SCBT Financial Corp
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SCBT Financial Corp. Securities Settlement
The lawsuit was settled for additional disclosures in the proxy statement mailed to shareholders. The following is a summary of the proceedings in this lawsuit: ‘On February 20, 2013, SCBT and First Financial Holdings, Inc. (First Financial) announced that they had entered into a definitive agreement (the Merger Agreement) pursuant to which SCBT and First Financial would merge (the Merger). On April 23, 2013, SCBT, in connection with proposed special meetings of the respective shareholders of SCBT and First Financial to consider and vote upon, among other things, a proposal to approve and adopt the Merger Agreement, filed with the United States Securities and Exchange Commission (the SEC) a registration statement on Form S-4, which included a preliminary joint proxy statement/prospectus of SCBT and First Financial (the Registration Statement), which indicated that SCBT board of directors (the Board) had unanimously approved the Merger Agreement. The Registration Statement also contained a discussion of the background of the Merger Agreement and the reasons the board of directors of SCBT recommended that shareholders vote in favor of the adoption of the Merger Agreement and sought shareholder approval for the Merger. On May 3, 2013, Plaintiff filed a putative class action complaint (the Complaint), on behalf of all holders of SCBT common stock, other than Defendants and their affiliates, in the Supreme Court of the State of New York for the County of New York, captioned Rational Strategies Fund v. Hill., et al., Index No. 651625/2013. The Complaint sought relief against SCBT and the members of its Board at the time: Robert R. Hill Jr., Robert R. Horger, Cynthia A. Hartley, Robert H. Demere, Jr., Ralph W. Norman, Jr., Harry M. Mims Jr., James W. Roquemore, John W. Williamson, III, M. Oswald Fogle, Thomas E. Suggs, Luther J. Battiste, III, Jimmy E. Addison, Alton Clarence Phillips, Herbert G. Gray, John C. Pollok, and Kevin P. Walker (the Defendants). The Complaint challenged solely the Company disclosures in the Registration Statement, and alleged that the Board breached its fiduciary duties in connection therewith. Specifically, the Complaint alleged, inter alia, that the following information, alleged by Plaintiff to be material, was not disclosed in the Registration Statement: (i) According to the Registration Statement, in the ordinary course of its business as a broker-dealer, SCBT financial advisor in connection with the Merger, the firm of Keefe, Bruyette & Woods (KBW) may, from time to time, purchase securities from, and sell securities to, First Financial. As a market maker in securities, KBW may from time to time have a long or short position in, and buy or sell, debt or equity securities of First Financial for KBW own account and for the accounts of its customers. To the extent KBW held any such positions, it was disclosed to SCBT. The Complaint alleged that the Registration Statement was deficient because it failed to disclose (a) the compensation that KBW has received during the past two years as a broker-dealer for purchasing securities from, or selling securities to, First Financial and (b) the value of KBW positions in First Financial as disclosed to SCBT. (ii) According to the Registration Statement, in certain of its analyses, KBW used projections and associated assumptions obtained from SCBT and First Financial senior management teams. The Complaint alleged that the Registration Statement was deficient because it failed to disclose these projections and associated assumptions. (iii) According to the Registration Statement, the dividend payable on the $65.0 million of preferred stock originally issued by First Financial to the United States Treasury under the Troubled Asset Relief Program (TARP) Capital Purchase Program will increase from 5% to 9% in December 2013. Also according to the Registration Statement, First Financial will, in consultation with SCBT, use its best efforts to repurchase, at or before the closing, from the United States Department of the Treasury, the First Financial TARP warrant, currently exercisable for 241,696 First Financial shares at $20.17 per share, subject to certain restrictions. The Complaint alleged that the Registration Statement was deficient because it failed to disclose (a) whether KBW took the TARP warrant into account in its valuation of First Financial, (b) whether KBW took this increase in the dividend payable pursuant to the TARP debt into account in its analyses, (c) how First Financial, in consultation with SCBT, plans to use its best efforts to repurchase the TARP warrant from the US Department of the Treasury at or before the closing, (d) what effect the TARP debt will have on SCBT if First Financial is unable to repurchase the TARP warrant at or before closing, and (e) the substance of KBW consideration, if any, on the effect of the TARP debt on SCBT if First Financial is unable to repurchase the TARP warrant at or before closing. (iv) The Complaint alleged that the Registration Statement was deficient because it failed to disclose for KBW Selected