been granted for a
ten-year term, unless the recipient leaves the Company's employment
earlier. A summary of all stock option activity for 1999 and the status
at December 31, 1999 follows. All share and per share amounts give
retroactive effect to stock dividends and splits declared by the
Company.
Employee Stock Option Plan:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
-------------------------------------------------------------------
Average Average
Shares Option Price Shares Option Price
--------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 289,145 $6.39 178,330 $5.17
Additional Options Granted 10,120 16.75 --- ---
Became Exercisable --- --- 40,022 6.06
Less:
Exercised. (20,141) 3.88 (20,141) 3.88
Forfeited (1,794) 8.09 (960) 11.46
--------------- ---------------- -------------- ----------------
Balance, December 31, 1997 277,330 $11.96 197,251 $5.62
Additional Options Granted 21,395 27.32 --- ---
Became Exercisable --- --- 18,372 8.61
Less:
Exercised. (77,253) 5.01 (77,253) 5.01
Forfeited (6,537) 9.03 --- ---
--------------- ---------------- -------------- ----------------
Balance, December 31, 1998 214,935 $9.50 138,370 $6.18
Additional Options Granted 22,155 23.05 22,949 12.44
Less:
Exercised. (68,579) 6.06 (68,579) 6.06
Forfeited (5,651) 9.76 (1,883) 9.76
--------------- ---------------- -------------- ----------------
Balance, December 31, 1999 162,860 $13.36 90,857 $10.47
=============== ================ ============== ================
</TABLE>
The following table summarizes information about fixed stock
options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------------------------
Number Weighted-Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices At 12/31/99 Contractual Life Exercise Price
---------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C>
Less than $5 44,376 3.00 yrs. $4.18
5 to 9 25,461 2.76 7.87
10 to 13 38,252 6.29 11.34
14 to 19 8,800 7.23 15.45
20 to 24 18,250 9.21 21.88
25 to 31 27,721 8.87 27.03
---------------------- ---------------- -------------------- ---------------
$1 to 31 162,860 5.66 yrs. $13.36
====================== ================ ==================== ===============
</TABLE>
The company applies APB Opinion 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have
been reduced to the proforma amounts indicated below.
The weighted-average fair value per share of options granted
in 1999 and 1998 amounted to $14.27 and $10.96, respectively. Fair
values were estimated on the date of grant using the Black-Scholes
Option-Pricing Model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Risk-free intesest rate 5.17% 4.56%
Dividend yield 1.38 1
Volatility 73.99 20
Expected life 6 years 7 years
Net Income
As reported $8,775,805 $6,708,929
Pro forma 8,656,780 6,632,906
Net Income per share
As reported - diluted $1.45 $1.11
Pro forma - diluted 1.43 1.09
</TABLE>
Pro forma net income reflects only options granted since
December 31, 1994. Therefore, the effects of applying SFAS No. 123 pro
forma disclosures during the initial phase-in period may not be
representative of the effects on reported net income in future years.
11. Benefit Plans
The Company sponsors a contributory profit-sharing plan, which
provides for participation by substantially all employees. Participants
may make voluntary contributions resulting in salary deferrals in
accordance with Section 401(k) of the Internal Revenue Code. The plan
provides for employee contributions up to 15% of the participant's
annual salary and an employer contribution of 50% matching of the
employee contribution up to 6% of the participant's salary.
Contributions to the plan for the years ended December 31, 1999, 1998,
and 1997 were $912,525, $793,500 and $703,000, respectively.
A deferred compensation plan allows the directors of the
Company and the Banks to defer the compensation they earn for
attendance at meetings of the Board or various committees. Each
director elects annually to either receive that year's compensation
currently or to defer receipt until his death, disability or retirement
as a director. The amount deferred is credited to the director's
account and invested in various options available through the Lincoln
Bank Trust Department. The obligation of the Company under the plan is
fully funded.
The Company does not provide benefits contemplated by SFAS
No. 106, "Employers' Accounting for Post-retirement Benefits Other
Than Pensions".
12. Regulation And Regulatory Restrictions
As a bank holding company, Carolina First BancShares, Inc. is
regulated by the Federal Reserve. The Company also must file periodic
reports with, and comply with securities regulations of, the Securities
and Exchange Commission. The Banks are subject to the regulations of
the FDIC, the North Carolina State Banking Commission and the Federal
Reserve.
The primary source of funds for payment of dividends by the
Company is excess cash or dividends received for the Banks. The Banks,
as North Carolina banking corporations, may pay dividends only out of
retained earnings as determined pursuant to the North Carolina General
Statutes. As of December 31, 1999, the Banks had combined retained
earnings of approximately $42,129,000, all of which is available to be
paid as dividends without prior regulatory approval, provided the Banks
maintain adequate capital.
The Company is required by federal regulations to maintain
various ratios of capital to assets. Failure to meet the minimum
capital requirements can initiate certain mandatory - and possible
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's capital amounts
and classification are also subject to qualitative judgements by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and
of Tier I capital to average assets (as defined). Management believes
that, as of December 31, 1999, the Company meets all capital adequacy
requirements to which it is subject.
As of December 31, 1999, the Company was well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, a bank holding company must maintain
at least the minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There have been no
conditions or events since that notification that management believes
have changed the institution's category.
The table below also presents the actual capital amounts and
ratios for the Company, Lincoln Bank, Cabarrus Bank, and Community Bank
as computed for regulatory purposes.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------------------- ---------------------------------- ----------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ---------- ------------------ -------------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total Capital (to Risk Weighted Assets)
Consolidated $69,386,000 13.1% > $42,305,104 > 8.0%
--- --
Lincoln Bank 45,326,000 12.3% > 29,536,774 > 8.0% > $36,920,968 > 10.0%
--- -- -- ---
Cabarrus Bank 14,483,000 11.5% > 10,109,664 > 8.0% > 12,637,080 > 10.0%
--- -- -- ---
Community Bank 8,124,000 14.0% > 4,652,450 > 8.0% > 5,815,563 > 10.0%
--- -- -- ---
Tier I Capital (to Risk Weighted Assets)
Consolidated $62,787,000 11.9% > $21,152,552 > 4.0%
--- --
Lincoln Bank 40,706,000 11.0% > 14,768,387 > 4.0% > $22,152,581 > 6.0%
--- -- -- ---
Cabarrus Bank 12,900,000 10.2% > 5,054,832 > 4.0% > 7,582,248 > 6.0%
--- -- -- ---
Community Bank 7,397,000 12.7% > 2,326,225 > 4.0% > 3,489,338 > 6.0%
--- -- -- ---
Tier I Capital (to Average Assets)
Consolidated $62,787,000 8.3% > $30,136,600 > 4.0%
--- --
Lincoln Bank 40,706,000 8.4% > 19,308,360 > 4.0% > $24,135,450 > 5.0%
--- -- -- ---
Cabarrus Bank 12,900,000 7.7% > 6,666,680 > 4.0% > 8,333,350 > 5.0%
--- -- -- ---
Community Bank 7,397,000 6.6% > 4,470,080 > 4.0% > 5,587,600 > 5.0%
--- -- -- ---
As of December 31, 1998:
Total Capital (to Risk Weighted Assets)
Consolidated $61,098,000 12.8% > $38,145,000 > 8.0%
--- --
Lincoln Bank 37,175,000 11.8% > 25,195,000 > 8.0% > $31,493,000 > 10.0%
--- -- -- ---
Cabarrus Bank 12,614,000 10.7% > 9,429,000 > 8.0% > 11,786,000 > 10.0%
--- -- -- ---
Community Bank 7,326,000 13.0% > 4,493,000 > 8.0% > 5,616,000 > 10.0%
--- -- -- ---
Tier I Capital (to Risk Weighted Assets)
Consolidated $55,128,000 11.6% > $19,072,000 > 4.0%
--- --
Lincoln Bank 33,235,000 10.6% > 12,597,000 > 4.0% > $18,896,000 > 6.0%
--- -- -- ---
Cabarrus Bank 11,138,000 9.5% > 4,714,000 > 4.0% > 7,072,000 > 6.0%
--- -- -- ---
Community Bank 6,623,000 11.8% > 2,247,000 > 4.0% > 3,370,000 > 6.0%
--- -- -- ---
Tier I Capital (to Average Assets)
Consolidated $55,128,000 8.3% > $26,553,000 > 4.0%
--- --
Lincoln Bank 33,235,000 7.6% > 17,606,000 > 4.0% > $22,007,000 > 5.0%
--- -- -- ---
Cabarrus Bank 11,138,000 7.0% > 6,345,000 > 4.0% > 7,932,000 > 5.0%
--- -- -- ---
Community Bank 6,623,000 6.5% > 4,058,000 > 4.0% > 5,072,000 > 5.0%
--- -- -- ---
</TABLE>
13. Commitments And Contingent Liabilities
In the normal course of business there are various commitments
and contingent liabilities outstanding which are not reflected in the
accompanying consolidated financial statements. The Company's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to extend credit and standby
letters of credit is represented by the contract amount of these
transactions. Management does not expect any material loss as a result
of these transactions. The following is a summary of commitments and
contingent liabilities:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------------------------
<S> <C> <C>
Commitments for additional loans $143,337,000 $127,931,000
Standby letters of credit 1,996,000 1,445,000
=================== ====================
</TABLE>
The Banks make contractual commitments to extend credit, which
are legally binding agreements to lend money to customers at
predetermined interest rates for a specified period of time. The same
credit standards used in the lending process are applied when issuing
these commitments. Additional risks arise when these commitments are
drawn upon, such as the demands on the Banks' liquidity if a
significant portion were drawn down at once. This is considered
unlikely as many commitments expire without being used.
The fair value of commitments to extend credit is considered
to approximate carrying value, since the large majority of these would
result in loans that have variable rates and/or relatively short terms
to maturity. For other commitments, generally of a short-term nature
the carrying value is considered to be a reasonable estimate of fair
value.
Minimum operating lease payments due in each of the five years
subsequent to December 31, 1999 are as follows: 2000, $717,000; 2001,
$698,000; 2002, $654,000; 2003, $427,000; 2004, $379,000 and subsequent
years, $1,830,000. Rental expense for all operating leases for the
three years ended December 31, 1999, 1998 and 1997 was $746,000,
$665,000 and $426,000, respectively.
<PAGE>
14. Condensed Balance Sheet
Parent Company Only
<TABLE>
<CAPTION>
December 31,
--------------------------------
Condensed Balance Sheet 1999 1998
Assets: -------------- --------------
<S> <C> <C>
Cash on deposit with subsidiary banks $527,507 $639,052
Investment in subsidiary banks 64,299,935 57,597,401
Other investments 1,088,635 1,289,887
Other assets 2,385,870 5,149,521
-------------- --------------
Total $68,301,947 $64,675,861
============== ==============
Liabilities $2,330,705 $2,698,130
Shareholders' equity 65,971,242 61,977,731
-------------- --------------
$68,301,947 $64,675,861
============== ==============
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Condensed Results of Operations
Equity in earnings of subsidiary Banks:
Dividends $1,500,000 --- $3,807,871
Undistributed 9,364,634 $8,005,656 3,877,921
Other expense, net (2,088,829) (1,296,727) (965,007)
-------------- -------------- --------------
Net income $8,775,805 $6,708,929 $6,720,785
============== ============== ==============
Condensed Cash Flow Cash flows from operating activities:
Net income $8,775,805 $6,708,929 $6,720,785
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in undistributed earnings of subsidiary banks (9,364,634) (8,005,656) (3,877,921)
Decrease (Increase) in other assets 2,842,019 (268,185) (3,952,290)
Settlement of merger-related claims --- 215,138 ---
Increase (decrease) in liabilities (367,425) 87,962 1,277,295
-------------- -------------- --------------
Net cash provided by (used in) operating activities 1,885,765 (1,261,812) 167,869
-------------- -------------- --------------
Cash flows from investing activities:
Purchase of investments --- (349,500) (150,000)
Proceeds from sales of investments --- 349,657 539,085
Originations of loans, net --- (2,018,419) (347,588)
-------------- -------------- --------------
Net cash provided by (used in) investing activities --- (2,018,262) 41,497
-------------- -------------- --------------
Cash flows from financing activities:
Proceeds from issuance of common stock. 394,088 506,756 5,853,403
Dividends and fractional shares paid (2,285,898) (1,657,723) (1,331,194)
Other,net (105,500) (121,942) (41,704)
-------------- -------------- --------------
Net cash provided by (used in) financing activities (1,997,310) (1,272,909) 4,480,505
-------------- -------------- --------------
Net increase (decrease) in cash............... (111,545) (4,552,983) 4,689,871
Cash at beginning of year 639,052 5,192,035 502,164
-------------- -------------- --------------
Cash at end of year $527,507 $639,052 $5,192,035
============== ============== ==============
</TABLE>
15. Merger
On November 7, 1999, First Charter Corporation ("FCC") and the
Company entered into an Agreement and Plan of Merger, pursuant to which
Carolina First will be merged into FCC and each share of the Company
common stock will be converted into the right to receive 2.267 shares
of FCC common stock. The merger is expected to close in the second
quarter of 2000, subject to a number of conditions, including approval
of regulatory authorities and the stockholders of Carolina First and
FCC.
Item 9. Changes In and Disagreement with Accountants on Accounting
and Financial Disclosure
Not applicable
Item 10. Directors And Executive Officers
<TABLE>
<CAPTION>
DIRECTORS
Name, Age and Year First
Elected or Appointed as a Positions and Offices Held With the Company and
Director Business Experience During the Past Five Years
---------------------------- ----------------------------------------------------------------------------------
<S> <C>
Harold D. Alexander (64) Mr. Alexander is the President and owner of Young & Alexander, Inc. (electrical
1999 contractor). He is the Chairman of Community Bank & Trust Co. and has served as
a director of Community Bank & Trust Co. since 1987.
James E. Burt, III (62) Mr. Burt has been President of the Company since 1990 and Chief Executive
1990 Officer of the Company since 1998. Mr. Burt has been a director of Lincoln
Bank since 1990. Mr. Burt served as President and Chief Executive Officer of
Lincoln Bank from 1990 to 1998. Mr. Burt has also been a director of Cabarrus
Bank since 1992, First Gaston Bank of North Carolina since 1995 and Community
Bank & Trust Co. since 1999.
Charles A. James (53) Mr. James served as a director of CK Federal from 1983 to 1993 and subsequently
1998 to 1998 when it was acquired by South Trust Bank of North Carolina. Mr. James
is the President of Mt. Pleasant Insurance Agency; the President of Mt. Pleasant
Enterprises, Inc., a land development company; director of Albemarle Knitting
Corp.; Co-owner of Mt. Pleasant Bonded Warehouse; Partner of All Secure Storage;
Partner of North Branch Properties, a real estate investment, and Partner of
Earnhardt Interchange Properties, a real estate/land investment. He has served
as a director of Cabarrus Bank since 1998.
Walter H. Jones, Jr. (58) Mr. Jones is a partner in the law firm of Homesley, Jones, Gaines, Homesley &
1999 Dudley; Chairman of the Mooresville Board of Elections; and has served as
President of the Mooresville Jaycees, and the Iredell County Bar Association.
Mr. Jones is an elder of First Presbyterian Church of Mooresville. He has
served as a director Lincoln Bank since 1995.
Samuel C. King, Jr. (52) Mr. King has been President of King's Office Supply, Inc. since 1977; and
1989 President of King Cain, Inc., d/b/a Mail Boxes Etc. since 1998. He has served
as a director of Lincoln Bank since 1983 and as Vice Chairman of Lincoln Bank
since 1992.
Jack L. Lutz (62) Mr. Lutz is President of Lutz Corporation, d/b/a Lutz Petroleum, Spindale, NC
1999 d/b/a Lutz Leasing, Shelby, NC; Co-owner of L&L Partnership (commercial real
estate); Owner of J.L. Rentals (apartment rentals); and President of the Lutz
Foundation. Mr. Lutz also serves as a director of several petroleum and
environmental companies. He has been a director of Community Bank & Trust Co.
since 1987.
John H. Morrison, Jr. (56) Mr. Morrison is 50% owner of E.L. Morrison Lumber Company. He has served as
1999 director of Cabarrus Bank since 1985.
Harry D. Ritchie (66) Mr. Ritchie is retired. He has been the owner of Ritchie Brothers Dairy Farm
1989 since 1955. He has served as a director of Lincoln Bank since 1983.
Thomas M. Robbins (65) Mr. Robbins is the former Secretary & Treasurer of Tri-City Concrete Co., Inc.
1999 (ready mix concrete sales); former Co-owner of Rutherfordton Properties (real
estate rentals) and Robbins Leasing (equipment rentals). He is currently a
member of the Economic Development Commission of Rutherford County. He has
served as a director of Community Bank & Trust Co. since 1987.
L.D. Warlick, Jr. (60) Mr. Warlick was elected Chairman of the Company on March 18, 1999. Mr. Warlick
1992 is the President of Warlick Funeral Home, Lincolnton, North Carolina. Mr.
Warlick is a past President of the Lincolnton Rotary Club and the Lincoln
County Chapter of the American Red Cross; a past President of Lincoln Medical
Center Board of Directors; and is a past Chairman of the Lincoln County United
Way. He has served as a director of Lincoln Bank since 1983.
Estus B. White (69) Mr. White is retired. He is the former owner of White's Office Supply and
1992 Printing Co. of Kannapolis and Concord. He is a former member of the Cabarrus
County Board of Education and a former Cabarrus County Commissioner. He is the
retired Clerk of Superior Court for Cabarrus County. He has served as a
director of Cabarrus Bank since 1980.
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE
OFFICERS
-------- Positions and Offices Held With the Company and
Names and Ages Business Experience During the Past Five Years
------------------------------ -----------------------------------------------------------------------------
<S> <C>
James R. Beam (59) Mr. Beam has served as an executive officer of Lincoln Bank since 1984 and
as President and Chief Executive Officer since 1998.
Stephen S. Robinson (51) Mr. Robinson has served as Executive Vice President of Lincoln Bank since
1992 and as a Senior Vice President from 1986 to 1992.
Ronald D. Smith (52) Mr. Smith has served as an executive officer of Cabarrus Bank since 1992
and as President and Chief Executive Officer since 1994.
Jan H. Hollar (44) Ms. Hollar has served as a Senior Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company since 1999 and served as Vice
President, Treasurer and Secretary of the Company from 1990 to 1999. Ms.
Hollar also serves as a Senior Vice President and Chief Financial Officer
of Lincoln Bank, Cabarrus Bank and Community Bank & Trust Co.
Joy G. Keever (63) Ms. Keever has served as Vice President-Human Resources of the Company
since 1996 and has served as Vice President of Administration for Lincoln
Bank since 1986.
James H. Mauney (52) Mr. Mauney has served as Vice President-Credit Administration of the
Company since February 1996. Mr. Mauney served as Vice President,
Construction Lending Manager, Credit Policy Officer and Loan Review Manager
of Hibernia National Bank, in New Orleans, Louisiana from February 1988
until February 1996.
</TABLE>
Section 16(a) Compliance
The Company is required to identify each director or officer
who failed to file timely with the Securities and Exchange Commission a
required report relating to ownership and changes in ownership of the
Company's securities. Based on material provided to the Company, the
Company believes that all such filing requirements with respect to the
Company's fiscal year ended December 31, 1999 were complied with.
