FIRST
CHARTER
CORPORATION
22 Union Street North
P.O. Box 228
Concord, NC 28026-0228
(704)786-3300
Lawrence M. Kimbrough
President and
Chief Executive Officer Transmitted Via Fax
June 27, 1997
Board of Directors
Carolina State Bank
316 South Lafayette Street
Shelby, North Carolina 28150-5352
Attention: Charles Harry
Chairman of the Board
Members of the Board:
Thank you for the opportunity to consider a combination of
Carolina State Bank and First Charter Corporation. Given the
dynamics of the greater Charlotte market and of our two
companies, we believe that this merger makes strong strategic
sense. In this letter we will outline the preliminary terms
under which we would like to continue discussions.
Since 1993, First Charter's strategic vision has been to
capitalize on our presence in one of the nation's fastest growing
markets to become one of the nation's top performing banking
companies. In short, we have endeavored to be a growth company.
We have been fortunate in that our efforts have produced returns
on assets that have placed us in the top 25 most profitable
banking companies nationwide in 1994, 1995 and 1996. During this
period, our earnings per share have grown at a compound annual
rate of 21%, well above that of the average banking company. The
combination of our past profitability and the appeal of our
market has prompted Wheat First Securities Research Analyst Chip
Whittmann to name First Charter as "pound-for-pound one of the
strongest banking franchises in the country."
The key to the continued attainment of our goals is furthering
our community banking focus, and we believe that the addition of
Carolina State Bank to our franchise is critical to our efforts.
Accordingly, we have aggressively examined the potential benefits
that can be derived from the transaction and have incorporated
these in our proposal of 1.023 shares of First Charter
Corporation Common Stock for each share of Carolina State Bank
Common Stock, including all stock options and warrants
outstanding this date. Based on a recent closing price of First
Charter Common Stock of $21.75 per share, this would equate to a
value per share equal to $22.25 for each Carolina State Bank
share. This offer, intended to be a tax-free exchange, would
give Carolina State Bank shareholders a 68% premium to their
current market price.
To provide assurance of the underlying value of this proposal to
the shareholders of Carolina State Bank, we would suggest the
incorporation of a formula in the definitive agreement providing
for a threshold price of First Charter Corporation Common Stock.
If the average trading price of First Charter stock prior to the
time of the consummation of the merger were to decline below that
threshold price, the board of Carolina State Bank would have the
right to terminate the agreement. Our suggestion would be that
the threshold price for First Charter Corporation Common Stock be
set at $20.00 per share. The average trading price would be
based on the average of the daily price of First Charter stock
for the 20 consecutive trading days ending the date that is four
business days before the consummation date of the merger.
We condition this offer on the issuance of an option to purchase
a number of shares of Carolina State Bank Common Stock equivalent
to 19.9% of the issued and outstanding shares of Carolina State.
The option price would be $13.25 per share, which was the bid
price quoted for Carolina State Bank Common Stock as of June 26,
1997. Such stock option is set forth in the form of a Stock
Option Agreement delivered with this letter and is to be executed
at the time of acceptance by you of this preliminary proposal.
The combination of our companies would create the Charlotte
region's super-community bank. The company would have more than
$700 million in assets. From a shareholder perspective, the
company would have a market capitalization of approximately $190
million and a pro forma average weekly trading volume of over
11,000 shares. Further, our assumptions are based on a
conservative price for First Charter Common Stock relative to
other banking companies. Accordingly, we believe that we are
allowing for substantial upside potential as the value of our
combined franchise is recognized.
The addition of Carolina State Bank and its dynamic markets will
represent a significant portion of the First Charter franchise
going forward. As a result, we believe that it is important to
add three Carolina State Bank directors to the First Charter
Corporation Board of Directors. It is our intention to invite
you, Mr. Dedmon and Mr. Godbold to become holding company
directors of First Charter immediately following the consummation
of the merger.
This proposal is, of course, preliminary and is subject to, among
other things: (i) satisfactory completion of due diligence; (ii)
receipt of all regulatory and shareholder approvals; (iii)
receipt of an opinion that the transaction may be accounted for
as a pooling of interests; (iv) receipt of an opinion that the
transaction will constitute a tax-free reorganization; (v) the
effectiveness of a registration statement filed with the
Securities and Exchange Commission with respect to the First
Charter Corporation Common Stock to be issued in the transaction;
and (vi) negotiation of a definitive agreement providing for the
acquisition and containing terms and conditions of closing that
are customary to transactions of this type.
We are excited about this opportunity and believe that we have
constructed an offer that provides immediate full value for the
Carolina State Bank shareholders, that gives your shareholders
the opportunity to receive cash dividends, as declared, that
provides dramatic improvement in stock liquidity and that offers
significant longer-term value. Given the importance of Carolina
State Bank to the combined company, we would like to discuss the
role of management, board and employees going forward.
We look forward to hearing from you, and, if we can answer any
questions, please do not hesitate to call.
Sincerely,
/s/ LAWRENCE M.KIMBROUGH
LMK/acf
Accepted and agreed to this 30th day of June, 1997
/s/ CHARLES HARRY
Charles Harry
Chairman of the Board