Companies Analysis the mean and median for the Selected Companies for each of the line item metrics shown for that analysis. (v) The Complaint alleged that the Registration Statement was deficient because it failed to disclose for each of the selected transactions in KBW Recent Transactions Analysis the mean and median transaction price as a percentage of (a) book value, (b) tangible book value, (c) core deposit premium, and (d) market premium. (vi) According to the Registration Statement, for its Financial Impact Analysis, KBW performed pro forma merger analyses that combined projected income statement and balance sheet information of SCBT and First Financial. Assumptions regarding the accounting treatment, acquisition adjustments and cost savings of the Merger were used to calculate the financial impact that the Merger would have on certain projected financial results of SCBT. In the course of this analysis, KBW used earnings estimates for SCBT for 2013 and 2014 from a nationally recognized earnings estimate consolidator and used earnings estimates for First Financial for 2013 and 2014 prepared by SCBT management. This analysis indicated that the Merger is expected to be dilutive to SCBT estimated earnings per share in 2013 and accretive to SCBT estimated earnings per share in 2014. The analysis also indicated that the Merger is expected to be accretive to book value per share and dilutive to tangible book value per share for SCBT and that SCBT would maintain well-capitalized capital ratios following the completion of the Merger. The Complaint alleged that the Registration SCBT and First Financial used in this analysis, (b) the earnings estimates for SCBT for 2013 and 2014 from a nationally recognized earnings estimate consolidator, (c) the identity of the nationally recognized earnings estimate consolidator, (d) the earnings estimates for First Financial for 2013 and 2014 prepared by SCBT management, (e) the extent to which the Merger is expected to be dilutive to SCBT estimated earnings per share in 2013, (f) the extent to which the Merger is expected to be accretive to SCBT estimated earnings per share in 2014, (g) the extent to which the Merger is expected to be accretive to book value per share and dilutive to tangible book value per share for SCBT, and (h) the capital ratios that the analysis indicates SCBT will maintain following completion of the Merger. (vii) According to the Registration Statement in its Discounted Cash Flow Analysis, KBW assumed discount rates ranging from 9.0% to 14.0% to derive (a) the present value of the estimated free cash flows that First Financial could generate over a five year period, including certain cost savings forecasted as a result of the Merger, and (b) the present value of First Financial terminal value at the end of year five. Terminal values for First Financial were calculated based on a range of 10.0x to 15.0x estimated 2018 earnings. In performing this analysis, KBW used estimates of First Financial future earnings prepared by SCBT management. Certain data was adjusted to account for certain restructuring charges and purchase accounting adjustments anticipated by SCBT management to result from the Merger. The Complaint alleged that the Registration Statement was deficient because it failed to disclose (a) the methodology used to derive the discount rate range of 9.0% to 14.0%, (b) the present value of the estimate free cash flows that First Financial could generate over a five year period, including certain cost savings forecasted as a result of the Merger, (c) the value of these anticipated cost savings forecasted as a result of the Merger, and (d) the estimates of First Financial future earnings prepared by SCBT management. The Complaint further alleged, inter alia, that by reason of Defendants actions, Plaintiff and the putative class members had suffered and would suffer irreparable harm for which they had no adequate remedy at law, and requested that the Court grant appropriate relief for such alleged harm. On May 29, 2013, SCBT and First Financial filed an amendment to the Registration Statement (the May 29th Amendment), which disclosed the following information sought in Plaintiff Complaint as described in (vi) above: (a) SCBT and First Financial respective 2013 budget under a section entitled SCBT and First Financial Unaudited Prospective Financial Information. The May 29th Amendment also disclosed that on May 22, 2013, First Financial completed the repurchase of the First Financial TARP warrant from the Department of the Treasury for approximately $1.4 million, and the warrant was subsequently cancelled, thus mooting the need for the information sought in (iii) above. On June 7, 2013, Defendants filed a motion to dismiss pursuant to CPLR § 3211(a)(8), for lack of personal jurisdiction or, in the alternative, pursuant to CPLR § 327(a), on the ground of forum non conveniens (the Motion to Dismiss), which motion was deemed fully submitted on June 28, 2013 following the filings of Plaintiff opposition papers on June 21, 2013 and Defendants reply papers on June 27, 2013. On June 19, 2013, SCBT and First Financial filed with the SEC and mailed to SCBT and First Financial