Item 11. Executive Compensation
The following table sets forth, for each of the last three
years, certain elements of compensation for each person who served as
the Chief Executive Officer during fiscal year 1999 and each of the
four most highly-compensated executive officers whose total annual
salary and bonus exceeded $100,000 in fiscal year 1999 (collectively,
the "Named Executive Officers"):
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND SALARY BONUS (1) COMPENSATION (2) OPTIONS/SARs (3)
PRINCIPAL POSITION YEAR $ $ $ #
( a ) ( b ) ( c ) ( d ) ( e ) ( f )
<S> <C> <C> <C> <C> <C>
James E. Burt, III
President and 1999 $157,638 $32,824 $26,153 ---
Chief Executive Officer, 1998 153,885 32,066 23,190 ---
President of Lincoln Bank 1997 147,966 38,100 27,419 ---
James R. Beam
Chief Executive Officer 1999 $112,000 $11,761 $17,446 ---
of 1998 102,664 10,552 16,141 5,000
Lincoln Bank (since 1997 95,163 12,960 15,597 ---
November 1998)
Stephen S. Robinson 1999 $106,241 $12,876 $16,317 ---
Executive Vice President 1998 100,536 10,933 15,232 ---
Of Lincoln Bank 1997 95,683 12,960 14,886 ---
Ronald D. Smith
President and Chief 1999 $107,091 $9,695 $14,699 ---
Executive Officer of 1998 101,702 10,621 14,244 ---
Cabarrus Bank 1997 96,526 13,442 14,089 ---
Jan H. Hollar 1999 $90,000 $10,466 $12,147 3,300
Senior Vice President 1998 76,352 9,211 11,103 ---
and Chief Financial 1997 72,235 11,115 10,848 ---
Officer
</TABLE>
(1) Bonus amounts are comprised of cash payments in accordance with
guidelines approved by the Company's Compensation and Benefits
Committee.
(2) Amounts shown consist of the Company's contribution to the Company's
Profit Sharing Plan and th e Company's contribution matching the
participant's contributions to such plan, and amounts contributed by
the Company pursuant to the Deferred Compensation Plan for Carolina
First BancShares, Inc. and Subsidiaries on behalf of Messrs. Beam, Burt
and Robinson, with respect to fees paid for attendance at meetings of
the Board of Directors of Lincoln Bank.
(3) Stock options were granted pursuant to the Company's 1990 Stock Option
and Stock Appreciation Rights Plan.
<TABLE>
<CAPTION>
Option/SAR Grants in 1999
Individual Grants
Percent of
Number of Total
Securities Options/
Underlying SARs Exercise Potential Realizable Value
Options/ Granted to Or Base At Assumed Annual Rates of
SARs Employees Price Expir- Stock Price Appreciation for
Name Granted (#) In 1999 ($/Sh) ation date Option Term
5% 10%
($)
(a) (b) (c) (d) (e) (f) (g)
<S> <C> <C> <C> <C> <C> <C>
Jan H. Hollar 3,300 15% $25.45 01/06/09 $64,477 $141,671
</TABLE>
Aggregated Option/SAR Exercises in 1999
And 1999 Year-End Option/SAR Values
The following table shows stock option exercises by the named
executive officers during 1999, including the aggregate value of gains
on the date of exercise. In addition, this table includes the number of
shares covered by both exercisable and non-exercisable options as of
December 31, 1999. Also reported are the values for "in-the-money"
options, which represent the positive spread between the exercise price
of any such existing options and the year-end price of the Company's
Shares.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Underlying In-the-Money
Securities Options/SARs at
Unexercised Fiscal Year End ($)
Options/SARs at
Fiscal Year End
(#)
Shares
Acquired on Value Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable(4) Unexercisable
(a) (b) (c) (d) (e)
<S> <C> <C> <C> <C>
James E. Burt, III 43,211(1) $1,079,760(2) 36,769(3)/-0- $987,064(3)/$-0-
James R. Beam 3,000 $60,645 10,750/-0- $127,331/$-0-
Stephen S. Robinson --- --- 8,250/-0- $256,781/$-0-
Ronald D. Smith 4,325 $118,397 3,283/-0- $89,872/$-0-
Jan H. Hollar 2,250 $61,031 9,056/-0- $155,857/$-0-
</TABLE>
--------------
(1) Includes 24,827 options and 18,384 SARs. The exercise of the SARs does
not result in the issuance of any Shares.
(2) Includes $418,493 relating to the exercise of the SARs.
Meetings of the Boards of Directors and Committees and Compensation of
Directors
During 1999, the Company's Board met ten times. Each Company
director attended at least 75% of the aggregate number of meetings of
the Company's Board and its committees on which he served. Each member
of the Company's Board who was not an employee of the Company or its
subsidiaries received $400 for each Board meeting attended.
The Board of Directors currently has an Executive Committee,
CRA Committee, a Compensation and Benefits Committee, an Audit
Committee and a Nominating Committee. The Executive Committee, which is
comprised of Messrs. Warlick, Alexander, Burt, James, King and Ritchie,
acts on behalf of the Board between meetings of the full Board. The
Executive Committee met eight times in 1999, and each member received
$200 for each committee meeting attended.
The CRA Committee and its representatives meet with community
leaders and advocacy organizations in areas within our delineated
communities. The CRA Committee solicits opinions from community
leaders, community-based organizations, government agencies, political
leaders, religious organizations, and concerned individuals to assist
in ascertaining local credit needs and to help evaluate the
effectiveness of our products, services, and marketing efforts. In
addition to Mr. Warlick and Mr. Lutz, the Committee is comprised of
officers and directors from each bank subsidiary. The CRA Committee met
six times in 1999, and each member received $150 for each meeting
attended.
The Compensation and Benefits Committee reviews salary
administration guidelines and incentive compensation plans and also
reviews the Company's administration of such plans. The Compensation
and Benefits Committee, which is comprised of Messrs. Alexander,
Mynatt, King, Ritchie and Warlick and Wilson, met nine times in 1999.
Each member of the Compensation and Benefits Committee received $150
for each meeting attended. Mr. Wilson did not attend 75% of the
meetings.
The Audit Committee reviews all control functions and is
comprised of Messrs. King, Warlick, Robbins and White. The Audit
Committee also recommends on an annual basis to the Board of Directors
a public accounting firm to be engaged as independent auditors for the
Company for the next fiscal year, reviews the plan for the audit
engagement, and reviews financial statements, internal audit plans and
reports, financial reporting procedures, and reports of regulatory
authorities. The Audit Committee periodically reports to the Board of
Directors. The Audit Committee met four times in 1999. Each member of
the Audit Committee received $150 for each meeting attended.
The Nominating Committee nominates directors of the Company
and the members of committees of the Board. While nominees recommended
by shareholders may be considered provided that the nominations are
made in accordance with the Company's Amended and Restated Articles of
Incorporation, the Nominating Committee has not solicited any such
recommendations. The Nominating Committee, which is comprised of
Messrs. Alexander, Boger, Burt, King and Ritchie, met once in 1999, and
each member received $175 for attending the meeting.
The Company's Second Amended and Restated Directors' Deferred
Compensation Plan allows the directors of the Company to defer the
compensation they earn for attendance at meetings of the Board or its
various committees. Each director elects annually to either receive
that year's compensation currently or to defer receipt until his death,
disability or retirement as a director. The amount deferred is credited
to the director's account held by Lincoln Bank's Trust Department.
Several investment alternatives are available, including Shares.
Item 12. Security Ownership Of Certain Beneficial Owners And
Management Principal Shareholders
As of February 2, 2000, there were no persons known to the
Company who were beneficial owners of more than 5% of the Company's
outstanding Shares other than D. Mark Boyd, III. Based on the limited
information available to it, the Company believes that Mr. Boyd owns
approximately the number of Shares set forth in the table below. Mr.
Boyd has agreed with the FDIC to cause all his Shares to be voted by a
person designated by the Company's Board of Directors in proportion to
the votes of all other Shares cast upon such matters.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of Class
<S> <C> <C>
D. Mark Boyd, III 579,905(1) 9.65%
P.O. Box 399
Lincolnton, North Carolina 28093
----------------------------
</TABLE>
(1) In addition to the Shares that Mr. Boyd owns beneficially,
the Company believes certain of his family members own approximately
109,303 additional Shares which, together with Mr. Boyd's Shares,
represent approximately 11.59% of the total Shares outstanding.
Directors and Officers
The following table sets forth information as of February 2,
2000 regarding the beneficial ownership of Company Shares by each
director, by the Named Executive Officers, and by all directors and
executive officers as a group. The amounts shown are based upon
information furnished by the individuals named.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Name of Director and Named Ownership of
Executive Officer Shares (1)/Percent of Class
<S> <C>
Harold D. Alexander 53,913 (2) *
James E. Burt, III 60,208 (3)
1.05%
Charles A. James 7,921*
Walter H. Jones, Jr. 16,807 (4) *
Samuel C. King, Jr. 29,777 (5) *
Jack L. Lutz 20,755 (6) *
Harry D. Ritchie 21,843 (7) *
Thomas M. Robbins 20,053 (8) *
L.D. Warlick, Jr. 66,001 (9)
1.10%
Estus B. White 20,713 (10) *
James R. Beam 28,902 (11) *
Stephen S. Robinson 37,724 (12) *
Ronald D. Smith 21,590 (13) *
Jan H. Hollar 17,710 (14) *
John H. Morrison, Jr. 10,543 (15)*
DIRECTORS AND EXECUTIVE 429,917
OFFICERS AS A GROUP 7.07%
(14 PERSONS)
</TABLE>
*Less than one percent of outstanding Shares.
(1) Information relating to beneficial ownership of Shares is
based upon "beneficial ownership" concepts set forth in rules
of the Securities and Exchange Commission ("SEC") under
Section 13(d) of the Securities and Exchange Act of 1934.
Under such rules a person is deemed to be a "beneficial owner"
of a security if that person has or shares "voting power",
which includes the power to vote or direct the voting of such
security, or "investment power," which includes the power to
dispose or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any security
of which that person has the right to acquire beneficial
ownership within 60 days. Under these rules, more than one
person may be deemed to be a beneficial owner of the same
securities, and a person may be deemed to be a beneficial
owner of securities as to which he may disclaim beneficial
interest.
(2) Includes 5,758 Shares held by a corporation of which Mr.
Alexander is President and owner, and 10,462 Shares held by
his wife, as to which Shares Mr. Alexander may be deemed to
share voting and investment power.
(3) Includes 4,386 Shares owned by Mr. Burt's wife, as to which
Shares Mr. Burt may be deemed to share voting and investment
power.
(4) Includes 56 shares owned jointly with his wife, and 11,976
Shares held by Mr.Jones wife in her own name, as to which Mr.
Jones may be deemed to share voting and investment power.
(5) Includes 939 Shares held by a corporation of which Mr. King is
President and principal shareholder, 2,632 Shares owned
jointly with his wife and 10,698 Shares held by Mr. King's
wife and family members, as to which Shares Mr. King may be
deemed to share voting and investment power.
(6) Includes 3,839 Shares held by Mr. Lutz's wife, as to which
Shares Mr. Lutz may be deemed to share voting and investment
power.
(7) Includes 8,522 Shares owned jointly with Mr. Ritchie's wife,
and 240 shares held by Mr. Ritchie's wife, as to which Shares
Mr. Ritchie may be deemed to share voting and investment
power.
(8) Includes 6,671 Shares owned jointly with Mr. Robbins' wife and
1,933 Shares held by Mr. Robbins' wife and family members, as
to which Shares Mr. Robbins may be deemed to share voting and
investment power.
(9) Includes 4,519 Shares held by a corporation of which Mr.
Warlick is a director and President, and 15,007 Shares held by
Mr. Warlick's wife and family members, as to which Shares Mr.
Warlick may be deemed to share voting and investment power.
(10) Includes 10,149 Shares owned jointly with Mr. White's wife,
as to which Shares Mr. White may be deemed to share voting and
investment power.
(11) Includes 4,500 Shares which could be purchased within 60 days
pursuant to the exercise of stock options.
(12) Includes 2,568 Shares held by Mr. Robinson's wife and family
members, as to which Shares Mr. Robinson may be deemed to
share voting and investment power.
(13) Includes 127 Shares held by Mr. Smith's wife, as to which
Shares Mr. Smith may be deemed to share voting and investment
power.
(14) Includes 1,457 Shares held by Ms. Hollar's family members,
as to which Shares Ms. Hollar may be deemed to share voting
and investment power.
(15) Includes 1,540 Shares held by a company of which Mr. Morrison
is Co-owner, as to which Shares Mr. Morrison may be deemed to
share voting and investment power.
Changes in Control
On November 7, 1999, First Charter Corporation ("FCC") and the
Company entered into an Agreement and Plan of Merger, pursuant to which
Carolina First will be merged into FCC and each share of the Company
common stock will be converted into the right to receive 2.267 shares
of FCC common stock. The merger is expected to close in the second
quarter of 2000, subject to a number of conditions, including approval
of regulatory authorities and by the stockholders of Carolina First and
FCC.
Employment Agreements
As of September 23, 1999, the Company entered into a new
employment contract with James E. Burt, III. The contract provides that
Mr. Burt shall remain employed by the Company through January 31, 2001,
unless sooner terminated under the terms thereof.
The employment contract may be terminated by the Company for
cause, or by reason of Mr. Burt's permanent disability. In the event
his employment is terminated without cause by the Company prior to
January 31, 2001, the Company shall continue to pay Mr. Burt's annual
salary and provide certain benefits (except for the annual bonus) until
January 31, 2001 or pay him 12 months pay, whichever is the greater, as
severance pay.
In the event the Company experiences a "change in control," as
defined in the employment contract, Mr. Burt shall receive a lump-sum
payment equal to his annual salary and maximum bonus potential for the
year in which the change in control occurs (in addition to his regular
compensation if he remains in the Company's employ after the change in
control). If Mr. Burt's employment is terminated after a change in
control, he will be entitled to receive various benefits and
compensation for the remainder of the term of the employment agreement.
All of Mr. Burt's deferred compensation will become immediately vested
upon a change in control
As of December 31, 1996, the Company also entered into a
Deferred Compensation Agreement with Mr. Burt that replaced a similar
agreement dated July 2, 1992. This agreement provides that if Mr. Burt
retires from the Company at age 62, or if his employment is terminated
without cause upon, or within 12 months of, a change in control
involving the Company, Mr. Burt shall receive certain payments for up
to 120 months.
As of November 10, 1998, Lincoln Bank entered into an
employment contract with Stephen S. Robinson, Executive Vice President
of Lincoln Bank. The contract provides that Mr. Robinson shall remain
employed by Lincoln Bank as an Executive Vice President through
December 31, 2003, unless sooner terminated under the terms thereof.
Either party may terminate the employment contract for cause or with
proper notification. In the event Mr. Robinson is terminated without
cause by Lincoln Bank prior to the expiration date of the contract, he
is entitled to continue to receive his salary for a period of 24 months
following the date of termination, as severance pay. In the event that
Lincoln Bank experiences a "change in control," as defined in the
contract, Mr. Robinson is entitled to receive various benefits and
compensation.
As of October 21, 1996, Cabarrus Bank entered into an
employment contract with Ronald D. Smith, the President and Chief
Executive Officer of Cabarrus Bank. The contract provides that Mr.
Smith shall remain employed by Cabarrus Bank through October 21, 2002,
unless sooner terminated under the terms thereof. Either party may
terminate the employment contract for cause or with proper
notification. In the event Mr. Smith is terminated without cause by
Cabarrus Bank prior to the expiration date of the contract; he is
entitled to continue to receive his salary for a period of 12 months
following the date of termination, as severance pay. In the event that
Cabarrus Bank experiences a "change in control," as defined in the
contract, and Mr. Smith is terminated, without cause, within 36 months
of the change in control, he will be entitled to entitled to receive
various benefits and compensation. As of February 18, 1993, Cabarrus
Bank also entered into a Deferred Compensation Agreement with Mr.
Smith. This agreement provides that if Mr. Smith retires from the
Company at age 65, Mr. Smith shall receive certain payments for up to
120 months.
In connection with the Company's acquisition of Community Bank
& Trust Co., that bank entered into an employment agreement dated as of
June 4, 1998, with Ronnie D. Blanton, which became effective on
December 23, 1998 when the acquisition was completed. The contract
provides that Mr. Blanton shall remain employed by Community Bank &
Trust Co. through December 23, 2001, unless sooner terminated under the
terms thereof. The contract provides for the payment of certain
transition bonuses in connection with the acquisition of Community Bank
& Trust Co., in addition to Mr. Blanton's salary and other benefits.
Either party may terminate the employment contract for cause or with
proper notification. In the event Mr. Blanton is terminated without
cause by Community Bank & Trust Co. prior to January 31, 2002, he is
entitled to receive his salary and other benefits until January 31,
2002, or 12 months' pay, whichever is the greater, as severance pay. In
the event that Community Bank & Trust Co. experiences a "change in
control," as defined in the contract, and Mr. Blanton is terminated,
without cause, within 36 months of a change in control, he will be
entitled to receive various benefits and compensation.
As of February 18, 1999, the Company entered into an
employment contract with Janet H. Hollar, the Senior Vice President,
Chief Financial Officer, Treasurer and Secretary of the Company. The
contract provides that Ms. Hollar shall remain employed by the Company
through December 31, 2003, unless sooner terminated under the terms
thereof. The employment contract may be terminated by the Company for
cause, or by reason of Ms. Hollar's permanent disability. Either party
may terminate the employment contract with proper notification. In the
event Ms. Hollar is terminated without cause by the Company prior to
the expiration date of the contract, or if Ms. Hollar terminates the
contract for cause, she is entitled to continue to receive her salary
for a period of 12 months following the date of termination, as
severance pay. In the event that the Company experiences a "change in
control," as defined in the contract, and Ms. Hollar is terminated
without cause within 36 months of change in control, she will be
entitled to receive various benefits and compensation.
Board and Executive Committee Report on Executive Compensation
The Compensation and Benefits Committee is composed of
non-employee, independent members of the Board of Directors. It is the
Committee's responsibility to review, recommend and approve changes to
the Company's compensation policies and programs. It is also the
Committee's responsibility to review and approve all compensation
actions with respect to the Chief Executive Officer and all other
officers of the Company.
The Company's primary objective is to maximize shareholder
value over time. To accomplish this objective, the Company utilizes
four primary components of executive compensation: base salary, annual
incentives, long-term incentives and benefits. Each component is
offered to key executives in various combinations, structured in each
case to meet varying business objectives, and to cumulatively provide a
level of total compensation equivalent to companies of comparable size
and with similar geographical location and performance results.
Base salary is the largest component of executive
compensation. Salaries are determined by assigning job grades based on
an assessment of the level of responsibilities. For each of the 33 job
grades used by the Company, a salary range is assigned utilizing an
entry level, midpoint and maximum level. Officers are evaluated at
least annually, and performance rating is determined by valuing
performance against certain pre-determined job responsibilities and
standard performance criteria. This evaluation produces a numerical
rating, which is factored into a salary matrix to suggest the amount of
compensation increase that the officer should receive. The salary
matrix is reviewed periodically by an outside consultant who
specializes in compensation plans for financial institutions. The
Compensation and Benefits Committee approves the salary matrix and
salary adjustments of all officers annually.
Base salary for Mr. Burt was increased in 2000 by 2% for his
performance in 1999. This increase was less than that commensurate with
a performance evaluation signifying that he exceeded the expectations
of the Committee. The base salary for executive officers generally
falls within the midpoint of the salary range and Mr. Burt's base pay
falls in the third quartile of his salary range.
Annual incentives are based upon a cash incentive compensation
plan for all officers. This plan is based in part on Company
performance and in part on individual performance. The Compensation and
Benefits Committee makes the final determination of incentive potential
awards. Mr. Burt achieved 44% of his 1999 maximum potential cash
incentive. Cash incentive awards for other executive officers ranged
from 33%-75% of the maximum potential cash incentives.
Long-term incentives are comprised of incentive stock options
and stock appreciation rights under the 1990 Stock Option and Stock
Appreciation Rights Plan and the 1999 Long Term Incentive Plan. Mr.
Burt was not granted any stock options or stock appreciation rights
during 1999. Executive officers were granted options on the basis of
additional duties assumed.
Benefits offered to executive officers are generally the same
as those offered to other officers and employees. Generally, they are
designed to provide assistance to the employee and/or their dependants
in times of illness, disability or death. Also, the Company's
retirement plan provides a portion of retirement income based on profit
sharing and matching funds for a 401(k) plan.
Compensation Committee
Harold D. Alexander
Cynthia L. Mynatt
Samuel C. King, Jr.
Harry D. Ritchie
L.D. Warlick, Jr.
David A. Wilson
Performance Graph
The following graph compares the yearly percentage change in
the cumulative total stockholder return on the Company's Shares, with
the cumulative return on Standard & Poor's 500 Stock Index ("S&P 500")
and The Carson Medlin Company's Southeastern Independent Bank Index
("Independent Bank Index").
The Independent Bank Index is the compilation of the total
return to shareholders over the past five years of a group of 23
independent community banks located in the southeastern states of
Florida, Georgia, North Carolina, South Carolina, Tennessee, and
Virginia. The banks included are:
<TABLE>
<CAPTION>
Name City State
<S> <C> <C>
United Security Bancshares, Inc. Thomasville AL
TIB Financial Corp. Key Largo FL
Seacoast Banking Corp. Stuart FL
Capital City Bank Group, Inc. Tallahassee FL
Fidelity National Corp. Atlanta GA
Southwest Georgia Financial Corp. Moultrie GA
PAB Bankshares, Inc. Valdosta GA
Four Oaks Fincorp, Inc. Four Oaks NC
Bank of Granite Corp. Granite Falls NC
FNB Financial Services Corp. Reidsville NC
First Bancorp Troy NC
CNB Corporation Conway SC
Palmetto Bancshares, Inc. Laurens SC
Carolina Southern Bank Spartanburg SC
First Pulaski National Corporation Pulaski TN
National Bankshares, Inc. Blacksburg VA
FNB Corporation Christiansburg VA
Virginia Commonwealth Financial Corp. Culpeper VA
American National Bankshares, Inc. Danville VA
Central Virginia Bankshares, Inc. Powharan VA
Virginia Financial Corp. Staunton VA
C&F Financial Corporation West Point VA
First Century Bankshares, Inc. Bluefield WV
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Carolina First BancShares, Inc. 100 144 233 385 403 484
Independent Bank Index-Weighted 100 122 155 235 246 222
S&P 500 Index 100 138 169 225 290 351
</TABLE>
Item 13. Certain Relationships And Related Transactions
Certain Company directors, officers, and principal
shareholders, and their associates, were customers of, or had banking
and financial transactions with, the Company of its subsidiaries in the
ordinary course of business during 1999. Some of the directors of the
Company or its subsidiaries are directors, officers, trustees or
principal securities holders of corporations or other organizations
which also were customers of, or had banking and financial transactions
with, the Company or its subsidiaries in the ordinary course of
business during 1999.
All outstanding loans and other transactions with the
directors, officers and principal shareholders of the Company and its
subsidiaries were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
persons and, when made, did not involve more than the normal risk of
collectibility or present other unfavorable features. The aggregate
amount of credit extended to directors, executive officers and
principal shareholders as of December 31, 1999 was $7,721,066 or 11.7%
of the Company's shareholders' equity. In addition to banking and
financial transactions, the Company or its subsidiaries may have had
additional transactions with, or used products or services of, various
organizations of which directors of the Company and its subsidiaries
are associated. The Company provided data processing and other services
to First Gaston Bank of North Carolina ("First Gaston"), during 1999,
for which First Gaston paid $82,571. The Company is the largest
shareholder of First Gaston, and James E. Burt, III, the Company's
President and Chief Executive Officer is a director of First Gaston.
Except for the transactions with First Gaston, the amounts involved in
such noncredit transactions have in no case been material in relation
to the business of the Company, its subsidiaries or such other
organizations. It is expected that the Company and its subsidiaries
will continue to have similar transactions in the ordinary course of
its business with such individuals and their associates in the future.
Mr. Jones, a directory of the Company, is a partner in the law
firm of Homesley, Jones, Gaines, Homesley & Dudley, which performed
certain legal services on the Company's behalf during 1999.
Lincoln Bank currently leases an office building in
Lincolnton, North Carolina from D. Mark Boyd, III, the Company's former
Charmin and Chief Executive Officer, and the holder of more than 5% of
the Company's Shares, and his wife Diane Boyd. This property is leased
under a five-year lease which commenced in September 1997 at a current
monthly rental of $3,285.33, subject to annual adjustments as provided
in the lease agreement. The Bank has the option to renew the lease for
one additional five-year term. The Company believes that the terms of
this lease, including the rent, are comparable to the terms available
from unrelated third parties.
PART IV
Item 14. Exhibits And Reports On Form 8-K
(a) Financial Statements
See the following financial statements included herein at Item 8.
o Independent Auditors' Report
o Consolidated Balance Sheets at December 31, 1999 and 1998
o Consolidated Statements of Income for each of the years in the three-
year period ended December 31, 1999
o Consolidated Statements of Changes in Shareholders' Equity and
Comprehensive Income for each of the years in the three-year period
ended December 31, 1999
o Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1999
o Notes to Consolidated Financial Statements
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by the
Company during the last quarter of fiscal year ended
December 31, 1999.
o On November 9, 1999, the Registrantfiled a Form 8-K announcing that
First Charter Corporation and Carolina First BancShares, Inc. had
entered into an Agreement and Plan of Merger, pursuant to which
Carolina First will be merged into First Charter Corporation.
o On November 15, 1999, the Registrant filed a Form 8-K/A amending the 8-K filed
on November 9, 1999.
(c) Exhibits
The following Exhibits are attached hereto or
incorporated by reference herein (numbered to
correspond to Item 601 of Regulation S-K).
Exhibit No. Description of Exhibit
2.0 Agreement and Plan of Merger dated
as of November 7, 1999 by and bet-
ween the Registrant and First
Charter Corporation.
3.0 Amended and Restated Articles of
Incorporation of the Registrant,
(incorporated by reference to
Exhibit 3.1 to the Registrant's
Registration Statement on Form S-4
(File No. 333-59729), dated July
23, 1998).
3.1 Amended and Restated Bylaws of the
Registrant (incorporated by
reference to Exhibit 3.2 to the
Registrant's Quarterly Report on
Form 10-Q for the period ended
September 30, 1999).
4.0 Specimen of Common Stock
Certificate of the Registrant
(incorporated by reference to the
Registrant's Registration Statement
(File No 33-26861).
10.0 Registrant's Second Amended and
Restated Directors Deferred
Compensation Plan (incorporated by
reference to Registrant's Quarterly
Report on Form 10-Q for the period
ended September 30, 1999).
10.1 Registrant's Profit Sharing Plan
( incorporated by reference to
Registrant's Registration Statement
(File No. 33-26861).
10.2 Registrant's 1990 Stock Option and
Stock Appreciation Rights Plan, as
amended (incorporated by reference
to the Registrant's Registration
Statement (File No.33- 43037) dated
October 1, 1991).
10.3 Amendment No. 1 to the Registrant's
1990 Stock Option Plan (incor-
porated by reference to the
Registrant's Quarterly Report on
Form 10-Q for the period ended
September 30, 1999).
10.4 Registrant's 1999 Long-Term
Incentive Plan (incorporated by
reference to the Registrant's
Annual Report on Form 10-K for the
year ended December 31, 1998.)
10.5 Employment Agreement dated as of
September 23, 1999, and Deferred
Compensation Agreement dated as of
December 31, 1996 by and between
Carolina First BancShares, Inc. and
James E. Burt, III (incorporated by
reference to Registrant's Quarterly
Report on Form 10-Q for the period
ended September 30, 1999).
10.6 Employment Agreement dated November
10, 1998 by and between Lincoln
Bank of North Carolina and Stephen
S. Robinson (incorporated by
reference to the Registrant's
Annual Report on Form 10-K for the
period ended December 31, 1998).
10.7 Employment Agreement dated October
21, 1996 by and between Cabarrus
Bank of North Carolina and Ronald
D. Smith (incorporated by reference
to the Registrant's Annual Report
on Form 10-K for the period ended
December 31, 1998).
10.8 Deferred Compensation Agreement
dated as of February 18, 1993 by
and between Cabarrus Bank of North
Carolina and Ronald D. Smith
(incorporated by reference to the
Registrant's Annual Report on Form
10-K for the period ended December
31, 1998).
10.9 Employment Agreement dated as of
February 18, 1999 by and between
the Registrant and Janet H. Hollar,
as amended (incorporated by
reference to Registrant's Quarterly
Report on Form 10-Q for the period
ended September 30, 1999).
10.10 Lease Agreement dated September 1,
1997 by and between Lincoln Bank of
North Carolina and D. Mark Boyd,
III and Diane H. Boyd (incorporated
by reference to the Registrant's
Annual Report on Form 10-K for the
period ended December 31, 1998).
10.11 Addendum to Lease Agreement dated
October 30, 1998 by and between
Lincoln Bank of North Carolina and
D. Mark Boyd, III and Diane H. Boyd
(incorporated by reference to the
Registrant's Annual Report on Form
10-K for the period ended December
31, 1998).
10.12 Employment Agreement dated June 4,
1998 by and between Community Bank
& Trust Co. and Ronnie D. Blanton
( incorporated by reference to
Exhibit 10.10 to the Registrant's
Registration Statement on Form S-4
(File No. 333-59729)dated July 23,
1998).
11 Statement regarding computation of
earnings per share.
21 List of subsidiaries of the
Registrant.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, the City of
Lincolnton, State if North Carolina, on the 26th day of March, 2000
CAROLINA FIRST BANCSHARES, INC.
By: \s\ L.D. Warlick, Jr.
------------------------------
L.D. Warlick, Jr.
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons in the capacities and
on the dates indicated:
Signatures Date Title
Principal Executive Officers:
\s\ L.D. Warlick, Jr. March 23, 2000 Chairman of the
- ---------------------------- Board
L.D. Warlick, Jr.
\s\ James E. Burt, III March 23, 2000 President, CEO,
- ---------------------------- Director
James E. Burt, III
Principal Financial Officer and
Principal Accounting Officer:
\s\ Jan H. Hollar March 23, 2000 Sr. Vice President,
- ---------------------------- CFO
Jan. H. Hollar
Directors:
\s\ Harold D. Alexander March 23, 2000 Director
- ----------------------------
Harold D. Alexander
\s\ Charles A. James March 23, 2000 Director
- ----------------------------
Charles A. James
\s\ Walter Jones March 23, 2000 Director
- ----------------------------
Walter Jones
\s\ Samuel C. King, Jr. March 23, 2000 Director
- ----------------------------
Samuel C. King, Jr.
\s\ Jack L. Lutz March 23, 2000 Director
- ----------------------------
Jack L. Lutz
\s\ John Morrison March 23, 2000 Director
- ----------------------------
John Morrison
\s\ Harry D. Ritchie March 23, 2000 Director
- ----------------------------
Harry D. Ritchie
\s\ Thomas M. Robbins March 23, 2000 Director
- ----------------------------
Thomas M. Robbins
\s\ Estus B. White March 23, 2000 Director
- ----------------------------
Estus B. White
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CAROLINA FIRST BANCSHARES, INC.
AND
FIRST CHARTER CORPORATION
DATED AS OF NOVEMBER 7, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER......................................................................2
1.1 Merger..................................................................................................2
1.2 Bank Mergers............................................................................................2
1.3 Time and Place of Closing...............................................................................2
1.4 Effective Time..........................................................................................2
1.5 Execution of Stock Option Agreement.....................................................................3
ARTICLE 2 TERMS OF MERGER.......................................................................................3
2.1 Articles of Incorporation...............................................................................3
2.2 Bylaws..................................................................................................3
2.3 Directors and Officers..................................................................................3
ARTICLE 3 MANNER OF CONVERTING SHARES............................................................................3
3.1 Conversion of Shares....................................................................................3
3.2 Anti-Dilution Provisions................................................................................4
3.3 Shares Held by Carolina First or FCC....................................................................4
3.4 [Reserved]..............................................................................................4
3.5 Fractional Shares.......................................................................................4
3.6 Conversion of Stock Rights..............................................................................4
ARTICLE 4 EXCHANGE OF SHARES....................................................................................7
4.1 Exchange Procedures.....................................................................................7
4.2 Rights of Former Carolina First Stockholders............................................................7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF Carolina First......................................................8
5.1 Organization, Standing, and Power.......................................................................8
5.2 Authority; No Breach By Agreement.......................................................................9
5.3 Capital Stock..........................................................................................10
5.4 Carolina First Subsidiaries............................................................................10
5.5 SEC Filings; Financial Statements......................................................................11
5.6 Absence of Undisclosed Liabilities.....................................................................11
5.7 Absence of Certain Changes or Events...................................................................11
5.8 Tax Matters............................................................................................12
5.9 Assets.................................................................................................13
5.10 Environmental Matters..................................................................................14
5.11 Compliance with Laws...................................................................................15
5.12 Labor Relations........................................................................................15
5.13 Employee Benefit Plans.................................................................................15
5.14 Material Contracts.....................................................................................18
5.15 Legal Proceedings......................................................................................19
5.16 Reports................................................................................................19
5.17 Statements True and Correct............................................................................19
5.18 Accounting, Tax, and Regulatory Matters................................................................20
5.19 State Takeover Laws....................................................................................20
5.20 Charter Provisions.....................................................................................20
5.21 Derivatives............................................................................................21
5.22 Year 2000..............................................................................................21
5.23 Fairness Opinion.......................................................................................21
5.24 Board Recommendation...................................................................................21
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF FCC................................................................21
6.1 Organization, Standing, and Power......................................................................22
6.2 Authority; No Breach By Agreement......................................................................22
6.3 Capital Stock..........................................................................................23
6.4 FCC Subsidiaries.......................................................................................23
6.5 SEC Filings; Financial Statements......................................................................24
6.6 Absence of Undisclosed Liabilities.....................................................................24
6.7 Absence of Certain Changes or Events...................................................................25
6.8 Tax Matters............................................................................................25
6.9 Assets.................................................................................................26
6.10 Environmental Matters..................................................................................27
6.11 Compliance with Laws...................................................................................28
6.12 Labor Relations........................................................................................28
6.13 Legal Proceedings......................................................................................28
6.14 Reports................................................................................................29
6.15 Statements True and Correct............................................................................29
6.16 Accounting, Tax, and Regulatory Matters................................................................29
6.17 State Takeover Laws....................................................................................30
6.18 Charter Provisions.....................................................................................30
6.19 Employee Benefit Plans.................................................................................30
6.20 Derivatives............................................................................................30
6.21 Year 2000..............................................................................................31
6.22 Fairness Opinion.......................................................................................31
6.23 Board Recommendation...................................................................................31
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION.............................................................31
7.1 Affirmative Covenants of Carolina First................................................................31
7.2 Negative Covenants of Carolina First...................................................................32
7.3 Negative Covenants of FCC..............................................................................34
7.4 Adverse Changes in Condition...........................................................................34
7.5 Reports................................................................................................35
ARTICLE 8 ADDITIONAL AGREEMENTS................................................................................35
8.1 Registration Statement; Joint Proxy Statement; Stockholder Approvals...................................35
8.2 Nasdaq Listing.........................................................................................36
8.3 Applications...........................................................................................36
8.4 Filings with State Offices.............................................................................36
8.5 Agreement as to Efforts to Consummate..................................................................36
8.6 Investigation and Confidentiality......................................................................36
8.7 Press Releases.........................................................................................37
8.8 Certain Actions........................................................................................37
8.9 Accounting and Tax Treatment...........................................................................38
8.10 State Takeover Laws....................................................................................38
8.11 Charter Provisions.....................................................................................38
8.12 Agreement of Affiliates................................................................................38
8.13 Employee Benefits and Contracts........................................................................39
8.14 Indemnification........................................................................................40
8.15 Board and Management Matters...........................................................................41
8.16 Certain Modifications..................................................................................41
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE....................................................42
9.1 Conditions to Obligations of Each Party................................................................42
9.2 Conditions to Obligations of FCC.......................................................................43
9.3 Conditions to Obligations of Carolina First............................................................44
ARTICLE 10 TERMINATION..........................................................................................45
10.1 Termination............................................................................................45
10.2 Effect of Termination..................................................................................48
10.3 Non-Survival of Representations and Covenants..........................................................49
ARTICLE 11 MISCELLANEOUS........................................................................................49
11.1 Definitions............................................................................................49
11.2 Expenses...............................................................................................57
11.3 Brokers and Finders....................................................................................57
11.4 Entire Agreement.......................................................................................58
11.5 Amendments.............................................................................................58
11.6 Waivers................................................................................................58
11.7 Assignment.............................................................................................59
11.8 Notices................................................................................................59
11.9 Governing Law..........................................................................................60
11.10 Counterparts........................................................................................60
11.11 Captions............................................................................................60
11.12 Interpretations.....................................................................................60
11.13 Enforcement of Agreement............................................................................60
11.14 Severability........................................................................................60
</TABLE>
<PAGE>
LIST OF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
-------- -------------------
1. Form of Carolina First Stock Option Agreement
2. Form of Employment Agreement
3. Form of Carolina First Affiliate Agreement.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of November 7, 1999 by and between Carolina First Bancshares,
Inc. ("Carolina First"), a corporation organized and existing under the Laws of
the State of North Carolina, with its principal office located in Lincolnton,
North Carolina; and First Charter Corporation ("FCC"), a corporation organized
and existing under the Laws of the State of North Carolina, with its principal
office located in Concord, North Carolina.
PREAMBLE
The respective Boards of Directors of Carolina First and FCC are of the
opinion that the transactions described herein are in the best interests of the
parties to this Agreement and their respective stockholders. This Agreement
provides for the merger (the "Merger") of Carolina First with and into FCC. At
the effective time of the Merger, the outstanding shares of the capital stock of
Carolina First shall be converted into shares of the common stock of FCC (except
as provided herein). As a result, stockholders of Carolina First shall become
stockholders of FCC, and each of the subsidiaries of Carolina First shall
continue to conduct its business and operations as a subsidiary of FCC. The
transactions described in this Agreement are subject to the approvals of the
stockholders of Carolina First, the stockholders of FCC, the Board of Governors
of the Federal Reserve System, and certain state regulatory authorities, 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.
Immediately after the execution and delivery of this Agreement, as a
condition and inducement to FCC's willingness to enter into this Agreement,
Carolina First and FCC are entering into a stock option agreement (the "Carolina
First Stock Option Agreement"), in substantially the form of Exhibit 1, pursuant
to which Carolina First is granting to FCC an option to purchase shares of
Carolina First Common Stock.