shareholders a prospectus on Form 424B3 (the Definitive Registration Statement), which indicated that SCBT and First Financial had scheduled special meetings of their respective shareholders on July 24, 2013 for such shareholders to vote on the adoption of the Merger Agreement. On June 19, 2013, Plaintiff filed a proposed Order to Show Cause Scheduling a Hearing on its Motion for (1) a Preliminary Injunction Pending Expedited Discovery, (2) Expedited Discovery and (3) a Hearing Date for a Post-Expedited Discovery Motion to Continue the Preliminary Injunction Pending Trial (the Preliminary Injunction and Expedited Discovery Motion). On June 20, 2013, in connection with Plaintiff Preliminary Injunction and Expedited Discovery Motion, the Court entered the Order to Show Cause and scheduled a hearing on Plaintiff Preliminary Injunction and Expedited Discovery Motion for July 9, 2013 at 11:30 a.m. On July 3, 2013, Defendants filed opposition papers to Plaintiff Preliminary Injunction and Expedited Discovery Motion and, on July 8, 2013, Plaintiff filed an emergency motion seeking the Court permission to file reply papers attached to the emergency motion. On July 8, 2013, Joseph D. Hansen, Esq., law clerk to Justice Melvin L. Schweitzer, held a telephonic conference with counsel for all Parties during which he indicated that Justice Schweitzer had asked him to convey that the Court was inclined to deny both of the above motions pending limited expedited discovery, to consist of the production by Defendants of the documents requested in Plaintiff First Request for the Production of Documents to all Defendants (the Plaintiff First Document Requests) and the deposition by Plaintiff of those directors of SCBT that were also employees of SCBT. Mr. Hansen further conveyed that this discovery should be completed in time for Plaintiff to file a renewed preliminary injunction motion (if necessary) prior to the closing of SCBT acquisition of First Financial. Mr. Hansen also requested that the Parties submit a proposed discovery order. On July 15, 2013, as requested by Mr. Hansen, the Parties submitted a proposed discovery order pursuant to which (a) Defendants agreed to produce documents responsive to Plaintiff First Document Requests by 2:00 p.m. that day, (b) Defendants agreed to make available for deposition in Columbia, South Carolina (i) SCBT Chairman Robert Horger and SCBT CEO Robert Hill on July 19, 2013 and (ii) SCBT Chief Financial Officer and Chief Operating Officer John C. Pollok on July 20, 2013, and (c) Plaintiff agreed to produce certain categories of documents to Defendants (the Proposed Discovery Order). Also on July 15, 2013, pursuant to the Proposed Discovery Order, Defendants produced over 2,300 pages of documents in response to Plaintiff First Document Requests. On July 16, 2013, Defendants caused SCBT to file a current report on Form 8-K with the SEC (the July 16th Form 8-K), which disclosed, among other things, the following information sought in Plaintiff Complaint (the July 16th Supplemental Disclosures): (i) That in the course of its Financial Impact Analysis, KBW used earnings estimates for SCBT for 2013 and 2014 of $3.23 and $3.41, respectively, which were obtained from FactSet Research Systems, Inc., as compiled by SNL Financial. (ii) That First Financial pre- and post-closing earnings were projected at $19.2 million and $3.8 million respectively for 2013 and $23.6 million for 2014. (iii) That KBW Financial Impact Analysis indicated that (1) the Merger is expected to be 1.5% dilutive to SCBT estimated earnings per share in 2013 and 16.2% accretive to SCBT estimated earnings per share in 2014, (2) the Merger is expected to be 8.3% accretive to book value per share and 8.0% dilutive to tangible book value per share for SCBT and (3) SCBT would maintain a well-capitalized Leverage Ratio of 8.98%, Tier 1 Capital Ratio of 13.04% and Total Capital Ratio of 14.30%. (iv) With regard to KBW Discounted Cash Flow Analysis, (1) the range of discount rates was selected to provide sensitivities around First Financial estimated cost of equity capital per the Capital Asset Pricing Model, or CAPM. The CAPM cost of equity was determined by adding (X) a risk-free rate to (Y) the product of the equity-risk premium and a beta and (Z) a size premium; (2) in connection with this analysis, KBW also used estimated cost-savings assumptions for the transaction, prepared by SCBT management of savings of 30% of First Financial projected 2013 non-interest expenses phased in over three years from 2013 2015 (30% realized in 2013, 80% realized in 2014, and 100% realized in 2015) and (3) Cash flows for First Financial are comprised of excess earnings above the earnings that would be needed to be retained to maintain a tangible common equity / tangible asset ratio of 7.50%. On July 18, 2013, the Court issued an order denying the Defendants Motion to Dismiss. Also on July 18, 2013, the Court issued an order (i) granting a temporary injunction (the Injunction) enjoining the certifying of the SCBT shareholder vote on the Merger Agreement and the closing of such vote, (ii) granting Plaintiff motion for expedited discovery, and (iii) stating that it would schedule a post-expedited discovery hearing on a motion to continue the preliminary injunction in the future (the Injunction and Expedited Discovery Order). Also on July 18, 2013, the Parties engaged in two telephonic conferences with Mr. Hansen wherein Defendants sought clarification of the Court Injunction and Expedited Discovery Order, and Defendants submitted a letter to the Court requesting that the Preliminary Injunction be lifted in light of, among other things, the July 16th Supplemental Disclosures. Also on July 18, 2013 and July 19, 2013, the depositions of SCBT CEO Hill, SCBT Chairman Horger, and SCBT CFO and COO Pollok were taken in Columbia, South Carolina. Also on July 18, 2013, following the depositions of Messrs. Hill and Horger, Plaintiff Counsel sent a letter to counsel for Defendants (the Settlement Demand Letter) setting forth a proposal for a potential settlement of the Action, pursuant to which Defendants would both (i) agree that the filing and prosecution of the Action was a cause of Defendants making the disclosures described above in the July 16th 8-K and (ii) Defendants would promptly address the following disclosure issues developed in the expedited discovery described above or raised in Plaintiff Complaint: (a) Defendants would disclose Mr. Hill 2013 Executive Incentive Plan, including the extent to which it makes any portion of his compensation contingent upon asset growth other than organic asset growth. (b) Defendants would disclose that, at the first in-person meeting with First Financial to discuss the possibility of a transaction with SCBT held on January 18, 2013, CEO Hill offered First Financial the following incentives to agree to a transaction without first receiving approval of the SCBT Board: (1) a Vice Chairman position on the SCBT Board for Paula Harper Bethea; (2) five seats on the SCBT Board; (3) receipt of current compensation for three years for existing First Financial board members who will not serve on the board of the combined company; and (4) a five-year employment contract for Mr. Hall. (c) Defendants would disclose that KBW did not make the SCBT Board aware of its stock ownership of 809 shares of First Financial stock and 5,821 shares of SCBT stock until contemporaneously with its written fairness opinion on February 19, 2013. (d) Defendants would disclose that Mr. Hill selected SCBT legal advisor, Wachtell, Lipton, Rosen & Katz (Wachtell Lipton) and financial advisor, KBW, to advise with respect to the First Financial transaction without obtaining prior approval from the Company board of directors. (e) Defendants would disclose that Mr. Hill negotiated KBW compensation without consulting with or otherwise involving SCBT Board. (f) Defendants would disclose that Mr. Horger law firm had done work in recent years, including in 2012, for SCBT. (g) Defendants would disclose that SCBT after tax merger costs would be $18,444,000. (h) Defendants would disclose the compensation that KBW had received during the past two years as a broker-dealer for purchasing securities from, or selling securities to, First Financial. On July 19, 2013, following the deposition of SCBT CFO and COO Pollok, Plaintiff supplemented, telephonically and via email, its Settlement Demand Letter to demand that Defendants disclose the following information: (i) Defendants would disclose that, as of February 18, 2013, the day before the final meeting of the SCBT Board at which the Merger Agreement was approved, Sandler ONeill + Partners, L.P. (Sandler ONeill), First Financial financial advisor in connection with the Merger, estimated only 22% cost savings resulting from the Merger, which differed from SCBT stated requirement of achieving 30% cost savings and a corresponding earn back range of 3 3.5 years. (ii) Defendants would disclose Mr. Pollok 2013 Executive Incentive Plan, including the extent to which it makes any portion of his compensation contingent upon asset growth other than organic asset growth. Between July 18, 2013 and July 19, 2013, counsel for the Defendants and counsel for Plaintiff engaged in good faith discussions with regard to the possible settlement of the Action. After these negotiations, the Parties reached an agreement in principle concerning the proposed settlement of the Action, which was set forth in a Memorandum of Understanding (MOU) dated July 19, 2013. On July 19, 2013, pursuant to the MOU, Defendants caused SCBT to file a current report on Form 8-K with the SEC, which disclosed, among other things, certain information sought in the Settlement Demand Letter as supplsupplemented (the July 19th Supplemental Disclosures). On July 22, 2013, the Parties submitted a stipulation and proposed order to the Court dissolving the Preliminary Injunction, and the Court signed the order vacating the Preliminary Injunction. On July 24, 2013, Plaintiff produced certain categories of documents to Defendants.On July 26, 2013, SCBT and First Financial consummated the Merger, and SCBT, the surviving company in the Merger, changed its name to First Financial Holdings, Inc. On October 3, 2013, Plaintiff Counsel took the confirmatory deposition of Christopher Mihok of KBW, SCBT financial advisor.’