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:
<PAGE>
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER
1.1 Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined herein), Carolina First shall be merged with and
into FCC in accordance with the provisions of Section 55-11-01 of the NCBCA and
with the effect provided in Section 55-11-06 of the NCBCA (the "Merger"). FCC
shall be the Surviving Corporation resulting from the Merger 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 Carolina First and FCC.
1.2 Bank Mergers. Subject to the terms and conditions of this Agreement
and plans of merger, in form mutually acceptable to Carolina First and FCC
(each, a "Bank Plan of Merger"), at a time or times subsequent to the Effective
Time designated by FCC, each of the Carolina First Banks shall be merged (the
"Bank Mergers") with and into FCC Bank pursuant to the provisions provided in 12
U.S.C. secs. 1815(d) and 1828(c). FCC Bank shall be the Surviving Bank resulting
from each of the Bank Mergers and shall continue to be governed by the Laws of
the United States. The Bank Mergers pursuant to the Bank Plans of Merger will be
approved and adopted by the respective Boards of Directors of each Carolina
First Bank and FCC Bank at the first regularly-scheduled meetings of such Boards
of Directors following the date of this Agreement.
1.3 Time and Place of Closing. The closing of the Merger (the
"Closing") shall take place at 9:00 A.M. on the date that the Effective Time
occurs (or on 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 duly
authorized officers, may mutually agree. The place of Closing shall be at such
location as may be mutually agreed upon by the Parties.
1.4 Effective Time. The Merger and the 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 duly authorized officers of each Party, the Parties shall
use their reasonable efforts to cause the Effective Time to occur on or before
the 1st business day (as designated by FCC) 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 stockholders
of FCC and Carolina First approve the matters relating to this Agreement
required to be approved by such stockholders by applicable Law; or such later
date as may be mutually agreed by FCC and Carolina First.
1.5 Execution of Stock Option Agreement. Immediately after the
execution of this Agreement and as a condition hereto, Carolina First is
executing and delivering to FCC the Stock Option Agreement.
ARTICLE 2 TERMS OF MERGER
2.1 Articles of Incorporation. The Amended and Restated Articles of
Incorporation of FCC in effect immediately prior to the Effective Time shall be
the Amended and Restated Articles of Incorporation of the Surviving Corporation
after the Effective Time until otherwise amended or repealed.
2.2 Bylaws. The Bylaws of FCC in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation after the
Effective Time until otherwise amended or repealed.
2.3 Directors and Officers. The directors of FCC in office immediately
prior to the Effective Time, together with such additional individuals elected
in accordance with the terms of Section 8.15 of this Agreement 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 FCC in
office immediately prior to the Effective Time, together with such additional
officers of Carolina First as thereafter elected pursuant to this Agreement or
otherwise shall serve as the officers of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
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 FCC or Carolina First, or the stockholders of either of the foregoing,
the shares of the constituent corporations shall be converted as follows:
(a) each share of FCC Common Stock issued and outstanding
immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time; and
(b) each share of Carolina First Common Stock (excluding
shares held by any Carolina First Company or any FCC Company, in each
case other than in a fiduciary capacity or as a result of debts
previously contracted) issued and outstanding at the Effective Time
shall be converted into 2.267 shares of FCC Common Stock (the "Exchange
Ratio").
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,
recapitalization, reclassification, exchange of shares, or similar transaction
with respect to such stock, the Exchange Ratio shall be proportionately
adjusted. In the event FCC changes the number of shares of FCC Common Stock
issued and outstanding prior to the Effective Time as a result of a stock split,
stock dividend, recapitalization, reclassification, exchange of shares, or
similar transaction 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, reclassification, exchange of shares, 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 Carolina First or FCC. Each of the shares of
Carolina First Common Stock held by any Carolina First Company or by any FCC
Company, 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 [Reserved].
3.5 Fractional Shares. Notwithstanding any other provision of this
Agreement, each holder of shares of Carolina First Common Stock exchanged
pursuant to the Merger who would otherwise have been entitled to receive a
fraction of a share of FCC 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 FCC
Common Stock multiplied by the market value of one share of FCC Common Stock at
the Effective Time. The market value of one share of FCC Common Stock at the
Effective Time shall be the last sale price of FCC Common Stock on the Nasdaq
NMS (as reported by The Wall Street Journal or, if not reported thereby, any
other authoritative source selected by FCC) on the last trading day preceding
the Effective Time. No such holder will be entitled to dividends, voting rights,
or any other rights as a stockholder in respect of any fractional shares.
3.6 Conversion of Stock Rights.
(a) At the Effective Time, each award, option, or other right
to purchase or acquire shares of Carolina First Common Stock pursuant
to stock options, stock appreciation rights (including any "STARs"), or
stock awards ("Carolina First Rights") granted by Carolina First under
the Carolina First Stock Plans, which are outstanding at the Effective
Time, whether or not exercisable, shall be converted into and become
Rights with respect to FCC Common Stock, and FCC shall assume each
Carolina First Right, in accordance with the terms of the Carolina
First Stock Plan and stock option agreement by which it is evidenced,
except that from and after the Effective Time, (i) FCC and its
Compensation Committee shall be substituted for Carolina First and the
Committee of Carolina First's Board of Directors (including, if
applicable, the entire Board of Directors of Carolina First)
administering such Carolina First Stock Plan, (ii) each Carolina First
Right assumed by FCC may be exercised solely for shares of FCC Common
Stock (or cash in the case of stock appreciation rights), (iii) the
number of shares of FCC Common Stock subject to such Carolina First
Right shall be equal to the number of shares of Carolina First Common
Stock subject to such Carolina First Right immediately prior to the
Effective Time multiplied by the Exchange Ratio, and (iv) the per share
exercise price (or similar threshold price, in the case of stock
awards) under each such Carolina First Right shall be adjusted by
dividing the per share exercise (or threshold) price under each such
Carolina First Right by the Exchange Ratio and rounding up to the
nearest cent. Notwithstanding the provisions of clause (iii) of the
preceding sentence, FCC shall not be obligated to issue any fraction of
a share of FCC Common Stock upon exercise of Carolina First Rights and
any fraction of a share of FCC Common Stock that otherwise would be
subject to a converted Carolina First Right shall represent the right
to receive a cash payment equal to the product of such fraction and the
difference between the market value of one share of FCC Common Stock
and the adjusted per share exercise price of such Right. The market
value of one share of FCC Common Stock shall be the last sale price of
FCC Common Stock on the Nasdaq NMS (as reported by The Wall Street
Journal or, if not reported thereby, any other authoritative source
selected by FCC) on the last trading day preceding the Effective Time.
In addition, notwithstanding the provisions of clauses (iii) and (iv)
of the first sentence and the second sentence of this Section 3.6(a),
each Carolina First Right which is an "incentive stock option" shall be
adjusted as required by Section 424 of the Internal Revenue Code, 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.
(b) As soon as practicable after the Effective Time, FCC shall
deliver to the participants in each Carolina First Stock Plan an
appropriate notice setting forth such participant's rights pursuant
thereto and the grants pursuant to such Carolina First 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 FCC shall comply with the terms of each Carolina First
Stock Plan to ensure, to the extent required by, and subject to the
provisions of, such Carolina First Stock Plan, that Carolina First
Rights 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, FCC shall take all
corporate action necessary to reserve for issuance sufficient shares of
FCC Common Stock for delivery upon exercise of Carolina First Rights
assumed by it in accordance with this Section 3.6. As soon as
practicable after the Effective Time, FCC 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 all the shares of FCC
Common Stock subject to the Carolina First Rights assumed by FCC in
accordance with this Section 3.6 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), as well as comply with any applicable state securities or
"blue sky" laws, for so long as such options, stock appreciation
rights, stock awards or other rights 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 1934 Act, where
applicable, FCC shall administer the Carolina First Stock Plan assumed
pursuant to this Section 3.6 in a manner that complies with Rule 16b-3
promulgated under the 1934 Act to the extent the Carolina First Stock
Plan complied with such rule prior to the Effective Time.
(c) All restrictions or limitations on transfer with respect
to Carolina First Common Stock awarded under the Carolina First Stock
Plans or any other plan, program, Contract or arrangement of any
Carolina First Company, 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 FCC Common Stock into which such
Carolina First Common Stock or related Carolina First Rights are
converted pursuant to Section 3.1 of this Agreement.
ARTICLE 4 EXCHANGE OF SHARES
4.1 Exchange Procedures. Promptly after the Effective Time, FCC and
Carolina First shall cause the exchange agent selected by FCC (the "Exchange
Agent") to mail to the former stockholders of Carolina First appropriate
transmittal materials (which shall specify that delivery shall be effected, and
risk of loss and title to the certificates theretofore representing shares of
Carolina First Common Stock shall pass, only upon proper delivery of such
certificates to the Exchange Agent). After the Effective Time, each holder of
shares of Carolina First Common Stock (other than shares to be canceled pursuant
to Section 3.3 of this Agreement) 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 Sections 3.1 or 3.6 of this Agreement,
together with all undelivered dividends or distributions in respect of such
shares (without interest thereon) pursuant to Section 4.2 of this Agreement. To
the extent required by Section 3.5 of this Agreement, each holder of shares of
Carolina First Common Stock issued and outstanding at the Effective Time also
shall receive, upon surrender of the certificate or certificates representing
such shares, cash in lieu of any fractional share of FCC Common Stock to which
such holder may be otherwise entitled (without interest). FCC shall not be
obligated to deliver the consideration to which any former holder of Carolina
First Common Stock is entitled as a result of the Merger until such holder
surrenders such holder's certificate or certificates representing the shares of
Carolina First Common Stock for exchange as provided in this Section 4.1. The
certificate or certificates of Carolina First Common Stock so surrendered shall
be duly endorsed as the Exchange Agent may require. Any other provision of this
Agreement notwithstanding, neither the Surviving Corporation nor the Exchange
Agent shall be liable to a holder of Carolina First Common Stock for any amounts
paid or property delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat or other Law. Adoption of this Agreement
by the stockholders of Carolina First shall constitute ratification of the
appointment of the Exchange Agent.
4.2 Rights of Former Carolina First Stockholders. At the Effective
Time, the stock transfer books of Carolina First shall be closed as to holders
of Carolina First Common Stock immediately prior to the Effective Time and no
transfer of Carolina First 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
Carolina First Common Stock (other than shares to be canceled pursuant to
Section 3.3) shall from and after the Effective Time represent for all purposes
only the right to receive the consideration provided in Sections 3.1 and 3.6 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 Carolina First in respect
of such shares of Carolina First 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 stockholders of record of Carolina First shall be
entitled to vote after the Effective Time at any meeting of FCC stockholders the
number of whole shares of FCC Common Stock into which their respective shares of
Carolina First Common Stock are convertible, regardless of whether such holders
have exchanged their certificates representing Carolina First Common Stock for
certificates representing FCC Common Stock in accordance with the provisions of
this Agreement. Whenever a dividend or other distribution is declared by FCC on
the FCC 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 issuable pursuant to this Agreement, but no dividend or other
distribution payable to the holders of record of FCC Common Stock as of any time
subsequent to the Effective Time shall be delivered to the holder of any
certificate representing shares of Carolina First Common Stock issued and
outstanding at the Effective Time until such holder surrenders such certificate
for exchange as provided in Section 4.1. However, upon surrender of such
Carolina First Common Stock certificate, the FCC Common Stock certificate,
together with all undelivered dividends or other distributions (without
interest) and any cash payments to be paid for fractional share interests
(without interest), shall be delivered and paid with respect to each share
represented by such certificate.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF Carolina First
Except as set forth in the Carolina First Disclosure Memorandum,
Carolina First hereby represents and warrants to FCC as follows:
5.1 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 Material Adverse
Effect on Carolina First. The minute book and other organizational documents for
Carolina First have been made available to FCC for its review and 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 Stockholders thereof.
5.2 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, subject to the necessary stockholder and regulatory
approvals, 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,
subject to the approval of this Agreement by the holders of a majority
of the outstanding shares of Carolina First Common Stock, which is the
only stockholder vote required for approval of this Agreement and
consummation of the Merger by Carolina First. Subject to such requisite
stockholder approval, this Agreement represents a legal, valid, and
binding obligation of Carolina First, 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 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 or thereof, will (i) conflict with or
result in a breach of any provision of Carolina First's Articles of
Incorporation or Bylaws or certificate of articles of incorporation or
bylaws of any Carolina First Subsidiary or any currently effective
resolution adopted by the Board of Directors or the stockholder(s) of
any Carolina First Company, or (ii) 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 Company under, any Contract
or Permit of any Carolina First Company, where such Default or Lien, or
any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Carolina
First, 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 Company or any of their respective Material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate, banking and
securities Laws, and rules of the NASD, 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, filings, or notifications
which, if not obtained or made, are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Carolina
First, 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.
5.3 Capital Stock.
(a) The authorized capital stock of Carolina First consists,
as of the date of this Agreement, of 20,000,000 shares of Carolina
First Common Stock, of which 5,984,114 shares are issued and
outstanding as of the date of this Agreement, and 5,000,000 shares of
Carolina First Preferred Stock, none of which is issued and
outstanding. All of the issued and outstanding shares of Carolina First
Common Stock are duly and validly issued and outstanding and are fully
paid and nonassessable under the NCBCA. None of the outstanding shares
of Carolina First Common Stock has been issued in violation of any
preemptive rights of the current or past stockholders of Carolina
First.
(b) Except as set forth in Section 5.3(a) or Section 5.3(b) of
the Carolina First Disclosure Memorandum, or as provided pursuant to
the Carolina First Stock Option Agreement, there are no shares of
capital stock or other equity securities of Carolina First outstanding
and no outstanding Rights relating to the capital stock of Carolina
First.
5.4 Carolina First Subsidiaries. Carolina First has disclosed in
Section 5.4 of the Carolina First Disclosure Memorandum all of the Carolina
First Subsidiaries as of the date of this Agreement. Carolina First and/or one
of its Subsidiaries owns all of the issued and outstanding shares of capital
stock of each Carolina First Subsidiary, except as disclosed in the Carolina
First Disclosure Memorandum. No equity securities of any Carolina First
Subsidiary are or may become required to be issued (other than to another
Carolina First Company) by reason of any Rights, and there are no Contracts by
which any Carolina First Subsidiary is bound to issue (other than to another
Carolina First Company) additional shares of its capital stock or Rights or by
which any Carolina First Company is or may be bound to transfer any shares of
the capital stock of any Carolina First Subsidiary (other than to another
Carolina First Company). There are no Contracts relating to the rights of any
Carolina First Company to vote or to dispose of any shares of the capital stock
of any Carolina First Subsidiary. All of the shares of capital stock of each
Carolina First Subsidiary held by a Carolina First Company are duly authorized,
validly issued, and fully paid and, except as provided in statutes pursuant to
which depository institution Subsidiaries are organized, nonassessable under the
applicable corporation Law of the jurisdiction in which such Subsidiary is
incorporated or organized and are owned by the Carolina First Company free and
clear of any Lien. Each Carolina First Subsidiary is either a bank, a
corporation or a limited liability company, and 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
other appropriate 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 Material Adverse
Effect on Carolina First. 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 and/or Savings Association Insurance
Fund.
5.5 SEC Filings; Financial Statements.
(a) Carolina First has timely filed and made available to FCC
all forms, reports, and documents required to be filed by Carolina
First with the SEC since December 31, 1995 (collectively, 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 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
later 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. No Carolina First Subsidiary is
required to file any forms, reports, or other documents with the SEC.
(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 or will
comply as to form in all Material respects with the applicable
published rules and regulations of the SEC with respect thereto, was
prepared or will be 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 statements, as permitted by Form 10-Q of the SEC), and fairly
presented or will fairly present the consolidated financial position of
Carolina First and its Subsidiaries as at the respective dates and the
consolidated results of its 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 Carolina First Company has
any Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Carolina First, except Liabilities which
are accrued or reserved against in the consolidated balance sheets of Carolina
First as of June 30, 1999, included in the Carolina First Financial Statements
or reflected in the notes thereto. No Carolina First Company has incurred or
paid any Liability since June 30, 1999, except for such Liabilities incurred or
paid 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
Material Adverse Effect on Carolina First.
5.7 Absence of Certain Changes or Events. Since June 30, 1999, (i)
there have been no events, changes, or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on Carolina First, and (ii) the Carolina First Companies have conducted
their respective businesses in the ordinary and usual course (excluding, in each
case, the incurrence of expenses or obligations in connection with this
Agreement or other changes resulting from the transactions contemplated hereby).
5.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of
any of the Carolina First Companies 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, 1998, and, to the Knowledge
of Carolina First, all Tax Returns filed are complete and accurate in
all Material respects. All Tax Returns for periods ending on or before
the date of the most recent fiscal year end immediately preceding the
Effective Time will be timely filed or requests for extensions will be
timely filed. All Taxes shown on filed Tax Returns have been paid or
will be timely paid. 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 Material Adverse Effect on Carolina First, except to the
extent reflected in the Carolina First Financial Statements dated prior
to the date of this Agreement. 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 Companies, except for any such Liens
which are not reasonably likely to have a Material Adverse Effect on
Carolina First.
(b) None of the Carolina First Companies 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) Adequate provision for any Taxes due or to become due for
any of the Carolina First Companies for the period or periods through
and including the date of the respective Carolina First Financial
Statements has been made and is reflected on such Carolina First
Financial Statements.
(d) Each of the Carolina First Companies 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 Material Adverse Effect on Carolina
First.
(e) None of the Carolina First Companies has made any
payments, is obligated to make any payments, or is a party to any
contract, agreement, or other arrangement 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 except as disclosed in the
Carolina First Disclosure Memorandum.
(f) Deferred Taxes of the Carolina First Companies have
been provided for in accordance with GAAP.
(g) None of the Carolina First Companies is a party to any Tax
allocation or sharing agreement, and none of the Carolina First
Companies 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) 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.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of the Carolina First Companies
that occurred during or after any Taxable Period in which the Carolina
First Companies incurred a net operating loss that carries over to any
Taxable Period ending after December 31, 1998.
(i) No Carolina First Company has filed any consent under
Section 341(f) of the Internal Revenue Code concerning collapsible
corporations.
(j) After the date of this Agreement, no Material election
with respect to Taxes will be made without the prior consent of FCC,
which consent will not be unreasonably withheld.
(k) No Carolina First Company has or has had a permanent
establishment in any foreign country, as defined in any applicable tax
treaty or convention between the United States and such foreign
country.
5.9 Assets. The Carolina First Companies have good and marketable
title, free and clear of all Liens, to all of their respective Assets. All
tangible properties used in the businesses of the Carolina First Companies 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. 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 Companies, are held
under valid Contracts enforceable in accordance with their respective terms
(except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, conservatorship, receivership 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 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. The
Carolina First Companies currently maintain insurance in amounts, scope, and
coverage reasonably necessary for their operations. None of the Carolina First
Companies 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. The Assets of the Carolina First Companies include all
Assets required to operate the business of the Carolina First Companies as
presently conducted.
5.10 Environmental Matters.
(a) To the Knowledge of Carolina First, each Carolina First
Company, its Participation Facilities, and its Loan Properties are, and
have been, in compliance with all Environmental Laws, except those
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Carolina First.
(b) There is no Litigation pending or, to the Knowledge of
Carolina First, threatened before any court, governmental agency, or
authority, or other forum in which any Carolina First Company or to the
Knowledge of Carolina First any of its Participation Facilities has
been or, with respect to threatened Litigation, may reasonably be
expected to be named as a defendant (i) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (ii)
relating to the release into the environment of any Hazardous Material,
whether or not occurring at, on, under, or involving a site owned,
leased, or operated by any Carolina First Company or any of its
Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Carolina First.
(c) To the Knowledge of Carolina First, there is no Litigation
pending, or to the Knowledge of Carolina First, threatened before any
court, governmental agency, or board, or other forum in which any of
its Loan Properties (or Carolina First in respect of such Loan
Property) has been or, with respect to threatened Litigation, is
reasonably expected to be named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release
into the environment of any Hazardous Material, whether or not
occurring at, on, under, or involving a Loan Property, except for such
Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on Carolina
First.
(d) To the Knowledge of Carolina First, during the period of
(i) any Carolina First Company's ownership or operation of any of their
respective current properties, (ii) any Carolina First Company's
participation in the management of any Participation Facility, or (iii)
any Carolina First Company's holding of a security interest in a Loan
Property, there have been no releases of Hazardous Material in, on,
under, or affecting (or potentially affecting) such properties, except
such as are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Carolina First. Prior to the
period of (i) any Carolina First Company's ownership or operation of
any of their respective current properties, (ii) any Carolina First
Company's participation in the management of any Participation
Facility, or (iii) any Carolina First Company's holding of a security
interest in a Loan Property, to the Knowledge of Carolina First, there
were no releases of Hazardous Material in, on, under, or affecting any
such property, Participation Facility, or Loan Property, except such as
are not reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Carolina First.
5.11 Compliance with Laws. Carolina First is duly registered as a bank
holding company under the BHC Act. Each Carolina First Company 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
Material Adverse Effect on Carolina First, 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 Material Adverse Effect on Carolina
First. None of the Carolina First Companies:
(a) is in violation of any Laws, Orders, or Permits applicable
to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on Carolina First; and
(b) 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 Company 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 Material Adverse Effect on Carolina
First, (ii) threatening to revoke any Permits, the revocation of which
is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Carolina First, or (iii) requiring any
Carolina First Company (x) to enter into or consent to the issuance of
a cease and desist order, formal agreement, directive, commitment, or
memorandum of understanding, or (y) 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 restricts the payment of
dividends.
5.12 Labor Relations. No Carolina First Company is the subject of any
Litigation asserting that it or any other Carolina First Company 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
Company to bargain with any labor organization as to wages or conditions of
employment, nor is any Carolina First Company a party to or bound by any
collective bargaining agreement, Contract, or other agreement or understanding
with a labor union or labor organization, nor is there any strike or other labor
dispute involving any Carolina First Company, pending or threatened, or to the
Knowledge of Carolina First, is there any activity involving any Carolina First
Company's employees seeking to certify a collective bargaining unit or engaging
in any other organization activity.
5.13 Employee Benefit Plans.
(a) Carolina First has disclosed to FCC in Section 5.13 of the
Carolina First Disclosure Memorandum, and has delivered or made
available to FCC prior to the execution of this Agreement correct and
complete copies in each case of, all Material Carolina First Benefits
Plans. For purposes of this Agreement, "Carolina First Benefit Plans"
means 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 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, without limitation, "employee benefit plans"
as that term is defined in Section 3(3) of ERISA maintained by,
sponsored in whole or in part by, or contributed to by, any Carolina
First Company 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. Any of the Carolina First Benefit Plans which is an
"employee welfare benefit plan," as that term is defined in Section
3(l) of ERISA, or 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." Any Carolina First ERISA Plan which is also a
"defined benefit plan" (as defined in Section 414(j) of the Internal
Revenue Code or Section 3(35) of ERISA) is referred to herein as a
"Carolina First Pension Plan." Neither Carolina First nor any Carolina
First Company has an "obligation to contribute" (as defined in ERISA
Section 4212) to a "multiemployer plan" (as defined in ERISA Sections
4001(a)(3) and 3(37)(A)). Each "employee pension benefit plan," as
defined in Section 3(2) of ERISA, maintained by any Carolina First
Company since December 31, 1990 that was intended to qualify under
Section 401(a) of the Internal Revenue Code and with respect to which
any Carolina First Company has any Liability, is disclosed as such in
Section 5.13 of the Carolina First Disclosure Memorandum.
(b) Carolina First has delivered or made available to FCC
prior to the execution of this Agreement correct and complete copies of
the following documents: (i) all trust agreements or other funding
arrangements for such Carolina First Benefit Plans (including insurance
contracts), and all amendments thereto, (ii) with respect to any such
Carolina First Benefit Plans or amendments, all determination letters,
Material rulings, Material opinion letters, Material information
letters, or Material advisory opinions issued by the Internal Revenue
Service, the United States Department of Labor, or the Pension Benefit
Guaranty Corporation after December 31, 1996, (iii) annual reports or
returns, audited or unaudited financial statements, actuarial
valuations and reports, and summary annual reports prepared for any
Carolina First Benefit Plan with respect to the most recent plan year,
and (iv) the most recent summary plan descriptions and any Material
modifications thereto.
(c) 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 is reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
Carolina First. 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 or opinion letter from the
Internal Revenue Service or is still within the remedial amendment
period applicable to such Plan and Carolina First is not aware of any
circumstances which will or could reasonably revocation or denial of
any such favorable determination letter or opinion letter. Each trust
created under any Carolina First ERISA Plan has been determined to be
exempt from Tax under Section 501(a) of the Internal Revenue Code and
Carolina First is not aware of any circumstance which will or could
reasonably result in revocation or denial of such exemption. With
respect to each Carolina First Benefit Plan to the Knowledge of
Carolina First, no event has occurred which will or is reasonably
likely to result in a loss of any intended Tax consequences under the
Internal Revenue Code or to any Tax under Section 511 of the Internal
Revenue Code that is reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect on Carolina First. There
is no Material pending or, to the Knowledge of Carolina First,
threatened Litigation relating to any Carolina First ERISA Plan.
Section 5.13(c) of the Carolina First Disclosure discloses any Plans
for which a remedial amendment has been applied for and rejected.
(d) No Carolina First Company 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 of this
Agreement, would subject any Carolina First Company to a Material tax
or penalty 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 Material Adverse Effect on
Carolina First. Neither Carolina First nor, to the knowledge of
Carolina First, any administrator or fiduciary of any Carolina First
Benefit Plan (or any agent of any of the foregoing) has engaged in any
transaction, or acted or failed to act in any manner which could
subject Carolina First to any direct or indirect Liability (by
indemnity or otherwise) for breach of any fiduciary, co-fiduciary, or
other duty under ERISA, where such Liability, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on
Carolina First. No oral or written representation or written
communication with respect to any aspect of the Carolina First Benefit
Plans has been made to employees of any Carolina First Company which is
not in accordance with the written or otherwise preexisting terms and
provisions of such plans, where any Liability with respect to such
representation or disclosure is reasonably likely to have a Material
Adverse Effect on Carolina First.
(e) Since the date of the most recent actuarial valuation,
there has been (i) no Material change in the financial position or
funded status of any 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, any of
which is reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on Carolina First. 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 Company, or the single-employer plan of any entity which
is considered one employer with Carolina First under Section 4001 of
ERISA or Section 414 of the Internal Revenue Code or Section 302 of
ERISA (whether or not waived) (a "Carolina First ERISA Affiliate") has
an "accumulated funding deficiency" within the meaning of Section 412
of the Internal Revenue Code or Section 302 of ERISA. All contributions
with respect to a Carolina First Pension Plan or any single-employer
plan of a Carolina First ERISA Affiliate have or will be timely made
and there is no lien under Internal Revenue Code Section 412(n) or
ERISA Section 302(f) or Tax under Internal Revenue Code Section 4971.
No Carolina First Company has provided, or is required to provide,
security to a Carolina First Pension Plan or to any single-employer
plan of a Carolina First ERISA Affiliate pursuant to Section 401(a)(29)
of the Internal Revenue Code. All premiums required to be paid under
ERISA Section 4006 have been timely paid by Carolina First, except to
the extent any failure would not have a Material Adverse Effect on
Carolina First.
(f) No Liability under Title IV of ERISA has been or is
expected to be incurred by any Carolina First Company with respect to
any defined benefit plan currently or formerly maintained by any of
them or by any Carolina First ERISA Affiliate that has not been
satisfied in full (other than Liability for Pension Benefit Guaranty
Corporation premiums, which have been paid when due, except to the
extent any failure would not have a Material Adverse Effect on Carolina
First).
(g) No Carolina First Company has any obligations for retiree
health and retiree life benefits under any of the Carolina First
Benefit Plans other than with respect to benefit coverage mandated by
applicable Law.
(h) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will, by
themselves, (i) result in any payment (including, without limitation,
severance, unemployment compensation, golden parachute, or otherwise)
becoming due to any director or any employee of any Carolina First
Company from any Carolina First Company under any Carolina First
Benefit Plan or otherwise, (ii) increase any benefits otherwise payable
under any Carolina First Benefit Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit.
5.14 Material Contracts. Except as disclosed in Section 5.14 of the
Carolina First Disclosure memorandum, none of the Carolina First Companies, 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 $75,000, (ii) any Contract
relating to the borrowing of money by any Carolina First Company or the
guarantee by any Carolina First Company of any such obligation (other than
Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, and Federal Home Loan Bank advances to
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 Carolina First Company from engaging
in any business activities in any geographic area, line of business or otherwise
in competition with any other Person, (iv) any Contract relating to the
provision of data processing network communication, or other technical services
to or by any Carolina First Company, (v) any Contract relating to the purchase
or sale of 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 $ 300,000), (vi) 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 reflected in the
Carolina First Financial Statements, which is a financial derivative Contract or
(vii) any other Contract or amendment thereto that would be required to be filed
as an exhibit to a Form 10-K filed by Carolina First with the SEC as of the date
of this Agreement that has not been filed as an exhibit to Carolina First's Form
10-K filed for the fiscal year ended December 31, 1998, or in another SEC
Document and identified to FCC (together with all Contracts referred to in
Sections 5.9 and 5.13(a) of this Agreement, the "Carolina First Contracts").
With respect to each Carolina First Contract: (i) the Contract is in full force
and effect; (ii) no Carolina First Company is in Default thereunder, other than
Defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Carolina First; (iii) no Carolina First
Company 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 Carolina
First, in Default in any respect, other than Defaults which are not reasonably
likely to have, individually or in the aggregate or has repudiated or waived any
Material provision thereunder. Except for Federal Home Loan Bank advances, all
of the indebtedness of any Carolina First Company for money borrowed is
prepayable at any time by such Carolina First Company without penalty or
premium.
5.15 Legal Proceedings.
(a) There is no Litigation instituted or pending, or, to the
Knowledge of Carolina First, threatened against any Carolina First
Company, or against any director or employee (in their capacity as
such) or against any Asset, employee benefit plan, interest, or right
of any of them, nor, except as described in Section 5.15(a) of the
Carolina First Disclosure Memorandum, are there any Orders of any
Regulatory Authorities, other governmental authorities, or arbitrators
outstanding against any Carolina First Company.
(b) Section 5.15(b) of the Carolina First Disclosure
Memorandum includes a summary report of all Litigation as of the date
of this Agreement to which any Carolina First Company is a party and
which names a Carolina First Company as a defendant or cross-defendant
and where the maximum exposure is reasonably estimated to be $200,000
or more.
5.16 Reports. Since January 1, 1996, or the date of organization if
later, each Carolina First Company 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 any 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 Material Adverse Effect on Carolina
First). 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 their respective dates,
each such report and document did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
5.17 Statements True and Correct. No statement, certificate,
instrument, or other writing furnished or to be furnished by or on behalf of any
Carolina First Company or any executive officer or director of any Carolina
First Company thereof to FCC 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 Company or any executive officer or director of any Carolina
First Company thereof regarding Carolina First or such executive officer or
director of any Carolina First Company for inclusion in the Registration
Statement to be filed by FCC with the SEC will, when the Registration Statement
becomes effective, be false or misleading with respect to any Material fact, or
contain any untrue statement of a Material fact, or omit to state any Material
fact required to be stated thereunder or necessary to make the statements
therein not misleading. None of the information supplied or to be supplied by
any Carolina First Company or any executive officer or director of any Carolina
First Company thereof for inclusion in the Joint Proxy Statement to be mailed to
FCC's and Carolina First's stockholders in connection with the Stockholders'
Meetings will, when first mailed to the stockholders of FCC and Carolina First,
be false or misleading with respect to any Material fact, or contain any
misstatement of Material fact, or omit to state any Material fact required to be
stated thereunder or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Joint Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meetings, be false or misleading with respect to any
Material fact, or omit to state any Material fact required to be stated
thereunder or necessary to correct any Material statement in any earlier
communication with respect to the solicitation of any proxy for the
Stockholders' Meetings. All documents that any Carolina First Company or any
executive officer or director of any Carolina First Company 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.
5.18 Accounting, Tax, and Regulatory Matters. No Carolina First Company
or any executive officer or director of Carolina First thereof has taken or
agreed to take any action and Carolina First has no Knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the transactions
contemplated hereby, including 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)
of this Agreement or result in the imposition of a condition or restriction of
the type referred to in the last sentence of such Section.
5.19 State Takeover Laws. Each Carolina First Company has taken all
necessary action to exempt the transactions contemplated by this Agreement from,
or if necessary to challenge the validity or applicability if, any applicable
"moratorium," "control share," "fair price," "business combination," or other
anti-takeover laws and regulations, including Articles 9 and 9A of the NCBCA
(collectively, "Takeover Laws").
5.20 Charter Provisions. Each Carolina First Company 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 Carolina First
Company or restrict or impair the ability of FCC or any of its Subsidiaries to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of any Carolina First Company that may be directly or indirectly acquired
or controlled by it.
5.21 Derivatives. All interest rate swaps, caps, floors, option
agreements, futures and forward contracts, and other similar risk management
arrangements, whether entered into for Carolina First's own account, or for the
account of one or more the Carolina First Subsidiaries or their customers, were
entered into (i) in accordance with prudent business practices and all
applicable Laws, and (ii) with counter parties believed to be financially
responsible.
5.22 Year 2000. Carolina First has completed the four phases of its
Year 2000 readiness program, as described in the May 5, 1997, Statement of the
Federal Financial Institutions Examination Council ("FFIEC"), entitled "Year
2000 Project Management Awareness" and the April 20, 1998, "Guidance Concerning
Testing for Year 2000 Readiness." Carolina First has made available to FCC
complete and accurate copies of its Year 2000 remediation contingency plan, as
described in the FFIEC Statements of March 17, 1998, and May 13, 1998, entitled
"Guidance Concerning Institution Due Diligence in Connection with Service
Provider and Software Vendor Year 2000 Readiness" and "Guidance Concerning
Contingency Planning in Connection with Year 2000 Readiness," respectively.
Carolina First has completed the four phases of the business resumption
contingency planning process, as set forth in the guidance issued by FFIEC on
December 11, 1998, and May 13, 1998, and has provided to FCC a complete and
accurate copy of its business resumption contingency plan, written documentation
supporting the plan's development and validation, the results of tests on the
plan, and a schedule of future tests.
5.23 Fairness Opinion. Carolina First has received a written opinion of
The Robinson-Humphrey Company, LLC to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair, from a financial point of view, to the
holders of Carolina First Common Stock, a signed copy of which has been
delivered to FCC.
5.24 Board Recommendation. The Board of Directors of Carolina First, at
a meeting duly called and held, has by vote of the directors present (who
constituted all the directors then in office) (i) determined that this Agreement
and the transactions contemplated, hereby including the Merger, and the
transactions contemplated thereby, taken together, are fair to and in the best
interests of the Carolina First Stockholders and (ii) resolved to recommend that
the holders of the shares of Carolina First Common Stock approve this Agreement.
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF FCC
Except as set forth in the FCC Disclosure Memorandum, FCC hereby
represents and warrants to Carolina First as follows:
6.1 Organization, Standing, and Power. FCC 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.
FCC 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 Material Adverse Effect on FCC. The
minute book and other organizational documents for FCC have been made available
to Carolina First for its review and are true and complete in all Material
respects or in effect as of the date of this Agreement and accurately reflect in
all Material respects all amendment thereto and all actions of the Board of
Directors and Stockholders thereof.
6.2 Authority; No Breach By Agreement.
(a) FCC has the corporate power and authority necessary to
execute, deliver, and perform its obligations under this Agreement and,
subject to the necessary stockholder and regulatory approvals, 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 FCC, subject to the approval of this Agreement
and the issuance of the shares of FCC Common Stock pursuant to the
Merger by the holders of a majority of the outstanding shares of FCC
Common Stock, which is the only stockholder vote required for the
consummation of the Merger by FCC. Subject to such requisite
stockholder approval and the Consent of all necessary Regulatory
Authorities, this Agreement represents a legal, valid, and binding
obligation of FCC, enforceable against FCC 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 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
FCC, nor the consummation by FCC of the transactions contemplated
hereby, nor compliance by FCC with any of the provisions hereof, will
(i) conflict with or result in a breach of any provision of FCC's
Amended and Restated Articles of Incorporation or Bylaws or certificate
or articles of incorporation or bylaws of any FCC Subsidiary or any
currently effective resolution adopted by the Board of Directors or the
Stockholder(s) of any FCC Company, (ii) 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 FCC Company under, any
Contract or Permit of any FCC Company, where such Default or Lien, or
any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FCC, 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 FCC Company or
any of their respective Material Assets.
(c) Other than in connection or compliance with the provisions
of the Securities Laws, applicable state corporate, banking and
securities Laws, and rules of the NASD, 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, filings, or notifications
which, if not obtained or made, are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FCC, no
notice to, filing with, or Consent of, any public body or authority is
necessary for the consummation by FCC of the Merger and the other
transactions contemplated in this Agreement.
6.3 Capital Stock. The authorized capital stock of FCC consists, as of
the date of this Agreement, of 25,000,000 shares of FCC Common Stock, of which
17,566,729 shares were issued and outstanding as of October 31, 1999. All of the
issued and outstanding shares of FCC Common Stock are, and all of the shares of
FCC Common Stock to be issued in exchange for shares of Carolina First 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 FCC
Common Stock has been, and none of the shares of FCC Common Stock to be issued
in exchange for shares of Carolina First Common Stock upon consummation of the
Merger will be, issued in violation of any preemptive rights of the current or
past stockholders of FCC.
6.4 FCC Subsidiaries. FCC has disclosed in Section 6.4 of the FCC
Disclosure Memorandum all of the FCC Subsidiaries as of the date of this
Agreement. FCC or one of its Subsidiaries owns all of the issued and outstanding
shares of capital stock of each FCC Subsidiary. No equity securities of any FCC
Subsidiary are or may become required to be issued (other than to another FCC
Company) by reason of any Rights, and there are no Contracts by which any FCC
Subsidiary is bound to issue (other than to another FCC Company) additional
shares of its capital stock or Rights or by which any FCC Company is or may be
bound to transfer any shares of the capital stock of any FCC Subsidiary (other
than to another FCC Company). There are no Contracts relating to the rights of
any FCC Company to vote or to dispose of any shares of the capital stock of any
FCC Subsidiary. All of the shares of capital stock of each FCC Subsidiary held
by an FCC Company are duly authorized, validly issued and fully paid and, except
as provided in statutes pursuant to which depository institution Subsidiaries
are organized, nonassessable under the applicable corporation Law of the
jurisdiction in which such Subsidiary is incorporated or organized and are owned
by the FCC Company free and clear of any Lien. Each FCC Subsidiary is either a
bank or a corporation, and 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 power and authority necessary
for it to own, lease, and operate its Assets and to carry on its business as now
conducted. Each FCC 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 Material
Adverse Effect on FCC. Each FCC 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 and/or Savings Association Insurance Fund.
6.5 SEC Filings; Financial Statements.
(a) FCC has timely filed and made available to Carolina First
all forms, reports, and documents required to be filed by FCC with the
SEC since December 31, 1995 (collectively, the "FCC SEC Reports"). The
FCC SEC Reports (i) at the time filed, complied in all Material
respects with the applicable requirements of the Securities Laws and
other applicable Laws, as the case may be, 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 later filing) contain
any untrue statement of a Material fact or omit to state a Material
fact required to be stated in such FCC SEC Reports or necessary in
order to make the statements in such FCC SEC Reports, in light of the
circumstances under which they were made, not misleading. Except for
FCC Subsidiaries that are registered as a broker, dealer, or investment
advisor or filings required due to fiduciary holdings of the FCC
Subsidiaries, no FCC Subsidiary is required to file any forms, reports,
or other documents with the SEC.
(b) Each of the FCC Financial Statements (including, in each
case, any related notes) contained in the FCC SEC Reports, including
any FCC SEC Reports filed after the date of this Agreement until the
Effective Time, complied or will comply as to form in all Material
respects with the applicable published rules and regulations of the SEC
with respect thereto, was or will be 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 statements, as permitted by Form 10-Q of the
SEC), and fairly presented or will fairly present the consolidated
financial position of FCC and its Subsidiaries as at the respective
dates and the consolidated results of its 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 FCC Company has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FCC, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of FCC as of June
30, 1999, included in the FCC Financial Statements or reflected in the notes
thereto and except for Liabilities incurred in the ordinary course of business
subsequent to June 30, 1999. No FCC Company has incurred or paid any Liability
since June 30, 1999, except for such Liabilities incurred or paid 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 Material
Adverse Effect on FCC.
6.7 Absence of Certain Changes or Events. Since June 30, 1999, (i)
there have been no events, changes or occurrences which have had, or are
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FCC, and (ii) the FCC Companies have conducted their respective
businesses in the ordinary and usual course (excluding, in each case, the
incurrence of expenses or obligations in connection with this Agreement or other
changes resulting from the transactions contemplated hereby).
6.8 Tax Matters.
(a) All Tax Returns required to be filed by or on behalf of
any of the FCC Companies 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, 1998, and, to the Knowledge of
FCC, all Tax Returns filed are complete and accurate in all Material
respects. All Tax Returns for periods ending on or before the date of
the most recent fiscal year end immediately preceding the Effective
Time will be timely filed or requests for extensions will be timely
filed. All Taxes shown on filed Tax Returns have been paid or will be
timely paid. 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 Material Adverse Effect on FCC, except to the extent
reflected in the FCC Financial Statements dated prior to the date of
this Agreement. 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 FCC Companies, except for any such Liens which are not
reasonably likely to have a Material Adverse Effect on FCC.
(b) None of the FCC Companies 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) Adequate provision for any Taxes due or to become due for
any of the FCC Companies for the period or periods through and
including the date of the respective FCC Financial Statements has been
made and is reflected on such FCC Financial Statements.
(d) Each of the FCC Companies 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 Material Adverse Effect on FCC.
(e) None of the FCC Companies has made any payments, is
obligated to make any payments, or is a party to any contract,
agreement, or other arrangement 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 except as disclosed in the FCC
Disclosure Memorandum.
(f) Deferred Taxes of the FCC Companies have been
provided for in accordance with GAAP.
(g) None of the FCC Companies is a party to any Tax allocation
or sharing agreement, and none of the FCC Companies 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 FCC) or has any
Liability for Taxes of any Person (other than Carolina First) 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.
(h) There has not been an ownership change, as defined in
Internal Revenue Code Section 382(g), of the FCC Companies that
occurred during or after any Taxable Period in which the FCC Companies
incurred a net operating loss that carries over to any Taxable Period
ending after December 31, 1998.
(i) No FCC Company has filed any consent under Section 341(f)
of the Internal Revenue Code concerning collapsible corporations.
(j) After the date of this Agreement, no Material election
with respect to Taxes will be made without the prior consent of
Carolina First, which consent will not be unreasonably withheld.
(k) No FCC Company has or has had a permanent establishment in
any foreign country, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
6.9 Assets. The FCC Companies have good and marketable title, free and
clear of all Liens, to all of their respective Assets. All tangible properties
used in the businesses of the FCC Companies are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with FCC's past practices. All Assets which are Material to FCC's
business on a consolidated basis, held under leases or subleases by any of the
FCC Companies, are held under valid Contracts enforceable in accordance with
their respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, conservatorship,
receivership 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 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. The FCC Companies currently maintain insurance in amounts,
scope, and coverage reasonably necessary for their operations. None of the FCC
Companies 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. The Assets of the FCC Companies include all Assets
required to operate the business of the FCC Companies as presently conducted.
6.10 Environmental Matters.
(a) To the Knowledge of FCC, each FCC Company, its
Participation Facilities, and its Loan Properties are, and have been,
in compliance with all Environmental Laws, except those violations
which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on FCC.
(b) There is no Litigation pending or, to the Knowledge of
FCC, threatened before any court, governmental agency, or authority, or
other forum in which any FCC Company or, to the Knowledge of FCC, any
of its Participation Facilities has been or, with respect to threatened
Litigation, may reasonably be expected to be named as a defendant (i)
for alleged noncompliance (including by any predecessor) with any
Environmental Law or (ii) relating to the release into the environment
of any Hazardous Material, whether or not occurring at, on, under, or
involving a site owned, leased, or operated by any FCC Company or any
of its Participation Facilities, except for such Litigation pending or
threatened that is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FCC.
(c) There is no Litigation pending or, to the Knowledge of
FCC, threatened before any court, governmental agency, or board, or
other forum in which any of its Loan Properties (or FCC in respect of
such Loan Property) has been or, with respect to threatened Litigation,
is reasonably expected to be named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the release
into the environment of any Hazardous Material, whether or not
occurring at, on, under, or involving a Loan Property, except for such
Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FCC.
(d) To the Knowledge of FCC, during the period of (i) any FCC
Company's ownership or operation of any of their respective current
properties, (ii) any FCC Company's participation in the management of
any Participation Facility, or (iii) any FCC Company's holding of a
security interest in a Loan Property, there have been no releases of
Hazardous Material in, on, under, or affecting (or potentially
affecting) such properties, except such as are not reasonably likely to
have, individually or in the aggregate, a Material Adverse Effect on
FCC. Prior to the period of (i) any FCC Company's ownership or
operation of any of their respective current properties, (ii) any FCC
Company's participation in the management of any Participation
Facility, or (iii) any FCC Company's holding of a security interest in
a Loan Property, to the Knowledge of FCC, there were no releases of
Hazardous Material in, on, under, or affecting any such property,
Participation Facility, or Loan Property, except such as are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FCC.
6.11 Compliance with Laws. FCC is duly registered as a bank holding
company under the BHC Act. Each FCC Company 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 Material Adverse
Effect on FCC, 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 Material Adverse Effect on FCC. None of the FCC Companies:
(a) is in violation of any Laws, Orders, or Permits applicable
to its business or employees conducting its business, except for
violations which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on FCC; and
(b) 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 FCC
Company 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 Material Adverse Effect on FCC, (ii) threatening to revoke
any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FCC, or
(iii) requiring any FCC Company (x) to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment, or memorandum of understanding, or (y) 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 restricts
the payment of dividends.
6.12 Labor Relations. No FCC Company is the subject of any Litigation
asserting that it or any other FCC Company 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 FCC Company to bargain with any
labor organization as to wages or conditions of employment, nor is any FCC
Company a party to or bound by any collective bargaining agreement, Contract, or
other agreement or understanding with a labor union or labor organization, nor
is there any strike or other labor dispute involving any FCC Company, pending or
threatened, or to the Knowledge of FCC, is there any activity involving any FCC
Company's employees seeking to certify a collective bargaining unit or engaging
in any other organization activity.
6.13 Legal Proceedings. There is no Litigation instituted or pending,
or, to the Knowledge of FCC, threatened against any FCC Company, or against any
Asset, employee benefit plan, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on FCC, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any FCC Company,
that are reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FCC.
6.14 Reports. Since January 1, 1996, or the date of organization if
later, each FCC Company 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 any Regulatory Authorities, except failures to file which
are not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on FCC. 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 their
respective dates, each such report and document did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
6.15 Statements True and Correct. No statement, certificate,
instrument, or other writing furnished or to be furnished by any FCC Company 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 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 FCC Company or any Affiliate thereof regarding FCC or such
Affiliate for inclusion in the Registration Statement to be filed by FCC with
the SEC will, when the Registration Statement becomes effective, be false or
misleading with respect to any Material fact, or contain any untrue statement of
a Material fact, or omit to state any Material fact required to be stated
thereunder or necessary to make the statements therein not misleading. None of
the information supplied or to be supplied by any FCC Company or any Affiliate
thereof for inclusion in the Joint Proxy Statement to be mailed to Carolina
First's and FCC's stockholders in connection with the Stockholders' Meetings,
will, when first mailed to the stockholders of Carolina First and FCC, be false
or misleading with respect to any Material fact, or contain any misstatement of
Material fact, or omit to state any Material fact required to be stated
thereunder or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Joint Proxy Statement or any amendment thereof or supplement thereto, at the
time of the Stockholders' Meetings, be false or misleading with respect to any
Material fact, or omit to state any Material fact required to be stated
thereunder or necessary to correct any Material statement in any earlier
communication with respect to the solicitation of any proxy for the
Stockholders' Meetings. All documents that any FCC Company 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.
6.16 Accounting, Tax, and Regulatory Matters. No FCC Company or, to
FCC's Knowledge, any Affiliate thereof has taken or agreed to take any action,
and FCC has no Knowledge of any fact or circumstance that is reasonably likely
to (i) prevent the transactions contemplated hereby, including 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) of this Agreement or result in the imposition of a
condition or restriction of the type referred to in the last sentence of such
Section.
6.17 State Takeover Laws. Each FCC Company has taken all necessary
action to exempt the transactions contemplated by this Agreement from any
applicable Takeover Laws.
6.18 Charter Provisions. Each FCC Company 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 FCC Company.
6.19 Employee Benefit Plans. All FCC Plans have complied with the
applicable terms of ERISA, the Internal Revenue Code, and any other applicable
Laws, the breach or violation of which is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on FCC. For purposes
of this Agreement, the term "FCC Plan" means each bonus, incentive compensation,
severance pay, medical or other insurance program, retirement plan, or other
employee benefit plan program, agreement, or arrangement sponsored, maintained,
or contributed to by FCC or any trade or business, whether or not incorporated,
that together with FCC or any of its Subsidiaries would be deemed a "single
employer" under Section 414 of the Internal Revenue Code (a "FCC ERISA
Affiliate") or under which FCC or any FCC ERISA Affiliate has any Liability or
obligation. No Liability under Title IV of ERISA has been incurred by FCC or any
FCC ERISA Affiliate that has not been satisfied in full, and no condition exists
that presents a Material risk to FCC or any FCC ERISA Affiliate of incurring any
such Liability. With respect to any FCC Plan that is subject to Title IV of
ERISA, full payment has been made, or will be made in accordance with Section
404(a)(6) of the Internal Revenue Code, of all amounts that FCC or any FCC ERISA
Affiliate is required to pay under Section 412 of the Internal Revenue Code or
under the terms of the FCC Plans, and no accumulated funding deficiency (within
the meaning of Section 412 of the Internal Revenue Code) exists with respect to
any FCC Plan. There are no Material actions, suits, or claims pending, or, to
the Knowledge of FCC, threatened or anticipated relating to any FCC Plan. There
has been no Material adverse change in the financial position or funded status
of any FCC Plan that is subject to Title IV of ERISA since the date of the
information relating to the financial position and funded status of each such
plan contained in the most recent FCC Form 10-K filed with the SEC.
6.20 Derivatives. All interest rate swaps, caps, floors, option
agreements, futures and forward contracts, and other similar risk management
arrangements, whether entered into for FCC's own account, or for the account of
one or more the FCC Subsidiaries or their customers, were entered into (i) in
accordance with prudent business practices and all applicable Laws, and (ii)
with counterparties believed to be financially responsible.
6.21 Year 2000. FCC has completed the four phases of its Year 2000
readiness program, as described in the May 5, 1997, Statement of the Federal
Financial Institutions Examination Council ("FFIEC"), entitled "Year 2000
Project Management Awareness" and the April 20, 1998, "Guidance Concerning
Testing for Year 2000 Readiness." FCC has made available to Carolina First
complete and accurate copies of its Year 2000 remediation contingency plan, as
described in the FFIEC Statements of March 17, 1998, and May 13, 1998, entitled
"Guidance Concerning Institution Due Diligence in Connection with Service
Provider and Software Vendor Year 2000 Readiness" and "Guidance Concerning
Contingency Planning in Connection with Year 2000 Readiness," respectively. FCC
has completed the four phases of the business resumption contingency planning
process, as set forth in the guidance issued by FFIEC on December 11, 1998, and
May 13, 1998, and has provided to Carolina First a complete and accurate copy of
its business resumption contingency plan, written documentation supporting the
plan's development and validation, the results of tests on the plan, and a
schedule of future tests.
6.22 Fairness Opinion. FCC has received a written opinion of Wheat
First Securities, a division of First Union Securities, Inc. ("Wheat First
Securities") to the effect that, as of the date of this Agreement, the Exchange
Ratio is fair, from a financial point of view, to the holders of FCC Common
Stock.
6.23 Board Recommendation. The Board of Directors of FCC, at a meeting
duly called and held, has by vote of the directors present (who constituted all
the directors then in office) (i) determined that this Agreement and the
transactions contemplated, hereby including the Merger, and the transactions
contemplated thereby, taken together, are fair to and in the best interests of
the FCC Stockholders and (ii) resolved to recommend that the holders of the
shares of FCC Common Stock approve this Agreement
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Affirmative Covenants of Carolina First. Unless the prior written
consent of FCC shall have been obtained, and except as otherwise expressly
contemplated herein, Carolina First shall and shall cause each Carolina First
Company to (i) operate its business only in the usual, regular, and ordinary
course, (ii) preserve intact its business organization and Assets and maintain
its rights and franchises, (iii) use its reasonable efforts to maintain its
current employee relationships, and (iv) take no action which is reasonably
likely to (a) 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 sentence of Section
9.1(b) or 9.1(c) of this Agreement, or (b) adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.2 Negative Covenants of Carolina First. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement, Carolina First covenants and agrees that it will not do or agree or
commit to do, or permit any of its Subsidiaries to do or agree or commit to do,
any of the following without the prior written consent of the chief executive
officer or chief financial officer of FCC:
(a) amend the Articles of Incorporation, Bylaws, or other
governing instruments of any Carolina First Company, or
(b) incur, guarantee, or otherwise become responsible for, any
additional debt obligation or other obligation for borrowed money
(other than indebtedness of a Carolina First Company to another
Carolina First Company) in excess of an aggregate of $500,000 (for the
Carolina First Companies on a consolidated basis), except in the
ordinary course of the business consistent with past practices (which
shall include, for Carolina First Subsidiaries that are depository
institutions, creation of deposit liabilities, purchases of federal
funds, advances from the Federal Reserve Bank or Federal Home Loan
Bank, and entry into repurchase agreements fully secured by U.S.
government or agency securities), or impose, or suffer the imposition,
on any Asset of any Carolina First Company of any Lien or permit any
such Lien to exist (other than in connection with deposits, repurchase
agreements, Federal Home Loan Bank advances, bankers acceptances,
"treasury tax and loan" accounts established in the ordinary course of
business, the satisfaction of legal requirements in the exercise of
trust powers, and Liens in effect as of the date hereof that are
disclosed in the Carolina First Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange
(other than exchanges in the ordinary course under employee benefit
plans), directly or indirectly, any shares, or any securities
convertible into any shares, of the capital stock of any Carolina First
Company, or declare or pay any dividend or make any other distribution
in respect of Carolina First's capital stock, provided that (i)
Carolina First may (to the extent legally and contractually permitted
to do so), but shall not be obligated to, declare and pay regular
quarterly cash dividends on the shares of Carolina First Common Stock
at a rate of [$.10] per share with usual and regular record and payment
dates in accordance with past practice as disclosed in Section 7.2(c)
of the Carolina First Disclosure Memorandum and such dates may not be
changed without the prior written consent of FCC, and (ii) nothing
contained in this Section 7.2(c) shall be deemed to affect the ability
of a Carolina First Subsidiary to pay dividends on its capital stock to
Carolina First; provided, that, notwithstanding the provisions of
Section 1.3, the Parties shall cooperate in selecting the Effective
Time to ensure that, with respect to the quarterly period in which the
Effective Time occurs, the holders of Carolina First Common Stock do
not receive both a cash dividend in respect of their Carolina First
Common Stock and a cash dividend in respect of FCC Common Stock or fail
to receive any cash dividend in respect of Carolina First Common Stock
or FCC Common Stock; or
(d) except for this Agreement and the transactions
contemplated hereby, or pursuant to the Carolina First Stock Option
Agreement or pursuant to the exercise of Rights outstanding as of the
date of this Agreement and pursuant to the terms thereof in existence
on the date of this Agreement, 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 Carolina First Common Stock or
any other capital stock of any Carolina First Company, or any stock
appreciation rights, or any option, warrant, conversion, or other right
to acquire any such stock, or any security convertible into any such
stock; or
(e) adjust, split, combine, or reclassify any capital stock of
any Carolina First Company or issue or authorize the issuance of any
other securities in respect of or in substitution for shares of
Carolina First Common Stock, or sell, lease, mortgage, or otherwise
dispose of or otherwise encumber (i) any shares of capital stock of any
Carolina First Subsidiary (unless any such shares of stock are sold or
otherwise transferred to another Carolina First Company) or (ii) 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
five 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 Carolina First Subsidiary or the Federal Home
Loan Bank, 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 Carolina First Company, except in
accordance with past practice, as disclosed in Section 7.2(g) of the
Carolina First 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 or as set forth in Section 8.13(f) of this Agreement; enter
into or amend any severance agreements with officers of any Carolina
First Company; grant any increase in fees or other increases in
compensation or other benefits to directors of any Carolina First
Company; or voluntarily accelerate the vesting of any stock options or
other stock-based compensation or employee benefits except for such
acceleration of vesting that automatically results from this Agreement
or the transactions contemplated hereby in accordance with the existing
terms of such options or benefits without any exercise of discretion;
or
(h) enter into or amend any employment Contract between any
Carolina First Company and any Person (unless such amendment is
required by Law) where such Contract or amendment provides that the
Carolina First 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; or
(i) adopt any new employee benefit plan of any Carolina First
Company or terminate or withdraw from, or make any Material change in
or to, any existing employee benefit plans of any Carolina First
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
(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 as necessary for the
prudent operation of its business or settle any Litigation involving
any Liability of any Carolina First Company for Material money damages
or restrictions upon the operations of any Carolina First Company; or
(l) enter into modify, amend, or terminate any Material
Contract or waive, release, compromise, or assign any Material rights
or claims.
(m) incur or become obligated to incur any expenses exceeding
$300,000, whether capitalized, expended or otherwise other than in the
ordinary course of business without FCC's prior written approval,
excluding any expenses or obligations incurred in connection with this
Agreement or the transactions contemplated hereby.
7.3 Negative Covenants of FCC. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, FCC
covenants and agrees that it will not do or agree to commit to do, or permit any
of its Subsidiaries to do or agree or commit to do, any of the following without
the prior written consent of the chief executive officer or chief financial
officer of Carolina First, which consent shall not be unreasonably withheld:
(a) declare or pay any dividend or make any other distribution
in respect of the FCC Common Stock, except for regular quarterly cash
dividends at a rate not in excess of $.17 per share of FCC Common
Stock, provided, however, that nothing contained herein shall be deemed
to affect the ability of a FCC Subsidiary to pay dividends on its
capital stock to FCC; or
(b) amend its Amended and Restated Articles of Incorporation
or Bylaws in a manner which would adversely affect in any manner the
terms of the FCC Common Stock or the ability of FCC to consummate the
transactions contemplated hereby; or
(c) make any acquisition (including an acquisition of branch
offices and related deposit liabilities) that could affect the ability
of FCC to consummate the transactions contemplated hereby in a
reasonably timely manner.
7.4 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 Material Adverse Effect on it 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.
7.5 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 stockholders' 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; Joint Proxy Statement; Stockholder
Approvals. As soon as reasonably practicable after execution of this Agreement,
FCC shall 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 FCC
Common Stock upon consummation of the Merger. Carolina First shall furnish all
information as FCC may reasonably request in connection with such action.
Carolina First shall call a Stockholders' Meeting, to be held as soon as
reasonably practicable after the Registration Statement is declared effective by
the SEC, for the purpose of voting upon approval of this Agreement, the Merger,
and such other related matters as it deems appropriate. FCC shall call a
Stockholders' Meeting, to be held as soon as reasonably practicable after the
Registration Statement is declared effective by the SEC, for the purpose of
voting upon approval of this Agreement, the Merger, and the issuance of shares
of FCC Common Stock pursuant to the Merger and such other related matters as it
deems appropriate. In connection with the Stockholders' Meetings, (i) FCC and
Carolina First shall prepare and file with the SEC a Joint Proxy Statement and
mail such Joint Proxy Statement to their respective stockholders, (ii) the
Parties shall furnish to each other all information concerning them that they
may reasonably request in connection with such Joint Proxy Statement, (iii) the
Boards of Directors of FCC and Carolina First shall, subject to the provisions
of Section 8.8, recommend to their respective stockholders the approval of the
matters submitted for approval, and (iv) the Boards of Directors and officers of
FCC and Carolina First shall use their reasonable efforts to obtain such
stockholders' approvals, provided that Carolina First may withdraw, modify, or
change in an adverse manner to FCC its recommendations in compliance with the
provisions of Section 8.8. In addition, nothing in this Section 8.1 or elsewhere
in this Agreement shall prohibit accurate disclosure by either Party of
information that is required to be disclosed in the Registration Statement or
the Joint Proxy Statement or in any other document required to be filed with the
SEC (including, without limitation, a Solicitation/Recommendation Statement on
Schedule 14D-9) or otherwise required to be publicly disclosed by applicable Law
or regulations or rules of the NASD. Carolina First and FCC shall use their
reasonable efforts to include the fairness opinions of The Robinson-Humphrey
Company, LLC and Wheat First Securities respectively in the Joint Proxy
Statement and Registration Statement with dates updated to a date that is just
prior to the mailing of the Joint Proxy Statement.
8.2 Nasdaq Listing. FCC shall use its reasonable efforts to list, prior
to the Effective Time, on the Nasdaq NMS, subject to official notice of
issuance, the shares of FCC Common Stock to be issued to the holders of Carolina
First Common Stock pursuant to the Merger.
8.3 Applications. FCC shall promptly prepare and file, and Carolina
First 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.
8.4 Filings with State Offices. Upon the terms and subject to the
conditions of this Agreement, Carolina First and FCC shall execute and FCC shall
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, without limitation, 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 of this Agreement; 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) 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
destruction of all documents and copies thereof, and all work papers
containing confidential information received from the other Party. The
Confidentiality Agreements shall remain in force and effect, unmodified
by this Agreement.
(c) Each Party agrees to give the other Party written 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, 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 Material Adverse Effect on the other Party.
8.7 Press Releases. Prior to the Effective Time, FCC 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 it deems,
after having consulted with and considered the advice of outside counsel,
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 Carolina First Company nor any of its
officers or directors nor any Representative thereof, shall directly or
indirectly, initiate, solicit, encourage or knowingly facilitate (including by
way of furnishing information) any inquiries regarding or the making of any
Acquisition Proposal. Notwithstanding anything to the contrary in this
Agreement, Carolina First and its Board of Directors shall be permitted (i) to
the extent applicable, to comply with Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal, (i) to engage in
any discussions or negotiations with, or provide any information to, any Person
in response to an unsolicited bona fide written Acquisition Proposal by any such
Person, if and only to the extent that Carolina First's Board of Directors
concludes in good faith and consistent with its fiduciary duties to Carolina
First's shareholders that it should consider such Acquisition Proposal, and
prior to providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, Carolina First receives from such
Person an executed confidentiality agreement containing confidentiality terms at
least as stringent as those contained in the Confidentiality Agreement. Carolina
First Shall promptly advise FCC following the receipt of any developments with
respect to such Acquisition Proposal and the details thereof, and advise FCC of
any developments with respect to such Acquisition Proposal promptly upon the
occurrence thereof. Carolina First 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 directors, officers 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 Party shall take all necessary steps to
exempt the transactions contemplated by this Agreement from, or if necessary
challenge the validity or applicability of, any applicable Takeover Laws.
8.11 Charter Provisions. Each Party 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 Party or restrict or impair the
ability of FCC or any of its Subsidiaries to vote, or otherwise to exercise the
rights of a stockholder with respect to, shares of any Carolina First Company
that may be directly or indirectly acquired or controlled by it.
8.12 Agreement of Affiliates. Carolina First shall use its reasonable
efforts to cause each Person, whom it reasonably believes may be deemed an
"affiliate" of it for purposes of Rule 145 under the 1933 Act, to execute and
deliver to FCC as soon as practicable after the date of this Agreement, and in
any event prior to the date of the Stockholders' Meetings, a written agreement
in the form of Exhibit 3. Shares of FCC Common Stock issued to such affiliates
of Carolina First in exchange for shares of Carolina First Common Stock shall
not be transferable until such time as financial results covering at least 30
days of combined operations of FCC and Carolina First 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 8.12 (and FCC shall be entitled to place
restrictive legends upon certificates for shares of FCC Common Stock issued to
affiliates of Carolina First pursuant to this Agreement to enforce the
provisions of this Section 8.12). FCC shall not be required to maintain the
effectiveness of the Registration Statement under the 1933 Act for the purposes
of resale of FCC Common Stock by such affiliates.
8.13 Employee Benefits and Contracts.
(a) Following the Effective Time, FCC shall provide to
officers and employees of the Carolina First Companies (the "Continuing
Employees"), employee benefits under employee benefit plans (other than
stock options or other plans involving the potential issuance of FCC
Common Stock), on terms and conditions which when taken as a whole are
substantially similar to those currently provided by the FCC Companies
to their similarly situated officers and employees. For purposes of
participation, vesting, and benefit accruals (but not accrual of
benefits under FCC's tax-qualified defined benefit plans) under such
employee benefit plans, the service of the employees of the Carolina
First Companies prior to the Effective Time shall be treated as service
with an FCC Company participating in such employee benefit plans. Prior
to the Effective Time, Carolina First may amend any Carolina First
Benefit Plan that is an "employee pension benefit plan" as that term is
defined in Section 3(2) of ERISA, to provide for full vesting, as of
the Effective Time or any earlier date, of all benefits that accrue
under such plan for participants who are actively employed as of the
effective date of such amendment.
(b) Following the Effective Time, FCC shall, and shall cause
the appropriate FCC Subsidiaries to, assume and honor in accordance
with their terms the employment agreements, deferred compensation
agreements and retirement and supplemental income agreements and plans
which have been disclosed in Section 8.13 of the Carolina First
Disclosure Memorandum.
(c) Any person with at least one year of full-time service to
Carolina First or any Carolina First Company who was serving as an
employee of Carolina First or any Carolina First Subsidiary immediately
prior to the Effective Time (other than those employees covered by a
written employment agreement) whose employment is discontinued by FCC
or any of the FCC Subsidiaries within six months after the Effective
Time (unless termination of such employment is for Cause (as defined
below)) shall be entitled to a severance payment from FCC equal in
amount to two week's base pay for each full or partial year such
employee was employed by Carolina First or any other Carolina First
Subsidiary, subject to a minimum of four weeks' severance (six weeks in
the case of officers at the level of vice president or above), plus a
maximum of 40 weeks' severance, together with any accrued but unused
vacation leave with respect to the calendar year in which termination
occurs. For purposes of this Section 8.13(c), "Cause" shall mean
termination because of the employee's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties or
willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses). An employee shall be considered in
full-time service if he or she typically was scheduled to work thirty
or more hours per calendar week. Paid vacation and paid sick leave
shall count towards this thirty hour requirement.
8.14 Indemnification.
(a) After the Effective Time, FCC shall indemnify, defend and
hold harmless the present and former directors, officers, employees,
and agents of Carolina First or any of Carolina First's Subsidiaries
(each, a "Indemnified Party") (including any person who becomes a
director, officer, employee, or agent prior to the Effective Time)
against all Liabilities (including reasonable attorneys' fees, and
expenses, judgments, fines and amounts paid in settlement) arising out
of actions or omissions occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement and the
Carolina First Stock Option Agreement) to the full extent permitted
under North Carolina Law and by Carolina First's Articles of
Incorporation and Bylaws, as in effect on the date hereof and any
indemnity agreements entered into prior to the date of this Agreement
by any of the Carolina First Companies and any director, officer,
employee, or agent of any of the Carolina First Companies, including,
without limitation, provisions relating to advances of expenses
incurred in the defense of any Litigation. Without limiting the
foregoing, in any case in which approval by FCC is required to
effectuate any indemnification, FCC 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 FCC
and the Indemnified Party.
(b) FCC and the Surviving Corporation shall use their
reasonable efforts (and Carolina First shall cooperate prior to the
Effective Time in these efforts) to maintain in effect for a period of
three years after the Effective Time, Carolina First's existing
directors' and officers' liability insurance policy (provided that FCC
and the Surviving Corporation may substitute therefor (i) policies of
at least the same coverage and amounts containing terms and conditions
which are substantially no less advantageous or (ii) with the consent
of Carolina First given prior to the Effective Time, any other policy)
with respect to claims arising from facts or events which occurred
prior to the Effective Time and covering persons who are currently
covered by such insurance; provided, that the Surviving Corporation
shall not be obligated to make annual premium payments for any year in
such three-year period in respect of such policy (or coverage replacing
such policy) which exceed, for the portion related to Carolina First's
directors and officers, 150% of the annual premium payments on Carolina
First's current policy in effect as of the date of this Agreement (the
"Maximum Amount"). If the amount of the annual premium necessary to
maintain or procure such insurance coverage exceeds the Maximum Amount,
FCC shall use its reasonable efforts to maintain the most advantageous
policies of directors' and officers' liability insurance obtainable for
a premium equal to the Maximum Amount.
(c) Any Indemnified Party wishing to claim indemnification
under paragraph (a) of this Section 8.14, upon learning of any such
Liability or Litigation, shall promptly notify FCC thereof, provided
that the failure so to notify shall not affect the obligations of FCC
under this Section 8.14 unless and to the extent such failure
materially increases FCC's Liability under this Section 8.14. In the
event of any such Litigation (whether arising before or after the
Effective Time), (i) FCC or the Surviving Corporation shall have the
right to assume the defense thereof and FCC shall not 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 FCC 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 FCC or the Surviving Corporation
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and FCC 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
FCC shall be obligated pursuant to this paragraph (c) 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) FCC shall not be liable for any settlement
effected without its prior written consent; and provided further that
the Surviving Corporation shall not 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.
(d) The Surviving Corporation shall not be liable for any
settlement effected without its prior written consent which consent
shall not be unreasonably withheld.
(e) The provisions of this Section 8.14 are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs or representatives.
8.15 Board and Management Matters.
(a) At the first regularly scheduled meeting of the Board of
Directors of FCC following the Effective Time, FCC shall effect all
corporate action necessary to appoint six individuals designated by
Carolina First and reasonably acceptable to FCC (the "Carolina First
Designees") as directors of FCC to serve until the 2000 annual meeting
stockholders of FCC. At the 2000 annual meeting of stockholders of FCC,
FCC shall nominate for election the Carolina First Designees to the
Board of Directors of FCC to serve as a member of the respective
classes of the FCC Board of Directors as necessary so that each class
of the FCC Board of Directors is nearly equal in number as practicable.
(b) On the date hereof FCC and James E. Burt, III have
executed an Employment Agreement in the form attached as Exhibit 2
hereto, which shall become effective upon the consummation of the
Merger.
8.16 Certain Modifications. FCC and Carolina First shall consult with
respect to their respective loan, litigation, and real estate valuation policies
and practices (including loan classifications and levels of reserves) and
Carolina First shall make such modifications or changes to its policies and
practices, if any, prior to the Effective Time, as may be mutually agreed upon.
FCC and Carolina First 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 as may be mutually
agreed upon by the Parties. Neither Party's representations, warranties, and
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 to 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 of
this Agreement:
(a) Stockholder Approvals. The stockholders of Carolina First
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,
and by the rules of the NASD. The stockholders of FCC shall have
approved this Agreement and the issuance of shares of FCC Common Stock
pursuant to the Merger, as and to the extent required by Law, by the
provisions of any governing instruments, and by the rules of the NASD.
(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) of this Agreement) 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 Material Adverse Effect on such
Party.
(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 FCC
Common Stock issuable pursuant to the Merger shall have been received.
(f) Nasdaq Listing. The shares of FCC Common Stock
issuable pursuant to the Merger shall have been approved for listing on
the Nasdaq NMS.
(g) Tax Matters. Carolina First shall have received a written
opinion from Alston & Bird LLP and FCC shall have received a written
opinion from Smith Helms Mulliss & Moore, L.L.P., in a form reasonably
satisfactory to such Party (the "Tax Opinions"), to the effect that (i)
the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, (ii) no gain or loss will
be recognized by holders of Carolina First Common Stock who exchange
all of their Carolina First Common Stock solely for FCC Common Stock
pursuant to the Merger (except with respect to any cash received in
lieu of a fractional share interest in FCC Common Stock), (iii) the tax
basis of the FCC Common Stock received by holders of Carolina First
Common Stock who exchange all of their Carolina First Common Stock
solely for FCC Common Stock in the Merger will be the same as the tax
basis of the Carolina First Common Stock surrendered in exchange for
the FCC Common Stock (reduced by an amount allocable to a fractional
share interest in FCC Common Stock for which cash is received), and
(iv) the holding period of the FCC Common Stock received by holders who
exchange all of their Carolina First Common Stock solely for FCC Common
Stock in the Merger will be the same as the holding period of the
Carolina First Common Stock surrendered in exchange therefor, provided
that such Carolina First Common Stock is held as a capital asset at the
Effective Time. In rendering such Tax Opinions, such counsel shall be
entitled to rely upon representations of officers of Carolina First and
FCC reasonably satisfactory in form and substance to such counsel.
(h) Pooling Letters. Each Party shall have received a letter, dated as of
the Effective Time, in a form reasonably acceptable to such Party, from
KPMG Peat Marwick LLP to the effect that the Merger will qualify for
pooling of interests accounting treatment.
9.2 Conditions to Obligations of FCC. The obligations of FCC 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 FCC pursuant to Section 11.6(a) of this Agreement:
(a) Representations and Warranties. For purposes of this Section 9.2(a), the
accuracy of the representations and warranties of Carolina First set forth
in this Agreement shall be assessed 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 (provided 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 5.3 of this Agreement
shall be true and correct (except for inaccuracies which are de minimis in
amount). The representations and warranties of Carolina First set forth in
Sections 5.18, 5.19, and 5.20 of this Agreement shall be true and correct
in all Material respects. 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
Sections 5.3, 5.18, 5.19, and 5.20) such that the aggregate effect of such
inaccuracies has, or is reasonably likely to have, a Material Adverse
Effect on Carolina First; provided that, for purposes of this sentence
only, those representations and warranties which are qualified by
references to "material," "Material," "Material Adverse Effect," or
variations thereof, or to the "Knowledge" of Carolina First or to a matter
being "known" by Carolina First shall be deemed not to include such
qualifications.
(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 FCC
(i) a certificate, dated as of the Effective Time and signed on its
behalf by its chief executive officer and chief financial officer, to
the effect that the conditions of its obligations set forth in Section
9.1 as relates to Carolina First and in Section 9.2(a) and 9.2(b) of
this Agreement have been satisfied, and (ii) certified copies of
resolutions duly adopted by Carolina First's Board of Directors and
stockholders 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 FCC and its counsel shall request.
(d) Affiliate Agreements. FCC shall have received from each
affiliate of Carolina First the affiliates agreements referred to in
Section 8.12 of this Agreement, to the extent necessary to ensure in
the reasonable judgment of FCC that the transactions contemplated
hereby will qualify for pooling of interests accounting treatment.
9.3 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(b) of this Agreement:
(a) Representations and Warranties. For purposes of this
Section 9.3(a), the accuracy of the representations and warranties of
FCC set forth in this Agreement shall be assessed 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 (provided that representations and warranties
which are confined to a specified date shall speak only as of such
date). The representations and warranties of FCC set forth in Section
6.3 of this Agreement shall be true and correct (except for
inaccuracies which are de minimis in amount). The representations and
warranties of FCC set forth in Sections 6.16, 6.17, and 6.18 of this
Agreement shall be true and correct in all Material respects. There
shall not exist inaccuracies in the representations and warranties of
FCC set forth in this Agreement (including the representations and
warranties set forth in Sections 6.3, 6.16, 6.17, and 6.18) such that
the aggregate effect of such inaccuracies has, or is reasonably likely
to have, a Material Adverse Effect on FCC; provided that, for purposes
of this sentence only, those representations and warranties which are
qualified by references to "material," "Material," "Material Adverse
Effect," or variations thereof, or to the "Knowledge" of FCC or to a
matter being "known" by FCC shall be deemed not to include such
qualifications.
(b) Performance of Agreements and Covenants. Each and all of
the agreements and covenants of FCC 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. FCC 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 chief financial officer, to
the effect that the conditions of its obligations set forth in Section
9.1 as relates to FCC and in Section 9.3(a) and 9.3(b) of this
Agreement have been satisfied, and (ii) certified copies of resolutions
duly adopted by FCC's Board of Directors and stockholders 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.
ARTICLE 10 TERMINATION
10.1 Termination. Notwithstanding any other provision of this
Agreement, and notwithstanding the approval of this Agreement by the
stockholders of Carolina First or FCC, this Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Board of Directors of FCC
and the Board of Directors of Carolina First; or
(b) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Carolina First
and Section 9.3(a) of this Agreement in the case of FCC or in Material
breach of any covenant or other agreement contained in this Agreement)
in the event of an inaccuracy of any representation or warranty of the
other Party 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 inaccuracy and which inaccuracy would provide
the terminating Party the ability to refuse to consummate the Merger
under the applicable standard set forth in Section 9.2(a) of this
Agreement in the case of Carolina First and Section 9.3(a) of this
Agreement in the case of FCC; or
(c) By the Board of Directors of either Party (provided that
the terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Carolina First
and Section 9.3(a) in the case of FCC) 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 the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Carolina
First and Section 9.3(a) of this Agreement in the case of FCC or in
Material breach of any 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
stockholders of FCC or Carolina First fail to vote their approval of
the matters submitted for the approval by such stockholders at the
Stockholders' Meetings where the appropriate transactions contemplated
by this Agreement were presented to such stockholders for approval and
voted upon; or
(e) By the Board of Directors of either Party in the event that the Merger
shall not have been consummated by June 30, 2000, 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 the Board of Directors of either Party (provided that the
terminating Party is not then in breach of any representation or
warranty contained in this Agreement under the applicable standard set
forth in Section 9.2(a) of this Agreement in the case of Carolina First
and Section 9.3(a) of this Agreement in the case of FCC or in Material
breach of any 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) of this Agreement; or
(g) By Carolina First if:
(1) the Average Closing Price (as defined below) shall be less than the
product of 0.80 and the Starting Price; and
(2) (i) the number obtained by dividing the Average
Closing Price by the Starting price (such number
being referred to herein as the FCC Ratio") shall be
less than (ii) the number obtained by dividing the
Index Price on the Determination Date by the Index
Price on the Starting Date and subtracting 0.15 from
such quotient (such number being referred to herein
as the "Index Ratio").
If Carolina First elects its termination right pursuant to the
immediately preceding sentence, it shall give to FCC written notice on
or before the second trading day after the Determination Date. During
the five-day period commencing on the date of such notice, FCC shall
have the option of adjusting the Exchange Ratio to equal the lesser of
(i) a number equal to a quotient (rounded to the nearest one-ten
thousandth), the numerator of which is the product of 0.80, the
Starting Price and the Exchange Ratio (as then in effect) and the
denominator of which is the Average Closing Price, or (ii) a number
equal to a quotient (rounded to the nearest one-ten thousandth), the
numerator of which is the Index Ratio multiplied by the Exchange Ratio
(as then in effect) and the denominator of which is the FCC Ratio. If
FCC makes an election contemplated by the preceding sentence, within
such five-day period, it shall give prompt written notice to Carolina
First of such election and the revised Exchange Ratio, whereupon no
termination shall have occurred pursuant to this Section, and this
Agreement shall remain in effect in accordance with its terms (except
as the Exchange Ratio shall have been so modified), and any references
in this Agreement to "Exchange Ratio" shall thereafter be deemed to
refer to the Exchange Ratio as adjusted pursuant to this Section.
For purposes of this Section only, the following terms shall
have the meanings indicated:
"Average Closing Price" means the average of the last
reported sale prices per share of FCC Common Stock as reported
on The Nasdaq Stock Market or such successor exchange on which
FCC Common Stock may then be traded (as reported in The Wall
Street Journal or, if not reported therein, in another
mutually agreed upon authoritative source) for the 20
consecutive trading days on The Nasdaq Stock Market or such
successor exchange on which FCC Common Stock may then be
traded ending at the close of trading on the Determination
Date.
"Determination Date" means the date on which the approval
of the Federal Reserve Board required for consummation of the
Merger shall be received by FCC, without regard to any
requisite waiting periods in respect thereof.
"Index Group" means the group of this 11 bank holding
companies listed below, the common stock of all of which shall
be publicly traded and as to which there shall not have been,
since the Starting Date and before the Determination Date, an
announcement of a transaction whereby such company would be
acquired or whereby such company would acquire another company
or companies in transactions with a value exceeding 25% of the
acquiror's market capitalization as of the Starting Date. In
the event that the common stock of any such company ceases to
be publicly traded or any such announcement is made with
respect to any such company, such company will be removed from
the Index Group, and the weights (which have been determined
based on the number of outstanding shares of common stock)
redistributed proportionately for purpose of determining the
Index Price. The bank holding companies and the weights
attributed to them are as follows:
<TABLE>
<CAPTION>
Ticker Weighting
<S> <C> <C>
BT Financial Corporation BTFC 3.14%
Carolina First Corporation CAFC 5.08
CCB Financial Corporation CCB 7.82
Centura Banks, Inc. CBC 7.94
First Midwest Bancorp, Inc. FMBI 5.45
First Virginia Banks, Inc. FVB 9.91
Fulton Financial Corporation FULT 13.57
Mercantile Bankshares Corporation MRBK 13.62
Sky Financial Group Inc. SKYF 15.27
Trustmark Corporation TRMK 14.22
WesBanco, Inc. WSBC 3.99
100.00%
</TABLE>
"Index Price" on a given date means the weighted average
(weighted in accordance with the factors listed above) of the
closing prices of the companies comprising the Index Group.
"Starting Date" means November 8, 1999.
"Starting Price" shall mean the last reported sale price
per share of FCC Common Stock on the Starting Date, as
reported by The Nasdaq Stock Market or such successor exchange
on which FCC Common Stock may then be traded (as reported in
The Wall Street Journal or, if not reported therein, in
another mutually agreed upon authoritative source).
If any company belonging to the Index Group or FCC declares or
effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the
Starting Date and the Determination Date, the prices for the common
stock of such company or FCC shall be appropriately adjusted for the
purposes of applying this Section.
(h) By either Party in the event Carolina First's Board of
Directors has determined in good faith and as permitted by Sections 8.1
and 8.8 hereof to enter into an alternative Acquisition Proposal.
10.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1 of this Agreement, 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) of this Agreement shall
survive any such termination and abandonment, and (ii) a termination pursuant to
Sections 10.1(b), 10.1(c), or 10.1(f) of this Agreement 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. The Stock Option Agreement shall be governed by its own terms.
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 8.12, 8.13, 8.14, and 8.15 of this
Agreement.
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 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 and the Confidentiality Agreements (and excepting the Stock Option
Agreement) delivered pursuant hereto and incorporated herein by reference.
"ARTICLES OF MERGER" shall mean the Articles of Merger to be executed
by FCC and filed with the Secretary of State of the State of North Carolina
relating to the Merger as contemplated by Section 1.1 of this Agreement.
"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 BANKS" shall mean Lincoln Bank of North Carolina,
Cabarrus Bank of North Carolina and Community Bank and Trust Company.
"Carolina First COMMON STOCK" shall mean the $2.50 par value common
stock of Carolina First.
"Carolina First COMPANIES" shall mean, collectively, Carolina First and
all Carolina First Subsidiaries.
"Carolina First DISCLOSURE MEMORANDUM" shall mean the written
information entitled "Carolina First Disclosure Memorandum" delivered prior to
the execution of this Agreement to FCC describing in reasonable detail the
matters contained therein and, with respect to each disclosure made therein,
specifically referencing each Section or subsection of this Agreement under
which such disclosure is being made. Information disclosed with respect to one
Section or subsection shall not be deemed to be disclosed for all purposes
hereunder. The inclusion of any matter in this document shall not be deemed an
admission or otherwise to imply that any such matter is Material for purposes of
this Agreement.
"Carolina First FINANCIAL STATEMENTS" shall mean (i) the consolidated
statements of financial position (including related notes and schedules, if any)
of Carolina First as of June 30, 1999 and as of December 31, 1997, 1997, and
1996, and the related statements of income, changes in stockholders' equity, and
cash flows (including related notes and schedules, if any) for the six months
ended June 30, 1999, and for each of the three years ended December 31, 1998,
1997 and 1996, as filed by Carolina First in SEC Documents, and (ii) the
consolidated statements of financial position of Carolina First (including
related notes and schedules, if any) and related statements of income, changes
in stockholders' equity, and cash flows (including related notes and schedules,
if any) included in SEC Documents filed with respect to periods ended subsequent
to June 30, 1999.
"CAROLINA FIRST PREFERRED STOCK" shall mean the $1.00 par value
preferred stock of Carolina First.
"Carolina First Stock Option Agreement" shall mean the Stock Option
Agreement of even date herewith issued to FCC by Carolina First, in
substantially the form of Exhibit 1.
"Carolina First SUBSIDIARIES" shall mean the Subsidiaries of Carolina
First, which shall include the Carolina First Subsidiaries described in Section
5.4 of this Agreement and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Carolina First in the future and owned
by Carolina First at the Effective Time.
"CONFIDENTIALITY AGREEMENTS" shall mean those certain Confidentiality
Agreements, entered into prior to the date of this Agreement, between Carolina
First and FCC.
"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 or default under
any Contract, 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 or default under any Contract, 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 to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order, or Permit, where, in any such event, such Default is
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on a Party.
"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.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EXHIBITS" 1 through 3, 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.
"FCC BANK" shall mean First Charter National Bank.
"FCC COMMON STOCK" shall mean the no par value common stock of FCC.
"FCC COMPANIES" shall mean, collectively, FCC and all FCC Subsidiaries.
"FCC DISCLOSURE MEMORANDUM" shall mean the written information entitled
"FCC Disclosure Memorandum" delivered prior to the execution of this Agreement
to Carolina First describing in reasonable detail the matters contained therein
and, with respect to each disclosure made therein, specifically referencing each
Section or subsection of this Agreement under which such disclosure is being
made. Information disclosed with respect to one Section or subsection shall not
be deemed to be disclosed for all purposes hereunder. The inclusion of any
matter in this document shall not be deemed an admission or otherwise to imply
that any such matter is Material for purposes of this Agreement.
"FCC FINANCIAL STATEMENTS" shall mean (i) the consolidated statements
of condition (including related notes and schedules, if any) of FCC as of June
30, 1999, and as of December 31, 1998, 1997, and 1996, and the related
statements of income, changes in stockholders' equity, and cash flows (including
related notes and schedules, if any) for the six months ended June 30, 1999, and
for each of the three years ended December 31, 1998, 1997, and 1996, as filed by
FCC in SEC Documents, and (ii) the consolidated statements of condition of FCC
(including related notes and schedules, if any) and related statements of
income, changes in stockholders' equity, and cash flows (including related notes
and schedules, if any) included in SEC Documents filed with respect to periods
ended subsequent to June 30, 1999.
"FCC SUBSIDIARIES" shall mean the Subsidiaries of FCC and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of FCC in the future and owned by FCC at the Effective Time.
"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).
"HOLA" the Home Owners' Loan Act of 1933, as amended.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"JOINT PROXY STATEMENT" shall mean the joint proxy statement used by
FCC and Carolina First to solicit the approval of their respective stockholders
of the transactions contemplated by this Agreement, which shall include the
prospectus of FCC relating to the issuance of the FCC Common Stock to holders of
Carolina First Common Stock, as amended or supplemented.
"KNOWLEDGE" as used with respect to a Person (including references to
such Person being aware of a particular matter) shall mean the personal
knowledge of the chairman, president, chief financial officer, chief accounting
officer, chief credit officer, general counsel, or any executive vice president
of such Person.
"LAW" shall mean any code, 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.
"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 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 are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on the related Party.
"LITIGATION" shall mean any action, arbitration, cause of action,
claim, complaint, criminal prosecution, demand letter, governmental or other
examination or investigation, hearing, inquiry, administrative or other
proceeding, or notice (written or oral) by any Person alleging potential
Liability or requesting information 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.
"LOAN 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 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.
"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.
"MATERIAL ADVERSE EFFECT" on a Party 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 condition,
results of operations, or business of such Party and its Subsidiaries, taken as
a whole, or (ii) the ability of such Party 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 GAAP or regulatory accounting principles generally applicable to
banks or savings associations and their holding companies, (c) actions and
omissions of a Party (or any of its Subsidiaries) taken with the prior informed
consent of the other Party in contemplation of the transactions contemplated
hereby, including without limitation actions taken pursuant to Section 8.16 of
this Agreement, and (d) the Merger (and the reasonable expenses incurred in
connection therewith) and compliance with the provisions of this Agreement on
the operating performance or financial condition of the Party.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq NMS" shall mean the National Market System of The Nasdaq Stock
Market.
"NCBCA" shall mean the North Carolina Business Corporation Act.
"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
(including, but not limited to, participating in a fiduciary capacity) 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 Carolina First or FCC, and "Parties" shall
mean both Carolina First and FCC.
"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.
"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 FCC under the 1933 Act
with respect to the shares of FCC Common Stock to be issued to the stockholders
of Carolina First in connection with the transactions contemplated by this
Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the United States
Department of Justice, the Board of the Governors of the Federal Reserve System,
the Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, all state regulatory agencies having jurisdiction over the Parties
and their respective Subsidiaries, the NASD, and the SEC.
"REPRESENTATIVE" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative of a Person.
"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 Rights.
"SEC" shall mean the United States Securities and Exchange Commission.
"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.
"STOCKHOLDERS' MEETINGS" shall mean the respective meetings of the
stockholders of FCC and Carolina First to be held pursuant to Section 8.1 of
this Agreement, including any adjournment or adjournments thereof.
"SUBSIDIARIES" shall mean all those corporations, banks, associations,
or other entities of which the entity in question 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 acquired through foreclosure or any such entity
the equity securities of which are owned or controlled in a fiduciary capacity.
"SURVIVING BANK" shall mean FCC Bank as the surviving bank resulting
from the Bank Merger.
"SURVIVING CORPORATION" shall mean FCC as the surviving corporation
resulting from the Merger.
"TAX" OR "TAXES" shall mean all federal, state, local, and 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, imposed or required to be withheld by
the United States or any state, local, or foreign government or subdivision or
agency thereof, including any interest, penalties, or additions thereto.
"TAXABLE PERIOD" shall mean any period prescribed by any governmental
authority, including the United States or any state, local, or foreign
government or subdivision or agency thereof for which a Tax Return is required
to be filed or Tax is required to be paid.
"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.
(b) The terms set forth below shall have the meanings ascribed thereto
in the referenced sections:
<PAGE>
<TABLE>
<S> <C>
Bank Mergers ................................................................................ Section 1.2
Carolina First Benefit Plans ............................................................... Section 5.13(a)
Carolina First Contracts ................................................................... Section 5.14
Carolina First ERISA Affiliate ............................................................. Section 5.13(e)
Carolina First ERISA Plan .................................................................. Section 5.13(a)
Carolina First Rights ...................................................................... Section 3.6(a)
Carolina First Pension Plan ................................................................ Section 5.13(a)
Carolina First SEC Reports ................................................................. Section 5.5(a)
Cause .................................................................................... Section 8.13(c)
Closing .................................................................................... Section 1.3
Continuing Employee ......................................................................... Section 8.13
Effective Time ............................................................................. Section 1.4
Exchange Agent ............................................................................. Section 4.1
Exchange Ratio ............................................................................. Section 3.1(b)
FCC ERISA Affiliate ........................................................................ Section 6.19
FCC SEC Reports ............................................................................ Section 6.5(a)
Indemnified Party .......................................................................... Section 8.14
Maximum Amount ............................................................................. Section 8.14(b)
Merger .................................................................................... Section 1.1
Takeover Laws .............................................................................. Section 5.19
Tax Opinions ................................................................................ Section 9.1(g)
</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 printing
costs incurred in connection with the printing of the Registration
Statement and the Joint Proxy Statement and the SEC fees related
thereto.
(b) Nothing contained in this Section 11.2 shall constitute
or shall be deemed to constitute liquidated damages for the willful
breach by a Party of the terms of this Agreement or otherwise limit the
rights of the nonbreaching Party.
11.3 Brokers and Finders. Except for The Robinson-Humphrey Company, LLC
as to Carolina First and except for Wheat First Securities as to FCC, 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, her, or its representing or being retained
by or allegedly representing or being retained by Carolina First or FCC, each of
Carolina First and FCC, 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 Confidentiality Agreements and other 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.
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 8.12, 8.13(b), 8.14, and 8.15(b) of this
Agreement.
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 the Boards of Directors of each of the Parties, whether before or after
stockholder approval of this Agreement has been obtained; provided, that the
provisions of this Agreement relating to the manner or basis in which shares of
Carolina First Common Stock will be exchanged for FCC Common Stock shall not be
amended (except in accordance with Section 10.1(g)) after the Stockholders'
Meetings without the requisite approval of the holders of the issued and
outstanding shares of FCC Common Stock and Carolina First Common Stock, as the
case may be, entitled to vote thereon.
11.6 Waivers.
(a) Prior to or at the Effective Time, FCC, acting through
its Board of Directors, chief executive officer, chief financial
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 FCC 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 FCC.
(b) Prior to or at the Effective Time, Carolina First, acting
through its Board of Directors, chief executive officer, chief
financial officer, or other authorized officer, shall have the right to
waive any Default in the performance of any term of this Agreement by
FCC, to waive or extend the time for the compliance or fulfillment by
FCC 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.
(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 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:
Carolina First: Carolina First Bancshares, Inc.
402 E. Main Street
Lincolnton, North Carolina 25092
Telecopy Number: (704) 732-7201
Attention: James E. Burt III
President and Chief Executive Officer
Copy to Alston & Bird LLP
Counsel: One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy Number: (404) 881-4777
Attention: Ralph F. MacDonald, III
FCC: First Charter Corporation
22 Union Street North
Concord, North Carolina 28025
Telecopy Number: (704) 788-0445
Attention: Lawrence M. Kimbrough
President and Chief Executive Officer
Copy to Smith Helms Mulliss & Moore, L.L.P.
Counsel: 201 North Tryon Street
Charlotte, North Carolina 282
Telecopy Number: (704) 334-8467
Attention: Robert M. Donlon
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. The captions contained in this Agreement are for
reference purposes only and are not part 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 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 the
Parties.
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.
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf and its corporate seal to be hereunto affixed and
attested by officers thereunto as of the day and year first above written.
ATTEST: CAROLINA FIRST BANCSHARES, INC.
By: /s/ Jan H. Hollar By: /s/ James E. Burt, III
Jan H. Hollar James E. Burt, III
Secretary President and
Chief Executive Officer
[CORPORATE SEAL]
ATTEST: FIRST CHARTER CORPORATION
By: /s/ Anne C.Forrest By: /s/ Lawrence M. Kimbrough
Anne C. Forrest Lawrence M. Kimbrough
Corporate Secret President and
Chief Executive Officer
[CORPORATE SEAL]
Exhibit 23
Consent of KPMG LLP
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Carolina First Bancshares, Inc.
We consent to the incorporation by reference in the Registration Statements (No.
33-63390) on Form S-3, (No. 33-43037) on Form S-8 and (No. 333-73221) on Form
S-8, of Carolina First Bancshares, Inc., of our report dated January 18, 2000
relating to the consolidated balance sheets of Carolina First Bancshares, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income, changes in shareholders' equity and comprehensive income,
and cash flows for each of the years in the three-year period ended December 31,
1999, included in the December 31, 1999 Annual Report on Form 10-K of Carolina
First Bancshares, Inc.
/S/KPMG LLP
Charlotte, North Carolina
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000846465
<NAME> CAROLINA FIRST BANCSHARES, INC.
<MULTIPLIER> 1
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0
0
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</TABLE>
